October 13, 2016

Marriott Vacations Worldwide Reports Third Quarter Financial Results

ORLANDO, Fla., Oct. 13, 2016 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported third quarter financial results and updated its guidance for the full year 2016.

Marriott Vacations Worldwide Corporation.

"We continued to execute our growth strategy in the third quarter.  Contract sales in our key North America and Asia Pacific segments were up 8.3 percent in the quarter, an acceleration of the year-over-year growth that began near the end of the second quarter.  Our sales growth in the quarter came not only from the continued ramp-up of sales at our new North America and Asia Pacific sales centers, but also from sales improvement at our existing sites," said Stephen P. Weisz, president and chief executive officer.  "With the momentum we have seen in our new sales centers during the third quarter and our fourth quarter tour activations well ahead of this time last year, we remain confident in our growth strategy and the solid foundation we are building for continued sales growth going into 2017."

Third quarter 2016 highlights:

  • Net income was $26.8 million, or $0.97 fully diluted earnings per share (EPS), compared to net income of $21.6 million, or $0.67 fully diluted EPS, in the third quarter of 2015, an increase of 24.4 percent and 44.8 percent, respectively.
    • Adjusted EBITDA totaled $50.6 million, a decrease of $4.1 million year-over-year, as the quarter was impacted by $12.4 million of lower revenue reportability, the majority of which should benefit the fourth quarter. Adjusting for the timing impact of revenue reportability, 2016 Adjusted EBITDA would have been $63.0 million, an increase of $1.3 million over 2015.
    • Adjusted fully diluted EPS was $0.96 compared to $0.82 in the third quarter of 2015, an increase of 17.1 percent.
  • Total company vacation ownership contract sales (which exclude residential sales) were $169.8 million, $10.1 million, or 6.3 percent, ahead of the prior year period. Contract sales in our key North America and Asia Pacific segments were $12.5 million, or 8.3 percent, ahead of the prior year period. 
  • Company development margin percentage was 13.1 percent compared to 17.8 percent in the third quarter of 2015. Company adjusted development margin percentage was 19.7 percent compared to 21.2 percent in the third quarter of 2015. 
  • Resort management and other services revenues net of expenses were $30.1 million, an increase of $3.7 million, or 13.9 percent, compared to the third quarter of 2015.
  • Financing revenues net of expenses and consumer financing interest expense were $18.9 million, an increase of $1.3 million, or 7.6 percent, compared to the third quarter of 2015.
  • In August 2016, the company completed a securitization of $259 million of vacation ownership notes receivable at a blended borrowing rate of 2.28 percent, generating total gross proceeds of $250 million.

Non-GAAP financial measures, such as adjusted EBITDA, adjusted fully diluted earnings per share, and adjusted development margin are reconciled and adjustments are shown and described in further detail on pages A-10 and A-11 of the Financial Schedules that follow.

Third quarter 2016 Results

Company Results

Third quarter 2016 company net income was $26.8 million, a $5.3 million increase from the third quarter of 2015. These results were driven mainly by $5.1 million of lower acquisition related transaction costs, $3.7 million of higher resort management and other services revenues net of expenses, $1.6 million of lower general and administrative costs, $1.3 million of higher financing revenues net of expenses, $0.6 million of lower interest expense, and $0.5 million of higher gains and other income due to a change in the estimated costs associated with the disposition of the portion of the Surfers Paradise, Australia property that the company did not convert to vacation ownership inventory. These increases were partially offset by $7.2 million of lower development margin, of which $5.4 million related to the timing of revenue reportability year-over-year, and $0.7 million of lower rental revenues net of expenses.

Total company vacation ownership contract sales were $169.8 million, $10.1 million, or 6.3 percent, higher than the third quarter of last year. These results were driven by $8.2 million of higher contract sales in the company's North America segment and $4.3 million of higher contract sales in the company's Asia Pacific segment, partially offset by $2.4 million of lower contract sales in the company's Europe segment as it continues to sell through the remaining developer inventory.  

Development margin was $17.2 million, a $7.2 million decrease from the third quarter of 2015. Development margin percentage was 13.1 percent compared to 17.8 percent in the prior year quarter. The decline in development margin reflected $5.4 million related to the timing of revenue reportability year-over-year, $4.0 million from higher sales reserve activity mainly associated with a 19 percent, or 10.1 percentage point, increase in financing propensity as well as higher Latin America default activity, $3.4 million of higher marketing and sales costs from ramp-up costs associated with the company's new sales distributions, and $1.3 million related mainly to higher usage of plus points for sales incentives. These changes were offset partially by $5.1 million of lower product costs, and $1.8 million from higher contract sales volumes net of expenses. Adjusted development margin percentage, which excludes the impact of revenue reportability year-over-year, was 19.7 percent in the third quarter of 2016 compared to 21.2 percent in the third quarter of 2015. 

Rental revenues totaled $73.8 million, a $2.3 million decrease from the third quarter of 2015. Results reflected $1.9 million of lower revenue from our San Diego property during its conversion from an operating property to vacation ownership inventory, $0.8 million of lower revenue due to the disposition of the portion of the Surfers Paradise, Australia property, and $0.6 million of lower plus points revenues, partially offset by $1.0 million from increases in transient and preview keys rented. Rental revenues net of expenses were $12.8 million, a $0.7 million, or 4.9 percent, decrease from the third quarter of 2015, primarily reflecting the lower plus points revenues in the quarter.

Resort management and other services revenues totaled $75.5 million, a $1.7 million increase from the third quarter of 2015. Resort management and other services revenues, net of expenses, totaled $30.1 million, a $3.7 million, or 13.9 percent, increase from the third quarter of 2015.

Financing revenues totaled $29.1 million, a $0.8 million increase from the third quarter of 2015. Financing revenues, net of expenses and consumer financing interest expense, were $18.9 million, a $1.3 million, or 7.6 percent, increase from the third quarter of 2015.

Net income was $26.8 million, compared to net income of $21.6 million in the third quarter of 2015, an increase of $5.3 million, or 24.4 percent. Adjusted EBITDA was $50.6 million in the third quarter of 2016, a $4.1 million, or 7.6 percent, decrease from $54.7 million in the third quarter of 2015.

Segment Results

North America

North America vacation ownership contract sales were $151.0 million in the third quarter of 2016, an increase of $8.2 million, or 5.7 percent, from the prior year period, reflecting higher sales from existing sales centers, driven by the success of our new marketing programs, as well as the ramp-up of new sales centers. Total tours in the third quarter of 2016 increased 9.1 percent, driven by an increase in first time buyer and owner tours of 12 percent and 7 percent, respectively. VPG decreased $57 to $3,371 in the third quarter of 2016 from the third quarter of 2015. 

Third quarter 2016 North America segment financial results were $82.0 million, a decrease of $3.4 million from the third quarter of 2015. The decrease was driven primarily by $6.1 million of lower development margin, of which $4.7 million related to the timing of revenue reportability year-over-year, $1.1 million of lower rental revenues net of expense, and $0.6 million of higher royalty expenses. These decreases were offset by $3.5 million of higher resort management and other services revenues net of expenses, and $1.0 million of higher financing revenues.

Development margin was $18.4 million, a $6.1 million decrease from the third quarter of 2015. Development margin percentage was 15.8 percent compared to 20.0 percent in the prior year quarter. The decline in development margin reflected $4.7 million related to the timing of revenue reportability year-over-year, $3.9 million from higher sales reserve activity mainly associated with an 18 percent, or 9.7 percentage point, increase in financing propensity as well as higher Latin America default activity, $2.3 million of higher marketing and sales costs from ramp-up costs associated with the company's new sales distributions, and $1.3 million related mainly to higher usage of plus points for sales incentives. These decreases were offset partially by $4.2 million of lower product costs, and $1.9 million from higher contract sales volumes net of expenses. Adjusted development margin, which excludes the impact of revenue reportability year-over-year, was $29.2 million, a $1.4 million decrease from the prior year quarter. Adjusted development margin percentage was 22.0 percent in the third quarter of 2016 compared to 23.1 percent in the third quarter of 2015.

Asia Pacific

Total vacation ownership contract sales in the segment were $11.2 million, an increase of $4.3 million, or 62.4 percent, from the third quarter of 2015. Segment financial results were $1.3 million, a $5.3 million increase from the third quarter of 2015, driven by $4.1 million of lower acquisition related transaction costs in the current year, $0.6 million of higher rental revenues net of expenses, $0.5 million of higher gains and other income due to a change in the estimated costs associated with the disposition of the portion of the Surfers Paradise, Australia property, and $0.3 million of higher development margin.

Europe

Third quarter 2016 contract sales were $7.7 million, a decrease of $2.4 million from the third quarter of 2015. Segment financial results were $4.5 million, a $1.6 million decrease from the third quarter of 2015, driven by $1.5 million of lower development margin.

Share Repurchase Program and Dividends

The company did not repurchase any shares of its common stock in the third quarter due to limitations resulting from the accelerated share repurchase (ASR) arrangement entered into during the second quarter, which effectively accelerated third quarter repurchases. The ASR arrangement closed out after the end of the third quarter, at which time the company received 17,511 additional shares, bringing the total number of shares received under the ASR arrangement to 1,186,428 at a cost of $85.0 million.

Year to date, the company returned nearly $190 million to its shareholders through the repurchase of 2.8 million shares for $163.4 million and more than $26 million in dividends paid.

Balance Sheet and Liquidity

On September 9, 2016, cash and cash equivalents totaled $174.8 million. Since the beginning of the year, real estate inventory balances increased $45.9 million to $709.9 million, including $319.7 million of finished goods, $66.5 million of work-in-progress, and $323.7 million of land and infrastructure. The company had $815.2 million in gross debt outstanding at the end of the third quarter, an increase of $127.1 million from year-end 2015, consisting primarily of $806.7 million in gross non-recourse securitized notes receivable. In addition, $40.0 million of mandatorily redeemable preferred stock of a subsidiary of the company was outstanding at the end of the third quarter of 2016. The company has notified the holders of the mandatorily redeemable preferred stock that it will redeem the preferred stock on October 26, 2016 at par plus any accrued dividends.

In August 2016, the company completed a securitization of $259 million of vacation ownership notes receivable at a blended borrowing rate of 2.28 percent and an advance rate of 96.5 percent, generating $250 million in gross cash proceeds. Approximately $207 million of the vacation ownership notes receivable were purchased on August 11, 2016 by the MVW Owner Trust 2016-1 (the "2016-1 Trust"), and the company received $200 million of the proceeds. When the remaining $51.8 million of vacation ownership notes receivable were purchased by the 2016-1 Trust subsequent to the end of the third quarter, the remaining $50 million of proceeds, which had been held in restricted cash, was released.

As of September 9, 2016, the company had approximately $197 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit.

Outlook

Pages A-1 through A-11 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2016 expected GAAP results: 

Net income

$133 million to $136 million


Fully diluted EPS

$4.69 to $4.79


Net cash provided by operating activities

$136 million to $146 million


 

The company is providing the following updated guidance for the full year 2016:

 


Current Guidance

Previous Guidance




Adjusted net income

$129 million to $132 million

$126 million to $136 million

Adjusted fully diluted EPS

$4.55 to $4.65

$4.43 to $4.78

Adjusted EBITDA

$261 million to $266 million

$261 million to $276 million

Adjusted free cash flow

$145 million to $160 million

$135 million to $155 million

Contract sales

~4 percent

4 percent to 8 percent

 

Third quarter 2016 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. ET today to discuss these results and its guidance for full year 2016. Participants may access the call by dialing (877) 407-8289 or (201) 689-8341 for international callers. A live webcast of the call will also be available in the Investor Relations section of the company's website at www.marriottvacationsworldwide.com.

An audio replay of the conference call will be available for seven days and can be accessed at (877) 660-6853 or (201) 612-7415 for international callers. The conference ID for the recording is 13643872. The webcast will also be available on the company's website.

About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company, offering a diverse portfolio of quality products, programs and management expertise with over 60 resorts. Its brands include Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott, as well as the Marriott Vacation Club PulseSM brand extension. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. For more information, please visit www.marriottvacationsworldwide.com.

Note on forward-looking statements: This press release and accompanying schedules contain "forward-looking statements" within the meaning of federal securities laws, including statements about future operating results, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. The company cautions you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading "Risk Factors" contained in the company's most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this press release. These statements are made as of October 13, 2016 and the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Financial Schedules Follow

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FINANCIAL SCHEDULES

QUARTER 3, 2016

TABLE OF CONTENTS

































Consolidated Statements of Income - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015                                                  

 A-1

















Adjusted Net Income, Adjusted Earnings Per Share - Diluted, EBITDA and Adjusted EBITDA - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-2

















North America Segment Financial Results - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-3

















Asia Pacific Segment Financial Results - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-4

















Europe Segment Financial Results - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-5

















Corporate and Other Segment Financial Results - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-6

















Consolidated Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin


    (Adjusted Sale of Vacation Ownership Products Net of Expenses) - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-7

















North America Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin


    (Adjusted Sale of Vacation Ownership Products Net of Expenses) - 12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

 A-8

















2016 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted, Adjusted EBITDA and Adjusted Free Cash Flow                                                                                             

 A-9

















Non-GAAP Financial Measures                                                                                                   


 A-10

















Consolidated Balance Sheets                                                                                                   


 A-12

















Consolidated Statements of Cash Flows                                                                                                   

 A-13

 

A-1

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands, except per share amounts)

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Revenues













Sale of vacation ownership products

$                      131,012


$                         136,802



$                      415,831


$                         476,078


Resort management and other services

75,539


73,828



226,098


212,308


Financing

29,066


28,294



86,944


85,640


Rental

73,776


76,039



229,133


224,880


Cost reimbursements

97,598


92,173



303,973


285,937






Total revenues

406,991


407,136



1,261,979


1,284,843

Expenses










Cost of vacation ownership products

34,779


40,776



104,149


150,857


Marketing and sales

79,017


71,628



236,348


228,760


Resort management and other services

45,437


47,409



140,545


135,298


Financing

4,855


5,488



14,348


16,478


Rental

60,970


62,567



191,658


184,560


General and administrative

21,619


23,214



71,504


68,883


Organizational and separation related

-


439



-


732


Litigation settlement

-


-



(303)


(236)


Consumer financing interest

5,361


5,289



15,840


16,558


Royalty fee

14,624


14,000



42,007


40,431


Cost reimbursements

97,598


92,173



303,973


285,937






Total expenses

364,260


362,983



1,120,069


1,128,258

Gains (losses) and other income (expense)

454


(20)



11,129


9,492

Interest expense

(2,262)


(2,839)



(6,331)


(8,822)

Other

(75)


(5,131)



(4,528)


(6,305)






Income before income taxes

40,848


36,163



142,180


150,950

Provision for income taxes

(14,041)


(14,608)



(54,656)


(61,300)

Net income

$                        26,807


$                           21,555



$                        87,524


$                           89,650

















Earnings per share - Basic

$                            0.99


$                               0.69



$                            3.10


$                               2.81

















Earnings per share - Diluted

$                            0.97


$                               0.67



$                            3.05


$                               2.75

















Basic Shares

27,152


31,455



28,207


31,870

Diluted Shares

27,680


32,128



28,718


32,550

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Contract Sales











Vacation ownership

$                      169,831


$                         159,757



$                      489,317


$                         495,645



Residential products

-


-



-


28,420





Total contract sales

$                      169,831


$                         159,757



$                      489,317


$                         524,065


















NOTE:  Earnings per share - Basic and Earnings per share - Diluted are calculated using whole dollars.

 

A-2

MARRIOTT VACATIONS WORLDWIDE CORPORATION

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands, except per share amounts)
















ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED























12 Weeks Ended



36 Weeks Ended








September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015































Net income

$                     26,807


$                       21,555



$                     87,524


$                       89,650

Less certain items:











Transaction costs

138


5,181



4,713


6,453



Refurbishment costs

-


1,767



-


1,767



Operating results from the sold portion of the Surfers Paradise, Australia property

-


-



(275)


-



Litigation settlement

-


-



(303)


(236)



(Gains) losses and other (income) expense

(454)


20



(11,129)


(9,492)



Asia Pacific bulk sale

-


-



-


(5,915)



Organizational and separation related

-


439



-


732





Certain items before depreciation and provision for income taxes 1

(316)


7,407



(6,994)


(6,691)



Depreciation on the sold portion of the Surfers Paradise, Australia property

-


-



469


-



Provision for income taxes on certain items

86


(2,491)



2,568


1,288




Adjusted net income **

$                    26,577


$                      26,471



$                    83,567


$                      84,247
















Earnings per share - Diluted

$                         0.97


$                           0.67



$                         3.05


$                           2.75
















Adjusted earnings per share - Diluted **

$                         0.96


$                           0.82



$                         2.91


$                           2.59
















Diluted Shares

27,680


32,128



28,718


32,550































EBITDA AND ADJUSTED EBITDA























12 Weeks Ended



36 Weeks Ended








September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015
















Net income

$                     26,807


$                       21,555



$                     87,524


$                       89,650

Interest expense 2

2,262


2,839



6,331


8,822

Tax provision

14,041


14,608



54,656


61,300

Depreciation and amortization

4,679


5,292



14,856


13,850



EBITDA **

47,789


44,294



163,367


173,622
















Non-cash share-based compensation 3

3,139


3,045



9,995


9,633

Certain items before depreciation and provision for income taxes 1

(316)


7,407



(6,994)


(6,691)



Adjusted EBITDA **

$                     50,612


$                       54,746



$                   166,368


$                     176,564


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.
















1  Please see pages A-10 and A-11 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and the provision for income taxes on certain items included in the Adjusted Net Income reconciliations.

2   Interest expense excludes consumer financing interest expense.

3   Beginning with the first quarter of 2016, non-cash share-based compensation expense is excluded from our Adjusted EBITDA, and prior period presentation has been recast for consistency.  Please see pages A-10 and A-11 for additional information.

 

A-3

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands)

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Revenues













Sale of vacation ownership products

$                      116,184


$                         122,908



$                      373,341


$                         406,784


Resort management and other services

67,599


64,437



198,621


189,206


Financing

27,438


26,399



81,699


79,809


Rental

63,387


65,135



201,524


202,606


Cost reimbursements

88,834


83,561



278,190


260,452






Total revenues

363,442


362,440



1,133,375


1,138,857

Expenses













Cost of vacation ownership products

30,134


35,736



89,876


117,071


Marketing and sales

67,662


62,652



202,888


199,506


Resort management and other services

38,831


39,175



116,320


115,244


Rental

53,131


53,742



164,680


163,481


Organizational and separation related


-


59



-


313


Litigation settlement


-


-



(303)


(370)


Royalty fee

2,813


2,228



6,753


5,174


Cost reimbursements

88,834


83,561



278,190


260,452






Total expenses

281,405


277,153



858,404


860,871

(Losses) gains and other (expense) income


(27)


(4)



12,297


9,534

Other






(55)


54



(4,068)


156






Segment financial results

$                        81,955


$                           85,337



$                      283,200


$                         287,676

















Segment financial results

$                        81,955


$                           85,337



$                      283,200


$                         287,676

Less certain items:










Transaction costs

123


-



4,260


-


Litigation settlement

-


-



(303)


(370)


Losses (gains) and other expense (income)

27


4



(12,297)


(9,534)


Organizational and separation related

-


59



-


313




Certain items

150


63



(8,340)


(9,591)






Adjusted segment financial results **

$                        82,105


$                           85,400



$                      274,860


$                         278,085









































12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Contract Sales











Vacation ownership

$                      150,964


$                         142,787



$                      436,214


$                         449,385





Total contract sales

$                      150,964


$                         142,787



$                      436,214


$                         449,385


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-4

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands)

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Revenues













Sale of vacation ownership products

$                        10,010


$                             6,303



$                        26,645


$                           50,156


Resort management and other services

977


2,212



9,047


4,039


Financing

918


1,008



2,906


3,057


Rental

2,324


2,569



12,773


6,424


Cost reimbursements

692


609



2,250


2,107






Total revenues

14,921


12,701



53,621


65,783

Expenses













Cost of vacation ownership products

1,712


1,432



5,018


25,231


Marketing and sales

7,166


4,022



20,072


14,011


Resort management and other services

980


2,264



8,758


3,769


Rental

3,330


4,129



15,884


9,419


Royalty fee

239


139



564


446


Cost reimbursements

692


609



2,250


2,107






Total expenses

14,119


12,595



52,546


54,983

Gains (losses) and other income (expense)

490


1



(1,008)


(29)

Other






(20)


(4,163)



(249)


(5,439)






Segment financial results

$                          1,272


$                           (4,056)



$                            (182)


$                             5,332

















Segment financial results

$                          1,272


$                           (4,056)



$                            (182)


$                             5,332

Less certain items:










Transaction costs

15


4,159



242


5,431


Operating results from the sold portion of the Surfers Paradise, Australia property

-


-



194


-


(Gains) losses and other (income) expense

(490)


(1)



1,008


29


Asia Pacific bulk sale

-


-



-


(5,915)




Certain items

(475)


4,158



1,444


(455)






Adjusted segment financial results **

$                             797


$                                102



$                          1,262


$                             4,877

























































12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Contract Sales











Vacation ownership

$                        11,169


$                             6,877



$                        31,049


$                           23,528



Residential products

-


-



-


28,420





Total contract sales

$                        11,169


$                             6,877



$                        31,049


$                           51,948


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-5

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands)

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Revenues













Sale of vacation ownership products

$                          4,818


$                             7,591



$                        15,845


$                           19,138


Resort management and other services

6,963


7,179



18,430


19,063


Financing

710


887



2,339


2,774


Rental

8,065


8,335



14,836


15,850


Cost reimbursements

8,072


8,003



23,533


23,378






Total revenues

28,628


31,995



74,983


80,203

Expenses













Cost of vacation ownership products

1,599


2,070



4,158


4,155


Marketing and sales

4,189


4,954



13,388


15,243


Resort management and other services

5,626


5,970



15,467


16,285


Rental

4,509


4,696



11,094


11,660


Royalty fee

97


126



264


290


Cost reimbursements

8,072


8,003



23,533


23,378






Total expenses

24,092


25,819



67,904


71,011

Losses and other expense

-


(17)



-


(13)






Segment financial results

$                          4,536


$                             6,159



$                          7,079


$                             9,179

















Segment financial results

$                          4,536


$                             6,159



$                          7,079


$                             9,179

Less certain items:










Losses and other expense

-


17



-


13




Certain items

-


17



-


13






Adjusted segment financial results **

$                          4,536


$                             6,176



$                          7,079


$                             9,192









































12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Contract Sales











Vacation ownership

$                          7,698


$                           10,093



$                        22,054


$                           22,732





Total contract sales

$                          7,698


$                           10,093



$                        22,054


$                           22,732


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-6

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

12 Weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015

(In thousands)

























12 Weeks Ended



36 Weeks Ended









September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Expenses










Cost of vacation ownership products

$                          1,334


$                             1,538



$                          5,097


$                             4,400


Financing

4,855


5,488



14,348


16,478


General and administrative

21,619


23,214



71,504


68,883


Organizational and separation related

-


380



-


419


Litigation settlement

-


-



-


134


Consumer financing interest

5,361


5,289



15,840


16,558


Royalty fee

11,475


11,507



34,426


34,521






Total expenses

44,644


47,416



141,215


141,393

Losses and other expense

(9)


-



(160)


-

Interest expense

(2,262)


(2,839)



(6,331)


(8,822)

Other

-


(1,022)



(211)


(1,022)






Financial results

$                       (46,915)


$                         (51,277)



$                     (147,917)


$                       (151,237)

















Financial results

$                       (46,915)


$                         (51,277)



$                     (147,917)


$                       (151,237)

Less certain items:










Transaction costs

-


1,022



211


1,022


Refurbishment costs

-


1,767



-


1,767


Litigation settlement

-


-



-


134


Losses and other expense

9


-



160


-


Organizational and separation related

-


380



-


419




Certain items

9


3,169



371


3,342






Adjusted financial results **

$                       (46,906)


$                         (48,108)



$                     (147,546)


$                       (147,895)


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-7

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)







12 Weeks Ended



36 Weeks Ended






September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015














Contract sales










Vacation ownership

$                  169,831


$                    159,757



$                  489,317


$                    495,645


Residential products

-


-



-


28,420



Total contract sales

169,831


159,757



489,317


524,065














Revenue recognition adjustments:










Reportability1

(18,994)


(11,051)



(17,029)


(11,124)


Sales Reserve 2

(13,872)


(7,600)



(33,447)


(23,146)


Other 3

(5,953)


(4,304)



(23,010)


(13,717)

Sale of vacation ownership products

$                  131,012


$                    136,802



$                  415,831


$                    476,078


1  Adjustment for lack of required downpayment or contract sales in rescission period.

 Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN (ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)









12 Weeks Ended



36 Weeks Ended








September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Sale of vacation ownership products

$                   131,012


$                     136,802



$                   415,831


$                     476,078

Less:















Cost of vacation ownership products 

34,779


40,776



104,149


150,857


Marketing and sales

79,017


71,628



236,348


228,760
















Development margin

17,216


24,398



75,334


96,461


Certain items 1

-


-



-


(5,915)


Revenue recognition reportability adjustment

12,369


6,928



11,043


6,955

Adjusted development margin**

$                    29,585


$                      31,326



$                    86,377


$                      97,501

















Development margin percentage2

13.1%


17.8%



18.1%


20.3%


Adjusted development margin percentage

19.7%


21.2%



20.0%


21.3%


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.



























1   Certain items adjustment in the 36 weeks ended September 11, 2015, represents $5.9 million of development margin from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program.

2   Development margin percentage represents Development margin divided by Sale of vacation ownership products.



 

A-8

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)







12 Weeks Ended



36 Weeks Ended






September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015














Contract sales










Vacation ownership

$                  150,964


$                    142,787



$                  436,214


$                    449,385



Total contract sales

150,964


142,787



436,214


449,385














Revenue recognition adjustments:










Reportability1

(16,853)


(9,849)



(12,982)


(11,351)


Sales Reserve 2

(11,923)


(5,901)



(26,960)


(17,886)


Other 3

(6,004)


(4,129)



(22,931)


(13,364)

Sale of vacation ownership products

$                  116,184


$                    122,908



$                  373,341


$                    406,784


1  Adjustment for lack of required downpayment or contract sales in rescission period.

 Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve.

3  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA ADJUSTED DEVELOPMENT MARGIN (ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)









12 Weeks Ended



36 Weeks Ended








September 9, 2016


September 11, 2015



September 9, 2016


September 11, 2015

Sale of vacation ownership products

$                   116,184


$                     122,908



$                   373,341


$                     406,784

Less:










Cost of vacation ownership products 

30,134


35,736



89,876


117,071


Marketing and sales

67,662


62,652



202,888


199,506
















Development margin

18,388


24,520



80,577


90,207


Certain items

-


-



-


-


Revenue recognition reportability adjustment

10,836


6,116



8,363


7,049

Adjusted development margin**

$                    29,224


$                      30,636



$                    88,940


$                      97,256

















Development margin percentage1

15.8%


20.0%



21.6%


22.2%


Adjusted development margin percentage

22.0%


23.1%



23.0%


23.3%


**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.


1   Development margin percentage represents Development margin divided by Sale of vacation ownership products.

 

A-9


MARRIOTT VACATIONS WORLDWIDE CORPORATION


(In millions, except per share amounts)


2016 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK








Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net income

$                  133


$                  136


Adjustments to reconcile Net income to Adjusted net income






Certain items1

5


5



Gain on dispositions 2

(11)


(11)



Provision for income taxes on adjustments to net income

2


2




Adjusted net income**

$                  129


$                  132










Earnings per share - Diluted 3

$                 4.69


$                 4.79


Adjusted earnings per share - Diluted**, 3 

$                 4.55


$                 4.65


Diluted shares3

28.4


28.4


1   Certain items adjustment primarily includes approximately $5 million of non-capitalizable transaction costs.

2     Gain on dispositions adjustment includes the net impact to pre-tax income associated with dispositions in the North America segment and Asia Pacific segment.

3      Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through October 13, 2016.

 

2016 ADJUSTED EBITDA OUTLOOK







Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net income

$                  133


$                  136

Interest expense1

9


9

Tax provision

90


92

Depreciation and amortization

21


21


EBITDA **

253


258

Non-cash share-based compensation 2

14


14

Certain items 3and Gain on dispositions4

(6)


(6)


Adjusted EBITDA**

$                  261


$                  266


1   Interest expense excludes consumer financing interest expense.

2   Beginning with the first quarter of 2016, non-cash share-based compensation expense is excluded from our Adjusted EBITDA, and prior period presentation has been recast for consistency. Please see pages A-10 and A-11 for additional information.

3   Certain items adjustment primarily includes approximately $5 million of non-capitalizable transaction costs.

4   Gain on dispositions adjustment includes the net impact to pre-tax income associated with dispositions in the North America segment and Asia Pacific segment.

 

2016 ADJUSTED FREE CASH FLOW OUTLOOK







Fiscal Year
2016 (low)


Fiscal Year
2016 (high)

Net cash provided by operating activities

$                  136


$                  146


Capital expenditures for property and equipment (excluding inventory):






New sales centers 1

(18)


(17)



Other

(23)


(22)


Decrease in restricted cash

(5)


(5)


Borrowings from securitization transactions

377


377


Repayment of debt related to securitizations

(328)


(327)



Free cash flow**

139


152

Adjustments:





Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 2

6


8







Adjusted free cash flow**

$                  145


$                  160


1  Represents the incremental investment in new sales centers.

2  Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2015 and 2016 year ends.   

**  Denotes non-GAAP financial measures.  Please see pages A-10 and A-11 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-10

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NON-GAAP FINANCIAL MEASURES
















In our press release and schedules, and on the related conference call, we report certain financial measures that are not prescribed or authorized by United States generally accepted accounting principles ("GAAP").  We discuss our reasons for reporting these non-GAAP financial measures below, and the financial schedules reconcile the most directly comparable GAAP financial measure to each non-GAAP financial measure that we report (identified by a double asterisk ("**") on the preceding pages).  Although we evaluate and present these non-GAAP financial measures for the reasons described below, please be aware that these non-GAAP financial measures have limitations and should not be considered in isolation or as a substitute for revenues, net income, earnings per share or any other comparable operating measure prescribed by GAAP.  In addition, these non-GAAP financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-GAAP financial measures we report may not be comparable to those reported by others.
















Adjusted Net Income.   We evaluate non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the 12 weeks and 36 Weeks Ended September 9, 2016 and September 11, 2015 because these non-GAAP financial measures allow for period-over-period comparisons of our on-going core operations before the impact of these items.  These non-GAAP financial measures also facilitate our comparison of results from our on-going core operations before these items with results from other vacation ownership companies.
















Certain items - 12 weeks and 36 Weeks Ended September 9, 2016.  In our Statement of Income for the 12 weeks ended September 9, 2016, we recorded $0.3 million of net pre-tax items, which included $0.5 million of gains and other income not associated with our on-going core operations and $0.1 million of transaction costs associated with acquisitions. In our Statement of Income for the 36 Weeks Ended September 9, 2016, we recorded $6.5 million of net pre-tax items, which included $11.1 million of gains and other income not associated with our on-going core operations, $4.7 million of transaction costs associated with acquisitions, $0.2 million of losses (including $0.5 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation settlement expense.
















Certain items - 12 weeks and 36 Weeks Ended September 11, 2015In our Statement of Income for the 12 weeks ended September 11, 2015, we recorded $7.4 million of net pre-tax items, which included $5.2 million of transaction costs associated with acquisitions, a $1.8 million adjustment for refurbishment costs at a project in our North America segment, $0.4 million of organizational and separation related costs and less than $0.1 million of losses and other expense not associated with our on-going core operations. In our Statement of Income for the 36 weeks ended September 11, 2015, we recorded $6.7 million of net pre-tax items, which included $9.5 million of gains and other income not associated with our on-going core operations, $6.5 million of transaction costs associated with acquisitions, $5.9 million of development profit from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program, a $1.8 million adjustment for refurbishment costs at a project in our North America segment, $0.7 million of organizational and separation related costs, and a $0.2 million reversal of litigation settlement expense.
















Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses).  We evaluate Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses) as an indicator of operating performance.  Adjusted Development Margin adjusts Sale of vacation ownership products revenues for the impact of revenue reportability, includes corresponding adjustments to Cost of vacation ownership products expense and Marketing and sales expense associated with the change in revenues from the Sale of vacation ownership products, and includes adjustments for certain items as itemized in the discussion of Adjusted Net Income above.  We evaluate Adjusted Development Margin because it allows for period-over-period comparisons of our on-going core operations before the impact of revenue reportability and certain items to our Development Margin.

 

A-11




MARRIOTT VACATIONS WORLDWIDE CORPORATION




NON-GAAP FINANCIAL MEASURES








































Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA.  EBITDA is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), provision for income taxes, depreciation and amortization.  For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us.  Further, we consider consumer financing interest expense to be an operating expense of our business.  We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry.  For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings.  Accordingly, the impact of interest expense on earnings can vary significantly among companies.  The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate.  As a result, effective tax rates and provision for income taxes can vary considerably among companies.  EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets.  These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income above, including, beginning with the first quarter of 2016, the exclusion of non-cash share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. Prior period presentation has been recast for consistency. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items.  Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies. 





































Free Cash Flow and Adjusted Free Cash Flow.  We evaluate Free Cash Flow and Adjusted Free Cash Flow as liquidity measures that provide useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations, which cash can be used for strategic opportunities, including acquisitions and strengthening the balance sheet. Adjusted Free Cash Flow, which reflects additional adjustments to Free Cash Flow for the impact of organizational and separation related, litigation, and other cash charges, allows for period-over-period comparisons of the cash generated by our business before the impact of these items.  Analysis of Free Cash Flow and Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results.  

 

A-12

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)




(unaudited)





September 9, 2016


January 1, 2016

ASSETS




Cash and cash equivalents

$                  174,764


$             177,061

Restricted cash (including $88,559 and $26,884 from VIEs, respectively)

117,839


71,451

Accounts and contracts receivable, net (including $4,687 and $4,893 from VIEs, respectively)

134,706


131,850

Vacation ownership notes receivable, net (including $730,076 and $669,179 from VIEs, respectively)

927,348


920,631

Inventory

714,404


669,243

Property and equipment

214,445


288,803

Other 

102,664


140,679

      Total Assets

$               2,386,170


$          2,399,718






LIABILITIES AND EQUITY




Accounts payable

$                    79,024


$             139,120

Advance deposits

86,130


69,064

Accrued liabilities (including $1,361 and $669 from VIEs, respectively)

144,475


164,791

Deferred revenue

47,000


35,276

Payroll and benefits liability

81,720


104,331

Liability for Marriott Rewards customer loyalty program

-


35

Deferred compensation liability

59,877


51,031

Mandatorily redeemable preferred stock of consolidated subsidiary, net

39,108


38,989

Debt, net (including $806,716 and $684,604 from VIEs, respectively)

804,721


678,793

Other

43,106


32,945

Deferred taxes

132,735


109,076

      Total Liabilities

1,517,896


1,423,451






Preferred stock - $.01 par value; 2,000,000 shares authorized; none issued or outstanding

-


-

Common stock - $.01 par value; 100,000,000 shares authorized; 36,626,327 and 36,393,800 shares issued, respectively

366


364

Treasury stock - at cost; 9,634,735 and 6,844,256 shares, respectively

(592,700)


(429,990)

Additional paid-in capital

1,142,480


1,150,731

Accumulated other comprehensive income

12,104


11,381

Retained earnings

306,024


243,781

      Total Equity

868,274


976,267






      Total Liabilities and Equity

$               2,386,170


$          2,399,718


The abbreviation VIEs above means Variable Interest Entities.

 

                 A-13

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




36 Weeks Ended




September 9, 2016


September 11, 2015

 OPERATING ACTIVITIES 





 Net income 


$87,524


$89,650

 Adjustments to reconcile net income to net cash provided by operating activities: 






 Depreciation 


14,856


13,850


 Amortization of debt issuance costs 


3,784


3,739


 Provision for loan losses 


31,817


22,753


 Share-based compensation 


9,995


9,633


 Employee stock purchase plan 


673


-


 Deferred income taxes 


21,823


17,261


 Gain on disposal of property and equipment, net 


(11,129)


(9,492)


 Non-cash reversal of litigation expense 


(303)


(262)


 Net change in assets and liabilities: 






Accounts and contracts receivable


(2,824)


(17,799)


Notes receivable originations


(218,190)


(189,029)


Notes receivable collections


177,451


192,852


Inventory


(6,118)


51,467


Purchase of operating hotels for future conversion to inventory


-


(61,554)


Other assets


38,103


26,524


Accounts payable, advance deposits and accrued liabilities


(64,643)


(52,380)


Deferred revenue


11,592


5,742


Payroll and benefit liabilities


(20,898)


(4,959)


Liability for Marriott Rewards customer loyalty program


(37)


(15,384)


Deferred compensation liability


8,846


6,791


Other liabilities


7,138


6,236


 Other, net 


1,425


5,085







                 Net cash provided by operating activities 


90,885


100,724

 INVESTING ACTIVITIES 






 Capital expenditures for property and equipment (excluding inventory) 


(22,445)


(20,873)


 Purchase of operating hotel to be sold 


-


(47,658)


 Decrease in restricted cash 


(46,709)


(12,616)


 Dispositions, net 


68,525


20,605








           Net cash provided by investing activities


(629)


(60,542)

 FINANCING ACTIVITIES 






 Borrowings from securitization transactions 


376,622


255,000


 Repayment of debt related to securitization transactions 


(254,510)


(186,383)


 Borrowings on Revolving Corporate Credit Facility 


85,000


-


 Repayment of Revolving Corporate Credit Facility 


(85,000)


-


 Proceeds from vacation ownership inventory arrangement 


-


5,375


 Debt issuance costs 


(4,065)


(4,405)


 Repurchase of common stock 


(163,359)


(106,110)


 Accelerated stock repurchase forward contract 


(14,470)


-


 Payment of dividends 


(26,067)


(16,003)


 Payment of withholding taxes on vesting of restricted stock units 


(3,972)


(9,615)


 Other 


194


377







                 Net cash used in financing activities 


(89,627)


(61,764)








 Effect of changes in exchange rates on cash and cash equivalents 


(2,926)


(3,243)







 DECREASE IN CASH AND CASH EQUIVALENTS 


(2,297)


(24,825)







 CASH AND CASH EQUIVALENTS, beginning of period 


177,061


346,515







 CASH AND CASH EQUIVALENTS, end of period 


$174,764


$321,690

 

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SOURCE Marriott Vacations Worldwide

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