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Marriott Vacations Worldwide Reports Fourth Quarter and Full Year 2018 Financial Results and Provides 2019 Outlook

Feb 28, 2019

ORLANDO, Fla., Feb. 28, 2019 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported fourth quarter and full year 2018 financial results and provided guidance for the full year 2019.

Marriott Vacations Worldwide Corporation. (PRNewsFoto/Marriott Vacations Worldwide)

On September 1, 2018, the company completed its previously announced acquisition of ILG, Inc. ("ILG"). In addition to a discussion of fourth quarter and full year reported results presented in accordance with United States generally accepted accounting principles ("GAAP"), the company is providing adjusted results that exclude ILG results from September 1 to December 31, 2018 to further assist investors. Throughout this press release, the business associated with the operating results for the company excluding the impact of the ILG acquisition is referred to as "Legacy-MVW," while the business and operating results related to the businesses acquired from ILG are referred to as "Legacy-ILG."  In addition, to provide a more meaningful year-over-year comparison of financial results, the company is providing combined financial information in the Financial Schedules that assume the company's acquisition of ILG had been completed at the beginning of the 2017 fiscal year.

Fourth Quarter 2018 Results

  • Net income attributable to common shareholders was $44 million, or $0.91 fully diluted earnings per share ("EPS"), compared to net income attributable to common shareholders of $119 million, or $4.35 fully diluted EPS, in the fourth quarter of 2017.
  • Adjusted net income attributable to common shareholders was $71 million compared to adjusted net income attributable to common shareholders of $54 million in the fourth quarter of 2017. Adjusted fully diluted EPS was $1.49, compared to adjusted fully diluted EPS of $1.96 in the fourth quarter of 2017.
  • Adjusted EBITDA totaled $180 million, an increase of $97 million, or 117 percent. Legacy-MVW's fourth quarter 2018 adjusted EBITDA was $99 million, an increase of $16 million, or 20 percent.
    • On a combined basis, total company adjusted EBITDA of $180 million in the fourth quarter would have shown an increase of $11 million, or 7 percent.
  • Consolidated vacation ownership contract sales were $358 million, an increase of $151 million, or 73 percent. Legacy-MVW vacation ownership contract sales were $224 million, an increase of $17 million, or 8 percent.
    • On a combined basis, total company consolidated contract sales would have increased $25 million, or 8 percent.
  • The company estimates that the 2018 Hurricanes negatively impacted total company adjusted EBITDA and total consolidated contract sales by $2 million and $3 million, respectively, in the fourth quarter of 2018.
  • As part of the ILG Acquisition, the company acquired a 75.5 percent interest in VRI Europe Limited ("VRI Europe"), a joint venture comprised of a European vacation ownership resort management business. During the fourth quarter of 2018, the company sold its interest in VRI Europe to an affiliate of the minority shareholder for $63 million. In connection with the transaction, Interval International entered into a long-term extension of its global affliliation agreement.

Full Year 2018 Results

  • Net income attributable to common shareholders was $55 million, or $1.61 fully diluted EPS, compared to net income attributable to common shareholders of $235 million, or $8.49 fully diluted EPS, in 2017.
  • Adjusted net income attributable to common shareholders was $200 million compared to adjusted net income attributable to common shareholders of $169 million in 2017. Adjusted fully diluted EPS was $5.88, compared to adjusted fully diluted EPS of $6.09 in 2017.
  • Adjusted EBITDA totaled $419 million, an increase of $125 million, or 43 percent. Legacy-MVW's 2018 adjusted EBITDA was $320 million, an increase of $26 million, or 9 percent.
    • On a combined basis, total company adjusted EBITDA for 2018 would have totaled $667 million, an increase of $21 million, or 3 percent.
  • Consolidated vacation ownership contract sales were $1.073 billion, an increase of $247 million, or 30 percent. Legacy-MVW vacation ownership contract sales were $902 million, an increase of $76 million, or 9 percent.
    • On a combined basis, total company consolidated contract sales for 2018 would have totaled $1.4 billion, an increase of $108 million, or 8 percent.
  • The company estimates that the 2018 Hurricanes negatively impacted total company adjusted EBITDA and total consolidated contract sales by $7 million and $9 million, respectively, in 2018.
  • Total Interval Network active members at the end of the year were 1.8 million.
  • The company generated net cash provided by operating activities of $97 million and adjusted free cash flow of $265 million.
  • During 2018, the company repurchased 1.2 million shares of its common stock for $96 million, including $94 million during the fourth quarter, at an average price per share of $77.16. In addition, the company paid dividends of $51 million in 2018.
    • Subsequent to the end of 2018 and through February 26, 2019, the company repurchased over 931 thousand shares of its common stock for nearly $78 million, at an average price per share of $83.28.
  • The company received $38 million, including $6 million subsequent to the end of 2018, in settlement of its Legacy-MVW business interruption claims. In addition, the company received a $25 million advance of its Legacy-ILG business interruption claims.

"I am very pleased with how we closed out 2018, with Adjusted EBITDA and Adjusted Free Cash Flow exceeding our previous guidance," said Stephen P. Weisz, president and chief executive officer. "Looking ahead to 2019, we continue to target strong growth into the new year, with contract sales of $1.53 billion to $1.6 billion, Adjusted EBITDA of $745 million to $785 million, and Adjusted Free Cash Flow of $400 million to $475 million.  But, I am even more excited about what lies ahead for Marriott Vacations Worldwide as we continue to integrate and transform the new company, which we believe will drive significant growth opportunities well into the future.  We continue to target at least $100 million of savings from synergy initiatives and are pleased to report that, as of the end of 2018, our run-rate savings exceeded $30 million.  By the end of 2019, we are targeting run-rate savings of over $50 million, which we estimate will generate $35 million to $40 million of in-the-year savings."

Fourth Quarter 2018 Segment Results

Vacation Ownership

Vacation Ownership segment financial results were $184 million, an increase of $91 million, or 99 percent.  Vacation Ownership segment adjusted EBITDA was $196 million, an increase of $93 million, or 89 percent.

Consolidated vacation ownership contract sales were $358 million, an increase of $151 million, or 73 percent. Legacy-MVW contract sales were $224 million, an increase of $17 million, or 8 percent.  Legacy-MVW North America VPG was $3,496, roughly in line with the prior year.

Development margin was $94 million compared to $54 million in the fourth quarter of 2017 and development margin percentage was 26.4 percent compared to 25.7 percent in the prior year quarter. Adjusted development margin percentage, which excludes the impact of revenue reportability and other charges, was 23.4 percent in the fourth quarter of 2018 compared to 20.6 percent in the fourth quarter of 2017.

Rental revenues totaled $117 million, a $58 million increase from the fourth quarter of 2017. Rental revenues net of expenses were $31 million, a $25 million increase from the fourth quarter of 2017. Legacy-MVW rental revenues net of expenses were $11 million, a $5 million, or 90 percent, increase from the fourth quarter of 2017.

Financing revenues totaled $63 million, a $27 million, or 79 percent, increase from the fourth quarter of 2017. Financing revenues, net of expenses and consumer financing interest expense, were $39 million, a $16 million, or 66 percent, increase from the fourth quarter of 2017.  Legacy-MVW financing revenues, net of expenses and consumer financing interest expense, were $24 million, nearly $1 million, or 2 percent, above the fourth quarter of 2017.

Resort management and other services revenues totaled $120 million, a $50 million, or 72 percent, increase from the fourth quarter of 2017. Resort management and other services revenues, net of expenses, totaled $53 million, a $19 million, or 54 percent, increase from the fourth quarter of 2017.  Legacy-MVW resort management and other services revenues, net of expenses, totaled $38 million, a $4 million, or 10 percent, increase from the fourth quarter of 2017.

Exchange & Third-Party Management

Exchange & Third-Party Management segment financial results were $45 million. Exchange & Third-Party Management segment adjusted EBITDA was $58 million.

Management and exchange revenues totaled $81 million. Management and exchange revenues, net of marketing and sales and related expenses, totaled $48 million.  Rental revenues totaled $14 million. Rental revenues net of expenses were $7 million.

Non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, adjusted fully diluted earnings per share, adjusted free cash flow, and adjusted development margin are reconciled and adjustments are shown and described in further detail in the Financial Schedules that follow.

Balance Sheet and Liquidity

On December 31, 2018, cash and cash equivalents totaled $231 million. Since the beginning of the year, real estate inventory balances increased $459 million to $852 million, including $475 million related to the ILG acquisition offset partially by a $16 million decrease in Legacy-MVW inventory balances since the beginning of 2018.  The inventory balance at the end of the year included $843 million of finished goods and $9 million of work-in-progress.  The company had $3.8 billion in debt outstanding, net of unamortized debt issuance costs, at the end of the year, an increase of $2.7 billion from year-end 2017. This debt included $2.1 billion of corporate debt and $1.7 billion of debt related to its securitized notes receivable.  As of December 31, 2018, the company's debt to combined adjusted EBITDA ratio was 2.7x, as described further in the Financial Schedules that follow.

As of December 31, 2018, the company had approximately $596 million in available capacity under its revolving corporate credit facility after taking into account outstanding letters of credit, and approximately $51 million of gross vacation ownership notes receivable eligible for securitization under its warehouse credit facility.

2019 Outlook

The Financial Schedules that follow reconcile the non-GAAP financial measures set forth below to the following full year 2019 expected GAAP results for MVW.

Net income attributable to common shareholders

  

$243 million

to

$257 million

Fully diluted EPS

  

$5.21

to

$5.52

Net cash provided by operating activities

  

$286 million

to

$311 million

The company is providing guidance as reflected in the chart below for the full year 2019:

Adjusted free cash flow

  

$400 million

to

$475 million

Adjusted net income attributable to common shareholders

  

$337 million

to

$365 million

Adjusted fully diluted EPS

  

$7.23

to

$7.83

Adjusted EBITDA

  

$745 million

to

$785 million

Contract sales

  

$1,530 million

to

$1,600 million

2019 expected GAAP results and guidance above include an estimate of the impact of future spending associated with on-going integration efforts resulting from the acquisition of ILG.

Fourth Quarter 2018 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. ET today to discuss these results and the guidance for full year 2019.  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 13687364. The webcast will also be available on the company's website.

About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global vacation company that offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products and services. The company has more than 100 resorts and over 660,000 owners and members in a diverse portfolio that includes seven vacation ownership brands. It also includes exchange networks and membership programs comprised of more than 3,200 resorts in over 80 nations and nearly two million members, as well as management of more than 180 other resorts and lodging properties. As a leader and innovator in the vacation industry, the company upholds the highest standards of excellence in serving its customers, investors and associates while maintaining exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation for the development, sales and marketing of vacation ownership products and services. 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 exchange 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 February 28, 2019 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 4, 2018
 

TABLE OF CONTENTS
 

Consolidated Statements of Income

A-1

Operating Metrics

A-2

Adjusted Net Income Attributable to Common Shareholders and Adjusted Earnings Per Share - Diluted

EBITDA and Adjusted EBITDA
Adjusted EBITDA by Segment

A-3

Consolidated Statements of Income - As Adjusted

A-4

Combined EBITDA and Adjusted EBITDA

A-6

Vacation Ownership Segment Financial Results

A-7

Consolidated Contract Sales to Adjusted Development Margin

A-8

Vacation Ownership Segment Financial Results - As Adjusted

A-9

Exchange & Third-Party Management Segment Financial Results

A-11

Corporate and Other Financial Results

A-12

Cash Flow and Adjusted Free Cash Flow

A-13

2019 Outlook

  

Adjusted Net Income Attributable to Common Shareholders and Adjusted Earnings Per Share - Diluted

Adjusted EBITDA

A-14

2019 Outlook - Adjusted Free Cash Flow

A-15

Non-GAAP Financial Measures

A-16

Consolidated Balance Sheets

A-18

Consolidated Statements of Cash Flows

A-19
 

NOTE:  Total contract sales consist of the total amount of vacation ownership product sales under contract signed during the period for which we have received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third parties, which we refer to as "resales contract sales."

 

A-1
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)
 
 

Quarter Ended

  

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

  

December 31,
2018

  

December 31,
2017

REVENUES

              

Sale of vacation ownership products

$

358

    

$

208

    

$

990

    

$

757

  

Management and exchange

225

    

70

    

499

    

279

  

Rental

132

    

59

    

371

    

262

  

Financing

64

    

36

    

183

    

135

  

Cost reimbursements

273

    

189

    

925

    

750

  

TOTAL REVENUES

1,052

    

562

    

2,968

    

2,183

  

EXPENSES

              

Cost of vacation ownership products

93

    

53

    

260

    

194

  

Marketing and sales

181

    

101

    

527

    

388

  

Management and exchange

119

    

36

    

259

    

147

  

Rental

90

    

53

    

281

    

221

  

Financing

25

    

13

    

65

    

43

  

General and administrative

84

    

25

    

198

    

106

  

Depreciation and amortization

33

    

5

    

62

    

21

  

Litigation settlement

13

    

2

    

46

    

4

  

Royalty fee

28

    

16

    

78

    

63

  

Cost reimbursements

273

    

189

    

925

    

750

  

TOTAL EXPENSES

939

    

493

    

2,701

    

1,937

  

Gains (losses) and other income (expense), net

25

    

(1)

    

21

    

6

  

Interest expense

(31)

    

(5)

    

(54)

    

(10)

  

ILG acquisition-related costs

(29)

    

—

    

(127)

    

(1)

  

Other

(1)

    

(1)

    

(4)

    

(1)

  

INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

77

    

62

    

103

    

240

  

(Provision) benefit for income taxes

(36)

    

57

    

(51)

    

(5)

  

NET INCOME

41

    

119

    

52

    

235

  

Net loss attributable to noncontrolling interests

3

    

—

    

3

    

—

  

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

44

    

$

119

    

$

55

    

$

235

  
               

EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS

              

Basic

$

0.92

    

$

4.46

    

$

1.64

    

$

8.70

  

Diluted

$

0.91

    

$

4.35

    

$

1.61

    

$

8.49

  
 

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

 

A-2
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

OPERATING METRICS

(Contract sales in millions)
 
 

Quarter Ended

      

Fiscal Year Ended

    
 

December
31, 2018

  

December
31, 2017

  

Change
%

  

December
31, 2018

  

December
31, 2017

  

Change
%

Vacation Ownership

                      

Total contract sales

$

370

    

$

207

    

79%

  

$

1,089

    

$

826

    

32%

Consolidated contract sales

$

358

    

$

207

    

73%

  

$

1,073

    

$

826

    

30%

Legacy-MVW North America contract sales

$

200

    

$

186

    

8%

  

$

814

    

$

750

    

9%

Legacy-MVW North America VPG

$

3,496

    

$

3,518

    

(1%)

  

$

3,666

    

$

3,565

    

3%
                       

Exchange & Third-Party Management

                      

Total active members at end of period (000's)(1)

1,802

    

—

        

1,802

    

—

      
 
 

COMBINED OPERATING METRICS

INCLUDING LEGACY-ILG AS IF ACQUIRED AT THE BEGINNING OF FISCAL YEAR 2017

(Contract sales in millions)
 
 

Quarter Ended

      

Fiscal Year Ended

    
 

December
31, 2018

  

December
31, 2017

  

Change
%

  

December
31, 2018

  

December
31, 2017

  

Change
%

Vacation Ownership

                      

Total contract sales

$

370

    

$

348

    

7%

  

$

1,487

    

$

1,387

    

7%

Consolidated contract sales

$

358

    

$

333

    

8%

  

$

1,432

    

$

1,324

    

8%
                       

Exchange & Third-Party Management

                      

Total active members at end of period (000's)(1)

1,802

    

1,813

    

(1%)

  

1,802

    

1,813

    

(1%)
 

(1)  Only includes members of the Interval International exchange network.

 

A-3
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In millions, except per share amounts)
 

ADJUSTED NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS AND

ADJUSTED EARNINGS PER SHARE - DILUTED
 
 

Quarter Ended

  

Fiscal Year Ended
 

December
31, 2018

  

December
31, 2017

  

December
31, 2018

  

December
31, 2017

Net income attributable to common shareholders

$

44

    

$

119

    

$

55

    

$

235

  

Certain items:

              

Litigation settlement

13

    

2

    

46

    

4

  

(Gains) losses and other (income) expense, net

(25)

    

1

    

(21)

    

(6)

  

ILG acquisition-related costs

29

    

—

    

127

    

1

  

Purchase price adjustments

19

    

—

    

24

    

—

  

Share-based compensation (ILG acquisition-related)

1

    

—

    

8

    

—

  

Variable compensation expense related to the impact of the Hurricanes

—

    

3

    

—

    

7

  

Other

1

    

1

    

4

    

1

  

Certain items before provision for income taxes

38

    

7

    

188

    

7

  

Provision for income taxes on certain items

(11)

    

(72)

    

(43)

    

(73)

  

Adjusted net income attributable to common shareholders **

$

71

    

$

54

    

$

200

    

$

169

  

Earnings per share - Diluted

$

0.91

    

$

4.35

    

$

1.61

    

$

8.49

  

Adjusted earnings per share - Diluted **

$

1.49

    

$

1.96

    

$

5.88

    

$

6.09

  
 

EBITDA AND ADJUSTED EBITDA
 

Quarter Ended

  

Fiscal Year Ended
 

December
31, 2018

  

December
31, 2017

  

December
31, 2018

  

December
31, 2017

Net income attributable to common shareholders

$

44

    

$

119

    

$

55

    

$

235

  

Interest expense(1)

31

    

5

    

54

    

10

  

Tax provision (benefit)

36

    

(57)

    

51

    

5

  

Depreciation and amortization

33

    

5

    

62

    

21

  

EBITDA **

144

    

72

    

222

    

271

  

Share-based compensation

12

    

4

    

35

    

16

  

Certain items before provision for income taxes(2)

24

    

7

    

162

    

7

  

Adjusted EBITDA **

$

180

    

$

83

    

$

419

    

$

294

  
               

(1) Interest expense excludes consumer financing interest expense.

            

(2) Excludes certain items included in depreciation and amortization and share-based compensation.
 

ADJUSTED EBITDA BY SEGMENT
 

Quarter Ended

  

Fiscal Year Ended
 

December
31, 2018

  

December
31, 2017

  

December
31, 2018

  

December
31, 2017

Vacation Ownership

$

196

    

$

103

    

$

511

    

$

383

  

Exchange & Third-Party Management

58

    

—

    

77

    

—

  

Segment adjusted EBITDA

254

    

103

    

588

    

383

  

General and administrative

(76)

    

(20)

    

(171)

    

(89)

  

Consolidated property owners' associations

2

    

—

    

2

    

—

  

        Adjusted EBITDA**

$

180

    

$

83

    

$

419

    

$

294

  
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-4
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME - AS ADJUSTED1

FISCAL YEAR ENDED DECEMBER 31, 2018 AND 2017

(In millions)
 
 

As Reported
Fiscal Year
Ended

  

Less: Legacy-
ILG 122 Days
Ended

  

As Adjusted
Fiscal Year
Ended

  

As Reported
Fiscal Year
Ended
 

December 31, 2018

  

December 31, 2017

REVENUES

              

Sale of vacation ownership products

$

990

    

$

159

    

$

831

    

$

757

  

Management and exchange

499

    

199

    

300

    

279

  

Rental

371

    

87

    

284

    

262

  

Financing

183

    

35

    

148

    

135

  

Cost reimbursements

925

    

88

    

837

    

750

  

TOTAL REVENUES

2,968

    

568

    

2,400

    

2,183

  

EXPENSES

              

Cost of vacation ownership products

260

    

44

    

216

    

194

  

Marketing and sales

527

    

96

    

431

    

388

  

Management and exchange

259

    

106

    

153

    

147

  

Rental

281

    

52

    

229

    

221

  

Financing

65

    

15

    

50

    

43

  

General and administrative

198

    

77

    

121

    

106

  

Depreciation and amortization

62

    

38

    

24

    

21

  

Litigation settlement

46

    

—

    

46

    

4

  

Royalty fee

78

    

14

    

64

    

63

  

Cost reimbursements

925

    

88

    

837

    

750

  

TOTAL EXPENSES

2,701

    

530

    

2,171

    

1,937

  

Gains (losses) and other income (expense), net

21

    

(3)

    

24

    

6

  

Interest expense

(54)

    

(2)

    

(52)

    

(10)

  

ILG acquisition-related costs

(127)

    

(32)

    

(95)

    

(1)

  

Other

(4)

    

—

    

(4)

    

(1)

  

INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

103

    

1

    

102

    

240

  

Provision for income taxes

(51)

    

(6)

    

(45)

    

(5)

  

NET INCOME (LOSS)

52

    

(5)

    

57

    

235

  

Net loss attributable to noncontrolling interests

3

    

3

    

—

    

—

  

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

55

    

(2)

    

57

    

235

  

Interest expense

54

    

2

    

52

    

10

  

Tax provision

51

    

6

    

45

    

5

  

Depreciation and amortization

62

    

38

    

24

    

21

  

EBITDA **

222

    

44

    

178

    

271

  

Share-based compensation

35

    

14

    

21

    

16

  

Certain items before provision for income taxes

162

    

41

    

121

    

7

  

Adjusted EBITDA **

$

419

    

$

99

    

$

320

    

$

294

  
 

(1)  Adjusted to exclude Legacy-ILG results.
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME - AS ADJUSTED1

THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(In millions)
 
 

As Reported
Three Months
Ended

  

Less: Legacy-
ILG Three
Months Ended

  

As Adjusted
Three Months
Ended

  

As Reported
Three Months
Ended
 

December 31, 2018

  

December 31, 2017

REVENUES

              

Sale of vacation ownership products

$

358

    

$

124

    

$

234

    

$

208

  

Management and exchange

225

    

149

    

76

    

70

  

Rental

132

    

68

    

64

    

59

  

Financing

64

    

25

    

39

    

36

  

Cost reimbursements

273

    

67

    

206

    

189

  

TOTAL REVENUES

1,052

    

433

    

619

    

562

  

EXPENSES

              

Cost of vacation ownership products

93

    

35

    

58

    

53

  

Marketing and sales

181

    

72

    

109

    

101

  

Management and exchange

119

    

81

    

38

    

36

  

Rental

90

    

37

    

53

    

53

  

Financing

25

    

10

    

15

    

13

  

General and administrative

84

    

54

    

30

    

25

  

Depreciation and amortization

33

    

26

    

7

    

5

  

Litigation settlement

13

    

—

    

13

    

2

  

Royalty fee

28

    

11

    

17

    

16

  

Cost reimbursements

273

    

67

    

206

    

189

  

TOTAL EXPENSES

939

    

393

    

546

    

493

  

Gains (losses) and other income (expense), net

25

    

(4)

    

29

    

(1)

  

Interest expense

(31)

    

(1)

    

(30)

    

(5)

  

ILG acquisition-related costs

(29)

    

(11)

    

(18)

    

—

  

Other

(1)

    

—

    

(1)

    

(1)

  

INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

77

    

24

    

53

    

62

  

(Provision) benefit for income taxes

(36)

    

(4)

    

(32)

    

57

  

NET INCOME

41

    

20

    

21

    

119

  

Net loss attributable to noncontrolling interests

3

    

3

    

—

    

—

  

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

44

    

23

    

21

    

119

  

Interest expense

31

    

1

    

30

    

5

  

Tax provision (benefit)

36

    

4

    

32

    

(57)

  

Depreciation and amortization

33

    

26

    

7

    

5

  

EBITDA **

144

    

54

    

90

    

72

  

Share-based compensation

12

    

6

    

6

    

4

  

Certain items before provision for income taxes

24

    

21

    

3

    

7

  

Adjusted EBITDA **

$

180

    

$

81

    

$

99

    

$

83

  
 

(1)  Adjusted to exclude Legacy-ILG results.
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

A-6

MARRIOTT VACATIONS WORLDWIDE CORPORATION
COMBINED EBITDA AND ADJUSTED EBITDA
(In millions)

The unaudited combined financial information presented below gives effect to Marriott Vacations Worldwide's acquisition of ILG as if the transaction had occurred on January 1, 2017, and is presented to facilitate comparisons with our results following the acquisition of ILG. Marriott Vacations Worldwide presents the combined financial information for informational purposes only and the combined financial information is not necessarily indicative of what the combined company's results of operations would actually have been had the transaction been completed on the date indicated.  In addition, the combined financial information does not purport to project the future operating results of the combined company.

     
 

Quarter Ended

  

Quarter Ended

        
 

December 31, 2018

  

December 31, 2017

        
 

Legacy
MVW

  

Legacy
ILG(1)

  

Combined

  

Legacy
MVW

  

Legacy
ILG(2)

  

Combined

  

Change

  

%
Change

Net income attributable to common shareholders

$

21

    

$

23

    

$

44

    

$

119

    

$

70

    

$

189

          

Interest expense / income

30

    

1

    

31

    

5

    

6

    

11

          

Tax provision (benefit)

32

    

4

    

36

    

(57)

    

(31)

    

(88)

          

Depreciation and amortization

7

    

26

    

33

    

5

    

20

    

25

          

EBITDA **

90

    

54

    

144

    

72

    

65

    

137

          

Share-based compensation

6

    

6

    

12

    

4

    

5

    

9

          

Certain items (3)

3

    

21

    

24

    

7

    

16

    

23

          

Adjusted EBITDA **

$

99

    

$

81

    

$

180

    

$

83

    

$

86

    

$

169

    

$

11

    

7%
                               

(1)  Derived from MVW management's internal records.

  

(2)  Derived from ILG, Inc. management's internal records.
(3) Legacy ILG certain items for periods presented above ending prior to September 1, 2018, consisted primarily of acquisition related and restructuring charges, asset impairments, other non-operating income and expense, net (primarily consisting of net  gains and losses on foreign currency exchange related activity), and the impact of purchase accounting.

 
                               
 

Fiscal Year Ended

  

Fiscal Year Ended

        
 

December 31, 2018

  

December 31, 2017

        
 

Legacy
MVW

  

Legacy
ILG(1)

  

Combined

  

Legacy
MVW

  

Legacy
ILG(2)

  

Combined

  

Change

  

%
Change

Net income attributable to common shareholders

$

57

    

$

108

    

$

165

    

$

235

    

$

174

    

$

409

          

Interest expense / income

52

    

20

    

72

    

10

    

25

    

35

          

Tax provision

45

    

47

    

92

    

5

    

26

    

31

          

Depreciation and amortization

24

    

86

    

110

    

21

    

80

    

101

          

EBITDA **

178

    

261

    

439

    

271

    

305

    

576

          

Share-based compensation

21

    

22

    

43

    

16

    

22

    

38

          

Certain items(3)

121

    

64

    

185

    

7

    

25

    

32

          

Adjusted EBITDA **

$

320

    

$

347

    

$

667

    

$

294

    

$

352

    

$

646

    

$

21

    

3%
 

(1)  Derived from ILG, Inc.'s Form 10Q's for Q1 2018 and Q2 2018 and from MVW management's internal records for Q3 2018 and Q4 2018.

(2)  Derived from ILG, Inc.'s Form 8-K dated July 19, 2018.

(3) Legacy ILG certain items for periods presented above ending prior to September 1, 2018, consisted primarily of acquisition related and restructuring charges, asset impairments, other non-operating income and expense, net (primarily consisting of net gains and losses on foreign currency exchange related activity), and the impact of purchase accounting.

 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-7
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

VACATION OWNERSHIP SEGMENT FINANCIAL RESULTS

(In millions)
 
 

Quarter Ended

  

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

  

December 31,
2018

  

December 31,
2017

REVENUES

              

Sale of vacation ownership products

$

358

    

$

208

    

$

990

    

$

757

  

Resort management and other services

120

    

70

    

359

    

279

  

Rental

117

    

59

    

352

    

262

  

Financing

63

    

36

    

182

    

135

  

Cost reimbursements

270

    

189

    

920

    

750

  

TOTAL REVENUES

928

    

562

    

2,803

    

2,183

  

EXPENSES

              

Cost of vacation ownership products

93

    

53

    

260

    

194

  

Marketing and sales

171

    

101

    

513

    

388

  

Resort management and other services

67

    

36

    

190

    

147

  

Rental

86

    

53

    

277

    

221

  

Financing

24

    

13

    

64

    

43

  

Depreciation and amortization

18

    

4

    

37

    

17

  

Litigation settlement

13

    

2

    

46

    

4

  

Royalty fee

28

    

16

    

78

    

63

  

Cost reimbursements

270

    

189

    

920

    

750

  

TOTAL EXPENSES

770

    

467

    

2,385

    

1,827

  

Gains (losses) and other income (expense), net

26

    

(1)

    

28

    

6

  

Other

(1)

    

(1)

    

(4)

    

(1)

  

SEGMENT RESULTS BEFORE NONCONTROLLING INTERESTS

183

    

93

    

442

    

361

  

Net loss attributable to noncontrolling interests

1

    

—

    

1

    

—

  

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

184

    

93

    

443

    

361

  

Depreciation and amortization

18

    

4

    

37

    

17

  

Share-based compensation

3

    

1

    

7

    

3

  

Certain items(1)

(9)

    

5

    

24

    

2

  

SEGMENT ADJUSTED EBITDA **

$

196

    

$

103

    

$

511

    

$

383

  
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.
 

(1) Certain items:

Three months ended December 31, 2018: $29 million of net business interruption insurance proceeds related to hurricanes, partially offset by $13 million of litigation settlements, $3 million of losses and other expense, $3 million of purchase price adjustments, and $1 million of acquisition related costs.

Year ended December 31, 2018: $46 million of litigation settlements, $4 million of acquisition related costs, $2 million of purchase price accounting adjustments, and $1 million of losses and other expense, partially offset by $29 million of net business interruption insurance proceeds related to hurricanes.

Three months ended December 31, 2017: $2 million of litigation settlements, $1 million of variable compensation expense related to hurricanes, $1 million of losses and other expense, and $1 million of acquisition related costs.

Year ended December 31, 2017: $4 million of litigation settlements, $3 million of variable compensation expense related to hurricanes, $3 million of other losses and expense, and $1 million of acquisition related costs, partially offset by $9 million of business interruption insurance proceeds.

 

A-8
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO ADJUSTED DEVELOPMENT MARGIN

(In millions)
 
 

Quarter Ended

  

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

  

December 31,
2018

  

December 31,
2017

Consolidated contract sales

$

358

    

$

207

    

$

1,073

    

$

826

  

Less resales contract sales

(7)

    

(6)

    

(30)

    

(23)

  

Consolidated contract sales, net of resales

351

    

201

    

1,043

    

803

  

Plus:

              

Settlement revenue(1)

12

    

4

    

26

    

15

  

Resales revenue(1)

4

    

2

    

12

    

8

  

Revenue recognition adjustments:

              

Reportability

27

    

23

    

11

    

20

  

Sales reserve

(22)

    

(12)

    

(64)

    

(52)

  

Other(2)

(14)

    

(10)

    

(38)

    

(37)

  

Sale of vacation ownership products

358

    

208

    

990

    

757

  

Less:

              

Cost of vacation ownership products

(93)

    

(53)

    

(260)

    

(194)

  

Marketing and sales

(171)

    

(101)

    

(513)

    

(388)

  

Development margin

94

    

54

    

217

    

175

  

Revenue recognition reportability adjustment

(19)

    

(16)

    

(8)

    

(14)

  

Purchase price adjustments

3

    

—

    

3

    

—

  

Variable compensation expense related to the impact of the Hurricanes

—

    

1

    

—

    

3

  

Adjusted development margin **

$

78

    

$

39

    

$

212

    

$

164

  

Development margin percentage(3)

26.4%

    

25.7%

    

21.9%

    

23.1%

  

Adjusted development margin percentage

23.4%

    

20.6%

    

21.6%

    

22.2%

  
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

(1)

Previously included in management and exchange revenue prior to the adoption of the Accounting Standards Update 2014-09 – "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"), as amended.

(2)

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.

(3)

Development margin percentage represents Development margin divided by Sale of vacation ownership products. Adjusted Development margin percentage represents Adjusted development margin divided by Sale of vacation ownership products revenue after adjusting for revenue reportability.

 

A-9
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

VACATION OWNERSHIP SEGMENT FINANCIAL RESULTS - AS ADJUSTED1

FISCAL YEAR ENDED DECEMBER 31, 2018 AND 2017

(In millions)
 
 

As Reported
Fiscal Year
Ended

  

Less: Legacy-
ILG 122 Days
Ended

  

As Adjusted
Fiscal Year
Ended

  

As Reported
Fiscal Year

Ended
 

December 31, 2018

  

December 31, 2017

REVENUES

              

Sale of vacation ownership products

$

990

    

$

159

    

$

831

    

$

757

  

Resort management and other services

359

    

59

    

300

    

279

  

Rental

352

    

68

    

284

    

262

  

Financing

182

    

34

    

148

    

135

  

Cost reimbursements

920

    

83

    

837

    

750

  

TOTAL REVENUES

2,803

    

403

    

2,400

    

2,183

  

EXPENSES

              

Cost of vacation ownership products

260

    

44

    

216

    

194

  

Marketing and sales

513

    

82

    

431

    

388

  

Resort management and other services

190

    

37

    

153

    

147

  

Rental

277

    

48

    

229

    

221

  

Financing

64

    

14

    

50

    

43

  

Depreciation and amortization

37

    

17

    

20

    

17

  

Litigation settlement

46

    

—

    

46

    

4

  

Royalty fee

78

    

14

    

64

    

63

  

Cost reimbursements

920

    

83

    

837

    

750

  

TOTAL EXPENSES

2,385

    

339

    

2,046

    

1,827

  

Gains (losses) and other income (expense), net

28

    

(2)

    

30

    

6

  

Other

(4)

    

—

    

(4)

    

(1)

  

SEGMENT RESULTS BEFORE NONCONTROLLING INTERESTS

442

    

62

    

380

    

361

  

Net loss attributable to noncontrolling interests

1

    

1

    

—

    

—

  

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

443

    

63

    

380

    

361

  

Adjustments:

              

Depreciation and amortization

37

    

17

    

20

    

17

  

Share-based compensation

7

    

2

    

5

    

3

  

Certain items

24

    

4

    

20

    

2

  

SEGMENT ADJUSTED EBITDA **

$

511

    

$

86

    

$

425

    

$

383

  
 

(1)  Adjusted to exclude Legacy-ILG results.
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

 
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

VACATION OWNERSHIP SEGMENT FINANCIAL RESULTS - AS ADJUSTED1

THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(In millions)
 
 

As Reported
Three Months
Ended

  

Less: Legacy-
ILG Three
Months Ended

  

As Adjusted
Three Months
Ended

  

As Reported
Three Months
Ended
 

December 31, 2018

  

December 31, 2017

REVENUES

              

Sale of vacation ownership products

$

358

    

$

124

    

$

234

    

$

208

  

Resort management and other services

120

    

44

    

76

    

70

  

Rental

117

    

53

    

64

    

59

  

Financing

63

    

24

    

39

    

36

  

Cost reimbursements

270

    

64

    

206

    

189

  

TOTAL REVENUES

928

    

309

    

619

    

562

  

EXPENSES

              

Cost of vacation ownership products

93

    

35

    

58

    

53

  

Marketing and sales

171

    

62

    

109

    

101

  

Resort management and other services

67

    

29

    

38

    

36

  

Rental

86

    

33

    

53

    

53

  

Financing

24

    

9

    

15

    

13

  

Depreciation and amortization

18

    

12

    

6

    

4

  

Litigation settlement

13

    

—

    

13

    

2

  

Royalty fee

28

    

11

    

17

    

16

  

Cost reimbursements

270

    

64

    

206

    

189

  

TOTAL EXPENSES

770

    

255

    

515

    

467

  

Gains (losses) and other income (expense), net

26

    

(3)

    

29

    

(1)

  

Other

(1)

    

—

    

(1)

    

(1)

  

SEGMENT RESULTS BEFORE NONCONTROLLING INTERESTS

183

    

51

    

132

    

93

  

Net loss attributable to noncontrolling interests

1

    

1

    

—

    

—

  

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

184

    

52

    

132

    

93

  

Adjustments:

              

Depreciation and amortization

18

    

12

    

6

    

4

  

Share-based compensation

3

    

1

    

2

    

1

  

Certain items

(9)

    

6

    

(15)

    

5

  

SEGMENT ADJUSTED EBITDA **

$

196

    

$

71

    

$

125

    

$

103

  
 

(1)  Adjusted to exclude Legacy-ILG results.
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-11
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EXCHANGE & THIRD-PARTY MANAGEMENT SEGMENT FINANCIAL RESULTS

(In millions)
 
 

Quarter Ended

  

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

  

December 31,
2018

  

December 31,
2017

REVENUES

              

Management and exchange

$

81

    

$

—

    

$

109

    

$

—

  

Rental

14

    

—

    

18

    

—

  

Financing

1

    

—

    

1

    

—

  

Cost reimbursements

25

    

—

    

33

    

—

  

TOTAL REVENUES

121

    

—

    

161

    

—

  

EXPENSES

              

Marketing and sales

10

    

—

    

14

    

—

  

Management and exchange

23

    

—

    

31

    

—

  

Rental

7

    

—

    

9

    

—

  

Financing

1

    

—

    

1

    

—

  

Depreciation and amortization

10

    

—

    

16

    

—

  

Cost reimbursements

25

    

—

    

33

    

—

  

TOTAL EXPENSES

76

    

—

    

104

    

—

  

Gains and other income

1

    

—

    

1

    

—

  

SEGMENT RESULTS BEFORE NONCONTROLLING INTERESTS

46

    

—

    

58

    

—

  

Net income attributable to noncontrolling interests

(1)

    

—

    

(1)

    

—

  

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

45

    

—

    

57

    

—

  

Adjustments:

              

Depreciation and amortization

10

    

—

    

16

    

—

  

Share-based compensation

1

    

—

    

1

    

—

  

Certain items(1)

2

    

—

    

3

    

—

  

SEGMENT ADJUSTED EBITDA **

$

58

    

$

—

    

$

77

    

$

—

  
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.
 

(1) Certain items:

Three months ended December 31, 2018: $3 million of purchase price accounting adjustments, partially offset by $1 million of gains and other income.

Year ended December 31, 2018: $4 million of purchase price accounting adjustments, partially offset by $1 million of gains and other income.

 

A-12
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER FINANCIAL RESULTS

(In millions)
 
 

Quarter Ended

  

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

  

December 31,

2018

  

December 31,
2017

REVENUES

              

Resort management and other services(1)

$

24

    

$

—

    

$

31

    

$

—

  

Rental(1)

1

    

—

    

1

    

—

  

Cost reimbursements(1)

(22)

    

—

    

(28)

    

—

  

TOTAL REVENUES

3

    

—

    

4

    

—

  

EXPENSES

              

Resort management and other services(1)

29

    

—

    

38

    

—

  

Rental(1)

(3)

    

—

    

(5)

    

—

  

General and administrative

84

    

25

    

198

    

106

  

Depreciation

5

    

1

    

9

    

4

  

Cost reimbursements(1)

(22)

    

—

    

(28)

    

—

  

TOTAL EXPENSES

93

    

26

    

212

    

110

  

Losses and other expense, net

(2)

    

—

    

(8)

    

—

  

Interest expense

(31)

    

(5)

    

(54)

    

(10)

  

ILG acquisition-related costs

(29)

    

—

    

(127)

    

(1)

  

FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

(152)

    

(31)

    

(397)

    

(121)

  

(Provision) benefit for income taxes

(36)

    

57

    

(51)

    

(5)

  

Net loss attributable to noncontrolling interests

3

    

—

    

3

    

—

  

FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

(185)

    

26

    

(445)

    

(126)

  

Less certain items:

              

Losses and other expense, net

2

    

—

    

8

    

—

  

ILG acquisition-related costs

29

    

—

    

127

    

1

  

Purchase price adjustments

(1)

    

—

    

(1)

    

—

  

Share-based compensation (ILG acquisition-related)

1

    

—

    

8

    

—

  

Variable compensation expense related to the impact of the Hurricanes

—

    

2

    

—

    

4

  

ADJUSTED FINANCIAL RESULTS **

$

(154)

    

$

28

    

$

(303)

    

$

(121)

  
   

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.
 

(1)  Represents the impact of the consolidation of owners' associations of the acquired Legacy-ILG vacation ownership properties under the voting interest model, which represents the portion related to individual or third-party VOI owners.

 

A-13
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CASH FLOW AND ADJUSTED FREE CASH FLOW

(In millions)
 

CASH FLOW

  

2018

Cash, cash equivalents and restricted cash provided by (used in):

    

Operating activities

  

$

97

  

Investing activities

  

(1,407)

  

Financing activities

  

1,433

  

Effect of change in exchange rates on cash, cash equivalents and restricted cash

  

—

  

Net change in cash, cash equivalents and restricted cash

  

$

123

  
     

ADJUSTED FREE CASH FLOW

    

Net cash, cash equivalents and restricted cash provided by operating activities

  

$

97

  

Capital expenditures for property and equipment (excluding inventory)

  

(40)

  

Borrowings from securitization transactions

  

539

  

Repayment of debt related to securitizations

  

(382)

  

Free cash flow **

  

214

  

Adjustments:

    

ILG acquisition-related costs(1)

  

162

  

Litigation settlements(2)

  

18

  

Net insurance proceeds from business interruption claims(3)

  

(57)

  

Other(4)

  

(27)

  

Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility(5)

  

(31)

  

Increase in restricted cash

  

(14)

  

Adjusted free cash flow **

  

$

265

  
 

** Denotes non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information about our reasons for providing these alternative financial measures and limitations on their use.

(1)  Represents adjustment to exclude spending associated with the ILG-acquisition-related costs.

(2)  Represents adjustment to exclude litigation settlement payments.

(3)  Represents adjustment to exclude business interruption insurance proceeds.

(4)  Represents $33 million payment associated with capital efficient inventory arrangements, partially offset by an adjustment to exclude $6 million of losses resulting from fraudulently induced electronic wire payment disbursements made to third parties.

(5)  Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2017 and 2018 year ends.

 

A-14
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

2019 ADJUSTED NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK

(In millions, except per share amounts)
 
 

Fiscal Year
2019 (low)

  

Fiscal Year
2019 (high)

Net income attributable to common shareholders

$

243

    

$

257

  

Adjustments to reconcile Net income attributable to common shareholders to Adjusted net income attributable to common shareholders

      

Certain items(1)

136

    

156

  

Provision for income taxes on adjustments to net income

(42)

    

(48)

  

Adjusted net income attributable to common shareholders **

$

337

    

$

365

  

Earnings per share - Diluted(2)

$

5.21

    

$

5.52

  

Adjusted earnings per share - Diluted ** (2)

$

7.23

    

$

7.83

  

Diluted shares(2)

46.6

    

46.6

  
   

(1)

Certain items adjustment includes $60 million to $80 million of anticipated ILG acquisition costs and $76 million of anticipated purchase price adjustments (including $58 million related to the amortization of intangibles).
   

(2)

Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through February 26, 2019.
   

**

Denotes non-GAAP financial measures. Please see Non-GAAP Financial Measures for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

2019 ADJUSTED EBITDA OUTLOOK

(In millions)
 
 

Fiscal Year
2019 (low)

  

Fiscal Year
2019 (high)

Net income attributable to common shareholders

$

243

    

$

257

  

Interest expense(1)

128

    

128

  

Tax provision

128

    

134

  

Depreciation and amortization

134

    

134

  

EBITDA **

633

    

653

  

Share-based compensation

34

    

34

  

Certain items(2)

78

    

98

  

Adjusted EBITDA **

$

745

    

$

785

  
   

(1)

Interest expense excludes consumer financing interest expense.
   

(2)

Certain items adjustment includes $60 million to $80 million of anticipated ILG acquisition costs and $18 million of anticipated purchase price adjustments.
   

**

Denotes non-GAAP financial measures. Please see Non-GAAP Financial Measures for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-15
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

2019 ADJUSTED FREE CASH FLOW OUTLOOK

(In millions)
 
 

Fiscal Year
2019 (low)

  

Fiscal Year
2019 (high)

Net cash provided by operating activities

$

286

    

$

311

  

Capital expenditures for property and equipment (excluding inventory)

(100)

    

(110)

  

Borrowings from securitization transactions

725

    

760

  

Repayment of debt related to securitizations

(510)

    

(520)

  

Free cash flow **

401

    

441

  

Adjustments:

      

Net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility(1)

(60)

    

(45)

  

Inventory / other payments associated with capital efficient inventory arrangements

(31)

    

(31)

  

Certain items(2)

100

    

120

  

Change in restricted cash

(10)

    

(10)

  

Adjusted free cash flow **

$

400

    

$

475

  
   

(1)

Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2018 and 2019 year ends.
   

(2)

Certain items adjustment includes $60 million to $80 million of anticipated ILG acquisition costs, $16 million of litigation settlement payments and $24 million of tax payments related to Legacy-ILG prior to the acquisition and delayed 2018 payments due to the hurricanes.
   

**

Denotes non-GAAP financial measures. Please see Non-GAAP Financial Measures for additional information about our reasons for providing these alternative financial measures and limitations on their use.

A-16

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 by GAAP. We discuss our reasons for reporting these non-GAAP financial measures below, and the financial schedules included herein 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 attributable to common shareholders, 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 Attributable to Common Shareholders

We evaluate non-GAAP financial measures, including Adjusted Net Income attributable to common shareholders, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the quarters and fiscal years ended December 31, 2018 and December 31, 2017, 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 companies.

Certain items - Quarter and Fiscal Year Ended December 31, 2018

In our Statement of Income for the quarter ended December 31, 2018, we recorded $38 million of net pre-tax items, which consisted of $30 million of ILG acquisition-related costs (including $1 million of share-based compensation expense), $19 million of purchase accounting adjustments (of which $6 million impacted adjusted EBITDA), $13 million of litigation settlements, $4 million of losses and other expense, and $1 million of costs associated with the anticipated capital efficient acquisitions of an operating property in New York, partially offset by $29 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricanes Irma and Maria.

In our Statement of Income for the fiscal year ended December 31, 2018, we recorded $188 million of net pre-tax items, which consisted of $135 million of ILG acquisition-related costs (including $8 million of share-based compensation expense), $46 million of litigation settlement charges, $24 million of unfavorable purchase accounting adjustments (of which $6 million impacted adjusted EBITDA), $8 million of losses and other expense and $4 million of costs associated with the anticipated capital efficient acquisitions of operating properties in San Francisco, California and New York, partially offset by $29 million of net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricanes Irma and Maria.

Certain items - Quarter and Fiscal Year Ended December 31, 2017

In our Statement of Income for the quarter ended December 31, 2017, we recorded $7 million of net pre-tax items, which consisted of $3 million of variable compensation expense related to the impact of the 2017 Hurricanes, $2 million of litigation settlement expenses, $1 million of acquisition costs, and $1 million of variable compensation expense related to the impact of Hurricane Matthew.

In our Statement of Income for the fiscal year ended December 31, 2017, we recorded $7 million of net pre-tax items, which consisted of $9 million in net insurance proceeds related to the settlement of Legacy-MVW business interruption insurance claims arising from Hurricane Matthew in 2016, $7 million of variable compensation expense related to the Legacy-MVW impact of the 2017 Hurricanes, $4 million of litigation settlement expenses, $2 million of acquisition costs, a charge of $1 million associated with the estimated property damage insurance deductibles and impairment of property and equipment at several of our Legacy-MVW resorts, primarily in Florida and the Caribbean, that were impacted by the 2017 Hurricanes, $1 million of variable compensation expense related to the impact of Hurricane Matthew and less than $1 million of miscellaneous losses and other 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 may include adjustments for certain items as itemized in the discussion of Adjusted Net Income attributable to common shareholders 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.

Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA

EBITDA is defined as earnings, or net income attributable to common shareholders, 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 we consider it 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 Attributable to Common Shareholders above, and excludes 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 acquisition, 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.

Debt to Combined Adjusted EBITDA Ratio

We calculate debt to combined adjusted EBITDA ratio by dividing net debt by combined adjusted EBITDA, where net debt represents total debt less securitized debt and cash and cash equivalents other than an estimated $150 million for working capital requirements, and combined adjusted EBITDA is derived by combining the last year  of adjusted EBITDA for Legacy-MVW and Legacy-ILG (2018 first quarter through 2018 fourth quarter) and adding in $100 million of estimated cost synergies.

A-18
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)
 
 

2018

  

2017

ASSETS

      

Cash and cash equivalents

$

231

    

$

409

  

Restricted cash (including $69 and $32 from VIEs, respectively)

383

    

82

  

Accounts receivable, net (including $11 and $6 from VIEs, respectively)

324

    

92

  

Vacation ownership notes receivable, net (including $1,627 and $814 from VIEs, respectively)

2,039

    

1,115

  

Inventory

863

    

398

  

Property and equipment

951

    

583

  

Goodwill

2,828

    

—

  

Intangibles, net

1,107

    

—

  

Other (including $26 and $14 from VIEs, respectively)

292

    

166

  

TOTAL ASSETS

$

9,018

    

$

2,845

  
       

LIABILITIES AND EQUITY

      

Accounts payable

$

245

    

$

145

  

Advance deposits

113

    

84

  

Accrued liabilities (including $2 and $1 from VIEs, respectively)

423

    

120

  

Deferred revenue

319

    

69

  

Payroll and benefits liability

211

    

112

  

Deferred compensation liability

93

    

75

  

Securitized debt, net (including $1,706 and $845 from VIEs, respectively)

1,694

    

835

  

Debt, net

2,124

    

260

  

Other

12

    

14

  

Deferred taxes

318

    

90

  

TOTAL LIABILITIES

5,552

    

1,804

  

Contingencies and Commitments (Note 11)

      

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

—

    

—

  

Common stock — $.01 par value; 100,000,000 shares authorized; 57,626,462 and 36,861,843 shares issued, respectively

1

    

—

  

Treasury stock — at cost; 11,633,731 and 10,400,547 shares, respectively

(790)

    

(694)

  

Additional paid-in capital

3,721

    

1,189

  

Accumulated other comprehensive income

6

    

17

  

Retained earnings

523

    

529

  

TOTAL MVW SHAREHOLDERS' EQUITY

3,461

    

1,041

  

Noncontrolling interest

5

    

—

  

TOTAL EQUITY

3,466

    

1,041

  

TOTAL LIABILITIES AND EQUITY

$

9,018

    

$

2,845

  
 

The abbreviation VIEs above means Variable Interest Entities.

 

A-19
 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)
 
 

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

OPERATING ACTIVITIES

      

Net income

$

55

    

$

235

  

Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:

      

Depreciation and amortization of intangibles

62

    

21

  

Amortization of debt discount and issuance costs

16

    

10

  

Vacation ownership notes receivable reserve

68

    

52

  

Share-based compensation

29

    

16

  

Loss on disposal of property and equipment, net

1

    

2

  

Deferred income taxes

54

    

(61)

  

Net change in assets and liabilities, net of the effects of acquisition:

      

Accounts receivable

(38)

    

(9)

  

Vacation ownership notes receivable originations

(630)

    

(466)

  

Vacation ownership notes receivable collections

386

    

270

  

Inventory

9

    

45

  

Purchase of vacation ownership units for future transfer to inventory

—

    

(34)

  

Other assets

21

    

(21)

  

Accounts payable, advance deposits and accrued liabilities

26

    

39

  

Deferred revenue

35

    

9

  

Payroll and benefit liabilities

(8)

    

16

  

Deferred compensation liability

10

    

12

  

Other, net

1

    

6

  

Net cash, cash equivalents and restricted cash provided by operating activities

97

    

142

  

INVESTING ACTIVITIES

      

Acquisition of a business, net of cash and restricted cash acquired

(1,393)

    

—

  

Disposition of subsidiary shares to noncontrolling interest holder

40

    

—

  

Capital expenditures for property and equipment (excluding inventory)

(40)

    

(26)

  

Purchase of company owned life insurance

(14)

    

(12)

  

Net cash, cash equivalents and restricted cash used in investing activities

(1,407)

    

(38)

  

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)
 
 

Fiscal Year Ended
 

December 31,
2018

  

December 31,
2017

FINANCING ACTIVITIES

      

Borrowings from securitization transactions

539

    

400

  

Repayment of debt related to securitization transactions

(382)

    

(293)

  

Proceeds from debt

1,690

    

318

  

Repayments of debt

(215)

    

(88)

  

Purchase of Convertible Note Hedges

—

    

(33)

  

Proceeds from issuance of Warrants

—

    

20

  

Debt issuance costs

(34)

    

(15)

  

Repurchase of common stock

(96)

    

(88)

  

Payment of dividends to common shareholders

(51)

    

(38)

  

Payment of withholding taxes on vesting of restricted stock units

(18)

    

(11)

  

Other, net

—

    

(1)

  

Net cash, cash equivalents and restricted cash provided by financing activities

1,433

    

171

  

Effect of changes in exchange rates on cash, cash equivalents and restricted cash

—

    

3

  

Increase in cash, cash equivalents and restricted cash

123

    

278

  

Cash, cash equivalents and restricted cash, beginning of period

491

    

213

  

Cash, cash equivalents and restricted cash, end of period

$

614

    

$

491

  

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/marriott-vacations-worldwide-reports-fourth-quarter-and-full-year-2018-financial-results-and-provides-2019-outlook-300803711.html

SOURCE Marriott Vacations Worldwide Corporation

John Geller, Chief Financial and Administrative Officer, Marriott Vacations Worldwide Corporation, 407.206.6334, John.Geller@mvwc.com OR Ed Kinney, Corporate Communications, Marriott Vacations Worldwide Corporation, 407.206.6278, Ed.Kinney@mvwc.com

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