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Marriott Vacations Worldwide ("MVW") Reports Second Quarter Financial Results

Board of Directors authorizes the repurchase of an additional 4.5 million shares under the company's share repurchase program.

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

News provided by

Marriott Vacations Worldwide

Jul 31, 2019, 16:15 ET

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ORLANDO, Fla., July 31, 2019 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported second quarter financial results and updated its guidance for the full year 2019.

In addition to a discussion of the second quarter reported results presented in accordance with United States generally accepted accounting principles ("GAAP"), the company is providing adjusted results of operations from January 1 to June 30, 2019. To provide a more meaningful year-over-year comparison of financial results, the company is also providing second quarter 2018 financial information in the financial schedules that follow that combine the second quarter 2018 financial results of the Company's legacy brands and businesses and the brands and businesses acquired by the company in its acquisition of ILG, Inc. ("ILG") in September 2018, conformed to the current year presentations.  Throughout this press release, the results from the business associated with the brands that existed prior to the acquisition of ILG are referred to as "Legacy-MVW," while the results from the business and brands that were acquired from ILG are referred to as "Legacy-ILG.

Second Quarter 2019 Highlights:

  • Consolidated vacation ownership contract sales increased 66% to $386 million.
    • On a combined basis, consolidated vacation ownership contract sales increased 6%.
  • Net income attributable to common shareholders was $49 million, or $1.10 per fully diluted share ("EPS"), compared to net income attributable to common shareholders of $11 million, or $0.39 per fully diluted share, in the second quarter of 2018.
  • Adjusted net income attributable to common shareholders increased 107% to $90 million and Adjusted fully diluted EPS increased 25% to $1.99.
  • Adjusted EBITDA increased 157% to $195 million in the second quarter of 2019.
    • On a combined basis, Adjusted EBITDA increased 17% and, after adjusting 2018 to exclude VRI Europe, which was disposed of in the fourth quarter of 2018, Adjusted EBITDA increased 20%.
  • The company repurchased over 1.1 million shares of its common stock for $109 million in the second quarter of 2019 at an average price per share of $96.36 and paid dividends of $20 million.
    • Subsequent to the end of the second quarter, the company repurchased an additional 400 thousand shares of its common stock for $40 million.
  • On July 30, 2019, the Board of Directors authorized the company to repurchase up to 4.5 million additional shares of its common stock under its share repurchase program. Combined with the shares not yet purchased under its previous authorization, the company is authorized to purchase up to 4.7 million shares.

"I am very pleased with our strong performance in the second quarter with consolidated contract sales growing 6% and Adjusted EBITDA increasing 17% on a combined basis," said Stephen P. Weisz, president and chief executive officer. "The integration of ILG continues to progress very well.  We continue to gain traction on sales initiatives and remain very excited about the many opportunities provided by this transformational business combination."

Second Quarter 2019 Segment Results

Vacation Ownership

Consolidated vacation ownership contract sales increased 66%.  On a combined basis, consolidated contract sales increased 6%, with Legacy-MVW and Legacy-ILG each growing 6% in the quarter.

Vacation Ownership segment financial results were $183 million for the second quarter of 2019, an increase of 125%. On a combined basis, Vacation Ownership segment Adjusted EBITDA increased 16% to $208 million in the second quarter of 2019 and margin improved 230 basis points, excluding cost reimbursements.

Exchange & Third-Party Management

Exchange & Third-Party Management revenues totaled $115 million in the second quarter of 2019. For Interval International, average revenue per member increased 3% to $43.23 and active members totaled 1.7 million at the end of the second quarter of 2019.

Exchange & Third-Party Management segment financial results and Adjusted EBITDA were $45 million and $58 million, respectively, in the second quarter of 2019.  On a combined basis, Exchange & Third-Party Management segment Adjusted EBITDA decreased 5 percent after adjusting 2018 to exclude VRI Europe, which was disposed of in the fourth quarter of 2018.

Balance Sheet and Liquidity

On June 30, 2019, cash and cash equivalents totaled $179 million. The inventory balance at the end of the second quarter included $828 million of finished goods and $48 million of work-in-progress. The company had $3.9 billion in debt outstanding, net of unamortized debt issuance costs, at the end of the second quarter. This debt included $2.2 billion of corporate debt and $1.8 billion of debt related to the company's securitized notes receivable.

As of June 30, 2019, the company had $516 million in available capacity under its revolving credit facility and $104 million of gross vacation ownership notes receivable eligible for securitization.

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 the company.


Current Guidance

Net income attributable to common shareholders

$214 million

to

$221 million

Fully diluted EPS

$4.75

to

$4.90

Net cash provided by operating activities

$332 million

to

$362 million

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

The company updates its full year 2019 guidance as reflected in the chart below:


Current Guidance

Adjusted free cash flow

$440 million

to

$490 million

Adjusted net income attributable to common shareholders

$345 million

to

$367 million

Adjusted fully diluted EPS

$7.65

to

$8.14

Adjusted EBITDA

$750 million

to

$780 million

Combined consolidated contract sales growth

6%

to

9%

Non-GAAP Financial Information

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

Second Quarter 2019 Earnings Conference Call

The company will hold a conference call on August 1, 2019 at 8:30 a.m. ET 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. To access the replay, call (877) 660-6853 or (201) 612-7415 for international callers. The conference ID for the recording is 13692036. The webcast will also be available on the company's website for 90 days following the call.

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 a diverse portfolio that includes seven vacation ownership brands. It also includes exchange networks and membership programs, as well as management of 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, including guidance about full year 2019 results, expected full year 2019 GAAP results and expected synergies from the ILG acquisition. 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, changes in supply and demand 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 July 31, 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 2, 2019


TABLE OF CONTENTS



Consolidated Statements of Income

A-1

Operating Metrics

A-2

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

A-3

Reconciliation of Adjusted Financial Information

A-4

Vacation Ownership Segment Financial Results

A-5

Consolidated Contract Sales to Adjusted Development Margin

A-6

Reconciliation of Vacation Ownership Segment Adjusted Financial Results

A-7

Reconciliation of Adjusted Financial Information - Consolidated and Vacation Ownership Segment EBITDA and Adjusted EBITDA

A-8

Exchange & Third-Party Management Segment Financial Results

A-9

Corporate and Other Financial Results

A-10

Vacation Ownership and Exchange & Third-Party Management - Segment Adjusted EBITDA

A-11

Reconciliation of Combined Financial Information - Consolidated Results

A-12

Reconciliation of Combined Financial Information - EBITDA, Adjusted EBITDA and Adjusted Development Margin

A-13

Reconciliation of Combined Financial Information - Vacation Ownership Segment Financial Results

A-14

Reconciliation of Combined Financial Information - Exchange & Third-Party Management Segment Financial Results and Corporate and Other Financial Results

A-15

Reconciliation of Combined Financial Information - Segment Adjusted EBITDA

A-16

2019 Outlook - Adjusted Net Income Attributable to Common Shareholders, Adjusted Earnings Per Share - Diluted and Adjusted EBITDA

A-17

2019 Outlook - Adjusted Free Cash Flow

A-18

Consolidated Balance Sheets

A-19

Consolidated Statements of Cash Flows

A-20

Non-GAAP Financial Measures

A-21

A-1


MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

REVENUES








Sale of vacation ownership products

$

350



$

205



$

651



$

380


Management and exchange

239



78



478



148


Rental

158



74



323



149


Financing

69



36



137



71


Cost reimbursements

252



202



539



418


TOTAL REVENUES

1,068



595



2,128



1,166


EXPENSES








Cost of vacation ownership products

91



57



171



103


Marketing and sales

193



106



381



211


Management and exchange

118



39



234



75


Rental

104



62



212



117


Financing

25



10



47



21


General and administrative

79



33



157



61


Depreciation and amortization

36



5



73



11


Litigation charges

1



16



2



16


Royalty fee

26



16



52



31


Impairment

—



—



26



—


Cost reimbursements

252



202



539



418


TOTAL EXPENSES

925



546



1,894



1,064


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

2



(7)



10



(6)


Interest expense

(35)



(5)



(69)



(9)


ILG acquisition-related costs

(36)



(19)



(62)



(20)


Other

—



(1)



—



(3)


INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

74



17



113



64


Provision for income taxes

(25)



(6)



(40)



(17)


NET INCOME

49



11



73



47


Net income attributable to noncontrolling interests

—



—



—



—


NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

49



$

11



$

73



$

47










EARNINGS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS








Basic

$

1.11



$

0.40



$

1.62



$

1.75


Diluted

$

1.10



$

0.39



$

1.61



$

1.71










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)



Three Months Ended


Change
%


Six Months Ended


Change
%


June 30,
2019


June 30,
2018



June 30,
2019


June 30,
2018


Vacation Ownership












Total contract sales

$

398



$

232



71%


$

763



$

436



75%

Consolidated contract sales

$

386



$

232



66%


$

740



$

436



70%

Legacy-MVW












Consolidated contract sales

$

246



$

232



6%


$

469



$

436



8%

North America contract sales

$

219



$

211



4%


$

420



$

399



5%

North America VPG

$

3,700



$

3,672



1%


$

3,736



$

3,698



1%

Legacy-ILG












Consolidated contract sales

$

140



$

—



NM


$

271



$

—



NM

VPG

$

2,981



$

—



NM


3,010



—



NM













Exchange & Third-Party Management












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

1,691



—



NM


1,691



—



NM

Average revenue per member(1)

$

43.23



—



NM


89.38



—



NM


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

COMBINED OPERATING METRICS

(Contract sales in millions)





Three Months Ended


Change %


Six Months Ended


Change
%


June 30,

 2019


June 30,
2018



June 30,
2019


June 30,
2018


Vacation Ownership












Total contract sales

$

398



$

379



5%


$

763



$

731



4%

Consolidated contract sales

$

386



$

365



6%


$

740



$

702



6%

Legacy-ILG












Consolidated contract sales

$

140



$

133



6%


$

271



$

266



2%

VPG

$

2,981



$

2,857



4%


$

3,010



$

3,032



(1%)













Exchange & Third-Party Management












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

1,691



1,800



(6%)


1,691



1,800



(6%)

Average revenue per member(1)

$

43.23



$

42.10



3%


$

89.38



$

89.77



—%













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


A-3


MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In millions, except per share amounts)

(Unaudited)


ADJUSTED NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS AND

ADJUSTED EARNINGS PER SHARE - DILUTED



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

Net income attributable to common shareholders

$

49



$

11



$

73



$

47


Certain items:








Litigation charges

1



16



2



16


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

(2)



7



(10)



6


ILG acquisition-related costs

36



19



62



20


Impairment

—



—



26



—


Purchase price adjustments

17



—



32



—


Other

—



1



1



3


Certain items before provision for income taxes

52



43



113



45


Provision for income taxes on certain items

(11)



(10)



(29)



(11)


Adjusted net income attributable to common shareholders **

$

90



$

44



$

157



$

81


Earnings per share - Diluted

$

1.10



$

0.39



$

1.61



$

1.71


Adjusted earnings per share - Diluted **

$

1.99



$

1.59



$

3.44



$

2.98


Diluted Shares

45,179



27,253



45,613



27,281










Please see "Non-GAAP Financial Measures" for additional information about certain items.


EBITDA AND ADJUSTED EBITDA


Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

Net income attributable to common shareholders

$

49



$

11



$

73



$

47


Interest expense(1)

35



5



69



9


Tax provision

25



6



40



17


Depreciation and amortization

36



5



73



11


EBITDA **

145



27



255



84


Share-based compensation expense

11



6



20



10


Certain items before provision for income taxes(2)

39



43



86



45


Adjusted EBITDA **

$

195



$

76



$

361



$

139










(1) Interest expense excludes consumer financing interest expense.

(2) Excludes certain items included in depreciation and amortization and share-based compensation. Please see "Non-GAAP Financial Measures" for additional information about certain items.


ADJUSTED EBITDA BY SEGMENT


Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

Vacation Ownership

$

208



$

104



$

379



$

192


Exchange & Third-Party Management

58



—



124



—


Segment adjusted EBITDA**

266



104



503



192


General and administrative

(71)



(28)



(143)



(53)


Consolidated property owners' associations

—



—



1



—


Adjusted EBITDA**

$

195



$

76



$

361



$

139



** 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

RECONCILIATION OF ADJUSTED(1) FINANCIAL INFORMATION

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(In millions)

(Unaudited)



As Reported
Three Months
Ended


Less: Legacy-
ILG Three
Months Ended


As Adjusted
Three Months
Ended**


As Reported

Three Months
Ended


June 30, 2019


June 30, 2018

REVENUES








Sale of vacation ownership products

$

350



$

135



$

215



$

205


Management and exchange

239



157



82



78


Rental

158



78



80



74


Financing

69



27



42



36


Cost reimbursements

252



58



194



202


TOTAL REVENUES

1,068



455



613



595


EXPENSES








Cost of vacation ownership products

91



38



53



57


Marketing and sales

193



83



110



106


Management and exchange

118



77



41



39


Rental

104



46



58



62


Financing

25



11



14



10


General and administrative

79



44



35



33


Depreciation and amortization

36



29



7



5


Litigation charges

1



—



1



16


Royalty fee

26



11



15



16


Cost reimbursements

252



58



194



202


TOTAL EXPENSES

925



397



528



546


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

2



1



1



(7)


Interest expense

(35)



(2)



(33)



(5)


ILG acquisition-related costs

(36)



(7)



(29)



(19)


Other

—



—



—



(1)


INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

74



50



24



17


(Provision) benefit for income taxes

(25)



(16)



(9)



(6)


NET INCOME

49



34



15



11


Net income attributable to noncontrolling interests

—



—



—



—


NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

49



$

34



$

15



$

11



(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-5


MARRIOTT VACATIONS WORLDWIDE CORPORATION

VACATION OWNERSHIP SEGMENT FINANCIAL RESULTS

(In millions)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

REVENUES








Sale of vacation ownership products

$

350



$

205



$

651



$

380


Resort management and other services

134



78



259



148


Rental

141



74



288



149


Financing

68



36



135



71


Cost reimbursements

258



202



549



418


TOTAL REVENUES

951



595



1,882



1,166


EXPENSES








Cost of vacation ownership products

91



57



171



103


Marketing and sales

181



106



358



211


Resort management and other services

70



39



136



75


Rental

99



62



201



117


Financing

24



10



46



21


Depreciation and amortization

17



4



34



9


Litigation charges

1



16



2



16


Royalty fee

26



16



52



31


Impairment

—



—



26



—


Cost reimbursements

258



202



549



418


TOTAL EXPENSES

767



512



1,575



1,001


(Losses) gains and other (expense) income, net

(1)



—



8



1


Other

—



(1)



—



(3)


SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS

183



82



315



163


Net loss attributable to noncontrolling interests

—



—



1



—


SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

183



$

82



$

316



$

163


A-6


MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO ADJUSTED DEVELOPMENT MARGIN

(In millions)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

Consolidated contract sales

$

386



$

232



$

740



$

436


Less resales contract sales

(8)



(7)



(16)



(15)


Consolidated contract sales, net of resales

378



225



724



421


Plus:








Settlement revenue

11



4



20



8


Resales revenue

4



3



7



5


Revenue recognition adjustments:








Reportability

(8)



(4)



(38)



(16)


Sales reserve

(27)



(15)



(46)



(24)


Other(1)

(8)



(8)



(16)



(14)


Sale of vacation ownership products

350



205



651



380


Less:








Cost of vacation ownership products

(91)



(57)



(171)



(103)


Marketing and sales

(181)



(106)



(358)



(211)


Development margin

78



42



122



66


Revenue recognition reportability adjustment

5



2



26



10


Purchase price adjustment

3



—



5



—


Adjusted development margin **

$

86



$

44



$

153



$

76


Development margin percentage(2)

22.2%



19.9%



18.7%



17.2%


Adjusted development margin percentage(2)

24.2%



20.9%



22.4%



19.3%



** 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) 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.


(2) 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 and other charges.

A-7


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF VACATION OWNERSHIP SEGMENT ADJUSTED(1) FINANCIAL RESULTS

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(In millions)

(Unaudited)



As Reported
Three Months
Ended


Less: Legacy
-ILG Three
Months Ended


As Adjusted
Three Months
Ended**


As Reported
Three Months
Ended


June 30, 2019


June 30, 2018

REVENUES








Sale of vacation ownership products

$

350



$

135



$

215



$

205


Resort management and other services

134



52



82



78


Rental

141



61



80



74


Financing

68



26



42



36


Cost reimbursements

258



64



194



202


TOTAL REVENUES

951



338



613



595


EXPENSES








Cost of vacation ownership products

91



38



53



57


Marketing and sales

181



71



110



106


Resort management and other services

70



29



41



39


Rental

99



41



58



62


Financing

24



10



14



10


Depreciation and amortization

17



12



5



4


Litigation charges

1



—



1



16


Royalty fee

26



11



15



16


Impairment

—



—



—



—


Cost reimbursements

258



64



194



202


TOTAL EXPENSES

767



276



491



512


Losses and other expense, net

(1)



—



(1)



—


Other

—



—



—



(1)


SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS

183



62



121



82


Net loss attributable to noncontrolling interests

—



—



—



—


SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

183



$

62



$

121



$

82



(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-8


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF ADJUSTED(1) FINANCIAL INFORMATION

CONSOLIDATED AND VACATION OWNERSHIP SEGMENT EBITDA AND ADJUSTED EBITDA

THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(In millions)

(Unaudited)


CONSOLIDATED


As Reported
Three Months
Ended


Less: Legacy
-ILG Three
Months Ended


As Adjusted
Three Months
Ended**


As Reported
Three Months
Ended


June 30, 2019


June 30, 2018

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

49



$

34



$

15



$

11


Interest expense

35



2



33



5


Tax provision

25



16



9



6


Depreciation and amortization

36



29



7



5


EBITDA **

145



81



64



27


Share-based compensation expense

11



4



7



6


Certain items

39



10



29



43


ADJUSTED EBITDA **

$

195



$

95



$

100



$

76










VACATION OWNERSHIP


As Reported
Three Months
Ended


Less: Legacy-
ILG Three
Months Ended


As Adjusted
Three Months
Ended**


As Reported
Three Months
Ended


June 30, 2019


June 30, 2018

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

183



$

62



$

121



$

82


Depreciation and amortization

17



12



5



4


EBITDA **

200



74



126



86


Share-based compensation expense

2



1



1



1


Certain items

6



4



2



17


SEGMENT ADJUSTED EBITDA **

$

208



$

79



$

129



$

104



** 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) Adjusted to exclude Legacy-ILG results.

A-9


MARRIOTT VACATIONS WORLDWIDE CORPORATION

EXCHANGE & THIRD-PARTY MANAGEMENT SEGMENT FINANCIAL RESULTS

(In millions)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

REVENUES








Management and exchange

$

75



$

—



$

157



$

—


Rental

17



—



34



—


Financing

1



—



2



—


Cost reimbursements

22



—



46



—


TOTAL REVENUES

115



—



239



—


EXPENSES








Marketing and sales

12



—



23



—


Management and exchange

16



—



33



—


Rental

7



—



15



—


Financing

1



—



1



—


Depreciation and amortization

12



—



24



—


Cost reimbursements

22



—



46



—


TOTAL EXPENSES

70



—



142



—


SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS

45



—



97



—


Net loss attributable to noncontrolling interests

—



—



—



—


SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

45



$

—



$

97



$

—


A-10


MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER FINANCIAL RESULTS

(In millions)

(Unaudited)



Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

REVENUES








Management and exchange(1)

$

30



$

—



$

62



$

—


Rental(1)

—



—



1



—


Cost reimbursements(1)

(28)



—



(56)



—


TOTAL REVENUES

2



—



7



—


EXPENSES








Management and exchange(1)

32



—



65



—


Rental(1)

(2)



—



(4)



—


General and administrative

79



33



157



61


Depreciation and amortization

7



1



15



2


Cost reimbursements(1)

(28)



—



(56)



—


TOTAL EXPENSES

88



34



177



63


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

3



(7)



2



(7)


Interest expense

(35)



(5)



(69)



(9)


ILG acquisition-related costs

(36)



(19)



(62)



(20)


FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

(154)



(65)



(299)



(99)


Provision for income taxes

(25)



(6)



(40)



(17)


Net income attributable to noncontrolling interests

—



—



(1)



—


FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(179)



$

(71)



$

(340)



$

(116)



(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 vacation ownership interest ("VOI") owners.

A-11


MARRIOTT VACATIONS WORLDWIDE CORPORATION

VACATION OWNERSHIP AND EXCHANGE & THIRD-PARTY MANAGEMENT

SEGMENT ADJUSTED EBITDA

(In millions)

(Unaudited)


VACATION OWNERSHIP


Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

183



$

82



$

316



$

163


Depreciation and amortization

17



4



34



9


EBITDA **

200



86



350



172


Share-based compensation expense

2



1



4



2


Certain items(1) (2)(3)(4)

6



17



25



18


SEGMENT ADJUSTED EBITDA **

$

208



$

104



$

379



$

192










EXCHANGE & THIRD-PARTY MANAGEMENT


Three Months Ended


Six Months Ended


June 30, 2019


June 30, 2018


June 30, 2019


June 30, 2018

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

45



$

—



$

97



$

—


Depreciation and amortization

12



—



24



—


EBITDA **

57



—



121



—


Share-based compensation expense

1



—



2



—


Certain items(5)

—



—



1



—


SEGMENT ADJUSTED EBITDA **

$

58



$

—



$

124



$

—



** 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 in the Vacation Ownership segment for the second quarter of 2019 consisted of $4 million of purchase accounting adjustments, $1 million of litigation charges, and $1 million of gains and other income.


(2) Certain items in the Vacation Ownership segment for the second quarter of 2018 consisted of $16 million of litigation charges (including $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe) and $1 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco.


(3)  Certain items in the Vacation Ownership segment for the first half of 2019 consisted of $26 million of asset impairments, $5 million of purchase accounting adjustments and $2 million of litigation charges, partially offset by $8 million of gains and other income.


(4)  Certain items in the Vacation Ownership segment for the first half of 2018 consisted of $16 million of litigation charges (including $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe) and $3 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco, partially offset by a $1 million favorable true up of previously recorded costs associated with Hurricane Irma and Hurricane Maria (recorded in Gains and other income).


(5) Certain items in the Exchange & Third-Party Management segment for the first half of 2019 consisted of $1 million of purchase accounting adjustments.

A-12


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF COMBINED(1) FINANCIAL INFORMATION

CONSOLIDATED RESULTS

THREE MONTHS ENDED JUNE 30, 2018

(In millions)

(Unaudited)



Legacy-ILG


Reclassifications(1)


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

REVENUES










Sale of vacation ownership products

$

121



$

—



$

121



$

205



$

326


Service and membership related

148



(148)



—



—



—


Management and exchange

—



176



176



78



254


Rental and ancillary services

104



(104)



—



—



—


Rental

—



77



77



74



151


Financing

23



—



23



36



59


Cost reimbursements

65



(2)



63



202



265


TOTAL REVENUES

461



(1)



460



595



1,055


EXPENSES










Cost of vacation ownership products

22



6



28



57



85


Marketing and sales

81



(1)



80



106



186


Cost of service and membership related sales

67



(67)



—



—



—


Management and exchange

—



82



82



39



121


Cost of sales of rental and ancillary services

70



(70)



—



—



—


Rental

—



47



47



62



109


Financing

7



—



7



10



17


General and administrative

65



(4)



61



33



94


Depreciation and amortization

21



1



22



5



27


Litigation charges

—



—



—



16



16


Royalty fee

11



—



11



16



27


Cost reimbursements

65



(2)



63



202



265


TOTAL EXPENSES

409



(8)



401



546



947


Losses and other expense, net

(5)



(1)



(6)



(7)



(13)


Interest expense

(6)



1



(5)



(5)



(10)


ILG acquisition-related costs

—



(9)



(9)



(19)



(28)


Other

—



1



1



(1)



—


INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

41



(1)



40



17



57


Provision for income taxes

(13)



—



(13)



(6)



(19)


NET INCOME

28



(1)



27



11



38


Net income attributable to noncontrolling interests

(1)



1



—



—



—


NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

27



$

—



$

27



$

11



$

38



** 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) See "Non-GAAP Financial Measures - Combined Financial Information" for basis of presentation.

A-13


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF COMBINED(1) FINANCIAL INFORMATION

EBITDA, ADJUSTED EBITDA AND ADJUSTED DEVELOPMENT MARGIN

THREE MONTHS ENDED JUNE 30, 2018

(In millions)

(Unaudited)


EBITDA AND ADJUSTED EBITDA


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

Net income attributable to common shareholders

$

27



$

11



$

38


Interest expense(2)

5



5



10


Tax provision

13



6



19


Depreciation and amortization

22



5



27


EBITDA **

67



27



94


Share-based compensation expense

5



6



11


Certain items before provision for income taxes(3) (4)

18



43



61


Adjusted EBITDA **

$

90



$

76



$

166








ADJUSTED DEVELOPMENT MARGIN


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

Sale of vacation ownership products

$

121



$

205



$

326


Less:






Cost of vacation ownership products

28



57



85


Marketing and sales

63



106



169


Development margin

30



42



72


Revenue recognition reportability adjustment

—



3



3


Adjusted development margin **

$

30



$

45



$

75


Development margin percentage(5)

25.8%


19.9%


22.1%

Adjusted development margin percentage(5)

25.4%


20.9%


22.5%


** 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) See "Non-GAAP Financial Measures - Combined Financial Information" for basis of presentation.


(2) Interest expense excludes consumer financing interest expense.


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


(4) Legacy-ILG certain items include $9 million of ILG acquisition-related costs, $6 million of foreign currency translation adjustments, $1 million of impairments, $1 million of costs related to the ILG Board of Directors' strategic review, and $1 million of litigation charges.


(5) 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-14


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF COMBINED(1) FINANCIAL INFORMATION

VACATION OWNERSHIP SEGMENT FINANCIAL RESULTS

THREE MONTHS ENDED JUNE 30, 2018

(In millions)

(Unaudited)



Legacy-ILG


Reclassifications(1)


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

REVENUES










Sale of vacation ownership products

$

121



$

—



$

121



$

205



$

326


Resort Operations revenue

58



(58)



—



—



—


Management fee and other revenue

61



(61)



—



—



—


Resort management and other services

—



52



52



78



130


Rental

—



60



60



74



134


Financing

23



(1)



22



36



58


Cost reimbursements

45



18



63



202



265


TOTAL REVENUES

308



10



318



595



913


EXPENSES










Cost of vacation ownership products

22



6



28



57



85


Marketing and sales

68



(5)



63



106



169


Cost of service and membership related sales

49



(49)



—



—



—


Resort management and other services

—



29



29



39



68


Cost of sales of rental and ancillary services

45



(45)



—



—



—


Rental

—



43



43



62



105


Financing

7



—



7



10



17


General and administrative

31



(31)



—



—



—


Depreciation and amortization

13



(2)



11



4



15


Litigation charges

—



—



—



16



16


Royalty fee

11



—



11



16



27


Cost reimbursements

45



18



63



202



265


TOTAL EXPENSES

291



(36)



255



512



767


Losses and other expense, net

(7)



—



(7)



—



(7)


Other

—



1



1



(1)



—


SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS

10



47



57



82



139


Net income attributable to noncontrolling interests

(1)



2



1



—



1


SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

9



$

49



$

58



$

82



$

140



** 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) See "Non-GAAP Financial Measures - Combined Financial Information" for basis of presentation.

A-15


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF COMBINED(1) FINANCIAL INFORMATION

EXCHANGE & THIRD-PARTY MANAGEMENT SEGMENT FINANCIAL RESULTS AND

CORPORATE AND OTHER FINANCIAL RESULTS

THREE MONTHS ENDED JUNE 30, 2018

(In millions)

(Unaudited)


EXCHANGE & THIRD-PARTY MANAGEMENT


Legacy-ILG


Reclassifications(1)


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

TOTAL REVENUES

$

153



$

(13)



$

140



$

—



$

140


TOTAL EXPENSES

(118)



36



(82)



—



(82)


Gains and other income, net

2



—



2



—



2


SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

37



$

23



$

60



$

—



$

60












CORPORATE AND OTHER


Legacy-ILG


Reclassifications(1)


Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

TOTAL REVENUES

$

—



$

2



$

2



$

—



$

2


TOTAL EXPENSES

—



(64)



(64)



(34)



(98)


Losses and other expense, net

—



(1)



(1)



(7)



(8)


Interest expense

(6)



1



(5)



(5)



(10)


ILG acquisition-related costs

—



(9)



(9)



(19)



(28)


FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS

(6)



(71)



(77)



(65)



(142)


Provision for income taxes

(13)



—



(13)



(6)



(19)


Net income attributable to noncontrolling interests

—



(1)



(1)



—



(1)


FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$

(19)



$

(72)



$

(91)



$

(71)



$

(162)



** 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) See "Non-GAAP Financial Measures - Combined Financial Information" for basis of presentation.

A-16


MARRIOTT VACATIONS WORLDWIDE CORPORATION

RECONCILIATION OF COMBINED(1) FINANCIAL INFORMATION - SEGMENT ADJUSTED EBITDA

THREE MONTHS ENDED JUNE 30, 2018

(In millions)

(Unaudited)


VACATION OWNERSHIP



Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS


$

58



$

82



$

140


Depreciation and amortization


11



4



15


EBITDA **


69



86



155


Share-based compensation expense


1



1



2


Certain items


7



17



24


SEGMENT ADJUSTED EBITDA **


$

77



$

104



$

181









EXCHANGE & THIRD-PARTY MANAGEMENT



Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS


$

60



$

—



$

60


Depreciation and amortization


7



—



7


EBITDA **


67



—



67


Share-based compensation expense


—



—



—


Certain items


(2)



—



(2)


SEGMENT ADJUSTED EBITDA **


$

65



$

—



$

65









ADJUSTED EBITDA BY SEGMENT



Legacy-ILG
Reclassified**


Legacy-MVW


Combined**

Vacation Ownership


$

77



$

104



$

181


Exchange & Third-Party Management


65



—



65


Segment adjusted EBITDA**


142



104



246


General and administrative


(54)



(28)



(82)


Consolidated property owners' associations


2



—



2


ADJUSTED EBITDA**


$

90



$

76



$

166



** 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) See "Non-GAAP Financial Measures - Combined Financial Information" for basis of presentation.

A-17


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

$

214



$

221


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




Certain items(1)

174



194


Provision for income taxes on adjustments to net income

(43)



(48)


Adjusted net income attributable to common shareholders **

$

345



$

367


Earnings per share - Diluted(2)

$

4.75



$

4.90


Adjusted earnings per share - Diluted ** (2)

$

7.65



$

8.14


Diluted shares

45.1



45.1



(1) Certain items adjustment includes $80 million to $100 million of anticipated ILG acquisition-related costs, $75 million of anticipated purchase price adjustments (including $58 million related to the amortization of intangibles), $26 million of asset impairments, $2 million of litigation charges and $1 million of other severance costs, partially offset by $10 million of gains and other income.


(2) Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through July 29, 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

$

214



$

221


Interest expense(1)

132



132


Tax provision

108



111


Depreciation and amortization

142



142


EBITDA **

596



606


Share-based compensation expense

38



38


Certain items(2)

116



136


Adjusted EBITDA **

$

750



$

780



(1) Interest expense excludes consumer financing interest expense.


(2) Certain items adjustment includes $80 million to $100 million of anticipated ILG acquisition-related costs, $26 million of asset impairments, $17 million of anticipated purchase price adjustments, $2 million of litigation charges and $1 million of other severance costs, partially offset by $10 million of gains and other income.


** 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-18


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

$

332



$

362


Capital expenditures for property and equipment (excluding inventory)

(80)



(90)


Borrowings from securitization transactions

910



920


Repayment of debt related to securitizations

(765)



(775)


Free cash flow **

397



417


Adjustments:




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

10



20


Inventory / other payments associated with capital efficient inventory arrangements

(31)



(31)


Certain items(2)

77



97


Change in restricted cash

(13)



(13)


Adjusted free cash flow **

$

440



$

490



(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 $80 million to $100 million of anticipated ILG acquisition-related costs and $25 million of litigation settlement payments, partially offset by $13 million of business interruption proceeds, $12 million of prior year Legacy-ILG net tax refunds and $3 million from the recovery of a portion of the fraudulently induced electronic payment disbursements made in 2018.


** 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-19


MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

(Unaudited)



June 30, 2019


December 31, 2018

ASSETS




Cash and cash equivalents

$

179



$

231


Restricted cash (including $80 and $69 from VIEs, respectively)

337



383


Accounts receivable, net (including $12 and $11 from VIEs, respectively)

327



324


Vacation ownership notes receivable, net (including $1,681 and $1,627 from VIEs, respectively)

2,098



2,039


Inventory

888



863


Property and equipment

837



951


Goodwill

2,824



2,828


Intangibles, net

1,075



1,107


Other (including $34 and $26 from VIEs, respectively)

458



292


TOTAL ASSETS

$

9,023



$

9,018






LIABILITIES AND EQUITY




Accounts payable

$

164



$

253


Advance deposits

186



171


Accrued liabilities (including $3 and $2 from VIEs, respectively)

417



357


Deferred revenue

356



319


Payroll and benefits liability

172



211


Deferred compensation liability

102



93


Securitized debt, net (including $1,787 and $1,706 from VIEs, respectively)

1,792



1,714


Debt, net

2,157



2,104


Other

64



12


Deferred taxes

343



318


TOTAL LIABILITIES

5,753



5,552


Contingencies and Commitments (Note 11)




Preferred stock — $0.01 par value; 2,000,000 shares authorized; none issued or outstanding

—



—


Common stock — $0.01 par value; 100,000,000 shares authorized; 57,862,278 and 57,626,462 shares issued, respectively

1



1


Treasury stock — at cost; 13,979,609 and 11,633,731 shares, respectively

(1,004)



(790)


Additional paid-in capital

3,730



3,721


Accumulated other comprehensive income

(11)



6


Retained earnings

548



523


TOTAL MVW SHAREHOLDERS' EQUITY

3,264



3,461


Noncontrolling interests

6



5


TOTAL EQUITY

3,270



3,466


TOTAL LIABILITIES AND EQUITY

$

9,023



$

9,018



The abbreviation VIEs above means Variable Interest Entities.

A-20


MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



Six Months Ended


June 30, 2019


June 30, 2018

OPERATING ACTIVITIES




Net income

$

73



$

47


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




Depreciation and amortization of intangibles

73



11


Amortization of debt discount and issuance costs

9



8


Vacation ownership notes receivable reserve

51



24


Share-based compensation

17



10


Impairment charges

26



—


Deferred income taxes

20



12


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




Accounts receivable

(18)



24


Vacation ownership notes receivable originations

(423)



(233)


Vacation ownership notes receivable collections

309



155


Inventory

76



37


Other assets

(30)



12


Accounts payable, advance deposits and accrued liabilities

(129)



(59)


Deferred revenue

37



29


Payroll and benefit liabilities

(39)



(27)


Deferred compensation liability

9



8


Other liabilities

—



—


Other, net

(5)



—


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

56



58


INVESTING ACTIVITIES




Capital expenditures for property and equipment (excluding inventory)

(19)



(7)


Proceeds from collection of notes receivable

38



—


Purchase of company owned life insurance

(4)



(12)


Net cash, cash equivalents and restricted cash provided by (used in) investing activities

15



(19)


FINANCING ACTIVITIES




Borrowings from securitization transactions

574



423


Repayment of debt related to securitization transactions

(496)



(154)


Proceeds from debt

310



—


Repayments of debt

(266)



(33)


Debt issuance costs

(6)



(7)


Repurchase of common stock

(215)



(2)


Payment of dividends

(61)



(32)


Payment of withholding taxes on vesting of restricted stock units

(10)



(8)


Net cash, cash equivalents and restricted cash (used in) provided by financing activities

(170)



187


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

1



1


Change in cash, cash equivalents and restricted cash

(98)



227


Cash, cash equivalents and restricted cash, beginning of period

614



491


Cash, cash equivalents and restricted cash, end of period

$

516



$

718


A-21

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.

Certain Items Excluded from Adjusted Net Income Attributable to Common Shareholders, Adjusted EBITDA and Adjusted Development Margin

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 three months and six months ended June 30, 2019 and June 30, 2018, 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 - Quarter and First Half Ended June 30, 2019

Certain items for the second quarter of 2019 consisted of $36 million of ILG acquisition-related costs, $4 million of purchase accounting adjustments and $1 million of litigation charges, partially offset by $2 million of gains and other income.

Certain items for the first half of 2019 consisted of $62 million of ILG acquisition-related costs, $26 million of asset impairments, $5 million of purchase accounting adjustments, $2 million of litigation charges and $1 million of other severance costs, partially offset by $10 million of gains and other income.

Certain items - Quarter and First Half Ended June 30, 2018

Certain items for the second quarter of 2018 consisted of $20 million of acquisition costs (including $19 million of ILG acquisition-related costs and $1 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco), $16 million of litigation charges (including $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe), and $7 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties.

Certain items for the first half of 2018 consisted of $23 million of acquisition costs (including $20 million of ILG acquisition-related costs and $3 million of acquisition costs associated with the then anticipated capital efficient acquisition of the operating property in San Francisco), $16 million of litigation charges (including $11 million related to a project in San Francisco and $5 million related to a project in Lake Tahoe), and $7 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties, partially offset by a $1 million favorable true up of previously recorded costs associated with the 2017 Hurricanes (recorded in Gains and other income).

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 in the preceding paragraph. 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.

Combined Debt to Adjusted EBITDA Ratio

We calculate combined debt to adjusted EBITDA ratio by dividing net debt by combined adjusted EBITDA, where net debt represents total gross debt less securitized debt, gross notes eligible for securitization at the end of such period at an estimated 85 percent advance rate, and cash and cash equivalents other than an estimated $150 million for working capital requirements, and combined adjusted EBITDA is derived by combining the third quarter of 2018 adjusted EBITDA for Legacy-MVW and Legacy-ILG with the fourth quarter of 2018 and the first two quarters of 2019 adjusted EBITDA for MVW, and adding $74 million of additional cost synergies.

Combined Financial Information

The unaudited combined financial information presented herein combines Legacy-MVW and Legacy-ILG results of operation for the three months ended June 30, 2018, and is presented to facilitate comparisons with our results following the acquisition of ILG. We evaluate the combined financial information, and believe it provides useful information to investors, because it provides for a more meaningful comparison of our results following the acquisition of ILG with the results of the combined businesses for the prior year comparable period. The combined financial information for the quarter ended June 30, 2018 was derived by combining the Legacy-MVW and Legacy-ILG financial information for such quarter included in the Quarterly Reports on Form 10-Q filed by MVW and ILG, respectively, with the Securities and Exchange Commission (the "SEC") on August 2, 2018 and August 3, 2018, respectively. Prior to combining the financial information, Legacy-ILG's financial results were reclassified to conform with MVW's current year financial statement presentation, referred to as "Legacy-ILG Reclassified" in the financial schedules. No other adjustments have been made to the Legacy-MVW or Legacy-ILG results to derive the combined financial information. The combined financial information is provided for informational purposes only and is not intended to represent or to be indicative of the actual results of operations that the combined MVW and ILG business would have reported had the ILG acquisition been completed prior to the beginning of fiscal year 2018 and should not be taken as being indicative of future combined results of operations. The actual results may differ significantly from those reflected in the combined financial information.

Adjusted Financial Information

The unaudited adjusted financial information for the quarter ended June 30, 2019 included in the Reconciliation of Adjusted Financial Information and the Reconciliation of Vacation Ownership Segment Interim Adjusted Financial Results was derived by subtracting the Legacy-ILG results of operation for such quarter from MVW's results of operation for the quarter and is presented to facilitate comparisons of Legacy-MVW results following the acquisition of ILG. We evaluate the adjusted financial information, and believe it provides useful information to investors, because it provides for a more meaningful comparison of Legacy-MVW results following the acquisition of ILG with Legacy-MVW results for the prior year comparable period.

Vacation Ownership Adjusted EBITDA Margin

We calculate vacation ownership adjusted EBITDA margin by dividing combined vacation ownership adjusted EBITDA by combined vacation ownership revenues excluding reimbursed costs.  Cost reimbursements revenue includes direct and indirect costs that property owners' associations and joint ventures we participate in reimburse to us, and relates, predominantly, to payroll costs where we are the employer.  Because we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on net income attributable to us because cost reimbursements revenue net of reimbursed costs expense is zero.  We consider vacation ownership Adjusted EBITDA margin to be a meaningful measure, and believe it provides useful information to investors, because it represents our Adjusted EBITDA margin on that portion of revenue that impacts adjusted EBITDA attributable to us.

SOURCE Marriott Vacations Worldwide

Related Links

http://www.marriottvacationsworldwide.com

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