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      Marriott Vacations Worldwide Reports Second Quarter Financial Results

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

      News provided by

      Marriott Vacations Worldwide Corporation

      Aug 02, 2018, 08:00 ET

      Share this article

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      ORLANDO, Fla., Aug. 2, 2018 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported second quarter financial results and provided updated guidance for the full year 2018.

      Second Quarter 2018 Results:

      • Total company vacation ownership contract sales were $233 million, an increase of $18 million, or 8 percent, compared to the prior year period. North America vacation ownership contract sales were $211 million, an increase of $16 million, or 8 percent, compared to the prior year period.
        • The company estimates that the 2017 hurricanes negatively impacted contract sales in the 2018 second quarter by more than $3 million. Excluding that impact, the company estimates that total company and North America vacation ownership contract sales would have both grown 10 percent over the prior year period.
      • North America VPG totaled $3,672, a 3 percent increase from the second quarter of 2017. North America tours increased 5 percent year-over-year.
      • Net income was $11 million, or $0.39 fully diluted earnings per share ("EPS"), compared to net income of $48 million, or $1.72 fully diluted EPS, in the second quarter of 2017.
      • Adjusted net income was $43 million compared to adjusted net income of $49 million in the second quarter of 2017. Adjusted fully diluted EPS was $1.59, compared to adjusted fully diluted EPS of $1.74 in the second quarter of 2017.
      • Adjusted EBITDA totaled $76 million, a decrease of $8 million year-over-year.
        • Excluding the impact of nearly $10 million of unfavorable revenue reportability, Adjusted EBITDA increased $2 million year-over-year.
      • Development margin was $39 million compared to $52 million in the second quarter of 2017. Development margin percentage was 19.0 percent compared to 25.6 percent in the prior year quarter.
        • Total company adjusted development margin percentage, which excludes the impact of revenue reportability and other charges, was 20.0 percent in the second quarter of 2018 compared to 23.2 percent in the second quarter of 2017.
        • North America adjusted development margin percentage, which excludes the impact of revenue reportability and other charges, was 23.2 percent in the second quarter of 2018 compared to 25.6 percent in the second quarter of 2017.
      • Resort management and other services revenues totaled $78 million, a $6 million, or 8 percent, increase from the second quarter of 2017. Resort management and other services revenues, net of expenses, totaled $37 million, a $4 million, or 12 percent, increase from the second quarter of 2017.
      • Financing revenues totaled $36 million, a $3 million, or 10 percent, increase from the second quarter of 2017. Financing revenues, net of expenses and consumer financing interest expense, were $26 million, a $2 million, or 11 percent, increase from the second quarter of 2017.
      • Rental revenues totaled $75 million, a $5 million, or 8 percent, increase from the second quarter of 2017. Rental revenues net of expenses were $12 million, a 2 percent, increase from the second quarter of 2017.

      "In the second quarter, we saw a continuation of the momentum we gained at the end of the first quarter. Contract sales were $233 million, an increase of 8 percent year-over-year, and adjusted EBITDA was strong at $76 million, both in line with our expectations," said Stephen P. Weisz, president and chief executive officer. "Our new sales locations continue to mature, our marketing programs are generating increasing tour flow, and our volume per guest continues to grow. Based on our performance for the first half of the year and our expectations for the remainder of the year, we are confident we can achieve our 2018 full year guidance of contract sales growth between 7 and 12 percent, adjusted net income of $184 million to $195 million, and adjusted EBITDA of $310 million to $325 million.  Regarding the proposed transaction with ILG, I'm pleased to say that we've received the required regulatory approvals and, assuming all other remaining conditions are satisfied, including approval from shareholders of both MVW and ILG, we anticipate closing on the transaction on August 31, 2018."

      Non-GAAP Financial Information

      Certain financial measures included in this release are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), including adjusted net income, EBITDA, Adjusted EBITDA, adjusted development margin, adjusted free cash flow, and adjusted fully diluted earnings per share. For descriptions of and a reconciliation of such measures to the most directly comparable GAAP measure, see pages A-1 through A-12 of the Financial Schedules that follow.

      Balance Sheet and Liquidity

      On June 30, 2018, cash and cash equivalents totaled $548 million. Since the beginning of the year, real estate inventory balances decreased $38 million to $685 million, including $325 million of finished goods and $360 million of land and infrastructure. The company had $1.3 billion in debt outstanding, net of unamortized debt issuance costs, at the end of the second quarter, an increase of $237 million from year-end 2017, consisting primarily of $1.1 billion of debt related to our securitized notes receivable and $196 million of convertible notes.

      During the second quarter of 2018, the company completed the securitization of $436 million of vacation ownership notes receivable at a blended borrowing rate of 3.52 percent and an advance rate of 97 percent. Approximately $327 million of the vacation ownership notes receivable were purchased on June 28, 2018 by the MVW Owner Trust 2018-1 (the "Trust"), and all or a portion of the remaining vacation ownership notes receivable may be purchased by the Trust prior to September 30, 2018. This transaction generated approximately $423 million of gross proceeds, of which $106 million will be held in restricted cash until the remaining vacation ownership notes receivable are purchased by the Trust. Approximately $10 million was used to pay transaction expenses and fund required reserves and the remainder will be used for general corporate purposes.

      As of June 30, 2018, the company had approximately $248 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit, and approximately $40 million of gross vacation ownership notes receivable eligible for securitization.

      Acquisition of ILG, Inc.

      On April 30, 2018, the company entered into an Agreement and Plan of Merger under which the company agreed to acquire, in a series of transactions, all of the outstanding shares of ILG, Inc. ("ILG") in a cash and stock transaction with an implied equity value of approximately $4.7 billion as of that date. Subject to the satisfaction of customary closing conditions, including approval from shareholders of both MVW and ILG, as noted above, the company expects to close the transaction on August 31, 2018.

      Outlook

      Pages A-1 through A-12 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2018 expected GAAP results:

      Net income

      $150 million

      to

      $161 million

      Fully diluted EPS

      $5.45

      to

      $5.85

      Net cash provided by operating activities

      $95 million

      to

      $120 million





      The company is updating guidance as reflected in the chart below for the full year 2018:



      Current Guidance


      Previous Guidance

      Adjusted free cash flow


      $200 million

      to

      $230 million


      $185 million

      to

      $215 million










      The company is reaffirming the following guidance for the full year 2018:

      Adjusted net income

      $184 million

      to

      $195 million

      Adjusted fully diluted EPS

      $6.69

      to

      $7.09

      Adjusted EBITDA

      $310 million

      to

      $325 million

      Contract sales growth

      7 percent

      to

      12 percent

      2018 expected GAAP results and guidance above do not reflect the impact of future spending associated with the planned acquisition of ILG or any impact of the acquisition of ILG.

      Second 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 2018. 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 13681378. The webcast will also be available on the company's website.

      About Marriott Vacations Worldwide Corporation

      Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company, offering a diverse portfolio of quality products, programs and management expertise with over 65 resorts. Its brands include Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. For more information, please visit www.marriottvacationsworldwide.com.

      Note on forward-looking statements:

      This press release and accompanying schedules contain "forward-looking statements" within the meaning of federal securities laws, including statements about future operating results, estimates, and assumptions, the company's pending acquisition of ILG, and similar statements concerning anticipated future events and expectations that are not historical facts. The company cautions you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading "Risk Factors" contained in the company's most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this press release. These statements are made as of August 2, 2018 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.

      No Offer or Solicitation

      This communication is for informational purposes only and is not intended to and does not constitute an offer to buy, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

      Important Information and Where to Find It

      The proposed transactions involving the company and ILG will be submitted to the company's stockholders and ILG's stockholders for their consideration. In connection with the proposed transaction, on July 19, 2018, the company filed with the SEC an amendment to the registration statement on Form S-4 that included a joint proxy statement/prospectus for the stockholders of the company and ILG and was filed with the SEC on June 6, 2018. The registration statement was declared effective by the SEC on July 23, 2018. The company and ILG mailed the definitive joint proxy statement/prospectus to their respective stockholders on or about July 25, 2018 and each of the company and ILG intend to hold the special meeting of the stockholders of the company and ILG on August 28, 2018. This communication is not intended to be, and is not, a substitute for such filings or for any other document that the company or ILG may file with the SEC in connection with the proposed transaction. SECURITY HOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS, CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The registration statement, the joint proxy statement/prospectus and other relevant materials and any other documents filed or furnished by the company or ILG with the SEC may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, security holders will be able to obtain free copies of the registration statement and the joint proxy statement/prospectus from the company by going to its investor relations page on its corporate web site at www.marriottvacationsworldwide.com and from ILG by going to its investor relations page on its corporate web site at www.ilg.com.

      Participants in the Solicitation

      The company, ILG, their respective directors and certain of their respective executive officers and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about the company's directors and executive officers is set forth in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 27, 2018 and in its definitive proxy statement filed with the SEC on April 3, 2018, and information about ILG's directors and executive officers is set forth in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 1, 2018, and in its definitive proxy statement filed with the SEC on May 7, 2018. These documents are available free of charge from the sources indicated above, and from the company by going to its investor relations page on its corporate web site at www.marriottvacationsworldwide.com and from ILG by going to its investor relations page on its corporate web site at www.ilg.com. Additional information regarding the interests of participants in the solicitation of proxies in connection with the proposed transactions is presented in the definitive joint proxy statement/prospectus included in the registration statement on Form S-4 filed by the company with the SEC, and may be included in other relevant materials that the company and ILG file with the SEC.

      Financial Schedules Follow

      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      FINANCIAL SCHEDULES

      QUARTER 2, 2018


      TABLE OF CONTENTS


      Consolidated Statements of Income

      A-1

      Adjusted Net Income, Adjusted Earnings Per Share - Diluted, EBITDA and Adjusted EBITDA

      A-2

      North America Segment Financial Results

      A-3

      Asia Pacific Segment Financial Results

      A-4

      Europe Segment Financial Results

      A-5

      Corporate and Other Financial Results

      A-6

      Consolidated Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

      A-7

      North America Contract Sales to Sale of Vacation Ownership Products and Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses)

      A-8

      2018 Outlook - Adjusted Net Income, Adjusted Earnings Per Share - Diluted and Adjusted EBITDA

      A-9

      2018 Outlook - Adjusted Free Cash Flow

      A-10

      Non-GAAP Financial Measures

      A-11

      Consolidated Balance Sheets

      A-13

      Consolidated Statements of Cash Flows

      A-14


      NOTE:  Contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where 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 thousands, except per share amounts)
      (Unaudited)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      REVENUES








      Sale of vacation ownership products

      $

      205,168



      $

      201,856



      $

      379,957



      $

      365,733


      Resort management and other services

      77,642



      71,940



      147,822



      139,359


      Financing

      35,851



      32,530



      71,333



      64,641


      Rental

      74,561



      69,290



      148,771



      136,969


      Cost reimbursements

      201,470



      186,820



      417,658



      384,034


      TOTAL REVENUES

      594,692



      562,436



      1,165,541



      1,090,736


      EXPENSES








      Cost of vacation ownership products

      56,863



      51,025



      103,226



      94,796


      Marketing and sales

      109,315



      99,168



      215,249



      196,666


      Resort management and other services

      41,079



      39,413



      78,857



      76,884


      Financing

      3,788



      3,449



      8,036



      7,466


      Rental

      62,739



      57,756



      118,638



      111,464


      General and administrative

      32,992



      29,534



      62,427



      57,073


      Litigation settlement

      16,312



      183



      16,209



      183


      Consumer financing interest

      6,172



      5,654



      12,778



      11,592


      Royalty fee

      16,198



      16,307



      31,022



      32,377


      Cost reimbursements

      201,470



      186,820



      417,658



      384,034


      TOTAL EXPENSES

      546,928



      489,309



      1,064,100



      972,535


      Losses and other expense, net

      (6,586)



      (166)



      (6,140)



      (225)


      Interest expense

      (4,112)



      (1,757)



      (8,429)



      (2,538)


      Other

      (19,686)



      (100)



      (22,802)



      (469)


      INCOME BEFORE INCOME TAXES

      17,380



      71,104



      64,070



      114,969


      Provision for income taxes

      (6,619)



      (22,918)



      (17,328)



      (38,893)


      NET INCOME

      $

      10,761



      $

      48,186



      $

      46,742



      $

      76,076










      Earnings per share - Basic

      $

      0.40



      $

      1.76



      $

      1.75



      $

      2.79


      Earnings per share - Diluted

      $

      0.39



      $

      1.72



      $

      1.71



      $

      2.72










      Basic Shares

      26,728



      27,319



      26,707



      27,285


      Diluted Shares

      27,253



      27,965



      27,281



      27,929



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      232,643



      $

      214,985



      $

      436,304



      $

      414,603



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

      A-2


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      (In thousands, except per share amounts)


      ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Net income

      $

      10,761



      $

      48,186



      $

      46,742



      $

      76,076


      Less certain items:








      Acquisition costs

      19,775



      199



      22,935



      611


      Litigation settlement

      16,312



      183



      16,209



      183


      Losses and other expense, net

      6,586



      166



      6,140



      225


      Certain items before provision for income taxes

      42,673



      548



      45,284



      1,019


      Provision for income taxes on certain items

      (9,984)



      (213)



      (10,613)



      (386)


      Adjusted net income **

      $

      43,450



      $

      48,521



      $

      81,413



      $

      76,709


      Earnings per share - Diluted

      $

      0.39



      $

      1.72



      $

      1.71



      $

      2.72


      Adjusted earnings per share - Diluted **

      $

      1.59



      $

      1.74



      $

      2.98



      $

      2.75


      Diluted Shares

      27,253



      27,965



      27,281



      27,929



      EBITDA AND ADJUSTED EBITDA



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Net income

      $

      10,761



      $

      48,186



      $

      46,742



      $

      76,076


      Interest expense 1

      4,112



      1,757



      8,429



      2,538


      Tax provision

      6,619



      22,918



      17,328



      38,893


      Depreciation and amortization

      5,770



      5,001



      11,371



      10,192


      EBITDA **

      27,262



      77,862



      83,870



      127,699


      Non-cash share-based compensation

      6,117



      5,175



      9,718



      8,451


      Certain items before provision for income taxes

      42,673



      548



      45,284



      1,019


      Adjusted EBITDA **

      $

      76,052



      $

      83,585



      $

      138,872



      $

      137,169




      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      1

      Interest expense excludes consumer financing interest expense.

      A-3


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      NORTH AMERICA SEGMENT

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      REVENUES








      Sale of vacation ownership products

      $

      188,624



      $

      184,880



      $

      349,320



      $

      336,589


      Resort management and other services

      68,429



      63,916



      131,960



      125,989


      Financing

      33,912



      30,719



      67,441



      60,958


      Rental

      67,083



      62,021



      135,158



      124,506


      Cost reimbursements

      186,734



      176,236



      389,360



      357,802


      TOTAL REVENUES

      544,782



      517,772



      1,073,239



      1,005,844


      EXPENSES








      Cost of vacation ownership products

      50,123



      45,808



      91,108



      84,731


      Marketing and sales

      95,519



      87,373



      188,902



      174,795


      Resort management and other services

      33,881



      33,355



      66,164



      66,324


      Rental

      53,283



      49,220



      100,466



      95,274


      Litigation settlement

      15,199



      —



      14,988



      —


      Royalty fee

      3,641



      3,038



      5,478



      5,728


      Cost reimbursements

      186,734



      176,236



      389,360



      357,802


      TOTAL EXPENSES

      438,380



      395,030



      856,466



      784,654


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

      17



      (162)



      3



      (196)


      Other

      26



      74



      (2,425)



      125


      SEGMENT FINANCIAL RESULTS

      $

      106,445



      $

      122,654



      $

      214,351



      $

      221,119










      SEGMENT FINANCIAL RESULTS

      $

      106,445



      $

      122,654



      $

      214,351



      $

      221,119


      Less certain items:








      Acquisition costs

      68



      27



      2,568



      27


      Litigation settlement

      15,199



      —



      14,988



      —


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

      (17)



      162



      (3)



      196


      Certain items

      15,250



      189



      17,553



      223


      ADJUSTED SEGMENT FINANCIAL RESULTS **

      $

      121,695



      $

      122,843



      $

      231,904



      $

      221,342











      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      211,469



      $

      195,791



      $

      398,613



      $

      379,011




      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-4


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      ASIA PACIFIC SEGMENT

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      REVENUES








      Sale of vacation ownership products

      $

      11,654



      $

      10,282



      $

      22,900



      $

      19,437


      Resort management and other services

      1,337



      981



      2,650



      1,923


      Financing

      1,238



      1,105



      2,452



      2,228


      Rental

      2,059



      2,046



      5,384



      4,950


      Cost reimbursements

      1,931



      1,607



      3,697



      2,717


      TOTAL REVENUES

      18,219



      16,021



      37,083



      31,255


      EXPENSES








      Cost of vacation ownership products

      3,490



      2,184



      6,636



      4,242


      Marketing and sales

      9,379



      7,618



      18,016



      14,381


      Resort management and other services

      1,271



      831



      2,382



      1,703


      Rental

      5,019



      4,315



      10,045



      8,641


      Royalty fee

      268



      221



      521



      449


      Cost reimbursements

      1,931



      1,607



      3,697



      2,717


      TOTAL EXPENSES

      21,358



      16,776



      41,297



      32,133


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

      43



      —



      43



      (20)


      Other

      (5)



      (2)



      (10)



      (10)


      SEGMENT FINANCIAL RESULTS

      $

      (3,101)



      $

      (757)



      $

      (4,181)



      $

      (908)










      SEGMENT FINANCIAL RESULTS

      $

      (3,101)



      $

      (757)



      $

      (4,181)



      $

      (908)


      Less certain items:








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

      (43)



      —



      (43)



      20


      Certain items

      (43)



      —



      (43)



      20


      ADJUSTED SEGMENT FINANCIAL RESULTS **

      $

      (3,144)



      $

      (757)



      $

      (4,224)



      $

      (888)











      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      13,784



      $

      11,614



      $

      26,127



      $

      23,562




      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-5


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      EUROPE SEGMENT

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      REVENUES








      Sale of vacation ownership products

      $

      4,890



      $

      6,694



      $

      7,737



      $

      9,707


      Resort management and other services

      7,876



      7,043



      13,212



      11,447


      Financing

      701



      706



      1,440



      1,455


      Rental

      5,419



      5,223



      8,229



      7,513


      Cost reimbursements

      12,805



      8,977



      24,601



      23,515


      TOTAL REVENUES

      31,691



      28,643



      55,219



      53,637


      EXPENSES








      Cost of vacation ownership products

      823



      1,137



      1,233



      1,692


      Marketing and sales

      4,417



      4,177



      8,331



      7,490


      Resort management and other services

      5,927



      5,227



      10,311



      8,857


      Rental

      4,437



      4,221



      8,127



      7,549


      Litigation settlement

      1,100



      —



      1,208



      —


      Royalty fee

      71



      79



      111



      125


      Cost reimbursements

      12,805



      8,977



      24,601



      23,515


      TOTAL EXPENSES

      29,580



      23,818



      53,922



      49,228


      SEGMENT FINANCIAL RESULTS

      $

      2,111



      $

      4,825



      $

      1,297



      $

      4,409










      SEGMENT FINANCIAL RESULTS

      $

      2,111



      $

      4,825



      $

      1,297



      $

      4,409


      Less certain items:








      Litigation settlement

      1,100



      —



      1,208



      —


      Certain items

      1,100



      —



      1,208



      —


      ADJUSTED SEGMENT FINANCIAL RESULTS **

      $

      3,211



      $

      4,825



      $

      2,505



      $

      4,409











      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      7,390



      $

      7,580



      $

      11,564



      $

      12,030




      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-6


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      CORPORATE AND OTHER

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      EXPENSES








      Cost of vacation ownership products

      $

      2,427



      $

      1,896



      $

      4,249



      $

      4,131


      Financing

      3,788



      3,449



      8,036



      7,466


      General and administrative

      32,992



      29,534



      62,427



      57,073


      Litigation settlement

      13



      183



      13



      183


      Consumer financing interest

      6,172



      5,654



      12,778



      11,592


      Royalty fee

      12,218



      12,969



      24,912



      26,075


      TOTAL EXPENSES

      57,610



      53,685



      112,415



      106,520


      Losses and other expense, net

      (6,646)



      (4)



      (6,186)



      (9)


      Interest expense

      (4,112)



      (1,757)



      (8,429)



      (2,538)


      Other

      (19,707)



      (172)



      (20,367)



      (584)


      TOTAL FINANCIAL RESULTS

      $

      (88,075)



      $

      (55,618)



      $

      (147,397)



      $

      (109,651)










      TOTAL FINANCIAL RESULTS

      $

      (88,075)



      $

      (55,618)



      $

      (147,397)



      $

      (109,651)


      Less certain items:








      Acquisition costs

      19,707



      172



      20,367



      584


      Losses and other expense, net

      6,646



      4



      6,186



      9


      Certain items

      26,353



      176



      26,553



      593


      ADJUSTED FINANCIAL RESULTS **

      $

      (61,722)



      $

      (55,442)



      $

      (120,844)



      $

      (109,058)




      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-7


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

      (In thousands)



      Three Months Ended


      Six Months Ended

      ($ in thousands)

      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      232,643



      $

      214,985



      $

      436,304



      $

      414,603


      Less resales contract sales

      (7,392)



      (5,093)



      (14,932)



      (10,876)


      Contract sales, net of resales

      225,251



      209,892



      421,372



      403,727


      Plus:








      Settlement revenue 1

      4,228



      4,103



      7,741



      7,439


      Resales revenue 1

      2,740



      2,561



      4,946



      4,146


      Revenue recognition adjustments:








      Reportability

      (4,180)



      9,862



      (15,690)



      (4,288)


      Sales reserve

      (15,095)



      (14,337)



      (23,970)



      (27,059)


      Other 2

      (7,776)



      (10,225)



      (14,442)



      (18,232)


      Sale of vacation ownership products

      $

      205,168



      $

      201,856



      $

      379,957



      $

      365,733




      1

      Previously included in Resort management and other services 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.

      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN

      (ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Sale of vacation ownership products

      $

      205,168



      $

      201,856



      $

      379,957



      $

      365,733


      Less:








      Cost of vacation ownership products

      56,863



      51,025



      103,226



      94,796


      Marketing and sales

      109,315



      99,168



      215,249



      196,666


      Development margin

      38,990



      51,663



      61,482



      74,271


      Revenue recognition reportability adjustment

      2,807



      (6,858)



      10,755



      2,948


      Adjusted development margin **

      $

      41,797



      $

      44,805



      $

      72,237



      $

      77,219


      Development margin percentage 1

      19.0%


      25.6%


      16.2%


      20.3%

      Adjusted development margin percentage

      20.0%


      23.2%


      18.3%


      20.9%



      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      1

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

      A-8


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      NORTH AMERICA CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

      (In thousands)



      Three Months Ended


      Six Months Ended

      ($ in thousands)

      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Contract sales

      $

      211,469



      $

      195,791



      $

      398,613



      $

      379,011


      Less resales contract sales

      (7,392)



      (4,908)



      (14,604)



      (10,691)


      Contract sales, net of resales

      204,077



      190,883



      384,009



      368,320


      Plus:








      Settlement revenue 1

      3,920



      4,051



      7,412



      7,337


      Resales revenue 1

      2,594



      2,561



      4,724



      4,146


      Revenue recognition adjustments:








      Reportability

      (1,560)



      9,512



      (12,465)



      (4,087)


      Sales reserve

      (13,250)



      (13,025)



      (21,224)



      (22,791)


      Other 2

      (7,157)



      (9,102)



      (13,136)



      (16,336)


      Sale of vacation ownership products

      $

      188,624



      $

      184,880



      $

      349,320



      $

      336,589




      1

      Previously included in Resort management and other services 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.

      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      NORTH AMERICA ADJUSTED DEVELOPMENT MARGIN

      (ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

      (In thousands)



      Three Months Ended


      Six Months Ended


      June 30, 2018


      June 30, 2017


      June 30, 2018


      June 30, 2017

      Sale of vacation ownership products

      $

      188,624



      $

      184,880



      $

      349,320



      $

      336,589


      Less:








      Cost of vacation ownership products

      50,123



      45,808



      91,108



      84,731


      Marketing and sales

      95,519



      87,373



      188,902



      174,795


      Development margin

      42,982



      51,699



      69,310



      77,063


      Revenue recognition reportability adjustment

      1,043



      (6,586)



      8,570



      2,825


      Adjusted development margin **

      $

      44,025



      $

      45,113



      $

      77,880



      $

      79,888


      Development margin percentage 1

      22.8%


      28.0%


      19.8%


      22.9%

      Adjusted development margin percentage

      23.2%


      25.6%


      21.6%


      23.5%



      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      1

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

      A-9


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      2018 ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE - DILUTED OUTLOOK

      (In millions, except per share amounts)



      Fiscal Year
      2018 (low)


      Fiscal Year
      2018 (high)

      Net income 1

      $

      150



      $

      161


      Adjustments to reconcile Net income to Adjusted net income




      Certain items 2

      45



      45


      Provision for income taxes on adjustments to net income

      (11)



      (11)


      Adjusted net income **

      $

      184



      $

      195


      Earnings per share - Diluted 1, 3

      $

      5.45



      $

      5.85


      Adjusted earnings per share - Diluted **, 3

      $

      6.69



      $

      7.09


      Diluted shares 3

      27.5



      27.5




      1

      2018 expected GAAP results above do not reflect the impact of future spending associated with the planned acquisition of ILG or any impact of  the acquisition of ILG.

      2

      Certain items adjustment includes $23 million of acquisition costs, $16 million of litigation settlements and $6 million of losses and other expense.

      3

      Earnings per share - Diluted, Adjusted earnings per share - Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through July 31, 2018.

      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      2018 ADJUSTED EBITDA OUTLOOK

      (In millions)



      Fiscal Year
      2018 (low)


      Fiscal Year
      2018 (high)

      Net income 1

      $

      150



      $

      161


      Interest expense 2

      17



      17


      Tax provision

      53



      57


      Depreciation and amortization

      26



      26


      EBITDA **

      246



      261


      Non-cash share-based compensation

      19



      19


      Certain items 3

      45



      45


      Adjusted EBITDA **

      $

      310



      $

      325




      1

      2018 expected GAAP results above do not reflect the impact of future spending associated with the planned acquisition of ILG or any impact of  the acquisition of ILG.

      2

      Interest expense excludes consumer financing interest expense.

      3

      Certain items adjustment includes $23 million of acquisition costs, $16 million of litigation settlements and $6 million of losses and other expense.

      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-10


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      2018 ADJUSTED FREE CASH FLOW OUTLOOK

      (In millions)



      Fiscal Year
      2018 (low)


      Fiscal Year
      2018 (high)

      Net cash provided by operating activities

      $

      95



      $

      120


      Capital expenditures for property and equipment (excluding inventory):




      New sales centers 1

      (3)



      (5)


      Other

      (27)



      (32)


      Borrowings from securitization transactions

      423



      423


      Repayment of debt related to securitizations

      (305)



      (295)


      Free cash flow **

      183



      211


      Adjustments:




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

      13



      10


      Inventory / other payments associated with capital efficient inventory arrangements

      (40)



      (40)


      Certain items 3

      46



      46


      Change in restricted cash

      (2)



      3


      Adjusted free cash flow **

      $

      200



      $

      230




      1

      Represents the incremental investment in new sales centers.

      2

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

      3

      Certain items adjustment includes $23 million of acquisition costs, $16 million of litigation settlements and $7 million of fraudulently induced electronic payment disbursements made to third parties.

      **

      Denotes non-GAAP financial measures. Please see pages A-11 and A-12 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

      A-11


      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, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, these non-GAAP financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-GAAP financial measures we report may not be comparable to those reported by others.


      Adjusted Net Income


      We evaluate non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the quarters and first halves ended June 30, 2018 and June 30, 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 ownership companies.


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


      In our Statement of Income for the quarter ended June 30, 2018, we recorded $42.7 million of net pre-tax items, which included $19.8 million of acquisition costs associated with the pending acquisition of ILG, $16.3 million of litigation settlement charges, including $10.6 million related to a project in San Francisco, $4.6 million related to a project in Lake Tahoe and $1.1 million related to projects in Europe, and $6.6 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties.


      In our Statement of Income for the first half ended June 30, 2018, we recorded $45.3 million of net pre-tax items, which included $22.9 million of acquisition costs, including $20.4 million of costs associated with the pending acquisition of ILG and $2.5 million of costs associated with the anticipated future capital efficient acquisition of an operating property in San Francisco, California, $16.3 million of litigation settlement charges, including $10.6 million related to a project in San Francisco, $4.6 million related to a project in Lake Tahoe and $1.1 million related to projects in Europe and $6.6 million of losses and other expenses primarily resulting from fraudulently induced electronic payment disbursements made to third parties, partially offset by a $0.5 million favorable true up of previously recorded costs associated with the 2017 Hurricanes (recorded in losses and other expense) and a $0.1 million true up of previously recorded litigation settlement expenses.


      Certain items - Quarter and First Half Ended June 30, 2017


      In our Statement of Income for the quarter ended June 30, 2017, we recorded $0.5 million of net pre-tax items, which included $0.2 million of acquisition costs, less than $0.2 million of litigation settlement expenses and less than $0.2 million of losses and other expense.


      In our Statement of Income for the first half ended June 30, 2017, we recorded $1.0 million of net pre-tax items, which included $0.6 million of acquisition costs, $0.2 million of litigation settlement expenses and $0.2 million of 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 above. We evaluate Adjusted Development Margin because it allows for period-over-period comparisons of our on-going core operations before the impact of revenue reportability and certain items to our Development Margin.

      A-12


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      NON-GAAP FINANCIAL MEASURES


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


      EBITDA is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), provision for income taxes, depreciation and amortization. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because 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 above, and excludes non-cash share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. Prior period presentation has been recast for consistency. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies.


      Free Cash Flow and Adjusted Free Cash Flow


      We evaluate Free Cash Flow and Adjusted Free Cash Flow as liquidity measures that provide useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations, which cash can be used for strategic opportunities, including acquisitions and strengthening the balance sheet. Adjusted Free Cash Flow, which reflects additional adjustments to Free Cash Flow for the impact of 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.

      A-13


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      INTERIM CONSOLIDATED BALANCE SHEETS

      (In thousands, except share and per share data)

      (Unaudited)



      June 30, 2018


      December 31, 2017

      ASSETS




      Cash and cash equivalents

      $

      547,667



      $

      409,059


      Restricted cash (including $144,816 and $32,321 from VIEs, respectively)

      170,536



      81,553


      Accounts receivable, net (including $6,039 and $5,639 from VIEs, respectively)

      67,619



      91,659


      Vacation ownership notes receivable, net (including $964,510 and $814,011 from VIEs, respectively)

      1,167,779



      1,114,552


      Inventory

      690,154



      728,379


      Property and equipment

      246,940



      252,727


      Other (including $25,688 and $13,708 from VIEs, respectively)

      166,875



      166,653


      TOTAL ASSETS

      $

      3,057,570



      $

      2,844,582






      LIABILITIES AND EQUITY




      Accounts payable

      $

      84,331



      $

      145,405


      Advance deposits

      95,816



      84,087


      Accrued liabilities (including $685 and $701 from VIEs, respectively)

      99,469



      119,810


      Deferred revenue

      98,500



      69,058


      Payroll and benefits liability

      85,216



      111,885


      Deferred compensation liability

      82,624



      74,851


      Debt, net (including $1,113,860 and $845,131 from VIEs, respectively)

      1,332,276



      1,095,213


      Other

      11,937



      13,471


      Deferred taxes

      101,760



      89,987


      TOTAL LIABILITIES

      1,991,929



      1,803,767


      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; 36,981,204 and 36,861,843 shares issued, respectively

      370



      369


      Treasury stock — at cost; 10,408,996 and 10,400,547 shares, respectively

      (695,746)



      (694,233)


      Additional paid-in capital

      1,190,448



      1,188,538


      Accumulated other comprehensive income

      15,774



      16,745


      Retained earnings

      554,795



      529,396


      TOTAL EQUITY

      1,065,641



      1,040,815


      TOTAL LIABILITIES AND EQUITY

      $

      3,057,570



      $

      2,844,582



      The abbreviation VIEs above means Variable Interest Entities.

      A-14


      MARRIOTT VACATIONS WORLDWIDE CORPORATION

      INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

      (In thousands)

      (Unaudited)



      Six Months Ended


      June 30, 2018


      June 30, 2017

      OPERATING ACTIVITIES




      Net income

      $

      46,742



      $

      76,076


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




      Depreciation

      11,371



      10,192


      Amortization of debt discount and issuance costs

      7,563



      2,726


      Vacation ownership notes receivable reserve

      23,970



      27,051


      Share-based compensation

      9,718



      8,451


      Deferred income taxes

      12,199



      12,810


      Net change in assets and liabilities:




      Accounts receivable

      24,499



      23,970


      Vacation ownership notes receivable originations

      (233,061)



      (228,048)


      Vacation ownership notes receivable collections

      155,257



      136,731


      Inventory

      36,840



      15,006


      Purchase of vacation ownership units for future transfer to inventory

      —



      (33,594)


      Other assets

      11,523



      4,475


      Accounts payable, advance deposits and accrued liabilities

      (59,365)



      (68,228)


      Deferred revenue

      29,493



      25,163


      Payroll and benefit liabilities

      (26,699)



      (8,698)


      Deferred compensation liability

      7,773



      7,053


      Other liabilities

      (134)



      (292)


      Other, net

      764



      3,286


      Net cash provided by operating activities

      58,453



      14,130


      INVESTING ACTIVITIES




      Capital expenditures for property and equipment (excluding inventory)

      (7,490)



      (11,344)


      Purchase of company owned life insurance

      (11,562)



      (10,092)


      Dispositions, net

      120



      11


      Net cash used in investing activities

      (18,932)



      (21,425)


      FINANCING ACTIVITIES




      Borrowings from securitization transactions

      423,000



      50,260


      Repayment of debt related to securitization transactions

      (154,271)



      (117,400)


      Borrowings from Revolving Corporate Credit Facility

      —



      60,000


      Repayment of Revolving Corporate Credit Facility

      —



      (12,500)


      Repayment of non-interest bearing note payable

      (32,680)



      —


      Debt issuance costs

      (6,578)



      (1,219)


      Repurchase of common stock

      (1,882)



      (3,868)


      Payment of dividends

      (31,927)



      (28,552)


      Payment of withholding taxes on vesting of restricted stock units

      (8,312)



      (9,962)


      Other, net

      13



      (624)


      Net cash provided by (used in) financing activities

      187,363



      (63,865)


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

      707



      1,962


      Increase (decrease) in cash, cash equivalents and restricted cash

      227,591



      (69,198)


      Cash, cash equivalents and restricted cash, beginning of period

      490,612



      213,102


      Cash, cash equivalents and restricted cash, end of period

      $

      718,203



      $

      143,904


      SOURCE Marriott Vacations Worldwide Corporation

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