Marriott Vacations Worldwide Reports Fourth Quarter and Full Year 2017 Financial Results and Provides 2018 Outlook


ORLANDO, Fla., Feb. 27, 2018 /PRNewswire/ — Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported fourth quarter and full year 2017 financial results and provided guidance for the full year 2018.

Due to the change in the company’s financial reporting calendar in 2017, financial results for the fourth quarter of 2017 were negatively impacted by twenty fewer days of operations than the prior year fourth quarter. Prior year results have not been restated for the change in the reporting calendar.

Full Year and Fourth Quarter 2017 Results:

  • Full year net income was $227 million, compared to $137 million in 2016, an increase of 65 percent. Fully diluted earnings per share (“EPS”) was $8.18, compared to $4.83 in 2016, an increase of 69 percent. Net income in the fourth quarter of 2017 was $108 million, or $3.95 fully diluted EPS.
  • Full year adjusted net income was $160 million, compared to $134 million in 2016, an increase of 19 percent. Adjusted fully diluted EPS was $5.78 compared to $4.73 in 2016, an increase of 22 percent. Adjusted net income in the fourth quarter of 2017 was $43 million, or $1.56 adjusted fully diluted EPS.
  • Full year adjusted EBITDA totaled $280 million, an increase of $19 million, or 7 percent, year-over-year. Adjusted EBITDA in the fourth quarter of 2017 totaled $66 million.
  • Total full year company contract sales were $803 million, an increase of $79 million, or 11 percent, compared to the prior year. Contract sales in the company’s key North America segment were $729 million, an increase of $83 million, or 13 percent, compared to the prior year. The company estimates Hurricane Irma and Hurricane Maria (the “2017 Hurricanes”) negatively impacted contract sales by approximately $20 million in 2017. Excluding that impact, total company and North America contract sales would have increased 14 percent and 16 percent, respectively.
    • Total company and North America contract sales in the fourth quarter of 2017 were $201 million and $181 million, respectively.  The company estimates the 2017 Hurricanes negatively impacted contract sales by approximately $8 million in the fourth quarter of 2017. Adjusting for that impact, as well as the impact of the change in the company’s financial reporting calendar, total company and North America contract sales would have increased 9 percent and 11 percent, respectively, compared to the prior year period.
  • Full year North America VPG totaled $3,565, a 3 percent increase from 2016. Tours increased 12 percent year-over-year. North America VPG in the fourth quarter of 2017 totaled $3,518.
  • The company generated net cash provided by operating activities of $142 million and adjusted free cash flow of $253 million, nearly $30 million above the high end of the company’s previous guidance range.
  • During 2017, the company returned $126 million to its shareholders through the repurchase of 0.8 million shares for $88 million and $38 million in dividends paid.
  • The company recorded a benefit in its provision for income taxes of $65 million in the fourth quarter of 2017 related to the impact of the Tax Cuts and Jobs Act of 2017.
  • The company entered into a capital efficient arrangement with a third party to purchase an operating property located in San Francisco, California that the company expects to re-brand as a Marriott Vacation Club Pulse property in 2019.
  • In February 2018, the company amended certain agreements with Marriott International. The company expects these amendments to provide immediate annualized financial benefits of $3 million resulting from a reduced annual royalty fee plus $15 million to $17 million of benefits from increased annual co-marketing funds associated with Marriott International’s new credit card arrangements and reduced costs of Marriott Rewards points under the company’s existing agreements with Marriott International from planned system-wide reductions in the rates Marriott International charges its loyalty program partners. Finally, the amendments provide for significantly expanded marketing opportunities with Marriott International.
  • Effective January 1, 2018, the company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which supersedes most existing revenue recognition guidance.

Non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, adjusted fully diluted earnings per share, adjusted free cash flow, and adjusted development margin are reconciled and adjustments are shown and described in further detail on pages A-1 through A-17 of the Financial Schedules that follow.

“I am very pleased with how we closed out 2017, with contract sales and adjusted EBITDA in line with our previous guidance, and adjusted free cash flow of $253 million,” said Stephen P. Weisz, president and chief executive officer. “I am even more excited about what lies ahead for Marriott Vacations Worldwide as we continue to expand our portfolio of resorts.  We are also very optimistic about recent enhancements to some of our agreements with Marriott International, which expanded our great partnership with Marriott and provide immediate benefits to our financial results and significantly enhanced rights to expand our call transfer, digital marketing, and linkage arrangements with Marriott. We expect that these expanded opportunities will provide significant contributions to our growth going forward.”

Balance Sheet and Liquidity

On December 31, 2017, cash and cash equivalents totaled $409 million. Since the beginning of the year, real estate inventory balances increased by $3 million to $712 million, including $379 million of finished goods, $2 million of work-in-progress, and $330 million of land and infrastructure. The company had $1,095 million in debt outstanding, net of unamortized debt issue costs, at the end of the fourth quarter, an increase of $358 million from year-end 2016, consisting primarily of $835 million of debt related to our securitized notes receivable and $193 million of convertible notes.

As of December 31, 2017, the company had approximately $245 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit, and approximately $151 million of gross vacation ownership notes receivable eligible for securitization under its warehouse credit facility.

Fiscal Year Change

The table below shows the number of days for each reporting period in 2017 and 2016:

2017

2016

First Quarter

91 days

84 days

Second Quarter

91 days

84 days

Third Quarter

92 days

84 days

Fourth Quarter

92 days

112 days

Full Year

366 days

364 days

Impact of Amended Agreements with Marriott International

In February 2018, the company and Marriott International amended several of the agreements governing their ongoing relationship, including the agreements relating to the company’s license arrangements with Marriott International and The Ritz-Carlton Hotel Company and its participation in the Marriott Rewards program. The company agreed to a limited exception to its exclusive rights with respect to access to the Marriott Rewards program and member lists and Marriott International’s reservation system and marriott.com website in exchange for the following:

  • $3 million reduction in its annual royalty fee;
  • $15 million to $17 million of benefits from increased annual co-marketing funds associated with Marriott International’s new credit card arrangements and reduced costs of Marriott Rewards points under the company’s existing agreements with Marriott International resulting from planned system-wide reductions in the rates Marriott International charges its loyalty program partners;
  • the exclusive right to market the company’s products (e.g., linkage opportunities) at 14 full service Marriott International and former Starwood hotel brands, subject to a limited exception for the St. Regis, Westin, and Sheraton brands;
  • the exclusive right to be the timeshare partner for call transfer activities for all Marriott and, beginning in the second quarter of 2018, all former Starwood reservation call centers, as well as an extension of the term of our long-term call transfer arrangement with the potential for further extension;
  • the exclusive right to be the timeshare partner for certain digital marketing programs with respect to Marriott International’s digital lodging platforms, including marriott.com;
  • the ability to market to Marriott International’s combined loyalty program members upon consolidation of the Marriott and Starwood loyalty programs.

Impact of Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act, enacted on December 22, 2017, includes a number of complex provisions, which the company is currently reviewing.  However, the company expects future earnings to be positively impacted largely due to the reduction of the U.S. federal corporate income tax rate from 35% to 21%. This rate reduction had a significant impact on the company’s income taxes for 2017, including an estimated $65 million one-time impact from the revaluation of certain deferred tax assets and liabilities to reflect the new lower rate.

Impact of Accounting Changes

The company adopted ASC 606, on a retrospective basis, at the beginning of 2018. The core principle of ASC 606 is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also contains significant new disclosure requirements regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Following the adoption of ASC 606, recognition of revenue from the sale of vacation ownership products that is deemed collectible will be deferred from the point in time at which the statutory rescission period expires to closing, when control of the vacation ownership product is transferred to the customer. In addition, the company will align its assessment of collectibility of the transaction price for sales of vacation ownership products with its credit granting policies. The company has elected the practical expedient to expense all marketing and sales costs as they are incurred. Its consolidated cost reimbursements revenues and cost reimbursements expenses will increase significantly, as all costs reimbursed to it by property owners’ associations will be reported on a gross basis. In connection with the adoption of ASC 606, the company will also reclassify certain revenues and expenses.

Summary Estimated Financial Impact of the Adoption of ASC 606 on 2017 Financial Results

$ in millions, except per share amounts

2017
As Reported

Adjustments

2017
As Adjusted

Net income

$227

$9

$235

Fully diluted EPS

$8.18

$0.31

$8.49

Net cash provided by operating activities

$142

$142

Adjusted net income

$160

$9

$169

Adjusted fully diluted EPS

$5.78

$0.31

$6.09

Adjusted EBITDA

$280

$14

$294

Adjusted free cash flow

$253

$253

Contract sales growth

11%

11%

Summary Estimated Financial Impact of the Adoption of ASC 606, amendments to certain agreements with Marriott International, and the Tax Cuts and Jobs Act of 2017 (included in the company’s 2018 Outlook below)

$ in millions, except per share amounts

ASC 606 Adjustments

Amended Agreements
and Other Changes in
Marriott International
Arrangements

Tax Cuts and
Jobs Act of 2017 1

Net income

($4)

to

($3)

$9

to

$10

$29

to

$32

Net cash provided by operating activities

$—

to

$—

$9

to

$10

$47

to

$51

Adjusted net income

($4)

to

($3)

$9

to

$10

$29

to

$32

Adjusted EBITDA

($5)

to

($4)

$11

to

$12

$—

to

$—

Adjusted free cash flow

$—

to

$—

$9

to

$10

$47

to

$51

1  While a portion of the benefit to net cash provided by operating activities and adjusted free cash flow in 2018 from the Tax Cuts and Jobs Act of 2017 will be realized after 2018, roughly half of the total 2018 benefit relates to the timing of taking advantage of certain tax credits.

2018 Outlook

Pages A-1 through A-17 of the Financial Schedules reconcile the non-GAAP financial measures set forth below to the following full year 2018 expected GAAP results: 

Net income

$182 million

to

$193 million

Fully diluted EPS

$6.61

to

$7.01

Net cash provided by operating activities

$180 million

to

$205 million

Adjusted net income

$184 million

to

$195 million

Adjusted fully diluted EPS

$6.69

to

$7.09

Adjusted EBITDA

$310 million

to

$325 million

Adjusted free cash flow

$185 million

to

$215 million

Contract sales growth

7%

to

12%

Fourth Quarter 2017 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 13676613. 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 the impact of The Tax Cuts and Jobs Act, the amendments to the agreements with Marriott International and the adoption of ASC 606, future operating results, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. The company cautions you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading “Risk Factors” contained in the company’s most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this press release. These statements are made as of February 27, 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.

Financial Schedules Follow

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FINANCIAL SCHEDULES

QUARTER 4, 2017 1

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

Cash Flow and Adjusted Free Cash Flow

A-9

2018 Outlook – Adjusted Net Income, Adjusted Earnings Per Share – Diluted, Adjusted EBITDA and Adjusted Free Cash Flow

A-10

ASC 606 Adjustments

A-11

Non-GAAP Financial Measures

A-14

Consolidated Balance Sheets

A-16

Consolidated Statements of Cash Flows

A-17

1

Due to the change in the company’s financial reporting calendar beginning in 2017, the 2017 fourth quarter included the period from October 1, 2017 through December 31, 2017 (92 days), compared to the 2016 fourth quarter, which included the period from September 10, 2016 to December 30, 2016 (112 days), and the 2017 full year included the period from December 31, 2016 through December 31, 2017 (366 days), compared to the 2016 full year, which included the period from January 2, 2016 to December 30, 2016 (364 days). Prior year results have not been restated for the change in fiscal calendar.

 

A-1

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

REVENUES

Sale of vacation ownership products

$

184,253

$

221,672

$

727,940

$

637,503

Resort management and other services

77,192

92,772

306,196

300,821

Financing

35,580

39,182

134,906

126,126

Rental

72,281

82,938

322,902

312,071

Cost reimbursements

111,910

127,992

460,001

431,965

TOTAL REVENUES

481,216

564,556

1,951,945

1,808,486

EXPENSES

Cost of vacation ownership products

46,224

50,944

177,813

155,093

Marketing and sales

103,498

116,947

408,715

353,295

Resort management and other services

41,788

50,616

172,137

174,311

Financing

5,423

6,849

17,951

18,631

Rental

69,709

69,094

281,352

260,752

General and administrative

26,486

31,962

110,225

104,833

Litigation settlement

2,015

4,231

(303)

Consumer financing interest

7,127

7,845

25,217

23,685

Royalty fee

15,424

18,946

63,021

60,953

Cost reimbursements

111,910

127,992

460,001

431,965

TOTAL EXPENSES

429,604

481,195

1,720,663

1,583,215

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

(980)

72

5,772

11,201

Interest expense

(4,392)

(2,581)

(9,572)

(8,912)

Other

(1,234)

(104)

(1,599)

(4,632)

INCOME BEFORE INCOME TAXES

45,006

80,748

225,883

222,928

Benefit (provision) for income taxes

63,034

(30,924)

895

(85,580)

NET INCOME

$

108,040

$

49,824

$

226,778

$

137,348

Earnings per share – Basic

$

4.05

$

1.83

$

8.38

$

4.93

Earnings per share – Diluted

$

3.95

$

1.80

$

8.18

$

4.83

Basic Shares

26,656

27,152

27,078

27,882

Diluted Shares

27,342

27,742

27,733

28,422

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

200,704

$

234,317

$

802,890

$

723,634

NOTE: Earnings per share – Basic and Earnings per share – Diluted are calculated using whole dollars. We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-2

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands, except per share amounts)

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE – DILUTED

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Net income

$

108,040

$

49,824

$

226,778

$

137,348

Less certain items:

Acquisition costs

1,251

168

1,806

4,881

Variable compensation expense related to the impact of the hurricanes

2,867

1,442

6,540

1,442

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

(275)

Litigation settlement

2,015

4,231

(303)

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

980

(72)

(5,772)

(11,201)

Certain items before depreciation and income taxes 1

7,113

1,538

6,805

(5,456)

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

469

Income tax benefit from the 2017 Tax Cuts and Jobs Act

(65,179)

(65,179)

Benefit from change in France income tax rate

(5,304)

(5,304)

Income tax effect from certain items

(1,940)

(606)

(2,785)

1,962

Adjusted net income **

$

42,730

$

50,756

$

160,315

$

134,323

Earnings per share – Diluted

$

3.95

$

1.80

$

8.18

$

4.83

Adjusted earnings per share – Diluted **

$

1.56

$

1.83

$

5.78

$

4.73

Diluted Shares

27,342

27,742

27,733

28,422

EBITDA AND ADJUSTED EBITDA

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Net income

$

108,040

$

49,824

$

226,778

$

137,348

Interest expense 2

4,392

2,581

9,572

8,912

Tax (benefit) provision

(63,034)

30,924

(895)

85,580

Depreciation and amortization

5,692

6,188

21,494

21,044

EBITDA **

55,090

89,517

256,949

252,884

Non-cash share-based compensation

3,937

3,954

16,286

13,949

Certain items before depreciation and income
taxes 1

7,113

1,538

6,805

(5,456)

Adjusted EBITDA **

$

66,140

$

95,009

$

280,040

$

261,377

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

2

Interest expense excludes consumer financing interest expense.

 

A-3

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA SEGMENT

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

REVENUES

Sale of vacation ownership products

$

166,466

$

198,964

$

662,424

$

572,305

Resort management and other services

69,613

83,700

276,443

266,365

Financing

33,674

36,947

127,486

118,646

Rental

64,858

74,484

289,446

276,008

Cost reimbursements

101,304

116,402

421,546

394,592

TOTAL REVENUES

435,915

510,497

1,777,345

1,627,916

EXPENSES

Cost of vacation ownership products

40,742

44,203

157,457

134,079

Marketing and sales

89,244

101,211

356,206

304,099

Resort management and other services

35,352

43,714

147,016

145,036

Rental

62,803

60,601

249,944

225,281

Litigation settlement

1,700

3,733

(303)

Royalty fee

2,076

3,114

9,760

9,867

Cost reimbursements

101,304

116,402

421,546

394,592

TOTAL EXPENSES

333,221

369,245

1,345,662

1,212,651

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

(826)

(37)

(2,776)

12,260

Other

(1,205)

(123)

(1,034)

(4,191)

SEGMENT FINANCIAL RESULTS

$

100,663

$

141,092

$

427,873

$

423,334

SEGMENT FINANCIAL RESULTS

$

100,663

$

141,092

$

427,873

$

423,334

Less certain items:

Acquisition costs

1,251

189

1,279

4,449

Variable compensation expense related to the impact of the hurricanes

1,160

2,914

Litigation settlement

1,700

3,733

(303)

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

826

37

2,776

(12,260)

Certain items

4,937

226

10,702

(8,114)

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

105,600

$

141,318

$

438,575

$

415,220

Quarter Ended

Fiscal Year Ended

December 31, 2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

181,166

$

209,063

$

728,712

$

645,277

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-4

MARRIOTT VACATIONS WORLDWIDE CORPORATION

ASIA PACIFIC SEGMENT

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

REVENUES

Sale of vacation ownership products

$

10,299

$

14,019

$

42,677

$

40,664

Resort management and other services

1,156

1,572

4,211

10,166

Financing

1,154

1,281

4,504

4,187

Rental

3,439

3,698

12,554

16,471

Cost reimbursements

1,243

1,211

3,827

3,461

TOTAL REVENUES

17,291

21,781

67,773

74,949

EXPENSES

Cost of vacation ownership products

1,871

2,588

8,513

7,606

Marketing and sales

9,196

9,982

34,868

30,054

Resort management and other services

1,332

1,509

4,629

10,055

Rental

3,729

4,579

15,865

20,463

Royalty fee

307

360

981

924

Cost reimbursements

1,243

1,211

3,827

3,461

TOTAL EXPENSES

17,678

20,229

68,683

72,563

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

130

(20)

(878)

Other

(29)

19

(38)

(230)

SEGMENT FINANCIAL RESULTS

$

(416)

$

1,701

$

(968)

$

1,278

SEGMENT FINANCIAL RESULTS

$

(416)

$

1,701

$

(968)

$

1,278

Less certain items:

Acquisition costs

(21)

221

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

194

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

(130)

20

878

Certain items

(151)

20

1,293

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

(416)

$

1,550

$

(948)

$

2,571

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

12,896

$

16,134

$

49,027

$

47,183

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-5

MARRIOTT VACATIONS WORLDWIDE CORPORATION

EUROPE SEGMENT

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

REVENUES

Sale of vacation ownership products

$

7,488

$

8,689

$

22,839

$

24,534

Resort management and other services

6,423

7,500

25,542

24,290

Financing

752

954

2,916

3,293

Rental

3,984

4,756

20,902

19,592

Cost reimbursements

9,363

10,379

34,628

33,912

TOTAL REVENUES

28,010

32,278

106,827

105,621

EXPENSES

Cost of vacation ownership products

1,434

1,731

3,515

5,889

Marketing and sales

5,058

5,754

17,641

19,142

Resort management and other services

5,104

5,393

20,492

19,220

Rental

3,177

3,914

15,543

15,008

Royalty fee

72

119

267

383

Cost reimbursements

9,363

10,379

34,628

33,912

TOTAL EXPENSES

24,208

27,290

92,086

93,554

Losses and other expense, net

(63)

(63)

SEGMENT FINANCIAL RESULTS

$

3,739

$

4,988

$

14,678

$

12,067

SEGMENT FINANCIAL RESULTS

$

3,739

$

4,988

$

14,678

$

12,067

Less certain items:

Losses and other expense, net

63

63

Certain items

63

63

ADJUSTED SEGMENT FINANCIAL RESULTS **

$

3,802

$

4,988

$

14,741

$

12,067

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

6,642

$

9,120

$

25,151

$

31,174

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-6

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CORPORATE AND OTHER

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

EXPENSES

Cost of vacation ownership products

$

2,177

$

2,422

$

8,328

$

7,519

Financing

5,423

6,849

17,951

18,631

General and administrative

26,486

31,962

110,225

104,833

Litigation settlement

315

498

Consumer financing interest

7,127

7,845

25,217

23,685

Royalty fee

12,969

15,353

52,013

49,779

TOTAL EXPENSES

54,497

64,431

214,232

204,447

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

(91)

(21)

8,631

(181)

Interest expense

(4,392)

(2,581)

(9,572)

(8,912)

Other

(527)

(211)

TOTAL FINANCIAL RESULTS

$

(58,980)

$

(67,033)

$

(215,700)

$

(213,751)

TOTAL FINANCIAL RESULTS

$

(58,980)

$

(67,033)

$

(215,700)

$

(213,751)

Less certain items:

Acquisition costs

527

211

Variable compensation expense related to the impact of the hurricanes

1,707

1,442

3,626

1,442

Litigation settlement

315

498

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

91

21

(8,631)

181

Certain items

2,113

1,463

(3,980)

1,834

ADJUSTED FINANCIAL RESULTS **

$

(56,867)

$

(65,570)

$

(219,680)

$

(211,917)

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

NOTE: We have reclassified certain prior year amounts to conform to our current period presentation.

 

A-7

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED CONTRACT SALES TO SALE OF VACATION OWNERSHIP PRODUCTS

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

200,704

$

234,317

$

802,890

$

723,634

Revenue recognition adjustments:

Reportability 1

2,484

9,482

3,634

(7,547)

Sales reserve 2

(11,323)

(14,827)

(49,920)

(48,274)

Other 3

(7,612)

(7,300)

(28,664)

(30,310)

Sale of vacation ownership products

$

184,253

$

221,672

$

727,940

$

637,503

1

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

2

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

3

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

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Sale of vacation ownership products

$

184,253

$

221,672

$

727,940

$

637,503

Less:

Cost of vacation ownership products

46,224

50,944

177,813

155,093

Marketing and sales

103,498

116,947

408,715

353,295

Development margin

34,531

53,781

141,412

129,115

Revenue recognition reportability adjustment

(1,722)

(6,429)

(2,434)

4,614

Variable compensation expense related to the impact of the hurricanes

1,160

2,914

Adjusted development margin **

$

33,969

$

47,352

$

141,892

$

133,729

Development margin percentage 1

18.7

%

24.3

%

19.4

%

20.3

%

Adjusted development margin percentage

18.7

%

22.3

%

19.6

%

20.7

%

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 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)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Contract sales

$

181,166

$

209,063

$

728,712

$

645,277

Revenue recognition adjustments:

Reportability 1

1,745

9,529

3,632

(3,453)

Sales reserve 2

(10,001)

(12,338)

(43,091)

(39,298)

Other 3

(6,444)

(7,290)

(26,829)

(30,221)

Sale of vacation ownership products

$

166,466

$

198,964

$

662,424

$

572,305

1

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

2

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

3

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

 

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NORTH AMERICA ADJUSTED DEVELOPMENT MARGIN

(ADJUSTED SALE OF VACATION OWNERSHIP PRODUCTS NET OF EXPENSES)

(In thousands)

Quarter Ended

Fiscal Year Ended

December 31,
2017

December 30,
2016

December 31,
2017

December 30,
2016

(92 days)

(112 days)

(366 days)

(364 days)

Sale of vacation ownership products

$

166,466

$

198,964

$

662,424

$

572,305

Less:

Cost of vacation ownership products

40,742

44,203

157,457

134,079

Marketing and sales

89,244

101,211

356,206

304,099

Development margin

36,480

53,550

148,761

134,127

Revenue recognition reportability adjustment

(1,170)

(6,476)

(2,430)

1,887

Variable compensation expense related to the impact of the hurricanes

1,160

2,914

Adjusted development margin **

$

36,470

$

47,074

$

149,245

$

136,014

Development margin percentage 1

21.9

%

26.9

%

22.5

%

23.4

%

Adjusted development margin percentage

22.1

%

24.8

%

22.7

%

23.6

%

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 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

CASH FLOW AND ADJUSTED FREE CASH FLOW

(In thousands)

2017

Cash Flow

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

Operating activities

$

142,172

Investing activities

(38,364)

Financing activities

170,737

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

2,965

Net change in cash, cash equivalents and restricted cash

$

277,510

Adjusted Free Cash Flow

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

$

142,172

Capital expenditures for property and equipment (excluding inventory)

(26,297)

Borrowings from securitization transactions

400,260

Repayment of debt related to securitizations

(293,491)

Free cash flow **

222,644

Adjustment

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

45,339

Increase in restricted cash

(15,018)

Adjusted free cash flow **

$

252,965

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

1

Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between the 2016 and 2017 year ends.

 

A-10

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In millions, except per share amounts)

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

Fiscal Year
2018 (low)

Fiscal Year
2018 (high)

Net income

$

182

$

193

Adjustments to reconcile Net income to Adjusted net income

Certain items 1

3

3

Provision for income taxes on adjustments to net income

(1)

(1)

Adjusted net income **

$

184

$

195

Earnings per share – Diluted 2

$

6.61

$

7.01

Adjusted earnings per share – Diluted **, 2

$

6.69

$

7.09

Diluted shares 2

27.5

27.5

1

Certain items adjustment includes $3 million of acquisition costs.

2

Earnings per share – Diluted, Adjusted earnings per share – Diluted, and Diluted shares outlook includes the impact of share repurchase activity only through February 23, 2018.

 

2018 ADJUSTED EBITDA OUTLOOK

Fiscal Year
2018 (low)

Fiscal Year
2018 (high)

Net income

$

182

$

193

Interest expense 1

17

17

Tax provision

65

69

Depreciation and amortization

26

26

EBITDA **

290

305

Non-cash share-based compensation

17

17

Certain items 2

3

3

Adjusted EBITDA **

$

310

$

325

1

Interest expense excludes consumer financing interest expense.

2

Certain items adjustment includes $3 million of acquisition costs.

 

2018 ADJUSTED FREE CASH FLOW OUTLOOK

Fiscal Year
2018 (low)

Fiscal Year
2018 (high)

Net cash provided by operating activities

$

180

$

205

Capital expenditures for property and equipment (excluding inventory):

New sales centers 1

(10)

(10)

Other

(27)

(32)

Borrowings from securitization transactions

360

380

Repayment of debt related to securitizations

(280)

(290)

Free cash flow **

223

253

Adjustments:

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

(2)

Inventory / other payments associated with capital efficient inventory arrangements.

(38)

(40)

Change in restricted cash

4

Adjusted free cash flow **

$

185

$

215

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.

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 for additional information about our reasons for providing these alternative financial measures and limitations on their use.

 

A-11

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands)

ASC 606 ADJUSTMENTS – 2017

2017
As Reported

Adjustments

2017
As Adjusted

REVENUES

Sale of vacation ownership products

$

727,940

$

29,498

$

757,438

Resort management and other services

306,196

(27,358)

278,838

Financing

134,906

134,906

Rental

322,902

(60,863)

262,039

Cost reimbursements

460,001

289,601

749,602

TOTAL REVENUES

1,951,945

230,878

2,182,823

EXPENSES

Cost of vacation ownership products

177,813

17,034

194,847

Marketing and sales

408,715

(13,825)

394,890

Resort management and other services

172,137

(17,913)

154,224

Financing

17,951

17,951

Rental

281,352

(57,970)

223,382

General and administrative

110,225

110,225

Litigation settlement

4,231

4,231

Consumer financing interest

25,217

25,217

Royalty fee

63,021

63,021

Cost reimbursements

460,001

289,601

749,602

TOTAL EXPENSES

1,720,663

216,927

1,937,590

Gains and other income, net

5,772

5,772

Interest expense

(9,572)

(9,572)

Other

(1,599)

(1,599)

INCOME BEFORE INCOME TAXES

225,883

13,951

239,834

Benefit (provision) for income taxes

895

(5,405)

(4,510)

NET INCOME

$

226,778

$

8,546

$

235,324

NET INCOME

$

226,778

$

8,546

$

235,324

Interest expense 1

9,572

9,572

Tax (benefit) provision

(895)

5,405

4,510

Depreciation and amortization

21,494

21,494

EBITDA **

256,949

13,951

270,900

Non-cash share-based compensation

16,286

16,286

Certain items before depreciation and income taxes 2

6,805

6,805

Adjusted EBITDA **

$

280,040

$

13,951

$

293,991

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 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.

2

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

 

 

A-12

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands)

ASC 606 ADJUSTMENT DETAILS – 2017

Revenue
Recorded
at Closing

Expense
M&S
Costs as
Incurred

Eliminate
Sales
Reserve
Range

Banking
and
Borrowing

Other

Total
Adjustments

REVENUES

Sale of vacation ownership products

$

11,124

$

$

(1,556)

$

$

19,930

$

29,498

Resort management and other services

(27,358)

(27,358)

Rental

(60,863)

(60,863)

Cost reimbursements

289,601

289,601

  TOTAL REVENUES

11,124

(1,556)

221,310

230,878

EXPENSES

Cost of vacation ownership products

2,896

(331)

14,469

17,034

Marketing and sales

(10)

(13,815)

(13,825)

Resort management and other services

(17,913)

(17,913)

Rental

(6,938)

(51,032)

(57,970)

Cost reimbursements

289,601

289,601

  TOTAL EXPENSES

2,896

(10)

(331)

(6,938)

221,310

216,927

INCOME BEFORE INCOME TAXES

$

8,228

$

10

$

(1,225)

$

6,938

$

13,951

Provision for income taxes

(5,405)

NET INCOME

$

8,546

NET INCOME

$

8,228

$

10

$

(1,225)

$

6,938

$

$

8,546

Interest expense 1

Tax provision

5,405

Depreciation and amortization

EBITDA **

8,228

10

(1,225)

6,938

13,951

Non-cash share-based compensation

Certain items before depreciation and income taxes 2

Adjusted EBITDA **

$

8,228

$

10

$

(1,225)

$

6,938

$

$

13,951

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 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.

2

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

 

A-13

MARRIOTT VACATIONS WORLDWIDE CORPORATION

(In thousands)

ASC 606 ADJUSTMENTS – 2016

2016
As Reported

Adjustments

2016
As Adjusted

REVENUES

Sale of vacation ownership products

$

637,503

$

(15,078)

$

622,425

Resort management and other services

300,821

(23,285)

277,536

Financing

126,126

881

127,007

Rental

312,071

(59,707)

252,364

Cost reimbursements

431,965

288,507

720,472

TOTAL REVENUES

1,808,486

191,318

1,999,804

EXPENSES

Cost of vacation ownership products

155,093

7,850

162,943

Marketing and sales

353,295

(13,682)

339,613

Resort management and other services

174,311

(17,576)

156,735

Financing

18,631

135

18,766

Rental

260,752

(49,186)

211,566

General and administrative

104,833

104,833

Litigation settlement

(303)

(303)

Consumer financing interest

23,685

23,685

Royalty fee

60,953

60,953

Cost reimbursements

431,965

288,507

720,472

TOTAL EXPENSES

1,583,215

216,048

1,799,263

Gains and other income, net

11,201

11,201

Interest expense

(8,912)

(8,912)

Other

(4,632)

(4,632)

INCOME BEFORE INCOME TAXES

222,928

(24,730)

198,198

(Provision) benefit for income taxes

(85,580)

9,320

(76,260)

NET INCOME

$

137,348

$

(15,410)

$

121,938

NET INCOME

$

137,348

$

(15,410)

$

121,938

Interest expense 1

8,912

8,912

Tax provision (benefit)

85,580

(9,320)

76,260

Depreciation and amortization

21,044

21,044

EBITDA **

252,884

(24,730)

228,154

Non-cash share-based compensation

13,949

13,949

Certain items before depreciation and income taxes 2

(5,456)

(5,456)

Adjusted EBITDA **

$

261,377

$

(24,730)

$

236,647

**

Denotes non-GAAP financial measures. Please see pages A-14 and A-15 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.

2

Please see pages A-14 and A-15 for additional information regarding these items. The certain items adjustments for the Adjusted EBITDA reconciliations exclude depreciation and income taxes on certain items included in the Adjusted Net Income reconciliations.

 

A-14

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

Adjusted Net Income

We evaluate non-GAAP financial measures, including Adjusted Net Income, Adjusted EBITDA, and Adjusted Development Margin, that exclude certain items in the quarters and fiscal years ended December 31, 2017 and December 30, 2016, 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 Fiscal Year Ended December 31, 2017

In our Statement of Income for the quarter ended December 31, 2017, we recorded $7.1 million of net pre-tax items, which included $2.9 million of variable compensation expense related to the impact of the 2017 Hurricanes, $2.0 million of litigation settlement expenses, $1.3 million of acquisition costs, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew, a $0.4 million reduction of the previously recorded charge at several of our properties, primarily in Florida and the Caribbean, that were impacted by the 2017 Hurricanes, and $0.1 million of miscellaneous losses and other expense.

In our Statement of Income for the fiscal year ended December 31, 2017, we recorded $6.8 million of net pre-tax items, which included $8.7 million in net insurance proceeds related to the settlement of business interruption insurance claims arising from Hurricane Matthew, $6.5 million of variable compensation expense related to the impact of the 2017 Hurricanes, $4.2 million of litigation settlement expenses, $1.8 million of acquisition costs, a charge of $1.3 million associated with the estimated property damage insurance deductibles and impairment of property and equipment at several of our resorts, primarily in Florida and the Caribbean, that were impacted by the 2017 Hurricanes, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4 million of miscellaneous losses and other expense.

Certain items – Quarter and Fiscal Year Ended December 30, 2016

In our Statement of Income for the quarter ended December 30, 2016, we recorded $1.5 million of net pre-tax items, which included $1.4 million of Hurricane Matthew related expenses, $0.2 million of acquisition costs, and $0.1 million of gains and other income not associated with our on-going core operations.

In our Statement of Income for the fiscal year ended December 30, 2016, we recorded $5.0 million of net pre-tax items, which included $11.2 million of gains and other income not associated with our on-going core operations, $4.9 million of acquisition costs, $1.4 million of Hurricane Matthew related expenses, $0.2 million of losses (including $0.5 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation settlement expense.

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-15

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),  income taxes, depreciation and amortization. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Further, we consider consumer financing interest expense to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income above, 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 organizational and separation related, litigation, and other cash charges, allows for period-over-period comparisons of the cash generated by our business before the impact of these items. Analysis of Free Cash Flow and Adjusted Free Cash Flow also facilitates management’s comparison of our results with our competitors’ results.

 

A-16

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

December
31, 2017

December
30, 2016

ASSETS

Cash and cash equivalents

$

409,059

$

147,102

Restricted cash (including $32,321 and $27,525 from VIEs, respectively)

81,553

66,000

Accounts and contracts receivable, net (including $5,639 and $4,865 from VIEs, respectively)

154,174

161,733

Vacation ownership notes receivable, net (including $815,331 and $717,543 from VIEs, respectively)

1,119,631

972,311

Inventory

716,533

712,536

Property and equipment

252,727

202,802

Other (including $13,708 and $0 from VIEs, respectively)

172,516

128,935

Total Assets

$

2,906,193

$

2,391,419

LIABILITIES AND EQUITY

Accounts payable

$

145,405

$

124,439

Advance deposits

63,062

55,542

Accrued liabilities (including $701 and $584 from VIEs, respectively)

168,591

147,469

Deferred revenue

98,286

95,495

Payroll and benefits liability

111,885

95,516

Deferred compensation liability

74,851

62,874

Debt, net (including $845,131 and $738,362 from VIEs, respectively)

1,095,213

737,224

Other

13,155

15,873

Deferred taxes

90,725

149,168

Total Liabilities

1,861,173

1,483,600

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

Common stock — $.01 par value; 100,000,000 shares authorized; 36,861,843 and 36,633,868 shares issued, respectively

369

366

Treasury stock — at cost; 10,400,547 and 9,643,562 shares, respectively

(694,233)

(606,631)

Additional paid-in capital

1,188,538

1,162,283

Accumulated other comprehensive income

16,745

5,460

Retained earnings

533,601

346,341

Total Equity

1,045,020

907,819

Total Liabilities and Equity

$

2,906,193

$

2,391,419

The abbreviation VIEs above means Variable Interest Entities.

 

A-17

MARRIOTT VACATIONS WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Fiscal Year Ended

December 31, 2017

December 30, 2016

(366 days)

(364 days)

OPERATING ACTIVITIES

Net income

$

226,778

$

137,348

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

Depreciation

21,494

21,044

Amortization of debt discount and issuance costs

9,908

6,509

Provision for loan losses

50,075

47,292

Share-based compensation

16,286

13,949

Loss (gain) on disposal of property and equipment, net

1,605

(11,201)

Deferred income taxes

(66,134)

38,834

Net change in assets and liabilities:

Accounts and contracts receivable

5,695

(30,055)

Notes receivable originations

(467,311)

(356,859)

Notes receivable collections

270,516

253,622

Inventory

42,661

4,301

Purchase of vacation ownership units for future transfer to inventory

(33,594)

Other assets

(21,318)

11,092

Accounts payable, advance deposits and accrued liabilities

50,754

(18,698)

Liability for Marriott Rewards customer loyalty program

(37)

Deferred revenue

1,837

17,664

Payroll and benefit liabilities

16,053

(6,933)

Deferred compensation liability

11,976

11,843

Other liabilities

(211)

1,863

Other, net

5,102

(199)

Net cash provided by operating activities

142,172

141,379

INVESTING ACTIVITIES

Capital expenditures for property and equipment (excluding inventory)

(26,297)

(34,770)

Purchase of company owned life insurance

(12,100)

Dispositions, net

33

68,953

Net cash (used in) provided by investing activities

(38,364)

34,183

FINANCING ACTIVITIES

Borrowings from securitization transactions

400,260

376,622

Repayment of debt related to securitization transactions

(293,491)

(322,864)

Borrowings from Revolving Corporate Credit Facility

87,500

85,000

Repayment of Revolving Corporate Credit Facility

(87,500)

(85,000)

Proceeds from issuance of Convertible Notes

230,000

Purchase of Convertible Note Hedges

(33,235)

Proceeds from issuance of Warrants

20,332

Debt issuance costs

(15,347)

(4,065)

Repurchase of common stock

(88,305)

(177,830)

Redemption of mandatorily redeemable preferred stock of consolidated subsidiary

(40,000)

Payment of dividends

(38,028)

(34,195)

Payment of withholding taxes on vesting of restricted stock units

(10,947)

(4,021)

Other, net

(502)

194

Net cash provided by (used in) financing activities

170,737

(206,159)

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

2,965

(4,813)

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

277,510

(35,410)

Cash, cash equivalents and restricted cash, beginning of year

147,102

248,512

Cash, cash equivalents and restricted cash, end of year

$

490,612

$

213,102

 

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SOURCE Marriott Vacations Worldwide Corporation