TO OUR VALUED SHAREHOLDERS
2016 was another excellent year of delivering on our promises with pride and determination. We expanded to
new destinations and added new sales distribution centers, following our strategy for growth around the globe
and continuing to position us for the future. We also launched our new brand extension to Marriott Vacation
Club named Marriott Vacation Club Pulsesm. Marriott Vacation Club Pulse properties are located in city-centric
destinations that cater to the desire of our owners to experience the dynamic energy of urban locations. Th ese
locations currently include New York City, Boston, San Diego, Washington D.C. and South Beach, and we are
exploring more opportunities.
Our success is not just measured by our performance, but also by the culture that defi nes Marriott Vacations
Worldwide and our over 10,000 dedicated associates around the world. Each of these associates, in one way or
another, creates unforgettable vacation experiences for our Owners and guests every day. We are very proud
another, creates unforgettable vacation experiences for our Owners and guests every day. We are very proud
of their commitment to excellence and the care and service they provide to the
of their commitment to excellence and the care and service they provide to the
communities in which they live and work.
communities in which they live and work.
Our fi nancial performance results have been equally impressive, with over $1.81
Our fi nancial performance results have been equally impressive, with over $1.81
billion in total revenues and over $137 million in net income. Volume per guest
billion in total revenues and over $137 million in net income. Volume per guest
in our North America segment remained strong at $3,462, a 2.2% increase
in our North America segment remained strong at $3,462, a 2.2% increase
over 2015. By pursuing a growth strategy that focuses on the effi cient
over 2015. By pursuing a growth strategy that focuses on the effi cient
deployment of capital to fuel our growth, we were also able to return
deployment of capital to fuel our growth, we were also able to return
$212 million to shareholders through the repurchase of our common
stock and payment of quarterly dividends during the year.
We are optimistic about the coming year. During 2017, we expect to
We are optimistic about the coming year. During 2017, we expect to
open new resorts in Nusa Dua, Bali and Waikoloa on the Big Island of
open new resorts in Nusa Dua, Bali and Waikoloa on the Big Island of
Hawaii, as well as a signifi cant expansion to Marriott’s Crystal Shores in
Hawaii, as well as a signifi cant expansion to Marriott’s Crystal Shores in
Marco Island, Florida. We’re quite proud of these new additions and believe
Marco Island, Florida. We’re quite proud of these new additions and believe
that they will build upon the successful growth our company experienced in
that they will build upon the successful growth our company experienced in
2016. For the future, our strategy remains to continue growing our portfolio of
2016. For the future, our strategy remains to continue growing our portfolio of
resorts while building a strong tour pipeline for future sales using innovative
resorts while building a strong tour pipeline for future sales using innovative
marketing programs and initiatives.
marketing programs and initiatives.
On behalf of the Board of Directors and each of our associates, we truly thank
On behalf of the Board of Directors and each of our associates, we truly thank
you for your support and commitment to Marriott Vacations Worldwide.
you for your support and commitment to Marriott Vacations Worldwide.
Bill Shaw, Chairman of the Board
Steve Weisz, President & CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 30, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-35219
MARRIOTT VACATIONS WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6649 Westwood Blvd.
Orlando, FL
(Address of Principal Executive Offices)
45-2598330
(IRS Employer
Identification No.)
32821
(Zip Code)
Registrant’s Telephone Number, Including Area Code (407) 206-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
(27,097,068 shares outstanding as of February 17, 2017)
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of shares of common stock held by non-affiliates at June 17, 2016, was $1,407,942,434.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 2017 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Part I.
Part II.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . .
Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III.
Part IV.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Throughout this Annual Report on Form 10-K (this “Annual Report”), we refer to Marriott Vacations Worldwide
Corporation, together with its subsidiaries, as “Marriott Vacations Worldwide,” “we,” “us,” or “the Company.” Unless
otherwise specified, each reference to a particular year means the fiscal year ended on the date shown in the table below, rather
than the corresponding calendar year. All fiscal years included 52 weeks, except for 2013, which included 53 weeks.
Fiscal Year
2016
2015
2014
2013
2012
Fiscal Year-End Date
December 30, 2016
January 1, 2016
January 2, 2015
January 3, 2014
December 28, 2012
In December 2016, our Board of Directors approved a resolution changing our financial reporting year-end to a
calendar year-end beginning with our 2017 fiscal year. Our 2017 fiscal year will begin on December 31, 2016 (the day after the
end of the 2016 fiscal year) and will end on December 31, 2017. Subsequent fiscal years will begin on January 1 and end on
December 31. Our financial quarters will be the three-month periods ending March 31, June 30, September 30, and December
31, except that the period ending March 31, 2017 will also include December 31, 2016.
In addition, in order to make this Annual Report easier to read, we refer throughout to (i) our Consolidated Financial
Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Statements of Income,” (iii) our
Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Consolidated Statements of Cash Flows as our “Cash
Flows.” References throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we
include in the Financial Statements section of this Annual Report.
Throughout this Annual Report, we refer to brands that we own, as well as those brands that we license from Marriott
International, Inc. (“Marriott International”) or its affiliates, as our brands. Brand names, trademarks, service marks and trade
names that we own or license from Marriott International include Marriott Vacation Club®, Marriott Vacation Club
DestinationsTM, Marriott Vacation Club PulseSM, Marriott Grand Residence Club®, Grand Residences by Marriott®, and The
Ritz-Carlton Club®. We also refer to Marriott International’s Marriott Rewards® and The Ritz-Carlton Rewards® customer
loyalty programs. We may also refer to brand names, trademarks, service marks and trade names of other companies and
organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.
By referring to our corporate website, www.marriottvacationsworldwide.com, or any other website, we do not
incorporate any such website or its contents in this Annual Report.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements throughout this Annual Report, including in, among others, the sections entitled
“Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
based on our management’s beliefs and assumptions and on information currently available to our management. Forward-
looking statements include, among other things, the information concerning our possible or assumed future results of
operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating
performance improvements, and the effects of competition. Forward-looking statements include all statements that are not
historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,”
“intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of
these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from
those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in
this Annual Report. We do not have any intention or obligation to update forward-looking statements after the date of this
Annual Report, except as required by law.
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in
forward-looking statements. There may be other risks and uncertainties that we cannot predict at this time or that we currently
do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks
could cause our results to differ materially from those we express in forward-looking statements.
1
PART I
Item 1.
Overview
Business
We are one of the world’s largest companies whose business is focused almost entirely on vacation ownership, based
on number of owners, number of resorts and revenues. We are the exclusive worldwide developer, marketer, seller and manager
of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are
also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton
Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products
under The Ritz-Carlton Residences brand.
Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of December 30,
2016, our portfolio consisted of over 60 properties in the United States and eight other countries and territories. We generate
most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing
consumer purchases of vacation ownership products; and renting vacation ownership inventory.
Our strategic goal is to further strengthen our leadership position in the vacation ownership industry through
initiatives to drive profitable contract sales growth, focus on our owners, guests and associates, maximize cash flow and
optimize our capital structure, including by selectively pursuing capital efficient deal structures, and selectively pursue
compelling new business opportunities. We believe that we have significant competitive advantages, including our scale and
global reach, the quality and strength of the Marriott and Ritz-Carlton brands, our system of high-quality resorts, our loyal and
highly satisfied customer base, our long-standing track record and our experienced management team and associates.
The Vacation Ownership Industry
The vacation ownership industry (also known as the timeshare industry) enables customers to share ownership and use
of fully-furnished vacation accommodations. Typically, a purchaser acquires an interest (known as a “vacation ownership
interest”) that is either a real estate ownership interest (known as a “timeshare estate”) or a contractual right-to-use interest
(known as a “timeshare license”) in a single resort or a collection of resort properties. In the United States, most vacation
ownership products are sold as timeshare estates, which can be structured in a variety of ways including, but not limited to, a
deeded interest in a specified accommodation unit, an undivided interest in a building or an entire resort, or a beneficial interest
in a trust that owns one or more resort properties. By purchasing a vacation ownership interest, owners make a commitment to
vacation. For many purchasers, vacation ownership provides an attractive alternative to traditional lodging accommodations
(such as hotels, resorts and condominium rentals). In addition to avoiding the volatility in room rates to which traditional
lodging customers are subject, vacation ownership purchasers also enjoy accommodations that are, on average, more than twice
the size of traditional hotel rooms and typically have more features, such as kitchens and separate living areas. Purchasers who
might otherwise buy a second home find vacation ownership a preferable alternative because it is more affordable and reduces
maintenance and upkeep concerns.
Typically, developers sell vacation ownership interests for a fixed purchase price that is paid in full at closing or
financed with a loan. Many vacation ownership companies provide financing or facilitate access to third-party bank financing
for customers. Vacation ownership resorts are often managed by a nonprofit property owners’ association of which owners of
vacation ownership interests are members. Most property owners’ associations are governed by a board of directors that
includes owners and which may include representatives of the developer. Some vacation ownership resorts are held through a
trust structure in which a trustee holds title and manages the property. The board of the property owners’ association, or trustee,
as applicable, typically delegates much of the responsibility for managing the resort to a management company, which is often
affiliated with the developer.
After the initial purchase, most vacation ownership programs require the owner of the vacation ownership interest to
pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs and expenses of operating and
maintaining the vacation ownership property and providing program services. This fee typically covers expenses such as
housekeeping, landscaping, taxes, insurance and resort labor, a property management fee payable to the management company
for providing management services, and an assessment to fund a capital asset reserve account used to renovate, refurbish and
replace furnishings, common areas and other assets (such as parking lots or roofs) as needed over time. Owners typically
reserve their usage of vacation accommodations in advance through a reservation system (often provided by the management
company or an affiliated entity), unless a vacation ownership interest specifies fixed usage dates and a particular unit every
year.
2
The vacation ownership industry has grown through expansion of established vacation ownership developers as well
as entrance into the market of well-known lodging and entertainment brands, including Marriott, Sheraton, Hilton, Hyatt and
Disney. The industry’s growth can also be attributed to increased market acceptance of vacation ownership products, stronger
consumer protection laws and the evolution of vacation ownership interests from a fixed- or floating-week product, which
provides the right to use the same property every year, to membership in multi-resort vacation networks, which offer a more
flexible vacation experience. These vacation networks often issue their members an annual allotment of points that can be
redeemed for stays at affiliated vacation ownership resorts or for alternative vacation experiences available through the
program.
To enhance the flexibility and appeal of their products, many vacation ownership developers affiliate their projects
with vacation ownership exchange service providers so that owners may exchange their rights to use the developer’s resorts for
accommodation at other resorts in the exchange service provider’s broader network of properties. The two leading exchange
service providers are Interval International, with which we are associated, and RCI. According to their websites, Interval
International’s and RCI’s networks include approximately 3,000 and 4,300 affiliated resorts, respectively, as identified on each
company’s website.
According to the American Resort Development Association (“ARDA”), a trade association representing the vacation
ownership and resort development industries, as of December 31, 2015, the U.S. vacation ownership community was
comprised of over 1,500 resorts, representing over 200,000 units and an estimated 9.2 million vacation ownership week
equivalents. According to ARDA, sales in the U.S. market were $8.6 billion in 2015. We believe there is considerable potential
for further growth in the industry both in the U.S. and globally.
Our History
For more than 30 years we have been providing memorable vacation experiences to millions of families. Prior to the
incorporation of Marriott Vacations Worldwide Corporation in Delaware in June 2011, our operations were the vacation
ownership division of Marriott International. We recently celebrated the fifth anniversary of our November 2011 spin-off (the
“Spin-Off”) from Marriott International. Since the Spin-Off, we have been an independent public company, with our common
stock listed on the New York Stock Exchange under the symbol “VAC” and our corporate headquarters located in Orlando,
Florida.
Since 1984, when Marriott became the first major lodging company to enter the vacation ownership industry with its
acquisition of American Resorts, a small vacation ownership company, we have been recognized as a leader and innovator in
the vacation ownership industry. Marriott International leveraged its well-known “Marriott” brand to sell vacation ownership
intervals, which were frequently located at resorts developed adjacent to Marriott International hotels. Over time, the company
differentiated its offerings through its high-quality resorts that were purpose-built for vacation ownership, exchange
opportunities available under its Marriott Rewards customer loyalty program that increased the flexibility of use of ownership,
its dedication to excellent customer service and its commitment to ethical business practices. These qualities encouraged repeat
business and word-of-mouth customer referrals.
We have proactively worked with ARDA to encourage the enactment of responsible consumer-protection legislation
and state regulation that enhances the reputation and respectability of the overall vacation ownership industry. We believe that,
over time, our vacation ownership products and services helped improve the public perception of the vacation ownership
industry. A number of other major lodging companies later entered the vacation ownership business, further enhancing the
industry’s image and credibility.
In connection with the Spin-Off, we entered into a License, Services, and Development Agreement (the “Marriott
License Agreement”) with Marriott International and its subsidiary Marriott Worldwide Corporation and a License, Services,
and Development Agreement (the “Ritz-Carlton License Agreement” and, together with the Marriott License Agreement, the
“License Agreements”) with The Ritz-Carlton Hotel Company, L.L.C. (“The Ritz-Carlton Hotel Company”), a subsidiary of
Marriott International. Under the License Agreements, we are granted the exclusive right, for the terms of the License
Agreements, to use certain Marriott and Ritz-Carlton marks and intellectual property in our vacation ownership business, the
exclusive right to use the Grand Residences by Marriott marks and intellectual property in our residential real estate business
and the non-exclusive right to use certain Ritz-Carlton marks and intellectual property in our residential real estate business. We
also entered into a Non-Competition Agreement with Marriott International (the “Non-Competition Agreement”), which
generally prohibits Marriott International and its subsidiaries from engaging in the vacation ownership business and prohibits
us and our subsidiaries from engaging in the hotel business until the earlier of November 21, 2021 or the termination of the
Marriott License Agreement.
3
Under the Marriott Rewards Affiliation Agreement that we and certain of our subsidiaries entered into with Marriott
International and its subsidiary Marriott Rewards, LLC (the “Marriott Rewards Agreement”), we are allowed to continue to
participate in the Marriott Rewards customer loyalty program following the Spin-Off; this participation includes the ability to
purchase and use Marriott Rewards Points in connection with our Marriott-branded vacation ownership business. The Marriott
Rewards Agreement is coterminous with the Marriott License Agreement.
In 2016, we introduced Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand, which
features unique properties that embrace the spirit and culture of their urban locations, creating an authentic sense of place while
delivering easy access to local interests, attractions and transportation.
Our Business Strategy
Our strategic goal is to further strengthen our leadership position in the vacation ownership industry. To achieve this
goal, we are pursuing the following initiatives:
Drive profitable contract sales growth
We intend to continue to generate growth in vacation ownership sales by leveraging our globally recognized brand
names and targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site
sales locations. We expect to focus our efforts to generate growth through our Marriott Vacation Club points-based ownership
programs focused in North America and Asia Pacific. We will also continue to focus on our approximately 400,000 owners
around the world. In 2016, approximately 65 percent of our sales of vacation ownership products were to our existing owners.
In addition, we are concentrating on growing our tour flow cost effectively as we seek to generate more first-time buyer tours
and achieve our longer term goal of selling to an equal mix of new buyers and existing buyers. Our strategy includes an
emphasis on new sales distributions and new marketing channels geared toward driving first-time buyer tour growth. We are
also committed to maximizing development margin through efficient marketing and sales spending and managing inventory
costs and development activities.
Focus on our owners, guests and associates
We are in the business of providing high-quality vacation experiences to our owners and guests around the world. We
intend to maintain and improve their satisfaction with our products and services, particularly because our owners and guests are
our most cost-effective sales channels. We intend to continue to sell our products through these very effective channels and
believe that maintaining a high level of engagement across all of our customer groups is key to our success. We intend to
provide innovative offerings in new destinations to meet the needs of current and future customers. We also intend to develop
new offerings to attract the next generation of travelers looking for a greater variety of experiences with the high quality
standards expected from a brand they trust.
Engaging our associates in the success of our business continues to be one of our long-term core strategies. We
understand the connection between the engagement of our associates and the satisfaction and engagement of our owners and
guests. At the heart of our culture is the belief that if we take care of our associates, they will take care of our owners and guests
and the owners and guests will return again and again.
Maximize cash flow and optimize our capital structure, including by selectively pursuing capital efficient deal
structures
Through the use of our points-based products, we are able to more closely match inventory investment with sales pace
and reduce inventory levels, thereby generating strong cash flows over time. Additionally, by limiting the amount of completed
inventory on hand, we are able to reduce the maintenance fees that we pay on unsold inventory. Over the last few years, we
have significantly reduced our costs, and we intend to continue to control costs as sales volumes grow. We also seek to optimize
our inventory investments by targeting high-quality inventory that allows us to add desirable new destinations to our system as
well as new on-site sales locations. We seek to use capital efficient deal structures that may include working with third parties
to develop new inventory or convert previously built units to be sold to us close to when we need such inventory. We also
proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new
inventory.
We expect our modest level of debt and the use of capital efficient structures will enable us to maintain a level of
liquidity that ensures financial flexibility, giving us the ability to pursue strategic growth opportunities, withstand potential
future economic downturns, optimize our cost of capital, and pursue strategies for returning capital to shareholders. We intend
to meet our liquidity needs through operating cash flow, our $200 million revolving credit facility (the “Revolving Corporate
Credit Facility”), our $250 million non-recourse warehouse credit facility (the “Warehouse Credit Facility”), and continued
access to the asset-backed securities (“ABS”) term financing market.
4
Selectively pursue compelling new business opportunities
We are positioned to explore new business opportunities, such as the continued enhancement of our exchange
programs, new management affiliations and acquisitions of existing vacation ownership and related businesses. We intend to
selectively pursue these types of opportunities, focusing on opportunities that drive recurring revenue and profit streams. Prior
to entering into any new business opportunity, we will evaluate its strategic fit and assess whether it is complementary to our
current business, has strong expected financial returns and complements our existing competencies.
Our Brands
We design, build, manage and maintain our properties at upscale and luxury levels under four brands in accordance
with the Marriott and Ritz-Carlton brand standards with which we must comply under the License Agreements.
The Marriott Vacation Club brand is our signature offering in the upscale tier of the vacation ownership industry.
Marriott Vacation Club resorts typically combine many of the comforts of home, such as spacious accommodations with one,
two and three bedroom options, living and dining areas, in-unit kitchens and laundry facilities, with resort amenities such as
large feature swimming pools, restaurants and bars, convenience stores, fitness facilities and spas, as well as sports and
recreation facilities appropriate for each resort’s unique location. Marriott Vacation Club Pulse, an extension to the Marriott
Vacation Club brand, features unique properties that embrace the spirit and culture of their urban locations, creating an
authentic sense of place while delivering easy access to local interests, attractions and transportation. Because of their urban
locations, Marriott Vacation Club Pulse properties typically offer limited on-site amenities and may include smaller guest
rooms without separate living areas and kitchens.
Grand Residences by Marriott is an upscale tier vacation ownership and whole ownership residence brand. The
accommodations for this brand are similar to those we offer under the Marriott Vacation Club brand, but the duration of the
vacation ownership interest is longer, ranging between three and thirteen weeks. We also offer whole ownership residential
products under the Grand Residences by Marriott brand.
The Ritz-Carlton Destination Club is a luxury tier vacation ownership brand. The Ritz-Carlton Destination Club
provides luxurious vacation experiences commensurate with the legacy of the Ritz-Carlton brand. The Ritz-Carlton Destination
Club resorts typically feature two, three and four bedroom units that generally include marble foyers, walk-in closets, custom
kitchen cabinetry and luxury resort amenities such as large feature pools and access to full service restaurants and bars. On-site
management and services, which usually include daily housekeeping service, valet, in-residence dining, and access to fitness
facilities as well as spa and sports facilities as appropriate for each destination, are provided by The Ritz-Carlton Hotel
Company.
The Ritz-Carlton Residences is a luxury tier whole ownership residence brand. The Ritz-Carlton Residences
includes whole ownership luxury residential condominiums co-located with The Ritz-Carlton Destination Club resorts. Owners
can typically purchase condominiums that vary in size from one-bedroom apartments to spacious penthouses. Owners of The
Ritz-Carlton Residences can avail themselves of the services and facilities that are associated with the co-located The Ritz-
Carlton Destination Club resort on an a la carte basis. On-site management and services are provided by The Ritz-Carlton Hotel
Company.
Our Products
Our Points-Based Vacation Ownership Products
We sell the majority of our products through our Marriott Vacation Club points-based ownership programs focused in
North America and Asia Pacific. While the structural characteristics of each of our points-based programs differ, in each
program, owners receive an annual allotment of points representing owners’ usage rights, and owners can use these points to
access vacation ownership units across multiple destinations within their program’s portfolio of resort locations. Each program
permits shorter or longer stays than a traditional weeks-based vacation ownership product and provides for flexibility with
respect to check-in days and size of accommodations. In addition to traditional resort stays, the programs enable our owners to
utilize their points for the wide variety of innovative vacation experiences included in our Explorer Collection, such as cruises,
airline travel, guided tours, safaris and other unique vacation alternatives. Members of our points-based programs typically pay
annual fees in exchange for the ability to participate in the program.
Our points programs allow owners to bank and borrow their annual point allotments, access other Marriott Vacation
Club locations through internal exchange programs that we and Interval International operate, and access Interval
International’s approximately 3,000 affiliated resorts. Owners can also trade their vacation ownership usage rights for Marriott
Rewards Points, which can be used to access the vast majority of Marriott International’s system of over 4,000 participating
hotels or redeem their Marriott Rewards Points for airline miles or other merchandise offered through the Marriott Rewards
5
customer loyalty program. Our points-based products offer usage in perpetuity or for a term of years, and may consist of real
estate interests or contractual rights to use.
Our Weeks-Based Vacation Ownership Products
We continue to sell Marriott Vacation Club branded weeks-based vacation ownership products in select markets,
including in countries where legal and tax constraints currently limit our ability to include those locations in one of our points-
based programs. We offer multi-week vacation ownership interests in specific Grand Residences by Marriott and The Ritz-
Carlton Destination Club resorts, but we also intend to continue placing luxury branded inventory into our points-based
ownership program focused in North America, Marriott Vacation Club Destinations (“MVCD”). Our Marriott Vacation Club,
Grand Residences by Marriott and The Ritz-Carlton Destination Club weeks-based vacation ownership products in the United
States and select Caribbean locations are typically sold as fee simple deeded real estate interests at a specific resort representing
an ownership interest in perpetuity, except where restricted by leasehold or other structural limitations. We sell vacation
ownership interests as a right-to-use product subject to a finite term under the Marriott Vacation Club brand in Europe and Asia
Pacific and under the Grand Residences by Marriott brand in Europe.
Global Exchange Opportunities
As part of the launch of the MVCD program in 2010, we began offering our existing Marriott Vacation Club owners
who hold weeks-based products in the United States and Caribbean the opportunity to participate, on a voluntary basis, in
MVCD’s exchange program through which many of MVCD’s vacation experiences are offered. We began offering the
opportunity to participate in the exchange program to owners who hold weeks-based products in Europe in 2012 and to owners
who hold weeks-based products in Asia Pacific in 2016. All existing owners, whether or not they elected to participate in the
MVCD exchange program, retained their existing rights and privileges of vacation ownership. Owners who elected to
participate in the exchange program received the ability to trade their weeks-based interval usage for vacation club points usage
each year, typically subject to payment of an initial enrollment fee and annual fees. As of the end of 2016, over 154,000 weeks-
based owners have enrolled nearly 263,000 weeks in MVCD’s exchange program since its launch.
Our Sources of Revenue
We generate most of our revenues from four primary sources: selling vacation ownership products; managing our
resorts; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.
Sale of Vacation Ownership Products
Our principal source of revenue is the sale of vacation ownership interests. See “—Marketing and Sales Activities”
below for information regarding our marketing and sales activities.
Resort Management and Other Services
We generate revenue from fees we earn for managing each of our resorts. See “—Management Activities” below for
additional information on the terms of our management agreements. In addition, we earn revenue for providing ancillary
offerings, including food and beverage, retail, and golf and spa offerings at our resorts. We also receive annual fees, club dues,
settlement fees from the sale of vacation ownership products, and certain transaction-based fees from owners and other third
parties, including external exchange service providers with which we are associated.
Financing
We earn interest income on loans that we provide to purchasers of our vacation ownership interests, as well as loan
servicing and other fees. See “—Consumer Financing” below for further information regarding our consumer financing
activities.
Rental
We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs or
as residences, or inventory that we control because our owners have elected alternative usage options permitted under our
vacation ownership programs.
Marketing and Sales Activities
We sell our upscale tier vacation ownership products under the Marriott Vacation Club brand primarily through our
worldwide network of resort-based sales centers and certain off-site sales locations. Marriott Vacation Club products are
currently marketed for sale throughout the United States and in 30 countries around the world, targeting customers who
vacation regularly with a focus on family, relaxation and recreational activities. In 2016, approximately 86 percent of our sales
originated at sales centers that are co-located with one of our resorts. We maintain a range of different off-site sales centers,
including our central telesales organization based in Orlando, our network of third-party brokers in Latin America and Europe,
6
and our city-based sales centers, such as our sales centers in Dubai and Singapore. We have nearly 60 global sales locations
focused on the sale of Marriott Vacation Club products. We utilize a number of marketing channels to attract qualified
customers to our sales locations for our Marriott Vacation Club products.
We solicit our owners primarily while they are staying in our resorts, but also offer our owners the opportunity to
make additional purchases through direct phone sales, owner events and inquiries from our central customer service center
located in Salt Lake City, Utah. In 2016, approximately 65 percent of our sales of vacation ownership products were to our
existing owners. In addition, we are concentrating on growing our tour flow cost effectively as we seek to generate more first-
time buyer tours and achieve our longer term goal of selling to an equal mix of new buyers and existing owners. Our strategy
includes an emphasis on new marketing channels geared toward driving first-time buyer tour growth.
We offer customers who are referred to us by our owners discounted stays at our resorts and conduct scheduled sales
tours while they are on site. Where allowed by applicable law, we offer Marriott Rewards Points to our owners when their
referral candidates tour with us or buy vacation ownership interests from us.
We also market to existing Marriott Rewards customer loyalty program members and travelers who are staying in
locations where we have resorts. We market extensively to guests in Marriott International hotels that are located near one of
our sales locations and have marketing partnerships with Marriott International for certain of its reservation centers. In addition,
we operate other local marketing venues in various high-traffic areas. A significant part of our direct marketing activities are
focused on prospects in the Marriott Rewards customer loyalty program database and our in-house database of qualified
prospects. We offer guests who do not buy a vacation ownership interest during their initial tour an “Encore” package for a
future stay at our resorts. These return guests are nearly twice as likely to purchase as a first-time visitor.
Our Marriott Vacation Club sales tours are designed to provide our guests with an overview of our company and our
products, as well as a customized presentation to explain how our products and services can meet their vacationing needs. Our
sales force is highly trained in a consultative sales approach designed to ensure that we meet customers’ needs on an individual
basis. We hire our Marriott Vacation Club sales executives based on stringent selection criteria. After they are hired, they spend
a minimum of four weeks in product and sales training before interacting with any customers. We manage our sales executives’
consistency of presentation and professionalism using a variety of sales tools and technology and through a post-presentation
survey of our guests that measures many aspects of each guest’s interaction with us.
We believe consumers place a great deal of trust in the Marriott and Ritz-Carlton brands and the strength of these
brands is important to our ability to attract qualified prospects in the marketplace. We maintain a prominent presence on the
www.marriott.com and www.ritzcarlton.com websites. Our proprietary sites, which include
www.marriottvacationsworldwide.com, www.marriottvacationclub.com and www.ritzcarltonclub.com, had over 5.7 million
visits in 2016.
Inventory and Development Activities
We secure inventory by building additional phases at our existing resorts, repurchasing inventory in the secondary
market, repurchasing inventory as a result of owner loan or maintenance fee defaults, or developing or acquiring resorts in
strategic markets. We proactively buy back previously sold vacation ownership interests under our repurchase program at lower
costs than would be required to develop new inventory. Efficient use of our capital is achieved through our points-based
business model, which allows us to supply many sales locations with new inventory sourced from a small number of resort
locations.
We intend to continue to selectively pursue growth opportunities in North America and Asia Pacific by targeting high-
quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations in ways that
optimize the timing of our capital investments. These capital efficient deal structures may include working with third parties to
develop new inventory or to convert previously built units to be sold to us close to when we need such inventory.
Approximately one-quarter of our vacation ownership resorts are co-located with Marriott International and Ritz-
Carlton hotel properties. Co-location of our resorts with Marriott International or Ritz-Carlton branded hotels can provide
several advantages from development, operations, customer experience and marketing perspectives, including sharing
amenities, infrastructure and staff, integration of services, and other cost efficiencies. The larger campus of an integrated
vacation ownership and hotel resort often can afford our owners more varied and elaborate amenities than those that would
generally be available at a stand-alone resort. Shared infrastructure can also reduce our overall development costs for our
resorts on a per unit basis. Integration of services and sharing staff and other expenses can lower overhead and operating costs
for our resorts. Our on-site access to hotel customers, including Marriott Rewards customer loyalty program members, who are
visiting co-located hotels also provides us with a cost-effective marketing channel for our vacation ownership products.
7
Co-located resorts require cooperation and coordination among all parties and are subject to cost sharing and
integration agreements among us, the applicable property owners’ association and managers and owners of the co-located hotel.
Our License Agreements with Marriott International and Ritz-Carlton allow for the development of co-located properties in the
future, and we intend to opportunistically pursue co-located projects with them.
Owners generally can offer their vacation ownership interests for resale on the secondary market, which can create
pricing pressure on the sale of developer inventory. However, owners who purchase vacation ownership interests on the
secondary market typically do not receive all of the benefits that owners who purchase products directly from us receive. When
an owner purchases a vacation ownership interest directly from us, the owner receives certain entitlements that are tied to the
underlying vacation ownership interest, such as the right to reserve a resort unit that underlies their vacation ownership interest
in order to occupy that unit or exchange its use for use of a unit at another resort through an outside exchange service provider,
as well as benefits that are incidental to the purchase of the vacation ownership interest. While a purchaser on the secondary
market will receive all of the entitlements that are tied to the underlying vacation ownership interest, the purchaser is not
entitled to receive certain incidental benefits. For example, owners who purchase our products on the secondary market have
restricted access to our internal exchange programs and are not entitled to trade their usage rights for Marriott Rewards Points.
Therefore, those owners are only entitled to use the inventory that underlies the vacation ownership interests they purchased.
Additionally, most of our vacation ownership interests provide us with a right of first refusal on secondary market sales. We
monitor sales that occur in the secondary market and exercise our right of first refusal when it is advantageous for us to do so,
whether due to pricing, desire for the particular inventory, or other factors. All owners, whether they purchase directly from us
or on the secondary market, are responsible for the annual maintenance fees, property taxes and any assessments that are levied
by the relevant property owners’ association, as well as any exchange service membership dues or service fees.
Management Activities
We enter into a management agreement with the property owners’ association or other governing body at each of our
resorts and, when a trust holds resorts or interests in resorts, with the trust’s governing body. In exchange for a management fee,
we typically provide owner account management (reservations and usage selection), housekeeping, check-in, maintenance and
billing and collections services. The management fee is typically based on either a percentage of the budgeted costs to operate
such resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy. We also receive revenues that
represent reimbursement for certain costs we incur under our management agreements, principally payroll-related costs, at the
locations where we employ the associates providing on-site services.
The terms of our management agreements generally range from three to ten years and are generally subject to periodic
renewal for one to five year terms. Many of these agreements renew automatically unless either party provides advance notice
of termination before the expiration of the term. When our management agreement for a Marriott Vacation Club branded resort
is not renewed or is terminated, the resort loses the ability to use the Marriott name and trademarks. The owners at such resorts
also lose their ability to trade their vacation ownership usage rights for Marriott Rewards Points and to access other Marriott
Vacation Club resorts through our internal exchange system.
The Ritz-Carlton Hotel Company manages the on-site operations for The Ritz-Carlton Destination Club and The Ritz-
Carlton Residences properties in our portfolio under separate management agreements with us. We provide property owners’
association governance and vacation ownership program management services for The Ritz-Carlton Destination Club and co-
located The Ritz-Carlton Residences properties, including preparing association budgets, facilitating association meetings,
billing and collecting maintenance fees, and supporting reservations, vacation experience planning and other off-site member
services. We and The Ritz-Carlton Hotel Company typically split the management fees equally for these resorts. If a
management agreement for a resort expires or is terminated, the resort loses the ability to use the Ritz-Carlton name and
trademarks. The owners at such resorts also lose their ability to access other usage benefits, such as access to accommodations
at other The Ritz-Carlton Destination Club resorts, preferential access to Ritz-Carlton hotels worldwide and access to our
internal exchange and vacation travel options.
Each management agreement requires the property owners’ association or trust association to provide sufficient funds
to pay for the vacation ownership program and operating costs. To satisfy this requirement, owners of vacation ownership
interests pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs of operating and
maintaining the resorts or interests in the timeshare plan in which they hold a vacation ownership interest, including
management fees and expenses, taxes (in some locations), insurance, and other related costs, and the costs of providing
program services (such as reservation services). This fee includes a management fee payable to us for providing management
services as well as an assessment for funds to be deposited into a capital asset reserve fund and used to renovate, refurbish and
replace furnishings, common areas and other resort assets (such as parking lots or roofs) as needed over time. As the owner of
completed but unsold vacation ownership inventory, we also pay maintenance fees in accordance with the legal requirements of
the jurisdictions applicable to such resorts and programs. In addition, in early phases of development at a resort, we sometimes
enter into subsidy agreements with the property owners’ associations under which we agree to pay costs that otherwise would
8
be covered by annual maintenance fees associated with vacation ownership interests or units that have not yet been built. These
subsidy arrangements help keep maintenance fees at a reasonable level for owners who purchase in the early stages of
development.
In the event of a default by an owner in payment of maintenance fees or other assessments, the property owners’
association typically has the right to foreclose on or revoke the defaulting owner’s vacation ownership interest. We have
entered into arrangements with several property owners’ associations to assist in reselling foreclosed or revoked vacation
ownership interests in exchange for a fee, or to reacquire such foreclosed or revoked vacation ownership interests from the
property owners’ associations.
Consumer Financing
We offer purchase money financing for purchasers of our vacation ownership products who meet our underwriting
guidelines. By offering or eliminating financing incentives and modifying underwriting standards, we have been able to
increase or decrease our financing activities depending on market conditions. We are not providing financing to buyers of our
residential products.
In our North America segment in 2016, approximately 59 percent of Marriott Vacation Club customers financed their
purchase with us. The average loan for our Marriott Vacation Club products totaled approximately $23,400, which represented
86 percent of the average purchase price. Our policy is to require a minimum down payment of 10 percent of the purchase
price, although down payments and interest rates are typically higher for applicants with credit scores below certain levels and
for purchasers who do not have credit scores, such as non-U.S. purchasers. The average interest rate for loans for our Marriott
Vacation Club products originated in 2016 was 12.48 percent and the average term was 10.2 years. Interest rates are fixed, and
a loan fully amortizes over the life of the loan. The average monthly mortgage payment for a Marriott Vacation Club owner
who received a loan in 2016 was $388. We do not impose any prepayment penalties. Generally, loans for The Ritz-Carlton
Destination Club products have a significantly higher balance, a longer term and a lower interest rate than loans for our
Marriott Vacation Club products.
In 2016, approximately 87 percent of our loans were used to finance U.S.-based products. In our North American
business, we perform a credit investigation or other review or inquiry to determine the purchaser’s credit history before
originating a loan. The interest rates on the loans we provide are based primarily upon the purchaser’s credit score, the size of
the purchase, and the term of the loan. We base our financing terms largely on a purchaser’s FICO score, which is a branded
version of a consumer credit score widely used in the United States by banks and lending institutions. FICO scores range from
300 to 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies
that compile and report on a consumer’s credit history. In 2016, the average FICO score of our customers who were U.S.
citizens or residents who financed a vacation ownership purchase was 741; 74 percent had a credit score of over 700,
91 percent had a credit score of over 650 and over 98 percent had a credit score of over 600.
We use other information to determine minimum down payments and interest rates applicable to loans made to
purchasers who do not have a credit score or who do not reside within the United States, such as regional historical default rates
and currency fluctuation risk.
In the event of a default, we generally have the right to foreclose on or revoke the defaulting owner’s vacation
ownership interest. We typically resell interests that we reacquire through foreclosure or revocation or place such interests into
one of our points-based programs.
We securitize the majority of the consumer loans we originate in support of our North American business. Historically,
we have sold these loans to institutional investors in the asset-backed securities, or ABS, market on a non-recourse basis,
completing securitization transactions once or twice each year. These vacation ownership notes receivable securitizations
provide funding for us at interest rates similar to those available to companies with investment grade credit ratings, and transfer
the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership
notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized
by a single tranche of transferred assets, which consist of vacation ownership notes receivable. During 2016, we completed one
securitization transaction, which is discussed in detail in Footnote No. 10, “Debt,” to our Financial Statements. On an ongoing
basis, we have the ability to use our Warehouse Credit Facility to securitize eligible consumer loans. Those loans may later be
transferred to term securitization transactions in the ABS market, which we intend to continue to complete at least once per
year. Since 2000, we have issued approximately $4.7 billion of debt securities in securitization transactions in the ABS market,
excluding amounts securitized through warehouse credit facilities or private bank transactions. We retain the servicing and
collection responsibilities for the loans we securitize, for which we receive a servicing fee.
9
Our Competitive Advantages
We believe that competition in the vacation ownership industry is based primarily on the quality, number and location
of vacation ownership resorts, trust in the brand, pricing of product offerings and the availability of program benefits, such as
exchange programs and access to affiliated hotel networks. Vacation ownership is a vacation option that is positioned and sold
as an attractive alternative to vacation rentals (such as hotels, resorts and condominium rentals) and second home ownership.
The various segments within the vacation ownership industry are differentiated by the quality level of the accommodations,
range of services and ancillary offerings, and price. We believe that we have significant competitive advantages that support our
leadership position in the vacation ownership industry.
A leading global “pure-play” vacation ownership company
We are one of the world’s largest “pure-play” vacation ownership companies (that is, a company whose business is
focused almost entirely on vacation ownership), based on number of owners, number of resorts and revenues. As a “pure-play”
vacation ownership company, we are able to enhance our focus on the vacation ownership industry and tailor our business
strategy to address our company’s industry-specific goals and needs.
We believe our scale and global reach, coupled with our renowned brands and development, marketing, sales and
management expertise, help us achieve operational efficiencies and support future growth opportunities. Our size allows us to
provide owners with the flexibility of a wide variety of experiences within our high-quality resort portfolio, coupled with the
ease and certainty of working with a single trusted provider. We also believe our size helps us obtain better financing terms
from lenders, achieve cost savings in procurement and attract talented management and associates.
The breadth and depth of our operations enables us to offer a variety of products and to continue to adapt those
products to the ever changing needs and preferences of our existing and future customers. For example, in addition to
traditional resort experiences, our recently introduced Marriott Vacation Club Pulse brand extension features unique properties
that embrace the spirit and culture of their urban locations, creating an authentic sense of place while delivering easy access to
local interests, attractions and transportation. We cater to a diverse range of customers through our upscale tier Marriott-
branded resorts and our luxury tier Ritz-Carlton branded resorts.
Premier global brands
We believe that our exclusive licenses of the Marriott and Ritz-Carlton brands for use in the vacation ownership
business provide us with a meaningful competitive advantage. Marriott International is a leading lodging company with nearly
6,000 hotels in 120 countries, including over 4,000 that participate in the Marriott Rewards and Ritz-Carlton Rewards customer
loyalty programs. Consumer confidence in these renowned brands helps us attract and retain guests and owners. In addition, we
provide our customers with access to the award-winning Marriott Rewards customer loyalty program. We also utilize the
Marriott and Ritz-Carlton websites, www.marriott.com and www.ritzcarlton.com, as relatively low-cost marketing tools to
introduce Marriott and Ritz-Carlton guests to our products and rent available inventory.
Loyal, highly satisfied customers
We have a large, highly satisfied customer base. In 2016, based on over 226,000 survey responses, approximately 91
percent of respondents indicated that they were highly satisfied with our products, sales and owner services and their on-site
experiences (by selecting 8, 9 or 10 on a 10-point scale). Owner satisfaction is also demonstrated by the fact that our average
resort occupancy was over 89 percent in 2016, significantly higher than the overall vacation ownership industry average of
nearly 80 percent in 2015, the most recent year for which average resort occupancy data was reported by ARDA. We believe
that strong customer satisfaction and brand loyalty result in more frequent use of our products and encourage owners to
purchase additional products and to recommend our products to friends and family, which in turn generates higher revenues.
Long-standing track record, experienced management and engaged associates
We have been a pioneer in the vacation ownership industry since 1984, when Marriott International became the first
company to introduce a lodging-branded vacation ownership product. Our seasoned management team is led by Stephen P.
Weisz, our President and Chief Executive Officer. Mr. Weisz has served as President of our company since 1996 and has over
44 years of combined experience at Marriott International and Marriott Vacations Worldwide. William J. Shaw, the Chairman of
our Board of Directors, is the former Vice Chairman, President and Chief Operating Officer of Marriott International and spent
nearly 37 years with Marriott International. Our nine executive officers have an average of over 27 years of total combined
experience at Marriott Vacations Worldwide and Marriott International, with half of such total combined experience spent
leading our business. We believe our management team’s extensive public company and vacation ownership industry
experience has enabled us to achieve solid operating results and will enable us to continue to respond quickly and effectively to
changing market conditions and consumer trends. Our management’s experience in the highly regulated vacation ownership
industry also provides us with a competitive advantage in expanding existing product forms and developing new ones.
10
We believe that our associates provide superior customer service, which enhances our competitive position. We
leverage outstanding associate engagement and strong corporate culture to deliver positive customer experiences in sales,
marketing and resort operations. We survey our associates regularly through an external survey provider to understand their
satisfaction and engagement, defined as how passionate employees are about the company’s mission and their willingness to
“go the extra mile” to see it succeed. We routinely rank highly compared to other companies participating in such surveys. In
2016, 85 percent of our associates indicated that they were “engaged,” which is seven points above Aon Hewitt’s “Global Best
Employer” benchmark of 78 percent. This external benchmark is based on research conducted by Aon Hewitt of more than
500 organizations that are considered to be “Best Employers.”
Segments
Our operations are grouped into three reportable business segments: North America, Europe and Asia Pacific. The
“Corporate and Other” information described below includes activities that do not collectively comprise a separate reportable
segment. The table below shows our revenue for 2016 for each of our segments and each of our revenue sources (dollars in
thousands).
Revenue Source
Vacation ownership sales . . . . . . . . . . . . .
Resort management and other services . . .
Financing. . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements. . . . . . . . . . . . . . . . .
North
America
572,305
268,766
118,646
276,008
394,592
1,630,317
$
$
$
$
Europe
Asia Pacific
Total
24,534
24,290
3,293
19,592
33,912
105,621
$
$
40,664
10,514
4,187
16,471
3,461
75,297
$
$
637,503
303,570
126,126
312,071
431,965
1,811,235
Financial information by segment and geographic area for 2016, 2015 and 2014 appears in Footnote No. 15,
“Business Segments,” to our Financial Statements.
We generally own the unsold vacation ownership inventory at our properties as either a deeded beneficial interest in a
real estate land trust, a deeded interest at a specific resort, or a right to use interest in real estate owned or leased by a trust or
other property owning or leasing vehicle (these forms of ownership are described in more detail in “Business—Our Products”).
With respect to inventory that has not yet been converted into one of these forms of vacation ownership, we generally hold a
fee, leasehold or other interest in the underlying real estate rights to the land parcel, building or units corresponding to such
inventory. Further, we also own or lease other property at these resorts, including golf courses, fitness, spa and sports facilities,
food and beverage outlets, resort lobbies and other common area assets. See Footnote No. 9, “Contingencies and
Commitments,” to our Financial Statements for more information on our operating leases. Substantially all of our ownership
and leasehold interests in these properties, subject to certain exceptions, are pledged as collateral for our Revolving Corporate
Credit Facility.
Our Properties
As of December 30, 2016, our portfolio consisted of over 60 properties, with 13,318 vacation ownership villas
(“units”) and we had approximately 400,000 owners. The following table shows our vacation ownership and residential
properties as of December 30, 2016, and indicates the segment with which such property is associated:
Property
Segment
Experience
Location
Vacation
Ownership
(VO) or
Residential
Units
Built(1)
Additional
Planned
Units(2)
47 Park Street - Grand Residences by Marriott
Europe
Urban
London, UK
VO
Grand Residences by Marriott - Kauai Lagoons
North America
Island/Beach
Kauai, HI
Residential
Marriott Grand Residence Club, Lake Tahoe
North America Mountain/Ski
Lake Tahoe, CA
Marriott Vacation Club at Surfers Paradise
Asia Pacific
Beach
Surfers Paradise,
Australia
Marriott Vacation Club at The Empire Place
Asia Pacific
Urban
Bangkok, Thailand
Marriott Vacation Club Pulse at Custom House,
Boston
Marriott Vacation Club Pulse at The Mayflower,
Washington, D.C.
North America
Urban
Boston, MA
North America
Urban
Washington, D.C.
Marriott Vacation Club Pulse, New York City(3)
North America
Urban
New York, New
York
VO
VO
VO
VO
VO
VO
49
3
199
88
55
84
71
177
—
—
—
—
—
—
—
—
11
Property
Segment
Experience
Location
Marriott Vacation Club Pulse, San Diego
North America
Urban
San Diego, CA
Marriott Vacation Club Pulse, South Beach
North America
Urban/Beach Miami, Beach, FL
Marriott’s Aruba Ocean Club
North America
Island/Beach
Aruba
Marriott’s Aruba Surf Club
North America
Island/Beach
Aruba
Marriott’s Barony Beach Club
Marriott’s BeachPlace Towers
Marriott’s Canyon Villas
Marriott’s Club Son Antem
Marriott’s Crystal Shores
Marriott’s Cypress Harbour
North America
North America
Beach
Beach
Hilton Head, SC
Fort Lauderdale, FL
North America
Golf/Desert
Phoenix, AZ
Europe
Island/Golf
Mallorca, Spain
North America
Island/Beach Marco Island, FL
North America
Entertainment Orlando, FL
Marriott’s Desert Springs Villas
North America
Golf/Desert
Palm Desert, CA
Marriott’s Desert Springs Villas II
North America
Golf/Desert
Palm Desert, CA
Marriott’s Fairway Villas
North America
Golf
Absecon, NJ
Marriott’s Frenchman’s Cove
North America
Island/Beach
St. Thomas, USVI
Marriott’s Grand Chateau
Marriott’s Grande Ocean
Marriott’s Grande Vista
Marriott’s Harbour Club
Marriott’s Harbour Lake
Marriott’s Harbour Point
Marriott’s Heritage Club
North America
/ Asia Pacific
Entertainment
Las Vegas, NV
North America
Beach
Hilton Head, SC
North America
Entertainment Orlando, FL
North America
Beach
Hilton Head, SC
North America
Entertainment Orlando, FL
North America
North America
Beach
Golf
Hilton Head, SC
Hilton Head, SC
Marriott’s Imperial Palms
North America
Entertainment Orlando, FL
Marriott’s Kauai Beach Club
North America
Island/Beach
Kauai, HI
Marriott’s Kauai Lagoons - Kalanipu’u
North America
Island/Beach
Kauai, HI
Marriott’s Ko Olina Beach Club
North America
/ Asia Pacific
Island/Beach
Oahu, HI
Marriott’s Lakeshore Reserve
North America
Entertainment Orlando, FL
Marriott’s Legends Edge at Bay Point
North America
Golf
Panama City
Beach, FL
Marriott’s Mai Khao Beach - Phuket
Asia Pacific
Beach
Phuket, Thailand
Marriott’s Manor Club at Ford’s Colony
North America
Entertainment Williamsburg, VA
Marriott’s Marbella Beach Resort
Europe
Beach
Marbella, Spain
Marriott’s Maui Ocean Club
North America
Island/Beach Maui, HI
Marriott’s Monarch
North America
Beach
Hilton Head, SC
Marriott’s Mountain Valley Lodge
North America Mountain/Ski
Breckenridge, CO
Marriott’s MountainSide
North America Mountain/Ski
Park City, UT
Marriott’s Newport Coast Villas
North America
Beach
Newport Beach, CA
Marriott’s Ocean Pointe
North America
Marriott’s OceanWatch Villas at Grande Dunes
North America
Beach
Beach
Beach
Beach
Beach
Palm Beach Shores,
FL
Myrtle Beach, SC
Singer Island, FL
Phuket, Thailand
Estepona, Spain
North America
Asia Pacific
Europe
North America
Entertainment Orlando, FL
North America
Entertainment Orlando, FL
12
Marriott’s Oceana Palms
Marriott’s Phuket Beach Club
Marriott’s Playa Andaluza
Marriott’s Royal Palms
Marriott’s Sabal Palms
Vacation
Ownership
(VO) or
Residential
Units
Built(1)
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
126
49
218
450
255
206
213
224
71
510
236
402
180
155
656
290
900
40
312
86
30
46
232
74
546
85
83
133
200
288
458
122
78
182
699
341
361
159
144
173
123
80
Additional
Planned
Units(2)
138
—
—
—
—
—
39
—
148
—
—
—
90
65
224
—
—
—
588
—
—
—
—
—
202
254
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Vacation
Ownership
(VO) or
Residential
Units
Built(1)
Property
Segment
Experience
Location
Marriott’s Shadow Ridge
North America
Golf/Desert
Palm Desert, CA
Marriott’s St. Kitts Beach Club
North America
Island/Beach West Indies
Marriott’s StreamSide
Marriott’s Summit Watch
Marriott’s Sunset Pointe
Marriott’s SurfWatch
Marriott’s Timber Lodge
North America Mountain/Ski
Vail, CO
North America Mountain/Ski
Park City, UT
North America
North America
Beach
Beach
Hilton Head, SC
Hilton Head, SC
North America Mountain/Ski
Lake Tahoe, CA
Marriott’s Village d’lle-de-France
Europe
Entertainment
Paris, France
Marriott’s Villas at Doral
North America
Golf
Miami, FL
Marriott’s Waiohai Beach Club
North America
/ Asia Pacific
Island/Beach
Kauai, HI
Marriott’s Willow Ridge Lodge
North America
Entertainment
Branson, MO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
The Ritz-Carlton Club & Residences, San
Francisco
Vacation Ownership
Residential
North America
North America
Urban
Urban
San Francisco, CA
VO
San Francisco, CA
Residential
The Ritz-Carlton Club, Aspen Highlands
North America Mountain/Ski
Aspen, CO
The Ritz-Carlton Club, Lake Tahoe
North America Mountain/Ski
Lake Tahoe, CA
The Ritz-Carlton Club, St. Thomas
North America
Island/Beach
St. Thomas, USVI
The Ritz-Carlton Club, Vail
North America Mountain/Ski
Vail, CO
VO
VO
VO
VO
Additional
Planned
Units(2)
430
—
—
—
—
—
—
—
—
—
282
—
—
—
—
—
—
569
88
96
135
25
195
264
185
141
230
132
25
57
73
11
105
45
Total
Units Available for Sale(4)
13,318
2,460
1,147
_________________________
(1)
“Units Built” represents units with a certificate of occupancy that have been constructed or converted under one of our
brands.
(2)
(3)
(4)
“Additional Planned Units” represents units that are being constructed or converted under one of our brands or that we
expect to construct or convert in the future.
During the first quarter of 2016, we entered into a commitment to purchase units at a property in New York, New
York, subsequently assumed management of these units and expect to acquire these units, in their current form, over
time. See Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for additional information
regarding this transaction.
“Units Available for Sale” represents units to be sold as vacation ownership interests; includes units that we reacquired
through foreclosure or our repurchase program.
North America Segment
In our North America segment, we develop, market, sell and manage vacation ownership and related products under
the Marriott Vacation Club and Grand Residences by Marriott brands. In 2016, we introduced Marriott Vacation Club Pulse, an
extension of the Marriott Vacation Club brand. We also develop, market and sell vacation ownership and related products under
The Ritz-Carlton Destination Club brand, as well as whole ownership residential products under The Ritz-Carlton Residences
brand.
Europe Segment
In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not have
any current plans for new development in this segment.
13
Asia Pacific Segment
In our Asia Pacific segment, we develop, market, sell and manage two points-based programs that we specifically
designed to appeal to the vacation preferences of the market, Marriott Vacation Club, Asia Pacific and Marriott Vacation Club
Destinations, Australia, as well as a weeks-based right-to-use product. We believe opportunity exists to expand our Asia Pacific
segment and are seeking to add inventory to support the growth of this business.
Corporate and Other
Corporate and Other consists of results not specifically attributable to an individual segment, including expenses in
support of our financing operations, non-capitalizable development expenses incurred to support overall company
development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense
and the fixed royalty fee payable under the License Agreements.
Intellectual Property
We manage and sell properties under the Marriott Vacation Club, Grand Residences by Marriott, The Ritz-Carlton
Destination Club and The Ritz-Carlton Residences brands under license agreements with Marriott International and The Ritz-
Carlton Hotel Company. The foregoing segment descriptions specify the brands that are used by each of our segments. We
operate in a highly competitive industry and our brand names, trademarks, service marks, trade names and logos are very
important to the marketing and sales of our products and services. We believe that our licensed brand names and other
intellectual property have come to represent the highest standards of quality, caring, service and value to our customers and the
traveling public. We register and protect our intellectual property where we deem appropriate and otherwise seek to protect
against its unauthorized use.
Seasonality
In general, the vacation ownership business is modestly seasonal, with stronger revenue generation during traditional
vacation periods, including summer months and major holidays. These seasonal patterns may cause fluctuations in quarterly
revenues and margin. Our vacation ownership management business does not experience significant seasonality.
Competition
Competition in the vacation ownership industry is based primarily on the quality, number and location of vacation
ownership resorts, the quality and capability of the related property management program, trust in the brand, pricing of product
offerings and the availability of program benefits, such as exchange programs and access to affiliated hotel networks. We
believe that our focus on offering distinctive vacation experiences, combined with our financial strength, well-established and
diverse market presence, strong brands, expertise and well-managed and maintained properties, will enable us to remain
competitive. Vacation ownership is a vacation option that is positioned and sold as an attractive alternative to vacation rentals
(such as hotels, resorts and condominium rentals) and second home ownership. The various segments within the vacation
ownership industry can be differentiated by the quality level of the accommodations, range of services and ancillary offerings,
and price. Our brands operate in the upscale and luxury tiers of the vacation ownership segment of the industry and the upscale
and luxury tiers of the whole ownership segment (also referred to as the residential segment) of the industry.
Our competitors in the vacation ownership industry range from small vacation ownership companies to large branded
hotel companies that operate vacation ownership businesses. In North America and the Caribbean, we typically compete with
companies that sell upscale tier vacation ownership products under a lodging or entertainment brand umbrella, such as Westin
Vacation Club, Sheraton Vacation Club, Hilton Grand Vacations Club, Hyatt Residence Club, and Disney Vacation Club, as
well as numerous regional vacation ownership operators. Our luxury vacation ownership products compete with vacation
ownership products offered by Four Seasons, Exclusive Resorts, Timbers Resorts and several other smaller independent
companies. In addition, the vacation ownership industry competes generally with other vacation rental options (such as hotels,
resorts and condominium rentals) offered by the lodging industry. Innovations that impact the industry may also lead to new
products and services that could disrupt our business model and create new and stronger competitors.
Outside North America and the Caribbean, we operate in two primary regions, Europe and Asia Pacific. In both
regions, we are one of the largest lodging-branded vacation ownership companies operating in the upscale tier, with regional
operators dominating the competitive landscape. Where possible, our vacation ownership properties in these regions are co-
located with Marriott International branded hotels. In Europe, our owner base is derived primarily from the North America,
Europe and Middle East regions. In Asia Pacific, our owner base is derived primarily from the Asia Pacific region and
secondarily from the Europe and North America regions.
14
Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For
example, ILG, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October
2014 and also acquired the vacation ownership operations of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood,” which
includes the Westin and Sheraton brands), now known as Vistana Signature Experiences, Inc. (“Vistana”), in May 2016.
Diamond Resorts International, Inc. completed the acquisition of the vacation ownership business of Gold Key Resorts in
October 2015 and the acquisition of the vacation ownership business of Intrawest Resort Club Group in January 2016.
Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and
greater access to, capital and enhanced operating efficiencies.
Competition in the timeshare industry may also increase as private competitors become publicly traded companies or
existing publicly traded competitors spin-off their timeshare operations. For example, Hilton Worldwide Holdings Inc. recently
completed the spin-off of its timeshare operations and Hilton Grand Vacations Inc. is now a separate publicly traded company.
Competitors that are publicly traded companies may benefit from a lower cost of, and greater access to, capital, as well as more
focused management attention.
Regulation
Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state
and local laws, regulations and policies in jurisdictions around the world. Some laws, regulations and policies may impact
multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-
corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the
Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the U.S.
Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption and bribery laws in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose
of obtaining or generating business. Other laws, regulations and policies primarily affect one of four areas of our business: real
estate development activities; marketing and sales activities; lending activities; and resort management activities.
Real Estate Development Regulation
Our real estate development activities are regulated under a number of different timeshare, condominium and land
sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations typically applicable to real
estate development, subdivision, and construction activities, such as laws relating to zoning, land use restrictions,
environmental regulation, accessibility, title transfers, title insurance and taxation. In the United States, these include, with
respect to some of our products, the Fair Housing Act and the Americans with Disabilities Act. In addition, we are subject to
laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by
future owners of property developed by the developer.
Marketing and Sales Regulation
Our marketing and sales activities are closely regulated. In addition to regulations implementing laws enacted
specifically for the vacation ownership and land sales industries, a wide variety of laws and regulations govern our marketing
and sales activities in the jurisdictions in which we carry out such activities, including regulations implementing the USA
PATRIOT Act, Foreign Investment In Real Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair
housing statutes, U.S. Federal Trade Commission (the “FTC”) and state “Little FTC Act” and other regulations governing
unfair, deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, state attorney
general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance, travel insurance and
other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach
notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, lodging certificate
and seller of travel laws, securities laws, and other consumer protection laws.
Many jurisdictions, including many jurisdictions in the United States, require that we file detailed registration or
offering statements with regulatory authorities disclosing certain information regarding the vacation ownership interests and
other real estate interests we market and sell, such as information concerning the interests being offered, the project, resort or
program to which the interests relate, applicable condominium or vacation ownership plans, evidence of title, details regarding
our business, the purchaser’s rights and obligations with respect to such interests, and a description of the manner in which we
intend to offer and advertise such interests. Regulation outside the United States includes, for example, European regulations to
which our vacation ownership activities within the European Union are subject and Singaporean regulations to which certain of
our Asia Pacific operations are subject. Among other things, the European and Singaporean regulations: (1) require delivery of
specified disclosure (some of which must be provided in a specific format or language) to purchasers; (2) require a specified
“cooling off” rescission period after a purchase is made; and (3) prohibit any advance payments during the “cooling off”
rescission period.
15
We must obtain the approval of numerous governmental authorities for our marketing and sales activities. Changes in
circumstances or applicable law may necessitate the application for or modification of existing approvals. Currently, we are
qualified to market and sell vacation ownership products in all 50 states and the District of Columbia in the United States and
numerous countries in North and South America, the Caribbean, Europe, Asia and the Middle East. In some countries our
vacation ownership products are marketed by third party brokers.
Laws in many jurisdictions in which we sell vacation ownership interests grant the purchaser of a vacation ownership
interest the right to cancel a purchase contract during a specified rescission period following the later of the date the contract
was signed or the date the purchaser received the last of the documents required to be provided by us.
In recent years, regulators in many jurisdictions have increased regulations and enforcement actions related to
telemarketing operations, including requiring adherence to the federal Telephone Consumer Protection Act (the “TCPA”) and
similar “do not call” legislation. These measures have significantly increased the costs associated with telemarketing. While we
continue to be subject to telemarketing risks and potential liability, we believe that our exposure to adverse effects from
telemarketing legislation and enforcement is mitigated in some instances by the use of permission-based marketing, under
which we obtain the permission of prospective purchasers to contact them in the future. We participate in various programs and
follow certain procedures that we believe help reduce the possibility that we contact individuals who have requested to be
placed on federal or state “do not call” lists, including subscribing to the federal and certain state “do not call” lists, and
maintaining an internal “do not call” list.
Lending Regulation
Our lending activities are subject to a number of laws and regulations including those of applicable supervisory
agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes
Enforcement Network. These laws and regulations, some of which contain exceptions applicable to the timeshare industry or
may not apply to some of our products, may include, among others, the Real Estate Settlement Procedures Act and Regulation
X, the Truth In Lending Act and Regulation Z, the Federal Trade Commission Act, the Equal Credit Opportunity Act and
Regulation B, the Fair Credit Reporting Act, the Fair Housing Act and implementing regulations, the Fair Debt Collection
Practices Act, the Electronic Funds Transfer Act and Regulation E, unfair, deceptive or abusive acts or practices regulations and
the Consumer Protection Act, the USA PATRIOT Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the
Servicemembers Civil Relief Act and the Bank Secrecy Act. Our lending activities are also subject to the laws and regulations
of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts,
mortgage lending, usury, fair debt collection practices, consumer debt collection practices, mortgage disclosure, lender or
mortgage loan originator licensing and registration and anti-money laundering.
Resort Management Regulation
Our resort management activities are subject to laws and regulations regarding community association management,
public lodging, food and beverage services, labor, employment, health care, health and safety, accessibility, discrimination,
immigration, gaming, and the environment (including climate change). In addition, many jurisdictions in which we manage our
resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for
property owners’ associations and/or permit the property owners’ association for a resort to terminate our management
agreement under certain circumstances (for example, upon a super-majority vote of the owners), even if we are not in default
under the agreement.
Environmental Compliance and Awareness
The properties we manage or develop are subject to national, state and local laws and regulations that govern the
discharge of materials into the environment or otherwise relate to protecting the environment. These laws and regulations
include requirements that address health and safety; the use, management and disposal of hazardous substances and wastes; and
emission or discharge of wastes or other materials. We believe that our management and development of properties comply, in
all material respects, with environmental laws and regulations. Our compliance with such provisions also has not had a material
impact on our capital expenditures, earnings or competitive position, nor do we anticipate that such compliance will have a
material impact in the future.
We take our commitment to protecting the environment seriously. We have collaborated with Audubon International to
further the “greening” of our resorts in our North America segment through the Audubon Green Leaf Eco-Rating Program for
Hotels. The Audubon partnership is just one of several programs incorporated into our green initiatives. We have more than 20
years of energy conservation experience that we have put to use in implementing our environmental strategy across all of our
segments. This strategy includes further reducing energy and water consumption, expanding our portfolio of green resorts,
including LEED (Leadership in Energy & Environmental Design) certification, educating and inspiring associates and guests to
support the environment, and embracing innovation.
16
Employees
As of December 30, 2016 we had nearly 11,000 employees with an average length of service of approximately seven
years. We believe our relations with our employees are very good.
Executive Officers
See Part III, Item 10. “Directors, Executive Officers and Corporate Governance” of this Annual Report for
information about our executive officers.
Available Information
Our website address is www.marriottvacationsworldwide.com. Our Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and any and all amendments thereto are available free of charge through our
website as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission (the
“SEC”). These materials are also accessible on the SEC’s website at www.sec.gov.
Item 1A.
Risk Factors
This section describes circumstances or events that could have a negative effect on our financial results or operations
or that could change, for the worse, existing trends in our businesses. The occurrence of one or more of the circumstances or
events described below could have a material adverse effect on our financial condition, results of operations and cash flows or
on the trading prices of our common stock. The risks and uncertainties described in this Annual Report are not the only ones
facing us. Additional risks and uncertainties that currently are not known to us or that we currently believe are immaterial also
may adversely affect our businesses and operations.
Contraction in the global economy or low levels of economic growth could impact our financial results and growth.
Our business and the vacation ownership industry are particularly affected by negative trends in the general economy,
and the recovery period in our industry may lag behind overall economic improvement. Demand for vacation ownership
industry products and services is closely linked to a number of factors relating to general global, national and regional
economic conditions, including perceived and actual economic conditions, exchange rates, availability of credit and business
and personal discretionary spending levels. Weakened consumer confidence and limited availability of consumer credit can
cause demand for our vacation ownership products to decline, which may reduce our revenue and profitability. Because a
significant portion of our expenses, including personnel costs, interest, property taxes and insurance, are relatively fixed, we
may not be able to adjust spending quickly enough to offset revenue decreases. Adverse economic conditions may also cause
purchaser defaults on our vacation ownership notes receivable to increase. In addition, adverse global and national economic
events, as well as significant terrorist attacks, are likely to have a dampening effect on the economy in general, which could
negatively affect our financial performance and our stock price.
The sale of vacation ownership interests in the secondary market by existing owners could cause our sales
revenues and profits to decline.
Existing owners have offered, and are expected to continue to offer, their vacation ownership interests for sale on the
secondary market. The prices at which these interests are sold are typically less than the prices at which we would sell the
interests. As a result, these sales create additional pricing pressure on our sale of vacation ownership products, which could
cause our sales revenues and profits to decline. In addition, if the secondary market for vacation ownership interests becomes
more organized and liquid than it currently is, the resulting availability of vacation ownership interests (particularly where the
vacation ownership interests are available for sale at lower prices than the prices at which we would sell them) could adversely
affect our sales and our sales revenues. Further, unlawful or deceptive third-party vacation ownership interest resale schemes
involving interests in our resorts could damage our reputation and brand value and adversely impact our sales revenues.
Development of a viable secondary market may also cause the volume of vacation ownership interests inventory that
we are able to repurchase to decline, which could adversely impact our development margin, as we utilize this lower cost
inventory source to supplement our inventory needs and help manage our cost of vacation ownership products.
Our reliance on capital efficient transactions to satisfy a portion of our future needs for inventory and additional
on-site sales locations may impact our ability to have inventory available for sale when needed.
We have entered into capital efficient transactions in which third parties are responsible for delivering completed units
which we will purchase at an agreed upon price in the future. As we continue to execute our strategy to deploy capital
efficiently, we will seek to enter into additional transactions to source inventory using similar or new transaction structures.
These structures may expose us to additional risk as we will not control development activities or timing of development
completion. If third parties with whom we enter into capital efficient transactions do not fulfill their obligations to us, or if they
17
exercise their right to sell inventory to a third party other than us, the inventory we expect to acquire may not be delivered on
time or at all, or may not otherwise be within agreed upon specifications. If our capital efficient transaction counterparties do
not perform as expected and we do not purchase the expected inventory or obtain inventory from alternative sources on a
timely basis, we may not be able to achieve sales forecasts. In addition, we anticipate opening new on-site sales locations in
connection with some or all of our new resort locations. If third parties with whom we enter into transactions do not deliver
these sales locations as expected, our future sales growth could be negatively impacted.
Our ability to develop, acquire and repurchase vacation ownership inventory may be impaired if we or third parties
with whom we do business are unable to access capital when necessary.
The availability of funds for new investments, primarily developing, acquiring or repurchasing vacation ownership
inventory, depends in part on liquidity factors and capital markets over which we can exert little, if any, control. We have
historically securitized the majority of the consumer loans we originate in support of our North America segment in the ABS
market, completing transactions once each year for the past several years. Instability in the financial markets could impact the
timing and volume of any securitizations we undertake, as well as the financial terms of such securitizations. Any future
deterioration in the financial markets could preclude, delay or increase the cost to us of future note securitizations. Such
deterioration could also impact our ability to renew the Warehouse Credit Facility, which we must do in order to access funds
under that facility after November 2017, on terms favorable to us, or at all. Further, any indebtedness we incur, including
indebtedness under our Revolving Corporate Credit Facility or our Warehouse Credit Facility, may adversely affect our ability
to obtain additional financing. If we are unable to access these sources of funds, our ability to acquire additional vacation
ownership inventory, repurchase vacation ownership interests that our owners propose to sell to third parties, or make other
investments in our business could be impaired.
In addition, as discussed above, we intend to continue to use capital efficient structures to optimize the timing of our
capital investments. If developers or other third parties are not able to obtain or maintain financing necessary for their
operations, we may not be able to enter into transactions using these capital efficient structures.
If the default rates or other credit metrics underlying our vacation ownership notes receivable deteriorate, our
vacation ownership notes receivable securitization program could be adversely affected.
Our vacation ownership notes receivable securitization program could be adversely affected if a particular vacation
ownership notes receivable pool fails to meet certain ratios, which could occur if the default rates or other credit metrics of the
underlying vacation ownership notes receivable deteriorate. Our ability to sell securities backed by our vacation ownership
notes receivable depends on the continued ability and willingness of capital market participants to invest in such securities.
Asset-backed securities issued in our securitization programs could be downgraded by credit agencies in the future. If a
downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized,
and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available.
This would decrease our profitability and might require us to adjust our business operations, including by reducing or
suspending our provision of financing to purchasers of vacation ownership interests. Sales of vacation ownership interests may
decline if we reduce or suspend the provision of financing to purchasers, which may adversely affect our cash flows, revenues
and profits.
Purchaser defaults on the vacation ownership notes receivable our business generates could reduce our revenues,
cash flows and profits.
We are subject to the risk that purchasers of our vacation ownership interests may default on the financing that we
provide. Purchaser defaults could cause us to foreclose on vacation ownership notes receivable and reclaim ownership of the
financed interests, both for loans that we have not securitized and in our role as servicer for the vacation ownership notes
receivable we have securitized through the ABS market or the Warehouse Credit Facility.
If default rates increase beyond current projections and result in higher than expected foreclosure activity, our results
of operations could be adversely affected. In addition, the transactions in which we have securitized vacation ownership notes
receivable contain certain portfolio performance requirements related to default and delinquency rates, which, if not met, would
result in loss or disruption of cash flow until portfolio performance sufficiently improves to satisfy the requirements. In
addition, we may not be able to resell foreclosed interests in a timely manner or for an attractive price.
The terms of any future equity or debt financing may give holders of any preferred securities rights that are senior
to rights of our common shareholders or impose more stringent operating restrictions on our company.
Debt or equity financing may not be available to us on acceptable terms. If we incur additional debt or raise equity
through the issuance of preferred stock, the terms of the debt or the preferred stock issued may give the holders rights,
preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of
the debt may also impose additional and more stringent restrictions on our operations. If we raise funds through the issuance of
additional equity, the ownership percentage of our existing shareholders would be diluted.
18
The degree to which we are leveraged may have a material adverse effect on our financial position, results of
operations and cash flows.
We can borrow up to $200 million under the Revolving Corporate Credit Facility and could also incur additional debt
to the extent permitted under the Revolving Corporate Credit Facility. Our ability to make dividend payments to holders of our
common stock and to make payments on and refinance our indebtedness, including any future debt that we may incur, will
depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is
subject to general economic, financial, competitive, legislative, regulatory and other factors that we cannot control. If we
cannot repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions,
including (1) reducing capital expenditures, (2) limiting financing offered to customers, which could result in reduced sales,
and (3) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our
indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the vacation ownership
industry could be impaired. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger
a default or acceleration of our other debt.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business model and competitive conditions in the vacation ownership industry demand the use of sophisticated
technology and systems, including those used for our sales, reservation, inventory management and property management
systems, and technologies we make available to our owners. We must refine, update and/or replace these technologies and
systems with more advanced systems on a regular basis. If we cannot do so as quickly as our competitors or within budgeted
costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new
technology or system, and a failure to do so could result in higher than anticipated costs or could harm our operating results.
A failure to keep pace with developments in social media could impair our competitive position.
The proliferation and global reach of social media continues to expand rapidly and could cause us to suffer
reputational harm. The continuing evolution of social media presents new challenges and requires us to keep pace with new
developments, technology and trends. Negative posts or comments about us, the properties we manage or our brands on any
social networking or user-generated review website, including travel and/or vacation property websites, could affect consumer
opinions of us and our products, and we cannot guarantee that we will timely or adequately redress such instances.
Inadequate or failed technologies could lead to interruptions in our operations, which may materially adversely
affect our business, financial position, results of operations or cash flows.
Our operations depend on our ability to maintain existing systems and implement new technology, which includes
allocating sufficient resources to periodically upgrade our information technology systems, and to protect our equipment and
the information stored in our databases against both manmade and natural disasters, as well as power losses, computer and
telecommunications failures, technological breakdowns, unauthorized intrusions, cyber-attacks, and other events. Conversions
to new information technology systems require effective change management processes and may result in cost overruns, delays
or business interruptions. If our information technology systems are disrupted, become obsolete or do not adequately support
our strategic, operational or compliance needs, our business, financial position, results of operations or cash flows may be
adversely affected.
Our business will be materially harmed if our License Agreements with Marriott International and The Ritz-
Carlton Hotel Company are terminated or if we are unable to maintain our ongoing relationship with Marriott
International.
Our success depends, in part, on the maintenance of ongoing relationships with Marriott International that are
governed by a number of agreements that we entered into with Marriott International in connection with the Spin-Off. In
particular, our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, among other things,
provide us with the exclusive right to use the Marriott and Ritz-Carlton names, respectively, in our vacation ownership
business. Each License Agreement has an initial term that expires in 2090; however, if we breach our obligations under either
License Agreement, Marriott International and The Ritz-Carlton Hotel Company may be entitled to terminate the License
Agreements.
The termination of the License Agreements would materially harm our business and results of operations and impair
our ability to market and sell our products and maintain our competitive position, and could have a material adverse effect on
our financial position, results of operations or cash flows. For example, we would not be able to rely on the strength of the
Marriott and Ritz-Carlton brands to attract qualified prospects in the marketplace, which would cause our revenue and profits to
decline and our marketing and sales expenses to increase. In addition, we would not be able to use www.marriott.com and
www.ritzcarlton.com as channels through which to rent available inventory, which would cause our rental revenue to decline.
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The Marriott Rewards Agreement would also terminate upon termination of the License Agreements, and we would
not be able to offer Marriott Rewards Points to owners and potential owners, which would impair our ability to sell our
products and would reduce the flexibility and options available in connection with our products.
In September 2016, Marriott International completed its acquisition of Starwood. While the acquisition does not
impact our rights under the License Agreements, we cannot predict whether changes in the operations of Marriott International
that result from the acquisition over time may impact our business. For example, Marriott International announced in
September 2016 that it is permitting Marriott Rewards members to link their Marriott Rewards and Starwood Preferred Guest
accounts and to transfer points between the two programs. If Marriott International pursues further integration of these loyalty
programs, Marriott International may seek changes to the License Agreements. Any changes to the License Agreements could
unfavorably impact our business. In addition, our relationship with Marriott International could be adversely impacted by
negotiations regarding potential changes to the License Agreements.
If Marriott International or The Ritz-Carlton Hotel Company terminates our rights to use the Marriott or Ritz-
Carlton marks at any properties that do not meet applicable brand standards, our reputation could be harmed and our
ability to market and sell our products at those properties could be impaired.
Marriott International and The Ritz-Carlton Hotel Company can terminate our rights under the License Agreements to
use the Marriott or Ritz-Carlton marks at any properties that do not meet applicable brand standards. The termination of such
rights could harm our reputation and impair our ability to market and sell our products at the subject properties, either of which
could harm our business, and we could be subject to claims by Marriott International and The Ritz-Carlton Hotel Company,
property owners, third parties with whom we have contracted and others.
Our ability to expand our business and remain competitive could be harmed if Marriott International or The Ritz-
Carlton Hotel Company do not consent to our use of their trademarks at new resorts we acquire or develop in the future.
Under the terms of our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, we
must obtain Marriott International’s or The Ritz-Carlton Hotel Company’s consent, as applicable, to use the Marriott or Ritz-
Carlton trademarks in connection with resorts, residences or other accommodations that we acquire or develop in the future.
Marriott International or The Ritz-Carlton Hotel Company may reject a proposed project if, among other things, the project
does not meet Marriott International’s or The Ritz-Carlton Hotel Company’s respective construction and design standards or
Marriott International or The Ritz-Carlton Hotel Company reasonably believes the project will breach contractual or legal
restrictions applicable to them and their affiliates. In addition, The Ritz-Carlton Hotel Company may reject a proposed project
if The Ritz-Carlton Hotel Company will not be able to provide services that comply with Ritz-Carlton brand standards at the
proposed project. If Marriott International or The Ritz-Carlton Hotel Company do not permit us to use their trademarks in
connection with our development or acquisition plans, our ability to expand our Marriott and Ritz-Carlton businesses and
remain competitive may be materially adversely affected. The requirement to obtain Marriott International’s or The Ritz-
Carlton Hotel Company’s consent to our expansion plans, or the need to identify and secure alternative expansion opportunities
because Marriott International or The Ritz-Carlton Hotel Company do not allow us to use their trademarks with proposed new
projects, may delay implementation of our expansion plans and cause us to incur additional expense.
Our business depends on the quality and reputation of the Marriott and Ritz-Carlton brands, and any deterioration
in the quality or reputation of these brands could have an adverse impact on our market share, reputation, business,
financial condition or results of operations.
Currently, our products and services are predominantly offered under Marriott or Ritz-Carlton brand names, and we
intend to continue to offer products and services under these brands in the future. If the quality of these brands deteriorates, or
the reputation of these brands declines, our market share, reputation, business, financial condition or results of operations could
be materially adversely affected.
Our industry is competitive, which may impact our ability to compete successfully with other vacation ownership
brands and with other vacation rental options for customers.
A number of highly competitive companies participate in the vacation ownership industry, including several branded
hotel companies. Our brands compete with the vacation ownership brands of major hotel chains in national and international
venues, as well as with the vacation rental options (such as hotels, resorts and condominium rentals) offered by the lodging
industry. Innovations that impact the industry may also lead to new products and services that could disrupt our business model
and create new and stronger competitors.
Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For
example, ILG, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October
2014 and the vacation ownership operations of Starwood (which includes the Westin and Sheraton brands), now known as
Vistana Signature Experiences, Inc., in May 2016. Diamond Resorts International, Inc. completed the acquisition of the
vacation ownership business of Gold Key Resorts in October 2015 and the acquisition of the vacation ownership business of
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Intrawest Resort Club Group in January 2016. Consolidation may create competitors that enjoy significant advantages resulting
from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.
Competition in the timeshare industry may also increase as private competitors become publicly traded companies or
existing publicly traded competitors spin-off their timeshare operations. For example, Hilton Worldwide Holdings Inc. recently
completed the spin-off of its timeshare operations and Hilton Grand Vacations Inc. is now a separate publicly traded company.
Competitors that are publicly traded companies may benefit from a lower cost of, and greater access to, capital, as well as more
focused management attention.
In addition, under our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, if other
international hotel operators offer new products and services as part of their respective hotel businesses that may directly
compete with our vacation ownership products and services in the future, then Marriott International and The Ritz-Carlton
Hotel Company may also offer such new products and services, and use their respective trademarks in connection with such
offers. If Marriott International or The Ritz-Carlton Hotel Company offer new vacation ownership products and services under
their trademarks, our vacation ownership products and services may compete directly with those of Marriott International or
The Ritz-Carlton Hotel Company, and we may not be able to distinguish our vacation ownership products and services from
those offered by Marriott International and The Ritz-Carlton Hotel Company. Our ability to remain competitive and to attract
and retain owners depends on our success in distinguishing the quality and value of our products and services from those
offered by others. If we cannot compete successfully in these areas, this could limit our operating margins, diminish our market
share and reduce our earnings.
If a Marriott International or Ritz-Carlton hotel property with which one of our resorts is co-located ceases to be
operated by Marriott International or The Ritz-Carlton Hotel Company or one of their affiliates, our business could be
harmed.
Approximately one-quarter of our vacation ownership resorts are co-located with Marriott International and Ritz-
Carlton hotel properties. If a Marriott International or Ritz-Carlton branded hotel property with which one of our resorts is co-
located ceases to be operated by Marriott International or The Ritz-Carlton Hotel Company or one of their affiliates, we could
lose the benefits derived from co-location of our resorts, such as the sharing of amenities, infrastructure and staff, integration of
services, and other cost efficiencies. Our owners could lose access to the more varied and elaborate amenities that are generally
available at the larger campus of an integrated vacation ownership and hotel resort. We expect our overhead and operating costs
for resorts that are no longer co-located with a Marriott International or Ritz-Carlton hotel property would increase. We would
also lose our on-site access to hotel customers, including Marriott Rewards customer loyalty program members, at such resorts,
which is a cost-effective marketing channel for our vacation ownership products, and our sales may decline.
If we are not able to maintain relationships with third parties that support our marketing activities, our business
could be harmed.
Many of our marketing activities require us to maintain relationships with third parties. For example, we market to
existing Marriott Rewards customer loyalty program members and travelers who are staying in locations where we have
resorts. We also market extensively to guests in Marriott International hotels that are located near one of our sales locations and
have marketing partnerships with Marriott International’s North American reservation centers. In addition, we operate other
local marketing venues in various high-traffic areas. If we are not able to maintain these marketing arrangements with these
third parties on terms that are favorable to us or at all, our sales may decline, which could adversely affect our financial
conditions and result of operations.
Our operations outside of the United States make us susceptible to the risks of doing business internationally,
which could lower our revenues, increase our costs, reduce our profits or disrupt our business.
We conduct business in 30 countries and territories, and our operations outside the United States represented
approximately 14 percent of our revenues, excluding cost reimbursements, in 2016. International properties and operations
expose us to a number of additional challenges and risks, including the following, any of which could reduce our revenues or
profits, increase our costs, or disrupt our business:
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complex and changing laws, regulations and policies of governments that may impact our operations, including
foreign ownership restrictions, import and export controls, and trade restrictions;
•
increases in anti-American sentiment and the identification of our brands as American brands;
• U.S. laws that affect the activities of U.S. companies abroad;
•
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the presence and acceptance of varying levels of business corruption in international markets and the effect of various
anti-corruption and other laws;
limitations on our ability to repatriate non-U.S. earnings in a tax-effective manner;
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•
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the difficulties involved in managing an organization doing business in many different countries;
uncertainties as to the enforceability of contract and intellectual property rights under local laws;
rapid changes in government policy, political or civil unrest, acts of terrorism or the threat of international boycotts or
U.S. anti-boycott legislation;
changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the countries
in which we operate;
forced nationalization of resort properties by local, state or national governments; and
other exposure to local economic risks.
We also derive revenue from sales to customers from outside the United States that are transacted in United States
dollars. As a result, factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in
which our customers reside could reduce our revenues or profits.
Our business may be adversely affected by factors that disrupt or deter travel.
The profitability of the vacation ownership resorts that we develop and manage may be adversely affected by a
number of factors that can disrupt or deter travel. A substantial amount of our sales activity occurs at our resorts, and sales
volume is impacted by the number of prospective owners who visit our resorts. Fear of exposure to contagious and other
diseases, such as Ebola virus, H1N1 Flu, Avian Flu, the Zika virus and Severe Acute Respiratory Syndrome, or natural or man-
made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions, radiation releases and oil spills,
may deter travelers from scheduling sales tours at our resorts or cause them to cancel travel plans. Actual or threatened war,
civil unrest and terrorist activity, as well as heightened travel security measures instituted in response to the same, could also
interrupt or deter travel plans. In addition, demand for vacation options such as our vacation ownership products may decrease
if the cost of travel, including the cost of transportation and fuel, increases or if general economic conditions decline. Changes
in the desirability of the locations where we develop and manage resorts as vacation destinations and changes in vacation and
travel patterns may adversely affect our cash flows, revenue and profits.
Third-party reservation channels may negatively affect our rental revenues.
Some of our rental customers book their stays at our resorts through third-party internet travel intermediaries, such as
expedia.com, orbitz.com and booking.com, as well as lesser-known and/or newly emerging online travel service providers. If
the percentage of bookings through these intermediaries increases, they may be able to obtain higher commissions, reduced
room rates or other significant contract concessions from us. Moreover, some of these internet travel intermediaries are
attempting to commoditize lodging by increasing the importance of price and general indicators of quality (such as “three-star
property”) at the expense of brand identification. These intermediaries also generally employ aggressive marketing strategies,
including expending significant resources for online and television advertising campaigns to drive consumers to their websites.
Additionally, consumers can book stays at our resorts through other distribution channels, including travel agents, travel
membership associations and meeting procurement firms. Over time, consumers may develop loyalties to these third-party
reservation systems rather than to our booking channels. Although we expect to derive most of our business from traditional
channels and our websites (and those of Marriott International and the Ritz-Carlton Hotel Company), our business and
profitability could be adversely affected if customer loyalties change significantly, diverting bookings away from our resorts.
Our business is subject to extensive regulation, and any failure to comply with applicable laws and regulations
could have a material adverse effect on our business.
Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state
and local laws, regulations and policies in jurisdictions around the world. Some laws, regulations and policies impact multiple
areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and
bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial
Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the FCPA. Other laws,
regulations and policies primarily affect one of four areas of our business: real estate development activities; marketing and
sales activities; lending activities; and resort management activities. For more information regarding laws, regulations and
policies to which we are subject, see “Business—Regulation.”
The FCPA and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or generating business.
Our internal controls and procedures may not always protect us from the reckless or criminal acts that may be committed by
our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-
corruption laws in international jurisdictions, criminal or civil penalties could be imposed on us.
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Our real estate development activities are subject to laws and regulations typically applicable to real estate
development, subdivision and construction activities, such as laws relating to zoning, land use restrictions, environmental
regulation, accessibility, title transfers, title insurance and taxation. In addition, we are subject to laws in some jurisdictions that
impose liability on property developers for construction defects discovered or repairs made by future owners of property
developed by the developer.
A number of laws and regulations govern our marketing and sales activities, such as vacation ownership and land
sales acts, regulations implementing the USA PATRIOT Act and fair housing statutes, as well as rules governing unfair,
deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, anti-fraud laws,
prize, gift and sweepstakes laws, real estate, insurance and other licensing or registration laws and regulations, anti-money
laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home
solicitation sales laws, tour operator laws, seller of travel laws, securities laws, and other consumer protection laws. In addition,
laws in many jurisdictions in which we sell vacation ownership interests grant the purchaser of a vacation ownership interest
the right to cancel a purchase contract during a specified rescission period.
In recent years, the TCPA and similar “do not call” legislation has significantly increased the costs associated with
telemarketing. We have implemented procedures that we believe will help reduce the possibility that we contact individuals on
regulatory “do not call” lists, but such procedures may not be effective in ensuring regulatory compliance. Additionally, we are
not considered an affiliate of Marriott International for purposes of “do not call” legislation in some jurisdictions, which may
make it more difficult for us to utilize customer information we obtain from Marriott International.
Many jurisdictions, including many jurisdictions in the United States, require that we file detailed registration or
offering statements with regulatory authorities disclosing certain information regarding the vacation ownership interests and
other real estate interests we market and sell. Regulation outside the United States includes, for example, European regulations
to which our vacation ownership activities within the European Union are subject and Singaporean regulations to which certain
of our Asia Pacific operations are subject. Among other things, the European and Singaporean regulations: (1) require delivery
of specified disclosure (some of which must be provided in a specific format or language) to purchasers; (2) require a specified
“cooling off” rescission period after a purchase is made; and (3) prohibit any advance payments during the “cooling off”
rescission period.
Our lending activities are subject to a number of U.S. laws and regulations, including those of applicable supervisory
agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes
Enforcement Network, as well as laws and regulations of other jurisdictions, including, among others, laws and regulations
related to consumer loans, retail installment contracts, mortgage lending, usury, fair debt collection practices, consumer debt
collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money
laundering.
Our resort management activities are subject to laws and regulations regarding community association management,
public lodging, food and beverage services, labor, employment, health care, health and safety, accessibility, discrimination,
immigration, gaming and the environment (including climate change). In addition, many jurisdictions in which we manage our
resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for
property owners’ associations and/or permit the property owners’ association for a resort to terminate our management
agreement under certain circumstances (for example, upon a super-majority vote of the owners), even if we are not in default
under the agreement. Such statutory provisions expose us to a risk that one or more of our management agreements may not be
renewed or may be terminated prior to the end of the term specified in such agreements.
We may not be successful in maintaining compliance with all laws, regulations and policies to which we are currently
subject, and the cost of compliance with such laws, regulations and policies could be significant. The laws, regulations and
policies to which we are subject may change or be subject to different interpretation in the future, including in ways that could
negatively impact our business. Failure to comply with current or future applicable laws, regulations and policies could have a
material adverse effect on our business. For example, if we do not comply with applicable laws, governmental authorities in the
jurisdictions where the violations occurred may revoke or refuse to renew licenses or registrations we must have in order to
operate our business. Failure to comply with applicable laws could also render sales contracts for our products void or voidable,
subject us to fines or other sanctions and increase our exposure to litigation.
Changes in tax regulations or their interpretation could reduce our profits or increase our costs.
Jurisdictions in which we do business may at any time review tax and other revenue raising laws, regulations and
policies, and any resulting changes could impose new restrictions, costs or prohibitions on our current practices and reduce our
profits. In particular, governments may revise tax laws, regulations or official interpretations in ways that could have a
significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S.
operations, or that could require costly changes to those operations, or the way that we structure them. For example, the
effective tax rates of most U.S. companies reflect the fact that income earned and reinvested outside the United States is
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generally taxed at local rates, which are often much lower than U.S. tax rates. In addition, interpretation of tax regulations
requires us to exercise our judgment and taxing authorities or our independent registered public accounting firm may reach
conclusions about the application of such regulations that differ from our conclusions. If changes in tax laws, regulations or
interpretations were to significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, our profits
could be reduced, and if such increases were a result of our status as a U.S. company, we could be placed at a disadvantage to
our non-U.S. competitors if those competitors remain subject to lower local tax rates.
Changes in privacy laws could adversely affect our ability to market our products effectively.
We rely on a variety of direct marketing techniques, including telemarketing, email marketing and postal mailings.
Adoption of new state or federal laws regulating marketing and solicitation, or international data protection laws that govern
these activities, or changes to existing laws, such as the Telemarketing Sales Rule and the CANSPAM Act, could adversely
affect the continuing effectiveness of telemarketing, email and postal mailing techniques and could force us to make further
changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies,
which could impact the amount and timing of our sales of vacation ownership interests and other products. We also obtain
access to potential customers from travel service providers or other companies with whom we have relationships and market to
some individuals on these lists directly or by including our marketing message in the other companies’ marketing materials. If
access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce our products to
them could be impaired.
Failure to maintain the integrity of internal or customer data could result in faulty business decisions or
operational inefficiencies, damage our reputation and/or subject us to costs, fines or lawsuits.
We collect and retain large volumes of internal and customer data, including social security numbers, credit card
numbers and other personally identifiable information of our customers in various information systems and those of our service
providers. We also maintain personally identifiable information about our employees. The integrity and protection of that
customer, employee and company data is critical to us. We could make faulty decisions if that data is inaccurate or incomplete.
Our customers and employees also have a high expectation that we and our service providers will adequately protect their
personal information. The regulatory environment as well as the requirements imposed on us by the payment card industry
surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions
in which we operate. Our systems may be unable to satisfy changing regulatory and payment card industry requirements and
employee and customer expectations, or may require significant additional investments or time in order to do so.
Our information systems and records, including those we maintain with our service providers, may be subject to
security breaches, cyber attacks, system failures, viruses, operator error or inadvertent releases of data. A significant theft, loss,
or fraudulent use of customer, employee or company data maintained by us or by a service provider could adversely impact our
reputation and could result in remedial and other expenses, fines or litigation. A breach in the security of our information
systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational
inefficiencies and a loss of profits.
Our points-based product form exposes us to an increased risk of temporary inventory depletion.
Selling vacation ownership interests in a system of resorts under a points-based business model increases the risk of
temporary inventory depletion. We currently sell vacation ownership interests denominated in points from a small number of
trust entities in each of our North America and Asia Pacific business segments, which concentrates the primary source of
inventory for each of these segments. In contrast, under our prior business model, we sold weeks-based vacation ownership
interests tied to specific resorts; we thus had more sources of inventory (i.e., resorts), and the risk of inventory depletion was
diffused among those sources of inventory.
Temporary depletion of inventory available for sale can be caused by three primary factors: (1) delayed delivery of
inventory under construction by us or third parties; (2) delayed receipt of required governmental registrations of inventory for
sale; and (3) significant unanticipated increases in sales pace. If the inventory available for sale for a particular trust were to be
depleted before new inventory is added and available for sale, we would be required to temporarily suspend sales until
inventory is replenished. While we seek to avoid the risk of temporary inventory depletion by maintaining a surplus supply of
completed inventory based on our forecasted sales pace, as well as by employing other mitigation strategies such as
accelerating completion of resorts under construction, acquiring vacation ownership interests on the secondary market, or
reducing sales pace by adjusting prices or sales incentives, any temporary suspension of sales due to lack of inventory could
reduce our cash flow and have a negative impact on our results of operations.
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Our development activities expose us to project cost and completion risks.
Our ongoing development of new vacation ownership properties and new phases of existing vacation ownership
properties presents a number of risks. Our profits may be adversely affected if construction costs escalate faster than the pace at
which we can increase the price of vacation ownership interests. Construction delays, zoning and other local approvals, cost
overruns, lender financial defaults, or natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires,
volcanic eruptions, radiation releases and oil spills, may increase overall project costs or result in project cancellations. In
addition, any liability or alleged liability associated with latent defects in projects we have constructed or that we construct in
the future may adversely affect our business, financial condition and reputation.
The maintenance and refurbishment of vacation ownership properties depends on maintenance fees paid by the
owners of vacation ownership interests.
The maintenance fees that are levied on owners of our vacation ownership interests by property owners’ association
boards are used to maintain and refurbish the vacation ownership properties and to keep the properties in compliance with
Marriott and Ritz-Carlton brand standards. If property owners’ association boards do not levy sufficient maintenance fees, or if
owners of vacation ownership interests do not pay their maintenance fees, not only could our management fee revenue be
adversely affected, but the vacation ownership properties could fall into disrepair and fail to comply with applicable brand
standards. If a resort fails to comply with applicable brand standards, Marriott International or The Ritz-Carlton Hotel
Company could terminate our rights under the applicable License Agreement to use its trademarks at the non-compliant resort,
which would result in the loss of management fees, decrease customer satisfaction and impair our ability to market and sell our
products at the non-compliant locations.
If maintenance fees at our resorts are required to be increased, our product could become less attractive and our
business could be harmed.
The maintenance fees that are levied on owners of our vacation ownership interests by property owners’ association
boards may increase as the costs to maintain and refurbish the vacation ownership properties and to keep the properties in
compliance with Marriott and Ritz-Carlton brand standards increase. Increased maintenance fees could make our products less
desirable, which could have a negative impact on sales of our products.
Disagreements with the owners of vacation ownership interests and property owners’ associations may result in
litigation and the loss of management contracts.
The nature of our relationships with our owners and our responsibilities in managing our vacation ownership
properties will from time to time give rise to disagreements with the owners of vacation ownership interests and property
owners’ associations. Owners of our vacation ownership interests may also disagree with changes we make to our products or
programs. We seek to expeditiously resolve any disagreements in order to develop and maintain positive relations with current
and potential owners and property owners’ associations, but cannot always do so. Failure to resolve such disagreements has
resulted in litigation, and could do so again in the future. If any such litigation results in a significant adverse judgment,
settlement or court order, we could suffer significant losses, our profits could be reduced, our reputation could be harmed and
our future ability to operate our business could be constrained. Disagreements with property owners’ associations have in the
past and could in the future result in the loss of management contracts.
The expiration, termination or renegotiation of our management contracts could adversely affect our cash flows,
revenues and profits.
We enter into a management agreement with the property owners’ association or other governing body at each of our
resorts and, when a trust holds resorts or interests in resorts, with the trust’s governing body. The management fee is typically
based on either a percentage of the budgeted costs to operate such resorts or a fixed fee arrangement. We also receive revenues
that represent reimbursement for certain costs we incur under our management agreements, principally payroll-related costs at
the locations where we employ the associates providing on-site services. The terms of our management agreements typically
range from three to ten years and are generally subject to periodic renewal for one to five year terms. Many of these agreements
renew automatically unless either party provides notice of termination before the expiration of the term. Any of these
management contracts may expire at the end of its then-current term (following notice by a party of non-renewal) or be
terminated, or the contract terms may be renegotiated in a manner adverse to us. Upon non-renewal or termination of our
management agreement for a particular resort, the resort ceases to be part of our system and we lose the management fee
revenue associated with the resort. If a management agreement is terminated or not renewed on favorable terms, our cash
flows, revenues and profits could be adversely affected.
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Damage to, or other potential losses involving, properties that we own or manage may not be covered by insurance.
Market forces beyond our control may limit the scope of the insurance coverage we can obtain or our ability to obtain
coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and
floods, or terrorist acts, may be uninsurable or the price of coverage for such losses may be too expensive to justify obtaining
insurance. As a result, the cost of our insurance may increase and our coverage levels may decrease. In addition, in the event of
a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our
lost investment or that of owners of vacation ownership interests or in some cases may not provide a recovery for any part of a
loss due to deductible limits, policy limits, coverage limits or other factors. As a result, we could lose some or all of the capital
we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated
under guarantees or other financial obligations related to the property.
Our pursuit of new business opportunities to grow our business may not be successful.
One of our strategic initiatives is to selectively pursue new business opportunities, such as the continued enhancement
of our exchange programs, new management affiliations and acquisitions of existing vacation ownership and related
businesses. There are substantial risks and uncertainties associated with these efforts, particularly in connection with
opportunities in locations where the markets for vacation ownership products are not fully developed. We may invest
significant time and resources in developing and marketing new businesses. Initial timetables for the introduction and
development of new businesses may not be achieved and price and profitability targets may not prove feasible. External factors,
such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful
implementation of new businesses. Furthermore, any new business could strain our system of internal controls and diminish its
effectiveness. Failure to successfully manage these risks in the development and implementation of new businesses could have
a material adverse effect on our business, results of operations and financial condition.
Our share repurchase program may not enhance long-term stockholder value, and could increase the volatility of
the market price of our common stock and diminish our cash reserves.
The share repurchase program authorized by our Board of Directors does not obligate us to repurchase any specific
dollar amount, or to acquire any specific number, of shares of our common stock. The timing and amount of repurchases, if any,
will depend upon several factors, including market conditions, business conditions, statutory and contractual restrictions, the
trading price of our common stock and the nature of other investment opportunities available to us. The repurchase program
may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock
pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share
repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could
potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash
reserves, which may impact our ability to finance future growth, pursue possible future strategic opportunities and acquisitions,
and discharge liabilities. Our share repurchases may not enhance stockholder value because the market price of our common
stock may decline below the prices at which we repurchased shares of stock and short-term stock price fluctuations could
reduce the program’s effectiveness.
Our ability to pay dividends on our stock is limited.
We intend to pay a regular quarterly dividend to our stockholders. However, we may not declare or pay such
dividends in the future at the prior rate or at all. All decisions regarding our payment of dividends will be made by our Board of
Directors from time to time and will be subject to an evaluation of our financial condition, results of operations and capital
requirements, as well as applicable law, regulatory constraints, industry practice, contractual restraints and other business
considerations that our Board of Directors considers relevant. In addition, our Revolving Corporate Credit Facility contains
restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may
also limit or prohibit dividend payments. We may not have sufficient surplus under Delaware law to be able to pay any
dividends, which may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of
capital expenditures or increases in reserves.
Our stock price may fluctuate significantly.
Our common stock has a limited trading history. The market price of our common stock may fluctuate widely,
depending on many factors, some of which may be beyond our control, including:
•
•
•
•
actual or anticipated fluctuations in our operating results due to factors related to our business;
success or failure of our business strategy;
our quarterly or annual earnings, or those of other companies in our industry;
our ability to obtain financing as needed;
26
•
•
•
•
•
•
•
•
•
•
announcements by us or our competitors of significant new business developments or significant acquisitions or
dispositions;
changes in accounting standards, policies, guidance, interpretations or principles, including a new standard
regarding revenue recognition that we will adopt in the first quarter of 2018;
the failure of securities analysts to continue to cover our common stock;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and stock price performance of other comparable companies;
investor perception of our company and the vacation ownership industry;
overall market fluctuations;
initiation of or developments in legal proceedings;
changes in laws and regulations affecting our business; and
general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a
particular company. These broad market fluctuations could adversely affect the trading price of our common stock.
The growth of our business and the execution of our business strategies depend on the services of our senior
management and our associates.
We believe that our future growth depends, in part, on the continued services of our senior management team,
including our President and Chief Executive Officer, Stephen P. Weisz, and on our ability to successfully implement succession
plans for members of our senior management team. The loss of any members of our senior management team for whom we do
not have a succession plan, or the failure to identify successors for such positions, could adversely affect our strategic and
customer relationships and impede our ability to execute our business strategies.
In addition, insufficient numbers of talented associates could constrain our ability to maintain and expand our
business. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit,
train, develop or retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased
guest satisfaction, low morale, inefficiency or internal control failures.
If we identify additional excess land and inventory in the future, or if our estimates of the fair value of our excess
land and inventory change, our financial position and results of operations could be adversely affected.
Since the Spin-Off, we have identified excess land and inventory and have disposed of a significant portion of the land
and inventory we identified. We may also conclude in the future that additional land and inventory are excess, in which case we
would likely terminate plans to develop such land and instead seek to dispose of such excess land and inventory through bulk
sales or other methods. If we identify additional excess land and inventory in the future, we may have to record additional non-
cash impairment charges to write-down the value of such assets. Any such impairment charges may have an adverse impact on
our financial position and results of operations. In addition, if real estate market conditions change, our estimates of the fair
value of our excess land and inventory may change. If our estimates of the fair value of these assets decline, we may have to
record additional non-cash impairment charges to write-down the value of such assets to the estimated fair value. Any such
impairment charges may have an adverse impact on our financial position and results of operations.
If we are not able to conclude that our internal control over financial reporting is effective, or if our independent
registered public accounting firm is not able to provide an unqualified report on the effectiveness of our internal control
over financial reporting, our business, financial condition or results of operations could be materially adversely affected.
As a public entity, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange
Act”) and requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the obligation of our
management to report on its assessment of the effectiveness of our internal control over financial reporting. Establishment of
new infrastructure and systems may impact our ability to favorably assess the effectiveness of our internal control over
financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or our
independent registered public accounting firm cannot provide an unqualified report on the effectiveness of our internal control
over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
27
Our use of different estimates and assumptions in the application of our accounting policies could result in
material changes to our reported financial condition and results of operations, and changes in accounting standards or
their interpretation could significantly impact our reported results of operations.
Our accounting policies are critical to the manner in which we present our results of operations and financial
condition. Many of these policies, including policies relating to the recognition of revenue and determination of cost of sales,
are highly complex and involve many assumptions, estimates and judgments. We are required to review these assumptions,
estimates and judgments regularly and revise them when necessary. Our actual results of operations vary from period to period
based on revisions to these estimates. In addition, the regulatory bodies that establish accounting and reporting standards,
including the SEC and the Financial Accounting Standards Board, periodically revise or issue new financial accounting and
reporting standards that govern the preparation of our consolidated financial statements. Changes to these standards or their
interpretation could significantly impact our reported results in future periods. For example, we are currently assessing the
impact that the issuance of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),”
as amended, which is intended to significantly enhance comparability of revenue recognition practices across entities and
industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues, will have on
our financial statements.
Anti-takeover provisions in our organizational documents and Delaware law and in our agreements with Marriott
International could delay or prevent a change in control.
Provisions of our Charter and Bylaws may delay or prevent a merger or acquisition that a shareholder may consider
favorable. For example, our Charter and Bylaws provide for a classified board, require advance notice for shareholder
proposals and nominations, place limitations on convening shareholder meetings and authorize our Board of Directors to issue
one or more series of preferred stock. These provisions may also discourage acquisition proposals or delay or prevent a change
in control, which could harm our stock price. In addition, Delaware law also imposes some restrictions on mergers and other
business combinations between any holder of 15 percent or more of our outstanding common stock and us.
In addition, provisions in our agreements with Marriott International may delay or prevent a merger or acquisition that
a shareholder may consider favorable. Under the Tax Sharing and Indemnification Agreement, we agreed not to enter into any
transaction involving an acquisition or issuance of our common stock or any other transaction (or, to the extent we have the
right to prohibit it, to permit any such transaction) that could reasonably be expected to cause the distribution of our common
stock to be taxable to Marriott International. We are required to indemnify Marriott International for any tax resulting from any
such prohibited transaction, and we are required to meet various requirements, including obtaining the approval of Marriott
International or obtaining an Internal Revenue Service (“IRS”) ruling or unqualified opinion of tax counsel acceptable to
Marriott International, before engaging in such transactions. Further, our License Agreements with Marriott International and
The Ritz-Carlton Hotel Company provide that a change in control may not occur without the consent of Marriott International
or The Ritz-Carlton Hotel Company, respectively. A change in control for purposes of these agreements would occur if, among
other things, a person or group acquires beneficial ownership of, or the power to exercise effective control over, shares of our
common stock representing more than 15 percent of the combined voting power of the then-outstanding securities entitled to
vote generally in elections of directors.
The Spin-Off may expose us to potential liabilities arising out of our contractual arrangements with Marriott
International.
Pursuant to a Separation and Distribution Agreement that we entered into with Marriott International in connection
with the Spin-Off, from and after the Spin-Off, each of us and Marriott International is responsible for the debts, liabilities and
other obligations related to the business or businesses it owns and operates following the consummation of the Spin-Off.
Although we do not expect to be liable for any obligations that were not allocated to us under such agreement, a court could
disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to
Marriott International (for example, tax and/or environmental liabilities), particularly if Marriott International were to refuse or
were unable to pay or perform the allocated obligations.
In connection with the Spin-Off, we agreed to indemnify Marriott International for certain taxes and related losses
resulting from, among other things, breach of our covenants and representations in the documents submitted to the IRS and the
separation documents between Marriott International and us. In addition, if the distribution fails to qualify as a tax-free
transaction for reasons other than those specified in the Spin-Off tax indemnification provisions, liability for any resulting taxes
related to the distribution will be apportioned between Marriott International and us based on the relative fair market values of
Marriott International and us. We also agreed to indemnify Marriott International for certain lost tax benefits if Marriott
International is not able to recognize, for U.S. federal income tax purposes, significant built-in losses in properties used in the
vacation ownership and related residential businesses. The amount of any future indemnification payments could be substantial.
28
Certain of our executive officers and directors may have actual or potential conflicts of interest because of their
ownership of Marriott International equity or their former positions with Marriott International.
Certain of our executive officers and directors are former officers and employees of Marriott International and thus
have professional relationships with Marriott International’s executive officers and directors. In addition, many of our executive
officers and directors have financial interests in Marriott International that are substantial to them as a result of their ownership
of Marriott International stock, options and other equity awards. These relationships and personal financial interests may create,
or may create the appearance of, conflicts of interest when these directors and officers face decisions that could have different
implications for Marriott International than for us.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
As of December 30, 2016, our portfolio consisted of over 60 properties in the United States and eight other countries
and territories. These properties are described in Part I, Item 1, “Business,” of this Annual Report. Except as indicated in Part I,
Item 1, “Business,” we own all unsold inventory at these properties. We also own, manage or lease golf courses, fitness, spa
and sports facilities, undeveloped and partially developed land and other common area assets at some of our resorts, including
resort lobbies and food and beverage outlets.
In addition, we own or lease our regional offices and sales centers, both in the United States and internationally. Our
corporate headquarters in Orlando, Florida consists of approximately 160,000 square feet of leased space in two buildings,
under a lease expiring in August 2021. We also own an office facility in Lakeland, Florida consisting of approximately 125,000
square feet.
Item 3.
Legal Proceedings
Currently, and from time to time, we are subject to claims in legal proceedings arising in the normal course of
business, including, among others, the legal actions discussed in Footnote No. 9, “Contingencies and Commitments,” to our
Financial Statements. While management presently believes that the ultimate outcome of these proceedings, individually and in
the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal
proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect
on our business, financial condition, or operating results.
Item 4.
Mine Safety Disclosures
Not applicable.
29
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information and Dividends
Our common stock currently is traded on the New York Stock Exchange, or the “NYSE,” under the symbol “VAC.”
We have not made any unregistered sales of our equity securities. The following table sets forth the high and low sales prices
for our common stock and the per share cash dividends we declared for each fiscal quarter during the last two years.
2016
Quarter ended March 25, 2016 . . . . . . . . . . . . . . . . . .
Quarter ended June 17, 2016 . . . . . . . . . . . . . . . . . . .
Quarter ended September 9, 2016 . . . . . . . . . . . . . . .
Quarter ended December 30, 2016 . . . . . . . . . . . . . . .
2015
Quarter ended March 27, 2015 . . . . . . . . . . . . . . . . . .
Quarter ended June 19, 2015 . . . . . . . . . . . . . . . . . . .
Quarter ended September 11, 2015. . . . . . . . . . . . . . .
Quarter ended January 1, 2016 . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
Stock Price
High
Low
Dividends
Declared
Per Share
70.29
69.97
80.27
89.94
83.85
90.88
93.40
74.63
$
$
$
$
$
$
$
$
45.95
56.33
61.87
59.36
70.00
77.70
65.70
55.27
$
$
$
$
$
$
$
$
0.30
0.30
0.30
0.35
0.25
0.25
0.25
0.30
We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to
Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as
applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers
relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the
terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. Accordingly,
there can be no assurance that we will pay dividends in the future at the same rate or at all.
Holders of Record
On February 10, 2017, there were 24,435 holders of record of our common stock. Because many of the shares of our
common stock are held by brokers and other institutions on behalf of shareholders, we are unable to determine the total number
of shareholders represented by these record holders; however, we believe that there were approximately 38,000 beneficial
owners of our common stock as of February 10, 2017.
Issuer Purchases of Equity Securities
Period
September 10, 2016 – October 7, 2016 . . .
October 8, 2016 – November 4, 2016. . . . .
November 5, 2016 – December 2, 2016 . . .
December 3, 2016 – December 30, 2016 . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Number
of Shares
Purchased
Average
Price
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs (1)
— $
—
17,511
$
826.36 (2)
— $
— $
—
—
17,511
$
826.36
—
17,511
—
—
17,511
1,244,882
1,227,371
1,227,371
1,227,371
1,227,371
_________________________
(1)
On February 9, 2017, our Board of Directors extended our existing share repurchase program to September 30, 2017.
On February 11, 2016, our Board of Directors approved the repurchase of up to an additional 2,000,000 shares of our
common stock under our existing share repurchase program. Prior to that authorization, our Board of Directors had
authorized the repurchase of an aggregate of up to 8,900,000 shares of our common stock under the share repurchase
program since the initiation of the program in October 2013.
30
(2)
During the second quarter of 2016, pursuant to our existing share repurchase program, we entered into an accelerated
share repurchase agreement (the “ASR”) with a financial institution to repurchase shares of our common stock. Under
the agreement, we paid $85.0 million to the financial institution and received 1,186,428 shares at an average price of
$71.64 per share. Because we accounted for the ASR as two separate transactions, a purchase of treasury stock and a
forward contract indexed to our common stock, we recorded $70.5 million as the purchase price for the 1,168,917
shares we received on June 16, 2016 upon the commencement of the ASR, and $14.5 million as the purchase price for
the 17,511 shares we received on October 12, 2016 upon the completion of the ASR.
Performance Graph
Comparison of Cumulative Total Return
$600
$500
$500
$400
$300
$300
$200
$
$100
$0
12/30/11
12/28/12
01/03/14
01/02/15
01/01/16
12/30/16
Marriott Vacations Worldwide Corporation
S&P SmallCap 600 Index
S&P Composite 1500 Hotels, Resorts & Cruise Lines Index
The above graph compares the relative performance of our common stock, the S&P SmallCap 600 Index and the S&P
Composite 1500 Hotels, Resorts & Cruise Lines Index. The graph assumes that $100 was invested in our common stock and
each index on December 30, 2011. The stock price performance reflected above is not necessarily indicative of future stock
price performance. The foregoing performance graph is being furnished as part of this Annual Report solely in accordance with
the requirement under Rule 14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed
to be filed or incorporated by reference into any filings by the Company under the Securities Act of 1933, as amended, or the
Exchange Act.
31
Item 6.
Selected Financial Data
The following tables present a summary of selected historical consolidated financial data for the periods indicated
below. The selected historical consolidated statements of income data for fiscal years 2016, 2015 and 2014 and the selected
consolidated balance sheet data for fiscal years 2016 and 2015 are derived from our audited consolidated financial statements
included elsewhere in this Annual Report. The selected historical consolidated statement of income data for fiscal years 2013
and 2012 and the selected consolidated balance sheet data for fiscal years 2014, 2013 and 2012 are derived from our audited
consolidated financial statements not included in this Annual Report.
The following selected historical financial and other data should be read in conjunction with “Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and our Financial Statements and related notes
included elsewhere in this Annual Report. All fiscal years included 52 weeks, except for 2013, which included 53 weeks.
(in thousands, except per share amounts)
Statement of Income Data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues net of total expenses . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share. . . . . . . . . . .
Shares used in computing basic earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . .
Shares used in computing diluted earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015(1)
Fiscal Years
2014(1)
2013
2012
$ 1,811,235
$ 1,813,781
$ 1,716,016
$ 1,749,688
$ 1,638,775
225,271
137,348
4.93
$
218,003
122,799
3.90
$
27,882
31,487
156,498
143,920
80,756
2.40
33,665
$
79,730
2.25
35,373
$
37,971
6,149
0.19
34,357
4.83
$
3.82
$
2.33
$
2.18
$
0.18
28,422
32,168
34,635
36,621
36,183
$
$
$ 2,391,419
$ 2,399,718
$ 2,530,579
$ 2,623,230
$ 2,604,571
Total debt, net . . . . . . . . . . . . . . . . . . . . . . . . . .
737,224
678,793
703,013
670,619
671,300
Total mandatorily redeemable preferred stock
of consolidated subsidiary, net . . . . . . . . . . . . .
—
38,989
38,816
38,643
38,470
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .
1,483,600
1,423,451
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share . . .
Other Data:
Contract sales(2):
Vacation ownership . . . . . . . . . . . . . . . . . .
Residential products. . . . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . . . . .
907,819
1.25
723,634
—
723,634
$
$
$
976,267
1.05
699,884
28,420
728,304
$
$
$
$
$
$
1,450,876
1,079,703
0.25
698,765
14,514
713,279
$
$
$
1,414,493
1,208,737
— $
1,466,175
1,138,396
—
679,089
14,813
693,902
$
$
686,768
996
687,764
_________________________
(1)
Data presented herein has been restated for certain previously unrecorded immaterial presentation errors to our Financial
Statements. Refer to Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for
further information.
(2)
Contract sales consist of the total amount of vacation ownership product sales under purchase agreements 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. In circumstances where a customer applies any or all of their existing ownership interests
as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales.
Contract sales differ from revenues from the sale of vacation ownership products that we report in our Statements of
Income due to the requirements for revenue recognition described in Footnote No. 1, “Summary of Significant
Accounting Policies,” to our Financial Statements. We consider contract sales to be an important operating measure
because it reflects the pace of sales in our business.
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our results of operations and financial condition together with our audited
historical consolidated financial statements and accompanying notes that we have included elsewhere in this Annual Report, as
well as the discussion in the section of this Annual Report entitled “Business.” This discussion contains forward-looking
statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on
our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our
actual results could differ materially from the results contemplated by these forward-looking statements due to a number of
factors, including those we discuss in the sections of this Annual Report entitled “Risk Factors” and “Special Note About
Forward-Looking Statements.”
Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of
operations and cash flows. The financial information discussed below and included in this Annual Report may not, however,
necessarily reflect what our financial condition, results of operations and cash flows may be in the future.
Business Overview
We are one of the world’s largest companies whose business is focused almost entirely on vacation ownership, based
on number of owners, number of resorts and revenues. We are the exclusive worldwide developer, marketer, seller and manager
of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are
also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton
Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products
under The Ritz-Carlton Residences brand.
In 2016, we introduced Marriott Vacation Club Pulse, an extension to the Marriott Vacation Club brand, which
features unique properties that embrace the spirit and culture of their urban locations, creating an authentic sense of place while
delivering easy access to local interests, attractions and transportation.
Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of December 30,
2016, our portfolio consisted of over 60 properties in the United States and eight other countries and territories. We generate
most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing
consumer purchases of vacation ownership products; and renting vacation ownership inventory. See “Business—Segments” for
further details regarding our individual properties by segment.
As described in Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements included
in this Annual Report, the Financial Statements discussed below reflect our historical financial position, results of operations
and cash flows as we have historically operated, in conformity with GAAP. In addition, beginning in 2017, our fiscal year will
be the same as the corresponding calendar year, except that the 2017 fiscal year will begin on December 31, 2016 and end on
December 31, 2017.
Below is a summary of significant accounting policies used in our business that will be used in describing our results
of operations.
Sale of Vacation Ownership Products
We recognize revenues from the sale of vacation ownership products when all of the following conditions exist: a
binding sales contract has been executed; the statutory rescission period has expired; the receivable is deemed collectible; and
the remainder of our obligations are substantially completed.
Sales of vacation ownership products may be made for cash or we may provide financing. For sales where we provide
financing, we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price
plus the fair value of certain sales incentives provided to the purchaser. These sales incentives typically include Marriott
Rewards Points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at
our resorts or for use in the Explorer Collection, generally up to two years from the date of issuance. Sales incentives are only
awarded if the sale is closed.
As a result of the down payment requirement with respect to financed sales and the statutory rescission periods, we
often defer revenues associated with the sale of vacation ownership products from the date of the purchase agreement to a
future period. When comparing results year-over-year, this deferral frequently generates significant variances, which we refer
to as the impact of revenue reportability.
Finally, as more fully described in the “Financing” section below, we record an estimate of expected uncollectibility
on all vacation ownership notes receivable (also known as a vacation ownership notes receivable reserve or a sales reserve) as a
reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale.
33
We report, on a supplemental basis, contract sales for each of our three segments. Contract sales consist of the total
amount of vacation ownership product sales under purchase agreements 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. In circumstances
where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests, we
include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation
ownership products that we report on our Statements of Income due to the requirements for revenue recognition described
above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.
Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate
inventory costs) as well as other non-capitalizable costs associated with the overall project development process. For each
project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable
accounting guidance, to the extent there is a change in the estimated sales revenues or real estate inventory costs for the project
in a period, a non-cash adjustment is recorded on our Statements of Income to true-up costs in that period to those that would
have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up
activity, will have a positive or negative impact on our Statements of Income.
We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and
marketing and sales costs as development margin. Development margin percentage is calculated by dividing development
margin by revenues from the sale of vacation ownership products.
Resort Management and Other Services
Our resort management and other services revenues include revenues generated from fees we earn for managing each
of our resorts. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and
spa offerings at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership
products and certain transaction-based fees from owners and other third parties, including external exchange service providers
with which we are associated.
We provide day-to-day-management services, including housekeeping services, operation of reservation systems,
maintenance, and certain accounting and administrative services for property owners’ associations. We receive compensation
for these management services; this compensation is typically based on either a percentage of the budgeted costs to operate the
resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy.
Resort management and other services expenses include costs to operate the food and beverage and other ancillary
operations and overall customer support services, including reservations, certain transaction-based expenses relating to external
exchange service providers and settlement expenses from the sale of vacation ownership products.
Financing
We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The
average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as
follows:
Average FICO score. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
741
Fiscal Years
2015
736
2014
730
The typical financing agreement provides for monthly payments of principal and interest with the principal balance of
the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. The
interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over
the life of the arrangement and is recorded as Financing revenues on our Statements of Income.
Financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from
servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the
financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of
outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership
notes receivable and negatively by principal collections. Due to weakened economic conditions and our elimination of
historical financing incentive programs, financing propensity declined significantly through 2009 and then remained stable at
40 to 45 percent through early 2015. We calculate financing propensity as contract sales volume of financed contracts closed in
the period divided by contract sales volume of all contracts closed in the period. Financing propensity was 60.1 percent in
2016, following our implementation of new incentive programs in the first half of 2015 to help increase financing propensity.
We expect financing propensity in 2017 to continue at similar levels to 2016 as we continue to offer the financing incentive
programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace
the decline in principal of existing vacation ownership notes receivable.
34
In the event of a default, we generally have the right to foreclose on or revoke the vacation ownership interest. We
return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory. As
discussed above, we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a
reduction to revenues from the sale of vacation ownership products on our Statements of Income. Historical default rates,
which represent annual defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance,
were as follows:
Historical default rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental
2016
3.8%
Fiscal Years
2015
3.5%
2014
3.9%
We operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our
inventory. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative
usage options offered through our vacation ownership programs.
Rental revenues are primarily the revenues we earn from renting this inventory. We also recognize rental revenue from
the utilization of plus points under the MVCD program when those points are redeemed for rental stays at one of our resorts or
in the Explorer Collection, or upon expiration of the points.
Rental expenses include:
• Maintenance fees on unsold inventory;
• Costs to provide alternative usage options, including Marriott Rewards Points and offerings available as part
of the Explorer Collection, for owners who elect to exchange their inventory;
• Marketing costs and direct operating and related expenses in connection with the rental business (such as
housekeeping, credit card expenses and reservation services); and
• Costs associated with the banking and borrowing usage option that is available under our points-based
programs.
Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be
comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one
bedroom or studio unit), and owner use and exchange behavior. Further, as our ability to rent certain luxury inventory and
inventory in our Asia Pacific segment is often limited on a site-by-site basis, rental operations may not generate adequate rental
revenues to cover associated costs. Our vacation units are either “full villas” or “lock-off” villas. Lock-off villas are units that
can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A
“key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-
off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix
of inventory available for rent and includes all of the combined inventory configurations available in our resort system.
Cost Reimbursements
Cost reimbursements include direct and indirect costs that property owners’ associations reimburse to us. In
accordance with the accounting guidance for “gross versus net” presentation, we record these revenues and expenses on a gross
basis. We recognize cost reimbursements when we incur the related reimbursable costs. These costs primarily consist of payroll
and payroll related expenses for management of the property owners’ associations and other services we provide where we are
the employer. Cost reimbursements consist of actual expenses with no added margin.
Consumer Financing Interest Expense
Consumer financing interest expense represents interest expense associated with the debt from our Warehouse Credit
Facility and from the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest
expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by
vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-
recourse to us.
Interest Expense
Interest expense consists of all interest expense other than consumer financing interest expense.
35
Other Items
We measure operating performance using the following key metrics:
• Contract sales from the sale of vacation ownership products;
• Development margin percentage; and
• Volume per guest (“VPG”), which we calculate by dividing contract sales, excluding fractional and
residential sales, telesales and other sales that are not attributed to a tour at a sales location, by the number of
tours at sales locations in a given period. We believe that this operating metric is valuable in evaluating the
effectiveness of the sales process as it combines the impact of average contract price with the number of
touring guests who make a purchase.
Rounding
Percentage changes presented in our public filings are calculated using whole dollars.
36
Consolidated Results
The following discussion presents an analysis of our results of operations for 2016, 2015 and 2014.
($ in thousands)
REVENUES
2016
Fiscal Years
2015
2014
Sale of vacation ownership products . . . . . . . . . . . . . . .
$
637,503
$
675,329
$
303,570
126,126
312,071
431,965
295,547
124,033
312,997
405,875
647,488
278,517
128,909
264,307
396,795
1,811,235
1,813,781
1,716,016
155,093
353,295
174,311
21,380
260,752
104,833
(303)
—
23,685
60,953
—
431,965
1,585,964
11,201
(8,912)
(4,632)
222,928
(85,580)
137,348
$
204,299
330,599
180,072
24,194
259,729
106,104
(232)
1,174
24,658
58,982
324
405,875
1,595,778
9,557
(12,810)
(8,253)
206,497
(83,698)
122,799
$
196,444
315,410
177,138
24,148
237,920
100,916
19,494
3,438
26,464
59,970
1,381
396,795
1,559,518
5,171
(11,692)
614
150,591
(69,835)
80,756
Resort management and other services . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . .
EXPENSES
Cost of vacation ownership products . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative. . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational and separation related . . . . . . . . . . . . . .
Consumer financing interest. . . . . . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . .
Gains and other income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
37
Contract Sales
2016 Compared to 2015
($ in thousands)
Contract Sales
Vacation ownership
Fiscal Years
2016
2015
Change
% Change
North America . . . . . . . . . . . . . . . . .
$
645,277
$
631,403
$
Europe. . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific. . . . . . . . . . . . . . . . . . . .
Residential products
Asia Pacific. . . . . . . . . . . . . . . . . . . .
31,174
47,183
723,634
—
—
34,376
34,105
699,884
28,420
28,420
13,874
(3,202)
13,078
23,750
2%
(9%)
38%
3%
(28,420)
(28,420)
(100%)
(100%)
Total contract sales. . . . . . . . . . . . . . . . . . .
$
723,634
$
728,304
$
(4,670)
(1%)
We estimate that the effects of Hurricane Matthew negatively impacted North America contract sales by
approximately $8.1 million in the fourth quarter of 2016. Adjusting for that impact, total contract sales, excluding residential
contract sales, would have increased by approximately 4.5 percent for the full year.
The changes in contract sales are described within the discussions of our segment results below.
2015 Compared to 2014
($ in thousands)
Contract Sales
Vacation ownership
Fiscal Years
2015
2014
Change
% Change
North America . . . . . . . . . . . . . . . . .
$
631,403
$
619,688
$
Europe . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . .
Residential products
North America . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . .
34,376
34,105
699,884
—
28,420
28,420
45,171
33,906
698,765
14,514
—
14,514
11,715
(10,795)
199
1,119
(14,514)
28,420
13,906
Total contract sales . . . . . . . . . . . . . . . . . .
$
728,304
$
713,279
$
15,025
The changes in contract sales are described within the discussions of our segment results below.
2%
(24%)
1%
—%
96%
2%
38
Sale of Vacation Ownership Products
2016 Compared to 2015
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . .
$
$
Fiscal Years
2016
2015
Change
% Change
723,634
$
728,304
$
(4,670)
(1%)
(7,547)
(48,274)
(30,310)
637,503
$
(1,652)
(32,999)
(18,324)
675,329
$
(5,895)
(15,275)
(11,986)
(37,826)
(6%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a $7.5 million negative impact in 2016, compared to a $1.7 million negative impact in 2015.
The unfavorable impact compared to 2015 was due to an increase in the amount of sales that remained in the rescission period
at the end of 2016 as compared to 2015.
The higher sales reserve reflected an increase in sales reserve in our North America segment due to the higher
financing propensity and Latin American default activity and, to a lesser extent, the higher vacation ownership contract sales, as
well as a higher sales reserve in our Asia Pacific segment due to an unfavorable sales reserve adjustment to correct an
immaterial error in 2016 with respect to historical static pool data as well as the increase in contract sales.
The increase in other adjustments was primarily driven by an increase in the utilization of plus points as a sales
incentive in our North America segment compared to 2015. These revenues are deferred and recognized as rental revenue when
those points are redeemed or expire.
2015 Compared to 2014
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . .
$
$
Fiscal Years
2015
2014
Change
% Change
728,304
$
713,279
$
15,025
2%
(1,652)
(32,999)
(18,324)
675,329
$
(15,502)
(31,272)
(19,017)
647,488
$
13,850
(1,727)
693
27,841
4%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a $1.7 million negative impact in 2015, compared to a $15.5 million negative impact in
2014 due to fewer sales meeting the down payment requirements for revenue reportability and more sales in the rescission
period at the end of 2014. The higher sales reserve was driven by the higher vacation ownership contract sales and the impact
of higher financing propensity in our North America segment, partially offset by a decrease in the estimated default activity in
our North America segment compared to 2014.
39
Development Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Sale of vacation ownership products. . . . . . .
Cost of vacation ownership products . . . . . .
Marketing and sales. . . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . . .
Development margin percentage. . . . . . . . . .
$
$
2016
2015
Change
% Change
637,503
(155,093)
(353,295)
129,115
20.3%
$
$
675,329
(204,299)
(330,599)
140,431
20.8%
$
$
(37,826)
49,206
(22,696)
(11,316)
(0.5 pts)
(6%)
24%
(7%)
(8%)
The decrease in development margin reflected the following:
•
•
•
•
•
•
•
$12.0 million of pre-opening and startup expenses incurred in 2016 in support of six new sales locations, five in
our North America segment and one in our Asia Pacific segment;
$10.2 million of higher sales reserves in 2016 due to the increase in financing propensity and Latin American
default activity in our North America segment, higher contract sales in our North America and Asia Pacific
segments and a higher reserve in our Asia Pacific segment due to an unfavorable sales reserve adjustment to
correct an immaterial error in 2016 with respect to historical static pool data;
$8.6 million of additional deferred revenue in 2016 due to higher usage of plus points as a sales incentive in our
North America segment; this revenue will be recognized as rental revenue when the plus points are redeemed or
expire;
$5.9 million of lower residential contract sales volume net of expenses (there were no residential contract sales
in 2016, compared to $28.4 million of residential contract sales in our Asia Pacific segment in 2015);
$3.7 million of greater negative revenue reportability impact compared to 2015;
$0.6 million of higher development expenses in 2016 due to fewer costs being capitalized in 2016; and
$0.3 million of higher marketing and sales costs in 2016 due to investment in new programs to help generate
future incremental tour volumes, partially offset by lower marketing and sales compensation related costs.
These decreases in development margin were partially offset by the following:
•
•
•
$17.4 million from a favorable mix of lower cost real estate inventory being sold in 2016;
$7.5 million of higher favorable product cost true-up activity ($14.8 million in 2016 compared to $7.3 million in
2015) of which $4.1 million resulted from projected increases in development revenue primarily due to a
reduction in our estimated future sales incentive costs and $3.4 million resulted from lower development
spending for completion of common elements at multiple projects; and
$5.1 million of higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of
vacation ownership products and marketing and sales).
The 0.5 percentage point decrease in the development margin percentage reflected a 1.8 percentage point decline due
to higher marketing and sales spending from pre-opening and startup expenses, a 1.2 percentage point decline due to the higher
sales reserve activity, a 0.9 percentage point decline due to the higher usage of plus points as a sales incentive and a 0.3
percentage point decrease due to the higher unfavorable revenue reportability, in each case, year-over-year. These declines were
partially offset by a 2.6 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory
being sold in 2016 and a 1.1 percentage point increase due to the higher favorable product cost true-up activity year-over-year.
40
2015 Compared to 2014
Fiscal Years
($ in thousands)
Sale of vacation ownership products. . . . . .
Cost of vacation ownership products . . . . .
Marketing and sales. . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . .
Development margin percentage. . . . . . . . .
$
$
2015
2014
Change
% Change
675,329
(204,299)
(330,599)
140,431
20.8%
$
$
647,488
(196,444)
(315,410)
135,634
20.9%
$
$
27,841
(7,855)
(15,189)
4,797
(0.1 pts)
4%
(4%)
(5%)
4%
The increase in development margin reflected the following:
•
•
•
•
$8.6 million from higher revenue reportability compared to 2014;
$4.0 million of lower development expenses due to more costs being capitalized in 2015 compared to 2014 and
the disposition of land and related assets in Kauai, Hawaii in the fourth quarter of 2014 and second quarter of
2015 and at The Abaco Club on Winding Bay (“The Abaco Club”), in the Bahamas, in the third quarter of 2014;
$3.1 million from higher residential contract sales ($5.9 million from the sale of residential inventory in our
Asia Pacific segment in 2015 compared to $2.8 million from the sale of residential inventory in our North
America segment in 2014); and
$0.8 million from higher favorable product cost true-up activity ($7.3 million in 2015 compared to $6.5 million
in 2014).
These increases in development margin were partially offset by the following:
•
$9.9 million decline from the change in vacation ownership contract sales volume net of higher direct variable
expenses (i.e., cost of vacation ownership products and marketing and sales), including $14.3 million from
higher marketing and sales costs due to an inability to leverage fixed costs on lower sales volumes in our Europe
segment, investment in new programs to help generate future incremental tour volumes and higher marketing
and sales related program costs in our North America segment, partially offset by $3.3 million from a favorable
mix of lower cost real estate inventory being sold and $1.1 million from the higher vacation ownership contract
sales volume; and
•
$1.8 million of higher sales reserves in 2015, including $1.0 million in our Asia Pacific segment and $0.7
million in our North America segment due to the increase in financing propensity.
The 0.1 percentage point decline in the development margin percentage reflected a 2.2 percentage point decline due to
higher marketing and sales spending and a 0.2 percentage point decline from the higher vacation ownership notes receivable
reserve activity. This was partially offset by a 0.9 percentage point increase due to the favorable revenue reportability year-
over-year, a 0.7 percentage point increase from the lower development expenses, a 0.5 percentage point increase due to a
favorable mix of lower cost vacation ownership real estate inventory being sold in 2015, a 0.1 percentage point increase due to
the higher favorable product cost true-up activity year-over-year, and a 0.1 percentage point increase from the higher North
America vacation ownership contract sales (which have a development margin that is higher than the company-wide average)
and the lower Europe vacation ownership contract sales (which have a development margin that is lower than the company-
wide average).
41
Resort Management and Other Services Revenues, Expenses and Margin
2016 Compared to 2015
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
% Change
$
83,260
$
77,612
$
220,310
303,570
217,935
295,547
(174,311)
(180,072)
5,648
2,375
8,023
5,761
7%
1%
3%
3%
$
129,259
$
115,475
$
13,784
12%
42.6%
39.1%
3.5 pts
The increase in resort management and other services revenues reflected $6.1 million of additional annual club dues
and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the
program as well as an increase in the dues charged for each owner recognition level, $5.6 million of higher management fees
(net of $0.1 million negative foreign exchange impact in our Europe segment) and $0.5 million of higher other revenues, as
compared to 2015. These increases were partially offset by $1.4 million of lower customer service fees, $1.1 million of lower
ancillary revenues, $1.1 million of lower settlement and lien fees due to a decrease in the number of contracts closed and fewer
lien fees assessed and $0.7 million of lower brand fees due to fewer closings. The decrease in ancillary revenues included $1.2
million of lower ancillary revenues from the operating property in Surfers Paradise, Australia due to the sale of the property,
$1.1 million of lower revenues due to outsourcing the operation of one restaurant in our North America segment, $1.0 million
of lower ancillary revenues from food and beverage and golf offerings at our other resorts and $0.8 million of lower revenue at
the operating property in San Diego, California due to the conversion of the property to vacation ownership inventory, partially
offset by $2.9 million of ancillary revenues in 2016 at the property in New York that we did not operate in 2015.
The improvement in the resort management and other services margin reflected the changes in revenue and $5.8
million of lower expenses. The lower expenses included $3.9 million of lower customer service and exchange company
expenses, $3.1 million of lower ancillary expenses from food and beverage and golf offerings at our resorts, $0.9 million of
lower expenses due to outsourcing the operation of one restaurant in our North America segment, $0.6 million of lower
expenses from the operation of the ancillary businesses at the operating property in Surfers Paradise, Australia, $0.3 million of
lower refurbishment management expenses incurred from managing the refurbishment projects at our properties and $0.3
million of lower other expenses, partially offset by $3.3 million of expenses from the operation of the ancillary businesses at
the property in New York in 2016.
The ancillary revenue producing portions of the operating property in Surfers Paradise, Australia were included in the
sale of the portion of the operating property completed in the second quarter of 2016. Therefore, we do not anticipate future
ancillary revenues or expenses at this property. See Footnote No. 5, “Acquisitions and Dispositions” to our Financial
Statements for further information related to this transaction.
2015 Compared to 2014
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2015
2014
Change
% Change
$
77,612
$
73,936
$
217,935
295,547
204,581
278,517
3,676
13,354
17,030
(180,072)
(177,138)
(2,934)
5%
7%
6%
2%
$
115,475
$
101,379
$
14,096
14%
39.1%
36.4%
2.7 pts
42
The increase in resort management and other services revenues reflected $4.0 million of higher ancillary revenues,
$3.7 million of higher management fees (net of $1.1 million negative foreign exchange impact in our Europe segment), $3.4
million of higher refurbishment management revenues earned from managing the refurbishment projects at our properties, $2.4
million of higher resales commission and other revenues, $2.1 million of additional annual club dues and other revenues earned
in connection with the MVCD program due to the cumulative increase in owners enrolled in the program and $1.7 million of
higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees, partially
offset by $0.3 million of lower other revenues. The increase in ancillary revenues included a $6.9 million increase in ancillary
revenues from food and beverage and golf offerings at our existing resorts, $7.4 million of ancillary revenues at the operating
property in Surfers Paradise, Australia acquired in the third quarter of 2015 and $2.0 million of ancillary revenues at the
operating property in San Diego, California acquired in the first quarter of 2015. These increases were partially offset by an
$8.9 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation
during the prior year and outsourcing of the operation of a restaurant during the prior year, as well a $3.4 million decline from
the changes in foreign exchange rates in our Europe segment.
The improvement in the resort management and other services margin reflected the changes in revenue, partially
offset by $2.9 million of higher expenses, including $9.8 million of higher ancillary, customer service, settlement and MVCD
program expenses related to the higher revenues from our existing resorts in 2015, $6.1 million from the operation of the
ancillary businesses at the operating property in Surfers Paradise, Australia, $2.5 million of higher refurbishment management
expenses incurred from managing the refurbishment projects at our properties, $1.6 million from the operation of the ancillary
businesses at the operating property in San Diego, California and $1.0 million of higher other expenses, partially offset by
$14.4 million of ancillary expense savings from the dispositions, closure and outsourcing noted above and $3.7 million from
the changes in foreign exchange rates in our Europe segment.
Financing Revenues, Expenses and Margin
2016 Compared to 2015
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . .
Other financing revenues. . . . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . . . .
Financing expenses . . . . . . . . . . . . . . . . . . .
Consumer financing interest expense . . . . .
Financing margin. . . . . . . . . . . . . . . . . . . . .
$
Financing propensity . . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
% Change
$
120,113
$
118,020
$
6,013
126,126
(21,380)
(23,685)
81,061
60.1%
$
6,013
124,033
(24,194)
(24,658)
75,181
49.9%
$
2,093
—
2,093
2,814
973
5,880
2%
—%
2%
12%
4%
8%
The increase in financing revenues was due to a $22.8 million increase in the average gross vacation ownership notes
receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes
receivable.
The increase in financing margin reflected the higher financing revenues, as well as lower financing expenses and
lower consumer financing interest expense. The lower consumer financing interest expense was due to a lower average interest
rate on outstanding debt balances ($1.4 million), partially offset by a higher average outstanding debt balance including draw
downs on the Warehouse Credit Facility in 2016 ($0.4 million). The lower average interest rate reflected the continued pay-
down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates
applicable to our more recently completed securitizations of vacation ownership notes receivable.
The increase in financing propensity resulted from the use of incentive programs during all of 2016 as compared to
during only a portion of 2015. We expect financing propensity in 2017 to continue at similar levels to 2016 as we continue to
offer the financing incentive programs, and that interest income will continue to increase as new originations of vacation
ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
43
2015 Compared to 2014
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . .
Financing expenses . . . . . . . . . . . . . . . . .
Consumer financing interest expense . . .
Financing margin . . . . . . . . . . . . . . . . . .
$
Financing propensity. . . . . . . . . . . . . . . .
Fiscal Years
2015
2014
Change
% Change
$
118,020
$
122,551
$
6,013
124,033
(24,194)
(24,658)
75,181
$
49.9%
6,358
128,909
(24,148)
(26,464)
78,297
43.6%
$
(4,531)
(345)
(4,876)
(46)
1,806
(3,116)
(4%)
(5%)
(4%)
—%
7%
(4%)
The decrease in financing revenues was due to a $48.4 million decline in the average gross vacation ownership notes
receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster
pace than our origination of new vacation ownership notes receivable.
The decline in financing margin reflects the lower financing revenues, partially offset by lower consumer financing
interest expense. The lower consumer financing interest expense was due to a lower average interest rate on outstanding debt
balances ($2.2 million), partially offset by an increase in the outstanding debt balances of securitized vacation ownership notes
receivable and associated interest costs ($0.4 million). The lower average interest rate reflected the continued pay down of
older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our
more recently completed securitizations of vacation ownership notes receivable.
The increase in financing propensity resulted from new incentive programs implemented in the first half of 2015,
which helped increase financing propensity from the 40 to 45 percent average achieved in recent years.
Rental Revenues, Expenses and Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Unsold maintenance fees — upscale . . . . . . . . . . . . .
Unsold maintenance fees — luxury . . . . . . . . . . . . . .
Unsold maintenance fees. . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Rental margin percentage . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
Change
% Change
312,071
(66,111)
(2,391)
(68,502)
(192,250)
51,319
16.4%
$
$
312,997
(55,397)
(7,733)
(63,130)
(196,599)
53,268
17.0%
$
$
(926)
(10,714)
5,342
(5,372)
4,349
(1,949)
(0.6 pts)
—%
(19%)
69%
(9%)
2%
(4%)
Fiscal Years
2016
2015
Change
% Change
Transient keys rented(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . . . . . . . . . . . . .
1,206,118
1,179,905
$
216.57
$
219.45
$
Resort occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.1%
89.0%
26,213
(2.88)
0.1 pts
2%
(1%)
_________________________
(1)
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with
our operating properties in San Diego, California and Surfers Paradise, Australia prior to conversion to vacation
ownership inventory.
The decrease in rental revenues was due to $4.3 million of lower revenue at our operating property in San Diego,
California due to rooms being unavailable to rent during the conversion of the property to vacation ownership inventory and a
company-wide 1 percent decrease in average transient rate ($3.4 million) due to the mix of inventory available for rent,
partially offset by a $3.7 million increase in preview keys and other revenue and a company-wide 1 percent increase in
transient keys rented ($3.1 million), both of which were primarily due to a 1 percent increase in available keys.
44
The decrease in rental margin reflected a $2.2 million favorable charge in 2015 associated with Marriott Rewards
Points issued prior to the Spin-Off and a $1.4 million decline at the operating property in Surfers Paradise, Australia primarily
due to unsold maintenance fees in 2016 incurred after conversion of the property to vacation ownership inventory, partially
offset by $1.7 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due
to owners choosing alternative usage options and unsold maintenance fees.
2015 Compared to 2014
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Unsold maintenance fees — upscale . . . . . . . . . . . . .
Unsold maintenance fees — luxury . . . . . . . . . . . . . .
Unsold maintenance fees. . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Rental margin percentage . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
Change
% Change
312,997
(55,397)
(7,733)
(63,130)
(196,599)
53,268
17.0%
$
$
264,307
(51,328)
(9,639)
(60,967)
(176,953)
26,387
10.0%
$
$
48,690
(4,069)
1,906
(2,163)
(19,646)
26,881
7.0 pts
18%
(8%)
20%
(4%)
(11%)
102%
Fiscal Years
2015
2014
Change
% Change
Transient keys rented(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . . . . . . . . . . . . .
1,179,905
1,114,370
$
219.45
$
211.68
$
Resort occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.0%
89.4%
65,535
7.77
(0.4 pts)
6%
4%
_________________________
(1)
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with
our operating properties in San Diego, California and Surfers Paradise, Australia prior to conversion to vacation
ownership inventory.
The increase in rental revenues was due to a company-wide 6 percent increase in transient keys rented ($13.9 million)
primarily sourced from a 7 percent increase in available keys, a company-wide 4 percent increase in average transient rate ($9.2
million) driven by stronger consumer demand, $5.2 million of higher plus points revenue (which is recognized when the points
are redeemed or expire) and a $4.0 million increase in preview keys and other revenue. In addition, we generated $9.4 million
of revenue at the operating property in San Diego, California acquired during the first quarter of 2015 and $7.0 million of
revenue at the operating property in Surfers Paradise, Australia acquired in the third quarter of 2015.
The increase in rental margin reflected $19.1 million of higher rental revenues net of direct variable expenses (such as
housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as
$6.5 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($2.2 million favorable
adjustment in 2015 compared to $4.3 million unfavorable charge in 2014) and the $5.2 million increase in plus points revenue,
partially offset by a $2.9 million loss at the operating property in San Diego, California and a $1.0 million loss at the operating
property in Surfers Paradise, Australia.
Cost Reimbursements
2016 Compared to 2015
Cost reimbursements increased $26.1 million, or 6.4 percent, over 2015, reflecting an increase of $20.6 million due to
higher costs and $6.2 million due to additional managed unit weeks in 2016, partially offset by a $0.7 million negative impact
from foreign exchange rates in our Europe segment.
2015 Compared to 2014
Cost reimbursements increased $9.1 million, or 2.3 percent, over 2014, reflecting an increase of $16.7 million due to
higher costs and $5.1 million due to additional managed unit weeks in 2015, partially offset by $6.5 million of lower costs
associated with management contracts that were terminated prior to 2015 and a $6.2 million negative impact from foreign
exchange rates in our Europe segment.
45
General and Administrative
2016 Compared to 2015
General and administrative expenses decreased $1.3 million due to $4.0 million of lower personnel related and other
expenses, $2.5 million of lower litigation costs and $1.8 million of lower refurbishment costs compared to 2015, partially offset
by $7.0 million of higher information technology project costs. The lower personnel related and other expenses includes lower
compensation related costs and savings due to cost containment efforts, partially offset by annual merit and inflationary cost
increases.
2015 Compared to 2014
General and administrative expenses increased $5.2 million and were driven by $3.4 million of higher personnel
related and other costs net of lower depreciation and cost savings and $1.8 million of refurbishment costs in 2015.
Litigation Settlement
2016
During the first quarter of 2016, we reversed the remaining $0.3 million of an accrual related to the 2014 agreement in
principle regarding The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”) discussed below because
actual costs incurred were lower than expected.
2015
During the first quarter of 2015, we reversed $0.3 million of an accrual related to the sale of The Abaco Club in the
Bahamas in the fourth quarter of 2014 discussed below because actual costs incurred were lower than expected.
2014
During the fourth quarter of 2014, we completed the sale of The Abaco Club in the Bahamas. As a result of the sale
we recorded a loss of $23.8 million, which is included in the Litigation settlement line on the Statement of Income. See
Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for further information related to this transaction.
During the third quarter of 2014, an agreement in principle was reached to settle an action related to the RCC San
Francisco. As a result of the agreement in principle, we recorded a charge of $3.2 million, which is included in the Litigation
settlement line on the Statement of Income.
During the second quarter of 2014, we agreed to settle a dispute with a service provider relating to services provided
to us prior to 2011. The dispute related to certain lawsuits and claims asserted by several residential unit and fractional interest
owners at the RCC San Francisco, a project within our North America segment, who questioned the adequacy of disclosures
made regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 and their
payment obligations with respect to such bonds. In connection with the settlement, we received a one-time payment of $7.6
million after the end of the second quarter from the service provider, which no longer provides services to us. We recorded a
gain of $7.6 million as a result of the settlement, which is included in the Litigation settlement line on the Statement of Income.
Royalty Fee
2016 Compared to 2015
Royalty fee expense increased $2.0 million in 2016 (from $59.0 million in 2015 to $61.0 million in 2016), and
included $2.2 million of higher costs due to an increase in initial sales of our real estate inventory, which carry a higher royalty
fee as compared to sales of pre-owned inventory (two percent compared to one percent), and a $0.1 million increase in the
fixed portion of the royalty fee late in 2016, partially offset by $0.3 million of lower costs due to a lower number of closings in
2016 as compared to 2015.
2015 Compared to 2014
Royalty fee expense decreased $1.0 million in 2015 (from $60.0 million in 2014 to $59.0 million in 2015), and
included $2.0 million of lower costs due to a higher portion of sales of pre-owned inventory, which carry a lower royalty fee as
compared to initial sales of our real estate inventory (one percent versus two percent), partially offset by $1.0 million of higher
costs due to higher closings in 2015. Royalty fee expense decreased despite higher sales of our real estate inventory, as the
$28.4 million of residential contract sales in our Asia Pacific segment were unbranded and did not require us to pay a royalty
fee.
46
Gains and Other Income
2016 Compared to 2015 and 2015 Compared to 2014
Gains and other income of $11.2 million during 2016 included a $10.5 million gain on the disposition of excess
inventory at the RCC San Francisco, the reversal of the remaining $1.7 million accrual associated with the disposition of a golf
course and related assets in Kauai, Hawaii because we no longer expect to incur additional costs in connection with this sale
and a $0.9 million loss on the sale of the portion of the operating property in Surfers Paradise, Australia that we did not intend
to convert to vacation ownership inventory.
Gains and other income of $9.6 million during 2015 included an $8.7 million gain on the disposition of undeveloped
land in Kauai, Hawaii and a $0.9 million gain from the disposition of a golf course and adjacent undeveloped land in Orlando,
Florida. We disposed of the golf course and undeveloped land in Orlando, Florida in the first quarter of 2014 and, as a condition
of the sale, we continued to operate the golf course through the end of the first quarter of 2015 at our own risk. We utilized the
performance of services method to record a gain of $3.1 million over the period during which we operated the golf course, $0.9
million of which was recorded in 2015.
Gains and other income of $5.2 million during 2014 included a $2.9 million gain on the disposition of undeveloped
and partially developed land, an operating golf course and related assets, in Kauai, Hawaii and a $2.2 million gain related to the
disposition of the golf course and adjacent undeveloped land in Orlando, Florida.
Interest Expense
2016 Compared to 2015
Interest expense decreased $3.9 million due to a $3.4 million decline in expense associated with our liability for the
Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International and
a $0.5 million decrease in other interest expense. Due to the payoff of the liability associated with the Marriott Rewards
customer loyalty program in 2015 and the redemption of the mandatorily redeemable preferred stock of a consolidated
subsidiary in 2016, we will not incur further interest expense associated with these liabilities in the future.
2015 Compared to 2014
Interest expense increased $1.1 million due to $2.5 million of lower capitalized interest costs because we had fewer
projects under construction in 2015 compared to 2014 due to the use of capital efficient structures, partially offset by a $0.7
million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under our Marriott
Rewards Affiliation Agreement with Marriott International and a $0.7 million decline in other interest expense.
Other
2016 Compared to 2015 and 2015 Compared to 2014
In 2016, we incurred $4.9 million of transaction related costs, including costs associated with the acquisition of an
operating property in the South Beach area of Miami Beach, the anticipated future acquisition of the operating property in New
York that we currently manage, the anticipated future acquisition of vacation ownership units located on the Big Island of
Hawaii and the sale of the portion of the operating property located in Surfers Paradise, Australia that we did not intend to
convert to vacation ownership inventory. See Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9,
“Contingencies and Commitments,” to our Financial Statements for further information related to these transactions.
In 2015, we incurred $5.7 million of transaction related costs associated with the completion of our purchase of an
operating property located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for
which transaction costs are expensed. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for
further information related to this transaction. In addition, we incurred $2.1 million associated with potential acquisition
opportunities and $0.6 million of costs associated with the anticipated future acquisition of the operating property in New York
that we currently manage and the acquisition of an operating property in the South Beach area of Miami Beach. See Footnote
No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements
for further information related to these transactions.
In 2014, we reduced our accrual by $0.5 million for remaining costs we expected to incur in connection with an
interest in an equity method investment in a joint venture project in our North America segment. We did not incur any
transaction related costs during 2014.
47
Income Tax
Our effective tax rates for fiscal years 2016, 2015 and 2014 were 38.39%, 40.53% and 46.37%, respectively. Our tax
rate is affected by recurring items, such as non-deductible expenses, tax rates in foreign jurisdictions and the relative amount of
income we earn in different jurisdictions, which, with the exception of the loss on the disposition of The Abaco Club in the
Bahamas in 2014, we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any
given year, but are not consistent from year to year. The following is a description of the items impacting our effective tax rate
during the current and prior two years.
2016 Compared to 2015
Our provision for income taxes increased $1.9 million (from $83.7 million to $85.6 million) due to increases in U.S.
income before taxes, partially offset by both U.S. federal tax incentives which related to multiple years and a decline in non-
U.S. income before taxes.
2015 Compared to 2014
Our provision for income taxes increased $13.9 million (from $69.8 million to $83.7 million) due to higher
consolidated income before income taxes in the United States and an increase in tax from foreign jurisdictions.
Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA
EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income, before interest
expense (excluding consumer financing interest expense), provision for income taxes, depreciation and amortization. For
purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense
because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special
purpose entities and is generally non-recourse to us. Further, we consider consumer financing interest expense to be an
operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance,
which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA
and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can
vary widely across different industries or among companies within the same industry. For example, interest expense can be
dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on
earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing
abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result,
effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA
also exclude depreciation and amortization because companies utilize productive assets of different ages and use different
methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the
relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects
additional adjustments for certain items described below, 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. 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.
EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for
performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate
EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as
comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures
with Net income, which is the most directly comparable GAAP financial measure.
48
($ in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash share-based compensation . . . . . . . . . . . . . .
Certain items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2016
Fiscal Years
2015
2014
137,348
$
122,799
$
8,912
85,580
21,044
252,884
13,949
(5,456)
261,377
$
12,810
83,698
22,217
241,524
14,142
(5,594)
250,072
$
80,756
11,692
69,835
18,682
180,965
13,376
18,754
213,095
The certain items for 2016 consisted of $11.2 million of gains and other income not associated with our on-going core
operations, $4.9 million of transaction costs associated with acquisitions, $1.4 million of hurricane related expenses, $0.3
million of profit from the operations of the portion of the property we acquired in Surfers Paradise, Australia in 2015 that we
sold in the second quarter of 2016, and a $0.3 million reversal of litigation settlement expense. In the aggregate, these
exclusions decreased EBITDA by $5.5 million.
We estimate that the effects of Hurricane Matthew negatively impacted Adjusted EBITDA by approximately $3.6
million in the fourth quarter of 2016. Adjusting for that impact, Adjusted EBITDA in 2016 would have totaled approximately
$265.0 million.
2015
The certain items for 2015 consisted of $9.6 million of gains and other income not associated with our on-going core
operations, $8.4 million of transaction costs associated with acquisitions, $5.9 million of development profit from the
disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific
points program, $1.8 million of refurbishment costs, $1.6 million of profit from the operations of the portion of the property we
acquired in Surfers Paradise, Australia in 2015 that we sold in the second quarter of 2016, $1.2 million of organizational and
separation related costs, $0.3 million of impairment charges and a $0.2 million reversal of litigation settlement expense. In the
aggregate, these exclusions decreased EBITDA by $5.6 million.
2014
The certain items for 2014 consisted of $19.5 million of net litigation settlements, $5.2 million of gains and other
income not associated with our on-going core operations, $3.4 million of organizational and separation related costs, $1.4
million of impairment charges, $0.5 million from the reversal of an impairment charge on equity investments and $0.2 million
of net severance activity. In the aggregate, these exclusions increased EBITDA by $18.8 million.
Business Segments
Our business is grouped into three reportable business segments: North America, Europe and Asia Pacific. See
Footnote No. 15, “Business Segments,” to our Financial Statements for further information on our segments, and “Business—
Segments” for further details regarding our individual properties by segment.
49
North America
The following discussion presents an analysis of our results of operations for 2016, 2015 and 2014.
($ in thousands)
REVENUES
2016
Fiscal Years
2015
2014
Sale of vacation ownership products . . . . . . . . . . . . . .
$
572,305
$
586,774
$
Resort management and other services . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . .
EXPENSES
Cost of vacation ownership products. . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational and separation related . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . .
Gains and other income . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
$
268,766
118,646
276,008
394,592
258,761
115,738
277,348
369,467
577,781
246,344
120,111
234,668
354,270
1,630,317
1,608,088
1,533,174
134,079
304,099
145,036
225,281
(303)
—
9,867
—
164,200
288,260
149,257
225,043
(370)
532
7,971
324
394,592
1,212,651
12,260
(4,191)
425,735
$
369,467
1,204,684
9,600
(422)
412,582
$
170,012
272,302
150,027
209,371
19,244
894
8,825
1,381
354,270
1,186,326
5,350
745
352,943
Contract Sales
2016 Compared to 2015
($ in thousands)
Contract Sales
Fiscal Years
2016
2015
Change
% Change
Vacation ownership. . . . . . . . . . . . . .
Total contract sales. . . . . . . . . . .
$
$
645,277
645,277
$
$
631,403
631,403
$
$
13,874
13,874
2%
2%
The increase in vacation ownership contract sales in our North America segment reflected a $23.2 million increase in
sales at on-site sales locations, partially offset by a $6.0 million decrease in sales at off-site (non tour-based) sales locations and
a $3.3 million decrease in fractional sales as we continue to sell through remaining luxury inventory.
We estimate that the effects of Hurricane Matthew negatively impacted contract sales by approximately $8.1 million
in the fourth quarter of 2016. Adjusting for that impact, total contract sales, excluding residential contract sales, would have
increased by approximately 3.5 percent for the full year.
The increase in sales at on-site locations reflected a 2.3 percent increase in the number of tours and a 2.2 percent
increase in VPG to $3,462 in 2016 from $3,386 in 2015. The increase in VPG resulted from an increase in the number of points
sold per contract and higher pricing, partially offset by a 0.5 percentage point decrease in closing efficiency. The increase in the
number of tours was driven by an increase in first time buyer tours due to the new sales locations that were opened in the latter
part of 2016 and programs that were implemented over the past two years to generate additional tours. The sales at off-site
locations were negatively impacted by the strength of the U.S. dollar, primarily in Latin America, which is a trend that
negatively impacted the comparison to prior year results throughout most of 2016.
50
2015 Compared to 2014
($ in thousands)
Contract Sales
Fiscal Years
2015
2014
Change
% Change
Vacation ownership . . . . . . . . . . . . . . .
Residential products . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . .
$
$
631,403
—
631,403
$
$
619,688
14,514
634,202
$
$
11,715
(14,514)
(2,799)
2%
(100%)
—%
The increase in vacation ownership contract sales in our North America segment reflected a $14.5 million increase in
sales at on-site sales locations and a $3.0 million increase in fractional sales as we continued to sell through remaining luxury
inventory, partially offset by a $5.8 million decrease in sales at off-site (non tour-based) sales locations. The increase at on-site
sales locations included a $3.7 million decline in sales to Latin American customers. The decline in sales at off-site sales
locations included $9.6 million of lower sales in our Latin American sales channels as a result of the strengthening of the U.S.
dollar in the second half of 2015, partially offset by $3.8 million of higher contract sales at our other off-site sales locations.
The increase in sales at on-site sales locations reflected a 2.5 percent increase in the number of tours. VPG remained
flat at $3,386 in both years, and was negatively impacted in the second half of 2015 by the strength of the U.S. dollar, primarily
impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort in Oahu.
VPG benefitted from higher pricing and a 0.1 percentage point increase in closing efficiency, which was offset by a decrease in
the number of points sold per contract due to the increase in sales to existing owners in 2015, as existing owners buy fewer
points per contract than new owners. The increase in the number of tours was driven by an increase in existing owner tours. In
the first quarter of 2015, we announced enhancements to our owner recognition levels that created a near-term incentive for
existing owners to purchase additional points prior to the end of the second quarter of 2015, which resulted in an increase in
existing owner tours. This was partially offset by the decrease in the number of tours in the third quarter of 2015 as a result of
hurricane and threatened hurricane activity.
The decline in residential contract sales was due to the sale of $14.5 million of excess residential inventory in the prior
year comparable period.
Sale of Vacation Ownership Products
2016 Compared to 2015
($ in thousands)
Contract sales. . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . .
Sales reserve. . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products. . . . . .
$
$
Fiscal Years
2016
2015
Change
% Change
645,277
$
631,403
$
13,874
2%
(3,453)
(39,298)
(30,221)
572,305
$
(841)
(26,077)
(17,711)
586,774
$
(2,612)
(13,221)
(12,510)
(14,469)
(2%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a $3.5 million negative impact in 2016, compared to a $0.8 million negative impact in 2015.
The unfavorable impact compared to the prior year comparable period was due to an increase in the amount of sales that
remained in the rescission period as of the end of 2016 as compared to 2015 as a result of higher contract sales near the end of
2016, partially offset by an increase in the amount of sales meeting the down payment requirement for revenue reportability
prior to the end of 2016.
The higher sales reserve was driven by the higher financing propensity and Latin American default activity and, to a
lesser extent, the higher vacation ownership contract sales, as compared to 2015.
The increase in other adjustments was primarily driven by an increase in the utilization of plus points as a sales
incentive in 2016. These revenues are deferred and recognized as rental revenue when those points are redeemed or expire.
51
2015 Compared to 2014
($ in thousands)
Contract sales. . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability. . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products. . . . . .
$
$
Fiscal Years
2015
2014
Change
631,403
$
634,202
$
(2,799)
% Change
—%
(841)
(26,077)
(17,711)
586,774
$
(12,911)
(24,753)
(18,757)
577,781
$
12,070
(1,324)
1,046
8,993
2%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a $0.8 million negative impact in 2015, compared to a $12.9 million negative impact in
2014 due to fewer sales meeting the down payment requirements for revenue reportability and more sales in the rescission
period at the end of 2014. The higher sales reserve was driven by the higher vacation ownership contract sales and the impact
of higher financing propensity, partially offset by a decrease in the estimated default activity compared to 2014.
Development Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Sale of vacation ownership products . . . . . .
Cost of vacation ownership products . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . .
Development margin percentage . . . . . . . . .
$
$
2016
2015
Change
% Change
572,305
(134,079)
(304,099)
134,127
23.4%
$
$
586,774
(164,200)
(288,260)
134,314
22.9%
$
$
(14,469)
30,121
(15,839)
(187)
0.5 pts
(2%)
18%
(5%)
—%
The decrease in development margin reflected the following:
•
•
•
•
•
$9.0 million of additional deferred revenue in 2016 due to higher usage of plus points as a sales incentive; this
revenue will be recognized as rental revenue when the plus points are redeemed or expire;
$8.9 million of higher sales reserves in 2016 due to higher vacation ownership contract sales, financing
propensity, and Latin American default activity;
$8.5 million of pre-opening and startup expenses incurred in support of five new sales locations in 2016;
$1.5 million of greater negative revenue reportability impact compared to 2015; and
$0.5 million of higher marketing and sales costs due to investment in new programs to help generate future
incremental tour volumes, partially offset by lower marketing and sales compensation related costs.
These decreases in development margin were partially offset by the following:
•
•
•
$16.4 million from a favorable mix of lower cost real estate inventory being sold in 2016;
$8.6 million of higher favorable product cost true-up activity ($13.6 million in 2016 compared to $5.0 million
in 2015) of which $4.6 million was due to lower development spending for completion of common elements at
multiple projects and $3.9 million resulted from projected increases in development revenue primarily due to a
reduction in our estimated future sales incentive costs;
$2.6 million from higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of
vacation ownership products and marketing and sales); and
•
$0.6 million of lower other development expenses.
The 0.5 percentage point increase in the development margin percentage reflected a 2.8 percentage point increase due
to a favorable mix of lower cost vacation ownership real estate inventory being sold in 2016, a 1.5 percentage point increase
due to the higher favorable product cost true-up activity year-over-year and a 0.1 percentage point increase due to the lower
development expenses. These increases were partially offset by a 1.5 percentage point decline due to the higher marketing and
52
sales spending (including a 1.4 percentage point impact from the pre-opening and startup expenses), a 1.1 percentage point
decline due to the higher usage of plus points as a sales incentive, a 1.1 percentage point decline due to the higher sales reserve
rate, and a 0.2 percentage point decline due to the higher unfavorable revenue reportability, in each case, year-over-year.
2015 Compared to 2014
Fiscal Years
($ in thousands)
Sale of vacation ownership products . . . .
Cost of vacation ownership products . . . .
Marketing and sales . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . .
Development margin percentage . . . . . . .
$
$
2015
2014
Change
% Change
586,774
$
(164,200)
(288,260)
134,314
$
22.9%
577,781
(170,012)
(272,302)
135,467
23.4%
$
$
8,993
5,812
(15,958)
(1,153)
(0.5 pts)
2%
3%
(6%)
(1%)
The decrease in development margin reflected the following:
•
•
•
$5.0 million from higher vacation ownership contract sales volume net of higher direct variable expenses (i.e.,
cost of vacation ownership products and marketing and sales), including $10.3 million from higher marketing
and sales costs due to investment in new programs to help generate future incremental tour volumes and higher
marketing and sales related program costs, partially offset by $2.8 million from the higher vacation ownership
contract sales and $2.5 million from a favorable mix of lower cost vacation ownership real estate inventory
being sold;
$2.8 million from lower residential contract sales (no residential contract sales in 2015 compared to $14.5
million from the sale of residential inventory in 2014);
$1.3 million from lower favorable product cost true-up activity ($5.0 million in 2015 compared to $6.3 million
in 2014); and
•
$0.7 million of higher sales reserves in 2015 due to the increase in financing propensity.
These decreases in development margin were partially offset by $7.4 million from higher revenue reportability
compared to 2014 and $1.2 million of lower development expenses primarily from the disposition of land and related assets in
Kauai, Hawaii in the fourth quarter of 2014 and second quarter of 2015, and The Abaco Club in the Bahamas in the third
quarter of 2014.
The 0.5 percentage point decline in the development margin percentage reflected a 1.8 percentage point decline due to
higher marketing and sales spending and a 0.2 percentage point decrease due to the lower favorable product cost true-up
activity year-over-year. These declines were partially offset by a 0.9 percentage point increase due to the favorable revenue
reportability year-over-year, a 0.4 percentage point increase due to a favorable mix of lower cost vacation ownership real estate
inventory being sold in 2015, and a 0.2 percentage point increase due to the lower development expenses as a result of the
disposition of land and assets noted above.
53
Resort Management and Other Services Revenues, Expenses and Margin
2016 Compared to 2015
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
% Change
$
74,159
$
68,770
$
194,607
268,766
189,991
258,761
(145,036)
(149,257)
5,389
4,616
10,005
4,221
8%
2%
4%
3%
$
123,730
$
109,504
$
14,226
13%
46.0%
42.3%
3.7 pts
The increase in resort management and other services revenues reflected $5.8 million of additional annual club dues
and other revenues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the
program as well as an increase in the dues charged for each owner recognition level, $5.4 million of higher management fees,
$1.3 million of higher ancillary revenues and $0.3 million of higher other revenues, as compared to 2015. These increases were
partially offset by $1.2 million of lower settlement and lien fees due to a decrease in the number of contracts closed and fewer
lien fees assessed, $0.9 million of lower customer service fees, $0.7 million of lower brand fees due to fewer closings, in each
case, in 2016 as compared to 2015. The increase in ancillary revenues included $2.9 million of ancillary revenues in 2016 at the
property in New York that we did not operate in 2015 and a $0.3 million increase in ancillary revenues from food and beverage
and golf offerings at our other resorts, partially offset by $1.1 million of lower revenues due to outsourcing the operation of one
restaurant and $0.8 million of lower revenue at the operating property in San Diego, California due to the conversion of the
property to vacation ownership inventory.
The improvement in the resort management and other services margin reflected the changes in revenue and $4.2
million of lower expenses. The lower expenses included $4.5 million of lower customer service and exchange company
expenses, $1.8 million of lower ancillary expenses, $0.9 million of lower expenses due to outsourcing the operation of one
restaurant and $0.3 million of lower refurbishment management expenses incurred from managing the refurbishment projects at
our properties, partially offset by $3.3 million of expenses in 2016 from the operation of the ancillary businesses at the property
in New York.
2015 Compared to 2014
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2015
2014
Change
% Change
$
68,770
$
64,324
$
189,991
258,761
182,020
246,344
(149,257)
(150,027)
4,446
7,971
12,417
770
7%
4%
5%
1%
$
109,504
$
96,317
$
13,187
14%
42.3%
39.1%
3.2 pts
The increase in resort management and other services revenues reflected $4.4 million of higher management fees,
$3.4 million of higher refurbishment management revenues earned from managing the refurbishment projects at our properties,
$2.1 million of additional annual club dues and other revenues earned in connection with the MVCD program due to the
cumulative increase in owners enrolled in the program, $1.1 million of higher resales commission and other revenues, $1.7
million of higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees and
$1.0 million of higher fees from external exchange service providers, partially offset by $1.3 million of lower ancillary
revenues. The decrease in ancillary revenues included an $8.9 million decline due to the disposition of certain assets during the
54
prior year, the closure of another ancillary operation during the prior year and outsourcing the operation of a restaurant during
the prior year, partially offset by a $5.6 million increase in ancillary revenues from food and beverage and golf offerings at our
existing resorts and $2.0 million of ancillary revenues at the operating property in San Diego, California acquired in the first
quarter of 2015.
The improvement in the resort management and other services margin reflected the changes in revenue as well as $0.8
million of lower expenses, including $9.5 million of higher ancillary, customer service, settlement and MVCD program
expenses related to the higher revenues from our existing resorts in 2015, $2.5 million of higher refurbishment management
expenses incurred from managing the refurbishment projects at our properties, and $1.6 million from the operation of the
ancillary businesses at the operating property in San Diego, California, partially offset by $14.4 million of ancillary expense
savings from the dispositions, closure and outsourcing noted above.
Financing Revenues, Expenses and Margin
2016 Compared to 2015
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . .
Financing propensity. . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
112,775
5,871
118,646
58.9%
$
$
109,884
5,854
115,738
49.1%
$
$
Change
2,891
17
2,908
% Change
3%
—%
3%
The increase in financing revenues was due to an increase in the average gross vacation ownership notes receivable
balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable.
The increase in financing propensity resulted from the use of incentive programs during all of 2016 as compared to during only
a portion of 2015. We expect financing propensity in 2017 to continue at similar levels to 2016 as we continue to offer the
financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership
notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
2015 Compared to 2014
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . .
Financing revenues. . . . . . . . . . . . . . . . .
Financing propensity . . . . . . . . . . . . . . .
$
$
Fiscal Years
2015
2014
109,884
5,854
115,738
49.1%
$
$
113,958
6,153
120,111
41.5%
$
$
Change
(4,074)
(299)
(4,373)
% Change
(4%)
(5%)
(4%)
The decrease in financing revenues was due to lower interest income from a lower outstanding vacation ownership
notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a
faster pace than our origination of new vacation ownership notes receivable.
The increase in financing propensity resulted from new incentive programs implemented in the first half of 2015,
which helped increase financing propensity from the 40 to 45 percent average achieved in recent years.
Rental Revenues, Expenses and Margin
We hold a significant amount of luxury inventory in the North America segment and as such, have a corresponding
obligation to pay maintenance fees on the real estate interests we own. Because vacation ownership interests in our luxury
inventory often consist of multiple weeks and require upscale fit and finishes and levels of service to meet Ritz-Carlton brand
standards, maintenance fees for luxury inventory are much higher than for our other inventory. We mitigate the maintenance fee
expense to the extent possible through open market rental and internal sales-related marketing programs; however, our
opportunities to rent this inventory are limited due to contractual and legal restrictions.
55
2016 Compared to 2015
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Unsold maintenance fees — upscale . . . . . . . . . . . .
Unsold maintenance fees — luxury . . . . . . . . . . . . .
Unsold maintenance fees. . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Rental margin percentage . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
Change
% Change
276,008
(59,797)
(2,391)
(62,188)
(163,093)
50,727
18.4%
$
$
277,348
(51,606)
(7,733)
(59,339)
(165,704)
52,305
18.9%
$
$
(1,340)
(8,191)
5,342
(2,849)
2,611
(1,578)
(0.5 pts)
—%
(16%)
69%
(5%)
2%
(3%)
Fiscal Years
2016
2015
Change
% Change
Transient keys rented(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . . . . . . . . . . . . .
1,111,039
1,088,206
$
211.66
$
214.47
$
Resort occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.8%
90.2%
22,833
(2.81)
(0.4 pts)
2%
(1%)
_________________________
(1)
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with
our operating property in San Diego, California prior to conversion to vacation ownership inventory.
The decrease in rental revenues was due to $4.3 million of lower revenue at our operating property in San Diego,
California due to rooms being unavailable to rent during the conversion of the property to vacation ownership inventory and a 1
percent decrease in average transient rate ($3.1 million) due to the mix of inventory available for rent. These decreases were
partially offset by a $3.3 million increase in preview keys and other revenue and a 1 percent increase in transient keys rented
($2.8 million), both of which were primarily due to a 4 percent increase in available keys.
The decrease in rental margin reflected a $2.2 million favorable charge in 2015 associated with Marriott Rewards
Points issued prior to the Spin-Off, partially offset by $0.5 million of higher rental revenues net of direct variable expenses
(such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, and
the $0.1 million increase in plus points revenue.
2015 Compared to 2014
Fiscal Years
($ in thousands)
2015
2014
Change
% Change
Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsold maintenance fees — upscale . . . . . . . . . . . .
Unsold maintenance fees — luxury . . . . . . . . . . . . .
Unsold maintenance fees. . . . . . . . . . . . . . . . . . . . . . . . .
$
277,348
$
234,668
$
(51,606)
(7,733)
(59,339)
(45,722)
(9,639)
(55,361)
Other rental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(165,704)
(154,010)
Rental margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52,305
$
25,297
$
Rental margin percentage . . . . . . . . . . . . . . . . . . . . . . . .
18.9%
10.8%
42,680
(5,884)
1,906
(3,978)
(11,694)
27,008
8.1 pts
18%
(13%)
20%
(7%)
(8%)
107%
Fiscal Years
2015
2014
Change
% Change
Transient keys rented(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . . . . . . . . . . . . .
1,088,206
1,022,846
$
214.47
$
204.38
$
Resort occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90.2%
90.3%
65,360
10.09
(0.1 pts)
6%
5%
_________________________
(1)
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with
our operating property in San Diego, California prior to conversion to vacation ownership inventory.
56
The increase in rental revenues was due to a 6 percent increase in transient keys rented ($13.4 million) primarily
sourced from a 7 percent increase in available keys, a 5 percent increase in average transient rate ($11.0 million) driven by
stronger consumer demand, $5.2 million of higher plus points revenue (which is recognized when the points are redeemed or
expire) and a $3.6 million increase in preview keys and other revenue. In addition, we generated $9.4 million of revenue at the
operating property in San Diego, California acquired during the first quarter of 2015.
The increase in rental margin reflected $18.2 million of higher rental revenues net of direct variable expenses (such as
housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as
$6.5 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($2.2 million favorable
adjustment in 2015 compared to $4.3 million unfavorable charge in 2014) and the $5.2 million increase in plus points revenue,
partially offset by a $2.9 million loss at the operating property in San Diego, California.
Europe
The following discussion presents an analysis of our results of operations for 2016, 2015 and 2014.
($ in thousands)
REVENUES
Sale of vacation ownership products . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . .
$
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . .
EXPENSES
Cost of vacation ownership products. . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . .
Losses and other expense. . . . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
Overview
2016
Fiscal Years
2015
2014
$
24,534
24,290
3,293
19,592
33,912
105,621
5,889
19,142
19,220
15,008
383
33,912
93,554
—
28,963
25,122
3,949
20,679
33,348
112,061
6,509
21,974
20,447
15,431
464
33,348
98,173
(14)
13,874
$
$
35,062
28,133
4,300
21,997
39,205
128,697
8,711
24,401
24,333
16,161
631
39,205
113,442
(176)
15,079
$
12,067
$
In our Europe segment, we are focused on selling our existing projects and managing existing resorts. We do not have
any current plans for new development in this segment.
Contract Sales
2016 Compared to 2015
($ in thousands)
Contract Sales
Fiscal Years
2016
2015
Change
% Change
Vacation ownership. . . . . . . . . . . . . .
Total contract sales. . . . . . . . . . .
$
$
31,174
31,174
$
$
34,376
34,376
$
$
(3,202)
(3,202)
(9%)
(9%)
The decrease in vacation ownership contract sales in our Europe segment was due to $9.4 million of lower fractional
sales due to the near sell-out of developer inventory at our one fractional project in this segment in 2015, partially offset by
$6.2 million of higher timeshare sales. The higher timeshare sales are due to increases in tours and VPG as compared to 2015.
57
2015 Compared to 2014
($ in thousands)
Contract Sales
Fiscal Years
2015
2014
Change
% Change
Vacation ownership . . . . . . . . . . . . .
Total contract sales . . . . . . . . . .
$
$
34,376
34,376
$
$
45,171
45,171
$
$
(10,795)
(10,795)
(24%)
(24%)
The decrease in vacation ownership contract sales in our Europe segment was driven by $9.6 million of lower sales
from our Middle East sales location due to large multi-week purchases in 2014 that did not recur in 2015, as well as higher
cancellations and fewer tours in 2015 and $4.1 million from the changes in foreign exchange rates, partially offset by $2.9
million of stronger fractional sales at our project in London, United Kingdom.
Sale of Vacation Ownership Products
2016 Compared to 2015
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . . .
Sales reserve. . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . . .
$
$
Fiscal Years
2016
2015
Change
% Change
31,174
$
34,376
$
(3,202)
(9%)
(3,001)
(3,860)
221
24,534
$
(1,144)
(3,680)
(589)
28,963
$
(1,857)
(180)
810
(4,429)
(15%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a larger unfavorable impact in 2016 compared to 2015 because fewer sales met the down
payment requirement for revenue recognition purposes prior to the end of 2016 than in 2015. The increase in the sales reserve
was due to an unfavorable adjustment in 2016 to correct an immaterial error of $0.5 million related to historical static pool data,
partially offset by the lower contract sales volume in 2016.
2015 Compared to 2014
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . . . .
Other(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . . . .
$
$
Fiscal Years
2015
2014
Change
% Change
34,376
$
45,171
$
(10,795)
(24%)
(1,144)
(3,680)
(589)
28,963
$
(5,274)
(4,537)
(298)
35,062
$
4,130
857
(291)
(6,099)
(17%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a smaller negative impact in 2015 compared to 2014 because more sales met the down
payment requirement for revenue recognition purposes prior to the end of 2015 compared to 2014.
58
Development Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Sale of vacation ownership products . . . . . . . .
Cost of vacation ownership products . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . . . .
Development margin percentage . . . . . . . . . . .
$
$
2016
2015
Change
% Change
$
24,534
(5,889)
(19,142)
(497) $
(2.0%)
$
$
28,963
(6,509)
(21,974)
480
1.7%
(4,429)
620
2,832
(977)
(3.7 pts)
(15%)
10%
13%
(204%)
The decrease in development margin reflected $1.2 million of lower revenue reportability year-over-year, $0.3 million
of lower product cost true-up activity (no true-up activity in 2016 compared to $0.3 million of favorable true-up activity in
2015) and $0.3 million from the year-over-year change in the sales reserve, partially offset by $0.8 million from the change in
vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and
marketing and sales) due to lower marketing and sales costs as compared to 2015.
2015 Compared to 2014
Fiscal Years
($ in thousands)
Sale of vacation ownership products . . . . . . . .
Cost of vacation ownership products . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . .
Development margin. . . . . . . . . . . . . . . . . . . . .
Development margin percentage. . . . . . . . . . . .
$
$
2015
2014
Change
% Change
$
$
28,963
(6,509)
(21,974)
480
1.7%
$
$
35,062
(8,711)
(24,401)
1,950
5.6%
(6,099)
2,202
2,427
(1,470)
(3.9 pts)
(17%)
25%
10%
(75%)
The decrease in development margin reflected $4.3 million from the lower vacation ownership contract sales volume
net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due in part to less
efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower
sales volumes. These decreases were partially offset by $2.8 million from the higher revenue reportability year-over-year.
59
Asia Pacific
The following discussion presents an analysis of our results of operations for 2016, 2015 and 2014.
($ in thousands)
REVENUES
2016
Fiscal Years
2015
2014
Sale of vacation ownership products . . . . . . . . . . . . . .
$
40,664
$
59,592
$
Resort management and other services . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . .
EXPENSES
Cost of vacation ownership products. . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . .
Losses and other expense. . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
$
Overview
10,514
4,187
16,471
3,461
75,297
7,606
30,054
10,055
20,463
924
3,461
72,563
(878)
(230)
1,626
$
11,664
4,346
14,970
3,060
93,632
26,877
20,365
10,368
19,255
684
3,060
80,609
(29)
(5,731)
7,263
$
34,645
4,040
4,498
7,642
3,320
54,145
8,318
18,707
2,778
12,388
686
3,320
46,197
(9)
(131)
7,808
In our Asia Pacific segment, we continue to identify opportunities for development margin improvement. We plan to
continue to focus on future inventory acquisitions with strong on-site sales locations. Due to operational constraints, regulatory
conditions and certain other conditions related to the 18 units we previously owned in Macau, we decided not to sell these units
through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as whole ownership
residential units during the first quarter of 2015. In the third quarter of 2015, we reinvested the proceeds from this disposition
into the purchase of an operating property located in Surfers Paradise, Australia. During the second quarter of 2016, we sold the
portion of this operating property that we did not intend to convert to vacation ownership inventory. By the end of 2016, we
completed the conversion of the portion of this operating property that we intended to convert into vacation ownership
inventory at the time of the acquisition, a portion of which has been contributed to our points-based programs within this
segment. We began selling from this new location at the end of the first quarter of 2016.
Contract Sales
2016 Compared to 2015
($ in thousands)
Contract Sales
Fiscal Years
2016
2015
Change
% Change
Vacation ownership. . . . . . . . . . . . . . . .
Residential products . . . . . . . . . . . . . . .
Total contract sales. . . . . . . . . . . . .
$
$
47,183
—
47,183
$
$
34,105
28,420
62,525
$
$
13,078
(28,420)
(15,342)
38%
(100%)
(25%)
The increase in vacation ownership contract sales in our Asia Pacific segment was driven by an 11 percent increase in
VPG and a 25 percent increase in tours. These increases were both driven by an increase in sales to existing owners, and the
increase in tours was also driven by the new sales location in Australia. The decrease in Asia Pacific residential contract sales
60
was due to the bulk sale of 18 whole ownership residential units in Macau during the first quarter of 2015 for $28.4 million,
following which no residential inventory remained in this segment.
2015 Compared to 2014
($ in thousands)
Contract Sales
Fiscal Years
2015
2014
Change
% Change
Vacation ownership . . . . . . . . . . . . . . .
Residential products . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . .
$
$
34,105
28,420
62,525
$
$
33,906
—
33,906
$
$
199
28,420
28,619
1%
100%
84%
The increase in vacation ownership contract sales in our Asia Pacific segment reflected an increase in the
cancellations rate in 2014 due to changes in the timeshare legislation in Singapore and political turmoil in Thailand, partially
offset by lower sales to the existing owner base and the negative impact of local currency devaluations in 2015.
The $28.4 million of residential contract sales was from the disposition of the Macau inventory discussed above.
Sale of Vacation Ownership Products
2016 Compared to 2015
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability. . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . .
$
$
Fiscal Years
2016
2015
Change
% Change
47,183
$
62,525
$
(15,342)
(25%)
(1,093)
(5,116)
(310)
40,664
$
333
(3,242)
(24)
59,592
$
(1,426)
(1,874)
(286)
(18,928)
(32%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
The increase in the sales reserve was due to an unfavorable adjustment to correct an immaterial error of $1.3 million
in 2016 with respect to historical static pool data as well as the higher vacation ownership contract sales volume in 2016. The
unfavorable revenue reportability in 2016 as compared to 2015 was due to unclosed sales at the new sales location in Australia
at the end of 2016.
2015 Compared to 2014
($ in thousands)
Contract sales. . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products. . . . . .
$
$
Fiscal Years
2015
2014
Change
% Change
62,525
$
33,906
$
28,619
84%
333
(3,242)
(24)
59,592
2,683
(1,982)
38
$
34,645
$
(2,350)
(1,260)
(62)
24,947
72%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
The lower favorable revenue reportability in 2015 is due to the recognition of sales in 2014 that were previously in the
rescission period as a result of the change in timeshare legislation in Singapore. The increase in the sales reserve is due to an
increase in the estimated default activity in 2015 compared to 2014.
61
Development Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Sale of vacation ownership products. . . . . .
Cost of vacation ownership products . . . . .
Marketing and sales. . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . .
Development margin percentage. . . . . . . . .
$
$
2016
2015
Change
% Change
$
$
40,664
(7,606)
(30,054)
3,004
7.4%
$
$
59,592
(26,877)
(20,365)
12,350
20.7%
(18,928)
19,271
(9,689)
(9,346)
(13.3 pts)
(32%)
72%
(48%)
(76%)
The decrease in development margin reflected the following:
•
•
•
•
•
$5.9 million of lower residential contract sales volume net of expenses (there were no residential contract sales
in 2016, compared to $28.4 million of residential contract sales in 2015);
$3.5 million of pre-opening and startup expenses incurred in support of the new sales location in Australia in
2016;
$1.0 million of lower revenue reportability compared to the prior year comparable period;
$0.9 million of the higher sales reserves compared to the prior year comparable period due to an unfavorable
adjustment to correct an immaterial error in 2016 with respect to historical static pool data as well as the higher
vacation ownership contract sales volume; and
$0.8 million of lower favorable product cost true-up activity ($1.2 million in 2016 compared to $2.0 million in
2015).
The decreases in development margin were partially offset by $2.8 million of higher sales volume net of higher direct
variable expenses (i.e., cost of vacation ownership products and marketing and sales) as compared to 2015.
2015 Compared to 2014
Fiscal Years
($ in thousands)
Sale of vacation ownership products . . . . . . .
Cost of vacation ownership products . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . . . .
Development margin percentage . . . . . . . . . .
$
$
2015
2014
Change
% Change
$
$
59,592
(26,877)
(20,365)
12,350
20.7%
$
$
34,645
(8,318)
(18,707)
7,620
22.0%
24,947
(18,559)
(1,658)
4,730
(1.3 pts)
72%
(223%)
(9%)
62%
The increase in development margin reflected $5.9 million from the residential contract sales volume net of expenses
and $1.8 million from higher favorable product cost true-up activity ($2.0 million in 2015 compared to $0.2 million in 2014).
These increases were partially offset by $1.6 million from the lower revenue reportability compared to the prior year
comparable period, $1.0 million from the increase in the sales reserve and $0.4 million of higher marketing and sales expenses.
62
Resort Management and Other Services Revenues, Expenses and Margin
2016 Compared to 2015
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
Change
% Change
2,751
$
7,763
2,695
$
8,969
56
(1,206)
2%
(13%)
10,514
11,664
(1,150)
(10%)
(10,055)
(10,368)
313
3%
459
$
1,296
$
(837)
(65%)
4.4%
11.1%
(6.7 pts)
The decrease in resort management and other services revenues reflected $1.2 million of lower ancillary revenues
from the portion of the operating property in Surfers Paradise, Australia that was disposed of during the second quarter of 2016.
The decline in the resort management and other services margin reflected $0.6 million of lower profit at the operating
property in Surfers Paradise, Australia and $0.2 million of higher other costs, as compared to 2015. The ancillary revenue
producing portions of the operating property in Surfers Paradise, Australia were included in the sale of the portion of the
operating property completed in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues or
expenses at this property. See Footnote No. 5, “Acquisitions and Dispositions” to our Financial Statements for further
information related to this transaction.
2015 Compared to 2014
($ in thousands)
Management fee revenues . . . . . . . . . . . . . .
Other services revenues. . . . . . . . . . . . . . . .
Resort management and other services
revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services
margin percentage . . . . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2015
2014
Change
$
2,695
8,969
$
2,594
1,446
11,664
(10,368)
4,040
(2,778)
101
7,523
7,624
% Change
4%
520%
189%
(7,590)
(273%)
1,296
$
1,262
$
34
3%
11.1%
31.2%
(20.1 pts)
The increase in resort management and other services revenues reflected $7.4 million of ancillary revenues at the
operating property in Surfers Paradise, Australia acquired in the third quarter of 2015, $0.1 million of higher management fees
and $0.1 million of higher other revenues.
The slight increase in the resort management and other services margin reflected $1.3 million of ancillary margin at
the operating property in Surfers Paradise, Australia, offset by spending in support of future growth in the business.
Rental Revenues, Expenses and Margin
2016 Compared to 2015
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . . .
Rental expenses . . . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . . . .
Rental margin percentage . . . . . . . . . . . . . .
$
$
2016
2015
Change
% Change
$
16,471
(20,463)
(3,992) $
$
14,970
(19,255)
(4,285) $
(24.2%)
(28.6%)
1,501
(1,208)
293
4.4 pts
10%
(6%)
7%
63
The increase in rental revenues included $1.4 million from an increase in transient and preview keys rented and $0.1
million of higher revenue at the operating property in Surfers Paradise, Australia that was purchased in the third quarter of 2015
(a portion of which was disposed of in the second quarter of 2016). The increase in rental margin reflected $1.7 million of
higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing
alternative usage options, and unsold maintenance fees, partially offset by a $1.4 million decline at the operating results at the
operating property in Surfers Paradise, Australia primarily due to unsold maintenance fees in 2016 incurred after conversion of
the property to vacation ownership inventory.
2015 Compared to 2014
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . . .
Rental expenses . . . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . . . .
$
$
2015
2014
Change
% Change
$
14,970
(19,255)
(4,285) $
$
7,642
(12,388)
(4,746) $
7,328
(6,867)
461
96%
(55%)
10%
Rental margin percentage . . . . . . . . . . . . . .
(28.6%)
(62.1%)
33.5 pts
The increase in rental revenues was due to the operating property in Surfers Paradise, Australia acquired in the third
quarter of 2015. The increase in rental margin reflected $1.5 million of lower unsold maintenance fees and other expenses,
partially offset by a $1.0 million loss at the operating property in Surfers Paradise, Australia.
Other
2016 Compared to 2015 and 2015 Compared to 2014
In 2016, we incurred $0.2 million of transaction related costs associated with the then-anticipated sale of the portion
of the operating property located in Surfers Paradise, Australia that we did not intend to convert to vacation ownership
inventory. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for further information related to
this transaction.
In 2015, we incurred $5.7 million of transaction related costs associated with the completion of our purchase of the
operating property located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for
which transaction costs are expensed. We did not incur any transaction related costs during 2014.
Corporate and Other
The following discussion presents an analysis of our results of operations for 2016, 2015 and 2014.
($ in thousands)
EXPENSES
Cost of vacation ownership products . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational and separation related. . . . . . . . . . . .
Consumer financing interest . . . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . .
(Losses) gains and other (expense) income . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL FINANCIAL RESULTS . . . . . . . . . . . . . . . . .
$
$
2016
Fiscal Years
2015
2014
$
7,519
21,380
104,833
—
—
23,685
49,779
207,196
(181)
(8,912)
(211)
(216,500) $
$
6,713
24,194
106,104
138
642
24,658
49,863
212,312
—
(12,810)
(2,100)
(227,222) $
9,403
24,148
100,916
250
2,544
26,464
49,828
213,553
6
(11,692)
—
(225,239)
Corporate and Other consists of results not specifically attributable to an individual segment, including expenses in
support of our financing operations, non-capitalizable development expenses incurred to support overall company
development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense
and the fixed royalty fee payable under the license agreements that we entered into with Marriott International in connection
with the Spin-Off.
64
Total Expenses
2016 Compared to 2015
Total expenses decreased $5.1 million from the prior fiscal year. The $5.1 million decrease resulted from $2.8 million
of lower financing expenses, $1.3 million of lower general and administrative expenses, $1.0 million of lower consumer
financing interest expense, $0.6 million of prior year organizational and separation related expenses and $0.1 million of prior
year litigation settlement expenses, partially offset by $0.8 million of higher cost of vacation ownership products expenses due
to higher non-capitalizable project expenses, and $0.1 million of higher royalty fee due to an increase in the fixed portion of the
royalty fee late in 2016.
The lower general and administrative expenses were driven by $4.0 million of lower personnel related and other
expenses, $2.5 million of lower litigation costs and $1.8 million of lower refurbishment costs compared to 2015, partially offset
by $7.0 million of higher information technology project costs. The lower personnel related and other expenses includes lower
compensation related costs and savings due to cost containment efforts, partially offset by annual merit and inflationary cost
increases.
The $1.0 million decline in consumer financing interest expense was due to a lower average interest rate on
outstanding debt balances ($1.4 million), partially offset by a higher average outstanding debt balance including draw downs on
the Warehouse Credit Facility in 2016 ($0.4 million). The lower average interest rate reflected the continued pay-down of older
securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more
recently completed securitizations of vacation ownership notes receivable.
2015 Compared to 2014
Total expenses decreased $1.2 million from the prior year comparable period. The $1.2 million decrease resulted from
$2.7 million of lower cost of vacation ownership products expenses due to lower pre-development spending associated with
potential acquisitions and higher capitalization of other development expenses, $1.9 million of lower organizational and
separation related expenses due to the completion of many of the initiatives relating to our separation from Marriott
International, $1.8 million of lower consumer financing interest expense and $0.1 million of lower litigation settlements,
partially offset by $5.2 million of higher general and administrative expenses.
The $1.8 million decline in consumer financing interest expense was due to a lower average interest rate on
outstanding debt balances ($2.2 million), partially offset by an increase in the outstanding debt balances of securitized vacation
ownership notes receivable and associated interest costs ($0.4 million). The lower average interest rate reflected the continued
pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates
applicable to our more recently completed securitizations of vacation ownership notes receivable.
The higher general and administrative expenses were driven by $3.4 million of higher personnel related and other
costs net of lower depreciation and cost savings and $1.8 million of refurbishment costs in 2015.
Liquidity and Capital Resources
Our capital needs are supported by cash on hand ($147.1 million at the end of 2016), cash generated from operations,
our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available under the
Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to
meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service
requirements, return capital to shareholders and fulfill other cash requirements. At the end of 2016, we had $746.4 million of
total gross debt outstanding, which included $738.4 million of non-recourse debt associated with vacation ownership notes
receivable securitizations.
At the end of 2016, we had $708.2 million of real estate inventory on hand, comprised of $338.0 million of finished
goods, $39.5 million of work-in-progress and $330.7 million of land and infrastructure. We expect to continue to sell excess
Ritz-Carlton branded inventory through the MVCD program in order to generate incremental cash and reduce related carrying
costs.
Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our
sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations,
including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-
based inventory at each sales location, we need to have only a few resorts under construction at any given time and can
leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the
need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable
us to align our real estate inventory acquisitions with the pace of sales of vacation ownership products.
65
We are selectively pursuing growth opportunities in North America and Asia Pacific by targeting high-quality
inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions
that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale.
These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built
units by third parties, just prior to sale.
We intend for our capital allocation strategy to strike a balance between enhancing our operations and using our
capital to provide returns to our shareholders through programs such as share repurchase programs and payment of dividends.
During 2016, 2015 and 2014, we had net changes in cash and cash equivalents of $(30.0) million, $(169.5) million and
$147.0 million, respectively. The following table summarizes these changes:
($ in thousands)
Cash provided by (used in):
2016
Fiscal Years
2015
2014
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of change in exchange rates on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . .
$
$
$
140,172
39,021
(204,952)
(4,200)
(29,959) $
$
109,034
(25,068)
(249,747)
(3,673)
(169,454) $
291,411
43,126
(185,650)
(1,883)
147,004
Cash from Operating Activities
Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from
our financing operations, including principal and interest payments received on outstanding vacation ownership notes
receivable and (3) net cash generated from our rental and resort management and other services operations. Outflows include
spending for the development of new phases of existing resorts, the acquisition of additional inventory and funding our
working capital needs.
We minimize our working capital needs through cash management, strict credit-granting policies and disciplined
collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on
unsold inventory we pay to property owners’ associations and certain annual compensation related outflows. In addition, our
cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing of
sales contracts for vacation ownership products, financing propensity and cash outlays for real estate inventory acquisition and
development.
In 2016, we generated $140.2 million of cash flows from operating activities, compared to $109.0 million in 2015.
Excluding the impact of changes in net income and adjustments for non-cash items, the increase in cash flows was attributable
to the pay down of our liability for the Marriott Rewards customer loyalty program in 2015 and favorable timing of real estate
inventory spending in 2016. This favorable impact was partially offset by a higher financing propensity due to the continued
success of the financing programs implemented in the first half of 2015, lower collections due to the reduction in the portfolio
of outstanding vacation ownership notes receivable and the timing of revenue reportability associated with our vacation
ownership contract sales.
In 2015, we recorded residential contract sales of $28.4 million associated with the sale of 18 units in Macau. In 2014,
we recorded residential contract sales of $13.8 million associated with the sale of seven units at the RCC San Francisco that we
bought back as part of a legal settlement at the end of 2012.
66
In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our
cash flow from operating activities:
Real Estate Inventory Spending Less Than Cost of Sales
($ in thousands)
Real estate inventory spending . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of operating properties for future conversion to
inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate inventory costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate inventory spending less than cost of sales. . . .
$
$
2016
Fiscal Years
2015
2014
(138,867) $
(119,067) $
(99,337)
—
142,261
3,394
$
(61,554)
192,071
11,450
$
—
180,171
80,834
We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory
spending (a cash item) to the amount of real estate inventory costs charged to expense on our Statements of Income related to
sale of vacation ownership products (a non-cash item).
Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from
the MVCD program and capital efficient transactions, our spending for real estate inventory remained below the amount of real
estate inventory costs in each of 2016, 2015 and 2014.
In 2016, real estate inventory spending included $23.5 million for the acquisition of an operating property located in
the South Beach area of Miami Beach, Florida. We rebranded this property as Marriott Vacation Club Pulse, South Beach and
intend to convert it, in its entirety, into vacation ownership interests for future use in our MVCD program. See Footnote No. 5,
“Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.
In 2015, real estate inventory spending included $32.0 million for the acquisition of 71 units at The Mayflower Hotel,
Autograph Collection, an operating hotel, in Washington, D.C. We have included these vacation ownership units, in their
current form, in our MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for
additional information regarding this transaction.
We also completed the acquisition of an operating property located in Surfers Paradise, Australia. At the time of the
acquisition, we determined that we would convert a portion of this operating property into vacation ownership interests for
future use in our Asia Pacific segment and $14.9 million, the amount of the purchase price related to this portion, was included
as an operating activity in Purchase of operating properties for future conversion to inventory on our Cash Flows for 2015. We
have completed the conversion of this portion of the operating property, a portion of which has been contributed to our points-
based programs in our Asia Pacific segment. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements
for additional information regarding this transaction.
We also capitalized on the opportunity to add a premier destination to our portfolio in 2015 through the acquisition of
an operating property in San Diego, California, that we are in the process of converting, in its entirety, to vacation ownership
interests for future use in our MVCD program. The $46.6 million allocated to the portion of the operating property which we
are converting to vacation ownership inventory was classified as an operating activity in Purchase of operating properties for
future conversion to inventory on our Cash Flows for 2015. See Footnote No. 5, “Acquisitions and Dispositions,” to our
Financial Statements for additional information regarding this transaction.
Real estate inventory costs for 2015 included $21.6 million related to the sale of the residential units in Macau.
Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold
vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in
desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.
Notes Receivable Collections (Less Than) in Excess of New Mortgages
($ in thousands)
Vacation ownership notes receivable collections — non-securitized . . .
Vacation ownership notes receivable collections — securitized. . . . . . .
Vacation ownership notes receivable originations . . . . . . . . . . . . . . . . .
Vacation ownership notes receivable collections (less than) in
excess of originations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
$
73,565
180,057
(356,859)
Fiscal Years
2015
$
88,919
181,251
(311,195)
2014
103,074
184,166
(267,917)
(103,237) $
(41,025) $
19,323
67
Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation
ownership notes receivable. Vacation ownership notes receivable collections have continued to decline over the three years due
to the reduction in the portfolio of outstanding vacation ownership notes receivable, partially offset by an increase in the
vacation ownership product sales volumes. Vacation ownership notes receivable originations in 2016 increased due to an
increase in financing propensity to 60.1 percent compared to 49.9 percent for 2015, due to the continued success of the new
financing incentive programs that we began offering in our North America segment in the first half of 2015. Given the success
of these incentives to date, we expect financing propensity levels in 2017 to continue at similar levels to 2016 as we continue to
offer the financing incentive programs. Vacation ownership notes receivable originations increased in 2015 compared to 2014
due to a slight increase in financing propensity to 49.9 percent in 2015 from 43.6 percent in 2014.
During 2016, 2015 and 2014, and as of December 30, 2016, January 1, 2016 and January 2, 2015, no securitized
vacation ownership notes receivable pools were out of compliance with established performance parameters.
Cash from Investing Activities
($ in thousands)
Capital expenditures for property and equipment (excluding
inventory) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of operating property to be sold . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in restricted cash. . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities. . . . . . . . . . .
$
$
2016
Fiscal Years
2015
2014
(34,770) $
—
4,838
68,953
39,021
$
(35,735) $
(47,658)
37,681
20,644
(25,068) $
(15,202)
—
(24,019)
82,347
43,126
Capital Expenditures for Property and Equipment
Capital expenditures for property and equipment relate to spending for technology development, buildings and
equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such
offerings are provided.
In 2016, capital expenditures for property and equipment of $34.8 million included $27.0 million to support business
operations (including $20.7 million for sales locations and $6.3 million for ancillary and operations assets) and $7.8 million for
technology spending.
In 2015, capital expenditures for property and equipment of $35.7 million included $26.3 million to support business
operations (including $7.7 million associated with the assets purchased for the operating property in San Diego, California,
$13.0 million for sales locations other than the operating property in San Diego, California, and $5.6 million for ancillary and
other operations assets) and $9.4 million for technology spending (including $3.8 million for Spin-Off related initiatives). See
Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding the San
Diego, California transaction.
In 2014, capital expenditures for property and equipment of $15.2 million included $9.9 million to support business
operations (including $6.7 million for ancillary and operations assets and $3.2 million for sales locations) and $5.3 million for
technology spending (including $3.0 million for Spin-Off related initiatives).
Purchase of Operating Property to be Sold
In 2015, we completed the acquisition of an operating property located in Surfers Paradise, Australia. At the time of
the acquisition, we determined that we would convert a portion of this operating property into vacation ownership interests for
future use in our Asia Pacific segment, and sell the remaining downsized portion of the operating property to a third party. We
included $47.7 million, the amount of the purchase price related to the remaining downsized portion of the operating property,
in Purchase of operating property to be sold on our Cash Flows for 2015. In 2016, we completed the sale of this portion of the
operating property to a third party and have included $49.1 million as an investing activity in Dispositions, net on our Cash
Flows for 2016. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information
regarding this transaction.
Decrease (Increase) in Restricted Cash
Restricted cash primarily consists of cash held in reserve accounts related to vacation ownership notes receivable
securitizations, cash collected for maintenance fees to be remitted to property owners’ associations and deposits received,
68
primarily associated with tour package sales and vacation ownership product sales that are held in escrow until the associated
contract has closed or the period in which it can be rescinded has expired, depending on applicable legal requirements.
The 2016 decrease in restricted cash reflected $7.4 million of higher cash distributions for maintenance fees remitted
to certain property owners’ associations subsequent to the end of 2015 and $2.5 million related to property refurbishment
reserves transferred to the new owner of the Surfers Paradise, Australia property at the time of the sale. These decreases were
partially offset by a $3.3 million increase in cash associated with vacation ownership sales held in escrow and a $1.8 million
increase in cash that was collected for distribution to investors in connection with securitized vacation ownership notes
receivable that was distributed to investors subsequent to the end of 2016.
The 2015 decrease in restricted cash reflected $29.6 million of higher cash distributions for maintenance fees remitted
to certain property owners’ associations subsequent to the end of 2014, an $8.4 million increase in cash that was collected for
distribution to investors in connection with securitized vacation ownership notes receivable that was distributed to investors
subsequent to the end of 2015 and a $2.2 million increase in cash associated with vacation ownership sales held in escrow.
These decreases were partially offset by a $2.5 million related to property refurbishment reserves for the newly acquired
Surfers Paradise, Australia property.
The 2014 increase in restricted cash reflected $15.8 million of higher cash collections for maintenance fees remitted to
certain property owners’ associations subsequent to the end of 2014, a $10.0 million increase in sales that are held in escrow
related to Hawaiian requirements for tour package sales and $0.7 million of higher cash collected in connection with securitized
vacation ownership notes receivable that was distributed to investors subsequent to the end of 2014, partially offset by a $2.5
million decrease in funds required to be held in escrow to guarantee our credit card business in the Asia Pacific segment.
We expect fluctuations in restricted cash for maintenance fee activity to be relatively stable on an annual basis, with
cash inflows occurring in the fourth quarter upon receipt of maintenance fees and cash outflows occurring in the first and
second quarters upon remittance to property owners’ associations. However, in 2014 our restricted cash collections for
maintenance fees increased significantly due to the timing of the large volume of payments at fiscal year-end and related
banking transfers to property owners’ associations occurring subsequent to year-end 2014.
Dispositions
Dispositions of property and assets generated cash proceeds of $69.0 million in 2016, $20.6 million in 2015 and $82.3
million in 2014.
Dispositions in 2016 included the sale of the remaining downsized portion (216 rooms and resort amenities) of the
operating property in Surfers Paradise, Australia for $49.1 million, the sale of excess inventory at the RCC San Francisco for
$18.7 million, the sale of several lots in St. Thomas, U.S. Virgin Islands for $1.0 million and the sale of undeveloped land in
Absecon, New Jersey for $0.1 million.
The 2015 dispositions included $19.6 million from the sale of undeveloped land in Kauai, Hawaii, $0.6 million from
the sale of three lots in St. Thomas, U.S. Virgin Islands, $0.4 million from the sale of an operations facility in Hilton Head,
South Carolina and $0.1 million from the sale of undeveloped land in Absecon, New Jersey.
The 2014 dispositions included $39.3 million from the sale of undeveloped and partially developed land, an operating
golf course and related assets in Kauai, Hawaii, $22.5 million from the sale of an operating golf course and undeveloped land
in Orlando, Florida, $10.1 million from the sale of undeveloped land on Singer Island, Florida, $7.8 million from the sale of
undeveloped and partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club
in the Bahamas, $1.4 million from the sale of undeveloped land in Paris, France, $0.9 million from the sale of several lots in St.
Thomas, U.S. Virgin Islands and $0.3 million from the sale of undeveloped land in Absecon, New Jersey.
69
Cash from Financing Activities
($ in thousands)
Borrowings from securitization transactions
2016
Fiscal Years
2015
2014
Bonds payable on securitized vacation ownership notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on Warehouse Credit Facility. . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
250,000
126,622
376,622
$
255,000
—
255,000
262,638
—
262,638
Repayment of debt related to securitization transactions
Bonds payable on securitized vacation ownership notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on Warehouse Credit Facility . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on Revolving Corporate Credit Facility . . . . . . . . . . . .
Repayments on Revolving Corporate Credit Facility . . . . . . . . . . . .
Proceeds from vacation ownership inventory arrangement . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of mandatorily redeemable preferred stock of
consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . .
Payment of withholding taxes on vesting of restricted stock units. .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . .
$
Revolving Corporate Credit Facility
(196,242)
(126,622)
(322,864)
85,000
(85,000)
—
(4,065)
(177,830)
(40,000)
(34,195)
7
1,207
(4,021)
187
(204,952) $
(278,427)
—
(278,427)
—
—
5,375
(5,335)
(201,380)
—
(23,793)
97
9,380
(10,894)
230
(249,747) $
(228,870)
—
(228,870)
—
—
—
(6,498)
(203,596)
—
(8,179)
2,977
4,519
(8,077)
(564)
(185,650)
At December 30, 2016, no amounts were outstanding under the Revolving Corporate Credit Facility, however we had
$3.3 million of letters of credit outstanding. See Footnote No. 10, “Debt,” to our Financial Statements for additional
information regarding our Revolving Corporate Credit Facility.
Borrowings from / Repayments of Debt Related to Securitization Transactions
We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the
Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with
vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation
ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.” We account for our
securitizations of vacation ownership notes receivable as secured borrowings and therefore do not recognize a gain or loss as a
result of the transaction. The results of operations for the securitization entities are consolidated within our results of operations
as these entities are variable interest entities for which we are the primary beneficiary.
In the third quarter of 2016, we completed the securitization of a pool of $259.1 million of vacation ownership notes
receivable generating gross cash proceeds of $250 million. In connection with the securitization, investors purchased in a
private placement $250.0 million in vacation ownership loan backed notes from the MVW Owner Trust 2016-1 (the “2016-1
Trust”). Two classes of vacation ownership loan backed notes were issued by the 2016-1 Trust: $230.6 million of Class A Notes
and $19.4 million of Class B Notes. The Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an
interest rate of 2.64 percent, for an overall weighted average interest rate of 2.28 percent.
During 2016, we also securitized vacation ownership notes receivable under our Warehouse Credit Facility. The total
carrying amount of the vacation ownership notes receivable securitized was $149.5 million. The advance rate was 85 percent,
which resulted in total gross proceeds of $126.6 million. The total net proceeds were $125.7 million due to the funding of
reserve accounts in the amount of $0.9 million. At December 30, 2016, no amounts were outstanding under the Warehouse
Credit Facility and $103.4 million of gross vacation ownership notes receivable were eligible for securitization. See Footnote
No. 10, “Debt,” to our Financial Statements for additional information regarding our Warehouse Credit Facility.
70
During 2015, we completed the securitization of a pool of $264.2 million of vacation ownership notes receivable. In
connection with the securitization, investors purchased in a private placement $255.0 million in vacation ownership loan-
backed notes from the MVW Owner Trust 2015-1 (the “2015-1 Trust”). Two classes of vacation ownership loan backed notes
were issued by the 2015-1 Trust: $233.2 million of Class A Notes and $21.8 million of Class B Notes. The Class A Notes have
an interest rate of 2.52 percent and the Class B Notes have an interest rate of 2.96 percent, for an overall weighted average
interest rate of 2.56 percent.
During 2014, we completed two securitization transactions. In the second quarter of 2014, we completed the
securitization of a pool of $23.8 million of primarily highly-seasoned vacation ownership notes receivable that we previously
classified as not being eligible for securitization. In connection with the securitization, investors purchased in a private
placement $22.6 million in vacation ownership loan backed notes from the Kyuka Owner Trust 2014-A with an interest rate of
6.25 percent. The securitized loans previously were classified as not eligible for securitization using criteria applicable to then
current securitization transactions in the ABS market because they did not meet certain representation criteria required in such
securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.
In the fourth quarter of 2014, we completed the securitization of a pool of $250.0 million of vacation ownership notes
receivable. In connection with the securitization, investors purchased in a private placement $240.0 million in vacation
ownership loan-backed notes from the MVW Owner Trust 2014-1 (the “2014-1 Trust”). Two classes of vacation ownership
loan backed notes were issued by the 2014-1 Trust: $216.2 million of Class A Notes and $23.8 million of Class B Notes. The
Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of 2.70 percent, for an overall
weighted average interest rate of 2.29 percent.
Proceeds from Vacation Ownership Inventory Arrangement
In connection with our pursuit of growth opportunities in ways that optimize the timing of our capital investments,
including working with third parties to develop new inventory or convert previously built units to be sold to us close to when
we need such inventory, during the first quarter of 2015 we sold real property located in Marco Island, Florida to a third-party
developer. We are obligated to repurchase the completed property from the developer contingent upon the property meeting our
brand standards and provided that the third-party developer has not sold the property to another party. As discussed in Footnote
No. 5, “Acquisitions and Dispositions,” to our Financial Statements, we received cash proceeds of $5.4 million upon the sale of
this real property. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional
obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this
transaction as a sale, and as such have recorded these proceeds as a financing activity.
Debt Issuance Costs
Debt issuance costs in 2016 included $3.8 million associated with the 2016 vacation ownership notes receivable
securitization and $0.2 million related to the amendment of the Revolving Corporate Credit Facility during the year. Debt
issuance costs in 2015 included $4.2 million associated with the 2015 vacation ownership notes receivable securitization and a
combined $1.1 million related to the renewal of the Warehouse Credit Facility and the amendment of the Revolving Corporate
Credit Facility during the year. Debt issuance costs in 2014 included $3.7 million associated with the two 2014 vacation
ownership notes receivable securitizations and $2.8 million associated with the amendment and restatement of the Warehouse
Credit Facility and the Revolving Corporate Credit Facility during 2014.
Share Repurchase Program
The following table summarizes share repurchase activity under our current share repurchase program:
($ in thousands, except per share amounts)
As of January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 30, 2016 . . . . . . . . . . . .
As of December 30, 2016 . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
Repurchased
Cost of Shares
Repurchased
Average Price
Paid per Share
6,854,083
2,818,546
9,672,629
$
$
430,609
177,830
608,439
$
$
62.83
63.09
62.90
See Footnote No. 12, “Shareholders’ Equity,” to our Financial Statements for further information related to the share
repurchase program.
71
Redemption of Mandatorily Redeemable Preferred Stock of Consolidated Subsidiary
During 2016, we elected to exercise our option to redeem $40.0 million of gross mandatorily redeemable preferred
stock of a consolidated subsidiary that we were not required to redeem until October 2021. We redeemed the preferred stock on
October 26, 2016 at par, plus accrued and unpaid dividends, using cash on hand.
Dividends
We distributed cash dividends to holders of common stock for the year ended December 30, 2016 as follows:
Declaration Date
December 8, 2015
February 11, 2016
May 12, 2016
September 8, 2016
Shareholder Record Date
December 21, 2015
February 25, 2016
May 26, 2016
September 22, 2016
Distribution Date
January 6, 2016
March 10, 2016
June 9, 2016
October 6, 2016
Dividend per Share
$0.30
$0.30
$0.30
$0.30
We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to
Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as
applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers
relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the
terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. Accordingly,
there can be no assurance that we will pay dividends in the future at the same rate or at all.
Contractual Obligations and Off-Balance Sheet Arrangements
The following table summarizes our contractual obligations as of year-end 2016:
($ in thousands)
Contractual Obligations
Debt(1). . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . .
Purchase obligations(2) . . . . . . . . . . . .
Capital lease obligations(3) . . . . . . . .
Other long-term obligations . . . . . . .
Total contractual obligations . . . . . . . . . .
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Payments Due by Period
$
823,140
$
120,595
$
203,898
$
184,074
$
314,573
82,065
475,113
7,582
4,459
16,638
103,558
361
4,459
24,328
366,761
7,221
—
16,441
3,361
—
—
24,658
1,433
—
—
$
1,392,359
$
245,611
$
602,208
$
203,876
$
340,664
_________________________
(1)
Includes principal as well as interest payments.
(2)
(3)
Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or
minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected
herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as
accounts payable and accrued liabilities are excluded from the table above.
Includes interest.
We have joined in Marriott International’s U.S. Federal tax consolidated filing for periods up to the date of the Spin-
Off. Although we do not anticipate that a significant change in our unrecognized tax benefit balance will occur during the next
fiscal year, the amount of our liability for unrecognized tax benefits could change as a result of audits. See Footnote No. 2,
“Income Taxes,” to our Financial Statements for additional information.
We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for
our sales of vacation ownership products for the North America and Asia Pacific segments. The terms of these guarantees
generally require us to fund if the purchaser fails to pay under the terms of its note payable. We are entitled to recover any
payments we make to third-party lenders under these guarantees through reacquisition and resale of the vacation ownership
product. Our commitments under these guarantees expire as the underlying notes mature or are repaid. The terms of the
underlying debt to third-party lenders extend to 2022. At December 30, 2016, the maximum potential amount of future
fundings for financing guarantees where we are the primary obligor was $5.7 million.
72
For additional information on these guarantees and the circumstances under which they were entered into, see the
“Guarantees” caption within Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements.
In the normal course of our resort management business, we enter into purchase commitments with property owners’
associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash
flows of the resorts, these obligations have minimal impact on our net income and cash flow.
Recent Accounting Pronouncements
See Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for a discussion of
recently issued accounting pronouncements, including information on new accounting standards and the future adoption of
such standards.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical
if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or
different estimates that could have been selected, could have a material effect on our results of operations or financial
condition.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information
presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments
as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of
operations.
Please see Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for further
information on accounting policies that we believe to be critical, including our policies on:
Revenue recognition for vacation ownership products, including how we recognize revenue using the percentage-of-
completion method of accounting;
Inventories and cost of vacation ownership products, which requires estimation of future revenues, including
incremental revenues from future price increases or from the sale of reacquired inventory resulting from defaulted vacation
ownership notes receivable, and development costs to apply a relative sales value method specific to the vacation ownership
industry and how we evaluate the fair value of our vacation ownership inventory;
Valuation of property and equipment, including when we record impairment losses;
Loan loss reserves for vacation ownership notes receivable, including information on how we estimate reserves for
losses;
Loss contingencies, including information on how we account for loss contingencies; and
Income taxes, including information on how we determine our current year amounts payable or refundable, as well as
our estimate of deferred tax assets and liabilities.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates, currency exchange rates, and debt prices. We manage
our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account
currency exchange rates, and by entering into derivative arrangements. We do not foresee any significant changes in either our
exposure to fluctuations in interest rates or currency rates or how we manage such exposure in the future.
Our Warehouse Credit Facility provides variable rate financing when we place consumer loans we originate primarily
in support of our North American business into that facility. We may manage the interest rate risk of this facility by entering
into derivative contracts such as swaps or caps that are traditionally utilized in warehouse funding arrangements. We intend to
securitize vacation ownership notes receivable in the ABS market at least once per year. For these types of transactions or
arrangements, we expect to secure fixed rate funding to match our fixed rate vacation ownership notes receivable. However, if
we have floating rate debt in the future, we plan to hedge the interest rate risk using derivative instruments. Changes in interest
rates may impact the fair value of our fixed rate long-term debt.
73
From time to time, we may use derivative instruments to reduce market risks due to changes in interest rates and
currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of the
Warehouse Credit Facility. As of December 30, 2016, we were not party to any material derivative interest rates or hedges.
Please see Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for additional
information associated with derivative instruments.
The following table sets forth the scheduled maturities and the total fair value as of year-end 2016 for our financial
instruments that are impacted by market risks:
($ in thousands)
Average
Interest
Rate
2017
2018
2019
2020
2021
Thereafter
Total
Carrying
Value
Total Fair
Value
Assets – Maturities represent expected principal receipts; fair values represent assets
Maturities by Period
Vacation ownership
notes receivable —
non-securitized. . . . . . .
Vacation ownership
notes receivable —
securitized . . . . . . . . . .
11.7% $ 46,471
$ 32,027
$ 25,698
$ 21,967
$ 18,951
$ 109,654
$ 254,768
$ 269,161
12.7% $ 97,726
$ 89,728
$ 83,909
$ 83,264
$ 81,654
$ 281,262
$ 717,543
$ 834,009
Liabilities – Maturities represent expected principal payments; fair values represent liabilities
Non-recourse debt
associated with
vacation ownership
notes receivable
securitizations . . . . . . .
2.5%
$ (101,214) $ (91,223) $ (84,988) $ (83,516) $ (82,256) $ (295,165) $ (738,362) $ (725,963)
Other debt . . . . . . . . . .
8.3%
$
(604) $
(4) $
(4) $
(5) $
(5) $
(212) $
(834) $
(815)
Item 8.
Financial Statements and Supplementary Data
The financial statements required by this item commence on page F-2 of this Annual Report.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we evaluated, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act), and management necessarily applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. Our
disclosure controls and procedures have been designed to provide reasonable assurance of achieving the desired control
objectives. However, you should note that the design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. Based upon the foregoing evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective and operating to provide
reasonable assurance that we record, process, summarize and report the information we are required to disclose in the reports
that we file or submit under the Exchange Act within the time periods specified in the rules and forms of the SEC, and to
provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Management’s annual report on internal control over financial reporting and the
independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting are
incorporated by reference to pages F-2 and F-3 of this Annual Report.
74
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2016 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
On February 22, 2017, we entered into an amendment to the Revolving Corporate Credit Facility that, among other
things, amends the financial covenants that require us to maintain a maximum ratio of consolidated debt to consolidated
adjusted EBITDA (as defined in the Revolving Corporate Credit Facility) of 5.25 to 1 and a minimum consolidated adjusted
EBITDA to interest expense ratio of not less than 3 to 1. The amendment eliminates certain adjustments used in calculating
adjusted EBITDA related to product costs and development capital investments so that adjusted EBITDA for purposes of the
Revolving Corporate Credit Facility will more closely resemble adjusted EBITDA as we report it for other purposes.
From time to time, the several banks and other financial institutions or entities from time to time parties to the
Revolving Corporate Credit Facility, JPMorgan Chase Bank, N.A., the administrative agent under such facility, Bank of
America, N.A. and Deutsche Bank Securities Inc., the co-syndication and co-documentation agents under such faculty, or any
of their affiliates may have performed, and may in the future perform, various commercial banking, investment banking and
other financial advisory services for us for which they have or will receive customary fees and expenses. In particular, some of
these financial institutions or their affiliates participate, or may in the future participate, in the Warehouse Credit Facility and
may also have participated, or may in the future participate, in our vacation ownership notes receivable securitization
transactions.
PART III
As described below, we incorporate certain information appearing in the Proxy Statement we will furnish to our
shareholders in connection with our 2017 Annual Meeting of Shareholders (the “Proxy Statement”) by reference in this Annual
Report.
Item 10.
Directors, Executive Officers and Corporate Governance
We incorporate this information by reference to the “Our Board of Directors,” “Section 16(a) Beneficial Ownership
Reporting Compliance,” “Committees of our Board,” “Transactions with Related Persons” and “Selection of Director
Nominees” sections of our Proxy Statement. We have included information regarding our executive officers and our Code of
Conduct below.
Executive Officers
Set forth below is certain information with respect to our executive officers. The information set forth below is as of
February 10, 2017, except where indicated.
Name and Title
Stephen P. Weisz
President and Chief Executive
Officer
Age
66
Business Experience
Stephen P. Weisz has served as our President since 1996 and as
our Chief Executive Officer since 2011; he has also been a
member of our Board of Directors since 2011. Mr. Weisz joined
Marriott International in 1972. Over his 39-year career with
Marriott International, he held a number of leadership positions in
the Lodging division, including Regional Vice President of the
Mid-Atlantic Region, Senior Vice President of Rooms Operations,
and Vice President of the Revenue Management Group.
Mr. Weisz became Senior Vice President of Sales and Marketing
for Marriott Hotels, Resorts & Suites in 1992 and Executive Vice
President-Lodging Brands in 1994 before being named to lead the
Company in 1996. He currently serves as Chairman of the Board
of Directors of the American Resort Development Association.
Mr. Weisz is also the Immediate Past Chairman of the Board of
Trustees of Children’s Miracle Network.
75
R. Lee Cunningham
Executive Vice President and Chief Operating
Officer
57
Clifford M. Delorey
Executive Vice President and Chief Resort
Experience Officer
John E. Geller, Jr.
Executive Vice President and Chief Financial
Officer
56
49
James H Hunter, IV
Executive Vice President and General Counsel
54
Lizabeth Kane-Hanan
Executive Vice President and Chief Growth and
Inventory Officer
50
Brian E. Miller
Executive Vice President and Chief Sales and
Marketing Officer
53
R. Lee Cunningham has served as our Executive Vice President
and Chief Operating Officer since December 2012. From 2007 to
December 2012, he served as our Executive Vice President and
Chief Operating Officer – North America and Caribbean. Mr.
Cunningham joined Marriott International in 1982 and held
various front office assignments at Marriott hotels in Atlanta,
Scottsdale, Miami, Kansas City, and Washington, D.C. In 1990,
he became one of Marriott International’s first revenue
management-focused associates and held roles at property,
regional and corporate levels. Mr. Cunningham joined our
company in 1997 as Vice President of Revenue Management and
Owner Service Operations.
Clifford M. Delorey has served as our Executive Vice President
and Chief Resort Experience Officer since October 2012. From
May 2011 to October 2012, Mr. Delorey served as Vice President
of Operations for the Middle East and Africa region for Marriott
International. From April 2006 to May 2011, he served as our
Vice President of Operations for the East region. Mr. Delorey
joined Marriott International in 1981 and served in a number of
operational roles, including Director of International Operations.
John E. Geller, Jr. has served as our Executive Vice President and
Chief Financial Officer since 2009. Mr. Geller joined Marriott
International in 2005 as Senior Vice President and Chief Audit
Executive and Information Security Officer. In 2008, he led
finance and accounting for Marriott International’s North
American Lodging Operation’s West region as Chief Financial
Officer. Mr. Geller began his professional career at Arthur
Andersen, where he was promoted to audit partner in its real
estate and hospitality practice in 2000. During 2002 and 2003, he
was an audit partner with Ernst & Young in its real estate and
hospitality practice. Mr. Geller served as Chief Financial Officer
at AutoStar Realty in 2004.
James H Hunter, IV has served as our Executive Vice President
and General Counsel since November 2011. Prior to that time, he
had served as Senior Vice President and General Counsel since
2006. Mr. Hunter joined Marriott International in 1994 as
Corporate Counsel and was promoted to Senior Counsel in 1996
and Assistant General Counsel in 1998. While at Marriott
International, he held several leadership positions supporting
development of Marriott’s lodging brands in all regions
worldwide. Prior to joining Marriott International, Mr. Hunter was
an associate at the law firm of Davis, Graham & Stubbs in
Washington, D.C.
Lizabeth Kane-Hanan has served as our Executive Vice President
and Chief Growth and Inventory Officer since November 2011.
Prior to that time, she had served as our Senior Vice President,
Resort Development and Planning, Inventory and Revenue
Management and Product Innovation since 2009. Ms. Kane-
Hanan joined our company in 2000, and has over 25 years of
hospitality industry experience. Before joining Marriott
International, she spent 14 years in public accounting and
advisory firms, including Arthur Andersen and Horwath
Hospitality, where she specialized in real estate strategic planning,
acquisitions and development. At our company, she has held
several leadership positions of increasing responsibility.
Brian E. Miller has served as our Executive Vice President and
Chief Sales and Marketing Officer since November 2011. Prior to
that time, he had served as our Senior Vice President, Sales and
Marketing and Service Operations since 2007. Mr. Miller joined
our company in 1991 as National Director of Marketing
Operations and has more than 25 years of vacation ownership
marketing and sales expertise. In 1994, he was promoted to Vice
President of Marketing. From 1995 to 2000, he served as
Regional Vice President of Sales and Marketing for the Europe
and Middle East region based in London. He left our company
briefly, but returned in 2001 to assume the role of Senior Vice
President, Sales and Marketing.
76
Dwight D. Smith
Executive Vice President and Chief
Information Officer
Michael E. Yonker
Executive Vice President and Chief Human
Resources Officer
56
58
Dwight D. Smith has served as our Executive Vice President and
Chief Information Officer since December 2011. Prior to that
time, he served as our Senior Vice President and Chief
Information Officer since 2006. Mr. Smith joined Marriott
International in 1988 as Senior Manager and then Director of
Information Resources for Roy Rogers Restaurants. He worked
from 1982 to 1988 at Andersen Consulting as Staff Consultant
and then Consulting Manager in the advanced technology group.
Mr. Smith moved to our corporate headquarters in 1990.
Michael E. Yonker has served as our Executive Vice President and
Chief Human Resources Officer since December 2011. Prior to
that time, he served as our Chief Human Resources Officer since
2010. Mr. Yonker joined Marriott International in 1983 as
Assistant Controller at the Lincolnshire Marriott Resort in
Chicago. While at Marriott International, he held a number of
positions with increasing responsibility in both the finance and
human resources areas. From 1996 to 1998, he was the Area
Director of Human Resources, supporting the mid-central region
at Sodexho Marriott. He returned to Marriott International in 1998
as Vice President, Human Resources supporting the Midwest
Region and was named our Vice President, Human Resources in
2007 supporting global operations.
Code of Conduct
Our Board of Directors has adopted a code of conduct, our Business Conduct Guide, that applies to all of our
directors, officers and associates, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting
Officer. Our Business Conduct Guide is available in the Investor Relations section of our website
(www.marriottvacationsworldwide.com) and is accessible by clicking on “Corporate Governance.” Any amendments to our
Business Conduct Guide and any grant of a waiver from a provision of our Business Conduct Guide requiring disclosure under
applicable SEC rules will be disclosed at the same location as the Business Conduct Guide in the Investor Relations section of
our website located at www.marriottvacationsworldwide.com.
Item 11.
Executive Compensation
We incorporate this information by reference to the “Executive and Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” sections of our Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
We incorporate this information by reference to the “Securities Authorized for Issuance Under Equity Compensation
Plans” and “Stock Ownership” sections of our Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
We incorporate this information by reference to the “Transactions with Related Persons,” and “Director
Independence” sections of our Proxy Statement.
Item 14.
Principal Accounting Fees and Services
We incorporate this information by reference to the “Independent Registered Public Accounting Firm Fee Disclosure”
and “Pre-Approval of Independent Auditor Fees and Services Policy” sections of our Proxy Statement.
77
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)(1)-(2) Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements are
filed as part of this Annual Report. We include the financial statement schedules required by the applicable accounting
regulations of the SEC in the notes to our consolidated financial statements and incorporate that information in this Item 15 by
reference.
(a)(3) Exhibits
See “Index to Exhibits” beginning on page E-1, which is incorporated by reference herein. The Index to Exhibits lists
all exhibits filed with this Annual Report and identifies which of those exhibits are management contracts and compensation
plans.
Item 16.
Form 10-K Summary
None.
78
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Form 10-
K to be signed on our behalf by the undersigned, thereunto duly authorized, on this 23rd day of February, 2017.
SIGNATURES
MARRIOTT VACATIONS WORLDWIDE CORPORATION
By:
/s/ Stephen P. Weisz
Stephen P. Weisz
President and Chief Executive Officer
79
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints jointly and severally, Stephen P. Weisz, John E. Geller, Jr. and James H Hunter, IV, and each one of
them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Annual Report and to file the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the
following persons on our behalf in the capacities indicated and on the date indicated above.
Principal Executive Officer:
/s/ Stephen P. Weisz
Stephen P. Weisz
Principal Financial Officer:
/s/ John E. Geller, Jr.
John E. Geller, Jr.
Principal Accounting Officer:
/s/ Laurie A. Sullivan
Laurie A. Sullivan
Directors:
/s/ William J. Shaw
William J. Shaw, Chairman
/s/ C.E. Andrews
C.E. Andrews, Director
/s/ Raymond L. Gellein, Jr.
Raymond L. Gellein, Jr., Director
/s/ Thomas J. Hutchison III
Thomas J. Hutchison III, Director
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Senior Vice President, Corporate Controller and Chief Accounting Officer
/s/ Melquiades R. Martinez
Melquiades R. Martinez, Director
/s/ William W. McCarten
William W. McCarten, Director
/s/ Dianna F. Morgan
Dianna F. Morgan, Director
80
The Registrant will furnish you, without charge, a copy of any exhibit, upon written request. Written requests to obtain
any exhibit should be sent to Marriott Vacations Worldwide Corporation, 6649 Westwood Blvd., Orlando, Florida 32821,
Attention: Corporate Secretary.
INDEX TO EXHIBITS
Exhibit
No.
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Description
Separation and Distribution Agreement, entered into on November 17, 2011, among Marriott International,
Inc., Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., Marriott Resorts
Hospitality Corporation, MVCI Asia Pacific Pte. Ltd. and MVCO Series LLC (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 22, 2011).
Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation (incorporated by reference
to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 22, 2011).
Restated Bylaws of Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K filed on November 22, 2011).
Form of certificate representing shares of common stock, par value $0.01 per share, of Marriott Vacations
Worldwide Corporation (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on
Form 10 filed on October 14, 2011).
License, Services, and Development Agreement, entered into on November 17, 2011, among Marriott
International, Inc., Marriott Worldwide Corporation, Marriott Vacations Worldwide Corporation and the other
signatories thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on November 22, 2011).
Letter Agreement, dated as of February 21, 2013, between Marriott International, Inc. and Marriott Vacations
Worldwide Corporation, supplementing the License, Services, and Development Agreement (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 25, 2013).
Letter Agreement, dated May 9, 2016, among Marriott Vacations Worldwide Corporation, Marriott Worldwide
Corporation and Marriott International, Inc. relating to the License, Services, and Development Agreement
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 21,
2016).
Side Letter Agreement, dated as of September 21, 2016 by among Marriott International, Inc., Marriott
Worldwide Corporation and Marriott Rewards, LLC, and Marriott Vacations Worldwide Corporation and
Marriott Ownership Resorts, Inc., relating to the License, Services and Development Agreements, the Marriott
Rewards Affiliation Agreement and the Non-Competition Agreement (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q filed on October 13 2016).†
License, Services, and Development Agreement, entered into on November 17, 2011, among The Ritz-Carlton
Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation and the other signatories thereto
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on
November 22, 2011).
Employee Benefits and Other Employment Matters Allocation Agreement, entered into on November 17, 2011,
between Marriott International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 22, 2011).
Tax Sharing and Indemnification Agreement, entered into on November 17, 2011, between Marriott
International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.4 to
the Company’s Current Report on Form 8-K filed on November 22, 2011).
Amendment, dated August 2, 2012, between Marriott International, Inc. and Marriott Vacations Worldwide
Corporation, to the Tax Sharing and Indemnification Agreement (incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q filed on October 18, 2012).
Marriott Rewards Affiliation Agreement, entered into on November 17, 2011, among Marriott International,
Inc., Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc.
and the other signatories thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report
on Form 8-K filed on November 22, 2011).
E-1
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Non-Competition Agreement, entered into on November 17, 2011, between Marriott International, Inc. and
Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K filed on November 22, 2011).
Omnibus Transition Services Agreement, entered into on November 17, 2011, between Marriott International,
Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K filed on November 22, 2011).
First Amendment to Services Exhibit, dated as of October 10, 2012, between Marriott International, Inc. and
Marriott Vacations Worldwide Corporation to the Omnibus Transition Services Agreement (incorporated by
reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on February 22, 2013).
Information Resources Transition Services Agreement, entered into on November 17, 2011, between Marriott
International, Inc. and Marriott Vacations Worldwide Corporation (incorporated by reference to Exhibit 10.10
to the Company’s Current Report on Form 8-K filed on November 22, 2011).
Marriott Vacations Worldwide Corporation Amended and Restated Stock and Cash Incentive Plan.*
Form of Restricted Stock Unit Agreement – Marriott Vacations Worldwide Corporation Stock and Cash
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on December 9, 2011).*
Form of Stock Appreciation Right Agreement – Marriott Vacations Worldwide Corporation Stock and Cash
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
on December 9, 2011).*
Form of Performance Unit Award Agreement – Marriott Vacations Worldwide Corporation Stock and Cash
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on March 16, 2012).*
Form of Non-Employee Director Share Award Confirmation (incorporated by reference to Exhibit 10.17 to the
Company’s Quarterly Report on Form 10-K filed on February 25, 2016).*
Form of Non-Employee Director Stock Appreciation Right Award Agreement (incorporated by reference to
Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed on March 21, 2012).*
Form of Director Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q filed on April 30, 2015).*
Marriott Vacations Worldwide Corporation Change in Control Severance Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 16, 2012).*
Form of Participation Agreement for Change in Control Severance Plan – Marriott Vacations Worldwide
Corporation Change in Control Severance Plan (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on March 16, 2012).*
Marriott Vacations Worldwide Corporation Deferred Compensation Plan (incorporated by reference to Exhibit
10.3 of the Company’s Current Report on Form 8-K filed on June 13, 2013).*
Marriott Vacations Worldwide Corporation Executive Long Term Disability Plan (incorporated by reference to
Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on February 26, 2015).*
Marriott Vacations Worldwide Corporation Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 11, 2015).*
Third Amended and Restated Indenture and Servicing Agreement, entered into September 15, 2014 and dated
as of September 1, 2014, among Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership
Resorts, Inc., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on September 16, 2014).
Indenture Supplement, dated June 24, 2015, among Marriott Vacations Worldwide Owner Trust 2011-1,
Marriott Ownership Resorts, Inc., and Wells Fargo Bank, National Association, Deutsche Bank AG, New York
Branch, and the Conduits, Alternate Purchasers, Funding Agents and Non-Conduit Committed Purchasers
signatory thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
filed on July 23, 2015).
E-2
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Second Amended and Restated Sale Agreement, entered into September 15, 2014 and dated as of September 1,
2014, between MORI SPC Series Corp. and Marriott Vacations Worldwide Owner Trust 2011-1 (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 16, 2014).
Omnibus Amendment No. 3, dated November 23, 2015, relating to, among other agreements, the Third
Amended and Restated Indenture and the Second Amended and Restated Sale Agreement, by and among
Marriott Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank,
National Association, MORI SPC Series Corp., Marriott Vacation Worldwide Corporation, the Purchasers
signatory thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO
Series LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
November 25, 2015).
Omnibus Amendment No. 4, dated May 20, 2016, relating to, among other agreements, the Third Amended
and Restated Indenture and the Second Amended and Restated Sale Agreement, by and among Marriott
Vacations Worldwide Owner Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National
Association, MORI SPC Series Corp., Marriott Vacation Worldwide Corporation, the Purchasers signatory
thereto, Deutsche Bank AG, New York Branch, Wilmington Trust, National Association, and MVCO Series
LLC (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on July
21, 2016).
Indenture Supplement, dated June 16, 2016, by and among Marriott Vacations Worldwide Owner Trust 2011-1,
as issuer, Marriott Ownership Resorts, Inc., Wells Fargo Bank, National Association, Deutsche Bank AG, New
York Branch, and the Conduits, Alternate Purchasers, Funding Agents and Non-Conduit Committed Purchasers
signatory thereto (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed on July 21, 2016).
Second Amendment and Restatement Agreement, dated as of September 10, 2014, among Marriott Vacations
Worldwide Corporation, Marriott Ownership Resorts, Inc., certain subsidiaries of Marriott Vacations
Worldwide Corporation, JPMorgan Chase Bank, N.A., and the several banks and other financial institutions or
entities from time to time parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on September 11, 2014).
Second Amended and Restated Credit Agreement, dated as of September 10, 2014, among Marriott Vacations
Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other financial institutions or
entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of
America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and Bank of America, N.A. and
Deutsche Bank Securities Inc., as co-documentation agents (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on September 11, 2014).
First Amendment, dated as of June 26, 2015, to the Second Amended and Restated Credit Agreement, among
Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other
financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and
Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 23, 2015).
Second Amendment, dated as of April 1, 2016, to the Second Amended and Restated Credit Agreement, among
Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other
financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and
Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2016).
Third Amendment, dated as of December 8, 2016, to the Second Amended and Restated Credit Agreement,
among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and
other financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and
Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 9, 2016).
Fourth Amendment, dated as of February 22, 2017, to the Second Amended and Restated Credit Agreement,
among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and
other financial institutions or entities from time to time parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A. and Deutsche Bank Securities Inc., as co-syndication agents, and
Bank of America, N.A. and Deutsche Bank Securities Inc., as co-documentation agents.
E-3
10.38
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Second Amended and Restated Guarantee and Collateral Agreement, dated as of September 10, 2014, made by
Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and certain subsidiaries of
Marriott Vacations Worldwide Corporation in favor of JPMorgan Chase Bank, N.A., as administrative agent
for the banks and other financial institutions or entities from time to time parties to the Second Amended and
Restated Credit Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed on September 11, 2014).
Subsidiaries of Marriott Vacations Worldwide Corporation.
Consent of Ernst & Young LLP.
Powers of Attorney (included on the signature pages hereto).
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act
of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act
of 2002.
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Label Linkbase Document.
101.PRE XBRL Taxonomy Presentation Linkbase Document.
* Management contract or compensatory plan or arrangement.
†
Portions of this exhibit were granted confidential treatment by the Securities and Exchange Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted portions of this exhibit have been filed
with the Securities and Exchange Commission.
We have attached the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit
101 to this Annual Report: (i) Consolidated Statements of Income for the fiscal years ended December 30, 2016, January 1,
2016 and January 2, 2015; (ii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 30,
2016, January 1, 2016 and January 2, 2015; (iii) the Consolidated Balance Sheets at December 30, 2016 and January 1, 2016;
(iv) the Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2016, January 1, 2016 and January 2,
2015; and (v) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 30, 2016, January 1,
2016 and January 2, 2015.
E-4
INDEX TO FINANCIAL STATEMENTS
MARRIOTT VACATIONS WORLDWIDE CORPORATION
Audited Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-10
F-11
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Marriott Vacations Worldwide Corporation (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control
over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance
on the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S.
generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of
the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the
consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of the Company’s management and
directors; and (3) provide reasonable assurance on prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual consolidated financial statements, management has
undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 30,
2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).
Based on this assessment, management has concluded that, applying the COSO criteria, as of December 30, 2016, the
Company’s internal control over financial reporting was effective to provide reasonable assurance of the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated
financial statements included in this report, has issued a report on the effectiveness of the Company’s internal control over
financial reporting, a copy of which appears on the next page of this Annual Report on Form 10-K.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Marriott Vacations Worldwide Corporation:
We have audited Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of December
30, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), (“the COSO criteria”). Marriott Vacations Worldwide
Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Marriott Vacations Worldwide Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 30, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Marriott Vacations Worldwide Corporation as of December 30, 2016 and January 1,
2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each
of the three fiscal years in the period ended December 30, 2016 and our report dated February 23, 2017 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
Orlando, Florida
February 23, 2017
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Marriott Vacations Worldwide Corporation:
We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation as of
December 30, 2016 and January 1, 2016, and the related consolidated statements of income, comprehensive income,
shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 30, 2016. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Marriott Vacations Worldwide Corporation at December 30, 2016 and January 1, 2016 and the
consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 30,
2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of December 30, 2016, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
Orlando, Florida
February 23, 2017
F-4
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 2016, 2015 and 2014
(In thousands, except per share amounts)
2016
2015
2014
REVENUES
Sale of vacation ownership products. . . . . . . . . . . . . . . . . . .
$
637,503
$
675,329
$
Resort management and other services . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . .
EXPENSES
Cost of vacation ownership products . . . . . . . . . . . . . . . . . .
Marketing and sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational and separation related . . . . . . . . . . . . . . . . . .
Consumer financing interest . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . .
Gains and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing basic earnings per share . . . . . . . . . . . .
Diluted earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing diluted earnings per share . . . . . . . . . . .
Dividends declared per share of common stock . . . . . . . . . . . . . . .
$
$
$
$
303,570
126,126
312,071
431,965
295,547
124,033
312,997
405,875
647,488
278,517
128,909
264,307
396,795
1,811,235
1,813,781
1,716,016
155,093
353,295
174,311
21,380
260,752
104,833
(303)
—
23,685
60,953
—
431,965
1,585,964
11,201
(8,912)
(4,632)
222,928
(85,580)
137,348
4.93
27,882
4.83
28,422
1.25
$
$
$
$
204,299
330,599
180,072
24,194
259,729
106,104
(232)
1,174
24,658
58,982
324
405,875
1,595,778
9,557
(12,810)
(8,253)
206,497
(83,698)
122,799
3.90
31,487
3.82
32,168
1.05
$
$
$
$
196,444
315,410
177,138
24,148
237,920
100,916
19,494
3,438
26,464
59,970
1,381
396,795
1,559,518
5,171
(11,692)
614
150,591
(69,835)
80,756
2.40
33,665
2.33
34,635
0.25
See Notes to Consolidated Financial Statements
F-5
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2016, 2015 and 2014
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax:
Foreign currency translation adjustments. . . . . . . . . . . . . . .
Derivative instrument adjustment. . . . . . . . . . . . . . . . . . . . .
Total other comprehensive loss, net of tax. . . . . . . . . . . . . . . . . . .
COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
2014
137,348
$
122,799
$
80,756
(5,589)
(332)
(5,921)
131,427
$
(5,673)
—
(5,673)
117,126
$
(6,005)
—
(6,005)
74,751
See Notes to Consolidated Financial Statements
F-6
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
Fiscal Year-End 2016 and 2015
(In thousands, except share and per share data)
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
147,102
$
Restricted cash (including $27,525 and $26,884 from VIEs, respectively) . . . . . . . . . . .
66,000
177,061
71,451
2016
2015
Accounts and contracts receivable, net (including $4,865 and $4,893 from VIEs,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vacation ownership notes receivable, net (including $717,543 and $669,179 from
VIEs, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (including $584 and $669 from VIEs, respectively) . . . . . . . . . . . . .
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll and benefits liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatorily redeemable preferred stock of consolidated subsidiary, net. . . . . . . . . . . . .
Debt, net (including $738,362 and $684,604 from VIEs, respectively) . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
161,733
131,850
$
$
972,311
712,536
202,802
128,935
2,391,419
124,439
55,542
147,469
95,495
95,516
62,874
—
737,224
15,873
149,168
920,631
669,243
288,803
140,679
2,399,718
139,120
49,128
163,632
78,196
104,331
51,031
38,989
678,793
11,155
109,076
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,483,600
1,423,451
Contingencies and Commitments (Note 9)
Preferred stock — $.01 par value; 2,000,000 shares authorized; none issued or
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock — $.01 par value; 100,000,000 shares authorized; 36,633,868 and
36,393,800 shares issued, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock — at cost; 9,643,562 and 6,844,256 shares, respectively. . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
366
(606,631)
1,162,283
5,460
346,341
907,819
364
(429,990)
1,150,731
11,381
243,781
976,267
Total Liabilities and Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,391,419
$
2,399,718
The abbreviation VIEs above means Variable Interest Entities.
See Notes to Consolidated Financial Statements
F-7
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2016, 2015 and 2014
(In thousands)
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
137,348
$
122,799
$
80,756
Adjustments to reconcile net income to net cash provided by operating activities:
2016
2015
2014
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in assets and liabilities:
Accounts and contracts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of operating properties for future conversion to inventory . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, advance deposits and accrued liabilities . . . . . . . . . . . . . .
Liability for Marriott Rewards customer loyalty program . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll and benefit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,044
6,509
47,292
13,949
1,317
(11,201)
(303)
38,834
—
(30,055)
(356,859)
253,622
4,301
—
11,092
(19,905)
(37)
17,664
(6,933)
11,843
1,863
(1,213)
22,217
5,586
33,083
14,142
560
(9,557)
(262)
28,162
324
(24,189)
(311,195)
270,170
72,158
(61,554)
(10,648)
23,461
(89,251)
(5,289)
11,380
9,354
2,974
4,609
18,682
5,462
30,534
13,376
—
(5,171)
23,778
18,876
1,381
(1,143)
(267,917)
287,240
82,690
—
8,659
(17,865)
(25,022)
24,656
8,973
4,568
(2,055)
953
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
140,172
109,034
291,411
INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory) . . . . . . .
Purchase of operating property to be sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . .
FINANCING ACTIVITIES
Borrowings from securitization transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt related to securitization transactions . . . . . . . . . . . . . . . . . . .
Borrowings from Revolving Corporate Credit Facility . . . . . . . . . . . . . . . . . . . .
Repayment of Revolving Corporate Credit Facility . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from vacation ownership inventory arrangement . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of mandatorily redeemable preferred stock of consolidated
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-8
(34,770)
—
4,838
68,953
39,021
376,622
(322,864)
85,000
(85,000)
—
(4,065)
(177,830)
(40,000)
(34,195)
7
(35,735)
(47,658)
37,681
20,644
(25,068)
(15,202)
—
(24,019)
82,347
43,126
255,000
(278,427)
262,638
(228,870)
—
—
5,375
(5,335)
(201,380)
—
(23,793)
97
—
—
—
(6,498)
(203,596)
—
(8,179)
2,977
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . . .
Payment of withholding taxes on vesting of restricted stock units. . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in exchange rates on cash and cash equivalents. . . . . . . . . . . .
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, beginning of year . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Non-cash transfer from Inventory to Property and equipment . . . . . . . . . . . . . . .
Non-cash impact on Additional paid-in capital for changes in Deferred tax
liabilities distributed to Marriott Vacations Worldwide at Spin-Off. . . . . . . . . . .
Non-cash issuance of note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash issuance of treasury stock for employee stock purchase plan . . . . . . .
Non-cash transfer of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposition accruals not yet paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property acquired via capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash impact on Additional paid-in capital to correct an immaterial error in
Deferred revenue at Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,207
(4,021)
187
(204,952)
(4,200)
(29,959)
177,061
9,380
(10,894)
230
(249,747)
(3,673)
(169,454)
346,515
147,102
$
177,061
$
4,519
(8,077)
(564)
(185,650)
(1,883)
147,004
199,511
346,515
9,741
$
30,985
$
—
—
—
(1,317)
2,985
(9,480)
2,229
7,221
—
(9)
(500)
(560)
—
(8,898)
—
—
—
(3,870)
—
—
—
—
—
—
(1,156)
See Notes to Consolidated Financial Statements
F-9
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Fiscal Years 2016, 2015 and 2014
(In thousands)
Common
Shares
Outstanding
Common
Stock
Treasury
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total Equity
Balance at year-end 2013. . . . . . . .
35,133
$
356
$
(25,633) $
1,129,800
$
23,059
$
81,155
$
1,208,737
Net income . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . . .
Amounts related to share-based
compensation . . . . . . . . . . . . . . . . .
Adjustment to reclassification of
Marriott International investment
to Additional paid-in capital(1) . . . .
Adjustment to Additional paid-in
capital(2) . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . .
Dividends . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2014. . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . . .
Amounts related to share-based
compensation . . . . . . . . . . . . . . . . .
Adjustment to reclassification of
Marriott International investment
to Additional paid-in capital. . . . . .
Repurchase of common stock . . . .
Dividends . . . . . . . . . . . . . . . . . . . .
Employee stock plan issuance . . . .
Balance at year-end 2015. . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . . .
Derivative instrument
adjustment . . . . . . . . . . . . . . . . . . .
Amounts related to share-based
compensation . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . .
Dividends . . . . . . . . . . . . . . . . . . . .
Employee stock plan issuance . . . .
Balance at year-end 2016. . . . . . . .
—
—
452
—
—
(3,492)
—
32,093
—
—
304
—
(2,857)
—
10
—
—
5
—
—
—
—
—
—
—
—
—
(203,596)
—
—
—
13,024
(3,883)
(1,156)
—
—
361
(229,229)
1,137,785
—
—
3
—
—
—
—
—
—
—
—
(201,380)
—
619
—
—
12,955
(9)
—
—
—
29,550
364
(429,990)
1,150,731
—
—
—
240
(2,819)
—
19
—
—
—
2
—
—
—
—
—
—
—
(177,830)
—
1,189
—
—
—
11,424
—
—
128
—
80,756
(6,005)
—
—
—
—
—
17,054
—
(5,673)
—
—
—
—
—
11,381
—
(5,589)
(332)
—
—
—
—
—
—
—
—
—
(8,179)
153,732
122,799
—
—
—
—
(32,691)
(59)
243,781
137,348
—
—
—
—
(34,788)
—
80,756
(6,005)
13,029
(3,883)
(1,156)
(203,596)
(8,179)
1,079,703
122,799
(5,673)
12,958
(9)
(201,380)
(32,691)
560
976,267
137,348
(5,589)
(332)
11,426
(177,830)
(34,788)
1,317
26,990
$
366
$
(606,631) $
1,162,283
$
5,460
$
346,341
$
907,819
_________________________
(1)
Consists of an adjustment to Deferred tax liabilities for changes in the valuation of Marriott Vacations Worldwide at the time of the Spin-Off.
(2)
Consists of an adjustment to correct an immaterial error in Deferred revenue at the time of the Spin-Off.
See Notes to Consolidated Financial Statements
F-10
MARRIOTT VACATIONS WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our Business
Marriott Vacations Worldwide Corporation (“Marriott Vacations Worldwide,” “we” or “us,” which includes our
consolidated subsidiaries except where the context of the reference is to a single corporate entity) is the exclusive worldwide
developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and
Grand Residences by Marriott brands. In 2016, we introduced Marriott Vacation Club Pulse, an extension to the Marriott
Vacation Club brand. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related
products under The Ritz-Carlton Destination Club brand, and we have the non-exclusive right to develop, market and sell
whole ownership residential products under The Ritz-Carlton Residences brand. The Ritz-Carlton Hotel Company, L.L.C.
(“The Ritz-Carlton Hotel Company”), a subsidiary of Marriott International, Inc. (“Marriott International”), provides on-site
management for Ritz-Carlton branded properties.
Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of December 30,
2016, our portfolio consisted of over 60 properties in the United States and eight other countries and territories. We generate
most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing
consumer purchases of vacation ownership products; and renting vacation ownership inventory.
Our Spin-Off from Marriott International, Inc.
On November 21, 2011, the spin-off of Marriott Vacations Worldwide from Marriott International (the “Spin-Off”)
was completed pursuant to a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) between
Marriott Vacations Worldwide and Marriott International. In connection with the Spin-Off, we entered into several agreements
that govern the ongoing relationship between Marriott Vacations Worldwide and Marriott International.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements presented herein and discussed below include 100 percent of the assets,
liabilities, revenues, expenses and cash flows of Marriott Vacations Worldwide, all entities in which Marriott Vacations
Worldwide has a controlling voting interest (“subsidiaries”), and those variable interest entities for which Marriott Vacations
Worldwide is the primary beneficiary in accordance with consolidation accounting guidance. Intercompany accounts and
transactions between consolidated companies have been eliminated in consolidation. The consolidated financial statements
reflect our financial position, results of operations and cash flows as prepared in conformity with United States Generally
Accepted Accounting Principles (“GAAP”).
In order to make these Financial Statements easier to read, we refer throughout to (i) our Consolidated Financial
Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Statements of Income,” (iii) our
Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Cash
Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to
Consolidated Financial Statements, unless otherwise noted.
Unless otherwise specified, each reference to a particular year in these Financial Statements means the fiscal year
ended on the date shown in the following table, rather than the corresponding calendar year. The fiscal years in the following
table included 52 weeks. Beginning in 2017, our fiscal year will be the same as the corresponding calendar year, except that the
2017 fiscal year will begin on December 31, 2016 and end on December 31, 2017.
Fiscal Year
2016
2015
2014
Fiscal Year-End Date
December 30, 2016
January 1, 2016
January 2, 2015
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are
not limited to, revenue recognition, cost of vacation ownership products, inventory valuation, property and equipment
valuation, loan loss reserves, income taxes and loss contingencies. Accordingly, actual amounts may differ from these estimated
amounts.
We have reclassified certain prior year amounts to conform to our 2016 presentation.
F-11
Our Financial Statements include adjustments for fiscal years 2015 and 2014 to correct immaterial presentation errors
within the following line items on our Statements of Income: Resort management and other services revenues, Resort
management and other services expenses and General and administrative expenses. Correction of these immaterial errors had
no impact on our consolidated Net income.
The impact of these adjustments on the Financial Statements is as follows:
As Revised
Previous Filings
($ in thousands)
Resort management and other services . . . . .
TOTAL REVENUES. . . . . . . . . . . . . . .
Resort management and other services . . . . .
General and administrative . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . .
$
$
$
$
$
2015
295,547
1,813,781
180,072
106,104
1,595,778
$
$
$
$
$
2014
278,517
1,716,016
177,138
100,916
1,559,518
$
$
$
$
$
2015
312,229
1,830,463
199,895
102,963
1,612,460
$
$
$
$
$
2014
298,283
1,735,782
199,258
98,562
1,579,284
Revenue Recognition
Sale of Vacation Ownership Products
We market and sell real estate and in substance real estate in our three reportable segments. Real estate and in
substance real estate include deeded vacation ownership products, deeded beneficial interests, rights to use real estate, and
other interests in trusts that solely hold real estate and deeded whole ownership units in residential buildings. Within the North
America segment, we also market and sell residential units at certain properties on a limited basis.
Vacation ownership products may be sold for cash or we may provide financing. We are not providing financing on
sales of whole ownership products. Except for revenue from the sale of residential stand-alone structures, which we recognize
upon transfer of title to a third party, we recognize revenue under the percentage-of-completion method when all of the
following exist or are true: the customer has executed a binding sales contract, the statutory rescission period has expired (after
which time the purchasers are not entitled to a refund except for non-delivery by us), we have deemed the receivable collectible
and the remainder of our obligations are substantially completed. In addition, before we recognize any revenues, the purchaser
must have met the initial investment criteria and, as applicable, the continuing investment criteria. A purchaser has met the
initial investment criteria when we receive a minimum down payment. In accordance with the authoritative guidance for
accounting for real estate time-sharing transactions, we must also take into consideration the fair value of certain incentives
provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where we provide
financing to the purchaser, the purchaser must be obligated to remit monthly payments under financing contracts that represent
the purchaser’s continuing investment.
Resort Management and Other Services Revenues
Our resort management and other services revenues consist primarily of ancillary revenues and management fees.
Ancillary revenues consist of goods and services that are sold or provided by us at restaurants, golf courses and other retail and
service outlets located at developed resorts. We recognize ancillary revenue when goods have been provided and/or services
have been rendered.
We provide day-to-day-management services, including housekeeping services, operation of reservation systems,
maintenance and certain accounting and administrative services for property owners’ associations. We receive compensation for
these management services; this is typically based on either a percentage of the budgeted costs to operate the resorts or a fixed
fee arrangement. We recognize revenues when earned in accordance with the terms of the contract and record them as a
component of Resort management and other services revenues on our Statements of Income. Management fee revenues were
$83.3 million, $77.6 million and $73.9 million during 2016, 2015 and 2014, respectively.
Resort management and other services revenues include additional fees for services we provide to our property
owners’ associations, as well as annual fees, club dues, settlement fees from the sale of vacation ownership products, and
certain transaction-based fees from owners and other third parties, including external exchange service providers with which
we are associated. We recognize fee revenues when services have been rendered. Fee revenues included in Resort management
and other services revenues were $78.5 million in 2016, $67.2 million in 2015 and $77.8 million in 2014, as reflected on our
Statements of Income.
F-12
Financing Revenues
We offer consumer financing as an option to qualifying customers purchasing vacation ownership products, which is
collateralized by the underlying vacation ownership products. We recognize interest income on an accrual basis. The
contractual terms of the financing agreements require that the contractual level of annual principal payments be sufficient to
amortize the loan over a customary period for the vacation ownership product being financed, which is generally ten years.
Generally, payments commence under the financing contracts 30 to 60 days after closing. We record an estimate of
uncollectible amounts at the time of the sale with a charge to the provision for loan losses, which we classify as a reduction of
Sale of vacation ownership products on our Statements of Income. Revisions to estimates of uncollectible amounts also impact
the provision for loan losses and can increase or decrease revenue. We earn interest income from the financing arrangements on
the principal balance outstanding over the life of the arrangement and record that interest income in Financing revenues on our
Statements of Income.
Financing revenues include certain annual and transaction-based fees we charge to owners and other third parties for
services. We recognize fee revenues when services have been rendered. Fee revenues included in Financing revenues were $6.0
million in 2016, $6.0 million in 2015 and $6.4 million in 2014, as reflected on our Statements of Income.
Rental Revenues
We record rental revenues when occupancy has occurred or, in the case of unused prepaid rentals, upon forfeiture. We
also recognize rental revenue from the utilization of plus points under the Marriott Vacation Club Destinations ™ (“MVCD”)
program when those points are redeemed for rental stays at one of our resorts or in the Explorer Collection, or upon expiration
of the points.
Cost Reimbursements
Cost reimbursements include direct and indirect costs that property owners’ associations reimburse to us. In
accordance with the accounting guidance for “gross versus net” presentation, we record these revenues on a gross basis. We
recognize cost reimbursements when we incur the related reimbursable costs. These costs primarily consist of payroll and
payroll related expenses for management of the property owners’ associations and other services we provide where we are the
employer. Cost reimbursements consist of actual expenses with no added margin.
Inventory
Our inventory consists primarily of completed vacation ownership products, vacation ownership products under
construction and land held for future vacation ownership product development. We carry our inventory at the lower of (1) cost,
including costs of improvements and amenities incurred subsequent to acquisition, capitalized interest and real estate taxes plus
other costs incurred during construction, or (2) estimated fair value, less costs to sell, which can result in impairment charges
and/or recoveries of previous impairments.
We account for vacation ownership inventory and cost of vacation ownership products in accordance with the
authoritative guidance for accounting for real estate time-sharing transactions, which defines a specific application of the
relative sales value method for reducing vacation ownership inventory and recording cost of sales as described in our policy for
revenue recognition for vacation ownership products. Also, pursuant to the guidance for accounting for real estate time-sharing
transactions, we do not reduce inventory for cost of vacation ownership products related to anticipated credit losses
(accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable). These standards
provide for changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-
ups, which we refer to as product cost true-up activity, and are recorded in Cost of vacation ownership product expenses on the
Statements of Income to retrospectively adjust the margin previously recorded subject to those estimates. For 2016, 2015 and
2014, product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $14.8
million, $7.3 million and $6.5 million, respectively.
For residential real estate projects, we allocate costs to individual residences in the projects based on the relative
estimated sales value of each residence in accordance with ASC 970, “Real Estate—General,” which defines the accounting for
costs of real estate projects. Under this method, we reduce the allocated cost of a unit from inventory and recognize that cost as
cost of sales when we recognize the related sale. Changes in estimates within the relative sales value calculations for residential
products (similar to condominiums) are accounted for as prospective adjustments to cost of vacation ownership products.
Capitalization of Costs
We capitalize costs clearly associated with the acquisition of real estate when a transaction is accounted for as an asset
acquisition under Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”). Alternatively,
when acquired real estate constitutes a business under ASC 805, transaction costs are expensed as incurred. We capitalize
F-13
interest and certain salaries and related costs incurred in connection with the following: (1) development and construction of
sales centers; (2) internally developed software; and (3) development and construction projects for our real estate inventory. We
capitalize costs clearly associated with the development and construction of a real estate project when it is probable that we will
acquire a property. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize
interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are
underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are
suspended or when projects are considered substantially complete. Capitalized salaries and related costs totaled $6.1 million,
$7.1 million and $5.1 million for 2016, 2015 and 2014, respectively.
Defined Contribution Plan
We administer and maintain a defined contribution plan for the benefit of all employees meeting certain eligibility
requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary
deferrals by participating employees. We recognized compensation expense (net of cost reimbursements from property owners’
associations) for our participating employees totaling $8.0 million in 2016, $7.1 million in 2015 and $6.6 million in 2014.
Deferred Compensation Plan
Prior to the Spin-Off, certain members of our senior management had the opportunity to participate in the Marriott
International, Inc. Executive Deferred Compensation Plan (the “Marriott International EDC”), which Marriott International
maintains and administers. Under the Marriott International EDC, participating employees were able to defer payment and
income taxation of a portion of their salary and bonus. Participants also had the opportunity for long-term capital appreciation
by crediting their accounts with notional earnings (at a fixed annual rate of return of 4.5 percent for 2016 and 4.9 percent for
2015). Although additional discretionary contributions to the participants’ accounts under the Marriott International EDC may
be made, no additional discretionary contributions were made for our employees in 2016, 2015 and 2014. Subsequent to the
Spin-Off, we remain liable to reimburse Marriott International for distributions for participants that were employees of Marriott
Vacations Worldwide at the time of the Spin-Off including earnings thereon.
Since 2014, certain members of our senior management have had the opportunity to participate in the Marriott
Vacations Worldwide Deferred Compensation Plan (the “Deferred Compensation Plan”), which we maintain and administer.
Under the Deferred Compensation Plan, participating employees may defer payment and income taxation of a portion of their
salary and bonus. It also gives participants the opportunity for long-term capital appreciation by crediting their accounts with
notional earnings (at a fixed annual rate of return of 5.6 percent for both 2016 and 2015). We recognized compensation expense
(net of cost reimbursements from property owners’ associations) for discretionary contributions to the participants’ accounts
under the Deferred Compensation Plan totaling $1.3 million in 2016, $1.3 million in 2015 and $1.0 million in 2014.
Property and Equipment
Property and equipment includes our sales centers, golf courses, information technology and other assets used in the
normal course of business, as well as undeveloped and partially developed land parcels that are not part of an approved
development plan and do not meet the criteria to be classified as held for sale. We record property and equipment at cost,
including interest and real estate taxes incurred during active development. We capitalize the cost of improvements that extend
the useful life of property and equipment when incurred. These capitalized costs may include structural costs, equipment,
fixtures, floor and decorative items and signage. We expense all repair and maintenance costs as incurred. We compute
depreciation using the straight-line method over the estimated useful lives of the assets (three to forty years), and we amortize
leasehold improvements over the shorter of the asset life or lease term.
Guarantees
We record a liability for the fair value of a guarantee on the date we issue or modify the guarantee. The offsetting
entry depends on the circumstances in which the guarantee was issued. Funding under the guarantee reduces the recorded
liability. On a quarterly basis, we evaluate all material estimated liabilities based on the operating results and the terms of the
guarantee. If we conclude that it is probable that we will be required to fund a greater amount than previously estimated, we
will record a loss.
Cash and Cash Equivalents
We consider all highly liquid investments with an initial purchase maturity of three months or less at the date of
purchase to be cash equivalents.
F-14
Restricted Cash
Restricted cash primarily consists of cash held in a reserve account related to vacation ownership notes receivable
securitizations, cash collected for maintenance fees to be remitted to property owners’ associations, and deposits received,
primarily associated with vacation ownership products and residential sales that are held in escrow until the associated contract
has closed or the period in which it can be rescinded has passed, depending on legal requirements.
Accounts and Contracts Receivable
Accounts and contracts receivable are presented net of allowances of $0.8 million at December 30, 2016 and $0.6
million at January 1, 2016.
Loan Loss Reserves
We record an estimate of expected uncollectibility on all notes receivable from vacation ownership purchasers as a
reduction of revenues from the sale of vacation ownership products at the time we recognize profit on a vacation ownership
product sale. We fully reserve for all defaulted vacation ownership notes receivable in addition to recording a reserve on the
estimated uncollectible portion of the remaining vacation ownership notes receivable. For those vacation ownership notes
receivable that are not in default, we assess collectibility based on pools of vacation ownership notes receivable because we
hold large numbers of homogeneous vacation ownership notes receivable. We use the same criteria to estimate uncollectibility
for non-securitized vacation ownership notes receivable and securitized vacation ownership notes receivable because they
perform similarly. We estimate uncollectibility for each pool based on historical activity for similar vacation ownership notes
receivable.
Although we consider loans to owners to be past due if we do not receive payment within 30 days of the due date, we
suspend accrual of interest only on those loans that are over 90 days past due. We consider loans over 150 days past due to be
in default. We apply payments we receive for vacation ownership notes receivable on non-accrual status first to interest, then to
principal and any remainder to fees. We resume accruing interest when vacation ownership notes receivable are less than 90
days past due. We do not accept payments for vacation ownership notes receivable during the foreclosure process unless the
amount is sufficient to pay all past due principal, interest, fees and penalties owed and fully reinstate the note. We write off
uncollectible vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products
through the foreclosure or deed-in-lieu process or, in Europe or Asia Pacific, when revocation is complete. For both non-
securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.09 percent
and 6.92 percent as of December 30, 2016 and January 1, 2016, respectively. A 0.5 percentage point increase in the estimated
default rate would have resulted in an increase in our allowance for loan losses of $5.0 million and $4.7 million as of
December 30, 2016 and January 1, 2016, respectively.
For additional information on our vacation ownership notes receivable, including information on the related reserves,
see Footnote No. 3, “Vacation Ownership Notes Receivable.”
Costs Incurred to Sell Vacation Ownership Products
We charge the majority of marketing and sales costs we incur to sell vacation ownership products to expense when
incurred. Deferred marketing and selling expenses, which are direct marketing and selling costs related either to an unclosed
contract or a contract for which 100 percent of revenue has not yet been recognized, were $6.2 million at year-end 2016 and
$5.3 million at year-end 2015 and are included on the accompanying Balance Sheets in the Other caption within Assets.
Valuation of Property and Equipment
Property and equipment includes our sales centers, golf courses, operating properties, information technology and
other assets used in the normal course of business, as well as undeveloped and partially developed land parcels that are not part
of an approved development plan and do not meet the criteria to be classified as held for sale. We test long-lived asset groups
for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there
are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected
operating results, or significant negative industry or economic trends. We evaluate recoverability of an asset group by
comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If
the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the
excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used,
we depreciate the adjusted carrying amount of those assets over their remaining useful life.
F-15
Investments
We consolidate entities that we control. We account for investments in joint ventures which are not consolidated
variable interest entities using the equity method of accounting when we exercise significant influence over the venture. If we
do not exercise significant influence, we account for the investment using the cost method of accounting. We account for
investments in limited partnerships and limited liability companies using the equity method of accounting when we own more
than a minimal investment. Our ownership interest in these equity method investments generally varies from 34 percent to 50
percent.
Fair Value Measurements
We have few financial instruments that we must measure at fair value on a recurring basis. See Footnote No. 4,
“Financial Instruments,” for further information. We also apply the provisions of fair value measurement to various non-
recurring measurements for our financial and non-financial assets and liabilities.
The applicable accounting standards define fair value as the price that would be received upon selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure
fair value of our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability
to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or
liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect our assumptions about what factors market participants would use in
pricing the asset or liability. We develop these inputs based on the best information available, including our own data.
Derivative Instruments
From time to time, we may use derivative instruments to reduce market risk due to changes in interest rates and
currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of our $250
million non-recourse warehouse credit facility (the “Warehouse Credit Facility”). As of December 30, 2016, we were not party
to any material derivative instruments or hedges.
The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determines
how the change in fair value of the derivative instrument is recorded on our Financial Statements. A derivative qualifies for
hedge accounting if, at inception, we expect the derivative to be highly effective in offsetting the underlying hedged cash flows
or fair value and we fulfill the hedge documentation standards at the time we enter into the derivative contract. We designate a
hedge as a cash flow hedge, fair value hedge, or a net investment in non-U.S. operations hedge based on the exposure we are
hedging. The asset or liability value of the derivative will change in tandem with its fair value. For the effective portion of
qualifying hedges, we record changes in fair value in other comprehensive income (“OCI”). We release the derivative’s gain or
loss from OCI to match the timing of the underlying hedged items’ effect on earnings. As a matter of policy, we only enter into
hedging transactions that we believe will be highly effective at offsetting the underlying risk and do not use derivatives for
trading or speculative purposes.
Non-U.S. Operations
The U.S. dollar is the functional currency of our consolidated entities operating in the United States. The functional
currency for our consolidated entities operating outside of the United States is generally the currency of the economic
environment in which the entity primarily generates and expends cash. For consolidated entities whose functional currency is
not the U.S. dollar, we translate their financial statements into U.S. dollars. We translate assets and liabilities at the exchange
rate in effect as of the financial statement date and translate Statement of Income accounts using the weighted average
exchange rate for the period. We include translation adjustments from currency exchange and the effect of exchange rate
changes on intercompany transactions of a long-term investment nature as a separate component of equity. We report gains and
losses from currency exchange rate changes related to intercompany receivables and payables that are not of a long-term
investment nature, as well as gains and losses from non-U.S. currency transactions, currently in operating costs and expenses.
F-16
Loss Contingencies
We are subject to various legal proceedings and claims in the normal course of business, the outcomes of which are
subject to significant uncertainty. We record an accrual for loss contingencies when we determine that it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations we evaluate,
among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been
incurred, our ability to make a reasonable estimate of the loss. We review these accruals each reporting period and make
revisions based on changes in facts and circumstances.
Share-Based Compensation Costs
We established the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “Stock Plan”) in
order to compensate our employees and directors by granting them equity awards such as restricted stock units (“RSUs”), stock
appreciation rights (“SARs”) and stock options.
We follow the provisions of ASC 718, “Compensation—Stock Compensation,” which requires that a company
measure the expense of employee services received in exchange for an award of equity instruments based on the grant-date fair
value of the award. Generally, share-based awards granted to our employees, other than RSUs with performance vesting
conditions, vest ratably over a four-year period. For share-based awards with service-only vesting conditions, we record
compensation expense on a straight-line basis over the requisite service period. For RSUs with performance vesting conditions,
the number of RSUs earned, if any, is determined following the end of a three-year performance period based upon the
cumulative achievement over that period of specific quantitative operating financial measures and we recognize compensation
expense once it is probable that the corresponding performance condition will be achieved.
SARs awarded under the Stock Plan are granted at exercise prices or strike prices equal to the market price of our
common stock on the date of grant (this price is referred to as the “base value”). SARs generally expire ten years after the date
of grant and both vest and become exercisable in cumulative installments of one quarter of the grant at the end of each of the
first four years following the date of grant. Upon exercise of SARs, our employees and non-employee directors receive a
number of shares of our common stock equal to the number of SARs being exercised, multiplied by the quotient of (a) the
market price of the common stock on the date of exercise (this price is referred to as the “final value”) minus the base value,
divided by (b) the final value.
We recognize the expense associated with these awards on our Statements of Income based on the fair value of the
awards as of the date that the share-based awards are granted and adjust that expense to the estimated number of awards that we
expect will vest or be earned. The fair value of RSUs represents the number of awards granted multiplied by the average of the
high and low market price of our common stock on the date the awards are granted reduced by the present value of the
dividends expected to be paid on the shares during the vesting period, discounted at a risk-free interest rate. We generally
determine the fair value of SARs using the Black-Scholes option valuation model which incorporates assumptions about
expected volatility, risk free interest rate, dividend yield and expected term. We will issue shares from authorized shares upon
the exercise of SARs or stock options held by our employees and directors.
For share-based awards granted to non-employee directors, we recognize compensation expense on the grant date
based on the fair value of the awards as of that date. See Footnote No. 13, “Share-Based Compensation,” for more information.
Advertising Costs
We expensed advertising costs as incurred of $1.1 million, $2.1 million and $2.0 million in 2016, 2015 and 2014,
respectively. These costs are included in the Marketing and sales expense caption on our Statements of Income.
Income Taxes
We file income tax returns, including with respect to our subsidiaries, in various jurisdictions around the world. We
account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the
enactment date.
Changes in existing tax laws and rates, their related interpretations, and the uncertainty generated by the current
economic environment may affect the amounts of deferred tax liabilities or the valuations of deferred tax assets over time. Our
accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately
reflected in the accounting estimates.
F-17
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making
such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event we
determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the deferred tax asset valuation allowance, which impacts the provision for income taxes.
For tax positions we have taken, or expect to take, in a tax return we apply a more likely than not threshold, under
which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by
the appropriate taxing authority that has full knowledge of all relevant information, in order to continue to recognize the
benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying
the more likely than not threshold.
For information about income taxes and deferred tax assets and liabilities, see Footnote No. 2, “Income Taxes.”
Earnings Per Common Share
Basic earnings per common share is calculated by dividing the earnings available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated to
give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of
outstanding equity-based compensation awards is reflected in diluted earnings per common share by application of the treasury
stock methods.
New Accounting Standards
Accounting Standards Update No. 2017-01 - “Business Combinations (Topic 805): Clarifying the Definition of a
Business” (“ASU 2017-01”)
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2017-01, which revises the definition of a business to assist entities with evaluating when a set of transferred assets and
activities constitutes a business. Under ASU 2017-01, if substantially all of the fair value of the gross assets acquired is
concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is
not a business. Determining whether a set of transferred assets is a business is critical because the accounting for a business
combination differs significantly from that of an asset acquisition. In addition, the definition of a business also affects the
accounting for dispositions and the identification of reporting units. It also may affect how an entity applies consolidation
guidance. The update is effective for public companies for annual periods beginning after December 15, 2017, and for interim
periods within those years, with early adoption permitted. Our early adoption of ASU 2017-01 in the fourth quarter of 2016 did
not have an impact on our financial statements or disclosures. We expect that new guidance will likely result in more of our real
estate acquisitions being accounted for as asset acquisitions, with related transaction costs capitalized, rather than business
combinations.
Accounting Standards Update No. 2016-17 - “Consolidation (Topic 810): Interests Held through Related Parties That
Are under Common Control” (“ASU 2016-17”)
In October 2016, the FASB issued ASU 2016-17, which updates Accounting Standards Update No. 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation Analysis.” Under the amendments, a single decision maker
evaluating whether it is the primary beneficiary of a variable interest entity will consider its indirect interests held by related
parties that are under common control on a proportionate basis. ASU 2016-17 is effective for annual periods beginning after
December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. Our early adoption of ASU
2016-17 in the fourth quarter of 2016 did not have an impact on our financial statements or disclosures.
Accounting Standards Update No. 2016-15 – “Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments” (“ASU 2016-15”)
In August 2016, the FASB issued ASU 2016-15, which clarifies the treatment of several cash flow categories. In
addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows
and cannot be separated, classification will depend on the predominant source or use. This update is effective for annual periods
beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including
adoption in an interim period. Our early adoption of ASU 2016-15 in the third quarter of 2016 did not have an impact on our
financial statements or disclosures.
F-18
Future Adoption of Accounting Standards
Accounting Standards Update No. 2016-18 - “Restricted Cash” (“ASU 2016-18”)
In November 2016, the FASB issued ASU 2016-18, which requires entities to show the changes in the total of cash,
cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, we will no longer
present changes in restricted cash as a component of investing activities. The update is effective for public companies for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years. We will adopt ASU 2016-18 on a
retrospective basis commencing in the first quarter of 2017.
Accounting Standards Update No. 2016-16 - “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory” (“ASU 2016-16”)
In October 2016, the FASB issued ASU 2016-16, which changes the timing of when certain intercompany transactions
are recognized within the provision for income taxes. The update is effective for public companies for annual periods beginning
after December 15, 2017, and for annual periods and interim periods thereafter with early adoption permitted. We are
evaluating the impact that ASU 2016-16, including the timing of implementation, will have on our financial statements and
disclosures.
Accounting Standards Update No. 2016-13 – “Financial Instruments – Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments” (“ASU 2016-13”)
In June 2016, the FASB issued ASU 2016-13, which replaces the incurred loss impairment methodology in current
GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with
more decision-useful information about the expected credit losses on financial instruments and other commitments to extend
credit held by a reporting entity at each reporting date. This update is effective for annual periods beginning after December 15,
2019, with early adoption permitted for annual periods beginning after December 15, 2018. We are evaluating the impact that
ASU 2016-13, including the timing of implementation, will have on our financial statements and disclosures.
Accounting Standards Update No. 2016-09 – “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”)
In March 2016, the FASB issued ASU 2016-09, which changes how entities account for certain aspects of share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and
classification on the statement of cash flows. The new guidance requires all income tax effects of awards, including excess tax
benefits, to be recorded as income tax expense (or benefit) in the income statement. The new guidance requires excess tax
benefits to be presented as an operating inflow rather than as a financing inflow in the statement of cash flows. Currently,
excess tax benefits are recorded in additional paid-in-capital in the balance sheet. The update is effective for annual periods
beginning after December 15, 2016 and interim periods within those annual periods. We expect to adopt ASU 2016-09 in the
first quarter of 2017. We expect the adoption of ASU 2016-09 to decrease our provision for income taxes, the amount of which
depends on the vesting activity of our share-based compensation awards in any given period, and to eliminate the presentation
of excess tax benefits as a financing inflow on our statement of cash flows. Further, we expect to make an accounting policy
election to account for forfeitures of share-based compensation awards as they occur. We do not expect the adoption of ASU
2016-09 to have any other material impacts on our financial statements and disclosures.
Accounting Standards Update No. 2016-02 – “Leases (Topic 842)” (“ASU 2016-02”)
In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability of information regarding
an entity’s leasing activities by providing additional information to users of financial statements. ASU 2016-02 amends the
existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets
and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for
all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. This
update is effective for annual periods beginning after December 15, 2018, with early adoption permitted. Although we expect to
adopt ASU 2016-02 commencing in fiscal year 2019, we continue to evaluate the impact that adoption of this accounting
standards update will have on our financial statements and disclosures.
Accounting Standards Update No. 2016-01 – “Financial Instruments – Overall (Subtopic 825-10)” (“ASU 2016-01”)
In January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. For public business entities, the amendments in ASU 2016-01 will be
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not
expect the adoption of ASU 2016-01 to have a material impact on our financial statements.
F-19
Accounting Standards Update No. 2014-09 – “Revenue from Contracts with Customers (Topic 606)” (“ASU
2014-09”), as Amended
In May 2014, the FASB issued ASU 2014-09, which, as amended, supersedes the revenue recognition requirements in
Topic 605, Revenue Recognition, as well as most industry-specific guidance, and significantly enhances comparability of
revenue recognition practices across entities and industries by providing a principle-based, comprehensive framework for
addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the
consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following
five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue
when (or as) the entity satisfies a performance obligation. ASU 2014-09, as amended, will be effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. The new standard may be applied retrospectively or on
a modified retrospective basis with the cumulative effect recognized on the date of adoption. Although we expect to adopt ASU
2014-09, as amended, commencing in fiscal year 2018, on a retrospective basis, we continue to evaluate the impact that
adoption of this accounting standards update will have on our financial statements and disclosures. We anticipate concluding
our preliminary assessment and providing detail on the impact of adoption of this accounting standard in the first half of 2017.
2. INCOME TAXES
We file income tax returns with U.S. federal and state and non-U.S. jurisdictions and are subject to audits in these
jurisdictions. Under the Tax Sharing and Indemnification Agreement with Marriott International, if any part of the Spin-Off
fails to qualify for the tax treatment stated in the ruling Marriott International received from the U.S. Internal Revenue Service
(the “IRS”) in connection with the Spin-Off, taxes imposed will be allocated between Marriott International and Marriott
Vacations Worldwide as set forth in the agreement, and each will indemnify and hold harmless the other from and against the
taxes so allocated.
The income (loss) before provision for income taxes by geographic region is as follows:
($ in thousands)
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
$
220,169
2,759
222,928
$
$
197,519
8,978
206,497
$
$
178,297
(27,706)
150,591
Our current tax provision does not reflect the benefits attributable to us for the exercise or vesting of employee share-
based awards of $1.2 million in 2016, $9.4 million in 2015 and $4.5 million in 2014.
Our provision for income taxes consists of:
($ in thousands)
Current – U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Non-U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred – U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Non-U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
$
(35,715) $
(4,926)
(4,902)
(45,543)
(38,332)
(3,432)
1,727
(40,037)
(85,580) $
(44,728) $
(4,027)
(6,953)
(55,708)
(25,350)
(4,554)
1,914
(27,990)
(83,698) $
(42,652)
(9,091)
95
(51,648)
(16,422)
1,294
(3,059)
(18,187)
(69,835)
The deferred tax assets and related valuation allowances in these Financial Statements have been determined on a
separate return basis. The assessment of the valuation allowances requires considerable judgment on the part of management
with respect to benefits that could be realized from future taxable income, as well as other positive and negative factors.
Valuation allowances are recorded against the deferred tax assets of certain foreign operations for which historical losses,
restructuring and impairment charges have been incurred. The change in the valuation allowances established were $1.5 million
in 2016, $(3.7) million in 2015 and $(6.7) million in 2014.
We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings
of non-U.S. subsidiaries ($169.8 million at December 30, 2016) because we consider these earnings to be permanently
invested. We do not consider previously taxed income to be permanently reinvested if such earnings can be distributed to a U.S.
F-20
entity without incurring additional U.S. tax. These earnings could become subject to additional taxes if remitted as dividends,
loaned to us or a U.S. affiliate or if we sold our interests in the affiliates. We cannot estimate the amount of additional taxes that
might be payable on the unremitted earnings.
We conduct business in countries that grant “holidays” from income taxes for ten to thirty year periods. These
holidays expire through 2034. Without these tax “holidays,” we would have incurred the following aggregate additional income
taxes: $0.5 million in 2016, $0.4 million in 2015 and $2.6 million in 2014.
Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited
in various jurisdictions for years 2011 through 2014. Although we do not anticipate that a significant impact to our
unrecognized tax benefit balance will occur during the next fiscal year, the amount of our liability for unrecognized tax benefits
could change as a result of audits in these jurisdictions.
Our total unrecognized tax benefit balance that, if recognized, would impact our effective tax rate was $1.5 million at
December 30, 2016, $2.4 million at January 1, 2016 and $1.1 million at January 2, 2015.
The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2014 to the
end of 2016:
($ in thousands)
Unrecognized tax benefit at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
Change attributable to tax positions taken during the current period . . .
Change attributable to tax positions taken during a prior period . . . . . . .
Unrecognized tax benefit at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
2014
2,378
801
(1,718)
1,461
$
$
1,123
979
276
2,378
$
$
473
—
650
1,123
In accordance with our accounting policies, we recognize accrued interest and penalties related to our unrecognized
tax benefits as a component of tax expense. Related interest expense and accrued interest expense totaled less than $0.1 million
in each of 2016, 2015 and 2014.
Deferred Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the
enacted tax rates we expect will be in effect when we actually pay or recover taxes. Deferred income tax assets represent
amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize
these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all
sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning
strategies, to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more
likely than not that a deferred tax asset will be realized.
Total deferred tax assets and liabilities at December 30, 2016 and January 1, 2016 were as follows:
($ in thousands)
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
At Year-End
2016
At Year-End
2015
$
192,954
(335,178)
(142,224) $
161,997
(265,197)
(103,200)
F-21
The tax effect of each type of temporary difference and carry-forward that gives rise to a significant portion of our
deferred tax assets and liabilities at December 30, 2016 and January 1, 2016 was as follows:
($ in thousands)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred sales of vacation ownership interests . . . . . . . . . . . .
Long lived intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
At Year-End
2016
At Year-End
2015
(24,986) $
38,677
(15,560)
(246,793)
31,464
49,205
21,345
52,263
(94,385)
(47,839)
(142,224) $
(25,671)
31,654
(7,246)
(185,980)
34,692
45,481
5,956
44,214
(56,900)
(46,300)
(103,200)
At December 30, 2016, we had approximately $48.4 million of foreign net operating losses (excluding valuation
allowances) some of which begin expiring in 2017. However, a significant portion of these tax net operating losses have an
indefinite carry forward period. We have no federal net operating losses and net operating losses of $0.8 million for state tax
purposes which begin expiring in 2032.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate
The following table reconciles the expense related to the U.S. statutory income tax rate to our effective income tax
rate:
U.S. statutory income tax rate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state income taxes, net of U.S. federal tax benefit . . . . . . . . . . . . . . . .
Permanent differences(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. income (loss)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective rate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
35.00%
2.47
1.03
0.34
(1.15)
0.70
38.39%
2015
35.00%
2.62
1.65
(0.61)
1.21
0.66
2014
35.00%
2.96
0.18
6.27
0.17
1.79
40.53%
46.37%
_________________________
(1)
Attributed to interest on mandatorily redeemable preferred stock of a consolidated subsidiary, partially offset by the
benefit of tax holidays in certain jurisdictions in 2014.
(2)
(3)
(4)
Attributed to the difference between U.S. and foreign income tax rates.
Attributed to the changes in unrecognized tax benefits in 2016, 2015 and 2014. 2016 also includes U.S. federal tax
incentives related to multiple years.
Attributed to establishment of valuation allowances in foreign jurisdictions for losses that cannot be benefited in the
U.S. income tax provision as discussed above.
Cash Taxes Paid
Cash taxes paid in 2016, 2015 and 2014 were $47.8 million, $50.2 million and $65.2 million, respectively.
F-22
3. VACATION OWNERSHIP NOTES RECEIVABLE
The following table shows the composition of our vacation ownership notes receivable balances, net of reserves:
($ in thousands)
Vacation ownership notes receivable — securitized. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vacation ownership notes receivable — non-securitized
At Year-End
2016
At Year-End
2015
$
717,543
$
669,179
Eligible for securitization(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Not eligible for securitization(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,508
156,260
254,768
Total vacation ownership notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
972,311
$
104,671
146,781
251,452
920,631
_________________________
(1)
Refer to Footnote No. 4, “Financial Instruments,” for discussion of eligibility of our vacation ownership notes
receivable for securitization.
The following tables show future principal payments, net of reserves, as well as interest rates for our non-securitized
and securitized vacation ownership notes receivable at December 30, 2016:
($ in thousands)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2016. . . . . . . . . . . . . . . . . . . . . . . . .
$
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
$
46,471
$
97,726
$
32,027
25,698
21,967
18,951
89,728
83,909
83,264
81,654
109,654
254,768
$
281,262
717,543
$
Total
144,197
121,755
109,607
105,231
100,605
390,916
972,311
Weighted average stated interest rate at year-end 2016. .
11.7%
12.7%
12.4%
Range of stated interest rates at year-end 2016 . . . . . . . .
0.0% to 19.5%
4.9% to 19.5%
0.0% to 19.5%
We reflect interest income associated with vacation ownership notes receivable in our Statements of Income in the
Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes
receivable:
($ in thousands)
Interest income associated with vacation ownership notes receivable –
securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income associated with vacation ownership notes receivable –
non-securitized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income associated with vacation ownership notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
96,606
$
89,693
$
91,790
23,507
28,327
30,761
$ 120,113
$ 118,020
$ 122,551
F-23
The following table summarizes the activity related to our vacation ownership notes receivable reserve for 2016, 2015
and 2014:
($ in thousands)
Balance at year-end 2013 . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . .
Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean-up calls(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defaulted vacation ownership notes receivable
repurchase activity(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2014 . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . .
Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean-up calls(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defaulted vacation ownership notes receivable
repurchase activity(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . .
Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean-up of Warehouse Credit Facility(3) . . . . . . . . . . . .
Write-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Securitized
Vacation Ownership
Notes Receivable
Reserve
Securitized
Vacation Ownership
Notes Receivable
Reserve
$
81,576
$
51,687
$
20,509
(19,507)
1,756
(44,931)
25,349
64,752
23,832
(16,491)
7,115
(48,220)
24,596
55,584
28,652
(28,322)
10,496
(40,033)
9,577
19,507
(1,756)
—
(25,349)
53,666
9,209
16,491
(7,115)
—
(24,596)
47,655
18,505
28,322
(10,496)
—
Defaulted vacation ownership notes receivable
repurchase activity(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2016 . . . . . . . . . . . . . . . . . . . . . . . .
$
30,251
56,628
$
(30,251)
53,735
$
Total
133,263
30,086
—
—
(44,931)
—
118,418
33,041
—
—
(48,220)
—
103,239
47,157
—
—
(40,033)
—
110,363
_________________________
(1)
Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable to
retire outstanding vacation ownership notes receivable securitizations.
(2)
(3)
Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation
ownership notes receivable reserve was attributable to the transfer of the reserve when we voluntarily repurchased
defaulted securitized vacation ownership notes receivable.
Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable from
our Warehouse Credit Facility.
The following table shows our recorded investment in non-accrual vacation ownership notes receivable, which are
vacation ownership notes receivable that are 90 days or more past due. As noted in Footnote No. 1, “Summary of Significant
Accounting Policies,” we recognize interest income on a cash basis for these vacation ownership notes receivable.
($ in thousands)
Investment in vacation ownership notes receivable
on non-accrual status at year-end 2016. . . . . . . . . .
Investment in vacation ownership notes receivable
on non-accrual status at year-end 2015. . . . . . . . . .
Average investment in vacation ownership notes
receivable on non-accrual status during 2016. . . . .
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
Total
$
$
$
43,792
46,024
44,908
$
$
$
6,687
8,717
7,702
$
$
$
50,479
54,741
52,610
F-24
The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership
notes receivable as of December 30, 2016:
($ in thousands)
31 – 90 days past due. . . . . . . . . . . . . . . . . . . . . . . . . .
91 – 150 days past due. . . . . . . . . . . . . . . . . . . . . . . . .
Greater than 150 days past due . . . . . . . . . . . . . . . . . .
Total past due. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total vacation ownership notes receivable . . . . . . . . .
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
$
$
7,780
3,981
39,811
51,572
259,824
311,396
$
$
16,468
6,687
—
23,155
748,123
771,278
$
$
Total
24,248
10,668
39,811
74,727
1,007,947
1,082,674
The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership
notes receivable as of January 1, 2016:
($ in thousands)
31 – 90 days past due. . . . . . . . . . . . . . . . . . . . . . . . . .
91 – 150 days past due. . . . . . . . . . . . . . . . . . . . . . . . .
Greater than 150 days past due . . . . . . . . . . . . . . . . . .
Total past due. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total vacation ownership notes receivable . . . . . . . . .
4. FINANCIAL INSTRUMENTS
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
$
$
9,981
4,731
41,293
56,005
251,031
307,036
$
$
21,113
8,590
127
29,830
687,004
716,834
$
$
Total
31,094
13,321
41,420
85,835
938,035
1,023,870
The following table shows the carrying values and the estimated fair values of financial assets and liabilities that
qualify as financial instruments, determined in accordance with the authoritative guidance for disclosures regarding the fair
value of financial instruments. Considerable judgment is required in interpreting market data to develop estimates of fair value.
The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair
value amounts. The table excludes Cash and cash equivalents, Restricted cash, Accounts and contracts receivable, Accounts
payable, Advance deposits and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the
short maturities and liquidity of these instruments.
($ in thousands)
Vacation ownership notes receivable
Securitized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt associated with vacation ownership notes
receivable securitizations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatorily redeemable preferred stock of consolidated
subsidiary, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2016
Fair
Value(1)
Carrying
Amount
At Year-End 2015
Fair
Value(1)
Carrying
Amount
$
$
717,543
$
834,009
254,768
269,161
972,311
$ 1,103,170
$
$
669,179
$
803,533
251,452
274,799
920,631
$ 1,078,332
$ (729,188) $ (725,963) $ (675,561) $ (677,595)
(3,496)
(3,232)
(815)
(815)
—
(2,285)
(42,258)
(4,515)
$ (732,288) $ (729,063) $ (722,297) $ (727,864)
(38,989)
(4,515)
—
(2,285)
_________________________
(1)
Fair value of financial instruments has been determined using Level 3 inputs.
See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for
additional information.
F-25
Vacation Ownership Notes Receivable
We estimate the fair value of our securitized vacation ownership notes receivable using a discounted cash flow model.
We believe this is comparable to the model that an independent third party would use in the current market. Our model uses
default rates, prepayment rates, coupon rates and loan terms for our securitized vacation ownership notes receivable portfolio as
key drivers of risk and relative value that, when applied in combination with pricing parameters, determine the fair value of the
underlying vacation ownership notes receivable.
Due to factors that impact the general marketability of our non-securitized vacation ownership notes receivable, as
well as current market conditions, we bifurcate our vacation ownership notes receivable at each balance sheet date into those
eligible and not eligible for securitization using criteria applicable to current securitization transactions in the asset-backed
securities (“ABS”) market. Generally, vacation ownership notes receivable are considered not eligible for securitization if any
of the following attributes are present: (1) payments are greater than 30 days past due; (2) the first payment has not been
received; or (3) the collateral is located in Europe or Asia. In some cases eligibility may also be determined based on the credit
score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a
securitization transaction or the cost to effectively securitize the vacation ownership notes receivable.
The following table shows the bifurcation of our non-securitized vacation ownership notes receivable into those
eligible and not eligible for securitization based upon the aforementioned eligibility criteria:
($ in thousands)
Vacation ownership notes receivable
At Year-End 2016
Fair
Value
Carrying
Amount
At Year-End 2015
Fair
Value
Carrying
Amount
Eligible for securitization . . . . . . . . . . . . . . . . . . . . . . . . .
Not eligible for securitization. . . . . . . . . . . . . . . . . . . . . .
Total non-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
98,508
156,260
254,768
$
$
112,901
156,260
269,161
$
$
104,671
146,781
251,452
$
$
128,018
146,781
274,799
We estimate the fair value of the portion of our non-securitized vacation ownership notes receivable that we believe
will ultimately be securitized in the same manner as securitized vacation ownership notes receivable. We value the remaining
non-securitized vacation ownership notes receivable at their carrying value, rather than using our pricing model. We believe
that the carrying value of these particular vacation ownership notes receivable approximates fair value because the stated
interest rates of these loans are consistent with current market rates and the reserve for these vacation ownership notes
receivable appropriately accounts for risks in default rates, prepayment rates, discount rates and loan terms.
Non-Recourse Debt Associated with Securitized Vacation Ownership Notes Receivable, Net
We generate cash flow estimates by modeling all bond tranches for our active vacation ownership notes receivable
securitization transactions, with consideration for the collateral specific to each tranche. The key drivers in our analysis include
default rates, prepayment rates, bond interest rates and other structural factors, which we use to estimate the projected cash
flows. In order to estimate market credit spreads by rating, we obtain indicative credit spreads from investment banks that
actively issue and facilitate the market for vacation ownership securities and determine an average credit spread by rating level
of the different tranches. We then apply those estimated market spreads to swap rates in order to estimate an underlying
discount rate for calculating the fair value of the active bonds payable.
Mandatorily Redeemable Preferred Stock of Consolidated Subsidiary, Net
We historically estimated the fair value of the mandatorily redeemable preferred stock of our consolidated subsidiary
using a discounted cash flow model. We believe this is comparable to the model that an independent third party would have
used in the then current market. Our model included an assessment of our subsidiary’s credit risk and the instrument’s
contractual dividend rate.
F-26
5. ACQUISITIONS AND DISPOSITIONS
2016 Acquisitions
Miami Beach, Florida
During the first quarter of 2016, we completed the acquisition of an operating property located in the South Beach area
of Miami Beach, Florida, for $23.5 million. The acquisition was treated as a business combination, accounted for using the
acquisition method of accounting and included within Operating activities on our Cash Flows and presented as Inventory. As
consideration for the acquisition, we paid $23.5 million in cash; the value of the acquired property was allocated to inventory.
We rebranded this property as Marriott Vacation Club Pulse, South Beach and intend to convert this property, in its entirety,
into vacation ownership interests for future use in our MVCD program.
2016 Dispositions
San Francisco, California
During the second quarter of 2016, we disposed of 19 residential units, located at The Ritz-Carlton Club and
Residences, San Francisco (the “RCC San Francisco”), for gross cash proceeds of $19.5 million. We accounted for the sale
under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a
gain of $10.5 million in the Gains and other income line on our Statements of Income for the year ended December 30, 2016.
2016 Disposition / 2015 Acquisition
Surfers Paradise, Australia
During the third quarter of 2015, we completed the acquisition of an operating property located in Surfers Paradise,
Australia, for AUD $84.5 million ($62.3 million). The acquisition was treated as a business combination and accounted for
using the acquisition method of accounting. As such, all transaction costs were expensed as incurred and were included in the
“Other” line of our statements of income. As consideration for the acquisition, we paid AUD $82.6 million ($61.0 million) in
cash and assumed net liabilities of AUD $1.9 million ($1.3 million), which was allocated based on the fair value at the date of
acquisition as follows: AUD $28.9 million ($21.3 million) to land, AUD $49.5 million ($36.5 million) to buildings and
leasehold improvements and AUD $6.1 million ($4.5 million) to furniture and equipment. Fair value was determined using an
independent appraisal, which was primarily based on a discounted cash flow model, a Level 3 fair value input. At the time of
the acquisition we determined that we would convert a portion of this operating property into vacation ownership interests for
future use in our Asia Pacific segment; the related portion of the purchase price was classified as an operating activity on our
Cash Flows for the year ended January 1, 2016. Additionally, we intended to sell the remaining downsized portion of the
operating property to a third party; the related portion of the purchase price was classified as an investing activity on our Cash
Flows for the year ended January 1, 2016.
During the second quarter of 2016, we disposed of the remaining downsized portion of this operating property that we
did not intend to convert into vacation ownership inventory for gross cash proceeds of AUD $70.5 million ($50.9 million). We
accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of
real estate. As part of the disposition, we guaranteed the net operating income of this portion of the operating property through
2021 up to a specified maximum of AUD $2.9 million ($2.1 million), which was recorded as a deferred gain in the Other line
within liabilities on our balance sheet. We recognized a loss, inclusive of the deferred gain, of AUD $1.2 million ($0.9 million)
in connection with the sale, which was recorded in the Gains and other income line on the Statement of Income for the year
ended December 30, 2016.
As of December 30, 2016, we have completed the conversion of the portion of this operating property that we
intended to convert into vacation ownership inventory at the time of the acquisition, a portion of which has been contributed to
our points-based programs in our Asia Pacific segment.
2015 Acquisitions
Washington, D.C.
During the third quarter of 2015, we completed the acquisition of 71 units at The Mayflower Hotel, Autograph
Collection, an operating hotel located in Washington, D.C., for $32.0 million. The asset acquisition was treated as a purchase of
inventory and we have included these vacation ownership units, in their current form, in our MVCD program.
F-27
San Diego, California
During the first quarter of 2015, we completed the acquisition of an operating property located in San Diego,
California, for $55.0 million. The acquisition was treated as a business combination and accounted for using the acquisition
method of accounting. As consideration for the acquisition, we paid $55.0 million in cash, which was allocated based on the
fair value at the date of acquisition as follows: $54.3 million to property and equipment and $0.7 million to other assets. Fair
value was determined using an independent appraisal, which was primarily based on a discounted cash flow model, a Level 3
fair value input. We rebranded this property as Marriott Vacation Club Pulse, San Diego and are in the process of converting
this property, in its entirety, into vacation ownership interests for future use in our MVCD program. In order to ensure
consistency with the expected related future cash flow presentation, $46.6 million of the cash purchase price allocated to
property and equipment was included as an operating activity in the Purchase of operating property for future conversion to
inventory line on our Cash Flows for the year ended January 1, 2016. The remaining $7.7 million was included as an investing
activity in the Capital expenditures for property and equipment line on our Cash Flows for the year ended January 1, 2016, as it
was allocated to assets to be used prior to conversion of the property into vacation ownership interests, as well as ancillary and
sales center assets to be retained after the conversion.
2015 Dispositions
Kauai, Hawaii
During the second quarter of 2014, we entered into a purchase and sale agreement to dispose of undeveloped and
partially developed land, an operating golf course and related assets, in Kauai, Hawaii (the “Kauai Property”) for $60.0 million
in gross cash proceeds. During the fourth quarter of 2014, pursuant to a subsequent modification to the purchase and sale
agreement, we completed the sale of a portion of the Kauai Property for gross cash proceeds of $40.0 million and the buyer
agreed to purchase the remaining portion of the Kauai Property for gross cash proceeds of $20.0 million no later than April 30,
2015, unless we and the buyer mutually agreed prior to March 31, 2015 to enter into an “alternative arrangement” regarding the
remaining portion of the Kauai Property. We accounted for the sale of the portion of the transaction closed in 2014 under the
full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of
$2.9 million, which is included in the Gains and other income line on the Statement of Income for the year ended January 2,
2015.
During the second quarter of 2015, we completed the sale of the remaining portion of the Kauai Property for gross
cash proceeds of $20.0 million. We accounted for the sale under the full accrual method in accordance with the authoritative
guidance on accounting for sales of real estate and recorded a gain of $8.7 million, which is included in the Gains and other
income line on our Statements of Income for the year ended January 1, 2016.
Marco Island, Florida
During the first quarter of 2015, we sold real property located in Marco Island, Florida, consisting of $3.1 million of
vacation ownership inventory, to a third-party developer. We received consideration consisting of $5.4 million of cash and a
note receivable of $0.5 million. We did not recognize any gain or loss on this transaction.
In accordance with our agreement with the third-party developer, we are obligated to repurchase the completed
property from the developer contingent upon the property meeting our brand standards, provided that the third-party developer
has not sold the property to another party. In accordance with the authoritative guidance on accounting for sales of real estate,
our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account
for this transaction as a sale. The property was sold to a variable interest entity for which we are not the primary beneficiary as
we do not control the variable interest entity’s development activities and cannot prevent the variable interest entity from
selling the property at a higher price. Accordingly, we have not consolidated the variable interest entity.
As of December 30, 2016, our Balance Sheet reflected $9.6 million of Other liabilities that relate to the deferral of
gain recognition for this transaction, which will reduce our basis in the asset if we repurchase the property. In addition, the note
receivable of $0.5 million and other receivables of $0.4 million are included in the Accounts and contracts receivable line on
the Balance Sheet as of December 30, 2016. The cash consideration received for the sale of the real property is included in
Proceeds from vacation ownership inventory arrangements on our Cash Flows for the year ended January 1, 2016. We believe
that our maximum exposure to loss as a result of our involvement with this variable interest entity is our interest in the note
receivable and the other receivables discussed above as of December 30, 2016.
F-28
Orlando, Florida
During the first quarter of 2014, we disposed of a golf course and adjacent undeveloped land in Orlando, Florida for
$24.0 million in gross cash proceeds. As a condition of the sale, we continued to operate the golf course through the end of the
first quarter of 2015 at our own risk. We utilized the performance of services method to record a gain of $3.1 million over the
period during which we operated the golf course, $0.9 million of which is included in the Gains and other income line on our
Statement of Income for the year ended January 1, 2016 and $2.2 million is included in the Gains and other income line on our
Statement of Income for the year ended January 2, 2015.
2014 Acquisitions
We made no significant acquisitions in 2014.
2014 Dispositions
The Abaco Club on Winding Bay, Bahamas
During the third quarter of 2014, we entered into a purchase and sale agreement to dispose of undeveloped and
partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club on Winding Bay
(“The Abaco Club”) in the Bahamas. During the fourth quarter of 2014, we completed the sale of The Abaco Club for gross
cash proceeds of $10.0 million. We accounted for the sale under the full accrual method in accordance with the authoritative
guidance on accounting for sales of real estate and recorded a non-cash loss of $23.8 million, which is included in the
Litigation settlement line on the Statement of Income for the year ended January 2, 2015.
Singer Island, Florida
During the second quarter of 2014, we completed the sale of a parcel of undeveloped land on Singer Island, Florida
for gross cash proceeds of $10.5 million. We accounted for the sale under the full accrual method in accordance with the
authoritative guidance on accounting for sales of real estate and recorded a gain of $0.3 million, which is included in the Gains
and other income line on the Statement of Income for the year ended January 2, 2015.
6. EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income attributable to common shareholders by the
weighted average number of shares of common stock outstanding during the reporting period. Treasury stock is excluded from
the weighted average number of shares of common stock outstanding. Diluted earnings per common share is calculated to give
effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of
outstanding equity-based compensation awards is reflected in diluted earnings per common share by application of the treasury
stock method using average market prices during the period.
The table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and
diluted earnings per share.
(in thousands, except per share amounts)
Computation of Basic Earnings Per Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding . . . . . . . .
Basic earnings per share. . . . . . . . . . . . . . . . . . .
Computation of Diluted Earnings Per Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding . . . . . . . .
Effect of dilutive shares outstanding
Employee stock options and SARs. . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . .
Shares for diluted earnings per share . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . .
$
$
$
$
2016(1)
2015(2)
2014(3)
137,348
27,882
4.93
137,348
27,882
367
173
28,422
4.83
$
$
$
$
122,799
31,487
3.90
122,799
31,487
446
235
32,168
3.82
$
$
$
$
80,756
33,665
2.40
80,756
33,665
543
427
34,635
2.33
_________________________
(1)
The computations of diluted earnings per share exclude approximately 217,000 shares of common stock, the
maximum number of shares issuable as of December 30, 2016 upon the vesting of certain performance-based awards,
F-29
(2)
(3)
because the performance conditions required for the shares subject to such awards to vest were not achieved by the
end of the reporting period.
The computations of diluted earnings per share exclude approximately 136,000 shares of common stock, the
maximum number of shares issuable as of January 1, 2016 upon the vesting of certain performance-based awards,
because the performance conditions required for the shares subject to such awards to vest were not achieved by the
end of the reporting period.
The computations of diluted earnings per share exclude approximately 134,000 shares of common stock, the
maximum number of shares issuable as of January 2, 2015 upon the vesting of certain performance-based awards,
because the performance conditions required for the shares subject to such awards to vest were not achieved by the
end of the reporting period.
In accordance with the applicable accounting guidance for calculating earnings per share, for the year ended
December 30, 2016, we excluded 62,018 shares underlying stock options or stock appreciation rights (“SARs”) that may be
settled in shares of common stock, with an exercise price of $77.42, from our calculation of diluted earnings per share because
this exercise price was greater than the average market price for the period.
For the year ended January 1, 2016, we excluded 62,018 shares underlying stock options or SARS that may be settled
in shares of common stock, with an exercise price of $77.42, from our calculation of diluted earnings per share because this
price was greater than the average market price for the period.
For the year ended January 2, 2015, we did not exclude any shares underlying stock options or SARs that may be
settled in shares of common stock from our calculation of diluted earnings per share as no exercise prices were greater than the
average market prices for the applicable period.
7. INVENTORY
The following table shows the composition of our inventory balances:
($ in thousands)
Finished goods(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and infrastructure(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating supplies and retail inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End
2016
At Year End
2015
$
$
337,949
39,486
330,728
708,163
4,373
712,536
$
$
332,888
—
331,042
663,930
5,313
669,243
_________________________
(1)
Represents completed inventory that is either registered for sale as vacation ownership interests, or unregistered and
available for sale in its current form.
(2)
Includes $70.0 million of inventory related to estimated future foreclosures at December 30, 2016.
We value vacation ownership and residential products at the lower of cost or fair market value less costs to sell, in
accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-
out method) or net realizable value. Interest capitalized as a cost of inventory totaled $1.3 million, $0.1 million and $2.8 million
in 2016, 2015 and 2014, respectively.
In 2016, $59.8 million was transferred from Property and equipment to Inventory when we commenced the
conversion of the operating property in San Diego, California and a portion of the operating property in Surfers Paradise,
Australia to vacation ownership inventory. The acquisition of these operating properties was previously included within
Operating Activities on our Cash Flows and presented as Purchase of operating properties for future conversion to inventory
within Operating Activities.
F-30
8. PROPERTY AND EQUIPMENT
The following table details the composition of our property and equipment balances:
($ in thousands)
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End
2016
At Year-End
2015
$
$
54,975
213,190
51,053
180,075
27,493
526,786
(323,984)
202,802
$
$
87,751
267,965
55,326
177,099
26,469
614,610
(325,807)
288,803
Interest capitalized as a cost of property and equipment totaled $0.2 million in 2016, $0.3 million in 2015 and $0.1
million in 2014. Depreciation expense totaled $21.0 million in 2016, $22.2 million in 2015 and $18.7 million in 2014.
Refer to Footnote No. 7, “Inventory,” for a discussion of Property and equipment transferred to Inventory as we
commenced the conversion of the operating property in San Diego, California and a portion of the operating property in Surfers
Paradise, Australia to vacation ownership inventory.
9. CONTINGENCIES AND COMMITMENTS
Guarantees
We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for
our sale of vacation ownership products for the North America and Asia Pacific segments. The terms of these guarantees
generally require us to fund if the purchaser fails to pay under the term of its note payable. We are entitled to recover any
payments we make to third-party lenders under these guarantees through reacquisition and resale of the financed vacation
ownership product. Our commitments under these guarantees expire as the underlying notes mature or are repaid. The terms of
the underlying notes extend to 2022. At December 30, 2016, the maximum potential amount of future fundings for financing
guarantees where we are the primary obligor was $5.7 million and the carrying amount of the liability for expected future
fundings, which is included in our Balance Sheet in the Other caption within Liabilities, was $0.1 million.
Commitments and Letters of Credit
In addition to the guarantees we describe in the preceding paragraph, as of December 30, 2016, we had the following
commitments outstanding:
• We have various contracts for the use of information technology hardware and software that we use in the normal
course of business. Our aggregate commitments under these contracts were $29.1 million, of which we expect $13.0
million, $8.7 million, $3.6 million, $1.6 million, $0.8 million and $1.4 million will be paid in 2017, 2018, 2019, 2020,
2021 and thereafter, respectively.
• We have commitments of $2.3 million to subsidize vacation ownership associations, which we expect to pay in 2017.
• We have a commitment to purchase an operating property located in New York, New York for $158.5 million, of
which $7.2 million is attributed to the capital lease arrangement and recorded in Debt. We expect to acquire the units
in the property, in their current form, over time, and we expect to make payments for these units of $96.8 million and
$61.7 million in 2018 and 2019, respectively. We currently manage this property, which we have rebranded as Marriott
Vacation Club Pulse, New York City. See Footnote No. 14, “Variable Interest Entities,” for additional information on
this transaction.
• We have commitments to purchase vacation ownership units located in two resorts in Bali, Indonesia in two separate
transactions, contingent upon completion of construction to agreed upon standards within specified timeframes, for
use in our Asia Pacific segment. We expect to complete the acquisition of 51 vacation ownership units in 2017
pursuant to one of the commitments, and to make remaining payments of $15.4 million in 2017 with respect to these
units, when specific construction milestones are completed. We expect to complete the acquisition of 88 vacation
ownership units in 2019 pursuant to the other commitment, and to make payments with respect to these units, when
specific construction milestones are completed, as follows: $7.8 million in 2017, $5.9 million in 2018 and $25.4
million in 2019.
F-31
• We have a commitment of $137.1 million to purchase vacation ownership units located in Marco Island, Florida, of
which we expect $33.3 million, $50.0 million and $53.8 million will be paid in 2017, 2018 and 2019, respectively. See
Footnote No. 5, “Acquisitions and Dispositions,” for additional information on this transaction.
• We have a commitment of $91.1 million to purchase vacation ownership units located on the Big Island of Hawaii,
contingent upon the completion of renovations to the vacation ownership units. We expect to acquire the completed
vacation ownership units in 2017 and to pay the purchase price as follows: $27.5 million in 2017, $32.7 million in
2018 and $30.9 million in 2019.
Surety bonds issued as of December 30, 2016 totaled $43.0 million, the majority of which were requested by federal,
state or local governments related to our operations.
Additionally, as of December 30, 2016, we had $3.3 million of letters of credit outstanding under our $200 million
revolving credit facility (as amended, the “Revolving Corporate Credit Facility”).
Loss Contingencies
In April 2013, Krishna and Sherrie Narayan and other owners of 12 residential units (owners of two of which
subsequently agreed to release their claims) at the resort formerly known as The Ritz-Carlton Residences, Kapalua Bay
(“Kapalua Bay”) filed an amended complaint in Circuit Court for Maui County, Hawaii against us, certain of our subsidiaries,
Marriott International, certain of its subsidiaries, and the joint venture in which we have an equity investment that developed
and marketed vacation ownership and residential products at Kapalua Bay (the “Joint Venture”). In the original complaint, the
plaintiffs alleged that defendants mismanaged funds of the residential owners association (the “Kapalua Bay Association”),
created a conflict of interest by permitting their employees to serve on the Kapalua Bay Association’s board, and failed to
disclose documents to which the plaintiffs were allegedly entitled. The amended complaint alleges breach of fiduciary duty,
violations of the Hawaii Unfair and Deceptive Trade Practices Act and the Hawaii condominium statute, intentional
misrepresentation and concealment, unjust enrichment and civil conspiracy. The relief sought in the amended complaint
includes injunctive relief, repayment of all sums paid to us and our subsidiaries and Marriott International and its subsidiaries,
compensatory and punitive damages, and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. We
dispute the material allegations in the amended complaint and continue to defend against the action vigorously. We filed a
motion in the Circuit Court to compel arbitration of plaintiffs’ claims. That motion was denied, but on appeal the Hawaii
Intermediate Court of Appeals reversed. The Hawaii Supreme Court reversed the decision of the Intermediate Court of Appeals
and reinstated the action in Circuit Court, which set the case for trial. We filed a petition with the United States Supreme Court
seeking review of the Hawaii Supreme Court’s decision. On January 11, 2016, the U.S. Supreme Court issued an order vacating
the Hawaii Supreme Court’s decision and remanding the case with instructions to reconsider its ruling in light of a recent U.S.
Supreme Court decision reiterating the obligation of courts to enforce arbitration agreements. The Circuit Court has stayed
proceedings pending action by the Hawaii Supreme Court. Given the inherent uncertainties of litigation, we cannot estimate a
range of the potential liability, if any, at this time.
In June 2013, Earl C. and Patricia A. Charles, owners of a fractional interest at Kapalua Bay, together with owners
of 38 other fractional interests (owners of two of which subsequently agreed to release their claims) at Kapalua Bay, filed an
amended complaint in the Circuit Court of the Second Circuit for the State of Hawaii against us, certain of our subsidiaries,
Marriott International, certain of its subsidiaries, the Joint Venture, and other entities that have equity investments in the Joint
Venture. The plaintiffs allege that the defendants failed to disclose the financial condition of the Joint Venture and the
commitment of the defendants to the Joint Venture, and that defendants’ actions constituted fraud and violated the Hawaii
Unfair and Deceptive Trade Practices Act, the Hawaii Condominium Property Act and the Hawaii Time Sharing Plans statute.
The relief sought includes compensatory and punitive damages, attorneys’ fees, pre-judgment interest, declaratory relief,
rescission and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. The complaint was subsequently
further amended to add owners of two additional fractional interests as plaintiffs. The Circuit Court granted our motion to
compel arbitration of the claims asserted by the plaintiffs. Plaintiffs appealed that decision to the Hawaii Intermediate Court of
Appeals and also initiated arbitration. On July 24, 2015, the Intermediate Court of Appeals reversed the decision of the Circuit
Court and directed that the action be reinstated in the Circuit Court, based on the Hawaii Supreme Court’s decision in the
Narayan case discussed above, which has since been vacated by the U.S. Supreme Court. We dispute the material allegations in
the amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent
uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.
On May 26, 2015, we and certain of our subsidiaries were named as defendants in an action filed in the Superior Court
of San Francisco County, California, by William and Sharon Petrick and certain other present and former owners of 69
fractional interests at the RCC San Francisco. The plaintiffs allege that the affiliation of the RCC San Francisco with our
points-based MVCD program, certain alleged sales practices, and other acts we and the other defendants allegedly took caused
an actionable decrease in the value of their fractional interests. The relief sought includes, among other things, compensatory
and punitive damages, rescission, and pre- and post-judgment interest. Plaintiffs filed an amended complaint on April 25, 2016.
F-32
We filed a motion to dismiss. The Court held a hearing and the parties are awaiting a decision. We dispute the material
allegations in the amended complaint and intend to defend against the action vigorously. Given the early stages of the action
and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.
On October 3, 2016, RCHFU, L.L.C. and other owners of 134 fractional interests at The Ritz-Carlton Club, Aspen
Highlands (“RCC Aspen Highlands”) served an amended complaint in an action pending in the U.S. District Court for the
District of Colorado against us, certain of our subsidiaries, and other third party defendants. The amended complaint alleges
that the plaintiffs’ fractional interests were devalued by the affiliation of RCC Aspen Highlands and other Ritz-Carlton Clubs
with our points-based MVCD program. The relief sought includes, among other things, unspecified damages, pre- and post-
judgment interest, and attorneys’ fees. Our motion to dismiss the amended complaint remains pending. By order dated February
15, 2017, the court granted in part and denied in part plaintiffs’ motion for leave to file another amended complaint, which has
not yet been served. We dispute the plaintiffs’ material allegations and intend to defend against the action vigorously. Given the
early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any,
at this time.
On May 20, 2016, we, certain of our subsidiaries, and other third parties were named as defendants in an action filed
in the U.S. District Court for the Middle District of Florida by Anthony and Beth Lennen. The case is filed as a putative class
action; the plaintiffs seek to represent a class consisting of themselves and all other purchasers of MVCD points, from inception
of the MVCD program in June 2010 to the present, as well as all individuals who own or have owned weeks in any resorts for
which weeks have been added to the MVCD program. Plaintiffs challenge the characterization of the beneficial interests in the
MVCD trust that are sold to customers as real estate interests under Florida law. They also challenge the structure of the trust
and associated operational aspects of the trust product. The relief sought includes, among other things, declaratory relief, an
unwinding of the MVCD product, and punitive damages. On September 15, 2016, we filed a motion to dismiss the complaint
and a motion to stay the case pending referral of certain questions to Florida state regulators, which motions remain pending.
We dispute the material allegations in the complaint and intend to defend against the action vigorously. Given the early stages
of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.
Other
We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership
projects currently under development will be approximately $0.3 million, all of which is included within liabilities on our
Balance Sheet at December 30, 2016. This estimate is based on our current development plans, which remain subject to change,
and we expect the phases currently under development will be completed by 2017.
During 2014, we agreed to settle a dispute with a service provider relating to services provided to us prior to 2011. In
connection with the settlement, we received a one-time payment of $7.6 million from the service provider, which no longer
provides services to us. We recorded a gain of $7.6 million as a result of the settlement, which is included in the Litigation
settlement line on the Statement of Income for the year ended January 2, 2015.
Leases
We have various land, corporate facilities, real estate and equipment operating leases. The land lease consists of a
long-term golf course land lease with a term of 30 years. The corporate facilities leases are for our corporate headquarters and
have lease terms of approximately six years. The other operating leases are primarily for office and retail space as well as
equipment supporting our operations and have lease terms of between three and ten years. Certain of these leases provide for
minimum rental payments and additional rental payments based on our operations of the leased property. We have summarized
our future obligations under operating leases at December 30, 2016 below:
($ in thousands)
Fiscal Year
2017 . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . .
$
$
Land
Lease
Corporate
Facilities
Leases
Other
Operating
Leases
Total
3,580
3,678
3,779
3,882
2,658
—
17,577
$
$
12,009
8,964
5,809
4,601
3,202
17,320
51,905
$
$
16,638
13,691
10,637
9,532
6,909
24,658
82,065
1,049
1,049
1,049
1,049
1,049
7,338
12,583
$
$
F-33
The following table details the composition of rent expense associated with operating leases, net of sublease income,
for the last three years:
($ in thousands)
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional rentals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
8,639
3,845
12,484
$
$
9,401
3,876
13,277
$
$
6,806
5,520
12,326
$
$
10. DEBT
The following table provides detail on our debt balances, net of unamortized debt issuance costs:
($ in thousands)
Vacation ownership notes receivable securitizations, gross(1) . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End
2016
At Year-End
2015
$
$
738,362
(9,174)
729,188
834
(19)
815
7,221
737,224
$
$
684,604
(9,043)
675,561
3,496
(264)
3,232
—
678,793
_________________________
(1)
Interest rates as of December 30, 2016 range from 2.2% to 6.3% with a weighted average interest rate of 2.5%.
See Footnote No. 14, “Variable Interest Entities,” for a discussion of the collateral for the non-recourse debt associated
with the securitized vacation ownership notes receivable and the Warehouse Credit Facility. All of our other debt was, and to
the extent currently outstanding is, recourse to us but unsecured.
The following table shows scheduled future principal payments for our debt:
($ in thousands)
Debt Principal Payments Year
2017 . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2016 . . . .
Vacation Ownership
Notes Receivable
Securitizations(1)
Other
Debt
Capital
Leases
Total
$
$
101,214
91,223
84,988
83,516
82,256
295,165
738,362
$
$
604
4
4
5
5
212
834
$
$
— $
7,221
—
—
—
—
7,221
$
101,818
98,448
84,992
83,521
82,261
295,377
746,417
_________________________
(1)
The debt associated with our vacation ownership notes receivable securitizations is non-recourse to us.
As the contractual terms of the underlying securitized vacation ownership notes receivable determine the maturities of
the non-recourse debt associated with them, actual maturities may occur earlier than shown above due to prepayments by the
vacation ownership notes receivable obligors.
We paid cash for interest, net of amounts capitalized, of $23.2 million in 2016, $30.2 million in 2015 and $31.2
million in 2014.
F-34
Debt Associated with Vacation Ownership Notes Receivable Securitizations
On August 11, 2016, we completed the securitization of a pool of $259.1 million of vacation ownership notes
receivable. In connection with the securitization, investors purchased in a private placement $250.0 million in vacation
ownership loan backed notes from the MVW Owner Trust 2016-1 (the “2016-1 Trust”). Two classes of vacation ownership loan
backed notes were issued by the 2016-1 Trust: $230.6 million of Class A Notes and $19.4 million of Class B Notes. The Class
A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of 2.64 percent, for an overall
weighted average interest rate of 2.28 percent.
Each of the transactions in which we have securitized vacation ownership notes receivable contains various triggers
relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership
notes receivable fails to perform within the pool’s established parameters (default or delinquency thresholds vary by
transaction), transaction provisions effectively redirect the monthly excess spread we would otherwise receive from that pool
(attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination
of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During 2016, and as of
December 30, 2016, no securitized vacation ownership notes receivable pools were out of compliance with their respective
established parameters. As of December 30, 2016, we had 7 securitized vacation ownership notes receivable pools outstanding.
Revolving Corporate Credit Facility
The Revolving Corporate Credit Facility, which currently terminates on September 10, 2019, has a borrowing capacity
of $200 million, including a letter of credit sub-facility of $100 million, and provides support for our business, including
ongoing liquidity and letters of credit. Borrowings under the Revolving Corporate Credit Facility generally bear interest at a
floating rate at the Eurodollar rate plus an applicable margin that varies from 1.625 percent to 3.125 percent depending on our
credit rating. In addition, we pay a commitment fee on the unused availability under the Revolving Corporate Credit Agreement
at a rate that varies from 20 basis points per annum to 50 basis points per annum.
Although no cash borrowings were outstanding as of December 30, 2016 under our Revolving Corporate Credit
Facility, any amounts that are borrowed under that facility, as well as obligations with respect to letters of credit issued pursuant
to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrower under,
and guarantors of, that facility (which include Marriott Vacations Worldwide and each of our direct and indirect, existing and
future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including
inventory, subject to certain exceptions. As of December 30, 2016, we were in compliance with the requirements of applicable
financial and operating covenants.
Warehouse Credit Facility
The Warehouse Credit Facility, which has a borrowing capacity of $250 million, allows for the securitization of
vacation ownership notes receivable on a non-recourse basis. The Warehouse Credit Facility currently terminates on
November 22, 2017 and if not renewed, any amounts outstanding thereunder would become due and payable 13 months after
termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in
the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility. The
advance rate for vacation ownership notes receivable securitized using the Warehouse Credit Facility varies based on the
characteristics of the securitized vacation ownership notes receivable. We also pay unused facility and other fees under the
Warehouse Credit Facility.
As of December 30, 2016, there were no cash borrowings outstanding under our Warehouse Credit Facility. We
generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held
in the Warehouse Credit Facility, in the ABS market once per year.
Capital Leases
During the first quarter of 2016, we entered into a capital lease arrangement for ancillary and operations space in
connection with the commitment to purchase an operating property located in New York, New York. See Footnote No. 9,
“Contingencies and Commitments,” for additional information on this transaction.
F-35
11. MANDATORILY REDEEMABLE PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY
On October 26, 2016, we redeemed the $40.0 million of mandatorily redeemable Series A (non-voting) preferred
stock of our subsidiary MVW US Holdings, Inc. held by third-party investors following the exercise of our option to redeem
the Series A preferred stock on the fifth anniversary of its issuance date. We used cash on hand to pay the redemption price,
which was $40 million plus accrued and unpaid dividends. Prior to the redemption, the Series A preferred stock paid an annual
cash dividend equal to the five-year U.S. Treasury Rate as of October 19, 2011, plus a spread of 10.958 percent, for a total
annual cash dividend rate of 12 percent. The dividends were recorded as a component of Interest expense as the Series A
preferred stock was treated as a liability for accounting purposes.
The following table provides detail on our mandatorily redeemable preferred stock of consolidated subsidiary balance,
net of unamortized debt issuance costs:
($ in thousands)
Mandatorily redeemable preferred stock of consolidated
subsidiary, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2016
At Year-End 2015
$
$
— $
—
— $
40,000
(1,011)
38,989
12. SHAREHOLDERS’ EQUITY
Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $0.01 per share. At
December 30, 2016, there were 36,633,868 shares of Marriott Vacations Worldwide common stock issued, of which 26,990,306
were outstanding and 9,643,562 were held as treasury stock. At January 1, 2016, there were 36,393,800 shares of Marriott
Vacations Worldwide common stock issued, of which 29,549,544 were outstanding and 6,844,256 were held as treasury stock.
Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $0.01 per share, none of which
were issued or outstanding as of December 30, 2016 or January 1, 2016.
Share Repurchase Program
The following table summarizes share repurchase activity under our current share repurchase program:
($ in thousands, except per share amounts)
As of January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 30, 2016 . . . . . . . . . . . . . . .
As of December 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
Repurchased
6,854,083
2,818,546
9,672,629
Cost of Shares
Repurchased
Average Price
Paid per Share
$
$
430,609
177,830
608,439
$
$
62.83
63.09
62.90
On February 9, 2017, our Board of Directors extended our existing share repurchase program to September 30, 2017.
On February 11, 2016, our Board of Directors approved the repurchase of up to an additional 2,000,000 shares of our common
stock under our existing share repurchase program. Prior to that authorization, our Board of Directors had authorized the
repurchase of an aggregate of up to 8,900,000 shares of our common stock under the share repurchase program since the
initiation of the program in October 2013. Share repurchases may be made through open market purchases, privately negotiated
transactions, block transactions, tender offers, accelerated share repurchase agreements or otherwise. The specific timing,
amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other
factors. Acquired shares of our common stock are held as treasury shares carried at cost in our Financial Statements. In
connection with the repurchase program, we are authorized to adopt one or more trading plans pursuant to the provisions of
Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
As of December 30, 2016, 1.2 million shares remained available for repurchase under the authorization approved by
our Board of Directors. The authorization for the share repurchase program may be suspended, terminated, increased or
decreased by our Board of Directors at any time without prior notice.
F-36
Dividends
We declared cash dividends to holders of common stock during the year ended December 30, 2016 as follows:
Declaration Date
February 11, 2016
May 12, 2016
September 8, 2016
December 9, 2016
Shareholder Record Date
February 25, 2016
May 26, 2016
September 22, 2016
December 22, 2016
Distribution Date
March 10, 2016
June 9, 2016
October 6, 2016
January 4, 2017
Dividend per Share
$0.30
$0.30
$0.30
$0.35
Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay
dividends in the future.
13. SHARE-BASED COMPENSATION
We maintain the Stock Plan for the benefit of our officers, directors and employees. Under the Stock Plan, we award
to certain of our employees: (1) RSUs of our common stock, (2) SARs for our common stock and (3) stock options to purchase
our common stock. A total of 6 million shares are authorized for issuance under the Stock Plan. As of December 30, 2016,
approximately 1.5 million shares were available for grants under the Stock Plan.
The following table details our share-based compensation expense related to award grants to our officers, directors
and employees:
($ in thousands)
Service based RSUs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance based RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
9,372
$
8,879
$
2,502
11,874
2,075
—
3,343
12,222
1,920
—
8,731
3,028
11,759
1,617
—
$
13,949
$
14,142
$
13,376
The following table details our deferred compensation costs related to unvested awards:
($ in thousands)
Service based RSUs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance based RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2016(1) At Year-End 2015
8,804
$
9,000
$
3,307
12,307
1,146
—
13,453
$
3,460
12,264
1,083
—
13,347
$
_________________________
(1)
As of December 30, 2016, the weighted average remaining term for RSU grants outstanding at year-end 2016 was 1.8
years and we expect that deferred compensation expense will be recognized over a weighted average period of 2.2
years.
F-37
RSUs
We have issued RSUs that vest over time, which we refer to as service based RSUs, and RSUs that vest based on
performance with respect to established criteria, which we refer to as performance based RSUs.
The following table shows the changes in our outstanding RSUs and the associated weighted average grant-date fair
values:
2016
Service Based
Performance Based
Total
Number of
RSUs
Weighted
Average Grant-
Date Fair Value
Per RSU
Number of
RSUs
Weighted
Average Grant-
Date Fair
Value Per RSU
Number of
RSUs
Weighted
Average Grant-
Date Fair
Value Per RSU
Outstanding at
year-end 2015 . .
Granted . . . . . . .
Distributed. . . . .
Forfeited . . . . . .
Outstanding at
year-end 2016 . .
525,641
169,164
$
$
(177,878) $
(1,980) $
514,947
$
40.83
58.89
33.18
54.41
49.36
207,906
$
$
143,516
(68,673) $
(3,465) $
279,284
$
56.04
58.21
39.93
39.93
61.30
733,547
$
$
312,680
(246,551) $
(5,445) $
794,231
$
45.14
58.58
35.06
45.19
53.56
The weighted average grant-date fair value per RSU granted in 2015 and 2014 was $75.61 and $52.51, respectively.
The intrinsic value of RSUs which vested in 2016, 2015 and 2014, was $3.4 million, $18.9 million and $10.3 million,
respectively.
SARs
The following table shows the changes in our outstanding SARs and the associated weighted average exercise prices:
Outstanding at year-end 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at year-end 2016(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
Number of
SARs
Weighted Average
Exercise Price
Per SAR
767,477
$
132,597
(118,171)
—
781,903
$
27.48
61.71
16.30
—
34.97
_________________________
(1)
As of December 30, 2016, outstanding SARs had a total intrinsic value of $39.3 million and a weighted average
remaining term of 5.4 years.
(2)
As of December 30, 2016, 557,234 SARs with a weighted average exercise price of $24.03, an aggregate intrinsic
value of $34.1 million and a weighted average remaining contractual term of 4.2 years were exercisable.
The weighted average grant-date fair value per SAR granted in 2016, 2015 and 2014 was $16.12, $29.75 and $27.98,
respectively. The intrinsic value of SARs which vested in 2016, 2015 and 2014, was $1.4 million, $4.7 million and $12.2
million, respectively. The aggregate intrinsic value of SARs which were exercised in 2016, 2015 and 2014 was $5.6 million,
$4.3 million and $1.3 million, respectively.
We use the Black-Scholes model to estimate the fair value of the SARs granted. For SARs granted under the Stock
Plan subsequent to the Spin-Off, the expected stock price volatility was calculated based on the historical volatility from the
stock prices of a group of identified peer companies. The average expected life was calculated using the simplified method. The
risk-free interest rate was calculated based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected
life assumed at the date of grant. The dividend yield assumption listed below is based on the expectation of future payouts.
F-38
The following table outlines the assumptions used to estimate the fair value of grants for the fiscal years ended 2016
and 2015:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
31.60%
1.96%
1.41%
6.25
2015
42.74%
1.26%
1.74%
6.25
Stock Options
We may grant non-qualified stock options to employees and non-employee directors at exercise prices or strike prices
equal to the market price of our common stock on the date of grant.
There were no outstanding or exercisable stock options held by our employees at year-end 2016 or 2015, and no stock
options were granted to our employees in 2016, 2015 or 2014. At December 30, 2016, approximately 15,000 stock options
were outstanding and exercisable with a weighted average exercise price per option of $17.67 and a weighted average
remaining life of approximately two years.
Employee Stock Purchase Plan
During 2015, the Board of Directors adopted, and our shareholders subsequently approved, the Marriott Vacations
Worldwide Corporation Employee Stock Purchase Plan (the “ESPP”), which became effective during the third quarter of 2015.
A total of 500,000 shares of common stock may be purchased under the ESPP. The ESPP allows eligible employees to purchase
shares of our common stock at a price per share not less than 95% of the fair market value per share of common stock on the
purchase date, up to a maximum threshold established by the plan administrator for the offering period.
14. VARIABLE INTEREST ENTITIES
In accordance with the applicable accounting guidance for the consolidation of variable interest entities, we analyze
our variable interests, including loans, guarantees and equity investments, to determine if an entity in which we have a variable
interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative
analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its
organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative
analyses to determine if we must consolidate a variable interest entity because we are its primary beneficiary.
Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations
We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable
originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable
securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the consumer loans
we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by
a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation
ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the
securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized
vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.
We created these entities to serve as a mechanism for holding assets and related liabilities, and the entities have no
equity investment at risk, making them variable interest entities. We continue to service the vacation ownership notes
receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are
potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore,
consolidate them.
F-39
The following table shows consolidated assets, which are collateral for the obligations of these variable interest
entities, and consolidated liabilities included on our Balance Sheet at December 30, 2016:
($ in thousands)
Consolidated Assets:
Vacation ownership notes receivable, net of reserves . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Liabilities:
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vacation Ownership
Notes Receivable
Securitizations
Warehouse
Credit
Facility
Total
$
$
$
$
717,543
$
4,865
27,525
749,933
542
738,362
738,904
$
$
$
— $
—
—
— $
42
—
42
$
$
717,543
4,865
27,525
749,933
584
738,362
738,946
The noncontrolling interest balance was zero. The creditors of these entities do not have general recourse to us.
The following table shows the interest income and expense recognized as a result of our involvement with these
variable interest entities during 2016:
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense to investors. . . . . . . . . . . . . . . . . . . .
Debt issuance cost amortization . . . . . . . . . . . . . . . . .
Administrative expenses. . . . . . . . . . . . . . . . . . . . . . .
Vacation Ownership
Notes Receivable
Securitizations
Warehouse
Credit
Facility
$
$
$
$
91,104
17,451
3,483
350
$
$
$
$
5,502
1,790
961
153
$
$
$
$
Total
96,606
19,241
4,444
503
The following table shows cash flows between us and the vacation ownership notes receivable securitization variable
interest entities:
($ in thousands)
Cash inflows:
Net proceeds from vacation ownership notes receivable securitizations . . . . . . . . . . . . .
Principal receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash outflows:
Principal to investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary repurchases of defaulted vacation ownership notes receivable . . . . . . . . . . . .
Voluntary clean-up call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funding of restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
247,453
174,830
91,972
50,733
564,988
(166,652)
(29,590)
—
(17,449)
(51,770)
(265,461)
299,527
$
$
252,361
183,111
91,290
55,156
581,918
(176,249)
(24,596)
(77,582)
(19,268)
(52,756)
(350,451)
231,467
F-40
The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity:
($ in thousands)
Cash inflows:
Proceeds from vacation ownership notes receivable securitizations. . . . . . . . . . . . . . . . .
Principal receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash outflows:
Principal to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary repurchases of defaulted vacation ownership notes receivable . . . . . . . . . . . .
Repayment of Warehouse Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funding of restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
126,622
5,227
5,048
909
137,806
(3,771)
(661)
(122,190)
(1,796)
(447)
(128,865)
8,941
$
$
—
—
—
—
—
—
—
—
(1,390)
—
(1,390)
(1,390)
Under the terms of our vacation ownership notes receivable securitizations, we have the right at our option to
repurchase defaulted vacation ownership notes receivable at the outstanding principal balance. The transaction documents
typically limit such repurchases to 15 to 20 percent of the transaction’s initial vacation ownership notes receivable principal
balance. We made voluntary repurchases of defaulted vacation ownership notes receivable of $30.3 million during 2016, $24.6
million during 2015 and $25.3 million during 2014. We also made voluntary repurchases of $144.1 million, $146.2 million and
$31.3 million of other non-defaulted vacation ownership notes receivable during 2016, 2015 and 2014, respectively, to retire
previous vacation ownership notes receivable securitizations. Our maximum exposure to loss relating to the special purpose
entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the
difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus
cash reserves and any residual interest in future cash flows from collateral. In addition, we could be required to fund up to an
aggregate of $5.0 million upon presentation of demand notes related to certain vacation ownership notes receivable
securitization transactions outstanding at December 30, 2016.
Other Variable Interest Entities
We have a commitment to purchase an operating property located in New York, New York, that we currently manage
as Marriott Vacation Club Pulse, New York City. Refer to Footnote No. 9, “Contingencies and Commitments” for additional
information on the commitment. We are required to purchase the completed property from the third party developer unless the
developer has sold the property to another party. The property is held by a variable interest entity for which we are not the
primary beneficiary as we cannot prevent the variable interest entity from selling the property at a higher price. Accordingly,
we have not consolidated the variable interest entity. As of December 30, 2016, our Balance Sheet reflected a $6.9 million
capital lease asset and a $7.2 million capital lease liability for ancillary and operations space we lease from the variable interest
entity. In addition, our Balance Sheet reflected a note receivable of $0.5 million from this variable interest entity, which we
believe is our maximum exposure to loss as a result of our involvement with this variable interest entity as of December 30,
2016.
15. BUSINESS SEGMENTS
We define our reportable segments based on the way in which the chief operating decision maker, currently our chief
executive officer, manages the operations of the company for purposes of allocating resources and assessing performance. We
operate in three reportable business segments:
•
In our North America segment, we develop, market, sell and manage vacation ownership and related products under
the Marriott Vacation Club and Grand Residences by Marriott brands. In 2016, we introduced Marriott Vacation Club
Pulse, an extension to the Marriott Vacation Club brand. We also develop, market and sell vacation ownership and
related products under The Ritz-Carlton Destination Club brand, as well as whole ownership residential products
under The Ritz-Carlton Residences brand.
•
In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not
have any current plans for new development in this segment.
F-41
•
In our Asia Pacific segment, we develop, market, sell and manage two points-based programs that we specifically
designed to appeal to the vacation preferences of the market, Marriott Vacation Club, Asia Pacific and Marriott
Vacation Club Destinations, Australia, as well as a weeks-based right-to-use product.
We evaluate the performance of our segments based primarily on the results of the segment without allocating
corporate expenses or income taxes. We do not allocate corporate interest expense, consumer financing interest expense, other
financing expenses or general and administrative expenses to our segments. We include interest income specific to segment
activities within the appropriate segment. We allocate other gains and losses and equity in earnings or losses from our joint
ventures to each of our segments as appropriate. Corporate and other represents that portion of our revenues and other gains or
losses that are not allocable to our segments.
Revenues
($ in thousands)
North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment revenues. . . . . . . . . . . . . . . . . . .
Corporate and other. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment financial results. . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . .
Depreciation
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment depreciation . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
Assets
2016
2015
2014
1,630,317
105,621
75,297
1,811,235
—
1,811,235
$
$
1,608,088
112,061
93,632
1,813,781
—
1,813,781
2016
2015
425,735
12,067
1,626
439,428
(216,500)
(85,580)
137,348
2016
12,046
1,462
1,235
14,743
6,301
21,044
$
$
$
$
412,582
13,874
7,263
433,719
(227,222)
(83,698)
122,799
2015
12,935
1,601
2,424
16,960
5,257
22,217
$
$
$
$
$
$
1,533,174
128,697
54,145
1,716,016
—
1,716,016
2014
352,943
15,079
7,808
375,830
(225,239)
(69,835)
80,756
2014
8,673
1,897
354
10,924
7,758
18,682
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2016
1,968,021
62,245
102,348
2,132,614
258,805
2,391,419
$
$
At Year-End 2015
1,900,178
80,839
134,661
2,115,678
284,040
2,399,718
$
$
F-42
Capital Expenditures (including inventory)
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment capital expenditures . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
$
136,889
6,153
21,276
164,318
8,412
172,730
$
$
179,696
2,807
72,097
254,600
10,260
264,860
$
$
94,539
3,476
9,899
107,914
4,769
112,683
Our Financial Statements include the following items related to operations located outside the United States (which
are predominately related to our Europe and Asia Pacific segments):
• Revenues, excluding cost reimbursements, of $195.4 million in 2016, $218.3 million in 2015 and $188.8 million in
•
2014; and
Fixed assets of $60.0 million in 2016 and $121.8 million in 2015. For year-end 2016 and year-end 2015, fixed assets
located outside the United States are included within the “Property and equipment” caption on our Balance Sheets.
16. QUARTERLY RESULTS (UNAUDITED)
($ in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . .
Diluted earnings per share. . . . . . . . . . .
($ in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . .
Diluted earnings per share. . . . . . . . . . .
$
$
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Fiscal Year 2016(1)(2)(3)
Third
Quarter
Fourth
Quarter
419,171
$
(374,489) $
24,408
0.84
0.82
$
$
$
425,414
$
(370,917) $
$
36,309
1.28
1.26
$
$
401,911
$
(359,180) $
$
26,807
564,739
$
(481,378) $
$
49,824
0.99
0.97
$
$
1.83
1.80
$
$
4.93
4.83
First
Quarter
Second
Quarter
Fiscal Year 2015(1)(2)(3)
Third
Quarter
Fourth
Quarter
449,883
$
(390,466) $
34,054
1.05
1.03
$
$
$
419,140
$
(366,125) $
$
34,041
1.07
1.05
$
$
403,685
$
(359,532) $
$
21,555
541,073
$
(479,655) $
$
33,149
0.69
0.67
$
$
1.08
1.06
$
$
3.90
3.82
Fiscal
Year
1,811,235
(1,585,964)
137,348
Fiscal
Year
1,813,781
(1,595,778)
122,799
_______________________
(1) The quarters consisted of 12 weeks, except for the fourth quarters of 2016 and 2015, which consisted of 16 weeks.
(2) The sum of the earnings per share for the four quarters differs from annual earnings per share due to the required method
of computing the weighted average shares in interim periods.
(3) The quarterly results have been restated to correct certain immaterial prior period errors as discussed in Footnote No. 1,
“Summary of Significant Accounting Policies.”
17. SUBSEQUENT EVENTS
Dividends
On February 9, 2017, our Board of Directors declared a quarterly dividend of $0.35 per share to be paid on March 9,
2017 to shareholders of record as of February 23, 2017.
F-43
BOARD OF DIRECTORS
EXECUTIVE LEADERSHIP
INVESTOR RELATIONS
William J. Shaw
Chairman of the Board
Stephen P. Weisz
President and Chief Executive Officer
Jeff Hansen
Vice President Investor Relations
Stephen P. Weisz
President and Chief Executive Officer
C.E. Andrews
Chief Executive Officer
MorganFranklin Consulting
Raymond L. “Rip” Gellein, Jr.
Former Chairman of the Board,
President and Chief Executive Officer
Strategic Hotels & Resorts, Inc.
Thomas J. Hutchison III
Chairman and Chief Executive Officer
Legacy Companies, LLC
Melquiades R. “Mel” Martinez
Chairman of the Southeast
and Latin America
JPMorgan Chase & Co.
William W. McCarten
Chairman of the Board
DiamondRock Hospitality Company
Dianna F. Morgan
Former Senior Vice President
Walt Disney World Company
R. Lee Cunningham
Executive Vice President and
Chief Operating Officer
Clifford M. Delorey
Executive Vice President and
Chief Resort Experience Officer
John E. Geller, Jr.
Executive Vice President and
Chief Financial Officer
James H Hunter, IV
Executive Vice President and
General Counsel
Lizabeth Kane-Hanan
Executive Vice President and
Chief Growth and Inventory Officer
Brian E. Miller
Executive Vice President and
Chief Sales and Marketing Officer
Dwight D. Smith
Executive Vice President and
Chief Information Officer
Michael E. Yonker
Executive Vice President and
Chief Human Resources Officer
CORPORATE PUBLIC RELATIONS
Edward F. Kinney
Global Vice President
Corporate Affairs and Communications
TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, Texas 77842-3170
866-429-5244
CORPORATE INFORMATION
Marriott Vacations Worldwide
6649 Westwood Boulevard
Orlando, Florida 32821
407-206-6000
MarriottVacationsWorldwide.com
MarriottVacationClub.com
RitzCarltonClub.com
GrandResidenceClub.com