The Business of Fun
A Culture of Caring
Steve Weisz
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Looking back on 2017, we are truly proud of our company’s
accomplishments and especially inspired by the resilience and
compassion of our associates during the times of need and their
focus on helping others through extraordinary circumstances. The
year brought many high points and milestones, but also brought
challenges, with several storms impacting multiple locations and
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and guests to enjoy their vacations.
As planned, we opened two new resorts during the year, in Nusa
Dua, Bali and Waikoloa on the Big Island of Hawaii. These
outstanding new locations are receiving exceptional reviews from
those who have visited, and they also provide us with two new
sales locations.
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growing nearly 11 percent over 2016 to $803 million and volume
per guest reaching $3,565, a 3 percent increase over 2016. We
are also very pleased with the success of our marketing channels,
namely the progress of our call transfer, Encore and linkage
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The coming year again shows tremendous promise for Marriott
Vacations Worldwide as our growth strategy continues to produce
strong results, as well as opportunities from enhancements to our
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look forward to and creating the memories that they will have
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exploring new destinations with those who mean so much to them,
and a company with associates who have a passion to excel in all
they do through a culture of excellence.
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support and commitment to Marriott Vacations Worldwide.
Steve Weisz, President & CEO
Bill Shaw, Chairman of the Board
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 31, 2017
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
(26,536,583 shares outstanding as of February 23, 2018)
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, smaller reporting company, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 30, 2017, was $2,811,247,091.
Portions of the Proxy Statement prepared for the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II.
Item 5.
Item 6.
Item 7.
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 . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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130
Throughout this Annual Report on Form 10-K (this “Annual Report”), we refer to Marriott Vacations Worldwide
Corporation, together with its consolidated subsidiaries, as “Marriott Vacations Worldwide,” “we,” “us,” or “the Company.”
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 “Income Statements,” (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 Part II, Item 8.
“Financial Statements and Supplementary Data” of this Annual Report.
Additionally, 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.
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. Beginning with our 2017 fiscal year, we changed our financial
reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle. Accordingly, our 2017 fiscal year began on
December 31, 2016 (the day after the end of the 2016 fiscal year) and ended on December 31, 2017. Our future fiscal years will
begin on January 1 and end on December 31. Prior to our 2017 fiscal year, our fiscal year was a 52 or 53 week fiscal year that
ended on the Friday nearest to December 31. As a result of the change in our financial reporting cycle, our 2017 fiscal year had
two more days of activity than each of our 2016, 2015 and 2014 fiscal years, and five fewer days of activity than our 2013
fiscal year. We have not restated, and do not plan to restate, historical results.
Fiscal Year
2017
2016
2015
2014
2013
Fiscal Year-End Date
December 31, 2017
December 30, 2016
January 1, 2016
January 2, 2015
January 3, 2014
Number of Days
366
364
364
364
371
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.
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.
Our business is grouped into three reportable segments: North America, Asia Pacific and Europe. As of December 31,
2017, our portfolio consisted of over 65 properties in the United States and nine 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 the satisfaction of our owners and guests and the engagement of
our 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 real estate 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 operated 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.
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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 in
which they have purchased an interest 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, 2016, the U.S. vacation ownership community was
comprised of over 1,500 resorts, representing over 200,000 units and an estimated 9.5 million vacation ownership week
equivalents. According to ARDA, sales in the U.S. market were $9.2 billion in 2016. 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. Since our November 2011 spin-off (the “Spin-Off”) from Marriott International,
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 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.
Under the Marriott Rewards Affiliation Agreement that we entered into with Marriott International (the “Marriott
Rewards Agreement”), we participate in the Marriott Rewards customer loyalty program; 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.
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On February 26, 2018, we and Marriott International amended several of the agreements governing our ongoing
relationship, including the License Agreements and the Marriott Rewards Agreement. As a result of the amendments, we agreed
to a limited exception to our exclusive rights with respect to access to the Marriott Rewards program and member lists and
Marriott International’s reservation system and marriott.com website in exchange for the following:
•
•
•
•
•
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$3 million reduction in the annual royalty fee we pay to Marriott International;
$15 million to $17 million of benefits from increased annual co-marketing funds associated with Marriott
International’s new credit card arrangements and reduced costs of Marriott Rewards points under our existing
agreements with Marriott International resulting from planned system-wide reductions in the rates Marriott
International charges its loyalty program partners;
the exclusive right to market our products (e.g., linkage opportunities) at 14 full service Marriott International and
former Starwood hotel brands, subject to a limited exception for the St. Regis, Westin, and Sheraton brands;
the exclusive right to be the timeshare partner for call transfer activities for all Marriott and, beginning in the
second quarter of 2018, all former Starwood reservation call centers, as well as an extension of the term of our
long-term call transfer arrangement with the potential for further extension;
the exclusive right to be the timeshare partner for certain digital marketing programs with respect to Marriott
International’s digital lodging platforms, including marriott.com; and
the ability to market to Marriott International’s combined loyalty program members upon consolidation of the
Marriott and Starwood loyalty programs.
We also terminated the Noncompetition Agreement that we entered into with Marriott International in connection with
the Spin-Off (the “Noncompetition Agreement”). For additional information regarding the amendments to the License
Agreements and the Marriott Rewards Agreement, as well as the termination of the Noncompetition Agreement, see Part II,
Item 9B. “Other Information” of this Annual Report.
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 2017, approximately 66 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 locations 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 the satisfaction of our owners and guests and the engagement of our 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.
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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 limited 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 cash on hand, operating cash flow, our $250.0 million revolving credit facility (the
“Revolving Corporate Credit Facility”), our $250.0 million non-recourse warehouse credit facility (the “Warehouse Credit
Facility”), and continued access to the asset-backed securities (“ABS”) term financing market.
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 typically include marble foyers, walk-in closets, custom
kitchen cabinetry and luxury resort amenities such as large feature swimming 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.
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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 4,600 participating
hotels or redeem their Marriott Rewards points for airline miles or other merchandise offered through the Marriott Rewards
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 a contractual right-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 existing
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 Asia Pacific and
Europe 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 2017, approximately
176,000 weeks-based owners have enrolled nearly 280,000 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.
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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 over 30 countries around the world, targeting customers who
vacation regularly with a focus on family, relaxation and recreational activities. In 2017, approximately 90 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,
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 2017, approximately 66 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 call transfer arrangements with Marriott International pursuant to which callers to certain of its
reservation centers are asked if they would like to be transferred to one of our representatives that can tell them about our
products. 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 the
opportunity to purchase 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. We are also focused on expanding our use of social media and digital marketing channels.
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 5.2 million
visits in 2017.
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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 inventory at
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.
Nearly one-third 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.
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 may only be 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 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.
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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, trust association or other governing body 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 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 the volume of our financing activities depending on market conditions. We are not providing financing to
buyers of our residential products.
In our North America segment in 2017, approximately 64 percent of Marriott Vacation Club customers financed their
purchase with us. The average loan for our Marriott Vacation Club products totaled approximately $26,200, which represented
85 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 2017 was 12.13 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 2017 was $406. 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 2017, approximately 91 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 2017, the average FICO score of our customers who were U.S.
citizens or residents who financed a vacation ownership purchase was 743; 75 percent had a credit score of over 700,
91 percent had a credit score of over 650 and 98 percent had a credit score of over 600.
9
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 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 2017, 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 $5.0 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.
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 more
than 6,500 hotels in 127 countries and territories, including over 4,600 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.
10
Loyal, highly satisfied customers
We have a large, highly satisfied customer base. In 2017, based on over 250,000 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 nearly 89 percent in 2017, significantly higher than the overall vacation ownership industry average of 79
percent in 2016, 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
45 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 28 years of total combined
experience at Marriott Vacations Worldwide and Marriott International, with more than 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.
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
2017, 85 percent of our associates indicated that they were “engaged,” which is eight points above Aon Hewitt’s “Global Best
Employer” benchmark of 77 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, Asia Pacific and Europe. 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 2017 for each of our segments and each of our revenue sources.
($ in thousands)
Sale of vacation ownership products . . . . . . . . . . .
Resort management and other services . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . .
North
America
$
$
662,424
276,443
127,486
289,446
421,546
1,777,345
$
$
Asia Pacific
Europe
42,677
4,211
4,504
12,554
3,827
67,773
$
$
22,839
25,542
2,916
20,902
34,628
106,827
$
$
Total
727,940
306,196
134,906
322,902
460,001
1,951,945
Financial information by segment and geographic area for 2017, 2016 and 2015 appears in Footnote No. 14,
“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 real estate 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 the unsold vacation ownership inventory at our properties, subject to certain exceptions, is pledged as collateral for our
Revolving Corporate Credit Facility.
11
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, as well as under 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.
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 continue to identify opportunities for development
margin growth and improvement. We plan to continue to focus on future inventory acquisitions with strong on-site sales
locations.
Europe Segment
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.
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.
Our Properties
As of December 31, 2017, our portfolio consisted of over 65 properties with 13,654 vacation ownership villas
(“units”), and we had approximately 400,000 owners. The following table shows our vacation ownership and residential
properties as of December 31, 2017, and indicates the segment with which such property is associated:
Property
47 Park Street - Grand Residences by Marriott
Segment
Europe
Experience
Location
Urban
London, UK
Grand Residences by Marriott - Kauai Lagoons
North America
Island/Beach
Kauai, HI
Marriott Grand Residence Club, Lake Tahoe
North America Mountain/Ski
Lake Tahoe, CA
Marriott Vacation Club at Surfers Paradise
Marriott Vacation Club at The Empire Place
Asia Pacific
Asia Pacific
Marriott Vacation Club Pulse at Custom House,
Boston
North America
Marriott Vacation Club Pulse at The Mayflower,
Washington, D.C.
Marriott Vacation Club Pulse, New York City(3)
North America
North America
Marriott Vacation Club Pulse, San Diego
North America
Beach
Urban
Urban
Urban
Urban
Urban
Surfers Paradise, Australia
Bangkok, Thailand
Boston, MA
Washington, D.C.
New York, New York
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 Bali Nusa Dua Gardens
Asia Pacific
Island/Beach
Bali, Indonesia
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
12
Vacation
Ownership
(VO) or
Residential
VO
Residential
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
VO
Units
Built(1)
Additional
Planned
Units(2)
49
3
199
88
55
84
71
177
264
47
218
450
51
255
206
213
224
107
510
236
402
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39
—
112
—
—
—
Property
Segment
Experience
Location
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
Marriott’s Mai Khao Beach - Phuket
North America
Asia Pacific
Golf
Beach
Panama City Beach, FL
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
Marriott’s Ocean Pointe
North America
North America
Marriott’s OceanWatch Villas at Grande Dunes
North America
Beach
Beach
Beach
Beach
Beach
Beach
Newport Beach, CA
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
North America
Golf/Desert
Palm Desert, CA
Marriott’s Oceana Palms
Marriott’s Phuket Beach Club
Marriott’s Playa Andaluza
Marriott’s Royal Palms
Marriott’s Sabal Palms
Marriott’s Shadow Ridge
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 Waikoloa Ocean Club
North America
Island/Beach Waikoloa, HI
Marriott’s Waiohai Beach Club
North America
/ Asia Pacific
Island/Beach
Kauai, HI
Marriott’s Willow Ridge Lodge
North America
Entertainment
Branson, MO
The Ritz-Carlton Club & Residences, San Francisco
Vacation Ownership
Residential
North America
North America
Urban
Urban
San Francisco, CA
San Francisco, CA
Residential
The Ritz-Carlton Club, Aspen Highlands
North America Mountain/Ski
Aspen, CO
VO
13
Vacation
Ownership
(VO) or
Residential
Units
Built(1)
Additional
Planned
Units(2)
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
VO
180
155
656
290
900
40
312
86
30
46
232
75
546
85
83
133
200
288
458
122
78
182
699
341
361
159
144
173
123
80
569
88
96
135
25
195
264
185
141
112
230
132
25
57
73
90
65
224
—
—
—
588
—
—
—
—
—
202
254
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
430
—
—
—
—
—
—
—
—
—
—
282
—
—
—
Property
Segment
Experience
Location
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
Total
Units Available for Sale(4)
___________________________________________
Vacation
Ownership
(VO) or
Residential
Units
Built(1)
Additional
Planned
Units(2)
VO
VO
VO
11
105
45
—
—
—
13,654
2,286
1,153
(1)
(2)
(3)
(4)
“Units Built” represents units with a certificate of occupancy that have been constructed or converted under one of our
brands.
“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 2016, we entered into a commitment to purchase an operating property located in New York, New York, and
subsequently assumed management of this property. We expect to acquire the units in this property, 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.
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 margins. Our vacation ownership management business does not experience significant seasonality.
Competition
Competition in the vacation ownership industry is driven primarily by 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.
14
Outside North America and the Caribbean, we operate in two primary regions, Asia Pacific and Europe. 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 Asia Pacific, our owner base is derived primarily from the Asia Pacific
region and secondarily from the Europe and North America regions. In Europe, our owner base is derived primarily from the
North America, Europe and Middle East regions.
Recent and potential future consolidation in the highly fragmented vacation ownership industry may increase
competition. For example, ILG, Inc., which operates the Interval International exchange program, acquired Hyatt Residence
Club in October 2014 and Vistana Signature Experiences, Inc. (which includes the Westin and Sheraton brands) 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 vacation ownership industry may also increase as private competitors become publicly traded
companies or existing publicly traded competitors spin-off their vacation ownership operations. For example, Hilton
Worldwide Holdings Inc. completed the spin-off of its vacation ownership operations in January 2017 and Hilton Grand
Vacations Inc. is now a separate publicly traded company. In August 2017, Wyndham Worldwide announced plans to spin off
its hotel business during the first half of 2018 resulting in two separate, publicly traded companies, including a publicly traded
vacation ownership company. In November 2017, Bluegreen Vacations Corporation completed an initial public offering that
resulted in approximately 10 percent of its stock being held by the public. 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. The collection, use and protection of personal data of our customers, as well as the sharing
of our customer data with affiliates and third parties, are governed by privacy laws and regulations enacted in the United States
and in other jurisdictions around the world, such as Europe’s new General Data Protection Regulation (the “GDPR”), which
will become effective in May 2018. 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.
15
Many jurisdictions, including many jurisdictions in the United States, Asia Pacific and Europe, 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, any projects, resorts or programs 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.
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
permitted 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 Australia, our Marriott
Vacation Club Destinations, Australia points-based program is subject to regulation as a “managed investment scheme” by the
Australian Securities & Investments Commission. 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 and reduced the efficiencies 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,
regulatory and enforcement 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.
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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.
Employees
As of December 31, 2017 we had approximately 11,000 employees with an average length of service of nearly 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 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 and political 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.
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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 can create 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 reduce our cost of vacation ownership products.
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 March 2019, 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.
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 expect to purchase at pre-agreed prices 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
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.
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.
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 $250.0 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 debt under the Revolving Corporate
Credit Facility, the Warehouse Credit Facility or our 1.5% Convertible Senior Notes due 2022 (the “Convertible Notes”) or 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 on commercially reasonable terms 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
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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. If we cannot make scheduled payments
on our debt, we will be in default and holders of the Convertible Notes could declare all outstanding principal and interest to be
due and payable, the lenders under the Revolving Corporate Credit Facility could terminate their commitments to loan money,
lenders under our secured debt (including any borrowings outstanding under the Revolving Corporate Credit Facility) could
foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. If lenders of any
of our debt are able to accelerate amounts due to them, a default or acceleration of our other debt could be triggered.
A lowering or withdrawal of the ratings assigned to our company or any of our debt securities by rating agencies
may increase our future borrowing costs and reduce our access to capital.
Any rating assigned to our company or our debt, including the Convertible Notes, could be lowered or withdrawn
entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as
adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to
obtain additional debt financing.
The terms of any future preferred equity or debt financing may give holders of any preferred equity or debt
securities rights that are senior to rights of our common shareholders or dilute the ownership percentage of existing
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 or convertible securities such as the Convertible Notes, 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.
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. Default rates may deteriorate due to many different reasons,
including those beyond our control, such as financial hardship of purchasers. 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. The risk of purchaser defaults may increase due to man-made or natural disasters, that cause financial hardship for
purchasers. 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.
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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 over 30 countries and territories, and our operations outside the United States represented
approximately 13 percent of our revenues, excluding cost reimbursements, in 2017. 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:
•
•
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;
•
•
•
•
•
•
•
•
the presence and acceptance of varying levels of business corruption in international markets and the effect of
various anti-corruption and other laws;
tax impacts associated with the repatriation of our non-U.S. earnings;
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.
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.
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 internal information systems and information
systems 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. For example, failure to comply with Europe’s
new GDPR, which will become effective in May 2018, could result in fines of up to 4 percent of annual worldwide
“turnover” (a measure similar to revenues in the United States). 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.
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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 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 technologies, 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 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 that are
affiliated with branded hotel companies. We believe that competition in the vacation ownership industry is driven primarily by
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. 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 vacation ownership industry may increase
competition. For example, ILG, Inc., which operates the Interval International exchange program, acquired Hyatt Residence
Club in October 2014 and Vistana Signature Experiences, Inc. (which includes the Westin and Sheraton brands) 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 vacation ownership industry may also increase as private competitors become publicly traded
companies or existing publicly traded competitors spin-off their vacation ownership operations. For example, Hilton
Worldwide Holdings Inc. completed the spin-off of its vacation ownership operations in January 2017, and Hilton Grand
Vacations Inc. is now a separate publicly traded company. In August 2017, Wyndham Worldwide announced plans to spin off
its hotel business during the first half of 2018 resulting in two separate, publicly traded companies, including a publicly traded
vacation ownership company. In November 2017, Bluegreen Vacations Corporation completed an initial public offering that
resulted in approximately 10 percent of its stock being held by the public. 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.
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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.
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 Hotels & Resorts Worldwide, Inc.,
following which Marriott International announced that it had begun permitting Marriott Rewards members to link their
Marriott Rewards and Starwood Preferred Guest accounts and to transfer points between the two programs. In February 2018,
in connection with Marriott International’s goals of creating a single loyalty program as well as integrating its website,
reservation systems, call center and other programs with those it acquired in the Starwood transaction, we and Marriott
International entered into amendments to the License Agreements and certain other agreements. Pursuant to these amendments,
in exchange for agreeing to a limited exception to our exclusive rights with respect to access to the Marriott Rewards program
and member lists and Marriott International’s reservation system and marriott.com website, we received a number of benefits,
including a reduction in our annual royalty fee, increased annual co-marketing funds associated with Marriott International’s
new credit card arrangements and reduced costs of Marriott Rewards points under our existing agreements with Marriott
International resulting from planned system-wide reductions in the rates Marriott International charges its loyalty program
partners, and certain expanded marketing rights. We cannot assure you that any benefits we expect from these amendments will
be realized, or that they will be realized as or when expected.
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
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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.
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.
Nearly one-third 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 North American Marriott 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 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, sinkholes, radiation releases, gas
leaks and oil spills, may deter travelers from scheduling sales tours at our resorts or cause them to cancel travel plans. Damage
to infrastructure, whether caused by natural or man-made disasters or other causes, that impedes travel may cause travelers to
delay or cancel plans to tour or visit our resorts. 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 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
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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.”
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. In addition, Europe’s new GDPR, which will become effective in May 2018, extends the jurisdictional
scope of European data protection law and imposes additional data protection requirements; potential penalties for non-
compliance with the GDPR include administrative fines of up to 4 percent of our annual worldwide turnover. 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, including claims against us by individuals alleging our failure to comply with laws,
regulations or policies to which we are subject. Adverse action by governmental authorities alleging our failure to comply with
laws, regulations or policies, or litigation by individuals alleging such failures, could adversely affect our business, financial
condition and reputation.
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. corporations reflect the fact that income earned and reinvested outside the United States is
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. corporation, we could be placed at a disadvantage
to our non-U.S. competitors if those competitors remain subject to lower local tax rates.
On December 22, 2017, President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act,”
which significantly reforms the Internal Revenue Code of 1986, as amended. The new legislation, among other things, includes
changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the
expensing of capital expenditures, and shifts from a “worldwide” system of taxation in which U.S. companies are taxed on their
global income to a territorial system in which U.S. companies are only taxed on income earned in the United States. Many
aspects of the new legislation are unclear and may not be clarified for some time. We continue to examine the impact this tax
reform legislation may have on our business, but have not yet been able to determine the full impact of the new laws on our
business, operations or financial condition. The impact of certain provisions of this tax reform on our financial condition and
results of operations could be adverse and such impact could be material.
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, the CANSPAM Act and the GDPR, 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
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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.
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. The primary source of inventory in our North America and Asia Pacific segments is
concentrated in a small number of trust entities that issue vacation ownership interests denominated in points. 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.
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. Property owners’ association boards may not levy sufficient maintenance fees, or
owners of vacation ownership interests may fail to pay their maintenance fees for reasons such as financial hardship or because
of damage to their vacation ownership interests from natural disasters such as hurricanes. In these circumstances, 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 products 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 and could also cause an increase in defaults with respect
to our vacation ownership notes receivable portfolio.
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
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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 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.
Some of our resorts and sales centers are concentrated in particular geographic areas, which exposes our business
to the effects of regional events and occurrences in these areas.
Approximately 43 percent of our resorts and 20 percent of our sales centers are concentrated in Florida, South
Carolina and Hawaii and, therefore, our business is particularly susceptible to the effects of natural or manmade disasters in
these areas, including earthquakes, windstorms, tornadoes, hurricanes, typhoons, tsunamis, volcanic eruptions, floods, drought,
fires, oil spills and nuclear incidents. Depending on the severity of these disasters, the resulting damage could require closure of
all or substantially all of our properties in one or more of these markets for a period of time necessary to complete repairs and
renovations. We cannot guarantee that the amount of insurance maintained for these properties would cover all damages caused
by any such an event, including the loss of sales at sales centers that are not fully operational. Our business is also particularly
susceptible to the effects of adverse economic developments in these areas, such as regional economic downturns, significant
increases in the number of our competitors’ products in these markets and potentially higher labor, real estate, tax or other costs
in the geographic markets in which we are concentrated. As a result of this geographic concentration of properties, we face a
greater risk of a negative effect on our revenues in the event these areas are affected by extreme weather, manmade disasters or
adverse economic and competitive conditions.
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.
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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. The payment of certain cash dividends may also result in an adjustment to the
conversion rate of the Convertible Notes in a manner adverse to us. 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.
The market price of our common stock 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:
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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;
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 adopted 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.
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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, 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.
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. See Footnote No. 1, “Summary of Significant
Accounting Policies,” to our Financial Statements for more information regarding changes in accounting standards that we
recently adopted or expect to adopt in the future.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial
condition and operating results.
Although holders of the Convertible Notes are generally not permitted to convert the Convertible Notes until June 15,
2022, in the event the conditional conversion feature of the Convertible Notes is triggered due to the trading price of the
Convertible Notes or our common stock, holders of the Convertible Notes will be entitled to convert the Convertible Notes at
any time during specified periods at their option. See Footnote No. 10, “Debt,” to our Financial Statements for additional
information. If one or more holders elect to convert their Convertible Notes, we may elect to settle all or a portion of our
conversion obligation through the payment of cash, which could adversely affect our liquidity.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes or to
repurchase the Convertible Notes upon a fundamental change.
Upon the occurrence of certain fundamental changes with respect to our company, holders of the Convertible Notes
have the right to require us to repurchase their Convertible Notes at a purchase price equal to 100 percent of the principal
amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the
repurchase date. In addition, unless we elect to deliver solely shares of our common stock, we will be required to make cash
payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to
obtain financing at the time we are required to make purchases of Convertible Notes surrendered therefor or Convertible Notes
being converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversions of the Convertible
Notes may be limited by the agreements governing our existing indebtedness (including the credit agreement governing the
Revolving Corporate Credit Facility) and may also be limited by law, by regulatory authority or by agreements that will govern
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our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required or to pay cash
payable on future conversions of the Convertible Notes as required would constitute a default under the Convertible Notes.
Such a default or the fundamental change itself could also lead to a default under agreements governing our existing or future
indebtedness (including the Revolving Corporate Credit Facility). If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and
repurchase the Convertible Notes or make cash payments upon conversions thereof.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes,
may have a material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an
entity must separately account for the liability and equity components of certain convertible debt instruments (such as the
Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s
economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is
required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and
the value of the equity component has been treated as original issue discount for purposes of accounting for the debt component
of the Convertible Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current
periods presented as a result of the amortization of the discounted carrying value of the Convertible Notes to their face amount
over the term of the Convertible Notes. We will report lower net income (or greater net loss) in our financial results because
ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon
interest, which could adversely affect our reported or future financial results, the market price of our common stock and the
trading price of the Convertible Notes.
In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be
settled entirely or partly in cash are currently accounted for utilizing the treasury stock method if we have the ability and intent
to settle in cash, the effect of which is that the shares issuable upon conversion of the Convertible Notes are not included in the
calculation of diluted earnings per share except to the extent that the conversion value of the Convertible Notes exceeds their
principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as
if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in
shares, are issued. We cannot be sure that we will be able to continue to demonstrate the ability or intent to settle in cash or that
the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the
treasury stock method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings
per share would be adversely affected.
The Convertible Note Hedges and Warrants may affect the value of our common stock.
In connection with the Convertible Notes, we entered into privately negotiated convertible note hedges (the
“Convertible Note Hedges”) with affiliates of two of the initial purchasers of the Convertible Notes. The Convertible Note
Hedges cover, subject to customary anti-dilution adjustments substantially similar to those applicable to the Convertible Notes,
the same number of shares of common stock that initially underlay the Convertible Notes. The Convertible Note Hedges are
expected generally to reduce potential dilution to our common stock and/or offset cash payments we are required to make in
excess of the principal amount, in each case, upon any conversion of Convertible Notes. Concurrently with our entry into the
Convertible Note Hedges, we entered into warrant transactions (the “Warrants”) with the hedge counterparties relating to the
same number of shares of common stock. The Warrants could separately have a dilutive effect on our shares of common stock
to the extent that the market price per share exceeds the applicable strike price of the Warrants on one or more of the applicable
expiration dates.
In connection with establishing their initial hedges of the Convertible Note Hedges and the Warrants, the hedge
counterparties and/or their respective affiliates advised us that they expected to purchase shares of our common stock in
secondary market transactions and/or enter into various derivative transactions with respect to our common stock concurrently
with or shortly after the pricing of the Convertible Notes. The hedge counterparties and/or their respective affiliates may
modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or
purchasing or selling our common stock in secondary market. The effect, if any, of these activities on the market price of our
common stock or the Convertible Notes will depend in part on market conditions and cannot be ascertained at this time, but any
of these activities could cause or prevent an increase or a decline in the market price of our common stock or the Convertible
Notes.
We are subject to counterparty risk with respect to the Convertible Note Hedges.
The counterparties to the Convertible Note Hedges are financial institutions, and we are subject to the risk that one or
more of the hedge counterparties may default under the Convertible Note Hedges. Our exposure to the credit risk of the hedge
counterparties is not secured by any collateral. If any of the hedge counterparties become subject to insolvency proceedings, we
will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions
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with such counterparties. Our exposure will depend on many factors but, generally, the increase in our exposure will be
correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge
counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our
common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.
Anti-takeover provisions in our organizational documents and Delaware law and in certain agreements to which
we are party 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.
Further, the terms of the Convertible Notes require us to repurchase the Convertible Notes in the event of certain
fundamental changes with respect to our company. A takeover of our company would trigger an option of the holders of the
Convertible Notes to require us to repurchase the Convertible Notes. This may have the effect of delaying or preventing a
takeover of our company that would otherwise be beneficial to holders of our common stock and holders of the Convertible
Notes.
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.
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.
30
Item 2.
Properties
As of December 31, 2017, our portfolio consisted of over 65 properties in the United States and nine 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 under “Loss Contingencies” 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.
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.”
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 fiscal years.
Stock Price
High
Low
Dividends
Declared Per Share
2017
Quarter ended March 31, 2017 . . . . . . . . . . . . . . . . . . .
Quarter ended June 30, 2017. . . . . . . . . . . . . . . . . . . . .
Quarter ended September 30, 2017. . . . . . . . . . . . . . . .
Quarter ended December 31, 2017 . . . . . . . . . . . . . . . .
2016
Quarter ended March 25, 2016 . . . . . . . . . . . . . . . . . . .
Quarter ended June 17, 2016. . . . . . . . . . . . . . . . . . . . .
Quarter ended September 9, 2016. . . . . . . . . . . . . . . . .
Quarter ended December 30, 2016 . . . . . . . . . . . . . . . .
$100.12
$128.25
$125.90
$143.53
$70.29
$69.97
$80.27
$89.94
$79.79
$96.42
$107.58
$122.07
$45.95
$56.33
$61.87
$59.36
$0.35
$0.35
$0.35
$0.40
$0.30
$0.30
$0.30
$0.35
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. The payment
of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse
to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.
During the 2017 third quarter, we issued $230.0 million aggregate principal amount of our 1.50% Convertible Senior
Notes due 2022. The Convertible Notes were offered in a private placement in reliance on Section 4(a)(2) of the Securities Act
of 1933, as amended (the “Securities Act”), to the initial purchasers for initial resale to qualified institutional buyers pursuant to
an exemption from registration provided by Rule 144A promulgated under the Securities Act. See Footnote No. 10, “Debt,” to
our Financial Statements for additional information regarding the Convertible Notes.
31
Holders of Record
On February 23, 2018, there were 22,791 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 39,500 beneficial
owners of our common stock as of February 23, 2018.
Issuer Purchases of Equity Securities
Period
October 1, 2017 – October 31, 2017. . . . . .
November 1, 2017 – November 30, 2017. .
December 1, 2017 – December 31, 2017 . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Number
of Shares
Purchased
—
—
39,491
39,491
Average
Price
per Share
$—
$—
$132.64
$132.64
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
—
—
39,491
39,491
Maximum Number
of Shares That May
Yet Be Purchased
Under the Plans or
Programs (1)
1,498,986
1,498,986
1,459,495
1,459,495
_________________________
(1)
On August 1, 2017, our Board of Directors authorized the repurchase of up to 1.0 million additional shares of our
common stock under our existing share repurchase program and extended the duration of the program through May
31, 2018. Prior to that authorization, our Board of Directors had authorized the repurchase of an aggregate of up to
10.9 million shares of our common stock under the share repurchase program since the initiation of the program in
October 2013.
Performance Graph
Comparison of Cumulative Total Return
$400
$300
$200
$100
$0
12/28/12
01/03/14
01/02/15
01/01/16
12/30/16
12/31/17
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 28, 2012. 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.
32
Item 6.
Selected Financial Data
The following table presents a summary of our selected historical consolidated financial data for the periods indicated
below. Because this information is only a summary and does not provide all of the information contained in our Financial
Statements, including the related notes, it should be read in conjunction with “Item 7—Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and our Financial Statements for each year for more detailed information.
(in thousands, except per share amounts)
Income Statement Data
2017
2016(2)
Fiscal Years(1)
2015(2)
2014
2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,951,945
Revenues net of total expenses. . . . . . . . . . . . .
231,282
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
226,778
$ 1,808,486
$ 1,810,795
$ 1,716,016
$ 1,749,688
225,271
137,348
218,003
122,799
156,498
80,756
143,920
79,730
Per Share Data
Earnings per share - Basic . . . . . . . . . . . . . . . . $
Basic Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share - Diluted. . . . . . . . . . . . . . . $
Diluted Shares . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . .
$
8.38
27,078
8.18
27,733
1.45
$
$
$
4.93
27,882
4.83
28,422
1.25
$
$
$
3.90
31,487
3.82
32,168
1.05
$
$
$
2.40
33,665
2.33
34,635
0.25
$
$
$
2.25
35,373
2.18
36,621
—
Balance Sheet Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,906,193
Debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,095,213
$ 2,391,419
$ 2,399,718
$ 2,530,579
$ 2,623,230
737,224
678,793
703,013
670,619
Mandatorily redeemable preferred stock of
consolidated subsidiary, net . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
38,989
38,816
38,643
1,861,173
1,045,020
1,483,600
1,423,451
907,819
976,267
1,450,876
1,079,703
1,414,493
1,208,737
Other Data
Contract Sales(3)
Vacation ownership . . . . . . . . . . . . . . . . . . .
$
802,890
Residential products . . . . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . . . . . . . . . . . . $
—
802,890
$
$
723,634
—
723,634
$
$
699,884
28,420
728,304
$
$
698,765
14,514
713,279
$
$
679,089
14,813
693,902
_________________________
(1)
Beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-end reporting cycle.
All fiscal years prior to 2017 included 52 weeks, except for 2013, which included 53 weeks.
(2)
(3)
Data presented herein has been reclassified to conform to our 2017 financial statement presentation.
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
Income Statements 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.
33
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.
Special Note on Adoption of ASC 606
We adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers
(commonly referred to as “ASC 606”), effective January 1, 2018. As discussed in Footnote No. 17, “Adoption of ASC 606
Effective January 1, 2018,” to our Financial Statements, our adoption of ASC 606 will impact the manner in which we
recognize revenue as described below, and as such our 2017 and 2016 financial condition and results of operations included in
this Annual Report may not be representative of our financial condition and results of operations in the future. See Footnote
No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for information regarding new accounting
standards that were issued but not effective as of December 31, 2017, and Footnote No. 17, “Adoption of ASC 606 Effective
January 1, 2018,” to our Financial Statements for information regarding our adoption of ASC 606.
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, as well
as under 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.
Our business is grouped into three reportable segments: North America, Asia Pacific and Europe. As of December 31,
2017, our portfolio consisted of over 65 properties in the United States and nine 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, we changed our
financial reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle. Accordingly, our 2017 fiscal year
began on December 31, 2016 (the day after the end of the 2016 fiscal year) and ended on December 31, 2017.
Hurricane Activity
During the 2017 third quarter, over 20 properties within our North America segment were negatively impacted by one
or both of Hurricane Irma and Hurricane Maria (the “Hurricanes” or “2017 Hurricanes”). As a result of the mandatory
evacuations, shutdowns and cancellations of reservations and scheduled tours resulting from the Hurricanes, the sales
operations at several of our locations, primarily those located on St. Thomas (USVI) and on Marco Island and Singer Island in
Florida, were adversely impacted along with rental and ancillary operations at these locations.
While many of the properties and sales centers impacted by the Hurricanes were fully or partially open by the end of
September 2017, two resorts and a sales center on St. Thomas remained closed at the end of 2017. One resort and a modified
sales gallery in St. Thomas opened on February 15, 2018, and we expect the remaining resort in St. Thomas will be opened in
the second half of 2018. Further, while some of the properties affected were fully or partially open by September 30, 2017,
many of the operations at these locations continued to ramp-up throughout the fourth quarter of 2017, and will continue that
process into 2018. We have estimated the impact these Hurricanes had on our 2017 contract sales and tours and included those
impacts in the discussion of our results below. We expect to submit insurance claims in 2018 for our business interruption
34
losses as well as property damage experienced by both us and our owners’ associations from these Hurricanes; however, we
cannot quantify the extent of any payment under such claims at this time.
During the 2016 fourth quarter, our properties and sales centers located in Hilton Head and Myrtle Beach, South
Carolina were temporarily closed as a result of Hurricane Matthew, and our sales, rental and ancillary operations were
adversely impacted. We estimated the impact this hurricane had on our 2016 contract sales and included the impact in the
discussions of our results below. In 2017, we received $8.7 million in net insurance proceeds related to the settlement of
business interruption insurance claims arising from Hurricane Matthew.
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. Typically, sales incentives
are only awarded if the sale is closed.
As a result of the down payment requirement described above and the requirement that the statutory rescission period
has expired, 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.
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 Income Statements 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 Income Statements 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 Income Statements.
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.
35
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
743
Fiscal Years
2016
741
2015
736
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 Income Statements.
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. 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
64.0 percent in 2017 and 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 to continue to offer financing incentive programs in 2018 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.
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 Income Statements. 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
2017
3.6%
Fiscal Years
2016
3.8%
2015
3.5%
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 the points are redeemed for rental stays at one of our resorts or in
the Explorer Collection, or upon expiration of the points.
36
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.
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 vacation ownership contract sales, excluding
fractional 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.
37
Consolidated Results
The following discussion presents an analysis of our results of operations.
($ 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. . . . . . . . . . . . . . .
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, net . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . .
Benefit (provision) for income taxes. . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
Fiscal Years
2016
2015
727,940
306,196
134,906
322,902
460,001
1,951,945
177,813
408,715
172,137
17,951
281,352
110,225
4,231
—
25,217
63,021
—
460,001
1,720,663
5,772
(9,572)
(1,599)
225,883
895
226,778
$
$
637,503
300,821
126,126
312,071
431,965
1,808,486
155,093
353,295
174,311
18,631
260,752
104,833
(303)
—
23,685
60,953
—
431,965
1,583,215
11,201
(8,912)
(4,632)
222,928
(85,580)
137,348
$
$
675,329
292,561
124,033
312,997
405,875
1,810,795
204,299
330,599
180,072
21,208
259,729
106,104
(232)
1,174
24,658
58,982
324
405,875
1,592,792
9,557
(12,810)
(8,253)
206,497
(83,698)
122,799
Contract Sales
2017 Compared to 2016
($ in thousands)
Contract Sales
Vacation ownership
Fiscal Years
2017
2016
Change
% Change
North America . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . .
Total contract sales. . . . . . . . . . . . . . . . . . .
$
$
728,712
49,027
25,151
802,890
$
$
645,277
47,183
31,174
723,634
$
$
83,435
1,844
(6,023)
79,256
13%
4%
(19%)
11%
We estimate that the 2017 Hurricanes negatively impacted North America contract sales by $20.0 million in 2017 and
Hurricane Matthew negatively impacted North America contract sales by $8.1 million in 2016. Adjusting for the impact of the
2017 Hurricanes only, total contract sales would have increased by 14 percent for the full year. Additionally, adjusting for the
impact of hurricane activity in 2016 and 2017, total contract sales would have increased by 12 percent for the full year.
The changes in contract sales are described within the discussions of our segment results below.
38
2016 Compared to 2015
($ in thousands)
Contract Sales
Vacation ownership
North America . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . .
$
Residential products
Asia Pacific . . . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
% Change
$
645,277
47,183
31,174
723,634
—
—
$
631,403
34,105
34,376
699,884
28,420
28,420
13,874
13,078
(3,202)
23,750
2%
38%
(9%)
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 $8.1 million
in 2016. Adjusting for that impact, total contract sales, excluding residential contract sales, would have increased by
approximately 4.5 percent for the full year.
The changes in contract sales are described within the discussions of our segment results below.
Sale of Vacation Ownership Products
2017 Compared to 2016
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . .
$
$
Fiscal Years
2017
2016
Change
802,890
$
723,634
$
79,256
% Change
11%
3,634
(49,920)
(28,664)
727,940
$
(7,547)
(48,274)
(30,310)
637,503
$
11,181
(1,646)
1,646
90,437
14%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had a positive impact in 2017 due to an increase in the amount of sales that met the down
payment requirement in 2017, partially offset by an increase in the amount of sales that remained in the rescission period as of
the end of 2017. Revenue reportability had a negative impact in 2016 due to a decrease in the amount of sales that met the
down payment requirement in 2016 and an increase in the amount of sales that remained in the rescission period as of the end
of 2016.
The higher sales reserve reflected the higher vacation ownership contract sales volume (a $4.9 million increase),
partially offset by unfavorable sales reserve adjustments in 2016 ($2.6 million) and a favorable sales reserve adjustment in our
Asia Pacific segment in 2017 ($0.7 million).
The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus points as a
sales incentive in our North America segment in 2017. These revenues are deferred and recognized as rental revenue when
those points are redeemed or expire.
39
2016 Compared to 2015
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . .
$
$
Fiscal Years
2016
2015
Change
723,634
$
728,304
$
(4,670)
% Change
(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 $1.7 million negative impact in 2015.
The unfavorable impact compared to 2015 was due to an increase in the amount of sales that remained in the rescission period
at the end of 2016 as compared to 2015.
The higher sales reserve reflected an increase in sales reserve in our North America segment due to the higher
financing propensity and Latin American default activity and, to a lesser extent, the higher vacation ownership contract sales, as
well as a higher sales reserve in our Asia Pacific segment due to an unfavorable sales reserve adjustment to correct an
immaterial error in 2016 with respect to historical static pool data as well as the increase in contract sales.
The increase in other adjustments was primarily driven by an increase in the utilization of plus points as a sales
incentive in our North America segment compared to 2015.
Development Margin
2017 Compared to 2016
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2017
2016
Change
727,940
(177,813)
(408,715)
141,412
$
$
637,503
(155,093)
(353,295)
129,115
$
$
90,437
(22,720)
(55,420)
12,297
% Change
14%
(15%)
(16%)
10%
Development margin percentage . . . . . . . .
19.4%
20.3%
(0.9 pts)
The increase in development margin reflected the following:
•
•
•
•
$19.2 million from higher vacation ownership contract sales volume net of the sales reserve and direct
variable expenses (i.e., cost of vacation ownership products and marketing and sales);
$17.4 million from a favorable mix of lower cost real estate inventory being sold in 2017;
$7.0 million of favorable revenue reportability compared to 2016; and
$2.7 million from lower sales reserve activity.
These increases in development margin were partially offset by the following:
•
•
•
$18.8 million from higher marketing and sales costs (of which $5.3 million was due to the ramp-up of our six
newest sales locations, five in our North America segment and one in our Asia Pacific segment, and $2.9
million was due to variable compensation expense related to the impact of the 2017 Hurricanes);
$14.5 million of unfavorable changes in product cost true-up activity ($0.3 million of favorable true-up
activity in 2017 compared to $14.8 million of favorable true-up activity in 2016); and
$0.7 million from higher other development and inventory expenses.
The 0.9 percentage point decline in the development margin percentage compared to 2016 reflected a 2.6 percentage
point decrease due to higher marketing and sales costs (of which 0.7 percentage points was due to the higher ramp-up expenses
in 2017 associated with our six newest sales locations and 0.5 percentage points was due to variable compensation expense
related to the impact of the 2017 Hurricanes) and a 2.0 percentage point decrease due to the unfavorable changes in product
cost true-up activity year-over-year. These declines were partially offset by a 2.4 percentage point increase due to a favorable
40
mix of lower cost vacation ownership real estate inventory being sold in 2017, a 0.6 percentage point increase due to the
favorable revenue reportability year-over-year, a 0.4 percentage point increase from the higher North America vacation
ownership contract sales (which have a development margin that is higher than the company-wide average) and a 0.3
percentage point increase from the lower sales reserve activity.
2016 Compared to 2015
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
Change
637,503
(155,093)
(353,295)
129,115
$
$
675,329
(204,299)
(330,599)
140,431
$
$
(37,826)
49,206
(22,696)
(11,316)
% Change
(6%)
24%
(7%)
(8%)
Development margin percentage . . . . . . . .
20.3%
20.8%
(0.5 pts)
The decrease in development margin reflected the following:
•
•
•
•
•
•
•
$12.0 million of pre-opening and startup expenses incurred in 2016 in support of our six new sales locations;
$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
$5.1 million of higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of
vacation ownership products and marketing and sales).
The 0.5 percentage point decrease in the development margin percentage reflected a 1.8 percentage point decline due
to higher marketing and sales spending from pre-opening and startup expenses, a 1.2 percentage point decline due to the higher
sales reserve activity, a 0.9 percentage point decline due to the higher usage of plus points as a sales incentive and a 0.3
percentage point decrease due to the higher unfavorable revenue reportability, in each case, year-over-year. These declines were
partially offset by a 2.6 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory
being sold in 2016 and a 1.1 percentage point increase due to the higher favorable product cost true-up activity year-over-year.
41
Resort Management and Other Services Revenues, Expenses and Margin
2017 Compared to 2016
Fiscal Years
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services revenues . . . . . . . . . .
Resort management and other services expenses . . . . . . . . . .
Resort management and other services margin . . . . . . . . . . . $
2017
87,778
118,192
100,226
306,196
(172,137)
134,059
$
$
Resort management and other services margin percentage . .
43.8%
2016
83,260
124,160
93,401
300,821
(174,311)
126,510
42.1%
$
$
Change
4,518
(5,968)
6,825
5,375
2,174
7,549
1.7 pts
% Change
5%
(5%)
7%
2%
1%
6%
The increase in resort management and other services revenues reflected $4.5 million of higher management fees
resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the
system, $3.0 million of higher resales commissions, brand fees 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, $0.9 million of higher refurbishment revenue due to an increase in the number of refurbishment projects completed in
2017, and $0.9 million of higher settlement fees due to an increase in the number of closed contracts in 2017. These increases
were partially offset by $6.0 million of lower ancillary revenues. The decline in ancillary revenues included $6.2 million of
lower ancillary revenues from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the
2016 second quarter) and $7.2 million of lower revenues due to new outsourcing arrangements at multiple resorts in our North
America segment, partially offset by $7.4 million of higher revenues from food and beverage and golf offerings that we
continue to operate at our resorts.
The improvement in the resort management and other services margin reflected the increases in revenue as well as
$2.2 million of lower expenses. The lower expenses included $6.8 million of lower ancillary expenses due to new outsourcing
arrangements at multiple resorts in our North America segment, $5.5 million of lower ancillary expenses from the operating
property in Surfers Paradise, Australia and $0.7 million of lower resales and other expenses, partially offset by $6.3 million of
higher ancillary expenses from food and beverage and golf offerings that we continue to operate at our resorts, $3.3 million of
higher customer service expenses and expenses associated with the MVCD program and $1.2 million of higher refurbishment
expenses due to an increase in the number of projects being refurbished in 2017.
The ancillary revenue producing portions of the operating property in Surfers Paradise, Australia were included in the
portion of the operating property sold in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues
or expenses at this property. See Footnote No. 5, “Acquisitions and Dispositions” to our Financial Statements for further
information related to this transaction.
2016 Compared to 2015
Fiscal Years
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services revenues . . . . . . . . . .
Resort management and other services expenses . . . . . . . . . .
Resort management and other services margin . . . . . . . . . . . $
2016
83,260
124,160
93,401
300,821
(174,311)
126,510
$
$
Resort management and other services margin percentage . .
42.1%
2015
77,612
125,218
89,731
292,561
(180,072)
112,489
38.4%
$
$
Change
5,648
(1,058)
3,670
8,260
5,761
14,021
3.7 pts
% Change
7%
(1%)
4%
3%
(3%)
12%
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 $0.6 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, $0.8 million of lower settlement fees due to a decrease in the number of contracts closed 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
42
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 that we continue to operate at our 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 that we continue to operate 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 expenses due to a decrease in the number of projects being refurbished in 2016, partially
offset by $3.3 million of expenses from the operation of the ancillary businesses at the property in New York in 2016.
Financing Revenues, Expenses and Margin
2017 Compared to 2016
($ in thousands)
Interest income. . . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . . .
Financing expenses . . . . . . . . . . . . . . . . . .
Consumer financing interest expense . . . .
Financing margin . . . . . . . . . . . . . . . . . . . .
$
$
Financing propensity . . . . . . . . . . . . . . . . .
Fiscal Years
2017
2016
Change
$
$
127,983
6,923
134,906
(17,951)
(25,217)
91,738
64.0%
$
$
120,113
6,013
126,126
(18,631)
(23,685)
83,810
60.1%
7,870
910
8,780
680
(1,532)
7,928
% Change
7%
15%
7%
4%
(6%)
9%
The increase in financing revenues was due to a $119 million increase in the average gross vacation ownership notes
receivable balance ($16.8 million) and higher other financing revenues ($0.9 million), partially offset by higher financing
program incentive costs ($6.1 million) and a slight decrease in the weighted average coupon rate of our vacation ownership
notes receivable ($2.8 million).
The increase in financing margin reflected the higher financing revenues and lower other expenses, partially offset by
higher consumer financing interest expense. The higher consumer financing interest expense was due to a higher average
outstanding debt balance in 2017.
We expect to continue to offer financing incentive programs in 2018 and that interest income will continue to increase
as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership
notes receivable.
2016 Compared to 2015
($ in thousands)
Interest income. . . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . . .
Financing expenses . . . . . . . . . . . . . . . . . .
Consumer financing interest expense . . . .
Financing margin . . . . . . . . . . . . . . . . . . . .
$
$
Financing propensity . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
$
$
120,113
6,013
126,126
(18,631)
(23,685)
83,810
60.1%
$
$
118,020
6,013
124,033
(21,208)
(24,658)
78,167
49.9%
2,093
—
2,093
2,577
973
5,643
% Change
2%
—%
2%
12%
4%
7%
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 ($0.4 million). The lower average interest rate reflected the continued pay-
43
down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates
applicable to our more recently completed securitizations of vacation ownership notes receivable.
The increase in financing propensity resulted from the use of incentive programs during all of 2016 as compared to
during only a portion of 2015.
Rental Revenues, Expenses and Margin
2017 Compared to 2016
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . .
Unsold maintenance fees . . . . . . . . . . . . . .
Other rental expenses. . . . . . . . . . . . . . . . .
Rental margin. . . . . . . . . . . . . . . . . . . . . . .
Rental margin percentage . . . . . . . . . . . . .
Transient keys rented(1) . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . .
Resort occupancy . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2017
2016
Change
322,902
(76,115)
(205,237)
41,550
$
$
12.9%
312,071
(68,502)
(192,250)
51,319
16.4%
Fiscal Years
2017
2016
1,278,490
216.29
88.7%
$
1,206,118
216.57
89.1%
$
$
$
10,831
(7,613)
(12,987)
(9,769)
(3.5 pts)
Change
72,372
(0.28)
(0.4 pts)
$
$
$
% Change
3%
(11%)
(7%)
(19%)
% Change
6%
—%
_________________________
(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 their respective conversions
to vacation ownership inventory.
The increase in rental revenues was due to a 6 percent increase in transient keys rented ($15.7 million) driven by a 6
percent increase in available keys, $2.7 million of higher plus points revenue (which is recognized when the points are
redeemed or expire) and a $1.9 million increase in preview keys rented and other revenue, partially offset by $6.1 million of
revenue in 2016 from the operating property in Surfers Paradise, Australia prior to the conversion of the property to vacation
ownership inventory (a portion of which was disposed of in the second quarter of 2016) and $3.4 million of revenue in 2016 at
our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory.
The decrease in rental margin reflected higher expenses incurred due to owners choosing alternative usage options and
higher unsold maintenance fees, partially offset by the higher rental revenues net of direct variable expenses (such as
housekeeping) and the $2.7 million increase in plus points revenue.
2016 Compared to 2015
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . .
Unsold maintenance fees . . . . . . . . . . . . . .
Other rental expenses. . . . . . . . . . . . . . . . .
Rental margin. . . . . . . . . . . . . . . . . . . . . . .
Rental margin percentage . . . . . . . . . . . . .
Transient keys rented(1) . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . .
Resort occupancy . . . . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
312,071
(68,502)
(192,250)
51,319
$
$
16.4%
312,997
(63,130)
(196,599)
53,268
17.0%
Fiscal Years
2016
2015
1,206,118
216.57
89.1%
$
1,179,905
219.45
89.0%
$
$
$
(926)
(5,372)
4,349
(1,949)
(0.6 pts)
Change
26,213
(2.88)
0.1 pts
$
$
$
% Change
—%
(9%)
2%
(4%)
% Change
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 their respective conversions
to vacation ownership inventory.
44
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.
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.
Cost Reimbursements
2017 Compared to 2016
Cost reimbursements increased $28.0 million, or 6 percent, over 2016, reflecting $21.2 million due to higher costs,
$6.5 million due to additional managed unit weeks in 2017 and a $0.3 million increase from foreign exchange rates in our
Europe segment.
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.
General and Administrative
2017 Compared to 2016
General and administrative expenses increased $5.4 million due to $6.4 million of higher personnel related and other
expenses, partially offset by $1.0 million of lower litigation related costs. The higher personnel related and other expenses
included annual merit, bonus and inflationary cost increases.
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 refurbishment costs in 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.
Litigation Settlement
2017
In 2017, we incurred $4.2 million of litigation settlement charges, including $2.4 million related to the repurchase of
two previously sold residential units at one of our resorts in North America, a $1.0 million charge related to the settlement of a
construction related dispute at one of our North America resorts and $0.8 million of various other charges.
2016
In 2016, we reversed the remaining $0.3 million of an accrual related to a 2014 agreement in principle regarding The
Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”) because actual costs incurred were lower than
expected.
2015
In 2015, we reversed $0.3 million of an accrual related to our sale of The Abaco Club in the Bahamas in the fourth
quarter of 2014 because actual costs incurred were lower than expected.
45
Royalty Fee
2017 Compared to 2016
Royalty fee expense increased $2.1 million in 2017 (from $61.0 million to $63.0 million) due to an increase in the
dollar volume of closings ($2.2 million) and a contractual increase late in 2016 in the fixed portion of the royalty fee owed to
Marriott International ($2.2 million), partially offset by $2.3 million of lower costs due to an increase in sales of pre-owned
inventory, which carry a lower royalty fee as compared to initial sales of our inventory (one percent versus two percent).
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.
Gains and Other Income, Net
2017
Gains and other income of $5.8 million during 2017 included $8.7 million in net insurance proceeds related to the
settlement of business interruption insurance claims arising from Hurricane Matthew, partially offset by a charge of $1.3
million associated with the estimated property damage insurance deductibles and impairment of property and equipment at
several of our resorts, primarily in Florida and the Caribbean, that were impacted by Hurricane Irma and/or Hurricane Maria,
$1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4 million of miscellaneous
losses and other expense.
2016
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 expected 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.
2015
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.
Interest Expense
2017 Compared to 2016
Interest expense increased $0.7 million due to $2.9 million of interest expense associated with the Convertible Notes,
that were issued during the 2017 third quarter, $2.3 million of imputed interest on a non-interest bearing note payable
associated with the acquisition of vacation ownership units located on the Big Island of Hawaii and $0.5 million of higher other
expenses, partially offset by $5.0 million of expense incurred in 2016 associated with the redemption of the mandatorily
redeemable preferred stock of a consolidated subsidiary. Due to the redemption of this mandatorily redeemable preferred stock,
we will not incur further interest expense associated with this liability in the future.
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, we will not incur further interest expense associated with this liability in the future.
46
Other
2017
In 2017, we incurred $1.6 million of other expenses, including $1.8 million of acquisition costs associated with the
anticipated future acquisition of the operating property in New York that we manage, partially offset by $0.2 million of other
miscellaneous income.
2016
In 2016, we incurred $4.6 million of other expenses, including $4.9 million of acquisition 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 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, partially offset by $0.3 million of other miscellaneous income. 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.
2015
In 2015, we incurred $8.3 million of other expenses, including $5.7 million of acquisition 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 acquisition 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 had begun managing 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.
Income Tax
Our effective tax rates for fiscal years 2017, 2016 and 2015 were (0.40) percent, 38.39 percent and 40.53 percent,
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 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 2017 and the prior two years.
2017 Compared to 2016
Our provision for income taxes decreased $86.5 million (from a provision of $85.6 million) to a benefit of $0.9
million). The decrease was primarily due to the revaluation of deferred tax assets and liabilities due to a $65.2 million benefit
from the Tax Cuts and Jobs Act discussed below, the release of a $7.0 million foreign valuation allowance, a decrease of $4.9
million in foreign tax rates and the favorable impact of the adoption of Accounting Standards Update No. 2016-09,
“Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”). See Footnote No. 1, “Summary of Significant
Accounting Policies,” to our Financial Statements for additional information on ASU 2016-09.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The new U.S. tax legislation is subject to a
number of complex provisions, which we are currently evaluating, however we expect future earnings to be positively impacted
largely due to the reduction of the U.S. federal corporate income tax rate from 35 percent to 21 percent. This rate reduction had
a significant impact on our provision for income taxes for 2017, including an estimated $65.2 million benefit for the one-time
impact resulting from the revaluation of our deferred tax assets and liabilities to reflect the new lower rate.
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.
47
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), 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.
($ in thousands)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash share-based compensation. . . . . . . . . . . . . . . .
Certain items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2017
2017
Fiscal Years
2016
2015
226,778
9,572
(895)
21,494
256,949
16,286
6,805
280,040
$
$
137,348
8,912
85,580
21,044
252,884
13,949
(5,456)
261,377
$
$
122,799
12,810
83,698
22,217
241,524
14,142
(5,594)
250,072
The “certain items” excluded from Adjusted EBITDA for 2017 consisted of $8.7 million in net insurance proceeds
related to the settlement of business interruption insurance claims arising from Hurricane Matthew, $6.5 million of variable
compensation expense related to the impact of the 2017 Hurricanes, $4.2 million of litigation settlement expenses, $1.8 million
of acquisition costs, a charge of $1.3 million associated with the estimated property damage insurance deductibles and
impairment of property and equipment at several of our resorts, primarily in Florida and the Caribbean, that were impacted by
the 2017 Hurricanes, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4
million of miscellaneous losses and other expense. These exclusions increased EBITDA by $6.8 million.
We estimate that the effects of Hurricane Irma and Hurricane Maria negatively impacted Adjusted EBITDA by
approximately $6.7 million in 2017. Adjusting for that impact, Adjusted EBITDA in 2017 would have totaled approximately
$286.7 million.
48
2016
The “certain items” excluded from Adjusted EBITDA for 2016 consisted of $11.2 million of gains and other income
not associated with our on-going core operations, $4.9 million of acquisition costs, $1.4 million of hurricane 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” excluded from Adjusted EBITDA 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 $5.6 million.
Business Segments
Our business is grouped into three reportable business segments: North America, Asia Pacific and Europe. See
Footnote No. 14, “Business Segments,” to our Financial Statements for further information on our segments, and “Business—
Segments” for further details regarding our individual properties by segment.
North America
The following discussion presents an analysis of our results of operations for the North America segment.
($ 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational and separation related . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . .
(Losses) gains and other (expense) income, net. . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
$
49
2017
Fiscal Years
2016
2015
662,424
276,443
127,486
289,446
421,546
1,777,345
157,457
356,206
147,016
249,944
3,733
—
9,760
—
421,546
1,345,662
(2,776)
(1,034)
427,873
$
$
572,305
266,365
118,646
276,008
394,592
1,627,916
134,079
304,099
145,036
225,281
(303)
—
9,867
—
394,592
1,212,651
12,260
(4,191)
423,334
$
$
586,774
255,775
115,738
277,348
369,467
1,605,102
164,200
288,260
149,257
225,043
(370)
532
7,971
324
369,467
1,204,684
9,600
(422)
409,596
Contract Sales
2017 Compared to 2016
($ in thousands)
Contract sales
Fiscal Years
2017
2016
Change
% Change
Vacation ownership. . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . .
$
$
728,712
728,712
$
$
645,277
645,277
$
$
83,435
83,435
13%
13%
The increase in North America vacation ownership contract sales reflected a $92.8 million increase in sales at on-site
sales locations, partially offset by a $9.0 million decrease in sales at off-site (non tour-based) sales locations and a $0.4 million
decrease in fractional sales. We estimate that hurricane activity negatively impacted contract sales by $20.0 million in 2017 and
$8.1 million in 2016.
The increase in sales at North America on-site locations reflected a 12 percent increase in the number of tours and a 3
percent increase in VPG to $3,565 in 2017 from $3,462 in 2016. The increase in the number of tours was due to increases in
both owner tours and first time buyer tours, and was driven by programs that were implemented in 2015 or later to generate
additional tours. The 12 percent increase in the number of total tours included an increase of 8 percent from our five new sales
locations in this segment and an increase of 4 percent from existing sales locations. We estimate that the 2017 Hurricanes
negatively impacted the year over year change in tours by 3 percent (or 2 percent if the impact of Hurricane Matthew on tours
in 2016 is also included); the vast majority of this impact was at our exiting sales locations. The increase in VPG resulted from
higher pricing and a 0.1 percentage point increase in closing efficiency. The sales at North America off-site locations were
negatively impacted by lower sales in Latin America, which continued to be negatively impacted in 2017 by currency
fluctuations and economic disruptions in the region.
2016 Compared to 2015
($ 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 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 $3,386 in 2015. The increase in VPG resulted from an increase in the number of points
sold per contract and higher pricing, partially offset by a 0.5 percentage point decrease in closing efficiency. The increase in the
number of tours was driven by an increase in first time buyer tours due to the new sales locations that were opened in the latter
part of 2016 and programs that were implemented over the past two years to generate additional tours. The sales at off-site
locations were negatively impacted by the strength of the U.S. dollar, primarily in Latin America, which is a trend that
negatively impacted the comparison to prior year results throughout most of 2016.
50
Sale of Vacation Ownership Products
2017 Compared to 2016
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . .
$
$
Fiscal Years
2017
2016
Change
728,712
$
645,277
$
83,435
% Change
13%
3,632
(43,091)
(26,829)
662,424
$
(3,453)
(39,298)
(30,221)
572,305
$
7,085
(3,793)
3,392
90,119
16%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability positively impacted 2017 due to an increase in the amount of sales that met the down payment
requirement in 2017, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of
2017. Revenue reportability negatively impacted 2016 due to a decrease in the amount of sales that met the down payment
requirement in 2016 and an increase in the amount of sales that remained in the rescission period as of the end of 2016.
The higher sales reserve reflected the higher vacation ownership contract sales volume, partially offset by an
unfavorable sales reserve adjustment in 2016.
The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus points as a
sales incentive in 2017. These revenues are deferred and recognized as rental revenue when those points are redeemed or
expire.
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
645,277
$
631,403
$
13,874
% Change
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 $0.8 million negative impact in 2015.
The unfavorable impact compared to 2015 was due to an increase in the amount of sales that remained in the rescission period
as of the end of 2016 as compared to 2015 as a result of higher contract sales near the end of 2016, partially offset by an
increase in the amount of sales meeting the down payment requirement for revenue reportability prior to the end of 2016.
The higher sales reserve was driven by the higher financing propensity and Latin American default activity and, to a
lesser extent, the higher vacation ownership contract sales, as compared to 2015.
The increase in other adjustments was primarily driven by an increase in the utilization of plus points as a sales
incentive in 2016.
51
Development Margin
2017 Compared to 2016
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2017
2016
Change
662,424
(157,457)
(356,206)
148,761
$
$
572,305
(134,079)
(304,099)
134,127
$
$
90,119
(23,378)
(52,107)
14,634
% Change
16%
(17%)
(17%)
11%
Development margin percentage . . . . . . . .
22.5%
23.4%
(0.9 pts)
The increase in development margin reflected the following:
•
•
•
•
$21.3 million from higher vacation ownership contract sales volume net of the sales reserve and direct
variable expenses (i.e., cost of vacation ownership products and marketing and sales);
$16.1 million from a favorable mix of lower cost real estate inventory being sold in 2017;
$4.3 million of favorable revenue reportability compared to 2016; and
$1.0 million from lower sales reserve activity in 2017.
These increases in development margin were partially offset by the following:
•
•
•
$13.7 million from higher marketing and sales costs (of which $6.0 million was due to the ramp-up of our
newest sales locations and $2.9 million was due to variable compensation expense related to the impact of the
2017 Hurricanes);
$13.6 million of unfavorable changes in product cost true-up activity (less than $0.1 million of unfavorable
true-up activity in 2017 compared to $13.6 million of favorable true-up activity in 2016); and
$0.8 million from higher other development and inventory expenses.
The 0.9 percentage point decline in the development margin percentage compared to 2016 reflected a 2.1 percentage
point decrease due to the unfavorable changes in product cost true-up activity year-over-year and a 1.9 percentage point
decrease due to higher marketing and sales costs (of which 0.9 percentage points was due to the higher ramp-up expenses in
2017 associated with our newest sales locations and 0.4 percentage points was due to variable compensation expense related to
the impact of the 2017 Hurricanes). These declines were partially offset by a 2.5 percentage point increase due to a favorable
mix of lower cost vacation ownership real estate inventory being sold in 2017, a 0.5 percentage point increase due to the
favorable revenue reportability year-over-year and a 0.1 percentage point increase from the lower sales reserve activity.
2016 Compared to 2015
($ in thousands)
Sale of vacation ownership products . . . .
Cost of vacation ownership products . . . .
Marketing and sales . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
Change
572,305
(134,079)
(304,099)
134,127
$
$
586,774
(164,200)
(288,260)
134,314
$
$
% Change
(2%)
18%
(5%)
—%
(14,469)
30,121
(15,839)
(187)
0.5 pts
Development margin percentage . . . . . . .
23.4%
22.9%
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
52
•
$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
$0.6 million of lower other development expenses.
The 0.5 percentage point increase in the development margin percentage reflected a 2.8 percentage point increase due
to a favorable mix of lower cost vacation ownership real estate inventory being sold in 2016, a 1.5 percentage point increase
due to the higher favorable product cost true-up activity year-over-year and a 0.1 percentage point increase due to the lower
development expenses. These increases were partially offset by a 1.5 percentage point decline due to the higher marketing and
sales spending (including a 1.4 percentage point impact from the pre-opening and startup expenses), a 1.1 percentage point
decline due to the higher usage of plus points as a sales incentive, a 1.1 percentage point decline due to the higher sales reserve
rate, and a 0.2 percentage point decline due to the higher unfavorable revenue reportability, in each case, year-over-year.
Resort Management and Other Services Revenues, Expenses and Margin
2017 Compared to 2016
Fiscal Years
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services revenues . . . . . . . . . .
Resort management and other services expenses . . . . . . . . . .
Resort management and other services margin . . . . . . . . . . . $
2017
78,595
101,247
96,601
276,443
(147,016)
129,427
$
$
Resort management and other services margin percentage . .
46.8%
2016
74,507
102,065
89,793
266,365
(145,036)
121,329
45.5%
$
$
Change
4,088
(818)
6,808
10,078
(1,980)
8,098
1.3 pts
% Change
5%
(1%)
8%
4%
(1%)
7%
The increase in resort management and other services revenues reflected $4.1 million of higher management fees
resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs across the
system, $2.4 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, $2.6 million of higher resales commissions, brand fees and other
revenues, $0.9 million of higher refurbishment revenue due to an increase in the number of refurbishment projects completed in
2017 and $0.9 million of higher settlement fees due to an increase in the number of closed contracts in 2017, partially offset by
$0.8 million of lower ancillary revenues. The decline in ancillary revenues included $7.2 million of lower revenues due to new
outsourcing arrangements at multiple resorts, partially offset by $6.4 million of higher revenues from food and beverage and
golf offerings that we continue to operate at our resorts.
The increase in the resort management and other services margin reflected the increases in revenue, partially offset by
$2.0 million of higher expenses. The higher expenses included $3.0 million of higher customer service expenses and expenses
associated with the MVCD program, $5.1 million of higher ancillary expenses from food and beverage and golf offerings that
we continue to operate at our resorts and $1.2 million of higher refurbishment expenses due to an increase in the number of
projects being refurbished in 2017, partially offset by $6.8 million of lower ancillary expenses due to new outsourcing
arrangements at multiple resorts and $0.5 million of lower resales and other expenses.
53
2016 Compared to 2015
Fiscal Years
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services revenues . . . . . . . . . .
Resort management and other services expenses . . . . . . . . . .
Resort management and other services margin . . . . . . . . . . . $
2016
74,507
102,065
89,793
266,365
(145,036)
121,329
$
$
Resort management and other services margin percentage . .
45.5%
2015
68,770
100,773
86,232
255,775
(149,257)
106,518
41.6%
$
$
Change
5,737
1,292
3,561
10,590
4,221
14,811
3.9 pts
% Change
8%
1%
4%
4%
3%
14%
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, $5.7 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 $0.9 million of lower settlement fees due to a decrease in the number of contracts closed, $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 that we
continue to operate at our 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 in 2016.
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 expenses due to a decrease in the number of projects being refurbished in
2016, partially offset by $3.3 million of expenses in 2016 from the operation of the ancillary businesses at the property in New
York.
Financing Revenues
2017 Compared to 2016
($ in thousands)
Interest income. . . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . . .
$
$
Financing propensity . . . . . . . . . . . . . . . . .
Fiscal Years
2017
2016
Change
$
$
120,711
6,775
127,486
63.9%
$
$
112,775
5,871
118,646
58.9%
7,936
904
8,840
% Change
7%
15%
7%
The increase in financing revenues was due to an increase in the average gross vacation ownership notes receivable
balance ($16.6 million) and higher other financing revenues ($0.9 million), partially offset by financing program incentive
costs ($6.1 million) and a decrease in the weighted average coupon rate of our vacation ownership notes receivable ($2.6
million). We expect to continue to offer financing incentive programs in 2018 and that interest income will continue to increase
as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership
notes receivable.
2016 Compared to 2015
($ in thousands)
Interest income. . . . . . . . . . . . . . . . . . . . . .
Other financing revenues . . . . . . . . . . . . . .
Financing revenues . . . . . . . . . . . . . . . . . .
$
$
Financing propensity . . . . . . . . . . . . . . . . .
Fiscal Years
2016
2015
Change
$
$
109,884
5,854
115,738
49.1%
2,891
17
2,908
$
$
112,775
5,871
118,646
58.9%
54
% 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.
Rental Revenues, Expenses and Margin
2017 Compared to 2016
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . .
Unsold maintenance fees . . . . . . . . . . . . . .
Other rental expenses. . . . . . . . . . . . . . . . .
Rental margin. . . . . . . . . . . . . . . . . . . . . . .
Rental margin percentage . . . . . . . . . . . . .
Transient keys rented(1) . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . .
Resort occupancy . . . . . . . . . . . . . . . . . . . .
$
$
$
Fiscal Years
2017
2016
289,446
(67,643)
(182,301)
39,502
$
$
276,008
(62,188)
(163,093)
50,727
13.6%
18.4%
Fiscal Years
2017
1,180,474
209.98
89.1%
$
2016
1,111,039
211.66
89.8%
$
$
$
Change
13,438
(5,455)
(19,208)
(11,225)
(4.8 pts)
Change
69,435
(1.68)
(0.7 pts)
% Change
5%
(9%)
(12%)
(22%)
% Change
6%
(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 increase in rental revenues was due to a 6 percent increase in transient keys rented ($14.7 million) driven by a 7
percent increase in available keys, $2.7 million of higher plus points revenue (which is recognized when the points are
redeemed or expire) and a $1.4 million increase in preview keys rented and other revenue, partially offset by $3.4 million of
revenue in 2016 at our operating property in San Diego, California prior to the conversion of the property to vacation
ownership inventory and a 1 percent decrease in average transient rate ($2.0 million).
The decrease in rental margin reflected higher expenses incurred due to owners choosing alternative usage options and
higher unsold maintenance fees, partially offset by the higher rental revenues net of direct variable expenses (such as
housekeeping) and the $2.7 million increase in plus points revenue.
2016 Compared to 2015
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . . .
Unsold maintenance fees . . . . . . . . . . . . . .
Other rental expenses. . . . . . . . . . . . . . . . .
Rental margin. . . . . . . . . . . . . . . . . . . . . . .
Rental margin percentage . . . . . . . . . . . . .
Transient keys rented(1) . . . . . . . . . . . . . . .
Average transient key rate . . . . . . . . . . . . .
Resort occupancy . . . . . . . . . . . . . . . . . . . .
$
$
$
Fiscal Years
2016
2015
Change
276,008
(62,188)
(163,093)
50,727
$
$
277,348
(59,339)
(165,704)
52,305
18.4%
18.9%
Fiscal Years
2016
2015
1,111,039
211.66
89.8%
$
1,088,206
214.47
90.2%
$
$
$
(1,340)
(2,849)
2,611
(1,578)
(0.5) pts
Change
22,833
(2.81)
(0.4 pts)
% Change
—%
(5%)
2%
(3%)
% Change
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
55
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 $0.1 million increase in plus points revenue.
Asia Pacific
The following discussion presents an analysis of our results of operations for the Asia Pacific segment.
($ 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, net . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
$
$
Overview
2017
Fiscal Years
2016
2015
$
42,677
4,211
4,504
12,554
3,827
67,773
8,513
34,868
4,629
15,865
981
3,827
68,683
(20)
(38)
(968) $
40,664
10,166
4,187
16,471
3,461
74,949
7,606
30,054
10,055
20,463
924
3,461
72,563
(878)
(230)
1,278
$
$
59,592
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
In our Asia Pacific segment, we continue to identify opportunities for development margin growth and improvement.
We plan to continue to focus on future inventory acquisitions with strong on-site sales locations. In 2015, we purchased an
operating property located in Surfers Paradise, Australia and in 2016, we sold the portion of this operating property that we did
not intend to convert to vacation ownership inventory and converted the remaining portion of this operating property to
vacation ownership inventory, a portion of which was contributed to our points-based programs within this segment. We began
selling from this new location at the end of the 2016 first quarter. During the 2017 third quarter, we completed the purchase of
51 completed vacation ownership units, as well as a sales gallery and related resort amenities, in Bali, Indonesia. We expect to
begin selling from this new location in 2018.
Contract Sales
2017 Compared to 2016
($ in thousands)
Contract sales
Fiscal Years
2017
2016
Change
% Change
Vacation ownership . . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . . . .
$
$
49,027
49,027
$
$
47,183
47,183
$
$
1,844
1,844
4%
4%
The increase in Asia Pacific vacation ownership contract sales was driven by a 31 percent increase in tours, partially
offset by a 20 percent decrease in VPG. The increase in tours reflected the continued ramp-up of the new sales location in
Surfers Paradise, Australia and an 11 percent increase at existing sales locations. The decrease in VPG was driven by an
increase in sales to first time buyers, which generally have a lower VPG than sales to existing owners due in part to a higher
56
cancellation rate. Contract sales at the new sales location in Surfers Paradise, Australia are not reported as sale of vacation
ownership products until closing.
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 Surfers Paradise, Australia. The decrease in Asia Pacific
residential contract sales was due to the bulk sale of 18 whole ownership residential units in Macau during the first quarter of
2015 for $28.4 million, following which no residential inventory remained in this segment.
Sale of Vacation Ownership Products
2017 Compared to 2016
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . .
$
$
Fiscal Years
2017
2016
Change
49,027
$
47,183
$
1,844
% Change
4%
(846)
(3,980)
(1,524)
42,677
$
(1,093)
(5,116)
(310)
40,664
$
247
1,136
(1,214)
2,013
5%
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability had an unfavorable $0.8 million impact in 2017 compared to an unfavorable $1.1 million impact
in 2016. The decrease in the sales reserve was due to an unfavorable sales reserve adjustment made in 2016 to correct an
immaterial error with respect to historical static pool data and a favorable sales reserve adjustment in 2017, partially offset by
the higher vacation ownership contract sales.
2016 Compared to 2015
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . . $
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . . $
Fiscal Years
2016
2015
Change
47,183
$
62,525
$
(15,342)
% Change
(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 $1.3 million
in 2016 with respect to historical static pool data as well as the higher vacation ownership contract sales volume in 2016. The
unfavorable revenue reportability in 2016 as compared to 2015 was due to unclosed sales at the new sales location in Surfers
Paradise, Australia at the end of 2016.
57
Development Margin
2017 Compared to 2016
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2017
2016
Change
$
42,677
(8,513)
(34,868)
(704) $
40,664
(7,606)
(30,054)
3,004
$
$
2,013
(907)
(4,814)
(3,708)
% Change
5%
(12%)
(16%)
(123%)
Development margin percentage . . . . . . . .
(1.6%)
7.4%
(9.0 pts)
The decrease in development margin reflected higher marketing and sales costs due to the shift to focus on more first
time buyer tours and lower favorable product cost true-up activity, partially offset by the higher vacation ownership contract
sales volume net of the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and
sales).
2016 Compared to 2015
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
Development margin percentage . . . . . . . .
$
$
Fiscal Years
2016
2015
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)
% Change
(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 Surfers
Paradise, 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).
These decreases in development margin were partially offset by $2.8 million of higher sales volume net of higher
direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) as compared to 2015.
Resort Management and Other Services Revenues, Expenses and Margin
2017 Compared to 2016
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resort management and other services revenues . . . . . . . . . .
Resort management and other services expenses . . . . . . . . . .
Resort management and other services margin . . . . . . . . . . . $
Fiscal Years
2017
2016
Change
$
2,755
—
1,456
4,211
(4,629)
(418) $
2,403
6,249
1,514
10,166
(10,055)
111
$
$
352
(6,249)
(58)
(5,955)
5,426
(529)
% Change
15%
(100%)
(4%)
(59%)
54%
(477%)
Resort management and other services margin percentage . .
(9.9%)
1.1%
(11.0 pts)
58
The decrease in resort management and other services revenues reflected $6.2 million of lower ancillary revenues
from the operating property in Surfers Paradise, Australia (a portion of which was disposed of in the second quarter of 2016)
and $0.1 million of lower other services revenues, partially offset by $0.4 million of higher management fees. The decline in
the resort management and other services margin reflected $0.8 million of ancillary profit from the operating property in
Surfers Paradise, Australia in 2016 (compared to no ancillary activity in 2017), partially offset by the higher management fees
in 2017 compared to 2016.
The ancillary revenue producing portions of the operating property in Surfers Paradise, Australia were included in the
portion of the operating property sold in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues
or expenses at this property. See Footnote No. 5, “Acquisitions and Dispositions” to our Financial Statements for further
information related to this transaction.
2016 Compared to 2015
($ in thousands)
Management fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ancillary 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
$
$
2,403
6,249
1,514
10,166
(10,055)
111
1.1%
2,695
7,431
1,538
11,664
(10,368)
1,296
$
$
(292)
(1,182)
(24)
(1,498)
313
(1,185)
11.1%
(10.0 pts)
% Change
(11%)
(16%)
(2%)
(13%)
3%
(91%)
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
and $0.3 million of lower management fees.
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 $0.2 million of higher other costs, as compared to 2015.
Rental Revenues, Expenses and Margin
2017 Compared to 2016
Fiscal Years
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . .
Rental expenses . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . .
$
$
2017
2016
Change
$
12,554
(15,865)
(3,311) $
$
16,471
(20,463)
(3,992) $
(3,917)
4,598
681
% Change
(24%)
22%
17%
Rental margin percentage . . . . . . . . . . . .
(26.4%)
(24.2%)
(2.2 pts)
The decline in rental revenues was due to $5.0 million of lower revenue from the operating property in Surfers
Paradise, Australia (a portion of which was disposed of in the 2016 second quarter), partially offset by $1.1 million of higher
revenues at the other resorts in the segment due to increases in transient keys rented, preview keys rented and the average
transient rate. The lower expenses were due to $5.7 million of lower expenses from the operating property in Surfers Paradise,
Australia (a portion of which was disposed of in the 2016 second quarter), partially offset by $1.1 million of higher other rental
expenses in 2017.
2016 Compared to 2015
($ in thousands)
Rental revenues . . . . . . . . . . . . . . . . . . . .
Rental expenses . . . . . . . . . . . . . . . . . . . .
Rental margin . . . . . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
Change
$
16,471
(20,463)
(3,992) $
$
14,970
(19,255)
(4,285) $
% Change
10%
(6%)
7%
1,501
(1,208)
293
4.4 pts
Rental margin percentage . . . . . . . . . . . .
(24.2%)
(28.6%)
59
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 (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.
Other
2017
In 2017, we incurred less than $0.1 million of other expenses.
2016
In 2016, we incurred $0.2 million of other expenses 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.
2015
In 2015, we incurred $5.7 million of acquisition costs associated with the completion of our purchase of the operating
property located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for which
transaction costs are expensed.
Europe
The following discussion presents an analysis of our results of operations for the Europe segment.
($ 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, net . . . . . . . . . . . . . . . . . . . .
SEGMENT FINANCIAL RESULTS . . . . . . . . . . . . . . .
$
$
Overview
2017
Fiscal Years
2016
2015
22,839
25,542
2,916
20,902
34,628
106,827
3,515
17,641
20,492
15,543
267
34,628
92,086
(63)
14,678
$
$
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
—
12,067
$
$
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
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.
60
Contract Sales
2017 Compared to 2016
($ in thousands)
Contract sales
Fiscal Years
2017
2016
Change
% Change
Vacation ownership . . . . . . . . . . . . . . . .
Total contract sales . . . . . . . . . . . . . .
$
$
25,151
25,151
$
$
31,174
31,174
$
$
(6,023)
(6,023)
(19%)
(19%)
The decrease in contract sales was primarily due to several large multi-week purchases in 2016 that did not reoccur in
2017.
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
$6.2 million of higher timeshare sales. The higher timeshare sales are due to increases in tours and VPG as compared to 2015.
Sale of Vacation Ownership Products
2017 Compared to 2016
($ in thousands)
Contract sales . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognition adjustments:
Reportability . . . . . . . . . . . . . . . . . . . . .
Sales reserve . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of vacation ownership products . . . . .
$
$
Fiscal Years
2017
2016
Change
25,151
$
31,174
$
(6,023)
% Change
(19%)
848
(2,849)
(311)
22,839
$
(3,001)
(3,860)
221
24,534
$
3,849
1,011
(532)
(1,695)
(7%)
_________________________
(1)
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
Revenue reportability positively impacted 2017 due to an increase in the amount of sales that met the down payment
requirement in 2017. Revenue reportability negatively impacted 2016 due to a decrease in the amount of sales that met the
down payment requirement in 2016.
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
31,174
$
34,376
$
(3,202)
% Change
(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
61
was due to an unfavorable adjustment in 2016 to correct an immaterial error of $0.5 million related to historical static pool data,
partially offset by the lower contract sales volume in 2016.
Development Margin
2017 Compared to 2016
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Development margin percentage . . . . . . . .
Fiscal Years
2017
2016
Change
22,839
(3,515)
(17,641)
1,683
$
$
7.4%
$
24,534
(5,889)
(19,142)
(497) $
(2.0%)
(1,695)
2,374
1,501
2,180
9.4 pts
% Change
(7%)
40%
8%
439%
The increase in development margin reflected $2.5 million of higher revenue reportability year-over-year and $1.0
million from a favorable mix of lower cost real estate inventory being sold in 2017, partially offset by $1.3 million from the
lower vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and
marketing and sales).
2016 Compared to 2015
($ in thousands)
Sale of vacation ownership products . . . . .
Cost of vacation ownership products. . . . .
Marketing and sales . . . . . . . . . . . . . . . . . .
Development margin . . . . . . . . . . . . . . . . .
$
$
Fiscal Years
2016
2015
Change
$
24,534
(5,889)
(19,142)
(497) $
28,963
(6,509)
(21,974)
480
$
$
(4,429)
620
2,832
(977)
% Change
(15%)
10%
13%
(204%)
Development margin percentage . . . . . . . .
(2.0%)
1.7%
(3.7 pts)
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 $0.8 million from the change in
vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and
marketing and sales) due to lower marketing and sales costs as compared to 2015.
62
Corporate and Other
The following discussion presents an analysis of our results of operations.
($ 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. . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) and other income (expense), net . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL FINANCIAL RESULTS . . . . . . . . . . . . . . . . .
$
$
2017
Fiscal Years
2016
2015
$
8,328
17,951
110,225
498
—
25,217
52,013
214,232
8,631
(9,572)
(527)
(215,700) $
$
7,519
18,631
104,833
—
—
23,685
49,779
204,447
(181)
(8,912)
(211)
(213,751) $
6,713
21,208
106,104
138
642
24,658
49,863
209,326
—
(12,810)
(2,100)
(224,236)
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.
Total Expenses
2017 Compared to 2016
Total expenses increased $9.8 million from 2016. The $9.8 million increase resulted from $5.4 million of higher
general and administrative expenses, $2.2 million of higher royalty fees due to a contractual increase late in 2016 in the fixed
portion of the royalty fee owed to Marriott International, $1.5 million of higher consumer financing interest expense, $0.8
million of higher cost of vacation ownership products expenses due to higher other development and inventory expenses and
$0.5 million of litigation settlements in 2017, partially offset by $0.7 million of lower financing expenses.
General and administrative expenses increased $5.4 million due to $6.4 million of higher personnel related and other
expenses, partially offset by $1.0 million of lower litigation related costs. The higher personnel related and other expenses
included annual merit, bonus and inflationary cost increases.
The $1.5 million increase in consumer financing interest expense was due to a higher average outstanding debt
balance in 2017.
2016 Compared to 2015
Total expenses decreased $4.9 million from the prior fiscal year. The $4.9 million decrease resulted from $2.6 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 refurbishment costs in 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
63
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.
Liquidity and Capital Resources
Our capital needs are supported by cash on hand ($409.1 million at the end of 2017), 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, fulfill other cash requirements and return capital to shareholders. At the end of 2017, we had $1.1 billion of total
gross debt outstanding, which included $845.1 million of non-recourse debt associated with vacation ownership notes
receivable securitizations, $230.0 million of Convertible Notes and a $63.6 million non-interest bearing note payable issued in
connection with the acquisition of completed vacation ownership units on the Big Island of Hawaii.
In September 2017, we completed a private offering of $230.0 million of Convertible Notes. While we did not have an
immediate need for the proceeds, we felt that it was an opportune time for us to capitalize on the interest rate environment and
the strength of our stock price to optimize our capital structure. We evaluated several different debt instruments and chose the
one that we believe provided the most flexibility for us in terms of covenants and use of proceeds, while enabling us to take
advantage of the strength of our stock price and a very low rate of interest. In connection with the Convertible Notes, we also
entered into Convertible Note Hedges at a cost of $33.2 million, and received proceeds of $20.3 million from the issuance of
Warrants. Issuance of the Convertible Notes resulted in the receipt of net proceeds, after adjusting for debt issue costs,
including underwriting discount, and the net cash used to purchase the Convertible Note Hedges and sell the Warrants, of
$210.8 million. See additional discussion in “Cash from Financing Activities” below and in Footnote No. 10, “Debt,” to our
Financial Statements.
At the end of 2017, we had $711.5 million of real estate inventory on hand, comprised of $379.2 million of finished
goods, $330.0 million of land and infrastructure and $2.3 million of work-in-progress. In addition, we had $48.3 million of
completed vacation ownership units that have been classified as a component of Property and equipment until the time at which
they are legally registered for sale as vacation ownership products.
Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our
sales are of points-based products, which permits us to sell vacation ownership products at most of our sales locations,
including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-
based inventory at each sales location, we need to have only a few resorts under construction at any given time and can
leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the
need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable
us to align our real estate inventory acquisitions with the pace of sales of vacation ownership products.
We are selectively pursuing growth opportunities in North America and Asia Pacific by targeting high-quality
inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions
that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale.
These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built
units by third parties, just prior to sale.
We intend for our capital allocation strategy to strike a balance between enhancing our operations and using our
capital to provide returns to our shareholders through programs such as share repurchase programs and payment of dividends.
The following table summarizes the changes in cash, cash equivalents and restricted cash:
($ in thousands)
Cash, cash equivalents and restricted cash provided by (used in):
2017
Fiscal Years
2016
2015
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 142,172
(38,364)
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170,737
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,965
Effect of change in exchange rates on cash, cash equivalents and restricted cash . . .
Net change in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . $ 277,510
$ 141,379
34,183
(206,159)
(4,813)
$ 118,414
(62,749)
(259,127)
(4,448)
$ (35,410) $ (207,910)
64
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 2017, we generated $142.2 million of cash flows from operating activities, compared to $141.4 million in 2016.
Excluding the impact of changes in net income and adjustments for non-cash items, the change in cash flows from operations
reflected higher originations driven by higher contract sales and higher financing propensity due to the continued success of the
financing incentive programs offered in our North America segment, timing of payments related to unsold inventory and higher
real estate inventory spending, partially offset by higher closings on vacation ownership contract sales, higher collections due
to an increasing portfolio of outstanding vacation ownership notes receivable, timing of payments related to operating payables
and lower payments related to employee benefits programs.
In 2016, we generated $141.4 million of cash flows from operating activities, compared to $118.4 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 generated residential contract sales of $28.4 million associated with the sale of 18 units in Macau.
In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our
cash flow from operating activities:
Real Estate Inventory Spending Less Than Cost of Sales
($ in thousands)
Real estate inventory spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Purchase of vacation ownership units for future transfer to inventory . . . . . . . . .
Purchase of operating properties for future conversion to inventory . . . . . . . . . .
Real estate inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate inventory spending less than cost of sales . . . . . . . . . . . . . . . . . . . $
2017
(120,999) $
(33,594)
—
164,256
9,663
$
Fiscal Years
2016
(138,867) $
—
—
142,261
3,394
$
2015
(119,067)
—
(61,554)
192,071
11,450
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 Income Statements 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 2017, 2016 and 2015.
Our real estate inventory spending remained below real estate inventory costs in 2017, even including payments to
satisfy a portion of our commitments to purchase vacation ownership units in our North America and Asia Pacific segments.
Real estate inventory spending included the acquisition of 112 completed vacation ownership units located on the Big Island of
Hawaii for $27.3 million, as well as 51 completed vacation ownership units located in Bali, Indonesia for $12.1 million. In
connection with the acquisition on the Big Island of Hawaii, we also settled a $0.5 million note receivable from the seller on a
non-cash basis, and issued a non-interest bearing note payable for $63.6 million. Purchase of vacation ownership units for
future transfer to inventory included the acquisition of 36 completed vacation ownership units located at our resort in Marco
Island, Florida, for $33.6 million. We entered into each of these commitments in prior periods as part of our capital efficiency
strategy to limit our up-front capital investment and purchase finished inventory closer to the time it is needed for sale. See
65
Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial
Statements for additional information regarding these transactions.
Our real estate inventory spending was less than our inventory costs in 2016 and 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 converted it, in its entirety, into vacation ownership interests for use in our
MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information
regarding this transaction.
Our real estate inventory spending was less than our inventory costs in 2015 and 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 during 2015. 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. During 2016, we completed the conversion of this portion of the operating property, a portion of which was
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 have converted, in its entirety, to vacation ownership interests, a portion
of which has been contributed for use in our MVCD program. The $46.6 million allocated to the portion of the operating
property that we converted, in its entirety, into 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 $21.6 million related to the sale of the residential units in Macau.
Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold
vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in
desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.
Vacation Ownership Notes Receivable Collections Less Than Originations
($ 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 originations . . . .
2017
Fiscal Years
2016
$
$
$
76,278
194,238
(467,311)
(196,795) $
$
73,565
180,057
(356,859)
(103,237) $
2015
88,919
181,251
(311,195)
(41,025)
Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation
ownership notes receivable. Vacation ownership notes receivable collections increased during 2017, as compared to 2016, due
to an increase in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable
originations in 2017 increased due to higher vacation ownership contract sales volume and an increase in financing propensity
to 64.0 percent compared to 60.1 percent for 2016, due to the continued success of the financing incentive programs that we
offer in our North America segment. We expect to continue to offer financing incentive programs in 2018. Vacation ownership
notes receivable originations increased in 2016 compared to 2015 due to an increase in financing propensity to 60.1 percent in
2016 from 49.9 percent in 2015 resulting from the use of incentive programs during all of 2016 as compared to only during a
portion of 2015.
66
Cash from Investing Activities
($ in thousands)
Capital expenditures for property and equipment (excluding inventory) . . $
Purchase of company owned life insurance . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of operating property to be sold . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . $
Capital Expenditures for Property and Equipment
2017
Fiscal Years
2016
(26,297) $
(12,100)
—
33
(38,364) $
(34,770) $
—
—
68,953
34,183
$
2015
(35,735)
—
(47,658)
20,644
(62,749)
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 2017, capital expenditures for property and equipment of $26.3 million included $22.3 million to support business
operations (including $12.4 million for ancillary and other operations assets and $9.9 million for sales locations) and $4.0
million for technology spending.
In 2016, capital expenditures for property and equipment of $34.8 million included $27.0 million to support business
operations (including $6.3 million for ancillary and other operations assets and $20.7 million for sales locations) 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.
Purchase of Company Owned Life Insurance
To support our ability to meet a portion of our obligations under the Marriott Vacations Worldwide Corporation
Deferred Compensation Plan (the “Deferred Compensation Plan”), we acquired company owned insurance policies on the lives
of certain participants in the Deferred Compensation Plan, the proceeds of which are intended to be aligned with the investment
alternatives elected by plan participants as discussed in Footnote No. 1, “Summary of Significant Accounting Policies”, to our
Financial Statements. During 2017, we paid $12.1 million to acquire these policies.
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 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.
Dispositions, net
Dispositions of property and assets generated cash proceeds of less than $0.1 million in 2017, $69.0 million in 2016
and $20.6 million in 2015.
Dispositions in 2016 related to the sale of the remaining downsized portion 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 and 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 $19.5 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 $0.1 million from the sale of undeveloped land in Absecon, New Jersey.
67
Cash from Financing Activities
($ in thousands)
Borrowings from securitization transactions
2017
Fiscal Years
2016
2015
Bonds payable on securitized vacation ownership notes receivable . . . . . . .
Borrowings on Warehouse Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
350,000
50,260
400,260
$
250,000
126,622
376,622
255,000
—
255,000
Repayment of debt related to securitization transactions
Bonds payable on securitized vacation ownership notes receivable . . . . . . .
Repayments on Warehouse Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings from Revolving Corporate Credit Facility . . . . . . . . . . . . . . . . .
Repayment of Revolving Corporate Credit Facility. . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Convertible Note Hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of withholding taxes on vesting of restricted stock units . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . .
(243,231)
(50,260)
(293,491)
87,500
(87,500)
230,000
(33,235)
20,332
—
(15,347)
(88,305)
(196,242)
(126,622)
(322,864)
85,000
(85,000)
—
—
—
—
(4,065)
(177,830)
—
(38,028)
(10,947)
(502)
170,737
$
(40,000)
(34,195)
(4,021)
194
(206,159) $
$
(278,427)
—
(278,427)
—
—
—
—
—
5,375
(5,335)
(201,380)
—
(23,793)
(10,894)
327
(259,127)
Borrowings from / Repayment 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 2017 third quarter, we completed the securitization of a pool of $360.8 million of vacation ownership notes
receivable generating gross cash proceeds of $349.9 million. In connection with the securitization, investors purchased in a
private placement $350.0 million in vacation ownership loan backed notes from the MVW Owner Trust 2017-1 (the “2017-1
Trust”). Three classes of vacation ownership loan backed notes were issued by the 2017-1 Trust: $276.0 million of Class A
Notes, $46.9 million of Class B Notes and $27.1 million of Class C Notes. The Class A Notes have an interest rate of 2.42
percent, the Class B Notes have an interest rate of 2.75 percent and the Class C Notes have an interest rate of 2.99 percent, for
an overall weighted average interest rate of 2.51 percent.
During the 2017 second quarter, we securitized vacation ownership notes receivable under our Warehouse Credit
Facility. The carrying amount of the vacation ownership notes receivable securitized was $59.1 million. The advance rate was
85 percent, which resulted in gross proceeds of $50.3 million. Net proceeds were $50.0 million due to the funding of reserve
accounts in the amount of $0.3 million. There were no amounts outstanding under this facility as of December 31, 2017.
At December 31, 2017, $151.4 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.
In the 2016 third quarter, we completed the securitization of a pool of $259.1 million of vacation ownership notes
receivable generating gross cash proceeds of $250.0 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
68
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 the 2016 third quarter, we 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. There were no amounts outstanding under this facility as of
December 30, 2016.
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.
Borrowings from / Repayment of Revolving Corporate Credit Facility
During 2017, we borrowed $87.5 million under our $200.0 million revolving credit facility (the “Previous Revolving
Corporate Credit Facility”) to facilitate the funding of our short-term working capital needs, all of which was repaid as of
December 31, 2017.
During 2016, we borrowed $85.0 million under our Previous Revolving Corporate Credit Facility to facilitate the
funding of our short-term working capital needs, all of which was repaid as of December 30, 2016.
See Footnote No. 10, “Debt,” to our Financial Statements for additional information regarding our Revolving
Corporate Credit Facility. There were no amounts outstanding under this facility as of December 31, 2017 or December 30,
2016.
Proceeds from Issuance of Convertible Notes
During the 2017 third quarter, we issued $230.0 million of Convertible Notes, which included the exercise in full of
the $30.0 million over-allotment option we granted to the initial purchasers of the Convertible Notes. We received net proceeds
from the offering of approximately $223.7 million after adjusting for debt issuance costs, including the discount to the initial
purchasers. We used $40.1 million of the net proceeds to repurchase shares of our common stock from purchasers of the
Convertible Notes in privately negotiated repurchase transactions, which is included as a Financing Activity in Repurchase of
Common Stock as discussed below, and approximately $12.9 million of the net proceeds to pay the cost of the Convertible
Note Hedges, after such cost was partially offset by the proceeds from the issuance of the Warrants, as discussed below. See
Footnote No. 10, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction.
Purchase of Convertible Note Hedges / Proceeds from Issuance of Warrants
In connection with the offering of the Convertible Notes, we entered into Convertible Note Hedges with respect to our
common stock, covering approximately 1.55 million shares of our common stock at a cost of $33.2 million. Concurrently, we
sold Warrants to acquire approximately 1.55 million shares of our common stock at an initial strike price of $176.68 per share
and received aggregate proceeds of $20.3 million. Taken together, the Convertible Note Hedges and the Warrants are generally
expected to reduce the potential dilution to our common stock (or, in the event the conversion is settled in cash, to reduce our
cash payment obligation) in the event that at the time of any conversion of Convertible Notes our stock price exceeds the
conversion price under the Convertible Notes, and to effectively increase the adjusted conversion price, which was $148.13 per
share as of December 31, 2017 (or a conversion premium of 30 percent) to $176.68 per share (or a conversion premium of 55
percent). See Footnote No. 10, “Debt,” to our Financial Statements for additional information on our Convertible Notes
transaction.
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. 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. 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.
69
Debt Issuance Costs
In 2017, we paid $15.3 million of debt issuance costs, which included $7.2 million associated with the initial
purchaser discounts related to the Convertible Notes, $4.8 million associated with the 2017 vacation ownership notes
receivable securitization, $2.1 million related to the new $250.0 million Revolving Corporate Credit Facility and $1.2 million
associated with the amendment and extension of the Warehouse Credit Facility.
In 2016, we incurred $4.1 million of debt issuance costs, which included $3.9 million associated with the 2016
vacation ownership notes receivable securitization and $0.2 million related to the amendment of the Previous Revolving
Corporate Credit Facility.
In 2015, we incurred $5.3 million of debt issuance costs, which included $4.2 million associated with the 2015
vacation ownership notes receivable securitization and a combined $1.1 million related to the renewal of the Warehouse Credit
Facility and the amendment of the Previous Revolving Corporate Credit Facility during the year.
Share Repurchase Program
The following table summarizes share repurchase activity under our current share repurchase program:
($ in thousands, except per share amounts)
As of December 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Shares
Repurchased
Cost of Shares
Repurchased
9,672,629
767,876
10,440,505
$
$
608,439
88,305
696,744
Average Price
Paid per Share
62.90
$
115.00
66.73
$
As discussed above, we used $40.1 million of the proceeds from the sale of the Convertible Notes to repurchase
351,900 shares of our common stock under our existing share repurchase program. See Footnote No. 10, “Debt,” to our
Financial Statements for additional information on our Convertible Notes transaction and Footnote No. 11, “Shareholders’
Equity,” to our Financial Statements for further information related to our share repurchase program.
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 31, 2017 as follows:
Declaration Date
December 9, 2016
February 9, 2017
May 11, 2017
September 7, 2017
Shareholder Record Date
December 22, 2016
February 23, 2017
May 25, 2017
September 21, 2017
Distribution Date
January 4, 2017
March 9, 2017
June 8, 2017
October 5, 2017
Dividend per Share
$0.35
$0.35
$0.35
$0.35
We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to
Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as
applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers
relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the
terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. The payment
of certain cash dividends may also result in an adjustment to the conversion rate of the Convertible Notes in a manner adverse
to us. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.
70
Contractual Obligations and Off-Balance Sheet Arrangements
The following table summarizes our contractual obligations as of December 31, 2017:
($ 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
Payments Due by Period
1 - 3 Years
3 - 5 Years
More Than
5 Years
$
1,260,238
$
150,102
$
257,050
$
449,138
$
403,948
96,222
452,208
7,582
1,662
17,451
167,560
361
1,662
27,249
282,035
7,221
—
16,036
1,897
—
—
35,486
716
—
—
$
1,817,912
$
337,136
$
573,555
$
467,071
$
440,150
_________________________
(1)
Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.
(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 obligations under such contracts. Amounts reflected on the consolidated balance
sheet as accounts payable and accrued liabilities are excluded from the table above.
Includes interest.
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 information
regarding accounting standards adopted in 2017 and other new accounting standards that were issued but not effective as of
December 31, 2017.
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
71
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.
In September 2017, we issued $230 million of Convertible Notes. Holders may convert the Convertible Notes prior to
maturity upon the occurrence of certain circumstances. Upon conversion, holders of the Convertible Notes will receive cash,
shares of our common stock or a combination of cash and shares of our common stock, at our election.
Concurrently with the issuance of the Convertible Notes, we entered into Convertible Note Hedges and Warrants.
These separate transactions were intended to reduce the potential economic dilution from the conversion of the Convertible
Notes.
The Convertible Notes have fixed annual interest rates of 1.50 percent and, therefore, we do not have economic
interest rate exposure on our Convertible Notes. However, the value of the Convertible Notes is exposed to interest rate risk.
Generally, the fair market value of the Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In
addition, the fair value of the Convertible Notes is affected by our stock price. The net carrying value of the Convertible Notes
was $192.5 million as of December 31, 2017. This represents the liability component of the principal balance of the
Convertible Notes, net of unamortized debt discount and issuance costs, as of December 31, 2017. The total estimated fair
value of the Convertible Notes at December 31, 2017 was $259.9 million, and the fair value was determined based on the
quoted market price of the Convertible Notes in an over-the-counter market as of the last day of trading for the quarter ended
December 31, 2017. For further information, see Footnote No. 4, “Financial Instruments” and Footnote No. 10, “Debt,” to our
Financial Statements.
From time to time, we may use derivative instruments to reduce market risks due to changes in interest rates and
currency exchange rates, including interest rate derivatives that we may be required to enter into as a condition of the
Warehouse Credit Facility. As of December 31, 2017, we were not party to any material derivative interest rates or hedges.
Please see Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for additional
information associated with derivative instruments.
The following table sets forth the scheduled maturities and the total fair value as of year-end 2017 for our financial
instruments that are impacted by market risks:
Maturities by Period
($ in thousands)
Average
Interest
Rate
2018
2019
2020
2021
2022
Thereafter
Total
Carrying
Value
Total
Fair
Value
Assets – Maturities represent expected principal receipts; fair values represent assets
Vacation ownership notes
receivable — non-securitized . . 11.5% $ 48,846
Vacation ownership notes
receivable — securitized. . . . . . 12.6% $ 94,079
$ 35,253
$ 30,567
$ 26,127
$ 23,953
$ 139,554
$ 304,300
$ 324,661
$ 90,719
$ 92,089
$ 93,351
$ 92,191
$ 352,902
$ 815,331
$ 956,292
Liabilities – Maturities represent expected principal payments; fair values represent liabilities
Non-recourse debt associated
with vacation ownership notes
receivable securitizations . . . . .
2.5% $(95,768) $(92,273) $(93,553) $(94,503) $ (93,808) $(375,226) $ (845,131) $(836,028)
Convertible debt . . . . . . . . . . . .
4.7% $
— $
— $
— $
— $(230,000) $
— $ (230,000) $(259,884)
72
Item 8.
Financial Statements and Supplementary Data
The following financial information is included on the pages indicated.
Audited Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm - Internal Control Over Financial Reporting . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm - Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Summary of Significant Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Vacation Ownership Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Acquisitions and Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Contingencies and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Shareholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Share-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Variable Interest Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15. Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17. Adoption of ASC 606 Effective January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
74
75
76
77
78
79
80
82
83
83
92
95
97
99
101
102
102
103
106
110
111
113
115
117
117
118
73
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 31,
2017, 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 31, 2017, 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.
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation
Opinion on Internal Control over Financial Reporting
We have audited Marriott Vacations Worldwide Corporation’s internal control over financial reporting as of December
31, 2017, 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). In our opinion, Marriott Vacations
Worldwide Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2017 and December 30,
2016, 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 31, 2017, and the related notes and our report dated February 27, 2018
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Certified Public Accountants
Orlando, Florida
February 27, 2018
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Marriott Vacations Worldwide Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marriott Vacations Worldwide Corporation (the
Company) as of December 31, 2017 and December 30, 2016, 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 31, 2017, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and December
30, 2016, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31,
2017, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
Certified Public Accountants
We have served as the Company’s auditor since 2011.
Orlando, Florida
February 27, 2018
76
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 2017, 2016 and 2015
(In thousands, except per share amounts)
2017
2016
2015
REVENUES
Sale of vacation ownership products . . . . . . . . . . . . . . . . . . . . . $
Resort management and other services . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
727,940
$
637,503
$
306,196
134,906
322,902
460,001
300,821
126,126
312,071
431,965
675,329
292,561
124,033
312,997
405,875
1,951,945
1,808,486
1,810,795
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, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
EARNINGS PER SHARE
Earnings per share - Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings per share - Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
CASH DIVIDENDS DECLARED PER SHARE . . . . . . . . . . . . $
177,813
408,715
172,137
17,951
281,352
110,225
4,231
—
25,217
63,021
—
460,001
1,720,663
5,772
(9,572)
(1,599)
225,883
895
226,778
$
155,093
353,295
174,311
18,631
260,752
104,833
(303)
—
23,685
60,953
—
431,965
1,583,215
11,201
(8,912)
(4,632)
222,928
(85,580)
137,348
8.38
8.18
1.45
$
$
$
4.93
4.83
1.25
$
$
$
$
204,299
330,599
180,072
21,208
259,729
106,104
(232)
1,174
24,658
58,982
324
405,875
1,592,792
9,557
(12,810)
(8,253)
206,497
(83,698)
122,799
3.90
3.82
1.05
See Notes to Consolidated Financial Statements
77
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2017, 2016 and 2015
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss), net of tax:
2017
2016
2015
226,778
$
137,348
$
122,799
Foreign currency translation adjustments . . . . . . . . . . . . . . . . .
Derivative instrument adjustment, net of tax . . . . . . . . . . . . . . .
Total other comprehensive income (loss), net of tax. . . . . . .
11,195
90
11,285
COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $
238,063
$
(5,589)
(332)
(5,921)
131,427
$
(5,673)
—
(5,673)
117,126
See Notes to Consolidated Financial Statements
78
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
Fiscal Year-End 2017 and 2016
(In thousands, except share and per share data)
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash (including $32,321 and $27,525 from VIEs, respectively) . . . . . . . . . . .
Accounts and contracts receivable, net (including $5,639 and $4,865 from VIEs,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vacation ownership notes receivable, net (including $815,331 and $717,543 from
VIEs, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (including $13,708 and $0 from VIEs, respectively) . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
409,059
$
81,553
154,174
1,119,631
716,533
252,727
172,516
147,102
66,000
161,733
972,311
712,536
202,802
128,935
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,906,193
$
2,391,419
LIABILITIES AND EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advance deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (including $701 and $584 from VIEs, respectively) . . . . . . . . . . . . .
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll and benefits liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, net (including $845,131 and $738,362 from VIEs, respectively) . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 36,861,843 and
36,633,868 shares issued, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock — at cost; 10,400,547 and 9,643,562 shares, respectively. . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
The abbreviation VIEs above means Variable Interest Entities.
145,405
$
63,062
168,591
98,286
111,885
74,851
1,095,213
13,155
90,725
124,439
55,542
147,469
95,495
95,516
62,874
737,224
15,873
149,168
1,861,173
1,483,600
—
—
369
(694,233)
1,188,538
16,745
533,601
1,045,020
366
(606,631)
1,162,283
5,460
346,341
907,819
2,906,193
$
2,391,419
See Notes to Consolidated Financial Statements
79
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2017, 2016 and 2015
(In thousands)
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and issuance costs . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposal of property and equipment, net. . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in assets and liabilities:
Accounts and contracts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable originations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of vacation ownership units for future transfer to 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory). . . . .
Purchase of company owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of operating property to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . .
Continued
2017
2016
2015
226,778
$
137,348
$
122,799
21,494
9,908
50,075
16,286
1,605
(66,134)
5,695
(467,311)
270,516
42,661
(33,594)
—
(21,318)
50,754
—
1,837
16,053
11,976
(211)
5,102
142,172
(26,297)
(12,100)
—
33
(38,364)
21,044
6,509
47,292
13,949
(11,201)
38,834
(30,055)
(356,859)
253,622
4,301
—
—
11,092
(18,698)
(37)
17,664
(6,933)
11,843
1,863
(199)
141,379
(34,770)
—
—
68,953
34,183
22,217
5,586
33,083
14,142
(9,557)
28,162
(24,189)
(311,195)
270,170
72,158
—
(61,554)
(10,648)
32,841
(89,251)
(5,289)
11,380
9,354
2,974
5,231
118,414
(35,735)
—
(47,658)
20,644
(62,749)
See Notes to Consolidated Financial Statements
80
MARRIOTT VACATIONS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Fiscal Years 2017, 2016 and 2015
(In thousands)
2017
2016
2015
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 issuance of Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Convertible Note Hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of withholding taxes on vesting of restricted stock units . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . .
400,260
(293,491)
87,500
(87,500)
230,000
(33,235)
20,332
—
(15,347)
(88,305)
—
(38,028)
(10,947)
(502)
170,737
376,622
(322,864)
85,000
(85,000)
—
—
—
—
(4,065)
(177,830)
(40,000)
(34,195)
(4,021)
194
(206,159)
255,000
(278,427)
—
—
—
—
—
5,375
(5,335)
(201,380)
—
(23,793)
(10,894)
327
(259,127)
Effect of changes in exchange rates on cash, cash equivalents and restricted
cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning of year . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, end of year . . . . . . . . . . . . . . . . . . . . $
2,965
277,510
213,102
(4,813)
(35,410)
248,512
(4,448)
(207,910)
456,422
490,612
$
213,102
$
248,512
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-cash issuance of debt in connection with acquisition of vacation
ownership units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash transfer from Inventory to Property and equipment. . . . . . . . . . . . .
Non-cash transfer of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property acquired via capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,589
$
9,480
$
8,898
63,558
—
—
—
—
9,741
2,985
7,221
—
30,985
—
—
See Notes to Consolidated Financial Statements
81
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S
MARRIOTT VACATIONS WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our Business
Marriott Vacations Worldwide Corporation (“we,” “us,” “Marriott Vacations Worldwide,” or the “Company,” 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, Asia Pacific and Europe. As of December 31,
2017, our portfolio consisted of over 65 properties in the United States and nine 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
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 this 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 “Income Statements,” (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. We use certain other terms that are defined within these Financial Statements.
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. Beginning with our 2017 fiscal
year, we changed our financial reporting cycle to a calendar year-end and end-of-month quarterly reporting cycle. Accordingly
our 2017 fiscal year began on December 31, 2016 (the day after the end of the 2016 fiscal year) and ended on December 31,
2017. Our future fiscal years will begin on January 1 and end on December 31. As a result of the change in our financial
reporting cycle, our 2017 fiscal year had two more days of activity than our 2016 and 2015 fiscal years. We have not restated,
and do not plan to restate, historical results.
Fiscal Year
2017
2016
2015
Fiscal Year-End Date
December 31, 2017
December 30, 2016
January 1, 2016
Number of Days
366
364
364
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.
83
We have reclassified certain prior year amounts to conform to our 2017 presentation.
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.
Sales of vacation ownership products may be made 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 our resorts. We recognize ancillary revenue when goods have been provided and/or services
have been rendered. Ancillary revenues recorded as a component of Resort management and other services revenues were
$118.2 million in 2017, $124.2 million in 2016 and $125.2 million in 2015, as reflected on our Income Statements.
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. Management fee revenues
recorded as a component of Resort management and other services revenues were $87.8 million in 2017, $83.3 million in 2016
and $77.6 million in 2015, as reflected on our Income Statements.
Resort management and other services revenues also 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 $79.0 million in 2017, $75.7 million in 2016 and $72.4 million in 2015, as reflected on our
Income Statements.
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 Income Statements. 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
Income Statements.
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 $6.9
million in 2017, $6.0 million in 2016 and $6.0 million in 2015, as reflected on our Income Statements.
84
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
Income Statements to retrospectively adjust the margin previously recorded subject to those estimates. For 2017, 2016 and
2015, product cost true-up activity relating to vacation ownership products increased carrying values of inventory by $0.3
million, $14.8 million and $7.3 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 Accounting Standards Codification (“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 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 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 $5.7 million, $6.1 million and $7.1 million for 2017, 2016
and 2015, 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 $9.7 million in 2017, $8.0 million in 2016 and $7.1 million in 2015.
85
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 4.0 percent for 2017 and 4.5 percent for
2016). 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 2017, 2016 and 2015. 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.
Since the beginning of our 2017 fiscal year, participants in the Deferred Compensation Plan have been able to select a
rate of return based on various market-based investment alternatives for a portion of their contributions, as well as any future
Company contributions, to the Deferred Compensation Plan, and may also select such a rate for a portion of their existing
account balances. To support our ability to meet a portion of our obligations under the Deferred Compensation Plan, we
acquired company owned insurance policies (the “COLI policies”) on the lives of certain participants in the Deferred
Compensation Plan, the proceeds of which are intended to be aligned with the investment alternatives elected by plan
participants and are payable to a rabbi trust with the Company as grantor. For 2017, at least 25 percent of a participant’s
contributions to the Deferred Compensation Plan was required to be subject to a fixed rate of return, which was 3.5 percent for
2017 and 5.6 percent for 2016; the rate was reduced in connection with the introduction of the market-based investment
alternatives. For 2018, participants may select a rate of return based on market-based investment alternatives for up to 100
percent of their contributions and existing balances.
We consolidate the liabilities of the Deferred Compensation Plan and the related assets, which consist of the COLI
policies held in the rabbi trust. The rabbi trust is considered a variable interest entity (“VIE”). We are considered the primary
beneficiary of the rabbi trust because we direct the activities of the trust and are the beneficiary of the trust. At December 31,
2017, the value of the assets held in the rabbi trust was $13.7 million, which is included in the Other line within assets on our
Balance Sheets.
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. In addition, fully developed vacation ownership
interests are classified as property and equipment until they are registered 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.
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.
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.
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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 7.16 percent
and 7.09 percent as of December 31, 2017 and December 30, 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 $5.9 million and $5.0 million as of
December 31, 2017 and December 30, 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.”
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.
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 $6.0 million at year-end 2017 and
$6.2 million at year-end 2016 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.
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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 $250.0
million non-recourse warehouse credit facility (the “Warehouse Credit Facility”). As of December 31, 2017, 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 Income Statement 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.
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.
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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 Income Statements 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. 12, “Share-Based Compensation,” for more information.
Convertible Senior Notes
In accounting for the 1.50% Convertible Senior Notes due 2022 (the “Convertible Notes”), we separated them into
liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a
similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing
the conversion option was determined by deducting the fair value of the liability component from the par value of the
Convertible Notes. The excess of the principal amount of the liability over its carrying amount is amortized to interest expense
over the term of the Convertible Notes using the effective interest method. The equity component is not remeasured as long as
it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Convertible
Notes, we allocated the total amount incurred to the liability and equity components based on their relative values. Issuance
costs attributable to the liability component are amortized to interest expense over the term of the Convertible Notes, and
issuance costs attributable to the equity component are included along with the equity component in additional paid-in capital
within stockholders’ equity. See Footnote No. 10, “Debt,” for more information.
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.
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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.
We do not have any significant unrecognized tax benefits as of December, 31, 2017, December 30, 2016 or January 1,
2016, that, if recognized, would impact our effective tax rate for 2017, 2016 or 2015, respectively. We do not expect that our
unrecognized tax benefits as of December 31, 2017 will change significantly within the next twelve months. Additionally, we
recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense.
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. 2017-09 – “Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting” (“ASU 2017-09”)
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as
modifications for the purpose of applying the modification guidance in Accounting Standards Codification Topic 718. This
update is effective for all entities for annual periods beginning after December 15, 2017, and for interim periods within those
annual periods, with early adoption permitted. Our early adoption of ASU 2017-09 in the 2017 second quarter did not have an
impact on our financial statements or disclosures.
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 no longer present
changes in restricted cash as a component of investing activities. This update is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. We early adopted ASU 2016-18 on a
retrospective basis commencing in the 2017 first quarter.
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, which resulted in benefits to our provision
for income taxes of $6.1 million in 2017. 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. Prior to the adoption of ASU 2016-09, excess tax benefits were
recorded in additional paid-in-capital on the balance sheet. This update is effective for annual periods beginning after
December 15, 2016 and interim periods within those annual periods. We adopted ASU 2016-09 in the 2017 first quarter. The
adoption of ASU 2016-09 decreased 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 eliminated the presentation of excess tax benefits as a financing
inflow on our statement of cash flows. Further, we made an accounting policy election to recognize forfeitures of share-based
compensation awards as they occur, the cumulative effect of which resulted in an adjustment of $0.4 million to opening
retained earnings. The adoption of ASU 2016-09 did not have any other material impacts on our financial statements or
disclosures.
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Future Adoption of Accounting Standards
Accounting Standards Update No. 2017-12 – “Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities” (“ASU 2017-12”)
In August 2017, the FASB issued ASU 2017-12, which amends and simplifies existing guidance in order to allow
companies to better portray the economic effects of risk management activities in their financial statements and enhance the
transparency and understandability of the results of hedging activities. ASU 2017-12 eliminates the requirement to separately
measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to
be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and
assessment requirements. This update is effective for public companies for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years, with early adoption permitted. We are evaluating the impact that ASU
2017-12, including the timing of implementation, will have on our financial statements and disclosures.
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. This 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
adopted ASU 2016-16 on January 1, 2018. We do not expect the adoption of ASU 2016-16 to have a material impact on our
financial statements or 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 fiscal years beginning after December 15,
2019, including interim periods within those fiscal years, with early adoption permitted for fiscal 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. 2016-02 – “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, although an option to use transition relief to not restate
or make required disclosures in comparative periods in the period of adoption was recently exposed by the FASB for public
comment. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years, with early adoption permitted. Although we expect to adopt ASU 2016-02 commencing in fiscal year 2019 and are
continuing our implementation efforts, we continue to evaluate the impact that adoption of this update will have on our
financial statements and disclosures, but we expect that it will have a material effect on our balance sheets.
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.
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, creates ASC Topic 606, “Revenue from Contracts
with Customers,” (“ASC 606”), and supersedes the revenue recognition requirements in ASC Topic 605, “Revenue
Recognition”, including 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)
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the entity satisfies a performance obligation. ASU 2014-09, as amended, will be effective for annual reporting periods, and
interim periods within those reporting periods, 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. We adopted
ASC 606 effective January 1, 2018, on a retrospective basis. For further information see Footnote No. 17, “Adoption of ASC
606 Effective January 1, 2018.”
2. INCOME TAXES
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law effective January 1, 2018. The
Tax Act significantly revised the U.S. tax code by, in part, but not limited to: reducing the U.S. corporate maximum tax rate
from 35 percent to 21 percent, imposing a mandatory one-time transition tax on certain un-repatriated earnings of foreign
subsidiaries, modifying executive compensation deduction limitations and repealing the deduction for domestic production
activities. Under ASC Topic 740, “Income Taxes,” we must generally recognize the effects of tax law changes in the period in
which the new legislation is enacted.
During December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) No.
118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have all the necessary
information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for
certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, our deferred tax assets and liabilities
were remeasured using the new corporate tax rate of 21 percent, rather than the previous corporate tax rate of 35 percent,
resulting in a $65.2 million decrease in our income tax expense for the year ended December 31, 2017 and a corresponding
$65.2 million decrease in our net deferred tax liability as of December 31, 2017. These amounts are to be considered
provisional and are not currently able to be finalized given the complexity of the underlying calculations. Additional work is
necessary to perform a more detailed analysis. Any subsequent adjustment to these amounts will be recorded to tax expense in
the quarter of 2018 when the analysis is complete.
The one-time transition tax on certain un-repatriated earnings of foreign subsidiaries is based on total post-1986
earnings and profits that we previously deferred from U.S. income taxes. While we have performed a preliminary analysis of
the transition tax and determined that due to deficits in foreign earnings and profits, we do not have a one-time transition tax
liability to record in 2017, we have not completed our calculations. As the one-time transition tax is based in part on the amount
of those earnings held in cash and other specified assets, we may determine that we have a one-time transition tax liability
when we finalize the calculation of post-1986 foreign earnings and profits previously deferred from U.S. federal taxation and
finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining
undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these
entities, as these amounts continue to be indefinitely reinvested in foreign operations.
The modification of the executive compensation deduction limitations and the repeal of the deduction for domestic
production activities did not have a significant impact on our benefit from income taxes for the year ended December 31, 2017.
Income Tax Benefit / Provision
The components of our earnings before income taxes for the last three years consisted of:
($ in thousands)
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
$
217,348
8,535
225,883
$
$
220,169
2,759
222,928
$
$
197,519
8,978
206,497
In 2017, our tax benefit included an excess tax benefit of $6.1 million related to the vesting or exercise of employee
share-based awards. Our tax provision did not reflect excess tax benefits of $1.2 million in 2016 and $9.4 million in 2015, as
these periods were before our adoption of ASU 2016-09. In our statements of cash flows, we presented excess tax benefits as
financing cash flows before our adoption of ASU 2016-09.
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Our benefit (provision) for income taxes for the last three years consisted of:
($ in thousands)
Current
– U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred – U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– U.S. State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
$
(48,735) $
(7,370)
(7,043)
(63,148)
49,072
(279)
15,250
64,043
895
$
(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)
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 ($3.9)
million in 2017, $1.5 million in 2016 and ($3.7) million in 2015.
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 ($184.0 million at December 31, 2017) 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.
entity without incurring additional U.S. tax. These earnings could become subject to additional taxes if remitted as dividends,
loaned to 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.
Our income tax returns are subject to examination by relevant tax authorities. Certain of our returns are being audited
in various jurisdictions for years 2013 and 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.
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.
93
The following table presents our deferred tax assets and liabilities, and the tax effect of each type of temporary
difference and carry-forward that gave rise to a significant portion of our deferred tax assets and liabilities at December 31,
2017 and December 30, 2016:
At Year-End 2017
At Year-End 2016
($ in thousands)
Deferred Tax Assets
$
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long lived intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Liabilities
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred sales of vacation ownership interests . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24,814
29,854
15,746
38,831
39,593
53,397
202,235
(43,987)
158,248
(16,360)
(220,130)
(236,490)
24,821
38,677
31,464
49,205
21,345
52,263
217,775
(47,839)
169,936
(15,560)
(296,600)
(312,160)
(142,224)
Total net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(78,242) $
At December 31, 2017, we had approximately $37.2 million of foreign net operating losses (excluding valuation
allowances) some of which begin expiring in 2018. 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 $1.3 million for state tax
purposes which begin expiring in 2032.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate
Due to the adoption of ASU 2016-09 in the 2017 first quarter, all excess tax benefits and deficiencies are now
recognized as a component of income tax expense in our Income Statements; previously, excess tax benefits were recognized in
additional paid-in capital. This may result in increased volatility in our effective tax rate.
The following table reconciles the U.S. statutory income tax rate to our effective income tax rate:
U.S. statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state income taxes, net of U.S. federal tax benefit . . . . . . . . . . . . . . . .
Permanent differences(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact related to the Tax Cuts and Jobs Act . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits related to share-based compensation . . . . . . . . . . . . . . .
Foreign tax rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. income (loss)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
35.00%
2016
35.00%
2015
35.00%
2.42
(0.65)
(28.86)
(2.70)
(2.11)
(2.81)
(0.76)
0.07
(0.40%)
2.47
1.03
—
—
0.05
0.09
(0.95)
0.70
38.39%
2.62
1.65
—
—
0.01
(0.63)
1.22
0.66
40.53%
_________________________
(1)
(2)
(3)
(4)
Attributed to the redemption of the mandatorily redeemable preferred stock of a consolidated subsidiary.
Attributed to the difference between U.S. and foreign income tax rates and other foreign adjustments.
Attributed to changes in unrecognized tax benefits and U.S. federal tax incentives.
Primarily attributed to release of a foreign valuation allowance in 2017. Primarily attributed to the establishment of
valuation allowances in foreign jurisdictions for losses that cannot be benefited in the U.S. income tax provision in
2016 and 2015, as discussed above.
94
Cash Taxes Paid
Cash taxes paid in 2017, 2016 and 2015 were $49.3 million, $47.8 million and $50.2 million, respectively.
3. VACATION OWNERSHIP NOTES RECEIVABLE
The following table shows the composition of our vacation ownership notes receivable balances, net of reserves:
($ in thousands)
Vacation ownership notes receivable — securitized. . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2017
815,331
$
$
Vacation ownership notes receivable — non-securitized
Eligible for securitization(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Not eligible for securitization(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142,269
162,031
304,300
Total vacation ownership notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,119,631
$
At Year-End 2016
717,543
98,508
156,260
254,768
972,311
_________________________
(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 31, 2017:
($ in thousands)
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
Total
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
48,846
$
94,079
$
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2017. . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average stated interest rate at year-end 2017 . .
35,253
30,567
26,127
23,953
139,554
304,300
$
90,719
92,089
93,351
92,191
352,902
11.5%
12.6%
12.3%
815,331
$
1,119,631
142,925
125,972
122,656
119,478
116,144
492,456
Range of stated interest rates at year-end 2017 . . . . . . . .
0.0% to 18.0%
4.9% to 18.0%
0.0% to 18.0%
We reflect interest income associated with vacation ownership notes receivable in our Income Statements 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
101,193
$
96,606
$
89,693
26,790
23,507
28,327
Total interest income associated with vacation ownership notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
127,983
$
120,113
$
118,020
95
The following table summarizes the activity related to our vacation ownership notes receivable reserve for 2017, 2016
and 2015:
($ in thousands)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defaulted vacation ownership notes receivable
repurchase activity(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . .
Securitizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean-up of Warehouse Credit Facility(3) . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defaulted vacation ownership notes receivable
repurchase activity(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at year-end 2017 . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
Total
$
64,752
23,832
(16,491)
7,115
(48,220)
24,596
55,584
28,652
(28,322)
10,496
(40,033)
30,251
56,628
41,531
(29,071)
3,995
(45,257)
$
53,666
9,209
16,491
(7,115)
—
(24,596)
47,655
18,505
28,322
(10,496)
—
(30,251)
53,735
9,021
29,071
(3,995)
—
28,324
56,150
$
(28,324)
59,508
$
118,418
33,041
—
—
(48,220)
—
103,239
47,157
—
—
(40,033)
—
110,363
50,552
—
—
(45,257)
—
115,658
_________________________
(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 2017 . . . . . . . . . . . . . . . . $
Investment in vacation ownership notes receivable on
non-accrual status at year-end 2016 . . . . . . . . . . . . . . . . $
Average investment in vacation ownership notes
receivable on non-accrual status during 2017 . . . . . . . . . $
Non-Securitized
Vacation Ownership
Notes Receivable
Securitized
Vacation Ownership
Notes Receivable
Total
38,786
43,792
41,289
$
$
$
7,428
6,687
7,058
$
$
$
46,214
50,479
48,347
96
The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership
notes receivable as of December 31, 2017:
($ 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
7,109
4,341
34,445
45,895
314,555
360,450
$
$
18,553
7,428
—
25,981
848,858
874,839
$
$
Total
25,662
11,769
34,445
71,876
1,163,413
1,235,289
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 . . . . . . .
$
$
4. FINANCIAL INSTRUMENTS
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 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.
At Year-End 2017
At Year-End 2016
Carrying
Amount
Fair
Value(1)
Carrying
Amount
($ in thousands)
Vacation ownership notes receivable — securitized . . . . . .
Vacation ownership notes receivable — non-securitized . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
815,331
304,300
13,708
1,133,339
$
$
956,292
324,661
13,708
1,294,661
$
$
Non-recourse debt associated with vacation ownership
notes receivable securitizations, net. . . . . . . . . . . . . . . . . . . $
Convertible notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest bearing note payable, net . . . . . . . . . . . . . . . .
Total financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
(834,889) $
(192,518)
(60,560)
(836,028) $
(259,884)
(60,560)
$ (1,087,967) $ (1,156,472) $
Fair
Value(1)
834,009
269,161
—
1,103,170
(725,963)
—
—
(725,963)
717,543
254,768
—
972,311
$
$
(729,188) $
—
—
(729,188) $
_________________________
(1)
Fair value of financial instruments with the exception of other assets and convertible notes, has been determined using
Level 3 inputs. Fair value of other assets and convertible notes that are financial instruments has been determined
using Level 2 inputs.
See the “Fair Value Measurements” caption of Footnote No. 1, “Summary of Significant Accounting Policies” for
additional information.
97
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 2017
At Year-End 2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Eligible for securitization . . . . . . . . . . . . . . . . . . . . . . . . .
Not eligible for securitization. . . . . . . . . . . . . . . . . . . . . .
Total non-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
142,269
162,031
304,300
$
$
162,630
162,031
324,661
$
$
98,508
156,260
254,768
$
$
112,901
156,260
269,161
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.
Other Assets
We estimate the fair value of our other assets that are financial instruments using Level 2 inputs. These assets consist
of COLI policies held in a rabbi trust. The carrying value of the COLI policies is equal to their cash surrender value.
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.
Convertible Notes
We estimate the fair value of our Convertible Notes using quoted market prices as of the last trading day for the year;
however these notes have only a limited trading history and volume and as such this fair value estimate is not necessarily
indicative of the value at which they could be retired or transferred. We concluded that this fair value measurement should be
categorized within Level 2. The difference between the carrying value and the fair value is primarily attributed to the
underlying conversion feature, and the spread between the conversion price and the market value of the shares underlying the
Convertible Notes.
98
Non-Interest Bearing Note Payable
The carrying value of our non-interest bearing note payable issued in connection with the acquisition of vacation
ownership units located on the Big Island of Hawaii approximates fair value, because the imputed interest rate used to discount
this note payable is consistent with current market rates. See Footnote No. 5, “Acquisitions and Dispositions” and Footnote No.
10, “Debt,” for additional information on this transaction.
5. ACQUISITIONS AND DISPOSITIONS
2017 Acquisitions
Bali, Indonesia
During the 2017 third quarter, we acquired 51 completed vacation ownership units, as well as a sales gallery and
related resort amenities, located in Bali, Indonesia for $23.8 million. The transaction was accounted for as an asset acquisition
with the purchase price allocated to Inventory ($21.7 million) and Property and equipment ($2.1 million).
Marco Island, Florida
During the 2017 second quarter, we acquired 36 completed vacation ownership units located at our resort in Marco
Island, Florida for $33.6 million. The transaction was accounted for as an asset acquisition with all of the purchase price
allocated to Property and equipment. To ensure consistency with the expected related future cash flow presentation, the cash
purchase price was included as an operating activity in the Purchase of vacation ownership units for future transfer to inventory
line on our Cash Flow for the year ended December 31, 2017. See Footnote No. 9, “Contingencies and Commitments,” for
information on our remaining commitment related to this property.
Big Island of Hawaii
During the 2017 second quarter, we acquired 112 completed vacation ownership units located on the Big Island of
Hawaii. The transaction was accounted for as an asset acquisition with all of the purchase price allocated to Inventory. As
consideration for the acquisition, we paid $27.3 million in cash, settled a $0.5 million note receivable from the seller on a non-
cash basis, and issued a non-interest bearing note payable for $63.6 million. See Footnote No. 10, “Debt,” for information on
the non-interest bearing note payable.
2017 Dispositions
We made no significant dispositions in 2017.
2016 Acquisitions
Miami Beach, Florida
During the 2016 first quarter, 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 Flow for the year ended December 30,
2016. 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 converted it, in its entirety, into
vacation ownership inventory.
2016 Dispositions
San Francisco, California
During the 2016 second quarter, 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 Income Statement for the year ended December 30, 2016.
2016 Disposition / 2015 Acquisition
Surfers Paradise, Australia
During the 2015 third quarter, 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 Income Statement for the year ended January 1, 2016. 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
99
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 Flow 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 Flow for the year ended January 1, 2016.
During the 2016 second quarter, we disposed of the 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 ($2.2 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 Income Statement for the year ended December 30, 2016.
During 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 was contributed to our points-based programs in
our Asia Pacific segment.
2015 Acquisitions
Washington, D.C.
During the 2015 third quarter, 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.
San Diego, California
During the 2015 first quarter, 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 converted it, in its entirety, into vacation
ownership inventory. 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 Flow 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 Flow 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 inventory, as well as ancillary and sales center assets to be retained after the conversion.
2015 Dispositions
Kauai, Hawaii
During the 2014 second quarter, 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 gross cash
proceeds of $60.0 million, and completed the sale of a portion of the Kauai Property for gross cash proceeds of $40.0 million.
During the 2015 second quarter, 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 Income Statement for the year ended January 1, 2016.
Marco Island, Florida
During the 2015 first quarter, 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
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for this transaction as a sale. The property was sold to a variable interest entity for which we are not the primary beneficiary.
See Footnote No. 13, “Variable Interest Entities” for additional information on our activities relating to the variable interest
entity involved in this transaction.
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.
Our calculation of diluted earnings per share reflects our intent to settle conversions of the Convertible Notes through
a combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of our
common stock of any excess of the conversion value over the principal amount (the “conversion premium”). Therefore, we
include only the shares that may be issued with respect to any conversion premium in total dilutive weighted average shares
outstanding, which we calculate using the treasury stock method. As no conversion premium existed as of December 31, 2017,
there was no dilutive impact from the Convertible Notes for 2017.
The shares issuable on exercise of the Warrants (as defined in Footnote No. 10, “Debt”) sold in connection with the
issuance of the Convertible Notes will not impact the total dilutive weighted average shares outstanding unless and until the
price of our common stock exceeds the strike price of $176.68, as described in Footnote No. 10, “Debt.” If and when the price
of our common stock exceeds the strike price of the Warrants, we will include the dilutive effect of the additional shares that
may be issued upon exercise of the Warrants in total dilutive weighted average shares outstanding, which we calculate using the
treasury stock method. The Convertible Note Hedges (as defined in Footnote No. 10, “Debt”) purchased in connection with the
issuance of the Convertible Notes are considered to be anti-dilutive and will not impact our calculation of diluted earnings per
share.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares for basic earnings per share. . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . .
Computation of Diluted Earnings Per Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares for basic earnings per share. . . . . . . . . . . . . . .
Effect of dilutive shares outstanding
Employee stock options and SARs . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . .
Shares for diluted earnings per share . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
2017(1)
2016(2)
2015(3)
226,778
27,078
8.38
226,778
27,078
438
217
27,733
8.18
$
$
$
$
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
_________________________
(1)
The computations of diluted earnings per share exclude approximately 238,000 shares of common stock, the
maximum number of shares issuable as of December 31, 2017 upon the vesting of certain performance-based awards,
because the performance conditions required to be met for the shares subject to such awards to vest were not achieved
by the end of the reporting period.
(2)
(3)
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,
because the performance conditions required to be met 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 to be met for the shares subject to such awards to vest were not achieved
by the end of the reporting period.
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In accordance with the applicable accounting guidance for calculating earnings per share, for the year ended
December 31, 2017, our calculation of diluted earnings per share included shares underlying stock appreciation rights
(“SARs”) that may be settled in shares of common stock, because the exercise prices of such SARs were less than or equal to
the average market prices for the applicable period.
For the year ended December 30, 2016, we excluded from our calculation of diluted earnings per share 62,018 shares
underlying SARS that may be settled in shares of common stock because the exercise price of $77.42 of such SARs was greater
than the average market price for the applicable period.
For the year ended January 1, 2016, we excluded from our calculation of diluted earnings per share 62,018 shares
underlying SARs that may be settled in shares of common stock because the exercise price of $77.42 of such SARs was greater
than the average market prices for the applicable period.
7. INVENTORY
The following table shows the composition of our inventory balances:
($ in thousands)
Finished goods(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and infrastructure(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating supplies and retail inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
At Year-End 2017 At Year End 2016
337,949
$
39,486
330,728
708,163
4,373
712,536
379,194
2,315
330,002
711,511
5,022
716,533
$
$
_________________________
(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 $67.6 million of inventory related to estimated future foreclosures at December 31, 2017.
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.
In addition to the above, at December 31, 2017, we had $48.3 million of completed vacation ownership units which
have been classified as a component of Property and equipment until the time at which they are legally registered for sale as
vacation ownership products. As discussed in Footnote No. 9, “Contingencies and Commitments,” we also had $480.5 million
of commitments to acquire completed vacation ownership units.
8. PROPERTY AND EQUIPMENT
The following table details the composition of our property and equipment balances:
($ in thousands)
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
At Year-End 2017 At Year-End 2016
54,975
$
213,190
51,053
180,075
27,493
526,786
(323,984)
202,802
60,174
258,919
54,394
184,635
22,877
580,999
(328,272)
252,727
$
$
Depreciation expense totaled $21.5 million in 2017, $21.0 million in 2016 and $22.2 million in 2015.
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9. CONTINGENCIES AND COMMITMENTS
Commitments and Letters of Credit
As of December 31, 2017, 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 $24.6 million, of which we expect
$15.3 million, $5.5 million, $1.4 million, $0.9 million, $0.8 million and $0.7 million will be paid in 2018, 2019,
2020, 2021, 2022 and thereafter, respectively.
• We have a commitment to purchase an operating property located in New York, New York for $170.2 million, of
which $7.2 million is attributed to a related 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
$108.5 million and $61.7 million in 2019 and 2020, respectively. We currently manage this property, which we
have rebranded as Marriott Vacation Club Pulse, New York City. See Footnote No. 13, “Variable Interest
Entities,” for additional information on this transaction and our activities relating to the variable interest entity
involved in this transaction.
• We have a commitment to purchase 88 vacation ownership units located in Bali, Indonesia for use in our Asia
Pacific segment, contingent upon completion of construction to agreed-upon standards within specified
timeframes. As of December 31, 2017, we expected to complete the acquisition in 2019 and to make payments
with respect to these units when specific construction milestones were completed, as follows: $13.7 million in
2018 and $25.4 million in 2019. During the first quarter of 2018, we amended the terms of this commitment and,
as a result, we expect to make payments of $5.8 million in 2018, $30.9 million in 2019 and $1.9 million in 2020.
• We have a remaining commitment to purchase vacation ownership units located at our resort in Marco Island,
Florida for $108.2 million, which we expect will be paid as follows: $23.7 million in 2018 and $84.5 million in
2019. See Footnote No. 5, “Acquisitions and Dispositions,” for additional information on this transaction and
Footnote No. 13, “Variable Interest Entities,” for additional information on our activities relating to the variable
interest involved in this transaction.
• During the first quarter of 2018, we assigned a commitment to purchase an operating property located in San
Francisco, California, that we had as of December 31, 2017, to a third-party developer in a capital efficient
inventory arrangement. We expect to acquire the operating property in 2020 and to pay the purchase price of
$163.5 million as follows: $100.0 million in 2020 and $63.5 million in 2021. We are required to purchase the
operating property from the third-party developer unless it has been sold to another party. The operating 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 operating property at a higher price. Accordingly, we will not consolidate the
variable interest entity.
Surety bonds issued as of December 31, 2017 totaled $34.6 million, the majority of which were requested by federal,
state or local governments in connection with our operations.
Additionally, as of December 31, 2017, we had $4.6 million of letters of credit outstanding under our $250.0 million
revolving credit facility (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 Club & 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 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
103
seeking review of the Hawaii Supreme Court’s decision. In January 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 U.S. Supreme
Court decision reiterating the obligation of courts to enforce arbitration agreements. In July 2017, the Hawaii Supreme Court
issued a decision reaffirming its prior ruling and remanding the case to the Circuit Court for trial. In November 2017, we filed a
petition with the U.S. Supreme Court seeking review of the Hawaii Supreme Court’s July 2017 decision, which the U.S.
Supreme Court denied in February 2018. We dispute the material allegations in the amended complaint and continue to defend
against the action vigorously. 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. In July 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. In October 2017, following the August 2017 action of the Hawaii Supreme Court in the Narayan case,
the Circuit Court set the Charles case for trial beginning in January 2019. In December 2017, we filed a motion with the Circuit
Court to compel arbitration, which the Circuit Court denied in February 2018. We dispute the material allegations in the
amended complaint and continue to defend against the action vigorously. Given the inherent uncertainties of litigation, we
cannot estimate a range of the potential liability, if any, at this time.
In May 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
Marriott Vacation Club Destinations (“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 in April 2016. We filed a motion to dismiss, which the Court granted in part and denied in part in
September 2017. The Court also granted leave to plaintiffs to file a second amended complaint, which plaintiffs filed in
October 2017. In November 2017, we filed a motion to dismiss the second amended complaint. In February 2018, the Court
granted our motion to dismiss and dismissed with prejudice plaintiffs’ claims regarding the existence of a fiduciary duty and
breach of that duty. The Court also dismissed plaintiffs’ fraud claims but permitted plaintiffs to reassert those claims no later
than March 10, 2018. We dispute the plaintiffs’ material allegations and continue 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.
In March 2017, RCHFU, L.L.C. and other owners of 232 fractional interests at The Ritz-Carlton Club, Aspen
Highlands (“RCC Aspen Highlands”) served an amended complaint in an action pending in the court against us, certain of our
subsidiaries, and other third party defendants. The U.S. District Court for the District of Colorado has ordered that no further
amendments will be permitted. 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. We filed a motion to
dismiss the amended complaint, which remains pending. In February 2018, plaintiffs filed a motion seeking to add a claim for
punitive damages to their complaint. We dispute the plaintiffs’ material allegations and continue 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.
In May 2016, we, certain of our subsidiaries, and certain 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
104
unwinding of the MVCD product, and punitive damages. In September 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, and the Court granted the motion to
dismiss and denied the motion to stay. The Court granted leave to plaintiffs to file an amended complaint, which plaintiffs filed
in October 2017. In November 2017, we filed a motion to dismiss the amended complaint, which remains pending. We dispute
the plaintiffs’ material allegations and continue 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
In September 2017, over 20 of our properties were impacted by Hurricane Irma and Hurricane Maria and, as a result,
as of December 31, 2017, we have accrued $1.3 million for the estimated property damage insurance deductibles and
impairment of property and equipment, which was recorded in the Gains and other income, net line on the Income Statement
for the year ended December 31, 2017.
During 2016, our properties in Hilton Head and Myrtle Beach, South Carolina were temporarily closed as a result of
damage from Hurricane Matthew. In the 2017 third quarter, we received $8.7 million in net insurance proceeds related to the
settlement of business interruption insurance claims arising from Hurricane Matthew, which were recorded in the Gains and
other income line on the Income Statement for the year ended December 31, 2017.
Leases
We have various land, corporate facilities, real estate and equipment operating leases. The land lease consists of a
long-term golf course land lease with a term of 30 years. The corporate facilities leases are for our corporate headquarters and
have lease terms of approximately six years. The other operating leases are primarily for office and retail space as well as
equipment supporting our operations and have lease terms of between three and ten years. Certain of these leases provide for
minimum rental payments and additional rental payments based on our operations of the leased property. We have summarized
our future obligations under operating leases at December 31, 2017 below:
($ in thousands)
2018 . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . .
Total minimum lease payments . . .
$
$
Land
Lease
Corporate
Facilities
Leases
Other
Operating
Leases
Total
1,157
1,157
1,157
1,157
1,157
6,939
12,724
$
$
3,628
3,739
3,850
2,646
—
—
13,863
$
$
12,666
9,636
7,710
5,621
5,455
28,547
69,635
$
$
17,451
14,532
12,717
9,424
6,612
35,486
96,222
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
$
9,390
3,905
13,295
$
$
8,639
3,845
12,484
$
$
9,401
3,876
13,277
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10. DEBT
The following table provides detail on our debt balances, net of unamortized debt discount and issuance costs:
($ in thousands)
Vacation ownership notes receivable securitizations, gross(1) . . . . . . . . . . . . . . $
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End 2017
At Year-End 2016
$
845,131
(10,242)
834,889
738,362
(9,174)
729,188
Convertible notes, gross(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt discount and issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest bearing note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt discount(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt, gross. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
230,000
(37,482)
192,518
63,558
(2,998)
60,560
27
(2)
25
—
—
—
—
—
—
834
(19)
815
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,221
1,095,213
$
7,221
737,224
_________________________
(1)
Interest rates as of December 31, 2017 range from 2.2% to 6.3% with a weighted average interest rate of 2.5%.
(2)
(3)
The effective interest rate as of December 31, 2017 was 4.7%.
Debt discount based on imputed interest rate of 6.0%.
See Footnote No. 13, “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.
The following table shows scheduled future principal payments for our debt as of December 31, 2017:
($ in thousands)
Debt Principal Payments Year
Vacation
Ownership
Notes Receivable
Securitizations(1)
Convertible
Notes
Non-Interest
Bearing Note
Payable
Other
Debt
Capital
Leases
Total
2018 . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . .
$
95,768
92,273
93,553
94,503
93,808
375,226
845,131
$
$
— $
—
—
—
230,000
—
230,000
$
32,680
30,878
—
—
—
—
63,558
$
$
— $
—
—
—
—
27
27
$
— $
128,448
130,372
93,553
94,503
323,808
375,253
$ 1,145,937
7,221
—
—
—
—
7,221
_________________________
(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 $21.6 million in 2017, $23.2 million in 2016 and $30.2
million in 2015.
106
Debt Associated with Vacation Ownership Notes Receivable Securitizations
During the 2017 third quarter, we completed the securitization of a pool of $360.8 million of vacation ownership notes
receivable. In connection with the securitization, investors purchased in a private placement $350.0 million in vacation
ownership loan backed notes from the MVW Owner Trust 2017-1 (the “2017-1 Trust”). Three classes of vacation ownership
loan backed notes were issued by the 2017-1 Trust: $276.0 million of Class A Notes, $46.9 million of Class B Notes and $27.1
million of Class C Notes. The Class A Notes have an interest rate of 2.42 percent, the Class B Notes have an interest rate of
2.75 percent and the Class C Notes have an interest rate of 2.99 percent, for an overall weighted average interest rate of 2.51
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 2017, and as of
December 31, 2017, no securitized vacation ownership notes receivable pools were out of compliance with their respective
established parameters. As of December 31, 2017, we had 8 securitized vacation ownership notes receivable pools outstanding.
Convertible Notes
During the 2017 third quarter, we issued $230.0 million aggregate principal amount of Convertible Notes, which
included the exercise in full of the over-allotment option we granted to the initial purchasers of the Convertible Notes to
purchase up to an additional $30.0 million aggregate principal amount of Convertible Notes. The Convertible Notes are
governed by an indenture dated September 25, 2017 (the “Indenture”) between us and The Bank of New York Mellon Trust
Company, N.A., as trustee (the “Trustee”). We received net proceeds from the offering of approximately $223.7 million after
adjusting for debt issuance costs, including the discount to the initial purchasers.
The Convertible Notes bear interest at a rate of 1.50 percent, payable in cash semi-annually on March 15 and
September 15 of each year beginning on March 15, 2018. The Convertible Notes mature on September 15, 2022, unless
repurchased or converted in accordance with their terms prior to that date. On or after June 15, 2022, and until the close of
business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible
Notes at their option. The Convertible Notes are convertible at an initial rate of 6.7482 shares of common stock per $1,000
principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $148.19 per share of our
common stock). The conversion rate is subject to adjustment for certain events as described in the Indenture.
The conversion rate was adjusted during the 2017 fourth quarter to 6.7508 shares of common stock per $1,000
principal amount of Convertible Notes (equivalent to a conversion price of approximately $148.13 per share of our common
stock) when we declared a quarterly dividend of $0.40 per share, which was greater than the quarterly dividend at the time of
the issuance of the Convertible Notes. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common
stock or a combination of cash and shares of our common stock, at our election. It is our intent to settle conversions of the
Convertible Notes through combination settlement, which contemplates repayment in cash of the principal amount and
repayment in shares of our common stock of any excess of the conversion value over the principal amount.
Holders may convert their Convertible Notes prior to June 15, 2022 only under the following circumstances:
•
•
during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only
during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days
(whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter is greater than or equal to 130 percent of the conversion price
on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price
per $1,000 principal amount of the Convertible Notes for each trading day of that five consecutive trading
day period was less than 98 percent of the product of the last reported sale price of our common stock and the
conversion rate on each such trading day; or
•
upon the occurrence of specified corporate events as described in the Indenture.
We may not redeem the Convertible Notes prior to their maturity date, and no sinking fund is provided for them. If we
undergo a fundamental change, as described in the Indenture, subject to certain conditions, holders may require us to
repurchase for cash all or any portion of their Convertible Notes. The repurchase price as a result of a fundamental change is
equal to 100 percent of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to,
107
but excluding, the repurchase date. If certain fundamental changes referred to in the Indenture as make-whole fundamental
changes occur, the conversion rate applicable to the Convertible Notes may increase.
The Convertible Notes are our general senior unsecured obligations, ranking senior in right of payment to any future
debt that is expressly subordinated in right of payment to the Convertible Notes and equally in right of payment with all of our
existing and future liabilities that are not so subordinated. The Convertible Notes are effectively subordinated to all of our
existing and future secured debt to the extent of the value of the assets securing such debt. The Convertible Notes are
structurally subordinated to all of the existing and future liabilities and obligations of our subsidiaries. The Convertible Notes
are not guaranteed by any of our subsidiaries.
There are no financial or operating covenants related to the Convertible Notes. The Indenture contains customary
events of default with respect to the Convertible Notes and provides that upon the occurrence and continuation of certain events
of default, the Trustee or the holders of at least 25 percent in aggregate principal amount of the Convertible Notes then
outstanding, may declare all principal of, and accrued and any unpaid interest on, the Convertible Notes then outstanding to be
immediately due and payable. In case of certain events of bankruptcy or insolvency involving the Company or certain of its
subsidiaries, all of the principal of and accrued and unpaid interest on the Convertible Notes will automatically become
immediately due and payable.
In accounting for the issuance of the Convertible Notes, we separated the Convertible Notes into liability and equity
components, and allocated $196.8 million to the liability component and $33.2 million to the equity component. The resulting
debt discount is amortized as interest expense. As of December 31, 2017, the remaining debt discount amortization period
was 4.7 years. We also incurred issuance costs of $7.3 million related to the Convertible Notes.
The following table shows the net carrying value of the Convertible Notes at December 31, 2017:
($ in thousands)
Liability component
Principal amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
230,000
(31,596)
(5,886)
192,518
Equity component, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . $
32,573
The following table shows the total interest expense related to the Convertible Notes for the year ended December 31,
2017:
($ in thousands)
Contractual interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
920
1,629
325
2,874
Convertible Note Hedges and Warrants
In connection with the offering of the Convertible Notes, we entered into privately-negotiated convertible note hedge
transactions with respect to our common stock with two counterparties on each of September 20, 2017 and September 21, 2017
(“Convertible Note Hedges”), covering a total of approximately 1.55 million shares of our common stock at a cost of $33.2
million. The Convertible Note Hedges are subject to anti-dilution provisions substantially similar to those of the Convertible
Notes, have a strike price that initially corresponds to the initial conversion price of the Convertible Notes, are exercisable by
us upon any conversion under the Convertible Notes, and expire when the Convertible Notes mature. The cost of the
Convertible Note Hedges is expected to be tax deductible as an original issue discount over the life of the Convertible Notes, as
the Convertible Notes and the Convertible Note Hedges represent an integrated debt instrument for tax purposes. The cost of
the Convertible Note Hedges was recorded as a reduction of Additional paid-in capital on our Balance Sheet as of
December 31, 2017.
Concurrently with the entry into the Convertible Note Hedges, we separately entered into privately-negotiated warrant
transactions (the “Warrants”), whereby we sold to the counterparties to the Convertible Note Hedges warrants to acquire,
collectively, subject to anti-dilution adjustments, approximately 1.55 million shares of our common stock at an initial strike
price of $176.68 per share. We received aggregate proceeds of approximately $20.3 million from the sale of the Warrants to the
counterparties. Taken together, the Convertible Note Hedges and the Warrants are generally expected to reduce the potential
108
dilution to our common stock (or, in the event the conversion of the Convertible Notes is settled in cash, to reduce our cash
payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the
Convertible Notes and to effectively increase the overall conversion price from $148.19 (or a conversion premium of 30
percent) to $176.68 per share (or a conversion premium of 55 percent). The Warrants will expire in ratable portions on a series
of expiration dates commencing on December 15, 2022. The proceeds from the issuance of the Warrants were recorded as an
increase to Additional paid-in capital on our Balance Sheet as of December 31, 2017.
The Convertible Notes, the Convertible Note Hedges and the Warrants are transactions that are separate from each
other. Holders of any such instrument have no rights with respect to the other instruments. As of December 31, 2017, no
Convertible Note Hedges or Warrants have been exercised.
Revolving Corporate Credit Facility
During the 2017 third quarter, we terminated our $200.0 million revolving credit facility (the “Previous Revolving
Corporate Credit Facility”) and entered into a new Revolving Corporate Credit Facility with a borrowing capacity of $250.0
million, including a letter of credit sub-facility of $30.0 million, that terminates on August 16, 2022. All outstanding cash
borrowings under our Previous Revolving Corporate Credit Facility were repaid in full prior to termination. The Revolving
Corporate Credit Facility provides support for our business, including ongoing liquidity and letters of credit. Borrowings under
this facility generally bear interest at a floating rate plus an applicable margin that varies from 0.50 percent to 2.75 percent
depending on the type of loan and our credit rating. In addition, we pay a commitment fee on the unused availability under the
Revolving Corporate Credit Facility at a rate that varies from 20 basis points per annum to 40 basis points per annum, also
depending on our credit rating.
No cash borrowings were outstanding as of December 31, 2017 under our Revolving Corporate Credit Facility. Any
amounts 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 31, 2017, we were in compliance with the applicable financial and operating covenants
under the Revolving Credit Facility.
Warehouse Credit Facility
The Warehouse Credit Facility, which has a borrowing capacity of $250.0 million, allows for the securitization of
vacation ownership notes receivable on a non-recourse basis. During the 2017 third quarter, we amended certain agreements
associated with this facility (the “Warehouse Amendment”). The Warehouse Amendment requires us to comply with the
financial covenants in the Revolving Corporate Credit Facility and eliminates the requirement to comply with the covenants
contained in the Previous Revolving Corporate Credit Facility. The Warehouse Amendment did not modify the borrowing
capacity or the term of the Warehouse Credit Facility. The Warehouse Credit Facility terminates on March 7, 2019 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.
During the 2017 second quarter, we securitized vacation ownership notes receivable under our Warehouse Credit
Facility. The carrying amount of the vacation ownership notes receivable securitized was $59.1 million. The advance rate was
85 percent, which resulted in gross proceeds of $50.3 million. Net proceeds were $50.0 million due to the funding of reserve
accounts in the amount of $0.3 million.
As of December 31, 2017, 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.
Non-Interest Bearing Note Payable
During the 2017 second quarter, we issued a non-interest bearing note payable in connection with the acquisition of
vacation ownership units located on the Big Island of Hawaii. See Footnote No. 5, “Acquisitions and Dispositions,” for
additional information regarding this transaction.
Capital Leases
In 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 regarding this transaction.
109
11. SHAREHOLDERS’ EQUITY
Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $0.01 per share. At
December 31, 2017, there were 36,861,843 shares of Marriott Vacations Worldwide common stock issued, of which 26,461,296
shares were outstanding and 10,400,547 shares were held as treasury stock. At December 30, 2016, there were 36,633,868
shares of Marriott Vacations Worldwide common stock issued, of which 26,990,306 shares were outstanding and 9,643,562
shares were held as treasury stock. Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value
of $0.01 per share, none of which were issued or outstanding as of December 31, 2017 or December 30, 2016.
Share Repurchase Program
The following table summarizes share repurchase activity under our current share repurchase program:
($ in thousands, except per share amounts)
As of December 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 31, 2017 . . . . . . . . . . . . . . .
As of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
Repurchased
Cost of Shares
Repurchased
Average Price
Paid per Share
9,672,629
767,876
10,440,505
$
$
608,439
88,305
696,744
$
$
62.90
115.00
66.73
On August 1, 2017, our Board of Directors authorized the repurchase of up to 1.0 million additional shares of our
common stock under our existing share repurchase program and extended the duration of the program through May 31, 2018.
As of December 31, 2017, our Board of Directors had authorized the repurchase of an aggregate of up to 11.9 million 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 31, 2017, 1.5 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.
Dividends
We declared cash dividends to holders of common stock during the year ended December 31, 2017 as follows:
Declaration Date
February 9, 2017
May 11, 2017
September 7, 2017
December 7, 2017
Shareholder Record Date
February 23, 2017
May 25, 2017
September 21, 2017
December 21, 2017
Distribution Date
March 9, 2017
June 8, 2017
October 5, 2017
January 4, 2018
Dividend per Share
$0.35
$0.35
$0.35
$0.40
Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay
dividends in the future.
110
12. SHARE-BASED COMPENSATION
We maintain the Stock Plan for the benefit of our officers, directors and employees. Under the Stock Plan, we award:
(1) RSUs of our common stock, (2) SARs for our common stock and (3) stock options to purchase our common stock. A total
of 6 million shares are authorized for issuance pursuant to grants under the Stock Plan. As of December 31, 2017, 1.4 million
shares were available for grants under the Stock Plan.
The following table details our share-based compensation expense related to award grants to our officers, directors
and employees:
($ in thousands)
Service based RSUs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance based RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
$
10,147
3,752
13,899
2,387
—
16,286
$
$
9,372
2,502
11,874
2,075
—
13,949
$
$
8,879
3,343
12,222
1,920
—
14,142
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 2017(1)
8,918
$
4,752
13,670
999
—
14,669
$
$
$
At Year-End 2016
9,000
3,307
12,307
1,146
—
13,453
_________________________
(1)
As of December 31, 2017, the weighted average remaining term for RSU grants outstanding at year-end 2017 was 1.8
years and we expect that deferred compensation expense will be recognized over a weighted average period of 2.4
years.
Restricted Stock Units
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:
2017
Service Based
Performance Based
Total
Weighted
Average Grant-
Date Fair Value
Per RSU
$
$
$
$
$
49.36
96.53
51.88
74.47
59.49
Weighted
Average Grant-
Date Fair Value
Per RSU
$
$
$
$
$
61.30
93.41
52.09
52.09
72.89
Weighted
Average Grant-
Date Fair Value
Per RSU
$
$
$
$
$
53.56
95.12
51.93
60.28
64.83
Number of
RSUs
794,231
209,770
(203,761)
(17,721)
782,519
Number of
RSUs
279,284
94,436
(50,978)
(11,230)
311,512
Number of
RSUs
514,947
115,334
(152,783)
(6,491)
471,007
Outstanding at year-end 2016. .
Granted . . . . . . . . . . . . . . . .
Distributed . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . .
Outstanding at year-end 2017. .
The weighted average grant-date fair value per RSU granted in 2016 and 2015 was $53.56 and $75.61, respectively.
The fair value of RSUs which vested in 2017, 2016 and 2015, was $18.2 million, $13.2 million and $30.0 million, respectively.
111
SARs
The following table shows the changes in our outstanding SARs and the associated weighted average exercise prices:
2017
Number of
SARs
Weighted Average
Exercise Price Per SAR
Outstanding at year-end 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at year-end 2017(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
781,903
81,977
(205,427)
—
658,453
$
$
34.97
97.53
19.35
—
47.63
_________________________
(1)
As of December 31, 2017, outstanding SARs had a total intrinsic value of $58.3 million and a weighted average
remaining term of 5.9 years.
(2)
As of December 31, 2017, 431,543 SARs with a weighted average exercise price of $32.62, an aggregate intrinsic
value of $44.7 million and a weighted average remaining contractual term of 4.6 years were exercisable.
The weighted average grant-date fair value per SAR granted in 2017, 2016 and 2015 was $27.63, $16.12 and $29.75,
respectively. The intrinsic value of SARs which vested in 2017, 2016 and 2015, was $6.2 million, $1.4 million and $4.7
million, respectively. The aggregate intrinsic value of SARs which were exercised in 2017, 2016 and 2015 was $18.7 million,
$5.6 million and $4.3 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.
The following table outlines the assumptions used to estimate the fair value of grants in 2017, 2016 and 2015:
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
30.41%
1.44%
2.06%
6.25
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 2017 or 2016, and no stock
options were granted to our employees in 2017, 2016 or 2015. At December 31, 2017, approximately 9,000 stock options were
outstanding and exercisable with a weighted average exercise price per option of $18.36 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 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.
112
13. VARIABLE INTEREST ENTITIES
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 bankruptcy remote special purpose 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.
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 31, 2017:
($ 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
815,331
$
— $
5,639
32,317
853,287
651
845,131
845,782
$
$
$
—
4
4
50
—
50
$
$
$
815,331
5,639
32,321
853,291
701
845,131
845,832
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 2017:
($ in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense to investors . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance cost amortization . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
Vacation Ownership
Notes Receivable
Securitizations
Warehouse
Credit
Facility
98,862
18,872
3,731
409
$
$
$
$
2,331
1,676
938
153
$
$
$
$
Total
101,193
20,548
4,669
562
113
The following table shows cash flows between us and the vacation ownership notes receivable securitization variable
interest entities:
($ in thousands)
Cash Inflows
2017
2016
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. . . . . . . . . .
Interest to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funding of restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
346,469
228,723
99,766
757
675,715
(214,907)
(28,324)
(18,630)
(1,804)
(263,665)
412,050
$
$
247,453
174,830
91,972
50,733
564,988
(166,652)
(29,590)
(17,449)
(51,770)
(265,461)
299,527
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2017
2016
50,260
1,403
2,093
296
54,052
(1,160)
—
(49,100)
(1,672)
(296)
(52,228)
1,824
$
$
126,622
5,227
5,048
909
137,806
(3,771)
(661)
(122,190)
(1,796)
(447)
(128,865)
8,941
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 $28.3 million during 2017, $30.3
million during 2016 and $24.6 million during 2015. We also made voluntary repurchases of $57.4 million, $144.1 million and
$146.2 million of other non-defaulted vacation ownership notes receivable during 2017, 2016 and 2015, 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 31, 2017.
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 31, 2017, our Balance Sheet reflected $8.3 million in
114
Property and equipment related to a capital lease and leasehold improvements and $7.2 million in Debt related to the capital
lease liability for ancillary and operations space we lease from the variable interest entity. In addition, a note receivable of $0.5
million is included in the Accounts and contracts receivable line on the Balance Sheet as of December 31, 2017. We believe
that our maximum exposure to loss as a result of our involvement with this variable interest entity is $2.3 million as of
December 31, 2017.
Pursuant to a commitment to repurchase an operating property located in Marco Island, Florida that was previously
sold to a third-party developer, we acquired 36 completed vacation ownership units during the 2017 second quarter. Refer to
Footnote No. 5, “Acquisitions and Dispositions” for additional information on this transaction. We remain obligated to
repurchase the remaining portion of the operating property if it meets our brand standards upon completion, provided that the
third-party developer has not sold it to another party. Refer to Footnote No. 9, “Contingencies and Commitments” for
additional information on our remaining commitment. The developer is 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 31, 2017, our Balance Sheet reflected $3.7 million of Inventory, $2.4 million of Other assets that relate to prepaid
and other deposits, and $7.5 million of Other liabilities that relate to the deferral of gain recognition on the previous sale
transaction and the deferral of revenue for development management services for the remaining purchase commitment, both of
which will reduce our basis in the asset if we repurchase the property. In addition, a note receivable of $0.5 million is included
in the Accounts and contracts receivable line on the Balance Sheet as of December 31, 2017. We believe that our maximum
exposure to loss as a result of our involvement with this variable interest entity is less than $1 million as of December 31, 2017.
14. BUSINESS SEGMENTS
We define our reportable segments based on the way in which the chief operating decision maker, currently our chief
executive officer, manages the operations of the company for purposes of allocating resources and assessing performance. We
operate in three reportable business segments:
•
•
•
In our North America segment, we develop, market, sell and manage vacation ownership and related products
under the Marriott Vacation Club and Grand Residences by Marriott brands, as well as under Marriott Vacation
Club Pulse, an extension to the Marriott Vacation Club brand. We also develop, market and sell vacation
ownership and related products under The Ritz-Carlton Destination Club brand, as well as whole ownership
residential products under The Ritz-Carlton Residences brand.
In our Asia Pacific segment, we develop, market, sell and manage two points-based programs that we specifically
designed to appeal to the vacation preferences of the market, Marriott Vacation Club, Asia Pacific and Marriott
Vacation Club Destinations, Australia, as well as a weeks-based right-to-use product.
In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not
have any current plans for new development in this segment.
We evaluate the performance of our segments based primarily on the results of the segment without allocating
corporate expenses or income taxes. We do not allocate corporate interest expense, consumer financing interest expense, other
financing expenses or general and administrative expenses to our segments. We include interest income specific to segment
activities within the appropriate segment. We allocate other gains and losses and equity in earnings or losses from our joint
ventures to each of our segments as appropriate. Corporate and other represents that portion of our revenues and other gains or
losses that are not allocable to our segments.
Revenues
($ in thousands)
North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment revenues . . . . . . . . . . . . . . . . . . . . . .
Corporate and other. . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016(1)
2015(1)
$
$
1,777,345
67,773
106,827
1,951,945
—
1,951,945
$
$
1,627,916
74,949
105,621
1,808,486
—
1,808,486
$
$
1,605,102
93,632
112,061
1,810,795
—
1,810,795
_________________________
(1)
Results have been reclassified to conform to our 2017 financial statement presentation.
115
Net Income
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment financial results . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . . .
$
$
2017
2016(1)
2015(1)
427,873
(968)
14,678
441,583
(215,700)
895
226,778
$
$
423,334
1,278
12,067
436,679
(213,751)
(85,580)
137,348
_________________________
(1)
Results have been reclassified to conform to our 2017 financial statement presentation.
Depreciation
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment depreciation . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Assets
2017
2016
12,869
880
1,308
15,057
6,437
21,494
12,046
1,235
1,462
14,743
6,301
21,044
$
$
$
$
409,596
7,263
13,874
430,733
(224,236)
(83,698)
122,799
2015
12,935
2,424
1,601
16,960
5,257
22,217
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures (including inventory)
($ in thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment capital expenditures . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
142,897
26,475
5,047
174,419
7,068
181,487
$
$
At Year-End 2017
At Year-End 2016
2,143,664
134,939
64,535
2,343,138
563,055
2,906,193
2016
136,889
21,276
6,153
164,318
8,412
172,730
$
$
$
$
1,968,021
102,348
62,245
2,132,614
258,805
2,391,419
2015
179,696
72,097
2,807
254,600
10,260
264,860
Our Financial Statements include the following items related to operations located outside the United States (which
are predominately related to our Asia Pacific and Europe segments):
• Revenues, excluding cost reimbursements, of $191.8 million in 2017, $195.4 million in 2016 and $218.3 million in
2015; and
•
Fixed assets of $77.3 million in 2017 and $60.0 million in 2016. For year-end 2017 and year-end 2016, fixed assets
located outside the United States are included within the “Property and equipment” caption on our Balance Sheets.
116
$
$
$
$
$
$
15. QUARTERLY RESULTS (UNAUDITED)
($ in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $
Expenses . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . $
Basic earnings per share . . . . . . . . . . . . $
Diluted earnings per share. . . . . . . . . . . $
First
Quarter
Second
Quarter
486,119
$
(432,555) $
33,700
1.24
1.21
$
$
$
$
497,620
(430,204) $
$
44,276
1.62
1.58
$
$
2017(1)(2)
Third
Quarter
Fourth
Quarter
$
486,990
(428,300) $
$
40,762
$
481,216
(429,604) $
$
108,040
Fiscal
Year
1,951,945
(1,720,663)
226,778
1.50
1.47
$
$
4.05
3.95
$
$
8.38
8.18
($ in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $
Expenses . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . $
Basic earnings per share . . . . . . . . . . . . $
Diluted earnings per share. . . . . . . . . . . $
First
Quarter
Second
Quarter
2016(2)(3)(4)
Third
Quarter
Fourth
Quarter
419,122
$
(374,440) $
$
24,408
423,171
$
(368,674) $
$
36,309
401,637
$
(358,906) $
$
26,807
564,556
$
(481,195) $
$
49,824
Fiscal
Year
1,808,486
(1,583,215)
137,348
0.84
0.82
$
$
1.28
1.26
$
$
0.99
0.97
$
$
1.83
1.80
$
$
4.93
4.83
_______________________
(1) Beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-end and end-of-month
quarterly reporting cycle. Accordingly our 2017 first quarter included the period from December 31, 2016 (the day after
the end of the 2016 fiscal year) through March 31, 2017, and our 2017 second, third and fourth quarters included the three
month periods ended June 30, September 30, and December 31, respectively.
(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 2016 quarters consisted of 12 weeks, except for the fourth quarter of 2016, which consisted of 16 weeks.
(4) The quarterly results have been reclassified to conform to our 2017 financial statement presentation.
16. SUBSEQUENT EVENTS
Dividends
On February 16, 2018, our Board of Directors declared a quarterly dividend of $0.40 per share to be paid on March
15, 2018 to shareholders of record as of March 1, 2018.
Amendments to Agreements with Marriott International
In February 2018, we amended several of the agreements governing our ongoing relationship with Marriott
International, including the agreements that provide for our license arrangements with Marriott International and The Ritz-
Carlton Hotel Company and our participation in the Marriott Rewards programs. Pursuant to these amendments, in exchange
for agreeing to a limited exception to our exclusive rights with respect to access to the Marriott Rewards program and member
lists and Marriott International’s reservation system and marriott.com website, we received a number of benefits, including a
reduction in the annual royalty fee we pay to Marriott International, increased annual co-marketing funds associated with
Marriott International’s new credit card arrangements and reduced costs of Marriott Rewards points under our existing
agreements with Marriott International resulting from planned system-wide reductions in the rates Marriott International
charges its loyalty program partners, and certain expanded marketing rights.
117
17. ADOPTION OF ASC 606 EFFECTIVE JANUARY 1, 2018
As discussed in Footnote No. 1, “Summary of Significant Accounting Policies,” the FASB issued ASU 2014-09 in
2014, which, as amended, created ASC 606. The core principle of ASC 606 is that an entity shall recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The standard also contains significant new disclosure requirements
regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We will
adopt ASC 606 effective January 1, 2018, on a retrospective basis.
Upon adoption of ASC 606, recognition of revenue from the sale of vacation ownership products that is deemed
collectible will be deferred from the point in time at which the statutory rescission period expires to closing, when control of
the vacation ownership product is transferred to the customer. In addition, we will align our assessment of collectibility of the
transaction price for sales of vacation ownership products with our credit granting policies. We have elected the practical
expedient to expense all marketing and sales costs as they are incurred. Our consolidated cost reimbursements revenues and
cost reimbursements expenses will increase significantly, as all costs reimbursed to us by property owners’ associations will be
reported on a gross basis upon adoption of ASC 606. In conjunction with the adoption of ASC 606 we will reclassify certain
revenues and expenses.
The following tables summarize the impact of the aforementioned adjustments on select financial statement line items
for the periods presented:
As Reported
2017
Adjustments
As Adjusted
($ in thousands, except per share amounts)
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 . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative. . . . . . . . . . . . . . . . . . .
Litigation settlement. . . . . . . . . . . . . . . . . . . . . . . .
Consumer financing interest. . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . .
Gains and other income, net . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES. . . . . . . . . .
Benefit (provision) for income taxes . . . . . . . . . . . . .
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
EARNINGS PER SHARE
Earnings per share - Basic . . . . . . . . . . . . . . . . . . . $
Earnings per share - Diluted. . . . . . . . . . . . . . . . . . $
8.38
8.18
118
727,940
306,196
134,906
322,902
460,001
1,951,945
177,813
408,715
172,137
17,951
281,352
110,225
4,231
25,217
63,021
460,001
1,720,663
5,772
(9,572)
(1,599)
225,883
895
226,778
$
$
$
$
29,498
(27,358)
—
(60,863)
289,601
230,878
17,034
(13,825)
(17,913)
—
(57,970)
—
—
—
—
289,601
216,927
—
—
—
13,951
(5,405)
8,546
0.32
0.31
$
$
$
$
757,438
278,838
134,906
262,039
749,602
2,182,823
194,847
394,890
154,224
17,951
223,382
110,225
4,231
25,217
63,021
749,602
1,937,590
5,772
(9,572)
(1,599)
239,834
(4,510)
235,324
8.70
8.49
($ in thousands, except per share amounts)
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 . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative. . . . . . . . . . . . . . . . . . .
Litigation settlement. . . . . . . . . . . . . . . . . . . . . . . .
Consumer financing interest. . . . . . . . . . . . . . . . . .
Royalty fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . .
Gains and other income, net . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES. . . . . . . . . .
(Provision) benefit for income taxes . . . . . . . . . . . . . .
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
As Reported
2016
Adjustments
As Adjusted
637,503
300,821
126,126
312,071
431,965
1,808,486
155,093
353,295
174,311
18,631
260,752
104,833
(303)
23,685
60,953
431,965
1,583,215
11,201
(8,912)
(4,632)
222,928
(85,580)
137,348
$
$
$
$
(15,078) $
(23,285)
881
(59,707)
288,507
191,318
7,850
(13,682)
(17,576)
135
(49,186)
—
—
—
—
288,507
216,048
—
—
—
(24,730)
9,320
(15,410) $
622,425
277,536
127,007
252,364
720,472
1,999,804
162,943
339,613
156,735
18,766
211,566
104,833
(303)
23,685
60,953
720,472
1,799,263
11,201
(8,912)
(4,632)
198,198
(76,260)
121,938
(0.56) $
(0.54) $
4.37
4.29
EARNINGS PER SHARE
Earnings per share - Basic . . . . . . . . . . . . . . . . . . . $
Earnings per share - Diluted. . . . . . . . . . . . . . . . . . $
4.93
4.83
119
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). We have set forth 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 in Part II, Item 8 of this Annual Report, and we incorporate those reports by reference.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
As discussed above in “Business - Our History,” on February 26, 2018, we and Marriott International amended several
of the agreements governing our ongoing relationship. We entered into, among other agreements, the following:
•
•
•
•
•
a First Amendment to License, Services, and Development Agreement (the “Marriott License Amendment”)
among Marriott International, its subsidiary Marriott Worldwide Corporation and Marriott Vacations Worldwide,
which amends the Marriott License Agreement;
a First Amendment to License, Services, and Development Agreement (the “Ritz-Carlton License Amendment”)
between The Ritz-Carlton Hotel Company and Marriott Vacations Worldwide, which amends the Ritz-Carlton
License Agreement;
a First Amendment to Marriott Rewards Affiliation Agreement (the “Marriott Rewards Amendment”) among
Marriott International, its subsidiary Marriott Rewards, LLC, Marriott Vacations Worldwide and our subsidiary
Marriott Ownership Resorts, Inc., which amends the Marriott Rewards Agreement;
an Amended and Restated Side Letter Agreement (the “Amended Program Affiliation Side Letter”) among
Marriott International, Marriott Worldwide Corporation, Marriott Rewards, LLC, Marriott Vacations Worldwide
and Marriott Ownership Resorts, Inc., which amends and restates the Side Letter Agreement - Program Affiliation
dated September 21, 2016; and
a Termination of Noncompetition Agreement (the “Noncompetition Termination Agreement”) between Marriott
International and Marriott Vacations Worldwide.
The following summary of the terms of Marriott License Amendment, the Ritz-Carlton License Amendment, the
Marriott Rewards Amendment, the Amended Program Affiliation Side Letter and the Noncompetition Termination Agreement
is qualified in its entirety by reference to the full text of the foregoing agreements, which are filed as exhibits to this Annual
Report.
120
Marriott License Amendment
Pursuant to the Marriott License Amendment, we agreed to a limited exception to our exclusive rights with respect to
Marriott International’s customer loyalty programs, reservation system, marriott.com website and customer loyalty program
member lists that permits their use in the business of Marriott International’s other timeshare licensee, Vistana Signature
Experiences, Inc. (“Vistana”). For so long as this “Vistana Exclusive Rights Exception” is in effect, the fixed portion of the
royalty fee that we pay to Marriott International, which is currently $51.9 million per year, will be reduced by $3 million per
year.
The Marriott License Amendment extends our exclusive rights that relate to the Marriott Hotels, Resorts and Suites
(including Marriott Marquis Hotels), JW Marriott Hotels and Resorts (including JW Marriott Marquis Hotels), Renaissance
Hotels and Resorts, Courtyard by Marriott Hotels, and Ritz-Carlton Hotels and Resorts brands to the Autograph Collection
Hotels, Gaylord Hotels, Delta Hotels & Resorts, Le Méridien Hotels, Tribute Portfolio Hotels, W Hotels and The Luxury
Collection Hotels brands, as well as the Sheraton Hotels, Westin Hotels and St. Regis Hotels and Resorts brands, with certain
exceptions with respect to these three brands as described below related to the Vistana business.
Pursuant to the Vistana Exclusive Rights Exception, Vistana may access Sheraton Hotels, Westin Hotels and St. Regis
Hotels to market vacation ownership products and as an ancillary benefit exchange option for vacation ownership products.
Marriott International agreed, however, not to enter into arrangements with Vistana that would preclude us from accessing
properties operating under legacy Starwood brands (St. Regis Hotels and Resorts, Luxury Collection Hotels, Le Méridien
Hotels, Sheraton Hotels, Westin Hotels, W Hotels, Tribute Portfolio Hotels, Aloft Hotels, Element Hotels, Four Points by
Sheraton Hotels, and Design Hotels) to market vacation ownership products, except for certain existing arrangements. In
markets where Vistana both operates a vacation ownership property under the Sheraton or Westin brands and actively conducts
sales operations in a physical location, we will be able to access those Sheraton and Westin hotels where we operate a vacation
ownership property that is co-located with such hotel; in markets where Vistana both operates a vacation ownership property
under the St. Regis brand and actively conducts sales operations in a physical location, we will be able to access those St. Regis
hotels where we operate a vacation ownership property that is co-located with such hotel. Marriott International also agreed not
to enter into arrangements that would permit the marketing of vacation ownership products by others in markets in which we
operate resorts and are actively conducting sales operations at a physical location, except that Vistana may market vacation
ownership products in a Sheraton or Westin branded hotel in any market in which it operates a Sheraton or Westin vacation
ownership project and may market vacation ownership products in a St. Regis branded hotel in any market in which it operates
a St. Regis vacation ownership project. Any such arrangements not subject to the exceptions described in the preceding
sentence that are already in effect will continue only until the expiration of their current terms.
The Marriott License Amendment provides that Marriott International may not permit any other party to brand, co-
brand, sponsor, market, promote, or otherwise affiliate with a vacation ownership branded credit, charge or debit card, in each
case if the branding of the card uses the marks Marriott International licenses to us, except that such cards may be used in
connection with the Vistana business.
The Marriott License Amendment also permits Marriott International to offer and operate clubs or programs in
connection with an all-inclusive hotel business under which a customer prepays for the right to receive discounts for future
hotel stays, enhanced hotel accommodations and services, and other hotel-stay related benefits, in each case in which the
benefits the customer receives extend for a term of not more than five years. Certain restrictions will apply to Marriott
International’s operation of such a program.
Ritz-Carlton License Amendment
Pursuant to the Ritz-Carlton License Amendment, we agreed to a limited exception to our exclusive rights with
respect to The Ritz-Carlton Hotel Company’s customer loyalty programs, reservation system and customer loyalty program
member lists (but not to the ritz-carlton.com website) that permits their use in the Vistana business on substantially similar
terms as the exception we agreed to pursuant to the Marriott License Agreement Amendment.
The Ritz-Carlton License Amendment provides that The Ritz-Carlton Hotel Company may not permit any other party
to brand, co-brand, sponsor, market, promote, or otherwise affiliate with a vacation ownership branded credit, charge or debit
card, in each case if the branding of the card uses Ritz-Carlton marks licensed to us, except that such cards may be used in
connection with the Vistana business.
The Ritz-Carlton License Amendment also permits The Ritz-Carlton Hotel Company to offer and operate clubs or
programs in connection with an all-inclusive hotel business under which a customer prepays for the right to receive discounts
for future hotel stays, enhanced hotel accommodations and services, and other hotel-stay related benefits, in each case in which
the benefits the customer receives extend for a term of not more than five years. Certain restrictions will apply to The Ritz-
Carlton Hotel Company’s operation of such a program.
121
Marriott Rewards Amendment
The Marriott Rewards Amendment provides that, from and after the time that the first step and/or phase of the
combination of the Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest (“SPG”) program into a single
customer loyalty program (the “Combination Date”), the terms of the Marriott Rewards Agreement applicable to the Marriott
Rewards program, which allows us to offer Marriott Rewards points to our owners or potential owners as sales, tour and
financing incentives, in exchange for vacation ownership usage rights, for customer referrals, and to resolve customer service
issues, will apply to the combined program and the hotels, resorts, vacation ownership resorts and other properties participating
in the combined program, subject to certain exceptions that will permit Vistana to use the combined loyalty program. Marriott
International also agreed not to grant Vistana marketing access to Marriott Rewards members who were members of Marriott
Rewards but not SPG immediately prior to the Combination Date or who joined Marriott Rewards prior to joining SPG unless
and until it has granted us marketing access to both Marriott Rewards members who were members of SPG but not Marriott
Rewards immediately prior to the Combination Date or who joined SPG prior to joining Marriott Rewards. Vistana will not be
permitted to issue points in the Marriott Rewards program (or non-SPG points in the combined loyalty program) until the
combined loyalty program operates with a single points currency that incorporates points that were formerly SPG points, and
we will not be permitted to issue SPG points or non-Marriott Rewards points in the combined loyalty program) until the
combined loyalty program operates with a single points currency that incorporates points that were formerly Marriott Rewards
points.
The Marriott Rewards Amendment also provides that to the extent that the uses for which we are allowed to offer
Marriott Rewards points (or points in the combined loyalty program) are less favorable or more restrictive than the permitted
uses for which Vistana may offer SPG points (or points in the combined loyalty program), then the Marriott Rewards
Agreement will be amended so that our uses are not materially less favorable or materially more restrictive than Vistana’s
permitted uses of SPG (or the combined loyalty program).
The Marriott Rewards Amendment also extends to 2021 our ability to defer payment for Marriott Rewards points
issued for exchanges in our fourth calendar quarter until 120 days after the end of such quarter. It also provides us with the right
to purchase silver, gold and platinum Rewards Elite status for certain existing and future owners of our vacation ownership
products at agreed upon pricing terms. The Marriott Rewards Amendment provides that following the combination of the
loyalty programs, the provisions of the Marriott Rewards Agreement that limit Marriott International’s right to make certain
changes to the Marriott Rewards program without our consent will continue to apply to the combined loyalty program.
Amended Program Affiliation Side Letter
The Amended Program Affiliation Side Letter contemplates the combination of the loyalty programs as described
above and provides that loyalty program points earned by owners of our vacation ownership products through their status as
owners will not be permitted to be used at properties operated under specified legacy Starwood brands, and that loyalty
program points earned by owners of Vistana vacation ownership products through their status as owners will not be permitted
to be used at properties operated under specified Marriott brands. These restrictions will be eliminated upon the earlier of
September 23, 2019 or such date as both we and ILG, Inc. (the owner of Vistana) may mutually agree.
Noncompetition Termination Agreement
Pursuant to the Noncompetition Termination Agreement, we terminated the Noncompetition Agreement, which
generally prohibited Marriott International and its subsidiaries from engaging in the vacation ownership business and
prohibited 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.
122
PART III
As described below, we incorporate certain information appearing in the Proxy Statement we will furnish to our
shareholders in connection with our 2018 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 23, 2018, except where indicated.
Name and Title
Stephen P. Weisz
President and Chief Executive Officer
Age
67
R. Lee Cunningham
Executive Vice President and Chief Operating
Officer
58
Clifford M. Delorey
Executive Vice President and Chief Resort
Experience Officer
57
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 is the Immediate Past 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.
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.
123
Name and Title
John E. Geller, Jr.
Executive Vice President and Chief Financial
and Administrative Officer
Age
50
James H Hunter, IV
Executive Vice President and General Counsel
55
Lizabeth Kane-Hanan
Executive Vice President and Chief Growth and
Inventory Officer
51
Brian E. Miller
Executive Vice President and Chief Sales and
Marketing Officer
54
Dwight D. Smith
Executive Vice President and Chief
Information Officer
57
Business Experience
John E. Geller, Jr. has served as our Executive Vice President and
Chief Financial and Administrative Officer since January 2018.
From 2009 to December 2017, he served as our Executive Vice
President and Chief Financial Officer. 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.
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.
124
Name and Title
Michael E. Yonker
Executive Vice President and Chief Human
Resources Officer
Age
59
Business Experience
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.
125
PART IV
Item 15.
Exhibits and Financial Statement Schedules
The following are filed as part of this Annual Report:
(1) Financial Statements
We include this portion of Item 15 under Part II, Item 8 of this Annual Report.
(2) Financial Statement Schedules
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.
(3) Exhibits
A shareholder who wants a copy of any of the following Exhibits may obtain one from us, without charge, 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. All documents referenced below are being filed as a
part of this Annual Report, unless otherwise noted.
Exhibit
Number
Description
Filed
Herewith
Incorporation By Reference
From
Form Exhibit
Date Filed
2.1
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
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
Restated Certificate of Incorporation of Marriott Vacations
Worldwide Corporation
Restated Bylaws of Marriott Vacations Worldwide Corporation
Form of certificate representing shares of common stock, par value
$0.01 per share, of Marriott Vacations Worldwide Corporation
Indenture between Marriott Vacations Worldwide Corporation and
The Bank of New York Mellon Trust Company, N.A., as trustee,
dated September 25, 2017
Form of 1.50% Convertible Senior Note due 2022 (included in
Exhibit 4.2)
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
Letter Agreement, dated as of February 21, 2013, between Marriott
International, Inc. and Marriott Vacations Worldwide Corporation,
supplementing the License, Services, and Development Agreement
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
First Amendment to License, Services, and Development
Agreement, dated as of February 26, 2018, among Marriott
International, Inc., Marriott Worldwide Corporation, Marriott
Vacations Worldwide Corporation and the other signatories thereto
Amended and Restated Side Letter Agreement, dated as of February
26, 2018 by among Marriott International, Inc., Marriott Worldwide
Corporation, Marriott Rewards, LLC, Marriott Vacations
Worldwide Corporation and Marriott Ownership Resorts, Inc.†
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
126
8-K
2.1
11/22/2011
8-K
8-K
10
3.1
3.2
4.1
11/22/2011
11/22/2011
10/14/2011
10-Q
4.1
11/2/2017
10-Q
4.1
11/2/2017
8-K
10.1
11/22/2011
10-Q
10.1
4/25/2013
10-Q
10.3
7/21/2016
X
X
8-K
10.2
11/22/2011
Exhibit
Number
Description
Filed
Herewith
Incorporation By Reference
From
Form Exhibit
Date Filed
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
First Amendment to License, Services, and Development
Agreement, dated as of February 26, 2018, among The Ritz-Carlton
Hotel Company, L.L.C., Marriott Vacations Worldwide Corporation
and the other signatures thereto
X
Employee Benefits and Other Employment Matters Allocation
Agreement, entered into on November 17, 2011, between Marriott
International, Inc. and Marriott Vacations Worldwide Corporation
Tax Sharing and Indemnification Agreement, entered into on
November 17, 2011, between Marriott International, Inc. and
Marriott Vacations Worldwide Corporation
Amendment, dated August 2, 2012, between Marriott International,
Inc. and Marriott Vacations Worldwide Corporation, to the Tax
Sharing and Indemnification Agreement
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
First Amendment to Marriott Rewards Affiliation Agreement, dated
as of February 26, 2018, among Marriott International, Inc.,
Marriott Rewards, LLC, Marriott Vacations Worldwide Corporation
and Marriott Ownership Resorts, Inc.
Noncompetition Agreement, entered into on November 17, 2011,
between Marriott International, Inc. and Marriott Vacations
Worldwide Corporation
Termination of Noncompetition Agreement, dated as of February
26, 2018, between Marriott International, Inc. and Marriott
Vacations Worldwide Corporation
X
X
10.15 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*
Form of Stock Appreciation Right Agreement – Marriott Vacations
Worldwide Corporation Stock and Cash Incentive Plan*
Form of Performance Unit Award Agreement – Marriott Vacations
Worldwide Corporation Stock and Cash Incentive Plan*
10.16
10.17
10.18
10.19
10.20
Form of Non-Employee Director Stock Appreciation Right Award
Agreement*
Form of Director Stock Unit Agreement*
10.21
10.22 Marriott Vacations Worldwide Corporation Change in Control
Severance Plan*
10.23
Form of Participation Agreement for Change in Control Severance
Plan – Marriott Vacations Worldwide Corporation Change in
Control Severance Plan*
10.24 Marriott Vacations Worldwide Corporation Deferred Compensation
Plan*
10.25 Marriott Vacations Worldwide Corporation Executive Long Term
Disability Plan*
10.26 Marriott Vacations Worldwide Corporation Employee Stock
Purchase Plan*
10.27
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
127
8-K
10.3
11/22/2011
8-K
10.4
11/22/2011
10-Q
10.1
10/18/2012
8-K
10.5
11/22/2011
8-K
10.6
11/22/2011
10-K
10.14
2/23/2017
8-K
8-K
8-K
10.1
12/9/2011
10.2
12/9/2011
10.1
3/16/2012
10-K
10.16
3/21/2012
10-Q
8-K
10.1
10.2
4/30/2015
3/16/2012
8-K
10.3
3/16/2012
8-K
10.3
6/13/2013
10-K
10.21
2/26/2015
8-K
10.1
6/11/2015
8-K
10.2
9/16/2014
Form of Non-Employee Director Share Award Confirmation*
10-K
10.17
2/25/2016
Filed
Herewith
Incorporation By Reference
From
Form Exhibit
Date Filed
10-Q
10.2
7/23/2015
8-K
10.1
9/16/2014
8-K
10.1
11/25/2015
10-Q
10.2
7/21/2016
10-Q
10.1
7/21/2016
8-K
10.1
3/14/2017
8-K
10.3
8/21/2017
8-K
10.1
8/21/2017
Exhibit
Number
Description
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
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
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
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 Vacations
Worldwide Corporation, the Purchasers signatory thereto, Deutsche
Bank AG, New York Branch, Wilmington Trust, National
Association, and MVCO Series LLC
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 Vacations
Worldwide Corporation, the Purchasers signatory thereto, Deutsche
Bank AG, New York Branch, Wilmington Trust, National
Association, and MVCO Series LLC
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
Omnibus Amendment No. 5, dated March 8, 2017, relating to,
among other agreements, the Third Amended and Restated
Indenture, by and among Marriott Vacations Worldwide Owner
Trust 2011-1, Marriott Ownership Resorts, Inc., Wells Fargo Bank,
National Association, MORI SPC Series Corp., Marriott Vacations
Worldwide Corporation, the Purchasers signatory thereto, Deutsche
Bank AG, New York Branch, Wilmington Trust, National
Association, and MVCO Series LLC
Omnibus Amendment No. 6, dated August 17, 2017, 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 Vacations
Worldwide Corporation, the Purchasers signatory thereto, Deutsche
Bank AG, New York Branch, Wilmington Trust, National
Association, and MVCO Series LLC
Credit Agreement, dated as of August 16, 2017, among Marriott
Vacations Worldwide Corporation, Marriott Ownership Resorts,
Inc., the several banks and other financial institutions or entities
from time to time parties thereto and JPMorgan Chase Bank, N.A.,
as administrative agent
128
Exhibit
Number
10.36
10.37
10.38
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Description
Guarantee and Collateral Agreement, dated as of August 16, 2017,
made by Marriott Vacations Worldwide Corporation, Marriott
Ownership Resorts, Inc. and certain other 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
Credit Agreement
Form of Call Option Transaction Confirmation
Form of Warrant Confirmation
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 - The instance document does not appear
in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL 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.
Filed
Herewith
Incorporation By Reference
From
Form Exhibit
Date Filed
8-K
10.2
8/21/2017
10-Q
10-Q
10.1
10.2
11/2/2017
11/2/2017
X
X
X
X
X
Furnished
Furnished
Electronically Submitted
Electronically Submitted
Electronically Submitted
Electronically Submitted
Electronically Submitted
Electronically Submitted
†
Portions of this exhibit were redacted pursuant to a confidential treatment request filed with 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 31, 2017, December 30,
2016 and January 1, 2016; (ii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 31,
2017, December 30, 2016 and January 1, 2016; (iii) the Consolidated Balance Sheets at December 31, 2017 and December 30,
2016; (iv) the Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2017, December 30, 2016 and
January 1, 2016; and (v) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 31, 2017,
December 30, 2016 and January 1, 2016.
Item 16.
Form 10-K Summary
None.
129
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 27th day of February, 2018.
SIGNATURES
MARRIOTT VACATIONS WORLDWIDE CORPORATION
By:
/s/ Stephen P. Weisz
Stephen P. Weisz
President and Chief Executive Officer
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:
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial and Administrative Officer
Senior Vice President, Corporate Controller and Chief Accounting Officer
/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
130
/s/ Melquiades R. Martinez
Melquiades R. Martinez, Director
/s/ William W. McCarten
William W. McCarten, Director
/s/ Dianna F. Morgan
Dianna F. Morgan, Director
BOARD OF DIRECTORS
EXECUTIVE LEADERSHIP
INVESTOR RELATIONS
William J. Shaw
Chairman of the Board
Stephen P. Weisz
President and Chief Executive Officer
Stephen P. Weisz
President and Chief Executive Officer
C.E. Andrews
Member of the Board of Directors
and Advisor
MorganFranklin Consulting
R. Lee Cunningham
Executive Vice President and
Chief Operating Officer
Clifford M. Delorey
Executive Vice President and
Chief Resort Experience Officer
Raymond L. “Rip” Gellein, Jr.
Former Chairman of the Board,
President and Chief Executive Officer
Strategic Hotels & Resorts, Inc.
John E. Geller, Jr.
Executive Vice President and
Chief Financial and Administrative Officer
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
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
Jeff Hansen
Vice President Investor Relations
CORPORATE PUBLIC RELATIONS
Edward F. Kinney
Global Vice President
Corporate Affairs and Communications
TRANSFER AGENT
Computershare
P.O. Box 505000
Louisville, Kentucky 40233-5000
866-429-5244 (toll free)
201-680-6578
CORPORATE INFORMATION
Marriott Vacations Worldwide
6649 Westwood Boulevard
Orlando, Florida 32821
407-206-6000
MarriottVacationsWorldwide.com
MarriottVacationClub.com
RitzCarltonClub.com
GrandResidenceClub.com