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Marriott Vacations Worldwide Reports Second Quarter 2013 Financial Results

ORLANDO, Fla. – July 18, 2013 – Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported second quarter 2013 financial results and updated certain guidance for the full year 2013.

Second Quarter 2013 highlights include:


Second quarter 2013 net income totaled $30 million, or $0.85 per diluted share, compared to net income of $5 million, or $0.15 per diluted share, in the second quarter of 2012. Development margin increased to 23.1 percent in the second quarter of 2013 from 9.3 percent in the second quarter of 2012.

Second quarter 2013 adjusted net income totaled $27 million, a $16 million increase from $11 million of adjusted net income in the second quarter of 2012. Second quarter 2013 adjusted net income reflects a reduction of $5 million of pre-tax income that resulted from the exclusion of $9 million of pre-tax income related to the impact of extended rescission periods in the company’s Europe segment, partially offset by the exclusion of $2 million of organizational and separation related costs, $2 million of severance costs and an impairment charge in the company’s Europe segment and a nominal net impact related to a joint venture project that was previously included in the company’s former Luxury segment. Second quarter 2012 adjusted net income reflects an increase of $8 million of pre-tax income that resulted from the exclusion of $4 million of charges related to organizational and separation related costs, a $3 million decrease in pre-tax income related to the impact of extended rescission periods in the company’s Europe segment, charges of $2 million in connection with litigation settlements related to the company’s project in San Francisco and $1 million of severance costs, partially offset by $2 million of impairment reversal related to a joint venture project that was previously included in the company’s former Luxury segment. In addition, adjusted development margin for both periods is adjusted, as appropriate, for the impact of revenue reportability.

Non-GAAP financial measures, such as adjusted EBITDA, as adjusted, adjusted net income and adjusted development margin are reconciled in the Press Release Schedules that follow. Adjustments, including those relating to the impact of extended rescission periods in the company’s Europe segment, are shown and described in further detail on schedules A-1 through A-20.

“Our second quarter continued our trend of strong adjusted EBITDA growth, driven by improved adjusted development margin and better results in our rental and resort management businesses,” said Stephen P. Weisz, president and chief executive officer. “More efficient marketing and sales spending was integral to our improvement as we continue to leverage our fixed costs and drive higher development margin. We have increased our adjusted free cash flow guidance by $65 million, driven primarily by lower projected cash income taxes, and, given the positive trends in our business year-to-date, we now expect our adjusted EBITDA to be at the high end of our full year guidance range for 2013.”

Second Quarter 2013 Results

Total company contract sales were $157 million, an $11 million, or 7 percent, decrease from $168 million in the second quarter of 2012, driven mainly by $10 million of lower contract sales in the company’s Europe and Asia Pacific segments.

For the second quarter ended June 14, 2013, total revenues, from the sale of vacation ownership products, excluding $17 million related to the impact of extended rescission periods in the company’s Europe segment, were $152 million. 

Development margin, excluding $9 million related to the impact of extended rescission periods in the company’s Europe segment, was $29 million, a $13 million increase from the second quarter of 2012.  This increase was driven by higher reportability year-over-year and lower cost of vacation ownership products and marketing and sales expenses. Reported development margin was $38 million, a $25 million increase from the second quarter of 2012.

Adjusted development margin percentage increased 4.3 percentage points to 17.1 percent in the second quarter of 2013 from 12.8 percent in the second quarter of 2012. The impact of these adjustments is illustrated on schedules A-10 through A-13. Reported development margin increased 13.8 percentage points to 23.1 percent in the second quarter of 2013 from 9.3 percent in the second quarter of 2012.

Rental revenues totaled $65 million, an $11 million, or 18 percent, increase from the second quarter of 2012, reflecting an 11 percent increase in transient keys rented as well as a 7 percent increase in average transient rate driven by stronger consumer demand and a favorable mix of available inventory. Rental revenues net of expenses, were $9 million, $7 million higher than the second quarter of 2012.

Resort management and other services revenues totaled $61 million, a decrease of less than $1 million from the second quarter of 2012. Revenues were impacted by the disposition of a golf course and related assets at one of the company’s Ritz-Carlton branded projects late in 2012. Resort management and other services revenues, net of expenses improved $3 million, a 23 percent increase over the second quarter of 2012. Results reflected higher annual fees in connection with the company’s Marriott Vacation Club Destinations program and improvements in ancillary operations driven by the disposition of a golf course and related assets at one of the company’s Ritz-Carlton branded projects late in 2012.

Adjusted EBITDA, as adjusted for the impact of extended rescission periods in the company’s Europe segment, organizational and separation related costs, and other adjustments, was $48 million in the second quarter of 2013, a $20 million increase from Adjusted EBITDA, as adjusted, of $28 million in the second quarter of 2012.

Segment Results

Effective December 29, 2012, the company combined the reporting of the financial results of its former Luxury segment with the North America segment based upon its decision to scale back separate development activity and to aggregate future marketing and sales of inventory in the upscale and luxury tiers. Existing service standards and on-site management remain unaffected by these reporting changes. Prior year amounts have been recast for consistency with current year’s presentation.

North America

VPG increased 8 percent to $3,211 in the second quarter of 2013 from $2,968 in the second quarter of 2012, driven by higher pricing and improved closing efficiency. Total North America contract sales were $142 million in the second quarter of 2013, roughly flat to the prior year, due to fewer sales tours quarter over quarter.

Second quarter 2013 North America segment financial results increased 25 percent, or $17 million, to $84 million. The increase was driven by $10 million of higher development margin, $7 million of higher rental revenues net of expenses, $3 million of higher resort management and other services revenues net of expenses and $1 million of higher other revenues net of expenses. These increases were partially offset by $3 million of lower financing revenues and $1 million of higher royalty fees.

Revenues from the sale of vacation ownership products increased $13 million to $136 million in the second quarter, driven mainly by $11 million of higher year-over-year revenue reportability. Development margin was $28 million, a $10 million increase from the second quarter of 2012. This increase was driven by higher revenue reportability year-over-year and lower cost of vacation ownership products and marketing and sales expenses, offset partially by the slightly lower contract sales.

Development margin percentage increased to 20.8 percent in the second quarter of 2013 as compared to 14.7 percent in the prior year quarter. Excluding the impact of revenue reportability, adjusted development margin percentage increased to 19.5 percent in the second quarter of 2013 from 16.8 percent in the second quarter of 2012. The impact of revenue reportability is illustrated on schedule A-12.

Asia Pacific

Asia Pacific contract sales declined $7 million to $8 million in the second quarter of 2013 and total revenues declined $5 million to $16 million, both reflecting the impact of the closure of two under-performing off-site sales centers in the fourth quarter of 2012. Segment financial results were $2 million, remaining flat when compared to the second quarter of 2012.

Europe

As the Europe segment continues to sell through its remaining inventory, second quarter 2013 contract sales declined $3 million to $7 million. Europe segment financial results, excluding $9 million related to the impact of extended rescission periods, were $2 million, up $2 million from break-even results in the second quarter of 2012, after adjusting for the $3 million impact related to extended rescission periods in the prior year comparable period. These results reflect $2 million of higher development margin and $1 million of higher rental revenues net of expenses, offset partially by a $1 million impairment charge related to a leased golf course at one of the company’s projects in Spain. Reported segment financial results were $11 million, up $14 million from a loss of $3 million in the second quarter of 2012.

Organizational and Separation Plan

During the second quarter of 2013, the company incurred $3 million of costs in connection with its continued organizational and separation related efforts, of which approximately $1 million was capitalized during the quarter. Total future spending for these efforts is expected to be approximately $16 million to $21 million, with costs being incurred through 2014.

These costs primarily relate to establishing the company’s own information technology systems and services, independent accounts payable functions and reorganization of existing human resources and information technology organizations to support the company’s standalone public company needs. Once completed, these efforts are expected to generate approximately $15 million to $20 million of annualized savings, of which approximately $2 million are reflected in the company’s year-to-date 2013 financial results.

Balance Sheet and Liquidity

On June 14, 2013, cash and cash equivalents totaled $104 million. Since the end of 2012, real estate inventory balances declined $19 million to $862 million, including $425 million of finished goods, $168 million of work-in-process and $269 million of land and infrastructure. The company had $687 million in debt outstanding at the end of the second quarter of 2013, a decrease of $31 million from year-end 2012, including $643 million in non-recourse securitized notes, of which $104 million has been drawn down under the company’s warehouse credit facility, and $40 million of mandatorily redeemable preferred stock of a subsidiary. As of June 14, 2013, the company had $196 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit and had $124 million of vacation ownership notes receivable eligible for securitization.

Outlook

For the full year 2013, the Company is increasing its adjusted free cash flow, as adjusted, guidance as a result of lower projected cash income taxes and improved consumer financing activity. In addition, as a result of lower effective income tax rates, primarily in international tax jurisdictions, the Company is increasing its adjusted net income and adjusted fully diluted earnings per share guidance for the full year.

Current Guidance

Previous Guidance

Adjusted free cash flow, as adjusted

$120 million to $135 million

$55 million to $70 million

Adjusted net income, as adjusted

$72 million to $78 million

$69 million to $75 million

Adjusted fully diluted earnings per share

$1.94 to $2.10

$1.87 to $2.03

The Company is also reaffirming the following guidance for full year 2013 as previously provided on April 25, 2013:

Gross contract sales growth

0 percent to 5 percent

North America contract sales growth

5 percent to 10 percent

Adjusted EBITDA, as adjusted

$155 million to $165 million

Adjusted company development margin

17.0 percent to 18.0 percent

Schedules A-1 through A-20 reconcile the non-GAAP financial measures set forth above to the company’s expected full year 2013 net income of $71 million to $77 million and development margin of 17.5 percent to 18.5 percent, in each case on an as reported basis.

Second Quarter 2013 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. EDT today to discuss these results. Participants may access the call by dialing (877) 941-0844 or (480) 629-9835 for international callers. A live webcast of the call will also be available in the Investor Relations section of the company’s website at www.marriottvacationsworldwide.com.

An audio replay of the conference call will be available for seven days and can be accessed at (800) 406-7325 or (303) 590-3030 for international callers. The replay passcode is 4625312. The webcast will also be available on the company’s website.

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About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company. In late 2011, Marriott Vacations Worldwide was established as an independent, public company focusing primarily on vacation ownership experiences. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. Marriott Vacations Worldwide offers a diverse portfolio of quality products, programs and management expertise with more than 60 resorts and more than 420,000 Owners and Members. Its brands include: Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. For more information, please visit www.marriottvacationsworldwide.com.

Note on forward-looking statements: This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including statements about earnings trends, organizational and separation related efforts, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions; the availability of capital to finance growth, and other matters referred to under the heading “Risk Factors” contained in our most recent Annual Report on Form 10-K filed with the U.S Securities and Exchange Commission (the “SEC”) and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this presentation. These statements are made as of July 18, 2013 and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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