The following table details our deferred compensation costs related to unvested awards:
The following table outlines the assumptions used to estimate the fair value of grants during the 2017 first three quarters:
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.general corporate purposes. 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 all or a portion of the securities subordinated tranches, interest-only strips, subordinated interests in accrued interestthat are issued, and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.certain residual interests.
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.VIEs. 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. There is no noncontrolling interest balance related to these entities and the creditors of these entities do not have general recourse to us.
The following table shows consolidated assets, which are collateral for the obligations of these variable interest entities,VIEs, and consolidated liabilities included on our Balance Sheet at September 30, 2017:2023:
The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entitiesVIEs during the 2017 third quarter:quarter of 2023:
The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entitiesVIEs during the 2017 first three quarters:quarters of 2023:
The following table shows cash flows between us and the vacation ownership notes receivable securitization variable interest entities during the 2017 first three quarters and the 2016 first three quarters:VIEs:
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Cash inflows: | | | |
Net proceeds from vacation ownership notes receivable securitizations | $ | 346,469 |
| | $ | 247,453 |
|
Principal receipts | 170,920 |
| | 118,015 |
|
Interest receipts | 71,464 |
| | 60,863 |
|
Reserve release | 32 |
| | 405 |
|
Total | 588,885 |
| | 426,736 |
|
Cash outflows: | | | |
Principal to investors | (159,305 | ) | | (105,863 | ) |
Voluntary repurchases of defaulted vacation ownership notes receivable | (22,356 | ) | | (22,025 | ) |
Interest to investors | (13,121 | ) | | (10,823 | ) |
Funding of restricted cash(1) | (1,804 | ) | | (51,770 | ) |
Total | (196,586 | ) | | (190,481 | ) |
Net Cash Flows | $ | 392,299 |
| | $ | 236,255 |
|
_________________________
| |
(1)
| Includes $50.0 million of the proceeds from the securitization transaction completed during the 2016 third quarter, which were released when the remaining vacation ownership notes receivable were purchased by the MVW Owner Trust 2016-1 subsequent to the end of the 2016 third quarter. |
The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity during the 2017 first three quarters and the 2016 first three quarters:
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Cash inflows: | | | |
Proceeds from vacation ownership notes receivable securitizations | $ | 50,260 |
| | $ | 126,622 |
|
Principal receipts | 1,403 |
| | 5,227 |
|
Interest receipts | 2,093 |
| | 5,048 |
|
Reserve release | 296 |
| | 909 |
|
Total | 54,052 |
| | 137,806 |
|
Cash outflows: | | | |
Principal to investors | (1,160 | ) | | (3,771 | ) |
Voluntary repurchases of defaulted vacation ownership notes receivable | — |
| | (661 | ) |
Repayment of Warehouse Credit Facility | (49,100 | ) | | (122,190 | ) |
Interest to investors | (1,324 | ) | | (1,338 | ) |
Funding of restricted cash | (296 | ) | | (447 | ) |
Total | (51,880 | ) | | (128,407 | ) |
Net Cash Flows | $ | 2,172 |
| | $ | 9,399 |
|
Under the terms of our vacation ownership notes receivable securitizations, we have the right to substitute loans for, or repurchase, defaulted loans at our option, subject 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.certain limitations. Our maximum exposure to potential 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 onof 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 $5.0 million upon presentation of demand notes related to certain vacation ownership notes receivable securitization transactions outstanding at September 30, 2017.
The following table shows cash flows between us and the Warehouse Credit Facility VIE:
| | | | | | | | | | | |
| Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
Cash Inflows | | | |
Proceeds from vacation ownership notes receivable securitizations | $ | 515 | | | $ | 234 | |
Principal receipts | 43 | | | 12 | |
Interest receipts | 24 | | | 5 | |
Reserve release | 9 | | | 1 | |
Total | 591 | | | 252 | |
Cash Outflows | | | |
Principal payments | (34) | | | (3) | |
Voluntary repurchases of defaulted vacation ownership notes receivable | (2) | | | — | |
Repayment of Warehouse Credit Facility | (296) | | | (98) | |
Interest payments | (9) | | | (2) | |
Funding of restricted cash | (18) | | | (2) | |
Total | (359) | | | (105) | |
Net Cash Flows | $ | 232 | | | $ | 147 | |
Other Variable Interest Entities
We have a commitment to purchase an operatinga property located in New York, New York, that we currently manage as Marriott Vacation Club Pulse, New York City. Refer to Footnote No. 8, “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.Waikiki, Hawaii. The property is held by a variable interest entityVIE for which we are not the primary beneficiary as we cannot preventbeneficiary. We do not control the variable interestdecisions that most significantly impact the economic performance of the entity from sellingduring construction. Further, our purchase commitment is generally contingent upon the property at a higher price.being redeveloped to our brand standards. Accordingly, we have not consolidated the variable interest entity.VIE. We expect to acquire the property over time and as of September 30, 2023, we expect to make payments for the property as follows: $112 million in 2024, $81 million in 2025 and $41 million in 2026. As of September 30, 2017,2023, our Balance Sheet reflected $8.4$1 million in Accounts Receivable, including a note receivable of approximately $1 million, $3 million in Property and equipment related to a capital leaseEquipment, and leasehold improvements and $7.2$1 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 September 30, 2017.Accrued Liabilities. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entityVIE is $2.2approximately $3 million as of September 30, 2017.2023.
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 duringDeferred Compensation Plan
We consolidate 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 portionliabilities of the operating property. Refer to Footnote No. 8, “ContingenciesMarriott Vacations Worldwide Deferred Compensation Plan and Commitments” for additional information on our remaining commitment.the related assets, which consist of the COLI policies held in a rabbi trust. The developerrabbi trust is considered a variable interest entity for which weVIE. We are notconsidered 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. We are obligated to repurchase the remaining portion of the property fromrabbi trust because we direct the developer contingent uponactivities of the property meeting our brand standards upon completion, provided thattrust and are the third-party developer has not soldbeneficiary of the property to another party. As oftrust. At September 30, 2017, our Balance Sheet reflected $3.5 million2023, the value of Inventory, $2.4 million of Otherthe 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 basisheld in the asset if we repurchase the property. In addition, a note receivable of $0.5rabbi trust was $88 million, which is included in the Accounts and contracts receivableOther line within assets on theour Balance Sheet asSheets.
We define our reportable segments based on the way in which the chief operating decision maker (“CODM”), currently our chief executive officer, manages the operations of the companyCompany for purposes of allocating resources and assessing performance. We operate in threetwo operating and reportable business segments:
In our North America segment, we develop, market, sell•Vacation Ownership includes a diverse portfolio of resorts that includes some of the world’s most iconic brands licensed under exclusive, long-term relationships. We are the exclusive worldwide developer, marketer, seller, and managemanager of vacation ownership and related products under the Marriott Vacation Club, and Grand Residences by Marriott, brands. In 2016, we introducedSheraton Vacation Club, Westin Vacation Club, and Hyatt Vacation Club brands, as well as under Marriott Vacation Club Pulse, an extension toof the Marriott Vacation Club brand. We are also develop, marketthe exclusive worldwide developer, marketer, and sellseller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, as well aswe have the non-exclusive right to develop, market, and sell whole ownership residential products under The Ritz-Carlton Residences brand.brand and have a license to use the St. Regis brand for specified fractional ownership resorts.
In our Asia Pacific•Our Vacation Ownership segment we develop, market, sellgenerates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs, and manage two points-basedowners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.
•Exchange & Third-Party Management includes an exchange network and membership 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.provision of management services to other resorts and lodging properties. We provide these services through our Interval International and Aqua-Aston businesses. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and owners’ association management, and other related products and services. VRI Americas was part of the Exchange & Third-Party Management segment through the date of sale in April 2022.
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 evaluateOur CODM evaluates 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 indirect general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate segment. We allocate depreciation and amortization, other gains and losses, and equity in earnings or losses from our joint ventures, and noncontrolling interest to each of our segments as appropriate. Corporate and other represents that portion of our revenues and other gains or lossesresults that are not allocable to our segments.segments, including those relating to consolidated owners’ associations, as our CODM does not use this information to make operating segment resource allocations.
Our CODM uses Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) to evaluate the profitability of our operating segments, and the components of net income or loss attributable to common shareholders excluded from Adjusted EBITDA are not separately evaluated. Adjusted EBITDA is defined as net income or loss attributable to common shareholders, before interest expense (excluding consumer financing interest expense associated with term securitization transactions), income taxes, depreciation and amortization, excluding share-based compensation expense and adjusted for certain items that affect the comparability of our operating performance. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated net income or loss attributable to common shareholders is presented below.
Revenues
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Vacation Ownership | $ | 1,126 | | | $ | 1,182 | | | $ | 3,335 | | | $ | 3,229 | |
Exchange & Third-Party Management | 64 | | | 71 | | | 200 | | | 229 | |
Total segment revenues | 1,190 | | | 1,253 | | | 3,535 | | | 3,458 | |
Corporate and other | (4) | | | (1) | | | (2) | | | 10 | |
| $ | 1,186 | | | $ | 1,252 | | | $ | 3,533 | | | $ | 3,468 | |
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 (1) | | September 30, 2017 | | September 9, 2016 (1) |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
North America | $ | 437,801 |
| | $ | 358,799 |
| | $ | 1,341,430 |
| | $ | 1,117,419 |
|
Asia Pacific | 16,952 |
| | 14,760 |
| | 50,482 |
| | 53,168 |
|
Europe | 32,237 |
| | 28,078 |
| | 78,817 |
| | 73,343 |
|
Total segment revenues | 486,990 |
| | 401,637 |
| | 1,470,729 |
| | 1,243,930 |
|
Corporate and other | — |
| | — |
| | — |
| | — |
|
| $ | 486,990 |
| | $ | 401,637 |
| | $ | 1,470,729 |
| | $ | 1,243,930 |
|
_________________________
| |
(1)
| Includes an immaterial reclassification of activity between the North America and Asia Pacific segments.
|
Adjusted EBITDA and Reconciliation to Net Income Attributable to Common Shareholders
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Adjusted EBITDA Vacation Ownership | $ | 173 | | | $ | 299 | | | $ | 647 | | | $ | 772 | |
Adjusted EBITDA Exchange & Third-Party Management | 30 | | | 39 | | | 99 | | | 117 | |
Reconciling items: | | | | | | | |
Corporate and other | (53) | | | (54) | | | (171) | | | (162) | |
Interest expense, net | (36) | | | (34) | | | (106) | | | (91) | |
Tax provision | (24) | | | (59) | | | (115) | | | (134) | |
Depreciation and amortization | (33) | | | (33) | | | (99) | | | (98) | |
Share-based compensation expense | (6) | | | (10) | | | (25) | | | (30) | |
Certain items | (9) | | | (39) | | | (11) | | | (71) | |
Net income attributable to common shareholders | $ | 42 | | | $ | 109 | | | $ | 219 | | | $ | 303 | |
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 (1) | | September 30, 2017 | | September 9, 2016 (1) |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
North America | $ | 103,904 |
| | $ | 82,294 |
| | $ | 327,210 |
| | $ | 282,242 |
|
Asia Pacific | (472 | ) | | 1,191 |
| | (552 | ) | | (423 | ) |
Europe | 6,766 |
| | 4,536 |
| | 10,939 |
| | 7,079 |
|
Total segment financial results | 110,198 |
| | 88,021 |
| | 337,597 |
| | 288,898 |
|
Corporate and other | (47,069 | ) | | (47,173 | ) | | (156,720 | ) | | (146,718 | ) |
Provision for income taxes | (22,367 | ) | | (14,041 | ) | | (62,139 | ) | | (54,656 | ) |
| $ | 40,762 |
| | $ | 26,807 |
| | $ | 118,738 |
| | $ | 87,524 |
|
_________________________
| |
(1)
| Includes an immaterial reclassification of activity between the North America and Asia Pacific segments. |
Assets
| | | | | | | | | | | |
($ in millions) | At September 30, 2023 | | At December 31, 2022 |
Vacation Ownership | $ | 8,057 | | | $ | 8,037 | |
Exchange & Third-Party Management | 830 | | | 865 | |
Total segment assets | 8,887 | | | 8,902 | |
Corporate and other | 566 | | | 737 | |
| $ | 9,453 | | | $ | 9,639 | |
Revenues Excluding Cost Reimbursements
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
United States | $ | 622 | | | $ | 771 | | | $ | 2,038 | | | $ | 2,173 | |
All other countries | 121 | | | 110 | | | 332 | | | 284 | |
| $ | 743 | | | $ | 881 | | | $ | 2,370 | | | $ | 2,457 | |
|
| | | | | | | |
($ in thousands) | At September 30, 2017 | | At December 30, 2016 |
North America | $ | 2,102,691 |
| | $ | 1,968,021 |
|
Asia Pacific | 131,486 |
| | 102,348 |
|
Europe | 67,433 |
| | 62,245 |
|
Total segment assets | 2,301,610 |
| | 2,132,614 |
|
Corporate and other | 521,426 |
| | 258,805 |
|
| $ | 2,823,036 |
| | $ | 2,391,419 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We make forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, 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 concerningconcerning: our possible or assumed future results of operations,operations; financial condition and leverage, including the expected impact of the Maui wildfires; dividend payments; our expectations regarding development profit margins, defaults and expected losses, notes receivable balances, commitments to owners’ associations, payments for property acquisitions and development plans, lease payments, that interest income and notes receivable will increase in 2023, interest rates, indemnification receivables, financing profit margin, general and administrative expenses, inventory costs and inventory spending, taxes, and any effects of the COVID-19 pandemic; and business strategies, such as our expectations that we will continue to offer financing plans, competitive position, potential growth opportunities, potential operating performance improvements, and the effects of competition.incentives. 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 shouldWe caution you that these statements are not put undue relianceguarantees of future performance and are subject to numerous and evolving risks and uncertainties that we may not be able to predict or assess, such as: the effects of a future health crisis, including its short and longer-term impacts on any forward-looking statementsconsumer confidence and demand for travel, and the pace of recovery following a health crisis; variations in this Quarterly Report. We do notdemand for vacation ownership and exchange products and services; worker absenteeism; price and wage inflation; global supply chain disruptions; volatility in the international and national economy and credit markets; the impact of the current or a future banking crisis; wars involving Russia, Ukraine, Israel and Gaza and related sanctions and other measures; our ability to attract and retain our global workforce; competitive conditions; the availability of capital to finance growth; the impact of rising interest rates; political or social strife; difficulties associated with implementing new or maintaining existing technology; changes in privacy laws; the effects of steps that we or our affiliates have any intentiontaken and may continue to take to reduce operating costs; impacts from natural or obligationman-made disasters and wildfires, including the Maui wildfires; and other matters referred to update forward-looking statements afterunder the date of this Quarterly Report on Form 10-Q, except as required by law.
The risk factors discussed inheading “Risk Factors” contained herein and also in our most recent Annual Report on Form 10-K, and which may be updated in our future periodic filings with the U.S. Securities and Exchange Commission (the “SEC”).
All forward-looking statements in this Quarterly Report on Form 10-Q and which may be discussed in subsequentapply only as of the date of this Quarterly ReportsReport on Form 10-Q could cause our resultsor as of the date they were made or as otherwise specified herein. We do not undertake any obligation to differ materially from those expressed inpublicly update or revise any forward-looking statements.statement, whether as a result of new information, future events, or otherwise, except as required by law. 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.
Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. TheHowever, the financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future.
In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Statements of Income,“Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets,”Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in the Interim Condensed Notes to ourConsolidated Financial Statements that we include in the Financial Statements section of this Quarterly Report on Form 10-Q.
Business Overview
We are onea leading global vacation company that offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management.
Our Vacation Ownership segment includes a diverse portfolio of resorts that includes some 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.most iconic brands licensed under exclusive long-term relationships. 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.Sheraton Vacation Club, Westin Vacation Club, and Hyatt Vacation Club 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.
In 2016,brand and we introduced Marriott Vacation Club Pulse, an extensionhave a license to use the Marriott Vacation ClubSt. Regis brand which features unique properties that embrace the spirit and culture of their urban locations, creating an authentic sense of place while delivering easy access to local interests, attractions and transportation.for specified fractional ownership resorts.
Our business is grouped into three reportable segments: North America, Asia Pacific and Europe. As of September 30, 2017, our portfolio consisted of over 65 properties in the United States and nine other countries and territories. We generateVacation Ownership segment generates most of ourits revenues from four primary sources: selling vacation ownership products; managing our resorts;vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.
As further detailed in Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements, beginning with our 2017 fiscal year, we changed our financial reporting cycle to a calendar year-endOur Exchange & Third-Party Management segment includes an exchange network 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 will end on December 31, 2017.
The table below shows the reporting periods as we refer to them in this report, their date ranges, and the number of days in each:
|
| | | | |
Reporting Period | | Date Range | | Number of Days |
2017 third quarter | | July 1, 2017 — September 30, 2017 | | 92 |
2016 third quarter | | June 18, 2016 — September 9, 2016 | | 84 |
2017 first three quarters | | December 31, 2016 — September 30, 2017 | | 274 |
2016 first three quarters | | January 2, 2016 — September 9, 2016 | | 252 |
2017 fiscal year | | December 31, 2016 — December 31, 2017 | | 366 |
2016 fiscal year | | January 2, 2016 — December 30, 2016 | | 364 |
As a result of the change in our financial reporting calendar, we had eight more days in the 2017 third quarter than we had in the 2016 third quarter, and 22 more days in the 2017 first three quarters than we had in the 2016 first three quarters. We estimate that 2016 third quarter contract sales would have been approximately $17 million higher and that 2016 first three quarters contract sales would have been approximately $43 million higher on a comparable basis. Prior year results have not been restated for the impact of the change in our financial reporting calendar.
2017 Hurricane Activity
During the third quarter of 2017, over 20 properties within our North America segment were negatively impacted by one or both of Hurricane Irma and Hurricane Maria (the “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.
While many of the properties and sales centers impacted by the Hurricanes were fully or partially open by the end of September, two resorts and a sales center on St. Thomas remain closed and we are not currently in a position to predict when they will reopen. Further, while some of the properties were fully or partially open, many of the operations will continue to ramp-up throughout the fourth quarter of 2017, and potentially into 2018. We have estimated the impact these Hurricanes had on our third quarter contract sales and tours and included them in our discussion of the results below. Given the continued ramp-up throughout the fourth quarter of 2017, we expect additional impacts on our fourth quarter contract sales and tours. We expect to submit a claim for our business interruption lossesmembership programs, as well as the provision of management services to other resorts and lodging properties. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property damage experiencedand owners’ association management, and other related products and services. Since May 2022, we provide these services through our Interval International and Aqua-Aston businesses. In April 2022, we disposed of VRI Americas after determining that the business was not a core component of our future growth strategy and operating model. This business was a component of our Exchange & Third-Party Management segment through the date of the sale.
Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to consolidated property owners’ associations (“Consolidated Property Owners’ Associations”).
Integration of Marriott-, Sheraton- and Westin-Branded Vacation Ownership Products
In 2016, Marriott International purchased Starwood Hotels and Resorts Worldwide, Inc., which at the time exclusively licensed the Sheraton and Westin vacation ownership brands to Legacy-ILG. Part of the rationale for our acquisition of ILG in 2018 was to achieve operating efficiencies and business growth by bothleveraging the brands then licensed by Marriott International and its subsidiaries to us and to ILG. In August 2022, we launched Abound by Marriott Vacations, a new owner benefit and exchange program which affiliates the Marriott, Sheraton and Westin vacation ownership brands to offer similar benefits to owners of our owners’ associations fromproducts under these Hurricanes; however,brands. Under this program, owners of Marriott-, Sheraton- and Westin-branded VOIs can access over 90 resorts under the Marriott Vacation Club, Sheraton Vacation Club and Westin Vacation Club brands using a common currency. The program also harmonizes fee structures and owner benefit levels and has allowed us to transition most of our Legacy-ILG sales galleries to sell our Marriott Vacation Club Destinations product. Further, in late 2022, we cannot quantifyadded certain Sheraton- and Westin-branded VOIs to the extent of any such mitigation at this time and we do not expect any insurance proceeds to be received in 2017.
Below is a summary of significant accounting policies used in our business that will be used in describing our results of operations.
Sale ofMarriott Vacation Ownership ProductsClub Destinations product.
We recognize revenues from the sale of vacation ownership products (also referred to as VOIs) when allcontrol of the following conditions exist: a binding salesvacation ownership product is transferred to the customer and the transaction price is deemed collectible. Based upon the different terms of our contracts with the customer and business practices, control of the vacation ownership product has historically transferred to the customer at different points in time for each brand of VOIs. In the third quarter of 2022, we aligned our business practices and contract has been executed;terms for the sale of vacation ownership products (the “Contract Alignment”), resulting in the prospective change in the timing of the transfer of control to the customer for Marriott-branded VOIs. Prior to these changes, control transfer occurred at closing for Marriott-branded vacation ownership products. Subsequent to the Contract Alignment, transfer of control of Marriott-branded vacation ownership products occurs at expiration of the statutory rescission period, has expired;consistent with the receivable is deemed collectible;historical timing of Sheraton-, Westin- and the remainderHyatt- branded transactions. Marriott-branded VOI sales contracts executed prior to these modifications have been accounted for with transfer 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 percentcontrol of the purchase price plus the fair value of certain sales incentives providedVOI occurring at closing. Control transfer for Legacy-Welk VOIs continues 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 staysoccur 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.closing.
As a result of the down payment requirement described aboveunification of our Marriott-, Sheraton- and the requirement that the statutory rescission period has expired, we often defer revenues associated with the sale ofWestin-branded vacation ownership products fromunder 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 describedAbound by Marriott Vacations program in the “Financing” section below,third quarter of 2022, we record an estimate of expected uncollectibility on allcombined the reserves, and aligned our reserve methodology, for vacation ownership notes receivable (also known as a vacation ownership notes receivable reserve or afor our Marriott, Sheraton and Westin brands (the “Reserve Alignment”).
Performance Measures
We measure operating performance using the key metrics described below:
•Contract 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 consistwhich consists of the total amount of vacation ownership product sales under purchase agreementscontracts signed during the period where we have generally received a
down payment of at least ten percent of the contract price, reduced by actual rescissions during the period.period, inclusive of contracts associated with sales of vacation ownership products on behalf of third parties, which we refer to as “resales contract sales.” In circumstances where a customer appliescustomers apply any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our Statements of Incomeincome statements due to the requirements for revenue recognition described above.above and adjustments for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. 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•Total contract sales revenues or real estate inventory costs for the project in a period, a non-cash adjustment is recorded on our Statements of Income to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-up activity, will have a positive or negative impact on our Statements of Income.
We refer to revenuesinclude contract sales from the sale of vacation ownership products less the cost of vacation ownership products and marketing andincluding non-consolidated joint ventures.
•Consolidated contract 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 feesexclude contracts sales 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.for non-consolidated joint ventures.
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:
|
| | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
| (274 days) | | (252 days) |
Average FICO score | 743 | | 742 |
The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. The interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as Financing revenues on our Statements of Income.
Financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. We calculate financing propensity as contract sales volume of financed contracts closed in the period divided by contract sales volume of all contracts closed in the period. Financing propensity was 60.1 percent in the 2016 fiscal year and 64.9 percent in the 2017 first three quarters, reflecting successful incentive programs that have been helping to increase financing propensity. We expect financing propensity in 2017 to approximate 65 percent as we intend to continue to offer the financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
In the event of a default, we generally have the right to foreclose on or revoke the vacation ownership interest. We return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory. As discussed above, we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Statements of Income. Historical default rates, which represent defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows:
|
| | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
| (274 days) | | (252 days) |
Historical default rates | 2.8% | | 3.0% |
Rental
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 Marriott Vacation Club Destinations (“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.
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 non-recourse warehouse credit facility (the “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 is calculated by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, 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.
Consolidated Results
The following discussion presents an analysis•Development profit margin is calculated by dividing Development profit by revenues from the sale of our results of operations for the 2017 third quarter compared to the 2016 third quarter, and the 2017 first three quarters compared to the 2016 first three quarters.
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 180,522 |
| | $ | 131,012 |
| | $ | 543,687 |
| | $ | 415,831 |
|
Resort management and other services | 76,882 |
| | 70,185 |
| | 229,004 |
| | 208,049 |
|
Financing | 34,685 |
| | 29,066 |
| | 99,326 |
| | 86,944 |
|
Rental | 81,177 |
| | 73,776 |
| | 250,621 |
| | 229,133 |
|
Cost reimbursements | 113,724 |
| | 97,598 |
| | 348,091 |
| | 303,973 |
|
TOTAL REVENUES | 486,990 |
| | 401,637 |
| | 1,470,729 |
| | 1,243,930 |
|
EXPENSES | | | | | | | |
Cost of vacation ownership products | 42,826 |
| | 34,779 |
| | 131,589 |
| | 104,149 |
|
Marketing and sales | 100,527 |
| | 79,017 |
| | 305,217 |
| | 236,348 |
|
Resort management and other services | 44,696 |
| | 39,825 |
| | 130,349 |
| | 123,695 |
|
Financing | 5,062 |
| | 4,581 |
| | 12,528 |
| | 11,782 |
|
Rental | 71,048 |
| | 60,970 |
| | 211,643 |
| | 191,658 |
|
General and administrative | 26,666 |
| | 22,151 |
| | 83,739 |
| | 72,871 |
|
Litigation settlement | 2,033 |
| | — |
| | 2,216 |
| | (303 | ) |
Consumer financing interest | 6,498 |
| | 5,361 |
| | 18,090 |
| | 15,840 |
|
Royalty fee | 15,220 |
| | 14,624 |
| | 47,597 |
| | 42,007 |
|
Cost reimbursements | 113,724 |
| | 97,598 |
| | 348,091 |
| | 303,973 |
|
TOTAL EXPENSES | 428,300 |
| | 358,906 |
| | 1,291,059 |
| | 1,102,020 |
|
Gains and other income, net | 6,977 |
| | 454 |
| | 6,752 |
| | 11,129 |
|
Interest expense | (2,642 | ) | | (2,262 | ) | | (5,180 | ) | | (6,331 | ) |
Other | 104 |
| | (75 | ) | | (365 | ) | | (4,528 | ) |
INCOME BEFORE INCOME TAXES | 63,129 |
| | 40,848 |
| | 180,877 |
| | 142,180 |
|
Provision for income taxes | (22,367 | ) | | (14,041 | ) | | (62,139 | ) | | (54,656 | ) |
NET INCOME | $ | 40,762 |
| | $ | 26,807 |
| | $ | 118,738 |
| | $ | 87,524 |
|
Contract Sales
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | | | | | | | |
Vacation ownership | | | | | | | |
North America | $ | 179,227 |
| | $ | 150,964 |
| | $ | 28,263 |
| | 19% |
Asia Pacific | 12,569 |
| | 11,169 |
| | 1,400 |
| | 13% |
Europe | 6,664 |
| | 7,698 |
| | (1,034 | ) | | (13%) |
Total contract sales | $ | 198,460 |
| | $ | 169,831 |
| | $ | 28,629 |
| | 17% |
The changes in contract sales are described within the discussions of our segment results below. Our 2017 third quarter had eight more days than our 2016 third quarter due to the change to an end-of-month quarterly reporting cycle in 2017. We estimate that 2016 third quarter contract sales would have been approximately $17 million higher on a comparable basis. We estimate the Hurricanes negatively impacted contract sales by $12 million in the 2017 third quarter.
2017 First Three Quarters |
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | | | | | | | |
Vacation ownership | | | | | | | |
North America | $ | 547,546 |
| | $ | 436,214 |
| | $ | 111,332 |
| | 26% |
Asia Pacific | 36,131 |
| | 31,049 |
| | 5,082 |
| | 16% |
Europe | 18,509 |
| | 22,054 |
| | (3,545 | ) | | (16%) |
Total contract sales | $ | 602,186 |
| | $ | 489,317 |
| | $ | 112,869 |
| | 23% |
The changes in contract sales are described within the discussions of our segment results below. Our 2017 first three quarters had 22 more days than our 2016 first three quarters due to the change to an end-of-month quarterly reporting cycle in 2017. We estimate that 2016 first three quarters contract sales would have been approximately $43 million higher on a comparable basis. We estimate the Hurricanes negatively impacted contract sales by $12 million in the 2017 first three quarters.
Sale of Vacation Ownership Products
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | $ | 198,460 |
| | $ | 169,831 |
| | $ | 28,629 |
| | 17% |
Revenue recognition adjustments: | | | | | | | |
Reportability | 1,135 |
| | (18,994 | ) | | 20,129 |
| | |
Sales reserve | (11,740 | ) | | (13,872 | ) | | 2,132 |
| | |
Other(1) | (7,333 | ) | | (5,953 | ) | | (1,380 | ) | | |
Sale of vacation ownership products | $ | 180,522 |
| | $ | 131,012 |
| | $ | 49,510 |
| | 38% |
_________________________ | |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Revenue reportability had a positive impact in the 2017 third quarter due to a decrease in the amount of sales that remained in the rescission period as of the end of the quarter. Revenue reportability had a negative impact in the 2016 third quarter due to a decrease in the amount of sales that met the down payment requirement for revenue reportability during the period and an increase in the amount of sales that remained in the rescission period as of the end of the quarter.
The lower sales reserve reflected a lower required reserve in the 2017 third quarter ($2.7 million) due to lower default and delinquency activity, an unfavorable sales reserve adjustment in our North America segment in the 2016 third quarter ($0.9 million), and a favorable sales reserve adjustment in our Asia Pacific segment in the 2017 third quarter ($0.7 million), partially offset by higher vacation ownership contract sales volume ($2.2 million).
The increase in other adjustments for sales incentives was driven by an increase inproducts. We refer to revenues from the utilizationsale of plus points as a sales incentive in our North America segment in the 2017 third quarter due to the higher vacation ownership contract sales.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | $ | 602,186 |
| | $ | 489,317 |
| | $ | 112,869 |
| | 23% |
Revenue recognition adjustments: | | | | | | | |
Reportability | 1,150 |
| | (17,029 | ) | | 18,179 |
| | |
Sales reserve | (38,597 | ) | | (33,447 | ) | | (5,150 | ) | | |
Other(1) | (21,052 | ) | | (23,010 | ) | | 1,958 |
| | |
Sale of vacation ownership products | $ | 543,687 |
| | $ | 415,831 |
| | $ | 127,856 |
| | 31% |
_________________________
| |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Revenue reportability had a positive impact inproducts less the 2017 first three quarters due to an increase in the amount of sales that met the down payment requirement for revenue reportability during the period, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of the period. Revenue reportability had a negative impact in the 2016 first three quarters due to a decrease in the amount of sales that met the down payment requirement for revenue reportability during the period and an increase in the amount of sales that remained in the rescission period as of the end of the period.
The higher sales reserve reflected the higher vacation ownership contract sales volume ($6.8 million of the increase), partially offset by an unfavorable sales reserve adjustment in our North America segment in the 2016 third quarter ($0.9 million) and a favorable sales reserve adjustment in our Asia Pacific segment in the 2017 third quarter ($0.7 million).
The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus points as a sales incentive in our North America segment in the 2017 first three quarters.
Development Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Sale of vacation ownership products | $ | 180,522 |
| | $ | 131,012 |
| | $ | 49,510 |
| | 38% |
Cost of vacation ownership products | (42,826 | ) | | (34,779 | ) | | (8,047 | ) | | (23%) |
Marketing and sales | (100,527 | ) | | (79,017 | ) | | (21,510 | ) | | (27%) |
Development margin | $ | 37,169 |
| | $ | 17,216 |
| | $ | 19,953 |
| | 116% |
Development margin percentage | 20.6% | | 13.1% | | 7.5 pts | | |
The increase in development margin reflected the following:
$13.1 million of favorable revenue reportability compared to the 2016 third quarter;
$5.5 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);
$4.5 million from a favorable mixsales costs as Development profit. We believe that Development profit margin is an important measure of lower cost real estate inventory being sold;the profitability of our development and
$3.4 million from lower sales reserve activity.
These increases in development margin were partially offset by $6.5 million from higher subsequent marketing and sales costs (of which $1.1 million was due to the ramp-up of our six newest sales distributions).VOIs.
The 7.5 percentage point increase in the development margin percentage reflected a 6.9 percentage point increase due to the favorable revenue reportability year-over-year, a 2.5 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the 2017 third quarter, a 1.4 percentage point increase from the lower sales reserve activity, and a 0.3 percentage point increase from the higher North America vacation ownership contract sales (which have a development margin that•Total active members is higher than the company-wide average). These increases were partially offset by a 3.6 percentage point decline due to higher marketing and sales costs (of which 0.6 percentage points was due to the higher ramp-up expenses associated with our newest sales distributions). We estimate the Hurricanes negatively impacted development margin percentage by 0.5 percentage points in the 2017 third quarter.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Sale of vacation ownership products | $ | 543,687 |
| | $ | 415,831 |
| | $ | 127,856 |
| | 31% |
Cost of vacation ownership products | (131,589 | ) | | (104,149 | ) | | (27,440 | ) | | (26%) |
Marketing and sales | (305,217 | ) | | (236,348 | ) | | (68,869 | ) | | (29%) |
Development margin | $ | 106,881 |
| | $ | 75,334 |
| | $ | 31,547 |
| | 42% |
Development margin percentage | 19.7% | | 18.1% | | 1.6 pts | | |
The increase in development margin reflected the following:
$27.4 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);
$18.5 million from a favorable mix of lower cost real estate inventory being sold;
$11.7 million of favorable revenue reportability compared to the 2016 first three quarters; and
$1.6 million from lower sales reserve activity.
These increases in development margin were partially offset by the following:
$14.9 million from higher marketing and sales costs (of which $6.3 million was due to the ramp-up of our six newest sales distributions);
$11.2 million of unfavorable changes in product cost true-up activity ($1.0 million of favorable true-up activity in the 2017 first three quarters compared to $12.2 million of favorable true-up activity in the 2016 first three quarters); and
$1.6 million from higher other development and inventory expenses.
The 1.6 percentage point increase in the development margin percentage reflected a 3.4 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the 2017 first three quarters, a 2.0 percentage point increase due to the favorable revenue reportability year-over-year, a 0.9 percentage point increase from the higher North America vacation ownership contract sales (which have a development margin that is higher than the company-wide average) and a 0.3 percentage point increase from the lower sales reserve activity. These increases were partially offset by a 2.0 percentage point decrease due to the unfavorable changes in product cost true-up activity year-over-year, a 2.7 percentage point decline due to higher marketing and sales costs (of which 1.2 percentage points was due to the higher ramp-up expenses associated with our newest sales distributions) and a 0.3 percentage point decrease from higher other development and inventory expenses.
Resort Management and Other Services Revenues, Expenses and Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Management fee revenues | $ | 22,249 |
| | $ | 19,460 |
| | $ | 2,789 |
| | 14% |
Ancillary revenues | 31,095 |
| | 30,471 |
| | 624 |
| | 2% |
Other services revenues | 23,538 |
| | 20,254 |
| | 3,284 |
| | 16% |
Resort management and other services revenues | 76,882 |
| | 70,185 |
| | 6,697 |
| | 10% |
Resort management and other services expenses | (44,696 | ) | | (39,825 | ) | | (4,871 | ) | | (12%) |
Resort management and other services margin | $ | 32,186 |
| | $ | 30,360 |
| | $ | 1,826 |
| | 6% |
Resort management and other services margin percentage | 41.9% | | 43.3% | | (1.4 pts) | | |
The increase in resort management and other services revenues reflected $2.8 million of higher management fees resulting from the cumulative increase in the number of vacation ownership products sold and higher operating costs acrossInterval International network active members at the system, $2.1 millionend of additional annual club duesthe applicable period. We consider active members to be an important metric because it represents the population of owners eligible to book transactions using the Interval International network.
•Average revenue per member is calculated by dividing membership fee revenue, transaction revenue, rental revenue, and other revenues earned in connection withmember revenue for the MVCD program due toInterval International network by the cumulative increase in owners enrolled in the program, $1.2 million of higher resales commissions and other revenues and $0.6 million of higher ancillary revenues. The increase in ancillary revenues included $2.3 million of higher revenues from food and beverage and golf offerings at our resorts, partially offset by $1.7 million of lower revenue due to outsourcing multiple operations in our North America segment.
The improvement in the resort management and other services margin reflected the increases in revenue, partially offset by $4.9 million of higher expenses. Compared to the 2016 third quarter, expenses in the 2017 third quarter included $3.2 million of higher ancillary expenses from food and beverage and golf offerings at our resorts, $2.6 million of higher customer service expenses and expenses associated with the MVCD program, and $0.9 million of higher resales and other expenses, partially offset by $1.8 million of lower expenses due to outsourcing multiple operations in our North America segment.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Management fee revenues | $ | 65,680 |
| | $ | 57,311 |
| | $ | 8,369 |
| | 15% |
Ancillary revenues | 91,404 |
| | 92,142 |
| | (738 | ) | | (1%) |
Other services revenues | 71,920 |
| | 58,596 |
| | 13,324 |
| | 23% |
Resort management and other services revenues | 229,004 |
| | 208,049 |
| | 20,955 |
| | 10% |
Resort management and other services expenses | (130,349 | ) | | (123,695 | ) | | (6,654 | ) | | (5%) |
Resort management and other services margin | $ | 98,655 |
| | $ | 84,354 |
| | $ | 14,301 |
| | 17% |
Resort management and other services margin percentage | 43.1% | | 40.5% | | 2.6 pts | | |
The increase in resort management and other services revenues reflected $8.4 million of higher management fees resulting from the cumulative increase in themonthly weighted average number of vacation ownership products sold and higher operating costs acrossInterval International network active members during the system, $5.3 million of additional annual club dues and other revenues earnedapplicable period. We believe this metric is valuable in connection withmeasuring the MVCD program due to the cumulative increase in owners enrolled in the program, $2.7 million of higher refurbishment revenue due to an increase in the number of refurbishment projects completed in the 2017 first three quarters, $3.1 million of higher resales commissions, brand fees and other revenues and $2.2 million of higher settlement fees due to an increase in the number of closed contracts in the 2017 first three quarters. These increases were partially offset by $0.7 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 $5.4 million of lower revenue due to outsourcing multiple operations in our North America segment, partially offset by $10.9 million of higher revenues from food and beverage and golf offerings at our resorts.
The improvement in the resort management and other services margin reflected the increases in revenue, partially offset by $6.7 million of higher expenses. The higher expenses included $8.9 million of higher ancillary expenses from food and beverage and golf offerings at our resorts, $5.4 million of higher customer service expenses and expenses associated with
the MVCD program, $2.1 million of higher refurbishment expenses due to an increase in the number of projects being refurbished in the 2017 first three quarters and $0.8 million of higher resales and other expenses, partially offset by $5.5 million of lower ancillary expenses from the operating property in Surfers Paradise, Australia and$5.0 million of lower ancillary expenses due to outsourcing multiple operations in our North America segment.
The ancillary revenue producing portions of the operating property in Surfers Paradise, Australia were included in the portion of the operating property sold in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues or expenses at this property.
Financing Revenues, Expenses and Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Interest income | $ | 32,945 |
| | $ | 27,703 |
| | $ | 5,242 |
| | 19% |
Other financing revenues | 1,740 |
| | 1,363 |
| | 377 |
| | 28% |
Financing revenues | 34,685 |
| | 29,066 |
| | 5,619 |
| | 19% |
Financing expenses | (5,062 | ) | | (4,581 | ) | | (481 | ) | | (10%) |
Consumer financing interest expense | (6,498 | ) | | (5,361 | ) | | (1,137 | ) | | (21%) |
Financing margin | $ | 23,125 |
| | $ | 19,124 |
| | $ | 4,001 |
| | 21% |
Financing propensity | 65.8% | | 63.4% | | | | |
The increase in financing revenues was due to a $147 million increase in the average gross vacation ownership notes receivable balance ($7.4 million) and higher other financing revenues ($0.4 million), partially offset by financing program incentive costs ($1.4 million) and a decrease in the weighted average coupon rateoverall engagement of our vacation ownership notes receivable ($0.8 million).Interval International network active members.
The increase•Segment financial results attributable to common shareholders represents revenues less expenses directly attributable to each applicable reportable business segment (Vacation Ownership and Exchange & Third-Party Management). We consider this measure to be important in financing margin reflectedevaluating the higher financing revenues, partially offset by higher other expenses and higher consumer financing interest expense. The higher other expenses were due to an increase in variable expenses associated with the increase in the average gross vacation ownership notes receivable balance. The higher consumer financing interest expense was due to a higher average outstanding debt balance and the change to an end-of-month quarterly reporting cycle in 2017 that resulted in eight additional days in the 2017 third quarter.
We expect financing propensity for the 2017 fiscal year to approximate 65 percent as we intend to continue to offer financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Interest income | $ | 94,104 |
| | $ | 82,730 |
| | $ | 11,374 |
| | 14% |
Other financing revenues | 5,222 |
| | 4,214 |
| | 1,008 |
| | 24% |
Financing revenues | 99,326 |
| | 86,944 |
| | 12,382 |
| | 14% |
Financing expenses | (12,528 | ) | | (11,782 | ) | | (746 | ) | | (6%) |
Consumer financing interest expense | (18,090 | ) | | (15,840 | ) | | (2,250 | ) | | (14%) |
Financing margin | $ | 68,708 |
| | $ | 59,322 |
| | $ | 9,386 |
| | 16% |
Financing propensity | 64.9% | | 59.1% | | | | |
The increase in financing revenues was due to a $111 million increase in the average gross vacation ownership notes receivable balance ($18.8 million) and higher other financing revenues ($1.0 million), partially offset by financing program incentive costs ($5.2 million) and a slight decrease in the weighted average coupon rateperformance of our vacation ownership notes receivable ($2.2 million).
The increase in financing margin reflected the higher financing revenues, partially offset by higher consumer financing interest expense and higher other expenses. The higher other expenses were due to an increase in variable expenses
associated with the increase in the average gross vacation ownership notes receivable balance. The higher consumer financing interest expense was due to a higher average outstanding debt balance and the change to an end-of-month quarterly reporting cycle in 2017 that resulted in 22 additional days in the 2017 first three quarters.
We expect financing propensity for the 2017 fiscal year to approximate 65 percent as we intend to continue to offer financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
Rental Revenues, Expenses and Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | |
Rental revenues | $ | 81,177 |
| | $ | 73,776 |
| | $ | 7,401 |
| | 10% |
Unsold maintenance fees | (19,186 | ) | | (18,475 | ) | | (711 | ) | | (4%) |
Other rental expenses | (51,862 | ) | | (42,495 | ) | | (9,367 | ) | | (22%) |
Rental margin | $ | 10,129 |
| | $ | 12,806 |
| | $ | (2,677 | ) | | (21%) |
Rental margin percentage | 12.5% | | 17.4% | | (4.9 pts) | | |
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
| (92 days) | | (84 days) | |
Transient keys rented(1) | 323,985 |
| | 287,911 |
| | 36,074 | | 13% |
Average transient key rate | $ | 213.20 |
| | $ | 218.46 |
| | $ | (5.26 | ) | | (2%) |
Resort occupancy | 89.1% | | 91.7% | | (2.6 pts) | | |
_________________________
| |
(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 13 percent increase in transient keys rented ($7.9 million) driven by a 20 percent increase in available keys, $1.1 million of higher plus points revenue (which is recognized when the points are redeemed or expire) and a $0.7 million increase in preview keys rented and other revenue, partially offset by a 2 percent lower average transient rate ($1.7 million) and $0.6 million of revenue in the 2016 third quarter 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. These higher expenses more than offset the higher rental revenues net of direct variable expenses (such as housekeeping) and the $1.1 million increase in plus points revenue.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (274 days) | | (252 days) | |
Rental revenues | $ | 250,621 |
| | $ | 229,133 |
| | $ | 21,488 |
| | 9% |
Unsold maintenance fees | (57,085 | ) | | (48,811 | ) | | (8,274 | ) | | (17%) |
Other rental expenses | (154,558 | ) | | (142,847 | ) | | (11,711 | ) | | (8%) |
Rental margin | $ | 38,978 |
| | $ | 37,475 |
| | $ | 1,503 |
| | 4% |
Rental margin percentage | 15.6% | | 16.4% | | (0.8 pts) | | |
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | | |
| (274 days) | | (252 days) | |
Transient keys rented(1) | 984,198 |
| | 864,945 |
| | 119,253 |
| | 14% |
Average transient key rate | $ | 217.89 |
| | $ | 220.06 |
| | $ | (2.17 | ) | | (1%) |
Resort occupancy | 88.7% | | 89.3% | | (0.6 pts) | | |
_________________________
| |
(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 14 percent increase in transient keys rented ($26.2 million) driven by a 15 percent increase in available keys, a $4.3 million increase in preview keys rented and other revenue and $2.6 million of higher plus points revenue (which is recognized when the points are redeemed or expire), partially offset by $6.1 million of revenue in the 2016 first three quarters 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), $3.4 million of revenue in the 2016 first three quarters at our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory and a 1 percent lower average transient rate ($2.1 million).
The increase in rental margin reflected the $2.6 million increase in plus points revenue and higher rental revenues net of direct variable expenses (such as housekeeping), partially offset by higher expenses incurred due to owners choosing alternative usage options and higher unsold maintenance fees.
Cost Reimbursements
2017 Third Quarter
Cost reimbursements increased $16.1 million, or 17 percent, over the 2016 third quarter, reflecting an increase of $9.5 million due to the change to an end-of-month quarterly reporting cycle in 2017, $5.3 million due to higher costs, $1.0 million due to additional managed unit weeks in the 2017 third quarter and a $0.3 million impact from foreign exchange rates in our Europe segment.
2017 First Three Quarters
Cost reimbursements increased $44.1 million, or 15 percent, over the 2016 first three quarters, reflecting an increase of $22.4 million due to the change to an end-of-month quarterly reporting cycle in 2017, $17.3 million due to higher costs and $4.7 million due to additional managed unit weeks in the 2017 first three quarters, partially offset by a $0.3 million negative impact from foreign exchange rates in our Europe segment.
General and Administrative
2017 Third Quarter
General and administrative expenses increased $4.5 million due to approximately $2.0 million from the change to an end-of-month quarterly reporting cycle in 2017 and $2.5 million due to higher personnel related and other expenses. The higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.
2017 First Three Quarters
General and administrative expenses increased $10.9 million due to approximately $6.0 million from the change to an end-of-month quarterly reporting cycle in 2017 and $6.4 million due to higher personnel related and other expenses, partially offset by $1.5 million of lower litigation related costs. The higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.
Royalty Fee
2017 Third Quarter
Royalty fee expense increased $0.6 million in the 2017 third quarter (from $14.6 million to $15.2 million) due to an increase in the dollar volume of closings ($0.5 million), the change to an end-of-month quarterly reporting cycle in 2017 that resulted in eight additional days in the 2017 third quarter ($1.0 million) and a contractual increase late in 2016 in the fixed portion of the royalty fee owed to Marriott International ($0.5 million), partially offset by $1.4 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).
2017 First Three Quarters
Royalty fee expense increased $5.6 million in the 2017 first three quarters (from $42.0 million to $47.6 million) due to an increase in the dollar volume of closings ($3.0 million), the change to an end-of-month quarterly reporting cycle in 2017 that resulted in 22 additional days in the 2017 first three quarters ($2.9 million) and a contractual increase late in 2016 in the fixed portion of the royalty fee owed to Marriott International ($1.7 million), partially offset by $2.0 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).
Interest Expense
2017 Third Quarter
Interest expense increased $0.4 million due to $0.9 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, $0.4 million of higher other expenses and $0.2 million of interest expense associated with the Convertible Notes that were issued during the 2017 third quarter, partially offset by $1.1 million of expense incurred in the 2016 third quarter associated with the mandatorily redeemable preferred stock of a consolidated subsidiary. Due to the redemption of the mandatorily redeemable preferred stock in 2016, we will not incur further interest expense associated with this liability in the future.
2017 First Three Quarters
Interest expense decreased $1.2 million due to $3.4 million of expense incurred in the 2016 first three quarters associated with the mandatorily redeemable preferred stock of a consolidated subsidiary that we redeemed in 2016, partially offset by $1.4 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, $0.6 million of higher other expenses and $0.2 million of interest expense associated with the Convertible Notes that were issued during the 2017 third quarter.
Gains and Other Income, Net
2017 First Three Quarters
In the 2017 third quarter, we recorded $7.0 million of gains and other income, including $8.7 million in net insurance proceeds related to the settlement ofreportable business interruption insurance claims arising from Hurricane Matthew, partially offset by a charge of $1.7 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 Hurricane Maria.
In the 2017 second quarter, we recorded $0.2 million of miscellaneous losses and other expense.
2016 First Three Quarters
In the 2016 third quarter, we recorded a $0.5 million favorable true-up of estimated costs related to the sale of the portion of the operating property in Surfers Paradise, Australia in the 2016 second quarter that we did not intend to convert to vacation ownership inventory.
In the 2016 second quarter, we recorded a $10.5 million gain on the disposition of excess inventory at The Ritz-Carlton Club and Residences, San Francisco (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 $1.5 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.
Other
2017 First Three Quarters
During the 2017 first three quarters, we incurred $0.6 million of acquisition costs.
2016 First Three Quarters
During the 2016 first quarter, we incurred $2.3 million of acquisition costs associated with an operating property in the South Beach area of Miami Beach and the anticipated future acquisition of the operating property in New York that we currently manage, and $0.2 million of transaction related costs associated with 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.segments. See Footnote No. 5, “Acquisitions and Dispositions” and Footnote No. 8, “Contingencies and Commitments,”16 “Business Segments” to our Financial Statements for further information related to these transactions.on our reportable business segments.
During the 2016 second quarter, we incurred $1.9 millionNM = Not meaningful.
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 319 | | | $ | 444 | | | $ | 1,085 | | | $ | 1,179 | |
Management and exchange | 205 | | | 198 | | | 611 | | | 623 | |
Rental | 138 | | | 165 | | | 435 | | | 438 | |
Financing | 81 | | | 74 | | | 239 | | | 217 | |
Cost reimbursements | 443 | | | 371 | | | 1,163 | | | 1,011 | |
TOTAL REVENUES | 1,186 | | | 1,252 | | | 3,533 | | | 3,468 | |
EXPENSES | | | | | | | |
Cost of vacation ownership products | 50 | | | 76 | | | 174 | | | 216 | |
Marketing and sales | 202 | | | 207 | | | 618 | | | 603 | |
Management and exchange | 115 | | | 101 | | | 332 | | | 330 | |
Rental | 119 | | | 126 | | | 344 | | | 294 | |
Financing | 30 | | | 5 | | | 81 | | | 49 | |
General and administrative | 57 | | | 62 | | | 189 | | | 187 | |
Depreciation and amortization | 33 | | | 33 | | | 99 | | | 98 | |
Litigation charges | 2 | | | 2 | | | 7 | | | 7 | |
| | | | | | | |
Royalty fee | 30 | | | 28 | | | 88 | | | 84 | |
Impairment | — | | | 1 | | | 4 | | | 1 | |
Cost reimbursements | 443 | | | 371 | | | 1,163 | | | 1,011 | |
TOTAL EXPENSES | 1,081 | | | 1,012 | | | 3,099 | | | 2,880 | |
Gains (losses) and other income (expense), net | 3 | | | (2) | | | 34 | | | 39 | |
Interest expense, net | (36) | | | (34) | | | (106) | | | (91) | |
Transaction and integration costs | (5) | | | (34) | | | (28) | | | (99) | |
Other | (1) | | | (1) | | | — | | | — | |
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS | 66 | | | 169 | | | 334 | | | 437 | |
Provision for income taxes | (24) | | | (59) | | | (115) | | | (134) | |
NET INCOME | 42 | | | 110 | | | 219 | | | 303 | |
Net income attributable to noncontrolling interests | — | | | (1) | | | — | | | — | |
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 42 | | | $ | 109 | | | $ | 219 | | | $ | 303 | |
During the 2016 third quarter, we incurred $0.1 million of acquisition costs.Operating Statistics
Income Tax
20172023 Third Quarter
Our provision for income taxes increased $8.4 million (from $14.0 million to $22.4 million) from the 2016 third quarter. The increase was primarily due to an increase in U.S. earnings. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
(Contract sales $ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | | | | | | | |
Total contract sales | $ | 443 | | | $ | 492 | | | $ | (49) | | | (10%) |
Consolidated contract sales | $ | 438 | | | $ | 483 | | | $ | (45) | | | (9%) |
Joint venture contract sales | $ | 5 | | | $ | 9 | | | $ | (4) | | | (51%) |
VPG | $ | 4,055 | | | $ | 4,353 | | | $ | (298) | | | (7%) |
Exchange & Third-Party Management | | | | | | | |
Total active members at end of period (000's) | 1,571 | | | 1,591 | | | (20) | | | (1%) |
Average revenue per member | $ | 39.15 | | | $ | 38.91 | | | $ | 0.24 | | | 1% |
2017
2023 First Three Quarters
Our provision for income taxes increased $7.4 million (from $54.7 million to $62.1 million) from the 2016 first three quarters. The increase was primarily due to increases in U.S. and foreign earnings, partially offset by the favorable impact | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
(Contract sales $ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | | | | | | | |
Total contract sales | $ | 1,349 | | | $ | 1,411 | | | $ | (62) | | | (4%) |
Consolidated contract sales | $ | 1,325 | | | $ | 1,383 | | | $ | (58) | | | (4%) |
Joint venture contract sales | $ | 24 | | | $ | 28 | | | $ | (4) | | | (16%) |
VPG | $ | 4,118 | | | $ | 4,544 | | | $ | (426) | | | (9%) |
Exchange & Third-Party Management | | | | | | | |
Total active members at end of period (000's) | 1,571 | | | 1,591 | | | (20) | | | (1%) |
Average revenue per member | $ | 120.48 | | | $ | 122.30 | | | $ | (1.82) | | | (1%) |
Revenues
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | $ | 1,126 | | | $ | 1,182 | | | $ | (56) | | | (5%) |
Exchange & Third-Party Management | 64 | | | 71 | | | (7) | | | (8%) |
Total Segment Revenues | 1,190 | | | 1,253 | | | (63) | | | (5%) |
Consolidated Property Owners’ Associations | (4) | | | (1) | | | (3) | | | NM |
Total Revenues | $ | 1,186 | | | $ | 1,252 | | | $ | (66) | | | (5%) |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | $ | 3,335 | | | 3,229 | | | $ | 106 | | | 3% |
Exchange & Third-Party Management | 200 | | | 229 | | | (29) | | | (12%) |
Total Segment Revenues | 3,535 | | | 3,458 | | | 77 | | | 2% |
Consolidated Property Owners’ Associations | (2) | | | 10 | | | (12) | | | NM |
Total Revenues | 3,533 | | | 3,468 | | | $ | 65 | | | 2% |
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 or loss attributable to common shareholders, before interest expense, net (excluding consumer financing interest expense)expense associated with term securitization transactions), provision for income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items, and excludes 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. 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,with term securitization transactions because we consider consumer financing interest expenseit to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicatorsan indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures, and expand our business.business, and return cash to shareholders. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors, and others, because these measures excludethis measure excludes 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 provisionprovisions 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. We believe 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 EBITDAis useful 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 ouralso facilitates comparison by us, analysts, investors, and others 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 attributable to common shareholders, which is the most directly comparable GAAP financial measure.
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
Net income | $ | 40,762 |
| | $ | 26,807 |
| | $ | 118,738 |
| | $ | 87,524 |
|
Interest expense | 2,642 |
| | 2,262 |
| | 5,180 |
| | 6,331 |
|
Tax provision | 22,367 |
| | 14,041 |
| | 62,139 |
| | 54,656 |
|
Depreciation and amortization | 5,610 |
| | 4,679 |
| | 15,802 |
| | 14,856 |
|
EBITDA | 71,381 |
| | 47,789 |
| | 201,859 |
| | 163,367 |
|
Non-cash share-based compensation | 3,898 |
| | 3,139 |
| | 12,349 |
| | 9,995 |
|
Certain items | (1,327 | ) | | (316 | ) | | (308 | ) | | (6,994 | ) |
Adjusted EBITDA | $ | 73,952 |
| | $ | 50,612 |
| | $ | 213,900 |
| | $ | 166,368 |
|
20172023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Change | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | | % Change |
Net income attributable to common shareholders | $ | 42 | | | $ | 109 | | | $ | (67) | | | (61%) |
Interest expense, net | 36 | | | 34 | | | 2 | | | 4% |
Provision for income taxes | 24 | | | 59 | | | (35) | | | (59%) |
Depreciation and amortization | 33 | | | 33 | | | — | | | 1% |
EBITDA | 135 | | | 235 | | | (100) | | | (42%) |
Share-based compensation expense | 6 | | | 10 | | | (4) | | | (33%) |
Certain items | 9 | | | 39 | | | (30) | | | NM |
Adjusted EBITDA | $ | 150 | | | $ | 284 | | | $ | (134) | | | (47%) |
Adjusted EBITDA Margin | 20% | | 32% | | (12 pts) | | |
The certaintable below details the components of Certain items for the 2017 third quarter consistedthree months ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
ILG integration | $ | — | | | | | $ | 22 | | | |
Welk acquisition and integration | 5 | | | | | 5 | | | |
| | | | | | | |
Other transformation initiatives | — | | | | | 6 | | | |
Other transaction costs | — | | | | | 1 | | | |
Transaction and integration costs | | | 5 | | | | | 34 | |
Purchase accounting adjustments | | | 3 | | | | | 5 | |
Litigation charges | | | 2 | | | | | 2 | |
Impairment | | | — | | | | | 1 | |
| | | | | | | |
Gain on disposition of hotel, land and other | (1) | | | | | — | | | |
Gain on disposition of VRI Americas | — | | | | | (1) | | | |
Foreign currency translation | 5 | | | | | 3 | | | |
Insurance proceeds | (1) | | | | | — | | | |
Change in indemnification asset | (6) | | | | | (1) | | | |
Other | — | | | | | 1 | | | |
(Gains) losses and other (income) expense, net | | | (3) | | | | | 2 | |
Expiration/forfeiture of deposits on pre-acquisition preview packages | | | — | | | | | (6) | |
| | | | | | | |
Change in estimate relating to pre-acquisition contingencies | | | — | | | | | (2) | |
Other | | | 2 | | | | | 3 | |
Total Certain items | | | $ | 9 | | | | | $ | 39 | |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Change | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | | % Change |
Net income attributable to common shareholders | $ | 219 | | | $ | 303 | | | $ | (84) | | | (28%) |
Interest expense, net | 106 | | | 91 | | | 15 | | | 15% |
Provision for income taxes | 115 | | | 134 | | | (19) | | | (14%) |
Depreciation and amortization | 99 | | | 98 | | | 1 | | | 1% |
EBITDA | 539 | | | 626 | | | (87) | | | (14%) |
Share-based compensation expense | 25 | | | 30 | | | (5) | | | (15%) |
Certain items | 11 | | | 71 | | | (60) | | | NM |
Adjusted EBITDA | $ | 575 | | | $ | 727 | | | $ | (152) | | | (21%) |
Adjusted EBITDA Margin | 24% | | 30% | | (6%) | | |
The certaintable below details the components of Certain items for the 2016 third quarter consistednine months ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
ILG integration | $ | 15 | | | | | $ | 80 | | | |
Welk acquisition and integration | 13 | | | | | 10 | | | |
| | | | | | | |
Other transformation initiatives | — | | | | | 6 | | | |
Other transaction costs | — | | | | | 3 | | | |
Transaction and integration costs | | | 28 | | | | | 99 | |
Early redemption of senior secured notes | 10 | | | | | — | | | |
Gain on disposition of hotel, land and other | (8) | | | | | (33) | | | |
Gain on disposition of VRI Americas | — | | | | | (17) | | | |
Foreign currency translation | 1 | | | | | 10 | | | |
Insurance proceeds | (3) | | | | | (5) | | | |
Change in indemnification asset | (30) | | | | | 2 | | | |
Other | (4) | | | | | 4 | | | |
Gains and other income, net | | | (34) | | | | | (39) | |
Purchase accounting adjustments | | | 6 | | | | | 13 | |
Litigation charges | | | 7 | | | | | 7 | |
Impairment | | | 4 | | | | | 1 | |
Expiration/forfeiture of deposits on pre-acquisition preview packages | | | — | | | | | (6) | |
Early termination of VRI management contract | | | — | | | | | (2) | |
Change in estimate relating to pre-acquisition contingencies | | | — | | | | | (5) | |
Other | | | — | | | | | 3 | |
Total Certain items | | | $ | 11 | | | | | $ | 71 | |
Segment Adjusted EBITDA by $0.3 million.
20172023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | $ | 173 | | | $ | 299 | | | $ | (126) | | | (42%) |
Exchange & Third-Party Management | 30 | | | 39 | | | (9) | | | (20%) |
Segment adjusted EBITDA | 203 | | | 338 | | | (135) | | | (40%) |
General and administrative | (53) | | | (54) | | | 1 | | | NM |
Adjusted EBITDA | $ | 150 | | | $ | 284 | | | $ | (134) | | | (47%) |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Vacation Ownership | $ | 647 | | | $ | 772 | | | $ | (125) | | | (16%) |
Exchange & Third-Party Management | 99 | | | 117 | | | (18) | | | (15%) |
Segment adjusted EBITDA | 746 | | | 889 | | | (143) | | | (16%) |
General and administrative | (171) | | | (162) | | | (9) | | | (6%) |
Adjusted EBITDA | $ | 575 | | | $ | 727 | | | $ | (152) | | | (21%) |
The certainfollowing tables present segment financial results attributable to common shareholders reconciled to segment Adjusted EBITDA.
Vacation Ownership
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Segment financial results | $ | 149 | | | $ | 270 | | | $ | (121) | | | (45%) |
Depreciation and amortization | 23 | | | 23 | | | — | | | (3%) |
Share-based compensation expense | 2 | | | 2 | | | — | | | 17% |
Certain items | (1) | | | 4 | | | (5) | | | NM |
Segment adjusted EBITDA | $ | 173 | | | $ | 299 | | | $ | (126) | | | (42%) |
The table below details the components of Certain items for the 2017 first three quarters consistedmonths ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Transaction and integration costs | | | $ | — | | | | | $ | 2 | |
Purchase accounting adjustments | | | 3 | | | | | 5 | |
Litigation charges | | | 2 | | | | | 2 | |
Impairment | | | — | | | | | 1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Foreign currency translation | — | | | | | (1) | | | |
Insurance proceeds | (1) | | | | | — | | | |
Change in indemnification asset | (6) | | | | | — | | | |
| | | | | | | |
Gains and other income, net | | | (7) | | | | | (1) | |
Expiration/forfeiture of deposits on pre-acquisition preview packages | | | — | | | | | (6) | |
| | | | | | | |
Change in estimate relating to pre-acquisition contingencies | | | — | | | | | (2) | |
Other | | | 1 | | | | | 3 | |
Total Certain items | | | $ | (1) | | | | | $ | 4 | |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Segment financial results | $ | 578 | | | $ | 720 | | | $ | (142) | | | (20%) |
Depreciation and amortization | 69 | | | 67 | | | 2 | | | 2% |
Share-based compensation expense | 6 | | | 5 | | | 1 | | | 24% |
Certain items | (6) | | | (20) | | | 14 | | | NM |
Segment adjusted EBITDA | $ | 647 | | | $ | 772 | | | $ | (125) | | | (16%) |
The certaintable below details the components of Certain items for the 2016 firstnine months ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Transaction and integration costs | | | $ | — | | | | | 3 | |
Purchase accounting adjustments | | | 6 | | | | | 13 | |
Litigation charges | | | 8 | | | | | 7 | |
Impairment | | | 4 | | | | | 1 | |
| | | | | | | |
Gain on disposition of hotel, land and other | (7) | | | | | (33) | | | |
| | | | | | | |
| | | | | | | |
Insurance proceeds | (3) | | | | | (3) | | | |
Change in indemnification asset | (9) | | | | | — | | | |
Other | (4) | | | | | — | | | |
Gains and other income, net | | | (23) | | | | | (36) | |
Expiration/forfeiture of deposits on pre-acquisition preview packages | | | — | | | | | (6) | |
| | | | | | | |
Change in estimate relating to pre-acquisition contingencies | | | — | | | | | (5) | |
Other | | | (1) | | | | | 3 | |
Total Certain items | | | $ | (6) | | | | | $ | (20) | |
Exchange & Third-Party Management
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Segment financial results | $ | 23 | | | $ | 29 | | | $ | (6) | | | (22%) |
Depreciation and amortization | 7 | | | 8 | | | (1) | | | (3%) |
Share-based compensation expense | — | | | 1 | | | (1) | | | (30%) |
Certain items | — | | | 1 | | | (1) | | | NM |
Segment adjusted EBITDA | $ | 30 | | | $ | 39 | | | $ | (9) | | | (20%) |
The table below details the components of Certain items for the three quarters consistedmonths ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gain on disposition of hotel, land and other | $ | (1) | | | | | $ | — | | | |
Gain on disposition of VRI Americas | — | | | | | (1) | | | |
Foreign currency translation | — | | | | | 2 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(Gains) losses and other (income) expense, net | | | (1) | | | | | 1 | |
| | | | | | | |
| | | |
| | | | | | | |
Other | | | 1 | | | | | — | |
Total Certain items | | | $ | — | | | | | $ | 1 | |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Segment financial results | $ | 75 | | | $ | 108 | | | $ | (33) | | | (30%) |
Depreciation and amortization | 23 | | | 24 | | | (1) | | | (2%) |
Share-based compensation expense | 1 | | | 2 | | | (1) | | | (22%) |
Certain items | — | | | (17) | | | 17 | | | NM |
Segment adjusted EBITDA | $ | 99 | | | $ | 117 | | | $ | (18) | | | (15%) |
The table below details the components of $11.1 millionCertain items for the nine months ended September 30, 2023 and September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gain on disposition of hotel, land and other | $ | (1) | | | | | $ | — | | | |
Gain on disposition of VRI Americas | — | | | | | (17) | | | |
Foreign currency translation | — | | | | | 2 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gains and other income, net | | | (1) | | | | | (15) | |
| | | | | | | |
Early termination of VRI management contract | | | — | | | | | (2) | |
| | | | | | | |
Other | | | 1 | | | | | — | |
Total Certain items | | | $ | — | | | | | $ | (17) | |
Business Segments
Our business is grouped into threetwo reportable business segments: North America, Asia PacificVacation Ownership and Europe.Exchange & Third-Party Management. See Footnote No. 13,16 “Business Segments,”Segments” to our Financial Statements for further information on our segments.
North AmericaVacation Ownership
The following discussion presents an analysis of our results of operations for the North America segment for the 2017 third quarter compared to the 2016 third quarter, and the 2017 first three quarters compared to the 2016 first three quarters. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 319 | | | $ | 444 | | | $ | 1,085 | | | $ | 1,179 | |
Resort management and other services | 143 | | | 136 | | | 425 | | | 402 | |
Rental | 128 | | | 154 | | | 404 | | | 405 | |
Financing | 81 | | | 74 | | | 239 | | | 217 | |
Cost reimbursements | 455 | | | 374 | | | 1,182 | | | 1,026 | |
TOTAL REVENUES | 1,126 | | | 1,182 | | | 3,335 | | | 3,229 | |
EXPENSES | | | | | | | |
Cost of vacation ownership products | 50 | | | 76 | | | 174 | | | 216 | |
Marketing and sales | 202 | | | 207 | | | 618 | | | 603 | |
Resort management and other services | 69 | | | 64 | | | 202 | | | 178 | |
Rental | 122 | | | 130 | | | 354 | | | 311 | |
Financing | 30 | | | 5 | | | 81 | | | 49 | |
Depreciation and amortization | 23 | | | 23 | | | 69 | | | 67 | |
Litigation charges | 2 | | | 2 | | | 8 | | | 7 | |
| | | | | | | |
Royalty fee | 30 | | | 28 | | | 88 | | | 84 | |
Impairment | — | | | 1 | | | 4 | | | 1 | |
Cost reimbursements | 455 | | | 374 | | | 1,182 | | | 1,026 | |
TOTAL EXPENSES | 983 | | | 910 | | | 2,780 | | | 2,542 | |
Gains and other income, net | 7 | | | 1 | | | 23 | | | 36 | |
Transaction and integration costs | — | | | (2) | | | — | | | (3) | |
Other | (1) | | | (1) | | | — | | | — | |
SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS | 149 | | | 270 | | | 578 | | | 720 | |
Net income attributable to noncontrolling interests | — | | | — | | | — | | | — | |
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 149 | | | $ | 270 | | | $ | 578 | | | $ | 720 | |
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 163,454 |
| | $ | 116,184 |
| | $ | 495,958 |
| | $ | 373,341 |
|
Resort management and other services | 68,236 |
| | 62,956 |
| | 206,830 |
| | 182,665 |
|
Financing | 32,854 |
| | 27,438 |
| | 93,812 |
| | 81,699 |
|
Rental | 69,458 |
| | 63,387 |
| | 224,588 |
| | 201,524 |
|
Cost reimbursements | 103,799 |
| | 88,834 |
| | 320,242 |
| | 278,190 |
|
TOTAL REVENUES | 437,801 |
| | 358,799 |
| | 1,341,430 |
| | 1,117,419 |
|
EXPENSES | | | | | | | |
Cost of vacation ownership products | 37,404 |
| | 30,134 |
| | 116,715 |
| | 89,876 |
|
Marketing and sales | 87,308 |
| | 67,662 |
| | 266,962 |
| | 202,888 |
|
Resort management and other services | 37,453 |
| | 33,849 |
| | 111,664 |
| | 101,322 |
|
Rental | 62,236 |
| | 53,131 |
| | 187,141 |
| | 164,680 |
|
Litigation settlement | 2,033 |
| | — |
| | 2,033 |
| | (303 | ) |
Royalty fee | 1,956 |
| | 2,813 |
| | 7,684 |
| | 6,753 |
|
Cost reimbursements | 103,799 |
| | 88,834 |
| | 320,242 |
| | 278,190 |
|
TOTAL EXPENSES | 332,189 |
| | 276,423 |
| | 1,012,441 |
| | 843,406 |
|
(Losses) gains and other (expense) income, net | (1,754 | ) | | (27 | ) | | (1,950 | ) | | 12,297 |
|
Other | 46 |
| | (55 | ) | | 171 |
| | (4,068 | ) |
SEGMENT FINANCIAL RESULTS | $ | 103,904 |
| | $ | 82,294 |
| | $ | 327,210 |
| | $ | 282,242 |
|
Contract Sales
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 179,227 |
| | $ | 150,964 |
| | $ | 28,263 |
| | 19% |
Total contract sales | $ | 179,227 |
| | $ | 150,964 |
| | $ | 28,263 |
| | 19% |
The increase in sales at North America on-site locations reflected an 18 percent increase in the number of tours and a 3 percent increase in VPG to $3,482 in the 2017 third quarter from $3,371 in the 2016 third quarter. The increase in the number of tours was due to increases in both owner tours and first time buyer tours, and was driven by programs that were implemented in 2015 or later to generate additional tours. The 18 percent increase in the number of total tours included an increase of approximately 11 percent due to the change in the financial reporting calendar in 2017 and an increase of 9 percent from new sales locations, partially offset by a decrease of 2 percent from existing sales locations. We estimate the Hurricanes negatively impacted the year over year change in tours by roughly 6.5 percent; the vast majority of this impact was at our exiting sales
locations. The increase in VPG resulted from a 0.2 percentage point increase in closing efficiency and higher pricing. The sales at North America off-site locations were negatively impacted by lower sales in Latin America.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 547,546 |
| | $ | 436,214 |
| | $ | 111,332 |
| | 26% |
Total contract sales | $ | 547,546 |
| | $ | 436,214 |
| | $ | 111,332 |
| | 26% |
The increase in North America vacation ownership contract sales reflected a $116.0 million increase in sales at on-site sales locations, partially offset by a $4.3 million decrease in sales at off-site (non tour-based) sales locations and a $0.4 million decrease in fractional sales as we continue to sell through remaining luxury inventory. Our 2017 first three quarters had 22 more days than our 2016 first three quarters due to the change to an end-of-month quarterly reporting cycle in 2017. We estimate that 2016 first three quarters contract sales would have been approximately $38 million higher on a comparable basis, the majority of which would have occurred at on-site sales locations. We estimate the Hurricanes negatively impacted contract sales by $12 million in the 2017 first three quarters.
The increase in sales at North America on-site locations reflected a 23 percent increase in the number of tours and a 5 percent increase in VPG to $3,580 in the 2017 first three quarters from $3,414 in the 2016 first three quarters. The increase in the number of tours was due to increases in both owner tours and first time buyer tours, and was driven by programs that were implemented in 2015 or later to generate additional tours. The 23 percent increase in the number of total tours included an increase of approximately 11 percent due to the change in the financial reporting calendar in 2017, an increase of 9 percent from new sales locations and an increase of 3 percent from existing sales locations. We estimate the Hurricanes negatively impacted the year over year change in tours by nearly 3 percent; the vast majority of this impact was at our exiting sales locations. The increase in VPG resulted from a 0.3 percentage point increase in closing efficiency and higher pricing. The sales at North America off-site locations were negatively impacted by lower sales in Latin America, which were negatively impacted by currency fluctuations.
Sale of Vacation Ownership Products
20172023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | % of Consolidated Contract Sales, Net of Resales | | September 30, 2022 | | % of Consolidated Contract Sales, Net of Resales | | Change | | % Change |
Total consolidated contract sales | $ | 438 | | | | | $ | 483 | | | | | $ | (45) | | | (9%) |
Joint venture contract sales | 5 | | | | | 9 | | | | | (4) | | | (51%) |
Total contract sales | 443 | | | | | 492 | | | | | (49) | | | (10%) |
Less: resales contract sales | (11) | | | | | (10) | | | | | (1) | | | |
Less: joint venture contract sales | (5) | | | | | (9) | | | | | 4 | | | |
Consolidated contract sales, net of resales | 427 | | | | | 473 | | | | | (46) | | | (10%) |
Plus: | | | | | | | | | | | |
Settlement revenue | 12 | | | 3% | | 10 | | | 2% | | 2 | | | |
Resales revenue | 6 | | | 1% | | 5 | | | 1% | | 1 | | | |
Revenue recognition adjustments: | | | | | | | | | | | |
Reportability | — | | | —% | | 54 | | | 12% | | (54) | | | |
Sales reserve | (102) | | | (24%) | | (64) | | | (14%) | | (38) | | | |
Other(1) | (24) | | | (6%) | | (34) | | | (7%) | | 10 | | | |
Sale of vacation ownership products | $ | 319 | | | 74% | | $ | 444 | | | 94% | | $ | (125) | | | (28%) |
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | $ | 179,227 |
| | $ | 150,964 |
| | $ | 28,263 |
| | 19% |
Revenue recognition adjustments: | | | | | | | |
Reportability | 1,446 |
| | (16,853 | ) | | 18,299 |
| | |
Sales reserve | (10,277 | ) | | (11,923 | ) | | 1,646 |
| | |
Other(1) | (6,942 | ) | | (6,004 | ) | | (938 | ) | | |
Sale of vacation ownership products | $ | 163,454 |
| | $ | 116,184 |
| | $ | 47,270 |
| | 41% |
(1)Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue._________________________ | |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Revenue reportability positively impactedContract sales in the 20172023 third quarter declined due to a 7% decrease in the amount of sales that remained in the rescission period as of the end of the quarter. Revenue reportability negatively impacted the 2016 third quarter due toVPG and a 3% decrease in tours. The decline in VPG was attributed to the amounttemporary suspension of activity at our sales that met the down payment requirement for revenue reportability during the period and an increasecenters in the amount of sales that remained in the rescission period as of the end of the quarter.
The lower sales reserve reflected a lower required reserve in the 2017 third quarter ($2.9 million) due to lower default and delinquency activity and an unfavorable sales reserve adjustment in the 2016 third quarter ($0.9 million), partially offset by the higher vacation ownership contract sales volume ($2.2 million of the increase).
The increase in other adjustments for sales incentives was driven by an increase in the utilization of plus points as a sales incentive in the 2017 third quarterMaui, due to the higherwildfires, lower closing efficiencies due to the continued transition associated with the launch of Abound by Marriott Vacations (which commenced in the third quarter of 2022) and the continued integration of the Hyatt and Legacy-Welk business models and sales processes. Though improving, we expect these factors to continue to impact VPG and contract sales for the remainder of 2023.
The favorable revenue reportability in the 2022 third quarter was primarily due to the Contract Alignment which resulted in the prospective acceleration of revenue for Marriott-branded vacation ownership contract sales.interests of $46 million.
Financing propensity was 64% in the third quarter of 2023, a 530 basis point increase over the third quarter of 2022. We expect to continue offering financing incentive programs throughout the remainder of 2023.The average FICO score of customers for whom a credit score was available, generally U.S. and Canadian residents, who financed a vacation ownership purchase was 729 and 730 for the three months ended September 30, 2023 and September 30, 2022, respectively.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | $ | 547,546 |
| | $ | 436,214 |
| | $ | 111,332 |
| | 26% |
Revenue recognition adjustments: | | | | | | | |
Reportability | 1,887 |
| | (12,982 | ) | | 14,869 |
| | |
Sales reserve | (33,090 | ) | | (26,960 | ) | | (6,130 | ) | | |
Other(1) | (20,385 | ) | | (22,931 | ) | | 2,546 |
| | |
Sale of vacation ownership products | $ | 495,958 |
| | $ | 373,341 |
| | $ | 122,617 |
| | 33% |
_________________________
| |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Revenue reportability positively impactedIn the 2017 first three quarters due to anthird quarter of 2023, we evaluated our vacation ownership notes receivable reserve in light of trends in delinquencies and default rates. As a result, we increased our originated vacation ownership notes receivable reserve by $59 million. We primarily used a historical period of increased defaults as a basis for estimating the increase in the amount of sales that met the down payment requirement for revenue reportability during the period, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of the period. Revenue reportability negatively impacted the 2016 first three quarters dueour reserve. This additional reserve adjusts our future default rate estimate to a decrease in the amount of sales that met the down payment requirement for revenue reportability during the periodreflect current macroeconomic conditions, including inflation outpacing wage growth, continuing high interest rates, mixed economic indicators and an increase in the amount of sales that remained in the rescission period as of the end of the period.increased global insecurity.
The higher2022 third quarter sales reserve reflectedincluded a $19 million increase attributed to the higher vacation ownership contract sales volume, partiallyReserve Alignment, which was offset by an unfavorable sales reserve adjustment in the 2016 first three quarters.
The decrease in other adjustments for sales incentives was driven by a decrease in the utilization of plus pointsacquired reserve for vacation ownership notes receivable recorded as a reduction of Financing expenses.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | % of Consolidated Contract Sales, Net of Resales | | September 30, 2022 | | % of Consolidated Contract Sales, Net of Resales | | Change | | % Change |
Total consolidated contract sales | $ | 1,325 | | | | | $ | 1,383 | | | | | $ | (58) | | | (4%) |
Joint venture contract sales | 24 | | | | | 28 | | | | | (4) | | | (16%) |
Total contract sales | 1,349 | | | | | 1,411 | | | | | (62) | | | (4%) |
Less: resales contract sales | (32) | | | | | (30) | | | | | (2) | | | |
Less: joint venture contract sales | (24) | | | | | (28) | | | | | 4 | | | |
Consolidated contract sales, net of resales | 1,293 | | | | | 1,353 | | | | | (60) | | | (4%) |
Plus: | | | | | | | | | | | |
Settlement revenue | 29 | | | 2% | | 26 | | | 2% | | 3 | | | |
Resales revenue | 18 | | | 1% | | 13 | | | 1% | | 5 | | | |
Revenue recognition adjustments: | | | | | | | | | | | |
Reportability | 5 | | | —% | | 7 | | | 1% | | (2) | | | |
Sales reserve | (185) | | | (14%) | | (130) | | | (10%) | | (55) | | | |
Other(1) | (75) | | | (6%) | | (90) | | | (7%) | | 15 | | | |
Sale of vacation ownership products | $ | 1,085 | | | 84% | | $ | 1,179 | | | 87% | | $ | (94) | | | (8%) |
(1)Adjustment for sales incentiveincentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.
Contract sales in the 2017 first three quarters.quarters of 2023 declined, despite tour growth of 5%, due to a 9% decrease in VPG. The decline in VPG was attributed to the temporary suspension of activity at our sales centers in Maui, due to the wildfires, lower closing efficiencies due to the continued transition associated with the launch of Abound by Marriott Vacations and the continued integration of the Hyatt and Legacy-Welk business models and sales processes.
Financing propensity was 58% in the first three quarters of 2023, a 390 basis point increase over the first three quarters of 2022. The average FICO score of customers for whom a credit score was available, generally U.S. and Canadian residents, who financed a vacation ownership purchase was 734 and 733 for the nine months ended September 30, 2023 and September 30, 2022, respectively.
The sales reserve in the first three quarters of 2023 increased $78 million in light of trends in delinquencies and default rates in 2023.
The sales reserve in the first three quarters of 2022 included a $19 million increase attributed to the Reserve Alignment, which was offset by a decrease in the acquired reserve for vacation ownership notes receivable recorded as a reduction of Financing expenses.
Development MarginProfit
20172023 Third Quarter
| | | | | | | | | | | Three Months Ended | | Change | | % Change |
| Quarter Ended | | Change | | % Change | |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | | |
($ in millions) | | ($ in millions) | September 30, 2023 | | % of Revenue | | September 30, 2022 | | % of Revenue | | Change | | % Change |
Sale of vacation ownership products | $ | 163,454 |
| | $ | 116,184 |
| | 47,270 |
| | 41% | Sale of vacation ownership products | $ | 319 | | | | | $ | 444 | | | | |
Cost of vacation ownership products | (37,404 | ) | | (30,134 | ) | | (7,270 | ) | | (24%) | Cost of vacation ownership products | (50) | | | (16%) | | (76) | | | (17%) | | 26 | | | 35% |
Marketing and sales | (87,308 | ) | | (67,662 | ) | | (19,646 | ) | | (29%) | Marketing and sales | (202) | | | (64%) | | (207) | | | (47%) | | 5 | | | 2% |
Development margin | $ | 38,742 |
| | $ | 18,388 |
| | $ | 20,354 |
| | 111% | |
Development margin percentage | 23.7% | | 15.8% | | 7.9 pts | | |
Development profit | | Development profit | $ | 67 | | | $ | 161 | | | $ | (94) | | | (59%) |
Development profit margin | | Development profit margin | 20.7% | | 36.1% | | (15.4 pts) | |
|
The increasedecrease in development margin reflectedDevelopment profit reflects $43 million from unfavorable revenue reportability primarily attributed to the following:
$11.8Contract Alignment, which resulted in the prospective acceleration of $39 million of revenue recognition for Marriott-branded VOI sales in the 2022 third quarter, $24 million from lower contract sales volumes and $35 million related to higher sales reserves, partially offset by $8 million of favorable revenue reportability comparedproduct cost due mainly to the 2016sale of lower cost inventory. The $35 million of higher sales reserves included $49 million in the third quarter;
$5.9quarter of 2023 ($59 million gross increase in reserve offset by a decrease of $10 million to product cost), partially offset by $14 million from higher vacation ownership contract sales volume netthe Reserve alignment in the third quarter of 2022. Development profit margin, excluding the impact of the sales reserve increase of $49 million, was 30.5% in the third quarter of 2023. We expect Development profit margin for the full year to be in line with year-to-date 2023 results.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | % of Revenue | | September 30, 2022 | | % of Revenue | | Change | | % Change |
Sale of vacation ownership products | $ | 1,085 | | | | | $ | 1,179 | | | | | $ | (94) | | | (8%) |
Cost of vacation ownership products | (174) | | | (16%) | | (216) | | | (18%) | | 42 | | | 20% |
Marketing and sales | (618) | | | (57%) | | (603) | | | (51%) | | (15) | | | (2%) |
Development profit | $ | 293 | | | | | $ | 360 | | | | | $ | (67) | | | (18%) |
Development profit margin | 27.0% | | | | 30.5% | | | | (3.5 pts) | | |
The decrease in Development profit reflects $47 million of lower contract sales volumes, $49 million related to higher sales reserves, and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales);
$4.4$5 million from aunfavorable revenue reportability, partially offset by $28 million of favorable mixproduct cost due mainly to the sale of lower cost real estate inventory, being sold;
$2.8 million from lower sales reserve activity in the 2017 third quarter; and
$0.5 $6 million of favorable changes in product cost true-up activity ($1.5activity. Development profit margin, excluding the impact of the $49 million of favorable true-up activity in the 2017 third quarter compared to $1.0 million of favorable true-up activity in the 2016 third quarter).
These increases in development margin were partially offset by $5.1 million from higher marketing and sales costs (of which $1.3 million was due to the ramp-up of our newest sales distributions).
The 7.9 percentage pointreserve increase in the development margin percentage reflected a 6.6 percentage point increase due to the favorable revenue reportability year-over-year, a 2.7 percentage point increase due to a favorable mixthird quarter of lower cost vacation ownership real estate inventory being sold2023, was 29.9% in the 2017 third quarter, a 1.2 percentage point increase from the lower sales reserve activity, and 0.3 percentage point increase due to the favorable changes in product cost true-up activity year-over-year. These increases were partially offset by a 2.9 percentage point decline due to higher marketing and sales costs (of which
0.8 percentage points was due to the higher ramp-up expenses associated with our newest sales distributions).We estimate the Hurricanes negatively impacted development margin percentage by 0.3 percentage points in the 2017 third quarter.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Sale of vacation ownership products | $ | 495,958 |
| | $ | 373,341 |
| | 122,617 |
| | 33% |
Cost of vacation ownership products | (116,715 | ) | | (89,876 | ) | | (26,839 | ) | | (30%) |
Marketing and sales | (266,962 | ) | | (202,888 | ) | | (64,074 | ) | | (32%) |
Development margin | $ | 112,281 |
| | $ | 80,577 |
| | $ | 31,704 |
| | 39% |
Development margin percentage | 22.6% | | 21.6% | | 1.0 pts | | |
The increase in development margin reflected the following:
$28.0 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);
$17.6 million from a favorable mix of lower cost real estate inventory being sold;
$9.6 million of favorable revenue reportability compared to the 2016 first three quarters; and
$0.4 million from lower sales reserve activity in the 2017 first three quarters.
These increases in development margin were partially offset by the following:
$11.8 million from higher marketing and sales costs (of which $7.3 million was due to the ramp-up of our newest sales distributions);
$10.7 million of unfavorable changes in product cost true-up activity ($0.7 million of favorable true-up activity in the 2017 first three quarters compared to $11.4 million of favorable true-up activity in the 2016 first three quarters); and2023.
$1.4 million from higher other development and inventory expenses.50
The 1.0 percentage point increase in the development margin percentage reflected a 3.6 percentage point increase due to a favorable mix
Resort Management and Other Services Revenues, Expenses and MarginProfit
20172023 Third Quarter
| | | | | | | | | | | Three Months Ended | |
| Quarter Ended | | Change | | % Change | |
| September 30, 2017 | | September 9, 2016 | | |
($ in thousands) | (92 days) | | (84 days) | | |
($ in millions) | | ($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Management fee revenues | $ | 19,810 |
| | $ | 17,330 |
| | $ | 2,480 |
| | 14% | Management fee revenues | $ | 44 | | | $ | 41 | | | $ | 3 | | | 9% |
Ancillary revenues | 25,924 |
| | 25,992 |
| | (68 | ) | | —% | Ancillary revenues | 62 | | | 63 | | | (1) | | | (1%) |
Other services revenues | 22,502 |
| | 19,634 |
| | 2,868 |
| | 15% | |
Other management and exchange revenues | | Other management and exchange revenues | 37 | | | 32 | | | 5 | | | 16% |
Resort management and other services revenues | 68,236 |
| | 62,956 |
| | 5,280 |
| | 8% | Resort management and other services revenues | 143 | | | 136 | | | 7 | | | 6% |
Resort management and other services expenses | (37,453 | ) | | (33,849 | ) | | (3,604 | ) | | (11%) | Resort management and other services expenses | (69) | | | (64) | | | (5) | | | (8%) |
Resort management and other services margin | $ | 30,783 |
| | $ | 29,107 |
| | $ | 1,676 |
| | 6% | |
Resort management and other services margin percentage | 45.1% | | 46.2% | | (1.1 pts) | | |
Resort management and other services profit | | Resort management and other services profit | $ | 74 | | | $ | 72 | | | $ | 2 | | | 3% |
Resort management and other services profit margin | | Resort management and other services profit margin | 52.0% | | 53.2% | | (1.2 pts) | |
Resort occupancy (1) | | Resort occupancy (1) | 86.1% | | 88.9% | | (2.8 pts) | |
| (1)Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service. | | (1)Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service. |
The increase in resortResort management and other services revenues reflected $2.5reflects higher club dues of $4 million, higher management fees and $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, $2.0 million of additional annual club dues and otherrefurbishment project revenues, earned in connection with the MVCD program due to
the cumulative increase in owners enrolled in the program, and $0.9 million of higher resales commissions and other revenues. These increases were partially offset by $0.1 million of lower ancillary revenues.
The decrease$5 million increase in Resort management and other services expenses reflects an increase in ancillary revenues included $1.7expenses of $2 million of lower revenue due to outsourcing multiple operations, partially offset by $1.6inflation and foreign currency exchange rate changes in Mexico, and an increase in customer services and exchange company expenses of $3 million ofdue to incremental headcount, wages, benefits, and other operating cost increases.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Management fee revenues | $ | 134 | | | $ | 124 | | | $ | 10 | | | 8% |
Ancillary revenues | 193 | | | 183 | | | 10 | | | 5% |
Other management and exchange revenues | 98 | | | 95 | | | 3 | | | 4% |
Resort management and other services revenues | 425 | | | 402 | | | 23 | | | 6% |
Resort management and other services expenses | (202) | | | (178) | | | (24) | | | (14%) |
Resort management and other services profit | $ | 223 | | | $ | 224 | | | $ | (1) | | | —% |
Resort management and other services profit margin | 52.5% | | 55.8% | | (3.3 pts) | | |
Resort occupancy (1) | 87.9% | | 89.0% | | (1.1 pts) | | |
| | | | | | | |
(1)Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service. |
The increase in Resort management and other services revenues reflects higher ancillary revenues, including revenues from food and beverage and golf offerings (as a result of an 8% increase in revenue per occupied key, partially offset by a 2% decrease in occupied keys at our resorts.resorts with ancillary businesses) and higher management fees and commissions from third-party vacation and other offerings. The decline in occupied keys at resorts with ancillary businesses was primarily in Maui due to the wildfires.
The increase in the resortResort management and other services margin reflectedexpenses reflects an increase in ancillary expenses of $15 million due to increased volumes sold, inflation and foreign currency exchange rate changes in Mexico, and an increase in customer services and exchange company expenses of $9 million due to incremental headcount, wages, benefits, and other operating cost increases.
Rental Revenues, Expenses and Profit
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Rental revenues | $ | 128 | | | $ | 154 | | | $ | (26) | | | (17%) |
Rental expenses | (122) | | | (130) | | | 8 | | | 6% |
Rental profit | $ | 6 | | | $ | 24 | | | $ | (18) | | | (73%) |
Rental profit margin | 5.1% | | 15.9% | | (10.8 pts) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Transient keys rented(1) | 509,057 | | | 509,621 | | | (564) | | | —% |
Average transient rate | $ | 256 | | | $ | 267 | | | $ | (12) | | | (4%) |
Rental occupancy(2) | 64.3% | | 69.2% | | (4.9 pts) | | |
(1)Transient keys rented exclude those occupied through the increasesuse of plus points and preview stays.
(2)Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage.
Rental profit for transient keys, including plus points and excluding keys from owned hotels, declined due to an $11 million increase in revenue,unsold maintenance fees associated with developer owned inventory, $9 million of decreased profit due largely to the Maui wildfires and declining average daily rates, offset by the continued rebound of the Asia Pacific region and $5 million of higher operating costs. These decreases were partially offset by $3.6$8 million of higher expenses. Theplus points revenue. In addition to these variances, there was a $25 million higher expenses included $2.5net down of rental revenues and expense in the 2023 third quarter associated with unsold VOIs that are registered and held for sale.
Rental profit for our owned hotels in the third quarter of 2023 decreased $1 million compared to the third quarter of 2022.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Rental revenues | $ | 404 | | | $ | 405 | | | $ | (1) | | | —% |
Rental expenses | (354) | | | (311) | | | (43) | | | (14%) |
Rental profit | $ | 50 | | | $ | 94 | | | $ | (44) | | | (47%) |
Rental profit margin | 12.3% | | 23.2% | | (10.9 pts) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
| September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Transient keys rented(1) | 1,605,926 | | | 1,626,294 | | | (20,368) | | | (1%) |
Average transient key rate | $ | 269 | | | $ | 268 | | | $ | 1 | | | —% |
Rental occupancy(2) | 68.5% | | 70.3% | | (1.8 pts) | | |
(1)Transient keys rented exclude those occupied through the use of plus points and preview stays.
(2)Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage.
Rental profit for transient keys, including plus points and excluding keys from owned hotels, declined by $40 million due to a $34 million increase in unsold maintenance fees associated with developer owned inventory, $10 million of increased costs associated with higher owner utilization of third-party vacation and other offerings, $12 million of decreased profit due to lower demand, the Maui wildfires and an unfavorable change in the mix of keys available to rent, and $3 million of higher customer service expenses and expenses associated with the MVCD program, $2.2other costs. These decreases were partially offset by $16 million of higher ancillary expenses from foodplus points revenue and beveragea $3 million reduction of rental costs associated with occupancy used for marketing and golf offerings atsales activities. In addition
to these variances, there was a $2 million lower net down of rental revenues and expense in the first three quarters of 2023 associated with unsold VOIs that are registered and held for sale.
Rental profit for our resortsowned hotels decreased by $4 million, or 30%, attributed to the disposition of our Puerto Vallarta hotel in 2022 and $0.7Branson hotel in 2023.
Financing Revenues, Expenses and Profit
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Financing revenues | $ | 81 | | | $ | 74 | | | $ | 7 | | | 10% |
Financing expenses | (11) | | | 9 | | | (20) | | | NM |
Consumer financing interest expense | (19) | | | (14) | | | (5) | | | (36%) |
Financing profit | $ | 51 | | | $ | 69 | | | $ | (18) | | | (26%) |
Financing profit margin | 63.7% | | 94.5% | | (30.8 pts) | | |
Financing propensity | 64.0% | | 58.7% | | | | |
Financing revenues reflect $8 million of higher resales and other expenses,interest income as a result of a higher average notes receivable balance partially offset by $1.8$1 million of lowerhigher plus point financing incentive costs. The higher average notes receivable balance was the result of new loan originations in excess of the repayment of existing vacation ownership notes receivable, which we expect to continue. As part of our Reserve Alignment for Marriott-, Westin- and Sheraton-branded vacation ownership notes receivable, in the third quarter of 2022, we recorded a $19 million reduction in our estimated reserve for acquired vacation ownership notes receivable as a decrease in Financing expenses. Excluding this difference, Financing expenses increased $1 million due to outsourcing multiple operations.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Management fee revenues | $ | 58,725 |
| | $ | 51,182 |
| | $ | 7,543 |
| | 15% |
Ancillary revenues | 78,522 |
| | 74,633 |
| | 3,889 |
| | 5% |
Other services revenues | 69,583 |
| | 56,850 |
| | 12,733 |
| | 22% |
Resort management and other services revenues | 206,830 |
| | 182,665 |
| | 24,165 |
| | 13% |
Resort management and other services expenses | (111,664 | ) | | (101,322 | ) | | (10,342 | ) | | (10%) |
Resort management and other services margin | $ | 95,166 |
| | $ | 81,343 |
| | $ | 13,823 |
| | 17% |
Resort management and other services margin percentage | 46.0% | | 44.5% | | 1.5 pts | | |
higher operating costs.The increase in resort managementconsumer financing interest expense is attributable to the higher average securitized debt at a higher average interest rate for the more recent term securitization transactions. We expect consumer financing interest expense to continue to remain elevated over our average outstanding interest rates on existing securitization transactions as a result of rising interest rates for the remainder of 2023. We do not adjust interest rates on consumer financing offerings at the same pace as, or in lock-step with, broader market interest rates; thus we expect our financing profit margin to continue to decrease in 2023, as we repay existing securitization transactions with lower interest rates and other servicesenter into new securitization transactions with higher interest rates.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Financing revenues | 239 | | | 217 | | | 22 | | | 10% |
Financing expenses | (26) | | | (10) | | | (16) | | | NM |
Consumer financing interest expense | (55) | | | (39) | | | (16) | | | (41%) |
Financing profit | $ | 158 | | | $ | 168 | | | $ | (10) | | | (6%) |
Financing profit margin | 66.2% | | 77.7% | | (11.5 pts) | | |
Financing propensity | 58.2% | | 54.3% | | | | |
Financing revenues reflected $7.5reflect $24 million of higher management fees resulting from the cumulative increase in the numberinterest income as a result of vacation ownership products sold anda higher operating costs across the system, $4.9 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, $9.3average notes receivable balance partially offset by $2 million of higher ancillary revenuesplus point financing incentive costs. The higher average notes receivable balance was the result of new loan originations in excess of the repayment of existing vacation ownership notes receivable, which we expect will continue. Excluding the change in our estimated reserve for acquired vacation ownership notes receivable, Financing expenses were in line with prior year. In 2023, we recorded a $3 million reduction to our reserve for acquired vacation ownership notes receivable compared to a $19 million reduction in the comparable reserve in 2022.
Royalty Fee
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Royalty fee | $ | 30 | | | $ | 28 | | | $ | 2 | | | 5% |
Royalty fee expense increased in the third quarter of 2023 due to higher revenues from food and beverage and golf offerings at our resorts, $3.1an increase of $2 million in the volume of higher resales commissions, brand fees and other revenues, $2.7 millionclosings on Marriott-branded products.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Royalty fee | $ | 88 | | | $ | 84 | | | $ | 4 | | | 4% |
Royalty fee expense increased in the first three quarters of higher refurbishment revenue2023 due to an increase in the numbervolume of refurbishment projects completedclosings on Marriott-branded products ($2 million) and increased variable royalty fees paid to Hyatt, which commenced in the fourth quarter of 2022 ($2 million).
Gains and Other Income
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Gains and other income, net | $ | 7 | | | $ | 1 | | | $ | 6 | | | NM |
During the third quarter of 2023, we recorded a $6 million reduction in certain pre-acquisition contingencies associated with the ILG Acquisition and $1 million related to the receipt of insurance proceeds related to property damage from the 2017 hurricanes.
During the third quarter of 2022, we recorded a $1 million gain from foreign currency translation.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Gains and other income, net | $ | 23 | | | $ | 36 | | | $ | (13) | | | (36%) |
During the first three quarters and $2.1of 2023, we recorded $7 million of higher settlement fees duegains on the disposition of excess real estate, a $4 million gain associated with the earn out of additional proceeds from the 2019 disposition of a land parcel in Cancun, Mexico, a $9 million reduction in certain pre-acquisition contingencies associated with the ILG Acquisition, $2 million related to an increase in the numberreceipt of closed contracts inbusiness interruption insurance proceeds, and $1 million related to the receipt of insurance proceeds related to property damage from the 2017 hurricanes.
During the first three quarters partially offset by $5.4of 2022, we recorded gains and other income of $33 million related to the strategic decision to dispose of our hotel in Puerto Vallarta, Mexico and $3 million related to the receipt of business interruption insurance proceeds.
Exchange & Third-Party Management
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
REVENUES | | | | | | | |
Management and exchange | $ | 50 | | | $ | 55 | | | $ | 157 | | | $ | 177 | |
Rental | 10 | | | 11 | | | 31 | | | 33 | |
| | | | | | | |
Cost reimbursements | 4 | | | 5 | | | 12 | | | 19 | |
TOTAL REVENUES | 64 | | | 71 | | | 200 | | | 229 | |
EXPENSES | | | | | | | |
| | | | | | | |
Management and exchange | 31 | | | 28 | | | 91 | | | 93 | |
| | | | | | | |
| | | | | | | |
Depreciation and amortization | 7 | | | 8 | | | 23 | | | 24 | |
| | | | | | | |
| | | | | | | |
Cost reimbursements | 4 | | | 5 | | | 12 | | | 19 | |
TOTAL EXPENSES | 42 | | | 41 | | | 126 | | | 136 | |
Gains (losses) and other income (expense), net | 1 | | | (1) | | | 1 | | | 15 | |
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 23 | | | $ | 29 | | | $ | 75 | | | $ | 108 | |
Management and Exchange Profit
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Management and exchange revenue | $ | 50 | | | $ | 55 | | | $ | (5) | | | (7%) |
Management and exchange expense | (31) | | | (28) | | | (3) | | | (9%) |
Management and exchange profit | $ | 19 | | | $ | 27 | | | $ | (8) | | | (25%) |
Management and exchange profit margin | 38.9% | | 48.1% | | (9.2 pts) | | |
The decrease in management and exchange revenue reflects a $3 million decline in Aqua-Aston management revenues resulting from lower revenue due to outsourcing multiple operations.
The increaseper available room in the resortHawaii market and the wildfires in Maui. Interval International management and other services margin reflected the increases in revenue, partially offset by $10.3exchange revenues declined $2 million of higher expenses, including $5.1 million of higher customer service expenses and expenses associated with the MVCD program, $7.4 million of higher ancillary expenses from food and beverage and golf offerings at our resorts, $2.1 million of higher refurbishment expenses dueprimarily attributed to an increase in the number of projects being refurbished in the 2017 first three quarters, and $0.7 million of higher resales and other expenses, partially offset by $5.0 million of5% lower expenses due to outsourcing multiple operations.
Financing Revenues
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Interest income | $ | 31,146 |
| | $ | 26,107 |
| | $ | 5,039 |
| | 19% |
Other financing revenues | 1,708 |
| | 1,331 |
| | 377 |
| | 28% |
Financing revenues | $ | 32,854 |
| | $ | 27,438 |
| | $ | 5,416 |
| | 20% |
Financing propensity | 66.1% | | 62.4% | | | | |
The increase in financing revenues was due to an increase in the average gross vacation ownership notes receivable balance ($7.2 million) and higher other financing revenues ($0.4 million), partially offset by financing program incentive costs ($1.4 million) and a decrease in the weighted average coupon rate of our vacation ownership notes receivable ($0.8 million). We expect financing propensity for the 2017 fiscal year to approximate 65 percent as we intend to continue to offer financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Interest income | $ | 88,698 |
| | $ | 77,582 |
| | $ | 11,116 |
| | 14% |
Other financing revenues | 5,114 |
| | 4,117 |
| | 997 |
| | 24% |
Financing revenues | $ | 93,812 |
| | $ | 81,699 |
| | $ | 12,113 |
| | 15% |
Financing propensity | 65.0% | | 57.5% | | | | |
The increase in financing revenues was due to an increase in the average gross vacation ownership notes receivable balance ($18.3 million) and higher other financing revenues ($1.0 million), partially offset by financing program incentive costs ($5.2 million) and a decrease in the weighted average coupon rate of our vacation ownership notes receivable ($2.0 million). We expect financing propensity for the 2017 fiscal year to approximate 65 percent as we intend to continue to offer financing incentive programs, and that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable.
Rental Revenues, Expenses and Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Rental revenues | $ | 69,458 |
| | $ | 63,387 |
| | $ | 6,071 |
| | 10% |
Unsold maintenance fees | (17,105 | ) | | (16,688 | ) | | (417 | ) | | (2%) |
Other rental expenses | (45,131 | ) | | (36,443 | ) | | (8,688 | ) | | (24%) |
Rental margin | $ | 7,222 |
| | $ | 10,256 |
| | $ | (3,034 | ) | | (30%) |
Rental margin percentage | 10.4% | | 16.2% | | (5.8 pts) | | |
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
| (92 days) | | (84 days) | |
Transient keys rented(1) | 296,159 |
| | 262,038 |
| | 34,121 |
| | 13% |
Average transient key rate | $ | 198.05 |
| | $ | 204.89 |
| | $ | (6.84 | ) | | (3%) |
Resort occupancy | 89.0% | | 92.3% | | (3.3 pts) | | |
_________________________ | |
(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 13 percent increase in transient keys rented ($7.1 million) driven by a 24 percent increase in available keys, a $0.5 million increase in preview keys rented and other revenue and $1.1 million of higher plus points revenue (which is recognized when the points are redeemed or expire),transaction volume, partially offset by a 3 percent decrease1% increase in average transient rate ($2.0 million) and $0.6 million of revenue in the 2016 third quarter at our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory.per member.
The decrease in rental margin reflected higher expenses incurred duemanagement and exchange profit was primarily attributed to owners choosing alternative usage options and higher unsold maintenance fees. These higher expenses more than offset the higher rental revenues net of direct variable expenses (such as housekeeping) and the $1.1 million increase in plus points revenue.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Rental revenues | $ | 224,588 |
| | $ | 201,524 |
| | $ | 23,064 |
| | 11% |
Unsold maintenance fees | (50,814 | ) | | (44,659 | ) | | (6,155 | ) | | (14%) |
Other rental expenses | (136,327 | ) | | (120,021 | ) | | (16,306 | ) | | (14%) |
Rental margin | $ | 37,447 |
| | $ | 36,844 |
| | $ | 603 |
| | 2% |
Rental margin percentage | 16.7% | | 18.3% | | (1.6 pts) | | |
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
| (274 days) | | (252 days) | |
Transient keys rented(1) | 907,935 |
| | 797,729 |
| | 110,206 |
| | 14% |
Average transient key rate | $ | 211.32 |
| | $ | 214.84 |
| | $ | (3.52 | ) | | (2%) |
Resort occupancy | 89.1% | | 90.2% | | (1.1 pts) | | |
_________________________
| |
(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 14 percent increase in transient keys rented ($23.8 million) driven by a 17 percent increase in available keys, a $3.3 million increase in preview keys rented and other revenue and $2.6 million of higher plus points revenue (which is recognized when the points are redeemed or expire), partially offset by $3.4 million of revenue in the 2017 first three quarters at our operating property in San Diego, California prior to the conversion of the property to vacation ownership inventory and a 2 percent decrease in average transient rate ($3.2 million).
The increase in rental margin reflected the $2.6 million increase in plus points revenue and higher rental revenues net of direct variable expenses (such as housekeeping), partially offset by higher expenses incurred due to owners choosing alternative usage options and higher unsold maintenance fees.
Asia Pacific
The following discussion presents an analysis of our results of operations for the Asia Pacific segment for the 2017 third quarter compared to the 2016 third quarter, and the 2017 first three quarters compared to the 2016 first three quarters.
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 11,362 |
| | $ | 10,010 |
| | $ | 32,378 |
| | $ | 26,645 |
|
Resort management and other services | 1,022 |
| | 816 |
| | 3,055 |
| | 8,594 |
|
Financing | 1,122 |
| | 918 |
| | 3,350 |
| | 2,906 |
|
Rental | 2,733 |
| | 2,324 |
| | 9,115 |
| | 12,773 |
|
Cost reimbursements | 713 |
| | 692 |
| | 2,584 |
| | 2,250 |
|
TOTAL REVENUES | 16,952 |
| | 14,760 |
| | 50,482 |
| | 53,168 |
|
EXPENSES | | | | | | | |
Cost of vacation ownership products | 2,687 |
| | 1,712 |
| | 6,642 |
| | 5,018 |
|
Marketing and sales | 8,754 |
| | 7,166 |
| | 25,672 |
| | 20,072 |
|
Resort management and other services | 1,144 |
| | 900 |
| | 3,297 |
| | 8,546 |
|
Rental | 3,902 |
| | 3,330 |
| | 12,136 |
| | 15,884 |
|
Royalty fee | 225 |
| | 239 |
| | 674 |
| | 564 |
|
Cost reimbursements | 713 |
| | 692 |
| | 2,584 |
| | 2,250 |
|
TOTAL EXPENSES | 17,425 |
| | 14,039 |
| | 51,005 |
| | 52,334 |
|
Gains (losses) and other income (expense), net | — |
| | 490 |
| | (20 | ) | | (1,008 | ) |
Other | 1 |
| | (20 | ) | | (9 | ) | | (249 | ) |
SEGMENT FINANCIAL RESULTS | $ | (472 | ) | | $ | 1,191 |
| | $ | (552 | ) | | $ | (423 | ) |
Overview
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 amenities and infrastructure, in Bali, Indonesia. We expect to begin selling from this new location in the coming months.
Contract Sales
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 12,569 |
| | $ | 11,169 |
| | $ | 1,400 |
| | 13% |
Total contract sales | $ | 12,569 |
| | $ | 11,169 |
| | $ | 1,400 |
| | 13% |
The increase in Asia Pacific vacation ownership contract sales was driven by a 37 percent increase in tours, partially offset by an 18 percent decrease in VPG. The increase in tours included an increase of approximately 14 percent due to the change in the financial reporting calendar in 2017, a 15 percent increase from the new sales location in Surfers Paradise, Australia and an 8 percent increase at the 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. Contract sales at the new sales location in Surfers Paradise, Australia are not reported as sale of vacation ownership products until closing.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 36,131 |
| | $ | 31,049 |
| | $ | 5,082 |
| | 16% |
Total contract sales | $ | 36,131 |
| | $ | 31,049 |
| | $ | 5,082 |
| | 16% |
The increase in Asia Pacific vacation ownership contract sales was driven by a 45 percent increase in tours, partially offset by a 20 percent decrease in VPG. The increase in tours included an increase of approximately 13 percent due to the change in the financial reporting calendar in 2017, a 26 percent increase from the new sales location in Surfers Paradise, Australia and a 6 percent increase at the 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. Contract sales at the new sales location in Surfers Paradise, Australia are not reported as sale of vacation ownership products until closing.
Sale of Vacation Ownership Products
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | $ | 12,569 |
| | $ | 11,169 |
| | $ | 1,400 |
| | 13% |
Revenue recognition adjustments: | | | | | | | |
Reportability | (264 | ) | | 24 |
| | (288 | ) | | |
Sales reserve | (572 | ) | | (1,112 | ) | | 540 |
| | |
Other(1) | (371 | ) | | (71 | ) | | (300 | ) | | |
Sale of vacation ownership products | $ | 11,362 |
| | $ | 10,010 |
| | $ | 1,352 |
| | 14% |
_________________________ | |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
The decrease in the sales reserve was due to a favorable sales reserve adjustment in the 2017 third quarter.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | $ | 36,131 |
| | $ | 31,049 |
| | $ | 5,082 |
| | 16% |
Revenue recognition adjustments: | | | | | | | |
Reportability | (385 | ) | | (539 | ) | | 154 |
| | |
Sales reserve | (2,827 | ) | | (3,748 | ) | | 921 |
| | |
Other(1) | (541 | ) | | (117 | ) | | (424 | ) | | |
Sale of vacation ownership products | $ | 32,378 |
| | $ | 26,645 |
| | $ | 5,733 |
| | 22% |
_________________________
| |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Revenue reportability had an unfavorable $0.4 million impact in the 2017 first three quarters compared to an unfavorable $0.5 million impact in the 2016 first three quarters. The decrease in the sales reserve was due to an unfavorable sales reserve adjustment made in the 2016 second quarter to correct an immaterial error with respect to historical static pool data and a favorable sales reserve adjustment in the 2017 third quarter, partially offset by the higher vacation ownership contract sales.
Development Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Sale of vacation ownership products | $ | 11,362 |
| | $ | 10,010 |
| | $ | 1,352 |
| | 14% |
Cost of vacation ownership products | (2,687 | ) | | (1,712 | ) | | (975 | ) | | (57%) |
Marketing and sales | (8,754 | ) | | (7,166 | ) | | (1,588 | ) | | (22%) |
Development margin | $ | (79 | ) | | $ | 1,132 |
| | $ | (1,211 | ) | | (107%) |
Development margin percentage | (0.7%) | | 11.3% | | (12.0 pts) | | |
The decrease in development margin reflected higher marketing and sales expense, higher information technology costs due to the shift to more first time buyer toursand higher wages and benefits 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).revenues.
2017
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Management and exchange revenue | $ | 157 | | | $ | 177 | | | $ | (20) | | | (11%) |
Management and exchange expense | (91) | | | (93) | | | 2 | | | 3% |
Management and exchange profit | $ | 66 | | | $ | 84 | | | $ | (18) | | | (20%) |
Management and exchange profit margin | 42.3% | | 47.3% | | (5.0 pts) | | |
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Sale of vacation ownership products | $ | 32,378 |
| | $ | 26,645 |
| | $ | 5,733 |
| | 22% |
Cost of vacation ownership products | (6,642 | ) | | (5,018 | ) | | (1,624 | ) | | (32%) |
Marketing and sales | (25,672 | ) | | (20,072 | ) | | (5,600 | ) | | (28%) |
Development margin | $ | 64 |
| | $ | 1,555 |
| | $ | (1,491 | ) | | (96%) |
Development margin percentage | 0.2% | | 5.8% | | (5.6 pts) | | |
TheExcluding the $12 million decrease in development margin reflected higher marketing and sales costs dueattributed to the shift to more first time buyer tours and lower favorable product cost true-up activity, partially offset by the higher vacation ownership contract sales volume netdisposition of the sales reserve and direct variable expenses (i.e., cost of vacation ownership products and marketing and sales).
Resort Management and Other Services Revenues, Expenses and Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Management fee revenues | $ | 674 |
| | $ | 582 |
| | $ | 92 |
| | 16% |
Ancillary revenues | — |
| | 8 |
| | (8 | ) | | (100%) |
Other services revenues | 348 |
| | 226 |
| | 122 |
| | 54% |
Resort management and other services revenues | 1,022 |
| | 816 |
| | 206 |
| | 25% |
Resort management and other services expenses | (1,144 | ) | | (900 | ) | | (244 | ) | | (27%) |
Resort management and other services margin | $ | (122 | ) | | $ | (84 | ) | | $ | (38 | ) | | (45%) |
Resort management and other services margin percentage | (11.9%) | | (10.3%) | | (1.6 pts) | | |
The increase in resort management and other services revenues reflected $0.1 million of higher management fees and $0.1 million of higher other services revenues. The slight decline in the resort management and other services margin reflected the higher customer service expenses, partially offset by the increase in revenues.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Management fee revenues | $ | 2,059 |
| | $ | 1,657 |
| | $ | 402 |
| | 24% |
Ancillary revenues | — |
| | 6,246 |
| | (6,246 | ) | | (100%) |
Other services revenues | 996 |
| | 691 |
| | 305 |
| | 44% |
Resort management and other services revenues | 3,055 |
| | 8,594 |
| | (5,539 | ) | | (64%) |
Resort management and other services expenses | (3,297 | ) | | (8,546 | ) | | 5,249 |
| | 61% |
Resort management and other services margin | $ | (242 | ) | | $ | 48 |
| | $ | (290 | ) | | (604%) |
Resort management and other services margin percentage | (7.9%) | | 0.6% | | (8.5 pts) | | |
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 inour VRI Americas business during the second quarter of 2016),2022, management and exchange revenue decreased $8 million or 4%. Aqua-Aston management revenue declined $3 million as a result of the wildfires in Maui and higher property level expenses adversely impacting management fees. Interval International management and exchange revenues declined $5 million, primarily attributed to lower membership fees and transaction revenues. Interval International transaction volume declined 6% and average revenue per member decreased 1% compared to the prior year comparable period.
Excluding the impact of the disposition of VRI Americas, management and exchange profit decreased by $14 million or 15% in the first three quarters of 2023, primarily attributed to higher information technology costs and higher wages and benefits and lower revenues.
Rental Revenues
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Rental revenues | $ | 10 | | | $ | 11 | | | $ | (1) | | | (7%) |
Results reflect higher rental inventory procurement costs, which are recorded net within Rental revenues.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Rental revenues | $ | 31 | | | $ | 33 | | | $ | (2) | | | (5%) |
Results reflect higher rental inventory procurement costs, which are recorded net within Rental revenues.
Gains (Losses) and Other Income (Expense)
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Gains (losses) and other income (expense), net | $ | 1 | | | $ | (1) | | | $ | 2 | | | NM |
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Gains and other income, net | $ | 1 | | | $ | 15 | | | $ | (14) | | | NM |
During the first three quarters of 2022, we recorded a $17 million gain related to the sale of our VRI Americas business, partially offset by increases in management fees ($0.4 million) and other services revenues ($0.3 million). The decline in the resort management and other services margin reflected $0.8$2 million of ancillary profit fromforeign currency translation losses. See Footnote 3 “Acquisitions and Dispositions” for more information on the operating property in Surfers Paradise, Australia in the 2016 first three quarters (compared to no ancillary activity in the 2017 first three quarters), partially offset by the higher management fees in the 2017 first three quarters compared to the 2016 first three quarters.
The ancillary revenue producing portionsdisposition of the operating property in Surfers Paradise, Australia were included in the portion of the operating property sold in the second quarter of 2016. Therefore, we do not anticipate future ancillary revenues or expenses at this property.
Rental Revenues, Expenses and Margin
2017 Third Quarter VRI Americas.
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Rental revenues | $ | 2,733 |
| | $ | 2,324 |
| | $ | 409 |
| | 18% |
Rental expenses | (3,902 | ) | | (3,330 | ) | | (572 | ) | | (17%) |
Rental margin | $ | (1,169 | ) | | $ | (1,006 | ) | | $ | (163 | ) | | (16%) |
Rental margin percentage | (42.8%) | | (43.3%) | | 0.5 pts | | |
The increase in rental revenues was due to increases in transient keys rented, preview keys rented and the average transient rate. The higher expenses were due to higher expenses incurred due to owners choosing alternative usage options and higher variable expenses (such as housekeeping) in the 2017 third quarter.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Rental revenues | $ | 9,115 |
| | $ | 12,773 |
| | $ | (3,658 | ) | | (29%) |
Rental expenses | (12,136 | ) | | (15,884 | ) | | 3,748 |
| | 24% |
Rental margin | $ | (3,021 | ) | | $ | (3,111 | ) | | $ | 90 |
| | 3% |
Rental margin percentage | (33.1%) | | (24.4%) | | (8.7 pts) | | |
Europe
The following discussion presents an analysis of our results of operations for the Europe segment for the 2017 third quarter compared to the 2016 third quarter, and the 2017 first three quarters compared to the 2016 first three quarters.
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
REVENUES | | | | | | | |
Sale of vacation ownership products | $ | 5,706 |
| | $ | 4,818 |
| | $ | 15,351 |
| | $ | 15,845 |
|
Resort management and other services | 7,624 |
| | 6,413 |
| | 19,119 |
| | 16,790 |
|
Financing | 709 |
| | 710 |
| | 2,164 |
| | 2,339 |
|
Rental | 8,986 |
| | 8,065 |
| | 16,918 |
| | 14,836 |
|
Cost reimbursements | 9,212 |
| | 8,072 |
| | 25,265 |
| | 23,533 |
|
TOTAL REVENUES | 32,237 |
| | 28,078 |
| | 78,817 |
| | 73,343 |
|
EXPENSES | | | | | | | |
Cost of vacation ownership products | 715 |
| | 1,599 |
| | 2,081 |
| | 4,158 |
|
Marketing and sales | 4,465 |
| | 4,189 |
| | 12,583 |
| | 13,388 |
|
Resort management and other services | 6,099 |
| | 5,076 |
| | 15,388 |
| | 13,827 |
|
Rental | 4,910 |
| | 4,509 |
| | 12,366 |
| | 11,094 |
|
Royalty fee | 70 |
| | 97 |
| | 195 |
| | 264 |
|
Cost reimbursements | 9,212 |
| | 8,072 |
| | 25,265 |
| | 23,533 |
|
TOTAL EXPENSES | 25,471 |
| | 23,542 |
| | 67,878 |
| | 66,264 |
|
SEGMENT FINANCIAL RESULTS | $ | 6,766 |
| | $ | 4,536 |
| | $ | 10,939 |
| | $ | 7,079 |
|
Overview
In our Europe segment, we are focused on selling our existing projects and managing existing resorts. We do not have any current plans for new development in this segment.
Contract Sales
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 6,664 |
| | $ | 7,698 |
| | $ | (1,034 | ) | | (13%) |
Total contract sales | $ | 6,664 |
| | $ | 7,698 |
| | $ | (1,034 | ) | | (13%) |
The decrease in contract sales was primarily due to lower fractional sales due to limited reacquired inventory available and several large multi-week purchases in the 2016 third quarter.
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | | | | | | | |
Vacation ownership | $ | 18,509 |
| | $ | 22,054 |
| | $ | (3,545 | ) | | (16%) |
Total contract sales | $ | 18,509 |
| | $ | 22,054 |
| | $ | (3,545 | ) | | (16%) |
The decrease in contract sales was primarily due to several large multi-week purchases in the 2016 first three quarters.
Sale of Vacation Ownership Products
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Contract sales | $ | 6,664 |
| | $ | 7,698 |
| | $ | (1,034 | ) | | (13%) |
Revenue recognition adjustments: | | | | | | | |
Reportability | (47 | ) | | (2,165 | ) | | 2,118 |
| | |
Sales reserve | (891 | ) | | (837 | ) | | (54 | ) | | |
Other(1) | (20 | ) | | 122 |
| | (142 | ) | | |
Sale of vacation ownership products | $ | 5,706 |
| | $ | 4,818 |
| | $ | 888 |
| | 18% |
_________________________ | |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Contract sales | $ | 18,509 |
| | $ | 22,054 |
| | $ | (3,545 | ) | | (16%) |
Revenue recognition adjustments: | | | | | | | |
Reportability | (352 | ) | | (3,508 | ) | | 3,156 |
| | |
Sales reserve | (2,680 | ) | | (2,739 | ) | | 59 |
| | |
Other(1) | (126 | ) | | 38 |
| | (164 | ) | | |
Sale of vacation ownership products | $ | 15,351 |
| | $ | 15,845 |
| | $ | (494 | ) | | (3%) |
_________________________
| |
(1)
| Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. |
Development Margin
2017 Third Quarter
|
| | | | | | | | | | | | | |
| Quarter Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (92 days) | | (84 days) | |
Sale of vacation ownership products | $ | 5,706 |
| | $ | 4,818 |
| | $ | 888 |
| | 18% |
Cost of vacation ownership products | (715 | ) | | (1,599 | ) | | 884 |
| | 55% |
Marketing and sales | (4,465 | ) | | (4,189 | ) | | (276 | ) | | (7%) |
Development margin | $ | 526 |
| | $ | (970 | ) | | $ | 1,496 |
| | 154% |
Development margin percentage | 9.2% | | (20.1%) | | 29.3 pts | | |
2017 First Three Quarters
|
| | | | | | | | | | | | | |
| Year to Date Ended | | Change | | % Change |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
Sale of vacation ownership products | $ | 15,351 |
| | $ | 15,845 |
| | $ | (494 | ) | | (3%) |
Cost of vacation ownership products | (2,081 | ) | | (4,158 | ) | | 2,077 |
| | 50% |
Marketing and sales | (12,583 | ) | | (13,388 | ) | | 805 |
| | 6% |
Development margin | $ | 687 |
| | $ | (1,701 | ) | | $ | 2,388 |
| | 140% |
Development margin percentage | 4.5% | | (10.7%) | | 15.2 pts | | |
Corporate and Other
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Year to Date Ended |
| September 30, 2017 | | September 9, 2016 | | September 30, 2017 | | September 9, 2016 |
($ in thousands) | (92 days) | | (84 days) | | (274 days) | | (252 days) |
EXPENSES | | | | | | | |
Cost of vacation ownership products | $ | 2,020 |
| | $ | 1,334 |
| | $ | 6,151 |
| | $ | 5,097 |
|
Financing | 5,062 |
| | 4,581 |
| | 12,528 |
| | 11,782 |
|
General and administrative | 26,666 |
| | 22,151 |
| | 83,739 |
| | 72,871 |
|
Litigation settlement | — |
| | — |
| | 183 |
| | — |
|
Consumer financing interest | 6,498 |
| | 5,361 |
| | 18,090 |
| | 15,840 |
|
Royalty fee | 12,969 |
| | 11,475 |
| | 39,044 |
| | 34,426 |
|
TOTAL EXPENSES | 53,215 |
| | 44,902 |
| | 159,735 |
| | 140,016 |
|
Gains (losses) and other income (expense), net | 8,731 |
| | (9 | ) | | 8,722 |
| | (160 | ) |
Interest expense | (2,642 | ) | | (2,262 | ) | | (5,180 | ) | | (6,331 | ) |
Other | 57 |
| | — |
| | (527 | ) | | (211 | ) |
TOTAL FINANCIAL RESULTS | $ | (47,069 | ) | | $ | (47,173 | ) | | $ | (156,720 | ) | | $ | (146,718 | ) |
Corporate and Other consists of results that are not specifically attributableallocable to an individual segment,our segments, 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 interesttransaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from Consolidated Property Owners’ Associations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
REVENUES | | | | | | | |
Resort management and other services | $ | 12 | | | $ | 7 | | | $ | 29 | | | $ | 44 | |
| | | | | | | |
| | | | | | | |
Cost reimbursements | (16) | | | (8) | | | (31) | | | (34) | |
TOTAL REVENUES | (4) | | | (1) | | | (2) | | | 10 | |
EXPENSES | | | | | | | |
Resort management and other services | 15 | | | 9 | | | 39 | | | 59 | |
Rental | (3) | | | (4) | | | (10) | | | (17) | |
General and administrative | 57 | | | 62 | | | 189 | | | 187 | |
Depreciation and amortization | 3 | | | 2 | | | 7 | | | 7 | |
Litigation charges | — | | | — | | | (1) | | | — | |
| | | | | | | |
| | | | | | | |
Cost reimbursements | (16) | | | (8) | | | (31) | | | (34) | |
TOTAL EXPENSES | 56 | | | 61 | | | 193 | | | 202 | |
(Losses) gains and other (expense) income, net | (5) | | | (2) | | | 10 | | | (12) | |
Interest expense, net | (36) | | | (34) | | | (106) | | | (91) | |
Transaction and integration costs | (5) | | | (32) | | | (28) | | | (96) | |
FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS | (106) | | | (130) | | | (319) | | | (391) | |
Provision for income taxes | (24) | | | (59) | | | (115) | | | (134) | |
| | | | | | | |
Net income attributable to noncontrolling interests | — | | | (1) | | | — | | | — | |
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (130) | | | $ | (190) | | | $ | (434) | | | $ | (525) | |
Consolidated Property Owners’ Associations
The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance and the changes attributed to the deconsolidation of individual Consolidated Property Owners’ Associations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
REVENUES | | | | | | | |
Resort management and other services | $ | 12 | | | $ | 6 | | | $ | 29 | | | $ | 42 | |
| | | | | | | |
Cost reimbursements | (16) | | | (8) | | | (31) | | | (34) | |
TOTAL REVENUES | (4) | | | (2) | | | (2) | | | 8 | |
EXPENSES | | | | | | | |
Resort management and other services | 15 | | | 9 | | | 39 | | | 59 | |
Rental | (3) | | | (4) | | | (10) | | | (17) | |
Cost reimbursements | (16) | | | (8) | | | (31) | | | (34) | |
TOTAL EXPENSES | (4) | | | (3) | | | (2) | | | 8 | |
Losses and other expense, net | — | | | — | | | — | | | (3) | |
Interest expense, net | — | | | — | | | 1 | | | — | |
FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS | — | | | 1 | | | 1 | | | (3) | |
Provision for income taxes | (1) | | | — | | | (1) | | | — | |
Net income attributable to noncontrolling interests | — | | | (1) | | | — | | | — | |
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (1) | | | $ | — | | | $ | — | | | $ | (3) | |
General and Administrative
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
General and administrative | $ | 57 | | | $ | 62 | | | $ | (5) | | | (7%) |
The change in General and administrative expenses is due to $17 million of lower variable compensation expense and the fixed royalty fee payable under the license agreements that we entered into with Marriott International in connection with our spin-off from Marriott International.
Total Expenses
2017 Third Quarter
Total expenses increased $8.3 million from the 2016 third quarter. The $8.3 million increase resulted from $4.5$4 million of higher generalallocations of expenses to operations, offset by $9 million of incremental costs primarily related to compliance activities and new product development initiatives, $5 million of higher costs related to the implementation of technology, and a $2 million increase in wages and benefits.
We expect General and administrative expenses $1.5 millionfor the remainder of higher royalty fees2023 to increase due the continued impact of increased wages and additional investment in upgrading, maintaining, and implementing technology, including the continued transition to the changesoftware as a service, which are recorded as a component of General and administrative expense as opposed to an end-of-month quarterly reporting cycle in 2017 that resulted in eight additional days in the 2017 third quarter ($1.0 million) and a contractual increase late in 2016 in the fixed portion of the royalty fee owed to Marriott International ($0.5 million), $1.1 million of higher consumer financing interest expense, $0.7 million of higher cost of vacation ownership products expenses due to higher development expenses, $0.5 million of higher financing expenses due to the change to an end-of-month quarterly reporting cycle in 2017 and the increase in the average gross vacation ownership notes receivable balance.Depreciation expense.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
General and administrative | $ | 189 | | | $ | 187 | | | $ | 2 | | | 1% |
General and administrative expenses increased $4.5 million due to approximately $2.0$20 million fromof costs related to the changeimplementation of technology associated with the integration of Legacy-ILG, $15 million of incremental costs primarily related to an end-of-month quarterly reporting cycle in 2017compliance activities and $2.5new product development initiatives, $8 million due to higher personnel relatedof increased wages and other expenses. The higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.
The $1.1benefits, a $3 million increase in consumer financing interestinsurance expense, was due to a higher average outstanding debt balance and the change to an end-of-month quarterly reporting cycle in 2017.
2017 First Three Quarters
Total expenses increased $19.7 million from the 2016 first three quarters. The $19.7 million increase resulted from $10.9$2 million of other miscellaneous expenses, partially offset by a $40 million decrease in variable compensation expense and $6 million of higher allocations of general and administrative expenses $4.6to operations.
Gains (Losses) and Other Income (Expense)
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Losses and other expense, net | $ | (5) | | | $ | (2) | | | $ | (3) | | | NM |
In the third quarter of 2023, we recorded $5 million of foreign currency translation losses.
In the third quarter of 2022, we recorded $2 million of foreign currency translation losses and $1 million of miscellaneous losses and other expense, partially offset by $1 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International for indemnified tax matters.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Gains (losses) and other income (expense), net | $ | 10 | | | $ | (12) | | | $ | 22 | | | NM |
In the first three quarters of 2023, we recorded a $21 million increase in our receivable from Marriott International for indemnified income tax matters (the offsetting accrual is included in the Provision for income taxes line), partially offset by a $10 million expense attributed to the redemption premium and write-off of unamortized debt issuance costs in connection with the early redemption of our senior secured notes, and $1 million of foreign currency translation losses.
In the first three quarters of 2022, we recorded $8 million of foreign currency translation losses, $3 million of non-cash losses pursuant to a change in control of certain Consolidated Property Owners’ Associations, $2 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International for indemnified tax matters, and $1 million of miscellaneous losses and other expense, partially offset by $2 million of proceeds from corporate owned life insurance.
Interest Expense
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Interest expense, net | $ | (36) | | | $ | (34) | | | $ | (2) | | | (4%) |
The increase in Interest expense, net is attributed to $5 million associated with higher borrowings and higher variable interest rates on both the Warehouse Credit Facility and the Revolving Corporate Credit Facility, $2 million of higher royalty fees duevariable interest expense on the Term Loan, and $2 million of interest expense related to leased assets. This was partially offset by $4 million of lower interest expense associated with the changeearly redemption of our senior secured notes, $1 million of lower interest expense associated with our convertible notes, $1 million of lower other interest expense and $1 million of interest income.
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Interest expense, net | $ | (106) | | | $ | (91) | | | $ | (15) | | | (15%) |
The increase in Interest expense, net is attributed to an end-of-month quarterly reporting cycle in 2017 that resulted in 22 additional days in$14 million associated with higher borrowings and higher variable interest rates on both the 2017 first three quarters ($2.9 million)Warehouse Credit Facility and a contractual increase late in 2016 in the fixed portion of the royalty fee owed to Marriott International ($1.7 million), $2.3Revolving Corporate Credit Facility, $7 million of higher consumer financing interest expense $1.1associated with our 2027 Convertible Notes issued in December 2022, $8 million of higher costvariable interest expense on the Term Loan, and $5 million of vacation ownership products expenses dueinterest expense related to higher development expenses, $0.7leased assets. This was partially offset by $12 million of lower interest expense associated with the early redemption of our senior secured notes, $3 million of lower interest on non-income tax related items, $3 million of higher financing expenses due tointerest income, and $1 million of lower other interest expense.
Income Tax
2023 Third Quarter
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Provision for income taxes | $ | (24) | | | $ | (59) | | | $ | 35 | | | 59% |
Our effective tax rate was 36.1% and 34.7% for the change to an end-of-month quarterly reporting cycle in 2017three months ended September 30, 2023 and theSeptember 30, 2022, respectively. The increase in the average gross vacation ownership notes receivable balanceeffective tax rate is predominately attributable to a decrease in Income before income taxes and $0.2 million of litigation settlementsnoncontrolling interests from 2022 to 2023 without a proportional decrease to non-deductible tax expenses, in addition to a net decrease in the 2017 first three quarters.tax expense for foreign uncertain tax benefits in 2023.
General
2023 First Three Quarters
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | |
($ in millions) | September 30, 2023 | | September 30, 2022 | | Change | | % Change |
Provision for income taxes | $ | (115) | | | $ | (134) | | | $ | 19 | | | 14% |
Our interim effective tax rate was 34.3% and administrative expenses increased $10.9 million due30.6% for the nine months ended September 30, 2023 and September 30, 2022, respectively. The increase in the effective tax rate is predominately attributable to approximately $6.0 milliona decrease in Income before income taxes and noncontrolling interests from the change2022 to an end-of-month quarterly reporting cycle in 2017 and $6.4 million due2023 without a proportional decrease to higher personnel related and othernon-deductible tax expenses, partially offset by $1.5 million of lower litigation related costs. The higher personnel related and other expenses included annual merit, bonus and inflationary cost increases.
The $2.3 milliona net increase in consumer financing interestthe tax expense was due to a higher average outstanding debt balance and the change to an end-of-month quarterly reporting cyclefor foreign uncertain tax benefits in 2017.2023.
59
Recent Accounting Pronouncements
See Footnote No. 1, “Summary
Liquidity and Capital Resources
OurTypically, our capital needs are supported by cash on hand, ($440.1 million at the end of the 2017 third quarter), cash generated from operations, our ability to access funds under the Warehouse Credit Facility and the Revolving Corporate Credit Facility, our ability to raise capital through securitizations in the asset-backed securitiesABS market, and, to the extent necessary, funds available under the Warehouse Credit Facilityour ability to issue new debt and our $250.0 million revolving credit facility (the “Revolving Corporate Credit Facility”).refinance existing debt. 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. AtWe continuously monitor the endcapital markets to evaluate the effect that changes in market conditions may have on our ability to fund our liquidity needs.
Our corporate debt, net of the 2017 third quarter, we had $1.2 billioncash and equivalents, to Adjusted EBITDA ratio was 3.5 at September 30, 2023. We have no material maturities of total grosscorporate debt outstanding, which included $906.7 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 located on the Big Island of Hawaii.
In September 2017, we completed a private offering of $230.0 million of Convertible Notes. While we do not have an immediate need for the proceeds, we felt that it was an opportune time for us to capitalize on the current interest rate environment and the strength of our stock price to optimize our capital structure. We evaluated several different debt instruments and believe that the one we chose 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 current 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. 9, “Debt,” to our Financial Statements.until 2025.
At the end of the 2017 third quarter we had $730.5 million of real estate inventory on hand, comprised of $390.4 million of finished goods, $338.1 million of land and infrastructure and $2.0 million of work-in-progress. In addition, we had $49.1 million of completed vacation ownership units that have been classified as a component of Property and equipment until2023, the time at which they are legally registered for sale as vacation ownership products.
Our vacation ownership product offerings allow usinterest rate applicable to utilize our real estate inventory efficiently. The majorityapproximately 80% of our sales aretotal corporate debt, excluding finance leases and including the impact of points-based products, which permits us to sell vacation ownership products at mostinterest rate hedges, was effectively fixed. The weighted average interest rate of our sales locations,total corporate debt, excluding finance leases and 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 paceimpact of salesinterest rate hedges, was 3.9% as of vacation ownership products.September 30, 2023.
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 consistSources of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale.
We intend for our capital allocation strategy to strike a balance between enhancing our operations and using our capital to provide returns to our shareholders through programs such as share repurchase programs and payment of dividends.
During the 2017 first three quarters, we had a net increase in cash, cash equivalents and restricted cash of $288.7 million compared to a net increase of $44.1 million during the 2016 first three quarters. The following table summarizes these changes:
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Cash, cash equivalents and restricted cash provided by (used in): | | | |
Operating activities | $ | 70,787 |
| | $ | 90,885 |
|
Investing activities | (33,250 | ) | | 46,080 |
|
Financing activities | 248,105 |
| | (89,627 | ) |
Effect of change in exchange rates on cash, cash equivalents and restricted cash | 3,031 |
| | (3,247 | ) |
Net change in cash, cash equivalents and restricted cash | $ | 288,673 |
| | $ | 44,091 |
|
LiquidityCash from Operating ActivitiesOperations
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, (3) cash from fee-based membership, exchange and (3)rental transactions, and (4) net cash generated from our rental and resort management and other services operations. Outflows include spending
Vacation Ownership Notes Receivable Securitizations
We periodically securitize, without recourse, through bankruptcy remote special purpose entities, the majority of the notes receivable originated in connection with the sale of vacation ownership products to institutional investors in the ABS term securitization market. These vacation ownership notes receivable securitizations provide liquidity for general corporate purposes. In a vacation ownership notes receivable term securitization, several 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. In connection with each vacation ownership notes receivable securitization, we may retain all or a portion of the securities that are issued. Typically, we receive cash at inception of the term securitization transaction for the developmentamount of new phasesnotes issued less fees and monies held in reserve and we receive cash during the life of the transaction in amounts reflecting the excess spread of interest received on the related vacation ownership notes receivable less the interest payable on the ABS securities, less administrative fees and amounts from related vacation ownership notes receivable that default.
Each of the securitized vacation ownership notes receivable transactions 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 parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread of interest accruing on the related vacation ownership notes receivable less the interest accruing on the ABS securities and fees 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 the third quarter of 2023, and as of September 30, 2023, we had 14 term securitization transactions outstanding, all of which were in compliance with their respective required parameters. Since 2000, we have issued almost $8.5 billion of debt securities in securitization transactions in the term ABS market, excluding amounts securitized through warehouse credit facilities or private bank transactions.
On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize, on a revolving non-recourse basis, eligible consumer loans derived from certain vacation ownership sales. Those loans may later be transferred to term securitization transactions in the ABS market, which typically occur twice a year. During the second quarter of 2023, we amended certain agreements associated with our Warehouse Credit Facility, which increased the borrowing capacity of the existing resorts,facility from $425 million to $500 million and extended the acquisitionrevolving period from July 28, 2024 to May 31, 2025. At September 30, 2023, we had $345 million of additional inventory and fundingborrowings outstanding on our Warehouse Credit Facility.
As of September 30, 2023, $70 million of gross vacation ownership notes receivable were eligible for securitization.
Revolving Corporate Credit Facility
Our Revolving Corporate Credit Facility, which expires on March 31, 2027, provides for up to $750 million of aggregate borrowings for general corporate needs, including working capital, needs.capital expenditures, letters of credit, and acquisitions. At September 30, 2023, $90 million of borrowings were outstanding on our Revolving Corporate Credit Facility, and $1 million of letters of credit were outstanding.
Redemption of Senior Secured Notes
During the first quarter of 2023, we redeemed, prior to maturity, the remaining $250 million of the 2025 Notes outstanding pursuant to a redemption notice issued in the fourth quarter of 2022 and the terms of the indenture governing the 2025 Notes. In connection with this redemption, we incurred charges of $10 million, including a redemption premium and the write-off of unamortized debt issuance costs, which were recorded in Gains (losses) and other income (expense), net on our Income Statement for the nine months ended September 30, 2023.
Uses of Cash
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 by owners of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity, and cash outlays for real estate inventory acquisitionacquisitions and development.
InSeasonality
Our cash flow from operations fluctuates during the 2017year due to the timing of certain receipts and contractual and compensation-related payments. Significant changes in cash flow can result from the timing of our collection of maintenance fees, club dues, and other customer payments, which typically occur in either the fourth quarter or the first three quarters, we generated $70.8 millionquarter of each year. Generally, cash flows from operating activities, comparedoutflows related to $90.9 millionour payment of maintenance fees associated with unsold inventory occurs in the 2016fourth quarter for our points-based products, and in the first three quarters. Excludingquarter for our weeks-based products. In addition, during the impactfirst quarter of changes ineach year, we generally have significant variable compensation-related cash outflows associated with payment of annual bonuses.
Operations
In addition to net income or loss and adjustments for non-cash items, the change in cash flows from operations reflected higher originations driven by higher contract sales and higher financing propensity due to the continued success of the financing incentive programs offered in our North America segment, higher real estate inventory spending and timing of payments related to unsold inventory, partially offset by higher closings on vacation ownership contract sales, higher collections due to an increasing portfolio of outstanding vacation ownership notes receivable and lower payments related to employee benefits programs.
In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from operating activities:
Real Estate
Inventory Spending in Excess ofLess Than Cost of Sales
| | | | | | | | | | | |
| Nine Months Ended |
($ in millions) | September 30, 2023 | | September 30, 2022 |
Inventory spending | $ | (56) | | | $ | (108) | |
Purchase of property for future transfer to inventory | (27) | | | (12) | |
Inventory costs | 137 | | | 183 | |
Inventory spending less than cost of sales | $ | 54 | | | $ | 63 | |
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Real estate inventory spending | $ | (94,318 | ) | | $ | (102,645 | ) |
Purchase of vacation ownership units for future transfer to inventory | (33,594 | ) | | — |
|
Real estate inventory costs | 121,582 |
| | 95,746 |
|
Real estate inventory spending in excess of cost of sales | $ | (6,330 | ) | | $ | (6,899 | ) |
We measureAlthough we have significant excess inventory on hand, we intend to continue selectively pursuing growth opportunities by targeting high-quality inventory that allows us to add desirable new destinations to our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Statements of Income related to sale of vacation ownership products (a non-cash item).
Our real estate inventory spending exceeded real estate inventory costs in the 2017 first three quarters assystems with new on-site sales locations. Where possible, we satisfied a portion of our commitments to purchase vacation ownership units in our North America and Asia Pacific segments.However, we expect our inventory spending to be in line with inventory costs throughout the remainder of 2017. 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 these commitments in prior periods as part of our capital efficiency strategy towill structure transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. See Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements for additional information regarding these transactions.
Our real estate inventory spending exceeded real estate inventory costs in the 2016 first three quarters, as a result of our opportunistic acquisition efforts. Real estate inventory spending included $23.5 million for the acquisition of an operating property located in the South Beach area of Miami Beach, Florida. We rebranded this property as Marriott Vacation Club Pulse, South Beach and converted it, in its entirety, intoThese capital efficient vacation ownership inventory. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.transaction structures may consist of the development of new inventory, or the conversion of previously built units, by third parties. In addition, we may develop inventory in key markets where opportunities generate acceptable risk adjusted returns.
Through our existing vacation ownership interestVOI repurchase program, we proactively buy backacquire previously sold vacation ownership interestsVOIs from owners’ associations and individual owners at lower costs than would be required to develop new inventory. ByAmong other reasons, by repurchasing inventory, in desirable locations, we expect to be able to help stabilize the future cost of our vacation ownership products.
Our spending for real estate inventory in the first three quarters of 2023 was lower than cost of sales and was primarily related to purchases under our VOI repurchase programs. Purchase of property for future transfer to inventory included the acquisition of property in Savannah, Georgia and Charleston, South Carolina in 2023 (see Footnote 3 “Acquisitions and Dispositions”). We expect inventory spending to be less than cost of sales for 2023.
Vacation Ownership Notes Receivable Collections Less Than Originations
| | | | | | | | Nine Months Ended |
| Year to Date Ended | |
| September 30, 2017 | | September 9, 2016 | |
($ in thousands) | (274 days) | | (252 days) | |
($ in millions) | | ($ in millions) | September 30, 2023 | | September 30, 2022 |
Vacation ownership notes receivable collections — non-securitized | $ | 59,115 |
| | $ | 54,209 |
| Vacation ownership notes receivable collections — non-securitized | $ | 119 | | | $ | 91 | |
Vacation ownership notes receivable collections — securitized | 144,725 |
| | 123,242 |
| Vacation ownership notes receivable collections — securitized | 342 | | | 378 | |
Vacation ownership notes receivable originations | (345,663 | ) | | (218,190 | ) | Vacation ownership notes receivable originations | (749) | | | (728) | |
Vacation ownership notes receivable collections less than originations | $ | (141,823 | ) | | $ | (40,739 | ) | Vacation ownership notes receivable collections less than originations | $ | (288) | | | $ | (259) | |
Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections increased duringwere less than originations in each of the 2017 first three quarters as compared to the 2016 first three quarters, due to an increase in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the 2017 first three quarters increased due to higher vacation ownership contract sales, including the impact from the change in the quarterly reporting cycle,2023 and an increase in financing propensity to 64.9 percent for the 2017 first three quarters compared to 59.1 percent for the 2016 first three quarters,2022 due to the continued successgrowth of the financing incentive programs that we offer in our North America segment. Given the success of these incentives to date, we expect financing propensity levels during the 2017 fiscal year to approximate 65 percent as we intend to continue to offer financing incentive programs.
Cash from Investing Activities
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Capital expenditures for property and equipment (excluding inventory) | $ | (21,167 | ) | | $ | (22,445 | ) |
Purchase of company owned life insurance | (12,100 | ) | | — |
|
Dispositions, net | 17 |
| | 68,525 |
|
Net cash (used in) provided by investing activities | $ | (33,250 | ) | | $ | 46,080 |
|
Capital Expenditures for Property and Equipment
Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided.
In the 2017 first three quarters, capital expenditures for property and equipment of $21.2 million included $19.7 million to support business operations (including $11.4 million for ancillary and other operations assets and $8.3 million for sales locations) and $1.5 million for technology spending.
In the 2016 first three quarters, capital expenditures for property and equipment of $22.4 million included $16.8 million to support business operations (including $13.7 million for sales locations and $3.1 million for ancillary and other operations assets) and $5.6 million for technology spending.
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 the 2017 first three quarters, we paid $12.1 million for the acquisition of these policies.
Dispositions, net
Dispositions in the 2016 first three quarters 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 $19.3 million and the sale of undeveloped land in Absecon, New Jersey for $0.1 million.
Cash from Financing Activities
|
| | | | | | | |
| Year to Date Ended |
| September 30, 2017 | | September 9, 2016 |
($ in thousands) | (274 days) | | (252 days) |
Borrowings from securitization transactions | $ | 400,260 |
| | $ | 376,622 |
|
Repayment of debt related to securitization transactions | (231,921 | ) | | (254,510 | ) |
Borrowings from Revolving Corporate Credit Facility | 87,500 |
| | 85,000 |
|
Repayment of Revolving Corporate Credit Facility | (87,500 | ) | | (85,000 | ) |
Proceeds from issuance of Convertible Notes | 230,000 |
| | — |
|
Purchase of Convertible Note Hedges | (33,235 | ) | | — |
|
Proceeds from issuance of Warrants | 20,332 |
| | — |
|
Debt issuance costs | (14,459 | ) | | (4,065 | ) |
Repurchase of common stock | (83,067 | ) | | (163,359 | ) |
Accelerated stock repurchase forward contract | — |
| | (14,470 | ) |
Payment of dividends | (28,590 | ) | | (26,067 | ) |
Payment of withholding taxes on vesting of restricted stock units | (10,713 | ) | | (3,972 | ) |
Other, net | (502 | ) | | 194 |
|
Net cash provided by (used in) financing activities | $ | 248,105 |
| | $ | (89,627 | ) |
Borrowings from / Repayment of Debt Related to Securitization Transactions
We reflect proceeds from securitizations ofaverage vacation ownership notes receivable including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repaymentspool attributed to sales 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.”VOIs.
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 September 30, 2017.
At September 30, 2017, $47.6 million of gross vacation ownership notes receivable were eligible for securitization. See Footnote No. 9, “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 and $19.4 million of Class B Notes. The Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of 2.64 percent, for an overall weighted average interest rate of 2.28 percent.
During 2016, we securitized vacation ownership notes receivable under our Warehouse Credit Facility. The carrying amount of the vacation ownership notes receivable securitized was $149.5 million. The advance rate was 85 percent, which resulted in gross proceeds of $126.6 million. Net proceeds were $125.7 million due to the funding of reserve accounts in the amount of $0.9 million.
Borrowings from / Repayment of Revolving Corporate Credit Facility
During the 2017 first three quarters, we borrowed $87.5 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 September 30, 2017. See Footnote No. 9, “Debt,” to our Financial Statements for additional information regarding our Revolving Corporate Credit Facility.
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. 9, “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 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). See Footnote No. 9, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction.
Debt Issuance Costs
In the 2017 first three quarters, we paid $14.5 million of debt issuance costs, which included $6.3 million associated with the initial purchaser discounts related to the Convertible Notes, $4.8 million associated with the 2017 vacation ownership notes receivable securitization, $2.2 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 the 2016 first three quarters, we incurred $4.1 million of debt issuance costs, which included $3.8 million associated with the 2016 vacation ownership notes receivable securitization and $0.2 million related to the amendment of the Previous Revolving Corporate Credit Facility.
Share Repurchase Program
The following table summarizes share repurchase activity under our current share repurchase program:
| | | | | | | | | | | | | | | | | |
($ in millions, except per share amounts) | Number of Shares Repurchased | | Cost Basis of Shares Repurchased | | Average Price Paid per Share |
As of December 31, 2022 | 22,773,218 | | | $ | 2,119 | | | $ | 93.06 | |
For the first three quarters of 2023 | 1,936,855 | | | 248 | | | 128.03 | |
As of September 30, 2023 | 24,710,073 | | | $ | 2,367 | | | $ | 95.80 | |
|
| | | | | | | | | | |
($ in thousands, except per share amounts) | Number of Shares Repurchased | | Cost of Shares Repurchased | | Average Price Paid per Share |
As of December 30, 2016 | 9,672,629 |
| | $ | 608,439 |
| | $ | 62.90 |
|
For the 2017 first three quarters | 728,385 |
| | 83,067 |
| | 114.04 |
|
As of September 30, 2017 | 10,401,014 |
| | $ | 691,506 |
| | $ | 66.48 |
|
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. 9, “Debt,” to our Financial Statements for additional information on our Convertible Notes transaction and Footnote No. 10, “Shareholders’ Equity,”13 “Shareholders' Equity” to our Financial Statements for further information related to our current share repurchase program.
Payment of Dividends to Common Shareholders
We distributed cash dividends to holders of common stock during the 2017 first three quarters of 2023 as follows:
| | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Shareholder Record Date | | Distribution Date | | Dividend per Share |
December 1, 2022 | | December 22, 2022 | | January 5, 2023 | | $0.72 |
February 16, 2023 | | March 2, 2023 | | March 16, 2023 | | $0.72 |
May 11, 2023 | | May 25, 2023 | | June 8, 2023 | | $0.72 |
| | | | | | |
We declared cash dividends to holders of our common stock during the third quarter of 2023, and distributed such cash dividends subsequent to the end of the third quarter of 2023 as follows:
| | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Shareholder Record Date | | Distribution Date | | Dividend per Share |
December 9, 2016September 7, 2023 | | December 22, 2016September 21, 2023 | | January 4, 2017October 5, 2023 | | $0.35 |
February 9, 2017 | | February 23, 2017 | | March 9, 2017 | | $0.35 |
May 11, 2017 | | May 25, 2017 | | June 8, 2017 | | $0.350.72 |
We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to Board of Directors approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors considers relevant. In addition, our Revolving Corporate Credit Facility containsand the indentures governing our senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments.the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at the sameany particular rate or at all.
62
Contractual Obligations and Off-Balance Sheet Arrangements
There have been no significant changes to our “Contractual Obligations and Off-Balance Sheet Arrangements” as presented in Part II, Item 7, “Management’s Discussion and Analysis
Material Cash Requirements
The following table summarizes our future material cash requirements from known contractual or other obligations as of September 30, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
($ in millions) | | Total | | Remainder of 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
Contractual Obligations | | | | | | | | | | | | | | |
Debt(1) | | $ | 3,275 | | | $ | 33 | | | $ | 118 | | | $ | 882 | | | $ | 635 | | | $ | 723 | | | $ | 884 | |
Securitized debt(1)(2) | | 2,484 | | | 68 | | | 270 | | | 267 | | | 541 | | | 218 | | | 1,120 | |
Purchase obligations(3) | | 453 | | | 37 | | | 181 | | | 132 | | | 70 | | | 17 | | | 16 | |
Operating lease obligations(4) | | 130 | | | 7 | | | 24 | | | 22 | | | 20 | | | 13 | | | 44 | |
Finance lease obligations(4)(5) | | 528 | | | 4 | | | 17 | | | 15 | | | 13 | | | 12 | | | 467 | |
Other long-term obligations | | 11 | | | 4 | | | 3 | | | 2 | | | — | | | 1 | | | 1 | |
| | $ | 6,881 | | | $ | 153 | | | $ | 613 | | | $ | 1,320 | | | $ | 1,279 | | | $ | 984 | | | $ | 2,532 | |
(1)Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.
(2)Payments based on estimated timing of cash flow associated with securitized notes receivable.
(3)Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
(4)Includes interest.
(5)The lease term of the finance lease arrangement for our new global headquarters office building located in Orlando, Florida commenced for accounting purposes during the first quarter of 2023, upon substantial completion of construction. See Footnote 12 “Debt” to our Financial Statements for additional information on this lease.
In the normal course of our resort management business, we enter into purchase commitments on behalf of owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the owners’ associations, these obligations have minimal impact on our net income and cash flow. These purchase commitments are excluded from the table above.
Supplemental Guarantor Information
The 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.
The following tables present consolidating financial information as of September 30, 2023 and December 31, 2022, and for the nine months ended September 30, 2023 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVWC, and MVW on a consolidated basis.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
($ in thousands) | | Total | | Remainder of 2017 | | Years 2018 - 2019 | | Years 2020 - 2021 | | Thereafter |
Contractual Obligations | | | | | | | | | | |
Debt(1) | | $ | 1,332,995 |
| | $ | 32,256 |
| | $ | 306,787 |
| | $ | 234,069 |
| | $ | 759,883 |
|
Operating leases | | 87,116 |
| | 4,268 |
| | 26,497 |
| | 20,010 |
| | 36,341 |
|
Purchase obligations(2) | | 336,416 |
| | 15,463 |
| | 316,386 |
| | 3,134 |
| | 1,433 |
|
Capital lease obligations(3) | | 7,582 |
| | 361 |
| | 7,221 |
| | — |
| | — |
|
Other long-term obligations | | 547 |
| | 547 |
| | — |
| | — |
| | — |
|
Total contractual obligations | | $ | 1,764,656 |
| | $ | 52,895 |
| | $ | 656,891 |
| | $ | 257,213 |
| | $ | 797,657 |
|
Condensed Consolidating Statement of Income_________________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Issuers | | | | Senior Notes Guarantors | | Non-Guarantor Subsidiaries | | Total Eliminations | | MVW Consolidated |
($ in millions) | MVWC | | MORI | | | | | | |
Revenues | $ | — | | | $ | 679 | | | | | $ | 2,077 | | | $ | 808 | | | $ | (31) | | | $ | 3,533 | |
Expenses | (15) | | | (809) | | | | | (1,834) | | | (572) | | | 31 | | | (3,199) | |
Benefit from (provision for) income taxes | 4 | | | 27 | | | | | (76) | | | (70) | | | — | | | (115) | |
Equity in net income (loss) of subsidiaries | 230 | | | 350 | | | | | — | | | — | | | (580) | | | — | |
Net income (loss) | 219 | | | 247 | | | | | 167 | | | 166 | | | (580) | | | 219 | |
Net income attributable to noncontrolling interests | — | | | — | | | | | — | | | — | | | — | | | — | |
Net income (loss) attributable to common shareholders | $ | 219 | | | $ | 247 | | | | | $ | 167 | | | $ | 166 | | | $ | (580) | | | $ | 219 | |
| |
Condensed Consolidating Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2023 | | Issuers | | Senior Notes Guarantors | | Non-Guarantor Subsidiaries | | Total Eliminations | | MVW Consolidated | ($ in millions) | MVWC | | MORI | | | | | Cash and cash equivalents | $ | — | | | $ | 46 | | | $ | 101 | | | $ | 118 | | | $ | — | | | $ | 265 | | Restricted cash | — | | | 27 | | | 63 | | | 148 | | | — | | | 238 | | Accounts and contracts receivable, net | 13 | | | 115 | | | 72 | | | 97 | | | 1 | | | 298 | | Vacation ownership notes receivable, net | — | | | 97 | | | 191 | | | 2,003 | | | — | | | 2,291 | | Inventory | — | | | 207 | | | 323 | | | 112 | | | — | | | 642 | | Property and equipment, net | — | | | 264 | | | 733 | | | 253 | | | — | | | 1,250 | | Goodwill | — | | | — | | | 3,117 | | | — | | | — | | | 3,117 | | Intangibles, net | — | | | — | | | 837 | | | 31 | | | — | | | 868 | | | | | | | | | | | | | | Investments in subsidiaries | 3,463 | | | 3,985 | | | — | | | — | | | (7,448) | | | — | | Other | 125 | | | 116 | | | 226 | | | 121 | | | (104) | | | 484 | | Total assets | $ | 3,601 | | | $ | 4,857 | | | $ | 5,663 | | | $ | 2,883 | | | $ | (7,551) | | | $ | 9,453 | | | | | | | | | | | | | | Accounts payable | $ | 51 | | | $ | 38 | | | $ | 77 | | | $ | 72 | | | $ | — | | | $ | 238 | | Advance deposits | — | | | 67 | | | 85 | | | 17 | | | — | | | 169 | | Accrued liabilities | 12 | | | 79 | | | 160 | | | 108 | | | — | | | 359 | | Deferred revenue | — | | | 9 | | | 171 | | | 198 | | | (7) | | | 371 | | Payroll and benefits liability | — | | | 102 | | | 65 | | | 26 | | | — | | | 193 | | Deferred compensation liability | — | | | 118 | | | 35 | | | 3 | | | — | | | 156 | | Securitized debt, net | — | | | — | | | — | | | 2,048 | | | (22) | | | 2,026 | | Debt, net | 1,130 | | | 1,720 | | | 176 | | | 5 | | | — | | | 3,031 | | | | | | | | | | | | | | Other | — | | | 1 | | | 147 | | | 17 | | | — | | | 165 | | Deferred taxes | — | | | 124 | | | 281 | | | 4 | | | (74) | | | 335 | | MVW shareholders' equity | 2,408 | | | 2,599 | | | 4,466 | | | 383 | | | (7,448) | | | 2,408 | | Noncontrolling interests | — | | | — | | | — | | | 2 | | | — | | | 2 | | Total liabilities and equity | $ | 3,601 | | | $ | 4,857 | | | $ | 5,663 | | | $ | 2,883 | | | $ | (7,551) | | | $ | 9,453 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2022 | | Issuers | | Senior Notes Guarantors | | Non-Guarantor Subsidiaries | | Total Eliminations | | MVW Consolidated | ($ in millions) | MVWC | | MORI | | | | | Cash and cash equivalents | $ | 150 | | | $ | 119 | | | $ | 89 | | | $ | 166 | | | $ | — | | | $ | 524 | | Restricted cash | — | | | 25 | | | 145 | | | 160 | | | — | | | 330 | | Accounts and contracts receivable, net | 10 | | | 120 | | | 116 | | | 73 | | | (27) | | | 292 | | Vacation ownership notes receivable, net | — | | | 132 | | | 195 | | | 1,871 | | | — | | | 2,198 | | Inventory | — | | | 204 | | | 375 | | | 81 | | | — | | | 660 | | Property and equipment, net | — | | | 202 | | | 659 | | | 278 | | | — | | | 1,139 | | Goodwill | — | | | — | | | 3,117 | | | — | | | — | | | 3,117 | | Intangibles, net | — | | | — | | | 880 | | | 31 | | | — | | | 911 | | | | | | | | | | | | | | Investments in subsidiaries | 3,417 | | | 4,076 | | | — | | | — | | | (7,493) | | | — | | Other | 106 | | | 129 | | | 228 | | | 78 | | | (73) | | | 468 | | Total assets | $ | 3,683 | | | $ | 5,007 | | | $ | 5,804 | | | $ | 2,738 | | | $ | (7,593) | | | $ | 9,639 | | | | | | | | | | | | | | Accounts payable | $ | 60 | | | $ | 45 | | | $ | 166 | | | $ | 85 | | | $ | — | | | $ | 356 | | Advance deposits | — | | | 63 | | | 79 | | | 16 | | | — | | | 158 | | Accrued liabilities | 2 | | | 75 | | | 193 | | | 121 | | | (22) | | | 369 | | Deferred revenue | — | | | 9 | | | 169 | | | 172 | | | (6) | | | 344 | | Payroll and benefits liability | — | | | 139 | | | 86 | | | 26 | | | — | | | 251 | | Deferred compensation liability | — | | | 110 | | | 27 | | | 2 | | | — | | | 139 | | Securitized debt, net | — | | | — | | | — | | | 1,961 | | | (23) | | | 1,938 | | Debt, net | 1,125 | | | 1,876 | | | 76 | | | 11 | | | — | | | 3,088 | | | | | | | | | | | | | | Other | — | | | 1 | | | 148 | | | 18 | | | — | | | 167 | | Deferred taxes | — | | | 89 | | | 291 | | | — | | | (49) | | | 331 | | | | | | | | | | | | | | MVW shareholders' equity | 2,496 | | | 2,600 | | | 4,569 | | | 324 | | | (7,493) | | | 2,496 | | Noncontrolling interests | — | | | — | | | — | | | 2 | | | — | | | 2 | | Total liabilities and equity | $ | 3,683 | | | $ | 5,007 | | | $ | 5,804 | | | $ | 2,738 | | | $ | (7,593) | | | $ | 9,639 | |
Recent Accounting Pronouncements See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards. (1)
| Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs. |
| |
(2)
| Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts. Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above. |
Critical Accounting Policies and Estimates
TheOur 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 consolidated 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. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K,
there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk has not changed materially from that disclosed in Part I, Item 7A of ourthe 2022 Annual Report, on Form 10-K for the year ended December 30, 2016, other than as set forth below.
In September 2017, we issued $230 millionWe manage the interest rate risk on our corporate debt through the use 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 cashfixed-rate debt and sharesinterest rate swaps (certain of which expired in September 2023 and the remaining swaps will expire in April 2024) that fix a portion of our common stock, atvariable-rate debt. At September 30, 2023, after considering the impact of interest rate swap agreements and excluding finance leases, the interest rate applicable to approximately 80% of our election.
Concurrently withtotal corporate debt was effectively fixed and the issuanceinterest rate applicable to the remaining 20% (approximately $574 million) is variable. Assuming no outstanding balance on our Revolving Corporate Credit Facility, a 100 basis point increase in the underlying benchmark rate on our variable-rate debt would result in an increase of approximately $5 million in annual cash interest due to the Convertible Notes,impact of our hedging arrangements discussed in Footnote 12 “Debt” to our Financial Statements. Assuming we entered into Convertible Note Hedgeshad no outstanding hedging arrangements and Warrants. These separate transactions were intended to reduceno outstanding balance on our Revolving Corporate Credit Facility, a 100 basis point increase in the potential economic dilution from the conversionunderlying benchmark rate would result in an annual increase in cash interest of the Convertible Notes.approximately $8 million.
The Convertible Notes have fixed annual interest rates at 1.50 percentfollowing table presents the scheduled maturities 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, thetotal fair value of the Convertible Notes is affected by our stock price. The net carrying value of the Convertible Notes was $190.7 million as of September 30, 2017. This represents the liability component of the principal balance of the Convertible Notes, net of unamortized debt discount and issuance costs, as of September 30, 2017. The total estimated fair value of the Convertible Notes at September 30, 2017 was $241.6 million, and the fair value was determined based on the quoted2023 for our financial instruments that are impacted by market price of the Convertible Notes in an over-the-counter market as of the last day of trading for the quarter ended September 30, 2017. For further information, see Footnote No. 4, “Financial Instruments” and Footnote No. 9, “Debt,” to our Financial Statements.risks:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Average Interest Rate | | Maturities by Period |
| Remainder of 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total Carrying Value | | Total Fair Value |
Assets – Maturities represent expected principal receipts; fair values represent assets |
Vacation ownership notes receivable — non-securitized | 12.2% | | $ | 10 | | | $ | 50 | | | $ | 37 | | | $ | 37 | | | $ | 36 | | | $ | 236 | | | $ | 406 | | | $ | 408 | |
Vacation ownership notes receivable — securitized | 13.3% | | $ | 42 | | | $ | 174 | | | $ | 177 | | | $ | 182 | | | $ | 185 | | | $ | 1,125 | | | $ | 1,885 | | | $ | 1,947 | |
Contracts receivable for financed VOI sales, net | 13.3% | | $ | 2 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 21 | | | $ | 35 | | | $ | 35 | |
Liabilities – Maturities represent expected principal payments; fair values represent liabilities |
Securitized debt | 4.3% | | $ | (46) | | | $ | (188) | | | $ | (191) | | | $ | (482) | | | $ | (176) | | | $ | (965) | | | $ | (2,048) | | | $ | (1,937) | |
Term Loan | 7.2% | | $ | — | | | $ | — | | | $ | (784) | | | $ | — | | | $ | — | | | $ | — | | | $ | (784) | | | $ | (782) | |
Revolving Corporate Credit Facility | 7.2% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (90) | | | $ | — | | | $ | (90) | | | $ | (90) | |
Senior notes | | | | | | | | | | | | | | | | | |
2028 Notes | 4.8% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (350) | | | $ | (350) | | | $ | (306) | |
2029 Notes | 4.5% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (500) | | | $ | (500) | | | $ | (419) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
2026 Convertible Notes | —% | | $ | — | | | $ | — | | | $ | — | | | $ | (575) | | | $ | — | | | $ | — | | | $ | (575) | | | $ | (508) | |
2027 Convertible Notes | 3.3% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (575) | | | $ | — | | | $ | (575) | | | $ | (496) | |
Non-interest bearing note payable | —% | | $ | — | | | $ | (4) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (4) | | | $ | (4) | |
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 Securities Exchange Act of 1934, as amended (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 as of September 30, 2023, 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.
Changes in Internal Control Over Financial Reporting
There wereWe made no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. 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. 8,10 “Contingencies and Commitments,”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 1A. Risk Factors
There have been no material changes to the risk factors disclosedset forth in Part I, Item 1A to Part 1 of our 2022 Annual Report, on Form 10-K for the fiscal year ended December 30, 2016, other than as set forth below.
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 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 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 or delaying capital expenditures, (2) limiting financing offered to customers, which could result in reduced sales, and (3) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the vacation ownership industry could be impaired. 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 fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to take over our company.
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 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.
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. 9, “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 is 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 our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the Indenture or to pay cash payable on future conversions of the Convertible Notes as required by the Indenture would constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness (including the credit agreement governing 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 transactionfactual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, which 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.incorporated herein by reference.
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 with affiliates of two of the initial purchasers. 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 will initially underlie 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 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 hedge transactions and warrant transactions, 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 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
|
| | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
July 1, 2017 – July 31, 2017 | 147,500 |
| | $116.00 | | 147,500 |
| | 1,047,371 |
August 1, 2017 – August 31, 2017 | 196,282 |
| | $111.84 | | 196,282 |
| | 1,851,089 |
September 1, 2017 – September 30, 2017(2) | 352,103 |
| | $114.00 | | 352,103 |
| | 1,498,986 |
Total | 695,885 |
| | $113.81 | | 695,885 |
| | 1,498,986 |
_________________________ | |
(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. |
| |
(2)
| On September 25, 2017, 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. |
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid per Share(2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plans or Programs(1)(2) |
July 1, 2023 – July 31, 2023 | — | | | $ | — | | | — | | | $ | 560,680,772 | |
August 1, 2023 – August 31, 2023 | 440,300 | | | $ | 111.70 | | | 440,300 | | | $ | 511,501,091 | |
September 1, 2023 – September 30, 2023 | 353,000 | | | $ | 101.27 | | | 353,000 | | | $ | 475,753,637 | |
Total | 793,300 | | | $ | 107.06 | | | 793,300 | | | $ | 475,753,637 | |
Item 3. Defaults Upon Senior Securities(1)On September 13, 2021, our Board of Directors authorized a share repurchase program under which we were authorized to purchase shares of our common stock for an aggregate purchase price not to exceed $250 million, prior to December 31, 2022. On February 22, 2022, we announced that our Board of Directors authorized the repurchase of up to an additional $300 million of our common stock and extended the term of our share repurchase program to March 31, 2023. On August 1, 2022, we announced that our Board of Directors authorized the repurchase of up to an additional $500 million of our common stock and extended the term of our share repurchase program to June 30, 2023. On May 11, 2023, we announced that our Board of Directors increased the remaining authorization to authorize purchases of up to $600 million of our common stock and extended the term of our share repurchase program to December 31, 2024.
None.(2)The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. See Footnote 13 “Shareholders' Equity” to our Financial Statements for further information. All dollar amounts presented exclude such excise tax, as applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.(c) Trading Plans
During the quarter ended September 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 6. Exhibits
All documents referenced below are being filed as a part of this Quarterly Report on Form 10-Q, unless otherwise noted.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Filed Herewith | | Incorporation By Reference From |
| | | Form | | Exhibit | | Date Filed |
| | Agreement and Plan of Merger, dated as of April 30, 2018, by and among Marriott Vacations Worldwide Corporation, ILG, Inc., Ignite Holdco, Inc., Ignite Holdco Subsidiary, Inc., Volt Merger Sub, Inc., and Volt Merger Sub LLC* | | | | 8-K | | 2.1 | | 5/1/2018 |
| | Agreement and Plan of Merger by and among Marriott Vacations Worldwide Corporation, Sommelier Acquisition Corp., Champagne Resorts, Inc., Welk Hospitality Group, Inc. and the Shareholder Representative, dated as of January 26, 2021 | | | | 8-K | | 2.1 | | 1/26/2021 |
| | | | | | | | | | |
| | Second Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation | | | | 8-K | | 3.2 | | 5/15/2023 |
| | Restated Bylaws of Marriott Vacations Worldwide Corporation (effective May 12, 2023) | | | | 10-Q | | 3.3 | | 8/4/2023 |
| | Form of certificate representing shares of common stock, par value $0.01 per share, of Marriott Vacations Worldwide Corporation | | | | 10 | | 4.1 | | 10/14/2011 |
| | Indenture, dated as of October 1, 2019, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee | | | | 8-K | | 4.1 | | 10/1/2019 |
| | Supplemental Indenture, dated December 31, 2019, by and among Marriott Ownership Resorts, Inc., MVW Vacations, LLC and the Bank of New York Mellon Trust Company, N.A., as trustee | | | | 10-K | | 4.12 | | 3/2/2020 |
| | Second Supplemental Indenture, dated February 26, 2020, by and among Marriott Ownership Resorts, Inc., MVW Services Corporation, and the Bank of New York Mellon Trust Company, N.A., as trustee | | | | 10-K | | 4.13 | | 3/2/2020 |
| | Form of 4.750% Senior Notes due 2028 (included as Exhibit A to Exhibit 4.2 above) | | | | 8-K | | 4.2 | | 10/1/2019 |
| | Registration Rights Agreement, dated as of October 1, 2019, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and J.P. Morgan Securities LLC | | | | 8-K | | 4.3 | | 10/1/2019 |
| | Indenture, dated as of May 13, 2020, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent | | | | 8-K | | 4.1 | | 5/15/2020 |
| | Form of 6.125% Senior Secured Notes due 2025 (included as Exhibit A to Exhibit 4.7) | | | | 8-K | | 4.1 | | 5/15/2020 |
| | Indenture, dated as of February 2, 2021, by and among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc. and the other guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee | | | | 8-K | | 4.1 | | 2/3/2021 |
| | Form of 0.00% Convertible Senior Note due 2026 (included as Exhibit A to Exhibit 4.9 above) | | | | 8-K | | 4.1 | | 2/3/2021 |
| | Indenture, dated as of June 21, 2021, by and among Marriott Ownership Resorts, Inc., Marriott Vacations Worldwide Corporation, as guarantor, the other guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee | | | | 8-K | | 4.1 | | 6/22/2021 |
| | Form of 4.500% Senior Notes due 2029 (included as Exhibit A to Exhibit 4.11 above) | | | | 8-K | | 4.2 | | 6/22/2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Filed Herewith | | Incorporation By Reference From |
| | | Form | | Exhibit | | Date Filed |
| | Indenture, dated as of December 8, 2022, by and among Marriott Vacations Worldwide Corporation, as issuer, Marriott Ownership Resorts, Inc. and the other guarantors party thereto from time to time and The New York Bank of Mellon Trust Company, N.A., as trustee | | | | 8-K | | 4.1 | | 12/8/2022 |
| | Form of 3.25% Convertible Senior Notes due 2027 (included as Exhibit A to Exhibit 4.13 above) | | | | 8-K | | 4.2 | | 12/8/2022 |
| | Description of Registered Securities | | | | 10-K | | 4.16 | | 3/2/2020 |
| | Marriott Vacations Worldwide Corporation Change in Control Severance Plan** | | | | 10-Q | | 10.1 | | 05/5/2023 |
| | Amendment No. 2 to Credit Agreement dated as of April 27, 2023, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent | | | | 10-Q | | 10.2 | | 08/4/2023 |
| | Form of Non-Employee Director Share Award Confirmation* | | | | 10-Q | | 10.3 | | 08/4/2023 |
| | Form of Non-Employee Director Stock Appreciation Right Award Agreement* | | | | 10-Q | | 10.4 | | 08/4/2023 |
| | Form of Director Stock Unit Agreement* | | | | 10-Q | | 10.5 | | 08/4/2023 |
| | Amended and Restated Marriott Vacations Worldwide Corporation 2020 Equity Incentive Plan | | X | | | | | | |
| | List of the Issuer and its Guarantor Subsidiaries | | | | 10-Q | | 22.1 | | 08/4/2023 |
| | Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | | X | | | | | | |
| | Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | | X | | | | | | |
| | Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Furnished |
| | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Furnished |
101 | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Interim Consolidated Statements of Income, (ii) Interim Consolidated Statements of Comprehensive Income, (iii) Interim Consolidated Balance Sheets, (iv) Interim Consolidated Statements of Cash Flows, (v) Interim Consolidated Statements of Shareholders’ Equity, and (vi) Notes to Interim Consolidated Financial Statements |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL and contained in Exhibit 101 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number* | | Description | | Filed
Herewith
| | Incorporation By Reference FromSchedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplemental copies to the SEC of any omitted schedule upon request by the SEC. |
** | | | Form | | Date Filed |
| | Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation | | | | 8-K | | 11/22/2011 |
| | Restated Bylaws of Marriott Vacations Worldwide Corporation | | | | 8-K | | 11/22/2011 |
| | Indenture between Marriott Vacations Worldwide Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee, dated September 25, 2017 | | X | | | | |
| | Form of 1.50% Convertible Senior Note due 2022 (included in Exhibit 4.1) | | X | | | | |
| | Form of Call Option Transaction Confirmation | | X | | | | |
| | Form of Warrant Confirmation | | X | | | | |
| | Credit Agreement, dated as of August 16, 2017, among Marriott Vacations Worldwide Corporation, Marriott Ownership Resorts, Inc., the several banks and other financial institutionsManagement contract or entities from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent | | | | 8-K | | 8/21/2017 |
| | 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 favorcompensatory plan or 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 | | | | 8-K | | 8/21/2017 |
| | Omnibus Agreement 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 | | | | 8-K | | 8/21/2017 |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | | X | | | | |
| | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | | X | | | | |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 | | Furnished |
| | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 | | Furnished |
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. | | Electronically Submitted |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Electronically Submitted |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Electronically Submitted |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Electronically Submitted |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Electronically Submitted |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Electronically Submittedarrangement. |
We have submitted electronically the following documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this report: (i) the Interim Consolidated Statements of Income for the 92 days ended September 30, 2017 and the 84 days ended September 9, 2016, as well as the 274 days ended September 30, 2017 and the 252 days ended September 9, 2016; (ii) the Interim Consolidated Statements of Comprehensive Income for the 92 days ended September 30,2017 and the 84 days ended September 9, 2016, as well as the 274 days ended September 30, 2017 and the 252 days ended September 9, 2016; (iii) the Interim Consolidated Balance Sheets at September 30, 2017 and December 30, 2016; and (iv) the Interim Consolidated Statements of Cash Flows for the 274 days ended September 30, 2017 and the 252 days ended September 9, 2016.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | |
| | MARRIOTT VACATIONS WORLDWIDE CORPORATION |
| | | |
Date: | November 2, 20173, 2023 | | /s/ Stephen P. Weisz |
| | Stephen P. Weisz |
| | President and Chief Executive Officer |
| | |
| | /s/ John E. Geller, Jr. |
| | | John E. Geller, Jr. |
| | | President and Chief Executive Officer |
| | | |
| | | /s/ Jason P. Marino |
| | | Jason P. Marino |
| | | Executive Vice President and Chief Financial Officer |