Marriott Vacations Worldwide (VAC) 10-Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 11, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 001-35219

Marriott Vacations Worldwide Corporation

(Exact name of registrant as specified in its charter)

Delaware	45-2598330
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6649 Westwood Blvd. Orlando, FL	32821
(Address of principal executive offices)	(Zip Code)

(407) 206-6000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, as of October 9, 2015 was 31,065,226.

INDEX

		Page
Part I.	FINANCIAL INFORMATION (UNAUDITED)	1
Item 1.	Financial Statements	1
	Interim Consolidated Statements of Income	1
	Interim Consolidated Statements of Comprehensive Income	2
	Interim Consolidated Balance Sheets	3
	Interim Consolidated Statements of Cash Flows	4
	Notes to Interim Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	65
Part II.	OTHER INFORMATION	65
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	66
	SIGNATURES	67

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
REVENUES
Sale of vacation ownership products	$	136,802	$	155,384	$	476,078	$	452,796
Resort management and other services		73,828		70,981		212,308		209,348
Financing		28,294		29,545		85,640		90,002
Rental		76,039		65,620		224,880		190,972
Cost reimbursements		92,173		91,508		285,937		281,769
TOTAL REVENUES		407,136		413,038		1,284,843		1,224,887
EXPENSES
Cost of vacation ownership products		40,776		48,640		150,857		138,925
Marketing and sales		71,628		73,380		228,760		216,827
Resort management and other services		47,409		47,857		135,298		141,061
Financing		5,488		5,434		16,478		15,976
Rental		62,567		54,605		184,560		166,386
General and administrative		23,214		21,932		68,883		66,913
Litigation settlement		—		3,225		(236)		(4,350)
Organizational and separation related		439		332		732		2,272
Consumer financing interest		5,289		5,605		16,558		17,967
Royalty fee		14,000		14,339		40,431		41,420
Impairment		—		26		—		860
Cost reimbursements		92,173		91,508		285,937		281,769
TOTAL EXPENSES		362,983		366,883		1,128,258		1,086,026
(Losses) gains and other (expense) income		(20)		207		9,492		1,849
Interest expense		(2,839)		(2,890)		(8,822)		(7,638)
Equity in earnings		50		38		148		156
Other		(5,181)		—		(6,453)		—
INCOME BEFORE INCOME TAXES		36,163		43,510		150,950		133,228
Provision for income taxes		(14,608)		(17,862)		(61,300)		(52,969)
NET INCOME	$	21,555	$	25,648	$	89,650	$	80,259
Basic earnings per share	$	0.69	$	0.77	$	2.81	$	2.35
Shares used in computing basic earnings per share		31,455		33,374		31,870		34,180
Diluted earnings per share	$	0.67	$	0.75	$	2.75	$	2.28
Shares used in computing diluted earnings per share		32,128		34,366		32,550		35,161
Dividends declared per share of common stock	$	0.25	$	—	$	0.75	$	—

See Notes to Interim Consolidated Financial Statements

1

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Net income	$	21,555	$	25,648	$	89,650	$	80,259
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(1,392)		(3,047)		(3,749)		(3,127)
Derivative instrument adjustments		(59)		—		—		—
Total other comprehensive loss, net of tax		(1,451)		(3,047)		(3,749)		(3,127)
COMPREHENSIVE INCOME	$	20,104	$	22,601	$	85,901	$	77,132

See Notes to the Interim Consolidated Financial Statements

2

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	(Unaudited)   September 11, 2015		January 2, 2015
ASSETS
Cash and cash equivalents	$	321,690	$	346,515
Restricted cash (including $93,803 and $34,986 from VIEs, respectively)		121,752		109,907
Accounts and contracts receivable, net (including $4,211 and $4,992 from VIEs, respectively)		128,321		109,700
Vacation ownership notes receivable, net (including $704,349 and $750,680 from VIEs, respectively)		887,456		917,228
Inventory		721,664		772,784
Property and equipment		247,317		147,379
Other		98,827		127,066
Total Assets	$	2,527,027	$	2,530,579
LIABILITIES AND EQUITY
Accounts payable	$	77,516	$	114,079
Advance deposits		66,436		60,192
Accrued liabilities (including $1,635 and $1,088 from VIEs, respectively)		150,928		165,969
Deferred revenue		44,499		38,818
Payroll and benefits liability		87,871		93,073
Liability for Marriott Rewards customer loyalty program		73,904		89,285
Deferred compensation liability		48,468		41,677
Mandatorily redeemable preferred stock of consolidated subsidiary, net		38,935		38,816
Debt, net (including $776,648 and $708,031 from VIEs, respectively)		769,716		703,013
Other		38,239		27,071
Deferred taxes		94,544		78,883
Total Liabilities		1,491,056		1,450,876
Contingencies and Commitments (Note 8)
Preferred stock — $0.01 par value; 2,000,000 shares authorized; none issued or outstanding		—		—
Common stock — $0.01 par value; 100,000,000 shares authorized; 36,355,412 and 36,089,513 shares issued, respectively		363		361
Treasury stock — at cost; 5,294,063 and 3,996,725 shares, respectively		(335,339)		(229,229)
Additional paid-in capital		1,138,049		1,137,785
Accumulated other comprehensive income		13,305		17,054
Retained earnings		219,593		153,732
Total Equity		1,035,971		1,079,703
Total Liabilities and Equity	$	2,527,027	$	2,530,579

The abbreviation VIEs above means Variable Interest Entities.

See Notes to Interim Consolidated Financial Statements

3

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Thirty-Six Weeks Ended
	September 11, 2015		September 12, 2014
OPERATING ACTIVITIES
Net income	$	89,650	$	80,259
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		13,850		13,183
Amortization of debt issuance costs		3,739		3,762
Provision for loan losses		22,753		22,725
Share-based compensation		9,633		9,354
Deferred income taxes		17,261		29,523
Equity method income		(148)		(156)
Gain on disposal of property and equipment, net		(9,492)		(1,849)
Non-cash litigation settlement		(262)		—
Impairment charges		—		860
Net change in assets and liabilities:
Accounts and contracts receivable		(17,799)		(8,609)
Notes receivable originations		(189,029)		(169,784)
Notes receivable collections		192,852		203,728
Inventory		51,467		61,740
Purchase of operating hotels for future conversion to inventory		(61,554)		—
Other assets		26,524		45,650
Accounts payable, advance deposits and accrued liabilities		(52,380)		(67,160)
Deferred revenue		5,742		4,228
Payroll and benefit liabilities		(4,959)		(4,855)
Liability for Marriott Rewards customer loyalty program		(15,384)		(22,737)
Deferred compensation liability		6,791		3,340
Other liabilities		6,236		3,196
Other, net		5,233		80
Net cash provided by operating activities		100,724		206,478
INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory)		(20,873)		(7,753)
Purchase of operating hotel to be sold		(47,658)		—
(Increase) decrease in restricted cash		(12,616)		20,656
Dispositions, net		20,605		33,310
Net cash (used in) provided by investing activities		(60,542)		46,213
FINANCING ACTIVITIES
Borrowings from securitization transactions		255,000		22,638
Repayment of debt related to securitization transactions		(186,383)		(162,680)
Proceeds from vacation ownership inventory arrangement		5,375		—
Debt issuance costs		(4,405)		(1,676)
Repurchase of common stock		(106,110)		(160,155)
Payment of dividends		(16,003)		—
Proceeds from stock option exercises		96		1,723
Excess tax benefits from share-based compensation		68		—
Payment of withholding taxes on vesting of restricted stock units		(9,615)		(5,130)
Other		213		—
Net cash used in financing activities		(61,764)		(305,280)
Effect of changes in exchange rates on cash and cash equivalents		(3,243)		(790)
DECREASE IN CASH AND CASH EQUIVALENTS		(24,825)		(53,379)
CASH AND CASH EQUIVALENTS, beginning of period		346,515		199,511
CASH AND CASH EQUIVALENTS, end of period	$	321,690	$	146,132
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
Non-cash impact on Additional paid-in capital for changes in Deferred tax liabilities distributed to Marriott Vacations Worldwide at Spin-Off	$	(77)	$	(2,097)
Non-cash issuance of note receivable		(500)		—
Dividends payable		(7,786)		—

See Notes to Interim Consolidated Financial Statements 

4

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business

Marriott Vacations Worldwide Corporation (“Marriott Vacations Worldwide,” “we” or “us,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity) is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. The Ritz-Carlton Hotel Company, L.L.C. (“The Ritz-Carlton Hotel Company”), a subsidiary of Marriott International, Inc. (“Marriott International”), generally provides on-site management for Ritz-Carlton branded properties.

Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of September 11, 2015, our portfolio consisted of 61 properties, including two hotels, in the United States and eight other countries and territories. We generate most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing consumer purchases; and renting vacation ownership inventory.

Our Spin-Off from Marriott International, Inc.

On November 21, 2011, the spin-off of Marriott Vacations Worldwide from Marriott International (the “Spin-Off”) was completed. In connection with the Spin-Off, we entered into several agreements that govern the ongoing relationship between Marriott Vacations Worldwide and Marriott International.

Principles of Consolidation and Basis of Presentation

The interim consolidated financial statements presented herein and discussed below include 100 percent of the assets, liabilities, revenues, expenses and cash flows of Marriott Vacations Worldwide, all entities in which Marriott Vacations Worldwide has a controlling voting interest (“subsidiaries”), and those variable interest entities for which Marriott Vacations Worldwide is the primary beneficiary in accordance with consolidation accounting guidance. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. The interim consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with United States Generally Accepted Accounting Principles (“GAAP”).

In order to make this report easier to read, we refer throughout to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Statements of Income,” (iii) our Interim Consolidated Balance Sheets as our “Balance 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 these Notes to Interim Consolidated Financial Statements, unless otherwise noted.

Unless otherwise specified, each reference to a particular quarter in these Financial Statements means the twelve weeks ended on the date shown in the following table, rather than the corresponding calendar quarter:

Fiscal Year	Quarter-End Date
2015 Third Quarter	September 11, 2015
2015 Second Quarter	June 19, 2015
2015 First Quarter	March 27, 2015
2014 Third Quarter	September 12, 2014
2014 Second Quarter	June 20, 2014
2014 First Quarter	March 28, 2014

In our opinion, our Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position and the results of our operations and cash flows for the periods presented. Interim results may not be indicative of fiscal year performance because of, among other reasons, seasonal and short-term variations.

5

These Financial Statements have not been audited. Amounts as of January 2, 2015 included in these Financial Statements have been derived from the audited consolidated financial statements as of that date. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe our footnote disclosures are adequate to make the information presented not misleading, you should read these Financial Statements in conjunction with the consolidated financial statements and notes to those consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2015.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, cost of vacation ownership products, inventory valuation, property and equipment valuation, loan loss reserves, Marriott Rewards customer loyalty program liability, self-insured medical plan reserves, equity-based compensation, income taxes and loss contingencies. Accordingly, actual amounts may differ from these estimated amounts.

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

New Accounting Standards

Accounting Standards Update No. 2015-16 – “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805): Business Combinations” (“ASU 2015-16”)

In September 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-16, which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with a requirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entities, ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance, with earlier application permitted for financial statements that have not been issued. Our early adoption of ASU 2015-16 in the third quarter of 2015 did not have a material impact on our Financial Statements.

Accounting Standards Update No. 2015-11 – “Simplifying the Measurement of Inventory (Topic 330): Inventory” (“ASU 2015-11”)

In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. For public entities, the updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The guidance is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. Our early adoption of ASU 2015-11 in the third quarter of 2015 did not have a material impact on our Financial Statements as it applies solely to our operating inventories. This guidance is not applicable to our vacation ownership inventory.

Accounting Standards Update No. 2015-03 – “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”)

In April 2015, the FASB issued ASU 2015-03, which requires debt issuance costs related to a debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability instead of being presented as an asset. The recognition and measurement guidance for debt issuance costs has not changed. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 and early adoption is permitted for financial statements that have not been previously issued. Our early adoption of ASU 2015-03 in the first quarter of 2015 did not have a material impact on our Financial Statements. In June 2015, the staff of the Securities and Exchange Commission (“SEC”) announced that it would not object to an entity always presenting debt issuance costs related to revolving debt arrangements as an asset, regardless of whether a balance was outstanding, while amortizing the costs ratably over the term of the revolving debt arrangement. As a result, we applied the SEC staff guidance beginning in the second quarter of 2015 and began presenting costs associated with our revolving debt arrangements as an asset. We have applied these changes retrospectively to all periods presented.

6

Accounting Standards Update No. 2015-02 – “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”)

In February 2015, the FASB issued ASU 2015-02, which amends the guidance for evaluating whether to consolidate certain legal entities. Specifically, ASU 2015-02 modifies the method for determining whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities. Further, it eliminates the presumption that a general partner should consolidate a limited partnership and impacts the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. Our early adoption of ASU 2015-02 in the first quarter of 2015 did not have a material impact on our Financial Statements.

Future Adoption of Accounting Standards

Accounting Standards Update No. 2014-09 – “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)

In May 2014, the FASB issued ASU 2014-09. ASU 2014-09 supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The new standard may be applied prospectively to each prior period presented or retrospectively with the cumulative effect recognized on the date of adoption. We continue to evaluate the impact that this guidance, including the method of implementation, will have on our financial statements and disclosures. We expect to adopt ASU 2014-09 commencing in our fiscal year 2018.

2. INCOME TAXES

We file U.S. consolidated federal and state tax returns, as well as consolidated and separate tax filings for non-U.S. jurisdictions. Our total unrecognized tax benefit balance that, if recognized, would impact our effective tax rate was $1.5 million and $1.3 million at September 11, 2015 and January 2, 2015, respectively.

We have joined in the Marriott International U.S. federal tax consolidated filing for periods up to the date of the Spin-Off. The U.S. Internal Revenue Service (the “IRS”) has examined Marriott International’s federal income tax returns, and it has settled all issues related to the timeshare business for the tax years through the Spin-Off. Our tax years subsequent to the Spin-Off are subject to examination by relevant tax authorities; currently our 2011 and 2012 returns are being audited by the IRS and our 2012 and 2013 returns are being audited by tax authorities in foreign jurisdictions. Although we do not anticipate that a significant impact to our unrecognized tax benefit balance will occur during the next fiscal year, the amount of our liability for unrecognized tax benefits could change as a result of these audits. Pursuant to a Tax Sharing and Indemnification Agreement with Marriott International effective November 21, 2011, as subsequently amended, Marriott International is liable and shall pay the relevant tax authority for all taxes related to our taxable income prior to the Spin-Off.

7

3. VACATION OWNERSHIP NOTES RECEIVABLE

The following table shows the composition of our vacation ownership notes receivable balances, net of reserves:

($ in thousands)	September 11, 2015		January 2, 2015
Vacation ownership notes receivable — securitized	$	704,349	$	750,680
Vacation ownership notes receivable — non-securitized
Eligible for securitization (1)(2)		34,426		24,194
Not eligible for securitization (1)		148,681		142,354
Subtotal		183,107		166,548
Total vacation ownership notes receivable	$	887,456	$	917,228

⁽¹⁾  Refer to Footnote No. 4, “Financial Instruments,” for discussion of eligibility of our vacation ownership notes receivable.

⁽²⁾  We expect that these vacation ownership notes receivable will be purchased by the MVW Owner Trust 2015-1 (the “2015-1 Trust”) prior to December 31, 2015 in accordance with the terms of the securitization transaction completed in the third quarter of 2015. Refer to Footnote No. 9, “Debt,” for discussion of the terms of this securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

The following tables show future principal payments, net of reserves, as well as interest rates for our non-securitized and securitized vacation ownership notes receivable at September 11, 2015:

($ in thousands)	Non-Securitized   Vacation Ownership   Notes Receivable		Securitized   Vacation Ownership   Notes Receivable		Total
2015	$	25,581	$	34,374	$	59,955
2016		34,509		102,199		136,708
2017		25,737		97,524		123,261
2018		18,140		85,683		103,823
2019		13,851		77,450		91,301
Thereafter		65,289		307,119		372,408
Balance at September 11, 2015	$	183,107	$	704,349	$	887,456
Weighted average stated interest rate		11.7%		12.8%		12.5%
Range of stated interest rates		0.0% to 19.5%		4.9% to 19.5%		0.0% to 19.5%

We reflect interest income associated with vacation ownership notes receivable on our Statements of Income in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable:

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11,   2015		September 12,   2014		September 11,   2015		September 12,   2014
Interest income associated with vacation ownership notes receivable — securitized	$	20,005	$	18,930	$	59,992	$	60,259
Interest income associated with vacation ownership notes receivable — non-securitized		6,921		9,146		21,428		25,282
Total interest income associated with vacation ownership notes receivable	$	26,926	$	28,076	$	81,420	$	85,541

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We record an estimate of expected uncollectibility on all notes receivable from vacation ownership purchasers as a reduction of revenues from the sale of vacation ownership products at the time we recognize profit on a vacation ownership product sale. We fully reserve for all defaulted vacation ownership notes receivable in addition to recording a reserve on the estimated uncollectible portion of the remaining vacation ownership notes receivable. For those vacation ownership notes receivable that are not in default, we assess collectibility based on pools of vacation ownership notes receivable because we hold large numbers of homogeneous vacation ownership notes receivable. We use the same criteria to estimate uncollectibility for non-securitized vacation ownership notes receivable and securitized vacation ownership notes receivable because they perform similarly. We estimate uncollectibility for each pool based on historical activity for similar vacation ownership notes receivable.

The following table summarizes the activity related to our vacation ownership notes receivable reserve for the thirty-six weeks ended September 11, 2015:

($ in thousands)	Non-Securitized Vacation Ownership  Notes Receivable Reserve		Securitized Vacation Ownership  Notes Receivable Reserve		Total
Balance at January 2, 2015	$	64,752	$	53,666	$	118,418
Provision for loan losses		15,068		7,413		22,481
Securitizations		(12,622)		12,622		—
Clean-up calls (1)		5,725		(5,725)		—
Write-offs		(32,706)		—		(32,706)
Defaulted vacation ownership notes receivable repurchase activity (2)		17,802		(17,802)		—
Balance at September 11, 2015	$	58,019	$	50,174	$	108,193

⁽¹⁾  Refers to our voluntary repurchase of previously securitized non-defaulted vacation ownership notes receivable to retire outstanding vacation ownership notes receivable securitizations.

⁽²⁾  Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve was attributable to the transfer of the reserve when we voluntarily repurchased the securitized vacation ownership notes receivable.

Although we consider loans to owners to be past due if we do not receive payment within 30 days of the due date, we suspend accrual of interest only on those loans that are over 90 days past due. We consider loans over 150 days past due to be in default. We apply payments we receive for vacation ownership notes receivable on non-accrual status first to interest, then to principal and any remainder to fees. We resume accruing interest when vacation ownership notes receivable are less than 90 days past due. We do not accept payments for vacation ownership notes receivable during the foreclosure process unless the amount is sufficient to pay all past due principal, interest, fees and penalties owed and fully reinstate the note. We write off uncollectible vacation ownership notes receivable against the reserve once we receive title to the vacation ownership products through the foreclosure or deed-in-lieu process or, in Europe or Asia Pacific, when revocation is complete. For both non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 6.83 percent and 6.95 percent as of September 11, 2015 and January 2, 2015, respectively. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in our allowance for loan losses of $4.5 million as of September 11, 2015 and $4.7 million as of January 2, 2015.

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The following table shows our recorded investment in non-accrual vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due:

($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
Investment in vacation ownership notes receivable on non-accrual status at September 11, 2015	$	52,520	$	5,967	$	58,487
Investment in vacation ownership notes receivable on non-accrual status at January 2, 2015	$	60,275	$	7,172	$	67,447
Average investment in vacation ownership notes receivable on non-accrual status during the twelve weeks ended September 11, 2015	$	53,778	$	6,879	$	60,657
Average investment in vacation ownership notes receivable on non-accrual status during the twelve weeks ended September 12, 2014	$	64,576	$	7,027	$	71,603
Average investment in vacation ownership notes receivable on non-accrual status during the thirty-six weeks ended September 11, 2015	$	56,397	$	6,570	$	62,967
Average investment in vacation ownership notes receivable on non-accrual status during the thirty-six weeks ended September 12, 2014	$	65,857	$	7,022	$	72,879

The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of September 11, 2015:

($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
31 – 90 days past due	$	7,444	$	15,482	$	22,926
91 – 150 days past due		5,103		5,351		10,454
Greater than 150 days past due		47,417		616		48,033
Total past due		59,964		21,449		81,413
Current		181,162		733,074		914,236
Total vacation ownership notes receivable	$	241,126	$	754,523	$	995,649

The following table shows the aging of the recorded investment in principal, before reserves, in vacation ownership notes receivable as of January 2, 2015:

($ in thousands)	Non-Securitized Vacation Ownership Notes Receivable		Securitized Vacation Ownership Notes Receivable		Total
31 – 90 days past due	$	8,330	$	22,544	$	30,874
91 – 150 days past due		6,101		7,003		13,104
Greater than 150 days past due		54,174		169		54,343
Total past due		68,605		29,716		98,321
Current		162,695		774,630		937,325
Total vacation ownership notes receivable	$	231,300	$	804,346	$	1,035,646

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4. FINANCIAL INSTRUMENTS

The following table shows the carrying values and the estimated fair values of financial assets and liabilities that qualify as financial instruments, determined in accordance with the authoritative guidance for disclosures regarding the fair value of financial instruments. Considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts. The table excludes Cash and cash equivalents, Restricted cash, Accounts and contracts receivable, Accounts payable, Advance deposits and Accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.

	At September 11, 2015				At January 2, 2015
($ in thousands)	Carrying         Amount		Fair             Value(1)		Carrying         Amount		Fair             Value(1)
Vacation ownership notes receivable
Securitized	$	704,349	$	861,004	$	750,680	$	909,391
Non-securitized		183,107		191,387		166,548		172,103
Derivative instruments		1,068		1,068		—		—
Total financial assets	$	888,524	$	1,053,459	$	917,228	$	1,081,494
Non-recourse debt associated with vacation ownership notes receivable securitizations, gross	$	(776,648)	$	(780,427)	$	(708,031)	$	(712,977)
Other debt, gross		(3,519)		(3,519)		(3,306)		(3,306)
Mandatorily redeemable preferred stock of consolidated subsidiary, gross		(40,000)		(42,562)		(40,000)		(43,837)
Liability for Marriott Rewards customer loyalty program		(73,904)		(66,605)		(89,285)		(80,448)
Other liabilities		(4,205)		(4,205)		(4,118)		(4,118)
Total financial liabilities	$	(898,276)	$	(897,318)	$	(844,740)	$	(844,686)

⁽¹⁾  Fair value of financial instruments, with the exception of derivative instruments, has been determined using Level 3 inputs. Fair value of derivative instruments has been determined using Level 2 inputs.

Vacation Ownership Notes Receivable

We estimate the fair value of our securitized vacation ownership notes receivable using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model uses default rates, prepayment rates, coupon rates and loan terms for our securitized vacation ownership notes receivable portfolio as key drivers of risk and relative value, that when applied in combination with pricing parameters, determine the fair value of the underlying vacation ownership notes receivable.

Due to factors that impact the general marketability of our non-securitized vacation ownership notes receivable, as well as current market conditions, we bifurcate our vacation ownership notes receivable at each balance sheet date into those eligible and not eligible for securitization using criteria applicable to current securitization transactions in the asset-backed securities (“ABS”) market. Generally, vacation ownership notes receivable are considered not eligible for securitization if any of the following attributes are present: (1) payments are greater than 30 days past due; (2) the first payment has not been received; or (3) the collateral is located in Europe or Asia. In some cases eligibility may also be determined based on the credit score of the borrower, the remaining term of the loans and other similar factors that may reflect investor demand in a securitization transaction or the cost to effectively securitize the vacation ownership notes receivable.

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The following table shows the bifurcation of our non-securitized vacation ownership notes receivable into those eligible and not eligible for securitization based upon the aforementioned eligibility criteria:

	At September 11, 2015				At January 2, 2015
($ in thousands)	Carrying         Amount		Fair             Value		Carrying         Amount		Fair             Value
Vacation ownership notes receivable
Eligible for securitization (1)	$	34,426	$	42,706	$	24,194	$	29,749
Not eligible for securitization		148,681		148,681		142,354		142,354
Total non-securitized	$	183,107	$	191,387	$	166,548	$	172,103

⁽¹⁾  We expect that these vacation ownership notes receivable will be purchased by the 2015-1 Trust prior to December 31, 2015 in accordance with the terms of the securitization transaction completed in the third quarter of 2015. Refer to Footnote No. 9, “Debt,” for discussion of the terms of this securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

We estimate the fair value of the portion of our non-securitized vacation ownership notes receivable that we believe will ultimately be securitized in the same manner as securitized vacation ownership notes receivable. We value the remaining non-securitized vacation ownership notes receivable at their carrying value, rather than using our pricing model. We believe that the carrying value of these particular vacation ownership notes receivable approximates fair value because the stated interest rates of these loans are consistent with current market rates and the reserve for these vacation ownership notes receivable appropriately accounts for risks in default rates, prepayment rates and loan terms.

Derivative Instruments

During 2015, we entered into a foreign exchange forward contract to hedge the risks associated with a forecasted transaction anticipated to be denominated in a foreign currency. We do not apply hedge accounting to this derivative instrument, and therefore it is marked to market. The fair value of the contract is determined using indicative foreign currency exchange rates from public market data, which are considered Level 2 fair value inputs.

Non-Recourse Debt Associated with Securitized Vacation Ownership Notes Receivable

We generate cash flow estimates by modeling all bond tranches for our active vacation ownership notes receivable securitization transactions, with consideration for the collateral specific to each tranche. The key drivers in our analysis include default rates, prepayment rates, bond interest rates and other structural factors, which we use to estimate the projected cash flows. In order to estimate market credit spreads by rating, we obtain indicative credit spreads from investment banks that actively issue and facilitate the market for vacation ownership securities and determine an average credit spread by rating level of the different tranches. We then apply those estimated market spreads to swap rates in order to estimate an underlying discount rate for calculating the fair value of the active bonds payable.

Mandatorily Redeemable Preferred Stock of Consolidated Subsidiary

We estimate the fair value of the mandatorily redeemable preferred stock of our consolidated subsidiary using a discounted cash flow model. We believe this is comparable to the model that an independent third party would use in the current market. Our model includes an assessment of our subsidiary’s credit risk and the instrument’s contractual dividend rate.

Liability for Marriott Rewards Customer Loyalty Program

We determine the carrying value of the future redemption obligation of our liability for the Marriott Rewards customer loyalty program based on statistical formulas that project the timing of future redemption of Marriott Rewards Points based on historical levels, including estimates of the number of Marriott Rewards Points that will eventually be redeemed and the “breakage” for points that will never be redeemed. We estimate the fair value of the future redemption obligation by adjusting the contractual discount rate to an estimate of that of a market participant with similar nonperformance risk.

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Other Liabilities

We estimate the fair value of our other liabilities that are financial instruments using expected future payments discounted at risk-adjusted rates. These liabilities represent guarantee costs and other structured payments. The carrying values of our financial instruments within Other liabilities approximate their fair values.

5. ACQUISITIONS AND DISPOSITIONS

Acquisitions

Surfers Paradise, Australia

During the third quarter of 2015, we completed the acquisition of an operating hotel located in Surfers Paradise, Australia, for AUD $84.5 million ($62.3 million). The acquisition was treated as a business combination and accounted for using the acquisition method of accounting. As such, all transaction costs were expensed as incurred and have been included in the “Other” line of our Statements of Income. As consideration for the acquisition, we paid AUD $82.6 million ($61.0 million) in cash and assumed net liabilities of AUD $1.9 million ($1.3 million), which was allocated based on the fair value at the date of acquisition as follows: AUD $28.9 million ($21.3 million) to land, AUD $49.5 million ($36.5 million) to buildings and leasehold improvements and AUD $6.1 million ($4.5 million) to furniture and equipment. Fair value was determined using an independent appraisal, which was primarily based on a discounted cash flow model, a Level 3 fair value input. We intend to convert a portion of this hotel, which the related portion of the purchase price is classified as an operating activity on our Cash Flows, in the near term into vacation ownership interests for future use in our Asia Pacific segment, and to sell the remaining downsized hotel, which the related portion of the purchase price is classified as an investing activity on our Cash Flows, to a third party.

Washington, D.C.

During the third quarter of 2015, we completed the acquisition of 71 rooms at The Mayflower Hotel, Autograph Collection, an operating hotel located in Washington, D.C., for $32.0 million. The asset acquisition was treated as a purchase of inventory and we intend to include these vacation ownership units, in their current form, in our North America points-based program, Marriott Vacation Club Destinations ™ (“MVCD”) program in the near term.

San Diego, California

During the first quarter of 2015, we completed the acquisition of an operating hotel located in San Diego, California, for $55.0 million. The acquisition was treated as a business combination and accounted for using the acquisition method of accounting. As consideration for the acquisition, we paid $55.0 million in cash, which was allocated based on the fair value at the date of acquisition as follows: $54.3 million to property and equipment and $0.7 million to other assets. Fair value was determined using an independent appraisal, which was primarily based on a discounted cash flow model, a Level 3 fair value input. We intend to convert this hotel in the near term into vacation ownership interests for future use in our MVCD program. In order to ensure consistency with the expected related future cash flow presentation, $46.6 million of the cash purchase price allocated to property and equipment was included as an operating activity in the Purchase of operating hotels for future conversion to inventory line on our Cash Flows for the thirty-six weeks ended September 11, 2015. The remaining $7.7 million was included as an investing activity in the Capital expenditures for property and equipment line on our Cash Flows for the thirty-six weeks ended September 11, 2015, as it was allocated to assets to be used prior to conversion of the hotel to vacation ownership interests, as well as ancillary and sales center assets to be retained after the conversion.

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Dispositions

Kauai, Hawaii

During the second quarter of 2015, we completed the sale of the remaining portion of our undeveloped land in Kauai, Hawaii for gross cash proceeds of $20.0 million. We accounted for the sale under the full accrual method in accordance with the authoritative guidance on accounting for sales of real estate and recorded a gain of $8.7 million, which is included in the (Losses) gains and other (expense) income line on our Statements of Income for the twelve and thirty-six weeks ended September 11, 2015. As a result of this sale, we have completed the transactions, a portion of which was completed in 2014, contemplated by the purchase and sale agreement that we entered into during the second quarter of 2014 providing for the sale of undeveloped and partially developed land, an operating golf course and related assets in Kauai, Hawaii for $60.0 million in gross cash proceeds.

Marco Island, Florida

During the first quarter of 2015, we sold real property located in Marco Island, Florida, consisting of $3.1 million of vacation ownership inventory, to a third-party developer. We received consideration consisting of $5.4 million of cash and a note receivable of $0.5 million. We did not recognize any gain or loss on this transaction.

In accordance with our agreement with the third-party developer, we are obligated to repurchase the completed property from the developer contingent upon the property meeting our brand standards, provided that the third-party developer has not sold the property to another party. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this transaction as a sale. The property was sold to a variable interest entity for which we are not the primary beneficiary as we do not control the variable interest entity’s development activities and cannot prevent the variable interest entity from selling the property to another party. Accordingly, we have not consolidated the variable interest entity.

As of September 11, 2015, our Balance Sheet reflects $7.0 million of Other liabilities that relate to the deferral of gain recognition for this transaction, which will reduce our basis in the asset if we repurchase the property. In addition, the note receivable of $0.5 million and other receivables of $0.2 million are included in the Accounts and contracts receivable line on the Balance Sheet as of September 11, 2015. The cash consideration received for the sale of the real property is included in Proceeds from vacation ownership inventory arrangements on our Cash Flows for the thirty-six weeks ended September 11, 2015. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is our interest in the note receivable and the other receivables discussed above as of September 11, 2015.

Orlando, Florida

During the first quarter of 2014, we disposed of a golf course and adjacent undeveloped land in Orlando, Florida for $24.0 million in gross cash proceeds. As a condition of the sale, we continued to operate the golf course through the end of the first quarter of 2015 at our own risk. We utilized the performance of services method to record a gain of $3.1 million over the period during which we operated the golf course, of which $0 and $0.2 million is included in the (Losses) gains and other (expense) income line on our Statements of Income for the twelve weeks ended September 11, 2015 and September 12, 2014, respectively, and $0.9 million and $1.8 million is included in the (Losses) gains and other (expense) income line on our Statements of Income for the thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively.

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6. EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during the reporting period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per common share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period. The table below illustrates the reconciliation of the earnings and number of shares used in our calculation of basic and diluted earnings per share.

	��	Twelve Weeks Ended				Thirty-Six Weeks Ended
(in thousands, except per share amounts)		September 11,     2015(1)		September 12,     2014(2)		September 11,     2015(1)		September 12,     2014(2)
Computation of Basic Earnings Per Share
Net income		$	21,555	$	25,648	$	89,650	$	80,259
Weighted average shares outstanding			31,455		33,374		31,870		34,180
Basic earnings per share		$	0.69	$	0.77	$	2.81	$	2.35
Computation of Diluted Earnings Per Share
Net income		$	21,555	$	25,648	$	89,650	$	80,259
Weighted average shares outstanding			31,455		33,374		31,870		34,180
Effect of dilutive shares outstanding
Employee stock options and SARs			443		537		458		559
Restricted stock units			230		455		222		422
Shares for diluted earnings per share			32,128		34,366		32,550		35,161
Diluted earnings per share		$	0.67	$	0.75	$	2.75	$	2.28

⁽¹⁾  The computations of diluted earnings per share exclude approximately 167,000 shares of common stock, the maximum number of shares issuable as of September 11, 2015 upon the vesting of certain performance-based awards, because the performance conditions required for the shares subject to such awards to vest were not achieved by the end of the reporting period.

⁽²⁾  The computations of diluted earnings per share exclude approximately 179,000 shares of common stock, the maximum number of shares issuable as of September 12, 2014 upon the vesting of certain performance-based awards, because the performance conditions required for the shares subject to such awards to vest were not achieved by the end of the reporting period.

In accordance with the applicable accounting guidance for calculating earnings per share, for the twelve and thirty-six week periods ended September 11, 2015 and September 12, 2014, we have not excluded any shares underlying stock options or stock appreciation rights (“SARs”) that may be settled in shares of common stock from our calculation of diluted earnings per share as no exercise prices were greater than the average market prices for the applicable period.

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7. INVENTORY

The following table shows the composition of our inventory balances:

($ in thousands)	At September 11, 2015		At January 2, 2015
Finished goods(1)	$	351,850	$	413,066
Land and infrastructure(2)		364,128		355,198
Real estate inventory		715,978		768,264
Operating supplies and retail inventory		5,686		4,520
	$	721,664	$	772,784

⁽¹⁾  Represents completed inventory that is either registered for sale as vacation ownership interests, or unregistered and available for sale in its current form.

⁽²⁾  Includes $48.4 million of sales centers that are expected to be converted into vacation ownership products to be sold in the future and $80.7 million of inventory related to estimated future foreclosures at September 11, 2015.

We value vacation ownership and residential products at the lower of cost or fair market value less costs to sell, in accordance with applicable accounting guidance, and we record operating supplies at the lower of cost (using the first-in, first-out method) or net realizable value.

8. CONTINGENCIES AND COMMITMENTS

Guarantees

We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for our sale of vacation ownership products for the North America and Asia Pacific segments. The terms of these guarantees generally require us to fund if the purchaser fails to pay under the term of its note payable. Prior to the Spin-Off, Marriott International guaranteed our performance under these arrangements, and following the Spin-Off continues to hold a standby letter of credit related to the Asia Pacific segment guarantee. If Marriott International is required to fund any draws by lenders under this letter of credit it would seek recourse from us. Marriott International no longer guarantees our performance with respect to third-party financing for sales of products in the North America segment. We are entitled to recover any payments we make to third-party lenders under these guarantees through reacquisition and resale of the financed vacation ownership product. Our commitments under these guarantees expire as the underlying notes mature or are repaid. The terms of the underlying notes extend to 2022.

The following table shows the maximum potential amount of future fundings for financing guarantees where we are the primary obligor and the carrying amount of the liability for expected future fundings, which is included on our Balance Sheet in the Other caption within Liabilities.

($ in thousands)	Maximum Potential     Amount of Future Fundings     At September 11, 2015		Liability for Expected Future Fundings     At September 11, 2015
Segment
Asia Pacific	$	5,822	$	59
North America		2,846		177
Total guarantees where we are the primary obligor	$	8,668	$	236

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Commitments and Letters of Credit

In addition to the guarantees we describe in the preceding paragraphs, as of September 11, 2015, we had the following commitments outstanding:

• We have various contracts for the use of information technology hardware and software that we use in the normal course of business. Our aggregate commitments under these contracts were $27.6 million, of which we expect $5.3 million, $8.3 million, $5.8 million, $2.6 million, $1.5 million and $4.1 million will be paid in 2015, 2016, 2017, 2018, 2019 and thereafter, respectively.

• We have commitments of $2.5 million to subsidize vacation ownership associations, which we expect to pay in the fourth quarter of 2015.

• We have a commitment of $75.5 million to purchase vacation ownership units located in Miami, Florida, contingent upon satisfactory completion of construction and receipt of a certificate of occupancy, for use in our MVCD program. We made an initial deposit of $3.8 million in connection with this commitment in 2014, and we are committed to make an additional deposit of $3.8 million upon the seller’s receipt of a temporary certificate of occupancy. The remaining payment of $67.9 million is due upon acquisition of the units, which we expect to occur within one year. In the event that the seller fails to obtain a permanent certificate of occupancy for the entire project on or about the end of October, we may terminate the contract and receive a return of the deposit. We also have the right to extend this deadline in 30 day increments up to a total of 90 days. We are currently evaluating the use of a capital efficient arrangement to delay the timing of this capital investment.

• We have a commitment of $38.5 million to purchase vacation ownership units located on the Big Island of Hawaii, for use in our MVCD program, contingent upon the seller subjecting the units to a condominium regime prior to our purchase. We made a deposit of $1.5 million in connection with this commitment in 2014, and we are committed to make the remaining payment of $37.0 million upon satisfaction of the condition that the seller subject the units to a condominium regime, which we expect to occur within one year. Upon acquisition, we are committed to renovate the units pursuant to a property improvement plan to be agreed upon at a later date, for which an additional $45.0 million to $55.0 million will be required to be funded. We are currently evaluating the use of a capital efficient arrangement to delay the timing of this capital investment.

• We have a commitment of $137.1 million to purchase vacation ownership units located in Marco Island, Florida, of which we expect $33.3 million, $50.0 million and $53.8 million will be paid in 2017, 2018 and 2019, respectively. See Footnote No. 5, “Acquisitions and Dispositions,” for additional information on this transaction.

Surety bonds issued as of September 11, 2015 totaled $78.4 million, the majority of which were requested by federal, state or local governments related to our operations.

Additionally, as of September 11, 2015, we had $3.3 million of letters of credit outstanding under our $200 million revolving credit facility (the “Revolving Corporate Credit Facility”).

Loss Contingencies

In December 2012, Jon Benner, an owner of fractional interests at The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”), filed suit in Superior Court for the State of California, County of San Francisco, against us and certain of our subsidiaries on behalf of a putative class consisting of all owners of fractional interests at the RCC San Francisco who allegedly did not receive proper notice of their payment obligations under California’s Mello-Roos Community Facilities Act of 1982 (the “Mello-Roos Act”). The plaintiff alleged that the disclosures made about bonds issued for the project under this Act and the payment obligations of fractional interest purchasers with respect to such bonds were inadequate, and this and other alleged statutory violations constituted intentional and negligent misrepresentation, fraud and fraudulent concealment. The relief sought included damages in an unspecified amount, rescission of the purchases, restitution and disgorgement of profits. In September 2014, we reached an agreement to settle the Benner action on the basis of a stipulated class, which was approved by the court on March 31, 2015. At September 11, 2015, we had an accrual of $0.9 million related to the settlement.

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In April 2013, Krishna and Sherrie Narayan and other owners of 12 residential units at the resort formerly known as The Ritz-Carlton Residences, Kapalua Bay (“Kapalua Bay”) filed an amended complaint related to a suit originally filed in Circuit Court for Maui County, Hawaii in June 2012 against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, and the joint venture in which we have an equity investment that developed and marketed vacation ownership and residential products at Kapalua Bay (the “Joint Venture”). In the original complaint, the plaintiffs alleged that defendants mismanaged funds of the residential owners association (the “Kapalua Bay Association”), created a conflict of interest by permitting their employees to serve on the Kapalua Bay Association’s board, and failed to disclose documents to which the plaintiffs were allegedly entitled. The amended complaint alleges breach of fiduciary duty, violations of the Hawaii Unfair and Deceptive Trade Practices Act and the Hawaii condominium statute, intentional misrepresentation and concealment, unjust enrichment and civil conspiracy. The relief sought in the amended complaint includes injunctive relief, repayment of all sums paid to us and our subsidiaries and Marriott International and its subsidiaries, compensatory and punitive damages, and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. We dispute the material allegations in the amended complaint and continue to defend against this action vigorously. We filed a motion in the Circuit Court to compel arbitration of plaintiffs’ claims. That motion was denied, but on appeal the Hawaii Intermediate Court of Appeals reversed. The Hawaii Supreme Court, on June 3, 2015, reversed the decision of the Intermediate Court of Appeals and reinstated the action in Circuit Court, which has set the case for trial beginning September 16, 2016. We filed a petition with the United States Supreme Court on October 1, 2015, seeking review of the Hawaii Supreme Court’s decision. Additionally, in 2014, owners of two residential units agreed to release their claims in this action. Given the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

In June 2013, Earl C. and Patricia A. Charles, owners of a fractional interest at Kapalua Bay, together with owners of 38 other fractional interests at Kapalua Bay, filed an amended complaint in the Circuit Court of the Second Circuit for the State of Hawaii against us, certain of our subsidiaries, Marriott International, certain of its subsidiaries, the Joint Venture, and other entities that have equity investments in the Joint Venture. The plaintiffs allege that the defendants failed to disclose the financial condition of the Joint Venture and the commitment of the defendants to the Joint Venture, and that defendants’ actions constituted fraud and violated the Hawaii Unfair and Deceptive Trade Practices Act, the Hawaii Condominium Property Act and the Hawaii Time Sharing Plans statute. The relief sought includes compensatory and punitive damages, attorneys’ fees, pre-judgment interest, declaratory relief, rescission and treble damages under the Hawaii Unfair and Deceptive Trade Practices Act. The complaint was subsequently further amended to add owners of two additional fractional interests as plaintiffs. The Circuit Court granted our motion to compel arbitration of the claims asserted by the plaintiffs. Plaintiffs appealed that decision to the Hawaii Intermediate Court of Appeals and also initiated arbitration. On July 24, 2015, the Intermediate Court of Appeals reversed the decision of the Circuit Court and directed that the action be reinstated in the Circuit Court. We dispute the material allegations in the amended complaint and intend to defend against this action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time. Additionally, owners of two fractional interests have since agreed to release their claims in this action, and the owners of another fractional interest, who are not parties to the Charles action, agreed to release similar claims, in each instance for nominal sums.

In August 2014, Michael and Marla Flynn, owners of weeks-based Marriott Vacation Club vacation ownership products at two of our resorts in Hawaii, filed a claim with the American Arbitration Association on behalf of a putative class consisting of themselves and all others similarly situated. The claimants alleged that the introduction of the MVCD program caused an actionable decrease in the value of their vacation ownership interests. The relief sought included compensatory and exemplary damages, restitution, injunctive relief, interest and attorneys’ fees pursuant to applicable timeshare and unfair trade practices acts and common-law theories of breach of contract and breach of an implied covenant of good faith and fair dealing. On March 30, 2015, the arbitrator ruled that the Flynns’ claims are not subject to arbitration, and dismissed the Flynn proceeding. On October 2, 2015, Michael and Marla Flynn, joined by Patrick and Mary Flynn as Trustees of the Flynn Family Trust, filed a civil action in the United States District Court for the District of Hawaii, asserting similar claims and seeking similar relief on behalf of themselves and a putative class consisting of themselves and all others similarly situated. The complaint has not yet been served. We dispute the material allegations in the complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of potential liability, if any, at this time.

On January 29, 2015, Norman and Carreen Abramson, owners of weeks-based Marriott Vacation Club vacation ownership products at one of our resorts in California and of our points-based Marriott Vacation Club vacation ownership product, filed an action in the United States District Court for the Central District of California on behalf of a putative class consisting of themselves and all others similarly situated. Mr. and Mrs. Abramson alleged that the introduction of the MVCD program caused an actionable decrease in the value of their vacation ownership interests, and sought as relief compensatory and punitive damages, restitution, injunctive relief, interest and attorneys’ fees pursuant to applicable timeshare, consumer protection and unfair competition acts. On March 30, 2015, we filed a motion to dismiss. On June 30, 2015, Mr. and Mrs.

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Abramson filed a motion for class certification, which the Court denied on September 28, 2015. Mr. and Mrs. Abramson also amended their complaint, and we filed a motion to dismiss the amended complaint on October 9, 2015. We dispute the material allegations in the amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of potential liability, if any, at this time.

On May 26, 2015, we and certain of our subsidiaries were named as defendants in an action filed in the Superior Court of San Francisco County, California, by William and Sharon Petrick and certain other present and former owners of fractional interests at the RCC San Francisco. The case is not filed as a putative class action. The plaintiffs allege that the affiliation of the RCC San Francisco with MVCD, certain alleged sales practices, and other alleged acts of Marriott Vacations Worldwide and the other defendants caused an actionable decrease in the value of their fractional interests. The relief sought includes, among other things, compensatory and punitive damages, rescission, and pre- and post-judgment interest. Plaintiffs filed an amended complaint on October 9, 2015, and our response is due November 6, 2015. We dispute the material allegations in the amended complaint and intend to defend against the action vigorously. Given the early stages of the action and the inherent uncertainties of litigation, we cannot estimate a range of the potential liability, if any, at this time.

Other

We estimate the cash outflow associated with completing the phases of our existing portfolio of vacation ownership projects currently under development will be approximately $13.1 million, of which $4.3 million is included within liabilities on our Balance Sheet at September 11, 2015. This estimate is based on our current development plans, which remain subject to change, and we expect the phases currently under development will be completed by 2017.

During the second quarter of 2014, we agreed to settle a dispute with a service provider relating to services provided to us prior to 2011. In connection with the settlement, we received a one-time payment of $7.6 million from the service provider, which no longer provides services to us. We recorded a gain of $7.6 million as a result of the settlement, which is included in the Litigation settlement line on our Statement of Income for the thirty-six weeks ended September 12, 2014.

9. DEBT

The following table provides detail on our debt balances, net of unamortized debt issuance costs:

($ in thousands)	At September 11, 2015		At January 2, 2015
Vacation ownership notes receivable securitizations, gross(1)	$	776,648	$	708,031
Unamortized debt issuance costs		(10,187)		(8,090)
		766,461		699,941
Other debt, gross		3,519		3,306
Unamortized debt issuance costs		(264)		(234)
		3,255		3,072
	$	769,716	$	703,013

⁽¹⁾  Interest rates as of September 11, 2015 range from 2.2% to 7.2% with a weighted average interest rate of 2.8%.

See Footnote No. 13, “Variable Interest Entities,” for a discussion of the collateral for the non-recourse debt associated with the securitized vacation ownership notes receivable and our non-recourse warehouse credit facility (the “Warehouse Credit Facility”). All of our other debt was, and to the extent currently outstanding, is recourse to us but unsecured. The Warehouse Credit Facility currently terminates on September 15, 2016 and if not renewed, any amounts outstanding thereunder would become due and payable 13 months after termination, at which time all principal and interest collected with respect to the vacation ownership notes receivable held in the Warehouse Credit Facility would be redirected to the lenders to pay down the outstanding debt under the facility. As of September 11, 2015, there were no cash borrowings outstanding under our Warehouse Credit Facility. We generally expect to securitize our vacation ownership notes receivable, including any vacation ownership notes receivable held in the Warehouse Credit Facility, in the ABS market once per year.

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Although no cash borrowings were outstanding as of September 11, 2015 under our Revolving Corporate Credit Facility, any amounts that are borrowed under that facility, as well as obligations with respect to letters of credit issued pursuant to that facility, are secured by a perfected first priority security interest in substantially all of the assets of the borrower under, and guarantors of, that facility (which include Marriott Vacations Worldwide and each of our direct and indirect, existing and future, domestic subsidiaries, excluding certain bankruptcy remote special purpose subsidiaries), in each case including inventory, subject to certain exceptions.

On August 13, 2015, we completed the securitization of a pool of $264.2 million of vacation ownership notes receivable. Approximately $211.4 million of the vacation ownership notes receivable were purchased on August 13, 2015 by the 2015-1 Trust, and we expect the remaining vacation ownership notes receivable to be purchased by the 2015-1 Trust prior to December 31, 2015. As of August 13, 2015, the 2015-1 Trust held $51.4 million of the proceeds, which will be released as the remaining vacation ownership notes receivable are purchased. On September 24, 2015, subsequent to the third quarter of 2015, the 2015-1 Trust purchased $31.5 million of the remaining vacation ownership notes receivable and $30.4 million was released from restricted cash. Any funds not used to purchase vacation ownership notes receivable will be returned to the investors. In connection with the securitization, investors purchased in a private placement $255.0 million in vacation ownership loan backed notes from the 2015-1 Trust. Two classes of vacation ownership loan backed notes were issued by the 2015-1 Trust: $233.2 million of Class A Notes and $21.8 million of Class B Notes. The Class A Notes have an interest rate of 2.52 percent and the Class B Notes have an interest rate of 2.96 percent, for an overall weighted average interest rate of 2.56 percent.

The following table shows scheduled future principal payments for our debt:

($ in thousands)	Vacation Ownership   Notes Receivable Securitizations (1)		Other             Debt		Total
Debt Principal Payments Year
2015	$	35,357	$	29	$	35,386
2016		111,848		60		111,908
2017		106,587		64		106,651
2018		93,068		69		93,137
2019		81,671		74		81,745
Thereafter		348,117		3,223		351,340
Balance at September 11, 2015	$	776,648	$	3,519	$	780,167

⁽¹⁾  The debt associated with our vacation ownership notes receivable securitizations is non-recourse to us and represents estimated principal payments assuming purchase of the remaining vacation ownership notes receivable by the 2015-1 Trust in the fourth quarter of 2015 as discussed above.

As the contractual terms of the underlying securitized vacation ownership notes receivable determine the maturities of the non-recourse debt associated with them, actual maturities may occur earlier than shown above due to prepayments by the vacation ownership notes receivable obligors.

We paid cash for interest, net of amounts capitalized, of $18.5 million in the thirty-six weeks ended September 11, 2015 and $19.4 million in the thirty-six weeks ended September 12, 2014, respectively.

Debt Associated with Vacation Ownership Notes Receivable Securitizations

Each of the transactions in which we have securitized vacation ownership notes receivable contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s established parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During the thirty-six weeks ended September 11, 2015, and as of September 11, 2015, no securitized vacation ownership notes receivable pools were out of compliance with the established parameters. As of September 11, 2015, we had 7 securitized vacation ownership notes receivable pools outstanding.

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10. MANDATORILY REDEEMABLE PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY

In October 2011, our subsidiary, MVW US Holdings, Inc. (“MVW US Holdings”) issued $40.0 million of its mandatorily redeemable Series A (non-voting) preferred stock to Marriott International as part of Marriott International’s internal reorganization prior to the Spin-Off. Subsequently Marriott International sold all of this preferred stock to third-party investors. Until October 2016, the Series A preferred stock will pay an annual cash dividend equal to the five-year U.S. Treasury Rate as of October 19, 2011, plus a spread of 10.958 percent, for a total annual cash dividend rate of 12 percent. In October 2016, if we do not elect to redeem the preferred stock, the annual cash dividend rate will be reset to the five-year U.S. Treasury Rate in effect on such date plus the same 10.958 percent spread. The Series A preferred stock is mandatorily redeemable by MVW US Holdings upon the tenth anniversary of the date of issuance but can be redeemed at our option after five years (i.e., beginning in October 2016) at par. The Series A preferred stock has an aggregate liquidation preference of $40.0 million plus any accrued and unpaid dividends and an additional premium if liquidation occurs during the first five years after the issuance of the preferred stock. As of September 11, 2015, 1,000 shares of Series A preferred stock were authorized, of which 40 shares were issued and outstanding. The dividends are recorded as a component of Interest expense as the Series A preferred stock is treated as a liability for accounting purposes.

The following table provides detail on our mandatorily redeemable preferred stock of consolidated subsidiary balance, net of unamortized debt issuance costs:

($ in thousands)	At September 11, 2015		At January 2, 2015
Mandatorily redeemable preferred stock of consolidated subsidiary, gross	$	40,000	$	40,000
Unamortized debt issuance costs		(1,065)		(1,184)
	$	38,935	$	38,816

11. SHAREHOLDERS’ EQUITY

Marriott Vacations Worldwide has 100,000,000 authorized shares of common stock, par value of $0.01 per share. At September 11, 2015, there were 36,355,412 shares of Marriott Vacations Worldwide common stock issued, of which 31,061,349 shares were outstanding and 5,294,063 shares were held as treasury stock. At January 2, 2015, there were 36,089,513 shares of Marriott Vacations Worldwide common stock issued, of which 32,092,788 shares were outstanding and 3,996,725 shares were held as treasury stock. Marriott Vacations Worldwide has 2,000,000 authorized shares of preferred stock, par value of $0.01 per share, none of which were issued or outstanding as of September 11, 2015 or January 2, 2015.

The following table details changes in shareholders’ equity during the thirty-six weeks ended September 11, 2015:

($ in thousands)	Common   Stock		Treasury   Stock		Additional   Paid-In Capital		Accumulated Other   Comprehensive   Income		Retained   Earnings		Total Equity
Balance at January 2, 2015	$	361	$	(229,229)	$	1,137,785	$	17,054	$	153,732	$	1,079,703
Net income		—		—		—		—		89,650		89,650
Foreign currency translation adjustments		—		—		—		(3,749)		—		(3,749)
Amounts related to share-based compensation		2		—		341		—		—		343
Adjustment to reclassification of Marriott International investment to Additional paid-in capital		—		—		(77)		—		—		(77)
Repurchase of common stock		—		(106,110)		—		—		—		(106,110)
Dividends		—		—		—		—		(23,789)		(23,789)
Balance at September 11, 2015	$	363	$	(335,339)	$	1,138,049	$	13,305	$	219,593	$	1,035,971

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Share Repurchase Program

The following table summarizes share repurchase activity under our current share repurchase program:

($ in thousands, except per share amounts)	Number of Shares   Repurchased		Cost of Shares   Repurchased		Average   Price Paid   per Share
As of January 2, 2015		3,996,725	$	229,229	$	57.35
For the thirty-six weeks ended September 11, 2015		1,297,338		106,110		81.79
As of September 11, 2015		5,294,063	$	335,339	$	63.34

As of September 11, 2015, 1.6 million shares remained available for repurchase under the program.

Dividends

On September 10, 2015 our Board of Directors declared a quarterly dividend of $0.25 per share to be paid on October 8, 2015 to shareholders of record as of September 24, 2015.

12. SHARE-BASED COMPENSATION

A total of 6 million shares are authorized for issuance under the Marriott Vacations Worldwide Corporation Stock and Cash Incentive Plan (the “Stock Plan”). As of September 11, 2015, 1.8 million shares were available for grants under the Stock Plan.

For share-based awards with service-only vesting conditions, we measure compensation expense related to share-based payment transactions with our employees and non-employee directors at fair value on the grant date. With respect to our employees, we recognize this expense on our Statements of Income over the vesting period during which the employees provide service in exchange for the award; with respect to non-employee directors, we recognize this expense on the grant date. For share-based arrangements with performance vesting conditions, we recognize compensation expense once it is probable that the corresponding performance condition will be achieved.

We recorded share-based compensation expense related to award grants to our officers, directors and employees of $3.0 million for each of the twelve weeks ended September 11, 2015 and September 12, 2014, and $9.6 million and $9.2 million for the thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively. Our deferred compensation liability related to unvested awards held by our employees totaled $17.2 million and $12.2 million at September 11, 2015 and January 2, 2015, respectively.

Restricted Stock Units (“RSUs”)

We granted 130,007 RSUs, exclusive of RSUs with performance vesting conditions, to our employees and non-employee directors during the thirty-six weeks ended September 11, 2015. RSUs granted in the thirty-six weeks ended September 11, 2015 had a weighted average grant-date fair value of $78.22. RSUs issued to our employees generally vest over four years in annual installments commencing one year after the date of grant. RSUs issued to our non-employee directors vest in full on the date of grant.

During the thirty-six weeks ended September 11, 2015 and September 12, 2014, we granted RSUs with performance vesting conditions to members of management. The number of RSUs earned, if any, is determined following the end of a three-year performance period based upon our cumulative achievement over that period of specific quantitative operating financial measures. The maximum number of RSUs that may be earned under the RSUs with performance-based vesting criteria granted during the thirty-six weeks ended September 11, 2015 and September 12, 2014 was approximately 74,000 and 62,000, respectively.

Stock Appreciation Rights (“SARs”)

We granted 62,018 SARs to members of management during the thirty-six weeks ended September 11, 2015. These SARs had a weighted average grant-date fair value of $29.75 and a weighted average exercise price of $77.42. SARs generally expire ten years after the date of grant and both vest and may be exercised in cumulative installments of one quarter of the grant at the end of each of the first four years following the date of grant.

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We use the Black-Scholes model to estimate the fair value of the SARs granted. For SARs granted under the Stock Plan in the thirty-six weeks ended September 11, 2015, the expected stock price volatility was calculated based on the historical volatility from the stock prices of a group of identified peer companies. The average expected life was calculated using the simplified method. The risk-free interest rate was calculated based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The dividend yield assumption listed below is based on the expectation of future payouts.

The following table outlines the assumptions used to estimate the fair value of grants during the thirty-six weeks ended September 11, 2015:

Expected volatility	42.74	%
Dividend yield	1.26	%
Risk-free rate	1.74	%
Expected term (in years)	6.25

Employee Stock Purchase Plan

During the second quarter of 2015, the Board of Directors adopted, and subsequently our shareholders approved, the Marriott Vacations Worldwide Corporation Employee Stock Purchase Plan (the “ESPP”), which became effective during the third quarter of 2015. A total of 500,000 shares of common stock may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95% of the fair market value per share of common stock on the purchase date, up to a maximum established by the plan administrator for the offering period.

13. VARIABLE INTEREST ENTITIES

In accordance with the applicable accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including loans, guarantees and equity investments, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a variable interest entity because we are its primary beneficiary.

Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the loans to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by the special purpose entities are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. We service the vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.

We created these entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them variable interest entities. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them.

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The following table shows consolidated assets, which are collateral for the obligations of these variable interest entities, and consolidated liabilities included on our Balance Sheet at September 11, 2015:

($ in thousands)	Vacation Ownership   Notes Receivable Securitizations		Warehouse Credit   Facility		Total
Consolidated Assets:
Vacation ownership notes receivable, net of reserves	$	704,349	$	—	$	704,349
Interest receivable		4,211		—		4,211
Restricted cash(1)		93,803		—		93,803
Total	$	802,363	$	—	$	802,363
Consolidated Liabilities:
Interest payable	$	1,547	$	88	$	1,635
Debt		776,648		—		776,648
Total	$	778,195	$	88	$	778,283

⁽¹⁾  Includes $51.4 million of the proceeds from the securitization transaction completed during the third quarter of 2015, which will be released as the remaining vacation ownership notes receivable are purchased by the 2015-1 Trust. Refer to Footnote No. 9, “Debt,” for discussion of the terms of this securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

The noncontrolling interest balance was zero. The creditors of these entities do not have general recourse to us.

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the twelve weeks ended September 11, 2015:

($ in thousands)	Vacation Ownership   Notes Receivable Securitizations		Warehouse Credit   Facility		Total
Interest income	$	20,005	$	—	$	20,005
Interest expense to investors	$	4,003	$	321	$	4,324
Debt issuance cost amortization	$	688	$	277	$	965
Administrative expenses	$	64	$	37	$	101

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the thirty-six weeks ended September 11, 2015:

($ in thousands)	Vacation Ownership   Notes Receivable Securitizations		Warehouse Credit   Facility		Total
Interest income	$	59,992	$	—	$	59,992
Interest expense to investors	$	12,659	$	955	$	13,614
Debt issuance cost amortization	$	2,102	$	842	$	2,944
Administrative expenses	$	216	$	104	$	320

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The following table shows cash flows between us and the vacation ownership notes receivable securitization variable interest entities during the thirty-six weeks ended September 11, 2015 and September 12, 2014:

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Cash inflows:
Net proceeds from vacation ownership notes receivable securitizations	$	252,361	$	22,638
Principal receipts		127,571		124,575
Interest receipts		62,324		61,549
Reserve release		2,478		1,608
Total		444,734		210,370
Cash outflows:
Principal to investors		(114,561)		(117,351)
Voluntary repurchases of defaulted vacation ownership notes receivable		(17,802)		(18,289)
Voluntary clean-up call		(54,020)		(26,722)
Interest to investors		(12,160)		(14,104)
Funding of restricted cash(1)		(52,756)		—
Total		(251,299)		(176,466)
Net Cash Flows	$	193,435	$	33,904

⁽¹⁾  Includes $51.4 million of the proceeds from the securitization transaction completed during the third quarter of 2015, which will be released as the remaining vacation ownership notes receivable are purchased by the 2015-1 Trust. Refer to Footnote No. 9, “Debt,” for discussion of the terms of this securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity during the thirty-six weeks ended September 11, 2015 and September 12, 2014:

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Cash inflows:
Total	$	—	$	—
Cash outflows:
Interest to investors		(920)		(1,013)
Total		(920)		(1,013)
Net Cash Flows	$	(920)	$	(1,013)

Under the terms of our vacation ownership notes receivable securitizations, we have the right at our option to repurchase defaulted vacation ownership notes receivable at the outstanding principal balance. The transaction documents typically limit such repurchases to 15 to 20 percent of the transaction’s initial vacation ownership notes receivable principal balance. Our maximum exposure to loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral. In addition, we could be required to fund up to an aggregate of $10.0 million upon presentation of demand notes related to certain vacation ownerships notes receivable securitization transactions outstanding at September 11, 2015.

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Other Variable Interest Entities

We have an equity investment in the Joint Venture, a variable interest entity that previously developed and marketed vacation ownership and residential products in Hawaii. We concluded that the Joint Venture is a variable interest entity because the equity investment at risk is not sufficient to permit it to finance its activities without additional support from other venture parties. We determined that we are not the primary beneficiary of the Joint Venture, as power to direct the activities that most significantly impact its economic performance is shared among the variable interest holders and, therefore, we do not consolidate the Joint Venture. In 2009, we fully impaired our equity investment in the Joint Venture and in certain notes receivable due from the Joint Venture and subsequently reduced the carrying value of our investment in those receivables to zero. Following the Joint Venture’s failure to pay promissory notes due in 2010 and 2011, the lenders initiated foreclosure proceedings with respect to unsold interests in the project. A sale was completed following a foreclosure auction, and on June 13, 2013, we received $7.4 million of cash as a partial repayment of our previously fully reserved receivables due from the Joint Venture. The Joint Venture’s obligations with respect to the remaining receivables have been terminated. At September 11, 2015, we had an accrual of $4.1 million for potential future funding obligations, representing our remaining expected exposure to loss related to our involvement with the Joint Venture exclusive of any future costs that may be incurred pursuant to outstanding litigation matters, including those discussed in Footnote No. 8, “Contingencies and Commitments.”

14. BUSINESS SEGMENTS

We define our reportable segments based on the way in which the chief operating decision maker, currently our chief executive officer, manages the operations of the company for purposes of allocating resources and assessing performance. We operate in three reportable business segments:

• In our North America segment, we develop, market, sell and manage vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We also develop, market and sell vacation ownership and related products under The Ritz-Carlton Destination Club brand, as well as whole ownership residential products under The Ritz-Carlton Residences brand.

• In our Europe segment, we are focusing on selling our existing projects and managing existing resorts. We do not have any current plans for new development in this segment.

• In our Asia Pacific segment, we develop, market, sell and manage the Marriott Vacation Club, Asia Pacific, a right-to-use points program that we specifically designed to appeal to the vacation preferences of the Asian market, as well as a weeks-based right-to-use product.

We evaluate the performance of our segments based primarily on the results of the segment without allocating corporate expenses or income taxes. We do not allocate corporate interest expense, consumer financing interest expense, other financing expenses or general and administrative expenses to our segments. We include interest income specific to segment activities within the appropriate segment. We allocate other gains and losses and equity in earnings or losses from our joint ventures to each of our segments as appropriate. Corporate and other represents that portion of our revenues, equity in earnings or losses, and other gains or losses that are not allocable to our segments.

Revenues

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11,     2015		September 12,     2014		September 11,     2015		September 12,     2014
North America	$	362,440	$	363,901	$	1,138,857	$	1,093,153
Europe		31,995		37,291		80,203		96,511
Asia Pacific		12,701		11,846		65,783		35,223
Total segment revenues		407,136		413,038		1,284,843		1,224,887
Corporate and other		—		—		—		—
	$	407,136	$	413,038	$	1,284,843	$	1,224,887

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Net Income (Loss)

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11,     2015		September 12,     2014		September 11,     2015		September 12,     2014
North America	$	85,337	$	86,008	$	287,676	$	267,339
Europe		6,159		6,701		9,179		13,262
Asia Pacific		(4,056)		1,030		5,332		4,015
Total segment financial results		87,440		93,739		302,187		284,616
Corporate and other		(51,277)		(50,229)		(151,237)		(151,388)
Provision for income taxes		(14,608)		(17,862)		(61,300)		(52,969)
	$	21,555	$	25,648	$	89,650	$	80,259

Assets

($ in thousands)	At September 11, 2015		At January 2, 2015
North America	$	1,887,189	$	1,879,648
Europe		79,451		88,867
Asia Pacific		136,109		85,469
Total segment assets		2,102,749		2,053,984
Corporate and other		424,278		476,595
	$	2,527,027	$	2,530,579

15. SUBSEQUENT EVENTS

Share Repurchase Program Approval by the Board

On October 12, 2015, our Board of Directors approved the repurchase of up to an additional 2,000,000 shares of our common stock under our existing share repurchase program and extended the termination date of the program to March 24, 2017. The specific timing, amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other factors. Acquired shares of our common stock are held as treasury shares carried at cost in our Financial Statements. In connection with the repurchase program, we are authorized to adopt one or more trading plans pursuant to the provisions of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We make forward-looking statements in 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 concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this Quarterly Report. We do not have any intention or obligation to update forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law.

The risk factors discussed in “Risk Factors” in our most recent Annual Report on Form 10-K could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those we express in forward-looking statements.

Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. 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,” (iii) our Interim Consolidated Balance Sheets as our “Balance 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 to our Financial Statements that we include in the Financial Statements section of this Quarterly Report on Form 10-Q.

The Spin-Off

On November 21, 2011, Marriott International, Inc. (“Marriott International”) completed the spin-off of its vacation ownership division (the “Spin-Off”). Since the Spin-Off, we have been an independent public company, with our common stock listed on the New York Stock Exchange under the symbol “VAC.” Following the Spin-Off, we and Marriott International have operated independently, and neither company has any ownership interest in the other.

Business Overview

We are one of the world’s largest companies whose business is focused almost entirely on vacation ownership, based on number of owners, number of resorts and revenues. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand.

Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of September 11, 2015, our portfolio consisted of 61 properties in the United States and eight other countries and territories. Our properties include an operating hotel in San Diego, California, which is operated by a third party, that we intend to convert in the near term into vacation ownership interests for future use in our North America points-based program, Marriott Vacation Club Destinations^™ (“MVCD”) and a hotel operated by a third party in Surfers Paradise, Australia, a portion of which we intend to convert, in the near term, into vacation ownership interests for future use in our Asia Pacific segment. We intend to sell the remaining downsized hotel in Surfers Paradise to a third party. We generate most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.

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Below is a summary of significant accounting policies used in our business that will be used in describing our results of operations.

Sale of Vacation Ownership Products

We recognize revenues from the sale of vacation ownership products when all of the following conditions exist: a binding sales contract has been executed; the statutory rescission period has expired; the receivable is deemed collectible; and the remainder of our obligations are substantially completed.

Sales of vacation ownership products may be made for cash or we may provide financing. For sales where we provide financing, we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price plus the fair value of sales incentives provided to the purchaser. These sales incentives typically include Marriott Rewards Points or an alternative sales incentive that we refer to as “plus points.” These plus points are redeemable for stays at our resorts, generally within one to two years from the date of issuance. Sales incentives are only awarded if the sale is closed.

As a result of the down payment requirements with respect to financed sales and the statutory rescission periods, we often defer revenues associated with the sale of vacation ownership products from the date of the purchase agreement to a future period. When comparing results year-over-year, this deferral frequently generates significant variances, which we refer to as the impact of revenue reportability.

Finally, as more fully described in the “Financing” section below, we record an estimate of expected uncollectibility on all vacation ownership notes receivable (also known as a vacation ownership notes receivable reserve or a sales reserve) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale.

We report, on a supplemental basis, contract sales for each of our three segments. Contract sales represent the total amount of vacation ownership product sales under purchase agreements signed during the period where we have received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period. Contract sales differ from revenues from the sale of vacation ownership products that we report on our Statements of Income due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs) as well as other non-capitalizable costs associated with the overall project development process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or real estate inventory costs for the project in a period, a non-cash adjustment is recorded on our Statements of Income to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-ups, will have a positive or negative impact on our Statements of Income.

We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products.

Resort Management and Other Services

Our resort management and other services revenues include revenues generated from fees we earn for managing each of our resorts. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and spa offerings at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership products and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated.

We provide day-to-day management services, including housekeeping services, operation of reservation systems, maintenance, and certain accounting and administrative services for property owners’ associations. We receive compensation for these management services; this compensation is generally based on either a percentage of 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.

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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:

	Thirty-Six Weeks Ended
	September 11, 2015	September 12, 2014
Average FICO score	734	729

The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. The interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as Financing revenues on our Statements of Income.

Financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. Due to weakened economic conditions and our elimination of historical financing incentive programs, the percentage of customers choosing to finance their vacation ownership purchase with us (which we refer to as “financing propensity”) declined significantly through 2009 and has stabilized since then. In the first half of 2015, we implemented new programs to help drive financing propensity higher than the 40 to 45 percent that we have averaged in recent years. We expect that interest income will begin to increase in the near term as new originations from growth in the business as well as the impact of higher financing propensity levels begin to outpace the decline in principal of our existing vacation ownership notes receivable portfolio.

In the event of a default, we generally have the right to foreclose on or revoke the mortgaged 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:

	Thirty-Six Weeks Ended
	September 11, 2015	September 12, 2014
Historical default rates	2.8%	2.9%

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 MVCD program when those points are redeemed for rental stays at one of our resorts 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;

• Subsidy payments to property owners’ associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort;

• 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 the MVCD program.

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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 that is generally non-recourse to us.

Interest Expense

Interest expense consists of all interest expense other than consumer financing interest expense.

Other Items

We measure operating performance using the following key metrics:

• Contract sales from the sale of vacation ownership products;

• Development margin percentage; and

• Volume per guest (“VPG”), which we calculate by dividing contract sales, excluding fractional and residential sales, telesales and other sales that are not attributed to a tour at a sales location, by the number of tours at sales locations in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase.

Rounding

Percentage changes presented in our public filings are calculated using whole dollars.

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Consolidated Results

The following discussion presents an analysis of our results of operations for the twelve and thirty-six weeks ended September 11, 2015, compared to the twelve and thirty-six weeks ended September 12, 2014.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Revenues
Sale of vacation ownership products	$	136,802	$	155,384	$	476,078	$	452,796
Resort management and other services		73,828		70,981		212,308		209,348
Financing		28,294		29,545		85,640		90,002
Rental		76,039		65,620		224,880		190,972
Cost reimbursements		92,173		91,508		285,937		281,769
Total revenues		407,136		413,038		1,284,843		1,224,887
Expenses
Cost of vacation ownership products		40,776		48,640		150,857		138,925
Marketing and sales		71,628		73,380		228,760		216,827
Resort management and other services		47,409		47,857		135,298		141,061
Financing		5,488		5,434		16,478		15,976
Rental		62,567		54,605		184,560		166,386
General and administrative		23,214		21,932		68,883		66,913
Litigation settlement		—		3,225		(236)		(4,350)
Organizational and separation related		439		332		732		2,272
Consumer financing interest		5,289		5,605		16,558		17,967
Royalty fee		14,000		14,339		40,431		41,420
Impairment		—		26		—		860
Cost reimbursements		92,173		91,508		285,937		281,769
Total expenses		362,983		366,883		1,128,258		1,086,026
(Losses) gains and other (expense) income		(20)		207		9,492		1,849
Interest expense		(2,839)		(2,890)		(8,822)		(7,638)
Equity in earnings		50		38		148		156
Other		(5,181)		—		(6,453)		—
Income before income taxes		36,163		43,510		150,950		133,228
Provision for income taxes		(14,608)		(17,862)		(61,300)		(52,969)
Net income	$	21,555	$	25,648	$	89,650	$	80,259

Contract Sales

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	159,757	$	167,245	$	(7,488)	(4%)
Residential products		—		4,488		(4,488)	(100%)
Total contract sales	$	159,757	$	171,733	$	(11,976)	(7%)

The $12.0 million decrease in total contract sales was driven by $5.4 million of lower vacation ownership contract sales in our key North America segment, $4.5 million of lower residential contract sales in our North America segment due to the sale of $4.5 million of excess residential inventory in the prior year comparable period, $1.2 million of lower contract sales in our Europe segment as we continue to sell through existing inventory in that segment and $0.9 million of lower vacation ownership contract sales in our Asia Pacific segment due to lower sales to the existing owner base and the negative impact of local currency devaluations in the current period.

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The decrease in vacation ownership contract sales in our North America segment reflected a $4.0 million decrease in sales at off-site (non tour-based) sales locations and a $2.5 million decrease in sales at on-site sales locations, partially offset by a $1.1 million increase in fractional sales as we continue to sell through remaining luxury inventory.

The sales at off-site locations were negatively impacted in part by the strength of the U.S. dollar, primarily in Latin America.

The sales at on-site locations were negatively impacted in part by the strength of the U.S. dollar, primarily impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort on Oahu. The decrease in sales at on-site sales locations reflected a 1.4 percent decrease in VPG to $3,428 in the twelve weeks ended September 11, 2015 from $3,477 in the prior year comparable period and a 1.3 percent decrease in the number of tours. The decrease in VPG resulted from a decrease in the number of points sold per contract due to the increase in sales to existing owners in the current period, partially offset by higher pricing and a 0.1 percentage point increase in closing efficiency. The decrease in the number of tours was driven in part by hurricane activity in the Caribbean and Hawaii, as well as the threatened hurricane activity in Florida, which resulted in tour cancellations.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	495,645	$	487,082	$	8,563	2%
Residential products		28,420		10,814		17,606	NM
Total contract sales	$	524,065	$	497,896	$	26,169	5%

NM = not meaningful

The $26.2 million increase in total contract sales was driven by $28.4 million of higher residential contract sales in our Asia Pacific segment, $15.5 million of higher vacation ownership contract sales in our key North America segment and $1.8 million of higher vacation ownership contract sales in our Asia Pacific segment, partially offset by $8.7 million of lower contract sales in our Europe segment and $10.8 million of lower residential contract sales in our North America segment due to the sale of $10.8 million of excess residential inventory in the prior year comparable period.

The increase in vacation ownership contract sales in our North America segment reflected a $12.0 million increase in sales at on-site sales locations and a $3.8 million increase in fractional sales as we continue to sell through remaining luxury inventory, partially offset by a $0.3 million decrease in sales at off-site (non tour-based) sales locations.

The increase in sales at on-site sales locations reflected a 1.3 percent increase in VPG to $3,489 in the thirty-six weeks ended September 11, 2015 from $3,444 in the prior year comparable period and a 1.7 percent increase in the number of tours, and was negatively impacted in the third quarter of 2015 by the strength of the U.S. dollar, primarily impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort in Oahu. The increase in VPG was due to a 0.4 percentage point increase in closing efficiency and higher pricing, partially offset by a decrease in the number of points sold per contract due to the increase in sales to existing owners in the current period. The increase in the number of tours was driven by an increase in existing owner tours. In the first quarter of 2015, we announced enhancements to our owner recognition levels that created a near-term incentive for existing owners to purchase additional points prior to the end of the twenty-four weeks ended June 19, 2015, which resulted in an increase in existing owner tours. This was partially offset by the decrease in the number of tours in the third quarter of 2015 as a result of the hurricane and threatened hurricane activity mentioned above.

Due to operational constraints, regulatory conditions and certain other conditions related to our 18 units in Macau, we decided not to sell these units through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as whole ownership residential units during the first quarter of 2015 for $28.4 million. In the third quarter of 2015, we reinvested the proceeds from this disposition into the purchase of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into a new timeshare destination that we expect will have a strong on-site sales location and to sell the remainder to a third party.

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Sale of Vacation Ownership Products

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	159,757	$	171,733	$	(11,976)	(7%)
Revenue recognition adjustments:
Reportability		(11,051)		(4,503)		(6,548)
Sales reserve		(7,600)		(7,310)		(290)
Other(1)		(4,304)		(4,536)		232
Sale of vacation ownership products	$	136,802	$	155,384	$	(18,582)	(12%)

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had an $11.1 million negative impact in the current period, compared to a $4.5 million negative impact in the prior year comparable period, due to fewer sales meeting the down payment requirements for revenue reportability in the current period, in part due to a seven percentage point increase in financing propensity in the third quarter of 2015 compared to the prior year comparable period. The higher sales reserve reflects an increase in the estimated default activity in our Europe and Asia Pacific segments, as well as an increase in our North America segment due to the increase in financing propensity, partially offset by the lower vacation ownership contract sales volume compared to the prior year comparable period.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	524,065	$	497,896	$	26,169	5%
Revenue recognition adjustments:
Reportability		(11,124)		(8,228)		(2,896)
Sales reserve		(23,146)		(23,008)		(138)
Other(1)		(13,717)		(13,864)		147
Sale of vacation ownership products	$	476,078	$	452,796	$	23,282	5%

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had an $11.1 million negative impact in the current period, compared to an $8.2 million negative impact in the prior year comparable period due to fewer sales meeting the down payment requirements for revenue reportability in the current period, in part due to a three percentage point increase in financing propensity in the current period, partially offset by fewer sales in the rescission period at the end of the thirty-six weeks ended September 11, 2015 compared to the prior year comparable period. The higher sales reserve is driven by the higher vacation ownership contract sales and the impact of the higher financing propensity in our North America segment, partially offset by a decrease in the estimated default activity in our North America segment compared to the prior year comparable period.

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Development Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	136,802	$	155,384	$	(18,582)	(12%)
Cost of vacation ownership products		(40,776)		(48,640)		7,864	16%
Marketing and sales		(71,628)		(73,380)		1,752	2%
Development margin	$	24,398	$	33,364	$	(8,966)	(27%)
Development margin percentage		17.8%		21.5%		(3.7 pts)

The decrease in development margin reflected the following:

• $4.1 million from lower revenue reportability compared to the prior year comparable period;

• $5.0 million from lower vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $2.3 million from higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs in our North America segment, $1.8 million from the lower vacation ownership contract sales and $0.9 million from an unfavorable mix of higher cost real estate inventory being sold;

• $0.9 million from lower residential contract sales (no residential sales in the twelve weeks ended September 11, 2015 compared to $0.9 million from the sale of residential inventory in our North America segment in the prior year comparable period); and

• $0.6 million from the higher estimated default activity in our Europe and Asia Pacific segments compared to the prior year comparable period.

These decreases were partially offset by $1.3 million of lower development expenses due to more costs being capitalized in the twelve weeks ended September 11, 2015 compared to the prior year comparable period and due to the disposition of land and related assets in Kauai in the fourth quarter of 2014 and second quarter of 2015 and Abaco in the third quarter of 2014, as well as $0.4 million from higher favorable product cost true-ups ($0.4 million in the twelve weeks ended September 11, 2015 compared to none in the prior year comparable period).

The 3.7 percentage point decline in the development margin percentage reflected a 2.3 percentage point decrease due to the unfavorable revenue reportability year-over-year, a 1.6 percentage point decline due to the higher marketing and sales spending, and a 0.6 percentage point decrease due to an unfavorable mix of higher cost vacation ownership real estate inventory being sold in the twelve weeks ended September 11, 2015. These declines were partially offset by a 0.6 percentage point increase from the lower development expenses and a 0.2 percentage point increase due to the lower favorable product cost true-up activity year-over-year.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	476,078	$	452,796	$	23,282	5%
Cost of vacation ownership products		(150,857)		(138,925)		(11,932)	(9%)
Marketing and sales		(228,760)		(216,827)		(11,933)	(5%)
Development margin	$	96,461	$	97,044	$	(583)	(1%)
Development margin percentage		20.3%		21.4%		(1.1 pts)

The decrease in development margin reflected the following:

• $5.3 million from higher vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $8.2 million from higher marketing and sales costs due to an inability to leverage fixed costs on lower sales volumes in our Europe segment, investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs in our North America segment, partially offset by $2.6 million from the higher vacation ownership contract sales volume and $0.3 million from a favorable mix of lower cost real estate inventory being sold;

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• $1.9 million from lower revenue reportability compared to the prior year comparable period; and

• $0.4 million from the higher estimated default activity compared to the prior year comparable period, including $1.2 million in our Europe and Asia Pacific segments, partially offset by $0.8 million from the lower estimated default activity in our North America segment.

These decreases were partially offset by the following:

• $3.6 million from higher residential contract sales ($5.9 million from the sale of residential inventory in our Asia Pacific segment in the thirty-six weeks ended September 11, 2015 compared to $2.3 million from the sale of residential inventory in our North America segment in the prior year comparable period); and

• $2.1 million of lower development expenses due to more costs being capitalized in the thirty-six weeks ended September 11, 2015 compared to the prior year comparable period and due to the disposition of land and related assets in Kauai in the fourth quarter of 2014 and second quarter of 2015 and Abaco in the third quarter of 2014; and

• $1.3 million from higher favorable product cost true-ups ($3.2 million in the thirty-six weeks ended September 11, 2015 compared to $2.3 million in the prior year comparable period).

The 1.1 percentage point decline in the development margin percentage reflected a 1.8 percentage point decline due to higher marketing and sales spending and a 0.3 percentage point decrease due to the unfavorable revenue reportability year-over-year, partially offset by a 0.4 percentage point increase from the lower development expenses, a 0.3 percentage point increase due to the higher favorable product cost true-up activity year-over-year, a 0.2 percentage point increase from the higher North America vacation ownership contract sales (which have a development margin that is higher than the company-wide average) and the lower Europe vacation ownership contract sales (which have a development margin that is lower than the company-wide average), and a 0.1 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the thirty-six weeks ended September 11, 2015.

Resort Management and Other Services Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Management fee revenues	$	17,980	$	17,334	$	646	4%
Other services revenues		55,848		53,647		2,201	4%
Resort management and other services revenues		73,828		70,981		2,847	4%
Resort management and other services expenses		(47,409)		(47,857)		448	1%
Resort management and other services margin	$	26,419	$	23,124	$	3,295	14%
Resort management and other services margin percentage		35.8%		32.6%		3.2 pts

The increase in resort management and other services revenues reflected $1.0 million of higher ancillary revenues, $0.7 million of higher resales commission and other revenues, $0.6 million of higher management fees (net of $0.3 million negative foreign exchange impact in our Europe segment), $0.5 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $0.2 million of higher brand fees due to more closings compared to the prior year comparable period and $0.1 million of higher settlement fees due to an increase in the number of contracts closed. These increases were partially offset by $0.3 million of lower fees from external exchange service providers. The increase in ancillary revenues included a $1.9 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts, $1.3 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015 and $0.6 million of ancillary revenues at the operating hotel in San Diego

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acquired in the first quarter of 2015. These increases in ancillary revenues were partially offset by a $1.8 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing of the operation of a restaurant during the prior year, as well as $1.0 million from the changes in foreign exchange rates in our Europe segment.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $0.4 million of lower expenses, including $3.1 million of ancillary expense savings from the dispositions, closure and outsourcing noted above and $1.0 million from the changes in foreign exchange rates in our Europe segment, partially offset by $2.0 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in the twelve weeks ended September 11, 2015, $1.2 million from the operation of the hotel in Australia and $0.5 million from the operation of the hotel in San Diego.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Management fee revenues	$	53,516	$	51,428	$	2,088	4%
Other services revenues		158,792		157,920		872	1%
Resort management and other services revenues		212,308		209,348		2,960	1%
Resort management and other services expenses		(135,298)		(141,061)		5,763	4%
Resort management and other services margin	$	77,010	$	68,287	$	8,723	13%
Resort management and other services margin percentage		36.3%		32.6%		3.7 pts

The increase in resort management and other services revenues reflected $2.1 million of higher management fees (net of $0.8 million negative foreign exchange impact in our Europe segment), $1.6 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $1.5 million of higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees, and $1.0 million of higher resales commission and other revenues, partially offset by $3.0 million of lower ancillary revenues and $0.3 million of lower fees from external exchange service providers. The decrease in ancillary revenues included a $7.0 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing of the operation of a restaurant during the prior year, as well as $2.7 million from the changes in foreign exchange rates in our Europe segment. These declines in ancillary revenues were partially offset by a $4.2 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts, $1.3 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015 and $1.2 million of ancillary revenues at the operating hotel in San Diego acquired in the first quarter of 2015.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $5.8 million of lower expenses, including $10.9 million of ancillary expense savings from the dispositions, closure and outsourcing noted above and $2.9 million from the changes in foreign exchange rates in our Europe segment, partially offset by $5.8 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in the thirty-six weeks ended September 11, 2015, $1.2 million from the operation of the hotel in Australia and $1.0 million from the operation of the hotel in San Diego.

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Financing Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Interest income	$	26,926	$	28,072	$	(1,147)	(4%)
Other financing revenues		1,368		1,473		(104)	(7%)
Financing revenues		28,294		29,545		(1,251)	(4%)
Financing expenses		(5,488)		(5,434)		(54)	(1%)
Consumer financing interest expense		(5,289)		(5,605)		316	6%
Financing margin	$	17,517	$	18,506	$	(989)	(5%)
Financing propensity		53%		46%

The decrease in financing revenues was due to a $48.8 million decline in the average gross vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.

The decline in financing margin reflects the lower financing revenues, partially offset by lower consumer financing interest expense. The lower consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances. The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help drive financing propensity higher than the 40 to 45 percent that the company has averaged in recent years.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Interest income	$	81,420	$	85,518	$	(4,098)	(5%)
Other financing revenues		4,220		4,484		(264)	(6%)
Financing revenues		85,640		90,002		(4,362)	(5%)
Financing expenses		(16,478)		(15,976)		(502)	(3%)
Consumer financing interest expense		(16,558)		(17,967)		1,409	8%
Financing margin	$	52,604	$	56,059	$	(3,455)	(6%)
Financing propensity		46%		43%

The decrease in financing revenues was due to a $57.6 million decline in the average gross vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.

The decline in financing margin reflects the lower financing revenues and an increase in expenses due to higher credit card fees and inflationary cost increases, partially offset by lower consumer financing interest expense. The lower consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances ($1.7 million), partially offset by an increase in the outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($0.3 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help drive financing propensity higher than the 40 to 45 percent that the company has averaged in recent years.

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Rental Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Rental revenues	$	76,039	$	65,620	$	10,419	16%
Unsold maintenance fees — upscale		(13,157)		(11,624)		(1,533)	(13%)
Unsold maintenance fees — luxury		(1,732)		(2,848)		1,116	39%
Unsold maintenance fees		(14,889)		(14,472)		(417)	(3%)
Other rental expenses		(47,678)		(40,133)		(7,545)	(19%)
Rental margin	$	13,472	$	11,015	$	2,457	22%
Rental margin percentage		17.7%		16.8%		0.9 pts
	Twelve Weeks Ended				Change		% Change
	September 11, 2015		September 12, 2014
Transient keys rented(1)		279,994		263,835		16,159	6%
Average transient key rate	$	222.15	$	222.21	$	(0.06)	0%
Resort occupancy		91.4%		91.2%		0.2 pts

⁽¹⁾  Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a company-wide 6 percent increase in transient keys rented ($3.6 million) primarily sourced from a 5 percent increase in available keys, $1.7 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) and a $0.8 million increase in preview keys and other revenue. In addition, we generated $3.2 million of revenue from the operation of the hotel in San Diego acquired during the first quarter of 2015 and $1.1 million of revenue from the operation of the hotel in Australia acquired in the third quarter of 2015.

The increase in rental margin reflected $1.6 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as the $1.7 million increase in plus points revenue, partially offset by a $0.6 million loss from the operation of the hotel in Australia acquired during the third quarter of 2015 and a $0.2 million loss from the operation of the hotel in San Diego acquired during the first quarter of 2015.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Rental revenues	$	224,880	$	190,972	$	33,908	18%
Unsold maintenance fees — upscale		(38,625)		(34,213)		(4,412)	(13%)
Unsold maintenance fees — luxury		(6,148)		(7,587)		1,439	19%
Unsold maintenance fees		(44,773)		(41,800)		(2,973)	(7%)
Other rental expenses		(139,787)		(124,586)		(15,201)	(12%)
Rental margin	$	40,320	$	24,586	$	15,734	64%
Rental margin percentage		17.9%		12.9%		5.0 pts
	Thirty-Six Weeks Ended				Change		% Change
	September 11, 2015		September 12, 2014
Transient keys rented(1)		852,291		793,493		58,798	7%
Average transient key rate	$	222.47	$	214.99	$	7.48	3%
Resort occupancy		89.2%		89.6%		(0.4 pts)

⁽¹⁾  Transient keys rented exclude those obtained through the use of plus points.

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The increase in rental revenues was due to a company-wide 7 percent increase in transient keys rented ($12.6 million) primarily sourced from an 8 percent increase in available keys, a company-wide 3 percent increase in average transient rate ($6.4 million) driven by stronger consumer demand, $4.4 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) and a $3.0 million increase in preview keys and other revenue. In addition, we generated $6.4 million of revenue from the operation of the hotel in San Diego acquired during the first quarter of 2015 and $1.1 million of revenue from the operation of the hotel in Australia acquired in the third quarter of 2015.

The increase in rental margin reflected $13.2 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as the $4.4 million increase in plus points revenue, partially offset by a $1.3 million loss from the operation of the hotel in San Diego acquired during the first quarter of 2015 and a $0.6 million loss from the operation of the hotel in Australia acquired during the third quarter of 2015.

Cost Reimbursements

Twelve Weeks Ended September 11, 2015

Cost reimbursements increased $0.7 million, or 1 percent, over the prior year comparable period, reflecting an increase of $2.9 million due to higher costs and $1.1 million due to additional managed unit weeks in the twelve weeks ended September 11, 2015, partially offset by $1.8 million of lower costs associated with management contracts that were terminated prior to 2015 and a $1.5 million negative impact from foreign exchange rates in our Europe segment.

Thirty-Six Weeks Ended September 11, 2015

Cost reimbursements increased $4.2 million, or 1.5 percent, over the prior year comparable period, reflecting an increase of $11.2 million due to higher costs and $3.6 million due to additional managed unit weeks in the thirty-six weeks ended September 11, 2015, partially offset by $5.9 million of lower costs associated with management contracts that were terminated prior to 2015 and a $4.7 million negative impact from foreign exchange rates in our Europe segment.

General and Administrative

Twelve Weeks Ended September 11, 2015

General and administrative expenses increased $1.3 million (from $21.9 million to $23.2 million) and were driven by $1.7 million of costs related to a refurbishment project in the twelve weeks ended September 11, 2015, partially offset by lower costs ($0.4 million) related to cost savings and lower depreciation net of higher personnel related costs.

Thirty-Six Weeks Ended September 11, 2015

General and administrative expenses increased $2.0 million (from $66.9 million to $68.9 million) and were driven by $1.7 million of costs related to a refurbishment project in the thirty-six weeks ended September 11, 2015 and $0.3 million of higher personnel related and other costs net of lower depreciation and cost savings.

Litigation Settlement

Twelve Weeks and Thirty-Six Weeks Ended September 11, 2015

During the first quarter of 2015, we reversed $0.3 million of an accrual from the sale of The Abaco Club in the Bahamas in the fourth quarter of 2014 because actual costs were lower than expected.

During the third quarter of 2014, an agreement in principle was reached to settle an action related to The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”), a project within our North America segment. As a result of the agreement in principle, we recorded a charge of $3.2 million, which is included in the Litigation settlement line on our Statements of Income for the twelve and thirty-six weeks ended September 12, 2014. See Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements for further information related to this action.

During the second quarter of 2014, we agreed to settle a dispute with a service provider relating to services provided to us prior to 2011. The dispute related to certain lawsuits and claims asserted by several residential unit and fractional interest owners at the RCC San Francisco, who questioned the adequacy of disclosures made regarding bonds issued for that project under California’s Mello-Roos Community Facilities Act of 1982 and their payment obligations with respect to such bonds. In connection with the settlement, we received a one-time payment of $7.6 million after the end of the second quarter

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of 2014 from the service provider, which no longer provides services to us. We recorded a gain of $7.6 million as a result of the settlement, which is included in the Litigation settlement line on our Statement of Operations for the thirty-six weeks ended September 12, 2014.

Organizational and Separation Related Efforts

Twelve Weeks and Thirty-Six Weeks Ended September 11, 2015

Organizational and separation related expenses, as reflected on our Statements of Income, increased slightly in the third quarter of 2015, with $0.4 million of expenses in the twelve weeks ended September 11, 2015 compared to $0.3 million in the prior year comparable period. Organizational and separation related expenses were $0.7 million in the thirty-six weeks ended September 11, 2015 compared to $2.3 million in the prior year comparable period due to the completion of many of the initiatives relating to our separation from Marriott International.

Royalty Fee

Twelve Weeks Ended September 11, 2015

Royalty fee expense decreased $0.3 million in the twelve weeks ended September 11, 2015 (from $14.3 million to $14.0 million) due to a higher portion of sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent).

Thirty-Six Weeks Ended September 11, 2015

Royalty fee expense decreased $1.0 million in the thirty-six weeks ended September 11, 2015 (from $41.4 million to $40.4 million), and included $1.1 million of lower costs due to a higher portion of sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent), partially offset by $0.1 million of higher costs due to higher closings in the thirty-six weeks ended September 11, 2015. Royalty fee expense decreased despite higher sales of our real estate inventory, as the $28.4 million of residential contract sales in our Asia Pacific segment were unbranded and did not require us to pay a royalty fee.

Impairment

Twelve Weeks and Thirty-Six Weeks Ended September 11, 2015

There were no impairment charges during the first, second or third quarters of 2015. During the second quarter of 2014, we recorded an impairment charge of $0.9 million with respect to a building as a result of a termination of a land lease at one of our projects in our North America segment.

(Losses) Gains and Other (Expense) Income

Twelve Weeks and Thirty-Six Weeks Ended September 11, 2015

(Losses) gains and other (expense) income decreased $0.2 million in the twelve weeks ended September 11, 2015 (from $0.2 million to $0) and increased $7.7 million in the thirty-six weeks ended September 11, 2015 (from $1.8 million to $9.5 million). The $7.7 million increase in the thirty-six weeks ended September 11, 2015 was due to an $8.7 million gain on the disposition of undeveloped land in Kauai, Hawaii in the thirty-six weeks ended September 11, 2015, partially offset by a $0.9 million lower gain from the disposition of a golf course and adjacent undeveloped land in Orlando, Florida and a $0.3 million gain from the disposition of undeveloped land on Singer Island, Florida in the prior year comparable period. We disposed of a golf course and undeveloped land in Orlando, Florida in the first quarter of 2014 and, as a condition of the sale, we continued to operate the golf course through the end of the first quarter of 2015 at our own risk. We utilized the performance of services method to record a gain of $3.1 million over the period during which we operated the golf course, of which $0.9 million was recorded in the thirty-six weeks ended September 11, 2015 and $1.8 million in the prior year comparable period.

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Interest Expense

Twelve Weeks Ended September 11, 2015

Interest expense decreased $0.1 million (from $2.9 million to $2.8 million) due to a $0.2 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International and a $0.4 million decline in other interest expense, partially offset by $0.5 million of lower capitalized interest costs because fewer projects were under construction than in the prior year comparable period.

Thirty-Six Weeks Ended September 11, 2015

Interest expense increased $1.2 million (from $7.6 million to $8.8 million) due to $2.5 million of lower capitalized interest costs because fewer projects were under construction than in the prior year comparable period, partially offset by a $0.6 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International and a $0.7 million decline in other interest expense.

Other

Twelve Weeks and Thirty-Six Weeks Ended September 11, 2015

During the third quarter of 2015 we incurred $4.2 million of transaction related costs mainly associated with the completion of our purchase of an operating hotel located in Surfers Paradise, Australia. In the thirty-six weeks ended September 11, 2015 we incurred $5.4 million of costs mainly associated with the completion of our purchase of an operating hotel located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for which transaction costs are expensed. See Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements for further information related to this transaction.

Income Tax

Twelve Weeks Ended September 11, 2015

Our provision for income taxes decreased $3.3 million (from $17.9 million to $14.6 million) from the prior year comparable period. The decrease was due to lower income in the United States.

Thirty-Six Weeks Ended September 11, 2015

Our provision for income taxes increased $8.3 million (from $53.0 million to $61.3 million) from the prior year comparable period. The increase was due to higher income in the United States and an increase in tax from foreign jurisdictions.

Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”)

EBITDA, a financial measure that is not prescribed or authorized by GAAP, is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), provision for income taxes, depreciation and amortization. For purposes of our EBITDA calculation, 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 that is generally non-recourse to us. Further, we consider consumer financing interest expense to be an operating expense of our business.

We consider EBITDA to be an indicator of operating performance, and we use it to measure our ability to service debt, fund capital expenditures and expand our business. We also use it, as do analysts, lenders, investors and others, because it 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 provision for income taxes can vary considerably among companies. EBITDA also excludes 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.

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EBITDA has 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 differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below shows our EBITDA calculation and reconciles that measure with Net income.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Net income	$	21,555	$	25,648	$	89,650	$	80,259
Interest expense		2,839		2,890		8,822		7,638
Tax provision		14,608		17,862		61,300		52,969
Depreciation and amortization		5,292		4,261		13,850		13,183
EBITDA	$	44,294	$	50,661	$	173,622	$	154,049

Business Segments

Our business is grouped into three reportable business segments: North America, Europe and Asia Pacific. See Footnote No. 14, “Business Segments,” to our Financial Statements for further information on our segments.

As of September 11, 2015, our portfolio consisted of the following 61 properties by segment:

	U.S. (1)	Non-U.S.	Total
North America(2)	47	5	52
Europe	—	5	5
Asia Pacific(3)	—	4	4
Total	47	14	61

⁽¹⁾  Includes properties located in the 48 contiguous states, Hawaii and Alaska.

⁽²⁾  Includes an operating hotel in San Diego, California acquired during the first quarter of 2015, which is operated by a third party, that we intend to convert in the near term into vacation ownership interests for future use in our MVCD program.

⁽³⁾  Includes an operating hotel in Surfers Paradise, Australia acquired during the third quarter of 2015, which is operated by a third party. We intend to convert a portion of this hotel in the near term into vacation ownership interests for future use in our Asia Pacific segment, and to sell the remaining downsized hotel to a third party.

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North America

The following discussion presents an analysis of our results of operations for the twelve and thirty-six weeks ended September 11, 2015, compared to the twelve and thirty-six weeks ended September 12, 2014.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Revenues
Sale of vacation ownership products	$	122,908	$	138,179	$	406,784	$	404,111
Resort management and other services		64,437		61,956		189,206		184,596
Financing		26,399		27,519		79,809		83,887
Rental		65,135		55,216		202,606		168,943
Cost reimbursements		83,561		81,031		260,452		251,616
Total revenues		362,440		363,901		1,138,857		1,093,153
Expenses
Cost of vacation ownership products		35,736		41,394		117,071		120,332
Marketing and sales		62,652		63,092		199,506		187,501
Resort management and other services		39,175		40,021		115,244		119,637
Rental		53,742		46,962		163,481		145,984
Litigation settlement		—		2,975		(370)		(4,600)
Organizational and separation related		59		120		313		525
Royalty fee		2,228		2,529		5,174		6,026
Impairment		—		26		—		860
Cost reimbursements		83,561		81,031		260,452		251,616
Total expenses		277,153		278,150		860,871		827,881
(Losses) gains and other (expense) income		(4)		207		9,534		1,897
Equity in earnings		54		50		156		170
Segment financial results	$	85,337	$	86,008	$	287,676	$	267,339

Contract Sales

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change			% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	142,787	$	148,154	$	(5,367	)	(4%)
Residential products		—		4,488		(4,488	)	(100%)
Total contract sales	$	142,787	$	152,642	$	(9,855	)	(6%)

The decrease in vacation ownership contract sales in our North America segment reflected a $4.0 million decrease in sales at off-site (non tour-based) sales locations and a $2.5 million decrease in sales at on-site sales locations, partially offset by a $1.1 million increase in fractional sales as we continue to sell through remaining luxury inventory.

The sales at off-site locations were negatively impacted in part by the strength of the U.S. dollar, primarily in Latin America.

The sales at on-site locations were negatively impacted in part by the strength of the U.S. dollar, primarily impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort on Oahu. The decrease in sales at on-site sales locations reflected a 1.4 percent decrease in VPG to $3,428 in the twelve weeks ended September 11, 2015 from $3,477 in the prior year comparable period and a 1.3 percent decrease in the number of tours. The decrease in VPG resulted from a decrease in the number of points sold per contract due to the increase in sales to existing owners in the current period, partially offset by higher pricing and a 0.1 percentage point increase in closing efficiency. The decrease in the number of tours was driven in part by hurricane activity in the Caribbean and Hawaii, as well as the threatened hurricane activity in Florida, which resulted in tour cancellations.

The decline in residential contract sales was due to the sale of $4.5 million of excess residential inventory in the prior year comparable period.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	449,385	$	433,928	$	15,457	4%
Residential products		—		10,814		(10,814)	(100%)
Total contract sales	$	449,385	$	444,742	$	4,643	1%

The increase in vacation ownership contract sales in our North America segment reflected a $12.0 million increase in sales at on-site sales locations and a $3.8 million increase in fractional sales as we continue to sell through remaining luxury inventory, partially offset by a $0.3 million decrease in sales at off-site (non tour-based) sales locations.

The increase in sales at on-site sales locations reflected a 1.3 percent increase in VPG to $3,489 in the thirty-six weeks ended September 11, 2015 from $3,444 in the prior year comparable period and a 1.7 percent increase in the number of tours, and was negatively impacted in the third quarter of 2015 by the strength of the U.S. dollar, primarily impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort in Oahu. The increase in VPG was due to a 0.4 percentage point increase in closing efficiency and higher pricing, partially offset by a decrease in the number of points sold per contract due to the increase in sales to existing owners in the current period. The increase in the number of tours was driven by an increase in existing owner tours. In the first quarter of 2015, we announced enhancements to our owner recognition levels that created a near-term incentive for existing owners to purchase additional points prior to the end of the twenty-four weeks ended June 19, 2015, which resulted in an increase in existing owner tours. This was partially offset by the decrease in the number of tours in the third quarter of 2015 as a result of the hurricane and threatened hurricane activity mentioned above.

The decline in residential contract sales was due to the sale of $10.8 million of excess residential inventory in the prior year comparable period.

Sale of Vacation Ownership Products

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	142,787	$	152,642	$	(9,855)	(6%)
Revenue recognition adjustments:
Reportability		(9,849)		(4,104)		(5,745)
Sales reserve		(5,901)		(5,867)		(34)
Other(1)		(4,129)		(4,492)		363
Sale of vacation ownership products	$	122,908	$	138,179	$	(15,271)	(11%)

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a $9.8 million negative impact in the current period, compared to a $4.1 million negative impact in the prior year comparable period, due to fewer sales meeting the down payment requirements for revenue reportability in the current period, in part due to a nine percentage point increase in financing propensity in the third quarter of 2015 compared to the prior year comparable period. The slight increase in sales reserve reflects the higher reserve rate associated with the higher financing propensity, partially offset by the decrease in vacation ownership contract sales.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	449,385	$	444,742	$	4,643	1%
Revenue recognition adjustments:
Reportability		(11,351)		(8,296)		(3,055)
Sales reserve		(17,886)		(18,618)		732
Other(1)		(13,364)		(13,717)		353
Sale of vacation ownership products	$	406,784	$	404,111	$	2,673	1%

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had an $11.4 million negative impact in the current period, compared to an $8.3 million negative impact in the prior year comparable period due to fewer sales meeting the down payment requirements for revenue reportability in the current period in part due to a five percentage point increase in financing propensity in the current period, partially offset by fewer sales in the rescission period at the end of the thirty-six weeks ended September 11, 2015 compared to the prior year comparable period. The lower sales reserve is due to a decrease in the estimated default activity compared to the prior year comparable period, partially offset by the increase in vacation ownership contract sales and higher financing propensity as compared to the prior year comparable period.

Development Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	122,908	$	138,179	$	(15,271)	(11%)
Cost of vacation ownership products		(35,736)		(41,394)		5,658	14%
Marketing and sales		(62,652)		(63,092)		440	1%
Development margin	$	24,520	$	33,693	$	(9,173)	(27%)
Development margin percentage		20.0%		24.4%		(4.4 pts)

The decrease in development margin reflected the following:

• $4.9 million from lower vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $2.3 million from higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs, $1.4 million from the lower vacation ownership contract sales and $1.2 million from an unfavorable mix of higher cost real estate inventory being sold;

• $3.6 million from lower revenue reportability compared to the prior year comparable period; and

• $0.9 million from lower residential contract sales (no residential sales in the twelve weeks ended September 11, 2015 compared to $0.9 million from the sale of residential inventory in the prior year comparable period).

These decreases were partially offset by $0.2 million from higher favorable product cost true-ups ($0.2 million in the twelve weeks ended September 11, 2015 compared to none in the prior year comparable period).

The 4.4 percentage point decline in the development margin percentage reflected a 2.0 percentage point decrease due to the unfavorable revenue reportability year-over-year, 1.7 percentage point decline due to the higher marketing and sales spending, and a 0.9 percentage point decrease due to an unfavorable mix of higher cost vacation ownership real estate inventory being sold in the twelve weeks ended September 11, 2015. These declines were partially offset by a 0.2 percentage point increase due to the lower favorable product cost true-up activity year-over-year.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	406,784	$	404,111	$	2,673	1%
Cost of vacation ownership products		(117,071)		(120,332)		3,261	3%
Marketing and sales		(199,506)		(187,501)		(12,005)	(6%)
Development margin	$	90,207	$	96,278	$	(6,071)	(6%)
Development margin percentage		22.2%		23.8%		(1.6 pts)

The decrease in development margin reflected the following:

• $2.0 million from higher vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $5.3 million from higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs, and $0.4 million from an unfavorable mix of higher cost vacation ownership real estate inventory being sold, partially offset by $3.7 million from the higher vacation ownership contract sales;

• $2.0 million from lower revenue reportability compared to the prior year comparable period;

• $2.3 million from lower residential contract sales (no residential sales in the thirty-six weeks ended September 11, 2015 compared to $2.3 million from the sale of residential inventory in the prior year comparable period); and

• $0.6 million from lower favorable product cost true-ups ($1.7 million in the thirty-six weeks ended September 11, 2015 compared to $2.3 million in the prior year comparable period).

These decreases were partially offset by $0.8 million from the lower estimated default activity compared to the prior year comparable period.

The 1.6 percentage point decline in the development margin percentage reflected a 1.2 percentage point decline due to higher marketing and sales spending, a 0.3 percentage point decrease due to the unfavorable revenue reportability year-over-year, a 0.1 percentage point decrease due to an unfavorable mix of higher cost vacation ownership real estate inventory being sold in the thirty-six weeks ended September 11, 2015, and a 0.1 percentage point decrease due to the lower favorable product cost true-up activity year-over-year. These declines were partially offset by a 0.1 percentage point increase due to the lower estimated default activity.

Resort Management and Other Services Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Management fee revenues	$	15,926	$	14,989	$	937	6%
Other services revenues		48,511		46,967		1,544	3%
Resort management and other services revenues		64,437		61,956		2,481	4%
Resort management and other services expenses		(39,175)		(40,021)		846	2%
Resort management and other services margin	$	25,262	$	21,935	$	3,327	15%
Resort management and other services margin percentage		39.2%		35.4%		3.8 pts

The increase in resort management and other services revenues reflected $0.9 million of higher management fees, $0.7 million of higher resales commission and other revenues, $0.5 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $0.4 million of higher ancillary revenues, $0.2 million of higher brand fees due to more closings compared to the prior year comparable period and $0.1 million of higher settlement fees due to an increase in the number of contracts closed. These increases were partially offset by $0.3 million of lower fees from external exchange service providers. The increase in ancillary revenues included a $1.6 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts and $0.6 million of ancillary revenues at the operating hotel in San Diego acquired in the first quarter of 2015, partially offset by a $1.8

47

million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing of the operation of a restaurant during the prior year.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $0.8 million of lower expenses, including $3.1 million of ancillary expense savings from the dispositions, closure and outsourcing noted above, partially offset by $1.8 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in the twelve weeks ended September 11, 2015 and $0.5 million from the operation of the hotel in San Diego.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Management fee revenues	$	47,403	$	44,637	$	2,766	6%
Other services revenues		141,803		139,959		1,844	1%
Resort management and other services revenues		189,206		184,596		4,610	2%
Resort management and other services expenses		(115,244)		(119,637)		4,393	4%
Resort management and other services margin	$	73,962	$	64,959	$	9,003	14%
Resort management and other services margin percentage		39.1%		35.2%		3.9 pts

The increase in resort management and other services revenues reflected $2.8 million of higher management fees, $2.0 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $1.5 million of higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees, and $1.0 million of higher resales commission and other revenues, partially offset by $2.4 million of lower ancillary revenues and $0.3 million of lower fees from external exchange service providers. The decrease in ancillary revenues included a $7.0 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing the operation of a restaurant during the prior year, partially offset by a $3.4 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts and $1.2 million of ancillary revenues at the operating hotel in San Diego acquired in the first quarter of 2015.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $4.4 million of lower expenses, including $10.9 million of ancillary expense savings from the dispositions, closure and outsourcing noted above, partially offset by $5.5 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in the thirty-six weeks ended September 11, 2015 and $1.0 million from the operation of the hotel in San Diego.

Financing Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Interest income	$	25,066	$	26,107	$	(1,041)	(4%)
Other financing revenues		1,333		1,412		(79)	(6%)
Financing revenues	$	26,399	$	27,519	$	(1,120)	(4%)
Financing propensity		53%		44%

The decrease in financing revenues was due to lower interest income from a lower outstanding vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.

The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help drive financing propensity higher than the 40 to 45 percent that the company has averaged in recent years.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Interest income	$	75,702	$	79,557	$	(3,855)	(5%)
Other financing revenues		4,107		4,330		(223)	(5%)
Financing revenues	$	79,809	$	83,887	$	(4,078)	(5%)
Financing propensity		45%		40%

The decrease in financing revenues was due to lower interest income from a lower outstanding vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.

The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help drive financing propensity higher than the 40 to 45 percent that the company has averaged in recent years.

Rental Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Rental revenues	$	65,135	$	55,216	$	9,919	18%
Unsold maintenance fees — upscale		(12,178)		(10,360)		(1,818)	(18%)
Unsold maintenance fees — luxury		(1,732)		(2,848)		1,116	39%
Unsold maintenance fees		(13,910)		(13,208)		(702)	(5%)
Other rental expenses		(39,832)		(33,754)		(6,078)	(18%)
Rental margin	$	11,393	$	8,254	$	3,139	38%
Rental margin percentage		17.5%		14.9%		2.6 pts

	Twelve Weeks Ended				Change		% Change
	September 11, 2015		September 12, 2014
Transient keys rented(1)		253,873		238,463		15,410	6%
Average transient key rate	$	209.70	$	205.82	$	3.88	2%
Resort occupancy		91.8%		91.7%		0.1 pts

⁽¹⁾  Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a 6 percent increase in transient keys rented ($3.2 million) primarily sourced from a 5 percent increase in available keys, $1.7 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points), a 2 percent increase in average transient rate ($1.0 million) driven by stronger consumer demand, and a $0.8 million increase in preview keys and other revenue. In addition, we generated $3.2 million of revenue from the operation of the hotel in San Diego acquired during the first quarter of 2015.

The increase in rental margin reflected $1.6 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as the $1.7 million increase in plus points revenue, partially offset by a $0.2 million loss from the operation of the hotel in San Diego acquired during the first quarter of 2015.

49

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Rental revenues	$	202,606	$	168,943	$	33,663	20%
Unsold maintenance fees — upscale		(35,521)		(29,958)		(5,563)	(19%)
Unsold maintenance fees — luxury		(6,148)		(7,587)		1,439	19%
Unsold maintenance fees		(41,669)		(37,545)		(4,124)	(11%)
Other rental expenses		(121,812)		(108,439)		(13,373)	(12%)
Rental margin	$	39,125	$	22,959	$	16,166	70%
Rental margin percentage		19.3%		13.6%		5.7 pts

	Thirty-Six Weeks Ended				Change		% Change
	September 11, 2015		September 12, 2014
Transient keys rented(1)		785,833		728,208		57,625	8%
Average transient key rate	$	217.06	$	207.00	$	10.06	5%
Resort occupancy		90.4%		90.5%		(0.1 pts)

⁽¹⁾  Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to an 8 percent increase in transient keys rented ($11.9 million) primarily sourced from an 8 percent increase in available keys, a 5 percent increase in average transient rate ($7.9 million) driven by stronger consumer demand, $4.4 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) and a $3.1 million increase in preview keys and other revenue. In addition, we generated $6.4 million of revenue from the operation of the hotel in San Diego acquired during the first quarter of 2015.

The increase in rental margin reflected $13.1 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, as well as the $4.4 million increase in plus points revenue, partially offset by a $1.3 million loss from the operation of the hotel in San Diego acquired during the first quarter of 2015.

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Europe

The following discussion presents an analysis of our results of operations for the twelve and thirty-six weeks ended September 11, 2015, compared to the twelve and thirty-six weeks ended September 12, 2014.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Revenues
Sale of vacation ownership products	$	7,591	$	9,564	$	19,138	$	26,822
Resort management and other services		7,179		8,134		19,063		22,029
Financing		887		988		2,774		2,973
Rental		8,335		8,831		15,850		16,900
Cost reimbursements		8,003		9,774		23,378		27,787
Total revenues		31,995		37,291		80,203		96,511
Expenses
Cost of vacation ownership products		2,070		2,888		4,155		6,723
Marketing and sales		4,954		5,762		15,243		16,779
Resort management and other services		5,970		7,141		16,285		19,387
Rental		4,696		4,881		11,660		12,108
Royalty fee		126		144		290		426
Cost reimbursements		8,003		9,774		23,378		27,787
Total expenses		25,819		30,590		71,011		83,210
Losses and other expense		(17)		—		(13)		(39)
Segment financial results	$	6,159	$	6,701	$	9,179	$	13,262

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

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change			% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	10,093	$	11,307	$	(1,214	)	(11%)
Total contract sales	$	10,093	$	11,307	$	(1,214	)	(11%)

The decrease in contract sales was driven by $1.4 million of lower sales from our Middle East sales location, as well as $1.2 million from the changes in foreign exchange rates, partially offset by $1.4 million of stronger fractional sales at our project in London, United Kingdom.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change			% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract Sales
Vacation ownership	$	22,732	$	31,410	$	(8,678	)	(28%)
Total contract sales	$	22,732	$	31,410	$	(8,678	)	(28%)

The decrease in contract sales was driven by $6.4 million of lower sales from our Middle East sales location due to large multi-week purchases in the prior year comparable period that did not recur in the current period, as well as higher cancellations and fewer tours in the current period, $3.2 million from the changes in foreign exchange rates, and $0.5 million of lower sales across the other sites in this segment, partially offset by $1.4 million of stronger fractional sales at our project in London, United Kingdom.

51

Sale of Vacation Ownership Products

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	10,093	$	11,307	$	(1,214)	(11%)
Revenue recognition adjustments:
Reportability		(1,345)		(711)		(634)
Sales reserve		(983)		(968)		(15)
Other(1)		(174)		(64)		(110)
Sale of vacation ownership products	$	7,591	$	9,564	$	(1,973)	(21%)

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a negative impact in the current period compared to the prior year comparable period because fewer sales met the down payment requirement for revenue recognition purposes prior to the end of the current period compared to the prior year comparable period. The slight increase in the sales reserve is due to an increase in the estimated default activity compared to the prior year comparable period, partially offset by the lower contract sales.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	22,732	$	31,410	$	(8,678)	(28%)
Revenue recognition adjustments:
Reportability		(158)		(1,224)		1,066
Sales reserve		(3,098)		(3,171)		73
Other(1)		(338)		(193)		(145)
Sale of vacation ownership products	$	19,138	$	26,822	$	(7,684)	(29%)

⁽¹⁾  Adjustent for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a smaller negative impact in the current period compared to the prior year comparable period because more sales met the down payment requirement for revenue recognition purposes prior to the end of the current period compared to the prior year comparable period. The decrease in the sales reserve is due to the lower contract sales, partially offset by an increase in the estimated default activity compared to the prior year comparable period.

Development Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	7,591	$	9,564	$	(1,973)	(21%)
Cost of vacation ownership products		(2,070)		(2,888)		818	28%
Marketing and sales		(4,954)		(5,762)		808	14%
Development margin	$	567	$	914	$	(347)	(38%)
Development margin percentage		7.5%		9.6%		(2.1 pts)

The decrease in development margin reflected $0.4 million from the lower revenue reportability year-over-year and $0.2 million from the increase in the estimated default activity, partially offset by $0.3 million from the lower vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due to a favorable mix of lower cost vacation ownership real estate inventory being sold.

52

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	19,138	$	26,822	$	(7,684)	(29%)
Cost of vacation ownership products		(4,155)		(6,723)		2,568	38%
Marketing and sales		(15,243)		(16,779)		1,536	9%
Development margin	$	(260)	$	3,320	$	(3,580)	(108%)
Development margin percentage		(1.4%)		12.4%		(13.8 pts)

The decrease in development margin reflected $3.8 million from the lower vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due in part to less efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower sales volumes, as well as $0.5 million from the increase in the estimated default activity. These decreases were partially offset by $0.7 million from the higher revenue reportability year-over-year.

Asia Pacific

The following discussion presents an analysis of our results of operations for the twelve and thirty-six weeks ended September 11, 2015, compared to the twelve and thirty-six weeks ended September 12, 2014.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Revenues
Sale of vacation ownership products	$	6,303	$	7,641	$	50,156	$	21,863
Resort management and other services		2,212		891		4,039		2,723
Financing		1,008		1,038		3,057		3,142
Rental		2,569		1,573		6,424		5,129
Cost reimbursements		609		703		2,107		2,366
Total revenues		12,701		11,846		65,783		35,223
Expenses
Cost of vacation ownership products		1,432		1,959		25,231		5,459
Marketing and sales		4,022		4,526		14,011		12,547
Resort management and other services		2,264		695		3,769		2,037
Rental		4,129		2,762		9,419		8,294
Royalty fee		139		159		446		483
Cost reimbursements		609		703		2,107		2,366
Total expenses		12,595		10,804		54,983		31,186
Gains (losses) and other income (expense)		1		—		(29)		(8)
Equity in losses		(4)		(12)		(8)		(14)
Other		(4,159)		—		(5,431)		—
Segment financial results	$	(4,056)	$	1,030	$	5,332	$	4,015

Overview

In our Asia Pacific segment, we continue to identify opportunities for development margin improvement. Our on-site sales locations are more efficient sales channels than our off-site sales locations and we plan to focus on future inventory acquisitions with strong on-site sales locations. Due to operational constraints, regulatory conditions and certain other conditions related to our 18 units in Macau, we decided not to sell these units through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as whole ownership residential units during the first quarter of 2015. In the third quarter of 2015, we reinvested the proceeds from this disposition into the purchase of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into a new timeshare destination that we expect will have a strong on-site sales location and to sell the remainder to a third party.

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Contract Sales

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Contract Sales
Vacation ownership	$	6,877	$	7,784	$	(907)	(12%)
Total contract sales	$	6,877	$	7,784	$	(907)	(12%)

The decrease in vacation ownership contract sales was due to lower sales to the existing owner base and the negative impact of local currency devaluations in the current period.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Contract Sales
Vacation ownership	$	23,528	$	21,744	$	1,784	8%
Residential products		28,420		—		28,420	NM
Total contract sales	$	51,948	$	21,744	$	30,204	139%

The increase in vacation ownership contract sales reflected an increase in the cancellations rate due to changes in the Singapore timeshare regulations and political turmoil in Thailand in the current prior year comparable period. In addition, the current period reflects lower sales to the existing owner base and the negative impact of local currency devaluations in the current period.

The $28.4 million of residential contract sales was from the disposition of the Macau inventory discussed above.

Sale of Vacation Ownership Products

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Contract sales	$	6,877	$	7,784	$	(907)	(12%)
Revenue recognition adjustments:
Reportability		143		312		(169)
Sales reserve		(716)		(475)		(241)
Other(1)		(1)		20		(21)
Sale of vacation ownership products	$	6,303	$	7,641	$	(1,338)	(17%)

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The lower favorable reportability in the current period is due to the recognition of sales in the prior year comparable period that were previously in the rescission period as a result of the change in timeshare legislation in Singapore. The increase in the sales reserve is due to an increase in the estimated default activity compared to the prior year comparable period, partially offset by the lower contract sales.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Contract sales	$	51,948	$	21,744	$	30,204	139%
Revenue recognition adjustments:
Reportability		385		1,292		(907)
Sales reserve		(2,162)		(1,219)		(943)
Other(1)		(15)		46		(61)
Sale of vacation ownership products	$	50,156	$	21,863	$	28,293	129%

⁽¹⁾  Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The lower favorable reportability in the current period is due to the recognition of sales in the prior year comparable period that were previously in the rescission period as a result of the change in timeshare legislation in Singapore. The increase in the sales reserve is due to an increase in the estimated default activity compared to the prior year comparable period as well as the increase in vacation ownership contract sales.

Development Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	6,303	$	7,641	$	(1,338)	(18%)
Cost of vacation ownership products		(1,432)		(1,959)		527	27%
Marketing and sales		(4,022)		(4,526)		504	11%
Development margin	$	849	$	1,156	$	(307)	(27%)
Development margin percentage		13.5%		15.1%		(1.6 pts)

The decrease in development margin reflected $0.3 million from the increase in the sales reserve, $0.1 million from lower revenue reportability compared to the prior year comparable period and $0.1 million from the lower sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), partially offset by $0.2 million from higher favorable product cost true-ups.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change		% Change
($ in thousands)	September 11, 2015		September 12, 2014
Sale of vacation ownership products	$	50,156	$	21,863	$	28,293	129%
Cost of vacation ownership products		(25,231)		(5,459)		(19,772)	NM
Marketing and sales		(14,011)		(12,547)		(1,464)	(12%)
Development margin	$	10,914	$	3,857	$	7,057	183%
Development margin percentage		21.8%		17.6%		4.2 pts

The increase in development margin reflected $5.9 million from the residential contract sales, $1.5 million from higher favorable product cost true-ups ($1.6 million in the thirty-six weeks ended September 11, 2015 compared to $0.1 million in the prior year comparable period), and $1.0 million from the higher sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), and included more efficient marketing and sales spending at our existing sales locations due to leveraging fixed costs on higher sales volumes. These increases were partially offset by $0.7 million from the lower revenue reportability compared to the prior year comparable period and $0.6 million from the increase in the sales reserve.

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Resort Management and Other Services Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Management fee revenues	$	630	$	597	$	33	6%
Other services revenues		1,582		294		1,288	NM
Resort management and other services revenues		2,212		891		1,321	148%
Resort management and other services expenses		(2,264)		(695)		(1,569)	NM
Resort management and other services margin	$	(52)	$	196	$	(248)	(127%)
Resort management and other services margin percentage		2.4%		22.1%		(19.7 pts)

The increase in resort management and other services revenues reflected $1.3 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015.

The decline in the resort management and other services margin reflected spending in support of future growth in the business.

Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Management fee revenues	$	1,859	$	1,766	$	93	5%
Other services revenues		2,180		957		1,223	128%
Resort management and other services revenues		4,039		2,723		1,316	48%
Resort management and other services expenses		(3,769)		(2,037)		(1,732)	(85%)
Resort management and other services margin	$	270	$	686	$	(416)	(61%)
Resort management and other services margin percentage		6.7%		25.2%		(18.5 pts)

The increase in resort management and other services revenues reflected $1.3 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015 and $0.1 million of higher management fees, partially offset by $0.1 million of lower other revenues.

The decline in the resort management and other services margin reflected spending in support of future growth in the business.

Rental Revenues, Expenses and Margin

Twelve Weeks Ended September 11, 2015

	Twelve Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		Change		% Change
Rental revenues	$	2,569	$	1,573	$	996	63%
Rental expenses		(4,129)		(2,762)		(1,367)	(49%)
Rental margin	$	(1,560)	$	(1,189)	$	(371)	(31%)
Rental margin percentage		(60.7%)		(75.6%)		14.9 pts

The increase in rental revenues was due to the operation of the hotel in Australia acquired in the third quarter of 2015. The decrease in rental margin reflected a $0.6 million loss from the hotel, partially offset by $0.2 million of lower unsold maintenance fees.

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Thirty-Six Weeks Ended September 11, 2015

	Thirty-Six Weeks Ended				Change			% Change
($ in thousands)	September 11, 2015		September 12, 2014
Rental revenues	$	6,424	$	5,129	$	1,295		25%
Rental expenses		(9,419)		(8,294)		(1,125	)	(14%)
Rental margin	$	(2,995)	$	(3,165)	$	170		5%
Rental margin percentage		(46.6%)		(61.7%)		15.1 pts

The increase in rental revenues was due to the operation of the hotel in Australia acquired in the third quarter of 2015. The increase in rental margin reflected $0.9 million of lower unsold maintenance fees, partially offset by a $0.6 million loss from the operation of the hotel.

Corporate and Other

The following discussion presents an analysis of our results of operations for the twelve and thirty-six weeks ended September 11, 2015, compared to the twelve and thirty-six weeks ended September 12, 2014.

	Twelve Weeks Ended				Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014		September 11, 2015		September 12, 2014
Expenses
Cost of vacation ownership products	$	1,538	$	2,399	$	4,400	$	6,411
Financing		5,488		5,434		16,478		15,976
General and administrative		23,214		21,932		68,883		66,913
Litigation settlement		—		250		134		250
Organizational and separation related		380		212		419		1,747
Consumer financing interest		5,289		5,605		16,558		17,967
Royalty fee		11,507		11,507		34,521		34,485
Total expenses		47,416		47,339		141,388		143,749
Losses and other expense		—		—		—		(1)
Interest expense		(2,839)		(2,890)		(8,822)		(7,638)
Other		(1,022)		—		(1,022)		—
Total financial results	$	(51,277)	$	(50,229)	$	(151,237)	$	(151,388)

Corporate and Other consists of results not specifically attributable to an individual segment, including expenses in support of our financing operations, non-capitalizable development expenses incurred to support overall company development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense and the fixed royalty fee payable under the license agreements that we entered into with Marriott International in connection with the Spin-Off.

Total Expenses

Twelve Weeks Ended September 11, 2015

Total expenses increased $0.1 million from the prior year comparable period. The $0.1 million increase resulted from $1.3 million of higher general and administrative expenses, $0.2 million of higher organizational and separation related expenses due to the timing of expenses compared to the prior year comparable period, and $0.1 million of higher financing expenses, partially offset by $0.9 million of lower cost of vacation ownership products expenses due to the higher capitalization of development expenses in the current year period, $0.3 million of lower consumer financing interest expense, and $0.3 million of litigation settlements in the prior year period.

General and administrative expenses increased $1.3 million and were driven by $1.7 million of costs related to a refurbishment project in the twelve weeks ended September 11, 2015, partially offset by $0.4 million related to cost savings and lower depreciation net of higher personnel related costs.

The $0.3 million decline in consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances. The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

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Thirty-Six Weeks Ended September 11, 2015

Total expenses decreased $2.4 million from the prior year comparable period. The $2.4 million decrease resulted from $2.0 million of lower cost of vacation ownership products expenses due to lower pre-development spending associated with potential acquisitions and higher capitalization of other development expenses, $1.4 million of lower consumer financing interest expense $1.3 million of lower organizational and separation related expenses due to the completion of many of the initiatives relating to our separation from Marriott International and $0.1 million of lower litigation settlements, partially offset by $2.0 million of higher general and administrative expenses and $0.5 million of higher financing expenses.

The $1.4 million decline in consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances ($1.7 million), partially offset by an increase in the outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($0.3 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

General and administrative expenses increased $2.0 million (from $66.9 million to $68.9 million) and were driven by $1.7 million of costs related to a refurbishment project in the thirty-six weeks ended September 11, 2015 and $0.3 million of higher personnel related and other costs net of lower depreciation and cost savings.

Recent Accounting Pronouncements

See Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.

Liquidity and Capital Resources

Our capital needs are supported by cash on hand ($321.7 million at the end of the third quarter of 2015), cash generated from operations, our ability to raise capital through securitizations in the ABS market, and to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, and fulfill other cash requirements. At the end of the third quarter of 2015, $776.6 million of the $780.2 million of total gross debt outstanding was non-recourse debt associated with vacation ownership notes receivable securitizations. In addition, we have $40.0 million of gross mandatorily redeemable preferred stock of a consolidated subsidiary that we are not required to redeem until October 2021. We may, however, redeem the preferred stock at par beginning in October 2016 at our option.

At the end of the third quarter of 2015, we had $716.0 million of real estate inventory on hand, comprised of $351.9 million of finished goods and $364.1 million of land and infrastructure. We expect to continue to sell excess Ritz-Carlton branded inventory through the MVCD program or bulk sale transactions in order to generate incremental cash and reduce related carrying costs.

Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our sales are of a points-based product, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we no longer need specific resort-based inventory at each sales location, we need to have only a few resorts under construction at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to align our real estate inventory acquisitions with the pace of sales of vacation ownership products.

We are selectively pursuing growth opportunities in North America and Asia by targeting high-quality inventory that would allow 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 deals may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale.

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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 thirty-six weeks ended September 11, 2015 we had a net decrease in cash and cash equivalents of $24.8 million compared to a net decrease of $53.4 million during the thirty-six weeks ended September 12, 2014. The following table summarizes these changes:

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Cash provided by (used in):
Operating activities	$	100,724	$	206,478
Investing activities		(60,542)		46,213
Financing activities		(61,764)		(305,280)
Effect of change in exchange rates on cash and cash equivalents		(3,243)		(790)
Net change in cash and cash equivalents	$	(24,825)	$	(53,379)

Cash from Operating Activities

Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable and (3) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory and funding our working capital needs.

We minimize our working capital needs through cash management, strict credit-granting policies, and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing of sales contracts for vacation ownership products, financing propensity and cash outlays for real estate inventory acquisition and development.

In the thirty-six weeks ended September 11, 2015, we generated $100.7 million of cash flows from operating activities, compared to $206.5 million in the thirty-six weeks ended September 12, 2014. Excluding the impact of changes in net income and adjustments for non-cash items, the decrease in cash flows was attributable to cash outlays for an acquisition of an operating hotel in San Diego, California that we intend to convert to vacation ownership interests in the future, the acquisition of a portion of an operating hotel in Washington, D.C. and the portion of the acquisition of an operating hotel located in Surfers Paradise, Australia that we intend to convert in the near term to vacation ownership interests for sale in our Asia Pacific segment. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding these transactions. The operating activities also reflect higher financing propensity due to our implementation of a new financing program, lower collections due to the reduction in the portfolio of outstanding vacation ownership notes receivable, timing of payments to property owners’ associations for maintenance fees collected on their behalf and the timing of payments for maintenance fees on unsold inventory. These outlays were partially offset by lower payments on the declining liability balance for the Marriott Rewards customer loyalty program.

In the thirty-six weeks ended September 11, 2015, we recorded residential contract sales of $28.4 million associated with the sale of eighteen units in Macau. In the thirty-six weeks ended September 12, 2014, we recorded residential contract sales of $10.8 million associated with the sale of five of the units at the RCC San Francisco that we bought back as part of a legal settlement at the end of 2012.

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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 of) Less Than Cost of Sales

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Real estate inventory spending	$	(90,585)	$	(68,102)
Purchase of operating hotels for future conversion to inventory		(61,554)		—
Real estate inventory costs		143,261		128,509
Real estate inventory spending (in excess of) less than cost of sales	$	(8,878)	$	60,407

We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Statements of Income related to sale of vacation ownership products (a non-cash item).

Our real estate inventory spending exceeded real estate inventory costs in the thirty-six weeks ended September 11, 2015, as a result of our opportunistic acquisition efforts. Real estate inventory spending included $32.0 million for the acquisition of 71 rooms at The Mayflower Hotel, Autograph Collection, an operating hotel in Washington, D.C. We intend to include these vacation ownership units, in their current form, in our MVCD program in the near term. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

During the thirty-six weeks ended September 11, 2015, we completed the acquisition of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel ($14.9 million, the related portion of the purchase price, which is included in Purchase of operating hotels for future conversion to inventory on our Cash Flows for the thirty-six weeks ended September 11, 2015) in the near term into vacation ownership interests for future use in our Asia Pacific segment. We intend to sell the remaining downsized hotel to a third party and have included the related portion of the purchase price as an Investing activity on our Cash Flows. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

We also capitalized on the opportunity to add a premier destination to our portfolio through the acquisition of an operating hotel in San Diego, California that we intend to convert in the near term to vacation ownership interests for future use in our MVCD program. In order to ensure consistency with the expected related future cash flow presentation, $46.6 million of the cash purchase price allocated to property and equipment was included as an operating activity in the Purchase of operating hotels for future conversion to inventory line on our Cash Flows for the thirty-six weeks ended September 11, 2015. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

Real estate inventory costs for the thirty-six weeks ended September 11, 2015 included $21.6 million related to the sale of the residential units in Macau.

In the thirty-six weeks ended September 12, 2014, real estate inventory spending was less than real estate inventory costs due to the level of completed real estate inventory on hand at that time.

Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.

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Notes Receivable Collections in Excess of New Mortgages

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Vacation ownership notes receivable collections — non-securitized	$	66,595	$	79,258
Vacation ownership notes receivable collections — securitized		126,257		124,470
Vacation ownership notes receivable originations		(189,029)		(169,784)
Vacation ownership notes receivable collections in excess of originations	$	3,823	$	33,944

Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections declined due to the reduction in the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the thirty-six weeks ended September 11, 2015 increased due to higher vacation ownership sales volumes and an increase in financing propensity to 46.4 percent for the thirty-six weeks ended September 11, 2015 compared to 42.6 percent for the thirty-six weeks ended September 12, 2014 due to the addition of a new financing incentive program implemented in the first half of 2015. Given the success of this program to date, we expect financing propensity levels to remain higher than the 40 to 45 percent that we have been averaging in recent years.

During the thirty-six weeks ended September 11, 2015, and as of September 11, 2015, no securitized vacation ownership notes receivable pools were out of compliance with established performance parameters.

Cash from Investing Activities

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015			September 12, 2014
Capital expenditures for property and equipment (excluding inventory)	$	(20,873)		$	(7,753)
Purchase of operating hotel to be sold		(47,658)			—
(Increase) decrease in restricted cash		(12,616)			20,656
Dispositions, net		20,605			33,310
Net cash (used in) provided by investing activities	$	(60,542	)	$	46,213

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 thirty-six weeks ended September 11, 2015, capital expenditures for property and equipment of $20.9 million included $15.7 million to support business operations (including $7.7 million associated with the assets purchased for the operating hotel in San Diego, California, $5.8 million for sales locations other than the operating hotel in San Diego, California, and $2.2 million for ancillary and operations assets) and $5.2 million for technology spending (including $3.0 million for Spin-Off related initiatives). See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding the San Diego transaction.

In the thirty-six weeks ended September 12, 2014, capital expenditures for property and equipment of $7.8 million included $4.4 million to support business operations (including $3.2 million for ancillary and operations assets and $1.2 million for sales locations) and $3.4 million for technology spending (including $1.9 million for Spin-Off related initiatives).

Purchase of Operating Hotel to be Sold

During the thirty-six weeks ended September 11, 2015, we completed the acquisition of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel in the near term into vacation ownership interests for future use in our Asia Pacific segment, and to sell the remaining downsized hotel to a third party. We have included $47.6 million, the portion of the purchase price related to the downsized hotel, as Purchase of operating hotel to be sold on our Cash Flows. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

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(Increase) Decrease in Restricted Cash

Restricted cash primarily consists of cash held in reserve accounts related to vacation ownership notes receivable securitizations, cash collected for maintenance fees to be remitted to property owners’ associations and deposits received, primarily associated with tour package sales and vacation ownership product sales that are held in escrow until the associated contract has closed or the period in which it can be rescinded has expired, depending on applicable legal requirements. Restricted cash also consists of cash received from the securitization of vacation ownership notes receivable with respect to vacation ownership notes receivable that are expected to be purchased by the 2015-1 Trust in the near term in accordance with the terms of the securitization transaction completed in the thirty-six weeks ended September 11, 2015. Refer to Footnote No. 9, “Debt,” to our Financial Statements for discussion of the terms of the securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

The increase in restricted cash in the thirty-six weeks ended September 11, 2015 reflected $51.4 million of the proceeds from the securitization transaction completed during the third quarter of 2015, which will be released as the remaining vacation ownership notes receivable are purchased by the 2015-1 Trust, a $6.7 million increase in cash that was collected for distribution to investors in connection with securitized vacation ownership notes receivable, a $2.7 million increase in cash associated with vacation ownership sales held in escrow and $1.7 million related to property refurbishment reserves for the newly acquired Surfers Paradise property. These increases were partially offset by $49.8 million of higher cash distributions for maintenance fees remitted to certain property owners’ associations subsequent to the end of 2014.

The decrease in restricted cash in the thirty-six weeks ended September 12, 2014 reflected $33.6 million of cash distributions for maintenance fees remitted to certain property owners’ associations subsequent to the end of 2013, partially offset by a $11.2 million increase in cash related to vacation ownership sales that are held in escrow, $1.2 million of cash distributions in connection with securitized vacation ownership notes receivable and a $0.6 million increase in funds required to be held in escrow to guarantee our credit card business in the Asia Pacific segment.

Dispositions

Dispositions in the thirty-six weeks ended September 11, 2015 related to the sale of undeveloped land in Kauai, Hawaii for $19.6 million, three lots in St. Thomas, U.S. Virgin Islands for $0.6 million and an operations facility in Hilton Head, South Carolina for $0.4 million.

Dispositions in the thirty-six weeks ended September 12, 2014 related to the sale of an operating golf course and adjacent undeveloped land in Orlando, Florida for $21.9 million, the sale of undeveloped land on Singer Island, Florida for $10.1 million, four lots in St. Thomas, U.S. Virgin Islands for $0.8 million, lots in Abaco, Bahamas for $0.3 million and undeveloped land in Seaview, New Jersey for $0.2 million.

Cash from Financing Activities

	Thirty-Six Weeks Ended
($ in thousands)	September 11, 2015		September 12, 2014
Borrowings from securitization transactions	$	255,000	$	22,638
Repayment of debt related to securitizations		(186,383)		(162,680)
Proceeds from vacation ownership inventory arrangement		5,375		—
Debt issuance costs		(4,405)		(1,676)
Repurchase of common stock		(106,110)		(160,155)
Payment of dividends		(16,003)		—
Proceeds from stock option exercises		96		1,723
Excess tax benefits from share-based compensation		68		—
Payment of withholding taxes on vesting of restricted stock units		(9,615)		(5,130)
Other		213		—
Net cash used in financing activities	$	(61,764)	$	(305,280)

Warehouse Credit Facility

At September 11, 2015, no amounts were outstanding under the Warehouse Credit Facility and $36.0 million of gross vacation ownership notes receivable were eligible for securitization. We expect that these vacation ownership notes receivable will be purchased by the 2015-1 Trust prior to December 31, 2015 in accordance with the terms of the securitization transaction completed in the third quarter of 2015. Refer to Footnote No. 9, “Debt,” to our Financial Statements for discussion of the terms of this securitization transaction and the purchase of additional vacation ownership notes receivable by the 2015-1 Trust.

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Borrowings from / Repayments of Debt Related to Securitization Transactions

We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.”

Repayments on the non-recourse debt associated with our vacation ownership notes receivable securitizations totaled $186.4 million (including $54.0 million for voluntary retirement clean-up calls) and $162.7 million (including $26.7 million for voluntary retirement clean-up calls) in the thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively.

In the thirty-six weeks ended September 11, 2015, we completed the securitization of a pool of $264.2 million of vacation ownership notes receivable. Approximately $211.4 million of the vacation ownership notes receivable were purchased on August 13, 2015 by the 2015-1 Trust, and we expect the remaining vacation ownership notes receivable to be purchased by the 2015-1 Trust prior to December 31, 2015. As of August 13, 2015, the 2015-1 Trust held $51.4 million of the proceeds, which will be released as the remaining vacation ownership notes receivable are purchased. On September 24, 2015, subsequent to the third quarter of 2015, the 2015-1 Trust purchased $31.5 million of the remaining vacation ownership notes receivable and $30.4 million was released from restricted cash. Any funds not used to purchase vacation ownership notes receivable will be returned to the investors. In connection with the securitization, investors purchased in a private placement $255.0 million in vacation ownership loan backed notes from the 2015-1 Trust. Two classes of vacation ownership loan backed notes were issued by the 2015-1 Trust: $233.2 million of Class A Notes and $21.8 million of Class B Notes. The Class A Notes have an interest rate of 2.52 percent and the Class B Notes have an interest rate of 2.96 percent, for an overall weighted average interest rate of 2.56 percent.

In the thirty-six weeks ended September 12, 2014, we completed the securitization of a pool of $23.6 million primarily highly-seasoned vacation ownership notes receivable that we previously classified as not being eligible for securitization. In connection with the securitization, investors purchased in a private placement $22.6 million in vacation ownership loan backed notes from the Kyuka Owner Trust 2014-A with an interest rate of 6.25 percent. The securitized loans previously were classified as not eligible for securitization using criteria applicable to then current securitization transactions in the ABS market because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction.

Proceeds from Vacation Ownership Inventory Arrangement

In connection with our initiative of pursuing growth opportunities in ways that optimize the timing of our capital investments, including working with third-party partners to develop new inventory or convert previously built units to be sold to us close to when we need such inventory for sale, we sold real property located in Marco Island, Florida during the first quarter of 2015 to a third-party developer. Pursuant to this transaction, we are obligated to repurchase the completed property from the developer contingent upon the property meeting our brand standards and provided that the third-party developer has not sold the property to another party. As discussed in Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements, we received cash proceeds of $5.4 million upon the sale of this real property. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this transaction as a sale, and as such have recorded these proceeds as a financing activity.

Share Repurchase Program

During the thirty-six weeks ended September 11, 2015, we repurchased 1,297,338 shares of our common stock at an average price of $81.79 per share for a total of $106.1 million (including $30.0 million under an accelerated share repurchase program pursuant to which we repurchased 370,065 shares). See Footnote No. 11, “Shareholders’ Equity,” to our Financial Statements for further information related to our share repurchase program.

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Dividends

On February 12, 2015, our Board of Directors declared a quarterly dividend of $0.25 per share to shareholders of record as of February 26, 2015, which we paid on March 11, 2015. On June 4, 2015, our Board of Directors declared a quarterly dividend of $0.25 per share to shareholders of record as of June 18, 2015, which we paid on July 2, 2015. On September 10, 2015 our Board of Directors declared a quarterly dividend of $0.25 per share to shareholders of record as of September 24, 2015, which we paid on October 8, 2015. Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay dividends in the future.

Contractual Obligations and Off-Balance Sheet Arrangements

There have been no significant changes to our “Contractual Obligations and Off-Balance Sheet Arrangements” as reported in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended January 2, 2015, other than those discussed below. As of September 11, 2015, debt, net increased by $66.7 million to $769.7 million compared to $703.0 million at January 2, 2015, of which $68.6 million related to a decrease in non-recourse gross debt associated with vacation ownership notes receivable securitizations, partially offset by $2.1 million of debt issuance cost amortization. As of September 11, 2015, future debt payments to be paid out of collections from our vacation ownership notes receivable, including principal and interest, totaled $865.1 million and are due as follows: $41.1 million in 2015; $131.5 million in 2016; $121.9 million in 2017; $105.5 million in 2018; $91.7 million in 2019; and $373.4 million thereafter.

We have a commitment of $137.1 million to purchase vacation ownership units located in Marco Island, Florida, as discussed in Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements, of which we expect $33.3 million, $50.0 million and $53.8 million will be paid in 2017, 2018 and 2019, respectively.

We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for our sales of vacation ownership products. The terms of these guarantees generally require us to fund if the purchaser fails to pay under the terms of its note payable. We are entitled to recover any payments we make to third-party lenders under these guarantees through reacquisition and resale of the vacation ownership product. Our commitments under these guarantees expire as the underlying notes mature or are repaid. Our maximum exposure under such guarantees as of September 11, 2015 in the Asia Pacific and North America segments was $5.8 million and $2.8 million, respectively. The terms of the underlying debt to third-party lenders extend to 2022.

For additional information on these guarantees and the circumstances under which they were entered into, see the “Guarantees” caption within Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements.

In the normal course of our resort management business, we enter into purchase commitments with property owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the resorts, these obligations have minimal impact on our net income and cash flow.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our 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 financial position or results of operations. We have discussed those 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk has not changed materially from that disclosed in our Annual Report on Form 10-K for the year ended January 2, 2015.

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 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 were 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 in Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2015.

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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)
June 20, 2015 – July 17, 2015		54,707	$	89.11		54,707		2,030,842
July 18, 2015 – August 14, 2015		424,905	$	82.37		424,905		1,605,937
August 15, 2015 – September 11, 2015		—	$	—		—		1,605,937
Total		479,612	$	83.14		479,612		1,605,937

⁽¹⁾  On October 12, 2015, our Board of Directors approved the repurchase of up to an additional 2,000,000 shares of our common stock under our existing share repurchase program and extended the termination date of the program to March 24, 2017. Prior to that authorization, our Board of Directors had authorized the repurchase of up to 6,900,000 shares of our common stock prior to March 26, 2016 under the share repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits filed or furnished as a part of this Quarterly Report on Form 10-Q are listed on the Index to Exhibits on page E-1, which is incorporated by reference herein.

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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
October 15, 2015	/s/ Stephen P. Weisz
	Stephen P. Weisz
	President and Chief Executive Officer
	/s/ John E. Geller, Jr.
	John E. Geller, Jr.
	Executive Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit         No.		Description
	3.1	Restated Certificate of Incorporation of Marriott Vacations Worldwide Corporation, incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on November 22, 2011.
	3.2	Restated Bylaws of Marriott Vacations Worldwide Corporation, incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed on November 22, 2011.
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
	32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	XBRL Instance Document.
	101.SCH	XBRL Taxonomy Extension Schema Document.
	101.CAL	XBRL Taxonomy Calculation Linkbase Document.
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
	101.LAB	XBRL Taxonomy Label Linkbase Document.
	101.PRE	XBRL Taxonomy Presentation Linkbase Document.

We have attached 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 twelve and thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively; (ii) the Interim Consolidated Statements of Comprehensive Income for the twelve and thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively; (iii) the Interim Consolidated Balance Sheets at September 11, 2015 and January 2, 2015; and (iv) the Interim Consolidated Statements of Cash Flows for the thirty-six weeks ended September 11, 2015 and September 12, 2014, respectively.

E-1