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Marriott Vacations Worldwide Reports Fourth Quarter and Full Year 2012 Financial Results and Provides 2013 Outlook

ORLANDO, Fla. February 21, 2013 – Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported fourth quarter and full year 2012 financial results and provided its outlook for 2013.

Fourth quarter highlights include:

Fourth quarter 2012 reported net loss was $7 million, or reported losses per share of $0.22, compared to reported net income of $8 million in the fourth quarter of 2011. Reported development margin increased to 19.8 percent in the fourth quarter of 2012 from 9.2 percent in the fourth quarter of 2011.

Full year 2012 highlights include:

Full year 2012 reported net income was $16 million, or $0.44 diluted earnings per share, compared to reported net loss of $178 million in 2011, or reported losses per share of $5.29. 2012 full year reported development margin was 14.8 percent, up from 8.0 percent in 2011.

2013 Outlook:

Non-GAAP financial measures, such as Adjusted EBITDA, as adjusted, Adjusted EBITDA on an adjusted pro forma basis, adjusted net income, adjusted net income on a pro forma basis and adjusted development margin are reconciled in the Press Release Schedules that follow. Adjustments are shown and described in further detail on schedules A-1 through A-20.

“We posted solid fourth quarter results capping off a very successful first full year as a public company. For the full year 2012, we increased Adjusted EBITDA, as adjusted, over 40 percent year-over-year and nearly doubled development margin to 14.8 percent, exceeding our 12 percent target,” said Stephen P. Weisz, president and chief executive officer. “In our North America segment, we saw VPG improve 18 percent and adjusted development margin more than double to 19.6 percent. These achievements reflect the strength of our Marriott Vacation Club Destinations program, primarily through reduced product cost and efficiencies we have gained in our marketing and sales operations.”

Weisz concluded, “We expect these positive trends to continue in 2013. We are projecting another year of strong growth in Adjusted EBITDA as we focus on driving further VPG growth and development margin improvement. We are also continuing to rationalize our cost structure as we complete our organizational and separation related efforts.”   

Fourth Quarter 2012 Results

For the fourth quarter, total revenues increased 3 percent year-over-year to $499 million, including $108 million in cost reimbursements. Higher revenue from the sale of vacation ownership products and resort management and other services were partially offset by lower rental revenues and financing revenues from lower interest income on a declining vacation ownership notes receivable portfolio.  

Revenue from the sale of vacation ownership products of $202 million increased nearly 5 percent from the prior year fourth quarter. Total gross contract sales increased 2 percent to $195 million in the fourth quarter of 2012 compared to the same period last year, driven by a 10 percent increase in the core North America segment, partially offset by lower contract sales in the Asia Pacific, Luxury and Europe segments.  

Development margin as reported was $40 million, a $23 million increase from the fourth quarter of 2011.  This increase was driven by $12 million of lower marketing and sales expenses from improved efficiencies, $8 million of lower cost of vacation ownership products resulting from favorable product cost true-up activity and approximately $3 million from higher revenue reportability year-over-year.

Reported development margin increased 10.6 percentage points to 19.8 percent in the fourth quarter of 2012 from 9.2 percent in the prior year quarter. Excluding the impacts of revenue reportability, primarily in the North America segment, and other charges, adjusted development margin was 17.9 percent, up 11.3 percentage points from 6.6 percent in the fourth quarter of 2011. The impact of revenue reportability and other charges is illustrated on schedules A-12 through A-15.

Resort management and other services revenues totaled $77 million, $4 million higher than the fourth quarter of 2011, reflecting additional annual club dues earned in conjunction with the company’s Marriott Vacation Club Destinations program as well as higher fees from managing its resorts. The company generated $18 million of resort management and other services revenues, net of expenses, $5 million higher than the fourth quarter of 2011.

Rental revenues totaled $58 million, a $6 million decrease from the fourth quarter of 2011. While results reflected higher demand for rental inventory with transient keys rented and transient rates up 10 percent and 2 percent, respectively, these results were more than offset by lower revenue from the company’s reduced utilization of plus points which were used as sales incentives for weeks owners to enroll in the North America points program. These points are redeemable for stays at the company’s resorts, generally within one to two years from the date of issuance. Rental revenue net of expenses was a loss of $9 million, as compared to a loss of $7 million in the fourth quarter of 2011, with results also reflecting higher redemption costs associated with Marriott Rewards points issued prior to the spin-off from Marriott International, Inc. in November 2011 (the “Spin-Off”), partially offset by lower maintenance fees on unsold inventory and lower subsidy costs.

Adjusted EBITDA, as adjusted for organizational and separation related charges, litigation charges and other activity, was $48 million in the fourth quarter of 2012, an increase of $18 million from Adjusted EBITDA on a pro forma basis of $30 million in the fourth quarter of 2011.

In the fourth quarter of 2012, the company completed the sale of the golf course, clubhouse and spa formerly known as The Ritz-Carlton Golf Club & Spa, Jupiter in Florida for $34 million, including $5 million of cash and the assumption by the purchaser of liabilities with a book value of $29 million. The company recorded a net gain of $8 million from the transaction.  

Fourth quarter 2012 adjusted net income totaled $21 million, an $18 million increase from $3 million of adjusted net income on a pro forma basis in the fourth quarter of 2011. Fourth quarter 2012 adjusted results exclude $39 million related to litigation settlements at the company’s Luxury project in San Francisco, an $8 million gain from the sale of its Luxury golf course, clubhouse and spa formerly known as The Ritz-Carlton Golf Club & Spa, Jupiter, $7 million of charges related to organizational and separation related efforts and $6 million related primarily to closing off-site sales locations in its Asia Pacific segment and severance in its Europe segment. Fourth quarter 2011 adjusted results include $18 million of pro forma adjustments to reflect the company’s position as if it were a standalone public company since the beginning of 2011 rather than from the November 21, 2011 date of the Spin-Off. Adjusted results for 2011 also exclude $4 million of Spin-Off related charges, $3 million of severance and $3 million of legal related costs. In addition to these adjustments, adjusted development margin is adjusted for the impact of revenue reportability.

Segment Results

North America

In the North America segment, contract sales increased $16 million from the fourth quarter 2011 to $164 million in 2012. VPG increased 22 percent to $2,904 in the fourth quarter of 2012 from $2,385 in the fourth quarter of 2011, driven primarily by improved closing efficiency.

Revenues from the sale of vacation ownership products increased $29 million to $174 million in the fourth quarter, driven by $11 million of higher year-over-year revenue reportability, a $16 million increase in contract sales and $2 million of lower vacation ownership notes receivable reserve activity due to improved default and delinquency activity.

Reported development margin increased 16.9 percentage points to 26.0 percent in the fourth quarter of 2012 as compared to 9.1 percent in the fourth quarter of 2011. The increase in development margin primarily reflected $13 million of lower cost of vacation ownership products due to $9 million of favorable product cost true-up activity, $9 million of lower marketing and sales expenses from improved efficiencies, $7 million from higher revenue reportability year-over-year and $3 million from higher contract sales volumes. Excluding the impact of revenue reportability and other charges, adjusted development margin increased 16.0 percentage points to 21.3 percent in the fourth quarter of 2012 from 5.3 percent in the fourth quarter of 2011. The impact of revenue reportability is illustrated on schedules A-14 through A-15.

Fourth quarter 2012 North America adjusted segment results increased $23 million to $96 million from $73 million in adjusted segment results on a pro forma basis in the fourth quarter of 2011. The increase was driven by $31 million of higher revenue from the sale of ownership products net of expenses and $3 million of higher resort management and other services net of expenses, partially offset by $4 million of lower financing revenues, $3 million of lower rental revenue net of expenses and $4 million of lower other revenues net of expenses.

Reported North America segment financial results increased $21 million year-over-year to $96 million in the fourth quarter of 2012.

Asia Pacific

Asia Pacific contract sales declined $7 million, from $21 million in 2011 to $14 million in the fourth quarter of 2012, driven by the closure of off-site sales locations in the quarter. Adjusted segment results for Asia Pacific were $4 million, an increase of $3 million from the fourth quarter of 2011, due primarily to cost savings associated with the closure of off-site sales locations that occurred early in the fourth quarter of 2012. Asia Pacific reported segment financial results in the fourth quarter of 2012 were break-even, down $1 million from 2011.

Luxury and Europe

As the company continues to sell through its remaining inventory, gross contract sales in the combined Luxury and Europe segments declined $6 million, from $23 million in 2011 to $17 million in the fourth quarter of 2012. The combined adjusted segment results for Luxury and Europe decreased $6 million in the quarter, to break-even, from $6 million in 2011 due primarily to $9 million of lower revenue from the sale of ownership products net of expenses, $1 million of lower financing revenues and $1 million of lower gains and other income, partially offset by $2 million of higher resort management and other services revenues net of expenses and $2 million of higher rental revenue net of expenses. Luxury and Europe combined reported segment financial results decreased to a loss of $33 million in 2012, from break-even in 2011, reflecting the $39 million charge related to litigation settlements at the company’s Luxury project in San Francisco.  

Full Year 2012 Results

Full year 2012 adjusted net income totaled $50 million, a $30 million increase from $20 million of adjusted net income on a pro forma basis for the full year 2011. Full year 2012 adjusted results exclude $41 million related to litigation settlements at the company’s Luxury project in San Francisco, $16 million of charges related to organizational and separation related efforts, an $8 million gain from the sale of its Luxury golf course, clubhouse, and spa formerly known as The Ritz-Carlton Golf Club & Spa, Jupiter, $7 million related primarily to closing off-site sales locations in its Asia Pacific segment and severance in its Europe segment and $2 million of non-cash impairment reversals. Adjusted results on a pro forma basis for 2011 exclude $338 million of non-cash impairment and other charges, consisting of $320 million of impairment charges recorded in the third quarter of 2011 prior to the Spin-Off and $18 million of other charges. In addition, full year 2011 adjusted results include $71 million of pro forma adjustments to reflect the company’s position as if it were a standalone public company since the beginning of 2011 rather than from the November 21, 2011 date of the Spin-Off. In addition to these adjustments, adjusted development margin is adjusted for the impact of revenue reportability.

For the full year, total company contract sales were $688 million, up 2 percent from $676 million in 2011. North America contract sales were $578 million, up 12 percent from 2011, driven by an 18 percent increase in VPG to $2,963. Full year 2012 adjusted development margin increased to 16.1 percent in 2012 from 7.4 percent in 2011. Adjusted EBITDA, as adjusted in 2012, totaled $138 million, within the company’s guidance range of $130 million to $140 million and $42 million higher than 2011 on an adjusted pro forma basis.

Organizational and Separation Related Activity

During the fourth quarter of 2012, $8 million of costs were incurred in connection with the company’s continued organizational and separation related efforts, of which approximately $1 million of costs were capitalized during the quarter. Total future spending for these efforts is expected to be approximately $22 million to $27 million, with costs being incurred through 2014.

These costs primarily relate to establishing the company’s own information technology systems and services, independent payroll and accounts payable functions and reorganization of existing human resources, information technology and related finance and accounting organizations to support its standalone public company needs. The company expects these efforts to continue through 2014.

Once completed, these efforts are expected to generate approximately $15 million to $20 million of annualized savings, of which approximately $5 million are reflected in the company’s 2012 financial results.

Balance Sheet and Liquidity

At December 28, 2012, cash and cash equivalents totaled $103 million and the company had $136 million of gross vacation ownership notes receivable available for securitization in the company’s warehouse facility. During 2012, real estate inventory balances declined $79 million to $874 million, including $484 million of finished goods, $120 million of work-in-process and $270 million of land and infrastructure. The company had approximately $718 million in corporate level debt outstanding at the end of the year, including $40 million of mandatorily redeemable preferred stock, a decline of $172 million year-over-year, including $674 million in non-recourse securitized notes receivable. The company had $194 million in available capacity under its revolving credit facility after taking into account letters of credit.  

Outlook

For the full year 2013, the company is providing the following guidance:

Adjusted EBITDA as adjusted for organizational and separation related charges

$150 million to $165 million

Gross contract sales growth

0 to 5 percent

North America contract sales growth

5 percent to 10 percent

Adjusted company development margin

16.5 percent to 17.5 percent

Adjusted net income

$66 million to $74 million

Adjusted fully diluted earnings per share

$1.77 to $2.00

See schedule A-18 for a reconciliation of Adjusted EBITDA, as adjusted.

Fourth Quarter and Full Year 2012 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. EST today to discuss fourth quarter and full year 2012 results as well its outlook for 2013. Participants may access the call by dialing (877) 941-9205 or (480) 629-9771 for international callers. A live webcast of the call will also be available in the Investor Relations section of the company's website at www.marriottvacationsworldwide.com.

An audio replay of the conference call will be available for seven days and can be accessed at (800) 406-7325 or (303) 590-3030 for international callers. The replay passcode is 4593296. The webcast will also be available on the company's website.

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

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Note on forward-looking statements: This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including statements about earnings trends, organizational and separation related efforts, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions; the availability of capital to finance growth, and other matters referred to under the heading “Risk Factors” contained in our most recent Annual Report on Form 10-K filed with the U.S Securities and Exchange Commission (the “SEC”) and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this presentation. These statements are made as of February 21, 2013 and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Financial Schedules Follow

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