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Marriott Vacations Worldwide Reports Third Quarter 2013 Financial Results

ORLANDO, Fla.October 10, 2013 – Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported third quarter 2013 financial results and provided updated guidance for the full year 2013. In addition, the company announced that its Board of Directors has authorized a share repurchase program under which the company may repurchase up to 3,500,000 shares of its outstanding common stock.

Third Quarter 2013 highlights include:

Third quarter 2013 net income totaled $25 million, or $0.67 per diluted share, compared to net income of $5 million, or $0.12 per diluted share, in the third quarter of 2012. Company development margin increased to 21.1 percent in the third quarter of 2013 from 15.6 percent in the third quarter of 2012; North America development margin for the third quarter increased to 22.7 percent from 19.2 percent year over year.

Third quarter 2013 adjusted net income totaled $27 million, a $19 million increase from $8 million of adjusted net income in the third quarter of 2012. Third quarter 2013 adjusted net income reflects a $3 million increase in pre-tax income that resulted from the exclusion of $4 million of organizational and separation related costs, partially offset by the exclusion of $1 million of pre-tax income related to the impact of extended rescission periods in the company’s Europe segment. Third quarter 2012 adjusted net income reflects a $5 million increase to pre-tax income that resulted from the exclusion of $3 million of organizational and separation related costs and the inclusion of $2 million of pre-tax income related to the impact of extended rescission periods in the company’s Europe segment. In addition, adjusted development margin for both periods is adjusted, as appropriate, for the impact of revenue reportability.

Non-GAAP financial measures, such as adjusted EBITDA, adjusted net income 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. The company now reports consumer financing interest expense separately from all other interest expense. As a result, adjusted EBITDA as used in this release is equivalent to the non-GAAP financial measure adjusted EBITDA, as adjusted, reported in prior releases.

“Our third quarter results demonstrate strong execution across our business. Adjusted EBITDA increased over 50 percent year over year, driven by VPG growth and solid development margin performance, as well as stronger results from our rental and resort management businesses,” said Stephen P. Weisz, president and chief executive officer. “Based on our year-to-date performance and our outlook for the fourth quarter, we are increasing our full year adjusted development margin, free cash flow and EBITDA guidance.”

Weisz concluded, “Given our confidence in our long-term growth outlook and cash flow generation potential, our Board of Directors approved a share repurchase program reflecting our commitment to return cash to shareholders and increase overall shareholder returns.”

Third Quarter 2013 Results

Total company contract sales were $168 million, a $3 million decrease from $171 million in the third quarter of 2012, driven mainly by $10 million of higher contract sales in the company’s North America segment, offset by $13 million of lower contract sales in the company’s Europe and Asia Pacific segments.

For the third quarter ended September 6, 2013, total revenues from the sale of vacation ownership products were $162 million, an increase of $19 million over the prior year period.  

Reported development margin was $34 million, a $12 million increase from the third quarter of 2012. Adjusted development margin was $32 million, a $1 million decrease from the third quarter of 2012. Reported development margin increased 5.5 percentage points to 21.1 percent in the third quarter of 2013 from 15.6 percent in the third quarter of 2012. Adjusted development margin percentage decreased 0.6 percentage points to 20.3 percent in the third quarter of 2013 from 20.9 percent in the third quarter of 2012. The adjustments are illustrated on schedule A-10.

Rental revenues totaled $65 million, an $8 million, or 17 percent, increase from the third quarter of 2012. These results reflect an 11 percent increase in transient keys rented as well as a 10 percent increase in average transient rate driven by stronger consumer demand and a favorable mix of available rental inventory. Rental revenues, net of expenses, were $8 million, $9 million higher than the third quarter of 2012.

Resort management and other services revenues totaled $62 million, a $2 million increase from the third quarter of 2012. Resort management and other services revenues, net of expenses were $17 million, a $4 million increase over the third quarter of 2012. Results reflected higher annual fees in connection with the company’s Marriott Vacation Club Destinations program and improvements in ancillary operations driven by the disposition of a golf course and related assets at one of the company’s Ritz-Carlton branded resorts late in 2012.

Adjusted EBITDA was $50 million in the third quarter of 2013, a $17 million increase from $33 million in the third quarter of 2012.

Segment Results

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

North America

VPG increased 6.6 percent to $3,252 in the third quarter of 2013 from $3,051 in the third quarter of 2012, driven by higher pricing and improved closing efficiency. Total North America contract sales were $152 million in the third quarter of 2013, an increase of $10 million over the prior year period. Contract sales in the quarter included $7 million related to the disposition of excess built residential inventory primarily at a project in Florida.

Third quarter 2013 North America segment financial results increased 32 percent, or $21 million, to $87 million. The increase was primarily driven by $10 million of higher rental revenues net of expenses, $9 million of higher development margin and approximately $4 million of higher resort management and other services revenues net of expenses. These increases were partially offset by $3 million of lower financing revenues.

Revenues from the sale of vacation ownership products increased $23 million to $145 million in the third quarter, resulting from $15 million of higher year-over-year revenue reportability and $10 million of higher contract sales. Development margin was $33 million, a $9 million increase from the third quarter of 2012. This was driven by the impact of higher revenue reportability and lower marketing and sales expenses, offset partially by higher cost of vacation ownership products in the current quarter from the impact of the residential sales, as well as lower cost of vacation ownership products in the prior year quarter from favorable product cost true-up activity.  

Excluding the impact of revenue reportability, adjusted development margin was $32 million, a $1 million increase from the prior year quarter. Adjusted development margin percentage decreased to 22.2 percent in the third quarter of 2013 from 22.8 percent in the third quarter of 2012. Reported development margin percentage increased to 22.7 percent in the third quarter of 2013 as compared to 19.2 percent in the prior year quarter. The impact of revenue reportability is illustrated on schedule A-12.

Asia Pacific

Asia Pacific contract sales declined $8 million to $7 million in the third quarter of 2013 and total revenues declined $7 million to $13 million, reflecting the impact of the closure of two under-performing off-site sales centers in the fourth quarter of 2012. Segment financial results were break-even, $1 million lower than the third quarter of 2012.

Europe

Third quarter 2013 contract sales declined $5 million to $9 million as the Europe segment continued to sell through its remaining inventory. Europe adjusted segment financial results were $6 million, in line with the third quarter of 2012. Reported segment financial results were $7 million, up $3 million from the third quarter of 2012.

Organizational and Separation Plan

During the third quarter of 2013, the company incurred $6 million of costs in connection with its continued organizational and separation related efforts, of which approximately $2 million was capitalized during the quarter. Total future spending for these efforts is expected to be approximately $10 million to $15 million, with costs being incurred through 2014.

These costs primarily relate to establishing the company’s own information technology systems and services, independent accounts payable functions and reorganization of existing human resources and information technology organizations to support the company’s standalone public company needs. Once completed, these efforts are expected to generate approximately $15 million to $20 million of annualized savings, of which approximately $8 million has been realized to date, including $3 million reflected in the company’s year-to-date 2013 financial results.

Share Repurchase Program

On October 8, 2013, the company’s Board of Directors authorized a share repurchase program under which the company may purchase up to 3,500,000 shares of its common stock prior to March 28, 2015. The specific timing, amount and other terms of the repurchases will depend on market conditions, corporate and regulatory requirements and other factors. In connection with the repurchase program, the company may adopt one or more plans pursuant to the provisions of Rule 10b5-1 under the Securities and Exchange Act of 1934.

Balance Sheet and Liquidity

On September 6, 2013, cash and cash equivalents totaled $288 million. Since the end of 2012, real estate inventory balances declined $28 million to $853 million, including $390 million of finished goods, $193 million of work-in-process and $270 million of land and infrastructure. The company had $751 million in debt outstanding at the end of the third quarter of 2013, an increase of $73 million from year-end 2012, including $747 million in non-recourse securitized notes. In addition, $40 million of mandatorily redeemable preferred stock of a subsidiary of the company was outstanding at the end of the third quarter of 2013.

In August the company completed a securitization of $263 million of vacation ownership loans at a weighted average interest rate of 2.21 percent and an advance rate of 95 percent. This transaction generated approximately $250 million of gross cash proceeds. Net cash proceeds to the company after transaction costs, cash reserves and repayment of amounts outstanding under the company's warehouse credit facility were $148 million, which are available for general corporate purposes.

As of September 6, 2013, the company had $196 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit and had $17 million of vacation ownership notes receivable eligible for securitization.

Outlook

For the full year 2013, the company is updating its guidance as reflected in the chart below. The earnings per share and cash flow guidance do not reflect the impact of any stock repurchases that may be made under the company’s share repurchase program.

Current Guidance

Previous Guidance

Adjusted EBITDA

$165 million to $175 million

$155 million to $165 million

Adjusted Net Income

$81 million to $87 million

$72 million to $78 million

Adjusted fully diluted earnings per share

$2.21 to $2.37

$1.94 to $2.10

Adjusted company development margin

18.0 percent to 19.0 percent

17.0 percent to 18.0 percent

Adjusted free cash flow, as adjusted

$170 million to $185 million

$120 million to $135 million

Company contract sales growth

(1) percent to 3 percent

0 percent to 5 percent

North America contract sales growth

4 percent to 8 percent

5 percent to 10 percent

Schedules A-1 through A-20 reconcile the non-GAAP financial measures set forth above to the company’s expected full year 2013 reported net income of $80 million to $86 million and reported development margin of 19.0 percent to 20.0 percent.

Third Quarter 2013 Earnings Conference Call

The company will hold a conference call at 10:00 a.m. EDT today to discuss these results. Participants may access the call by dialing (800) 762-8779 or (480) 629-9645 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 4641471. The webcast will also be available on the company’s website.

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

Note on forward-looking statements: This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including statements about earnings trends, organizational and separation related efforts, estimates, and assumptions, and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions; the availability of capital to finance growth, and other matters referred to under the heading “Risk Factors” contained in our most recent Annual Report on Form 10-K filed with the U.S Securities and Exchange Commission (the “SEC”) and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this presentation. These statements are made as of October 10, 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.

Press Release Schedules Follow

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