Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Forward-Looking Statements
We make
forward-looking statements in Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q based on our managements 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, and which may be discussed in subsequent Quarterly Reports on Form 10-Q, 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.
Business Overview
We are one of the
worlds 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.
In 2016, we introduced Marriott Vacation Club Pulse
SM
, an extension to the Marriott
Vacation Club brand, which features unique properties that embrace the spirit and culture of their urban locations, creating an authentic sense of place while delivering easy access to local interests, attractions and transportation.
Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of June 17, 2016, our portfolio
consisted of over 60 properties 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 of
vacation ownership products; and renting vacation ownership inventory.
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 certain 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 or for use in the Explorer Collection, generally up to two years from the date of issuance. Sales incentives are only
awarded if the sale is closed.
27
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.
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:
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
June 17, 2016
|
|
June 19, 2015
|
Average FICO score
|
|
743
|
|
734
|
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. In the first half of 2015, we implemented new programs to help increase financing propensity
28
above the 40 to 45 percent rate that the company has averaged in recent years. We expect that interest income will continue to increase as new originations of vacation ownership notes receivable
from growth in the business as well as the impact of higher financing propensity levels 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 years beginning gross vacation ownership notes receivable balance, were as follows:
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
June 17, 2016
|
|
June 19, 2015
|
Historical default rates
|
|
2.0%
|
|
1.8%
|
Rental
We operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We obtain rental
inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs.
Rental revenues are primarily the revenues we earn from renting this inventory. We also recognize rental revenue from the utilization of plus
points under the Marriott Vacation Club Destinations
TM
(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;
|
|
|
|
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.
|
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.
29
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.
Consolidated Results
The following
discussion presents an analysis of our results of operations for the twelve and twenty-four weeks ended June 17, 2016, compared to the twelve and twenty-four weeks ended June 19, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
146,450
|
|
|
$
|
155,370
|
|
|
$
|
284,819
|
|
|
$
|
339,276
|
|
Resort management and other services
|
|
|
80,930
|
|
|
|
74,063
|
|
|
|
150,559
|
|
|
|
138,480
|
|
Financing
|
|
|
28,654
|
|
|
|
28,294
|
|
|
|
57,878
|
|
|
|
57,346
|
|
Rental
|
|
|
75,069
|
|
|
|
72,642
|
|
|
|
155,357
|
|
|
|
148,841
|
|
Cost reimbursements
|
|
|
98,842
|
|
|
|
92,458
|
|
|
|
206,375
|
|
|
|
193,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
429,945
|
|
|
|
422,827
|
|
|
|
854,988
|
|
|
|
877,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
33,753
|
|
|
|
45,119
|
|
|
|
69,370
|
|
|
|
110,081
|
|
Marketing and sales
|
|
|
78,919
|
|
|
|
77,137
|
|
|
|
157,331
|
|
|
|
157,132
|
|
Resort management and other services
|
|
|
49,311
|
|
|
|
45,480
|
|
|
|
95,108
|
|
|
|
87,889
|
|
Financing
|
|
|
4,864
|
|
|
|
6,085
|
|
|
|
9,493
|
|
|
|
10,990
|
|
Rental
|
|
|
66,028
|
|
|
|
61,835
|
|
|
|
130,688
|
|
|
|
121,993
|
|
General and administrative
|
|
|
24,588
|
|
|
|
22,892
|
|
|
|
49,885
|
|
|
|
45,669
|
|
Litigation settlement
|
|
|
|
|
|
|
26
|
|
|
|
(303
|
)
|
|
|
(236
|
)
|
Organizational and separation related
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
293
|
|
Consumer financing interest
|
|
|
5,117
|
|
|
|
5,248
|
|
|
|
10,479
|
|
|
|
11,269
|
|
Royalty fee
|
|
|
14,026
|
|
|
|
13,431
|
|
|
|
27,383
|
|
|
|
26,431
|
|
Cost reimbursements
|
|
|
98,842
|
|
|
|
92,458
|
|
|
|
206,375
|
|
|
|
193,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
375,448
|
|
|
|
369,812
|
|
|
|
755,809
|
|
|
|
765,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other income
|
|
|
10,668
|
|
|
|
8,625
|
|
|
|
10,675
|
|
|
|
9,512
|
|
Interest expense
|
|
|
(2,087
|
)
|
|
|
(3,009
|
)
|
|
|
(4,069
|
)
|
|
|
(5,983
|
)
|
Other
|
|
|
(1,911
|
)
|
|
|
(1,187
|
)
|
|
|
(4,453
|
)
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
61,167
|
|
|
|
57,444
|
|
|
|
101,332
|
|
|
|
114,787
|
|
Provision for income taxes
|
|
|
(24,858
|
)
|
|
|
(23,403
|
)
|
|
|
(40,615
|
)
|
|
|
(46,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,309
|
|
|
$
|
34,041
|
|
|
$
|
60,717
|
|
|
$
|
68,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Contract Sales
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
145,600
|
|
|
$
|
150,605
|
|
|
$
|
(5,005)
|
|
|
(3%)
|
Europe
|
|
|
9,938
|
|
|
|
7,341
|
|
|
|
2,597
|
|
|
35%
|
Asia Pacific
|
|
|
10,454
|
|
|
|
7,992
|
|
|
|
2,462
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
165,992
|
|
|
$
|
165,938
|
|
|
$
|
54
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM = not meaningful
The changes in contract sales are described within the discussions of our segment results below.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
285,250
|
|
|
$
|
306,598
|
|
|
$
|
(21,348)
|
|
|
(7%)
|
Europe
|
|
|
14,356
|
|
|
|
12,639
|
|
|
|
1,717
|
|
|
14%
|
Asia Pacific
|
|
|
19,880
|
|
|
|
16,651
|
|
|
|
3,229
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,486
|
|
|
|
335,888
|
|
|
|
(16,402)
|
|
|
(5%)
|
Residential Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
|
|
|
|
28,420
|
|
|
|
(28,420)
|
|
|
(100%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
319,486
|
|
|
$
|
364,308
|
|
|
$
|
(44,822)
|
|
|
(12%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in contract sales are described within the discussions of our segment results below.
Sale of Vacation Ownership Products
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
165,992
|
|
|
$
|
165,938
|
|
|
$
|
54
|
|
|
NM
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
1,179
|
|
|
|
1,440
|
|
|
|
(261)
|
|
|
|
Sales reserve
|
|
|
(11,352)
|
|
|
|
(7,179)
|
|
|
|
(4,173)
|
|
|
|
Other
(1)
|
|
|
(9,369)
|
|
|
|
(4,829)
|
|
|
|
(4,540)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
146,450
|
|
|
$
|
155,370
|
|
|
$
|
(8,920)
|
|
|
(6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability had a $1.2 million positive impact in the current period, compared to a $1.4 million positive impact in the prior year
comparable period. The higher sales reserve reflects an increase in our North America segment due to the increase in financing propensity and Latin American default activity and higher reserves required in our Asia Pacific and Europe segments due to
an unfavorable adjustment to correct an immaterial error in the current period with respect to historical static pool data.
The increase
in other adjustments is primarily driven by an increase in the utilization of plus points as a sales incentive in our North America segment in the second quarter of 2016. These revenues are deferred and recognized as rental revenue when those points
are redeemed or upon expiration of the points.
31
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
319,486
|
|
|
$
|
364,308
|
|
|
$
|
(44,822)
|
|
|
(12%)
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
1,965
|
|
|
|
(73)
|
|
|
|
2,038
|
|
|
|
Sales reserve
|
|
|
(19,575)
|
|
|
|
(15,546)
|
|
|
|
(4,029)
|
|
|
|
Other
(1)
|
|
|
(17,057)
|
|
|
|
(9,413)
|
|
|
|
(7,644)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
284,819
|
|
|
$
|
339,276
|
|
|
$
|
(54,457)
|
|
|
(16%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability had a $2.0 million positive impact in the current period, compared to a $0.1 million negative impact in the prior year
comparable period. The favorable change versus the prior year comparable period was due to an increase in the amount of sales meeting the down payment requirement for revenue reportability prior to the end of the current period, partially offset by
an increase in the amount of sales that remained in the rescission period as of the end of the current period as compared to the prior year comparable period. The increase in the amount of sales meeting the down payment requirement for revenue
reportability was due to an increase in down payment amounts in our North America segment compared to the prior year comparable period. The increase in down payment requirements occurred while achieving a 13.3 percentage point increase in the North
America financing propensity in the first half of 2016 compared to the prior year comparable period.
The higher sales reserve reflects an
increase in our North America segment due to the increase in financing propensity and Latin American default activity and higher reserves required in our Asia Pacific segment due to an unfavorable adjustment to correct an immaterial error in the
current period with respect to historical static pool data.
The increase in other adjustments is primarily driven by an increase in the
utilization of plus points as a sales incentive in our North America segment in the first half of 2016. These revenues are deferred and recognized as rental revenue when those points are redeemed or upon expiration of the points.
Development Margin
Twelve Weeks Ended
June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
146,450
|
|
|
$
|
155,370
|
|
|
$
|
(8,920)
|
|
|
(6%)
|
Cost of vacation ownership products
|
|
|
(33,753)
|
|
|
|
(45,119)
|
|
|
|
11,366
|
|
|
25%
|
Marketing and sales
|
|
|
(78,919)
|
|
|
|
(77,137)
|
|
|
|
(1,782)
|
|
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
33,778
|
|
|
$
|
33,114
|
|
|
$
|
664
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
23.1%
|
|
|
|
21.3%
|
|
|
|
1.8 pts
|
|
|
|
The increase in development margin reflected the following increases:
|
|
|
$6.9 million of higher favorable product cost true-ups ($7.5 million in the twelve weeks ended June 17, 2016 compared to $0.6 million in the prior year comparable period) of which $3.7 million was attributed to
projected increases in development revenue primarily from a reduction in our estimate of future sales incentives and $3.2 million resulted from lower development spending for completion of common elements at multiple projects;
|
|
|
|
$2.2 million from a favorable mix of lower cost real estate inventory being sold; and
|
|
|
|
$0.6 million of higher vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales).
|
These increases were partially offset by the following:
|
|
|
$3.2 million of additional deferred revenue in the current period due to higher usage of plus points as a sales incentive in our North America segment; this revenue will be recognized as rental revenue when the plus
points are redeemed or upon expiration of the plus points;
|
32
|
|
|
$3.0 million of higher sales reserve activity in the current period due to the increase in financing propensity in our North America segment and higher reserves required in our Asia Pacific and Europe segments due to an
unfavorable adjustment to correct an immaterial error in the current period with respect to historical static pool data;
|
|
|
|
$2.2 million of pre-opening and startup expenses in the current period to support new sales locations in our North America and Asia Pacific segments; and
|
|
|
|
$0.5 million of higher development expenses in the current period due to fewer costs being capitalized.
|
The 1.8 percentage point increase in the development margin percentage reflected a 4.5 percentage point increase due to the higher favorable
product cost true-up activity year-over-year and a 1.4 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the twelve weeks ended June 17, 2016. These increases were partially
offset by a 1.5 percentage point decline due to the higher usage of plus points as a sales incentive, a 1.3 percentage point decline due to the pre-opening and startup expenses, and a 1.3 percentage point decline due to the higher sales reserve
activity primarily due to the increase in financing propensity.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
284,819
|
|
|
$
|
339,276
|
|
|
$
|
(54,457)
|
|
|
(16%)
|
Cost of vacation ownership products
|
|
|
(69,370)
|
|
|
|
(110,081)
|
|
|
|
40,711
|
|
|
37%
|
Marketing and sales
|
|
|
(157,331)
|
|
|
|
(157,132)
|
|
|
|
(199)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
58,118
|
|
|
$
|
72,063
|
|
|
$
|
(13,945)
|
|
|
(19%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
20.4%
|
|
|
|
21.2%
|
|
|
|
(0.8 pts)
|
|
|
|
The decrease in development margin reflected the following:
|
|
|
$6.6 million of lower vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales);
|
|
|
|
$5.9 million of lower residential contract sales (there were no residential sales in the twenty-four weeks ended June 17, 2016, compared to $5.9 million from the sale of residential inventory in our Asia Pacific
segment in the prior year comparable period);
|
|
|
|
$5.5 million of additional deferred revenue in the current period due to higher usage of plus points as a sales incentive in our North America segment; this revenue will be recognized as rental revenue when the plus
points are redeemed or upon expiration of the plus points;
|
|
|
|
$3.3 million of pre-opening and startup expenses in the current period in support of new sales locations in our North America and Asia Pacific segments;
|
|
|
|
$3.3 million of higher sales reserve activity in the current period due to the increase in financing propensity in our North America segment and higher reserves required in our Asia Pacific segment due to an unfavorable
adjustment to correct an immaterial error in the current period with respect to historical static pool data;
|
|
|
|
$2.1 million of higher marketing and sales costs in the current period due to investment in new programs to help generate future incremental tour volumes; and
|
|
|
|
$0.4 million of higher development expenses in the current period due to fewer costs being capitalized in the current period.
|
These decreases were partially offset by the following:
|
|
|
$7.5 million of higher favorable product cost true-ups ($10.7 million in the twenty-four weeks ended June 17, 2016 compared to $3.2 million in the prior year comparable period) of which $5.1 million was attributed
to projected increases in development revenue primarily from a reduction in our estimate of future sales incentives and $2.5 million resulted from lower development spending for completion of common elements at multiple projects;
|
|
|
|
$4.4 million from a favorable mix of lower cost real estate inventory being sold; and
|
|
|
|
$1.3 million of higher revenue reportability compared to the prior year comparable period.
|
33
The 0.8 percentage point decline in the development margin percentage reflected a 1.6 percentage
point decline due to higher marketing and sales spending (including a 1.0 percentage point impact from the pre-opening and startup expenses), a 1.2 percentage point decline due to the higher usage of plus points as a sales incentive, a 1.0
percentage point decline due to an inability to leverage fixed marketing and sales costs on lower vacation ownership contract sales, and a 0.7 percentage point decline due to the higher sales reserve activity primarily due to the increase in
financing propensity. These declines were partially offset by a 2.1 percentage point increase due to the higher favorable product cost true-up activity year-over-year, a 1.3 percentage point increase due to a favorable mix of lower cost vacation
ownership real estate inventory being sold in the twenty-four weeks ended June 17, 2016, and a 0.3 percentage point increase due to the favorable revenue reportability year-over-year.
Resort Management and Other Services Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Management fee revenues
|
|
$
|
19,411
|
|
|
$
|
17,956
|
|
|
$
|
1,455
|
|
|
8%
|
Other services revenues
|
|
|
61,519
|
|
|
|
56,107
|
|
|
|
5,412
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
80,930
|
|
|
|
74,063
|
|
|
|
6,867
|
|
|
9%
|
Resort management and other services expenses
|
|
|
(49,311)
|
|
|
|
(45,480)
|
|
|
|
(3,831)
|
|
|
(8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
31,619
|
|
|
$
|
28,583
|
|
|
$
|
3,036
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
39.1%
|
|
|
|
38.6%
|
|
|
|
0.5 pts
|
|
|
|
The increase in resort management and other services revenues reflected $4.1 million of higher ancillary
revenues, $1.7 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 management fees, $0.6 million of higher customer service fees
and $0.1 million of higher resales commission and other revenues compared to the second quarter of 2015. These increases were partially offset by $1.1 million of lower settlement and lien fees due to a decrease in the number of contracts closed and
fewer lien fees assessed compared to the second quarter of 2015. The increase in ancillary revenues included $3.6 million of ancillary revenues at our operating property in Australia and $0.8 million of ancillary revenues at the property we manage
in New York, partially offset by a $0.3 million decrease in ancillary revenues from food and beverage and golf offerings at our other resorts.
The improvement in the resort management and other services margin reflected the changes in revenue, partially offset by $3.8 million of
higher expenses, including $3.1 million from the operation of the ancillary businesses at the operating property in Australia and $0.8 million from the operation of the ancillary businesses at the property we manage in New York, partially offset by
a $0.1 million decrease in other expenses in the current period. The ancillary revenue producing portions of the operating property in Australia were included in the sale of the operating property. Therefore, we do not anticipate future ancillary
revenues or expenses at our property in Australia.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Management fee revenues
|
|
$
|
37,851
|
|
|
$
|
35,536
|
|
|
$
|
2,315
|
|
|
7%
|
Other services revenues
|
|
|
112,708
|
|
|
|
102,944
|
|
|
|
9,764
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
150,559
|
|
|
|
138,480
|
|
|
|
12,079
|
|
|
9%
|
Resort management and other services expenses
|
|
|
(95,108)
|
|
|
|
(87,889)
|
|
|
|
(7,219)
|
|
|
(8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
55,451
|
|
|
$
|
50,591
|
|
|
$
|
4,860
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
36.8%
|
|
|
|
36.5%
|
|
|
|
0.3 pts
|
|
|
|
34
The increase in resort management and other services revenues reflected $7.6 million of higher
ancillary revenues, $2.7 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $2.4 million of higher management fees (net of $0.1 million negative foreign
exchange impact in our Europe segment), $0.9 million of higher customer service fees and $0.2 million of higher resales commission and other revenues, compared to the prior year comparable period. These increases were partially offset by $1.3
million of lower settlement and lien fees due to a decrease in the number of contracts closed and fewer lien fees assessed and $0.4 million of lower brand fees due to fewer closings, in each case, compared to the prior year comparable period. The
increase in ancillary revenues included $6.3 million of ancillary revenues at our operating property in Australia, $1.2 million of ancillary revenues at the property we manage in New York and a $0.1 million increase in ancillary revenues from food
and beverage and golf offerings at our other resorts.
The improvement in the resort management and other services margin reflected the
changes in revenue, partially offset by $7.2 million of higher expenses, including $5.4 million from the operation of the ancillary businesses at the operating property in Australia, $1.5 million from the operation of the ancillary businesses at the
property we manage in New York and a $0.3 million increase in other expenses in the current period. The ancillary revenue producing portions of the operating property in Australia were included in the sale of the operating property. Therefore, we do
not anticipate future ancillary revenues or expenses at our property in Australia.
Financing Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Interest income
|
|
$
|
27,253
|
|
|
$
|
26,927
|
|
|
$
|
326
|
|
|
1%
|
Other financing revenues
|
|
|
1,401
|
|
|
|
1,367
|
|
|
|
34
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
|
28,654
|
|
|
|
28,294
|
|
|
|
360
|
|
|
1%
|
Financing expenses
|
|
|
(4,864)
|
|
|
|
(6,085)
|
|
|
|
1,221
|
|
|
20%
|
Consumer financing interest expense
|
|
|
(5,117)
|
|
|
|
(5,248)
|
|
|
|
131
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing margin
|
|
$
|
18,673
|
|
|
$
|
16,961
|
|
|
$
|
1,712
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
54.4%
|
|
|
|
41.9%
|
|
|
|
|
|
|
|
The increase in financing revenues was due to a $14.6 million increase in the average gross vacation ownership
notes receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable.
The increase in financing margin reflects the higher financing revenues, as well as lower financing expenses and lower consumer financing
interest expense. The lower consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances, partially offset by a higher average outstanding debt balance. The lower average interest rate reflected the
continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.
The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help increase financing propensity
above the 40 to 45 percent rate that the company has averaged in recent years. As a result of these programs, we expect that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in
principal of existing vacation ownership notes receivables. We are targeting higher financing propensity for fiscal year 2016.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Interest income
|
|
$
|
55,027
|
|
|
$
|
54,494
|
|
|
$
|
533
|
|
|
1%
|
Other financing revenues
|
|
|
2,851
|
|
|
|
2,852
|
|
|
|
(1)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
|
57,878
|
|
|
|
57,346
|
|
|
|
532
|
|
|
1%
|
Financing expenses
|
|
|
(9,493)
|
|
|
|
(10,990)
|
|
|
|
1,497
|
|
|
14%
|
Consumer financing interest expense
|
|
|
(10,479)
|
|
|
|
(11,269)
|
|
|
|
790
|
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing margin
|
|
$
|
37,906
|
|
|
$
|
35,087
|
|
|
$
|
2,819
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
56.2%
|
|
|
|
42.7%
|
|
|
|
|
|
|
|
35
The increase in financing revenues was due to a $5.8 million increase in the average gross
vacation ownership notes receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable.
The increase in financing margin reflects the higher financing revenues, as well as lower financing expenses and lower consumer financing
interest expense. The lower consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances, partially offset by a higher average outstanding debt balance. The lower average interest rate reflected the
continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.
The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help increase financing propensity
above the 40 to 45 percent rate that the company has averaged in recent years. As a result of these programs, we expect that interest income will continue to increase as new originations of vacation ownership notes receivable outpace the decline in
principal of existing vacation ownership notes receivables. We are targeting higher financing propensity for fiscal year 2016.
Rental Revenues,
Expenses and Margin
Twelve Weeks Ended June 17, 2016
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Twelve Weeks Ended
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Change
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% Change
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($ in thousands)
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|
June 17, 2016
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June 19, 2015
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Rental revenues
|
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$
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75,069
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$
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72,642
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|
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$
|
2,427
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3%
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Unsold maintenance fees upscale
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(15,313)
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(13,425)
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(1,888)
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(14%)
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Unsold maintenance fees luxury
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(530)
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(2,006)
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1,476
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74%
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Unsold maintenance fees
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(15,843)
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(15,431)
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(412)
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(3%)
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Other rental expenses
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(50,185)
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(46,404)
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(3,781)
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(8%)
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Rental margin
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$
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9,041
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$
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10,807
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$
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(1,766)
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(16%)
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Rental margin percentage
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12.0%
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14.9%
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(2.9 pts)
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Twelve Weeks Ended
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Change
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% Change
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June 17, 2016
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June 19, 2015
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Transient keys rented
(1)
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284,385
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275,587
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8,798
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3%
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Average transient key rate
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$
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212.69
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$
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218.83
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$
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(6.14)
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(3%)
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Resort occupancy
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87.4%
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88.3%
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(0.9 pts)
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(1)
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Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating properties in San Diego, California and Surfers Paradise, Australia.
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The increase in rental revenues was due to $2.9 million of revenue from our operating property in Australia acquired during the third quarter
of 2015, a company-wide 3 percent increase in transient keys rented ($1.8 million) primarily due to a 7 percent increase in available keys, and $0.1 million of higher plus points revenue (which is recognized upon utilization of plus points or upon
expiration of the points), partially offset by a company-wide 3 percent decrease in average transient rate ($1.6 million) and $0.8 million of lower revenue from our operating property in San Diego due to the conversion of some of the inventory to
vacation ownership inventory.
The decrease in rental margin reflected a $1.1 million loss from our operating property in Australia, $0.9
million of lower rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, partially offset by a $0.3 million improvement in the operation
of the property in San Diego compared to the prior year comparable period and the $0.1 million increase in plus points revenue.
36
Twenty-Four Weeks Ended June 17, 2016
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Twenty-Four Weeks Ended
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($ in thousands)
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June 17, 2016
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June 19, 2015
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Change
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% Change
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Rental revenues
|
|
$
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155,357
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|
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$
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148,841
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|
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$
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6,516
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4%
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Unsold maintenance fees upscale
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(29,295)
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(25,468)
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(3,827)
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(15%)
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Unsold maintenance fees luxury
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(1,041)
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(4,416)
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3,375
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76%
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|
|
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Unsold maintenance fees
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(30,336)
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(29,884)
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(452)
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(2%)
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Other rental expenses
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(100,352)
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(92,109)
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(8,243)
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(9%)
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Rental margin
|
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$
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24,669
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$
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26,848
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$
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(2,179)
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(8%)
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Rental margin percentage
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15.9%
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18.0%
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(2.1 pts)
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Twenty-Four Weeks Ended
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June 17, 2016
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June 19, 2015
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Change
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% Change
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Transient keys rented
(1)
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|
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577,034
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572,297
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4,737
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1%
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Average transient key rate
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$
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220.86
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$
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222.62
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$
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(1.76)
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(1%)
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Resort occupancy
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88.1%
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88.0%
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0.1 pts
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(1)
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Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating properties in San Diego, California and Surfers Paradise, Australia.
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The increase in rental revenues was due to $6.1 million of revenue from our operating property in Australia acquired during the third quarter
of 2015, a company-wide 1 percent increase in transient keys rented ($0.8 million) primarily due to a 2 percent increase in available keys, $0.5 million of higher plus points revenue (which is recognized upon utilization of plus points or upon
expiration of the points) and a $0.3 million increase in preview keys and other revenue, partially offset by a company-wide 1 percent decrease in average transient rate ($0.8 million) and $0.4 million of lower revenue from our operating property in
San Diego due to the conversion of some of the inventory to vacation ownership inventory.
The decrease in rental margin reflected a $1.8
million of lower rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, and a $1.1 million loss from our operating property in
Australia, partially offset by the $0.5 million increase in plus points revenue and a $0.3 million improvement in the operation of the property in San Diego compared to the prior year comparable period.
Cost Reimbursements
Twelve Weeks
Ended June 17, 2016
Cost reimbursements increased $6.4 million, or 7 percent, over the prior year comparable period, reflecting
an increase of $4.8 million due to higher costs, $1.4 million due to additional managed unit weeks in the twelve weeks ended June 17, 2016, and a $0.2 million impact from foreign exchange rates in our Europe segment.
Twenty-Four Weeks Ended June 17, 2016
Cost reimbursements increased $12.6 million, or 6.5 percent, over the prior year comparable period, reflecting an increase of $10.4 million due
to higher costs and $2.6 million due to additional managed unit weeks in the twenty-four weeks ended June 17, 2016, partially offset by a $0.4 million impact from foreign exchange rates in our Europe segment.
General and Administrative
Twelve
Weeks Ended June 17, 2016
General and administrative expenses increased $1.7 million (from $22.9 million to $24.6 million) and
were driven by higher information technology project costs and inflationary cost increases.
Twenty-Four Weeks Ended June 17, 2016
General and administrative expenses increased $4.2 million (from $45.7 million to $49.9 million) and were driven by higher information
technology project costs and inflationary cost increases.
37
Royalty Fee
Twelve Weeks Ended June 17, 2016
Royalty fee expense increased $0.6 million in the twelve weeks ended June 17, 2016 (from $13.4 million to $14.0 million), and included
$0.9 million of higher costs due to an increase in initial sales of our real estate inventory, which carry a higher royalty fee as compared to sales of pre-owned inventory (two percent versus one percent), partially offset by $0.3 million of lower
costs due to lower closings in the current period.
Twenty-Four Weeks Ended June 17, 2016
Royalty fee expense increased $1.0 million in the twenty-four weeks ended June 17, 2016 (from $26.4 million to $27.4 million), and
included $1.4 million of higher costs due to an increase in initial sales of our real estate inventory, which carry a higher royalty fee as compared to sales of pre-owned inventory (two percent versus one percent), partially offset by $0.4 million
of lower costs due to lower closings in the current period.
Gains and Other Income
Twelve and Twenty-four Weeks Ended June 17, 2016
In the twelve and twenty-four weeks ended June 17, 2016, we recorded a $10.5 million gain on the disposition of excess inventory at our
Ritz-Carlton project in San Francisco, California, the reversal of the remaining $1.7 million accrual associated with the disposition of a golf course and related assets in Kauai, Hawaii because we no longer expect to incur additional costs in
connection with this sale and a $1.5 million loss on the sale of the portion of the operating property in Australia that we did not intend to convert to vacation ownership inventory.
During the second quarter of 2015, we recorded an $8.7 million gain on the disposition of undeveloped land in Kauai, Hawaii. During the first
quarter of 2015, we recorded a $0.9 million gain from the disposition of a golf course and adjacent undeveloped land in Orlando, Florida. We disposed of the 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 following the sale.
Interest Expense
Twelve Weeks Ended June 17, 2016
Interest expense decreased $0.9 million (from $3.0 million to $2.1 million) due to a $0.8 million decline in expense associated with our
liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International, Inc. (Marriott International) and $0.1 million of lower other interest expense. Due to the payoff
of the liability associated with the Marriott Rewards customer loyalty program at the end of 2015, we will not incur further interest expense associated with this liability in the future.
Twenty-Four Weeks Ended June 17, 2016
Interest expense decreased $1.9 million (from $6.0 million to $4.1 million) due to a $1.7 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 $0.2 million of lower other interest expense. Due to the payoff of the liability associated with the
Marriott Rewards customer loyalty program at the end of 2015, we will not incur further interest expense associated with this liability in the future.
Other
Twelve and Twenty-Four Weeks
Ended June 17, 2016
During the first quarter of 2016, we incurred $2.3 million of costs associated with the acquisition of an
operating property in the South Beach area of Miami Beach and the anticipated future acquisition of the operating property in New York we are currently managing, and $0.2 million of transaction related costs associated with the then anticipated sale
of the portion of the operating property located in Surfers Paradise, Australia that we did not intend to convert to vacation ownership inventory. See Footnote No. 5, Acquisitions and Dispositions and Footnote No. 8,
Contingencies and Commitments, to our Financial Statements for further information related to these transactions.
During the
second quarter of 2016, we incurred $1.9 million of costs associated with the anticipated future acquisition of vacation ownership units located on the Big Island of Hawaii and the anticipated future acquisition of the operating property in New York
we are currently managing.
38
During the second quarter of 2015, we incurred $1.2 million of transaction related costs
associated with the purchase of the operating property located in Surfers Paradise, Australia that occurred in the third quarter of 2015. We did not incur any transaction related costs in the first quarter of 2015.
Income Tax
Twelve Weeks Ended
June 17, 2016
Our provision for income taxes increased $1.5 million (from $23.4 million to $24.9 million) from the prior year
comparable period. The increase was primarily due to an increase in U.S. income, partially offset by a decline in non-U.S. income for the twelve weeks ended June 17, 2016.
Twenty-Four Weeks Ended June 17, 2016
Our provision for income taxes decreased $6.1 million (from $46.7 million to $40.6 million) from the prior year comparable period. The decrease
was primarily due to a decline in non-U.S. income for the twenty-four weeks ended June 17, 2016.
Earnings Before Interest Expense, Taxes,
Depreciation and Amortization (EBITDA) and Adjusted 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 and Adjusted EBITDA
calculations, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to
us. Further, we consider consumer financing interest expense to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund
capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude 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 companys 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 and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive
assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items described
below, and excludes non-cash share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards
granted. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA
facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies.
EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated
in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our
EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net income, which is the most directly comparable GAAP financial measure.
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|
|
|
|
|
|
|
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|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Net income
|
|
$
|
36,309
|
|
|
$
|
34,041
|
|
|
$
|
60,717
|
|
|
$
|
68,095
|
|
Interest expense
|
|
|
2,087
|
|
|
|
3,009
|
|
|
|
4,069
|
|
|
|
5,983
|
|
Tax provision
|
|
|
24,858
|
|
|
|
23,403
|
|
|
|
40,615
|
|
|
|
46,692
|
|
Depreciation and amortization
|
|
|
5,052
|
|
|
|
4,493
|
|
|
|
10,177
|
|
|
|
8,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
68,306
|
|
|
|
64,946
|
|
|
|
115,578
|
|
|
|
129,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash share-based compensation
|
|
|
4,332
|
|
|
|
3,945
|
|
|
|
6,856
|
|
|
|
6,588
|
|
Certain items
|
|
|
(8,473)
|
|
|
|
(7,226)
|
|
|
|
(6,678)
|
|
|
|
(14,098)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
64,165
|
|
|
$
|
61,665
|
|
|
$
|
115,756
|
|
|
$
|
121,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Twelve Weeks Ended June 17, 2016
The certain items for the twelve weeks ended June 17, 2016 consisted of $10.7 million of gains and other income, $2.0 million of
transaction costs associated with acquisitions, and $0.2 million of losses from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016. These exclusions decreased EBITDA by $8.5 million.
The certain items for the twelve weeks ended June 19, 2015 consisted of $8.6 million of gains and other income, $1.3 million of
transaction costs associated with acquisitions, $0.1 million of organizational and separation related costs and less than $0.1 million of litigation expense. These exclusions decreased EBITDA by $7.2 million.
Twenty-Four Weeks Ended June 17, 2016
The certain items for the twenty-four weeks ended June 17, 2016 consisted of $10.7 million of gains and other income, $4.6 million of
transaction costs associated with acquisitions, $0.3 million of profit from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation expense. These
exclusions decreased EBITDA by $6.7 million.
The certain items for the twenty-four weeks ended June 19, 2015 consisted of $9.5
million of gains and other income, $5.9 million of development profit from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program, $1.3 million of
transaction costs associated with acquisitions, $0.3 million of organizational and separation related costs and a $0.2 million reversal of litigation expense. These exclusions decreased EBITDA by $14.1 million.
Business Segments
Our business is
grouped into three reportable business segments: North America, Europe and Asia Pacific. See Footnote No. 14, Business Segments, to our Financial Statements for further information on our segments.
North America
The following
discussion presents an analysis of our results of operations for the North America segment for the twelve and twenty-four weeks ended June 17, 2016, compared to the twelve and twenty-four weeks ended June 19, 2015.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
132,473
|
|
|
$
|
142,148
|
|
|
$
|
257,157
|
|
|
$
|
283,876
|
|
Resort management and other services
|
|
|
69,357
|
|
|
|
66,194
|
|
|
|
131,022
|
|
|
|
124,769
|
|
Financing
|
|
|
26,853
|
|
|
|
26,354
|
|
|
|
54,261
|
|
|
|
53,410
|
|
Rental
|
|
|
65,629
|
|
|
|
65,756
|
|
|
|
138,137
|
|
|
|
137,471
|
|
Cost reimbursements
|
|
|
90,174
|
|
|
|
84,037
|
|
|
|
189,356
|
|
|
|
176,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
384,486
|
|
|
|
384,489
|
|
|
|
769,933
|
|
|
|
776,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
29,080
|
|
|
|
40,834
|
|
|
|
59,742
|
|
|
|
81,335
|
|
Marketing and sales
|
|
|
66,911
|
|
|
|
67,837
|
|
|
|
135,226
|
|
|
|
136,854
|
|
Resort management and other services
|
|
|
39,337
|
|
|
|
39,101
|
|
|
|
77,489
|
|
|
|
76,069
|
|
Rental
|
|
|
55,593
|
|
|
|
55,128
|
|
|
|
111,549
|
|
|
|
109,739
|
|
Litigation settlement
|
|
|
|
|
|
|
(108)
|
|
|
|
(303)
|
|
|
|
(370)
|
|
Organizational and separation related
|
|
|
|
|
|
|
115
|
|
|
|
0
|
|
|
|
254
|
|
Royalty fee
|
|
|
2,254
|
|
|
|
1,686
|
|
|
|
3,940
|
|
|
|
2,946
|
|
Cost reimbursements
|
|
|
90,174
|
|
|
|
84,037
|
|
|
|
189,356
|
|
|
|
176,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
283,349
|
|
|
|
288,630
|
|
|
|
576,999
|
|
|
|
583,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other income
|
|
|
12,317
|
|
|
|
8,658
|
|
|
|
12,324
|
|
|
|
9,538
|
|
Other
|
|
|
(1,733)
|
|
|
|
86
|
|
|
|
(4,013)
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
111,721
|
|
|
$
|
104,603
|
|
|
$
|
201,245
|
|
|
$
|
202,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Contract Sales
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
145,600
|
|
|
$
|
150,605
|
|
|
$
|
(5,005)
|
|
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
145,600
|
|
|
$
|
150,605
|
|
|
$
|
(5,005)
|
|
|
(3%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America vacation ownership contract sales reflected a $3.8 million decrease in sales at
off-site (non tour-based) sales locations, a $0.7 million decrease in fractional sales as we continue to sell through remaining luxury inventory and a $0.5 million decrease in sales at on-site sales locations.
The decrease in sales at North America on-site locations is primarily driven by an increase in sales in the prior year comparable period as a
result of enhancements during that period to our owner recognition levels that created a near-term incentive for existing owners to purchase additional points at that time. The decrease in sales at on-site sales locations reflected a 0.6 percent
decrease in VPG to $3,384 in the twelve weeks ended June 17, 2016 from $3,404 in the prior year comparable period, partially offset by a 0.3 percent increase in the number of tours. The slight decrease in VPG resulted from a 1.4 percentage
point decrease in closing efficiency, partially offset by an increase in the number of points sold per contract due to a shift in the mix of sales towards more first time buyers who, on average, purchase more points per contract than existing
owners, and higher pricing. The increase in the number of tours was driven by an increase in first time buyer tours, partially offset by fewer existing owner tours due to prior year enhancements to our owner recognition levels that created a
near-term incentive for existing owners to take a tour in the prior year comparable period. The sales at North America off-site locations were negatively impacted by the strength of the U.S. dollar, primarily in Latin America, a trend that has been
impacting our results since the third quarter of 2015, as well as lower sales to existing owners due to the enhancements in the owner recognition levels that drove higher sales in the prior year comparable period.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
285,250
|
|
|
$
|
306,598
|
|
|
$
|
(21,348)
|
|
|
(7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
285,250
|
|
|
$
|
306,598
|
|
|
$
|
(21,348)
|
|
|
(7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America vacation ownership contract sales reflected a $12.5 million decrease in sales at
on-site sales locations, a $6.7 million decrease in sales at off-site (non tour-based) sales locations and a $2.1 million decrease in fractional sales as we continue to sell through remaining luxury inventory.
The decrease in sales at North America on-site locations is primarily driven by an increase in sales in the prior year comparable period as a
result of enhancements during that period to our owner recognition levels that created a near-term incentive for existing owners to purchase additional points at that time. The decrease in sales at on-site sales locations reflected a 1.8 percent
decrease in the number of tours and a 2.3 percent decrease in VPG to $3,438 in the twenty-four weeks ended June 17, 2016 from $3,519 in the prior year comparable period. The decrease in VPG resulted from a 1.7 percentage point decrease in
closing efficiency, partially offset by an increase in the number of points sold per contract due to a shift in the mix of sales towards more first time buyers who, on average, purchase more points per contract than existing owners, and higher
pricing. The decrease in the number of tours was driven by fewer existing owner tours, which was also due to prior year enhancements to our owner recognition levels that created a near-term incentive for existing owners to take a tour in the prior
year comparable period, partially offset by an increase in first time buyer tours. The sales at North America off-site locations were negatively impacted by the strength of the U.S. dollar, primarily in Latin America, a trend that has been impacting
our results since the third quarter of 2015, as well as lower sales to existing owners due to the enhancements in the owner recognition levels that drove higher sales in the prior year comparable period.
41
Sale of Vacation Ownership Products
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
145,600
|
|
|
$
|
150,605
|
|
|
$
|
(5,005)
|
|
|
(3%)
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
3,783
|
|
|
|
1,942
|
|
|
|
1,841
|
|
|
|
Sales reserve
|
|
|
(7,631)
|
|
|
|
(5,651)
|
|
|
|
(1,980)
|
|
|
|
Other
(1)
|
|
|
(9,279)
|
|
|
|
(4,748)
|
|
|
|
(4,531)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
132,473
|
|
|
$
|
142,148
|
|
|
$
|
(9,675)
|
|
|
(7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability improved due to an increase in the amount of sales meeting the down payment requirement for revenue reportability prior
to the end of the current period, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of the current period as compared to the prior year comparable period. The increase in the amount of sales
meeting the down payment requirement for revenue reportability was due to an increase in down payment amounts compared to the prior year comparable period. The increase in down payment requirements occurred while achieving a 12.1 percentage point
increase in financing propensity in the second quarter of 2016 compared to the prior year comparable period.
The higher sales reserve
reflects an increase in the rate due to the increase in financing propensity and Latin American default activity, partially offset by the lower vacation ownership contract sales volume.
The increase in other adjustments is primarily driven by an increase in the utilization of plus points as a sales incentive in our North
America segment in the second quarter of 2016. These revenues are deferred and recognized as rental revenue when those points are redeemed or upon expiration of the points.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
285,250
|
|
|
$
|
306,598
|
|
|
$
|
(21,348)
|
|
|
(7%)
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
3,871
|
|
|
|
(1,502)
|
|
|
|
5,373
|
|
|
|
Sales reserve
|
|
|
(15,037)
|
|
|
|
(11,985)
|
|
|
|
(3,052)
|
|
|
|
Other
(1)
|
|
|
(16,927)
|
|
|
|
(9,235)
|
|
|
|
(7,692)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
257,157
|
|
|
$
|
283,876
|
|
|
$
|
(26,719)
|
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability improved due to an increase in the amount of sales meeting the down payment requirement for revenue reportability prior
to the end of the current period, partially offset by an increase in the amount of sales that remained in the rescission period as of the end of the current period as compared to the prior year comparable period. The increase in the amount of sales
meeting the down payment requirement for revenue reportability was due to an increase in down payment amounts compared to the prior year comparable period. The increase in down payment requirements occurred while achieving a 13.3 percentage point
increase in financing propensity in the first half of 2016 compared to the prior year comparable period.
The higher sales reserve
reflects an increase in the rate due to the increase in financing propensity and Latin American default activity, partially offset by the lower vacation ownership contract sales volume.
The increase in other adjustments is primarily driven by an increase in the utilization of plus points as a sales incentive in our North
America segment in the first half of 2016. These revenues are deferred and recognized as rental revenue when those points are redeemed or upon expiration of the points.
42
Development Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
132,473
|
|
|
$
|
142,148
|
|
|
$
|
(9,675)
|
|
|
(7%)
|
Cost of vacation ownership products
|
|
|
(29,080)
|
|
|
|
(40,834)
|
|
|
|
11,754
|
|
|
29%
|
Marketing and sales
|
|
|
(66,911)
|
|
|
|
(67,837)
|
|
|
|
926
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
36,482
|
|
|
$
|
33,477
|
|
|
$
|
3,005
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
27.5%
|
|
|
|
23.6%
|
|
|
|
3.9 pts
|
|
|
|
The increase in development margin reflected the following:
|
|
|
$6.5 million from higher favorable product cost true-ups ($7.0 million in the twelve weeks ended June 17, 2016 compared to $0.5 million in the prior year comparable period) of which $3.5 million was attributed to
projected increases in development revenue primarily from a reduction in our estimate of future sales incentives and $3.0 million resulted from lower development spending for completion of common elements at multiple projects;
|
|
|
|
$2.5 million from a favorable mix of lower cost real estate inventory being sold; and
|
|
|
|
$1.2 million of higher revenue reportability compared to the prior year comparable period.
|
These increases were partially offset by the following:
|
|
|
$3.3 million of additional deferred revenue in the current period due to higher usage of plus points as a sales incentive; this revenue will be recognized as rental revenue when the plus points are redeemed or upon
expiration of the plus points
|
|
|
|
$1.6 million of higher sales reserve activity in the current period due to the increase in financing propensity;
|
|
|
|
$1.3 million of pre-opening and startup expenses in support of new sales locations; and
|
|
|
|
$1.0 million of lower vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales).
|
The 3.9 percentage point decline in the development margin percentage reflected a 4.7 percentage point increase due to the higher favorable
product cost true-up activity year-over-year, a 1.8 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the twelve weeks ended June 17, 2016, and a 0.5 percentage point increase
due to the favorable revenue reportability year-over-year. These increases were partially offset by a 1.6 percentage point decline due to the higher usage of plus points as a sales incentive, a 0.8 percentage point decline due to the higher
marketing and sales spending (including a 0.9 percentage point impact from the pre-opening and startup expenses), and a 0.7 percentage point decline due to the higher sales reserve rate.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
257,157
|
|
|
$
|
283,876
|
|
|
$
|
(26,719)
|
|
|
(9%)
|
Cost of vacation ownership products
|
|
|
(59,742)
|
|
|
|
(81,335)
|
|
|
|
21,593
|
|
|
27%
|
Marketing and sales
|
|
|
(135,226)
|
|
|
|
(136,854)
|
|
|
|
1,628
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
62,189
|
|
|
$
|
65,687
|
|
|
$
|
(3,498)
|
|
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
24.2%
|
|
|
|
23.1%
|
|
|
|
1.1 pts
|
|
|
|
The decrease in development margin reflected the following:
|
|
|
$8.4 million from lower vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales);
|
43
|
|
|
$5.5 million of additional deferred revenue in the current period due to higher usage of plus points as a sales incentive; this revenue will be recognized as rental revenue when the plus points are redeemed or upon
expiration of the plus points;
|
|
|
|
$2.8 million of higher sales reserve activity in the current period due to the increase in financing propensity;
|
|
|
|
$2.5 million of higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes; and
|
|
|
|
$1.6 million of pre-opening and startup expenses in support of new sales locations.
|
These
decreases were partially offset by the following:
|
|
|
$8.9 million from higher favorable product cost true-ups ($10.4 million in the twenty-four weeks ended June 17, 2016 compared to $1.5 million in the prior year comparable period) of which $5.0 million was
attributed to projected increases in development revenue primarily from a reduction in our estimate of future sales incentives and $3.9 million resulted from lower development spending for completion of common elements at multiple projects;
|
|
|
|
$4.8 million from a favorable mix of lower cost real estate inventory being sold;
|
|
|
|
$3.4 million of higher revenue reportability compared to the prior year comparable period; and
|
|
|
|
$0.2 million of lower other development expenses.
|
The 1.1 percentage point increase in the
development margin percentage reflected a 3.2 percentage point increase due to the higher favorable product cost true-up activity year-over-year, a 1.7 percentage point increase due to a favorable mix of lower cost vacation ownership real estate
inventory being sold in the twenty-four weeks ended June 17, 2016, a 0.8 percentage point increase due to the favorable revenue reportability year-over-year and a 0.1 percentage point increase due to lower other development expenses. These
increases were partially offset by a 1.4 percentage point decline due to the higher marketing and sales spending (including a 0.6 percentage point impact from the pre-opening and startup expenses), a 1.3 percentage point decline due to an inability
to leverage fixed marketing and sales costs on lower vacation ownership contract sales, a 1.3 percentage point decline due to the higher usage of plus points as a sales incentive and a 0.7 percentage point decline due to the higher sales reserve
rate.
Resort Management and Other Services Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Management fee revenues
|
|
$
|
17,229
|
|
|
$
|
15,909
|
|
|
$
|
1,320
|
|
|
8%
|
Other services revenues
|
|
|
52,128
|
|
|
|
50,285
|
|
|
|
1,843
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
69,357
|
|
|
|
66,194
|
|
|
|
3,163
|
|
|
5%
|
Resort management and other services expenses
|
|
|
(39,337)
|
|
|
|
(39,101)
|
|
|
|
(236)
|
|
|
(1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
30,020
|
|
|
$
|
27,093
|
|
|
$
|
2,927
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
percentage
|
|
|
43.3%
|
|
|
|
40.9%
|
|
|
|
2.4 pts
|
|
|
|
The increase in resort management and other services revenues reflected $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, $1.3 million of higher management fees, $0.6 million of higher ancillary revenues, $0.6 million of higher customer service fees and
$0.1 million of higher resales commission and other revenues compared to the second quarter of 2015. These increases were partially offset by $1.1 million of lower settlement and lien fees due to a decrease in the number of contracts closed and
fewer lien fees assessed compared to the second quarter of 2015. The increase in ancillary revenues included $0.8 million of ancillary revenues at the property we manage in New York, partially offset by a $0.2 million decrease in ancillary revenues
from food and beverage and golf offerings at our other resorts.
The improvement in the resort management and other services margin
reflected the changes in revenue, partially offset by $0.2 million of higher expenses, including $0.8 million from the operation of the ancillary businesses at the property we manage in New York, partially offset by a $0.6 million decrease in other
expenses in the current period.
44
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Management fee revenues
|
|
$
|
33,692
|
|
|
$
|
31,477
|
|
|
$
|
2,215
|
|
|
7%
|
Other services revenues
|
|
|
97,330
|
|
|
|
93,292
|
|
|
|
4,038
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
131,022
|
|
|
|
124,769
|
|
|
|
6,253
|
|
|
5%
|
Resort management and other services expenses
|
|
|
(77,489)
|
|
|
|
(76,069)
|
|
|
|
(1,420)
|
|
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
53,533
|
|
|
$
|
48,700
|
|
|
$
|
4,833
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
percentage
|
|
|
40.9%
|
|
|
|
39.0%
|
|
|
|
1.9 pts
|
|
|
|
The increase in resort management and other services revenues reflected $2.6 million of additional annual club
dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $2.2 million of higher management fees, $1.8 million of higher ancillary revenues, $0.9 million of higher customer service fees and
$0.4 million of higher resales commission and other revenues, in each case, compared to the prior year comparable period. These increases were partially offset by $1.3 million of lower settlement and lien fees due to a decrease in the number of
contracts closed and fewer lien fees assessed and $0.4 million of lower brand fees due to fewer closings, in each case, compared to the prior year comparable period. The increase in ancillary revenues included $1.2 million of ancillary revenues at
the property we manage in New York and a $0.6 million increase in ancillary revenues from food and beverage and golf offerings at our other resorts.
The improvement in the resort management and other services margin reflected the changes in revenue, partially offset by $1.4 million of
higher expenses, including $1.5 million from the operation of the ancillary businesses at the property we manage in New York, and a $0.1 million decrease in other expenses in the current period.
Financing Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Interest income
|
|
$
|
25,482
|
|
|
$
|
25,027
|
|
|
$
|
455
|
|
|
2%
|
Other financing revenues
|
|
|
1,371
|
|
|
|
1,327
|
|
|
|
44
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
$
|
26,853
|
|
|
$
|
26,354
|
|
|
$
|
499
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
51.9%
|
|
|
|
39.8%
|
|
|
|
|
|
|
|
The increase in financing revenues was due to an increase in the average gross vacation ownership notes
receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable. The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help
increase financing propensity above the 40 to 45 percent rate that the company has averaged in recent years. As a result of these programs, we expect that interest income will continue to increase as new originations of vacation ownership notes
receivable outpace the decline in principal of existing vacation ownership notes receivables. We are targeting higher financing propensity for fiscal year 2016.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Interest income
|
|
$
|
51,475
|
|
|
$
|
50,636
|
|
|
$
|
839
|
|
|
2%
|
Other financing revenues
|
|
|
2,786
|
|
|
|
2,774
|
|
|
|
12
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
$
|
54,261
|
|
|
$
|
53,410
|
|
|
$
|
851
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
54.1%
|
|
|
|
40.8%
|
|
|
|
|
|
|
|
The increase in financing revenues was due to an increase in the average gross vacation ownership notes
receivable balance, partially offset by a slight decrease in the weighted average coupon rate of our vacation ownership notes receivable. The increase in financing propensity resulted from new programs implemented in the first half of 2015 to help
increase financing propensity above the 40 to 45 percent rate that the company has averaged in recent years. As a result of these programs, we expect that interest income will continue to increase as new originations of vacation ownership notes
receivable outpace the decline in principal of existing vacation ownership notes receivables. We are targeting higher financing propensity for fiscal year 2016.
45
Rental Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Rental revenues
|
|
$
|
65,629
|
|
|
$
|
65,756
|
|
|
$
|
(127)
|
|
|
NM
|
Unsold maintenance fees upscale
|
|
|
(13,914)
|
|
|
|
(12,408)
|
|
|
|
(1,506)
|
|
|
(12%)
|
Unsold maintenance fees luxury
|
|
|
(530)
|
|
|
|
(2,006)
|
|
|
|
1,476
|
|
|
74%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(14,444)
|
|
|
|
(14,414)
|
|
|
|
(30)
|
|
|
NM
|
Other rental expenses
|
|
|
(41,149)
|
|
|
|
(40,714)
|
|
|
|
(435)
|
|
|
(1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
10,036
|
|
|
$
|
10,628
|
|
|
$
|
(592)
|
|
|
(6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
15.3%
|
|
|
|
16.2%
|
|
|
|
(0.9 pts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Transient keys rented
(1)
|
|
|
261,320
|
|
|
|
252,199
|
|
|
|
9,121
|
|
|
4%
|
Average transient key rate
|
|
$
|
209.08
|
|
|
$
|
214.51
|
|
|
$
|
(5.43)
|
|
|
(3%)
|
Resort occupancy
|
|
|
87.9%
|
|
|
|
89.5%
|
|
|
|
(1.6 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating property in San Diego, California.
|
The decrease in rental revenues was due to a 3 percent decrease in average transient rate ($1.4 million) and $0.8 million of lower revenue
from our operating property in San Diego due to the conversion of some of the inventory to vacation ownership inventory, partially offset by a 4 percent increase in transient keys rented ($2.0 million) primarily due to a 10 percent increase in
available keys and $0.1 million of higher plus points revenue (which is recognized upon utilization of plus points or upon expiration of the points).
The decrease in rental margin reflected $0.9 million of lower rental revenues net of direct variable expenses (such as housekeeping), expenses
incurred due to owners choosing alternative usage options, and unsold maintenance fees, partially offset by a $0.3 million improvement in the operation of the property in San Diego compared to the prior year comparable period and the $0.1 million
increase in plus points revenue.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Rental revenues
|
|
$
|
138,137
|
|
|
$
|
137,471
|
|
|
$
|
666
|
|
|
NM
|
Unsold maintenance fees upscale
|
|
|
(26,930)
|
|
|
|
(23,344)
|
|
|
|
(3,586)
|
|
|
(15%)
|
Unsold maintenance fees luxury
|
|
|
(1,041)
|
|
|
|
(4,416)
|
|
|
|
3,375
|
|
|
76%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(27,971)
|
|
|
|
(27,760)
|
|
|
|
(211)
|
|
|
(1%)
|
Other rental expenses
|
|
|
(83,578)
|
|
|
|
(81,979)
|
|
|
|
(1,599)
|
|
|
(2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
26,588
|
|
|
$
|
27,732
|
|
|
$
|
(1,144)
|
|
|
(4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
19.2%
|
|
|
|
20.2%
|
|
|
|
(1.0 pts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Transient keys rented
(1)
|
|
|
535,691
|
|
|
|
531,960
|
|
|
|
3,731
|
|
|
1%
|
Average transient key rate
|
|
$
|
219.71
|
|
|
$
|
220.57
|
|
|
$
|
(0.86)
|
|
|
NM
|
Resort occupancy
|
|
|
89.1%
|
|
|
|
89.6%
|
|
|
|
(0.5 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points, preview stays and those associated with our operating property in San Diego, California.
|
46
The increase in rental revenues was due to a 1 percent increase in transient keys rented ($0.8
million) primarily due to a 4 percent increase in available keys, $0.5 million of higher plus points revenue (which is recognized upon utilization of plus points or upon expiration of the points) and a $0.2 million increase in preview keys and other
revenue, partially offset by a less than 1 percent decrease in average transient rate ($0.4 million) and $0.4 million of lower revenue from the operation of our operating property in San Diego due to the conversion of some of the inventory to
vacation ownership inventory.
The decrease in rental margin reflected $1.8 million of lower rental revenues net of direct variable
expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees, partially offset by the $0.5 million increase in plus points revenue and a $0.3 million improvement in the operation of
the property in San Diego compared to the prior year comparable period.
Europe
The following discussion presents an analysis of our results of operations for the Europe segment for the twelve and twenty-four weeks ended
June 17, 2016, compared to the twelve and twenty-four weeks ended June 19, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
5,867
|
|
|
$
|
5,647
|
|
|
$
|
11,027
|
|
|
$
|
11,547
|
|
Resort management and other services
|
|
|
7,000
|
|
|
|
6,905
|
|
|
|
11,467
|
|
|
|
11,884
|
|
Financing
|
|
|
794
|
|
|
|
897
|
|
|
|
1,629
|
|
|
|
1,887
|
|
Rental
|
|
|
4,612
|
|
|
|
5,383
|
|
|
|
6,771
|
|
|
|
7,515
|
|
Cost reimbursements
|
|
|
7,983
|
|
|
|
7,789
|
|
|
|
15,461
|
|
|
|
15,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
26,256
|
|
|
|
26,621
|
|
|
|
46,355
|
|
|
|
48,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
1,268
|
|
|
|
1,233
|
|
|
|
2,559
|
|
|
|
2,085
|
|
Marketing and sales
|
|
|
5,313
|
|
|
|
4,868
|
|
|
|
9,199
|
|
|
|
10,289
|
|
Resort management and other services
|
|
|
5,748
|
|
|
|
5,724
|
|
|
|
9,841
|
|
|
|
10,315
|
|
Rental
|
|
|
3,669
|
|
|
|
3,913
|
|
|
|
6,585
|
|
|
|
6,964
|
|
Royalty fee
|
|
|
118
|
|
|
|
88
|
|
|
|
167
|
|
|
|
164
|
|
Cost reimbursements
|
|
|
7,983
|
|
|
|
7,789
|
|
|
|
15,461
|
|
|
|
15,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
24,099
|
|
|
|
23,615
|
|
|
|
43,812
|
|
|
|
45,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
2,157
|
|
|
$
|
3,006
|
|
|
$
|
2,543
|
|
|
$
|
3,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
9,938
|
|
|
$
|
7,341
|
|
|
$
|
2,597
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
9,938
|
|
|
$
|
7,341
|
|
|
$
|
2,597
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Europe vacation ownership contract sales was due to $3.8 million of higher sales, primarily
from several large multi-week purchases in the current period, partially offset by $1.2 million of lower fractional sales due to the near sell-out of developer inventory in 2015.
47
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
14,356
|
|
|
$
|
12,639
|
|
|
$
|
1,717
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
14,356
|
|
|
$
|
12,639
|
|
|
$
|
1,717
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Europe vacation ownership contract sales was due to $4.3 million of higher sales, primarily
from several large multi-week purchases in the current period, partially offset by $2.6 million of lower fractional sales due to the near sell-out of developer inventory in 2015.
Sale of Vacation Ownership Products
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
9,938
|
|
|
$
|
7,341
|
|
|
$
|
2,597
|
|
|
35%
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
(2,308)
|
|
|
|
(581)
|
|
|
|
(1,727)
|
|
|
|
Sales reserve
|
|
|
(1,704)
|
|
|
|
(1,035)
|
|
|
|
(669)
|
|
|
|
Other
(1)
|
|
|
(59)
|
|
|
|
(78)
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
5,867
|
|
|
$
|
5,647
|
|
|
$
|
220
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability had a larger unfavorable 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. This was driven by a large multi-week sale that was not reportable at the end of the current
period. The increase in the sales reserve was due to an unfavorable adjustment to correct an immaterial error of $0.5 million in the current period with respect to historical static pool data.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract sales
|
|
$
|
14,356
|
|
|
$
|
12,639
|
|
|
$
|
1,717
|
|
|
14%
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
(1,343)
|
|
|
|
1,187
|
|
|
|
(2,530)
|
|
|
|
Sales reserve
|
|
|
(1,902)
|
|
|
|
(2,115)
|
|
|
|
213
|
|
|
|
Other
(1)
|
|
|
(84)
|
|
|
|
(164)
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
11,027
|
|
|
$
|
11,547
|
|
|
$
|
(520)
|
|
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
Revenue reportability had an unfavorable impact in the current period compared to a favorable impact in 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. This was driven by a large multi-week sale that was not reportable at the end
of the current period. The decrease in the sales reserve was due to an unfavorable adjustment to the reserve in the prior year comparable period, partially offset by the higher contract sales volume in the current period, and due to an unfavorable
adjustment in the current year to correct an immaterial error of $0.5 million in the current period with respect to historical static pool data.
48
Development Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
5,867
|
|
|
$
|
5,647
|
|
|
$
|
220
|
|
|
4%
|
Cost of vacation ownership products
|
|
|
(1,268)
|
|
|
|
(1,233)
|
|
|
|
(35)
|
|
|
(3%)
|
Marketing and sales
|
|
|
(5,313)
|
|
|
|
(4,868)
|
|
|
|
(445)
|
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
(714)
|
|
|
$
|
(454)
|
|
|
$
|
(260)
|
|
|
(57%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
(12.2%)
|
|
|
|
(8.0%)
|
|
|
|
(4.2 pts)
|
|
|
|
The decrease in development margin reflected $1.1 million of lower revenue reportability year-over-year and
the $0.3 million increase in the sales reserve, partially offset by $1.0 million of higher vacation ownership contract sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) and $0.1 million
of higher product cost true-ups ($0.2 million favorable true-up in the twelve weeks ended June 17, 2016 compared to $0.1 million favorable true-up in the prior year comparable period) .
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
11,027
|
|
|
$
|
11,547
|
|
|
$
|
(520)
|
|
|
(5%)
|
Cost of vacation ownership products
|
|
|
(2,559)
|
|
|
|
(2,085)
|
|
|
|
(474)
|
|
|
(23%)
|
Marketing and sales
|
|
|
(9,199)
|
|
|
|
(10,289)
|
|
|
|
1,090
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
(731)
|
|
|
$
|
(827)
|
|
|
$
|
96
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
(6.6%)
|
|
|
|
(7.2%)
|
|
|
|
0.6 pts
|
|
|
|
The increase in development margin reflected $1.8 million of higher vacation ownership contract sales volume
net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due to lower marketing and sales costs, as well as $0.3 million from the year over year change in the sales reserve, partially offset by $1.5 million
from the lower revenue reportability year-over-year and $0.5 million of lower product cost true-ups ($0.3 million unfavorable true-up in the twenty-four weeks ended June 17, 2016 compared to a $0.2 million favorable true-up in the prior year
comparable period).
49
Asia Pacific
The following discussion presents an analysis of our results of operations for the Asia Pacific segment for the twelve and twenty-four weeks
ended June 17, 2016, compared to the twelve and twenty-four weeks ended June 19, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
8,110
|
|
|
$
|
7,575
|
|
|
$
|
16,635
|
|
|
$
|
43,853
|
|
Resort management and other services
|
|
|
4,573
|
|
|
|
964
|
|
|
|
8,070
|
|
|
|
1,827
|
|
Financing
|
|
|
1,007
|
|
|
|
1,043
|
|
|
|
1,988
|
|
|
|
2,049
|
|
Rental
|
|
|
4,828
|
|
|
|
1,503
|
|
|
|
10,449
|
|
|
|
3,855
|
|
Cost reimbursements
|
|
|
685
|
|
|
|
632
|
|
|
|
1,558
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
19,203
|
|
|
|
11,717
|
|
|
|
38,700
|
|
|
|
53,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
1,597
|
|
|
|
1,803
|
|
|
|
3,306
|
|
|
|
23,799
|
|
Marketing and sales
|
|
|
6,695
|
|
|
|
4,432
|
|
|
|
12,906
|
|
|
|
9,989
|
|
Resort management and other services
|
|
|
4,226
|
|
|
|
655
|
|
|
|
7,778
|
|
|
|
1,505
|
|
Rental
|
|
|
6,766
|
|
|
|
2,794
|
|
|
|
12,554
|
|
|
|
5,290
|
|
Royalty fee
|
|
|
179
|
|
|
|
150
|
|
|
|
325
|
|
|
|
307
|
|
Cost reimbursements
|
|
|
685
|
|
|
|
632
|
|
|
|
1,558
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
20,148
|
|
|
|
10,466
|
|
|
|
38,427
|
|
|
|
42,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and other expense
|
|
|
(1,498)
|
|
|
|
(33)
|
|
|
|
(1,498)
|
|
|
|
(30)
|
|
Other
|
|
|
(21)
|
|
|
|
(1,273)
|
|
|
|
(229)
|
|
|
|
(1,276)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
(2,464)
|
|
|
$
|
(55)
|
|
|
$
|
(1,454)
|
|
|
$
|
9,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
In our Asia Pacific segment, we continue to identify opportunities for development margin improvement. 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
property located in Surfers Paradise, Australia. We have commenced conversion of a portion of this hotel into vacation ownership inventory, the completed portion of which has been contributed to our new Marriott Vacation Club Destinations, Australia
program. During the second quarter of 2016, we sold the portion of this operating property that we did not intend to convert to vacation ownership inventory. We began selling from this new location at the end of the first quarter of 2016.
Contract Sales
Twelve Weeks Ended
June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
10,454
|
|
|
$
|
7,992
|
|
|
$
|
2,462
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
10,454
|
|
|
$
|
7,992
|
|
|
$
|
2,462
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Asia Pacific vacation ownership contract sales was driven by a 9 percent increase in VPG and a
20 percent increase in tours. These increases were both driven by an increase in sales to existing owners, and the increase in tours was also driven by the opening of the new sales location in Australia during the second quarter of 2016.
50
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
19,880
|
|
|
$
|
16,651
|
|
|
$
|
3,229
|
|
|
19%
|
Residential products
|
|
|
|
|
|
|
28,420
|
|
|
|
(28,420)
|
|
|
(100%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
19,880
|
|
|
$
|
45,071
|
|
|
$
|
(25,191)
|
|
|
(56%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Asia Pacific vacation ownership contract sales was driven by a 7 percent increase in VPG and
an 11 percent increase in tours. These increases were both driven by an increase in sales to existing owners, and the increase in tours was also driven by the opening of the new sales location in Australia during the second quarter of 2016. The
decrease in Asia Pacific residential sales was due to the bulk sale of 18 whole ownership residential units in Macau during the first quarter of 2015 for $28.4 million, following which no residential inventory remained in this segment.
Sale of Vacation Ownership Products
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Contract sales
|
|
$
|
10,454
|
|
|
$
|
7,992
|
|
|
$
|
2,462
|
|
|
31%
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
(296)
|
|
|
|
79
|
|
|
|
(375)
|
|
|
|
Sales reserve
|
|
|
(2,017)
|
|
|
|
(493)
|
|
|
|
(1,524)
|
|
|
|
Other
(1)
|
|
|
(31)
|
|
|
|
(3)
|
|
|
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
8,110
|
|
|
$
|
7,575
|
|
|
$
|
535
|
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
The increase in the sales reserve was due to an unfavorable adjustment to correct an immaterial error of $1.3 million in the current period
with respect to historical static pool data and the higher vacation ownership contract sales volume.
Twenty-Four Weeks Ended
June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Contract sales
|
|
$
|
19,880
|
|
|
$
|
45,071
|
|
|
$
|
(25,191)
|
|
|
(56%)
|
Revenue recognition adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportability
|
|
|
(563)
|
|
|
|
242
|
|
|
|
(805)
|
|
|
|
Sales reserve
|
|
|
(2,636)
|
|
|
|
(1,446)
|
|
|
|
(1,190)
|
|
|
|
Other
(1)
|
|
|
(46)
|
|
|
|
(14)
|
|
|
|
(32)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
16,635
|
|
|
$
|
43,853
|
|
|
$
|
(27,218)
|
|
|
(62%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.
|
The increase in the sales reserve was due to an unfavorable adjustment to correct an immaterial error of $1.3 million in the current period
with respect to historical static pool data and the higher vacation ownership contract sales volume in the current period.
51
Development Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
8,110
|
|
|
$
|
7,575
|
|
|
|
$ 535
|
|
|
7%
|
Cost of vacation ownership products
|
|
|
(1,597)
|
|
|
|
(1,803)
|
|
|
|
206
|
|
|
11%
|
Marketing and sales
|
|
|
(6,695)
|
|
|
|
(4,432)
|
|
|
|
(2,263)
|
|
|
(51%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
(182)
|
|
|
$
|
1,340
|
|
|
|
$ (1,522)
|
|
|
(114%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
(2.2%)
|
|
|
|
17.7%
|
|
|
|
(19.9 pts)
|
|
|
|
The decrease in development margin reflected the following:
|
|
|
$1.1 million of the higher sales reserve activity compared to the prior year comparable period due to an unfavorable adjustment to correct an immaterial error in the current period with respect to historical static pool
data and the higher vacation ownership contract sales volume;
|
|
|
|
$0.9 million of pre-opening and startup expenses in support of the new sales location in Australia; and
|
|
|
|
$0.3 million of lower revenue reportability compared to the prior year comparable period.
|
The
decreases were partially offset by $0.5 million of higher sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) and $0.3 million of higher favorable product cost true-ups ($0.3 million in
the twelve weeks ended June 17, 2016, compared to no product cost true-ups in the prior year comparable period).
Twenty-Four
Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
|
Sale of vacation ownership products
|
|
$
|
16,635
|
|
|
$
|
43,853
|
|
|
|
$ (27,218)
|
|
|
(62%)
|
Cost of vacation ownership products
|
|
|
(3,306)
|
|
|
|
(23,799)
|
|
|
|
20,493
|
|
|
86%
|
Marketing and sales
|
|
|
(12,906)
|
|
|
|
(9,989)
|
|
|
|
(2,917)
|
|
|
(29%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
423
|
|
|
$
|
10,065
|
|
|
|
$ (9,642)
|
|
|
(96%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
2.5%
|
|
|
|
23.0%
|
|
|
|
(20.5 pts)
|
|
|
|
The decrease in development margin reflected the following:
|
|
|
$5.9 million of lower residential contract sales (no residential sales in the twenty-four weeks ended June 17, 2016, compared to $5.9 million from the sale of residential inventory in the prior year comparable
period);
|
|
|
|
$1.7 million of pre-opening and startup expenses in support of the new sales location in Australia;
|
|
|
|
$0.8 million of lower favorable product cost true-ups ($0.7 million in the twelve weeks ended June 17, 2016 compared to $1.5 million in the prior year comparable period);
|
|
|
|
$0.8 million of the higher sales reserve activity compared to the prior year comparable period due to an unfavorable adjustment to correct an immaterial error in the current period with respect to historical static pool
data and the higher vacation ownership contract sales volume; and
|
|
|
|
$0.5 million of lower revenue reportability compared to the prior year comparable period.
|
The
decreases were partially offset by $0.1 million of higher sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including higher marketing and sales costs in support of future growth
in this region.
52
Resort Management and Other Services Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Management fee revenues
|
|
$
|
691
|
|
|
$
|
671
|
|
|
$
|
20
|
|
|
3%
|
Other services revenues
|
|
|
3,882
|
|
|
|
293
|
|
|
|
3,589
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
4,573
|
|
|
|
964
|
|
|
|
3,609
|
|
|
NM
|
Resort management and other services expenses
|
|
|
(4,226)
|
|
|
|
(655)
|
|
|
|
(3,571)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
347
|
|
|
$
|
309
|
|
|
$
|
38
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
(7.6%)
|
|
|
|
32.1%
|
|
|
|
(24.5 pts)
|
|
|
|
The increase in resort management and other services revenues reflected $3.6 million of ancillary revenues at
our operating property in Australia acquired in the third quarter of 2015.
There was no change in the resort management and other
services margin, which included $0.5 million of profit at our operating property in Australia and $0.5 million of higher other costs, including spending in support of future growth in the business. The ancillary revenue producing portions of the
operating property in Australia were included in the sale of the operating property. Therefore, we do not anticipate future ancillary revenues or expenses at our property in Australia.
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Management fee revenues
|
|
$
|
1,235
|
|
|
$
|
1,230
|
|
|
$
|
5
|
|
|
NM
|
Other services revenues
|
|
|
6,835
|
|
|
|
597
|
|
|
|
6,238
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
8,070
|
|
|
|
1,827
|
|
|
|
6,243
|
|
|
NM
|
Resort management and other services expenses
|
|
|
(7,778)
|
|
|
|
(1,505)
|
|
|
|
(6,273)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
292
|
|
|
$
|
322
|
|
|
$
|
(30)
|
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
3.6%
|
|
|
|
17.6%
|
|
|
|
(14.0 pts)
|
|
|
|
The increase in resort management and other services revenues reflected $6.3 million of ancillary revenues at
our operating property in Australia acquired in the third quarter of 2015.
There was no change in the resort management and other
services margin, which included $0.8 million of profit at our operating property in Australia and $0.8 million of higher other costs, including spending in support of future growth in the business. The ancillary revenue producing portions of the
operating property in Australia were included in the sale of the operating property. Therefore, we do not anticipate future ancillary revenues or expenses at our property in Australia.
Rental Revenues, Expenses and Margin
Twelve Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Rental revenues
|
|
$
|
4,828
|
|
|
$
|
1,503
|
|
|
$
|
3,325
|
|
|
NM
|
Rental expenses
|
|
|
(6,766)
|
|
|
|
(2,794)
|
|
|
|
(3,972)
|
|
|
(142%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
(1,938)
|
|
|
$
|
(1,291)
|
|
|
$
|
(647)
|
|
|
(50%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
(40.1%)
|
|
|
|
(85.9%)
|
|
|
|
45.8 pts
|
|
|
|
The increase in rental revenues includes $2.9 million from the operation of the property in Australia and $0.4
million from an increase in transient keys rented. The decrease in rental margin reflected a $1.1 million loss from our operating property in Australia, partially offset by $0.5 million of higher rental revenues net of direct variable expenses (such
as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees.
53
Twenty-Four Weeks Ended June 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
Change
|
|
|
% Change
|
Rental revenues
|
|
$
|
10,449
|
|
|
$
|
3,855
|
|
|
$
|
6,594
|
|
|
171%
|
Rental expenses
|
|
|
(12,554)
|
|
|
|
(5,290)
|
|
|
|
(7,264)
|
|
|
(137%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
(2,105)
|
|
|
$
|
(1,435)
|
|
|
$
|
(670)
|
|
|
(47%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
(20.1%)
|
|
|
|
(37.2%)
|
|
|
|
17.1 pts
|
|
|
|
The increase in rental revenues includes $6.1 million from the operation of the property in Australia and $0.5
million from an increase in transient keys rented. The decrease in rental margin reflected a $1.1 million loss from our operating property in Australia, partially offset by $0.4 million of higher rental revenues net of direct variable expenses (such
as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees.
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
$
|
1,808
|
|
|
$
|
1,249
|
|
|
$
|
3,763
|
|
|
$
|
2,862
|
|
Financing
|
|
|
4,864
|
|
|
|
6,085
|
|
|
|
9,493
|
|
|
|
10,990
|
|
General and administrative
|
|
|
24,588
|
|
|
|
22,892
|
|
|
|
49,885
|
|
|
|
45,669
|
|
Litigation settlement
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
134
|
|
Organizational and separation related
|
|
|
|
|
|
|
(14)
|
|
|
|
|
|
|
|
39
|
|
Consumer financing interest
|
|
|
5,117
|
|
|
|
5,248
|
|
|
|
10,479
|
|
|
|
11,269
|
|
Royalty fee
|
|
|
11,475
|
|
|
|
11,507
|
|
|
|
22,951
|
|
|
|
23,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
47,852
|
|
|
|
47,101
|
|
|
|
96,571
|
|
|
|
93,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and other expense
|
|
|
(151)
|
|
|
|
|
|
|
|
(151)
|
|
|
|
|
|
Interest expense
|
|
|
(2,087)
|
|
|
|
(3,009)
|
|
|
|
(4,069)
|
|
|
|
(5,983)
|
|
Other
|
|
|
(157)
|
|
|
|
|
|
|
|
(211)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial results
|
|
$
|
(50,247)
|
|
|
$
|
(50,110)
|
|
|
$
|
(101,002)
|
|
|
$
|
(99,960)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 our spin-off from Marriott International.
Total Expenses
Twelve Weeks Ended
June 17, 2016
Total expenses increased $0.8 million from the prior year comparable period. The $0.8 million increase resulted
from $1.7 million of higher general and administrative expenses due to higher information technology project costs and inflationary cost increases and $0.6 million of higher cost of vacation ownership products expenses due to higher
non-capitalizable project expenses, partially offset by $1.2 million of lower financing expenses, $0.1 million of lower consumer financing interest expense, and $0.1 million of prior year litigation settlement expenses.
Twenty-Four Weeks Ended June 17, 2016
Total expenses increased $2.6 million from the prior year comparable period. The $2.6 million increase resulted from $4.2 million of higher
general and administrative expenses due to higher information technology project costs and inflationary cost increases and $0.9 million of higher cost of vacation ownership products expenses due to higher non-capitalizable project expenses,
partially offset by $1.5 million of lower financing expenses, $0.8 million of lower consumer financing interest expense, and $0.1 million each of lower litigation settlement and organizational and separation related expenses.
The $0.8 million decline in consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances,
partially offset by a higher average outstanding debt balance. 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.
54
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 ($97.4 million at the end of the second quarter of 2016), 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 second quarter of 2016, we had $746.3
million of total gross debt outstanding, which included $602.8 million of non-recourse debt associated with vacation ownership notes receivable securitizations, $89.0 million of debt associated with our non-recourse Warehouse Credit Facility and
$45.0 million of debt associated with our Revolving Corporate Credit Facility. 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.
However, we expect to exercise our option to redeem the preferred stock at par in October 2016.
At the end of the second quarter of 2016,
we had $697.9 million of real estate inventory on hand, comprised of $296.5 million of finished goods, $76.6 million of work-in-progress and $324.8 million of land and infrastructure. We expect to continue to sell excess Ritz-Carlton branded
inventory through the MVCD program 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 points-based products, 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.
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 twenty-four weeks ended
June 17, 2016, we had a net decrease in cash and cash equivalents of $79.6 million compared to a net decrease of $95.6 million during the twenty-four weeks ended June 19, 2015. The following table summarizes these changes:
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
21,078
|
|
|
$
|
78,665
|
|
Investing activities
|
|
|
57,565
|
|
|
|
48,386
|
|
Financing activities
|
|
|
(155,190)
|
|
|
|
(221,503)
|
|
Effect of change in exchange rates on cash and cash equivalents
|
|
|
(3,096)
|
|
|
|
(1,157)
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(79,643)
|
|
|
$
|
(95,609)
|
|
|
|
|
|
|
|
|
|
|
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.
55
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 twenty-four weeks ended June 17, 2016, we generated $21.1 million of cash
flows from operating activities, compared to $78.7 million in the twenty-four weeks ended June 19, 2015. Excluding the impact of changes in net income and adjustments for non-cash items, the decrease in cash flows reflects the timing of
distributions to property owners associations for maintenance fees collected on their behalf, higher financing propensity due to the new financing incentive program implemented in the first half of 2015, lower collections due to the reduction
in the portfolio of outstanding vacation ownership notes receivable and timing of payments related to employee benefits programs, partially offset by lower payments on the liability for the Marriott Rewards customer loyalty program and lower real
estate inventory spending.
In the twenty-four weeks ended June 19, 2015, we recorded residential contract sales of $28.4 million
associated with the sale of 18 units in Macau.
In addition to net income and adjustments for non-cash items, the following operating
activities are key drivers of our cash flow from operating activities:
Real Estate Inventory Spending (In Excess of) Less Than Cost of
Sales
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Real estate inventory spending
|
|
$
|
(78,640)
|
|
|
$
|
(35,343)
|
|
Purchase of operating property for future conversion to inventory
|
|
|
|
|
|
|
(46,614)
|
|
Real estate inventory costs
|
|
|
63,900
|
|
|
|
105,048
|
|
|
|
|
|
|
|
|
|
|
Real estate inventory spending (in excess of) less than cost of sales
|
|
$
|
(14,740)
|
|
|
$
|
23,091
|
|
|
|
|
|
|
|
|
|
|
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 twenty-four weeks ended June 17, 2016, as a result of our
opportunistic acquisition efforts. Real estate inventory spending included $23.5 million for the acquisition of an operating property located in the South Beach area of Miami Beach, Florida that we intend to convert, in its entirety, into vacation
ownership interests for future use in our MVCD program. See Footnote No. 5, Acquisitions and Dispositions, to our Financial Statements for additional information regarding this transaction. During the twenty-four weeks ended
June 19, 2015, we capitalized on the opportunity to add a premier destination to our portfolio through the acquisition of an operating property in San Diego, California. 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 property for future conversion to inventory line on our Cash Flows. See Footnote
No. 5, Acquisitions and Dispositions, to our Financial Statements for additional information regarding this transaction. In the twenty-four weeks ended June 19, 2016, we began conversion of this property into vacation ownership
interests for future use in our MVCD program.
Real estate inventory costs for the twenty-four weeks ended June 19, 2015 included
$21.6 million related to the sale of the residential units in Macau.
Through our existing vacation ownership interest repurchase program,
we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in desirable locations, we expect to be able to stabilize the future cost of vacation
ownership products.
Notes Receivable Collections (Less Than)
in Excess of New Mortgages
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Vacation ownership notes receivable collections non-securitized
|
|
$
|
38,229
|
|
|
$
|
46,914
|
|
Vacation ownership notes receivable collections securitized
|
|
|
82,319
|
|
|
|
85,483
|
|
Vacation ownership notes receivable originations
|
|
|
(124,318)
|
|
|
|
(112,060)
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership notes receivable collections (less than) in excess of originations
|
|
$
|
(3,770)
|
|
|
$
|
20,337
|
|
|
|
|
|
|
|
|
|
|
56
Vacation ownership notes receivable collections include principal from non-securitized and
securitized vacation ownership notes receivable. Vacation ownership notes receivable collections declined during the twenty-four weeks ended June 17, 2016, as compared to the twenty-four weeks ended June 19, 2015 due to the reduction in
the portfolio of outstanding vacation ownership notes receivable. Vacation ownership notes receivable originations in the twenty-four weeks ended June 17, 2016 increased due to an increase in financing propensity to 56.2 percent for the
twenty-four weeks ended June 17, 2016 compared to 42.7 percent for the twenty-four weeks ended June 19, 2015, due to a new financing incentive program implemented in our North America segment 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.
Cash from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Capital expenditures for property and equipment (excluding inventory)
|
|
$
|
(15,142)
|
|
|
$
|
(15,718)
|
|
Decrease in restricted cash
|
|
|
2,969
|
|
|
|
43,758
|
|
Dispositions, net
|
|
|
69,738
|
|
|
|
20,346
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
$
|
57,565
|
|
|
$
|
48,386
|
|
|
|
|
|
|
|
|
|
|
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 twenty-four weeks
ended June 17, 2016, capital expenditures for property and equipment of $15.1 million included $11.3 million to support business operations (including $0.6 million for ancillary and operations assets and $10.7 million for sales location) and
$3.8 million for technology spending.
In the twenty-four weeks ended June 19, 2015, capital expenditures for property and equipment
of $15.7 million included $12.1 million to support business operations (including $1.6 million for ancillary and operations assets and $2.8 million for sales locations other than the operating property in San Diego, California), and $3.6 million for
technology spending. The capital expenditures for ancillary and operations assets included $7.7 million associated with the purchase price allocation for the operating property in San Diego, California. See Footnote No. 5, Acquisitions
and Dispositions, to our Financial Statements for additional information regarding the San Diego transaction.
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.
The
decrease in restricted cash in the twenty-four weeks ended June 17, 2016 reflected $20.3 million of higher cash distributions for maintenance fees remitted to certain property owners associations subsequent to the end of 2015 and $2.5
million in property refurbishment reserves transferred to the new Surfers Paradise hotel owner, partially offset by $12.4 million increase in cash that was collected for distribution to investors in connection with securitized vacation ownership
notes receivable and $7.4 million increase in cash associated with vacation ownership sales held in escrow.
The decrease in restricted
cash in the twenty-four weeks ended June 19, 2015 reflected $49.6 million of higher cash distributions for maintenance fees remitted to certain property owners associations subsequent to the end of 2014, partially offset by a $3.4 million
increase in cash associated with vacation ownership sales held in escrow and a $2.4 million increase in cash that was collected for distribution to investors in connection with securitized vacation ownership notes receivable.
Dispositions, net
Dispositions in the twenty-four weeks ended June 17, 2016 related to the sale of 216 rooms and resort amenities of the hotel in Surfers
Paradise, Australia for $50.3 million, the sale of excess inventory at The Ritz-Carlton Club, San Francisco in San Francisco, California for $19.3 million and the sale of undeveloped land in Absecon, New Jersey for $0.1 million.
Dispositions in the twenty-four weeks ended June 19, 2015 related to the sale of undeveloped land in Kauai, Hawaii for $19.5 million, two
lots in St. Thomas, U.S. Virgin Islands for $0.4 million and an operations facility in Hilton Head, South Carolina for $0.4 million.
57
Cash from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in thousands)
|
|
June 17, 2016
|
|
|
June 19, 2015
|
|
Borrowings from securitization transactions
|
|
$
|
91,281
|
|
|
$
|
|
|
Repayment of debt related to securitizations
|
|
|
(84,040)
|
|
|
|
(143,374)
|
|
Borrowings from Revolving Corporate Credit Facility
|
|
|
85,000
|
|
|
|
|
|
Repayment of Revolving Corporate Credit Facility
|
|
|
(40,000)
|
|
|
|
|
|
Proceeds from vacation ownership inventory arrangement
|
|
|
|
|
|
|
5,375
|
|
Debt issuance costs
|
|
|
(231)
|
|
|
|
(30)
|
|
Repurchase of common stock
|
|
|
(163,359)
|
|
|
|
(66,237)
|
|
Accelerated stock repurchase forward contract
|
|
|
(14,470)
|
|
|
|
|
|
Payment of dividends
|
|
|
(26,067)
|
|
|
|
(8,085)
|
|
Payment of withholding taxes on vesting of restricted stock units
|
|
|
(3,876)
|
|
|
|
(9,353)
|
|
Other
|
|
|
572
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
$
|
(155,190)
|
|
|
$
|
(221,503)
|
|
|
|
|
|
|
|
|
|
|
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.
During the first half of 2016, we
securitized vacation ownership notes receivable under our Warehouse Credit Facility. The total carrying amount of the vacation ownership notes receivable securitized was $107.7 million. The advance rate was 85 percent, which resulted in total gross
proceeds of $91.3 million. The total net proceeds were $90.6 million due to the funding of reserve accounts in the amount of $0.7 million.
At June 17, 2016, $104.8 million of gross vacation ownership notes receivable were eligible for securitization.
Borrowings from / Repayments of Revolving Corporate Credit Facility Transactions
During the first half of 2016, we made draws on the Revolving Corporate Credit Facility for $85.0 million to facilitate our short-term business
needs, of which $45.0 million was outstanding as of June 17, 2016.
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 parties 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 twenty-four weeks ended June 17, 2016, we repurchased 2,801,035 shares of our common stock at an average price of $58.32 per
share for a total of $163.4 million, including amounts under an accelerated share repurchase program pursuant to which we received an initial delivery of 1,168,917 shares. The maximum number of additional shares that may be delivered to us under the
accelerated share repurchase program is 834,940. This accelerated share repurchases program effectively accelerated a significant amount of our third quarter repurchases and is expected to be in place through the end of the third quarter of 2016. As
a result, we anticipate our ability to repurchase shares in the third quarter of 2016 will be very limited. See Footnote No. 11, Shareholders Equity, to our Financial Statements for further information related to our share
repurchase program.
58
Dividends
We distributed cash dividends to holders of common stock during the twenty-four weeks ended June 17, 2016 as follows:
|
|
|
|
|
|
|
Declaration Date
|
|
Shareholder Record
Date
|
|
Distribution Date
|
|
Dividend per Share
|
December 8, 2015
|
|
December 21, 2015
|
|
January 6, 2016
|
|
$ 0.30
|
February 11, 2016
|
|
February 25, 2016
|
|
March 10, 2016
|
|
$ 0.30
|
May 12, 2016
|
|
May 26, 2016
|
|
June 9, 2016
|
|
$ 0.30
|
We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be
subject to Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board of
Directors considers relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend
payments. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.
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 Managements Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended January 1, 2016, other than those
discussed below.
As of June 17, 2016, debt, net increased by $55.0 million to $733.8 million compared to $678.8 million at
January 1, 2016, mainly due to $91.3 million of net proceeds drawn on the Warehouse Credit Facility, $85.0 million drawn on the Revolving Corporate Credit Facility and $7.2 million related to non-cash acquisitions of property via capital
leases, partially offset by a decrease of $81.8 million related to repayments of non-recourse gross debt associated with vacation ownership notes receivable securitizations, $40.0 million related to repayments of the Revolving Corporate Credit
Facility and $2.2 million repayments of the Warehouse Credit Facility. As of June 17, 2016, future debt payments to be paid out of collections from our vacation ownership notes receivable, including principal and interest, totaled $758.9
million and are due as follows: $63.7 million in 2016; $104.9 million in 2017; $173.7 million in 2018; $81.2 million in 2019; $76.7 million in 2020; and $258.7 million thereafter.
Subsequent to the second quarter of 2016, we made repayments of $45.0 million on our Revolving Corporate Credit Facility.
We expect to exercise our option to redeem the mandatorily redeemable preferred stock of a consolidated subsidiary at par in October 2016,
although we are not required to redeem it until October 2021.
We have commitments to purchase vacation ownership units located in two
resorts in Bali, Indonesia in two separate transactions, contingent upon completion of construction at agreed upon standards within specified timeframes, for use in our Asia Pacific segment. We expect to complete the acquisition of 51 vacation
ownership units in 2017 pursuant to one of the commitments, and to make remaining payments with respect to these units, when specific construction milestones are completed, as follows: $2.3 million in 2016 and $19.0 million in 2017. We expect to
complete the acquisition of 88 vacation ownership units in 2019 pursuant to the other commitment, and to make payments with respect to these units, when specific construction milestones are completed, as follows: $7.8 million in 2016, $5.9 million
in 2018, and $25.4 million in 2019.
We have a commitment to purchase an operating property, which we currently manage, located in New
York, New York for $158.5 million. We expect to acquire the units in the property, in their current form, over time, and we expect to make payments for these units of $96.8 million and $61.7 million in 2018 and 2019, respectively. See Footnote
No. 8, Contingencies and Commitments, and Footnote No. 13, Variable Interest Entities, to our Financial Statements for additional information on this transaction.
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, to our Financial Statements for additional information on this transaction.
We entered into new operating lease commitments that expire at various dates through 2027. Our aggregate minimum lease payments under these
contracts as of June 17, 2016 were $23.0 million, of which we expect $0.2 million, $1.6 million, $1.9 million, $2.1 million, $2.4 million and $14.8 million will be paid in 2016, 2017, 2018, 2019, 2020 and thereafter, 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 June 17, 2016 was $7.0 million. The terms
of the underlying debt to third-party lenders extend to 2022.
59
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.