Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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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 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 Operations as our Statements of
Operations, (iii) our Interim Consolidated Balance Sheets as our Balance Sheets, and (iv) our Interim Consolidated Statements of Cash Flows as our Cash Flows. In addition, references throughout to numbered
Footnotes refer to the numbered Notes to our Financial Statements that we include in the Financial Statements section of this Quarterly Report on Form 10-Q.
The Spin-Off
On November 21, 2011,
Marriott International, Inc. (Marriott International) completed the spin-off of its vacation ownership division (the Spin-Off). As a result of the Spin-Off, we are an independent public company, and our common stock is listed
on the New York Stock Exchange under the symbol VAC. Following the Spin-Off, we and Marriott International have operated independently, and neither company has any ownership interest in the other.
Organizational and Separation Related Efforts
Subsequent to the Spin-Off, Marriott International continued to provide us with certain information technology, payroll, human resources and
other administrative services pursuant to transition services agreements, most of which we had ceased using as of the end of 2013. In connection with our continued organizational and separation related activities, we have incurred certain
expenses to complete our separation from Marriott International. These costs primarily relate to establishing our own information technology systems and services, independent payroll and accounts payable functions and reorganizing existing human
resources, information technology, and related finance and accounting organizations to support our stand-alone public company needs. We expect these efforts to be substantially completed in 2014.
Organizational and separation related charges as reflected on our Statements of Operations, were $1 million and $2 million for the twelve
weeks ended June 20, 2014 and June 14, 2013, respectively, and $2 million and $3 million for the twenty-four weeks ended June 20, 2014 and June 14, 2013, respectively. In addition, less than $1 million and $2 million of
additional separation related charges were capitalized to Property and equipment on our Balance Sheets during the twenty-four weeks ended June 20, 2014 and June 14, 2013, respectively.
We expect to incur an additional $4 million to $6 million in connection with these organizational and separation related efforts in 2014, of
which we expect approximately $3 million to be capitalized and amortized over the useful lives of the related assets. Once completed, we expect these efforts will generate approximately $15 million to $20 million of annualized savings. In addition
to the $10 million of annualized savings achieved through the end of 2013, $2 million of incremental savings are reflected in our financial results for the twenty-four weeks ended June 20, 2014.
23
Business Overview
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. The Ritz-Carlton Hotel Company, L.L.C., a subsidiary of Marriott International, generally provides on-site management for Ritz-Carlton branded
properties. 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.
Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of June 20, 2014, we operated 62
properties in the United States and nine 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:
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A binding sales contract has been executed;
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The statutory rescission period has expired;
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The receivable is deemed collectible; and
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The remainder of our obligations are substantially completed.
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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,
generally within one to two years from the date of issuance. Sales incentives are only awarded if the sale is closed.
As a result of the
down payment requirements with respect to financed sales and the statutory rescission periods, we often defer revenues associated with the sale of vacation ownership products from the date of the purchase agreement to a future period. When comparing
results year-over-year, this deferral frequently generates significant variances, which we refer to as the impact of revenue reportability.
Finally, as more fully described in the Financing section below, we record an estimate of expected uncollectibility on all
vacation ownership notes receivable (also known as a vacation ownership notes receivable reserve or a sales reserve) from vacation ownership purchases 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 Operations 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. We calculate volume per guest (VPG) 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 in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of our sales process as it combines the impact of average contract price with the number of touring guests who make a
purchase.
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 Operations to true-up revenues and 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 Operations.
24
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 and certain transaction-based fees from owners and other third parties,
including our external exchange company, for services we provide.
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 total 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, and certain transaction based expenses relating to our external exchange company.
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:
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Twenty-Four Weeks Ended
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June 20, 2014
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June 14, 2013
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Average FICO score
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732
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733
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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 Operations.
Financing revenues
include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and
securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and
negatively by principal collections. Due to weakened economic conditions and our elimination of financing incentive programs, the percentage of customers choosing to finance their vacation ownership purchase with us (which we refer to as
financing propensity) declined significantly through 2009 and has stabilized since then. As a result, we expect that interest income will continue to decline in the near term until new originations outpace the decline in principal of the
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 Operations. Historical default rates, which represent defaults as a percentage of each years beginning gross
vacation ownership notes receivable balance, were as follows:
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Twenty-Four Weeks Ended
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June 20, 2014
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June 14, 2013
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Historical default rates
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1.9%
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2.1%
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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:
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Inventory we control because owners have elected alternative usage options offered through our vacation ownership programs.
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25
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:
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Maintenance fees on unsold inventory;
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Costs to provide alternate usage options, including Marriott Rewards Points and offerings available as part of the Explorer Collection, for owners who elect to exchange their inventory;
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Subsidy payments to property owners associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the
resort;
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Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and
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Costs associated with the banking and borrowing usage option that is available under the MVCD program.
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Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given
fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), and owner use and exchange behavior. Further, as our ability to rent certain luxury inventory and inventory in our Asia Pacific segment is
often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our vacation units are either full villas or lock-off villas. Lock-off villas are units that can be
separated into a master unit and a guest room. Full villas are non-lock-off villas because they cannot be separated. A key is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and
lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The transient keys metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations
available in our resort system.
Other
We also record other revenues and expenses which are primarily comprised of settlement fees and expenses from the sale of vacation ownership
products.
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
Consumer financing interest expense represents interest expense associated with the debt from our non-recourse warehouse credit facility (the
Warehouse Credit Facility) and from the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing
interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us.
Interest Expense
Interest expense consists of all interest expense other than consumer financing interest expense.
Other Items
We measure
operating performance using the following key metrics:
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Contract sales from the sale of vacation ownership products;
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Development margin percentage; and
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Rounding
Percentage changes presented in our public filings are calculated using whole dollars.
26
Consolidated Results
The following discussion presents an analysis of our results of operations for the twelve and twenty-four weeks ended June 20, 2014
compared to the twelve and twenty-four weeks ended June 14, 2013.
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|
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|
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Twelve Weeks Ended
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Twenty-Four Weeks Ended
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($ in millions)
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June 20, 2014
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|
June 14, 2013
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|
June 20, 2014
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|
|
June 14, 2013
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Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
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$
|
152
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|
|
$
|
169
|
|
|
$
|
297
|
|
|
$
|
310
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|
Resort management and other services
|
|
|
70
|
|
|
|
64
|
|
|
|
130
|
|
|
|
123
|
|
Financing
|
|
|
29
|
|
|
|
32
|
|
|
|
60
|
|
|
|
65
|
|
Rental
|
|
|
62
|
|
|
|
65
|
|
|
|
126
|
|
|
|
128
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
|
|
8
|
|
|
|
9
|
|
Cost reimbursements
|
|
|
91
|
|
|
|
85
|
|
|
|
191
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
410
|
|
|
|
421
|
|
|
|
812
|
|
|
|
811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
43
|
|
|
|
57
|
|
|
|
90
|
|
|
|
101
|
|
Marketing and sales
|
|
|
72
|
|
|
|
74
|
|
|
|
143
|
|
|
|
148
|
|
Resort management and other services
|
|
|
46
|
|
|
|
46
|
|
|
|
88
|
|
|
|
89
|
|
Financing
|
|
|
6
|
|
|
|
6
|
|
|
|
11
|
|
|
|
11
|
|
Rental
|
|
|
55
|
|
|
|
56
|
|
|
|
112
|
|
|
|
112
|
|
Other
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
5
|
|
General and administrative
|
|
|
23
|
|
|
|
22
|
|
|
|
45
|
|
|
|
43
|
|
Litigation settlement
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
(1
|
)
|
Organizational and separation related
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
Consumer financing interest
|
|
|
5
|
|
|
|
7
|
|
|
|
12
|
|
|
|
15
|
|
Royalty fee
|
|
|
14
|
|
|
|
15
|
|
|
|
27
|
|
|
|
28
|
|
Impairment
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Cost reimbursements
|
|
|
91
|
|
|
|
85
|
|
|
|
191
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
352
|
|
|
|
373
|
|
|
|
719
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other income
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
Interest expense
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(7
|
)
|
Impairment reversals on equity investment
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
58
|
|
|
|
44
|
|
|
|
90
|
|
|
|
74
|
|
Provision for income taxes
|
|
|
(22
|
)
|
|
|
(14
|
)
|
|
|
(35
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36
|
|
|
$
|
30
|
|
|
$
|
55
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Sales
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
164
|
|
|
$
|
156
|
|
|
$
|
8
|
|
|
6%
|
Residential products
|
|
|
|
|
|
|
1
|
|
|
|
(1)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
164
|
|
|
$
|
157
|
|
|
$
|
7
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM = not meaningful
The $7 million increase in total contract sales was driven by $5 million of higher vacation ownership sales in our key North America segment
and $4 million of higher contract sales in our Europe segment, partially offset by $1 million of lower residential contract sales in our North America segment and $1 million of lower contract sales in our Asia Pacific segment.
The increase in vacation ownership contract sales in our North America segment was driven by continued improvement at on-site sales locations,
which resulted from a 5 percent increase in VPG to $3,383 in the twelve weeks ended June 20, 2014 from $3,211 in the prior year comparable period, partially offset by a 1 percent decline in the number of tours. Contract sales at off-site (non
tour-based) sales locations were flat compared to the prior year comparable period. The increase in VPG was due to higher pricing and nominal increases in the average number of points purchased per contract and closing efficiency. The decline in the
number of tours
27
continued to be driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the programs flexibility to take vacations of shorter duration
and exercise alternative usage options. This trend has reduced our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We implemented new programs aimed at generating
existing owner tours and new marketing programs targeted toward first-time buyers, which we expect will increase tour flow in the next six to nine months.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
320
|
|
|
$
|
312
|
|
|
$
|
8
|
|
|
3%
|
Residential products
|
|
|
6
|
|
|
|
1
|
|
|
|
5
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
326
|
|
|
$
|
313
|
|
|
$
|
13
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $13 million increase in total contract sales was driven by $9 million of higher contract sales in our
Europe segment, $5 million of higher residential contract sales in our North America segment and $2 million of higher vacation ownership contract sales in our key North America segment, partially offset by $3 million of lower contract sales in our
Asia Pacific segment.
The increase in vacation ownership contract sales in our North America segment reflected a $6 million increase in
sales at on-site sales locations, and a $4 million decline in sales at off-site (non tour-based) sales locations, due in part to the closure or downsizing of certain under-performing locations since the prior year comparable period. The increase in
sales at on-site sales locations resulted from a 6 percent increase in VPG to $3,428 in the twenty-four weeks ended June 20, 2014 from $3,238 in the prior year comparable period, partially offset by a 3 percent decline in the number of tours.
The increase in VPG was due to a 0.5 percentage point increase in closing efficiency and higher pricing, partially offset by a decline in the average number of points purchased per contract. The decline in the number of tours continued to be driven
by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the programs flexibility to take vacations of shorter duration and exercise alternative usage options. This trend has reduced our existing
owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We implemented new programs aimed at generating existing owner tours and new marketing programs targeted toward first-time
buyers, which we expect will increase tour flow in the next six to nine months.
Development Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
152
|
|
|
$
|
169
|
|
|
$
|
(17)
|
|
|
(10%)
|
Cost of vacation ownership products
|
|
|
(43)
|
|
|
|
(57)
|
|
|
|
14
|
|
|
23%
|
Marketing and sales
|
|
|
(72)
|
|
|
|
(74)
|
|
|
|
2
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
37
|
|
|
$
|
38
|
|
|
$
|
(1)
|
|
|
(6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
24.2%
|
|
|
|
23.1%
|
|
|
|
1.1 pts
|
|
|
|
The decrease in revenues from the sale of vacation ownership products was due to $25 million of lower revenue
reportability compared to the prior year comparable period, partially offset by the $7 million increase in contract sales, net of sales reserve, and $1 million from lower vacation ownership notes receivable reserve activity due to a decrease in
estimated default activity compared to the prior year comparable period. The $25 million of lower revenue reportability resulted from $25 million of higher revenue reportability in the prior year comparable period, compared to no impact from revenue
reportability in the twelve weeks ended June 20, 2014. Revenue reportability was higher in the prior year quarter because the rescission period related to certain sales had expired, of which $17 million related to the impact of the extended
rescission periods in our Europe segment.
The decrease in development margin reflected $14 million from lower revenue reportability
year-over-year (of which $9 million is related to the impact of the extended rescission periods in our Europe segment), partially offset by a $10 million net increase in vacation ownership contract sales volume net of lower direct variable expenses
(i.e., cost of vacation ownership products and marketing and sales) driven by $6 million from a favorable mix of lower cost real estate inventory being sold, $3 million from more efficient marketing and sales spending and $1 million from the higher
contract sales volume. In addition, the development margin reflects the $1 million decrease in vacation ownership notes receivable reserve activity, $1 million of higher favorable product cost true-ups and $1 million of severance related to the
restructuring of sales locations in Europe in the prior year comparable period.
28
The 1.1 percentage point improvement in the development margin percentage reflected a 4
percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in the twelve weeks ended June 20, 2014, a 2 percentage point increase due to increased efficiency in marketing and sales
spending and a 1 percentage point increase due to the higher favorable product cost true-up activity year-over-year. These increases were partially offset by a 6 percentage point decrease due to lower revenue reportability year-over-year.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
297
|
|
|
$
|
310
|
|
|
$
|
(13)
|
|
|
(4%)
|
Cost of vacation ownership products
|
|
|
(90)
|
|
|
|
(101)
|
|
|
|
11
|
|
|
10%
|
Marketing and sales
|
|
|
(143)
|
|
|
|
(148)
|
|
|
|
5
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
64
|
|
|
$
|
61
|
|
|
$
|
3
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
21.4%
|
|
|
|
19.8%
|
|
|
|
1.6 pts
|
|
|
|
The decrease in revenues from the sale of vacation ownership products was due to $27 million of lower revenue
reportability compared to the prior year comparable period and $1 million of higher plus points issued as sales incentives in the current period, partially offset by the $12 million increase in contract sales, net of sales reserve, and $3 million
from lower vacation ownership notes receivable reserve activity due to a decrease in estimated default activity compared to the prior year comparable period. The $27 million of lower revenue reportability resulted from $4 million of lower revenue
reportability in the twenty-four weeks ended June 20, 2014, compared to $23 million of higher revenue reportability in the prior year comparable period. Revenue reportability was higher in the prior year quarter because the rescission period
related to certain sales had expired, of which $18 million related to the impact of the extended rescission periods in our Europe segment.
The increase in development margin reflected an $18 million net increase from higher vacation ownership contract sales volume net of lower
direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven mainly by $12 million from a favorable mix of lower cost real estate inventory being sold and $5 million from more efficient marketing and sales
spending, a $2 million impact from the decrease in vacation ownership notes receivable reserve activity, $2 million of severance related to the restructuring of sales locations in Europe in the prior year comparable period and a $1 million increase
from the higher residential contract sales in the current period. These increases were partially offset by $16 million from lower revenue reportability year-over-year (of which $10 million is related to the impact of the extended rescission periods
in our Europe segment) and $4 million of lower favorable product cost true-ups ($2 million in the twenty-four weeks ended June 20, 2014 compared to $6 million in the prior year comparable period).
The 1.6 percentage point improvement in the development margin percentage reflected a 4 percentage point increase due to a favorable mix of
lower cost vacation ownership real estate inventory being sold in the twenty-four weeks ended June 20, 2014 and a more than 2 percentage point increase due to increased efficiency in marketing and sales spending. These increases were partially
offset by a 3.5 percentage point decrease due to lower revenue reportability year-over-year and a more than 1 percentage point decrease due to the lower favorable product cost true-up activity year-over-year. The increase in residential contract
sales did not materially impact the development margin percentage as the higher cost of the real estate inventory sold was offset by lower marketing and sales cost.
Resort Management and Other Services Revenues, Expenses and Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Management fee revenues
|
|
$
|
17
|
|
|
$
|
16
|
|
|
$
|
1
|
|
|
8%
|
Other services revenues
|
|
|
53
|
|
|
|
48
|
|
|
|
5
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
70
|
|
|
|
64
|
|
|
|
6
|
|
|
8%
|
Resort management and other services expenses
|
|
|
(46)
|
|
|
|
(46)
|
|
|
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
24
|
|
|
$
|
18
|
|
|
$
|
6
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
34.6%
|
|
|
|
27.9%
|
|
|
|
6.7 pts
|
|
|
|
29
The increase in resort management and other services revenues was driven by $1 million of higher
management fees, $1 million of higher fees from our third party exchange company, $1 million of higher resales commission, $1 million of higher ancillary revenues and $1 million of additional annual club dues earned in connection with the MVCD
program due to the cumulative increase in owners enrolled in the program. The increase in ancillary revenues included a nearly $2 million increase in ancillary revenues from food and beverage and golf offerings at our resorts, partially offset by a
$1 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014.
The improvement in the
resort management and other services margin reflected the increases in revenue while expenses remained flat compared to the prior year comparable period.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Management fee revenues
|
|
$
|
34
|
|
|
$
|
32
|
|
|
$
|
2
|
|
|
7%
|
Other services revenues
|
|
|
96
|
|
|
|
91
|
|
|
|
5
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
130
|
|
|
|
123
|
|
|
|
7
|
|
|
6%
|
Resort management and other services expenses
|
|
|
(88)
|
|
|
|
(89)
|
|
|
|
1
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
42
|
|
|
$
|
34
|
|
|
$
|
8
|
|
|
25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
32.7%
|
|
|
|
27.6%
|
|
|
|
5.1 pts
|
|
|
|
The increase in resort management and other services revenues was driven by $2 million of higher management
fees, $2 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 million of higher fees from our third party exchange company, $1 million of higher
resales commission and $1 million of higher ancillary revenues. The increase in ancillary revenues included a $3 million increase in ancillary revenues from food and beverage and golf offerings at our resorts, partially offset by a $2 million
decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014.
The improvement in the resort
management and other services margin reflected the increases in revenue as well as $1 million of lower customer service and MVCD program expenses in the twenty-four weeks ended June 20, 2014 compared to the prior year comparable period.
Financing Revenues, Expenses and Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Interest income
|
|
$
|
28
|
|
|
$
|
31
|
|
|
$
|
(3)
|
|
|
(8%)
|
Other financing revenues
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
|
29
|
|
|
|
32
|
|
|
|
(3)
|
|
|
(7%)
|
Financing expenses
|
|
|
(6)
|
|
|
|
(6)
|
|
|
|
|
|
|
NM
|
Consumer financing interest expense
|
|
|
(5)
|
|
|
|
(7)
|
|
|
|
2
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing margin
|
|
$
|
18
|
|
|
$
|
19
|
|
|
$
|
(1)
|
|
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
40%
|
|
|
|
38%
|
|
|
|
|
|
|
|
The decrease in financing revenues was due to an $88 million decline in the average gross vacation ownership
notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.
The decline in financing margin reflects the lower financing revenues, partially offset by lower consumer financing interest expense due to
lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs as well as a lower average interest rate. The lower average interest rate reflected the continued pay-down of older securitization
transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our most recently completed securitizations of vacation ownership notes receivable.
30
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Interest income
|
|
$
|
57
|
|
|
$
|
63
|
|
|
$
|
(6)
|
|
|
(8%)
|
Other financing revenues
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
|
60
|
|
|
|
65
|
|
|
|
(5)
|
|
|
(8%)
|
Financing expenses
|
|
|
(11)
|
|
|
|
(11)
|
|
|
|
|
|
|
NM
|
Consumer financing interest expense
|
|
|
(12)
|
|
|
|
(15)
|
|
|
|
3
|
|
|
16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing margin
|
|
$
|
37
|
|
|
$
|
39
|
|
|
$
|
(2)
|
|
|
(6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
41%
|
|
|
|
39%
|
|
|
|
|
|
|
|
The decrease in financing revenues was due to a $92 million decline in the average gross vacation ownership
notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.
The decline in financing margin reflects the lower financing revenues, partially offset by lower consumer financing interest expense due to
lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs as well as a lower average interest rate. The lower average interest rate reflected the continued pay-down of older securitization
transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our most recently completed securitizations of vacation ownership notes receivable.
Rental Revenues, Expenses and Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Rental revenues
|
|
$
|
62
|
|
|
$
|
65
|
|
|
$
|
(3)
|
|
|
(4%)
|
Unsold maintenance fees upscale
|
|
|
(11)
|
|
|
|
(12)
|
|
|
|
1
|
|
|
14%
|
Unsold maintenance fees luxury
|
|
|
(2)
|
|
|
|
(3)
|
|
|
|
1
|
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(13)
|
|
|
|
(15)
|
|
|
|
2
|
|
|
15%
|
Other expenses
|
|
|
(42)
|
|
|
|
(41)
|
|
|
|
(1)
|
|
|
(4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
(2)
|
|
|
(20%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
11.1%
|
|
|
|
13.3%
|
|
|
|
(2.2 pts)
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Transient keys rented
(1)
|
|
|
260,979
|
|
|
|
255,353
|
|
|
|
5,626
|
|
|
2%
|
Average transient key rate
|
|
|
$ 210.46
|
|
|
|
$ 204.44
|
|
|
|
$ 6.02
|
|
|
3%
|
Resort occupancy
|
|
|
88.6%
|
|
|
|
89.7%
|
|
|
|
(1.1 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points.
|
The decrease in
rental revenues was due to $5 million of lower plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points), partially offset by a company-wide 2 percent increase in transient
keys rented ($1 million) and a company-wide 3 percent increase in average transient rate (more than $1 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory.
The rental margin of $7 million was $2 million below the prior year comparable period, and reflected the $5 million decline in plus points
revenue resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program), and corresponding decline in issuance of plus points as incentives for enrollment in the MVCD program, partially
offset by $3 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and lower unsold maintenance fees.
31
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Rental revenues
|
|
$
|
126
|
|
|
$
|
128
|
|
|
$
|
(2)
|
|
|
(2%)
|
Unsold maintenance fees upscale
|
|
|
(22)
|
|
|
|
(25)
|
|
|
|
3
|
|
|
12%
|
Unsold maintenance fees luxury
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(27)
|
|
|
|
(30)
|
|
|
|
3
|
|
|
10%
|
Other expenses
|
|
|
(85)
|
|
|
|
(82)
|
|
|
|
(3)
|
|
|
(4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
(2)
|
|
|
(13%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
10.8%
|
|
|
|
12.2%
|
|
|
|
(1.4 pts)
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Transient keys rented
(1)
|
|
|
529,658
|
|
|
|
519,245
|
|
|
|
10,413
|
|
|
2%
|
Average transient key rate
|
|
|
$ 212.42
|
|
|
|
$ 207.35
|
|
|
|
$ 5.07
|
|
|
2%
|
Resort occupancy
|
|
|
88.6%
|
|
|
|
88.9%
|
|
|
|
(0.3 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points.
|
The decrease in
rental revenues was due to $7 million of lower plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points), partially offset by a company-wide 2 percent increase in average
transient rate ($3 million) and a company-wide 2 percent increase in transient keys rented ($2 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory.
The rental margin of $14 million was $2 million below the prior year comparable period, and reflected the $7 million decline in plus points
revenue resulting from the decline in new enrollments in the MVCD program by existing owners (due to the maturity of the MVCD program), and corresponding decline in issuance of plus points as incentives for enrollment in the MVCD program, partially
offset by $5 million of higher rental revenues net of direct variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees.
Other
Twelve Weeks Ended
June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Other revenues
|
|
$
|
6
|
|
|
$
|
6
|
|
Other expenses
|
|
|
(3)
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Other revenues, net of expenses
|
|
$
|
3
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Other revenues net of expenses was $1 million below the prior year comparable period mainly as a result of
higher settlement and other expenses in the twelve weeks ended June 20, 2014 compared to the prior year comparable period.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Other revenues
|
|
$
|
8
|
|
|
$
|
9
|
|
Other expenses
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Other revenues, net of expenses
|
|
$
|
3
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Other revenues net of expenses was $1 million below the prior year comparable period mainly as a result of
lower settlement revenues due to a decline in the number of contracts closed and higher expenses in the twenty-four weeks ended June 20, 2014 compared to the prior year comparable period.
32
Cost Reimbursements
Twelve Weeks Ended June 20, 2014
Cost reimbursements increased $6 million, or 9 percent, over the prior year comparable period, reflecting $3 million of higher costs, $2
million due to timing of expenses compared to the prior year comparable period and $1 million due to additional managed unit weeks in the twelve weeks ended June 20, 2014.
Twenty-Four Weeks Ended June 20, 2014
Cost reimbursements increased $15 million, or 10 percent, over the prior year comparable period, reflecting $9 million of higher costs, $4
million due to timing of expenses compared to the prior year comparable period and $2 million due to additional managed unit weeks in the twenty-four weeks ended June 20, 2014.
General and Administrative
Twelve
Weeks Ended June 20, 2014
General and administrative expenses increased $1 million (from $22 million to $23 million) over the
prior year comparable period due to $1 million of higher personnel related costs.
Twenty-Four Weeks Ended June 20, 2014
General and administrative expenses increased $2 million (from $43 million to $45 million) over the prior year comparable period due to $1
million of higher legal related expenses, $1 million of higher personnel related costs and $1 million from the favorable resolution of an international tax (non-income tax) matter in the prior year comparable period. These increases were offset by
$1 million of savings related to organizational and separation relation efforts in the human resources, information technology and finance and accounting organizations.
Litigation Settlement
Twelve and
Twenty-Four Weeks Ended June 20, 2014
During the second quarter of 2014, we agreed to settle a dispute with a service provider
relating to services provided to us prior to 2011. The dispute related to certain lawsuits and claims asserted by several residential unit and fractional interest owners at The Ritz-Carlton Club and Residences, San Francisco (the RCC San
Francisco), a project within our North America segment, who questioned the adequacy of disclosures made regarding bonds issued for that project under Californias Mello-Roos Community Facilities Act of 1982 and their payment obligations
with respect to such bonds. In connection with the settlement, we received a one-time payment of $8 million after the end of the second quarter from the service provider, which no longer provides services to us. We recorded a gain of $8 million as a
result of the settlement, which is included in the Litigation settlement line on the Statement of Operations for the twelve and twenty-four weeks ended June 20, 2014.
Interest Expense
Twelve Weeks Ended
June 20, 2014
Interest expense decreased $1 million (from $4 million to $3 million) due to a decline in expense associated with
our liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International (the Marriott Rewards Agreement).
Twenty-Four Weeks Ended June 20, 2014
Interest expense decreased $2 million (from $7 million to $5 million) due to a $1 million increase in capitalized interest costs and a $1
million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under the Marriott Rewards Agreement.
Royalty Fee
Twelve Weeks Ended
June 20, 2014
Royalty fee expense decreased $1 million (from $15 million to $14 million) due to a higher portion of sales of
pre-owned inventory, which carries a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent).
Twenty-Four Weeks Ended June 20, 2014
Royalty fee expense decreased $1 million (from $28 million to $27 million) due to a higher portion of sales of pre-owned inventory, which
carries a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent).
33
Impairment
Twelve and Twenty-Four Weeks Ended June 20, 2014
During the second quarter of 2014, we recorded an impairment charge of $1 million with respect to a building as a result of a termination of a
land lease at one of our projects in our North America segment. In the second quarter of 2013, we recorded an impairment charge of $1 million with respect to a golf course in the Europe segment.
Impairment Charges on Equity Investment
Twelve Weeks Ended June 20, 2014
During the second quarter of 2014, we reversed a $2 million impairment charge that we initially recorded in the first quarter of 2014 to
increase our accrual for remaining costs that were expected to be incurred relating to our interests in an equity method investment in a joint venture project in our North America segment. There were no impairment charges on equity investment in the
second quarter of 2013.
Twenty-Four Weeks Ended June 20, 2014
During the first quarter of 2014, we recorded a $2 million charge to increase our accrual for remaining costs that were expected to be incurred
relating to our interests in an equity method investment in a joint venture project in our North America segment. During the second quarter of 2014, we reversed the $2 million charge. There were no impairment charges on equity investment in either
the first or second quarter of 2013.
Income Tax
Twelve Weeks Ended June 20, 2014
The provision for income taxes increased by $8 million (from $14 million to $22 million) from the prior year comparable period. The increase
related to the change in the geographic composition of income before income taxes. There was lower net income before income taxes in our foreign jurisdictions for the twelve weeks ended June 20, 2014 compared to the prior year comparable period
due to the cumulative impact of the extended rescission periods in our Europe segment and an increase in the net income before income taxes attributable to the United States.
Twenty-Four Weeks Ended June 20, 2014
The provision for income taxes increased by $10 million (from $25 million to $35 million) from the prior year comparable period. The increase
related to the change in the geographic composition of income before income taxes. There was lower net income before income taxes in our foreign jurisdictions for the twenty-four weeks ended June 20, 2014 compared to the prior year comparable
period due to the cumulative impact of the extended rescission periods in our Europe segment and an increase in the net income before income taxes attributable to the United States.
Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
EBITDA, a financial measure that is not prescribed or authorized by GAAP, is defined as earnings, or net income, before interest expense
(excluding consumer financing interest expense), provision for income taxes, depreciation and amortization. For purposes of our EBITDA calculation, we do not adjust for consumer financing interest expense because the associated debt is secured by
vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Further, we consider consumer financing interest expense to be an operating expense of our business.
We consider EBITDA to be an indicator of operating performance, and we use it to measure our ability to service debt, fund capital
expenditures and expand our business. We also use it, as do analysts, lenders, investors and others, because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example,
interest expense can be dependent on a 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 also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability
in the relative costs of productive assets and the depreciation and amortization expense among companies.
34
EBITDA has limitations and should not be considered in isolation or as a substitute for
performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below shows
our EBITDA calculation and reconciles that measure with Net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Net income
|
|
$
|
36
|
|
|
$
|
30
|
|
|
$
|
55
|
|
|
$
|
49
|
|
Interest expense
(1)
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
Tax provision
|
|
|
22
|
|
|
|
14
|
|
|
|
35
|
|
|
|
25
|
|
Depreciation and amortization
|
|
|
5
|
|
|
|
5
|
|
|
|
9
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
66
|
|
|
$
|
53
|
|
|
$
|
104
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Interest expense excludes consumer financing interest expense.
|
Business Segments
Our business is grouped into three reportable business segments: North America, Europe and Asia Pacific. See Footnote No. 15,
Business Segments, to our Financial Statements for further information on our segments.
As of June 20, 2014, we operated
the following 62 properties by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
(1)
|
|
|
Non-U.S.
|
|
|
Total
|
|
North America
|
|
|
47
|
|
|
|
6
|
|
|
|
53
|
|
Europe
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Asia Pacific
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
47
|
|
|
|
15
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes properties located in the 48 contiguous states, Hawaii and Alaska.
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
135
|
|
|
$
|
136
|
|
|
$
|
266
|
|
|
$
|
262
|
|
Resort management and other services
|
|
|
60
|
|
|
|
55
|
|
|
|
114
|
|
|
|
108
|
|
Financing
|
|
|
27
|
|
|
|
30
|
|
|
|
56
|
|
|
|
61
|
|
Rental
|
|
|
54
|
|
|
|
57
|
|
|
|
114
|
|
|
|
116
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
|
|
8
|
|
|
|
9
|
|
Cost reimbursements
|
|
|
81
|
|
|
|
75
|
|
|
|
171
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
363
|
|
|
|
359
|
|
|
|
729
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
37
|
|
|
|
46
|
|
|
|
79
|
|
|
|
86
|
|
Marketing and sales
|
|
|
62
|
|
|
|
62
|
|
|
|
124
|
|
|
|
126
|
|
Resort management and other services
|
|
|
39
|
|
|
|
39
|
|
|
|
75
|
|
|
|
76
|
|
Rental
|
|
|
48
|
|
|
|
48
|
|
|
|
99
|
|
|
|
99
|
|
Other
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
5
|
|
Litigation settlement
|
|
|
(8)
|
|
|
|
|
|
|
|
(8)
|
|
|
|
(1)
|
|
Organizational and separation related
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Royalty fee
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
Impairment
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Cost reimbursements
|
|
|
81
|
|
|
|
75
|
|
|
|
171
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
265
|
|
|
|
275
|
|
|
|
550
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other income
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
Impairment reversals on equity investment
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
101
|
|
|
$
|
84
|
|
|
$
|
181
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Contract Sales
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
146
|
|
|
$
|
141
|
|
|
$
|
5
|
|
|
3%
|
Residential products
|
|
|
|
|
|
|
1
|
|
|
|
(1)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
146
|
|
|
$
|
142
|
|
|
$
|
4
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in contract sales in our North America segment reflects a $5 million increase in vacation
ownership contract sales and a $1 million decline in residential contract sales.
The increase in vacation ownership contract sales in our
North America segment was driven by continued improvement at on-site sales locations, which resulted from a 5 percent increase in VPG to $3,383 in the twelve weeks ended June 20, 2014 from $3,211 in the prior year comparable period, partially
offset by a 1 percent decline in the number of tours. Contract sales at off-site (non tour-based) sales locations were flat compared to the prior year comparable period. The increase in VPG was due to higher pricing, and slight increases in the
average number of points purchased per contract and closing efficiency. The decline in the number of tours continued to be driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the programs
flexibility to take vacations of shorter duration and exercise alternative usage options. This trend has reduced our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years.
We implemented new programs aimed at generating existing owner tours and new marketing programs targeted toward first-time buyers, which we expect will increase tour flow in the next six to nine months.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
286
|
|
|
$
|
284
|
|
|
$
|
2
|
|
|
1%
|
Residential products
|
|
|
6
|
|
|
|
1
|
|
|
|
5
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
292
|
|
|
$
|
285
|
|
|
$
|
7
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in contract sales in our North America segment includes $5 million of higher residential contract
sales and a $2 million increase in vacation ownership contract sales.
The increase in vacation ownership contract sales in our North
America segment reflected a $6 million increase in sales at on-site sales locations, and a $4 million decline in sales at off-site (non tour-based) sales locations, due in part to the closure or downsizing of certain under-performing locations since
the prior year comparable period. The increase in sales at on-site sales locations resulted from a 6 percent increase in VPG to $3,428 in the twenty-four weeks ended June 20, 2014 from $3,238 in the prior year comparable period, partially
offset by a 3 percent decline in the number of tours. The increase in VPG was due to a 0.5 percentage point increase in closing efficiency and higher pricing, partially offset by a decline in the average number of points purchased per contract. The
decline in the number of tours continued to be driven by an increase in weeks-based owner utilization of the MVCD program, with owners taking advantage of the programs flexibility to take vacations of shorter duration and exercise alternative
usage options. This trend has reduced our existing owner tour flow because fewer owners are in our resorts, and their stays in our resorts are shorter, than in prior years. We implemented new programs aimed at generating existing owner tours and new
marketing programs targeted toward first-time buyers, which we expect will increase tour flow in the next six to nine months.
Development Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
135
|
|
|
$
|
136
|
|
|
$
|
(1)
|
|
|
(2%)
|
Cost of vacation ownership products
|
|
|
(37)
|
|
|
|
(46)
|
|
|
|
9
|
|
|
19%
|
Marketing and sales
|
|
|
(62)
|
|
|
|
(62)
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
36
|
|
|
$
|
28
|
|
|
$
|
8
|
|
|
24%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
26.3%
|
|
|
|
20.8%
|
|
|
|
5.5 pts
|
|
|
|
36
The decrease in revenues from the sale of vacation ownership products was due to $5 million of
lower revenue reportability compared to the prior year comparable period, partially offset by the $4 million increase in contract sales net of sales reserve. The $5 million of lower revenue reportability resulted from $5 million of higher revenue
reportability in the prior year comparable period, compared to no impact from revenue reportability in the twelve weeks ended June 20, 2014. Revenue reportability was higher in the prior year quarter because the rescission period related to
certain sales had expired.
The increase in development margin reflected a $9 million net increase from vacation ownership contract sales
volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven by $6 million from a favorable mix of lower cost real estate inventory being sold, $2 million from more efficient marketing and
sales spending and $1 million from the higher contract sales volume. In addition, the development margin includes $2 million of higher favorable product cost true-ups ($2 million in the twelve weeks ended June 20, 2014 compared to $0 in the
prior year comparable period). These increases are partially offset by $3 million from the higher revenue reportability in the prior year comparable period.
The 5.5 percentage point improvement in the development margin percentage reflected a 5 percentage point increase due to a favorable mix of
lower cost vacation ownership real estate inventory being sold in the twelve weeks ended June 20, 2014, a 1 percentage point increase due to increased efficiency in marketing and sales spending and a 1 percentage point increase due to the
higher favorable product cost true-up activity year-over-year. These increases were partially offset by a more than 1 percentage point decrease due to lower revenue reportability year-over-year.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
266
|
|
|
$
|
262
|
|
|
$
|
4
|
|
|
1%
|
Cost of vacation ownership products
|
|
|
(79)
|
|
|
|
(86)
|
|
|
|
7
|
|
|
9%
|
Marketing and sales
|
|
|
(124)
|
|
|
|
(126)
|
|
|
|
2
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
63
|
|
|
$
|
50
|
|
|
$
|
13
|
|
|
25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
23.5%
|
|
|
|
19.1%
|
|
|
|
4.4 pts
|
|
|
|
The increase in revenues from the sale of vacation ownership products was due to the $7 million increase in
contract sales net of sales reserve and $2 million from lower vacation ownership notes receivable reserve activity due to a decrease in estimated default activity compared to the prior year comparable period. These increases were partially offset by
$4 million of lower revenue reportability compared to the prior year comparable period and $1 million of higher plus points issued as sales incentives in the current period.
The increase in development margin reflected a $16 million net increase from higher vacation ownership contract sales volume net of lower
direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven by $13 million from a favorable mix of lower cost real estate inventory being sold and $3 million from more efficient marketing and sales spending.
Additionally, the increase in development margin reflects a $1 million increase in higher residential contract sales and the $1 million decrease in vacation ownership notes receivable reserve activity. These increases were partially offset by $3
million of lower revenue reportability compared to the prior year comparable period and $2 million of lower favorable product cost true-ups ($3 million in the twenty-four weeks ended June 20, 2014 compared to $5 million in the prior year
comparable period).
The 4.4 percentage point improvement in the development margin percentage reflected a 5 percentage point increase due
to a favorable mix of lower cost vacation ownership real estate inventory being sold in the twenty-four weeks ended June 20, 2014 and a 1 percentage point increase due to increased efficiency in marketing and sales spending. These increases
were partially offset by a 1 percentage point decrease due to the lower favorable product cost true-up activity year-over-year and a less than 1 percentage point decrease due to lower revenue reportability year-over-year. The increase in residential
contract sales did not materially impact the development margin percentage as the higher cost of the real estate inventory sold was offset by lower marketing and sales cost.
37
Resort Management and Other Services Revenues, Expenses and Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Management fee revenues
|
|
$
|
15
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
7%
|
Other services revenues
|
|
|
45
|
|
|
|
41
|
|
|
|
4
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
60
|
|
|
|
55
|
|
|
|
5
|
|
|
8%
|
Resort management and other services expenses
|
|
|
(39)
|
|
|
|
(39)
|
|
|
|
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
21
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
37.1%
|
|
|
|
30.2%
|
|
|
|
6.9 pts
|
|
|
|
The increase in resort management and other services revenues was driven by $1 million of higher management
fees, $1 million of higher fees from our third party exchange company, $1 million of higher resales commission and $1 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled
in the program. Ancillary revenues were flat compared to the prior year comparable period, and included a $1 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014, which was offset by a $1
million increase in ancillary revenues from food and beverage and golf offerings at our resorts.
The improvement in the resort management
and other services margin reflected the increases in revenue while expenses remained flat compared to the prior year comparable period.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Management fee revenues
|
|
$
|
30
|
|
|
$
|
28
|
|
|
$
|
2
|
|
|
7%
|
Other services revenues
|
|
|
84
|
|
|
|
80
|
|
|
|
4
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services revenues
|
|
|
114
|
|
|
|
108
|
|
|
|
6
|
|
|
6%
|
Resort management and other services expenses
|
|
|
(75)
|
|
|
|
(76)
|
|
|
|
1
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin
|
|
$
|
39
|
|
|
$
|
32
|
|
|
$
|
7
|
|
|
24%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort management and other services margin percentage
|
|
|
35.0%
|
|
|
|
29.8%
|
|
|
|
5.2 pts
|
|
|
|
The increase in resort management and other services revenues was driven by $2 million of higher management
fees, $2 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 million of higher fees from our third party exchange company and $1 million of higher
resales commission. Ancillary revenues were flat compared to the prior year comparable period, and included a $2 million increase in ancillary revenues from food and beverage and golf offerings at our resorts, offset by a $2 million decline due to
the disposition of a golf course in Orlando, Florida during the first quarter of 2014.
The improvement in the resort management and other
services margin reflected the increases in revenue as well as $1 million of lower customer service and MVCD program expenses in the twenty-four weeks ended June 20, 2014 compared to the prior year comparable period.
Financing Revenues
Twelve Weeks Ended
June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Interest income
|
|
$
|
26
|
|
|
$
|
29
|
|
|
$
|
(3)
|
|
|
(8%)
|
Other financing revenues
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
$
|
27
|
|
|
$
|
30
|
|
|
$
|
(3)
|
|
|
(8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
37%
|
|
|
|
37%
|
|
|
|
|
|
|
|
38
The decrease in financing revenues was due to lower interest income from a lower outstanding
vacation ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Interest income
|
|
$
|
53
|
|
|
$
|
59
|
|
|
$
|
(6)
|
|
|
(9%)
|
Other financing revenues
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing revenues
|
|
$
|
56
|
|
|
$
|
61
|
|
|
$
|
(5)
|
|
|
(8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing propensity
|
|
|
38%
|
|
|
|
37%
|
|
|
|
|
|
|
|
The decrease in financing revenues was due to lower interest income from a lower outstanding vacation
ownership notes receivable balance. This decline reflected our continued collection of existing vacation ownership notes receivable at a faster pace than our origination of new vacation ownership notes receivable.
Rental Revenues, Expenses and Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Rental revenues
|
|
$
|
54
|
|
|
$
|
57
|
|
|
$
|
(3)
|
|
|
(5%)
|
Unsold maintenance fees upscale
|
|
|
(10)
|
|
|
|
(11)
|
|
|
|
1
|
|
|
15%
|
Unsold maintenance fees luxury
|
|
|
(2)
|
|
|
|
(3)
|
|
|
|
1
|
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(12)
|
|
|
|
(14)
|
|
|
|
2
|
|
|
16%
|
Other expenses
|
|
|
(36)
|
|
|
|
(34)
|
|
|
|
(2)
|
|
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
(3)
|
|
|
(25%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
11.8%
|
|
|
|
15.0%
|
|
|
|
(3.2 pts)
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Transient keys rented
(1)
|
|
|
237,045
|
|
|
|
230,898
|
|
|
|
6,147
|
|
|
3%
|
Average transient key rate
|
|
$
|
202.75
|
|
|
|
$ 199.52
|
|
|
|
$ 3.23
|
|
|
2%
|
Resort occupancy
|
|
|
89.4%
|
|
|
|
90.8%
|
|
|
|
(1.4 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points.
|
The decrease in
rental revenues was due to $5 million of lower plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points), partially offset by a 3 percent increase in transient keys rented ($1
million) and a 2 percent increase in average transient rate ($1 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory.
The decline in rental margin reflected the $5 million decline in plus points revenue resulting from the decline in new enrollments in the MVCD
program by existing owners (due to the maturity of the MVCD program), and corresponding decline in issuance of plus points as incentives for enrollment in the MVCD program, partially offset by $2 million of higher rental revenues net of direct
variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees.
39
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Rental revenues
|
|
$
|
114
|
|
|
$
|
116
|
|
|
$
|
(2)
|
|
|
(2%)
|
Unsold maintenance fees upscale
|
|
|
(19)
|
|
|
|
(22)
|
|
|
|
3
|
|
|
13%
|
Unsold maintenance fees luxury
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsold maintenance fees
|
|
|
(24)
|
|
|
|
(27)
|
|
|
|
3
|
|
|
10%
|
Other expenses
|
|
|
(75)
|
|
|
|
(72)
|
|
|
|
(3)
|
|
|
(4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin
|
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
(2)
|
|
|
(14%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental margin percentage
|
|
|
12.9%
|
|
|
|
14.7%
|
|
|
|
(1.8 pts)
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Transient keys rented
(1)
|
|
|
489,745
|
|
|
|
477,281
|
|
|
|
12,464
|
|
|
3%
|
Average transient key rate
|
|
$
|
208.13
|
|
|
$
|
204.38
|
|
|
$
|
3.75
|
|
|
2%
|
Resort occupancy
|
|
|
89.9%
|
|
|
|
90.2%
|
|
|
|
(0.3 pts)
|
|
|
|
(1)
|
Transient keys rented exclude those obtained through the use of plus points.
|
The decrease in
rental revenues was due to $7 million of lower plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points), partially offset by a 3 percent increase in transient keys rented ($3
million) and a 2 percent increase in average transient rate ($2 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory.
The decline in rental margin reflected the $7 million decline in plus points revenue resulting from the decline in new enrollments in the MVCD
program by existing owners (due to the maturity of the MVCD program), and corresponding decline in issuance of plus points as incentives for enrollment in the MVCD program, partially offset by $5 million of higher rental revenues net of direct
variable expenses (such as housekeeping), expenses incurred due to owners choosing alternative usage options, and unsold maintenance fees.
40
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
(1)
|
|
|
June 20, 2014
(1)
|
|
|
June 14, 2013
(1)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
9
|
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
32
|
|
Resort management and other services
|
|
|
9
|
|
|
|
8
|
|
|
|
14
|
|
|
|
13
|
|
Financing
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
Rental
|
|
|
6
|
|
|
|
6
|
|
|
|
8
|
|
|
|
8
|
|
Cost reimbursements
|
|
|
10
|
|
|
|
8
|
|
|
|
18
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
35
|
|
|
|
48
|
|
|
|
59
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
2
|
|
|
|
9
|
|
|
|
4
|
|
|
|
9
|
|
Marketing and sales
|
|
|
6
|
|
|
|
7
|
|
|
|
11
|
|
|
|
13
|
|
Resort management and other services
|
|
|
7
|
|
|
|
7
|
|
|
|
12
|
|
|
|
12
|
|
Rental
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
|
|
8
|
|
Impairment
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Cost reimbursements
|
|
|
10
|
|
|
|
8
|
|
|
|
18
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
29
|
|
|
|
37
|
|
|
|
52
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
6
|
|
|
$
|
11
|
|
|
$
|
7
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Europe and Asia Pacific segment revenues and expenses have been restated to correct certain immaterial prior period errors. For the twenty-four weeks ended June 20, 2014, $1 million of cost reimbursements related
to the twelve weeks ended March 28, 2014 were reclassified from the Asia Pacific segment to the Europe segment. For the twelve and twenty-four weeks ended June 14, 2013, $2 million and $3 million of cost reimbursements were reclassified
from the Asia Pacific segment to the Europe segment, respectively.
|
Overview
In our Europe segment, we are focused on selling our existing projects and managing existing resorts. We do not have any current plans for new
development in this segment.
Contract Sales
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
11
|
|
|
$
|
7
|
|
|
$
|
4
|
|
|
82%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
11
|
|
|
$
|
7
|
|
|
$
|
4
|
|
|
82%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in contract sales reflected stronger sales from our Middle East sales location ($2 million) and
higher cancellation activity in the prior year comparable period associated with the extended rescission periods in this segment ($2 million).
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
20
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
20
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in contract sales reflected stronger sales from our Middle East sales location ($4 million),
stronger fractional sales at our project in London, United Kingdom ($1 million), and higher cancellation activity in the prior year comparable period associated with the extended rescission periods in this segment ($3 million).
41
Development Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
9
|
|
|
$
|
25
|
|
|
$
|
(16)
|
|
|
(61%)
|
Cost of vacation ownership products
|
|
|
(2)
|
|
|
|
(9)
|
|
|
|
7
|
|
|
70%
|
Marketing and sales
|
|
|
(6)
|
|
|
|
(7)
|
|
|
|
1
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
(8)
|
|
|
(87%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
13.6%
|
|
|
|
41.8%
|
|
|
|
(28.2 pts)
|
|
|
|
The decrease in revenues from the sale of vacation ownership products was due to $20 million of lower revenue
reportability compared to the prior year comparable period, partially offset by $4 million from the increase in contract sales net of sales reserve. The $20 million of lower revenue reportability resulted from $1 million of lower revenue
reportability in the twelve weeks ended June 20, 2014, compared to $19 million of higher revenue reportability in the prior year comparable period. Revenue reportability was higher in the prior year quarter, because the rescission period
related to certain sales had expired, of which $17 million related to the impact of the extended rescission periods in this segment.
The
decrease in development margin reflected $11 million from lower revenue reportability year-over-year (of which $9 million related to the impact of the extended rescission periods in this segment), partially offset by a $2 million net increase from
higher vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven mainly by more efficient marketing and sales spending, as well as $1 million of
severance charges related to the restructuring of sales locations in the prior year comparable period.
Twenty-Four Weeks Ended
June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
17
|
|
|
$
|
32
|
|
|
$
|
(15)
|
|
|
(47%)
|
Cost of vacation ownership products
|
|
|
(4)
|
|
|
|
(9)
|
|
|
|
5
|
|
|
56%
|
Marketing and sales
|
|
|
(11)
|
|
|
|
(13)
|
|
|
|
2
|
|
|
16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
(8)
|
|
|
(77%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
13.9%
|
|
|
|
32.2%
|
|
|
|
(18.3 pts)
|
|
|
|
The decrease in revenues from the sale of vacation ownership products was due to $24 million of lower revenue
reportability compared to the prior year comparable period, partially offset by $9 million from the increase in contract sales net of sales reserve. The $24 million of lower revenue reportability resulted from $1 million of lower revenue
reportability in the twenty-four weeks ended June 20, 2014, compared to $23 million of higher revenue reportability in the prior year comparable period. Revenue reportability was higher in the prior year quarter, because the rescission period
related to certain sales had expired, of which $18 million related to the impact of the extended rescission periods in this segment.
The
decrease in development margin reflected $13 million from lower revenue reportability year-over-year (of which $10 million related to the impact of the extended rescission periods in this segment), partially offset by a $3 million net increase from
higher vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven mainly by more efficient marketing and sales spending, as well as $2 million of
severance charges related to the restructuring of sales locations in the prior year comparable period.
42
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
(1)
|
|
|
June 20, 2014
(1)
|
|
|
June 14, 2013
(1)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of vacation ownership products
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
16
|
|
Resort management and other services
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
Financing
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
Rental
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
Cost reimbursements
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12
|
|
|
|
14
|
|
|
|
24
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of vacation ownership products
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Marketing and sales
|
|
|
4
|
|
|
|
5
|
|
|
|
8
|
|
|
|
9
|
|
Resort management and other services
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Rental
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
5
|
|
Royalty fee
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Cost reimbursements
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10
|
|
|
|
12
|
|
|
|
21
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial results
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Europe and Asia Pacific segment revenues and expenses have been restated to correct certain immaterial prior period errors. For the twenty-four weeks ended June 20, 2014, $1 million of cost reimbursements related
to the twelve weeks ended March 28, 2014 were reclassified from the Asia Pacific segment to the Europe segment. For the twelve and twenty-four weeks ended June 14, 2013, $2 million and $3 million of cost reimbursements were reclassified
from the Asia Pacific segment to the Europe segment, respectively.
|
Overview
In our Asia Pacific segment, we continue to identify opportunities for development margin improvement. Our on-site sales locations are more
efficient sales channels than our off-site sales locations and we plan to focus on future inventory acquisitions with strong on-site sales distribution potential.
Contract Sales
Twelve Weeks Ended
June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
(1)
|
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
(1)
|
|
|
(9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in contract sales reflected an 8 percent decrease in the number of tours and a $42 decrease in
VPG, which were impacted by the political turmoil in Thailand.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Contract Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership
|
|
$
|
14
|
|
|
$
|
17
|
|
|
$
|
(3)
|
|
|
(16%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract sales
|
|
$
|
14
|
|
|
$
|
17
|
|
|
$
|
(3)
|
|
|
(16%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in contract sales reflected an 8 percent decrease in the number of tours and a $246 decrease in
VPG, which were impacted by the political turmoil in Thailand.
43
Development Margin
Twelve Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
|
|
|
9%
|
Cost of vacation ownership products
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
(63%)
|
Marketing and sales
|
|
|
(4)
|
|
|
|
(5)
|
|
|
|
1
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
20.9%
|
|
|
|
18.3%
|
|
|
|
2.6 pts
|
|
|
|
Revenues from the sale of vacation ownership products were unchanged from the prior year comparable period,
with the $1 million decline in contract sales offset by a $1 million unfavorable notes receivable reserve adjustment in the prior year comparable period. The development margin was also unchanged from the prior year comparable period, with the
benefits of more efficient marketing and sales spending at our existing sales locations offset by a less than $1 million favorable product cost true up in the prior year comparable period.
Twenty-Four Weeks Ended June 20, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
Change
|
|
|
% Change
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
|
Sale of vacation ownership products
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
(2)
|
|
|
(8%)
|
Cost of vacation ownership products
|
|
|
(3)
|
|
|
|
(3)
|
|
|
|
|
|
|
(37%)
|
Marketing and sales
|
|
|
(8)
|
|
|
|
(9)
|
|
|
|
1
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
(1)
|
|
|
(26%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development margin percentage
|
|
|
18.9%
|
|
|
|
23.4%
|
|
|
|
(4.5 pts)
|
|
|
|
The decrease in sale of vacation ownership products was due to the $3 million decline in contract sales,
partially offset by a $1 million unfavorable notes receivable reserve adjustment in the prior year comparable period. The decrease in the development margin was due to the lower sales volume net of direct variable expenses (i.e., cost of vacation
ownership products and marketing and sales), and includes less efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower sales volumes, as well as a more than $1 million favorable
product cost true up in the prior year comparable period.
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Cost of vacation ownership products
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
3
|
|
Financing
|
|
|
6
|
|
|
|
6
|
|
|
|
11
|
|
|
|
11
|
|
General and administrative
|
|
|
23
|
|
|
|
22
|
|
|
|
45
|
|
|
|
43
|
|
Organizational and separation related
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
Consumer financing interest
|
|
|
5
|
|
|
|
7
|
|
|
|
12
|
|
|
|
15
|
|
Royalty fee
|
|
|
12
|
|
|
|
11
|
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
$
|
48
|
|
|
$
|
49
|
|
|
$
|
96
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 supporting overall company development, company-wide general and administrative costs, and the fixed royalty fee payable under the license agreements that we
entered into with Marriott International in connection with the Spin-Off, as well as consumer financing interest expense.
Twelve Weeks
Ended June 20, 2014
Total expenses decreased $1 million from the prior year comparable period. The $1 million decrease was the
result of $2 million of lower consumer financing interest expense and $2 million of lower organizational and separation related expenses, partially offset by $1 million of higher cost of vacation ownership products expenses, $1 million of higher
general and administrative expenses and $1 million of higher royalty fees.
44
The $2 million decline in consumer financing interest expense was due to lower outstanding debt
balances of securitized vacation ownership notes receivable and associated interest costs as well as a lower average interest rate. 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 most recently completed securitizations of vacation ownership notes receivable.
The $1 million of higher general and administrative expense was due to $1 million of higher personnel related costs.
Twenty-Four Weeks Ended June 20, 2014
Total expenses decreased $2 million from the prior year comparable period. The $2 million decrease was the result of $3 million of lower
consumer financing interest expense and $2 million of lower organizational and separation related expenses, partially offset by $2 million of higher general and administrative expenses and $1 million of higher cost of vacation ownership products
expenses.
The $2 million decline in consumer financing interest expense was due to lower outstanding debt balances of securitized
vacation ownership notes receivable and associated interest costs as well as a lower average interest rate. 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 most recently completed securitizations of vacation ownership notes receivable.
The $2 million of higher general and administrative expense was due to $1 million of higher legal related expenses, $1 million of higher of
higher personnel related costs and $1 million from the favorable resolution of an international tax (non-income tax) matter in the prior year comparable period. These increases were offset by $1 million of savings related to organizational and
separation relation efforts in the human resources, information technology and finance and accounting organizations.
New Accounting Standards
See Footnote No. 1, Summary of Significant Accounting Policies, to our Financial Statements for information related to our
adoption of new accounting standards.
Liquidity and Capital Resources
Our capital needs are supported by cash on hand ($170 million at the end of the second quarter of 2014), cash generated from operations, our
ability to raise capital through securitizations in the asset-backed securities (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 2014,
$566 million of the $570 million of total debt outstanding was non-recourse debt associated with vacation ownership notes receivable securitizations. In addition, we have $40 million of mandatorily redeemable preferred stock of a consolidated
subsidiary that we are not required to redeem until October 2021; however, we may redeem the preferred stock at par after October 2016 at our option.
We have sufficient real estate inventory to meet expected demand for our vacation ownership products for the next several years. At the end of
the second quarter of 2014, we had $820 million of real estate inventory on hand, comprised of $446 million of finished goods, $40 million of work-in-process, and $334 million of land and infrastructure. As a result, we expect our real estate
inventory spending (discussed below) will be less than or in line with the cost of vacation ownership products for the near term. We also expect to sell excess Ritz-Carlton branded inventory and dispose of certain undeveloped and partially developed
land over the next few years, and plan to sell additional Ritz-Carlton branded inventory through the MVCD program in order to generate incremental cash and reduce related carrying costs.
Our vacation ownership product offerings also allow us to utilize our real estate inventory efficiently. The majority of our sales are of a
points-based product, which permits us to sell vacation ownership products at most of our sales locations, including those where little or no weeks-based inventory remains available for sale. Because we do not need specific resort-based inventory at
each sales location, we need to have only a few resorts under construction at any given time while leveraging 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 construction of real estate inventory with the pace of sales of vacation ownership products by slowing down or accelerating
construction, as demand across our portfolio and market conditions dictate.
We intend to selectively pursue growth opportunities in North
America and Asia by targeting high-quality inventory sources that allow us to add desirable new locations to our system, as well as provide 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 asset light deals could be structured as turn-key developments with third-party partners or purchases of constructed inventory just prior to sale.
45
During the twenty-four weeks ended June 20, 2014, we had a net decrease in cash and cash
equivalents of $30 million compared to a $1 million net increase in cash and cash equivalents during the twenty-four weeks ended June 14, 2013. The following table summarizes these changes:
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
98
|
|
|
$
|
34
|
|
Investing activities
|
|
|
74
|
|
|
|
|
|
Financing activities
|
|
|
(202)
|
|
|
|
(33)
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(30)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
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 as well as funding our working capital needs.
We minimize 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, the rate at which owners finance their vacation ownership purchase with us and cash outlays for real estate inventory acquisition and development.
In the twenty-four weeks ended June 20, 2014, we generated $98 million of cash flows from operating activities, compared to $34 million
in the twenty-four weeks ended June 14, 2013. The improvement in cash flows reflected the favorable timing of real estate inventory spending and lower payments on the liability for the Marriott Rewards customer loyalty program in the
twenty-four weeks ended June 20, 2014, as well as the unfavorable impact in the prior year comparable period of payments of a previously accrued litigation settlement and deferred compensation amounts.
We recorded $6 million of residential contract sales in the twenty-four weeks ended June 20, 2014, associated with the sale of three of
the units at the RCC San Francisco that we bought back as part of a legal settlement at the end of 2012. We expect to dispose of the remaining four units in 2014, which we expect will generate approximately $8 million of net cash proceeds.
In addition to net income and adjustments for non-cash items, the following operating activities are key drivers of our cash flow from
operating activities:
Real Estate Inventory Spending Less Than Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Real estate inventory spending
|
|
$
|
(48)
|
|
|
$
|
(73)
|
|
Real estate inventory costs
|
|
|
84
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Real estate inventory spending less than cost of sales
|
|
$
|
36
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
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 Operations related to sale of vacation ownership products (a non-cash item).
Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from the MVCD program, our
spending for real estate inventory remained below the amount of real estate inventory costs in each of the twenty-four week periods ended June 20, 2014 and June 14, 2013.
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 for the next several years.
46
Notes Receivable Collections in Excess of New Mortgages
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Vacation ownership notes receivable collections non-securitized
|
|
$
|
51
|
|
|
$
|
58
|
|
Vacation ownership notes receivable collections securitized
|
|
|
86
|
|
|
|
90
|
|
Vacation ownership notes receivable originations
|
|
|
(104)
|
|
|
|
(100)
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership notes receivable collections in excess of originations
|
|
$
|
33
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
Vacation ownership notes receivable collections include principal from non-securitized and securitized
vacation ownership notes receivable. Total collections declined due to the reduction in the portfolio of outstanding vacation ownership notes receivable. New vacation ownership notes receivable originated in the twenty-four weeks ended June 20,
2014 increased slightly due to an increase in financing propensity to nearly 41 percent compared to 39 percent for the twenty-four weeks ended June 14, 2013.
Cash from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Capital expenditures for property and equipment (excluding inventory)
|
|
$
|
(3)
|
|
|
$
|
(7)
|
|
Decrease in restricted cash
|
|
|
44
|
|
|
|
4
|
|
Dispositions, net
|
|
|
33
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
$
|
74
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures for Property and Equipment
Capital expenditures for property and equipment relates to spending for technology development, buildings and equipment used at sales
locations, and for ancillary offerings, such as food and beverage offerings at locations where these are provided.
In the twenty-four
weeks ended June 20, 2014, capital expenditures for property and equipment of $3 million included $2 million of spending to support ancillary and business operations and $1 million for technology spending. In the twenty-four weeks ended
June 14, 2013, capital expenditures for property and equipment of $7 million included $5 million of spending to support ancillary and business operations and $2 million for technology spending.
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 vacation ownership products and residential 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 legal requirements.
The decrease in restricted cash in the
twenty-four weeks ended June 20, 2014, reflects payments to property owners associations for maintenance fees collected on their behalf prior to the end of 2013 as well as cash collected in connection with securitized vacation ownership
notes receivable that was distributed to investors before the end of the second quarter.
The decrease in restricted cash in the
twenty-four weeks ended June 14, 2013 reflects payments to property owners associations for maintenance fees collected on their behalf prior to the end of 2012, partially offset by cash collected in connection with securitized vacation
ownership notes receivable that was not distributed to investors before the end of the second quarter.
The higher inflow in the
twenty-four weeks ended June 20, 2014 from changes in restricted cash was driven by higher payments to property owners associations for maintenance fees collected on their behalf ($16 million) as well as the timing of payments to
investors for cash collected in connection with securitized vacation ownership notes receivable ($25 million).
We expect the fluctuation
in restricted cash for maintenance fee activity to be relatively stable, with cash inflows occurring in the fourth quarter upon receipt of maintenance fees and cash outflows occurring in the first and second quarters upon remittance to property
owners associations.
Dispositions
Dispositions in the twenty-four weeks ended June 20, 2014 related to the sale of a golf course and adjacent undeveloped land in Orlando,
Florida, the sale of undeveloped land on Singer Island, Florida, and a lot in St. Thomas, U.S. Virgin Islands. Dispositions in the twenty-four weeks ended June 14, 2013 related to the sale of a multi-family parcel and several lots in St.
Thomas, U.S. Virgin Islands.
47
Cash from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
($ in millions)
|
|
June 20, 2014
|
|
|
June 14, 2013
|
|
Borrowings from securitization transactions
|
|
|
|
|
|
|
|
|
Bonds payable on securitized vacation ownership notes receivable
|
|
$
|
23
|
|
|
$
|
|
|
Borrowings on Warehouse Credit Facility
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
23
|
|
|
|
111
|
|
Repayment of debt related to securitization transactions
|
|
|
|
|
|
|
|
|
Bonds payable on securitized vacation ownership notes receivable
|
|
|
(131)
|
|
|
|
(134)
|
|
Warehouse Credit Facility
|
|
|
|
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(131)
|
|
|
|
(142)
|
|
Borrowings on Revolving Corporate Credit Facility
|
|
|
|
|
|
|
25
|
|
Repayments on Revolving Corporate Credit Facility
|
|
|
|
|
|
|
(25)
|
|
Repurchase of common stock
|
|
|
(89)
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
1
|
|
|
|
2
|
|
Payment of withholding taxes on vesting of restricted stock units
|
|
|
(6)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
$
|
(202)
|
|
|
$
|
(33)
|
|
|
|
|
|
|
|
|
|
|
Warehouse Credit Facility
At June 20, 2014, no amounts were outstanding under the Warehouse Credit Facility and $170 million of gross vacation ownership notes
receivable were eligible for securitization.
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 payments of bonds associated with vacation ownership notes receivable securitizations and payments on the Warehouse Credit Facility (including vacation ownership notes receivable
repurchases) as Repayment of debt related to securitization transactions.
Repayments on the non-recourse debt associated with
our vacation ownership notes receivable securitizations totaled $131 million (including $27 million for voluntary retirement clean-up calls) and $142 million (including $51 million for voluntary retirement clean-up calls) in the twenty-four weeks
ended June 20, 2014 and June 14, 2013, respectively.
During the second quarter of 2014, we completed the securitization of a
pool of $24 million of primarily highly-seasoned vacation ownership notes receivable that we had previously classified as not being eligible for securitization using criteria applicable to then current securitization transactions in the ABS market
because they did not meet certain representation criteria required in such securitizations, or because of other factors that may have reflected investor demand in a securitization transaction. In connection with the securitization, investors
purchased in a private placement $23 million in vacation ownership loan backed notes from the Kyuka Owner Trust 2014-A (the 2014-A Trust) with a per annum interest rate of 6.25%. While we may consider any additional opportunities to sell
other vacation ownership notes receivable classified as not eligible for securitization in the future, there can be no assurance that we will complete any such transactions.
We have accounted for the securitization as a secured borrowing and, therefore, did not recognize a gain or loss in the second quarter of 2014
as a result of this transaction. The results of operations of the 2014-A Trust are consolidated within our results of operations as the 2014-A Trust is a variable interest entity for which we are the primary beneficiary.
Share Repurchase Program
We repurchased 1,670,201 shares of our common stock for $89 million, at an average price per share of $53.56, during the twenty-four weeks
ended June 20, 2014, under our share repurchase program. See Footnote No. 11, Shareholders Equity, to our Financial Statements for further information related to the share repurchase program.
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 3, 2014, other than those resulting from changes in the amount of debt
outstanding. As of June 20, 2014, debt decreased by $108 million to $570 million compared to $678 million at January 3, 2014, all of which related to a decrease in non-
48
recourse debt associated with vacation ownership notes receivable securitizations, net of the new securitization. As of June 20, 2014, future debt payments to be paid out of collections
from our vacation ownership notes receivable, including principal and interest, totaled $633 million and are due as follows: $64 million in 2014; $117 million in 2015; $107 million in 2016; $76 million in 2017; $62 million in 2018; and $207 million
thereafter.
We have historically issued guarantees to certain lenders in connection with the provision of third-party financing for our
sales of vacation ownership products, which guarantees generally have a stated maximum amount of funding and a term of five to ten years. 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 funding to third-party lenders related to these guarantees through reacquisition and resale of the financed vacation ownership product securing the note payable. Our commitments under these guarantees
expire as notes mature or are repaid. Our exposure under such guarantees as of June 20, 2014 in the Asia Pacific and North America segments was $11 million and $3 million, respectively, and the underlying debt to third-party lenders will mature
between 2014 and 2022.
For additional information on these guarantees and the circumstances under which they were entered into, see the
Guarantees caption within Footnote No. 8, Contingencies and Commitments, to our Financial Statements.
In the
normal course of our resort management business, we enter into purchase commitments with property owners associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the
resorts, these obligations have minimal impact on our net income and cash flow.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported
amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different
estimates that could have been selected, could have a material effect on our consolidated results of operations or financial condition.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual
results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our financial position or results of operations. We have discussed
those estimates that we believe are critical and require the use of complex judgment in their application in our most recent Annual Report on Form 10-K. Since the date of our most recent Annual Report on Form 10-K, there have been no material
changes to our critical accounting policies or the methodologies or assumptions we apply under them.