Edgar Filing: MARRIOTT VACATIONS WORLDWIDE Corp

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

___________________________________________

(Mark One)



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

For the quarterly period ended June 30, 2018



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

For the transition period from to

Commission file number 001-35219

_________________________

Marriott Vacations Worldwide Corporation

(Exact name of registrant as specified in its charter)

_________________________



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

(407) 206-6000

(Registrant’s telephone number, including area code)

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, as of July 27, 2018 was 26,572,516.

MARRIOTT VACATIONS WORLDWIDE CORPORATION

FORM 10-Q TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION (UNAUDITED)	1
Item 1.	Financial Statements	1
	Interim Consolidated Statements of Income	1
	Interim Consolidated Statements of Comprehensive Income	2
	Interim Consolidated Balance Sheets	3
	Interim Consolidated Statements of Cash Flows	4
	Notes to Interim Consolidated Financial Statements	6
	1. Summary of Significant Accounting Policies	6
	2. Revenue	9
	3. Income Taxes	14
	4. Vacation Ownership Notes Receivable	15
	5. Financial Instruments	17
	6. Acquisitions and Dispositions	19
	7. Earnings Per Share	20
	8. Inventory	21
	9. Contingencies and Commitments	21
	10. Debt	24
	11. Shareholders’ Equity	27
	12. Share-Based Compensation	28
	13. Variable Interest Entities	29
	14. Business Segments	32
	15. Adoption Impact of New Revenue Standard	33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	71
Part II.	OTHER INFORMATION	72
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	74
Item 6.	Exhibits	74
	SIGNATURES	75

Throughout this report, we refer to brands that we own, as well as those brands that we license from Marriott International, Inc. (“Marriott International”) or its affiliates, as our brands. Brand names, trademarks, service marks and trade names that we own or license from Marriott International include Marriott Vacation Club^®, Marriott Vacation Club Destinations^TM, Marriott Vacation Club Pulse^SM, Marriott Grand Residence Club^®, Grand Residences by Marriott^®, and The Ritz-Carlton Club^®. We also refer to Marriott International’s Marriott Rewards^® customer loyalty program. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
REVENUES
Sale of vacation ownership products	$	205,168		$	201,856		$	379,957		$	365,733
Resort management and other services	77,642			71,940			147,822			139,359
Financing	35,851			32,530			71,333			64,641
Rental	74,561			69,290			148,771			136,969
Cost reimbursements	201,470			186,820			417,658			384,034
TOTAL REVENUES	594,692			562,436			1,165,541			1,090,736
EXPENSES
Cost of vacation ownership products	56,863			51,025			103,226			94,796
Marketing and sales	109,315			99,168			215,249			196,666
Resort management and other services	41,079			39,413			78,857			76,884
Financing	3,788			3,449			8,036			7,466
Rental	62,739			57,756			118,638			111,464
General and administrative	32,992			29,534			62,427			57,073
Litigation settlement	16,312			183			16,209			183
Consumer financing interest	6,172			5,654			12,778			11,592
Royalty fee	16,198			16,307			31,022			32,377
Cost reimbursements	201,470			186,820			417,658			384,034
TOTAL EXPENSES	546,928			489,309			1,064,100			972,535
Losses and other expense, net	(6,586		)	(166		)	(6,140		)	(225		)
Interest expense	(4,112		)	(1,757		)	(8,429		)	(2,538		)
Other	(19,686		)	(100		)	(22,802		)	(469		)
INCOME BEFORE INCOME TAXES	17,380			71,104			64,070			114,969
Provision for income taxes	(6,619		)	(22,918		)	(17,328		)	(38,893		)
NET INCOME	$	10,761		$	48,186		$	46,742		$	76,076

EARNINGS PER SHARE
Earnings per share - Basic	$	0.40		$	1.76		$	1.75		$	2.79
Earnings per share - Diluted	$	0.39		$	1.72		$	1.71		$	2.72

CASH DIVIDENDS DECLARED PER SHARE	$	0.40		$	0.35		$	0.80		$	0.70

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended					Year to Date Ended
	June 30, 2018			June 30, 2017		June 30, 2018			June 30, 2017
Net income	$	10,761		$	48,186	$	46,742		$	76,076
Other comprehensive (loss) income:
Foreign currency translation adjustments	(7,233		)	2,465		(1,008		)	6,681
Derivative instrument adjustment, net of tax	18			23		37			48
Total other comprehensive (loss) income, net of tax	(7,215		)	2,488		(971		)	6,729
COMPREHENSIVE INCOME	$	3,546		$	50,674	$	45,771		$	82,805

See Notes to the Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)



	June 30, 2018			December 31, 2017
ASSETS
Cash and cash equivalents	$	547,667		$	409,059
Restricted cash (including $144,816 and $32,321 from VIEs, respectively)	170,536			81,553
Accounts receivable, net (including $6,039 and $5,639 from VIEs, respectively)	67,619			91,659
Vacation ownership notes receivable, net (including $964,510 and $814,011 from VIEs, respectively)	1,167,779			1,114,552
Inventory	690,154			728,379
Property and equipment	246,940			252,727
Other (including $25,688 and $13,708 from VIEs, respectively)	166,875			166,653
TOTAL ASSETS	$	3,057,570		$	2,844,582

LIABILITIES AND EQUITY
Accounts payable	$	84,331		$	145,405
Advance deposits	95,816			84,087
Accrued liabilities (including $685 and $701 from VIEs, respectively)	99,469			119,810
Deferred revenue	98,500			69,058
Payroll and benefits liability	85,216			111,885
Deferred compensation liability	82,624			74,851
Debt, net (including $1,113,860 and $845,131 from VIEs, respectively)	1,332,276			1,095,213
Other	11,937			13,471
Deferred taxes	101,760			89,987
TOTAL LIABILITIES	1,991,929			1,803,767
Contingencies and Commitments (Note 9)
Preferred stock — $0.01 par value; 2,000,000 shares authorized; none issued or outstanding	—			—
Common stock — $0.01 par value; 100,000,000 shares authorized; 36,981,204 and 36,861,843 shares issued, respectively	370			369
Treasury stock — at cost; 10,408,996 and 10,400,547 shares, respectively	(695,746		)	(694,233		)
Additional paid-in capital	1,190,448			1,188,538
Accumulated other comprehensive income	15,774			16,745
Retained earnings	554,795			529,396
TOTAL EQUITY	1,065,641			1,040,815
TOTAL LIABILITIES AND EQUITY	$	3,057,570		$	2,844,582

The abbreviation VIEs above means Variable Interest Entities.

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended
	June 30, 2018			June 30, 2017
OPERATING ACTIVITIES
Net income	$	46,742		$	76,076
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,371			10,192
Amortization of debt discount and issuance costs	7,563			2,726
Vacation ownership notes receivable reserve	23,970			27,051
Share-based compensation	9,718			8,451
Deferred income taxes	12,199			12,810
Net change in assets and liabilities:
Accounts receivable	24,499			23,970
Vacation ownership notes receivable originations	(233,061		)	(228,048		)
Vacation ownership notes receivable collections	155,257			136,731
Inventory	36,840			15,006
Purchase of vacation ownership units for future transfer to inventory	—			(33,594		)
Other assets	11,523			4,475
Accounts payable, advance deposits and accrued liabilities	(59,365		)	(68,228		)
Deferred revenue	29,493			25,163
Payroll and benefit liabilities	(26,699		)	(8,698		)
Deferred compensation liability	7,773			7,053
Other liabilities	(134		)	(292		)
Other, net	764			3,286
Net cash provided by operating activities	58,453			14,130
INVESTING ACTIVITIES
Capital expenditures for property and equipment (excluding inventory)	(7,490		)	(11,344		)
Purchase of company owned life insurance	(11,562		)	(10,092		)
Dispositions, net	120			11
Net cash used in investing activities	(18,932		)	(21,425		)

Continued

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)



	Six Months Ended
	June 30, 2018			June 30, 2017
FINANCING ACTIVITIES
Borrowings from securitization transactions	423,000			50,260
Repayment of debt related to securitization transactions	(154,271		)	(117,400		)
Borrowings from Revolving Corporate Credit Facility	—			60,000
Repayment of Revolving Corporate Credit Facility	—			(12,500		)
Repayment of non-interest bearing note payable	(32,680		)	—
Debt issuance costs	(6,578		)	(1,219		)
Repurchase of common stock	(1,882		)	(3,868		)
Payment of dividends	(31,927		)	(28,552		)
Payment of withholding taxes on vesting of restricted stock units	(8,312		)	(9,962		)
Other, net	13			(624		)
Net cash provided by (used in) financing activities	187,363			(63,865		)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	707			1,962
Increase (decrease) in cash, cash equivalents and restricted cash	227,591			(69,198		)
Cash, cash equivalents and restricted cash, beginning of period	490,612			213,102
Cash, cash equivalents and restricted cash, end of period	$	718,203		$	143,904

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-cash issuance of debt in connection with acquisition of vacation ownership units	$	—		$	63,558

See Notes to Interim Consolidated Financial Statements

MARRIOTT VACATIONS WORLDWIDE CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business

Marriott Vacations Worldwide Corporation (“we,” “us,” “Marriott Vacations Worldwide” or the “Company,” which includes our consolidated subsidiaries except where the context of the reference is to a single corporate entity) is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands, as well as under Marriott Vacation Club Pulse, an extension of the Marriott Vacation Club brand. 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, provides on-site management for Ritz-Carlton branded properties.

Our business is grouped into three reportable segments: North America, Asia Pacific and Europe. As of June 30, 2018, our portfolio consisted of over 65 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.

Principles of Consolidation and Basis of Presentation

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

In order to make this report easier to read, we refer throughout to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in these Notes to Interim Consolidated Financial Statements, unless otherwise noted. We use certain other terms that are defined within these Financial Statements.

We adopted Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers (Topic 606),” as amended (“ASU 2014-09”), on January 1, 2018, the first day of our 2018 fiscal year, and refer to it as the new “Revenue Standard” throughout these Financial Statements. We restated our previously reported historical results to conform with the adoption of the new Revenue Standard. See “New Accounting Standards” below for additional information on ASU 2014-09 and Footnote 15 “Adoption Impact of New Revenue Standard” for further discussion of the adoption and the impact on our previously reported historical results.

In our opinion, our Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position and the results of our operations and cash flows for the periods presented. Interim results may not be indicative of fiscal year performance because of, among other reasons, seasonal and short-term variations. These Financial Statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP. Although we believe our footnote disclosures are adequate to make the information presented not misleading, the Financial Statements in this report should be read in conjunction with the consolidated financial statements and notes thereto recast for the adoption of ASU 2014-09 included in our Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on June 5, 2018.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, revenue recognition, cost of vacation ownership products, inventory valuation, property and equipment valuation, vacation ownership notes receivable reserves, income taxes and loss contingencies. Accordingly, actual amounts may differ from these estimated amounts.

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

New Accounting Standards

Accounting Standards Update 2018-05 – “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”)

In March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-05, which updates the income tax accounting in GAAP to reflect the interpretive guidance in Staff Accounting Bulletin (“SAB”) 118 (“SAB 118”), that was issued by the staff of the Securities and Exchange Commission in December 2017 in order to address the application of GAAP in situations where a registrant does not have all the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (“the “Tax Act”). SAB 118 provides for a provisional one year measurement period for registrants to finalize their accounting for certain income tax effects related to the Tax Act. ASU 2018-05 was effective upon issuance. We expect to finalize our provisional amounts related to the Tax Act by the fourth quarter of 2018. See Footnote 3 “Income Taxes” for additional information.

Accounting Standards Update 2016-01 – “Financial Instruments – Overall (Subtopic 825-10)” (“ASU 2016-01”)

In January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the amendments in ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 in the first quarter of 2018 did not have a material impact on our financial statements or disclosures.

Accounting Standards Update 2016-16 – “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”)

In October 2016, the FASB issued ASU 2016-16, which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. This update is effective for public companies for annual periods beginning after December 15, 2017, and for annual periods and interim periods thereafter, with early adoption permitted. The adoption of ASU 2016-16 in the first quarter of 2018 did not have a material impact on our financial statements or disclosures.

Accounting Standards Update 2014-09 – “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), as Amended

In May 2014, the FASB issued ASU 2014-09, which, as amended, creates ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), and supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” including most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principle-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2017. The new standard may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized on the date of adoption. We adopted ASU 2014-09, as amended, effective January 1, 2018, on a retrospective basis and restated our previously reported historical results. See Footnote 15 “Adoption Impact of New Revenue Standard” for further discussion of adoption and the impact on our previously reported historical results. See Footnote 2 “Revenue” for additional information on how we recognize revenue.

Future Adoption of Accounting Standards

Accounting Standards Update 2017-12 – “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”)

In August 2017, the FASB issued ASU 2017-12, which amends and simplifies existing guidance in order to allow companies to better portray the economic effects of risk management activities in the financial statements and enhance the transparency and understandability of the results of hedging activities. ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements. This update is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We expect to adopt ASU 2017-12 commencing in fiscal year 2019 and are continuing to evaluate the impact that adoption of this update will have on our financial statements and disclosures.

Accounting Standards Update 2016-13 – “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”)

In June 2016, the FASB issued ASU 2016-13, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. We expect to adopt ASU 2016-13 commencing in fiscal year 2019 and are continuing to evaluate the impact that adoption of this update will have on our financial statements and disclosures.

Accounting Standards Update 2016-02 – “Leases (Topic 842)” (“ASU 2016-02”)

In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability of information regarding an entity’s leasing activities by providing additional information to users of financial statements. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. However, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB also issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of ASU 2016-02. We expect to adopt ASU 2016-02, ASU 2018-10 and ASU 2018-11 commencing in fiscal year 2019 and are continuing our implementation efforts. We continue to evaluate the impact that adoption of these updates will have on our financial statements and disclosures, including for example, any potential changes to and investments in policies, processes, systems and internal controls over financial reporting that may be required to comply with the new guidance related to identifying and measuring right-of-use assets and lease liabilities. We expect that these updates will have a material effect on our balance sheets.

2. REVENUE

We account for revenue in accordance with ASC 606, “Revenue from Contracts with Customers,” which we adopted on January 1, 2018, using the retrospective method. See Footnote 1 “Summary of Significant Accounting Policies” for additional information and Footnote 15 “Adoption of New Revenue Standard” for further discussion of the adoption and the impact on our previously reported historical results.

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. The following series of tables present our revenue disaggregated by several categories.

Sources of Revenue by Segment



	Three Months Ended June 30, 2018
($ in thousands)	North America		Asia Pacific		Europe		Total
Sale of vacation ownership products	$	188,624	$	11,654	$	4,890	$	205,168

Ancillary revenues	29,716		96		5,600		35,412
Management fee revenues	22,760		742		1,814		25,316
Other services revenues	15,953		499		462		16,914
Resort management and other services	68,429		1,337		7,876		77,642

Rental	67,083		2,059		5,419		74,561

Cost reimbursements	186,734		1,931		12,805		201,470
Revenue from contracts with customers	$	510,870	$	16,981	$	30,990	$	558,841

Financing	33,912		1,238		701		35,851
Total Revenues	$	544,782	$	18,219	$	31,691	$	594,692



	Three Months Ended June 30, 2017
($ in thousands)	North America		Asia Pacific		Europe		Total
Sale of vacation ownership products	$	184,880	$	10,282	$	6,694	$	201,856

Ancillary revenues	27,910		—		5,130		33,040
Management fee revenues	19,711		694		1,623		22,028
Other services revenues	16,295		287		290		16,872
Resort management and other services	63,916		981		7,043		71,940

Rental	62,021		2,046		5,223		69,290

Cost reimbursements	176,236		1,607		8,977		186,820
Revenue from contracts with customers	$	487,053	$	14,916	$	27,937	$	529,906

Financing	30,719		1,105		706		32,530
Total Revenues	$	517,772	$	16,021	$	28,643	$	562,436



	Six Months Ended June 30, 2018
($ in thousands)	North America		Asia Pacific		Europe		Total
Sale of vacation ownership products	$	349,320	$	22,900	$	7,737	$	379,957

Ancillary revenues	55,113		141		8,657		63,911
Management fee revenues	44,323		1,514		3,653		49,490
Other services revenues	32,524		995		902		34,421
Resort management and other services	131,960		2,650		13,212		147,822

Rental	135,158		5,384		8,229		148,771

Cost reimbursements	389,360		3,697		24,601		417,658
Revenue from contracts with customers	$	1,005,798	$	34,631	$	53,779	$	1,094,208

Financing	67,441		2,452		1,440		71,333
Total Revenues	$	1,073,239	$	37,083	$	55,219	$	1,165,541



	Six Months Ended June 30, 2017
($ in thousands)	North America		Asia Pacific		Europe		Total
Sale of vacation ownership products	$	336,589	$	19,437	$	9,707	$	365,733

Ancillary revenues	52,598		—		7,711		60,309
Management fee revenues	39,627		1,386		3,130		44,143
Other services revenues	33,764		537		606		34,907
Resort management and other services	125,989		1,923		11,447		139,359

Rental	124,506		4,950		7,513		136,969

Cost reimbursements	357,802		2,717		23,515		384,034
Revenue from contracts with customers	$	944,886	$	29,027	$	52,182	$	1,026,095

Financing	60,958		2,228		1,455		64,641
Total Revenues	$	1,005,844	$	31,255	$	53,637	$	1,090,736

Timing of Revenue from Contracts with Customers by Segment



	Three Months Ended June 30, 2018
($ in thousands)	North America		Asia Pacific		Europe		Total
Services transferred over time	$	289,368	$	5,015	$	20,420	$	314,803
Goods or services transferred at a point in time	221,502		11,966		10,570		244,038
Revenue from contracts with customers	$	510,870	$	16,981	$	30,990	$	558,841



	Three Months Ended June 30, 2017
($ in thousands)	North America		Asia Pacific		Europe		Total
Services transferred over time	$	269,806	$	4,410	$	16,080	$	290,296
Goods or services transferred at a point in time	217,247		10,506		11,857		239,610
Revenue from contracts with customers	$	487,053	$	14,916	$	27,937	$	529,906



	Six Months Ended June 30, 2018
($ in thousands)	North America		Asia Pacific		Europe		Total
Services transferred over time	$	594,157	$	11,139	$	37,214	$	642,510
Goods or services transferred at a point in time	411,641		23,492		16,565		451,698
Revenue from contracts with customers	$	1,005,798	$	34,631	$	53,779	$	1,094,208



	Six Months Ended June 30, 2017
($ in thousands)	North America		Asia Pacific		Europe		Total
Services transferred over time	$	545,371	$	9,164	$	34,640	$	589,175
Goods or services transferred at a point in time	399,515		19,863		17,542		436,920
Revenue from contracts with customers	$	944,886	$	29,027	$	52,182	$	1,026,095

Sale of Vacation Ownership Products

We market and sell vacation ownership products in our three reportable segments. Vacation ownership products include deeded vacation ownership products, deeded beneficial interests, rights to use real estate, and other interests in trusts that solely hold real estate and deeded whole ownership units in residential buildings (collectively “vacation ownership products”). Vacation ownership products may be sold for cash or we may provide financing.

In connection with the sale of vacation ownership products, we provide sales incentives to certain purchasers. Non-cash incentives typically include Marriott Rewards points or an alternative sales incentive that we refer to as “plus points.” Plus points are redeemable for stays at our resorts or for use in an exclusive selection of travel packages provided by affiliate tour operators (the “Explorer Collection”), generally up to two years from the date of issuance. Typically, sales incentives are only awarded if the sale is closed.

Upon execution of a legal sales agreement, we typically receive an upfront deposit from our customer with the remainder of the purchase price for the vacation ownership product to either be collected at closing (“cash contract”) or financed by the customer through our financing programs (“financed contract”). Refer to “Financing Revenues” below for further information regarding financing terms. Customer deposits received for contracts are recorded as Advance deposits on our Balance Sheets until the point in time at which control of the vacation ownership product has transferred to the customer.

Our assessment of collectibility of the transaction price for sales of vacation ownership products is aligned with our credit granting policies for financed contracts. We compared the lending terms against the terms of similar notes in the market and concluded that certain contracts within our Asia Pacific and Europe segments contain below market interest rates and as such have adjusted the transaction price for these contracts to reflect a market rate of interest. The lending terms of financed contracts within our North America segment reflect market terms.

In determining the consideration to which we expect to be entitled for financed contracts, we include estimated variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on the customer class and the results of our static pool analysis, which relies on historical payment data by customer class. Variable consideration which has not been included within the transaction price is presented as a reserve on vacation ownership notes receivable. Revisions to estimates of variable consideration from the sale of vacation ownership products impact the reserve on vacation ownership notes receivable and can increase or decrease revenue. Revenues were reduced during the second quarter and first half of 2018 by $3.7 million and $2.0 million, respectively, due to changes in our estimate of variable consideration for performance obligations that were satisfied in prior periods. In addition, we account for cash incentives provided to customers as a reduction of the transaction price. Refer to “Arrangements with Multiple Performance Obligations” below for a description of our methods of allocating transaction price to each performance obligation.

We recognize revenue on the sale of vacation ownership products at closing, when control is transferred to the customer. We evaluated our business practices, and the underlying risks and rewards associated with vacation ownership products, and the respective timing that such risk and rewards are transferred to the customer in determining the point in time at which control of the vacation ownership product is transferred to the customer.

Revenue for non-cash incentives, such as plus points, is recorded as Deferred revenue on our Balance Sheets at closing and is recognized as rental revenue upon transfer of control to the customer, which typically occurs upon delivery of the incentive, or at the point in time when the incentive is redeemed. For non-cash incentives provided by third parties (i.e. Marriott Rewards points or third-party Explorer Collection offerings), we evaluated whether we control the underlying good or service prior to delivery to the customer. We concluded that we are an agent for those non-cash incentives which we do not control prior to delivery and as such record the related revenue net of the related cost upon recognition.

Resort Management and Other Services Revenues and Cost Reimbursements Revenues

Ancillary Revenues

Ancillary revenues consist of goods and services that are sold or provided by us at food and beverage outlets, golf courses and other retail and service outlets located at our resorts. Payments for such goods and services are generally received at the point of sale in the form of cash or credit card charges. For goods and services sold, we evaluated whether we control the underlying goods or services prior to delivery to the customer. For transactions where we do not control the goods or services prior to delivery, the related revenue is recorded net of the related cost upon recognition. We recognize ancillary revenue at the point in time when goods have been provided and/or services have been rendered.

Management Fee Revenues and Cost Reimbursements Revenues

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 generate revenue from fees we earn for managing each of our resorts. These fees are earned regardless of usage or occupancy and are typically based on either a percentage of the budgeted costs to operate the resorts or a fixed fee arrangement (“Management fee revenues”) and reimbursement of costs incurred on behalf of the property owners’ associations (“Cost reimbursements revenues”). Cost reimbursements revenues exclude amounts that we have paid to the property owners’ associations related to maintenance fees for unsold vacation ownership products, as we have concluded that such payments are consideration payable to a customer. Cost reimbursements consist of actual expenses with no added margin.

Management fees are typically collected over time or upfront depending upon the specific management contract. Cost reimbursements are received over time and considered variable consideration. We have determined that a significant financing component does not exist as a substantial amount of the consideration promised by the customer is variable.

We evaluated the nature of the services provided to property owners’ associations and concluded that the management services constitute a series of distinct services to be accounted for as a single performance obligation transferred over time. We use an input method, the number of days that management services are provided, to recognize management fee revenues, which is consistent with the pattern of transfer to the property owners’ associations who receive and consume the benefits as services are provided each day. Any consideration we receive in advance of services being rendered is recorded as Deferred revenue on our Balance Sheets and is recognized ratably across the service period to which it relates. We recognize variable consideration for Cost reimbursements revenues when the reimbursable costs are incurred.

Other Services Revenues

Other services revenues include additional fees for services we provide to owners and property owners’ associations. We receive club dues for exchange services as well as certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated. Club dues are received in advance of providing access to the exchange services, are recorded as Deferred revenue on our Balance Sheets and are earned regardless of whether exchange services are provided. Transaction-based fees from owners are typically received at the time of the transaction and transaction-based fees from other third parties are typically received at a point in time.

We have determined that exchange services constitute a stand-ready obligation for us to provide unlimited access to exchange services over a defined period of time, when and if a customer (or customer of a customer) requests. We have determined that customers benefit from the stand-ready obligation evenly throughout the period in which the customer has access to exchange services and as such, recognize club dues on a straight-line basis over the related period of time.

Transaction-based fees are recognized as revenue at the point in time at which the relevant goods or services are transferred to the customer. For transaction-based fees, we evaluated whether we control the underlying goods or services prior to delivery to the customer. For transactions where we do not control the goods or services prior to delivery, the related revenue is recorded net of the related cost upon recognition.

Financing Revenues

We offer consumer financing as an option to qualifying customers purchasing vacation ownership products, which is collateralized by the underlying vacation ownership products. We recognize interest income on an accrual basis. The contractual terms of the financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the vacation ownership product being financed, which is generally ten years. Generally, payments commence under the financing contracts 30 to 60 days after closing. We record the difference between the vacation ownership note receivable and the variable consideration included in the transaction price for the sale of the related vacation ownership product as a reserve on our vacation ownership notes receivable. We earn interest income from the financing arrangements on the principal balance outstanding over the life of the arrangement and record that interest income in Financing revenues on our Income Statements.

Financing revenues include transaction-based fees we charge to owners and other third parties for services. We recognize fee revenues when services have been rendered.

Rental Revenues

We generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs or inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs. We receive payments for rentals primarily through credit card charges. We recognize rental revenues when occupancy has occurred, which is consistent with the period in which the customer benefits from such service. We recognize rental revenue from the utilization of plus points issued in connection with the sale of vacation ownership products as described in “Sale of Vacation Ownership Products” above.

We also generate revenues from vacation packages sold to our customers. The packages have an expiration period of six to twenty-four months, and payments for such packages are non-refundable and generally paid by the customer in advance. Payments received in advance are recorded as Advance deposits on our Balance Sheets, until the revenue is recognized, when occupancy has occurred. For rental revenues associated with vacation ownership products which we own and which are registered and held for sale, to the extent that the proceeds are less than costs, revenues are reported net in accordance with ASC Topic 978, “Real Estate – Time-Sharing Activities.”

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. In cases where the standalone selling price is not readily available, we generally determine the standalone selling prices utilizing the adjusted market approach, using prices from similar contracts, our historical pricing on similar contracts, our internal marketing and selling data and other internal and external inputs we deem to be appropriate. Significant judgment is required in determining the standalone selling price under the adjusted market approach.

Receivables, Contract Assets & Contract Liabilities

As discussed above, the payment terms and conditions in our customer contracts vary. In some cases, customers prepay for their goods and services; in other cases, after appropriate credit evaluations, payment is due in arrears. When the timing of our delivery of goods and services is different from the timing of the payments made by customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance or when we have a right to consideration that is unconditional before the transfer of goods or services to a customer). Receivables are recorded when the right to consideration becomes unconditional. Contract liabilities are recognized as revenue as (or when) we perform under the contract.

The following table shows the composition of our receivables and contract liabilities. We had no contract assets at either June 30, 2018 or December 31, 2017.



($ in thousands)	At June 30, 2018		At December 31, 2017
Receivables
Accounts receivable	$	42,369	$	72,905
Vacation ownership notes receivable, net	1,167,779		1,114,552
	$	1,210,148	$	1,187,457

Contract Liabilities
Advance deposits	$	95,816	$	84,087
Deferred revenue