Market Overview

ILG Reports Second Quarter 2018 Results

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ILG (NASDAQ:ILG) today announced results for the second quarter ended
June 30, 2018.

SECOND QUARTER HIGHLIGHTS

  • Consolidated revenue increased 5% to $461 million
    • Consolidated revenue excluding cost reimbursements increased 11%
      to $396 million
  • Net income attributable to common stockholders was $27 million, higher
    by 4%
    • Adjusted net income* was $39 million, up 26%
    • Diluted EPS and adjusted diluted EPS* were $0.21 and $0.31,
      respectively
    • Adjusted EBITDA* was $90 million, higher by 13%
  • Excluding the estimated impact of the hurricanes, our results would
    have been the following:
    • Consolidated revenue of $479 million, up 9%
    • Consolidated revenue excluding cost reimbursement increased 16% to
      $414 million
    • Consolidated timeshare contract sales of $140 million, higher by 9%
    • Net income attributable to common stockholders of $31 million, up
      19%
    • Adjusted net income of $42 million, higher by 35%
    • Adjusted EBITDA of $95 million, up 19%
    • Diluted EPS and adjusted diluted EPS of $0.24 and $0.34,
      respectively
  • Net cash and restricted cash from operating activities in the six
    months ended June 30, 2018 was $184 million
    • Free cash flow* was $95 million, compared to $23 million
  • ILG paid $43 million in dividends in the six months ended June 30, 2018

"We are very pleased with our results for the second quarter. Excluding
the estimated impact of the hurricanes, consolidated revenue excluding
cost reimbursements and Adjusted EBITDA would have increased 16% and
19%, respectively," said Craig M. Nash, chairman, president, and CEO of
ILG. "Through the hard work of our dedicated associates we continue to
successfully execute on our strategic plan".

* "Adjusted net income", "Adjusted diluted EPS", "Adjusted EBITDA" and
"Free Cash Flow" are non-GAAP measures as defined by the U.S. Securities
and Exchange Commission (the "SEC"). Please see "Presentation of
Financial Information," "Glossary of Terms" and "Reconciliations of
Non-GAAP Measures" below for an explanation of non-GAAP measures used
throughout this release.

Hurricane Impact

In September 2017, Hurricanes Irma and Maria affected several Vistana
and HVO resorts and sales centers, as well as nearly 300 properties
within the Interval Network or managed by VRI or Aqua-Aston Hospitality.
At June 30, 2018 our Westin St. John Resort Villas in the U.S. Virgin
Islands and Hyatt Residence Club Dorado, Hacienda del Mar, in Puerto
Rico were closed and expected to reopen early in 2019. Approximately 35
Interval Network properties on the hardest-hit islands remained closed
at quarter end.

The table below summarizes our results for the second quarter of 2018
and provides the estimated impact of the hurricanes in these periods:

           
Three Months Ended June 30, 2018
(Dollars in millions, except per share data)
Reported

Hurricane
impact

Ex Hurricane
Revenues 461 18 479
Net income attributable to common stockholders 27 4 31
Adjusted net income* 39 3 42
Adjusted EBITDA* 90 5 95
Diluted EPS 0.21 0.03 0.24
Adjusted diluted EPS* 0.31 0.03 0.34
 

Second quarter consolidated operating results

Consolidated revenue was $461 million, and excluding the estimated
hurricane impact, it would have been $479 million, up 9% over the prior
year driven by strong performance in our vacation ownership segment.

Net income attributable to common stockholders was $27 million.
Excluding the estimated impact of the hurricanes it would have been $31
million, up 19% compared to the prior year. Diluted earnings per share
(EPS) was $0.21, compared to $0.20 in the prior year.

Adjusted net income was $39 million, higher by 26%. Excluding the
estimated impact from the hurricanes, it would have been $42 million, up
35% compared to the prior year. Adjusted diluted EPS was $0.31.
Excluding the impact from the hurricane it would have been $0.34, higher
by 36%.

Adjusted EBITDA increased 13% to $90 million. Excluding the impact from
the hurricane, it would have been $95 million, an increase of 19%
compared to 2017.

Business segment results

Vacation Ownership

Excluding cost reimbursements, Vacation Ownership segment revenue
increased $37 million, to $263 million principally as a result of the
following:

  • $28 million increase in management fee and other revenue predominantly
    attributable to revenue from the consolidation of our HOAs starting in
    the fourth quarter of 2017. This increase is largely offset by a
    corresponding decrease in cost reimbursement revenue.
  • $5 million increase in resort operations revenue primarily driven by
    higher available and occupied room nights and average daily rate
    resulting from the increase in the number of units which came on-line
    beginning in the second quarter of 2017.
  • $3 million increase in sales of vacation ownership products
    principally attributable to higher consolidated contract sales

Vacation Ownership segment operating income more than doubled to $17
million and adjusted EBITDA was higher by $10 million to $41 million.
Excluding the impact of the hurricanes, adjusted EBITDA would have
increased $14 million to $45 million, 45% higher than 2017.

Exchange and Rental

Exchange and Rental segment revenue was $153 million dollars, relatively
consistent with 2017. Excluding cost reimbursements, segment revenue was
up 2% to $133 million dollars related to stronger club rental revenue
resulting from the above-mentioned increase in available and occupied
room nights and average daily rate.

Total Interval Network active members at quarter-end were 1.8 million,
consistent with 2017, and average revenue per member was $48.14, up 2%.

Operating income for the segment was $35 million compared to $37 million
in 2017 reflecting the adverse impact from the hurricanes and higher
professional fees largely due to costs associated with our expected
transaction with Marriott Vacations Worldwide. Adjusted EBITDA for the
segment was $49 million, consistent with 2017. Excluding the estimated
hurricane impact, adjusted EBITDA would have increased by 2%.

Capital Resources and Liquidity

As of June 30, 2018, ILG's cash and cash equivalents totaled $143
million, compared to $122 million on December 31, 2017, and we had $242
million of eligible unsecuritized receivables.

The principal amount outstanding of long term corporate debt as of June
30, 2018 was $555 million consisting of $350 million 5 5/8% Senior Notes
and $205 million drawn under our revolving credit facility.

ILG had $382 million available on its revolving credit facility, net of
outstanding letters of credit as of June 30, 2018.

Net cash and restricted cash provided by operating activities in the
first six months of 2018 was $184 million compared to $82 million. The
$102 million increase was principally due to lower inventory spend of
$81 million due to development activities at the Westin Nanea Ocean
Villas in the prior year period, to higher net cash receipts partly
attributable to property insurance proceeds of $42 million related
primarily to the damage caused by the 2017 hurricanes on our Westin St.
John resort and to lower taxes paid of $4 million. The increases were
partly offset by $4 million of higher interest paid (net amounts
capitalized).

Net cash used in investing activities was $18 million primarily related
to capex associated with resort operations and sales and marketing
locations, as well as IT initiatives. Capex in the quarter includes an
offsetting $3 million of insurance proceeds for hurricane property
damage.

Net cash and restricted cash used in financing activities was $153
million, reflecting $86 million repayments on securitized debt, net
payments of $15 million on our revolving credit facility, dividend
payments of $43 million, and $9 million withholding tax on the vesting
of restricted stock units and shares.

Free cash flow for the six months ended June 30, 2018 was $95 million,
compared to $23 million in 2017. The change is primarily a result of the
increase in net cash provided by operating activities, and lower capital
expenditures, partially offset by higher net securitization activities,
including higher repayments on securitizations.

Dividends

During the first six months of 2018, ILG paid $43 million, or $0.35
cents per share in dividends.

Combination with Marriott Vacations

On April 30, 2018, ILG announced it had entered into an agreement
whereby Marriott Vacations Worldwide, Inc. (Marriott Vacations) will
acquire ILG for a combination of cash and stock consideration which
values the company at approximately $5.1 billion, based on Marriott
Vacation's closing price on April 27, 2018.

ILG shareholders will receive $14.75 per share in cash and the rest in
newly issued shares of Marriott Vacations. The combination will result
in ILG shareholders owning at closing approximately 43% of the company
on a fully-diluted basis, based on a fixed exchange ratio. Two ILG
directors will be appointed to the board of the combined company.

The transaction, which is subject to shareholder approval and other
customary closing conditions, is expected to close at the end of August.
More information on the transaction can be found on the ILG website, www.ilg.com.

PRESENTATION OF FINANCIAL INFORMATION

ILG management believes that the presentation of non-generally accepted
accounting principles (non-GAAP) financial measures, including, among
others, EBITDA, adjusted EBITDA, adjusted net income, adjusted basic and
diluted EPS, and free cash flow, serves to enhance the understanding of
ILG's performance. These non-GAAP financial measures should be
considered in addition to and not as substitutes for, or superior to,
measures of financial performance and liquidity prepared in accordance
with generally accepted accounting principles (GAAP). In addition,
adjusted EBITDA (with certain different adjustments) is used to
calculate compliance with certain financial covenants in ILG's credit
agreement and indenture. Management believes that these non-GAAP
measures improve the transparency of our disclosures, provide meaningful
presentations of our results from our business operations and liquidity
excluding the impact of certain items not related to our core business
operations and improve the period to period comparability of results
from business operations. These measures may also be useful in comparing
our results to those of other companies; however, our calculations may
differ from the calculations of these measures used by other companies.
More information about the non-GAAP financial measures, including
reconciliations of historical GAAP results to the non-GAAP measures, is
available in the financial tables that accompany this press release.

ABOUT ILG

ILG (NASDAQ:ILG) is a leading provider of professionally delivered
vacation experiences and the exclusive global licensee for the Hyatt®, Sheraton®,
and Westin® brands in vacation ownership. The company offers
its owners, members, and guests access to an array of benefits and
services, as well as world-class destinations through its international
portfolio of resorts and clubs. ILG's operating businesses include
Aqua-Aston Hospitality, Hyatt Vacation Ownership, Interval
International, Trading Places International, Vacation Resorts
International, VRI Europe, and Vistana Signature Experiences. Through
its subsidiaries, ILG independently owns and manages the Hyatt Residence
Club program and uses the Hyatt Vacation Ownership name and other Hyatt
marks under license from affiliates of Hyatt Hotels Corporation. In
addition, ILG's Vistana Signature Experiences, Inc. is the exclusive
provider of vacation ownership for the Sheraton and Westin brands and
uses related trademarks under license from Starwood Hotels & Resorts
Worldwide, LLC. Headquartered in Miami, Florida, ILG has offices in 15
countries and more than 10,000 associates. For more information, visit www.ilg.com.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

Information included or incorporated by reference in this communication,
and information which may be contained in other filings with the
Securities and Exchange Commission (the "SEC") and press releases or
other public statements, contains or may contain "forward-looking"
statements, as that term is defined in the Private Securities Litigation
Reform Act of 1995 or by the SEC in its rules, regulations and releases.
These forward-looking statements include, among other things, statements
of plans, objectives, expectations (financial or otherwise) or
intentions.

Forward-looking statements are any statements other than statements of
historical fact, including statements regarding ILG, Inc.'s (the
"Company") and Marriott Vacations Worldwide Corporation's ("MVW")
expectations, beliefs, hopes, intentions or strategies regarding the
future. Among other things, these forward-looking statements may include
statements regarding the proposed combination of the Company and MVW;
our beliefs relating to value creation as a result of a potential
combination of the Company and MVW; the expected timetable for
completing the transactions; benefits and synergies of the transactions;
future opportunities for the combined company; and any other statements
regarding the Company's and MVW's future beliefs, expectations, plans,
intentions, financial condition or performance. In some cases,
forward-looking statements can be identified by the use of words such as
"may," "will," "expects," "should," "believes," "plans," "anticipates,"
"estimates," "predicts," "potential," "continue," or other words of
similar meaning.

Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those discussed in,
or implied by, the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, general economic
conditions, our financial and business prospects, our capital
requirements, our financing prospects, our relationships with associates
and labor unions, our ability to consummate potential acquisitions or
dispositions, our relationships with the holders of licensed marks, and
those additional factors disclosed as risks in other reports filed by us
with the Securities and Exchange Commission, including those described
in Part I of the Company's most recently filed Annual Report on
Form 10-K and subsequent reports on Forms 10-Q and 8-K as well as in
MVW's most recently filed Annual Report on Form 10-K and subsequent
reports on Forms 10-Q and 8-K and in the joint proxy
statement/prospectus included in the registration statement on Form S-4
filed by MVW with the SEC, and any amendments thereto.

Other risks and uncertainties include the timing and likelihood of
completion of the proposed transactions between the Company and MVW; the
possibility that the Company's stockholders may not approve the proposed
transactions; the possibility that MVW's stockholders may not approve
the issuance of the MVW shares to be issued in connection with the
proposed transactions; the possibility that the expected synergies and
value creation from the proposed transactions will not be realized or
will not be realized within the expected time period; the risk that the
businesses of the Company and MVW will not be integrated successfully;
the potential impact of disruption from the proposed transactions making
it more difficult to maintain business and operational relationships;
the risk that unexpected costs will be incurred; the ability to retain
key personnel; the availability of financing; the possibility that the
proposed transactions do not close; as well as more specific risks and
uncertainties. You should carefully consider these and other relevant
factors, including those risk factors in this communication and other
risks and uncertainties that affect the businesses of the Company and
MVW described in their respective filings with the SEC, when reviewing
any forward-looking statement. These factors are noted for investors as
permitted under the Private Securities Litigation Reform Act of 1995. We
caution readers that any such statements are based on currently
available operational, financial and competitive information, and they
should not place undue reliance on these forward-looking statements,
which reflect management's opinion only as of the date on which they
were made. Except as required by law, we disclaim any obligation to
review or update these forward-looking statements to reflect events or
circumstances as they occur.

NO OFFER OR SOLICITATION

This communication is for informational purposes only and is not
intended to and does not constitute an offer to buy, nor a solicitation
of an offer to sell, subscribe for or buy any securities or the
solicitation of any vote or approval in any jurisdiction pursuant to or
in connection with the proposed transactions or otherwise, nor shall
there be any sale, issuance or transfer of securities in any
jurisdiction in contravention of applicable law. No offer of securities
shall be made except by means of a prospectus meeting the requirements
of Section 10 of the Securities Act of 1933, as amended, and otherwise
in accordance with applicable law.

IMPORTANT INFORMATION AND WHERE TO FIND IT

The proposed transactions involving the Company and MVW will be
submitted to the Company's stockholders and MVW's stockholders for their
consideration. In connection with the proposed transaction, on July 19,
2018, MVW filed with the Securities and Exchange Commission (the "SEC")
an amendment to the registration statement on Form S-4 that included a
joint proxy statement/prospectus for the stockholders of the Company and
MVW and was filed with the SEC on June 6, 2018. The registration
statement was declared effective by the SEC on July 23, 2018. The
Company and MVW mailed the definitive joint proxy statement/prospectus
to their respective stockholders on or about July 25, 2018 and each of
the Company and MVW intend to hold the special meeting of the
stockholders of the Company and MVW on August 28, 2018. This
communication is not intended to be, and is not, a substitute for such
filings or for any other document that the Company or MVW may file with
the SEC in connection with the proposed transaction. SECURITY HOLDERS
ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING
THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY
STATEMENT/PROSPECTUS, CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. The registration statement, the joint
proxy statement/prospectus and other relevant materials and any other
documents filed or furnished by the Company or MVW with the SEC may be
obtained free of charge at the SEC's web site at www.sec.gov.
In addition, security holders will be able to obtain free copies of the
registration statement and the joint proxy statement/prospectus from the
Company by going to its investor relations page on its corporate web
site at www.ilg.com
and from MVW by going to its investor relations page on its corporate
web site at www.marriottvacationsworldwide.com.

PARTICIPANTS IN THE SOLICITATION

The Company, MVW, their respective directors and certain of their
respective executive officers and employees may be deemed to be
participants in the solicitation of proxies in connection with the
proposed transaction. Information about the Company's directors and
executive officers is set forth in its Annual Report on Form 10-K for
the year ended December 31, 2017, which was filed with the SEC on
March 1, 2018 and in its definitive proxy statement filed with the SEC
on May 7, 2018, and information about MVW's directors and executive
officers is set forth in its Annual Report on Form 10-K for the year
ended December 31, 2017, which was filed with the SEC on February 27,
2018, and in its definitive proxy statement filed with the SEC on
April 3, 2018. These documents are available free of charge from the
sources indicated above, and from the Company by going to its investor
relations page on its corporate web site at www.ilg.com
and from MVW by going to its investor relations page on its corporate
web site at www.marriottvacationsworldwide.com.
Additional information regarding the interests of participants in the
solicitation of proxies in connection with the proposed transactions is
presented in the definitive joint proxy statement/prospectus included in
the registration statement on Form S-4 filed by MVW with the SEC, and
may be included in other relevant materials that the Company and MVW
file with the SEC.

       
ILG, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except share and per share data)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenues:
Service and membership related $ 148 $ 119 $ 300 $ 247
Sales of vacation ownership products, net 121 118 244 223
Rental and ancillary services 104 97 222 204
Consumer financing 23 22 47 43
Cost reimbursements   65     85     131     168  
Total revenues 461 441 944 885
Operating costs and expenses:
Cost of service and membership related sales 67 33 132 68
Cost of vacation ownership product sales 22 28 61 54
Cost sales of rental and ancillary services 70 78 142 155
Cost of consumer financing 7 7 15 14
Cost reimbursements 65 85 131 168
Royalty fee expense 11 11 22 21
Selling and marketing expense 81 76 159 145
General and administrative expense 65 58 124 112
Amortization expense of intangibles 5 5 10 10
Depreciation expense   16     15     31     30  
Total operating costs and expenses   409     396     827     777  
Operating income 52 45 117 108
Other income (expense):
Interest income 1 - 1 -
Interest expense (7 ) (7 ) (15 ) (12 )
Other income expense, net (5 ) (2 ) - 8
Gain on bargain purchase - 2 - 2
Equity in earnings from unconsolidated entities   -     1     1     3  
Total other income (expense), net   (11 )   (6 )   (13 )   1  
Earnings before income taxes and noncontrolling interests 41 39 104 109
Income tax provision   (13 )   (13 )   (33 )   (38 )
Net income 28 26 71 71
Net income attributable to noncontrolling interests   (1 )   -     (2 )   (1 )
Net income attributable to common stockholders $ 27   $ 26   $ 69   $ 70  
 
Earnings per share attributable to common stockholders:
Basic $ 0.21 $ 0.21 $ 0.56 $ 0.56
Diluted $ 0.21 $ 0.20 $ 0.55 $ 0.55
Weighted average number of shares of common stock outstanding:
Basic 124,241 124,384 124,033 124,191
Diluted 125,874 126,141 125,813 125,862
Dividends declared per share of common stock $ 0.175 $ 0.15 $ 0.350 $ 0.30
                 
 
Adjusted net income(1) $ 39 $ 31 $ 85 $ 72
Adjusted earnings per share(1):
Basic $ 0.31 $ 0.25 $ 0.69 $ 0.57
Diluted $ 0.31 $ 0.25 $ 0.68 $ 0.57
 

(1) "Adjusted net income" and "Adjusted
earnings per share" are non-GAAP measures as defined by the SEC.
Please see "Reconciliations of Non-GAAP Measures" for a
reconciliation to the comparable GAAP measure.

   
ILG, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
 
June 30, 2018 December 31, 2017
 
ASSETS
Cash and cash equivalents $ 143 $ 122
Restricted cash and cash equivalents 215 227
Vacation ownership mortgages receivable, net 77 79
Vacation ownership inventory 486 496
Prepaid income taxes 36 58
Other current assets   236   218
Total current assets 1,193 1,200
Restricted cash and cash equivalents 4 3
Vacation ownership mortgages receivable, net 657 658
Vacation ownership inventory 72 60
Investments in unconsolidated entities 54 55
Goodwill and intangible assets, net 992 1,004
Property and equipment, net 606 616
Other non-current assets   83   91
TOTAL ASSETS $ 3,661 $ 3,687
 
 
LIABILITIES AND EQUITY
LIABILITIES:
Accounts payable, trade $ 46 $ 46
Deferred revenue 177 162
Current portion of securitized debt from VIEs 128 146
Other current liabilities   320   287
Total current liabilities 671 641
Long-term debt 548 562
Securitized debt from VIEs 361 429
Deferred revenue 82 76
Other long-term liabilities   262   262
TOTAL LIABILITIES   1,924   1,970
Redeemable noncontrolling interest 1 1
Total ILG stockholders' equity 1,697 1,679
Noncontrolling interests   39   37
TOTAL EQUITY   1,736   1,716
TOTAL LIABILITIES AND EQUITY $ 3,661 $ 3,687
 
   
ILG, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Six Months Ended June 30,
2018 2017
 
Cash flows from operating activities:
Net income $ 71 $ 71
Adjustments to reconcile net income to net cash and restricted cash
provided by operating activities:
Amortization expense of intangibles 10 10

Bad debt expense

 

4

1

Depreciation expense 31 30
Allowance for losses on originated loans 23 15
Allowance for impairment on acquired loans 3 5
Accretion of mortgages receivable 2 3
Non-cash compensation expense 11 12
Deferred income taxes 10 13
Equity in earnings from unconsolidated entities (1 ) (3 )

Gain on bargain purchase of Vistana acquisition

-

(2

)

Changes in operating assets and liabilities and other   20     (73 )
Net cash and restricted cash provided by operating activities   184     82  
Cash flows from investing activities:
Capital expenditures (22 ) (48 )
Purchases of trading investments   4     -  
Net cash used in investing activities   (18 )   (48 )
Cash flows from financing activities:
Borrowings on revolving credit facility, net (15 ) 71
Payments on securitized debt (86 ) (66 )
Purchases of treasury stock - (3 )
Dividend payments to stockholders (43 ) (37 )
Withholding taxes on vesting of restricted stock units   (9 )   (5 )
Net cash and restricted cash used in financing activities   (153 )   (40 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
  (3 )   3  
Net increase (decrease) in cash, cash equivalents and restricted
cash
10 (3 )
Cash, cash equivalents and restricted cash at beginning of period   352     244  
Cash, cash equivalents and restricted cash at end of period $ 362   $ 241  
 
 
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized $ 21 $ 17
Income taxes paid, net of refunds $ 12 $ 16
 
           

OPERATING STATISTICS

 
Three Months Ended June 30, Six Months Ended June 30,
2018 % Change 2017 2018 % Change 2017
 
Vacation Ownership(2)
Consolidated timeshare contract sales (in millions) $ 132 3% $ 128 $ 266 6% $ 250
Volume per guest $ 2,863 (6)% $ 3,036 $ 3,037 (3)% $ 3,144
Tour flow 45,391 9% 41,689 86,151 10% 78,465
Exchange and Rental
Total active members at end of period (000's) 1,800 (1)% 1,812 1,800 (1)% 1,812
Average revenue per member $ 48.14 2% $ 47.39 $ 101.38 2% $ 99.75
(2) As part of the continued integration of our
VO business, in the fourth quarter of 2017 we harmonized and
clarified the calculation of total timeshare contract sales and
consolidated timeshare contract sales to report all sales gross of
incentives. In order to aid comparability, we have recast prior
periods.
 

SEGMENT REVENUES

 
Three Months Ended June 30, Six Months Ended June 30,
2018 % Change 2017 2018 % Change 2017
(In millions) (Dollars in millions)
Vacation Ownership
Resort operations revenue $ 58 9% $ 53 $ 124 13% $ 110
Management fee and other revenue 61 85% 33 116 81% 64
Sale of vacation ownership products, net 121 3% 118 244 9% 223
Consumer financing revenue 23 5% 22 47 9% 43
Cost reimbursement revenue   45   (24)%   59     90   (23)%   117  
Total revenue $ 308   8% $ 285   $ 621   11% $ 557  
Vacation Ownership gross margin 45 % 7% 42 % 44 % 2% 43 %

Vacation Ownership gross margin without cost reimbursement revenue

53 % (0)% 53 % 51 % (6)% 54 %
Exchange and Rental
Transaction revenue $ 50 2% $ 49 $ 109 1% $ 108
Membership fee revenue 35 (3)% 36 71 0% 71
Ancillary member revenue   2   0%   2     4   (20)%   5  
Total member revenue 87 0% 87 184 0% 184
Club rental revenue 29 7% 27 62 9% 57
Other revenue 6 20% 5 12 20% 10
Rental management revenue 11 0% 11 24 (8)% 26
Cost reimbursement revenue   20   (23)%   26     41   (20)%   51  
Total revenue $ 153   (2)% $ 156   $ 323   (2)% $ 328  
Exchange and Rental gross margin 59 % 2% 58 % 59 % 4% 57 %

Exchange and Rental gross margin without cost reimbursement revenue

68 % (2)% 69 % 68 % (0)% 68 %
 
       

RECONCILIATIONS OF NON-GAAP MEASURES

 
Six Months Ended June 30,
2018 2017
(In millions)
Operating activities before inventory spend $ 232 $ 233
Inventory spend (39 ) (120 )
Net changes in operating-related restricted cash   (9 )   (31 )
Net cash and restricted cash provided by operating activities   184     82  
Repayments on securitizations (86 ) (66 )
Net changes in financing-related restricted cash   2     20  
Net securitization activities   (84 )   (46 )
Net changes in operating-related restricted cash 9 31
Capital expenditures (22 ) (48 )
Acquisition-related and restructuring payments   8     4  
Free cash flow $ 95   $ 23  
 
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(In millions, except per share data)
Net income attributable to common stockholders $ 27 $ 26 $ 69 $ 70
Acquisition related and restructuring costs 8 4 9 8
Other non-operating foreign currency remeasurements 5 2 - (8 )
Impact of purchase accounting - 1 - (2 )
Other special items 3 - 9 -
Asset impairments 2 2 4 5
Income tax impact of adjusting items(3)   (6 )   (4 )   (6 )   (1 )
Adjusted net income $ 39   $ 31   $ 85   $ 72  
Earnings per share attributable to common stockholders:
Basic $ 0.21 $ 0.21 $ 0.56 $ 0.56
Diluted $ 0.21 $ 0.20 $ 0.55 $ 0.55
Adjusted earnings per share:
Basic $ 0.31 $ 0.25 $ 0.69 $ 0.57
Diluted $ 0.31 $ 0.25 $ 0.68 $ 0.57
Weighted average number of common stock outstanding:
Basic 124,241 124,384 124,033 124,191
Diluted 125,874 126,141 125,813 125,862
 
(3) All adjusting items were tax effected using
the applicable projected annual effective tax rate since none of the
adjustments were discrete to the periods.
   
Three Months Ended Six Months Ended

June 30,

June 30,

 

2018

  2017

2018

  2017
(In millions)
Sales of vacation ownership products, net $ 121 $ 118 $ 244 $ 223
Provision for loan losses 14 8 22 15
Other items and adjustments(4)   (3 )   2     12
Consolidated timeshare contract sales $ 132   $ 128 $ 266 $ 250
 
(4) Includes adjustments for incentives,
certain GAAP deferrals, cancelled sales, trial vacation package
sales, fractional sales and other items.
           
Three Months Ended June 30,
2018 2017

Vacation
Ownership

Exchange and
Rental

Consolidated

Vacation
Ownership

Exchange and
Rental

Consolidated
(In millions)
Net income attributable to common stockholders $ 27 $ 26
Net income attributable to noncontrolling interest   1      
Net income 28 26
Income tax provision 13 13
Other special items (gain on bargain purchase) (2 )
Equity in earnings from unconsolidated entities (1 )
Other non-operating expense, net 5 2
Interest expense 7 7
Interest income   (1 )    
Operating income $ 17 $ 35 52 $ 8 $ 37 45
Other non-operating income (expense), net (7 ) 2 (5 ) (2 ) (2 )
Other special items (gain on bargain purchase) 2 2
Equity in earnings from unconsolidated entities 1 1
Net income attributable to noncontrolling interest (1 ) (1 )
Depreciation expense 11 5 16 10 5 15
Amortization expense of intangibles   2     3     5     2     3     5  
EBITDA 22 45 67 19 47 66
Other special items 2 1 3 1 (1 )
Impact of purchase accounting (1 ) (1 )
Asset impairments 2 2 2 2
Acquisition related and restructuring costs 5 3 8 4 4
Less: Other non-operating (income) expense, net 7 (2 ) 5 2 2
Non-cash compensation expense   3     2     5     4     3     7  
Adjusted EBITDA $ 41   $ 49   $ 90   $ 31   $ 49   $ 80  
 
 
Six Months Ended June 30,
2018 2017

Vacation
Ownership

Exchange and
Rental

Consolidated

Vacation
Ownership

Exchange and
Rental

Consolidated
(Dollars in millions)
Net income attributable to common stockholders $ 69 $ 70
Net income attributable to noncontrolling interest   2     1  
Net income 71 71
Income tax provision 33 38
Other special items (gain on bargain purchase) (2 )
Equity in earnings from unconsolidated entities (1 ) (3 )
Other non-operating expense, net (8 )
Interest expense 15 12
Interest income   (1 )    
Operating income $ 35 $ 82 117 $ 23 $ 85 108
Other non-operating income (expense), net 10 (2 ) 8
Other special items (gain on bargain purchase) 2 2
Equity in earnings from unconsolidated entities 1 1 3 3
Net income attributable to noncontrolling interest (2 ) (2 ) (1 ) (1 )
Depreciation expense 21 10 31 20 10 30
Amortization expense of intangibles   4     6     10     4     6     10  
EBITDA 59 98 157 59 101 160
Other special items 5 2 7 1 (1 )
Asset impairments 4 4
Impact of purchase accounting (5 ) (5 )
Acquisition related and restructuring costs 6 3 9 7 7
Less: Other non-operating (income) expense, net (10 ) 2 (8 )
Non-cash compensation expense   5     6     11     7     5     12  
Adjusted EBITDA $ 79   $ 109   $ 188   $ 64   $ 107   $ 171  
 

GLOSSARY OF TERMS

Acquisition related and restructuring costs - Represents
transaction fees, costs incurred in connection with performing due
diligence, subsequent adjustments to our initial estimate of contingent
consideration obligations associated with business acquisitions, and
other direct costs related to acquisition activities. Additionally, this
item includes certain restructuring charges primarily related to
workforce reductions, costs associated with integrating acquired
businesses and estimated costs of exiting contractual commitments.

Adjusted earnings per share (EPS) is defined as adjusted net
income divided by the weighted average number of shares of common stock
outstanding during the period for basic EPS and, additionally, inclusive
of dilutive securities for diluted EPS.

Adjusted EBITDA - EBITDA, excluding, if applicable: (1) non-cash
compensation expense, (2) goodwill and asset impairments, (3)
acquisition related and restructuring costs, (4) other non-operating
income and expense, (5) the impact of the application of purchase
accounting, and (6) other special items. The Company's presentation of
adjusted EBITDA may not be comparable to similarly-titled measures used
by other companies.

Adjusted net income is defined as net income attributable to
common stockholders, excluding the impact of (1) acquisition related and
restructuring costs, (2) other non-operating foreign currency
remeasurements, (3) the impact of the application of purchase
accounting, (4) goodwill and asset impairments, and (5) other special
items.

Ancillary member revenue - Other Interval Network member related
revenue including insurance and travel related services.

Average revenue per member - Membership fee revenue, transaction
revenue and ancillary member revenue for the Interval Network, Vistana
Signature Network and Hyatt Residence Club for the applicable period,
divided by the monthly weighted average number of Interval Network
active members during the applicable period.

Club rental revenue – Represents rentals generated by the Vistana
Signature Network and Hyatt Residence Club mainly to monetize inventory
to provide exchanges through hotel loyalty programs.

Consolidated timeshare contract sales – Total timeshare interests
sold at consolidated projects pursuant to purchase agreements, gross of
incentives and net of actual cancellations and rescissions, where we
have met a minimum threshold amounting to a 10% down payment of the
contract purchase price during the period. For upgrade sales, we include
only the incremental value purchased.

Consumer financing revenue – Includes interest income on
vacation ownership mortgages receivable, as well as loan servicing fees
from unconsolidated entities.

Cost reimbursements - Represents the compensation and other
employee-related costs directly associated with managing properties that
are included in both revenue and cost of sales and that are passed on to
the property owners or homeowner associations without mark-up. Cost
reimbursement revenue of the Vacation Ownership segment also includes
reimbursement, without mark-up, of sales and marketing expenses, and in
some cases certain other expenses pursuant to contractual arrangements.
Management believes presenting gross margin without these expenses
provides management and investors a relevant period-over-period
comparison.

EBITDA - Net income attributable to common stockholders
excluding, if applicable: (1) non-operating interest income and interest
expense, (2) income taxes, (3) depreciation expense, and (4)
amortization expense of intangibles.

Free cash flow – is defined as cash and restricted cash provided
by operating activities less capital expenditures, plus net changes in
financing-related restricted cash and net borrowing and repayment
activity pertaining to securitizations, and excluding changes in
operating-related restricted cash and certain payments unrelated to our
ongoing core business, such as acquisition-related and restructuring
costs.

Impact of the application of purchase accounting – represents the
difference between amounts derived from the fair value remeasurement of
assets and liabilities acquired in a business combination versus the
historical basis. We believe generally this is most meaningful in the
first year subsequent to an acquisition.

Management fee revenue – Represents vacation ownership property
management revenue earned by our Vacation Ownership segment exclusive of
cost reimbursements.

Membership fee revenue – Represents fees paid for membership in
the Interval Network, Vistana Signature Network and Hyatt Residence Club.

Net leverage – Long term debt (excluding issuance costs)
minus cash and cash equivalents divided by Adjusted EBITDA.

Other special items – consist of other items that we believe are
not related to our core business operations. For the three and six
months ended June 30, 2018 and 2017, such items include (as applicable
to the respective period): (i) costs related to non-ordinary course
litigation matters described in the notes to our financial statements,
(ii) impact to our financial statements related to natural disasters,
including Hurricane Irma and other named storms, and (iii) costs related
to our Board of Director's strategic review.

Other revenue – includes revenue related primarily to exchange
and rental transaction activity and membership programs outside of
the Interval Network, Vistana Signature Network and Hyatt Residence
Club, sales of marketing materials primarily for point-of-sale developer
use, and certain financial services-related fee income.

Rental and ancillary services revenue – Includes our rental
activities such as Getaways, club rentals and owned hotel revenues, as
well as associated resort ancillary revenues.

Rental management revenue – Represents rental management revenue
earned by our vacation rental businesses within our Exchange and Rental
segment, exclusive of cost reimbursement revenue.

Resort operations revenue – Pertains to our revenue generating
activities from rentals of owned vacation ownership inventory (exclusive
of lead-generation) along with ancillary resort services, in addition to
rental and ancillary revenue generated by owned hotels.

Sales of vacation ownership products, net – Includes sales
of vacation ownership products, net, for HVO and Vistana.

Service and membership revenue – Revenue associated with
providing services including membership-related activities and exchange
transactions, as well vacation ownership and vacation rental management
businesses.

Total active members - Active members of the Interval Network in
good standing as of the end of the period. All Vistana Signature Network
and Hyatt Residence Club members are also members of the Interval
Network.

Tour flow – Represents the number of sales presentations given at
sales centers (other than at unconsolidated properties) during the
period.

Transaction revenue – Interval Network, Vistana Signature Network
and Hyatt Residence Club transactional and service fees paid primarily
for exchanges, Getaways, reservation servicing and related transactions.

Volume per guest – Consolidated timeshare contract sales
excluding telesales, divided by tour flow during the period.

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