Edgar Filing: MARRIOTT VACATIONS WORLDWIDE Corp

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Non-accelerated filer

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Smaller reporting company

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended January 1, 2016

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

For the transition period from to

Commission File No. 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)		(IRS Employer Identification No.)

6649 Westwood Blvd., Orlando, FL		32821
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (407) 206-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

(28,847,648 shares outstanding as of February 19, 2016)

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 aggregate market value of shares of common stock held by non-affiliates at June 19, 2015, was $2,405,493,792.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement prepared for the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

TABLE OF CONTENTS


			Page
Part I.
	Item 1.	Business		2
	Item 1A.	Risk Factors		20
	Item 1B.	Unresolved Staff Comments		34
	Item 2.	Properties		34
	Item 3.	Legal Proceedings		34
	Item 4.	Mine Safety Disclosures		34
Part II.
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		35
	Item 6.	Selected Financial Data		37
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		82
	Item 8.	Financial Statements and Supplementary Data		83
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		83
	Item 9A.	Controls and Procedures		83
	Item 9B.	Other Information		84
Part III.
	Item 10.	Directors, Executive Officers and Corporate Governance		84
	Item 11.	Executive Compensation		87
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		87
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		87
	Item 14.	Principal Accounting Fees and Services		88
Part IV.
	Item 15.	Exhibits, Financial Statement Schedules		88
		Signatures		89

Throughout this Annual Report on Form 10-K (this “Annual Report”), we refer to Marriott Vacations Worldwide Corporation, together with its subsidiaries, as “Marriott Vacations Worldwide,” “we,” “us,” or “the Company.” Unless otherwise specified, each reference to a particular year means the fiscal year ended on the date shown in the table below, rather than the corresponding calendar year. All fiscal years included 52 weeks, except for 2013, which included 53 weeks.


Fiscal Year		Fiscal Year-End Date
2015		January 1, 2016
2014		January 2, 2015
2013		January 3, 2014
2012		December 28, 2012
2011		December 30, 2011

In addition, in order to make this Annual Report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Statements of Income,” (iii) our Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Consolidated Statements of Cash Flows as our “Cash Flows.” References throughout to numbered “Footnotes” refer to the numbered Notes to our Financial Statements that we include in the Financial Statements section of this Annual Report.

Throughout this Annual 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.

By referring to our corporate website, www.marriottvacationsworldwide.com, or any other website, we do not incorporate any such website or its contents in this Annual Report.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

We make forward-looking statements throughout this Annual Report, including in, among others, the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” based on our management’s 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 Annual Report. We do not have any intention or obligation to update forward-looking statements after the date of this Annual Report, except as required by law.

The risk factors discussed in “Risk Factors” 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.

PART I

Item 1.

Business

Overview

We are one of the world’s largest companies whose business is focused almost entirely on vacation ownership, based on number of owners, number of resorts and revenues. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand.

Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of January 1, 2016, our portfolio consisted of 61 properties in the United States and eight other countries and territories, including two hotels that we intend to convert to vacation ownership interests. 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.

Our strategic goal is to further strengthen our leadership position in the vacation ownership industry through initiatives to drive profitable contract sales growth, maximize cash flow and optimize our capital structure, selectively pursue compelling new business opportunities, and focus on our owners, guests and associates. We believe that we have significant competitive advantages, including our scale and global reach, the quality and strength of the Marriott and Ritz-Carlton brands, our system of high-quality resorts, our loyal and highly satisfied customer base, our long-standing track record and our experienced management team and associates.

The Vacation Ownership Industry

The vacation ownership industry (also known as the timeshare industry) enables customers to share ownership and use of fully-furnished vacation accommodations. Typically, a purchaser acquires an interest (known as a “vacation ownership interest”) that is either a real estate ownership interest (known as a “timeshare estate”) or a contractual right-to-use interest (known as a “timeshare license”) in a single resort or a collection of resort properties. In the United States, most vacation ownership products are sold as timeshare estates, which can be structured in a variety of ways including, but not limited to, a deeded interest in a specified accommodation unit, an undivided interest in a building or an entire resort, or a beneficial interest in a trust that owns one or more resort properties. By purchasing a vacation ownership interest, owners make a commitment to vacation. For many purchasers, vacation ownership provides an attractive alternative to traditional lodging accommodations (such as hotels, resorts and condominium rentals). In addition to avoiding the volatility in room rates to which traditional lodging customers are subject, vacation ownership purchasers also enjoy accommodations that are, on average, more than twice the size of traditional hotel rooms and typically have more features, such as kitchens and separate living areas. Purchasers who might otherwise buy a second home find vacation ownership a preferable alternative because it is more affordable and reduces maintenance and upkeep concerns.

Typically, developers sell vacation ownership interests for a fixed purchase price that is paid in full at closing or financed with a loan. Many vacation ownership companies provide financing or facilitate access to third-party bank financing for customers. Vacation ownership resorts are often managed by a nonprofit property owners’ association of which owners of vacation ownership interests are members. Most property owners’ associations are governed by a board of directors that includes owners and which may include representatives of the developer. Some vacation ownership resorts are held through a trust structure in which a trustee holds title and manages the property. The board of the property owners’ association, or trustee, as applicable, typically delegates much of the responsibility for managing the resort to a management company, which is often affiliated with the developer.

After the initial purchase, most vacation ownership programs require the owner of the vacation ownership interest to pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs and expenses of operating and maintaining the vacation ownership property and providing program services. This fee typically covers expenses such as housekeeping, landscaping, taxes, insurance and resort labor, a property management fee payable to the management company for providing management services, and an assessment to fund a capital asset reserve account used to renovate, refurbish and replace furnishings, common areas and other assets (such as parking lots or roofs) as needed over time. Owners typically reserve their usage of vacation accommodations in advance through a reservation system (often provided by the management company or an affiliated entity), unless a vacation ownership interest specifies fixed usage dates and a particular unit every year.

The vacation ownership industry has grown through expansion of established vacation ownership developers as well as entrance into the market of well-known lodging and entertainment companies, including Marriott International, Wyndham Worldwide Corporation, Starwood Hotels & Resorts Worldwide, Inc., Hilton Hotels Corporation, Hyatt Hotels Corporation and The Walt Disney Company. The industry’s growth can also be attributed to increased market acceptance of vacation ownership products, stronger consumer protection laws and the evolution of vacation ownership interests from a fixed- or floating-week product, which provides the right to use the same property every year, to membership in multi-resort vacation networks, which offer a more flexible vacation experience. These vacation networks often issue their members an annual allotment of points that can be redeemed for stays at affiliated vacation ownership resorts or for alternative vacation experiences available through the program.

To enhance the flexibility and appeal of their products, many vacation ownership developers affiliate their projects with vacation ownership exchange service providers so that owners may exchange their rights to use the developer’s resorts for accommodation at other resorts in the exchange service provider’s broader network of properties. The two leading exchange service providers are Interval International, with which we are associated, and RCI. According to their websites, Interval International’s and RCI’s networks include more than 2,900 and nearly 4,500 affiliated resorts, respectively, as identified on each company’s website.

According to the American Resort Development Association (“ARDA”), a trade association representing the vacation ownership and resort development industries, as of December 31, 2014, the U.S. vacation ownership community was comprised of over 1,500 resorts, representing over 198,000 units and an estimated 8.7 million vacation ownership week equivalents. According to ARDA, sales in the U.S. market were $7.9 billion in 2014. We believe there is considerable potential for further growth in the industry both in the U.S. and globally.

Our History

We recently celebrated our 30-year anniversary of providing vacation memories and experiences to millions of families. Prior to the incorporation of Marriott Vacations Worldwide Corporation in Delaware in June 2011, our operations were the vacation ownership division of Marriott International. Marriott International completed the spin-off of its vacation ownership division on November 21, 2011 (the “Spin-Off”). Since the Spin-Off, we have been an independent public company, with our common stock listed on the New York Stock Exchange under the symbol “VAC” and our corporate headquarters located in Orlando, Florida.

Since 1984, when Marriott became the first major lodging company to enter the vacation ownership industry with its acquisition of American Resorts, a small vacation ownership company, we have been recognized as a leader and innovator in the vacation ownership industry. Marriott International leveraged its well-known “Marriott” brand to sell vacation ownership intervals, which were frequently located at resorts developed adjacent to Marriott International hotels. Over time, the company differentiated its offerings through its high-quality resorts that were purpose-built for vacation ownership, exchange opportunities available under its Marriott Rewards customer loyalty program that increased the flexibility of use of ownership, its dedication to excellent customer service and its commitment to ethical business practices. These qualities encouraged repeat business and word-of-mouth customer referrals.

We have continuously worked with ARDA to encourage the enactment of responsible consumer-protection legislation and state regulation that enhances the reputation and respectability of the overall vacation

ownership industry. We believe that, over time, our vacation ownership products and services helped improve the public perception of the vacation ownership industry. A number of other major lodging companies later entered the vacation ownership business, further enhancing the industry’s image and credibility.

In connection with the Spin-Off, we entered into a License, Services, and Development Agreement (the “Marriott License Agreement”) with Marriott International and its subsidiary Marriott Worldwide Corporation and a License, Services, and Development Agreement (the “Ritz-Carlton License Agreement” and, together with the Marriott License Agreement, the “License Agreements”) with The Ritz-Carlton Hotel Company, L.L.C. (“The Ritz-Carlton Hotel Company”), a subsidiary of Marriott International. Under the License Agreements, we are granted the exclusive right, for the terms of the License Agreements, to use certain Marriott and Ritz-Carlton marks and intellectual property in our vacation ownership business, the exclusive right to use the Grand Residences by Marriott marks and intellectual property in our residential real estate business and the non-exclusive right to use certain Ritz-Carlton marks and intellectual property in our residential real estate business. We also entered into a Non-Competition Agreement with Marriott International (the “Non-Competition Agreement”), which generally prohibits Marriott International and its subsidiaries from engaging in the vacation ownership business and prohibits us and our subsidiaries from engaging in the hotel business until the earlier of November 21, 2021 or the termination of the Marriott License Agreement.

Under the Marriott Rewards Affiliation Agreement that we and certain of our subsidiaries entered into with Marriott International and its subsidiary Marriott Rewards, LLC (the “Marriott Rewards Agreement”), we are allowed to continue to participate in the Marriott Rewards customer loyalty program following the Spin-Off; this participation includes the ability to purchase and use Marriott Rewards Points in connection with our Marriott-branded vacation ownership business. The Marriott Rewards Agreement is coterminous with the Marriott License Agreement.

Our Business Strategy

Our strategic goal is to further strengthen our leadership position in the vacation ownership industry. To achieve this goal, we are pursuing the following initiatives:

Drive profitable contract sales growth

We intend to continue to generate growth in vacation ownership sales by leveraging our globally recognized brand names and targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations. We expect to focus our efforts to generate growth through our two points-based ownership programs: Marriott Vacation Club Destinations^TM (“MVCD”) and Marriott Vacation Club, Asia Pacific. We will also continue to focus on our approximately 410,000 owners around the world. In 2015, approximately 64 percent of our sales of vacation ownership products were to our existing owners. In addition, we are concentrating on growing our tour flow cost effectively as we seek to generate more first-time buyer tours and achieve our longer term goal of selling to an equal mix of new buyers and existing buyers. Our strategy includes an emphasis on new sales distributions and new marketing channels geared toward driving first-time buyer tour growth. We are also committed to maximizing development margin through efficient marketing and sales spending and managing inventory costs and development activities.

Maximize cash flow and optimize our capital structure

Through the use of our points-based products, we are able to more closely match inventory investment with sales pace and reduce inventory levels, thereby generating strong cash flows over time. Additionally, by limiting the amount of completed inventory on hand, we are able to reduce the maintenance fees that we pay on unsold inventory. Over the last few years, we have significantly reduced our costs, and we intend to continue to control costs as sales volumes grow. We also seek to optimize our inventory investments by targeting high-quality inventory that allows us to add desirable new destinations to our system as well as new on-site sales locations. We seek to use capital efficient deal structures that may include working with third parties to develop new inventory or convert previously built units to be sold to us close to when we need such inventory. We also

proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory.

We expect our modest level of debt and the use of capital efficient structures will enable us to maintain a level of liquidity that ensures financial flexibility, giving us the ability to pursue strategic growth opportunities, withstand potential future economic downturns, optimize our cost of capital, and pursue strategies for returning capital to shareholders. We intend to meet our liquidity needs through operating cash flow, the disposition of excess assets, our $200 million revolving credit facility (the “Revolving Corporate Credit Facility”), our $250 million non-recourse warehouse credit facility (the “Warehouse Credit Facility”), and continued access to the asset-backed securities (“ABS”) term financing market.

Selectively pursue compelling new business opportunities

We are positioned to explore new business opportunities, such as the continued enhancement of our exchange programs, new management affiliations and acquisitions of existing vacation ownership and related businesses. We intend to selectively pursue these types of opportunities, focusing on opportunities that drive recurring revenue and profit streams. Prior to entering into any new business opportunity, we will evaluate its strategic fit and assess whether it is complementary to our current business, has strong expected financial returns and leverages our existing competencies.

Focus on our owners, guests and associates

We are in the business of providing high-quality vacation experiences to our owners and guests around the world. We intend to maintain and improve their satisfaction with our products and services, particularly because our owners and guests are our most cost-effective sales channels. We intend to continue to sell our products through these very effective channels and believe that maintaining a high level of engagement across all of our customer groups is key to our success. We intend to provide innovative offerings in new destinations to meet the needs of current and future customers. We intend to develop new offerings to attract the next generation of travelers looking for a greater variety of experiences with the high quality standards expected from a brand they trust.

Engaging our associates in the success of our business continues to be one of our long-term core strategies. We understand the connection between the engagement of our associates and the satisfaction and engagement of our owners and guests. At the heart of our culture is the belief that if we take care of our associates, they will take care of our owners and guests and the owners and guests will return again and again.

Our Brands

We design, build, manage and maintain our properties at upscale and luxury levels under four brands in accordance with the Marriott and Ritz-Carlton brand standards with which we must comply under the License Agreements.

The Marriott Vacation Club brand is our signature offering in the upscale tier of the vacation ownership industry. Marriott Vacation Club resorts typically combine many of the comforts of home, such as spacious accommodations with one, two and three bedroom options, living and dining areas, in-unit kitchens and laundry facilities, with resort amenities such as large feature swimming pools, restaurants and bars, convenience stores, fitness facilities and spas, as well as sports and recreation facilities appropriate for each resort’s unique location.

Grand Residences by Marriott is an upscale tier vacation ownership and whole ownership residence brand. The accommodations for this brand are similar to those we offer under the Marriott Vacation Club brand, but the duration of the vacation ownership interest is longer, ranging between three and thirteen weeks. We also offer whole ownership residential products under the Grand Residences by Marriott brand.

The Ritz-Carlton Destination Club is a luxury tier vacation ownership brand. The Ritz-Carlton Destination Club provides luxurious vacation experiences commensurate with the legacy of the Ritz-Carlton brand. The Ritz-Carlton Destination Club resorts typically feature two, three and four bedroom units that

generally include marble foyers, walk-in closets, custom kitchen cabinetry and luxury resort amenities such as large feature pools and access to full service restaurants and bars. On-site management and services, which usually include daily maid service, valet, in-residence dining, and access to fitness facilities as well as spa and sports facilities as appropriate for each destination, are provided by The Ritz-Carlton Hotel Company.

The Ritz-Carlton Residences is a luxury tier whole ownership residence brand. The Ritz-Carlton Residences includes whole ownership luxury residential condominiums co-located with The Ritz-Carlton Destination Club resorts. Owners can typically purchase condominiums that vary in size from one-bedroom apartments to spacious penthouses. Owners of The Ritz-Carlton Residences can avail themselves of the services and facilities that are associated with the co-located The Ritz-Carlton Destination Club resort on an a la carte basis. On-site management and services are provided by The Ritz-Carlton Hotel Company.

Our Products

Our Points-Based Vacation Ownership Products

We sell the majority of our products through two points-based ownership programs: MVCD and Marriott Vacation Club, Asia Pacific. While the structural characteristics of each of our points-based programs differ, in each program, owners receive an annual allotment of points representing owners’ usage rights, and owners can use these points to access vacation ownership units across multiple destinations within their program’s portfolio of resort locations. Each program permits shorter or longer stays than a traditional weeks-based vacation ownership product and provides for flexibility with respect to check-in days and size of accommodations. In addition to traditional resort stays, the MVCD program enables our owners to utilize their points for the wide variety of innovative vacation experiences included in our Explorer Collection, such as cruises, guided tours, safaris and other unique vacation alternatives. Members of our points-based programs pay annual fees in exchange for the ability to participate in the program.

The MVCD and the Marriott Vacation Club, Asia Pacific programs allow owners to bank and borrow their annual point allotments, access other Marriott Vacation Club locations through internal exchange programs that we and Interval International operate, and access Interval International’s approximately 2,900 affiliated resorts. Owners can also trade their vacation ownership usage rights for Marriott Rewards Points, which can be used to access the vast majority of Marriott International’s system of over 4,000 participating hotels or redeem their Marriott Rewards Points for airline miles or other merchandise offered through the Marriott Rewards customer loyalty program. MVCD owners hold an interest in real estate, owned in perpetuity. Our Marriott Vacation Club, Asia Pacific program offers usage for a term of 50 years from the program’s 2006 launch date.

Our Weeks-Based Vacation Ownership Products

We continue to sell Marriott Vacation Club branded weeks-based vacation ownership products in select markets, including in countries where legal and tax constraints currently limit our ability to include those locations in one of our points-based programs. We offer multi-week vacation ownership interests in specific Grand Residences by Marriott and The Ritz-Carlton Destination Club resorts, but we also intend to continue placing luxury branded inventory into the MVCD program. Our Marriott Vacation Club, Grand Residences by Marriott and The Ritz-Carlton Destination Club weeks-based vacation ownership products in the United States and select Caribbean locations are typically sold as fee simple deeded real estate interests at a specific resort representing an ownership interest in perpetuity, except where restricted by leasehold or other structural limitations. We sell vacation ownership interests as a right-to-use product subject to a finite term under the Marriott Vacation Club brand in Europe and Asia Pacific and under the Grand Residences by Marriott brand in Europe.

As part of the launch of the MVCD program in mid-2010, we offered our existing Marriott Vacation Club owners who held weeks-based products in the United States and Caribbean the opportunity to participate in the MVCD program on a voluntary basis. In mid-2012, we began offering owners who held weeks-based products in Europe the opportunity to participate in the MVCD program. All existing owners, whether or not they elected to participate in the MVCD program, retained their existing rights and privileges of vacation ownership. Owners

who elected to participate in the program received the ability to trade their weeks-based interval usage for vacation club points usage each year, subject to payment of an initial enrollment fee and annual fees. As of the end of 2015, over 146,000 weeks-based owners have enrolled nearly 253,000 weeks in the MVCD program since its launch.

Our Sources of Revenue

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.

Sale of Vacation Ownership Products

Our principal source of revenue is the sale of vacation ownership interests. See “—Marketing and Sales Activities” below for information regarding our marketing and sales activities.

Resort Management and Other Services

We generate revenue from fees we earn for managing each of our resorts. See “—Management Activities” below for additional information on the terms of our management agreements. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and spa offerings at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership products, and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated.

Financing

We earn interest income on loans that we provide to purchasers of our vacation ownership interests, as well as loan servicing and other fees. See “—Consumer Financing” below for further information regarding our consumer financing activities.

Rental

We generate rental revenue from transient rentals of inventory we hold for sale as interests in our vacation ownership programs or as residences, or inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs.

Marketing and Sales Activities

We sell our upscale tier vacation ownership products under the Marriott Vacation Club brand primarily through our worldwide network of resort-based sales centers and certain off-site sales locations. Marriott Vacation Club products are currently marketed for sale throughout the United States and in over 30 countries around the world, targeting customers who vacation regularly with a focus on family, relaxation and recreational activities. In 2015, approximately 85 percent of our sales originated at sales centers that are co-located with one of our resorts. We maintain a range of different off-site sales centers, including our central telesales organization based in Orlando, our network of third-party brokers in Latin America and Europe, and our city-based sales centers, such as our sales centers in Dubai and Singapore. We have over 50 global sales locations focused on the sale of Marriott Vacation Club products. We utilize a number of marketing channels to attract qualified customers to our sales locations for our Marriott Vacation Club products.

We solicit our owners primarily while they are staying in our resorts, but also offer our owners the opportunity to make additional purchases through direct phone sales, owner events and inquiries from our central customer service center located in Salt Lake City, Utah. In 2015, approximately 64 percent of our sales of vacation ownership products were to our existing owners. In addition, we are concentrating on growing our tour flow cost effectively as we seek to generate more first-time buyer tours and achieve our longer term goal of

selling to an equal mix of new buyers and existing owners. Our strategy includes an emphasis on new marketing channels geared toward driving first-time buyer tour growth.

We offer customers who are referred to us by our owners discounted stays at our resorts and conduct scheduled sales tours while they are on site. Where allowed by applicable law, we offer Marriott Rewards Points to our owners when their referral candidates tour with us or buy vacation ownership interests from us.

We also market to existing Marriott Rewards customer loyalty program members and travelers who are staying in locations where we have resorts. We market extensively to guests in Marriott International hotels that are located near one of our sales locations and have marketing partnerships with Marriott International’s North American reservation centers. In addition, we operate other local marketing venues in various high-traffic areas. A significant part of our direct marketing activities are focused on prospects in the Marriott Rewards customer loyalty program database and our in-house database of qualified prospects. We offer guests who do not buy a vacation ownership interest during their initial tour an “Encore” package for a future stay at our resorts. These return guests are nearly twice as likely to purchase as a first-time visitor.

Our Marriott Vacation Club sales tours are designed to provide our guests with an overview of our company and our products, as well as a customized presentation to explain how our products and services can meet their vacationing needs. Our sales force is highly trained in a consultative sales approach designed to ensure that we meet customers’ needs on an individual basis. We hire our Marriott Vacation Club sales executives based on stringent selection criteria. After they are hired, they spend a minimum of four weeks in product and sales training before interacting with any customers. We manage our sales executives’ consistency of presentation and professionalism using a variety of sales tools and technology and through a post-presentation survey of our guests that measures many aspects of each guest’s interaction with us.

We believe consumers place a great deal of trust in the Marriott and Ritz-Carlton brands and the strength of these brands is important to our ability to attract qualified prospects in the marketplace. We maintain a prominent presence on the www.marriott.com and www.ritzcarlton.com websites. Our proprietary sites, which include www.marriottvacationsworldwide.com, www.marriottvacationclub.com and www.ritzcarltonclub.com, had over 5.6 million visits in 2015.

Inventory and Development Activities

We secure inventory by building additional phases at our existing resorts, repurchasing inventory in the secondary market, repurchasing inventory as a result of owner loan or maintenance fee defaults, or developing or acquiring resorts in strategic markets. We proactively buy back previously sold vacation ownership interests under our repurchase program at lower costs than would be required to develop new inventory.

We intend to continue to selectively pursue growth opportunities in North America and Asia by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations in ways that optimize the timing of our capital investments. These capital efficient deal structures may include working with third parties to develop new inventory or convert previously built units to be sold to us close to when we need such inventory.

Approximately one-quarter of our vacation ownership resorts are co-located with Marriott International and Ritz-Carlton hotel properties. Co-location of our resorts with Marriott International or Ritz-Carlton branded hotels can provide several advantages from development, operations, customer experience and marketing perspectives, including sharing amenities, infrastructure and staff, integration of services, and other cost efficiencies. The larger campus of an integrated vacation ownership and hotel resort often can afford our owners more varied and elaborate amenities than those that would generally be available at a stand-alone resort. Shared infrastructure can also reduce our overall development costs for our resorts on a per unit basis. Integration of services and sharing staff and other expenses can lower overhead and operating costs for our resorts. Our on-site access to hotel customers, including Marriott Rewards customer loyalty program members, who are visiting co-located hotels also provides us with a cost-effective marketing channel for our vacation ownership products.

Co-located resorts require cooperation and coordination among all parties and are subject to cost sharing and integration agreements among us, the applicable property owners’ association and managers and owners of the co-located hotel. Our License Agreements with Marriott International and Ritz-Carlton allow for the development of co-located properties in the future, and we intend to opportunistically pursue co-located projects with them.

Under our points-based business model, we are able to supply many sales offices with new inventory from a small number of resort locations, which provides us with greater efficiency in the use of our capital. As a result, our risk associated with construction delays is concentrated in fewer locations than it has been in the past. Additionally, selling vacation ownership interests in a system of resorts under a points-based business model increases the risk of temporary inventory depletion. We sell vacation ownership interests denominated in points from a single trust entity in each of our North America and Asia Pacific business segments. Thus, the primary source of inventory for each segment is concentrated in its corresponding trust. To avoid the risk of temporary inventory depletion, we employ a strategy of seeking to maintain a surplus supply of completed inventory based on our forecasted sales pace. If this surplus is not sufficient, we believe that the actual risk of temporary inventory depletion is relatively minor, as there are other mitigation strategies we could employ to prevent this, such as accelerating completion of resorts under construction, acquiring vacation ownership interests on the secondary market, or reducing sales pace by adjusting prices or sales incentives.

Owners generally can offer their vacation ownership interests for resale on the secondary market, which can create pricing pressure on the sale of developer inventory. However, owners who purchase vacation ownership interests on the secondary market typically do not receive all of the benefits that owners who purchase products directly from us receive. When an owner purchases a vacation ownership interest directly from us, the owner receives certain entitlements that are tied to the underlying vacation ownership interest, such as the right to reserve a resort unit that underlies their vacation ownership interest in order to occupy that unit or exchange its use for use of a unit at another resort through an outside exchange service provider, as well as benefits that are incidental to the purchase of the vacation ownership interest. While a purchaser on the secondary market will receive all of the entitlements that are tied to the underlying vacation ownership interest, the purchaser is not entitled to receive certain incidental benefits. For example, owners who purchase our products on the secondary market have restricted access to our internal exchange programs and are not entitled to trade their usage rights for Marriott Rewards Points. Therefore, those owners are only entitled to use the inventory that underlies the vacation ownership interests they purchased. Additionally, most of our vacation ownership interests provide us with a right of first refusal on secondary market sales. We monitor sales that occur in the secondary market and exercise our right of first refusal when it is advantageous for us to do so, whether due to pricing, desire for the particular inventory, or other factors. All owners, whether they purchase directly from us or on the secondary market, are responsible for the annual maintenance fees, property taxes and any assessments that are levied by the relevant property owners’ association, as well as any exchange service membership dues or service fees.

Management Activities

We enter into a management agreement with the property owners’ association or other governing body at each of our resorts and, in the event a trust holds resorts or interests in resorts, with the trust’s governing body. In exchange for a management fee, we typically provide owner account management (reservations and usage selection), housekeeping, check-in, maintenance and billing and collections services. The management fee is typically based on either a percentage of the budgeted cost to operate such resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy. We also receive revenues that represent reimbursement for certain costs we incur under our management agreements, principally payroll-related costs, at the locations where we employ the associates providing on-site services.

The terms of our management agreements generally range from three to ten years and are generally subject to periodic renewal for one to five year terms. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term. When our management agreement for a Marriott Vacation Club branded resort is not renewed or is terminated, the resort loses the ability to use the Marriott name and trademarks. The owners at such resorts also lose their ability to trade their vacation

ownership usage rights for Marriott Rewards Points and to access other Marriott Vacation Club resorts through our internal exchange system.

The Ritz-Carlton Hotel Company manages the on-site operations for The Ritz-Carlton Destination Club and The Ritz-Carlton Residences properties in our portfolio under separate management agreements with us. We provide property owners’ association governance and vacation ownership program management services for The Ritz-Carlton Destination Club and co-located The Ritz-Carlton Residences properties, including preparing association budgets, facilitating association meetings, billing and collecting maintenance fees, and supporting reservations, vacation experience planning and other off-site member services. We and The Ritz-Carlton Hotel Company typically split the management fees equally for these resorts. If a management agreement for a resort expires or is terminated, the resort loses the ability to use the Ritz-Carlton name and trademarks. The owners at such resorts also lose their ability to access other usage benefits, such as access to accommodations at other The Ritz-Carlton Destination Club resorts, preferential access to Ritz-Carlton hotels worldwide and access to our internal exchange and vacation travel options.

Each management agreement requires the property owners’ association or trust association to provide sufficient funds to pay for the vacation ownership program and operating costs. To satisfy this requirement, owners of vacation ownership interests pay an annual maintenance fee. This fee represents the owner’s allocable share of the costs of operating and maintaining the resorts in which they hold a vacation ownership interest, including management fees and expenses, taxes (in some locations), insurance, and other related costs, and the costs of providing program services (such as reservation services). This fee includes a management fee payable to us for providing management services as well as an assessment for funds to be deposited into a capital asset reserve fund and used to renovate, refurbish and replace furnishings, common areas and other resort assets (such as parking lots or roofs) as needed over time. As the owner of completed but unsold vacation ownership inventory, we also pay maintenance fees in accordance with the legal requirements of the jurisdictions applicable to such resorts and programs. In addition, in early phases of development at a resort, we sometimes enter into subsidy agreements with the property owners’ associations under which we agree to pay costs that otherwise would be covered by annual maintenance fees associated with vacation ownership interests or units that have not yet been built. These subsidy arrangements help keep maintenance fees at a reasonable level for owners who purchase in the early stages of development.

In the event of a default by an owner in payment of maintenance fees or other assessments, the property owners’ association typically has the right to foreclose on or revoke the defaulting owner’s vacation ownership interest. We have entered into arrangements with several property owners’ associations to assist in reselling foreclosed or revoked vacation ownership interests in exchange for a fee, or to reacquire such foreclosed or revoked vacation ownership interests from the property owners’ associations.

Consumer Financing

We offer purchase money financing for purchasers of our vacation ownership products who meet our underwriting guidelines. By offering or eliminating financing incentives and modifying underwriting standards, we have been able to increase or decrease our financing activities depending on market conditions. We are not providing financing to buyers of our residential products.

In our North America segment in 2015, approximately 49 percent of Marriott Vacation Club customers financed their purchase with us. The average loan for our Marriott Vacation Club products totaled approximately $22,800, which represented 88 percent of the average purchase price. Our policy is to require a minimum down payment of 10 percent of the purchase price, although down payments and interest rates are typically higher for applicants with credit scores below certain levels and for purchasers who do not have credit scores, such as non-U.S. purchasers. The average interest rate for loans for our Marriott Vacation Club products originated in 2015 was 12.59 percent and the average term was 10.4 years. Interest rates are fixed, and a loan fully amortizes over the life of the loan. The average monthly mortgage payment for a Marriott Vacation Club owner who received a loan in 2015 was $397. We do not impose any prepayment penalties. Generally, loans for The Ritz-Carlton Destination Club products have a significantly higher balance, a longer term and a lower interest rate than loans for our Marriott Vacation Club products.

In 2015, approximately 88 percent of our loans were used to finance U.S.-based products. In our North American business, we perform a credit investigation or other review or inquiry to determine the purchaser’s credit history before originating a loan. The interest rates on the loans we provide are based primarily upon the purchaser’s credit score, the size of the purchase, and the term of the loan. We base our financing terms largely on a purchaser’s FICO score, which is a branded version of a consumer credit score widely used in the United States by banks and lending institutions. FICO scores range from 300 to 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies that compile and report on a consumer’s credit history. In 2015, the average FICO score of our customers who were U.S. citizens or residents who financed a vacation ownership purchase was 736; 71 percent had a credit score of over 700, 89 percent had a credit score of over 650 and over 97 percent had a credit score of over 600.

We use other information to determine minimum down payments and interest rates applicable to loans made to purchasers who do not have a credit score or who do not reside within the United States, such as regional historical default rates and currency fluctuation risk.

In the event of a default, we generally have the right to foreclose on or revoke the defaulting owner’s vacation ownership interest. We typically resell interests that we reacquire through foreclosure or revocation or place such interests into the MVCD or Marriott Vacation Club, Asia Pacific programs.

We securitize the majority of the consumer loans we originate in support of our North American business. Historically, we have sold these loans to institutional investors in the ABS market on a non-recourse basis, completing securitization transactions once or twice each year. These vacation ownership notes receivable securitizations provide funding for us at interest rates similar to those available to companies with investment grade credit ratings, and transfer the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. We service the vacation ownership notes receivable. During 2015, we completed one securitization transaction, which is discussed in detail in Footnote No. 10, “Debt,” to our Financial Statements. On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize eligible consumer loans. Those loans may later be transferred to term securitization transactions in the ABS market, which we intend to continue to complete at least once per year. Excluding amounts securitized through the Warehouse Credit Facility, since the early 1990s, we have securitized nearly $5.6 billion of loans. We retain the servicing and collection responsibilities for the loans we securitize, for which we receive a servicing fee.

Our Competitive Advantages

We believe that competition in the vacation ownership industry is based primarily on the quality, number and location of vacation ownership resorts, trust in the brand, pricing of product offerings and the availability of program benefits, such as exchange programs and access to affiliated hotel networks. Vacation ownership is a vacation option that is positioned and sold as an attractive alternative to vacation rentals (such as hotels, resorts and condominium rentals) and second home ownership. The various segments within the vacation ownership industry are differentiated by the quality level of the accommodations, range of services and ancillary offerings, and price. We believe that we have significant competitive advantages that support our leadership position in the vacation ownership industry.

A leading global “pure-play” vacation ownership company

We are one of the world’s largest “pure-play” vacation ownership companies (that is, a company whose business is focused almost entirely on vacation ownership), based on number of owners, number of resorts and revenues. As a “pure-play” vacation ownership company, we are able to enhance our focus on the vacation ownership industry and tailor our business strategy to address our company’s industry-specific goals and needs.

We believe our scale and global reach, coupled with our renowned brands and development, marketing, sales and management expertise, help us achieve operational efficiencies and support future growth

opportunities. Our size allows us to provide owners with the flexibility of a wide variety of experiences within our high-quality resort portfolio, coupled with the ease and certainty of working with a single trusted provider. We also believe our size helps us obtain better financing terms from lenders, achieve cost savings in procurement and attract talented management and associates.

The breadth and depth of our operations enables us to offer a variety of products and to continue to adapt those products to the ever changing needs and preferences of our existing and future customers. For example, in addition to traditional resort experiences, our owners can enjoy studio units in properties located in the heart of some of the most sought after global destinations. We cater to a diverse range of customers through our upscale tier Marriott-branded resorts and our luxury tier Ritz-Carlton branded resorts.

Premier global brands

We believe that our exclusive licenses of the Marriott and Ritz-Carlton brands for use in the vacation ownership business provide us with a meaningful competitive advantage. Marriott International is a leading lodging company with more than 4,400 properties in 87 countries and territories, including Marriott and Ritz-Carlton branded properties. Consumer confidence in these renowned brands helps us attract and retain guests and owners. In addition, we provide our customers with access to the award-winning Marriott Rewards customer loyalty program. We also utilize the Marriott and Ritz-Carlton websites, www.marriott.com and www.ritzcarlton.com, as relatively low-cost marketing tools to introduce Marriott and Ritz-Carlton guests to our products and rent available inventory.

Loyal, highly satisfied customers

We have a large, highly satisfied customer base. In 2015, based on over 222,000 survey responses, approximately 90 percent of respondents indicated that they were highly satisfied with our products, sales and owner services and their on-site experiences (by selecting 8, 9 or 10 on a 10-point scale). Owner satisfaction is also demonstrated by the fact that our average resort occupancy was nearly 90 percent in 2015, significantly higher than the overall vacation ownership industry average of just over 78 percent in 2014, the most recent year for which average resort occupancy data was reported by ARDA. We believe that strong customer satisfaction and brand loyalty result in more frequent use of our products and encourage owners to purchase additional products and to recommend our products to friends and family, which in turn generates higher revenues.

Long-standing track record, experienced management and engaged associates

We have been a pioneer in the vacation ownership industry since 1984, when Marriott International became the first company to introduce a lodging-branded vacation ownership product. Our seasoned management team is led by Stephen P. Weisz, our President and Chief Executive Officer. Mr. Weisz has served as President of our company since 1996 and has over 43 years of combined experience at Marriott International and Marriott Vacations Worldwide. William J. Shaw, the Chairman of our Board of Directors, is the former Vice Chairman, President and Chief Operating Officer of Marriott International and has nearly 37 years of experience at Marriott International. Our nine executive officers have an average of over 26 years of total combined experience at Marriott Vacations Worldwide and Marriott International, with half of such total combined experience spent leading our business. We believe our management team’s extensive public company and vacation ownership industry experience has enabled us to achieve solid operating results and will enable us to continue to respond quickly and effectively to changing market conditions and consumer trends. Our management’s experience in the highly regulated vacation ownership industry also provides us with a competitive advantage in expanding existing product forms and developing new ones.

We believe that our associates provide superior customer service, which enhances our competitive position. We leverage outstanding associate engagement and strong corporate culture to deliver positive customer experiences in sales, marketing and resort operations. We survey our associates regularly through an external survey provider to understand their satisfaction and engagement, defined as how passionate employees are about the company’s mission and their willingness to “go the extra mile” to see it succeed. We routinely rank highly compared to other companies participating in such surveys. In 2015, 83 percent of our associates indicated that

they were “engaged,” which is five points above Aon Hewitt’s “Global Best Employer” benchmark of 78 percent. This external benchmark is based on research conducted by Aon Hewitt of more than 500 organizations that are considered to be “Best Employers.”

Segments

Our operations are grouped into three reportable business segments: North America, Europe and Asia Pacific. The “Corporate and Other” information described below includes activities that do not collectively comprise a separate reportable segment. The table below shows our revenue for 2015 for each of our segments and each of our revenue sources (dollars in thousands).


Revenue Source	North America		Europe		Asia Pacific		Total
Vacation ownership sales	$	586,774	$	28,963	$	59,592	$	675,329
Resort management and other services		272,596		27,643		11,990		312,229
Financing		115,738		3,949		4,346		124,033
Rental		277,348		20,679		14,970		312,997
Cost reimbursements		369,467		33,348		3,060		405,875

	$	1,621,923	$	114,582	$	93,958	$	1,830,463

Financial information by segment and geographic area for 2015, 2014 and 2013 appears in Footnote No. 17, “Business Segments,” to our Financial Statements.

We generally own the unsold vacation ownership inventory at our properties as either a deeded beneficial interest in a real estate land trust, a deeded interest at a specific resort, or a right to use interest in real estate owned or leased by a trust or other property owning or leasing vehicle (these forms of ownership are described in more detail in “Business—Our Products”). With respect to inventory that has not yet been converted into one of these forms of vacation ownership, we generally hold a fee interest in the underlying real estate rights to the land parcel, building or units corresponding to such inventory. Further, we also own or lease other property at these resorts, including golf courses, fitness, spa and sports facilities, food and beverage outlets, resort lobbies and other common area assets. See Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for more information on our operating leases. Substantially all of our ownership and leasehold interests in these properties, subject to certain exceptions, are pledged as collateral for our Revolving Corporate Credit Facility.

Our Properties

As of January 1, 2016, our portfolio consisted of 61 properties including two operating hotels, with 12,807 vacation ownership villas (“units”) and we had approximately 410,000 owners. The following table shows our vacation ownership and residential properties as of January 1, 2016, and indicates the segment with which such property is associated:

Property⁽¹⁾

Segment

Experience

Location

Vacation
Ownership
(VO) or
Residential

Units
Built⁽²⁾

Additional
Planned
Units⁽³⁾

47 Park Street-Grand Residences by Marriott

Europe

Urban

London, UK

—

Aruba Ocean Club

North America

Island/Beach

Aruba

218

—

Aruba Surf Club

North America

Island/Beach

Aruba

450

—

Barony Beach Club

North America

Beach

Hilton Head, SC

255

—

BeachPlace Towers

North America

Beach

Fort Lauderdale, FL

206

—

Canyon Villas

North America

Golf/Desert

Phoenix, AZ

213

Club Son Antem

Europe

Island/Golf

Mallorca, Spain

224

—

Crystal Shores

North America

Island/Beach

Marco Island, FL

148

Custom House

North America

Urban

Boston, MA

—

Cypress Harbour

North America

Entertainment

Orlando, FL

510

—

Desert Springs Villas

North America

Golf/Desert

Palm Desert, CA

638

—

Fairway Villas

North America

Golf

Absecon, NJ

180

Frenchman’s Cove

North America

Island/Beach

St. Thomas, USVI

155

Grand Chateau

North America

/Asia Pacific

Entertainment

Las Vegas, NV

656

224

Property⁽¹⁾

Segment

Experience

Location

Vacation
Ownership
(VO) or
Residential

Units
Built⁽²⁾

Additional
Planned
Units⁽³⁾

Grande Ocean

North America

Beach

Hilton Head, SC

290

—

Grande Vista

North America

Entertainment

Orlando, FL

900

—

Harbour Club

North America

Beach

Hilton Head, SC

—

Harbour Lake

North America

Entertainment

Orlando, FL

312

588

Harbour Point / Sunset Pointe

North America

Beach

Hilton Head, SC

111

—

Heritage Club

North America

Golf

Hilton Head, SC

—

Imperial Palms

North America

Entertainment

Orlando, FL

—

Kauai Beach Club

North America

Island/Beach

Kauai, HI

232

—

Kauai Lagoons:

Grand Residences by Marriott

North America

Island/Beach

Kauai, HI

Residential

—

Kalanipu’u

North America

Island/Beach

Kauai, HI

—

Ko Olina Beach Club

North America

/Asia Pacific

Island/Beach

Oahu, HI

546

202

Lakeshore Reserve

North America

Entertainment

Orlando, FL

254

Legends Edge

North America

Golf

Panama City, FL

—

Mai Khao Beach

Asia Pacific

Beach

Phuket, Thailand

133

—

Manor Club at Ford’s Colony

North America

Entertainment

Williamsburg, VA

200

—

Marbella Beach Resort

Europe

Beach

Marbella, Spain

288

—

Marriott Grand Residence Club, Lake Tahoe

North America

Mountain/Ski

Lake Tahoe, CA

199

—

Maui Ocean Club

North America

Island/Beach

Maui, HI

458

—

Monarch

North America

Beach

Hilton Head, SC

122

—

Mountain Valley Lodge

North America

Mountain/Ski

Breckenridge, CO

—

MountainSide

North America

Mountain/Ski

Park City, UT

182

—

Newport Coast Villas

North America

Beach

Newport Beach, CA

699

—

Ocean Pointe

North America

Beach

Palm Beach Shores, FL

341

—

OceanWatch

North America

Beach

Myrtle Beach, SC

361

—

Oceana Palms

North America

Beach

Singer Island, FL

159

—

Phuket Beach Club

Asia Pacific

Beach

Phuket, Thailand

144

—

Playa Andaluza

Europe

Beach

Estepona, Spain

173

—

Royal Palms

North America

Entertainment

Orlando, FL

123

—

Sabal Palms

North America

Entertainment

Orlando, FL

—

Shadow Ridge

North America

Golf/Desert

Palm Desert, CA

569

430

St. Kitts Beach Club

North America

Island/Beach

West Indies

—

Streamside

North America

Mountain/Ski

Vail, CO

—

Summit Watch

North America

Mountain/Ski

Park City, UT

135

—

SurfWatch

North America

Beach

Hilton Head, SC

195

—

The Empire Place

Asia Pacific

Urban

Bangkok, Thailand

—

The Ritz-Carlton Club and Residences, San Francisco

Vacation Ownership

North America

Urban

San Francisco, CA

—

Residential

North America

Urban

San Francisco, CA

Residential

The Ritz-Carlton Club, Aspen Highlands

North America

Mountain/Ski

Aspen, CO

—

The Ritz-Carlton Club, Lake Tahoe

North America

Mountain/Ski

Lake Tahoe, CA

—

The Ritz-Carlton Club, St. Thomas

North America

Beach

St. Thomas, USVI

105

—

The Ritz-Carlton Club, Vail

North America

Mountain/Ski

Vail, CO

—

Timber Lodge

North America

Mountain/Ski

Lake Tahoe, CA

264

—

Village d’Ile-de-France

Europe

Entertainment

Paris, France

185

—

Villas at Doral

North America

Golf

Miami, FL

141

—

Waiohai Beach Club

North America

/Asia Pacific

Island/Beach

Kauai, HI

230

—

Willow Ridge Lodge

North America

Entertainment

Branson, MO

132

282

Total

12,807

2,341

Units Available for Sale⁽⁴⁾

781

⁽¹⁾	A property is counted as a separate property to the extent it does not share common areas (such as check-in facilities, pools, etc.) with another property.

⁽²⁾	“Units Built” represents units with a certificate of occupancy.

⁽³⁾	“Additional Planned Units” represents the total additional units under construction or that we expect to build.

⁽⁴⁾	To be sold as vacation ownership interests; includes units that we reacquired through foreclosure or our repurchase program.

As of January 1, 2016, we also owned the following properties which we intend to convert to vacation ownership interests.


Location	Segment	Experience	Expected Vacation Ownership Units
San Diego, CA⁽¹⁾	North America	Urban		264
Washington, DC⁽²⁾	North America	Urban		71
Surfers Paradise, Australia⁽³⁾	Asia Pacific	Beach		88

Total				423

⁽¹⁾

Represents an operating hotel in San Diego, California, acquired during the first quarter of 2015, which is operated by a third party, that we intend to convert, in its entirety, into vacation ownership interests for future use in our MVCD program.

⁽²⁾

Represents units at The Mayflower Hotel, Autograph Collection, an operating hotel located in Washington, D.C., acquired during the third quarter of 2015. We intend to include these vacation ownership units, in their current form, in our MVCD program.

⁽³⁾

Represents a 329 room operating hotel in Surfers Paradise, Australia, acquired during the third quarter of 2015, which is operated by a third party. We intend to convert a portion of this hotel into vacation ownership interests for future use in our Asia Pacific segment, and sell the remaining downsized hotel to a third party.

Subsequent to January 1, 2016, we assumed management of an operating hotel in New York, New York. In addition we entered into a commitment to purchase the operating hotel for $158.5 million, in a capital efficient transaction. We expect to acquire the units in the hotel, in their current form, over time. See Footnote No. 19, “Subsequent Events” to our Financial Statements for additional information regarding this transaction.

In the first quarter of 2016, we completed the acquisition of an operating hotel located in the South Beach area of Miami Beach, Florida, for approximately $23.5 million. We intend to convert this hotel into vacation ownership interests for future use in our MVCD program.

North America Segment

In our North America segment, we develop, market, sell and manage vacation ownership products under the Marriott Vacation Club and Grand Residences by Marriott brands in the United States and the Caribbean, and resort residential real estate located within our vacation ownership developments under the Grand Residences by Marriott brand. We also develop, market and sell vacation ownership and related products under The Ritz-Carlton Destination Club brand, as well as whole ownership residential products under The Ritz-Carlton Residences brand.

Europe Segment

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.

Asia Pacific Segment

In our Asia Pacific segment, we develop, market, sell and manage vacation ownership products through Marriott Vacation Club, Asia Pacific, a right-to-use points program that we specifically designed to appeal to the vacation preferences of the Asian market, as well as a weeks-based right-to-use product. We believe opportunity exists to expand our Asia Pacific segment and are seeking to add inventory to support the growth of this business.

Corporate and Other

overall company development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense and the fixed royalty fee payable under the License Agreements.

Intellectual Property

We manage and sell properties under the Marriott Vacation Club, Grand Residences by Marriott, The Ritz-Carlton Destination Club and The Ritz-Carlton Residences brands under license agreements with Marriott International and The Ritz-Carlton Hotel Company. The foregoing segment descriptions specify the brands that are used by each of our segments. We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names and logos are very important to the marketing and sales of our products and services. We believe that our licensed brand names and other intellectual property have come to represent the highest standards of quality, caring, service and value to our customers and the traveling public. We register and protect our intellectual property where we deem appropriate and otherwise seek to protect against its unauthorized use.

Seasonality

In general, the vacation ownership business is modestly seasonal, with stronger revenue generation during traditional vacation periods, including summer months and major holidays. Similar to the lodging industry, our rental operations generally maintain higher occupancy and room rates during the first, second and third quarters of our fiscal year compared to our fourth quarter. These seasonal patterns can be expected to cause fluctuations in the quarterly rental revenues and margin. Our residential business is generally not subject to seasonal fluctuations; rather, the sales pace of our residential products typically depends on the underlying residential real estate environment in the applicable geographic market.

Competition

Competition in the vacation ownership industry is based primarily on the quality, number and location of vacation ownership resorts, the quality and capability of the related property management program, trust in the brand, pricing of product offerings and the availability of program benefits, such as exchange programs and access to affiliated hotel networks. We believe that our focus on offering distinctive vacation experiences, combined with our financial strength, well-established and diverse market presence, strong brands, expertise and well-managed and maintained properties, will enable us to remain competitive. Vacation ownership is a vacation option that is positioned and sold as an attractive alternative to vacation rentals (such as hotels, resorts and condominium rentals) and second home ownership. The various segments within the vacation ownership industry can be differentiated by the quality level of the accommodations, range of services and ancillary offerings, and price. Our brands operate in the upscale and luxury tiers of the vacation ownership segment of the industry and the upscale and luxury tiers of the whole ownership segment (also referred to as the residential segment) of the industry.

Our competitors in the vacation ownership industry range from small vacation ownership companies to large branded hotel companies that operate vacation ownership businesses. In North America and the Caribbean, we typically compete with companies that sell upscale tier vacation ownership products under a lodging or entertainment brand umbrella, such as Starwood Vacation Ownership (which includes the Westin and Sheraton brands), Hilton Grand Vacations Club, Hyatt Vacation Club, and Disney Vacation Club, as well as numerous regional vacation ownership operators. Our luxury vacation ownership products compete with vacation ownership products offered by Four Seasons, Exclusive Resorts, Timbers Resorts and several other smaller independent companies. In addition, the vacation ownership industry competes generally with other vacation rental options (such as hotels, resorts and condominium rentals) offered by the lodging industry. Innovations that impact the industry may also lead to new products and services that could disrupt our business model and create new and stronger competitors.

Outside North America and the Caribbean, we operate in two primary regions, Europe and Asia Pacific. In both regions, we are one of the largest lodging-branded vacation ownership companies operating in the upscale tier, with regional operators dominating the competitive landscape. Where possible, our vacation

ownership properties in these regions are co-located with Marriott International branded hotels. In Europe, our owner base is derived primarily from the North America, Europe and Middle East regions. In Asia Pacific, our owner base is derived primarily from the Asia Pacific region and secondarily from the Europe and North America regions.

Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For example, Interval Leisure Group, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October 2014 and announced in October 2015 that it had agreed to acquire the vacation ownership operations of Starwood Hotels & Resorts Worldwide, Inc. (which includes the Westin and Sheraton brands), to be known as Vistana Signature Experiences, Inc. Diamond Resorts International, Inc. completed the acquisition of the vacation ownership business of Gold Key Resorts in October 2015 and the acquisition of the vacation ownership business of Intrawest Resort Club Group in January 2016. Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.

Regulation

Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions around the world. Some laws, regulations and policies may impact multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or generating business. Other laws, regulations and policies primarily affect one of four areas of our business: real estate development activities; marketing and sales activities; lending activities; and resort management activities.

Real Estate Development Regulation

Our real estate development activities are regulated under a number of different timeshare, condominium and land sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations typically applicable to real estate development, subdivision, and construction activities, such as laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation. In the United States, these include the Fair Housing Act and the Americans with Disabilities Act. In addition, we are subject to laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer.

Marketing and Sales Regulation

Our marketing and sales activities are closely regulated. In addition to regulations implementing laws enacted specifically for the vacation ownership and land sales industries, a wide variety of laws and regulations govern our marketing and sales activities in the jurisdictions in which we carry out such activities, including regulations implementing the USA PATRIOT Act, Foreign Investment In Real Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair housing statutes, U.S. Federal Trade Commission (the “FTC”) and state “Little FTC Act” and other regulations governing unfair, deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, state attorney general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance, travel insurance and other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, lodging certificate and seller of travel laws, securities laws, and other consumer protection laws.

vacation ownership interests and other real estate interests we market and sell, such as information concerning the interests being offered, the project, resort or program to which the interests relate, applicable condominium or vacation ownership plans, evidence of title, details regarding our business, the purchaser’s rights and obligations with respect to such interests, and a description of the manner in which we intend to offer and advertise such interests. Regulation outside the United States includes, for example, European regulations to which our vacation ownership activities within the European Union are subject and Singaporean regulations to which certain of our Asia Pacific operations are subject. Among other things, the European and Singaporean regulations: (1) require delivery of specified disclosure (some of which must be provided in a specific format or language) to purchasers; (2) require a specified “cooling off” rescission period after a purchase is made; and (3) prohibit any advance payments during the “cooling off” rescission period.

We must obtain the approval of numerous governmental authorities for our marketing and sales activities. Changes in circumstances or applicable law may necessitate the application for or modification of existing approvals. Currently, we are qualified to market and sell vacation ownership products in all 50 states and the District of Columbia in the United States and numerous countries in North and South America, the Caribbean, Europe, Asia and the Middle East. In some countries our vacation ownership products are marketed by third party brokers.

Laws in many jurisdictions in which we sell vacation ownership interests grant the purchaser of a vacation ownership interest the right to cancel a purchase contract during a specified rescission period following the later of the date the contract was signed or the date the purchaser received the last of the documents required to be provided by us.

In recent years, regulators in many jurisdictions have increased regulations and enforcement actions related to telemarketing operations, including requiring adherence to the federal Telephone Consumer Protection Act (the “TCPA”) and similar “do not call” legislation. These measures have significantly increased the costs associated with telemarketing. While we continue to be subject to telemarketing risks and potential liability, we believe that our exposure to adverse effects from telemarketing legislation and enforcement is mitigated in some instances by the use of permission-based marketing, under which we obtain the permission of prospective purchasers to contact them in the future. We participate in various programs and follow certain procedures that we believe help reduce the possibility that we contact individuals who have requested to be placed on federal or state “do not call” lists, including subscribing to the federal and certain state “do not call” lists, and maintaining an internal “do not call” list.

Lending Regulation

Our lending activities are subject to a number of laws and regulations including those of applicable supervisory agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes Enforcement Network. These laws and regulations, some of which contain exceptions applicable to the timeshare industry, may include, among others, the Real Estate Settlement Procedures Act and Regulation X, the Truth In Lending Act and Regulation Z, the Federal Trade Commission Act, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Fair Housing Act and implementing regulations, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act and Regulation E, unfair, deceptive or abusive acts or practices regulations and the Consumer Practices Act, the USA PATRIOT Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act and the Bank Secrecy Act. Our lending activities are also subject to the laws and regulations of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, usury, fair debt collection practices, consumer debt collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.

Resort Management Regulation

accessibility, discrimination, immigration, gaming, and the environment (including climate change). In addition, many jurisdictions in which we manage our resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for property owners’ associations and/or permit the property owners’ association for a resort to terminate our management agreement under certain circumstances (for example, upon a super-majority vote of the owners), even if we are not in default under the agreement.

Environmental Compliance and Awareness

The properties we manage or develop are subject to national, state and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. These laws and regulations include requirements that address health and safety; the use, management and disposal of hazardous substances and wastes; and emission or discharge of wastes or other materials. We believe that our management and development of properties comply, in all material respects, with environmental laws and regulations. Our compliance with such provisions also has not had a material impact on our capital expenditures, earnings or competitive position, nor do we anticipate that such compliance will have a material impact in the future.

We take our commitment to protecting the environment seriously. We have collaborated with Audubon International to further the “greening” of our resorts in our North America segment through the Audubon Green Leaf Eco-Rating Program for Hotels. The Audubon partnership is just one of several programs incorporated into our green initiatives. We have more than 20 years of energy conservation experience that we have put to use in implementing our environmental strategy across all of our segments. This strategy includes further reducing energy and water consumption, expanding our portfolio of green resorts, including LEED^® (Leadership in Energy & Environmental Design) certification, educating and inspiring associates and guests to support the environment, and embracing innovation.

Employees

As of January 1, 2016 we had nearly 10,000 employees with an average length of service of approximately seven years. We believe our relations with our employees are very good.

Executive Officers

See Part III, Item 10. “Directors, Executive Officers and Corporate Governance” of this Annual Report for information about our executive officers.

Available Information

Our website address is www.marriottvacationsworldwide.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any and all amendments thereto are available free of charge through our website as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission (the “SEC”). These materials are also accessible on the SEC’s website at www.sec.gov.

Item 1A.

Risk Factors

This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our financial condition, results of operations and cash flows or on the trading prices of our common stock. The risks and uncertainties described in this Annual Report are not the only ones facing us. Additional risks and uncertainties that currently are not known to us or that we currently believe are immaterial also may adversely affect our businesses and operations.

General economic uncertainty and weak demand in the vacation ownership industry could impact our financial results and growth.

Weak economic conditions in the United States, Europe, Asia and much of the rest of the world and the uncertainty over the duration of such conditions could have a negative impact on the vacation ownership industry. Weak consumer confidence and limited availability of consumer credit can, as it has in the past, cause us to experience weakened demand for our vacation ownership products. Recent improvements in demand trends globally may not continue, and our future financial results and growth could be harmed or constrained if economic conditions worsen.

The sale of vacation ownership interests in the secondary market by existing owners could cause our sales revenues and profits to decline.

Existing owners have offered, and are expected to continue to offer, their vacation ownership interests for sale on the secondary market. The prices at which these interests are sold are typically less than the prices at which we would sell the interests. As a result, these sales create additional pricing pressure on our sale of vacation ownership products, which could cause our sales revenues and profits to decline. In addition, if the secondary market for vacation ownership interests becomes more organized and liquid than it currently is, the resulting availability of vacation ownership interests (particularly where the vacation ownership interests are available for sale at lower prices than the prices at which we would sell them) could adversely affect our sales and our sales revenues. Further, unlawful or deceptive third-party vacation ownership interest resale schemes involving interests in our resorts could damage our reputation and brand value and adversely impact our sales revenues.

Development of a viable secondary market may also cause the volume of vacation ownership interests inventory that we are able to repurchase to decline, which could adversely impact our development margin, as we utilize this lower cost inventory source to supplement our inventory needs and help manage our cost of vacation ownership products.

Our reliance on capital efficient transactions to satisfy a portion of our future needs for inventory and additional on-site sales locations, may impact our ability to have inventory available for sale when needed.

We have entered into capital efficient transactions in which third parties are responsible for delivering completed units which we will purchase at an agreed upon price in the future. As we continue to execute our strategy to deploy capital more efficiently, we will seek to enter into additional transactions to source inventory using similar or new transaction structures. These structures may expose us to additional risk as we will not control development activities or timing of development completion. If third parties with whom we enter into capital efficient transactions do not fulfill their obligations to us, or if they exercise their right to sell inventory to a third party other than us, the inventory we expect to acquire may not be delivered on time or at all, or may not otherwise be within agreed upon specifications. If our capital efficient transaction counterparties do not perform as expected and we do not purchase the expected inventory or obtain inventory from alternative sources on a timely basis, we may not be able to achieve sales forecasts. In addition, we anticipate opening new on-site sales locations in connection with some or all of our new resort locations. If third parties with whom we enter into transactions do not deliver these sales locations, as expected, our future sales growth could be negatively impacted.

Our ability to develop, acquire and repurchase vacation ownership inventory may be impaired if we or third parties with whom we do business are unable to access capital when necessary.

The availability of funds for new investments, primarily developing, acquiring or repurchasing vacation ownership inventory, depends in part on liquidity factors and capital markets over which we can exert little, if any, control. We have historically securitized the majority of the consumer loans we originate in support of our North America segment in the ABS market, completing transactions once each year for the past several years. Instability in the financial markets could impact the timing and volume of any securitizations we undertake, as well as the financial terms of such securitizations. Any future deterioration in the financial markets could preclude, delay or increase the cost to us of future note securitizations. Such deterioration could also impact our ability to renew the Warehouse Credit Facility, which we must do in order to access funds under that facility after November 2017, on terms favorable to us, or at all. Further, the obligations of one of our consolidated subsidiaries, MVW US Holdings, Inc. (“MVW US Holdings”), to its preferred shareholders and any indebtedness we incur, including indebtedness under our Revolving Corporate Credit Facility or our Warehouse Credit Facility, may adversely affect our ability to obtain additional financing. If we are unable to access these sources of funds, our ability to acquire additional vacation ownership inventory, repurchase vacation ownership interests that our owners propose to sell to third parties, or make other investments in our business could be impaired.

In addition, as discussed above, we intend to continue to use capital efficient structures to optimize the timing of our capital investments. If developers or other third parties are not able to obtain or maintain financing necessary for their operations, we may not be able to enter into transactions using these capital efficient structures.

If the default rates or other credit metrics underlying our vacation ownership receivables deteriorate, our vacation ownership notes receivable securitization program could be adversely affected.

Our vacation ownership notes receivable securitization program could be adversely affected if a particular vacation ownership receivables pool fails to meet certain ratios, which could occur if the default rates or other credit metrics of the underlying vacation ownership notes receivable deteriorate. Our ability to sell securities backed by our vacation ownership notes receivable depends on the continued ability and willingness of capital market participants to invest in such securities. Asset-backed securities issued in our securitization programs could be downgraded by credit agencies in the future. If a downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available. This would decrease our profitability and might require us to adjust our business operations, including by reducing or suspending our provision of financing to purchasers of vacation ownership interests. Sales of vacation ownership interests may decline if we reduce or suspend the provision of financing to purchasers, which may adversely affect our cash flows, revenues and profits.

Purchaser defaults on the vacation ownership notes receivable our business generates could reduce our revenues, cash flows and profits.

We are subject to the risk that purchasers of our vacation ownership interests may default on the financing that we provide. Purchaser defaults could cause us to foreclose on vacation ownership notes receivable and reclaim ownership of the financed interests, both for loans that we have not securitized and in our role as servicer for the vacation ownership notes receivable we have securitized through the ABS market or the Warehouse Credit Facility.

If default rates increase beyond current projections and result in higher than expected foreclosure activity, our results of operations could be adversely affected. In addition, the transactions in which we have securitized vacation ownership notes receivable contain certain portfolio performance requirements related to default and delinquency rates, which, if not met, would result in loss or disruption of cash flow until portfolio performance

sufficiently improves to satisfy the requirements. In addition, we may not be able to resell foreclosed interests in a timely manner or for an attractive price.

The terms of any future equity or debt financing may give holders of any preferred securities rights that are senior to rights of our common shareholders or impose more stringent operating restrictions on our company.

Debt or equity financing may not be available to us on acceptable terms. If we incur additional debt or raise equity through the issuance of additional preferred stock, the terms of the debt or the preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations. If we raise funds through the issuance of additional equity, the ownership percentage of our existing shareholders would be diluted.

The degree to which we are leveraged may have a material adverse effect on our financial position, results of operations and cash flows.

We can borrow up to $200 million under the Revolving Corporate Credit Facility and could also incur additional debt to the extent permitted under the Revolving Corporate Credit Facility. Our ability to make dividend payments to holders of our common stock or preferred shareholders of MVW US Holdings and to make payments on and refinance our indebtedness, including any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that we cannot control. If we cannot repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including (1) reducing capital expenditures, (2) limiting financing offered to customers, which could result in reduced sales, and (3) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the vacation ownership industry could be impaired. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of our other debt.

The obligations of MVW US Holdings to its preferred shareholders will limit the ability of MVW US Holdings to distribute cash to us.

MVW US Holdings issued $40 million in mandatorily redeemable preferred stock to Marriott International, which sold the preferred stock to third-party investors prior to completion of the Spin-Off. For the first five years after issuance, the Series A preferred stock will pay an annual cash dividend equal to the five year U.S. Treasury Rate as of October 19, 2011 plus a spread of 10.958 percent, for a total annual cash dividend rate of 12 percent. On the fifth anniversary of issuance, if we do not elect to redeem the preferred stock, the annual cash dividend rate will be reset to the five year U.S. Treasury Rate in effect on such date plus the same 10.958 percent spread. The payment of this dividend will reduce the amount of cash otherwise available for distribution by MVW US Holdings to us for further distribution to our common shareholders or for other corporate purposes. MVW US Holdings will not be able to pay any dividends to us if it is in arrears on the payment of dividends to the preferred shareholders. In addition, in the event of a liquidation of MVW US Holdings, the preferred shareholders will be entitled to an aggregate liquidation preference of $40 million plus any accrued and unpaid dividends and a premium if the liquidation occurs during the first five years after issuance of the preferred stock, which will reduce the amount of cash available for distribution by MVW US Holdings to us. Further, if MVW US Holdings either (1) is in arrears on the payment of six or more quarterly dividend payments on the preferred stock, whether or not the payment dates are consecutive, or (2) defaults on its obligations to redeem the preferred stock on the tenth anniversary of issuance or following a change of control, the preferred shareholders may designate a representative to attend meetings of our Board of Directors as a non-voting observer until all unpaid dividends on the outstanding shares of preferred stock have been paid or all such unpaid dividends have been paid or declared with an amount sufficient for the payment set aside for payment, or the shares required to be redeemed have been redeemed, as applicable.

Our business will be materially harmed if our License Agreements with Marriott International and The Ritz-Carlton Hotel Company are terminated or if we are unable to maintain our ongoing relationship with Marriott International.

Our success depends, in part, on the maintenance of ongoing relationships with Marriott International that are governed by a number of agreements that we entered into with Marriott International in connection with the Spin-Off. In particular, our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, among other things, provide us with the exclusive right to use the Marriott and Ritz-Carlton names, respectively, in our vacation ownership business. Each License Agreement has an initial term that expires in 2090; however, if we breach our obligations under either License Agreement, Marriott International and The Ritz-Carlton Hotel Company may be entitled to terminate the License Agreements.

The termination of the License Agreements would materially harm our business and results of operations and impair our ability to market and sell our products and maintain our competitive position, and could have a material adverse effect on our financial position, results of operations or cash flows. For example, we would not be able to rely on the strength of the Marriott and Ritz-Carlton brands to attract qualified prospects in the marketplace, which would cause our revenue and profits to decline and our marketing and sales expenses to increase. In addition, we would not be able to use www.marriott.com and www.ritzcarlton.com as channels through which to rent available inventory, which would cause our rental revenue to decline.

The Marriott Rewards Agreement would also terminate upon termination of the License Agreements, and we would not be able to offer Marriott Rewards Points to owners and potential owners, which would impair our ability to sell our products and would reduce the flexibility and options available in connection with our products.

If Marriott International or The Ritz-Carlton Hotel Company terminates our rights to use the Marriott or Ritz-Carlton marks at any properties that do not meet applicable brand standards, our reputation could be harmed and our ability to market and sell our products at those properties could be impaired.

Marriott International and The Ritz-Carlton Hotel Company can terminate our rights under the License Agreements to use the Marriott or Ritz-Carlton marks at any properties that do not meet applicable brand standards. The termination of such rights could harm our reputation and impair our ability to market and sell our products at the subject properties, either of which could harm our business, and we could be subject to claims by Marriott International and The Ritz-Carlton Hotel Company, property owners, third parties with whom we have contracted and others.

Our ability to expand our business and remain competitive could be harmed if Marriott International or The Ritz-Carlton Hotel Company do not consent to our use of their trademarks at new resorts we acquire or develop in the future.

Under the terms of our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, we must obtain Marriott International’s or The Ritz-Carlton Hotel Company’s consent, as applicable, to use the Marriott or Ritz-Carlton trademarks in connection with resorts, residences or other accommodations that we acquire or develop in the future. Marriott International or The Ritz-Carlton Hotel Company may reject a proposed project if, among other things, the project does not meet Marriott International’s or The Ritz-Carlton Hotel Company’s respective construction and design standards or Marriott International or The Ritz-Carlton Hotel Company reasonably believes the project will breach contractual or legal restrictions applicable to them and their affiliates. In addition, The Ritz-Carlton Hotel Company may reject a proposed project if The Ritz-Carlton Hotel Company will not be able to provide services that comply with Ritz-Carlton brand standards at the proposed project. If Marriott International or The Ritz-Carlton Hotel Company do not permit us to use their trademarks in connection with our development or acquisition plans, our ability to expand our Marriott and Ritz-Carlton businesses and remain competitive may be materially adversely affected. The requirement to obtain Marriott International’s or The Ritz-Carlton Hotel Company’s consent to our expansion plans, or the need to identify and secure alternative expansion opportunities because Marriott International or The Ritz-Carlton Hotel Company do not allow us to use their trademarks with proposed new projects, may delay implementation of our expansion plans and cause us to incur additional expense.

Our business depends on the quality and reputation of the Marriott and Ritz-Carlton brands, and any deterioration in the quality or reputation of these brands could have an adverse impact on our market share, reputation, business, financial condition or results of operations.

Currently, our products and services are predominantly offered under Marriott or Ritz-Carlton brand names, and we intend to continue to offer products and services under these brands in the future. If the quality of these brands deteriorates, or the reputation of these brands declines, our market share, reputation, business, financial condition or results of operations could be materially adversely affected.

Our industry is competitive, which may impact our ability to compete successfully with other vacation ownership brands and with other vacation rental options for customers.

A number of highly competitive companies participate in the vacation ownership industry, including several branded hotel companies. Our brands compete with the vacation ownership brands of major hotel chains in national and international venues, as well as with the vacation rental options (such as hotels, resorts and condominium rentals) offered by the lodging industry. Innovations that impact the industry may also lead to new products and services that could disrupt our business model and create new and stronger competitors.

Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For example, Interval Leisure Group, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October 2014 and announced in October 2015 that it had agreed to acquire the vacation ownership operations of Starwood Hotels & Resorts Worldwide, Inc., to be known as Vistana Signature Experiences, Inc. Diamond Resorts International, Inc. completed the acquisition of the vacation ownership business of Gold Key Resorts in October 2015 and the acquisition of the vacation ownership business of Intrawest Resort Club Group in January 2016. Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.

In addition, under our License Agreements with Marriott International and The Ritz-Carlton Hotel Company, if other international hotel operators offer new products and services as part of their respective hotel businesses that may directly compete with our vacation ownership products and services in the future, then Marriott International and The Ritz-Carlton Hotel Company may also offer such new products and services, and use their respective trademarks in connection with such offers. If Marriott International or The Ritz-Carlton Hotel Company offer new vacation ownership products and services under their trademarks, our vacation ownership products and services may compete directly with those of Marriott International or The Ritz-Carlton Hotel Company, and we may not be able to distinguish our vacation ownership products and services from those offered by Marriott International and The Ritz-Carlton Hotel Company. Our ability to remain competitive and to attract and retain owners depends on our success in distinguishing the quality and value of our products and services from those offered by others. If we cannot compete successfully in these areas, this could limit our operating margins, diminish our market share and reduce our earnings.

If a Marriott International or Ritz-Carlton hotel property with which one of our resorts is co-located ceases to be operated by Marriott International or The Ritz-Carlton Hotel Company or one of their affiliates, our business could be harmed.

Approximately one-quarter of our vacation ownership resorts are co-located with Marriott International and Ritz-Carlton hotel properties. If a Marriott International or Ritz-Carlton branded hotel property with which one of our resorts is co-located ceases to be operated by Marriott International or The Ritz-Carlton Hotel Company or one of their affiliates, we could lose the benefits derived from co-location of our resorts, such as the sharing of amenities, infrastructure and staff, integration of services, and other cost efficiencies. Our owners could lose access to the more varied and elaborate amenities that are generally available at the larger campus of an integrated vacation ownership and hotel resort. We expect our overhead and operating costs for resorts that are no longer co-located with a Marriott International or Ritz-Carlton hotel property would increase. We would also lose our on-site access to hotel customers, including Marriott Rewards customer loyalty program members, at such resorts, which is a cost-effective marketing channel for our vacation ownership products, and our sales may decline.

If we are not able to maintain relationships with third parties that support our marketing activities, our business could be harmed.

Many of our marketing activities require us to maintain relationships with third parties. For example, we market to existing Marriott Rewards customer loyalty program members and travelers who are staying in locations where we have resorts. We also market extensively to guests in Marriott International hotels that are located near one of our sales locations and have marketing partnerships with Marriott International’s North American reservation centers. In addition, we operate other local marketing venues in various high-traffic areas. If we are not able to maintain these marketing arrangements with these third parties on terms that are favorable to us or at all, our sales may decline, which could adversely affect our financial conditions and result of operations.

A failure to keep pace with developments in technology could impair our operations or competitive position.

Our business model and competitive conditions in the vacation ownership industry demand the use of sophisticated technology and systems, including those used for our sales, reservation, inventory management and property management systems, and technologies we make available to our owners. We must refine, update and/or replace these technologies and systems with more advanced systems on a regular basis. If we cannot do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could harm our operating results.

Inadequate or failed technologies could lead to interruptions in our operations, which may materially adversely affect our business, financial position, results of operations or cash flows.

Our operations depend on our ability to maintain existing systems and implement new technology, which includes allocating sufficient resources to periodically upgrade our information technology systems, and to protect our equipment and the information stored in our databases against both manmade and natural disasters, as well as power losses, computer and telecommunications failures, technological breakdowns, unauthorized intrusions, cyber-attacks, and other events. Conversions to new information technology systems require effective change management processes and may result in cost overruns, delays or business interruptions. If our information technology systems are disrupted, become obsolete or do not adequately support our strategic, operational or compliance needs, our business, financial position, results of operations or cash flows may be adversely affected.

Our operations outside of the United States make us susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits or disrupt our business.

We conduct business in over 30 countries and territories, and our operations outside the United States represented approximately 15 percent of our revenues, excluding cost reimbursements, in 2015. International properties and operations expose us to a number of additional challenges and risks, including the following, any of which could reduce our revenues or profits, increase our costs, or disrupt our business: (1) complex and changing laws, regulations and policies of governments that may impact our operations, including foreign ownership restrictions, import and export controls, and trade restrictions; (2) U.S. laws that affect the activities of U.S. companies abroad; (3) limitations on our ability to repatriate non-U.S. earnings in a tax-effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; (7) currency exchange rate fluctuations; and (8) other exposure to local economic risks. We also derive revenue from sales to customers from outside the United States that are transacted in United States dollars. As a result, factors such as changes in foreign currency exchange rates or weak economic conditions in the markets in which our customers reside could reduce our revenues or profits.

Our business may be adversely affected by factors that disrupt or deter travel.

The profitability of the vacation ownership resorts that we develop and manage may be adversely affected by a number of factors that can disrupt or deter travel. A substantial amount of our sales activity occurs at our resorts, and sales volume is impacted by the number of prospective owners who visit our resorts. Fear of exposure to contagious and other diseases, such as Ebola virus, H1N1 Flu, Avian Flu, the Zika virus and Severe Acute Respiratory Syndrome, or natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions, radiation releases and oil spills, may deter travelers from scheduling sales tours at our resorts or cause them to cancel travel plans. Actual or threatened war, civil unrest and terrorist activity, as well as heightened travel security measures instituted in response to the same, could also interrupt or deter travel plans. In addition, demand for vacation options such as our vacation ownership products may decrease if the cost of travel, including the cost of transportation and fuel, increases or if general economic conditions decline. Changes in the desirability of the locations where we develop and manage resorts as vacation destinations and changes in vacation and travel patterns may adversely affect our cash flows, revenue and profits.

Our business is subject to extensive regulation, and any failure to comply with applicable laws and regulations could have a material adverse effect on our business.

Our business is heavily regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions around the world. Some laws, regulations and policies impact multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations of the Consumer Financial Protection Bureau, the U.S. Department of the Treasury’s Office of Foreign Asset Control and the FCPA. Other laws, regulations and policies primarily affect one of four areas of our business: real estate development activities; marketing and sales activities; lending activities; and resort management activities. For more information regarding laws, regulations and policies to which we are subject, see “Business—Regulation.”

The FCPA and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or generating business. Our internal controls and procedures may not always protect us from the reckless or criminal acts that may be committed by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption laws in international jurisdictions, criminal or civil penalties could be imposed on us.

Our real estate development activities are subject to laws and regulations typically applicable to real estate development, subdivision and construction activities, such as laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation. In addition, we are subject to laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer.

A number of laws and regulations govern our marketing and sales activities, such as vacation ownership and land sales acts, regulations implementing the USA PATRIOT Act and fair housing statutes, as well as rules governing unfair, deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, anti-fraud laws, prize, gift and sweepstakes laws, real estate, insurance and other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, seller of travel laws, securities laws, and other consumer protection laws. In addition, laws in many jurisdictions in which we sell vacation ownership interests grant the purchaser of a vacation ownership interest the right to cancel a purchase contract during a specified rescission period.

In recent years, the TCPA and similar “do not call” legislation has significantly increased the costs associated with telemarketing. We have implemented procedures that we believe will help reduce the possibility that we contact individuals on regulatory “do not call” lists, but such procedures may not be effective in ensuring regulatory compliance. Additionally, we are not considered an affiliate of Marriott International for purposes of

“do not call” legislation in some jurisdictions, which may make it more difficult for us to utilize customer information we obtain from Marriott International.

Many jurisdictions, including many jurisdictions in the United States, require that we file detailed registration or offering statements with regulatory authorities disclosing certain information regarding the vacation ownership interests and other real estate interests we market and sell. Regulation outside the United States includes, for example, European regulations to which our vacation ownership activities within the European Union are subject and Singaporean regulations to which certain of our Asia Pacific operations are subject. Among other things, the European and Singaporean regulations: (1) require delivery of specified disclosure (some of which must be provided in a specific format or language) to purchasers; (2) require a specified “cooling off” rescission period after a purchase is made; and (3) prohibit any advance payments during the “cooling off” rescission period.

Our lending activities are subject to a number of U.S. laws and regulations, including those of applicable supervisory agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes Enforcement Network, as well as laws and regulations of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, usury, fair debt collection practices, consumer debt collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.

Our resort management activities are subject to laws and regulations regarding community association management, public lodging, food and beverage services, labor, employment, health care, health and safety, accessibility, discrimination, immigration, gaming and the environment (including climate change). In addition, many jurisdictions in which we manage our resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for property owners’ associations and/or permit the property owners’ association for a resort to terminate our management agreement under certain circumstances (for example, upon a super-majority vote of the owners), even if we are not in default under the agreement. Such statutory provisions expose us to a risk that one or more of our management agreements may not be renewed or may be terminated prior to the end of the term specified in such agreements.

We may not be successful in maintaining compliance with all laws, regulations and policies to which we are currently subject, and the cost of compliance with such laws, regulations and policies could be significant. Failure to comply with current or future applicable laws, regulations and policies could have a material adverse effect on our business. For example, if we do not comply with applicable laws, governmental authorities in the jurisdictions where the violations occurred may revoke or refuse to renew licenses or registrations we must have in order to operate our business. Failure to comply with applicable laws could also render sales contracts for our products void or voidable, subject us to fines or other sanctions and increase our exposure to litigation.

Changes in tax regulations or their interpretation could reduce our profits or increase our costs.

Jurisdictions in which we do business may at any time review tax and other revenue raising laws, regulations and policies, and any resulting changes could impose new restrictions, costs or prohibitions on our current practices and reduce our profits. In particular, governments may revise tax laws, regulations or official interpretations in ways that could have a significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way that we structure them. For example, most U.S. company effective tax rates reflect the fact that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than U.S. tax rates. In addition, interpretation of tax regulations requires us to exercise our judgment and taxing authorities or our independent registered public accounting firm may reach conclusions about the application of such regulations that differ from our conclusions. If changes in tax laws, regulations or interpretations were to significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, our profits could be reduced, and if such increases were a result of our status as a U.S. company, we could be placed at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.

Changes in privacy law could adversely affect our ability to market our products effectively.

We rely on a variety of direct marketing techniques, including telemarketing, email marketing and postal mailings. Adoption of new state or federal laws regulating marketing and solicitation, or international data protection laws that govern these activities, or changes to existing laws, such as the Telemarketing Sales Rule and the CANSPAM Act, could adversely affect the continuing effectiveness of telemarketing, email and postal mailing techniques and could force us to make further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of vacation ownership interests and other products. We also obtain access to potential customers from travel service providers or other companies with whom we have relationships and market to some individuals on these lists directly or by including our marketing message in the other companies’ marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce our products to them could be impaired.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions or operational inefficiencies, damage our reputation and/or subject us to costs, fines or lawsuits.

We collect and retain large volumes of internal and customer data, including social security numbers, credit card numbers and other personally identifiable information of our customers in various information systems and those of our service providers. We also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee and company data is critical to us. We could make faulty decisions if that data is inaccurate or incomplete. Our customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The regulatory environment as well as the requirements imposed on us by the payment card industry surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which we operate. Our systems may be unable to satisfy changing regulatory and payment card industry requirements and employee and customer expectations, or may require significant additional investments or time in order to do so.

Our information systems and records, including those we maintain with our service providers, may be subject to security breaches, cyber attacks, system failures, viruses, operator error or inadvertent releases of data. A significant theft, loss, or fraudulent use of customer, employee or company data maintained by us or by a service provider could adversely impact our reputation and could result in remedial and other expenses, fines or litigation. A breach in the security of our information systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.

Our points-based product form exposes us to an increased risk of temporary inventory depletion.

Selling vacation ownership interests in a system of resorts under a points-based business model increases the risk of temporary inventory depletion. We currently sell vacation ownership interests denominated in points from a single trust entity in each of our North America and Asia Pacific business segments. Thus, the primary source of inventory for each of these segments is concentrated in its corresponding trust. In contrast, under our prior business model, we sold weeks-based vacation ownership interests tied to specific resorts; we thus had more sources of inventory (i.e., resorts), and the risk of inventory depletion was diffused among those sources of inventory.

Temporary depletion of inventory available for sale can be caused by three primary factors: (1) delayed delivery of inventory under construction by us or third parties; (2) delayed receipt of required governmental registrations of inventory for sale; and (3) significant unanticipated increases in sales pace. If the inventory available for sale for a particular trust were to be depleted before new inventory is added and available for sale, we would be required to temporarily suspend sales until inventory is replenished. This could reduce our cash flow and have a negative impact on our results of operations.

Our development activities expose us to project cost and completion risks.

Our ongoing development of new vacation ownership properties and new phases of existing vacation ownership properties presents a number of risks. Our profits may be adversely affected if construction costs

escalate faster than the pace at which we can increase the price of vacation ownership interests. Construction delays, zoning and other local approvals, cost overruns, lender financial defaults, or natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions, radiation releases and oil spills, may increase overall project costs or result in project cancellations. In addition, any liability or alleged liability associated with latent defects in projects we have constructed or that we construct in the future may adversely affect our business, financial condition and reputation.

Disagreements with the owners of vacation ownership interests and property owners’ associations may result in litigation and the loss of management contracts.

The nature of our relationships with our owners and our responsibilities in managing our vacation ownership properties will from time to time give rise to disagreements with the owners of vacation ownership interests and property owners’ associations. Owners of our vacation ownership interests may also disagree with changes we make to our products or programs. We seek to expeditiously resolve any disagreements in order to develop and maintain positive relations with current and potential owners and property owners’ associations, but cannot always do so. Failure to resolve such disagreements has resulted in litigation, and could do so again in the future. If any such litigation results in a significant adverse judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, our reputation could be harmed and our future ability to operate our business could be constrained. Disagreements with property owners’ associations have in the past and could in the future result in the loss of management contracts.

The expiration, termination or renegotiation of our management contracts could adversely affect our cash flows, revenues and profits.

We enter into a management agreement with the property owners’ association or other governing body at each of our resorts and, in the event a trust holds resorts or interests in resorts, with the trust’s governing body. The management fee is typically based on either a percentage of the budgeted cost to operate such resorts or a fixed fee arrangement. We also receive revenues that represent reimbursement for certain costs we incur under our management agreements, principally payroll-related costs at the locations where we employ the associates providing on-site services. The terms of our management agreements typically range from three to ten years and are generally subject to periodic renewal for one to five year terms. Many of these agreements renew automatically unless either party provides notice of termination before the expiration of the term. Any of these management contracts may expire at the end of its then-current term (following notice by a party of non-renewal) or be terminated, or the contract terms may be renegotiated in a manner adverse to us. Upon non-renewal or termination of our management agreement for a particular resort, the resort ceases to be part of our system and we lose the management fee revenue associated with the resort. If a management agreement is terminated or not renewed on favorable terms, our cash flows, revenues and profits could be adversely affected.

The maintenance and refurbishment of vacation ownership properties depends on maintenance fees paid by the owners of vacation ownership interests.

The maintenance fees that are levied on owners of our vacation ownership interests by property owners’ association boards are used to maintain and refurbish the vacation ownership properties and to keep the properties in compliance with Marriott and Ritz-Carlton brand standards. If property owners’ association boards do not levy sufficient maintenance fees, or if owners of vacation ownership interests do not pay their maintenance fees, not only could our management fee revenue be adversely affected, but the vacation ownership properties could fall into disrepair and fail to comply with applicable brand standards. If a resort fails to comply with applicable brand standards, Marriott International or The Ritz-Carlton Hotel Company could terminate our rights under the applicable License Agreement to use its trademarks at the non-compliant resort, which would result in the loss of management fees, decrease customer satisfaction and impair our ability to market and sell our products at the non-compliant locations.

If maintenance fees at our resorts are required to be increased, our product could become less attractive and our business could be harmed.

The maintenance fees that are levied on owners of our vacation ownership interests by property owners’ association boards may increase as the costs to maintain and refurbish the vacation ownership properties and to keep the properties in compliance with Marriott and Ritz-Carlton brand standards increase. Increased maintenance fees could make our products less desirable, which could have a negative impact on sales of our products.

Damage to, or other potential losses involving, properties that we own or manage may not be covered by insurance.

Market forces beyond our control may limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, may be uninsurable or the price of coverage for such losses may be too expensive to justify obtaining insurance. As a result, the cost of our insurance may increase and our coverage levels may decrease. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of owners of vacation ownership interests or in some cases may not provide a recovery for any part of a loss. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated under guarantees or other financial obligations related to the property.

Our pursuit of new business opportunities to grow our business may not be successful.

One of our strategic initiatives is to selectively pursue new business opportunities, such as the continued enhancement of our exchange programs, new management affiliations and acquisitions of existing vacation ownership and related businesses. There are substantial risks and uncertainties associated with these efforts, particularly in connection with opportunities in locations where the markets for vacation ownership products are not fully developed. We may invest significant time and resources in developing and marketing new businesses. Initial timetables for the introduction and development of new businesses may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of new businesses. Furthermore, any new business could strain our system of internal controls and diminish its effectiveness. Failure to successfully manage these risks in the development and implementation of new businesses could have a material adverse effect on our business, results of operations and financial condition.

Our share repurchase program may not enhance long-term stockholder value, and could increase the volatility of the market price of our common stock and diminish our cash reserves.

The share repurchase program authorized by our Board of Directors does not obligate us to repurchase any specific dollar amount, or to acquire any specific number, of shares of our common stock. The timing and amount of repurchases, if any, will depend upon several factors, including market conditions, business conditions, statutory and contractual restrictions, the trading price of our common stock and the nature of other investment opportunities available to us. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth, pursue possible future strategic opportunities and acquisitions, and discharge liabilities. Our share repurchases may not enhance stockholder value because the market price of our common stock may decline below the prices at which we repurchased shares of stock and short-term stock price fluctuations could reduce the program’s effectiveness.

Our ability to pay dividends on our stock is limited.

We intend to pay a regular quarterly dividend to our stockholders. However, we may not declare or pay such dividends in the future at the prior rate or at all. All decisions regarding our payment of dividends will be made by our Board of Directors from time to time and will be subject to an evaluation of our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, contractual restraints and other business considerations that our Board of Directors considers relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. We may not have sufficient surplus under Delaware law to be able to pay any dividends, which may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures or increases in reserves.

Our stock price may fluctuate significantly.

Our common stock has a limited trading history. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

•

actual or anticipated fluctuations in our operating results due to factors related to our business;

•

success or failure of our business strategy;

•

our quarterly or annual earnings, or those of other companies in our industry;

•

our ability to obtain financing as needed;

•

announcements by us or our competitors of significant new business developments or significant acquisitions or dispositions;

•

changes in accounting standards, policies, guidance, interpretations or principles, including a new standard regarding revenue recognition that we will adopt in the first quarter of 2018;

•

the failure of securities analysts to continue to cover our common stock;

•

changes in earnings estimates by securities analysts or our ability to meet those estimates;

•

the operating and stock price performance of other comparable companies;

•

investor perception of our company and the vacation ownership industry;

•

overall market fluctuations;

•

initiation of or developments in legal proceedings;

•

changes in laws and regulations affecting our business; and

•

general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.

The growth of our business and the execution of our business strategies depend on the services of our senior management and our associates.

We believe that our future growth depends, in part, on the continued services of our senior management team, including our President and Chief Executive Officer, Stephen P. Weisz, and on our ability to successfully implement succession plans for members of our senior management team. The loss of any members of our senior management team, or the failure to identify successors for such positions, could adversely affect our strategic and customer relationships and impede our ability to execute our business strategies.

In addition, insufficient numbers of talented associates could constrain our ability to maintain and expand our business. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop or retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency or internal control failures.

If we identify additional excess land and inventory in the future, or if our estimates of the fair value of our excess land and inventory change, our financial position and results of operations could be adversely affected.

Since the Spin-Off, we have identified excess land and inventory and have disposed of a significant portion of the land and inventory we identified. We may also conclude in the future that additional land and inventory are excess, in which case we would likely terminate plans to develop such land and instead seek to dispose of such excess land and inventory through bulk sales or other methods. If we identify additional excess land and inventory in the future, we may have to record additional non-cash impairment charges to write-down the value of such assets. Any such impairment charges may have an adverse impact on our financial position and results of operations. In addition, if real estate market conditions change, our estimates of the fair value of our excess land and inventory may change. If our estimates of the fair value of these assets decline, we may have to record additional non-cash impairment charges to write-down the value of such assets to the estimated fair value. Any such impairment charges may have an adverse impact on our financial position and results of operations.

If we are not able to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm is not able to provide an unqualified report on the effectiveness of our internal control over financial reporting, our business, financial condition or results of operations could be materially adversely affected.

As a public entity, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the obligation of our management to report on its assessment of the effectiveness of our internal control over financial reporting. We continue to establish new infrastructure and systems, some of which may impact our ability to favorably assess the effectiveness of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.

Our use of different estimates and assumptions in the application of our accounting policies could result in material changes to our reported financial condition and results of operations, and changes in accounting standards or their interpretation could significantly impact our reported results of operations.

Our accounting policies are critical to the manner in which we present our results of operations and financial condition. Many of these policies, including policies relating to the recognition of revenue and determination of cost of sales, are highly complex and involve many assumptions, estimates and judgments. We are required to review these assumptions, estimates and judgments regularly and revise them when necessary. Our actual results of operations vary from period to period based on revisions to these estimates. In addition, the regulatory bodies that establish accounting and reporting standards, including the SEC and the Financial Accounting Standards Board, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. Changes to these standards or their interpretation could significantly impact our reported results in future periods. For example, we are currently assessing the impact that the issuance of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is intended to significantly enhance comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues, will have on our financial statements.

Anti-takeover provisions in our organizational documents and Delaware law and in our agreements with Marriott International could delay or prevent a change in control.

Provisions of our Charter and Bylaws may delay or prevent a merger or acquisition that a shareholder may consider favorable. For example, our Charter and Bylaws provide for a classified board, require advance notice for shareholder proposals and nominations, place limitations on convening shareholder meetings and authorize our Board of Directors to issue one or more series of preferred stock. The holders of the preferred stock issued by our subsidiary MVW US Holdings have the right to require MVW US Holdings to redeem the preferred stock if we sell all or substantially all of our assets or MVW US Holdings sells all or substantially all of its assets or completes a change of control, as defined in the terms of the preferred stock. These provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. In addition, Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15 percent or more of our outstanding common stock and us.

In addition, provisions in our agreements with Marriott International may delay or prevent a merger or acquisition that a shareholder may consider favorable. Under the Tax Sharing and Indemnification Agreement, we agreed not to enter into any transaction involving an acquisition or issuance of our common stock or any other transaction (or, to the extent we have the right to prohibit it, to permit any such transaction) that could reasonably be expected to cause the distribution of our common stock to be taxable to Marriott International. We are required to indemnify Marriott International for any tax resulting from any such prohibited transaction, and we are required to meet various requirements, including obtaining the approval of Marriott International or obtaining an Internal Revenue Service (“IRS”) ruling or unqualified opinion of tax counsel acceptable to Marriott International, before engaging in such transactions. Further, our License Agreements with Marriott International and The Ritz-Carlton Hotel Company provide that a change in control may not occur without the consent of Marriott International or The Ritz-Carlton Hotel Company, respectively. A change in control for purposes of these agreements would occur if, among other things, a person or group acquires beneficial ownership of, or the power to exercise effective control over, shares of our common stock representing more than 15 percent of the combined voting power of the then-outstanding securities entitled to vote generally in elections of directors.

The Spin-Off may expose us to potential liabilities arising out of our contractual arrangements with Marriott International.

Pursuant to a Separation and Distribution Agreement that we entered into with Marriott International in connection with the Spin-Off, from and after the Spin-Off, each of us and Marriott International is responsible for the debts, liabilities and other obligations related to the business or businesses it owns and operates following the consummation of the Spin-Off. Although we do not expect to be liable for any obligations that were not allocated to us under such agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to Marriott International (for example, tax and/or environmental liabilities), particularly if Marriott International were to refuse or were unable to pay or perform the allocated obligations.

Pursuant to a Tax Sharing and Indemnification Agreement that we entered into with Marriott International in connection with the Spin-Off, we agreed to indemnify Marriott International for certain taxes and related losses resulting from (1) any breach of the covenants regarding the preservation of the tax-free status of the distribution and the intended tax treatment of certain related transactions undertaken in connection with the distribution, (2) certain acquisitions of our equity securities or assets or those of certain of our subsidiaries, and (3) any breach by us or any member of our group of certain of our representations in the documents submitted to the IRS and the separation documents between Marriott International and us. The amount of Marriott International’s taxes for which we agreed to indemnify Marriott International in respect of the distribution will be based on the excess, if any, of the aggregate fair market value of our stock over Marriott International’s tax basis in our stock at the time of the distribution of our common stock in the Spin-Off. In addition, if the distribution fails to qualify as a tax-free transaction for reasons other than those specified in the Spin-Off tax indemnification provisions, liability for any resulting taxes related to the distribution will be apportioned between Marriott International and us based on the relative fair market values of Marriott International and us. In addition, Marriott

International expects to recognize, for U.S. federal income tax purposes, significant built-in losses in properties used in the vacation ownership and related residential businesses. If Marriott International’s U.S. federal consolidated group is unable to deduct these losses for U.S. federal income tax purposes, and, instead, the tax basis of the properties that is attributable to the built-in losses is available to our U.S. federal consolidated group, we have agreed to indemnify Marriott International for certain lost tax benefits that Marriott International otherwise would have recognized if Marriott International’s U.S. federal consolidated group was able to deduct such losses. The amount of any future indemnification payments could be substantial.

Certain of our executive officers and directors may have actual or potential conflicts of interest because of their ownership of Marriott International equity or their former positions with Marriott International.

Certain of our executive officers and directors are former officers and employees of Marriott International and thus have professional relationships with Marriott International’s executive officers and directors. In addition, many of our executive officers and directors have financial interests in Marriott International that are substantial to them as a result of their ownership of Marriott International stock, options and other equity awards. These relationships and personal financial interests may create, or may create the appearance of, conflicts of interest when these directors and officers face decisions that could have different implications for Marriott International than for us.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

As of January 1, 2016, our portfolio consisted of 61 vacation ownership or residential properties in the United States and eight other countries and territories, including two hotels that we intend to convert to vacation ownership interests. These properties are described in Part I, Item 1, “Business,” of this Annual Report. Except as indicated in Part I, Item 1, “Business,” we own all unsold inventory at these properties. We also own, manage or lease golf courses, fitness, spa and sports facilities, undeveloped and partially developed land and other common area assets at some of our resorts, including resort lobbies and food and beverage outlets.

We own or lease our regional offices and sales centers, both in the United States and internationally. Our corporate headquarters in Orlando, Florida consists of approximately 160,000 square feet of leased space in two buildings, under a lease expiring in August 2021. We also own an office facility in Lakeland, Florida consisting of approximately 125,000 square feet.

Item 3.

Legal Proceedings

Currently, and from time to time, we are subject to claims in legal proceedings arising in the normal course of business, including, among others, the legal actions discussed in Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Dividends

Our common stock currently is traded on the New York Stock Exchange, or the “NYSE,” under the symbol “VAC.” We have not made any unregistered sales of our equity securities. The following table sets forth the high and low sales prices for our common stock and the per share cash dividends we declared for each fiscal quarter during the last two years.


	Stock Price				Dividends Declared Per Share
	High		Low		Dividends Declared Per Share
2015
Quarter ended March 27, 2015	$	83.85	$	70.00	$	0.25
Quarter ended June 19, 2015	$	90.88	$	77.70	$	0.25
Quarter ended September 11, 2015	$	93.40	$	65.70	$	0.25
Quarter ended January 1, 2016	$	74.63	$	55.27	$	0.30
2014
Quarter ended March 28, 2014	$	56.20	$	46.63	$	—
Quarter ended June 20, 2014	$	58.14	$	50.61	$	—
Quarter ended September 12, 2014	$	61.78	$	55.28	$	—
Quarter ended January 2, 2015	$	76.29	$	57.48	$	0.25

We currently expect to pay quarterly cash dividends in the future, but any future dividend payments will be subject to Board approval, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that our Board of Directors considers relevant. In addition, our Revolving Corporate Credit Facility contains restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit dividend payments. Accordingly, there can be no assurance that we will pay dividends in the future at the same rate or at all.

Holders of Record

On February 12, 2016, there were 25,767 holders of record of our common stock. Because many of the shares of our common stock are held by brokers and other institutions on behalf of shareholders, we are unable to determine the total number of shareholders represented by these record holders; however, we believe that there were approximately 37,000 beneficial owners of our common stock as of February 12, 2016.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased		Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
September 12, 2015 – October 9, 2015		—	$	—		—		3,605,937
October 10, 2015 – November 6, 2015		503,544	$	63.60		503,544		3,102,393
November 7, 2015 – December 4, 2015		702,751	$	60.00		702,751		2,399,642
December 5, 2015 – January 1, 2016		353,725	$	59.59		353,725		2,045,917

⁽¹⁾

On February 11, 2016, our Board of Directors approved the repurchase of up to an additional 2,000,000 shares of our common stock under our existing share repurchase program prior to March 24, 2017. Prior to that authorization, our Board of Directors had authorized the repurchase of an aggregate of up to 8,900,000 shares of our common stock under the share repurchase program since the initiation of the program in October 2013.

Performance Graph

LOGO

The above graph compares the relative performance of our common stock, the S&P SmallCap 600 Index and the S&P Composite 1500 Hotels, Resorts & Cruise Lines Index. The graph assumes that $100 was invested in our common stock and each index on November 8, 2011, the date a “when-issued” trading market for our common stock began. The stock price performance reflected above is not necessarily indicative of future stock price performance. The foregoing performance graph is being furnished as part of this Annual Report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act of 1933, as amended, or the Exchange Act.

Item 6.

Selected Financial Data

The following tables present a summary of selected historical consolidated financial data for the periods indicated below. The selected historical consolidated statements of income data for fiscal years 2015, 2014 and 2013 and the selected consolidated balance sheet data for fiscal years 2015 and 2014 are derived from our consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated statement of income data for fiscal years 2012 and 2011 and the selected consolidated balance sheet data for fiscal years 2013, 2012 and 2011 are derived from our audited consolidated financial statements not included in this Annual Report.

Prior to November 21, 2011, the effective date of the Spin-Off, our company was a subsidiary of Marriott International. For periods prior to the Spin-Off, our historical financial statements include allocations of certain expenses from Marriott International, including expenses for costs related to functions such as treasury, tax, accounting, legal, internal audit, human resources, public and investor relations, general management, real estate, shared information technology systems, corporate governance activities and centrally managed employee benefit arrangements. These costs may not be representative of the costs we have incurred or will incur in the future as an independent, public company, and do not include certain additional costs we have incurred or may incur as a public company that we did not incur as a wholly owned subsidiary of Marriott International.

The following table includes earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), which is a financial measure we use in our business that is not prescribed or authorized by United States Generally Accepted Accounting Principles (“GAAP”). We believe this measure is useful to help investors understand our results of operations. We explain this measure and reconcile it to the most directly comparable financial measure calculated and presented in accordance with GAAP in Footnote No. 2 to the following table.

The following selected historical financial and other data should be read in conjunction with “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Financial Statements and related notes included elsewhere in this Annual Report. All fiscal years included 52 weeks, except for 2013, which included 53 weeks.


	Fiscal Years
*(in thousands, except per share amounts)*	2015		2014		2013		2012		2011⁽¹⁾
Statement of Income Data:
Total revenues	$	1,830,463	$	1,735,782	$	1,749,688	$	1,638,775	$	1,624,279
Total revenues net of total expenses		201,123		156,498		143,920		37,971		(222,296)
Net income (loss)		122,799		80,756		79,730		6,149		(172,432)
Basic earnings (loss) per common share		3.90		2.40		2.25		0.19		(5.12)
Shares used in computing basic earnings (loss) per share		31,487		33,665		35,373		34,357		33,709
Diluted earnings (loss) per common share	$	3.82	$	2.33	$	2.18	$	0.18	$	(5.12)
Shares used in computing diluted earnings (loss) per share		32,168		34,635		36,621		36,183		33,709
Balance Sheet Data:
Total assets	$	2,395,026	$	2,530,579	$	2,623,230	$	2,604,571	$	2,843,052
Total debt, net		678,793		703,013		670,619		671,300		844,227
Total mandatorily redeemable preferred stock of consolidated subsidiary, net		38,989		38,816		38,643		38,470		38,270
Total liabilities		1,418,759		1,450,876		1,414,493		1,466,175		1,712,080
Total equity		976,267		1,079,703		1,208,737		1,138,396		1,130,972
Cash dividends declared per common share		1.05		0.25		—		—		—


	Fiscal Years
*(in thousands, except per share amounts)*	2015		2014		2013		2012		2011⁽¹⁾
Other Data:
EBITDA⁽²⁾	$	241,524	$	180,965	$	166,373	$	78,670	$	(183,548)
Contract sales⁽³⁾:
Vacation ownership	$	699,884	$	698,765	$	679,089	$	686,768	$	660,425
Residential products		28,420		14,514		14,813		996		15,244

Total before cancellation reversal		728,304		713,279		693,902		687,764		675,669
Cancellation reversal		—		—		—		—		3,643

Total contract sales	$	728,304	$	713,279	$	693,902	$	687,766	$	679,312

⁽¹⁾

The financial information presented for 2011 may not necessarily reflect our financial position, results of operations and cash flows as if we had operated as a stand-alone public company during the entirety of such year. Accordingly, our historical results for 2011 should not be relied upon as an indicator of our future performance.

⁽²⁾

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 that 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 company’s 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.

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 (loss).


	Fiscal Years
*($ in thousands)*	2015		2014		2013		2012		2011⁽¹⁾
Net income (loss)	$	122,799	$	80,756	$	79,730	$	6,149	$	(172,432)
Interest expense^(a)		12,810		11,692		12,574		17,661		747
Tax provision (benefit)		83,698		69,835		51,474		24,813		(44,882)
Depreciation and amortization		22,217		18,682		22,595		30,047		33,019

EBITDA	$	241,524	$	180,965	$	166,373	$	78,670	$	(183,548)

^(a)

Interest expense excludes consumer financing interest expense.

⁽³⁾

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 in our Statements of Income due to the requirements for revenue recognition described in Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our results of operations and financial condition together with our audited historical consolidated financial statements and accompanying notes that we have included elsewhere in this Annual Report as well as the discussion in the section of this Annual Report entitled “Business.” This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on our current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those we discuss in the sections of this Annual Report entitled “Risk Factors” and “Special Note About Forward-Looking Statements.”

Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Annual Report, however, may not necessarily reflect what our financial condition, results of operations and cash flows may be in the future.

Business Overview

Our business is grouped into three reportable segments: North America, Europe and Asia Pacific. As of January 1, 2016, our portfolio consisted of 61 properties in the United States and eight other countries and territories, including two hotels. 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. See “Business—Segments” for further details regarding our individual properties by segment.

As described in Footnote No. 1, “Summary of Significant Accounting Policies,” to our Financial Statements included in this Annual Report, the Financial Statements discussed below reflect our historical financial position, results of operations and cash flows as we have historically operated, in conformity with GAAP. Furthermore, due to our reporting calendar, the financial results for the fourth quarter of 2013 and full year 2013 included the impact of an additional week as compared to 2014. To enhance the similarity of the periods being compared, the “additional week” is the first week of 2013 when 2014 results are compared to 2013 results because that week includes the New Year’s holiday while the first week of 2014 does not.

Below is a summary of significant accounting policies used in our business that will be used in describing our results of operations.

Sale of Vacation Ownership Products

We recognize revenues from the sale of vacation ownership products when all of the following conditions exist: a binding sales contract has been executed; the statutory rescission period has expired; the receivable is deemed collectible; and the remainder of our obligations are substantially completed.

Sales of vacation ownership products may be made for cash or we may provide financing. For sales where we provide financing, we defer revenue recognition until we receive a minimum down payment equal to ten percent of the purchase price plus the fair value of certain sales incentives provided to the purchaser. These sales incentives typically include Marriott Rewards Points or an alternative sales incentive that we refer to as

“plus points.” These plus points are redeemable for stays at our resorts, generally up 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) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale.

We report, on a supplemental basis, contract sales for each of our three segments. Contract sales represent the total amount of vacation ownership product sales under purchase agreements signed during the period where we have received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period. Contract sales differ from revenues from the sale of vacation ownership products that we report on our Statements of Income due to the requirements for revenue recognition described above. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.

Cost of vacation ownership products includes costs to develop and construct our projects (also known as real estate inventory costs) as well as other non-capitalizable costs associated with the overall project development process. For each project, we expense real estate inventory costs in the same proportion as the revenue recognized. Consistent with the applicable accounting guidance, to the extent there is a change in the estimated sales revenues or real estate inventory costs for the project in a period, a non-cash adjustment is recorded on our Statements of Income to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used. These true-ups, which we refer to as product cost true-ups, will have a positive or negative impact on our Statements of Income.

We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin. Development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products.

Resort Management and Other Services

Our resort management and other services revenues include revenues generated from fees we earn for managing each of our resorts. In addition, we earn revenue for providing ancillary offerings, including food and beverage, retail, and golf and spa offerings at our resorts. We also receive annual fees, club dues, settlement fees from the sale of vacation ownership products and certain transaction-based fees from owners and other third parties, including external exchange service providers with which we are associated.

We provide day-to-day-management services, including housekeeping services, operation of reservation systems, maintenance, and certain accounting and administrative services for property owners’ associations. We receive compensation for these management services; this compensation is generally based on either a percentage of budgeted cost to operate the resorts or a fixed fee arrangement. We earn these fees regardless of usage or occupancy.

Resort management and other services expenses include costs to operate the food and beverage and other ancillary operations and overall customer support services, including reservations, certain transaction-based expenses relating to external exchange service providers and settlement expenses from the sale of vacation ownership products.

Financing

We offer financing to qualified customers for the purchase of most types of our vacation ownership products. The average FICO score of customers who were U.S. citizens or residents who financed a vacation ownership purchase was as follows:

The typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable, which is generally ten years. The interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as Financing revenues on our Statements of Income.

Financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio. Financing expenses include costs in support of the financing, servicing and securitization processes. The amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable, which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections. Due to weakened economic conditions and our elimination of historical 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 then remained stable at 40 to 45 percent through early 2015. In the first half of 2015, we implemented new programs to help increase financing propensity. Based upon the success of these new programs, we are targeting a 50 to 55 percent financing propensity in 2016. We expect that interest income will begin to increase as new originations of vacation ownership notes receivable from growth in the business and higher financing propensity levels begin to outpace the decline in principal of our existing vacation ownership notes receivable portfolio.

In the event of a default, we generally have the right to foreclose on or revoke the vacation ownership interest. We return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory. As discussed above, we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our Statements of Income. Historical default rates, which represent annual defaults as a percentage of each year’s beginning gross vacation ownership notes receivable balance, were as follows:

Rental

We operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory. We obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs.

Rental revenues are primarily the revenues we earn from renting this inventory. We also recognize rental revenue from the utilization of plus points under the MVCD program when those points are redeemed for rental stays at one of our resorts or upon expiration of the points.

Rental expenses include:

•

Maintenance fees on unsold inventory;

•

Costs to provide alternative usage options, including Marriott Rewards Points and offerings available as part of the Explorer Collection, for owners who elect to exchange their inventory;

•

Marketing costs and direct operating and related expenses in connection with the rental business (such as housekeeping, credit card expenses and reservation services); and

•

Costs associated with the banking and borrowing usage option that is available under our MVCD program.

Rental metrics, including the average daily transient rate or the number of transient keys rented, may not be comparable between periods given fluctuation in available occupancy by location, unit size (such as two bedroom, one bedroom or studio unit), and owner use and exchange behavior. Further, as our ability to rent certain luxury inventory and inventory in our Asia Pacific segment is often limited on a site-by-site basis, rental operations may not generate adequate rental revenues to cover associated costs. Our vacation units are either “full villas” or “lock-off” villas. Lock-off villas are units that can be separated into a master unit and a guest room. Full villas are “non-lock-off” villas because they cannot be separated. A “key” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas. Lock-off villas represent two keys and non-lock-off villas represent one key. The “transient keys” metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system.

Cost Reimbursements

Cost reimbursements include direct and indirect costs that property owners’ associations reimburse to us. In accordance with the accounting guidance for “gross versus net” presentation, we record these revenues and expenses on a gross basis. We recognize cost reimbursements when we incur the related reimbursable costs. These costs primarily consist of payroll and payroll related expenses for management of the property owners’ associations and other services we provide where we are the employer. Cost reimbursements consist of actual expenses with no added margin.

Consumer Financing Interest Expense

Consumer financing interest expense represents interest expense associated with the debt from our Warehouse Credit Facility and from the securitization of our vacation ownership notes receivable. We distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and that is generally non-recourse to us.

Interest Expense

Interest expense consists of all interest expense other than consumer financing interest expense.

Other Items

We measure operating performance using the following key metrics:

•

Contract sales from the sale of vacation ownership products;

•

Development margin percentage; and

•

Volume per guest (“VPG”), which we calculate by dividing contract sales, excluding fractional and residential sales, telesales and other sales that are not attributed to a tour at a sales location, by the number of sales tours in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase.

Rounding

Percentage changes presented in our public filings are calculated using whole dollars.

Consolidated Results

The following discussion presents an analysis of our results of operations for 2015, 2014 and 2013.


	Fiscal Years
*($ in thousands)*	2015			2014			2013
Revenues
Sale of vacation ownership products	$	675,329		$	647,488		$	671,284
Resort management and other services		312,229			298,283			290,848
Financing		124,033			128,909			141,306
Rental		312,997			264,307			261,533
Cost reimbursements		405,875			396,795			384,717

Total revenues		1,830,463			1,735,782			1,749,688

Expenses
Cost of vacation ownership products		204,299			196,444			213,592
Marketing and sales		330,599			315,410			315,610
Resort management and other services		199,895			199,258			206,593
Financing		24,194			24,148			24,594
Rental		259,729			237,920			250,850
General and administrative		102,963			98,562			99,379
Litigation settlement		(232	)		19,494			3,230
Organizational and separation related		1,174			3,438			12,308
Consumer financing interest		24,658			26,464			31,375
Royalty fee		58,982			59,970			62,049
Impairment		324			1,381			1,471
Cost reimbursements		405,875			396,795			384,717

Total expenses		1,612,460			1,579,284			1,605,768

Gains and other income		9,557			5,171			922
Interest expense		(12,810	)		(11,692	)		(12,574	)
Equity in earnings		187			74			190
Impairment reversals (charges) on equity investment		—			540			(1,254	)
Other		(8,440	)		—			—

Income before income taxes		206,497			150,591			131,204
Provision for income taxes		(83,698	)		(69,835	)		(51,474	)

Net income	$	122,799		$	80,756		$	79,730

Contract Sales

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Contract Sales
Vacation ownership	$	699,884	$	698,765	$	1,119	NM
Residential products		28,420		14,514		13,906	96%

Total contract sales	$	728,304	$	713,279	$	15,025	2%

NM = not meaningful

The $15.0 million increase in total contract sales was driven by $28.4 million of higher residential contract sales in our Asia Pacific segment, $11.7 million of higher vacation ownership contract sales in our key North America segment and $0.2 million of higher vacation ownership contract sales in our Asia Pacific segment, partially offset by $10.8 million of lower contract sales in our Europe segment and $14.5 million of lower residential contract sales in our North America segment.

The increase in vacation ownership contract sales in our North America segment reflected a $14.5 million increase in sales at on-site sales locations and a $3.0 million increase in fractional sales as we continue to sell through remaining luxury inventory, partially offset by a $5.8 million decrease in sales at off-site (non tour-based) sales locations. The increase in sales at on-site sales locations included a $3.7 million decline in sales to Latin American customers. The decline in sales at off-site sales locations included $9.6 million of lower sales in our Latin American sales channels as a result of the strengthening of the U.S. dollar in the second half of 2015, partially offset by $3.8 million of higher contract sales at our other off-site sales locations.

The increase in sales at on-site sales locations reflected a 2.5 percent increase in the number of tours. VPG remained flat at $3,386 in both years, and was negatively impacted in the second half of 2015 by the strength of the U.S. dollar, primarily impacting Latin American customers purchasing in the U.S., as well as Japanese customers purchasing at our resort in Oahu. VPG benefitted from higher pricing and a 0.1 percentage point increase in closing efficiency, which was offset by a decrease in the number of points sold per contract due to the increase in sales to existing owners in 2015, as existing owners buy fewer points per contract than new owners. The increase in the number of tours was driven by an increase in existing owner tours. In the first quarter of 2015, we announced enhancements to our owner recognition levels that created a near-term incentive for existing owners to purchase additional points prior to the end of the second quarter of 2015, which resulted in an increase in existing owner tours. This was partially offset by the decrease in the number of tours in the third quarter of 2015 as a result of hurricane and threatened hurricane activity.

Due to operational constraints, regulatory conditions and certain other conditions related to our 18 units in Macau, we decided not to sell these units through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as whole ownership residential units during the first quarter of 2015 for $28.4 million. In the third quarter of 2015, we reinvested the proceeds from this disposition into the purchase of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into a new timeshare destination with an on-site sales location and sell the remainder to a third party.

2014 Compared to 2013


	Fiscal Years				Change			% Change
*($ in thousands)*	2014		2013		Change			% Change
Contract Sales
Vacation ownership	$	698,765	$	679,089	$	19,676		3%
Residential products		14,514		14,813		(299	)	(2%)

Total contract sales	$	713,279	$	693,902	$	19,377		3%

Excluding the impact of the additional week in 2013, total contract sales increased $29.7 million and were driven by $19.8 million of higher contract sales in our North America segment and $12.7 million of higher contract sales in our Europe segment, partially offset by $2.8 million of lower contract sales in our Asia Pacific segment. The $19.4 million increase in total contract sales was driven by $11.3 million of higher vacation ownership contract sales in our key North America segment and $11.4 million of higher contract sales in our Europe segment, partially offset by $3.0 million of lower contract sales in our Asia Pacific segment and $0.3 million of lower residential contract sales in our North America segment.

The increase in vacation ownership contract sales in our North America segment reflected a $12.3 million increase in sales at on-site sales locations, and a $1.0 million decline in sales at off-site (non tour-based) sales locations. The increase in sales at on-site sales locations reflected a 6 percent increase in VPG to $3,386 in 2014 from $3,200 in 2013, partially offset by a 3 percent decline in the number of tours. The increase in VPG was due to higher pricing, a 0.3 percentage point increase in closing efficiency and an increase in the number of points sold per contract. Excluding the impact of the additional week in 2013, the number of tours declined 1.5 percent. 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 program’s flexibility to take vacations of shorter duration and exercise alternative usage options. This trend continued to reduce our existing owner tour flow in 2014 because fewer owners were in our resorts, and their stays in our resorts were shorter, than in prior years. We implemented new programs in 2014 aimed at generating additional existing owner tours and new marketing programs targeted toward first-time buyers.

Sale of Vacation Ownership Products

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Contract sales	$	728,304		$	713,279		$	15,025		2%
Revenue recognition adjustments:
Reportability		(1,652	)		(15,502	)		13,850
Sales reserve		(32,999	)		(31,272	)		(1,727	)
Other⁽¹⁾		(18,324	)		(19,017	)		693

Sale of vacation ownership products	$	675,329		$	647,488		$	27,841		4%

⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The higher sales reserve is driven by the higher vacation ownership contract sales and the impact of higher financing propensity in our North America segment, partially offset by a decrease in the estimated default activity in our North America segment compared to 2014. Revenue reportability had a $1.7 million negative impact in 2015, compared to a $15.5 million negative impact in 2014 due to fewer sales meeting the down payment requirements for revenue reportability and more sales in the rescission period at the end of 2014.

2014 Compared to 2013


	Fiscal Years						Change			% Change
*($ in thousands)*	2014			2013			Change			% Change
Contract sales	$	713,279		$	693,902		$	19,377		3%
Revenue recognition adjustments:
Reportability		(15,502	)		29,206			(44,708	)
Sales reserve		(31,272	)		(35,931	)		4,659
Other⁽¹⁾		(19,017	)		(15,893	)		(3,124	)

Sale of vacation ownership products	$	647,488		$	671,284		$	(23,796	)	(4%)

⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The lower vacation ownership notes receivable reserve activity is due to a decrease in estimated default activity compared to 2013. Revenue reportability was higher in 2013 because the rescission period related to certain sales had expired, of which $20.0 million related to the impact of extended rescission periods in our Europe segment in 2013.

Development Margin

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Sale of vacation ownership products	$	675,329		$	647,488		$	27,841		4%
Cost of vacation ownership products		(204,299	)		(196,444	)		(7,855	)	(4%)
Marketing and sales		(330,599	)		(315,410	)		(15,189	)	(5%)

Development margin	$	140,431		$	135,634		$	4,797		4%

Development margin percentage		20.8%			20.9%			(0.1 pts	)

The increase in development margin reflected the following:

•

$8.6 million from higher revenue reportability compared to the prior year comparable period;

•

$4.0 million of lower development expenses due to more costs being capitalized in 2015 compared to 2014 and the disposition of land and related assets in Kauai in the fourth quarter of 2014 and second quarter of 2015 and at The Abaco Club on Winding Bay (“The Abaco Club”), in the Bahamas, in the third quarter of 2014;

•

$3.1 million from higher residential contract sales ($5.9 million from the sale of residential inventory in our Asia Pacific segment in 2015 compared to $2.8 million from the sale of residential inventory in our North America segment in 2014); and

•

$0.8 million from higher favorable product cost true-ups ($7.3 million in 2015 compared to $6.5 million in 2014).

These increases were partially offset by the following:

•

$9.9 million decline from the change in vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $14.3 million from higher marketing and sales costs due to an inability to leverage fixed costs on lower sales volumes in our Europe segment, investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs in our North America segment, partially offset by $3.3 million from a favorable mix of lower cost real estate inventory being sold and $1.1 million from the higher vacation ownership contract sales volume; and

•

$1.8 million from the higher sales reserve activity in 2015, including $1.0 million in our Asia Pacific segment and $0.7 million in our North America segment due to the increase in financing propensity.

The 0.1 percentage point decline in the development margin percentage reflected a 2.2 percentage point decline due to higher marketing and sales spending and a 0.2 percentage point decline from the higher vacation ownership notes receivable reserve activity. This was partially offset by a 0.9 percentage point increase due to the favorable revenue reportability year-over-year, a 0.7 percentage point increase from the lower development expenses, a 0.5 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in 2015, a 0.1 percentage point increase due to the higher favorable product cost true-up activity year-over-year, and a 0.1 percentage point increase from the higher North America vacation ownership contract sales (which have a

development margin that is higher than the company-wide average) and the lower Europe vacation ownership contract sales (which have a development margin that is lower than the company-wide average).

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Sale of vacation ownership products	$	647,488	$	671,284	$	(23,796)	(4%)
Cost of vacation ownership products		(196,444)		(213,592)		17,148	8%
Marketing and sales		(315,410)		(315,610)		200	NM

Development margin	$	135,634	$	142,082	$	(6,448)	(5%)

Development margin percentage		20.9%		21.2%		(0.3 pts)

The decline in development margin reflected a $26.5 million impact from lower revenue reportability year-over-year (of which $11.4 million related to the impact of extended rescission periods in our Europe segment in 2013) and $11.2 million of lower favorable product cost true-ups ($6.5 million in 2014 compared to $17.7 million in 2013). These declines were partially offset by a $25.4 million increase from higher contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven mainly by $22.4 million from a favorable mix of lower cost real estate inventory being sold, $1.8 million from more efficient marketing and sales spending and $1.2 million from the net impact of the higher contract sales volume. In addition, the development margin reflected a $4.4 million impact from the decrease in vacation ownership notes receivable reserve activity and $1.5 million of severance related to the restructuring of sales locations in Europe in 2013.

The 0.3 percentage point decline in the development margin percentage reflected a nearly 3 percentage point decrease due to lower revenue reportability year-over-year and a 2 percentage point decrease due to the lower favorable product cost true-up activity year-over-year. These declines were partially offset by a 3 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in 2014, a less than 1 percentage point increase due to increased efficiency in marketing and sales spending and a less than 1 percentage point increase from the lower vacation ownership notes receivable reserve activity.

Resort Management and Other Services Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years					Change			% Change
*($ in thousands)*	2015		2014			Change			% Change
Management fee revenues	$	77,612	$	73,936		$	3,676		5%
Other services revenues		234,617		224,347			10,270		5%

Resort management and other services revenues		312,229		298,283			13,946		5%
Resort management and other services expenses		(199,895)		(199,258	)		(637	)	NM

Resort management and other services margin	$	112,334	$	99,025		$	13,309		13%

Resort management and other services margin percentage		36.0%		33.2%			2.8 pts

The increase in resort management and other services revenues reflected $4.0 million of higher ancillary revenues, $3.7 million of higher management fees (net of $1.1 million negative foreign exchange impact in our Europe segment), $2.4 million of higher resales commission and other revenues, $2.1 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners

enrolled in the program and $1.7 million of higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees. The increase in ancillary revenues included a $6.9 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts, $7.4 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015 and $2.0 million of ancillary revenues at the operating hotel in San Diego acquired in the first quarter of 2015. These increases were partially offset by an $8.9 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing of the operation of a restaurant during the prior year, as well a $3.4 million decline from the changes in foreign exchange rates in our Europe segment.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $0.6 million of lower expenses, including $14.4 million of ancillary expense savings from the dispositions, closure and outsourcing noted above and $3.7 million from the changes in foreign exchange rates in our Europe segment, partially offset by $9.8 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in 2015, $6.1 million from the operation of the hotel in Australia and $1.6 million from the operation of the hotel in San Diego.

2014 Compared to 2013


	Fiscal Years						Change		% Change
*($ in thousands)*	2014			2013			Change		% Change
Management fee revenues	$	73,936		$	69,662		$	4,274	6%
Other services revenues		224,347			221,186			3,161	1%

Resort management and other services revenues		298,283			290,848			7,435	3%
Resort management and other services expenses		(199,258	)		(206,593	)		7,335	4%

Resort management and other services margin	$	99,025		$	84,255		$	14,770	17%

Resort management and other services margin percentage		33.2%			29.0%			4.2 pts

The increase in resort management and other services revenues reflected $4.3 million of higher management fees, $3.0 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $2.9 million of higher fees from external exchange service providers and $1.6 million of higher resales commission, partially offset by $3.5 million of lower ancillary revenues. The decrease in ancillary revenues included a $3.2 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014 and a $1.8 million decline at The Abaco Club in the Bahamas, partially offset by a $1.5 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 increase in revenue, as well as $5.4 million of lower ancillary expenses due to the dispositions noted above and other operating improvements and $1.9 million of lower customer service and MVCD program expenses in 2014 compared to 2013.

Financing Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Interest income	$	118,020		$	122,551		$	(4,531	)	(4%)
Other financing revenues		6,013			6,358			(345	)	(5%)

Financing revenues		124,033			128,909			(4,876	)	(4%)
Financing expenses		(24,194	)		(24,148	)		(46	)	NM
Consumer financing interest expense		(24,658	)		(26,464)			1,806		7%

Financing margin	$	75,181		$	78,297		$	(3,116	)	(4%)

Financing propensity		50%			44%

The decrease in financing revenues was due to a $48.4 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. The lower consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances ($2.2 million), partially offset by an increase in the outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($0.4 million). The lower average interest rate reflected the continued pay down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

The increase in financing propensity resulted from new programs implemented in the first half of 2015, which helped increase financing propensity from the 40 to 45 percent average achieved in recent years. As a result of these programs, we expect that interest income will begin to increase in the near term as new originations of vacation ownership notes receivable begin to outpace the decline in principal of existing vacation ownership notes receivables. We are targeting a 50 to 55 percent financing propensity in 2016.

2014 Compared to 2013


	Fiscal Years						Change			% Change
*($ in thousands)*	2014			2013			Change			% Change
Interest income	$	122,551		$	134,735		$	(12,184	)	(9%)
Other financing revenues		6,358			6,571			(213	)	(3%)

Financing revenues		128,909			141,306			(12,397	)	(9%)
Financing expenses		(24,148	)		(24,594	)		446		2%
Consumer financing interest expense		(26,464	)		(31,375	)		4,911		16%

Financing margin	$	78,297		$	85,337		$	(7,040	)	(8%)

Financing propensity		44%			42%

The decrease in financing revenues was due to an $84.3 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 ($3.0 million) as well as a lower average interest rate ($1.9 million). The

lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

Rental Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Rental revenues	$	312,997		$	264,307		$	48,690		18%
Unsold maintenance fees — upscale		(55,397	)		(51,328	)		(4,069	)	(8%)
Unsold maintenance fees — luxury		(7,733	)		(9,639	)		1,906		20%

Unsold maintenance fees		(63,130	)		(60,967	)		(2,163	)	(4%)
Other rental expenses		(196,599	)		(176,953	)		(19,646	)	(11%)

Rental margin	$	53,268		$	26,387		$	26,881		102%

Rental margin percentage		17.0%			10.0%			7.0 pts


	Fiscal Years				Change			% Change
	2015		2014		Change			% Change
Transient keys rented⁽¹⁾		1,179,905		1,114,370		65,535		6%
Average transient key rate	$	219.45	$	211.68	$	7.77		4%
Resort occupancy		89.0%		89.4%		(0.4 pts	)

⁽¹⁾

Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a company-wide 6 percent increase in transient keys rented ($13.9 million) primarily sourced from a 7 percent increase in available keys, a company-wide 4 percent increase in average transient rate ($9.2 million) driven by stronger consumer demand, $5.2 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) and a $4.0 million increase in preview keys and other revenue. In addition, we generated $9.4 million of revenue from the operation of the hotel in San Diego acquired during the first quarter of 2015 and $7.0 million of revenue from the operation of the hotel in Australia acquired in the third quarter of 2015.

The increase in rental margin reflected $19.1 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, as well as $6.5 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($2.2 million favorable adjustment in 2015 compared to $4.3 million unfavorable charge in 2014) and the $5.2 million increase in plus points revenue, partially offset by a $2.9 million loss from the operation of the hotel in San Diego and a $1.0 million loss from the operation of the hotel in Australia.

2014 Compared to 2013


	Fiscal Years						Change		% Change
*($ in thousands)*	2014			2013			Change		% Change
Rental revenues	$	264,307		$	261,533		$	2,774	1%
Unsold maintenance fees — upscale		(51,328	)		(54,307	)		2,979	5%
Unsold maintenance fees — luxury		(9,639	)		(12,180	)		2,541	21%

Unsold maintenance fees		(60,967	)		(66,487	)		5,520	8%
Other rental expenses		(176,953	)		(184,363	)		7,410	4%

Rental margin	$	26,387		$	10,683		$	15,704	147%

Rental margin percentage		10.0%			4.1%			5.9 pts



	Fiscal Years
	2014		2013		Change			% Change
Transient keys rented ⁽¹⁾		1,114,370		1,098,755		15,615		1%
Average transient key rate	$	211.68	$	205.68	$	6.00		3%
Resort occupancy		89.4%		90.0%		(0.6 pts	)

⁽¹⁾

Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a company-wide 3 percent increase in average transient rate (nearly $6.7 million) and a company-wide 1 percent increase in transient keys rented ($3.2 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory. These increases were partially offset by $7.0 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).

The increase in rental margin reflected $23.0 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, partially offset by the $7.0 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 $0.3 million of higher charges associated with Marriott Rewards Points issued prior to the Spin-Off ($4.3 million unfavorable charge in 2014 compared to $4.0 million unfavorable charge in 2013).

Cost Reimbursements

2015 Compared to 2014

Cost reimbursements increased $9.1 million, or 2.3 percent, over 2014, reflecting an increase of $16.7 million due to higher costs and $5.1 million due to additional managed unit weeks in 2015, partially offset by $6.5 million of lower costs associated with management contracts that were terminated prior to 2015 and a $6.2 million negative impact from foreign exchange rates in our Europe segment.

2014 Compared to 2013

Cost reimbursements increased $12.1 million, or 3 percent, over the prior year, reflecting an increase of $12.9 million due to higher costs and $3.0 million due to additional managed unit weeks in 2014, partially offset by $3.8 million of lower costs associated with two management contracts that were terminated in 2013.

General and Administrative

2015 Compared to 2014

General and administrative expenses increased $4.4 million (from $98.6 million to $103.0 million) and were driven by $2.7 million of higher personnel related and other costs net of lower depreciation and cost savings and $1.7 million of costs related to a refurbishment project in 2015.

2014 Compared to 2013

General and administrative expenses decreased $0.8 million (from $99.4 million to $98.6 million) and included $3.0 million of savings related to organizational and separation related efforts in the human resources, information technology and finance and accounting organizations, partially offset by $1.1 million of higher personnel related costs and $1.1 million from the favorable resolution of an international tax (non-income tax) matter in 2013.

Litigation Settlement

2015

During the first quarter of 2015, we reversed $0.3 million of an accrual from the sale of The Abaco Club in the Bahamas in the fourth quarter of 2014 because actual costs incurred were lower than expected.

2014

During the fourth quarter of 2014, we completed the sale of The Abaco Club in the Bahamas. As a result of the sale we recorded a loss of $23.8 million, which is included in the Litigation settlement line on the Statement of Income. See Footnote No. 5, “Acquisitions and Dispositions,” and Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for further information related to this transaction.

During the third quarter of 2014, an agreement in principle was reached to settle an action related to The Ritz-Carlton Club and Residences, San Francisco (the “RCC San Francisco”). As a result of the agreement in principle, we recorded a charge of $3.2 million, which is included in the Litigation settlement line on the Statement of Income. See Footnote No. 9, “Contingencies and Commitments,” to our Financial Statements for further information related to this pending action.

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 RCC San Francisco, a project within our North America segment, who questioned the adequacy of disclosures made regarding bonds issued for that project under California’s 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 $7.6 million after the end of the second quarter from the service provider, which no longer provides services to us. We recorded a gain of $7.6 million as a result of the settlement, which is included in the Litigation settlement line on the Statement of Income.

2013

In the first quarter of 2013 we reversed $1.5 million of the charge we recorded in 2012 based upon final settlement of the lawsuit related to the RCC San Francisco that was pending at the end of 2012. In the fourth quarter of 2013 we recorded a $4.7 million charge related to the settlement of a lawsuit related to a project in our Europe segment. The plaintiffs in this lawsuit alleged breach of a partnership agreement and copyright infringement in connection with renovations at that project.

Organizational and Separation Related Efforts

2015 Compared to 2014 and 2014 Compared to 2013

Following 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 organizational and separation related activities, we incurred certain expenses to complete our separation from Marriott International. These costs primarily related 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 do not expect to incur organizational and separation related expenses after 2015.

Organizational and separation related expenses, as reflected on our Statements of Income, continued to decline on an annual basis and were $1.2 million in 2015, $3.4 million in 2014 and $12.3 million in 2013.

Interest Expense

2015 Compared to 2014

Interest expense increased $1.1 million (from $11.7 million to $12.8 million) due to $2.5 million of lower capitalized interest costs because we had fewer projects under construction in 2015 compared to 2014 due to the use of capital efficient structures, partially offset by a $0.7 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under our Marriott Rewards Affiliation Agreement with Marriott International and a $0.7 million decline in other interest expense. Due to the payoff of the liability associated with the Marriott Rewards customer loyalty program, we will not incur further interest expense associated with this liability in the future.

2014 Compared to 2013

Interest expense decreased $0.9 million (from $12.6 million to $11.7 million) due to a $1.4 million decline in expense associated with our liability for the Marriott Rewards customer loyalty program under the Marriott Rewards Agreement and a $1.0 million decline in other interest expense, partially offset by $1.5 million of lower capitalized interest costs.

Royalty Fee

2015 Compared to 2014

Royalty fee expense decreased $1.0 million in 2015 (from $60.0 million to $59.0 million), and included $2.0 million of lower costs due to a higher portion of sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales of our real estate inventory (one percent versus two percent), partially offset by $1.0 million of higher costs due to higher closings in 2015. Royalty fee expense decreased despite higher sales of our real estate inventory, as the $28.4 million of residential contract sales in our Asia Pacific segment were unbranded and did not require us to pay a royalty fee.

2014 Compared to 2013

Royalty fee expense decreased $2.0 million in 2014 (from $62.0 million in 2013 to $60.0 million in 2014), and included $1.0 million of lower costs 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), and $1.0 million of lower costs due to the additional week in 2013.

Impairment

2015 Compared to 2014 and 2014 Compared to 2013

In 2015, we recorded an impairment charge of $0.3 million associated with a building at one of our projects in our North America segment. In 2014, we recorded impairment charges of $0.8 million associated with a building as a result of a termination of a land lease at one of our projects in our North America segment, $0.4 million associated with sales center assets in our North America segment and $0.2 million associated with the closure of an ancillary operation in our North America segment. In 2013, we recorded an impairment charge of $1.5 million related to a leased golf course at a project in our Europe segment.

Gains and Other Income

2015 Compared to 2014 and 2014 Compared to 2013

Gains and other income of $9.6 million during 2015 included an $8.7 million gain on the disposition of undeveloped land in Kauai, Hawaii and a $0.9 million gain from the disposition of a golf course and adjacent undeveloped land in Orlando, Florida. We disposed of the golf course and undeveloped land in Orlando, Florida in the first quarter of 2014 and, as a condition of the sale, we continued to operate the golf course through the end of the first quarter of 2015 at our own risk. We utilized the performance of services method to record a gain of $3.1 million over the period during which we operated the golf course, $0.9 million of which was recorded in 2015.

Gains and other income of $5.2 million during 2014 included a $2.9 million gain on the disposition of undeveloped and partially developed land, an operating golf course and related assets, in Kauai, Hawaii and a $2.2 million gain related to the disposition of the golf course and adjacent undeveloped land in Orlando, Florida. Gains and other income of $0.9 million during 2013 related to a gain on the disposition of a multi-family parcel in St. Thomas, U.S. Virgin Islands.

Equity in Earnings

2015 Compared to 2014 and 2014 Compared to 2013

Equity in earnings, which relates to our investment in a joint venture in our Asia Pacific segment, was $0.2 million during 2015, $0.1 million during 2014 and $0.2 million during 2013.

Impairment Reversals (Charges) on Equity Investment

2015 Compared to 2014 and 2014 Compared to 2013

There were no impairment charges or reversals on equity investment in 2015. In 2014, we reduced our accrual by $0.5 million for remaining costs we expected to incur in connection with an interest in an equity method investment in a joint venture project in our North America segment. In 2013, we increased our accrual by $8.7 million for remaining costs we expected to incur in connection with an interest in an equity method investment in a joint venture project in our North America segment. This was partially offset by $7.4 million of earnings attributed to a partial repayment of previously reserved receivables due from the same joint venture.

Other

2015 Compared to 2014 and 2014 Compared to 2013

In 2015, we incurred $5.7 million of transaction related costs associated with the completion of our purchase of an operating hotel located in Surfers Paradise, Australia, which was required to be accounted for as a business combination for which transaction costs are expensed. See Footnote No. 8, “Contingencies and Commitments,” to our Financial Statements for further information related to this transaction. In addition, we

incurred $2.1 million associated with potential acquisition opportunities and $0.6 million of costs associated with the New York and the South Beach area of Miami Beach transactions discussed in Footnote No. 19, “Subsequent Events”, to our Financial Statements. We did not incur any transaction related costs during 2014 or 2013.

Income Tax

Our effective tax rates for fiscal years 2015, 2014 and 2013 were 40.53%, 46.37% and 39.23%, respectively. Our tax rate is affected by recurring items, such as non-deductible expenses, tax rates in foreign jurisdictions and the relative amount of income we earn in different jurisdictions, which, with the exception of the loss on the disposition of The Abaco Club in the Bahamas in 2014, we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. The following is a description of the items impacting our effective tax rate during the current and prior two years.

2015 Compared to 2014

Our provision for income taxes increased $13.9 million (from $69.8 million to $83.7 million) due to higher consolidated income before income taxes in the United States and an increase in tax from foreign jurisdictions.

2014 Compared to 2013

Our provision for income taxes increased $18.3 million (from $51.5 million to $69.8 million) due to higher consolidated income before income taxes and the change in the geographic composition of income before income taxes. We had lower income before income taxes in our foreign jurisdictions during 2014, as compared to 2013, due to the loss on the disposition of The Abaco Club in the Bahamas during the fourth quarter of 2014 and an increase in the income before income taxes attributable to the United States.

EBITDA

The table below shows our EBITDA calculation and reconciles that measure with Net income.


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Net income	$	122,799	$	80,756	$	79,730
Interest expense		12,810		11,692		12,574
Tax provision		83,698		69,835		51,474
Depreciation and amortization		22,217		18,682		22,595

EBITDA	$	241,524	$	180,965	$	166,373

Business Segments

Our business is grouped into three reportable business segments: North America, Europe and Asia Pacific. See Footnote No. 17, “Business Segments,” to our Financial Statements for further information on our segments, and “Business—Segments” for further details regarding our individual properties by segment.

As of January 1, 2016, our portfolio consisted of the following 61 properties by segment:


	U.S.⁽¹⁾		Non-U.S.		Total
North America⁽²⁾		47		5		52
Europe		—		5		5
Asia Pacific⁽³⁾		—		4		4

Total		47		14		61

⁽¹⁾

Includes properties located in the 48 contiguous states, Hawaii and Alaska.

⁽²⁾

Includes an operating hotel in San Diego, California acquired during the first quarter of 2015, which is operated by a third party, that we intend to convert, in its entirety, into vacation ownership interests for future use in our MVCD program.

⁽³⁾

Includes a 329 room operating hotel in Surfers Paradise, Australia acquired during the third quarter of 2015, which is operated by a third party. We intend to convert a portion of this hotel into vacation ownership interests for future use in our Asia Pacific segment, and sell the remaining downsized hotel to a third party.

North America

The following discussion presents an analysis of our results of operations for 2015, 2014 and 2013.


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Revenues
Sale of vacation ownership products	$	586,774	$	577,781	$	583,038
Resort management and other services		272,596		262,727		255,190
Financing		115,738		120,111		132,403
Rental		277,348		234,668		232,353
Cost reimbursements		369,467		354,270		341,832

Total revenues		1,621,923		1,549,557		1,544,816


	Fiscal Years
*($ in thousands)*	2015			2014		2013
Expenses
Cost of vacation ownership products		164,200			170,012		184,554
Marketing and sales		288,260			272,302		269,569
Resort management and other services		166,233			168,764		175,838
Rental		225,043			209,371		221,875
Litigation settlement		(370	)		19,244		(1,503	)
Organizational and separation related		532			894		42
Royalty fee		7,971			8,825		9,774
Impairment		324			1,381		—
Cost reimbursements		369,467			354,270		341,832

Total expenses		1,221,660			1,205,063		1,201,981

Gains and other income		9,600			5,350		922
Equity in earnings		200			205		192
Impairment reversals (charges) on equity investment		—			540		(1,254	)
Other		(622	)		—		—

Segment financial results	$	409,441		$	350,589	$	342,695

Contract Sales

2015 Compared to 2014


	Fiscal Years				Change			% Change
*($ in thousands)*	2015		2014		Change			% Change
Contract Sales
Vacation ownership	$	631,403	$	619,688	$	11,715		2%
Residential products		—		14,514		(14,514	)	(100%)

Total contract sales	$	631,403	$	634,202	$	(2,799	)	NM

The increase in vacation ownership contract sales in our North America segment reflected a $14.5 million increase in sales at on-site sales locations and a $3.0 million increase in fractional sales as we continue to sell through remaining luxury inventory, partially offset by a $5.8 million decrease in sales at off-site (non tour-based) sales locations. The increase at on-site sales locations included a $3.7 million decline in sales to Latin American customers. The decline in sales at off-site sales locations included $9.6 million of lower sales in our Latin American sales channels as a result of the strengthening of the U.S. dollar in the second half of 2015, partially offset by $3.8 million of higher contract sales at our other off-site sales locations.

The decline in residential contract sales was due to the sale of $14.5 million of excess residential inventory in the prior year comparable period.

2014 Compared to 2013


	Fiscal Years				Change			% Change
*($ in thousands)*	2014		2013		Change			% Change
Contract Sales
Vacation ownership	$	619,688	$	608,364	$	11,324		2%
Residential products		14,514		14,813		(299	)	(2%)

Total contract sales	$	634,202	$	623,177	$	11,025		2%

Excluding the impact of the additional week in 2013, contract sales increased $19.8 million in our North America segment. The increase in vacation ownership contract sales in our North America segment reflected a $12.3 million increase in sales at on-site sales locations, and a $1.0 million decline in sales at off-site (non tour-based) sales locations. The increase in sales at on-site sales locations reflected a 6 percent increase in VPG to $3,386 in 2014 from $3,200 in 2013, partially offset by a 3 percent decline in the number of tours. The increase in VPG was due to higher pricing, a 0.3 percentage point increase in closing efficiency and an increase in the number of points sold per contract. Excluding the impact of the additional week in 2013, the number of tours declined 1.5 percent. 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 program’s flexibility to take vacations of shorter duration and exercise alternative usage options. This trend continued to reduce our existing owner tour flow in 2014 because fewer owners were in our resorts, and their stays in our resorts were shorter, than in prior years. We implemented new programs in 2014 aimed at generating additional existing owner tours and new marketing programs targeted toward first-time buyers.

Sale of Vacation Ownership Products

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Contract sales	$	631,403		$	634,202		$	(2,799	)	NM
Revenue recognition adjustments:
Reportability		(841	)		(12,911	)		12,070
Sales reserve		(26,077	)		(24,753	)		(1,324	)
Other⁽¹⁾		(17,711	)		(18,757	)		1,046

Sale of vacation ownership products	$	586,774		$	577,781		$	8,993		2%

⁽¹⁾ Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a $0.8 million negative impact in 2015, compared to a $12.9 million negative impact in 2014 due to fewer sales meeting the down payment requirements for revenue reportability and more sales in the rescission period at the end of 2014. The higher sales reserve is driven by the higher vacation ownership contract sales and the impact of higher financing propensity, partially offset by a decrease in the estimated default activity compared to 2014.

2014 Compared to 2013


	Fiscal Years						Change			% Change
*($ in thousands)*	2014			2013			Change			% Change
Contract sales	$	634,202		$	623,177		$	11,025		2%
Revenue recognition adjustments:
Reportability		(12,911	)		5,356			(18,267	)
Sales reserve		(24,753	)		(29,699	)		4,946
Other⁽¹⁾		(18,757	)		(15,796	)		(2,961	)

Sale of vacation ownership products	$	577,781		$	583,038		$	(5,257	)	(1%)

⁽¹⁾ Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The lower vacation ownership notes receivable reserve activity is due to a decrease in estimated default activity compared to 2013.

Development Margin

2015 Compared to 2014


	Fiscal Years						Change			% Change
*($ in thousands)*	2015			2014			Change			% Change
Sale of vacation ownership products	$	586,774		$	577,781		$	8,993		2%
Cost of vacation ownership products		(164,200	)		(170,012	)		5,812		3%
Marketing and sales		(288,260	)		(272,302	)		(15,958	)	(6%)

Development margin	$	134,314		$	135,467		$	(1,153	)	(1%)

Development margin percentage		22.9%			23.4%			(0.5 pts	)

The decrease in development margin reflected the following:

•

$5.0 million from higher vacation ownership contract sales volume net of higher direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), including $10.3 million from higher marketing and sales costs due to investment in new programs to help generate future incremental tour volumes and higher marketing and sales related program costs, partially offset by $2.8 million from the higher vacation ownership contract sales and $2.5 million from a favorable mix of lower cost vacation ownership real estate inventory being sold;

•

$2.8 million from lower residential contract sales (no residential sales in 2015 compared to $14.5 million from the sale of residential inventory in 2014);

•

$1.3 million from lower favorable product cost true-ups ($5.0 million in 2015 compared to $6.3 million in 2014); and

•

$0.7 million from higher sales reserve activity in 2015 due to the increase in financing propensity.

These decreases were partially offset by $7.4 million from higher revenue reportability compared to the prior year comparable period and $1.2 million of lower development expenses primarily from the disposition of land and related assets in Kauai in the fourth quarter of 2014 and second quarter of 2015, and The Abaco Club in the Bahamas in the third quarter of 2014.

The 0.5 percentage point decline in the development margin percentage reflected a 1.8 percentage point decline due to higher marketing and sales spending and a 0.2 percentage point decrease due to the lower favorable product cost true-up activity year-over-year. These declines were partially offset by a 0.9 percentage

point increase due to the favorable revenue reportability year-over-year, a 0.4 percentage point increase due to a favorable mix of lower cost vacation ownership real estate inventory being sold in 2015, and a 0.2 percentage point increase due to the lower development expenses as a result of the disposition of land and assets noted above.

2014 Compared to 2013


	Fiscal Years						Change			% Change
*($ in thousands)*	2014			2013			Change			% Change
Sale of vacation ownership products	$	577,781		$	583,038		$	(5,257	)	(1%)
Cost of vacation ownership products		(170,012	)		(184,554	)		14,542		8%
Marketing and sales		(272,302	)		(269,569	)		(2,733	)	(1%)

Development margin	$	135,467		$	128,915		$	6,552		5%

Development margin percentage		23.4%			22.1%			1.3 pts

The increase in development margin reflected a $23.7 million increase from higher contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) driven by $22.8 million from a favorable mix of lower cost real estate inventory being sold and $0.8 million from the net impact of the higher contract sales volume. Additionally, the increase in development margin reflected a $3.9 million decrease in vacation ownership notes receivable reserve activity. These increases were partially offset by $11.0 million of lower revenue reportability compared to 2013 and $9.9 million of lower favorable product cost true-ups ($6.3 million in 2014 compared to $16.2 million in 2013).

The 1.3 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 2014 and a less than 1 percentage point increase from the lower vacation ownership notes receivable reserve activity, partially offset by a 2 percentage point decrease due to the lower favorable product cost true-up activity year-over-year and a 1 percentage point decrease due to lower revenue reportability year-over-year.

Resort Management and Other Services Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Management fee revenues	$	68,770	$	64,324	$	4,446	7%
Other services revenues		203,826		198,403		5,423	3%

Resort management and other services revenues		272,596		262,727		9,869	4%
Resort management and other services expenses		(166,233)		(168,764)		2,531	1%

Resort management and other services margin	$	106,363	$	93,963	$	12,400	13%

Resort management and other services margin percentage		39.0%		35.8%		3.2 pts

The increase in resort management and other services revenues reflected $4.4 million of higher management fees, $2.1 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $2.0 million of higher resales commission and other revenues, $1.7 million of higher settlement and lien fees due to an increase in the number of contracts closed and higher assessed lien fees and $1.0 million of higher fees from external exchange service providers, partially offset by $1.3 million of lower ancillary revenues. The decrease in ancillary revenues included an

$8.9 million decline due to the disposition of certain assets during the prior year, the closure of another ancillary operation during the prior year and outsourcing the operation of a restaurant during the prior year, partially offset by a $5.6 million increase in ancillary revenues from food and beverage and golf offerings at our existing resorts and $2.0 million of ancillary revenues at the operating hotel in San Diego acquired in the first quarter of 2015.

The improvement in the resort management and other services margin reflected the changes in revenue, as well as $2.5 million of lower expenses, including $14.4 million of ancillary expense savings from the dispositions, closure and outsourcing noted above, partially offset by $10.3 million of higher ancillary, customer service, settlement and MVCD program expenses related to the higher revenues from our existing resorts in 2015 and $1.6 million from the operation of the hotel in San Diego.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Management fee revenues	$	64,324	$	60,587	$	3,737	6%
Other services revenues		198,403		194,603		3,800	2%

Resort management and other services revenues		262,727		255,190		7,537	3%
Resort management and other services expenses		(168,764)		(175,838)		7,074	4%

Resort management and other services margin	$	93,963	$	79,352	$	14,611	18%

Resort management and other services margin percentage		35.8%		31.1%		4.7 pts

The increase in resort management and other services revenues reflected $3.7 million of higher management fees, $3.0 million of additional annual club dues earned in connection with the MVCD program due to the cumulative increase in owners enrolled in the program, $3.0 million of higher fees from external exchange service providers and $1.3 million of higher resales commission and other revenues, partially offset by $3.5 million of lower ancillary revenues. The decrease in ancillary revenues included a $3.2 million decline due to the disposition of a golf course in Orlando, Florida during the first quarter of 2014 and a $1.8 million decline at The Abaco Club in the Bahamas, partially offset by a $1.5 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, as well as $5.4 million of lower ancillary expenses due to the dispositions described above and other operating improvements and $1.7 million of lower customer service and MVCD program expenses in 2014 compared to 2013.

Financing Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Interest income	$	109,884	$	113,958	$	(4,074)	(4%)
Other financing revenues		5,854		6,153		(299)	(5%)

Financing revenues	$	115,738	$	120,111	$	(4,373)	(4%)

Financing propensity		49%		42%

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.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Interest income	$	113,958	$	125,981	$	(12,023)	(10%)
Other financing revenues		6,153		6,422		(269)	(4%)

Financing revenues	$	120,111	$	132,403	$	(12,292)	(9%)

Financing propensity		42%		40%

Rental Revenues, Expenses and Margin

We hold a significant amount of luxury inventory in the North America segment and as such, have a corresponding obligation to pay maintenance fees on the real estate interests we own. Because vacation ownership interests in our luxury inventory often consist of multiple weeks and require upscale fit and finishes and levels of service to meet Ritz-Carlton brand standards, maintenance fees for luxury inventory are much higher than for our other inventory. We mitigate the maintenance fee expense to the extent possible through open market rental and internal sales-related marketing programs; however, our opportunities to rent this inventory are limited due to contractual and legal restrictions.

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Rental revenues	$	277,348	$	234,668	$	42,680		18%
Unsold maintenance fees — upscale		(51,606)		(45,722)		(5,884)		(13%)
Unsold maintenance fees — luxury		(7,733)		(9,639)		1,906		20%

Unsold maintenance fees		(59,339)		(55,361)		(3,978)		(7%)
Other rental expenses		(165,704)		(154,010)		(11,694)		(8%)

Rental margin	$	52,305	$	25,297	$	27,008		107%

Rental margin percentage		18.9%		10.8%		8.1 pts


	Fiscal Years
	2015		2014		Change		% Change
Transient keys rented⁽¹⁾		1,088,206		1,022,846		65,360	6%
Average transient key rate	$	214.47	$	204.38	$	10.09	5%
Resort occupancy		90.2%		90.3%		(0.1 pts)

⁽¹⁾

Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a 6 percent increase in transient keys rented ($13.4 million) primarily sourced from a 7 percent increase in available keys, a 5 percent increase in average transient rate ($11.0 million) driven by stronger consumer demand, $5.2 million of higher plus points revenue (which is recognized upon utilization of plus points for stays at our resorts or upon expiration of the points) and a $3.6 million increase in preview keys and other revenue. In addition, we generated $9.4 million of revenue from the operation of the hotel in San Diego.

The increase in rental margin reflected $18.2 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, as well as $6.5 million of lower charges associated with Marriott Rewards Points issued prior to the Spin-Off ($2.2 million favorable adjustment in 2015 compared to $4.3 million unfavorable charge in 2014) and the $5.2 million increase in plus points revenue, partially offset by a $2.9 million loss from the operation of the hotel in San Diego acquired during the first quarter of 2015.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Rental revenues	$	234,668	$	232,353	$	2,315	1%
Unsold maintenance fees — upscale		(45,722)		(48,178)		2,456	5%
Unsold maintenance fees — luxury		(9,639)		(12,180)		2,541	21%

Unsold maintenance fees		(55,361)		(60,358)		4,997	8%
Other rental expenses		(154,010)		(161,517)		7,507	5%

Rental margin	$	25,297	$	10,478	$	14,819	141%

Rental margin percentage		10.8%		4.5%		6.3 pts


	Fiscal Years
	2014		2013		Change		% Change
Transient keys rented ⁽¹⁾		1,022,846		1,005,851		16,995	2%
Average transient key rate	$	204.38	$	199.65	$	4.73	2%
Resort occupancy		90.3%		90.7%		(0.4 pts)

⁽¹⁾

Transient keys rented exclude those obtained through the use of plus points.

The increase in rental revenues was due to a 2 percent increase in average transient rate (nearly $4.8 million) and a 2 percent increase in transient keys rented ($3.4 million), both of which were driven by stronger consumer demand and a favorable mix of available inventory, partially offset by $7.0 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).

The increase in rental margin reflected $22.1 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, partially offset by the $7.0 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 $0.3 million of higher charges associated with Marriott Rewards Points issued prior to the Spin-Off ($4.3 million unfavorable charge in 2014 compared to $4.0 million unfavorable charge in 2013).

Europe

The following discussion presents an analysis of our results of operations for 2015, 2014 and 2013.


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Revenues
Sale of vacation ownership products	$	28,963	$	35,062	$	54,790
Resort management and other services		27,643		31,119		31,288
Financing		3,949		4,300		4,291
Rental		20,679		21,997		21,851
Cost reimbursements		33,348		39,205		37,057

Total revenues		114,582		131,683		149,277

Expenses
Cost of vacation ownership products		6,509		8,711		15,479
Marketing and sales		21,974		24,401		26,036
Resort management and other services		22,968		27,319		28,040
Rental		15,431		16,161		17,244
Litigation settlement		—		—		4,733
Royalty fee		464		631		653
Impairment		—		—		1,471
Cost reimbursements		33,348		39,205		37,057

Total expenses		100,694		116,428		130,713

Losses and other expense		(14)		(176)		—

Segment financial results	$	13,874	$	15,079	$	18,564

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

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Contract Sales
Vacation ownership	$	34,376	$	45,171	$	(10,795)	(24%)

Total contract sales	$	34,376	$	45,171	$	(10,795)	(24%)

The decrease in contract sales was driven by $9.6 million of lower sales from our Middle East sales location due to large multi-week purchases in 2014 that did not recur in 2015, as well as higher cancellations and fewer tours in 2015 and $4.1 million from the changes in foreign exchange rates, partially offset by $2.9 million of stronger fractional sales at our project in London, United Kingdom.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Contract Sales
Vacation ownership	$	45,171	$	33,811	$	11,360		34%

Total contract sales	$	45,171	$	33,811	$	11,360		34%

The increase in contract sales reflected stronger sales from our Middle East sales location ($6.5 million) and from our onsite sales locations in Spain ($0.5 million), stronger sales of fractional interests at our project in London, United Kingdom ($1.4 million) and higher cancellation activity in 2013 associated with extended rescission periods in this segment ($3.0 million).

Sale of Vacation Ownership Products

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Contract sales	$	34,376	$	45,171	$	(10,795)		(24%)
Revenue recognition adjustments:
Reportability		(1,144)		(5,274)		4,130
Sales reserve		(3,680)		(4,537)		857
Other⁽¹⁾		(589)		(298)		(291)

Sale of vacation ownership products	$	28,963	$	35,062	$	(6,099)		(17%)

⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability had a smaller negative impact in 2015 compared to 2014 because more sales met the down payment requirement for revenue recognition purposes prior to the end of 2015 compared to 2014.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Contract sales	$	45,171	$	33,811	$	11,360		34%
Revenue recognition adjustments:
Reportability		(5,274)		24,185		(29,459)
Sales reserve		(4,537)		(3,159)		(1,378)
Other⁽¹⁾		(298)		(47)		(251)

Sale of vacation ownership products	$	35,062	$	54,790	$	(19,728)		(36%)

⁽¹⁾	Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

Revenue reportability was higher in 2013 because the rescission period related to certain sales had expired during 2013, of which $20.0 million related to the expiration of extended rescission periods in this segment.

Development Margin

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Sale of vacation ownership products	$	28,963	$	35,062	$	(6,099)	(17%)
Cost of vacation ownership products		(6,509)		(8,711)		2,202	25%
Marketing and sales		(21,974)		(24,401)		2,427	10%

Development margin	$	480	$	1,950	$	(1,470)	(75%)

Development margin percentage		1.7%		5.6%		3.9 pts

The decrease in development margin reflected $4.3 million from the lower vacation ownership contract sales volume net of lower direct variable expenses (i.e., cost of vacation ownership products and marketing and sales) due in part to less efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower sales volumes. These decreases were partially offset by $2.8 million from the higher revenue reportability year-over-year.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Sale of vacation ownership products	$	35,062	$	54,790	$	(19,728)	(36%)
Cost of vacation ownership products		(8,711)		(15,479)		6,768	44%
Marketing and sales		(24,401)		(26,036)		1,635	6%

Development margin	$	1,950	$	13,275	$	(11,325)	(85%)

Development margin percentage		5.6%		24.2%		18.6 pts

The decrease in development margin reflected $17.0 million from lower revenue reportability year-over-year (of which $11.4 million related to the impact of extended rescission periods in this segment), partially offset by a $4.2 million 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) due to more efficient marketing and sales spending, as well as $1.5 million of severance charges related to the restructuring of sales locations in 2013.

Asia Pacific

The following discussion presents an analysis of our results of operations for 2015, 2014 and 2013.


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Revenues
Sale of vacation ownership products	$	59,592	$	34,645	$	33,456
Resort management and other services		11,990		4,437		4,370
Financing		4,346		4,498		4,612
Rental		14,970		7,642		7,329
Cost reimbursements		3,060		3,320		5,828

Total revenues		93,958		54,542		55,595

Expenses
Cost of vacation ownership products		26,877		8,318		6,826
Marketing and sales		20,365		18,707		20,005
Resort management and other services		10,694		3,175		2,715
Rental		19,255		12,388		11,731
Royalty fee		684		686		800
Cost reimbursements		3,060		3,320		5,828

Total expenses		80,935		46,594		47,905

Losses and other expense		(29)		(9)		—
Equity in losses		(13)		(131)		(2)
Other		(5,718)		—		—

Segment financial results	$	7,263	$	7,808	$	7,688

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 locations. Due to operational constraints, regulatory conditions and certain other conditions related to our 18 units in Macau, we decided not to sell these units through our Marriott Vacation Club, Asia Pacific points program, and instead disposed of the units as whole ownership residential units during the first quarter of 2015. In the third quarter of 2015, we reinvested the proceeds from this disposition into the purchase of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into a new timeshare destination with an on-site sales location and sell the remainder to a third party.

Contract Sales

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Contract Sales
Vacation ownership	$	34,105	$	33,906	$	199		1%
Residential products		28,420		—		28,420		NM

Total contract sales	$	62,525	$	33,906	$	28,619		84%

The increase in vacation ownership contract sales reflected an increase in the cancellations rate in 2014 due to changes in the Singaporean timeshare regulations and political turmoil in Thailand, partially offset by lower sales to the existing owner base and the negative impact of local currency devaluations in 2015.

The $28.4 million of residential contract sales was from the disposition of the Macau inventory discussed above.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Contract Sales
Vacation ownership	$	33,906	$	36,914	$	(3,008)		(8%)

Total contract sales	$	33,906	$	36,914	$	(3,008)		(8%)

The decline in contract sales reflected a 9 percent decrease in the number of tours, which were impacted by the increase in the cancellations rate due to the change in the Singaporean timeshare regulations and continued political turmoil in Thailand, offset by an $18 increase in VPG.

Sale of Vacation Ownership Products

2015 Compared to 2014


	Fiscal Years				Change		% Change
*($ in thousands)*	2015		2014		Change		% Change
Contract sales	$	62,525	$	33,906	$	28,619		84%
Revenue recognition adjustments:
Reportability		333		2,683		(2,350)
Sales reserve		(3,242)		(1,982)		(1,260)
Other⁽¹⁾		(24)		38		(62)

Sale of vacation ownership products	$	59,592	$	34,645	$	24,947		72%

⁽¹⁾

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The lower favorable reportability in 2015 is due to the recognition of sales in 2014 that were previously in the rescission period as a result of the change in timeshare legislation in Singapore. The increase in the sales reserve is due to an increase in the estimated default activity in 2015 compared to 2014.

2014 Compared to 2013


	Fiscal Years				Change		% Change
*($ in thousands)*	2014		2013		Change		% Change
Contract sales	$	33,906	$	36,914	$	(3,008)	(8%)
Revenue recognition adjustments:
Reportability		2,683		(335)		3,018
Sales reserve		(1,982)		(3,073)		1,091
Other⁽¹⁾		38		(50)		88

Sale of vacation ownership products	$	34,645	$	33,456	$	1,189	4%

⁽¹⁾

Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue.

The favorable reportability is due to the recognition of sales in 2014 that were previously in the rescission period as a result of the change in timeshare legislation in Singapore. The decrease in the sales reserve is due to an unfavorable notes receivable reserve adjustment in the prior year comparable period.

Development Margin

2015 Compared to 2014


	Fiscal Years
*($ in thousands)*	2015			2014			Change			% Change
Sale of vacation ownership products	$	59,592		$	34,645		$	24,947		72%
Cost of vacation ownership products		(26,877	)		(8,318	)		(18,559	)	(223%)
Marketing and sales		(20,365	)		(18,707	)		(1,658	)	(9%)

Development margin	$	12,350		$	7,620		$	4,730		62%

Development margin percentage		20.7%			22.0%			(1.3 pts	)

The increase in development margin reflected $5.9 million from the residential contract sales and $1.8 million from higher favorable product cost true-ups ($2.0 million in 2015 compared to $0.2 million in 2014). These increases were partially offset by $1.6 million from the lower revenue reportability compared to the prior year comparable period, $1.0 million from the increase in the sales reserve and $0.4 million of higher marketing and sales expenses.

2014 Compared to 2013


	Fiscal Years
*($ in thousands)*	2014			2013			Change			% Change
Sale of vacation ownership products	$	34,645		$	33,456		$	1,189		4%
Cost of vacation ownership products		(8,318	)		(6,826	)		(1,492	)	(22%)
Marketing and sales		(18,707	)		(20,005	)		1,298		6%

Development margin	$	7,620		$	6,625		$	995		15%

Development margin percentage		22.0%			19.8%			2.2 pts

The increase in development margin reflected $2.0 million of favorable reportability compared to the prior year and a $0.8 million unfavorable notes receivable reserve adjustment in the prior year comparable period. This increase was partially offset by a $1.4 million favorable product cost true-up in 2013 and $0.4 million from the lower sales volume net of direct variable expenses (i.e., cost of vacation ownership products and marketing and sales), and included less efficient marketing and sales spending at our existing sales locations due to an inability to leverage fixed costs on the lower sales volumes.

Resort Management and Other Services Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years
*($ in thousands)*	2015			2014			Change			% Change
Management fee revenues	$	2,695		$	2,594		$	101		4%
Other services revenues		9,295			1,843			7,452		404%

Resort management and other services revenues		11,990			4,437			7,553		170%
Resort management and other services expenses		(10,694	)		(3,175	)		(7,519	)	(237%)

Resort management and other services margin	$	1,296		$	1,262		$	34		3%

Resort management and other services margin percentage		10.8%			28.4%			(17.6 pts)

The increase in resort management and other services revenues reflected $7.4 million of ancillary revenues at the operating hotel in Australia acquired in the third quarter of 2015, $0.1 million of higher management fees and $0.1 million of higher other revenues.

The slight increase in the resort management and other services margin reflected $1.3 million of ancillary margin at the operating hotel in Australia, offset by spending in support of future growth in the business.

2014 Compared to 2013


	Fiscal Years
*($ in thousands)*	2014			2013			Change			% Change
Management fee revenues	$	2,594		$	2,452		$	142		6%
Other services revenues		1,843			1,918			(75)		(4%)

Resort management and other services revenues		4,437			4,370			67		2%
Resort management and other services expenses		(3,175	)		(2,715	)		(460	)	(17%)

Resort management and other services margin	$	1,262		$	1,655		$	(393	)	(24%)

Resort management and other services margin percentage		28.4%			37.9%			(9.5 pts	)

The increase in resort management and other services revenues reflected $0.1 million of higher management fees. The decline in the resort management and other services margin reflected spending in support of future growth in the business.

Rental Revenues, Expenses and Margin

2015 Compared to 2014


	Fiscal Years
*($ in thousands)*	2015			2014			Change			% Change
Rental revenues	$	14,970		$	7,642		$	7,328		96%
Rental expenses		(19,255	)		(12,388	)		(6,867	)	(55%)

Rental margin	$	(4,285	)	$	(4,746	)	$	461		10%

Rental margin percentage		(28.6%	)		(62.1%	)		33.5 pts

The increase in rental revenues was due to the operating hotel in Australia acquired in the third quarter of 2015. The increase in rental margin reflected $1.5 million of lower unsold maintenance fees and other expenses, partially offset by a $1.0 million loss from the operation of the hotel.

2014 Compared to 2013


	Fiscal Years
*($ in thousands)*	2014			2013			Change			% Change
Rental revenues	$	7,642		$	7,329		$	313			4%
Rental expenses		(12,388	)		(11,731	)		(657	)		(6%	)

Rental margin	$	(4,746	)	$	(4,402	)	$	(344	)		(8%	)

Rental margin percentage		(62.1%	)		(60.1%	)		(2.0 pts	)

Corporate and Other

The following discussion presents an analysis of our results of operations for 2015, 2014 and 2013.


	Fiscal Years
*($ in thousands)*	2015			2014			2013
Expenses
Cost of vacation ownership products	$	6,713		$	9,403		$	6,733
Financing		24,194			24,148			24,594
General and administrative		102,963			98,562			99,379
Litigation settlement		138			250			—
Organizational and separation related		642			2,544			12,266
Consumer financing interest		24,658			26,464			31,375
Royalty fee		49,863			49,828			50,822

Total expenses		209,171			211,199			225,169

Gains and other income		—			6			—
Interest expense		(12,810	)		(11,692	)		(12,574	)
Other		(2,100	)		—			—

Total financial results	$	(224,081	)	$	(222,885	)	$	(237,743	)

Corporate and Other consists of results not specifically attributable to an individual segment, including expenses in support of our financing operations, non-capitalizable development expenses incurred to support overall company development, company-wide general and administrative costs, corporate interest expense, consumer financing interest expense and the fixed royalty fee payable under the license agreements that we entered into with Marriott International in connection with the Spin-Off.

Total Expenses

2015 Compared to 2014

Total expenses decreased $2.0 million from the prior year comparable period. The $2.0 million decrease resulted from $2.7 million of lower cost of vacation ownership products expenses due to lower pre-development spending associated with potential acquisitions and higher capitalization of other development expenses, $1.9 million of lower organizational and separation related expenses due to the completion of many of the initiatives relating to our separation from Marriott International, $1.8 million of lower consumer financing interest expense and $0.1 million of lower litigation settlements, partially offset by $4.4 million of higher general and administrative expenses.

The $1.8 million decline in consumer financing interest expense was due to a lower average interest rate on the outstanding debt balances ($2.2 million), partially offset by an increase in the outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($0.4 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

2014 Compared to 2013

Total expenses decreased $14.0 million from 2013. The $14.0 million decrease resulted from $9.7 million of lower organizational and separation related expenses due to the completion of many of the initiatives relating to our separation from Marriott International, $4.9 million of lower consumer financing interest expense, $1.0 million of lower royalty fee expense, $0.8 million of lower general and administrative expenses and $0.4 million

of lower financing expenses, partially offset by $2.7 million of higher cost of vacation ownership products expenses due to higher pre-development spending associated with potential acquisitions and $0.3 million of litigation settlements in 2014.

The $4.9 million decline in consumer financing interest expense was due to lower outstanding debt balances of securitized vacation ownership notes receivable and associated interest costs ($3.0 million) as well as a lower average interest rate ($1.9 million). The lower average interest rate reflected the continued pay-down of older securitization transactions that carried higher overall interest rates and the benefit of lower interest rates applicable to our more recently completed securitizations of vacation ownership notes receivable.

General and administrative expenses decreased $0.8 million (from $99.4 million to $98.6 million) and included $3.0 million of savings related to organizational and separation relation efforts in the human resources, information technology and finance and accounting organizations, partially offset by $1.1 million of higher personnel related costs and $1.1 million from the favorable resolution of an international tax (non-income tax) matter in 2013.

Liquidity and Capital Resources

Our capital needs are supported by cash on hand ($177.1 million at the end of 2015), cash generated from operations, our ability to raise capital through securitizations in the ABS market and, to the extent necessary, funds available under the Warehouse Credit Facility and the Revolving Corporate Credit Facility. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, return capital to shareholders and fulfill other cash requirements. At the end of 2015, $684.6 million of the $688.1 million of total gross debt outstanding was non-recourse debt associated with vacation ownership notes receivable securitizations. In addition, we have $40.0 million of gross mandatorily redeemable preferred stock of a consolidated subsidiary that we are not required to redeem until October 2021. We may, however, redeem the preferred stock at par beginning in October 2016 at our option.

At the end of 2015, we had $663.9 million of real estate inventory on hand, comprised of $332.9 million of finished goods and $331.0 million of land and infrastructure. We expect to continue to sell excess Ritz-Carlton branded inventory through the MVCD program or bulk sale transactions in order to generate incremental cash and reduce related carrying costs.

Our vacation ownership product offerings allow us to utilize our real estate inventory efficiently. The majority of our sales are of 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 no longer need specific resort-based inventory at each sales location, we need to have only a few resorts under construction at any given time and can leverage successful sales locations at completed resorts. This allows us to maintain long-term sales locations and reduces the need to develop and staff on-site sales locations at smaller projects in the future. We believe our points-based programs enable us to align our real estate inventory acquisitions with the pace of sales of vacation ownership products.

We are selectively pursuing growth opportunities in North America and Asia by targeting high-quality inventory that allows us to add desirable new destinations to our system with new on-site sales locations through transactions that limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient deal structures may consist of the development of new inventory, or the conversion of previously built units by third parties, just prior to sale.

We intend for our capital allocation strategy to strike a balance between enhancing our operations and using our capital to provide returns to our shareholders through programs such as share repurchase programs and payment of dividends.

During 2015, 2014 and 2013, we had net changes in cash and cash equivalents of $(169.5) million, $147.0 million and $96.6 million, respectively. The following table summarizes these changes:


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Cash provided by (used in):
Operating activities	$	109,034	$	291,411	$	160,748
Investing activities		(25,068)		43,126		(35,911)
Financing activities		(249,747)		(185,650)		(28,275)
Effect of change in exchange rates on cash and cash equivalents		(3,673)		(1,883)		42

Net change in cash and cash equivalents	$	(169,454)	$	147,004	$	96,604

Cash from Operating Activities

Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable and (3) net cash generated from our rental and resort management and other services operations. Outflows include spending for the development of new phases of existing resorts, the acquisition of additional inventory and funding our working capital needs.

We minimize our working capital needs through cash management, strict credit-granting policies and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to property owners’ associations and certain annual compensation related outflows. In addition, our cash from operations varies due to the timing of our owners’ repayment of vacation ownership notes receivable, the closing of sales contracts for vacation ownership products, financing propensity and cash outlays for real estate inventory acquisition and development.

In 2015, we generated $109.0 million of cash flows from operating activities, compared to $291.4 million in 2014. Excluding the impact of changes in net income and adjustments for non-cash items, the decrease in cash flows was attributable to a lump sum payment of $66.0 million to pay down the Marriott Rewards customer loyalty program in December 2015 (due in February 2016), which was paid early in order to accelerate the timing of certain cash tax benefits. Additional decreases in cash flows were due to outlays for an acquisition of an operating hotel in San Diego, California that we intend to convert, in its entirety, to vacation ownership interests in the future, the acquisition of a portion of an operating hotel in Washington, D.C. and the acquisition of a portion of an operating hotel located in Surfers Paradise, Australia that we intend to convert to vacation ownership interests for sale in our Asia Pacific segment. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding these transactions. The operating activities also reflect higher financing propensity due to our implementation of a new financing program, lower collections due to the reduction in the portfolio of outstanding vacation ownership notes receivable and the timing of revenue reportability associated with our vacation ownership and residential contract sales.

In 2015, we recorded residential contract sales of $28.4 million associated with the sale of 18 units in Macau. In 2014, we recorded residential contract sales of $13.8 million associated with the sale of seven units at the RCC San Francisco that we bought back as part of a legal settlement at the end of 2012.

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


	Fiscal Years
*($ in thousands)*	2015			2014			2013
Real estate inventory spending	$	(119,067	)	$	(99,337	)	$	(165,769	)
Purchase of operating hotels for future conversion to inventory		(61,554	)		—			—
Real estate inventory costs		192,071			180,171			199,385

Real estate inventory spending less than cost of sales	$	11,450		$	80,834		$	33,616

We measure our real estate inventory capital efficiency by comparing the cash outflow for real estate inventory spending (a cash item) to the amount of real estate inventory costs charged to expense on our Statements of Income related to sale of vacation ownership products (a non-cash item).

Given the significant level of completed real estate inventory on hand, as well as the capital efficiency resulting from the MVCD program and capital efficient transactions, our spending for real estate inventory remained below the amount of real estate inventory costs in each of 2015, 2014 and 2013.

In 2015, real estate inventory spending included $32.0 million for the acquisition of 71 units at The Mayflower Hotel, Autograph Collection, an operating hotel, in Washington, D.C. We intend to include these vacation ownership units, in their current form, in our MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

We also completed the acquisition of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into vacation ownership interests for future use in our Asia Pacific segment and $14.9 million, the amount of the purchase price related to that portion is included in Purchase of operating hotels for future conversion to inventory on our Cash Flows for 2015. We intend to sell the remaining downsized hotel to a third party and have included the related portion of the purchase price as an Investing activity on our Cash Flows. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

We also capitalized on the opportunity to add a premier destination to our portfolio through the acquisition of an operating hotel in San Diego, California for $46.6 million, that we intend to convert, in its entirety, to vacation ownership interests for future use in our MVCD program. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

Real estate inventory costs for 2015 included $21.6 million related to the sale of the residential units in Macau.

Through our existing vacation ownership interest repurchase program, we proactively buy back previously sold vacation ownership interests at lower costs than would be required to develop new inventory. By repurchasing inventory in desirable locations, we expect to be able to stabilize the future cost of vacation ownership products.

Notes Receivable Collections (Less Than) in Excess of New Mortgages


	Fiscal Years
*($ in thousands)*	2015			2014			2013
Vacation ownership notes receivable collections — non-securitized	$	88,919		$	103,074		$	112,915
Vacation ownership notes receivable collections — securitized		181,251			184,166			196,669
Vacation ownership notes receivable originations		(311,195	)		(267,917	)		(260,444	)

Vacation ownership notes receivable collections (less than) in excess of originations	$	(41,025	)	$	19,323		$	49,140

Vacation ownership notes receivable collections include principal from non-securitized and securitized vacation ownership notes receivable. Vacation ownership notes receivable collections continued to decline over the three years due to the reduction in the portfolio of outstanding vacation ownership notes receivable, partially offset by an increase in the vacation ownership product sales volumes. Vacation ownership notes receivable originations increased in 2015 due to an increase in financing propensity to 49.9 percent compared to 43.6 percent for 2014 due to the addition of a new financing incentive program implemented in the first half of 2015. Based on the success of these new programs, we expect financing propensity levels to remain higher than the 40 to 45 percent that we averaged before 2015 and are targeting a 50 to 55 percent financing propensity in 2016. Vacation ownership notes receivable originations increased in 2014 compared to 2013 due to a slight increase in financing propensity to 43.6 percent in 2014 from 42.3 percent in 2013.

During 2015, 2014 and 2013, and as of January 1, 2016, January 2, 2015 and January 3, 2014, no securitized vacation ownership notes receivable pools were out of compliance with established performance parameters.

Cash from Investing Activities


	Fiscal Years
*($ in thousands)*	2015			2014			2013
Capital expenditures for property and equipment (excluding inventory)	$	(35,735	)	$	(15,202	)	$	(21,977	)
Purchase of operating hotel to be sold		(47,658	)		—			—
Decrease (Increase) in restricted cash		37,681			(24,019	)		(17,477	)
Dispositions, net		20,644			82,347			3,543

Net cash (used in) provided by investing activities	$	(25,068	)	$	43,126		$	(35,911	)

Capital Expenditures for Property and Equipment

Capital expenditures for property and equipment relate to spending for technology development, buildings and equipment used at sales locations and ancillary offerings, such as food and beverage offerings, at locations where such offerings are provided.

In 2015, capital expenditures for property and equipment of $35.7 million included $26.3 million to support business operations (including $7.7 million associated with the assets purchased for the operating hotel in San Diego, California, $13.0 million for sales locations other than the operating hotel in San Diego, California, and $5.6 million for ancillary and other operations assets) and $9.4 million for technology spending (including $3.8 million for Spin-Off related initiatives). See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding the San Diego transaction.

In 2014, capital expenditures for property and equipment of $15.2 million included $9.9 million to support business operations (including $6.7 million for ancillary and operations assets and $3.2 million for sales locations) and $5.3 million for technology spending (including $3.0 million for Spin-Off related initiatives).

In 2013, capital expenditures for property and equipment of $22.0 million included $14.5 million to support business operations (including $11.1 million for ancillary and operations assets and $3.4 million for sales locations) and $7.5 million for technology spending (including $6.6 million for Spin-Off related initiatives).

Purchase of Operating Hotel to be Sold

In 2015, we completed the acquisition of an operating hotel located in Surfers Paradise, Australia. We intend to convert a portion of this hotel into vacation ownership interests for future use in our Asia Pacific segment, and sell the remaining downsized hotel to a third party. We have included $47.7 million, the portion of the purchase price related to the downsized hotel, as Purchase of operating hotel to be sold on our Cash Flows. See Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements for additional information regarding this transaction.

Decrease (Increase) in Restricted Cash

Restricted cash primarily consists of cash held in reserve accounts related to vacation ownership notes receivable securitizations, cash collected for maintenance fees to be remitted to property owners’ associations and deposits received, primarily associated with tour package sales and vacation ownership product sales that are held in escrow until the associated contract has closed or the period in which it can be rescinded has expired, depending on applicable legal requirements.

The 2015 decrease in restricted cash reflected $29.6 million of higher cash distributions for maintenance fees remitted to certain property owners’ associations subsequent to the end of 2014, an $8.4 million increase in cash that was collected for distribution to investors in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2015 and a $2.2 million increase in cash associated with vacation ownership sales held in escrow. These decreases were partially offset by a $1.8 million related to property refurbishment reserves for the newly acquired Surfers Paradise property.

The 2014 increase in restricted cash reflected $15.8 million of higher cash collections for maintenance fees to be remitted to certain property owners’ associations subsequent to the end of 2014, a $10.0 million increase in sales that are held in escrow related to Hawaiian requirements for tour package sales and $0.7 million of higher cash collected in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2014, partially offset by a $2.5 million decrease in funds required to be held in escrow to guarantee our credit card business in the Asia Pacific segment.

The 2013 increase in restricted cash reflected $13.1 million of higher cash collections for maintenance fees to be remitted to certain property owners’ associations subsequent to the end of 2013, $3.3 million of higher cash collected in connection with securitized vacation ownership notes receivable that was distributed to investors subsequent to the end of 2013 and $2.7 million increase in funds required to be held in escrow to guarantee our credit card business in the Asia Pacific segment, partially offset by a $1.6 million decrease in cash associated with vacation ownership sales held in escrow.

We expect fluctuations in restricted cash for maintenance fee activity to be relatively stable on an annual basis, 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. However, in 2014 our restricted cash collections for maintenance fees increased significantly due to the timing of the large volume of payments at fiscal year-end and related banking transfers to property owners’ associations occurring subsequent to year-end 2014.

Dispositions

Dispositions of property and assets generated cash proceeds of $20.6 million in 2015, $82.3 million in 2014 and $3.5 million in 2013. Dispositions in 2015 included $19.6 million from the sale of undeveloped land in Kauai, Hawaii, $0.6 million from the sale of three lots in St. Thomas, U.S. Virgin Islands, $0.4 million from the sale of an operations facility in Hilton Head, South Carolina and $0.1 million from the sale of undeveloped land in Absecon, New Jersey.

The 2014 dispositions included $39.3 million from the sale of undeveloped and partially developed land, an operating golf course and related assets in Kauai, Hawaii, $22.5 million from the sale of an operating golf course and undeveloped land in Orlando, Florida, $10.1 million from the sale of undeveloped land on Singer Island, Florida, $7.8 million from the sale of undeveloped and partially developed land, an operating golf course, spa and clubhouse and related facilities at The Abaco Club in the Bahamas, $1.4 million from the sale of undeveloped land in Paris, France, $0.9 million from the sale of several lots in St. Thomas, U.S. Virgin Islands and $0.3 million from the sale of undeveloped land in Absecon, New Jersey.

The 2013 dispositions related to the sale of a multi-family parcel and several lots in St. Thomas, U.S. Virgin Islands.

Cash from Financing Activities


	Fiscal Years
*($ in thousands)*	2015		2014		2013
Borrowings from securitization transactions
Bonds payable on securitized vacation ownership notes receivable	$	255,000	$	262,638	$	250,000
Borrowings on Warehouse Credit Facility		—		—		111,449

Subtotal		255,000		262,638		361,449

Repayment of debt related to securitization transactions
Bonds payable on securitized vacation ownership notes receivable		(278,427)		(228,870)		(249,568)
Repayments on Warehouse Credit Facility		—		—		(111,449)

Subtotal		(278,427)		(228,870)		(361,017)

Borrowings on Revolving Corporate Credit Facility		—		—		25,000
Repayments on Revolving Corporate Credit Facility		—		—		(25,000)
Proceeds from vacation ownership inventory arrangement		5,375		—		—
Debt issuance costs		(5,335)		(6,498)		(5,159)
Repurchase of common stock		(201,380)		(203,596)		(25,633)
Payment of dividends		(23,793)		(8,179)		—
Proceeds from stock option exercises		97		2,977		3,804
Excess tax benefits from share-based compensation		9,380		4,519		3,544
Payment of withholding taxes on vesting of restricted stock units		(10,894)		(8,077)		(5,140)
Other		230		(564)		(123)

Net cash used in financing activities	$	(249,747)	$	(185,650)	$	(28,275)

Warehouse Credit Facility

During 2015, we amended certain agreements associated with the Warehouse Credit Facility. As a result, the revolving period was extended to November 22, 2017, and borrowings under the Warehouse Credit Facility bear interest at a rate based on the one-month LIBOR and bank conduit commercial paper rates plus 1.15 percent per annum and are generally limited at any point to the sum of the products of the applicable advance rates and the eligible vacation ownership notes receivable at such time.

The amendment also expanded the eligibility for certain collateral by permitting some vacation ownership notes receivable that are no more than 60 days delinquent to be financed through the Warehouse Credit Facility; prior to the amendment, only delinquent notes that were no more than 30 days delinquent could be financed. The other terms of the Warehouse Credit Facility are substantially similar to those in effect prior to the execution of the amendment.

At January 1, 2016, no amounts were outstanding under the Warehouse Credit Facility and $109.8 million of gross vacation ownership notes receivable were eligible for securitization. See Footnote No. 10, “Debt,” to our Financial Statements for additional information regarding our Warehouse Credit Facility.

Revolving Corporate Credit Facility

During 2015, we amended the Revolving Corporate Credit Facility, and as a result, up to $130 million of the $200 million borrowing capacity may be borrowed in the form of Australian dollars, Euros, Japanese yen, British pounds and Singaporean dollars. The other terms of the Revolving Corporate Credit Facility are substantially similar to those in effect prior to the execution of the amendment.

During 2014, we amended and restated the Revolving Corporate Credit Facility. The amendment and restatement resulted in, among other things, an extension of the final maturity of the lenders’ commitments from November 21, 2016 to September 10, 2019, a decrease in the interest margin on borrowings, lower commitment fees on unused availability and additional flexibility to determine whether to pledge certain collateral. The Revolving Corporate Credit Facility has a borrowing capacity of $200 million, including a letter of credit sub-facility of $100 million, and provides support for our business, including ongoing liquidity and letters of credit. At January 1, 2016, no amounts were outstanding under the Revolving Corporate Credit Facility, however we had $3.3 million of letters of credit outstanding. See Footnote No. 10, “Debt,” to our Financial Statements for additional information regarding our Revolving Corporate Credit Facility.

Borrowings from / Repayments of Debt Related to Securitization Transactions

We reflect proceeds from securitizations of vacation ownership notes receivable, including draw downs on the Warehouse Credit Facility, as “Borrowings from securitization transactions.” We reflect repayments of bonds associated with vacation ownership notes receivable securitizations and repayments on the Warehouse Credit Facility (including vacation ownership notes receivable repurchases) as “Repayment of debt related to securitization transactions.” We account for our securitizations of vacation ownership notes receivable as secured borrowings and therefore do not recognize a gain or loss as a result of the transaction. The results of operations for the securitization entities are consolidated within our results of operations as these entities are variable interest entities for which we are the primary beneficiary.

In the fourth quarter of 2015, we completed the securitization of a pool of $264.2 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $255.0 million in vacation ownership loan-backed notes from the MVW Owner Trust 2015-1 (the “2015-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the 2015-1 Trust: $233.2 million of Class A Notes and $21.8 million of Class B Notes. The Class A Notes have an interest rate of 2.52 percent and the Class B Notes have an interest rate of 2.96 percent, for an overall weighted average interest rate of 2.56 percent.

During 2014, we completed two securitization transactions. In the second quarter of 2014, we completed the securitization of a pool of $23.8 million of primarily highly-seasoned vacation ownership notes receivable that we previously classified as not being eligible for securitization. In connection with the securitization, investors purchased in a private placement $22.6 million in vacation ownership loan backed notes from the Kyuka Owner Trust 2014-A with an interest rate of 6.25 percent. The securitized loans previously were classified as not 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 the fourth quarter of 2014, we completed the securitization of a pool of $250.0 million of vacation ownership notes receivable. In connection with the securitization, investors purchased in a private placement $240.0 million in vacation ownership loan-backed notes from the MVW Owner Trust 2014-1 (the “2014-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the 2014-1 Trust: $216.2 million of Class A Notes and $23.8 million of Class B Notes. The Class A Notes have an interest rate of 2.25 percent and the Class B Notes have an interest rate of 2.70 percent, for an overall weighted average interest rate of 2.29 percent.

During 2013, we completed the securitization of a pool of $263.2 million of vacation ownership notes receivable, including $115.9 million of vacation ownership notes receivable that were previously securitized in

the Warehouse Credit Facility. In connection with the securitization, investors purchased in a private placement $250.0 million in vacation ownership loan-backed notes from the MVW Owner Trust 2013-1 (the “2013-1 Trust”). Two classes of vacation ownership loan backed notes were issued by the 2013-1 Trust: $223.7 million of Class A Notes and $26.3 million of Class B Notes. The Class A Notes have an interest rate of 2.15 percent and the Class B Notes have an interest rate of 2.74 percent, for an overall weighted average interest rate of 2.21 percent.

Proceeds from Vacation Ownership Inventory Arrangement

In connection with our pursuit of growth opportunities in ways that optimize the timing of our capital investments, including working with third parties to develop new inventory or convert previously built units to be sold to us close to when we need such inventory, during the first quarter of 2015 we sold real property located in Marco Island, Florida to a third-party developer. We are obligated to repurchase the completed property from the developer contingent upon the property meeting our brand standards and provided that the third-party developer has not sold the property to another party. As discussed in Footnote No. 5, “Acquisitions and Dispositions,” to our Financial Statements, we received cash proceeds of $5.4 million upon the sale of this real property. In accordance with the authoritative guidance on accounting for sales of real estate, our conditional obligation to repurchase the property constitutes continuing involvement and thus we were unable to account for this transaction as a sale, and as such have recorded these proceeds as a financing activity.

Debt Issuance Costs

Debt issuance costs in 2015 included $4.2 million associated with the 2015 vacation ownership notes receivable securitization and a combined $1.1 million related to the renewal of the Warehouse Credit Facility and the amendment of the Revolving Corporate Credit Facility during the year. Debt issuance costs in 2014 included $3.7 million associated with the two 2014 vacation ownership notes receivable securitizations and $2.8 million associated with the amendment and restatement of the Warehouse Credit Facility and the Revolving Corporate Credit Facility during 2014. Debt issuance costs in 2013 included $3.8 million associated with the 2013 vacation ownership notes receivable securitization and a combined $1.4 million related to the renewal of the Warehouse Credit Facility and the amendment of the Revolving Corporate Credit Facility during the year.

Share Repurchase Program

The following table summarizes share repurchase activity under our current share repurchase program:


*($ in thousands, except per share amounts)*	Number of Shares Repurchased		Cost of Shares Repurchased		Average Price Paid per Share
As of January 3, 2014		505,023	$	25,633	$	50.76
For the year ended January 2, 2015		3,491,702		203,596		58.31
As of January 2, 2015		3,996,725		229,229		57.35
For the year ended January 1, 2016		2,857,358		201,380		70.48

As of January 1, 2016		6,854,083	$	430,609	$	62.92

See Footnote No. 13, “Shareholders’ Equity,” to our Financial Statements for further information related to the share repurchase program

Dividends

We declared cash dividends to holders of common stock for the year ended January 1, 2016 as follows:


Declaration Date	Shareholder Record Date	Distribution Date	Dividend per Share
February 12, 2015	February 26, 2015	March 11, 2015	$ 0.25
June 4, 2015	June 18, 2015	July 2, 2015	$ 0.25
September 10, 2015	September 24, 2015	October 8, 2015	$ 0.25
December 8, 2015	December 21, 2015	January 6, 2016	$ 0.30

Any future dividend payments will be subject to Board approval, and there can be no assurance that we will pay dividends in the future.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations as of year-end 2015:


			Payments Due by Period
*($ in thousands)*	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Contractual Obligations
Debt⁽¹⁾	$	771,898	$	113,694	$	204,919	$	170,309	$	282,976
Mandatorily redeemable preferred stock of consolidated subsidiary⁽¹⁾		64,588		3,815		10,174		8,479		42,120
Liability for Marriott Rewards customer loyalty program		35		35		—		—		—
Operating leases		67,832		14,315		21,779		14,161		17,577
Purchase obligations⁽²⁾		123,696		65,612		49,843		5,428		2,813
Other long-term obligations		7,558		5,457		2,101		—		—

Total contractual obligations	$	1,035,607	$	202,928	$	288,816	$	198,377	$	345,486

⁽¹⁾	Includes principal as well as interest payments.

⁽²⁾