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|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarterly period ended March 31, 2010 |
||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the transition period from to |
||
|
Delaware
|
20-0052541 | |
|
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
22 Sylvan Way
Parsippany, New Jersey (Address of principal executive offices) |
07054
(Zip Code) |
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
1
2
|
Three Months Ended
|
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Net revenues
|
||||||||
|
Service fees and membership
|
$ | 424 | $ | 400 | ||||
|
Vacation ownership interest sales
|
217 | 239 | ||||||
|
Franchise fees
|
92 | 99 | ||||||
|
Consumer financing
|
105 | 109 | ||||||
|
Other
|
48 | 54 | ||||||
|
Net revenues
|
886 | 901 | ||||||
|
Expenses
|
||||||||
|
Operating
|
381 | 368 | ||||||
|
Cost of vacation ownership interests
|
36 | 49 | ||||||
|
Consumer financing interest
|
24 | 32 | ||||||
|
Marketing and reservation
|
123 | 137 | ||||||
|
General and administrative
|
148 | 135 | ||||||
|
Asset impairments
|
— | 5 | ||||||
|
Restructuring costs
|
— | 43 | ||||||
|
Depreciation and amortization
|
44 | 43 | ||||||
|
Total expenses
|
756 | 812 | ||||||
|
Operating income
|
130 | 89 | ||||||
|
Other income, net
|
(1 | ) | (2 | ) | ||||
|
Interest expense
|
50 | 19 | ||||||
|
Interest income
|
(1 | ) | (2 | ) | ||||
|
Income before income taxes
|
82 | 74 | ||||||
|
Provision for income taxes
|
32 | 29 | ||||||
|
Net income
|
$ | 50 | $ | 45 | ||||
|
Earnings per share
|
||||||||
|
Basic
|
$ | 0.28 | $ | 0.25 | ||||
|
Diluted
|
0.27 | 0.25 | ||||||
3
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 163 | $ | 155 | ||||
|
Trade receivables, net
|
548 | 404 | ||||||
|
Vacation ownership contract receivables, net
|
290 | 289 | ||||||
|
Inventory
|
330 | 354 | ||||||
|
Prepaid expenses
|
118 | 116 | ||||||
|
Deferred income taxes
|
188 | 189 | ||||||
|
Other current assets
|
239 | 233 | ||||||
|
Total current assets
|
1,876 | 1,740 | ||||||
|
Long-term vacation ownership contract receivables, net
|
2,741 | 2,792 | ||||||
|
Non-current inventory
|
963 | 953 | ||||||
|
Property and equipment, net
|
929 | 953 | ||||||
|
Goodwill
|
1,402 | 1,386 | ||||||
|
Trademarks, net
|
675 | 660 | ||||||
|
Franchise agreements and other intangibles, net
|
414 | 391 | ||||||
|
Other non-current assets
|
585 | 477 | ||||||
|
Total assets
|
$ | 9,585 | $ | 9,352 | ||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Securitized vacation ownership debt
|
$ | 220 | $ | 209 | ||||
|
Current portion of long-term debt
|
23 | 175 | ||||||
|
Accounts payable
|
402 | 260 | ||||||
|
Deferred income
|
456 | 417 | ||||||
|
Due to former Parent and subsidiaries
|
246 | 245 | ||||||
|
Accrued expenses and other current liabilities
|
562 | 579 | ||||||
|
Total current liabilities
|
1,909 | 1,885 | ||||||
|
Long-term securitized vacation ownership debt
|
1,278 | 1,298 | ||||||
|
Long-term debt
|
2,059 | 1,840 | ||||||
|
Deferred income taxes
|
1,144 | 1,137 | ||||||
|
Deferred income
|
256 | 267 | ||||||
|
Due to former Parent and subsidiaries
|
63 | 63 | ||||||
|
Other non-current liabilities
|
175 | 174 | ||||||
|
Total liabilities
|
6,884 | 6,664 | ||||||
|
Commitments and contingencies (Note 11)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, $.01 par value, authorized
6,000,000 shares, none issued and outstanding
|
— | — | ||||||
|
Common stock, $.01 par value, authorized
600,000,000 shares, issued 207,806,736 in 2010 and
205,891,254 shares in 2009
|
2 | 2 | ||||||
|
Additional paid-in capital
|
3,745 | 3,733 | ||||||
|
Accumulated deficit
|
(287 | ) | (315 | ) | ||||
|
Accumulated other comprehensive income
|
129 | 138 | ||||||
|
Treasury stock, at cost—28,041,522 shares in 2010 and
27,284,823 in 2009
|
(888 | ) | (870 | ) | ||||
|
Total stockholders’ equity
|
2,701 | 2,688 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 9,585 | $ | 9,352 | ||||
4
|
Three Months Ended
|
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Operating Activities
|
||||||||
|
Net income
|
$ | 50 | $ | 45 | ||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
|
Depreciation and amortization
|
44 | 43 | ||||||
|
Provision for loan losses
|
86 | 107 | ||||||
|
Deferred income taxes
|
11 | 8 | ||||||
|
Stock-based compensation
|
10 | 8 | ||||||
|
Excess tax benefits from stock-based compensation
|
(13 | ) | — | |||||
|
Asset impairments
|
— | 5 | ||||||
|
Non-cash interest
|
27 | 7 | ||||||
|
Non-cash restructuring
|
— | 15 | ||||||
|
Net change in assets and liabilities, excluding the impact of
acquisitions and dispositions:
|
||||||||
|
Trade receivables
|
(118 | ) | (95 | ) | ||||
|
Vacation ownership contract receivables
|
(28 | ) | (7 | ) | ||||
|
Inventory
|
(1 | ) | (13 | ) | ||||
|
Prepaid expenses
|
(8 | ) | (5 | ) | ||||
|
Other current assets
|
3 | 24 | ||||||
|
Accounts payable, accrued expenses and other current liabilities
|
121 | 112 | ||||||
|
Due to former Parent and subsidiaries, net
|
(1 | ) | (1 | ) | ||||
|
Deferred income
|
34 | (46 | ) | |||||
|
Other, net
|
(12 | ) | 3 | |||||
|
Net cash provided by operating activities
|
205 | 210 | ||||||
|
Investing Activities
|
||||||||
|
Property and equipment additions
|
(36 | ) | (53 | ) | ||||
|
Net assets acquired, net of cash acquired
|
(59 | ) | — | |||||
|
Equity investments and development advances
|
(3 | ) | (2 | ) | ||||
|
Proceeds from asset sales
|
3 | 2 | ||||||
|
Increase in securitization restricted cash
|
(26 | ) | (10 | ) | ||||
|
(Increase)/decrease in escrow deposit restricted cash
|
(2 | ) | 1 | |||||
|
Net cash used in investing activities
|
(123 | ) | (62 | ) | ||||
|
Financing Activities
|
||||||||
|
Proceeds from securitized borrowings
|
418 | 219 | ||||||
|
Principal payments on securitized borrowings
|
(427 | ) | (295 | ) | ||||
|
Proceeds from non-securitized borrowings
|
220 | 286 | ||||||
|
Principal payments on non-securitized borrowings
|
(476 | ) | (348 | ) | ||||
|
Proceeds from note issuance
|
247 | — | ||||||
|
Dividends to shareholders
|
(22 | ) | (7 | ) | ||||
|
Repurchase of common stock
|
(16 | ) | — | |||||
|
Proceeds from stock option exercises
|
7 | — | ||||||
|
Excess tax benefits from stock-based compensation
|
13 | — | ||||||
|
Debt issuance costs
|
(19 | ) | (1 | ) | ||||
|
Other, net
|
(18 | ) | (1 | ) | ||||
|
Net cash used in financing activities
|
(73 | ) | (147 | ) | ||||
|
Effect of changes in exchange rates on cash and cash equivalents
|
(1 | ) | (2 | ) | ||||
|
Net increase/(decrease) in cash and cash equivalents
|
8 | (1 | ) | |||||
|
Cash and cash equivalents, beginning of period
|
155 | 136 | ||||||
|
Cash and cash equivalents, end of period
|
$ | 163 | $ | 135 | ||||
5
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
Treasury
|
Total
|
|||||||||||||||||||||||||||||
| Common Stock |
Paid-in
|
Accumulated
|
Comprehensive
|
Stock |
Stockholders’
|
|||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Shares | Amount | Equity | |||||||||||||||||||||||||
|
Balance as of January 1, 2010
|
206 | $ | 2 | $ | 3,733 | $ | (315 | ) | $ | 138 | (27 | ) | $ | (870 | ) | $ | 2,688 | |||||||||||||||
|
Comprehensive income
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | 50 | — | — | — | |||||||||||||||||||||||||
|
Currency translation adjustment, net of tax benefit of $18
|
— | — | — | — | (16 | ) | — | — | ||||||||||||||||||||||||
|
Reclassification of unrealized loss on cash flow hedge, net of
tax benefit of $6
|
— | — | — | — | 8 | — | — | |||||||||||||||||||||||||
|
Unrealized losses on cash flow hedges, net of tax benefit of $0
|
— | — | — | — | (1 | ) | — | — | ||||||||||||||||||||||||
|
Total comprehensive income
|
41 | |||||||||||||||||||||||||||||||
|
Exercise of stock options
|
— | — | 7 | — | — | — | — | 7 | ||||||||||||||||||||||||
|
Issuance of shares for RSU vesting
|
2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Change in deferred compensation
|
— | — | (7 | ) | — | — | — | — | (7 | ) | ||||||||||||||||||||||
|
Repurchase of common stock
|
— | — | — | — | — | (1 | ) | (18 | ) | (18 | ) | |||||||||||||||||||||
|
Change in excess tax benefit on equity awards
|
— | — | 12 | — | — | — | — | 12 | ||||||||||||||||||||||||
|
Dividends
|
— | — | — | (22 | ) | — | — | — | (22 | ) | ||||||||||||||||||||||
|
Balance as of March 31, 2010
|
208 | $ | 2 | $ | 3,745 | $ | (287 | ) | $ | 129 | (28 | ) | $ | (888 | ) | $ | 2,701 | |||||||||||||||
6
| 1. | Basis of Presentation |
| · | Lodging —franchises hotels in the upscale, midscale, economy and extended stay segments of the lodging industry and provides hotel management services for full-service hotels globally. | |
| · | Vacation Exchange and Rentals —provides vacation exchange products and services to owners of intervals of vacation ownership interests (“VOIs”) and markets vacation rental properties primarily on behalf of independent owners. | |
| · | Vacation Ownership —develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts. |
7
| 2. | Earnings Per Share |
|
Three Months Ended
|
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Net income
|
$ | 50 | $ | 45 | ||||
|
Basic weighted average shares outstanding
|
179 | 178 | ||||||
|
Stock options and restricted stock units (“RSU”)
|
5 | — | ||||||
|
Warrants
(*)
|
2 | — | ||||||
|
Diluted weighted average shares outstanding
|
186 | 178 | ||||||
|
Earnings per share:
|
||||||||
|
Basic
|
$ | 0.28 | $ | 0.25 | ||||
|
Diluted
|
0.27 | 0.25 | ||||||
| (*) | Represents the dilutive effect of warrants to purchase shares of the Company’s common stock related to the May 2009 issuance of the Company’s convertible notes (see Note 7—Long-term Debt and Borrowing Arrangements). |
8
| 3. | Acquisitions |
| 4. | Intangible Assets |
| As of March 31, 2010 | As of December 31, 2009 | |||||||||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
|
Unamortized Intangible Assets:
|
||||||||||||||||||||||||
|
Goodwill
|
$ | 1,402 | $ | 1,386 | ||||||||||||||||||||
|
Trademarks
|
$ | 675 | $ | 660 | ||||||||||||||||||||
|
Amortized Intangible Assets:
|
||||||||||||||||||||||||
|
Franchise agreements
|
$ | 630 | $ | 303 | $ | 327 | $ | 630 | $ | 298 | $ | 332 | ||||||||||||
|
Other
|
122 | 35 | 87 | 94 | 35 | 59 | ||||||||||||||||||
| $ | 752 | $ | 338 | $ | 414 | $ | 724 | $ | 333 | $ | 391 | |||||||||||||
|
Balance at
|
Goodwill
|
Balance at
|
||||||||||||||
|
January 1,
|
Acquired
|
Foreign
|
March 31,
|
|||||||||||||
| 2010 | During 2010 | Exchange | 2010 | |||||||||||||
|
Lodging
|
$ | 297 | $ | — | $ | — | $ | 297 | ||||||||
|
Vacation Exchange and Rentals
|
1,089 | 38 | (22 | ) | 1,105 | |||||||||||
|
Total Company
|
$ | 1,386 | $ | 38 | $ | (22 | ) | $ | 1,402 | |||||||
|
Three Months Ended
|
||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Franchise agreements
|
$ | 5 | $ | 5 | ||||
|
Other
|
2 | 2 | ||||||
|
Total
(*)
|
$ | 7 | $ | 7 | ||||
| (*) | Included as a component of depreciation and amortization on the Company’s Consolidated Statements of Income. |
| Amount | ||||
|
Remainder of 2010
|
$ | 20 | ||
|
2011
|
27 | |||
|
2012
|
26 | |||
|
2013
|
24 | |||
|
2014
|
24 | |||
|
2015
|
24 | |||
9
| 5. | Vacation Ownership Contract Receivables |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Current vacation ownership contract receivables:
|
||||||||
|
Securitized
|
$ | 241 | $ | 244 | ||||
|
Non-securitized
|
83 | 52 | ||||||
|
Secured
(*)
|
— | 28 | ||||||
| 324 | 324 | |||||||
|
Less: Allowance for loan losses
|
(34 | ) | (35 | ) | ||||
|
Current vacation ownership contract receivables, net
|
$ | 290 | $ | 289 | ||||
|
Long-term vacation ownership contract receivables:
|
||||||||
|
Securitized
|
$ | 2,285 | $ | 2,347 | ||||
|
Non-securitized
|
782 | 546 | ||||||
|
Secured
(*)
|
— | 234 | ||||||
| 3,067 | 3,127 | |||||||
|
Less: Allowance for loan losses
|
(326 | ) | (335 | ) | ||||
|
Long-term vacation ownership contract receivables, net
|
$ | 2,741 | $ | 2,792 | ||||
| (*) | As of December 31, 2009, such receivables collateralized the Company’s 364-day, AUD 213 million, secured, revolving foreign credit facility, which was paid down and terminated during March 2010 (See Note 7—Long-term Debt and Borrowing Arrangements). |
| Amount | ||||
|
Allowance for loan losses as of January 1, 2010
|
$ | (370 | ) | |
|
Provision for loan losses
|
(86 | ) | ||
|
Contract receivables written-off
|
96 | |||
|
Allowance for loan losses as of March 31, 2010
|
$ | (360 | ) | |
| 6. | Inventory |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Land held for VOI development
|
$ | 119 | $ | 119 | ||||
|
VOI construction in process
|
346 | 352 | ||||||
|
Completed inventory and vacation credits
(*)
|
828 | 836 | ||||||
|
Total inventory
|
1,293 | 1,307 | ||||||
|
Less: Current portion
|
330 | 354 | ||||||
|
Non-current inventory
|
$ | 963 | $ | 953 | ||||
| (*) | Includes estimated recoveries of $156 million at both March 31, 2010 and December 31, 2009. Vacation credits relate to both the Company’s vacation ownership and vacation exchange and rental businesses. |
10
| 7. | Long-Term Debt and Borrowing Arrangements |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Securitized vacation ownership debt:
(a)
|
||||||||
|
Term notes
|
$ | 1,258 | $ | 1,112 | ||||
|
Bank conduit facility
(b)
|
240 | 395 | ||||||
|
Total securitized vacation ownership debt
|
1,498 | 1,507 | ||||||
|
Less: Current portion of securitized vacation ownership debt
|
220 | 209 | ||||||
|
Long-term securitized vacation ownership debt
|
$ | 1,278 | $ | 1,298 | ||||
|
Long-term debt:
|
||||||||
|
6.00% senior unsecured notes (due December 2016)
(c)
|
$ | 798 | $ | 797 | ||||
|
Term loan
(d)
|
— | 300 | ||||||
|
Revolving credit facility (due October 2013)
(e)
|
199 | — | ||||||
|
9.875% senior unsecured notes (due May 2014)
(f)
|
239 | 238 | ||||||
|
3.50% convertible notes (due May 2012)
(g)
|
448 | 367 | ||||||
|
7.375% senior unsecured notes (due March 2020)
(h)
|
247 | — | ||||||
|
Vacation ownership bank borrowings
(i)
|
— | 153 | ||||||
|
Vacation rentals capital leases
(j)
|
123 | 133 | ||||||
|
Other
|
28 | 27 | ||||||
|
Total long-term debt
|
2,082 | 2,015 | ||||||
|
Less: Current portion of long-term debt
|
23 | 175 | ||||||
|
Long-term debt
|
$ | 2,059 | $ | 1,840 | ||||
| (a) | Represents debt that is securitized through bankruptcy remote special purpose entities (“SPEs”), the creditors of which have no recourse to the Company for principal and interest. | |
| (b) | Represents a 364-day, $600 million, non-recourse vacation ownership bank conduit facility, with a term through October 2010 whose capacity is subject to the Company’s ability to provide additional assets to collateralize the facility. As of March 31, 2010, the total available capacity of the facility was $360 million. | |
| (c) | The balance as of March 31, 2010 represents $800 million aggregate principal less $2 million of unamortized discount. | |
| (d) | The term loan facility was fully repaid during March 2010. | |
| (e) | The revolving credit facility has a total capacity of $950 million, which includes availability for letters of credit. As of March 31, 2010, the Company had $30 million of letters of credit outstanding and, as such, the total available capacity of the revolving credit facility was $721 million. |
| (f) | Represents senior unsecured notes issued by the Company during May 2009. Such balance represents $250 million aggregate principal less $11 million of unamortized discount. |
| (g) | Represents cash convertible notes issued by the Company during May 2009, which includes debt principal, less unamortized discount, and a liability related to a bifurcated conversion feature. The following table details the components of the convertible notes: |
|
March 31,
|
||||||||
| 2010 | December 31, 2009 | |||||||
|
Debt principal
|
$ | 230 | $ | 230 | ||||
|
Unamortized discount
|
(35 | ) | (39 | ) | ||||
|
Debt less discount
|
195 | 191 | ||||||
|
Fair value of bifurcated conversion feature
(*)
|
253 | 176 | ||||||
|
Cash convertible notes
|
$ | 448 | $ | 367 | ||||
| (*) | The Company also has an asset with a fair value approximate to the bifurcated conversion feature, which represents cash-settled call options that the Company purchased concurrent with the issuance of the convertible notes. |
| (h) | Represents senior unsecured notes issued by the Company during February 2010. Such balance represents $250 million aggregate principal less $3 million of unamortized discount. |
| (i) | Represents a 364-day, AUD 213 million, secured, revolving foreign credit facility, which was paid down and terminated during March 2010. | |
| (j) | Represents capital lease obligations with corresponding assets classified within property and equipment on the Company’s Consolidated Balance Sheets. |
11
12
13
|
Securitized
|
||||||||||||
|
Vacation
|
||||||||||||
|
Ownership
|
||||||||||||
| Debt | Other | Total | ||||||||||
|
Within 1 year
|
$ | 220 | $ | 23 | $ | 243 | ||||||
|
Between 1 and 2 years
|
356 | 12 | 368 | |||||||||
|
Between 2 and 3 years
|
182 | 472 | (*) | 654 | ||||||||
|
Between 3 and 4 years
|
197 | 209 | 406 | |||||||||
|
Between 4 and 5 years
|
175 | 250 | 425 | |||||||||
|
Thereafter
|
368 | 1,116 | 1,484 | |||||||||
| $ | 1,498 | $ | 2,082 | $ | 3,580 | |||||||
| (*) | Includes a liability related to a Bifurcated Conversion Feature associated with the Company’s Convertible Notes. |
|
Total
|
Outstanding
|
Available
|
||||||||||
| Capacity | Borrowings | Capacity | ||||||||||
|
Securitized vacation ownership debt:
|
||||||||||||
|
Term notes
|
$ | 1,258 | $ | 1,258 | $ | — | ||||||
|
Bank conduit facility
(a)
|
600 | 240 | 360 | |||||||||
|
Total securitized vacation ownership debt
(b)
|
$ | 1,858 | $ | 1,498 | $ | 360 | ||||||
|
Long-term debt:
|
||||||||||||
|
6.00% senior unsecured notes (due December 2016)
|
$ | 798 | $ | 798 | $ | — | ||||||
|
Revolving credit facility (due October 2013)
(c)
|
950 | 199 | 751 | |||||||||
|
9.875% senior unsecured notes (due May 2014)
|
239 | 239 | — | |||||||||
|
3.50% convertible notes (due May 2012)
|
448 | 448 | — | |||||||||
|
7.375% senior unsecured notes (due March 2020)
|
247 | 247 | — | |||||||||
|
Vacation rentals capital leases
|
123 | 123 | — | |||||||||
|
Other
|
49 | 28 | 21 | |||||||||
|
Total long-term debt
|
$ | 2,854 | $ | 2,082 | 772 | |||||||
|
Less: Issuance of letters of credit
(c)
|
30 | |||||||||||
| $ | 742 | |||||||||||
| (a) | The capacity of this facility is subject to the Company’s ability to provide additional assets to collateralize additional securitized borrowings. | |
| (b) | These outstanding borrowings are collateralized by $2,712 million of underlying gross vacation ownership contract receivables and related assets. | |
| (c) | The capacity under the Company’s revolving credit facility includes availability for letters of credit. As of March 31, 2010, the available capacity of $751 million was further reduced by $30 million for the issuance of letters of credit. |
14
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Securitized contract receivables, gross
(a)
|
$ | 2,526 | $ | 2,591 | ||||
|
Securitized restricted cash
(b)
|
159 | 133 | ||||||
|
Interest receivables on securitized contract receivables
(c)
|
19 | 20 | ||||||
|
Other assets
(d)
|
8 | 11 | ||||||
|
Total SPE assets
(e)
|
2,712 | 2,755 | ||||||
|
Securitized term notes
(f)
|
1,258 | 1,112 | ||||||
|
Securitized conduit facilities
(f)
|
240 | 395 | ||||||
|
Other liabilities
(g)
|
28 | 26 | ||||||
|
Total SPE liabilities
|
1,526 | 1,533 | ||||||
|
SPE assets in excess of SPE liabilities
|
$ | 1,186 | $ | 1,222 | ||||
| (a) | Included in current ($241 million and $244 million as of March 31, 2010 and December 31, 2009, respectively) and non-current ($2,285 million and $2,347 million as of March 31, 2010 and December 31, 2009, respectively) vacation ownership contract receivables on the Company’s Consolidated Balance Sheets. | |
| (b) | Included in other current assets ($87 million and $69 million as of March 31, 2010 and December 31, 2009, respectively) and other non-current assets ($72 million and $64 million as of March 31, 2010 and December 31, 2009, respectively) on the Company’s Consolidated Balance Sheets. | |
| (c) | Included in trade receivables, net on the Company’s Consolidated Balance Sheets. | |
| (d) | Primarily includes interest rate derivative contracts and related assets; included in other non-current assets on the Company’s Consolidated Balance Sheets. | |
| (e) | Excludes deferred financing costs of $19 million and $20 million as of March 31, 2010 and December 31, 2009, respectively, related to securitized debt. |
| (f) | Included in current ($220 million and $209 million as of March 31, 2010 and December 31, 2009, respectively) and long-term ($1,278 million and $1,298 million as of March 31, 2010 and December 31, 2009, respectively) securitized vacation ownership debt on the Company’s Consolidated Balance Sheets. |
| (g) | Primarily includes interest rate derivative contracts and accrued interest on securitized debt; included in accrued expenses and other current liabilities ($4 million as of both March 31, 2010 and December 31, 2009) and other non-current liabilities ($24 million and $23 million as of March 31, 2010 and December 31, 2009, respectively) on the Company’s Consolidated Balance Sheets. |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
SPE assets in excess of SPE liabilities
|
$ | 1,186 | $ | 1,222 | ||||
|
Non-securitized contract receivables
|
865 | 598 | ||||||
|
Secured contract receivables
(*)
|
— | 262 | ||||||
|
Allowance for loan losses
|
(360 | ) | (370 | ) | ||||
|
Total, net
|
$ | 1,691 | $ | 1,712 | ||||
| (*) | As of December 31, 2009, such receivables collateralized the Company’s secured, revolving foreign credit facility, which was paid down and terminated during March 2010. |
15
| 8. | Fair Value |
|
Fair Value Measure on a
|
||||||||||||
| Recurring Basis | ||||||||||||
|
Significant
|
Significant
|
|||||||||||
|
As of
|
Other
|
Unobservable
|
||||||||||
|
March 31,
|
Observable
|
Inputs
|
||||||||||
| 2010 | Inputs (Level 2) | (Level 3) | ||||||||||
|
Assets:
|
||||||||||||
|
Derivatives
(a)
|
||||||||||||
|
Convertible Notes related Call Options
|
$ | 253 | $ | — | $ | 253 | ||||||
|
Interest rate contracts
|
6 | 6 | — | |||||||||
|
Foreign exchange contracts
|
4 | 4 | — | |||||||||
|
Securities
available-for-sale
(b)
|
5 | — | 5 | |||||||||
|
Total assets
|
$ | 268 | $ | 10 | $ | 258 | ||||||
|
Liabilities:
|
||||||||||||
|
Derivatives
(c)
|
||||||||||||
|
Bifurcated Conversion Feature
|
$ | 253 | $ | — | $ | 253 | ||||||
|
Interest rate contracts
|
43 | 43 | — | |||||||||
|
Foreign exchange contracts
|
5 | 5 | — | |||||||||
|
Total liabilities
|
$ | 301 | $ | 48 | $ | 253 | ||||||
| (a) | Included in other current assets and other non-current assets on the Company’s Consolidated Balance Sheet. | |
| (b) | Included in other non-current assets on the Company’s Consolidated Balance Sheet. | |
| (c) | Included in long-term debt, accrued expenses and other current liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheet. |
16
|
Fair Value Measurements Using
|
||||||||||||
| Significant Unobservable Inputs (Level 3) | ||||||||||||
|
Derivative
|
||||||||||||
|
Liability-
|
||||||||||||
|
Derivative
|
Bifurcated
|
Securities
|
||||||||||
|
Asset-Call
|
Conversion
|
Available-For-
|
||||||||||
| Options | Feature | Sale | ||||||||||
|
Balance as of January 1, 2010
|
$ | 176 | $ | (176 | ) | $ | 5 | |||||
|
Change in fair value
|
77 | (77 | ) | — | ||||||||
|
Balance as of March 31, 2010
|
$ | 253 | $ | (253 | ) | $ | 5 | |||||
| March 31, 2010 | December 31, 2009 | |||||||||||||||
|
Estimated
|
Estimated
|
|||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
Assets
|
||||||||||||||||
|
Vacation ownership contract receivables, net
|
$ | 3,031 | $ | 2,831 | $ | 3,081 | $ | 2,809 | ||||||||
|
Debt
|
||||||||||||||||
|
Total debt
(a)
|
3,580 | 3,298 | 3,522 | 3,405 | ||||||||||||
|
Derivatives
|
||||||||||||||||
|
Foreign exchange contracts
(b)
|
||||||||||||||||
|
Assets
|
4 | 4 | 3 | 3 | ||||||||||||
|
Liabilities
|
(5 | ) | (5 | ) | (2 | ) | (2 | ) | ||||||||
|
Interest rate contracts
(c)
|
||||||||||||||||
|
Assets
|
6 | 6 | 5 | 5 | ||||||||||||
|
Liabilities
|
(43 | ) | (43 | ) | (45 | ) | (45 | ) | ||||||||
|
Convertible Notes related Call Options
|
||||||||||||||||
|
Assets
|
253 | 253 | 176 | 176 | ||||||||||||
| (a) | As of March 31, 2010 and December 31, 2009, includes $253 million and $176 million, respectively, related to a Bifurcated Conversion Feature liability. | |
| (b) | Instruments are in net gain positions as of March 31, 2010 and December 31, 2009. | |
| (c) | Instruments are in net loss positions as of March 31, 2010 and December 31, 2009. |
17
| 9. | Derivative Instruments and Hedging Activities |
| Assets | Liabilities | |||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
|
Derivatives designated as hedging instruments
|
||||||||||||
|
Interest rate contracts
|
Other non-current liabilities | $ | 25 | |||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Interest rate contracts
|
Other non-current assets | $ | 6 | Other non-current liabilities | $ | 18 | ||||||
|
Foreign exchange contracts
|
Other current assets | 4 | Accrued exp. & other current liabs. | 5 | ||||||||
|
Convertible Notes related
Call Options (*) |
Other non-current assets | 253 | — | |||||||||
|
Bifurcated Conversion Feature
(*)
|
— | Long-term debt | 253 | |||||||||
|
Total derivatives not designated as hedging instruments
|
$ | 263 | $ | 276 | ||||||||
| (*) | See Note 7—Long-Term Debt and Borrowing Arrangements for further detail. |
18
| Assets | Liabilities | |||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
|
Derivatives designated as hedging instruments
|
||||||||||||
|
Interest rate contracts
|
Other non-current liabilities | $ | 39 | |||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Interest rate contracts
|
Other non-current assets | $ | 5 | Other non-current liabilities | $ | 6 | ||||||
|
Foreign exchange contracts
|
Other current assets | 3 | Accrued exp. & other current liabs. | 2 | ||||||||
|
Convertible Notes related
Call Options (*) |
Other non-current assets | 176 | — | |||||||||
|
Bifurcated Conversion Feature
(*)
|
— | Long-term debt | 176 | |||||||||
|
Total derivatives not designated as hedging instruments
|
$ | 184 | $ | 184 | ||||||||
| (*) | See Note 7—Long-Term Debt and Borrowing Arrangements for further detail. |
| 10. | Income Taxes |
| 11. | Commitments and Contingencies |
19
| 12. | Accumulated Other Comprehensive Income |
|
Unrealized
|
Minimum
|
Accumulated
|
||||||||||||||
|
Currency
|
Gains/(Losses)
|
Pension
|
Other
|
|||||||||||||
|
Translation
|
on Cash Flow
|
Liability
|
Comprehensive
|
|||||||||||||
| Adjustments | Hedges, Net | Adjustment | Income | |||||||||||||
|
Balance, January 1, 2010, net of tax benefit of $32
|
$ | 166 | $ | (27 | ) | $ | (1 | ) | $ | 138 | ||||||
|
Current period change
|
(16 | ) | 7 | (*) | — | (9 | ) | |||||||||
|
Balance, March 31, 2010, net of tax benefit of $44
|
$ | 150 | $ | (20 | ) | $ | (1 | ) | $ | 129 | ||||||
| (*) | Primarily represents the reclassification of an after-tax unrealized loss associated with the termination of an interest rate swap agreement in connection with the early extinguishment of the term loan facility (See Note 7—Long-Term Debt and Borrowing Arrangements). |
|
Unrealized
|
Minimum
|
Accumulated
|
||||||||||||||
|
Currency
|
Gains/(Losses)
|
Pension
|
Other
|
|||||||||||||
|
Translation
|
on Cash Flow
|
Liability
|
Comprehensive
|
|||||||||||||
| Adjustments | Hedges, Net | Adjustment | Income | |||||||||||||
|
Balance, January 1, 2009, net of tax benefit of $72
|
$ | 141 | $ | (45 | ) | $ | 2 | $ | 98 | |||||||
|
Current period change
|
(9 | ) | 4 | — | (5 | ) | ||||||||||
|
Balance, March 31, 2009, net of tax benefit of $82
|
$ | 132 | $ | (41 | ) | $ | 2 | $ | 93 | |||||||
| 13. | Stock-Based Compensation |
20
| RSUs | SSARs | |||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Number
|
Average
|
Number
|
Average
|
|||||||||||||
| of RSUs | Grant Price | of SSARs | Exercise Price | |||||||||||||
|
Balance as of January 1, 2010
|
8.3 | $ | 9.60 | 2.1 | $ | 21.70 | ||||||||||
|
Granted
|
1.8 | (b) | 22.84 | 0.2 | (b) | 22.84 | ||||||||||
|
Vested/exercised
|
(2.3 | ) | 6.90 | — | — | |||||||||||
|
Canceled
|
(0.1 | ) | 10.77 | — | — | |||||||||||
|
Balance as of March 31, 2010
(a)
|
7.7 | (c) | 13.56 | 2.3 | (d) | 21.77 | ||||||||||
| (a) | Aggregate unrecognized compensation expense related to SSARs and RSUs was $92 million as of March 31, 2010 which is expected to be recognized over a weighted average period of 2.8 years. | |
| (b) | Represents awards granted by the Company on February 24, 2010. | |
| (c) | Approximately 7.3 million RSUs outstanding as of March 31, 2010 are expected to vest over time. | |
| (d) | Approximately 1.1 million of the 2.3 million SSARs are exercisable as of March 31, 2010. The Company assumes that all unvested SSARs are expected to vest over time. SSARs outstanding as of March 31, 2010 had an intrinsic value of $16 million and have a weighted average remaining contractual life of 4.1 years. |
|
SSARs Issued on
|
||||
| February 24, 2010 | ||||
|
Grant date fair value
|
$ | 8.66 | ||
|
Grant date strike price
|
$ | 22.84 | ||
|
Expected volatility
|
53.0% | |||
|
Expected life
|
4.25 yrs. | |||
|
Risk free interest rate
|
2.07% | |||
|
Projected dividend yield
|
2.10% | |||
21
| 14. | Segment Information |
| Three Months Ended March 31, | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
|
Net
|
Net
|
|||||||||||||||
| Revenues | EBITDA | Revenues | EBITDA (d) | |||||||||||||
|
Lodging
|
$ | 144 | $ | 33 | $ | 154 | $ | 35 | ||||||||
|
Vacation Exchange and Rentals
|
300 | 80 | (c) | 287 | 76 | |||||||||||
|
Vacation Ownership
|
444 | 82 | 462 | 44 | (e) | |||||||||||
|
Total Reportable Segments
|
888 | 195 | 903 | 155 | ||||||||||||
|
Corporate and Other
(a)(b)
|
(2 | ) | (20 | ) | (2 | ) | (21 | ) | ||||||||
|
Total Company
|
$ | 886 | 175 | $ | 901 | 134 | ||||||||||
|
Depreciation and amortization
|
44 | 43 | ||||||||||||||
|
Interest expense
|
50 | (f) | 19 | |||||||||||||
|
Interest income
|
(1 | ) | (2 | ) | ||||||||||||
|
Income before income taxes
|
$ | 82 | $ | 74 | ||||||||||||
| (a) | Includes the elimination of transactions between segments. | |
| (b) | Includes $2 million and $4 million of a net expense related to the resolution of and adjustment to certain contingent liabilities and assets during the three months ended March 31, 2010 and 2009, respectively, and $18 million and $17 million of corporate costs during the three months ended March 31, 2010 and 2009, respectively. | |
| (c) | Includes $4 million of costs incurred in connection with the Company’s acquisition of Hoseasons during March 2010. | |
| (d) | Includes restructuring costs of $3 million, $4 million, $35 million and $1 million for Lodging, Vacation Exchange and Rentals, Vacation Ownership and Corporate and Other, respectively, during the three months ended March 31, 2009. | |
| (e) | Includes a non-cash impairment charge of $5 million to reduce the value of certain vacation ownership properties and related assets held for sale that are no longer consistent with the Company’s development plans. |
| (f) | Includes $1 million and $15 million for Vacation Ownership and Corporate and Other, respectively, of costs incurred for the early extinguishment of the Company’s revolving foreign credit facility and term loan facility during March 2010. |
| 15. | Restructuring |
22
|
Personnel
|
Facility
|
Asset Write-off’s/
|
Contract
|
|||||||||||||||||
| Related (a) | Related (b) | Impairments (c) | Termination (d) | Total | ||||||||||||||||
|
Lodging
|
$ | 3 | $ | — | $ | — | $ | — | $ | 3 | ||||||||||
|
Vacation Exchange and Rentals
|
3 | 1 | — | — | 4 | |||||||||||||||
|
Vacation Ownership
|
1 | 19 | 14 | 1 | 35 | |||||||||||||||
|
Corporate
|
1 | — | — | — | 1 | |||||||||||||||
|
Total
|
$ | 8 | $ | 20 | $ | 14 | $ | 1 | $ | 43 | ||||||||||
| (a) | Represents severance benefits resulting from reductions of approximately 320 in staff. The Company formally communicated the termination of employment to substantially all 320 employees, representing a wide range of employee groups. As of March 31, 2009, the Company had terminated approximately 215 of these employees. | |
| (b) | Primarily related to the termination of leases of certain sales offices. | |
| (c) | Primarily related to the write-off of assets from sales office closures and cancelled development projects. | |
| (d) | Primarily represents costs incurred in connection with the termination of a property development contract. |
|
Liability as of
|
Liability as of
|
|||||||||||
|
January 1,
|
Cash
|
March 31,
|
||||||||||
|
2010
|
Payments | 2010 | ||||||||||
|
Personnel-Related
(*)
|
$ | 3 | $ | 2 | $ | 1 | ||||||
|
Facility-Related
|
18 | 1 | 17 | |||||||||
|
Contract Terminations
|
1 | 1 | — | |||||||||
| $ | 22 | $ | 4 | $ | 18 | |||||||
| (*) | As of March 31, 2010, the Company had terminated all of the employees related to such costs. |
| 16. | Separation Adjustments and Transactions with Former Parent and Subsidiaries |
23
| · | Contingent litigation liabilities The Company assumed 37.5% of liabilities for certain litigation relating to, arising out of or resulting from certain lawsuits in which Cendant is named as the defendant. The indemnification obligation will continue until the underlying lawsuits are resolved. The Company will indemnify Cendant to the extent that Cendant is required to make payments related to any of the underlying lawsuits. As the indemnification obligation relates to matters in various stages of litigation, the maximum exposure cannot be quantified. Due to the inherently uncertain nature of the litigation process, the timing of payments related to these liabilities cannot reasonably be predicted, but is expected to occur over several years. Since the Separation, Cendant settled a majority of these lawsuits and the Company assumed a portion of the related indemnification obligations. For each settlement, the Company paid 37.5% of the aggregate settlement amount to Cendant. The Company’s payment obligations under the settlements were greater or less than the Company’s accruals, depending on the matter. On September 7, 2007, Cendant received an adverse ruling in a litigation matter for which the Company retained a 37.5% indemnification obligation. The judgment on the adverse ruling was entered on May 16, 2008. On May 23, 2008, Cendant filed an appeal of the judgment and, on July 1, 2009, an order was entered denying the appeal. As a result of the denial of the appeal, Realogy and the Company determined to pay the judgment. On July 23, 2009, the Company paid its portion of the aforementioned judgment ($37 million). Although the judgment for the underlying liability for this matter has been paid, the phase of the litigation involving the determination of fees owed the plaintiffs’ attorneys remains pending. Similar to the contingent liability, the Company is responsible for 37.5% of any attorneys’ fees payable. As a result of settlements and payments to Cendant, as well as other reductions and accruals for developments in active litigation matters, the Company’s aggregate accrual for outstanding Cendant contingent litigation liabilities was $5 million as of March 31, 2010. | |
| · | Contingent tax liabilities Prior to the Separation, the Company was included in the consolidated federal and state income tax returns of Cendant through the Separation date for the 2006 period then ended. The Company is generally liable for 37.5% of certain contingent tax liabilities. In addition, each of the Company, Cendant and Realogy may be responsible for 100% of certain of Cendant’s tax liabilities that will provide the responsible party with a future, offsetting tax benefit. The Company will pay to Cendant the amount of taxes allocated pursuant to the tax sharing agreement, as amended during the third quarter of 2008, for the payment of certain taxes. As a result of the amendment to the tax sharing agreement, the Company recorded a gross up of its contingent tax liability and has a corresponding deferred tax asset of $35 million as of March 31, 2010. |
24
| · | Cendant contingent and other corporate liabilities The Company has assumed 37.5% of corporate liabilities of Cendant including liabilities relating to (i) Cendant’s terminated or divested businesses; (ii) liabilities relating to the Travelport sale, if any; and (iii) generally any actions with respect to the Separation plan or the distributions brought by any third party. The Company’s maximum exposure to loss cannot be quantified as this guarantee relates primarily to future claims that may be made against Cendant. The Company assessed the probability and amount of potential liability related to this guarantee based on the extent and nature of historical experience. | |
| · | Guarantee related to deferred compensation arrangements In the event that Cendant, Realogy and/or Travelport are not able to meet certain deferred compensation obligations under specified plans for certain current and former officers and directors because of bankruptcy or insolvency, the Company has guaranteed such obligations (to the extent relating to amounts deferred in respect of 2005 and earlier). This guarantee will remain outstanding until such deferred compensation balances are distributed to the respective officers and directors. The maximum exposure cannot be quantified as the guarantee, in part, is related to the value of deferred investments as of the date of the requested distribution. |
25
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| · | Lodging —franchises hotels in the upscale, midscale, economy and extended stay segments of the lodging industry and provides hotel management services for full-service hotels globally. | |
| · | Vacation Exchange and Rentals —provides vacation exchange products and services to owners of intervals of vacation ownership interests (“VOIs”) and markets vacation rental properties primarily on behalf of independent owners. | |
| · | Vacation Ownership —develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts. |
26
| Three Months Ended March 31, | ||||||||||||
| 2010 | 2009 | % Change | ||||||||||
|
Lodging
|
||||||||||||
|
Number of rooms
(a)
|
593,300 | 588,500 | 1 | |||||||||
|
RevPAR
(b)
|
$ | 25.81 | $ | 27.69 | (7 | ) | ||||||
|
Vacation Exchange and Rentals
|
||||||||||||
|
Average number of members (000s)
(c)
|
3,746 | 3,789 | (1 | ) | ||||||||
|
Exchange revenue per member
(d)
|
$ | 201.93 | $ | 194.83 | 4 | |||||||
|
Vacation rental transactions (in 000s)
(e)(f)
|
291 | 273 | 7 | |||||||||
|
Average net price per vacation rental
(f)(g)
|
$ | 361.17 | $ | 353.15 | 2 | |||||||
|
Vacation Ownership
|
||||||||||||
|
Gross VOI sales (in 000s)
(h)(i)
|
$ | 308,000 | $ | 280,000 | 10 | |||||||
|
Tours
(j)
|
123,000 | 137,000 | (10 | ) | ||||||||
|
Volume Per Guest (“VPG”)
(k)
|
$ | 2,334 | $ | 1,866 | 25 | |||||||
| (a) | Represents the number of rooms at lodging properties at the end of the period which are either (i) under franchise and/or management agreements, (ii) properties affiliated with the Wyndham Hotels and Resorts brand for which we receive a fee for reservation and/or other services provided and (iii) properties managed under a joint venture. The amounts in 2010 and 2009 include 404 and 4,175 affiliated rooms, respectively. | |
| (b) | Represents revenue per available room and is calculated by multiplying the percentage of available rooms occupied during the period by the average rate charged for renting a lodging room for one day. | |
| (c) | Represents members in our vacation exchange programs who pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related products and services. | |
| (d) | Represents total revenue generated from fees associated with memberships, exchange transactions, member-related rentals and other servicing for the period divided by the average number of vacation exchange members during the period. Excluding the impact of foreign exchange movements, exchange revenue per member increased 1%. | |
| (e) | Represents the number of transactions that are generated in connection with customers booking their vacation rental stays through us. One rental transaction is recorded each time a standard one-week rental is booked. | |
| (f) | Includes the impact from the acquisition of Hoseasons Holdings Ltd. (“Hoseasons”), which was acquired on March 1, 2010; therefore, such operating statistics for 2010 are not presented on a comparable basis to the 2009 operating statistics. | |
| (g) | Represents the net rental price generated from renting vacation properties to customers divided by the number of vacation rental transactions. Excluding the impact of foreign exchange movements, the average net price per vacation rental decreased 4%. | |
| (h) | Represents total sales of VOIs, including sales under the Wyndham Asset Affiliation Model (“WAAM”), before the net effect of percentage-of-completion accounting and loan loss provisions. We believe that Gross VOI sales provides an enhanced understanding of the performance of our vacation ownership business because it directly measures the sales volume of this business during a given reporting period. | |
| (i) | The following table provides a reconciliation of Gross VOI sales to Vacation ownership interest sales for the three months ended March 31 (in millions): |
| 2010 | 2009 | |||||||
|
Gross VOI sales
|
$ | 308 | $ | 280 | ||||
|
Less: WAAM
sales
(a)
|
(5 | ) | — | |||||
|
Gross VOI sales, net of WAAM sales
|
303 | 280 | ||||||
|
Plus: Net effect of
percentage-of-completion
accounting
|
— | 67 | ||||||
|
Less: Loan loss provision
|
(86 | ) | (107 | ) | ||||
|
Vacation ownership interest sales
|
$ | 217 | $ | 239 | (*) | |||
| (*) | Amount does not foot due to rounding. | |
| (a) | Represents total sales of VOIs through our fee-for-service vacation ownership sales model designed to offer turn-key solutions for developers or banks in possession of newly developed inventory, which we will sell for a commission fee through our extensive sales and marketing channels. |
| (j) | Represents the number of tours taken by guests in our efforts to sell VOIs. | |
| (k) | VPG is calculated by dividing Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) by the number of tours. Tele-sales upgrades were $15 million and $24 million during the three months ended March 31, 2010 and 2009, respectively. We have excluded non-tour upgrade sales in the calculation of VPG because non-tour upgrade sales are generated by a different marketing channel. We believe that VPG provides an enhanced understanding of the performance of our vacation ownership business because it directly measures the efficiency of this business’ tour selling efforts during a given reporting period. |
27
| Three Months Ended March 31, | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
|
Net revenues
|
$ | 886 | $ | 901 | $ | (15 | ) | |||||
|
Expenses
|
756 | 812 | (56 | ) | ||||||||
|
Operating income
|
130 | 89 | 41 | |||||||||
|
Other income, net
|
(1 | ) | (2 | ) | 1 | |||||||
|
Interest expense
|
50 | 19 | 31 | |||||||||
|
Interest income
|
(1 | ) | (2 | ) | 1 | |||||||
|
Income before income taxes
|
82 | 74 | 8 | |||||||||
|
Provision for income taxes
|
32 | 29 | 3 | |||||||||
|
Net income
|
$ | 50 | $ | 45 | $ | 5 | ||||||
| · | a decrease of $67 million as a result of the absence of the recognition of revenues previously deferred under the percentage-of-completion (“POC”) method of accounting due to operational changes that we made at our vacation ownership business to eliminate the impact of deferred revenues; | |
| · | a $10 million decrease in net revenues in our lodging business primarily due to RevPAR weakness; and | |
| · | a $4 million decrease in ancillary revenues at our vacation ownership business primarily associated with a decline in fees generated from other non-core businesses, partially offset by the usage of bonus points/credits, which are provided as purchase incentives on VOI sales. |
| · | a $23 million increase in gross sales of VOIs reflecting an increase in VPG, partially offset by the planned reduction in tour flow; | |
| · | a $21 million decrease in our provision for loan losses primarily due to (i) improved portfolio performance and mix, partially offset by higher gross VOI sales, and (ii) the impact from the absence of the recognition of revenue previously deferred under the POC method of accounting during the first quarter of 2009; | |
| · | a $9 million increase in net revenues from rental transactions and related services at our vacation exchange and rentals business due to a favorable impact of foreign exchange movements of $7 million and incremental revenues contributed from the March 2010 acquisition of Hoseasons; | |
| · | $9 million of incremental property management fees within our vacation ownership business primarily as a result of growth in the number of units under management; and | |
| · | a $4 million increase in exchange and related service revenues primarily due to a $5 million favorable impact of foreign exchange movements. |
| · | the absence of $43 million of costs due to organizational realignment initiatives across our businesses (see Restructuring Plan for more details); | |
| · | a decrease of $26 million of expenses related to the absence of the recognition of revenues previously deferred at our vacation ownership business, as discussed above; | |
| · | $15 million of lower marketing and related expenses at our vacation ownership business resulting from the change in tour mix and our lodging business resulting from lower spend across our brands primarily as a result of a decline in related marketing fees received; | |
| · | an $8 million decrease in consumer financing interest expenses primarily related to lower average borrowings on our securitized debt facilities and a decrease in interest rates; and |
28
| · | the absence of a non-cash charge of $5 million recorded during the first quarter of 2009 to impair the value of certain vacation ownership properties and related assets held for sale that were no longer consistent with our development plans. |
| · | $14 million of increased litigation settlement reserves primarily at our vacation ownership business; | |
| · | the unfavorable impact of foreign currency translation on expenses of $11 million at our vacation exchange and rentals business; | |
| · | $7 million of incremental property management expenses at our vacation ownership business primarily associated with the growth in the number of units under management; | |
| · | $6 million of increased employee-related expenses at our vacation ownership business primarily related to higher sales commission costs; and | |
| · | $4 million of costs incurred at our vacation exchange and rentals business in connection with our acquisition of Hoseasons. |
| · | net revenues of approximately $3.6 billion to $3.9 billion; | |
| · | depreciation and amortization of approximately $180 million to $185 million; and | |
| · | interest expense, net (excluding early extinguishment of debt costs) of approximately $135 million to $145 million. |
29
| Net Revenues | EBITDA | |||||||||||||||||||
| 2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||
|
Lodging
|
$ | 144 | $ | 154 | (6) | $ | 33 | $ | 35 | (6) | ||||||||||
|
Vacation Exchange and Rentals
|
300 | 287 | 5 | 80 | 76 | 5 | ||||||||||||||
|
Vacation Ownership
|
444 | 462 | (4) | 82 | 44 | 86 | ||||||||||||||
|
Total Reportable Segments
|
888 | 903 | (2) | 195 | 155 | 26 | ||||||||||||||
|
Corporate and Other
(a)
|
(2 | ) | (2 | ) | * | (20 | ) | (21 | ) | * | ||||||||||
|
Total Company
|
$ | 886 | $ | 901 | (2) | 175 | 134 | 31 | ||||||||||||
|
Less: Depreciation and amortization
|
44 | 43 | ||||||||||||||||||
|
Interest expense
|
50 | 19 | ||||||||||||||||||
|
Interest income
|
(1 | ) | (2 | ) | ||||||||||||||||
|
Income before income taxes
|
$ | 82 | $ | 74 | ||||||||||||||||
| (*) | Not meaningful. | |
| (a) | Includes the elimination of transactions between segments. |
| · | RevPAR to be flat to down 3%; and | |
| · | number of rooms to increase 1-3%. |
30
| · | vacation rental transactions to increase 20—23% and average net price per vacation rental to decrease 12—15% primarily reflecting increased volumes at lower rental yields from our Hoseasons acquisition; and | |
| · | average number of members as well as exchange revenue per member to be flat. |
31
| · | $288 million of decreased average borrowings on our securitized debt facilities; | |
| · | an 87 basis point decrease in our weighted average interest rate; and | |
| · | higher weighted average interest rates earned on our contract receivable portfolio. |
| · | the absence of $35 million of costs recorded during the first quarter of 2009 relating to organizational realignment initiatives (see Restructuring Plan for more details); | |
| · | $7 million of decreased marketing expenses due to the change in tour mix; and | |
| · | the absence of a non-cash charge of $5 million recorded during the first quarter of 2009 to impair the value of certain vacation ownership properties and related assets held for sale that were no longer consistent with our development plans. |
32
| · | gross VOI sales to be flat; | |
| · | tours to decline 3-6%; and | |
| · | VPG to increase 6-9%. |
| · | our termination of an interest rate swap agreement related to the early extinguishment of our term loan facility, which resulted in the reclassification of a $14 million unrealized loss from accumulated other comprehensive income to interest expense on our Consolidated Statement of Income; | |
| · | a $13 million increase in interest incurred on our long-term debt facilities, primarily related to our May 2009 and February 2010 debt issuances; | |
| · | a $2 million decrease in capitalized interest at our vacation ownership business due to lower development of vacation ownership inventory; and | |
| · | an additional $2 million of costs, which are included within interest expense on our Consolidated Statement of Income, incurred in connection with the early extinguishment of our term loan and revolving foreign credit facilities. |
33
|
March 31,
|
December 31,
|
|||||||||||
| 2010 | 2009 | Change | ||||||||||
|
Total assets
|
$ | 9,585 | $ | 9,352 | $ | 233 | ||||||
|
Total liabilities
|
6,884 | 6,664 | 220 | |||||||||
|
Total stockholders’ equity
|
2,701 | 2,688 | 13 | |||||||||
| · | a $144 million increase in trade receivables, net, primarily due to seasonality at our European vacation rental businesses and the acquisition of Hoseasons, partially offset by the impact of foreign currency translation at our vacation exchange and rentals business and a decline in ancillary revenues at our vacation ownership business; | |
| · | a $108 million increase in other non-current assets primarily due to a $77 million increase in our call option transaction entered into concurrent with the sale of the convertible notes, which is discussed in greater detail in Note 7—Long-Term Debt and Borrowing Arrangements, increased deferred financing costs as a result of the debt issuances during the first quarter of 2010 and increased securitized restricted cash resulting from the timing of cash we are required to set aside in connection with additional vacation ownership contract receivables securitizations; | |
| · | a $23 million increase in franchise agreements and other intangibles, net, primarily related to the acquisition of Hoseasons, partially offset by the amortization of franchise agreements at our lodging business; | |
| · | a $16 million net increase in goodwill related to the acquisition of Hoseasons, partially offset by the impact of foreign currency translation at our vacation exchange and rentals business; | |
| · | a $15 million increase in trademarks, net primarily as a result of the acquisition of Hoseasons; and | |
| · | an increase of $8 million in cash and cash equivalents, which is discussed in further detail in “Liquidity and Capital Resources—Cash Flows”. |
| · | a $142 million increase in accounts payable primarily due to seasonality at our European vacation rental businesses and the acquisition of Hoseasons, partially offset by the impact of foreign currency translation at our vacation exchange and rentals business; | |
| · | a net increase of $67 million in our other long-term debt primarily reflecting a $77 million increase in our derivative liability related to the bifurcated conversion feature entered into concurrent with the sale of our convertible notes, which is discussed in greater detail in Note 7—Long-Term Debt and Borrowing |
34
| Arrangements, partially offset by additional net principal payments on our other long-term debt with operating cash of $10 million; |
| · | a $28 million increase in deferred income primarily resulting from cash received in advance on arrival-based bookings within our vacation exchange and rentals business, partially offset by the impact of the recognition of revenues related to our vacation ownership trial membership marketing program; and | |
| · | a $7 million increase in deferred income taxes primarily attributable to a change in the expected timing of the utilization of alternative minimum tax credits and movement in other comprehensive income. |
| · | $50 million of net income generated during the first quarter of 2010; | |
| · | a $12 million increase to our pool of excess tax benefits available to absorb tax deficiencies due to the vesting of equity awards; | |
| · | a $7 million impact resulting from the exercise of stock options during the first quarter of 2010; and | |
| · | a $7 million impact resulting from the reclassification of an $8 million after-tax unrealized loss associated with the termination of an interest rate swap agreement in connection with the early extinguishment of our term loan facility (see Note 7—Long-Term Debt and Borrowing Arrangements), partially offset by $1 million of unrealized losses on cash flow hedges. |
| · | $22 million related to the payment of dividends; | |
| · | $18 million of treasury stock purchased through our stock repurchase program; | |
| · | $16 million of currency translation adjustments, net of tax benefit; and | |
| · | a change of $7 million in deferred equity compensation. |
| Three Months Ended March 31, | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
|
Cash provided by/(used in):
|
||||||||||||
|
Operating activities
|
$ | 205 | $ | 210 | $ | (5 | ) | |||||
|
Investing activities
|
(123 | ) | (62 | ) | (61 | ) | ||||||
|
Financing activities
|
(73 | ) | (147 | ) | 74 | |||||||
|
Effects of changes in exchange rate on cash and cash equivalents
|
(1 | ) | (2 | ) | 1 | |||||||
|
Net change in cash and cash equivalents
|
$ | 8 | $ | (1 | ) | $ | 9 | |||||
35
| · | $23 million of higher trade receivables primarily due to an increase in advance bookings at our vacation exchange and rentals business; | |
| · | $21 million of a higher net cash outflow related to higher originations of vacation ownership contract receivables primarily related to an increase in VOI sales and lower collections of contract receivables during the first quarter of 2010 as compared to the same period during 2009; | |
| · | a $21 million decline in our provision for loan losses primarily related to improved portfolio performance and mix and the absence of the recognition of revenue previously deferred under the POC method of accounting; and | |
| · | $21 million of increased other current assets due to the absence of the recognition of VOI sales commissions during the first quarter of 2009 that had previously been deferred under the POC method of accounting. |
| · | $67 million of lower net principal payments related to securitized vacation ownership debt; | |
| · | $53 million of lower net principal payments related to non-securitized borrowings; | |
| · | higher tax benefits of $13 million from the exercise and vesting of equity awards; and | |
| · | $7 million of higher proceeds received in connection with stock option exercises during the first quarter of 2010. |
| · | $18 million of incremental debt issuance cost primarily related to our new $950 million revolving credit facility; | |
| · | $17 million of higher withholding taxes related to restricted stock unit net share settlement; | |
| · | $16 million spent on our stock repurchase program; and | |
| · | $15 million of additional dividends paid to shareholders. |
36
37
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Securitized vacation ownership debt:
(a)
|
||||||||
|
Term notes
|
$ | 1,258 | $ | 1,112 | ||||
|
Bank conduit facility
(b)
|
240 | 395 | ||||||
|
Total securitized vacation ownership debt
|
$ | 1,498 | $ | 1,507 | ||||
|
Long-term debt:
|
||||||||
|
6.00% senior unsecured notes (due December 2016)
(c)
|
$ | 798 | $ | 797 | ||||
|
Term loan
(d)
|
— | 300 | ||||||
|
Revolving credit facility (due October 2013)
(e)
|
199 | — | ||||||
|
9.875% senior unsecured notes (due May 2014)
(f)
|
239 | 238 | ||||||
|
3.50% convertible notes (due May 2012)
(g)
|
448 | 367 | ||||||
|
7.375% senior unsecured notes (due March 2020)
(h)
|
247 | — | ||||||
|
Vacation ownership bank borrowings
(i)
|
— | 153 | ||||||
|
Vacation rentals capital leases
(j)
|
123 | 133 | ||||||
|
Other
|
28 | 27 | ||||||
|
Total long-term debt
|
$ | 2,082 | $ | 2,015 | ||||
| (a) | Represents debt that is securitized through bankruptcy-remote special purpose entities (“SPEs”), the creditors of which have no recourse to us for principal and interest. | |
| (b) | Represents a 364-day, $600 million, non-recourse vacation ownership bank conduit facility, with a term through October 2010, whose capacity is subject to our ability to provide additional assets to collateralize the facility. As of March 31, 2010, the total available capacity of the facility was $360 million. | |
| (c) | The balance as of March 31, 2010 represents $800 million aggregate principal less $2 million of unamortized discount. | |
| (d) | The term loan facility was fully repaid during March 2010. | |
| (e) | The revolving credit facility has a total capacity of $950 million, which includes availability for letters of credit. As of March 31, 2010, we had $30 million of letters of credit outstanding and, as such, the total available capacity of the revolving credit facility was $721 million. | |
| (f) | Represents senior unsecured notes we issued during May 2009. Such balance represents $250 million aggregate principal less $11 million of unamortized discount. | |
| (g) | Represents cash convertible notes issued by us during May 2009, which includes debt principal, less unamortized discount, and a liability related to a bifurcated conversion feature. The following table details the components of the convertible notes: |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Debt principal
|
$ | 230 | $ | 230 | ||||
|
Unamortized discount
|
(35 | ) | (39 | ) | ||||
|
Debt less discount
|
195 | 191 | ||||||
|
Fair value of bifurcated conversion feature
(*)
|
253 | 176 | ||||||
|
Cash convertible notes
|
$ | 448 | $ | 367 | ||||
| (*) | We also have an asset with a fair value approximate to the bifurcated conversion feature, which represents cash-settled call options that we purchased concurrent with the issuance of the convertible notes. |
| (h) | Represents senior unsecured notes we issued during February 2010. Such balance represents $250 million aggregate principal less $3 million of unamortized discount. | |
| (i) | Represents a 364-day, AUD 213 million, secured, revolving foreign credit facility, which was paid down and terminated during March 2010. | |
| (j) | Represents capital lease obligations with corresponding assets classified within property and equipment on our Consolidated Balance Sheets. |
38
|
Total
|
Outstanding
|
Available
|
||||||||||
| Capacity | Borrowings | Capacity | ||||||||||
|
Securitized vacation ownership debt:
|
||||||||||||
|
Term notes
|
$ | 1,258 | $ | 1,258 | $ | — | ||||||
|
Bank conduit facility
(a)
|
600 | 240 | 360 | |||||||||
|
Total securitized vacation ownership debt
(b)
|
$ | 1,858 | $ | 1,498 | $ | 360 | ||||||
|
Long-term debt:
|
||||||||||||
|
6.00% senior unsecured notes (due December 2016)
|
$ | 798 | $ | 798 | $ | — | ||||||
|
Revolving credit facility (due October 2013)
(c)
|
950 | 199 | 751 | |||||||||
|
9.875% senior unsecured notes (due May 2014)
|
239 | 239 | — | |||||||||
|
3.50% convertible notes (due May 2012)
|
448 | 448 | — | |||||||||
|
7.375% senior unsecured notes (due March 2020)
|
247 | 247 | — | |||||||||
|
Vacation rentals capital leases
|
123 | 123 | — | |||||||||
|
Other
|
49 | 28 | 21 | |||||||||
|
Total long-term debt
|
$ | 2,854 | $ | 2,082 | 772 | |||||||
|
Less: Issuance of letters of credit
(c)
|
30 | |||||||||||
| $ | 742 | |||||||||||
| (a) | The capacity of this facility is subject to our ability to provide additional assets to collateralize additional securitized borrowings. | |
| (b) | These outstanding borrowings are collateralized by $2,712 million of underlying gross vacation ownership contract receivables and related assets. | |
| (c) | The capacity under our revolving credit facility includes availability for letters of credit. As of March 31, 2010, the available capacity of $751 million was further reduced by $30 million for the issuance of letters of credit. |
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
Securitized contract receivables, gross
|
$ | 2,526 | $ | 2,591 | ||||
|
Securitized restricted cash
|
159 | 133 | ||||||
|
Interest receivables on securitized contract receivables
|
19 | 20 | ||||||
|
Other assets
(a)
|
8 | 11 | ||||||
|
Total SPE assets
(b)
|
2,712 | 2,755 | ||||||
|
Securitized term notes
|
1,258 | 1,112 | ||||||
|
Securitized conduit facilities
|
240 | 395 | ||||||
|
Other liabilities
(c)
|
28 | 26 | ||||||
|
Total SPE liabilities
|
1,526 | 1,533 | ||||||
|
SPE assets in excess of SPE liabilities
|
$ | 1,186 | $ | 1,222 | ||||
| (a) | Primarily includes interest rate derivative contracts and related assets. | |
| (b) | Excludes deferred financing costs of $19 million and $20 million as of March 31, 2010 and December 31, 2009, respectively, related to securitized debt. | |
| (c) | Primarily includes interest rate derivative contracts and accrued interest on securitized debt. |
39
|
March 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
|
SPE assets in excess of SPE liabilities
|
$ | 1,186 | $ | 1,222 | ||||
|
Non-securitized contract receivables
|
865 | 598 | ||||||
|
Secured contract receivables
(*)
|
— | 262 | ||||||
|
Allowance for loan losses
|
(360 | ) | (370 | ) | ||||
|
Total, net
|
$ | 1,691 | $ | 1,712 | ||||
| (*) | As of December 31, 2009, such receivables collateralized our secured, revolving foreign credit facility, which was paid down and terminated during March 2010. |
40
41
| · | Contingent litigation liabilities We assumed 37.5% of liabilities for certain litigation relating to, arising out of or resulting from certain lawsuits in which Cendant is named as the defendant. The indemnification obligation will continue until the underlying lawsuits are resolved. We will indemnify Cendant to the extent that Cendant is required to make payments related to any of the underlying lawsuits. As the indemnification obligation relates to matters in various stages of litigation, the maximum exposure cannot be quantified. Due to the inherently uncertain nature of the litigation process, the timing of payments related to these liabilities cannot reasonably be predicted, but is expected to occur over several years. Since the Separation, Cendant |
42
| settled a majority of these lawsuits and we assumed a portion of the related indemnification obligations. For each settlement, we paid 37.5% of the aggregate settlement amount to Cendant. Our payment obligations under the settlements were greater or less than our accruals, depending on the matter. On September 7, 2007, Cendant received an adverse ruling in a litigation matter for which we retained a 37.5% indemnification obligation. The judgment on the adverse ruling was entered on May 16, 2008. On May 23, 2008, Cendant filed an appeal of the judgment and, on July 1, 2009, an order was entered denying the appeal. As a result of the denial of the appeal, Realogy and we determined to pay the judgment. On July 23, 2009, we paid our portion of the aforementioned judgment ($37 million). Although the judgment for the underlying liability for this matter has been paid, the phase of the litigation involving the determination of fees owed the plaintiffs’ attorneys remains pending. Similar to the contingent liability, we are responsible for 37.5% of any attorneys’ fees payable. As a result of settlements and payments to Cendant, as well as other reductions and accruals for developments in active litigation matters, our aggregate accrual for outstanding Cendant contingent litigation liabilities was $5 million as of March 31, 2010. |
| · | Contingent tax liabilities Prior to the Separation, we were included in the consolidated federal and state income tax returns of Cendant through the Separation date for the 2006 period then ended. We are generally liable for 37.5% of certain contingent tax liabilities. In addition, each of us, Cendant and Realogy may be responsible for 100% of certain of Cendant’s tax liabilities that will provide the responsible party with a future, offsetting tax benefit. We will pay to Cendant the amount of taxes allocated pursuant to the tax sharing agreement, as amended during the third quarter of 2008, for the payment of certain taxes. As a result of the amendment to the tax sharing agreement, we recorded a gross up of our contingent tax liability and have a corresponding deferred tax asset of $35 million as of March 31, 2010. |
| · | Cendant contingent and other corporate liabilities We have assumed 37.5% of corporate liabilities of Cendant including liabilities relating to (i) Cendant’s terminated or divested businesses; (ii) liabilities relating to the Travelport sale, if any; and (iii) generally any actions with respect to the Separation plan or the distributions brought by any third party. Our maximum exposure to loss cannot be quantified as this guarantee relates primarily to future claims that may be made against Cendant. We assessed the probability and amount of potential liability related to this guarantee based on the extent and nature of historical experience. | |
| · | Guarantee related to deferred compensation arrangements In the event that Cendant, Realogy and/or Travelport are not able to meet certain deferred compensation obligations under specified plans for certain current and former officers and directors because of bankruptcy or insolvency, we have guaranteed such obligations (to the extent relating to amounts deferred in respect of 2005 and earlier). This guarantee will remain outstanding until such deferred compensation balances are distributed to the respective officers and directors. The maximum exposure cannot be quantified as the guarantee, in part, is related to the value of deferred investments as of the date of the requested distribution. |
43
|
4/1/10-
|
4/1/11-
|
4/1/12-
|
4/1/13-
|
4/1/14-
|
||||||||||||||||||||||||
| 3/31/11 | 3/31/12 | 3/31/13 | 3/31/14 | 3/31/15 | Thereafter | Total | ||||||||||||||||||||||
|
Securitized debt
(a)
|
$ | 220 | $ | 356 | $ | 182 | $ | 197 | $ | 175 | $ | 368 | $ | 1,498 | ||||||||||||||
|
Long-term debt
|
23 | 12 | 472 | 209 | 250 | 1,116 | 2,082 | |||||||||||||||||||||
|
Interest on securitized and long-term debt
(b)
|
219 | 199 | 182 | 136 | 107 | 268 | 1,111 | |||||||||||||||||||||
|
Operating leases
|
65 | 58 | 43 | 31 | 23 | 100 | 320 | |||||||||||||||||||||
|
Other purchase commitments
(c)
|
221 | 114 | 24 | 7 | 14 | 129 | 509 | |||||||||||||||||||||
|
Contingent liabilities
(d)
|
198 | 68 | 45 | — | — | — | 311 | |||||||||||||||||||||
|
Total
(e)
|
$ | 946 | $ | 807 | $ | 948 | $ | 580 | $ | 569 | $ | 1,981 | $ | 5,831 | ||||||||||||||
| (a) | Represents debt that is securitized through bankruptcy-remote SPEs, the creditors to which have no recourse to us for principal and interest. | |
| (b) | Estimated using the stated interest rates on our long-term debt and the swapped interest rates on our securitized debt. | |
| (c) | Primarily represents commitments for the development of vacation ownership properties. Total includes approximately $100 million of vacation ownership development commitments, which we may terminate at minimal to no cost. | |
| (d) | Primarily represents certain contingent litigation liabilities, contingent tax liabilities and 37.5% of Cendant contingent and other corporate liabilities, which we assumed and are responsible for pursuant to our separation from Cendant. | |
| (e) | Excludes $26 million of our liability for unrecognized tax benefits associated with the guidance for uncertainty in income taxes since it is not reasonably estimatable to determine the periods in which such liability would be settled with the respective tax authorities. |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks. |
| Item 4. | Controls and Procedures. |
| (a) | Disclosure Controls and Procedures. Our management, with the participation of our Chairman and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective. |
| (b) | Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
44
| Item 1. | Legal Proceedings. |
| ITEM 1A. | Risk Factors |
45
| · | changes in operating costs, including inflation, energy, labor costs (including minimum wage increases and unionization), workers’ compensation and health-care related costs and insurance; | |
| · | changes in desirability of geographic regions of the hotels or resorts in our business; | |
| · | changes in the supply and demand for hotel rooms, vacation exchange and rental services and vacation ownership products and services; | |
| · | seasonality in our businesses may cause fluctuations in our operating results; | |
| · | geographic concentrations of our operations and customers; | |
| · | increases in costs due to inflation that may not be fully offset by price and fee increases in our business; | |
| · | availability of acceptable financing and cost of capital as they apply to us, our customers, current and potential hotel franchisees and developers, owners of hotels with which we have hotel management contracts, our RCI affiliates and other developers of vacation ownership resorts; | |
| · | our ability to securitize the receivables that we originate in connection with sales of vacation ownership interests; | |
| · | the risk that purchasers of vacation ownership interests who finance a portion of the purchase price default on their loans due to adverse macro or personal economic conditions or otherwise, which would increase loan loss reserves and adversely affect loan portfolio performance, each of which would negatively impact our results of operations; that if such defaults occur during the early part of the loan amortization period we will not have recovered the marketing, selling, administrative and other costs associated with such vacation ownership interest; such costs will be incurred again in connection with the resale of the repossessed vacation ownership interest; and the value we recover in a default is not, in all instances, sufficient to cover the outstanding debt; | |
| · | the quality of the services provided by franchisees, our vacation exchange and rentals business, resorts with units that are exchanged through our vacation exchange business and/or resorts in which we sell vacation ownership interests may adversely affect our image and reputation; | |
| · | our ability to generate sufficient cash to buy from third-party suppliers the products that we need to provide to the participants in our points programs who want to redeem points for such products; | |
| · | overbuilding in one or more segments of the hospitality industry and/or in one or more geographic regions; | |
| · | changes in the number and occupancy and room rates of hotels operating under franchise and management agreements; | |
| · | changes in the relative mix of franchised hotels in the various lodging industry price categories; | |
| · | our ability to develop and maintain positive relations and contractual arrangements with current and potential franchisees, hotel owners, vacation exchange members, vacation ownership interest owners, resorts with units that are exchanged through our vacation exchange business and/or owners of vacation properties that our vacation rentals business markets for rental; | |
| · | the availability of and competition for desirable sites for the development of vacation ownership properties; difficulties associated with obtaining entitlements to develop vacation ownership properties; liability under state and local laws with respect to any construction defects in the vacation ownership properties we develop; and our ability to adjust our pace of completion of resort development relative to the pace of our sales of the underlying vacation ownership interests; | |
| · | our ability to adjust our business model to generate greater cash flow and require less capital expenditures; | |
| · | private resale of vacation ownership interests could adversely affect our vacation ownership resorts and vacation exchange businesses; | |
| · | revenues from our lodging business are indirectly affected by our franchisees’ pricing decisions; | |
| · | organized labor activities and associated litigation; | |
| · | maintenance and infringement of our intellectual property; |
46
| · | the bankruptcy or insolvency of any one of our customers could impair our ability to collect outstanding fees or other amounts due or otherwise exercise our contractual rights; | |
| · | increases in the use of third-party Internet services to book online hotel reservations could adversely impact our revenues; and | |
| · | disruptions in relationships with third parties, including marketing alliances and affiliations with e-commerce channels. |
| · | our cash flows from operations or available lines of credit may be insufficient to meet required payments of principal and interest, which could result in a default and acceleration of the underlying debt; | |
| · | if we are unable to comply with the terms of the financial covenants under our revolving credit facility, including a breach of the financial ratios or tests, such non-compliance could result in a default and acceleration of the underlying revolver debt and under other debt instruments that contain cross-default provisions; | |
| · | our leverage may adversely affect our ability to obtain additional financing; | |
| · | our leverage may require the dedication of a significant portion of our cash flows to the payment of principal and interest thus reducing the availability of cash flows to fund working capital, capital expenditures or other operating needs; | |
| · | increases in interest rates; |
47
| · | rating agency downgrades for our debt that could increase our borrowing costs; | |
| · | failure or non-performance of counterparties for foreign exchange and interest rate hedging transactions; | |
| · | we may not be able to securitize our vacation ownership contract receivables on terms acceptable to us because of, among other factors, the performance of the vacation ownership contract receivables, adverse conditions in the market for vacation ownership loan-backed notes and asset-backed notes in general, the credit quality and financial stability of insurers of securitizations transactions, and the risk that the actual amount of uncollectible accounts on our securitized vacation ownership contract receivables and other credit we extend is greater than expected; | |
| · | our securitizations contain portfolio performance triggers which, if violated, may result in a disruption or loss of cash flow from such transactions; | |
| · | a reduction in commitments from surety bond providers may impair our vacation ownership business by requiring us to escrow cash in order to meet regulatory requirements of certain states; | |
| · | prohibitive cost and inadequate availability of capital could restrict the development or acquisition of vacation ownership resorts by us and the financing of purchases of vacation ownership interests; and | |
| · | if interest rates increase significantly, we may not be able to increase the interest rate offered to finance purchases of vacation ownership interests by the same amount of the increase. |
48
49
50
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
|
Approximate Dollar
|
||||||||||||||||
|
Total Number of
|
Value of Shares
|
|||||||||||||||
|
Shares Purchased as
|
that May Yet Be
|
|||||||||||||||
|
Total Number of
|
Average Price Paid
|
Part of Publicly
|
Purchased Under
|
|||||||||||||
| Period | Shares Purchased | per Share | Announced Plan | Plan | ||||||||||||
|
January 1—31, 2010
|
— | $ | — | — | $ | 156,211,153 | ||||||||||
|
February 1—28, 2010
|
149,025 | $ | 22.73 | 149,025 | $ | 155,198,917 | ||||||||||
|
March 1—31,
2010
(*)
|
607,674 | $ | 24.56 | 607,674 | $ | 143,573,895 | ||||||||||
|
Total
|
756,699 | $ | 24.20 | 756,699 | $ | 143,573,895 | ||||||||||
| (*) | Includes 84,800 shares purchased for which the trade date occurred during March 2010 while settlement occurred during April 2010. |
| Item 3. | Defaults Upon Senior Securities. |
| Item 4. | Submission of Matters to a Vote of Security Holders. |
| Item 5. | Other Information. |
| Item 6. | Exhibits. |
| · | were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; | |
| · | may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; |
51
| · | may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and | |
| · | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement. |
52
|
Date: April 30, 2010
|
/s/ Thomas
G. Conforti
Chief Financial Officer |
|
|
Date: April 30, 2010
|
/s/ Nicola
Rossi
Chief Accounting Officer |
53
|
Exhibit No.
|
Description
|
|
|
2.1
|
Separation and Distribution Agreement by and among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of July 27, 2006 (incorporated by reference to the Registrant’s Form 8-K filed July 31, 2006) | |
|
2.2
|
Amendment No. 1 to Separation and Distribution Agreement by and among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of August 17, 2006 (incorporated by reference to the Registrant’s Form 10-Q filed November 14, 2006) | |
|
3.1
|
Amended and Restated Certificate of Incorporation (incorporated by reference to the Registrant’s Form 8-K filed July 19, 2006) | |
|
3.2
|
Amended and Restated By-Laws (incorporated by reference to the Registrant’s Form 8-K filed July 19, 2006) | |
|
10.1*
|
Second Amendment to the Second Amended and Restated FairShare Vacation Plan Use Management Trust Agreement, effective as of February 15, 2010, by and between the Fairshare Vacation Owners Association and Wyndham Vacation Resorts, Inc. | |
|
10.2*
|
Credit Agreement, dated as of March 29, 2010, among Wyndham Worldwide Corporation, the lenders party to the agreement from time to time, JPMorgan Chase Bank, N.A., as syndication agent, The Bank of Nova Scotia, Deutsche Bank AG New York Branch, The Royal Bank of Scotland PLC, and Credit Suisse AG, Cayman Islands Branch, as co-documentation agents, and Bank of America, N.A., as administrative agent, for the lenders. | |
|
12*
|
Computation of Ratio of Earnings to Fixed Charges | |
|
15*
|
Letter re: Unaudited Interim Financial Information | |
|
31.1*
|
Certification of Chairman and Chief Executive Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended | |
|
31.2*
|
Certification of Chief Financial Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended | |
|
32*
|
Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| * | Filed with this report |
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
Suppliers
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|