Cash provided by operating activities also reflected $36 million of higher cash utilized for working capital (net change in assets and
liabilities, excluding the impact of acquisitions) utilization resulting from:the absence of a net payment of $145 million in 2010 relating to the IRS settlement, which was reflected withinliabilities) primarily due to former Parent and subsidiaries;
$62 million of lower cash utilizationhigher inventory spend offset by a decrease in vacation ownership contract receivables resulting from the recognitionhigher collections and lower originations of deferred ancillary revenues during 2010 at our vacation ownership business; and
contract receivables.the absence of a $51 million reduction in accrued liabilities recorded during the third quarter of 2010 related to the resolution of and adjustment to certain contingent liabilities and assets.
Also contributing to the increase in net cash from operating activities was $55 million of higher cash income which included a $67 million refund for value-added taxes and related interest income of which $27 million is included in net income and $40 million is in working capital.
During
2011,2013, net cash used in investing activities decreased
$162by $118 million as compared to
2010,2012, which principally
reflecting $209reflected $134 million of lower payments for acquisitions
and the absence of a $41 million investment made in the Rio Mar joint venture during 2012, partially offset by a
$72$51 million increase in
capital spendingdevelopment advance payments resulting primarily
for construction onfrom new franchise and management agreements executed during the current year at our
Wyndham Grand hotel in Orlando and information technology related initiatives.lodging business.
During
2011,2013, net cash used in financing activities increased
$534by $174 million
as compared to
2010,2012, which principally
reflects (i) $658 million of higher share repurchases and (ii) $249reflected $150 million of lower
proceeds from the issuancenet borrowings of
notes.Such increases in cash outflows were partially offset by (i) $342 million of higher net proceeds related to non-securitized borrowings and (ii) $69 million of higher net proceeds related to securitized vacation ownership debt resulting from higher advance rates on our 2011 securitizations.
Convertible Debt.During 2011, we repurchased a portion of our remaining convertible notes with carrying value of $251 million primarily resulting from the completion of a cash tender offer ($95 million for the portion of convertible notes, including the unamortized discount, and $156 million for the related bifurcated conversion feature) for $262 million. Concurrent with the repurchases, we settled (i) a portion of the call options for proceeds of $155 million, which resulted in an additional loss of $1 million, and (ii) a portion of the warrants with payments of $112 million. As a result of these transactions, we made net payments of $219 million and incurred total losses of $12 million during 2011 and reduced the number of shares related to the warrants (“Warrants”) to approximately 1 million as of December 31, 2011.
During 2010, we utilized some of our cash flow to retire a portion of our convertible notes and settle a related portion of our call options and Warrants. We repurchased approximately 50%, or $114 million face value, of our $230 million convertible notes that had a carrying value of $239 million ($101 million for the portion of convertible notes, including the unamortized discount, and $138 million for the bifurcated conversion feature) for $250 million. Concurrentof lower net borrowings of non-securitized debt, partially offset by $96 million of cash received in connection with the repurchase, we settled (i) a portionsale of our call options for proceedsvacation ownership inventory which is subject to conditional repurchase.
We
are focusingfocus on optimizing cash flow and seeking to deploy capital for the highest possible returns. Ultimately, our business objective is to
transformgrow our business while transforming our cash and earnings profile
primarily by
rebalancingmanaging our cash streams to
achievederive a greater proportion of EBITDA from our fee-for-service businesses. We intend to continue to invest in select capital and technological improvements across our business.
In addition, weWe may
also seek to acquire additional franchise agreements, hotel/property management contracts and exclusive agreements for vacation rental properties on a strategic and selective basis
either directly oras well as grow the business through
investments in joint ventures.merger and acquisition activities. In addition, we will return cash to shareholders through the repurchase of common stock and payment of dividends.
We expect to generate annual net cash provided by operating activities less property and equipment additions (which we also refer to as capital expenditures) of approximately $750 million during 2014. During 2011,2014, we spent $249 millionanticipate net cash provided by operating activities of approximately $1.0 billion and net cash used on capital expenditures of $235 million to $245 million. Net cash provided by operating activities less capital expenditures amounted to $770 million during 2013, which was comprised of net cash provided by operating activities of approximately $1.0 billion less capital expenditures of $238 million. The decrease in the 2014 expected net cash provided by operating activities less capital expenditures of approximately $20 million is related to the higher anticipated spending on cash taxes offset by better operating performance and working capital utilization during 2014. We believe net cash provided by operating activities less capital expenditures is a useful operating performance measure to evaluate the ability of our operations to generate cash for uses other than capital expenditures and, after debt service and other obligations, our ability to grow our business through acquisitions, development advances, and equity investments, as well as our ability to return cash to shareholders through dividends and development advances primarily on (i) information technology enhancement projects, (ii) $46 million for construction of our Wyndham Grand hotel in Orlando, (iii) renovations of bungalows at our Landal GreenParks business and (iv) equity investments and development advances. share repurchases.
During
2012, we anticipate spending approximately $195 million to $210 million on capital expenditures, equity investments and development advances. Additionally, in an effort to support growth in the Wyndham Hotels and Resorts brand, we plan on investing approximately $200 million in mezzanine and other financing over the next several years.In addition,2013, we spent $79$129 million relatingrelated to vacation ownership development projects (inventory) during 2011. We anticipate spending on average approximately $150 million annually from 2011 through 2015 on vacation ownership development projects (approximately $110 million to $120 million during 2012), including projects currently under development.. We believe that our vacation ownership business currently has adequate finished inventory on our balance sheet to support vacation ownership sales.sales for at least the next year. During 2014, we anticipate spending approximately $165 million to $175 million on vacation ownership development projects. The average inventory spend on vacation ownership development projects for the 5 year period from 2013 through 2017 is expected to be approximately $200 million annually. After factoring in the anticipated additional average annual spending, of approximately $150 million annually from 2011 through 2015, we expect to have adequate inventory to support vacation ownership sales through at least 2016.
the next 4 to 5 years.
We spent $238 million on capital expenditures during 2013, primarily on information technology enhancement projects, leasehold improvements for a new Corporate facility and renovations of owned bungalows at our Landal GreenParks business.
In addition, during 2013, we utilized $65 million of our net cash provided by operating activities less capital expenditures on development advances primarily at our lodging business related to new franchise and management agreements entered into with multi-unit owners. In an effort to support growth in our lodging business, we will continue to provide development advances which may include additional agreements with multi-unit owners. We will also continue to provide other forms of financial support.
An SPE, that we consolidated into our financial statements, purchased the Midtown 45 property, which is currently being converted to vacation ownership inventory, for $115 million. Such purchase was reported within net assets acquired, net of cash acquired on our Consolidated Statement of Cash Flows. For further information regarding acquisitions, see Note 4 - Acquisitions.
In connection with our focus on optimizing cash flow, we are expanding our approach to our asset-light efforts in vacation ownership by seeking opportunities with financial partners whereby they make strategic investments to develop assets on our behalf. We refer to this as WAAM Just-in-Time. The partner may invest in new ground-up development projects or purchase from us, for cash, existing in-process inventory which currently resides on our balance sheet. The partner will complete the development of the project and we may purchase the finished inventory at a future date as needed or as obligated under the agreement.
We expect that the majority of the expenditures that will be required to pursue our capital spending programs, strategic investments and vacation ownership development projects will be financed with cash flow generated through operations. Additional expenditures are financed with general unsecured corporate borrowings, including through the use of available capacity under our revolving credit
facility.facility and commercial paper programs.
Share Repurchase Program
We expect to generate annual net cash provided by operating activities less capital expenditures, equity investments and development advances in the range of approximately $600 million to $700 million in 2012. A portion of this cash flow is expected to be returned to our shareholders in the form of share repurchases.
On August 20, 2007, our Board
of Directors (the “Board”) authorized a stock repurchase program that
enabledenables us to purchase
up to $200 million of our common stock.
OnThe Board has since authorized five increases to the repurchase program, most recently on July
22, 2010, the Board increased the authorization by $30023, 2013 for $750 million,
and further increased the authorization by $500 million on both April 25, 2011 and August 11, 2011, bringing the total
share authorization under our current program to
$1.5$3.0 billion. From August 20, 2007 through December 31,
2010,2012, we repurchased
11.453 million shares at an average price of
$25.78$34.33 for a cost of
$295 million$1.8 billion and repurchase capacity increased
$53 million from proceeds received from stock option exercises as of December 31, 2010. During 2011, we repurchased 28.7 million shares at an average price of $31.45 for a cost of $902 million and repurchase capacity increased $11$77 million from proceeds received from stock option exercises.
Such repurchase capacity will continue to be increased by proceeds received from future stock option exercises. As of December 31, 2011,During 2013, we repurchased
a total of 40.19.7 million shares at an average price of
$29.83$60.93 for a cost of
$1.2 billion under our current authorization and had $367 million remaining availability under our program.During the period January 1, 2012 through February 16, 2012,$590 million. As of December 31, 2013, we repurchased an additional 2a total of 62.7 million shares at an average price of $40.04$38.44 for a cost of $79$2.4 billion under the current authorization and had $667 million remaining availability under our program.
During the period January 1, 2014 through February 13, 2014, we repurchased an additional 0.7 million shares at an average price of $71.02 for a cost of $50 million. We currently have
$295$617 million remaining availability in our program. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. Repurchases may be conducted in the open market or in privately negotiated transactions.
Contingent Tax Liabilities
On July 15, 2010, Cendant and the IRS agreed to settle the IRS examination of Cendant’s taxable years 2003 through 2006. During such period, we and Realogy were included in Cendant’s tax returns. The agreement with the IRS closes the IRS examination for tax periods prior to the date of Separation, July 31, 2006. During September 2010, we received $10 million in payment from Realogy and paid $155 million for all such tax liabilities, including the final interest payable, to Cendant who is the taxpayer. We made such payment from cash flow generated through operations and the use of available capacity under our $970 million revolving credit facility.
As a result of the agreement with the IRS, we (i) reversed $190 million in net deferred tax liabilities allocated from Cendant on the Separation Date with a corresponding increase to stockholders’ equity and (ii) recognized a $55 million gain ($42 million, net of tax) with a corresponding decrease to general and administrative expenses during the third quarter of 2010. During the fourth quarter of 2010, we recorded a $2 million reduction to deferred tax assets allocated from Cendant on the Separation Date with a corresponding decrease to stockholders’ equity (see Note 23 — Separation Adjustments and Transactions with Former Parent and Subsidiaries for more information).
Financial Obligations
Our indebtedness consisted of:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Securitized vacation ownership debt: (a) | | | | | | | | |
Term notes | | $ | 1,625 | | | $ | 1,498 | |
Bank conduit facility(b) | | | 237 | | | | 152 | |
| | | | | | | | |
Total securitized vacation ownership debt | | $ | 1,862 | | | $ | 1,650 | |
| | | | | | | | |
Long-term debt: | | | | | | | | |
Revolving credit facility (due July 2016)(c) | | $ | 218 | | | $ | 154 | |
6.00% senior unsecured notes (due December 2016)(d) | | | 811 | | | | 798 | |
9.875% senior unsecured notes (due May 2014)(e) | | | 243 | | | | 241 | |
3.50% convertible notes (due May 2012)(f) | | | 36 | | | | 266 | |
7.375% senior unsecured notes (due March 2020)(g) | | | 247 | | | | 247 | |
5.75% senior unsecured notes (due February 2018)(h) | | | 247 | | | | 247 | |
5.625% senior unsecured notes (due March 2021)(i) | | | 245 | | | | — | |
Vacation rentals capital leases(j) | | | 102 | | | | 115 | |
Other | | | 4 | | | | 26 | |
| | | | | | | | |
Total long-term debt | | $ | 2,153 | | | $ | 2,094 | |
| | | | | | | | |
(a) | Represents non-recourse debt that currently is securitized through 13 bankruptcy-remote special purpose entities (“SPEs”), the creditors of which have no recourse to us for principal and interest.
|
(b) | Represents a non-recourse vacation ownership bank conduit facility, with a term through June 2013, whose capacity is subject to our ability to provide additional assets to collateralize the facility. As of December 31, 2011, the total available capacity of the facility was $363 million.
|
(c) | The revolving credit facility has a total capacity of $1.0 billion, which includes availability for letters of credit. As of December 31, 2011, we had $11 million of letters of credit outstanding and, as such, the total available capacity of the revolving credit facility was $771 million.
|
(d) | Represents senior unsecured notes we issued during December 2006. The balance as of December 31, 2011 represents $800 million aggregate principal less $2 million of unamortized discount, plus $13 million of unamortized gains from the settlement of a derivative.
|
(e) | Represents senior unsecured notes we issued during May 2009. The balance as of December 31, 2011 represents $250 million aggregate principal less $7 million of unamortized discount.
|
(f) | Represents convertible notes issued by us during May 2009, which includes debt principal, less unamortized discount, and a liability related to a bifurcated conversion feature. During 2011, we repurchased a portion of our outstanding convertible notes (see Note 13 – Long-term Debt and Borrowing Arrangements for further details). The following table details the components of the convertible notes:
|
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Debt principal | | $ | 12 | | | $ | 116 | |
Unamortized discount | | | — | | | | (12 | ) |
| | | | | | | | |
Debt less discount | | | 12 | | | | 104 | |
Fair value of bifurcated conversion feature(*) | | | 24 | | | | 162 | |
| | | | | | | | |
Convertible notes | | $ | 36 | | | $ | 266 | |
| | | | | | | | |
| (*) | We also have an asset with a fair value equal to the bifurcated conversion feature, which represents cash-settled call options that we purchased concurrent with the issuance of the convertible notes.
|
(g) | Represents senior unsecured notes we issued during February 2010. The balance as of December 31, 2011 represents $250 million aggregate principal less $3 million of unamortized discount.
|
(h) | Represents senior unsecured notes we issued during September 2010. The balance as of December 31, 2011 represents $250 million aggregate principal less $3 million of unamortized discount.
|
(i) | Represents senior unsecured notes we issued during March 2011. The balance as of December 31, 2011 represents $250 million aggregate principal less $5 million of unamortized discount.
|
(j) | Represents capital lease obligations with corresponding assets classified within property and equipment on our Consolidated Balance Sheets.
|
2011 Debt Issuances
During 2011, we issued senior unsecured notes, closed three term securitizations, renewed our securitized bank conduit facility, repurchased a portion of our convertible notes and replaced our revolving credit facility. For further detailed information about such debt, see Note 13 — Long-term Debt and Borrowing Arrangements.
Capacity
As of December 31, 2011, available capacity under our borrowing arrangements was as follows:
| | | | | | | | |
| | | Securitized bank
conduit facility (a) | | | Revolving credit
facility | |
Total capacity | | $ | 600 | | | $ | 1,000 | |
Less: Outstanding borrowings | | | 237 | | | | 218 | |
| | | | | | | | |
Available capacity | | $ | 363 | | | $ | 782 | (b) |
| | | | | | | | |
(a) | The capacity of this facility is subject to our ability to provide additional assets to collateralize additional securitized borrowings.
|
(b) | The capacity under our revolving credit facility includes availability for letters of credit. As of December 31, 2011, the available capacity of $782 million was further reduced to $771 million due to the issuance of $11 million of letters of credit.
|
Transfer and Servicing of Financial Assets
We pool qualifying vacation ownership contract receivables and sell them to bankruptcy-remote entities. Vacation ownership contract receivables qualify for securitization based primarily on the credit strength of the VOI purchaser to whom financing has been extended. Vacation ownership contract receivables currently are securitized through 13 bankruptcy-remote SPEs that are consolidated within our Consolidated Financial Statements. As a result, we do not recognize gains or losses resulting from these securitizations at the time of sale to the SPEs. Interest income is recognized when earned over the contractual life of the vacation ownership contract receivables. We service the securitized vacation ownership contract receivables pursuant to servicing agreements negotiated on an arms-length basis based on market conditions. The activities of these SPEs are limited to (i) purchasing vacation ownership contract receivables from our vacation ownership subsidiaries; (ii) issuing debt securities and/or borrowing under a conduit facility to fund such purchases; and (iii) entering into derivatives to hedge interest rate exposure. The bankruptcy-remote SPEs are legally separate from us. The receivables held by the bankruptcy-remote SPEs are not available to our creditors and legally are not our assets. Additionally, the creditors of these SPEs have no recourse to us for principal and interest.
The assets and liabilities of these vacation ownership SPEs are as follows:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Securitized contract receivables, gross | | $ | 2,485 | | | $ | 2,703 | |
Securitized restricted cash | | | 132 | | | | 138 | |
Interest receivables on securitized contract receivables | | | 20 | | | | 22 | |
Other assets (a) | | | 1 | | | | 2 | |
| | | | | | | | |
Total SPE assets(b) | | | 2,638 | | | | 2,865 | |
| | | | | | | | |
Securitized term notes | | | 1,625 | | | | 1,498 | |
Securitized conduit facilities | | | 237 | | | | 152 | |
Other liabilities(c) | | | 11 | | | | 22 | |
| | | | | | | | |
Total SPE liabilities | | | 1,873 | | | | 1,672 | |
| | | | | | | | |
SPE assets in excess of SPE liabilities | | $ | 765 | | | $ | 1,193 | |
| | | | | | | | |
(a) | Includes interest rate derivative contracts and related assets.
|
(b) | Excludes deferred financing costs of $26 million and $22 million as of December 31, 2011 and 2010, respectively, related to securitized debt.
|
(c) | Primarily includes interest rate derivative contracts and accrued interest on securitized debt.
|
In addition, we have vacation ownership contract receivables that have not been securitized through bankruptcy-remote SPEs. Such gross receivables were $757 million and $641 million as of December 31, 2011 and 2010, respectively. A summary of total vacation ownership receivables and other securitized assets, net of securitized liabilities and the allowance for loan losses, is as follows:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
SPE assets in excess of SPE liabilities | | $ | 765 | | | $ | 1,193 | |
Non-securitized contract receivables | | | 757 | | | | 641 | |
Allowance for loan losses | | | (394 | ) | | | (362 | ) |
| | | | | | | | |
Total, net | | $ | 1,128 | | | $ | 1,472 | |
| | | | | | | | |
Covenants
LONG-TERM DEBT COVENANTS
The revolving credit facility is subject to covenants including the maintenance of specific financial ratios. The financial ratio covenants consist of a minimum consolidated interest coverage ratio of at least
3.02.5 to 1.0 as of the measurement date and a maximum consolidated leverage ratio not to exceed
3.754.0 to 1.0 as of the measurement
date.date (provided that the consolidated leverage ratio may be increased for a limited period to 5.0 to 1.0 in connection with a material acquisition). The consolidated interest coverage ratio is calculated by dividing consolidated EBITDA (as defined in the credit agreement) by consolidated interest expense (as defined in the credit agreement), both as measured on a trailing 12 month basis preceding the measurement date. As of December 31,
2011,2013, our consolidated interest coverage ratio was
9.28.5 times. Consolidated interest expense excludes, among other things, interest expense on any securitization indebtedness (as defined in the credit agreement). The consolidated leverage ratio is calculated by dividing consolidated total indebtedness (as defined in the credit agreement and which excludes, among other things, securitization indebtedness) as of the measurement date by consolidated EBITDA as measured on a trailing 12 month basis preceding the measurement date. As of December 31,
2011,2013, our consolidated leverage ratio was
2.12.7 times. Covenants in this credit facility also include limitations on indebtedness of material subsidiaries; liens; mergers, consolidations, liquidations and dissolutions;
and the sale of all or substantially all of our
assets; and sale and leaseback transactions.assets. Events of default in this credit facility include failure to pay interest, principal and fees when due; breach of a covenant or warranty; acceleration of or failure to pay other debt in excess of $50 million (excluding securitization indebtedness); insolvency matters; and a change of control.
The 6.00% senior unsecured notes, 9.875% senior unsecured notes, 7.375% senior unsecured notes, 5.75% senior unsecured notes and 5.625%
All of our senior unsecured notes contain various covenants including limitations on liens, limitations on potential sale and leaseback transactions and change of control restrictions. In addition, there are limitations on mergers, consolidations and potential sale of all or substantially all of our assets. Events of default in the notes include failure to pay interest and principal when due, breach of a covenant or warranty, acceleration of other debt in excess of $50 million
(excluding securitization indebtedness) and insolvency matters.
The convertible notes do not contain affirmative or negative covenants, however, the limitations on mergers, consolidations and potential sale of all or substantially all of our assets and the events of default for our senior unsecured notes are applicable to such notes. Holders of the convertible notes have the right to require us to repurchase the convertible notes at 100% of principal plus accrued and unpaid interest in the event of a fundamental change, defined to include, among other things, a change of control, certain recapitalizations and if our common stock is no longer listed on a national securities exchange. As of December 31,
2011,2013, we were in compliance with all of the financial covenants described above.
Each of our non-recourse, securitized term notes and the bank conduit facility contain various triggers relating to the performance of the applicable loan pools. If the vacation ownership contract receivables pool that collateralizes one of our securitization notes fails to perform within the parameters established by the contractual triggers (such as higher default or delinquency rates), there are provisions pursuant to which the cash flows for
that pool will be maintained in the securitization as extra collateral for the note holders or applied to accelerate the repayment of outstanding principal to the note holders. As of December 31, 2011,2013, all of our securitized loan pools were in compliance with applicable contractual triggers.
LIQUIDITY RISK
LIQUIDITY RISK
Our vacation ownership business finances certain of its receivables through (i) an asset-backed bank conduit facility and (ii) periodically accessing the capital markets by issuing asset-backed securities. None of the currently outstanding asset-backed securities contains any recourse provisions to us other than interest rate risk related to swap counterparties (solely to the extent that the amount outstanding on our notes differs from the forecasted amortization schedule at the time of issuance).
We believe that our bank conduit facility, with a term through
June 2013August 2015 and
a total capacity of
$600$650 million, combined with our ability to issue term asset-backed securities, should provide sufficient liquidity for our expected sales pace and we expect to have available liquidity to finance the sale of VOIs.
Our $1.0 billion five-year revolving credit agreement,
As of December 31, 2013, we had $388 million of availability under our asset-backed bank conduit facility. Any disruption to the asset-backed securities market could adversely impact our ability to obtain such financings.
We maintain commercial paper programs under which
expires in July 2016, containswe may issue unsecured commercial paper notes up to a
provision that ismaximum amount of $1.25 billion. We allocate a
condition of an extension of credit. The provision, which was standard market practice for issuersportion of our
rating and industry at the time ofavailable capacity under our
revolver renewal, allows the lenders to withhold an extension of credit if the representations and warranties we made at the time we executed the revolving credit facility
agreement are not true and correct, in all material respects, at the time of the request of the extension of credit including if a development or event has or would reasonably be expected to
have a material adverse effect on our business, assets, operations or condition, financial or otherwise. The application of the material adverse effect provision contains exclusions for the impact resulting from disruptions in, or the inability of companies engaged in businesses similar to those engaged in by us and our subsidiaries to consummate financingsrepay outstanding commercial paper borrowings in the
asset backed securities or conduit market.event that the commercial paper market is not available to us for any reason when outstanding borrowings mature. As of December 31, 2013, we had $210 million of outstanding borrowings and the total available capacity was $1.0 billion under these programs.
We primarily utilize surety bonds at our vacation ownership business for sales and development transactions in order to meet regulatory requirements of certain states. In the ordinary course of our business, we have assembled commitments from
twelvethirteen surety providers in the amount of $1.2 billion, of which
we had $296$328 million
was outstanding as of December 31,
2011.2013. The availability, terms and conditions and pricing of
such bonding capacity
isare dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing
suchthe bonding capacity,
the general availability of such capacity and our corporate credit rating. If
suchthe bonding capacity is unavailable, or alternatively, if the terms and conditions and pricing of
suchthe bonding capacity are unacceptable to us, our vacation ownership business could be negatively impacted.
Our liquidity position may also be negatively affected by unfavorable conditions in the capital markets in which we operate or if our vacation ownership contract receivables portfolios do not meet specified portfolio credit parameters. Our liquidity as it relates to our vacation ownership contract receivables securitization program could be adversely affected if we were to fail to renew or replace our conduit facility on its expiration date, or if a particular receivables pool were to fail to meet certain ratios, which could occur in certain instances if the default rates or other credit metrics of the underlying vacation ownership contract receivables deteriorate. Our ability to sell securities backed by our vacation ownership contract receivables depends on the continued ability and willingness of capital market participants to invest in such securities.
As of December 31, 2011, we had $363 million of availability under our asset-backed bank conduit facility. Any disruption to the asset-backed or commercial paper markets could adversely impact our ability to obtain such financings.
Our senior unsecured debt is rated
Baa3 with a “stable outlook” by Moody’s Investors Service and BBB- with a “stable outlook” by
both Standard and
Poor’s. During October 2011, Moody’s Investors Service upgraded our senior unsecured debt rating to Baa3 with a “stable outlook”.Poor’s and Fitch Rating Agency. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited
purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating.
As a result of the sale of Realogy on April 10, 2007, Realogy’s senior debt credit rating was downgraded to below investment grade. Under the Separation Agreement, if Realogy experienced such a change of control and suffered such a ratings downgrade, it was required to post a letter of credit in an amount acceptable to us and Avis Budget Group to satisfy the fair value of Realogy’s indemnification obligations for the Cendant legacy contingent liabilities in the event Realogy does not otherwise satisfy such obligations to the extent they become due. On April 26, 2007, Realogy posted a $500 million irrevocable standby letter of credit from a major commercial bank in favor of Avis Budget Group and upon which demand may be made if Realogy does not otherwise satisfy its obligations for its share of the Cendant legacy contingent liabilities. The letter of credit can be adjusted from time to time based upon the outstanding contingent liabilities and has an expiration date of September 2013, subject to renewal and certain provisions. During December 2011, such letter of credit was reduced to $70 million. The posting of this letter of credit does not relieve or limit Realogy’s obligations for these liabilities.
SEASONALITY
SEASONALITY
We experience seasonal fluctuations in our net revenues and net income from our franchise and management fees, commission income earned from renting vacation properties, annual subscription fees or annual membership dues, as applicable,
and exchange and member-related transaction fees and sales of VOIs. Revenues from franchise and management fees are generally higher in the second and third quarters than in the first or fourth quarters, because of increased leisure travel during the
spring and summer months. Revenues from vacation rentals are generally highest in the third quarter, when vacation
rentalsarrivals are
highest.highest, combined with a compressed booking window. Revenues from vacation exchange
and member-related transaction fees are generally highest in the first quarter, which is generally when members of our vacation exchange business plan and book their vacations for the year. Revenues from sales of VOIs are generally higher in the third quarter than in other quarters. The seasonality of our business may cause fluctuations in our quarterly operating results. As we expand into new markets and geographical locations, we may experience increased or different seasonality dynamics that create fluctuations in operating results different from the fluctuations we have experienced in the past.
COMMITMENTS AND CONTINGENCIES
SEPARATION ADJUSTMENTSAND TRANSACTIONSWITH FORMER PARENTAND SUBSIDIARIESTransfer of Cendant Corporate LiabilitiesWe are involved in claims, legal and Issuance of Guarantees to Cendantregulatory proceedings and Affiliates
Pursuant to the Separation and Distribution Agreement, upon the distribution of our common stock to Cendant shareholders, we entered into certain guarantee commitments with Cendant (pursuant to the assumption of certain liabilities and the obligation to indemnify Cendant, Realogy and Travelport for such liabilities) and guarantee commitmentsgovernmental inquiries related to deferred compensation arrangements with eachour business. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of Cendant and Realogy. These guarantee arrangements primarily relate to certain contingent litigation liabilities, contingent tax liabilities, and Cendant contingent and other corporate liabilities, of which we assumed and are responsible for 37.5% while Realogy is responsible for the remaining 62.5%. The remaining amount of liabilities which we assumed in connection with the Separation was $49 million and $78 million as of December 31, 2011 and 2010, respectively. These amounts were comprised of certain Cendant corporate liabilities which were recorded on the books of Cendant as well as additional liabilities which were established for guarantees issued at the date of Separation related to certain unresolved contingent matters and certain others that could arise during the guarantee period. Regarding the guarantees,accrued, if any, of the companies responsible for allcould be material to us with respect to earnings or a portion of such liabilities were to defaultcash flows in its payment of costs or expenses related to any such liability, we would be responsible for a portion of the defaulting party or parties’ obligation. We also provided a default guarantee related to certain deferred compensation arrangements related to certain current and former senior officers and directors of Cendant,
Realogy and Travelport. These arrangements, which are discussed in more detail below, have been valued upon the Separation in accordance with the guidance for guarantees and recorded as liabilities on the Consolidated Balance Sheets. To the extent such recorded liabilities are not adequate to cover the ultimate payment amounts, such excess will be reflected as an expense to the results of operations in future periods.
given reporting period. As of December 31, 2011,2013, the $49 million of Separation related liabilities is comprised of $41 million for tax liabilities, $3 million for liabilities of previously sold businesses of Cendant, $3 million for other contingent and corporate liabilities and $2 million of liabilities where the calculated guarantee amount exceeded the contingent liability assumed at the date of Separation. In connection with these liabilities, $10 million is recorded in current due to former Parent and subsidiaries and $37 million is recorded in long-term due to former Parent and subsidiaries as of December 31, 2011 on the Consolidated Balance Sheet. We will indemnify Cendant for these contingent liabilities and therefore any payments would be made to the third party through the former Parent. The $2 million relating to guarantees is recorded in other current liabilities as of December 31, 2011 on the Consolidated Balance Sheet. The actual timing of payments relating to these liabilities is dependent on a variety of factors beyond our control. See Contractual Obligations for the estimated timingpotential exposure resulting from adverse outcomes of such payments. In addition, aslegal proceedings could, in the aggregate, range up to approximately $18 million in excess of December 31, 2011,recorded accruals. However, we had $3 milliondo not believe that the impact of receivables due from former Parent and subsidiaries primarily relatingsuch litigation should result in a material liability to income taxes, which is recordedus in other current assets on the Consolidated Balance Sheet. Such receivables totaled $4 million asrelation to our consolidated financial position or liquidity.
CONTRACTUAL OBLIGATIONS
The following table summarizes our future contractual obligations for the twelve month periods beginning on January
1st1st of each of the years set forth below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Thereafter | | | Total | |
Securitized debt(a) | | $ | 196 | | | $ | 249 | | | $ | 368 | | | $ | 205 | | | $ | 201 | | | $ | 643 | | | $ | 1,862 | |
Long-term debt | | | 46 | | | | 11 | | | | 255 | | | | 12 | | | | 1,041 | | | | 788 | | | | 2,153 | |
Interest on debt(b) | | | 212 | | | | 207 | | | | 187 | | | | 176 | | | | 170 | | | | 156 | | | | 1,108 | |
Operating leases | | | 83 | | | | 57 | | | | 46 | | | | 45 | | | | 41 | | | | 294 | | | | 566 | |
Other purchase commitments (c) | | | 181 | | | | 45 | | | | 28 | | | | 20 | | | | 19 | | | | 142 | | | | 435 | |
Contingent liabilities(d) | | | 10 | | | | 39 | | | | — | | | | — | | | | — | | | | — | | | | 49 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total (e) | | $ | 728 | | | $ | 608 | | | $ | 884 | | | $ | 458 | | | $ | 1,472 | | | $ | 2,023 | | | $ | 6,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total |
Securitized debt (a) | $ | 184 |
| | $ | 219 |
| | $ | 381 |
| | $ | 189 |
| | $ | 186 |
| | $ | 751 |
| | $ | 1,910 |
|
Long-term debt (b) | 49 |
| | 47 |
| | 364 |
| | 330 |
| | 649 |
| | 1,492 |
| | 2,931 |
|
Interest on debt (c) | 167 |
| | 160 |
| | 150 |
| | 123 |
| | 106 |
| | 262 |
| | 968 |
|
| Operating leases | 90 |
| | 70 |
| | 53 |
| | 48 |
| | 44 |
| | 230 |
| | 535 |
|
| Other purchase commitments | 121 |
| | 97 |
| | 61 |
| | 29 |
| | 13 |
| | 24 |
| | 345 |
|
Inventory sold subject to conditional repurchase (d) | 47 |
| | 37 |
| | 40 |
| | 42 |
| | 46 |
| | 153 |
| | 365 |
|
Separation liabilities (e) | 25 |
| | 14 |
| | — |
| | — |
| | — |
| | — |
| | 39 |
|
Total (f) (g) | $ | 683 |
| | $ | 644 |
| | $ | 1,049 |
| | $ | 761 |
| | $ | 1,044 |
| | $ | 2,912 |
| | $ | 7,093 |
|
| |
(a)(a)
| Represents debt that currently is securitized through 13 bankruptcy-remote SPEs, the creditors to which have no recourse to us for principal and interest. |
| |
(b)(b)
| Includes a $124 million purchase commitment for WAAM Just-in-Time inventory from an SPE, which is consolidated in our financial statements, of which $107 million is included in long-term debt. |
| |
(c) | Includes interest on both securitized and long-term debt; estimated using the stated interest rates on our long-term debt and the swapped interest rates on our securitized debt. |
| |
(c)(d)
| Primarily represents commitments relatedRepresents obligations to the development ofrepurchase completed vacation ownership propertiesproperty from a third-party developer (See Note 17 –Commitments and information technology. Total includes approximately $100 million of vacation ownership development commitments, which we may terminate at minimal to no cost.
Contingencies for further details). |
| |
(d)(e)
| Primarily represents certain contingent litigation liabilities, contingent tax liabilities and 37.5% of Cendant contingent and other corporateRepresents liabilities which we assumed and are responsible for pursuant to our separation from Cendant.
Separation (See Note 23 –Separation Adjustments and Transactions with Former Parent and Subsidiaries for further details). |
| |
(e)(f)
| Excludes (i) $29 $36million of our liability for unrecognized tax benefits associated with the guidance for uncertainty in income taxes since it is not reasonably estimatableestimable to determine the periods in which such liability would be settled with the respective tax authorities and (ii) a $13$15 million net pension liability as it is not reasonably estimatableestimable to determine the periods in which such liability would be settled. |
| |
(g) | Excludes other guarantees and indemnifications at our vacation ownership and lodging businesses as it is not reasonably estimable to determine the periods in which such commitments would be settled (See Other Commercial Commitments and Off-Balance Sheet Arrangements below). |
In addition to the above and in connection with our
separation from Cendant,Separation, we entered into certain guarantee commitments with Cendant (pursuant to our assumption of certain liabilities and our obligation to indemnify Cendant, Realogy and Travelport for such liabilities) and guarantee commitments related to deferred compensation arrangements with each of Cendant and Realogy. These guarantee arrangements primarily relate to certain contingent litigation liabilities, contingent tax liabilities, and Cendant contingent and other corporate liabilities, of which we assumed and are responsible for 37.5% of these Cendant liabilities. Additionally, if any of
the companies responsible for all or a portion of such liabilities were to default in its payment of costs or expenses related to any such liability, we are responsible for a portion of the defaulting party or parties’ obligation. We also provide a default guarantee related to certain deferred compensation arrangements related to certain current and former senior officers and directors of Cendant and Realogy. These arrangements were valued upon our separation from CendantSeparation with the assistance of third-party experts in accordance with guidance for guarantees and recorded as liabilities on our balance sheet. To the extent such recorded liabilities are not adequate to cover the ultimate payment amounts, such excess will be reflected as an expense to our results of operations in future periods. See Separation Adjustments and Transactions with former Parent and Subsidiaries discussion for details of guaranteed liabilities.
OTHER COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
OTHER COMMERCIAL COMMITMENTSAND OFF-BALANCE SHEET ARRANGEMENTSPurchase Commitments. In the normal course of business, we make various commitments to purchase goods or services from specific suppliers, including those related to vacation ownership resort development and other capital expenditures. Purchase commitments made by us as of December 31, 20112013 aggregated $435$345 million. Individually, such commitments range as high as $97 million related to the development of a vacation ownership resort. Approximately $316$200 million of the commitments relate to the development of vacation ownership properties and information technology.
Standard Guarantees/Indemnifications.In the ordinary course of business, we enter into agreements that contain standard guarantees and indemnities whereby we indemnify another party for specified breaches of or third-party claims relating to an underlying agreement. Such underlying agreements are typically entered into by one of our subsidiaries. The various underlying agreements generally govern purchases, sales or outsourcing of products or services, leases of real estate, licensing of software and/or development of vacation ownership properties, access to credit facilities, derivatives and issuances of debt securities. While a majority of these guarantees and indemnifications extend only for the duration of the underlying agreement, some survive the expiration of the agreement. We are not able to estimate the maximum potential amount of future payments to be made under these guarantees and indemnifications as the triggering events are not predictable. In certain cases we maintain insurance coverage that may mitigate any potential payments.
Other Guarantees/Indemnifications.In the ordinary course of business, our vacation ownership business provides guarantees to certain owners’ associations for funds required to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs. We may be required to fund such excess as a result of unsold Company-owned VOIs or failure by owners to pay such assessments. In addition, from time to time, we will agree to reimburse certain owner associations up to 75% of their uncollected assessments. These guarantees extend for the duration of the underlying subsidy or similar agreement (which generally approximate one year and are renewable at our discretion on an annual basis) or until a stipulated percentage (typically 80% or higher) of related VOIs are sold. The maximum potential future payments that we could be required to make under these guarantees was approximately $372$342 million as of December 31, 2011.2013. We would only be required to pay this maximum amount if none of the assessed owners assessed paid their assessments. Any assessments collected from the owners of the VOIs would reduce the maximum potential amount of future payments to be made by us. Additionally, should we be required to fund the deficit through the payment of any owners’ assessments under these guarantees, we would be permitted access to the property for our own use and may use that property to engage in revenue-producing activities, such as rentals. During 2011, 20102013, 2012 and 2009,2011, we made payments related to these guarantees of $17$18 million, $12$18 million and $10$17 million, respectively. As of December 31, 20112013 and 2010,2012, we maintained a liability in connection with these guarantees of $24$30 million and $17$22 million, respectively, on our Consolidated Balance Sheets.From time to time, we may enter into a hotel management agreement that provides the hotel owner with a minimum return. Under such agreement, we would be required to compensate for any shortfall over the life of the management agreement up to a specified aggregate amount. Our exposure under these guarantees is partially mitigated by our ability to terminate any such management agreement if certain targeted operating results are not
met. Additionally, we are able to recapture a portion or all of the shortfall payments and any waived fees in the event that future operating results exceed targets. As of December 31, 2011, the maximum potential amount of future payments to be made under these guarantees was $16 million with an annual cap of $3 million or less. As of both December 31, 2011 and 2010, we maintained a liability in connection with these guarantees of less than $1 million on our Consolidated Balance Sheets.
As part of
our WAAM
Fee-for-Service, we may guarantee to reimburse the developer a certain payment or to purchase from the developer, inventory associated with the developer’s resort property for a percentage of the original sale price if certain future conditions exist. The maximum potential future payments that we could be required to make under these guarantees was approximately
$31$48 million as of December 31,
2011.2013. As of both December 31,
20112013 and
2010,2012, we had no recognized liabilities in connection with these guarantees.
From time to time, we may enter into a hotel management agreement that provides the hotel owner with a guarantee of a certain level of profitability based upon various metrics. Under such an agreement, we would be required to compensate the hotel owner for any shortfall over the life of the management agreement up to a specified aggregate amount. For certain agreements, we may be able to recapture a portion or all of the shortfall payments in the event that future operating results exceed targets. As of December 31, 2013, the maximum potential amount of future payments to be made under these guarantees was $136 million with an annual cap of $39 million. As of December 31, 2013, we maintained a liability in connection with these guarantees of $45 million, on our Consolidated Balance Sheet (see Note 17 - Commitments and Contingencies).
Securitizations. We pool qualifying vacation ownership contract receivables and sell them to bankruptcy-remote entities all of which are consolidated into the accompanying Consolidated Balance Sheet as of December 31, 2011.2013. Letters of Credit. As of December 31, 2011 and 2010,2013, we had $11$55 million and $28 million, respectively, of irrevocable standby letters of credit outstanding, of which mainly support$9 million were under our revolving credit facility. As of December 31, 2012, we had $23 million of irrevocable standby letters of credit outstanding, of which $11 million were under our revolving credit facility. Such letters of credit issued during 2013 and 2012 primarily supported the securitization of vacation ownership contract receivables fundings, certain insurance policies and development activity at our vacation ownership business. CRITICAL ACCOUNTING POLICIESSurety Bonds. As of December 31, 2013, we had assembled commitments from thirteen surety providers in the amount of $1.2 billion, of which $328 million was outstanding (See Note 17- Commitments and Contingencies).
CRITICAL ACCOUNTING POLICIES
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Vacation Ownership Revenue Recognition. Our sales of VOIs are either cash sales or seller-financed sales. In order for us to recognize revenues of VOI sales under the full accrual method of accounting describedas prescribed in the guidance for sales of real estate for fully constructed inventory, a binding sales contract must have been executed, the statutory rescission period must have expired (after which time the purchasers are not entitled to a refund except for non-delivery by us), receivables must have been deemed collectible and the remainder of our obligations must have been substantially completed. In addition, before we
recognize any revenues on VOI sales, the purchaser of the VOI must have met the initial investment criteria and, as applicable, the continuing investment criteria, by executing a legally binding financing contract. A purchaser has met the initial investment criteria when a minimum down payment of 10% is received by us. In accordance with the requirements of the guidance for real estate time-sharing transactions, we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where financing is provided to the purchaser by us, the purchaser is obligated to remit monthly payments under financing contracts that represent the purchaser’s continuing investment. The contractual terms of seller-provided financing arrangements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the VOI being financed, which is generally ten years, and payments under the financing contracts begin within 45 days of the sale and receipt of the minimum down payment of 10%.
If all of the criteria for a VOI sale to qualify under the full accrual method of accounting have been met, as discussed above, except that construction of the VOI purchased is not complete, we recognize revenues using the POC method of accounting provided that the preliminary construction phase is complete and that a minimum sales level has been met (to assure that the property will not revert to a rental property). The preliminary stage of development is deemed to be complete when the engineering and design work is complete, the construction contracts have been executed, the site has been cleared, prepared and excavated, and the building foundation is complete. The completion percentage is determined by the proportion of real estate inventory costs incurred to total estimated costs. These estimated costs are based upon historical experience and the related contractual terms. The remaining revenues and related costs of sales, including commissions and direct expenses, are deferred and recognized as the remaining costs are incurred. Until a contract for sale qualifies for revenue recognition, all payments received are accounted for as restricted cash and deposits within other current assets and deferred income, respectively, on the Consolidated Balance Sheets. Commissions and other direct costs related to the sale are deferred until the sale is recorded. If a contract is cancelled before qualifying as a sale, non-recoverable expenses are charged to the current period as part of operating expenses on the Consolidated Statements of Income. Changes in costs could lead to adjustments to the POC status of a project, which may result in differences in the timing and amount of revenues recognized from the construction of vacation ownership properties. This policy is discussed in greater detail in Note 2 to the Consolidated Financial Statements.
Allowance for Loan Losses. In our Vacation Ownership segment, we provide for estimated vacation ownership contract receivable cancellations at the time of VOI sales by recording a provision for loan losses as a reduction of VOI sales on the Consolidated Statements of Income. We assess the adequacy of the allowance for loan losses based on the historical performance of similar vacation ownership contract receivables. We use a technique referred to as static pool analysis, which tracks defaults for each year’s sales over the entire life of those contract receivables. We consider current defaults, past due aging, historical write-offs of contracts and consumer credit scores (FICO scores) in the assessment of borrower’s credit strength, down payment amount and expected loan performance. We also consider whether the historical economic conditions are comparable to current economic conditions. If current conditions differ from the conditions in effect when the historical experience was generated, we adjust the allowance for loan losses to reflect the expected effects of the current environment on the collectability of our vacation ownership contract receivables. Impairment of Long-Lived Assets.With regard to the goodwill and other indefinite-lived intangible assets recorded in connection with business combinations, we annually (during the fourth quarter of each year subsequent to completing our annual forecasting process), or more frequently if circumstances indicate impairment may have occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount,goodwill may be impaired, review the reporting units’units' carrying values as required by the guidance for goodwill and other intangible assets. We evaluateFor goodwill for impairment usingtesting, we have the two-step process prescribed inoption to first assess qualitative factors to determine whether the guidance. The first stepexistence of events or circumstances leads to a determination that it is to comparemore likely than not that the estimated fair value of anya reporting unit withinis less than its carrying amount. If, after assessing the Companytotality of events or circumstances, we determine it is not more likely than not that has recorded goodwill with the recorded net bookfair value (includingof a reporting unit is less than its carrying amount, then performing the goodwill)two-step impairment test per the accounting guidance is unnecessary. The qualitative factors evaluated include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, our historical share price as well as other industry specific considerations. However, if we conclude otherwise, then we are required to perform the first step of the reporting unit. Iftwo-step impairment test by calculating the estimated fair value of the reporting unit is higher thanand comparing the recorded net book value, no impairment is deemed to exist and no further testing is required. If, however, the estimated fair value ofwith the reporting unit is below the recorded net book value, then a second step must be performed to determine the goodwill impairment required, if any. In this second step, the estimated fair value from the first step is used as the purchase price in a hypothetical acquisitioncarrying amount of the reporting unit. Purchase business combination accounting rules are followed to determine a hypothetical purchase price allocation to the reporting unit’s assets and liabilities. The residual amount of goodwill that results from this hypothetical purchase price allocation is compared to the recorded amount of goodwill for the reporting unit, and if lower, the recorded amount is written down to the hypothetical amount. In accordance with the guidance, we have determined that our reporting units are the same as our reportable segments.Quoted market prices for our reporting units are not available; therefore, management must apply judgment in determining the estimated fair value of these reporting units for purposes of performing the annual goodwill impairment test. Management uses all available information to make these fair value determinations, including
the present values of expected future cash flows using discount rates commensurate with the risks involved in the assets. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that our conclusion regarding whether existing goodwill is impaired could change and result in a material effect on our consolidated financial position or results of operations. In performing our impairment analysis, we develop our estimated fair values for our reporting units using a combination of themarket-based valuation multiples and/or discounted cash flow methodology and the market multiple methodology.
The discounted cash flow methodology establishes fair value by estimating the present valueflows are revised downward, we may be required to write-down all or a portion of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and expected future revenues, gross margins and operating margins,goodwill, which vary among reporting units.
We use a market multiple methodology to estimate the terminal value of each reporting unit by comparing such reporting unit to other publicly traded companies that are similar from an operational and economic standpoint. The market multiple methodology compares each reporting unit to the comparable companies on the basis of risk characteristics in order to determine the risk profile relative to the comparable companies as a group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which include any factors which are expected towould adversely impact future financial performance. The most significant assumption affecting our estimate of the terminal value of each reporting unit is the multiple of the enterprise value to earnings before interest, tax, depreciation and amortization.
To support our estimate of the individual reporting unit fair values, a comparison is performed between the sum of the fair values of the reporting units and our market capitalization. We use an average of our market capitalization over a reasonable period preceding the impairment testing date as being more reflective of our stock price trend than a single day, point-in-time market price. The difference is an implied control premium, which represents the acknowledgment that the observed market prices of individual trades of a company’s stock may not be representative of the fair value of the company as a whole. Estimates of a company’s control premium are highly judgmental and depend on capital market and macro-economic conditions overall. We evaluate the implied control premium for reasonableness.
earnings. Based on the results of our impairment evaluationqualitative assessment performed during the fourth quarter of 2011,2013, we determined that no impairment chargeexisted, nor do we believe there is a material risk of goodwill was required asit being impaired in the fair value of goodwillnear term at our lodging, and vacation exchange and rentals reporting units was substantially in excess of the carrying value.
We continue to monitor the goodwill recorded at our lodging and vacation exchange and rentalsownership reporting units for indicators of impairment. If economic conditions were to deteriorate more than expected, or other significant assumptions such as estimates of terminal value were to change significantly, we may be required to record an impairment of the goodwill balance at our lodging and vacation and exchange and rentals reporting units.
We also determine whether the carrying value of other indefinite-lived intangible assets is impaired on an annual basis or more frequently if indicators of potential impairment exist. Application of the other indefinite-lived intangible assets impairment test requires judgment in the assumptions underlying the approach used to determine fair value. The fair value of
each other indefinite-lived intangible asset is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including anticipated market conditions,
operating expense trends, estimation of future cash flows, which are dependent on internal forecasts, and estimation of long-term rate of growth. The estimates used to calculate the fair value of an other indefinite-lived intangible asset change from year to year based on operating results and market conditions. Changes in these estimates and assumptionassumptions could materially affect the determination of fair value and the other indefinite-lived intangible assets impairment.
We also evaluate the recoverability of our other long-lived assets, including property and equipment and amortizable intangible assets, if circumstances indicate impairment may have occurred, pursuant to guidance for impairment or disposal of long-lived assets. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.
Business Combinations.A component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill. In determining the fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values (where available). Further, we make assumptions within certain valuation techniques including discount rates and timing of future cash flows. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate. We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.
Accounting for Restructuring Activities.Restructuring actions require us to make significant estimates in several areas including:including (i) expenses for severance and related benefit costs;costs, (ii) the ability to generate sublease income, as well as our ability to terminate lease obligations;obligations and (iii) contract terminations. The amountsamount that we have accrued as of December 31, 2011 represent2013 represents our best estimate of the obligations that we incurred in connection with these actions, but could be subject to change due to various factors including market conditions and the outcome of negotiations with third parties. In the event actual amounts differ from our estimates, the amount of the restructuring charges could be materially impacted. Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.liabilities using currently enacted tax rates. We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially impact our results of operations. For tax positions we have taken or expect to take in our tax return, we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to recognize or continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold.
Adoption of Accounting Pronouncements
During 2011, we adopted the guidance related to the accounting for multiple-deliverable revenue arrangements. Additionally, we early adopted
recently issuedthe guidance related to the presentation of comprehensive income. During 2012, we
will adoptadopted guidance related to the testing
of goodwill
for impairment, testing of indefinite-lived intangible assets for impairment and fair value measurement.
During 2013, we adopted guidance related to the reporting of amounts reclassified out of accumulated other comprehensive income. For detailed information regarding these standards and the impact thereof on our financial statements, see Note 2 to our Consolidated Financial Statements.
| |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We use various financial instruments, particularly swap contracts and interest rate caps, to manage and reduce the interest rate risk related to our debt. Foreign currency forwards and options are also used to manage and reduce the foreign currency exchange rate risk associated with our foreign currency denominated receivables
and payables, and forecasted royalties, forecasted earnings and cash flows of foreign subsidiaries and other transactions.
We are exclusively an end user of these instruments, which are commonly referred to as derivatives. We do not engage in trading, market making or other speculative activities in the derivatives markets. More detailed information about these financial instruments is provided in Note 16 to the Consolidated Financial Statements. Our principal market exposures are interest and foreign currency rate risks.
Our primary interest rate exposure as of December 31, 20112013 was to interest rate fluctuations in the United States, specifically LIBOR and asset-backed commercial paper interest rates due to their impact on variable rate borrowings and other interest rate sensitive liabilities. In addition, interest rate movements in one country, as well as relative interest rate movements between countries can impact us. We anticipate that LIBOR and asset-backed commercial paper rates will remain a primary market risk exposure for the foreseeable future.
We have foreign currency rate exposure to exchange rate fluctuations worldwide and particularly with respect to the British pound and Euro. We anticipate that such foreign currency exchange rate risk will remain a market risk exposure for the foreseeable future. Any adverse reaction resulting from the financial instability within certain European economies could potentially have an effect on our results of operations, financial position or cash flows.
We assess our market risk based on changes in interest and foreign currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest and foreign currency exchange rates. We have approximately
$4.0$4.8 billion of debt outstanding as of December 31,
2011.2013. Of that total,
$456$983 million was
issued as variable rate debt
and($486 million has
not been synthetically converted to
fixedvariable rate debt via an interest rate
swap.swap). A hypothetical 10% change in our effective weighted average interest rate would not generate a material change in interest expense.
The fair values of cash and cash equivalents, trade receivables, accounts payable and accrued expenses and other current liabilities approximate carrying values due to the short-term nature of these
assets.assets and liabilities. We use a discounted cash flow model in determining the fair values of vacation ownership contract receivables. The primary assumptions used in determining fair value are prepayment speeds, estimated loss rates and discount rates. We use a duration-based model in determining the impact of interest rate shifts on our debt and interest rate derivatives. The primary assumption used in these models is that a 10% increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.
We use a current market pricing model to assess the changes in the value of our foreign currency derivatives used by us to hedge underlying exposure that primarily consist of the non-functional current assets and liabilities of us and our subsidiaries. The primary assumption used in these models is a hypothetical 10% weakening or
strengthening of the U.S. dollar against all our currency exposures as of December 31, 2011.2013. The gains and losses on the hedging instruments are largely offset by the gains and losses on the underlying assets, liabilities or expected cash flows. As of December 31, 2011,2013, the absolute notional amount of our outstanding foreign exchange hedging instruments was $343$301 million. A hypothetical 10% change in the foreign currency exchange rates would result in an immaterial change in the fair value of the hedging instrument as of December 31, 2011.2013. Such a change would be largely offset by an opposite effect on the underlying assets, liabilities and expected cash flows.
Our total market risk is influenced by a wide variety of factors including the volatility present within the markets and the liquidity of the markets. There are certain limitations inherent in the sensitivity analyses presented. While probably the most meaningful analysis, these “shock tests” are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.
We used December 31,
20112013 market rates on outstanding financial instruments to perform the sensitivity analysis separately for each of our market risk exposures — interest and foreign currency rate instruments. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves and exchange rates.
| |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See Financial Statements and Financial Statement Index commencing on page F-1 hereof.
| |
| ITEM 9. | CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management, with the participation of our principal executive and principal financial officers have 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 principal executive and principal financial officers have concluded that, as of the end of such period, our disclosure controls and procedures were effective and operating to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, our management believes that, as of December 31, 2013, our internal control over financial reporting is effective. Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting, which is included within their audit opinion on page [F-2].
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.
| |
ITEM 9A.9B. | CONTROLS AND PROCEDURESOTHER INFORMATION |
None
PART III
| (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 Rules 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) | Management’s Report on Internal Control over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.Based on this assessment, our management believes that, as of December 31, 2011, our internal control over financial reporting is effective. Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting, which is included within their audit opinion on page F-2. |
ITEM 9B. | OTHER INFORMATION |
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Identification of Directors.
Information required by this item is included in the Proxy Statement under the caption “Election of Directors” and is incorporated by reference in this report.
Identification of Executive Officers.
The following provides information for each of our executive officers.
Stephen P. Holmes 55,, 57, has served as theour Chairman of our Board of Directors and as our Chief Executive Officer since July 2006. Mr. Holmes has served as a Director since May 2003. Mr. Holmes was Vice Chairman and director of Cendant Corporation and Chairman and Chief Executive Officer of Cendant’s Travel Content Division from December 1997 to July 2006. Mr. Holmes was Vice Chairman of HFS Incorporated from September 1996 to December 1997, a director of HFS from June 1994 to December 1997 and Executive Vice President, Treasurer and Chief Financial Officer of HFS from July 1990 to September 1996. Geoffrey A. Ballotti 50,, 52, has served as President and Chief Executive Officer, Wyndham Exchange & Rentals, since March 2008. From October 2003 to March 2008, Mr. Ballotti was President, North America Division of Starwood Hotels and Resorts Worldwide. From 1989 to 2003, Mr. Ballotti held leadership positions of increasing responsibility at Starwood Hotels and Resorts Worldwide including President of Starwood North America, Executive Vice President, Operations, Senior Vice President, Southern Europe and Managing Director, Ciga Spa, Italy. Prior to Starwood Hotels and Resorts Worldwide, Mr. Ballotti was a Banking Officer in the Commercial Real Estate Group at the Bank of New England. Thomas G. Conforti, 55, has served as our Executive Vice President and Chief Financial Officer since September 2009. From December 2002 to September 2008, Mr. Conforti was Chief Financial Officer of DineEquity, Inc. Earlier in his career, Mr. Conforti held a number of general management, financial and strategic roles over a ten-year period in the Consumer Products Division of the Walt Disney Company. Mr. Conforti also held numerous finance and strategy roles within the College Textbook Publishing Division of CBS and the Soft Drink Division of PepsiCo.
Eric A. Danziger 57,, 59, has served as President and Chief Executive Officer, Wyndham Hotel Group, since December 2008. From August 2006 to December 2008, Mr. Danziger was Chief Executive Officer of WhiteFence, Inc., an online home services firm. From June 2001 to August 2006, Mr. Danziger was President and Chief Executive Officer of ZipRealty, a real estate brokerage. From April 1998 to June 2001, Mr. Danziger was President and Chief Operating Officer of Carlson Hotels Worldwide. From June 1996 to August 1998, Mr. Danziger was President and CEO of Starwood Hotels and Resorts Worldwide. From September 1990 to June 1996, Mr. Danziger was President of Wyndham Hotels and Resorts. Franz S. Hanning 58,, 60, has served as President and Chief Executive Officer, Wyndham Vacation Ownership, since July 2006. Mr. Hanning was the Chief Executive Officer of Cendant’sCendant's Timeshare Resort Group from March 2005 to July 2006. Mr. Hanning served as President and Chief Executive Officer of Wyndham Vacation Resorts, Inc. (formerly known as Fairfield Resorts, Inc.) from April 2001 to March 2005 and as President and Chief Executive Officer of Wyndham Resort Development Corporation from August 2004 to March 2005. Mr. Hanning held several key leadership positions with Fairfield Resorts, Inc. from 1982 to 2001, including Regional Vice President, Executive Vice President of Sales and Chief Operating Officer. Thomas G. Conforti,F. Anderson, 49, has served as our Executive Vice President and Chief Real Estate Development Officer since July 2006. From April 2003 to July 2006, Mr. Anderson was Executive Vice President, Strategic Acquisitions and Development of Cendant's Timeshare Resort Group. From January 2000 to February 2003, Mr. Anderson was Senior Vice President, Corporate Real Estate for Cendant. From November 1998 to December 1999, Mr. Anderson was Vice President of Real Estate Services, Coldwell Banker Commercial. From March 1995 to October 1998, Mr. Anderson was General Manager of American Asset Corporation and from June 1990 to February 1995, Vice President of Commercial Lending for BB&T Corporation.
Mary R. Falvey, 53, has served as our Executive Vice President and Chief FinancialHuman Resources Officer since September 2009.July 2006. Ms. Falvey was Executive Vice President, Global Human Resources for Cendant's Vacation Network Group from April 2005 to July 2006. From December 2002March 2000 to September 2008, Mr. ConfortiApril 2005, Ms. Falvey served as Executive Vice President, Human Resources for RCI. From January 1998 to March 2000, Ms. Falvey was Chief Financial OfficerVice President of DineEquity, Inc. Earlier in his career, Mr. ConfortiHuman Resources for Cendant's Hotel Division and Corporate Contact Center group. Prior to joining Cendant, Ms. Falvey held a number of general management, financial and strategic roles over a ten-year periodvarious leadership positions in the Consumer Products Divisionhuman resources division of the Walt DisneyNabisco Foods Company. Mr. Conforti also held numerous finance and strategy roles within the College Textbook Publishing Division
Scott G. McLester 49,, 51, has served as our Executive Vice President and General Counsel since July 2006. Mr. McLester was Senior Vice President, Legal for Cendant from April 2004 to July 2006, Group Vice President,Legal from March 2002 to April 2004, Vice President, Legal from February 2001 to March 2002 and Senior Counsel from June 2000 to February 2001. Prior to joining Cendant, Mr. McLester was a Vice President in the Law Department of Merrill Lynch in New York and a partner with the law firm of Carpenter, Bennett and Morrissey in Newark, New Jersey.
Mary R. Falvey, 51, has served as our Executive Vice President and Chief Human Resources Officer since July 2006. Ms. Falvey was Executive Vice President, Global Human Resources for Cendant’s Vacation Network Group from April 2005 to July 2006. From March 2000 to April 2005, Ms. Falvey served as Executive Vice President, Human Resources for RCI. From January 1998 to March 2000, Ms. Falvey was Vice President of Human Resources for Cendant’s Hotel Division and Corporate Contact Center group. Prior to joining Cendant, Ms. Falvey held various leadership positions in the human resources division of Nabisco Foods Company.
Thomas F. Anderson, 47, has served as our Executive Vice President and Chief Real Estate Development Officer since July 2006. From April 2003 to July 2006, Mr. Anderson was Executive Vice President, Strategic Acquisitions and Development of Cendant’s Timeshare Resort Group. From January 2000 to February 2003, Mr. Anderson was Senior Vice President, Corporate Real Estate for Cendant. From November 1998 to December 1999, Mr. Anderson was Vice President of Real Estate Services, Coldwell Banker Commercial. From March 1995 to October 1998, Mr. Anderson was General Manager of American Asset Corporation, a full service real estate developer based in Charlotte, North Carolina. From June 1990 to February 1995, Mr. Anderson was Vice President of Commercial Lending for BB&T Corporation in Charlotte, North Carolina.
Nicola Rossi 45,, 47, has served as our Senior Vice President and Chief Accounting Officer since July 2006. Mr. Rossi was Vice President and Controller of Cendant’sCendant's Hotel Group from June 2004 to July 2006. From April 2002 to June 2004, Mr. Rossi served as Vice President, Corporate Finance for Cendant. From April 2000 to April 2002, Mr. Rossi was Corporate Controller of Jacuzzi Brands, Inc., a bath and plumbing products company, and was Assistant Corporate Controller from June 1999 to March 2000.2000 was Assistant Corporate Controller of Jacuzzi Brands, Inc.
Compliance with Section 16(a) of the Exchange Act.
The information required by this item is included in the Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated by reference in this report.
The information required by this item is included in the Proxy Statement under the caption “Code of Business Conduct and Ethics” and is incorporated by reference in this report.
The information required by this item is included in the Proxy Statement under the caption “Governance of the Company” and is incorporated by reference in this report.
| |
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is included in the Proxy Statement under the captions “Compensation of Directors,” “Executive Compensation” and “Committees of the Board” and is incorporated by reference in this report.
| |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Securities Authorized for Issuance Under Equity Compensation PlansPlan Information as of December 31, 20112013 | | |
| | | |
| Plan Category | | to be issued upon exercise of
outstanding options,
warrants and rights
| | Weighted-average exercise price
of outstanding options, warrants
and rights | | Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in the first
column) |
Equity compensation plans approved by security holders | | 8.93.7 million(a)
| | $28.9721.43(b) | | 15.116.7 million(c)
|
Equity compensation plans not approved by security holders | | None | | Not applicable | | Not
applicable |
| |
(a) | Consists of shares issuable upon exercise of outstanding stock options, stock settled stock appreciation rights and restricted stock units under the 2006 Equity and Incentive Plan, as amended. |
| |
(b) | Consists of weighted-average exercise price of outstanding stock options and stock settled stock appreciation rights. |
| |
(c) | Consists of shares available for future grants under the 2006 Equity and Incentive Plan, as amended. |
The remaining information required by this item is included in the Proxy Statement under the caption “Ownership of Company Stock” and is incorporated by reference in this report.
| |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this item is included in the Proxy Statement under the captions “Related Party Transactions” and “Governance of the Company” and is incorporated by reference in this report.
| |
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item is included in the Proxy Statement under the captions “Disclosure About Fees” and “Pre-Approval of Audit and Non-Audit Services” and is incorporated by reference in this report.
| |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
ITEM 15
(A)(a)(1) FINANCIAL STATEMENTS
See Financial Statements and Financial Statements Index commencing on page F-1 hereof.
ITEM
15(A)15 (a)(3) EXHIBITS
See Exhibit Index commencing on page G-1 hereof.
The agreements included or incorporated by reference as exhibits to this report contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) 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;inaccurate, (ii) 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;agreement, (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities
laws;laws and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | |
| WYNDHAM WORLDWIDE CORPORATION |
| |
| By: | | /s/ STEPHEN P. HOLMES |
| | Stephen P. Holmes |
| | Chairman and Chief Executive Officer |
| | Date: February 17, 201214, 2014 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | |
Name | | Title | | Date |
| | |
/s/ STEPHEN P. HOLMES
Stephen P. Holmes
| | Chairman and Chief Executive | | February 14, 2014 |
/s/ STEPHEN P. HOLMES | | Officer
| | |
| Stephen P. Holmes | | (Principal Executive Officer) | | February 17, 2012 |
| | |
/s/ THOMAS G. CONFORTIThomas G. Conforti
| | Chief Financial Officer (Principal | | February 14, 2014 |
| Thomas G. Conforti | | (Principal Financial Officer) | | February 17, 2012 |
| | |
/s/ NICOLA ROSSINicola Rossi
| | Chief Accounting Officer (Principal | | February 14, 2014 |
| Nicola Rossi | | (Principal Accounting Officer) | | February 17, 2012 |
| | |
/s/ MYRA J. BIBLOWITMyra J. Biblowit
| | Director | | February 17, 201214, 2014 |
| Myra J. Biblowit | | | | |
| | |
/s/ JAMES E. BUCKMANJames E. Buckman
| | Director | | February 17, 201214, 2014 |
| James E. Buckman | | | | |
| | |
/s/ GEORGE HERRERAGeorge Herrera
| | Director | | February 17, 201214, 2014 |
| George Herrera | | | | |
| | |
/s/ THE RIGHT HONOURABLE BRIAN MULRONEYThe Right Honourable Brian Mulroney
| | Director | | February 17, 201214, 2014 |
| The Right Honourable Brian Mulroney | | | | |
| | |
/s/ PAULINE D.E. RICHARDSPauline D.E. Richards
| | Director | | February 17, 201214, 2014 |
| Pauline D.E. Richards | | | | |
| | |
/s/ MICHAEL H. WARGOTZMichael H. Wargotz
| | Director | | February 17, 201214, 2014 |
| Michael H. Wargotz | | | | |
INDEX TO ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
| | |
| |
| | | Page | |
| | | F-2 | |
| |
| | | F-4 | F-3 |
| |
| | | F-5 | F-4 |
| |
| | | F-6 | F-5 |
| |
| | | F-7 | F-6 |
| |
| | | F-8 | F-7 |
| |
| | | F-9 | F-8 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wyndham Worldwide Corporation
We have audited the accompanying consolidated balance sheets of Wyndham Worldwide Corporation and subsidiaries (the “Company”"Company") as of December 31, 20112013 and 2010,2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011.2013. We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2011,2013, based on criteria established in Internal Control —- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’sCompany's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A
company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the
company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the
company’scompany's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’scompany's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wyndham Worldwide Corporation and subsidiaries as of December 31, 20112013 and 2010,2012, andthe results of their operations and their cash flows for each of the three years in the period ended December 31, 2011,2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2013, based on the criteria established in
Internal Control —- Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.As discussed in Note 2 to the financial statements, the Company has changed its method of presenting comprehensive income in 2011 due to the adoption of FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income. The change in presentation has been applied retrospectively to all periods presented.
Commission
.
/s/ Deloitte & Touche LLP
February 17, 201214, 2014
WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share
data) | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Net revenues | | | | | | | | | | | | |
Service and membership fees | | $ | 2,012 | | | $ | 1,706 | | | $ | 1,613 | |
Vacation ownership interest sales | | | 1,150 | | | | 1,072 | | | | 1,053 | |
Franchise fees | | | 522 | | | | 461 | | | | 440 | |
Consumer financing | | | 415 | | | | 425 | | | | 435 | |
Other | | | 155 | | | | 187 | | | | 209 | |
| | | | | | | | | | | | |
Net revenues | | | 4,254 | | | | 3,851 | | | | 3,750 | |
| | | | | | | | | | | | |
Expenses | | | | | | | | | | | | |
Operating | | | 1,781 | | | | 1,587 | | | | 1,501 | |
Cost of vacation ownership interests | | | 152 | | | | 184 | | | | 183 | |
Consumer financing interest | | | 92 | | | | 105 | | | | 139 | |
Marketing and reservation | | | 628 | | | | 531 | | | | 560 | |
General and administrative | | | 593 | | | | 540 | | | | 533 | |
Asset impairments | | | 57 | | | | 4 | | | | 15 | |
Restructuring costs | | | 6 | | | | 9 | | | | 47 | |
Depreciation and amortization | | | 178 | | | | 173 | | | | 178 | |
| | | | | | | | | | | | |
Total expenses | | | 3,487 | | | | 3,133 | | | | 3,156 | |
| | | | | | | | | | | | |
Operating income | | | 767 | | | | 718 | | | | 594 | |
Other income, net | | | (11 | ) | | | (7 | ) | | | (6 | ) |
Interest expense | | | 152 | | | | 167 | | | | 114 | |
Interest income | | | (24 | ) | | | (5 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 650 | | | | 563 | | | | 493 | |
Provision for income taxes | | | 233 | | | | 184 | | | | 200 | |
| | | | | | | | | | | | |
Net income | | $ | 417 | | | $ | 379 | | | $ | 293 | |
| | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 2.57 | | | $ | 2.13 | | | $ | 1.64 | |
Diluted | | | 2.51 | | | | 2.05 | | | | 1.61 | |
| | | |
Cash dividends declared per share | | $ | 0.60 | | | $ | 0.48 | | | $ | 0.16 | |
amounts)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Net revenues | | | | | |
| Service and membership fees | $ | 2,329 |
| | $ | 2,005 |
| | $ | 2,012 |
|
| Vacation ownership interest sales | 1,379 |
| | 1,323 |
| | 1,150 |
|
| Franchise fees | 599 |
| | 583 |
| | 522 |
|
| Consumer financing | 426 |
| | 421 |
| | 415 |
|
| Other | 276 |
| | 202 |
| | 155 |
|
| Net revenues | 5,009 |
| | 4,534 |
| | 4,254 |
|
Expenses | | | | | |
| Operating | 2,161 |
| | 1,842 |
| | 1,781 |
|
| Cost of vacation ownership interests | 155 |
| | 161 |
| | 152 |
|
| Consumer financing interest | 78 |
| | 90 |
| | 92 |
|
| Marketing and reservation | 751 |
| | 723 |
| | 628 |
|
| General and administrative | 720 |
| | 666 |
| | 593 |
|
| Asset impairments | 8 |
| | 8 |
| | 57 |
|
| Restructuring | 10 |
| | 7 |
| | 6 |
|
| Depreciation and amortization | 216 |
| | 185 |
| | 178 |
|
| Total expenses | 4,099 |
| | 3,682 |
| | 3,487 |
|
Operating income | 910 |
| | 852 |
| | 767 |
|
| Other income, net | (6 | ) | | (8 | ) | | (11 | ) |
| Interest expense | 131 |
| | 132 |
| | 140 |
|
| Early extinguishment of debt | 111 |
| | 108 |
| | 12 |
|
| Interest income | (9 | ) | | (8 | ) | | (24 | ) |
Income before income taxes | 683 |
| | 628 |
| | 650 |
|
| Provision for income taxes | 250 |
| | 229 |
| | 233 |
|
Net income | 433 |
| | 399 |
| | 417 |
|
| Net (income)/loss attributable to noncontrolling interest | (1 | ) | | 1 |
| | — |
|
| Net income attributable to Wyndham shareholders | $ | 432 |
| | $ | 400 |
| | $ | 417 |
|
Earnings per share | | | | | |
| Basic | $ | 3.25 |
| | $ | 2.80 |
| | $ | 2.57 |
|
| Diluted | 3.21 |
| | 2.75 |
| | 2.51 |
|
See Notes to Consolidated Financial Statements.
F-3
WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
((In millions)millions
| | | | | | | | | | | | |
| |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Net income | | $ | 417 | | | $ | 379 | | | $ | 293 | |
Other comprehensive income, net of tax | | | | | | | | | | | | |
Foreign currency translation adjustments | | | (30 | ) | | | 5 | | | | 25 | |
Unrealized gain on cash flow hedges | | | 5 | | | | 12 | | | | 18 | |
Defined benefit pension plans | | | (2 | ) | | | — | | | | (3 | ) |
| | | | | | | | | | | | |
Other comprehensive income/(loss), net of tax | | | (27 | ) | | | 17 | | | | 40 | |
| | | | | | | | | | | | |
Comprehensive income | | $ | 390 | | | $ | 396 | | | $ | 333 | |
| | | | | | | | | | | | |
)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Net income | $ | 433 |
| | $ | 399 |
| | $ | 417 |
|
| Other comprehensive (loss)/income, net of tax | | | | | |
| Foreign currency translation adjustments | (33 | ) | | 21 |
| | (30 | ) |
| Unrealized gain on cash flow hedges | 1 |
| | 5 |
| | 5 |
|
| Defined benefit pension plans | 3 |
| | (3 | ) | | (2 | ) |
| Other comprehensive (loss)/income, net of tax | (29 | ) | | 23 |
| | (27 | ) |
| Comprehensive income | 404 |
| | 422 |
| | 390 |
|
| Net (income)/loss attributable to noncontrolling interest | (1 | ) | | 1 |
| | — |
|
| Comprehensive income attributable to Wyndham shareholders | $ | 403 |
| | $ | 423 |
| | $ | 390 |
|
See Notes to Consolidated Financial Statements.
F-4
WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 142 | | | $ | 156 | |
Trade receivables, net | | | 409 | | | | 425 | |
Vacation ownership contract receivables, net | | | 297 | | | | 295 | |
Inventory | | | 351 | | | | 348 | |
Prepaid expenses | | | 121 | | | | 104 | |
Deferred income taxes | | | 153 | | | | 179 | |
Other current assets | | | 257 | | | | 245 | |
| | | | | | | | |
Total current assets | | | 1,730 | | | | 1,752 | |
| | |
Long-term vacation ownership contract receivables, net | | | 2,551 | | | | 2,687 | |
Non-current inventory | | | 759 | | | | 833 | |
Property and equipment, net | | | 1,117 | | | | 1,041 | |
Goodwill | | | 1,479 | | | | 1,481 | |
Trademarks, net | | | 730 | | | | 731 | |
Franchise agreements and other intangibles, net | | | 401 | | | | 440 | |
Other non-current assets | | | 256 | | | | 451 | |
| | | | | | | | |
Total assets | | $ | 9,023 | | | $ | 9,416 | |
| | | | | | | | |
| | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Securitized vacation ownership debt | | $ | 196 | | | $ | 223 | |
Current portion of long-term debt | | | 46 | | | | 11 | |
Accounts payable | | | 278 | | | | 274 | |
Deferred income | | | 402 | | | | 401 | |
Due to former Parent and subsidiaries | | | 10 | | | | 47 | |
Accrued expenses and other current liabilities | | | 631 | | | | 619 | |
| | | | | | | | |
Total current liabilities | | | 1,563 | | | | 1,575 | |
| | |
Long-term securitized vacation ownership debt | | | 1,666 | | | | 1,427 | |
Long-term debt | | | 2,107 | | | | 2,083 | |
Deferred income taxes | | | 1,065 | | | | 1,021 | |
Deferred income | | | 182 | | | | 206 | |
Due to former Parent and subsidiaries | | | 37 | | | | 30 | |
Other non-current liabilities | | | 171 | | | | 157 | |
| | | | | | | | |
Total liabilities | | | 6,791 | | | | 6,499 | |
| | | | | | | | |
Commitments and contingencies (Note 17) | | | | | | | | |
| | |
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 212,286,217 shares in 2011 and 209,943,159 shares in 2010 | | | 2 | | | | 2 | |
Treasury stock, at cost—65,228,133 shares in 2011 and 36,555,242 shares in 2010 | | | (2,009 | ) | | | (1,107 | ) |
Additional paid-in capital | | | 3,818 | | | | 3,892 | |
Retained earnings/(accumulated deficit) | | | 293 | | | | (25 | ) |
Accumulated other comprehensive income | | | 128 | | | | 155 | |
| | | | | | | | |
Total stockholders’ equity | | | 2,232 | | | | 2,917 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 9,023 | | | $ | 9,416 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31,
2013 | | December 31,
2012 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 194 |
| | $ | 195 |
|
| Trade receivables, net | 505 |
| | 442 |
|
| Vacation ownership contract receivables, net | 305 |
| | 318 |
|
| Inventory | 346 |
| | 379 |
|
| Prepaid expenses | 153 |
| | 122 |
|
| Deferred income taxes | 108 |
| | 157 |
|
| Other current assets | 329 |
| | 253 |
|
| Total current assets | 1,940 |
| | 1,866 |
|
| Long-term vacation ownership contract receivables, net | 2,448 |
| | 2,571 |
|
| Non-current inventory | 677 |
| | 698 |
|
| Property and equipment, net | 1,555 |
| | 1,292 |
|
| Goodwill | 1,590 |
| | 1,566 |
|
| Trademarks, net | 723 |
| | 730 |
|
| Franchise agreements and other intangibles, net | 429 |
| | 459 |
|
| Other non-current assets | 379 |
| | 281 |
|
| Total assets | $ | 9,741 |
| | $ | 9,463 |
|
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Securitized vacation ownership debt | $ | 184 |
| | $ | 218 |
|
| Current portion of long-term debt | 49 |
| | 326 |
|
| Accounts payable | 360 |
| | 307 |
|
| Deferred income | 451 |
| | 383 |
|
| Due to former Parent and subsidiaries | 23 |
| | 22 |
|
| Accrued expenses and other current liabilities | 723 |
| | 675 |
|
| Total current liabilities | 1,790 |
| | 1,931 |
|
| Long-term securitized vacation ownership debt | 1,726 |
| | 1,742 |
|
| Long-term debt | 2,882 |
| | 2,276 |
|
| Deferred income taxes | 1,173 |
| | 1,141 |
|
| Deferred income | 192 |
| | 207 |
|
| Due to former Parent and subsidiaries | 14 |
| | 17 |
|
| Other non-current liabilities | 339 |
| | 218 |
|
| Total liabilities | 8,116 |
| | 7,532 |
|
| Commitments and contingencies (Note 17) |
| |
|
| 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 215,578,445 shares in 2013 and 214,812,395 shares in 2012 | 2 |
| | 2 |
|
| Treasury stock, at cost – 87,206,462 shares in 2013 and 77,523,995 shares in 2012 | (3,191 | ) | | (2,601 | ) |
| Additional paid-in capital | 3,858 |
| | 3,820 |
|
| Retained earnings | 832 |
| | 558 |
|
| Accumulated other comprehensive income | 122 |
| | 151 |
|
| Total stockholders’ equity | 1,623 |
| | 1,930 |
|
| Noncontrolling interest | 2 |
| | 1 |
|
| Total equity | 1,625 |
| | 1,931 |
|
| Total liabilities and equity | $ | 9,741 |
| | $ | 9,463 |
|
See Notes to Consolidated Financial Statements.
F-5
WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Operating Activities | | | | | | | | | | | | |
Net income | | $ | 417 | | | $ | 379 | | | $ | 293 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 178 | | | | 173 | | | | 178 | |
Provision for loan losses | | | 339 | | | | 340 | | | | 449 | |
Deferred income taxes | | | 70 | | | | 76 | | | | 90 | |
Stock-based compensation | | | 42 | | | | 39 | | | | 37 | |
Excess tax benefits from stock-based compensation | | | (18 | ) | | | (14 | ) | | | — | |
Asset impairments | | | 57 | | | | 4 | | | | 15 | |
Non-cash interest | | | 27 | | | | 60 | | | | 51 | |
Non-cash restructuring | | | — | | | | — | | | | 15 | |
Net change in assets and liabilities, excluding the impact of acquisitions: | | | | | | | | | | | | |
Trade receivables | | | 20 | | | | 14 | | | | 92 | |
Vacation ownership contract receivables | | | (207 | ) | | | (202 | ) | | | (199 | ) |
Inventory | | | 79 | | | | 54 | | | | (9 | ) |
Prepaid expenses | | | (19 | ) | | | 12 | | | | 25 | |
Other current assets | | | 9 | | | | (4 | ) | | | 41 | |
Accounts payable, accrued expenses and other current liabilities | | | 41 | | | | (52 | ) | | | (54 | ) |
Due to former Parent and subsidiaries, net | | | (15 | ) | | | (179 | ) | | | (44 | ) |
Deferred income | | | (20 | ) | | | (82 | ) | | | (315 | ) |
Other, net | | | 3 | | | | 17 | | | | 24 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 1,003 | | | | 635 | | | | 689 | |
| | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | |
Property and equipment additions | | | (239 | ) | | | (167 | ) | | | (135 | ) |
Net assets acquired, net of cash acquired | | | (27 | ) | | | (236 | ) | | | — | |
Equity investments and development advances | | | (10 | ) | | | (10 | ) | | | (13 | ) |
Proceeds from asset sales | | | 31 | | | | 20 | | | | 5 | |
Decrease/(increase) in securitization restricted cash | | | 6 | | | | (5 | ) | | | 22 | |
(Increase)/decrease in escrow deposit restricted cash | | | (5 | ) | | | (12 | ) | | | 9 | |
Other, net | | | (12 | ) | | | (8 | ) | | | 3 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (256 | ) | | | (418 | ) | | | (109 | ) |
| | | | | | | | | | | | |
| | | |
Financing Activities | | | | | | | | | | | | |
Proceeds from securitized borrowings | | | 1,709 | | | | 1,697 | | | | 1,406 | |
Principal payments on securitized borrowings | | | (1,497 | ) | | | (1,554 | ) | | | (1,711 | ) |
Proceeds from non-securitized borrowings | | | 2,112 | | | | 1,525 | | | | 822 | |
Principal payments on non-securitized borrowings | | | (2,082 | ) | | | (1,837 | ) | | | (1,451 | ) |
Proceeds from note issuances | | | 245 | | | | 494 | | | | 460 | |
Repurchase of convertible notes | | | (262 | ) | | | (250 | ) | | | — | |
Proceeds from/(purchase of) call options | | | 155 | | | | 136 | | | | (42 | ) |
(Repurchase of)/proceeds from warrants | | | (112 | ) | | | (98 | ) | | | 11 | |
Dividends to shareholders | | | (99 | ) | | | (86 | ) | | | (29 | ) |
Repurchase of common stock | | | (893 | ) | | | (235 | ) | | | — | |
Proceeds from stock option exercises | | | 11 | | | | 40 | | | | — | |
Debt issuance costs | | | (27 | ) | | | (41 | ) | | | (27 | ) |
Excess tax benefits from stock-based compensation | | | 18 | | | | 14 | | | | — | |
Other, net | | | (31 | ) | | | (24 | ) | | | — | |
| | | | | | | | | | | | |
Net cash used in financing activities | | | (753 | ) | | | (219 | ) | | | (561 | ) |
| | | | | | | | | | | | |
Effect of changes in exchange rates on cash and cash equivalents | | | (8 | ) | | | 3 | | | | — | |
| | | | | | | | | | | | |
Net (decrease)/increase in cash and cash equivalents | | | (14 | ) | | | 1 | | | | 19 | |
Cash and cash equivalents, beginning of period | | | 156 | | | | 155 | | | | 136 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 142 | | | $ | 156 | | | $ | 155 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Operating Activities | | | | | |
| Net income | $ | 433 |
| | $ | 399 |
| | $ | 417 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: |
| |
| |
|
| Depreciation and amortization | 216 |
| | 185 |
| | 178 |
|
| Provision for loan losses | 349 |
| | 409 |
| | 339 |
|
| Deferred income taxes | 64 |
| | 62 |
| | 70 |
|
| Stock-based compensation | 53 |
| | 41 |
| | 42 |
|
| Excess tax benefits from stock-based compensation | (15 | ) | | (33 | ) | | (18 | ) |
| Asset impairments | 8 |
| | 8 |
| | 57 |
|
| Loss on early extinguishment of debt | 106 |
| | 107 |
| | 12 |
|
| Non-cash interest | 26 |
| | 22 |
| | 27 |
|
| Net change in assets and liabilities, excluding the impact of acquisitions: |
| |
| |
|
| Trade receivables | (63 | ) | | (19 | ) | | 20 |
|
| Vacation ownership contract receivables | (255 | ) | | (303 | ) | | (207 | ) |
| Inventory | 32 |
| | 95 |
| | 79 |
|
| Prepaid expenses | (30 | ) | | 8 |
| | (19 | ) |
| Other current assets | — |
| | (2 | ) | | 9 |
|
| Accounts payable, accrued expenses and other current liabilities | 46 |
| | 18 |
| | 41 |
|
| Due to former Parent and subsidiaries, net | (1 | ) | | (3 | ) | | (15 | ) |
| Deferred income | 39 |
| | (7 | ) | | (20 | ) |
| Other, net | — |
| | 17 |
| | (9 | ) |
| Net cash provided by operating activities | 1,008 |
| | 1,004 |
| | 1,003 |
|
| Investing Activities |
| |
| |
|
| Property and equipment additions | (238 | ) | | (208 | ) | | (239 | ) |
| Net assets acquired, net of cash acquired | (129 | ) | | (263 | ) | | (27 | ) |
| Development advances | (65 | ) | | (14 | ) | | (5 | ) |
| Equity investments and loans | (3 | ) | | (42 | ) | | (12 | ) |
| Proceeds from asset sales | 6 |
| | 1 |
| | 31 |
|
| Decrease in securitization restricted cash | 29 |
| | 11 |
| | 6 |
|
| Increase in escrow deposit restricted cash | (2 | ) | | (5 | ) | | (5 | ) |
| Other, net | 1 |
| | 1 |
| | (5 | ) |
| Net cash used in investing activities | (401 | ) | | (519 | ) | | (256 | ) |
| Financing Activities |
| |
| |
|
| Proceeds from securitized borrowings | 1,734 |
| | 1,723 |
| | 1,709 |
|
| Principal payments on securitized borrowings | (1,785 | ) | | (1,624 | ) | | (1,497 | ) |
| Proceeds from long-term debt | 405 |
| | 1,991 |
| | 2,112 |
|
| Principal payments on long-term debt | (411 | ) | | (2,172 | ) | | (2,082 | ) |
| (Payments)/proceeds from commercial paper, net | (63 | ) | | 273 |
| | — |
|
| Proceeds from note issuances | 843 |
| | 941 |
| | 245 |
|
| Repurchase of notes | (636 | ) | | (757 | ) | | — |
|
| Proceeds from vacation ownership inventory arrangements | 96 |
| | — |
| | — |
|
| Repayment/repurchase of convertible notes | — |
| | (45 | ) | | (262 | ) |
| Proceeds from call options | — |
| | 33 |
| | 155 |
|
| Repurchase of warrants | — |
| | — |
| | (112 | ) |
| Dividends to shareholders | (156 | ) | | (134 | ) | | (99 | ) |
| Repurchase of common stock | (593 | ) | | (631 | ) | | (893 | ) |
| Proceeds from stock option exercises | — |
| | 13 |
| | 11 |
|
| Excess tax benefits from stock-based compensation | 15 |
| | 33 |
| | 18 |
|
| Debt issuance costs | (23 | ) | | (20 | ) | | (27 | ) |
| Net share settlement of incentive equity awards | (31 | ) | | (55 | ) | | (31 | ) |
| Net cash used in financing activities | (605 | ) | | (431 | ) | | (753 | ) |
| Effect of changes in exchange rates on cash and cash equivalents | (3 | ) | | (1 | ) | | (8 | ) |
| Net (decrease)/increase in cash and cash equivalents | (1 | ) | | 53 |
| | (14 | ) |
| Cash and cash equivalents, beginning of period | 195 |
| | 142 |
| | 156 |
|
| Cash and cash equivalents, end of period | $ | 194 |
| | $ | 195 |
| | $ | 142 |
|
See Notes to Consolidated Financial Statements.
F-6
WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Treasury Stock | | | Additional
Paid-in
Capital | | | Retained
Earnings/
(Accumulated
Deficit) | | | Accumulated
Other
Comprehensive
Income | | | Total
Stockholders’
Equity | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | | | |
Balance as of December 31, 2008 | | | 205 | | | $ | 2 | | | | (27) | | | $ | (870 | ) | | $ | 3,690 | | | $ | (578 | ) | | $ | 98 | | | $ | 2,342 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 293 | | | | — | | | | | |
Currency translation adjustment, net of tax of $31 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 25 | | | | | |
Unrealized gains on cash flow hedges, net of tax of $10 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18 | | | | | |
Pension liability adjustment, net of tax benefit of $1 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3 | ) | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 333 | |
Issuance of warrants | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | — | | | | 11 | |
Issuance of shares for RSU vesting | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in deferred compensation | | | — | | | | — | | | | — | | | | — | | | | 36 | | | | — | | | | — | | | | 36 | |
Change in excess tax benefit on equity awards | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) |
Dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (30 | ) | | | — | | | | (30 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2009 | | | 206 | | | | 2 | | | | (27 | ) | | | (870 | ) | | | 3,733 | | | | (315 | ) | | | 138 | | | | 2,688 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 379 | | | | — | | | | | |
Currency translation adjustment, net of tax benefit of $16 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | | |
Reclassification of unrealized loss on cash flow hedge, net of tax benefit of $6 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8 | | | | | |
Unrealized gains on cash flow hedges, net of tax of $2 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 396 | |
Exercise of stock options | | | 2 | | | | — | | | | — | | | | — | | | | 40 | | | | — | | | | — | | | | 40 | |
Issuance of shares for RSU vesting | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in deferred compensation | | | — | | | | — | | | | — | | | | — | | | | 17 | | | | — | | | | — | | | | 17 | |
Reversal of net deferred tax liabilities from former Parent | | | — | | | | — | | | | — | | | | — | | | | 188 | | | | — | | | | — | | | | 188 | |
Repurchase of warrants | | | — | | | | — | | | | — | | | | — | | | | (98 | ) | | | — | | | | — | | | | (98 | ) |
Repurchase of common stock | | | — | | | | — | | | | (10 | ) | | | (237 | ) | | | — | | | | — | | | | — | | | | (237 | ) |
Change in excess tax benefit on equity awards | | | — | | | | — | | | | — | | | | — | | | | 12 | | | | — | | | | — | | | | 12 | |
Dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (89 | ) | | | — | | | | (89 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2010 | | | 210 | | | | 2 | | | | (37 | ) | | | (1,107 | ) | | | 3,892 | | | | (25 | ) | | | 155 | | | | 2,917 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 417 | | | | — | | | | | |
Currency translation adjustment, net of tax benefit of $3 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (30 | ) | | | | |
Unrealized gains on cash flow hedges, net of tax of $4 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | | |
Pension liability adjustment, net of tax benefit of $1 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2 | ) | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 390 | |
Exercise of stock options | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | — | | | | 11 | |
Issuance of shares for RSU vesting | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in deferred compensation | | | — | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | 9 | |
Repurchase of warrants | | | — | | | | — | | | | — | | | | — | | | | (112 | ) | | | — | | | | — | | | | (112 | ) |
Repurchase of common stock | | | — | | | | — | | | | (28 | ) | | | (902 | ) | | | — | | | | — | | | | — | | | | (902 | ) |
Change in excess tax benefit on equity awards | | | — | | | | — | | | | — | | | | — | | | | 18 | | | | — | | | | — | | | | 18 | |
Dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (99 | ) | | | — | | | | (99 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2011 | | | 212 | | | $ | 2 | | | | (65 | ) | | $ | (2,009 | ) | | $ | 3,818 | | | $ | 293 | | | $ | 128 | | | $ | 2,232 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Shares Outstanding | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Non-controlling Interest | | Total Equity |
| Balance as of December 31, 2010 | 173 |
| | $ | 2 |
| | $ | (1,107 | ) | | $ | 3,892 |
| | $ | (25 | ) | | $ | 155 |
| | $ | — |
| | $ | 2,917 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 417 |
| | — |
| | — |
| | 417 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | (27 | ) |
| Exercise of stock options | — |
| | — |
| | — |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
| Issuance of shares for RSU vesting | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net share settlement of incentive equity awards | — |
| | — |
| | — |
| | (31 | ) | | — |
| | — |
| | — |
| | (31 | ) |
| Change in deferred compensation | — |
| | — |
| | — |
| | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
| Repurchase of warrants | — |
| | — |
| | — |
| | (112 | ) | | — |
| | — |
| | — |
| | (112 | ) |
| Repurchase of common stock | (28 | ) | | — |
| | (902 | ) | | — |
| | — |
| | — |
| | — |
| | (902 | ) |
| Change in excess tax benefit on equity awards | — |
| | — |
| | — |
| | 18 |
| |
| | — |
| | — |
| | 18 |
|
| Dividends | — |
| | — |
| | — |
| | — |
| | (99 | ) | | — |
| | — |
| | (99 | ) |
| Other | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
| Balance as of December 31, 2011 | 147 |
| | $ | 2 |
| | $ | (2,009 | ) | | $ | 3,818 |
| | $ | 293 |
| | $ | 128 |
| | $ | — |
| | $ | 2,232 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 400 |
| | — |
| | (1 | ) | | 399 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 23 |
| | — |
| | 23 |
|
| Exercise of stock options and SSARs | — |
| | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
| | 13 |
|
| Issuance of shares for RSU vesting | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net share settlement of incentive equity awards | — |
| | — |
| | — |
| | (55 | ) | | — |
| | — |
| | — |
| | (55 | ) |
| Change in deferred compensation | — |
| | — |
| | — |
| | 41 |
| | — |
| | — |
| | — |
| | 41 |
|
| Repurchase of common stock | (13 | ) | | — |
| | (624 | ) | | — |
| | — |
| | — |
| | — |
| | (624 | ) |
| Settlement of warrants | 1 |
| | — |
| | 32 |
| | (32 | ) | | — |
| | — |
| | — |
| | — |
|
| Change in excess tax benefit on equity awards | — |
| | — |
| | — |
| | 33 |
| | | | — |
| | — |
| | 33 |
|
| Dividends | — |
| | — |
| | — |
| | — |
| | (135 | ) | | — |
| | — |
| | (135 | ) |
| Other | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| | 4 |
|
| Balance as of December 31, 2012 | 137 |
| | $ | 2 |
| | $ | (2,601 | ) | | $ | 3,820 |
| | $ | 558 |
| | $ | 151 |
| | $ | 1 |
| | $ | 1,931 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 432 |
| | — |
| | 1 |
| | 433 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) | | — |
| | (29 | ) |
| Issuance of shares for RSU vesting | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net share settlement of incentive equity awards | — |
| | — |
| | — |
| | (31 | ) | | — |
| | — |
| | — |
| | (31 | ) |
| Change in deferred compensation | — |
| | — |
| | — |
| | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
| Repurchase of common stock | (10 | ) | | — |
| | (590 | ) | | — |
| | — |
| | — |
| | — |
| | (590 | ) |
| Change in excess tax benefit on equity awards | — |
| | — |
| | — |
| | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Dividends | — |
| | — |
| | — |
| | — |
| | (158 | ) | | — |
| | — |
| | (158 | ) |
| Other | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Balance as of December 31, 2013 | 128 |
| | $ | 2 |
| | $ | (3,191 | ) | | $ | 3,858 |
| | $ | 832 |
| | $ | 122 |
| | $ | 2 |
| | $ | 1,625 |
|
See Notes to Consolidated Financial Statements.
F-7
WYNDHAM WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except
share and per share amounts)
1. | |
| 1. | Basis of Presentation |
Wyndham Worldwide Corporation (“Wyndham” or the “Company”) is a global provider of hospitality services and products. The accompanying Consolidated Financial Statements include the accounts and transactions of Wyndham, as well as the entities in which Wyndham directly or indirectly has a controlling financial interest. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the Consolidated Financial Statements.
In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of annual results reported.
The Company operates in the following business segments:
Lodging—primarily franchises hotels in the upscale, upper midscale, midscale, economy and extended stay segments and provides hotel management services for full-service and select limited-service hotels.
Vacation Exchange and Rentals—provides vacation exchange services and products 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.
| — |
| 2. | | Lodging — franchises hotels in the upper upscale, upscale, upper midscale, 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 services and products 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.
|
2. | Summary of Significant Accounting Policies |
PRINCIPLESPRINCIPLES OF
CONSOLIDATION CONSOLIDATION
When evaluating an entity for consolidation, the Company first determines whether an entity is within the scope of the guidance for consolidation of variable interest entities (“VIE”) and if it is deemed to be a VIE. If the entity is considered to be a VIE, the Company determines whether it would be considered the entity’s primary beneficiary. The Company consolidates those VIEs for which it has determined that it is the primary beneficiary. The Company will consolidate an entity not deemed a VIE upon a determination that it has a controlling financial interest. For entities where the Company does not have a controlling financial interest, the investments in such entities are classified as available-for-sale securities or accounted for using the equity or cost method, as appropriate.
REVENUE RECOGNITION
REVENUE RECOGNITION
Lodging
The Company’s franchising business is designed to generate revenues for its hotel owners through the delivery of room night bookings to the hotel, the promotion of brand awareness among the consumer base, global sales efforts, ensuring guest satisfaction and providing outstanding customer service to both its customers and guests staying at hotels in its system.
The Company enters into agreements to franchise its lodging brands to independent hotel owners. The Company’s standard franchise agreement typically has a term of 15 to 20 years and provides a franchisee with certain rights to terminate the franchise agreement before the term of the agreement under certain circumstances.
The principal source of revenues from franchising hotels is ongoing franchise fees, which are
primarily comprised of royalty,
fees and other fees relating to marketing and reservation
services. Ongoing franchisefees. Royalty, marketing and reservation fees
typically are
based ontypically a percentage of gross room revenues of each franchised hotel and are recognized as revenue upon becoming due from the franchisee. An estimate of uncollectible ongoing
franchiseroyalty fees is charged to bad debt expense and included in operating expenses on the Consolidated Statements of Income. Lodging revenues also include initial franchise fees, which are recognized as revenues when all material services or conditions have been substantially performed, which is either when a franchised hotel opens for business or when a franchise agreement is terminated after it has been determined that the franchised hotel will not open.
The Company’s franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse the Company for expenses associated with operating an international, centralized, brand-specific reservations system, e-commerce channels such as the Company's brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. Marketing and reservation fees are recognized as revenue upon becoming due from the franchisee. An estimate of uncollectible ongoing marketing and reservation fees is charged to bad debt expense and included in marketing and reservation expenses in the Consolidated Statements of Income.
The Company is contractually obligated to expend the marketing and reservation fees it collects from franchisees in accordance with the franchise agreements; as such, revenues earned in excess of costs incurred are accrued as a liability for future marketing or reservation costs. Costs incurred in excess of revenues earned are expensed as incurred. In accordance with its franchise agreements, the Company includes an allocation of costs required to carry out marketing and reservation activities within marketing and reservation expenses. Marketing and reservation fees
The Company also earns revenues from its Wyndham Rewards loyalty program when a member stays at a participating hotel. These revenues are
derived from a fee the Company charges which are a percentage of room revenues generated from such stay. This fee is recognized as revenue upon becoming due from the franchisee.
An estimate of uncollectible ongoing marketing and reservation fees is charged to bad debt expense and included in marketing and reservation expenses in the Consolidated Statements of Income.Other service feesSince the Company derivesis committed to expend the fees it collects from providing ancillary servicesfranchisees, revenues earned in excess of costs incurred are accrued as a liability for future costs to franchisees are primarily recognized as revenue upon completion of services.
support the program.
The Company also provides management services for hotels under management contracts, which offer all the benefits of a global brand and a full range of management, marketing and reservation services. In addition to the standard franchise services described above, the Company’s hotel management business provides hotel owners with professional oversight and comprehensive operations support services such as hiring, training and supervising the managers and employees that operate the hotels as well as annual budget preparation, financial analysis and extensive food and beverage services. The Company’s standard management agreement typically has a term of up to 2025 years. The Company’s management fees are comprised of base fees, which are typically calculated based upon a specified percentage of gross revenues from hotel operations, and incentive fees, which are typically calculated based upon a specified percentage of a hotel’s gross operating profit. Management fee revenues are recognized when earned in accordance with the terms of the contract and recorded as a component of franchise fee revenues on the Consolidated Statements of Income. Management fee revenues were $7$8 million $5, $7 million and $4$7 million during 2011, 20102013, 2012 and 2009,2011, respectively. The Company is also required to recognizerecognizes as revenue fees relating toreimbursable payroll costs for operational employees who work at certain of the Company’s managed hotels. Although these costs are funded by hotel owners, accounting guidance requires the Company is required to report these fees on a gross basis as both revenues and expenses. The revenues are recorded as a component of service and membership fees while the offsetting expenses isare reflected as a component of operating expenses on the Consolidated Statements of Income. ThereAs such, there is no effect on the Company’s operating income. Revenues related to these payroll costs were $79$129 million $77, $91 million and $85$79 million in 2011, 20102013, 2012 and 2009,2011, respectively.
The Company also earns revenues from
its Wyndham Rewards loyalty program when a member stays at a participating hotel.hotel ownership. The Company's ownership business is limited to the United States (including Puerto Rico) and consists of two hotels located in key business and leisure markets. Revenues earned from the Company's owned hotels consist primarily of (i) gross room revenues, (ii) food and beverage services and (iii) on-site spas, casinos, golf and shop revenues. These revenues are
derived from a feerecognized upon the
Company charges based upon a percentagecompletion of
room revenues generated from such stay. This fee is recognized as revenue upon becoming due from the franchisee.services to its guests.
Vacation Exchange and Rentals
As a provider of vacation exchange services, the Company enters into affiliation agreements with developers of vacation ownership properties to allow owners of intervals of VOIs to trade their intervals for certainintervals at other intervals withinproperties affiliated with the Company’s vacation exchange business and, for some members, for other leisure-related services and products. Additionally, as a marketer of vacation rental properties, generally the Company enters into contracts for exclusive periods of time with property owners to market the rental of such properties to rental customers.
The Company’s vacation exchange business derives a majority of its revenues from annual membership dues and exchange fees from members trading their intervals. AnnualRevenues from annual membership dues revenues represent the annual membership fees from members who participate in the Company’s vacation exchange business and, for additional fees, have the right to exchange their intervals for certainintervals at other intervals withinproperties affiliated with the Company’sCompany's vacation exchange business and, for certain members, for other leisure-related services and products. The Company recognizes revenues from annual membership dues on a straight-line basis over the membership period during which delivery of publications, if applicable, and other services are provided to the members. Exchange fees are generated when members exchange their intervals for intervals at other properties withinaffiliated with the Company’s vacation exchange business or for other leisure-related services and products. Exchange fees are recognized as revenues, net of expected cancellations, when the exchange requests have been confirmed to the member.
The Company’s vacation rentals business primarily derives its revenues from fees, which generally average between 20% and 50% of the gross booking fees for non-proprietary inventory, except for wherefees. For the less than 10% of properties that the Company owns, manages or operates under long-term capital or operating leases, it receives 100% of the revenues for properties that it manages, operates under long-term capital leases or owns.revenues. The majority of the time, the Company acts on behalf of the owners of the rental properties to generate the Company’s fees. The Company provides reservation services to the independent property owners and receives the agreed-upon fee for the serviceservices provided. The Company remits the gross rental fee received from the renter to the independent property owner, net of the Company’s agreed-upon fee. Revenues from such fees that are recognized in the period that the rental reservation is made, are recorded net of expected cancellations.
Cancellations for 2011, 20102013, 2012 and 20092011 each totaled less than 5% of rental transactions booked. Upon confirmation of the rental reservation, the rental customer and property owner generally have a direct relationship for additional services to be performed. The Company also earns rental fees in connection with properties which it owns, manages operates under long-term capital leases or ownsoperates and such fees are recognized ratably over the rental customer’s stay, as this is the point at which the service is rendered. The Company's revenues are earned when evidence of an arrangement exists, delivery has occurred or the services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.
The Company develops, markets and sells VOIs to individual consumers, provides property management services at resorts and provides consumer financing in connection with the sale of VOIs. The Company’s vacation ownership business derives the majority of its revenues from sales of VOIs and derives other revenues from consumer financing and property management. The Company’s sales of VOIs are either cash sales or developer-financed sales. In order for the Company to recognize revenues from VOI sales under the full accrual method of accounting described in the guidance for sales of real estate for fully constructed inventory, a binding sales contract must have been executed, the statutory rescission period must have expired (after which time the purchasers are not entitled to a refund except for non-delivery by the Company), receivables must have been deemed collectible and the remainder of the Company’s obligations must have been substantially completed. In addition, before the Company recognizes any revenues from VOI sales, the purchaser of the VOI must have met the initial investment criteria and, as applicable, the continuing investment criteria, by executing a legally binding financing contract. A purchaser has met the initial investment criteria when a minimum down payment of 10% is received by the Company.
In accordance with the guidance for accounting for real estate time-sharing transactions, the Company must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where financing is provided to the purchaser by the Company, the purchaser is obligated to remit monthly payments under financing contracts that represent the purchaser’s continuing investment.
If all of the criteria for a VOI sale to qualify under the full accrual method of accounting have been met, as discussed above, except that construction of the VOI purchased is not complete, the Company recognizes revenues using the percentage-of-completion (“POC”)method of accounting provided that the preliminary construction phase is complete and that a minimum sales level has been met (to assure that the property will not revert to a rental property). The preliminary stage of development is deemed to be complete when the engineering and design work is complete, the construction contracts have been executed, the site has been cleared, prepared and excavated, and the building foundation is complete. The completion percentage is determined by the proportion of real estate inventory costs incurred to total estimated costs. These estimated costs are based upon historical experience and the related contractual terms. The remaining revenues and related costs of sales, including commissions and direct expenses, are deferred and recognized as the remaining costs are incurred.
incurred
.
The Company also offers consumer financing as an option to customers purchasing VOIs, which are typically collateralized by the underlying VOI. The contractual terms of Company-provided financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the VOI being financed, which is generally ten years and payments under the financing contracts begin within 45 days of the sale and receipt of the minimum down payment of 10%. An estimate of uncollectible amounts is recorded at the time of the sale with a charge to the provision for loan losses, which is classified as a reduction of vacation ownership interestVOI sales on the Consolidated Statements of Income. The interest income earned from the financing arrangements is earned on the principal balance outstanding over the life of the arrangement and is recorded within consumer financing on the Consolidated Statements of Income.
The Company also provides day-to-day-management services, including oversight of housekeeping services, maintenance and certain accounting and administrative services for property owners’ associations and clubs. In some cases, the Company’s employees serve as officers and/or directors of these associations and clubs in accordance with their by-laws and associated regulations. The Company receives fees for such property management services which are generally based upon total costs to operate such resorts. Fees for property management services typically approximate 10% of budgeted operating expenses. Property management fee revenues are recognized when earned in accordance with the terms of the contract and are recorded as a component of service and membership fees on the Consolidated Statements of Income. Property management revenues, which are comprised of management fee revenue and reimbursable revenue, were $424$567 million $405, $460 million and $376$424 million during 2011, 20102013, 2012 and 2009,2011, respectively. Management fee revenues were $198$290 million $183, $225 million and $170$198 million during 2011, 20102013, 2012 and 2009,2011, respectively. Reimbursable revenues, which are based upon certain reimbursable costs with no added margin, were $226$277 million $222, $235 million and $206$226 million, respectively, during 2011, 20102013, 2012 and 2009.2011. These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where the Company is the employer and are reflected as a component of operating expenses on the Consolidated Statements of Income. During each of 2011, 20102013, 2012 and 2009,2011, one of the associations that the Company manages paid Wyndham Exchange & Rentals $19$19 million for exchange services.
Under the POC method of accounting, a portion of the total revenues from a vacation ownership contract sale is not recognized if the construction of the vacation resort has not yet been fully completed. Such deferred revenues were recognized in subsequent periods in proportion to the costs incurred as compared to the total expected costs for completion of construction of the vacation resort. During 2009, gross sales2013, an immaterial amount of VOIsrevenues were increased by $187 million representing the net change in revenues that was deferred under the POC method of accounting. As of December 31, 2009, all revenues that were previously deferred under the POC method of accounting had been recognized. During each of 2011 and 2010,2012, no revenues were deferred under the POC method of accounting.
The Company records marketing and reservation revenues, Wyndham Rewards revenues, RCI Elite Rewards revenues and hotel/property management services revenues for its Lodging, Vacation Ownership and Vacation Exchange and Rentals segments, in accordance with the guidance for reporting revenues gross as a principal versus net as an agent, which requires that these revenues be recorded on a gross basis.
Deferred income, as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Membership and exchange fees | | $ | 330 | | | $ | 370 | |
VOI trial and incentive fees | | | 118 | | | | 120 | |
Vacation rental fees | | | 70 | | | | 56 | |
Other fees | | | 66 | | | | 61 | |
| | | | | | | | |
Total deferred income | | | 584 | | | | 607 | |
Less: Current deferred income | | | 402 | | | | 401 | |
| | | | | | | | |
Non-current deferred income | | $ | 182 | | | $ | 206 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Membership and exchange fees | $ | 298 |
| | $ | 316 |
|
| VOI trial and incentive fees | 149 |
| | 130 |
|
| Vacation rental fees | 109 |
| | 75 |
|
| Initial franchise fees | 42 |
| | 28 |
|
| Other fees | 45 |
| | 41 |
|
| Total deferred income | 643 |
| | 590 |
|
| Less: Current deferred income | 451 |
| | 383 |
|
| Non-current deferred income | $ | 192 |
| | $ | 207 |
|
Deferred membership and exchange fees consist primarily of payments made in advance for annual memberships that are recognized over the term of the membership period, which is typically one to three years. Deferred VOI trial fees are payments received in advance for a trial VOI, which allows customers to utilize a VOI typically within one year of purchase. Deferred incentive fees represent payments received in advance for additional travel related products and services at the time of a VOI sale. Revenue is recognized when a customer utilizes the additional products and services, which is typically within two years of
a VOI sale. Deferred vacation rental fees represent payments received in advance of a rental customer’s stay that are recognized as revenue when the rental stay occurs, which is typically within six months of the confirmation date.
Deferred initial franchise fees are recognized when all material services or conditions have been performed which is typically within two years.
INCOME TAXES
INCOME TAXESThe Company recognizes deferred tax assets and liabilities using the asset and liability method, under which deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates. These differences are based upon estimated differences between the book and tax basis of the assets and liabilities for the Company as of December 31, 20112013 and 2010.
2012.
The Company’s deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the Company’s provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realization of the Company’s deferred tax assets, net of the valuation allowance, is primarily dependent on estimated future taxable income. A change in the Company’s estimate of future taxable income may require an addition to or reduction from the valuation allowance.
For tax positions the Company has taken or expects to take in a tax return, the Company applies a more likely than not threshold, under which the Company must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to recognize or continue to recognize the benefit. In determining the Company’s provision for income taxes, the Company uses judgment, reflecting its estimates and assumptions, in applying the more likely than not threshold.
CASH AND
CASH EQUIVALENTS CASH EQUIVALENTS
The Company considers highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents.RESTRICTED CASH
RESTRICTED CASH
The largest portion of the Company’s restricted cash relates to securitizations. The remaining portion is comprised of cash held in escrow related to the Company’s vacation ownership business and cash held in all other escrow accounts.
Securitizations: In accordance with the contractual requirements of the Company’s various vacation ownership contract receivable securitizations, a dedicated lockbox account, subject to a blocked control agreement, is established for each securitization. At each month end, the total cash in the collection account from the previous month is analyzed and a monthly servicer report is prepared by the Company, which details how much cash should be remitted to the noteholdersnote holders for principal and interest payments, and any cash remaining is transferred by the trustee back to the Company. Additionally, as required by various securitizations, the Company holds an agreed-upon percentage of the aggregate outstanding principal balances of the VOI contract receivables collateralizing the asset-backed notes in a segregated trust (or reserve) account as credit enhancement. Each time a securitization closes and the Company receives cash from the noteholders,note holders, a portion of the cash is deposited in the reserve account. Such amounts were $132$92 million and $138$121 million as of December 31, 2011 and 2010, respectively,, of which $71$64 million and $77$65 million is recorded within other current assets as of December 31, 2011 and 2010, respectively,$28 million and $61$56 million is recorded within other non-current assets as of both December 31, 20112013 and 20102012, respectively, on the Consolidated Balance Sheets.
Escrow Deposits: Laws in most U.S. states require the escrow of down payments on VOI sales, with the typical requirement mandating that the funds be held in escrow until the rescission period expires. As sales transactions are consummated, down payments are collected and are subsequently placed in escrow until the rescission period has expired. Depending on the state, the rescission period can be as short as three3 calendar days or as long as 15 calendar days. In certain states, the escrow laws require that 100% of VOI purchaser funds (excluding interest payments, if any), be held in escrow until the deeding process is complete. Where possible, the Company utilizes surety bonds in lieu of escrow deposits. Escrow deposit amounts were $53$57 million and $42$56 million as of December 31, 20112013 and 2010,2012, respectively, which is recorded within other current assets on the Consolidated Balance Sheets.RECEIVABLE VALUATION
RECEIVABLE VALUATION
The Company provides for estimated bad debts based on
theirits assessment of the ultimate realizability of receivables, considering historical collection experience, the economic environment and specific customer information. When the Company determines that an account is not collectible, the account is written-off to the allowance for doubtful accounts. The following table illustrates the Company’s allowance for doubtful accounts activity for the year ended December 31:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Beginning balance | | $ | 185 | | | $ | 149 | | | $ | 117 | |
Bad debt expense | | | 71 | | | | 97 | | | | 102 | |
Write-offs | | | (50 | ) | | | (63 | ) | | | (72 | ) |
Translation and other adjustments | | | 1 | | | | 2 | | | | 2 | |
| | | | | | | | | | | | |
Ending balance | | $ | 207 | | | $ | 185 | | | $ | 149 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Beginning balance | $ | 213 |
| | $ | 207 |
| | $ | 185 |
|
| Bad debt expense | 57 |
| | 53 |
| | 71 |
|
| Write-offs | (64 | ) | | (49 | ) | | (50 | ) |
| Translation and other adjustments | 3 |
| | 2 |
| | 1 |
|
| Ending balance | $ | 209 |
| | $ | 213 |
| | $ | 207 |
|
Vacation ownership contract receivables
In the Company’s Vacation Ownership segment, the Company provides for estimated vacation ownership contract receivable defaults at the time of VOI sales by recording a provision for loan losses as a reduction of
vacation ownership interestVOI sales on the Consolidated Statements of Income. The Company assesses the
adequacy of the allowance for loan losses based on the historical performance of similar vacation ownership contract receivables. The Company uses a technique referred to as static pool analysis, which tracks defaults for each year’syear's sales over the entire life of those contract receivables. The Company considers current defaults, past due aging, historical write-offs of contracts and consumer credit scores (FICO scores) in the assessment of borrower’sborrower's credit strength and expected loan performance. The Company also considers whether the historical economic conditions are comparable to current economic conditions. If current or expected future conditions differ from the conditions in effect when the historical experience was generated, the Company adjusts the allowance for loan losses to reflect the expected effects of the current environment on the collectability of the Company’sCompany's vacation ownership contract receivables.
LOYALTY PROGRAMS
The Company operates a number of loyalty programs including Wyndham Rewards, RCI Elite Rewards and other programs. Wyndham Rewards members primarily accumulate points by staying in hotels franchised under one of the Company’s lodging brands. Wyndham Rewards and RCI Elite Rewards members accumulate points by purchasing everyday services and products from the various businesses that participate in the program.
Members may redeem their points for hotel stays, airline tickets, rental cars, resort vacations, electronics, sporting goods, movie and theme park tickets, gift certificates, vacation ownership maintenance fees and annual membership dues and exchange fees for transactions. The points cannot be redeemed for cash. The Company earns revenue from these programs (i) when a member stays at a participating hotel, from a fee charged by the Company to the franchisee, which is based upon a percentage of room revenues generated from such stay or (ii) based upon a percentage of the members’ spending on the
co-branded credit cards and such revenues are paid to the Company by a third-party issuing bank. The Company also incurs costs to support these programs, which primarily relate to marketing expenses to promote the programs, costs to administer the programs and costs of members’ redemptions.
As members earn points through the Company’s loyalty programs, the Company records a liability of the estimated future redemption costs, which is calculated based on (i) an estimated cost per point and (ii) an estimated redemption rate of the overall points earned, which is determined through historical experience, current trends and the use of an actuarial analysis. Revenues relating to the Company’s loyalty programs are recorded in other revenues in the Consolidated Statements of Income and amounted to $80$113 million $77, $78 million and $82$80 million, while total expenses amounted to $68$93 million $48, $73 million and $59$68 million in 2011, 20102013, 2012 and 2009,2011, respectively. The points liability for estimated future redemption costs as of December 31, 20112013 and 20102012 amounted to $40$52 million and $36$45 million, respectively, and is included in accrued expenses and other current liabilities and other non-current liabilities in the Consolidated Balance Sheets.
INVENTORY
INVENTORYInventory primarily consists of real estate and development costs of completed VOIs, VOIs under construction, land held for future VOI development, vacation ownership properties, vacation credits and vacation credits.inventory sold subject to conditional repurchase. The Company applies the relative sales value method for relieving VOI inventory and recording the related cost of sales. Under the relative sales value method, cost of sales is calculated as a percentage of net sales using a cost-of-sales percentage ratio of total estimated development cost to total estimated VOI revenue, including estimated future revenue and incorporating factors such as changes in prices and the recovery of VOIs generally as a result of contract receivable defaults. The effect of such changes in estimates under the relative sales value method is accounted for on a retrospective basis through corresponding current-period adjustments to inventory and cost of sales. Inventory is stated at the lower of cost, including capitalized interest, property taxes and certain other carrying costs incurred during the construction process, or net realizable value. Capitalized interest was $2less than $1 million $5, $1 million and $10$2 million in 2011, 20102013, 2012 and 2009,2011, respectively. During 2010, the Company transferred $66 million from inventory to property, plant and equipment related to a mixed-use project.
ADVERTISING EXPENSE
ADVERTISING EXPENSEAdvertising costs are generally expensed in the period incurred. Advertising expenses, which are recorded primarily within marketing and reservation expenses on the Consolidated Statements of Income, were $93$146 million $77, $105 million and $74$93 million in 2011, 20102013, 2012 and 2009,2011, respectively.
USE
USE OF
ESTIMATES ESTIMATES AND ASSUMPTIONS ASSUMPTIONS
The preparation of the Consolidated Financial Statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. Although these estimates and assumptions are based on the Company’s knowledge of current events and actions the Company may undertake in the future, actual results may ultimately differ from estimates and assumptions.
DERIVATIVE INSTRUMENTS
The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency exchange rates and interest rates. Additionally, the Company
hashad a bifurcated conversion feature related to its convertible notes and cash-settled call options that
arewere considered derivative instruments. As a matter of policy, the Company does not use derivatives for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. Changes in fair value of derivatives not designated as hedging instruments and of derivatives designated as fair value hedging instruments are recognized currently in earnings and
included either as a component of other revenues or net interest expense, based upon the nature of the hedged item, in the Consolidated Statements of Income. The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments is recorded as a component of other comprehensive income. The ineffective portion is reported immediately in earnings as a component of
net interestoperating expense, based upon the nature of the hedged item. Amounts included in other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings.
PROPERTY AND EQUIPMENT
PROPERTYAND EQUIPMENTProperty and equipment (including leasehold improvements) are recorded at cost, and presented net of accumulated depreciation and amortization. Depreciation, recorded as a component of depreciation and amortization on the Consolidated Statements of Income, is computed utilizing the straight-line method over the lesser of the lease termterms or estimated useful lives of the related assets. Amortization of leasehold improvements, also recorded as a component of depreciation and amortization, is computed utilizing the straight-line method over the lesser of the estimated benefit period of the related assets or the lease term, if shorter.terms. Useful lives are generally 30 years for buildings, up to 20 years for leasehold improvements, from 2015 to 30 years for vacation rental properties and from three3 to seven7 years for furniture, fixtures and equipment.
The Company capitalizes the costs of software developed for internal use in accordance with the guidance for accounting for costs of computer software developed or obtained for internal use. Capitalization of software developed for internal use commences during the development phase of the project. The Company generally amortizes software developed or obtained for internal use on a straight-line basis, from three3 to five5 years, commencing when such software is substantially ready for use. The net carrying value of software developed or obtained for internal use was $132$158 million and $133$156 million as of December 31, 20112013 and 2010,2012, respectively. Capitalized interest was $8$5 million $2, $4 million and $2$8 million in 2011, 20102013, 2012 and 2009,2011, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
IMPAIRMENTOF LONG-LIVED ASSETSTThehe Company has goodwill and other indefinite-lived intangible assets recorded in connection with business combinations. The Company annually (during the fourth quarter of each year subsequent to completing the Company’sCompany's annual forecasting process), or more frequently if circumstances indicate impairment may have occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount,
goodwill may be impaired, reviews the reporting units’units' carrying values as required by the guidance for goodwill and other indefinite-lived intangible assets. In accordance with the guidance, the Company has determined that its reporting units are the same as its reportable segments.
Application of the
Under current accounting guidance, goodwill and other intangible assets with indefinite lives are not subject to amortization. However, goodwill and other intangibles with indefinite lives are subject to fair value-based rules for measuring impairment, and resulting write-downs, if any, are reflected in operating expense. The Company has goodwill recorded at its lodging, vacation exchange and rentals and vacation ownership reporting units. The Company completed its annual goodwill impairment test
requires judgment, including the identificationby performing a qualitative analysis for each of
its reporting units
assignmentas of
assetsOctober 1, 2013 and
liabilities to reporting units and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which are dependent on internal forecasts, estimation of long-term rate of growth for the business and estimation of the useful life over which cash flows will occur. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and any potential goodwilldetermined that no impairment
for each reporting unit.exists.
The Company also evaluates the recoverability of its other long-lived assets, including property and equipment and amortizable intangible assets, if circumstances indicate impairment may have occurred, pursuant to guidance for impairment or disposal of long-lived assets. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.
ACCOUNTING FOR RESTRUCTURING ACTIVITIES
ACCOUNTINGFOR RESTRUCTURING ACTIVITIESThe Company’s restructuring actions require it to make significant estimates in several areas including:including (i) expenses for severance and related benefit costs;costs, (ii) the ability to generate sublease income, as well as its ability to terminate lease obligations;obligations and (iii) contract terminations. The amountsamount that the Company has accrued as of December 31, 2011 represent2013 represents its best estimate of the obligations incurred in connection with these actions, but could be subject to change due to various factors including market conditions and the outcome of negotiations with third parties. In the event that actual amounts differ from the Company’s estimates, the amount
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (“AOCI”) consists of accumulated foreign currency translation adjustments, accumulated unrealized gains and losses on derivative instruments designated as cash flow hedges and pension related costs. Foreign currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries. Assets and liabilities of foreign subsidiaries having non-U.S.-dollar functional currencies are translated at exchange rates at the Consolidated Balance Sheet dates. Revenues and expenses are translated at average exchange rates during the periods presented. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, are included in AOCI on the Consolidated Balance Sheets. Gains or losses resulting from foreign currency transactions are included in the Consolidated Statements of Income.
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
In accordance with the guidance for stock-based compensation, the Company measures all employee stock-based compensation awards using a fair value method and records the related expense in its Consolidated Statements of Income.
EQUITY EARNINGS AND OTHER INCOME
EQUITY EARNINGS AND OTHER INCOMEThe Company applies the equity method of accounting when it has the ability to exercise significant influence over operating and financial policies of an investee. The Company recorded $3$3 million, $1$0 million and $1$3 million of net earnings from such investments during 2011, 20102013, 2012 and 2009,2011, respectively, in other income, net on the Consolidated Statements of Income.
During 2013, the Company recorded $3 million of income primarily related to other miscellaneous royalties at its vacation ownership business. In addition, during 2012, the Company recorded $8 million of income primarily related to the settlement of a business disruption claim related to the Gulf of Mexico spill in 2010 and the reversal of allowance associated with previously divested asset. During 2011, the Company recorded $8 million of income primarily related to a gain on the redemption of a preferred stock investment and sale of non-strategic assets at its vacation ownership business. During 2010, the Company recorded $6 million
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Presentation of income primarily related to gains associated with the sale of non-strategic assets at its vacation ownership business. During 2009, the Company recorded $5 million of income primarily related to gains associated with the sale of non-strategic assets at its vacation ownership and vacation exchange and rentals businesses. Such amounts were recorded within other income, net on the Consolidated Statements ofComprehensive Income.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSMultiple-Deliverable Revenue Arrangements. In October 2009,June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on multiple-deliverable revenue arrangements, which requires an entity to apply the relative selling price allocation method and to estimate selling prices for all units of accounting, including delivered items, when vendor-specific objective evidence or acceptable third-party evidence does not exist. The guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and shall be applied on a prospective basis. The Company adopted the guidance on January 1, 2011, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Testing Goodwill for Impairment. In September 2011, the FASB issued guidance on testing goodwill for impairment, which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that the fair value of a reporting unit is more likely than not less than its carrying amount, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company will adopt the guidance on January 1, 2012, as required, and it believes the adoption of this guidance will not have a material impact on the Consolidated Financial Statements.
Presentation of Comprehensive Income. In June 2011, the FASB issued guidance for the presentation of comprehensive income, which amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income:income (i) in either a single continuous financial statement of comprehensive income or (ii) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of comprehensive income. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011, with early adoption permitted. The Company early adopted the guidance as of December 31, 2011, and has presented the Statements of Comprehensive Income as a separate financial statement.
Fair Value Measurement. In May 2011, the FASB issued guidance which generally provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance iswas effective for interim and annual reporting periods beginning after December 15, 2011 and shall bewas applied on a prospective basis. The Company adopted the guidance on January 1, 2012, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Testing Goodwill for Impairment. In September 2011, the FASB issued guidance on testing goodwill for impairment, which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that the fair value of a reporting unit is, more likely than not, less than its carrying amount, then it would be necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance was effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted the guidance on January 1, 2012, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Intangibles - Goodwill and Other. In July 2012, the FASB issued guidance on the testing of indefinite-lived intangible assets for impairment, which is intended to reduce the cost and complexity of the impairment test for indefinite-lived intangible assets by providing an entity with the option to first assess qualitatively whether it is necessary to perform the impairment test that is currently in place. An entity would not be required to quantitatively calculate the fair value of an indefinite-lived intangible asset unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This guidance was effective for interim and annual impairment tests beginning after September 15, 2012, with early adoption permitted. The Company adopted the guidance on October 1, 2012, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Comprehensive Income. In February 2013, the FASB issued guidance to improve the reporting of amounts reclassified out of AOCI. The guidance amends the presentation of changes in AOCI and requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the statement of income or as a separate disclosure in the notes. This guidance is effective prospectively for fiscal years beginning after December 15, 2012. The Company adopted the guidance on January 1, 2013, as required. There was no material impact on its Consolidated Financial Statements resulting from the adoption.
Foreign Currency Matters. In March 2013, the FASB issued guidance on a parent's accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. The guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance is effective prospectively for fiscal years beginning after December 15, 2013, and for interim periods within those fiscal years. The Company will adopt the guidance on January 1, 2012,2014, as required, and it believes the adoption of this guidance will not have a material impact on the Consolidated Financial Statements.
3. | |
| 3. | Earnings perPer Share |
The computation of basic and diluted earnings per share (“EPS”) is based on
the Company’s net income available to
commonWyndham stockholders divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively.
The following table sets forth the computation of basic and diluted EPS (in millions, except per share data):
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Net income | | $ | 417 | | | $ | 379 | | | $ | 293 | |
| | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 162 | | | | 178 | | | | 179 | |
Stock options, SSARs and RSUs(a) | | | 3 | | | | 4 | | | | 3 | |
Warrants(b) | | | 1 | | | | 3 | | | | — | |
| | | | | | | | | | | | |
Diluted weighted average shares outstanding | | | 166 | | | | 185 | | | | 182 | |
| | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 2.57 | | | $ | 2.13 | | | $ | 1.64 | |
Diluted | | | 2.51 | | | | 2.05 | | | | 1.61 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Net income attributable to Wyndham shareholders | $ | 432 |
| | $ | 400 |
| | $ | 417 |
|
| Basic weighted average shares outstanding | 133 |
| | 143 |
| | 162 |
|
Stock options, SSARs, RSUs and PSUs (a) (b) (c) | 2 |
| | 2 |
| | 3 |
|
Warrants (d) | — |
| | — |
| | 1 |
|
| Weighted average diluted shares outstanding | 135 |
| | 145 |
| | 166 |
|
| Earnings per share: | | | | | |
| Basic | $ | 3.25 |
| | $ | 2.80 |
| | $ | 2.57 |
|
| Diluted | 3.21 |
| | 2.75 |
| | 2.51 |
|
Dividends: (e) | | | | | |
| Cash dividends per share | $ | 1.16 |
| | $ | 0.92 |
| | $ | 0.60 |
|
| Aggregate dividends paid to shareholders | 156 |
| | 134 |
| | 99 |
|
| |
(a)(a)
| Includes unvested dilutive restricted stock units (“RSUs”) which are subject to future forfeitures. |
| |
(b)(b)
| Excludes 74,000, 98,000 and 2 million of stock options and stock-settled stock appreciation rights ("SSARs") for the years ended 2013, 2012 and 2011, respectively, as it would have been anti-dilutive to EPS. |
| |
(c) | Excludes 492,000, 606,000 and 350,000 performance vested restricted stock units ("PSUs"), for the years ended 2013, 2012 and 2011, respectively, as the Company had not met the required performance metrics. |
| |
(d) | 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 13 — Long-Term Debtnotes. |
| |
(e) | For each of the quarterly periods ended March 31, June 30, September 30 and Borrowing Arrangements).December 31 2013, 2012, and 2011, the Company paid cash dividends of $0.29, $0.23, and $0.15 per share respectively. |
The computations
Table of diluted EPS for the years ended December 31, 2011, 2010 and 2009 do not include approximately 2 million, 4 million and 9 million stock options and stock-settled stock appreciation rights (“SSARs”), respectively, as the effect of their inclusion would have been anti-dilutive. In addition, for the year ended December 31, 2011 approximately 350,000 performance vested restricted stock units (“PSUs”) were excluded as the Company had not met the required performance metrics as of December 31, 2011 (see Note 19 — Stock-Based Compensation for further details). For the year ended December 31, 2009, the computation of diluted EPS does not include warrants to purchase approximately 18 million shares of the Company’s common stock related to the May 2009 issuance of the Company’s Convertible Notes (see Note 13 — Long-Term Debt and Borrowing Arrangements) as the effect of their inclusion would have been anti-dilutive.Contents
Dividend Payments
During each of the quarterly periods ended March 31, June 30, September 30 and December 31, 2011, the Company paid cash dividends of $0.15 per share ($99 million in the aggregate.) During each of the quarterly periods ended March 31, June 30, September 30 and December 31, 2010, the Company paid cash dividends of $0.12 per share ($86 million in the aggregate). During each of the quarterly periods ended March 31, June 30, September 30 and December 31, 2009 the Company paid cash dividends of $0.04 per share ($29 million in the aggregate).
On both April 25, 2011 and August 11, 2011,July 23, 2013, the Company’s Board of Directors authorized an increase of $500$750 million to the Company’s existing stock repurchase program. As of December 31, 2011,2013, the total authorization of the program was $1.5 billion.$3.0 billion.
The following table summarizes stock repurchase activity under the current stock repurchase
program: | | | | | | | | | | | | |
| | | Shares | | | Cost | | | Average
Price | |
As of December 31, 2010 | | | 11.4 | | | $ | 295 | | | $ | 25.78 | |
For the year ended December 31, 2011 | | | 28.7 | | | | 902 | | | | 31.45 | |
| | | | | | | | | | | | |
As of December 31, 2011 | | | 40.1 | | | $ | 1,197 | | | $ | 29.83 | |
| | | | | | | | | | | | |
program (in millions, except per share data):
|
| | | | | | | | | | |
| | Shares | | Cost | | Average Price Per Share |
| As of December 31, 2012 | 53.0 |
| | $ | 1,820 |
| | $ | 34.33 |
|
| For the year ended December 31, 2013 | 9.7 |
| | 590 |
| | 60.93 |
|
| As of December 31, 2013 | 62.7 |
| | $ | 2,410 |
| | 38.44 |
|
The Company had $367$667 million remaining availability in its program as of December 31, 2011.2013. The total capacity of thisthe program iswas increased by proceeds received from stock option exercises.
As of December 31, 2011,2013, the Company has repurchased under its current and prior stock repurchase plans, a total of 65.288 million shares at an average price of $30.78$36.68 for a cost of $2.0$3.2 billion since its separation from Cendant (“Separation”).
Assets acquired and liabilities assumed in business combinations were recorded on the Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Consolidated Statements of Income since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations may be subject to revision when the Company receives final information, including appraisals and other analyses. Any revisions to the fair values during the allocation period will be recorded by the Company as further adjustments to the purchase price allocations. Although, in certain circumstances, the Company has substantially integrated the operations of its acquired businesses, additional future costs relating to such integration may occur. These costs may result from integrating operating systems, relocating employees, closing facilities, reducing duplicative efforts and exiting and consolidating other activities. These costs will be recorded on the Consolidated Balance Sheets as adjustments to the purchase price or on the Consolidated Statements of Income as expenses.
Midtown 45, NYC Property. During January 2013, the Company entered into an agreement with a third-party partner whereby the partner acquired the Midtown 45 property in New York City ("Midtown 45") for $115 million through a special purpose entity ("SPE"). The Company is considered to be the primary beneficiary of the SPE and therefore the Company consolidates the SPE within its financial statements. The Company is managing and operating the property for rental purposes while the Company converts it into VOI inventory. The SPE's purchase price allocation for this property resulted in the recognition of $115 million of property and equipment, all of which was assigned to the Company's Vacation Ownership segment. Acquisition-related costs of $2 million are included in operating expenses as appropriate.in the accompanying Consolidated Statement of Income for the twelve months ended December 31, 2013. This SPE transaction is consistent with the Company's strategy to replenish VOI inventory utilizing Wyndham Asset Affiliation Model ("WAAM") Just-in-Time. The consolidation of the SPE was not material to the Company's results of operations, financial position or cash flows (see Note 14 - Variable Interest Entities for more detailed information).
2011 ACQUISITIONSOther. During the third quarter of 2011,2013, the Company completed theother business acquisitions of substantially all of the assets of two vacation rentals businesses for $27$14 million in cash, net of cash acquired. The preliminary purchase price allocations of these acquisitions resulted in the recognition of $11$12 million of goodwill, $15none of which is expected to be deductible for tax purposes, $8 million of definite-lived intangible assets with a weighted average life of 1610 years and $1$1 million of trademarks, all of which were assigned to the Company’sCompany's Vacation Exchange and Rentals segment.
These acquisitions were not material to the Company's results of operations, financial position or cash flows.
2012 ACQUISITIONS
2010 ACQUISITIONSShell Vacations ClubHoseasons Holdings Ltd. On March 1, 2010,September 13, 2012, the Company completed the acquisition of Hoseasons Holdings Ltd. (“Hoseasons”Shell Vacations Club ("Shell"), a EuropeanU.S. vacation rentalsownership club and property management business. Management believes this acquisition strengthens the Company's vacation ownership portfolio as well as its resort management business thereby enhancing its fee-for-service business model.
The allocation of the purchase price is summarized as follows:
|
| | | |
| | Amount |
| Cash consideration | $ | 180 |
|
| Less: cash acquired | 6 |
|
| Net cash consideration | 174 |
|
| Fair value of assets acquired in excess of liabilities assumed | 147 |
|
| Excess purchase price over fair value of assets acquired and liabilities assumed | $ | 27 |
|
The net cash consideration of $174 million was comprised of $96 million (net of cash acquired) for the equity of Shell and $78 million related to debt secured with VOI contract receivables repaid at closing. In addition, the Company assumed $79 million of debt. Acquisition-related costs in the amount of $1 million were included in general and administrative expenses in the accompanying Consolidated Statement of Income for the year ended December 31, 2012.
The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the Company's acquisition of Shell:
|
| | | |
| | Amount |
| Vacation ownership contracts receivables | $ | 140 |
|
| Inventory | 47 |
|
Customer relationships (a) | 31 |
|
Trademarks (b) | 4 |
|
Management contracts (c) | 23 |
|
| Goodwill | 27 |
|
| Property and equipment | 22 |
|
| Other current and non-current assets | 34 |
|
| Total assets acquired | 328 |
|
| Other current liabilities | 56 |
|
| Assumed debt | 79 |
|
| Other non-current liabilities | 11 |
|
| Total liabilities assumed | 146 |
|
| Noncontrolling interest | 2 |
|
| Net assets acquired | $ | 180 |
|
| |
(a) | Represents customer relationships with a weighted average life of 15 years; included within Franchise agreements and other intangibles, net on the Consolidated Balance Sheet. |
| |
(b) | Represents trademarks with a life of 7 years. |
| |
(c) | Represents management contracts with a weighted average life of 15 years; included within Franchise agreements and other intangibles, net on the Consolidated Balance Sheet. |
The goodwill, approximately $23 million of which is expected to be deductible for tax purposes, was assigned to the Company's Vacation Ownership segment. This acquisition was not material to the Company's results of operations, financial position or cash flows.
Rio Mar. During the third quarter of 2012, the Company invested $41 million in cash to increase its existing investment in the joint venture that owned the Wyndham Rio Mar Beach Resort and Spa. In the fourth quarter of 2012, the Company acquired control of the joint venture and ownership of the hotel for an additional $5 million (net of cash acquired) and recorded $9 million of contingent consideration at fair value. As such, the net consideration for obtaining ownership of the hotel was $55 million.
The fair value of assets acquired and liabilities assumed with respect to the Company obtaining ownership of the hotel resulted in $68 million of property and equipment, $6 million other assets and $19 million of liabilities assumed, all of which were allocated to the Company's Lodging segment.
Oceana Resorts. On December 31, 2012, the Company completed the acquisition of Oceana Resorts, a U.S. vacation rental business, for $59$35 million in cash. The purchase price allocation resulted in the recognition of $23 million of goodwill, all of which is expected to be deductible for tax purposes, and $12 million of definite-lived intangible assets with a weighted average life of 15 years, all of which were assigned to the Company's Vacation Exchange and Rentals segment. This acquisition is consistent with the Company's strategy to grow its fee-for-service U.S. rentals business. This acquisition was not material to the Company's results of operations, financial position or cash flows.
Smoky Mountain Property Management Group. On August 1, 2012, the Company completed the acquisition of Smoky Mountain Property Management Group, a U.S. vacation rental business, for $31 million in cash, net of cash acquired. The purchase price allocation resulted in the recognition of $38$26 million of goodwill, $30approximately $15 million of which is expected to be deductible for tax purposes, and $12 million of definite-lived intangible assets with a weighted average life of 1810 years, and $16 million of trademarks, all of which were assigned to the Company’sCompany's Vacation Exchange and Rentals segment. Management believes that thisThis acquisition offers a strategic fit withinis consistent with the Company’s European rentals business and an opportunity to continueCompany's strategy to grow its fee-for-service U.S. rentals business. This acquisition was not material to the Company’s fee-for-service businesses.Company's results of operations, financial position or cash flows.
TrypOther. On June 30, 2010,During 2012, the Company completed the acquisition of the Tryp hotel brand (“Tryp”)other business acquisitions for $43$19 million in cash. The purchase price allocation resulted in the recognition of $3 million of goodwill, $3 million of franchise agreements with a weighted average life of 20 years and $36 million of trademarks, all ofwhich were assigned to the Company’s Lodging segment. This acquisition increases the Company’s footprint in Europe and Latin America and management believes it presents enhanced growth opportunities for its lodging business in North America.
ResortQuest International, LLC. On September 30, 2010, the Company completed the acquisition of ResortQuest International, LLC (“ResortQuest”), a U.S. vacation rentals business, for $54 million in cash, net of cash acquired. The purchase price allocationallocations resulted in (i) the recognition of $15$4 million of goodwill, $15none of which is expected to be deductible for tax purposes, and $3 million of definite-lived intangible assets with a weighted average life of 1210 years, and $9 million of trademarks, all of which were assigned to the Company’sCompany's Vacation Exchange and Rentals segment. Management believes that this acquisition provides the Company with an opportunity to build a growth platform in the U.S. rentals market.segment and (ii)
James Villa Holdings Ltd. On November 30, 2010, the Company completed the acquisition$7 million of James Villa Holdings Ltd. (“James Villa Holidays”), a European vacation rentals business, for $76inventory and $7 million in cash, net of cash acquired. The purchase price allocation resulted in the recognition of $52 million of goodwill, $26 million of definite-lived intangible assets with a weighted average life of 15 years and $10 million of trademarks,property, all of which were assignedwas allocated to the Company’sCompany's Vacation Exchange and RentalsOwnership segment. Management believes that this acquisition is consistent withThese acquisitions were not material to the Company’s strategy to invest in fee-for-service businesses and strengthens its presence in the European rentals market.Company's results of operations, financial position or cash flows.
Intangible assets consisted of: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2011 | | | As of December 31, 2010 | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | |
Unamortized Intangible Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill | | $ | 1,479 | | | | | | | | | | | $ | 1,481 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks(a) | | $ | 730 | | | | | | | | | | | $ | 731 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amortized Intangible Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Franchise agreements(b) | | $ | 595 | | | $ | 324 | | | $ | 271 | | | $ | 634 | | | $ | 318 | | | $ | 316 | |
Other(c) | | | 180 | | | | 50 | | | | 130 | | | | 164 | | | | 40 | | | | 124 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 775 | | | $ | 374 | | | $ | 401 | | | $ | 798 | | | $ | 358 | | | $ | 440 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 | | As of December 31, 2012 |
| | Gross | | | | Net | | Gross | | | | Net |
| | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying |
| | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
| Unamortized Intangible Assets: | | | | | | | | | | | |
| Goodwill | $ | 1,590 |
| | | | | | $ | 1,566 |
| | | | |
Trademarks (a) | $ | 718 |
| | | | | | $ | 724 |
| | | | |
| Amortized Intangible Assets: | | | | | | | | | | | |
Franchise agreements (b) | $ | 595 |
| | $ | 356 |
| | $ | 239 |
| | $ | 594 |
| | $ | 340 |
| | $ | 254 |
|
Trademarks (c) | 8 |
| | 3 |
| | 5 |
| | 7 |
| | 1 |
| | 6 |
|
Other (d) | 275 |
| | 85 |
| | 190 |
| | 270 |
| | 65 |
| | 205 |
|
| | $ | 878 |
| | $ | 444 |
| | $ | 434 |
| | $ | 871 |
| | $ | 406 |
| | $ | 465 |
|
| |
(a) | Comprised of various trade names (primarily including the Wyndham Hotels and Resorts, Ramada, Days Inn, RCI, Landal GreenParks, Baymont InnsInn & Suites, Microtel Inns & Suites, Hawthorn by Wyndham, Tryp by Wyndham and Hoseasons trade names) that the Company has acquired and which distinguishes the Company’s consumer services.acquired. These trade names are expected to generate future cash flows for an indefinite period of time. |
| |
(b) | Generally amortized over a period ranging from 20 to 40 years with a weighted average life of 2635 years. |
| |
(c) | Generally amortized over a period of 3 to 7 years with a weighted average life of 5 years. |
| |
(d) | Includes customer lists and business contracts, generally amortized over a period ranging from 7 to 20 years with a weighted average life of 1615 years. |
Other Intangible AssetsDuring 2013, the Company recorded $8 million of non-cash impairment charges at its lodging business primarily related to a partial write-down of the Hawthorn trademark resulting from slower than expected growth in the brand. As of December 31, 2013, the remaining $28 million carrying amount for the Hawthorn trademark was equal to its estimated fair value as of the date of impairment. The Company utilized a discounted cash flow model for the brand using assumptions of future operating performance, growth and discount rate.
During 2012, the Company recorded an $8 million non-cash impairment charge resulting from the decision to rebrand the ResortQuest and Steamboat Resorts trade names to the Wyndham Vacation Rentals brand. During 2011, the Company recorded a $25 million non-cash impairment charge to write-down franchise and management agreements which isagreements. Such amounts are included within the asset impairment lineimpairments on the Consolidated StatementStatements of Income (see Note 22 — Restructuring and Impairments for more information).
During the fourth quarters of 2011, 20102013, 2012 and 2009,2011, the Company performed its annual goodwill impairment test and determined that no impairment was requiredexisted as the fair value of goodwill at its lodging and vacationexchange and rentals reporting units was in excess of the carrying value. As of December 31, 2011 and 2010, the Company’s accumulated goodwill impairment loss was $1,342 million ($1,337 million, net of tax) all of which is related to the Company’s vacation ownership reporting unit.
The changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | |
| | | Balance at
December 31,
2010 | | | Goodwill
Acquired
During 2011 | | | Foreign
Exchange | | | Balance at
December 31,
2011 | |
Lodging | | $ | 300 | | | $ | — | | | $ | — | | | $ | 300 | |
Vacation Exchange and Rentals | | | 1,181 | | | | 11 | (*) | | | (13 | ) | | | 1,179 | |
| | | | | | | | | | | | | | | | |
Total Company | | $ | 1,481 | | | $ | 11 | | | $ | (13 | ) | | $ | 1,479 | |
| | | | | | | | | | | | | | | | |
(*) | Relates to two tuck-in acquisitions completed during the third quarter of 2011 (see Note 4 — Acquisitions). |
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at December 31, 2012 | | Goodwill Acquired During 2013 | | Adjustments to Goodwill Acquired During 2012 | | Foreign Exchange | | Balance at December 31, 2013 |
| | | | | |
| | | | | |
| Lodging | $ | 300 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300 |
|
| Vacation Exchange and Rentals | 1,241 |
| | 12 |
| | 4 |
| | 6 |
| | 1,263 |
|
| Vacation Ownership | 25 |
| | — |
| | 2 |
| | — |
| | 27 |
|
| Total Company | $ | 1,566 |
| | $ | 12 |
| | $ | 6 |
| | $ | 6 |
| | $ | 1,590 |
|
Amortization expense relating to
allamortizable intangible assets was as follows:
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
Franchise agreements | | $ | 20 | | | $ | 20 | | | $ | 20 | |
Trademarks | | | — | | | | — | | | | 1 | |
Other | | | 12 | | | | 8 | | | | 7 | |
| | | | | | | | | | | | |
Total(*) | | $ | 32 | | | $ | 28 | | | $ | 28 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Franchise agreements | $ | 15 |
| | $ | 16 |
| | $ | 20 |
|
| Other | 21 |
| | 15 |
| | 12 |
|
Total (*) | $ | 36 |
| | $ | 31 |
| | $ | 32 |
|
(*) |
Included as a component of depreciation and amortization on the Consolidated Statements of Income.
|
|
(*)Included as a component of depreciation and amortization on the Consolidated Statements of Income.
Based on the Company’sCompany's amortizable intangible assets as of December 31, 2011,2013, the Company expects related amortization expense over the next five years as follows: | | | | |
| | | Amount | |
2012 | | $ | 29 | |
2013 | | | 27 | |
2014 | | | 27 | |
2015 | | | 26 | |
2016 | | | 25 | |
|
| | | |
| | Amount |
| 2014 | $ | 36 |
|
| 2015 | 34 |
|
| 2016 | 33 |
|
| 2017 | 32 |
|
| 2018 | 31 |
|
6. | |
| 6. | Franchising and Marketing/Reservation Activities |
Franchise fee revenues of $522$599 million $461, $583 million and $440$522 million on the Consolidated Statements of Income for 2011, 20102013, 2012 and 2009,2011, respectively, include initial franchise fees of $10$12 million $8, $12 million and $9$10 million, respectively.
As part of ongoing franchise fees, the Company receives marketing and reservation fees from its lodging franchisees, which generally are calculated based on a specified percentage of gross room revenues. Such fees totaled $237$291 million $196, $282 million and $186$237 million during 2011, 20102013, 2012 and 2009,2011, respectively, and are recorded within the franchise fees line item on the Consolidated Statements of Income. In accordance with the franchise agreements, the Company is contractually obligated to expend the marketing and reservation fees it collects from franchisees for marketing purposes or the operation of an international, centralized, brand-specific reservation system and for marketing purposes such as advertising, promotional and co-marketing programs, and training for the respective franchisees. Additionally, the Company is required to provide certain services to its franchisees, including access to an international, centralized, brand-specific reservations system, advertising, promotional and co-marketing programs, referrals, technology, training and volume purchasing.The number of lodging properties and rooms in operation by market sector is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (Unaudited)
As of December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Properties | | | Rooms | | | Properties | | | Rooms | | | Properties | | | Rooms | |
Economy(a) | | | 5,536 | | | | 394,087 | | | | 5,482 | | | | 387,202 | | | | 5,469 | | | | 387,357 | |
Midscale(b) | | | 1,152 | | | | 121,372 | | | | 1,206 | | | | 128,627 | | | | 1,208 | | | | 126,467 | |
Upper Midscale(c) | | | 435 | | | | 74,404 | | | | 434 | | | | 71,358 | | | | 349 | | | | 58,640 | |
Upscale (d) | | | 76 | | | | 22,201 | | | | 84 | | | | 25,348 | | | | 77 | | | | 21,661 | |
Upper Upscale(e) | | | 6 | | | | 1,062 | | | | — | | | | — | | | | — | | | | — | |
Unmanaged, Affiliated and Managed, Non-Proprietary Hotels(f) | | | — | | | | — | | | | 1 | | | | 200 | | | | 11 | | | | 3,549 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 7,205 | | | | 613,126 | | | | 7,207 | | | | 612,735 | | | | 7,114 | | | | 597,674 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(a)
| Comprised of the Days Inn, Super 8, Howard Johnson Inn, Howard Johnson Express, Travelodge, Microtel Inns & Suites and Knights Inn lodging brands.
|
(b) | Primarily includes Wingate by Wyndham, Hawthorn by Wyndham, Ramada Worldwide, Howard Johnson Plaza, Howard Johnson Hotel and Baymont Inns & Suites.
|
(c) | Primarily includes the Ramada Plaza, Tryp by Wyndham and Wyndham Garden Hotel lodging brands.
|
(d) | Comprised of the Wyndham Hotels and Resorts lodging brand.
|
(e) | Comprised of Dream and Night lodging brands.
|
(f) | Represents properties/rooms affiliated with the Wyndham Hotels and Resorts brand for which the Company received a fee for reservation and/or other services provided and properties managed under a joint venture. These properties are not branded under a Wyndham Hotel Group brand.
|
The number of lodging properties and rooms changed as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (Unaudited)
As of December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Properties | | | Rooms | | | Properties | | | Rooms | | | Properties | | | Rooms | |
Beginning balance | | | 7,207 | | | | 612,735 | | | | 7,114 | | | | 597,674 | | | | 7,043 | | | | 592,880 | |
Additions | | | 541 | | | | 54,706 | | | | 492 | | | | 54,171 | | | | 486 | | | | 46,528 | |
Acquisitions | | | — | | | | — | | | | 92 | (*) | | | 13,236 | (*) | | | — | | | | — | |
Terminations | | | (543 | ) | | | (54,315 | ) | | | (491 | ) | | | (52,346 | ) | | | (415 | ) | | | (41,734 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 7,205 | | | | 613,126 | | | | 7,207 | | | | 612,735 | | | | 7,114 | | | | 597,674 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Relates to the Tryp hotel brand, which was acquired on June 30, 2010.
|
The Company may, at its discretion, provide development advances to certain of its franchisees or hotel owners in its managed business in order to assist such franchisees/hotel owners in converting to one of the Company’s brands, building a new hotel to be flagged under one of the Company’s brands or in assisting in other franchisee expansion efforts. Provided the franchisee/hotel owner is in compliance with the terms of the franchise/management agreement, all or a portion of the development advance may be forgiven by the Company over the period of the franchise/management agreement, which typically ranges from
10 to 20 years. Otherwise, the related principal is due and payable to the Company. In certain instances, the Company may earn interest on unpaid franchisee development advances, whichadvances. Such interest was not significant during 2011, 20102013, 2012 or 2009. The amount of such development2011. Development advances recorded on the Consolidated Balance Sheets was $36amounted to $97 million and $55$41 million as of December 31, 20112013 and 2010, respectively. These amounts2012, respectively and are classified within the other non-current assets line item on the
Consolidated Balance Sheets. During each of 2011, 20102013, 2012 and 2009,2011, the Company recorded $5$7 million, $4 million and $5 million, respectively, related to the forgiveness of these advances. Such amounts are recorded as a reduction of franchise feeson the Consolidated Statements of Income. During 2011, 2010
2013, 2012 and 2009,2011, the Company recorded less than $1 million, $2$2 million and $4$1 million, respectively, of bad debt expense relating to development advances that were due and payable within its lodging business. Such expense is recorded within operating expenses on the Consolidated Statements of Income. Additionally, during 2011, the Company recorded a $14$14 million non-cash impairment charge to write-down certain development advance notes attributable to its managed portfolio, which is included within the asset impairment line on the Consolidated StatementsStatement of Income (see Note 22 — Restructuring and Impairments for more information).
The income tax
provisionprovision/(benefit) consists of the following for the year ended December 31:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Current | | | | | | | | | | | | |
Federal | | $ | 83 | | | $ | 55 | | | $ | 46 | |
State | | | 6 | | | | 10 | | | | 19 | |
Foreign | | | 74 | | | | 43 | | | | 45 | |
| | | | | | | | | | | | |
| | | 163 | | | | 108 | | | | 110 | |
| | | | | | | | | | | | |
Deferred | | | | | | | | | | | | |
Federal | | | 57 | | | | 77 | | | | 100 | |
State | | | 2 | | | | 1 | | | | (6 | ) |
Foreign | | | 11 | | | | (2 | ) | | | (4 | ) |
| | | | | | | | | | | | |
| | | 70 | | | | 76 | | | | 90 | |
| | | | | | | | | | | | |
Provision for income taxes | | $ | 233 | | | $ | 184 | | | $ | 200 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Current | | | | | |
| Federal | $ | 114 |
| | $ | 101 |
| | $ | 83 |
|
| State | 23 |
| | 17 |
| | 6 |
|
| Foreign | 49 |
| | 49 |
| | 74 |
|
| | 186 |
| | 167 |
| | 163 |
|
| Deferred | | | | | |
| Federal | 49 |
| | 48 |
| | 57 |
|
| State | 18 |
| | 7 |
| | 2 |
|
| Foreign | (3 | ) | | 7 |
| | 11 |
|
| | 64 |
| | 62 |
| | 70 |
|
| Provision for income taxes | $ | 250 |
| | $ | 229 |
| | $ | 233 |
|
Pre-tax income for domestic and foreign operations consisted of the following for the year ended December 31:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Domestic | | $ | 425 | | | $ | 443 | | | $ | 390 | |
Foreign | | | 225 | | | | 120 | | | | 103 | |
| | | | | | | | | | | | |
Pre-tax income | | $ | 650 | | | $ | 563 | | | $ | 493 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Domestic | $ | 509 |
| | $ | 481 |
| | $ | 425 |
|
| Foreign | 174 |
| | 147 |
| | 225 |
|
| Pre-tax income | $ | 683 |
| | $ | 628 |
| | $ | 650 |
|
Current and non-current deferred income tax assets and liabilities, as of December 31, are comprised of the following:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Current deferred income tax assets: | | | | | | | | |
Accrued liabilities and deferred income | | $ | 69 | | | $ | 83 | |
Provision for doubtful accounts and loan loss reserves for vacation ownership contract receivables | | | 193 | | | | 201 | |
Alternative minimum tax credit carryforward | | | 38 | | | | 32 | |
Valuation allowance(*) | | | (18 | ) | | | (20 | ) |
Other | | | 7 | | | | 2 | |
| | | | | | | | |
Current deferred income tax assets | | | 289 | | | | 298 | |
| | | | | | | | |
Current deferred income tax liabilities: | | | | | | | | |
Installment sales of vacation ownership interests | | | 83 | | | | 76 | |
Other | | | 53 | | | | 43 | |
| | | | | | | | |
Current deferred income tax liabilities | | | 136 | | | | 119 | |
| | | | | | | | |
Current net deferred income tax asset | | $ | 153 | | | $ | 179 | |
| | | | | | | | |
Non-current deferred income tax assets: | | | | | | | | |
Net operating loss carryforward | | $ | 51 | | | $ | 52 | |
Foreign tax credit carryforward | | | 73 | | | | 41 | |
Alternative minimum tax credit carryforward | | | 36 | | | | 71 | |
Tax basis differences in assets of foreign subsidiaries | | | 63 | | | | 71 | |
Accrued liabilities and deferred income | | | 31 | | | | 27 | |
Other comprehensive income | | | 26 | | | | 40 | |
Other | | | 41 | | | | 7 | |
Valuation allowance(*) | | | (32 | ) | | | (34 | ) |
| | | | | | | | |
Non-current deferred income tax assets | | | 289 | | | | 275 | |
| | | | | | | | |
Non-current deferred income tax liabilities: | | | | | | | | |
Depreciation and amortization | | | 616 | | | | 585 | |
Installment sales of vacation ownership interests | | | 724 | | | | 703 | |
Other | | | 14 | | | | 8 | |
| | | | | | | | |
Non-current deferred income tax liabilities | | | 1,354 | | | | 1,296 | |
| | | | | | | | |
Non-current net deferred income tax liabilities | | $ | 1,065 | | | $ | 1,021 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Current deferred income tax assets: | | | |
| Accrued liabilities and deferred income | $ | 72 |
| | $ | 60 |
|
| Provision for doubtful accounts and loan loss reserves for vacation ownership contract receivables | 178 |
| | 187 |
|
| Foreign tax credit carry forward | 2 |
| | 26 |
|
| Alternative minimum tax credit carryforward | 7 |
| | 46 |
|
Valuation allowance (*) | (14 | ) | | (24 | ) |
| Other | 7 |
| | 6 |
|
| Current deferred income tax assets | 252 |
| | 301 |
|
| Current deferred income tax liabilities: | | | |
| Installment sales of vacation ownership interests | 100 |
| | 93 |
|
| Other | 44 |
| | 51 |
|
| Current deferred income tax liabilities | 144 |
| | 144 |
|
| Current net deferred income tax asset | $ | 108 |
| | $ | 157 |
|
| Non-current deferred income tax assets: | | | |
| Net operating loss carryforward | $ | 50 |
| | $ | 50 |
|
| Foreign tax credit carryforward | 65 |
| | 57 |
|
| Tax basis differences in assets of foreign subsidiaries | 49 |
| | 57 |
|
| Accrued liabilities and deferred income | 76 |
| | 40 |
|
| Provision for doubtful accounts and loan loss reserves for vacation ownership contract receivables | 120 |
| | 81 |
|
| Other comprehensive income | 9 |
| | 17 |
|
| Other | 10 |
| | 10 |
|
Valuation allowance (*) | (12 | ) | | (25 | ) |
| Non-current deferred income tax assets | 367 |
| | 287 |
|
| Non-current deferred income tax liabilities: | | | |
| Depreciation and amortization | 685 |
| | 643 |
|
| Installment sales of vacation ownership interests | 801 |
| | 755 |
|
| Other | 54 |
| | 30 |
|
| Non-current deferred income tax liabilities | 1,540 |
| | 1,428 |
|
| Non-current net deferred income tax liabilities | $ | 1,173 |
| | $ | 1,141 |
|
| |
(*) | Primarily
The 2013 balance primarily relates to foreign tax credits and net operating loss carryforwards.carryforwards and the 2012 balance primarily relates to net operating loss carryforwards and foreign tax credits. The valuation allowance will be reduced when and if the Company determines that the deferred income tax assets are more likely than not to be realized. |
As of December 31, 2011,2013, the Company’s net operating loss carryforwards primarily relate to state net operating losses which are due to expire at various dates, but no later than 2031.2033. No provision has been made for U.S. federal deferred income taxes on $457$700 million of accumulated and undistributed earnings of certain foreign subsidiaries as of December 31, 20112013 since it is the present intention of management to reinvest the undistributed earnings indefinitely in those foreign operations. The determination of the amount of unrecognized U.S. federal deferred income tax liability for unremitted earnings is not practicable.
The Company’s effective income tax rate differs from the U.S. federal statutory rate as follows for the year ended December 31:
| | | | | | |
| | | 2011 | | 2010 | | 2009 |
Federal statutory rate | | 35.0% | | 35.0% | | 35.0% |
State and local income taxes, net of federal tax benefits | | — | | 1.4 | | 1.9 |
Taxes on foreign operations at rates different than U.S. federal statutory rates | | (1.2) | | (1.4) | | (1.3) |
Taxes on foreign income, net of tax credits | | 0.9 | | 1.0 | | 1.8 |
Foreign tax credits | | — | | (3.1) | | — |
Valuation Allowance | | (1.0) | | (0.2) | | (0.3) |
IRS examination settlement | | — | | (1.8) | | — |
Other | | 2.1 | | 1.8 | | 3.5 |
| | | | | | |
| | 35.8% | | 32.7% | | 40.6% |
| | | | | | |
The Company’s effective tax rate increased from 32.7% in 2010 to 35.8% in 2011 primarily due to the reduction of benefits recognized in 2011 relating to the utilization of certain cumulative foreign tax credits.
|
| | | | | |
| | 2013 | | 2012 | | 2011 |
| Federal statutory rate | 35.0% | | 35.0% | | 35.0% |
| State and local income taxes, net of federal tax benefits | 3.7 | | 2.8 | | — |
| Taxes on foreign operations at rates different than U.S. federal statutory rates | (2.3) | | (0.7) | | (1.2) |
| Taxes on foreign income, net of tax credits | (1.4) | | (1.3) | | 0.9 |
| Valuation allowance | 0.1 | | (0.5) | | (1.0) |
| Other | 1.5 | | 1.2 | | 2.1 |
| | 36.6% | | 36.5% | | 35.8% |
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| | | | |
| | | Amount | |
Balance as of December 31, 2008 | | $ | 25 | |
Increases related to tax positions taken during a prior period | | | 1 | |
Increases related to tax positions taken during the current period | | | 2 | |
Decreases as a result of a lapse of the applicable statute of limitations | | | (3 | ) |
| | | | |
Balance as of December 31, 2009 | | | 25 | |
Increases related to tax positions taken during a prior period | | | 2 | |
Increases related to tax positions taken during the current period | | | 5 | |
Decreases as a result of a lapse of the applicable statute of limitations | | | (9 | ) |
Decreases related to tax positions taken during a prior period | | | (1 | ) |
| | | | |
Balance as of December 31, 2010 | | | 22 | |
Increases related to tax positions taken during a prior period | | | 6 | |
Increases related to tax positions taken during the current period | | | 3 | |
Decreases as a result of a lapse of the applicable statute of limitations | | | (2 | ) |
| | | | |
Balance as of December 31, 2011 | | $ | 29 | |
| | | | |
|
| | | |
| | Amount |
| Balance as of December 31, 2010 | $ | 22 |
|
| Increases related to tax positions taken during a prior period | 6 |
|
| Increases related to tax positions taken during the current period | 3 |
|
| Decreases as a result of a lapse of the applicable statute of limitations | (2 | ) |
| | |
| Balance as of December 31, 2011 | 29 |
|
| Increases related to tax positions taken during a prior period | 8 |
|
| Increases related to tax positions taken during the current period | 3 |
|
| Decreases as a result of a lapse of the applicable statute of limitations | (2 | ) |
| Decreases related to tax positions taken during a prior period | (1 | ) |
| | |
| Balance as of December 31, 2012 | 37 |
|
| Increases related to tax positions taken during a prior period | 7 |
|
| Increases related to tax positions taken during the current period | 5 |
|
| Decreases related to settlements with taxing authorities | (4 | ) |
| Decreases as a result of a lapse of the applicable statute of limitations | (8 | ) |
| Decreases related to tax positions taken during a prior period | (1 | ) |
| Balance as of December 31, 2013 | $ | 36 |
|
The gross amount of the unrecognized tax benefits as of December 31, 2011, 20102013, 2012 and 20092011 that, if recognized, would affect the Company’s effective tax rate was $29$36 million $22, $36 million and $25$29 million, respectively. The Company recorded both accrued interest and penalties related to unrecognized tax benefits as a component of provision for income taxes on the Consolidated Statements of Income. The Company also accrued potential penalties and interest of $1$2 million $1, $2 million and $3$1 million related to these unrecognized tax benefits during 2011, 20102013, 2012 and 2009,2011, respectively. As of December 31, 2011, 20102013, 2012 and 2009,2011, the Company had recorded a liability for potential penalties of $2$3 million $2, $3 million and $3$2 million, respectively, and interest of $3$4 million $4, $4 million and $5$3 million, respectively, as a component of accrued expenses and other current liabilities and other non-current liabilities on the Consolidated Balance Sheets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2008 through 20112013 tax years generally remain subject to examination by federal tax authorities. The 20072008 through 20112013 tax years generally remain subject to examination by many state tax authorities. In significant foreign jurisdictions, the 20032006 through 20112013 tax years generally remain subject to examination bytheir respective tax authorities. The statute of limitations is scheduled to expire within
12 months of the reporting date in certain taxing jurisdictions and the Company believes that it is reasonably possible that the total amount of its unrecognized tax benefits could decrease by $0$7 to $3$10 million.
The Company made cash income tax payments, net of refunds, of $139$175 million $103, $134 million and $113$139 million during 2011, 20102013, 2012 and 2009,2011, respectively. Such payments exclude income tax related payments made to or refunded by former Parent. As of December 31, 2011,2013, the Company had $73$67 million of foreign tax credits with a valuation allowance of $27 million.credits. The foreign tax credits primarily expire between 2016 and 2017, and the valuation allowance on these credits will be reduced when and if the Company determines that these credits are more likely than not to be realized.During the third quarter
2023.
8. | |
| 8. | Vacation Ownership Contract Receivables |
The Company generates vacation ownership contract receivables by extending financing to the purchasers of
VOIs (see Note 14 — Transfer and Servicingits VOIs. As of
Financial Assets for further discussion). CurrentDecember 31, current and long-term vacation ownership contract receivables, net
as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Current vacation ownership contract receivables: | | | | | | | | |
Securitized | | $ | 262 | | | $ | 266 | |
Non-securitized | | | 76 | | | | 65 | |
| | | | | | | | |
| | | 338 | | | | 331 | |
Less: Allowance for loan losses | | | (41 | ) | | | (36 | ) |
| | | | | | | | |
Current vacation ownership contract receivables, net | | $ | 297 | | | $ | 295 | |
| | | | | | | | |
Long-term vacation ownership contract receivables: | | | | | | | | |
Securitized | | $ | 2,223 | | | $ | 2,437 | |
Non-securitized | | | 681 | | | | 576 | |
| | | | | | | | |
| | | 2,904 | | | | 3,013 | |
Less: Allowance for loan losses | | | (353 | ) | | | (326 | ) |
| | | | | | | | |
Long-term vacation ownership contract receivables, net | | $ | 2,551 | | | $ | 2,687 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Current vacation ownership contract receivables: | | | |
| Securitized | $ | 222 |
| | $ | 252 |
|
| Non-securitized | 140 |
| | 118 |
|
| | 362 |
| | 370 |
|
| Less: Allowance for loan losses | 57 |
| | 52 |
|
| Current vacation ownership contract receivables, net | $ | 305 |
| | $ | 318 |
|
| Long-term vacation ownership contract receivables: | | | |
| Securitized | $ | 1,982 |
| | $ | 2,149 |
|
| Non-securitized | 975 |
| | 867 |
|
| | 2,957 |
| | 3,016 |
|
| Less: Allowance for loan losses | 509 |
| | 445 |
|
| Long-term vacation ownership contract receivables, net | $ | 2,448 |
| | $ | 2,571 |
|
Principal payments that are contractually due on the Company’s vacation ownership contract receivables during the next twelve months are classified as current on the Consolidated Balance Sheets. Principal payments due on the Company’s vacation ownership contract receivables during each of the five years subsequent to December 31, 20112013 and thereafter are as follows: | | | | | | | | | | | | |
| | | Securitized | | | Non -
Securitized | | | Total | |
2012 | | $ | 262 | | | $ | 76 | | | $ | 338 | |
2013 | | | 288 | | | | 81 | | | | 369 | |
2014 | | | 308 | | | | 88 | | | | 396 | |
2015 | | | 321 | | | | 90 | | | | 411 | |
2016 | | | 321 | | | | 90 | | | | 411 | |
Thereafter | | | 985 | | | | 332 | | | | 1,317 | |
| | | | | | | | | | | | |
| | $ | 2,485 | | | $ | 757 | | | $ | 3,242 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Securitized | | Non - Securitized | | Total |
| 2014 | $ | 222 |
| | $ | 140 |
| | $ | 362 |
|
| 2015 | 238 |
| | 135 |
| | 373 |
|
| 2016 | 252 |
| | 132 |
| | 384 |
|
| 2017 | 253 |
| | 125 |
| | 378 |
|
| 2018 | 246 |
| | 112 |
| | 358 |
|
| Thereafter | 993 |
| | 471 |
| | 1,464 |
|
| | $ | 2,204 |
| | $ | 1,115 |
| | $ | 3,319 |
|
During 2011, 20102013, 2012 and 20092011, the Company’s securitized vacation ownership contract receivables generated interest income of $322$297 million $336, $306 million and $333$322 million, respectively.
During 2011, 20102013, 2012 and 2009,2011, the Company originated vacation ownership contract receivables of $969$1,064 million $983, $1,074 million and $970$969 million, respectively, and received principal collections of $762$809 million $781, $771 million and $771$762 million, respectively. The weighted average interest rate on outstanding vacation ownership contract receivables was 13.3%13.5%, 13.1%13.4% and 13.0% as of December 31, 2011, 201013.3% at 2013, 2012 and 2009,2011, respectively. The activity in the allowance for loan losses
related toon vacation ownership contract receivables
iswas as follows:
| | | | |
| | | Amount | |
Allowance for loan losses as of December 31, 2008 | | $ | (383 | ) |
Provision for loan losses | | | (449 | ) |
Contract receivables written off, net | | | 462 | |
| | | | |
Allowance for loan losses as of December 31, 2009 | | | (370 | ) |
Provision for loan losses | | | (340 | ) |
Contract receivables written-off, net | | | 348 | |
| | | | |
Allowance for loan losses as of December 31, 2010 | | | (362 | ) |
Provision for loan losses | | | (339 | ) |
Contract receivables written off, net | | | 307 | |
| | | | |
Allowance for loan losses as of December 31, 2011 | | $ | (394 | ) |
| | | | |
|
| | | |
| | Amount |
| Allowance for loan losses as of December 31, 2010 | $ | 362 |
|
| Provision for loan losses | 339 |
|
| Contract receivables written off, net | (307 | ) |
| Allowance for loan losses as of December 31, 2011 | 394 |
|
| Provision for loan losses | 409 |
|
| Contract receivables written off, net | (306 | ) |
| Allowance for loan losses as of December 31, 2012 | 497 |
|
| Provision for loan losses | 349 |
|
| Contract receivables written off, net | (280 | ) |
| Allowance for loan losses as of December 31, 2013 | $ | 566 |
|
Credit Quality for Financed Receivables and the Allowance for Credit Losses
The basis of the differentiation within the identified class of financed VOI contract receivable is the consumer’s FICO score. A FICO score is a branded version of a consumer credit score widely used within the U.S. by the largest banks and lending institutions. FICO scores range from 300 — – 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. The Company updates its records for all active VOI contract receivables with a balance due on a rolling monthly basis so as to ensure that all VOI contract receivables are scored at least every six months. The Company groups all VOI contract receivables into five different categories: FICO scores ranging from 700 to 850, 600 to 699, Below 600, No Score (primarily comprised of consumers for whom a score is not readily available, including consumers declining access to FICO scores and non U.S. residents) and AsiaPacific (comprised of receivables in the Company’s Wyndham Vacation Resort Asia Pacific business for which scores are not readily available).
The following table details an aged analysis of financing receivables using the most recently updated FICO scores (based on the
update policy described above):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2011 | |
| | | 700+ | | | 600-699 | | | <600 | | | No Score | | | Asia Pacific | | | Total | |
Current | | $ | 1,424 | | | $ | 985 | | | $ | 320 | | | $ | 77 | | | $ | 290 | | | $ | 3,096 | |
31 – 60 days | | | 15 | | | | 23 | | | | 24 | | | | 3 | | | | 3 | | | | 68 | |
61 – 90 days | | | 8 | | | | 14 | | | | 15 | | | | 1 | | | | 2 | | | | 40 | |
91 – 120 days | | | 8 | | | | 11 | | | | 17 | | | | 1 | | | | 1 | | | | 38 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,455 | | | $ | 1,033 | | | $ | 376 | | | $ | 82 | | | $ | 296 | | | $ | 3,242 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | As of December 31, 2010 | |
| | | 700+ | | | 600-699 | | | <600 | | | No Score | | | Asia Pacific | | | Total | |
Current | | $ | 1,415 | | | $ | 990 | | | $ | 426 | | | $ | 59 | | | $ | 297 | | | $ | 3,187 | |
31 – 60 days | | | 10 | | | | 23 | | | | 34 | | | | 2 | | | | 4 | | | | 73 | |
61 – 90 days | | | 7 | | | | 14 | | | | 22 | | | | 1 | | | | 3 | | | | 47 | |
91 – 120 days | | | 5 | | | | 10 | | | | 19 | | | | 1 | | | | 2 | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,437 | | | $ | 1,037 | | | $ | 501 | | | $ | 63 | | | $ | 306 | | | $ | 3,344 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | 700+ | | 600-699 | | <600 | | No Score | | Asia Pacific | | Total |
| Current | $ | 1,515 |
| | $ | 1,060 |
| | $ | 224 |
| | $ | 108 |
| | $ | 280 |
| | $ | 3,187 |
|
| 31 - 60 days | 10 |
| | 24 |
| | 20 |
| | 4 |
| | 4 |
| | 62 |
|
| 61 - 90 days | 7 |
| | 13 |
| | 13 |
| | 2 |
| | 2 |
| | 37 |
|
| 91 - 120 days | 5 |
| | 11 |
| | 13 |
| | 3 |
| | 1 |
| | 33 |
|
| Total | $ | 1,537 |
| | $ | 1,108 |
| | $ | 270 |
| | $ | 117 |
| | $ | 287 |
| | $ | 3,319 |
|
| | | | | | | | | | | | |
| | As of December 31, 2012 |
| | 700+ | | 600-699 | | <600 | | No Score | | Asia Pacific | | Total |
| Current | $ | 1,459 |
| | $ | 1,064 |
| | $ | 274 |
| | $ | 94 |
| | $ | 312 |
| | $ | 3,203 |
|
| 31 - 60 days | 13 |
| | 26 |
| | 23 |
| | 3 |
| | 5 |
| | 70 |
|
| 61 - 90 days | 10 |
| | 14 |
| | 17 |
| | 2 |
| | 2 |
| | 45 |
|
| 91 - 120 days | 13 |
| | 30 |
| | 23 |
| | 1 |
| | 1 |
| | 68 |
|
| Total | $ | 1,495 |
| | $ | 1,134 |
| | $ | 337 |
| | $ | 100 |
| | $ | 320 |
| | $ | 3,386 |
|
The Company ceases to accrue interest on VOI contract receivables once the contract has remained delinquent for greater than 90 days. At greater than 120 days, the VOI contract receivable is written off to the allowance for creditloan losses. TheIn accordance with its policy, the Company didassesses the allowance for loan losses using a static pool methodology and thus does not have a material numberassess individual loans for impairment separate from the pool.
Inventory, as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Land held for VOI development | | $ | 136 | | | $ | 131 | |
VOI construction in process | | | 149 | | | | 229 | |
Completed inventory and vacation credits(a)(b) | | | 825 | | | | 821 | |
| | | | | | | | |
Total inventory | | | 1,110 | | | | 1,181 | |
Less: Current portion | | | 351 | | | | 348 | |
| | | | | | | | |
Non-current inventory | | $ | 759 | | | $ | 833 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Land held for VOI development | $ | 102 |
| | $ | 137 |
|
| VOI construction in process | 84 |
| | 147 |
|
| Inventory sold subject to conditional repurchase | 123 |
| * | — |
|
| Completed VOI inventory | 422 |
| | 522 |
|
| Estimated recoveries | 227 |
| | 202 |
|
| Exchange and rentals vacation credits and other | 65 |
| | 69 |
|
| Total inventory | 1,023 |
| | 1,077 |
|
| Less: Current portion | 346 |
| | 379 |
|
| Non-current inventory | $ | 677 |
| | $ | 698 |
|
(a) |
Includes estimated recoveries of $164 million and $148 million as of December 31, 2011 and 2010, respectively. Vacation credits relate to both the Company’s vacation ownership and vacation exchange and rentals businesses.
|
|
(b) | Includes $73 million and $80 million as of December 31, 2011 and 2010, respectively, related to the Company’s vacation exchange and rentals business.
|
* Comprised of $85 million VOI construction in process and $38 million of land held for VOI development.
Inventory that the Company expects to sell within the next twelve months is classified as current on the Consolidated Balance Sheets.
Inventory Sale Transaction
During June 2013, the Company sold real property located in Las Vegas, Nevada, to a third-party developer, consisting of $114 million of vacation ownership inventory and $3 million of property and equipment. Total consideration was $117 million, of which $87 million was cash and $30 million was a note receivable. The Company recognized no gain or loss on this transaction.
During October 2013, the Company sold real property located in Avon, Colorado, to a third-party developer, consisting of $9 million of vacation ownership inventory, in exchange for $9 million in cash consideration. The Company recognized no gain or loss on this transaction.
In accordance with the agreements with the third-party developer, the Company has conditional rights and a conditional obligation to repurchase the completed properties from the developer subject to the properties conforming to the Company's vacation ownership resort standards and provided that the third-party developer has not sold the properties to another party (see Note 17 - Commitments and Contingencies for more detailed information). Under the sale of real estate accounting guidance, the conditional rights and obligation of the Company constitute continuing involvement and thus the Company was unable to account for these transactions as a sale. The properties were sold to VIEs for which the Company is not the primary beneficiary as the Company does not control the entity's development activities and cannot prevent the entities from selling the properties to other parties. Accordingly, the Company does not consolidate the VIEs.
In connection with these transactions, as of December 31, 2013, the Company had an outstanding obligation of $129 million, of which $47 million is recorded in accrued expenses and other current liabilities and $82 million is included in other non-current liabilities, and a note receivable of $30 million, which is recorded within other current assets on the Consolidated Balance Sheet. Interest on the note receivable accrues at 3% per annum and is expected to be paid with the principal at maturity in December 2014. The $96 million of cash consideration received is included in proceeds from vacation ownership inventory arrangements in the financing section on the Consolidated Statement of Cash Flows for the year ended December 31, 2013. The note receivable and corresponding long-term obligations were non-cash and as such, are excluded from the Company's Consolidated Statement of Cash Flows.
10. | |
| 10. | Property and Equipment, net |
Property and equipment, net, as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Land | | $ | 162 | | | $ | 159 | |
Building and leasehold improvements | | | 698 | | | | 572 | |
Capitalized software | | | 508 | | | | 455 | |
Furniture, fixtures and equipment | | | 433 | | | | 410 | |
Vacation rental property capital leases | | | 121 | | | | 124 | |
Construction in progress | | | 117 | | | | 158 | |
| | | | | | | | |
| | | 2,039 | | | | 1,878 | |
Less: Accumulated depreciation and amortization | | | (922 | ) | | | (837 | ) |
| | | | | | | | |
| | $ | 1,117 | | | $ | 1,041 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Land | $ | 236 |
| | $ | 189 |
|
| Buildings and leasehold improvements | 905 |
| | 793 |
|
| Capitalized software | 601 |
| | 571 |
|
| Furniture, fixtures and equipment | 529 |
| | 481 |
|
| Capital leases | 222 |
| | 147 |
|
| Construction in progress | 198 |
| | 143 |
|
| | 2,691 |
| | 2,324 |
|
| Less: Accumulated depreciation and amortization | 1,136 |
| | 1,032 |
|
| | $ | 1,555 |
| | $ | 1,292 |
|
During 2011, 20102013, 2012 and 2009,2011, the Company recorded depreciation and amortization expense of $146$180 million $145, $154 million and $150$146 million, respectively, related to property and equipment.
11. | |
| 11. | Other Current Assets |
Other current assets, as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Securitization restricted cash | | $ | 71 | | | $ | 77 | |
Non-trade receivables, net | | | 69 | | | | 51 | |
Escrow deposit restricted cash | | | 53 | | | | 42 | |
Deferred vacation ownership costs | | | 23 | | | | 24 | |
Assets held for sale | | | 14 | | | | 14 | |
Other | | | 27 | | | | 37 | |
| | | | | | | | |
| | $ | 257 | | | $ | 245 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Non-trade receivables, net | $ | 93 |
| | $ | 63 |
|
| Securitization restricted cash | 64 |
| | 65 |
|
| Escrow deposit restricted cash | 57 |
| | 56 |
|
| Inventory sale receivable (See Note 9 - Inventory) | 30 |
| | — |
|
| Deferred vacation ownership costs | 30 |
| | 24 |
|
| Assets held for sale | 8 |
| | 9 |
|
| Other | 47 |
| | 36 |
|
| | $ | 329 |
| | $ | 253 |
|
12. | |
| 12. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities, as of December 31, consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Accrued payroll and related | | $ | 237 | | | $ | 219 | |
Accrued taxes | | | 93 | | | | 74 | |
Accrued interest | | | 37 | | | | 32 | |
Accrued legal settlements | | | 35 | | | | 38 | |
Accrued advertising and marketing | | | 30 | | | | 35 | |
Accrued other | | | 199 | | | | 221 | |
| | | | | | | | |
| | $ | 631 | | | $ | 619 | |
| | | | | | | | |
|
| | | | | | | |
| | 2013 | | 2012 |
| Accrued payroll and related | $ | 239 |
| | $ | 248 |
|
| Accrued taxes | 120 |
| | 103 |
|
| Inventory sale obligation (See Note 9 - Inventory) | 47 |
| | — |
|
| Accrued interest | 47 |
| | 46 |
|
| Accrued advertising and marketing | 41 |
| | 28 |
|
| Accrued loyalty programs | 25 |
| | 24 |
|
| Accrued legal settlements | 22 |
| | 42 |
|
| Accrued other | 182 |
| | 184 |
|
| | $ | 723 |
| | $ | 675 |
|
13. | |
| 13. | Long-Term Debt and Borrowing Arrangements |
The Company’s indebtedness,
as of December 31, consisted of:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Securitized vacation ownership debt:(a) | | | | | | | | |
Term notes | | $ | 1,625 | | | $ | 1,498 | |
Bank conduit facility(b) | | | 237 | | | | 152 | |
| | | | | | | | |
Total securitized vacation ownership debt | | | 1,862 | | | | 1,650 | |
Less: Current portion of securitized vacation ownership debt | | | 196 | | | | 223 | |
| | | | | | | | |
Long-term securitized vacation ownership debt | | $ | 1,666 | | | $ | 1,427 | |
| | | | | | | | |
Long-term debt: | | | | | | | | |
Revolving credit facility (due July 2016)(c) | | $ | 218 | | | $ | 154 | |
6.00% senior unsecured notes (due December 2016)(d) | | | 811 | | | | 798 | |
9.875% senior unsecured notes (due May 2014)(e) | | | 243 | | | | 241 | |
3.50% convertible notes (due May 2012)(f) | | | 36 | | | | 266 | |
7.375% senior unsecured notes (due March 2020)(g) | | | 247 | | | | 247 | |
5.75% senior unsecured notes (due February 2018)(h) | | | 247 | | | | 247 | |
5.625% senior unsecured notes (due March 2021)(i) | | | 245 | | | | — | |
Vacation rentals capital leases(j) | | | 102 | | | | 115 | |
Other | | | 4 | | | | 26 | |
| | | | | | | | |
Total long-term debt | | | 2,153 | | | | 2,094 | |
Less: Current portion of long-term debt | | | 46 | | | | 11 | |
| | | | | | | | |
Long-term debt | | $ | 2,107 | | | $ | 2,083 | |
| | | | | | | | |
|
| | | | | | | | |
| | 2013 | | 2012 | |
Securitized vacation ownership debt: (a) | | | | |
| Term notes | $ | 1,648 |
| | $ | 1,770 |
| |
| Bank conduit facility | 262 |
| | 190 |
| |
| Total securitized vacation ownership debt | 1,910 |
| | 1,960 |
| |
| Less: Current portion of securitized vacation ownership debt | 184 |
| | 218 |
| |
| Long-term securitized vacation ownership debt | $ | 1,726 |
| | $ | 1,742 |
| |
Long-term debt: (b) | | | | |
| Revolving credit facility (due July 2018) | $ | 23 |
| | $ | 85 |
| |
| Commercial paper | 210 |
| | 273 |
| |
| 9.875% senior unsecured notes | — |
| | 42 |
| (f) |
| $315 million 6.00% senior unsecured notes (due December 2016) | 318 |
| (c) | 361 |
| (g) |
| $300 million 2.95% senior unsecured notes (due March 2017) | 298 |
| | 298 |
| |
| $14 million 5.75% senior unsecured notes (due February 2018) | 14 |
| | 248 |
| (h) |
| $450 million 2.50% senior unsecured notes (due March 2018) | 447 |
| | — |
| |
| $40 million 7.375% senior unsecured notes (due March 2020) | 40 |
| | 248 |
| (h) |
| $250 million 5.625% senior unsecured notes (due March 2021) | 246 |
| | 246 |
| |
| $650 million 4.25% senior unsecured notes (due March 2022) | 643 |
| (d) | 644 |
| |
| $400 million 3.90% senior unsecured notes (due March 2023) | 387 |
| (e) | — |
| |
| Capital leases | 191 |
| | 105 |
| |
| Other | 114 |
| | 52 |
| |
| Total long-term debt | 2,931 |
| | 2,602 |
| |
| Less: Current portion of long-term debt | 49 |
| | 326 |
| |
| Long-term debt | $ | 2,882 |
| | $ | 2,276 |
| |
| |
(a) | Represents non-recourse 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. These outstanding borrowings are collateralized by $2,638$2,314 million and $2,865$2,543 million of underlying gross vacation ownership contract receivables and related assets as of December 31, 20112013 and 2010,2012, respectively. |
| |
(b) | Represents a $600
The carrying amounts of the senior unsecured notes are net of unamortized discount of $17 million non-recourse vacation ownership bank conduit facility, with a term through June 2013 whose capacity is subject to the Company’s ability to provide additional assets to collateralize the facility. As and $18 million as of December 31, 2011, the total available capacity of the facility was $363 million.2013 and 2012, respectively. |
| |
(c) | Total capacity of the revolving credit facility is $1.0 billion, which includes availability for letters of credit. As of December 31, 2011, the Company had $11Includes $3 million of letters of credit outstanding and, as such, the total available capacity of the revolving credit facility was $771 million.
|
(d) | Represents senior unsecured notes issued by the Company during December 2006. The balance as of December 31, 2011 represents $800 million aggregate principal less $2 million of unamortized discount, plus $13 million of unamortized gains from the settlement of a derivative.
|
| |
(e)(d)
| Represents senior unsecured notes issued by the Company during May 2009. The balance as of December 31, 2011 represents $2502013 includes a $2 million aggregate principal less $7 million of unamortized discount. adjustment to the carrying value resulting from a fair value hedge derivative.
|
| |
(f)(e)
| Represents 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. During 2011 and 2010, the Company repurchased a portion of its outstanding 3.50% convertible notes (see “3.50% Convertible Notes” below for further details). The following table details the components of the convertible notes:
|
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Debt principal | | $ | 12 | | | $ | 116 | |
Unamortized discount | | | — | | | | (12 | ) |
| | | | | | | | |
Debt less discount | | | 12 | | | | 104 | |
Fair value of bifurcated conversion feature(*) | | | 24 | | | | 162 | |
| | | | | | | | |
Convertible notes | | $ | 36 | | | $ | 266 | |
| | | | | | | | |
| |
| (*)
| The Company also has an asset with a fair value equal to the bifurcated conversion feature, which represents cash-settled call options that the Company purchased concurrent with the issuance of the convertible notes (“Bifurcated Conversion Feature”).
|
(g) | Represents senior unsecured notes issued by the Company during February 2010. The balance as of December 31, 2011 represents $2502013 includes a $10 million aggregate principal less $3 million of unamortized discount.
adjustment to the carrying value resulting from a fair value hedge derivative. |
| |
(f) | Aggregate principal balance as of December 31, 2012 was $43 million. |
| |
(g) | Aggregate principal balance as of December 31, 2012 was $357 million which includes a $5 million unamortized gain from the settlement of a derivative. |
| |
(h) | Represents senior unsecured notes issued by the Company during September 2010. The
Aggregate principal balance as of December 31, 2011 represents $2502012 was $250 million aggregate principal less $3 million of unamortized discount.. |
(i) | Represents senior unsecured notes issued by the Company during March 2011. The balance as of December 31, 2011 represents $250 million aggregate principal less $5 million of unamortized discount.
|
(j) | Represents capital lease obligations with corresponding assets classified within property and equipment on the Consolidated Balance Sheets.
|
Covenants
The revolving credit facility is subject to covenants including the maintenance
Table of specific financial ratios. The financial ratio covenants consist of a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio (both as defined in the credit agreement). In addition, the credit facility includes limitations on indebtedness of material subsidiaries; liens; mergers, consolidations, liquidations and dissolutions; sale of all or substantially all of the Company’s assets; and sale and leaseback transactions.The unsecured notes contain various covenants including limitations on liens, limitations on potential sale and leaseback transactions and change of control restrictions. In addition, there are limitations on mergers, consolidations and potential sale of all or substantially all of the Company’s assets.
As of December 31, 2011, the Company was in compliance with all of the financial covenants described above.
Each of the Company’s non-recourse, securitized term notes and the bank conduit facility contain various triggers relating to the performance of the applicable loan pools. If the vacation ownership contract receivables pool that collateralizes one of the Company’s securitization notes fails to perform within the parameters established by the contractual triggers (such as higher default or delinquency rates), there are provisions pursuant to which the cash flows for that pool will be maintained in the securitization as extra collateral for the note holders or applied to accelerate the repayment of outstanding principal to the note holders. As of December 31, 2011, all of the Company’s securitized loan pools were in compliance with applicable contractual triggers.
Contents
The Company’s outstanding debt as of December 31, 20112013 matures as follows: | | | | | | | | | | | | |
| | | Securitized
Vacation
Ownership
Debt | | | Long-Term
Debt | | | Total | |
2012 | | $ | 196 | | | $ | 46 | (*) | | $ | 242 | |
2013 | | | 249 | | | | 11 | | | | 260 | |
2014 | | | 368 | | | | 255 | | | | 623 | |
2015 | | | 205 | | | | 12 | | | | 217 | |
2016 | | | 201 | | | | 1,041 | | | | 1,242 | |
Thereafter | | | 643 | | | | 788 | | | | 1,431 | |
| | | | | | | | | | | | |
| | $ | 1,862 | | | $ | 2,153 | | | $ | 4,015 | |
| | | | | | | | | | | | |
(*) | Includes a liability of $24 million related to the Bifurcated Conversion Feature associated with the Company’s Convertible Notes.
|
As debt
|
| | | | | | | | | | | |
| | Securitized Vacation Ownership Debt | | Other | | Total |
| Within 1 year | $ | 184 |
| | $ | 49 |
| | $ | 233 |
|
| Between 1 and 2 years | 219 |
| | 47 |
| | 266 |
|
| Between 2 and 3 years | 381 |
| | 364 |
| | 745 |
|
| Between 3 and 4 years | 189 |
| | 330 |
| | 519 |
|
| Between 4 and 5 years | 186 |
| | 649 |
| | 835 |
|
| Thereafter | 751 |
| | 1,492 |
| | 2,243 |
|
| | $ | 1,910 |
| | $ | 2,931 |
| | $ | 4,841 |
|
Debt maturities of the securitized vacation ownership debt are based on the contractual payment terms of the underlying vacation ownership contract
receivables,receivables. As such, actual maturities may differ as a result of prepayments by the vacation ownership contract receivable obligors.
As of December 31,
2011,2013, the available capacity under the Company’s borrowing arrangements was as follows:
| | | | | | | | |
| | | Securitized bank
conduit facility (a) | | | Revolving credit
facility | |
Total capacity | | $ | 600 | | | $ | 1,000 | |
Less: Outstanding borrowings | | | 237 | | | | 218 | |
| | | | | | | | |
Available capacity | | $ | 363 | | | $ | 782 | (b) |
| | | | | | | | |
|
| | | | | | | | |
| | Securitized Bank Conduit Facility(a) | | Revolving Credit Facility | |
| Total Capacity | $ | 650 |
| | $ | 1,500 |
| |
| Less: Outstanding Borrowings | 262 |
| | 23 |
| |
| Letters of credit | — |
| | 9 |
| |
| Commercial paper borrowings | — |
| | 210 |
| (b) |
| Available Capacity | $ | 388 |
| | $ | 1,258 |
| |
| |
(a(a))
| The capacity of this facility is subject to the Company’s ability to provide additional assets to collateralize additional securitized borrowings. |
| |
(b) | The capacityCompany considers outstanding borrowings under the Company’s revolving credit facility includes availability for lettersits commercial paper programs to be a reduction of credit. As of December 31, 2011, the available capacity of $782 million was further reduced to $771 million due to the issuance of $11 million of letters of credit. its revolving credit facility. |
Securitized Vacation Ownership Debt
As discussed in Note 14 —
Transfer and Servicing of Financial Assets,Variable Interest Entities, the Company issues debt through the securitization of vacation ownership contract receivables.
Sierra Timeshare 2011-12013-1 Receivables Funding, LLC. On During March 25, 2011,2013, the Company closed a series of term notes payable, Sierra Timeshare 2011-12013-1 Receivables Funding LLC, in thewith an initial principal amount of $400$300 million at an advance rate of 98%91%. These borrowings bear interest at a weighted average coupon rate of 3.70%1.77% and are secured by vacation ownership contract receivables. As of December 31, 2011,2013, the Company had $252$181 million of outstanding borrowings under these term notes.
Sierra Timeshare 2011-22013-2 Receivables Funding, LLC.On August 31, 2011,During July 2013, the Company closed a series of term notes payable, Sierra Timeshare 2011-22013-2 Receivables Funding LLC, in thewith an initial principal amount of $300$325 million at an advance rate of 92%98%. These borrowings bear interest at a weighted average coupon rate of 4.01%2.68% and are secured by vacation ownership contract receivables. As of December 31, 2011,2013, the Company had $234$249 million of outstanding borrowings under these term notes.
Sierra Timeshare 2011-32013-3 Receivables Funding, LLC.OnDuring November 10, 2011,2013, the Company closed a series of term notes payable, Sierra Timeshare 2011-32013-3 Receivables Funding LLC, in thewith an initial principal amount of$300 million at an advance rate of 94%88%. These borrowings bear interest at a weighted average coupon rate of 4.12%2.32% and are secured by vacation ownership contract receivables. As of December 31, 2011,2013, the Company had $288$278 million of outstanding borrowings under these term notes.
As of December 31, 2011,2013, the Company had $851$940 million of outstanding borrowings under term notes entered into prior to December 31, 2010.2012
.
The Company’s securitized debtterm notes includes fixed and floating rate term notes for which the weighted average interest rate was 5.8%4.2%, 6.6%4.9% and 8.1%5.8% during the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.
Sierra Timeshare Conduit Receivables Funding II, LLC.On June 28, 2011,During August 2013, the Company renewed its securitized timeshare receivables conduit facility for a two-year period through June 2013.August 2015. The facility bears interest at variable rates based on commercial paper rates and LIBOR rates plus a spread and has a capacity of $600 million.$650 million. The bank conduit facility had a weighted average interest rate of 3.6%3.9%, 7.1%3.8% and 9.6%3.6% during the years ended 2013, 2012 and 2011, respectively.
As of December 31, 2011, 2010 and 2009, respectively.2013As of December 31, 2011,, the Company’s securitized vacation ownership debt of $1,862$1,910 million is collateralized by $2,638$2,314 million of underlying gross vacation ownership contract receivables and related assets. Additional usage of the capacity of the Company’s bank conduit facility is subject to the Company’s ability to provide additional assets to collateralize such facility. The combined weighted average interest rate on the Company’s total securitized vacation ownership debt was 5.5%4.2%, 6.7%4.8% and 8.5%5.5% during 2011, 20102013, 2012 and 2009,2011, respectively.
Revolving Credit Facility. On July 15, 2011, During May 2013, the Company replaced its $980 million$1.0 billion revolving credit facility with a $1.0$1.5 billion five-year revolving credit facility that expires on July 15, 2016.2018. This facility is subject to a fee of 22.520 basis points based on total capacity and bears interest at LIBOR plus 142.5130 basis points.points on outstanding borrowings. The facility fee and interest rate of this facility isare dependent on the Company’s credit ratings. The available capacity of the facility also supports the Company's commercial paper programs.
Commercial Paper. During October 2012, the Company initiated a commercial paper program on a private placement basis under which the Company may issue unsecured commercial paper notes up to a maximum amount of $500 million. During May 2013, the Company increased its existing commercial paper program by $250 million to a maximum of $750 million. The maturities of the commercial paper notes will vary, but may not exceed 366 days from the date of issue. As of December 31, 2011,2013, the Company had $218$207 million outstanding commercial paper notes and available capacity of $543 million under this program.
During December 2013, the Company initiated a European commercial paper program on a private placement basis under which the Company may issue unsecured commercial paper notes up to a maximum amount of $500 million. The maturities of the European commercial paper notes will vary, but may not exceed 364 days from the date of issue. As of December 31, 2013, the Company had $3 million outstanding commercial paper notes and available capacity of $497 million under this program.
The commercial paper notes are sold at a discount from par or will bear interest at a negotiated rate. While outstanding commercial paper borrowings generally have short-term maturities, the Company classifies the outstanding borrowings
as long-term debt based on its intent and
$11 million ofability to refinance the outstanding
letters ofborrowings on a long-term basis with its revolving credit
and, as such, the total available remaining capacity was $771 million.facility.
6.00%2.50% Senior Unsecured Notes.The Company’s 6.00% notes, with face value of $800 million, were issued in December 2006 for net proceeds of $796 million. Interest began accruing on December 5, 2006 and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2007. The notes will mature on December 1, 2016 and are redeemable at the Company’s option at any time, in whole or in part, at the appropriate redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.9.875% Senior Unsecured Notes. On May 18, 2009,During February 2013, the Company issued senior unsecured notes, with face value of $250$450 million and bearing interest at a rate of 9.875%2.50%, for net proceeds of $236$447 million. Interest began accruing on May 18, 2009February 22, 2013 and is payable semi-annually in arrears on MayMarch 1 and NovemberSeptember 1 of each year, commencing on NovemberSeptember 1, 2009.2013. The notes will mature on MayMarch 1, 20142018 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.
3.50%3.90% Senior Unsecured Notes. During February 2013, the Company issued senior unsecured notes, with face value of $400 million and bearing interest at a rate of 3.90%, for net proceeds of $397 million. Interest began accruing on February 22, 2013 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2013. The notes will mature on March 1, 2023 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.
As of December 31, 2013, the Company had $1,559 million of outstanding senior unsecured notes issued prior to December 31, 2012. Interest is payable semi-annually in arrears on the notes. The notes are redeemable at the Company's option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company's other senior unsecured indebtedness.
Vacation Rental Capital Leases. The Company leases vacation homes located in European holiday parks as part of its vacation exchange and rentals business. The majority of these leases are recorded as capital lease obligations with corresponding assets classified within property and equipment, net on the Consolidated Balance Sheets. Such capital lease obligations had a weighted average interest rate of 4.5% during 2013, 2012 and 2011.
Capital Lease. During the first quarter of 2013, the Company extended the lease on its Corporate headquarters. As a result of this extension, the Company classified the lease as a capital lease and recorded a capital lease obligation of $85 million with a corresponding capital lease asset which was recorded net of deferred rent. Such transaction was non-cash and as such, is excluded from both investing and financing activities within the Company's Consolidated Statement of Cash Flows. Such capital lease had an interest rate of 4.5% during 2013.
Other. During January 2013, the Company entered into an agreement with a third-party partner whereby the partner acquired Midtown 45 through an SPE. The SPE financed the purchase with a $115 million four-year mortgage note, provided by related parties of such partner. The note accrues interest at 4.5% and the principal and interest are payable semi-annually, commencing on July 24, 2013. In addition, $9 million of mandatorily redeemable equity of the SPE is classified as long-term debt (see Note 14 - Variable Interest Entities for more detailed information).
Fair Value Hedges. During the third quarter of 2013, the Company entered into fixed to variable interest rate swap agreements with notional amounts of $400 million of its 3.90% senior unsecured notes and $100 million of its 4.25% senior unsecured notes. As a result of such interest rate swap agreements, the fixed interest rates on these notes were effectively modified to a variable LIBOR-based index. As of December 31, 2013, the variable interest rates were 2.4% and 2.3% for the 3.90% and 4.25% senior unsecured notes, respectively.
3.50% Convertible Notes. OnNotes. During May 19, 2009, the Company issued convertible notes (“Convertible Notes”) with face value of $230$230 million and bearing interest at a rate of 3.50%, for net proceeds of $224 million.$224 million. The Company accounted for the conversion feature as a derivative instrument under the guidance for derivatives and bifurcated such conversion feature from the Convertible Notes for accounting purposes. The fair value of the Bifurcated Conversion Feature on the issuance date of the Convertible Notes was recorded as original issue discount for purposes of accounting for the debt component of the Convertible Notes. Therefore, interest expensegreater than the coupon rate of 3.50% will be was recognized by the Company primarily resulting from the accretion of the discounted carrying value of the Convertible Notes to their face amount over the term of the Convertible Notes. As such, the effective interest rate over the life of the Convertible Notes is approximately 10.7%. Interest began accruing on May 19, 2009 and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2009. The Convertible Notes will mature on May 1, 2012. Holders may convert their notes to cash subject to (i) certain conversion provisions determined by the market price of the Company’s common stock; (ii) specified distributions to common shareholders; (iii) a fundamental change (as defined below); and (iv) certain time periods specified in the purchase agreement. The Convertible Notes had an initial conversion reference rate of 78.5423 shares of common stock per $1,000 principal amount (equivalent to an initial conversion price of approximately $12.73 per share of the Company’s common stock), subject to adjustment, with the principal amount and remainder payable in cash. The Convertible Notes are not convertible into the Company’s common stock or any other securities under any circumstances.
On May 19, 2009, concurrentConcurrent with the issuance of the Convertible Notes, the Company entered into convertible note hedge and warrant transactions (“Warrants”) with certain counterparties. The Company paid $42 million to purchase cash-settled call options (“Call Options”) that are expected to reduce the Company’s exposure to potential cash payments required to be made byDuring 2012, the Company repaid upon the cash conversion of the Convertible Notes. Concurrent with the purchase of the Call Options, the Company received $11 million of proceeds from the issuance of Warrants to purchase shares of the Company’s common stock.
If the market price per share of the Company’s common stock at the time of cash conversion of anymaturity, its remaining Convertible Notes is above the strike pricewith a carrying value of the Call Options (which strike price was the same as the equivalent initial conversion price of the Convertible Notes of approximately $12.73 per share of the Company’s common stock), such Call Options will entitle the Company to receive from the counterparties in the aggregate the same amount of cash as it would be required to issue to the holder of the cash converted notes in excess of the principal amount thereof.
Pursuant to the Warrants, the Company sold to the counterparties Warrants to purchase in the aggregate up to approximately 18$45 million shares of the Company’s common stock. The Warrants had an exercise price of $20.16 (which represented a premium of approximately 90% over the Company’s closing price per share on May 13, 2009 of $10.61) and are expected to be net share settled, meaning that the Company will issue a number of shares per Warrant corresponding to the difference between the Company’s share price at each Warrant expiration date and the exercise price of the Warrant. The Warrants may not be exercised prior to the maturity of the Convertible Notes.
The purchase of Call Options and the sale of Warrants are separate contracts entered into by the Company, are not part of ($12 million for the Convertible Notes and do not affect$33 million for a related Bifurcated Conversion Feature). Concurrent with the rights of holders underrepayment, the Convertible Notes. Holders ofCompany settled the Convertible Notes will not have any rights with respect to the purchased Call Options orfor proceeds of $33 million. As a result of these transactions, the sold warrants. The Call Options meetCompany made a net payment of $12 million.
Early Extinguishment of Debt
During 2013, the definitionCompany repurchased a portion of derivatives underits 5.75% and 7.375% senior unsecured notes totaling $446 million through tender offers, repurchased $42 million of its 6.00% senior unsecured notes on the guidanceopen market and executed a redemption option for derivatives.the remaining $43 million outstanding on its 9.875% senior unsecured notes. As such,a result, during 2013, the instruments are marked to market each period. In addition, the derivative liability associated with the Bifurcated Conversion FeatureCompany repurchased a total of $531 million of its outstanding senior unsecured notes and incurred expenses of $111 million which is also marked to market each period. The Warrants meet the definitionincluded within early extinguishment of derivatives under the guidance; however, because these instruments have been determined to be indexed to the Company’s own stock, their issuance has been recorded in stockholders’ equity indebt on the Consolidated Balance SheetStatement of Income.
During 2012, the Company repurchased $443 million of its 6.00% and $207 million of its 9.875% senior unsecured notes totaling $650 million through tender offers. In connection with these tender offers, the Company incurred a loss of $108 million, which is not subject toincluded within early extinguishment of debt on the fair value provisionsConsolidated Statement of the guidance.Income.
During 2010,2011, the Company repurchased a portion of its Convertible Notes with a carrying value of $239$251 million ($101 million for the portion of Convertible Notes, including the unamortized discount, and $138 million for the related Bifurcated Conversion Feature) for $250 million, which resulted in a loss of $11 million during 2010. Such Convertible Notes had a face value of $114 million. Concurrent with the repurchase, the Company settled (i) a portion of the Call Options for proceeds of $136 million, which resulted in an additional loss of $3 million and (ii) a portion of the Warrants with payments of $98 million. As a result of these transactions, the Company made net payments of $212 million and incurred total losses of $14 million during 2010 and reduced the number of shares related to the Warrants to approximately 9 million as of December 31, 2010.During 2011, the Company repurchased a portion of its remaining Convertible Notes with carrying value of $251 million
primarily resulting from the completion of a cash tender offer ($95for $262 million for the portion of Convertible Notes, including the unamortized discount, and $156 million for the related Bifurcated Conversion Feature) for $262 million.. Concurrent with the repurchases, the Company settled (i) a portion of the Call Options for proceeds of $155$155 million, which resulted in an additional loss of $1$1 million and (ii) a portion of the Warrants with payments of $112 million.$112 million. As a result of these transactions, the Company made net payments of $219$219 million and incurred total losses of $12 million during 2011 and reduced the number of shares related to the Warrants to approximately 1 million as of December 31, 2011.The agreements for such transactions contain anti-dilution provisions that require certain adjustments to be made as a result of all quarterly cash dividend increases above $0.04 per share that occur prior to the maturity date of the Convertible Notes, Call Options and Warrants. During March 2010, the Company increased its quarterly dividend from $0.04 per share to $0.12 per share and, subsequently, during March 2011, from $0.12 per share to $0.15 per share. As a result of the dividend increase and required adjustments, as of December 31, 2011, the Convertible Notes had a conversion reference rate of 80.6981 shares of common stock per $1,000 principal amount (equivalent to a conversion price of $12.39 per share of the Company’s common stock), the conversion price of the Call Options was $12.39 and the exercise price of the Warrants was $19.62.
As of December 31, 2011 and 2010, the $36 million and $266 million Convertible Notes consist of $12 million and $104 million of debt ($
$12 million and $116 million face amount, net of $0 and $12 million of unamortized discount), respectively, and a derivative liability with a fair value of $24 million and $162 million, respectively, related to the Bifurcated Conversion Feature. The Call Options are derivative assets recorded at their fair value of $24 millionwhich is included within other current assets and $162 million within other non-current assets in the Consolidated Balance Sheets as of December 31, 2011 and 2010, respectively.7.375% Senior Unsecured Notes. On February 25, 2010, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 7.375%, for net proceeds of $247 million. Interest began accruing on February 25, 2010 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2010. The notes will mature on March 1, 2020 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.
5.75% Senior Unsecured Notes. On September 20, 2010, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 5.75%, for net proceeds of $247 million. Interest began accruing on September 20, 2010 and is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2011. The notes will mature on February 1, 2018 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.
5.625% Senior Unsecured Notes. On March 1, 2011, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 5.625%, for net proceeds of $245 million. Interest began accruing on March 1, 2011 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2011. The notes will mature on March 1, 2021 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.
Vacation Rental Capital Leases.The Company leases vacation homes located in European holiday parks as part of its vacation exchange and rentals business. The majority of these leases are recorded as capital lease obligations under generally accepted accounting principles with corresponding assets classified within property, plant and equipment on the Consolidated Balance Sheets. The vacation rentals capital lease obligations had a weighted average interest rate of 4.5% during 2011, 2010 and 2009.
Other. The Company also maintains other debt facilities which arise through the ordinary course of operations. This debt primarily relates to information technology leases.
Term Loan.During March 2010, the Company fully repaid its five-year $300 million term loan facility with a portion of the proceeds from the 7.375% senior unsecured notes and borrowings under the Company’s revolving credit facility. The weighted average interest rate during 2010 and 2009 was 5.3% and 5.7%, respectively.
Vacation Ownership Bank Borrowings.During March 2010, the Company paid down and terminated its 364-day, secured, revolving foreign credit facility with a portion of the proceeds from the 7.375% senior unsecured notes. The weighted average interest rate was 9.9% and 6.8% during 2010 and 2009, respectively.
Interest Expense
During 2011, 2010 and 2009, the Company recorded $152 million, $167 million and $114 million, respectively, of interest expense as a result of long-term debt borrowings, the early extinguishment of debt on the Consolidated Statement of Income.
Interest Expense
The Company incurred non-securitized interest expense of $131 million during 2013. Such amount consisted primarily of $136 million of interest on long-term debt, partially offset by $5 million of capitalized interest and capitalized interest. Such amounts areis recorded within interest expense on the Consolidated StatementsStatement of Income. Cash paid related to such interest expenseon the Company's non-securitized debt was $135$127 million $125 million and $99 million during 2011, 2010 and 2009, respectively, excluding cash payments related to early extinguishment of debt costs.During 2011, 2010 and 2009, the
.
The Company incurred non-securitized interest expense of $150$132 million $144 during 2012. Such amounts consisted primarily of $137 million and $126 million, respectively, primarily in connection with its of interest on long-term debt, borrowings. As a result of the repurchase of a portion of its Convertible Notes, the Company incurred a loss of $12 million and $14 million during 2011 and 2010, respectively. Additionally, during 2010, in connection with the early extinguishment of its term loan facility, the Company effectively terminated a related interest rate swap agreement, resulting in the reclassification of a $14 million unrealized loss from accumulated other comprehensive income to interest expense, and incurred an additional $2 million of costs due to the early extinguishment of its term loan and revolving foreign credit facilities. Interest expense is partially offset by $5 million of capitalized interest and is recorded within interest expense on the Consolidated Statement of $10Income. Cash paid related to interest on the Company's non-securitized debt was $120 million $7.
The company incurred non-securitized interest expense of $140 million during 2011. Such amounts consisted primarily of $150 million of interest on long-term debt, partially offset by $10 million of capitalized interest and $12is recorded within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company's non-securitized debt was $135 million during 2011, 2010 and 2009, respectively..
Interest expense incurred in connection with the Company’sCompany's securitized vacation ownership debt was $92$78 million $105, $90 million and $139$92 million during 2011, 20102013, 2012 and 2009,2011, respectively, and is recorded within consumer financing interest on the Consolidated Statements of Income. Cash paid related to such interest was $76$61 million $90, $73 million and $112$76 million during 2011, 20102013, 2012 and 2009,2011, respectively.
14. | Transfer and Servicing of Financial Assets |
| 14. | Variable Interest Entities |
The Company pools qualifying vacation ownership contract receivables and sells them to bankruptcy-remote entities. Vacation ownership contract receivables qualify for securitization based primarily on the credit strength of the VOI purchaser to whom financing has been extended. Vacation ownership contract receivables are securitized through bankruptcy-remote SPEs that are consolidated within the Consolidated Financial Statements. As a result, the Company does not recognize gains or losses resulting from these securitizations at the time of sale to the SPEs. Interest income is recognized when earned over the contractual life of the vacation ownership contract receivables. The Company services the securitized vacation ownership contract receivables pursuant to servicing agreements negotiated on an arms-length basis based on market conditions. The activities of these SPEs are limited to (i) purchasing vacation ownership contract receivables from the Company’s vacation ownership
subsidiaries;subsidiaries, (ii) issuing debt securities and/or borrowing under a conduit facility to fund such
purchases;purchases and (iii) entering into derivatives to hedge interest rate exposure. The bankruptcy-remote SPEs are legally separate from the Company. The receivables held by the bankruptcy-remote SPEs are not available to creditors of the Company and legally are not assets of the Company. Additionally, the creditors of these SPEs have no recourse to the Company for principal and interest.
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Securitized contract receivables, gross(a) | | $ | 2,485 | | | $ | 2,703 | |
Securitized restricted cash(b) | | | 132 | | | | 138 | |
Interest receivables on securitized contract receivables(c) | | | 20 | | | | 22 | |
Other assets (d) | | | 1 | | | | 2 | |
| | | | | | | | |
Total SPE assets(e) | | | 2,638 | | | | 2,865 | |
| | | | | | | | |
Securitized term notes(f) | | | 1,625 | | | | 1,498 | |
Securitized conduit facilities(f) | | | 237 | | | | 152 | |
Other liabilities(g) | | | 11 | | | | 22 | |
| | | | | | | | |
Total SPE liabilities | | | 1,873 | | | | 1,672 | |
| | | | | | | | |
SPE assets in excess of SPE liabilities | | $ | 765 | | | $ | 1,193 | |
| | | | | | | | |
The assets and liabilities of these vacation ownership SPEs are as follows:
|
| | | | | | | |
| | December 31,
2013 | | December 31,
2012 |
Securitized contract receivables, gross (a) | $ | 2,204 |
| | $ | 2,401 |
|
Securitized restricted cash (b) | 92 |
| | 121 |
|
Interest receivables on securitized contract receivables (c) | 17 |
| | 19 |
|
Other assets (d) | 1 |
| | 2 |
|
Total SPE assets (e) | 2,314 |
| | 2,543 |
|
Securitized term notes (f) | 1,648 |
| | 1,770 |
|
Securitized conduit facilities (f) | 262 |
| | 190 |
|
Other liabilities (g) | 2 |
| | 5 |
|
| Total SPE liabilities | 1,912 |
| | 1,965 |
|
| SPE assets in excess of SPE liabilities | $ | 402 |
| | $ | 578 |
|
| |
((a)a)
| Included in current ($262($222 million and $266$252 million as of December 31, 20112013 and 2010,2012, respectively) and non-current ($2,223($1,982 million and $2,437$2,149 million as of December 31, 20112013 and 2010,2012, respectively) vacation ownership contract receivables on the Consolidated Balance Sheets. |
| |
(b) | Included in other current assets ($71($64 million and $77$65 million as of December 31, 20112013 and 2010,2012, respectively) and other non-current assets ($61($28 million and $61$56 million as of both December 31, 20112013 and 2010,2012, respectively) on the Consolidated Balance Sheets. |
| |
(c) | Included in trade receivables, net on the Consolidated Balance Sheets. |
| |
(d) | Includes interest rate derivative contracts and related assets; included in other non-current assets on the Consolidated Balance Sheets. |
| |
(e) | Excludes deferred financing costs of $26 million and $22$28 million as of both December 31, 20112013 and 2010, respectively,2012, related to securitized debt. |
| |
(f) | Included in current ($196($184 million and $223$218 million as of December 31, 20112013 and 2010,2012, respectively) and long-term ($1,666($1,726 million and $1,427$1,742 million as of December 31, 20112013 and 2010,2012, respectively) securitized vacation ownership debt on the Consolidated Balance Sheets. |
| |
(g) | Primarily includes interest rate derivative contracts and accrued interest on securitized debt;debt ($2 million as of both December 31, 2013 and 2012) which is included in accrued expenses and other current liabilities, ($2and interest rate derivative contracts ($3 million and $3 million as of December 31, 2011 and 2010, respectively) and2012) which is included in other non-current liabilities ($9 million and $19 million as of December 31, 2011 and 2010, respectively) on the Consolidated Balance Sheets. |
In addition, the Company has vacation ownership contract receivables that have not been securitized through bankruptcy-remote SPEs. Such gross receivables were $757$1,115 million and $641$985 million as of December 31, 20112013 and 2010,2012, respectively. A summary of total vacation ownership receivables and other securitized assets, net of securitized liabilities and the allowance for loan losses, is as follows: | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
SPE assets in excess of SPE liabilities | | $ | 765 | | | $ | 1,193 | |
Non-securitized contract receivables | | | 757 | | | | 641 | |
Allowance for loan losses | | | (394 | ) | | | (362 | ) |
| | | | | | | | |
Total, net | | $ | 1,128 | | | $ | 1,472 | |
| | | | | | | | |
|
| | | | | | | |
| | December 31,
2013 | | December 31,
2012 |
| SPE assets in excess of SPE liabilities | $ | 402 |
| | $ | 578 |
|
| Non-securitized contract receivables | 1,115 |
| | 985 |
|
| Less: Allowance for loan losses | 566 |
| | 497 |
|
| Total, net | $ | 951 |
| | $ | 1,066 |
|
Midtown 45, NYC Property
During January 2013, the Company entered into an agreement with a third-party partner whereby the partner acquired Midtown 45, through an SPE. The guidanceCompany is managing and operating the property for fair value measurements requires additional disclosures aboutrental purposes while the Company’sCompany converts it into VOI inventory. The SPE financed the acquisition and planned renovations with a $115 million four-year mortgage note and $9 million of mandatorily redeemable equity provided by related parties of such partner. The Company has committed to purchase such VOI inventory from the SPE over a four year period in the amount of $146 million of which $124 million will be used to repay the four-year mortgage note and the mandatorily redeemable equity of the SPE. The Company is considered to be the primary beneficiary of the SPE and, therefore, the Company consolidated the SPE within its financial statements.
The assets and liabilities thatof the SPE are measured at fair value. as follows:
|
| | | |
| | December 31,
2013 |
| Cash | $ | 4 |
|
| Property and equipment, net | 111 |
|
| Total SPE assets | 115 |
|
| Accrued expenses and other current liabilities | 2 |
|
Long-term debt (*) | 107 |
|
| Total SPE liabilities | 109 |
|
| SPE assets in excess of SPE liabilities | $ | 6 |
|
| |
(*) | Includes $99 million and $8 million of a four-year mortgage note and mandatorily redeemable equity, respectively, of which $30 million is included in current portion of long-term debt on the Consolidated Balance Sheet. |
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable.
Level 3: Unobservable inputs used when little or no market data is available.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input (closest to Level 3) that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following table summarizes information regarding assets and liabilities that are measured at fair value on a recurring
basis as of December 31: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | |
| | | Fair Value | | | Level 2 | | | Level 3 | | | Fair Value | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives:(a) | | | | | | | | | | | | | | | | | | | | | | | | |
Call Options | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | 162 | | | $ | — | | | $ | 162 | |
Interest rate contracts | | | 4 | | | | 4 | | | | — | | | | 7 | | | | 7 | | | | — | |
Foreign exchange contracts | | | 1 | | | | 1 | | | | — | | | | 4 | | | | 4 | | | | — | |
Securities available-for-sale(b) | | | 6 | | | | — | | | | 6 | | | | 6 | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 35 | | | $ | 5 | | | $ | 30 | | | $ | 179 | | | $ | 11 | | | $ | 168 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | |
Bifurcated Conversion Feature (c) | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | 162 | | | $ | — | | | $ | 162 | |
Interest rate contracts(d) | | | 10 | | | | 10 | | | | — | | | | 27 | | | | 27 | �� | | | — | |
Foreign exchange contracts(d) | | | 3 | | | | 3 | | | | — | | | | 12 | | | | 12 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | $ | 37 | | | $ | 13 | | | $ | 24 | | | $ | 201 | | | $ | 39 | | | $ | 162 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of | | As of |
| | December 31, 2013 | | December 31, 2012 |
| | Fair Value | | Level 2 | | Level 3 | | Fair Value | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | | |
Derivatives: (a) | | | | | | | | | | | |
| Interest rate contracts | $ | 5 |
| | $ | 5 |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
|
| Foreign exchange contracts | 2 |
| | 2 |
| | — |
| | 1 |
| | 1 |
| | — |
|
Securities available-for-sale (b) | 6 |
| | — |
| | 6 |
| | 6 |
| | — |
| | 6 |
|
| Total assets | $ | 13 |
| | $ | 7 |
| | $ | 6 |
| | $ | 9 |
| | $ | 3 |
| | $ | 6 |
|
Liabilities | | | | | | | | | | | |
Derivatives: (c) | | | | | | | | | | | |
| Interest rate contracts | $ | 13 |
| | $ | 13 |
| | $ | — |
| | $ | 3 |
| | $ | 3 |
| | $ | — |
|
| Foreign exchange contracts | 2 |
| | 2 |
| | — |
| | 1 |
| | 1 |
| | — |
|
| Total liabilities | $ | 15 |
| | $ | 15 |
| | $ | — |
| | $ | 4 |
| | $ | 4 |
| | $ | — |
|
| |
(a) | Included in other current assets ($25($6 million and $5$1 million as of December 31, 20112013 and 2010,2012, respectively) and other non-current assets ($4($1 million and $168$2 million as of December 31, 20112013 and 2010,2012, respectively) on the Consolidated Balance Sheets.Sheets; carrying value is equal to estimated fair value. |
| |
(b)(b)
| Included in other non-current assets on the Consolidated Balance Sheets. |
| |
(c) | Included in current portion of long-term debt and long-term debt on the Consolidated Balance Sheets as of December 31, 2011 and 2010, respectively.
|
(d)
| Included in accrued expenses and other current liabilities ($4($2 million and $12$1 million as of December 31, 20112013 and 2010,2012, respectively) and other non-current liabilities ($9($13 million and $27$3 million as of December 31, 20112013 and 2010,2012, respectively) on the Consolidated Balance Sheets. Sheets; carrying value is equal to estimated fair value. |
The Company’s derivative instruments primarily consist of
the Call Options and Bifurcated Conversion Feature related to the Convertible Notes, pay-fixed/receive-variable
interest rate swaps, pay-variable/receive-fixed interest rate swaps, interest rate caps, foreign exchange forward contracts and foreign exchange average rate forward contracts (see Note 16
—– Financial Instruments for more detail). For assets and liabilities that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using other significant observable inputs are valued by reference to similar assets and liabilities. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets and liabilities in active markets. For assets and liabilities that are measured using significant unobservable inputs, fair value is
primarily derived using a fair value model, such as a discounted cash flow model.
The following table presents additional information about financial assets which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value as follows:
| | | | | | | | | | | | |
| | | Fair Value Measurements Using
Significant Unobservable Inputs (Level 3) | |
| | | Derivative
Asset-Call
Options | | | Derivative Liability
Bifurcated
Conversion Feature | | | Securities
Available-For-
Sale | |
Balance as of December 31, 2009 | | $ | 176 | | | $ | (176 | ) | | $ | 5 | |
Convertible Notes activity(*) | | | (138 | ) | | | 138 | | | | — | |
Change in fair value | | | 124 | | | | (124 | ) | | | 1 | |
| | | | | | | | | | | | |
Balance as of December 31, 2010 | | | 162 | | | | (162 | ) | | | 6 | |
Convertible Notes activity(*) | | | (156 | ) | | | 156 | | | | — | |
Change in fair value | | | 18 | | | | (18 | ) | | | — | |
| | | | | | | | | | | | |
Balance as of December 31, 2011 | | $ | 24 | | | $ | (24 | ) | | $ | 6 | |
| | | | | | | | | | | | |
(*) | Represents the change in value related to the Company’s repurchase of a portion of its Bifurcated Conversion Feature and the settlement of a corresponding portion of the Call Options (see Note 13 — Long-Term Debt and Borrowing Arrangements).
|
The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts and estimated fair values of all other financial instruments are as follows:
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Carrying
Amount | | | Estimated
Fair Value | | | Carrying
Amount | | | Estimated
Fair Value | |
Assets | | | | | | | | | | | | | | | | |
Vacation ownership contract receivables, net | | $ | 2,848 | | | $ | 3,232 | | | $ | 2,982 | | | $ | 2,782 | |
Debt | | | | | | | | | | | | | | | | |
Total debt(a) | | | 4,015 | | | | 4,205 | | | | 3,744 | | | | 3,871 | |
Derivatives | | | | | | | | | | | | | | | | |
Foreign exchange contracts(b) | | | | | | | | | | | | | | | | |
Assets | | | 1 | | | | 1 | | | | 4 | | | | 4 | |
Liabilities | | | (3 | ) | | | (3 | ) | | | (12 | ) | | | (12 | ) |
Interest rate contracts(b) | | | | | | | | | | | | | | | | |
Assets | | | 4 | | | | 4 | | | | 7 | | | | 7 | |
Liabilities | | | (10 | ) | | | (10 | ) | | | (27 | ) | | | (27 | ) |
Call Options | | | | | | | | | | | | | | | | |
Assets | | | 24 | | | | 24 | | | | 162 | | | | 162 | |
(a) | As of December 31, 2011 and 2010, includes $24 million and $162 million, respectively, related to the Bifurcated Conversion Feature liability.
|
(b) | Instruments are in a net loss position as of December 31, 2011 and December 31, 2010.
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2013 | | December 31, 2012 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
| Assets | | | | | | | |
| Vacation ownership contract receivables, net | $ | 2,753 |
| | $ | 3,326 |
| | $ | 2,889 |
| | $ | 3,391 |
|
| Debt | | | | | | | |
| Total debt | 4,841 |
| | 4,928 |
| | 4,562 |
| | 4,811 |
|
The Company estimates the fair value of its vacation ownership contract receivables using a discounted cash flow model which it believes is comparable to the model that an independent
third partythird-party would use in the current market. The model uses
Level 3 inputs consisting of default rates, prepayment rates, coupon rates and loan terms for the contract receivables portfolio as key drivers of risk and relative value that, when applied in combination with pricing parameters, determines the fair value of the underlying contract receivables.
The Company estimates the fair value of its securitized vacation ownership debt by obtaining
Level 2 inputs comprised of indicative bids from investment banks that actively issue and facilitate the secondary market for timeshare securities. The Company estimates the fair value of its other long-term debt,
excluding capital leases, using
Level 2 inputs based on indicative bids from investment banks and determines the fair value of its senior notes using quoted market
prices.prices (such senior notes are not actively traded).
In accordance with the guidance for equity method investments, during 2011, an investment in an international joint venture in the Company’s lodging business with a carrying amount of $13$13 million was written down during 2011 due to the impairment of cash flows resulting from the Company’s partner having an indirect relationship with the Libyan government. Such write-downswrite-down resulted in a $13$13 million charge during 2011. Additionally, during 2009, this same international joint venture was written down to its fair value2011 which resulted in a $6 million charge. These impairment charges areis included within asset impairment on the Consolidated StatementsStatement of Income.In accordance with the guidance for long-lived assets held for sale, during 2010 and 2009, vacation ownership properties consisting primarily of undeveloped land were written down to their estimated fair value less selling costs. Such write down resulted in an impairment charge of $4 million and $9 million during 2010 and 2009, respectively.
16. | |
| 16. | Financial Instruments |
The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the change in fair value of the derivative instrument will be reflected in the Consolidated Financial Statements. A derivative qualifies for hedge accounting if, at inception, the derivative is expected to be highly effective in offsetting the underlying hedged cash flows or fair value and the hedge documentation standards are fulfilled at the time the Company enters into the derivative contract. A hedge is designated as a cash flow hedge based on the exposure being hedged. The asset or liability value of the derivative will change in tandem with its fair value. Changes in fair value, for the effective portion of qualifying hedges, are recorded in AOCI. The derivative’s gain or loss is released from AOCI to match the timing of the underlying hedged cash flows effect on earnings.
The Company reviews the effectiveness of its hedging instruments on an ongoing basis, recognizes current period hedge ineffectiveness immediately in earnings and discontinues hedge accounting for any hedge that it no longer considers to be highly effective. The Company recognizes changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting in current period earnings. Upon termination of cash flow hedges, the Company releases gains and losses from AOCI based on the timing of the underlying cash flows, unless the termination results from the failure of the intended transaction to occur in the expected
timeframe.time frame. Such untimely transactions require the Company to immediately recognize in earnings gains and losses previously recorded in AOCI.
Changes in interest rates and foreign exchange rates expose the Company to market risk. The Company also uses cash flow hedges as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. As a matter of policy, the Company only enters into transactions that it believes will be highly effective at offsetting the underlying risk and
the Companyit does not use derivatives for trading or speculative purposes.
The Company uses the following derivative instruments to mitigate its foreign currency exchange rate and interest rate risks:
The Company uses freestanding foreign currency forward contracts and foreign currency forward contracts designated as cash flow hedges to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables, forecasted earnings of foreign subsidiaries and forecasted foreign currency denominated vendor payments. The amount of gains or losses that the Company expects to reclassify from AOCIother comprehensive income to earnings duringover the next 12 months is not material.
A portion of the debt used to finance the Company’s operations is also exposed to interest rate fluctuations. The Company uses various hedging strategies and derivative financial instruments to create a desired mix of fixed and floating rate assets and liabilities. Derivative instruments currently used in these hedging strategies include swaps and interest rate caps. The derivatives used to manage the risk associated with the Company’s floating rate debt include freestanding derivatives and derivatives designated as cash flow hedges. The Company also uses swaps to convert specific fixed-rate debt into variable-rate
debt (i.e., fair value hedges) to manage the overall interest cost. For relationships designated as fair value hedges, changes in fair value of the derivatives are recorded in income with offsetting adjustments to the carrying amount of the hedged debt. The impact of the change in fair value of the fair value hedges and hedged debt was not material during the year ended December 31, 2011.In connection with the early extinguishment of the term loan facility during 2010 (see Note 13 — Long-Term Debt and Borrowing Arrangements), the Company effectively terminated a related interest rate swap agreement, which resulted in the reclassification of a $14 million unrealized loss from AOCI to interest expense on the Consolidated Statement of Income for the year ended December 31, 2010. The amount of losses that the Company expects to reclassify from AOCI to earnings during the next
12 months is not material.
The following table summarizes information regarding the gain/(loss) amounts recognized in AOCI for the years ended December 31:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Designated as hedging instruments | | | | | | | | | | | | |
Interest rate contracts | | $ | 10 | | | $ | 5 | | | $ | 27 | |
Foreign exchange contracts | | | (1 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 9 | | | $ | 5 | | | $ | 27 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Designated hedging instruments | | | | | |
| Interest rate contracts | $ | 2 |
| | $ | 6 |
| | $ | 10 |
|
| Foreign exchange contracts | (2 | ) | | 1 |
| | (1 | ) |
| Total | $ | — |
| | $ | 7 |
| | $ | 9 |
|
The following table summarizes information regarding the gain/(loss) recognized in income on the Company’s freestanding derivatives for the years ended December 31:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Non-designated hedging instruments | | | | | | | | | | | | |
Foreign exchange contracts(a) | | $ | (16 | ) | | $ | (19 | ) | | $ | 7 | |
Interest rate contracts | | | 5 | (b) | | | 14 | (b) | | | 7 | (c) |
Call Options | | | 18 | | | | 124 | | | | 134 | |
Bifurcated Conversion Feature | | | (18 | ) | | | (124 | ) | | | (134 | ) |
| | | | | | | | | | | | |
Total | | $ | (11 | ) | | $ | (5 | ) | | $ | 14 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | |
| Non-designated hedging instruments | | | | | | |
Foreign exchange contracts (a) | $ | 10 |
| | $ | 3 |
| | $ | (16 | ) | |
| Interest rate contracts | (1 | ) | (b) | (2 | ) | (b) | 5 |
| (c) |
| Call Options | — |
| | 9 |
| | 18 |
| |
| Bifurcated Conversion Feature | — |
| | (9 | ) | | (18 | ) | |
| Total | $ | 9 |
| | $ | 1 |
| | $ | (11 | ) | |
| |
(a)(a)
| Included within operating expenses on the Consolidated Statements of Income. |
| |
(b)(b)
| Included within consumer financing interest and interest expense on the Consolidated Statements of Income.
|
(c) | Included within consumer financing interest expense on the Consolidated Statements of Income. |
The following table summarizes information regarding the fair value of the Company’s derivative instruments as of December 31:
| | | | | | | | | | |
| | | Balance Sheet Location | | 2011 | | | 2010 | |
Designated hedging instruments | | | | | | | | | | |
Liabilities | | | | | | | | | | |
Interest rate contracts | | Other non-current liabilities | | $ | 9 | | | $ | 18 | |
Foreign exchange contracts | | Accrued expenses and other current liabilities | | | 1 | | | | — | |
| | | | | | | | | | |
Total | | | | $ | 10 | | | $ | 18 | |
| | | | | | | | | | |
Non-designated hedging instruments | | | | | | | | | | |
Assets | | | | | | | | | | |
Interest rate contracts | | Other non-current assets | | $ | 4 | | | $ | 7 | |
Foreign exchange contracts | | Other current assets | | | 1 | | | | 4 | |
Call Options(*) | | Other current assets | | | 24 | | | | — | |
| | Other non-current assets | | | — | | | | 162 | |
| | | | | | | | | | |
Total | | | | $ | 29 | | | $ | 173 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Interest rate contracts | | Other non-current liabilities | | $ | 1 | | | $ | 9 | |
Foreign exchange contracts | | Accrued expenses and other current liabilities | | | 2 | | | | 12 | |
Bifurcated Conversion Feature(*) | | Current portion of long-term debt | | | 24 | | | | — | |
| | Long-term debt | | | — | | | | 162 | |
| | | | | | | | | | |
Total | | | | $ | 27 | | | $ | 183 | |
| | | | | | | | | | |
| |
(*)(c)
| See Note 13 — Long-Term DebtIncluded within consumer financing interest expense and Borrowing Arrangements for further detail.
interest expense on the Consolidated Statements of Income. |
The Company is exposed to counterparty credit risk in the event of nonperformance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and by requiring collateral in instances in which financing is provided. The Company mitigates counterparty credit risk associated with its derivative contracts by monitoring the amounts at risk with each counterparty to such contracts, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties.
As of December 31, 2011,2013, there were no significant concentrations of credit risk with any individual counterparty or groups of counterparties. However, approximately 18%19% of the Company’s outstanding vacation ownership contract receivables portfolio relates to customers who reside in California. With the exception of the financing provided to customers of its vacation ownership businesses, the Company does not normally require collateral or other security to support credit sales.
The Company is subject to risks relating to the geographic concentrations of (i) areas in which the Company is currently developing and selling vacation ownership properties, (ii) sales offices in certain vacation areas and (iii) customers of the Company’s vacation ownership business;business, which in each case, may result in the Company’s results of operations being more sensitive to local and regional economic conditions and other factors, including competition, natural disasters and economic downturns, than the Company’s results of operations would be, absent such geographic concentrations. Local and regional economic conditions and other factors may differ materially from prevailing conditions in other parts of the world. Florida and NevadaCalifornia are examples of areas withconcentrations of sales offices. For the year ended
December 31, 2011,2013, approximately 14%, 13% and 10%11% of the Company’s VOI sales revenues were generated in sales offices located in Florida Nevada and California, respectively.
Included within the Consolidated Statements of Income is approximately 11%10%, 10%11% and 11% of net revenues generated from transactions in the state of Florida in each of 2011, 20102013, 2012 and 2009,2011, respectively.
17. | |
| 17. | Commitments and Contingencies |
Leases
LeasesThe Company is committed to making rental payments under noncancelable operating leases covering various facilities and equipment. Future minimum lease payments required under noncancelable operating leases as of December 31, 20112013 are as follows:
| | | | |
| | | Noncancelable
Operating
Leases | |
2012 | | $ | 83 | |
2013 | | | 57 | |
2014 | | | 46 | |
2015 | | | 45 | |
2016 | | | 41 | |
Thereafter | | | 294 | |
| | | | |
| | $ | 566 | |
| | | | |
|
| | | |
| | Noncancelable Operating Leases |
| 2014 | $ | 90 |
|
| 2015 | 70 |
|
| 2016 | 53 |
|
| 2017 | 48 |
|
| 2018 | 44 |
|
| Thereafter | 230 |
|
| | $ | 535 |
|
During 2011, 20102013, 2012 and 2009,2011, the Company incurred total rental expense of $76$80 million $79, $80 million and $77$76 million, respectively.
In the normal course of business, the Company makes various commitments to purchase goods or services from specific suppliers, including those related to vacation ownership resort development and other capital expenditures. Purchase commitments made by the Company as of December 31, 20112013 aggregated $435 million. Individually, such commitments range as high as $97$345 million related to the development of a vacation ownership resort.. Approximately $316$200 million of the commitments relate to the development of vacation ownership properties and information technology.
As of December 31, 2011 and 2010,2013, the Company had $11$55 million and $28 million, respectively, of irrevocable standby letters of credit outstanding, of which mainly support$9 million were under its revolving credit facility. As of December 31, 2012, the Company had $23 million of irrevocable standby letters of credit outstanding, of which $11 million were under its revolving credit facility. Such letters of credit issued during 2013 and 2012 primarily supported the securitization of vacation ownership contract receivables fundings, certain insurance policies and development activity at the Company’sCompany's vacation ownership business.
Some of the Company’s vacation ownership developments are supported by surety bonds provided by affiliates of certain insurance companies in order to meet regulatory requirements of certain states. In the ordinary course of the Company’s business, it has assembled commitments from twelvethirteen surety providers in the amount of $1.2$1.2 billion, of which the Company had $296$328 million outstanding as of December 31, 2011.2013. Theavailability, terms and conditions and pricing of such bonding capacity isare dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing suchthe bonding capacity, the general availability of such capacity and the Company’s corporate credit rating. If suchthe bonding capacity is unavailable or, alternatively, the terms and conditions and pricing of suchthe bonding capacity may beare unacceptable to the Company, the cost of development of the Company’s vacation ownership units could be negatively impacted.
LITIGATION
The Company is involved in claims, legal and regulatory proceedings and governmental inquiries related to the Company’s business.
Wyndham Worldwide
Corporation Litigation
The Company is involved in claims, legal and regulatory proceedings and governmental inquiries arising in the ordinary course of its business including but not limited to: for its lodging
business — breachbusiness-breach of contract, fraud and bad faith claims between franchisors and franchisees in connection with franchise agreements and with owners in connection with management contracts, negligence, breach of contract, fraud,
employment, consumer protection and other statutory claims asserted in connection with alleged acts or occurrences at
owned, franchised or managed
properties;properties or in relation to guest reservations and bookings; for its vacation exchange and rentals
business — breachbusiness-breach of contract, fraud and bad faith claims by affiliates and customers in connection with their respective agreements, negligence, breach of contract, fraud, consumer protection and other statutory claims asserted by members and guests for alleged injuries sustained at affiliated resorts and vacation rental
properties;properties and consumer protection and other statutory claims asserted by consumers; for its vacation ownership
business — breachbusiness-breach of contract, bad faith, conflict of interest, fraud, consumer protection and other statutory claims by property
owners’owners' associations, owners and prospective owners in connection with the sale or use of VOIs or land, or the management of vacation ownership resorts, construction defect claims relating to vacation ownership units or resorts, and negligence, breach of contract, fraud, consumer protection and other statutory claims by guests for alleged injuries sustained at vacation ownership units or resorts; and for each of its businesses, bankruptcy proceedings involving efforts to collect receivables from a debtor in bankruptcy, employment matters
involvingwhich may include claims of
retaliation, discrimination, harassment and wage and hour claims, claims of infringement upon third
parties’parties' intellectual property rights, claims relating to information security,
privacy and
data privacy,consumer protection, tax claims and environmental claims.
On June 26, 2012, the U.S. Federal Trade Commission ("FTC") filed a lawsuit in Federal District Court for the District of Arizona against the Company and its subsidiaries, Wyndham Hotel Group, LLC, Wyndham Hotels & Resorts Inc. and Wyndham Hotel Management Inc., alleging unfairness and deception-based violations of Section 5 of the FTC Act in connection with three prior data breach incidents involving a group of Wyndham brand hotels. The Company disputes the allegations in the lawsuit and is defending this lawsuit vigorously. The Company does not believe that the data breach incidents were material, nor does it expect that the outcome of the FTC litigation will have a material effect on the Company's results of operations, financial position or cash flows. On March 26, 2013, the Company's motion to transfer venue of the lawsuit from Arizona to the Federal District Court for the District of New Jersey was granted. The Company has filed motions to dismiss the FTC's lawsuit, which are pending before the court. The Company is unable at this time to estimate any loss or range of reasonably possible loss.
The Company records an accrual for legal contingencies when it determines, after consultation with outside counsel, that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, the
Company’sCompany's ability to make a reasonable estimate of
the loss. The Company reviews these accruals each reporting period and makes revisions based on changes in facts and circumstances including changes to its strategy in dealing with these matters.
The Company believes that it has adequately accrued for such matters withwith reserves of $35$22 million and $42 million as of December 31, 2011.2013 and 2012, respectively. Such amountreserve is exclusive of matters relating to the Company’s Separation.separation. For matters not requiring accrual, the Company believes that such matters will not have a material effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to the Company with respect to earnings and/or cash flows in any given reporting period. As of December 31, 2013, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $18 million in excess of recorded accruals. However, the Company does not believe that the impact of such litigation should result in a material liability to the Company in relation to its consolidated financial position or liquidity.
Under the Separation
Agreement,agreement, the Company agreed to be responsible for 37.5% of certain of Cendant’s contingent and other corporate liabilities and associated costs, including certain contingent litigation. Since the Separation, Cendant settled the majority of the lawsuits pending on the date of the Separation. See also Note 23
—- Separation Adjustments and Transactions with Former Parent and Subsidiaries regarding contingent litigation liabilities resulting from the Separation.
GUARANTEES/INDEMNIFICATIONS
Standard Guarantees/Indemnifications
In the ordinary course of business, the Company enters into agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for specified breaches of or third-party claims relating to an underlying agreement. Such underlying agreements are typically entered into by one of the Company’s subsidiaries. The various underlying agreements generally govern purchases, sales or outsourcing of products or services, leases of real estate, licensing of software and/or development of vacation ownership properties, access to credit facilities, derivatives and issuances of debt securities. While a majority of these guarantees and indemnifications extend only for the duration of the underlying agreement, some survive the expiration of the agreement. The Company is not able to estimate the maximum potential amount of future payments to be made under these guarantees and indemnifications as the triggering events are not predictable. In certain cases, the Company maintains insurance coverage that may mitigate any potential payments.
Other Guarantees/Indemnifications
Lodging
From time to time, the Company may enter into a hotel management agreement that provides the hotel owner with a guarantee of a certain level of profitability based upon various metrics. Under such an agreement, the Company would be required to compensate such hotel owner for any profitability shortfall over the life of the management agreement up to a specified aggregate amount. For certain agreements, the Company may be able to recapture all or a portion of the shortfall payments in the event that future operating results exceed targets. The terms of such guarantees generally range from 7 to 10 years and certain agreements may provide for early termination provisions under certain circumstances. As of December 31, 2013, the maximum potential amount of future payments that may be made under these guarantees was $136 million with a combined annual cap of $39 million.
In connection with such performance guarantees, as of December 31, 2013, the Company maintained a liability of $45 million, of which $37 million was included in other non-current liabilities and $8 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of December 31, 2013, the Company also had a corresponding $43 million asset related to these guarantees, of which $39 million was included in other non-current assets and $4 million was included in other current assets on its Consolidated Balance Sheet. As of December 31, 2012, the Company maintained a non-current liability of $4 million and a corresponding non-current asset of $4 million on its Consolidated Balance Sheet. Such assets are being amortized on a straight-line basis over the life of the agreements. The amortization expense for the performance guarantees noted above was $3 million for the twelve months ended December 31, 2013.
Under such performance guarantees, the Company also had receivables of $24 million and $5 million as of December 31, 2013 and 2012, respectively, resulting from payments made to date which are subject to recapture and which the Company believes will be recoverable from future operating performance. Such receivables were included in other non-current assets on the Company's Consolidated Balance Sheets.
Vacation Ownership
The Company guarantees its vacation ownership subsidiary's obligation to repurchase completed property in Las Vegas, Nevada and Avon, Colorado from a third-party developer subject to the property conforming to the Company's vacation ownership resort standards and provided that the third-party developer has not sold the property to another party. The maximum potential future payments that the Company could be required to make under these commitments was $365 million as of December 31, 2013.
In the ordinary course of business, the Company’s vacation ownership business provides guarantees to certain owners’ associations for funds required to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs. The Company may be required to fund such excess as a result of unsold Company-owned VOIs or failure by owners to pay such assessments. In addition, from time to time, the Company will agree to reimburse certain owner associations up to 75% of their uncollected assessments. These guarantees extend for the duration of the underlying subsidy or similar agreement (which generally approximate one year and are renewable at the discretion of the Company on an annual basis) or until a stipulated percentage (typically 80% or higher) of related VOIs are sold. The maximum potential future payments that the Company could be required to make under these guarantees waswere approximately $372$342 million as of December 31, 2011.2013. The Company would only be required to pay this maximum amount if none of the assessed owners assessed paid their assessments. Any assessments collected from the owners of the VOIs would reduce the maximum potential amount of future payments to be made by the Company. Additionally, should the Company be required to fund the deficit through the payment of any owners’ assessments under these guarantees, the Company would be permitted access to the property for its
own use and may use that property to engage in revenue-producing activities, such as rentals. During 2011, 20102013, 2012 and 2009,2011, the Company made payments related to these guarantees of $17$18 million $12, $18 million and $10$17 million respectively. As of December 31, 20112013 and 2010,2012, the Company maintained a liability in connection with these guarantees of $24$30 million and $17$22 million, respectively, on its Consolidated Balance Sheets.From time to time, the Company may enter into a hotel management agreement that provides the hotel owner with a minimum return. Under such agreement, the Company would be required to compensate for any shortfall over the life of the management agreement up to a specified aggregate amount. The Company’s exposure under these guarantees is partially mitigated by the Company’s ability to terminate any such management agreement if certain targeted operating results are not met. Additionally, the Company is able to recapture a portion or all of the shortfall payments and any waived fees in the event that future operating results exceed targets. As of December 31, 2011, the maximum potential amount of future payments to be made under these guarantees is $16 million with an annual cap of $3 million or less. As of both December 31, 2011 and 2010, the Company maintained a liability in connection with these guarantees of less than $1 million on its Consolidated Balance Sheets.
As part of the Wyndham Asset Affiliation Model,WAAM Fee-for-Service, the Company may guarantee to reimburse the developer a certain payment or to purchase from the developer, inventory associated with the developer’s resort property for a percentage of the original sale price if certain future conditions exist. The maximum potential future payments that the Company could be required to make under these guarantees waswere approximately $31$48 million as of December 31, 2011.2013. As of both December 31, 20112013 and 2010,2012, the Company had no recognized liabilities in connection with these guarantees.See Note 23 — Separation Adjustments and Transactions with Former Parent and Subsidiaries for contingent liabilities related to the Company’s Separation.
18. | |
| 18. | Accumulated Other Comprehensive Income |
The components of AOCI
is comprised of the following components (net of tax)are as
of December 31: | | | | | | | | |
| | | 2011 | | | 2010 | |
Foreign currency translation adjustments | | $ | 141 | | | $ | 171 | |
Unrealized losses on cash flow hedges | | | (10 | ) | | | (15 | ) |
Defined benefit pension plans | | | (3 | ) | | | (1 | ) |
| | | | | | | | |
Total AOCI(*) | | $ | 128 | | | $ | 155 | |
| | | | | | | | |
(*) | Includes $40 million of tax benefit for both 2011 and 2010.
|
Foreign currencyfollows:
|
| | | | | | | | | | | | | | | |
| | Foreign | | Unrealized | | Defined | | |
| | Currency | | Gains/(Losses) | | Benefit | | |
| | Translation | | on Cash Flow | | Pension | | |
| Pretax | Adjustments | | Hedges | | Plans | | AOCI |
| Balance, December 31, 2010 | $ | 141 |
| | $ | (25 | ) | | $ | (1 | ) | | $ | 115 |
|
| Period change | (33 | ) | | 9 |
| | (3 | ) | | (27 | ) |
| Balance, December 31, 2011 | 108 |
| | (16 | ) | | (4 | ) | | 88 |
|
| Period change | 29 |
| | 7 |
| | (4 | ) | | 32 |
|
| Balance, December 31, 2012 | 137 |
| | (9 | ) | | (8 | ) | | 120 |
|
| Period change | (26 | ) | | 1 |
| | 4 |
| | (21 | ) |
| Balance, December 31, 2013 | $ | 111 |
| | $ | (8 | ) | | $ | (4 | ) | | $ | 99 |
|
|
| | | | | | | | | | | | | | | |
| | Foreign | | Unrealized | | Defined | | |
| | Currency | | Gains/(Losses) | | Benefit | | |
| | Translation | | on Cash Flow | | Pension | | |
| Tax | Adjustments | | Hedges | | Plans | | AOCI |
| Balance, December 31, 2010 | $ | 30 |
| | $ | 10 |
| | $ | — |
| | $ | 40 |
|
| Period change | 3 |
| | (4 | ) | | 1 |
| | — |
|
| Balance, December 31, 2011 | 33 |
| | 6 |
| | 1 |
| | 40 |
|
| Period change | (8 | ) | | (2 | ) | | 1 |
| | (9 | ) |
| Balance, December 31, 2012 | 25 |
| | 4 |
| | 2 |
| | 31 |
|
| Period change | (7 | ) | | — |
| | (1 | ) | | (8 | ) |
| Balance, December 31, 2013 | $ | 18 |
| | $ | 4 |
| | $ | 1 |
| | $ | 23 |
|
|
| | | | | | | | | | | | | | | |
| | Foreign | | Unrealized | | Defined | | |
| | Currency | | Gains/(Losses) | | Benefit | | |
| | Translation | | on Cash Flow | | Pension | | |
| Net of Tax | Adjustments | | Hedges | | Plans | | AOCI |
| Balance, December 31, 2010 | $ | 171 |
| | $ | (15 | ) | | $ | (1 | ) | | $ | 155 |
|
| Period change | (30 | ) | | 5 |
| | (2 | ) | | (27 | ) |
| Balance, December 31, 2011 | 141 |
| | (10 | ) | | (3 | ) | | 128 |
|
| Period change | 21 |
| | 5 |
| | (3 | ) | | 23 |
|
| Balance, December 31, 2012 | 162 |
| | (5 | ) | | (6 | ) | | 151 |
|
| Period change | (33 | ) | | 1 |
| | 3 |
| | (29 | ) |
| Balance, December 31, 2013 | $ | 129 |
| | $ | (4 | ) | | $ | (3 | ) | | $ | 122 |
|
Currency translation adjustments exclude income taxes related to investments in foreign subsidiaries where the Company intends to reinvest the undistributed earnings indefinitely in those foreign operations.
19. | |
| 19. | Stock-Based Compensation |
The Company has a stock-based compensation plan available to grant non-qualified stock options, incentive stock options,RSUs, SSARs, restricted stock, RSUs, PSUs and other stock or cash-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan, which wasas amended, and restated as a result of shareholders’ approval at the May 12, 2009 annual meeting of shareholders and further amended as a result of shareholders’ approval at the May 13, 2010 annual meeting of shareholders, a maximum of 36.7 million shares of common stock may be awarded. As of December 31, 2011, 15.12013, 16.7 million shares remained available.
Incentive Equity Awards Granted by the Company
The activity related to incentive equity awards granted by the Company for the year ended December 31, 20112013 consisted of the following: | | | | | | | | | | | | | | | | |
| | | RSUs | | | SSARs | |
| | | Number
of RSUs | | | Weighted
Average
Grant Price | | | Number
of SSARs | | | Weighted
Average
Exercise Price | |
Balance as of December 31, 2010 | | | 6.9 | | | $ | 12.35 | | | | 2.2 | | | $ | 21.28 | |
Granted | | | 1.5 | (b) | | | 30.66 | | | | 0.1 | (b) | | | 30.61 | |
Vested/exercised | | | (2.9 | )(c) | | | 11.61 | | | | (0.1 | ) | | | 29.49 | |
Canceled | | | (0.5 | ) | | | 14.95 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2011(a) | | | 5.0 | (d) | | | 18.02 | | | | 2.2 | (e) | | | 21.28 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | RSUs | | SSARs |
| | Number of RSUs | | Weighted Average Grant Price | | Number of SSARs | | Weighted Average Exercise Price |
| Balance as of December 31, 2012 | 3.1 |
| | $ | 32.41 |
| | 1.1 |
| | $ | 17.13 |
|
| Granted | 0.9 |
| (b) | 60.24 |
| | 0.1 |
| (b) | 60.24 |
|
| Vested/exercised | (1.2 | ) | (c) | 28.45 |
| | (0.1 | ) | | 4.33 |
|
| Canceled | (0.2 | ) | | 41.98 |
| | — |
| | — |
|
Balance as of December 31, 2013 (a) | 2.6 |
| (d) | 43.11 |
| | 1.1 |
| (e) | 21.43 |
|
| |
(a) | Aggregate unrecognized compensation expense related to RSUs and SSARs and RSUs was $63$81 million as of December 31, 20112013 which is expected to be recognized over a weighted average period of 2.62.5 years. |
| |
(b) | Primarily represents awards granted by the Company on February 24, 2011. 28, 2013. |
| |
(c) | The intrinsic value of RSUs vested during 2011, 20102013, 2012 and 20092011 was $92$71 million $73, $125 million and $12$92 million, respectively. |
| |
(d)(d)
| Approximately 4.72.4 million RSUs outstanding as of December 31, 20112013 are expected to vest over time. |
| |
(e)(e)
| Approximately 1.60.9 million of the 2.21.1 million SSARs wereare exercisable as of December 31, 2011.2013. The Company assumes that theall unvested SSARs are expected to vest over time. SSARs outstanding as of December 31, 20112013 had an intrinsic value of $36$59 million and have a weighted average remaining contractual life of 2.61.8 years. |
During 2011, 20102013, 2012 and 2009,2011, the Company issuedgranted incentive equity awards totaling $47$54 million $45, $51 million and $27$47 million, respectively, to the Company’sCompany's key employees and senior officers in the form of RSUs and SSARs. The 20112013, 2012 and 20102011 awards will vest ratably over a period of four years. A portion of the 2009 awards will vest over a period of three years and the remaining portion will vest ratably over a period of four years. In addition, during 2013, 2012 and 2011, the Company approved a grantgrants of incentive equity awards totaling $14 million, $12 million and $11 million respectively, to key employees and senior officers of Wyndhamthe Company in the form of PSUs. These awards cliff vest on the third anniversary of the grant date, contingent upon the Company achieving certain performance metrics. As of December 31, 2011,2013, there were approximately 350,000492,000 PSUs outstanding with an aggregate unrecognized compensation expense of $8 million.$17 million.
The fair value of SSARs granted by the Company during
2011, 20102013, 2012 and
20092011 was estimated on the date of
the grant using the Black-Scholes option-pricing model with the
relevant weighted average assumptions outlined in the table below. Expected volatility is based on both historical and implied volatilities of
(i) the Company’s stock
and (ii) the stock of comparable companies over the estimated expected life of the SSARs. The expected life represents the period of time the SSARs are expected to be outstanding and is based on
historical experience given consideration to the
“simplified method,” as defined in Staff Accounting Bulletin 110.contractual terms and vesting periods of the SSARs. The risk free interest rate is based on yields on U.S. Treasury strips with a maturity similar to the estimated expected life of the SSARs. The projected dividend yield was based on the Company’s anticipated annual dividend divided by the
twelve-month target price of the Company’s stock on the date of the grant.
| | | | | | | | | | | | |
| | | SSARs Issued on | |
| | | 2/24/2011 | | | 2/24/2010 | | | 2/27/2009 | |
Grant date fair value | | $ | 11.22 | | | $ | 8.66 | | | $ | 2.02 | |
Grant date strike price | | $ | 30.61 | | | $ | 24.84 | | | $ | 3.69 | |
Expected volatility | | | 50.83% | | | | 53.0% | | | | 81.0% | |
Expected life | | | 4.25 yrs. | | | | 4.25 yrs. | | | | 4.00 yrs. | |
Risk free interest rate | | | 1.85% | | | | 2.07% | | | | 1.95% | |
Projected dividend yield | | | 1.96% | | | | 2.10% | | | | 1.60% | |
|
| | | | | | | | | | | |
| | SSARs Issued on |
| | 02/28/2013 | | 03/01/2012 | | 02/24/2011 |
| Grant date fair value | $ | 19.93 |
| | $ | 15.34 |
| | $ | 11.22 |
|
| Grant date strike price | $ | 60.24 |
| | $ | 44.57 |
| | $ | 30.61 |
|
| Expected volatility | 44.56 | % | | 43.34 | % | | 50.83 | % |
| Expected life | 5 years |
| | 6 years |
| | 4.25 years |
|
| Risk free interest rate | 0.80 | % | | 1.21 | % | | 1.85 | % |
| Projected dividend yield | 1.93 | % | | 2.06 | % | | 1.96 | % |
Stock-Based Compensation Expense
The Company recorded stock-based compensation expense of $42$53 million $39, $41 million and $37$42 million during 2011, 20102013, 2012 and 20092011, respectively, related to the incentive equity awards granted by the Company. The Company recognized $16 million, $15 million and $10 million of a net tax benefit of $21 million,$16 million and $16 millionduring 2011, 20102013, 2012 and 2009,2011, respectively, for stock-based compensation arrangements on the Consolidated Statements of Income. During May 2009,2013, 2012 and 2011, the Company recorded a $4 million charge toincreased its provision for income taxes related to additional vesting of RSUs as there was no pool of excess tax benefits available to absorb tax deficiencies (“APIC Pool”). During 2010 by $15 million, $33 million and 2011, the Company increased its APIC Pool by $12$18 million and $18 million,, respectively, due to the vesting of RSUs and exercise of stock options.RSUs. As of December 31, 2011,2013, the Company’s APIC Pool balance was $30 million.$78 million.
The Company withheld $31paid $31 million $24, $55 million and $1$31 million of taxes for the net share settlement of incentive equity awards during 2011, 20102013, 2012 and 2009,2011, respectively. Such amounts areamount is included in other, net within financing activities on the Consolidated Statements of Cash Flows.Incentive Equity Awards Conversion
Prior to August 1, 2006, all employee stock awards (stock options and RSUs) were granted by Cendant. At the time of Separation, a portion of Cendant’s outstanding equity awards were converted into equity awards of
the Company at a ratio of one share of the Company’s common stock for every five shares of Cendant’s common stock. As a result, the Company issued approximately 2 million RSUs and approximately 24 million stock options upon completion of the conversion of existing Cendant equity awards into Wyndham equity awards. On August 1, 2006, all 2 million converted RSUs vested and, as such, there are no converted RSUs outstanding as of such date. As of December 31, 2011, there were 1.7 million converted stock options outstanding.
The activity related to the converted stock options for the year ended December 31, 2011 consisted of the following:
| | | | | | | | |
| | | Number of
Options | | | Weighted
Average
Exercise Price | |
Balance as of December 31, 2010 | | | 2.6 | | | $ | 36.75 | |
Exercised(a) | | | (0.4 | ) | | | 27.66 | |
Canceled | | | (0.5 | ) | | | 36.16 | |
| | | | | | | | |
Balance as of December 31, 2011(b) | | | 1.7 | | | | 38.92 | |
| | | | | | | | |
(a) | Stock options exercised during 2011, 2010 and 2009 had an intrinsic value of $2 million, $13 million and $0, respectively.
|
(b)20. | As of December 31, 2011, the Company had 0.2 million outstanding “in the money” stock options with an aggregate intrinsic value of $1.4 million. All 1.7 million options were exercisable as of December 31, 2011. Options outstanding and exercisable as of December 31, 2011 have a weighted average remaining contractual life of 0.2 years.
|
The following table summarizes information regarding the outstanding and exercisable converted stock options as of December 31, 2011:
| | | | | | | | |
| | | Number
of Options | | | Weighted
Average
Exercise Price | |
$20.00 – $29.99 | | | 0.1 | | | $ | 27.25 | |
$30.00 – $39.99 | | | 0.4 | | | | 39.06 | |
$40.00 & above | | | 1.2 | | | | 40.14 | |
| | | | | | | | |
Total Options | | | 1.7 | | | | 38.92 | |
| | | | | | | | |
20. | Employee Benefit Plans |
Defined Contribution Benefit Plans
Wyndham sponsors a domestic defined contribution savings plan and a domestic deferred compensation plan that provide certain eligible employees of the Company an opportunity to accumulate funds for retirement. The Company matches the contributions of participating employees on the basis specified by each plan. The Company’s cost for these plans was $24$28 million $21, $27 million and $19$24 million during 2011, 20102013, 2012 and 2009,2011, respectively.
In addition, the Company contributes to several foreign employee benefit contributory plans which also provide eligible employees with an opportunity to accumulate funds for retirement. The Company’s contributory cost for these plans was $19$22 million $16, $19 million and $14$19 million during 2011, 20102013, 2012 and 2009,2011, respectively.
Defined Benefit Pension Plans
The Company sponsors defined benefit pension plans for certain foreign subsidiaries. Under these plans, benefits are based on an employee’s years of credited service and a percentage of final average compensation or as otherwise described by the plan. As of December 31, 20112013 and 2010,2012, the Company’s net pension liability of $13$15 million and $11$18 million, respectively, is fully recognizedreported as other non-current liabilities on the Consolidated Balance Sheets. As of December 31, 2011,2013, the Company recorded $1$2 million and $5$7 million, respectively, within AOCI on the Consolidated Balance Sheet as an unrecognized prior service credit and unrecognized loss. As ofDecember 31, 2010,2012, the Company recorded $1$1 million and $2$10 million respectively, within AOCI on the Consolidated Balance Sheet as an unrecognized prior service credit and unrecognized loss.loss, respectively.
The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts that the Company determines to be appropriate. During 2011, 20102013, 2012 and 2009,2011, the Company recorded pension expense of $3$4 million $2, $3 million and $2 million.$3 million, respectively.
21. | |
| 21. | Segment Information |
The reportable segments presented below represent the Company’s operating segments for which
discreteseparate financial information is available and which
areis utilized on a regular basis by its chief operating decision maker to assess performance and to allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon
net revenues and
“EBITDA,”“EBITDA”, which is defined as net income before depreciation and amortization, interest expense (excluding consumer financing interest),
early extinguishment of debt, interest income (excluding consumer financing interest) and income taxes, each of which is presented on the Consolidated Statements of Income. The Company believes that EBITDA is a useful measure of performance for
the Company’sits industry segments which, when considered with GAAP measures, the Company believes gives a more complete understanding of
the Company’sits operating performance. The Company’s presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.
YEAR ENDED OR
ASOF DECEMBER DECEMBER 31,
2011 | | | | | | | | | | | | | | | | | | | | |
| | | Lodging | | | Vacation
Exchange
and Rentals | | | Vacation
Ownership | | | Corporate
and
Other (b) | | | Total | |
Net revenues(a) | | $ | 749 | | | $ | 1,444 | | | $ | 2,077 | | | $ | (16) | | | $ | 4,254 | |
EBITDA | | | 157 | (c) | | | 368 | (d) | | | 515 | (e) | | | (84) | (f) | | | 956 | |
Depreciation and amortization | | | 44 | | | | 80 | | | | 38 | | | | 16 | | | | 178 | |
Segment assets | | | 1,662 | | | | 2,619 | | | | 4,688 | | | | 54 | | | | 9,023 | |
Capital expenditures | | | 85 | | | | 89 | | | | 37 | | | | 28 | | | | 239 | |
YEAR ENDED2013
|
| | | | | | | | | | | | | | | | | | | |
| | Lodging | | Vacation Exchange and Rentals | | Vacation Ownership | | Corporate and Other (c) | | Total |
Net revenues (a) (b) | $ | 1,027 |
| | $ | 1,526 |
| | $ | 2,515 |
| | $ | (59 | ) | | $ | 5,009 |
|
| EBITDA | 279 |
| | 356 |
| | 619 |
| | (122 | ) | | 1,132 |
|
| Depreciation and amortization | 54 |
| | 87 |
| | 47 |
| | 28 |
| | 216 |
|
| Segment assets | 1,843 |
| | 2,878 |
| | 4,812 |
| | 208 |
| | 9,741 |
|
| Capital expenditures | 51 |
| | 81 |
| | 66 |
| | 40 |
| | 238 |
|
YEAR ENDED OR
ASOF DECEMBER DECEMBER 31,
2010 | | | | | | | | | | | | | | | | | | | | |
| | | Lodging | | | Vacation
Exchange
and Rentals | | | Vacation
Ownership | | | Corporate
and
Other (b) | | | Total | |
Net revenues(a) | | $ | 688 | | | $ | 1,193 | | | $ | 1,979 | | | $ | (9) | | | $ | 3,851 | |
EBITDA | | | 189 | (g) | | | 293 | (h) | | | 440 | (i) | | | (24) | (f) | | | 898 | |
Depreciation and amortization | | | 42 | | | | 68 | | | | 46 | | | | 17 | | | | 173 | |
Segment assets | | | 1,659 | | | | 2,578 | | | | 4,893 | | | | 286 | | | | 9,416 | |
Capital expenditures | | | 35 | | | | 92 | | | | 31 | | | | 9 | | | | 167 | |
YEAR ENDED2012
|
| | | | | | | | | | | | | | | | | | | |
| | Lodging | | Vacation Exchange and Rentals | | Vacation Ownership | | Corporate and Other (c) | | Total |
Net revenues (a) | $ | 890 |
| | $ | 1,422 |
| | $ | 2,269 |
| | $ | (47 | ) | | $ | 4,534 |
|
| EBITDA | 272 |
| | 328 |
| | 549 |
| | (104 | ) | | 1,045 |
|
| Depreciation and amortization | 47 |
| | 80 |
| | 38 |
| | 20 |
| | 185 |
|
| Segment assets | 1,757 |
| | 2,703 |
| | 4,853 |
| | 150 |
| | 9,463 |
|
| Capital expenditures | 40 |
| | 77 |
| | 69 |
| | 22 |
| | 208 |
|
YEAR ENDED OR
ASOF DECEMBER DECEMBER 31,
2009 | | | | | | | | | | | | | | | | | | | | |
| | | Lodging | | | Vacation
Exchange
and Rentals | | | Vacation
Ownership | | | Corporate
and
Other(b) | | | Total | |
Net revenues(a) | | $ | 660 | | | $ | 1,152 | | | $ | 1,945 | | | $ | (7 | ) | | $ | 3,750 | |
EBITDA (j) | | | 175 | (k) | | | 287 | | | | 387 | (i) | | | (71 | )(f) | | | 778 | |
Depreciation and amortization | | | 41 | | | | 63 | | | | 54 | | | | 20 | | | | 178 | |
Segment assets | | | 1,564 | | | | 2,358 | | | | 5,152 | | | | 278 | | | | 9,352 | |
Capital expenditures | | | 29 | | | | 46 | | | | 29 | | | | 31 | | | | 135 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Lodging | | Vacation Exchange and Rentals | | Vacation Ownership | | Corporate and Other (c) | | Total |
Net revenues (a) | $ | 749 |
| | $ | 1,444 |
| | $ | 2,077 |
| | $ | (16 | ) | | $ | 4,254 |
|
| EBITDA | 157 |
| | 368 |
| | 515 |
| | (84 | ) | | 956 |
|
| Depreciation and amortization | 44 |
| | 80 |
| | 38 |
| | 16 |
| | 178 |
|
| Segment assets | 1,662 |
| | 2,619 |
| | 4,688 |
| | 54 |
| | 9,023 |
|
| Capital expenditures | 85 |
| | 89 |
| | 37 |
| | 28 |
| | 239 |
|
| |
(a) | Transactions between segments
Includes $39 million, $34 million and $10 million of inter-segment trademark fees within the Company's Lodging segment during 2013, 2012 and 2011, respectively, which is offset in expenses primarily at the Company's Vacation Ownership segment and are recorded at fair value and eliminated in consolidation. Inter-segment net revenues were not significant to the net revenues of any one segment.Corporate and Other. |
| |
(b) | Includes $6 million of hotel management reimbursable revenues which are charged to the Company's Vacation Ownership segment and are eliminated in Corporate and Other. |
| |
(c) | Includes the elimination of transactions between segments. |
(c) | Includes non-cash impairment charges of $44 million primarily related to the write-down of certain franchise and management agreements and development advance notes and $13 million related to a write-down of an international joint venture at the Company’s lodging business.
|
(d) | Includes (i) a $31 million net benefit resulting from a refund of value-added taxes, (ii) $7 million of restructuring costs incurred in connection with a strategic initiative commenced by the Company during 2010 and (iii) a $4 million charge related to the write-off of foreign exchange translation adjustments associated with the liquidation of a foreign entity.
|
(e) | Includes a $1 million benefit for the reversal of costs incurred as a result of various strategic initiatives commenced by the Company during 2008.
|
(f) | Includes $100 million, $78 million and $64 million of corporate costs during 2011, 2010 and 2009, respectively, and $16 million and $54 million of a net benefit and $6 million of a net expense related to the resolution of and adjustment to certain contingent liabilities and assets during 2011, 2010 and 2009, respectively.
|
(g) | Includes $1 million related to costs incurred in connection with the Company’s acquisition of the Tryp hotel brand during June 2010.
|
(h) | Includes (i) restructuring costs of $9 million and (ii) $6 million related to costs incurred in connection with the Company’s acquisitions of Hoseasons during March 2010, ResortQuest during September 2010 and James Villa Holidays during November 2010.
|
(i) | Includes a non-cash impairment charge of $4 million and $9 million during 2010 and 2009, respectively, 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.
|
(j) | Includes restructuring costs of $3 million, $6 million, $37 million and $1 million for Lodging, Vacation Exchange and Rentals, Vacation Ownership and Corporate and Other, respectively.
|
(k) | Includes a non-cash impairment charge of $6 million to reduce the value of an underperforming joint venture in the Company’s hotel management business.
|
Provided below is a reconciliation of EBITDA to
net income
before income taxes. | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
EBITDA | | $ | 956 | | | $ | 898 | | | $ | 778 | |
Depreciation and amortization | | | 178 | | | | 173 | | | | 178 | |
Interest expense | | | 152 | | | | 167 | | | | 114 | |
Interest income | | | (24 | ) | | | (5 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Income before income taxes | | $ | 650 | | | $ | 563 | | | $ | 493 | |
| | | | | | | | | | | | |
attributable to Wyndham shareholders.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| EBITDA | $ | 1,132 |
| | $ | 1,045 |
| | $ | 956 |
|
| Depreciation and amortization | 216 |
| | 185 |
| | 178 |
|
| Interest expense | 131 |
| | 132 |
| | 140 |
|
| Early extinguishment of debt | 111 |
| | 108 |
| | 12 |
|
| Interest income | (9 | ) | | (8 | ) | | (24 | ) |
| Income before income taxes | 683 |
| | 628 |
| | 650 |
|
| Provision for income taxes | 250 |
| | 229 |
| | 233 |
|
| Net income | 433 |
| | 399 |
| | 417 |
|
| Net (income)/loss attributable to noncontrolling interest | (1 | ) | | 1 |
| | — |
|
| Net income attributable to Wyndham shareholders | $ | 432 |
| | $ | 400 |
| | $ | 417 |
|
The geographic segment information provided below is classified based on the geographic location of the Company’s subsidiaries.
| | | | | | | | | | | | | | | | | | | | |
| | | United
States | | | United
Kingdom | | | Netherlands | | | All Other
Countries | | | Total | |
Year Ended or As of December 31, 2011 | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 3,037 | | | $ | 281 | | | $ | 271 | | | $ | 665 | | | $ | 4,254 | |
Net long-lived assets | | | 2,654 | | | | 420 | | | | 339 | | | | 314 | | | | 3,727 | |
| | | | | |
Year Ended or As of December 31, 2010 | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,864 | | | $ | 174 | | | $ | 242 | | | $ | 571 | | | $ | 3,851 | |
Net long-lived assets | | | 2,595 | | | | 419 | | | | 367 | | | | 312 | | | | 3,693 | |
| | | | | |
Year Ended or As of December 31, 2009 | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,863 | | | $ | 143 | | | $ | 209 | | | $ | 535 | | | $ | 3,750 | |
Net long-lived assets | | | 2,468 | | | | 218 | | | | 395 | | | | 309 | | | | 3,390 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | United States | | United Kingdom | | Netherlands | | All Other Countries | | Total |
| Year Ended or As of December 31, 2013 | | | | | | | | | | |
| Net revenues | | $ | 3,765 |
| | $ | 266 |
| | $ | 250 |
| | $ | 728 |
| | $ | 5,009 |
|
| Net long-lived assets | | 3,066 |
| | 459 |
| | 372 |
| | 400 |
| | 4,297 |
|
| Year Ended or As of December 31, 2012 | | | | | | | | | | |
| Net revenues | | $ | 3,340 |
| | $ | 258 |
| | $ | 255 |
| | $ | 681 |
| | $ | 4,534 |
|
| Net long-lived assets | | 2,873 |
| | 435 |
| | 351 |
| | 388 |
| | 4,047 |
|
| Year Ended or As of December 31, 2011 | | | | | | | | | | |
| Net revenues | | $ | 3,037 |
| | $ | 281 |
| | $ | 271 |
| | $ | 665 |
| | $ | 4,254 |
|
| Net long-lived assets | | 2,654 |
| | 420 |
| | 339 |
| | 314 |
| | 3,727 |
|
22. | |
| 22. | Restructuring and Impairments |
2013 Restructuring Plan
During 2013, the Company committed to an organizational realignment initiative at its lodging business, primarily focused on optimizing its marketing structure. In connection with this initiative, the Company recorded $8 million of personnel-related costs and $1 million of costs related to contract terminations, of which $2 million has been paid in cash and $1 million has been settled as non-cash. As of December 31, 2013, the Company had a liability of $6 million, which is expected to be paid in cash by the end of 2014.
2012 Restructuring Plans
During 2012, the Company committed to an organizational realignment initiative at its vacation exchange and rentals business, primarily focused on consolidating existing processes and optimizing its structure. Also during 2012, the Company implemented an organizational realignment initiative at its vacation ownership business, targeting the elimination of business function redundancies resulting from the Shell acquisition. During 2013, the Company recorded $2 million of additional facility-related expenses and increased its liability with $1 million of a non-cash adjustment associated with a facility closure. The Company also reduced its liability with $5 million of cash payments and reversed $1 million of previously recorded personnel costs. As of December 31, 2013, the Company had a liability of $3 million, which is expected to be paid in cash by January 2017. During 2012, the Company incurred costs of $7 million and reduced its liability with cash payments of $1 million. From the commencement of the 2012 restructuring plan through December 31, 2013, the Company has incurred a total of $8 million of expenses in connection with such plans.
2010
RESTRUCTURING PLANRestructuring Plan
During 2010, the Company committed to a strategic realignment initiative at its vacation exchange and rentals business targeted at reducing costs, primarily impacting the operations at certain vacation exchange call centers. During 2011,2013, the Company incurred $7 million of costs and reduced its liability with $9$1 million of cash payments. The remaining liability of $7$2 million is expected to be paid in cash; $6 million as of facility-related by the first quarter of 2020 and $1 million of personnel-related by the third quarter of 2012. During 2010, the Company incurred $9 million of costs. As of December 31, 2011, the Company has incurred $16 million of expenses related to the 2010 restructuring plan.2013
2008 RESTRUCTURING PLANDuring 2008, the Company committed to various strategic realignment initiatives targeted principally at reducing costs, enhancing organizational efficiency, reducing the Company’s need to access the asset-backed securities market and consolidating and rationalizing existing processes and facilities. During 2011, the Company reduced its liability with $7 million of cash payments and reversed $1 million of previously recorded facility-related expenses. The remaining liability of $3 million,, all of which is facility-related, is expected to be paid in cash by December 2013.over the remaining lease term which expires in the first quarter of 2020. During 2010,2011, the Company reduced its liability with $11incurred additional costs of $7 million in cash payments. During 2009, the Company recorded $47 million of incremental restructuring costs and reduced its liability with $50 million in cash payments and $15of $9 million. During 2012, the Company further reduced its liability with $4 million of other non-cash items. Ascash payments. From the commencement of the 2010 restructuring plan through December 31, 2011,2013, the Company has incurred $124a total of $16 million of expenses relatedin connection with such plan.
The table below includes activity for prior restructuring plans that are immaterial to the
2008 restructuring plan.Total costs associated with the 2008 restructuring plan for the year ended December 31, 2009 are summarized by segment as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Personnel
Related (a) | | | Facility
Related (b) | | | Asset Write-
off’s/Impairments (c) | | | Contract
Termination (d) | | | Total | |
Lodging | | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | |
Vacation Exchange and Rentals | | | 5 | | | | 1 | | | | — | | | | — | | | | 6 | |
Vacation Ownership | | | 1 | | | | 21 | | | | 14 | | | | 1 | | | | 37 | |
Corporate | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 10 | | | $ | 22 | | | $ | 14 | | | $ | 1 | | | $ | 47 | |
| | | | | | | | | | | | | | | | | | | | |
(a) | Represents severance benefits resulting from reductions of approximately 370 in staff. The Company formally communicated the termination of employment to all 370 employees, representing a wide range of employee groups. As of December 31, 2009, the Company had terminated all 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.
|
Company. The activity related to costs associated with the 2008 and 2010 restructuring plans is summarized by category as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Liability as of
December 31,
2008 | | | Costs
Recognized | | | Cash
Payments | | | Other
Non-cash | | | Liability as of
December 31,
2009 | |
Personnel-Related | | $ | 27 | | | $ | 10 | | | $ | (34) | | | $ | — | | | $ | 3 | |
Facility-Related | | | 13 | | | | 22 | | | | (16) | | | | (1 | ) | | | 18 | |
Asset Impairments | | | — | | | | 14 | | | | — | | | | (14 | ) | | | — | |
Contract Terminations | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 40 | | | $ | 47 | | | $ | (50) | | | $ | (15 | ) | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Liability as of
December 31,
2009 | | | Costs
Recognized | | | Cash
Payments | | | Other
Non-cash | | | Liability as of
December 31,
2010 | |
Personnel-Related | | $ | 3 | | | $ | 9 | (a) | | $ | (3) | | | $ | — | | | $ | 9 | |
Facility-Related | | | 18 | | | | — | | | | (7) | | | | — | | | | 11 | |
Contract Terminations | | | 1 | | | | — | | | | (1) | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 22 | | | $ | 9 | | | $ | (11) | | | | — | | | $ | 20 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Liability as of
December 31,
2010 | | | Costs
Recognized | | | Cash
Payments | | | Other
Non-cash | | | Liability as of
December 31,
2011 | |
Personnel-Related | | $ | 9 | | | $ | — | | | $ | (8) | | | $ | — | | | $ | 1 | |
Facility-Related | | | 11 | | | | 6 | (b) | | | (8) | | | | — | | | | 9 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 20 | | | $ | 6 | | | $ | (16) | | | $ | — | | | $ | 10 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Liability as of December 31, 2010 | | Costs Recognized | | Cash Payments | | Other | | Liability as of December 31, 2011 |
| Personnel-Related | $ | 9 |
| | $ | — |
| | $ | (8 | ) | | $ | — |
| | $ | 1 |
|
| Facility-Related | 11 |
| | 7 |
| | (8 | ) | | (1 | ) | (c) | 9 |
|
| | $ | 20 |
| | $ | 7 |
| | $ | (16 | ) | | $ | (1 | ) | | $ | 10 |
|
| | | | | | | | | | |
| | Liability as of December 31, 2011 | | Costs Recognized | | Cash Payments | | Other | | Liability as of December 31, 2012 |
| Personnel-Related | $ | 1 |
| | $ | 7 |
| (a) | $ | (2 | ) | | $ | — |
| | $ | 6 |
|
| Facility-Related | 9 |
| | — |
| | (4 | ) | | — |
| | 5 |
|
| | $ | 10 |
| | $ | 7 |
| | $ | (6 | ) | | $ | — |
| | $ | 11 |
|
| | | | | | | | | | |
| | Liability as of December 31, 2012 | | Costs Recognized | | Cash Payments | | Other | | Liability as of December 31, 2013 |
| Personnel-Related | $ | 6 |
| | $ | 8 |
| (b) | $ | (6 | ) | | $ | (2 | ) | (d) | $ | 6 |
|
| Facility-Related | 5 |
| | 2 |
| | (4 | ) | | 1 |
| (e) | 4 |
|
| Contract Terminations | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| | $ | 11 |
| | $ | 11 |
| | $ | (10 | ) | | $ | (1 | ) | | $ | 11 |
|
| |
(a)(a)
| Represents severance benefitscosts of $5 million and $2 million at the Company's vacation exchange and rentals and vacation ownership businesses, respectively, resulting from a reduction of approximately 330 in staff, primarily representing employees380 employees. |
| |
(b) | Represents severance costs incurred at a call center.the Company's lodging business. |
| |
(b)(c)
| Represents a reversal of previously recorded expenses at the Company's vacation ownership business. |
| |
(d) | Includes $7$1 million of costs incurreda reversal of previously recorded expenses at the Company’s vacation exchange and rentals business and $1 million of a reversal of previously recorded expensesnon-cash settlement at the Company’sCompany's lodging business. |
| |
(e) | Represents a non-cash adjustment to the liability at the Company's vacation ownership business. |
Impairments
During 2013, the Company recorded $8 million of non-cash impairment charges at its lodging business primarily related to a partial write-down of its Hawthorn trademark due to lower than anticipated growth in the brand. Such amount is recorded within asset impairments on the Consolidated Statement of Income.
IMPAIRMENTSDuring 2012, the Company recorded an $8 million non-cash impairment charge at its vacation exchange and rentals business resulting from the decision to rebrand the ResortQuest and Steamboat Resorts trade names to the Wyndham Vacation Rentals brand. Such amount is recorded within asset impairments on the Consolidated Statement of Income.
During 2011, the Company recorded non-cash charges at its lodging business for the write-down of (i) $30$30 million of management agreements, development advance notes and other receivables which arewere primarily due to operating and cash flow difficulties at several managed properties within the Wyndham Hotels and Resorts brand, (ii) $14$14 million of franchise and management agreements resulting from the loss of certain properties which were part of the 2005 acquisition of the Wyndham Hotels and Resorts brand and (iii) a $13$13 million investment in an international joint venture due to an impairment of cash flows as a result of the Company’s partner having an indirect relationship with the Libyan government. Such amounts are recorded within asset impairments on the Consolidated Statement of Income.During 2010, the Company recorded a non-cash charge
23. | |
| 23. | Separation Adjustments and Transactions with Former Parent andSubsidiaries |
Transfer of Cendant Corporate Liabilities and Issuanceof Guarantees to Cendant and Affiliates Pursuant to the Separation and Distribution Agreement, upon the distribution of the Company’s common stock to Cendant shareholders, the Company entered into certain guarantee commitments with Cendant (pursuant to the assumption of certain liabilities and the obligation to indemnify Cendant and Realogy and travel distribution services (“Travelport”) for such liabilities) and guarantee commitments related to deferred compensation arrangements with each of Cendant and Realogy. These guarantee arrangements primarily relate to certain contingent litigation liabilities, contingent tax liabilities, and Cendant contingent and other corporate liabilities, of which the Company assumed and is responsible for 37.5% while Realogy is responsible for the remaining 62.5%. The remaining amount of liabilities which were assumed by the Company in connection with the Separation was $49$39 million and $78$41 million as of December 31, 20112013 and 2010,2012, respectively. These amounts were comprised of certain Cendant corporate liabilities which were recorded on the books of Cendant as well as additional liabilities which were established for guarantees issued at the date of Separation, related to certain unresolved contingent matters and certain others that could arise during the guarantee period. Regarding the guarantees, if any of the companies responsible for all or a portion of such liabilities were to default in its payment of costs or expenses related to any such liability, the Company would be responsible for a portion of the defaulting party or parties’ obligation(s). The Company also provided a default guarantee related to certain deferred compensation arrangements related to certain current and former senior officers and directors of Cendant, Realogy and Travelport. These arrangements which are discussed in more detail below, have beenwere valued upon the Separation in accordance with the guidance for guarantees and recorded as liabilities on the Consolidated Balance Sheets. To the extent such recorded liabilities are not adequate to cover the ultimate payment amounts, such excess will be reflected as an expense to the results of operations in future periods.
As a result of the sale of Realogy on April 10, 2007, Realogy’s senior debt credit rating was downgraded to below investment grade. Under the Separation Agreement, if Realogy experienced such a change of control and suffered such a ratings downgrade, it was required to post a letter of credit in an amount acceptable to the Company and Avis Budget Group (formerly known as Cendant) to satisfy the fair value of Realogy’s indemnificationits obligations for the Cendant legacy contingent liabilities inliabilities. As of December 31, 2013, the event Realogy does not otherwise satisfy such obligations to the\extent they become due. On April 26, 2007, Realogy posted a $500 million irrevocable standby letter of credit from a major commercial bank in favor of Avis Budget Group and upon which demand may be made if Realogy does not otherwise satisfy its obligations for its share of the Cendant legacy contingent liabilities. The letter of credit can be adjusted from time to time based upon the outstanding contingent liabilities and has an expiration date of September 2013, subject to renewal and certain provisions. During December 2011, such letter of credit was reduced to $70 million. The posting of this letter of credit does not relieve or limit Realogy’s obligations for these liabilities.
$53 million.
As of December 31, 2011,2013, the $49$39 million of Separation related liabilities is comprised of $41$35 million for tax liabilities, $3$1 million for liabilities of previously sold businesses of Cendant, $3$1 million for other contingent and corporate liabilities and $2$2 million of liabilities where the calculated guarantee amount exceeded the contingent liability assumed at the date of Separation.Separation Date. In connection with these liabilities, $10$23 million is recorded in current due to former Parent and subsidiaries and $37$14 million is recorded in long-term due to former Parent and subsidiaries as of December 31, 20112013 on the Consolidated Balance Sheet. The Company will indemnify Cendant for these contingent liabilities and therefore any payments would be made to the third partythird-party would be through the former Parent. The $2$2 million relating to guarantees is recorded in other current liabilities as of December 31, 20112013 on the Consolidated Balance Sheet. The actual timing of payments relating to these liabilities is dependent on a variety of factors beyond the Company’s control. In addition, the Company had $1 million and $2 million, as of December 31, 2011, the Company has $3 million2013 and 2012 respectively, of receivables due from former Parent and subsidiaries primarily relating to income taxes, which is recorded in other current assets on the Consolidated Balance Sheet. Such receivables totaled $4 million as of December 31, 2010.Sheets.
Following is a discussion of the liabilities on which the Company issued guarantees.
Contingent tax liabilitiesPrior to the Separation, the Company and Realogy were 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’sCendant's tax liabilities that will provide the responsible party with a future, offsetting tax benefit.
On July 15, 2010, Cendant and the IRS agreed to settle the IRS examination
Table of Cendant’s taxable years 2003 through 2006. The agreements with the IRS close the IRS examination for tax periods prior to the Separation Date. The agreements with the IRS also include a resolution with respect to the tax treatment of the Company’s timeshare receivables, which resulted in the acceleration of unrecognized deferred tax liabilities as of the Separation Date. In connection with reaching agreement with the IRS to resolve the contingent federal tax liabilities at issue, the Company entered into an agreement with Realogy to clarify each party’s obligations under the tax sharing agreement. Under the agreement with Realogy, among other things, the parties specified that the Company has sole responsibility for taxes and interest associated with the acceleration of timeshare receivables income previously deferred for tax purposes, while Realogy will not seek any reimbursement for the loss of a step up in basis of certain assets.During 2010, the Company received $10 million in payment from Realogy and paid $155 million for all such tax liabilities including the final interest payable to Cendant, who is the taxpayer. As of December 31, 2011, the Company’s accrual for outstanding Cendant contingent tax liabilities was $41 million, which relates to legacy state and foreign tax issues that are expected to be resolved in the next few years.
Contents
24. | |
| 24. | Selected Quarterly Financial Data —- (unaudited) |
Provided below is selected unaudited quarterly financial data for 20112013 and 2010. | | | | | | | | | | | | | | | | |
| | | 2011 | |
| | | First | | | Second | | | Third | | | Fourth | |
Net revenues | | | | | | | | | | | | | | | | |
Lodging | | $ | 149 | | | $ | 190 | | | $ | 222 | | | $ | 188 | |
Vacation Exchange and Rentals | | | 356 | | | | 361 | | | | 436 | | | | 291 | |
Vacation Ownership | | | 450 | | | | 541 | | | | 559 | | | | 527 | |
Corporate and Other(a) | | | (3 | ) | | | (2 | ) | | | (5 | ) | | | (6 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 952 | | | $ | 1,090 | | | $ | 1,212 | | | $ | 1,000 | |
| | | | | | | | | | | | | | | | |
EBITDA | | | | | | | | | | | | | | | | |
Lodging | | $ | 27 | (b) | | $ | 66 | | | $ | 67 | | | $ | (3 | )(c) |
Vacation Exchange and Rentals | | | 93 | | | | 106 | (d) | | | 131 | (e) | | | 38 | |
Vacation Ownership | | | 97 | (f) | | | 130 | | | | 149 | | | | 139 | |
Corporate and Other(a) (g) | | | (14 | ) | | | (26 | ) | | | (18 | ) | | | (26 | ) |
| | | | | | | | | | | | | | | | |
| | | 203 | | | | 276 | | | | 329 | | | | 148 | |
Less: Depreciation and amortization | | | 45 | | | | 45 | | | | 43 | | | | 45 | |
Interest expense(h) | | | 44 | | | | 37 | (i) | | | 34 | | | | 37 | |
Interest income | | | (2 | ) | | | (2 | ) | | | (19 | )(j) | | | (1 | ) |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 116 | | | | 196 | | | | 271 | | | | 67 | |
Provision for income taxes | | | 44 | | | | 82 | | | | 96 | (k) | | | 11 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 72 | | | $ | 114 | | | $ | 175 | | | $ | 56 | |
| | | | | | | | | | | | | | | | |
Per share information | | | | | | | | | | | | | | | | |
Basic | | $ | 0.42 | | | $ | 0.68 | | | $ | 1.10 | | | $ | 0.37 | |
Diluted | | | 0.41 | | | | 0.67 | | | | 1.08 | | | | 0.37 | |
Weighted average diluted shares | | | 179 | | | | 170 | | | | 162 | | | | 154 | |
|
| | | | | | | | | | | | | | | |
| | 2013 |
| | First | | Second | | Third | | Fourth |
| Net revenues | | | | | | | |
| Lodging | $ | 222 |
| | $ | 262 |
| | $ | 297 |
| | $ | 245 |
|
| Vacation Exchange and Rentals | 374 |
| | 376 |
| | 470 |
| | 305 |
|
| Vacation Ownership | 549 |
| | 630 |
| | 677 |
| | 658 |
|
Corporate and Other (*) | (12 | ) | | (15 | ) | | (17 | ) | | (13 | ) |
| | $ | 1,133 |
| | $ | 1,253 |
| | $ | 1,427 |
| | $ | 1,195 |
|
| EBITDA | | | | | | | |
| Lodging | $ | 58 |
| | $ | 78 |
| | $ | 95 |
| | $ | 47 |
|
| Vacation Exchange and Rentals | 94 |
| | 85 |
| | 141 |
| | 36 |
|
| Vacation Ownership | 111 |
| | 161 |
| | 176 |
| | 172 |
|
Corporate and Other (*) | (29 | ) | | (27 | ) | | (33 | ) | | (33 | ) |
| | 234 |
| | 297 |
| | 379 |
| | 222 |
|
| Less: Depreciation and amortization | 52 |
| | 54 |
| | 54 |
| | 56 |
|
| Interest expense | 32 |
| | 34 |
| | 31 |
| | 34 |
|
| Early extinguishment of debt | 111 |
| | — |
| | — |
| | — |
|
| Interest income | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
| Income before income taxes | 41 |
|
| 211 |
|
| 296 |
|
| 134 |
|
| Provision for income taxes | 14 |
| | 78 |
| | 109 |
| | 48 |
|
| Net income attributable to Wyndham shareholders | $ | 27 |
| | $ | 133 |
| | $ | 187 |
| | $ | 86 |
|
| Per share information | | | | | | | |
| Basic | $ | 0.19 |
| | $ | 0.99 |
| | $ | 1.42 |
| | $ | 0.66 |
|
| Diluted | 0.19 |
| | 0.98 |
| | 1.40 |
| | 0.65 |
|
| Weighted average diluted shares outstanding | 138 |
| | 136 |
| | 133 |
| | 131 |
|
(a) | Includes the elimination of transactions between segments.
|
(b) | Includes a non-cash impairment charge $13 million related to a write-down of an international joint venture.
|
(c) | Includes non-cash impairment charges of $44 million primarily related to the write-down of certain franchise and management agreements and development advance notes.
|
(d) | Includes (i) $31 million of a net benefit resulting from a refund of value-added taxes and (ii) $7 million of restructuring costs incurred in connection with a strategic initiative commenced by the Company during 2010.
|
(e) | Includes a $4 million charge related to the write-off of foreign exchange translation adjustments associated with the liquidation of a foreign entity.
|
(f) | Includes a $1 million benefit for the reversal of costs incurred as a result of various strategic initiatives commenced by the Company during 2008.
|
(g) | Includes $11 million of a net benefit, $3 million of a net expense and $8 million of a net benefit related to the resolution of and adjustment to certain contingent liabilities and assets during the first, second and third quarter, respectively, and corporate costs of $24 million, $23 million, $26 million and $27 million during the first, second, third and fourth quarter, respectively.
|
(h) | Includes $11 million and $1 million of costs incurred for the repurchase of a portion of the Company’s convertible notes during the first and second quarter of 2011, respectively.
|
(i) | Includes $3 million of interest related to value-added tax accruals.
|
(j) | Includes $16 million of interest income related to a refund of value-added taxes.
|
(k) | Includes $13 million of a net benefit related to the reversal of a tax valuation allowance.
|
| | | | | | | | | | | | | | | | |
| | | 2010 | |
| | | First | | | Second | | | Third | | | Fourth | |
Net revenues | | | | | | | | | | | | | | | | |
Lodging | | $ | 144 | | | $ | 178 | | | $ | 203 | | | $ | 163 | |
Vacation Exchange and Rentals | | | 300 | | | | 281 | | | | 330 | | | | 282 | |
Vacation Ownership | | | 444 | | | | 505 | | | | 533 | | | | 497 | |
Corporate and Other(a) | | | (2 | ) | | | (1 | ) | | | (1 | ) | | | (5 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 886 | | | $ | 963 | | | $ | 1,065 | | | $ | 937 | |
| | | | | | | | | | | | | | | | |
EBITDA | | | | | | | | | | | | | | | | |
Lodging | | $ | 33 | | | $ | 49 | (b) | | $ | 67 | | | $ | 40 | |
Vacation Exchange and Rentals | | | 80 | (c) | | | 78 | | | | 103 | (d) | | | 32 | (e) |
Vacation Ownership | | | 82 | | | | 104 | | | | 123 | (f) | | | 131 | |
Corporate and Other(a) (g) | | | (20 | ) | | | (14 | ) | | | 30 | | | | (20 | ) |
| | | | | | | | | | | | | | | | |
| | | 175 | | | | 217 | | | | 323 | | | | 183 | |
Less: Depreciation and amortization | | | 44 | | | | 42 | | | | 43 | | | | 44 | |
Interest expense | | | 50 | (h) | | | 36 | | | | 47 | (i) | | | 34 | (i) |
Interest income | | | (1 | ) | | | (2 | ) | | | (2 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 82 | | | | 141 | | | | 235 | | | | 105 | |
Provision for income taxes | | | 32 | | | | 46 | | | | 79 | | | | 27 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 50 | | | $ | 95 | | | $ | 156 | | | $ | 78 | |
| | | | | | | | | | | | | | | | |
Per share information | | | | | | | | | | | | | | | | |
Basic | | $ | 0.28 | | | $ | 0.53 | | | $ | 0.88 | | | $ | 0.45 | |
Diluted | | | 0.27 | | | | 0.51 | | | | 0.84 | | | | 0.43 | |
Weighted average diluted shares | | | 186 | | | | 187 | | | | 184 | | | | 182 | |
(a) | Includes the elimination of transactions between segments.
|
(b) | Includes $1 million related to costs incurred in connection with the Company’s acquisition of the Tryp hotel brand during June 2010.
|
(c) | Includes $4 million related to costs incurred in connection with the Company’s acquisition of Hoseasons during March 2010.
|
(d) | Includes $1 million related to costs incurred in connection with the Company’s acquisition of ResortQuest during September 2010.
|
(e) | Includes (i) $9 million of restructuring costs and (ii) $1 million related to costs incurred in connection with the Company’s acquisition of James Villa Holidays during November 2010.
|
(f) | Includes non-cash impairment charges of $4 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.
|
(g) | Includes $2 million of a net expense, $1 million of a net benefit, $52 million of a net benefit and $3 million of a net benefit related to the resolution of and adjustment to certain contingent liabilities and assets during the first, second, third and fourth quarter, respectively, and corporate costs of $18 million, $14 million, $23 million and $23 million during the first, second, third and fourth quarter, respectively.
|
(h) | Includes $16 million of costs incurred for the early extinguishment of the Company’s revolving foreign credit facility and term loan facility during March 2010.
|
(i) | Includes $11 million and $3 million of costs incurred for the repurchase of a portion of the Company’s Convertible Notes during the third and fourth quarter, respectively.
|
EXHIBIT INDEX
Note: The sum of the quarters may not agree to the Consolidated Statements of Income as of December 31, 2013, due to rounding.
(*)Includes the elimination of transactions between segments.
|
| | | | | | | | | | | | | | | |
| | 2012 |
| | First | | Second | | Third | | Fourth |
| Net revenues | | | | | | | |
| Lodging | $ | 185 |
| | $ | 233 |
| | $ | 249 |
| | $ | 223 |
|
| Vacation Exchange and Rentals | 361 |
| | 348 |
| | 420 |
| | 293 |
|
| Vacation Ownership | 501 |
| | 570 |
| | 608 |
| | 590 |
|
Corporate and Other (*) | (11 | ) | | (12 | ) | | (12 | ) | | (12 | ) |
| | $ | 1,036 |
| | $ | 1,139 |
| | $ | 1,265 |
| | $ | 1,094 |
|
| EBITDA | | | | | | | |
| Lodging | $ | 49 |
| | $ | 75 |
| | $ | 86 |
| | $ | 62 |
|
| Vacation Exchange and Rentals | 95 |
| | 82 |
| | 123 |
| | 28 |
|
| Vacation Ownership | 103 |
| | 150 |
| | 154 |
| | 142 |
|
Corporate and Other (*) | (21 | ) | | (25 | ) | | (30 | ) | | (28 | ) |
| | 226 |
| | 282 |
| | 333 |
| | 204 |
|
| Less: Depreciation and amortization | 45 |
| | 46 |
| | 45 |
| | 49 |
|
| Interest expense | 33 |
| | 32 |
| | 32 |
| | 35 |
|
| Early extinguishment of debt | 106 |
| | — |
| | 2 |
| | — |
|
| Interest income | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
| Income before income taxes | 44 |
| | 206 |
| | 256 |
| | 122 |
|
| Provision for income taxes | 13 |
| | 78 |
| | 97 |
| | 41 |
|
| Net Income | $ | 31 |
| | $ | 128 |
| | $ | 159 |
| | $ | 81 |
|
| Net loss attributable to noncontrolling interest | 1 |
| | — |
| | — |
| | — |
|
| Net income attributable to Wyndham shareholders | $ | 32 |
| | $ | 128 |
| | $ | 159 |
| | $ | 81 |
|
| Per share information | | | | | | | |
| Basic | $ | 0.22 |
| | $ | 0.89 |
| | $ | 1.13 |
| | $ | 0.58 |
|
| Diluted | 0.21 |
| | 0.88 |
| | 1.11 |
| | 0.57 |
|
| Weighted average diluted shares outstanding | 149 |
| | 147 |
| | 144 |
| | 141 |
|
(*) Includes the elimination of transactions between segments.
Exhibit Index
|
| |
2.1Number No. | Description of Exhibit |
| 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 Exhibit 2.1 to the Registrant’sRegistrant'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 Exhibit 2.2 to the Registrant’sRegistrant's Form 10-Q filed November 14, 2006) |
| |
| 3.1 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.13.2 to the Registrant’sRegistrant's Form 8-K filed July 19, 2006) |
| May 10, 2012) |
3.2 | | Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed March 3, 2011) |
| |
3.3 | 3.2 | Amended and Restated By-Laws (incorporated by reference to Exhibit 3.23.3 to the Registrant’sRegistrant's Form 8-K filed July 19, 2006) |
| May 10, 2012) |
4.1 | |
| 4.1 | Indenture, dated December 5, 2006, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2016 (incorporated by reference to Exhibit 4.1 to the Registrant’sRegistrant's Form 8-K filed February 1, 2007) |
| |
| 4.2 | | Form of 6.00% Senior Notes due 2016 (included within Exhibit 4.1) |
| |
| 4.3 | | Indenture, dated November 20, 2008, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’sRegistrant's Form S-3 filed November 25, 2008) |
| |
| 4.4 | | First Supplemental Indenture, dated May 18, 2009, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2014 (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed May 19, 2009) |
| |
4.5 | | Form of Senior Notes due 2014 (included within Exhibit 4.4) |
| |
4.6 | | Second Supplemental Indenture, dated May 19, 2009, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Convertible Notes due 2012 (incorporated by reference to Exhibit 4.3 to the Registrant’s Form 8-K filed May 19, 2009) |
| |
4.7 | | Form of Convertible Notes due 2012 (included within Exhibit 4.6) |
| |
4.8 | | Third Supplemental Indenture, dated February 25, 2010, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to the Registrant’sRegistrant's Form 8-K filed February 26, 2010) |
| |
4.9 | 4.5 | Form of 7.375% Senior Notes due 2020 (included within Exhibit 4.8) |
| 4.4) |
4.10 | |
| 4.6 | Fourth Supplemental Indenture, dated September 20, 2010, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to the Registrant’sRegistrant's Form 8-K filed September 23, 2010) |
| |
4.11 | 4.7 | Form of 5.75% Senior Notes due 2018 (included within Exhibit 4.10) |
| 4.6) |
4.12 | |
| 4.8 | Fifth Supplemental Indenture, dated March 1, 2011, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the Registrant’sRegistrant's Form 8-K filed March 3, 2011) |
| | |
Exhibit
Number
| | Description of Exhibit
|
| |
4.13 | 4.9 | Form of 5.625% Senior Notes due 2021 (included within Exhibit 4.12)4.8) |
| |
10.14.10 | | Employment Agreement with Stephen P. Holmes,Sixth Supplemental Indenture, dated March 7, 2012, between Wyndham Worldwide Corporation and U.S. Bank National Association, as of July 31, 2006Trustee, respecting Senior Notes due 2017 and 2022 (incorporated by reference to Exhibit 10.44.1 to the Registrant’sRegistrant's Form 10-12B/A8-K filed JulyMarch 7, 2006)2012) |
| |
10.24.11 | Form of 2.95% Senior Notes due 2017 (included within Exhibits 4.10 and 4.13) |
| |
Amendment No. 1 to Employment Agreement with Stephen P. Holmes,4.12 | Form of 4.25% Senior Notes due 2022 (included within Exhibits 4.10 and 4.13) |
| |
| 4.13 | Seventh Supplemental Indenture, dated December 31, 2008March 15, 2012, between Wyndham Worldwide Corporation and U.S. Bank National Association, as Trustee, respecting Senior Notes due 2017 and 2022 (incorporated by reference to Exhibit 10.24.2 to the Registrant’sRegistrant's Form 10-K8-K filed February 27, 2009)March 15, 2012) |
| |
10.34.14 | | Amendment No. 2 to Employment Agreement with Stephen P. Holmes,Eighth Supplemental Indenture, dated February 22, 2013, between Wyndham Worldwide Corporation and U.S. Bank National Association, as of November 19, 2009Trustee, respecting Senior Notes due 2018 and 2023 (incorporated by reference to Exhibit 10.34.1 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.4 | | Employment Agreement with Franz S. Hanning, dated as of November 19, 2009 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.5 | | Amendment No. 1 to Employment Agreement with Franz S. Hanning, dated March 1, 2011 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q filed April 29, 2011) |
| |
10.6 | | Employment Agreement with Geoffrey A. Ballotti, dated as of March 31, 2008 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-K filed February 27, 2009) |
| |
10.7 | | Amendment No. 1 to Employment Agreement with Geoffrey A. Ballotti, dated December 31, 2008 (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-K filed February 27, 2009) |
| |
10.8 | | Amendment No. 2 to Employment Agreement with Geoffrey A. Ballotti, dated December 16, 2009 (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.9 | | Amendment No. 3 to Employment Agreement with Geoffrey A. Ballotti, dated March 1, 2011 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q filed April 29, 2011) |
| |
10.10 | | Employment Agreement with Eric A. Danziger, dated as of November 17, 2008 (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.11 | | Letter Agreement with Eric A. Danziger, dated December 1, 2008 (incorporated by reference to Exhibit 10.9 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.12 | | Amendment No. 1 to Employment Agreement with Eric A. Danziger, dated December 16, 2009 (incorporated by reference to Exhibit 10.10 to the Registrant’s Form 10-K filed February 19, 2010) |
| |
10.13 | | Amendment No. 2 to Employment Agreement with Eric A. Danziger, dated March 1, 2011 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q filed April 29, 2011) |
| |
10.14 | | Employment Agreement with Thomas G. Conforti, dated as of September 8, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed November 5, 2009) |
| |
10.15 | | Wyndham Worldwide Corporation 2006 Equity and Incentive Plan (Amended and Restated as of May 12, 2009) (incorporated by reference to Exhibit 10.1 to the Registrant’sRegistrant's Form 8-K filed May 18, 2009)February 22, 2013) |
| |
10.16 | | Amendment to the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan (Amended and Restated as of May 12, 2009) (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed May 18, 2010) |
| |
10.17* | 4.15 | Form of Award Agreement for Restricted Stock Units2.50% Senior Notes due 2018 (included within Exhibit 4.14) |
| |
10.18* | 4.16 | Form of Award Agreement for Stock Appreciation Rights3.90% Senior Notes due 2023 (included within Exhibit 4.14) |
| |
10.19 | | Form of Cash-Based Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10- Q filed May 7, 2009) |
| | |
Exhibit
Number
| | Description of Exhibit
|
| |
10.20 | | Wyndham Worldwide Corporation Savings Restoration Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 8-K filed July 19, 2006) |
| |
10.21 | | Amendment Number One to Wyndham Worldwide Corporation Savings Restoration Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.17 to the Registrant’s Form 10-K filed February 27, 2009) |
| |
10.22 | | Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed July 19, 2006) |
| |
10.23 | | First Amendment to Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.48 to the Registrant’s Form 10-K filed March 7, 2007) |
| |
10.24 | | Amendment Number Two to the Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-K filed February 27, 2009) |
| |
10.25 | | Wyndham Worldwide Corporation Officer Deferred Compensation Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 8-K filed July 19, 2006) |
| |
10.26 | | Amendment Number One to Wyndham Worldwide Corporation Officer Deferred Compensation Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K filed February 27, 2009) |
| |
10.27 | | Transition Services Agreement among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of July 27, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed July 31, 2006) |
| |
10.28 | | Tax Sharing Agreement among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of July 28, 2006 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed July 31, 2006) |
| |
10.29 | | Amendment, executed July 8, 2008 and effective as of July 28, 2006 to Tax Sharing Agreement, entered into as of July 28, 2006, by and among Avis Budget Group, Inc., Realogy Corporation and Wyndham Worldwide Corporation (incorporated by Reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed August 8, 2008) |
| |
10.30 | | Agreement, dated as of July 15, 2010, between Wyndham Worldwide Corporation and Realogy Corporation clarifying Tax Sharing Agreement, dated as of July 28, 2006, among Realogy Corporation, Cendant Corporation, Wyndham Worldwide Corporation and Travelport, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed July 21, 2010) |
| |
10.31 | | Credit Agreement, dated as of July 15, 2011,May 22, 2013, among Wyndham Worldwide Corporation, the lenders party to the agreement from time to time, Bank of America, N.A., as Administrative Agent, JP Morgan Chase Bank, N.A., as Syndication Agent, The Bank of Nova Scotia, Deutsche Bank Securities Inc., The Royal Bank of Scotland PLC, Credit Suisse AG, Cayman Islands Branch, Compass Bank, and U.S. Bank National Association and SunTrust Bank, as co-documentation agents, andCo-Documentation Agents, Wells Fargo Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and National AustraliaGoldman Sachs Bank Limited,USA, as Managing Agents (incorporated by reference to Exhibit 10.1 to the Registrant’sRegistrant's Form 10-Q filed October 26, 2011)July 24, 2013) |
|
| |
10.32 | | Form of Declaration of Vacation Owner Program of WorldMark, the Club (incorporated by reference to Exhibit 10.26 to the Registrant’s Form 10-12B filed May 11, 2006) |
| |
10.33 | | Management Agreement, dated as of January 1, 1996, by and between Fairshare Vacation Owners Association and Fairfield Communities, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-12B filed May 11, 2006) |
| | |
Exhibit
Number
| | Description of Exhibit
|
| |
10.34 | | Second Amended and Restated FairShare Vacation Plan Use Management Trust Agreement, dated as of March 14, 2008 by and among Fairshare Vacation Owners Association, Wyndham Vacation Resorts, Inc., Fairfield Myrtle Beach, Inc., such other subsidiaries and affiliates of Wyndham Vacation Resorts, Inc. and such other unrelated third parties as may from time to time desire to subject property interests to this Trust Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s From 10-Q filed May 8, 2008) |
| |
10.35 | | First Amendment to the Second Amended and Restated FairShare Vacation Plan Use Management Trust Agreement, effective as of March 16, 2009, by and between the Fairshare Vacation Owners Association and Wyndham Vacation Resorts, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q filed May 7, 2009) |
| |
10.36 | | 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. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed April 30, 2010) |
| |
10.37 | 10.2 | Amended and Restated Indenture and Servicing Agreement, dated as of October 1, 2010, by and among Sierra Timeshare Conduit Receivables Funding II, LLC, as Issuer, Wyndham Consumer Finance, Inc., as Servicer, Wells Fargo Bank, National Association, as Trustee and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 99.1 to the Registrant’sRegistrant's Form 8-K filed October 5, 2010) |
| |
10.38 | 10.3 | First Amendment, dated as of June 28, 2011, to the Amended and Restated Indenture and Servicing Agreement, dated as of October 1, 2010, by and among Sierra Timeshare Conduit Receivables Funding II, LLC, as Issuer, Wyndham Consumer Finance, Inc., as Servicer, Wells Fargo Bank, National Association, as Trustee and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Registrant’sRegistrant's Form 10-Q filed August 1, 2011) |
| |
| 10.4 | Third Amendment, dated as of August 30, 2012, to the Amended and Restated Indenture and Servicing Agreement, dated as of October 1, 2010, by and among Sierra Timeshare Conduit Receivables Funding II, LLC, as Issuer, Wyndham Consumer Finance, Inc., as Servicer, Wells Fargo Bank, National Association, as Trustee and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed October 24, 2012) |
| |
| 10.5 | Fourth Amendment, dated as of August 29, 2013, to the Amended and Restated Indenture and Servicing Agreement, dated as of October 1, 2010, by and among Sierra Timeshare Conduit Receivables Funding II, LLC, as Issuer, Wyndham Consumer Finance, Inc., as Servicer, Wells Fargo Bank, National Association, as Trustee and U.S. Bank National Association, as Collateral Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed October 23, 2013) |
| |
| 10.6 | Employment Agreement with Stephen P. Holmes, dated as of July 31, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-12B/A filed July 7, 2006) |
| |
| 10.7 | Amendment No. 1 to Employment Agreement with Stephen P. Holmes, dated December 31, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.8 | Amendment No. 2 to Employment Agreement with Stephen P. Holmes, dated as of November 19, 2009 (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.9 | Amendment No. 3 to Employment Agreement with Stephen P. Holmes, dated December 31, 2012 (incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K filed February 15, 2013) |
| |
| 10.10 | Amendment No. 4 to Employment Agreement with Stephen P. Holmes, dated May 16, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed July 24, 2013) |
| |
| 10.11 | Employment Agreement with Franz S. Hanning, dated as of November 19, 2009 (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.12 | Amendment No. 1 to Employment Agreement with Franz S. Hanning, dated March 1, 2011 (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q filed April 29, 2011) |
| |
| 10.13 | Amendment No. 2 to Employment Agreement with Franz S. Hanning, dated March 15, 2013 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q/A (Amendment No. 1) filed April 29, 2013) |
| |
| 10.14 | Employment Agreement with Geoffrey A. Ballotti, dated as of March 31, 2008 (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.15 | Amendment No. 1 to Employment Agreement with Geoffrey A. Ballotti, dated December 31, 2008 (incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.16 | Amendment No. 2 to Employment Agreement with Geoffrey A. Ballotti, dated December 16, 2009 (incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.17 | Amendment No. 3 to Employment Agreement with Geoffrey A. Ballotti, dated March 1, 2011 (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q filed April 29, 2011) |
| |
| 10.18 | Employment Agreement with Eric A. Danziger, dated as of November 17, 2008 (incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.19 | Letter Agreement with Eric A. Danziger, dated December 1, 2008 (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.20 | Amendment No. 1 to Employment Agreement with Eric A. Danziger, dated December 16, 2009 (incorporated by reference to Exhibit 10.10 to the Registrant's Form 10-K filed February 19, 2010) |
| |
| 10.21 | Amendment No. 2 to Employment Agreement with Eric A. Danziger, dated March 1, 2011 (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-Q filed April 29, 2011) |
| |
| 10.22 | Amendment No. 3 to Employment Agreement with Eric A. Danziger, dated March 15, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q/A (Amendment No. 1) filed April 29, 2013) |
| |
|
| |
12*10.23 | Employment Agreement with Thomas G. Conforti, dated as of September 8, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed November 5, 2009) |
| |
| 10.24 | Amendment No. 1 to Employment Agreement with Thomas G. Conforti, dated May 11, 2012 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed July 25, 2012) |
| |
| 10.25 | Wyndham Worldwide Corporation 2006 Equity and Incentive Plan (Amended and Restated as of May 12, 2009) (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed May 18, 2009) |
| |
| 10.26 | Amendment to the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan (Amended and Restated as of May 12, 2009) (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed May 18, 2010) |
| |
| 10.27 | Form of Award Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.17 to the Registrant's Form 10-K filed February 17, 2012) |
| |
| 10.28 | Form of Award Agreement for Stock Appreciation Rights (incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K filed February 17, 2012) |
| |
| 10.29 | Wyndham Worldwide Corporation Savings Restoration Plan (incorporated by reference to Exhibit 10.7 to the Registrant's Form 8-K filed July 19, 2006) |
| |
| 10.30 | Amendment Number One to Wyndham Worldwide Corporation Savings Restoration Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.17 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.31 | Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant's Form 8-K filed July 19, 2006) |
| |
| 10.32 | First Amendment to Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.48 to the Registrant's Form 10-K filed March 7, 2007) |
| |
| 10.33 | Amendment Number Two to the Wyndham Worldwide Corporation Non-Employee Directors Deferred Compensation Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.34 | Wyndham Worldwide Corporation Officer Deferred Compensation Plan (incorporated by reference to Exhibit 10.8 to the Registrant's Form 8-K filed July 19, 2006) |
| |
| 10.35 | Amendment Number One to Wyndham Worldwide Corporation Officer Deferred Compensation Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K filed February 27, 2009) |
| |
| 10.36 | Amendment No. 2 to Wyndham Worldwide Corporation Officer Deferred Compensation Plan, dated December 31, 2012 (incorporated by reference to Exhibit 10.32 to the Registrant's Form 10-K filed February 15, 2013) |
| |
| 10.37 | Transition Services Agreement among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of July 27, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed July 31, 2006) |
| |
| 10.38 | Tax Sharing Agreement among Cendant Corporation, Realogy Corporation, Wyndham Worldwide Corporation and Travelport Inc., dated as of July 28, 2006 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed July 31, 2006) |
| |
| 10.39 | Amendment, executed July 8, 2008 and effective as of July 28, 2006 to Tax Sharing Agreement, entered into as of July 28, 2006, by and among Avis Budget Group, Inc., Realogy Corporation and Wyndham Worldwide Corporation (incorporated by Reference to Exhibit 10.1 to the Registrant's Form 10-Q filed August 8, 2008) |
| |
| 10.40 | Agreement, dated as of July 15, 2010, between Wyndham Worldwide Corporation and Realogy Corporation clarifying Tax Sharing Agreement, dated as of July 28, 2006, among Realogy Corporation, Cendant Corporation, Wyndham Worldwide Corporation and Travelport, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed July 21, 2010) |
| |
| 12* | Computation of Ratio of Earnings to Fixed Charges |
| |
| 21.1* | | Subsidiaries of the Registrant |
| |
| 23.1* | | Consent of Independent Registered Public Accounting Firm |
| |
| 31.1* | | Certification of Chairman and Chief Executive Officer pursuantPursuant to Rule 13(a)-14 under13a-14(a) Under the Securities Exchange Act of 1934 |
| |
|
| |
| 31.2* | | Certification of Chief Financial Officer pursuantPursuant to Rule 13(a)-14 under13a-14(a) Under the Securities Exchange Act of 1934 |
| |
| 32* | * | Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of the United States Code |
| |
101.INS** | | XBRL Instance documentDocument |
| |
101.SCH** | | XBRL Taxonomy Extension Schema Document |
| |
101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF** | | XBRL Taxonomy Label Linkbase Document |
| |
101.LAB** | | XBRL Taxonomy Presentation Linkbase Document |
| |
101.PRE** | | XBRL Taxonomy Extension Definition Linkbase Document |
| |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed with this report
| |
| ** | Furnished with this report |
