Attached files

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EX-32 - CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICE - Wyndham Destinations, Inc.wyn-ex32_2016331xq1.htm
EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Wyndham Destinations, Inc.wyn-ex12_2016331xq1.htm
EX-10.1 - CREDIT AGREEMENT, DATED AS OF MARCH 24, 2016 - Wyndham Destinations, Inc.wyn-ex101_2016331xq1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Wyndham Destinations, Inc.wyn-ex312_2016331xq1.htm
EX-31.1 - CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER - Wyndham Destinations, Inc.wyn-ex311_2016331xq1.htm
EX-15 - LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION - Wyndham Destinations, Inc.wyn-ex15_2016331xq1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to        
Commission file number. 001-32876
Wyndham Worldwide Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
20-0052541
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
22 Sylvan Way
 
07054
Parsippany, New Jersey
 
(Zip Code)
(Address of Principal Executive Offices)
 
 
(973) 753-6000
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
111,951,682 shares of common stock outstanding as of March 31, 2016.




Table of Contents

 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
Item 2.
 
Item 3.
Item 4.
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Wyndham Worldwide Corporation

We have reviewed the accompanying consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (the "Company") as of March 31, 2016, and the related consolidated statements of income, comprehensive income, cash flows and equity for the three-month periods ended March 31, 2016 and 2015. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2015, and the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended prior to retrospective adjustment for a change in the Company’s method of presentation of debt issuance costs (not presented herein); and in our report dated February 12, 2016, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2015 consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (not presented herein). In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted consolidated balance sheet as of December 31, 2015.





/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 26, 2016




WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2016
 
2015
Net revenues
 
 
 
Service and membership fees
$
634

 
$
599

Vacation ownership interest sales
342

 
336

Franchise fees
138

 
147

Consumer financing
107

 
104

Other
82

 
76

Net revenues
1,303

 
1,262


Expenses
 
 
 
Operating
613

 
564

Cost of vacation ownership interests
37

 
33

Consumer financing interest
18

 
18

Marketing and reservation
192

 
195

General and administrative
186

 
181

Restructuring

 
(1
)
Depreciation and amortization
62

 
56

Total expenses
1,108

 
1,046


Operating income
195

 
216

Other (income)/expense, net
(10
)
 
(5
)
Interest expense
33

 
26

Early extinguishment of debt
11

 

Interest income
(2
)
 
(3
)
Income before income taxes
163

 
198

Provision for income taxes
67

 
76

Net income
$
96

 
$
122


Earnings per share
 
 
 
Basic
$
0.85

 
$
1.01

Diluted
0.84

 
1.00

 
 
 
 
Cash dividends declared per share
$
0.50

 
$
0.42



See Notes to Consolidated Financial Statements.
2

WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income
$
96

 
$
122

Other comprehensive income/(loss), net of tax
 
 
 
Foreign currency translation adjustments
36

 
(80
)
Unrealized gains/(losses) on cash flow hedges
1

 
(4
)
Defined benefit pension plans
(1
)
 

Other comprehensive income/(loss), net of tax
36

 
(84
)
Comprehensive income
$
132

 
$
38



See Notes to Consolidated Financial Statements.
3

WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)



 
March 31,
2016
 
December 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
318

 
$
171

Trade receivables, net
810

 
586

Vacation ownership contract receivables, net
270

 
272

Inventory
293

 
295

Prepaid expenses
177

 
153

Deferred income taxes
144

 
126

Other current assets
337

 
266

Total current assets
2,349

 
1,869

Long-term vacation ownership contract receivables, net
2,430

 
2,438

Non-current inventory
961

 
964

Property and equipment, net
1,403

 
1,399

Goodwill
1,564

 
1,563

Trademarks, net
726

 
726

Franchise agreements and other intangibles, net
389

 
397

Other non-current assets
343

 
333

Total assets
$
10,165

 
$
9,689

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Securitized vacation ownership debt
$
207

 
$
209

Current portion of long-term debt
45

 
44

Accounts payable
634

 
394

Deferred income
596

 
483

Accrued expenses and other current liabilities
774

 
827

Total current liabilities
2,256

 
1,957

Long-term securitized vacation ownership debt
1,919

 
1,897

Long-term debt
3,261

 
3,031

Deferred income taxes
1,306

 
1,252

Deferred income
198

 
198

Other non-current liabilities
385

 
401

Total liabilities
9,325

 
8,736

Commitments and contingencies (Note 10)

 

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 218,109,675 shares in 2016 and 217,534,615 shares in 2015
2

 
2

Treasury stock, at cost – 106,248,706 shares in 2016 and 103,730,568 shares in 2015
(4,668
)
 
(4,493
)
Additional paid-in capital
3,913

 
3,923

Retained earnings
1,628

 
1,592

Accumulated other comprehensive loss
(38
)
 
(74
)
Total stockholders’ equity
837

 
950

Noncontrolling interest
3

 
3

Total equity
840

 
953

Total liabilities and equity
$
10,165

 
$
9,689


See Notes to Consolidated Financial Statements.
4

WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2016
 
2015
Operating Activities
 
 
 
Net income
$
96

 
$
122

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
62

 
56

Provision for loan losses
63

 
46

Deferred income taxes
41

 
27

Stock-based compensation
14

 
15

Excess tax benefits from stock-based compensation
(6
)
 
(17
)
Loss on early extinguishment of debt
11

 

Non-cash interest
5

 
6

Net change in assets and liabilities, excluding the impact of acquisitions:
 
 
 
Trade receivables
(219
)
 
(224
)
Vacation ownership contract receivables
(43
)
 
(14
)
Inventory
(1
)
 
(1
)
Prepaid expenses
(24
)
 
(31
)
Other current assets
(27
)
 
(1
)
Accounts payable, accrued expenses and other current liabilities
178

 
190

Deferred income
105

 
91

Other, net
6

 
(12
)
Net cash provided by operating activities
261

 
253

Investing Activities
 
 
 
Property and equipment additions
(43
)
 
(56
)
Net assets acquired, net of cash acquired

 
(60
)
Payments of development advance notes
(2
)
 
(3
)
Proceeds from development advance notes

 
4

Equity investments and loans
(6
)
 
(8
)
Proceeds from asset sales

 
4

Increase in securitization restricted cash
(22
)
 
(19
)
Increase in escrow deposit restricted cash
(17
)
 
(10
)
Other, net

 
(1
)
Net cash used in investing activities
(90
)
 
(149
)
Financing Activities
 
 
 
Proceeds from securitized borrowings
643

 
514

Principal payments on securitized borrowings
(620
)
 
(491
)
Proceeds from long-term debt
25

 
31

Principal payments on long-term debt
(42
)
 
(60
)
Proceeds from commercial paper, net
234

 
158

Proceeds from term loan
325

 

Repurchases of notes
(327
)
 

Proceeds from vacation ownership inventory arrangements
1

 

Repayments of vacation ownership inventory arrangements
(5
)
 

Dividends to shareholders
(60
)
 
(54
)
Repurchase of common stock
(168
)
 
(154
)
Excess tax benefits from stock-based compensation
6

 
17

Debt issuance costs
(7
)
 
(9
)
Net share settlement of incentive equity awards
(30
)
 
(41
)
Other, net
(2
)
 
(2
)
Net cash used in financing activities
(27
)
 
(91
)
Effect of changes in exchange rates on cash and cash equivalents
3

 
(16
)
Net increase/(decrease) in cash and cash equivalents
147

 
(3
)
Cash and cash equivalents, beginning of period
171

 
183

Cash and cash equivalents, end of period
$
318

 
$
180


See Notes to Consolidated Financial Statements.
5

WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited)


 
Common Shares Outstanding
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)/ Income
 
Non-controlling Interest
 
Total Equity
Balance as of December 31, 2015
114

 
$
2

 
$
(4,493
)
 
$
3,923

 
$
1,592

 
$
(74
)
 
$
3

 
$
953

Net income

 

 

 

 
96

 

 

 
96

Other comprehensive income

 

 

 

 

 
36

 

 
36

Issuance of shares for RSU vesting
1

 

 

 

 

 

 

 

Net share settlement of incentive equity awards

 

 

 
(30
)
 

 

 

 
(30
)
Change in deferred compensation

 

 

 
14

 

 

 

 
14

Repurchase of common stock
(3
)
 

 
(175
)
 

 

 

 

 
(175
)
Change in excess tax benefit on equity awards

 

 

 
6

 

 

 

 
6

Dividends

 

 

 

 
(60
)
 

 

 
(60
)
Balance as of March 31, 2016
112


$
2


$
(4,668
)

$
3,913


$
1,628


$
(38
)

$
3

 
$
840



 
Common Shares Outstanding
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income/(Loss)
 
Non-controlling Interest
 
Total Equity
Balance as of December 31, 2014
121

 
$
2

 
$
(3,843
)
 
$
3,889

 
$
1,183

 
$
24

 
$
2

 
$
1,257

Net income

 

 

 

 
122

 

 

 
122

Other comprehensive loss

 

 

 

 

 
(84
)
 

 
(84
)
Issuance of shares for RSU vesting
1

 

 

 

 

 

 

 

Net share settlement of incentive equity awards

 

 

 
(41
)
 

 

 

 
(41
)
Change in deferred compensation

 

 

 
15

 

 

 

 
15

Repurchase of common stock
(2
)
 

 
(150
)
 

 

 

 

 
(150
)
Change in excess tax benefit on equity awards

 

 

 
17

 

 

 

 
17

Dividends

 

 

 

 
(53
)
 

 

 
(53
)
Other

 

 

 
1

 

 

 

 
1

Balance as of March 31, 2015
120

 
$
2

 
$
(3,993
)
 
$
3,881

 
$
1,252

 
$
(60
)
 
$
2

 
$
1,084



See Notes to Consolidated Financial Statements.
6


WYNDHAM WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except share and per share amounts)
(Unaudited)

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 interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the Company’s 2015 Consolidated Financial Statements included in its Annual Report filed on Form 10-K with the Securities and Exchange Commission on February 12, 2016.

Business Description
The Company operates in the following business segments:
Hotel Group—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.
Destination Network—provides vacation exchange services and products to owners of intervals of vacation ownership interests (“VOIs”) and manages 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.

Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The guidance was effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years. In re-deliberations, the FASB approved a one-year deferral of the effective date of this guidance, such that it will be effective on January 1, 2018. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.
Consolidation. In February 2015, the FASB issued guidance related to management’s evaluation of consolidation for certain legal entities. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In April 2015, the FASB issued guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. If a cloud computing arrangement does not contain a software license, it should be accounted for as a service contract. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. In August 2015, the FASB further clarified its issued guidance by stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred issuance costs ratably over the term of the line-of-credit arrangements. This guidance required retrospective application and is effective for fiscal years

7


beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. See Note 5 - Long-Term Debt and Borrowing Arrangements for additional information regarding the adoption of the new guidance.
Simplifying the Measurement of Inventory. In July 2015, the FASB issued guidance related to simplifying the measurement of inventory. This guidance requires an entity to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. This guidance is effective prospectively for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.
Simplifying the Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued guidance simplifying the accounting for measurement-period adjustments related to a business combination. The guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.
Income Taxes. In November 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The guidance requires deferred tax assets and liabilities to be classified as noncurrent in the Consolidated Balance Sheet. The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. This guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company had $1,252 million of noncurrent deferred tax liabilities and $126 million of current deferred tax assets as of December 31, 2015. Upon adoption of this guidance, the Company will retrospectively apply it to the 2015 Consolidated Balance Sheet by reclassifying current deferred tax assets of approximately $74 million to noncurrent deferred tax assets and approximately $52 million to noncurrent deferred tax liabilities.
Leases. In February 2016, the FASB issued guidance which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.
Compensation - Stock Compensation. In March 2016, the FASB issued guidance which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.


8


2.
Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is based on net income 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):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income
$
96

 
$
122

Basic weighted average shares outstanding
113

 
121

SSARs (a), RSUs (b) and PSUs (c)
1

 
1

Diluted weighted average shares outstanding
114

 
122

Earnings per share:
 
 
 
Basic
$
0.85

 
$
1.01

Diluted
0.84

 
1.00

Dividends:
 
 
 
Aggregate dividends paid to shareholders
$
60

 
$
54


(a) 
Excludes stock-settled appreciation rights (“SSARs”) that would have been anti-dilutive to EPS.
(b) 
Includes unvested dilutive restricted stock units (“RSUs”) which are subject to future forfeitures.
(c) 
Excludes 0.6 million performance vested restricted stock units (“PSUs”) for both the three months ended March 31, 2016 and 2015, as the Company has not met the required performance metrics.

Stock Repurchase Program

The following table summarizes stock repurchase activity under the current stock repurchase program (in millions, except per share data):
 
Shares
 
Cost
 
 Average Price Per Share
As of December 31, 2015
79.2

 
$
3,712

 
$
46.85

For the three months ended March 31, 2016
2.5

 
175

 
69.48

As of March 31, 2016
81.7

 
$
3,887

 
47.55


The Company had $1.2 billion of remaining availability under its program as of March 31, 2016. The total capacity of the program was increased by proceeds received from stock option exercises.


9


3.
Vacation Ownership Contract Receivables
The Company generates vacation ownership contract receivables by extending financing to the purchasers of its VOIs. Current and long-term vacation ownership contract receivables, net consisted of:
 
March 31,
2016
 
December 31,
2015
Current vacation ownership contract receivables:
 
 
 
Securitized
$
242

 
$
248

Non-securitized
83

 
81

Current vacation ownership receivables, gross
325

 
329

Less: Allowance for loan losses
55

 
57

Current vacation ownership contract receivables, net
$
270

 
$
272

Long-term vacation ownership contract receivables:
 
 
 
Securitized
$
2,170

 
$
2,214

Non-securitized
774

 
748

Long-term vacation ownership receivables, gross
2,944

 
2,962

Less: Allowance for loan losses
514

 
524

Long-term vacation ownership contract receivables, net
$
2,430

 
$
2,438


The Company’s securitized vacation ownership contract receivables generated interest income of $82 million during both the three months ended March 31, 2016 and 2015. Such interest income is included within consumer financing on the Consolidated Statements of Income.

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. During the three months ended March 31, 2016 and 2015, the Company originated vacation ownership contract receivables of $245 million and $220 million, respectively, and received principal collections of $202 million and $206 million, respectively. The weighted average interest rate on outstanding vacation ownership contract receivables was 13.8% as of both March 31, 2016 and December 31, 2015.

The activity in the allowance for loan losses on vacation ownership contract receivables was as follows:
 
Amount
Allowance for loan losses as of December 31, 2015
$
581

Provision for loan losses
63

Contract receivables write-offs, net
(75
)
Allowance for loan losses as of March 31, 2016
$
569

 
Amount
Allowance for loan losses as of December 31, 2014
$
581

Provision for loan losses
46

Contract receivables write-offs, net
(62
)
Allowance for loan losses as of March 31, 2015
$
565

In accordance with the guidance for accounting for real estate time-sharing transactions, the Company recorded a provision for loan losses of $63 million and $46 million as a reduction of net revenues during the three months ended March 31, 2016 and 2015, respectively.

Credit Quality for Financed Receivables and the Allowance for Credit Losses
The basis of the differentiation within the identified class of financed VOI contract receivables 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 300850 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 to ensure that all

10


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 Asia Pacific (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 policy described above):
 
As of March 31, 2016
 
700+
 
600-699
 
<600
 
No Score
 
Asia Pacific
 
Total
Current
$
1,609

 
$
1,009

 
$
169

 
$
116

 
$
239

 
$
3,142

31 - 60 days
15

 
22

 
15

 
5

 
3

 
60

61 - 90 days
10

 
13

 
10

 
3

 
2

 
38

91 - 120 days
5

 
11

 
10

 
2

 
1

 
29

Total
$
1,639

 
$
1,055

 
$
204

 
$
126

 
$
245

 
$
3,269

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
700+
 
600-699
 
<600
 
No Score
 
Asia Pacific
 
Total
Current
$
1,623

 
$
1,023

 
$
163

 
$
115

 
$
231

 
$
3,155

31 - 60 days
16

 
25

 
17

 
5

 
2

 
65

61 - 90 days
10

 
14

 
11

 
3

 
1

 
39

91 - 120 days
7

 
11

 
11

 
2

 
1

 
32

Total
$
1,656

 
$
1,073

 
$
202

 
$
125

 
$
235

 
$
3,291

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 loan losses. In accordance with its policy, the Company assesses the allowance for loan losses using a static pool methodology and thus does not assess individual loans for impairment separate from the pool.

11


4.
Inventory
Inventory consisted of:
 
March 31,
2016
 
December 31,
2015
Land held for VOI development
$
137

 
$
136

VOI construction in process
67

 
62

Inventory sold subject to conditional repurchase
144

 
155

Completed VOI inventory
609

 
604

Estimated recoveries
239

 
242

Destination network vacation credits and other
58

 
60

Total inventory
1,254

 
1,259

Less: Current portion (*)
293

 
295

Non-current inventory
$
961

 
$
964

 
(*) 
Represents inventory that the Company expects to sell within the next 12 months.

During the three months ended March 31, 2016 and 2015, the Company transferred $6 million and $15 million, respectively, from property and equipment to VOI inventory. In addition to the inventory obligations listed below, as of March 31, 2016, the Company had $20 million of inventory accruals of which $10 million was included in accrued expenses and other current liabilities and $10 million was included in accounts payable on the Consolidated Balance Sheet. As of December 31, 2015, the Company had $27 million of inventory accruals of which $20 million was included in accrued expenses and other current liabilities and $7 million was included in accounts payable on the Consolidated Balance Sheet.

Inventory Sale Transactions
During 2015, the Company sold real property located in St. Thomas, U.S. Virgin Islands (“St. Thomas”) to a third-party developer, consisting of $80 million of vacation ownership inventory, in exchange for $70 million in cash consideration and a $10 million receivable which is expected to be paid in 2016. During 2013, the Company sold real property located in Las Vegas, Nevada and Avon, Colorado to a third-party developer, consisting of vacation ownership inventory and property and equipment.

The Company recognized no gain or loss on these sales transactions. In accordance with the agreements with the third-party developers, the Company has conditional rights and conditional obligations to repurchase the completed properties from the developers subject to the properties conforming to the Company's vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party. Under the sale of real estate accounting guidance, the conditional rights and obligations of the Company constitute continuing involvement and thus the Company was unable to account for these transactions as a sale.

During 2014, the Company acquired the property located in Avon, Colorado from the third-party developer. In connection with this acquisition, the Company had an outstanding obligation of $32 million as of both March 31, 2016 and December 31, 2015, of which $11 million was included within accrued expenses and other current liabilities and $21 million was included within other non-current liabilities on the Consolidated Balance Sheets.

In connection with the Las Vegas, Nevada and St. Thomas properties, the Company had outstanding obligations of $146 million as of March 31, 2016, of which $40 million were included within accrued expenses and other current liabilities and $106 million were included within other non-current liabilities on the Consolidated Balance Sheet. During the first quarter of 2016, the Company paid $13 million to the third-party developer, of which $6 million was for vacation ownership inventory located in Las Vegas, Nevada, $5 million was for its obligation under the vacation ownership inventory arrangements and $2 million was accrued interest. As of December 31, 2015, the Company had an outstanding obligation related to the Las Vegas property of $157 million, of which $33 million was included within accrued expenses and other current liabilities and $124 million was included within other non-current liabilities on the Consolidated Balance Sheet.


12


The Company has guaranteed to repurchase the completed properties located in Las Vegas, Nevada and St. Thomas from the third-party developers subject to the properties meeting the Company’s vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party. The maximum potential future payments that the Company could be required to make under these commitments was $294 million as of March 31, 2016.

5.
Long-Term Debt and Borrowing Arrangements
The Company’s indebtedness consisted of:
 
March 31,
2016
 
December 31,
2015
Securitized vacation ownership debt: (a)
 
 
 
Term notes (b)
$
2,005

 
$
1,867

Bank conduit facility (due August 2017)
121

 
239

Total securitized vacation ownership debt
2,126

 
2,106

Less: Current portion of securitized vacation ownership debt
207

 
209

Long-term securitized vacation ownership debt
$
1,919

 
$
1,897

Long-term debt: (c)
 
 
 
Revolving credit facility (due July 2020)
$
10

 
$
7

Commercial paper
343

 
109

Term loan (due March 2021)
323

 

$315 million 6.00% senior unsecured notes (due December 2016) (d)

 
316

$300 million 2.95% senior unsecured notes (due March 2017)
299

 
299

$14 million 5.75% senior unsecured notes (due February 2018)
14

 
14

$450 million 2.50% senior unsecured notes (due March 2018)
448

 
448

$40 million 7.375% senior unsecured notes (due March 2020)
40

 
40

$250 million 5.625% senior unsecured notes (due March 2021)
247

 
247

$650 million 4.25% senior unsecured notes (due March 2022) (e)
648

 
648

$400 million 3.90% senior unsecured notes (due March 2023) (f)
408

 
408

$350 million 5.10% senior unsecured notes (due October 2025) (g)
337

 
337

Capital leases
158

 
153

Other
31

 
49

Total long-term debt
3,306

 
3,075

Less: Current portion of long-term debt
45

 
44

Long-term debt
$
3,261

 
$
3,031

 
(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 (which legally are not liabilities of the Company) are collateralized by $2,548 million and $2,576 million of underlying gross vacation ownership contract receivables and related assets (which legally are not assets of the Company) as of March 31, 2016 and December 31, 2015, respectively.
(b)
The carrying amounts of the term notes are net of debt issuance costs aggregating $26 million and $24 million as of March 31, 2016 and December 31, 2015, respectively.
(c) 
The carrying amounts of the senior unsecured notes and term loan are net of unamortized discounts of $13 million and $14 million as of March 31, 2016 and December 31, 2015, respectively. The carrying amounts of the senior unsecured notes and term loan are net of debt issuance costs of $5 million and $3 million as of March 31, 2016 and December 31, 2015, respectively.
(d) 
Includes $1 million of unamortized gains from the settlement of a derivative as of December 31, 2015.
(e) 
Includes $2 million of unamortized gains from the settlement of a derivative as of both March 31, 2016 and December 31, 2015.
(f) 
Includes $10 million and $11 million of unamortized gains from the settlement of a derivative as of March 31, 2016 and December 31, 2015, respectively.
(g) 
Includes $10 million of unamortized losses from the settlement of a derivative as of both March 31, 2016 and December 31, 2015.


13


Long-Term Debt
The $300 million 2.95% senior unsecured notes due in March 2017 are classified as long-term as the Company has the intent to refinance such debt on a long-term basis and the ability to do so with its revolving credit facility.

Debt Issuances
Sierra Timeshare 2016-1 Receivables Funding, LLC. During March 2016, the Company closed a series of term notes payable, Sierra Timeshare 2016-1 Receivables Funding, LLC, with an initial principal amount of $425 million, which are secured by vacation ownership contract receivables and bear interest at a weighted average coupon rate of 3.20%. The advance rate for this transaction was 88.85%. As of March 31, 2016, the Company had outstanding borrowings under these term notes of $419 million, net of debt issuance costs.

Term Loan. During March 2016, the Company entered into a five-year $325 million term loan agreement which matures on March 24, 2021. The term loan currently bears interest at LIBOR plus a spread. As of March 31, 2016, the term loan had a weighted average interest rate of 1.89%. The term loan can be paid at the Company’s option in whole or part at any time prior to maturity. The interest on the term loan will be subject to adjustments from time to time if there are downgrades to the Company’s credit ratings. The term loan requires principal payments, payable in equal quarterly installments, of 5% per annum of the original loan balance, commencing with the third anniversary of the loan, and 10% per annum of the original loan balance commencing with the fourth anniversary of the loan, with the remaining balance payable at maturity.

Commercial Paper
The Company maintains U.S. and European commercial paper programs with a total capacity of $750 million and $500 million, respectively. As of March 31, 2016, the Company had outstanding borrowings of $343 million at a weighted average interest rate of 1.07%, all of which were under its U.S. commercial paper program. As of December 31, 2015, the Company had outstanding borrowings of $109 million at a weighted average interest rate of 1.07%, all of which were under its U.S. commercial paper program. The Company considers outstanding borrowings under its commercial paper programs to be a reduction of available capacity on its revolving credit facility.

Fair Value Hedges
During 2013, the Company entered into fixed to variable interest rate swap agreements (the “Swaps”) on its 3.90% and 4.25% senior unsecured notes (the “Senior Notes”) with notional amounts of $400 million and $100 million, respectively. The fixed interest rates on these notes were effectively modified to a variable LIBOR-based index. During May 2015, the Company terminated the Swaps and received $17 million of cash which was included within other, net in operating activities on the Consolidated Statement of Cash Flows. The Company had $12 million and $13 million of deferred gains as of March 31, 2016 and December 31, 2015, respectively. Such gains were included within long-term debt on the Consolidated Balance Sheets. Such gains will be recognized within interest expense on the Consolidated Statements of Income over the remaining life of the Senior Notes.

Deferred Financing Costs
The Company adopted the guidance on the presentation of debt issuance costs on January 1, 2016, as required. As a result, the Company retrospectively applied the guidance to the 2015 Consolidated Balance Sheet by reclassifying $27 million of debt issuance costs previously classified within other non-current assets of which $24 million was for securitized vacation ownership debt and $3 million was for long-term debt. In addition, the Company has elected to continue to classify debt issuance costs related to the revolving credit facility and the bank conduit facility within other non-current assets on the Consolidated Balance Sheet. Such debt issuance costs were $14 million and $15 million as of March 31, 2016 and December 31, 2015, respectively.


14


Maturities and Capacity
The Company’s outstanding debt as of March 31, 2016 matures as follows:
 
Securitized Vacation Ownership Debt
 
Long-Term Debt
 
Total
Within 1 year
$
207

 
$
344

(*) 
$
551

Between 1 and 2 years
210

 
478

 
688

Between 2 and 3 years
291

 
18

 
309

Between 3 and 4 years
213

 
74

 
287

Between 4 and 5 years
227

 
912

 
1,139

Thereafter
978

 
1,480

 
2,458

 
$
2,126

 
$
3,306

 
$
5,432

 
(*)    Includes $299 million of senior unsecured notes that the Company classified as long-term debt as it has the intent to refinance such debt on a long-
term basis and the ability to do so with its revolving credit facility.

Debt maturities of the securitized vacation ownership debt are based on the contractual payment terms of the underlying vacation ownership contract receivables. As such, actual maturities may differ as a result of prepayments by the vacation ownership contract receivable obligors.

As of March 31, 2016, available capacity under the Company’s borrowing arrangements was as follows:
 
Securitized Bank
Conduit Facility
(a)
 
Revolving
Credit Facility
 
Total Capacity
$
650

 
$
1,500

 
Less: Outstanding Borrowings
121

 
10

 
          Letters of credit

 
1

 
          Commercial paper borrowings

 
343

(b) 
Available Capacity
$
529

 
$
1,146

 
 
(a) 
The capacity of this facility is subject to the Company’s ability to provide additional assets to collateralize additional securitized borrowings.
(b) 
The Company considers outstanding borrowings under its commercial paper programs to be a reduction of the available capacity of its revolving credit facility.

Early Extinguishment of Debt
During the first quarter of 2016, the Company redeemed the remaining portion of its 6.00% senior unsecured notes for a total of $327 million. As a result, the Company incurred a loss of $11 million during the three months ended March 31, 2016, which is included within early extinguishment of debt on the Consolidated Statement of Income.

Interest Expense
During the three months ended March 31, 2016, the Company incurred non-securitized interest expense of $33 million, which primarily consisted of $34 million of interest on long-term debt, partially offset by $1 million of capitalized interest. Such amounts are included within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company’s non-securitized debt was $53 million during the three months ended March 31, 2016.

During the three months ended March 31, 2015, the Company incurred non-securitized interest expense of $26 million, which primarily consisted of $29 million of interest on long-term debt, partially offset by $2 million of capitalized interest and $1 million of gains resulting from the ineffectiveness of fair value hedges. Such amounts are included within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company’s non-securitized debt was $43 million during the three months ended March 31, 2015.

Interest expense incurred in connection with the Company’s securitized vacation ownership debt was $18 million during both the three months ended March 31, 2016 and 2015, and is recorded within consumer financing interest on the Consolidated Statements of Income. Cash paid related to such interest was $12 million and $14 million during the three months ended March 31, 2016 and 2015, respectively.


15


6.
Variable Interest Entities
In accordance with the applicable accounting guidance for the consolidation of a variable interest entity (“VIE”), the Company analyzes its variable interests, including loans, guarantees, SPEs and equity investments to determine if an entity in which the Company has a variable interest is 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 into its financial statements those VIEs for which it has determined that it is the primary beneficiary.

Vacation Ownership Contract Receivables Securitizations
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, (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 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 non-recourse debt that is securitized through the SPEs is legally not a liability of the Company and thus, the creditors have no recourse to the Company for principal and interest.

The assets and liabilities of these vacation ownership SPEs are as follows:
 
March 31,
2016
 
December 31,
2015
Securitized contract receivables, gross (a)
$
2,412

 
$
2,462

Securitized restricted cash (b)
115

 
92

Interest receivables on securitized contract receivables (c)
20

 
20

Other assets (d)
4

 
5

Total SPE assets
2,551

 
2,579

Securitized term notes (e) (f)
2,005

 
1,867

Securitized conduit facilities (e)
121

 
239

Other liabilities (g)
2

 
2

Total SPE liabilities
2,128

 
2,108

SPE assets in excess of SPE liabilities
$
423

 
$
471

 
(a) 
Included in current ($242 million and $248 million as of March 31, 2016 and December 31, 2015, respectively) and non-current ($2,170 million and $2,214 million as of March 31, 2016 and December 31, 2015, respectively) vacation ownership contract receivables on the Consolidated Balance Sheets.
(b) 
Included in other current assets ($92 million and $73 million as of March 31, 2016 and December 31, 2015, respectively) and other non-current assets ($23 million and $19 million as of March 31, 2016 and December 31, 2015, respectively) on the Consolidated Balance Sheets.
(c) 
Included in trade receivables, net on the Consolidated Balance Sheets.
(d) 
Primarily includes deferred financing costs for the bank conduit facility and a security investment asset, which is included in other non-current assets on the Consolidated Balance Sheets.
(e) 
Included in current ($207 million and $209 million as of March 31, 2016 and December 31, 2015, respectively) and long-term ($1,919 million and $1,897 million as of March 31, 2016 and December 31, 2015, respectively) securitized vacation ownership debt on the Consolidated Balance Sheets.
(f) 
Includes deferred financing costs of $26 million and $24 million as of March 31, 2016 and December 31, 2015, respectively, related to securitized debt.
(g) 
Primarily includes accrued interest on securitized debt, which is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets.


16


In addition, the Company has vacation ownership contract receivables that have not been securitized through bankruptcy-remote SPEs. Such gross receivables were $857 million and $829 million as of March 31, 2016 and December 31, 2015, 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:
 
March 31,
2016
 
December 31,
2015
SPE assets in excess of SPE liabilities
$
423

 
$
471

Non-securitized contract receivables
857

 
829

Less: Allowance for loan losses
569

 
581

Total, net
$
711

 
$
719


In addition to restricted cash related to securitizations, the Company had $76 million and $59 million of restricted cash related to escrow deposits as of March 31, 2016 and December 31, 2015, respectively, which are recorded within other current assets on the Consolidated Balance Sheets.

Midtown 45, NYC Property
During 2013, the Company entered into an agreement with a third-party partner whereby the partner acquired the Midtown 45 property in New York City through an SPE. The Company is managing and operating the property for rental purposes while the Company converts it into VOI inventory. The SPE financed the acquisition and planned renovations with a four-year mortgage note and mandatorily redeemable equity provided by related parties of such partner. At the time of the agreement, the Company committed to purchase such VOI inventory from the SPE over a four-year period which 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 of the SPE are as follows:
 
March 31,
2016
 
December 31,
2015
Receivable for leased property and equipment (a)
$
29

 
$
47

Total SPE assets
29

 
47

Accrued expenses and other current liabilities

 
1

Long-term debt (b)
30

 
46

Total SPE liabilities
30

 
47

SPE deficit
$
(1
)
 
$

 
(a)  
Represents a receivable for assets leased to the Company which are reported within property and equipment, net on the Company’s Consolidated Balance Sheets.
(b) 
As of March 31, 2016, included $27 million relating to a mortgage note due in 2017 and $3 million of mandatorily redeemable equity which are included in current portion of long-term debt on the Consolidated Balance Sheet. As of December 31, 2015, included $42 million relating to a mortgage note due in 2017 and $4 million of mandatorily redeemable equity; $29 million was included in current portion of long-term debt on the Consolidated Balance Sheet.

During 2016, the SPE conveyed $15 million of property and equipment to the Company.


17


7.
Fair Value
The Company measures its financial assets and liabilities at fair value on a recurring basis and utilizes the fair value hierarchy 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.

As of March 31, 2016, the Company had foreign exchange contracts resulting in $5 million of assets which are included within other current assets and $1 million of liabilities which are included within accrued expenses and other current liabilities on the Consolidated Balance Sheet. As of December 31, 2015, the Company had foreign exchange contracts resulting in $2 million of assets which are included within other current assets and $3 million of liabilities which are included within accrued expenses and other current liabilities on the Consolidated Balance Sheet. On a recurring basis, such assets and liabilities are remeasured at estimated fair value (all of which are Level 2) and thus is equal to the carrying value.

The Company’s derivative instruments primarily consist of 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. 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 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:
 
March 31, 2016
 
December 31, 2015
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
 Amount
 
Estimated Fair Value
Assets
 
 
 
 
 
 
 
Vacation ownership contract receivables, net
$
2,700

 
$
3,261

 
$
2,710

 
$
3,272

Debt
 
 
 
 
 
 
 
Total debt
5,432

 
5,490

 
5,181

 
5,234


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-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 determines the fair value of its other long-term debt, excluding capital leases, using Level 2 inputs based on

18


indicative bids from investment banks and determines the fair value of its senior notes using quoted market prices (such senior notes are not actively traded).

8.
Derivative Instruments and Hedging Activities
Foreign Currency Risk

The Company has foreign currency rate exposure to exchange rate fluctuations worldwide with particular exposure to the British pound, Euro, Canadian and Australian dollar. The Company uses freestanding foreign currency forward contracts to manage a portion of its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables, payables and forecasted earnings of foreign subsidiaries. Additionally, the Company uses foreign currency forward contracts designated as cash flow hedges to manage a portion of its exposure to changes in forecasted foreign currency denominated vendor payments. Gains and losses relating to freestanding foreign currency contracts are included in operating expenses on the Company’s Consolidated Statements of Income and are substantially offset by the earnings effect from the underlying items that were economically hedged. The freestanding foreign currency contracts resulted in losses of $4 million and $12 million during the three months ended March 31, 2016 and 2015, respectively. The amount of gains or losses relating to contracts designated as cash flow hedges that the Company expects to reclassify from accumulated other comprehensive income (“AOCI”) to earnings over the next 12 months is not material.

Interest Rate Risk

A portion of the debt used to finance the Company’s operations is 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 the fair value of the derivatives are recorded in income with offsetting adjustments to the carrying amount of the hedged debt. The amount of gains or losses that the Company expects to reclassify from AOCI to earnings during the next 12 months is not material.

Gains or losses recognized in AOCI for the three months ended March 31, 2016 and 2015 were not material.

9.
Income Taxes
The Company files income tax returns in U.S. federal and state jurisdictions, as well as in foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2012. In addition, with few exceptions, the Company is no longer subject to state and local or foreign income tax examinations for years prior to 2008.

The Company’s effective tax rate increased from 38.4% during the three months ended March 31, 2015 to 41.1% during the three months ended March 31, 2016 primarily due to the lack of a tax benefit on the Venezuelan foreign exchange devaluation loss of $24 million incurred during the first quarter of 2016, partially offset by activity related to unrecognized tax benefits.

The Company made cash income tax payments, net of refunds, of $16 million and $17 million during the three months ended March 31, 2016 and 2015, respectively.

10.
Commitments and Contingencies
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 hotel group business-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 or in relation to guest reservations and bookings; for its destination network business-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 or acts or occurrences related to

19


affiliated resorts and vacation rental properties and consumer protection and other statutory claims asserted by consumers; for its vacation ownership business-breach of contract, bad faith, conflict of interest, fraud, consumer protection and other statutory claims by property 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 or acts or occurrences related to 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 which may include claims of retaliation, discrimination, harassment and wage and hour claims, claims of infringement upon third parties’ intellectual property rights, claims relating to information security, privacy and consumer protection, tax claims and environmental claims.

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’s ability to make a reasonable estimate of 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 with reserves of $30 million and $29 million as of March 31, 2016 and December 31, 2015, respectively. Such reserves are exclusive of matters relating to the Company’s separation from Cendant (“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 March 31, 2016, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to $59 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.

Other Guarantees/Indemnifications
Hotel Group
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 the Company’s existing guarantees range from 8 to 10 years and provide for early termination provisions under certain circumstances. As of March 31, 2016, the maximum potential amount of future payments that may be made under these guarantees was $125 million with a combined annual cap of $45 million. These guarantees have a remaining weighted average life of approximately 7 years. As of March 31, 2016, the Company also had a conditional guarantee with a hotel that will become effective when all the necessary conditions are satisfied by the hotel owner. At the effective date, the maximum potential amount of future payments that may be made under this conditional guarantee is $45 million.

In connection with such performance guarantees, as of March 31, 2016, the Company maintained a liability of $24 million, of which $19 million was included in other non-current liabilities and $5 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of March 31, 2016, the Company also had a corresponding $34 million asset related to these guarantees, of which $30 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, 2015, the Company maintained a liability of $25 million, of which $24 million was included in other non-current liabilities and $1 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of December 31, 2015, the Company also had a corresponding $35 million asset related to the guarantees, of which $31 million was included in other non-current assets and $4 million was included in other current assets 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 $1 million for both the three months ended March 31, 2016 and 2015.

For guarantees subject to recapture provisions, the Company had a receivable of $38 million as of March 31, 2016, of which $6 million was included in other current assets and $32 million was included in other non-current assets on its

20


Consolidated Balance Sheet. As of December 31, 2015, the Company had a receivable of $32 million, of which $1 million was included in other current assets and $31 million was included in other non-current assets on its Consolidated Balance Sheet. Such receivable was the result of payments made to date which are subject to recapture and which the Company believes will be recoverable from future operating performance.

Vacation Ownership
The Company has guaranteed to repurchase completed properties located in Las Vegas, Nevada and St. Thomas from third-party developers subject to the properties meeting the Company’s vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party (see Note 4 - Inventory).

Cendant Litigation
Under the Separation 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 Note 15 - Separation Adjustments and Transactions with Former Parent and Subsidiaries regarding contingent litigation liabilities resulting from the Separation.

11.
Accumulated Other Comprehensive (Loss)/Income
The components of AOCI are as follows:
 
Foreign
 
Unrealized
 
Defined
 
 
 
Currency
 
Gains on
 
Benefit
 
 
 
Translation
 
Cash Flow
 
Pension
 
 
Pretax
Adjustments
 
Hedges
 
Plans
 
AOCI
 Balance, December 31, 2015
$
(139
)
 
$

 
$
(9
)
 
$
(148
)
 Period change
30

 
1

 
(1
)
 
30

 Balance, March 31, 2016
$
(109
)
 
$
1

 
$
(10
)
 
$
(118
)

 
Foreign
 
Unrealized
 
Defined
 
 
 
Currency
 
Gains on
 
Benefit
 
 
 
Translation
 
Cash Flow
 
Pension
 
 
Tax
Adjustments
 
Hedges
 
Plans
 
AOCI
 Balance, December 31, 2015
$
70

 
$
1

 
$
3

 
$
74

 Period change
6

 

 

 
6

 Balance, March 31, 2016
$
76

 
$
1

 
$
3

 
$
80


 
Foreign
 
Unrealized
 
Defined
 
 
 
Currency
 
Gains on
 
Benefit
 
 
 
Translation
 
Cash Flow
 
Pension
 
 
Net of Tax
Adjustments
 
Hedges
 
Plans
 
AOCI
 Balance, December 31, 2015
$
(69
)
 
$
1

 
$
(6
)
 
$
(74
)
 Period change
36

 
1

 
(1
)
 
36

 Balance, March 31, 2016
$
(33
)
 
$
2

 
$
(7
)
 
$
(38
)

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.


21


12.  
Stock-Based Compensation
The Company has a stock-based compensation plan available to grant RSUs, PSUs, SSARs and other stock-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan, as amended, a maximum of 36.7 million shares of common stock may be awarded. As of March 31, 2016, 15.6 million shares remained available.

Incentive Equity Awards Granted by the Company
The activity related to incentive equity awards granted by the Company for the three months ended March 31, 2016 consisted of the following:
 
RSUs
 
PSUs
 
SSARs
 
Number of RSUs
 
Weighted Average Grant Price
 
Number of PSUs
 
Weighted Average Grant Price
 
Number of SSARs
 
Weighted Average Exercise Price
Balance as of December 31, 2015
1.6

 
$
73.75

 
0.6

 
$
73.60

 
0.8

 
$
46.45

Granted (a)
0.8

 
71.65

 
0.2

 
71.65

 
0.1

 
71.65

Vested
(0.7
)
 
72.84

 
(0.2
)
 
72.84

 
(0.1
)
 
22.84

Balance as of March 31, 2016
1.7

(b) (c) 
75.87

 
0.6

(d) 
77.84

 
0.8

(b) (e) 
55.05

 
(a) 
Represents awards granted by the Company on February 25, 2016.
(b) 
Aggregate unrecognized compensation expense related to RSUs and SSARs was $138 million as of March 31, 2016, which is expected to be recognized over a weighted average period of 3.1 years.
(c) 
Approximately 1.7 million RSUs outstanding as of March 31, 2016 are expected to vest over time.
(d) 
Maximum aggregate unrecognized compensation expense was $38 million as of March 31, 2016, which is expected to be recognized over a weighted average period of 2.2 years.
(e) 
Approximately 0.5 million SSARs are exercisable as of March 31, 2016. The Company assumes that all unvested SSARs are expected to vest over time. SSARs outstanding as of March 31, 2016 had an intrinsic value of $19 million and have a weighted average remaining contractual life of 2.8 years.

On February 25, 2016, the Company granted incentive equity awards totaling $63 million to key employees and senior officers of Wyndham in the form of RSUs and SSARs. These awards will vest ratably over a period of four years. In addition, on February 25, 2016, the Company approved a grant of incentive equity awards totaling $17 million to key employees and senior officers of Wyndham 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.

The fair value of SSARs granted by the Company on February 25, 2016 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 the Company’s stock 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 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 price of the Company’s stock on the date of the grant.
 
SSARs Issued on
 
February 25, 2016
Grant date fair value
$
13.70

Grant date strike price
$
71.65

Expected volatility
27.81
%
Expected life
5.2 years

Risk free interest rate
1.33
%
Projected dividend yield
2.79
%


22


Stock-Based Compensation Expense
The Company recorded stock-based compensation expense of $14 million and $15 million during the three months ended March 31, 2016 and 2015, respectively, related to the incentive equity awards granted to key employees and senior officers by the Company. During the three months ended March 31, 2016, the Company increased its pool of excess tax benefits available to absorb tax deficiencies (“APIC Pool”) by $6 million due to the vesting of RSUs and PSUs, as well as the exercise of SSARs. As of March 31, 2016, the Company’s APIC Pool balance was $135 million.

The Company paid $30 million and $41 million of taxes for the net share settlement of incentive equity awards during the three months ended March 31, 2016 and 2015, respectively. Such amounts are included within financing activities on the Consolidated Statements of Cash Flows.

13.
Segment Information
The reportable segments presented below represent the Company’s operating segments for which separate financial information is available and which is 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”, 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 revenues) 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 its industry segments which, when considered with GAAP measures, the Company believes gives a more complete understanding of its operating performance. The Company’s presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

 
Three Months Ended March 31,
 
2016
 
2015
 
Net Revenues
 
EBITDA
 
Net Revenues
 
EBITDA
Hotel Group
$
295

(b)
$
84

 
$
292

(d)
$
76

Destination Network
385

(c)
81

 
369

 
105

Vacation Ownership
641

 
136

 
617

 
130

Total Reportable Segments
1,321

 
301

 
1,278

 
311

Corporate and Other (a)
(18
)
 
(34
)
 
(16
)
 
(34
)
Total Company
$
1,303

 
$
267

 
$
1,262

 
$
277

 
 
 
 
 
 
 
 
Reconciliation of EBITDA to Net income
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
 
2016
 
 
 
2015
EBITDA
 
 
$
267

 
 
 
$
277

Depreciation and amortization
 
 
62

 
 
 
56

Interest expense
 
 
33

 
 
 
26

Early extinguishment of debt
 
 
11

 
 
 

Interest income
 
 
(2
)
 
 
 
(3
)
Income before income taxes
 
 
163

 

 
198

Provision for income taxes
 
 
67

 
 
 
76

Net income
 
 
$
96

 
 
 
$
122

 
(a) 
Includes the elimination of transactions between segments.
(b) 
Includes $16 million of intercompany segment revenues in the Company’s Hotel Group segment comprised of (i) $13 million of intersegment licensing fees for use of the Wyndham trade name, (ii) $2 million of other fees primarily associated with the Wyndham Rewards program and (iii) $1 million of room revenues at a Company owned hotel. Such revenues are offset in expenses at the Company’s Vacation Ownership segment.

23


(c) 
Includes $2 million of intercompany segment revenues in the Company’s Destination Network segment comprised of call center operations and support services provided to the Company’s Hotel Group segment.
(d) 
Includes $16 million of intercompany segment revenues in the Company’s Hotel Group segment comprised of (i) $12 million of intersegment licensing fees for use of the Wyndham trade name, (ii) $2 million of other fees primarily associated with the Wyndham Rewards program and (iii) $2 million of room revenues at a Company owned hotel. Such revenues are offset in expenses at the Company’s Vacation Ownership segment.

14.
Restructuring and Other Charge
2015 Restructuring Plans

During 2015, the Company recorded $8 million of restructuring charges resulting from a realignment of brand services and call center operations within its hotel group business, a rationalization of international operations within its destination network business and a reorganization of the sales function within its vacation ownership business. In connection with these initiatives, the Company recorded $7 million of personnel-related costs and a $1 million non-cash asset impairment charge associated with a facility. The Company subsequently reversed $2 million of previously recorded personnel-related costs and reduced its liability with $2 million of cash payments. During the three months ended March 31, 2016, the Company reduced its liability with $1 million of cash payments. The remaining liability of $2 million as of March 31, 2016, all of which is comprised of personnel-related costs, is expected to be paid in cash by the end of 2016.

The Company has additional restructuring plans which were implemented prior to 2015. The remaining liability of $2 million as of March 31, 2016, all of which is related to leased facilities, is expected to be paid by 2020.

The activity associated with the Company’s restructuring plans is summarized by category as follows:
 
Liability as of
 
 
 
Liability as of
 
December 31, 2015
 
Cash Payments
 
March 31, 2016
Personnel-related
$
3

 
$
(1
)
 
$
2

Facility-related
2

 

 
2

 
$
5

 
$
(1
)
 
$
4


Other Charge

During the three months ended March 31, 2016, the Company incurred a $24 million foreign exchange loss, primarily impacting cash, resulting from the Venezuelan government’s decision to devalue the exchange rate of its currency. Such loss is recorded within operating expenses on the Consolidated Statement of Income.

15.
Separation Adjustments and Transactions with Former Parent and Subsidiaries
Transfer of Cendant Corporate Liabilities and Issuance of 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, 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 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 $34 million as of both March 31, 2016 and December 31, 2015. 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 unresolved contingent matters and 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 were 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.


24


As a result of the sale of Realogy on April 10, 2007, Realogy 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 its obligations for the Cendant legacy contingent liabilities. As of March 31, 2016, the letter of credit was $53 million.

As of March 31, 2016, the $34 million of Separation related liabilities is comprised of $30 million for tax liabilities, $1 million for liabilities of previously sold businesses of Cendant, $1 million for other contingent and corporate liabilities and $2 million of liabilities where the calculated guarantee amount exceeded the contingent liability assumed at the Separation Date. In connection with these liabilities, as of March 31, 2016, $19 million is recorded in accrued expenses and other current liabilities and $15 million is recorded in other non-current liabilities on the Consolidated Balance Sheet. The Company will indemnify Cendant for these contingent liabilities and therefore any payments made to the third-party would be through the former Parent. 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 of receivables due from former Parent and subsidiaries primarily relating to income taxes, as of both March 31, 2016 and December 31, 2015, which is included within other current assets on the Consolidated Balance Sheets.


25


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS
This report includes “forward-looking” statements, as that term is defined by the Securities and Exchange Commission (“SEC”) in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, our relationships with associates, and those disclosed as risks under “Risk Factors” in Part II, Item 1A of this report. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

BUSINESS AND OVERVIEW
We are a global provider of hospitality services and products and operate our business in the following three segments:
Hotel Group—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.
Destination Network—provides vacation exchange services and products to owners of intervals of vacation ownership interests (“VOIs”) and manages 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.

RESULTS OF OPERATIONS
Discussed below are our key operating statistics, consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which discrete financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments and corporate and other based upon net revenues and “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 revenues) and income taxes, each of which is presented on the Consolidated Statements of Income. We believe that EBITDA is a useful measure of performance for our industry segments and, when considered with GAAP measures, gives a more complete understanding of our operating performance. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

26


OPERATING STATISTICS
The table below presents our operating statistics for the three months ended March 31, 2016 and 2015. These operating statistics are the drivers of our revenues and therefore provide an enhanced understanding of our businesses. Refer to the Results of Operations section for a discussion as to how these operating statistics affected our business for the periods presented.
 
Three Months Ended March 31,
 
2016
 
2015
 
% Change
Hotel Group (a)
 
 
 
 
 
Number of rooms (b)
679,100

 
667,400

 
1.8
RevPAR (c)
$
31.59

 
$
32.84

 
(3.8)
Destination Network
 
 
 
 
 
Average number of members (in 000s) (d)
3,841

 
3,822

 
0.5
Exchange revenue per member (e)
$
189.78

 
$
194.06

 
(2.2)
Vacation rental transactions (in 000s) (a) (f)
500

 
459

 
8.9
Average net price per vacation rental (a) (g)
$
366.08

 
$
361.20

 
1.4
Vacation Ownership
 
 
 
 
 
Gross VOI sales (in 000s) (h) (i)
$
428,000

 
$
390,000

 
9.7
Tours (in 000s) (j)
179

 
168

 
6.5
Volume Per Guest (“VPG”) (k)
$
2,244

 
$
2,177

 
3.1
 
(a) 
Includes the impact from acquisitions from the acquisition dates forward. Therefore, such operating statistics for 2016 are not presented on a comparable basis to the 2015 operating statistics.
(b) 
Represents the number of rooms at hotel group properties at the end of the period which are under franchise and/or management agreements, or are company owned.
(c) 
Represents revenue per available room and is calculated by multiplying the percentage of available rooms occupied during the period by the average rate charged for renting a hotel room for one day.
(d) 
Represents members in our vacation exchange programs who paid annual membership dues as of the end of the period or who are within the allowed grace period.
(e) 
Represents total annualized revenues generated from fees associated with memberships, exchange transactions, member-related rentals and other servicing for the period divided by the average number of vacation exchange members during the period.
(f) 
Represents the number of transactions that are generated during the period in connection with customers booking their vacation rental stays through us. One rental transaction is recorded for each standard one-week rental.
(g) 
Represents the net rental price generated from renting vacation properties to customers and other related rental servicing fees during the period divided by the number of vacation rental transactions during the period.
(h) 
Represents total sales of VOIs, including sales under the Wyndham Asset Affiliation Model (“WAAM”) Fee-for-Service, before the net effect of percentage-of-completion (“POC”) accounting and loan loss provisions. We believe that Gross VOI sales provide an enhanced understanding of the performance of our vacation ownership business because it directly measures the sales volume of this business during a given reporting period.
(i) 
The following table provides a reconciliation of Gross VOI sales to vacation ownership interest sales for the three months ended March 31(in millions):
 
2016
 
2015
Gross VOI sales
$
428

 
$
390

Less: WAAM Fee-for-Service sales (*)
(23
)
 
(21
)
Gross VOI sales, net of WAAM Fee-for-Service sales
405

 
369

Less: Loan loss provision
(63
)
 
(46
)
Plus: Impact of POC accounting

 
13

Vacation ownership interest sales
$
342

 
$
336

 
(*) 
Represents total sales of VOIs through our WAAM Fee-for-Service sales model designed to offer turn-key solutions for developers or banks in possession of newly developed inventory, which we will sell for a commission fee through our extensive sales and marketing channels. WAAM Fee-for-Service commission revenues were $17 million and $12 million for the three months ended March 31, 2016 and 2015, respectively.
(j) 
Represents the number of tours taken by guests in our efforts to sell VOIs.


27


(k) 
VPG is calculated by dividing Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) by the number of tours. Tele-sales upgrades were $25 million and $24 million during the three months ended March 31, 2016 and 2015, respectively. We have excluded tele-sales upgrades in the calculation of VPG because tele-sales upgrades are generated by a different marketing channel. We believe that VPG provides an enhanced understanding of the performance of our vacation ownership business because it directly measures the efficiency of this business’s tour selling efforts during a given reporting period.

THREE MONTHS ENDED MARCH 31, 2016 VS. THREE MONTHS ENDED MARCH 31, 2015
Our consolidated results are as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
Favorable/(Unfavorable)
Net revenues
$
1,303

 
$
1,262

 
$
41

Expenses
1,108

 
1,046

 
(62
)
Operating income
195

 
216

 
(21
)
Other income, net
(10
)
 
(5
)
 
5

Interest expense
33

 
26

 
(7
)
Early extinguishment of debt
11

 

 
(11
)