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Wyndham Worldwide Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: February 17, 2012 04:39PM

Wyndham Worldwide Corp. (WYN) filed Annual Report for the period ended 2011-12-31. Wyndham Worldwide Corp. has a market cap of $6.8 billion; its shares were traded at around $43.99 with a P/E ratio of 17.7 and P/S ratio of 1.6. The dividend yield of Wyndham Worldwide Corp. stocks is 1.4%. Wyndham Worldwide Corp. had an annual average earning growth of 5.6% over the past 5 years.

Highlight of Business Operations:

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 million, $405 million and $376 million, during 2011, 2010 and 2009, respectively. Management fee revenues were $198 million, $183 million and $170 million during 2011, 2010 and 2009, respectively. Reimbursable revenues, which are based upon certain reimbursable costs with no added margin, were $226 million, $222 million and $206 million, respectively, during 2011, 2010 and 2009. 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, 2010 and 2009, one of the associations that we manage paid Wyndham Exchange & Rentals $19 million for exchange services.

Net revenues and EBITDA increased $251 million (21.0%) and $75 million (25.6%), respectively, during 2011 compared with 2010. EBITDA was favorably impacted by a $31 million net benefit resulting from a refund of value-added taxes and $3 million of lower costs related to organizational realignment initiatives, partially offset by a loss of $4 million related to the write-off of foreign exchange translation adjustments resulting from the liquidation of a foreign entity. A weaker U.S. dollar compared to other foreign currencies contributed $35 million and $9 million in net revenues and EBITDA, respectively.

Net revenues and EBITDA increased $41 million (4%) and $6 million (2%), respectively, during 2010 compared with 2009. A stronger U.S. dollar compared to other foreign currencies unfavorably impacted net revenues and EBITDA by $16 million and $7 million, respectively. Net revenues from rental transactions and related services increased $35 million primarily related to incremental contributions from our acquisitions and ancillary revenues increased $8 million, partially offset by a $2 million decline in exchange and related service revenues. EBITDA further reflects the favorable impact from foreign exchange transactions and foreign exchange hedging contracts, partially offset by incremental costs contributed from acquired businesses, an increase in costs related to organizational realignment initiatives and increased operating expenses.

Gross sales of VOIs, net of WAAM sales, at our vacation ownership business increased $97 million (7%) during the year ended December 31, 2010 compared to the same period during 2009, driven principally by an increase of 11% in VPG and an increase of 3% in tour flow. VPG was positively impacted by (i) a favorable tour flow mix resulting from the closure of underperforming sales offices as part of the organizational realignment and (ii) a higher percentage of sales coming from upgrades to existing owners during the year ended December 31, 2010 as compared to the same period during 2009 as a result of changes in the mix of tours. Tour flow reflects the favorable impact of growth in our in-house sales programs, partially offset by the negative impact of the closure of over 25 sales offices during 2009 primarily related to our organizational realignment initiatives. Our provision for loan losses declined $109 million during the year ended December 31, 2010 as compared to the same period during 2009. Such decline includes (i) $83 million primarily related to improved portfolio performance and mix during the year ended December 31, 2010 as compared to the same period during 2009, partially offset by the impact to the provision from higher gross VOI sales, and (ii) a $26 million impact on our provision for loan losses from the absence of the recognition of revenue previously deferred under the POC method of accounting during the year ended December 31, 2009. Such favorability was partially offset by a $35 million decrease in ancillary revenues primarily associated with a change in the classification of revenues related to incidental operations, which were misclassified on a gross basis during prior periods and classified on a net basis within operating expenses during the second half of 2010.

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 million as of December 31, 2011. We would only be required to pay this maximum amount if none of the 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, 2010 and 2009, we made payments related to these guarantees of $17 million, $12 million and $10 million, respectively. As of December 31, 2011 and 2010, we maintained a liability in connection with these guarantees of $24 million and $17 million, respectively, on our Consolidated Balance Sheets.

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