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Business Context and Reporting Period

Company: Wyndham Worldwide Corporation (Note: Input metadata referenced "Travel & Leisure Co.", but the filing text identifies the registrant as Wyndham Worldwide Corporation).

Filing Type: Form 10-K (Annual Report)

Reporting Period: Fiscal year ended December 31, 2009.

Business Overview: Wyndham is a global hospitality provider operating in three primary segments: Lodging (franchising and management of hotels), Vacation Exchange and Rentals (RCI and vacation rental marketing), and Vacation Ownership (development and sale of timeshare interests). The company operates a fee-for-service model for lodging and exchange/rentals, while the vacation ownership segment involves capital-intensive development and consumer financing.

Key Financial Metrics

Operating Statistics (2009):

• Lodging: 597,700 rooms; RevPAR of $30.34 (down 15% from 2008).
• Vacation Exchange/Rentals: 3.78 million members; 1.36 million rental transactions.
• Vacation Ownership: $1.315 billion in gross VOI sales (down 34% from 2008); 617,000 tours.

Material Changes vs. Prior Period

Revenue Decline: Net revenues decreased by $531 million (12%) primarily due to a strategic reduction in Vacation Ownership Interest (VOI) sales pace (down $672 million) and global RevPAR weakness in the Lodging segment. This was partially offset by the recognition of previously deferred revenues ($262 million) and increased ancillary revenues.

Profitability Improvement: The company returned to profitability with $293 million in net income, compared to a $1.074 billion loss in 2008. The 2008 loss was heavily impacted by a non-cash goodwill impairment charge of $1.342 billion related to the Vacation Ownership segment. The 2009 results benefited from the absence of this impairment charge and significant cost reductions ($1.955 billion decrease in total expenses).

Debt and Liquidity: Total liabilities decreased by $567 million, driven by a $303 million reduction in securitized vacation ownership debt. Cash provided by operating activities increased significantly to $689 million (from $109 million in 2008) due to lower originations of vacation ownership receivables and reduced inventory investment.

Guidance, Outlook, and Risks

2010 Guidance:

• Net Revenues: Expected to range between $3.5 billion and $3.9 billion.
• Depreciation & Amortization: Expected to be $180 million to $185 million.
• Interest Expense (Net): Expected to be $130 million to $140 million.
• Segment Outlook: Lodging RevPAR expected to be flat to down 3%; Vacation Ownership gross VOI sales expected to be flat with tours declining 3-6%.

Management Commentary: Management is executing a strategy to rebalance the portfolio toward fee-for-service businesses (Lodging and Exchange/Rentals) to generate stable cash flow with lower capital requirements. The Vacation Ownership business is being managed for cash flow, with a focus on higher credit quality borrowers and reduced sales volume.

Key Risks and Contingencies:

• Asset-Backed Securities Market: Liquidity depends on the ability to securitize vacation ownership receivables. Disruptions in this market could force a further reduction in sales or reliance on more expensive financing.
• Cendant Legacy Liabilities: The company retains 37.5% responsibility for certain contingent liabilities from its former parent, Cendant. As of Dec 31, 2009, $272 million was accrued for contingent tax liabilities related to an ongoing IRS audit of Cendant's 2003-2006 tax years.
• Goodwill Impairment: While no impairment was recorded in 2009, the company holds $1.386 billion in goodwill. Further deterioration in economic conditions or stock price could trigger future impairment charges.
• Loan Portfolio Performance: Risks associated with defaults on consumer financing for vacation ownership interests, though the portfolio was 94.9% current as of year-end.

Investor Verification Checklist

• VOI Sales Pace: Verify if the strategic reduction in Vacation Ownership sales (down 34% in 2009) is sustainable and if the shift to a fee-for-service model is yielding the projected cash flow improvements.
• Securitization Capacity: Confirm the status of the $600 million bank conduit facility and the company's ability to access the asset-backed securities market for financing receivables.
• Cendant Tax Audit: Monitor the outcome of the IRS audit regarding Cendant's 2003-2006 tax years, as the $272 million accrual may be insufficient if adjustments are proposed.
• Lodging RevPAR Trends: Assess whether the 15% decline in RevPAR in 2009 stabilizes in 2010, as this is a primary driver of the Lodging segment's recurring revenue.
• Debt Covenants: Review compliance with financial covenants (Interest Coverage Ratio of 8.5x and Leverage Ratio of 2.1x as of 2009) to ensure no risk of default on the $900 million revolving credit facility.