Wyndham Worldwide Reports Strong Fourth Quarter and Full Year 2010 Earnings

  • Wyndham Worldwide
  • 02.09.11
Wyndham Worldwide Corporation (NYSE: WYN) announced results for the three months and year ended December 31, 2010.

Highlights:

    -- Fourth quarter adjusted diluted earnings per share (EPS) was $0.46,
        compared with $0.40 in the fourth quarter of 2009, an increase of 15 percent.
        Fourth quarter 2010 reported diluted EPS was $0.43, an increase of 8 percent
        from the same period in 2009.
    -- Free cash flow increased 11 percent to $603 million for the year ended December
        31, 2010, compared with $541 million in 2009. The company defines free
        cash flow as net cash provided by operating activities less capital
        expenditures, equity investments and development advances and excluding
        a previously announced cash payment related to contingent IRS tax
        liabilities.
    -- The company's board of directors authorized an increase of the quarterly
        cash dividend to $0.15 from $0.12 per share, beginning with the dividend
        that is expected to be declared in the first quarter of 2011.
    -- During the quarter, the company repurchased approximately 1.6 million
        shares of its common stock at an average price of $29.20. For the full
        year 2010, the company repurchased approximately 9.3 million shares of
        its common stock at an average price of $25.52.

"We are pleased to report these results, which are further evidence of the strength of our business models and great execution throughout the company," said Stephen P. Holmes, chairman and CEO, Wyndham Worldwide. "We delivered strong cash flow and look to continue to deploy free cash flow to create more value for our shareholders in 2011 through acquisitions, share repurchases and dividends."

Fourth quarter revenues increased 3 percent from the prior year period to $937 million. Excluding the $47 million of vacation ownership revenue associated with the percentage-of-completion (POC) accounting method in the fourth quarter of 2009, fourth quarter 2010 adjusted revenue growth was 8 percent. The adjusted revenue growth reflects continued sales momentum across the company's three business units and incremental contributions from acquisitions.
 
Fourth Quarter 2010 Operating Results
For the fourth quarter of 2010, adjusted net income increased by 15 percent to $84 million, compared with $73 million for the same period in 2009. The increase primarily reflects higher RevPAR in the lodging business, strong operational performance by the vacation ownership business and a lower effective tax rate. Adjusted net income for the fourth quarter of 2010 excludes a $6 million after-tax restructuring charge, a $2 million after-tax loss incurred for the repurchase of a portion of the company's 3.50 percent convertible notes and a $3 million after-tax net benefit related to the adjustment and resolution of certain contingent liabilities and assets.

Reported net income for the fourth quarter of 2010 was $78 million, or $0.43 per diluted share, compared with net income of $73 million, or $0.40 per diluted share, for the fourth quarter of 2009.

Full Year 2010 Operating Results
Reported revenues for full year 2010 were $3.9 billion, an increase of 3 percent over the prior-year period. Excluding the $187 million of vacation ownership revenue associated with the POC accounting method for the full year 2009, full year 2010 adjusted revenue growth was 8 percent. The adjusted revenue growth reflects continued sales momentum across the Company's three business units and incremental contributions from acquisitions.

Adjusted net income for the full year 2010 increased by 13 percent to $368 million, compared with $327 million for the prior-year period. The increase primarily reflects higher RevPAR in the lodging business, strong operational performance by the vacation ownership business, contributions from acquisitions in the exchange and rentals and lodging businesses and a lower effective tax rate. Adjusted net income for the full year 2010 excludes a $41 million after-tax net benefit principally related to the resolution of the IRS examination of taxable years 2003 through 2006, an $18 million after-tax charge for the early extinguishment of debt, a $6 million after-tax charge for acquisition costs and a $6 million after-tax restructuring charge.

Reported net income for full year 2010 was $379 million, or $2.05 per diluted share, compared with net income of $293 million, or $1.61 per diluted share, for the prior-year period.

Free cash flow increased 11 percent to $603 million in the 12-month period ended December 31, 2010 compared with $541 million in the same period in 2009. The growth of free cash flow reflects higher cash earnings and more efficient working capital utilization. For the 12 months ended December 31, 2010, cash provided by operating activities was $635 million, or $780 million excluding the previously announced one-time payment of $145 million related to a contingent IRS tax liability.  Cash provided by operating activities was $689 million for the prior-year period.

Business Unit Results
 
Lodging (Wyndham Hotel Group)
Revenues were $163 million in the fourth quarter of 2010, an increase of 9 percent, compared with the fourth quarter of 2009 reflecting RevPAR improvement of 10 percent as well as incremental revenue from the recently acquired Tryp hotel brand and higher fees generated from ancillary services provided to franchisees.

EBITDA was $40 million, an increase of 25 percent, compared with the fourth quarter of 2009 reflecting the RevPAR improvement and the absence of a $6 million impairment charge recorded in 2009, partially offset by higher operating costs.

As of December 31, 2010, the company's hotel system consisted of approximately 7,210 properties and 612,700 rooms. The development pipeline included over 900 hotels and approximately 103,000 rooms, of which 55 percent were new construction and 51 percent were international.

Vacation Exchange and Rentals (Wyndham Exchange & Rentals)
Revenues were $282 million in the fourth quarter of 2010, an increase of 9 percent compared with the fourth quarter of 2009. In constant currency, revenues increased by 12 percent.

Exchange revenues were $153 million, relatively flat compared with the fourth quarter of 2009. Exchange revenue per member and the average number of members were flat.

Vacation rental revenues were $114 million, a 16 percent increase compared with the fourth quarter of 2009. In constant currency, vacation rental revenues increased 24 percent from the fourth quarter of 2009, primarily reflecting the contribution of incremental revenues from acquired businesses.

Excluding restructuring costs of $9 million and costs related to the acquisition of James Villa Holidays of $1 million, fourth quarter 2010 adjusted EBITDA decreased 13 percent compared with the prior-year period, reflecting the seasonality of the acquired rental businesses. Excluding the impact of acquisitions, adjusted EBITDA for the fourth quarter of 2010 was flat compared with the fourth quarter of 2009.

Wyndham Exchange & Rentals acquired James Villa Holidays on November 30, 2010, resulting in the addition of approximately 2,300 villas and unique vacation rental properties in over 50 destinations across Mediterranean vacation locations. This acquisition enhances the company's leading position as one of the world's largest serviced vacation rentals businesses, providing access to approximately 97,000 vacation properties worldwide.

Vacation Ownership (Wyndham Vacation Ownership)
Gross vacation ownership interest (VOI) sales were $373 million in the fourth quarter of 2010, up 9 percent from the fourth quarter of 2009, reflecting a 13 percent increase in tour flow.  Volume per guest was flat compared with the prior year.

Total segment revenues were $497 million in the fourth quarter of 2010, compared with $508 million in the fourth quarter of 2009, which included the recognition of $47 million of previously deferred POC revenues. The absence of these revenues in the fourth quarter of 2010 was partially offset by an increase in gross VOI sales, a lower provision for loan losses and incremental sales under the Wyndham Asset Affiliation Model (WAAM).

EBITDA for the fourth quarter of 2010 was $131 million, compared with EBITDA of $132 million in the fourth quarter of 2009. Excluding an estimated $22 million impact from the POC method of accounting in the fourth quarter of 2009, fourth quarter 2010 adjusted EBITDA growth was 19 percent. This growth reflected the lower provision for loan losses and the increase in VOI sales.

Other Items

    -- The company repurchased approximately 1.6 million shares of its common
        stock during the fourth quarter of 2010 at an average price of $29.20
        and an additional 455,000 shares at an average price of $29.51 through
        February 8, 2011.
    -- During the fourth quarter of 2010, the company repurchased $22 million
        face value of its 3.50 percent convertible notes and retired the proportionate
        share of the call options and warrants associated with these notes.
    -- Net interest expense in the fourth quarter of 2010 was $34 million, an
        increase of $1 million from the fourth quarter of 2009, primarily
        reflecting a $3 million loss incurred for the repurchase of a portion of
        the company's 3.50 percent convertible notes during the fourth quarter of 2010.

Balance sheet information as of December 31, 2010:

    --  Cash and cash equivalents of approximately $155 million, unchanged from
        December 31, 2009
    --  Vacation ownership contract receivables, net, of $3.0 billion, compared
        with $3.1 billion at December 31, 2009
    --  Vacation ownership and other inventory of approximately $1.2 billion,
        compared with $1.3 billion at December 31, 2009
    --  Securitized vacation ownership debt of $1.7 billion, compared with $1.5
        billion at December 31, 2009
    --  Other debt of $2.1 billion, compared with $2.0 billion at December 31,
        2009. The remaining borrowing capacity on the revolving credit facility
        was $788 million, compared with $869 million as of December 31, 2009.

A schedule of debt is included in the financial tables section of this press release.

Outlook

The company's full-year 2011 guidance is:

    --  Revenues of approximately $4.0 - $4.2 billion
    --  Adjusted EBITDA of approximately $925 - $955 million

The guidance reflects assumptions used for internal planning purposes. All guidance excludes legacy items, restructuring costs, debt extinguishment and acquisition costs, if any, which may have a positive or negative impact on reported results. If economic conditions change materially from current levels, these assumptions and our guidance may change materially. It is not practicable to provide a reconciliation of forecasted adjusted EBITDA to the most directly comparable GAAP measure because certain items cannot be reasonably estimated or predicted at this time. Any such items could be significant to our financial results.

Presentation of Financial Information
Financial information discussed in this press release includes both GAAP and non-GAAP measures, which include or exclude certain items. These non-GAAP measures differ from reported results and are intended to illustrate what management believes are relevant period-over-period comparisons. A complete reconciliation of reported GAAP results to the comparable non-GAAP information appears in the financial tables section of the press release.



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