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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
COMMISSION FILE NO. 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)
Securities registered pursuant to Section 12(b) of the Act:

 
Name of each exchange
           
Title of each Class
 
on which registered
Common Stock, Par Value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  þ
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  ¨
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  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
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. (Check one):
Large accelerated filer  
þ
Accelerated filer  
¨
Non-accelerated filer  
¨
Smaller reporting company  
¨
 
 
 
 
(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 Act).    Yes  ¨    No  þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2012, was $7,498,980,511. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of January 31, 2013, the registrant had outstanding 136,634,696 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 2013 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.


Table of Contents

TABLE OF CONTENTS

 
 
Page
 
PART I
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
 
PART II
 
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
PART IV
 
Item 15.
 



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PART I

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 I, 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.

Where You Can Find More Information
 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's website at http://www.sec.gov. Our SEC filings are also available on our website at http://www.WyndhamWorldwide.com as soon as reasonably practicable after they are filed with or furnished to the SEC. You may also read and copy any filed document at the SEC's public reference room in Washington, D.C. at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about public reference rooms.

 
We maintain an internet site at http://www.WyndhamWorldwide.com. Our website and the information contained on or connected to that site are not incorporated into this Annual Report.

ITEM 1.
BUSINESS
    
OVERVIEW

As one of the world's largest hospitality companies, we offer individual consumers and business customers a broad array of hospitality services and products across various accommodation alternatives through our portfolio of world-renowned brands. The hospitality industry is a major component of the travel industry, which is one of the largest retail industry segments of the global economy. Our operations are grouped into three segments: lodging, vacation exchange and rentals and vacation ownership. With our 30 primary brands, which include Wyndham Hotels and Resorts, Tryp by Wyndham, Ramada, Days Inn, Super 8, Howard Johnson, Wyndham Rewards, Wingate by Wyndham, Microtel Inns & Suites, RCI, The Registry Collection, Landal GreenParks, Novasol, Hoseasons, cottages4you, James Villa Holidays, Wyndham Vacation Rentals, Wyndham Vacation Resorts, Shell Vacations Club and WorldMark by Wyndham, we have built a significant presence in most major hospitality markets throughout the world.

Approximately 60% of our revenues come from fees that we receive in exchange for providing services which we refer to as our "fee-for-service" businesses. We receive fees: (i) in the form of royalties for use of our brand names; (ii) for providing property management services to hotels, rental properties and vacation ownership resorts; (iii) for providing vacation exchange and rentals services; and (iv) for providing services under our Wyndham Asset Affiliation Model ("WAAM") 1.0. The remainder of our revenue comes primarily from proceeds received from the sale of vacation ownership interests ("VOIs"), including WAAM 2.0 sales, and related financing.

Our lodging business, Wyndham Hotel Group, is the world's largest hotel company based on the number of properties. We franchise in the upper upscale, upscale, upper midscale, midscale, economy and extended stay segments and provide property management services for full-service and select limited-service hotels. This is predominantly a fee-for-service business that produces recurring revenue streams, requires low capital investment and generates strong recurring cash flow.


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Our vacation exchange and rentals business, Wyndham Exchange & Rentals, is the world's largest member-based vacation exchange network based on the number of vacation exchange members and the world's largest marketer of professionally managed vacation rental properties based on the number of vacation rental properties marketed. We provide vacation exchange services and products to resort developers and owners of VOIs, and we market vacation rental properties primarily on behalf of independent owners, timeshare (also known as "vacation ownership") developers and other hospitality providers. This is primarily a fee-for-service business that provides stable revenue streams and produces strong cash flow.

Our vacation ownership business, Wyndham Vacation Ownership, is the world's largest vacation ownership business based on the number of resorts, units, owners and revenues. We develop and market VOIs to individual consumers, provide consumer financing in connection with the sale of VOIs and provide property management services at resorts. In addition, while historically we have exclusively invested in inventory development, we have augmented our traditional model through the sale of third party inventory. We leverage our scale and marketing expertise through our WAAM programs, which allow us to pursue low-capital business relationships that produce strong cash flow.

Our mission is to increase shareholder value by being the leader in travel accommodations and welcoming our guests to iconic brands and vacation destinations through our signature “Count On Me!” service. Our strategies to achieve these objectives are to:

Increase market share by delivering exceptional customer service;

Grow cash flow and operating margins through superior execution in all of our businesses;

Rebalance the Wyndham Worldwide portfolio to emphasize our fee-for-service business models;

Attract, retain and develop human capital across our organization; and

Support and promote Wyndham Green and Wyndham Diversity initiatives.

We provide value-added services and products intended to enhance the travel experience of the individual consumer and to drive revenues to our business customers. The depth and breadth of our businesses across different segments of the hospitality industry provide us with the opportunity to expand relationships with our existing individual and business customers by offering them additional services and products from our other segments.

All of our businesses have both domestic and international operations. During 2012, we derived 73% of our revenues in the U.S. and 27% internationally (approximately $706 million (16%) in Europe and $488 million (11%) in all other international regions). For a discussion of our segment revenues, profits, assets and geographical operations, see Note 21 to the Consolidated Financial Statements included in this Annual Report.

History and Development

Wyndham Worldwide's corporate history can be traced back to the 1990 formation of Hospitality Franchise Systems ("HFS"). HFS initially began as a hotel franchisor that later expanded its hospitality business with the addition of the vacation exchange business. In December 1997, HFS merged with CUC International, Inc., to form Cendant Corporation which then further expanded its hospitality business with the addition of its vacation rentals and vacation ownership businesses. On July 31, 2006, Cendant distributed all of the shares of its subsidiary, Wyndham Worldwide Corporation, to the holders of Cendant common stock issued and outstanding on July 21, 2006, the record date for the distribution. The separation was effective on July 31, 2006. On August 1, 2006, we commenced "regular way" trading on the New York Stock Exchange under the symbol "WYN."

Each of our business units has a long operating history. Our lodging business began with the Howard Johnson and Ramada brands which opened their first hotels in 1954. RCI, our vacation exchange business, was established 39 years ago, and we have acquired and grown some of Europe's most renowned vacation rentals brands with histories starting as early as Hoseasons in 1940, Landal GreenParks in 1954 and Novasol in 1968. Our vacation ownership brands, Wyndham Vacation Resorts, WorldMark by Wyndham and Shell Vacations Club, began vacation ownership operations in 1980, 1989 and 1978, respectively.


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Our portfolio of well-known hospitality brands was assembled over the past twenty two years. The following is a timeline of our significant brand acquisitions:
1990:
Howard Johnson and Ramada (US)
1992:
Days Inn
1993:
Super 8
1995:
Knights Inn
1996:
Travelodge North America
 
Resort Condominiums International (RCI)
2001:
Cuendet
 
Holiday Cottages Group
 
Fairfield Resorts (now Wyndham Vacation Resorts)
2002:
Novasol
 
Trendwest Resorts (now WorldMark by Wyndham)
2004:
Ramada International
 
Landal GreenParks
2005:
Wyndham Hotels and Resorts
2006:
Baymont
2008:
Microtel Inns & Suites and Hawthorn Suites
2010:
Hoseasons
 
Tryp
 
ResortQuest
 
James Villa Holidays
2012:
Smoky Mountain Property Management
 
Shell Vacations Club
 
Oceana Resorts

The following is a description of each of our three business units, Wyndham Hotel Group, Wyndham Exchange & Rentals and Wyndham Vacation Ownership, and the industries in which they compete.

WYNDHAM HOTEL GROUP

Lodging Industry

The global lodging market consists of over 153,000 hotels with combined annual revenues of approximately $380 billion, representing over 14 million rooms of which approximately 51% are affiliated with a brand. The market is geographically concentrated with the top 20 countries accounting for over 80% of global rooms.

The lodging industry consists of the following:
 
 
 
 
Room Supply
 
Revenues
 
Brand
Region
 
Hotels
 
 (millions)
 
(billions)
 
Affiliation
United States
 
51,000

 
4.8

 
$
115

 
70
%
Europe
 
57,000

 
4.2

 
137

 
39
%
Asia Pacific
 
23,000

 
3.1

 
99

 
44
%
Latin America/ Middle East
 
22,000

 
2.1

 
30

 
42
%

Companies in the lodging industry operate primarily under one of the following business models:

Franchise - Under the franchise model, a company typically grants the use of a brand name to a hotel owner in exchange for royalty fees that are typically a percentage of room sales. Since the royalty fees are a recurring revenue stream and the cost structure is relatively low, the franchise model yields high margins and steady, predictable cash flows. As of December 31, 2012, we had over 7,290 franchised properties in our hotel portfolio.


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Management - Under the management model, a company provides professional oversight and comprehensive operations support to hotel owners in exchange for base management fees that are typically a percentage of hotel revenue, as well as incentive management fees which are tied to the financial performance of the hotel. As of December 31, 2012, we had over 45 managed properties in our hotel portfolio.

Ownership - Under the ownership model, a company owns hotels and bears all financial risks and rewards relating to the hotel, including appreciation and depreciation in the value of the property. As of December 31, 2012, we had 2 owned hotels in our portfolio.

Performance in the lodging industry is measured by the following key metrics:

average daily rate, or ADR;

average occupancy rate, or occupancy;

revenue per available room, or RevPAR, which is calculated by multiplying ADR by the average occupancy rate; and

system growth, which is calculated by subtracting room terminations from gross room openings.

The U.S. is the most dominant sector of the global lodging market with over 30% of global room revenues. The following table displays trends in the key performance metrics for the U.S. lodging industry over the last six years and for 2013 (estimate):
Year
 
Occupancy
 
ADR
 
RevPar*
2007
 
62.8
%
 
$
104.33

 
$
65.56

2008
 
59.8
%
 
107.41

 
64.25

2009
 
54.6
%
 
98.08

 
53.51

2010
 
57.5
%
 
98.10

 
56.41

2011
 
59.9
%
 
101.85

 
61.02

2012
 
61.4
%
 
106.10

 
65.17

2013 Estimate
62.0
%
 
111.19

 
68.99


*: RevPAR may not recalculate by multiplying occupancy by ADR due to rounding.
Sources: Smith Travel Research Global (“STR”) (2007 to 2012); PricewaterhouseCoopers (“PwC”) (2013). 2013 estimated data is as of January 2013.

The U.S. lodging industry experienced positive RevPAR performance over the prior year primarily resulting from continued growth in demand outpacing supply. The travel industry continues to recover and grow, showing strength as U.S. occupancy grew by 2.5% to 61.4% in 2012, a level that has not been achieved since 2007. This growth was driven by hotel properties in higher priced chain scale segments that assumed lower price points to accommodate leisure travelers and rate-sensitive business consumers. ADR continued to increase but has yet to fully recover to peak levels achieved prior to the recession. During 2012, ADR grew 4.2% to $106.10. As a result of the occupancy and ADR gains, the U.S. lodging industry experienced RevPAR growth of 6.8% in 2012.

According to PwC's most recent outlook on the Hospitality and Leisure Industry, it is expected that U.S hotel demand, as measured by room night consumption, is again expected to exceed supply in 2013. ADR is expected to increase 4.8% in 2013. Occupancy and ADR gains are expected to be experienced across all segments resulting in an overall RevPAR increase of 5.9%. Beyond 2013, certain industry experts project RevPAR in the U.S. to grow at a 5.6% compounded annual growth rate (“CAGR”) over the next three years (2014 - 2016).

Performance in the U.S. lodging industry is evaluated based upon chain scale segments, which are generally defined as follows:
 
Luxury - typically offers first class appointments and an extensive range of on-property amenities and services, including restaurants, spas, recreational facilities, business centers, concierges, room service and local transportation (shuttle service to airport and/or local attractions). ADR is normally greater than $180 for hotels in this category.

Upper Upscale - typically offers well-appointed properties that offer a full range of on-property amenities and services, including restaurants, spas, recreational facilities, business centers, concierges, room service and local

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transportation (shuttle service to airport and/or local attractions). ADR normally falls in the range of $120 and $180 for hotels in this category.

Upscale - typically offers a full range of on-property amenities and services, including restaurants, spas, recreational facilities, business centers, concierges, room service and local transportation (shuttle service to airport and/or local attractions). ADR normally falls in the range of $100 and $120 for hotels in this category.

Upper Midscale - typically offers restaurants, vending, selected business services, partial recreational facilities (either a pool or fitness equipment) and limited transportation (airport shuttle). ADR normally falls in the range of $85 and $100.

Midscale - typically offers limited breakfast, selected business services, limited recreational facilities (either a pool or fitness equipment) and limited transportation (airport shuttle). ADR normally falls in the range of $60 and $85.

Economy - typically offers basic amenities and a limited breakfast. ADR is normally $60 or less.

Wyndham Hotel Group Overview

Our lodging business, Wyndham Hotel Group, is the world's largest hotel company based on number of properties. Over 84% of Wyndham Hotel Group's revenues are derived from franchising activities. Our franchise business is easily adaptable to changing economic environments due to low operating cost structures, which in combination with recurring fee streams, yield high margins and predictable cash flows. Ongoing capital requirements are relatively low and mostly limited to technology expenditures that support core capabilities. We may employ incentives to generate new business, such as key money, development advance notes, mezzanine or other forms of subordinated financing and performance guarantees to assist franchisees and hotel owners in converting to one of our brands or building a new hotel branded under a Wyndham Hotel Group brand.

During 2012, we added the Wyndham Grand Rio Mar Beach Resort and Spa in Puerto Rico ("Rio Mar hotel") to our owned hotel portfolio, which includes the Wyndham Grand Orlando Bonnet Creek ("Bonnet Creek hotel") opened in late 2011. Both hotels represent mixed-use opportunities whereby we can generate cross product brand loyalty through exposing our repeat hotel guests to the vacation ownership product. Additionally, under our mixed-use business model, VOI sales carry a higher margin and we are able to provide our hotel guests and VOI owners with higher quality amenities.

Wyndham Hotel Group comprises the following 15 brands, with over 7,340 hotels representing over 627,000 rooms on six continents. All of our brands participate in the Wyndham Rewards loyalty program. The following describes these 15 widely-known lodging brands:

Days Inn® is a leading global brand in the economy segment with more guest rooms than any other economy brand and over 1,820 properties worldwide. Under its "Best Value Under the Sun" market positioning, Days Inn hotels offer value-conscious consumers free wireless high-speed internet and most hotels offer free Daybreak® breakfast. Many hotels also have restaurants, pools and meeting rooms.

Super 8® is the world's largest economy lodging chain with over 2,300 properties in the U.S., Canada and China. Under its "8 point promise" service culture, every Super 8 provides a free SuperStart® breakfast, free wireless high-speed  internet, upgraded bath amenities, free in-room coffee, kids under 17 stay free and free premium cable or satellite TV.

Ramada® is a global upper midscale hotel brand with 850 properties located in 50 countries worldwide. Most Ramada hotels feature free wireless high-speed internet, meeting rooms, business services, fitness facilities and upgraded bath amenities. Many properties have an on-site restaurant/lounge, while other sites offer a complimentary continental breakfast.

Howard Johnson® is one of the most iconic hotel brands in America, having pioneered hotel franchising in 1954. Today, Howard Johnson has over 450 hotels in North America, Latin America, Asia and other international markets. In North America, the brand operates in the midscale and economy segments while internationally the brand includes midscale and upscale hotels. The Howard Johnson brand targets families and leisure travelers providing complimentary continental Rise and Dine® breakfast and free wireless high-speed internet.


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Travelodge® is a hotel chain with over 440 properties across North America. The brand operates primarily in the economy segment in the U.S. and in the midscale segment in Canada. Using its "Sleepy Bear" brand ambassador, Travelodge targets leisure travelers with a focus on those who prefer an active lifestyle of outdoor activity and offers guests complimentary Bear Bites® continental breakfast and free wireless high-speed internet.

Wyndham Hotels and Resorts® is an upscale, full service brand with over 110 properties located in key business and vacation destinations around the world. Business locations feature flexible meeting space for large and small groups, as well as business and fitness centers. The brand is tiered as follows: Wyndham Grand Collection, comprised primarily of 4+Diamond hotels in resort or urban destinations, offer a unique guest experience, sophisticated design and distinct dining options; Wyndham Hotels and Resorts offer customers amenities such as golf, tennis, beaches and/or spas; and Wyndham Garden Hotels, generally located in corporate or suburban areas, provide flexible space for small to midsize meetings and relaxed dining options.

Microtel Inn & Suites® by Wyndham is an award-winning chain of nearly 310 hotels predominantly located throughout North America. Microtel is also the only prototypical, all new-construction brand in the economy segment. Positioned in the upper-end of the economy segment, all properties offer complimentary continental breakfast and free wired and wireless high-speed internet and free local and long distance calls.

Knights Inn® is a budget hotel chain with over 360 locations across North America. Hotels provide affordable basic overnight accommodations and complimentary breakfast. For operators, from first time owners to experienced hoteliers, the brand provides a lower cost of entry and competitive terms while still providing the extensive tools, systems and resources of the Wyndham Hotel Group.

Baymont Inn & Suites® is a midscale hotel chain with nearly 320 properties predominantly located in the United States. Specializing in 'hometown hospitality', all Baymont hotels feature both traditional guest rooms and suites. Free guest amenities include a full continental breakfast at the Baymont Breakfast Cornersm, wireless high-speed internet, use of the Baymont fitness center and fresh-baked chocolate chip cookies during the evening hours.
    
Wingate by Wyndham® is a midscale hotel chain with 160 properties in North America. Each hotel offers amenities and services that make life on the road more productive, all at a single rate. Guests enjoy oversized rooms with flat screen TVs, free wireless high-speed internet, in-room microwaves, refrigerators and more. Wingate also offers complimentary hot breakfast, a 24-hour business center with free printing, copying and faxing and free access to a gym facility.

TRYP by Wyndham® is a select-service, mid-priced hotel brand that currently has over 90 properties in some of the most dynamic and cosmopolitan cities in Europe and the Americas. TRYP hotels cater to both business and leisure travelers who value quality of life and offer a unique experience that encourages guests to enjoy the city, socialize and live life to the fullest. Guests enjoy free wireless internet in all rooms and a free breakfast buffet with a special emphasis on healthy, fresh ingredients.

Hawthorn Suites by Wyndham® is an extended stay brand that provides a comfortable and convenient atmosphere for travelers who are on the road for days and weeks at a time, whether they are embarking on a temporary assignment, relocating to a new area or vacationing. Guests enjoy spacious one and two-bedroom suites with fully-equipped kitchens, free wireless high-speed internet in all rooms and common areas, a free hot breakfast buffet, a fitness center, evening social hours and the convenience of services such as an on-premise convenience store and laundry facilities. With over 90 locations and growing, Hawthorn Suites by Wyndham hotels are located throughout the U.S.

Dream® Hotels offer a progressive and unexpected list of services and amenities that emulate those of luxury hotels, but with a more relaxed point of view. Design is at the forefront of the concept for these lifestyle hotels, yet comfort and convenience are never compromised. All Dream hotels reside in prime, city center or true destination resort locations, blurring the lines between business and pleasure. Dream Hotels are led by award-winning and locally popular restaurant and lounge offerings. This brand was added to our portfolio of offerings in January 2011 when we entered into a 30 year affiliation relationship with Chatwal Hotels & Resorts, LLC to franchise this brand and provide management services globally for branded hotels. As of December 31, 2012, we had 5 properties franchised by us under this affiliation agreement.


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Night Hotels® is an affordably styled midscale lifestyle brand. Night's design takes traditional hotel spaces and converts them into social gathering spots offering guests the ability to engage and interact in a comfortable, casual and understated environment. This brand was also added to our portfolio of offerings in January 2011 when we entered into the affiliation relationship with Chatwal Hotels & Resorts, LLC. As of December 31, 2012, we had 2 properties franchised by us under this affiliation agreement.

Planet Hollywood is a 4+Diamond, full-service, entertainment-based hotel brand that will be located in key destination cities globally. We have a 20 year affiliation relationship with Planet Hollywood Resorts International, LLC to franchise this brand and generally provide management services globally for branded hotels. All hotels will offer multiple food and beverage outlets, flexible meeting space and entertainment-based theming. As of December 31, 2012, we had no properties franchised or managed by us under this affiliation arrangement.

The following table provides operating statistics for each brand in our system as of and for the year ended December 31, 2012. We derived occupancy, ADR and RevPAR from information provided to us by our franchisees:
 
 
Global
 
 
 
 
 
Average
 
 
 
 
 
 
Segment
 
# of
 
# of
 
Occupancy
 
 
 
 
Brand
 
Served (1)
 
Properties
 
Rooms
 
Rate
 
ADR
 
RevPAR *
Days Inn
 
Economy
 
1,826

 
147,808

 
48.1
%
 
$
63.05

 
$
30.34

Super 8
 
Economy
 
2,314

 
147,512

 
54.8
%
 
53.00

 
29.06

Ramada
 
Midscale
 
850

 
115,811

 
52.6
%
 
78.86

 
41.50

Howard Johnson
 
Economy
 
455

 
46,203

 
47.6
%
 
62.47

 
29.76

Travelodge
 
Economy
 
445

 
33,213

 
48.2
%
 
66.40

 
32.02

Wyndham Hotels and Resorts
 
Upscale
 
112

 
27,651

 
58.9
%
 
110.28

 
64.97

Microtel Inns and Suites by Wyndham
 
Economy
 
308

 
21,938

 
54.9
%
 
62.20

 
34.14

Knights Inn
 
Economy
 
363

 
22,670

 
41.3
%
 
43.08

 
17.78

Baymont
 
Midscale
 
317

 
26,109

 
50.5
%
 
63.25

 
31.96

Wingate by Wyndham
 
Midscale
 
160

 
14,681

 
61.0
%
 
83.43

 
50.88

Tryp by Wyndham
 
Upper Midscale
 
91

 
13,112

 
60.7
%
 
97.49

 
59.17

Hawthorn Suites by Wyndham
 
Midscale
 
94

 
9,317

 
61.9
%
 
72.89

 
45.13

Dream
 
Upper Upscale
 
5

 
990

 
72.1
%
 
216.87

 
156.44

Night
 
Upper Midscale
 
2

 
422

 
57.8
%
 
159.04

 
91.90

Total
 
 
 
7,342

 
627,437

 
51.8
%
 
67.13

 
34.80

 
 
* 
RevPAR may not recalculate by multiplying average occupancy rate by ADR due to rounding.
(1) 
The Global Segments Served column reflects the primary chain scale segments served using the STR Global definition and method as of December 2012. STR Global is U.S. centric and categorizes a hotel chain, or brand, based on ADR in the U.S. We utilized these chain scale segments to classify our brands both in the U.S. and internationally.


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The number of lodging properties and rooms in operation by market sector is as follows:
 

As of December 31,
 
2012
 
2011
 
2010
 
Properties
 
Rooms
 
Properties
 
Rooms
 
Properties
 
Rooms
Economy (a)
5,578

 
398,304

 
5,536

 
394,087

 
5,482

 
387,202

Midscale (b)
1,208

 
125,900

 
1,152

 
121,372

 
1,206

 
128,627

Upper Midscale (c)
469

 
79,274

 
435

 
74,404

 
434

 
71,358

Upscale (d)
82

 
22,969

 
76

 
22,201

 
84

 
25,348

Upper Upscale (e)
5

 
990

 
6

 
1,062

 

 

Unmanaged, Affiliated and Managed, Non-Proprietary Hotels (f)

 

 

 

 
1

 
200

 
7,342

 
627,437

 
7,205

 
613,126

 
7,207

 
612,735

 
(a) 
Comprised of the Days Inn, Super 8, Howard Johnson Inn, Howard Johnson Express, Travelodge, Microtel Inns & Suites by Wyndham and Knights Inn lodging brands.
(b) 
Primarily includes the Wingate by Wyndham, Hawthorn by Wyndham, Ramada Inn, Ramada Limited, Howard Johnson Plaza, Howard Johnson Hotel and Baymont Inns & Suites brands.
(c) 
Primarily includes the Ramada Hotels, Ramada Plaza, Tryp by Wyndham and Wyndham Garden Hotel lodging brands.
(d) 
Comprised of the Wyndham Hotels and Resorts lodging brand.
(e) 
Comprised of the Dream lodging brand for 2012 and the Dream and Night lodging brands in 2011.
(f) 
Represents properties/rooms affiliated with the Wyndham Hotels and Resorts brand for which the Company received a fee for reservation and/or other services provided and properties managed under a joint venture. This property is not branded under a Wyndham Hotel Group brand.

The number of lodging properties and rooms changed as follows:
 

As of December 31,
 
 
2012
 
2011
 
2010
 
 
Properties
 
Rooms
 
Properties
 
Rooms
 
Properties
 
Rooms
 
Beginning balance
7,205

 
613,126

 
7,207

  
612,735

  
7,114

 
597,674

 
Additions
688

 
66,050

 
541

  
54,706

  
492

 
54,171

 
Acquisitions

 

 



 
92

(*)  
13,236

(*) 
Terminations
(551
)
 
(51,739
)
 
(543
)

(54,315
)

(491
)
 
(52,346
)
 
Ending balance
7,342

 
627,437

 
7,205

  
613,126

  
7,207

 
612,735

 
 
(*) Relates to the Tryp hotel brand, which was acquired on June 30, 2010.

The following table depicts our geographic distribution and key operating metrics by region:
 
 
# of
 
# of
 
 
 
 
 
 
Region
 
  Properties
 
Rooms (1)   
 
Occupancy
 
ADR
 
RevPAR*
United States
 
5,789

 
450,659

 
50.0
%
 
$
65.34

 
$
32.64

Canada
 
494

 
39,618

 
53.3
%
 
98.02

 
52.29

Europe/Middle East/Africa
 
336

 
44,749

 
60.2
%
 
84.33

 
50.77

Asia/Pacific
 
618

 
78,932

 
57.7
%
 
47.99

 
27.71

Latin/South America
 
105

 
13,479

 
53.0
%
 
89.92

 
47.62

Total
 
7,342

 
627,437

 
51.8
%
 
67.13

 
34.80

 
 
* 
RevPAR may not recalculate by multiplying occupancy by ADR due to rounding.
(1) 
From time to time, as a result of weather or other business interruption and ordinary wear and tear, some of the rooms at these hotels may be taken out of service for repair.

Our franchising business is designed to generate revenues for our hotel owners through the delivery of reservations to the hotel and the delivery of certain services such as training and guest services.


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The sources of revenues from franchising hotels include (i) ongoing franchise fees, which are comprised of royalty, marketing and reservation fees, (ii) initial franchise fees which relate to services provided to assist a franchised hotel to open for business under one of our brands, and (iii) other service fees. Royalty fees are intended to cover the use of our trademarks. Marketing and reservation fees are intended to reimburse us for expenses associated with operating an international, centralized, brand-specific reservations system, e-commerce channels such as our brand.com websites as well as access to third-party distribution channels, such as online travel agents ("OTAs"), advertising and marketing programs, global sales efforts, operations support, training and other related services. Other service fees include fees derived from providing ancillary services, which are generally intended to reimburse us for direct expenses associated with providing these services.

Our management business offers hotel owners the benefits of a global brand and a full range of management, marketing and reservation services. In addition to the standard franchise services, our hotel management business provides hotel owners with professional oversight and comprehensive operations support services. These services include hiring, training and supervising the hotel managers and employees, annual budget preparation, local sales and marketing efforts, financial analysis and food and beverage services. Revenues earned from our management business include management and service fees. Management fees are comprised of (i) base fees, which are typically a specified percentage of total hotel revenues operations, and (ii) incentive fees, which are typically a specified percentage of a hotel's gross operating profit. Service fees include fees derived from accounting, design, construction and purchasing services and technical assistance provided to managed hotels. We are also required to recognize as revenue fees relating to reimbursable payroll costs for operational employees who work at certain of our managed hotels. Although these costs are funded by hotel owners, accounting guidance requires us to report these fees on a gross basis as both revenues and expenses. As such, there is no effect on our operating income.

Our ownership business is limited to the United States and includes two hotels in key business and leisure markets. Revenues earned from our owned hotels are comprised of: (i) gross room nights; (ii) food and beverage services and (iii) onsite spas, casinos, golf and shop revenues. We are responsible for all operations and recognize all revenues and expenses associated with the hotels.

We also earn revenues from the Wyndham Rewards loyalty program when a member stays at a participating hotel. These revenues are derived from a fee we charge based upon a percentage of room revenues generated from such member stay. These loyalty fees are intended to reimburse us for expenses associated with administering and marketing our loyalty program.

Reservation Booking Channels

Our economy and midscale hotels are typically located on highway roadsides for convenience to business and leisure travelers. Therefore, the majority of hotel room nights sold at these hotels is to guests who seek accommodations on a walk-in or direct to hotel basis. We believe their choice of hotel is attributable to the strength of the brand reputation and recognition of the brand name.

The single most important component of our value proposition to a hotel owner is access to our reservation booking channels, which we also refer to as our distribution platform. These channels include our proprietary, award-winning brand web and mobile sites, our Wyndham Rewards loyalty program, our global sales team, global distribution partners (such as Sabre and Amadeus), OTAs and other third-party internet referral or booking sources, such as Kayak, TripAdvisor and Google.

For guests who choose to book their hotel stay in advance through our distribution platform, we booked on behalf of hotels within our system, a total of 44 million room nights in 2012, which represents 38% of total bookings at these hotels up 6% from last year.

The most significant and fastest growing reservation source is online channels, which include our proprietary web and mobile sites for each of our brands and for the Wyndham Rewards loyalty program, as well as OTAs and other third-party internet referral and booking sources. In 2012, we booked 24 million room nights through online channels on behalf of all the hotels within our global system, representing 21% of the total bookings at these hotels.

Since 2007, bookings made directly by customers on our brand web and mobile sites have increased at a five year CAGR of approximately 9% and increased to over 10 million room nights in 2012. Bookings made through OTAs and other third-party internet booking sources increased at a five year CAGR of approximately 19% to over 13 million room nights in 2012.

Apart from reservations transacted through our online channels, our call centers contributed over 2 million room nights in 2012, which represents 2% of the total bookings at the U.S. hotels within our global system. We maintain call centers in Saint John, Canada; Aberdeen, South Dakota; and Manila, Philippines that handle bookings generated through toll-free numbers for our brands.


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A key strategy for reservation delivery is the continual investment in and optimization of our e-commerce capabilities (websites, mobile and other online channels) as well as the deployment of advertising spend to drive online traffic to our proprietary e-commerce channels, including through marketing agreements we have with travel related search websites and affiliate networks, and other initiatives to drive business directly to our online channels. In addition, to ensure our franchisees receive bookings from OTAs and other third-party internet sources, we provide direct connections between our central reservations system and strategic third-party internet booking sources. These direct connections allow us to deliver more accurate and consistent rates and inventory, send bookings directly to our central systems without interference or delay and reduce our franchisee distribution costs.

Loyalty Program

The Wyndham Rewards program was introduced in 2003 and has grown steadily since its inception. The diversity of our brands uniquely enables us to meet our members' leisure and business travel needs across the greatest number of locations and a wide range of price points. The Wyndham Rewards program is offered in over 50 countries around the world. As of December 31, 2012, there were over 28.5 million members enrolled in the program of which approximately 7 million were active (members who have either earned or redeemed within the last 18 months). These members stay at our brands more frequently and drive incremental room nights, higher ADR and a longer length of stay than guests who are not members.

Wyndham Rewards offers its members numerous ways to earn and redeem points. Members accumulate points by staying in one of over 7,200 branded hotels participating in the program or by purchasing everyday services and products using a co-branded Wyndham Rewards credit card. Members also have the option to earn points or airline miles with over 50 business partners, including our vacation ownership business. Wyndham Rewards members have thousands of options for redeeming their points including hotel stays, airline tickets, resort vacations, car rentals, electronics, sporting goods, movie and theme park tickets, and gift certificates.

Marketing, Sales and Revenue Management Services

Our brand marketing teams develop and implement global marketing strategies for each of our hotel brands, including generating consumer awareness of, and preference for each brand as well as direct response activities designed to drive bookings through our central reservation systems. While brand positioning and strategy is generated from our U.S. headquarters, we have seasoned marketing professionals positioned around the globe to modify and implement these strategies on a local market level. Our marketing efforts communicate the unique value proposition of each of our individual brands, and are designed to build consumer awareness and drive business to our hotels, either directly or through our own reservation channels. We deploy a variety of marketing strategies and tactics depending on the needs of the specific brand and local market, including online advertising, traditional media planning and buying (radio, television and print), creative development, promotions, sponsorships and direct marketing. Our Best Available Rate guarantee gives consumers confidence to book directly with us by guaranteeing the same rates regardless of whether they book through our call centers, websites or other third party channel. In addition, we leverage the strength of our Wyndham Rewards program to develop meaningful marketing promotions and campaigns to drive new and repeat business to hotels in our system. Our Wyndham Rewards marketing efforts drive tens of millions of consumer impressions through the program's channels and through the program's partners' channels.

Our global sales organization, strategically located throughout the world, leverages the significant size of our portfolio to gain a larger share of business for each of our hotels through relationship-based selling to a diverse range of customers. Because our hotel portfolio meets the needs of all types of travelers, we are able to find more complete solutions for a client/company whose travel needs range from economy to upscale brands. We are able to accommodate business or leisure travelers with our selection of over 7,300 hotels throughout the world. In order to leverage multidimensional customer needs for our hotels, the sales team is deployed globally in key markets within Europe, Mexico, Canada, Latin America, China, Hong Kong, the Middle East and throughout the U.S. We also offer revenue management services to help maximize the revenues of our hotel owners by improving rate and inventory management capabilities. These services also coordinate all recommended revenue programs delivered to our hotels in tandem with e-commerce and brand marketing strategies. 

Property Services

Our worldwide team of industry veterans continually collaborates with hotel owners on all aspects of their operations and creates detailed and individualized strategies for success. We are able to make a meaningful contribution to hotel operations resulting in more profits and improved RevPAR performance for our hotel owners by providing key services, such as system integration, operations support, training, strategic sourcing, and development planning and construction.


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We also provide hotel owners with property management system software that synchronizes each hotel's inventory with our central reservations platform. These systems help hotel owners manage their rooms inventory (room nights), rates (ADR) and reservations, which leads to greater profits at the property level and better enables us to deliver reservations at the right price to our hotel owners.

New Development

Our development team consists of over 90 professionals dispersed throughout the world, including in the U.S., China, Mexico, India, Europe and the Middle East. Our development efforts typically target existing franchisees as well as hotel developers, owners of independent hotels and owners of hotels leaving competitor brands. Approximately 47% of the new rooms added in 2012 were with existing franchisees or managed hotel owners.

In addition, our development team is focused in growing our management business. Our hotel management business gives us access to development opportunities beyond pure play franchising transactions. When a hotel owner is seeking both a brand and a manager, we are able to couple these services in one offering which we believe gives us a competitive advantage.

As of December 31, 2012, we had approximately 930 hotels and 110,700 rooms pending opening in our development pipeline, of which 56% were international and 59% were new construction.

In North America, we generally employ a direct franchise model whereby we contract with and provide various services and reservations assistance directly to independent owner-operators of hotels. Under our direct franchise model, we principally market our lodging brands to hotel developers, owners of independent hotels and hotel owners who have the right to terminate their existing franchise affiliations with other lodging brands. We also market franchises to existing franchisees because many own, or may own in the future, other hotels that can be converted to one of our brands. Our standard franchise agreement grants a franchisee the right to non-exclusive use of the applicable franchise system in the operation of a single hotel at a specified location, typically for a period of 15 to 20 years, and gives the franchisor and franchisee certain rights to terminate the franchise agreement before its conclusion under certain circumstances, such as upon the lapse of a certain number of years after commencement of the agreement. Early termination options in franchise agreements give us flexibility to terminate franchised hotels if business circumstances warrant. We also have the right to terminate a franchise agreement for failure by a franchisee to bring its property into compliance with contractual or quality standards within specified periods of time, pay required franchise fees or comply with other requirements of the franchise agreement.

Although we generally employ a direct franchise model in North America, we currently have two company-owned hotels, The Bonnet Creek hotel, which opened in late 2011, is situated in our Bonnet Creek vacation ownership resort near the Walt Disney World resort in Florida. This property enables us to leverage the synergies of our company's hotel and vacation ownership elements. In late 2012, we acquired the Rio Mar hotel in Rio Grande, Puerto Rico, a luxury vacation destination. The oceanfront property includes premier restaurants, a spa, casino, golf course, and comprehensive business center. These two hotels represent mixed-use opportunities whereby we can generate cross product brand loyalty by exposing our repeat hotel guests to the vacation ownership product. Additionally, under our mixed-use business model, we are able to provide our hotel guests and VOI owners with higher quality amenities.

In other parts of the world, we employ both a direct franchise and master franchise model. We generally employ a master franchise model in regions where we are not yet ready to support the required infrastructure for a specific region. While we employ a direct franchising model in China for our Wyndham and Ramada brands, we use a master franchise model for our Super 8, Days Inn and Howard Johnson brands. Similarly, within Canada, we generally employ a direct franchising model for our brands with the exception of our Days Inn, Howard Johnson, Travelodge, and Knights Inn brands, for which we use a master license model.

Franchise agreements in regions outside of North America may carry a lower fee structure based upon the breadth of services we are prepared to provide in that particular region. Under our master franchise model, we principally market our lodging brands to third parties that assume the principal role of franchisor, which entails selling individual franchise agreements and providing quality assurance and marketing and reservations support to franchisees. Since we provide only limited services to master franchisors, the fees we receive in connection with master franchise agreements are typically lower than the fees we receive under a direct franchising model. Master franchise agreements, which are individually negotiated and vary among our different brands, typically contain provisions that permit us to terminate the agreement if the other party to the agreement fails to meet specified development schedules.


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We also enter into affiliation relationships whereby we provide our development, marketing and franchise services to brands owned by our affiliated partners. These relationships give us the ability to offer unique experiences to our guests and unique brand concepts to developers seeking to do business with the Wyndham Hotel Group. Affiliation agreements typically carry lower royalty fees since we do not incur costs associated with owning the underlying intellectual property. Certain of these affiliated relationships contain development targets whereby our future development rights may be terminated upon failure to meet the specific targets.

Strategies

Wyndham Hotel Group is strategically focused on two objectives that we believe are essential to our business: increasing our system size and strengthening our customer value proposition.

To increase our system size, we intend to add new rooms and retain existing properties that meet our performance criteria.

We expect to deploy the following tactics to add new rooms:

create franchise conversion programs for our Super 8, Days Inn and Ramada brands;

target new construction and conversion opportunities in China, the Middle East, Latin America, United Kingdom and India;

grow the Wyndham brand by utilizing structures that attract multi-unit owners and targeting key markets globally where the brand is underrepresented;

spur new construction growth in our Microtel by Wyndham and Wingate by Wyndham brands;

increase the Tryp by Wyndham brand presence within North America, Latin America and Europe; and

consider the select acquisition of brands that fulfill our strategic objectives.

To retain existing properties that meet our performance criteria, we will:

continue to strengthen our value proposition; and

continue to deploy our exceptional service culture tool, “Count on Me!”, into every aspect of the business to attain optimal customer satisfaction.
 
In an effort to strengthen our customer value proposition, we continue to execute against our “Apollo” initiative, a comprehensive, multi-year and multi-faceted plan to drive more value to franchisees, mitigate brand erosion and generate more business through our own direct, lowest cost channels. Efforts under our “Apollo” strategy include the launch of new, award-winning web and mobile sites, improved content syndication across all channels, industry leading e-commerce capabilities, improvements in our distribution platform technology and systems, and the global roll out of our WynReview ratings and review platform. We also continue to support our investment in Hotel JV Services, LLC, also known as Room Key, which is a joint venture with five other major hotel companies.

Seasonality

Franchise and management fees are generally higher in the second and third quarters than in the first or fourth quarters of any calendar year as a result of increased leisure travel and the related ability to charge higher ADRs during the spring and summer months.

Competition

Competition is robust among the lodging brand franchisors to grow their franchise systems and retain their existing franchisees. We believe existing and potential franchisees make decisions based principally upon the perceived value and quality of the brand and the services offered to franchisees. We further believe that the perceived value of a brand name is, to some extent, a function of the success of the existing hotels franchised under the brands.


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The ability of an individual franchisee to compete may be affected by the location and quality of its property, the number of competing properties in the vicinity, community reputation and other factors. A franchisee's success may also be affected by general, regional and local economic conditions. The potential negative effect of these conditions on our results of operations is substantially reduced by virtue of the diverse geographical locations of our franchised hotels and by the scale of our franchisee base. Our franchise system is dispersed among approximately 5,500 franchisees, which reduces our exposure from any one franchisee. No one franchisee accounts for more than 6% of our franchised hotels or total segment revenues.

WYNDHAM EXCHANGE & RENTALS

Vacation Exchange and Rentals Industries

The vacation exchange and rentals industries offer leisure travelers access to a range of fully-furnished vacation properties, such as privately-owned vacation homes, villas, cottages, apartments, condominiums and vacation ownership resorts, as well as flexibility in time of travel and choice of lodging options in regions where travelers may not typically have access to such choices.

The vacation exchange industry is a fee-for-service business. The industry offers services and products to timeshare developers and owners. To participate in a vacation exchange, a timeshare owner generally provides their interval to an exchange company's network and, in return, receives the opportunity to exchange for another owner's interval within the company's network of available inventory. The exchange company assigns a value to the owner's interval based upon a number of factors, including the location and size of the timeshare unit, the start date of the interval week, and the amenities at the resort. Exchange companies generally derive revenues from owners of intervals by charging exchange fees for facilitating exchanges and through annual membership dues. In 2011, 71% of timeshare owners (or 6.0 million) were members of vacation exchange companies, and 51% of timeshare owners (or 4.3 million) completed approximately 3.0 million exchanges.

Within the broader long-term growth trend of the vacation exchange industry, there is a trend where timeshare developers are enrolling members in private label clubs, where members have the option to exchange within the club or through external exchange channels. The club trend has a positive impact on the average number of members, but a negative effect on the number of exchange transactions per average member and revenue per member.

The over $65 billion global vacation rentals industry is largely a fee-for-service business that offers vacation property owners the opportunity to rent their properties to leisure travelers. The industry is divided broadly into two segments. The first is the professionally managed rental segment, where the homeowner provides their property to an agent to rent, in a majority of cases, on an exclusive basis. The agent receives a commission for marketing the property, managing bookings and providing quality assurance to the renter. Additionally, the agent may offer services such as daily housekeeping, on-site check-in, in-unit maintenance, and in-room guest amenities. The other segment of the industry is the listing business, where there is no exclusive relationship and the property owner pays a fixed fee for an online listing or a directory listing with minimal additional services, typically with minimal to no direct booking ability or quality assurance services. In the listing model, this fixed fee is generally charged regardless of whether the unit is ultimately rented. Typically, professionally managed vacation rental companies collect rent in advance and, after deducting the applicable commissions, remit the net amounts due to the property owners and/or property managers. In addition to commissions, professionally managed vacation rental companies may earn revenues from rental customers through fees that are incidental to the rental of the properties, such as fees for travel services, local transportation, on-site services and insurance or similar types of products.

The global supply of vacation rental inventory is less organized than the lodging industry and is highly fragmented with much of it being made available by individual property owners. We believe that as of December 31, 2012, there were approximately 1.3 million and 2.8 million vacation properties available for rental in the U.S. and Europe, respectively. In the U.S., vacation properties available for rental are primarily condominiums or stand-alone houses. In Europe, vacation properties available for rental include individual homes and apartments, campsites and vacation park bungalows. We believe that the overall supply of vacation rental properties has grown primarily because of the increasing desire by existing owners of second homes to gain an earnings stream evidenced by homes not previously offered for rent appearing on the market.

We believe that the overall demand for vacation rentals has been growing for the following reasons: (i) the consumer value of renting a unit for an entire family; (ii) the increased use of the internet as a tool for facilitating vacation rental transactions; and (iii) increased consumer awareness of vacation rental options. The global demand per year for vacation rentals is approximately 54 million vacation weeks, 34 million of which are rented by leisure travelers from Europe. Demand for vacation rental properties is often regional since many leisure travelers rent properties within driving distance of their home.
 

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Wyndham Exchange & Rentals Overview

Wyndham Exchange & Rentals is largely a fee-for-service business that provides vacation exchange services and products to developers, managers and owners of intervals of VOIs, and markets and services vacation rental properties. We are the world's largest vacation exchange network based on the number of vacation exchange members and the world's largest global marketer of vacation rental properties based on the number of professionally managed vacation rental properties. Our vacation exchange and rentals business primarily derives its revenues from fees that generate stable and predictable cash flows. No one external customer, developer or customer group accounts for more than 2% of our vacation exchange and rentals revenues.

Our vacation exchange business, RCI, derives a majority of its revenues from annual membership dues and fees for facilitating exchange transactions. Our vacation exchange business also derives revenues from ancillary services including additional services provided to transacting members, programs with affiliated resorts, club servicing and loyalty programs.

Our vacation rentals business, Wyndham Vacation Rentals, primarily derives its revenues from fees, which generally average between 20% and 50% of the gross booking fees for inventory. For the less than 10% of properties that we generally own, manage or operate under long-term capital and operating leases, we receive 100% of the revenues. Our vacation rentals business also derives revenues from ancillary services delivered to property owners and travelers.

Our vacation exchange and rentals business has access for specified periods, in a majority of cases on an exclusive basis, to over 103,000 vacation properties. Each year, our vacation exchange and rentals business provides more than 5 million leisure-bound families with vacation exchange and rentals services and products. The properties available to leisure travelers through our vacation exchange and rentals business include vacation ownership condominiums, homes, villas, cottages, bungalows, campgrounds, city apartments, fractional private residences, luxury destination clubs, boats and yachts. We offer leisure travelers flexibility as to time of travel and a choice of lodging options in regions to which such travelers may not typically have such ease of access, and we offer property owners marketing, booking and quality control services. Additionally, some of our brands offer property management services ranging from key-holding to full property maintenance for such properties. We market our services and products using eleven primary consumer brands and other related brands and have over 175 offices worldwide.

Vacation Exchange

Through our vacation exchange business, RCI, we have relationships with over 4,000 vacation ownership resorts in approximately 100 countries. We have 3.7 million vacation exchange members and generally retain more than 85% of members each year. We generate fees from members for both annual membership subscriptions and transaction based services. In substantially all cases, we acquire new members when an affiliated resort developer buys the initial term of an RCI membership on behalf of a timeshare owner as part of the vacation ownership purchase process. Generally, this initial membership is for either a 1 or 2 year term, after which these new members can choose to renew at their own expense. In certain circumstances, renewals are paid for by the developer. Members are entitled to receive periodicals published by RCI and, for additional fees, to use the applicable exchange program and other services.

RCI operates three worldwide exchange programs that have a member base of timeshare owners who are generally well-traveled and who want flexibility and variety in their travel plans each year. Our vacation exchange business' three exchange programs, which serve owners of intervals at affiliated resorts, are RCI Weeks, RCI Points and The Registry Collection. Participants in these vacation exchange programs pay annual membership dues and for additional fees are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain members may exchange intervals for other leisure-related services and products which enable us to generate additional fees. The RCI Weeks exchange program is the world's largest vacation ownership exchange network and generally provides members with the ability to exchange week-long intervals in units at their resorts for week-long intervals at comparable resorts. In order to do so, RCI Weeks members deposit their vacation intervals with RCI and obtain trading power that they can then use to exchange for another interval within the RCI exchange program. With the introduction of Enhanced Weeks, members can also combine deposited timeshare intervals for an additional fee, which enable them to exchange into highly-demanded vacations that they might not otherwise be able to exchange into, and receive a deposit credit if the value of their deposited interval is greater than the interval into which they have exchanged. During 2011, RCI also launched RCI Weeks Platinum membership, a premium level of membership that offers exclusive exchange and lifestyle benefits to subscribing members.


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The RCI Points exchange program, launched in 2000, is a global points-based exchange network, which allocates points to intervals that members cede to the exchange program. Under the RCI Points exchange program, members may redeem their points for the use of vacation properties in the exchange program or for discounts on other services and products which may change from time to time, such as airfare, car rentals, cruises, hotels and other accommodations. When points are redeemed for these other services and products, our vacation exchange business gains the right to that member's points and may rent vacation properties backed by these points in order to recoup the expense of providing discounts on other services and products. In 2010, RCI launched RCI Points Platinum membership, a premium level of membership that offers exclusive exchange and lifestyle benefits to subscribing members.

We believe that The Registry Collection exchange program is the industry's largest and first global exchange network of luxury vacation accommodations. The luxury vacation accommodations in The Registry Collection network include fractional ownership resorts, higher-end vacation ownership resorts, condo-hotels and yachts. The Registry Collection program allows members to exchange their intervals for the use of other vacation properties within the network for a fee and also offers access to other services and products, such as cruises, yachts, adventure travel, hotels and other accommodations. The members of The Registry Collection exchange program often own greater than two-week intervals at affiliated resorts.

Our vacation exchange business operates worldwide primarily in the following regions: North America, Europe, Latin America, Caribbean, Southern Africa, Asia Pacific and the Middle East. We tailor our strategies and operating plans for each of the geographical environments where RCI has, or seeks to develop, a substantial member base.

Vacation Rentals

Our vacation rentals business, Wyndham Vacation Rentals, markets vacation rental properties including privately-owned villas, homes, cottages, bungalows, campgrounds, apartments and condominiums in approximately 600 destinations. The variety, location and caliber of properties in the Wyndham Vacation Rentals portfolio, in addition to the many benefits and services that Wyndham Vacation Rentals offers, provides consumers the opportunity to vacation in various parts of the world in properties with conveniences similar to their homes. In addition to these properties, we market inventory from our vacation exchange business and from other sources. We generate fee income from marketing and renting these properties to consumers. We currently transact approximately 1.4 million vacation rental weeks per year. We market vacation rental properties through our proprietary brands and select private-label arrangements. Our vacation rentals business has approximately 100,000 properties with approximately 90,000 properties in Europe and approximately 9,000 properties in the U.S. The following is a description of some of our major proprietary vacation rental brands:

The Hoseasons Group operates a number of well-recognized and established brands within the vacation rental market, including Hoseasons, cottages4you and James Villa Holidays, and offers access to approximately 42,500 properties across the U.K. and Europe.

Novasol is one of continental Europe's largest rental companies, featuring properties in more than 25 European countries including holiday homes in Denmark, Norway, Sweden, France, Italy and Croatia, with approximately 33,000 exclusive holiday homes available for rent through established brands such as Novasol, Dansommer and Cuendet.

Landal GreenParks is one of the Netherlands' leading holiday park companies, with over 70 holiday parks offering approximately 12,000 holiday park bungalows, villas and apartments in the Netherlands, Germany, Belgium, Austria, Switzerland and the Czech Republic. Every year more than 2 million guests visit Landal's parks, many of which offer dining, shopping and wellness facilities.

Canvas Holidays is a specialist tour operator offering luxury camping holidays at 90 European campsites with approximately 2,500 accommodation units. It has a wide choice of luxury accommodations - spacious lodges, comfortable mobile homes and the unique Maxi Tent, plus a range of children's and family clubs.

Wyndham Vacation Rentals in North America offers approximately 9,000 rental properties, in beach, ski, mountain, theme park, golf and tennis resort destinations - such as Colorado, Utah, South Carolina, Florida, Delaware, Tennessee and Alabama. Wyndham Vacation Rentals in North America provides vacation rentals to travelers through acquired brands and has more than 35 years of industry experience.

Most of the rental activity under our brands occurs in Europe and the U.S. Our vacation rentals business also has the opportunity to provide inventory to our 3.7 million vacation exchange members and our exchange and rentals business has the ability to source and rent inventory in approximately 100 countries.


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Our vacation rentals business currently has relationships with approximately 58,000 independent property owners in 34 countries, including the Netherlands, United Kingdom, Germany, Denmark, Sweden, France, Ireland, Belgium, Italy, Spain, Portugal, Norway, Greece, Austria, Croatia, certain countries in Eastern Europe and the U.S. Property owners typically enter into annual contracts with our vacation rentals subsidiaries to market the rental of their properties within our rental portfolio. Our vacation rentals business also has an ownership interest, or capital leases under our Landal GreenParks brand, in approximately 7% of the properties in our rental portfolio.

Customer Development

In our vacation exchange business, we affiliate with vacation ownership developers directly as a result of the efforts of our in-house sales teams. Affiliated developers sign long-term agreements each with an average duration of approximately 5 years. Our members are acquired primarily through our affiliated developers as part of the vacation ownership purchase process.

In our vacation rentals business, we primarily enter into exclusive annual rental agreements with property owners. We market rental properties online and offline to large databases of customers which generate repeat bookings. Additional customers are sourced through bookable websites and offline advertising and promotions, and through the use of third-party travel agencies, tour operators and online distribution channels to drive additional occupancy. We have a number of specific branded websites to promote, sell and inform new customers about vacation rentals. Due to the diversified nature of our rental brands, our dependence on a single customer group or business partner is limited.

Loyalty Program

Our U.S. vacation exchange business' member loyalty program is RCI Elite Rewards, which offers a branded credit card. The card allows members to earn reward points that can be redeemed for items related to our exchange programs, including annual membership dues, exchange fees for transactions and other services and products offered by our vacation exchange business or certain third parties, including airlines and retailers.

Internet

We will continue to invest in cutting edge and innovative online technologies to ensure that our members and rental customers have access to similar information and services online that we provide through our call centers. Through our comprehensive http://www.RCI.com initiative, referred to as “Program Interaction”, which began in 2008, we launched enhanced search capabilities that greatly simplify our search process making it easier for a member to find a desired vacation. We have also greatly expanded our online content, including multiple resort pictures and high-definition videos, to help educate members about potential vacation options. Additionally, through this initiative, we released a significant series of technology enhancements to our members. This new technology included program enhancements for our RCI Weeks members that provide complete trading power transparency, allowing members to better understand the trading power value of the timeshare interval that they deposited with RCI and the timeshare interval into which they want to exchange. Members also have the ability to combine the timeshare intervals that they have deposited with RCI for increased trading power and receive a deposit credit if the trading power value of their deposited interval is greater than the interval that they have received by exchange. We also have enhanced our ability to merchandise offers through web only channels and have launched mobile technologies such as applications for smartphones and tablets to access http://www.RCI.com functionality.

In 2011, we brought even more simplicity, speed, and efficiency to the vacation exchange experience with another major technology upgrade. This included a new property information management platform, as well as a new enhanced search function for our RCI Points members. In addition, we launched an innovative recommendation engine technology where members see real-time vacation suggestions that best fit their unique travel preferences. In 2012, we continued to improve RCI.com by creating an enhanced customer experience and more opportunities to provide services to our members. This included adding cross-selling technology to offer more options to our members and property management system integration capabilities to allow our exchange systems to communicate directly to our affiliates' systems providing a streamlined vacation planning process for our members. Our RCI.com initiatives have increased our web penetration to over 45% by the end of 2012 from 13% in 2008 when we launched this initiative.

Part of our strategy has been to improve our online distribution channels resulting in members and rental customers shifting from transacting business through our call centers to transacting business online, thereby generating cost savings. Over the last several years, we have improved our web penetration for our rentals business to over 60% by the end of 2012 resulting from enhancements. Additionally, during 2012, we were able to consolidate 32 of our separate North American vacation rental websites into a single upgraded Wyndham Vacation Rentals website and platform.


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Call Centers

Our vacation exchange and rentals business also services its members and rental customers through global call centers. The requests we receive at our global call centers are handled by our vacation guides, who are trained to fulfill our members' and rental customers' requests for vacation exchanges and rentals. Call centers remain an important distribution channel for us and therefore we continue to invest resources to ensure that members and rental customers receive a high level of personalized customer service.

Marketing

We market to our members and rental customers through several marketing channels including direct mail, email, telemarketing, online distribution channels, brochures, magazines and travel agencies. Our vacation exchange business has a comprehensive social and mobile media platform including RCI apps for smartphones and tablets, a Facebook fan page, a Facebook application called RCI's Share Your Vacation, a Twitter account, a YouTube channel, an online video content network called RCI TV, the RCI Blog and two digitally published magazines entitled Endless Vacation Magazine for iPad and Ventures Magazine for iPad. In fact, our vacation exchange and rentals brands have approximately 95 publications involved in the marketing of the business, including various resort directories and periodicals related to the vacation industry and other travel-related services. We use our publications for marketing as well as for member and rental customer retention and loyalty. Additionally, we promote our offerings to owners of resorts and vacation homes through trade shows, online and other marketing efforts.

Strategies

We intend to grow our vacation exchange and rentals business profitability by focusing on five strategic themes:

Inspire world-class associate engagement and “Count On Me!” service so that we will deliver better services and products, resulting in improved customer satisfaction and optimal business growth;

Invest in technology to improve the customer experience, grow market share and reduce costs;

Offer more options to our guests by expanding into new geographic markets and product lines, and by leveraging the scale of our inventory across all of our exchange and rentals brands;

Develop compelling new services and products, and maximize occupancy and yield by improving our analytic process; and

Promote the benefits of timeshare and vacation rentals to new and existing customer segments.

Our plans generally focus on pursuing these strategies organically. However, in appropriate circumstances, we will consider opportunities to acquire businesses, both domestic and international.

Seasonality

Vacation exchange transaction revenues are normally highest in the first quarter, which is generally when members of RCI plan and book their vacations for the year. Rental transaction revenues earned are usually highest in the third quarter, when vacation arrivals are highest, combined with a compressed booking window. More than half of our European vacation rental customers book their reservations within 11 weeks of departure dates and over 75% of our European vacation rental customers book their reservations within 20 weeks of departure dates. More than half of our North American vacation rental customers book their reservations within 7 weeks of departure dates and over 70% of our North American vacation rental customers book their reservations within 11 weeks of departure dates, reflecting recent trends of bookings closer to the travel date.

Competition

The vacation exchange and rentals business faces competition throughout the world. Our vacation exchange business competes with a third-party international exchange company, with regional and local vacation exchange companies and with internet-only limited service exchanges. In addition, certain developers offer exchanges through internal networks of properties, which can be operated by us or by the developer, that offer owners of intervals access to exchanges other than those offered by our vacation exchange business. Our vacation rentals business faces competition from a broad variety of professional vacation rental managers and rent-by-owner channels that collectively use brokerage services, direct marketing and the internet to market and rent vacation properties.


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WYNDHAM VACATION OWNERSHIP

Vacation Ownership Industry

The vacation ownership industry, also referred to as the timeshare industry, enables customers to share ownership of a fully-furnished vacation accommodation. Typically, a vacation ownership purchaser acquires either a fee simple interest in a property, which gives the purchaser title to a fraction of a unit, or a right to use a property, which gives the purchaser the right to use a property for a specific period of time. A vacation ownership purchaser's fee simple interest in or right to use a property is referred to as a "vacation ownership interest." For many purchasers, vacation ownership is an attractive alternative to traditional lodging accommodations at hotels. Owners of VOIs are not subject to the variance in room rates to which lodging customers are subject to, and vacation ownership units are, on average, more than twice the size and typically have more amenities, such as kitchens, than traditional hotel rooms.

The vacation ownership concept originated in Europe during the late 1960s and spread to the U.S. shortly thereafter. The vacation ownership industry expanded slowly in the U.S. until the mid-1980s. From the mid-1980s through 2007, the vacation ownership industry grew at a double-digit rate, although sales slowed by approximately 8% in 2008 and experienced even greater declines in 2009 due to the global recession and a significant disruption in the credit markets. According to a May 2012 report issued by the American Resort Development Association or ARDA, a trade association representing the vacation ownership and resort development industries, domestic sales of VOIs were approximately $6.5 billion in 2011. ARDA estimated that in 2010, there were approximately 8.4 million households that owned one or more VOIs in the U.S.

Based on published industry data, we believe that the following factors have contributed to the strength and stability, particularly in North America, of the vacation ownership industry over the past two decades:

inherent appeal of a timeshare vacation option as opposed to a hotel stay;

improvement in quality of resorts and resort management and servicing;

increased flexibility for owners of VOIs made possible through owners' affiliations with vacation ownership exchange companies and vacation ownership companies' internal exchange programs;

entry of widely-known lodging and entertainment companies into the industry; and

increased consumer confidence in the industry based on enhanced consumer protection regulation of the industry.

Demographic factors explain, in part, the continued appeal of vacation ownership. A 2012 study of recent U.S. vacation ownership purchasers revealed that the average purchaser was 51 years of age and had a median household income of $74,000. The average purchaser in the U.S., therefore, is a baby boomer who has disposable income and interest in purchasing vacation products. We believe that baby boomers will continue to have a positive influence on the vacation ownership industry.

According to a 2012 ARDA study, nearly 83% of owners of VOIs expressed satisfaction with owning timeshare. With respect to exchange opportunities, most owners of VOIs can exchange VOIs through exchange companies and through the applicable vacation ownership company's internal network of properties.

Wyndham Vacation Ownership Overview

Wyndham Vacation Ownership, our vacation ownership business, develops and acquires vacation ownership resorts, markets and sell of VOIs, provides consumer financing in connection with such sales and provides property management services to property owners' associations. We have the largest vacation ownership business in the world as measured by the number of vacation ownership resorts, vacation ownership units and owners of VOIs and by annual revenues associated with the sale of VOIs. As of December 31, 2012, we have developed or acquired 190 vacation ownership resorts in the U.S., Canada, Mexico, the Caribbean and the South Pacific that represent approximately 23,400 individual vacation ownership units and approximately 915,000 owners of VOIs.

During 2012, Wyndham Vacation Ownership completed the acquisition of Shell Vacations Club, a U.S. vacation ownership club and property management business. The acquisition expanded our portfolio with the addition of resorts located in Hawaii, California, Arizona, Texas, Nevada, Oregon, New Hampshire, North Carolina, Wisconsin and Canada. We also added inventory in Orlando, Florida; Waikiki, Hawaii; North Myrtle Beach, South Carolina; Destin, Florida; Smugglers' Notch, Vermont and Australia.


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Our brands operate vacation ownership programs through which VOIs can be redeemed for vacations through points- or credits-based internal reservation systems that provide owners with flexibility as to resort location, length of stay, unit type and time of year. The reservation systems offer owners redemption opportunities for other travel and leisure products that may be offered from time to time, and the opportunity for owners to use our products for one or more vacations per year. Our programs allow us to market and sell our vacation ownership products in variable quantities and to offer to existing owners "upgrade" sales to supplement such owners' existing VOIs. This contrasts with the fixed quantity of the traditional fixed-week vacation ownership, which is primarily sold on a weekly interval basis.

Although we operate separate brands, we have integrated substantially all of the business functions, including consumer finance, information technology, certain staff functions, product development and certain marketing activities. Wyndham Vacation Ownership began to operationally integrate Shell Vacations Club within the Wyndham Vacation Ownership's portfolio of brands during the fourth quarter of 2012.

Our vacation ownership business derives a majority of its revenues from sales of VOIs and derives other revenues from consumer financing and property management. Sales of VOIs and the related consumer financings on such sales are dependent on the number of vacation ownership units in which we sell, therefore, increasing the number of such units is important in achieving our revenue goals. Additionally, property management revenues are dependent, in part, on the number of units we manage, therefore, increasing the number of such units has a direct effect of increasing our revenues from property management.

Sales and Marketing of Vacation Ownership Interests

Club Wyndham

Wyndham Vacation Ownership markets and sells VOIs and provides consumer financing to owners through its Club Wyndham brand. Club Wyndham markets and sells VOIs that entitle an owner to resort accommodations that are not restricted to a particular week of the year. As of December 31, 2012, over 523,000 owners held interests in Club Wyndham resort properties which are located primarily in the U.S. and consisted of 79 resorts (six of which are shared with WorldMark by Wyndham) that represented approximately 13,500 units. Club Wyndham currently encompasses primarily two vacation ownership products, Club Wyndham Select and Club Wyndham Access.

Club Wyndham Select - owners purchase an undivided interest in a select resort and receive a deed to that resort, which becomes their "home" resort.
 
Club Wyndham Access - owners do not directly receive a deed, but own an interest in a perpetual club. Through Club Wyndham Access, owners have advanced reservation priority access to multiple Wyndham Vacation Resorts locations based on the amount of inventory deeded to Club Wyndham Access.

The majority of the resorts in which Club Wyndham markets and sells vacation ownership and other real estate interests are destination resorts that are located at or near attractions such as the Walt Disney World Resort in Florida; the Las Vegas Strip in Nevada; Myrtle Beach in South Carolina; Colonial Williamsburg in Virginia; and the Hawaiian Islands. Most Club Wyndham properties are affiliated with Wyndham Worldwide's vacation exchange business, RCI, which annually awards to the top 25-35% of RCI affiliated vacation ownership resorts throughout the world designations of an RCI Gold Crown Resort winner or an RCI Silver Crown Resort winner for exceptional resort standards and service levels. Among Wyndham Vacation Resorts' 79 resort properties, 80% have been awarded designations of an RCI Gold Crown Resort winner or an RCI Silver Crown Resort winner.

Club Wyndham uses a points-based internal reservation system called Club Wyndham Plus to provide owners with flexibility as to resort location, length of stay, unit type and time of year. With the launch of the Club Wyndham Plus trust in 1991, Wyndham Vacation Ownership became one of the first U.S. developers of vacation ownership properties to move from traditional, fixed-week vacation ownership to a points-based program. Both Club Wyndham Select and Club Wyndham Access utilize Club Wyndham Plus as the internal exchange program to expand owners' vacation options. Owners who participate in Club Wyndham Plus assign their use rights to a trust in exchange for the right to reserve in the internal reservation system. The number of points that an owner receives as a result of the assignment to the trust of the owner's use rights, and the number of points required to take a particular vacation, is set forth on a published schedule and varies depending on the resort location, length of stay, unit type and time of year associated with the interests assigned to the trust or requested by the owner, as applicable. Participants in Club Wyndham Plus may choose the Club Wyndham resort properties, length of stay, unit types and times of year, depending on the number of points to which they are entitled and the number of points required to take the vacations of their preference. Participants may redeem their points not only for resort stays, but also for other travel and leisure products that may be offered from time to time. Owners of vacation points are able to borrow vacation points from the next year

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for use in the current year. The term of the Club Wyndham Plus trust agreement runs through December 31, 2025, and the term is automatically extended for successive ten year periods unless a majority of the members of the program vote to terminate the trust agreement prior to the expiration of the term then in effect.

WorldMark by Wyndham

Wyndham Vacation Ownership also markets and sells VOIs and provides consumer financing to owners through its WorldMark by Wyndham and Wyndham Vacation Resorts Asia Pacific brands. WorldMark by Wyndham and Wyndham Vacation Resorts Asia Pacific sell VOIs that entitle an owner to resort accommodations that are not restricted to a particular week of the year.

After Wyndham Vacation Ownership develops or acquires resorts, it conveys the resorts to WorldMark, The Club or WorldMark South Pacific Club, which we refer to collectively as the Clubs. In exchange for the conveyances, the WorldMark by Wyndham or Wyndham Vacation Resorts Asia Pacific brands receive the exclusive rights to sell the vacation credits associated with the conveyed resorts and to receive the proceeds from the sales of the vacation credits. VOIs sold by WorldMark by Wyndham and Wyndham Vacation Resorts Asia Pacific represent credits in the Clubs which entitles the owner of the credits to reserve units at the resorts that are owned and operated by the Clubs. Although vacation credits do not constitute deeded interests in real estate, vacation credits are regulated in most jurisdictions by the same agency that regulates VOIs evidenced by deeded interests in real estate. As of December 31, 2012, approximately 286,000 owners held vacation credits in the Clubs.

WorldMark, The Club and WorldMark South Pacific Club provide owners of vacation credits with flexibility as to resort location, length of stay, unit type and time of year. Depending on the number of vacation credits an owner has purchased, the owner may use the vacation credits for one or more vacations annually. The number of vacation credits that are required for each day's stay at a unit is listed on a published schedule and varies depending upon the resort location, unit type, time of year and the day of the week. Owners may also redeem their credits for other travel and leisure products that may be offered from time to time.

WorldMark by Wyndham had 98 resorts (six of which are shared with Club Wyndham Resorts) representing 7,600 units as of December 31, 2012 which are located primarily in the Western U.S., Canada, Mexico and the South Pacific. Wyndham Vacation Resorts Asia Pacific accounted for 24 resorts and approximately 1,000 units of WorldMark by Wyndham's resort total.

Owners of vacation credits can make reservations through the Clubs, or may elect to join and exchange their VOIs through Wyndham's vacation exchange business, RCI, or other third-party international exchange companies.

The resorts in which WorldMark by Wyndham markets and sells vacation credits are primarily drive-to resorts. The majority of WorldMark by Wyndham resorts are affiliated with Wyndham Worldwide's vacation exchange subsidiary, RCI. Of WorldMark by Wyndham's 98 resorts, 71% have been awarded designations of an RCI Gold Crown Resort winner or an RCI Silver Crown Resort winner.

Shell Vacations Club

Wyndham Vacation Ownership has expanded its fee-for-service property management business with its acquisition of Shell Vacations Club during 2012. Wyndham Vacation Ownership has assumed the property management operations at 20 Shell Vacations Club resorts representing 2,300 units as of December 31, 2012, which are primarily located in Hawaii, California, Arizona, Texas, Nevada, Oregon, New Hampshire, North Carolina, Wisconsin, and Canada.
Additionally, Shell Vacations Club sells VOIs and provides consumer financing to owners through its Shell Vacations Club brand. Shell Vacations Club sells VOIs that entitle and owner to resort accommodations that are not restricted to a particular week of the year. After Wyndham Vacation Ownership finishes development of a Shell resort, it conveys the resort to Shell Vacations Club. In exchange for the conveyances, the Shell Vacations Club brand receives the exclusive rights to sell the vacation points associated with the conveyed resort and to receive the proceeds from the sale of the vacation points. VOIs sold by Shell Vacations Club entitle the owner of the points the rights in various timeshare resorts developed by Shell Vacations through an internal exchange reservation system or, alternatively, exchange its points through external exchange programs or for other products and services offered by Shell Vacations Club. As of December 31, 2012, approximately 105,000 owners held vacation points in the Shell Vacations Club.

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Maintenance Fees

Owners of VOIs pay annual maintenance fees to the property owners' associations responsible for managing the applicable resorts or to the Clubs. The annual maintenance fee associated with the average VOIs purchased ranges from approximately $400 to approximately $1,000. These fees generally are used to renovate and replace furnishings, pay operating, maintenance and cleaning costs, pay management fees and expenses, and cover taxes (in some states), insurance and other related costs. Wyndham Vacation Ownership, as the owner of unsold inventory at resorts or unsold interests in the Clubs, also pays maintenance fees in accordance with the legal requirements of the states or jurisdictions in which the resorts are located. In addition, at certain newly-developed resorts, Wyndham Vacation Ownership sometimes enters into subsidy agreements with the property owners' associations to cover costs that otherwise would be covered by annual maintenance fees payable with respect to VOIs that have not yet been sold.

Sales and Marketing

Wyndham Vacation Ownership employs a variety of marketing channels to encourage prospective owners of VOIs to tour Wyndham Vacation Ownership properties and attend sales presentations at off-site sales offices. Our resort-based sales centers also enable us to actively solicit upgrade sales to existing owners of VOIs while such owners vacation at our resort properties. We also operate a telesales program designed to market upgrade sales to existing owners of our products. Sales of VOIs relating to upgrades represented approximately 70%, 68% and 68% of our net sales of VOIs during 2012, 2011 and 2010, respectively.

Wyndham Vacation Ownership uses a variety of marketing programs to attract prospective owners, including sponsored contests that offer vacation packages or gifts, targeted mailings, outbound and inbound telemarketing efforts, and in association with Wyndham Worldwide hotel brands, other co-branded marketing programs and events.Wyndham Vacation Ownership also partners with Wyndham Hotel Group by utilizing the Wyndham Rewards loyalty program by offering Wyndham Rewards points as incentives to prospective VOI purchasers and providing additional redemption options to Wyndham Rewards members. Additionally, Wyndham Vacation Ownership offers purchasers of VOIs the opportunity to use the Wyndham Rewards co-branded credit card to earn additional Wyndham Rewards points. Wyndham Vacation Ownership also co-sponsors sweepstakes, giveaways and promotional programs with professional teams at major sporting events and with other third parties at other high-traffic consumer events. Where permissible under state law, Wyndham Vacation Ownership offers existing owners cash awards or other incentives for referrals of new owners. New owner acquisition is an important strategy for Wyndham Vacation Ownership as this will continue to maintain our pool of "lifetime" buyers of vacation ownership that will enable us to solicit upgrade sales in the future. We believe this market is underpenetrated and estimate there are 53 million U.S. households which we consider as potential purchasers of VOIs. We added approximately 28,000, 27,000 and 22,000 new owners during 2012, 2011 and 2010, respectively.

Wyndham Vacation Ownership's marketing and sales activities are often facilitated through marketing alliances with other travel, hospitality, entertainment, gaming and retail companies that provide access to such companies' present and past customers through a variety of co-branded marketing offers. Wyndham Vacation Ownership's resort-based sales centers, which are located in popular travel destinations throughout the U.S., generate substantial tour flow through providing local offers. The sales centers enable Wyndham Vacation Ownership to market to tourists already visiting destination areas. Wyndham Vacation Ownership's marketing agents, which often operate on the premises of the hospitality, entertainment, gaming and retail companies with which Wyndham Vacation Ownership has alliances within these markets, solicit local tourists with offers relating to activities and entertainment in exchange for the tourists visiting the local resorts and attending sales presentations.
 
An example of a marketing alliance through which Wyndham Vacation Ownership markets to tourists already visiting destination areas is Wyndham Vacation Ownership's current arrangement with Caesars Entertainment in Las Vegas, Nevada, which enables Wyndham Vacation Ownership to operate concierge-style marketing kiosks throughout select casinos and permits Wyndham Vacation Ownership to solicit patrons to attend tours and sales presentations with casino-related rewards and entertainment offers, such as gaming chips, show tickets and dining certificates. Wyndham Vacation Ownership also operates its primary Las Vegas sales center within Harrah's Casino and regularly shuttles prospective owners targeted by such sales centers to and from Wyndham Vacation Ownership's nearby resort property.


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Wyndham Vacation Ownership offers a variety of entry-level programs and products as part of its sales strategies. One such program allows prospective owners a one-time allotment of points or credits with no further obligations; another such product is a biennial interest that provides for vacations every other year. As part of its sales strategies, Wyndham Vacation Ownership relies on its points/credits-based programs, which provide prospective owners with the flexibility to buy relatively small packages of points or credits, which can be upgraded at a later date. To facilitate upgrade sales among existing owners, Wyndham Vacation Ownership markets opportunities for owners to purchase additional points or credits through periodic marketing campaigns and promotions to owners while those owners vacation at Wyndham Vacation Ownership resort properties.

During 2012, we completed the full deployment of a proprietary pre-screening program designed to better estimate the credit worthiness of consumers to whom we market and sell. The program enables us to bypass consumers who do not meet our credit standards and significantly reduce tours that historically have been unprofitable.

Purchaser Financing

Wyndham Vacation Ownership offers financing to purchasers of VOIs. By offering financing, we are able to reduce the initial cash required by customers to purchase VOIs, thereby enabling us to attract additional customers and generate substantial incremental revenues and profits. Wyndham Vacation Ownership funds and services loans extended by Club Wyndham and WorldMark by Wyndham through our consumer financing subsidiary, Wyndham Consumer Finance, a wholly owned subsidiary of Wyndham Vacation Resorts based in Las Vegas, Nevada that performs loan financing, servicing and related administrative functions. Wyndham Vacation Ownership has funded Shell Vacations Club loans since the date of acquisition through our consumer finance subsidiary, and services them through a third party.

Wyndham Vacation Ownership typically performs a credit investigation or other review or inquiry into every purchaser's credit history before offering to finance a portion of the purchase price of the VOIs. The interest rate offered to participating purchasers is determined by an automated underwriting based upon the purchaser's credit score, the amount of the down payment and the size of purchase. Wyndham Vacation Ownership uses a FICO score which is a branded version of a consumer credit score widely used within the U.S. by the largest banks and lending institutions. FICO scores range from 300 - 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies that compile and report on a consumer's credit history. For purchasers with large loan balances, we maintain higher credit standards for new loan originations. Our weighted average FICO score on new originations for 2012, 2011 and 2010 was approximately 725. Wyndham Vacation Ownership offers purchasers an interest rate reduction if they participate in our pre-authorized checking programs, pursuant to which our consumer financing subsidiary each month debits a purchaser's bank account or major credit card in the amount of the monthly payment by a pre-authorized fund transfer on the payment date.
 
During 2012, we generated new receivables of approximately $1.1 billion on gross vacation ownership sales, net of WAAM 1.0 sales, of $1.7 billion, which amounts to 65% of vacation ownership sales being financed and is prior to the receipt of addenda cash. Addenda cash represents the cash received for full payment of a loan within 15 to 60 days of origination. After the application of addenda cash, approximately 53% of vacation ownership sales are financed through Wyndham Vacation Ownership.

Wyndham Vacation Ownership generally requires a minimum down payment of 10% of the purchase price on all sales of VOIs and offers consumer financing for the remaining balance for up to ten years. While the minimum is generally 10%, during 2012, our average down payment was approximately 28% for financed sales of VOIs. These loans are structured so that we receive equal monthly installments that fully amortize the principal due by the final due date.

Similar to other companies that provide consumer financing, we historically securitize a majority of the receivables originated in connection with the sales of VOIs. We initially place the financed contracts into a revolving warehouse securitization facility generally within 30 to 90 days after origination. Many of the receivables are subsequently transferred from the warehouse securitization facility and placed into term securitization facilities.

Our consumer financing subsidiary is responsible for the maintenance of contract receivables files and all customer service, billing and collection activities related to the domestic loans we extend, except for loans associated with Shell Vacations Club. We assess the performance of our loan portfolio by monitoring numerous metrics including collections rates, defaults by state of residency and bankruptcies. Our consumer financing subsidiary also manages the selection and processing of loans pledged or to be pledged in our warehouse and term securitization facilities. As of December 31, 2012, our loan portfolio was 94.6% current (i.e., not more than 30 days past due).


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Property Management

In exchange for management fees, Wyndham Vacation Resorts, itself or through a Wyndham Vacation Resorts affiliate, manages Club Wyndham Plus, the majority of property owners' associations at resorts in which Wyndham Vacation Resorts develops, markets and sells VOIs, and property owners' associations at resorts developed by third parties. Wyndham Vacation Resorts or its affiliate manages the reservation system and provides owner services and billing and collections services on behalf of the Club Wyndham Plus trust. The term of the management agreement under which Wyndham Vacation Ownership manages the Club Wyndham Plus program is for five years and is automatically renewed for successive terms of five years, provided the trustee under the program does not serve notice of termination to Wyndham Vacation Ownership at the end of any calendar year.

On behalf of each of the property owners' associations, Wyndham Vacation Ownership or its affiliates generally provide day-to-day management for vacation ownership resorts, including oversight of housekeeping services, maintenance and refurbishment of the units, and provides certain accounting and administrative services to property owners' associations. The terms of the property management agreements with each of the property owners' associations at resorts in which Wyndham Vacation Resorts develops, markets and sells VOIs vary; however, the vast majority of the agreements provide a mechanism for automatic renewal upon expiration of the terms.

In exchange for management fees, WorldMark by Wyndham, itself or through a WorldMark by Wyndham affiliate, serves as the exclusive property manager and servicing agent of WorldMark, the Club and WorldMark, South Pacific Club and all resort units owned or operated by these Clubs. On behalf of the Clubs, WorldMark by Wyndham or its affiliate provides day-to-day management for vacation ownership resorts, including oversight of housekeeping services, maintenance and refurbishment of the units, and provides certain accounting and administrative services. WorldMark by Wyndham or its affiliate also manages the reservation system for the Clubs, and provides owner services and billing and collections services. The initial term of the management agreement is for three years and is automatically renewed annually for one year provided the trustee under the program does not serve notice of termination to WorldMark by Wyndham prior to expiration of the then current term.

In exchange for management fees, SVC Hospitality, LLC, a direct subsidiary of Shell Vacations LLC, itself or through its affiliates, serves as the exclusive manager of Shell Owners Clubs American, Hawaii, Pacific and West (collectively, the “Shell Vacations Club”), and as the managing agent for many of the affiliated property owners' associations. SVC Hospitality, LLC, or its affiliates, provides day-to-day management for vacation ownership resorts, including oversight of housekeeping services, maintenance and refurbishment of units, and certain accounting and administrative services. The management agreements for the Shell Vacations Club are subject to auto-renewal every three to five years, provided that Shell Vacations Club does not serve notice of termination prior to expiration of the then current term. Such notice requires the affirmative vote of the members in the association.

In connection with these property management services, we receive fees which are generally based upon total costs to operate such resorts. Fees for property management services typically approximate 10% of budgeted operating expenses. Property management revenues, which are comprised of management fee revenue and reimbursable revenue, were $460 million, $424 million and $405 million, during 2012, 2011 and 2010, respectively. Management fee revenues were $225 million, $198 million and $183 million during 2012, 2011 and 2010, respectively. Reimbursable revenues, which are based upon certain reimbursable costs with no added margin, were $235 million, $226 million and $222 million, respectively, during 2012, 2011 and 2010. These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where we are the employer and are reflected as a component of operating expenses on the Consolidated Statements of Income.

WAAM

In 2010, we introduced WAAM 1.0 which is a fee-for service timeshare sales model designed to capitalize upon the large quantities of newly developed, nearly completed or recently finished condominium or hotel inventory within the current real estate market without assuming the significant cost that accompanies property acquisition or new construction. This business model offers turn-key solutions for developers or banks in possession of newly developed inventory, which we sell for a fee through our extensive sales and marketing channels. WAAM 1.0 enables us to expand our resort portfolio with little or no capital deployment, while providing additional channels for new owner acquisition and growth for our fee-for-service property management business.


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In addition to the WAAM 1.0 business model, and in keeping with our efforts to leverage the abundance of already developed inventory while minimizing our use of capital, in 2012, we introduced WAAM 2.0. This strategy enables us to acquire and own completed units close to the timing of the sales of these units and will significantly reduce the period between the deployment of capital to acquire inventory and the subsequent return on investment which occurs at the time of its sale to a timeshare purchaser. WAAM 2.0 sales are recorded by us as VOI sales and as such, we are able to offer the purchaser of the VOI the option of financing with us. Inventory is recorded on our balance sheet at the time we are committed to purchase such inventory, which generally coincides with the time of registration.

Strategies

Wyndham Vacation Ownership is strategically focused on the following objectives that we believe are essential to our business:

maximizing cash flow;

further strengthening the financial profile of the business through the continued development of alternative business models, such as WAAM;

driving greater sales and marketing efficiencies at all levels, including new owner channels; and

delivering “Count On Me!” service to our customers, partners and associates.

Seasonality

We rely, in part, upon tour flow to generate sales of VOIs; consequently, sales volume tends to increase in the spring and summer months as a result of greater tour flow from spring and summer travelers. Revenues from sales of VOIs therefore are generally higher in the second and third quarters than in other quarters. We cannot predict whether these seasonal trends will continue in the future.

Competition

The vacation ownership industry is highly competitive and is comprised of a number of companies specializing primarily in sales and marketing, consumer financing, property management and development of vacation ownership properties. In addition, a number of other national hospitality chains develop and sell VOIs to consumers.

TRADEMARKS

Our brand names and related trademarks, service marks, logos and trade names are very important to the businesses that make up our Wyndham Hotel Group, Wyndham Exchange & Rentals and Wyndham Vacation Ownership business units. Our subsidiaries actively use or license for use all significant marks, and we own or have exclusive licenses to use these marks. We register the marks that we own in the United States Patent and Trademark Office, as well as with other relevant authorities where we deem appropriate, and seek to protect our marks from unauthorized use as permitted by law.

EMPLOYEES

As of December 31, 2012, we had approximately 32,500 employees, including approximately 10,500 employees outside of the U.S. As of December 31, 2012, our lodging business had approximately 7,300 employees, our vacation exchange and rentals business had approximately 9,100 employees, our vacation ownership business had approximately 15,500 employees and our corporate group had approximately 600 employees. Approximately 7% of our employees are subject to collective bargaining agreements governing their employment with our company.

ENVIRONMENTAL COMPLIANCE

Our compliance with laws and regulations relating to environmental protection and discharge of hazardous materials has not had a material impact on our capital expenditures, earnings or competitive position, and we do not anticipate any material impact from such compliance in the future.

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ITEM 1A.    RISK FACTORS
Before you invest in our securities you should carefully consider each of the following risk factors and all of the other information provided in this report. We believe that the following information identifies the most significant risks that may impact us. However, the risks and uncertainties we face are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. If any of the following risks and uncertainties develops into an actual event, the event could have a material effect on our business, financial condition or results of operations. In such case, the market price of our common stock could decline.

The hospitality industry is highly competitive and we are subject to risks relating to competition that may adversely affect our performance.
We will be adversely impacted if we cannot compete effectively in the highly competitive hospitality industry. Our continued success depends upon our ability to compete effectively in markets that contain numerous competitors, some of which may have significantly greater financial, marketing and other resources than we have. Competition may reduce fee structures, potentially causing us to lower our fees or prices, which may adversely impact our profits. New competition or existing competition that uses a business model that is different from our business model may put pressure on us to change our model so that we can remain competitive.

Our revenues are highly dependent on the travel industry and declines in or disruptions to the travel industry, such as those caused by economic slowdown, terrorism, political strife, acts of God and war may adversely affect us.
Declines in or disruptions to the travel industry may adversely impact us. Risks affecting the travel industry include: economic slowdown and recession; economic factors, such as increased costs of living and reduced discretionary income, adversely impacting consumers' and businesses' decisions to use and consume travel services and products; terrorist incidents and threats (and associated heightened travel security measures); political strife; acts of God (such as earthquakes, hurricanes, fires, floods, volcanoes and other natural disasters); war; pandemics or threat of pandemics (such as the H1N1 flu); environmental disasters (such as the Gulf of Mexico oil spill); increased pricing, financial instability and capacity constraints of air carriers; airline job actions and strikes; and increases in gasoline and other fuel prices.

We are subject to operating or other risks common to the hospitality industry.
Our business is subject to numerous operating or other risks common to the hospitality industry including:
changes in operating costs, including inflation, energy, labor costs (including minimum wage increases and unionization), workers' compensation and health-care related costs and insurance;
changes in desirability of geographic regions of the hotels or resorts in our business;
changes in the supply and demand for hotel rooms, vacation exchange and rental services and products and vacation ownership services and products;
seasonality in our businesses, which may cause fluctuations in our operating results;
geographic concentrations of our operations and customers;
increases in costs due to inflation that may not be fully offset by price and fee increases in our business;
availability of acceptable financing and cost of capital as they apply to us, our customers, current and potential hotel franchisees and developers, owners of hotels with which we have hotel management contracts, our RCI affiliates and other developers of vacation ownership resorts;
our ability to securitize the receivables that we originate in connection with sales of vacation ownership interests;
the quality of the services provided by franchisees, affiliated resorts in our vacation exchange business, properties in our vacation rentals business and/or resorts in which we sell vacation ownership interests may adversely affect our image, reputation and brand value;
our ability to generate sufficient cash to buy from third-party suppliers the products that we need to provide to the participants in our points programs who want to redeem points for such products;
overbuilding in one or more segments of the hospitality industry and/or in one or more geographic regions;
changes in the number and occupancy and room rates of hotels operating under franchise and management agreements;
our ability to develop and maintain positive relations and contractual arrangements with current and potential franchisees, hotel owners, vacation exchange members, vacation ownership interest owners, resorts with units that are

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exchanged through our vacation exchange business and/or owners of vacation properties that our vacation rentals business markets for rental;
the availability of and competition for desirable sites for the development of vacation ownership properties; difficulties associated with obtaining entitlements to develop vacation ownership properties; liability under state and local laws with respect to any construction defects in the vacation ownership properties we develop; and our ability to adjust our pace of completion of resort development relative to the pace of our sales of the underlying vacation ownership interests;
our ability to adjust our business model to generate greater cash flow and require less capital expenditures;
private resale of vacation ownership interests, which could adversely affect our vacation ownership resorts and vacation exchange businesses;
revenues from our lodging business are indirectly affected by our franchisees' pricing decisions;
organized labor activities and associated litigation;
maintenance and infringement of our intellectual property;
the bankruptcy or insolvency of any one of our customers, which could impair our ability to collect outstanding fees or other amounts due or otherwise exercise our contractual rights;
franchisees that have development advance notes with us may experience financial difficulties;
increases in the use of third-party internet services to book online hotel reservations; and
disruptions in relationships with third parties, including marketing alliances and affiliations with e-commerce channels.

We may not be able to achieve our growth and performance objectives.
We may not be able to achieve our growth and performance objectives for increasing our earnings and cash flows, the number of franchised and/or managed properties in our lodging business, the number of vacation exchange members in our vacation exchange business, the number of rental weeks sold by our vacation rentals business and the number of tours and new owners generated and vacation ownership interests sold by our vacation ownership business.
We may be unable to identify acquisition targets that complement our businesses, and if we are able to identify suitable acquisition targets, we may not be able to complete acquisitions on commercially reasonable terms. Our ability to complete acquisitions depends on a variety of factors, including our ability to obtain financing on acceptable terms and requisite government approvals. If we are able to complete acquisitions, there is no assurance that we will be able to achieve the revenue and cost benefits that we expected in connection with such acquisitions or to successfully integrate the acquired businesses into our existing operations.

We are subject to risks related to our vacation ownership receivables portfolio.
We are subject to risks that purchasers of vacation ownership interests who finance a portion of the purchase price default on their loans due to adverse macro or personal economic conditions or otherwise, which would increase loan loss reserves and adversely affect loan portfolio performance; that if such defaults occur during the early part of the loan amortization period we will not have recovered the marketing, selling, administrative and other costs associated with such vacation ownership interests; such costs will be incurred again in connection with the resale of the repossessed vacation ownership interest; and the value we recover in a default is not, in all instances, sufficient to cover the outstanding debt.

Our international operations are subject to risks not generally applicable to our domestic operations.
Our international operations are subject to numerous risks including exposure to local economic conditions; potential adverse changes in the diplomatic relations of foreign countries with the U.S.; hostility from local populations; restrictions and taxes on the withdrawal of foreign investment and earnings; government policies against businesses owned by foreigners; investment restrictions or requirements; diminished ability to legally enforce our contractual rights in foreign countries; foreign exchange restrictions; fluctuations in foreign currency exchange rates; local laws might conflict with U.S. laws; withholding and other taxes on remittances and other payments by subsidiaries; and changes in and application of foreign taxation structures including value added taxes.
Any adverse outcome resulting from the financial instability or performance of European economies, the instability of the Euro currency and the related volatility on foreign exchange and interest rates could have an effect on our results of operations, financial position or cash flows.


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We are subject to risks related to litigation filed by or against us.
We are subject to a number of legal actions and the risk of future litigation as described under "Legal Proceedings". We cannot predict with certainty the ultimate outcome and related damages and costs of litigation and other proceedings filed by or against us. Adverse results in litigation and other proceedings may harm our business.

We are subject to certain risks related to our indebtedness, hedging transactions, our securitization of certain of our assets, our surety bond requirements, the cost and availability of capital and the extension of credit by us.
We are a borrower of funds under our credit facilities, credit lines, senior notes and securitization financings. We extend credit when we finance purchases of vacation ownership interests and in instances when we provide key money, development advance notes and mezzanine or other forms of subordinated financing to assist franchisees and hotel owners in converting to or building a new hotel branded under one of our Wyndham Hotel Group brands. We use financial instruments to reduce or hedge our financial exposure to the effects of currency and interest rate fluctuations. We are required to post surety bonds in connection with our development and sales activities. In connection with our debt obligations, hedging transactions, our securitization of certain of our assets, our surety bond requirements, the cost and availability of capital and the extension of credit by us, we are subject to numerous risks including:
our cash flows from operations or available lines of credit may be insufficient to meet required payments of principal and interest, which could result in a default and acceleration of the underlying debt and under other debt instruments that contain cross-default provisions;
if we are unable to comply with the terms of the financial covenants under our revolving credit facility, including a breach of the financial ratios or tests, such non-compliance could result in a default and acceleration of the underlying revolver debt and under other debt instruments that contain cross-default provisions;
our leverage may adversely affect our ability to obtain additional financing;
our leverage may require the dedication of a significant portion of our cash flows to the payment of principal and interest thus reducing the availability of cash flows to fund working capital, capital expenditures, dividends, share repurchases or other operating needs;
increases in interest rates;
rating agency downgrades for our debt that could increase our borrowing costs;
failure or non-performance of counterparties to foreign exchange and interest rate hedging transactions;
we may not be able to securitize our vacation ownership contract receivables on terms acceptable to us because of, among other factors, the performance of the vacation ownership contract receivables, adverse conditions in the market for vacation ownership loan-backed notes and asset-backed notes in general and the risk that the actual amount of uncollectible accounts on our securitized vacation ownership contract receivables and other credit we extend is greater than expected;
our securitizations contain portfolio performance triggers which, if violated, may result in a disruption or loss of cash flow from such transactions;
a reduction in commitments from surety bond providers which may impair our vacation ownership business by requiring us to escrow cash in order to meet regulatory requirements of certain states;
prohibitive cost and inadequate availability of capital could restrict the development or acquisition of vacation ownership resorts by us and the financing of purchases of vacation ownership interests;
the inability of hotel owners that have received mezzanine loans from us to pay back such loans; and
if interest rates increase significantly, we may not be able to increase the interest rate offered to finance purchases of vacation ownership interests by the same amount of the increase.

Economic conditions affecting the hospitality industry, the global economy and credit markets generally may adversely affect our business and results of operations, our ability to obtain financing and/or securitize our receivables on reasonable and acceptable terms, the performance of our loan portfolio and the market price of our common stock.
The future economic environment for the hospitality industry and the global economy may continue to be challenged. The hospitality industry has experienced and may continue to experience significant downturns in connection with, or in anticipation of, declines in general economic conditions. The current economy has been characterized by higher unemployment, lower family income, lower business investment and lower consumer spending, leading to lower demand for hospitality services and products. Declines in consumer and commercial spending may adversely affect our revenues and profits.

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Uncertainty in the equity and credit markets may negatively affect our ability to access short-term and long-term financing on reasonable terms or at all, which would negatively impact our liquidity and financial condition. In addition, if one or more of the financial institutions that support our existing credit facilities fails, we may not be able to find a replacement, which would negatively impact our ability to borrow under the credit facilities. Disruptions in the financial markets may adversely affect our credit rating and the market value of our common stock. If we are unable to refinance, if necessary, our outstanding debt when due, our results of operations and financial condition will be materially and adversely affected.
While we believe we have adequate sources of liquidity to meet our anticipated requirements for working capital, debt service and capital expenditures for the foreseeable future, if our cash flow or capital resources prove inadequate we could face liquidity problems that could materially and adversely affect our results of operations and financial condition.
Our liquidity as it relates to our vacation ownership contract receivables securitization program could be adversely affected if we were to fail to renew or replace our securitization warehouse conduit facility on its renewal date or if a particular receivables pool were to fail to meet certain ratios, which could occur in certain instances if the default rates or other credit metrics of the underlying vacation ownership contract receivables deteriorate. Our ability to sell securities backed by our vacation ownership contract receivables depends on the continued ability and willingness of capital market participants to invest in such securities.
It is possible that asset-backed securities issued pursuant to our securitization programs could in the future be downgraded by credit agencies. If a downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available, which would decrease our profitability and may require us to adjust our business operations accordingly, including reducing or suspending our financing to purchasers of vacation ownership interests.

Our businesses are subject to extensive regulation and the cost of compliance or failure to comply with such regulations may adversely affect us.
Our businesses are heavily regulated by federal, state and local governments in the countries in which our operations are conducted. In addition, domestic and foreign federal, state and local regulators may enact new laws and regulations that may reduce our revenues, cause our expenses to increase and/or require us to modify substantially our business practices. If we are not in compliance with applicable laws and regulations, including, among others, those governing franchising, timeshare, lending, information security and data privacy, marketing and sales, unfair and deceptive trade practices, telemarketing, licensing, labor, employment, health care, health and safety, accessibility, immigration, gaming, environmental (including climate change), and regulations applicable under the Office of Foreign Asset Control and the Foreign Corrupt Practices Act (and local equivalents in international jurisdictions), we may be subject to regulatory investigations or actions, fines, penalties and potential criminal prosecution.

We are subject to risks related to corporate responsibility.
Many factors influence our reputation and the value of our brands including perceptions of us held by our key stakeholders and the communities in which we do business. Businesses face increasing scrutiny of the social and environmental impact of their actions and there is a risk of damage to our reputation and the value of our brands if we fail to act responsibly or comply with regulatory requirements in a number of areas such as safety and security, sustainability, responsible tourism, environmental management, human rights and support for local communities.

We are dependent on our senior management.
We believe that our future growth depends, in part, on the continued services of our senior management team. Losing the services of any members of our senior management team could adversely affect our strategic and customer relationships and impede our ability to execute our business strategies.

Our inability to adequately protect and maintain our intellectual property could adversely affect our business.
Our inability to adequately protect and maintain our trademarks, trade dress and other intellectual property rights could adversely affect our business. We generate, maintain, utilize and enforce a substantial portfolio of trademarks, trade dress and other intellectual property that are fundamental to the brands that we use in all of our businesses. There can be no assurance that the steps we take to protect our intellectual property will be adequate. Any event that materially damages the reputation of one or more of our brands could have an adverse impact on the value of that brand and subsequent revenues from that brand. The value of any brand is influenced by a number of factors, including consumer preference and perception and our failure to ensure compliance with brand standards.


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Disasters, disruptions and other impairment of our information technologies and systems could adversely affect our business.
Any disaster, disruption or other impairment in our technology capabilities could harm our business. Our businesses depend upon the use of sophisticated information technologies and systems, including technology and systems utilized for reservation systems, vacation exchange systems, hotel/property management, communications, procurement, member record databases, call centers, operation of our loyalty programs and administrative systems. The operation, maintenance and updating of these technologies and systems are dependent upon internal and third-party technologies, systems and services for which there are no assurances of uninterrupted availability or adequate protection.

Failure to maintain the security of personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of the Company's privacy and security policies with respect to such information, could adversely affect us.
On June 26, 2012, the U.S. Federal Trade Commission ("FTC") filed a lawsuit in Federal District Court for the District of Arizona against the Company and its subsidiaries, Wyndham Hotel Group, LLC, Wyndham Hotels & Resorts Inc. and Wyndham Hotel Management Inc., alleging unfairness and deception-based violations of Section 5 of the FTC Act in connection with three prior data breach incidents involving a group of Wyndham brand hotels. The Company disputes the allegations in the lawsuit and is defending this lawsuit vigorously. The Company does not believe that the data breach incidents were or expect that the outcome of the FTC litigation will be material to the Company.
In connection with our business, we and our service providers collect and retain large volumes of certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. Such information includes but is not limited to large volumes of customer credit and payment card information. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and the hospitality industry is under increasing attack by cyber-criminals in the U.S. and other jurisdictions in which we operate. A significant actual or potential theft, loss, fraudulent use or misuse of customer, stockholder, employee or our data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in significant costs, fines, litigation or regulatory action against us.

The market price of our shares may fluctuate.
The market price of our common stock may fluctuate depending upon many factors, some of which may be beyond our control, including our quarterly or annual earnings or those of other companies in our industry; actual or anticipated fluctuations in our operating results due to seasonality and other factors related to our business; changes in accounting principles or rules; announcements by us or our competitors of significant acquisitions or dispositions; the failure of securities analysts to cover our common stock; changes in earnings estimates by securities analysts or our ability to meet those estimates; the operating and stock price performance of comparable companies; overall market fluctuations; and general economic conditions. Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

Your percentage ownership in Wyndham Worldwide may be diluted in the future.
Your percentage ownership in Wyndham Worldwide may be diluted in the future because of equity awards that we expect will be granted over time to our directors, officers and employees as well as due to the exercise of options. In addition, our Board may issue shares of our common and preferred stock, and debt securities convertible into shares of our common and preferred stock, up to certain regulatory thresholds without shareholder approval.

Provisions in our certificate of incorporation and by-laws and under Delaware law may prevent or delay an acquisition of our Company, which could impact the trading price of our common stock.
Our certificate of incorporation and by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive and to encourage prospective acquirers to negotiate with our Board rather than to attempt a hostile takeover. These provisions include a Board of Directors that is divided into three classes with staggered terms; elimination of the right of our stockholders to act by written consent; rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings; the right of our Board to issue preferred stock without stockholder approval; and limitations on the right of stockholders to remove directors. Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding shares of common stock.


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We cannot provide assurance that we will continue to pay dividends.
There can be no assurance that we will have sufficient surplus under Delaware law to be able to continue to pay dividends. This may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures, increases in reserves or lack of available capital. Our Board of Directors may also suspend the payment of dividends if the Board deems such action to be in the best interests of the Company or stockholders. If we do not pay dividends, the price of our common stock must appreciate for you to realize a gain on your investment in Wyndham Worldwide. This appreciation may not occur and our stock may in fact depreciate in value.

We are responsible for certain of Cendant's contingent and other corporate liabilities.
Under the separation agreement and the tax sharing agreement that we executed with Cendant (now Avis Budget Group) and former Cendant units, Realogy and Travelport, we and Realogy generally are responsible for 37.5% and 62.5%, respectively, of certain of Cendant's contingent and other corporate liabilities and associated costs, including certain contingent and other corporate liabilities of Cendant and/or its subsidiaries to the extent incurred on or prior to August 23, 2006, including liabilities relating to certain of Cendant's terminated or divested businesses, the Travelport sale, the Cendant litigation described in this report, actions with respect to the separation plan and payments under certain contracts that were not allocated to any specific party in connection with the separation.
If any party responsible for the liabilities described above were to default on its obligations, each non-defaulting party (including Avis Budget) would be required to pay an equal portion of the amounts in default. Accordingly, we could, under certain circumstances, be obligated to pay amounts in excess of our share of the assumed obligations related to such liabilities including associated costs. In accordance with the terms of the separation agreement, Realogy posted a letter of credit in April 2007 for our and Cendant's benefit to cover its estimated share of the assumed liabilities discussed above, although there can be no assurance that such letter of credit will be sufficient to cover Realogy's actual obligations if and when they arise.

We may be required to write-off all or a portion of the remaining value of our goodwill or other intangibles of companies we have acquired.
Under generally accepted accounting principles, we review our intangible assets, including goodwill, for impairment at least annually or when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or other intangible assets may not be recoverable, include a sustained decline in our stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. We may be required to record a significant non-cash impairment charge in our financial statements during the period in which any impairment of our goodwill or other intangible assets is determined, negatively impacting our results of operations and stockholders' equity.

ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.

ITEM 2.
PROPERTIES

Our corporate headquarters is located in a leased office at 22 Sylvan Way in Parsippany, New Jersey, which lease expires in 2024. We also have a leased office in Virginia Beach, Virginia for our Employee Service Center, which lease expires in 2014.

Wyndham Hotel Group

The main corporate operations of our lodging business share office space in our corporate headquarters leased by Wyndham in Parsippany, New Jersey. Our lodging business also leases space for its reservations centers and/or data warehouses in Saint John, New Brunswick, Canada; Aberdeen, South Dakota; and Phoenix, Arizona pursuant to leases that expire in 2013, 2016 and 2017, respectively. In addition, our lodging business has 9 leases for office space in various countries outside the U.S. with varying expiration dates ranging between 2013 and 2021. Our lodging business also has 5 leases for office space within the U.S. with varying expiration dates ranging between 2013 and 2015. All leases that are due to expire in 2013 are presently under review related to our ongoing requirements.


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Wyndham Exchange & Rentals

Our vacation exchange and rentals business has its main corporate operations at a leased office in Parsippany, New Jersey. Such lease has been extended on a month to month basis until such time as we move into a new leased facility which is currently under construction in Parsippany, New Jersey which has an estimated completion date in 2013 and a lease term through 2028. Our vacation exchange business also owns five properties located in the U.S., Ireland, United Kingdom, Mexico and Portugal. Our vacation exchange business also has one other leased office located within the U.S. pursuant to a lease that expires in 2014 and 21 additional leased spaces in various countries outside the U.S. pursuant to leases that expire generally between 1 and 3 years except for 3 leases that expire between 2016 and 2020. Our vacation rentals business' operations are managed in twenty-three owned locations (of which 14 are located in the U.S., 5 are located in Denmark, 3 are located in the United Kingdom and 1 is located in Italy), four main leased locations in the U.S., United Kingdom, Denmark and Netherlands and 122 smaller leased offices throughout Europe and the U.S. The vacation exchange and rentals business also occupies space in London, United Kingdom pursuant to a lease that expires in 2021. All leases that are due to expire in 2013 are presently under review related to our ongoing requirements.

Wyndham Vacation Ownership

Our vacation ownership business has its main corporate operations in Orlando, Florida pursuant to several leases, which begin to expire in 2024. Our vacation ownership business also owns a contact center facility in Redmond, Washington as well as leased space in Springfield, Missouri; Chicago, Illinois and Las Vegas, Nevada with various expiration dates. Our vacation ownership business leases space for administrative functions in Las Vegas, Nevada that expires in 2018 and in Northbrook Illinois that expires in 2020. In addition, the vacation ownership business leases approximately 74 marketing and sales offices, of which approximately 66 are located throughout the U.S. with varying expiration dates, and 8 offices located in Australia that expire between 2013 and 2015, with the exception of the main corporate operations in Bundall, Australia that expires in 2018.

ITEM 3.
LEGAL PROCEEDINGS

We are involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material effect on our results of operations or financial condition. See Note 17 to the Consolidated Financial Statements for a description of claims and legal actions arising in the ordinary course of our business and Note 23 to the Consolidated Financial Statements for a description of our obligations regarding Cendant contingent litigation.

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PART II

ITEM 4.
MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of Common Stock

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “WYN”. As of January 31, 2013, the number of stockholders of record was 6,718. The following table sets forth the quarterly high and low closing sales prices per share of WYN common stock as reported by the NYSE for the years ended December 31, 2012 and 2011.
2012
 
High
 
Low
First Quarter
 
$
46.51

 
$
36.87

Second Quarter
 
52.74

 
44.81

Third Quarter
 
54.32

 
48.45

Fourth Quarter
 
55.04

 
48.83

2011
 
High
 
Low
First Quarter
 
$
32.13

 
$
28.13

Second Quarter
 
34.97

 
30.78

Third Quarter
 
35.40

 
25.38

Fourth Quarter
 
38.09

 
26.92


Dividend Policy

During 2012 and 2011, we paid a quarterly dividend of $0.23 and $0.15, respectively, per share of Common Stock issued and outstanding on the record date for the applicable dividend. During January 2013, our Board of Directors authorized an increase of quarterly dividends to $0.29 per share beginning with the dividend expected to be declared during the first quarter 2013. Our dividend payout ratio is now approximately 32% of the midpoint of our estimated 2013 net income after certain adjustments. Our dividend policy for the future is to grow our dividend at least at the rate of growth of our earnings. The declaration and payment of future dividends to holders of our common stock are at the discretion of our Board of Directors and depend upon many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. There can be no assurance that a payment of a dividend will occur in the future.

Issuer Purchases of Equity Securities

Below is a summary of our Wyndham Worldwide common stock repurchases by month for the quarter ended December 31, 2012:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan
Approximate Dollar
Value of Shares that
May Yet Be  Purchased
Under the Publicly
Announced Plan
October 1 – 31, 2012
1,242,000

$
53.30

1,242,000

$
591,457,786

November 1 – 30, 2012
1,088,155

49.72

1,088,155

537,356,946

December 1 – 31, 2012(*)
591,094

51.20

591,094

507,095,080

Total
2,921,249

$
51.54

2,921,249

$
507,095,080

 
 
(*)    Includes 83,231 shares purchased for which the trade date occurred during December 2012 while settlement occurred during January 2013.


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We expect to generate annual net cash provided by operating activities less capital expenditures of approximately $750 million in 2013. A portion of this cash flow is expected to be returned to our shareholders in the form of share repurchases and dividends. On August 20, 2007, our Board of Directors authorized a stock repurchase program that enabled us to purchase our common stock. The Board has since increased the capacity of the program four times, most recently on April 18, 2012 by $750 million, bringing the total authorization under the program to $2.25 billion as of December 31, 2012. During 2012, repurchase capacity increased $13 million from proceeds received from stock option exercises. Such repurchase capacity will continue to be increased by proceeds received from future stock option exercises.

During the period January 1, 2013 through February 14, 2013, we repurchased an additional 1.4 million shares at an average price of $56.81 for a cost of $78 million. We currently have $429 million remaining availability in our program. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. Repurchases may be conducted in the open market or in privately negotiated transactions.

Stock Performance Graph

The Stock Performance Graph is not deemed filed with the Commission and shall not be deemed incorporated by reference into any of our prior or future filings made with the Commission.

The following line graph compares the cumulative total stockholder return of our common stock against the S&P 500 Index and the S&P Hotels, Resorts & Cruise Lines Index (consisting of Carnival plc, Marriott International Inc., Starwood Hotels & Resorts Worldwide, Inc. and Wyndham Worldwide Corporation) for the period from December 31, 2007 to December 31, 2012.  The graph assumes that $100 was invested on December 31, 2007 and all dividends and other distributions were reinvested.

Cumulative Total Return
 
12/07
 
12/08
 
12/09
 
12/10
 
12/11
 
12/12
Wyndham Worldwide Corporation
100.00

 
28.26

 
88.72

 
134.40

 
172.94

 
247.87

S&P 500
100.00

 
63.00

 
79.67

 
91.67

 
93.61

 
108.59

S&P Hotels, Resorts & Cruise Lines
100.00

 
51.88

 
80.85

 
123.93

 
100.06

 
125.26




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ITEM 6.    SELECTED FINANCIAL DATA
 
As of or For the Year Ended December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
Statement of Operations Data (in millions):
 
 
 
 
 
 
 
 
 
Net revenues
$
4,534

 
$
4,254

 
$
3,851

 
$
3,750

 
$
4,281

Expenses:
 
 
 
 
 
 
 
 
 
       Operating and other (a)
3,482

 
3,246

 
2,947

 
2,916

 
3,422

Goodwill and other impairments
8

 
57

 
4

 
15

 
1,426

Restructuring costs
7

 
6

 
9

 
47

 
79

Depreciation and amortization
185

 
178

 
173

 
178

 
184

Operating income/(loss)
852

 
767

 
718

 
594

 
(830
)
Other income, net
(8
)
 
(11
)
 
(7
)
 
(6
)
 
(11
)
Interest expense
132

 
140

 
137

 
114

 
80

Early extinguishment of debt
108

 
12

 
30

 

 

Interest income
(8
)
 
(24
)
 
(5
)
 
(7
)
 
(12
)
Income/(loss) before income taxes
628

 
650

 
563

 
493

 
(887
)
Provision for income taxes (b)
229

 
233

 
184

 
200

 
187

Net income/(loss)
399

 
417

 
379

 
293

 
(1,074
)
Net loss attributable to noncontrolling interest
1

 

 

 

 

Net income/(loss) attributable to Wyndham shareholders
$
400

 
$
417

 
$
379

 
$
293

 
$
(1,074
)
Per Share Data (c)
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Net income/(loss)
$
2.80

 
$
2.57

 
$
2.13

 
$
1.64

 
$
(6.05
)
Diluted
 
 
 
 
 
 
 
 
 
Net income/(loss)
$
2.75

 
$
2.51

 
$
2.05

 
$
1.61

 
$
(6.05
)
Dividends
 
 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.92

 
$
0.60

 
$
0.48

 
$
0.16

 
$
0.16

Balance Sheet Data (in millions):
 
 
 
 
 
 
 
 
 
Securitized assets (d)
$
2,543

 
$
2,638

 
$
2,865

 
$
2,755

 
$
2,929

Total assets
9,463

 
9,023

 
9,416

 
9,352

 
9,573

Securitized debt (e)
1,960

 
1,862

 
1,650

 
1,507

 
1,810

Long-term debt
2,602

 
2,153

 
2,094

 
2,015

 
1,984

Total equity
1,931

 
2,232

 
2,917

 
2,688

 
2,342

Operating Statistics: (f)
 
 
 
 
 
 
 
 
 
Lodging (g)
 
 
 
 
 
 
 
 
 
Number of rooms (h)
627,400

 
613,100

 
612,700

 
597,700

 
592,900

RevPAR
$
34.80

 
$
33.34

 
$
31.14

 
$
30.34

 
$
35.74

Vacation Exchange and Rentals (i)
 
 
 
 
 
 
 
 
 
Average number of members (in 000s)
3,674

 
3,750

 
3,753

 
3,782

 
3,670

Exchange revenue per member
$
179.68

 
$
179.59

 
$
177.53

 
$
176.73

 
$
198.48

Vacation rental transactions (in 000s)
1,392

 
1,347

 
1,163

 
964

 
936

Average net price per vacation rental
$
504.55

 
$
530.78

 
$
425.38

 
$
477.38

 
$
528.95

Vacation Ownership (j)
 
 
 
 
 
 
 
 
 
Gross Vacation Ownership Interest (“VOI”) sales (in 000s)
$
1,781,000

 
$
1,595,000

 
$
1,464,000

 
$
1,315,000

 
$
1,987,000

Tours
724,000

 
685,000

 
634,000

 
617,000

 
1,143,000

Volume Per Guest (“VPG”)
$
2,324

 
$
2,229

 
$
2,183

 
$
1,964

 
$
1,602

 
(a) 
Includes operating, cost of VOIs, consumer financing interest, marketing and reservation and general and administrative expenses. During 2012, 2011, 2010, 2009 and 2008, general and administrative expenses include $5 million of a net benefit, $12 million of a net benefit, $54 million of a net expense, $6 million of a net expense and $18 million of a net benefit, respectively, from the resolution of and adjustment to certain contingent liabilities and assets.

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During 2008, general and administrative expenses include charges of $24 million due to currency conversion losses related to the transfer of cash from our Venezuelan operations at our vacation exchange and rentals business.
(b) 
The difference in our 2008 effective tax rate is primarily due to (i) the non-deductibility of the goodwill impairment charge recorded during 2008, (ii) charges in a tax-free zone resulting from currency conversion losses related to the transfer of cash from our Venezuelan operations at our vacation exchange and rentals business and (iii) a non-cash impairment charge related to the write-off of an investment in a non-performing joint venture at our vacation exchange and rentals business. See Note 7 — Income Taxes for detailed reconciliations of our effective tax rates for 2012, 2011 and 2010.
(c) 
This calculation is based on basic and diluted weighted average shares of 143 million and 145 million, respectively, during 2012, 162 million and 166 million, respectively, during 2011, 178 million and 185 million, respectively, during 2010, 179 million and 182 million, respectively, during 2009 and 178 million during 2008.
(d) 
Represents the portion of gross vacation ownership contract receivables, securitization restricted cash and related assets that collateralize our securitized debt. Refer to Note 14 — Transfer and Servicing of Financial Assets for further information.
(e) 
Represents debt that is securitized through bankruptcy-remote special purpose entities, the creditors of which have no recourse to us.
(f) 
See “Operating Statistics” within Item 7 — Management’s Discussion and Analysis for descriptions of our operating statistics.
(g) 
U.S. Franchise Systems, Inc. and its Microtel Inns & Suites and Hawthorn Suites hotel brands were acquired on July 18, 2008, the Tryp hotel brand was acquired on June 30, 2010. The results of operations of these businesses have been included from their acquisition dates forward.
(h) 
The amounts in 2009 and 2008 also included approximately 3,000 rooms affiliated with the Wyndham Hotels and Resorts brand for which we received a fee for reservation and/or other services provided.
(i) 
Hoseasons Holdings Ltd. was acquired on March 1, 2010, ResortQuest International, LLC was acquired on September 30, 2010, James Villa Holdings Ltd. was acquired on November 30, 2010, two tuck-in acquisitions during the third quarter of 2011 and Smoky Mountain Property Management Group was acquired on August 1, 2012. The results of operations of these businesses have been included from their acquisition dates forward.
(j) 
Shell Vacations Club was acquired on September 13, 2012. The results of operations of this business have been included from its acquisition date forward.

In presenting the financial data above in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources — Critical Accounting Policies,” for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

ACQUISITIONS (2008 – 2012)

Between January 1, 2008 and December 31, 2012, we completed the following acquisitions, the results of operations and financial position of which have been included beginning from the relevant acquisition dates:
Oceana Resorts (December 2012)
Shell Vacations Club (September 2012)
Smoky Mountain Property Management Group (August 2012)
Two vacation rentals tuck-in acquisitions (Third quarter 2011)
James Villa Holdings Ltd. (November 2010)
ResortQuest International, LLC (September 2010)
Tryp hotel brand (June 2010)
Hoseasons Holdings Ltd. (March 2010)
U.S. Franchise Systems, Inc. and its Microtel Inns & Suites and Hawthorn Suites hotel brands (July 2008)

See Note 4 to the Consolidated Financial Statements for a discussion of the acquisitions completed during 2012 and 2011.

IMPAIRMENT & RESTRUCTURING CHARGES

During 2012, we recorded an $8 million non-cash asset impairment charge at our vacation exchange and rentals business resulting from the decision to rebrand the ResortQuest and Steamboat Resorts tradenames to the Wyndham Vacation Rentals brand. In addition, we recorded restructuring costs of $7 million related to organizational realignment initiatives commenced during 2012 at our vacation exchange and rentals and vacation ownership businesses.

During 2011, we recorded non-cash asset impairment charges at our lodging business which consisted of a write-down of (i) $44 million of franchise and management agreements, development advance notes and other receivables and (ii) a $13 million investment in an international joint venture. In addition, we recorded $6 million of restructuring costs primarily related to a strategic realignment initiative committed to during 2010 at our vacation exchange and rentals business.

During 2010, we recorded (i) $9 million of restructuring costs related to a strategic realignment initiative committed to during 2010 at our vacation exchange and rentals business and (ii) a charge of $4 million to reduce the value of certain vacation ownership properties and related assets that were no longer consistent with our development plans.


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During 2009, we recorded (i) $47 million of restructuring costs related to various strategic realignment initiatives committed to during 2008, (ii) a charge of $9 million to reduce the value of certain vacation ownership properties and related assets held for sale that were no longer consistent with our development plans and (iii) a charge of $6 million to reduce the value of an underperforming joint venture at our lodging business.

During 2008, we recorded (i) a charge of $1,342 million to impair goodwill related to plans announced during the fourth quarter of 2008 to reduce our VOI sales pace and associated size of our vacation ownership business, (ii) a charge of $84 million to reduce the carrying value of certain long-lived assets based on their revised estimated fair values and (iii) $79 million of restructuring costs related to various strategic realignment initiatives.

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS AND OVERVIEW
We are a global provider of hospitality services and products and operate our business in the following three segments:
Lodging—primarily franchises hotels in the upper upscale, upscale, upper midscale, midscale, economy and extended stay segments and provides hotel management services for full-service and select limited-service hotels.
Vacation Exchange and Rentals—provides vacation exchange services and products to owners of intervals of vacation ownership interests (“VOIs”) and markets vacation rental properties primarily on behalf of independent owners.
Vacation Ownership—develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

Separation from Cendant

On July 31, 2006, Cendant Corporation, currently known as Avis Budget Group, Inc. (or “former Parent”), distributed all of the shares of Wyndham common stock to the holders of Cendant common stock issued and outstanding on July 21, 2006, the record date for the distribution. On August 1, 2006, we commenced “regular way” trading on the New York Stock Exchange under the symbol “WYN.”

Before our separation from Cendant (“Separation”), we entered into separation, transition services and several other agreements with Cendant, Realogy and Travelport to effect the separation and distribution, govern the relationships among the parties after the separation and allocate among the parties Cendant’s assets, liabilities and obligations attributable to periods prior to the separation. Under the Separation and Distribution Agreement, we assumed 37.5% of certain contingent and other corporate liabilities of Cendant or its subsidiaries which were not primarily related to our business or the businesses of Realogy, Travelport or Avis Budget Group, and Realogy assumed 62.5% of these contingent and other corporate liabilities. These include liabilities relating to Cendant’s terminated or divested businesses, the Travelport sale on August 22, 2006, taxes of Travelport for taxable periods through the date of the Travelport sale, certain litigation matters, generally any actions relating to the separation plan and payments under certain contracts that were not allocated to any specific party in connection with the separation.


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RESULTS OF OPERATIONS
Lodging

Our franchising business is designed to generate revenues for our hotel owners through the delivery of reservations to the hotel and the delivery of certain services such as training and guest services.

We enter into agreements to franchise our lodging brands to independent hotel owners. Our standard franchise agreement typically has a term of 15 to 20 years and provides a franchisee with certain rights to terminate the franchise agreement before the term of the agreement under certain circumstances. The principal source of revenues from franchising hotels is ongoing franchise fees, which are primarily comprised of royalty, marketing and reservation fees. Royalty, marketing and reservation fees are typically a percentage of gross room revenues of each franchised hotel. Royalty fees are intended to cover the use of our trademarks and our operating expenses, such as expenses incurred for franchise services, including quality assurance and administrative support, and to provide us with operating profits. These fees are recognized as revenue upon becoming due from the franchisee. An estimate of uncollectible ongoing franchise fees is charged to bad debt expense and included in operating expenses on the Consolidated Statements of Income. Lodging revenues also include initial franchise fees, which are recognized as revenues when all material services or conditions have been substantially performed, which is either when a franchised hotel opens for business or when a franchise agreement is terminated after it has been determined that the franchised hotel will not open.

Our franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse us for expenses associated with operating an international, centralized, brand-specific reservations system, e-commerce channels such as our brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. These fees are recognized as revenue upon becoming due from the franchisee. An estimate of uncollectible ongoing marketing and reservation fees is charged to bad debt expense and included in marketing and reservation expenses on the Consolidated Statements of Income.

We are contractually obligated to expend the marketing and reservation fees we collect from franchisees in accordance with the franchise agreements; as such, revenues earned in excess of costs incurred are accrued as a liability for future marketing or reservation costs. Costs incurred in excess of revenues earned are expensed as incurred. In accordance with our franchise agreements, we include an allocation of costs required to carry out marketing and reservation activities within marketing and reservation expenses.
Other service fees we derive from providing ancillary services to franchisees are primarily recognized as revenue upon completion of services. The majority of these fees are intended to reimburse us for direct expenses associated with providing these services.
We also provide management services for hotels under management contracts, which offer all the benefits of a global brand and a full range of management, marketing and reservation services. In addition to the standard franchise services described above, our hotel management business provides hotel owners with professional oversight and comprehensive operations support services such as hiring, training and supervising the managers and employees that operate the hotels as well as annual budget preparation, financial analysis and extensive food and beverage services. Our standard management agreement typically has a term of up to 20 years. Our management fees are comprised of base fees, which are typically a specified percentage of gross revenues from hotel operations, and incentive fees, which are typically a specified percentage of a hotel’s gross operating profit. Management fee revenues are recognized when earned in accordance with the terms of the contract. Management fee revenues are recorded as a component of franchise fee revenues on the Consolidated Statements of Income. We incur certain reimbursable costs on behalf of managed hotel properties and report reimbursements received from managed hotels as revenues and the costs incurred on their behalf as expenses. Such reimbursable revenues are recorded as a component of service and membership fees on the Consolidated Statements of Income. The reimbursable costs, which principally relate to payroll costs for operational employees at the managed hotels, are reflected as a component of operating expenses on the Consolidated Statements of Income. The reimbursements from hotel owners are based upon the costs incurred with no added margin. As a result, these reimbursable costs have little to no effect on our operating income. Management fee revenues and revenues related to payroll reimbursements were $7 million and $91 million, respectively, during 2012, $7 million and $79 million, respectively, during 2011 and $5 million and $77 million, respectively, during 2010.
We currently own two hotels which are located in key business and leisure markets. Revenues earned from our owned hotels are comprised of (i) gross room nights; (ii) food and beverage services; and (iii) on-site spas, casinos, golf and shop revenues. We are responsible for all the operations of the hotels and recognized all revenues and expenses of these hotels.

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We also earn revenues from the Wyndham Rewards loyalty program when a member stays at a participating hotel. These revenues are derived from a fee we charge based upon a percentage of room revenues generated from such stay. These loyalty fees are intended to reimburse us for expenses associated with administering and marketing the program. These fees are recognized as revenue upon becoming due from the franchisee.
Within our Lodging segment, we measure operating performance using the following key operating statistics: (i) number of rooms, which represents the number of rooms at lodging properties at the end of the year and (ii) revenue per available room (RevPAR), which is calculated by multiplying the percentage of available rooms occupied during the year by the average rate charged for renting a lodging room for one day.

Vacation Exchange and Rentals
As a provider of vacation exchange services, we enter into affiliation agreements with developers of vacation ownership properties to allow owners of intervals of VOIs to trade their intervals for certain other intervals within our vacation exchange business and, for some members, for other leisure-related services and products. Additionally, as a marketer of vacation rental properties, generally we enter into contracts for exclusive periods of time with property owners to market the rental of such properties to rental customers. Our vacation exchange business derives a majority of its revenues from annual membership dues and exchange fees from members trading their intervals. Annual dues revenues represents the annual membership fees from members who participate in our vacation exchange business and, for additional fees, have the right to exchange their intervals for certain other intervals within our vacation exchange business and, for certain members, for other leisure-related services and products. We recognize revenues from annual membership dues on a straight-line basis over the membership period during which delivery of publications, if applicable, and other services are provided to the members. Exchange fees are generated when members exchange their intervals for intervals at other properties within our vacation exchange business or for other leisure-related services and products. Exchange fees are recognized as revenues, net of expected cancellations, when the exchange requests have been confirmed to the member. Our vacation rentals business primarily derives its revenues from fees, which generally average between 20% and 50% of the gross booking fees for inventory. For the less than 10% of properties that we generally own, manage or operate under long-term capital or operating leases, we receive 100% of the revenues. The majority of the time, we act on behalf of the owners of the rental properties to generate our fees. We provide reservation services to the independent property owners and receive the agreed-upon fee for the service provided. We remit the gross rental fee received from the renter to the independent property owner, net of our agreed-upon fee. Revenues from such fees are recognized in the period that the rental reservation is made, net of expected cancellations. Cancellations for 2012, 2011 and 2010 each totaled less than 5% of rental transactions booked. Upon confirmation of the rental reservation, the rental customer and property owner generally have a direct relationship for additional services to be performed. We also earn rental fees in connection with properties we generally own, manage or operate under long-term capital or operating leases and such fees are recognized ratably over the rental customer’s stay, as this is the point at which the service is rendered. Our revenues are earned when evidence of an arrangement exists, delivery has occurred or the services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.
Within our Vacation Exchange and Rentals segment, we measure operating performance using the following key operating statistics: (i) average number of vacation exchange members, which represents members in our vacation exchange programs who pay annual membership dues and are entitled, for additional fees, to exchange their intervals for intervals at other properties affiliated within our vacation exchange business and, for certain members, for other leisure-related services and products; (ii) exchange revenue per member, which represents total revenue from fees associated with memberships, exchange transactions, member-related rentals and other services for the year divided by the average number of vacation exchange members during the year; (iii) vacation rental transactions, which represents the number of standard one-week rental transactions that are generated in connection with customers booking their vacation rental stays through us; and (iv) average net price per vacation rental, which represents the net rental price generated from renting vacation properties to customers and other related rental servicing fees divided by the number of vacation rental transactions.


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Vacation Ownership
We develop, market and sell VOIs to individual consumers, provide property management services at resorts and provide consumer financing in connection with the sale of VOIs. Our vacation ownership business derives the majority of its revenues from sales of VOIs and derives other revenues from consumer financing and property management. Our sales of VOIs are either cash sales or developer-financed sales. In order for us to recognize revenues from VOI sales under the full accrual method of accounting as prescribed in the guidance for sales of real estate for fully constructed inventory, a binding sales contract must have been executed, the statutory rescission period must have expired (after which time the purchasers are not entitled to a refund except for non-delivery by us), receivables must have been deemed collectible and the remainder of our obligations must have been substantially completed. In addition, before we recognize any revenues from VOI sales, the purchaser of the VOI must have met the initial investment criteria and, as applicable, the continuing investment criteria, by executing a legally binding financing contract. A purchaser has met the initial investment criteria when a minimum down payment of 10% is received by us. In accordance with the guidance for accounting for real estate time-sharing transactions, we must also take into consideration the fair value of certain incentives provided to the purchaser when assessing the adequacy of the purchaser’s initial investment. In those cases where financing is provided to the purchaser by us, the purchaser is obligated to remit monthly payments under financing contracts that represent the purchaser’s continuing investment. If all of the criteria for a VOI sale to qualify under the full accrual method of accounting have been met, as discussed above, except that construction of the VOI purchased is not complete, we recognize revenues using the percentage-of-completion (“POC”) method of accounting provided that the preliminary construction phase is complete and that a minimum sales level has been met (to assure that the property will not revert to a rental property). The preliminary stage of development is deemed to be complete when the engineering and design work is complete, the construction contracts have been executed, the site has been cleared, prepared and excavated, and the building foundation is complete. The completion percentage is determined by the proportion of real estate inventory costs incurred to total estimated costs. These estimated costs are based upon historical experience and the related contractual terms. The remaining revenues and related costs of sales, including commissions and direct expenses, are deferred and recognized as the remaining costs are incurred.
We also offer consumer financing as an option to customers purchasing VOIs, which are typically collateralized by the underlying VOI. The contractual terms of Company-provided financing agreements require that the contractual level of annual principal payments be sufficient to amortize the loan over a customary period for the VOI being financed, which is generally ten years, and payments under the financing contracts begin within 45 days of the sale and receipt of the minimum down payment of 10%. An estimate of uncollectible amounts is recorded at the time of the sale with a charge to the provision for loan losses, which is classified as a reduction of VOI sales on the Consolidated Statements of Income. The interest income earned from the financing arrangements is earned on the principal balance outstanding over the life of the arrangement and is recorded within consumer financing on the Consolidated Statements of Income.
We also provide day-to-day-management services, including oversight of housekeeping services, maintenance and certain accounting and administrative services for property owners’ associations and clubs. In some cases, our employees serve as officers and/or directors of these associations and clubs in accordance with their by-laws and associated regulations. We receive fees for such property management services which are generally based upon total costs to operate such resorts. Fees for property management services typically approximate 10% of budgeted operating expenses. Property management fee revenues are recognized when earned in accordance with the terms of the contract and are recorded as a component of service and membership fees on the Consolidated Statements of Income. Property management revenues, which are comprised of management fee revenue and reimbursable revenue, were $460 million, $424 million and $405 million, during 2012, 2011, and 2010, respectively. Management fee revenues were $225 million, $198 million and $183 million during 2012, 2011 and 2010, respectively. Reimbursable revenues, which are based upon certain reimbursable costs with no added margin, were $235 million,$226 million and $222 million, respectively, during 2012, 2011 and 2010. These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where we are the employer and are reflected as a component of operating expenses on the Consolidated Statements of Income. During each of 2012, 2011 and 2010, one of the associations that we manage paid Wyndham Exchange & Rentals $19 million for exchange services.
Within our Vacation Ownership segment, we measure operating performance using the following key metrics: (i) gross VOI sales (including tele-sales upgrades, which are a component of upgrade sales) before deferred sales and loan loss provisions; (ii) tours, which represents the number of tours taken by guests in our efforts to sell VOIs; and (iii) volume per guest, or VPG, which represents revenue per guest and is calculated by dividing the gross VOI sales, excluding tele-sales upgrades, which are a component of upgrade sales, by the number of tours.


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Other Items
We record marketing and reservation revenues, Wyndham Rewards revenues, RCI Elite Rewards revenues and hotel/property management services revenues for our Lodging, Vacation Ownership and Vacation Exchange and Rentals segments, in accordance with the guidance for reporting revenues gross as a principal versus net as an agent, which requires that these revenues be recorded on a gross basis.
Discussed below are our 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 separate 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 based upon 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 interest) 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 which, 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.


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OPERATING STATISTICS
The following table presents our operating statistics for the years ended December 31, 2012 and 2011. See Results of Operations section for a discussion as to how these operating statistics affected our business for the periods presented.
 
Year Ended December 31,
 
2012
 
2011
 
% Change
Lodging
 
 
 
 
 
Number of rooms (a)
627,400

 
613,100

 
2.3
RevPAR (b)
$
34.80

 
$
33.34

 
4.4
Vacation Exchange and Rentals
 
 
 
 
 
Average number of members (in 000s) (c)
3,674

 
3,750

 
(2.0)
Exchange revenue per member (d)
$
179.68

 
$
179.59

 
0.1
Vacation rental transactions (in 000s) (e) (f)
1,392

 
1,347

 
3.3
Average net price per vacation rental (f) (g)
$
504.55

 
$
530.78

 
(4.9)
Vacation Ownership (h)
 
 
 
 
 
Gross VOI sales (in 000s) (i) (j)
$
1,781,000

 
$
1,595,000

 
11.7
Tours (k)
724,000

 
685,000

 
5.7
VPG (l)
$
2,324

 
$
2,229

 
4.3
 
(a) 
Represents the number of rooms at lodging properties at the end of the period which are under franchise and/or management agreements, or are company owned.
(b) 
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 lodging room for one day.
(c) 
Represents members in our vacation exchange programs who paid annual membership dues as of the end of the period or within the allowed grace period.
(d) 
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.  Excluding the impact of foreign exchange movements, exchange revenue per member was up 1.6%.
(e) 
Represents the number of transactions that are generated in connection with customers booking their vacation rental stays through us. One rental transaction is recorded for each standard one-week rental.
(f) 
Includes the impact from the acquisition of Smoky Mountain Property Management Group ("Smoky Mountain") (August 2012) and two tuck-in acquisitions (third quarter 2011) from the acquisition date forward. Therefore, the operating statistics for 2012 are not presented on a comparable basis to the 2011 operating statistics.
(g) 
Represents the net rental price generated from renting vacation properties to customers and other related rental servicing fees divided by the number of vacation rental transactions. Excluding the impact of foreign exchange movements, the average net price per vacation rental was up 0.1%.
(h) 
Includes the impact of the acquisition of Shell Vacations Club ("Shell") (September 2012) from the acquisition date forward. Therefore, the operating statistics for 2012 are not presented on a comparable basis to the 2011 operating statistics.
(i) 
Represents total sales of VOIs, including sales under the Wyndham Asset Affiliation Model (“WAAM”), before 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.
(j) 
The following table provides a reconciliation of Gross VOI sales to Vacation ownership interest sales for the year ended December 31 (in millions):
 
2012
 
2011
Gross VOI sales (1)
$
1,781

 
$
1,595

Less: WAAM 1.0 sales (2)
(49
)
 
(106
)
Gross VOI sales, net of WAAM 1.0 sales
1,732

 
1,489

Less: Loan loss provision
(409
)
 
(339
)
Vacation ownership interest sales
$
1,323

 
$
1,150

 
(1)  
For the year ended December 31, 2012, includes $99 million of gross VOI sales under our WAAM 2.0 sales model which enables us to acquire and own completed timeshare units close to the timing of the sales of such units and to offer financing to the purchaser.  This significantly reduces the period between the deployment of capital to acquire inventory and the subsequent return on investment which occurs at the time of its sale to a timeshare purchaser.  We implemented this sales model during the second quarter of 2012.
(2) 
Represents total sales of VOIs through our fee-for-service vacation ownership 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 1.0 commission revenues amounted to $33 million and $65 million during 2012 and 2011, respectively.
(k) 
Represents the number of tours taken by guests in our efforts to sell VOIs.
(l) 
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 $97 million and $68 million during 2012 and 2011, respectively. We have excluded non-tour upgrade sales in the calculation of VPG because non-tour upgrade sales are generated by a different marketing channel. We believe that VPG provides an enhanced understanding of the

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performance of our vacation ownership business because it directly measures the efficiency of this business’s tour selling efforts during a given reporting period.

Year Ended December 31, 2012 vs. Year Ended December 31, 2011
Our consolidated results are as follows:
 
Year Ended December 31,
 
2012
 
2011
 
Favorable/(Unfavorable)
Net revenues
$
4,534

 
$
4,254

 
$
280

Expenses
3,682

 
3,487

 
(195
)
Operating income
852

 
767

 
85

Other income, net
(8
)
 
(11
)
 
(3
)
Interest expense
132

 
140

 
8

Early extinguishment of debt
108

 
12

 
(96
)
Interest income
(8
)
 
(24
)
 
(16
)
Income before income taxes
628

 
650

 
(22
)
Provision for income taxes
229

 
233

 
4

Net loss attributable to noncontrolling interest
1

 

 
1

Net income attributable to Wyndham shareholders
$
400

 
$
417

 
$
(17
)

Net revenues increased $280 million (6.6%) during 2012 compared to the same period as last year primarily resulting from:
a $155 million increase at our vacation ownership business primarily from higher net VOI sales;
a $112 million increase (excluding intersegment revenues) at our lodging business primarily from (i) higher royalty, marketing and reservation and Wyndham Rewards revenues resulting from stronger RevPar; (ii) the impact of a change in the classification of fees to revenues from expenses; and (iii) incremental hotel revenues associated with the Wyndham Grand hotel in Orlando ("Bonnet Creek hotel"), which opened in the fourth quarter of 2011 and the Wyndham Rio Mar Beach Resort and Spa ("Rio Mar hotel"), which we assumed ownership control of in the fourth quarter of 2012; and
$63 million of incremental revenues from acquisitions at our vacation ownership and vacation exchange and rentals businesses.
Such revenue increases were partially offset by $48 million of unfavorable foreign currency translation at our vacation exchange and rentals business.

Expenses increased $195 million (5.6%) principally reflecting:
$169 million of higher expenses from operations primarily associated with the revenue increases;
$54 million of incremental expenses from acquisitions;
$31 million resulting from the absence of a net benefit from a refund of value added taxes during 2011;
$15 million of incremental expenses associated with a change in the classification of fees to revenues from expenses;
$8 million from the resolution of and adjustment to certain contingent liabilities and assets; and
an $8 million non-cash asset impairment charge at our vacation exchange and rentals business.
Such expense increases were partially offset by the absence of $57 million of non-cash asset impairment charges at our lodging business recorded during 2011 and a favorable impact of $35 million resulting from foreign currency at our vacation exchange and rentals business.
Other income, net decreased $3 million primarily due to the absence of a $4 million gain in 2011 resulting from the redemption of a preferred stock investment allocated to us in connect with our Separation.
Interest expense decreased $8 million primarily due to lower interest costs on long-term debt resulting from our debt refinancing during the first quarter of 2012 and the absence of interest expense related to value added taxes incurred during the second quarter of 2011.
Interest income decreased $16 million due to the absence of interest received during 2011 related to a refund of value-added taxes at our vacation exchange and rentals business.

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Early extinguishment of debt costs increased $96 million primarily due to $108 million of incremental costs incurred as a result of our debt refinancing during 2012 compared to $12 million of costs incurred as a result of our early repayment of convertible notes during 2011.
Our effective tax rate increased from 35.8% in 2011 to 36.5% in 2012 primarily due to higher state taxes offset by lower taxes on foreign income.
As a result of these items, net income attributable to Wyndham shareholders decreased $17 million (4.1%) as compared to 2011.
During 2013, we expect:
net revenues of $4.93 billion to $5.1 billion;
depreciation and amortization of $217 million to $222 million; and
interest expense, net (excluding early extinguishment of debt costs) of $125 million to $130 million.
Following is a discussion of the 2012 results of each of our segments and Corporate and Other compared to 2011:
 
Net Revenues
 
EBITDA
 
2012
 
2011
 
% Change
 
2012
 
2011
 
% Change
Lodging
$
890

 
$
749

 
18.8
 
$
272

(b) 
$
157

(g) 
73.2
Vacation Exchange and Rentals
1,422

 
1,444

 
(1.5)
 
328

(c) 
368

(h) 
(10.9)
Vacation Ownership
2,269

 
2,077

 
9.2
 
549

(d) 
515

(i) 
6.6
Total Reportable Segments
4,581

 
4,270

 
7.3
 
1,149

 
1,040

 
10.5
Corporate and Other (a)
(47
)
 
(16
)

*
 
(104
)
(e) 
(84
)
(e) 
*
Total Company
$
4,534

 
$
4,254

 
6.6
 
1,045

 
956

 
9.3
Less: Depreciation and amortization
 
 
 
 
 
 
185

 
178

 
 
Interest expense
 
 
 
 
 
 
132

 
140

(j) 
 
Early extinguishment of debt
 
 
 
 
 
 
108

(f) 
12

(k) 
 
Interest income
 
 
 
 
 
 
(8
)
 
(24
)
(l) 
 
Income before income taxes
 
 
 
 
 
 
$
628

 
$
650

 
 
 
* 
Not meaningful.
(a) 
Includes the elimination of transactions between segments.
(b) 
Includes a $1 million benefit from the recovery of a previously recorded impairment charge.
(c) 
Includes (i) a non-cash impairment charge of $8 million for the write-down of the ResortQuest and Steamboat Resorts tradenames, (ii) $5 million of restructuring costs incurred as a result of organizational realignment initiatives commenced during 2012, (iii) a $2 million benefit related to the reversal of an allowance associated with a previously divested asset and (iv) $1 million of acquisition costs incurred in connection with the acquisition of Oceana Resorts and a tuck-in acquisition (December 2012).
(d) 
Includes (i) $2 million of restructuring costs and (ii) $1 million of acquisition costs incurred in connection with our acquisition of Shell during September 2012.
(e) 
Includes (i) $5 million and $16 million of a net benefit related to the resolution of and adjustment to certain contingent liabilities and assets resulting from our Separation during 2012 and 2011, respectively, and (ii) $109 million and $100 million of corporate costs during 2012 and 2011, respectively.
(f) 
Represents costs incurred for the early repurchase of a portion of our 9.875% senior unsecured notes and 6.00% senior unsecured notes.
(g) 
Includes non-cash impairment charges of (i) $44 million primarily related to the write-down of certain franchise and management agreements and development advance notes and (ii) $13 million related to a write-down of an international joint venture.
(h) 
Includes (i) a $31 million net benefit resulting from a refund of value added taxes, (ii) $7 million of restructuring costs incurred in connection with a strategic initiative commenced during 2010 and (iii) a $4 million charge related to the write-off of foreign exchange translation adjustments associated with the liquidation of a foreign entity.
(i) 
Includes a $1 million benefit for reversal of costs incurred as a result of various strategic initiatives commenced during 2008.
(j) 
Includes $3 million of interest related to value added tax accruals.
(k) 
Represents costs incurred for the repurchase of a portion of our convertible notes.
(l) 
Includes $16 million of interest income related to a refund of value added taxes.


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Lodging

Net revenues increased by $141 million (18.8%) and EBITDA increased $115 million (73.2%) during 2012 compared to the same period last year. Excluding the impact of $57 million of non-cash impairment charges in 2011, EBITDA increased $58 million (27.1%) compared to the same period last year.

Net revenues reflect a $38 million increase in royalty and marketing and reservation fees (inclusive of Wyndham Rewards) primarily due to a 4.4% increase in RevPAR resulting primarily from stronger occupancy. Net revenues and EBITDA were also favorably impacted by a $19 million increase related to a higher licensing fee charged primarily to our vacation ownership business for the use of the Wyndham tradename. Other franchise fees and ancillary revenues contributed an additional $13 million and $5 million to net revenues and EBITDA, respectively.

The Bonnet Creek hotel, which opened in the fourth quarter of 2011, resulted in a net revenue and EBITDA increase of $25 million and $9 million, respectively. Additionally, the Rio Mar hotel, which we assumed ownership control of during the fourth quarter of 2012, resulted in an incremental increase in net revenues of $11 million and an EBITDA loss of $1 million during 2012.

Net revenues also reflects a $23 million increase due to a change in classification to revenues from operating expenses, primarily for third-party reservation services and a $12 million increase in reimbursable revenues in our hotel management business; both had no impact on EBITDA.

In addition, EBITDA was also unfavorably impacted by $32 million of higher marketing, reservation and Wyndham Rewards expenses resulting primarily from higher revenues and costs associated with the global conference, partially offset by $20 million of lower expenses primarily related to bad debt, information technology and legal fees.

As of December 31, 2012, we had over 7,340 properties and 627,400 rooms in our system.

Additionally, our hotel development pipeline included approximately 930 hotels and 110,700 rooms, of which 56% were international and 59% were new construction as of December 31, 2012.

We expect net revenues of $945 million to $995 million during 2013. In addition, as compared to 2012, we expect our operating statistics during 2013 to perform as follows:
RevPAR to be up 4% to 6%; and
number of rooms to increase 2% to 4%.
Vacation Exchange and Rentals

Net revenues and EBITDA decreased $22 million (1.5%) and $40 million (10.9%), respectively, during 2012 compared with 2011. A stronger U.S. dollar compared to other foreign currencies unfavorably impacted net revenues and EBITDA by $48 million and $12 million, respectively. EBITDA also was unfavorably impacted by the absence of a $31 million net benefit resulting from a refund of value added taxes recorded during 2011.

Our acquisitions of U.S. vacation rental businesses contributed $26 million of incremental net revenues (inclusive of $9 million of ancillary revenues) and $6 million of incremental EBITDA during 2012, which includes $1 million of acquisition related costs.

Net revenues generated from rental transactions and related services decreased $13 million. Excluding the impact of $17 million of incremental vacation rental revenues from acquisitions and the unfavorable impact of foreign exchange movements of $37 million, net revenues generated from rental transactions and related services increased $7 million primarily due to a 1.2% increase in rental transaction volume driven by market expansion at our Novasol business and organic growth at our Landal GreenParks business resulting from the addition of new managed and franchised parks. Such growth was partially offset by lower volume at our Hoseasons Group business, which we believe was due to lower U.K. consumer spending resulting from the economic uncertainty. Average net price per vacation rental remained flat driven by higher yield at our Hoseasons Group and Landal businesses offset by lower yield at our Novasol business.


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Table of Contents

Exchange and related service revenues, which primarily consist of fees generated from memberships, exchange transactions, member-related rentals and other member servicing, decreased $13 million. Excluding an unfavorable impact of $10 million from foreign exchange movements, exchange and related service revenues declined $3 million as the impact of a 2.0% decline in the average number of members driven by the non-renewal of an affiliation agreement at the beginning of 2012 was partially offset by a 1.6% increase in exchange revenue per member primarily resulting from an increase in revenues derived from new products and new affiliate club servicing programs as well as an increase in exchange fees.

In addition to the items discussed above, EBITDA was unfavorably impacted by:
an $8 million non-cash impairment charge resulting from our decision to rebrand the ResortQuest and Steamboat Resort brand businesses to the Wyndham Vacation Rentals brand;
$5 million of expenses related to organizational realignment initiatives recorded during 2012;
a $5 million unfavorable impact from foreign exchange transactions and foreign exchange hedging contracts; and
$3 million of higher marketing costs.

Such decreases to EBITDA were partially offset by:
the absence of $7 million of costs related to organizational realignment initiatives recorded during 2011;
a $4 million settlement of a business disruption claim received during 2012 related to the Gulf of Mexico oil spill in 2010;
the absence of a $4 million loss related to the write-off of foreign exchange translation adjustments resulting from the liquidation of a foreign entity;
a $4 million favorable impact from value added taxes; and
a $2 million benefit related to the reversal of an allowance associated with a previously divested asset.

We expect net revenues of $1.53 billion to $1.6 billion during 2013. In addition, as compared to 2012, we expect our operating statistics during 2013 to perform as follows:
vacation rental transactions to increase 6% to 9%;
average net price per vacation rental to increase 6% to 9%;
average number of members to be flat; and
exchange revenue per member to increase 1% to 3%.

Vacation Ownership

Net revenues and EBITDA increased $192 million (9.2%) and $34 million (6.6%), respectively, during 2012 compared with 2011. The acquisition of Shell during the third quarter of 2012 contributed $37 million of net revenues and $4 million of EBITDA.

Gross sales of VOIs, net of WAAM 1.0 sales, increased $244 million (16.4%) of which $99 million is related to WAAM 2.0 sales and $14 million is due to the Shell acquisition. WAAM 2.0, which was implemented during the second quarter of 2012, enables us to acquire and own completed timeshare units close to the timing of the sales of such units and to offer financing to the purchaser. The increase in gross VOI sales is principally due to a 5.8% increase in tour flow and a 4.3% increase in VPG. The increase in tour flow reflects our focus on marketing programs directed towards new owner generation, while the change in VPG is attributable to higher pricing due to better yield management and improved close rates resulting from our VIP incentive marketing program and credit pre-screening program. Our provision for loan losses increased $70 million primarily as a result of the increase in gross VOI sales and higher default rate trends as compared to our historical trends. In addition, net revenues were favorably impacted by an $8 million increase in ancillary revenues resulting from higher fees generated by non-core operations. Net revenues and EBITDA generated by WAAM 1.0 decreased by $32 million and $8 million, respectively, due to a shift in sales mix to WAAM 2.0 sales.

Property management revenues and EBITDA increased $36 million and $7 million, respectively. The revenue increase is primarily the result of (i) $20 million on incremental revenues from the Shell acquisition, (ii) higher reimbursable revenues resulting from increased operating expenses and (iii) higher management fees. Such increase in reimbursable revenues had no impact on EBITDA. The increase in EBITDA is primarily due to the Shell acquisition.


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Table of Contents

Consumer financing revenues and EBITDA increased $6 million and $8 million, respectively. Excluding $5 million of incremental revenues and EBITDA contributed by the Shell acquisition, revenues and EBITDA increased $1 million and $3 million, respectively, principally due to higher weighted average interest rates earned on contract receivables, partially offset by a lower average portfolio balance of such receivables. Net interest income margin was 78%, flat compared to 2011 due to (i) a reduction in our weighted average interest rate on our securitized debt to 4.8% from 5.5% and (ii) higher weighted average interest rates earned on our contract receivables portfolio, offset by $151 million of increased average borrowings on our securitized debt facilities due to higher advance rates.

In addition to the items discussed above, EBITDA was unfavorably impacted by increased expenses primarily resulting from:
$59 million of increased marketing expenses due to increased tours for new owner generation and a higher intersegment charge from the lodging business for use of the Wyndham trade name;
$52 million of increased sales commission and administration costs due to higher VOI sales; and
$32 million of increased general and administrative expenses, primarily from higher employee and IT related costs.

We expect net revenues of $2.43 billion to $2.55 billion during 2013. In addition, as compared to 2012, we expect our operating statistics during 2013 to perform as follows:
gross VOI sales to be $1.88 billion to $1.98 billion (including $150 million to $170 million in WAAM sales);
tours to increase 5% to 8%; and
VPG to increase 2% to 4%.

Corporate and Other

Corporate and Other revenues decreased $31 million during 2012 compared with 2011 resulting from the elimination of intersegment revenues primarily due to an increase in the license fee charged between the Lodging and Vacation Ownership segments for use of the Wyndham trademark.

Corporate expenses increased $20 million during 2012 compared with 2011. Corporate expenses include $5 million and $16 million of a net benefit during 2012 and 2011, respectively, related to the resolution of and adjustment to certain contingent liabilities and assets resulting from our Separation. Excluding the impact of these net benefits, corporate expenses increased $9 million due primarily to higher employee related costs.

We expect corporate expenses of approximately $115 million to $120 million during 2013.  Such expenses primarily reflect continued investment in information technology, information systems security enhancements and employee related costs.


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Table of Contents

OPERATING STATISTICS
The following table presents our operating statistics for the years ended December 31, 2011 and 2010. See Results of Operations section for a discussion as to how these operating statistics affected our business for the periods presented.
 
Year Ended December 31,
 
2011
 
2010
 
% Change
Lodging
 
 
 
 
 
Number of rooms (a)
613,100

 
612,700

 
0.1
RevPAR (b)
$
33.34

 
$
31.14

 
7.1
Vacation Exchange and Rentals

 
 
 
 
Average number of members (in 000s) (c)
3,750

 
3,753

 
(0.1)
Exchange revenue per member (d)
$
179.59

 
$
177.53

 
1.2
Vacation rental transactions (in 000s) (e) (f)
1,347

 
1,163

 
15.8
Average net price per vacation rental (f) (g)
$
530.78

 
$
425.38

 
24.8
Vacation Ownership
 
 
 
 
 
Gross VOI sales (in 000s) (h) (i)
$
1,595,000

 
$
1,464,000

 
8.9
Tours (j)
685,000

 
634,000

 
8.0
VPG (k)
$
2,229

 
$
2,183

 
2.1
 
(a) 
Represents the number of rooms at lodging properties at the end of the period which are either (i) under franchise and/or management agreements and (ii) for the year ended December 31, 2010, properties managed under a joint venture. The amount in 2010 includes 200 affiliated rooms.
(b) 
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 lodging room for one day. Includes the impact from the acquisition of the Tryp hotel brand, which was acquired on June 30, 2010; therefore, such operating statistics for 2011 are not presented on a comparable basis to the 2010 operating statistics.
(c) 
Represents members in our vacation exchange programs who pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related services and products.
(d) 
Represents total revenue generated from fees associated with memberships, exchange transactions, member-related rentals and other servicing for the year divided by the average number of vacation exchange members during the year.
(e) 
Represents the number of transactions that are generated in connection with customers booking their vacation rental stays through us. One rental transaction is recorded for each standard one-week rental.
(f) 
Includes the impact from the acquisitions of Hoseasons (March 1, 2010), ResortQuest (September 30, 2010), James Villa Holidays (November 30, 2010) and two tuck-in acquisitions (third quarter 2011); therefore, such operating statistics for 2011 are not presented on a comparable basis to the 2010 operating statistics.
(g) 
Represents the net rental price generated from renting vacation properties to customers and other related rental servicing fees divided by the number of vacation rental transactions. Excluding the impact of foreign exchange movements, the average net price per vacation rental increased 20%.
(h) 
Represents total sales of VOIs, including sales under the WAAM, before the net effect of POC accounting and loan loss provisions. We believe that Gross VOI sales provides 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 year ended December 31 (in millions):
 
2011
 
2010
Gross VOI sales
$
1,595

 
$
1,464

Less: WAAM sales (1)
(106
)
 
(51
)
Gross VOI sales, net of WAAM sales
1,489

 
1,413

Less: Loan loss provision
(339
)
 
(340
)
Vacation ownership interest sales (2)
$
1,150

 
$
1,072

 
(1) 
Represents total sales of third party VOIs through our fee-for-service vacation ownership 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.
(2) 
Amounts may not foot due to rounding.
(j) 
Represents the number of tours taken by guests in our efforts to sell VOIs.
(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 $68 million and $80 million during 2011 and 2010, respectively. We have excluded non-tour upgrade sales in the calculation of VPG because non-tour upgrade sales 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’ tour selling efforts during a given reporting period.


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Year Ended December 31, 2011 vs. Year Ended December 31, 2010
Our consolidated results comprised the following:
 
Year Ended December 31,
 
2011
 
2010
 
Favorable/(Unfavorable)
Net revenues
$
4,254

 
$
3,851

 
$
403

Expenses
3,487