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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, 2013
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, 2013, was $7,609,310,586. 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, 2014, the registrant had outstanding 128,142,277 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 2014 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.
Item 4.
 
PART II
 
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.
 



Table of Contents

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, Ramada, Days Inn, Super 8, Howard Johnson, Wingate by Wyndham, Microtel Inns & Suites, Tryp by Wyndham, 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 63% 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") Fee-for-Service. The remainder of our revenue comes primarily from proceeds received from the sale of vacation ownership interests ("VOIs") 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 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 affiliated vacation ownership resorts 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 capital efficient 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 employees 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 2013, we derived 75% of our revenues in the U.S. and 25% internationally (approximately $787 million (16%) in Europe and $482 million (9%) 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 40 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 1944, 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-three 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 Inn and Suites
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 approximately 149,000 hotels with combined annual revenues of approximately $412 billion, representing nearly 14 million rooms of which approximately 53% 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/Canada
 
59,000

 
5.3

 
$
135

 
68
%
Europe
 
58,000

 
4.4

 
143

 
40
%
Asia Pacific
 
25,000

 
3.3

 
100

 
46
%
Latin America/Middle East
 
7,000

 
0.9

 
34

 
45
%

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, 2013, we had 7,425 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. In many cases, the hotel operates under one of the management company's brands. As of December 31, 2013, we had 58 managed properties in our hotel portfolio all of which were operating under one of our brands.

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, 2013, 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 region 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 2014 (estimate):

Year
 
Occupancy
 
ADR
 
RevPAR*
2008
 
59.8%
 
$
107.43

 
$
64.26

2009
 
54.6%
 
98.19

 
53.57

2010
 
57.5%
 
98.23

 
56.48

2011
 
59.9%
 
101.96

 
61.07

2012
 
61.3%
 
106.24

 
65.15

2013
 
62.3%
 
110.33

 
68.69

2014 Estimate
 
63.2%
 
115.31

 
72.82


* RevPAR may not recalculate by multiplying occupancy by ADR due to rounding.
Sources: Smith Travel Research Global (“STR”) (2008 to 2013); PricewaterhouseCoopers (“PwC”) (2014). 2014 estimated data is as of January 2014.

The U.S. lodging industry experienced positive RevPAR performance over the prior year primarily resulting from demand growth and gains in ADR. The travel industry continues to recover and grow, showing strength as U.S. occupancy grew by 1.5% to 62.3% in 2013, a level that has not been achieved since 2007. This growth was driven by hotel properties in higher priced chain scale segments where occupancy levels have recovered more quickly. ADR continued to increase but has yet to fully recover to peak levels achieved prior to the recession. During 2013, ADR grew 3.9% to $110.33. As a result of the occupancy and ADR gains, the U.S. lodging industry experienced RevPAR growth of 5.4% in 2013.

According to PwC's most recent outlook on the Hospitality and Leisure Industry, it is expected that growth in U.S hotel demand, as measured by room night consumption, is again expected to exceed growth in supply in 2014. Occupancy and ADR gains are expected to be experienced across all segments resulting in an overall RevPAR increase of 6.0%. Beyond 2014, certain industry experts project RevPAR in the U.S. to grow at a 3.7% compounded annual growth rate (“CAGR”) over the next three years (2015 - 2017).

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 $190 for hotels in this category.


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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 transportation (shuttle service to airport and/or local attractions). ADR normally falls in the range of $130 and $190 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 $105 and $130 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 $105 for hotels in this category.

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 for hotels in this category.

Economy - typically offers basic amenities and a limited breakfast. ADR is normally less than $60 for hotels in this category.

Wyndham Hotel Group Overview

Our lodging business, Wyndham Hotel Group, is the world's largest hotel company based on number of properties. Approximately 78% 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 and other forms of financial support 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.

Our owned hotel portfolio currently consists of the Wyndham Grand Rio Mar Beach Resort and Spa in Puerto Rico ("Rio Mar hotel") and the Wyndham Grand Orlando Bonnet Creek ("Bonnet Creek hotel"). Both hotels represent mixed-use opportunities whereby we generate cross product brand loyalty through exposing our repeat hotel guests to the vacation ownership product.


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Wyndham Hotel Group is comprised of over 7,480 hotels representing over 645,000 rooms on six continents. The following table provides operating statistics for each brand in our system as of and for the year ended December 31, 2013. Occupancy, ADR and RevPAR is derived from information provided to us by our franchisees:
 
 
Global
 
 
 
 
 
Average
 
 
 
 
 
 
Segment
 
# of
 
# of
 
Occupancy
 
 
 
 
Brand
 
Served (1)
 
Properties
 
Rooms
 
Rate
 
ADR
 
RevPAR *
Super 8
 
Economy
 
2,391

 
152,648

 
56.3
%
 
$
52.33

 
$
29.45

Days Inn
 
Economy
 
1,817

 
146,959

 
48.8
%
 
64.34

 
31.42

Ramada
 
Midscale
 
834

 
115,394

 
53.0
%
 
80.19

 
42.50

Howard Johnson
 
Economy
 
449

 
46,777

 
47.7
%
 
62.06

 
29.58

Wyndham Hotels and Resorts
 
Upscale
 
170

 
37,569

 
58.6
%
 
117.27

 
68.74

Travelodge
 
Economy
 
432

 
32,012

 
49.5
%
 
67.10

 
33.23

Baymont Inn & Suites
 
Midscale
 
329

 
27,108

 
51.3
%
 
63.14

 
32.40

Knights Inn
 
Economy
 
380

 
23,325

 
42.0
%
 
45.04

 
18.92

Microtel Inn and Suites by Wyndham
 
Economy
 
312

 
22,304

 
57.6
%
 
64.42

 
37.10

Tryp by Wyndham
 
Upper Midscale
 
113

 
16,216

 
60.5
%
 
96.09

 
58.16

Wingate by Wyndham
 
Midscale
 
159

 
14,559

 
60.9
%
 
85.11

 
51.82

Hawthorn Suites by Wyndham
 
Midscale
 
91

 
8,933

 
62.6
%
 
71.46

 
44.71

Dream
 
Upper Upscale
 
5

 
989

 
71.8
%
 
229.77

 
164.88

Night
 
Upper Midscale
 
3

 
630

 
62.4
%
 
152.65

 
95.18

Total
 
 
 
7,485

 
645,423

 
52.7
%
 
68.27

 
36.00

 
 
*
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 2013. 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.

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

As of December 31,
 
2013
 
2012
 
2011
 
Properties
 
Rooms
 
Properties
 
Rooms
 
Properties
 
Rooms
Economy (a)
5,646

 
401,665

 
5,578

 
398,304

 
5,536

 
394,087

Midscale (b)
1,187

 
124,688

 
1,208

 
125,900

 
1,152

 
121,372

Upper Midscale (c)
543

 
89,576

 
469

 
79,274

 
435

 
74,404

Upscale (d)
104

 
28,505

 
82

 
22,969

 
76

 
22,201

Upper Upscale (e)
5

 
989

 
5

 
990

 
6

 
1,062

Total
7,485

 
645,423

 
7,342

 
627,437

 
7,205

 
613,126

 
(a) 
Comprised of the Days Inn, Super 8, Howard Johnson Inn, Howard Johnson Express, Travelodge, Microtel Inn & Suites by Wyndham and Knights Inn brands.
(b) 
Primarily includes the Wingate by Wyndham, Hawthorn Suites by Wyndham, Ramada Inn, Ramada Limited, Howard Johnson Plaza, Howard Johnson Hotel and Baymont Inn & Suites brands.
(c) 
Primarily includes the Ramada Hotels, Ramada Plaza, Tryp by Wyndham and Wyndham Garden Hotel brands.
(d) 
Comprised of the Wyndham Hotels and Resorts brand.
(e) 
Comprised of the Dream lodging brand for 2013 and 2012 and the Dream and Night brands in 2011.


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The number of lodging properties and rooms changed as follows:
 

As of December 31,
 
2013
 
2012
 
2011
 
Properties
 
Rooms
 
Properties
 
Rooms
 
Properties
 
Rooms
Beginning balance
7,342

 
627,437

 
7,205

 
613,126

 
7,207

 
612,735

Additions
633

 
65,933

 
688

 
66,050

 
541

 
54,706

Terminations
(490
)
 
(47,947
)
 
(551
)
 
(51,739
)
 
(543
)
 
(54,315
)
Ending balance
7,485

 
645,423

 
7,342

 
627,437

 
7,205

 
613,126


The following table depicts our geographic distribution and key operating metrics by region:
 
 
# of
 
# of
 
 
 
 
 
 
Region
 
  Properties
 
Rooms (1)   
 
Occupancy
 
ADR
 
RevPAR*
United States
 
5,699

 
444,544

 
50.8
%
 
$
67.64

 
$
34.38

Canada
 
497

 
39,356

 
55.2
%
 
97.00

 
53.55

Europe/Middle East/Africa
 
393

 
52,931

 
60.6
%
 
84.40

 
51.14

Asia/Pacific
 
777

 
93,963

 
57.3
%
 
46.45

 
26.63

Latin/South America
 
119

 
14,629

 
52.4
%
 
88.91

 
46.60

Total
 
7,485

 
645,423

 
52.7
%
 
68.27

 
36.00

 
 
*
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.

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 gross revenues from hotel 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) on-site spas, casinos, golf and shop revenues. We are responsible for all operations and recognize all revenues and expenses associated with the 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 member stay. These loyalty fees are intended to reimburse us for expenses associated with administering and marketing the 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 general recognition of the brand name.

Another significant 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 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. Over half of our reservation delivery comes from online sources, including our proprietary and mobile websites.

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 48 million room nights in 2013, which represents 39% of total bookings at these hotels, up 8% from last year.

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. This strategy also encompasses 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 reservation 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 70 countries around the world. As of December 31, 2013, there were over 32.2 million members enrolled in the program of which approximately 8.6 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 opportunities to earn and redeem points. Members accumulate points by staying in one of our participating branded hotels 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. Building a robust loyalty program is critical to delivering our value proposition to our hotel owners. As such, we have embarked on a multi-year plan to enhance our loyalty program.


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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. In 2014 we will be launching our umbrella marketing strategy which will feature our brands collectively on television and in other forms of media. 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 and leisure travelers with our selection of over 7,480 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 subscription services to help maximize the revenues of our hotel owners by improving rate and inventory management capabilities and strategies to garner market share. In addition we have revenue management professionals deployed in key markets globally. 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 higher 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.

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

New Development

Our development team consists of nearly 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 32% of the new rooms added in 2013 were with existing franchisees or managed hotel owners.

In addition, our development team is focused on 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 into one offering which we believe gives us a competitive advantage. Over the past 2 years, through a focus on portfolio deals, we were able to grow our managed portfolio from 26 hotels as of December 31, 2011 to 58 hotels as of December 31, 2013.

As of December 31, 2013, we had approximately 970 hotels and 114,000 rooms in our development pipeline, of which 58% were international and 68% were new construction.


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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 since 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 end date 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 is situated in our Bonnet Creek vacation ownership resort near the Walt Disney World resort in Florida, enables us to leverage the synergies of our company's hotel and vacation ownership elements. The Rio Mar hotel which is located in Rio Grande, Puerto Rico, is a luxury oceanfront property that includes premier restaurants, a spa, casino, golf course, and comprehensive business center. We also hold land at this location for future vacation ownership development. As such, these two hotels provide us with mixed-use opportunities whereby we can generate cross product brand loyalty by exposing our 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, 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.

Strategies

Wyndham Hotel Group is strategically focused on leveraging the strength of our company to deliver enhanced value proposition to our franchisees and owners.

We expect to deploy the following tactics in pursuit of these goals:

grow our iconic brands globally;

deliver value-added operational support that improves hotel performance;

expand and enhance the Wyndham Rewards program;

align connectivity, systems and support to increase contribution for our franchisees;

increase marketing effectiveness and scale to drive revenue; and

continue to deploy our exceptional "Count on Me!” service culture into every aspect of our business.


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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.

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 8% 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 2012, 30% of global timeshare owners (or 6.0 million) were members of vacation exchange companies and completed approximately 2.9 million exchanges.

Within the broader long-term growth view 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 $80 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 little 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 amount 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.


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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, 2013, there were approximately 1.3 million and 4.2 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, campgrounds 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 76 million vacation weeks, 57 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.

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 affiliated vacation ownership resorts 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 the less than 10% of properties which we 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 107,000 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 thirteen primary consumer brands and other related brands and have over 190 offices worldwide.

As the largest provider of vacation exchange and professionally managed vacation rentals, Wyndham Exchange & Rentals leverages the breadth of its worldwide inventory across its brands and business lines to maximize value for affiliates, exchange members, vacation rental property owners and guests. Wyndham Exchange & Rentals also leverages its scale and global marketing expertise to enhance demand generation and drive occupancy across its exchange and rental portfolio. A prime example of this capability is the Wyndham Home Exchange program, which provides vacation rental property owners with the ability to deposit up to five weeks per property annually in exchange for intervals from within RCI’s portfolio of affiliated vacation ownership resorts. This provides outstanding value to the vacation rental property owner, while also allowing exchange members the opportunity to access a wider variety of quality vacation properties in addition to traditional vacation ownership resort units. This capability is not matched in the vacation exchange or vacation rental industries.

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Wyndham Exchange & Rentals also provides industry-leading technology and revenue management expertise to optimize the performance of its exchange and vacation rental inventory through automated tools and sophisticated yield management techniques. Over the past several years, Wyndham Exchange & Rentals has implemented these new tools and techniques to optimize pricing and occupancy in its vacation rental businesses, adopting best practices developed from years of investment and experience at RCI. These tools allow for automated price changes based on assessment of demand and competitive factors. We will continue to expand revenue management capabilities across our brands in the coming years.
Vacation Exchange

Through our vacation exchange business, RCI, we have relationships with almost 4,500 vacation ownership resorts in over 100 countries. We have 3.7 million vacation exchange members and generally retain nearly 90% of such 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.

Over the last five years, RCI has developed new services and products and made significant enhancements to existing services and products. During 2010, we introduced trading power transparency for RCI Weeks members, whereby they deposit their vacation intervals with RCI and obtain trading power that they can then use to exchange for another interval within the RCI Weeks exchange program. In addition, as a result of trading power transparency, members can now combine deposited timeshare intervals for an additional fee, which enable them to exchange into higher-demanded vacations that they might not otherwise be able to exchange into, and receive a deposit credit if the value of their deposited and exchanged interval is greater than the interval into which they have exchanged. For an additional fee, we also offer trading power protection to RCI Weeks members if they need to change or cancel an exchange transaction. With such protection, the member’s deposited trading power is restored to the member’s account without reducing the original deposited trading power used to book their exchange transaction. During 2011, RCI also launched the RCI Weeks Platinum membership, a premium level of membership that offers exclusive exchange and lifestyle benefits to subscribing members.

The RCI Points exchange program 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 obtains 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. For an additional fee, we also offer points protection to RCI Points members if they need to change or cancel an exchange transaction. With such protection, the member’s deposited points are restored to the member’s account without reducing the original deposited points used to book their exchange transaction. 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.


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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 1.5 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 103,000 properties with approximately 94,000 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:

Wyndham Vacation Rentals U.K. (formerly named The Hoseasons Group) operates a number of well-recognized and established brands within the vacation rental market with almost 70 years of industry experience, including Hoseasons, cottages4you, James Villa Holidays and Canvas Holidays, and offers access to approximately 47,000 properties across the U.K. and Europe.

Novasol is one of continental Europe's largest rental companies with 45 years of industry experience, featuring properties in more than 25 European countries including holiday homes in Denmark, Norway, Sweden, France, Italy and Croatia, with approximately 35,000 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 and almost 60 years of industry experience. Every year more than 2 million guests visit Landal's parks, many of which offer dining, shopping and wellness facilities.

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 Florida, South Carolina, Colorado, Delaware, Alabama, Tennessee and Utah. 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 United States. 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 over 100 countries.

Our vacation rentals business currently has relationships with approximately 61,000 independent property owners in 33 countries, including the United Kingdom, Denmark, the United States, Netherlands, Croatia, France, Italy, Sweden, Norway, Germany, Spain, Austria, Belgium, Ireland, Greece, Portugal and certain countries in Eastern Europe. Property owners typically enter into annual contracts with our vacation rentals subsidiaries to market and professionally manage 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 6% 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 five years. Our members are acquired primarily through our affiliated developers as part of the vacation ownership purchase process. We also acquire a small percentage of our members directly online from the secondary vacation ownership market.

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-

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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 co-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 RCI.com initiative, referred to as “Program Interaction”, which began in 2008, we launched enhanced vacation search, filtering and recommendation 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 includes 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 intervals is greater than the intervals that they have received by exchange. We have also enhanced our ability to merchandise offers through web only channels and have launched mobile technologies such as applications for smartphones and tablets to access 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.

In 2012, we also initiated a social media listening service to monitor brand conversations and online reviews on behalf of our affiliates, helping to spread positive brand mentions while addressing any customer service issues that arise. Detailed customized listening reports are provided by dedicated analysts on a monthly basis to help affiliates who sign up for the service, understand and leverage their brand’s online feedback. We currently have social listening centers that monitor in English, Spanish and Portuguese. Nearly 400 affiliated resorts around the world are currently benefiting from this service.

In 2013, we continued to enhance RCI.com and deliver solutions to streamline processes for our members and affiliates. We expanded our efforts to simplify and bring efficiency to the vacation exchange experience by automating club member enrollment processes and launching technology to allow the growing Brazilian market to operate more efficiently with us by providing new language and currency capabilities. We also launched the RCI Affiliates app for the iPad delivering interactive and engaging content that can be used on the vacation ownership sales floor to give potential owners a better understanding of the additional benefits offered by vacation ownership. The app provides affiliates with easier access to useful product summaries and tutorials, sales materials, interactive videos, RCI TV and the RCI Directory of Affiliated Resorts.

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. Our RCI.com initiatives have increased our web penetration to 48% by the end of 2013 from 13% in 2008 when we launched this initiative. Additionally, during the past two years, we were able to consolidate almost 50 of our separate North American vacation rental websites into a single upgraded Wyndham Vacation Rentals website and platform. As a result of enhancements made over the last several years, we have improved our web penetration for our vacation rentals business to 62% by the end of 2013.

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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 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 that include direct mail and telemarketing.

Strategies

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

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 to drive value for our members, vacation rental guests, affiliates and property owners;

Leverage our expertise in analytics and technology to drive higher yields in both exchange and rental product lines through automated tools and reporting;

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

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.

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 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. Almost 60% of our European vacation rental customers book their reservations within 11 weeks of departure dates and over 75% book within 20 weeks of departure dates. More than 60% of our North American vacation rental customers book their reservations within 7 weeks of departure dates and over 75% book 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

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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.

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 variability 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 2013 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 $6.9 billion in 2012, compared to $6.5 billion in 2011.

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 median 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.


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Wyndham Vacation Ownership Overview

Wyndham Vacation Ownership, our vacation ownership business, develops and acquires vacation ownership resorts, markets and sells 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, 2013, we have developed or acquired 191 vacation ownership resorts in the U.S., Canada, Mexico, the Caribbean and the South Pacific that represent approximately 23,500 individual vacation ownership units and approximately 907,000 owners of VOIs.

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. During 2013, Wyndham Vacation Ownership completed the integration of our recently acquired Shell Vacations Club within the Wyndham Vacation Ownership's portfolio of brands.

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, 2013, approximately 527,000 owners held interests in Club Wyndham resort properties which are located primarily in the U.S. and consisted of 89 resorts (11 of which are shared with WorldMark by Wyndham) that represented approximately 13,800 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 30-40% 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' 89 resort properties, 81% have been awarded designations of an RCI Gold Crown Resort winner or an RCI Silver Crown Resort winner.


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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. Club Wyndham Plus provides participants with flexibility as to resort location, length of stay, unit type and time of year, depending on the number of points to which they are entitled and the number of points required to take the vacation 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 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, 2013, approximately 283,000 owners held vacation credits in the Clubs.

The Clubs 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 101 resorts (11 of which are shared with Club Wyndham Resorts) representing approximately 7,400 units as of December 31, 2013 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 101 resorts, 71% have been awarded designations of an RCI Gold Crown Resort winner or an RCI Silver Crown Resort winner.


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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 approximately 2,200 units as of December 31, 2013, 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 an 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, 2013, approximately 97,000 owners held vacation points in the Shell Vacations Club.

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%, 70%, and 68% of our net sales of VOIs during 2013, 2012 and 2011, 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 the market for VOI sales is under-penetrated and estimate there are 53 million U.S. households which we consider as potential purchasers of VOIs. We added approximately 29,000, 28,000 and 27,000 new owners during 2013, 2012 and 2011, 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.

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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. This arrangement 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.

Other marketing alliances provide us with the opportunity to align our marketing and sales programs with well-known lifestyle brands that appeal to consumers with similar demographics to our current purchasers. One such example is a newly announced alliance with Margaritaville, a lifestyle brand popularized by musician/entertainer Jimmy Buffett, where we intend to proactively market patrons of various Margaritaville product lines via multiple channels, including on-site marketing at Margaritaville restaurants, affiliated venues and events, as well as co-branded vacation ownership offerings.

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.

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 process 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 2013, 2012 and 2011 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 2013, we generated new receivables of approximately $1.1 billion on gross vacation ownership sales, net of WAAM Fee-for-Service sales, of $1.7 billion, which amounts to 65% of our vacation ownership sales being financed. This level of financing 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.


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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 2013, our average down payment was approximately 27% for financed sales of VOIs. These loans are structured so that we receive equal monthly installments that fully amortize the principal by the final due date.

Similar to other companies that provide consumer financing, we historically securitized 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, 2013, our loan portfolio was 96% current (i.e., not more than 30 days past due).

Property Management

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 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.

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.

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. 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 thereafter provided the trustee under the program does not serve notice of termination to WorldMark by Wyndham prior to expiration of the then current term.

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. 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.

WAAM

In 2010, we introduced the WAAM Fee-for Service (formerly known as WAAM 1.0) timeshare sales model which was designed to capitalize upon the large quantities of newly developed, nearly completed or recently finished condominium or hotel inventory in the 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 Fee-for-Service enables us to

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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.

In addition to the WAAM Fee-for-Service business model, in 2012, we introduced WAAM Just-in-Time (formerly known as WAAM 2.0), which is an inventory acquisition model. 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. 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, 2013, we had approximately 32,800 employees, including approximately 8,300 employees outside of the U.S. As of December 31, 2013, our lodging business had approximately 6,300 employees, our vacation exchange and rentals business had approximately 9,300 employees, our vacation ownership business had approximately 16,500 employees and our corporate group had approximately 700 employees. Approximately 3% 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 adverse 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.

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 and related transactions, the number of rental weeks sold by and the number of units in our vacation rentals businesses and the number of tours and new owners generated and vacation ownership interests sold by our vacation ownership business.

Acquisitions and other strategic transactions may not prove successful and could result in operating difficulties and failure to realize anticipated benefits.
We regularly consider a wide array of acquisitions and other potential strategic transactions, including acquisitions of businesses, property acquisitions, joint ventures, business combinations, strategic investments and dispositions. Any of these transactions could be material to our business. We often compete for these opportunities with third parties, which may cause us to lose potential opportunities or to pay more than we might otherwise have paid absent such competition. We cannot assure you that we will be able to identify and consummate strategic transactions and opportunities on favorable terms or that any such strategic transactions or opportunities, if consummated, will be successful. Acquisitions and other strategic transactions involve significant risk and the process of integrating and assimilating any strategic transaction may create unforeseen operating difficulties and costs and we may not realize the anticipated benefits of any of these strategic transactions or opportunities. Pursuing and consummating strategic transactions and opportunities may require us to obtain significant additional debt or equity financing, spend existing cash or incur liabilities and other expenses including amortization of acquired intangible assets or write-offs of goodwill. Strategic transactions may be entered into by Wyndham Worldwide Corporation or by one or more of its subsidiaries. With respect to those transactions entered into by a subsidiary, Wyndham Worldwide may from time to time provide a performance guaranty of the subsidiary’s obligations and may expose us to litigation risks in the event of a dispute between transaction parties.

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.


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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, pandemics or threats of pandemics, 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 and geographical strife; acts of God such as earthquakes, hurricanes, fires, floods, volcanoes and other natural disasters; war; concerns with or threats of pandemics or contagious diseases or health epidemics 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 such as minimum wage increases and unionization, workers' compensation and health-care related costs and insurance;
increases in travel costs including air travel would likely impact consumer preferences with respect to certain of our vacation and resort destinations and vacation ownership preferences and, if such conditions were to be sustained, the desirability of our vacation, resort and hotel products and offerings could be adversely impacted;
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;
evolving changes in consumer travel and vacation patterns and consumer preferences;
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;
the quality of the services provided by franchisees, affiliated resorts in our vacation exchange business, properties in our vacation rentals business 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 or excess capacity in one or more segments of the hospitality industry or in one or more geographic regions;
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 exchanged through our vacation exchange business and/or owners of vacation properties that our vacation rentals business markets for rental;
our ability to adjust our business model to generate greater cash flow and require less capital expenditures;
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;
our insurance coverage may not be adequate to cover catastrophic or other losses to our properties or other assets;
our failure to keep pace with technological developments could impair our competitive position;
increases in the use of third-party and competitor internet services to book hotel reservations and market vacation rental properties;
disruptions in relationships with third parties including marketing alliances and affiliations with e-commerce channels;
changes in the number and occupancy and room rates of hotels operating under franchise and management agreements;
revenues from our lodging business are indirectly affected by our franchisees' pricing decisions;
franchisees that have development advance notes with us may experience financial difficulties;
consolidation of developers could adversely affect our vacation exchange business;
significant decrease in the supply of available vacation rental accommodations due to ongoing property renovations could adversely affect our vacation rental business;
our continued management of homeowners associations depends on their ability to collect sufficient maintenance fees;
our ability to securitize the receivables that we originate in connection with sales of vacation ownership interests;
the sale of vacation ownership interests in the secondary market could negatively impact our sales;

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unlawful or deceptive third-party vacation ownership interest resale schemes could damage our reputation and brand value;
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; our ability to adjust our pace of completion of resort development relative to the pace of our sales of the underlying vacation ownership interests; and risks related to real estate project development costs and completion; and
private resale of vacation ownership interests could adversely affect our vacation ownership resorts and vacation exchange businesses.

Third-party Internet reservation systems may adversely impact us.
Consumers increasingly use third-party Internet travel intermediaries to search for and book their hotel, resort and other travel accommodations. As the use of these third-party Internet reservation channels increases, consumers may rely upon these third-party Internet systems to the detriment of the reservations systems provided by our own lodging and rental brands, which may impact consumer preferences for lodging choices outside of our own brands and adversely impact our bookings and rates.

The continued success of our hotel business relies upon continued growth in the number of hotel properties under our brands.
We have been historically successfully in growing the number of our brands and franchised hotels in our hotel business and our revenues and profitability in our hotel segment relies upon our achieving continued growth objectives for franchised hotels in this segment. We are subject to many challenges in growing and sustaining our growth in the number of our franchised hotels including maintaining the quality of our service, operational support and reservation systems to support our franchisees, our ability to compete with other hotel owners for existing and future hotel franchisees, our ability to continue and enhance consumer acceptance of our brands and the quality of our managers and entire organization in supporting our hotel business. We also are subject to the risk of entering into franchise relationships with owners and operators who do not achieve or maintain the quality standards we set, which if not appropriately and timely addressed could adversely impact our brand image and our ability to attract quality franchisee operators.

Our hotel business depends in part on our management arrangements with third parties.
Our hotel business is a party to management arrangements with certain of our hotel owners and franchisees, under which we typically are required to satisfy certain financial and performance criteria and standards. Our ability to satisfy these financial and other performance criteria is subject to many of the risks common to the hotel industry as described in this report including factors and circumstances outside of our control such as economic conditions and consumer travel and lodging preferences, as well as risks within our control such as the efforts and quality of our managers overseeing these management arrangements and our operating performance generally. Should any significant number of these arrangements be terminated by reason of our failure to satisfy financial or performance criteria, it may have an adverse impact on our operating performance and profitability. Wyndham Worldwide may provide a parent guaranty of our subsidiaries’ performance under the guaranty and expose us to litigation risks in the event of a dispute. We cannot assure you that all of our current and future management arrangements will continue or that we will be able to enter into new management arrangements in the future on favorable terms.

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; political instability; threats or acts of terrorism; 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; conflicts between local laws and U.S. laws including laws that impact our rights to protect our intellectual property; withholding and other taxes on remittances and other payments by subsidiaries; and changes in and application of foreign

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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.

We are subject to certain risks related to our indebtedness, hedging transactions, securitization of certain of our assets, 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, commercial paper programs 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 hotel 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, securitization of certain of our assets, 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 or other debt, 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 and prevent us from obtaining additional financing;
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 and other 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 or such higher interest rates could reduce the desirability or demand of our customers for acquiring or financing our vacation ownership interests.

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 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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Our access to credit and capital also depends in large measure on market liquidity factors, which we do not control. Our ability to access the credit and capital markets may be restricted at times when we require or would like access to those credit and capital markets, which could impact our business plans and operating model. Uncertainty or volatility in the equity and credit markets may also 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 or repay 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. 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.

If for any reason our sources of liquidity, including our securitization programs, were to decrease such that we were required to reduce or suspend our financing for any significant number of purchases of our vacation ownership contracts, our sales of vacation ownership interests would likely decrease, which would adversely impact our revenues, cash flows and profitability.

An increase in interest rates would increase our financing costs and could adversely impact the demand for our vacation ownership interests.
Rising interest rates would increase the interest rates we pay in connection with our indebtedness, which would reduce our profitability and our cash flow available for other corporate purposes. While we may enter into interest rate hedging arrangements to reduce the impact of increased interest rates, the cost of such hedging arrangements can be significant. In addition, if the cost of consumer financing to our customers and prospective customers for our vacation ownership interests were to rise, the demand for these products may decline, which could adversely impact our revenues and profitability.

We are subject to risks related to litigation.
We are subject to a number of legal actions and the risk of future litigation as described in this report. 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.

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 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, consumer financing and other lending, information security and data privacy, marketing and sales, unfair and deceptive trade practices, telemarketing including “do not call” legislation, data protection, licensing, labor, employment, health care, health and safety, accessibility, immigration, gaming, environmental including climate change, securities, stock exchange listing, accounting, tax and regulations applicable under the Dodd-Frank Act, 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, injunctions and potential criminal prosecution. In addition, increases in the cost and administrative burden of compliance with such laws and regulations would impact our business operations and would adversely impact our operating performance including our profitability.

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We have substantial business operations outside the U.S. and we are subject to compliance with significant laws and regulations governing fraud, bribery and other anti-corruption laws.
Legislation such as the Foreign Corrupt Practices Act, The United Kingdom Bribery Act and other similar fraud, bribery and anti-corruption laws prohibit companies and their intermediaries from making improper payments to public and/or private officials for the purposes of obtaining or retaining business. We have policies and processes in place for the purpose of monitoring compliance with these laws. We provide training to our employees as part of our compliance programs in order to protect against noncompliance or violations of these laws. However, there can be no assurance that our policies, processes, and training will always protect us against any noncompliance with these laws and regulations. Should we violate or not comply with any of these fraud, bribery or other anti-corruption laws or regulations, either intentionally or unintentionally, or through the acts of intermediaries, we could incur significant civil and criminal penalties, which could have a material adverse effect on our business, brands, financial condition and results of operations.

We are subject to extensive federal, state and local environmental laws and regulations.
Our operations, as well as the operations of our hotel and other property owners, are subject to a significant array of environmental laws and regulations, including those relating to discharges into water, emissions to air, releases of hazardous and toxic substances and remediation of contaminated sites. Pursuant to such laws and regulations we could be liable for the cost of cleaning up or removing hazardous substances at or in connection with our currently or formerly owned or operated properties, often whether or not the owner or operator knew of or was responsible for the presence, discharge or transfer of such hazardous or toxic substances. The cost of investigation, remediation and other requirements for the clean-up, treatment or remediation of contaminated sites could be substantial. Further, contamination on or from any of our currently or formerly owned or operated properties could subject us to liability to third parties or governmental authorities for remediation costs and injuries to persons, property or natural resources. Although we do not typically arrange for the treatment or disposal of large quantities of hazardous or toxic substances, we could also be held liable for the clean-up of third-party disposal sites where we have arranged for the disposal of our wastes.

Our ability to successfully market our services and products may be adversely impacted by the continued changes to an increase in privacy laws and regulations.
Our operating model relies on a broad array of marketing programs to our customers and prospective customers, including telemarketing, emails, social media and other marketing techniques and programs. These marketing programs are subject to extensive laws and regulations in the U.S. and international markets regulating consumer marketing and solicitation as well as data protection. While we continue to monitor all such laws and regulations, the cost of compliance impacts our operating costs. In addition, these laws require us to regularly adjust our marketing programs and techniques, and compliance with all of these laws and regulations may impact and restrict the success of our marketing programs, which could lead to less frequent or less impactful marketing to our customers and our prospective customers.

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 our 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 us and our 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 matter was transferred to the Federal District Court for the District of New Jersey. We dispute the allegations in the lawsuit and are defending this lawsuit vigorously. We do not believe that the data breach incidents were or expect that the outcome of the FTC litigation will be material to us.

In connection with our business, we and our service providers collect and retain large volumes of certain types of personal and proprietary 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 operating on a global basis. Our information technology infrastructure and information systems may also be vulnerable to system failures, computer hacking, cyber-terrorism, computer viruses, and other intentional or unintentional interference, negligence, fraud, misuse and other unauthorized attempts to access or interfere with these systems and our personal and proprietary information. The increased scope and complexity of our information technology infrastructure and systems could contribute to the potential risk of security breaches or breakdown. While we maintain what we believe are reasonable security controls over proprietary information as well as the personal information of our customers, stockholders and

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employees any breach of or breakdown in our systems that results in the unauthorized release of proprietary or personal information could nevertheless occur and have a material adverse effect on our brands, reputation, business, financial condition and results of operations, as well as subject us to significant regulatory actions and fines, litigation, loss, third-party damages and other liabilities. Such a breach or a breakdown could also materially increase our costs to protect such information and to protect against such risks. A failure on our part to comply with information security, privacy and other similar laws and regulations with respect to the protection and privacy of personal or proprietary information could subject us to significant fines and other regulatory sanctions.

The insurance that we carry may not at all times cover our potential liabilities, losses or replacement costs.
We carry insurance for general liability, property, business interruption and other insurable risks with respect to our business and properties. We also self-insure for certain risks for up to certain limits. The terms and conditions or the amounts of coverage of our insurance may not at all times be sufficient to pay or reimburse us for the amount of our liabilities, losses or replacement costs, and there may also be risks for which we do not obtain insurance in the full amount concerning a potential loss or liability, or at all, due to the cost or availability of such insurance. As a result, we may incur liabilities or losses in the operation of our business, which may be substantial, which are not sufficiently covered by the insurance we maintain, or at all, which could have a material adverse effect on our business, financial condition and results of operations.

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.

Disasters, disruptions and other impairment of our information technologies and systems and service facilities could adversely affect our business.

Any disaster, disruption or other impairment in our technology capabilities and service facilities 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. We also maintain physical facilities to support these systems and related services. The operation, maintenance and updating of these technologies, systems and facilities are dependent upon internal and third-party technologies, systems, services and support and subject to natural disasters and other disruptions for which there are no assurances of uninterrupted availability or adequate protection.

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.

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.


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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 have and expect will be granted over time to our Directors and employees. 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 Wyndham Worldwide 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 that stockholders do not have the right 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.

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 Wyndham Worldwide or our 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. These liabilities include those relating to certain of Cendant's terminated or divested businesses, the Travelport sale, certain Cendant-related litigation, 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.

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ITEM 2.
PROPERTIES

Our corporate headquarters is located in a leased office at 22 Sylvan Way in Parsippany, New Jersey, which lease expires in 2029. 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 2020, 2016 and 2017, respectively. In addition, our lodging business has eight leases for office space in various countries outside the U.S. with varying expiration dates ranging between 2014 and 2021. Our lodging business also has five leases for office space within the U.S. with varying expiration dates ranging between 2015 and 2018. All leases that are due to expire in 2014 are presently under review related to our ongoing requirements.

Wyndham Exchange & Rentals

Our vacation exchange and rentals business has its main corporate operations at a leased office in Parsippany, New Jersey, which lease expires in 2029. 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 2019 and 21 additional leased spaces in various countries outside the U.S. pursuant to leases that expire generally between one and three years except for three leases that expire between 2017 and 2020. Our vacation rentals business' operations are managed in twenty-three owned locations (of which 14 are located in the U.S., five are located in Denmark, three are located in the United Kingdom and one is located in Italy), five main leased locations in the U.S., United Kingdom, Denmark and Netherlands and 136 smaller leased offices throughout Europe and the U.S. The vacation exchange and rentals business also occupies space in London, England pursuant to a lease that expires in 2021. All leases that are due to expire in 2014 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 2025. 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 eight offices located in Australia that expire between 2014 and 2015, with the exception of the main corporate operations in Bundall, Australia which expires in 2021.

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.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

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, 2014, the number of stockholders of record was 6,283. 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, 2013 and 2012.
2013
 
High
 
Low
First Quarter
 
$
64.48

 
$
55.14

Second Quarter
 
65.26

 
54.85

Third Quarter
 
63.71

 
56.83

Fourth Quarter
 
73.69

 
59.36

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


Dividend Policy

During 2013 and 2012, we paid a quarterly dividend of $0.29 and $0.23, respectively, per share of Common Stock issued and outstanding on the record date for the applicable dividend. During February 2014, our Board of Directors ("Board") authorized an increase of quarterly dividends to $0.35 per share beginning with the dividend expected to be declared during the first quarter 2014. Our dividend payout ratio is now approximately 32% of the midpoint of the range of our estimated 2014 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 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, 2013:
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, 2013
895,600

$
61.73

895,600

$
727,139,822

November 1 – 30, 2013
410,000

68.55

410,000

699,034,523

December 1 – 31, 2013(*)
445,100

71.65

445,100

667,142,796

Total
1,750,700

$
65.85

1,750,700

$
667,142,796

 
 
(*)    Includes 24,100 shares purchased for which the trade date occurred during December 2013 while settlement occurred during January 2014.

On August 20, 2007, our Board authorized a stock repurchase program that enabled us to purchase our common stock. The Board has since increased the capacity of the program five times, most recently on July 23, 2013 by $750 million, bringing the total authorization under the program to $3.0 billion as of December 31, 2013.


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During the period January 1, 2014 through February 13, 2014, we repurchased an additional 0.7 million shares at an average price of $71.02 for a cost of $50 million. We currently have $617 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, 2008 to December 31, 2013. The graph assumes that $100 was invested on December 31, 2008 and all dividends and other distributions were reinvested.



Cumulative Total Return
 
12/08
 
12/09
 
12/10
 
12/11
 
12/12
 
12/13
Wyndham Worldwide Corporation
100.00

 
313.94

 
475.61

 
611.98

 
877.12

 
1,237.18

S&P 500
100.00

 
126.46

 
145.51

 
148.59

 
172.37

 
228.19

S&P Hotels, Resorts & Cruise Lines
100.00

 
155.86

 
238.89

 
192.88

 
241.45

 
311.82




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ITEM 6.    SELECTED FINANCIAL DATA
 
As of or For the Year Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
Statement of Income Data (in millions):
 
 
 
 
 
 
 
 
 
Net revenues
$
5,009

 
$
4,534

 
$
4,254

 
$
3,851

 
$
3,750

Expenses:
 
 
 
 
 
 
 
 
 
       Operating and other (a)
3,865

 
3,482

 
3,246

 
2,947

 
2,916

Asset impairments
8

 
8

 
57

 
4

 
15

Restructuring costs
10

 
7

 
6

 
9

 
47

Depreciation and amortization
216

 
185

 
178

 
173

 
178

Operating income
910

 
852

 
767

 
718

 
594

Other income, net
(6
)
 
(8
)
 
(11
)
 
(7
)
 
(6
)
Interest expense
131

 
132

 
140

 
137

 
114

Early extinguishment of debt
111

 
108

 
12

 
30

 

Interest income
(9
)
 
(8
)
 
(24
)
 
(5
)
 
(7
)
Income before income taxes
683

 
628

 
650

 
563

 
493

Provision for income taxes (b)
250

 
229

 
233

 
184

 
200

Net income
433

 
399

 
417

 
379

 
293

Net (income)/loss attributable to noncontrolling interest
(1
)
 
1

 

 

 

Net income attributable to Wyndham shareholders
$
432

 
$
400

 
$
417

 
$
379

 
$
293

Per Share Data
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Net income
$
3.25

 
$
2.80

 
$
2.57

 
$
2.13

 
$
1.64

Weighted average shares outstanding
133

 
143

 
162

 
178

 
179

Diluted
 
 
 
 
 
 
 
 
 
Net income
$
3.21

 
$
2.75

 
$
2.51

 
$
2.05

 
$
1.61

Weighted average shares outstanding
135

 
145

 
166

 
185

 
182

Dividends
 
 
 
 
 
 
 
 
 
Cash dividends declared per share
$
1.16

 
$
0.92

 
$
0.60

 
$
0.48

 
$
0.16

Balance Sheet Data (in millions):
 
 
 
 
 
 
 
 
 
Securitized assets (c)
$
2,314

 
$
2,543

 
$
2,638

 
$
2,865

 
$
2,755

Total assets
9,741

 
9,463

 
9,023

 
9,416

 
9,352

Securitized debt (d)
1,910

 
1,960

 
1,862

 
1,650

 
1,507

Long-term debt
2,931

 
2,602

 
2,153

 
2,094

 
2,015

Total equity
1,625

 
1,931

 
2,232

 
2,917

 
2,688

Operating Statistics: (e) (f)
 
 
 
 
 
 
 
 
 
Lodging
 
 
 
 
 
 
 
 
 
Number of rooms (g)
645,400

 
627,400

 
613,100

 
612,700

 
597,700

RevPAR
$
36.00

 
$
34.80

 
$
33.34

 
$
31.14

 
$
30.34

Vacation Exchange and Rentals
 
 
 
 
 
 
 
 
 
Average number of members (in 000s)
3,698

 
3,674

 
3,750

 
3,753

 
3,782

Exchange revenue per member
$
181.02

 
$
179.68

 
$
179.59

 
$
177.53

 
$
176.73

Vacation rental transactions (in 000s)
1,483

 
1,392

 
1,347

 
1,163

 
964

Average net price per vacation rental
$
532.11

 
$
504.55

 
$
530.78

 
$
425.38

 
$
477.38

Vacation Ownership
 
 
 
 
 
 
 
 
 
Gross Vacation Ownership Interest (“VOI”) sales (in 000s)
$
1,889,000

 
$
1,781,000

 
$
1,595,000

 
$
1,464,000

 
$
1,315,000

Tours
789,000

 
724,000

 
685,000

 
634,000

 
617,000

Volume Per Guest (“VPG”)
$
2,281

 
$
2,324

 
$
2,229

 
$
2,183

 
$
1,964

 

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(a) 
Includes operating, cost of VOIs, consumer financing interest, marketing and reservation and general and administrative expenses.
(b) 
See Note 7 — Income Taxes for detailed reconciliations of our effective tax rates for 2013, 2012 and 2011.
(c) 
Represents the portion of gross vacation ownership contract receivables, securitization restricted cash and related assets that collateralize our securitized debt. Refer to Note 14 — Variable Interest Entities.
(d) 
Represents debt that is securitized through bankruptcy-remote special purpose entities, the creditors of which have no recourse to us.
(e) 
See “Operating Statistics” within Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations for descriptions of our operating statistics.
(f) 
The results of operations of acquired businesses have been included from their acquisition dates forward (see acquisition list below).
(g) 
The amount in 2009 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.

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 (2009 – 2013)

Between January 1, 2009 and December 31, 2013, we completed a number of acquisitions. The results of operations and financial position of such acquisitions have been included beginning from the relevant acquisition dates. Below is a list of our primary acquisitions during that period (not intended to be a complete list):

Midtown 45, NYC Property (January 2013)
Oceana Resorts (December 2012)
Wyndham Grand Rio Mar Hotel (October 2012)
Shell Vacations Club (September 2012)
Smoky Mountain Property Management Group (August 2012)
James Villa Holdings Ltd. (November 2010)
ResortQuest International, LLC (September 2010)
Tryp hotel brand (June 2010)
Hoseasons Holdings Ltd. (March 2010)

See Note 4 to the Consolidated Financial Statements for a discussion of the acquisitions completed during 2013 and 2012.

IMPAIRMENT & RESTRUCTURING CHARGES

During 2013, we recorded $10 million of restructuring costs, of which $9 million is related to an organizational realignment initiative committed to at our lodging business, primarily focused on optimizing its marketing structure. In addition, we recorded $8 million of non-cash impairment charges at our lodging business primarily related to a partial write-down of our Hawthorn trademark due to lower than anticipated growth in the brand.

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 trade names 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.

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.

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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 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 end 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.

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. Since we are committed to expend the fees we collect from franchisees, revenues earned in excess of costs incurred are accrued as a liability for future costs to support the program.

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 25 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 and 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 no effect on our operating income. Management fee revenues and reimbursable revenues were $8 million and $129

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million, respectively, during 2013, $7 million and $91 million, respectively, during 2012 and $7 million and $79 million, respectively, during 2011.

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 recognize all revenues and expenses of these hotels.

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 intervals at other properties affiliated with 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. Revenues from annual membership dues represent the annual fees from members who participate in our vacation exchange business and, for additional fees, have the right 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. 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 affiliated with 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 the less than 10% of properties which we 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 services 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 that are recognized in the period that the rental reservation is made are recorded, net of expected cancellations.

Cancellations for 2013, 2012 and 2011 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 which we own, manage or operate 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
Our vacation ownership business develops, markets and sells VOIs to individual consumers, provides property management services at resorts and provides consumer financing in connection with the sale of VOIs. It 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 $567 million, $460 million and $424 million, during 2013, 2012, and 2011, respectively. Management fee revenues were $290 million, $225 million and $198 million during 2013, 2012 and 2011, respectively. Reimbursable revenues, which are based upon certain reimbursable costs with no added margin, were $277 million, $235 million and $226 million, respectively, during 2013, 2012 and 2011. 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 2013, 2012 and 2011, 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 and, when considered with GAAP measures, gives a more complete understanding of our operating performance. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.


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OPERATING STATISTICS
The following table presents our operating statistics for the years ended December 31, 2013 and 2012. 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,
 
2013
 
2012
 
% Change
Lodging
 
 
 
 
 
Number of rooms (a)
645,400

 
627,400

 
2.9
RevPAR (b)
$
36.00

 
$
34.80

 
3.4
Vacation Exchange and Rentals
 
 
 
 
 
Average number of members (in 000s) (c)
3,698

 
3,674

 
0.7
Exchange revenue per member (d)
$
181.02

 
$
179.68

 
0.7
Vacation rental transactions (in 000s) (e) (f)
1,483

 
1,392

 
6.5
Average net price per vacation rental (f) (g)
$
532.11

 
$
504.55

 
5.5
Vacation Ownership (f)
 
 
 
 
 
Gross VOI sales (in 000s) (h) (i)
$
1,889,000

 
$
1,781,000

 
6.1
Tours (j)
789,000

 
724,000

 
9.0
VPG (k)
$
2,281

 
$
2,324

 
(1.9)
 
(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 acquisitions from the acquisition dates forward, therefore, the operating statistics for 2013 are not presented on a comparable basis to the 2012 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 4.2%.
(h) 
Represents total sales of VOIs, including sales under WAAM Fee-for-Service, 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.
(i) 
The following table provides a reconciliation of Gross VOI sales to Vacation ownership interest sales for the year ended December 31 (in millions):
 
2013
 
2012
Gross VOI sales (1)
$
1,889

 
$
1,781

Less: WAAM Fee-for-Service sales (2)
(160
)
 
(49
)
Gross VOI sales, net of WAAM Fee-for-Service sales
1,729

 
1,732

Less: Loan loss provision
(349
)
 
(409
)
Less: Impact of POC accounting
(1
)
 

Vacation ownership interest sales
$
1,379

 
$
1,323

 
(1)  
For the year ended December 31, 2013 and 2012, included $14 million and $99 million, respectively of Gross VOI sales under our WAAM Just-in-Time inventory acquisition 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 model during the second quarter of 2012.
(2) 
Represents total sales of VOIs through our WAAM Fee-for-Service sales model designed to offer turn-key solutions for developers or banks in possession of newly developed inventory, which we will sell for a commission fee through our extensive sales and marketing channels. WAAM Fee-for-Service commission revenues amounted to $107 million and $33 million during 2013 and 2012, respectively.
(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 $89 million and $97 million during 2013 and 2012, 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’s tour selling efforts during a given reporting period.


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Year Ended December 31, 2013 vs. Year Ended December 31, 2012
Our consolidated results are as follows:

Year Ended December 31,

2013
 
2012
 
Favorable/(Unfavorable)
Net revenues
$
5,009

 
$
4,534

 
$
475

Expenses
4,099

 
3,682

 
(417
)
Operating income
910

 
852

 
58

Other income, net
(6
)
 
(8
)
 
(2
)
Interest expense
131

 
132

 
1

Early extinguishment of debt
111

 
108

 
(3
)
Interest income
(9
)
 
(8
)
 
1

Income before income taxes
683

 
628

 
55

Provision for income taxes
250

 
229

 
(21
)
Net income
433

 
399

 
34

Net (income)/loss attributable to noncontrolling interest
(1
)
 
1

 
(2
)
Net income attributable to Wyndham shareholders
$
432

 
$
400

 
$
32


Net revenues increased $475 million (10.5%) during 2013 compared with 2012 primarily resulting from:

$196 million of incremental revenues from acquisitions across all our businesses;
$138 million of higher revenues at our vacation ownership business primarily resulting from higher WAAM Fee-for-Service commissions and property management fees;
an $84 million increase at our lodging business (excluding intersegment revenues) primarily from higher reimbursable revenues in our hotel management business and higher royalty and marketing and reservation (inclusive of Wyndham Rewards) revenues; and
$56 million of higher revenues at our exchange and rentals business primarily from stronger revenue on rental transactions and new product offerings.

Expenses increased $417 million (11.3%) during 2013 compared with the same period last year principally reflecting:

$208 million of higher expenses from operations primarily related to the revenue increases (excluding acquisitions);
$170 million of incremental expenses from acquisitions; and
a $31 million increase in depreciation and amortization resulting from the impact of acquisitions and property and equipment additions made during 2012.

Early extinguishment of debt increased $3 million due to $111 million of expenses incurred for the early repurchase of a portion of our 5.75%, 7.375% and 6.00% senior unsecured notes and the remaining portion of our 9.875% senior unsecured notes during 2013, partially offset by $108 million of expenses incurred for the early repurchase of a portion of our 9.875% and 6.00% senior unsecured notes during 2012.

As a result of these items, net income attributable to Wyndham shareholders increased $32 million (8.0%) as compared with 2012.

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Following is a discussion of the 2013 results of each of our segments and Corporate and Other compared to 2012:
 
Net Revenues
 
EBITDA
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
Lodging
$
1,027

 
$
890

 
15.4
 
$
279

(b) 
$
272

(f) 
2.6
Vacation Exchange and Rentals
1,526

 
1,422

 
7.3
 
356

 
328

(g) 
8.5
Vacation Ownership
2,515

 
2,269

 
10.8
 
619

(c) 
549

(h) 
12.8
Total Reportable Segments
5,068

 
4,581

 
10.6
 
1,254

 
1,149

 
9.1
Corporate and Other (a)
(59
)
 
(47
)
 
*
 
(122
)
(d) 
(104
)
(d) 
*
Total Company
$
5,009

 
$
4,534

 
10.5
 
$
1,132

 
$
1,045

 
8.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of EBITDA to Net Income Attributable to Wyndham Shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
 
EBITDA
 
 
 
 
 
 
$
1,132

 
$
1,045

 
 
Depreciation and amortization
 
 
 
 
 
 
216

 
185

 
 
Interest expense
 
 
 
 
 
 
131

 
132

 
 
Early extinguishment of debt
 
 
 
 
 
 
111

(e) 
108

(i) 
 
Interest income
 
 
 
 
 
 
(9
)
 
(8
)
 
 
Income before income taxes
 
 
 
 
 
 
683

 
628

 
 
Provision for income taxes
 
 
 
 
 
 
250

 
229

 
 
Net income
 
 
 
 
 
 
433

 
399

 
 
Net (income)/loss attributable to noncontrolling interest
 
 
 
(1
)
 
1

 
 
Net income attributable to Wyndham shareholders
 
 
 
$
432

 
$
400

 
 
 
* 
Not meaningful.
(a) 
Includes the elimination of transactions between segments.
(b) 
Includes (i) $9 million of restructuring costs incurred as a result of an organizational realignment initiative commenced during 2013 and (ii) $8 million of non-cash impairment charges primarily related to a partial write-down of the Hawthorn trademark.
(c) 
Includes $2 million of costs incurred in connection with the acquisition of the Midtown 45 property in New York City ("Midtown 45") through the consolidation of a special purpose entity ("SPE"), which is being converted to WAAM Just-in-Time inventory (January 2013).
(d) 
Includes (i) $123 million and $109 million of corporate costs during 2013 and 2012, respectively and (ii) $1 million of a net expense and $5 million of a net benefit during 2013 and 2012, respectively, related to the resolution of and adjustment to certain contingent liabilities and assets resulting from our Separation.
(e) 
Represents costs incurred for the early repurchase of a portion of our 5.75%, 7.375% and 6.00% senior unsecured notes and the remaining portion of our 9.875% senior unsecured notes.
(f) 
Includes a $1 million benefit from the recovery of a previously recorded impairment charge.
(g) 
Includes (i) a non-cash impairment charge of $8 million for the write-down of the ResortQuest and Steamboat Resorts trade names, (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 several vacation rental businesses (December 2012).
(h) 
Includes (i) $2 million of restructuring costs and (ii) $1 million of acquisition costs incurred in connection with our acquisition of Shell (September 2012).
(i) 
Represents costs incurred for the early repurchase of a portion of our 9.875% and 6.00% senior unsecured notes.


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Lodging

Net revenues increased $137 million (15.4%) and EBITDA increased $7 million (2.6%) during 2013 compared with 2012. EBITDA was unfavorably impacted by a $9 million restructuring charge and $8 million of non-cash impairment charges during the fourth quarter of 2013. EBITDA also reflects the absence of a $1 million benefit from the recovery of a previously recorded impairment charge during 2012.

Net revenues reflected a $28 million increase in royalty and marketing and reservation fees (inclusive of Wyndham Rewards) primarily due to a 3.4% increase in RevPAR resulting from stronger occupancy and average daily rates, as well as a 2.9% increase in system size. In addition, net revenues and EBITDA were also favorably impacted by $4 million of higher intersegment licensing fees charged primarily to our vacation ownership business for the use of the Wyndham trade name. Ancillary revenues contributed an additional $17 million and $6 million of net revenues and EBITDA, respectively, principally from growth in our co-branded credit card program and higher property management systems sales.

Net revenues and EBITDA increased $44 million and $6 million, respectively, from our owned hotels. Excluding $40 million and $3 million of incremental revenues and EBITDA, respectively, related to our acquisition of the Wyndham Grand Rio Mar hotel during the fourth quarter of 2012, revenues and EBITDA increased $4 million and $3 million, respectively, due to improved operating performance.

The increase in net revenues also reflects $44 million of higher reimbursable revenues (inclusive of $6 million of intersegment revenues) in our hotel management business which had no impact on EBITDA. Such increase was primarily the result of new management agreements executed during the current year and the latter half of 2012.

EBITDA was also impacted by $22 million of higher marketing, reservation and Wyndham Rewards expenses primarily due to higher expenses associated with the marketing revenue increases resulting from the growth of the business. We are committed to spend such marketing and reservation revenues on behalf of our franchisees.

As of December 31, 2013, we had approximately 7,490 properties and 645,400 rooms in our system. Additionally, our hotel development pipeline included over 970 hotels and approximately 114,000 rooms, of which 58% were international and 68% were new construction as of December 31, 2013.

Vacation Exchange and Rentals

Net revenues and EBITDA increased $104 million (7.3%) and $28 million (8.5%), respectively, during 2013 compared with 2012. Foreign currency translation favorably impacted net revenues by $4 million and unfavorably impacted EBITDA by $2 million. EBITDA also reflects the absence of an $8 million fourth quarter 2012 non-cash impairment charge resulting from Wyndham Vacation Rentals’ rebranding initiative and $5 million of fourth quarter 2012 restructuring costs, partially offset by a $4 million settlement of a business disruption claim received during the second quarter of 2012 related to the Gulf of Mexico oil spill in 2010.

Our acquisitions of vacation rentals businesses contributed $48 million of incremental net revenues (inclusive of $10 million of ancillary revenues) and $10 million of incremental EBITDA during 2013.

Net revenues generated from rental transactions and related services increased $87 million. Excluding the impact of $38 million of incremental vacation rental revenues from acquisitions and a favorable foreign currency translation impact of $10 million, net revenues generated from rental transactions and related services increased $39 million. This was primarily due to a 6.1% increase in average net price per vacation rental driven by the impact of yield management strategies especially in our James Villa Holidays and Landal GreenParks businesses.

Exchange and related service revenues, which principally consist of fees generated from memberships, exchange transactions, member-related rentals and other member servicing, increased $9 million. Excluding an unfavorable foreign currency translation impact of $6 million, exchange and related service revenues increased $15 million due to the impact of (i) a 1.6% increase in exchange revenue per member primarily resulting from an increase in revenues derived from new products, growth in member rentals, as well as incremental revenues from new affiliate club servicing programs and (ii) a 0.7% increase in the average number of members principally resulting from an increase in the member base in Latin America and North America due to the benefits of member retention efforts and new affiliations.


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In addition to the items discussed above, EBITDA was unfavorably impacted by:

$36 million of higher product and service-related costs resulting from the revenue increases in our vacation rentals businesses;
the absence of a $4 million favorable adjustment for value-added taxes recorded during the first quarter of 2012;
a $4 million foreign exchange loss related to the devaluation of the official exchange rate of Venezuela during the first quarter of 2013; and
the absence of a $2 million benefit recorded during the first quarter of 2012 related to the reversal of an allowance associated with a previously divested asset.

Such decreases to EBITDA were partially offset by the favorable impact of $7 million from foreign exchange transactions and foreign exchange contracts.
Vacation Ownership

Net revenues and EBITDA increased $246 million (10.8%) and $70 million (12.8%), respectively, during 2013 compared with 2012. The acquisition of Shell completed during the third quarter of 2012 contributed an incremental $108 million and $13 million of net revenues and EBITDA, respectively.

Gross VOI sales increased $108 million (6.1%) compared to the prior year principally due to a 9.0% increase in tour flow partially offset by a 1.9% decrease in VPG. The change in VPG was primarily attributable to the unfavorable impact of the expiration of an upgrade marketing program during the fourth quarter of 2012 and the mix impact of lower VPG from Shell sales. The increase in tour flow reflected our continued focus on marketing programs directed towards new owner generation as well as the impact of the Shell acquisition.

Net VOI revenue increased $56 million compared to the same period last year resulting primarily from a $60 million decrease in our provision for loan losses due to a lower provision rate resulting from favorable default trends from lower cease and desist activity.

Commission revenues and EBITDA generated by WAAM Fee-for-Service increased by $74 million and $18 million, respectively, compared to the prior year, resulting from $111 million of higher VOI sales under WAAM Fee-for-Service.

Property management revenues and EBITDA increased $107 million and $12 million, respectively. The revenue and EBITDA increases were primarily the result of $70 million and $13 million of incremental revenues and EBITDA, respectively, from the Shell acquisition. In addition, revenues were favorably impacted by higher reimbursable revenues resulting from increased operating expenses at our resorts which had no impact on EBITDA.

Consumer financing revenues and EBITDA increased $5 million and $18 million, respectively. Excluding $9 million of incremental revenues and EBITDA contributed from the Shell acquisition, revenues decreased $4 million and EBITDA increased $9 million. The revenue decrease was principally due to a lower average portfolio balance of contract receivables partially offset by a higher weighted average interest rate earned on such receivables. The increase in EBITDA reflected lower interest expense as a result of a reduction in the weighted average interest rate on our securitized debt to 4.2% from 4.8% and lower average borrowings on our securitized debt facilities. As a result, our net interest income margin increased to 82% compared to 79% during 2012.

In addition to the items discussed above, EBITDA reflects an increase in expenses primarily resulting from (i) $29 million of higher sales and marketing expenses due to increased tours for new owner generation and (ii) $14 million of increased general and administrative expenses primarily from higher information technology costs.

Such increases in expenses were partially offset by a $7 million reduction in the cost of VOI sales resulting from lower VOI product costs.


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Table of Contents

Corporate and Other

Corporate and Other revenues decreased $12 million during 2013 compared with 2012 primarily due to the elimination of intersegment revenues charged primarily between our vacation ownership and lodging businesses.

Corporate expenses (excluding intercompany expense eliminations) increased $18 million during 2013 compared with 2012. Corporate expenses reflected a $1 million net expense during 2013 and the absence of a $5 million net benefit during 2012 related to the resolution of and adjustment to certain contingent liabilities and assets resulting from our Separation. Excluding the impact of these items, corporate expenses increased $12 million primarily due to continued investments in information technology and information systems security enhancements, as well as higher employee related costs.

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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 (f)
 
 
 
 
 
Gross VOI sales (in 000s) (h) (i)
$
1,781,000

 
$
1,595,000

 
11.7
Tours (j)
724,000

 
685,000

 
5.7
VPG (k)
$
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 acquisitions from the acquisition dates 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) 
Represents total sales of VOIs, including sales under the WAAM Fee-for-Service, 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.
(i) 
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 Fee-for-Service sales (2)
(49
)
 
(106
)
Gross VOI sales, net of WAAM Fee-for-Service 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 Just-in-Time inventory acquisition 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 model during the second quarter of 2012.
(2) 
Represents total sales of VOIs through our WAAM Fee-for-Service sales model designed to offer turn-key solutions for developers or banks in possession of newly developed inventory, which we will sell for a commission fee through our extensive sales and marketing channels. WAAM Fee-for-Service commission revenues amounted to $33 million and $65 million during 2012 and 2011, respectively.
(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 $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 performance of our vacation ownership business because it directly measures the efficiency of this business’s tour selling efforts during a given reporting period.


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Year Ended December 31, 2012 vs. Year Ended December 31, 2011
Our consolidated results comprised the following:
 
Year Ended December 31,
 
2012
 
2011
 
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