FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" as that term is defined by theSecurities and Exchange Commission ("SEC"). 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," "will," "expects," "should," "believes," "plans," "anticipates," "estimates," "predicts," "potential," "continue," "future," "intend," and other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results ofTravel + Leisure Co. and its subsidiaries ("Travel + Leisure Co. " or "we") 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, risks associated with: the acquisition of the Travel + Leisure brand and the future prospects and plans forTravel + Leisure Co. , including our ability to execute our strategies to grow our cornerstone timeshare and exchange businesses and expand into the broader leisure travel industry through new business extensions; our ability to compete in the highly competitive timeshare and leisure travel industries; uncertainties related to acquisitions, dispositions and other strategic transactions; the health of the travel industry and declines or disruptions caused by adverse economic conditions and unemployment rates, terrorism or acts of gun violence, political strife, war, including hostilities inUkraine , pandemics, and severe weather events and other natural disasters; adverse changes in consumer travel and vacation patterns, consumer preferences and demand for our products; increased or unanticipated operating costs and other inherent business risks; our ability to comply with financial and restrictive covenants under our indebtedness and our ability to access capital markets on reasonable terms, at a reasonable cost or at all; maintaining the integrity of internal or customer data and protecting our systems from cyber-attacks; uncertainty with respect to the scope, impact and duration of the novel coronavirus global pandemic ("COVID-19"), including resurgences, the pace of recovery, distribution and adoption of vaccines and treatments, and actions in response to the evolving pandemic by governments, businesses and individuals; the timing and amount of future dividends and share repurchases, if any; and those other factors disclosed as risks under "Risk Factors" in documents we have filed with theSEC , including in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onFebruary 23, 2022 . 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 undertake no obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.
BUSINESS AND OVERVIEW
We are a global provider of hospitality services and travel products and operate
our business in the following two segments:
•Vacation Ownership-develops, markets and sells vacation ownership interests
("VOIs") to individual consumers, provides consumer financing in connection with
the sale of VOIs, and provides property management services at resorts. This
segment is wholly comprised of our Wyndham Destinations business line. The
following brands operate under the Wyndham Destinations business line: Club
Wyndham, WorldMark by Wyndham, Shell Vacations Club , Margaritaville Vacation
Club by Wyndham, and Presidential Reserve by Wyndham.
•Travel and Membership-operates a variety of travel businesses, including three
vacation exchange brands, a home exchange network, travel technology platforms,
travel memberships, and direct-to-consumer rentals. This segment is comprised of
our Panorama and Travel + Leisure Group business lines. The following brands
operate under the Panorama business line: RCI, Panorama Travel Solutions,
Alliance Reservations Network ("ARN"), 7Across, The Registry Collection, and
Love Home Swap . The Travel + Leisure Group operates Travel + Leisure Travel
Clubs , Travel + Leisure GO, and Extra Holidays brands.
Impact of COVID-19
The results of operations for the three months endedMarch 31, 2022 and 2021 include impacts related to the novel coronavirus global pandemic ("COVID-19"), which are significantly lower than the impacts we experienced in the earlier stages of the pandemic.
Travel + Leisure Brand Acquisition
OnJanuary 5, 2021 ,Wyndham Destinations, Inc. acquired the Travel + Leisure brand and related assets fromMeredith Corporation ("Meredith") for$100 million , of which$55 million was paid during 2021. We will make the next$20 million payment inJune 2022 with the remaining payments to be completed byJune 2024 . This acquisition included Travel + Leisure branded travel clubs and members. We acquired the Travel + Leisure brand to accelerate our strategic plan to broaden our reach with the launch of new travel services, expand our membership travel business, and amplify the global visibility of our leisure travel products. Meredith will continue to operate and monetize Travel + Leisure branded multi-platform media assets across 34
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multiple channels under a 30-year royalty-free, renewable licensing relationship. In connection with this acquisition, onFebruary 17, 2021 ,Wyndham Destinations, Inc. was renamedTravel + Leisure Co. and continues to trade on theNew York Stock Exchange under the new ticker symbol TNL.
RESULTS OF OPERATIONS
We have two reportable segments: Vacation Ownership and Travel and Membership. The reportable segments presented below are those for which discrete financial information is available and which are utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying the reportable segments, we also consider the nature of services provided by our operating segments. Management uses net revenues and Adjusted EBITDA to assess the performance of the reportable segments. We define Adjusted EBITDA as Net income from continuing operations before Depreciation and amortization, Interest expense (excluding Consumer financing interest), early extinguishment of debt, Interest income (excluding Consumer financing revenues) and income taxes. Adjusted EBITDA also excludes stock-based compensation costs, separation and restructuring costs, legacy items, transaction costs for acquisitions and divestitures, impairments, gains and losses on sale/disposition of business, and items that meet the conditions of unusual and/or infrequent. Legacy items include the resolution of and adjustments to certain contingent assets and liabilities related to acquisitions of continuing businesses and dispositions, including the separation ofWyndham Hotels and Cendant, and the sale of the vacation rentals businesses. We believe that Adjusted EBITDA is a useful measure of performance for our segments which, when considered with GAAP measures, we believe gives a more complete understanding of our operating performance. Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. 35
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OPERATING STATISTICS
The table below presents our operating statistics for the three months endedMarch 31, 2022 and 2021. These operating statistics are the drivers of our revenues and therefore provide an enhanced understanding of our businesses. Refer to the Three Months EndedMarch 31, 2022 vs. Three Months EndedMarch 31, 2021 section for a discussion on how these operating statistics affected our business for the periods presented.
Three Months Ended
2022 2021 % Change (i) Vacation Ownership Gross VOI sales (in millions) (a) (j) $ 379$ 236 60.8 Tours (in 000s) (b) 108 76 41.8 Volume Per Guest ("VPG") (c)$ 3,377 $ 2,847 18.6 Travel and Membership (d) Transactions (in 000s) (e) (f) Exchange 311 317 (2.0) Travel Club 232 196 18.3 Total transactions 543 513 5.8 Revenue per transaction(f) (g) Exchange $ 328$ 297 10.2 Travel Club $ 234$ 194 20.7 Total revenue per transaction $ 288$ 258 11.6 Average number of exchange members (in 000s) (h) 3,570 3,576 (0.2) (a)Represents total sales of VOIs, including sales under the Fee-for-Service program before the effect of 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. (b)Represents the number of tours taken by guests in our efforts to sell VOIs. (c)VPG is calculated by dividing Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) by the number of tours. We believe that VPG provides an enhanced understanding of the performance of our Vacation Ownership business because it directly measures the efficiency of this business' tour selling efforts during a given reporting period. (d)Includes the impact of acquisitions from the acquisition dates forward. (e)Represents the number of vacation bookings recognized as revenue during the period, net of cancellations. (f)In 2022, the Travel and Membership segment determined that certain rental transactions to travelers that were not RCI members are more closely aligned withTravel Club transactions (previously "Non-exchange"). Prior period results reflect the reclassification of this activity from Exchange toTravel Club . (g)Represents transactional revenue divided by transactions. (h)Represents paid members in our vacation exchange programs who are considered to be in good standing. (i)Percentage of change may not calculate due to rounding. (j)The following table provides a reconciliation of Vacation ownership interest sales, net to Gross VOI sales for the three months endedMarch 31, 2022 and 2021 (in millions): 2022 2021
Vacation ownership interest sales, net
Loan loss provision
48 38 Gross VOI sales, net of Fee-for-Service sales 345 210 Fee-for-Service sales (1) 34 26 Gross VOI sales$ 379 $ 236 (1)Represents total sales of VOIs through our Fee-for-Service programs where inventory is sold through our sales and marketing channels for a commission. There were$17 million and$12 million Fee-for-Service commission revenues for the three months endedMarch 31, 2022 and 2021. These commissions are reported within Service and membership fees on the Condensed Consolidated Statements of Income. 36
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THREE MONTHS ENDED
Our consolidated results are as follows (in millions):
Three Months Ended
2022 2021 Favorable/(Unfavorable) Net revenues$ 809 $ 628 $ 181 Expenses 692 541 (151) Operating income 117 87 30 Interest expense 47 53 6 Interest (income) (1) (1) - Other (income), net (3) - 3 Income before income taxes 74 35 39 Provision for income taxes 23 6 (17) Net income attributable toTravel + Leisure Co. shareholders$ 51 $ 29 $ 22 Net revenues increased$181 million for the three months endedMarch 31, 2022 , compared with the same period last year. This increase was unfavorably impacted by foreign currency of$3 million (0.5%). Excluding the impacts of foreign currency, the remaining revenue increase was primarily the result of: •$157 million of increased revenues at our Vacation Ownership segment primarily due to an increase in net VOI sales, property management revenues, and commission revenues as a result of the ongoing recovery of our operations from the impact of COVID-19; and •$28 million of increased revenues at our Travel and Membership segment driven by higher transaction revenues as a result of the ongoing recovery of our operations from the impact of COVID-19, and growth in our business-to-business ("B2B")Travel Club businesses. Expenses increased$151 million for the three months endedMarch 31, 2022 , compared with the same period last year. This increase was favorably impacted by foreign currency of$1 million (0.2%). Excluding the foreign currency impact, the increase in expenses was primarily the result of: •$35 million increase in sales and commission expenses at the Vacation Ownership segment due to higher gross VOI sales; •$25 million increase in marketing costs in support of increased revenue; •$20 million increase in property management expenses due to higher management fees and reimbursable expenses; •$19 million increase in the cost of VOIs sold primarily due to higher gross VOI sales; •$16 million increase in operating costs in support of higher Travel and Membership revenues; •$14 million increase in general and administrative expenses primarily due to higher employee-related costs and legal expenses; and •$14 million increase in maintenance fees on unsold inventory. Interest expense decreased$6 million for the three months endedMarch 31, 2022 compared with the same period last year primarily due to a lower average debt balance. Other income, net of other expenses increased by$3 million for the three months endedMarch 31, 2022 , compared with the same period last year, primarily due to a value added tax provision release in 2022. Our effective tax rates were 31.3% and 17.1% during the three months endedMarch 31, 2022 and 2021. The change in the effective tax rate is primarily due to excess benefits from stock-based compensation recognized during the three months endedMarch 31, 2021 . The effective tax rate for the three months endedMarch 31, 2022 also increased due to statutory changes as well as increases to unrecognized tax benefits.
As a result of these items, Net income attributable to
shareholders increased
compared to the same period last year.
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Our segment results are as follows (in millions):
Three Months Ended
March 31,
Net revenues 2022 2021
Vacation Ownership $ 604 $ 449
Travel and Membership 210 183
Total reportable segments 814 632
Corporate and other (a) (5) (4)
Total Company $ 809 $ 628
Three Months Ended
March 31,
Reconciliation of Net income to Adjusted EBITDA 2022 2021
Net income attributable to
51
Provision for income taxes 23 6 Depreciation and amortization 30 31 Interest expense 47 53 Interest (income) (1) (1) Stock-based compensation 9 7 Restructuring (b) 7 (1) COVID-19 related costs (c) 2 1 Legacy items 1 4 Asset impairments 1 - Adjusted EBITDA$ 170 $ 129 Three Months Ended March 31, Adjusted EBITDA 2022 2021 Vacation Ownership$ 103 $ 66 Travel and Membership 84 75 Total reportable segments 187 141 Corporate and other (a) (17) (12)Total Company $ 170 $ 129 (a)Includes the elimination of transactions between segments. (b)Includes$3 million of stock-based compensation expense for the three months endedMarch 31, 2022 associated with the 2022 restructuring. (c)Includes expenses related to COVID-19 testing and other expenses associated with our return-to-work program in 2022. In 2021, this includes severance and other employee costs associated with layoffs due to the COVID-19 workforce reduction offset in part byU.S. and international government employee retention credits. Vacation Ownership Net revenues increased$155 million (35.0%) and Adjusted EBITDA increased$37 million (56.1%) during the three months endedMarch 31, 2022 , compared with the same period of 2021. The net revenue increase was unfavorably impacted by foreign currency of$2 million (0.4%) and the Adjusted EBITDA increase was not materially impacted by foreign currency.
The net revenue increase excluding the impact of foreign currency was primarily
driven by:
•$136 million increase in gross VOI sales, net of Fee-for-Service sales, due to increased tours and higher VPG associated with the ongoing recovery of our operations from the impact of COVID-19; •$22 million increase in property management revenues primarily due to higher management fees and reimbursable revenues; and •$5 million increase in commission revenues as a result of higher Fee-for-Service VOI sales.
These increases were partially offset by an
provision for loan losses primarily due to higher gross VOI sales.
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In addition to the drivers above, Adjusted EBITDA was further impacted by:
•$35 million increase in sales and commission expenses due to higher gross VOI sales; •$23 million increase in marketing costs in support of increased revenue; •$20 million increase in property management expenses due to higher management fees and reimbursable expenses; •$19 million increase in the cost of VOIs sold primarily due to higher gross VOI sales; •$14 million increase in maintenance fees on unsold inventory; •$10 million increase in general and administrative expenses primarily due to higher employee-related costs; and •$4 million increase in commission expense as a result of higher Fee-for-Service VOI sales.
These increases were partially offset by a
financing interest expense primarily due to a lower average non-recourse debt
balance.
Travel and Membership Net revenues increased$27 million and Adjusted EBITDA increased$9 million during the three months endedMarch 31, 2022 , compared with the same period of 2021. The net revenue increase was unfavorably impacted by foreign currency of$1 million (0.5%) and the Adjusted EBITDA increase was unfavorably impacted by foreign currency of$1 million (1.3%).
Increases in net revenues excluding the impact of foreign currency were
primarily due to a
revenue per transaction and growth in
In addition to the revenue change explained above, Adjusted EBITDA, excluding
the impact of foreign currency, was further impacted by the following
operational costs in support of higher revenue:
•$12 million increase in cost of sales;
•$4 million increase in operational expenses; and
•$2 million increase in marketing expense.
Corporate and other
Corporate and other Adjusted EBITDA decreased$5 million for the three months endedMarch 31, 2022 compared to 2021, primarily due to higher employee-related costs and legal expenses. RESTRUCTURING PLANS During the three months endedMarch 31, 2022 , we incurred$7 million of restructuring expense. Certain positions were made redundant based upon changes to our organizational structure, primarily within the Travel and Membership segment. The majority of the initiative and related expenses were incurred in the first quarter of 2022 with the remaining charges to be completed in the second quarter. The charges consisted of (i)$5 million of personnel costs at the Travel and Membership segment (ii)$1 million of lease and personnel-related costs at the Vacation Ownership segment, and (iii)$1 million of personnel-related costs at our corporate operations. These restructuring charges included$3 million of accelerated stock-based compensation expense. The majority of the remaining liability of$4 million is expected to be paid in 2022 with lease-related payments continuing through 2025. During 2020, we recorded$37 million of restructuring charges, most of which were COVID-19 related. These charges included$22 million at the Travel and Membership segment associated with our decision to abandon the remaining portion of the administrative offices inNew Jersey , and$14 million of charges at the Vacation Ownership segment due to a renegotiated agreement and closed sales centers. As ofDecember 31, 2021 this restructuring liability was$22 million which was reduced by$1 million of cash payments during the three months endedMarch 31, 2022 . The remaining 2020 restructuring liability of$21 million is lease-related and is expected to be paid by the end of 2029. 39
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FINANCIAL CONDITION
March 31, December 31, (In millions) 2022 2021 Change Total assets$ 6,600 $ 6,588 $ 12 Total liabilities$ 7,411 $ 7,382 $ 29 Total (deficit)$ (811) $ (794) $ (17)
Total assets increased by
primarily due to:
•$38 million increase in Restricted cash primarily associated with our non-recourse debt borrowings; •$15 million increase in Trade receivables, net, primarily due to annual billings; •$54 million increase in Property and equipment, net, primarily due to the transfer of completed VOI inventory to property and equipment, partially offset by depreciation; and •$30 million increase in Other assets primarily due to timing of payroll funding. These increases were partially offset by an$87 million decrease in Inventory driven by the transfer of completed VOI inventory to property and equipment and VOI sales; and a$48 million decrease in Vacation ownership contract receivables, net, primarily due to increased allowance for loan losses and net principal collections.
Total liabilities increased by
2022
•$9 million increase in Deferred income primarily due to annual billing cycle for subscription revenues; and •$15 million increase in Non-recourse vacation ownership debt due to net borrowings. Total deficit increased$17 million fromDecember 31, 2021 toMarch 31, 2022 , primarily due to$45 million of share repurchases and$35 million of dividends, partially offset by$51 million of Net income attributable toTravel + Leisure Co. shareholders and a$12 million change in stock-based compensation.
LIQUIDITY AND CAPITAL RESOURCES
We believe that we have sufficient liquidity to meet our ongoing cash needs for the next year and beyond, including capital expenditures, operational and/or strategic opportunities, and expenditures for human capital, intellectual property, contractual obligations, off-balance sheet arrangements, and other such requirements. Our net cash from operations and cash and cash equivalents are key sources of liquidity along with our revolving credit facilities, bank conduit facilities, and continued access to debt markets. We believe these sources of liquidity are sufficient to meet our ongoing cash needs, including the repayment of our$400 million notes due inMarch 2023 . Our discussion below highlights these sources of liquidity and how they have been utilized to support our cash needs.
We generally utilize our revolving credit facility to finance our short-term to medium-term business operations, as needed. The facility was renewed during 2021, extending the commitment period toOctober 2026 . As ofMarch 31, 2022 , we had$998 million of available capacity on our revolving credit facility, net of letters of credit. The revolving credit facility and term loan B are subject to covenants including the maintenance of specific financial ratios as defined in the credit agreement. The financial ratio covenants consist of a minimum interest coverage ratio and a maximum first lien leverage ratio. The interest coverage ratio is calculated by dividing consolidated EBITDA (as defined in the credit agreement) by consolidated interest expense (as defined in the credit agreement), both as measured on a trailing 12-month basis preceding the measurement date. The first lien leverage ratio is calculated by dividing consolidated first lien debt (as defined in the credit agreement) as of the measurement date by consolidated EBITDA (as defined in the credit agreement) as measured on a trailing 12-month basis preceding the measurement date. As a precautionary measure during 2020, we amended the credit agreement governing the revolving credit facility and term loan B ("First Amendment"). The First Amendment provided flexibility during the relief period spanning fromJuly 15, 2020 throughApril 1, 2022 , or upon our earlier termination ("Relief Period"). Among other changes, the First Amendment established Relief Period restrictions regarding share repurchases, dividends, and acquisitions. During 2021 we entered into the second amendment governing our revolving credit facility and term loan B ("Second Amendment") which resulted in the termination of the aforementioned Relief Period restrictions and extended the commitment period for the revolving credit facility fromMay 2023 toOctober 2026 . The Second Amendment stipulates a first lien leverage ratio financial covenant not to exceed 4.75 to 1.0 which commenced with theDecember 31, 2021 period and extends throughJune 30, 2022 , after which time 40
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it will return to 4.25 to 1.0 and reestablished the interest coverage ratio (as
defined in the credit agreement) of no less than 2.50 to 1.0, the levels in
place prior to COVID-19. Additionally, the Second Amendment reestablished the
annual interest rate pricing schedule in existence prior to COVID-19 which is
equal to, at our option, either a base rate plus a margin ranging from 0.75% to
1.25% or the London Interbank Offered Rate ("LIBOR") plus a margin ranging from
1.75% to 2.25%, in either case based upon our first lien leverage ratio. The
Second Amendment also includes customary LIBOR replacement language providing
for alternative interest rate options upon the cessation of LIBOR publication.
As of March 31, 2022 , our first lien leverage ratio was 3.79 to 1.0 and our
interest coverage ratio was 4.32 to 1.0. These ratios do not include interest
expense or indebtedness related to any qualified securitization financing (as
defined in the credit agreement). As of March 31, 2022 , we were in compliance
with the financial covenants described above.
Secured Notes and Term Loan B
We generally utilize borrowing under our secured notes to meet our long-term
financing needs. As of
secured notes and Term Loan B, with maturities ranging from 2023 to 2030.
Non-recourse Vacation Ownership Debt
Our Vacation Ownership business finances certain of its vacation ownership
contract receivables ("VOCRs") through (i) asset-backed conduit facilities and
(ii) term asset-backed securitizations, all of which are non-recourse to us with
respect to principal and interest. For the securitizations, we pool qualifying
VOCRs and sell them to bankruptcy-remote entities, all of which are consolidated
into the accompanying Condensed Consolidated Balance Sheets as of March 31,
2022 . We plan to continue using these sources to finance certain VOCRs. On
March 4, 2022 we renewed our USD bank conduit facility, extending its term
through July 2024 . This renewal included a reduction of the USD borrowing
capacity from $800 million to $600 million . We believe that our USD bank conduit
facility and our AUD/NZD bank conduit facility, with a term through April 2023 ,
amounting to a combined capacity of $824 million ($533 million available as of
March 31, 2022 ) along with our ability to issue term asset-backed securities,
provides sufficient liquidity to finance the sale of VOIs beyond the next year.
We closed on securitization financings of $275 million during the three months
ended March 31, 2022 and $850 million during the full year 2021. These
transactions positively impacted our liquidity and reinforce our expectation
that we will maintain adequate liquidity for the next year and beyond.
Our liquidity position may be negatively affected by unfavorable conditions in
the capital markets in which we operate or if our VOCR portfolios do not meet
specified portfolio credit parameters. Our liquidity, as it relates to our VOCR
securitization program, could be adversely affected if we were to fail to renew
or replace our conduit facilities on their expiration dates, 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
VOCRs deteriorate. Our ability to sell securities backed by our VOCRs depends on
the continued ability and willingness of capital market participants to invest
in such securities.
Each of our non-recourse securitized term notes and the bank conduit facilities
contain various triggers relating to the performance of the applicable loan
pools. If the VOCR pool that collateralizes one of our securitization notes
fails to perform within the parameters established by the contractual triggers
(such as higher default or delinquency rates), there are provisions pursuant to
which the cash flows for that pool will be maintained in the securitization as
extra collateral for the note holders or applied to accelerate the repayment of
outstanding principal to the note holders. As of March 31, 2022 , all of our
securitized loan pools were in compliance with applicable contractual triggers.
We may, from time to time, depending on market conditions and other factors,
repurchase our outstanding indebtedness, whether or not such indebtedness trades
above or below its face amount, for cash and/or in exchange for other securities
or other consideration, in each case in open market purchases and/or privately
negotiated transactions.
For additional details regarding our credit facilities, term loan B, and
non-recourse debt see Note 9-Debt to the Condensed Consolidated Financial
Statements.
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Material Cash Requirements
The following table summarizes material future contractual obligations of our
continuing operations (in millions). We plan to fund these obligations, along
with our other cash requirements, with net cash from operations, cash and cash
equivalents, and through the use of our revolving credit facilities, bank
conduit facilities, and continued access to debt markets.
4/1/22 - 4/1/23 - 4/1/24 - 4/1/25 - 4/1/26 -
3/31/23 3/31/24 3/31/25 3/31/26 3/31/27 Thereafter Total
Debt $ 408 $ 6 $ 303 $ 625 $ 643 $ 1,394 $ 3,379
Non-recourse debt (a) 224 256 230 303 207 729 1,949
Interest on debt (b) 234 212 188 161 107 136 1,038
Purchase commitments (c) 219 116 107 129 93 150 814
Operating leases 30 30 27 21 14 31 153
Inventory sold subject to
conditional repurchase (d) 65 - - - - - 65
Total (e) $ 1,180 $ 620 $ 855 $ 1,239 $ 1,064 $ 2,440 $ 7,398
(a)Represents debt that is securitized through bankruptcy-remote special purpose
entities the creditors of which have no recourse to us for principal and
interest.
(b)Includes interest on debt and non-recourse debt; estimated using the stated
interest rates.
(c)Includes (i) $648 million for marketing-related activities; (ii) $60 million
relating to the development of vacation ownership properties; and (iii) $46
million for information technology activities.
(d)Represents obligations to repurchase completed vacation ownership properties
from third-party developers (See Note 7-Inventory to the Condensed Consolidated
Financial Statements for further detail) of which $13 million was included
within Accrued expenses and other liabilities on the Condensed Consolidated
Balance Sheets.
(e)Excludes a $38 million liability for unrecognized tax benefits as it is not
reasonably estimable to determine the periods in which such liability would be
settled with the respective tax authorities.
In addition to the amounts shown in the table above and in connection with our
separation from Cendant, we entered into certain guarantee commitments with
Cendant (pursuant to our assumption of certain liabilities and our obligation to
indemnify Cendant, Realogy, and Travelport for such liabilities) and guarantee
commitments related to deferred compensation arrangements with Cendant and
Realogy. We also entered into certain guarantee commitments and indemnifications
related to the sale of our vacation rentals businesses. For information on
matters related to our former parent and subsidiaries see Note 21-Transactions
with Former Parent and Former Subsidiaries to the Condensed Consolidated
Financial Statements.
In addition to the key contractual obligation and separation related commitments
described above, we also utilize surety bonds in our Vacation Ownership business
for sales and development transactions in order to meet regulatory requirements
of certain states. In the ordinary course of our business, we have assembled
commitments from 12 surety providers in the amount of $2.3 billion , of which we
had $364 million outstanding as of March 31, 2022 . The availability, terms and
conditions and pricing of bonding capacity are dependent on, among other things,
continued financial strength and stability of the insurance company affiliates
providing the bonding capacity, general availability of such capacity and our
corporate credit rating. If the bonding capacity is unavailable or,
alternatively, the terms and conditions and pricing of the bonding capacity are
unacceptable to us, our Vacation Ownership business could be negatively
impacted.
Our secured debt is rated Ba3 with a "negative outlook" by Moody's Investors
Service, BB- with a "stable outlook" by Standard & Poor's Rating Services , and
BB+ with a "negative outlook" by Fitch Rating Agency . A security rating is not a
recommendation to buy, sell or hold securities and is subject to revision or
withdrawal by the assigning rating organization. Reference in this report to any
such credit rating is intended for the limited purpose of discussing or
referring to aspects of our liquidity and of our costs of funds. Any reference
to a credit rating is not intended to be any guarantee or assurance of, nor
should there be any undue reliance upon, any credit rating or change in credit
rating, nor is any such reference intended as any inference concerning future
performance, future liquidity, or any future credit rating.
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CASH FLOW
The following table summarizes the changes in cash, cash equivalents and restricted cash during the three months endedMarch 31, 2022 and 2021 (in millions): 2022 2021 Change Cash provided by/(used in): Operating activities$ 141 $ 78 $ 63 Investing activities (16) (47) 31 Financing activities (79) (884) 805
Effects of changes in exchange rates on cash and cash
equivalents
4 (3) 7 Net change in cash, cash equivalents and restricted cash$ 50 $ (856) $ 906 Operating Activities Net cash provided by operating activities was$141 million for the three months endedMarch 31, 2022 , compared to$78 million in the prior year. This$63 million increase was driven by a$22 million increase in net income, a$36 million increase in non-cash add-back items primarily due to deferred income taxes and a higher provision for loan losses, and a$5 million decrease in cash utilized for working capital. Investing Activities Net cash used in investing activities was$16 million for the three months endedMarch 31, 2022 , compared to$47 million in the prior year. This decrease was primarily related to$35 million of cash payments for the acquisition of the Travel + Leisure brand in 2021.
Financing Activities
Net cash used in financing activities was$79 million for the three months endedMarch 31, 2022 , compared to$884 million in the prior year. This decrease was primarily due to$799 million of repayments on the revolving credit facility and notes in 2021,$47 million of net repayments on non-recourse debt in 2021 compared to$13 million of net proceeds in 2022; partially offset by$45 million of share repurchases in 2022.
Capital Deployment
We focus on deploying capital for the highest possible returns. Ultimately, our business objective is to grow our business while optimizing cash flow and Adjusted EBITDA. We intend to continue to invest in select capital and technological improvements across our business. We may also seek to strategically grow the business through merger and acquisition activities. As part of our merger and acquisition strategy, we have made, and expect to continue to make, acquisition proposals and enter into non-binding letters of intent, allowing us to conduct due diligence on a confidential basis. A potential transaction contemplated by a letter of intent may never reach the point where we enter into a definitive agreement, nor can we predict the timing of such a potential transaction. Finally, we intend to continue to return value to shareholders through the repurchase of common stock and payment of dividends. All future declarations of quarterly cash dividends are subject to final approval by the Board of Directors. During the three months endedMarch 31, 2022 , we spent$13 million on vacation ownership development projects (inventory). We believe that our Vacation Ownership business currently has adequate finished inventory to support vacation ownership sales for several years. During 2022, we anticipate spending between$150 million and$170 million on vacation ownership development projects. The average inventory spend on vacation ownership development projects for the four-year period 2023 through 2026 is expected to be between$140 million and$170 million annually. After factoring in the anticipated additional average annual spending, we expect to have adequate inventory to support vacation ownership sales through at least the next four to five years. During the three months endedMarch 31, 2022 , we spent$10 million on capital expenditures, primarily for information technology and sales center improvement projects. During 2022, we anticipate spending between$60 million and$65 million on capital expenditures.
In connection with our focus on optimizing cash flow, we are continuing our
asset-light efforts in vacation ownership by seeking opportunities with
financial partners whereby they make strategic investments to develop assets on
our behalf. We refer to this as Just-in-Time. The partner may invest in new
ground-up development projects or purchase from us, for cash, existing
in-process inventory which currently resides on our Condensed Consolidated
Balance Sheets. The partner will complete the
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development of the project and we may purchase finished inventory at a future
date as needed or as obligated under the agreement.
We expect that the majority of the expenditures that will be required to pursue our capital spending programs, strategic investments, and vacation ownership development projects will be financed with cash flow generated through operations and cash and cash equivalents. We expect that additional expenditures will be financed with general secured corporate borrowings, including through the use of available capacity under our revolving credit facility.
Share Repurchase Program
OnAugust 20, 2007 , our Board of Directors authorized a share repurchase program that enables us to purchase our common stock. As ofMarch 31, 2022 , the Board of Directors had increased the capacity of the program eight times, most recently inOctober 2017 by$1.0 billion , bringing the total authorization under the current program to$6.0 billion . Proceeds received from stock option exercises have increased the repurchase capacity under the program by$81 million since the inception of this program. We had$283 million of remaining availability in our program as ofMarch 31, 2022 . Under our current share repurchase program, we repurchased 0.8 million shares at an average price of$56.15 for a cost of$45 million during the three months endedMarch 31, 2022 . The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors, including capital allocation priorities. Repurchases may be conducted in the open market or in privately negotiated transactions.
Subsequent to the end of the quarter, our Board of Directors increased the
authorization for the share repurchase program by
Dividends
During the quarterly period endedMarch 31, 2022 , we paid cash dividends of$0.40 per share ($35 million in aggregate). During the quarterly period endedMarch 31, 2021 , we paid cash dividends of$0.30 per share ($26 million in aggregate). Our long-term plan is to grow our dividend at the rate of growth of our earnings at a minimum. The declaration and payment of future dividends to holders of our common stock are at the discretion of our Board of Directors and depend upon many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice, and other factors that our Board of Directors deems relevant. There is no assurance that a payment of a dividend will occur in the future.
SEASONALITY
We experience seasonal fluctuations in our net revenues and net income from sales of VOIs and vacation exchange fees. Revenues from sales of VOIs are generally higher in the third quarter than in other quarters due to increased leisure travel. Revenues from vacation exchange fees are generally highest in the first quarter, which is generally when members of our vacation exchange business book their vacations for the year. Our seasonality has been and could continue to be impacted by COVID-19.
The seasonality of our business may cause fluctuations in our quarterly
operating results. As we expand into new markets and geographical locations, we
may experience increased or different seasonality dynamics that create
fluctuations in operating results different from the fluctuations we have
experienced in the past.
COMMITMENTS AND CONTINGENCIES
From time to time, we are involved in claims, legal and regulatory proceedings, and governmental inquiries related to our 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 15-Commitments and Contingencies to the Condensed Consolidated Financial Statements for a description of claims and legal actions arising in the ordinary course of our business along with our guarantees and indemnifications and Note 21-Transactions with Former Parent and Former Subsidiaries to the Condensed Consolidated Financial Statements for a description of our obligations regarding Cendant contingent litigation, matters related toWyndham Hotels , and matters related to the vacation rentals businesses.
CRITICAL ACCOUNTING ESTIMATES
In presenting our Condensed Consolidated Financial Statements in conformity with
generally accepted accounting principles, we are required to make estimates and
assumptions that affect the amounts reported therein. Several of the estimates
and assumptions we are required to make relate to matters that are inherently
uncertain as they pertain to future events. However,
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events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated results of operations, financial position, and liquidity. We believe that the estimates and assumptions we used when preparing our Condensed Consolidated Financial Statements were the most appropriate at that time. These Condensed Consolidated Financial Statements should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition" and "Results of Operations" and the audited Consolidated Financial Statements included in the Annual Report filed on Form 10-K with theSEC onFebruary 23, 2022 , which includes a description of our critical accounting estimates that involve subjective and complex judgments that could potentially affect reported results.
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