Wyndham Worldwide (WYN)

from proceeds received from stock option exercises. During the period July 1, 2008 through August 8, 2008, we did not repurchase any additional shares and, as such, we currently have $155 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.

 

The IRS has opened an examination for Cendant’s taxable years 2003 through 2006 during which we were included in Cendant’s tax returns. Although we and Cendant believe there is appropriate support for the positions taken on its tax returns, we have recorded liabilities representing the best estimates of the probable loss on certain positions. We believe that the accruals for tax liabilities are adequate for all open years, based on assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although we believe the recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, our and Cendant’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. While we believe that the estimates and assumptions supporting the assessments are reasonable, the final determination of tax audits and any other related litigation could be materially different than that which is reflected in historical income tax provisions and recorded assets and liabilities. Based on the results of an audit or litigation, a material effect on our income tax provision, net income, or cash flows in the period or periods for which that determination is made could result. The effect is the result of our obligations under the Separation and Distribution Agreement, as discussed in Note 13—Separation Adjustments and Transactions with Former Parent and Subsidiaries. We recorded $239 million of tax liabilities pursuant to the Separation and Distribution Agreement at December 31, 2007. Such amount, which was $236 million at June 30, 2008, is recorded within due to former Parent and subsidiaries on the Consolidated Balance Sheet. We expect the payment on a majority of these liabilities to occur during 2010. We expect to make such payment from cash flow generated through operations and the use of available capacity under our $900 million revolving credit facility.

 

The IRS has opened an examination for Cendant’s taxable years 2003 through 2006 during which we were included in Cendant’s tax returns. Although we and Cendant believe there is appropriate support for the positions taken on its tax returns, we have recorded liabilities representing the best estimates of the probable loss on certain positions. We believe that the accruals for tax liabilities are adequate for all open years, based on assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although we believe the recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, our and Cendant’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. While we believe that the estimates and assumptions supporting the assessments are reasonable, the final determination of tax audits and any other related litigation could be materially different than that which is reflected in historical income tax provisions and recorded assets and liabilities. Based on the results of an audit or litigation, a material effect on our income tax provision, net income, or cash flows in the period or periods for which that determination is made could result. The effect is the result of our obligations under the Separation and Distribution Agreement, as discussed in Note 13—Separation Adjustments and Transactions with Former Parent and Subsidiaries. We recorded $239 million of tax liabilities pursuant to the Separation and Distribution Agreement at December 31, 2007. Such amount, which was $238 million at March 31, 2008, is recorded within due to former Parent and subsidiaries on the Consolidated Balance Sheet. We expect the payment on a majority of these liabilities to occur during 2010. We expect to make such payment from cash flow generated through operations and the use of available capacity under our $900 million revolving credit facility.

 

Financing Activities

 

During the nine months ended September 30, 2007, we generated $207 million less cash from financing activities as compared with the same period in 2006, which principally reflects (i) $1,787 million less proceeds from borrowing arrangements entered into during 2006, (ii) $794 million of payments made to reduce our revolving credit facility balance, (iii) the absence of a $760 million capital contribution from our former Parent resulting from the sale of Travelport during 2006, (iv) $386 million for our stock repurchase program, (v) $260 million related to incremental payments made on securitized vacation ownership debt and (vi) our repayment of the outstanding balance of $73 million of vacation rentals bank borrowings. Such cash outflows were partially offset by (i) the absence of a $1,360 million dividend paid to our former Parent during 2006, (ii) $995 less payments from borrowing arrangements entered into during 2006, (iii) $927 million of proceeds from borrowings on our revolving credit facility, (iv) incremental proceeds of $527 million received from additional securitized vacation ownership debt, including our series of secured notes payable entered into in May 2007 and our securitization facility entered into in February 2007 and (v) $30 million of additional proceeds from our vacation ownership bank borrowings.

 

We intend to continue to invest in capital improvements, technological improvements in our lodging business and the development of our vacation ownership, vacation rentals and mixed-use properties. In addition, we may seek to acquire additional franchise agreements, property management contracts and ownership interests in hotel or vacation rental properties on a strategic and selective basis, either directly or through investments in joint ventures. We anticipate spending approximately $185 to $230 million on capital expenditures during 2007 including the improvement of technology and maintenance of technological advantages, routine improvements and information technology infrastructure enhancements resulting from our separation from Cendant. We also anticipate spending approximately $650 to $750 million relating to vacation ownership development projects during 2007. The majority of the expenditures required to complete our capital spending programs and vacation ownership development projects will be financed with cash flow generated through operations. Additional expenditures will be financed with general unsecured corporate borrowings, including through the use of available capacity under our $900 million revolving credit facility.

 

On August 20, 2007, our Board of Directors authorized a stock repurchase program that enabled us to purchase up to $200 million of our common stock. The Board of Directors’ authorization included increased repurchase capacity for proceeds received from stock option exercises. Through September 30, 2007, we had repurchased approximately 560,000 shares at an average price of $31.08. During the three months ended September 30, 2007, repurchase capacity increased $4 million from proceeds received from stock option exercises. During the period October 1, 2007 through November 8, 2007, we purchased an additional 235,000 shares at an average price of $32.69. We currently have $179 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.

Operating Activities

 

During the six months ended June 30, 2007, we generated $111 million less cash from operating activities as compared to the same period in 2006, which principally reflects (i) higher investments in vacation ownership contract receivables and inventory and (ii) less cash received in connection with advanced bookings in arrival based business within our vacation exchange and rentals business for which the revenue recognition is deferred. Such change was partially offset by increased deferred income taxes primarily attributable to higher VOI sales. Inventory and vacation ownership contract receivables are expected to increase for the remainder of 2007 due to growth in VOI sales. The growth in vacation ownership receivables will be partially funded by net proceeds received from secured borrowings.

 

Investing Activities

 

During the six months ended June 30, 2007, we used $129 million less cash for investing activities as compared with the same period in 2006. The decrease in cash outflows primarily relates to (i) the absence of $110 million of intercompany funding to former Parent due to our separation from Cendant and (ii) lower acquisition-related payments of $55 million due to the acquisition of the Baymont brand for approximately $60 million in cash during 2006. Such decreases in cash outflows were partially offset by (i) an increase of $21 million in investments and development advances primarily due an investment made within our lodging business to acquire a minority equity interest and (ii) an increase of $21 million in capital expenditures primarily due to additions at our vacation ownership business and corporate infrastructure costs associated with our separation from Cendant.

 

Financing Activities

 

During the six months ended June 30, 2007, we generated $85 million less cash from financing activities as compared with the same period in 2006, which principally reflects incremental cash outflows of (i) $701 million related to incremental payments made on securitized vacation ownership debt, (ii) $476 million for our stock repurchase program, (iii) $435 million of payments made to reduce our revolving credit facility balance, (iv) our repayment of the outstanding balance of $73 million of vacation rentals bank borrowings and (v) $50 million of less proceeds from borrowings on our vacation ownership asset-linked debt, which was eliminated by our former Parent in July 2006 and (vi) $4 million of additional payments made on vacation rentals capital leases. Such cash outflows were partially offset by (i) incremental proceeds of $961 million received from additional securitized vacation ownership debt, including $600 million from our series of secured notes payable entered into in May 2007 and $155 million from our premium yield facility entered into in February 2007, (ii) $650 million of proceeds from borrowings on our revolving credit facility and (iii) $18 million of additional proceeds from our vacation ownership bank borrowings.

 

We intend to continue to invest in capital improvements, technological improvements in our lodging business and the development of our vacation ownership, vacation rentals and mixed-use properties. In addition, we may seek to acquire additional franchise agreements, property management contracts and ownership interests in hotel or vacation rental properties on a strategic and selective basis, either directly or through investments in joint ventures. We anticipate spending approximately $185 to $230 million on capital expenditures in 2007 including the improvement of technology and maintenance of technological advantages, routine improvements and information technology infrastructure enhancements resulting from our separation from Cendant. We also anticipate spending approximately $650 to $750 million relating to vacation ownership development projects in 2007. The majority of the expenditures required to complete our capital spending programs and vacation ownership development projects will be financed with cash flow generated through operations. Additional expenditures will be financed with general unsecured corporate borrowings, including through the use of available capacity under our $900 million revolving credit facility.

 

On February 13, 2007, our Board of Directors authorized a stock repurchase program that enabled us to purchase up to $400 million of our common stock. The Board of Directors’ authorization included increased repurchase capacity for proceeds received from stock option exercises. We substantially completed such program during June of 2007 with 11.7 million shares purchased at an average price of $35.26. During the period July 1, 2007 through August 8, 2007, we did not repurchase any shares. We currently have $2 million remaining availability in our program due to proceeds received from stock option exercises during the period July 1, 2007 through August 8, 2007.

 

We intend to continue to invest in capital improvements, technological improvements in our lodging business and the development of our vacation ownership, vacation rentals and mixed-use properties. In addition, we may seek to acquire additional franchise agreements, property management contracts and ownership interests in hotel or vacation rental properties on a strategic and selective basis, either directly or through investments in joint ventures. We anticipate spending approximately $185 to $230 million on capital expenditures in 2007 including the improvement of technology and maintenance of technological advantages, routine improvements and information technology infrastructure enhancements resulting from our separation from Cendant. We also anticipate spending approximately $600 to $700 million relating to vacation ownership development projects in 2007. The majority of the expenditures required to complete our capital spending programs and vacation ownership development projects will be financed through cash flow generated through operations. Additional expenditures will be financed through general unsecured corporate borrowings. Our unused borrowing capacity at March 31, 2007 of $814 million under our $900 million revolving credit facility is available to finance our capital spending programs.

 

On August 24, 2006, we announced our intention to commence a stock repurchase program of up to $400 million. We completed such program during January 2007 with 13.5 million shares purchased at an average price of $29.72. On February 13, 2007, our Board of Directors authorized a new stock repurchase program that enables us to purchase up to $400 million of our common stock. The Board of Directors’ authorization included increased repurchase capacity for proceeds received from stock option exercises. Through March 31, 2007, we had repurchased 5.1 million shares at an average price of $34.20. During the period April 1, 2007 through May 9, 2007, we repurchased an additional 3.0 million shares at an average price of $35.26. We currently have $129 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.