UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

Form 10-Q

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o		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)

 

 

(973) 753-6000

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

 

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 o

 

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 o     No þ

 

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.

 

(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 Exchange Act).  Yes o     No þ

 

The number of shares outstanding of the issuer’s common stock was 178,615,494 shares as of July 31, 2009.

 

 

Table of Contents

 

 

To the Board of Directors and Stockholders of

Wyndham Worldwide Corporation

Parsippany, New Jersey

 

We have reviewed the accompanying consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (the “Company”) as of June 30, 2009, the related consolidated statements of income for the three-month and six-month periods ended June 30, 2009 and 2008, the related consolidated statements of cash flows for the six-month periods ended June 30, 2009 and 2008, and the related consolidated statement of stockholders’ equity for the six-month period ended June 30, 2009. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2009, we expressed an unqualified opinion (which included an explanatory paragraph relating to the fact that, prior to its separation from Cendant Corporation (“Cendant”; known as Avis Budget Group since August 29, 2006), the Company was comprised of the assets and liabilities used in managing and operating the lodging, vacation exchange and rentals, and vacation ownership businesses of Cendant. Included in Notes 22 and 23 to the consolidated and combined financial statements is a summary of transactions with related parties. As discussed in Note 23 to the consolidated and combined financial statements, in connection with its separation from Cendant, the Company entered into certain guarantee commitments with Cendant and has recorded the fair value of these guarantees as of July 31, 2006. As discussed in Note 7 to the consolidated and combined financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 on January 1, 2007. Also, as discussed in Notes 2 and 14 to the consolidated and combined financial statements, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, on January 1, 2008, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FASB Staff Position (“FSP”) FAS 157-2, which was issued on February 12, 2008) on those consolidated and combined financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2008 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

August 6, 2009

 

 

 

See Notes to Consolidated Financial Statements.

 

 

See Notes to Consolidated Financial Statements.

 

 

See Notes to Consolidated Financial Statements.

 

WYNDHAM WORLDWIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)

 

 

See Notes to Consolidated Financial Statements.

 

WYNDHAM WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except share and per share amounts)
(Unaudited)

 

 

Wyndham Worldwide Corporation is a global provider of hospitality products and services. The accompanying Consolidated Financial Statements include the accounts and transactions of Wyndham, as well as the entities in which Wyndham directly or indirectly has a controlling financial interest. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the Consolidated Financial Statements.

 

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the Company’s 2008 Consolidated and Combined Financial Statements included in its Annual Report filed on Form 10-K with the Securities and Exchange Commission on February 27, 2009.

 

The Company applies the equity method of accounting when it has the ability to exercise significant influence over operating and financial policies of an investee in accordance with Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” During the six months ended June 30, 2009, the Company recorded $1 million of net earnings from such investments in other income, net on the Consolidated Statements of Income. During the three and six months ended June 30, 2008, such amounts were $1 million and $2 million, respectively.

 

        Business Description

 

The Company operates in the following business segments:

 

 

        Significant Accounting Policies

 

Intangible Assets.  With regard to the goodwill and other indefinite-lived intangible assets recorded in connection with business combinations, the Company annually (during the fourth quarter of each year subsequent to completing its annual forecasting process) or, more frequently if circumstances indicate impairment may have occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount, reviews the reporting units’ carrying values as required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.”

 

Quoted market prices for the Company’s reporting units are not available; therefore, management must apply judgment in determining the estimated fair value of these reporting units for purposes of performing the annual goodwill impairment test. In performing its impairment analysis, the Company develops its estimated fair values for its reporting units using a combination of the discounted cash flow methodology and the market multiple methodology. The Company uses the discounted cash flow methodology to establish fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The Company uses the market multiple methodology to estimate the terminal value of each reporting unit by comparing such reporting unit to other publicly traded companies that are similar from an operational and economic standpoint.

 

Based on the results of the Company’s impairment evaluation performed during the fourth quarter of 2008, the Company recorded a non-cash charge of $1,342 million for the impairment of goodwill at its vacation ownership reporting unit, where all of the goodwill previously recorded was determined to be impaired. The aggregate carrying values of the Company’s goodwill and other indefinite-lived intangible assets were $1,382 million and $660 million, respectively, as of June 30, 2009 and $1,353 million and $660 million, respectively, as of December 31, 2008. As of June 30, 2009, the Company’s goodwill is allocated between its lodging ($295 million) and vacation exchange and rentals ($1,087 million) reporting units and other indefinite-lived intangible assets are allocated between its lodging ($587 million) and vacation exchange and rentals ($73 million) reporting units. The Company continues to monitor the goodwill recorded at its lodging and vacation exchange and rentals reporting units for indicators of impairment. If economic conditions were to deteriorate significantly, or other important assumptions such as estimates of terminal value were to change significantly, the Company may be required to record an impairment of the goodwill balance at its lodging and vacation exchange and rentals reporting units.

 

Allowance for Loan Losses.  In the Company’s vacation ownership segment, the Company provides for estimated vacation ownership contract receivable cancellations at the time of VOI sales by recording a provision for loan losses as a reduction of vacation ownership interest sales on the Consolidated Statements of Income. The Company assesses the adequacy of the allowance for loan losses based on the historical performance of similar vacation ownership contract receivables. The Company uses a technique referred to as static pool analysis, which tracks defaults for each year’s sales over the entire life of those contract receivables. The Company considers current defaults, past due aging, historical write-offs of contracts, consumer credit scores (FICO scores) in the assessment of borrower’s credit strength and expected loan performance. The Company also considers whether the historical economic conditions are comparable to current economic conditions. If current conditions differ from the conditions in effect when the historical experience was generated, the Company adjusts the allowance for loan losses to reflect the expected effects of the current environment on the collectibility of the Company’s contract receivables.

 

Restricted Cash.  The largest portion of the Company’s restricted cash relates to securitizations. The remaining portion is comprised of cash held in escrow related to the Company’s vacation ownership business and cash held in all other escrow accounts.

 

Securitizations:  In accordance with the contractual requirements of the Company’s various vacation ownership contract receivable securitizations, a dedicated lockbox account, subject to a blocked control agreement, is established for each securitization. At each month end, the total cash in the collection account from the previous month is analyzed and a monthly servicer report, which details how much cash should be remitted to the noteholders for principal and interest payments, is prepared by the Company and any cash remaining is transferred by the trustee back to the Company. Additionally, as required by various securitizations, the Company holds cash based on an agreed-upon percentage of the aggregate outstanding principal balances of the VOI contract receivables collateralizing the asset-backed notes in a segregated trust (or reserve) account as credit enhancement. Each time a securitization closes and the Company receives cash from the noteholders, a portion of the cash is deposited into the reserve account. Such amounts were $148 million and $155 million as of June 30, 2009 and December 31, 2008, respectively, of which $76 million and $80 million were recorded within other current assets as of June 30, 2009 and December 31, 2008, respectively, and $72 million and $75 million were recorded within other non-current assets as of June 30, 2009 and December 31, 2008, respectively, on the Consolidated Balance Sheets.

 

Escrow Deposits:  Laws in most U.S. states require the escrow of down payments on VOI sales, with the typical requirement mandating that the funds be held in escrow until the rescission period expires. As sales transactions are consummated, down payments are collected and are subsequently placed in escrow until the rescission period has expired. Depending on the state, the rescission period can be as short as three calendar days or as long as 15 calendar days. In certain states, the escrow laws require that 100% of VOI purchaser funds (excluding interest payments, if any), be held in escrow until the deeding process is complete. Where possible, the Company utilizes surety bonds in lieu of escrow deposits. Escrow deposit amounts were $25 million and $30 million as of June 30, 2009 and December 31, 2008, respectively, of which $25 million and $28 million were recorded within other current assets as of June 30, 2009 and December 31, 2008, respectively, and $2 million was recorded within other non-current assets as of December 31, 2008, on the Consolidated Balance Sheets.

 

        Changes in Accounting Policies during 2009

 

Business Combinations.  In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), replacing SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business

 

combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted SFAS No. 141(R) on January 1, 2009, as required. There was no material impact on the Company’s Consolidated Financial Statements resulting from the adoption.

 

Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.  In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition to the amendments to ARB No. 51, SFAS No. 160 amends SFAS No. 128; such that earnings per share data will continue to be calculated the same way that such data were calculated before this Statement was issued. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS No. 160 on January 1, 2009, as required. There was no material impact on the Company’s Consolidated Financial Statements resulting from the adoption.

 

Disclosure about Derivative Instruments and Hedging Activities—an amendment of SFAS No. 133.  In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities-an amendment of SFAS No. 133” (“SFAS No. 161”). SFAS No. 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods after November 15, 2008. The Company adopted SFAS No. 161 on January 1, 2009, as required. See Note 8—Derivative Instruments and Hedging Activities for a detailed explanation of the impact of the adoption.

 

        Recently Issued Accounting Pronouncements

 

Fair Value Measurements.  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 explains the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. In February 2008, the FASB issued Staff Position (“FSP”) FAS 157-2, “Effective Date of Statement No. 157” which deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 on January 1, 2008, as required, for financial assets and financial liabilities (see Note 7—Fair Value). On January 1, 2009, the Company adopted SFAS No. 157, as required, for nonfinancial assets and nonfinancial liabilities. There was no material impact on the Company’s Consolidated Financial Statements resulting from such adoption.

 

Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.  In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP FAS 141(R)-1 amends the provisions in SFAS No. 141(R) for the initial recognition and measurement, subsequent measurement and accounting and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after January 1, 2009. There was no material impact on the Company’s Consolidated Financial Statements resulting from the adoption of this standard.

 

Determining Fair Value Under Market Activity Decline.  In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. The FSP is effective for interim or annual reporting periods ending after June 15, 2009. The Company adopted the FSP as of June 30, 2009, as required, and there was no material impact on the Company’s Consolidated Financial Statements.

 

Recognition and Presentation of Other-Than-Temporary Impairments.  In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP FAS 115-2 and FAS 124-2 establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. The FSP is effective for interim or annual reporting periods ending after June 15, 2009. The Company adopted the FSP as of June 30, 2009, as required, and there was no material impact on the Company’s Consolidated Financial Statements.

 

Disclosures About Fair Value of Financial Instruments.  In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Disclosures About Fair Value of Financial Instruments”, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. The FSP is effective for interim or annual reporting periods ending after June 15, 2009. The Company adopted the FSP as of June 30, 2009, as required, and there was no material impact on the Company’s Consolidated Financial Statements.

 

Subsequent Events.  In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. SFAS No. 165 is effective for interim or annual reporting periods ending after June 15, 2009. The Company adopted SFAS No. 165 as of June 30, 2009, as required (see Note 16—Subsequent Events).

 

Accounting for Transfers of Financial Assets.  In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140” (“SFAS No. 166”). SFAS No. 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. SFAS No. 166 is effective for interim or annual reporting periods ending after November 15, 2009. The Company will adopt SFAS No. 166 on January 1, 2010, as required. The Company has preliminarily evaluated the impact of adoption on its Consolidated Financial Statements and believes such impact will not be material.

 

Amendments to FASB Interpretation No. 46(R).  In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS No. 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity, additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS No. 167 is effective for interim or annual reporting periods ending after November 15, 2009. The Company will adopt SFAS No. 167 on January 1, 2010, as required. The Company is currently evaluating the impact of the adoption of SFAS No. 167 on its Consolidated Financial Statements.

 

Codification.  In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will be considered the source of authoritative, nongovernmental GAAP. All other accounting literature not included in the Codification will be considered nonauthoritative. This standard is effective for interim and annual reporting periods ending after September 15, 2009. The Company will use the new guidelines and codification system prescribed by SFAS No. 168 when referring to GAAP beginning the quarterly period ended September 30, 2009. As the Codification was not intended to change or alter existing GAAP, it will not have any impact on the Company’s Consolidated Financial Statements, except with respect to disclosures and references to specific GAAP guidance therein.

 

 

 

The computation of basic and diluted earnings per share (“EPS”) is based on the Company’s net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively.

 

The following table sets forth the computation of basic and diluted EPS:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net income		$	71			$	98			$	116			$	140
Basic weighted average shares outstanding			179				177				178				177
Stock options and restricted stock units			3				1				2				1
Diluted weighted average shares outstanding			182				178				180				178
Earnings per share:
Basic		$	0.40			$	0.55			$	0.65				0.79
Diluted			0.39				0.55				0.64				0.79

 

The computations of diluted earnings per share available to common stockholders do not include approximately 10 million stock options and stock-settled stock appreciation rights (“SSARs”) and warrants to purchase approximately 18 million shares of the Company’s common stock related to the May 2009 issuance of the Company’s Convertible Notes (see Note 6—Long-term Debt and Borrowing Arrangements) for both the three and six months ended June 30, 2009 as the effect of their inclusion would have been anti-dilutive to EPS. During both the three and six months ended June 30, 2008, the amount of anti-dilutive securities included approximately 11 million stock options and SSARs.

 

        Dividend Payments

 

During each of the quarterly periods ended March 31 and June 30, 2009 and 2008, the Company paid cash dividends of $0.04 per share ($15 million in the aggregate during the six months ended June 30, 2009 and $14 million in the aggregate during the six months ended June 30, 2008).

 

 

Intangible assets consisted of:

 

		As of June 30, 2009												As of December 31, 2008
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Unamortized Intangible Assets:
Goodwill		$	1,382											$	1,353
Trademarks		$	660											$	660
Amortized Intangible Assets:
Franchise agreements		$	630			$	288			$	342			$	630			$	278			$	352
Trademarks			—				—				—				3				2				1
Other			93				31				62				91				27				64
		$	723			$	319			$	404			$	724			$	307			$	417

 

As of January 1, 2008, the Company had $31 million of unamortized vacation ownership trademarks recorded on the Consolidated Balance Sheet including its FairShare Plus and WorldMark trademarks. During the first quarter of 2008, the Company recorded a $28 million impairment charge due to the Company’s initiative to rebrand FairShare Plus and WorldMark to the Wyndham brand. The remaining $3 million was reclassified to amortized trademarks and was fully amortized and written-off as of March 31, 2009. See Note 1—Basis of Presentation for further information regarding the Company’s valuation of its goodwill and other intangible assets.

 

The changes in the carrying amount of goodwill are as follows:

 

						Adjustments
		Balance at				to Goodwill								Balance at
		January 1,				Acquired				Foreign				June 30,
		2009				During 2008				Exchange				2009
Lodging		$	297			$	(2	) (a)		$	—			$	295
Vacation Exchange and Rentals			1,056				—				31	(b)			1,087
Total Company		$	1,353			$	(2	)		$	31			$	1,382

        ­ ­

 

Amortization expense relating to amortizable intangible assets was as follows:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Franchise agreements		$	5			$	4			$	10			$	9
Trademarks			—				1				1				1
Other			2				2				3				4
Total (*)		$	7			$	7			$	14			$	14

        ­ ­

 

Based on the Company’s amortizable intangible assets as of June 30, 2009, the Company expects related amortization expense as follows:

 

		Amount
Remainder of 2009		$	14
2010			26
2011			26
2012			25
2013			23
2014			23

 

 

The Company generates vacation ownership contract receivables by extending financing to the purchasers of VOIs. Current and long-term vacation ownership contract receivables, net consisted of:

 

		June 30,				December 31,
		2009				2008
Current vacation ownership contract receivables:
Securitized		$	254			$	253
Non-securitized			41				49
Secured (*)			27				23
			322				325
Less: Allowance for loan losses			(34	)			(34	)
Current vacation ownership contract receivables, net		$	288			$	291
Long-term vacation ownership contract receivables:
Securitized		$	2,483			$	2,495
Non-securitized			490				641
Secured (*)			199				176
			3,172				3,312
Less: Allowance for loan losses			(339	)			(349	)
Long-term vacation ownership contract receivables, net		$	2,833			$	2,963

        ­ ­

 

 

During the three and six months ended June 30, 2009, the Company’s securitized vacation ownership contract receivables generated interest income of $81 million and $163 million, respectively. During the three and six months ended June 30, 2008, such amounts were $78 million and $157 million, respectively.

 

Principal payments that are contractually due on the Company’s vacation ownership contract receivables during the next twelve months are classified as current on the Company’s Consolidated Balance Sheets. During the six months ended June 30, 2009 and 2008, the Company originated vacation ownership contract receivables of $443 million and $795 million, respectively, and received principal collections of $392 million and $425 million, respectively. The weighted average interest rate on outstanding vacation ownership contract receivables was 12.8% and 12.7% as of June 30, 2009 and December 31, 2008, respectively.

 

The activity in the allowance for loan losses on vacation ownership contract receivables was as follows:

 

		Amount
Allowance for loan losses as of January 1, 2009		$	(383	)
Provision for loan losses			(229	)
Contract receivables written-off			239
Allowance for loan losses as of June 30, 2009		$	(373	)

 

In accordance with SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB Statements No. 66 and 67,” the Company recorded the provision for loan losses of $122 million and $229 million as a reduction of net revenues during the three and six months ended June 30, 2009, respectively, and $113 million and $195 million during the three and six months ended June 30, 2008, respectively.

 

 

Inventory consisted of:

 

		June 30,				December 31,
		2009				2008
Land held for VOI development		$	118			$	141
VOI construction in process			325				417
Completed inventory and vacation credits (*)			854				761
Total inventory			1,297				1,319
Less: Current portion			391				414
Non-current inventory		$	906			$	905

        ­ ­

 

Inventory that the Company expects to sell within the next twelve months is classified as current on the Company’s Consolidated Balance Sheets.

 

 

 

The Company’s indebtedness consisted of:

 

		June 30,				December 31,
		2009				2008
Securitized vacation ownership debt:
Term notes		$	1,290			$	1,252
Previous bank conduit facility (a)			209				417
2008 bank conduit facility (b)			131				141
Total securitized vacation ownership debt			1,630				1,810
Less: Current portion of securitized vacation ownership debt			288				294
Long-term securitized vacation ownership debt		$	1,342			$	1,516
Long-term debt:
6.00% senior unsecured notes (due December 2016) (c)		$	797			$	797
Term loan (due July 2011)			300				300
Revolving credit facility (due July 2011) (d)			30				576
9.875% senior unsecured notes (due May 2014) (e)			237				—
3.50% convertible notes (due May 2012) (f)			253				—
Vacation ownership bank borrowings (g)			154				159
Vacation rentals capital leases			135				139
Other			22				13
Total long-term debt			1,928				1,984
Less: Current portion of long-term debt			169				169
Long-term debt		$	1,759			$	1,815

        ­ ­

 

        2009 Debt Issuances

 

Special Asset Facility 2009-A, LLC.  On March 13, 2009, the Company closed a term securitization transaction, Special Asset Facility 2009-A, LLC, involving the issuance of $46 million of investment grade asset-backed notes which are secured by vacation ownership contract receivables. These borrowings bear interest at a coupon rate of 9.0% and were issued at a price of 95% of par.

 

9.875% Senior Unsecured Notes.  On May 18, 2009, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 9.875%, for net proceeds of $236 million. Interest began accruing on May 18, 2009 and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2009. The notes will mature on May 1, 2014 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

 

3.50% Convertible Notes.  On May 19, 2009, the Company issued convertible notes (“Convertible Notes”) with face value of $230 million and bearing interest at a rate of 3.50%, for net proceeds of $224 million. The Company accounted for the conversion feature as a derivative instrument under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and bifurcated such conversion feature from the Convertible Notes for accounting purposes (“Bifurcated Conversion Feature”). The fair value of the Bifurcated Conversion Feature on the issuance date of the Convertible Notes was recorded as original issue discount for purposes of accounting for the debt component of the Convertible Notes. Therefore, interest expense greater than the coupon rate of 3.50% will be recognized by the Company primarily resulting from the accretion of the discounted carrying value of the

 

Convertible Notes to their face amount over the term of the Convertible Notes. As such, the effective interest rate over the life of the Convertible Notes is approximately 10.7%. Interest began accruing on May 19, 2009 and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2009. The Convertible Notes will mature on May 1, 2012. Holders may convert their notes to cash subject to (i) certain conversion provisions determined by the market price of the Company’s common stock, (ii) specified distributions to common shareholders, (iii) a fundamental change (as defined below) and (iv) certain time periods specified in the purchase agreement. The Convertible Notes have an initial conversion reference rate of 78.5423 shares of common stock per $1,000 principal amount (equivalent to an initial conversion price of approximately $12.73 per share of the Company’s common stock), subject to adjustment, with the principal amount and remainder payable in cash. The Convertible Notes are not convertible into the Company’s common stock or any other securities under any circumstances.

 

On May 19, 2009, concurrent with the issuance of the Convertible Notes, the Company entered into convertible note hedge and warrant transactions with certain counterparties. The Company paid $42 million to purchase cash-settled call options (“Call Options”) that are expected to reduce the Company’s exposure to potential cash payments required to be made by the Company upon the cash conversion of the Convertible Notes. Concurrent with the purchase of the Call Options, the Company received $11 million of proceeds from the issuance of warrants to purchase shares of the Company’s common stock.

 

If the market price per share of the Company’s common stock at the time of cash conversion of any Convertible Notes is above the strike price of the Call Options (which strike price is the same as the equivalent initial conversion price of the Convertible Notes of approximately $12.73 per share of the Company’s common stock), such Call Options will entitle the Company to receive from the counterparties in the aggregate the same amount of cash as it would be required to issue to the holder of the cash converted notes in excess of the principal amount thereof.

 

Pursuant to the warrant transactions, the Company sold to the counterparties warrants to purchase in the aggregate up to approximately 18 million shares of the Company’s common stock. The warrants have an exercise price of $20.16 (which represents a premium of approximately 90% over the Company’s closing price per share on May 13, 2009 of $10.61) and are expected to be net share settled, meaning that the Company will issue a number of shares per warrant corresponding to the difference between the Company’s share price at each warrant expiration date and the exercise price of the warrant. The warrants may not be exercised prior to the maturity of the Convertible Notes.

 

The purchase of Call Options and the sale of warrants are separate contracts entered into by the Company, are not part of the Convertible Notes and do not affect the rights of holders under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the purchased Call Options or the sold warrants. The Call Options meet the definition of derivatives under SFAS No. 133. As such, the instruments are marked to market each period. In addition, the derivative liability associated with the Bifurcated Conversion Feature is also marked to market each period. At June 30, 2009, the $253 million Convertible Notes consist of $184 million of debt ($230 million face amount, net of $46 million of unamortized discount) and a derivative liability with a fair value of $69 million related to the Bifurcated Conversion Feature. The Call Options are derivative assets recorded at their fair value of $69 million within other non-current assets in the Consolidated Balance Sheet at June 30, 2009. The warrants meet the definition of derivatives under SFAS No. 133; however, because these instruments have been determined to be indexed to the Company’s own stock, their issuance has been recorded in stockholders’ equity in the Company’s Consolidated Balance Sheet and is not subject to the fair value provisions of SFAS No. 133.

 

Sierra Timeshare 2009-1 Receivables Funding, LLC.  On May 28, 2009, the Company closed a series of term notes payable, Sierra Timeshare 2009-1 Receivables Funding, LLC, in the initial principal amount of $225 million. These borrowings bear interest at a coupon rate of 9.8% and are secured by vacation ownership contract receivables. As of June 30, 2009, the Company has $209 million of outstanding borrowings under these term notes.

 

Sierra Timeshare 2009-B Receivables Funding, LLC.  On June 1, 2009, the Company closed a term securitization transaction, Sierra Timeshare 2009-B Receivables Funding, LLC, in the initial principal amount of $50 million. These borrowings bear interest at a coupon rate of 9.0% and are secured by vacation ownership contract receivables. As of June 30, 2009, the Company had $46 million of outstanding borrowings under these term notes.

 

Vacation Ownership Bank Borrowings.  On June 24, 2009, the Company closed on a 364-day, AUD 193 million, secured, revolving foreign credit facility with a term through June 2010. This facility is used to support the Company’s vacation ownership operations in the South Pacific and bears interest at Australian BBSY plus a spread. This facility replaces a previous secured revolving foreign credit facility, which expired during June 2009. The AUD 193 million facility with an advance rate for new borrowings of approximately 70%. These secured borrowings are collateralized by $226 million of underlying gross vacation ownership contract receivables as of June 30, 2009.

 

The capacity of this facility is subject to maintaining sufficient assets to collateralize these secured obligations. See Note 16—Subsequent Events for more information related to this facility.

 

        Covenants

 

The revolving credit facility and unsecured term loan are subject to covenants including the maintenance of specific financial ratios. The financial ratio covenants consist of a minimum consolidated interest coverage ratio of at least 3.0 to 1.0 as of the measurement date and a maximum consolidated leverage ratio not to exceed 3.5 to 1.0 on the measurement date. The consolidated interest coverage ratio is calculated by dividing Consolidated EBITDA (as defined in the credit agreement and Note 13—Segment Information) by Consolidated Interest Expense (as defined in the credit agreement), both as measured on a trailing 12 month basis preceding the measurement date. As of June 30, 2009, the Company’s interest coverage ratio was 25.3 times. Consolidated Interest Expense excludes, among other things, interest expense on any Securitization Indebtedness (as defined in the credit agreement). The consolidated leverage ratio is calculated by dividing Consolidated Total Indebtedness (as defined in the credit agreement and which excludes, among other things, Securitization Indebtedness) as of the measurement date by Consolidated EBITDA as measured on a trailing 12 month basis preceding the measurement date. As of June 30, 2009, the Company’s leverage ratio was 2.1 times. Covenants in these credit facilities also include limitations on indebtedness of material subsidiaries; liens; mergers, consolidations, liquidations and dissolutions; sale of all or substantially all assets; and sale and leaseback transactions. Events of default in these credit facilities include failure to pay interest, principal and fees when due; breach of covenants; acceleration of or failure to pay other debt in excess of $50 million (excluding securitization indebtedness); insolvency matters; and a change of control.

 

The 6.00% senior unsecured notes and 9.875% senior unsecured notes contain various covenants including limitations on liens, limitations on potential sale and leaseback transactions and change of control restrictions. In addition, there are limitations on mergers, consolidations and potential sale of all or substantially all of the Company’s assets. Events of default in the notes include failure to pay interest and principal when due, breach of a covenant or warranty, acceleration of other debt in excess of $50 million and insolvency matters. The Convertible Notes do not contain affirmative or negative covenants; however, the limitations on mergers, consolidations and potential sale of all or substantially all of the Company’s assets and the events of default for the Company’s senior unsecured notes are applicable to such notes. Holders of the Convertible Notes have the right to require the Company to repurchase the Convertible Notes at 100% of principal plus accrued and unpaid interest in the event of a fundamental change, defined to include, among other things, a change of control, certain recapitalizations and if the Company’s common stock is no longer listed on a national securities exchange.

 

The vacation ownership secured bank facility contains covenants including a consumer loan coverage ratio that requires that the aggregate principal amount of consumer loans that are current on payments must exceed 75% of the aggregate principal amount of all consumer loans in the applicable loan portfolio. If the aggregate principal amount of current consumer loans falls below this threshold, the Company must pay the bank syndicate cash to cover the shortfall. This ratio is also used to set the advance rate under the facility. The facility contains other typical restrictions and covenants including limitations on mergers, partnerships and certain asset sales.

 

As of June 30, 2009, the Company was in compliance with all of the covenants described above including the required financial ratios.

 

Each of the Company’s non-recourse, securitized note borrowings contains various triggers relating to the performance of the applicable loan pools. For example, if the vacation ownership contract receivables pool that collateralizes one of the Company’s 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 amortize the outstanding principal held by the noteholders. As of June 30, 2009, all of the Company’s securitized pools were in compliance with applicable triggers.

 

        Maturities and Capacity

 

The Company’s outstanding debt as of June 30, 2009 matures as follows:

 

		Securitized
		Vacation
		Ownership
		Debt				Other				Total
Within 1 year		$	288			$	169			$	457
Between 1 and 2 years			416				24				440
Between 2 and 3 years			177				595				772
Between 3 and 4 years			192				11				203
Between 4 and 5 years			205				248				453
Thereafter			352				881				1,233
		$	1,630			$	1,928			$	3,558

 

As debt maturities of the securitized vacation ownership debt are based on the contractual payment terms of the underlying vacation ownership contract receivables, actual maturities may differ as a result of prepayments by the vacation ownership contract receivable obligors.

 

As of June 30, 2009 available capacity under the Company’s borrowing arrangements was as follows:

 

		Total				Outstanding				Available
		Capacity				Borrowings				Capacity
Securitized vacation ownership debt:
Term notes		$	1,290			$	1,290			$	—
Previous bank conduit facility			209				209				—
2008 bank conduit facility			784				131				653
Total securitized vacation ownership debt (a)		$	2,283			$	1,630			$	653
Long-term debt:
6.00% senior unsecured notes (due December 2016)		$	797			$	797			$	—
Term loan (due July 2011)			300				300				—
Revolving credit facility (due July 2011) (b)			900				30				870
9.875% senior unsecured notes (due May 2014)			237				237				—
3.50% convertible notes (due May 2012)			253				253				—
Vacation ownership bank borrowings (c)			155				154				1
Vacation rentals capital leases (d)			135				135				—
Other			22				22				—
Total long-term debt		$	2,799			$	1,928				871
Less: Issuance of letters of credit (b)											29
										$	842

        ­ ­

 

        Interest Expense

 

Cash paid related to consumer financing interest expense was $55 million and $56 million during the six months ended June 30, 2009 and 2008, respectively.

 

Interest expense incurred in connection with the Company’s other debt was $28 million and $50 million during the three and six months ended June 30, 2009, respectively, and $24 million and $47 million during the three and six months ended June 30, 2008, respectively, and is recorded within interest expense on the Consolidated Statements of

 

Income. Cash paid related to such interest expense was $44 million and $51 million during the six months ended June 30, 2009 and 2008, respectively.

 

Interest expense is partially offset on the Consolidated Statements of Income by capitalized interest of $2 million and $5 million during the three and six months ended June 30, 2009, respectively, and $6 million and $10 million during the three and six months ended June 30, 2008, respectively.

 

 

Effective January 1, 2008, the Company adopted SFAS No. 157, which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value. The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

 

Level 1: Quoted prices for identical instruments in active markets.

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable.

 

Level 3: Unobservable inputs used when little or no market data is available.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input (closest to Level 3) that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

 

						Fair Value Measure on a
						Recurring Basis
						Significant
						Other				Significant
		As of				Observable				Unobservable
		June 30,				Inputs				Inputs
		2009				(Level 2)				(Level 3)
Assets:
Derivative instruments (a)		$	94			$	25			$	69
Securities available-for-sale (b)			5				—				5
Total assets		$	99			$	25			$	74
Liabilities:
Derivative instruments (c)		$	(133	)		$	(64	)		$	(69	)

        ­ ­

 

The Company’s derivative instruments primarily consist of the Call Options and Bifurcated Conversion Feature related to the Convertible Notes, pay-fixed/receive-variable interest rate swaps, interest rate caps, foreign exchange forward contracts and foreign exchange average rate forward contracts (see Note 8—Derivative Instruments and Hedging Activities for more detail). For assets and liabilities that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using other significant observable inputs are valued by reference to similar assets and liabilities. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets and liabilities in active markets. For assets and liabilities that are measured using significant unobservable inputs, fair value is derived using a fair value model, such as a discounted cash flow model.

 

The following table presents additional information about financial assets which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value as of June 30, 2009:

 

		Fair Value Measurements Using
		Significant Unobservable Inputs (Level 3)
						Derivative
						Liability-
		Derivative				Bifurcated				Securities
		Asset-Call				Conversion				Available-For-
		Options				Feature				Sale
Balance at January 1, 2009		$	—			$	—			$	5
Issuance of Convertible Notes			42				(42	)			—
Change in fair value			27				(27	)			—
Balance at June 30, 2009		$	69			$	(69	)		$	5

 

The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts and estimated fair values of all other financial instruments are as follows:

 

		June 30, 2009								December 31, 2008
						Estimated								Estimated
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Assets
Vacation ownership contract receivables, net		$	3,121			$	2,871			$	3,254			$	2,666
Debt
Total debt (a)			3,558				3,158				3,794				2,759
Derivatives
Foreign exchange forwards (b)
Assets			20				20				10				10
Liabilities			(10	)			(10	)			(11	)			(11	)
Interest rate swaps and caps (c)
Assets			5				5				2				2
Liabilities			(54	)			(54	)			(76	)			(76	)
Convertible Notes related Call Options
Assets			69				69				—				—

        ­ ­

 

 

 

        Foreign Currency Risk

 

The Company uses foreign currency forward contracts to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables, forecasted earnings of foreign subsidiaries and forecasted foreign currency denominated vendor costs. The Company primarily hedges its foreign currency exposure to the British pound and Euro. The majority of forward contracts utilized by the Company do not qualify for hedge accounting treatment under SFAS No. 133. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk that they are intended to hedge. The impact of these forward contracts was not material to the Company’s results of operations, financial position or cash flows during the three and six months ended June 30, 2009, respectively, and during the three and six months ended June 30, 2008, respectively. The pre-tax amount of gains or losses reclassified from other comprehensive income to earnings resulting from ineffectiveness or from excluding a component of the forward contracts’ gain or loss from the effectiveness calculation for cash flow hedges during the three and six months ended June 30, 2009 and 2008, was not material. The amount of gains or losses the Company expects to reclassify from other comprehensive income to earnings over the next 12 months is not material.

 

        Interest Rate Risk

 

The debt used to finance much of the Company’s operations is also exposed to interest rate fluctuations. The Company uses various hedging strategies and derivative financial instruments to create a desired mix of fixed and floating rate assets and liabilities. Derivative instruments currently used in these hedging strategies include swaps and interest rate caps.

 

The derivatives used to manage the risk associated with the Company’s floating rate debt include freestanding derivatives and derivatives designated as cash flow hedges. In connection with its qualifying cash flow hedges, the Company recorded a net pre-tax gain of $14 million and $28 million during the three months ended June 30, 2009 and 2008, respectively, and a net pre-tax gain of $20 million and $2 million during the six months ended June 30, 2009 and 2008, respectively, to other comprehensive income. The pre-tax amount of gains or losses reclassified from other comprehensive income to earnings resulting from ineffectiveness or from excluding a component of the derivatives’ gain or loss from the effectiveness calculation for cash flow hedges was insignificant during the three and six months ended June 30, 2009 and 2008, respectively. The amount of losses that the Company expects to reclassify from other comprehensive income to earnings during the next 12 months is not material. The freestanding derivatives had an immaterial impact on the Company’s results of operations, financial position and cash flows during the three and six months ended June 30, 2009 and 2008, respectively.

 

The following table summarizes information regarding the Company’s derivative instruments as of June 30, 2009:

 

		Assets						Liabilities
		Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts								Other non-current liabilities		$	46
Derivatives not designated as hedging instruments
Interest rate contracts		Other non-current assets		$	5			Other non-current liabilities		$	10
Foreign exchange contracts		Other current assets			20			Accrued exp & other current liabs.			10
Convertible Notes related
Call Options (*)		Other non-current assets			69						—
Bifurcated Conversion Feature (*)					—			Long-term debt			69
Total derivatives not designated as hedging instruments				$	94					$	89

        ­ ­

 

 

The following table summarizes information regarding the Company’s derivative instruments as of December 31, 2008:

 

		Assets						Liabilities
		Balance Sheet Location		Fair Value				Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts								Other non-current liabilities		$	66
Derivatives not designated as hedging instruments
Interest rate contracts		Other non-current assets		$	2			Other non-current liabilities		$	10
Foreign exchange contracts		Other current assets			10			Accrued exp & other current liabs.			11
Total derivatives not designated as hedging instruments				$	12					$	21

 

 

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. During the first quarter of 2007, the Internal Revenue Service (“IRS”) opened an examination for Cendant Corporation’s (“Cendant” or “former Parent”) taxable years 2003 through 2006 during which the Company was included in Cendant’s tax returns.

 

The Company made cash income tax payments, net of refunds, of $29 million and $44 million during the six months ended June 30, 2009 and 2008, respectively. Such payments exclude income tax related payments made to former Parent.