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Exhibit 99.1

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[                    ], 2006

Dear Cendant Corporation Stockholder:

I am pleased to inform you that on [                    ], 2006, the Board of Directors of Cendant Corporation approved the distribution of all of the shares of common stock of Wyndham Worldwide Corporation, a wholly owned subsidiary of Cendant, to Cendant stockholders. Wyndham Worldwide holds or will hold the assets and liabilities associated with Cendant’s Hospitality Services (including Timeshare Resorts) businesses, which include the lodging, vacation exchange and rental, and vacation ownership businesses and is one of the preeminent providers of hospitality products and services in the world.

This distribution is being made pursuant to a plan preliminarily approved by our Board on October 23, 2005 to separate Cendant into four independent, publicly traded companies—one for each of Cendant’s Hospitality Services (including Timeshare Resorts), Real Estate Services, Travel Distribution Services and Vehicle Rental businesses. This distribution follows the distribution of the shares of common stock of Realogy Corporation, which holds the assets and liabilities associated with the former Real Estate Services businesses of Cendant. Upon each distribution, Cendant stockholders will own 100% of the common stock of the company being distributed. On April 24, 2006, we announced that as an alternative to distributing shares of the Travel Distribution Services company to Cendant stockholders, Cendant is also exploring the sale of that company. Cendant’s Board of Directors believes that creating four focused companies is the best way to unlock the full value of Cendant’s businesses for the benefit of Cendant, our stockholders and each of the businesses, in both the short and long terms. The Cendant Board expects to receive, prior to the distribution being finally approved, an opinion from Evercore Group L.L.C. to the effect that, as of the date of such opinion, the distribution is fair, from a financial point of view, to the stockholders of Cendant. A copy of the opinion that Evercore is expected to deliver to the Cendant Board will be attached to this information statement as Annex A.

The distribution of Wyndham Worldwide common stock will occur on [                    ], 2006 by way of a pro rata dividend to Cendant stockholders. Each Cendant stockholder will be entitled to receive one share of Wyndham Worldwide common stock (and a related preferred stock purchase right) for every five shares of Cendant common stock held by such stockholder at the close of business on [                    ], 2006, the record date of the distribution. The dividend will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of Wyndham Worldwide common stock will be issued. If you would otherwise have been entitled to a fractional share of Wyndham Worldwide common stock in the distribution, you will receive the net cash value of such fractional share instead.

Stockholder approval of the distribution is not required, and you are not required to take any action to receive your Wyndham Worldwide common stock.

Following the distribution, you will own shares in both Cendant and Wyndham Worldwide. Cendant’s common stock will continue to trade on the New York Stock Exchange under the symbol “CD.” We have applied to list Wyndham Worldwide’s common stock listed on the New York Stock Exchange under the symbol “WYN.”

The information statement, which is being mailed to all Cendant stockholders, describes the distribution in detail and contains important information about Wyndham Worldwide. We urge you to read the information statement carefully.

I want to thank you for your continued support of Cendant and we look forward to your support of Wyndham Worldwide in the future.

Sincerely,

Henry R. Silverman

Chairman of the Board and Chief Executive Officer


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[                    ], 2006

Dear Wyndham Worldwide Corporation Stockholder:

It is my pleasure to welcome you as a stockholder of our company, Wyndham Worldwide Corporation. As one of the world’s largest hospitality companies, we offer our individual consumers and business-to-business customers a broad suite of hospitality products and services across various accommodation alternatives and price ranges through our premier portfolio of world-renowned brands. With more than 20 brands, which include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, TripRewards, RCI, Landal GreenParks, English Country Cottages, Novasol, Fairfield and Trendwest, we have a significant presence in most major hospitality and leisure markets in the United States and throughout the rest of the world. The hospitality products and services we offer include lodging, vacation exchange and rental services, and vacation ownership interests in vacation ownership resorts. We are the world’s largest lodging franchisor, vacation exchange network and vacation ownership business, and we are among the world’s largest global marketers of vacation rental properties.

We have applied to list our common stock on the New York Stock Exchange under the symbol “WYN” in connection with the distribution of our company’s common stock by Cendant Corporation.

I invite you to learn more about Wyndham Worldwide by reviewing the enclosed information statement. We look forward to our future as an independent, publicly traded company and to your support as a holder of Wyndham Worldwide common stock. We also look forward to welcoming you as a new or returning customer at one of our hotels, resorts or other vacation accommodations around the world.

Sincerely,

Stephen P. Holmes

Chairman and Chief Executive Officer


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Preliminary Information Statement

(Subject to Completion, Dated June 16, 2006)

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Information Statement

Distribution of

Common Stock of

WYNDHAM WORLDWIDE CORPORATION

by

CENDANT CORPORATION

to Cendant Corporation Stockholders

This information statement is being furnished in connection with the distribution by Cendant Corporation to its stockholders of all of its shares of common stock of Wyndham Worldwide Corporation, an already-existing, wholly owned subsidiary of Cendant that holds or will hold the assets and liabilities associated with Cendant’s Hospitality Services (including Timeshare Resorts) businesses, which include Cendant’s lodging, vacation exchange and rental, and timeshare resorts businesses. To implement the distribution, Cendant will distribute all of its shares of our common stock on a pro rata basis to the holders of Cendant common stock. Each of you, as a holder of Cendant common stock, will receive one share of Wyndham Worldwide common stock (and a related preferred stock purchase right) for every five shares of Cendant common stock that you held at the close of business on [                    ], 2006, the record date for the distribution. The distribution will be effective as of [                    ], 2006. Immediately after the distribution is completed, Wyndham Worldwide will be an independent public company.

No vote of Cendant stockholders is required in connection with this distribution. We are not asking you for a proxy and you are requested not to send us a proxy. Cendant stockholders will not be required to pay any consideration for the shares of our common stock they receive in the distribution, and they will not be required to surrender or exchange shares of their Cendant common stock or take any other action in connection with the distribution.

All of the outstanding shares of our common stock are currently owned by Cendant. Accordingly, there currently is no public trading market for our common stock. We have filed an application to list our common stock under the ticker symbol “WYN” on the New York Stock Exchange. Assuming that our common stock is approved for listing, we anticipate that a limited market, commonly known as a “when-issued” trading market, for our common stock will develop on or shortly before the record date for the distribution and will continue up to and including through the distribution date, and we anticipate that “regular-way” trading of our common stock will begin on the first trading day following the distribution date.

In reviewing this information statement, you should carefully consider the matters described under the caption “ Risk Factors” beginning on page 32 of this information statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of any of the securities of Wyndham Worldwide Corporation, or determined whether this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 


This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 


The date of this information statement is [                    ], 2006.

This information statement was first mailed to Cendant stockholders on or about [                    ], 2006.


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TABLE OF CONTENTS

 

Summary

   1

Risk Factors

   32

Forward-Looking Statements

   51

The Separation

   53

Dividend Policy

   73

Capitalization

   74

Selected Historical Combined Financial Data

   76

Unaudited Pro Forma Combined Condensed Financial Statements

   79

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   88

Business

   120

Management

   163

Security Ownership of Certain Beneficial Owners and Management

   179

Certain Relationships and Related Party Transactions

   181

Description of Capital Stock

   201

Description of Material Indebtedness

   207

Where You Can Find More Information

   209

Index to Financial Statements

   F-1

Opinion of Evercore Group L.L.C.

   A-1

Opinion of Duff & Phelps, LLC

   B-1

 


TRADEMARKS AND SERVICE MARKS

We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks that we own or have rights to use that appear in this information statement include “Wyndham Hotels and Resorts,” “Ramada,” “Days Inn,” “Super 8,” “TripRewards,” “RCI,” “Landal GreenParks,” “English Country Cottages,” “Novasol,” “Fairfield” and “Trendwest,” which may be registered in the United States and other jurisdictions. Each trademark, trade name or service mark of any other company appearing in this information statement is owned by such company.

INDUSTRY DATA

This information statement includes industry and trade association data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data also is based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. The primary sources for third-party industry data and forecasts are Smith Travel Research, PricewaterhouseCoopers LLP, World Travel and Tourism Council, Travel Industry Association of America and American Resort Development Association and other industry reports and articles. These third-party publications and surveys generally state that the information included therein has been obtained from sources believed to be reliable and that the publications and surveys can give no assurance as to the accuracy or completeness of such information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions on which such data is based. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.


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SUMMARY

This summary highlights selected information from this information statement relating to our company, our separation from Cendant and the distribution of our common stock by Cendant to its stockholders. For a more complete understanding of our business and the separation and distribution, you should carefully read the entire information statement.

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement, including the combined financial statements of the Wyndham Worldwide business of Cendant, which is comprised of the assets and liabilities used in managing and operating the Hospitality Services (including Timeshare Resorts) businesses of Cendant, assumes the completion of all the transactions referred to in this information statement in connection with the separation and distribution. Except as otherwise indicated or unless the context otherwise requires, “Wyndham Worldwide Corporation,” “Wyndham Worldwide,” “we,” “us,” “our” and “our company” refer to Wyndham Worldwide Corporation and its combined subsidiaries, and “Cendant Corporation” and “Cendant” refer to Cendant Corporation and its consolidated subsidiaries. Unless otherwise indicated, information is presented as of March 31, 2006.

Our Company

As one of the world’s largest hospitality companies, we offer individual consumers and business-to-business customers a broad suite of hospitality products and services across various accommodation alternatives and price ranges through our premier portfolio of world-renowned brands. With more than 20 brands, which include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, TripRewards, RCI, Landal GreenParks, English Country Cottages, Novasol, Fairfield and Trendwest, we have built a significant presence in most major hospitality markets in the United States and throughout the rest of the world. In 2006, total spending by domestic and international travelers in the United States is expected to reach $675 billion, an increase of approximately 5% from spending levels in 2005 and of approximately 16% from spending levels in 2000, which witnessed the highest ever levels of travel spending for any year prior to the September 11, 2001 terrorist attacks. Globally, travel spending is expected to grow by 5% in 2006 to $4.5 trillion. Historically, we have pursued what we believe to be financially-attractive entrance points in the major global hospitality markets to strengthen our portfolio of products and services. Wyndham Worldwide is well positioned to compete in the major hospitality segments of this large and growing industry.

We operate primarily in the lodging, vacation exchange and rental, and vacation ownership segments of the hospitality industry:

 

    Through our lodging business, we franchise hotels in the upscale, middle and economy segments of the lodging industry and provide property management services to owners of upscale branded hotels;

 

    Through our vacation exchange and rental business, we provide vacation exchange products and services to owners of intervals of vacation ownership interests, and we market vacation rental properties primarily on behalf of independent owners; and

 

    Through our vacation ownership business, we market and sell vacation ownership interests to individual consumers, provide consumer financing in connection with the sale of vacation ownership interests and provide property management services at resorts.

Each of our lodging, vacation exchange and rental and vacation ownership businesses has a long operating history. Our lodging business began operations in 1990 with the acquisition of the Howard Johnson and Ramada brands, each of which opened its first hotel in 1954. RCI, the best known brand in our vacation exchange and rental business, was established more than 30 years ago, and our vacation ownership brands, Fairfield and Trendwest, began vacation ownership operations in 1980 and 1989, respectively.

 

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We provide directly to individual consumers our high quality products and services, including the various accommodations we market, such as hotels, vacation resorts, villas and cottages, and products we offer, such as vacation ownership interests. We also provide valuable products and services to our business-to-business customers, such as franchisees, affiliated resort developers and prospective developers. These products and services include marketing and central reservation systems, back office services and loyalty programs. We strive to provide value-added products and services that are intended both to enhance the travel experience of the individual consumer and to drive revenue to our business-to-business customers. The depth and breadth of our businesses across different segments of the hospitality industry provide us with the opportunity to expand our relationships with our existing individual consumers and business-to-business customers in one or more segments of our business by offering them additional or alternative products and services from our other segments.

The largest portion of our revenues comes from fees we receive in exchange for providing products and services. We receive fees, for example, as royalties for utilizing our brands and for providing property management and vacation exchange and rental services. The remainder of our revenues comes from the proceeds of sales of products, such as vacation ownership interests, and related services. The fees we earn by providing products and services and proceeds from sales of our products and services provide us with strong and stable cash flows. For the three months ended March 31, 2006 and the full year ended December 31, 2005, we generated revenues of $870 million and $3,471 million, respectively, and net income of $28 million and $431 million, respectively.

Our Business Segments

We operate our business in three segments: Wyndham Hotel Group, our lodging business, RCI Global Vacation Network, our vacation exchange and rental business, and Wyndham Vacation Ownership, our vacation ownership business. We believe that we are an industry leader in each of our business segments.

Wyndham Hotel Group

Wyndham Hotel Group, our lodging business, franchises hotels and provides property management services to owners of upscale branded hotels. Through steady organic growth and acquisitions of established lodging franchise systems over the past 15 years, our lodging business has become the world’s largest lodging franchisor as measured by the number of franchised hotels. Our lodging business has over 6,300 franchised hotels, which represent approximately 525,000 rooms on six continents. Our franchised hotels operate under one of our ten lodging brands, which are Wyndham Hotels and Resorts, Wingate Inn, Ramada, Baymont, Days Inn, Super 8, Howard Johnson, AmeriHost Inn, Travelodge and Knights Inn. The breadth and diversity of our lodging brands provide potential franchisees with a range of options for affiliating their properties with one or more of our brands. Our lodging business has a strong presence across the middle and economy segments of the lodging industry and a developing presence in the upscale segment, thus providing individual consumers who are traveling for leisure or business with options for hospitality products and services across various price ranges. We first entered the upscale segment of the domestic lodging industry in October 2005, when we acquired the franchise and property management businesses associated with the Wyndham Hotels and Resorts brand. We strengthened our position in the middle segment of the domestic lodging industry in April 2006, when we acquired the franchise business of Baymont Inn & Suites.

Throughout this information statement, we use the term “hotels” to apply to hotels, motels and/or other accommodations, as applicable. In addition, the term “franchise system” refers to a system through which a franchisor provides services to hotels whose independent owners pay to receive such services from the franchisor under the specific terms of a franchise agreement. The services provided through a franchise system typically include reservations, sales leads, marketing and advertising support, training, quality assurance inspections, operational support and information, pre-opening assistance, prototype construction plans, and national or regional conferences.

 

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Our franchised hotels represent approximately 10% of the U.S. hotel room inventory. In 2005, our franchised hotels sold 8.2%, or approximately 84.1 million, of the approximately one billion hotel rooms sold in the United States. Throughout this information statement, we refer to nights at hotel rooms as “hotel room nights.” In 2005, our franchised hotels sold approximately 19.5% of all hotel room nights sold in the United States in the economy and midscale segments. Our franchised hotels are dispersed throughout North America, which reduces our exposure to any one geographic region. Approximately 92% of the hotel rooms, or approximately 481,000 rooms, in our franchised hotels are located throughout North America, and approximately 8% of the hotel rooms, or approximately 44,000 rooms, are located outside of North America. In addition, our lodging franchises are dispersed among numerous franchisees, which reduces our exposure to any one lodging franchisee. Of our approximately 5,000 lodging franchisees, no one franchisee accounts for more than 2% of our franchised hotels. In connection with our acquisition of Wyndham Hotels and Resorts’ franchise business in October 2005, we acquired the related property management business and began offering hotel property management services.

Our lodging business derives a majority of its revenues from franchising hotels and derives additional revenues from property management. The sources of revenues from franchising hotels are initial franchise fees, which relate to services provided to assist a franchised hotel to open for business under one of our brands, and ongoing franchise fees, which are comprised of royalty fees and other fees relating to marketing and reservations. The sources of revenues from property management are management fees, incentive fees, service fees and reimbursement revenues. For the three months ended March 31, 2006 and the full year ended December 31, 2005, our lodging business, which is part of the business that Cendant currently refers to as the Hospitality Services business, contributed approximately 17% and 15% of our revenues, respectively, and approximately 23% and 26% of our combined segment EBITDA, respectively.

RCI Global Vacation Network

RCI Global Vacation Network, our vacation exchange and rental business, provides vacation exchange products and services to developers, managers and owners of intervals of vacation ownership interests, and markets vacation rental properties. We are the world’s largest vacation exchange network and among the world’s largest global marketers of vacation rental properties. Our vacation exchange and rental business has access for specified periods, in a majority of cases on an exclusive basis, to approximately 55,000 vacation properties, which are comprised of approximately 4,000 vacation ownership resorts around the world and approximately 51,000 vacation rental properties that are located principally in Europe, which we believe makes us one of the world’s largest marketers of European vacation rental properties as measured by the number of properties we market for rental. Each year, our vacation exchange and rental business provides more than four million leisure-bound families with vacation exchange and rental products and services. The properties available to leisure travelers through our vacation exchange and rental business include hotel rooms and suites, villas, cottages, bungalows, campgrounds, vacation ownership condominiums, city apartments, second homes, fractional private residences, luxury destination clubs and boats. We offer leisure travelers flexibility (subject to availability) as to time of travel and a choice of lodging options in regions to which such travelers may not typically have such ease of access, and we offer property owners marketing services, quality control services and property management services ranging from key-holding to full property maintenance for such properties. Our vacation exchange and rental business markets our products and services using seven primary brands and other related brands and operates through 50 worldwide offices. For the three months ended March 31, 2006 and the full year ended December 31, 2005, our vacation exchange and rental business, which is part of the business that Cendant currently refers to as the Hospitality Services business, contributed approximately 32% and 31% of our revenues, respectively, and approximately 42% and 37% of our combined segment EBITDA, respectively.

Throughout this information statement, we use the term “inventory” in the context of our vacation exchange and rental business to refer to intervals of vacation ownership interests and primarily independently owned

 

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properties, which include hotel rooms and suites, villas, cottages, bungalows, campgrounds, vacation ownership condominiums, city apartments, second homes, fractional private residences, luxury destination clubs and boats. In addition, throughout this information statement, we refer to intervals of vacation ownership interests as “intervals” and individuals who purchase vacation rental products and services from us as “rental customers.”

 

    Vacation Exchange Business

Through our vacation exchange business, RCI, we have relationships with approximately 4,000 vacation ownership resorts in more than 100 countries. Historically, our vacation exchange business consisted of the operation of worldwide exchange programs for owners of intervals. Today, our vacation exchange business also provides property management services and consulting services for the development of tourism-oriented real estate, loyalty programs, in-house and outsourced travel agency services, and third-party vacation club services. We operate our vacation exchange business, RCI, through three worldwide exchange programs: RCI Weeks, an exchange network of traditional, week-long intervals that is the world’s largest vacation ownership exchange network; RCI Points, a global points-based exchange network; and The Registry Collection, a global exchange network of luxury accommodations. Participants in these exchange programs pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related products and services. We refer to participants in these three exchange programs as “members.”

Our vacation exchange business, RCI, derives a majority of its revenues from annual membership dues and exchange fees for transactions. Our vacation exchange business also derives revenues from ancillary services, including travel agency services and loyalty programs.

 

    Vacation Rental Business

The rental properties we market are principally privately-owned villas, cottages and bungalows that generally belong to property owners unaffiliated with us. In addition to these properties, we market inventory from our vacation exchange business to developers of vacation ownership properties and other sources. We market rental properties under proprietary brand names, such as Landal GreenParks, English Country Cottages, Novasol, Cuendet and Canvas Holidays, and through select private-label arrangements. Most of the rental activity under our brands takes place in Europe, the United States and Mexico, although we have the ability to source and rent inventory in approximately 100 countries. Our vacation rental business currently has relationships with approximately 35,000 independent property owners in more than 22 countries, including the United States, United Kingdom, Mexico, France, Ireland, The Netherlands, Belgium, Italy, Spain, Portugal, Denmark, Norway, Sweden, Germany, Greece, Austria, Croatia and certain countries in Eastern Europe and the Pacific Rim. We currently make over 1.4 million vacation rental bookings a year. Our vacation rental business also has the opportunity to market and provide inventory to the over three million owners of intervals who participate in our vacation exchange business. Our vacation rental business also has an ownership interest in, or capital leases for, approximately 9% of the properties in our rental portfolio.

Our vacation rental business primarily derives its revenues from fees, which generally range from approximately 25% to 50% of the gross rent charged. Our vacation rental business also derives revenues from travel insurance sales in Europe, transportation fees, property management fees and on-site revenue from ancillary services, including travel agency services.

Wyndham Vacation Ownership

Wyndham Vacation Ownership, our vacation ownership business, includes marketing and sales of vacation ownership interests, consumer financing in connection with the purchase by individuals of vacation ownership

 

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interests, property management services to property owners’ associations, and development and acquisition of vacation ownership resorts. We operate our vacation ownership business primarily through our two brands, Fairfield and Trendwest. We have the largest vacation ownership business in the world as measured by the numbers of vacation ownership resorts, vacation ownership units and owners of vacation ownership interests. We have developed or acquired over 140 vacation ownership resorts in the United States, Canada, Mexico, the Caribbean and the South Pacific that represent more than 18,000 individual vacation ownership units and over 750,000 owners of vacation ownership interests and other real estate interests.

We pride ourselves on the quality of the resorts in which we sell vacation ownership interests and on our customer service. We believe the quality of the resorts and our customer service result in a consistently high level of customer satisfaction as evidenced by the percentage of owners of vacation ownership interests who buy additional vacation ownership interests each year. In 2005, approximately 37% of our net sales of vacation ownership interests resulted from upgrade sales to existing owners of interests at our vacation ownership resorts.

Our portfolio of resorts includes a mix of destination resorts and drive-to resorts. The majority of the resorts in which Fairfield markets and sells vacation ownership interests are destination resorts that are located at or near attractions, such as the Walt Disney World® Resort in Florida; the Las Vegas Strip in Nevada; Hawaii; Myrtle Beach in South Carolina; and Colonial Williamsburg® in Virginia. Fairfield resorts are located primarily in the United States and, as of March 31, 2006, consisted of 72 resorts that represented approximately 13,300 units. As of March 31, 2006, there were approximately 500,000 owners of vacation ownership interests and other real estate interests in Fairfield resorts. The resorts in which Trendwest markets and sells vacation credits are primarily drive-to resorts that are located in closer proximity to regions in which our owners and prospective owners reside. Trendwest resorts are located primarily in the Western United States, Canada, Mexico and the South Pacific and, as of March 31, 2006, consisted of 69 resorts that represented approximately 4,900 units. As of March 31, 2006, there were over 250,000 owners of vacation credits in Trendwest resorts.

Our vacation ownership brands, Fairfield and Trendwest, operate vacation ownership programs through which vacation ownership interests can be redeemed for vacations through points-based internal reservation systems that provide owners with flexibility (subject to availability) as to resort location, length of stay, unit type and time of year. The points-based reservation systems offer owners redemption opportunities for a wide variety of travel and leisure products, including airfare, cruises, and specialized leisure activities and attractions, and the opportunity for owners to use our products for one or more vacations per year based on level of ownership. Our vacation ownership programs allow us to market and sell our vacation ownership products in variable quantities as opposed to the fixed quantity of the traditional, fixed-week vacation ownership, which is primarily sold on a weekly interval basis, and to offer to existing owners “upgrade” sales to supplement such owners’ existing vacation ownership interests. FairShare Plus, formed in 1991, is Fairfield’s points-based internal reservation system. Our Trendwest brand operates two points-based vacation ownership programs, WorldMark, the Club, formed in 1989, and WorldMark South Pacific Club, formed in 2000, which we refer to collectively as the Clubs.

Our vacation ownership business also provides consumer finance and property management services. We offer financing to the purchasers of vacation ownership interests. Providing consumer financing reduces the initial cash required by customers to purchase vacation ownership interests, thereby enabling us to attract additional customers and generate substantial incremental profits. Similar to other companies that provide consumer financing, we securitize a majority of the receivables originated in connection with selling products, which in our case are vacation ownership interests. As of March 31, 2006, we serviced a portfolio of approximately 236,000 loans that totaled $2,272 million in aggregate principal amount outstanding. Our property management business generally provides day-to-day management for vacation ownership resorts, including oversight of housekeeping services, maintenance and refurbishment of the units, and provides certain accounting and administrative services to property owners’ associations.

 

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Our vacation ownership business derives a majority of its revenues from the sales of vacation ownership interests and derives other revenues from consumer financing and property management. For the three months ended March 31, 2006 and the full year ended December 31, 2005, our vacation ownership business, which is the same business that Cendant currently refers to as the Timeshare Resorts business, contributed approximately 51% and 54% of our revenues, respectively, and approximately 35% and 37% of our combined segment EBITDA, respectively.

Our Strengths

We believe that the following competitive strengths differentiate us in the hospitality industry:

 

    Strong portfolio of global, well-recognized brands

We believe that our brand names, which are some of the world’s most well-recognized brands in the hospitality industry, serve as the foundation for our industry-leading businesses. We believe that the strong market presence and familiarity of our brands attract customers to the products and services offered by our businesses. For our lodging business, our brand names include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8 and TripRewards. Hotels associated with our lodging brands operate in the upscale, middle and economy segments of the lodging industry and therefore provide leisure and business customers with options for hospitality products and services across various price ranges. For our vacation exchange and rental business, our brand names include RCI, which is a vacation exchange brand, and Landal GreenParks, English Country Cottages and Novasol, which are some of Europe’s best known vacation rental brands. For our vacation ownership business, our brand names include Fairfield and Trendwest, which benefit from high levels of customer satisfaction as evidenced by the volume of annual revenues resulting from upgrade sales to our existing owners of vacation ownership interests.

 

    Industry leading positions across our business segments

We believe that our industry leading positions across our business segments help us to attract customers and position us for continued growth. We are the world’s largest lodging franchise business as measured by the number of franchised hotels, vacation exchange company as measured by the numbers of exchanges per year and members, and vacation ownership business as measured by the numbers of vacation ownership resorts, vacation ownership units and owners of vacation ownership interests, and we are among the world’s largest global marketers of vacation rental properties.

 

    Diversity of inventory and customer base

We market a breadth of accommodations, including hotel rooms and suites, vacation ownership interests, villas, cottages, bungalows, campgrounds, vacation ownership condominiums, city apartments, second homes, fractional private residences, luxury destination clubs and boats. The diversity of our inventory provides individual consumers options with respect to accommodations, and our experience with such inventory has enabled us to build extensive expertise across a variety of accommodation categories. Individual consumers value having options with respect to accommodations, and our business-to-business customers value our expertise with respect to our accommodations. In addition to having a breadth of hospitality accommodations, we have a diverse customer base across our business segments. Our customers include our franchisees, members, rental customers and owners of vacation ownership interests, many of whom are potential purchasers of additional products and services from our businesses. Our loyalty programs encourage repeat business, which generally results in enhanced margins, as compared to the margins associated with new customer acquisitions. In addition, our franchisees and members, by the nature of our business models, provide a level of annuity-like revenue and earning streams.

 

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    Diversity and breadth help mitigate effects of economic downturns, political unrest and natural disasters

We believe that our breadth of lodging inventory helps to insulate us during periods of weakness in the overall travel sector because our lodging inventory has a significant presence in the economy and middle segments of the domestic lodging market, which tend to display relative strength at times when the broader travel sector experiences weakness and concurrent decreases in airline travel. This relative strength can be attributed in part to the drive-to nature of many of the properties that operate in the economy and the middle segments of the lodging industry. In addition, we believe that the geographic diversity of our businesses mitigates the risk that exogenous events, such as regional economic slowdowns, political unrest or natural disasters, will have a material adverse effect on our financial results.

 

    Innovation

We develop unique products and services to meet the needs of our franchisees, members, rental customers and owners of vacation ownership interests. We were one of the first vacation exchange companies to introduce a points-based vacation exchange system and one of the first vacation ownership companies to offer a points-based vacation ownership system. Our loyalty programs, including TripRewards and RCI Elite Rewards, are innovative in both their breadth of benefits and their development of ways participants can earn and use points. We believe that our innovation enables us to respond more effectively to changes in members’ and rental customers’ preferences for accommodation and vacation experiences, and our responses to these changing preferences help us to maintain and increase revenues and earnings.

 

    Significant scale

We believe that our size and general scale allow us to (i) provide individual consumers choice of destinations and accommodation types across various price ranges on six continents, (ii) offer our business-to-business customers, including our franchisees, value-added global business solutions with respect to operations, services and technology, (iii) reduce our operational risk and (iv) generate operating efficiencies, including purchasing efficiencies, that enable us to provide products and services in a cost-effective manner and to acquire new individual consumers and business-to-business customers at a relatively low cost. The benefits of our size and scale provide us with increased profit margins and access to capital to execute our strategies to grow our business.

 

    Stable revenues and earnings from diverse sources, and strong and stable cash flows

Our fee-for-service based businesses, lodging and vacation exchange and rental, and our vacation ownership business (which has a fee-for-service component) provide us with stable revenues and earnings from diverse sources, and strong and stable cash flows. Our lodging business derives revenues from franchise fees, including royalty fees, and property management fees. Our vacation exchange and rental business derives revenues from annual membership dues and exchange fees for transactions and from commissions and rental fees in connection with vacation rentals. Our vacation ownership business derives fee-based revenues from property management fees. The stable revenues and earnings we derive from these fee-based models provide us with strong and stable cash flows. In addition, the sales of vacation ownership interests by our vacation ownership business and the consumer financings of such sales augment our revenues, earnings and cash flows from fees.

 

    Strong management team

We believe that our strong management team will effectively execute our growth strategies. Collectively, our chief executive officer and the chief executive officers of our lodging, vacation exchange and rental, and vacation ownership businesses have 60 years of combined experience in the hospitality industry, and our chief financial officer, general counsel and chief human resources officer

 

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have 30, 16 and 18 years of experience, respectively, in their respective fields. We believe that having a strong management team with extensive experience enables us to respond to changing market conditions and evolving preferences of our customers and is essential to our overall success and our future growth as a stand-alone hospitality company.

Our Strategy

Our company-wide business strategy includes generating new customers and selling additional products and services to our current customers by utilizing our unique range of inventory and offering improved products and services that enhance the value we provide to customers. We seek to generate new customers for our products and services by, for example, attracting additional leisure and business travelers in the upscale segment of the lodging industry to new and existing hotels franchised under the Wyndham Hotels and Resorts brand. We seek to sell to our current customers in one or more segments of the hospitality industry additional products and services from other segments by, for example, providing customers of our vacation exchange and rental business with access to inventory from our lodging business and by improving our products and services, including loyalty programs and property management services, to enhance the value we provide to customers. In addition, we seek to expand our international presence in the hotel and vacation ownership segments.

We expect to increase profits and cash flows in each of our three segments by successfully executing the following strategies:

 

    Wyndham Hotel Group.  We intend to continue to accelerate growth of our lodging business by (i) expanding our strong presence in the domestic economy segment to maintain our leadership position through room growth and RevPAR growth; (ii) expanding the number of properties in the domestic middle and upscale segments; and (iii) expanding our international presence through increasing the number of properties in our core brands.

 

    RCI Global Vacation Network.  We intend to continue to grow the numbers of members and rental customers of and transactions facilitated through our vacation exchange and rental business by (i) continually enhancing our core vacation networks; (ii) developing new business models; and (iii) expanding into new markets.

 

    Wyndham Vacation Ownership.  We intend to grow our vacation ownership business by increasing sales of vacation ownership interests to new owners and sales of upgrades to existing owners by expanding our marketing and sales efforts, strengthening our product offerings and further developing our consumer financing activities. We plan to leverage the Wyndham brand in our marketing efforts, add new resorts, expand our marketing alliances and increase our on-site sales activities to existing owners.

Our Risks

We face a number of risks and uncertainties relating to our business. Examples of the risks and uncertainties that we face include:

 

    The hospitality industry is highly competitive, and our continued success depends, in large part, upon our ability to compete effectively in markets that contain numerous competitors, some of which may have significantly greater financial, marketing and other resources than we have.

 

    We may not be successful in achieving our objectives for increasing the number of franchised and managed properties in our lodging business, the number of vacation exchange members acquired by our vacation exchange business, the number of rental weeks sold by our vacation rental business and the number of tours generated and vacation ownership interests sold by our vacation ownership business.

 

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    Our revenues and profits, and in turn our financial condition, may be significantly adversely affected by exogenous events that generally adversely affect the travel industry. Such events include terrorist incidents and threats, acts of God, war, bird flu and other pandemics, the financial instability of many of the air carriers, airline job actions and strikes, and increases in gas and other fuel prices. In addition, our businesses may be adversely affected by a deterioration in general economic conditions or a weakening of one or more of the industries in which we operate.

 

    We have not operated as an independent company and have in the past relied on Cendant for certain services. We may be unable to make the changes necessary to operate as an independent company or to obtain these services from unaffiliated third parties on reasonable terms or at all.

 

    As part of our separation from Cendant, we will be responsible for certain of Cendant’s contingent and other corporate liabilities. Assuming our separation from Cendant occurred on March 31, 2006, we would have recorded liabilities of approximately $236 million, which represents a 30% share of such Cendant contingent and other corporate liabilities, or, assuming a sale of Travelport by Cendant (as more fully described elsewhere in this information statement), of approximately $292 million, which represents a 37.5% share of such contingent and other corporate liabilities.

 

    At the time of our separation from Cendant, we expect to incur approximately $1,360 million of debt with external lenders to repay a portion of Cendant’s debt (the amount of which may be adjusted at the time of our separation (as more fully described elsewhere in this information statement)). In the event of a sale of Travelport (as more fully described elsewhere in this information statement), which may not occur until after our separation from Cendant, we expect to receive cash proceeds of approximately $785 million from Cendant which we will use to reduce and/or repay our outstanding indebtedness. There can be no assurance that the Travelport sale will occur or if it does occur that the actual amount of cash proceeds we receive will be within the range provided above.

For further discussion of these risks and other risks and uncertainties that we face, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Separation

Overview

On October 23, 2005, the Board of Directors of Cendant preliminarily approved a plan to separate Cendant into four independent, publicly traded companies—one for each of Cendant’s Hospitality Services (including Timeshare Resorts), Real Estate Services, Travel Distribution Services and Vehicle Rental businesses. The separation will occur through distributions to Cendant’s stockholders of all of the shares of common stock of three subsidiaries of Cendant that hold or will hold the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of the businesses other than the Vehicle Rental business, which will remain after the distributions. Following each distribution, Cendant stockholders will own 100% of the common stock of the subsidiary being distributed. The distribution to Cendant’s stockholders of all of the shares of common stock of Wyndham Worldwide, an already-existing, wholly owned subsidiary of Cendant that holds or will hold the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses, is expected to be the second in a series of distributions to effectuate the plan to separate Cendant into four companies. The distribution of the shares of Wyndham Worldwide common stock is expected to follow the distribution of the shares of common stock of Realogy Corporation, or Realogy, which holds the assets and liabilities, including the entities holding substantially all of the assets and liabilities, associated with the former Real Estate Services businesses of Cendant. The third and final distribution at this time is expected to be of the shares of common stock of Travelport Inc., or Travelport, the Cendant subsidiary that will hold the assets and liabilities, including the

 

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entities holding substantially all of the assets and liabilities, associated with Cendant’s Travel Distribution Services businesses. As explained more fully below, on April 24, 2006, Cendant announced that as an alternative to distributing shares of Travelport to Cendant stockholders, Cendant is also exploring the sale of Travelport. On May 30, 2006, Cendant announced progress in its alternative plan to sell Travelport, making a sale of Travelport more likely than a distribution of the common stock of Travelport to Cendant stockholders. On June 8, 2006, Cendant announced that it was exploring simultaneous distributions of Realogy and Wyndham Worldwide common stock. Following completion of the separation plan, it is expected that Cendant will change its name to Avis Budget Group, Inc.

Before the separation of Realogy from Cendant, we will enter into a Separation and Distribution Agreement and several other agreements with Cendant and Cendant’s other businesses to effect the separation and provide a framework for our relationships with Cendant and Cendant’s other businesses after the separation. These agreements will govern the relationships among us, Cendant, Realogy and Travelport subsequent to the completion of the separation plan and provide for the allocation among us, Cendant, Realogy and Travelport of Cendant’s assets, liabilities and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to our separation from Cendant. The Separation and Distribution Agreement, in particular, requires us to assume 30% of certain contingent and other corporate liabilities of Cendant or its subsidiaries which are not primarily related to our business or the businesses of Realogy, Travelport or Cendant’s Vehicle Rental business, and Realogy and Travelport will each assume 50% and 20%, respectively, of such contingent and other corporate liabilities. The parties to the Separation and Distribution Agreement agreed that following completion of the separation plan, Cendant, which will consist of the Vehicle Rental business, will not retain any contingent or other corporate liabilities incurred prior to the completion of the separation plan that are not primarily related to the Vehicle Rental business because the Vehicle Rental company is expected to have more total debt, both secured and unsecured, and/or lower credit ratings, than us, Realogy and Travelport. These contingent and other corporate liabilities of Cendant or its subsidiaries include liabilities relating to (i) Cendant’s terminated or divested businesses, (ii) in the event of a sale of Travelport (as described below), liabilities relating to the Travelport sale, if any, (iii) certain litigation matters as more fully described in the section “Business— Employees, Properties and Facilities, Government Regulation and Legal Proceedings—Legal Proceedings—Legal—Cendant Corporate Litigation” and (iv) generally any actions with respect to the separation plan or the distributions brought by any third party.

Pursuant to the Separation and Distribution Agreement, we expect to incur approximately $1,360 million of debt, all the proceeds of which will be transferred to Cendant to repay a portion of Cendant’s corporate debt (including its existing asset-linked facility relating to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses). In addition, prior to our separation from Cendant, each of Realogy and Travelport will incur debt and will transfer such proceeds to Cendant. With the aggregate proceeds received from each of us, Realogy and Travelport, along with cash on hand at Cendant (available to be utilized to repay its corporate debt), Cendant has agreed to repay all of its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate indebtedness and to fund the actual and estimated cash expenses borne by Cendant relating to the separation. The actual amount of debt that we incur at the time of our separation may be more or less than $1,360 million depending upon the actual operating performance of Cendant and a more refined calculation of the cash outlays relating to the separation plan. In addition, the Separation and Distribution Agreement provides for an adjustment in the amount of indebtedness we will incur in connection with our separation in the event that the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, is less than or more than the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior

 

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to the completion of the plan of separation). In the event that such amounts are less than the amount necessary to enable Cendant to repay its outstanding corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, we would be required to incur additional indebtedness equal to such insufficiency up to $100 million and transfer such additional amounts to Cendant. To the extent the insufficiency is in excess of $100 million, we would be required to incur additional indebtedness equal to 37.5% of such excess and Realogy would be required to make a payment to Cendant (or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant) equal to 62.5% of such excess. However, if at the time of our separation a definitive agreement relating to a sale of Travelport has been executed, any such insufficiency will result in an upward adjustment in the amount of indebtedness incurred by Travelport, but only to the extent that Travelport is able to obtain such additional debt financing on commercially reasonable terms. Thereafter, if there is still an insufficiency, we will be responsible for the first $100 million (as described above) and we and Realogy would be responsible for 37.5% and 62.5%, respectively, of any excess over $100 million (as described above). See “The Separation—Incurrence of Debt.”

The announcement of the proposed separation plan indicated that the Cendant Board believes that the separation is the best way to unlock the full value of Cendant’s businesses in both the short and long terms, which the Cendant Board does not believe has been fully recognized by the investment community. Cendant believes that the separation into four independent, publicly traded companies should not only enhance their strength, but also improve each company’s strategic, operational and financial flexibility. Although there can be no assurance, Cendant believes that over time following the separation, the common stock of the separated companies should have a higher aggregate market value, on a fully distributed basis and assuming the same market conditions, than if Cendant were to remain under its current configuration. Cendant expects that such value increase in the common stock should enhance the value of equity-based compensation for the employees of the separated companies and should permit the separated companies to effect future acquisitions with their own common stock in a manner that preserves capital with less dilution of the existing stockholders’ interests than would occur by issuing pre-distribution Cendant common stock, in each case, resulting in a real and substantial benefit for the companies. Further, the Cendant Board believes that the separation should allow each separated company to maintain a sharper focus on its core business and growth opportunities, which should allow each separated company to be better able to make the changes to its business necessary for it to respond to developments in the industry in which it operates. See “The Separation—Reasons for the Separation,” included elsewhere in this information statement.

The Cendant Board expects to receive an opinion from Evercore Group L.L.C., or Evercore, to the effect that, as of the date of such opinion, the distribution is fair, from a financial point of view, to the stockholders of Cendant. The Cendant Board also expects to receive an opinion from Duff & Phelps, LLC, or Duff & Phelps, to the effect that Wyndham Worldwide and Cendant each will be solvent and adequately capitalized immediately after the distribution and that Cendant has sufficient surplus under Delaware law to declare the dividend of Wyndham Worldwide common stock.

The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. See “The Separation—Conditions to the Distribution,” included elsewhere in this information statement. Furthermore, we cannot provide any assurance that the final distribution, which at this time is expected to be the distribution of shares of common stock of Travelport, will be completed, nor can we provide information at this time with respect to the terms on which the final distribution will be consummated. The final distribution is subject to certain conditions precedent, including final approval of the Cendant Board.

We hold or will hold the assets and liabilities of Cendant’s Hospitality Services (including Timeshare Resorts) businesses as a result of an internal reorganization implemented by Cendant. Our headquarters are located at Seven Sylvan Way, Parsippany, New Jersey 07054, and our general telephone number is (973) 496-8900. We maintain an Internet site at http://www.[                    ].com. Our website and the information contained on that site, or connected to that site, are not incorporated by reference into this information statement.

 

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Potential Sale of Travelport

On April 24, 2006, Cendant announced a modification to its previously announced separation plan. As an alternative to pursuing its original plan to distribute the shares of common stock of Travelport to Cendant stockholders, Cendant is also exploring the possible sale of Travelport. This modification does not affect Cendant’s plan to distribute our shares and the shares of Realogy to Cendant stockholders. Since this announcement, Cendant, together with its financial advisors, has actively pursued the potential sale of Travelport, while at the same time continuing preparations for the distribution of Travelport’s shares to Cendant stockholders (expected in October 2006). On May 30, 2006, Cendant announced progress in pursuing its alternative plan to sell Travelport rather than distributing Travelport’s shares to Cendant stockholders, making a sale the more likely alternative. While Cendant is engaged in preliminary discussions with several interested parties, there can be no assurance that a sale of Travelport will be completed or as to the terms of any such sale. In addition, were a sale of Travelport to occur, there can be no assurance that Cendant will have entered into a definitive agreement with respect to such sale prior to our separation from Cendant.

Pursuant to the Separation and Distribution Agreement, Cendant has agreed to use its reasonable best efforts to effect the sale of Travelport and Cendant will be required to effect such a sale if it is able to receive an opinion from a nationally-recognized investment bank to the effect that the proposed purchase price in connection with a sale of Travelport is fair from a financial point of view to Cendant (without considering the use of proceeds of such a sale). Subject to the foregoing sentence and limited rights of consultation that we and Realogy will have, Cendant will have the sole right and authority to control the sale process and potential sale of Travelport. However, Cendant will be required to distribute the shares of common stock of Travelport to Cendant stockholders as originally planned if Cendant has not signed a definitive agreement to sell Travelport by September 30, 2006 or, if a sale agreement has been entered into prior to September 30, 2006, if the sale of Travelport has not been completed by December 31, 2006. In addition, the Separation and Distribution Agreement will contain certain other requirements relating to a Travelport sale, including that the definitive sale agreement contain terms and provisions reasonably customary for a transaction of this kind.

Unless and until Cendant enters into a definitive agreement for a sale of Travelport and such a sale is completed, the implications of a sale on our separation from Cendant cannot be fully determined. However, if Cendant were to sell Travelport, the terms of our separation, as well as Realogy’s separation, from Cendant would be impacted. If there were a sale of Travelport, which may not occur until after our separation from Cendant, a portion of the cash proceeds from the sale (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness) would be contributed to us and Realogy and such proceeds would be utilized to reduce and/or repay the indebtedness incurred by us and Realogy in connection with our separations (for a detailed discussion of our planned borrowings in connection with our separation, see “Description of Material Indebtedness”). Accordingly, assuming gross cash proceeds in a Travelport sale in the range of $4,300 million to $4,800 million (which represents an estimate of expected gross cash sale proceeds based on non-binding indications of interest received to date), we estimate that following our receipt and utilization of such cash proceeds to reduce and/or repay the approximately $1,360 million of indebtedness we expect to incur at the time of our separation, our indebtedness would be approximately $575 million. The actual amount of our remaining indebtedness may be more or less than the range provided above depending on the following:

 

    the actual sale price of Travelport;

 

    the form of the consideration, including the inclusion of any non-cash proceeds;

 

    the amount of expenses, estimated taxes and other payments incurred in connection with such sale;

 

    the amount of projected lost tax attributes of Cendant as a result of such sale; and

 

    the application of sale proceeds that have priority over contributions to us.

 

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See “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Separation and Distribution Agreement—Potential Sale of Travelport.”

In the event Travelport is not sold, we will not receive any proceeds and therefore our indebtedness will not be reduced. In addition, in the event that a Travelport sale includes non-cash consideration, we could not use such non-cash consideration to reduce our indebtedness.

In addition, if a sale of Travelport were to occur, the Separation and Distribution Agreement provides that Cendant’s contingent and other corporate liabilities (which would include any liabilities of Cendant incurred in connection with a Travelport sale) and assets (which would include any non-cash or deferred cash proceeds received in connection with a Travelport sale) will be reallocated such that:

 

  we will assume 37.5% and Realogy will assume 62.5% of these contingent and other corporate liabilities of Cendant and its subsidiaries;

 

  we will be entitled to 37.5% and Realogy will be entitled to 62.5% of these contingent and other corporate assets of Cendant and its subsidiaries; and

 

  Travelport will no longer have any responsibility for or rights with respect to any of these contingent corporate or other liabilities and assets of Cendant and its subsidiaries.

Assuming our separation from Cendant occurred on March 31, 2006 and assuming a sale of Travelport, we would have recorded liabilities of approximately $292 million resulting from the reallocation of our and Realogy’s assumption of a portion of Cendant’s contingent and other corporate liabilities to our assumption of 37.5% (instead of 30%) and Realogy’s assumption of 62.5% (instead of 50%) of Cendant’s contingent and other corporate liabilities, respectively. In the event Travelport is not sold, in which case our allocable portion of Cendant’s contingent and other corporate liabilities would remain at 30%, we would have recorded liabilities of $236 million on March 31, 2006.

 

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Questions and Answers about Wyndham Worldwide and the Separation

 

Why is the separation of Wyndham Worldwide structured as a distribution?

Cendant believes that a tax-free distribution of shares of Wyndham Worldwide and of the entities that hold or will hold substantially all of the assets and liabilities of the other Cendant businesses other than Cendant’s Vehicle Rental business is a tax-efficient way to separate the businesses in a manner that will create benefits and/or value for us and Cendant and long-term value for us and Cendant stockholders.

 

How will the separation of Wyndham Worldwide work?

The separation will be accomplished through a series of transactions that will result in Wyndham Worldwide, a Delaware corporation and an already-existing, wholly owned subsidiary of Cendant, holding the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses, with the common stock of Wyndham Worldwide being distributed by Cendant to its stockholders on a pro rata basis.

 

When will the distribution occur?

We expect that Cendant will distribute the shares of Wyndham Worldwide common stock on [            ], 2006 to holders of record of Cendant common stock on [            ], 2006, the record date.

 

What do stockholders need to do to participate in the distribution?

Nothing, but we urge you to read this entire document carefully. Stockholders who hold Cendant common stock as of the record date will not be required to take any action to receive Wyndham Worldwide common stock in the distribution. No stockholder approval of the distribution is required or sought. We are not asking you for a proxy and you are requested not to send us a proxy. You will not be required to make any payment, surrender or exchange your shares of Cendant common stock or take any other action to receive your shares of our common stock. If you own Cendant common stock as of the close of business on the record date, Cendant, with the assistance of Mellon Investor Services, the distribution agent, will electronically issue shares of our common stock to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. Mellon Investor Services will mail you a book-entry account statement that reflects your shares of Wyndham Worldwide common stock, or your bank or brokerage firm will credit your account for the shares. If you sell shares of Cendant common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of Wyndham Worldwide common stock in the distribution. Following the distribution, stockholders whose shares are held in book-entry form may request that their shares of Wyndham Worldwide common stock held in book-entry form be transferred to a brokerage or other account at any time, without charge.

 

Can Cendant decide to cancel the distribution of the common stock even if all the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. See “The Separation—Conditions to the Distribution,” included elsewhere in this information statement. Cendant has the right to terminate the distribution, even if all of the conditions are

 

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satisfied, if at any time the Cendant Board determines that the distribution is not in the best interests of Cendant and its stockholders or that market conditions are such that it is not advisable to separate the Hospitality Services (including Timeshare Resorts) businesses from Cendant.

 

Does Wyndham Worldwide plan to pay dividends?

The declaration and payment of future dividends by us will be subject to the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt obligations, legal requirements, regulatory constraints and other factors deemed relevant by our Board.

 

Will Wyndham Worldwide incur any debt?

Yes. In connection with our separation, we expect to enter into borrowing arrangements for a total of $2,000 million, comprised of a $300 million term loan facility, an $800 million interim loan facility and a $900 million revolving credit facility. At or prior to the distribution, we expect to draw $1,360 million against those facilities and issue approximately $70 million in letters of credit, leaving approximately $570 million available to provide liquidity for additional letters of credit and for working capital and ongoing corporate needs. All of the approximately $1,360 million of debt we expect to incur will be transferred to Cendant solely to repay a portion of Cendant’s corporate debt (including its existing asset-linked facility relating to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses). The actual amount of debt that we incur at the time of our separation may be more or less than $1,360 million depending upon the actual operating performance of Cendant and a more refined calculation of the cash outlays relating to the separation plan. In addition, the Separation and Distribution Agreement provides for an adjustment in the amount of indebtedness we will incur in connection with our separation in the event that the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, is less than or more than the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation). In the event that such amounts are less than the amount necessary to enable Cendant to repay its outstanding corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, we would be required to incur additional indebtedness equal to such insufficiency up to $100 million and transfer such additional amounts to Cendant. To the extent the

 

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insufficiency is in excess of $100 million, we would be required to incur additional indebtedness equal to 37.5% of such excess and Realogy would be required to make a payment to Cendant (or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant) equal to 62.5% of such excess. However, if at the time of our separation a definitive agreement relating to a sale of Travelport has been executed, any such insufficiency will result in an upward adjustment in the amount of indebtedness incurred by Travelport, but only to the extent that Travelport is able to obtain such additional debt financing on commercially reasonable terms. Thereafter, if there is still an insufficiency, we will be responsible for the first $100 million (as described above) and we and Realogy would be responsible for 37.5% and 62.5%, respectively, of any excess over $100 million (as described above).

 

 

However, in the event of a sale of Travelport, which may occur after our separation, we expect to receive cash proceeds of approximately $785 million which we will use to reduce and/or repay our outstanding indebtedness (and if we are required to incur additional indebtedness, as described above, we would be entitled to a priority return (up to $100 million) of the proceeds of a Travelport sale (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness or Cendant corporate debt, if the sale occurs prior to Travelport incurring any indebtedness)). The actual amount of cash proceeds we receive may be more or less than the range provided above depending on (i) the actual sale price of Travelport, (ii) the form of consideration including the inclusion of any non-cash proceeds, (iii) the amount of expenses, estimated taxes and other payments incurred in connection with such sale, (iv) the amount of projected lost tax attributes of Cendant as a result of such sale and (v) the application of sale proceeds that have priority over contributions to us. See “The Separation—Incurrence of Debt.”

 

 

Historically, Cendant has borrowed funds under its existing asset-linked facility relating to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses, which amounted to $575 million and $550 million at March 31, 2006 and December 31, 2005, respectively. These Cendant borrowings have been reflected in our accompanying historical combined financial statements. We expect Cendant to repay the then-outstanding balance of these borrowings at the time of our separation with a portion of our initial borrowings of approximately $1,360 million.

 

 

Following our separation, we intend to replace the interim loan facility with permanent financing primarily through the issuance of debt securities and, as appropriate, other sources of funding. Subject to market conditions and in the event that a sale of Travelport does not occur prior to the time that the Cendant Board declares the dividend of our shares of common stock, we intend to replace the interim loan facility in its entirety with a combination of public, senior unsecured medium-term (a duration of between 3 and

 

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10 years), non-convertible, fixed and/or floating rate bonds. In the event of a sale of Travelport, we intend to use a portion of the proceeds contributed to us to pay down the interim facility in addition to issuing a proportionally smaller amount of the bonds described above. The remainder of the proceeds from a sale of Travelport, if any, will be used to repay other debt.

 

 

Certain of our vacation ownership subsidiaries have a securitization program to securitize certain vacation ownership contract receivables. This program will remain in place following the separation. As of March 31, 2006, $1,167 million was outstanding under this program and $1,556 million of assets collateralized this indebtedness.

 

 

For additional information relating to our planned financing arrangements, see “The Separation—Incurrence of Debt,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Conditions, Liquidity and Capital Resources—Financial Obligations—Pro Forma Indebtedness Following Separation” and “Description of Material Indebtedness,” included elsewhere in this information statement.

 

What will the separation cost?

Cendant expects to incur pre-tax separation costs of approximately $990 million to $1,140 million in connection with the consummation of the separation plan, which costs are expected to consist of, among other things, debt repayment costs, severance and retention costs, and legal, accounting and other advisory fees. Over the 12 months following our separation, the portion of these pre-tax costs expected to be recorded in our financial statements is approximately $70 million to $110 million. A majority of our separation costs are expected to be non-cash.

 

What are the U.S. federal income tax consequences of the distribution to Cendant stockholders?

The distribution is conditioned upon Cendant’s receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that the distribution, together with certain related transactions, should qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended, or the Code. Assuming the distribution so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by you, and no amount will be included in your income, upon the receipt of shares of our common stock pursuant to the distribution. You generally will recognize gain or loss with respect to any cash received in lieu of a fractional share of our common stock. See “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution,” included elsewhere in this information statement.

 

How will I determine the tax basis I will have in the Wyndham Worldwide shares I receive in the distribution?

Shortly after the distribution is completed, Cendant will provide U.S. taxpayers with information to enable them to compute their tax bases in both Cendant and Wyndham Worldwide shares and other information they will need to report their receipt of Wyndham Worldwide common stock on their 2006 U.S. federal income tax

 

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returns as a tax-free transaction. Generally, your aggregate tax basis in the stock you hold in Cendant and Wyndham Worldwide shares received in the distribution (including any fractional share interest in Wyndham Worldwide common stock for which cash is received) will equal your tax basis in your Cendant common stock immediately before the distribution, allocated between the Cendant common stock and Wyndham Worldwide common stock (including any fractional share interest of Wyndham Worldwide common stock for which cash is received) in proportion to their relative fair market values on the date of the distribution.

 

 

You should consult your tax advisor about the particular consequences of the distribution to you, including the application of state, local and foreign tax laws.

 

What will the relationships between Cendant and Wyndham Worldwide be following the separation?

Before the separation of Realogy from Cendant, we will enter into a Separation and Distribution Agreement and several other agreements with Cendant and Cendant’s other businesses to effect the separation and provide a framework for our relationships with Cendant and Cendant’s other businesses after the separation. These agreements will govern the relationships among us, Cendant, Realogy and Travelport subsequent to the completion of the separation plan and provide for the allocation among us, Cendant, Realogy and Travelport of Cendant’s assets, liabilities and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to our separation from Cendant. The Separation and Distribution Agreement, in particular, requires Wyndham Worldwide to assume or retain the liabilities of Cendant or its subsidiaries primarily related to Wyndham Worldwide’s business and 30%, or 37.5% in the event of a sale of Travelport, of certain contingent and other corporate liabilities of Cendant which are not primarily related to the businesses of Wyndham Worldwide, Realogy, Travelport or the Vehicle Rental business, and establishes the amount of the debt that each separated company will initially incur to repay Cendant’s corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate indebtedness and to fund the actual and estimated cash expenses borne by Cendant relating to the separation. We cannot assure you that these agreements will be on terms as favorable to us as agreements with unaffiliated third parties. See “Certain Relationships and Related Party Transactions,” included elsewhere in this information statement.

 

 

Six of our directors will continue to serve as directors of Cendant until the completion of Cendant’s separation plan.

 

Will I receive physical certificates representing shares of Wyndham Worldwide common stock following the separation?

No. Following the separation, neither Cendant nor Wyndham Worldwide will be issuing physical certificates representing shares of Wyndham Worldwide common stock. Instead, Cendant, with the assistance of Mellon Investor Services, the distribution agent, will electronically issue shares of our common stock to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Mellon Investor Services will mail you a book-entry

 

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account statement that reflects your shares of Wyndham Worldwide common stock, or your bank or brokerage firm will credit your account for the shares. A benefit of issuing stock electronically in book-entry form is that there will be none of the physical handling and safekeeping responsibilities that are inherent in owning physical stock certificates.

 

What if I want to sell my Cendant common stock or my Wyndham Worldwide common stock?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Cendant nor Wyndham Worldwide makes any recommendations on the purchase, retention or sale of shares of Cendant common stock or the Wyndham Worldwide common stock to be distributed.

 

 

If you decide to sell any shares before the distribution, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Cendant common stock or the Wyndham Worldwide common stock you will receive in the distribution or both.

 

Where will I be able to trade shares of Wyndham Worldwide common stock?

There is not currently a public market for our common stock. We have applied to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “WYN.” We anticipate that trading in shares of our common stock will begin on a “when-issued” basis on or shortly before the record date and will continue up to and including through the distribution date and that “regular-way” trading in shares of our common stock will begin on the first trading day following the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell our common stock up to and including through the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices for our common stock before, on or after the distribution date.

 

Will the number of Cendant shares I own change as a result of the distribution?

No. The number of shares of Cendant common stock you own will not change as a result of the distribution. However, it is anticipated that Cendant will seek to effect a reverse stock split after the completion of the distribution of shares of common stock of Travelport.

 

What will happen to the listing of Cendant common stock?

Nothing. It is expected that after the distribution of Wyndham Worldwide common stock, Cendant common stock will continue to be traded on the NYSE under the symbol “CD.” After the completion of the separation plan, Cendant, which will comprise the Vehicle Rental business, is expected to change its name to Avis Budget Group, Inc. and its trading symbol to “CAR,” and the Cendant name and trading symbol are expected to be retired.

 

Will the distribution affect the market price of my Cendant shares?

Yes. As a result of the distribution, we expect the trading price of shares of Cendant common stock immediately following the distribution to be lower than immediately prior to the distribution because the trading price will no longer reflect the value of the

 

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Hospitality Services (including Timeshare Resorts) businesses. Furthermore, until the market has fully analyzed the value of Cendant without the Hospitality Services (including Timeshare Resorts) businesses, the price of Cendant shares may fluctuate significantly. In addition, although Cendant believes that over time following the separation, the common stock of the separated companies should have a higher aggregate market value, on a fully distributed basis and assuming the same market conditions, than if Cendant were to remain under its current configuration, there can be no assurance that this will occur, and thus the combined trading prices of Cendant common stock and Wyndham Worldwide common stock after the distribution may be equal to or less than the trading price of shares of Cendant common stock before the distribution.

 

Are there risks to owning Wyndham Worldwide common stock?

Yes. Our business is subject to both general and specific risks and uncertainties relating to our business, our leverage, our relationship with Cendant and our being a separate publicly traded company. Our business also is subject to risks relating to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 32. We encourage you to read that section carefully.

 

Where can Cendant stockholders get more information?

Before the separation, if you have any questions relating to the separation, you should contact:

Cendant Corporation

Investor Relations

9 West 57th Street

New York, New York 10019

Tel: (212) 413-1800

Fax: (212) 413-1909

www.cendant.com

After the separation, if you have any questions relating to our common stock, you should contact:

Wyndham Worldwide Corporation

Investor Relations

Seven Sylvan Way

Parsippany, New Jersey 07054

Tel: (973) 496-8900

Fax: (973) 496-8906

www.[                                    ].com

After the separation, if you have any questions relating to the distribution of our shares, you should contact:

Mellon Investor Services LLC

480 Washington Boulevard

Jersey City, New Jersey 07310

www.melloninvestor.com

 

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Summary of the Separation

The following is a summary of the material terms of the separation and other related transactions.

 

Distributing company

Cendant Corporation. After the distribution, Cendant will not own any shares of our common stock.

 

Distributed company

Wyndham Worldwide Corporation, a Delaware corporation and an already-existing, wholly owned subsidiary of Cendant that holds or will hold the assets and liabilities of Cendant’s Hospitality Services (including Timeshare Resorts) businesses. After the distribution, Wyndham Worldwide will be an independent public company.

 

Distribution ratio

Each holder of Cendant common stock will receive one share of our common stock for every five shares of Cendant common stock held on [                    ], 2006. Cash will be distributed in lieu of fractional shares, as described below.

 

Distributed securities

All of the shares of Wyndham Worldwide common stock owned by Cendant, which will be 100% of our common stock outstanding immediately prior to the distribution. Based on approximately one billion shares of Cendant common stock outstanding on June 8, 2006 and applying the distribution ratio of one share of Wyndham Worldwide common stock for every five shares of Cendant common stock, approximately 200 million shares of our common stock will be distributed to Cendant stockholders who hold Cendant common stock as of the record date. The number of shares that Cendant will distribute to its stockholders will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of our common stock.

 

 

Our Board of Directors is expected to adopt a stockholder rights plan prior to the distribution date. The stockholder rights plan is designed to protect our stockholders from coercive or otherwise unfair takeover tactics. You will receive one preferred stock purchase right for every share of Wyndham Worldwide common stock you receive in the distribution. Unless the context otherwise requires, references herein to our common stock include the related preferred stock purchase rights. See “Description of Capital Stock—Rights Plan.”

 

Fractional shares

Cendant will not distribute any fractional shares of our common stock to its stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by Cendant or us, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Any broker- dealer used by the distribution agent will not be an affiliate of either

 

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Cendant or us. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders as described in “The Distribution—Certain U.S. Federal Income Tax Consequences of the Distribution,” included elsewhere in this information statement.

 

Record date

The record date for the distribution is the close of business on [                    ], 2006.

 

Distribution date

The distribution date is [                    ], 2006.

 

Distribution

On the distribution date, Cendant, with the assistance of Mellon Investor Services, the distribution agent, will electronically issue shares of our common stock to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. You will not be required to make any payment, surrender or exchange your shares of Cendant common stock or take any other action to receive your shares of our common stock. If you sell shares of Cendant common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of Wyndham Worldwide common stock in the distribution. Registered stockholders will receive additional information from the distribution agent shortly after the distribution date. Following the distribution, stockholders whose shares are held in book-entry form may request that their shares of Wyndham Worldwide common stock held in book-entry form be transferred to a brokerage or other account at any time, without charge. Beneficial stockholders that hold shares through a brokerage firm will receive additional information from their brokerage firms shortly after the distribution date.

 

Conditions to the distribution

The distribution of our common stock is subject to the satisfaction or, if permissible under the Separation and Distribution Agreement, waiver by Cendant of the following conditions, among other conditions described in this information statement:

 

    the Securities and Exchange Commission, or SEC, shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and no stop order relating to the registration statement is in effect;

 

    all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the distribution shall have been received;

 

   

Cendant shall have received a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that the

 

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distribution, together with certain related transactions, should qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code;

 

    our entry into various new debt facilities with a syndicate of financial institutions, as described in “Description of Material Indebtedness,” included elsewhere in this information statement;

 

    the listing of our common stock on the NYSE shall have been approved, subject to official notice of issuance;

 

    the Cendant Board shall have received an opinion from Duff & Phelps to the effect that we and Cendant each will be solvent and adequately capitalized immediately after the distribution and that Cendant has sufficient surplus under Delaware law to declare the dividend of Wyndham Worldwide common stock;

 

    the Cendant Board shall have received an opinion from Evercore to the effect that, as of the date of such opinion, the distribution is fair, from a financial point of view, to the stockholders of Cendant;

 

    all material government approvals and other consents necessary to consummate the distribution shall have been received;

 

    certain of our and our subsidiaries’ credit facilities shall have been amended to permit our separation from Cendant; and

 

    no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto, including the transfers of assets and liabilities contemplated by the Separation and Distribution Agreement, shall be in effect.

 

 

The fulfillment of these conditions does not create any obligation on Cendant’s part to effect the distribution, and the Cendant Board has reserved the right, in its sole discretion, to amend, modify or abandon the distribution and related transactions at any time prior to the distribution date. Cendant has the right not to complete the distribution if, at any time, the Cendant Board determines, in its sole discretion, that the distribution is not in the best interests of Cendant or its stockholders or that market conditions are such that it is not advisable to separate the Hospitality Services (including Timeshare Resorts) businesses from Cendant.

 

Stock exchange listing

We have filed an application to list our shares of common stock on the NYSE under the ticker symbol “WYN.” We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to and including through the distribution date. See “The Separation—Trading Between the Record Date and Distribution Date,” included elsewhere in this information statement.

 

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After the completion of the separation plan, it is expected that Cendant (i) will comprise the Vehicle Rental business and (ii) will change its name to Avis Budget Group, Inc. and its trading symbol to “CAR,” and the Cendant name and trading symbol are expected to be retired.

 

Transfer and distribution agent

Mellon Investor Services LLC

480 Washington Boulevard

Jersey City, New Jersey 07310

Tel: [                        ]

Fax: [                        ]

www.melloninvestor.com

 

Incurrence of debt

In connection with our separation, we expect to enter into borrowing arrangements for a total of $2,000 million, comprised of a $300 million term loan facility, an $800 million interim loan facility and a $900 million revolving credit facility. At or prior to the distribution, we expect to draw $1,360 million against those facilities and issue approximately $70 million in letters of credit, leaving approximately $570 million available to provide liquidity for additional letters of credit and for working capital and ongoing corporate needs. All of the approximately $1,360 million of debt we expect to incur will be transferred to Cendant solely to repay a portion of Cendant’s corporate debt (including its existing asset-linked facility relating to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses). The actual amount of debt that we incur at the time of our separation may be more or less than $1,360 million depending upon the actual operating performance of Cendant and a more refined calculation of the cash outlays relating to the separation plan. In addition, the Separation and Distribution Agreement provides for an adjustment in the amount of indebtedness we will incur in connection with our separation in the event that the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, is less than or more than the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation). In the event that such amounts are less than the amount necessary to enable Cendant to repay its outstanding corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, we would be required to incur additional indebtedness equal to such insufficiency up to $100 million and transfer such additional amounts to Cendant.

 

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To the extent the insufficiency is in excess of $100 million, we would be required to incur additional indebtedness equal

 

to 37.5% of such excess and Realogy would be required to make a payment to Cendant (or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant) equal to 62.5% of such excess. However, if at the time of our separation a definitive agreement relating to a sale of Travelport has been executed, any such insufficiency will result in an upward adjustment in the amount of indebtedness incurred by Travelport, but only to the extent that Travelport is able to obtain such additional debt financing on commercially reasonable terms. Thereafter, if there is still an insufficiency, we will be responsible for the first $100 million (as described above) and we and Realogy would be responsible for 37.5% and 62.5%, respectively, of any excess over $100 million (as described above).

 

 

However, in the event of a sale of Travelport, which may occur after our separation, we expect to receive cash proceeds of approximately $785 million which we will use to reduce and/or repay our outstanding indebtedness (and if we are required to incur additional indebtedness, as described above, we would be entitled to a priority return (up to $100 million) of the proceeds of a Travelport sale (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness or Cendant corporate debt, if the sale occurs prior to Travelport incurring any indebtedness)). The actual amount of cash proceeds we receive may be more or less than the range provided above depending on (i) the actual sale price of Travelport, (ii) the form of consideration including the inclusion of any non-cash proceeds, (iii) the amount of expenses, estimated taxes and other payments incurred in connection with such sale, (iv) the amount of projected lost tax attributes of Cendant as a result of such sale and (v) the application of sale proceeds that have priority over contributions to us. See “The Separation—Incurrence of Debt.”

 

 

Historically, Cendant has borrowed funds under its existing asset-linked facility relating to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses, which amounted to $575 million and $550 million at March 31, 2006 and December 31, 2005, respectively. These Cendant borrowings have been reflected in our accompanying historical combined financial statements. We expect Cendant to repay the then-outstanding balance of these borrowings at the time of our separation with a portion of our initial borrowings of approximately $1,360 million.

 

 

Following our separation, we intend to replace the interim loan facility with permanent financing primarily through the issuance of debt securities and, as appropriate, other sources of funding. Subject to market conditions and in the event that a sale of Travelport does not occur prior to the time that the Cendant Board declares the dividend of our shares of common stock, we intend to replace the

 

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interim loan facility in its entirety with a combination of public, senior unsecured medium-term (a duration of between 3 and 10 years), non-convertible, fixed and/or floating rate bonds. In the event of a sale of Travelport, we intend to use a portion of the proceeds contributed to us to pay down the interim facility in addition to issuing a proportionally smaller amount of the bonds described above. The remainder of the proceeds from a sale of Travelport, if any, will be used to repay other debt.

 

 

Certain of our vacation ownership subsidiaries have a securitization program to securitize certain vacation ownership contract receivables. This program will remain in place following the separation. As of March 31, 2006, $1,167 million was outstanding under this program and $1,556 million of assets collateralized this indebtedness.

 

 

For additional information relating to our planned financing arrangements, see “The Separation—Incurrence of Debt,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Financial Obligations—Pro Forma Indebtedness Following Separation” and “Description of Material Indebtedness,” included elsewhere in this information statement.

 

Risks relating to ownership of our common stock and the distribution

Our business is subject to both general and specific risks and uncertainties relating to our business, our leverage, our relationship with Cendant and our being a separate publicly traded company. Our business is also subject to risks relating to the separation. You should read carefully “Risk Factors,” beginning on page · in this information statement.

 

Tax considerations

Assuming the distribution, together with certain related transactions, qualifies as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, no gain or loss will be recognized by a stockholder, and no amount will be included in the income of a stockholder, upon the receipt of shares of our common stock pursuant to the distribution. However, a stockholder will generally recognize gain or loss with respect to any cash received in lieu of a fractional share of our common stock as described in “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution,” included elsewhere in this information statement.

 

Certain Agreements with Cendant

Before the separation of Realogy from Cendant, we will enter into a Separation and Distribution Agreement and several other agreements with Cendant and Cendant’s other businesses to effect the separation and distribution and provide a framework for our relationships with Cendant and Cendant’s other businesses after the separation. These agreements will govern the relationship among us, Cendant, Realogy

 

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and Travelport subsequent to the completion of the separation plan and provide for the allocation among us, Cendant, Realogy and Travelport of Cendant’s assets, liabilities and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to our separation from Cendant. The Separation and Distribution Agreement, in particular, requires Wyndham Worldwide to assume 30% (or 37.5% in the event of a sale of Travelport) of certain of Cendant’s contingent and other corporate liabilities and establishes the amount of the debt that each separated company will initially incur to repay Cendant’s corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation. For a discussion of these arrangements, see “Certain Relationships and Related Party Transactions,” included elsewhere in this information statement.

 

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Summary Historical and Unaudited Pro Forma Combined Financial Data

The following table presents our summary historical and unaudited pro forma combined financial data, as well as certain unaudited operating statistics. The combined statement of income data for the three months ended March 31, 2006 and the combined balance sheet data as of March 31, 2006 have been derived from our unaudited combined condensed financial statements included elsewhere in this information statement. The historical combined statement of income data for each of the years in the three-year period ended December 31, 2005 and the historical combined balance sheet data as of December 31, 2005 and 2004 have been derived from our audited combined financial statements, included elsewhere in this information statement. The combined balance sheet data as of December 31, 2003 is derived from our unaudited combined financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth in this information statement.

The unaudited pro forma combined financial data have been derived from our historical combined financial statements and adjusted to give effect to the following transactions:

 

    the contribution to Wyndham Worldwide of all the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses,

 

    the planned distribution of our common stock to Cendant stockholders by Cendant (assuming a five to one distribution ratio) and the related transfer to us from Cendant of certain corporate assets and liabilities of Cendant (including certain corporate assets and liabilities for which we are expected to assume approximately 30%) (including those relating to unresolved tax and legal matters, which may not be resolved for several years),

 

    the borrowing arrangements for a total of $2,000 million, of which we intend to draw approximately $1,360 million; we expect to transfer the initial borrowings to Cendant for it to repay the then-outstanding balance of the asset-linked facility and to repay certain indebtedness of Cendant,

 

    the funding of $11 million of estimated financing costs to be incurred in connection with the above planned borrowings,

 

    estimated incremental costs associated with operating as a separate public company,

 

    estimated incremental interest expense associated with the above planned borrowings, which is calculated based upon expected interest rates, and

 

    estimated liabilities of $42 million to reflect the estimated fair value of guarantees related to certain contingent litigation and tax liabilities and legal liabilities provided to Cendant and affiliates in connection with the separation in excess of our portion of the corporate liabilities allocated to Wyndham Worldwide from Cendant’s balance sheet.

In addition, such financial data also reflects an adjustment eliminating intercompany balances approximating $1,159 million due from Cendant.

The unaudited pro forma combined condensed balance sheet data assume that the distribution and related transactions occurred on March 31, 2006 and the unaudited pro forma combined condensed statement of income data assume that the distribution and related transactions occurred on January 1, 2005 for both the pro forma statement of income data presented for the three months ended March 31, 2006 and for the pro forma statement of income data presented for the year ended December 31, 2005. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable; however, such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements. Additional discussion relating to certain of the pro forma adjustments listed above can be found within the Unaudited Pro Forma Combined Condensed Financial Statements section of the information statement.

 

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The unaudited pro forma combined condensed financial statements have not been adjusted to give effect to the possible sale of Travelport, which transaction may occur only following our separation from Cendant. If Cendant were to sell Travelport, a portion of the cash proceeds from such sale would be contributed to us and utilized to reduce the indebtedness incurred by us in connection with our separation, resulting in a reduction in our pro forma interest expense. In addition, in the event of a Travelport sale, our allocable portion of Cendant’s contingent and other liabilities would increase from 30% to 37.5%.

The unaudited pro forma combined condensed statement of income data do not reflect non-recurring pre-tax charges directly related to our separation (which are currently estimated to be in the range of $70 million to $110 million), which will impact net income within the 12 months following our separation, the majority of which will be non-cash. Included within such range is an estimated $50 million to $60 million relating to the acceleration of certain Cendant equity awards.

 

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     As of or For the Three
Months Ended
March 31, 2006
   

As of or For the Year Ended

December 31,

 
     Pro
Forma
   Historical     Pro Forma
2005
   2005     2004    2003  
                     As Restated     As Restated       
     (In millions, except operating statistics)  

Statement of Income Data:

               

Net revenues

   $ 870    $ 870     $ 3,471    $ 3,471     $ 3,014    $ 2,652  

Expenses

     735      722       2,904      2,851       2,414      2,157  
                                             

Operating income

     135      148       567      620       600      495  

Interest expense (income), net

     20      (2 )     78      (6 )     13      (5 )
                                             

Income before income taxes and minority interest

   $ 115    $ 150     $ 489    $ 626     $ 587    $ 500  
                                             

Net income

   $ 6    $ 28     $ 346    $ 431     $ 349    $ 299  

Balance Sheet Data:

               

Secured assets(a)

   $ 1,897    $ 3,240        $ 3,169     $ 2,811    $ 1,865  

Total assets

     8,592      9,610          9,167       8,343      7,041  

Total debt(b)

     2,873      2,088          2,042       1,768      1,132  

Total invested equity(c)

     2,808      5,063          5,033       4,679      4,283  

Operating Statistics:

               

Lodging

               

Weighted average rooms(d)

        521,000          519,000       508,200      524,700  

Number of properties(e)

        6,300          6,300       6,400      6,400  

RevPAR(f)

      $ 30.45        $ 31.00     $ 27.55    $ 25.92  

Vacation Exchange and Rental

               

Average number of members(g)

        3,292,000          3,209,000       3,054,000      2,948,000  

Annual dues and exchange revenue per member(h)

      $ 152.10        $ 135.76     $ 134.82    $ 131.13  

Vacation rental transactions(i)

        385,000          1,300,000       1,104,000      882,000  

Average price per vacation rental(j)

      $ 677.49        $ 690.03     $ 680.87    $ 599.25  

Vacation Ownership

               

Gross vacation ownership interest sales(k) (in millions)

      $ 357        $ 1,396     $ 1,254    $ 1,146  

Tours(l)

        208,000          934,000       859,000      925,000  

Volume Per Guest (VPG)(m)

        1,475        $ 1,368     $ 1,287    $ 1,138  

 

(a) Represents the portion of vacation ownership contract receivables, other vacation ownership related assets, and other vacation exchange and rental assets that collateralize our debt. Refer to Note 6 to the Interim Combined Condensed Financial Statements and Note 12 to the Annual Combined Financial Statements for further information.
(b) Historical amounts primarily represent debt related to secured assets. Pro forma amounts include planned borrowings.
(c) Represents Cendant’s net investment (capital contributions and earnings from operations less dividends) in Wyndham Worldwide and accumulated other comprehensive income.

 

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(d) Represents the weighted average number of hotel rooms available for rental for the year at lodging properties operated under franchise and management agreements.
(e) Represents the number of lodging properties operated under franchise and management agreements at the end of the year.
(f) Represents revenue per available room and is calculated by multiplying the percentage of available rooms occupied for the year by the average rate charged for renting a lodging room for one day.
(g) Represents members in our vacation exchange programs who pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related products and services.
(h) Represents total revenues from annual membership dues and exchange fees generated for the year divided by the average number of vacation exchange members during the year.
(i) Represents the gross number of transactions that are generated in connection with customers booking their vacation rental stays through us. In our European vacation rental businesses, one rental transaction is recorded each time a standard one-week rental is booked; however, in the United States, one rental transaction is recorded each time a vacation rental stay is booked, regardless of whether it is less than or more than one week.
(j) Represents the gross rental price generated from renting vacation properties to customers divided by the number of rental transactions.
(k) Represents gross sales of vacation ownership interests, including tele-sales upgrades, which is a component of upgrade sales.
(l) Represents the number of tours taken by guests in our efforts to sell vacation ownership interests.
(m) Represents revenue per guest and is calculated by dividing the gross vacation ownership interest sales, excluding tele-sales upgrades, which is a component of upgrade sales, by the number of tours.

 

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RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information set forth in this information statement. The risk factors generally have been separated into three groups: (i) risks relating to our business, (ii) risks relating to the separation and (iii) risks relating to our common stock. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company in each of these categories of risks. However, the risks and uncertainties our company faces are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline.

Risks Relating to Our Business

The hospitality industry is highly competitive, and we are subject to risks relating to competition that may adversely affect our performance.

We may lose business, which would adversely affect our performance, if we cannot compete effectively in the highly competitive hospitality industry. Our continued success depends, in large part, upon our ability to compete effectively in markets that contain numerous competitors, some of which may have significantly greater financial, marketing and other resources than we have.

Our businesses face the following competitive risks, and if such risks materialize, the performance of our businesses may be adversely affected:

 

    Competition in the hospitality industry may put pressure on our fees or prices and on our business model. Competition may reduce fee structures, potentially causing us to lower our fees or prices, which may adversely impact our profits. New competition or existing competition that uses a business model that is different from our business model may put pressure on us to change our model so that we can remain competitive.

 

    Our competitors may offer contract terms that may result in our having to agree to contract terms that are less favorable to us than the terms under our current contracts. If our competitors offer more favorable terms than the terms that we currently offer under our existing contracts (for example, with our franchisees, with property owners for property management, with affiliates of our vacation exchange business, with owners of intervals that are exchanged through our vacation exchange business and with owners of accommodations for our vacation rental business), we cannot assure you that new contracts entered into, renewed or renegotiated in the future will be on terms that are as favorable to us as the terms of our current contracts. The terms of our new, renewed or renegotiated contracts will be influenced by the terms that our competitors are offering at the time we enter into such contracts.

The weakening or unavailability of our intellectual property rights could adversely affect our business.

The weakening or unavailability of our trademarks, trade dress and other intellectual property rights could adversely affect our business. Our intellectual property rights are fundamental to the brands that we use in all of our businesses, and we believe the strength of these brands gives us a competitive advantage. We generate, maintain, utilize and enforce a substantial portfolio of trademarks, trade dress and other intellectual property rights. We use our intellectual property rights to protect the goodwill of our brand names, promote our brand

 

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name recognition, protect our proprietary technology and development activities, enhance our competitiveness and otherwise support our business goals and objectives. However, there can be no assurance that the steps we take to obtain, maintain and protect our intellectual property rights will be adequate. Our intellectual property rights may fail to provide us with significant competitive advantages, particularly in foreign jurisdictions that do not have, or do not enforce, strong intellectual property rights.

We are subject to operating or other risks common to the hospitality industry.

In addition to the other risks relating to our business identified in the “Risk Factors” section of this information statement, our business is subject to the following operating or other risks common to the hospitality industry:

 

    changes in operating costs, including, but not limited to, energy, labor costs (including minimum wage increases and unionization), workers’ compensation and health-care related costs and insurance;

 

    changes in desirability of geographic regions of the hotels or resorts that we franchise or manage, of the resorts with units that are exchanged through our vacation exchange business, of the properties we market for rental through our vacation rental business and of the resorts in which we sell vacation ownership interests;

 

    increases in costs due to inflation that may not be fully offset by increases in room rates, annual vacation exchange membership dues and exchange fees for transactions, vacation rental fees and prices of vacation ownership interests;

 

    the quality of the services provided by franchisees, our vacation exchange and rental business, resorts with units that are exchanged through our vacation exchange business and/or resorts in which we sell vacation ownership interests may adversely affect our image and reputation and therefore may adversely affect our results of operations;

 

    our ability to generate sufficient cash to buy from third-party suppliers the products that we need to provide to the participants in our points programs who want to redeem points for such products;

 

    overbuilding in one or more segments of the hospitality industry and/or in one or more geographic regions, which could lead to excess supply compared to demand and therefore to decreases in hotel or resort occupancy and/or hotel or resort room rates;

 

    changes in the number of hotels operating under franchise agreements and management agreements and changes in the occupancy rates achieved by hotels;

 

    changes in the relative mix of franchised hotels in the various lodging industry price categories;

 

    our ability to develop and maintain positive relations with current and potential franchisees, hotel owners, resorts with units that are exchanged through our vacation exchange business and/or owners of vacation properties that our vacation rental business markets for rental;

 

    competition for desirable sites for the development of vacation ownership properties and liability under state and local laws with respect to any construction defects in the vacation ownership properties we develop;

 

    taxation of guest loyalty program benefits that adversely affects the cost or consumer acceptance of loyalty programs; and

 

    disruptions in relationships with third parties, including marketing alliances and affiliations with e-commerce channels.

We may not be able to achieve our objectives for growth in the number of franchised and managed properties, vacation exchange members acquired, rental weeks sold and vacation ownership interests sold.

There can be no assurance that we will be successful in achieving our objectives for increasing the number of franchised and managed properties in our lodging business, the number of vacation exchange members

 

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acquired by our vacation exchange business, the number of rental weeks sold by our vacation rental business and the number of tours generated and vacation ownership interests sold by our vacation ownership business. The reasons we may not achieve our growth objectives include, but are not limited to:

 

    our failure to introduce new branded offerings that gain market acceptance or to maintain the competitiveness of our existing brands;

 

    our ability to enter into and maintain strategic arrangements;

 

    the risks associated with entering new markets and the possible lack of demand for our products and services in such markets; and

 

    our failure to secure required governmental permits.

Disruptions and other impairment of our information technologies and systems could adversely affect our business.

Any disruption or other impairment in our technology capabilities could harm our business. Our businesses depend upon the use of sophisticated information technologies and systems, including technology and systems utilized for reservation systems, vacation exchange systems, property management, communications, procurement, member record databases, call centers, operation of our loyalty programs and administrative systems. The operation of these technologies and systems is dependent upon third-party technologies, systems and services for which there is no assurance of continued or uninterrupted availability and operational and maintenance support by the applicable third-party vendors on commercially reasonable terms. We cannot assure you that we will be able to continue to operate effectively and maintain our information technologies and systems.

In addition, our information technologies and systems are expected to require refinements and enhancements on an ongoing basis, and we expect that advanced new technologies and systems will continue to be introduced. There can be no assurance that we will be able to replace existing technologies and systems or obtain or introduce new technologies and systems as quickly as our competitors or in a cost-effective manner. Also, there can be no assurance that we will achieve the benefits anticipated or required from any new technology or system that we may seek to implement or that we will be able to devote financial resources to new technologies and systems in the future. In addition, our information technologies and systems are vulnerable to damage or interruption from various causes, including: (i) acts of God and other natural disasters, war and acts of terrorism; (ii) power losses, computer systems failures, Internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events; and (iii) computer viruses, penetration by individuals seeking to disrupt operations or misappropriate information and other physical or electronic breaches of security. We maintain certain disaster recovery capabilities for critical functions in most of our businesses, including certain disaster recovery services from SunGard Data Systems Inc. and International Business Machines Corporation. We are also currently in the process of adding disaster recovery capabilities to our recently acquired franchise and management businesses of Wyndham Hotels and Resorts and portions of our vacation ownership business. However, there can be no assurance that these capabilities will successfully prevent a disruption to or material adverse effect on our businesses or operations in the event of a disaster or other business interruption. Any extended interruption in our technologies or systems could significantly curtail our ability to conduct our business and generate revenue. Additionally, our business interruption insurance may be insufficient to compensate us for losses that may occur.

Our international operations are subject to risks not generally experienced by our U.S. operations.

Our international operations are subject to risks not generally experienced by our U.S. operations, and if such risks materialize, our profitability may be adversely affected. Such risks include, but are not limited to:

 

    exposure to local economic conditions;

 

    potential adverse changes in the diplomatic relations of foreign countries with the United States;

 

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    hostility from local populations;

 

    restrictions on the withdrawal of foreign investment and earnings;

 

    government policies against businesses owned by foreigners;

 

    investment restrictions or requirements;

 

    diminished ability to legally enforce our contractual rights in foreign countries;

 

    foreign exchange restrictions;

 

    fluctuations in foreign currency exchange rates;

 

    withholding and other taxes on remittances and other payments by subsidiaries; and

 

    changes in foreign taxation structures.

We are subject to risks from laws of various international jurisdictions that limit the right and ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies, unless specified conditions have been met. In addition, we may incur substantial tax liabilities, which would adversely affect our profitability, if we repatriate any of the cash generated by our international operations back to the United States.

We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business.

We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation and other proceedings filed by or against us, including remedies or damage awards, and adverse results in such litigation and other proceedings may harm our business. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, employment and labor law, personal injury, death, property damage or other harm resulting from acts or omissions by individuals or entities outside of our control, including franchisees, property owners, resorts with units that are exchanged through our vacation exchange business and resorts in which we sell vacation ownership interests. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that is subject to third-party patents or other third-party intellectual property rights.

We generally are not liable for the actions of our franchisees, owners and resorts with units that are exchanged through our vacation exchange business, and resorts in which we sell vacation ownership interests; however, there is no assurance that we would be insulated from liability in all cases.

We are subject to certain risks related to our indebtedness, our securitization of assets, the extension of credit by us and the cost and availability of capital.

In connection with our debt obligations or the securitization of certain of our assets, as applicable, we are subject to the following risks, among others:

 

    the risk that cash flows from operations or available lines of credit will be insufficient to meet required payments of principal and interest of non asset-backed debt when due and the risk that we may default on the covenants in our debt agreements that we anticipate will limit our ability to, among other things, borrow additional money, sell assets or engage in mergers. If we cannot make our payments on our debt and we cannot refinance our debt or we are unable to comply with these covenants, we would be in default under our debt agreements. Unless any such default is waived by our lenders, the debt could become immediately payable, which could materially adversely affect us;

 

   

the risk that our leverage may adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, surety bonds required by regulators to protect funds of

 

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purchasers of vacation ownership interests pending deeding and resort completion (which surety bonds are required in lieu of escrowing all or a portion of purchaser funds), or other purposes, if required;

 

    the risk that our leverage requires the dedication of a significant portion of our cash flows to the payment of our indebtedness, thereby reducing the availability of cash flows to fund working capital, capital expenditures or other operating needs;

 

    the risk that (to the extent we maintain floating rate indebtedness) interest rates increase; and

 

    the risk that we may not be able to securitize our vacation ownership contract receivables because of, among other factors, the performance of the vacation ownership contract receivables, the market for vacation ownership loan-backed notes and asset-backed notes in general and the ability to insure the securitized vacation ownership contract receivables, and the risk that the actual amount of uncollectible accounts on our securitized vacation ownership contract receivables and other credit we extend is greater than our allowances for doubtful accounts.

The financial results of our vacation ownership business may be affected by the cost and availability of capital for the development or acquisition of vacation ownership resorts by us, for the financing of purchases of vacation ownership interests and for the renovation and maintenance of properties by vacation ownership resorts. The cost of capital affects the costs of developing or acquiring new properties because property owners generally have to borrow funds to develop or acquire new properties and affects the costs of renovation because property owners generally have to borrow funds to renovate properties.

The profitability of our vacation ownership business from our financing of customers’ purchases of vacation ownership interests may be adversely affected by interest rate risk and risks associated with customer default.

In connection with our vacation ownership business, we generally provide financing at a fixed interest rate for significant portions of the aggregate purchase prices of vacation ownership interests we sell to customers. If interest rates were to increase significantly, we may not increase the interest rate offered to finance purchases of vacation ownership interests by the same amount of the interest rate increase. As a result, the spread between our rate of borrowing and the interest rate we charge our customers would decrease, and such decrease would adversely affect our profitability from financing activities. Conversely, if interest rates were to decrease and remain at historically low levels for extended periods, the likelihood of early prepayments would increase as customers may seek alternative financing sources. If customers prepaid their loans and refinanced at lower interest rates, our profitability from financing activities would decrease.

Our principal source of funding cash requirements for the vacation ownership business is borrowing against and selling the vacation ownership contract receivables that arise from our financing of customers’ purchases of vacation ownership interests. When we finance the sale of a vacation ownership interest, we receive contract receivables at a fixed interest rate. We have revolving credit facilities under which we borrow against the vacation ownership contract receivables until the receivables qualify to be securitized. Once the vacation ownership contract receivables qualify to be securitized, we sell them and use the proceeds of the sales to repay our revolving credit facilities and, as a result of such repayment, replenish our ability to borrow under the revolving credit facilities to finance new vacation ownership contract receivables.

Our revolving credit facilities are, and are expected to continue to be, at variable interest rates. Any significant increase in interest rates on our borrowing against vacation ownership contract receivables or significant increase in prepayment rates on the current vacation ownership contract receivables could have a material adverse effect on the cost of borrowing under our credit facilities. Any adverse change in the securitization markets or significant declines in the credit qualities of our vacation ownership contract receivables could result in our having insufficient borrowing availability under our credit facilities to maintain our operations at current levels.

In addition, we face certain credit risks related to our consumer financing of vacation ownership interests. Purchasers of vacation ownership interests who finance a portion of the purchase price present a greater risk of

 

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default than typical borrowers under home mortgages in part because private mortgage insurance or its equivalent is not readily available to cover payments for vacation ownership interests. Despite the greater risk of default for purchasers of vacation ownership interests, we do not verify all potential purchasers’ credit histories prior to offering each potential purchaser the opportunity to finance a portion of the purchase price of the vacation ownership interests, but, in some instances, we obtain credits scores from potential purchasers who wish to obtain financing on more favorable terms. To reduce the potential adverse effect on Wyndham Worldwide caused by purchasers of vacation ownership interests who finance a portion of their purchases but subsequently default, we obtain security interests in the vacation ownership interests purchased by our customers, but the value of the secured vacation ownership interests is not, in all instances, sufficient to cover the outstanding debt.

Our debt rating may suffer a downgrade, which may restrict our access to capital markets.

After giving effect to our separation, our syndicated credit facilities have been rated      and      by Standard & Poor’s and Moody’s, respectively. As a result of global economic and political events or natural disasters, it is possible that the rating agencies may downgrade the rating and/or outlook for many of the companies in the hospitality industry, including our company, and a downgrade could increase our borrowing costs and therefore could adversely affect our financial results. In addition, it is possible that rating agencies may downgrade our rating and our outlook for the company based on our results of operations and financial condition. A downgrade in our credit rating could, in particular, increase our costs of capital under our credit facilities and the amounts of collateral required by our letters of credit. Pricing of any amounts drawn under our syndicated bank credit facilities includes a spread to LIBOR that increases as our ratings from Standard & Poor’s and Moody’s decrease. The amounts of collateral required by our letters of credit may increase as a result of a downgrade in our credit rating. 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. Each rating should be evaluated independently of any other rating.

We are subject to foreign currency exchange rate risk.

Changes in foreign currency exchange rates and in international monetary and tax policies could have a materially adverse effect on our business, results of operations and financial condition. We are subject to foreign currency exchange rate risk and risks associated with changes in international monetary and tax policies in connection with doing business abroad, principally in the United Kingdom, Western Continental Europe, South Africa, Mexico, Venezuela and Singapore. We may seek to mitigate our foreign exchange rate risk through strategic structuring of international business entities, swap agreements and borrowings denominated in foreign currencies, but we cannot assure that these strategies will be successful.

Several of our businesses are subject to extensive regulation, and the cost of compliance or failure to comply with such regulations may adversely affect our profitability.

The cost of compliance or failure to comply with the extensive regulations to which several of our businesses are subject may adversely affect our profitability. Our businesses are regulated by the states or provinces (including local governments) and countries in which our operations are conducted and in which our franchised and managed properties, resorts with units that are exchanged through our vacation exchange business, accommodations for our vacation rental business and resorts in which we sell vacation ownership interests are, in each case, located, marketed or sold. If we are not in substantial compliance with applicable laws and regulations, we may be subject to regulatory actions, fines, penalties and potential criminal prosecution. In addition, a significant number of purchasers of vacation ownership interests could have rescission rights, which could require us to return all funds received from rescinding purchasers in exchange for the return of their vacation ownership interests to us.

Our businesses are subject, for example, to privacy laws and regulations enacted in the United States and other jurisdictions around the world that govern the collection and use of personal data of our customers and our ability to contact our customers and prospective customers, including through telephone or facsimile. Our vacation ownership business, for example, is subject to U.S. federal privacy regulation, including the federal

 

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Telemarketing Sales Rule with its “do not call” and “do not fax” provisions, and state privacy regulations. Many states have laws and regulations regarding the sale of vacation ownership properties, such as real estate licensing laws, travel sale licensing laws, anti-fraud laws, telemarketing laws, telephone solicitation laws, including “do not call” and “do not fax” regulations and restrictions on the use of predictive dialers, prize, gift and sweepstakes laws, and labor laws. Violations of certain provisions of these laws may limit the ability of our vacation ownership business to market, sell and finance vacation ownership interests. In addition, our vacation ownership business could be subject to damages and administrative enforcement actions. Any of these results could adversely affect the profitability of our vacation ownership business. The United States and other jurisdictions are in the process of considering passing additional laws and regulations to protect the privacy of customers and prospective customers. In addition, our vacation ownership business is subject to risks arising from the requirement under Australian law that all persons conducting vacation ownership sales and marketing and vacation ownership club activities hold an Australian Financial Services License, which subjects holders to several rules and regulations. In light of these and any future laws and regulations, there can be no assurance that we will be able to continue to market our services efficiently and maintain our rate of sales growth.

Liability arising under environmental laws, ordinances and regulations may adversely affect the results of our vacation ownership business, and non-compliance with such laws, ordinances and regulations may subject us to penalties from environmental violations, and we would have to take whatever steps are necessary to achieve compliance. We may incur costs in connection with environmental clean-up if hazardous or toxic substances are found at resorts we own or manage or resorts we previously owned or managed or may acquire in the future. Under various federal, state and local laws, ordinances and regulations, the current or previous owner, manager or operator of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances, including asbestos, located on or in, or emanating from, such property, for related costs of investigation and property damage or for the cost of removal of underground storage tanks. Environmental laws, ordinances and regulations often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances.

For a detailed description of the regulations to which we are subject, see “Business—Employees, Properties and Facilities, Government Regulation and Legal Proceedings—Legal Proceedings.”

The cost of compliance or failure to comply with the Sarbanes-Oxley Act of 2002 may adversely affect our business.

As a new reporting company under the Exchange Act, we will be subject to certain provisions of the Sarbanes-Oxley Act of 2002, which may result in higher compliance costs and may adversely affect our financial results and our ability to attract and retain qualified members of our Board of Directors or qualified executive officers. The Sarbanes-Oxley Act affects corporate governance, securities disclosure, compliance practices, internal audits, disclosure controls and procedures and financial reporting and accounting systems. Section 404 of the Sarbanes-Oxley Act, for example, requires companies subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its consolidated subsidiaries’ internal control over financial reporting. The failure to comply with Section 404, when we are required to comply, may result in investors’ losing confidence in the reliability of our financial statements, which may result in a decrease in the market value of our common stock, prevent us from providing the required financial information in a timely manner, which could materially and adversely impact our business, our financial condition and the market value of our common stock, prevent us from otherwise complying with the standards applicable to us as a public company and subject us to adverse regulatory consequences.

Seasonality of our businesses may cause fluctuations in our gross revenues and net earnings.

We experience seasonal fluctuations in our gross revenues and net earnings from our franchise and management fees, exchange fees for transactions, commission income earned from renting vacation properties and sales of vacation ownership interests. Revenues from franchise and management fees are generally higher in

 

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the second and third quarters than in the first or fourth quarters because of increased leisure travel during the summer months. Vacation exchange transaction revenues are normally highest in the first quarter, which is generally when members of RCI plan and book their vacations for the year. Rental transaction revenues earned from booking vacation rentals to non-member customers is usually highest in the third quarter, when vacation rentals are highest. Revenues from sales of vacation ownership interests are generally higher in the second and third quarters than in other quarters. 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.

Our revenues are highly dependent on the travel industry and declines in or disruptions to the travel industry, such as those caused by terrorism, acts of God or war, may adversely affect our financial condition and results of operation.

Declines in or disruptions to the travel industry may adversely affect our financial condition and results of operation. Our revenues and profits, and in turn our financial condition, may be significantly adversely affected by exogenous events that generally adversely affect the travel industry. Such events include terrorist incidents and threats (and heightened travel security measures instituted in response to such incidents and threats), acts of God (such as earthquakes, hurricanes, fires, floods and other natural disasters), war, bird flu and other pandemics, the financial instability of many of the air carriers, airline job actions and strikes, and increases in gas and other fuel prices. The occurrence or worsening of any of these types of events could result in a decrease in overall travel and consequently in a decrease in travel by non-local visitors to locations in which franchised and managed properties, resorts with units that are exchanged through our vacation exchange business, properties that are rented through our vacation rental businesses and resorts in which we sell vacation ownership interests have a presence. These types of events may also result in a general economic downturn, which may reduce the amount of discretionary spending that our customers have available for travel and vacations. In addition, from time to time, hurricanes or other adverse weather events may reduce the number of rooms available in our lodging business or the number of units available in resorts in which we exchange and sell intervals or interests, as applicable.

Our businesses may be adversely affected by a deterioration in general economic conditions or a weakening of one or more of the industries in which we operate.

A prolonged economic slowdown, significant price increases, adverse events relating to the travel and leisure industry and local, regional and national economic conditions and factors, such as unemployment, fuel prices, recession and macroeconomic factors, could hurt our operations and therefore adversely affect our results. The risks associated with our businesses are more acute during periods of economic slowdown or recession because such periods may be accompanied by decreased discretionary consumer and corporate spending. A weakening of one or more of the lodging, vacation exchange and rental, and vacation ownership industries could also hurt our operations and therefore adversely affect our results.

We are dependent on our senior management, and a loss of any of our senior managers may adversely affect our business and results of operations.

We believe that our future growth depends, in part, on the continued services of our senior management team. Losing the services of any members of our senior management team could adversely affect our strategic and customer relationships and impede our ability to execute our growth strategies. We do not currently maintain key person life insurance policies for our executive officers.

There may be risks associated with completing future acquisitions that we may decide to do.

If we pursue strategic acquisitions, there may be risks associated with them. We may be unable to identify acquisition targets that complement our businesses, and if we are able to identify suitable acquisition targets, we

 

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may not be able to complete acquisitions of such targets on commercially reasonable terms. Our ability to complete acquisitions depends on a variety of factors, including our ability to obtain financing on acceptable terms and requisite government approvals. If we are able to complete acquisitions, there is no assurance that we will be able to achieve the revenue and cost benefits that we expected in connection with such acquisitions or to successfully integrate the acquired businesses into our existing operations.

We are subject to risks relating to the concentration of a significant portion of the resorts in which we sell vacation ownership interests, our sales offices and the customers of our vacation ownership business in certain vacation areas and areas where our customers live, as applicable.

The concentration of a significant portion of the resorts in which we sell vacation ownership interests and of our sales offices in certain vacation areas and the concentration of a significant number of the customers of our vacation ownership business in certain geographic regions, in each case, may result in our results of operations being more sensitive to local and regional economic conditions and other factors, including competition, natural disasters such as hurricanes, and economic downturns, than our results of operations would be absent such geographic concentrations. Many sales offices and resorts in which we sell vacation ownership interests, for example, are concentrated in the Southeastern United States, a region that is prone to hurricanes. Local and regional economic conditions and other factors may differ materially from prevailing conditions in other parts of the world.

Florida, Nevada and California are examples of areas with concentrations of sales offices. For the twelve months ending December 31, 2005, approximately 14%, 14% and 12% of our vacation ownership interest sales revenue was generated in sales offices located in Florida, Nevada and California, respectively. In addition, as of March 31, 2006, approximately 27% of our outstanding vacation ownership contract receivables portfolio relates to customers who reside in California.

The private resale of vacation ownership interests could adversely affect our vacation ownership resorts and vacation exchange businesses.

The private resale of vacation ownership interests could adversely affect the sales and operations of our vacation ownership business and new member acquisition by our vacation exchange business. We sell vacation ownership interests to buyers for purposes of leisure and not for investment. We believe that the number of private resale of vacation ownership interests by buyers is presently limited and that any sales of vacation ownership interests are typically at prices substantially below the original purchase price. The availability of vacation ownership interests for resale may make ownership of vacation ownership interests less attractive to prospective buyers.

Moreover, as the vacation ownership industry grows, the number of private resales of vacation ownership interests may increase. An increase in the supply of vacation ownership interests available for resale may divert demand for or depress the market price of vacation ownership interests we sell. In addition, private resales of vacation ownership interests may adversely impact our vacation exchange business’ new member acquisition because purchases made through resales may not result in enrollment in our vacation exchange programs.

Revenues from our lodging business are indirectly affected by our franchisees’ pricing decisions.

Revenues from our lodging business are dependent upon the revenues of our franchisees and therefore on our franchisees’ pricing decisions, which affect our franchisees’ revenues. Pricing decisions on individual room rates are made by each individual franchisee. Although we can assist franchisees in understanding how best to take advantage of opportunities in their respective markets, we have no power to compel or command pricing decisions on the part of franchisees. The ability of an individual franchisee to maintain and increase room rates is a function of the franchisee’s ability to market the hotel property locally and maintain the property in a manner necessary for the franchised hotel to compete for guests effectively.

 

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Risks Relating to the Separation

We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Cendant.

As a stand alone, independent public company, we believe that our business will benefit from, among other things, allowing our management to design and implement corporate policies and strategies that are based primarily on the characteristics of our business, allowing us to focus our financial resources wholly on our own operations and implement and maintain a capital structure designed to meet our own specific needs. However, by separating from Cendant there is a risk that our company may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of the current Cendant. As part of Cendant we were able to enjoy certain benefits from Cendant’s operating diversity, purchasing and borrowing leverage, available capital for investments and opportunities to pursue integrated strategies with Cendant’s other businesses. As such, we may not be able to achieve some or all of the benefits that we expect to achieve as a stand alone, independent hospitality company.

We have no operating history as a separate public company, and our historical and pro forma financial information is not necessarily representative of the results we would have achieved as a separate publicly traded company and may not be a reliable indicator of our future results.

The historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the following factors:

 

    Prior to our separation, our business was operated by Cendant as part of its broader corporate organization, rather than as an independent company. Cendant or one of its affiliates performed various corporate functions for us, including, but not limited to, tax administration, certain governance functions (including compliance with the Sarbanes-Oxley Act of 2002 and internal audit) and external reporting. Our historical and pro forma financial results reflect allocations of corporate expenses from Cendant for these and similar functions. These allocations are less than the comparable expenses we believe we would have incurred had we operated as a separate publicly traded company.

 

    Currently, our business is integrated with the other businesses of Cendant. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. While we expect to enter into short-term transition agreements that will govern certain commercial and other relationships among us, Cendant and the other separated companies after the separation, those temporary arrangements may not capture the benefits our businesses have enjoyed as a result of being integrated with the other businesses of Cendant. The loss of these benefits could have an adverse effect on our business, results of operations and financial condition following the completion of the separation.

 

    Generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of Cendant. Following the completion of the separation, Cendant will not be providing us with funds to finance our working capital or other cash requirements. Without the opportunity to obtain financing from Cendant, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements.

 

    Subsequent to the completion of our separation, the cost of capital for our business may be higher than Cendant’s cost of capital prior to our separation because Cendant’s credit ratings are higher than what ours are contemplated to be following the separation.

 

    Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operating as a company separate from Cendant.

 

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We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the separation or as a result of the separation.

Following the completion of our separation, Cendant and the other separated companies will be contractually obligated to provide to us only those services specified in the Transition Services Agreement and the other agreements we enter into with Cendant and the other separated companies in preparation for the separation. The Transition Services Agreement expiration date varies by service provided and is generally less than one year from the date of our separation, with the exception of certain services such as information technology services and telecommunications services, which will transition over varying periods (up to two years with respect to information technology services, and until certain third-party contracts expire with respect to telecommunications services). We may be unable to replace in a timely manner or on comparable terms the services or other benefits that Cendant previously provided to us that are not specified in the Transition Services Agreement or the other agreements. Also, upon the expiration of the Transition Services Agreement or other agreements, many of the services that are covered in such agreements will be provided internally or by unaffiliated third parties, and we expect that in some instances, we will incur higher costs to obtain such services than we incurred under the terms of such agreements. In addition, if Cendant or the other separated companies do not continue to perform effectively the transition services and the other services that are called for under the Transition Services Agreement and other agreements, we may not be able to operate our business effectively and our profitability may decline. Furthermore, after the expiration of the Transition Services Agreement and the other agreements, we may be unable to replace in a timely manner or on comparable terms the services specified in such agreements.

We may have received better terms from unaffiliated third parties than the terms we received in our agreements with Cendant and the other separated companies.

The agreements related to our separation from Cendant and the other separated companies, including the Separation and Distribution Agreement, Tax Sharing Agreement, Transition Services Agreement and the other agreements, were negotiated in the context of our separation from Cendant while we were still part of Cendant and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements we negotiated in the context of our separation related to, among other things, allocation of assets, liabilities, rights, indemnifications and other obligations among Cendant, the other separated companies and us. We may have received better terms from unaffiliated third parties because such parties may have competed with other potential suppliers to win our business. See “Certain Relationships and Related Party Transactions.”

We will be responsible for certain of Cendant’s contingent and other corporate liabilities.

Under the Separation and Distribution Agreement and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement, we, Realogy and Travelport will each assume and be responsible for 30%, 50% and 20%, respectively, of certain of Cendant’s contingent and other corporate liabilities including those relating to unresolved tax and legal matters and associated costs and expenses. However, in the event of a sale of Travelport by Cendant, we and Realogy will each assume and be responsible for 37.5% and 62.5%, respectively, of these contingent and other liabilities, and Travelport will have no responsibility. More specifically, we generally will assume and be responsible for the payment of 30%, or 37.5% in the event of a sale of Travelport, of (i) all taxes imposed on Cendant and certain other subsidiaries and (ii) certain contingent and other corporate liabilities of Cendant and/or its subsidiaries to the extent incurred on or prior to the earlier of (x) December 31, 2006 or (y) the date of the later to occur of the separation of us or Travelport from Cendant. These contingent and other corporate liabilities include liabilities relating to, arising out of or resulting from (i) certain of Cendant’s terminated or divested businesses, including among others, Cendant’s former PHH and Marketing Services (Affinion) businesses, (ii) in the event of a sale of Travelport, liabilities relating to the Travelport sale, if any, (iii) the Securities Action and the PRIDES Action (for a further description of these litigation matters, see “Business—Employees, Properties and Facilities, Government Regulation and Legal

 

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Proceedings—Legal Proceedings—Legal—Cendant Corporate Litigation”) and (iv) generally any actions with respect to the separation plan or the distributions made or brought by any third party. However, in almost all cases, contingent and other corporate liabilities do not include liabilities that are specifically related to the business of one of the four separated companies which will be allocated 100% to the relevant company, including any liabilities related to the business disclosure in a separated company’s registration statement on Form 10 or similar disclosure document filed or distributed in connection with the separation plan. Assuming our separation from Cendant occurred on March 31, 2006, we would have recorded liabilities of $236 million relating to our assumption of 30% (or $292 million in the event of a sale of Travelport, relating to our assumption of 37.5%) of certain of Cendant’s contingent and other corporate liabilities, which are reflected on our pro forma balance sheet. (See “Unaudited Pro Forma Condensed Combined Financial Statements.”) This amount does not reflect liabilities that may be required to be established in connection with the guarantees we expect to provide Cendant in connection with the separation. Any such liabilities, which could be material, will reflect the fair value of the guarantees, which is currently being determined.

If any party responsible for such liabilities were to default in its payment, when due, of any such assumed obligations related to any such contingent corporate liability, each non-defaulting party (including Avis Budget Group, Inc.) would be required to pay an equal portion of the amounts in default. Accordingly, we may, under certain circumstances, be obligated to pay amounts in excess of the 30%, or 37.5% in the event of a sale of Travelport, of the assumed obligations related to such contingent and other corporate liabilities including associated costs and expenses.

Many lawsuits are currently outstanding against Cendant, some of which relate to accounting irregularities arising from some of the CUC International, Inc. business units acquired when HFS Incorporated merged with CUC to form Cendant. While Cendant has settled many of the principal lawsuits relating to the accounting irregularities, these settlements do not encompass all litigation associated with the accounting irregularities. We do not believe that it is feasible to predict or determine the final outcome or resolution of these unresolved proceedings. Although we will share any costs and expenses arising out of this litigation with Realogy and Travelport, an adverse outcome from such unresolved proceedings or liabilities or other proceedings for which we have assumed partial liability under the Separation and Distribution Agreement could be material with respect to our earnings in any given reporting period.

Additionally, Realogy (and not us) will act as the managing party and will manage and assume control of most legal matters related to the contingent and other corporate liabilities and assets of Cendant. Furthermore, in the event of a sale of Travelport, Realogy will have full control of most decisions relating to the settlement, resolution or disposition of most legal matters relating to contingent and other corporate liabilities (including certain tax-related matters) and assets and we will be responsible for 37.5% of any payments made in respect of such matters.

For a more detailed description of the Separation and Distribution Agreement and treatment of certain historical Cendant contingent and other corporate liabilities, see “Certain Relationships and Related Party Transactions—Agreements with Cendant—The Separation and Distribution Agreement.”

As part of our separation from Cendant, we will incur substantial debt with external lenders, which could subject us to various restrictions and decrease our profitability.

In connection with our separation, we expect to enter into borrowing arrangements for a total of $2,000 million, which is comprised of a $300 million term loan facility, an $800 million interim loan facility and a $900 million revolving credit facility. At or prior to the distribution, we expect to draw approximately $1,360 million against those facilities, and issue approximately $70 million in letters of credit, leaving approximately $570 million available to provide liquidity for additional letters of credit and for working capital and ongoing corporate needs. All of the approximately $1,360 million of debt we expect to incur will be transferred to Cendant solely to repay a portion of Cendant’s corporate debt (including its existing asset-linked facility relating

 

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to certain of the assets of Cendant’s Hospitality Services (including Timeshare Resorts) businesses). In addition, the Separation and Distribution Agreement provides for an adjustment in the amount of indebtedness we will incur in connection with our separation in the event that the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, is less than or more than the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation). In the event that such amounts are less than or more than the amount necessary to enable Cendant to repay its outstanding corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, then:

 

  (i) to the extent of an insufficiency which is less than or equal to $100 million, at or prior to our separation we will be required to incur additional indebtedness equal to such insufficiency and transfer such additional amounts to Cendant,

 

  (ii) to the extent of any such insufficiency in excess of $100 million (with the first $100 million being treated as described in clause (i) above), we will be required to incur additional indebtedness in an amount equal to 37.5% of such insufficiency above $100 million and transfer such additional amounts to Cendant and Realogy will be required to make a payment to Cendant, or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant, in an amount equal to 62.5% of such insufficiency above $100 million,

 

  (iii) to the extent of any excess which is less than or equal to $100 million, the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by the amount of such excess, and

 

  (iv) to the extent of any such excess in excess of $100 million (with the first $100 million being treated as described in clause (iii) above), the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by an amount equal to 37.5% of such excess above $100 million and Cendant will be required to make a payment to Realogy in an amount equal to 62.5% of such excess above $100 million, or if Realogy’s separation occurs at the same time as our separation, the amount of indebtedness Realogy is required to incur for transfer to Cendant will be reduced by an amount equal to 62.5% of such excess above $100 million. See “The Separation—Incurrence of Debt.”

Although Cendant is currently negotiating to sell Travelport, and upon such sale, which may occur after our separation, we expect to receive proceeds which we will use to reduce and/or repay certain of our outstanding indebtedness, we cannot assure you that a sale of Travelport will be consummated or as to the timing or the amount or form of consideration that we may receive. After completion of the separation, we intend to replace the interim loan facility with permanent financing primarily through the issuance of debt securities and, as appropriate, other sources of funding. Subject to market conditions and in the event that a sale of Travelport does not occur prior to the time that the Cendant Board declares the dividend of our shares of common stock, we intend to replace the interim loan facility in its entirety with a combination of public, senior unsecured medium-term (a duration of between 3 and 10 years), non-convertible, fixed and/or floating rate bonds. In the event of a sale of Travelport, we intend to use a portion of the proceeds contributed to us to pay down the interim facility in addition to issuing a proportionally smaller amount of the bonds described above. The remainder of the proceeds from a sale of Travelport, if any, will be used to repay other debt. We cannot assure you that we will be able to refinance the interim credit facility on terms that are reasonable to us. These financing arrangements will contain customary restrictions, covenants and events of default. The terms of these financing arrangements and any future indebtedness may impose various restrictions and covenants on us (such as tangible net worth requirements) that could limit our ability to respond to market conditions, provide for capital investment needs or take advantage of business opportunities. In addition, our financing costs may be higher than they were as part of Cendant. For a more detailed discussion of these borrowings and our liquidity following the separation, see

 

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Financial Obligations—Pro Forma Indebtedness Following Separation.”

We cannot give you any assurance as to when or if a sale of Travelport will occur or the extent to which we will receive any cash proceeds from such sale to reduce our indebtedness.

In the event of a sale of Travelport, we would have the right under the Separation and Distribution Agreement to receive a portion of the cash proceeds (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness or Cendant corporate debt, as the case may be) and we would have the obligation to use such cash proceeds to reduce our indebtedness. We cannot give you any assurance as to when or if an agreement with respect to a sale of Travelport will be entered into, or if entered into, when or if the sale of Travelport will be completed. If an agreement is not entered into by September 30, 2006, or in the event an agreement is entered into prior to September 30, 2006 but the sale is not completed by December 31, 2006, all of the shares of common stock of Travelport will be distributed to Cendant’s stockholders rather than sold. In such an event, our expected indebtedness would not be reduced below approximately $1,360 million (as such amount may be adjusted as described elsewhere in this information statement). Moreover, if the sale of Travelport is consummated, there can be no assurance as to the amount or form of consideration received in the sale and other terms that will apply to such a sale, and our indebtedness may not be reduced to the extent that we estimate. The amount of our indebtedness that would be reduced is dependent upon the amount of cash sale proceeds received by Cendant in a sale of Travelport and the tax liabilities, expenses and Travelport debt (or Cendant corporate debt) repayments that may arise in connection with such a sale, the amounts of which are presently uncertain. In addition, in the event that the consideration received in such a sale includes non-cash proceeds, we would only be entitled to receive 37.5% of such non-cash proceeds, which would not result in an immediate reduction of our indebtedness. If a sale of Travelport were to occur, our right to receive a portion of the proceeds is a contractual right under the Separation and Distribution Agreement and we may be required to take action to enforce our rights under the Separation and Distribution Agreement to receive all of the proceeds that we believe we are entitled to receive.

The ownership by our executive officers and some of our directors of shares of common stock, options or other equity awards of Cendant or any of the other separated companies may create, or may create the appearance of, conflicts of interest.

Because of their current or former positions with Cendant, substantially all of our executive officers, including our Chairman and Chief Executive Officer and our Chief Financial Officer, and some of our non-employee director nominees own shares of Cendant and Realogy common stock and options to purchase shares of Cendant and Realogy common stock or other equity awards. Following Cendant’s distribution of the other companies to its stockholders, these officers and non-employee directors will own shares of common stock and options to purchase shares of common stock and other equity awards in these companies. The individual holdings of common stock and options to purchase common stock and other equity awards of Cendant, Realogy and Travelport may be significant for some of these persons compared to these persons’ total assets. Even though our Board will consist of a majority of directors who are independent from Cendant, the other separated companies and our company, and our executive officers who are currently employees of Cendant will cease to be employees of Cendant upon consummation of the separation, ownership by our directors and officers, after our separation, of common stock or options to purchase common stock and other equity awards of Cendant, Realogy and Travelport creates, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for Cendant, Realogy or Travelport than the decisions have for us.

After the separation, certain of our executive officers and directors may have actual or potential conflicts of interest because of their positions in Cendant and the other separated companies.

Six of our directors or director nominees, Messrs. Holmes (who is also our Chairman and Chief Executive Officer), Buckman, Herrera and Mulroney and Mses. Biblowit and Richards, will continue as directors of

 

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Cendant until the time of the final separation. Upon completion of the final separation, these six directors will resign from Cendant’s Board. These common directors could create, or appear to create, potential conflicts of interest when our or Cendant’s management and directors face decisions that could have different implications for us and Cendant. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and Cendant regarding the terms of the agreements governing the separation and the relationship thereafter between us and Cendant. Potential conflicts of interest could also arise if we and/or Cendant enter into any commercial arrangements with each other in the future. In addition, conflicts of interest may arise with regard to the allocation of the common directors’ time between us and Cendant. In addition, it is currently anticipated that Mr. Buckman will serve on the Board of Travelport.

If the distribution, together with certain related transactions, were to fail to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, then our stockholders and/or we and Cendant might be required to pay U.S. federal income taxes.

The distribution is conditioned upon Cendant’s receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel, substantially to the effect that the distribution, together with certain related transactions, should qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. The opinion of Skadden Arps will be based on, among other things, certain assumptions as well as on the accuracy of certain factual representations and statements that we and Cendant make to Skadden Arps. In rendering its opinion, Skadden Arps also will rely on certain covenants that we and Cendant enter into, including the adherence by Cendant and us to certain restrictions on our future actions. If any of the representations or statements that we or Cendant make are, or become, inaccurate or incomplete, or if we or Cendant breach any of our covenants, the distribution and such related transactions, might not qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. You should note that Cendant does not intend to seek a ruling from the Internal Revenue Service, or IRS, as to the U.S. federal income tax treatment of the distribution and such related transactions. The opinion of Skadden Arps is not binding on the IRS or a court, and there can be no assurance that the IRS will not challenge the validity of the distribution and such related transactions, as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code or that any such challenge ultimately will not prevail.

If the distribution, together with certain related transactions, were to fail to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, then Cendant would recognize gain in an amount equal to the excess of (i) the fair market value of the Wyndham Worldwide common stock distributed to the Cendant stockholders over (ii) Cendant’s tax basis in such common stock. Under the terms of the Tax Sharing Agreement, in the event the distribution were to fail to qualify as a reorganization and (i) such failure was not the result of actions taken after the distribution by Cendant, us or any of the other separated companies, we, Realogy and Travelport would be responsible for 30%, 50% and 20% (or 37.5%, 62.5% and 0% in the event of a sale of Travelport), respectively, of any taxes imposed on Cendant as a result thereof and (ii) such failure was the result of actions taken after the distribution by one of the separated companies, the party responsible for such failure would be responsible for all taxes imposed on Cendant as a result thereof. In addition, each Cendant stockholder who received Wyndham Worldwide common stock in the distribution generally would be treated as having received a taxable distribution in an amount equal to the fair market value of the Wyndham Worldwide common stock received (including any fractional share sold on behalf of the stockholder), which would be taxable as a dividend to the extent of the stockholder’s ratable share of Cendant’s current and accumulated earnings and profits (as increased to reflect any current income including any gain recognized by Cendant on the taxable distribution). The balance, if any, of the distribution would be treated as a nontaxable return of capital to the extent of the Cendant stockholder’s tax basis in its Cendant stock, with any remaining amount being taxed as capital gain.

Wyndham Worldwide and Cendant might not be able to engage in desirable strategic transactions and equity issuances following the distribution.

Wyndham Worldwide’s and Cendant’s ability to engage in significant stock transactions could be limited or restricted after the distribution in order to preserve the tax-free nature of the distribution to Cendant. Even if the

 

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distribution, together with certain related transactions, otherwise qualifies as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, it would be taxable to Cendant (but not to Cendant stockholders) under Section 355(e) of the Code, if the distribution were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquired directly or indirectly stock representing a 50% or greater interest, by vote or value, in the stock of either Cendant or Wyndham Worldwide. Current U.S. federal income tax law creates a presumption that the distribution would be taxable to Cendant, but not to its stockholders, if either Wyndham Worldwide or Cendant were to engage in, or enter into an agreement to engage in, a transaction that would result in a 50% or greater change, by vote or value, in Wyndham Worldwide’s or Cendant’s stock ownership during the four-year period that begins two years before the date of the distribution, unless it is established that the transaction is not pursuant to a plan or series of transactions related to the distribution. Treasury regulations currently in effect generally provide that whether an acquisition transaction and a distribution are part of a plan is determined based on all of the facts and circumstances, including, but not limited to, specific factors described in the Treasury regulations. In addition, the Treasury regulations provide several “safe harbors” for acquisition transactions that are not considered to be part of a plan. These rules may prevent Wyndham Worldwide and Cendant from entering into transactions which might be advantageous to their respective stockholders, such as issuing equity securities to satisfy financing needs or acquiring businesses or assets with equity securities. Thus, even if the distribution, together with certain related transactions, were to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, if acquisitions of Cendant stock or Wyndham Worldwide common stock after the distribution were to cause Section 355(e) of the Code to apply, Cendant would recognize taxable gain as described above, but the distribution would be tax free to each Cendant stockholder (except for cash received in lieu of a fractional share of Wyndham Worldwide common stock).

Under the Tax Sharing Agreement, there are restrictions on Wyndham Worldwide’s ability to take actions that could cause the distribution to fail to qualify as a tax-free transaction, including, in certain cases, redeeming equity securities, selling or otherwise disposing of a substantial portion of its assets or acquiring businesses or assets with equity securities, in each case, for a period of 24 months from the day after the distribution. Moreover, the Tax Sharing Agreement generally provides that Wyndham Worldwide will be responsible for any taxes imposed on Cendant or Wyndham Worldwide as a result of the failure of the distribution, together with certain related transactions, to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code if such failure is attributable to certain post-distribution actions taken by or in respect of Wyndham Worldwide (including its subsidiaries) or its stockholders, such as the acquisition of Wyndham Worldwide by a third party at a time and in a manner that would cause such failure. See “The Separation—Certain U.S. Federal Income Tax Consequences of the Distribution” and “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Tax Sharing Agreement.”

Risks Relating to Our Common Stock

There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price of our shares may fluctuate widely.

There is currently no public market for our common stock. It is anticipated that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to and including through the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the distribution or be sustained in the future.

We cannot predict the prices at which our common stock may trade after the distribution. The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including:

 

   

our business profile and market capitalization may not fit the investment objectives of Cendant stockholders, especially stockholders who hold Cendant stock based on Cendant’s inclusion in the S&P

 

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500 Index, as our common stock may not be included in the S&P 500 Index, and as a result, Cendant stockholders may sell our shares after the distribution;

 

    a shift in our investor base;

 

    our quarterly or annual earnings, or those of other companies in our industry;

 

    actual or anticipated fluctuations in our operating results due to the seasonality of our business and other factors related to our business;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

    the failure of securities analysts to cover our common stock after the distribution;

 

    changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

    the operating and stock price performance of other comparable companies;

 

    overall market fluctuations; and

 

    general economic conditions.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

Investors may be unable to accurately value our common stock.

Investors often value companies based on the stock prices and results of operations of other comparable companies. Currently, no public hospitality company exists with combined size, scale and product offerings directly comparable to ours. As such, investors may find it difficult to accurately value our common stock, which may cause our common stock to trade below its true value.

Substantial sales of common stock may occur in connection with this distribution, which could cause our stock price to decline.

The shares of our common stock that Cendant distributes to its stockholders generally may be sold immediately in the public market. Following the distribution, we believe (based on information as of January 26, 2006) that Barclays Global Investors, N.A. will beneficially own 8.88% of our common stock (see “Security Ownership of Certain Beneficial Owners and Management”). Although we have no actual knowledge of any plan or intention on the part of any 5% or greater stockholder to sell our common stock following the separation, it is possible that some Cendant stockholders, including possibly some of our large stockholders, will sell our common stock received in the distribution for reasons such as that our business profile or market capitalization as an independent company does not fit their investment objectives. Moreover, index funds tied to the Standard & Poor’s 500 Index, the Russell 1000 Index and other indices hold shares of Cendant common stock. To the extent our common stock is not included in these indices after the distribution, certain of these index funds will likely be required to sell the shares of our common stock that they receive in the distribution. The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.

Your percentage ownership in Wyndham Worldwide may be diluted in the future.

Your percentage ownership in Wyndham Worldwide may be diluted in the future because of equity awards that we expect will be granted to our directors, officers and employees and the accelerated vesting of other equity awards. Prior to the separation and record date for the distribution, we expect Cendant will approve the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan, or the Plan, which will provide for the grant of equity based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights

 

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and other equity-based awards to our directors, officers and other employees, advisors and consultants. No more than [            ] million shares of our common stock will be available for grants pursuant to the Plan, which include (i) shares which may be used for purposes of satisfying our obligations under our Non-Employee Directors Deferred Compensation Plan, Savings Restoration Plan and Officer Deferred Compensation Plan and (ii) approximately 29 million shares necessary to implement the issuance of equity awards relating to our common stock granted pursuant to equitable adjustments of Cendant equity awards, or the Equitable Adjustment Awards. The Equitable Adjustment Awards will become vested on the earlier of (i) the date on which such units would have vested in accordance with the terms of the existing vesting schedule or (ii) the 30th day following the completion of the second of the series of distributions pursuant to Cendant’s separation plan.

For a more detailed description of the Plan and the Equitable Adjustment Awards, see “Management— Employee Benefit Plans.”

The Executive Committee of our Board of Directors will not consist of a majority of independent directors.

We have established an Executive Committee of the Board that consists of our Chairman and Chief Executive Officer, one other non-independent member and one independent member of our Board. Under our by-laws, the Executive Committee shall have and may exercise all of the powers of the Board of Directors when the Board is not in session, including the power to authorize the issuance of stock, except that the Executive Committee shall have no power to (1) alter, amend or repeal the by-laws or any resolution or resolutions of the Board of Directors; (2) declare any dividend or make any other distribution our stockholders; (3) appoint any member of the Executive Committee; or (4) take any other action which legally may be taken only by the Board. Accordingly, even though the Board has determined that five out of its seven members are independent, significant actions by the Board may be effected by a committee of directors, the majority of whom are not independent.

Our stockholder rights plan and provisions in our certificate of incorporation and by-laws, in our stockholder rights plan and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our certificate of incorporation, by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our Board rather than to attempt a hostile takeover. These provisions include, among others:

 

    a Board of Directors that is divided into three classes with staggered terms;

 

    elimination of the right of our stockholders to act by written consent;

 

    rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

 

    the right of our Board to issue preferred stock without stockholder approval; and

 

    limitations on the right of stockholders to remove directors.

Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more information, see “Description of Capital Stock—Anti-takeover Effects of Our Certificate of Incorporation and By-laws and Delaware Law.”

We expect our Board of Directors to adopt a stockholder rights plan prior to the distribution which provides, among other things, that when specified events occur, our stockholders will be entitled to purchase from us a newly created series of junior preferred stock. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten business days (or a later date determined by our Board before the rights are separated from our

 

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common stock) after the public announcement that a person or group has become an “acquiring person” by acquiring beneficial ownership of 15% or more of our outstanding common stock or (ii) ten business days (or a later date determined by our Board before the rights are separated from our common stock) after a person or group begins a tender or exchange offer that, if completed, would result in that person or group becoming an acquiring person. The issuance of preferred stock pursuant to the stockholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. For a more detailed description of our rights plan, see “Description of Capital Stock—Rights Plan.”

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in the best interests of our company and our stockholders.

We cannot assure you that we will pay any dividends.

There can be no assurance that we will have sufficient surplus under Delaware law to be able to pay any dividends. This may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures, or increases in reserves. If we do not pay dividends, the price of our common stock that you receive in the distribution must appreciate for you to receive a gain on your investment in Wyndham Worldwide. This appreciation may not occur.

 

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FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other public statements. These forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate” and similar expression or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward looking in nature and not historical facts. You should understand that the following important factors could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

    terrorist attacks, such as the September 11, 2001 terrorist attacks, may negatively affect the travel industry, result in a disruption in our business and adversely affect our financial results;

 

    adverse developments in general business, economic and political conditions or any outbreak or escalation of hostilities on a national, regional or international basis;

 

    competition in our existing and future lines of business, and the financial resources of competitors;

 

    our failure to comply with regulations and any changes in laws and regulations, including hospitality, vacation rental and vacation ownership-related regulations, telemarketing regulations, privacy policy regulations and state, federal and international tax laws;

 

    seasonal fluctuation in the travel business;

 

    local and regional economic conditions that affect the travel and tourism industry;

 

    our failure to complete future acquisitions or to realize anticipated benefits from completed acquisitions;

 

    actions by our franchisees that could harm our business;

 

    our inability to access the capital and/or the asset-backed markets on a favorable basis;

 

    the loss of any of our senior management;

 

    risks inherent in operating in foreign countries, including exposure to local economic conditions, government regulation, currency restrictions and other restraints, changes in tax laws, expropriation, political instability and diminished ability to legally enforce our contractual rights;

 

    our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster or other business interruption;

 

    the final resolutions or outcomes with respect to Cendant’s contingent and other corporate liabilities and any related actions for indemnification made pursuant to the Separation and Distribution Agreement;

 

    a failure by Cendant to sell Travelport or to receive sufficient cash proceeds from any such sale so that we can reduce/repay our outstanding indebtedness;

 

    our inability to operate effectively as a stand-alone, publicly traded company; and

 

    the costs associated with becoming compliant with the Sarbanes-Oxley Act of 2002 and the consequences of failing to implement effective internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 by the date that we must comply with that section of the Sarbanes-Oxley Act.

 

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Other factors not identified above, including the risk factors described in the “Risk Factors” section of this information statement, may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control.

You should consider the areas of risk described above, as well as those set forth under the heading “Risk Factors” above, in connection with considering any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

 

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THE SEPARATION

General

On October 23, 2005, the Board of Directors of Cendant preliminarily approved a plan to separate Cendant into four independent, publicly traded companies—one for each of Cendant’s Hospitality Services (including Timeshare Resorts), Real Estate Services, Travel Distribution Services and Vehicle Rental businesses. The separation will occur through distributions to Cendant stockholders of all of the shares of common stock of three subsidiaries of Cendant that hold or will hold the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of the businesses other than the Vehicle Rental business which will remain after the distributions. Following each distribution, Cendant stockholders will own 100% of the common stock of the subsidiary being distributed. The distribution to Cendant stockholders of all of the shares of common stock of Realogy Corporation, a wholly owned subsidiary of Cendant that holds or will hold the assets and liabilities associated with Cendant’s Real Estate Services businesses, is expected to be the first in the series of distributions to effectuate the plan to separate Cendant into four companies. The second distribution is expected to be of Wyndham Worldwide Corporation, the Cendant subsidiary that holds or will hold the assets and liabilities associated with Cendant’s Hospitality (including Timeshare Resorts) businesses and the third and final distribution is expected to be of Travelport Inc., the Cendant subsidiary that holds or will hold the assets and liabilities associated with Cendant’s Travel Distribution Services businesses. As explained more fully below, on April 24, 2006, Cendant announced that as an alternative to distributing shares of Travelport to Cendant stockholders, Cendant is also exploring the sale of Travelport. On May 30, 2006, Cendant announced progress in its alternative plan to sell Travelport, making a sale of Travelport more likely than a distribution of the common stock of Travelport to Cendant stockholders. On June 8, 2006, Cendant announced that it was exploring simultaneous distributions of Wyndham Worldwide and Realogy common stock. Following completion of the separation plan, it is expected that Cendant will change its name to Avis Budget Group, Inc.

After preliminarily approving the separation plan, the Cendant Board established a separation committee of its Board to meet regularly to assist with and oversee the separation process. The members of the separation committee are Robert W. Pittman, Martin L. Edelman and Sheli Z. Rosenberg.

Since October 23, 2005, the Cendant Board and the separation committee met numerous times with and without members of Cendant’s senior management team to discuss the separation. In these meetings, the Cendant Board and the separation committee considered, among other things, the benefits to the businesses and to Cendant stockholders that are expected to result from the separation (see “—Reasons for the Separation”), the capital allocation strategies and dividend policies for the separated companies, the allocation of Cendant’s existing assets, liabilities and businesses among the separated companies, the terms of certain commercial relationships among the separated companies that will exist following the separation, the corporate governance arrangements that will be in place at each company following the separation and the appropriate members of senior management at each company following the separation.

In furtherance of this plan, on [                    ], 2006, the Cendant Board approved the distribution of all of the shares of our common stock held by Cendant to holders of Cendant common stock. The distribution of the shares of our common stock is being made in furtherance of the plan to separate Cendant into four independent, publicly traded companies. In the distribution of the shares of our common stock, each holder of Cendant common stock will receive on [                    ], 2006, the distribution date, one share of our common stock (and a related preferred stock purchase right) for every five shares of Cendant common stock held at the close of business on the record date, as described below. Following the distribution, Cendant stockholders will own 100% of our common stock. The third and final distribution at this time is expected to be of Travelport. Following the final distribution, it is expected that Cendant will change its name to Avis Budget Group, Inc.

You will not be required to make any payment, surrender or exchange your shares of Cendant common stock or take any other action to receive your shares of our common stock.

 

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We cannot provide any assurance that the final distribution, which at this time is expected to be the distribution of shares of common stock of Travelport, will be completed, nor can we provide information at this time with respect to the terms on which the final distribution will be consummated. The final distribution is subject to certain conditions precedent, including final approval of the Cendant Board.

Furthermore, the distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Conditions to the Distribution.”

Potential Sale of Travelport

On April 24, 2006, Cendant announced a modification to its previously announced separation plan. As an alternative to pursuing its original plan to distribute the shares of common stock of Travelport to Cendant stockholders, Cendant is also exploring the possible sale of Travelport. This modification does not affect Cendant’s plan to distribute our shares and the shares of Realogy to Cendant stockholders. Since this announcement, Cendant, together with its financial advisors, has actively pursued the potential sale of Travelport, while at the same time continuing preparations for the distribution of Travelport’s shares to Cendant stockholders (expected in October 2006). On May 30, 2006, Cendant announced progress in pursuing its alternative plan to sell Travelport rather than distributing Travelport’s shares to Cendant stockholders, making a sale the more likely alternative. While Cendant is engaged in preliminary discussions with several interested parties, there can be no assurance that a sale of Travelport will be completed or as to the terms of any such sale. In addition, were a sale of Travelport to occur, there can be no assurance that Cendant will have entered into a definitive agreement with respect to such sale prior to our separation from Cendant.

Pursuant to the Separation and Distribution Agreement, Cendant has agreed to use its reasonable best efforts to effect the sale of Travelport and Cendant will be required to effect such a sale if it is able to receive an opinion from a nationally-recognized investment bank to the effect that the proposed purchase price in connection with a sale of Travelport is fair from a financial point of view to Cendant (without considering the use of proceeds of such a sale). Subject to the foregoing sentence and limited rights of consultation that we and Realogy will have, Cendant will have the sole right and authority to control the sale process and potential sale of Travelport. However, Cendant will be required to distribute the shares of common stock of Travelport to Cendant stockholders as originally planned if Cendant has not signed a definitive agreement to sell Travelport by September 30, 2006 or, if a sale agreement has been entered into prior to September 30, 2006, if the sale of Travelport has not been completed by December 31, 2006. In addition, the Separation and Distribution Agreement will contain certain other requirements relating to a Travelport sale, including that the definitive sale agreement contain terms and provisions reasonably customary for a transaction of this kind.

Unless and until Cendant enters into a definitive agreement for a sale of Travelport and such a sale is completed, the implications of a sale on our separation from Cendant cannot be fully determined. However, if Cendant were to sell Travelport, the terms of our separation, as well as Realogy’s separation, from Cendant would be impacted. If there were a sale of Travelport, which may not occur until after our separation from Cendant, a portion of the cash proceeds from the sale (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness) would be contributed to us and Realogy and such proceeds would be utilized to reduce and/or repay the indebtedness incurred by us and Realogy in connection with our separations (for a detailed discussion of our planned borrowings in connection with our separation, see “Description of Material Indebtedness”). Accordingly, assuming gross cash sale proceeds in the range of $4,300 million to $4,800 million (which represents an estimate of expected gross cash sale proceeds based on non-binding indications of interest received to date), we estimate that following our receipt and utilization of such cash proceeds to reduce and/or repay the approximately $1,360 million of indebtedness we expect to incur at the time of our separation, our indebtedness would be aproximately $575 million. The actual amount of our remaining indebtedness may be more or less than the range provided above depending on the following:

 

    the actual sale price of Travelport;

 

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    the form of the consideration, including the inclusion of any non-cash proceeds;

 

    the amount of expenses, estimated taxes and other payments incurred in connection with such sale;

 

    the amount of projected lost tax attributes of Cendant as a result of such sale; and

 

    the application of sale proceeds that have priority over contributions to us.

See “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Separation and Distribution Agreement—Potential Sale of Travelport.”

In the event Travelport is not sold, we will not receive any proceeds and therefore our indebtedness will not be reduced. In addition, in the event that a Travelport sale includes non-cash consideration, we could not use such non-cash consideration to reduce our indebtedness.

In addition, if a sale of Travelport were to occur, the Separation and Distribution Agreement provides that Cendant’s contingent and other corporate liabilities (which would include any liabilities of Cendant incurred in connection with a Travelport sale) and assets (which would include any non-cash or deferred cash proceeds received in connection with a Travelport sale) will be reallocated such that:

 

    we will assume 37.5% and Realogy will assume 62.5% of these contingent and other corporate liabilities of Cendant and its subsidiaries;

 

    we will be entitled to 37.5% and Realogy will be entitled to 62.5% of these contingent and other corporate assets of Cendant and its subsidiaries; and

 

    Travelport will no longer have any responsibility for or rights with respect to any of these contingent corporate or other liabilities and assets of Cendant and its subsidiaries.

In the event of a sale of Travelport, Realogy will have control of most decisions relating to the settlement, resolution or disposition of most legal matters relating to contingent and other corporate liabilities (including certain tax-related matters) and assets and, following a sale of Travelport, we will be responsible for 37.5% of any payments made in the settlement, resolution or disposition of any of these legal matters relating to these liabilities.

If a sale of Travelport were to incur, it is expected that the distribution of the shares of our common stock would be the second and final distribution.

Internal Reorganization Prior to the Distribution

Prior to the distribution, Cendant will implement an internal reorganization that will result in Wyndham Worldwide, a Delaware corporation and an already-existing, wholly owned subsidiary of Cendant, holding the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses.

The Number of Shares You Will Receive

For every five shares of Cendant common stock that you owned at the close of business on [                    ], 2006, the record date, you will receive one share of our common stock (and a related preferred stock purchase right) on the distribution date. Cendant will not distribute any fractional shares of our common stock to its stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by Cendant or us, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either Cendant or us. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

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When and How You Will Receive the Dividend

Cendant will distribute the shares of our common stock on [                    ], 2006, the distribution date. Mellon Investor Services, which currently serves as the transfer agent and registrar for Cendant’s common stock, will serve as transfer agent and registrar for our common stock and as distribution agent in connection with the distribution.

If you own Cendant common stock as of the close of business on the record date, the shares of Wyndham Worldwide common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording stock ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell shares of Cendant common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of our common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical stock certificates that represent your shares of Cendant common stock and you are the registered holder of the Cendant shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of our common stock that have been registered in book-entry form in your name. If you have any questions concerning the mechanics of having shares of our common stock registered in book-entry form, we encourage you to contact Mellon Investor Services at the address set forth on page 20 of this information statement.

Most Cendant stockholders hold their shares of Cendant common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Cendant common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of our common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares of our common stock held in “street name,” we encourage you to contact your bank or brokerage firm.

Mellon Investor Services, as distribution agent, will not deliver any fractional shares of our common stock in connection with the distribution. Instead, Mellon Investor Services will aggregate all fractional shares and sell them on behalf of the holders who otherwise would be entitled to receive fractional shares. The aggregate net cash proceeds of these sales, which generally will be taxable for U.S. federal income tax purposes, will be distributed pro rata (based on the fractional shares such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. See “—Certain U.S. Federal Income Tax Consequences of the Distribution” below for an explanation of the tax consequences of the distribution. If you physically hold Cendant common stock certificates and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your Cendant stock through a bank or brokerage firm, your bank or brokerage firm will receive on your behalf your pro rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

Results of the Separation

After our separation from Cendant, we will be a separate, publicly traded company. Immediately following the distribution, we expect to have approximately 7,790 stockholders of record, based on the number of registered stockholders of Cendant common stock on June 8, 2006, and approximately 200 million shares of our common stock outstanding and applying the distribution ratio of one share of our common stock for every five shares of Cendant common stock held as of the record date. The actual number of shares to be distributed will be determined on the record date and will reflect any exercise of Cendant options between the date the Cendant Board declares the dividend for the distribution and the record date for the distribution.

 

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Before the separation of Realogy from Cendant, we will enter into a Separation and Distribution Agreement and several other agreements with Cendant’s other businesses to effect the separation and provide a framework for our relationships with Cendant’s other businesses after the separation. These agreements will govern the relationship among us, Cendant, Realogy and Travelport subsequent to the completion of the separation plan and provide for the allocation among us, Cendant, Realogy and Travelport of Cendant’s assets, liabilities and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to our separation from Cendant. The Separation and Distribution Agreement, in particular, requires Wyndham Worldwide to assume certain of Cendant’s contingent and other corporate liabilities and establishes the amount of the debt that each separated company will initially incur expenses to repay Cendant’s corporate debt and, in the case of Travelport only, to repay other corporate obligations and to fund the actual and estimated cash borne by Cendant relating to the separation.

For a more detailed description of these agreements, see “Certain Relationships and Related Party Transactions,” included elsewhere in this information statement.

The distribution will not affect the number of outstanding shares of Cendant common stock or any rights of Cendant stockholders.

Incurrence of Debt

Under the Separation and Distribution Agreement, we, Realogy and Travelport have agreed to take certain actions so that we, Realogy and Travelport, and not Cendant, will bear economic responsibility for general liabilities and obligations of Cendant (including costs and expenses and corporate indebtedness) other than those that relate primarily to Cendant’s Vehicle Rental business. However, in light of the plan to separate into four independent companies in a sequential manner, we, Realogy, Travelport and Cendant have also agreed to seek to minimize the likelihood and magnitude of post-separation payments among the parties relating to any such liabilities and obligations. To effect this arrangement, Realogy has entered, and Wyndham Worldwide and Travelport anticipate entering into, borrowing facilities at the time of or, in the case of Travelport, prior to its respective separation from Cendant, the amount-cash proceeds of which will be transferred to Cendant to repay Cendant’s corporate debt and, with respect to the amount transferred by Cendant, to repay other corporate obligations and to fund the actual and estimated expenses borne by Cendant relating to the separation. For these purposes, Realogy is expected to borrow approximately $2,225 million at the time of its separation and we expect to borrow approximately $1,360 million at the time of our separation. The allocation of debt among the parties was based upon estimates of the relative future ability of each party to service its debt, each party’s ability to maintain acceptable debt ratings and the possibility that Travelport may be sold rather than separated. We anticipate that Cendant will repay its corporate indebtedness at or around the time of our separation. In the event Travelport is sold instead of being separated, Cendant will be obligated to use a significant portion of the proceeds it receives to fulfill Travelport’s obligation to provide Cendant with funds to repay Cendant’s corporate debt (if the sale is completed prior to the incurrence of debt by Travelport in connection with the plan of separation) or to repay the Travelport indebtedness incurred and transferred to Cendant (if the sale is completed after our separation from Cendant) (for a detailed description of the use of proceeds from a potential sale of Travelport, see “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Separation and Distribution Agreement”).

In the event that a definitive purchase agreement relating to a sale of Travelport has not been executed prior to the time that the Cendant Board declares the dividend of our shares of common stock, and the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, is less than or more than the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other

 

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than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation), then:

 

  (i) to the extent of an insufficiency which is less than or equal to $100 million, at or prior to our separation, we will be required to incur additional indebtedness equal to such insufficiency and transfer such additional amounts to Cendant,

 

  (ii) to the extent of any such insufficiency in excess of $100 million (with the first $100 million being treated as described in clause (i) above), we will be required to incur additional indebtedness in an amount equal to 37.5% of such insufficiency above $100 million and transfer such additional amounts to Cendant and Realogy will be required to make a payment to Cendant, or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant, in an amount equal to 62.5% of such insufficiency above $100 million,

 

  (iii) to the extent of any excess which is less than or equal to $100 million, the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by the amount of such excess, and

 

  (iv) to the extent of any such excess in excess of $100 million (with the first $100 million being treated as described in clause (iii) above), the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by an amount equal to 37.5% of such excess above $100 million and Cendant will be required to make a payment to Realogy in an amount equal to 62.5% of such excess above $100 million, or if Realogy’s separation occurs at the same time as our separation, the amount of indebtedness Realogy is required to incur for transfer to Cendant will be reduced by an amount equal to 62.5% of such excess above $100 million.

If we are required to incur additional indebtedness under clause (i) above, we will be entitled to receive a priority return of such amount (up to $100 million) out of the distribution of remaining proceeds of any Travelport sale prior to the balance of such remaining proceeds being allocated to Wyndham Worldwide and Realogy on a 37.5% and 62.5% basis, respectively (see “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Separation and Distribution Agreement”). In addition, as between us and Realogy, our allocable percentage of any such obligation or entitlement under clause (ii) or (iv) above will be increased or decreased relative to Realogy’s based upon a calculation that takes into account (x) the amount by which the cash and cash equivalents balance we have immediately following our separation is greater than or less than $120 million (which is the estimated amount to be retained by us at the time of our separation excluding illiquid foreign cash balances), measured against (y) the amount by which the cash and cash equivalents balance at Realogy immediately following its separation is greater than or less than $50 million (which is the estimated amount to be retained by Realogy at the time of its separation).

In the event that a definitive purchase agreement relating to a sale of Travelport has been executed prior to the time that the Cendant Board declares the dividend of our shares of common stock, any insufficiency resulting from comparing the sum of the borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, to the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation) will result in an upward adjustment to the amount of indebtedness allocated to Travelport to the extent that Travelport is able to obtain such additional debt financing on commercially reasonable terms; as a result, such additional amount of Travelport indebtedness will be repaid out of the proceeds of a Travelport sale (if such a sale is thereafter completed) and therefore will reduce the amount of residual proceeds available for

 

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distribution to us and Realogy on a 37.5% and 62.5% basis, respectively (see “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Separation and Distribution Agreement”). Any additional insufficiency beyond the additional amount of indebtedness that Travelport could incur on commercially reasonable terms will be satisfied through the incurrence of additional indebtedness by us and by Realogy (or require a payment by Realogy, if Realogy’s separation occurs prior to our separation) as described under clauses (i) and (ii) above where a Travelport purchase agreement has not been entered into prior to the distribution of our common stock. In the event that the borrowings transferred by us, Realogy and Travelport, together with Cendant’s cash, result in an excess in the amounts necessary to repay all of Cendant’s corporate indebtedness and, with respect to the amount transferred by Travelport to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, measured at the time of the separation of our separation, then such excess (a “priority excess”) will be allocated between us and Realogy in the manner described in the paragraph below.

Any cash costs and expenses related to the plan of separation incurred by Cendant following the date of the adjustment described above that have not otherwise been included in the estimated costs and expenses through the completion of the plan of separation for the purposes of the adjustment will be treated as contingent liabilities under the Separation and Distribution Agreement and therefore borne 30% by us, 50% by Realogy and 20% by Travelport (or 37.5% by us and 62.5% by Realogy, in the event of a sale of Travelport). If the amount of cash costs and expenses estimated to be incurred prior to the completion of the plan of separation for the above-described adjustment exceeds the actual cash costs and expenses incurred by Cendant, such excess (a “Cendant excess amount”) will be allocated in the following manner: (i) in the event that a priority excess exists, all or a portion of the Cendant excess amount will be allocated to us and Realogy on a 37.5% and 62.5% basis, respectively, up to the amount of the priority excess and (ii) any remaining Cendant excess amount will be treated as a contingent asset to which we will be entitled to 30%, Realogy will be entitled to 50% and Travelport will be entitled to 20% (or 37.5% to us and 62.5% to Realogy, in the event of a sale of Travelport).

Certain U.S. Federal Income Tax Consequences of the Distribution

The following is a summary of certain U.S. federal income tax consequences of the distribution. This summary is based on the Code, Treasury regulations promulgated thereunder and on judicial and administrative interpretations of the Code, all as in effect on the date of this information statement, and is subject to changes in these or other governing authorities, any of which may have a retroactive effect. This summary assumes that the distribution will be consummated in accordance with the Separation and Distribution Agreement and as described in this information statement. This summary is for general information only and does not purport to be a complete description of the consequences of the distribution nor does it address the effects of any state, local or foreign tax laws on the distribution. The tax treatment of a Cendant stockholder may vary depending upon that stockholder’s particular situation, and certain stockholders (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, partners in partnerships that hold stock in Cendant, pass-through entities, traders in securities who elect to apply a mark-to-market method of accounting, stockholders who hold their Cendant stock as part of a “hedge,” “straddle,” “conversion,” or “constructive sale transaction,” individuals who received Cendant common stock upon the exercise of employee stock options or otherwise as compensation and non-U.S. stockholders) may be subject to special rules not discussed below. The summary assumes that the Cendant stockholders hold their Cendant common stock as capital assets within the meaning of Section 1221 of the Code.

Each stockholder is urged to consult its tax advisor as to the specific tax consequences of the distribution to that stockholder, including the effect of any state, local or foreign tax laws and of changes in applicable tax laws.

The distribution is conditioned upon Cendant’s receipt of an opinion of Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that the distribution, together with certain related transactions, should qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. The opinion of Skadden Arps will be based on, among other things, certain assumptions as well as on the accuracy of certain factual representations and statements that we and Cendant make to Skadden Arps. In rendering its opinion, Skadden Arps also will rely on certain covenants that we and Cendant enter into, including the adherence by Cendant and us to certain restrictions on our future actions.

 

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If any of the representations or statements that we or Cendant make are, or become, inaccurate or incomplete, or if we or Cendant breach any of our covenants, the distribution, together with certain related transactions, might not qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. You should note that Cendant does not intend to seek a ruling from the IRS as to the U.S. federal income tax treatment of the distribution. The opinion of Skadden Arps is not binding on the IRS or a court, and there can be no assurance that the IRS will not challenge the validity of the distribution and related transactions as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code or that any such challenge ultimately will not prevail.

The Distribution

Assuming that the distribution, together with certain related transactions, qualifies as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, the following describes certain U.S. federal income tax consequences to us, Cendant and Cendant stockholders:

 

    neither we nor Cendant will recognize any gain or loss upon the distribution of Wyndham Worldwide common stock and no amount will be includible in our income or that of Cendant as a result of the distribution, and certain related transactions, other than taxes arising out of internal restructurings undertaken in connection with our separation and with respect to any “excess loss account” or “intercompany transaction” required to be taken into account by Cendant under Treasury regulations relating to consolidated federal income tax returns;

 

    a Cendant stockholder will not recognize income, gain, or loss as a result of the receipt of our common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares of our common stock;

 

    a Cendant stockholder’s tax basis in such stockholder’s Cendant common stock and in our common stock received in the distribution (including any fractional share interest in our common stock for which cash is received) will equal such stockholder’s tax basis in its Cendant common stock immediately before the distribution, allocated between the Cendant common stock and our common stock (including any fractional share interest of our common stock for which cash is received) in proportion to their relative fair market values on the date of the distribution;

 

    a Cendant stockholder’s holding period for our common stock received in the distribution (including any fractional share interest of our common stock for which cash is received) will include the holding period for that stockholder’s Cendant common stock; and

 

    a Cendant stockholder who receives cash in lieu of a fractional share of our common stock in the distribution will be treated as having sold such fractional share for cash, and will generally recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the Cendant stockholder’s adjusted tax basis in the fractional share. That gain or loss will be long-term capital gain or loss if the stockholder’s holding period for its Cendant common stock exceeds one year.

U.S. Treasury regulations require each Cendant stockholder who receives our common stock in the distribution to attach to the stockholder’s U.S. federal income tax return for the year in which the stock is received a detailed statement setting forth such data as may be appropriate to demonstrate the applicability of Section 355 of the Code to the distribution. Within a reasonable period of time after the distribution, Cendant will provide to our stockholders, either directly or through our stockholders’ banks or brokerage firms, the information necessary to comply with this requirement.

Certain U.S. Federal Income Tax Consequences if the Distribution Were Taxable

An opinion of counsel represents counsel’s best legal judgment and is not binding on the IRS or any court. If the IRS were to assert successfully that the distribution was taxable, the above consequences would not apply

and both Cendant and holders of Cendant common stock who received shares of our common stock in the distribution could be subject to tax, as described below. In addition, future events that may or may not be within Cendant’s or our control, including extraordinary purchases of Cendant common stock or our common stock, could cause the distribution not to qualify as tax free to Cendant and/or holders of Cendant common stock.

 

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Depending on the circumstances, we may be required to indemnify Cendant for some or all of the taxes and losses resulting from the distribution and certain related transactions not qualifying as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. See “Certain Relationships and Related Party Transactions—Agreements with Cendant, Realogy and Travelport—Tax Sharing Agreement.”

If the distribution were to fail to qualify as a reorganization, then:

 

    Cendant would recognize gain in an amount equal to the excess of the fair market value of Wyndham Worldwide common stock on the date of the distribution distributed to Cendant stockholders (including any fractional shares sold on behalf of the stockholder) over Cendant’s adjusted tax basis in our stock;

 

    each Cendant stockholder who received Wyndham Worldwide common stock in the distribution would be treated as having received a taxable distribution in an amount equal to the fair market value of such stock (including any fractional shares sold on behalf of the stockholder) on the distribution date. That distribution would be taxable to the stockholder as a dividend to the extent of Cendant’s current and accumulated earnings and profits. Any amount that exceeded Cendant’s earnings and profits would be treated first as a non-taxable return of capital to the extent of the Cendant stockholder’s tax basis in its Cendant common stock with any remaining amounts being taxed as capital gain;

 

    certain stockholders would be subject to additional special rules governing taxable distributions, such as those that relate to the dividends received deduction and extraordinary dividends; and

 

    a stockholder’s tax basis in Wyndham Worldwide common stock received generally would equal the fair market value of Wyndham Worldwide common stock on the distribution date, and the holding period for that stock would begin the day after the distribution date. The holding period for the stockholder’s Cendant common stock would not be affected by the fact that the distribution was taxable.

Even if the distribution, together with certain related transactions, otherwise qualifies as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, it could be taxable to Cendant under Section 355(e) of the Code if one or more persons were to acquire directly or indirectly stock representing a 50% or greater interest by vote or value, in Cendant or us during the four-year period beginning on the date which is two years before the date of the distribution, as part of a plan or series of related transactions that includes the distribution. If such an acquisition of our stock or Cendant’s stock were to trigger the application of Section 355(e), Cendant would recognize taxable gain as described above, but the distribution would be tax-free to each Cendant stockholder.

In connection with the distribution, we, Cendant and the other separated companies will enter into a Tax Sharing Agreement pursuant to which we and the other separated companies each will agree to be responsible for certain liabilities and obligations following the distribution. Our indemnification obligations will include a covenant to indemnify Cendant for any losses that it and its subsidiaries incur as a result of any action, misrepresentation or omission by us or one of our subsidiaries that causes the distribution of our common stock by Cendant to fail to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)D and 355 of the Code. We also will be responsible for 30% (or 37.5% in the event of a sale of Travelport) of any taxes resulting from the failure of the distribution, together with certain related transactions, to qualify as such a reorganization for U.S. federal income tax purposes, which failure is not due to the actions, misrepresentations or omissions of us, any of the other separated companies or our respective subsidiaries. In addition, even if we were not contractually required to indemnify Cendant for tax liabilities if the distribution, together with certain related transactions, were to fail to qualify as such a reorganization for U.S. federal income tax purposes, we nonetheless could be legally liable under applicable tax law for such liabilities if Cendant were to fail to pay them. See “Certain Relationships and Related Party Transactions—Agreements with Cendant Corporation, Realogy and Travelport—Tax Sharing Agreement” for a more detailed discussion of the Tax Sharing Agreement between Cendant and us.

The foregoing is a summary of certain U.S. federal income tax consequences of the distribution under current law and is for general information only. The foregoing does not purport to address all U.S. federal income tax consequences or tax consequences that may arise under the tax laws of other jurisdictions or

 

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that may apply to particular categories of stockholders. Each Cendant stockholder should consult its tax advisor as to the particular tax consequences of the distribution to such stockholder, including the application of U.S. federal, state, local and foreign tax laws, and the effect of possible changes in tax laws that may affect the tax consequences described above.

Market for Common Stock

There is currently no public market for our common stock. A condition to the distribution is the listing on the NYSE of our common stock. We have applied to list our common stock on the NYSE under the symbol “WYN.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date and continuing up to and including through the distribution date, there will be two markets in Cendant common stock: a “regular-way” market and an “ex-distribution” market. Shares of Cendant common stock that trade on the regular way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if you sell shares of Cendant common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of Wyndham Worldwide common stock in the distribution. If you own shares of Cendant common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will still receive the shares of our common stock that you would be entitled to receive pursuant to your ownership of the shares of Cendant common stock.

Furthermore, beginning on or shortly before the record date and continuing up to and including through the distribution date, there will be a “when-issued” market in our common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of our common stock that will be distributed to Cendant stockholders on the distribution date. If you owned shares of Cendant common stock at the close of business on the record date, you would be entitled to shares of our common stock distributed pursuant to the distribution. You may trade this entitlement to shares of our common stock, without the shares of Cendant common stock you own, on the “when-issued” market. On the first trading day following the distribution date, “when issued” trading with respect to our common stock will end and “regular-way” trading will begin.

Conditions to the Distribution

We expect that the distribution will be effective on [                    ], 2006, the distribution date, provided that, among other conditions described in this information statement, the following conditions shall have been satisfied or, if permissible under the Separation and Distribution Agreement, waived by Cendant:

 

    the SEC shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, and no stop order relating to the registration statement is in effect;

 

    all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the distribution shall have been received;

 

    Cendant shall have received a legal opinion of Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that the distribution, together with certain related transactions, should qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code;

 

    our entry into various new debt facilities with a syndicate of financial institutions, as described in “Description of Material Indebtedness”;

 

    the listing of our common stock on the NYSE shall have been approved, subject to official notice of issuance;

 

    the Cendant Board shall have received an opinion from Duff & Phelps to the effect that we and Cendant each will be solvent and adequately capitalized immediately after the distribution and that Cendant has sufficient surplus under Delaware law to declare the dividend of Wyndham Worldwide common stock;

 

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    the Cendant Board shall have received an opinion from Evercore to the effect that, as of the date of such opinion, the distribution is fair, from a financial point of view, to the stockholders of Cendant;

 

    all material government approvals and other consents necessary to consummate the distribution shall have been received;

 

    certain of our and our subsidiaries’ credit facilities shall have been amended to permit our separation from Cendant; and

 

    no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto, including the transfers of assets and liabilities contemplated by the Separation and Distribution Agreement, shall be in effect.

The fulfillment of the foregoing conditions does not create any obligation on Cendant’s part to effect the distribution, and the Cendant Board has reserved the right, in its sole discretion, to amend, modify or abandon the distribution and related transactions at any time prior to the distribution date. Cendant has the right not to complete the distribution if, at any time, the Cendant Board determines, in its sole discretion, that the distribution is not in the best interests of Cendant or its stockholders or that market conditions are such that it is not advisable to separate the Hospitality Services (including Timeshare Resorts) businesses from Cendant.

Reasons for the Separation

The Cendant Board regularly reviews the various businesses that Cendant conducts to ensure that Cendant’s resources are properly being put to use in a manner that is in the best interests of Cendant and its stockholders. Over the last several years, Cendant has achieved increased revenues and earnings. During that time, however, Cendant has found that any real or perceived negative issue at any one of its business units has usually obscured the performance of Cendant as a whole. To this end, the Cendant Board evaluated a number of strategic alternatives to increase value and concluded that a separation would be the most feasible and the most financially attractive approach. The Cendant Board believes that creating four companies, each of which is focused on one industry is the best way to unlock the full value of Cendant’s businesses in both the short and long terms. There will be one company for each of Cendant’s Hospitality Services (including Timeshare Resorts), Real Estate Services, Travel Distribution Services and Vehicle Rental businesses.

Cendant believes that the separation of its businesses provides each separated company, including us, with certain opportunities and benefits. The following are some of the opportunities and benefits that the Cendant Board considered in preliminarily approving the separation:

 

    Although there can be no assurance, Cendant believes that over time following the separation, the common stock of the separated companies should have a higher aggregate market value, on a fully distributed basis and assuming the same market conditions, than if Cendant were to remain under its current configuration. The Cendant Board believes that such value increase in the common stock should enhance the value of equity-based compensation for each separated company’s employees and should permit each separated company to effect future acquisitions with such common stock in a manner that preserves capital with less dilution of the existing stockholders’ interests than would occur by issuing pre-distribution Cendant common stock, in each case resulting in a real and substantial benefit for the companies.

 

    The separation will allow the management of each separated company to design and implement corporate policies and strategies that are based primarily on the business characteristics of that company and to concentrate its financial resources wholly on its own operations.

 

    Each separated company will maintain a sharper focus on its core business and growth opportunities, which will allow each separated company to be better able to make the changes to its business necessary for each such company to respond to developments in the industry in which each company operates. In addition, after the separation, the businesses within each company will no longer need to compete internally for capital with businesses operating in other industries.

 

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    Each separated company will have a capital structure designed to meet its needs. Our capital structure is expected to facilitate the acquisitions (including, possibly, acquisitions using Wyndham Worldwide common stock as currency), joint ventures, partnerships and internal expansion that are important for us to remain competitive in our industry. Cendant believes that our stock should be an attractive acquisition currency for the typical seller of a business to us. Cendant believes that this should provide Wyndham Worldwide with the ability to finance acquisitions with equity in a manner that preserves capital with less dilution of its stockholders’ interests than would occur by issuing pre-distribution Cendant common stock.

 

    The separation will provide investors with four investment options that may be more attractive to investors than the investment option of one combined company. Separating Cendant into four publicly traded companies will provide investors with the opportunity to invest in each of the separated companies individually. The Cendant Board believes that certain investors may want to invest only in companies that are focused on only one industry and that the demand for the separated companies by such investors may increase the demand for each company’s shares relative to the demand for Cendant’s shares. The separation is intended to reduce the complexities surrounding investor understanding and give current investors in Cendant the ability to choose how to diversify their Cendant holdings.

 

    The separation will permit the creation of equity securities, including options and restricted stock units, for each of the companies with a value that is expected to reflect more closely the efforts and performance of each company’s management. Such equity securities should enable each company to provide incentive compensation arrangements for its key employees that are directly related to the market performance of each company’s common stock, and Cendant believes such equity-based compensation arrangements should provide enhanced incentives for performance and improve the ability for each company to attract, retain and motivate qualified personnel.

The Cendant Board considered a number of other potentially negative factors in evaluating the separation, including the decreased capital available for investment, the loss of synergies from operating as one company, potential disruptions to the businesses as a result of the separation, the potential impact of the separation on the anticipated credit ratings of the separated companies, risks associated with refinancing and/or repaying Cendant’s debt, risks of being unable to achieve the benefits expected to be achieved by the separation and the reaction of Cendant stockholders to the separation, the risk that the plan of execution might not be completed and the one-time and on-going costs of the separation. The Cendant Board concluded that the potential benefits of the separation outweighed these factors.

In view of the wide variety of factors considered in connection with the evaluation of the separation and the complexity of these matters, the Cendant Board did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to the factors considered. The individual members of the Cendant Board likely may have given different weights to different factors.

The Cendant Board expects to receive an opinion from Evercore to the effect that, as of the date of such opinion, the distribution is fair, from a financial point of view, to the stockholders of Cendant. In addition, the Cendant Board also expects to receive an opinion from Duff & Phelps to the effect that Wyndham Worldwide and Cendant each will be solvent and adequately capitalized immediately after the distribution and that Cendant has sufficient surplus under Delaware law to declare the dividend of Wyndham Worldwide common stock.

Opinion of Evercore Group L.L.C.

Cendant expects Evercore Group L.L.C. to provide to the Cendant Board a written opinion with respect to the fairness, from a financial point of view, to holders of shares of Cendant common stock of the distribution of the shares of Wyndham Worldwide common stock to such holders. Evercore will provide the fairness opinion for the information and assistance of the Cendant Board in connection with the Board’s consideration of whether to declare the distribution. In determining its conclusion of fairness, Evercore will evaluate the merits of the

 

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distribution relative to the alternative of preserving the status quo. The fairness opinion will not constitute a recommendation to any Cendant stockholder as to how such holder should respond to the distribution and therefore will not constitute a recommendation as to whether such holder should hold or sell shares of Cendant common stock or shares of Wyndham Worldwide common stock. A copy of the fairness opinion that Evercore is expected to deliver to the Cendant Board will be attached to this information statement as Annex A.

For purposes of the fairness opinion and the analyses underlying the fairness opinion, Evercore will assume and rely upon, without assuming any responsibility for independent verification of, the accuracy and completeness of publicly available information and of the information supplied or otherwise made available to, discussed with or reviewed by Evercore. To enable Evercore to perform the analyses underlying the fairness opinion, members of Cendant’s management will provide Evercore with certain financial projections (including Cendant’s outlook with respect to the long-term growth prospects of Cendant’s businesses) relating to Cendant and Wyndham Worldwide. Evercore will assume that the financial projections have been reasonably prepared on bases reflecting the best available estimates and good faith judgments of the future competitive, operating and regulatory environments and financial performances of Cendant and Wyndham Worldwide. Additionally, Evercore will rely upon the assessments of Cendant’s management with respect to the business, operational and strategic risks, incremental costs and incremental cost savings arising from the distribution.

Evercore will not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of Cendant or any of its subsidiaries, and Evercore will not be furnished with any such valuations or appraisals. In addition, Evercore will not evaluate the solvency or fair value of Cendant or any of its subsidiaries or of Wyndham Worldwide or any of its subsidiaries under any state or federal laws relating to bankruptcy, insolvency or similar matters. For the purposes of its analyses, Evercore will assume that the distribution, together with certain related transactions, will qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code and, accordingly, that, for U.S. federal income tax purposes: (x) no income, gain or loss will be recognized by Cendant stockholders as a result of the receipt of Wyndham Worldwide common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares of Wyndham Worldwide common stock and (y) no gain or loss will be recognized by Cendant or Wyndham Worldwide upon the distribution of Wyndham Worldwide common stock and no amount will be includible in the income of Wyndham Worldwide or Cendant as a result of the distribution and certain related transactions other than taxes arising out of internal restructuring transactions undertaken in connection with our separation and with respect to any “excess loss account” or “intercompany transaction” required to be taken into account by Cendant under Treasury regulations relating to consolidated federal income tax returns which will be assumed to be not in excess of the aggregate amounts estimated by the management of Cendant and provided to Evercore in connection with its analysis. Evercore will assume that all necessary governmental and regulatory and other approvals or consents (contractual or otherwise) for the distribution have been or will be timely obtained or made and that no restrictions will be imposed or costs incurred (other than costs in the amounts estimated by management of Cendant and provided to Evercore in connection with its analysis) that will have an adverse effect on Cendant and its subsidiaries or on Wyndham Worldwide and its subsidiaries following the distribution. Evercore will further assume that the distribution will comply with all applicable U.S. federal and state laws and foreign laws, including, without limitation, laws relating to the payment of dividends, bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer and other similar laws affecting the rights of creditors. Evercore is not a legal, regulatory, accounting or tax expert and will assume the accuracy and completeness of assessments by Cendant and its advisors with respect to legal, regulatory, accounting and tax matters.

Evercore was not authorized to solicit, and did not solicit, any proposals from any third parties for the acquisition of Cendant or Wyndham Worldwide, and Evercore did not make any determination as to whether any such proposals could be obtained if solicited. Other than the alternative of preserving the status quo, Evercore did not consider and therefore Evercore’s fairness opinion will not address the relative merits of the distribution as compared to other business strategies that might be available to Cendant and the underlying business decision of Cendant to proceed with the distribution.

 

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Evercore’s fairness opinion will not express any view as to the prices at which the shares of Cendant common stock or the shares of Wyndham Worldwide common stock will trade following the distribution. The actual values of and prices at which the shares of Cendant common stock and the shares of Wyndham Worldwide common stock will trade following the distribution will depend on a variety of factors including, without limitation, prevailing interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the prices of securities. Evercore’s fairness opinion will not address whether the aggregate market value of the outstanding shares of Cendant common stock and the outstanding shares of Wyndham Worldwide common stock following the distribution will exceed the aggregate market value of the outstanding shares of Cendant common stock at any time prior to the distribution or the aggregate market value of the outstanding shares of Cendant common stock in the absence of the distribution. The shares of Cendant common stock and the shares of Wyndham Worldwide common stock may, after the distribution, initially trade at prices below those at which they would trade on a fully distributed basis.

Evercore’s fairness opinion will necessarily be based on economic, market and other conditions as in effect on, and the information made available to Evercore as of, the date of delivery of the fairness opinion. It should be understood that subsequent developments may affect Evercore’s fairness opinion and that Evercore will not have any obligation to update, revise or reaffirm its fairness opinion.

Evercore expects that in arriving at its opinion, it will, among other things (i) review certain publicly available business and financial information relating to Cendant and Wyndham Worldwide that it deems to be relevant; (ii) review certain internal financial statements and other non-public financial and operating data relating to Cendant and Wyndham Worldwide that will be prepared and furnished to Evercore by the management of Cendant; (iii) review certain financial projections relating to Cendant and Wyndham Worldwide that will be provided by and approved for use in connection with Evercore’s opinion by the management of Cendant; (iv) discuss the past and current operations, financial projections and current financial condition of Cendant and Wyndham Worldwide with the management of Cendant; (v) compare certain financial information for Cendant and Wyndham Worldwide with similar information for other relevant companies the securities of which are publicly traded; (vi) review the financial terms of certain publicly available transactions that Evercore deems comparable to the distribution; (vii) review the historical market prices and trading activity for the shares of Cendant common stock; (viii) review the contemplated allocation of indebtedness and other liabilities to Cendant and Wyndham Worldwide following the distribution (including the potential allocation of proceeds arising from a sale of Travelport); (ix) review a draft of the Form 10 registration statement filed by Wyndham Worldwide in connection with the distribution in substantially final form and assume that its final form will not vary in any respect material to Evercore’s analysis; and (x) perform other examinations and analyses and consider other factors that Evercore deems appropriate.

Set forth below is a summary of the material information and analyses that Evercore expects to perform in connection with the opinion that Cendant expects Evercore to provide to the Cendant Board. The following summary, however, does not purport to be a complete description of the analyses that Evercore expects to perform. The order in which the analyses are described does not represent the relative importance of or weight that Evercore expects to give to these analyses. Except as otherwise noted, Evercore’s analyses will be based on market data as it existed on or before [            ], 2006, and will not necessarily be indicative of current market conditions.

For purposes of preparing its opinion, Evercore will review the stock price performance of Cendant common stock as compared to that of the S&P 500 index over the last five years. Evercore will also review the historical forward price / earnings multiple of Cendant common stock as compared to that of the S&P 500 index since 2001.

Evercore will analyze the enterprise value / 2006 EBITDA multiples and the price / 2006 earnings multiples for selected publicly-traded companies that participate in the same industries as Wyndham Worldwide, Realogy, Travelport and Avis Budget Group. Evercore will calculate the mean and median for the selected companies

 

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underlying each of the different industry groupings. Evercore also will compare selected Wall Street research analyst estimates for the sum-of-the-parts value for Cendant common stock to Cendant’s current share price.

Evercore will estimate the sum-of-the-parts value for Cendant common stock. This analysis will include an estimate of the values for each of Wyndham Worldwide, Realogy, Travelport and Avis Budget Group, in each case assuming, among other things, that such securities were fully and widely distributed among investors and subject only to normal trading activity. This analysis will be based on enterprise value / 2006 EBITDA multiples and 2006 EBITDA estimates for Wyndham Worldwide, Realogy and Travelport, and a price / 2006 earnings multiple and 2006 net income estimate for Avis Budget Group.

Evercore also will review selected Wall Street research analyst commentary relating to the separation plan that has been published subsequent to the announcement of the plan. Additionally, Evercore will compare the enterprise value / 2006 EBITDA multiple and the price / 2006 earnings multiple for Cendant using the stock price and financial projection estimates as of the day prior to the announcement of the separation plan (October 21, 2005), to the same multiples using the current stock price and current financial projection estimates.

In addition, Evercore will review the 2006 revenue and EBITDA contribution by business unit for Cendant under its current configuration as compared to Cendant pro forma for the distribution. Evercore will also analyze the leverage profile and estimated interest expense of Cendant as compared to Wyndham Worldwide, Realogy, Travelport and Avis Budget Group on standalone bases and in the aggregate. Evercore also will review the proposed allocation of contingent and other corporate liabilities as part of the separation plan among Wyndham Worldwide, Realogy, Travelport and Avis Budget Group. Additionally, Evercore will review the recurring corporate overhead costs for Cendant under its current configuration as compared to that of the aggregate for Wyndham Worldwide, Realogy, Travelport and Avis Budget Group on standalone bases. Evercore also will review the estimated non-recurring costs relating to the separation plan, which are expected to be approximately $1,100 million excluding approximately $100 million of accrued interest costs.

Evercore will also compare Wyndham Worldwide’s 2006 revenue, 2006 EBITDA, 2006 EBITDA margin and 2003-2005 EBITDA growth rates to the same statistics for the median of the S&P 500 index and selected publicly-traded companies that participate in the same industry as Wyndham Worldwide. Evercore also will compare the trading multiples for the median of the S&P 500 index to selected publicly-traded companies that participate in the same industry as Wyndham Worldwide.

Evercore also will perform an analysis of selected spin-off transactions. The analysis will include all transactions where (i) the spin-off was announced after January 1, 2000, (ii) the spun-off company had an equity value greater than $1 billion, and (iii) 100% of the stock of the spun-off company was distributed in the transaction. Cendant’s spin-off of PHH Corporation will be one of the transactions considered in this analysis.

As part of the precedent spin-off analysis, Evercore will also review the results of selected academic and Wall Street research analyst studies on the share price performance of both parent company common stock and spun-off company common stock over certain periods of time.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. No company that Evercore will utilize in Evercore’s analysis as a comparison will be directly comparable to Cendant or Wyndham Worldwide, and no precedent transaction will be directly comparable to the distribution or the separation plan. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes that will underlie Evercore’s opinion. In arriving at its fairness determination, Evercore will consider the results of all the analyses performed and will not attribute any particular weight to any factor or analysis that it will consider. Rather, Evercore will make its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses.

Cendant engaged Evercore to act as a financial advisor to the Cendant Board in connection with the distribution of shares of Wyndham Worldwide common stock to holders of Cendant common stock based on

 

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Evercore’s qualifications, experience and reputation and Evercore’s knowledge of Cendant’s businesses. In addition, Evercore has been engaged by Cendant as an adviser in connection with other parts of the separation plan and the potential sale of Travelport. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.

The Evercore engagement letter with Cendant provides that, for its services, Evercore is entitled to receive from Cendant a fee of $14.5 million payable in three equal installments, each of which is payable upon the consummation of a distribution contemplated by the separation plan. In the event that Travelport is sold, Evercore will also receive a fee, the amount of which is not yet determined, which will replace the fee that Evercore would have received upon a distribution of Travelport. In 2005, Evercore received a $500,000 retainer fee from Cendant in connection with its engagement for this transaction. The engagement letter also provides that Evercore will be reimbursed for its reasonable expenses and be indemnified against certain liabilities arising out of Evercore’s engagement.

Opinion of Duff & Phelps, LLC

Duff & Phelps, LLC was engaged by Cendant to provide to the Cendant Board a written opinion as to the sufficiency of the surplus of Cendant under Delaware law to make the distribution of Wyndham Worldwide common stock and as to the solvency and capitalization of each of Cendant and Wyndham Worldwide after giving effect to the distribution. On October 23, 2005, Duff & Phelps made a presentation to the Cendant Board summarizing its preliminary conclusions, based on information available to Duff & Phelps as of October 23, 2005, with respect to the solvency and capitalization of each of Cendant and Wyndham Worldwide and with respect to the surplus of Cendant. Cendant expects that Duff & Phelps will deliver to the Cendant Board a written opinion that provides final conclusions that are consistent with the preliminary conclusions presented to the Cendant Board on October 23, 2005. Duff & Phelps has informed Cendant and the Cendant Board that Duff & Phelps intends to continue to monitor both market conditions and the operating performance and financial condition of each of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses, as such market conditions, operating performance and financial condition relate to such written opinion. In its October 23, 2005 presentation to the Cendant Board, Duff & Phelps preliminarily concluded that:

 

(1) Immediately prior to the distribution, Cendant would have adequate surplus under Delaware General Corporation Law, or DGCL, to effect the distribution, and

 

(2) After giving effect to the distribution, Cendant and Wyndham Worldwide would be solvent and adequately capitalized.

Duff & Phelps noted that its preliminary conclusions were based on discussions with management of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses and on market conditions and the operating performance and financial condition of each of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses as such market conditions, operating performance and financial condition existed as of October 23, 2005. Duff & Phelps also noted that it had sufficient time, access to information and access to management to prepare its preliminary conclusions.

Cendant expects that Duff & Phelps will provide final conclusions that will confirm Duff & Phelps’ preliminary conclusions and will deliver to Cendant a written opinion as to the sufficiency of the surplus of Cendant under Delaware law to make the distribution of Wyndham Worldwide common stock and as to the solvency and capitalization of each of Cendant and Wyndham Worldwide after giving effect to the distribution. The opinion that Duff & Phelps is expected to deliver to the Cendant Board will be attached to this information statement as Annex B. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Duff & Phelps in connection with the opinion. You should read the opinion carefully and in its entirety. Any such opinion provided by Duff & Phelps will be provided for the information and assistance of the Cendant Board. Duff & Phelps has indicated that the Board of

 

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Directors of Wyndham Worldwide may rely on any such opinion provided to Cendant. Duff & Phelps’ final conclusions as set forth in any such final opinion will be dependent upon the market conditions, operating performance and financial condition of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses as of the time such written opinion is provided. Accordingly, changes in such market conditions, operating performance and financial condition that may occur between October 23, 2005 and the date such written opinion is provided could impact Duff & Phelps’ ability to provide final conclusions that are consistent with the preliminary conclusions presented to the Cendant Board on October 23, 2005.

In preparing its preliminary and final conclusions, Duff & Phelps undertook or will undertake, as applicable, a number of investigations and analyses that it deemed or will deem, as applicable, appropriate, including meetings with senior management regarding the history, current operations, future outlook and “contingent and other liabilities” of Cendant and Wyndham Worldwide; analyses of financial, market and transaction information on public companies deemed or to be deemed, as applicable, comparable to each of Cendant and Wyndham Worldwide and on transactions deemed or to be deemed, as applicable, comparable to the separation of Wyndham Worldwide from Cendant; and a review of industry information and trends germane to each of Cendant’s and Wyndham Worldwide’s businesses. In addition, in preparing its preliminary and final conclusions, Duff & Phelps reviewed or will review, as applicable, Cendant’s annual reports, filings with the SEC and audited and unaudited historical financial statements; certain internally prepared financial reports, including financial projections for Cendant and Wyndham Worldwide; and presentations delivered to the Cendant Board by certain of Cendant’s other financial advisors.

Duff & Phelps preliminary and final conclusions will be based on discussions with management of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses and on market conditions and the operating performance and financial condition of each of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses as such market conditions, operating performance and financial condition existed as of the date of the preliminary and final conclusions. Duff & Phelps relied and will rely upon, as applicable, the accuracy and completeness of all of the financial, accounting, tax and other information discussed or to be discussed, as applicable, with Duff & Phelps or reviewed or to be reviewed, as applicable, by Duff & Phelps and assumed and will assume, as applicable, such accuracy and completeness for purposes of expressing its preliminary conclusions on October 23, 2005 and subsequently rendering any written final opinion. In that regard, Duff & Phelps assumed and will assume, as applicable, with Cendant’s consent, that certain internal analyses and forecasts for Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses prepared by management of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses have been prepared or will be prepared, as applicable, on a basis reflecting the best currently available estimates and judgments of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses. Duff & Phelps has noted that nothing has come to its attention in the course of its engagement by the Cendant Board which would lead Duff & Phelps to believe that any information provided to Duff & Phelps or assumptions made by Duff & Phelps are insufficient or inaccurate in any material respect or that it is unreasonable for Duff & Phelps to use and rely upon such information or make such assumptions. In addition, Duff & Phelps has noted that it did not and will not make an independent evaluation or appraisal of the assets and liabilities, including “contingent and other liabilities,” of Cendant and Cendant’s Hospitality Services (including Timeshare Resorts) businesses and that Duff & Phelps was not and is not expected to be furnished with any such evaluation or appraisal.

Cendant specifically requested that Duff & Phelps preliminarily and finally determine whether, as of the date of the distribution and after giving effect to the distribution:

 

(1) The “fair saleable value” of the assets of each of Cendant and Wyndham Worldwide, as applicable, exceeds the sum of its respective liabilities, including all contingent and other liabilities;

 

(2) The “present fair saleable value” of the assets of each of Cendant and Wyndham Worldwide, as applicable, exceeds the amount that will be required to pay its respective probable liabilities, including all contingent and other liabilities, on its respective existing debts as such debts become absolute and matured;

 

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(3) Each of Cendant and Wyndham Worldwide, as applicable, will not have an unreasonably small amount of capital for the respective businesses in which it is engaged or is proposed to be engaged following the distribution, based on discussions with management of Cendant or Wyndham Worldwide, as applicable;

 

(4) Each of Cendant and Wyndham Worldwide, as applicable, will be able to pay its respective liabilities, including all “contingent and other liabilities,” as they become absolute and matured;

 

(5) The fair saleable value of Cendant’s assets exceeds the value of its liabilities, including all contingent and other liabilities, by an amount that is greater than its stated capital amount (pursuant to Section 154 of the DGCL); and

 

(6) The sum of the assets of each of Cendant and Wyndham Worldwide, as appropriate, at fair valuation is greater than all its respective debts at fair valuation.

Under Delaware law, distributions may be paid out of surplus, which is defined under Delaware law as the excess, if any, at any given time, of the net assets of the corporation (which is the amount by which total assets exceed total liabilities) over the amount of the corporation’s capital. For the purposes of preparing its preliminary conclusions and final conclusions, Duff & Phelps defined the following terms and phrases as follows:

 

    “Fair saleable value” means the aggregate amount of net consideration (as of the date of the preliminary conclusions or the Duff & Phelps’ opinion, as applicable), after giving effect to reasonable costs of sale or taxes, where the probable amount of any such taxes is disclosed to Duff & Phelps by Cendant, that could be expected to be realized from an interested purchaser by a seller, in an arm’s-length transaction under present conditions in a current market for the sale of assets of a comparable business enterprise, where both parties are aware of all relevant facts and neither party is under any compulsion to act, where such seller is interested in disposing of the entire operation as a going concern, presuming the business will be continued in its present form and character, and with reasonable promptness, not to exceed one year.

 

    “Present fair saleable value” means the aggregate amount of net consideration (as of the date of the preliminary conclusions or the Duff & Phelps’ opinion, as applicable) after giving effect to reasonable costs of sale or taxes, where probable amount of any such taxes is disclosed to Duff & Phelps by Cendant, that could be expected to be realized from an interested purchaser by a seller, in an arm’s-length transaction under present conditions in a current market for the sale of assets of a comparable business enterprise, where both parties are aware of all relevant facts and neither party is under any compulsion to act, where such seller is interested in disposing of the entire operation as a going concern, presuming the business will be continued in its present form and character, and with reasonable promptness, not to exceed six months.

 

    “Liabilities, including all contingent and other liabilities” has the meanings that are generally determined in accordance with applicable federal laws governing determinations of the insolvency of debtors.

 

    “Contingent and other liabilities” means contingent and other liabilities as either publicly disclosed, set forth in written materials delivered to Duff & Phelps by Cendant or Wyndham Worldwide or identified to Duff & Phelps by officers or representatives of Cendant or Wyndham Worldwide.

 

    “Not have an unreasonably small amount of capital for their respective businesses in which they are engaged or proposed to be engaged” and “able to pay their respective liabilities, including all contingent and other liabilities, as they mature” means that Cendant or Wyndham Worldwide, as applicable, will be able to generate enough cash from operations, planned asset dispositions, refinancing or a combination thereof to meet its respective obligations (including all contingent and other liabilities) as they become due.

For the purposes of preparing its preliminary and final conclusions, Duff & Phelps conducted or will conduct, as applicable, “balance sheet tests” to determine whether, as of the date of the distribution and after

 

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giving effect to the distribution, (i) the fair saleable value and the present fair saleable value, as applicable, of the assets of each of Cendant and Wyndham Worldwide would exceed, as applicable, the sum of the respective liabilities, including all contingent and other liabilities, or the amount that would be required to pay its respective probable liabilities, including all contingent and other liabilities, on the respective existing debt of each of Cendant and Wyndham Worldwide as such liabilities become absolute and matured; (ii) the sum of the assets of each of Cendant and Wyndham Worldwide, as applicable, at fair valuation would be greater than the respective expected debts of each of Cendant and Wyndham Worldwide at fair valuation; and (iii) the fair saleable value of the assets of Cendant would exceed the value of its expected liabilities, including all contingent and other liabilities, by an amount that is greater than its stated capital amount pursuant to Section 154 of the DGCL. Duff & Phelps has tailored or will tailor, as applicable, the balance sheet tests so as to enable Duff & Phelps to reach a conclusion with respect to each of the determinations that Duff & Phelps has been requested to make. As the first part of a balance sheet test, Duff & Phelps used and will use, as applicable, various methodologies, including a discounted cash flow analysis and an analysis of the trading multiples for comparable, public companies and companies involved in merger and acquisition transactions, to estimate the enterprise values of each of Cendant and Wyndham Worldwide, as applicable. As the second part of a balance sheet test, Duff & Phelps compared or will compare, as applicable, the enterprise values of each of Cendant and Wyndham Worldwide, as applicable, to the respective liabilities, including all contingent and other liabilities, expected to be allocated to each of Cendant and Wyndham Worldwide, as applicable. As part of its preliminary conclusions, Duff & Phelps determined that, based on information available to it on October 23, 2005, as of the expected date of the distribution and after giving effect to the distribution on the terms described to Duff & Phelps, that each of Cendant and Wyndham Worldwide, as applicable, would pass the balance sheet tests.

For the purposes of preparing its preliminary and final conclusions, Duff & Phelps conducted or will conduct, as applicable, “capital adequacy tests” to determine whether, after giving effect to the distribution, each of Cendant and Wyndham Worldwide, as applicable, would not have an unreasonably small amount of capital for the respective businesses in which it is engaged or is proposed to be engaged following the consummation of the distribution, based on discussions with management of Cendant or Wyndham Worldwide, as applicable. The capital adequacy test involves the analysis of detailed cash flow projections for each of Cendant and Wyndham Worldwide and an analysis of the respective debt capacities and abilities to access the capital markets of each of Cendant and Wyndham Worldwide to estimate current and projected sources of capital to operate its respective businesses and an analysis of current and projected capital needs of each of Cendant and Wyndham Worldwide. As part of the capital adequacy test, Duff & Phelps compared or will compare, as applicable, the ability of each of Cendant and Wyndham Worldwide to satisfy its respective current and projected, as applicable, capital needs from its respective current and projected, as applicable, capital sources. Duff & Phelps also compared or will compare, as applicable, the respective current and projected, as applicable, capital needs of each of Cendant and Wyndham Worldwide to the capital needs of similar publicly traded companies.

For the purposes of preparing its preliminary and final conclusions, Duff & Phelps conducted or will conduct, as applicable, “cash flow tests” to determine whether, after giving effect to the distribution, each of Cendant and Wyndham Worldwide would be able to pay its respective liabilities, including all contingent and other liabilities, as they become absolute and matured. As part of the cash flow tests, Duff & Phelps analyzed or will analyze, as applicable, detailed cash flow projections of the payment of liabilities, including all contingent and other liabilities, by each of Cendant and Wyndham Worldwide and analyzed or will analyze, as applicable, the ability of each of Cendant and Wyndham Worldwide to produce free cash flow, sell assets and access the capital markets to meet its respective liabilities. In addition, Duff & Phelps analyzed or will analyze, as applicable, various cash flow coverage ratios based on the projections.

As part of both the cash flow and capital adequacy tests, Duff & Phelps conducted or will conduct, as applicable, sensitivity analyses using financial assumptions that represent reasonable downside scenarios versus the base case financial assumptions that Duff & Phelps analyzed or will analyze, as applicable. Duff & Phelps compared and will compare, as applicable, the assumptions under these sensitivity analyses to company-specific or industry performance metrics under historical industry “shocks” or economic downturns. Based on these

 

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analyses, Duff & Phelps assessed or will assess, as applicable, the ability of each of Cendant and Wyndham Worldwide to weather a future industry shock or economic downturn. As part of its preliminary conclusions, Duff & Phelps concluded that, based on information available to Duff & Phelps on October 23, 2005, it is highly likely each of Cendant and Wyndham Worldwide could weather a disruption or downturn in its respective businesses. Cendant expects that at the time Duff & Phelps is expected to deliver the written opinion Duff & Phelps will be able to come to the same conclusion.

As part of its preliminary conclusions, Duff & Phelps determined that, based on information available to it on October 23, 2005, after giving effect to the distribution on the terms described to Duff & Phelps, that each of Cendant and Wyndham Worldwide would pass the capital adequacy and cash flow tests.

The preparation of an opinion of the type described above is a complex process and is not necessarily susceptible to a summary description. Selecting portions of the summary set forth above, without considering the summary as a whole, could create an incomplete view of the processes underlying Duff & Phelps’ opinion. In addition, analyses underlying opinions of the type described above are based upon forecasts of future results and therefore are not necessarily indicative of actual future results or financial condition. Because such analyses, which are based upon numerous factors or events beyond the control of the parties or their respective advisors, are inherently subject to uncertainty, none of Cendant, Wyndham Worldwide or Duff & Phelps or any other person assumes responsibility if future results or financial condition are different from those forecast.

Cendant selected Duff & Phelps to advise the Cendant Board on the above-described matters because Duff & Phelps is a nationally recognized, independent financial advisory firm that has substantial experience in providing fairness and solvency opinions in connection with transactions similar to the proposed distribution.

Duff & Phelps has provided certain financial advisory services to Cendant and its affiliates from time to time in connection with certain financial reporting requirements for which services Duff & Phelps has received compensation. During the past two years, Cendant paid Duff & Phelps $507,000 (which excludes any amounts paid in connection with the separation as described below) for these services. Duff & Phelps also may provide certain services to Cendant, Wyndham Worldwide and their respective affiliates in the future for which services Duff & Phelps expects to receive compensation.

The Duff & Phelps engagement letter with Cendant provides that, for its services, Duff & Phelps is entitled to receive from Cendant a fee of $1.2 million due and payable as follows: $200,000 upon execution of the engagement letter, $400,000 on October 31, 2005 and an aggregate of $600,000 (in three equal installments) upon notice that Duff & Phelps is prepared to deliver its respective opinions in connection with our distribution and the distributions of Realogy and Travelport. The engagement letter also provides that Duff & Phelps be reimbursed for its reasonable out-of-pocket expenses and be indemnified against various liabilities.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to Cendant stockholders who are entitled to receive shares of Wyndham Worldwide common stock in the distribution. The information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither Cendant nor we undertake any obligation to update such information except in the normal course of our respective public disclosure obligations.

 

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DIVIDEND POLICY

The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. There can be no assurance that we will continue to pay any dividend if we commence the payment of dividends.

 

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CAPITALIZATION

The following table, which should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined historical financial statements and accompanying notes, included elsewhere in this information statement, sets forth our cash and cash equivalents, secured assets and combined capitalization as of March 31, 2006 on an historical basis and on a pro forma basis after giving effect to the following planned transactions:

 

    the contribution to Wyndham Worldwide of all the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses,

 

    the planned distribution of our common stock to Cendant stockholders by Cendant (assuming a five to one distribution ratio) and the related transfer to us of certain corporate assets and liabilities (for which we are expected to assume approximately 30%) from Cendant (including those relating to unresolved tax and legal matters, which may not be resolved for several years),

 

    the borrowing arrangements for a total of $2,000 million, of which we intend to draw approximately $1,360 million; we expect to transfer the initial borrowings to Cendant for it to repay the then-outstanding balance of the asset-linked facility and to repay certain indebtedness of Cendant,

 

    the funding of $11 million of estimated financing costs to be incurred in connection with the above planned borrowings, and

 

    estimated liabilities of $42 million to reflect the estimated fair value of guarantees provided to Cendant and affiliates in connection with the separation in excess of our portion of the corporate liabilities allocated to Wyndham Worldwide from Cendant’s balance sheet.

In addition, such financial data also reflects an adjustment eliminating intercompany balances approximating $1,159 million due from Cendant.

The unaudited pro forma combined financial information has not been adjusted to give effect to the possible sale of Travelport, which transaction may occur only following our separation from Cendant. If Cendant were to sell Travelport, a portion of the cash proceeds from such sale would be contributed to us and utilized to reduce the indebtedness incurred by us in connection with our separation. In addition, in the event of a Travelport sale, our allocable portion of Cendant’s contingent and other liabilities would increase from 30% to 37.5%.

 

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The pro forma adjustments are based upon available information and assumptions that we believe are reasonable; however, such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements. The pro forma adjustments do not reflect estimates for any contingent assets and liabilities that we may be entitled to receive upon either positive or negative resolution of certain unresolved matters.

 

     March 31, 2006
     Historical    Pro Forma
     (in millions)

Cash and cash equivalents

   $ 115    $ 104
             

Secured assets(a)

   $ 3,240    $ 1,897
             

Securitized vacation ownership debt

   $ 1,167    $ 1,167

Other debt:

     

Vacation ownership asset-linked debt

     575     

Bank borrowings

     

Vacation ownership

     104      104

Vacation rental

     66      66

Vacation rental capital leases

     141      141

Other

     35      35

Revolving credit facility

          260

Term loan

          300

Interim loan facility

          800
             

Total debt

     2,088      2,873

Total invested equity(b)

     5,063      2,808
             

Total capitalization

   $ 7,151    $ 5,681
             

(a) Represents the portion of vacation ownership contract receivables, other vacation ownership related assets, and other vacation exchange and rental assets that collateralize our outstanding secured obligations. The pro forma amount reflects a reduction associated with the expected repayment of the existing asset-linked facility of Cendant which will result in the corresponding assets no longer being secured.
(b) The pro forma amount reflects an adjustment primarily related to the elimination of intercompany balances due from Cendant, the expected transfer of funds to Cendant through planned issuances of debt and the assumption of certain Cendant corporate contingent and other liabilities.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following table presents our selected historical combined financial data and operating statistics. The combined statement of income data for the three months ended March 31, 2006 and 2005 and the combined balance sheet data as of March 31, 2006 have been derived from our unaudited combined condensed financial statements, included elsewhere in this information statement. The combined statement of income data for each of the years in the three-year period ended December 31, 2005 and the combined balance sheet data as of December 31, 2005 and 2004 have been derived from our audited combined financial statements, included elsewhere in this information statement. The combined statement of income data for the years ended December 31, 2002 and 2001 and the combined balance sheet data as of December 31, 2003, 2002 and 2001 have been derived from unaudited combined financial statements that are not included in this information statement. Such unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth in this information statement.

The selected historical combined financial data and operating statistics presented below should be read in conjunction with our combined financial statements and accompanying notes and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this information statement. Our historical combined financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation and distribution from Cendant. Refer to “Unaudited Pro Forma Combined Condensed Financial Statements” for a further description of the anticipated changes.

 

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     As of or For the
Three Months
Ended
March 31,
    As of or For the Year Ended December 31,  
     2006     2005     2005     2004    2003     2002     2001  
                 As Restated     As Restated                   
                 (in millions, except operating statistics)  

Statement of Income Data:

               

Net revenues

   $ 870       795     $ 3,471     $ 3,014    $ 2,652     $ 2,241     $ 1,556  

Expenses

     722       668       2,851       2,414      2,157       1,753       1,236  
                                                       

Operating income

     148       127       620       600      495       488       320  

Interest expense (income), net

     (2 )     2       (6 )     13      (5 )     (22 )     (23 )
                                                       

Income before income taxes and minority interest

     150       125       626       587      500       510       343  

Provision (benefit) for income taxes

     57       (5 )     195       234      186       189       41  

Minority interest, net of tax

                       4      15       13        
                                                       

Income before cumulative effect of accounting change

     93       130       431       349      299       308       302  

Cumulative effect of accounting change, net of tax

     (65 )                                   
                                                       

Net income

   $ 28     $ 130     $ 431     $ 349    $ 299     $ 308     $ 302  
                                                       

Balance Sheet Data:

               

Secured assets(a)

   $ 3,240       $ 3,169     $ 2,811    $ 1,865     $ 142     $  

Total assets

     9,610         9,167       8,343      7,041       5,509       3,605  

Total debt(b)

     2,088         2,042       1,768      1,132       168       12  

Total invested equity(c)

     5,063         5,033       4,679      4,283       3,860       2,569  

Operating Statistics:

               

Lodging

               

Weighted average rooms(d)

     521,000       517,000       519,000       508,200      524,700       543,300       540,300  

Number of properties(e)

     6,300       6,400       6,300       6,400      6,400       6,500       6,600  

RevPAR(f)

   $ 30.45     $ 25.53     $ 31.00     $ 27.55    $ 25.92     $ 25.33     $ 26.81  

 

Vacation Exchange and Rental

                    

Average number of members(g)

     3,292,000      3,148,000      3,209,000      3,054,000      2,948,000      2,885,000      2,736,000

Annual dues and exchange revenue per member(h)

   $ 152.10    $ 159.12    $ 135.76    $ 134.82    $ 131.13    $ 124.82    $ 120.60

Vacation rental transactions(i)

     385,000      367,000      1,300,000      1,104,000      882,000      691,000      478,000

Average price per vacation rental(j)

   $ 677.49    $ 745.17    $ 690.03    $ 680.87    $ 599.25    $ 488.55    $ 373.79

Vacation Ownership(k)

                    

Gross vacation ownership interest sales(l) (in millions)

   $ 357    $ 281    $ 1,396    $ 1,254    $ 1,146    $ 932    $ 441

Tours(m)

     208,000      195,000      934,000      859,000      925,000      759,000      348,000

Volume Per Guest (VPG)(n)

   $ 1,475    $ 1,349    $ 1,368    $ 1,287    $ 1,138    $ 1,158    $ 1,278

(a) Represents the portion of vacation ownership contract receivables, other vacation ownership related assets and other vacation exchange and rental assets that collateralize our debt. Refer to Note 6 to the Interim Combined Condensed Financial Statements and Note 12 to the Annual Combined Financial Statements for further information.
(b) Primarily represents debt related to secured assets.
(c) Represents Cendant’s net investment (capital contributions and earnings from operations less dividends) in Wyndham Worldwide and accumulated other comprehensive income.
(d) Represents the weighted average number of hotels rooms available for rental for the year at lodging properties operated under franchise and management agreements.
(e) Represents the number of lodging properties operated under franchise and management agreements at the end of the year.
(f) Represents revenue per available room and is calculated by multiplying the percentage of available rooms occupied for the year by the average rate charged for renting a lodging room for one day.
(g)

Represents members of our vacation exchange programs who pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related products and services.

 

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(h) Represents total revenues from annual membership dues and exchange fees generated for the year divided by the average number of vacation exchange members during the year.
(i) Represents the gross number of transactions that are generated in connection with customers booking their vacation rental stays through us. In our European vacation rental businesses, one rental transaction is recorded each time a standard one-week rental is booked; however, in the United States one rental transaction is recorded each time a vacation rental stay is booked, regardless of whether it is less than or more than one week.
(j) Represents the gross rental price generated from renting vacation properties to customers divided by the number of rental transactions.
(k) Trendwest Resorts, Inc. was acquired on April 30, 2002 and Fairfield Resorts, Inc. was acquired on April 2, 2001. The results of operations have been included from the acquisition dates forward.
(l) Represents gross sales of vacation ownership interests, including tele-sales upgrades, which is a component of upgrade sales.
(m) Represents the number of tours taken by guests in our efforts to sell vacation ownership interests.
(n) Represents revenue per guest and is calculated by dividing the gross vacation ownership interest sales, excluding tele-sales upgrades, which is a component of upgrade sales, by the number of tours.

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

Between January 1, 2003 and March 31, 2006, we completed a number of acquisitions, the results of operations and financial position of which have been included beginning from the relevant acquisition dates. During this period, our acquisitions included the Wyndham Hotels and Resorts brand, Two Flags Joint Venture LLC, Ramada International, Landal GreenParks, Canvas Holidays Limited and FFD Development Company, LLC. See Note 3 to the Annual Combined Financial Statements for a more detailed discussion of these acquisitions. In 2002, we acquired Trendwest Resorts, Inc., a marketer and seller of vacation ownership interests for $849 million, which resulted in $687 million of goodwill. In 2001, we acquired Fairfield Resorts, Inc., a marketer and seller of vacation ownership interests for $760 million, which resulted in $524 million of goodwill.

Additionally, on January 1, 2002, we adopted the non-amortization provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Accordingly, our results of operations for 2001 include $39 million of amortization expense related to goodwill and indefinite-lived intangible assets, while our results of operations for the three months ended March 31, 2006 and March 31, 2005 and the years ended December 31, 2005, 2004, 2003 and 2002 do not reflect such amortization.

We incurred restructuring charges of $41 million in 2001, which primarily consisted of various strategic initiatives generally aimed at improving the overall level of organizational efficiency, consolidating and rationalizing existing processes, and reducing cost structures in our lodging and vacation exchange and rental businesses. We incurred charges of $14 million in 2005 as a result of our commitment to various strategic initiatives targeted principally at reducing costs, enhancing organizational efficiency and consolidating and rationalizing existing processes and facilities within our vacation exchange and rental business.

During first quarter 2006, we recorded a non-cash charge of $65 million, after tax, to reflect the cumulative effect of accounting changes as a result of our adoption of SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions” on January 1, 2006. See Note 1 to the Interim Combined Condensed Financial Statements for further details.

 

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2006 and the Unaudited Pro Forma Combined Condensed Statement of Income for the three months ended March 31, 2006 have been derived from our unaudited combined condensed financial statements included elsewhere in this information statement. The Unaudited Pro Forma Combined Condensed Statement of Income for the year ended December 31, 2005 has been derived from our combined financial statements included elsewhere in this information statement.

The following unaudited pro forma financial statements have been adjusted to give effect to the following planned transactions:

 

    the contribution to Wyndham Worldwide Corporation of all the assets and liabilities, including the entities holding substantially all of the assets and liabilities, of Cendant’s Hospitality Services (including Timeshare Resorts) businesses,

 

    the planned distribution of our common stock to Cendant stockholders by Cendant (assuming a five to one distribution ratio) and the related transfer to us from Cendant of certain corporate assets and liabilities of Cendant (including certain corporate assets and liabilities for which we are expected to assume approximately 30%) (including those relating to unresolved tax and legal matters, which may not be resolved for several years),

 

    the borrowing arrangements for a total of $2,000 million, of which we intend to draw approximately $1,360 million; we expect to transfer the initial borrowings to Cendant for it to repay the then-outstanding balance of the asset-linked facility and to repay certain indebtedness of Cendant.

 

    the funding of $11 million of estimated financing costs to be incurred in connection with the above planned borrowings,

 

    estimated incremental costs associated with operating as a separate public company,

 

    estimated incremental interest expense associated with the above planned borrowings, which is calculated based upon expected interest rates, and

 

    estimated liabilities of $42 million to reflect the estimated fair value of guarantees provided to Cendant and affiliates in connection with the separation in excess of our portion of the corporate liabilities allocated to Wyndham Worldwide from Cendant’s balance sheet.

In addition, such financial data also reflects an adjustment eliminating intercompany balances approximating $1,159 million due from Cendant.

The section entitled “The Separation,” included elsewhere in this information statement, provides a more detailed description of the separation of Wyndham Worldwide from Cendant.

The Unaudited Pro Forma Combined Condensed Balance Sheet assumes that the distribution and related transactions occurred on March 31, 2006 and the Unaudited Pro Forma Combined Condensed Statements of Income assume that the distribution and related transactions occurred on January 1, 2006 for the pro forma statement of income presented for the three months ended March 31, 2006 and on January 1, 2005 for the pro forma statement of income presented for the year ended December 31, 2005. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable; however, such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements.

Management believes that the assumptions used to derive the Unaudited Pro Forma Combined Condensed Financial Statements are reasonable given the information available; however, such adjustments are subject to

 

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change based upon the finalization of the terms of the separation and the underlying separation agreements. The Unaudited Pro Forma Combined Condensed Financial Statements have been provided for informational purposes only and are not necessarily indicative of the financial condition or results of future operations or the actual financial condition or results that would have been achieved had the transactions occurred on the dates indicated. These Unaudited Pro Forma Combined Condensed Financial Statements (together with the footnotes thereto) should be read in conjunction with the information provided under the sections entitled “Business,” “Selected Historical Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this information statement and our audited annual and unaudited interim historical combined financial statements and accompanying notes thereto, also included elsewhere in this information statement.

The Unaudited Pro Forma Combined Condensed Statements of Income do not reflect non-recurring pre-tax charges directly related to our separation (which are currently estimated to be in the range of $70 million to $110 million), which will impact net income within the 12 months following our separation, the majority of which will be non-cash. Included within such range is an estimated $50 million to $60 million relating to the acceleration of certain Cendant equity awards.

The Unaudited Pro Forma Combined Condensed Financial Statements have not been adjusted to give effect to the possible sale of Travelport, which transaction may occur only following our separation from Cendant. If Cendant were to sell Travelport, a portion of the cash proceeds from such sale would be contributed to us and utilized to reduce the indebtedness incurred by us in connection with our separation, resulting in a reduction in our pro forma interest expense. In addition, in the event of a Travelport sale, our allocable portion of Cendant’s contingent and other liabilities would increase from 30% to 37.5%.

 

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WYNDHAM WORLDWIDE

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

AS OF MARCH 31, 2006

(in millions)

 

     Historical
As
Reported
   Adjustments     Pro Forma

Assets

       

Current assets:

       

Cash and cash equivalents

   $ 115    $ (11 )(a)   $ 104

Trade receivables, net

     484            484

Vacation ownership contract receivables, net

     230            230

Inventory

     497            497

Deferred income taxes

     121      119 (b)     240

Due from Cendant, net

     1,159      (1,159 )(c)    

Other current assets

     314      5 (d)     319
                     

Total current assets

     2,920      (1,046 )     1,874

Long-term vacation ownership contract receivables, net

     1,812            1,812

Non-current inventory

     245            245

Property and equipment, net

     760      17 (d)     777

Goodwill

     2,647            2,647

Trademarks

     585            585

Franchise agreements and other intangibles, net

     412            412

Other non-current assets

     229      11 (e)     240
                     

Total assets

   $ 9,610    $ (1,018 )   $ 8,592
                     

Liabilities and invested equity

       

Current liabilities:

       

Current portion of long-term debt:

       

Securitized vacation ownership debt

   $ 184    $     $ 184

Other

     196            196

Accounts payable

     368      175 (f)     543

Contingent tax liability due to former parent

          190 (g)     190

Deferred income

     480            480

Accrued expenses and other current liabilities

     456      57 (f,j)     513
                     

Total current liabilities

     1,684      422       2,106

Long-term debt:

       

Securitized vacation ownership debt

     983            983

Other

     725      785 (h)     1,510

Deferred income taxes

     825      (28 )(b)     797

Deferred income

     265            265

Other non-current liabilities

     65      58 (f)     123
                     

Total liabilities

     4,547      1,237       5,784
                     

Total invested equity

     5,063      (2,255 )(i)     2,808
                     

Total liabilities and invested equity

   $ 9,610    $ (1,018 )   $ 8,592
                     

See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.

 

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WYNDHAM WORLDWIDE

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

AS OF MARCH 31, 2006

 

(a) Represents the funding of estimated fees and costs expected to be incurred with the planned borrowings of approximately $1,360 million of debt.
(b) Represents incremental net deferred tax assets (assuming a blended tax rate of approximately 38%) associated with the expected transfer of certain Cendant corporate and Realogy assets to, and the expected assumption of certain Cendant contingent and other corporate liabilities by, Wyndham Worldwide upon separation.
(c) Represents the adjustment eliminating the intercompany balance due from Cendant.
(d) Represents the expected transfer to us of certain corporate assets to Wyndham Worldwide from Cendant upon separation. The assets primarily comprise shared Cendant equipment and software that is expected to be used exclusively by Wyndham Worldwide employees and leasehold improvements on facilities that are expected to be occupied by Wyndham Worldwide employees subsequent to the separation, as well as approximately 30% of Cendant’s prepaid assets that were established in connection with general business activities and are not directly attributable to a specific Cendant business.
(e) Represents $11 million of anticipated fees and costs associated with the planned borrowings of approximately $1,360 million of debt.
(f) Represents the assumption of reserves in connection with Cendant contingent and other corporate liabilities for which Wyndham Worldwide has agreed to assume responsibility (representing approximately 30% of certain Cendant contingent corporate liabilities associated with legal matters and approximately 30% of certain of Cendant’s other accrued corporate liabilities that were incurred in connection with general business activities and are not directly attributable to a specific Cendant business as well as other liabilities of Cendant such as a portion of historical worker’s compensation and escheatment liabilities of Cendant). The actual amount that Wyndham Worldwide may be required to pay under this arrangement could vary depending upon the outcome of any unresolved matters, which may not be resolved for several years, and if any party responsible for all or a portion of such liabilities were to default on its obligation to pay certain costs or expenses related to any such liability. The pro forma adjustments do not reflect estimates for any contingent assets and liabilities that we may be entitled to receive upon either positive or negative resolution of certain unresolved matters.
(g) Represents the assumption of a reserve in connection with certain Cendant tax contingencies for which Wyndham Worldwide has agreed to reimburse Cendant in the event of an adverse outcome (representing approximately 30% of Cendant’s aggregate reserve for unresolved tax matters). The actual amount that Wyndham Worldwide may be required to pay under this arrangement could vary depending upon the outcome of the unresolved tax matters, which may not be resolved for several years, and if any of the other parties responsible for all or a portion of such liabilities were to default in its payment of costs or expenses related to any such liability. The pro forma adjustments do not reflect estimates for any contingent assets and liabilities that we may be entitled to receive, or for which we may be responsible, upon either positive or negative resolution of certain unresolved matters.
(h) Represents the amount expected to be transferred to Cendant solely for the purposes of permitting Cendant to repay certain corporate indebtedness of Cendant. This amount is a portion of the total expected borrowings of approximately $1,360 million. The remaining portion of the approximately $1,360 million, amounting to $575 million, is expected to be utilized by Cendant to repay outstanding borrowings under the existing asset-linked facility of Cendant relating to certain of our assets, which is included in our historical debt amounts. The planned drawn indebtedness of approximately $1,360 million is expected to be comprised of the following facilities: (i) $800 million under an interim loan facility, which we expect to refinance on a long-term basis as soon as practicable after the separation, (ii) $300 million under a term loan facility and (iii) approximately $260 million under a revolving credit facility. (Note: the total amount of the debt borrowed by Wyndham Worldwide is subject to adjustment as described in “The Separation—Incurrence of Debt,” included elsewhere in this information statement.)

 

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(i) Represents reductions to total invested equity to reflect the adjustment eliminating $1,159 million of intercompany balances due from Cendant, as described in footnote (c) above and (i) the expected transfer of $785 million to Cendant, which is expected to be funded through the planned borrowings, as described in footnote (h) above, (ii) the assumption of a $190 million reserve in connection with Cendant tax contingencies to be assumed by Wyndham Worldwide, as described in footnote (g) above, (iii) the assumption of $248 million of reserves in connection with other Cendant corporate liabilities to be assumed by Wyndham Worldwide, as described in footnote (f) above, and (iv) the establishment of $42 million of reserves in connection with guarantees extended by Wyndham Worldwide to Cendant and affiliates. These reductions are partially offset by increases to equity to reflect (i) the expected transfer of $22 million of assets to Wyndham Worldwide from Cendant upon separation, as described in footnote (d) above and (ii) $147 million representing the net tax effect of the above pro forma transactions, as described in footnote (b) above.
(j) Includes the estimated fair value of $42 million for guarantees extended by Wyndham Worldwide to Cendant and affiliates in accordance with the Separation and Distribution Agreement in excess of those liabilities recorded on Cendant’s balance sheet. These guarantees have been recorded in accordance with Financial Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” with the assistance of third-party experts. The guarantees primarily relate to certain contingent litigation liabilities, contingent tax liabilities, deferred compensation arrangements and Cendant contingent and other corporate liabilities.

 

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WYNDHAM WORLDWIDE

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(in millions, except per share data)

 

                    
     Historical
As
Reported
    Adjustments     Pro Forma  

Net revenues

   $ 870     $     $ 870  
                        

Expenses

      

Operating

     332             332  

Cost of vacation ownership interests

     67             67  

Marketing and reservation

     174             174  

General and administrative

     115       12  (a)     127  

Provision for loan losses

                  

Depreciation and amortization

     34       1  (b)     35  
                        

Total expenses

     722       13       735  
                        

Operating income

     148       (13 )     135  

Interest expense (income), net

     (2 )     22  (c)     20  
                        

Income before income taxes and minority interest

     150       (35 )     115  

Provision for income taxes

     57       (13 )(d)     44  
                        

Income before cumulative effect of accounting change

   $ 93     $ (22 )   $ 71  
                        

Income before cumulative effect of accounting change

      

Earnings per share(e)

      

Basic

       $ 0.35  

Diluted

       $ 0.35  

Weighted average shares outstanding(e)

      

Basic

         201.2  

Diluted

         203.2 (f)

 

See Notes to Unaudited Pro Forma Combined Condensed Statements of Income.

 

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WYNDHAM WORLDWIDE

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2005

(in millions, except per share data)

 

    

Historical As
Reported

(As Restated)

    Adjustments     Pro Forma  

Net revenues

   $ 3,471     $     $ 3,471  
                        

Expenses

      

Operating

     1,199             1,199  

Cost of vacation ownership interests

     341             341  

Marketing and reservation

     628             628  

General and administrative

     424       49 (a)     473  

Provision for loan losses

     128             128  

Depreciation and amortization

     131       4 (b)     135  
                        

Total expenses

     2,851       53       2,904  
                        

Operating income

     620       (53 )     567  

Interest expense (income), net

     (6 )     84 (c)     78  
                        

Income before income taxes and minority interest

     626       (137 )     489  

Provision for income taxes

     195       (52 )(d)     143  
                        

Net income

   $ 431     $ (85 )   $ 346  
                        

Earnings per share(e)

      

Basic

       $ 1.66  

Diluted

       $ 1.63  

Weighted average shares outstanding(e)

      

Basic

         208.0  

Diluted

         212.0 (f)

 

See Notes to Unaudited Pro Forma Combined Condensed Statements of Income.

 

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WYNDHAM WORLDWIDE

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND YEAR ENDED DECEMBER 31, 2005

 

(a) Represents the estimated incremental costs associated with operating as a separate public company ($21 million for the three months ended March 31, 2006 and $85 million for the year ended December 31, 2005), partially offset by the elimination of general corporate overhead allocated by Cendant ($9 million for the three months ended March 31, 2006 and $36 million for the year ended December 31, 2005). The estimated costs associated with operating as a separate public company of $21 million for the three months ended March 31, 2006 and $85 million for the year included December 31, 2005 includes: (i) $11 million and $44 million, respectively, related to staff additions and increases in salaries to replace Cendant support, which was estimated using Cendant historical costs and adjusted for current market conditions, as applicable, (ii) $3 million and $11 million, respectively, related to legal fees (including our share of unresolved Cendant legal matters), which was estimated using Cendant historical costs and adjusted for expected variations as applicable, (iii) $2 million and $9 million, respectively, related to facilities and equipment, which was estimated using Cendant historical costs and adjusted for current market conditions as applicable, (iv) $2 million and $6 million, respectively, related to insurance, which estimate was derived from premium cost projections received from our insurance broker based on current market conditions, (v) $1 million and $5 million, respectively, related to information technology, which was estimated using Cendant historical costs and adjusted for expected variations as applicable, (vi) $1 million and $4 million, respectively, related to Board of Directors and filing related fees, which was estimated using Cendant historical costs and adjusted for expected variations as applicable, (vii) $1 million and $4 million, respectively, related to audit fees, which was estimated using Cendant historical costs and adjusted for expected variations as applicable, (viii) $0 million and $1 million, respectively, related to the outsourcing of the payroll function, which was estimated based upon written quotes received from potential providers, and (ix) $0 million and $1 million, respectively, of other miscellaneous costs. The estimated public company costs exceed the historical allocations from Cendant by $12 million for the three months ended March 31, 2006 and $49 million for the year ended December 31, 2005, which primarily reflects the development of certain infrastructures that were previously maintained at, and leveraged from, Cendant’s corporate function and other businesses.
(b) Represents incremental depreciation we expect to incur as a separate public company due to the expected transfer to us of certain assets from Cendant prior to the separation.
(c) Represents the elimination of $11 million and $30 million of interest income for the three months ended March 31, 2006 and the year ended December 31, 2005, respectively, that will no longer be earned from Cendant on intercompany cash balances held by Cendant, the elimination of $7 million and $19 million of interest expense for the three months ended March 31, 2006 and the year ended December 31, 2005, respectively, related to the existing asset-linked facility of Cendant relating to certain of our assets, which is expected to be repaid, and the $18 million and $74 million of incremental interest expense for the three months ended March 31, 2006, and the year ended December 31, 2005, respectively, in connection with the planned borrowings of (i) $800 million of debt under an interim loan facility expected to bear interest at a fixed rate, (ii) $300 million of debt under a term loan facility expected to bear interest at LIBOR plus a negotiated spread and (iii) approximately $260 million of debt under a revolving credit facility expected to bear interest at LIBOR plus a negotiated spread. The incremental interest expense assumes an average principal amount outstanding of approximately $1,360 million and a weighted average interest rate of approximately 5.3% on the aggregate borrowings. A change of one-eighth of 1% (12.5 basis points) in the interest rate associated with these borrowings would result in additional interest expense of $2 million (in the case of an increase to the rate) or a reduction to interest expense of $2 million (in the case of a decrease in the rate).
(d) Represents the income tax effects of footnotes (a), (b) and (c) above at an effective tax rate of approximately 38%.
(e)

Earnings per share and weighted average shares outstanding reflect the estimated number of common shares we expect to have outstanding upon the completion of the distribution (based on an expected distribution ratio of one share of Wyndham Worldwide for every five shares of Cendant). These amounts do not reflect

 

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the impact of Cendant accelerating the vesting provisions of certain outstanding equity awards, which is expected to occur in connection with the completion of the separation of Wyndham Worldwide, as such impact will be calculated using balances then-outstanding, which are not currently determinable. Additionally, in connection with the separation of Wyndham Worldwide, Cendant expects to cancel equity awards that were granted at “above-target” levels. See “Management—Employee Benefit Plans—2006 Equity and Incentive Plan—Equitable Adjustments to Outstanding Cendant Equity-Based Awards,” included elsewhere in this information statement. Based upon the equity awards outstanding as of March 31, 2006 and December 31, 2005 and in connection with Cendant’s plan to equitably adjust its outstanding equity awards, we would have expected to issue approximately 25 million and 26 million stock options, respectively, and approximately two million and three million restricted shares, respectively, at the date of separation. We also intend to grant equity awards in Wyndham Worldwide common stock to our employees, which are not reflected in the pro forma amounts, as the actual awards have not yet been determined.

(f) We would have had approximately 206 million and 215 million shares of common stock outstanding on a fully diluted basis as of March 31, 2006 and December 31, 2005, respectively, assuming:

 

    the fully diluted shares outstanding of Cendant common stock as of March 31, 2006, and the issuance of one share of Wyndham Worldwide common stock for every five shares of Cendant common stock;

 

    we accelerate all eligible equity awards outstanding as of March 31, 2006 in the manner described in “Management—Employee Benefit Plans—Equitable Adjustments to Outstanding Cendant Equity-Based Awards”; and

 

    the issuance of 3.1 million shares of Wyndham Worldwide common stock underlying the 2006 Annual Grant of incentive awards of approximately $80 million (see “Management—Employee Benefit Plans—2006 Equity and Incentive Plan”) based upon an estimated $30 per share trading price of Wyndham Worldwide’s common stock on the distribution date.

 

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MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Interim Combined Condensed Financial Statements and the Annual Combined Financial Statements and accompanying Notes thereto, included elsewhere in this information statement. Unless otherwise noted, all dollar amounts are in millions and those relating to our results of operations are presented before taxes.

Restatement of Combined Statements of Income, Balance Sheets, Cash Flows and Invested Equity

We have restated our annual combined statements of cash flows to reflect income taxes payable to Cendant as effectively cash settled by us within operating cash flows with an equal offsetting adjustment to investing cash flows. The reclassification is being made to reflect the change in amounts due from Cendant on a net basis in investing activities in our annual combined statements of cash flows. Accordingly, our combined statements of cash flows have been restated for all periods presented in our Annual Combined Financial Statements. We also restated our annual combined statement of income, balance sheets, cash flows and invested equity. Such restatement corrected (i) the effect of entries recorded in reverse in 2005 and (ii) the goodwill balance for adjustments relating to previous acquisitions. These errors were limited to our vacation exchange and rental business. The restated amounts are described in Note 22 to our Annual Combined Financial Statements.

Wyndham Worldwide, which holds or will hold substantially all of the assets and liabilities of Cendant’s Hospitality Services (including Timeshare Resorts) businesses, is a global provider of hospitality products and services. We operate in the following three segments:

 

    Lodging—franchises hotels in the upscale, middle and economy segments of the lodging industry and provides property management services to owners of our upscale branded hotels.

 

    Vacation Exchange and Rental—provides vacation exchange products and services to owners of intervals of vacation ownership interests and markets vacation rental properties primarily on behalf of independent owners.

 

    Vacation Ownership—markets and sells vacation ownership interests, or VOIs, to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

SEPARATION PLAN

On October 23, 2005, the Board of Directors of Cendant preliminarily approved a plan to separate Cendant into four independent, publicly traded companies—one for each of Cendant’s Hospitality Services (including Timeshare Resorts), Real Estate Services, Travel Distribution Services and Vehicle Rental businesses. In connection with our separation, we expect to enter into borrowing arrangements for a total of $2,000 million, which is comprised of a $300 million term loan facility, an $800 million interim loan facility and a $900 million revolving credit facility. At or prior to the distribution, we expect to draw approximately $1,360 million against those facilities and issue approximately $70 million in letters of credit, leaving approximately $570 million available to provide liquidity for additional letters of credit and for working capital and ongoing corporate needs. Approximately $575 million of the proceeds received in connection with these borrowings is expected to be utilized to repay $575 million of borrowings outstanding under Cendant’s asset-linked facility relating to certain of our assets, while the remaining proceeds (approximately $785 million) are expected to be transferred to Cendant solely for the purpose of permitting Cendant to repay certain other corporate debt of Cendant. The actual amount of debt that we incur at the time of our separation may be more or less than approximately $1,360 million depending upon the actual operating performance of Cendant and a more refined calculation of the cash outlays relating to the separation plan. In addition, the Separation and Distribution Agreement provides for an adjustment in the amount of indebtedness we will incur in connection with our separation in the event that (i) the sum of the

 

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borrowings transferred by us, Realogy and Travelport to Cendant, together with the cash at Cendant then available to be utilized to repay its corporate debt and, with respect to the amount transferred by Travelport, other corporate obligations and to fund the actual and estimated cash expenses relating to the separation, is less than or more than (ii) the amount necessary to enable Cendant to repay all of its outstanding corporate indebtedness and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses relating to the separation (other than those primarily related to its Vehicle Rental business, but including costs and expenses related to the plan of separation incurred through that date and estimated to be incurred prior to the completion of the plan of separation). In the event that such amounts are less than or more than the amount necessary to enable Cendant to repay its outstanding corporate debt and, with respect to the amount transferred by Travelport, to repay other corporate obligations and to fund the actual and estimated cash expenses borne by Cendant relating to the separation, then:

 

  (i) to the extent of an insufficiency which is less than or equal to $100 million, at or prior to our separation we will be required to incur additional indebtedness equal to such insufficiency and transfer such additional amounts to Cendant,

 

  (ii) to the extent of any such insufficiency in excess of $100 million (with the first $100 million being treated as described in clause (i) above), we will be required to incur additional indebtedness in an amount equal to 37.5% of such insufficiency above $100 million and transfer such additional amounts to Cendant and Realogy will be required to make a payment to Cendant, or, if Realogy’s separation occurs at the same time as our separation, Realogy will be required to incur additional indebtedness for transfer to Cendant, in an amount equal to 62.5% of such insufficiency above $100 million,

 

  (iii) to the extent of any excess which is less than or equal to $100 million, the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by the amount of such excess, and

 

  (iv) to the extent of any such excess in excess of $100 million (with the first $100 million being treated as described in clause (iii) above), the amount of indebtedness required to be incurred by us at or prior to our separation for transfer to Cendant will be reduced by an amount equal to 37.5% of such excess above $100 million and Cendant will be required to make a payment to Realogy in an amount equal to 62.5% of such excess above $100 million, or if Realogy’s separation occurs at the same time as our separation, the amount of indebtedness Realogy is required to incur for transfer to Cendant will be reduced by an amount equal to 62.5% of such excess above $100 million. See “The Separation—Incurrence of Debt.”

We expect to refinance borrowings under the $800 million interim loan facility with permanent financing after the distribution. Additionally, pursuant to the Separation and Distribution Agreement, we expect to be allocated a portion of certain of Cendant’s corporate assets and assume a portion of certain of Cendant’s contingent and other corporate liabilities, including those arising from unresolved tax and legal matters, which are not currently reflected on the Combined Balance Sheets. See “Certain Relationships and Related Party Transactions” and “The Separation” for more information. The actual amount that we may be required to pay under these arrangements could vary depending upon the outcomes of any unresolved matters, which may not be resolved for several years, and if any party responsible for all or a portion of such liabilities were to default on its obligation to pay certain costs or expenses related to any such liability. Additionally, generally accepted accounting principles prohibit us and Cendant from recording estimates for any contingent assets that we may be entitled to receive upon positive resolution of certain unresolved matters. The benefit resulting from such matters, if any, will not be recorded within Wyndham Worldwide’s financial statements until realization is assured beyond a reasonable doubt.

On April 24, 2006, Cendant announced a modification to its previously announced separation plan. As an alternative to pursuing its original plan to distribute the shares of common stock of Travelport to Cendant stockholders, Cendant is also exploring the possible sale of Travelport. Unless and until Cendant enters into a definitive agreement for a sale of Travelport and such a sale is completed, the implications of a sale on our separation from Cendant cannot be fully determined. However, if Cendant were to sell Travelport, the terms of our separation, as well as Realogy’s separation, from Cendant would be impacted. If there were a sale of

 

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Travelport, which may not occur until after our separation from Cendant, a portion of the cash proceeds from the sale (after giving effect to certain tax liabilities and other expenses incurred by Cendant in connection with the sale and the repayment of any Travelport indebtedness) would be contributed to us and Realogy and such proceeds would be utilized to reduce and/or repay the indebtedness incurred by us and Realogy in connection with our separations (for a detailed discussion of our planned borrowings in connection with our separation, see “Description of Material Indebtedness”).

If a sale of Travelport were to occur, the Separation and Distribution Agreement provides that Cendant’s contingent and other corporate liabilities (which would include any liabilities of Cendant incurred in connection with a Travelport sale) and assets (which would include any non-cash or deferred cash proceeds received in connection with a Travelport sale) will be reallocated such that:

 

    we will assume 37.5% and Realogy will assume 62.5% of these contingent and other corporate liabilities of Cendant and its subsidiaries;

 

    we will be entitled to 37.5% and Realogy will be entitled to 62.5% of these contingent and other corporate assets of Cendant and its subsidiaries; and

 

    Travelport will no longer have any responsibility for or rights with respect to any of these contingent corporate or other liabilities and assets of Cendant and its subsidiaries.

TRENDS

We believe that the following trends, among others, may affect and/or have impacted our financial condition and results of operations:

 

    Globally, travel spending is expected to grow by 5% in 2006.

 

    In 2006, the expected level of spending for the U.S. hospitality industry is estimated to be 16% higher than the spending in 2000, the year prior to the September 11, 2001 terrorist attacks.

 

    In the United States, revenue per available room, or RevPAR increased 8.4% in 2005 versus 2004.

 

    The American Resort Development Association estimated that on January 1, 2005, there were approximately 3.9 million households that owned one or more vacation ownership interests in the United States which represents a 14.7% increase from the prior year in the number of households that owned interests.

The trends noted above were obtained from (i) the Travel Industry Association Economic Review of Travel in America, 2005 edition, (ii) the PricewaterhouseCoopers LLP U.S. Lodging Forecast, March 2006 and (iii) the American Resort Development Association 2005 United States Study.

RESULTS OF OPERATIONS

We enter into agreements to franchise our lodging franchise systems to independent hotel owners. Our standard franchise agreement typically has a term of 15 to 20 years and provides a franchisee with certain rights to terminate the franchise agreement before the term of the agreement under certain circumstances. The principal source of revenues from franchising hotels is ongoing franchise fees, which are comprised of royalty fees and other fees relating to marketing and reservation fees. Ongoing franchise fees typically are based on a percentage of gross room revenues of each franchisee and are accrued as the underlying franchisee revenues are earned and due from the franchisees. An estimate of uncollectible ongoing franchise fees is charged to bad debt expense and included in operating expenses on the Combined Statements of Income. Lodging revenue also includes initial franchise fees, which are recognized as revenue when all material services or conditions have been substantially performed, which is when a franchised hotel opens for business or a franchise agreement is terminated as the franchised hotel will not open.

Our franchise agreements require the payment of fees for certain services, including marketing and reservations. With such fees, we provide our franchised properties with a suite of operational and administrative

 

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services, including access to (i) an international, centralized, brand-specific reservations system, (ii) advertising, (iii) promotional and co-marketing programs, (iv) referrals, (v) technology, (vi) training and (vii) volume purchasing. We are contractually obligated to expend the marketing and reservation fees we collect from franchisees in accordance with the franchise agreements; as such, revenues earned in excess of costs incurred are accrued as a liability for future marketing or reservation costs. Costs incurred in excess of revenues are expensed. In accordance with our franchise agreements, we include an allocation of certain overhead costs required to carry out marketing and reservation activities within marketing and reservation expenses.

We also provide property management services for hotels under management contracts. Management fees are comprised of base fees, which typically are calculated based upon a specified percentage of gross revenues from hotel operations, and incentive management fees, which typically are calculated based upon a specified percentage of a hotel’s operating profit or the amount by which a hotel’s operating profit exceeds specified targets. Management fee revenue is recognized when earned in accordance with the terms of the contract. We incur certain reimbursable costs on behalf of managed hotel properties and reports reimbursements received from managed properties as revenue and the costs incurred on their behalf as expenses. The revenue is recorded as a component of service fees and membership on the Combined Statements of Income. The costs, which principally relate to payroll costs at managed properties where we are the employer, are reflected as a component of operating expenses on the Combined Statements of Income. The reimbursements from hotel owners are based upon the costs incurred with no added margin; as a result, these reimbursable costs have little to no effect on our operating income. Management fee revenue and revenue related to payroll reimbursements was $1 million and $17 million, respectively, during the year ended December 31, 2005 and $1 million and $16 million, respectively, during the three months ended March 31, 2006.

Within our lodging segment, we measure operating performance using the following key operating statistics: (i) weighted average rooms, which represents the weighted average number of hotel rooms available for rental for the year at lodging properties operated under franchise and management agreements, (ii) number of properties, which represents the number of lodging properties operated under franchise and management agreements at the end of the year and (iii) RevPAR, which is calculated by multiplying the percentage of available rooms occupied for the year by the average rate charged for renting a lodging room for one day.

As a provider of vacation exchange services, we enter into affiliation agreements with developers of vacation ownership properties to allow owners of intervals to trade their intervals for certain other intervals within our vacation exchange business and, for some members, for other leisure-related products and services. Additionally, as a marketer of vacation rental properties, generally we enter into contracts for exclusive periods of time with property owners to market the rental of such properties to rental customers. Our vacation exchange business derives a majority of its revenues from annual membership dues and exchange fees from members trading their intervals. Annual dues revenue represents the annual membership fees from members who participate in our vacation exchange business and, for additional fees, have the right to exchange their intervals for certain other intervals within our vacation exchange business and, for certain members, for other leisure-related products and services. We record revenue from annual membership dues as deferred income on the Combined Balance Sheets and recognize it on a straight-line basis over the membership period during which delivery of publications, if applicable, and other services are provided to the members. Exchange fees are generated when members exchange their intervals for equivalent values of rights and services, which may include intervals at other properties within our vacation exchange business or other leisure-related products and services. Exchange fees are recognized as revenue when the exchange requests have been confirmed to the member. Our vacation rental business derives its revenue principally from fees, which generally range from approximately 25% to 50% of the gross rent charged to rental customers. The majority of the time, we act on behalf of the owners of the rental properties to generate our fees. We provide reservation services to the independent property owners and receive the agreed-upon fee for the service provided. We remit the gross rental fee received from the renter to the independent property owner, net of our agreed-upon fee. Revenue from such fees is recognized in the period that the rental reservation is made, net of expected cancellations. Upon confirmation of the rental reservation, the rental customer and property owner generally have a direct relationship for additional services to be performed. Cancellations for 2005 and 2004

 

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totaled approximately 2% of rental transactions booked. Our revenue is earned when evidence of an arrangement exists, delivery has occurred or the services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured. We also earn rental fees in connection with properties we own or lease under capital leases and such fees are recognized when the rental customer’s stay occurs, as this is the point at which the service is rendered.

Within our vacation exchange and rental segment, we measure operating performance using the following key operating statistics: (i) average number of vacation exchange members, which represents participants in our vacation exchange programs who pay annual membership dues and are entitled, for additional fees, to exchange their intervals for other intervals within our vacation exchange business and, for certain members, for other leisure-related products and services, (ii) annual membership dues and exchange revenue per member, which represents the total annual dues and exchange fees generated for the year divided by the average number of vacation exchange members during the year, (iii) vacation rental transactions, which represents the gross number of transactions that are generated in connection with customers booking their vacation rental stays through us and (iv) average price per vacation rental, which represents the gross rental price generated from renting vacation properties to customers divided by the number of rental transactions.

We market and sell VOIs to individual consumers, provide property management services at resorts and provide consumer financing in connection with the sale of VOIs. Our vacation ownership business derives the majority of its revenues from sales of VOIs and derives other revenues from consumer financing and property management. In order for us to recognize sales of VOIs on a full accrual basis for fully constructed inventory, a binding sales contract must have been executed, the statutory rescission period must have expired, receivables must have been deemed collectible and the remainder of our obligations must have been substantially completed. In addition, the purchaser of the VOI must have met the initial investment criteria and, as applicable, the continuing investment criteria. A purchaser has met the initial investment criteria when a minimum down payment of 10% is received. In those cases where financing is provided to the purchaser, the continuing investment criteria is met as the contractual terms of the loan require that the level of annual payments be sufficient to amortize the loan over a customary period for the VOI being financed. During periods of construction, subsequent to the preliminary construction phase and upon assurance that the property will not revert to a rental property, we recognize revenues using the percentage-of-completion method of accounting. For percentage-of-completion accounting, the preliminary stage is deemed to be complete when the engineering and design work is complete, the construction contracts have been executed, the site has been cleared, prepared and excavated, and the building foundation is complete. The completion percentage is determined by the proportion of real estate inventory costs and certain sales and marketing and interest costs incurred to total estimated costs. These estimated costs are based upon historical experience and the related contractual terms. The remaining revenue and related costs of sales, including commissions and direct expenses, are deferred and recognized as the remaining costs are incurred. Until a contract for sale qualifies for revenue recognition, all payments received are accounted for as restricted cash and deposits within other current assets and deferred income, respectively, on the Combined Balance Sheets. Commissions and other direct costs related to the sale are deferred until the sale is recorded. If a contract is cancelled before qualifying as a sale, non-recoverable expenses are charged to operating expense in the current period on the Combined Statements of Income.

We also offer consumer financing as an option to customers purchasing VOIs, which are typically collateralized by the underlying VOI. Generally, the financing terms are for seven to ten years. An estimate of uncollectible amounts is recorded at the time of the sale with a charge to the provision for loan losses on the Combined Statements of Income. The interest income earned from the financing arrangements is earned on the principal balance outstanding over the life of the arrangement.

We also provide day-to-day-management services, including oversight of housekeeping services, maintenance and certain accounting and administrative services for property owners’ associations and clubs. In some cases, our employees serve as officers and/or directors of these associations and clubs in accordance with their by-laws and associated regulations. Management fee revenue is recognized when earned in accordance with the terms of the contract and is recorded as a component of service fees and membership on the Combined Statements of Income. The costs, which principally relate to the payroll costs for management of the associations, clubs and the resort properties where we are the employer, are reflected as a component of

 

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operating expenses on the Combined Statements of Income. Reimbursements are based upon the costs incurred with no added margin and thus presentation of these reimbursable costs has little to no effect on our operating income. Management fee revenue and revenue related to reimbursements was $24 million and $34 million during the three months ended March 31, 2006, respectively, $91 million and $124 million during the year ended December 31, 2005, respectively, $95 million and $103 million during the year ended December 31, 2004, respectively, and $82 million and $86 million during the year ended December 31, 2003, respectively. During the three months ended March 31, 2006 and the years ended December 31, 2005, 2004 and 2003, one of the associations that we manage paid RCI Global Vacation Network $3 million, $11 million, $9 million and $6 million, respectively, for exchange services.

Within our vacation ownership segment, we measure operating performance using the following key metrics: (i) gross VOI sales, including tele-sales upgrades, which is a component of upgrade sales, (ii) tours, which represents the number of tours taken by guests in our efforts to sell VOIs and (iii) volume per guest, or VPG, which represents revenue per guest and is calculated by dividing the gross VOI sales, excluding tele-sales upgrades, by the number of tours.

We record lodging-related marketing and reservation revenues, as well as property management services revenues for our lodging and vacation ownership segments, in accordance with Emerging Issues Task Force Issue 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” which requires that these revenues be recorded on a gross basis.

Discussed below are our combined results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon revenue and “EBITDA,” which is defined as net income before depreciation and amortization, interest (excluding interest on securitized vacation ownership debt), income taxes and minority interest, each of which is presented on the Combined Statements of Income. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

EBITDA includes cost allocations from Cendant representing our portion of general corporate overhead of $9 million for both the three months ended March 31, 2006 and 2005. For the years ended December 31, 2005, 2004 and 2003, Cendant allocated $36 million, $30 million and $29 million, respectively. Cendant allocates such costs to us based on a percentage of our forecasted revenues. General corporate expense allocations include costs related to Cendant’s executive management, tax, accounting, legal, treasury and cash management, certain employee benefits and real estate usage for common space. The allocations are not necessarily indicative of the actual expenses that would have been incurred had we been operating as a separate, stand-alone public company for the periods presented.

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

Our combined results comprised the following:

 

     Three Months Ended
March 31,
 
     2006     2005     Change  

Net revenues

   $ 870     $ 795     $ 75  

Expenses

     722       668       54  
                        

Operating income

     148       127       21  

Interest expense (income), net

     (2 )     2       (4 )
                        

Income before income taxes and minority interest

     150       125       25  

Provision (benefit) for income taxes

     57       (5 )     62  
                        

Income before cumulative effect of accounting change

     93       130       (37 )

Cumulative effect of accounting change, net of tax

     (65 )           (65 )
                        

Net income

   $ 28     $ 130     $ (102 )
                        

 

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During first quarter 2006, our net revenues increased $75 million (9%) principally due to (i) an $89 million increase in net sales of VOIs at our vacation ownership businesses due to higher tour flow and an increase in VPG; (ii) $31 million of incremental revenue generated by the acquisition of the Wyndham Hotels and Resorts brand, which was acquired in October 2005 and included in our results from that date forward; and (iii) a $11 million increase in net consumer financing revenues earned on vacation ownership contract receivables. These increases were partially offset by a decrease in revenues of $61 million as a result of the classification of the provision for loan losses as a reduction of revenues during the first quarter of 2006 in connection with the adoption of SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions” (“SFAS No. 152”). Total expenses increased $54 million (8%) principally reflecting (i) a $38 million increase in organic operating expenses primarily related to additional commission expense resulting from increased VOI sales and commission rates, increased costs related to the property management services that we provide at our vacation ownership business and increased volume-related expenses and staffing costs due to growth in our contact centers; (ii) $30 million of expenses generated by the acquisition of Wyndham; and (iii) a $9 million increase in organic marketing and reservation expenses primarily resulting from increased marketing initiatives across all our businesses. These increases were partially offset by a decrease of $25 million in provision for loan losses and a decrease of $2 million in cost of vacation ownership interests. The $2 million decrease in cost of vacation ownership interests includes $26 million of increased cost of sales primarily associated with increased VOI sales more than offset by $28 million of estimated future inventory recoveries. Such decreases are the result of the reclassification of the provision for loan losses from expenses to net revenues and the reduction of cost of sales of inventory as a result of our adoption of SFAS No. 152.

Depreciation and amortization increased $2 million primarily due to the capital investments made throughout 2005. Interest expense (income), net decreased $4 million in first quarter 2006 primarily as a result of higher intercompany interest income. Our effective tax rate increased to 38% in first quarter 2006 from (4%) in first quarter 2005 primarily due to the absence of a one-time tax benefit recognized in first quarter 2005 related to changes in tax basis differences in assets of foreign subsidiaries.

During first quarter 2006, we also recorded a non-cash charge of $65 million, after tax, to reflect the cumulative effect of accounting changes as a result of our adoption of SFAS No. 152.

As a result of these items, our net income decreased $102 million (78%) quarter-over-quarter.

Following is a discussion of the results of each of our reportable segments during the first quarter:

 

     Revenues     EBITDA  
     2006     2005     % Change     2006     2005     % Change  

Lodging

   $ 144     $ 112     29     $ 41     $ 40     3  

Vacation Exchange and Rental

     282       287     (2 )     77       86     (10 )

Vacation Ownership

     445       400     11       64       40     60  
                                    

Total Reportable Segments

     871       799     9       182       166     10  

Corporate and Other(a)

     (1 )     (4 )   *             (7 )   *  
                                    

Total Company

   $ 870     $ 795     9       182       159     14  
                        

Less: Depreciation and amortization

           34       32    

Interest expense (income), net

           (2 )     2    
                        

Income before income taxes and minority interest

         $ 150     $ 125    
                        

(*) Not meaningful.
(a) Includes the elimination of transactions between segments.

Lodging

Revenues and EBITDA increased $32 million (29%) and $1 million (3%), respectively, in first quarter 2006 compared with first quarter 2005, primarily due to the acquisition of the franchise and property management businesses of the Wyndham Hotels and Resorts brand.

 

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The operating results of our lodging business reflect the acquisition of the franchise and property management businesses of the Wyndham Hotels and Resorts brand in October 2005, which contributed incremental revenues and EBITDA of $31 million and $2 million, respectively, to 2006 results. Included within the $31 million of revenues generated by Wyndham is approximately $25 million related to reimbursable expenses, which has no impact on EBITDA. Apart from this acquisition, revenues in our lodging business were relatively consistent quarter-over-quarter as a $4 million (5%) increase in royalty, marketing and reservation fund revenues and a $3 million increase in revenues generated by our TripRewards loyalty program in first quarter 2006, were offset by the absence of a $7 million gain recognized in first quarter 2005 on the sale of a lodging-related investment. The $4 million increase in royalty, marketing and reservation fund revenues was primarily due to a 10% increase in RevPAR, partially offset by a 4% decrease in weighted average rooms available. The RevPAR increase reflects (i) increases in both price and occupancy principally attributable to an overall improvement in the economy lodging segment in which our hotel brands primarily operate, (ii) the termination of underperforming properties throughout 2005 that did not meet our required quality standards or their financial obligations to us and (iii) the strategic assignment of personnel to field locations designed to assist franchisees in improving their hotel operating performance. The decrease in weighted average rooms available reflects our termination of underperforming properties, as discussed above, the expiration of franchise agreements and certain franchisees exercising their right to terminate their agreements.

EBITDA further reflects an increase of approximately $1 million (1%) in operating, marketing and administrative expenses (excluding the impact of the acquisition discussed above) primarily resulting from a $3 million increase in expenses used to fund marketing related initiatives for our TripRewards loyalty programs, partially offset by a decrease of $2 million in other administrative expenses.

Vacation Exchange and Rental

Revenues and EBITDA decreased $5 million (2%) and $9 million (10%), respectively, in first quarter 2006 compared with first quarter 2005, primarily reflecting a $4 million reduction in fees generated from providing travel services and a $4 million increase in expenses, as discussed below. Travel service fee revenues declined primarily as a result of lower rates in 2006 relating to an outsourcing agreement to provide services to third-party travel club members.

Net revenues from rental transactions declined $1 million (1%) primarily due to a 9% decrease in the average price per rental, partially offset by a 5% increase in rental transaction volume. The reduction in net revenues from rental transactions and the average price per rental includes the translation effects of foreign exchange movements, which unfavorably impacted rental revenues by $7 million and accounted for 7% of the total 9% reduction in the average price per rental. Exclusive of the currency impact, the average price per rental decreased 2% due to the higher priced rentals for Easter holiday week in Europe, which dates occurred in the first quarter in 2005 as compared with the second quarter in 2006. The increase in rental transaction volume was primarily driven by increased rental demand for our vacation interval inventory from our existing RCI exchange members and increased arrivals at our owned Landal GreenParks.

Annual dues and exchange revenues were constant quarter-over-quarter. The impact on revenues from a 5% increase in the average number of members was offset by a 4% reduction in the average annual dues and exchange revenues generated per member. Exchange volume remained relatively constant in total; however, points-based transactions represented 18% of the total exchange transactions in first quarter 2006 compared with 15% in first quarter 2005, representing a continued shift to more points-based exchanges. Since points are exchangeable for various other travel-related products and services as well as vacation stays for various lengths of time, points-based exchange activity will generally result in higher transaction volumes with lower average fees as compared to the standard one-week for one-week exchange activity in our RCI Weeks exchange program. Vacation exchange volume and price are also impacted by the mix of domestic and international exchanges. Generally, when a member transacts for a timeshare interval outside of his or her global region, a higher exchange fee will be generated from the transacting member.

 

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EBITDA further reflects a quarter-over-quarter increase in expenses of $4 million (2%) primarily driven by (i) $9 million of incremental expenses incurred for future revenue generation, including increased marketing campaigns, timing of certain other marketing expenses, expansion of property recruitment efforts and investment in our consulting and international activities, (ii) a $6 million increase in volume-related expenses, which was substantially comprised of cost of sales on increased rentals of vacation stay intervals and higher reservation call center staffing costs to support member growth and increased call volumes and (iii) $3 million of costs primarily related to higher corporate overhead allocations. These increases were partially offset by (i) the favorable impact of foreign currency translation on expenses of $7 million, (ii) a $4 million reduction in employee incentive program expenses in first quarter 2006 and (iii) $3 million of lower costs to restructure operations incurred in first quarter 2006 versus first quarter 2005.

Vacation Ownership

Revenues and EBITDA increased $45 million (11%) and $24 million (60%), respectively, in first quarter 2006 compared with first quarter 2005. The operating results reflect organic growth in vacation ownership sales and consumer finance income as well as the impact of the adoption of SFAS No. 152. Exclusive of the estimated impact of SFAS No. 152 on our first quarter 2006 results, revenues and EBITDA increased $72 million (18%) and $12 million (30%), respectively.

Exclusive of the impact of SFAS No. 152, net sales of VOIs at our vacation ownership business increased by an estimated $60 million (21%) in first quarter 2006 principally driven by a 9% increase in VPG and a 7% increase in tour flow. VPG benefited from increased sales of premium inventory and tour flow was positively impacted by the continued development of the Trendwest in-house sales program and continued improvement in local marketing efforts. Revenues and EBITDA increased $13 million and $8 million, respectively, in first quarter 2006 due to incremental net interest income earned on contract receivables primarily due to growth in the portfolio. In addition, during first quarter 2006, we recognized $7 million of incremental property management fees primarily as a result of growth in the number of units under management.

EBITDA further reflects an increase of approximately $55 million (15%) in operating, marketing and administrative expenses primarily resulting from (i) $16 million of increased cost of sales primarily associated with increased VOI sales, (ii) $13 million of additional commission expense associated with increased VOI sales and increased commission rates, (iii) $8 million of additional vacation ownership contract receivables provisions recorded in first quarter 2006, (iv) $6 million of incremental costs primarily incurred to fund additional staffing needs to support continued growth in the business, (v) $6 million of incremental marketing spent to support sales efforts and (vi) $5 million of increased costs related to the property management services discussed above.

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

Our combined results comprised the following:

 

     Year Ended December 31,  
     2005     2004    Change  

Net revenues

   $ 3,471     $ 3,014    $ 457  

Expenses

     2,851       2,414      437  
                       

Operating income

     620       600      20  

Interest expense (income), net

     (6 )     13      (19 )
                       

Income before income taxes and minority interest

     626       587      39  

Provision for income taxes

     195       234      (39 )

Minority interest, net of tax

           4      (4 )
                       

Net income

   $ 431     $ 349    $ 82  
                       

During 2005, our net revenues increased $457 million (15%) principally due to (i) a $134 million increase in net sales of VOIs at our vacation ownership businesses due to higher tour flow and an increase in VPG; (ii) $114 million of incremental revenue generated by the acquisitions of the Wyndham Hotels and Resorts brand, Ramada

 

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International, Landal GreenParks and Canvas Holidays Limited, the results of which are included from their respective acquisition dates forward; (iii) $76 million of incremental organic revenue earned by our vacation exchange and rental business principally reflecting increased rental and exchange transaction volume and a higher average number of members; (iv) a $58 million increase in net consumer financing revenues earned on vacation ownership contract receivables; (v) a $47 million increase in organic revenues at our lodging business, reflecting a favorable increase in RevPAR; and (vi) $17 million of incremental resort management fees as a result of increased rental revenues on unoccupied units, as well as growth in the number of units under management. Total expenses increased $437 million (18%) principally reflecting (i) a $160 million increase in organic operating expenses primarily related to additional commission expense resulting from increased VOI sales and commission rates, increased costs related to the property management services that we provide at our vacation ownership business and increased fulfillment costs incurred in connection with our RCI Elite Rewards program and increased staffing costs in our contact centers; (ii) $110 million of expenses generated by the acquisitions discussed above; (iii) a $32 million increase in organic marketing and reservation expenses primarily resulting from increased marketing initiatives across all our businesses; (iv) a $30 million increase in provision for loan losses principally related to growth in vacation ownership contract receivables at our vacation ownership business; (v) a $30 million increase in organic general and administrative expense principally due to growth in our vacation exchange and rental and vacation ownership businesses; (vi) $25 million of increased cost of sales primarily associated with increased VOI sales; (vii) the absence of a favorable $15 million settlement recorded by our lodging business in 2004 related to a franchisee receivable; (viii) $14 million of costs incurred to combine the operations of our vacation exchange and rental business; (ix) $13 million of expenses associated with the 2005 Gulf Coast hurricanes, which primarily reflects a provision for estimated vacation ownership contract receivable losses; and (x) $12 million of marketing and related expenses incurred in connection with our TripRewards loyalty program.

Depreciation and amortization increased $12 million primarily due to an increase in information technology capital investments made in 2005, a trend we expect to continue in 2006. Interest expense (income), net decreased $19 million in 2005 primarily as a result of (i) the absence of interest expense incurred in 2004 related to the Two Flags Joint Venture LLC, (ii) favorable interest rate hedge activity year over year, and (iii) a reduction in financing cost amortization. Interest expense is expected to increase in 2006 as a result of the proposed separation of Wyndham Worldwide from Cendant as detailed in the unaudited pro forma combined condensed financial statements. Our effective tax rate decreased to 31.2% in 2005 from 39.9% in 2004 primarily due to a one-time tax benefit related to changes in tax basis differences in assets of foreign subsidiaries. The effective tax rate for 2006 is expected to approximate 38%. As a result of these items, our net income increased $82 million (23%).

Following is a discussion of the results of each of our reportable segments:

 

     Revenues    EBITDA  
     2005     2004     %
Change
   2005     2004     %
Change
 

Lodging

   $ 533     $ 443     20    $ 197     $ 189     4  

Vacation Exchange and Rental

     1,068       921     16      284       286     (1 )

Vacation Ownership

     1,874       1,661     13      283       265     7  
                                     

Total Reportable Segments

     3,475       3,025     15      764       740     3  

Corporate and Other (a)

     (4 )     (11 )   *      (13 )     (21 )   *  
                                     

Total Company

   $ 3,471     $ 3,014     15      751       719     4  
                         

Less: Depreciation and amortization

            131       119    

Interest expense (income), net

            (6 )     13    
                         

Income before income taxes and minority interest

          $ 626     $ 587    
                         

(*) Not meaningful.
(a) Includes the elimination of transactions between segments.

 

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Lodging

Revenues and EBITDA increased $90 million (20%) and $8 million (4%), respectively, in 2005 compared with 2004 reflecting revenue growth from acquisitions and increased RevPAR; however, the EBITDA comparison was negatively impacted by a favorable settlement recorded in second quarter 2004 related to a lodging franchisee receivable and increased marketing-related expenses associated with our TripRewards loyalty program and initiatives to promote our brands (all of which are discussed in greater detail below).

The operating results of our lodging business reflect the acquisitions of the franchise and property management businesses of the Wyndham Hotels and Resorts brand in October 2005 and Ramada International in December 2004. The operating results of Wyndham Hotels and Resorts have been included in our results for three of the twelve months of 2005, but none of 2004. The operating results of Ramada International have been included in our results for the entire twelve months of 2005, but only for one month of 2004. Accordingly, Wyndham Hotels and Resorts and Ramada International contributed incremental revenues of $29 million and $14 million, respectively, and EBITDA of $2 million each to 2005 results. Included within the $29 million of revenue generated by Wyndham Hotels and Resorts is approximately $25 million related to reimbursable expenses, which has no impact on EBITDA. These acquisitions also added approximately 32,000 rooms, which is approximately 6% of the total weighted average rooms available within our lodging franchise system during 2005.

Apart from these acquisitions, revenues in our lodging business increased $47 million (11%). Such increase principally represents (i) $16 million (4%) of higher royalty, marketing and reservation fund revenues, (ii) $16 million of incremental revenues generated by our TripRewards loyalty program during 2005, (iii) an $8 million increase in ancillary revenues and (iv) a $7 million gain recognized on the sale of a lodging-related investment during 2005. The $16 million increase in royalty, marketing and reservation fund revenues primarily resulted from an 8% increase in RevPAR, partially offset by a 4% decrease in weighted average rooms available. The RevPAR increase reflects (i) increases in both price and occupancy rates principally attributable to an overall improvement in the economy lodging segment in which our hotel brands primarily operate, (ii) the termination of underperforming properties throughout 2004 that did not meet our required quality standards or their financial obligations to us and (iii) the strategic assignment of personnel to field locations designed to assist franchisees in improving their hotel operating performance. The decrease in weighted average rooms available reflects our termination of underperforming properties, as discussed above, the expiration of franchise agreements and certain franchisees exercising their right to terminate their agreements. During 2005, there were terminations of 509 properties, as compared to terminations of 517 properties during 2004.

EBITDA further reflects an increase of $43 million (17%) in operating, marketing and administrative expenses (excluding the impact of the acquisitions discussed above) principally resulting from (i) $20 million of higher bad debt expense, primarily due to the absence of a favorable $15 million settlement recorded in 2004 related to a lodging franchisee receivable; (ii) $12 million of marketing and related expenses incurred in connection with our TripRewards loyalty program; and (iii) $9 million of marketing-related expenses primarily related to marketing initiatives to promote our brands.

Vacation Exchange and Rental

Revenues increased $147 million (16%), while EBITDA declined $2 million (1%) in 2005 compared to 2004, reflecting incremental revenues and expenses from vacation rental acquisitions during 2004 and the negative impact on EBITDA from $14 million of costs incurred during 2005 to combine the operational infrastructures of our vacation exchange and rental business (discussed in greater detail below).

We acquired Landal GreenParks and Canvas Holidays Limited, which are both European vacation rental businesses, in May 2004 and October 2004, respectively. The operating results of Landal GreenParks and Canvas Holidays have been included in our results for the entire twelve months in 2005 but for only eight months in

 

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2004 for Landal GreenParks and only three months in 2004 for Canvas Holidays. Accordingly, Landal GreenParks contributed incremental revenues and EBITDA of $41 million and $2 million, respectively, and Canvas Holidays contributed incremental revenues and EBITDA of $30 million and $10 million, respectively, during 2005. The incremental results of Landal GreenParks in 2005 are reflective of the first four months of the year, which is when their operations are seasonally weakest.

Apart from these acquisitions, revenues increased $76 million (8%), which includes (i) a $34 million (9%) increase in rental transaction revenues, (ii) a $24 million (6%) increase in annual dues and exchange revenues and (iii) a $22 million increase in revenues generated from our RCI Elite Rewards program, a credit card marketing program that we implemented in fourth quarter 2004. Our RCI Elite Rewards program generates revenues based on the volumes of cardholders and credit card spending and incurs related fulfillment costs.

The $34 million increase in rental transaction revenues primarily resulted from a 7% increase in total rental transactions and a $12 million increase due to the conversion of a franchised park to a managed park in January 2005. Prior to the conversion, we received only a franchise fee, whereas subsequent to the conversion, we recognized all of the revenues generated by this park.

The $24 million increase in annual dues and exchange revenues was driven by a 5% increase in the average number of members. Transactions related to our points-based exchange program, RCI Points, represented 17% of the total exchange transactions in 2005 compared with 14% in 2004, representing a continued shift in 2005 to more points-based exchanges. Since points are exchangeable for various other travel-related products and services in addition to vacation stays, points-based exchange activity will generally result in higher transaction volumes with lower average fees as compared to the standard one-week for one-week exchange activity in our RCI Weeks exchange program. Vacation exchange volume and price are derived from (i) a mix of domestic and international exchanges and (ii) a mix of standard one-week for one-week exchanges and exchanges through our RCI Points exchange program, which includes transactions for various lengths of stay and other leisure-related products.

Apart from the aforementioned EBITDA impact of the acquisitions of Landal GreenParks and Canvas Holidays, EBITDA further reflects a year-over-year increase in expenses of $90 million (14%) primarily driven by (i) $20 million of incremental fulfillment costs in connection with our RCI Elite Rewards program as discussed above; (ii) $14 million of costs incurred to combine the operational infrastructures of our vacation exchange and rental business principally in Europe; (iii) higher cost of sales in 2005 of $13 million on the rentals of vacation properties; (iv) $11 million of incremental expenses associated with the conversion of a franchised park to a managed park, as discussed above; (v) $8 million of higher marketing expenses, principally related to increased campaigns and publications; and (vi) $5 million of restructuring costs incurred as a result of the consolidation of certain call centers and back-office functions within our vacation exchange business. The remaining $19 million increase in expenses primarily relates to higher staffing costs and other volume driven expense increases in our call centers and certain infrastructure enhancements.

Vacation Ownership

Revenues and EBITDA increased $213 million (13%) and $18 million (7%), respectively, in 2005 compared with 2004. The EBITDA comparison was negatively impacted by $13 million of expenses incurred during 2005 related to the estimated impact of the hurricanes experienced along the Gulf Coast. Revenue and EBITDA, exclusive of the impact of the Gulf Coast hurricanes, reflect organic growth in vacation ownership sales, a gain on the sale of land and increased consumer finance income.

Net sales of VOIs increased $134 million (11%) in 2005 despite the Gulf Coast hurricanes. Such increase was driven principally by a 9% increase in tour flow and a 6% increase in VPG. This revenue increase includes a $27 million decrease in higher margin upgrade sales at our Trendwest resort properties due to special upgrade promotions conducted during 2004 undertaken to mitigate the negative impact on tour flow from the “do not

 

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call” and “do not fax” regulations. Tour flow, as well as volume per transaction, benefited in 2005 from our expanded presence in premium destinations such as Hawaii, Las Vegas and Orlando. Tour flow was also positively impacted by the opening of new sales offices, our strategic focus on new marketing alliances and increased local marketing efforts.

Revenue and related expenses increased $57 million and $8 million, respectively, in 2005 as a result of incremental net interest income earned on our vacation ownership contract receivables primarily due to growth in the consolidated portfolio. Additionally, we receive management fees for property management services that we provide at certain resorts pursuant to contractual arrangements with property owners’ associations. During 2005, we recognized $17 million of incremental resort management fees as a result of increased rental revenues on units, as well as growth in the number of units under management.

Revenue and EBITDA comparisons also benefited from an $11 million gain recorded in 2005 in connection with the disposal of a parcel of land that was no longer consistent with our development plans, partially offset by the absence of a $4 million gain recognized in first quarter 2004 in connection with the sale of a provider of third-party vacation ownership financing and $3 million of revenue generated by such operations in 2004 prior to the sale date.

EBITDA further reflects an increase of $187 million (14%) in operating, marketing and administrative expenses primarily resulting from (i) $43 million of additional commission expense associated with increased VOI sales and increased commission rates; (ii) $31 million of additional vacation ownership contract receivable provisions recorded in 2005; (iii) $29 million of increased costs related to the resort management services discussed above; (iv) $25 million of increased cost of sales primarily associated with increased VOI sales; (v) $18 million of incremental costs incurred primarily to fund additional staffing needs to support continued growth in the business, improve existing properties and integrate the Trendwest and Fairfield contract servicing operations; (vi) $14 million of incremental marketing spent to support sales efforts; and (vii) $13 million of expenses associated with the 2005 Gulf Coast hurricanes, which primarily reflects a provision for estimated vacation ownership contract receivable losses.

Year Ended December 31, 2004 vs. Year Ended December 31, 2003

Our combined results comprised the following:

 

     Year Ended December 31,  
     2004    2003     Change  

Net revenues

   $ 3,014    $ 2,652     $ 362  

Expenses

     2,414      2,157       257  
                       

Operating income

     600      495       105  

Interest expense (income), net

     13      (5 )     18  
                       

Income before income taxes and minority interest

     587      500       87  

Provision for income taxes

     234      186       48  

Minority interest, net of tax

     4      15       (11 )
                       

Net income

   $ 349    $ 299     $ 50  
                       

During 2004, our net revenues increased $362 million (14%) principally due to (i) the acquisition of Landal GreenParks which contributed incremental revenue of $113 million to our 2004 results, (ii) an $83 million increase in net sales of VOIs at our vacation ownership business primarily due to an increase in VPG and increases in upgrade sales, (iii) $82 million of incremental organic revenue earned by our vacation exchange and rental business principally reflecting increased rental transaction volume, a higher average exchange fee and a higher average number of worldwide members, (iv) a $33 million increase in revenues at our lodging business reflecting incremental revenues generated by our TripRewards loyalty program, which was launched in fourth quarter 2003, and a favorable increase in RevPAR and (v) $30 million of incremental resort management fees as

 

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a result of increased rental revenues on units, as well as growth in the number of units under management. Total expenses increased $257 million (12%) principally reflecting (i) $99 million of incremental expenses principally related to the acquisition of Landal GreenParks, (ii) a $64 million increase in organic operating expenses principally related to higher staffing costs, other volume related expense increases in our call centers and certain infrastructure enhancements at our vacation exchange and rental business, increased marketing expenditures to promote our brands, the funding cost of rewards earned by customers and program administrative expenses relating to our TripRewards loyalty program in our lodging business and increased costs related to the property management services that we provide at our vacation ownership business, (iii) a $51 million increase in organic general and administrative expenses principally resulting from increased infrastructure costs and other variable expenses associated with growing our vacation ownership and vacation exchange and rental business and (iv) a $29 million increase in organic marketing and reservation expenses primarily resulting from increased marketing initiatives in our lodging and vacation exchange and rental businesses. Such increases were partially offset by $13 million of lower cost of sales in 2004 on the rentals of vacation properties and the absence of a $9 million accrual recorded in 2003 for hotel occupancy taxes on vacation property rentals prior to 2004.

Depreciation and amortization increased $12 million primarily due to an increase in information technology capital investments made in 2004. Interest expense (income), net increased $18 million in 2004 primarily as a result of increased vacation ownership asset-linked borrowings. Our effective tax rate increased to 39.9% in 2004 from 37.2% in 2003 primarily due to an increase in state taxes. As a result of these items, our net income increased $50 million (17%).

Following is a discussion of the results of each of our reportable segments:

 

     Revenues    EBITDA
     2004     2003    

%

Change

   2004     2003     %
Change

Lodging

   $ 443     $ 410     8    $ 189     $ 153     24

Vacation Exchange and Rental

     921       726     27      286       220     30

Vacation Ownership

     1,661       1,526     9      265       251     6
                                     

Total Reportable Segments

     3,025       2,662     14      740       624     19

Corporate and Other (a)

     (11 )     (10 )   *      (21 )     (22 )   *
                                     

Total Company

   $ 3,014     $ 2,652     14      719       602     19
                         

Less: Depreciation and amortization

            119       107    

Interest expense (income), net

            13       (5 )  
                         

Income before income taxes and minority interest

          $ 587     $ 500    
                         

* Not meaningful.
(a) Includes the elimination of transactions between segments.

Lodging

Revenues and EBITDA increased $33 million (8%) and $36 million (24%), respectively, in 2004 compared with 2003.

Royalty, marketing and reservation fund revenues increased $14 million (4%) primarily due to a 6% increase in RevPAR, partially offset by a 3% reduction in weighted average rooms available. The RevPAR increase is primarily the result of an increase in both price and occupancy rates combined with the termination of underperforming properties throughout 2004. The decrease in the weighted average rooms reflects (i) quality control initiatives that commenced in 2003, whereby we terminated from our franchise system certain properties that were not meeting required standards and tightened requirements for properties that were not meeting their financial obligations to us and (ii) certain franchisees exercising their right to terminate their agreements. During 2004, there were terminations of 517 properties, as compared to 480 terminations during 2003.

 

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Additionally, in fourth quarter 2003, we launched TripRewards, a loyalty program that enables customers to earn rewards when staying in hotels franchised under one of our worldwide brands, renting Avis® and Budget® cars and purchasing everyday products and services from the various businesses that participate in the program. The TripRewards program enables us to earn fees on revenues generated by our franchisees from TripRewards members. The program contributed $18 million of incremental revenue during 2004.

EBITDA further reflects a decrease of $3 million (1%) in operating, marketing and administrative expenses, principally reflecting $35 million in favorable bad debt expense period-over-period related to the settlement of a lodging franchise receivable during 2004 that had been previously reserved for during 2003. This was partially offset by (i) an $18 million increase in marketing expenditures to promote our brands, the funding of the cost of rewards earned by customers and program administrative expenses relating to our TripRewards loyalty program; (ii) an increase of $7 million in marketing and reservation related expenses and (iii) an increase in other operating and information technology expenses of $7 million.

Vacation Exchange and Rental

Revenues and EBITDA increased $195 million (27%) and $66 million (30%), respectively, in 2004 compared with 2003.

In May 2004, we completed the acquisition of Landal GreenParks, which contributed revenues and EBITDA of $113 million and $34 million, respectively, during 2004. In October 2004, we completed the acquisition of Canvas Holidays Limited, which contributed an EBITDA loss of $2 million, with no contribution to revenues during 2004. Revenues and the majority of expenses related to these businesses are recognized upon customer arrival, which is heavily weighted towards the peak camping season in the second and third quarters of the year.

Apart from these acquisitions, revenues increased $82 million (11%), which includes (i) a $32 million (14%) increase in rental transaction revenues, (ii) a $25 million (7%) increase in annual dues and exchange revenues and (iii) a $25 million increase in ancillary revenues derived from other travel and leisure-related services and loyalty programs. Included in such increases is the impact of changes in foreign exchange rates, which favorably impacted revenues by $37 million in 2004 as compared with 2003.

The $32 million increase in rental transaction revenues was primarily due to a 12% increase in the average price per rental, which was driven by increased demand for the rental of vacation ownership inventory during 2004 and our increased focus on maximizing inventory utilization.

The $25 million increase in annual dues and exchange revenues was driven by a 4% increase in the average number of worldwide members and a 3% increase in the average annual dues and exchange revenue generated per member. The growth in revenue per member primarily resulted from a 3% increase in the average annual dues per member and a 4% increase in the average price per exchange transaction. Points-based transactions represented 14% of the total exchange transactions in 2004 compared with 11% in 2003, representing a shift in 2004 to more points-based exchanges. Since points are exchangeable for various other travel-related products and services in addition to vacation stays, points-based exchange activity will generally result in higher transaction volumes with lower average fees as compared to the standard one-week for one-week exchange activity in our RCI Weeks exchange program. Accordingly, the shift to more points-based transactions in 2004 resulted in a partial offset to the favorable impact of price increases on the average annual dues and exchange revenue per member.

We experienced an increase in exchange and rental revenues in 2004 despite the negative impact resulting from the Gulf Coast hurricanes during the second half of 2004. As we have a concentration of affiliated resorts in the Gulf Coast, we believe our overall exchange and rental transaction growth during the second half of 2004 was suppressed due to the hurricane activity in the latter half of 2004 as compared to the comparable prior year period.

 

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The $25 million increase in ancillary revenues in 2004 primarily includes (i) a $9 million increase in our European travel agency bookings, (ii) the implementation of our RCI Elite Rewards program in fourth quarter of 2004, which generated $6 million of revenues and (iii) $4 million of incremental vacation ownership inventory sales through bulk distribution channels.

Apart from the aforementioned acquisitions, EBITDA further reflects an increase of $47 million (9%) in expenses which includes: (i) $17 million of higher marketing-related expenses incurred in 2004, primarily due to our decision to increase our investment in vacation ownership-affiliated marketing campaigns and publications; and (ii) $6 million of incremental fulfillment costs in connection with the implementation of our RCI Elite Rewards program, as discussed above. In addition, operating expenses increased $46 million primarily driven by higher staffing costs, other volume related expense increases in our call centers and certain infrastructure enhancements. Included in the expense increases is the effect of foreign exchange rate movements, which increased expenses by $30 million in 2004 as compared to 2003. Such increases were partially offset by (i) a lower cost of sales in 2004 of $13 million on the rentals of vacation properties and (ii) the absence of a $9 million accrual recorded in 2003 for hotel occupancy taxes on property rentals prior to 2004.

Vacation Ownership

Revenues and EBITDA increased $135 million (9%) and $14 million (6%), respectively, in 2004 compared with 2003.

Net VOI sales increased $83 million (7%) in 2004 primarily driven by (i) a 13% increase in VPG and (ii) a $46 million increase in upgrade sales at our Trendwest brand properties due to special upgrade promotions conducted in 2004 undertaken to mitigate the negative impact on tour flow of the “do not call” and “do not fax” regulations, which became effective in October 2003. Such increases were partially offset by a 7% reduction in tour flow resulting primarily from the negative impact of the “do not call” and “do not fax” regulations, including reduced telemarketers’ ability to contact our customers and prospective customers through telephone or facsimile. Net VOI sales were also negatively impacted by a $24 million reduction in the recognition of VOI deferred revenues related to resort properties under construction due to timing of completion of construction (such revenues and related costs are deferred and recognized in future periods as the resort properties are completed).

During 2004, revenue and related expenses generated by our consumer finance business increased $9 million and $27 million, respectively, as a result of (i) consolidating our largest vacation ownership receivable securitization structures during third quarter 2003 and (ii) year-over-year growth in our vacation ownership contract receivables portfolio. Accordingly, as a result of the consolidation, we recorded interest revenues on vacation ownership contract receivables and interest expense incurred on the debt funding of such contracts instead of applying gain on sale accounting to such securitizations, prior to consolidation.

Additionally, we receive management fees for property management services that we provide at certain resorts pursuant to contractual arrangements with property owners’ associations. During 2004, we recognized $30 million of incremental resort management fees as a result of increased rental revenues on units, as well as growth in the number of units under management. Revenue and EBITDA also benefited in 2004 due to a $4 million gain recognized in first quarter 2004 in connection with the sale of a provider of third-party vacation ownership financing and $3 million of revenue generated by such operations in 2004 prior to the sale date.

EBITDA further reflects an increase of $94 million (7%) in operating, marketing and administrative expenses (excluding the effect of consolidating our largest vacation ownership receivable securitization structures) in 2004 primarily due to (i) an increase in general and administrative costs of $37 million associated with the growth in our infrastructure, (ii) $18 million of increased costs related to the property management services that we provide, (iii) a $16 million incremental increase in the provision for loan losses over the increase in related revenues, (iv) $8 million of incremental marketing expense used to support the growth in the business and (v) $6 million of additional commission expense associated with increased VOI sales.

 

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL CONDITION

 

     March 31,
2006
   December 31,
2005
   Change    December 31,
2005
   December 31,
2004
   Change

Total assets

   $ 9,610    $ 9,167    $ 443    $ 9,167    $ 8,343    $ 824

Total liabilities

     4,547      4,134      413      4,134      3,664      470

Total invested equity

     5,063      5,033      30      5,033      4,679      354

Total assets increased $443 million from December 31, 2005 to March 31, 2006 primarily due to (i) a $113 million increase in trade receivables resulting principally from seasonal increases in activity within our vacation exchange and rental businesses in first quarter 2006 compared to fourth quarter 2005, (ii) a $110 million increase in other current assets due to increased activity within our vacation ownership business and the adoption of a new accounting pronouncement related to vacation ownership interest transactions which resulted in the deferral of greater amounts of costs and revenues at March 31, 2006 compared to December 31, 2005, (iii) a $106 million increase in vacation ownership inventories associated with increased property development activity, as well as the reclassification of the estimated value of inventory to be recovered on future defaulted contract receivables losses in accordance with our adoption of SFAS No. 152, a new accounting pronouncement related to vacation ownership interest transactions and (iv) a $42 million increase in property and equipment principally within our vacation ownership business associated with building and leasehold improvements and reclassifications as a result of our adoption of SFAS No. 152. Total liabilities increased $413 million primarily due to (i) a $212 million increase in deferred income primarily due to increased activity within our vacation ownership business and the adoption of SFAS No. 152, as discussed above, (ii) a $129 million increase in accounts payable resulting principally from amounts payable to property owners in connection with rental booking transactions for the peak vacation seasons and (iii) $48 million of additional net borrowings by our vacation ownership business principally reflecting greater securitization of vacation ownership contract receivables and additional borrowings to support the development of vacation ownership properties. Total invested equity increased $30 million principally due to $28 million of net income generated during first quarter 2006.

Total assets increased $824 million from December 31, 2004 to December 31, 2005 primarily due to (i) a $464 million increase in the receivable due from Cendant, principally reflecting operating cash flows we advanced/provided to Cendant during 2005 and (ii) a $411 million increase in vacation ownership contract receivables and inventories associated with increased sales of vacation ownership interests and property development. These increases were partially offset by a $101 million decrease in current deferred income tax assets primarily related to utilization of net operating loss carryforwards. Total liabilities increased $470 million primarily due to (i) $328 million of additional net borrowings by our vacation ownership business principally reflecting greater securitization of vacation ownership contract receivables and additional borrowings to support the development of vacation ownership properties and (ii) $135 million of increased deferred income tax liabilities primarily related to an increase in deferred tax liabilities associated with installment sales and tax amortization, partially offset by an increase in tax basis differences in assets of foreign subsidiaries. Total invested equity increased $354 million principally due to $431 million of net income generated during 2005, partially offset by $106 million of foreign currency translation adjustments.

LIQUIDITY AND CAPITAL RESOURCES

Currently, our financing needs are supported by cash generated from operations. In addition, certain funding requirements of our vacation ownership business are met through the issuance of securitized and other debt to finance vacation ownership contract receivables and the development of vacation ownership properties. Upon completion of the new financings related to our separation, our liquidity will be further augmented through available capacity under our new revolving credit facility and we believe that access to this facility and our current liquidity vehicles will be sufficient to meet our ongoing needs for the foreseeable future.

 

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Cash Flows

As of March 31, 2006, we had $115 million of cash and cash equivalents, an increase of $4 million compared to the balance of $111 million at March 31, 2005. As of December 31, 2005, we had $99 million of cash on hand, an increase of $5 million in the aggregate cash balance from $94 million as of December 31, 2004. The following table summarizes the activity within the components of the cash flows for the three months ended March 31, 2006 and 2005 and years ended December 31, 2005 and 2004:

 

      Three Months Ended
March 31,
    Year Ended December 31,  
     2006     2005     Change     2005     2004     Change  
                       As
Restated
    As
Restated
       

Cash provided by (used in):

            

Operating activities

   $ 66     $ 21     $ 45     $ 488     $ 142     $ 346  

Investing activities

     (95 )     5       (100 )     (692 )     (323 )     (369 )

Financing activities

     44       (6 )     50       221       217       4  

Effects of changes in exchange rate on cash and cash equivalents

     1       (3 )     4       (12 )     (17 )     5  
                                                

Net change in cash and cash equivalents

   $ 16     $ 17     $ (1 )   $ 5     $ 19     $ (14 )
                                                

Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005

During first quarter 2006, we generated $45 million more cash from operating activities as compared to first quarter 2005. Such change principally reflects a net increase relating to deferred income taxes, partially offset by a decrease in operating results and greater working capital requirements (see “Results of Operations—Three Months Ended March 31, 2006 vs. Three Months Ended March 31, 2005” for a detailed account of the change in our results of operations.)

During first quarter 2006, we used $100 million more cash for investing activities as compared to first quarter 2005. The increase in cash outflows primarily relates to (i) a $79 million increase in intercompany funding provided to Cendant in the normal course of business resulting from Cendant sweeping cash from our bank accounts as the cash is generated from our operations; and (ii) an increase of $8 million in capital expenditures.

During first quarter 2006, we generated $50 million more cash from financing activities as compared to first quarter 2005, substantially all of which reflects incremental cash inflows from long-term debt borrowings within our vacation ownership business during first quarter 2006 (see “—Financial Obligations” for a detailed discussion.)

Year Ended December 31, 2005 vs. Year Ended December 31, 2004

During 2005, we generated $346 million more cash from operating activities as compared to 2004. Such change principally reflects a net increase relating to deferred income taxes, additional vacation ownership contract receivable provisions recorded in 2005 and an increase in our results of operations in 2005 (see “Results of Operations—Year Ended December 31, 2005 vs. Year Ended December 31, 2004” for a detailed account of the change in our results of operations.)

During 2005, we used $369 million more cash for investing activities as compared to 2004. The increase in cash outflows primarily relates to (i) a $354 million increase in intercompany funding provided to Cendant in the normal course of business resulting from Cendant sweeping cash from our bank accounts as the cash is generated from our operations; (ii) the absence in 2005 of $41 million in cash proceeds received in connection with the sale of a provider of third-party vacation ownership financing in 2004; and (iii) an increase of $18 million in capital expenditures, the majority of which relates to incremental building and leasehold improvement expenditures

 

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within our vacation ownership business; these incremental cash outflows were partially offset by (i) a $27 million reduction in cash used for acquisitions in 2005 (see Note 3 to our Annual Combined Financial Statements) and (ii) $17 million less cash we were required to set aside in connection with certain borrowing arrangements and business activities of our vacation ownership business. The net intercompany funding to Cendant will be eliminated as a result of the separation.

During 2005, we generated $4 million more cash from financing activities as compared to 2004. This change reflects incremental long-term debt borrowings of $62 million in 2005, which is primarily related to increased borrowings to support growth in our vacation ownership business (see “Financial Obligations” for a detailed discussion), substantially offset by $59 million in dividends paid to Cendant during 2005 resulting from repatriating cash from one of our foreign entities.

We intend to continue to invest in capital improvements and the development of our vacation ownership, vacation rental 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. On April 7, 2006, we completed the previously announced acquisition of the Baymont brand and system of 115 franchised properties for approximately $60 million in cash. We anticipate spending approximately $800 million on capital expenditures and vacation ownership development projects in 2006. Capital expenditures in 2006 are expected to include (i) approximately $105 million to improve technology and maintain technological advantages, (ii) approximately $30 million on routine improvements and (iii) approximately $20 million for renovations and special projects. The remaining $645 million relates to vacation ownership development projects in 2006. The majority of the expenditures required to complete our capital spending programs will be financed through available cash flow and funds provided by Cendant (until our separation). Additional expenditures will be financed through general unsecured corporate borrowings. Our anticipated unused borrowing capacity of $570 million under our $900 million revolving credit facility would be available to finance our capital spending programs.

The Internal Revenue Services (“IRS”) is currently examining Cendant’s taxable years 1998 through 2002 during which we were included in Cendant’s tax returns. Although we and Cendant believe there is appropriate support for the positions taken on our tax returns, we and Cendant have recorded liabilities representing the best estimates of the probable loss on certain positions. We and Cendant believe that its 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 and Cendant 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 and Cendant 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 cash flows in the period or periods for which that determination is made could result.

In connection with our separation from Cendant, we expect to incur substantial costs, which are not reflected in our historical cash flow activity, to operate as a separate public company. See “Certain Relationships and Related Party Transactions” in this information statement for more information concerning these costs. Additionally, upon distribution of our common stock to Cendant stockholders, we expect to assume and be responsible for 30% (or 37.5% in the event of a sale of Travelport) of certain Cendant corporate contingent and other liabilities, including those relating to unresolved legal matters. Subject to certain exceptions contained in the Tax Sharing Agreement, which is filed as an exhibit to our registration statement on Form 10, we are generally responsible for 30% of taxes (37.5% in the event of a sale of Travelport) associated with shared federal, state and foreign income tax returns relating to periods ending on or prior to the separation. Wyndham Worldwide is solely responsible for all tax liabilities resulting from separate income tax returns filed by us or one of our subsidiaries. As such, we may be required to make material cash payments to Cendant and/or third parties

 

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in the future. However, the actual amount that we may be required to record and pay under these arrangements could vary depending upon the outcome of any unresolved matters, which may endure for several years, and if any party responsible for all or a portion of such liabilities were to default on its obligation to pay certain costs or expenses related to any such liability. Additionally, we may be entitled to receive a portion of the benefits recognized by Cendant upon the positive resolution of certain unresolved Cendant matters. See “Certain Relationships and Related Party Transactions” and “The Separation” in this information statement for more information.

Financial Obligations

Indebtedness Prior to Separation

Our indebtedness consisted of:

 

     March 31,
2006
   December 31,
        2005    2004

Securitized vacation ownership debt

   $ 1,167    $ 1,135    $ 909

Other:

        

Vacation ownership asset-linked debt

     575      550      425

Bank borrowings:

        

Vacation ownership

     104      113      136

Vacation rental

     66      68      84

Vacation rental capital leases

     141      139      167

Other

     35      37      47
                    
   $ 2,088    $ 2,042    $ 1,768
                    

As of December 31, 2005, available capacity under our borrowing arrangements was as follows:

 

     Total
Capacity(a)
   Outstanding
Borrowings
   Available
Capacity(b)

Securitized vacation ownership debt

   $ 1,541    $ 1,135    $ 406

Other:

        

Vacation ownership asset-linked debt

     600      550      50

Bank borrowings:

        

Vacation ownership

     132      113      19

Vacation rental

     68      68     

Vacation rental capital leases

     139      139     

Other

     37      37     
                    
   $ 2,517    $ 2,042    $ 475
                    

(a) Capacity is subject to maintaining sufficient assets to collateralize these secured obligations.
(b) Total capacity decreased by $97 million as of March 31, 2006. This change is primarily due to a $95 million reduction of capacity under our securitized vacation ownership facility.

After our separation, the available capacity under our borrowing arrangements is expected to be as follows:

     Total
Capacity
   Outstanding
Borrowings
   Available
Capacity
 

Term loan facility

   $ 300    $ 300    $  

Interim loan facility

     800      800       

Revolving credit facility

     900      260      570 (*)
                      
   $ 2,000    $ 1,360    $ 570  
                      

(*) Our capacity under our revolving credit facility will be reduced by $70 million for the issuance of letters of credit in addition to the outstanding borrowings shown above.

 

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The majority of our debt as of March 31, 2006 and December 31, 2005 was issued through the securitization of vacation ownership contract receivables. This debt represents fixed and floating rate term notes for which the weighted average interest rate was 4.1%, 3.3% and 3.2% during the years ended December 31, 2005, 2004 and 2003, respectively. We also have access to an $800 million bank conduit facility, of which $510 million and $394 million were drawn as of March 31, 2006 and December 31, 2005, respectively, which we utilize to securitize vacation ownership contract receivables. This conduit facility bears interest at variable rates and had a weighted average interest rate of 3.2%, 1.4% and 2.0% during the years ended December 31, 2005, 2004 and 2003, respectively. As of March 31, 2006, this debt (including borrowings under the conduit) is collateralized by $1,556 million of underlying vacation ownership contract receivables and related assets.

Interest expense incurred in connection with our securitized vacation ownership debt amounted to $14 million and $9 million during the three months ended March 31, 2006 and 2005, respectively, and $46 million, $36 million and $10 million during the years ended December 31, 2005, 2004 and 2003, respectively. Such interest expense is recorded within the operating expenses on the Combined Statements of Income as we earn consumer finance income on the related securitized vacation ownership contract receivables.

We also borrow under a $600 million asset-linked facility through Cendant to support the creation of certain vacation ownership-related assets and the acquisition and development of vacation ownership properties. This facility expires in May 2007 and bears interest at a rate of LIBOR plus 62.5 basis points. As of March 31, 2006, these borrowings are collateralized by $1,343 million of vacation ownership-related assets, consisting primarily of unsecuritized vacation ownership contract receivables, vacation ownership inventory and restricted cash. The weighted average interest rate on these borrowings was 5.1% and 2.6% for years ended December 31, 2005 and 2004, respectively.

Our vacation ownership related bank borrowings principally represent $103 million outstanding under foreign credit facilities used to support vacation ownership operations in the South Pacific. This facility bears interest at Australian Dollar LIBOR plus 60 basis points and had a weighted average interest rate of 6.3% and 3.3% for the years ended December 31, 2005 and 2004, respectively. As of March 31, 2006, these secured borrowings are collateralized by $121 million of underlying vacation ownership contract receivables and related assets.

As of March 31, 2006 and December 31, 2005, we had bank debt outstanding of $66 million and $68 million, respectively, which was assumed in connection with the acquisition of Landal GreenParks during 2004 and was subsequently refinanced. As of March 31, 2006, the bank debt is collateralized by $120 million of land and related vacation rental assets and had a weighted average interest rate of 3.0% for the years ended December 31, 2005 and 2004.

We lease vacation homes located in European holiday parks as part of our vacation exchange and rental business. These leases are recorded as capital lease obligations with corresponding assets classified within

property, plant and equipment on the Combined Balance Sheets. The vacation exchange and rental capital lease obligations had a weighted average interest rate of 7.5% for the years ended December 31, 2005 and 2004.

We also maintain other debt facilities which arise through the ordinary course of operations. As of March 31, 2006, this debt principally reflects $18 million of borrowings under a foreign unsecured credit facility and $11 million of mortgage borrowings related to an office building.

Interest expense incurred in connection with the vacation ownership asset-linked debt, bank borrowings and vacation rental capital leases amounted to $12 million and $9 million during the three months ended March 31, 2006 and 2005, respectively, and $36 million, $38 million and $11 million during the years ended December 31, 2005, 2004 and 2003, respectively. Such interest expense is recorded within the interest expense (income), net on the Combined Statements of Income.

 

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Pro Forma Indebtedness Following Separation

The following table reflects our indebtedness (and related collateralizing assets) as of March 31, 2006 after giving pro forma effect to the planned borrowings in connection with our separation, which are described in more detail in the section entitled “Description of Material Indebtedness,” included elsewhere in this information statement.

 

     As of
March 31,
2006
   (Adjustments)/
Planned
Issuances/
(Repayments)
    Pro
Forma

Secured assets(a)

   $ 3,240