Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32876

WYNDHAM DESTINATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		20-0052541
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6277 Sea Harbor Drive		32821
Orlando,	Florida	(Zip Code)
(Address of Principal Executive Offices)

(407) 626-5200

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value per share	WYND	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐
		Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:

85,861,306 shares of common stock outstanding as of September 30, 2020.

Table of Contents



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Report of Independent Registered Public Accounting Firm	3
	Condensed Consolidated Statements of Income/(Loss)	4
	Condensed Consolidated Statements of Comprehensive Income/(Loss)	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Deficit	8
	Notes to Condensed Consolidated Financial Statements	10
	Note 1 - Background and Basis of Presentation	10
	Note 2 - New Accounting Pronouncements	11
	Note 3 - Revenue Recognition	11
	Note 4 - Earnings/(Loss) Per Share	16
	Note 5 - Acquisitions	17
	Note 6 - Discontinued Operations	17
	Note 7 - Held-for-Sale Business	18
	Note 8 - Vacation Ownership Contract Receivables	18
	Note 9 - Inventory	21
	Note 10 - Property and Equipment	22
	Note 11 - Debt	22
	Note 12 - Variable Interest Entities	25
	Note 13 - Fair Value	26
	Note 14 - Derivative Instruments and Hedging Activities	27
	Note 15 - Income Taxes	28
	Note 16 - Leases	28
	Note 17 - Commitments and Contingencies	30
	Note 18 - Accumulated Other Comprehensive (Loss)/Income	32
	Note 19 - Stock-Based Compensation	33
	Note 20 - Segment Information	34
	Note 21 - Separation and Related Costs	36
	Note 22 - COVID-19 Related Items	36
	Note 23 - Impairments	37
	Note 24 - Restructuring	38
	Note 25 - Transactions with Former Parent and Former Subsidiaries	38
	Note 26 - Related Party Transactions	41
	Note 27 - Subsequent Events	41
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
	Forward-Looking Statements	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	61
Item 4.	Controls and Procedures	61
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
	Signatures	67

Table of Contents

GLOSSARY OF TERMS

The following terms and acronyms appear in the text of this report and have the definitions indicated below:



Adjusted EBITDA	A non-GAAP measure, defined by the Company as Net income/(loss) before Depreciation and amortization, Interest expense (excluding Consumer financing interest), early extinguishment of debt, Interest income (excluding Consumer financing revenues) and income taxes. Adjusted EBITDA also excludes stock-based compensation costs, separation and restructuring costs, transaction costs, impairments, gains and losses on sale/disposition of business, and items that meet the conditions of unusual and/or infrequent.
AOCL	Accumulated Other Comprehensive Loss
ARN	Alliance Reservations Network
AUD	Australian Dollar
Awaze	Awaze Limited, formerly Compass IV Limited, an affiliate of Platinum Equity, LLC
Board	Board of Directors
CARES Act	Coronavirus Aid, Relief, and Economic Security Act
Company	Wyndham Destinations, Inc. and its subsidiaries
COVID-19	Novel coronavirus global pandemic
Credit Agreement Amendment	An amendment to the Company’s credit agreement for its revolving credit facility
EPS	Earnings/(loss) Per Share
Exchange Act	Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FICO	Fair Isaac Corporation
GAAP	Generally Accepted Accounting Principles in the United States
LIBOR	London Interbank Offered Rate
Moody’s	Moody’s Investors Service, Inc.
NQ	Non-Qualified stock options
NZD	New Zealand Dollar
PCAOB	Public Company Accounting Oversight Board
PSU	Performance-vested restricted Stock Units
Relief Period	Relief period of the Credit Agreement Amendment
RSU	Restricted Stock Unit
S&P	Standard & Poor’s Rating Services
SEC	Securities and Exchange Commission
SPE	Special Purpose Entity
Spin-off	Spin-off of Wyndham Hotels & Resorts, Inc.
SSAR	Stock-Settled Appreciation Rights
U.S.	United States of America
USD	United States of America Dollar
Vacasa	Vacasa LLC
VIE	Variable Interest Entity
VOCR	Vacation Ownership Contract Receivable
VOI	Vacation Ownership Interest
VPG	Volume Per Guest
Wyndham Hotels	Wyndham Hotels & Resorts, Inc.
Wyndham Destinations	Wyndham Destinations, Inc.
WVC	Wyndham Vacation Clubs
Wyndham Worldwide	Wyndham Worldwide Corporation

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Wyndham Destinations, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Wyndham Destinations, Inc. and subsidiaries (the "Company") as of September 30, 2020, the related condensed consolidated statements of income/(loss), comprehensive income/(loss) and (deficit) for the three-month and nine-month periods ended September 30, 2020 and 2019, and of cash flows for the nine-month periods ended September 30, 2020 and 2019, and the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, cash flows and equity/(deficit) for the year then ended (not presented herein); and in our report dated February 26, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

The interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

/s/ Deloitte & Touche LLP

Tampa, FL

October 28, 2020

Table of Contents

WYNDHAM DESTINATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net revenues
Service and membership fees	$	291		$	426		$	845		$	1,241
Consumer financing	115			132			360			385
Vacation ownership interest sales	196			528			273			1,384
Other	12			19			37			52
Net revenues	614			1,105			1,515			3,062
Expenses
Operating	263			450			861			1,269
Consumer financing interest	26			26			76			78
Cost/(recovery) of vacation ownership interests	22			60			(26		)	141
General and administrative	101			129			295			379
Marketing	84			188			247			505
COVID-19 related costs	14			—			81			—
Asset impairments	6			—			50			—
Restructuring	2			—			27			4
Separation and related costs	—			7			—			44
Depreciation and amortization	32			31			94			90
Total expenses	550			891			1,705			2,510
Operating income/(loss)	64			214			(190		)	552
Other (income), net	(5		)	(6		)	(11		)	(18		)
Interest expense	52			40			138			122
Interest (income)	(2		)	(1		)	(5		)	(6		)
Income/(loss) before income taxes	19			181			(312		)	454
(Benefit)/provision for income taxes	(21		)	46			(54		)	120
Net income/(loss) from continuing operations	40			135			(258		)	334
Gain on disposal of discontinued businesses, net of income taxes	—			—			—			5
Net income/(loss) attributable to Wyndham Destinations shareholders	$	40		$	135		$	(258	)	$	339

Basic earnings/(loss) per share
Continuing operations	$	0.47		$	1.48		$	(3.00	)	$	3.59
Discontinued operations	—			—			—			0.05
	$	0.47		$	1.48		$	(3.00	)	$	3.64
Diluted earnings/(loss) per share
Continuing operations	$	0.47		$	1.47		$	(3.00	)	$	3.58
Discontinued operations	—			—			—			0.06
	$	0.47		$	1.47		$	(3.00	)	$	3.64

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

WYNDHAM DESTINATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In millions)

(Unaudited)



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020		2019			2020			2019
Net income/(loss) attributable to Wyndham Destinations shareholders	$	40	$	135		$	(258	)	$	339
Other comprehensive income/(loss), net of tax
Foreign currency translation adjustments	21		(26		)	(4		)	(25		)
Other comprehensive income/(loss), net of tax	21		(26		)	(4		)	(25		)
Comprehensive income/(loss)	$	61	$	109		$	(262	)	$	314

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

WYNDHAM DESTINATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)



	September 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	1,276		$	355
Restricted cash (VIE - $88 as of 2020 and $110 as of 2019)	122			147
Trade receivables, net	122			144
Vacation ownership contract receivables, net (VIE - $2,737 as of 2020 and $2,984 as of 2019)	2,521			3,120
Inventory	1,331			1,199
Prepaid expenses	202			221
Property and equipment, net	679			680
Goodwill	958			970
Other intangibles, net	132			143
Other assets	479			474
Total assets	$	7,822		$	7,453
Liabilities and (deficit)
Accounts payable	$	57		$	73
Accrued expenses and other liabilities	953			973
Deferred income	481			541
Non-recourse vacation ownership debt (VIE)	2,457			2,541
Debt	4,184			3,034
Deferred income taxes	683			815
Total liabilities	8,815			7,977
Commitments and contingencies (Note 17)
Stockholders' (deficit):
Preferred stock, $0.01 par value, authorized 6,000,000 shares, none issued and outstanding	—			—
Common stock, $0.01 par value, 600,000,000 shares authorized, 221,689,353 issued as of 2020 and 220,863,070 as of 2019	2			2
Treasury stock, at cost – 135,824,676 shares as of 2020 and 132,759,876 shares as of 2019	(6,508		)	(6,383		)
Additional paid-in capital	4,148			4,118
Retained earnings	1,414			1,785
Accumulated other comprehensive loss	(56		)	(52		)
Total stockholders’ (deficit)	(1,000		)	(530		)
Noncontrolling interest	7			6
Total (deficit)	(993		)	(524		)
Total liabilities and (deficit)	$	7,822		$	7,453

See Notes to Condensed Consolidated Financial Statements.

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WYNDHAM DESTINATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Nine Months Ended
	September 30,
	2020			2019
Operating activities
Net (loss)/income	$	(258	)	$	339
Gain on disposal of discontinued businesses, net of income taxes	—			(5		)
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization	94			90
Provision for loan losses	391			373
Deferred income taxes	(134		)	36
Stock-based compensation	14			17
Asset impairments	50			12
Non-cash lease expense	19			24
Non-cash interest	16			16
Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
Trade receivables	24			(7		)
Vacation ownership contract receivables	205			(464		)
Inventory	(107		)	(18		)
Deferred income	(60		)	18
Accounts payable, accrued expenses, prepaid expenses, other assets and other liabilities	(28		)	(128		)
Other, net	(2		)	18
Net cash provided by operating activities - continuing operations	224			321
Net cash used in operating activities - discontinued operations	—			(1		)
Net cash provided by operating activities	224			320
Investing activities
Property and equipment additions	(56		)	(75		)
Acquisition of businesses, net of cash acquired	—			(51		)
Purchase of investments	(50		)	—
Proceeds from asset sales	—			6
Other, net	8			5
Net cash used in investing activities - continuing operations	(98		)	(115		)
Net cash used in investing activities - discontinued operations	—			(22		)
Net cash used in investing activities	(98		)	(137		)
Financing activities
Proceeds from non-recourse vacation ownership debt	1,462			1,671
Principal payments on non-recourse vacation ownership debt	(1,556		)	(1,532		)
Proceeds from debt	1,065			2,149
Principal payments on debt	(521		)	(2,007		)
Proceeds from notes issued	643			—
Repayment of notes	(42		)	(2		)
Repayments of vacation ownership inventory arrangement	(10		)	(12		)
Cash transferred to Wyndham Hotels related to Spin-off	—			(69		)
Payment for deferred consideration liability	(11		)	—
Dividends to shareholders	(112		)	(125		)
Proceeds from issuance of common stock	4			6
Repurchase of common stock	(128		)	(215		)
Debt issuance/modification costs	(17		)	(15		)
Net share settlement of incentive equity awards	(2		)	(4		)
Other, net	—			(1		)
Net cash provided by/(used in) financing activities	775			(156		)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	(5		)	(4		)
Net change in cash, cash equivalents and restricted cash	896			23
Cash, cash equivalents and restricted cash, beginning of period	502			404
Cash, cash equivalents and restricted cash, end of period	1,398			427
Less: Restricted cash	122			148
Less: Cash and restricted cash included in assets of discontinued operations and held-for-sale business	—			29
Cash and cash equivalents	$	1,276		$	250

See Notes to Condensed Consolidated Financial Statements.

WYNDHAM DESTINATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT

(In millions)

(Unaudited)



	Common Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss)/Income			Non-controlling Interest		Total Deficit
Balance as of December 31, 2019	88		$	2	$	(6,383	)	$	4,118	$	1,785		$	(52	)	$	6	$	(524	)
Net loss	—		—		—			—		(134		)	—			—		(134		)
Other comprehensive loss	—		—		—			—		—			(65		)	—		(65		)
Change in stock-based compensation	—		—		—			1		—			—			—		1
Repurchase of common stock	(3	)	—		(125		)	—		—			—			—		(125		)
Dividends ($0.50 per share)	—		—		—			—		(44		)	—			—		(44		)
Balance as of March 31, 2020	85		2		(6,508		)	4,119		1,607			(117		)	6		(891		)
Net loss	—		—		—			—		(164		)	—			—		(164		)
Other comprehensive income	—		—		—			—		—			40			—		40
Net share settlement of stock-based compensation	—		—		—