vacation ownership industry · 2006. 12. 22. · vacation ownership industry kenneth n. may...

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Vacation Ownership Industry

Kenneth N. MayPresident & CEO

RCI Global Vacation Network

2


Leisure Shared Ownership Summary

The industry is comprised of several product types:

Vacation ownership (timeshare) - purchased vacation interval, typically a week or similar point value, backed by a deeded interest or similar legal structure

Fractional and Private Residence Clubs – purchased vacation interval, typically four to six weeks, backed by a deeded interest or similar legal structure

Condo Hotels – one hotel room purchased, four to six weeks personal use, balance of year rented through hotel management company, typically a large financial investment goal driving purchase

Destination Clubs – purchased club membership that provides vacation rights at high-end accommodations; properties typically cost the club between $1 and $5 Million each. No underlying equity ownership in most cases

Whole Ownership Vacation Homes and Condos – deeded interest in real estate, 100% owned property. Rental ability based on owners decision

$100,000 to $400,000

$16,200 average

$300,000 to over $1 Million

Maintenance = $10k to $35k*a portion maybe returned, 80% typically

Maintenance = $10k to $35k

Maintenance = $471 average

Purchase Priceand Annual

Maintenance Fee

$80,000 to $400,000*

3


Global Sales Overview by Major Market

LatinAmerica

MiddleEast

SouthernAfrica

Asia

Australiaand NZ

Canada

Mexico

Europe

China

IndiaJapan

United States8.6

1.3

0.3 0.4

1.6*0.2 Caribbean

0.4 0.2

0.2

1.1

0.2

0.1 0.3

0.3

0.2

0.2

0.2

* $2.7 total, with overlap with U.S.

Sources - American Resort Development Association (ARDA), Bear, Stearns & Company, Inc., NorthCourse (a subsidiary of Wyndham Worldwide), PricewaterhouseCoopers, Ernst & Young 2006

* Excludes Vacation Whole Ownership Sales and Condo Hotels

Industry Revenues for 2005($ in Billions)*

– Vacation Ownership

– Fractional, PRC,Destination Clubs

13

2

4


Vacation Ownership – Strong Continued Growth

0

2

4

6

8

10

12

14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Vacation Ownership Sales 1990 to 2005($ in Billions)

United States

Non U.S.

Sales15 Year CAGR

Worldwide 9.7%United States 14.0%

Sources - American Resort Development Association (ARDA), Bear, Stearns & Company, Inc., NorthCourse (a subsidiary of Wyndham Worldwide), PricewaterhouseCoopers, Ernst & Young 2006

5


United States – Industry Overview

1,600 physical timeshare resorts operating in the United States with 155,000 units

4.1 million owners/households

Occupancy at U.S. timeshare resorts averaged nearly 82% in 2005 —compared to a 67% occupancy rate for U.S. hotels during the same period

A variety of ownership systems are in operation - points system 31%; floating unit and floating season 21%; traditional fixed unit/fixed interval 39%

Ownership conveyance methodConventional deed - 60%Right-to-use, undivided interest, deed in trust, leasehold, and/or reversionary deed – 40%

94% of owner’s resort intervals are affiliated with one of the major exchange companies – RCI and/or Interval International

Vacation ownership resorts are in 47 of 50 U.S. states

Source – ARDA, Ernst & Young 2006

6


United States – Owner Overview

Consumer Highlights – 4.1 million owners/households

Average age: 52 years

Median income: $81,000

Over 83% of the purchasers are couples

Less than 5% U.S. market penetration

47% of all owners own two or more vacation ownership intervals

Average distance of vacation ownership purchase from owner’s home is approximately 635 miles

The #1 reason for purchasing vacation ownership is FLEXIBILITY

Source – ARDA, Ernst & Young 2006

7


United States – Owner Satisfaction

Satisfaction rates increase with length of ownershipSource – ARDA 2006Note: Percentages do not add to 100% due to rounding

Very Satisfied48.2%

Somewhat Satisfied

32.1%

Neutral7.5%

Somewhat Dissatisfied

7.9%

Very Dissatisfied

4.4%

8


United States – Product Overview

Source – ARDA 2006Note: Percentages do not add to 100% due to rounding

100.00%Total

16.2%$20,000 to $24,999

12.1%$25,000 or more

$15,000Median

$16,200Average

24.3%$15,000 to $19,999

6.9%Under $5,000

23.1%$10,000 to $14,999

17.3%$5,000 to $9,999

Price Per Week of Annual Use The percent of recent buyers purchasing a biennial increased from 24.1 percent in 2002 to 30.5 percent in 2005

9


United States – Developer Overview

Source – ARDA and PricewaterhouseCoopers 2006

Rescissions as a percentage of gross sales

(average rescission rate)

Summary of Key Costs

9.7%9.9%General Administrative Costs

46.9%46.8%Total Sales and Marketing Costs

33.0%

13.8%

26.9%

2004 2005

32.6%Other Sales and Marketing

26.3%Product Costs

14.3%Sales Commissions

Sales and Marketing Costs

(as a percentage of net sales)

15.5% 14.7% 14.8%

0%

5%

10%

15%

20%

2003 2004 2005R

esci

ssio

ns a

s Pe

rcen

tage

of G

ross

Sal

es

Source: PricewaterhouseCoopers based on 42 company survey responses.


10


Summary

Strong growth trends

Low consumer penetration

Sales and marketing practices adaptive and successful

High consumer satisfaction with vacation ownership


Wyndham Vacation Ownership

Teach-In


2

Agenda

Marketing – Bryant Raper, EVP & CMO– Contact Strategy– Core Value Proposition– Marketing Model

Making the Sale – Franz Hanning, President & CEO– Consumers’ Timeshare Interest– People & Development– Why People Buy

Consumer Finance – Mark Johnson, SVP, Wyndham Consumer Finance– Operations– Portfolio Characteristics

Hospitality Services/Delivering on the Promise – Dave Pontius, EVP & CCO– Our Owners– Purchase Motivations– Owner Satisfaction

Product Development – Mike Hug, EVP & CFO– Development Lifecycle

Timeshare Accounting – Mike Hug, EVP & CFO


3MarketingBryant Raper, EVP & Chief Marketing Officer


4

Marketing – Two-Step Process

Step 1 (Preview Opportunity) Market the preview (tour) through incentive-based offers

Step 2 (Sales Tour) Market the core value proposition by developing interest, educating on the product and discovering personal need

Step 1Step 2


5

Consumer Perspectives on Timeshare

0%

10%

20%

30%

40%

50%

60%

Good Understanding Neutral No Understanding

2000 2006

Source: YPB&R 2006 National Leisure Travel Monitor, April 25, 2006.


6

Timesharing Purchase Interest

Marital Status Annual Household Income

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Less than $30,000 $30,000 - $49,000 $50,000+ $100,000+

2005 2006

Asked of adults who are familiar with timeshare or vacation ownership


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Single Married

2005 2006


7

Marketing Model


8

Prospect Pool – Relationship Marketing

Alliance Partners

Exchange Guests

Existing Owners

Internal Database

Media Responders

Referrals

Rental Guests

SweepstakesEntrants

Tourists

SpecialEvents

AcquiredLists


9

Direct Mail


10

Print Advertisement


11

E-Commerce


12

Face-to-Face Solicitation


13

Promotion/Sweepstakes


14

Member Services Update


15

Case Study – Do Not Call

Federal Do-Not-Call registration begins June 2003

Totals 130 million individual registrants or 76% of U.S. adult population

Unsolicited contact requires a previous business relationship or signed permission

State-based DNC restrictions remain in effect

800,000

850,000

900,000

950,000

1,000,000

1,050,000

1,100,000

2003 2004 2005 2006E

Number of Tours


16

Marketing Alliances


17

Future Marketing – Wyndham Brand Integration

�


18

Wyndham Brand Integration – Direct Mail


19

Wyndham Brand Integration – Print Ads


20

Making the Sale – Franz Hanning, President & CEO


21

Our Customers - What we know

Customers increasingly know and understand how our product works

This is probably not their first timeshare presentation

Average buyer attends 2.6 timeshare tours before making a purchase

2003

68%

32%

Good Understanding / Neutral No Understanding

2006

81%

19%

Good Understanding / Neutral No UnderstandingSource: ARDA, 2006



22

Our Customers - What we know

Our customers likely have some amount ofdiscretionary income

Our customers make a purchase when one or more of the following occurs

They know enough about timesharing to understandit reasonably wellThey have a good sense of pricingA particular product strikes them as superiorThey feel comfortable with a particular salespersonTiming is right in relation to other financial needs and commitments


23

Meet Our People

Professional, career-oriented sales personnel

Cross section of American workforce

Recent college gradsWorking momsSecond-careersRetirees

60% male, 40% female


24

Workforce Development

Diverse Recruiting ChannelsColleges & UniversitiesNational Ad CampaignsEmployee Referrals

Competitive Benefits401(k) w/matched contributionsEducational assistanceStock purchase planComprehensive healthcareState-of-the-art trainingAttractive locales

High income potential2-year tenure: $107,000 avg.High performers: $200,000+2005 #1 producer: $660,000


25

How We Sell: A Standardized Sales Process


26

How We Sell: State-of-the-Art Technology


27

How We Sell: A Relaxed & Enjoyable Environment


28

Why People Buy: A Better Alternative

1 Bedroom1 Bathroom400 Sq. Ft.

Typical Hotel Room


29

Why People Buy: A Better Alternative

2 Bedrooms2 BathroomsLiving AreaFull KitchenWasher/Dryer1,100+ Sq. Ft.

Wyndham Timeshare Unit


30

Why People Buy – It Makes $ense


31Consumer FinanceMark Johnson, SVP, Wyndham Consumer Finance


32

Consumer Finance

Overview

Operations

Portfolio Characteristics

Upcoming


33

Consumer Finance – Overview

Wyndham Consumer Finance is a captive finance company of Wyndham Vacation Ownership

Develops consumer loan programs that support the purchase of vacation ownership intervals

Develops and consummates securitization programs that enable andsupports these consumer loans

Executes upon the processes by which such consumer loans are funded through these securitizations

Services customers and investors through requisite billing, cashmanagement, collections, customer support and reporting activities

Provides accounting, financial planning and portfolio analysis in support of this consumer lending and securitization activity


34

Financing Characteristics

Source – ARDA and PricewaterhouseCoopers 2006

Portion of net sales financed to consumers

Characteristics of a New Customer Loan

14.9%15.0%Down Payment(as percent of contract Price)

13.9%13.9%Interest Rate

104.7104.5Terms (in months)

20052004Average

Source: PricewaterhouseCoopers based on 41 company survey responses for term and interest rate, and 40 company responses for down payment.

70.0% 69.6% 72.9%

0.0%

20.0%

40.0%

60.0%

80.0%

2003 2004 2005

Perc

ent o

f Tot

al N

et S

ales

Fina

nced



35

Consumer Finance – Overview

Based in Las Vegas, NV and comprised of 450+ employees in Las Vegas, Redmond, WA and Orlando, FL across eight functional disciplines

Accounting, Cash Management & TreasuryCollections & BankruptcyContract Processing & ComplianceFinancial Planning & Portfolio AnalysisFinancial ServicesQuality Process and SystemsSecuritizations & Investor ReportingTraining & Employee Development


36

Consumer Finance - Operations

Foundational Mission We offer innovative financing of lifetime vacations,

deliver best-in-class servicing, and generate exceptional value for our stakeholders

in an environment where employees can thrive and excel.

ObjectivesEnhance customers’ ability to purchase

Drive cash flow & earningsSatisfy customers and stakeholders

Metrics Leverage Rate

Percent of Sales FinancedNII and Cash Flow to Budget

G&A Expense to Net Interest IncomeG&A Expense to Loan Portfolio Serviced

G&A Expense per Serviced Member BaseVOC, Employee Training and Turnover Ratios

Measured performance is delivered from a clearly communicated mission.


37

• Sale made, documents printed and signed (SalePoint)

• SalePointdata feeds (nightly) into CSS

• Documents sent to WCF (Las Vegas or Seattle)

• WCF ensures adequacy and propriety of contract documents

• WCF verifies down payment

• Contract assigned to WCF

• WCF establishes funding eligibility of contract

• WCF images contract documents

• WCF boxes and ships original documents to document custodian

• Document custodian verifies documents received

• WCF draws ACH for, or bills and receives, first payment

• Loan placed into rated warehouse line of credit

• Loan removed from warehouse line of credit and placed into rated term transaction

Sarbanes Oxley Check Points along the Way

Consumer Finance – Operations

Day 1 - Day 3 Day 15 Day 30 Day 60 Day 90

Eligible loans are generally placed within 30-90 days of the sale.


38

Consumer Finance – Operations

We are one of the largest issuers and servicers of securitizations in the asset class$525 Million transaction in August 2005 is the industry’s 2nd largest transaction to date$550 Million transaction in July 2006 is the industry’s largest transaction to dateWarehouse line of credit increased to $1 Billion in November 2006

Currently Serviced Commercial FinancingsOriginal Balance Current Senior Debt Balance Current Collateral Balance

*Securitizations $2,415 Million $949 Million $1,189 Million Conduit Line of Credit - $445 Million $560 Million

Fully Satisfied Commercial FinancingsIssue Date Original Balance Call Date

FFC II August 1998 $50 Million November 2003TRI II March 1998 $130 Million March 2004FFC III July 2001 $213 Million May 2005TRI III August 1999 $160 Million March 2006TRI IV November 2000 $163 Million October 2006

*Includes off-balance sheet transaction with $24.4 Million in outstanding senior debt

We are an experienced and successful securitization issuer and servicer.

Data as of September 30, 2006


39

81%

19 months

92 months

111 months

12.86%

95%

657

$10,645

243,657

$2.59 Billion

9/30/06

79%% paying via automatic bank draft

20 monthsW.A. Age

87 monthsW.A. Remaining Term

107 monthsW.A. Original Term

13.15%W.A. Gross Coupon

92%% of Portfolio Scored

652W.A. FICO

$9,795Avg. Loan Balance

231,439Loan Count

$2.24 BillionQualified Receivables

12/31/05

Serviced Consumer Loans

Our consumer loan portfolio is stable and growing.

Consumer FinancePortfolio Characteristics (North America)


40

93%94%% paying via automatic bank draft

19 months18 months W.A. Age

85 months78 monthsW.A. Remaining Term

104 months96 monthsW.A. Original Term

12.07%12.06%W.A. Gross Coupon

$7,830$7,472Avg. Loan Balance

18,50016,550Loan Count

$144.9 Million$123.7 MillionQualified Receivables

9/30/0612/31/05

Serviced Consumer Loans

Currency converted at dates shown from Australian Dollars to U.S. Dollars:

12/31/05: AUSD = 0.7301 USD 9/30/06: AUSD = 0.7468 USD

Consumer FinancePortfolio Characteristics (Asia Pacific)


41Consumer Finance – Portfolio Characteristics Static Pool Default Curves – North America

Wyndham Vacation Ownership Aggregate Cume Defaults

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72

Loan Age In Months

% C

ume

Defa

ults

Arithmetic Average Cume DefaultsWeighted Average Cume Defaults19981999200020012002200320042005

Cumulate aggregate default rates are charted and consistent.

Year No Score 401-550 551-700 701-850 Total2003 4.81% 7.20% 50.09% 37.90% 100.00%2004 5.03% 8.97% 46.66% 39.34% 100.00%2005 6.55% 8.49% 46.21% 38.74% 100.00%

Wyndham Vacation Ownership FICO Banded Pools

Data as of September 30, 2006


42

Consumer Finance

Continue with “Enhanced Financing Options”Interest rate based upon obligor FICO score and purchase amount

– Adjustments allowed for equity and PAC» Rates between 8.99% and 17.99%

– Floor of 8.99%Program throughout Wyndham Vacation Resorts, Inc.

– Rolled out in July 2005– No diminution of close rates or APG– WAC improved 27 bps on front line sales (July ’05 to July ’06)

Planning implementation within TrendwestRevisit rates consistent with market rates twice annually

Increase leverage rateExploring opportunities for currently ineligible receivablesAnticipating two term transactions in 2007


43

Consumer Finance - Wrap-Up

Wyndham Vacation Ownership encompasses a captive finance company, Wyndham Consumer Finance

Wyndham Consumer Finance performance is measured and delivered consistent with its Mission

Eligible loans are generally placed within 30-90 days of the sale

Wyndham Consumer Finance is an experienced and successful securitization issuer and servicer

Performance on our term securitizations is consistent and predictable

Our consumer loan portfolio is stable and growing

Cumulative aggregate default rates are charted and consistent


44Hospitality ServicesDave Pontius, EVP & Chief Customer Officer


45

Ownership Experience – Delivering on the Promise


46

Our Owners – Cohort Analysis

Urban families who, despite having children at home, have sufficient financial resources to own the latest high tech products and to lead very active recreational and cultural lifestyles.

Median age 43Median income $141KMedian net worth $474K

Jeffrey & EllenAffluent Couples with Kids

10.6%

Middle-aged, middle-income families whose teen-dominated households keep busy with outdoor activities, computers, and video games.


Danny & VickieTeen-Dominated Families

6.2%

Unburdened by children, these creditworthy, dual-income couples divide their time between the great outdoors & domestic hobbies.


Stan & CaroleUpscale Middle-Aged Couples

8.4%

Dual-income, older couples who use their high discretionary incomes to enjoy all aspects of the good life.


Alex & Judith Affluent Empty-Nesters

10.0%

Comfortable, close-to-retirement homeowners who are active investors and who engage in charitable activities, travel, politics and their grandchildren.


Burt & MarilynMature Couples

16.7%

7.2%

WVO %

Educated, dual-income, childless couples who have connoisseur tastes and are focused on their careers, staying fit, andinvesting.


Barry & KathleenAffluent Professional Couples

Predominant Owner Segment By Cohort

1.The remaining 40% of owner base is spread between 25 distinct cohort segments

2. Median net worth is based on WVO specific owner base

Our predominant owner segments reflect healthy psychographic diversity.


47

Share of Owner Leisure Travel

WVO owners average 23 leisure travel nights per yearApproximately 10 nights (42% of total) are capturedthrough WVO ownership

Source: 2006 WVO Owner Survey

Camp, RV, 1.7

WVO Club Use/Exchange Timeshare, 9.9

Condo, vacation home, etc., 2.0

Cruises, yachts (non-exchange),

1.5

Rented Hotel Stays, 6.3

Other timeshare, 1.9


48

Purchase Motivations


93%

88%

81%

78%

69%

68%

64%

64%

0% 20% 40% 60% 80% 100%

Flexibility to use different locations, unit sizes, times of year

Certainty of quality accommodations

Resort location(s)

Save money on future vacation costs

Credibility of company

Affordable financial terms

Opportunity to own vacation home at affordable price

Liked resort toured: units, amenities, location, etc.


49

Owner Expectations

Source: 2005 WVO Owner Survey and Current Resort Attributes

% of Owners Requesting Activity/Experience

0%

10%

20%

30%

40%

50%

60%

70%

80%

Sights

eeing

Relax

ing/Su

nning

Histo

rical/

Tours

Natur

e View

ing/E

cotou

r

Boati

ng/H

ouse

boat/

Fishin

g

Muse

um Vi

sits

Fami

ly (R

eunio

ns)

Amus

emen

t/The

me Pa

rk (M

ajor)

Snork

eling

/Scub

aTh

eater

/Dram

a

Profe

ssion

al Sp

orts

Nigh

tclub

s/Stag

e Sho

wsSh

oppin

gHik

ingFin

e Dini

ng Golf

% O

wne

r Int

eres

t

% of Owners Requesting Activity/Experience


50

Upgrade Purchase Motivations


81%

54%

41%

36%

31%

30%

27%

0% 20% 40% 60% 80% 100%

Greater variety of resort locations

Ability to use points/credits for greater variety of travel services: hotels, airlines, etc.

Ability to use points/credits for activities/services in resort area: golf, ski, etc.

More units of large size

More foreign locations

More luxurious accommodations/resorts

More high-end, exclusive resort locations


51

Summary

WVO owners express twice as much interest in making an upgrade purchase than the industry average

80% of WVO owners express a willingness to recommend our products to friends and family

Industry Source: American Resort Development Association - Resort Timeshare Consumers, Who They Are, Why They Buy, 2006 Edition; WVO Owner Source: 2006 WVO Owner Survey


52

Product Development – Mike Hug, EVP & CFO


53

Product Development Lifecycle


54

Wyndham Phased Development

Number of units: 100 – 400

Construction: Phased units (40 – 50 units per phase)

Sales Life: 4 years – 6 years

VOI sales: $100M - $400M

Project costs: Product costs ~25% of gross sales price

Mgmt Fee: 5-10% of annual maintenance fees

Sales: Begin approximately 9 – 12 months prior to certificate of occupancy (CO)


55

Phased Development

(40,000)

(20,000)

-

20,000

40,000

60,000

80,000

100,000

120,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+

Year

Pre

-tax

Cas

h Fl

ow

Cumulative Net Cash Flow Annual Net Cash Flow

*Dev elopment ROIC = 32%

(In Millions) NPV of MarginNPV of Construction Cost

*ROIC =

Phased Cash Flow


56

Phased Development

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+

Year

Gro

ss R

even

ue

Gross RevenueMargin(In Millions)

% of Total Gross Revenue

72%

22%7% Gross VOI

Gross Interest Income

Gross Management Fee

Total Gross Revenue = $591M

Phased Gross Revenue + Margin


57

Phased Gross Revenue Mix

% of Total Project Gross Revenue Earned Each Year

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Year

Management Fee

Interest Income

Revenue from VOI Sales


58

Phased Gross Revenue Mix

Gross Revenue Mix

76

8285

899496

3

19

42

61

73

8187

90

23

1715

1154

9294

97

81

58

39

27

1913

1086

111100

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+

Year

Mix

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Rev

enue

(In

Mill

ions

)

% Management Fee% Interest Income% VOI$ Gross Revenue


59

Wyndham Tower Development

Number of units: 200 – 400

Construction: Single tower with up to 40 floors

Sales Life: 3 years – 5 years

VOI sales: $400M - $600M

Project costs: Product costs ~25% of gross sales price

Mgmt Fee: 5-10% of annual maintenance fees

Sales: Begin approximately 9 – 12 months prior to CO


60

Tower Development

(100,000)

(50,000)

-

50,000

100,000

150,000

200,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+

Year

Pre-

tax

Cas

h Fl

ow

Cumulative Net Cash Flow Annual Net Cash Flow

*Development ROIC = 30%

(In Millions) NPV of MarginNPV of Construction Cost

*ROIC =

Tower Cash Flow


61

Tower Development

$0$15,000

$30,000$45,000$60,000$75,000

$90,000$105,000$120,000$135,000

$150,000$165,000$180,000$195,000

$210,000$225,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+

Year

Gro

ss R

even

ue

Gross RevenueMargin

(In Millions)

% of Total Gross Revenue

73%

22%5% Gross VOI

Gross Interest Income

Gross Management Fee

Total Gross Revenue = $816M

Gross Revenue + Margin


62

Gross Revenue Mix

Tower Development% of Total Project Gross Revenue Earned Each Year

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year

Management Fee

Interest Income

Revenue from VOI Sales


63

Tower Gross Revenue Mix

Gross Revenue Mix

8289

9496

4

29

55

72

8186

90929495

1711

54

96

71

45

28

1914

10865

1100

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+Year

Mix

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Rev

enue

(In M

illio

ns)

% Management Fee% Interest Income% VOI$ Gross Revenue


64

Overview

Timeshare Accounting


65

Accounting for Vacation Ownership

SFAS 152 - Accounting for Real Estate Timesharing Transactions

Revenue Recognition

Cost of Sales

Provision for Loan Losses

Interest Income and Expense


66SFAS 152 - Accounting for Real Estate Timesharing Transactions

Specific accounting guidance for accounting for sales of real estate(SFAS 66)

Modified revenue recognition requirements by requiring sufficient cash to be collected in order to cover the fair value-of-incentive awarded

ExampleSale of $15,500Fair value of incentive of $500Required cash collected prior to utilization of incentive = $1,500+$500Depending on type of incentive, $500 may be reported in other revenues

Clarified which expenses can be considered in the percentage-of-completion calculation

Only direct expenses (COS, commissions, provision) may be included.Indirect marketing costs are not deferred.

Requires that provision for uncollectible accounts be recorded as a revenue reduction rather than an operating expense

Estimated inventory recovery included in the provision for uncollectible accounts as a revenue reduction


67

Revenue Recognition

Full Accrual Recognition

Percentage of Completion


68

Full Sales Recognition Criteria

Non-reversionary title passes to purchaser

Minimum down payment received of 10% plus fair value of incentive

Transaction is beyond statutory rescission period

Risk of reversion to rental property is remote

Building is substantially complete (generally receipt of certificate of occupancy), otherwise revert to percentage-of-completion accounting

If purchase is financed, collectibility must be reasonably assured


69

Percentage-of-Completion (POC)

Project is under construction but beyond a preliminary stage in order to recognize revenue

Revenues and relevant expenses are deferred in direct relation to the percentage of which the project is incomplete

Only direct costs (COS, commissions, provision for loan losses) are deferred.Marketing expenses are not deferred.

Financially reported results will differ from the timing of the sales transaction

Revenues deferred under POC are recognized as construction progresses – no additional sales and/or marketing efforts are required


70

Revenue Recognition Flowchart

Purchaser Signs

Contract

Seller-provided

financing?

Initial investment adequate?

Continuing investment adequate?

Subject to future

subordination?

Yes

Yes

Full Accrual Method

Deposit Method

Transfer risks &

rewards?

Completed building?

Yes

Percentage of

Completion Method

No

No

No

No Yes

(1) Contractually required annual payments sufficient to amortize debt over a customary amortization period(2) Answer is “Yes” for all sales financed by WVO as all contracts are on a seven or 10-year term(3) Answer is “No” for all sales financed by WVO as WVO retains a first position on all its financed contracts(4) Answer is “Yes” for all sales financed by WVO as WVO does not retain any involvement that results in retention of substantial risks or rewards

of ownership

(1)

(2)(3) (4)

10% down payment

plus FV ofincentive

Footnotes:

Yes


71

Cost of Sales

Inventory cost equals acquisition/construction costs, as well ascapitalized interest and taxes, if applicable

Relative sales value methodCost of sales equals total estimated final product cost divided by total estimated future sales revenue

Total construction costs = COS %Projected revenues

$25M Total construction costs = 25% COS$100M Projected revenues

Changes in estimates are applied retrospectively as a current period adjustment


72

Provision for Loan Losses

Recognized as a revenue reduction under SFAS 152, rather than an operating expense

Estimated inventory recovery included in the revenue reduction as a result of SFAS 152

Recorded during the period the revenue is recognized based on anticipated cancellations

Example: $100,000 in gross VOI sales

$ 69,000$ 75,000 Gross margin

(23,000)2,000 (25,000)COS

$ 92,000 (8,000)$100,000 Sale amount

NetProvisionGross


73

Interest Income and Expense

Interest is recognized on the receivable portfolio on an accrual basis as earned

Interest past due 90 days or more is not recognized as income

Current securitizations are structured such that there is no gain upon sale to Special Purpose Entities

Interest expense associated with securitizations is recognized in Operating Expenses within EBITDA


74

Accounting Wrap-Up

Interest is recognized on the receivable portfolio on an accrualbasis as earned

Sufficient cash to cover 10% down payment plus value of first day incentive is key to revenue recognition

Percentage-of-completion accounting results in deferral of revenue in those situations where buildings are still under construction

SFAS 152 results in the provision for loan losses being accounted for as a revenue reduction

Relative sales value method of accounting for cost of sales is designed to result in a constant cost of sales rate over the life of the project

Cash outflows are prevalent in the early stages of the project with cash inflows later in the project life as financed contracts paydown