What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 408 added, 543 removed, 219 unchanged (81% of the section changed)

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We are a global provider of hospitality services and travel products and operate our business in the following two segments:

• Vacation Ownership (formerly Wyndham Vacation Clubs)—develops, markets and sells vacation ownership interests (“VOIs”) to individual consumers, provides consumer financing in connection with the sale of VOIs, and provides property management services at resorts.

• Travel and Membership (formerly Panorama or Vacation Exchange)—operates a variety of travel businesses, including three vacation exchange brands, a home exchange network, travel technology platforms, travel memberships, and direct-to-consumer rentals.

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

• Travel and Membership — operates a variety of travel businesses, including three vacation exchange brands, a home exchange network, travel technology platforms, travel memberships, and direct-to-consumer rentals.

Travel + Leisure Brand Acquisition

On January 5, 2021, Wyndham Destinations, Inc.

acquired the Travel + Leisure brand and related assets from Meredith Corporation (“Meredith”) for $100 million, of which $55 million was paid during 2021.

The remaining payments are to be completed by June 2024.

This acquisition included Travel + Leisure branded travel clubs and members.

We acquired the Travel + Leisure brand to accelerate our strategic plan to broaden our reach with the launch of new travel services, expand our membership travel business, and amplify the global visibility of our leisure travel products.

Meredith will continue to operate and monetize Travel + Leisure branded multi-platform media assets across multiple channels under a 30-year royalty-free, renewable licensing relationship.

In connection with this acquisition, on February 17, 2021, Wyndham Destinations, Inc.

was renamed Travel + Leisure Co.

and continues to trade on the New York Stock Exchange under the new ticker symbol TNL.

In connection with the Travel + Leisure brand acquisition we updated the names and composition of our reportable segments to better align with how they are managed.

We created the Travel + Leisure Group which falls under the Travel and Membership segment along with the Panorama business line.

With the formation of the Travel + Leisure Group, we decided that the operations of our Extra Holidays business, which focuses on direct-to-consumer bookings, better aligns with the operations of this new business line and therefore transitioned the management of our Extra Holidays business to the Travel and Membership segment.

As such, we reclassified the results of our Extra Holidays business, which were previously reported within the Vacation Ownership segment, into the Travel and Membership segment.

Impact of COVID-19 on Our Business

The results of operations during the year ended December 31, 2020, include impacts related to the novel coronavirus global pandemic (“COVID-19”), which have been significantly negative for the travel industry, our business and financial results, our customers, and our employees.

Our response to COVID-19 initially focused on the health and safety of our owners, members, guests, and employees, when we closed the majority of our resorts and sales centers.

We were also keenly focused on preserving cash, cutting costs, and managing liquidity.

Several of our business lines have strong recurring sources of income and cash flow, for example, consumer finance, hospitality and our exchange membership businesses.

The fee streams from these businesses, which represented approximately 50% of Adjusted EBITDA in 2019, bolstered our financial stability when resorts and sales centers were mostly closed for the months of April and May.

We incurred expenses in connection with COVID-19 of $385 million during the year ended December 31, 2020, which are discussed in further detail in Note 26— COVID-19 Related Items to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Many of our resorts and sales centers were closed or operated at reduced capacity throughout 2020 as a result of COVID-19.

Operating at less than 100% capacity, combined with depressed leisure travel demand overall, resulted in lower tours which negatively impacted gross VOI sales in 2020.

In our Travel and Membership segment, affiliate resort closures and regional travel restrictions contributed to decreased bookings and increased cancellations, which resulted in lower net transactions, average number of members, and average revenue per member during 2020.

As resorts reopened in 2020, we saw and expect to continue to see United States of America (“U.S.”) consumers shift from international to domestic travel and also to destinations that require driving versus flying.

We believe these shifts may be favorable to the timeshare industry.

In addition, we believe larger condominium-like accommodations with kitchens will be more amenable for social distancing and travelers will seek trusted brands they can rely upon for thorough cleaning of vacation accommodations prior to arrival.

Historically, occupancy at our resorts has remained high in downturns because our owners own their vacations and are therefore committed to traveling.

We believe the ongoing effects of COVID-19 will continue to have a significant adverse effect on our financial condition and results of operations during the first quarter of 2021 and potentially beyond.

While we have made and continue to make efforts to mitigate the impacts of COVID-19, there can be no assurance that these efforts will be successful in the future.

COVID-19 may also affect our financial condition and results of operations in a manner that is not presently known to us.

For certain of the events, uncertainties, trends and risks associated with the impact of the COVID-19 pandemic on our future results and financial condition, see “Risks Related to the COVID-19 Pandemic” included in Part 1A of this Annual Report on Form 10-K.

Cost Actions and Preservation of Cash Flow

We have taken significant actions to maximize cash flow.

In the first half of the year, we took actions that would have reduced our annualized 2020 operating cost base by approximately $225 million with $60 million of permanent general and administrative cost reductions.

Savings related primarily to the impact of staff reductions/furloughs, travel and expense, and a reduction in third party vendor/consulting spend.

Since this time 51% of our furloughed employees have returned to work.

We reviewed inventory and capital expenditure requirements and reduced both by a combined $133 million for the 2020 fiscal year.

Share repurchase activity has been suspended since March 2020.

Operational Changes

We worked with government authorities and health experts in establishing new operational criteria and methodologies, for example, curbside check-in, enhanced cleaning protocols, and controlled amenity access.

In May 2020, we partnered with Ecolab to launch the Vacation Ready program and our internal task force oversaw the implementation of safety protocols in

accordance with guidelines and in consultation with health experts.

While the levels of restrictions on operations imposed by governmental authorities have been reduced in some locations, they have increased in others, and there is continued uncertainty regarding the trend of these restrictions going forward.

As of December 31, 2020, we have reopened 81% of our resorts (92% have reopened as of the date of this filing) and reopened 86% of our sales offices (92% as of the date of this filing) with plans to restart the remainder in early 2021.

Our reopening plans were negatively impacted by government shutdowns in California and Hawaii, which required us to close resorts which were previously reopened.

As of December 31, 2020, approximately 5,300 of the impacted employees remained laid off or furloughed.

Relief Under the CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was established to provide emergency assistance and health care for individuals, families, and businesses affected by COVID-19 and generally support the U.S.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

We recorded $26 million of employee retention tax credits for the year ended December 31, 2020, including credits from similar programs outside the U.S.

We have deferred social security payments to the U.S.

government until 2021 in accordance with CARES Act provisions and will have additional depreciation deductions relating to qualified improvement property.

While we continue to review and consider any additional available benefits under the CARES Act or similar legislation that has been or in the future may be enacted in response to the COVID-19 pandemic for which we qualify, we cannot predict the manner in which such benefits will be allocated or administered and we cannot assure you that we will be able to receive such benefits in a timely manner or at all.

Focus on Higher Margin Business

As part of our reopening strategy, we focused on higher margin owner business by harvesting our owner upgrade pipeline.

Prior to 2020, just under 40% of sales were to lower margin new owners.

We have also raised our credit standards which will strengthen our receivables portfolio going forward.

We have closed some unprofitable marketing and sales locations and shifted marketing channels and resources to our most productive channels.

All of these changes are designed to result in higher volume per guest (“VPG”) which is a measure of sales efficiency and is strongly correlated to profitability.

Other Developments

Continued closure and/or reclosure of resorts and sales centers could result in additional COVID-19 charges including idle pay for certain sales and marketing employees and potential further impairment of assets.

During the first quarter, we evaluated the impact of COVID-19 on our owners’ ability to repay their contract receivables and as a result we recorded an additional $225 million allowance.

The allowance recorded provided for the full estimated impact of a prolonged recession (approximately 15-20 months to return to pre-COVID-19 defaults) based on our historical data for the most recent recession in 2008.

As a result of our quarterly analysis on the impact of COVID-19 on our owners, in the fourth quarter there was an improvement in net new defaults and lower than expected unemployment rates;

as such we reduced this reserve by $20 million.

If unemployment rates or our collection experience for our vacation ownership contract receivables (“VOCRs”) differ significantly from current expectations, we may need to further increase or decrease our allowance for loan losses for VOCRs.

As of December 31, 2020, given the significant amount of government assistance provided to consumers in the early stages of the pandemic, we expect defaults to remain elevated for the next 12-15 months as a result of COVID-19.

Given a range of different scenarios related to the COVID-19 impact on our business, we expect to maintain adequate liquidity and remain in compliance with our debt covenants.

As a precautionary measure to enhance liquidity, we drew down our $1.0 billion revolving credit facility at the end of the 2020 first quarter and had $1.2 billion of cash and cash equivalents on hand as of December 31, 2020.

We suspended share repurchases in March and have made other operational decisions to preserve cash.

During the third quarter, we amended our $1.0 billion revolving credit facility which modified existing quarterly-tested financial covenants through March 31, 2022, and raised the first lien coverage ratio in the near term to provide significant financial flexibility.

Among other changes, the amendment prohibits the use of cash for share repurchases until such time as we choose to exercise our option to exit the amendment in accordance with its terms.

We maintained our ability to pay dividends and to continue to invest in the business throughout the covenant relief period.

See Note 16— Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details.

We successfully closed on a $325 million private securitization financing on April 29, 2020.

While this transaction was at a higher cost compared to transactions we completed in the past, it was favorable to similar transactions completed in the public

market at that time.

We also closed on a $575 million securitization financing on August 13, 2020 at a similar cost compared to transactions we have completed in the past.

These transactions provide reinforcement that we expect to maintain adequate liquidity.

On July 24, 2020, we issued $650 million senior secured notes maturing July 31, 2026, with an interest rate of 6.625%.

The proceeds will be used for general corporate purposes, which may include the repayment of outstanding indebtedness under our secured revolving credit facility, the future repayment of our 5.625% secured notes due March 2021 and the payment of related fees and expenses.

In the third quarter, we repaid $350 million of our indebtedness under the secured revolving credit facility.

The results of operations for the years ended December 31, 2021 and 2020 include impacts related to the novel coronavirus global pandemic (“COVID-19”), which have been significantly negative for the travel industry, our company, our customers, and our employees.

Our response to COVID-19 initially focused on the health and safety of our owners, members, guests, and employees when we closed the majority of our resorts and sales centers in early 2020.

As a result, we significantly reduced our workforce and furloughed thousands of employees at that time.

As of December 31, 2021, we had reopened all of the resorts and sales offices in North America that we expect to reopen.

The remaining closed resorts and sales offices that we intend to reopen are located in the South Pacific and are expected to reopen in 2022, contingent upon the lifting of government imposed travel restrictions.

As a result of reopening substantially all of our resorts, the majority of furloughed employees have returned to work.

Given the significant impacts of COVID-19 on our business, our revenues have been negatively impacted.

While revenues are continuing to recover, not all product and service lines have yet reached pre-pandemic levels, and we believe that COVID-19 will continue to have an adverse effect on our financial condition and results of operations in the near term.

Despite some volatility with recent spikes in COVID-19 case-counts as a result of variants, in general, we are seeing a broad increase in consumer confidence as well as a reduction in travel restrictions.

These factors combined with progress in the roll-out of vaccinations have continued to help travel sentiment improve.

Assuming travel sentiment continues to improve, we expect increases in both VOI sales and new owner mix in 2022.

We also expect an increase in the percentage of financed VOI sales, which would impact our allowance for loan losses.

During the year ended December 31, 2021, we reversed $61 million of COVID-19 charges, compared to $385 million of charges incurred in 2020.

The $61 million of net reversals during 2021 included the release of $91 million of the COVID-19 related allowance for loan losses.

See Note 26— COVID-19 Related Items to the Consolidated Financial Statements for additional details on the impact COVID-19 had on our business.

Included in the $385 million of COVID-19 related charges for the year ended December 31, 2020, was a $225 million COVID-19 related loan loss provision recorded during the first quarter as a result of our evaluation of the impact of COVID-19

on our owners’ ability to repay their vacation ownership contract receivables (“VOCRs”).

As we began to see an improvement in net new defaults and lower than expected unemployment rates, we reduced this provision by $20 million in the fourth quarter of 2020.

Since the time the COVID-19 related allowance was established in March 2020, we have reversed $111 million of the initial $225 million provision.

After considering write-offs and the allowance for remaining likely defaults associated with loans that were granted payment deferrals, we have no COVID-19 related allowances as of December 31, 2021.

As a precautionary measure to enhance liquidity during the pandemic, in the first quarter of 2020, we drew down our $1.0 billion revolving credit facility and suspended share repurchase activity.

In the third quarter of 2020, we amended the credit agreement governing our revolving credit facility and term loan B (“First Amendment”), which provided financial covenant flexibility during the relief period that commenced on July 15, 2020 and was scheduled to end on April 1, 2022 (the “Relief Period”).

During the Relief Period we were prohibited from using cash for share repurchases but maintained our ability to pay dividends and make investments in our business.

During 2021 we repaid the $1.0 billion revolving credit facility, the $250 million 5.625% secured notes due March 2021, and the $650 million 4.25% secured notes due March 2022.

On October 22, 2021, we renewed the credit agreement governing our revolving credit facility and term loan B (“Second Amendment”), which terminated the Relief Period, established new thresholds for our financial covenant ratios and eliminated the restrictions regarding share repurchases, dividends, and acquisitions established by the First Amendment.

In connection with entering the Second Amendment, we resumed share repurchases during the fourth quarter of 2021.

As part of our reopening strategy, we focused on higher margin owner business by leveraging our owner upgrade pipeline.

Prior to the pandemic, just under 40% of our sales transactions were to lower margin new owners as compared to 28% during 2021.

We also raised our credit standards and directed our marketing efforts towards higher Fair Isaac Corporation (“FICO”) scores, which we expect will continue to strengthen our receivables portfolio going forward.

Additionally, we closed certain unprofitable marketing and sales locations and shifted marketing channels and resources to our most productive channels.

All of these changes were designed to result in higher volume per guest (“VPG”), which is a measure of sales efficiency and is strongly correlated to profitability.

For certain of the events, uncertainties, trends, and risks associated with the impact of the COVID-19 pandemic on our future results and financial condition, see “ Risks Related to the COVID-19 Pandemic ” included in Part I, Item 1A of this Annual Report filed on Form 10-K.

Alliance Reservations Network Acquisition

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This acquisition was undertaken for the purpose of accelerating growth at Travel and Membership by increasing the offerings available to its members and affiliates.

We have recognized the assets and liabilities of ARN based on estimates of their acquisition date fair values.

See Note 5— Acquisitions to the Consolidated Financial Statements for additional details.

ARN is reported within the Travel and Membership segment.

North American Vacation Rentals Business Sale

During 2018, we decided to explore strategic alternatives for the North American vacation rentals business and on October 22, 2019, we closed on the sale of this business for $162 million.

The assets and liabilities of this business were classified as held-for-sale as of December 31, 2018.

During 2019 we closed on the sale of our North American vacation rentals business for $162 million.

This business did not meet the criteria to be classified as a discontinued operation;

therefore, the results of operations are reflected within continuing operations on the Consolidated Statements of (Loss)/Income through the date of sale.

Hotel Business Spin-off

We completed the spin-off of our hotel business on May 31, 2018 (“Spin-off”).

This Spin-off resulted in our operations being held by two separate, publicly traded companies, Travel + Leisure Co.

(“Travel + Leisure,” formerly Wyndham Destinations, Inc.) and Wyndham Hotels & Resorts, Inc.

(“Wyndham Hotels”).

The two public companies have entered into long-term exclusive license agreements to retain their affiliations with one of the industry’s top-rated loyalty programs, Wyndham Rewards, as well as to continue to collaborate on inventory-sharing and customer cross-sell initiatives.

This transaction is expected to result in enhanced strategic and management focus on the core business and growth of each company;

more efficient capital allocation, direct access to capital and expanded growth opportunities for each company;

the ability to implement a tailored approach to recruiting and retaining employees at each company;

improved investor understanding of the business strategy and operating results of each company;

and enhanced investor choice by offering investment opportunities in separate entities.

This transaction was effected through a pro rata distribution of the new hotel entity’s stock to existing Travel + Leisure shareholders.

As a result of the Spin-off, we have classified the results of operations of our hotel business as discontinued operations on the Consolidated Financial Statements.

La Quinta Acquisition

In January 2018, we entered into an agreement with La Quinta Holdings Inc.

(“La Quinta”) to acquire its hotel franchising and management businesses for $1.95 billion.

At the time we entered into this agreement, we obtained financing commitments of $2.0 billion in the form of an unsecured bridge term loan, which was subsequently replaced with net cash proceeds from the issuance of $500 million unsecured notes, a $1.6 billion term loan and a $750 million revolving credit facility, which was undrawn.

This acquisition closed on May 30, 2018, prior to the Spin-off on May 31, 2018.

Upon completion of the Spin-off, La Quinta became a wholly-owned subsidiary of Wyndham Hotels and the associated debt was transferred to Wyndham Hotels.

European Vacation Rentals Business Sale

We sold our European vacation rentals business on May 9, 2018.

This sale resulted in final net proceeds of $1.06 billion

and a 2018 after-tax gain of $456 million, net of $139 million in taxes.

During 2020, we recognized a $2 million loss resulting from a tax audit.

During 2019, we recognized an additional $18 million gain, related to $12 million of tax benefits associated with additional foreign tax credit utilization and lower than anticipated state income taxes, as well as $6 million in returned escrow for an expired guarantee and other changes in expired guarantees.

We have provided post-closing credit support in order to ensure that Awaze Limited (“Awaze”), formerly Compass IV Limited, an affiliate of Platinum Equity, LLC, meets the requirements of certain service providers and regulatory authorities.

The results of operations of this business through the date of sale have been classified as discontinued operations on the Consolidated Financial Statements.

therefore, the results of operations are reflected within continuing operations on the Consolidated Statements of Income/(Loss) through the date of sale.

SEGMENT OVERVIEW

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We are entitled to consideration for reimbursement of costs incurred on behalf of the property owners’ association in providing the management services (“reimbursable revenue”).

These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where we are the employer and are reflected as a component of Operating expenses on the Consolidated Statements of (Loss)/Income.

We reduce management fees for amounts paid to the property owners’ association that reflect maintenance fees for VOIs for which we retain ownership, as we have concluded that such payments are consideration payable to a customer.

Property management fee revenues are recognized when the services are performed and are recorded as a component of Service and membership fees on the Consolidated Statements of (Loss)/Income.

Property management revenues, which are comprised of management fee revenue and reimbursable revenue, were (in millions):

We reduce our management fees for amounts paid to the property owners’ association that reflect maintenance fees for VOIs for which we retain ownership, as we have concluded that such payments are consideration payable to a customer.

Property management fee revenues are recognized when the services are performed and are recorded as a component of Service and membership fees on the Consolidated Statements of Income/(Loss).

Property management revenues, which are comprised of management fee revenue and reimbursable revenue, for the years ended December 31, were (in millions) (a) :

2021 2020 2019

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Property management revenues $ 671 $ 583 $ 672

One of the associations that we manage paid our Travel and Membership segment $27 million for exchange services during 2020, and $29 million during both 2019 and 2018.

(a) Reflects the impact of reclassifying the Extra Holidays business line from the Vacation Ownership segment to Travel and Membership.

One of the associations that we manage paid our Travel and Membership segment $30 million for exchange services during 2021, $27 million during 2020, and $29 million during 2019.

Within our Vacation Ownership segment, we measure operating performance using the following key operating statistics:

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Travel and Membership

As a provider of vacation exchange services, we enter into affiliation agreements with developers of vacation ownership properties to allow owners of VOIs to trade their intervals for intervals at other properties affiliated with our vacation exchange network and, for some members, for other leisure-related services and products.

Travel and Membership derives a majority of revenues from membership dues and fees for facilitating members’ trading of their intervals.

Revenues from membership dues represent the fees paid by members or affiliated clubs on their behalf.

We recognize revenues from membership dues paid by the member on a straight-line basis over the membership period as the

performance obligations are fulfilled through delivery of publications, if applicable, and by providing access to travel-related products and services.

We recognize revenues from membership dues paid by the member on a straight-line basis over the membership period as the performance obligations are fulfilled through delivery of publications, if applicable, and by providing access to travel-related products and services.

Estimated net contract consideration payable by affiliated clubs for memberships is recognized as revenue over the term of the contract with the affiliated club in proportion to the estimated average monthly member count.

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Revenue is recognized when these transactions have been confirmed, net of expected cancellations;

except in certain transactions where we have a performance obligation that is not satisfied until the time of stay.

Our vacation exchange business also derives revenues from programs with affiliated resorts, club servicing, and loyalty programs;

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Other vacation exchange-related product fees are deferred and recognized as revenue upon the occurrence of a future exchange, event, or other related transaction.

We also derive revenue from other travel products and services, enabled as a result of our 2019 acquisition of ARN and via our resort services solution business, optimizing business to business (“B2B”) capabilities, and integration for consumer travel planning.

Our relationships and buying power with major travel suppliers provide our partners with access to some of the most compelling travel inventory in the industry.

Our affiliates and members enjoy inventory from accommodation wholesalers, airfare, and rental car providers.

We earn revenue from our RCI Elite Rewards co–branded credit card program, which is primarily generated by cardholder spending and the enrollment of new cardholders.

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Total contract consideration is estimated and recognized on a straight-line basis over the contract term.

Prior to the sale of our vacation rental businesses, our vacation rental brands derived revenue from fees associated with the rental of vacation properties managed and marketed by Travel and Membership on behalf of independent owners.

Prior to the sale of our vacation rental businesses, our vacation rental brands derived revenue from fees associated with the rental of vacation properties we managed and marketed on behalf of independent owners.

We remitted the rental fee received from the renter to the independent owner, net of our agreed-upon fee.

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Within our Travel and Membership segment, we measure operating performance using the following key operating statistics:

(i) average number of vacation exchange members, which represents paid members in our vacation exchange programs who are current on their annual membership dues, or within the allowed grace period, and are entitled, for additional fees, to exchange their intervals for intervals at other properties affiliated with our exchange network and, for certain members, for other leisure-related services and products, and (ii) exchange revenue per member, which represents total revenues generated from fees associated with memberships, exchange transactions, and other servicing for the period divided by the average number of vacation exchange members during the period.

(i) average number of exchange members, which represents paid members in our vacation exchange programs who are considered to be in good standings, (ii) transactions, which represents the number of vacation bookings recognized as revenue during the period, net of cancellations, provided in two categories;

Exchange, which is primarily RCI, and non-Exchange, and (iii) revenue per transaction, which represents transactional revenue divided by transactions, provided in two categories;

Exchange, which is primarily RCI, and non-Exchange.

We record property management services revenues and RCI Elite Rewards revenues for our Vacation Ownership and Travel and Membership segments in accordance with the guidance for reporting revenues gross as a principal versus net as an agent, which requires that these revenues be recorded on a gross basis.

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Management uses net revenues and Adjusted EBITDA to assess the performance of the reportable segments.

We define Adjusted EBITDA as Net (loss)/income from continuing operations 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.

We define Adjusted EBITDA as Net income/(loss) from continuing operations 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, legacy items, transaction costs for acquisitions and divestitures, impairments, gains and losses on sale/disposition of business, and items that meet the conditions of unusual and/or infrequent.

Legacy items include the resolution of and adjustments to certain contingent assets and liabilities related to acquisitions of continuing businesses and dispositions, including the separation of Wyndham Hotels, Inc.

(“Wyndham Hotels”) and Cendant, and the sale of the vacation rentals businesses.

We believe that Adjusted EBITDA is a useful measure of performance for our segments which, when considered with generally accepted accounting principles in the U.S.

(“GAAP”) measures, gives a more complete understanding of our

operating performance.

(“GAAP”) measures, gives a more complete understanding of our operating performance.

Our presentation of Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

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2021 2020 % Change (h)

Vacation Ownership (a)

Gross VOI sales (in millions) (b) (i)

$ 967 $ 2,355 (58.9)

Tours (in 000s) (c)

333 945 (64.8)

Volume Per Guest (“VPG”) (d)

Vacation Ownership

Gross VOI sales (in millions) (a) (i)

$ 1,491 $ 967 54.1

Travel and Membership (a)

Average number of members (in 000s) (e)

Tours (in 000s) (b)

Volume Per Guest (“VPG”) (c)

$ 3,143 $ 2,486 26.4

Exchange revenue per member (f)

Travel and Membership (d)

Transactions (in 000s) (e)

Exchange 1,182 762 55.0

Non-exchange 778 458 69.8

Total transactions 1,960 1,220 60.6

Revenue per transaction (f)

Exchange $ 322 $ 324 (0.6)

Non-exchange $ 205 $ 148 38.0

Total revenue per transaction $ 275 $ 258 6.8

Average number of exchange members (in 000s) (g)

3,721 3,749 (0.7)

Transactions (in 000s) (g)

Exchange transactions 762 1,493 (49.0)

Non-exchange transactions 278 163 70.3

Total Travel and Membership transactions 1,040 1,656 (37.2)

(a) Includes the impact from acquisitions from the acquisition dates forward.

(b) Represents total sales of VOIs, including sales under the Fee-for-Service program, before the effect of loan loss provisions.

(a) Represents total sales of VOIs, including sales under the Fee-for-Service program before the effect of loan loss provisions.

We believe that Gross VOI sales provide an enhanced understanding of the performance of our vacation ownership business because it directly measures the sales volume of this business during a given reporting period.

(d) VPG is calculated by dividing Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) by the number of tours.

We believe that VPG provides an enhanced understanding of the performance of our vacation ownership business because it directly measures the efficiency of this business’s tour selling efforts during a given reporting period.

(e) Represents paid members in our vacation exchange programs who are current on their annual membership dues or within the allowed grace period.

(f) Represents total revenues generated from fees associated with memberships, exchange transactions, and other servicing for the period divided by the average number of vacation exchange members during the period.

(g) Represents the number of vacation transactions booked during the period, net of cancellations.

Given recent acquisitions, we will be reporting transactions as a key operating metric for our Travel and Membership segment beginning in 2021.

We provided the 2020 and 2019 data in advance of this change.

(h) Change percentages may not calculate due to rounding.

(b) Represents the number of tours taken by guests in our efforts to sell VOIs.

(c) VPG is calculated by dividing Gross VOI sales (excluding tele-sales upgrades, which are non-tour upgrade sales) by the number of tours.

We believe that VPG provides an enhanced understanding of the performance of our vacation ownership business because it directly measures the efficiency of this business’ tour selling efforts during a given reporting period.

(d) Includes the impact from acquisitions from the acquisition dates forward

(e) Represents the number of vacation bookings recognized as revenue during the period, net of cancellations.

(f) Represents transactional revenue divided by transactions.

(g) Represents paid members in our vacation exchange programs who are considered to be in good standing.

(h) Percentage of change may not calculate due to rounding.

(i) The following table provides a reconciliation of Vacation ownership interest sales, net to Gross VOI sales for the years ended December 31, (in millions):

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(1) Represents total sales of VOIs through our Fee-for-Service programs where inventory is sold through our sales and marketing channels for a commission.

Fee-for-Service commission revenues were $22 million and $18 million during 2020 and 2019.

These commissions are reported within Service and membership fees on the Consolidated Statements of (Loss)/Income.

Our 2020 operating statistics include the impacts of COVID-19 which were significantly negative for the travel industry, our company, our customers, and our employees.

In response to COVID-19, our Vacation Ownership segment temporarily closed its resorts in mid-March 2020 across the globe and suspended its sales and marketing operations.

These closures resulted in lower tours which negatively impacted gross VOI sales.

The impact of COVID-19 on our operating statistics is expected to continue into 2021.

Fee-for-Service commission revenues were $101 million and $22 million for the years ended December 31, 2021 and 2020.

These commissions are reported within Service and membership fees on the Consolidated Statements of Income/(Loss).

The closures of our resorts and suspension of our sales and marketing operations in response to COVID-19 in 2020 resulted in lower tours which negatively impacted gross VOI sales at our Vacation Ownership segment.

In our Travel and Membership segment, affiliate resort closures and regional travel restrictions contributed to decreased bookings and increased cancellations, which resulted in lower transactions and revenue per transaction during 2020.

In 2021, we experienced significant improvements in VOI sales, tours, VPG, the number of Travel and Membership transactions, and revenue per transaction;

however, not all product and service lines have yet returned to pre-pandemic levels.

We expect the impact of COVID-19 on our operating statistics to continue into 2022;

however we do not expect to incur the same level of COVID-19 impact on our revenues or the level of COVID-19 expenses that we did in 2020.

RESULTS OF OPERATIONS

4 unchanged sentences

Expenses 2,516 2,265 (251)

Gain on sale of business — (68) (68)

Operating (loss)/income (105) 812 (917)

Other (income), net (14) (23) (9)

Operating income/(loss) 618 (105) 723

Interest expense 198 192 (6)

Interest (income) (3) (7) (4)

(Loss)/income before income taxes (276) 680 (956)

(Benefit)/provision for income taxes (23) 191 214

Net (loss)/income from continuing operations (253) 489 (742)

(Loss)/gain on disposal of discontinued business, net of income taxes (2) 18 (20)

Net (loss)/income attributable to Travel + Leisure shareholders $ (255) $ 507 $ (762)

Net revenues decreased $1.88 billion during 2020 compared with 2019.

During 2020 and in anticipation of increased defaults on VOCRs due to the impact of COVID-19, we recorded an additional $205 million provision which negatively impacted revenues and a corresponding $48 million benefit to cost of vacation ownership interests, representing estimated recoveries related to the additional provision.

The net negative impact of the additional provision related to COVID-19 on Adjusted EBITDA was $157 million.

Revenue decrease of $1.88 billion (46.5%) was unfavorably impacted by foreign currency of $4 million (0.1%).

The remaining decrease in net revenues after the impact of the additional provision, excluding foreign currency impact, was primarily the result of:

• $1.31 billion of decreased revenues in our Vacation Ownership segment due to decreased net VOI sales as a result of the temporary closure of our resorts and suspension of sales and marketing operations directly related to COVID-19 and decreased property management revenues, consumer financing revenues, and ancillary revenues;

• $367 million decrease in revenues in our Travel and Membership segment driven by the absence of vacation rentals revenue as a result of the sale of the North American vacation rentals business in October 2019, and the negative impact of COVID-19, partially offset by an increase in revenue at ARN, which was acquired in August 2019.

Expenses decreased $1.03 billion during 2020 compared with 2019.

The decrease in expenses of $1.03 billion (31.3%) was impacted by favorable foreign currency of $3 million (0.1%).

Excluding foreign currency impact, the decrease in expenses was the result of:

• $327 million decrease in marketing costs primarily due to the temporary suspension of sales and marketing operations;

• $326 million decrease in sales and commission expenses primarily due to lower gross VOI sales as a result of COVID-19;

• $194 million decrease in costs due to the sale of the North American vacation rentals business;

• $183 million decrease in the cost of VOIs sold primarily due to lower gross VOI sales, including the $48 million benefit representing estimated recoveries related to the additional provision for loan losses associated with COVID-19;

• $90 million decrease in property management expenses primarily due to lower management fees;

• $70 million decrease in general and administrative expenses related to COVID-19 impacts;

• $56 million decrease in Travel and Membership operating expenses associated with lower exchange and related service revenues driven by COVID-19 impacts and cost saving initiatives;

• $45 million decrease in separation costs;

partially offset by

• $88 million increase for COVID-19 related costs primarily due to workforce reduction;

• $48 million increase due to the write-down of exchange inventory;

• $44 million increase in maintenance fees on unsold inventory primarily due to the temporary closure of our resorts resulting in the inability to recover a portion of these costs;

• $30 million increase in restructuring expense primarily due to COVID-19 impacts;

• $29 million increase in impairments driven by COVID-19;

• $20 million of increased revenue-related expenses from the ARN business.

Gain on sale of business was $68 million during 2019 due to the sale of the North American vacation rentals business.

Other income, net of other expense decreased $9 million during 2020 compared with 2019, due to the gain on sale of a building in 2019, higher business interruption recoveries in 2019, an unfavorable tax settlement in 2020, and decreased income from a profit share agreement at the Travel and Membership segment.

Interest expense increased $30 million during 2020 compared with 2019 due to higher average outstanding revolving credit facility balances driven by the drawdown of our $1.0 billion secured revolving credit facility as a precautionary measure due to COVID-19 and interest on the $650 million 6.625% secured notes issued in 2020 and the $350 million 4.625% secured notes issued in December 2019.

Other (income), net (6) (14) (8)

Income/(loss) before income taxes 429 (276) 705

Provision/(benefit) for income taxes 116 (23) (139)

Net income/(loss) from continuing operations 313 (253) 566

Loss on disposal of discontinued business, net of income taxes (5) (2) (3)

Net income/(loss) attributable to Travel + Leisure Co.

shareholders $ 308 $ (255) $ 563

During 2020 we evaluated the potential impact of COVID-19 on our owners’ ability to repay their contract receivable and as a result of current and anticipated unemployment rates at that time, we recorded a $205 million COVID-19 related provision, which negatively impacted revenues, and a corresponding $48 million benefit to Cost of vacation ownership interests, representing estimated recoveries related to this provision.

These adjustments negatively impacted prior year Adjusted EBITDA by $157 million.

During 2021 we analyzed the adequacy of the COVID-19 related allowance consistent with past methodology, resulting in a $91 million release, which positively impacted revenues, and a corresponding $33 million increase in Cost of vacation ownership interests, representing the associated reduction in estimated recoveries.

The net positive impact of the COVID-19 related allowance release on Adjusted EBITDA was $58 million for the year ended December 31, 2021.

Net revenues increased $974 million during 2021 compared with 2020.

This increase was favorably impacted by foreign currency of $11 million (0.5%).

Excluding the impacts of foreign currency and the COVID-19 related provision adjustments discussed above, the increase in net revenues was primarily the result of:

• $475 million of increased revenues at our Vacation Ownership segment primarily due to an increase in gross VOI sales, higher property management and commission revenues as a result of the ongoing recovery of our operations from the impact of COVID-19;

partially offset by a decrease in consumer financing revenues due to a lower average portfolio balance;

• $196 million increased revenues at our Travel and Membership segment driven by higher transaction revenues as we continue to recover from the impacts of COVID-19, partially offset by a decrease in subscription revenues driven by lower new owner sales in the timeshare industry.

Expenses increased $251 million during 2021 compared with 2020.

This increase was unfavorably impacted by foreign currency of $8 million (0.4%).

Excluding the impacts of foreign currency, and the Cost of vacation ownership interest related to the COVID-19 provision adjustments discussed above the increase in expenses was the result of:

• $97 million increase in cost of sales and other operating costs in support of higher Travel and Membership revenues;

• $73 million increase in the cost of VOIs sold primarily due to higher gross VOI sales;

• $66 million increase in property management expenses due to higher management fees and reimbursable expenses;

• $52 million increase in commission expense as a result of higher Fee-for-Service VOI sales;

• $51 million increase in sales and commission expenses at the Vacation Ownership segment primarily due to higher gross VOI sales;

• $36 million increase in general and administrative expenses primarily due to higher employee-related costs;

• $34 million increase in marketing costs in support of increased revenue;

• $16 million increase in maintenance fees on unsold inventory.

These increases were partially offset by:

• $230 million decrease in COVID-19 related costs including employee compensation related costs ($84 million);

impairments ($62 million);

the write-down of exchange inventory ($48 million) and restructuring charges ($37 million);

• $20 million decrease in consumer financing interest expense primarily due to a lower average non-recourse debt balance.

Other income, net of other expense decreased $8 million during 2021 compared with 2020, primarily due to lower business interruption recoveries in 2021 and value added tax provision releases;

partially offset by an unrealized gain from our equity stake in Vacasa, LLC (“Vacasa”) in 2021 and an unfavorable tax settlement in 2020.

Interest expense increased $6 million during 2021 compared with 2020 primarily due to a higher average outstanding balance in 2021.

Our effective tax rates were 27.0% and 8.3% for the years ended December 31, 2021 and 2020.

The change in the effective tax rate is primarily due to the impacts of COVID-19 on our taxable earnings.

Increases in valuation allowances on the deferred tax assets reduced the overall effective tax rate.

In addition, the jurisdictional composition resulted in profits within higher tax rate jurisdictions and losses in lower tax rate jurisdictions, which significantly impacted the overall effective tax rate.

Our 2019 results of operations reflect a negative impact from hurricane Dorian.

We estimate that the hurricane reduced revenues, Adjusted EBITDA, and net income by $20 million, $11 million, and $8 million.

Loss on disposal of discontinued businesses, net of income taxes was $2 million during 2020 resulting from a tax audit, net of Wyndham Hotels’ one-third share, related to the European vacation rentals business.

Gain on disposal of discontinued businesses, net of income taxes was $18 million during 2019 mainly due to tax benefits associated with additional foreign tax credit utilization, lower than anticipated state income taxes, and the release of funds held in escrow related to the sale of the European vacation rentals business in 2018.

As a result of these items, Net loss attributable to Travel + Leisure shareholders was $255 million in 2020 as compared with Net income attributable to Travel + Leisure shareholders of $507 million in 2019.

Our effective tax rate in 2020 was significantly impacted by COVID-19, leading to a mix of earnings in higher tax rate jurisdictions and losses in lower tax rate jurisdictions that reduced our overall effective tax rate.

Loss on disposal of discontinued business, net of income taxes was $5 million during 2021 resulting from entering into a settlement agreement for post-closing adjustment claims related to the sale of the European vacation rentals business, contingent upon regulatory approval;

and $2 million during 2020 resulting from a tax audit related to the European vacation rentals business.

These losses were net of Wyndham Hotels’ one-third share.

As a result of these items, Net income attributable to Travel + Leisure Co.

shareholders was $308 million in 2021 as compared with a Net loss attributable to Travel + Leisure Co.

shareholders of $255 million in 2020.

Following is a discussion of the 2021 results of each of our segments compared to 2020 (in millions):

8 unchanged sentences

Reconciliation of Net income to Adjusted EBITDA 2021 2020

Net (loss)/income attributable to Travel + Leisure shareholders $ (255) $ 507

Loss/(gain) on disposal of discontinued business, net of income taxes 2 (18)

(Benefit from)/provision for income taxes (23) 191

Net income/(loss) attributable to Travel + Leisure Co.

shareholders $ 308 $ (255)

Loss on disposal of discontinued business, net of income taxes 5 2

Provision/(benefit) for income taxes 116 (23)

Depreciation and amortization 124 126

1 unchanged sentence

Interest (income) (3) (7)

Gain on sale of business — (68)

Asset impairments (b)

COVID-19 related costs (c)

Stock-based compensation 32 20

Legacy items 4 4

COVID-19 related costs (b)

Exchange inventory write-off — 48

Restructuring (1) 39

Stock-based compensation 20 20

Legacy items (d)

Acquisition and divestiture related costs — 1

Separation and related costs (e)

Unrealized gain on equity investment (c)

Asset impairments/(recovery) (d)

Adjusted EBITDA $ 778 $ 259

7 unchanged sentences

(a) Includes the elimination of transactions between segments.

(b) Includes $5 million of bad debt expense related to a note receivable for the year ended December 31, 2020, included in Operating Expenses on the Consolidated Statements of (Loss)/Income.

(c) Reflects severance and other employee costs associated with layoffs due to the COVID-19 workforce reduction offset in part by employee retention credits received in connection with the U.S.

CARES Act and similar international programs for wages paid to certain employees despite having operations suspended.

(b) Reflects severance and other employee costs associated with layoffs due to the COVID-19 workforce reduction offset in part by employee retention credits received in connection with the U.S.

Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, American Rescue Plan Act of 2021, and similar international programs for wages paid to certain employees despite having operations suspended.

This amount does not include costs associated with idle pay.

(d) Represents the resolution of and adjustment to certain contingent liabilities resulting from the Spin-off, the sale of the European vacation rentals business, and our separation from Cendant.

(e) Includes $4 million of stock based compensation expenses for the year ended 2019.

(c) Represents the unrealized gain associated with Vacasa equity acquired as part of the consideration for the sale of North America vacation rentals.

The total amount of unrealized gain on this investment was $9 million for the year ended December 31, 2021, of which $6 million is included in Asset impairments/(recovery) on the Consolidated Statements of Income/(Loss) to offset the 2020 impairment recognized on this investment.

(d) Includes $5 million of bad debt expense related to a note receivable for the year ended December 31, 2020, included in Operating expenses on the Consolidated Statements of Income/(Loss).

Vacation Ownership

Net revenues decreased $1.51 billion and Adjusted EBITDA decreased $635 million during 2020 compared with 2019.

During 2020 and in anticipation of increased defaults on VOCRs due to the impacts of COVID-19, we recorded an additional $ 205 million provision which negatively impacted revenues and a corresponding $ 48 million benefit to cost of vacation ownership interests, representing estimated recoveries related to the additional provision.

The net revenue decrease of $1.51 billion (48.0%) was unfavorably impacted by foreign currency of $1 million and the total Adjusted EBITDA decrease of $635 million (84.0%) was not materially impacted by foreign currency.

Other decreases in net revenues excluding the impact of currency were driven by:

• $1.41 billion decrease in gross VOI sales, net of Fee-for-Service sales, primarily driven by a 64.8% decrease in tours resulting from the temporary closure of our resorts and suspension of sales and marketing operations directly related to COVID-19;

partially offset by a $269 million decrease in our provision for loan losses due to lower gross VOI sales;

• $107 million decrease in property management revenues primarily due to lower management fees and reimbursable revenues;

• $48 million decrease in consumer financing revenues primarily due to a lower weighted average interest rate earned on a lower average portfolio balance ;

• $21 million decrease in ancillary revenues primarily due to a decrease in trial vacation package revenue and our co-branded credit card program;

partially offset by

Net revenues increased $778 million and Adjusted EBITDA increased $437 million during 2021 compared with 2020.

The net revenue increase was favorably impacted by foreign currency of $7 million (0.4%) and the Adjusted EBITDA increase was favorably impacted by foreign currency of $2 million (1.7%).

The net revenue increase excluding the impact of foreign currency was primarily driven by:

• $382 million increase in gross VOI sales, net of Fee-for-Service sales, due to the ongoing recovery of our operations from the impact of COVID-19;

• $286 million decrease in our provision for loan losses primarily due to the COVID-19 related allowance adjustments ($205 million provision recorded during 2020 and $91 million release during 2021);

• $85 million increase in property management revenues primarily due to higher management fees and reimbursable revenues;

• $78 million increase in commission revenues as a result of higher Fee-for-Service VOI sales.

In addition to the drivers mentioned above, Adjusted EBITDA excluding the impact of currency was further impacted by:

• $326 million decrease in sales and commission expenses primarily due to lower gross VOI sales;

• $321 million decrease in marketing costs primarily due to the temporary suspension of sales and marketing operations;

• $135 million decrease in the cost of VOIs sold primarily due to lower gross VOI sales and increased estimated inventory recoveries associated with our provision for loan losses;

• $90 million decrease in property management expenses primarily due to lower management fees and lower reimbursable expenses;

• $30 million decrease in general and administrative expenses primarily due to lower employee-related costs;

partially offset by

• $44 million increase in maintenance fees on unsold inventory primarily due to the temporary closure of our resorts resulting in the inability to recover a portion of these costs;

• $31 million increase in COVID-19 related costs primarily due to workforce reduction.

These increases were partially offset by a $63 million decrease in consumer financing revenues primarily due to a lower average portfolio balance.

In addition to the drivers above, Adjusted EBITDA excluding the impact of foreign currency was further impacted by:

• $154 million increase in the cost of VOIs sold primarily due to higher gross VOI sales, the absence of a $48 million benefit recorded in 2020 representing estimated recoveries related to the COVID-19 related provision, and a $33 million reduction in estimated recoveries related to the release of our COVID-19 related allowance during 2021;

• $66 million increase in property management expenses primarily due to higher management fees and reimbursable expenses;

• $52 million increase in commission expense as a result of higher Fee-for-Service VOI sales;

• $51 million increase in sales and commission expenses due to higher gross VOI sales;

• $22 million increase in marketing costs in support of increased revenue;

• $17 million increase in general and administrative expenses primarily due to higher employee-related costs;

• $16 million increase in maintenance fees on unsold inventory.

These increased expenses were partially offset by:

• $30 million decrease in COVID-19 related costs associated with workforce reductions;

• $20 million decrease in consumer financing interest expense primarily due to a lower average non-recourse debt balance.

Travel and Membership

Net revenues decreased $370 million and Adjusted EBITDA decreased $98 million during 2020 compared with 2019.

Revenue decrease of $367 million (40.9%) was unfavorably impacted by foreign currency of $3 million (0.3%).

Adjusted EBITDA decrease of $97 million (33.6%) was unfavorably impacted by foreign currency of $1 million (0.3%).

Decreases in net revenues excluding the impact of currency were driven by:

• $171 million net decrease in exchange and related service revenues driven by the negative impact of COVID-19 which resulted in higher cancellations and lower bookings;

• $153 million decrease in vacation rentals revenue as a result of the sale of the North American vacation rentals business in October 2019;

• $43 million net decrease in ancillary revenues primarily due to the $54 million decrease of ancillary revenue generated by the North American vacations rentals business which was sold in October 2019 and an $8 million decrease in exchange ancillary revenue primarily related to COVID-19, partially offset by an increase in revenue of $19 million from ARN, which was acquired in August 2019.

In addition to the drivers mentioned above, 2020 Adjusted EBITDA, excluding the impact of currency, was further impacted by:

• $194 million decrease in costs due to the sale of the North American vacation rentals business;

• $96 million of decreased costs primarily associated with cost savings and lower exchange and related service revenues;

Net revenues increased $200 million and Adjusted EBITDA increased $91 million during 2021 compared with 2020.

The net revenue increase was favorably impacted by foreign currency of $4 million (0.7%) and the Adjusted EBITDA increase was favorably impacted by foreign currency of $1 million (0.5%).

Increases in net revenues excluding the impact of foreign currency were primarily driven by:

• $202 million increase in transaction revenue driven by a 61% increase in transactions and a 7% increase in revenue per transaction;

partially offset by

• $20 million of increased revenue-related expenses from the ARN business.

• $6 million decrease in subscription revenue due to a 1% decrease in average number of exchange members driven by lower new owner sales in the timeshare industry.

In addition to the revenue changes explained above, Adjusted EBITDA excluding the impact of foreign currency was further impacted by the following operational costs in support of increased revenues:

• $86 million increase in cost of sales;

• $12 million increase in marketing expense;

• $11 million increase in operational expenses.

These increased expenses were partially offset by a $3 million decrease in general and administrative expenses resulting from staff reductions and cost savings initiatives implemented after the first quarter of 2020.

Corporate and other

Corporate and other Adjusted EBITDA increased $1 million (1.9%) during 2020 compared with 2019 and was not materially impacted by foreign currency.

The growth in Adjusted EBITDA was primarily due to lower employee-related costs.

For comparative review of our consolidated results of operations and the results of operations of our reportable segments for the fiscal years ended December 31, 2019 and 2018, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 26, 2020.

Corporate and other Adjusted EBITDA decreased $9 million (17.0%) during 2021 compared with 2020 and was not materially impacted by foreign currency.

The decrease in Adjusted EBITDA was primarily due to higher employee-related costs.

For a comparative review of our consolidated results of operations and the results of operations of our reportable segments for the fiscal years ended December 31, 2020 and 2019, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 24, 2021.

DISCONTINUED OPERATIONS

We sold our European vacation rentals business on May 9, 2018.

This sale resulted in final net proceeds of $1.06 billion and a 2018 after-tax gain of $456 million, net of $139 million in taxes.

During 2020, we recognized a $2 million loss resulting from a tax audit.

We have provided post-closing credit support in order to ensure that Awaze meets the requirements of certain service providers and regulatory authorities.

The results of operations of this business have been classified as discontinued operations on the Consolidated Financial Statements.

We completed the Spin-off on May 31, 2018, which resulted in our operations being held by two separate, publicly traded companies.

As a result of the Spin-off, we have classified the results of operations of our hotel business as discontinued operations on the Consolidated Financial Statements.

During 2018, there was a $50 million loss from operations of discontinued businesses, net of taxes.

Separation and related costs from discontinued operations was $111 million during 2018.

We recognized a loss on disposal of discontinued business, net of income taxes of $5 million during 2021 resulting from entering into a settlement agreement regarding post-closing adjustment claims related to the sale of the European vacation rentals business, contingent upon regulatory approval.

See Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements for additional information.

During 2020, we recognized a $2 million loss on disposal of discontinued business, net of income taxes resulting from a tax audit related to the European vacation rentals business.

During 2019, we recognized an additional $18 million gain on the sale of our European vacation rentals business, related to $12 million of tax benefits associated with additional foreign tax credit utilization and lower than anticipated state income taxes, as well as $6 million in returned escrow deposits associated with expired guarantees.

SEPARATION AND TRANSACTION COSTS

During 2019, we incurred $45 million of expenses in connection with the Spin-off completed on May 31, 2018, which are reflected within continuing operations.

These separation costs were related to stock compensation, severance and other employee costs, as well as impairment charges due to the write-off of right-of-use assets and furniture, fixtures and equipment as a result of our abandoning portions of our administrative offices in New Jersey.

During 2019, we incurred $45 million of expenses in connection with the spin-off of our hotel business completed on May 31, 2018, which are reflected within continuing operations.

These separation costs were related to stock compensation, severance and other employee costs, as well as impairment charges as a result of abandoning portions of our administrative offices in New Jersey.

This decision was part of our continued focus on rationalizing existing facilities in order to reduce our corporate footprint.

These expenses also include additional impairment charges associated with the write-off of assets and liabilities related to the early termination of an operating lease in Chicago, Illinois, partially offset by an indemnification receivable from Wyndham Hotels.

Refer to Note 13— Leases to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional detail regarding these impairments.

During 2018, we incurred $223 million of expenses in connection with the Spin-off which are reflected within continuing operations and include related costs of the Spin-off, of which $217 million were related to stock compensation modification expense, severance and other employee costs offset, in part, by favorable foreign currency.

In addition, these costs include certain impairment charges related to the separation including property sold to Wyndham Hotels.

Additionally, during 2018, we incurred $111 million of separation related expenses in connection with the Spin-off and sale of the European vacation rentals business which are reflected within discontinued operations.

These expenses include legal, consulting and auditing fees, stock compensation modification expense, severance and other employee-related costs.

These expenses also include additional impairment charges related to the early termination of an operating lease in Chicago, Illinois, partially offset by an indemnification receivable from Wyndham Hotels.

Refer to Note 13— Leases to the Consolidated Financial Statements for additional detail regarding these impairments.

RESTRUCTURING PLANS

During 2020, we recorded $37 million of charges related to restructuring initiatives, most which were COVID-19 related.

During 2020, we recorded $37 million of charges related to restructuring initiatives, $36 million of which were COVID-19 related.

Due to the impact of COVID-19, we decided in the second quarter of 2020 to abandon the remaining portion of our administrative offices in New Jersey.

We were notified in the second quarter that Wyndham Hotels exercised its early termination rights under the sublease agreement.

As a result, we recorded $22 million of restructuring charges associated with non-lease components of the office space and $24 million of impairment charges associated with the write-off of right-of-use assets and furniture, fixtures and equipment at the Travel and Membership segment.

We also recognized $12 million of lease-related charges due to the renegotiation of an agreement and $2 million of facility-related restructuring charges associated with closed sales centers at the Vacation Ownership segment.

We additionally recognized $1 million in employee related expenses associated with the consolidation of a shared service center within the Travel and Membership segment.

We reduced the 2020 restructuring liability by $12 million of cash payments during 2020.

The remaining 2020 restructuring liability of $25 million is expected to be paid

by the end of 2029.

During 2019, we recorded $5 million of charges related to restructuring initiatives, most of which are personnel-related resulting from a reduction of approximately 100 employees.

This action is primarily focused on enhancing organizational efficiency and rationalizing operations.

The charges consisted of (i) $2 million at the Vacation Ownership segment, (ii) $2 million at the Travel and Membership segment, and (iii) $1 million at our corporate operations.

During 2020, we incurred an additional $1 million of restructuring expenses at both the Travel and Membership segment and our corporate operations.

We were also notified in the second quarter of 2020 that Wyndham Hotels exercised its early termination rights under the sublease agreement.

We additionally recognized $1 million in employee-related expenses associated with the consolidation of a shared service center within our Travel and Membership segment.

We reduced the 2020 restructuring liability by $5 million and $12 million of cash payments during 2021 and 2020.

The remaining 2019 restructuring liability of less than $1 million is expected to be paid by the end of 2021.

During 2018, we recorded $16 million of charges related to restructuring initiatives, all of which are personnel-related resulting from a reduction of approximately 500 employees.

During 2021 we also reversed $1 million of expense related to the reimbursement of prepaid licensing fees that were previously written-off, and increased the liability by $3 million of cash reimbursements at our Vacation Ownership segment.

The remaining 2020 restructuring liability of $22 million is expected to be paid by the end of 2029.

During 2019, we recorded $5 million of charges related to restructuring initiatives, most of which are personnel-related resulting from a reduction of approximately 100 employees.

This action was primarily focused on enhancing organizational efficiency and rationalizing operations.

The charges consisted of (i) $11 million at the Vacation Ownership segment, (ii) $4 million at the Travel and Membership segment, and (iii) $1 million at our corporate operations.

During 2019, we incurred an additional $3 million of restructuring expenses at the Vacation Ownership segment and an additional $1 million at our corporate operations related to these restructuring activities.

We reduced the restructuring liability by $3 million , $13 million, and $4 million of cash payments during 2020, 2019, and 2018.

The remaining 2018 restructuring liability of less than $1 million is expected to be paid by the end of 2021.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The charges consisted of (i) $2 million at our Vacation Ownership segment, (ii) $2 million at our Travel and Membership segment, and (iii) $1 million at our corporate operations.

During 2020, we incurred an additional $1 million of restructuring expenses at both our Travel and Membership segment and our corporate operations.

We reduced the restructuring liability by less than $1 million, $5 million, and $1 million of cash payments during 2021, 2020, and 2019.

As of December 31, 2021 the 2019 restructuring liability has been paid off.

FINANCIAL CONDITION

4 unchanged sentences

Total deficit (794) (968) 174

Total assets increased $160 million from December 31, 2019, to December 31, 2020, due to:

• $841 million increase in Cash and cash equivalents primarily due to net cash proceeds from debt borrowings, partially offset by treasury share repurchases, and dividend payments;

• $148 million increase in Inventory primarily due to an increase in completed inventory partially offset by net COVID-19 impacts of exchange inventory write-offs and estimated recoveries.

These increases were partially offset by

• $26 million decrease in Restricted cash primarily due to decrease in collateral related to the USD bank conduit facility;

• $29 million decrease in Trade receivables, net primarily due lower sales activity as a result of COVID-19 impacts;

• $638 million decrease in Vacation ownership contract receivables, net, primarily due to lower VOI sales driven by the economic downturn as a result of COVID-19, and the additional $205 million allowance for loan losses recorded based on our evaluation of the potential impact of COVID-19 on owners’ ability to repay their contract receivables, and

• $87 million decrease in Other assets primarily due to decreases in right-of-use assets related to COVID-19 impairments, deferred costs, and tax receivables.

Total liabilities increased $604 million from December 31, 2019, to December 31, 2020, due to:

• $1.15 billion increase in Debt due to $547 million increased net borrowing under our revolving credit facility and issuance of the $650 million 6.625% secured notes during the third quarter, partially offset by $40 million repayment of our 7.375% secured notes.

This increase was partially offset by

• $44 million decrease in Accrued expenses and other liabilities primarily due to lower employee costs as a result of COVID-19 impacts, and deferred consideration payments for ARN acquisition;

• $94 million decrease in Deferred income primarily due to lower VOI trial package sales and lower upfront subscription payments associated with reduced member acquisition as a result of COVID-19;

Total assets decreased $1.03 billion from December 31, 2020 to December 31, 2021, due to:

• $827 million decrease in Cash and cash equivalents primarily due to net debt repayments, including the revolving credit facility, notes, and non-recourse debt;

dividend payments;

property and equipment additions;

payments associated with the acquisition of the Travel + Leisure brand;

and treasury share repurchases;

partially offset by net cash provided by operating activities.

• $173 million decrease in Vacation ownership contract receivables, net, driven by principal collections and allowance for loan losses, partially offset by net VOI originations;

• $131 million decrease in Inventory driven by VOI sales and lower estimated VOI recoveries, partially offset by purchases;

• $48 million decrease in Other assets primarily due to the receipt of employee retention credits earned in connection with the CARES Act in 2020, as well as decreases in tax receivables, right-of-use assets, and deferred costs, partially offset by an increase in marketable securities.

These decreases were partially offset by an $88 million increase in Other intangibles, net primarily related to the acquisition of the Travel + Leisure brand from Meredith;

a $23 million increase in Prepaid expenses;

and a $23 million increase in Property and equipment, net.

Total liabilities decreased $1.2 billion from December 31, 2020 to December 31, 2021, due to:

• $65 million decrease in Deferred income due to increased usage of deferred VOI trial packages, VOI incentives, and subscription revenue as a result of owners and members returning to vacation as COVID-19 travel restrictions lifted;

• $300 million decrease in Non-recourse vacation ownership debt primarily due to net repayments;

• $90 million decrease in Deferred income taxes due to installment sales of VOIs.

Total deficit increased $444 million from December 31, 2019, to December 31, 2020, due to $255 million of Net loss attributable to Travel + Leisure shareholders;

$140 million of dividends;

and $125 million share repurchases;

partially offset by $39 million of Additional paid-in capital mainly due to changes in stock based compensation, equity based payment associated with the acquisition of ARN, and the issuance of common stock under our employee stock purchase plan;

and $37 million of

favorable currency translation adjustments driven by fluctuations in the exchange rates, primarily of the euro, the Australian dollar, and the British pound sterling.

• $805 million decrease in Debt due to net repayments of the revolving credit facility, early payoff of the $650 million notes due March 2022, and the repayment of the $250 million notes due March 2021;

partially offset by the issuance of $650 million notes due December 2029;

• $39 million decrease in Deferred income taxes due to installment sales partially offset by the allowance for bad debt.

Total deficit decreased $174 million from December 31, 2020 to December 31, 2021, due to $308 million of Net income attributable to Travel + Leisure Co.

shareholders;

and $32 million due to changes in stock based compensation;

partially offset by $111 million of dividends;

$32 million of unfavorable currency translation adjustments driven by fluctuations in the exchange rates, primarily of the Australian dollar, the Danish krone, and the Euro;

and $26 million of share repurchases.

LIQUIDITY AND CAPITAL RESOURCES

The global spread of COVID-19 has significantly impacted the travel industry, our company, our customers, and our employees.

In response to COVID-19, we temporarily closed our resorts and suspended our sales and marketing operations for the majority of April and May.

As a result, we significantly reduced our workforce and furloughed thousands of employees.

These actions have had, and continue to have, an impact on our operations, which could impact our liquidity in the future.

However, we believe that our current net cash from operations, cash and cash equivalents on hand, and continued access to the debt markets provide us with sufficient liquidity to meet our ongoing cash needs for the next 12 months.

At the end of the first quarter, we drew down our $1.0 billion five-year revolving credit facility, which expires in May 2023, as a precautionary measure to enhance liquidity.

As of December 31, 2020, we have $1.2 billion in cash and cash equivalents and $357 million of available capacity on our revolving credit facility, net of letters of credit.

On July 15, 2020, we amended our credit agreement (“Credit Agreement Amendment”).

The Credit Agreement Amendment established a relief period (“Relief Period”) with respect to our secured revolving credit facility, which commenced on July 15, 2020, and will end on April 1, 2022.

Among other changes, this amendment adds a new minimum liquidity covenant, tested quarterly until the end of the Relief Period, of (i) $250 million plus (ii) 50% of the aggregate amount of dividends paid after the effective date of the Credit Agreement Amendment and on or prior to the last day of the relevant fiscal quarter.

On July 24, 2020, we issued $650 million senior secured notes maturing July 31, 2026, with an interest rate of 6.625%.

In the third quarter, we used a portion of these proceeds to repay $350 million of our indebtedness under the secured revolving credit facility.

We plan to continue to use our conduit facilities and non-recourse debt borrowings to finance VOCRs.

During the second quarter of 2020, we successfully closed on a $325 million private securitization financing.

While this transaction was at a higher cost compared to transactions we completed in the past, it was favorable to similar transactions completed in the public market at that time.

We also closed on a $575 million securitization financing during the third quarter of 2020 at a similar cost compared to transactions we have completed in the past.

These transactions positively impacted our liquidity and reinforced our expectation that we will be able to maintain adequate liquidity for the near future.

Our underlying portfolio continues to perform well with delinquencies lower year-over-year, driven in part by deferral programs, as well as a more mature portfolio from reduced originations over the historically busy summer months.

Requests for deferrals have continued to trend down since the second quarter of 2020, and now active deferments represent just one percent of loans outstanding.

Our non-recourse timeshare receivables U.S.

dollars (“USD”) bank conduit facility was renewed on October 27, 2020.

The facility has a borrowing capacity of $800 million through October 2022, and had $632 million of available capacity as of December 31, 2020.

Borrowings under this facility are required to be repaid as the collateralized receivables amortize, but no later than November 2023.

Our non-recourse timeshare receivables Australian and New Zealand dollars (“AUD” and “NZD”) bank conduit facility has a borrowing capacity of A$255 million and NZ$48 million through September 2021 and available capacity of $58 million as of December 31, 2020.

Borrowings under this facility are required to be repaid no later than September 2023.

We believe that we have sufficient liquidity to meet our ongoing cash needs for the next year and beyond, including capital expenditures, operational and/or strategic opportunities, and expenditures for human capital, intellectual property, contractual obligations, off-balance sheet arrangements, and other such requirements.

Our net cash from operations and cash and cash equivalents are key sources of liquidity to meet our ongoing cash needs.

In addition to these sources, we also rely on access to our revolving credit facilities, bank conduit facilities, and continued access to debt markets.

Our discussion below highlights these sources of liquidity and how they have been utilized to support our cash needs.

$1.0 Billion Revolving Credit Facility

We generally utilize our revolving credit facility to finance our short-term to medium-term business operations, as needed.

As a precautionary measure at the onset of the global pandemic, in March 2020 we fully drew down our $1.0 billion revolving credit facility.

Based on the ongoing recovery of our business to date, our strong liquidity position and ability to access secured debt capital markets, we fully repaid the remaining outstanding revolver balance as of December 31, 2021, and had $998 million of available capacity on our revolving credit facility, net of letters of credit.

On July 15, 2020, we entered into the First Amendment governing our revolving credit facility and term loan B.

The First Amendment established a Relief Period with respect to our secured revolving credit facility, which commenced on July 15,

2020, and was scheduled to end on April 1, 2022.

Among other changes, the First Amendment added a new minimum liquidity covenant, tested quarterly until the end of the Relief Period, of (i) $250 million plus (ii) 50% of the aggregate amount of dividends paid after the effective date of the First Amendment and on or prior to the last day of the relevant fiscal quarter.

On October 22, 2021, we entered into the Second Amendment governing our revolving credit facility and term loan B which resulted in the termination of this Relief Period and extended the commitment period for the revolving credit facility from May 2023 to October 2026.

The revolving credit facility and term loan B are subject to covenants including the maintenance of specific financial ratios as defined in the credit agreement.

The financial ratio covenants consist of a minimum interest coverage ratio and a maximum first lien leverage ratio.

The interest coverage ratio is calculated by dividing consolidated EBITDA (as defined in the credit agreement) by consolidated interest expense (as defined in the credit agreement), both as measured on a trailing 12-month basis preceding the measurement date.

The first lien leverage ratio is calculated by dividing consolidated first lien debt (as defined in the credit agreement) as of the measurement date by consolidated EBITDA (as defined in the credit agreement) as measured on a trailing 12-month basis preceding the measurement date.

The Second Amendment stipulates a first lien leverage ratio financial covenant not to exceed 4.75 to 1.0 commencing with the December 31, 2021 period through June 30, 2022, after which time it will return to 4.25 to 1.0, the level in existence prior to the effective date of the First Amendment.

It also reestablished the interest coverage ratio (as defined in the credit agreement) of no less than 2.5 to 1.0, the level existing prior to the effective date of the First Amendment.

Additionally, the Second Amendment reestablished the annual interest rate in existence prior to the effective date of the First Amendment which is equal to, at our option, either a base rate plus a margin ranging from 0.75% to 1.25% or the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.75% to 2.25%, in either case based upon our first lien leverage ratio.

The Second Amendment also includes customary LIBOR replacement language providing for alternative interest rate option upon the cessation of LIBOR publication.

As of December 31, 2021, our first lien leverage ratio was 3.99 to 1.0 and our interest coverage ratio was 4.00 to 1.0.

These ratios do not include interest expense or indebtedness related to any qualified securitization financing (as defined in the credit agreement).

As of December 31, 2021, we were in compliance with the financial covenants described above.

Secured Notes and Term Loan B

We generally utilize borrowing under our secured notes to meet our long-term financing needs.

During 2020 we issued $650 million senior secured notes due 2026 with an interest rate of 6.625% and during 2021, we issued $650 million of senior secured notes due 2029 with an interest rate of 4.50%.

These transactions positively impacted our liquidity and reinforce our expectation that we will maintain adequate liquidity for the next year and beyond.

During 2021, we repaid our $250 million 5.625% secured notes due March 2021 and our $650 million 4.25% secured notes due March 2022.

As of December 31, 2021, we had $3.37 billion outstanding of secured notes and Term Loan B, with maturities ranging from 2023 to 2030.

Non-recourse Vacation Ownership Debt

Our vacation ownership business finances certain of its VOCRs through (i) asset-backed conduit facilities and (ii) term asset-backed securitizations, all of which are non-recourse to us with respect to principal and interest.

For the securitizations, we pool qualifying VOCRs and sell them to bankruptcy-remote entities, all of which are consolidated into the accompanying Consolidated Balance Sheets as of December 31, 2021.

We plan to continue using these sources to finance certain VOCRs.

We believe that our USD bank conduit facility with a term through October 2022, which we expect to extend prior to its expiration, and our AUD/NZD bank conduit facility, with a term through April 2023, amounting to a combined capacity of $1.02 billion ($698 million available as of December 31, 2021), along with our ability to issue term asset-backed securities, provide sufficient liquidity to finance the sale of VOIs beyond the next year.

We closed on securitization financings of $850 million in 2021 and $900 million in 2020.

These transactions positively impacted our liquidity and reinforce our expectation that we will maintain adequate liquidity for the next year and beyond.

Our liquidity position may be negatively affected by unfavorable conditions in the capital markets in which we operate or if our VOCR portfolios do not meet specified portfolio credit parameters.

Our liquidity, as it relates to our VOCR securitization program, could be adversely affected if we were to fail to renew or replace our conduit facilities on their expiration dates, or if a particular receivables pool were to fail to meet certain ratios, which could occur in certain instances if the default rates or other credit metrics of the underlying VOCRs deteriorate.

Our ability to sell securities backed by our VOCRs depends on the continued ability and willingness of capital market participants to invest in such securities.

Each of our non-recourse, securitized term notes, and the bank conduit facilities contain various triggers relating to the performance of the applicable loan pools.

If the VOCR pool that collateralizes one of our securitization notes fails to perform within the parameters established by the contractual triggers (such as higher default or delinquency rates), there are provisions pursuant to which the cash flows for that pool will be maintained in the securitization as extra collateral for the note holders or applied to accelerate the repayment of outstanding principal to the note holders.

As of December 31, 2021, all of our securitized loan pools were in compliance with applicable contractual triggers.

We may, from time to time, depending on market conditions and other factors, repurchase our outstanding indebtedness, whether or not such indebtedness trades above or below its face amount, for cash and/or in exchange for other securities or other consideration, in each case in open market purchases and/or privately negotiated transactions.

We are currently evaluating the impact of the transition from the London Interbank Offered Rate (“LIBOR”) as an interest rate benchmark to other potential alternative reference rates, including but not limited to the Secured Overnight Financing Rate (“SOFR”).

For additional details regarding our credit facilities, term loan B, and non-recourse debt see Note 16— Debt to the Consolidated Financial Statements.

Material Cash Requirements

The following table summarizes material future contractual obligations of our continuing operations (in millions).

We plan to fund these obligations along with our other cash requirements with net cash from operations, cash and cash equivalents as well as access to our revolving credit facilities, bank conduit facilities, and continued access to debt markets.

2022 2023 2024 2025 2026 Thereafter Total

Debt $ 7 $ 407 $ 303 $ 625 $ 643 $ 1,394 $ 3,379

Non-recourse debt (a)

424 234 201 201 214 660 1,934

Interest on debt (b)

230 205 182 163 114 151 1,045

Purchase commitments (c)

208 117 105 132 93 171 826

Operating leases 32 30 28 24 14 35 163

Inventory sold subject to conditional repurchase (d)

35 30 — — — — 65

$ 936 $ 1,023 $ 819 $ 1,145 $ 1,078 $ 2,411 $ 7,412

(a) Represents debt that is securitized through bankruptcy-remote special purpose entities the creditors of which have no recourse to us for principal and interest.

(b) Includes interest on both debt and non-recourse debt;

estimated using the stated interest rates.

(c) Includes (i) $656 million for marketing related activities, (ii) $61 million relating to the development of vacation ownership properties, and (iii) $45 million for information technology activities.

(d) Represents obligations to repurchase completed vacation ownership properties from third-party developers (see Note 11— Inventory to the Consolidated Financial Statements for further detail) of which $13 million is included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

(e) Excludes a $38 million liability for unrecognized tax benefits since it is not reasonably estimable to determine the periods in which such liability would be settled with the respective tax authorities.

In addition to the amounts shown in the table above and in connection with our separation from Cendant, we entered into certain guarantee commitments with Cendant (pursuant to our assumption of certain liabilities and our obligation to indemnify Cendant, Realogy, and Travelport for such liabilities) and guarantee commitments related to deferred compensation arrangements with Cendant and Realogy.

We also entered into certain guarantee commitments related to the sale of our European vacation rentals business.

For information on matters related to our former parent and subsidiaries see Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements.

In addition to the key contractual obligation and separation related commitments mentioned above, we have the following other commercial commitments and off-balance sheet arrangements:

We enter into agreements that contain standard guarantees and indemnities whereby we indemnify another party for specified breaches of, or third-party claims relating to, an underlying agreement.

Such underlying agreements are typically entered into by one of our subsidiaries.

The various underlying agreements generally govern purchases, sales or outsourcing of products or services, leases of real estate, licensing of software and/or development of vacation ownership properties, access to credit facilities, derivatives, and issuances of debt securities.

We also provide corporate guarantees for our operating business units relating to merchant credit-card processing for prepaid customer stays and other deposits.

While a majority of these guarantees

and indemnifications extend only for the duration of the underlying agreement, some survive the expiration of the agreement.

We are not able to estimate the maximum potential amount of future payments to be made under these guarantees and indemnifications as the triggering events are not predictable.

In certain cases we maintain insurance coverage that may mitigate any potential payments.

Our vacation ownership business provides guarantees to certain owners’ associations for funds required to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs.

We may be required to fund such a shortfall as a result of unsold company-owned VOIs or failure by owners to pay such assessments.

In addition, from time to time, we may agree to reimburse certain owner associations up to 80% of their uncollected assessments.

These guarantees extend for the duration of the underlying subsidy or similar agreement (which generally approximate one year and are renewable at our discretion on an annual basis).

The maximum potential future payments that we could be required to make under these guarantees was $518 million as of December 31, 2021.

We would only be required to pay this maximum amount if none of the assessed owners paid their assessments.

Any assessments collected from the owners of the VOIs would reduce the maximum potential amount of future payments to be made by us.

Additionally, should we be required to fund the deficit through the payment of any owners’ assessments under these guarantees, we would be permitted to use that property to engage in revenue-producing activities such as rentals.

During 2021, 2020, and 2019, we made payments related to these guarantees of $13 million, $13 million, and $11 million.

As of December 31, 2021 and 2020, we maintained a liability in connection with these guarantees of $32 million and $26 million included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

As part of the Fee-for-Service program, we may guarantee to reimburse the developer or to purchase inventory from the developer, for a percentage of the original sale price if certain future conditions exist.

As of December 31, 2021, the maximum potential future payments that we may be required to make under these guarantees is $41 million.

As of December 31, 2021 and 2020, we had no recognized liabilities in connection with these guarantees.

We generally utilize letters of credit to support the securitization of VOCR fundings, certain insurance policies, and development activities in our vacation ownership business.

As of December 31, 2021, we had $36 million of irrevocable standby letters of credit outstanding, of which $2 million were under our revolving credit facilities.

As of December 31, 2020, we had $127 million of irrevocable standby letters of credit outstanding, of which $96 million were under our revolving credit facilities.

Such letters of credit issued during 2020 included a $48 million letter of credit for guarantees related to the sale of the European vacation rentals business in which Wyndham Hotels and Travel + Leisure Co.

were required to maintain certain credit ratings.

This letter of credit was released during 2021, see Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements for additional details.

We primarily utilize surety bonds in our vacation ownership business for sales and development transactions in order to meet regulatory requirements of certain states.

In the ordinary course of our business, we have assembled commitments from 12 surety providers in the amount of $2.3 billion, of which we had $292 million outstanding as of December 31, 2021.

The availability, terms and conditions, and pricing of bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity, and our corporate credit rating.

If the bonding capacity is unavailable or, alternatively, the terms and conditions and pricing of the bonding capacity are unacceptable to us, our vacation ownership business could be negatively impacted.

We have Company sponsored severance plans in place for certain employees in the event of involuntary terminations, other than for cause.

As of December 31, 2021, our maximum obligation under these severance plans was $152 million.

Refer to the Proxy Statement for our 2022 Annual Meeting of Shareholders under the captions “Compensation of Directors,” “Executive Compensation” and “Committees of the Board” for additional details regarding executive compensation.

Our secured debt is rated Ba3 with a “negative outlook” by Moody’s Investors Service, BB- with a “stable outlook” by

Standard & Poor’s Rating Services, and BB+ with a “negative outlook” by Fitch Rating Agency.

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.

Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds.

Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating.

For information regarding the impact of changes to our credit rating and the credit rating of Wyndham Hotels, see Note 29— Transactions with Former Parent and Former Subsidiaries — Matters Related to the European Vacation Rentals Business to the Consolidated Financial Statements.

We are currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including but not limited to the Secured Overnight Financing Rate (“SOFR”).

Currently, we have debt and derivative instruments in place that reference LIBOR-based rates.

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Management will continue to actively assess the related opportunities and risks involved in this transition.

On October 27, 2020, we closed on the renewal of our USD bank conduit facility (see Note 16— Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details) and adopted appropriate LIBOR disclosures for asset-backed securities (“ABS”) financing structures as part of the renewal.

We intend to include such language in our other relevant agreements prior to the end of 2021.

We adopted appropriate LIBOR replacement rate transition language into the agreements for the renewal of our USD bank conduit facility in 2020 and the renewal of the credit agreement governing the revolving credit facility and term loan B which closed on October 22, 2021.

These agreements represented our largest exposure to LIBOR.

The following table summarizes the changes in cash, cash equivalents and restricted cash between 2021 and 2020 (in millions).

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Year Ended December 31,

2020 2019 Change

Cash provided by/(used in)

Cash provided by/(used in) 2021 2020 Change

Operating activities:

Continuing operations $ 374 $ 453 $ (79)

Discontinued operations — (1) 1

$ 568 $ 374 $ 194

Investing activities:

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Financing activities:

Continuing operations 502 (289) 791

Discontinued operations — — —

(1,288) 502 (1,790)

Effects of changes in exchange rates on cash and cash equivalents (7) 4 (11)

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Operating Activities

Net cash provided by operating activities from continuing operations was $374 million for the year ended December 31, 2020, compared to $453 million in the prior year.

This $79 million decrease in 2020 was driven by a $742 million decrease in net income from continuing operations;

and a $170 million decrease in non-cash add-back items mainly due to lower deferred income taxes, partially offset by an $833 million decrease in cash utilized for working capital (net cash inflow due to the net change in assets and liabilities).

Net cash used in operating activities from discontinued operations was $1 million for the year ended December 31, 2019.

Net cash provided by operating activities was $568 million for the year ended December 31, 2021, compared to $374 million in the prior year.

This $194 million increase in 2021 was primarily driven by a $563 million increase in net income from continuing operations;

partially offset by a $281 million decrease in non-cash add-back items, mainly lower provision for loan losses, and a $91 million increase in cash utilized for working capital.

Investing Activities

Net cash used in investing activities from continuing operations was $60 million for the year ended December 31, 2020,

compared to $44 million in the prior year.

This increase was driven by $106 million of net proceeds from the sale of the North American vacation rentals business in 2019 ;

partially offset by $51 million outflow for the acquisition of businesses in 2019 , and $39 million lower property and equipment additions in 2020 .

Net cash used in investing activities from discontinued operations was $5 million for the year ended December 31, 2020, compared to $22 million in the prior year.

Cash used in investing activities from discontinued operations for both periods was related to the sale of the European vacation rental business.

Net cash used in investing activities from continuing operations was $93 million for the year ended December 31, 2021, compared to $60 million in the prior year.

This increase in cash used was primarily driven by $37 million of cash payments for the acquisition of the Travel + Leisure brand in 2021 ;

partially offset by $12 million lower property and equipment additions in 2021 .

Net cash used in investing activities from discontinued operations was $5 million for the year ended December 31, 2020, which was related to the sale of the European vacation rentals business.

Financing Activities

Net cash provided by financing activities from continuing operations was $502 million for the year ended December 31, 2020, compared to net cash used of $289 million in the prior year.

This increase was primarily due to $1.02 billion of higher net proceeds from debt and notes driven by $650 million note issuance and net proceeds of $547 million on our secured revolving credit facility in 2020, partially offset by $128 million of net proceeds from debt and notes in 2019 and a $40 million note repayment in 2020 .

Additionally, the remaining increase was due to a $212 million decrease in cash used for share repurchases, and $69 million of payments made to Wyndham Hotels in 2019, for which there was no equivalent in 2020.

These increases were partially offset by $518 million of higher net repayments of non-recourse debt in 2020 .

Net cash used in financing activities was $1.29 billion for the year ended December 31, 2021, compared to net cash provided of $502 million in the prior year.

The variance was primarily due to higher net repayments in 2021 due to the early payoff of our $650 million notes due March 2022, the net payoff of our secured revolving credit facility of $547 million, and payoff of our $250 million notes due March 2021, partially offset by the issuance of $650 million notes due December 2029;

compared to prior year proceeds from the issuance of $650 million notes and $547 million of net proceeds from borrowings under our secured revolving credit facility.

The variance was also due to $103 million of decreased share repurchase activity in 2021 compared to 2020.

Capital Deployment

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We may also seek to strategically grow the business through merger and acquisition activities.

We also intend to reduce our long term indebtedness and seek to return to a first lien leverage ratio below 4.25 to 1.0 on or prior to April 1, 2022.

Finally, over the long term we intend to continue to return value to shareholders through the repurchase of common stock and payment of dividends, although our share repurchase program has been suspended since March 2020 as a result of the impact of COVID-19.

As part of our merger and acquisition strategy, we have made, and expect to continue to make, acquisition proposals and enter into non-binding letters of intent, allowing us to conduct due diligence on a confidential basis.

A potential transaction contemplated by a letter of intent may never reach the point where we enter into a definitive agreement, nor can we predict the timing of such a potential transaction.

Finally, we intend to continue to return value to shareholders through the repurchase of common stock and payment of dividends.

All future declarations of quarterly cash dividends are subject to final approval by the Board.

During 2020, we spent $177 million in vacation ownership development projects (inventory), a reduction of approximately $83 million from the expected spend as communicated in our 2019 Annual Report on Form 10-K filed with the SEC on February 26, 2020, due to the impact of COVID-19 on our industry and business.

We believe that our vacation ownership business currently has adequate finished inventory on our balance sheet to support vacation ownership sales for at least 2021.

On October 22, 2021, we renewed the credit agreement governing our revolving credit facility and term loan B.

The renewal eliminated the Relief Period restrictions on share repurchases, among other changes, and we resumed share repurchases during the fourth quarter of 2021.

During 2021, we spent $165 million on vacation ownership development projects (inventory).

We believe that our vacation ownership business currently has adequate finished inventory to support vacation ownership sales for several years.

The average inventory spend on vacation ownership development projects for the five-year period from 2022 through 2026 is expected to be between $140 million and $170 million annually.

After factoring in the anticipated additional average annual spending, we expect to have adequate inventory to support vacation ownership sales through at least the next four to five years.

During 2020, we invested $69 million for capital expenditures, primarily on information technology enhancement and facility related projects, a reduction of approximately $50 million from the expected spend as communicated in our 2019 Annual Report on Form 10-K filed with the SEC on February 26, 2020, due to the impact of COVID-19.

During 2021, we invested $57 million on capital expenditures, primarily on information technology and sales center improvement projects.

During 2022, we anticipate investing $60 million to $65 million on capital expenditures.

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The partner will complete the development of the project and we may purchase finished inventory at a future date as needed or as obligated under the agreement.

We expect that the majority of the expenditures that will be required to pursue our capital spending programs, strategic investments and vacation ownership development projects will be financed with cash flow generated through operations.

We expect that additional expenditures will be financed with general secured corporate borrowings, including through the use of available capacity under our revolving credit facility.

Stock Repurchase Program

On August 20, 2007, our Board authorized a stock repurchase program that enables us to purchase our common stock.

Share Repurchase Program

On August 20, 2007, our Board authorized a share repurchase program that enables us to purchase our common stock.

The Board has since increased the capacity of the program eight times, most recently in October 2017 by $1.0 billion, bringing the total authorization under the current program to $6.0 billion.

Proceeds received from stock option exercises have increased the repurchase capacity by $78 million since the inception of this program.

Proceeds received from stock option exercises increased our repurchase capacity by $81 million since the inception of this program.

We had $328 million of remaining availability in our program as of December 31, 2021.

Under our current share repurchase program, we repurchased 0.5 million shares at an average price of $52.94 for a cost of $26 million during the year ended December 31, 2021.

The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors.

The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors, including capital allocation priorities.

Repurchases may be conducted in the open market or in privately negotiated transactions.

We suspended share repurchase activity in March 2020 due to uncertainty associated with COVID-19.

On July 15, 2020, we amended the credit agreement for our revolving credit facility and term loan B.

Among other changes, the Credit Agreement Amendment places us into a Relief Period from July 15, 2020 through April 1, 2022 that prohibits the use of cash for share repurchases until such time as we choose to exercise our option to exit the amendment.

For each of the quarterly periods ended March 31, and June 30, 2020 we paid cash dividends of $0.50 per share, and for each of the quarterly periods ended September 30, and December 31, 2020 we paid cash dividends of $0.30 per share.

For each of the quarterly periods in 2019, we paid cash dividends of $0.45 per share.

During the quarterly period ended March 31, 2018, Wyndham Worldwide Corporation (“Wyndham Worldwide”) paid cash dividends of $0.66 per share, and in each of the quarterly periods ended June 30, September 30, and December 31, 2018, we paid cash dividends of $0.41 per share.

The dividend of $0.66 per share was declared by Wyndham Worldwide prior to the Spin-off.

On July 15, 2020, we entered into the First Amendment to the credit agreement governing our revolving credit facility and term loan B.

Among other changes, the First Amendment placed us into a Relief Period from July 15, 2020 through April 1, 2022 that prohibited the use of cash for share repurchases during this period.

On October 22, 2021, we entered into the Second Amendment which renewed the credit agreement governing our revolving credit facility and term loan B.

This Second Amendment eliminated the Relief Period restrictions on share repurchases, among other changes.

In connection with this Second Amendment we resumed share repurchases during the fourth quarter of 2021.

During 2021, we paid cash dividends of $0.30 per share for the first, second, and third quarters, and $0.35 per share for the fourth quarter.

During 2020, we paid cash dividends of $0.50 per share for the first and second quarters, and $0.30 per share for the third and fourth quarters.

We paid cash dividends of $0.45 per share for all four quarters of 2019.

The aggregate of dividends paid to shareholders for 2021, 2020, and 2019, were $109 million, $138 million, and $166 million.

On July 15, 2020, we amended the credit agreement governing our revolving credit facility and term loan B.

Among other changes, the amendment places us into a Relief Period which adds a new minimum liquidity covenant, tested quarterly until the end of the Relief Period, of (i) $250 million plus (ii) 50% of the aggregate amount of dividends paid after the amendment effective date and on or prior to the last day of the relevant fiscal quarter.

Additionally, the amendment limits the payout of dividends during the Relief Period to not exceed $0.50 per share, the rate in effect prior to the amendment.

Although our quarterly dividend was reduced during the third quarter of 2020 due to the impact of COVID-19, we intend to grow our dividend at the rate of growth of our earnings at a minimum, with the exception of the adjustment during 2018 as a result of the Spin-off, and limitations set by the Credit Agreement Amendment.

The First Amendment, which we entered into on July 15, 2020, among other changes, established a Relief Period which added a new minimum liquidity covenant, tested quarterly until the end of the Relief Period, of (i) $250 million plus (ii) 50% of the aggregate amount of dividends paid after the effective date of the First Amendment and on or prior to the last day of the relevant fiscal quarter.

Additionally, the First Amendment limited the payout of dividends during the Relief Period to not exceed $0.50 per share, the rate in effect prior to the First Amendment.

The Second Amendment, which was entered into on October 22, 2021, renewed the credit agreement governing our revolving credit facility and term loan B and terminated the Relief Period which, among other changes, eliminated the restrictions on dividends and the Relief Period minimum liquidity covenant established by the First Amendment.

Although our quarterly dividend was previously reduced due to the impacts of COVID-19, we were able to increase our dividend in the fourth quarter of 2021 and our long-term expectation is to grow our dividend at the rate of growth of our earnings at a minimum.

The declaration and payment of future dividends to holders of our common stock are at the discretion of our Board and depend upon many factors, including our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.

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Foreign Earnings

Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of the Tax Cuts and Jobs Act, which is also commonly referred to as ‘‘U.S.

tax reform,” generally eliminate U.S.

federal income taxes on dividends from foreign subsidiaries, we assert that substantially all of the undistributed foreign earnings of $805 million will be reinvested indefinitely as of December 31, 2020.

We assert that substantially all undistributed foreign earnings will be reinvested indefinitely as of December 31, 2021.

In the event we determine not to continue to assert that all or part of our undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes, as well as U.S.

taxes on currency transaction gains and losses, the determination of which is not practicable.

LONG-TERM DEBT COVENANTS

The revolving credit facilities and term loan B are subject to covenants including the maintenance of specific financial ratios as defined in the credit agreement.

The financial ratio covenants consist of a minimum interest coverage ratio and a maximum first lien leverage ratio.

The global spread of COVID-19 has significantly impacted the travel industry, our company, our customers, and our employees.

Our response to COVID-19 initially focused on the health and safety of our owners, members, guests and employees, when we closed the majority of our resorts and sales centers.

We were also keenly focused on preserving cash, cutting costs, and managing liquidity.

While we have reopened 81% of our resorts as of December 31, 2020 (92% as of the date of this filing) and reopened 86% of our sales offices (92% as of the date of this filing), the continued impact of COVID-19 on our industry and business will lead to a higher first lien leverage ratio in the near term.

On July 15, 2020, we amended the credit agreement governing the revolving credit facility and term loan B which increased the maximum first lien leverage ratio and decreased the minimum interest coverage ratio allowed during the specified Relief Period through the first quarter of 2022.

The Relief Period includes certain restrictions on the use of cash including the prohibition of share repurchases unless the first lien leverage ratio is below the original ratio of 4.25 to 1.0 after the share repurchase.

We have the option to terminate this Relief Period at any time we can demonstrate compliance with the 4.25 to 1.0 first lien leverage ratio.

As of December 31, 2020, the Relief Period increased the maximum first lien leverage ratio to not exceed 7.50 to 1.0.

Additionally, during the Relief Period, a new minimum liquidity covenant was added, which is tested quarterly until the end of the Relief Period, and requires us to maintain an interest coverage ratio (as defined in the credit agreement) of not less than 2.00 to 1.0.

See Note 16— Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details.

As of December 31, 2020, our first lien leverage ratio was 5.4 to 1.0 and our interest coverage ratio was 3.0 to 1.0.

These ratios do not include interest expense or indebtedness related to any qualified securitization financing (as defined in the credit agreement).

As of December 31, 2020, we were in compliance with the financial covenants described above.

Under the credit agreement, if our first lien leverage ratio exceeds 4.25 to 1.0, the interest rate on revolver borrowings would increase, and we would be subject to higher fees associated with our letters of credit.

Given the first lien leverage ratio at December 31, 2020, the interest rate on the revolver borrowings will increase 25 basis points effective March 1, 2021.

This interest rate is subject to future changes based on our first lien ratio which could serve to further increase the rate up to an additional 25 basis points, or reduce this rate.

Each of our non-recourse, securitized term notes, and the bank conduit facilities contain various triggers relating to the performance of the applicable loan pools.

If the VOCRs pool that collateralizes one of our securitization notes fails to perform within the parameters established by the contractual triggers (such as higher default or delinquency rates), there are provisions pursuant to which the cash flows for that pool will be maintained in the securitization as extra collateral for the note holders or applied to accelerate the repayment of outstanding principal to the note holders.

As of December 31, 2020, all of our securitized loan pools were in compliance with applicable contractual triggers.

For additional details regarding our credit facilities, term loan B, and non-recourse debt see Note 16— Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We believe that our USD bank conduit facility with an extended term through October 2022 and our AUD/NZD bank conduit facility, with a current term through September 2021, amounting to a combined capacity of $1.03 billion, along with our ability to issue term asset-backed securities, should provide sufficient liquidity for our expected sales pace, and we expect to have available liquidity to finance the sale of VOIs for the next 12 months.

As of December 31, 2020, we had $690 million of availability under these asset-backed conduit facilities.

Any disruption to the asset-backed securities market could adversely impact our future ability to obtain asset-backed financings.

Our liquidity position may also be negatively affected by unfavorable conditions in the capital markets in which we operate or if our VOCRs portfolios do not meet specified portfolio credit parameters.

Our liquidity, as it relates to our VOCRs securitization program, could be adversely affected if we were to fail to renew or replace our conduit facilities on their expiration dates, or if a particular receivables pool were to fail to meet certain ratios, which could occur in certain instances if the default rates or other credit metrics of the underlying VOCRs deteriorate.

Our ability to sell securities backed by our VOCRs depends on the continued ability and willingness of capital market participants to invest in such securities.

During the second quarter of 2020, we successfully closed on a $325 million private securitization financing.

While this transaction was at a higher cost compared to transactions we have completed in the past, it was favorable to similar transactions completed in the public market at that time.

We also closed on a $575 million securitization financing during the third quarter of 2020 at a similar cost compared to transactions we have completed in the past.

These transactions positively impacted our liquidity and reinforced our expectation that we will be able to maintain adequate liquidity for the near future.

We primarily utilize surety bonds in our vacation ownership business for sales and development transactions in order to meet regulatory requirements of certain states.

In the ordinary course of our business, we have assembled commitments from 12 surety providers in the amount of $2.3 billion, of which we had $261 million outstanding as of December 31, 2020.

During the second quarter of 2020, Moody’s Investors Service, Inc.

downgraded our secured debt rating from Ba2 to Ba3 with a “negative outlook.” Our secured debt is rated BB- with a “negative outlook” by S&P, and BB+ with a “negative outlook” by Fitch Rating Agency.

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.

Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds.

For information regarding the impact of our credit rating downgrade and credit rating downgrade of Wyndham Hotels, see Note 29— Transactions with Former Parent and Former Subsidiaries - Matters Related to the European Vacation Rentals Business to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We experience seasonal fluctuations in our net revenues and net income from sales of VOIs and vacation exchange fees.

Revenues from sales of VOIs are generally higher in the third quarter than in other quarters due to increased leisure travel.

Revenues from vacation exchange fees are generally highest in the first quarter, which is generally when members of our

vacation exchange business book their vacations for the year.

Revenues from vacation exchange fees are generally highest in the first quarter, which is generally when members of our vacation exchange business book their vacations for the year.

Our seasonality has been and could continue to be impacted by COVID-19.

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From time to time, we are involved in claims, legal and regulatory proceedings, and governmental inquiries related to our business, none of which, in the opinion of management, is expected to have a material effect on our results of operations or financial condition.

See Note 20 — Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of claims and legal actions arising in the ordinary course of our business along with our guarantees and indemnifications and Note 29 — Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a description of our obligations regarding Cendant contingent litigation, matters related to Wyndham Hotels, matters related to the European vacation rentals business, and matters related to the North American vacation rentals business.

CONTRACTUAL OBLIGATIONS

The following table summarizes the future contractual obligations of our continuing operations for the 12-month periods beginning on January 1st of each of the years set forth below (in millions):

2021 2022 2023 2024 2025 Thereafter Total

Debt $ 253 $ 653 $ 952 $ 301 $ 622 $ 1,395 $ 4,176

Non-recourse debt (a)

369 341 223 224 241 836 2,234

Interest on debt (b)

268 229 190 160 138 134 1,119

Purchase commitments (c)

228 184 100 100 98 263 973

Operating leases 35 30 28 27 23 49 192

Inventory sold subject to conditional repurchase (d)

29 30 — — — — 59

Separation liabilities (e)

1 12 — — — 2 15

Finance leases 3 3 2 — — — 8

11 — 10 — — — 21

$ 1,197 $ 1,482 $ 1,505 $ 812 $ 1,122 $ 2,679 $ 8,797

(a) Represents debt that is securitized through bankruptcy-remote special purpose entities the creditors of which have no recourse to us for principal and interest.

(b) Includes interest on both debt and non-recourse debt;

estimated using the stated interest rates on our debt and non-recourse debt.

(c) Includes (i) $714 million for marketing related activities, (ii) $143 million relating to the development of vacation ownership properties, $53 million of which is included within Accrued expenses and other liabilities on the Consolidated Balance Sheets included in Item 8 of this Annual Report on Form 10-K;

and (iii) $31 million for information technology activities.

Commitments for marketing related activities decreased $317 million from 2019 to 2020, primarily related to renegotiated and exited contracts as a result of COVID-19.

(d) Represents obligations to repurchase completed vacation ownership properties from third-party developers (see Note 11— Inventory to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further detail) of which $13 million is included within Accrued expenses and other liabilities on the Consolidated Balance Sheets included in Item 8 of this Annual Report on Form 10-K.

(e) Represents liabilities which we assumed and are responsible for pursuant to the Cendant separation and Spin-off (See Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further detail) .

(f) Represents future consideration to be paid for the acquisition of ARN (See Note 5— Acquisitions to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further detail).

(g) Excludes a $35 million liability for unrecognized tax benefits since it is not reasonably estimable to determine the periods in which such liability would be settled with the respective tax authorities.

arrangements with each of Cendant and Realogy.

For information on matters related to our former parent and subsidiaries see Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

OTHER COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Standard Guarantees/Indemnifications.

In the ordinary course of business, we enter into agreements that contain standard guarantees and indemnities whereby we indemnify another party for specified breaches of, or third-party claims relating to, an underlying agreement.

Such underlying agreements are typically entered into by one of our subsidiaries.

Also in the ordinary course of business, we provide corporate guarantees for our operating business units relating to merchant credit-card processing for prepaid customer stays and other deposits.

While a majority of these guarantees and indemnifications extend only for the duration of the underlying agreement, some survive the expiration of the agreement.

We are not able to estimate the maximum potential amount of future payments to be made under these guarantees and indemnifications as the triggering events are not predictable.

In certain cases we maintain insurance coverage that may mitigate any potential payments.

Other Guarantees/Indemnifications.

In the ordinary course of business, our vacation ownership business provides guarantees to certain owners’ associations for funds required to operate and maintain vacation ownership properties in excess of assessments collected from owners of the VOIs.

We may be required to fund such excess as a result of unsold company-owned VOIs or failure by owners to pay such assessments.

In addition, from time to time, we will agree to reimburse certain owner associations up to 80% of their uncollected assessments.

These guarantees extend for the duration of the underlying subsidy or similar agreement (which generally approximate one year and are renewable at our discretion on an annual basis).

The maximum potential future payments that we could be required to make under these guarantees was $550 million as of December 31, 2020.

We would only be required to pay this maximum amount if none of the assessed owners paid their assessments.

Any assessments collected from the owners of the VOIs would reduce the maximum potential amount of future payments to be made by us.

Additionally, should we be required to fund the deficit through the payment of any owners’ assessments under these guarantees, we would be permitted access to the property for our own use and may use that property to engage in revenue-producing activities such as rentals.

During 2020, 2019, and 2018, we made payments related to these guarantees of $13 million, $11 million, and $10 million.

As of December 31, 2020 and 2019, we maintained a liability in connection with these guarantees of $26 million and $21 million included within Accrued expenses and other liabilities on the Consolidated Balance Sheets included in Item 8 of this Annual Report on Form 10-K.

We guarantee our Vacation Ownership subsidiary’s obligations to repurchase completed property in Las Vegas, Nevada, from third-party developers subject to the property meeting our vacation ownership resort standards and provided that the third-party developers have not sold the property to another party.

The maximum potential future payments that we may be required to make under these commitments was $59 million as of December 31, 2020.

As part of the Fee-for-Service program, we may guarantee to reimburse the developer a certain payment or to purchase inventory from the developer, for a percentage of the original sale price if certain future conditions exist.

As of December 31, 2020, the maximum potential future payments that we may be required to make under these guarantees is $32 million.

As of December 31, 2020 and 2019, we had no recognized liabilities in connection with these guarantees.

In connection with our vacation ownership inventory sale transactions, for which we have conditional rights and conditional obligations to repurchase the completed properties, we are required to maintain an investment-grade credit rating from at least one rating agency.

As a result of the Spin-off, we failed to maintain an investment-grade credit rating with at least one rating agency, which triggered a default.

During 2018, we agreed to pay $8 million in fees in lieu of posting collateral in favor of the development partner in an amount equal to the remaining obligations under the agreements.

Securitizations .

We pool qualifying VOCRs and sell them to bankruptcy-remote entities, all of which are consolidated into the accompanying Consolidated Balance Sheets as of December 31, 2020.

Letters of Credit .

As of December 31, 2020, we had $127 million of irrevocable standby letters of credit outstanding, of which $96 million were under our revolving credit facilities.

As of December 31, 2019, we had $60 million of irrevocable standby letters of credit outstanding, of which $17 million were under our revolving credit facilities.

Such letters of credit issued during 2020 include a $48 million letter of credit for guarantees related to the sale of the European vacation rentals business in which Wyndham Hotels and Travel + Leisure are required to maintain certain credit ratings, see Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form

10-K for additional details.

The letters of credit issued during 2020 and 2019 also supported the securitization of VOCRs fundings, certain insurance policies, and development activity in our vacation ownership business.

Surety Bonds .

As of December 31, 2020, we had assembled commitments from 12 surety providers in the amount of $2.3 billion, of which $261 million was outstanding.

See Note 20— Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional discussion of our surety bonds.

CRITICAL ACCOUNTING POLICIES

See Note 20— Commitments and Contingencies to the Consolidated Financial Statements for a description of claims and legal actions arising in the ordinary course of our business along with our guarantees and indemnifications and Note 29— Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements for a description of our obligations regarding Cendant contingent litigation, matters related to Wyndham Hotels, matters related to the European vacation rentals business, and matters related to the North American vacation rentals business.

CRITICAL ACCOUNTING ESTIMATES

In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein.

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We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time.

In addition to our significant accounting policies referenced in Note 2— Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

However, the majority of our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

Vacation Ownership Revenue Recognition.

In addition to our significant accounting policies referenced in Note 2— Summary of Significant Accounting Policies to the Consolidated Financial Statements, presented below are the critical accounting estimates that we believe require subjective and complex judgments that could potentially affect reported results.

Vacation Ownership Revenue Recognition and Allowance for Loan Losses.

Our sales of VOIs are either cash sales or developer-financed sales.

Developer financed sales are typically collateralized by the underlying VOI.

Revenue is recognized on VOI sales upon transfer of control, which is defined as the point in time when a binding sales contract has been executed, the financing contract has been executed for the remaining transaction price, the statutory rescission period has expired, and the transaction price has been deemed to be collectible.

For developer-financed sales, we reduce the VOI sales transaction price by an estimate of uncollectible consideration at the time of the sale.

Our estimates of uncollectible amounts are based largely on the results of our static pool analysis which relies on historical payment data by customer class.

In connection with entering into a VOI sale, we may provide our customers with certain non-cash incentives, such as credits for future stays at our resorts.

For those VOI sales, we bifurcate the sale and allocate the sales price between the VOI sale and the non-cash incentive.

Non-cash incentives generally have expiration periods of 18 months or less and are recognized at a point in time upon transfer of control.

Allowance for Loan Losses.

In our Vacation Ownership segment, we provide for estimated VOCR defaults at the time of VOI sales by recording a provision for loan losses as a reduction of Vacation ownership interest sales on the Consolidated Statements of (Loss)/Income.

We assess the adequacy of the allowance for loan losses based on the historical performance of similar VOCRs.

We use a technique referred to as static pool analysis, which tracks defaults for each year’s sales over the entire life of those contract receivables.

For developer-financed sales, we project our losses for uncollectible accounts over the entire lives of our notes.

This estimate of uncollectible consideration reduces the amount of revenue recognized at the time of sale and establishes an allowance for loan loss which reduces the receivable.

Our estimates of uncollectible amounts are based on the results of our static pool analysis which tracks defaults for each year’s sales over the entire life of those contract receivables.

We consider current defaults, past due aging, historical write-offs of contracts and consumer credit scores (FICO scores) in the assessment of a borrower’s credit strength, down payment amount and expected loan performance.

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If current or expected future conditions differ from the conditions in effect when the historical experience was generated, we adjust the allowance for loan losses to reflect the expected effects of the current environment on the collectability of our VOCRs.

During the first quarter of 2020, we evaluated the impact of COVID-19 on our owners’ ability to repay their contract receivables and as a result we recorded an additional $225 million allowance.

We based our COVID-19 loan loss estimate upon historical data on the relationship between unemployment rates and net new defaults observed during the most recent recession.

As a result of our quarterly analysis on the impact of COVID-19 on our owners, in the fourth quarter there was an improvement in net new defaults and lower than expected unemployment rates;

as such we reduced this reserve by $20 million.

If unemployment rates or our collection experience for our VOCRs differ significantly from current expectations, we may need to further increase or decrease our allowance for loan losses for VOCRs.

Our inventory primarily consists of completed VOIs, VOIs under construction, land held for future VOI development, vacation credits and real estate interests sold subject to conditional repurchase.

We carry our inventory at the lower of cost, or estimated fair value less costs to sell, which can result in impairment charges and/or recoveries of previous

Cost of VOIs includes all costs directly associated with the acquisition, development and construction of the underlying resort property, including capitalized interest, property taxes and certain other carrying costs incurred during the construction process.

There were no changes to the assumptions used in this model in 2021.

In March 2020, as a result of the COVID-19 pandemic’s impact on our owners’ ability to repay their contract receivables, we added an additional model that increased the allowance for loan losses by $225 million, representing 6% of gross VOCRs as of March 31, 2020.

This additional model was based upon historical data on the relationship between unemployment rates and net new defaults.

The model provided for the full estimated impact of a recession (approximately 15-20 months from the peak of unemployment) based on our historical data from the recession in 2008.

Based upon improved performance in our portfolio (lower net new defaults) and improved unemployment rates, we reversed $111 million of the initial $225 million provision recorded in March 2020.

After considering write-offs and the allowance for remaining likely defaults associated with loans that were granted payment deferrals, we have no COVID-19 related allowances as of December 31, 2021.

The allowance for loan losses is our most significant and complex estimate.

Over the past five years, the year-end allowance as a percentage of gross VOCRs has ranged from 18.1% to 19.5% with the exception of 2020 which was 21.8% as a result of the impact of COVID-19.

See Note 10— Vacation Ownership Contract Receivables to the Consolidated Financial Statements for additional details of changes in the COVID-19 estimates and impacts to the financial statements.

We use the relative sales value method of costing and relieving our VOI inventory.

This method requires us to make estimates subject to significant uncertainty, including future sales prices and volumes as well as credit losses and related inventory recoveries.

The impact of any changes in estimates under the relative sales value method is recorded in Cost of vacation ownership interests on the Consolidated Statements of (Loss)/Income in order to retrospectively adjust the margin previously recorded subject to those estimates.

The impact of any changes in estimates under the relative sales value method is recorded in Cost of vacation ownership interests on the Consolidated Statements of Income/(Loss) in order to retrospectively adjust the margin previously recorded subject to those estimates.

There were no changes in these assumptions during 2021.

Impairment of Long-Lived Assets.

With regard to the goodwill and other indefinite-lived intangible assets recorded in connection with business combinations, we annually (during the fourth quarter of each year subsequent to completing our annual forecasting process), or more frequently if circumstances indicate that the value of goodwill may be impaired, review the reporting units’ carrying values as required by the guidance for goodwill and other intangible assets.

This is done either by performing a qualitative assessment or a quantitative assessment, with an impairment being recognized only if a reporting unit’s fair value is less than carrying value.

In any given year we can elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value.

If it is not more likely than not that the fair value is in excess of the carrying value, or we elect to bypass the qualitative assessment, we would utilize the quantitative assessment.

The qualitative factors evaluated include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, our historical share price as well as other industry-specific considerations.

Given the impact of COVID-19 on our industry and business, we performed a qualitative assessment for impairment on each reporting unit’s goodwill, as well as a quantitative assessment on ARN’s goodwill, during 2020.

Based on the results of these assessments performed during 2020, we determined that ARN’s goodwill is not impaired and that it is more likely than not that our goodwill is not impaired at our other reporting units.

To the extent estimated discounted cash flows are revised downward for ARN, whether as a result of continued and worsening COVID-19 impacts or if management’s current negotiations to expand ARN programs both internally and externally do not materialize as expected, we may be required to write-down all or a portion of goodwill, which would adversely impact earnings.

We also determine whether the carrying value of other indefinite-lived intangible assets is impaired on an annual basis or more frequently if indicators of potential impairment exist.

Application of the other indefinite-lived intangible assets impairment test requires judgment in the assumptions underlying the approach used to determine fair value.

The fair value of each other indefinite-lived intangible asset is estimated using a discounted cash flow methodology.

We perform an annual review of our goodwill and other indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist.

This analysis requires significant judgments, including anticipated market conditions, operating expense trends, estimation of future cash flows, which are dependent on internal forecasts, and estimation of long-term rate of growth.

The estimates used to calculate the fair value of other indefinite-lived intangible assets change from year to year based on operating results and market conditions.

There were no changes in the assumptions used in this analysis in 2021.

Changes in these estimates and assumptions could materially affect the determination of fair value and the other indefinite-lived intangible assets impairment.

We also evaluate the recoverability of our other long-lived assets, including property and equipment and amortizable intangible assets, if circumstances indicate impairment may have occurred, pursuant to guidance for impairment or disposal of long-lived assets.

This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets.

Property and equipment is evaluated separately within each segment.

If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.

In addition to the goodwill assessment mentioned above, as a result of the impacts of COVID-19 we performed an impairment analysis on our property and equipment, inventory, other intangible assets and certain other assets during 2020.

There were $10 million of impairments recognized during the first quarter of 2020 related to prepaid development costs and undeveloped land and impairment of the Love Home Swap tradename.

In the second quarter, we recorded a $24 million impairment related to the New Jersey lease (see Note 28— Restructuring to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details), and a $9 million impairment related to other assets including equity investments, lease assets, and furniture, fixtures and equipment.

During the third quarter we recorded $6 million of impairments driven by right-to-use leases and related fixed assets within the Vacation Ownership segment due to closed sales centers.

During the fourth quarter we recorded a $1 million impairment driven by right-to-use leases at our corporate segments and another $1 million impairment related to a terminated marketing agreement at the Vacation Ownership segment.

These impairments are included within Asset impairments on the Consolidated Statements of (Loss)/Income included in Item 8 of this Annual Report

on Form 10-K.

For additional details on these impairments see Note 27— Impairments and Other Charges to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Business Combinations.

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Such underlying agreements are typically entered into by one of our subsidiaries.

The various underlying agreements generally govern purchases, sales or outsourcing of products or services, leases of real estate, licensing of software and/or development of

vacation ownership properties, access to credit facilities, derivatives and issuances of debt securities.

Also in the ordinary course of business, we provide corporate guarantees for our operating business units relating to merchant credit-card processing for prepaid customer stays and other deposits.

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Income Taxes.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates.

We recognize the effects of changes in tax laws, or rates, as a component of income taxes from continuing operations within the period that includes the enactment date.

We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized.

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In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold.

Refer to Note 2— Summary of Significant Accounting Policies and Note 9— Income Taxes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional detail.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis