Travel & Leisure Co. (TNL) FY 2022 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS AND OVERVIEW

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

•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. This segment is wholly comprised of our Wyndham Destinations business line.

•Travel and Membership — operates a variety of travel businesses, including three vacation exchange brands, travel technology platforms, travel memberships, and direct-to-consumer rentals. This segment is comprised of our Exchange and Travel Club business lines.

Inflation Reduction Act

On August 16, 2022, the United States enacted the Inflation Reduction Act. Among other provisions, this new law imposes a 15% minimum tax rate for large corporations with more than $1.0 billion of adjusted financial statement income over a three-year period, and a 1% excise tax on stock buybacks. These changes will become effective for the 2023 tax year. We do not currently expect to be subject to the minimum tax, but we will continue to monitor as this could change. We are subject to the 1% excise tax to the extent of future share repurchases. We are still evaluating the impact of the other provisions on our business.

Travel + Leisure Brand Acquisition

On January 5, 2021, Wyndham Destinations, Inc. acquired the Travel + Leisure brand and related assets from Dotdash Meredith (formerly Meredith Corporation) for $100 million, of which $55 million was paid during 2021 and $20 million paid during 2022. The remaining payments will 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. Dotdash 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 trades on the New York Stock Exchange under the ticker symbol TNL.

Economic Conditions and Key Business Trends

The results of operations for the years ended December 31, 2022, 2021, and 2020 include impacts related to the novel coronavirus global pandemic (“COVID-19”). While significantly negative for the travel industry, our company, our customers, and our employees during its earlier stages, COVID-19 had a substantially lower impact on our results of operations during 2022. See Note 24—COVID-19 Related Items to the Consolidated Financial Statements for additional details on the impact COVID-19 had on our business.

Although our business saw strong demand for leisure travel as we continued to recover from the impacts of COVID-19, recent inflationary pressures, rising interest rates, and risk of recession inherently result in uncertainty in business trends and consumer behavior. We have experienced trends of increased gross VOI sales, including sales to new owners, tours, and volume per guest (“VPG”). In addition to the demand for leisure travel, VPG also benefited from changes we made to our consumer credit quality marketing criteria. These changes are intended to strengthen sales efficiencies as well as the performance of our vacation ownership contract receivables portfolio. As we seek to increase the mix of new owner sales and expand our pipeline of potential future owner upgrade sales, we would expect VPG levels to moderate. Our current VOI inventory levels are expected to be sufficient to support sales during the near term, which limits our exposure to increased inventory costs due to the potential effects of inflation. Higher interest rates negatively impacted our interest expense in 2022 and, if interest rates remain elevated, we expect this trend to continue. Although we are not currently seeing meaningful signs of a slowdown in leisure travel demand, we are monitoring economic conditions. Our vacation ownership business and to a greater extent, our travel and membership businesses, are highly dependent on the health of the travel industry and we are subject to the other risks and uncertainties discussed in “Risk Factors” in Part I, Item 1A of this Annual Report filed on Form 10-K.

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SEGMENT OVERVIEW

Vacation Ownership

We develop, market, and sell VOIs to individual consumers, provide consumer financing in connection with the sale of VOIs, and provide property management services at resorts. 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.

We provide day-to-day property management services including oversight of housekeeping services, maintenance, and certain accounting and administrative services for property owners’ associations and clubs. These services may also include reservation and resort renovation activities. Such agreements are generally for terms of one year or less, and are renewed automatically on an annual basis. Our management agreements contain cancellation clauses, which allow for either party to cancel the agreement, by either a majority board vote or a majority vote of non-developer interests. We receive fees for such property management services which are collected monthly in advance and are based upon total costs to operate such resorts (or as services are provided in the case of resort renovation activities). Fees for property management services typically approximate 10% of budgeted operating expenses. We are entitled to consideration for reimbursement of costs incurred on behalf of the property owners’ association in providing 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 Income/(Loss). 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).

Within our Vacation Ownership segment, we measure operating performance using the following key operating statistics: (i) gross VOI sales including sales under our Fee-for-Service program before the effect of loan loss provisions, (ii) tours, which represents the number of tours taken by guests in our efforts to sell VOIs, and (iii) volume per guest, which measures the efficiency of this business’ tour selling efforts, is calculated by dividing the gross VOI sales (excluding telesales and virtual sales) by the number of tours. We have excluded non-tour sales in the calculation of VPG because they are generated by a different marketing channel.

Travel and Membership

We are primarily a fee-for-service business deriving a majority of our revenues from membership dues and fees for facilitating members’ trading of their timeshare 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. 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. Such estimates are adjusted periodically for changes in the actual and forecasted member activity. For additional fees, members have the right to exchange their intervals for intervals at other properties affiliated with our vacation exchange networks and, for certain members, for other leisure-related services and products. We also derive revenue from facilitating bookings of travel accommodations for both members and non-members. Revenue is recognized when these transactions have been confirmed, net of expected cancellations.

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.

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Our vacation exchange business also derives revenues from programs with affiliated resorts, club servicing, and loyalty programs; and additional exchange-related products that provide members with the ability to protect trading power or points, extend the life of deposits, and combine two or more deposits for the opportunity to exchange into intervals with higher trading power. Revenues for other vacation exchange-related product fees are deferred and recognized upon the occurrence of a future exchange, event, or other related transaction.

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. The advance payments received under the program are recognized as a contract liability until our performance obligations have been satisfied. The primary performance obligation for the program relates to brand performance services. Total contract consideration is estimated and recognized on a straight-line basis over the contract term.

Within our Travel and Membership segment, we measure operating performance using the following key operating statistics: (i) average number of exchange members, which represents paid members in our vacation exchange programs who are considered to be in good standing; (ii) transactions, which represents the number of exchanges and travel club bookings recognized as revenue during the period, net of cancellations; and (iii) revenue per transaction, which represents transaction revenue divided by transactions. Transactions and revenue per transaction are provided in two categories: Exchange, which is primarily RCI, and Travel Club.

Other Items

We record property management service revenues for our Vacation Ownership segment and RCI Elite Rewards revenues for our Travel and Membership segment gross as a principal.

RESULTS OF OPERATIONS

We have two reportable segments: Vacation Ownership and Travel and Membership. Due to changes in organizational structure in the second quarter of 2022, the management of the Extra Holidays business was transitioned to the Vacation Ownership segment. As such, we reclassified the results of the Extra Holidays business, which was previously reported within the Travel and Membership segment, into the Vacation Ownership segment. Prior period segment information has been updated to reflect this change. The reportable segments presented below are those for which discrete financial information is available and which are utilized on a regular basis by the chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by the operating segments. Management uses net revenues and Adjusted EBITDA to assess the performance of the reportable segments. 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, asset impairments/recoveries, 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 & Resorts, 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 United States (“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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OPERATING STATISTICS

The table below presents our operating statistics for the years ended December 31, 2022 and 2021. These operating statistics are the drivers of our revenues and therefore provide an enhanced understanding of our businesses. Refer to The Year Ended December 31, 2022 vs. the Year Ended December 31, 2021 section for a discussion on how these operating statistics affected our business for the periods presented.

(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 provides 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.

(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 telesales and virtual sales) by the number of tours. We have excluded non-tour sales in the calculation of VPG because they are generated by a different marketing channel. 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 of acquisitions from the acquisition dates forward.

(e)Represents the number of exchanges and travel club bookings recognized as revenue during the period, net of cancellations. In 2022, the Travel and Membership segment determined that the presentation of this performance measure for Travel Club would be more reflective of how members use the club if it included add-on vacation travel bookings, such as car rentals. This update is reflected in all periods presented.

(f)In 2022, the Travel and Membership segment determined that certain rental transactions for travelers that were not RCI members are more closely aligned with Travel Club transactions (previously “Non-exchange”). Prior period results reflect the reclassification of this activity from Exchange to Travel Club.

(g)Represents transaction revenue divided by transactions.

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

(i)Percentage change may not calculate due to rounding.

(j)The following table provides a reconciliation of Vacation ownership interest sales, net to Gross VOI sales (in millions):

(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 $116 million and $101 million for the years ended December 31, 2022 and 2021. These commissions are reported within Service and membership fees on the Consolidated Statements of Income/(Loss).

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THE YEAR ENDED DECEMBER 31, 2022 VS. THE YEAR ENDED DECEMBER 31, 2021

Our consolidated results are as follows (in millions):

During 2021 we analyzed the adequacy of the COVID-19 related allowance consistent with past methodology, and as a result of improvements in net new defaults, we reduced this allowance resulting in a $91 million increase in revenues with 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 2021.

Net revenues increased $433 million during 2022 compared with 2021. This increase was unfavorably impacted by foreign currency of $15 million (0.5%). Excluding the impacts of foreign currency and the COVID-19 related allowance adjustments discussed above, the increase in net revenues was primarily the result of:

•$512 million of increased revenues at our Vacation Ownership segment primarily due to an increase in net VOI sales as a result of increased tours due to the ongoing recovery of our operations from the impact of COVID-19 and higher VPG, along with higher property management revenues due to higher property management fees and reimbursable revenues; and

•$27 million increased revenues at our Travel and Membership segment driven by higher transaction revenues and subscription revenues as a result of increased marketing and business development efforts, as well as the continued recovery from the impacts of COVID-19.

Expenses increased $398 million during 2022 compared with 2021. This increase was favorably impacted by foreign currency of $11 million (0.4%). Excluding the impacts of foreign currency and the Cost of vacation ownership interest related to the COVID-19 allowance adjustments discussed above the increase in expenses was the result of:

•$128 million increase in sales and commission expenses at the Vacation Ownership segment due to higher gross VOI sales, net of Fee-for-Service sales;

•$90 million increase in marketing costs in support of increased tour flow, new owner mix and Travel Club transactions;

•$59 million increase in property management expenses due to higher reimbursable resort operating costs and expenses;

•$45 million increase in general and administrative expenses primarily due to higher employee-related costs and legal fees;

•$34 million increase in the cost of VOIs sold primarily due to higher gross VOI sales;

•$28 million increase in maintenance fees on unsold inventory;

•$18 million increase in cost of sales at the Travel and Membership segment in support of higher Travel Club transaction revenue;

•$15 million increase in impairments primarily due to the loss on sale of property in the current year and asset recoveries recognized in the prior year;

•$15 million increase in restructuring charges driven by the elimination of certain positions which were made redundant based upon changes to the organizational structure;

•$11 million increase in sales and commission expenses as a result of the mix of VOI Fee-for-Service sales; and

•$9 million increase in other operating costs at the Travel and Membership segment in support of the new travel club launches.

Interest expense decreased $3 million during 2022 compared with 2021 primarily due to lower average outstanding debt balance in 2022.

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Interest income increased $3 million during 2022 compared with 2021 primarily due to higher interest rates on short-term investments.

Other income, net of other expense increased $16 million during 2022 compared with 2021, primarily due to a $10 million reduction of contingent consideration associated with a business acquisition.

Our effective tax rates were 26.7% and 27.0% for the years ended December 31, 2022 and 2021. Our effective tax rate for 2022 is slightly lower primarily due to a reduction in state income taxes, partially offset by a reversal of a prior year tax receivable due to a statute of limitation expiration and a tax deficiency from stock-based compensation in the current year.

During 2022, we recognized a gain on disposal of discontinued business, net of income taxes of $1 million driven by tax refunds related to the sale of the European vacation rentals business. During 2021 we recognized a loss on disposal of discontinued business, net of income taxes of $5 million resulting from a settlement agreement for post-closing adjustment claims related to this sale.

As a result of these items, Net income attributable to Travel + Leisure Co. shareholders increased $49 million in 2022 as compared with 2021.

The tables below present our segment information, followed by a discussion of each segment’s 2022 results compared to 2021 (in millions):

(a)Includes the elimination of transactions between segments.

(b)Includes $3 million of stock-based compensation expense for the year ended December 31, 2022 associated with the 2022 restructuring plans.

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(c)Includes $1 million of inventory impairments for the year ended December 31, 2022, included in Cost of vacation ownership interests on the Consolidated Statements of Income/(Loss).

(d)Includes expenses related to COVID-19 testing and other expenses associated with our return-to-work program in 2022. In 2021, this includes severance and other employee costs associated with layoffs due to the COVID-19 workforce reduction; offset in part by U.S. and international government employee retention credits.

Vacation Ownership

Net revenues increased $412 million and Adjusted EBITDA increased $96 million during 2022 compared with 2021. The net revenue increase was unfavorably impacted by foreign currency of $9 million (0.4%) and the Adjusted EBITDA increase was unfavorably impacted by foreign currency of $3 million (0.5%).

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

•$486 million increase in gross VOI sales, net of Fee-for-Service sales, due to increased tours associated with the ongoing recovery of our operations from the impact of COVID-19 and higher VPG due to strong close rates and higher quality tours;

•$68 million increase in property management revenues primarily due to higher management fees and reimbursable revenues;

•$17 million increase in commission revenues due to the volume of VOI Fee-for-Service sales; and

•$14 million increase in other revenues due to higher VOI travel package and incentive revenue.

These increases were partially offset by a $173 million increase in our provision for loan losses primarily due to higher gross VOI sales, a 300 basis point increase in sales financed compared to the prior year, and the absence of the prior year $91 million partial release of the COVID-19 related allowance. The increase in percentage of sales financed is in line with our strategic decision to grow our portfolio in pursuit of higher consumer financing revenue in exchange for the incremental increase in the provision for loan losses associated with incremental vacation ownership contract receivable (“VOCR”) originations.

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

•$128 million increase in sales and commission expenses due to higher gross VOI sales, net of Fee-for-Service sales;

•$88 million increase in marketing costs in support of increased tour flow and new owner mix;

•$59 million increase in property management expenses due to higher reimbursable resort operating costs and expenses;

•$28 million increase in maintenance fees on unsold inventory;

•$21 million increase in general and administrative expenses primarily due to higher employee-related costs;

•$11 million increase in sales and commission expenses as a result of the mix of VOI Fee-for-Service sales; and

•$1 million increase in the cost of VOIs sold primarily due to higher gross VOI sales partially offset by the absence of the $33 million reduction in estimated recoveries related to the release of the COVID-19 related allowance in the prior year.

Travel and Membership

Net revenues increased $21 million and Adjusted EBITDA decreased $3 million during 2022 compared with 2021. The net revenue increase was unfavorably impacted by foreign currency of $6 million (0.8%) and the Adjusted EBITDA decrease was unfavorably impacted by foreign currency of $1 million (0.4%).

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

•$20 million increase in transaction revenue driven by higher Travel Club transactions as a result of increased marketing and business development efforts, as well as the ongoing recovery from COVID-19. This increase was achieved despite some loss of supply for certain RCI affiliate locations where units had to be placed out of service due to damages sustained from Hurricane Ian in the fourth quarter of 2022; and

•$10 million increase in subscription revenue primarily due to the lessening impact of coupons issued during COVID-19. This increase was achieved despite a lower average exchange member count as a result of lower new owner enrollments due to COVID-19, industry consolidation, and lower renewals. We anticipate that the industry-wide decline in new owner enrollments as a result of COVID-19 will continue to have an impact on the level of exchange transactions into the first half of 2023.

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

•$18 million increase in cost of sales primarily due to increased Travel Club transaction revenue; and

•$11 million increase in marketing and other costs, primarily in support of the new travel club launches.

Corporate and other

Adjusted EBITDA decreased $12 million (19.4%) during 2022 compared with 2021 and was not materially impacted by foreign currency. The decrease in Adjusted EBITDA was primarily due to higher legal fees and employee-related costs.

For a comparative review of our consolidated results of operations and those of our reportable segments for the fiscal years ended December 31, 2021 and 2020, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 23, 2022.

DISCONTINUED OPERATIONS

During 2022 we recognized a $1 million gain on disposal of discontinued business, net of income taxes. During 2021 and 2020 we recognized losses on disposal of discontinued business, net of income taxes of $5 million and $2 million.

During both 2022 and 2020 we had $5 million of Net cash used in investing activities from discontinued operations on the Consolidated Statements of Cash Flows. We had no cash flow activity related to discontinued operations during 2021. See Note 6—Discontinued Operations to the Consolidated Financial Statements for additional information.

RESTRUCTURING PLANS

During 2022 and 2020, we incurred $14 million and $39 million of restructuring charges. During 2021, we reversed $1 million of the restructuring charges incurred in 2020. See Note 26—Restructuring to the Consolidated Financial Statements for additional details of our restructuring activities.

FINANCIAL CONDITION

Total assets increased $169 million from December 31, 2021 to December 31, 2022, due to:

•$181 million increase in Cash and cash equivalents primarily due to net cash provided by operating activities and net proceeds on debt and non-recourse debt; partially offset by share repurchases, dividends to shareholders, property and equipment additions, and payments associated with the acquisition of the Travel + Leisure brand;

•$29 million increase in Trade receivables, net driven by increased VOI trial package receivables and increased receivables associated with property management fees and reimbursable revenue; and a

•$61 million increase in Vacation ownership contract receivables, net, driven by VOI originations, partially offset by principal collections and allowance for loan losses.

These increases were partially offset by:

•$23 million decrease in Inventory driven by VOI sales and the net transfer of completed unregistered VOI inventory to property and equipment, partially offset by purchases of completed inventory and inventory recoveries;

•$25 million decrease in Prepaid expenses driven by the timing of prepaid maintenance fees;

•$31 million decrease in Property and equipment, net, driven by depreciation, partially offset by capital additions and the net transfer of completed VOI inventory to property and equipment; and a

•$15 million decrease in Other assets due to amortization of right-of-use operating lease assets and the sale of our equity investment in Vacasa LLC, partially offset by an increase in derivative assets.

Total liabilities increased $279 million from December 31, 2021 to December 31, 2022, due to:

•$39 million increase in Non-recourse vacation ownership debt primarily due to net borrowings; and a

•$290 million increase in Debt driven by an incremental term loan B borrowing.

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These increases were partially offset by a $63 million decrease in Accrued expenses and other liabilities driven by right-of-use operating lease liability payments, a decrease in income taxes payable, payment associated with the acquisition of the Travel + Leisure brand, payment of payroll taxes previously deferred under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and a reduction in contingent consideration associated with a business acquisition, partially offset by an increase in inventory obligations and derivative liabilities.

Total deficit increased $110 million from December 31, 2021 to December 31, 2022, primarily due to $352 million of share repurchases; $136 million of dividends; and $31 million of unfavorable currency translation adjustments driven by fluctuations in exchange rates, primarily the British pound sterling, Australian dollar, Danish krone, and the Euro; partially offset by $357 million of Net income attributable to Travel + Leisure Co. shareholders and a $50 million increase in additional paid-in capital, primarily due to stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

We believe that we have sufficient sources of liquidity to meet our expected ongoing short-term and long-term cash needs, 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 along with our revolving credit facilities, bank conduit facilities, and continued access to debt markets. We believe these anticipated sources of liquidity are sufficient to meet our expected ongoing short-term and long-term cash needs, including the repayment of our $400 million notes due in March 2023. Our discussion below highlights these sources of liquidity and how they have been utilized to support our cash needs.

Cash and Cash Equivalents

As of December 31, 2022, we had $550 million of Cash and cash equivalents, which includes highly-liquid investments with an original maturity of three months or less.

$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. The facility expires in October 2026 and had $1.0 billion of available capacity as of December 31, 2022.

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.

During 2021, we entered into a second amendment to the credit agreement governing our revolving credit facility and term loan B (“Second Amendment”) which resulted in the termination of the relief period restrictions adopted in the July 15, 2020 first amendment as a result of the COVID-19 pandemic. The Second Amendment also included customary London Interbank Offered Rate (“LIBOR”) replacement language providing for alternative interest rate options upon the cessation of LIBOR publication. It is our intention to resolve our remaining LIBOR exposures in the first quarter of 2023 by early adopting the Term Secured Overnight Financing Rate (“SOFR”) on our revolving credit facility and Term Loan B facility.

As of December 31, 2022, our interest coverage ratio was 4.83 to 1.0 and our first lien leverage ratio was 3.54 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, 2022, we were in compliance with the financial covenants described above.

Secured Notes, and Term Loan B facilities

We generally utilize borrowing via secured note issuances to meet our long-term financing needs. During 2021, we issued $650 million of senior secured notes due 2029 with an interest rate of 4.50% and during 2022 we amended the credit agreement governing our revolving credit facility and term loan B (“Third Amendment”) which provided for an incremental term loan B borrowing of $300 million due 2029. We expect to use the net proceeds from the incremental term loan B borrowing toward the repayment of our $400 million notes due in March 2023. These transactions reinforce our expectation that we will maintain adequate liquidity for the next year and beyond. As of December 31, 2022, we had $3.66 billion of outstanding borrowings under our secured notes and Term Loan B facilities with maturities ranging from 2023 to 2030.

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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. We plan to continue using these sources to finance certain VOCRs. On March 4, 2022 we renewed our USD bank conduit facility, extending its term through July 2024. This renewal included a reduction of the USD borrowing capacity from $800 million to $600 million. On December 21, 2022 we renewed our AUD/NZD bank conduit facility, extending its term through December 2024. The renewal included a reduction of the AUD borrowing capacity from A$250 million to A$200 million and a reduction of the NZD borrowing capacity from NZ$48 million to NZ$25 million. These capacity reductions were made in an effort to reduce fees associated with unused capacity. We believe that our USD bank conduit facility and our AUD/NZD bank conduit facility, amounting to a combined capacity of $752 million ($324 million available as of December 31, 2022), along with our ability to issue term asset-backed securities, provides sufficient liquidity to finance the sale of VOIs beyond the next year.

We closed on securitization financings of $800 million, $850 million, and $900 million during 2022, 2021, and 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, 2022, 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.

For additional details regarding our credit facilities, term loan B facilities, and non-recourse debt see Note 15—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, and through the use of our revolving credit facilities, bank conduit facilities, and continued access to debt markets.

(a)Represents required principal payments on notes, term loans, and finance leases.

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

(c)Includes interest on debt and non-recourse debt; estimated using the stated interest rates.

(d)Includes $575 million for marketing related activities and $112 million for information technology activities.

(e)Represents obligations to repurchase completed vacation ownership properties from third-party developers (see Note 10—Inventory to the Consolidated Financial Statements for further detail) which was included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

(f)Excludes a $33 million liability for unrecognized tax benefits as 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 and indemnifications related to the sale of our vacation rentals businesses. For information on matters related to our former parent and subsidiaries see Note 27—Transactions with Former Parent and Former Subsidiaries to the Consolidated Financial Statements.

In addition to the key contractual obligation and separation related commitments described 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, customer data safeguards, 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 receive offsetting indemnifications from third-parties and/or 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 $483 million as of December 31, 2022. 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 2022, 2021, and 2020, we made payments related to these guarantees of $12 million, $13 million, and $13 million. As of December 31, 2022 and 2021, we maintained a liability in connection with these guarantees of $20 million and $32 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, 2022, the maximum potential future payments that we may be required to make under these guarantees is $51 million. As of December 31, 2022 and 2021, 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, 2022, we had $34 million of irrevocable standby letters of credit outstanding, none of which were under our revolving credit facilities. 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.

We also 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 $455 million outstanding as of December 31, 2022. The

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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, 2022, our maximum obligation under these severance plans was $173 million. Refer to the Proxy Statement for our 2023 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 “stable outlook” by Moody’s Investors Service, Inc., 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 27—Transactions with Former Parent and Former Subsidiaries—Matters Related to the European Vacation Rentals Business to the Consolidated Financial Statements.

Currently, we have debt instruments in place that reference LIBOR-based rates. Although certain of these LIBOR based obligations provide for alternative methods of calculating the related interest rate payable (including transition to an alternative benchmark rate) if LIBOR is not reported, it may result in interest rates and/or payments that are higher than, lower than, or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form.

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 in 2021. In the first quarter of 2023, we expect to exercise our option under our credit agreement to replace LIBOR with Term SOFR, subject to lender approval, as the benchmark rate governing our revolving credit facility and Term Loan B, which would eliminate our largest exposure to LIBOR based interest rates.

CASH FLOWS

The following table summarizes the changes in cash, cash equivalents, and restricted cash between 2022 and 2021 (in millions). For a comparative review of the fiscal years ended December 31, 2021 and 2020, refer to the Cash Flows section in Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 23, 2022.

Operating Activities

Net cash provided by operating activities was $442 million for the year ended December 31, 2022, compared to $568 million in the prior year. This $126 million decrease in 2022 was primarily driven by a $403 million increase in cash utilized for working capital, partially offset by a $234 million increase in non-cash add-back items, mainly a higher provision for loan losses, and a $49 million increase in net income from continuing operations.

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Investing Activities

Net cash used in investing activities from continuing operations decreased $48 million during the year ended December 31, 2022 This decrease was primarily driven by $35 million of cash payments for the acquisition of the Travel + Leisure brand in the prior year; and $8 million of proceeds from the sale of investments in the current year.

Net cash used in investing activities from discontinued operations was $5 million for the year ended December 31, 2022, primarily related to the settlement of post-closing adjustment claims associated with the sale of the European vacation rentals business.

Financing Activities

Net cash used in financing activities decreased $1.09 billion during the year ended December 31, 2022. This decrease was primarily due to $812 million of net repayments on debt and notes in the prior year compared to $284 million of net proceeds in the current year, $294 million of net repayments on non-recourse debt in the prior year compared to net proceeds of $47 million in the current year; partially offset by $326 million of higher share repurchases in the current year.

Capital Deployment

We focus on deploying capital for the highest possible returns. Ultimately, our business objective is to grow our business while optimizing cash flow and Adjusted EBITDA. We intend to continue to invest in select capital and technological improvements across our business. We may also seek to strategically grow the business through merger, acquisition, and other strategic transaction activities. As part of this strategy, we have made, and expect to continue to make, 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 of Directors.

During 2022, we spent $144 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 2023 through 2027 is expected to be between $130 million and $150 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 2022, we spent $52 million on capital expenditures, primarily for information technology and sales center improvement projects. During 2023, we anticipate spending between $60 million and $65 million on capital expenditures, primarily for continuation of information technology digital initiatives, travel club enablement, and sales center/resort improvements.

In connection with our focus on optimizing cash flow, we are continuing our asset-light efforts in vacation ownership by seeking opportunities with financial partners whereby they make strategic investments to develop assets on our behalf. We refer to this as Just-in-Time. The partner may invest in new ground-up development projects or purchase from us, for cash, existing in-process inventory which currently resides on our Consolidated Balance Sheets. 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 and cash and cash equivalents. 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.

Share Repurchase Program

On August 20, 2007, our Board of Directors authorized a share repurchase program that enables us to purchase our common stock. As of December 31, 2022, the Board of Directors has increased the capacity of the program nine times, most recently in April 2022 by $500 million, bringing the total authorization under the current program to $6.5 billion. We had $477 million of remaining availability in our program as of December 31, 2022.

Under our current share repurchase program, we repurchased 8.2 million shares at an average price of $42.97 for a cost of $351 million during the year ended December 31, 2022. The amount and timing of specific repurchases are subject to market

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conditions, applicable legal requirements and other factors, including capital allocation priorities. Repurchases may be conducted in the open market or in privately negotiated transactions.

Dividends

We paid cash dividends of $0.40 per share for all four quarters of 2022. 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. The aggregate dividends paid to shareholders for 2022, 2021, and 2020, were $135 million, $109 million, and $138 million.

Our long-term plan 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 of Directors 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 of Directors deems relevant. There is no assurance that a payment of a dividend or a dividend at current levels will occur in the future.

Foreign Earnings

We assert that substantially all undistributed foreign earnings will be reinvested indefinitely as of December 31, 2022. 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.

SEASONALITY

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.

The seasonality of our business may cause fluctuations in our quarterly operating results. As we expand into new markets and geographical locations, we may experience increased or different seasonality dynamics that create fluctuations in operating results different from the fluctuations we have experienced in the past.

COMMITMENTS AND CONTINGENCIES

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 19—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 27—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. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated results of operations, financial position, and liquidity. 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, 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. 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.

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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. We also consider whether the historical economic conditions are comparable to current economic conditions. 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. There were no changes to the assumptions used in this model in 2022.

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 not had a COVID-19 related allowance since 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 9—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.

Inventory. 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 Income/(Loss) in order to retrospectively adjust the margin previously recorded subject to those estimates. There were no changes in these assumptions during 2022.

Impairment of Long-Lived Assets. 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 2022. Changes in these estimates and assumptions could materially affect the determination of fair value and the other indefinite-lived intangible assets impairment.

Business Combinations. A component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. We account for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.

In determining the fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling and referenced market values (where available). Further, we make assumptions within certain valuation techniques including discount rates and timing of future cash flows. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate. We believe that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.

Guarantees. 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. 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. 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

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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.

Income Taxes. 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. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially impact our results of operations.

For tax positions we have taken or expect to take in our tax return, we apply a more likely than not threshold, under which we must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to recognize or continue to recognize the benefit. In determining our provision for income taxes, we use judgment, reflecting our estimates and assumptions, in applying the more likely than not threshold.