Travel & Leisure Co. (TNL) FY 2023 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 includes our Wyndham Destinations business line.

•Travel and Membership — operates a variety of travel businesses, including 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.

Economic Conditions and Key Business Trends

Our business continues to leverage demand for leisure travel, as consumers have prioritized leisure travel following COVID-19. While we are experiencing the benefits of current demand levels, recent inflationary pressures, higher interest rates, and risk of recession inherently result in uncertainty in business trends and consumer behavior. Since the peak of COVID-19, we have experienced trends of increased gross VOI sales, including sales to new owners, volume per guest (“VPG”), and tours. With the strength in travel demand, we are once again focusing on increasing the mix of new owner sales in order to expand our pipeline of potential future owner upgrade sales. As expected with this strategic shift, we are beginning to see our VPGs moderate, however they remain above pre-pandemic levels. In addition to the new owner impact on our VPGs, during 2023 we saw a modest softening of close rates, which we believe reflects demand stabilization after the release of pent-up travel demand that benefited us in the prior year. Despite this modest softening of close rates during the year, they still remain above pre-pandemic levels.

During the pandemic we made changes 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 (“VOCR”) portfolio. As a result of these changes we have seen an overall improvement in delinquencies, although we saw some normalization of delinquency rates during 2023, they remain below 2019 levels.

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 during 2023 as well as the reporting periods since COVID-19 and, if interest rates remain elevated, we would expect this trend to continue. Although we are not currently seeing meaningful signs of a slowdown in leisure travel demand at our Vacation Ownership business, we are monitoring economic conditions.

During 2023, our Travel and Membership segment saw a decrease in transactions due to an increasing mix of exchange members with a club affiliation, who have a lower transaction propensity. This is a trend we expect to continue into 2024. Transactions were also impacted by a slower than expected ramp-up of our travel clubs. The decrease in transactions was partially offset by an improvement in revenue per transaction.

While our Vacation Ownership business is benefited by the fact that the majority of our owners do not have loans and are therefore less dependent on economic conditions when making travel decisions, this 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” contained in Part I, Item 1A of our Annual Report on Form 10-K.

Inflation Reduction Act

On August 16, 2022, the United States (“U.S.”) enacted the Inflation Reduction Act. Among other provisions, this new law imposes a 15% minimum tax rate for large corporations with an average of 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 became 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 and during 2023 have incurred $3 million of excise tax related to share repurchases, which is expected to be paid in April 2024. This excise tax is included within Treasury stock on the Consolidated Balance Sheets.

Pillar Two

The Organization for Economic Co-operation and Development (“OECD”), continues to put forth various initiatives, including Pillar Two rules which include the introduction of a global minimum tax at a rate of 15%. European Union member states agreed to implement the OECD’s Pillar Two rules with effective dates of January 1, 2024 and January 1, 2025, for different

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aspects of the directive and most have already enacted legislation. A number of other countries are also implementing similar legislation. These changes may increase our taxes in the applicable jurisdictions or cause us to change the way we operate our business and result in increased taxation of our international earnings. We are currently in the process of evaluating the impact these changes will have on our consolidated financial statements, and are closely monitoring other countries that may enact similar legislation.

Playbook365 Acquisition

On January 3, 2023, we acquired the Playbook365 business for $13 million, comprised of $6 million of cash paid at closing and contingent consideration with a fair market value of $7 million, which can range to $24 million, based on the achievement of certain financial metrics. Playbook365 is a youth and amateur sports management platform. This platform was integrated with Alliance Reservations Network’s (“ARN”) event lodging management platform to create an all-in-one solution in the youth sports market. This acquisition was made to broaden the products and services offered by ARN, and is included within the Travel and Membership segment. See Note 5—Acquisitions to the Consolidated Financial Statements for additional details.

Sports Illustrated Resorts Agreement

On September 11, 2023, we entered into an agreement to acquire the rights to the vacation ownership business of Sports Hospitality Ventures, LLC (“SHV”), a hotel and resorts licensee for the Sports Illustrated brand. Together with SHV, we introduced a new concept for a network of sports-themed resort and lifestyle complexes in popular college towns and leisure destinations. The new resorts are anticipated to be developed using an asset-light development financing model. The first resort in the new business line is expected to open in Tuscaloosa, Alabama, in late 2025. This new business line is included within the Vacation Ownership segment. There is no immediate earnings impact for us, but we expect this business to drive incremental growth starting in the second half of 2025.

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 allocate the sales price between the VOI sale and the non-cash incentive. Non-cash incentives generally have expiration periods of two years 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. We reduce our management fees revenue 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 and reimbursable 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.

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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 derive 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. 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. 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 that were acquired from various sources. Revenue is recognized when these transactions have been confirmed, net of expected cancellations.

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 from 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 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. 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 Adjusted EBITDA to assess the performance of the reportable segments. We define Adjusted EBITDA as net 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, 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 Corporation (“Cendant”), and the sale of the vacation rentals businesses. We believe that Adjusted EBITDA is a useful measure of

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performance for our segments which, when considered with generally accepted accounting principles in the U.S. (“GAAP”) measures, we believe 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.

OPERATING STATISTICS

The table below presents our operating statistics for the years ended December 31, 2023 and 2022. 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, 2023 vs. The Year Ended December 31, 2022” section for a discussion of 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 bookings recognized as revenue during the period, net of cancellations.

(f)Represents transaction revenue divided by transactions.

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

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

(i)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 $131 million and $116 million for the years ended December 31, 2023 and 2022. These commissions are reported within Service and membership fees on the Consolidated Statements of Income.

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THE YEAR ENDED DECEMBER 31, 2023 VS. THE YEAR ENDED DECEMBER 31, 2022

Our consolidated results are as follows (in millions):

Net revenues increased $183 million during 2023 compared with 2022. This increase was unfavorably impacted by foreign currency of $7 million (0.2%). Excluding the impacts of foreign currency, the increase in net revenues was primarily due to:

•$212 million of increased revenues at our Vacation Ownership segment primarily due to an increase in gross VOI sales, net of Fee-for-Service sales as a result of increased tours, partially offset by an increase in our provision for loan losses associated with these sales; higher property management revenues resulting from higher property management fees and reimbursable revenues; increased other revenues due to higher VOI travel package and incentive revenues; an increase in consumer financing revenues primarily due to a higher average portfolio balance; and increased commission revenues due to higher volume of VOI Fee-for-Service sales; partially offset by

•$23 million of decreased revenues at our Travel and Membership segment primarily due to lower transactions, partially offset by increased revenue per transaction.

Expenses increased $114 million during 2023 compared with 2022. This increase in expenses, excluding immaterial foreign currency impacts, was primarily the result of:

•$56 million increase in marketing costs mainly in support of increased tour flow and new owner mix at our Vacation Ownership business;

•$45 million increase in property management expenses due to higher reimbursable resort operating costs and expenses;

•$32 million increase in consumer financing interest expense primarily due to an increased weighted average coupon rate;

•$31 million increase in sales and commission expenses at the Vacation Ownership segment due to higher gross VOI sales, net of Fee-for-Service sales; and a

•$12 million increase in restructuring costs as we focused on enhancing organizational efficiency and rationalizing operations.

These increases were partially offset by a $25 million decrease in general and administrative expenses driven by lower professional fees and employee costs; $24 million decrease in the cost of VOIs sold primarily due to estimated recoveries associated with the aforementioned provision increase and product mix; and a $10 million decrease due to asset impairments recorded in the prior year.

We recognized a loss on sale of business of $2 million during 2023 resulting from the sale of the Love Home Swap business.

Interest expense increased $56 million during 2023 compared with 2022 primarily due to increased borrowing activity under the revolving credit facility, the issuance of the 2022 Incremental Term Loan B facility in the fourth quarter of 2022, and higher interest rates on variable borrowings in 2023.

Other income, net of other expense decreased $19 million during 2023 compared with 2022, primarily due to a $10 million benefit in the prior year, related to a reduction in the fair value of contingent consideration associated with a business acquisition.

Interest income increased $7 million during 2023 compared with 2022 primarily due to higher interest rates.

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Our effective tax rates were 19.4% and 26.7% for the years ended December 31, 2023 and 2022. Our effective tax rate for 2023 is lower primarily due to the partial reversal of the valuation allowance related to our foreign tax credits based on our determination that it is more likely than not that the benefit will be realized.

Gain on disposal of discontinued business, net of income taxes increased $4 million during 2023 compared with 2022 primarily resulting from the release of an expired guarantee related to the sale of the European vacation rentals business in 2023.

As a result of these items, Net income attributable to Travel + Leisure Co. shareholders increased $39 million in 2023 as compared with 2022.

The tables below present our segment information, followed by a discussion of each segment’s 2023 results compared to 2022 (in millions):

(a)Includes the elimination of transactions between segments.

(b)Includes $2 million and $3 million of stock-based compensation expense for the years ended December 31, 2023 and 2022 associated with the 2023 and 2022 restructuring plans.

(c)Includes $1 million of inventory impairments for the years ended December 31, 2023 and 2022, included in Cost of vacation ownership interests on the Consolidated Statements of Income.

(d)Includes expenses related to COVID-19 testing and other expenses associated with our return-to-work program in 2022.

Vacation Ownership

Net revenues increased $206 million and Adjusted EBITDA increased $64 million during 2023 compared with 2022. The net revenue growth was unfavorably impacted by foreign currency of $6 million (0.2%) and Adjusted EBITDA growth was unfavorably impacted by foreign currency of $3 million (0.5%).

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

•$149 million increase in gross VOI sales, net of Fee-for-Service sales, due to increased tours, partially offset by a decrease in VPG due to higher mix of new owner tours (52% in the current year compared to 45% in the same period of 2022) which generally produce lower sales volume and lower close rates;

•$52 million increase in property management revenues primarily due to higher management fees and reimbursable revenues;

•$22 million increase in other revenues due to higher VOI travel package and incentive revenues;

•$21 million increase in consumer financing revenues primarily due to a higher average portfolio balance; and

•$15 million increase in commission revenues due to the volume of VOI Fee-for-Service sales.

These increases were partially offset by a $47 million increase in our provision for loan losses primarily due to higher gross VOI sales, net of Fee-for-Service sales.

In addition to the revenue change explained above, Adjusted EBITDA was further impacted by:

•$61 million increase in marketing costs in support of increased tour flow and new owner mix;

•$45 million increase in property management expenses due to higher reimbursable resort operating costs and expenses;

•$32 million increase in consumer financing interest expense primarily due to an increased weighted average coupon rate;

•$31 million increase in sales and commission expenses due to higher gross VOI sales, net of Fee-for-Service sales; and

•$8 million increase in other operating expenses due to higher VOI travel package and incentive expenses.

These increases were partially offset by a $24 million decrease in the cost of VOIs sold primarily due to estimated recoveries associated with the aforementioned provision increase and product mix, and a $19 million decrease in general and administrative expenses due to lower professional fees and employee related costs.

Travel and Membership

Net revenues decreased $24 million and Adjusted EBITDA decreased $21 million during 2023 compared with 2022. The net revenue decrease was unfavorably impacted by foreign currency of $1 million (0.1%) and the Adjusted EBITDA decrease was unfavorably impacted by foreign currency of $5 million (1.9%).

The decrease in net revenues excluding the impact of foreign currency was primarily driven by lower transactions, partially offset by increased revenue per transaction. Transactions were impacted by an increasing mix of exchange members with a club affiliation. who have a lower transaction propensity.

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

•$7 million decrease in cost of sales primarily associated with lower transactions; partially offset by heavier weighting of rentals in Exchange’s revenue mix; and a

•$5 million decrease in marketing costs; partially offset by a

•$5 million increase in other operating costs primarily related to business development activities.

Corporate and other

Corporate and other revenue increased $1 million during 2023 compared with 2022 primarily due to $5 million of fees charged for managing an insurance program on behalf of homeowners associations; partially offset by a $4 million increase in eliminated transactions between segments.

Adjusted EBITDA increased $6 million (8.1%) during 2023 compared with 2022 and was not materially impacted by foreign currency. The growth in Adjusted EBITDA was primarily due to $5 million of fees charged for managing an insurance program on behalf of homeowners associations.

For a comparative review of our consolidated results of operations and those of our reportable segments for the fiscal years ended December 31, 2022 and 2021, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 22, 2023.

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DISCONTINUED OPERATIONS

During 2023 and 2022, we recognized $5 million and $1 million Gains on disposal of discontinued business, net of income taxes. During 2021, we recognized a Loss on disposal of discontinued business, net of income taxes of $5 million.

During 2022, we had $5 million of Net cash used in investing activities from discontinued operations on the Consolidated Statements of Cash Flows. See Note 6—Discontinued Operations to the Consolidated Financial Statements for additional information.

RESTRUCTURING PLANS

2023 Restructuring Plan

We incurred $26 million of restructuring charges during the year ended December 31, 2023. These actions were primarily focused on enhancing organizational efficiency and rationalizing operations. These charges included personnel-related costs resulting from a reduction of approximately 250 employees and other expenses. As part of this restructuring plan, we also decided to decrease our facilities by closing our owned office in Indianapolis, Indiana, and exiting other leased locations. The charges consisted of (i) $11 million of personnel-related costs at the Travel and Membership segment, (ii) $9 million of personnel-related costs and $1 million of lease costs at the Vacation Ownership segment, and (iii) $5 million of personnel-related costs at our corporate operations. These restructuring charges included $2 million of accelerated stock-based compensation expense. Substantially all initiative and related expenses have been incurred as of December 31, 2023.

2022 Restructuring Plan

We incurred $14 million of restructuring charges during the year ended December 31, 2022. These charges were associated with certain positions that were made redundant based upon changes to our organizational structure, primarily within the Travel and Membership segment. The charges consisted of (i) $9 million of personnel costs at the Travel and Membership segment, (ii) $3 million of lease and personnel-related costs at the Vacation Ownership segment, and (iii) $2 million of personnel-related costs at our corporate operations. These restructuring charges included $3 million of accelerated stock-based compensation expense.

See Note 26—Restructuring to the Consolidated Financial Statements for additional details of our restructuring activities.

FINANCIAL CONDITION

Total assets decreased $19 million from December 31, 2022 to December 31, 2023, due to:

•$268 million decrease in Cash and cash equivalents primarily driven by $400 million repayment of the 3.90% secured notes during the first quarter of 2023, $309 million of payments for share repurchases, $136 million of dividend payments, $74 million of property and equipment additions, $22 million of payments relating to debt issuances/modifications, and $15 million payment associated with the acquisition of the Travel + Leisure brand partially offset by $350 million of net cash provided by operating activities, proceeds from $300 million of borrowings on the 2023 Incremental Term Loan B facility, and $103 million of net proceeds from non-recourse debt; and a

•$58 million decrease in Inventory driven by the sale of $133 million of VOI inventory and $16 million of net transfers of completed unregistered VOI inventory to property and equipment; partially offset by $88 million of inventory additions.

These decreases were partially offset by:

•$38 million increase in Restricted cash driven by a $14 million increase in escrow deposits, $13 million increase in restricted cash for securitizations, and $11 million increase in funds on deposit related to our insurance program;

•$19 million increase in Trade receivables, net driven by increased receivables associated with property management fees and reimbursable expenses;

•$157 million increase in Vacation ownership contract receivables, net, driven by $1.43 billion of VOI originations, partially offset by $924 million of principal collections and net provision for loan losses of $348 million;

•$27 million increase in Prepaid expenses driven by $17 million increase in prepaid marketing costs and $9 million increase in prepaid travel credits; and a

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•$70 million increase in Other assets driven by increases of $49 million of tax receivables; $19 million in non-trade receivables, $9 million in capitalized contract costs, $9 million increase in deferred costs, and a $7 million increase in assets held-for-sale, partially offset by $16 million of amortization of right-of-use assets and the release of $12 million of collateral assets.

Total liabilities decreased $6 million from December 31, 2022 to December 31, 2023, primarily due to:

•$69 million decrease in Accrued expenses and other liabilities primarily due to a $30 million decrease due to the relief of the inventory obligation in Las Vegas, Nevada, a $24 million decrease in lease liabilities, a $17 million decrease in accrued payroll and related costs primarily employee bonus and commissions, and a $15 million decrease in tax liabilities, partially offset by an $10 million increase in funds on deposit related to our insurance program; and a

•$94 million decrease in Debt driven by $400 million repayment of the 3.90% secured notes during the first quarter of 2023; partially offset by $300 million of borrowings on the 2023 Incremental Term Loan B facility.

These decreases were partially offset by a:

•$43 million increase in Deferred income driven primarily by deferred VOI trial package and incentive revenues; and a

•$98 million increase in Non-recourse vacation ownership debt primarily due to net borrowings.

Total deficit increased $13 million from December 31, 2022 to December 31, 2023, primarily due to $307 million of share repurchases and $137 million of dividends; partially offset by $396 million of Net income attributable to Travel + Leisure Co. shareholders and a $37 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 facility, 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 $300 million notes due in April 2024. 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, 2023, we had $282 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 $998 million of available capacity as of December 31, 2023.

The revolving credit facility and term loan B facilities 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 of no less than 2.50 to 1.0 as of the measurement date and a maximum first lien leverage ratio not to exceed 4.25 to 1.0 as of the measurement date. 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. Our first lien leverage ratio determines the interest rate spread on revolver borrowings and fees associated with letters of credit, which subjects them to fluctuation.

As of December 31, 2023, our interest coverage ratio was 4.23 to 1.0 and our first lien leverage ratio was 3.40 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, 2023, we were in compliance with the financial covenants described above.

On March 30, 2023, we entered into the fourth amendment to the credit agreement governing our revolving credit facility and term loan B facilities. Through this amendment we exercised our early opt-in election to change the benchmark rate on the revolving credit facility and 2018 Term Loan B Facility due May 2025 from the USD London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”). This change became effective on March 31, 2023, for both new borrowings and rollovers of then existing USD LIBOR based borrowings (except Base Rate borrowings) and eliminated our exposure to LIBOR.

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Secured Notes and Term Loan B facilities

We generally utilize borrowing via secured note issuances to meet our long-term financing needs. During 2022, we entered into the third amendment to the credit agreement governing our revolving credit facility and the original 2018 Term Loan B Facility which provided for the 2022 Incremental Term Loan B Facility of $300 million due 2029. On December 20, 2023 we further amended the credit agreement governing our revolving credit facility and term loan B facilities (“Fifth Amendment”). The Fifth Amendment refinanced $298 million of outstanding borrowings under the 2022 Incremental Term Loan B facility and included additional borrowings of $300 million. This new 2023 Incremental Term Loan B facility matures on December 14, 2029. These transactions reinforce our expectation that we will maintain adequate liquidity for the next year and beyond.

During 2023, we used net proceeds from the 2022 Incremental Term Loan B Facility, along with cash on hand, and borrowings under our revolving credit facility, to repay our $400 million notes which came due in March 2023. We expect to use net proceeds from the 2023 Incremental Term Loan B Facility, together with available cash on hand and revolving credit facility borrowings to repay our outstanding $300 million 5.65% secured notes due April 2024 and pay related fees and expenses. As of December 31, 2023, we had $3.56 billion of outstanding borrowings under our secured notes and term loan B facilities with maturities ranging from 2024 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. We plan to continue using these sources to finance certain VOCRs. On September 26, 2023, we renewed our USD bank conduit facility, extending its term through September 2025. We believe that our USD bank conduit facility and our AUD/NZD bank conduit facility, with a term through December 2024, amounting to a combined capacity of $752 million ($388 million available as of December 31, 2023), 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 $1.09 billion, $800 million, and $850 million during 2023, 2022, and 2021. 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, 2023, 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.

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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.

(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 $533 million for marketing related activities and $133 million for information technology activities.

(e)Excludes a $31 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 (now Anywhere Real Estate Inc.), 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 $473 million as of December 31, 2023. 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 2023, 2022, and 2021, we made payments related to these guarantees of $12 million, $12 million, and $13 million. As of December 31, 2023 and 2022, we maintained a liability in connection with these guarantees of $21 million and $20 million included within Accrued expenses and other liabilities on the Consolidated Balance Sheets.

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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, 2023, the maximum potential future payments that we may be required to make under these guarantees is $61 million. As of December 31, 2023 and 2022, 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, 2023, we had $47 million of irrevocable standby letters of credit outstanding, $2 million of which were under our revolving credit facilities. 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.

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 $504 million outstanding as of December 31, 2023. 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, 2023, our maximum obligation under these severance plans was $199 million. Refer to the Proxy Statement for our 2024 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 “stable 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.

CASH FLOWS

The following table summarizes the changes in cash, cash equivalents, and restricted cash between 2023 and 2022 (in millions). For a comparative review of the fiscal years ended December 31, 2022 and 2021, 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 22, 2023.

Operating Activities

Net cash provided by operating activities was $350 million for the year ended December 31, 2023, compared to $442 million in the prior year. This $92 million decrease in 2023 was primarily attributable to an increase in cash utilized for working capital, including the impacts of the Sports Illustrated agreement and continued growth in our loan portfolio.

Investing Activities

Net cash used in investing activities from continuing operations increased $35 million during the year ended December 31, 2023. This increase was primarily driven by $22 million of higher property and equipment additions and $8 million of proceeds from the sale of investments in 2022.

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

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Financing Activities

Net cash used in financing activities increased $304 million during the year ended December 31, 2023. This increase was primarily due to the $400 million repayment of the 3.90% secured notes during the first quarter of 2023 partially offset by higher net proceeds on non-recourse debt and decreased 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 also regularly consider a wide array of potential acquisitions and other strategic transactions, including acquisitions of businesses and real property, joint ventures, business combinations, strategic investments, and dispositions. Any of these transactions could be material to our business. 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 and increases to the capacity of our share repurchase program are subject to final approval by the Board of Directors (“Board”).

During 2023, we spent $100 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. As such, we expect to remain below historical levels of spending for vacation ownership development projects in 2024 with anticipated spending between $105 million and $125 million. After factoring in the anticipated additional annual spending, we expect to have adequate inventory to support vacation ownership sales through at least the next four to five years.

During 2023, we spent $74 million on capital expenditures, primarily for information technology and sales center improvement projects. During 2024, we anticipate spending between $80 million and $90 million on capital expenditures, primarily for continuation of information technology digital initiatives, sales center facility and related system enhancements and 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 authorized a share repurchase program that enables us to purchase our common stock. As of December 31, 2023, the Board 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. Proceeds received from stock option exercises have increased the repurchase capacity by $81 million since the inception of this program. We had $170 million of remaining availability in our program as of December 31, 2023.

Under our current share repurchase program, we repurchased 7.8 million shares at an average price of $39.11 for a cost of $307 million during the year ended December 31, 2023. 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.

Dividends

We paid cash dividends of $0.45 per share for all four quarters of 2023 and $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. The aggregate dividends paid to shareholders for 2023, 2022, and 2021 were $136 million, $135 million, and $109 million.

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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 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. 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, 2023. 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. Revenue from sales of VOIs is generally higher in the third quarter than in other quarters due to increased leisure travel. Revenue from vacation exchange fees is generally highest in the first quarter, which is typically 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, and matters related to the vacation rentals businesses.

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.

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 2023.

Changes in our estimates of uncollectible amounts could result in a material impact to our allowance for loan losses. A one percent change in projected losses would increase our allowance for loan losses by approximately $6 million. See Note 9—

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Vacation Ownership Contract Receivables to the Consolidated Financial Statements for additional details of our allowance for loan losses.

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 in order to retrospectively adjust the margin previously recorded subject to those estimates. There were no changes in these assumptions during 2023.

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 2023. 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, with the exception of contract assets and contract liabilities with a customer acquired in a business combination, for business combinations that occurred in 2022 or later. For these transactions we recognize and measure those contracts as though we had entered into the agreement with the customer as of the same date as the acquiree. This generally will result recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date. 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 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.

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