Travel + Leisure Co (TNL) 2006 Q4 法說會逐字稿

Good morning and welcome to the Wyndham Worldwide fourth quarter and full year 2006 earnings call. [OPERATOR INSTRUCTIONS]

I would now like to introduce today's conference host, Mr. Steve Holmes, Chairman and Chief Executive Officer of Wyndham Worldwide. Sir, you may begin.

Thank you, Jackie. Good morning and thanks for joining us on the call this morning. With me today are Gina Wilson, our Chief Financial Officer, and Margo Happer, our Investor Relations Officer. Before we get started, I just want to remind you that our remarks today contain forward-looking information that's subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied by the forward-looking information. These risk factors are discussed in detail in our form 10-Q filed August 18, 2006 with the SEC. We'll also be referring to a number of non-GAAP measures, which are discussed in the press release and Gina will touch on them during her comments. The reconciliation of these measures to the comparable GAAP measures is provided in a series of tables to the press release, which is available on our Investor Relation's section of our website at wyndhamworldwide.com. As you saw from the press release, we had an excellent quarter and a great year. We're off to a strong start as we begin our first full year as an independently publicly traded Company.

We delivered another quarter of solid results with reported earnings per share of $0.48 and Adjusted EPS of $0.44, at the top-end of the range of our guidance for the quarter. We exceeded our revenue and EBITDA guidance for the year, excluding the second quarter VAT charge. I'm especially proud that these results were achieved as we completed an intense and complex transaction to spin off Wyndham Worldwide to start life as a separate stand-alone Company. It is a tribute to our more than 30,000 associates around the world that they stayed focused on running and growing their businesses despite this distraction. We did a great job in 2006 and I'm confident that we're well-positioned as we head into 2007.

Now, let me briefly discuss achievements in our businesses.

As you know, we're the world's largest hotel franchiser based on the number of hotels with ten hotel brands representing about one out of ten hotel rooms in the U.S. In this Lodging business, we solidly hit our full-year RevPAR and room count guidance and added almost 10,000 net rooms to the system during the quarter. We opened approximately 570 properties during 2006. That is our highest number of openings since 1999, adding a hotel every 15 hours. More good news, our pipeline is very strong. We outpaced the industry in RevPAR growth for the full year, reflecting higher ADR but we also saw some occupancy growth, which really drives the value to our franchise partners. Within the economy's segment, where we primarily compete, our core brands outperformed industry RevPAR this year. These comparisons reflect the drive for sustainable and long-term increases in the value proposition offered by our brands to our franchisees and the removal of nonperforming assets from our portfolio. For example:

Super 8 is at a 100 RevPAR index versus the industry, while Days Inn is at a 102 index. Considering both brands have about 2,000 properties each, these results are significant. Both brands were just ranked number one and four respectively on the annual listing of limited service hotel chains by Hotels and Motels Management. In 2006, J.D. Power ranked Super 8 and Days Inn in third and fourth place respectively in guest satisfaction in the economy segment.

Ramada also has had a great RevPAR growth story this year. Year-over-year domestic RevPAR growth for the brand was 9.5% versus 6.8% for the industry. So, Project Restore efforts continue to bear fruit for both the hotel owners and for Wyndham Worldwide. For the Wyndham brand, same store RevPAR growth was 10% for the year versus 8.5% in the upscale segment. I'm sure you noticed that our year-over-year room count is down at Wyndham, which was expected as we knew hotels would be exiting the system as part of the deal when we acquired the brand at the end of 2005. We're very pleased with our progress in repositioning and relaunching this brand. We're taking a two-pronged approach, aggressively working with developers to bring new properties into the system, while elevating the product and the service. We invested $11 million this year in the marketing of the Wyndham brand above the marketing dollars collected from our franchisees and we expect to spend at least the same incremental marketing dollars in 2007. We are getting results. The pipeline continues to strengthen - with double-digit growth in recent quarters. We expect this trend to continue into 2007.

Our International expansion plans also continue to bear fruit, with over 35% room growth outside of North America in 2006. We now have approximately 31,000 rooms in the Europe Middle East and Africa region, 20,000 in Asia Pacific, of which about 14,500 are in China, and 8,000 in Latin America and the Caribbean. We continue to make inroads. During the fourth quarter, we signed an agreement with Royal Orchard Hotels Limited of Bangalore, India to develop ten Ramada hotels over the next three to four years and we're working on more relationships to spur this type of growth.

India represents a significant ongoing opportunity for hotel development in the Asia Pacific region. According to PricewaterhouseCoopers report, the India market will require up to 125,000 new hotel rooms during the next five years, doubling the size of hotel rooms in the country. With international tourism receipts of $5.7 billion and a record 3.9 million foreign visitors in 2005, India is one area of our Asia-Pacific development plans. We currently have 11 properties of Days Inns, Howard Johnsons and Ramadas in India, so obviously we have a lot of room to grow.

We spoke last quarter about our investment in Corinthia Hotels, a joint venture to provide management services for Wyndham and Ramada Hotels in Europe, the Middle East and Africa. 13 Corinthia owed hotels in that region will be rebranded as Ramada Plaza, Wyndham Hotels and our new upper upscale tier, Wyndham Grand Hotels. In December, Istithmar Hotels of Dubai announced plans to invest 178 million Euros in Corinthia's principal owner, International Hotel Investments, to acquire and build upscale hotels in Europe and globally. By enabling Corinthia to expand its portfolio, we expect this investment will accelerate the development of our hotel brands throughout Europe and neighboring regions. Istithmar Hotels' investment is a powerful vote of confidence in Wyndham Hotel Groups' joint venture with Corinthia Hotels and evidence of the strong international foothold we're building.

Now let me turn to Vacation Exchange and Rentals.

We're the world's largest Vacation Exchange Network with over 3.4 million members and one of the leading vacation rental groups with more than 60,000 properties. We posted a great fourth quarter, especially in European rentals. Revenues from rental transactions increased 16% during the quarter, supported by improved inventory offerings, enhanced marketing and some improvement in local economic conditions. We have more than 20 rental brands in Europe, where vacationers can choose to rent anything from apartments to campsites to villas. We estimate that there are approximately 410 million leisure trips taken annually in Europe and that close to 35% of those come under the rental category. This is a huge market and a huge opportunity and we're very well-positioned.

Bookings increased 16% for the fourth quarter at our Landal GreenParks brand, where vacationers can rent bungalows in a park-like setting. Landal posts strong, positive brand awareness of over 90% in the Netherlands. Landal's increased new on-line marketing help drive Internet bookings from 24% in 2005 to 36% in 2006.

Novasol, northern Europe's largest rental company for vacation homes and cottages, had an 11% bookings increase in the fourth quarter, launching offerings in northern Germany and Denmark for themed getaways such as spa holidays and also adding southern European destinations to its inventory mix.

Throughout the rental brands, we're continuing to expand our offerings to leverage vacation patterns, economic trends and demographics. We're sourcing additional inventory in Italy, Spain and Croatia for 2007 and exploring opportunities in emerging destinations such as Turkey and Bulgaria. You can view properties and rental opportunities on our website at wyndhamworldwide.com. I urge you to explore some different vacation options for 2007.

Vacation Exchange had a great quarter. On the consumer side, we saw the average number of members increase 5% and the annual dues and exchange revenue per member increase 3% versus the fourth quarter of 2005. The average number of points based subscribers increased 23% in the quarter, an important measure, because as we told you on investor day, points members are more likely to transact than standard weeks members.

On the developer's side, RCI North America signed 14 new affiliation agreements in the fourth quarter and 69 new affiliation agreements for the full year 2006. RCI North America had 434 affiliate contracts up for renewal, 100% of which were renewed. Globally, we had over 900 contracts come up for renewal with a 99% renewal rate. RCI North America revamped its Internet site, RCI.com, to improve consumers' on-line experience. The improvements contributed to a 7% increase in on-line transaction revenue during the fourth quarter of 2006 compared to the same period in 2005 and a 16% increase in on-line transaction revenue for the full year 2006. On-line transaction revenue accounted for 16% of total transaction revenue in 2006 compared to 14% in 2005. These are just a few of the many initiatives and activities our operating managers focus on daily to maintain the strong value proposition RCI offers to both developers and exchange members.

Finally, moving on to Vacation Ownership, we're one of the world's largest Vacation Ownership businesses consisting of approximately 150 resorts and more than 800,000 owner families. We had another phenomenal quarter and a truly remarkable year posting a year-over-year quarterly increase in gross VOI sales of 30% and an annual increase of 25%. That was propelled by enhanced marketing and sales methods and strong performance in our operating drivers. In fact, we exceeded tour and volume per guest guidance. The business is very robust.

We're well on track with the rebranding efforts. In 2007, all our time-share resorts throughout the United States, Canada, Mexico, the Caribbean and South Pacific will be associated with the Wyndham brand. More importantly, we're already using the Wyndham brand in our marketing efforts. Our owner base is one of our greatest assets. Once we make a sale, the business has multiple annuity-like revenue streams. We make upgrade sales, we finance a great percentage of our contracts and we make fees on managing the properties. Remember, about 40% of time-share owners end up buying more time-shares, so a large owner base is a very important asset.

On the sales front, we continue to leverage what we believe is the most effective and efficient sales model in the industry. New locations, like the recently-acquired Pahio Resorts located in Kauai in the Hawaiian Islands, continue to outperform while expanding our market reach in popular travel destinations. After entering the Hawaiian market less than five years ago, we now lead the industry with 12 resorts located throughout the Hawaiian Islands. In addition, our points-based ownership programs, which enable us to sell newly-developed or acquired inventory from virtually any sales center, allow us to continue active sales at existing resort locations well beyond sell-out. For example, we continue to experience strong sales performance in places like Branson, Missouri, where we have taken a break from building additional new inventory and we are now entering our 12th year of operations. In 2006, this location increased sales by close to 40% to record its best year ever.

Our stable and sustained sales activity in these same store locations is fueled by the additional new high demand inventory, like Hawaii, to our system.

Our development strategy is owner driven. Vacation Ownership is aspirational. Owners are looking for new experiences in product and location. So, we research the owners' perspective to where they want to go, what new vacation locales they want to visit and we wed those results to where we can best develop. It is a continuous process. We have approximately 3,900 units in active development in 15 U.S. states, the Virgin Islands and three foreign countries. In addition, we have land tied up for future development. As you may know, we recently acquired the Grand Beach Palace Resort located on the northeast side of St. Thomas in the Virgin Islands. Wyndham time-share owners consistently ranks St. Thomas among their top locations for vacationing and this property will be a spectacular Caribbean timeshare resort.

The project is located near our popular 300-room Wyndham Sugar Bay Resort and Spa, which will dramatically increase our ability to showcase both properties, leveraging our dual competencies in Lodging and Vacation Ownership. We're focused on the future with the Wyndham program integration between Lodging and Vacation Ownership - developing joint marketing, preferred pricing and coordinated reservation systems. We look forward to sharing stories of our success with you going forward.

We also announced this morning we completed our previously announced $400 million share repurchase program during January of this year. Our board of directors has approved a new $400 million share repurchase program. We feel our stock is a great investment and buying back stock is a good use of capital at this time.

Before turning the presentation over to Gina, I want to reiterate how excited we are by the opportunities ahead. We made significant progress once again this quarter against several of our fundamental growth strategies.

In branding, we're leveraging the Wyndham brand to grow in the high-end segment and improve Vacation Ownership efficiencies. In geographic expansion, we're developing and expanding in destinations as well as adding inventory in strong, existing growth areas. With customer acquisition, we continue to strengthen and diversify marketing channels through innovative partnerships and across business unit strategies. Now, I'll turn it over to Gina to go through the financials.

Thank you, Steve. I would like to reiterate how pleased we are with the fourth quarter and full year results. We hit or exceeded our June road show guidance across the board on our key operating metrics, which we commonly refer to as drivers, and probably more important on Adjusted earnings. Lodging Adjusted EBITDA was at the upper end of our range, Vacation Exchange and Rental Adjusted EBITDA was at the low end of the range, excluding the second quarter tax charge, and Vacation Ownership Adjusted EBITDA exceeded guidance. I think fourth quarter results are pretty much consistent with what we told you to expect at our investor day on December 12th. You should be able to get everything you need from the tables in the press release, so I won't go through all the numbers, but I will go over some additional details that should help you in your analysis.

First, please make sure to take a look at Tables 6 and 7, which are new this quarter. They provide a very detailed reconciliation of certain comparison that are included in the release and in our comments this morning. We understand that the separation and other costs related to the spin-off, the change in time-share accounting rules and other items make period over period comparisons more difficult and we believe these reconsolidations should be of assistance.

Now let's turn to the segments.

In Lodging, again, RevPAR was up for the quarter 7% excluding the Baymont and Wyndham brands. Reimbursable expenses related to our managed hotels were $16 million for the quarter and $69 million for the full year. These revenues produce no margin. Management fees for our managed hotels were $1 million for the quarter and $4 million for the year. Marketing program and reservation revenues, including the trip rewards program, were $61 million for the quarter and $269 million for the year. Remember that these revenues produce little, if any, EBITDA but are a critical component of our value proposition to franchisees. The value add for the franchisee from trip rewards is a growing base of customers with increasing propensity for repeat business and patronage across all our brands. During 2006 we added an average of 240,000 new trip reward members each month.

Also, as a reminder, we invested $11 million, as Steve said, in incremental marketing to build the Wyndham brand during 2006 and expect to spend at a similar level in 2007.

In Vacation Exchange and Rental, while we ended the year with a strong revenue performance, 2006 Adjusted EBITDA results were slightly down compared to 2005 after excluding separation costs, the $21 million tax accrual, and the restructuring charges taken in the fourth quarter of 2005. As we described on our last call and investor day, we've been investing in some new business initiatives. For example, in 2006, we invested strategically in our NorthCourse leisure real estate consulting and asset management business, recognizing the need for these services and the growth opportunities in the global market,

We're pleased to see that our investments in NorthCourse are starting to bear fruit. Specifically, NorthCourse signed a joint venture partnership agreement last week with Qatari Diar, the real estate development arm of the State of Qatar in the Middle East to create a real estate brokerage company which will market luxury real estate in parts of the Middle East, North Africa, which is a fast-growing market for luxury real estate. RCI Global Vacation Network will also be supporting the joint venture with Vacation Exchange and Rental distribution services. We look forward to pursuing similar opportunities as a service provider to the growing, global, leisure real estate market.

Now, let's turn to Vacation Ownership. As you saw from the press release and heard from Steve, Vacation Ownership had another great sales quarter and a great year. The increase in our key drivers was very impressive, exceeding 1 million tours for the first time in our history, and 2006 volume per guest increased almost 9%. We see continuing strength in both of these measures.

Separation and related costs for this segment, at $15 million for the quarter, are higher than for the other segments, principally due to costs associated with the Wyndham rebranding that we've been talking about for several months. These costs include out-of-pocket spending on signage as well as a non-cash reduction in the value of certain trademarks that will be phased out of use during 2007.

I'm also pleased to tell you that we're about to close on our first 2007 time-share securitization, which will enable us to move approximately $220 million of unsecured Vacation Ownership receivables into a securitization structure. This is a good incremental step toward enhanced balance sheet efficiency. But let me remind you that this moves the related interest expense above EBITDA, which was anticipated in our guidance for a Vacation Ownership results for 2007. Furthermore, there was a margin compression in the fourth quarter in full year 2006, primarily due to increased borrowing costs related to our securitization. This increase in cost was reflective of a higher interest rate environment. We continue to evaluate the borrowing rate offered to new purchasers of our products in order to maintain our interest spread.

Now, moving to our capital structure at year-end. It looks about how you would expect it to look based on the information we provided on investor day. We completed our $800 million, 6% unsecured bond offering in December. Our first and we consider it highly successful. We used the proceeds to close out our $350 million interim loan facility and pay down our revolver as well, ending the year with no revolver borrowings. Our cash balance at year-end of approximately $270 million was higher than we expected on investor day due to differences in timing of the receipt of the bond proceeds and the payments made on certain international subsidiary borrowings. There's no change to our 2007 guidance on cash spending or capital spending or cash flows.

Now, I would like to turn to a subject that we haven't talked about much since Q3. Net contingent liabilities related to the separation from Cendant have been reduced to approximately $440 million with related assets of about $202 million at the end of the year, compared to $589 million in contingent liabilities with related assets of $174 million in our Form 10 that we issued in mid-2006. The reduction results from ongoing efforts to resolve open litigation, tax examination issues and other matters, as well as settlement of open payables and receivables related to the separation and the Travelport sale. We're pleased with our progress thus far, both in the net reduction and the exposure to us as well as the cooperation we continue to see in working through these issues with our former colleagues. While we were able to harvest some low-hanging fruit, we can't predict how or when the remaining matters will be resolved. For example, tax matters related to years still open for IRS and state tax audits could take years to settle. Rest assured that we have the proper management attention on these matters and we'll keep you updated on a regular basis.

The awkwardness of our situation is that most of these contingencies can be settled by either Realogy or Avis Budget Group and we'll ultimately be affected by their decision. We're reporting our results for 2006 today before either of them, so any further developments in the resolution of these matters has the potential to change our final 2006 results as reflected in our annual report on form 10-K.

We've updated our investor day guidance for the Company as shown in the press release. And, as I hope you noticed, increased our 2007 Adjusted EPS guidance from $1.84 to $2.02 up from $1.77 to $1.95, excluding separation and related costs, as well as legacy matters, based on a December 31st diluted share count of approximately 190 million. We have also provided first quarter Adjusted EPS guidance of $0.37 to $0.40 a share, excluding separation and related costs, as well as legacy matters, again, based on 190 million diluted shares. We're not guiding for possible share reduction resulting from the newly announced share repurchase program.

Remember that we expect some costs related to the separation to continue into the first and second quarter. These are excluded from guidance and we expect them to be between $10 and $20 million.

Our business unit guidance for the year remains unchanged. Lodging revenues should come in around $700 to $730 million with Adjusted EBITDA of $215 to $230 million. Vacation Exchange and Rental revenues of $1.2 billion to $1.25 billion and Adjusted EBITDA between $305 and $325 million. Vacation Ownership revenues of $2.2 billion to $2.290 billion and Adjusted EBITDA of $365 to $385 million.

Hopefully you noticed from the information in the press release that we continue to focus on getting you the information you need to evaluate the business. Based on your feedback, we have added Royalty, Marketing and Reservation Revenues to the Lodging operating statistics in Table 3. We've also added Table 5 showing year-end hotel system statistics by brand.

In December, we adapted the vacation rental drivers to reflect net rather than gross average rental prices. Those data are included in table three as well. And finally, we added table six and seven, as I mentioned earlier, to provide a fulsome reconciliation of various adjusted amounts that we have been discussing today to their respective GAAP measures. We've had a few questions regarding our driver guidance since investor day and I want to reinforce a few points. Our RevPAR guidance for 2007 of 5% to 7% growth may seem conservative relative to our 12% to 14% guidance for last year and in light of some of our peer's guidance. Remember that we benefited in 2006 from the Wyndham and Baymont acquisitions. Our 2007 RevPAR guidance is consistent with PWC data at 5.8% and Smith Travel Data at 5.5% to 6% for the industry respectively. We remain comfortable with that guidance.

Driver guidance in Vacation Ownership reflects the fact that we're simply growing off a very large base. More significantly, we expanded some sales techniques in 2006 to returning customers at Worldmark locations, supplementing our telesales upgrade program with in--person, resort upgrade activities. So, we significantly increased the base and that growth is simply not replicable this year. However, the business is performing well. The industry is solid and we see no signs of slowing. Regarding quarterly guidance, please refer to the seasonality of revenue and Adjusted EBITDA slide #13 in the financial section of the investor day presentation booklet, which should give you a pretty good overview of how we expect things to break out for the year. Specifically for the first quarter, we expect Adjusted earnings per share of $0.37 to $0.40, excluding separation and related costs, as well as legacy matters, based on the new diluted share count of 190 million shares.

Reflected in that guidance is the fact that first quarter comparisons in the Vacation Ownership group will be down year-over-year because we instituted some operational changes last year in response to FAS 152 that resulted in a Q1 revenue increase of about $40 million and an EBITDA increase of about $20 million. We expect first quarter Vacation Ownership Adjusted EBITDA of $58 to $69 million, again, consistent with our investor day guidance. Now, I'll turn it back to Steve for a few comments before Q&A.

Thanks, Gina. Obviously, we're very proud of what was accomplished during 2006. We're very optimistic about 2007 going forward. As a new public Company, we're doing everything we can to make sure we're communicating clearly the results of our operations and I think that evidenced by the additional information Gina mentioned we've added to our release this quarter. With that, Jackie, we would be happy to take any questions that people have.

[OPERATOR INSTRUCTIONS] Our first question is from Steve Kent with Goldman Sachs.

Hi, good morning. Two questions. First, just on the vacation rental business, Steve and Gina, it sounds like things are going much better there, just the traction. Could you give us a little sense as to where margins are going? I know there is a pretty big disparity between the RCI margins and this business' margins. But just wanted to see whether you are starting to show some improvement on that in a more significant way. And then also on the $15 million on the separation related cost for Vacation Ownership, I'm sorry if I missed this but should we start to think -- is this sort of one-time? Is this going to be ongoing? How should we feel about this or project this?

Okay, thanks, Steve. Well, on the $15 million, that is one-time in the sense that it is cost related to our separation. The largest single item is the write-down of the trademarks that we have in our time-share business since we're switching over to the Wyndham brand, so you won't see that. There may be some trickle effect in '07 but nothing meaningful. That's really a behind us type of cost. With respect to the VRG margin, you're right, the VRG margin is somewhat lower than RCI, particularly RCI in North America. In Europe, we do provide more services to the owner of the homes. What we said at investor day and we're still holding true to this statement, we've directed the management group to hold the margins stable going into 2007 and our goal is to obviously expand that margin going forward. We're still on multiple platforms for rental product in Europe. We're down from about I think 11 or 12 platforms, software platforms to three or four. We're trying to get that down so that we're all on one platform. That's the objective. That will help our distribution model. But for 2007, I think we should assume that our goal, our target is to maintain our margin that we experienced in 2006.

Steve, just on that $15 million, how much of it was cash and also, does that mean that we won't really see a lot of expenses of changing the brand, just putting up new flags, stuff like that, that that's now also behind you for the most part on the vacation business?

There will be some reflagging, which is what you are going to see in 2007. I said there will be some that will be trickling in. Of the $15 million, about $4 or $5 million was cash and the remainder was non-cash, was the write-down of some of the trademarks that we are not going to be using.

Okay. Thank you.

Sure.

Thank you. Our next question is from William Truelove with UBS.

Hi, guys, good quarter.

Thank you.

In terms of your net room count or anticipated room count going into 2007, where do you think you're going to end up on an average basis? Can you help us with that?

We've articulated an expected room growth of 2% to 4% and we still think that that's good from the base that we're starting at right now. That will vary by brand obviously. It will also vary internationally and domestically. We expect to see significant international, continued international development. As I mentioned, we're 25% to 30% up over last year on the international side. That's in part because we're growing from a smaller base but we'll continue to expect to see international growth.

Okay, thank you.

Sure.

Thank you. Our next question is from Michael Millman with Soleil Capital.

Thank you. Just a couple questions starting with Vacation Ownership, it looks like in the fourth quarter the [TECHNICAL DIFFICULTIES] cost declined to 20 from 25%. That's an ongoing change. Has that occurred by lower cost or higher prices?

First thing I would like to remind you, Mike, is that you have a disconnect between the accounting methodology in '06 versus '05, so you shouldn't really be using the '05 metric as your standard. We did see a slight decline in cost of sales percentage for the fourth quarter compared to the beginning of the year. That was really about the cost of some of the premiums that we're using.

So, going forward, what should we assume?

I would look at the 2006 sort of average rate and consider that sort of a reasonable range.

That was about 22%.

Yes.

Okay and can you talk about your tour flow, to what extent can you just turn that on and off? Also, you had an 8% fourth quarter increased volume or value per guest. To what extent was that higher prices or to what extent was that a greater yield?

On the VPG (Volume Per Guest) question, Mike, it was a combination of both, frankly. We continue to increase the price on the product quarterly. We put through quarterly price increases but we also saw some increase in yield, if you're referring to yield as being our close rate for the quarter. So, overall, we continued to see great acceptance of the product in the marketplace and we continue to be able to push price.

Is the Vacation Ownership business basically subject to inventory? Do you feel you can sell anything that you have?

Absolutely. Well, Mike, as you know, we sell remotely our product -- our product, so, we can sell, for example, in Branson, where we're not building product right now, we'll sell product that's in Las Vegas or Orlando or any other market we happen to be selling at this time. So, the pipeline is important in that we want to make sure we have enough product to feed the sales machine. The product is not -- looking at the pipeline it is not the be all to end all because we may bring in product in a single day through a purchase of turnkey product offerings that we can put right into our pipeline and sell out. The location, as long as it is an attractive location which obviously I don't know why we would be building anyplace that's not an attractive location, but any location can be sold because you're really selling a points based system. That's the unique difference between us and many in the timeshare industry.

Two quick questions. On the vacation rental, can you tell us to what extent that fourth quarter growth relates to ForEx (Foreign Exchange) and good weather? And then just on the tax rate, why is your tax rate higher than the industry and what do you forecast it going forward?

That was the question about the rental business and the weather?

European weather, I think, was terrific, at least for some vacations this fourth quarter. And ForEx.

For weather, and remember, our rental is not just European it is also U.S. The weather was pretty good in Europe. Actually the weather in the U.S. was pretty good to, but that compares to 2005 when hurricane Katrina displaced a lot of people and our rental was actually very, very strong domestically in 2005. So it is kind of a little bit of a mixed bag from the weather standpoint. ForEx was not a huge issue for us in 2006.

It pretty much neutralizes itself at the EBITDA line.

Okay. The tax rate, what are you forecasted and why is it higher than other hotel companies?

We're anticipating 38% tax rate for 2007. As to why our tax rate is different from some of our competitors, remember, we are not an asset owner and some of our competitors have been in the process of divesting of some assets. I would have to do a little bit more analysis to see where their rate reconciliation has significant differences from ours.

Great. Thank you.

[OPERATOR INSTRUCTIONS] Our next question is from Dax Vlassis with Gates Capital Management.

Yes, I was wondering, I think you had a $32 million benefit from the resolution of certain contingent tax liabilities during the three months and year ended 12/06. If I look in the segment numbers for EBITDA between the Lodging, Vacation Ownership and Vacation Exchange and Corporate and other, where would that show up?

It is all in Corporate.

It is all in Corporate. Okay. And then you had the $21 million -- you had a value added tax charge of $21 million in the 6/06 quarter. I don't think you had a -- I don't think you excluded it from your numbers. Is that a nonrecurring item? You didn't really -- you talked about it but you didn't exclude it from the numbers in the pro forma. That's a nonrecurring item, correct?

Yes. It was a catch up item. It was in the second quarter of '06. We didn't exclude it. It's in the numbers. If we had excluded it, we would have been above our guidance.

Correct. What were the total shares outstanding at the end of the quarter?

About 190 million.

190 million even?

Yes.

That's outstanding, that's not diluted share count, right?

Excuse me, that is diluted. Thank you for the clarification.

Okay. What was the shares outstanding at the end of the quarter?

We'll look that up real quickly. Hold on.

You can move on. That's all I had.

Thank you.

I am showing no other questions at this time. I would like to turn the conference back for any closing remarks.

Okay. Thank you very much for joining the call today. Thank you for the confidence in the Company. And we look forward to a great 2007 start of this year and speaking to you all at the end of the first quarter. Thanks very much.

Thank you for participating in today's teleconference call. You may now disconnect.