Travel + Leisure Co (TNL) 2009 Q1 法說會逐字稿

Welcome and thank you for standing by. (Operator Instructions)

I would like now to introduce Ms. Margo Happer, Senior Vice President of Investor Relations. Thank you, you may begin.

Thank you. Good morning, thank you for joining us. With me today are Steve Holmes our CEO and Gina Wilson our CFO.

Before we get started, I want to remind that you our remarks today contain forward looking information that is subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our form 10-K filed February 29, 2009 with the SEC. We will be referring to a number of non-GAAP measures. The reconciliation of these measures to the comparable GAAP measures is provided in the tables to the press release and are also available on the Investor Relations section of our Web site at www. Wyndham Worldwide .com. Steve?

Thanks, Margo. Good morning, everyone. And thank you for joining us today.

Despite some strong economic head winds, Wyndham Worldwide delivered solid first quarter results. Adjusted EPS was up 17% year-over-year. As expected, revenues were down in each of our three business segments including the decline in vacation ownership revenues related to our decision to reduce that business. All three businesses delivered adjusted EBITDA in line with or exceeding our expectations.

First quarter 2009 net cash from operating activities was approximately $210 million, compared with $87 million in the first quarter of 2008. The remaining borrowing capacity on our revolving credit facility increased to approximately $355 million, compared with approximately $290 million as of December 31, 2008. 2009 cash flow is currently tracking to our expectations and as we said in December, we expect significantly more cash flow in 2010, around $500 million, or approximately $250 million if you assume that the settlement of the legacy contingent liabilities materializes next year.

Wyndham's first quarter results reflect the strength, flexibility, and diversity of our business model. Our ability to execute even in the face of global economic turmoil and our continued discipline on managing expenses, our hotel brands are primarily in the economy and midscale segments which hold up better when consumers are under pressure, and make development costs more manageable for owners. Our vacation exchange and rentals business, group RCI, has been growing its membership while also reducing costs, in part, by driving customers to transact on the web, with continued innovations in our industry-leading web platforms. In our timeshare sales machine, our points-based product gives customers more flexibility to purchase what they can afford and more flexibility of usage than weak space products. While still giving them the variety of are great vacation destinations around the world.

With the economy under significant pressure, the advantages of our business model are even more evident in our results. While the economic outlook is still unpredictable, based on where we are year-to-date, and our outlook, we are reaffirming our 2009 guidance. Over ott next several quarters, you should expect us to continue to deliver results that demonstrate the advantages of Wyndham Worldwide's business model, and our ability to execute our strategies.

Now I will turn to the performance of the business units, beginning with the Hotel Group.

The hotel group with its predictable and resilient fee-for-service business model delivered EBITDA in line with our plans.

First quarter revenues were down 9% and adjusted EBITDA was down 17%, primarily due to lower franchise fees driven by RevPAR declines. Worldwide RevPAR was down 11% in constant currency, mainly due to global demand weakness. Including the unfavorable impact of the strengthening US dollar, the global RevPAR decline was 14%.

Domestic RevPAR decreased 13% from a year ago, while international RevPAR declined 18%, or 6% in constant currency.

Clearly, the industry and the credit markets remained under pressure. We continued to work to mitigate the economic head winds with revenue-generating activities and other initiatives for our franchisees.

We've deployed a wide range of marketing programs to generate awareness and stimulate interest in booking our franchised and managed properties, including increasing our online advertising spend by 8%. As a result, we've increased our contribution from branded websites and internet traffic by approximately 4%. Each one of our brands is running campaigns to promote the value price proposition which is very real and attractive for our brands in this economy.

Wyndham Rewards is running promotions and helping loyalty program members manage tough economic times by giving them a chance to earn rewards, such as free night stays, gift cards, airline tickets, or resort vacations more quickly. We have also integrated the Microtel Inns & Suites brand into our Wyndham Rewards program, adding more hotels to the 6,000-plus properties where members can earn and redeem points around the globe.

And we're offering third-party leasing options for property management system upgrades and better purchasing power from third-party vendors to help drive savings to our franchisees.

On the development front, in the first quarter, we opened almost 9,000 rooms, approximately 1,800 of which were new construction and the remainder were converted from other hotel chains or independent hotels. With respect to new construction deals, although the banks are requiring higher equity contributions, we continue to get deals done, largely because our hotels require a much smaller investment than large urban full service projects. For example, our Microtel brand which has been the highest rated economic brand per JD Power's customer satisfaction survey for seven straight years opened 500 new construction rooms this quarter. With an initial investment cost of only $4 million to $7 million and great brand equity, Microtel is an attractive option for a developer. Nonetheless, new construction openings still only account for about 20% of our total gross openings for any given year, so we will stay focused on hotel conversions. And we are confident that our brands can attract hotel owners especially in these tough economic times as we offer great value through high brand awareness, strong reservation contribution and a robust loyalty program. We are seeing a larger proportion of our conversions coming from independents, which is no surprise, considering Smith Travel Research is reporting a 20% RevPAR decline for independent hotels, with more than half coming from occupancy weakness. In this environment, a hotel with access to broad reaching reservation channels and marketing programs is especially important to mitigate demand weakness.

Overall system size is 588,000 rooms, with an international portfolio of 123,000 rooms. Additionally, our pipeline is almost 109,000 rooms, with over half the pipeline in new construction product.

Before I move on to Vacation Exchange and Rental business, I would like to take a moment to highlight some of our Hotel Group's accomplishments.

Our namesake Wyndham Hotels and Resort brand was recognized by Business Travel News as the leading chain in its annual US Hotel Chain Survey, moving to the top of the list of corporate travel buyers highest rated brand in the upscale/select-service sector.

On April 22nd, we opened the Wyndham Xiamen Hotel in China, with 588 rooms, it is our first Wyndham brand hotel and our first managed asset in Asia.

Nine of our hotel brands made Entrepreneurs 2009 Franchise 500 list, ranking based on objective and quantifiable factors including a franchisee's financial strength, growth rate, and system size. Some great accomplishments for our hotel group.

Now, turning to vacation exchange and rental, RCI is celebrating its 35th anniversary as the global leader in timeshare exchange and continues to innovate on the technology and marketing front.

Given a significantly weakened Euro and British Pound compared to the prior year, Group RCI's revenues were down 16% on a reported basis. However, revenues were only down 5% in constant currency, but continued strong cost reduction efforts and operating efficiencies offset almost the entire decline in revenues, resulting in nearly flat adjusted EBITDA in constant dollars.

In the vacation exchange business, first quarter revenue was down 7% on a reported basis and relatively flat on a constant currency basis. The addition of the Disney Vacation Club drove our member growth by adding more than 135,000 member families. In addition to this great new membership base, RCI also expanded its global exchange network by adding all of Disney's eight existing eight vacation club resort destinations. Growth in average exchange members was offset by a reduction in annual dues and exchange revenue per number. The reduction in revenue per member reflects lower exchange transactions primarily resulting from increased growth in clubs where members had the option to exchange within the club network.

In early April, I attended the ARDA conference, the industry's largest annual timeshare convention, where RCI won the "employer of the year" award from the vacation ownership industry. The tone of the convention overall was very positive. While certainly acknowledging the current tough credit environment, our timeshare developer partners have responded quickly adjusting marketing plans and rightsizing operations.

While at ARDA, RCI launched the industry's first-ever online television programming on RCI.com, dubbed RCI TV. The goal of this initiative is to improve member satisfaction, increase occupancy, and provide new marketing leads for our affiliated developers to drive timeshare sales. It is already received overwhelmingly positive response from our member base. RCI TV provides our timeshare developer affiliates with the opportunity to showcase their properties through high definition video segments and travel features, giving them a significant marketing presence.

In addition to the new web-TV programming, RCI continues to introduce initiatives to improve member experience and reduce costs by moving more transaction processing to the web, specifically leveraging the new Enhanced Search technology developed over the last several years and introduced in the end of 2008. To encourage members to transact on the web, we implemented higher pricing for call center transactions while holding web prices constant. Along with the simplified web registration and log-on, these efforts continue to enhance and improve the web experience for our members. The results are compelling. Web exchange transactions in North America increased from 16% of total transactions last year to 24% in the first quarter of 2009. This movement of transactions to the web resulted in reduced call center costs of approximately $2 million compared to the first quarter of last year. We believe the impact of our web enhancements will stimulate member activation and increased satisfaction.

Looking forward, recent research done by RCI, shows encouraging signs in North American exchange. Over 90% of RCI members surveyed planned to travel in 2009 or 2010 and only 2% said the economy might cause them to eliminate their vacation.

Member growth is in line with our expectations. Developers have been affected by the credit environment but have quickly adjusted their sales and marketing operations in response.

In Group RCI's rental business, first quarter revenues were down 19% on a reported basis, or only 3% on a constant currency basis. Transaction volumes were flat, which was especially impressive since last year's first quarter benefited from the Easter holiday. Volumes increased at English Country Cottages and Landal Greenparks, but were soft at Novasol and for RCI international member rentals. In constant currency, average price was down 3% in the first quarter of 2009, reflecting a change in mix, as well as the shift of Easter into the second quarter compared with some of the premium pricing we saw last year.

Of particular note in the first quarter our English Country Cottages posted solid revenue growth driven by very successful marketing and promotional offers and increased functionality of their new web platform. The improved web focus resulted in 73% of rentals being booked online during the quarter, up from 58% last year.

In addition, the business benefited from the significant weakening of the Pound versus the Euro, which led UK customers to plan vacations closer to home versus traveling to Continental Europe.

Looking forward, we have ample inventory for the summer season and are focusing our second quarter marketing costs across all of our business on the advantages of our reasonably priced vacation options as we continue our drive to the web to reduce costs, increase efficiencies, and improve customer experience.

Let's now turn to our Vacation Ownership business.

The restructuring he would began in the fourth quarter of 2008 is now complete. Our year-over-year reductions in tour flow and VOI revenue during the first quarter were fully in line with our expectations, and have us tracking on target for our full year projections. Tour flow is in line with our adjusted marketing plan. Volume per guest was up 12% year-over-year, with steady pricing and strong close rates. The overarching goals of the reduction program was to scale back the size of this business to improve overall cash flow and credit quality of our new sales. First quarter results affirmed that we made the right decision, we acted quickly, and are on plan. This is a remarkable achievement and we're very proud of everyone down at the WVO group who contributed to its success.

We continue to see no softening in consumer interest for our timeshare product. Our close rates and transaction sizes remain strong. Our sales reductions reflect a deliberate decision to shrink the business. We believe that demand for our timeshare product remains healthy because our point-based product offers fundamental advantages relative to fixed-week products.

Fixed-weeks means fixed prices, and very little latitude for consumers to purchase the product that fits their pocketbook. With the point-based product sold in varying increments, our prospective customers can calibrate their level of purchase.

Equally important, is that points-based timeshare is all about flexibility of use. Unlike fixed-week timeshare that generally must be used once in a year in a full-week increment, points allow families to have shorter trips, often to locations closer to home. Consumer travel trends have been moving in this direction for the last decade and we expect this trend to continue through the next decade. With many drive-to locations in and around major metropolitan and urban areas, our points-based resort system is more frequently sought after as families increasingly opt for a weekend in the country, or a few nights in the city.

The proof of the value proposition can be seen in our owner's behavior. With business and leisure travel worldwide remaining a challenged, occupancy at our timeshare resorts in the first quarter was up nearly 2% year-over-year, despite the addition of nearly 1,300 units from the same period last year. A true statement of the value of the timeshare product to the consumer.

In addition to the benefits of the superior product structure, our results have also been bolstered by our restructuring of this business. As I mentioned earlier, we closed several low-performing sales centers and refocused our efforts and resources on our most profitable operation. At the same time, we raised our tour qualifications across the board effectively eliminating our lowest-performing tour types from the mix. Our marketing dollars and our top sales talent are directed at consumers with both a higher propensity to buy our product and a demonstrated ability to pay for it. The net effect is a more efficient and profitable operation.

And finally, executing our our plan to execute on cash flow within our vacation ownership business, during the first quarter we successfully increased our average down payment to 23%, up from 12% a year ago. Cash generated at the time of sale is up over 30% within our Wyndham Vacation Resorts business and over 55% in WorldMark by Wyndham, which just implemented those changes in March.

Overall, we're pleased with our first quarter results from our vacation ownership business, and look forward to continued good performance from this business through the balance of the year. Now, let me turn the call over to our CFO, Gina Wilson.

Thanks, Steve.

As you saw from the release today, we ended the quarter ahead of our expectations, primarily due to stronger North American exchange activities and strength in vacation ownership sales and efficiencies.

Reported results included $27 million after-tax in restructuring costs across the three businesses. We're substantially finished with the restructurings we started in the third quarter of last year with the exception of certain Group RCI international-related activities that were delayed due to local legal considerations. There, we expect further charges of another few million dollars in the second quarter.

Revenues benefited from a roll-in of deferred revenues under the percentage of completion method of accounting of $67 million during the first quarter of 2009, while first quarter 2008 reported revenues were reduced by $82 million of deferred revenue. The net year-over-year impact was about $70 million in EBITDA. Percentage of completion revenue has been coming in as expected, based on our construction plans for 2009. In the first quarter of 2010, we expect little, if any, impact from deferred revenue, which will be important for you to remember as you model.

Now, let me walk you through our first quarter results in a little more detail and give you a look into what we're seeing so far this year.

As Steve mentioned, the Hotel Group delivered revenues and adjusted EBITDA in line with our expectations. Reported results include $3 million of restructuring charges, margins were down from last year, and recent quarters, reflecting the impact of lower franchise fees, primarily driven by lower RevPAR.

RevPAR was generally in line with what we expected but this is obviously under some pressure and we're watching it very closely. For now, we're maintaining our 2009 RevPAR guidance but at this point, expect that we would come in near the low end of that range.

Room growth is off to a slower start than we expected, primarily due to opening delays. However, we are comfortable that we will achieve the guidance of 3% to 6% room growth this year.

As Steve mentioned, the pipeline has held up well with almost 109,000 rooms, 54% of that pipeline is new construction. And the Wyndham brand makes up over 17% of our total pipeline with almost 70% being new construction deals, and of those, 60% are scheduled to open in the next 12 months with secured financing. Almost 40% of our pipeline is international, representing 50 countries on six continents. We're excited about the depth and breadth of the pipeline, which will continue to support our strategy of international expansion, as well as solidifying our leading position domestically.

Now turning to Vacation Exchange and Rentals.

Excluding the net impact of foreign currency, group RCI revenues for the quarter was down 5%, with adjusted EBITDA relatively flat compared with the first quarter of 2008. The strengthening of the US dollar in Q1 2009, reduced revenues by about $37 million and EBITDA by $12 million. Also affecting reported results were $4 million in restructuring costs. Adjusted margins improved 60 basis points reflecting continued cost control.

As you saw from the press release, other ancillary revenues were $30 million, a 32% decrease compared with the first quarter of 2008. In constant currency, other ancillary revenues decreased $11 million, due to the lower miscellaneous fees and our termination of a low margin travel service contract.

Now, let's turn to Vacation Ownership.

The team has delivered flawless execution on the realignment plan, and the business is tracking to our expectations. These changes are creating operational strength which will serve us well for the long term and there have also been some short-term benefits. For example, VPG as Steve mentioned was up 12% in the quarter and we expect that to moderate to our guidance range of 5% to 10% for the year.

We are finishing our construction pipe projects, spending between $175 million to $225 million this year, and less than $100 million next year, which combined with our completed inventory will give us enough product to meet our reduced sales expectations as we look out into 2009 and 2010.

On the consumer financing front, the provision for loan loss is $107 million for the quarter, consistent with the fourth quarter when compared to gross revenues, less the impact of deferred revenue -- gross sales less the impact of deferred revenues. Write-offs in the first quarter were at 3.38% of the loan portfolio, also relatively consistent with the fourth quarter. And the securitizations continue to perform within their expected tolerances. We are starting to see some good trends in the portfolio as delinquency rates in the past couple of months have improved, but we will continue to watch that closely. Remember that part of the realignment focuses on tightening credit standards and improving the overall portfolio. We financed 59% of VOI sales in the first quarter this year, compared with 65% in the first quarter of last year. Additionally, the weighted average FICO of our 2009 first quarter new borrowers was 717 compared with 696 in the first quarter of last year.

We closed a $46 million term securitization in March. This was not a plain vanilla securitization in that the collateral for the transaction consisted primarily of large balance, longer term receivables, that were ineligible for the conduit. The transaction, although small, was a great execution in a very difficult environment, and we're pleased with the results. Our financing pipeline includes two term financings, totaling between $100 million and $150 million, for receivables in our conduit, that we believe will be closed within the next few months. We are also working on an additional securitization that would use a pool of previously unsecuritized receivables as collateral, it could close as early as this quarter or early next quarter.

On the Corporate side, as you saw from the press release, we generated net cash from operating activities of approximately $210 million in the first quarter of 2009, compared with approximately $85 million during the prior-year period. We had approximately $355 million of capacity on the corporate revolver at the end of the first quarter 2009, compared with approximately $290 million as of 12/31/2008. This reflects management's commitment to generating cash flow and increasing our revolver capacity. We're especially pleased with these results considering that we also incurred over $20 million in cash charges related to the restructurings during the quarter.

We remain well within our debt covenants which require a consolidated leverage ratio of less than 3.5, and an interest coverage ratio of more than 3.0, as defined in the debt agreement. At the end of Q1, our consolidated leverage ratio was 1.9, and our interest coverage ratio was 27.1, so we have plenty of room on both covenants.

We're in the process of renewing a small vacation ownership bank borrowing line, which is a 364-day secured revolving facility associated with our South Pacific vacation ownership business. There were approximately $156 million of borrowings on this facility at the end of the first quarter of 2009. It expires at the end of June, and as with the conduit last year, we expect to renew the facility and expect the renewal process will take the full amount of allotted time. We will update you if there is any material development but otherwise you should expect to hear details from us in late June or early July.

We're tracking to expectations through April, and as you saw from the press release, we are reaffirming our full-year guidance. You will notice some variability in the quarterly tax rate. Specifically, in the second quarter, we expect the tax rate to be 44%, this reflects a true-up of the deferred tax asset related to non-cash compensation, or our restricted stock units. Overall for the full year, we expect the tax rate to be consistent with our guidance. As I said earlier, we expect a few more million of dollars in restructuring-related charges in the second quarter.

In the near term, we expect EPS of $0.36 to $0.41 in the second quarter, assuming a $40 million to $50 million benefit from the roll-in of percent of completion deferred revenue in vacation ownership. Excluded from the guidance is the $1 million to $4 million or so of restructuring costs. And now I will turn it back to Steve to wrap it up.

Thanks, Gina. Before we open the line for questions I would like to make a few closing comments.

Over the course of 2008, we took significant action to position Wyndham Worldwide to withstand the difficult economic environment and benefit from an eventual recovery. These actions, which included rebalancing our portfolio of businesses, cutting expenses, and reducing our reliance on the securitization market, were difficult and had the potential to be very disruptive to our people and our businesses. Our first quarter 2009 results reflect our ability to adapt and act quickly and I'm particularly proud of how our people maintain their focus and continue to execute and deliver.

For the second year in a row, Wyndham Worldwide was listed as one of FORTUNE Magazine's Most Admired Companies for 2009. We ranked second out of only four companies that made the Most Admired list in the hotels, casinos and resorts category. Wyndham Worldwide was also named to the DiversityInc's list of 25 Noteworthy Companies. For a three year old company to be recognized among highly reputable companies by FORTUNE and DiversityInc is a great honor for us and a tribute to the dedication o our associates across the globe to deliver on our commitments to our shareholders, customers and business partners. And Carolyn with that, we'll open the line for questions.

Thank you, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Joe Greff Your line is open. And please state your company name.

Hi, guys. It is Joe Greff from JPMorgan. Good morning. Steve, my first question is, I guess relates to a big topic from the last earnings call, and are you re-thinking potential equity rates here? Obviously we've seen a lot of companies with success in doing that recently. What are your thoughts on that?

Well, good morning, Joe. Well, we obviously, we withdrew the plan that we announced the intent to -- the intent to do last quarter, and we did that in response to a lot of conversations we had with our shareholders and the feedback that we got, and also the reaction of our stock obviously. We are not sitting here with a plan to issue equity now that is not our intent. And we feel very comfortable with our liquidity position.

Okay. Great. That was really it. Good job, guys. Thank you.

All right, Joe. Thanks very much.

Thank you. Our next question or comment comes from Steve Kent. Your line is open. And please state your company name.

Yes, hi, it is Steve Kent, Goldman Sachs. Just I'm sorry, I got cut off at one point, and I wanted to know just on the restructuring that you mentioned in the press release, how much of it was cash or noncash? And then can you also talk about the timeshare business, what you're seeing? I think Gina, you said that so far in April, not much of a change, but can talk about upgrades, fees, et cetera, which was a pretty big driver this first quarter, what your expectations are for the balance of the year on those items?

Well, for the first quarter, I assume you don't want us to completely re-read the script, Steve, so we will just cut to the chase on the cash from the restructuring. The first quarter, the restructuring cost was about $20 million cash and the rest of it was noncash. For the other questions, Gina?

We continue to believe that we're going to have good strength in upgrade sales for the remainder of the year. I think part of your question was -- Q1, 43% of the sales were new customers, so we're feeling good about that as well. I think one of the things Steve mentioned is by virtue of taking some of the marketing programs out, and refining which offices we keep open, we have some very talented sales people, and we have very good tour flow quality, so we're feeling very good about their ability to deliver the remainder of the year.

And then just because Marriott had this issue, did any of your securitizations hit a trigger this quarter that --

No.

Okay. All right. That was it. I'm sorry, maybe other people got cut off, too. I know our whole line went dead for a little while.

Okay. Well, the next question can tell us whether or not that happened. Thanks, Steve.

Thanks, Steve.

Thank you. Our next question or comment comes from William Truelove. Your line is open. And please state your company name.

Yes, UBS. No problems here, guys. Can you give us some expectations about deferred revenue recognition or deferral for the remaining quarters? Since you can give first quarter 2010 expectations, I hope we can get the second quarter through the fourth quarter.

I think in my prepared remarks we actually said $40 million to $50 million in the second quarter.

Okay.

For the full year, we're still expecting $150 million to $200 million or so.

Total recognition, $140 million to $200 million?

$150 million to $200 million.

Wow. Okay. That's all the questions I had. Thanks so much.

Thanks, Will.

Thank you. And our next question or comment comes from Chris Woronka. Your line is open and please state your company name.

Yes, hi, it is Deutsche Bank. Good morning, everyone.

Good morning, Chris.

Steve, I was hoping maybe you could talk a little bit about -- I noticed some of the changes in the average down payments and the percentage of their financing. What are some of the things you guys are doing to drive that, and is it a conscious decision on your part, or is it something else that the customers are doing?

No it's actually -- thanks for the question, Chris. It is actually a conscious decision on our part. We had said before that we would be taking steps to increase the cash flow from that business, and one of the things we can do is get more cash up front. So we shifted our pre-payment, or I'm sorry, our down payment requirements from the customers, and it varied by the brand, between WBW, and WVR, but we essentially increased it from what was 10% to 15% to more like 20% to 25%. And that resulted obviously in more cash down.

The number of cash sales did not really change as a percentage dramatically, I don't think it changed at all, but it was really more in the down payment requirement that we were pushing. And we did that while we were shrinking the business, and it is another burden for our sales force to bear, but they did a terrific job and they delivered on our expectations, and as Gina mentioned, during that time we also increased our FICO score so it was really a terrific execution down with the timeshare group.

Right. And just in terms of the percentage that were financed, I think it was 59% versus 65%. Is there a target going forward? I mean at one point do you not want to go below a certain percentage because then you are not getting some of that finance income?

Well, in this environment, if everybody wanted to pay cash, we wouldn't turn them away. And frankly, all of our financing, as you know, is very simplistic, fixed-rate financing. There are no pre-payment penalties so people can pay cash whenever they want to. I think realistically we will continue to work to get it to be a larger percentage of cash pay, particularly in this environment, and our spread on our receivables is not nearly what it used to be, so cash being king right now, we would be happy to go to 100% cash.

Okay. That makes sense. Thanks.

Thank you. Our next question comes from Michael Millman. Your line is open and please state your company name.

Thank you. It is Michael Millman, from Millman Research Associates. Could you break down free cash flow by segment possibly this year, and last year, and also for each segment, give us the percentage of variable costs?

Okay. Well, Mike, what we have done historically, and I don't think I'm going to take the time on this call to go through detail-by-detail, business unit-by business unit, but in general we've always given EBITDA for the business unit, and what we've said is that EBITDA less CapEx is pretty reflective of cash flow for that business unit. And that is still holding true. The only business unit that gets really affected, Mike, more beyond that is the amount of financing that we do within WVO. But to give you a comparative, to last year, WVO is flat to last year, in cash flow -- hold on just one second. In 2009, I'm sorry, for the full year 2009, WVO will be pretty much near zero cash flow, we will be pretty flat on cash flow, and the other businesses are obviously producing cash flow with their fee-for-service business model.

Okay.

Did that answer the question, Mike? I know you're looking by business unit, and we can break it out when you look at the Q, but I don't have it sitting right here in front of me right now.

And could you give us some rough approximation of variable cost for the units?

Well, I guess the way I would look at, it I will try to walk it through if you would like, and in Hotel, we run a very lean machine in our franchising business, so as we add revenues to that business, from royalty fees, we drop a very high percent to the bottom line, so it is largely a fixed-cost base, and very little variable cost, which is why in the first quarter, you see our revenues were down, and our EBITDA was down more (inaudible) towards the other way, as those high margin revenues disappear. So that's the way I would describe it when I look at the Hotel business.

With Group RCI there is more of a variable cost component, because we pay commissions for the rental of product, so that is completely variable, and much of our costs on the exchange side is related to the volume of business that we do. So there are more variable costs. So I don't have the percentage of variable versus fixed costs, but that is basically how I would look at it.

With WVO, a lot of it is variable. Obviously. And we have shown that by the shrinking of the business, and what we've produced. When you look at WVO, 25% of the earnings go to just pay for the product, which is completely variable, we don't sell the product, we don't take it off the shelf, we don't take it out of inventory. About 50% is sales and marketing, which again is largely variable, but there is a fixed component in there of fixed sales and marketing overhead, so the bottom line, I would say, the way I would look at it is probably 75% roughly of our costs associated with WVO is variable and the remainder would be fixed.

Great.

Is that helpful?

Great. Thank you very much.

Thank you. Our next question or comment comes from Justin Clifford, your line is open and please state your company name.

Good morning. Good morning, Omega Advisors. Good morning, folks.

Justin?

Can you hear me?

Yes.

Congratulations on a very good quarter. I might have missed the answer to this question, because I had to take another call for a second, but in the first quarter here, you're saying you recognized $67 million of Vacation Ownership revenues that were previously deferred. So as a benefit this quarter, versus a negative -- the first quarter last year of $82 million. Actually, this is just nitpicking, but at one point, it says $67 million, and another part of the press release, it says $70 million. I'm not sure that matters. But I'm wondering if you have any guidance as to how much in terms of deferred revenue you expect to be recognizing in that segment over the balance of the year, or what a good number would be for all of 2009?

Okay. We did, Justin, two things, we did go through that but we will be happy to repeat it. And just for the record, I want to make sure that you know that interference on your phone line, you can Lee that was not intentional but I will gladly answer the detailed accounting question.

It was somebody else calling me. It wasn't your fault.

The $67 million is the amount of revenue that was previously deferred that we recognized in the first quarter. And you are correct, I did mention a $70 million number. That is the EBITDA impact year-over-year when you take those deferred revenues and calculate the impact on the bottom line. And then I think I said a little bit earlier that we expect between $150 million and $250 million -- or $200 million in roll-in of deferred revenue during 2009.

Thank you very much.

Thank you.

Thank you. And our next question or comment comes from John Singer. Your line is open. And please state your company name. John, your line is open. Please go ahead with your question.

Hi, it is Morgan Stanley. And I was wondering, can you give us an apples-to-apples comparison of what RCI would have looked like without Disney?

Well, I can give you the drivers pretty simply. Because we brought in 135,000 members into our system from Disney. So if you take them out, we're relatively flat with our member base. From an earnings perspective, Disney did not add any significant incremental earnings, and in fact, we're spending quite a bit of money right now making sure that they're fully integrated into our system, and that they -- and that they -- that we have a seamless operation with them, so we're dedicating some additional resources to that, that new relationship that we just brought in.

Thanks.

Thanks, John.

Thank you. And at this time, I am currently showing no further questions. And I would like to turn it back over to Steve Holmes for closing comments.

Well, thanks very much, Carolyn. And thank you all for joining the call this morning. We look forward to talking to you next quarter. Have a good day.

Thank you. That concludes today's conference call. Thank you for your participation. You may disconnect at this time.