The Wyndham Worldwide Corp. recently came under fire for allegedly taking unskilled labor from people who had paid for the opportunity to grow professionally, a development that signals the New Jersey hospitality company’s willingness to push the envelope for extra profit. Wyndham has taken risks not only in how it treats its own people, but also in its handling of finances.
Visitors from Thailand, Vietnam and India allegedly paid consultants about $5,500 to join a program that allowed them to rotate for a year through various departments at the Wyndham Bonnet Creek Resort, near Orlando. Although they hoped to develop their professional skills, they worked instead as maids and short-order cooks for $9 an hour before expenses. Federal rules prohibit employers from putting people designated as “interns and trainees” in low-skill jobs, and a dozen filed suit in a Florida federal court, the Wall Street Journal reported after the market close on Friday June 8.
Angry workers aren’t the only potential problems that Wyndham’s managers have exposed themselves to lately, as they navigated through challenges such as the crisis in Europe, sluggish growth in the market for Wyndham’s timeshares, and a crummy ski season in the U.S. In the quarter ended this March, Wyndham had $4.28 billion of debt, up from $3.785 billion the same period last year. During the same time frame, the company’s total equity diminished to $2.125 billion from $2.707 billion.
Wyndham’s assets are heavy on the subjective side, too. For the three month period ended March it reported having $2.622 billion in assets, or 28% of total assets, resulting from its estimation of the value of previous acquisitions as well as intangibles such as brands.
Wyndham’s financial statements reflected an AGR score of 9 as of March, indicating more aggressive accounting than 91% of comparable companies. This doesn’t necessarily mean Wyndham’s managers are doing anything wrong, but it shows that they’re choosing to present their finances in the best light possible as opposed to the most conservative one.
“Our belief is that the level of cash flow is more than adequate to support our level of debt,” said Barry Goldschmidt, vice president in investor relations at Wyndham. With help from a tax benefit, Wyndham’s cash from operating activities amounted to more than $1 billion as of year-end December 2011, up from the more typical $635 million in 2010, according to the company’s statements. Goldschmidt also said that the company’s equity declined because it bought back stock.
So far the market has been sanguine. Wyndham’s shares were trading at around $50.89 per share intra-day on Tuesday, up more than 37% year to date.
Maybe Wyndham is taking smart risks, but either way, its aggressive stance puts investors into the position of having to guess more about what happens next. As became clear when Wyndham’s former maid trainees went to court recently, some bets go wrong.
GMI gives Wyndham a D on its corporate governance overall.