Attached files

file filename
EX-32 - CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICE - Wyndham Destinations, Inc.wyn-ex32_2018331xq1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Wyndham Destinations, Inc.wyn-ex312_2018331xq1.htm
EX-31.1 - CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER - Wyndham Destinations, Inc.wyn-ex311_2018331xq1.htm
EX-15 - LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION - Wyndham Destinations, Inc.wyn-ex15_2018331xq1.htm
EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Wyndham Destinations, Inc.wyn-ex12_2018331xq1.htm
EX-10.5 - EIGHT AMENDMENT, DATED AS OF APRIL 6, 2018, TO THE AMENDED AND RESTATED INDENTUR - Wyndham Destinations, Inc.wyn-ex105_2018331xq1.htm
EX-10.4 - FOURTH AMENDMENT, DATED MARCH 28, 2018, TO VREDIT AGREEMENT - Wyndham Destinations, Inc.wyn-ex104_2018331xq1.htm
EX-10.3 - SECOND AMENDMENT, DATED MARCH 28, 2018 TO CREDIT AGREEMENT - Wyndham Destinations, Inc.wyn-ex103_2018331xq1.htm
EX-10.2 - FIRST AMENDMENT, DATED MARCH 28, 2018, TO CREDIT AGREEMENT - Wyndham Destinations, Inc.wyn-ex102_2018331xq1.htm
EX-10.1 - SHARE SALE AGREEMENT, DATED AS OF MARCH 27, 2018 - Wyndham Destinations, Inc.wyn-ex101_2018331xq1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to        
Commission file number 001-32876
Wyndham Worldwide Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
20-0052541
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
22 Sylvan Way
 
07054
Parsippany, New Jersey
 
(Zip Code)
(Address of Principal Executive Offices)
 
 
(973) 753-6000
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
 
 
Accelerated filer
o
Non-accelerated filer
o
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 
 
Smaller reporting company
o
 
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
99,782,991 shares of common stock outstanding as of March 31, 2018.




Table of Contents

 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
Item 2.
 
Item 3.
Item 4.
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wyndham Worldwide Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (the "Company") as of March 31, 2018, the related condensed consolidated statements of income, comprehensive income, cash flows and equity, for the three-month periods ended March 31, 2018 and 2017, and the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, cash flows and equity for the year then ended prior to retrospective adjustment for a change in the Company's method of accounting for revenue from contracts with customers under Financial Accounting Standards Board Accounting Standards Codification 606, Revenues from Contracts with Customers (not presented herein); and in our report dated February 16, 2018, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2017, consolidated balance sheet of the Company (not presented herein). In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted condensed consolidated balance sheet as of December 31, 2017.
Basis for Review Results
The interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP
Parsippany, New Jersey
May 2, 2018




WYNDHAM WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2018
 
2017
Net revenues
 
 
 
Service and membership fees
$
487

 
$
476

Vacation ownership interest sales
358

 
350

Franchise fees
151

 
140

Consumer financing
118

 
111

Other
76

 
77

Net revenues
1,190

 
1,154


Expenses
 
 
 
Operating
513

 
506

Cost of vacation ownership interests
31

 
36

Consumer financing interest
19

 
18

Marketing and reservation
188

 
174

General and administrative
173

 
172

Separation-related

51

 

Impairment

 
5

Restructuring

 
7

Depreciation and amortization
56

 
51

Total expenses
1,031

 
969


Operating income
159

 
185

Other income, net
(6
)
 
(1
)
Interest expense
45

 
34

Interest income
(1
)
 
(1
)
Income before income taxes
121

 
153

Provision for income taxes
40

 
26

Income from continuing operations
81

 
127

Loss from discontinued operations, net of income taxes
(47
)
 
(37
)
Net income
$
34

 
$
90

 
 
 
 
Basic earnings per share
 
 
 
Continuing operations
$
0.81

 
$
1.21

Discontinued operations
(0.47
)
 
(0.35
)
 
$
0.34

 
$
0.86

Diluted earnings per share
 
 
 
Continuing operations
$
0.80

 
$
1.20

Discontinued operations
(0.46
)
 
(0.35
)
 
$
0.34

 
$
0.85

 
 
 
 
Cash dividends declared per share
$
0.66

 
$
0.58


See Notes to Condensed Consolidated Financial Statements.
2

WYNDHAM WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2018
 
2017
Net income
$
34

 
$
90

Other comprehensive income, net of tax
 
 
 
Foreign currency translation adjustments
14

 
29

Unrealized losses on cash flow hedges
(1
)
 

Defined benefit pension plans
1

 

Other comprehensive income, net of tax
14

 
29

Comprehensive income
$
48

 
$
119



See Notes to Condensed Consolidated Financial Statements.
3

WYNDHAM WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)


 
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
291

 
$
100

Trade receivables, net
450

 
389

Vacation ownership contract receivables, net
268

 
252

Inventory
337

 
340

Prepaid expenses
186

 
145

Other current assets
424

 
321

Assets held for sale
1,726

 
1,448

Total current assets
3,682

 
2,995

Long-term vacation ownership contract receivables, net
2,608

 
2,649

Non-current inventory
888

 
909

Property and equipment, net
1,112

 
1,081

Goodwill
1,330

 
1,336

Trademarks, net
741

 
736

Franchise agreements and other intangibles, net
344

 
348

Other non-current assets
394

 
396

Total assets
$
11,099

 
$
10,450

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Securitized vacation ownership debt
$
198

 
$
217

Current portion of long-term debt
91

 
104

Accounts payable
245

 
256

Deferred income
566

 
524

Accrued expenses and other current liabilities
753

 
748

Liabilities held for sale
1,246

 
780

Total current liabilities
3,099

 
2,629

Long-term securitized vacation ownership debt
1,779

 
1,881

Long-term debt
4,193

 
3,805

Deferred income taxes
802

 
774

Deferred income
283

 
283

Other non-current liabilities
293

 
304

Total liabilities
10,449

 
9,676

Commitments and contingencies (Note 13)

 

Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, authorized 6,000,000 shares, none issued and outstanding

 

Common stock, $.01 par value, authorized 600,000,000 shares, 219,249,183 issued as of 2018 and 218,796,817 issued as of 2017
2

 
2

Treasury stock, at cost – 119,536,306 shares as of 2018 and 118,887,441 shares as of 2017
(5,795
)
 
(5,719
)
Additional paid-in capital
3,986

 
3,996

Retained earnings
2,449

 
2,501

Accumulated other comprehensive income/(loss)
3

 
(11
)
Total stockholders’ equity
645

 
769

Noncontrolling interest
5

 
5

Total equity
650

 
774

Total liabilities and equity
$
11,099

 
$
10,450


See Notes to Condensed Consolidated Financial Statements.
4

WYNDHAM WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)


 
Three Months Ended
 
March 31,
 
2018
 
2017
Operating Activities
 
 
 
Net income
$
34

 
$
90

Loss from discontinued operations, net of tax
47

 
37

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

Depreciation and amortization
56

 
51

Provision for loan losses
92

 
85

Deferred income taxes
24

 
79

Stock-based compensation
21

 
15

Impairment

 
5

Non-cash interest
5

 
6

Net change in assets and liabilities, excluding the impact of acquisitions:
 
 
 
Trade receivables
(63
)
 
(49
)
Vacation ownership contract receivables
(71
)
 
(55
)
Inventory
(39
)
 
(32
)
Prepaid expenses
(41
)
 
(32
)
Other current assets
(76
)
 
(97
)
Accounts payable, accrued expenses and other current liabilities
1

 
(8
)
Deferred income
38

 
32

Payments of development advance notes
(8
)
 
(3
)
Proceeds from development advance notes
8

 
2

Other, net
(27
)
 
(3
)
Cash provided by operating activities - continuing operations
1

 
123

Cash provided by operating activities - discontinued operations
132

 
115

Net cash provided by operating activities
133

 
238

Investing Activities
 
 
 
Property and equipment additions
(28
)
 
(28
)
Net assets acquired, net of cash acquired
(5
)
 

Equity investments and loans

 
(2
)
Other, net
11

 

Cash used in investing activities - continuing operations
(22
)
 
(30
)
Cash (used in)/provided by investing activities - discontinued operations
(8
)
 
9

Net cash used in investing activities
(30
)
 
(21
)
Financing Activities
 
 
 
Proceeds from securitized borrowings
261

 
593

Principal payments on securitized borrowings
(384
)
 
(596
)
Proceeds from long-term debt
1,436

 
544

Principal payments on long-term debt
(576
)
 
(575
)
Repayments of commercial paper, net
(11
)
 
(206
)
Proceeds from notes issued and term loan

 
694

Repayment/repurchase of notes
(464
)
 
(300
)
Repayments of vacation ownership inventory arrangements
(7
)
 
(22
)
Dividends to shareholders
(70
)
 
(64
)
Repurchase of common stock
(76
)
 
(147
)
Debt issuance costs

 
(6
)
Net share settlement of incentive equity awards
(32
)
 
(30
)
Other, net
(2
)
 
1

Cash provided by/(used in) financing activities - continuing operations
75

 
(114
)
Cash used in financing activities - discontinued operations
(6
)
 
(9
)
Net cash provided by/(used in) financing activities
69

 
(123
)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
1

 
3

Net increase in cash, cash equivalents and restricted cash
173

 
97

Cash, cash equivalents and restricted cash, beginning of period
416

 
333

Cash, cash equivalents and restricted cash, end of period
589

 
430

Less cash, cash equivalents and restricted cash of discontinued operations, end of period
102

 
157

Cash, cash equivalents and restricted cash of continuing operations, end of period
$
487

 
$
273


See Notes to Condensed Consolidated Financial Statements.
5

WYNDHAM WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited)


 
Common Shares Outstanding
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)/ Income
 
Non-controlling Interest
 
Total Equity
Balance as of December 31, 2017
100

 
$
2

 
$
(5,719
)
 
$
3,996

 
$
2,501

 
$
(11
)
 
$
5

 
$
774

Net income

 

 

 

 
34

 

 

 
34

Other comprehensive income

 

 

 

 

 
14

 

 
14

Issuance of shares for RSU vesting
1

 

 

 

 

 

 

 

Net share settlement of incentive equity awards

 

 

 
(32
)
 

 

 

 
(32
)
Change in deferred compensation

 

 

 
21

 

 

 

 
21

Change in deferred compensation for Board of Directors

 

 

 
1

 

 

 

 
1

Repurchase of common stock
(1
)
 

 
(76
)
 

 

 

 

 
(76
)
Dividends

 

 

 

 
(67
)
 

 

 
(67
)
Cumulative-effect of change in accounting standard

 

 

 

 
(19
)
 

 

 
(19
)
Balance as of March 31, 2018
100


$
2


$
(5,795
)

$
3,986


$
2,449


$
3


$
5

 
$
650



 
Common Shares Outstanding
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)/Income
 
Non-controlling Interest
 
Total Equity
Balance as of December 31, 2016
106

 
$
2

 
$
(5,118
)
 
$
3,966

 
$
1,886

 
$
(106
)
 
$
4

 
$
634

Net income

 

 

 

 
90

 

 

 
90

Other comprehensive income

 

 

 

 

 
29

 

 
29

Net share settlement of incentive equity awards

 

 

 
(30
)
 

 

 

 
(30
)
Change in deferred compensation

 

 

 
15

 

 

 

 
15

Change in deferred compensation for Board of Directors

 

 

 
1

 

 

 

 
1

Repurchase of common stock
(2
)
 

 
(150
)
 

 

 

 

 
(150
)
Dividends

 

 

 

 
(58
)
 

 

 
(58
)
Balance as of March 31, 2017
104

 
$
2

 
$
(5,268
)
 
$
3,952

 
$
1,918

 
$
(77
)
 
$
4

 
$
531



See Notes to Condensed Consolidated Financial Statements.
6


WYNDHAM WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except share and per share amounts)
(Unaudited)

1.
Basis of Presentation
Wyndham Worldwide Corporation (“Wyndham” or the “Company”) is a global provider of hospitality services and products. The accompanying Condensed Consolidated Financial Statements include the accounts and transactions of Wyndham, as well as the entities in which Wyndham directly or indirectly has a controlling financial interest. The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2017 Consolidated Financial Statements included in its Annual Report filed on Form 10-K with the Securities and Exchange Commission on February 16, 2018.

Business Description
The Company operates in the following business segments:
Hotel Group—primarily franchises hotels in the upscale, upper midscale, midscale, economy and extended stay segments and provides hotel management services for full-service and select limited-service hotels.
Destination Network—provides vacation exchange services and products to owners of vacation ownership interests (“VOIs”) and manages and markets vacation rental properties primarily on behalf of independent owners.
Vacation Ownership—develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

In 2017, the Company announced its intent to spin-off the hotel group business, which will result in its operations being held by two separate, publicly traded companies. The two public companies intend to enter into long-term exclusive license agreements to retain their affiliation with the Company’s Wyndham Rewards loyalty program, as well as to continue to collaborate on inventory-sharing and customer cross-sell initiatives. The transaction is expected to result in enhanced strategic and management focus on the core business and growth of each company; more efficient capital allocation, direct access to capital and expanded growth opportunities for each company; the ability to implement a tailored approach to recruiting and retaining employees at each company; improved investor understanding of the business strategy and operating results of each company; and enhanced investor choice by offering investment opportunities in separate entities. The transaction will be effected through a pro rata distribution of the new hotel company’s stock to Wyndham’s shareholders and is expected to be completed in the second quarter of 2018. The new hotel company will be named Wyndham Hotels & Resorts, Inc.

In January 2018, the Company entered into an agreement with La Quinta Holdings Inc. to acquire its hotel franchising and management businesses for $1.95 billion in cash. The acquisition is expected to close in the second quarter of 2018. Upon completion of an internal reorganization and the spin-off, La Quinta will be a wholly-owned subsidiary of Wyndham Hotels & Resorts, Inc. At the time that the Company entered into the agreement to purchase the La Quinta hotel franchising and management businesses, it obtained financing commitments of $2.0 billion in the form of a 364-day senior unsecured bridge term loan facility (the ‘‘bridge term loan facility’’) to fund the La Quinta acquisition. The Company paid $8.5 million to obtain such financing commitments.

In addition, during the third quarter of 2017, the Company decided to explore strategic alternatives for its European vacation rentals business, which was previously part of the Destination Network segment, and in the fourth quarter of 2017, the Company commenced activities to facilitate the sale of this business. As a result, for all periods presented, the Company has classified the results of operations for the European vacation rentals business as discontinued operations in the Condensed Consolidated Statements of Income and classified the related assets and liabilities associated with this

7


business as held for sale in the Condensed Consolidated Balance Sheets. All results and information presented exclude the European vacation rentals business unless otherwise noted (see Note 5 - Discontinued Operations in the Notes to Condensed Consolidated Financial Statements). During the first quarter of 2018, the Company accepted a binding offer to sell its European vacation rentals business, subject to certain conditions.

2.
New Accounting Pronouncements
Recently Issued Accounting Pronouncements
Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which requires companies generally to recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.
Financial Instruments - Credit Losses. In June 2016, the FASB issued guidance which amends the guidance on measuring credit losses on financial assets held at amortized cost. The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.
Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued guidance which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities. In August 2017, the FASB issued guidance intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance will expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

Recently Adopted Accounting Pronouncements
Revenue from Contracts with Customers. In May 2014, the FASB issued guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the statement of financial position. The Company adopted the guidance on January 1, 2018 utilizing the full retrospective transition method.

This adoption primarily affected the accounting for initial fees, upfront costs and marketing and reservation expenses. Specifically, under the new guidance, initial fees are recognized ratably over the life of the noncancelable period of the franchise agreement and incremental upfront contract costs are deferred and expensed over the life of the noncancelable period of the franchise agreement. Loyalty revenues are deferred and primarily recognized over the loyalty points’ redemption pattern. Additionally, the Company no longer accrues a liability for future marketing and reservation costs when marketing and reservation revenues earned exceed costs incurred. Marketing and reservation costs incurred in excess of revenues earned will continue to be expensed as incurred.

8


The tables below summarize the impact of the adoption of the new revenue standard on the Company’s Condensed Consolidated Income Statements:
 
Three Months Ended March 31, 2017
Net revenues
Previously Reported Balance
 
Discontinued Operations *
 
New Revenue Standard Adjustment
 
Adjusted Balance
Service and membership fees
$
636

 
$
(151
)
 
$
(9
)
 
$
476

Vacation ownership interest sales
351

 

 
(1
)
 
350

Franchise fees
141

 

 
(1
)
 
140

Other
80

 

 
(3
)
 
77

Net revenues
1,319

 
(151
)
 
(14
)
 
1,154

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Operating
601

 
(72
)
 
(23
)
 
506

Marketing and reservation
195

 
(31
)
 
10

 
174

General and administrative
193

 
(23
)
 
2

 
172

Total expenses
1,118

 
(138
)
 
(11
)
 
969

 
 
 
 
 
 
 
 
Income/(loss) before income taxes
172

 
(16
)
 
(3
)
 
153

Income/(loss) from discontinued operations, net of income taxes

 
12

 
(49
)
 
(37
)
Net income/(loss)
141

 
(12
)
 
(39
)
 
90

 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.34

 
$
(0.11
)
 
$
(0.02
)
 
$
1.21

Discontinued operations

 
0.11

 
(0.46
)
 
(0.35
)
 
$
1.34

 
$

 
$
(0.48
)
 
$
0.86

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.33

 
$
(0.11
)
 
$
(0.02
)
 
$
1.20

Discontinued operations

 
0.11

 
(0.46
)
 
(0.35
)
 
$
1.33

 
$

 
$
(0.48
)
 
$
0.85


* Excluding the impact of the new revenue standard.


9


 
Year Ended December 31, 2017
Net revenues
Previously Reported Balance
 
New Revenue Standard
Adjustment
 
Adjusted Balance
Service and membership fees
$
1,895

 
$
(27
)
 
$
1,868

Vacation ownership interest sales
1,689

 
(5
)
 
1,684

Franchise fees
695

 
(11
)
 
684

Other
334

 
(28
)
 
306

Net revenues
5,076

 
(72
)
 
5,004

 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating
2,194

 
(101
)
 
2,093

Marketing and reservation
773

 
30

 
803

General and administrative
648

 
10

 
658

Total expenses
4,364

 
(61
)
 
4,303

 
 
 
 
 
 
Income before income taxes
590

 
(11
)
 
579

(Benefit)/provision for income taxes
(229
)
 
5

* 
(224
)
Income/(loss) from continuing operations
819

 
(16
)
 
803

Income/(loss) from discontinued operations, net of income taxes
53

 
(1
)
 
52

Net income/(loss)
872

 
(17
)
 
855

Net income/(loss) attributable to Wyndham shareholders
871

 
(17
)
 
854

 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
Continuing operations
$
7.94

 
$
(0.14
)
 
$
7.80

Discontinued operations
0.52

 
(0.02
)
 
0.50

 
$
8.46

 
$
(0.16
)
 
$
8.30

Diluted earnings per share
 
 
 
 
 
Continuing operations
$
7.89

 
$
(0.15
)
 
$
7.74

Discontinued operations
0.51

 
(0.01
)
 
0.50

 
$
8.40

 
$
(0.16
)
 
$
8.24


* 
Includes an $8 million deferred tax provision resulting from a reduction in deferred tax assets recorded in connection with the retrospective adoption of the new revenue standard and the impact of the lower U.S. corporate income tax rate from the enactment of the U.S. Tax Cuts and Jobs Act.

10


The table below summarizes the impact of the adoption of the new revenue standard on the Company’s Condensed Consolidated Balance Sheet:
 
At December 31, 2017
Assets
Previously Reported Balance
 
New Revenue Standard
Adjustment
 
Adjusted Balance
Trade receivables, net
$
385

 
$
4

 
$
389

Prepaid expenses
144

 
1

 
145

Other current assets
314

 
7

 
321

Assets held for sale
1,429

 
19

 
1,448

Total current assets
2,964

 
31

 
2,995

Other non-current assets
380

 
16

 
396

Total assets
10,403

 
47

 
10,450

 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
Deferred income
493

 
31

 
524

Accrued expenses and other current liabilities
753

 
(5
)
 
748

Liabilities held for sale
716

 
64

 
780

Total current liabilities
2,539

 
90

 
2,629

Deferred income taxes
790

 
(16
)
 
774

Deferred income
164

 
119

 
283

Other non-current liabilities
341

 
(37
)
 
304

Total liabilities
9,520

 
156

 
9,676

Retained earnings
2,609

 
(108
)
 
2,501

Accumulated other comprehensive loss
(10
)
 
(1
)
 
(11
)
Total liabilities and equity
10,403

 
47

 
10,450

In addition, the cumulative impact to the Company’s retained earnings at January 1, 2016, was a decrease of $90 million.
Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued guidance which requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance requires the modified retrospective approach and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2018, as required, which resulted in a cumulative-effect benefit to retained earnings of $19 million.
Clarifying the Definition of a Business. In January 2017, the FASB issued guidance clarifying the definition of a business, which assists entities when evaluating whether transactions should be accounted for as acquisitions of businesses or assets. This guidance is effective on a prospective basis for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the guidance on January 1, 2018, as required. There was no material impact on its Condensed Consolidated Financial Statements and related disclosures.
Compensation - Stock Compensation. In May 2017, the FASB issued guidance which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This guidance is effective for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2018, as required. There was no material impact on its Condensed Consolidated Financial Statements and related disclosures.
Statement of Cash Flows. In August 2016, the FASB issued guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance requires the retrospective transition method and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2018, as required. The impact of this new guidance resulted in payments of, and proceeds from, development advance notes being recorded within operating activities on its Condensed Consolidated Statements of Cash Flows.

11


Restricted Cash. In November 2016, the FASB issued guidance which requires amounts generally described as restricted cash be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2018, as required, using a retrospective transition method. The impact of this guidance resulted in escrow deposits and restricted cash being included with cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows.
The table below summarizes the effects of the new statement of cash flows and restricted cash guidance on the Company’s Condensed Consolidated Statements of Cash Flows:

 
Three Months Ended March 31, 2017
Increase/(decrease):
Previously Reported Balance
 
Discontinued Operations
 
New Restricted Cash Standard Adjustment
 
Adjusted Balance
Operating Activities
$
238

 
$
(115
)
 
$

 
$
123

Investing Activities
(79
)
 
9

 
40

 
(30
)
 
At March 31, 2017
 
Previously Reported Balance
 
Discontinued Operations
 
New Restricted Cash Standard Adjustment
 
Adjusted Balance
Cash, cash equivalents and restricted cash, beginning of period
$
185

 
$

 
$
148

 
$
333

Cash, cash equivalents and restricted cash, end of period
222

 
20

 
188

 
430


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that comprise the total of the cash, cash equivalents and restricted cash shown within the Condensed Consolidated Statements of Cash Flows:
 
 
March 31,
2018
Cash and cash equivalents
 
$
291

Restricted cash included in other current assets
 
161

Restricted cash included in other non-current assets
 
35

Cash, cash equivalents and restricted cash included in assets held for sale
 
102

Total cash, cash equivalents and restricted cash
 
$
589

 
 
 
 
 
December 31,
2017
Cash and cash equivalents
 
$
100

Restricted cash included in other current assets
 
142

Restricted cash included in other non-current assets
 
31

Cash, cash equivalents and restricted cash included in assets held for sale
 
143

Total cash, cash equivalents and restricted cash
 
$
416



12


3.
Revenue Recognition
Hotel Group

The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. The Company recognizes royalty fee revenues as and when the underlying sales occur. The Company also receives non-refundable initial franchise fees, which are recognized as revenues over the initial non-cancellable period of the franchise agreement, and commences when all material services or conditions have been substantially performed. This occurs when a franchised hotel opens for business or when a franchise agreement is terminated after it has been determined that the franchised hotel will not open.

The Company’s franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse the Company for expenses associated with operating an international, centralized reservation system, e-commerce channels such as the Company’s brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. Marketing and reservation fees are recognized as revenue when the underlying sales occur. Although the Company is generally contractually obligated to spend the marketing and reservation fees it collects from franchisees in accordance with the franchise agreements, marketing and reservations costs are expensed as incurred.

The Company provides management services for hotels under management contracts, which offer hotel owners all the benefits of a global brand and a full range of management, marketing and reservation services. In addition to the standard franchise services described above, the Company’s hotel management business provides hotel owners with professional oversight and comprehensive operations support services. The Company’s standard management agreement typically has a term of up to 25 years. The Company’s management fees are comprised of base fees, which are typically a specified percentage of gross revenues from hotel operations, and incentive fees, which are typically a specified percentage of a hotel’s gross operating profit. The base fees are recognized when the underlying sales occur and the management services are performed. Incentive fees are recognized when determinable, which is when the Company has met hotel operating performance metrics and the Company has determined that a significant reversal of revenues recognized will not occur.

The Company earns revenues from its Wyndham Rewards loyalty program when a member stays at a participating hotel. These revenues are derived from a fee the Company charges a franchised or managed hotel based upon a percentage of room revenues generated from a Wyndham Rewards member’s stay. These fees are to reimburse the Company for expenses associated with member redemptions and activities that are related to the overall administering and marketing of the program. Revenues related to the loyalty program represent variable consideration and are recognized net of redemptions over time based upon loyalty point redemption patterns, which include an estimate of loyalty points that will expire or will never be redeemed.

The Company earns revenue from its Wyndham 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. The program primarily contains two performance obligations: (i) brand performance services, for which revenue is recognized over the contract term on a straight-line basis, and (ii) issuance and redemption of loyalty points, for which revenue is recognized over time based upon the redemption patterns of the loyalty points earned under the program including an estimate of loyalty points that will expire or never be redeemed.

The Company recognizes reimbursable payroll costs for operational employees at certain of the Company’s managed hotels as revenue. Although these costs are funded by hotel owners, accounting guidance requires the Company to report these fees on a gross basis as both revenues and expenses.

The Company also earns revenues from its hotel ownership portfolio, which is limited to two hotels. Revenues earned from the Company’s owned hotels consist primarily of (i) gross room night rentals, (ii) food and beverage services and (iii) on-site spa, casino, golf and shop revenues. These revenues are recognized upon the completion of services.

Destination Network

As a provider of vacation exchange services, the Company enters 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 the Company’s vacation exchange brands and, for some members, for other leisure-related services and products. Additionally, as a marketer of vacation rental properties, generally the Company enters into contracts for exclusive periods of time with property owners to market the rental of such properties to rental customers.


13


The Company’s vacation exchange brands derive a majority of its revenues from membership dues and fees for facilitating members trading of their intervals. Revenues from membership dues represent the fees paid by members or affiliated clubs on their behalf. The Company recognizes 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 other travel-related products and services. Consideration paid by affiliated clubs for memberships are 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 the Company’s vacation exchange networks and, for certain members, for other leisure-related services and products. Fees for facilitating exchanges are recognized as revenue, net of expected cancellations, when these transactions have been confirmed to the member.

The Company’s vacation exchange brands also derive revenues from: (i) additional services, programs with affiliated resorts, club servicing and loyalty programs and (ii) 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. Other vacation exchange related product fees are deferred and recognized as revenue upon the occurrence of a future exchange or other related transaction or events.

The Company earns revenue from its 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. The program primarily contains two performance obligations: (i) brand performance services, for which revenue is recognized over the contract term on a straight-line basis, and (ii) issuance and redemption of loyalty points, for which revenue is recognized over time based upon the redemption pattern of the loyalty points earned under the program including an estimate of loyalty points that will expire or never be redeemed.

The Company’s vacation rental brands derive revenue from fees associated with the rental of vacation rental properties on behalf of independent owners. The Company remits the rental fee received from the renter to the independent owner, net of the Company’s agreed-upon fee. The related revenue from such fees, net of expected refunds, is recognized over the renter’s stay. The Company’s vacation rental brands also derive revenues from additional services delivered to independent owners, vacation rental guests, and property owners’ associations that are generally recognized when the service is delivered.

Vacation Ownership

The Company develops, markets and sells VOIs to individual consumers, provides property management services at resorts and provides consumer financing in connection with the sale of VOIs. The Company’s 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 remainder of the transaction price has occurred, the statutory rescission period has expired and the transaction price has been deemed to be collectible.

For developer-financed sales, the Company reduces the VOI sales transaction price by an estimate of uncollectible consideration at the time of the sale. The Company’s estimates of uncollectible amounts are based largely on the results of the Company’s static pool analysis which relies on historical payment data by customer class.

In connection with entering into a VOI sale, the Company may provide its customers with certain non-cash incentives, such as credits for future stays at its resorts. For those VOI sales, the Company bifurcates the sale and allocates a portion of the sales price to the VOI sale and the non-cash incentive. Non-cash incentives generally have expiration periods of 18 months or less and are recognized at a point in time upon transfer of control.

The Company provides 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. The Company’s 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. The Company receives 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. The Company is entitled to consideration for reimbursement of costs incurred on behalf of the property owners’ association in providing the

14


management services (“reimbursable revenue”). The Company reduces its management fees for amounts it has paid to the property owners’ association that reflect maintenance fees for VOIs for which it retains ownership, as the Company has concluded that such payments are consideration payable to a customer.

Contract Liabilities

Contract liabilities generally represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities as of March 31, 2018 and December 31, 2017 are as follows:
Contract Liabilities
 
March 31,
2018
 
December 31,
2017
Deferred subscription revenue
 
$
242

 
$
229

Deferred VOI trial package revenue
 
115

 
108

Deferred VOI incentive revenue
 
98

 
102

Deferred initial franchise fee revenue
 
98

 
98

Deferred exchange-related revenue
 
64

 
63

Deferred rental revenue
 
60

 
38

Deferred loyalty program revenue
 
53

 
54

Deferred co-branded credit card programs revenue
 
40

 
50

Deferred other revenue
 
19

 
11

Total
 
$
789

 
$
753


In the Company’s hotel business, deferred initial franchise fees represent payments received in advance from prospective franchisees upon the signing of a franchise agreement and are generally recognized to revenue within 12 years. Deferred co-branded credit card program revenue represents payments received in advance from the Company’s co-branded credit card partners primarily for card member activity, which is typically recognized within one year. Deferred loyalty revenues represent the portion of loyalty program fees charged to franchisees net of redemption costs that have been deferred and will be recognized over time based upon the loyalty point redemption patterns.

In the Company’s vacation exchange business, deferred subscription revenue represents billings and payments received in advance or deposits from members and affiliated clubs for memberships in the Company’s vacation exchange programs which are generally recognized as revenues within one year. Deferred exchange-related revenues primarily represents payments received in advance from members for the right to exchange their intervals for intervals at other properties affiliated with the Company’s vacation exchange networks and for other leisure-related services and products which are generally recognized as revenue within one year. In the Company's vacation rentals business, deferred rental revenue represents billings and payments received in advance of a customer’s rental stay which are generally recognized as revenue within one year.

Within the Company’s vacation ownership business, deferred VOI trial package revenue represents consideration received in advance for a trial VOI, which allows customers to utilize a vacation package typically within one year of purchase. Deferred VOI incentive revenue represents payments received in advance for additional travel-related services and products at the time of a VOI sale. Revenue is recognized when a customer utilizes the additional services and products, which is typically within one year of the VOI sale.

Capitalized Contract Costs

The Company’s hotel business incurs certain direct and incremental sales commissions costs in order to obtain hotel franchise and management contracts. Such costs are capitalized and subsequently amortized upon hotel opening over the first non-cancellable period of the agreement. In the event that an agreement is terminated prior to the end of the first non-cancellable period, any unamortized cost is immediately expensed. As of March 31, 2018 and December 31, 2017, these capitalized costs were $25 million and $26 million, respectively.

The Company’s vacation exchange and vacation rentals businesses incur certain direct and incremental selling costs to obtain contracts with customers in connection with subscription revenues, exchange–related revenues, and vacation rental revenues. Such costs, which are primarily comprised of commissions paid to internal and external parties and credit card

15


processing fees, are deferred at the inception of the contract and recognized when the benefit is transferred to the customer. As of March 31, 2018 and December 31, 2017, these capitalized costs were $13 million and $9 million, respectively.

The Company’s vacation ownership business incurs certain direct and incremental selling costs in connection with VOI trial package and incentive revenues. Such costs are capitalized and subsequently amortized over the utilization period, which is typically within one year of the sale. As of March 31, 2018 and December 31, 2017, these capitalized costs were $46 million and $44 million, respectively.

Practical Expedients

The Company has not adjusted the consideration for the effects of a significant financing component if it expected, at contract inception, that the period between when the Company satisfied the performance obligation and when the customer paid for that good or service was one year or less.

For contracts with customers that were modified before the beginning of the earliest reporting period presented, the Company did not retrospectively restate the revenue associated with the contract for those modifications. Instead, it reflected the aggregate effect of all prior modifications in determining (i) the performance obligations and transaction prices and (ii) the allocation of such transaction prices to the performance obligations.

Performance Obligations

A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. The consideration received from a customer is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The following table summarizes the Company’s remaining performance obligations for the twelve month periods set forth below:
 
 
4/1/2018- 3/31/2019
 
4/1/2019- 3/31/2020
 
4/1/2020- 3/31/2021
 
Thereafter
 
Total
Subscription revenue
 
$
135

 
$
55

 
$
29

 
$
23

 
$
242

VOI trial package revenue
 
115

 

 

 

 
115

VOI incentive revenue
 
98

 

 

 

 
98

Initial franchise fee revenue
 
11

 
10

 
8

 
69

 
98

Exchange-related revenue
 
58

 
4

 
1

 
1

 
64

Rental revenue
 
60

 

 

 

 
60

Loyalty program revenue
 
34

 
13

 
5

 
1

 
53

Co-branded credit card programs revenue
 
27

 
7

 
4

 
2

 
40

Other revenue
 
13

 
1

 
1

 
4

 
19

Total
 
$
551

 
$
90

 
$
48

 
$
100

 
$
789


16


Disaggregation of Net Revenues
The table below presents a disaggregation of the Company’s net revenues from contracts with customers by major services and products for each of the Company’s segments:

 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Hotel Group
 
 
 
 
Royalties and franchise fees
 
$
84

 
$
78

Marketing, reservation and Wyndham Rewards revenues
 
83

 
77

Hotel management reimbursable revenues
 
66

 
66

Owned hotel revenues
 
23

 
23

Intersegment trademark fees
 
13

 
13

Ancillary revenues
 
33

 
32

Total Hotel Group
 
302

 
289

 
 
 
 
 
Destination Network
 
 
 
 
Exchange revenues
 
188

 
187

North America rental revenues
 
38

 
38

Ancillary revenues
 
20

 
18

Total Destination Network
 
246

 
243

 
 
 
 
 
Vacation Ownership
 
 
 
 
Vacation ownership interest sales
 
358

 
350

Property management fees and reimbursable revenues
 
164

 
163

Consumer financing
 
118

 
111

WAAM fee-for-service commissions
 
10

 
2

Ancillary revenues
 
11

 
13

Total Vacation Ownership
 
661

 
639

 
 
 
 
 
Corporate and Other
 
 
 
 
Eliminations
 
(19
)
 
(17
)
 
 
 
 
 
Net Revenues
 
$
1,190

 
$
1,154



17


4.
Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is based on net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively.

The following table sets forth the computation of basic and diluted EPS (in millions, except per share data):
 
Three Months Ended
 
March 31,
 
2018
 
2017
Income from continuing operations
$
81

 
$
127

Loss from discontinued operations, net of income taxes
(47
)
 
(37
)
Net income
$
34

 
$
90

 
 
 
 
Basic earnings per share
 
 
 
Continuing operations
$
0.81

 
$
1.21

Discontinued operations
(0.47
)
 
(0.35
)
 
$
0.34

 
$
0.86

Diluted earnings per share
 
 
 
Continuing operations
$
0.80

 
$
1.20

Discontinued operations
(0.46
)
 
(0.35
)
 
$
0.34

 
$
0.85

 
 
 
 
Basic weighted average shares outstanding
100.1

 
105.2

Stock-settled appreciation rights (“SSARs”), RSUs (a) and PSUs (b)
0.7

 
0.8

Diluted weighted average shares outstanding
100.8

 
106.0

 
 
 
 
Dividends:
 
 
 
Aggregate dividends paid to shareholders
$
70

 
$
64


(a) 
Excludes 0.5 million restricted stock units (“RSUs”) for the three months ended March 31, 2017 that would have been anti-dilutive to EPS. Includes unvested dilutive RSUs which are subject to future forfeiture.
(b) 
Excludes 0.5 million and 0.4 million performance-vested restricted stock units (“PSUs”) for the three months ended March 31, 2018 and 2017, respectively, as the Company has not met the required performance metrics.

Stock Repurchase Program

The following table summarizes stock repurchase activity under the current stock repurchase program (in millions, except per share data):
 
Shares Repurchased
 
Cost
 
 Average Price Per Share
As of December 31, 2017
94.4

 
$
4,938

 
$
52.32

During the three months ended March 31, 2018
0.6

 
76

 
115.91

As of March 31, 2018
95.0

 
$
5,014

 
52.75


The Company had $1.1 billion of remaining availability under its program as of March 31, 2018.

5.
Discontinued Operations
During the third quarter of 2017, the Company decided to explore strategic alternatives for its European vacation rentals business, which was previously part of the Destination Network segment, and in the fourth quarter of 2017, the Company commenced activities to facilitate the sale of this business. For all periods presented, the Company has classified the results of operations for its European vacation rentals business as discontinued operations in the Condensed Consolidated Statements of Income and classified the related assets and liabilities associated with this business as held for sale in the

18


Condensed Consolidated Balance Sheets. All results and information presented exclude the European vacation rentals business unless otherwise noted. Discontinued operations includes direct expenses incurred by the European vacation rentals business and excludes the allocation of corporate overhead and interest. In the first quarter of 2018, the Company accepted a binding offer to sell its European vacation rentals business, subject to certain conditions. The Company will continue to have three reporting segments: Hotel Group, Destination Network and Vacation Ownership (see Note 16 - Segment Information, for more information on the Company’s operating segments).

The following table presents the aggregate carrying amounts of the classes of assets and liabilities held for sale as of March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
December 31, 2017
Assets

 
 
 
Cash and cash equivalents
$
84

 
$
133

Trade receivables, net
505

 
299

Other current assets
146

 
78

Property and equipment, net
374

 
350

Goodwill
444

 
430

Trademarks, net
59

 
58

Franchise agreements and other intangibles, net
59

 
60

Other non-current assets
55

 
40

Total assets held for sale
$
1,726

 
$
1,448

Liabilities
 
 
 
Current portion of long-term debt
$
12

 
$
11

Accounts payable
584

 
334

Deferred income
363

 
184

Accrued expenses and other current liabilities
146

 
126

Long-term debt
76

 
57

Other non-current liabilities
65

 
68

Total liabilities held for sale
$
1,246

 
$
780


Under the new revenue recognition standard, the European vacation rentals business recognizes revenue over the renter’s stay, which is the period over which the service is rendered. As a result of the adoption, revenues from rentals are generally higher in the second and third quarters and lower in the first and fourth quarters, due to the seasonality of vacation arrivals. The following table below presents information regarding certain components of income from discontinued operations, net of income taxes:
 
Three Months Ended March 31,
 
2018
 
2017
Net revenues
$
107

 
$
79

Expenses:
 
 
 
Operating
78

 
61

Marketing and reservation
40

 
33

General and administrative
36

 
21

Depreciation and amortization
15

 
12

Total expenses
169

 
127

Other income, net
(1
)
 
(2
)
Benefit from income taxes
(14
)
 
(9
)
Loss from discontinued operations, net of income taxes
$
(47
)
 
$
(37
)


19


The following table presents information regarding certain components of cash flows from discontinued operations:
 
Three Months Ended March 31,
 
2018
 
2017
Cash provided by operating activities
$
132

 
$
115

Cash (used in)/provided by investing activities
(8
)
 
9

Cash used in financing activities
(6
)
 
(9
)
 
 
 
 
Property and equipment additions

(6
)
 
(7
)
Net assets acquired, net of cash acquired

 
(2
)

6.
Vacation Ownership Contract Receivables
The Company generates vacation ownership contract receivables by extending financing to the purchasers of its VOIs. Current and long-term vacation ownership contract receivables, net consisted of:
 
March 31,
2018
 
December 31,
2017
Current vacation ownership contract receivables:
 
 
 
Securitized
$
224

 
$
227

Non-securitized
109

 
88

Current vacation ownership contract receivables, gross
333

 
315

Less: Allowance for loan losses
65

 
63

Current vacation ownership contract receivables, net
$
268

 
$
252

Long-term vacation ownership contract receivables:
 
 
 
Securitized
$
2,289

 
$
2,326

Non-securitized
939

 
951

Long-term vacation ownership contract receivables, gross
3,228

 
3,277

Less: Allowance for loan losses
620

 
628

Long-term vacation ownership contract receivables, net
$
2,608

 
$
2,649


The Company’s securitized vacation ownership contract receivables generated interest income of $87 million and $82 million during the three months ended March 31, 2018 and March 31, 2017, respectively. Such interest income is included within consumer financing revenue on the Condensed Consolidated Statements of Income.

Principal payments that are contractually due on the Company’s vacation ownership contract receivables during the next twelve months are classified as current on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2018 and 2017, the Company originated vacation ownership contract receivables of $297 million and $280 million, respectively, and received principal collections of $226 million and $225 million, respectively. The weighted average interest rate on outstanding vacation ownership contract receivables was 14.0% and 13.9% as of March 31, 2018 and December 31, 2017, respectively.

The activity in the allowance for loan losses on vacation ownership contract receivables was as follows:
 
Amount
Allowance for loan losses as of December 31, 2017
$
691

Provision for loan losses
92

Contract receivables write-offs, net
(98
)
Allowance for loan losses as of March 31, 2018
$
685


20


 
Amount
Allowance for loan losses as of December 31, 2016
$
621

Provision for loan losses
85

Contract receivables write-offs, net
(87
)
Allowance for loan losses as of March 31, 2017
$
619

In accordance with the guidance for accounting for real estate time-sharing transactions, the Company recorded a provision for loan losses of $92 million and $85 million as a reduction of net revenues during the three months ended March 31, 2018 and 2017, respectively.

Credit Quality for Financed Receivables and the Allowance for Credit Losses
The basis of the differentiation within the identified class of financed VOI contract receivables is the consumer’s FICO score. A FICO score is a branded version of a consumer credit score widely used in the United States by the largest banks and lending institutions. FICO scores range from 300 to 850 and are calculated based on information obtained from one or more of the three major U.S. credit reporting agencies that compile and report on a consumer’s credit history. The Company updates its records for all active VOI contract receivables with a balance due on a rolling monthly basis to ensure that all VOI contract receivables are scored at least every six months. The Company groups all VOI contract receivables into five different categories: FICO scores ranging from 700 to 850, ranging from 600 to 699, Below 600, No Score (primarily comprised of consumers for whom a score is not readily available, including consumers declining access to FICO scores and non-U.S. residents) and Asia Pacific (comprised of receivables in the Company’s Wyndham Vacation Resort Asia Pacific business for which scores are not readily available).

The following table details an aging analysis of financing receivables using the most recently updated FICO scores (based on the policy described above):
 
As of March 31, 2018
 
700+
 
600-699
 
<600
 
No Score
 
Asia Pacific
 
Total
Current
$
1,821

 
$
1,009

 
$
176

 
$
138

 
$
262

 
$
3,406

31 - 60 days
17

 
27

 
15

 
5

 
3

 
67

61 - 90 days
13

 
18

 
11

 
3

 
1

 
46

91 - 120 days
9

 
16

 
15

 
2

 

 
42

Total
$
1,860

 
$
1,070

 
$
217

 
$
148

 
$
266

 
$
3,561

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
700+
 
600-699
 
<600
 
No Score
 
Asia Pacific
 
Total
Current
$
1,849

 
$
1,021

 
$
166

 
$
133

 
$
262

 
$
3,431

31 - 60 days
19

 
32

 
17

 
5

 
2

 
75

61 - 90 days
9

 
18

 
13

 
3

 
1

 
44

91 - 120 days
9

 
16

 
15

 
2

 

 
42

Total
$
1,886

 
$
1,087

 
$
211

 
$
143

 
$
265

 
$
3,592

The Company ceases to accrue interest on VOI contract receivables once the contract has remained delinquent for greater than 90 days. At greater than 120 days, the VOI contract receivable is written off to the allowance for loan losses. In accordance with its policy, the Company assesses the allowance for loan losses using a static pool methodology and thus does not assess individual loans for impairment separate from the pool.


21


7.
Inventory
Inventory consisted of:
 
March 31,
2018
 
December 31,
2017
Land held for VOI development
$
4

 
$
4

VOI construction in process
31

 
25

Inventory sold subject to conditional repurchase
43

 
43

Completed VOI inventory
812

 
841

Estimated VOI recoveries
277

 
279

Destination Network vacation credits and other
58

 
57

Total inventory
1,225

 
1,249

Less: Current portion (*)
337

 
340

Non-current inventory
$
888

 
$
909

 
(*) 
Represents inventory that the Company expects to sell within the next 12 months.

During the three months ended March 31, 2018 and 2017, the Company transferred $48 million and $17 million, respectively, of VOI inventory to property and equipment. In addition to the inventory obligations listed below, the Company had $7 million and $6 million of inventory accruals included within accounts payable on the Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, respectively.

Inventory Sale Transactions
During 2013, the Company sold real property located in Las Vegas, Nevada and Avon, Colorado to a third-party developer, consisting of vacation ownership inventory and property and equipment. During 2015, the Company sold real property located in Saint Thomas, U.S. Virgin Islands to a third-party developer, consisting of $80 million of vacation ownership inventory, in exchange for $80 million in cash consideration.
The Company recognized no gain or loss on these sales transactions. In accordance with the agreements with the third-party developers, the Company has conditional rights and conditional obligations to repurchase the completed properties from the developers subject to the properties conforming to the Company's vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party. Under the sale of real estate accounting guidance, the conditional rights and obligations of the Company constitute continuing involvement and thus the Company did not account for these transactions as a sale.

During 2017, the Company acquired property located in Austin, Texas from a third-party developer for vacation ownership inventory and property and equipment.


22


The following table summarizes the activity related to the Company’s inventory obligations:
 
Avon
 
Las Vegas
 
Saint Thomas (*)
 
Austin
 
Total
December 31, 2016
$
32

 
$
68

 
$
98

 
$

 
$
198

Purchases

 
1

 
1

 

 
2

Payments
(11
)
 
(15
)
 
(40
)
 

 
(66
)
March 31, 2017
$
21

 
$
54

 
$
59

 
$

 
$
134

 
 
 
 
 
 
 
 
 
 
December 31, 2017
$
22

 
$
60

 
$

 
$
62

 
$
144

Purchases

 

 

 

 

Payments
(11
)