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EX-32 - EXHIBIT 32 - Wyndham Destinations, Inc.wynd-ex32_2018930xq3.htm
EX-31.2 - EXHIBIT 31.2 - Wyndham Destinations, Inc.wynd-ex312_2018930xq3.htm
EX-31.1 - EXHIBIT 31.1 - Wyndham Destinations, Inc.wynd-ex311_2018930xq3.htm
EX-15 - EXHIBIT 15 - Wyndham Destinations, Inc.wynd-ex15_2018930xq3.htm
EX-12 - EXHIBIT 12 - Wyndham Destinations, Inc.wynd-ex12_2018930xq3.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 September 30, 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 DESTINATIONS, INC.
(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.)
 
 
 
6277 Sea Harbor Drive
 
32821
Orlando, Florida
 
(Zip Code)
(Address of Principal Executive Offices)
 
 
(407) 626-5200
(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 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 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
 
 
 
 
 
 
 
 
 
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:
97,452,743 shares of common stock outstanding as of September 30, 2018.




Table of Contents

 
 
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Note 9 - Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
Item 4.
PART II
OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 



GLOSSARY OF TERMS
The following terms and acronyms appear in the text of this report and have the definitions indicated below:


Adjusted EBITDA
A non-GAAP measure, defined by the Company as net income before depreciation and amortization, interest expense (excluding consumer financing interest), early extinguishment of debt, interest income (excluding consumer financing revenues) and income taxes, each of which is presented on the Condensed Consolidated Statements of Income. Adjusted EBITDA also excludes stock-based compensation costs, separation and restructuring costs, transaction costs, impairments, and items that meet the conditions of unusual and/or infrequent.
AOCI        Accumulated Other Comprehensive Income
Barclays        Barclays Bank PLC
Board        Board of Directors
Buyer        Compass IV Limited, an affiliate of Platinum Equity, LLC
Company        Wyndham Destinations, Inc. and its subsidiaries
EBITDA        Earnings Before Interest, Income Taxes and Depreciation/Amortization
EPS        Earnings Per Share
Exchange Act        Securities Exchange Act of 1934
FASB        Financial Accounting Standards Board
FICO        Fair Isaac Corporation
GAAP        Generally Accepted Accounting Principles in the United States
IRS        United States Internal Revenue Service
La Quinta        La Quinta Holdings Inc.
LIBOR        London Interbank Offered Rate
Moody’s        Moody’s Investors Service, Inc.
NM        Not meaningful
NQ        Non-Qualified stock options
PCAOB        Public Company Accounting Oversight Board
PSU        Performance-vested restricted Stock Units
RSU        Restricted Stock Unit
S&P        Standard & Poor’s Rating Services
SEC        Securities and Exchange Commission
SPE        Special Purpose Entity
SSAR        Stock-Settled Appreciation Rights
U.S.        United States of America
VIE        Variable Interest Entity
VOI         Vacation Ownership Interest
VPG        Volume Per Guest
Wyndham Hotels        Wyndham Hotels & Resorts, Inc.
Wyndham Destinations    Wyndham Destinations, Inc.
Wyndham Worldwide        Wyndham Worldwide Corporation






PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Wyndham Destinations, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Wyndham Destinations, Inc. (formerly Wyndham Worldwide Corporation) and subsidiaries (the "Company") as of September 30, 2018, the related condensed consolidated statements of income and comprehensive income, for the three-month and nine-month periods ended September 30, 2018 and 2017, and of (deficit)/equity and cash flows for the nine-month periods ended September 30, 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 reclassification for the discontinued operations described in Note 6 (not presented herein) and 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 described in Note 2 (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 6 and Note 2 that were applied to reclassify and 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
Tampa, FL
November 1, 2018




WYNDHAM DESTINATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net revenues
 
 
 
 
 
 
 
Vacation ownership interest sales
$
503

 
$
466

 
$
1,323

 
$
1,262

Service and membership fees
417

 
416

 
1,245

 
1,225

Consumer financing
126

 
119

 
363

 
343

Other
16

 
14

 
45

 
46

Net revenues
1,062

 
1,015

 
2,976

 
2,876

Expenses
 
 
 
 
 
 
 
Operating
431

 
429

 
1,252

 
1,238

Cost of vacation ownership interests
53

 
41

 
131

 
115

Consumer financing interest
23

 
17

 
62

 
54

Marketing and reservation
179

 
154

 
465

 
412

General and administrative
116

 
131

 
402

 
439

Separation and related costs
35

 
16

 
198

 
16

Asset impairments
(4
)
 

 
(4
)
 
140

Restructuring

 
8

 

 
14

Depreciation and amortization
32

 
35

 
105

 
100

Total expenses
865

 
831

 
2,611

 
2,528

Operating income
197

 
184

 
365

 
348

Other (income), net
(22
)
 
(19
)
 
(33
)
 
(24
)
Interest expense
37

 
40

 
129

 
114

Interest (income)

 
(1
)
 
(3
)
 
(4
)
Income before income taxes
182

 
164

 
272

 
262

Provision for income taxes
51

 
62

 
112

 
60

Income from continuing operations
131

 
102

 
160

 
202

Income/(loss) from operations of discontinued businesses, net of income taxes
(3
)
 
162

 
(52
)
 
237

Income on disposal of discontinued businesses, net of income taxes
20

 

 
452

 

Net income
148

 
264

 
560

 
439

Net income attributable to noncontrolling interest

 

 

 
(1
)
Net income attributable to Wyndham Destinations shareholders
$
148

 
$
264

 
$
560

 
$
438

 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.32

 
$
1.00

 
$
1.61

 
$
1.94

Discontinued operations
0.17

 
1.58

 
4.01

 
2.29

 
$
1.49

 
$
2.58

 
$
5.62

 
$
4.23

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.31

 
$
0.99

 
$
1.60

 
$
1.93

Discontinued operations
0.18

 
1.58

 
4.00

 
2.28

 
$
1.49

 
$
2.57

 
$
5.60

 
$
4.21

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.41

 
$
0.58

 
$
1.48

 
$
1.74


See Notes to Condensed Consolidated Financial Statements.
2

WYNDHAM DESTINATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to Wyndham Destinations shareholders
$
148

 
$
264

 
$
560

 
$
438

Other comprehensive (loss)/income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(5
)
 
29

 
(24
)
 
98

Unrealized gain on cash flow hedges

 
(1
)
 

 
(1
)
Defined benefit pension plans

 

 
4

 

Other comprehensive (loss)/income, net of tax
(5
)
 
28

 
(20
)
 
97

Comprehensive income
$
143

 
$
292

 
$
540

 
$
535



See Notes to Condensed Consolidated Financial Statements.
3

WYNDHAM DESTINATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)


 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Cash and cash equivalents
$
164

 
$
48

Trade receivables, net
197

 
195

Vacation ownership contract receivables, net
2,989

 
2,901

Inventory
1,197

 
1,249

Prepaid expenses
129

 
118

Property and equipment, net
775

 
822

Goodwill
936

 
911

Other intangibles, net
146

 
143

Other assets
599

 
499

Assets of discontinued operations

 
3,564

Total assets
$
7,132

 
$
10,450

Liabilities and (deficit)/equity
 
 
 
Accounts payable
$
147

 
$
232

Deferred income
564

 
559

Accrued expenses and other liabilities
1,062

 
847

Non-recourse vacation ownership debt
2,190

 
2,098

Debt
2,969

 
3,908

Deferred income taxes
709

 
613

Liabilities of discontinued operations

 
1,419

Total liabilities
7,641

 
9,676

Commitments and contingencies (Note 14)

 

Stockholders' (deficit)/equity:
 
 
 
Preferred stock, $.01 par value, authorized 6,000,000 shares, none issued and outstanding

 

Common stock, $.01 par value, 600,000,000 shares authorized, 219,875,341 issued as of 2018 and 218,796,817 as of 2017
2

 
2

Treasury stock, at cost – 122,554,247 shares as of 2018 and 118,887,441 shares as of 2017
(5,943
)
 
(5,719
)
Additional paid-in capital
4,074

 
3,996

Retained earnings
1,384

 
2,501

Accumulated other comprehensive loss
(31
)
 
(11
)
Total stockholders’ (deficit)/equity
(514
)
 
769

Noncontrolling interest
5

 
5

Total (deficit)/equity
(509
)
 
774

Total liabilities and (deficit)/equity
$
7,132

 
$
10,450


See Notes to Condensed Consolidated Financial Statements.
4

WYNDHAM DESTINATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)


 
Nine Months Ended
 
September 30,
 
2018
 
2017
Operating activities
 
 
 
Net income
$
560

 
$
439

(Income)/loss from operations of discontinued businesses, net of income taxes
52

 
(237
)
(Income) on disposal of discontinued businesses, net of income taxes
(452
)
 

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
105

 
100

Provision for loan losses
350

 
319

Deferred income taxes
84

 
44

Stock-based compensation
121

 
40

Asset impairments
6

 
140

Non-cash interest
13

 
17

Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
 
 
 
Trade receivables
(21
)
 
17

Vacation ownership contract receivables
(457
)
 
(387
)
Inventory
(48
)
 
(79
)
Deferred income
12

 
9

Accounts payable, accrued expenses, other assets and other liabilities
(120
)
 
(158
)
Net cash provided by operating activities - continuing operations
205

 
264

Net cash provided by operating activities - discontinued operations
150

 
400

Net cash provided by operating activities
355

 
664

Investing activities
 
 
 
Property and equipment additions
(63
)
 
(76
)
Net assets acquired, net of cash acquired, and acquisition-related payments
(5
)
 
(27
)
Proceeds from asset sales
11

 
3

Other, net
(7
)
 
(3
)
Cash used in investing activities - continuing operations
(64
)
 
(103
)
Cash used in investing activities - discontinued operations
(672
)
 
(51
)
Net cash used in investing activities
(736
)
 
(154
)
Financing activities
 
 
 
Proceeds from non-recourse vacation ownership debt
1,821

 
1,087

Principal payments on non-recourse vacation ownership debt
(1,727
)
 
(1,233
)
Proceeds from debt
2,800

 
1,338

Principal payments on debt
(3,018
)
 
(932
)
Repayments of commercial paper, net
(147
)
 
(327
)
Proceeds from notes issued and term loan
300

 
694

Repayment of notes
(789
)
 
(300
)
Repayments of vacation ownership inventory arrangement
(12
)
 
(41
)
Dividends to shareholders
(154
)
 
(184
)
Cash transferred to Wyndham Hotels at spin-off
(495
)
 

Repurchase of common stock
(226
)
 
(447
)
Debt issuance costs
(13
)
 
(7
)
Net share settlement of incentive equity awards
(56
)
 
(34
)
Other, net
(2
)
 

Cash used in financing activities - continuing operations
(1,718
)
 
(386
)
Cash provided by/(used in) financing activities - discontinued operations
2,066

 
(18
)
Net cash provided by/(used in) financing activities
348

 
(404
)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
(6
)
 
16

Net change in cash, cash equivalents and restricted cash
(39
)
 
122

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

 
333

Cash, cash equivalents and restricted cash, end of period
377

 
455

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

 
207

Cash, cash equivalents and restricted cash of continuing operations, end of period
$
377

 
$
248


See Notes to Condensed Consolidated Financial Statements.
5


WYNDHAM DESTINATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF (DEFICIT)/EQUITY
(In millions)
(Unaudited)


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

 
$
2

 
$
(5,719
)
 
$
3,996

 
$
2,501

 
$
(11
)
 
$
5

 
$
774

Net income

 

 

 

 
560

 

 

 
560

Other comprehensive loss

 

 

 

 

 
(20
)
 

 
(20
)
Issuance of shares for RSU vesting
1

 

 

 

 

 

 

 

Net share settlement of stock-based compensation

 

 

 
(56
)
 

 

 

 
(56
)
Change in stock-based compensation

 

 

 
141

 

 

 

 
141

Change in stock-based compensation and impact of equity restructuring for Board of Directors

 

 

 
(7
)
 

 

 

 
(7
)
Repurchase of common stock
(4
)
 

 
(224
)
 

 

 

 

 
(224
)
Dividends

 

 

 

 
(151
)
 

 

 
(151
)
Cumulative-effect adjustment

 

 

 

 
(19
)
 

 

 
(19
)
Spin-off of Wyndham Hotels and other equity adjustments related to discontinued businesses

 

 

 

 
(1,507
)
 

 

 
(1,507
)
Balance as of September 30, 2018
97


$
2


$
(5,943
)

$
4,074


$
1,384


$
(31
)

$
5

 
$
(509
)

 
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

 

 

 

 
438

 

 
1

 
439

Other comprehensive income

 

 

 

 

 
97

 

 
97

Net share settlement of stock-based compensation

 

 

 
(34
)
 

 

 

 
(34
)
Change in stock-based compensation

 

 

 
46

 

 

 

 
46

Change in stock-based compensation for Board of Directors

 

 

 
2

 

 

 

 
2

Repurchase of common stock
(5
)
 

 
(450
)
 

 

 

 

 
(450
)
Dividends

 

 

 

 
(180
)
 

 

 
(180
)
Other

 

 

 

 

 

 
1

 
1

Balance as of September 30, 2017
101

 
$
2

 
$
(5,568
)
 
$
3,980

 
$
2,144

 
$
(9
)
 
$
6

 
$
555



See Notes to Condensed Consolidated Financial Statements.
6


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

1.
Background and Basis of Presentation

Background

Wyndham Destinations, Inc., formerly known as Wyndham Worldwide Corporation, and its subsidiaries (collectively, “Wyndham Destinations” or the “Company”), is a global provider of hospitality services and products. The Company operates in two segments: Vacation Ownership and Exchange & Rentals. The Vacation Ownership segment develops, markets and sells vacation ownership interests (“VOIs”) to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts. The Exchange & Rentals segment provides vacation exchange services and products to owners of VOIs and manages and markets vacation rental properties primarily on behalf of independent owners.

On May 31, 2018, the Company completed the previously announced spin-off of its hotel business into a separate publicly traded company, Wyndham Hotels & Resorts, Inc. (“Wyndham Hotels”). This transaction was effected through a pro rata distribution of the new hotel entity’s stock to Wyndham Destinations shareholders. In connection with the spin-off, the Company entered into certain agreements with Wyndham Hotels to implement the legal and structural separation, govern the relationship between the Company and Wyndham Hotels up to and after the completion of the separation, and allocate various assets, liabilities and obligations, including, among other things, employee benefits, intellectual property and tax-related assets and liabilities between the Company and Wyndham Hotels. The two public companies have entered into long-term exclusive license agreements to retain their affiliations with one of the industry’s top-rated loyalty programs, Wyndham Rewards, as well as to continue to collaborate on inventory-sharing and customer cross-sell initiatives.

On May 9, 2018, the Company completed the sale of its European vacation rentals business.

For all periods presented, the Company has classified the results of operations for its hotel business and its European vacation rentals business as discontinued operations, unless otherwise noted. See further detail in Note 6Discontinued Operations.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q include the accounts and transactions of Wyndham Destinations, as well as the entities in which Wyndham Destinations 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 (“U.S.”). All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements. In addition, certain prior period amounts have been reclassified to comply with newly adopted accounting standards. See further detail in Note 2New Accounting Pronouncements.

The Company changed its balance sheet presentation from classified (distinguishing between short-term and long-term accounts) to unclassified (no such distinction) in the second quarter of 2018. This change was prompted by the spin-off of Wyndham Hotels at which time the Company became predominantly a real-estate timeshare company. This presentation conforms to that of the Company’s peers within the timeshare industry. Both the December 31, 2017 and the September 30, 2018 Condensed Consolidated Balance Sheets have been presented in an unclassified format.

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.


7


2.
New Accounting Pronouncements

Recently Issued Accounting Pronouncements

Leases. In February 2016, the FASB issued guidance for lease accounting. The guidance requires a lessee to recognize right of use assets and lease liabilities on the balance sheet for all lease obligations and disclose key information about leasing arrangements, such as the amount, timing, and uncertainty of cash flows arising from leases. The guidance requires modified retrospective application and is effective for fiscal years beginning after December 15, 2018 for public companies; however, early adoption is permitted. Entities are allowed to apply the modified retrospective approach (i) retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (ii) retrospectively at the beginning of the period of adoption on January 1, 2019, through a cumulative-effect adjustment.

Upon adoption of this guidance, the Company anticipates that most of its operating leases will result in the recognition of right of use assets and the corresponding liabilities on its Consolidated Balance Sheets. The Company’s operating lease portfolio is comprised of real estate and equipment leases. We have established a cross-functional coordinated team to implement the guidance. We are in the process of finalizing the scope of the impact, implementing a new system solution and evaluating our processes and internal controls to meet the reporting and disclosure requirements. Although the actual impact of the guidance will depend on the Company’s lease portfolio at the time of adoption, we expect its adoption to have a significant impact on our Consolidated Balance Sheets. The Company continues to assess all implications of the implementation of this guidance and related financial 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.

Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued guidance allowing for the reclassification of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from accumulated other comprehensive income (“AOCI”) to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, and should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the impact of the adoption of this guidance on its financial statements and related disclosures.

Stock Compensation - Improvements to Nonemployee Share-Based Payment Accounting. In June 2018, the FASB issued guidance intended to simplify nonemployee share-based payment accounting. This new guidance will more closely align the accounting for share-based payment awards issued to employees and nonemployees. This guidance is effective for

8


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.

Implementation Costs in Cloud Computing Arrangements. In August 2018, the FASB issued guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. This guidance is effective for fiscal years beginning after December 15, 2019 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 new guidance had a minimal impact on the Company’s continuing operations.


9


The tables below summarize the impact of the adoption of the new revenue standard and reclassifications related to discontinued operations on the Company’s Condensed Consolidated Income Statements:
 
Three Months Ended September 30, 2017
Net revenues
Previously Reported Balance
 
Discontinued Operations*
 
New Revenue Standard Adjustment
 
Adjusted Balance
Vacation ownership interest sales
$
467

 
$

 
$
(1
)
 
$
466

Service and membership fees
754

 
(333
)
 
(5
)
 
416

Franchise fees
204

 
(204
)
 

 

Consumer financing
119

 

 

 
119

Other
85

 
(78
)
 
7

 
14

Net revenues
1,629

 
(615
)
 
1

 
1,015

Expenses
 
 
 
 
 
 
 
Operating
713

 
(275
)
 
(9
)
 
429

Cost of vacation ownership interests
41

 

 

 
41

Consumer financing interest
17

 

 

 
17

Marketing and reservation
250

 
(101
)
 
5

 
154

General and administrative
173

 
(44
)
 
2

 
131

Separation and related costs
24

 
(8
)
 

 
16

Restructuring
8

 

 

 
8

Depreciation and amortization
69

 
(34
)
 

 
35

Total expenses
1,295

 
(462
)
 
(2
)
 
831

Operating income
334

 
(153
)
 
3

 
184

Other (income), net
(19
)
 

 

 
(19
)
Interest expense
42

 
(2
)
 

 
40

Interest (income)
(2
)
 
1

 

 
(1
)
Income before income taxes
313

 
(152
)
 
3

 
164

Provision for income taxes
110

 
(49
)
 
1

 
62

Income from continuing operations
203

 
(103
)
 
2

 
102

Income from operations of discontinued businesses, net of income taxes

 
103

 
59

 
162

Net income
$
203

 
$

 
$
61

 
$
264

 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.98

 
$
(1.00
)
 
$
0.02

 
$
1.00

Discontinued operations

 
1.00

 
0.58

 
1.58

 
$
1.98

 
$

 
$
0.60

 
$
2.58

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.97

 
$
(1.00
)
 
$
0.02

 
$
0.99

Discontinued operations

 
1.00

 
0.58

 
1.58

 
$
1.97

 
$

 
$
0.60

 
$
2.57


*Excludes the impact of the new revenue standard.

10


 
Nine Months Ended September 30, 2017
Net revenues
Previously Reported Balance
 
Discontinued Operations*
 
New Revenue Standard Adjustment
 
Adjusted Balance
Vacation ownership interest sales
1,265

 

 
(3
)
 
1,262

Service and membership fees
2,043

 
(799
)
 
(19
)
 
1,225

Franchise fees
522

 
(522
)
 

 

Consumer financing
343

 

 

 
343

Other
254

 
(225
)
 
17

 
46

Net revenues
4,427

 
(1,546
)
 
(5
)
 
2,876

Expenses
 
 
 
 
 
 
 
Operating
1,968

 
(703
)
 
(27
)
 
1,238

Cost of vacation ownership interests
115

 

 

 
115

Consumer financing interest
54

 

 

 
54

Marketing and reservation
676

 
(277
)
 
13

 
412

General and administrative
557

 
(124
)
 
6

 
439

Separation and related costs
24

 
(8
)
 

 
16

Asset impairments
140

 

 

 
140

Restructuring
15

 
(1
)
 

 
14

Depreciation and amortization
197

 
(97
)
 

 
100

Total expenses
3,746

 
(1,210
)
 
(8
)
 
2,528

Operating income
681

 
(336
)
 
3

 
348

Other (income), net
(24
)
 

 

 
(24
)
Interest expense
115

 
(1
)
 

 
114

Interest (income)
(6
)
 
2

 

 
(4
)
Income before income taxes
596

 
(337
)
 
3

 
262

Provision for income taxes
173

 
(114
)
 
1

 
60

Income from continuing operations
423

 
(223
)
 
2

 
202

Income from operations of discontinued businesses, net of income taxes

 
223

 
14

 
237

Net income
423

 

 
16

 
439

Net income attributable to noncontrolling interest
(1
)
 

 

 
(1
)
Net income attributable to Wyndham Destinations shareholders
$
422

 
$

 
$
16

 
$
438

 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
4.07

 
$
(2.15
)
 
$
0.02

 
$
1.94

Discontinued operations

 
2.15

 
0.14

 
2.29

 
$
4.07

 
$

 
$
0.16

 
$
4.23

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
4.05

 
$
(2.14
)
 
$
0.02

 
$
1.93

Discontinued operations

 
2.14

 
0.14

 
2.28

 
$
4.05

 
$

 
$
0.16

 
$
4.21


*Excludes the impact of the new revenue standard.



11


 
Year Ended December 31, 2017
Net revenues
Previously Reported Balance
 
Discontinued Operations*
 
New Revenue Standard
Adjustment
 
Adjusted Balance
Vacation ownership interest sales
1,689

 

 
(5
)
 
1,684

Service and membership fees
1,895

 
(269
)
 
(27
)
 
1,599

Franchise fees
695

 
(695
)
 

 

Consumer financing
463

 

 

 
463

Other
334

 
(297
)
 
23

 
60

Net revenues
5,076

 
(1,261
)
 
(9
)
 
3,806

Expenses
 
 
 
 
 
 
 
Operating
2,194

 
(523
)
 
(35
)
 
1,636

Cost of vacation ownership interests
150

 

 

 
150

Consumer financing interest
74

 

 

 
74

Marketing and reservation
773

 
(247
)
 
20

 
546

General and administrative
648

 
(75
)
 
7

 
580

Separation and related costs
51

 
(25
)
 

 
26

Asset impairments
246

 
(41
)
 

 
205

Restructuring
15

 
(1
)
 

 
14

Depreciation and amortization
213

 
(77
)
 

 
136

Total expenses
4,364

 
(989
)
 
(8
)
 
3,367

Operating income
712

 
(272
)
 
(1
)
 
439

Other (income), net
(27
)
 
(1
)
 

 
(28
)
Interest expense
156

 
(1
)
 

 
155

Interest (income)
(7
)
 
1

 

 
(6
)
Income before income taxes
590

 
(271
)
 
(1
)
 
318

(Benefit) from income taxes
(229
)
 
(101
)
 
2

(a) 
(328
)
Income from continuing operations
819

 
(170
)
 
(3
)
 
646

Income from operations of discontinued businesses, net of income taxes
53

 
170

 
(14
)
 
209

Net income
872

 

 
(17
)
 
855

Net income attributable to noncontrolling interest
(1
)
 

 

 
(1
)
Net income attributable to Wyndham Destinations shareholders
$
871

 
$

 
$
(17
)
 
$
854

 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
7.94

 
$
(1.65
)
 
$
(0.03
)
 
$
6.26

Discontinued operations
0.52

 
1.65

 
(0.14
)
 
2.03

 
$
8.46

 
$

 
$
(0.17
)
 
$
8.29

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
7.89

 
$
(1.64
)
 
$
(0.03
)
 
$
6.22

Discontinued operations
0.51

 
1.64

 
(0.14
)
 
2.01

 
$
8.40

 
$

 
$
(0.17
)
 
$
8.23


*Excludes the impact of the new revenue standard.
(a)
Includes a $3 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. federal corporate income tax rate from the enactment of the U.S. Tax Cuts and Jobs Act.


12


The table below summarizes the impact of the adoption of the new revenue standard on the Company’s Condensed Consolidated Balance Sheet:
 
December 31, 2017
Assets
Previously Reported Balance
 
Discontinued Operations*
 
New Revenue Standard
Adjustment
 
Adjusted Balance
Cash and cash equivalents
$
100

 
$
(52
)
 
$

 
$
48

Trade receivables, net
385

 
(194
)
 
4

 
195

Vacation ownership contract receivables, net
2,901

 

 

 
2,901

Inventory
1,249

 

 

 
1,249

Prepaid expenses
144

 
(27
)
 
1

 
118

Property and equipment, net
1,081

 
(259
)
 

 
822

Goodwill
1,336

 
(425
)
 

 
911

Other intangibles, net
1,084

 
(941
)
 

 
143

Other assets
694

 
(217
)
 
22

 
499

Assets of discontinued operations
1,429

 
2,115

 
20

 
3,564

Total assets
$
10,403

 
$

 
$
47

 
$
10,450

Liabilities and equity
 
 
 
 
 
 
 
Accounts payable
$
256

 
$
(24
)
 
$

 
$
232

Deferred income
657

 
(139
)
 
41

 
559

Accrued expenses and other liabilities
1,094

 
(236
)
 
(11
)
 
847

Non-recourse vacation ownership debt
2,098

 

 

 
2,098

Debt
3,909

 
(1
)
 

 
3,908

Deferred income taxes
790

 
(191
)
 
14

 
613

Liabilities of discontinued operations
716

 
591

 
112

 
1,419

Total liabilities
9,520

 

 
156

 
9,676

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

 

 

 

Common stock, $.01 par value, 600,000,000 shares authorized, 218,796,817 issued in 2017
2

 

 

 
2

Treasury stock, at cost – 118,887,441 shares in 2017
(5,719
)
 

 

 
(5,719
)
Additional paid-in capital
3,996

 

 

 
3,996

Retained earnings
2,609

 

 
(108
)
 
2,501

Accumulated other comprehensive loss
(10
)
 

 
(1
)
 
(11
)
Total stockholders’ equity
878

 

 
(109
)
 
769

Noncontrolling interest
5

 

 

 
5

Total equity
883

 

 
(109
)
 
774

Total liabilities and equity
$
10,403

 
$

 
$
47

 
$
10,450


*Excludes the impact of the new revenue standard.

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 decrease to retained earnings of $19 million.

13



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.

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:
 
Nine Months Ended September 30, 2017
Increase/(decrease):
Previously Reported Balance
 
Discontinued Operations
 
New Accounting Standard Adjustment
 
Adjusted Balance
Operating activities
$
666

 
$
(400
)
 
$
(2
)
 
$
264

Investing activities
$
(171
)
 
$
51

 
$
17

 
$
(103
)

 
As of September 30, 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
$
289

 
$
(207
)
 
$
166

 
$
248



14


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:
 
 
September 30,
2018
Cash and cash equivalents
 
$
164

Restricted cash included in other assets
 
213

Total cash, cash equivalents and restricted cash
 
$
377

 
 
 
 
 
December 31,
2017
Cash and cash equivalents
 
$
48

Restricted cash included in other assets
 
171

Cash, cash equivalents and restricted cash included in assets of discontinued operations
 
197

Total cash, cash equivalents and restricted cash
 
$
416



3.
Revenue Recognition

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 remaining transaction price, 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 the sales price between 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 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.

Exchange & Rentals

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,

15


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.

The Company’s vacation exchange brands derive a majority of 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, other related transaction or event.

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 until the Company’s performance obligations have been satisfied. 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 without redemption.

The Company’s vacation rental brands derive revenue from fees associated with the rental of vacation rental properties managed and marketed by the Company 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.

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 September 30, 2018 and December 31, 2017 are as follows:
Contract Liabilities
 
September 30, 2018
 
December 31, 2017
Deferred subscription revenue
 
$
227

 
$
229

Deferred VOI trial package revenue
 
121

 
108

Deferred VOI incentive revenue
 
97

 
102

Deferred exchange-related revenue
 
58

 
63

Deferred vacation rental revenue
 
37

 
38

Deferred co-branded credit card programs revenue
 
14

 
13

Deferred other revenue
 
10

 
3

Total
 
$
564

 
$
556


In 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

16


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.

Within the Company’s vacation exchange business, deferred subscription revenue represents billings and payments received in advance from members and affiliated clubs for memberships in the Company’s vacation exchange programs which are recognized in future periods. Deferred exchange-related revenue primarily represent 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 vacation rental revenue represent billings and payments received in advance of a customer’s rental stay which are generally recognized as revenue within one year.

Capitalized Contract Costs

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. These capitalized costs were $44 million as of September 30, 2018 and December 31, 2017, and are included within other assets on the Condensed Consolidated Balance Sheet.

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 processing fees, are deferred at the inception of the contract and recognized when the benefit is transferred to the customer. As of September 30, 2018 and December 31, 2017, these capitalized costs were $23 million and $9 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:
 
 
10/1/2018-9/30/2019
 
10/1/2019-9/30/2020
 
10/1/2020-9/30/2021
 
Thereafter
 
Total
Subscription revenue
 
$
126

 
$
54

 
$
26

 
$
21

 
$
227

VOI trial package revenue
 
121

 

 

 

 
121

VOI incentive revenue
 
97

 

 

 

 
97

Exchange-related revenue
 
53

 
3

 
1

 
1