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 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.

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.



	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.



	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.

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.

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

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