Realogy Holdings Corp. ("Realogy Holdings", "Realogy" or the "Company") is a holding company for its consolidated subsidiaries including Realogy Intermediate Holdings LLC ("Realogy Intermediate") and Realogy Group LLC ("Realogy Group") and its consolidated subsidiaries. Realogy, through its subsidiaries, is a global provider of residential real estate services. Neither Realogy Holdings, the indirect parent of Realogy Group, nor Realogy Intermediate, the direct parent company of Realogy Group, conducts any operations other than with respect to its respective direct or indirect ownership of Realogy Group. As a result, the consolidated financial positions, results of operations, comprehensive income and cash flows of Realogy Holdings, Realogy Intermediate and Realogy Group are the same.

The accompanying Condensed Consolidated Financial Statements include the financial statements of Realogy Holdings and Realogy Group. Realogy Holdings' only asset is its investment in the common stock of Realogy Intermediate, and Realogy Intermediate's only asset is its investment in Realogy Group. Realogy Holdings' only obligations are its guarantees of certain borrowings and certain franchise obligations of Realogy Group. All expenses incurred by Realogy Holdings and Realogy Intermediate are for the benefit of Realogy Group and have been reflected in Realogy Group's Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with Article 10 of Regulation S-X. Interim results may not be indicative of full year performance because of seasonal and short-term variations. The Company has eliminated all material intercompany transactions and balances between entities consolidated in these financial statements. In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and the related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ materially from those estimates.

In management's opinion, the accompanying unaudited Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair statement of Realogy Holdings and Realogy Group's financial position as of September 30, 2019 and the results of operations and comprehensive (loss) income for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. The Consolidated Balance Sheet at December 31, 2018 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018.

As discussed in further detail below under Recently Adopted Accounting Pronouncements, effective January 1, 2019, the Company adopted Accounting Standard Update No. 2016-02 (Topic 842) "Leases". The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-Q.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.


Level Input:						Input Definitions:

Level I						Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II						Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

Level III						Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The availability of observable inputs can vary from asset to asset and is affected by a wide variety of factors, including, for example, the type of asset, whether the asset is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level III. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The fair value of financial instruments is generally determined by reference to quoted market values. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The fair value of interest rate swaps is determined based upon a discounted cash flow approach.


	Level I		Level II		Level III		Total
Deferred compensation plan assets (included in other non-current assets)	$	2	$	—	$	—	$	2
Interest rate swaps (included in other current and non-current liabilities)	—		60		—		60
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		4		4


	Level I		Level II		Level III		Total
Deferred compensation plan assets (included in other non-current assets)	$	2	$	—	$	—	$	2
Interest rate swaps (included in other non-current assets)	—		6		—		6
Interest rate swaps (included in other non-current liabilities)	—		16		—		16
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		10		10

The fair value of the Company’s contingent consideration for acquisitions is measured using a probability weighted-average discount rate to estimate future cash flows based upon the likelihood of achieving future operating results for individual acquisitions. These assumptions are deemed to be unobservable inputs and as such the Company’s contingent consideration is classified within Level III of the valuation hierarchy. The Company reassesses the fair value of the contingent consideration liabilities on a quarterly basis.


	Level III
Fair value of contingent consideration at December 31, 2018	$	10
Additions: contingent consideration related to acquisitions completed during the period	—
Reductions: payments of contingent consideration	(4)
Changes in fair value (reflected in general and administrative expenses)	(2)
Fair value of contingent consideration at September 30, 2019	$	4


	September 30, 2019						December 31, 2018
Debt	Principal Amount		Estimated Fair Value (a)		Principal Amount		Estimated Fair Value (a)
Senior Secured Credit Facility:
Revolving Credit Facility	$	265	$	265	$	270	$	270
Term Loan B	1,061		1,009		1,069		1,010
Term Loan A Facility:
Term Loan A	722		695		736		707
4.50% Senior Notes	—		—		450		447
5.25% Senior Notes	550		547		550		524
4.875% Senior Notes	407		377		500		434
9.375% Senior Notes	550		507		—		—
Securitization obligations	228		228		231		231

At September 30, 2019 and December 31, 2018, the Company had various equity method investments aggregating $66 million and $51 million, respectively, which are recorded within other non-current assets on the accompanying Condensed Consolidated Balance Sheets. The investment balances at September 30, 2019 and December 31, 2018 included $57 million and $43 million, respectively, for the Company's investment in Guaranteed Rate Affinity, LLC ("Guaranteed Rate Affinity").

For the three months ended September 30, 2019 and 2018, the Company recorded equity earnings of $7 million and equity losses of $1 million, respectively, at the Title and Settlement Services segment. For the nine months ended September 30, 2019 and 2018, the Company recorded equity earnings of $15 million and equity losses of $3 million, respectively, at the Title and Settlement Services segment.

The Company received $2 million and $3 million in cash dividends from equity method investments during the nine months ended September 30, 2019 and 2018, respectively. The Company invested $2 million and $4 million of cash into Guaranteed Rate Affinity during the nine months ended September 30, 2019 and 2018, respectively.

The Company's provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income before income taxes for the period. In addition, non-recurring or discrete items are recorded in the period in which they occur. The provision for income taxes was a benefit of $8 million and an expense of $40 million for the three months ended September 30, 2019 and 2018, respectively, and a benefit of $9 million and an expense of $73 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company records derivatives and hedging activities on the balance sheet at their respective fair values. The Company uses foreign currency forward contracts largely to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables and payables. The Company primarily manages its foreign currency exposure to the Swiss Franc, Euro, British Pound and Canadian Dollar. The Company has not elected to utilize hedge accounting for these forward contracts; therefore, any change in fair value is recorded in the Condensed Consolidated Statements of Operations. However, the fluctuations in the value of these forward contracts generally offset the impact of changes in the value of the underlying risk that they are intended to economically hedge. As of September 30, 2019, the Company had outstanding foreign currency forward contracts in an asset position with a fair value of less than $1 million and a notional value of $33 million. As of December 31, 2018, the Company had outstanding foreign currency forward contracts in a liability position with a fair value of less than $1 million and a notional value of $27 million.

The Company also enters into interest rate swaps to manage its exposure to changes in interest rates associated with its variable rate borrowings. As of September 30, 2019, the Company had interest rate swaps with an aggregate notional value of $1,600 million to offset the variability in cash flows resulting from the term loan facilities as follows:

The swaps help to protect our outstanding variable rate borrowings from future interest rate volatility. The Company has not elected to utilize hedge accounting for these interest rate swaps; therefore, any change in fair value is recorded in the Condensed Consolidated Statements of Operations.


Derivative Instruments Not Designated as Hedging Instruments	Location of (Gain) or Loss Recognized for Derivative Instruments	(Gain) or Loss Recognized on Derivatives
							Three Months Ended September 30,							Nine Months Ended September 30,
						2019			2018			2019	2018
Interest rate swap contracts	Interest expense	$	12	$	(7)		$	50		$	(19)
Foreign exchange contracts	Operating expense	(1)		—			(1)			(1)

Restricted cash primarily relates to amounts specifically designated as collateral for the repayment of outstanding borrowings under the Company’s securitization facilities. Such amounts approximated $12 million and $13 million at September 30, 2019 and December 31, 2018, respectively.

Revenue is recognized upon the transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services in accordance with the revenue standard. The Company's revenue is disaggregated by major revenue categories on our Condensed Consolidated Statements of Operations and further disaggregated by business segment as follows:


	Three Months Ended September 30,
	Real Estate Franchise Services						Company Owned Real Estate Brokerage Services						Relocation Services						Title & Settlement Services						Corporate and Other	Total Company
	2019		2018		2019		2018		2019		2018		2019		2018		2019		2018		2019		2018
Gross commission income (a)	$	—	$	—	$	1,201	$	1,246	$	—	$	—	$	—	$	—	$	—	$	—	$	1,201	$	1,246
Service revenue (b)	—		—		2		3		102		107		165		158		—		—		269		268
Franchise fees (c)	186		189		—		—		—		—		—		—		(78)		(80)		108		109
Other (d)	30		32		19		19		1		1		5		4		(4)		(3)		51		53
Net revenues	$	216	$	221	$	1,222	$	1,268	$	103	$	108	$	170	$	162	$	(82)	$	(83)	$	1,629	$	1,676


	Nine Months Ended September 30,
	Real Estate Franchise Services						Company Owned Real Estate Brokerage Services						Relocation Services						Title & Settlement Services						Corporate and Other	Total Company
	2019		2018		2019		2018		2019		2018		2019		2018		2019		2018		2019		2018
Gross commission income (a)	$	—	$	—	$	3,310	$	3,536	$	—	$	—	$	—	$	—	$	—	$	—	$	3,310	$	3,536
Service revenue (b)	—		—		7		7		273		289		430		432		—		—		710		728
Franchise fees (c)	505		531		—		—		—		—		—		—		(215)		(229)		290		302
Other (d)	108		103		52		50		3		3		14		12		(9)		(9)		168		159
Net revenues	$	613	$	634	$	3,369	$	3,593	$	276	$	292	$	444	$	444	$	(224)	$	(238)	$	4,478	$	4,725

(b)Service revenue primarily consists of title and escrow fees at the Title and Settlement Services segment, which are recognized at a point in time at the closing of a homesale transaction, and relocation fees at the Relocation Services segment, which are recognized as revenue when or as the related performance obligation is satisfied, which is dependent on the type of service performed.


	Beginning Balance at January 1, 2019		Additions during the period		Recognized as Revenue during the period		Ending Balance at September 30, 2019
Real Estate Franchise Services:
Deferred area development fees (a)	$	54	$	1	$	(6)	$	49
Deferred brand marketing fund fees (b)	12		69		(72)		9
Other deferred income related to revenue contracts	12		24		(27)		9
Total Real Estate Franchise Services	78		94		(105)		67
Company Owned Real Estate Brokerage Services:
Advanced commissions related to development business (c)	10		2		(2)		10
Other deferred income related to revenue contracts	4		5		(5)		4
Total Company Owned Real Estate Brokerage Services	14		7		(7)		14
Relocation Services:
Deferred broker network fees (d)	—		10		(6)		4
Deferred outsourcing fees (e)	4		44		(44)		4
Other deferred income related to revenue contracts	5		19		(20)		4
Total Relocation Services	9		73		(70)		12
Total	$	101	$	174	$	(182)	$	93

(a)The Company collects initial area development fees ("ADF") for international territory transactions, which are recorded as deferred revenue when received and recognized into franchise revenue over the average 25 year life of the related franchise agreement as consideration for the right to access and benefit from Realogy’s brands. In the event an ADF agreement is terminated prior to the end of its term, the unamortized deferred revenue balance will be recognized into revenue immediately upon termination.

(e)Outsourcing management fees are recorded as deferred revenue when billed (usually at the start of the relocation) and are recognized as revenue over the average time period required to complete the transferee's move, or a phase of the move that the fee covers, which is typically 3 to 6 months depending on the move type.

In January 2017, the FASB issued Accounting Standard Update No. 2017-04 (Topic 350), "Simplifying the Test of Goodwill Impairment." This update simplifies how the Company is required to test goodwill for impairment by eliminating step two, which requires a hypothetical purchase price allocation, from the goodwill impairment test. Under the new guidance, goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The standard is effective for interim or annual goodwill impairment tests during fiscal years beginning after December 15, 2019, with early adoption permitted, and should be applied prospectively. The Company elected to early adopt this standard and the new goodwill impairment guidance was applied to our goodwill impairment test performed as of September 1, 2019.

overlapping requirements which are substantially similar to current GAAP or other SEC disclosure requirements, as well as amends or removes outdated and superseded requirements. However, in some situations, the amendments expanded disclosure requirements, such as an analysis of changes in stockholders’ equity will now be required for the current and comparative quarter and year-to-date interim periods. The Company applied the amendments in the final rule to its Annual Report on Form 10-K for the year ended December 31, 2018 and the interim disclosure requirements to this quarterly report on Form 10-Q.

In February 2016, the FASB issued Accounting Standard Update No. 2016-02 (Topic 842) "Leases" (the "new leasing standard") which requires virtually all leases to be recognized on the balance sheet. Effective January 1, 2019, the Company adopted the new leasing standard using the modified retrospective transition approach with optional transition relief and recognized the cumulative effect of applying the new leasing standard to existing contracts on the balance sheet on January 1, 2019. Therefore, results for reporting periods beginning after January 1, 2019 are presented under the new leasing standard; however, the comparative prior period amounts have not been restated and continue to be reported in accordance with historic accounting under ASC Topic 840. The most significant effects of adoption of the new leasing standard relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for operating leases. The new leasing standard did not impact our Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows. The impact of the changes to the Condensed Consolidated Balance Sheets for the adoption of the new leasing standard were as follows:


	Balance Sheet accounts prior to the new leasing standard adoption adjustments		Adjustments due to the adoption of the new leasing standard		Balance Sheet accounts after the new leasing standard adoption adjustments
ASSETS
Current assets:
Other current assets	$	153	$	(14)	$	139
Total current assets	768		(14)		754
Operating lease assets, net	—		567		567
Other non-current assets	276		(1)		275
Total assets (a)	$	7,290	$	552	$	7,842

LIABILITIES AND EQUITY
Current liabilities:
Current portion of operating lease liabilities	$	—	$	126	$	126
Accrued expenses and other current liabilities	401		(12)		389
Total current liabilities	1,527		114		1,641
Long-term operating lease liabilities	—		500		500
Other non-current liabilities	259		(62)		197
Total liabilities	4,975		552		5,527
Total equity	2,315		—		2,315
Total liabilities and equity	$	7,290	$	552	$	7,842

(a)The $552 million adjustment to Total assets due to the adoption of the new leasing standard consists of $414 million at the Company Owned Real Estate Brokerage Services segment, $52 million at the Corporate and Other segment, $46 million at the Title and Settlement Services segment and $40 million at the Relocation Services Segment.

The Company elected a package of practical expedients that were consequently applied to all leases. The Company did not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases, nor whether previously capitalized initial direct costs would qualify for capitalization under the new standard. Upon transition, the Company did not elect to use hindsight with respect to lease renewals and purchase options when accounting for existing leases, as well as assessing the impairment of right-of-use assets. Therefore, lease terms largely remained unchanged. In addition, the Company elected the short-term lease recognition exemption and did not recognize a lease obligation and right-of-use asset on its balance sheet for all leases with terms of 12 months or less.

The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs"). Recently issued ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.