Document

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 June 30, 2016


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number. 001-32876

Wyndham Worldwide Corporation

(Exact Name of Registrant as Specified in Its Charter)



Delaware		20-0052541
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

22 Sylvan Way		07054
Parsippany, New Jersey		(Zip Code)
(Address of Principal Executive Offices)

(973) 753-6000

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o
				(Do not check if a smaller reporting company)

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:

109,874,980 shares of common stock outstanding as of June 30, 2016.

Table of Contents



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	1
	Report of Independent Registered Public Accounting Firm	1
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and 2015	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015	3
	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	5
	Consolidated Statements of Equity for the Six Months Ended June 30, 2016 and 2015	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Forward-Looking Statements	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	43
Item 4.	Controls and Procedures	44
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Signatures	46

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PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Wyndham Worldwide Corporation

We have reviewed the accompanying consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (the "Company") as of June 30, 2016, and the related consolidated statements of income and, comprehensive income for the three-month and six-month periods ended June 30, 2016 and 2015, and the related consolidated statements of cash flows and equity for the six-month periods ended June 30, 2016 and 2015. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information 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 Public Company Accounting Oversight Board (United States), 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.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated 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), the consolidated balance sheet of the Company as of December 31, 2015, and the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended prior to retrospective adjustments for a change in the Company’s method of presentation of debt issuance costs and deferred taxes (not presented herein); and in our report dated February 12, 2016, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments described in Note 1 that were applied to retrospectively adjust the December 31, 2015 consolidated balance sheet of Wyndham Worldwide Corporation and subsidiaries (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 consolidated balance sheet as of December 31, 2015.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

July 27, 2016

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WYNDHAM WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net revenues
Service and membership fees	$	632		$	623		$	1,266		$	1,223
Vacation ownership interest sales	409			417			750			753
Franchise fees	172			178			310			325
Consumer financing	108			105			215			210
Other	82			75			165			150
Net revenues	1,403			1,398			2,706			2,661
Expenses
Operating	622			610			1,236			1,176
Cost of vacation ownership interests	32			47			68			80
Consumer financing interest	19			19			36			36
Marketing and reservation	211			211			403			406
General and administrative	185			182			372			362
Depreciation and amortization	63			58			125			114
Total expenses	1,132			1,127			2,240			2,174
Operating income	271			271			466			487
Other (income)/expense, net	(6		)	(3		)	(16		)	(8		)
Interest expense	34			30			68			56
Early extinguishment of debt	—			—			11			—
Interest income	(2		)	(2		)	(4		)	(5		)
Income before income taxes	245			246			407			444
Provision for income taxes	89			87			156			162
Net income	$	156		$	159		$	251		$	282
Earnings per share
Basic	$	1.40		$	1.34		$	2.25		$	2.35
Diluted	1.39			1.33			2.23			2.33

Cash dividends declared per share	$	0.50		$	0.42		$	1.00		$	0.84

See Notes to Consolidated Financial Statements.

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WYNDHAM WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016			2015		2016			2015
Net income	$	156		$	159	$	251		$	282
Other comprehensive (loss)/income, net of tax
Foreign currency translation adjustments	(28		)	24		8			(56		)
Unrealized gains on cash flow hedges	—			4		1			—
Defined benefit pension plans	—			—		(1		)	—
Other comprehensive (loss)/income, net of tax	(28		)	28		8			(56		)
Comprehensive income	$	128		$	187	$	259		$	226

See Notes to Consolidated Financial Statements.

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WYNDHAM WORLDWIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)



	June 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	478		$	171
Trade receivables, net	573			586
Vacation ownership contract receivables, net	267			272
Inventory	286			295
Prepaid expenses	183			153
Other current assets	340			266
Total current assets	2,127			1,743
Long-term vacation ownership contract receivables, net	2,445			2,438
Non-current inventory	1,005			964
Property and equipment, net	1,361			1,399
Goodwill	1,543			1,563
Trademarks, net	723			726
Franchise agreements and other intangibles, net	377			397
Other non-current assets	361			361
Total assets	$	9,942		$	9,591
Liabilities and Equity
Current liabilities:
Securitized vacation ownership debt	$	198		$	209
Current portion of long-term debt	46			44
Accounts payable	580			394
Deferred income	577			483
Accrued expenses and other current liabilities	787			827
Total current liabilities	2,188			1,957
Long-term securitized vacation ownership debt	1,834			1,897
Long-term debt	3,328			3,031
Deferred income taxes	1,195			1,154
Deferred income	204			198
Other non-current liabilities	412			401
Total liabilities	9,161			8,638
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.01 par value, authorized 6,000,000 shares, none issued and outstanding	—			—
Common stock, $.01 par value, authorized 600,000,000 shares, issued 218,158,921 shares in 2016 and 217,534,615 shares in 2015	2			2
Treasury stock, at cost – 108,358,821 shares in 2016 and 103,730,568 shares in 2015	(4,818		)	(4,493		)
Additional paid-in capital	3,934			3,923
Retained earnings	1,726			1,592
Accumulated other comprehensive loss	(66		)	(74		)
Total stockholders’ equity	778			950
Noncontrolling interest	3			3
Total equity	781			953
Total liabilities and equity	$	9,942		$	9,591

See Notes to Consolidated Financial Statements.

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WYNDHAM WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Six Months Ended
	June 30,
	2016			2015
Operating Activities
Net income	$	251		$	282
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	125			114
Provision for loan losses	153			106
Deferred income taxes	67			15
Stock-based compensation	36			29
Excess tax benefits from stock-based compensation	(8		)	(17		)
Loss on early extinguishment of debt	11			—
Non-cash interest	11			11
Net change in assets and liabilities, excluding the impact of acquisitions:
Trade receivables	14			12
Vacation ownership contract receivables	(150		)	(97		)
Inventory	(15		)	1
Prepaid expenses	(33		)	(27		)
Other current assets	(20		)	(14		)
Accounts payable, accrued expenses and other current liabilities	169			219
Deferred income	99			82
Other, net	(4		)	21
Net cash provided by operating activities	706			737
Investing Activities
Property and equipment additions	(90		)	(112		)
Net assets acquired, net of cash acquired	—			(89		)
Payments of development advance notes	(3		)	(5		)
Proceeds from development advance notes	—			6
Equity investments and loans	(7		)	(8		)
Proceeds from asset sales	1			21
Increase in escrow deposit restricted cash	(41		)	(46		)
Net cash used in investing activities	(140		)	(233		)
Financing Activities
Proceeds from securitized borrowings	878			700
Principal payments on securitized borrowings	(954		)	(771		)
Proceeds from long-term debt	50			56
Principal payments on long-term debt	(67		)	(80		)
Proceeds from commercial paper, net	299			288
Proceeds from term loan	325			—
Repurchases of notes	(327		)	—
Proceeds from vacation ownership inventory arrangements	20			—
Repayments of vacation ownership inventory arrangements	(5		)	—
Dividends to shareholders	(115		)	(104		)
Repurchase of common stock	(320		)	(323		)
Excess tax benefits from stock-based compensation	8			17
Debt issuance costs	(8		)	(10		)
Net share settlement of incentive equity awards	(34		)	(41		)
Other, net	(1		)	(1		)
Net cash used in financing activities	(251		)	(269		)
Effect of changes in exchange rates on cash and cash equivalents	(8		)	(8		)
Net increase in cash and cash equivalents	307			227
Cash and cash equivalents, beginning of period	171			183
Cash and cash equivalents, end of period	$	478		$	410

See Notes to Consolidated Financial Statements.

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WYNDHAM WORLDWIDE CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)



	Common Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)/ Income			Non-controlling Interest		Total Equity
Balance as of December 31, 2015	114		$	2	$	(4,493	)	$	3,923		$	1,592		$	(74	)	$	3	$	953
Net income	—		—		—			—			251			—			—		251
Other comprehensive income	—		—		—			—			—			8			—		8
Issuance of shares for RSU vesting	1		—		—			—			—			—			—		—
Net share settlement of incentive equity awards	—		—		—			(34		)	—			—			—		(34		)
Change in deferred compensation	—		—		—			36			—			—			—		36
Change in deferred compensation for Board of Directors	—		—		—			1			—			—			—		1
Repurchase of common stock	(5	)	—		(325		)	—			—			—			—		(325		)
Change in excess tax benefit on equity awards	—		—		—			8			—			—			—		8
Dividends	—		—		—			—			(117		)	—			—		(117		)
Balance as of June 30, 2016	110		$	2	$	(4,818	)	$	3,934		$	1,726		$	(66	)	$	3	$	781



	Common Shares Outstanding		Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Non-controlling Interest		Total Equity
Balance as of December 31, 2014	121		$	2	$	(3,843	)	$	3,889		$	1,183		$	24		$	2	$	1,257
Net income	—		—		—			—			282			—			—		282
Other comprehensive loss	—		—		—			—			—			(56		)	—		(56		)
Issuance of shares for RSU vesting	1		—		—			—			—			—			—		—
Net share settlement of incentive equity awards	—		—		—			(41		)	—			—			—		(41		)
Change in deferred compensation	—		—		—			29			—			—			—		29
Repurchase of common stock	(4	)	—		(315		)	—			—			—			—		(315		)
Change in excess tax benefit on equity awards	—		—		—			17			—			—			—		17
Dividends	—		—		—			—			(104		)	—			—		(104		)
Other	—		—		—			(1		)	—			—			1		—
Balance as of June 30, 2015	118		$	2	$	(4,158	)	$	3,893		$	1,361		$	(32	)	$	3	$	1,069

See Notes to Consolidated Financial Statements.

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WYNDHAM WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in millions, except share and per share amounts)

(Unaudited)


1.	Basis of Presentation

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

In presenting the 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 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 financial statements should be read in conjunction with the Company’s 2015 Consolidated Financial Statements included in its Annual Report filed on Form 10-K with the Securities and Exchange Commission (“SEC”) on February 12, 2016.

Business Description

The Company operates in the following business segments:


•	Hotel Group—primarily franchises hotels in the upscale, upper midscale, midscale, economy and extended stay segments and provides hotel management services for full-service and select limited-service hotels.


•	Destination Network—provides vacation exchange services and products to owners of intervals of vacation ownership interests (“VOIs”) and manages and markets vacation rental properties primarily on behalf of independent owners.


•	Vacation Ownership—develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (“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 was effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years. In re-deliberations, the FASB approved a one-year deferral of the effective date of this guidance, such that it will be effective on January 1, 2018. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

Simplifying the Measurement of Inventory. In July 2015, the FASB issued guidance related to simplifying the measurement of inventory. This guidance requires an entity to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. This guidance is effective prospectively for fiscal years beginning after December 15, 2016 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 the Consolidated Financial Statements.

Leases. In February 2016, the FASB issued guidance which requires companies generally to recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

Compensation - Stock Compensation. In March 2016, the FASB issued guidance which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2016 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 the Consolidated Financial Statements.

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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 the Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements

Consolidation. In February 2015, the FASB issued guidance related to management’s evaluation of consolidation for certain legal entities. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In April 2015, the FASB issued guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. If a cloud computing arrangement does not contain a software license, it should be accounted for as a service contract. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.

Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. In August 2015, the FASB further clarified its issued guidance by stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred issuance costs ratably over the term of the line-of-credit arrangements. This guidance required retrospective application and is effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. Refer to the table below for the retrospective effect on the December 31, 2015 Consolidated Balance Sheet.

Simplifying the Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued guidance simplifying the accounting for measurement-period adjustments related to a business combination. The guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2016, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption.

Income Taxes. In November 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The guidance requires deferred tax assets and liabilities to be classified as non-current in the Consolidated Balance Sheet. The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. This guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted the guidance on a retrospective basis on June 30, 2016. Refer to the table below for the retrospective effect on the December 31, 2015 Consolidated Balance Sheet.

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The table below summarizes the changes to the Company’s December 31, 2015 Consolidated Balance Sheet as a result of the adoption of the following Accounting Standards Updates:



	December 31, 2015

	Previously Reported Balance		Simplifying the Presentation of Debt Issuance Costs			Balance Sheet Classification of Deferred Taxes			Adjusted Balance
Assets
Current assets:
Deferred income taxes	$	126	$	—		$	(126	)	$	—
Total current assets	1,869		—			(126		)	1,743
Other non-current assets	360		(27		)	28			361
Total assets	9,716		(27		)	(98		)	9,591

Liabilities and Equity
Long-term securitized vacation ownership debt	$	1,921	$	(24	)	$	—		$	1,897
Long-term debt	3,034		(3		)	—			3,031
Deferred income taxes	1,252		—			(98		)	1,154
Total liabilities	8,763		(27		)	(98		)	8,638
Total liabilities and equity	9,716		(27		)	(98		)	9,591


2.	Earnings Per Share

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

The following table sets forth the computation of basic and diluted EPS (in millions, except per share data):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Net income	$	156	$	159	$	251	$	282
Basic weighted average shares outstanding	111		119		112		120
SSARs ^(a), RSUs ^(b) and PSUs ^(c)	1		1		1		1
Diluted weighted average shares outstanding	112		120		113		121
Earnings per share:
Basic	$	1.40	$	1.34	$	2.25	$	2.35
Diluted	1.39		1.33		2.23		2.33
Dividends:
Aggregate dividends paid to shareholders	$	55	$	50	$	115	$	104


^(a)	Excludes stock-settled appreciation rights (“SSARs”) that would have been anti-dilutive to EPS.


^(b)	Includes unvested dilutive restricted stock units (“RSUs”) which are subject to future forfeitures.


^(c)	Excludes 0.6 million performance vested restricted stock units (“PSUs”) for both the three and six months ended June 30, 2016 and 2015, as the Company has not met the required performance metrics.

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Stock Repurchase Program

The following table summarizes stock repurchase activity under the current stock repurchase program (in millions, except per share data):



	Shares	Cost		Average Price Per Share
As of December 31, 2015	79.2	$	3,712	$	46.85
For the six months ended June 30, 2016	4.6	325		70.20
As of June 30, 2016	83.8	$	4,037	48.14

The Company had $1.0 billion of remaining availability under its program as of June 30, 2016. The total capacity of the program was increased by proceeds received from stock option exercises.


3.	Vacation Ownership Contract Receivables

The Company generates vacation ownership contract receivables by extending financing to the purchasers of its VOIs. Current and long-term vacation ownership contract receivables, net consisted of:



	June 30, 2016		December 31, 2015
Current vacation ownership contract receivables:
Securitized	$	239	$	248
Non-securitized	84		81
Current vacation ownership receivables, gross	323		329
Less: Allowance for loan losses	56		57
Current vacation ownership contract receivables, net	$	267	$	272
Long-term vacation ownership contract receivables:
Securitized	$	2,176	$	2,214
Non-securitized	799		748
Long-term vacation ownership receivables, gross	2,975		2,962
Less: Allowance for loan losses	530		524
Long-term vacation ownership contract receivables, net	$	2,445	$	2,438

During the three and six months ended June 30, 2016, the Company’s securitized vacation ownership contract receivables generated interest income of $81 million and $164 million, respectively. During the three and six months ended June 30, 2015, such amounts were $82 million and $165 million, respectively. Such interest income is included within consumer financing on the Consolidated Statements of Income.

Principal payments that are contractually due on the Company’s vacation ownership contract receivables during the next twelve months are classified as current on the Consolidated Balance Sheets. During the six months ended June 30, 2016 and 2015, the Company originated vacation ownership contract receivables of $556 million and $506 million, respectively, and received principal collections of $406 million and $409 million, respectively. The weighted average interest rate on outstanding vacation ownership contract receivables was 13.8% as of both June 30, 2016 and December 31, 2015.

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The activity in the allowance for loan losses on vacation ownership contract receivables was as follows:



	Amount
Allowance for loan losses as of December 31, 2015	$	581
Provision for loan losses	153
Contract receivables write-offs, net	(148		)
Allowance for loan losses as of June 30, 2016	$	586



	Amount
Allowance for loan losses as of December 31, 2014	$	581
Provision for loan losses	106
Contract receivables write-offs, net	(122		)
Allowance for loan losses as of June 30, 2015	$	565

In accordance with the guidance for accounting for real estate time-sharing transactions, the Company recorded a provision for loan losses of $90 million and $153 million as a reduction of net revenues during the three and six months ended June 30, 2016, respectively, and $60 million and $106 million for the three and six months ended June 30, 2015, respectively.

Credit Quality for Financed Receivables and the Allowance for Credit Losses

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

The following table details an aged analysis of financing receivables using the most recently updated FICO scores (based on the policy described above):



	As of June 30, 2016
	700+		600-699		<600		No Score		Asia Pacific		Total
Current	$	1,657	$	1,007	$	162	$	114	$	236	$	3,176
31 - 60 days	12		23		15		5		2		57
61 - 90 days	8		13		11		3		1		36
91 - 120 days	6		10		9		3		1		29
Total	$	1,683	$	1,053	$	197	$	125	$	240	$	3,298

	As of December 31, 2015
	700+		600-699		<600		No Score		Asia Pacific		Total
Current	$	1,623	$	1,023	$	163	$	115	$	231	$	3,155
31 - 60 days	16		25		17		5		2		65
61 - 90 days	10		14		11		3		1		39
91 - 120 days	7		11		11		2		1		32
Total	$	1,656	$	1,073	$	202	$	125	$	235	$	3,291

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

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4.	Inventory

Inventory consisted of:



	June 30, 2016		December 31, 2015
Land held for VOI development	$	143	$	136
VOI construction in process	57		62
Inventory sold subject to conditional repurchase	153		155
Completed VOI inventory	636		604
Estimated recoveries	243		242
Destination network vacation credits and other	59		60
Total inventory	1,291		1,259
Less: Current portion ^(*)	286		295
Non-current inventory	$	1,005	$	964


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

During the six months ended June 30, 2016 and 2015, the Company transferred $26 million and $58 million, respectively, from property and equipment to VOI inventory. In addition to the inventory obligations listed below, as of June 30, 2016, the Company had $14 million of inventory accruals of which $4 million was included in accrued expenses and other current liabilities and $10 million was included in accounts payable on the Consolidated Balance Sheet. As of December 31, 2015, the Company had $27 million of inventory accruals of which $20 million was included in accrued expenses and other current liabilities and $7 million was included in accounts payable on the Consolidated Balance Sheet.

Inventory Sale Transactions

During 2015, the Company sold real property located in St. Thomas, U.S. Virgin Islands (“St. Thomas”) to a third-party developer, consisting of $80 million of vacation ownership inventory, in exchange for $80 million cash consideration of which, $70 million was received in 2015 and $10 million was received in 2016. In addition, during the second quarter of 2016, the Company received $10 million of cash consideration from the third-party developer for vacation ownership inventory property under development in St. Thomas. During 2013, the Company sold real property located in Las Vegas, Nevada and Avon, Colorado to a third-party developer, consisting of vacation ownership inventory and property and equipment.

The Company recognized no gain or loss on these sales transactions. In accordance with the agreements with the third-party developers, the Company has conditional rights and conditional obligations to repurchase the completed properties from the developers subject to the properties conforming to the Company's vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party. Under the sale of real estate accounting guidance, the conditional rights and obligations of the Company constitute continuing involvement and thus the Company was unable to account for these transactions as a sale.

During 2014, the Company acquired the property located in Avon, Colorado from the third-party developer. In connection with this acquisition, the Company had an outstanding obligation of $32 million as of both June 30, 2016 and December 31, 2015, of which $11 million was included within accrued expenses and other current liabilities and $21 million was included within other non-current liabilities on the Consolidated Balance Sheets.

In connection with the Las Vegas, Nevada and St. Thomas properties, the Company had outstanding obligations of $163 million as of June 30, 2016, of which $52 million were included within accrued expenses and other current liabilities and $111 million were included within other non-current liabilities on the Consolidated Balance Sheet. During the six months ended June 30, 2016, the Company paid $13 million to the third-party developer, of which $6 million was for vacation ownership inventory located in Las Vegas, Nevada, $5 million was for its obligation under the vacation ownership inventory arrangements and $2 million was accrued interest. In connection with these transactions, the Company acquired $7 million of inventory developed by third-party developer during the second quarter of 2016 which will be paid in the third quarter of 2016. As of December 31, 2015, the Company had an outstanding obligation related to the Las Vegas, Nevada and St. Thomas properties of $157 million, of which $33 million was included within accrued expenses and other current liabilities and $124 million was included within other non-current liabilities on the Consolidated Balance Sheet.

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The Company has guaranteed to repurchase the completed properties located in Las Vegas, Nevada and St. Thomas from the third-party developers subject to the properties meeting the Company’s vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party. The maximum potential future payments that the Company could be required to make under these commitments was $278 million as of June 30, 2016.


5.	Long-Term Debt and Borrowing Arrangements

The Company’s indebtedness consisted of:



	June 30, 2016		December 31, 2015
Securitized vacation ownership debt: ^(a)
Term notes ^(b)	$	1,717	$	1,867
Bank conduit facility (due August 2017)	315		239
Total securitized vacation ownership debt	2,032		2,106
Less: Current portion of securitized vacation ownership debt	198		209
Long-term securitized vacation ownership debt	$	1,834	$	1,897
Long-term debt: ^(c)
Revolving credit facility (due July 2020)	$	16	$	7
Commercial paper	408		109
Term loan (due March 2021)	323		—
$315 million 6.00% senior unsecured notes (due December 2016) ^(d)	—		316
$300 million 2.95% senior unsecured notes (due March 2017)	300		299
$14 million 5.75% senior unsecured notes (due February 2018)	14		14
$450 million 2.50% senior unsecured notes (due March 2018)	449		448
$40 million 7.375% senior unsecured notes (due March 2020)	40		40
$250 million 5.625% senior unsecured notes (due March 2021)	247		247
$650 million 4.25% senior unsecured notes (due March 2022) ^(e)	648		648
$400 million 3.90% senior unsecured notes (due March 2023) ^(f)	407		408
$350 million 5.10% senior unsecured notes (due October 2025) ^(g)	338		337
Capital leases	152		153
Other	32		49
Total long-term debt	3,374		3,075
Less: Current portion of long-term debt	46		44
Long-term debt	$	3,328	$	3,031

^(a)

Represents non-recourse debt that is securitized through bankruptcy-remote special purpose entities (“SPEs”), the creditors of which have no recourse to the Company for principal and interest. These outstanding borrowings (which legally are not liabilities of the Company) are collateralized by $2,526 million and $2,576 million of underlying gross vacation ownership contract receivables and related assets (which legally are not assets of the Company) as of June 30, 2016 and December 31, 2015, respectively.


^(b)	The carrying amounts of the term notes are net of debt issuance costs aggregating $22 million and $24 million as of June 30, 2016 and December 31, 2015, respectively.


^(c)	The carrying amounts of the senior unsecured notes and term loan are net of unamortized discounts of $12 million and $14 million as of June 30, 2016 and December 31, 2015, respectively. The carrying amounts of the senior unsecured notes and term loan are net of debt issuance costs of $4 million and $3 million as of June 30, 2016 and December 31, 2015, respectively.


^(d)	Includes $1 million of unamortized gains from the settlement of a derivative as of December 31, 2015.


^(e)	Includes $2 million of unamortized gains from the settlement of a derivative as of both June 30, 2016 and December 31, 2015.


^(f)	Includes $10 million and $11 million of unamortized gains from the settlement of a derivative as of June 30, 2016 and December 31, 2015, respectively.


^(g)	Includes $9 million and $10 million of unamortized losses from the settlement of a derivative as of June 30, 2016 and December 31, 2015, respectively.

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Long-Term Debt

The $300 million 2.95% senior unsecured notes due in March 2017 are classified as long-term as the Company has the intent to refinance such debt on a long-term basis and the ability to do so with its available capacity under the Company’s revolving credit facility.

Debt Issuances

Sierra Timeshare 2016-1 Receivables Funding, LLC. During March 2016, the Company closed a series of term notes payable, Sierra Timeshare 2016-1 Receivables Funding, LLC, with an initial principal amount of $425 million, which are secured by vacation ownership contract receivables and bear interest at a weighted average coupon rate of 3.20%. The advance rate for this transaction was 88.85%. As of June 30, 2016, the Company had outstanding borrowings under these term notes of $361 million, net of debt issuance costs.

Term Loan. During March 2016, the Company entered into a five-year $325 million term loan agreement which matures on March 24, 2021. The term loan currently bears interest at LIBOR plus a spread. As of June 30, 2016, the term loan had a weighted average interest rate of 1.95%. The term loan can be paid at the Company’s option in whole or part at any time prior to maturity. The interest on the term loan will be subject to adjustments from time to time if there are downgrades to the Company’s credit ratings. The term loan requires principal payments, payable in equal quarterly installments, of 5% per annum of the original loan balance, commencing with the third anniversary of the loan, and 10% per annum of the original loan balance commencing with the fourth anniversary of the loan, with the remaining balance payable at maturity.

Commercial Paper

The Company maintains U.S. and European commercial paper programs with a total capacity of $750 million and $500 million, respectively. As of June 30, 2016, the Company had outstanding borrowings of $408 million at a weighted average interest rate of 1.12%, all of which were under its U.S. commercial paper program. As of December 31, 2015, the Company had outstanding borrowings of $109 million at a weighted average interest rate of 1.07%, all of which were under its U.S. commercial paper program. The Company considers outstanding borrowings under its commercial paper programs to be a reduction of available capacity on its revolving credit facility.

Fair Value Hedges

During 2013, the Company entered into fixed to variable interest rate swap agreements (the “Swaps”) on its 3.90% and 4.25% senior unsecured notes with notional amounts of $400 million and $100 million, respectively. The fixed interest rates on these notes were effectively modified to a variable LIBOR-based index. During May 2015, the Company terminated the Swaps and received $17 million of cash which was included within other, net in operating activities on the Consolidated Statement of Cash Flows. The Company had $12 million and $13 million of deferred gains as of June 30, 2016 and December 31, 2015, respectively. Such gains were included within long-term debt on the Consolidated Balance Sheets. Such gains will be recognized within interest expense on the Consolidated Statements of Income over the remaining life of the senior unsecured notes.

Deferred Financing Costs

The Company adopted the guidance on the presentation of debt issuance costs on January 1, 2016, as required. As a result, the Company retrospectively applied the guidance to its December 31, 2015 Consolidated Balance Sheet. In addition, the Company has elected to continue to classify debt issuance costs related to the revolving credit facility and the bank conduit facility within other non-current assets on the Consolidated Balance Sheet. See Note 1 - Basis of Presentation for additional information regarding the adoption of the new guidance.

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Maturities and Capacity

The Company’s outstanding debt as of June 30, 2016 matures as follows:



	Securitized Vacation Ownership Debt		Long-Term Debt			Total
Within 1 year	$	198	$	346	^(*)	$	544
Between 1 and 2 years	251		478			729
Between 2 and 3 years	391		22			413
Between 3 and 4 years	189		77			266
Between 4 and 5 years	202		975			1,177
Thereafter	801		1,476			2,277
	$	2,032	$	3,374		$	5,406


^(*)	Includes $300 million of senior unsecured notes that the Company classified as long-term debt as it has the intent to refinance such debt on a long-term basis and the ability to do so with its available capacity under the Company’s revolving credit facility.

Debt maturities of the securitized vacation ownership debt are based on the contractual payment terms of the underlying vacation ownership contract receivables. As such, actual maturities may differ as a result of prepayments by the vacation ownership contract receivable obligors.

As of June 30, 2016, available capacity under the Company’s borrowing arrangements was as follows:



	Securitized Bank Conduit Facility ^(a)		Revolving Credit Facility
Total Capacity	$	650	$	1,500
Less: Outstanding Borrowings	315		16
Letters of credit	—		1
Commercial paper borrowings	—		408		^(b)
Available Capacity	$	335	$	1,075


^(a)	The capacity of this facility is subject to the Company’s ability to provide additional assets to collateralize additional securitized borrowings.


^(b)	The Company considers outstanding borrowings under its commercial paper programs to be a reduction of the available capacity of its revolving credit facility.

Early Extinguishment of Debt

During the first quarter of 2016, the Company redeemed the remaining portion of its 6.00% senior unsecured notes for a total of $327 million. As a result, the Company incurred an $11 million loss during the six months ended June 30, 2016, which is included within early extinguishment of debt on the Consolidated Statement of Income.

Interest Expense

During the three and six months ended June 30, 2016, the Company incurred non-securitized interest expense of $34 million and $68 million, respectively, which primarily consisted of $36 million and $71 million of interest on long-term debt, partially offset by $2 million and $3 million of capitalized interest. Such amounts are included within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company’s non-securitized debt was $70 million during the six months ended June 30, 2016.

During the three and six months ended June 30, 2015, the Company incurred non-securitized interest expense of $30 million and $56 million, respectively, which primarily consisted of $32 million and $60 million of interest on long-term debt, partially offset by $2 million and $4 million of capitalized interest. Such amounts are included within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company’s non-securitized debt was $53 million during the six months ended June 30, 2015.

Interest expense incurred in connection with the Company’s securitized vacation ownership debt during the three and six months ended June 30, 2016 and 2015 was $19 million and $36 million, respectively, and is recorded within consumer financing interest on the Consolidated Statements of Income. Cash paid related to such interest was $25 million and $28 million during the six months ended June 30, 2016 and 2015, respectively.

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6.	Variable Interest Entities

In accordance with the applicable accounting guidance for the consolidation of a variable interest entity (“VIE”), the Company analyzes its variable interests, including loans, guarantees, SPEs and equity investments to determine if an entity in which the Company has a variable interest is a VIE. If the entity is considered to be a VIE, the Company determines whether it would be considered the entity’s primary beneficiary. The Company consolidates into its financial statements those VIEs for which it has determined that it is the primary beneficiary.

Vacation Ownership Contract Receivables Securitizations

The Company pools qualifying vacation ownership contract receivables and sells them to bankruptcy-remote entities. Vacation ownership contract receivables qualify for securitization based primarily on the credit strength of the VOI purchaser to whom financing has been extended. Vacation ownership contract receivables are securitized through bankruptcy-remote SPEs that are consolidated within the Consolidated Financial Statements. As a result, the Company does not recognize gains or losses resulting from these securitizations at the time of sale to the SPEs. Interest income is recognized when earned over the contractual life of the vacation ownership contract receivables. The Company services the securitized vacation ownership contract receivables pursuant to servicing agreements negotiated on an arms-length basis based on market conditions. The activities of these SPEs are limited to (i) purchasing vacation ownership contract receivables from the Company’s vacation ownership subsidiaries, (ii) issuing debt securities and/or borrowing under a conduit facility to fund such purchases and (iii) entering into derivatives to hedge interest rate exposure. The bankruptcy- remote SPEs are legally separate from the Company. The receivables held by the bankruptcy-remote SPEs are not available to creditors of the Company and legally are not assets of the Company. Additionally, the non-recourse debt that is securitized through the SPEs is legally not a liability of the Company and thus, the creditors have no recourse to the Company for principal and interest.

The assets and liabilities of these vacation ownership SPEs are as follows:



	June 30, 2016		December 31, 2015
Securitized contract receivables, gross ^(a)	$	2,415	$	2,462
Securitized restricted cash ^(b)	91		92
Interest receivables on securitized contract receivables ^(c)	19		20
Other assets ^(d)	3		5
Total SPE assets	2,528		2,579
Securitized term notes ^{(e) (f)}	1,717		1,867
Securitized conduit facilities ^(e)	315		239
Other liabilities ^(g)	1		2
Total SPE liabilities	2,033		2,108
SPE assets in excess of SPE liabilities	$	495	$	471


^(a)	Included in current ($239 million and $248 million as of June 30, 2016 and December 31, 2015, respectively) and non-current ($2,176 million and $2,214 million as of June 30, 2016 and December 31, 2015, respectively) vacation ownership contract receivables on the Consolidated Balance Sheets.


^(b)	Included in other current assets ($75 million and $73 million as of June 30, 2016 and December 31, 2015, respectively) and other non-current assets ($16 million and $19 million as of June 30, 2016 and December 31, 2015, respectively) on the Consolidated Balance Sheets.


^(c)	Included in trade receivables, net on the Consolidated Balance Sheets.


^(d)	Primarily includes deferred financing costs for the bank conduit facility and a security investment asset, which is included in other non-current assets on the Consolidated Balance Sheets.


^(e)	Included in current ($198 million and $209 million as of June 30, 2016 and December 31, 2015, respectively) and long-term ($1,834 million and $1,897 million as of June 30, 2016 and December 31, 2015, respectively) securitized vacation ownership debt on the Consolidated Balance Sheets.


^(f)	Includes deferred financing costs of $22 million and $24 million as of June 30, 2016 and December 31, 2015, respectively, related to securitized debt.


^(g)	Primarily includes accrued interest on securitized debt, which is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets.

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In addition, the Company has vacation ownership contract receivables that have not been securitized through bankruptcy-remote SPEs. Such gross receivables were $883 million and $829 million as of June 30, 2016 and December 31, 2015, respectively. A summary of total vacation ownership receivables and other securitized assets, net of securitized liabilities and the allowance for loan losses, is as follows:



	June 30, 2016		December 31, 2015
SPE assets in excess of SPE liabilities	$	495	$	471
Non-securitized contract receivables	883		829
Less: Allowance for loan losses	586		581
Total, net	$	792	$	719

In addition to restricted cash related to securitizations, the Company had $100 million and $59 million of restricted cash related to escrow deposits as of June 30, 2016 and December 31, 2015, respectively, which are recorded within other current assets on the Consolidated Balance Sheets.

Midtown 45, NYC Property

During 2013, the Company entered into an agreement with a third-party partner whereby the partner acquired the Midtown 45 property in New York City through an SPE. The Company is managing and operating the property for rental purposes while the Company converts it into VOI inventory. The SPE financed the acquisition and planned renovations with a four-year mortgage note and mandatorily redeemable equity provided by related parties of such partner. At the time of the agreement, the Company committed to purchase such VOI inventory from the SPE over a four-year period which will be used to repay the four-year mortgage note and the mandatorily redeemable equity of the SPE. The Company is considered to be the primary beneficiary of the SPE and therefore, the Company consolidated the SPE within its financial statements.

The assets and liabilities of the SPE are as follows:



	June 30, 2016			December 31, 2015
Receivable for leased property and equipment ^(a)	$	30		$	47
Total SPE assets	30			47
Accrued expenses and other current liabilities	1			1
Long-term debt ^(b)	30			46
Total SPE liabilities	31			47
SPE deficit	$	(1	)	$	—


^(a)	Represents a receivable for assets leased to the Company which are reported within property and equipment, net on the Company’s Consolidated Balance Sheets.

^(b)

As of June 30, 2016, included $27 million relating to a mortgage note due in 2017 and $3 million of mandatorily redeemable equity both of which are included in current portion of long-term debt on the Consolidated Balance Sheet. As of December 31, 2015, included $42 million relating to a mortgage note due in 2017 and $4 million of mandatorily redeemable equity; $29 million was included in current portion of long-term debt on the Consolidated Balance Sheet.

During the six months ended June 30, 2016 and 2015, the SPE conveyed $15 million and $10 million, respectively, of property and equipment to the Company.

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7.	Fair Value

The Company measures its financial assets and liabilities at fair value on a recurring basis and utilizes the fair value hierarchy to determine such fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable.

Level 3: Unobservable inputs used when little or no market data is available. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input (closest to Level 3) that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

As of June 30, 2016, the Company had foreign exchange contracts resulting in $6 million of assets which are included within other current assets and $7 million of liabilities which are included within accrued expenses and other current liabilities on the Consolidated Balance Sheet. As of December 31, 2015, the Company had foreign exchange contracts resulting in $2 million of assets which are included within other current assets and $3 million of liabilities which are included within accrued expenses and other current liabilities on the Consolidated Balance Sheet. On a recurring basis, such assets and liabilities are remeasured at estimated fair value (all of which are Level 2) and thus is equal to the carrying value.

The Company’s derivative instruments primarily consist of pay-fixed/receive-variable interest rate swaps, pay-variable/receive-fixed interest rate swaps, interest rate caps, foreign exchange forward contracts and foreign exchange average rate forward contracts. For assets and liabilities that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using other significant observable inputs are valued by reference to similar assets and liabilities. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets and liabilities in active markets. For assets and liabilities that are measured using significant unobservable inputs, fair value is primarily derived using a fair value model, such as a discounted cash flow model.

The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market. 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 carrying amounts of cash and cash equivalents, restricted cash, trade receivables, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts and estimated fair values of all other financial instruments are as follows:



	June 30, 2016				December 31, 2015
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Vacation ownership contract receivables, net	$	2,712	$	3,289	$	2,710	$	3,272
Debt
Total debt	5,406		5,523		5,181		5,234

The Company estimates the fair value of its vacation ownership contract receivables using a discounted cash flow model which it believes is comparable to the model that an independent third-party would use in the current market. The model uses Level 3 inputs consisting of default rates, prepayment rates, coupon rates and loan terms for the contract receivables portfolio as key drivers of risk and relative value that, when applied in combination with pricing parameters, determines the fair value of the underlying contract receivables.

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The Company estimates the fair value of its securitized vacation ownership debt by obtaining Level 2 inputs comprised of indicative bids from investment banks that actively issue and facilitate the secondary market for timeshare securities. The Company determines the fair value of its other long-term debt, excluding capital leases, using Level 2 inputs based on indicative bids from investment banks and determines the fair value of its senior notes using quoted market prices (such senior notes are not actively traded).


8.	Derivative Instruments and Hedging Activities

Foreign Currency Risk

The Company has foreign currency rate exposure to exchange rate fluctuations worldwide with particular exposure to the British pound, Euro, Canadian dollar and Australian dollar. The Company uses freestanding foreign currency forward contracts to manage a portion of its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables, payables and forecasted earnings of foreign subsidiaries. Additionally, the Company uses foreign currency forward contracts designated as cash flow hedges to manage a portion of its exposure to changes in forecasted foreign currency denominated vendor payments. Gains and losses relating to freestanding foreign currency contracts are included in operating expenses on the Company’s Consolidated Statements of Income and are substantially offset by the earnings effect from the underlying items that were economically hedged. The freestanding foreign currency contracts resulted in $6 million of losses during the three months ended June 30, 2016 and $6 million of gains during the three months ended June 30, 2015. The freestanding foreign currency contracts resulted in losses of $10 million and $6 million during the six months ended June 30, 2016 and 2015, respectively. The amount of gains or losses relating to contracts designated as cash flow hedges that the Company expects to reclassify from accumulated other comprehensive income (“AOCI”) to earnings over the next 12 months is not material.

Interest Rate Risk

A portion of the debt used to finance the Company’s operations is exposed to interest rate fluctuations. The Company uses various hedging strategies and derivative financial instruments to create a desired mix of fixed and floating rate assets and liabilities. Derivative instruments currently used in these hedging strategies include swaps and interest rate caps. The derivatives used to manage the risk associated with the Company’s floating rate debt include freestanding derivatives and derivatives designated as cash flow hedges. The Company also uses swaps to convert specific fixed-rate debt into variable-rate debt (i.e., fair value hedges) to manage the overall interest cost. For relationships designated as fair value hedges, changes in the fair value of the derivatives are recorded in income with offsetting adjustments to the carrying amount of the hedged debt. The amount of gains or losses that the Company expects to reclassify from AOCI to earnings during the next 12 months is not material.

Gains or losses recognized in AOCI for both the three and six months ended June 30, 2016 and 2015 were not material.


9.	Income Taxes

The Company files income tax returns in U.S. federal and state jurisdictions, as well as in foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2012. In addition, with few exceptions, the Company is no longer subject to state and local or foreign income tax examinations for years prior to 2008.

The Company’s effective tax rate increased from 35.4% during the three months ended June 30, 2015 to 36.3% during the three months ended June 30, 2016 primarily due to a federal tax incentive recorded during the second quarter of 2015, which related to multiple years.

The Company’s effective tax rate increased from 36.5% during the six months ended June 30, 2015 to 38.3% during the six months ended June 30, 2016 primarily due to the lack of a tax benefit on the Venezuelan foreign exchange devaluation loss of $24 million incurred during the first quarter of 2016.

The Company made cash income tax payments, net of refunds, of $65 million and $125 million during the six months ended June 30, 2016 and 2015, respectively.

Deferred Taxes

The Company adopted the guidance on the balance sheet classification of deferred taxes on June 30, 2016. As a result, the Company retrospectively applied the guidance to its December 31, 2015 Consolidated Balance Sheet. See Note 1 - Basis of Presentation for additional information regarding the adoption of the new guidance.

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10.	Commitments and Contingencies

The Company is involved in claims, legal and regulatory proceedings and governmental inquiries related to the Company’s business.

Wyndham Worldwide Corporation Litigation

The Company is involved in claims, legal and regulatory proceedings and governmental inquiries arising in the ordinary course of its business including but not limited to: for its hotel group business-breach of contract, fraud and bad faith claims between franchisors and franchisees in connection with franchise agreements and with owners in connection with management contracts, negligence, breach of contract, fraud, employment, consumer protection and other statutory claims asserted in connection with alleged acts or occurrences at owned, franchised or managed properties or in relation to guest reservations and bookings; for its destination network business-breach of contract, fraud and bad faith claims by affiliates and customers in connection with their respective agreements, negligence, breach of contract, fraud, consumer protection and other statutory claims asserted by members and guests for alleged injuries sustained at or acts or occurrences related to affiliated resorts and vacation rental properties and consumer protection and other statutory claims asserted by consumers; for its vacation ownership business-breach of contract, bad faith, conflict of interest, fraud, consumer protection and other statutory claims by property owners’ associations, owners and prospective owners in connection with the sale or use of VOIs or land, or the management of vacation ownership resorts, construction defect claims relating to vacation ownership units or resorts, and negligence, breach of contract, fraud, consumer protection and other statutory claims by guests for alleged injuries sustained at or acts or occurrences related to vacation ownership units or resorts; and for each of its businesses, bankruptcy proceedings involving efforts to collect receivables from a debtor in bankruptcy, employment matters which may include claims of retaliation, discrimination, harassment and wage and hour claims, claims of infringement upon third parties’ intellectual property rights, claims relating to information security, privacy and consumer protection, tax claims and environmental claims.

The Company records an accrual for legal contingencies when it determines, after consultation with outside counsel, that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, the Company’s ability to make a reasonable estimate of loss. The Company reviews these accruals each reporting period and makes revisions based on changes in facts and circumstances including changes to its strategy in dealing with these matters.

The Company believes that it has adequately accrued for such matters with reserves of $31 million and $29 million as of June 30, 2016 and December 31, 2015, respectively. Such reserves are exclusive of matters relating to the Company’s separation from Cendant (“Separation”). For matters not requiring accrual, the Company believes that such matters will not have a material effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to the Company with respect to earnings and/or cash flows in any given reporting period. As of June 30, 2016, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to $71 million in excess of recorded accruals. However, the Company does not believe that the impact of such litigation should result in a material liability to the Company in relation to its consolidated financial position or liquidity.

Other Guarantees/Indemnifications

Hotel Group

From time to time, the Company may enter into a hotel management agreement that provides the hotel owner with a guarantee of a certain level of profitability based upon various metrics. Under such an agreement, the Company would be required to compensate such hotel owner for any profitability shortfall over the life of the management agreement up to a specified aggregate amount. For certain agreements, the Company may be able to recapture all or a portion of the shortfall payments in the event that future operating results exceed targets. The terms of the Company’s existing guarantees range from 8 to 10 years and provide for early termination provisions under certain circumstances. As of June 30, 2016, the maximum potential amount of future payments that may be made under these guarantees was $126 million with a combined annual cap of $45 million. These guarantees have a remaining weighted average life of approximately 7 years. As of June 30, 2016, the Company also had a conditional guarantee with a hotel that will become effective if all the necessary conditions are satisfied by the hotel owner. At the effective date, the maximum potential amount of future payments that may be made under this conditional guarantee is $45 million.

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In connection with such performance guarantees, as of June 30, 2016, the Company maintained a liability of $23 million, of which $18 million was included in other non-current liabilities and $5 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of June 30, 2016, the Company also had a corresponding $33 million asset related to these guarantees, of which $29 million was included in other non-current assets and $4 million was included in other current assets on its Consolidated Balance Sheet. As of December 31, 2015, the Company maintained a liability of $25 million, of which $24 million was included in other non-current liabilities and $1 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of December 31, 2015, the Company also had a corresponding $35 million asset related to the guarantees, of which $31 million was included in other non-current assets and $4 million was included in other current assets on its Consolidated Balance Sheet. Such assets are being amortized on a straight-line basis over the life of the agreements. For the three and six months ended June 30, 2016, and 2015, the amortization expense for the performance guarantees noted above was $1 million and $2 million, respectively.

For guarantees subject to recapture provisions, the Company had a receivable of $37 million as of June 30, 2016, of which $3 million was included in other current assets and $34 million was included in other non-current assets on its Consolidated Balance Sheet. As of December 31, 2015, the Company had a receivable of $32 million, of which $1 million was included in other current assets and $31 million was included in other non-current assets on its Consolidated Balance Sheet. Such receivable was the result of payments made to date which are subject to recapture and which the Company believes will be recoverable from future operating performance.

Vacation Ownership

The Company has guaranteed to repurchase completed properties located in Las Vegas, Nevada and St. Thomas from third-party developers subject to the properties meeting the Company’s vacation ownership resort standards and provided that the third-party developers have not sold the properties to another party (see Note 4 - Inventory).

Cendant Litigation

Under the Separation agreement, the Company agreed to be responsible for 37.5% of certain of Cendant’s contingent and other corporate liabilities and associated costs, including certain contingent litigation. Since the Separation, Cendant settled the majority of the lawsuits pending on the date of the Separation. See Note 15 - Separation Adjustments and Transactions with Former Parent and Subsidiaries regarding contingent litigation liabilities resulting from the Separation.

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11.	Accumulated Other Comprehensive (Loss)/Income

The components of AOCI are as follows:



	Foreign			Unrealized		Defined
	Currency			(Losses)/Gains		Benefit
	Translation			on Cash Flow		Pension
Pretax	Adjustments			Hedges		Plans			AOCI
Balance, December 31, 2015	$	(139	)	$	—	$	(9	)	$	(148	)
Period change	(18		)	1		(1		)	(18		)
Balance, June 30, 2016	$	(157	)	$	1	$	(10	)	$	(166	)



Tax
Balance, December 31, 2015	$	70	$	1	$	3	$	74
Period change	26		—		—		26
Balance, June 30, 2016	$	96	$	1	$	3	$	100



Net of Tax
Balance, December 31, 2015	$	(69	)	$	1	$	(6	)	$	(74	)
Period change	8			1		(1		)	8
Balance, June 30, 2016	$	(61	)	$	2	$	(7	)	$	(66	)



	Foreign			Unrealized			Defined
	Currency			(Losses)/Gains			Benefit
	Translation			on Cash Flow			Pension
Pretax	Adjustments			Hedges			Plans			AOCI
Balance, December 31, 2014	$	(13	)	$	(8	)	$	(12	)	$	(33	)
Period change	(56		)	1			—			(55		)
Balance, June 30, 2015	$	(69	)	$	(7	)	$	(12	)	$	(88	)



Tax
Balance, December 31, 2014	$	50	$	4		$	3	$	57
Period change	—		(1		)	—		(1		)
Balance, June 30, 2015	$	50	$	3		$	3	$	56



Net of Tax
Balance, December 31, 2014	$	37		$	(4	)	$	(9	)	$	24
Period change	(56		)	—			—			(56		)
Balance, June 30, 2015	$	(19	)	$	(4	)	$	(9	)	$	(32	)

Currency translation adjustments exclude income taxes related to investments in foreign subsidiaries where the Company intends to reinvest the undistributed earnings indefinitely in those foreign operations.

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12.	Stock-Based Compensation

The Company has a stock-based compensation plan available to grant RSUs, PSUs, SSARs and other stock-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Worldwide Corporation 2006 Equity and Incentive Plan, as amended, a maximum of 36.7 million shares of common stock may be awarded. As of June 30, 2016, 15.7 million shares remained available.

Incentive Equity Awards Granted by the Company

The activity related to incentive equity awards granted by the Company for the six months ended June 30, 2016 consisted of the following:



	RSUs					PSUs					SSARs
	Number of RSUs			Weighted Average Grant Price		Number of PSUs			Weighted Average Grant Price		Number of SSARs			Weighted Average Exercise Price
Balance as of December 31, 2015	1.6			$	73.75	0.6			$	73.60	0.8			$	46.45
Granted ^(a)	0.9			71.72		0.2			71.65		0.1			71.65
Vested / exercised	(0.7	)		72.82		(0.2	)		72.84		(0.3	)		27.84
Balance as of June 30, 2016	1.8		^{(b) (c)}	75.85		0.6		^(d)	77.84		0.6		^{(b) (e)}	61.52


^(a)	Primarily represents awards granted by the Company on February 25, 2016.


^(b)	Aggregate unrecognized compensation expense related to RSUs and SSARs was $123 million as of June 30, 2016, which is expected to be recognized over a weighted average period of 2.9 years.


^(c)	Approximately 1.7 million RSUs outstanding as of June 30, 2016 are expected to vest over time.


^(d)	Maximum aggregate unrecognized compensation expense was $29 million as of June 30, 2016, which is expected to be recognized over a weighted average period of 2.1 years.


^(e)	Approximately 0.4 million SSARs are exercisable as of June 30, 2016. The Company assumes that all unvested SSARs are expected to vest over time. SSARs outstanding as of June 30, 2016 had an intrinsic value of $9 million and have a weighted average remaining contractual life of 3.3 years.

On February 25, 2016, the Company granted incentive equity awards totaling $63 million to key employees and senior officers of Wyndham in the form of RSUs and SSARs. These awards will vest ratably over a period of four years. In addition, on February 25, 2016, the Company approved a grant of incentive equity awards totaling $17 million to key employees and senior officers of Wyndham in the form of PSUs. These awards cliff vest on the third anniversary of the grant date, contingent upon the Company achieving certain performance metrics.

The fair value of SSARs granted by the Company on February 25, 2016 was estimated on the date of the grant using the Black-Scholes option-pricing model with the relevant weighted average assumptions outlined in the table below. Expected volatility is based on both historical and implied volatilities of the Company’s stock over the estimated expected life of the SSARs. The expected life represents the period of time the SSARs are expected to be outstanding and is based on historical experience given consideration to the contractual terms and vesting periods of the SSARs. The risk free interest rate is based on yields on U.S. Treasury strips with a maturity similar to the estimated expected life of the SSARs. The projected dividend yield was based on the Company’s anticipated annual dividend divided by the price of the Company’s stock on the date of the grant.



	SSARs Issued on
	February 25, 2016
Grant date fair value	$	13.70
Grant date strike price	$	71.65
Expected volatility	27.81		%
Expected life	5.2 years
Risk free interest rate	1.33		%
Projected dividend yield	2.79		%

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Stock-Based Compensation Expense

The Company recorded stock-based compensation expense of $22 million and $36 million during the three and six months ended June 30, 2016, respectively, and $14 million and $29 million during the three and six months ended June 30, 2015, respectively, related to the incentive equity awards granted to key employees and senior officers by the Company. During the six months ended June 30, 2016, the Company increased its pool of excess tax benefits available to absorb tax deficiencies (“APIC Pool”) by $8 million due to the vesting of RSUs and PSUs, as well as the exercise of SSARs. As of June 30, 2016, the Company’s APIC Pool balance was $137 million.

The Company paid $34 million and $41 million of taxes for the net share settlement of incentive equity awards during the six months ended June 30, 2016 and 2015, respectively. Such amounts are included within financing activities on the Consolidated Statements of Cash Flows.


13.	Segment Information

The reportable segments presented below represent the Company’s operating segments for which separate financial information is available and which is utilized on a regular basis by its chief operating decision maker to assess performance and to allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon net revenues and “EBITDA”, which is defined 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 Consolidated Statements of Income. The Company believes that EBITDA is a useful measure of performance for its industry segments which, when considered with GAAP measures, the Company believes gives a more complete understanding of its operating performance. The Company’s presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.



	Three Months Ended June 30,
	2016							2015
	Net Revenues				EBITDA			Net Revenues				EBITDA
Hotel Group	$	334		(b)	$	101		$	334		(d)	$	96
Destination Network	384			(c)	85			383				84
Vacation Ownership	705				187			699				182
Total Reportable Segments	1,423				373			1,416				362
Corporate and Other ^(a)	(20		)		(33		)	(18		)		(30		)
Total Company	$	1,403			$	340		$	1,398			$	332

Reconciliation of EBITDA to Net income

					Three Months Ended June 30,
					2016							2015
EBITDA					$	340						$	332
Depreciation and amortization					63							58
Interest expense					34							30
Interest income					(2		)