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

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

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(a)	Affiliated properties represent properties under affiliation arrangements with Wyndham Destinations.

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(a)	2018 includes the addition of 905 properties and 88,600 rooms from the acquisition of the La Quinta brand and 2017 includes the addition of 202 properties and 11,900 rooms from the acquisition of the AmericInn brand.

(b)	2018 includes the deletion of 351 properties and 21,300 rooms from the disposition of the Knights Inn brand.

(a)	See Part II Item 6. Selected Financial Data for our definition of adjusted EBITDA and the reconciliation of net income to adjusted EBITDA.

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(a)	See Part II Item 6. Selected Financial Data for our definition of adjusted EBITDA and the reconciliation of net income to adjusted EBITDA.

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•	our ability to meet our objectives for growth in the number of our franchised hotels, hotel rooms in our franchise system and hotels under management and to retain and renew franchisee and hotel management contracts, all on favorable terms;

•	the number, occupancy and room rates of hotels operating under our franchise and management agreements;

•	the delay of hotel openings in our pipeline;

•	changes in the supply and demand for hotel rooms;

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•	our ability to develop and maintain positive relations and contractual arrangements with current and potential franchisees and hotel owners under our hotel management agreements and other third parties, including marketing alliances and affiliations with e-commerce channels;

•	our franchisees’ pricing decisions;

•	the quality of the services provided by franchisees and their investment in the maintenance and improvement of properties;

•	the bankruptcy or insolvency of a significant number of our franchised or managed hotels;

•	the financial condition of franchisees, owners or other developers and the availability of financing to them;

•	adverse events occurring at franchised or managed hotel locations, including personal injuries, food tampering, contamination or the spread of illness, including the 2019 Novel Coronavirus;

•	negative publicity, which could damage our hotel brands;

•	our ability to successfully market our current or any future hotel brands and programs, including our rewards program, and to service or pilot new initiatives;

•	our management contract or relationship with CorePoint Lodging, Inc. (“CorePoint”), which in aggregate owns approximately 69% of our managed hotels and any decision by CorePoint to divest additional hotels;

•	changes in the laws, regulations and legislation affecting our business, internationally and domestically;

•	our failure to adequately protect and maintain our trademarks and other intellectual property rights;

•	the relative mix of branded hotels in the various hotel industry price categories;

•	corporate budgets and spending and cancellations, deferrals or renegotiations of group business;

•	seasonal or cyclical volatility in our business;

•	operating costs, including as a result of inflation, energy costs and labor costs, such as minimum wage increases and unionization, workers’ compensation and health-care related costs and insurance; and

•	disputes, claims and litigation and other legal proceedings concerning our or our franchised or managed hotels’ operations regarding human trafficking or other matters, including with consumers, government regulators, other businesses, franchisees and hotel owners, organized labor activities and class actions.

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(a)	Includes 74,020 shares purchased for which the trade date occurred during December 2019 while settlement occurred during January 2020.

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(a)	As described in Note 2 - Summary of Significant Accounting Polices to the Consolidated and Combined Financial Statements contained in Part II, Item 8 of this report, we adopted the new accounting standard related to revenue recognition utilizing the full retrospective transition method on January 1, 2018. However, amounts have not been restated for the year 2015 for this standard.

(b)	Reflects the impact of the adoption of the new accounting standard in 2019 for lease accounting and the 2016 accounting standards related to balance sheet classification of deferred taxes and the presentation of debt issuance costs.

(c)	Represents Wyndham Hotels & Resorts stand-alone stockholders’ equity since May 31, 2018 and Wyndham Worldwide net investment (capital contributions and earnings from operations less dividends) in Wyndham Hotels & Resorts and accumulated other comprehensive income for 2015 through May 31, 2018, the date of our spin-off.

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(d)

“Adjusted EBITDA” is defined as net income excluding interest expense, depreciation and amortization, impairment charges, restructuring and related charges, contract termination costs, transaction-related items (acquisition-, disposition- or separation-related), foreign currency impacts of highly inflationary countries, stock-based compensation expense and income taxes. We believe that adjusted EBITDA is a useful measure of performance for its segments which, when considered with U.S. Generally Accepted Accounting Principles (“GAAP”) measures, allows a more complete understanding of its operating performance. We use these measures internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Our presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

(e)	Corporate and Other reflects unallocated corporate costs that are not attributable to an operating segment.

(f)	The reconciliation of net income to adjusted EBITDA is as follows:

(g)	Represents the number of hotels at the end of the period.

(h)	Represents the number of rooms at the end of the period which are (i) either under franchise and/or management agreements, or are Company-owned and (ii) properties under affiliation agreements for which Wyndham Hotels & Resorts receives a fee for reservation and/or other services provided.

(i)	Represents revenue per available room and is calculated by multiplying the average occupancy rate by the average daily rate.

(j)	Represents the average royalty rate earned on our franchised properties and is calculated by dividing total royalties, excluding the impact of amortization of development advance notes, by total room revenues.

•	In May 2018, we acquired La Quinta Holdings’ hotel franchise and hotel-management business, spanning a portfolio of over 900 La Quinta-branded hotels;

•	In October 2017, we acquired the AmericInn hotel brand and its hotel franchise business, spanning a portfolio of approximately 200 AmericInn-branded franchised hotels in the United States;

•	In November 2016, we acquired Fen Hotels, adding the Dazzler and Esplendor Boutique brands to our portfolio, as well as a Latin America-based hotel management company; and

•	In January 2015, we acquired Dolce Hotels and Resorts, a franchisor and manager of properties focused on group accommodations in Europe and North America.

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•	$45 million for a non-cash net impairment charge associated with the termination of an unprofitable hotel-management guarantee arrangement;

•	$42 million of contract termination charges consisting of $34 million in connection with a termination of an unprofitable hotel-management guarantee arrangement and $8 million in connection with an obligation arising from such termination;

•	$33 million of transaction-related costs, primarily related to the integration of La Quinta;

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$27 million of costs pursuant to an agreement we entered into with CorePoint Lodging Inc. (“CorePoint”), the owner of approximately 271 hotels we manage. Such charges are comprised of a $20 million fee credit for past services, which is reflected as a reduction to hotel management revenues, and a $7 million charge related to the resolution of acquisition-related tax matters which is reflected in transaction-related costs on the Consolidated and Combined Statements of Income;

•	$22 million of separation-related costs associated with our spin-off from Wyndham Worldwide; and

•	$8 million of charges related to restructuring initiatives, primarily focused on enhancing our organizational efficiency and rationalizing our operations.

•	$77 million of separation-related costs associated with our spin-off from Wyndham Worldwide; and

•	$36 million of transaction-related costs consisting of $59 million in connection with our acquisition and integration of La Quinta partially offset by a $23 million gain on the sale of our Knights Inn brand in May 2018. This sale was not material to our results of operations or financial position.

•	$41 million of non-cash impairment charges, of which $25 million was for a write-down of a guarantee asset and a development advance note receivable related to a hotel-management guarantee arrangement and $16 million was primarily related to a partial write-down of management agreement assets; and

•	$1 million of charges related to restructuring initiatives, primarily focused on realigning our brand operations.

•	$7 million charge related to the termination of a management contract; and

•	$2 million of charges related to restructuring initiatives, which were primarily focused on enhancing organizational efficiency.

•	$14 million charge associated with the anticipated termination of a management contract within our hotel management business;

•	$7 million non-cash impairment charge related to the write-down of terminated in-process technology projects resulting from our decision to outsource our reservation system to a third-party partner; and

•	$3 million of restructuring costs resulting from a realignment of brand services and call center operations.

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•	Hotel Franchising — licenses our lodging brands and provides related services to third-party hotel owners and others.

•	Hotel Management — provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by Wyndham Hotels.

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(a)	Includes the impact of acquisition and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR increased 1% and total RevPAR increased 2%.

•	lower cost-reimbursement revenues due to a change in our responsibility from being the principal for certain property-related activities to being an agent, and therefore, these costs are no longer reflected in our Consolidated and Combined Statements of Income and property terminations; and

•	a $20 million fee credit for past services with a customer, which is reflected as a reduction to hotel-management revenues.

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•	Marketing, reservation and loyalty expenses increased to 39.6% of revenues from 37.9% during 2018, primarily due to higher marketing spend to support our “by Wyndham” campaign and the relaunch of the Wyndham Rewards program with La Quinta integrated, as well as a change in classification of certain costs from operating expenses, partially offset by higher net revenues;

•	Operating expenses decreased to 12.3% of revenues from 14.3% during 2018, primarily due to a change in classification of certain costs to our marketing, reservation and loyalty funds; and

•	General and administrative expenses were 9.2% of revenues during 2019 and 2018.

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(a)	Includes the impact of acquisition and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR increased 1% and total RevPAR increased 2%.

•	Marketing, reservation and loyalty expenses increased to 42.3% of revenues from 41.2% during the prior year primarily due to marketing spend to support our “by Wyndham” campaign and the relaunch of the Wyndham Rewards program with La Quinta integrated, as well as a change in classification of certain costs from operating expenses, partially offset by higher net revenues;

•	Operating expenses decreased to 6.7% of revenue compared to 9.6% during the prior year primarily due to a change in classification of certain costs to our marketing, reservation and loyalty funds; and

•	General and administrative expenses decreased to 2.3% of revenues from 3.6% during the prior year, primarily due to the impact of reorganizing certain functions into our Corporate and Other segment as a result of our spin-off to a stand-alone public company.

(a)	Includes the impact of acquisition and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR decreased 1% and total RevPAR decreased 5%.

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(a)	Includes the impact of acquisitions and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR increased 4% and total RevPAR increased 9%.

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•	Marketing, reservation and loyalty expenses increased to 37.0% of revenues from 36.7% during 2017, primarily due to higher marketing, reservation and loyalty expenses resulting from the increase in marketing and reservation fee revenues from franchisees;

•	Operating expenses decreased to 16.2% of revenues from 17.9% during 2017, primarily as a result of reduced expenses at our owned hotel in Puerto Rico resulting from insurance recoveries received in 2018 related to hurricanes that occurred in 2017; and

•	General and administrative expenses increased to 9.6% of revenues from 8.7% during 2017, primarily due to higher employee-related and information technology costs, principally related to operating as a stand-alone public company.

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(a)	Includes the impact of acquisitions and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR increased 4% and total RevPAR increased 8%.

•	Marketing, reservation and loyalty expenses were 40.5% of revenues during 2018 and 40.6% during 2017;

•	Operating expenses were 10.8% of revenues during 2018 and 10.4% during 2017; and

•	General and administrative expenses decreased to 3.4% of revenues from 4.2% during the prior year, primarily due to lower employee-related expenses coupled with higher net revenues.

(a)	Includes the impact of acquisitions and disposition from their respective dates forward.

(b)	Excluding currency effects, international RevPAR increased 5% and total RevPAR decreased 11%.

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(a)	Includes interest on long-term debt; estimated using the stated interest rates on our senior notes and the swapped interest rates on our term loan.

(b)	Excludes a $13 million liability for unrecognized tax benefits associated with the accounting guidance for uncertainty in income taxes since it is not reasonably estimable to determine the periods in which such liability would be settled with the respective tax authorities.

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(a)	Consists of shares issuable upon exercise of stock settled stock appreciation rights, stock options, restricted stock units, deferred stock units and performance vested restricted stock units at the maximum achievement level under the 2018 Equity and Incentive Plan.

(b)	Consists of weighted-average exercise price of outstanding stock settled stock appreciation rights, stock options and restricted stock units (excludes the weighted-average exercise price of the performance vested restricted stock units at the maximum achievement level).

(c)	Consists of shares available for future grants under the 2018 Equity and Incentive Plan.

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•	We tested the effectiveness of the controls related to the liability, including those over the estimate of the redemption rate.

•	We evaluated the assumptions used by management to estimate the liability by:

◦	Testing the underlying data that served as the inputs for the actuarial analysis of the estimated redemption rate, including earnings and redemptions.

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◦	Evaluating whether any approved changes to the Wyndham Rewards loyalty program have been appropriately incorporated in the actuarial analysis of the estimated redemption rate.

◦	Comparing management’s prior-year estimated redemption rate to actual redemptions during the current year to identify potential bias in the determination of the liability.

•	With the assistance of our actuarial specialists, we developed a range of independent estimates of the liability, utilizing the same underlying data tested above, and compared our estimates to management’s estimates.

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1. BASIS OF PRESENTATION

Wyndham Hotels & Resorts, Inc. (collectively with its consolidated subsidiaries, “Wyndham Hotels” or the “Company”) is a leading global hotel franchisor, licensing its renowned hotel brands to hotel owners in approximately 90 countries around the world. Prior to May 31, 2018, the Company was wholly owned by Wyndham Worldwide Corporation (‘‘Wyndham Worldwide’’, “Wyndham Destinations” and, collectively with its consolidated subsidiaries, ‘‘former Parent’’).

In May 2018, the Wyndham Worldwide Board of Directors ("Board") approved the spin-off of its hotel franchising and management businesses (“Wyndham Hotels & Resorts Businesses”) through a pro-rata distribution of all of the outstanding shares of Wyndham Hotels & Resorts, Inc.’s common stock to Wyndham Worldwide stockholders (the “Distribution”). Pursuant to the Distribution, on May 31, 2018, Wyndham Worldwide stockholders received one share of Wyndham Hotels & Resorts, Inc.’s common stock for each share of Wyndham Worldwide common stock held as of the close of business on May 18, 2018. In conjunction with the Distribution, Wyndham Hotels & Resorts, Inc. underwent an internal reorganization following which it became the holder, directly or through its subsidiaries, of the Wyndham Hotels & Resorts Businesses. Also in conjunction with the Distribution, Wyndham Worldwide Corporation was renamed Wyndham Destinations, Inc.

The Consolidated and Combined Financial Statements have been prepared on a stand-alone basis and prior to May 31, 2018 are derived from the consolidated financial statements and accounting records of Wyndham Worldwide. The Consolidated and Combined Financial Statements include Wyndham Hotels’ assets, liabilities, revenues, expenses and cash flows and all entities in which Wyndham Hotels has a controlling financial interest. The accompanying Consolidated and Combined 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 and Combined Financial Statements.

Wyndham Hotels’ Consolidated and Combined Financial Statements prior to May 31, 2018, include certain indirect general and administrative costs allocated to it by former Parent for certain functions and services including, but not limited to, executive office, finance and other administrative support. These expenses have been allocated to Wyndham Hotels on the basis of direct usage when identifiable, with the remainder allocated primarily based on its pro-rata share of combined revenues or headcount. Both Wyndham Hotels and former Parent considered the basis on which expenses prior to spin-off had been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by Wyndham Hotels during the periods presented.

In presenting the Consolidated and Combined 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 and Combined Financial Statements contain all normal recurring adjustments necessary for a fair presentation of annual results reported.

Business description

Wyndham Hotels operates in the following segments:

•	Hotel Franchising — licenses the Company’s lodging brands and provides related services to third-party hotel owners and others.

•	Hotel Management — provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by the Company.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

When evaluating an entity for consolidation, the Company first determines whether an entity is within the scope of the guidance for consolidation of variable interest entities (“VIEs”) and if it is deemed to be a VIE. If the entity is considered to be a VIE, Wyndham Hotels determines whether it would be considered the entity’s primary beneficiary. The Company consolidates those VIEs for which it has determined that it is the primary beneficiary. Wyndham Hotels will consolidate an entity not deemed a VIE upon a determination that it has a controlling financial interest. For entities where Wyndham Hotels does not have a controlling financial interest, the investments in such entities are classified as available-for-sale securities or accounted for using the equity or cost method, as appropriate.

Use of estimates and assumptions

The preparation of the Consolidated and Combined Financial Statements requires Wyndham Hotels to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Consolidated and Combined Financial Statements and accompanying notes. Although these estimates and assumptions are based on Wyndham Hotels’ knowledge of current events and actions Wyndham Hotels may undertake in the future, actual results may ultimately differ from estimates and assumptions.

Revenue recognition

The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. For more detailed description of revenue recognition see Note 3 - Revenue Recognition.

Loyalty program

The Company operates the Wyndham Rewards loyalty program. Loyalty members primarily accumulate points by staying in hotels operated under one of the Company’s brands. Wyndham Rewards members may also accumulate points by purchasing everyday services and products with their co-branded credit card.

The Company earns revenue from these programs (i) when a member stays at a participating hotel, club resort or vacation rental from a fee charged by Wyndham Hotels to the franchisee, which is based upon a percentage of room revenues generated from such stay which the Company recognizes, net of redemptions, over time based upon loyalty point redemption patterns, including an estimate of loyalty points that will expire or will never be redeemed, and (ii) based upon a percentage of the member’s spending on the co-branded credit cards for which revenues are paid to Wyndham Hotels by third-party issuing banks which the Company primarily recognizes over time based upon the redemption patterns of the loyalty points earned under the program, including an estimate of loyalty points that will expire or will never be redeemed.

As members earn points through the loyalty program, the Company records a liability for the estimated future redemption costs, which is calculated based on (i) an estimated cost per point and (ii) an estimated redemption rate of the overall points earned, which is determined with the assistance of a third-party actuarial firm through historical experience, current trends and the use of an actuarial analysis. The Company estimates the value of the future redemption obligations by projecting the timing of future point redemptions based on historical levels, including an estimate of the points that will expire or never be redeemed, and an estimate of the points members will eventually redeem. The recorded liability related to the program totals $90 million and $89 million as of December 31, 2019 and 2018, respectively, of which $56 million and $54 million, respectively, are included in accrued expenses and other current liabilities, and $34 million and $35 million, respectively, are included in other non-current liabilities on the Company's Consolidated Balance Sheets.

Cash and cash equivalents

The Company considers highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents.

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Valuation of accounts receivable

The Company provides for estimated bad debts based on its assessment of the ultimate realizability of receivables, considering historical collection experience, the economic environment and specific customer information. When the Company determines that an account is not collectible, the account is written-off to the allowance for doubtful accounts. The following table illustrates the Company’s allowance for doubtful accounts activity for the years ended December 31:

	2019				2018				2017
Beginning Balance	$	52			$	61			$	77
Bad debt expense	16				8				7
Write-offs	(21		)		(17		)		(23		)
Ending Balance	$	47			$	52			$	61

Advertising expense

Advertising costs are generally expensed in the period incurred. Advertising expenses, which are primarily recorded within marketing and reservation expenses on the Consolidated and Combined Statements of Income, were $115 million, $92 million and $61 million in 2019, 2018 and 2017, respectively.

Property and equipment

Property and equipment (including leasehold improvements) are recorded at cost, and presented net of accumulated depreciation and amortization. Depreciation, recorded as a component of depreciation and amortization on the Consolidated and Combined Statements of Income, is computed utilizing the straight-line method over the lesser of the lease terms or estimated useful lives of the related assets. Amortization of leasehold improvements, also recorded as a component of depreciation and amortization, is computed utilizing the straight-line method over the lesser of the estimated benefit period of the related assets or the lease terms. Useful lives are generally 30 years for buildings, up to 20 years for building and leasehold improvements and from three to seven years for furniture, fixtures and equipment.

The Company capitalizes the costs of software developed for internal use in accordance with the guidance for accounting for costs of computer software developed or obtained for internal use. Capitalization of software developed for internal use commences during the development phase of the project. Wyndham Hotels amortizes software developed or obtained for internal use on a straight-line basis over its estimated useful life, which is generally three to five years. Such amortization commences when the software is substantially ready for its intended use.

The net carrying value of software developed or obtained for internal use was $63 million and $69 million as of December 31, 2019 and 2018, respectively.

Impairment of long-lived assets

Goodwill and other indefinite-lived intangible assets that were recorded in connection with business combinations, are reviewed annually (during the fourth quarter of each year subsequent to completing our annual forecasting process), or more frequently if circumstances indicate that the value of goodwill may be impaired, to the reporting units’ carrying values as required by the guidance. This is done either by performing a qualitative assessment or utilizing the two-step process, with an impairment being recognized only where the fair value is less than carrying value. In any given year, the Company can elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value is in excess of the carrying value, or the Company elects to bypass the qualitative assessment, the Company would use the two-step process. The qualitative factors evaluated include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, its historical share price as well as other industry-specific considerations. The Company performed a quantitative assessment for impairment on each reporting unit’s goodwill for 2019. Based on the results of the Company’s quantitative assessments performed during the fourth quarter of 2019, the Company determined that no impairment existed, nor does the Company believe there is a material risk of it being impaired in the near term at its (i) hotel franchising, (ii) hotel management and (iii) owned hotel reporting units. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, the Company may be required to write-down all or a portion of goodwill, which would adversely impact earnings.

The Company also determines whether the carrying values of other indefinite-lived intangible assets are impaired on an annual basis or more frequently if indicators of potential impairment exist. Application of the other indefinite-lived intangible assets impairment test requires judgment in the assumptions underlying the approach used to determine fair value. The fair

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value of each other indefinite-lived intangible asset is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including anticipated market conditions, operating expense trends, estimation of future cash flows, which are dependent on internal forecasts, discount rates and estimation of long-term rates of growth. The estimates used to calculate the fair value of other indefinite-lived intangible asset change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and the other indefinite-lived intangible assets’ impairment.

The Company also evaluates the recoverability of its other long-lived assets, including property and equipment and amortizable intangible assets, if circumstances indicate impairment may have occurred, pursuant to guidance for impairment or disposal of long-lived assets. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment are evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.

Business combinations

A component of the Company’s growth strategy has been to acquire and integrate businesses that complement its existing operations. The Company accounts for business combinations in accordance with the guidance for business combinations and related literature. Accordingly, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.

In determining the fair values of assets acquired and liabilities assumed in a business combination, the Company uses various recognized valuation methods including present value modeling and referenced market values, where available. Further, the Company makes assumptions within certain valuation techniques including discount rates and timing of future cash flows. Valuations are performed by management or external valuation specialists under management’s supervision, where appropriate. The Company believes that the estimated fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.

Income taxes

Prior to the Company's spin-off, current and deferred income taxes and related tax expense have been determined based on Wyndham Hotels’ stand-alone results by applying a separate return methodology, as if the Wyndham Hotels entities were separate taxpayers in the respective jurisdictions. The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. The Company regularly reviews its deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that the Company believes will not be ultimately realized. In performing this review, the Company makes estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease the Company’s valuation allowance resulting in an increase or decrease in its effective tax rate, which could materially impact the Company’s results of operations.

For tax positions the Company has taken or expects to take in a tax return, it applies a more likely than not threshold, under which the Company must conclude a tax position is more likely than not to be sustained, assuming that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information, in order to recognize or continue to recognize the benefit. In determining the Company’s provision for income taxes, the Company uses judgment, reflecting its estimates and assumptions, in applying the more likely than not threshold.

In January 2018, the Financial Accounting Standards Board (“FASB”) issued guidance on the accounting for tax on the global intangible low-taxed income provisions of the recently enacted tax law. These provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that the Company is allowed to make an accounting policy choice of either: (1) treating taxes due on future inclusions in taxable income as a current-period expense when incurred or (2) factoring such amounts into the Company’s measurement of its deferred taxes. The Company has elected to account for any inclusions under the period cost method.

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Stock-based compensation

In accordance with the guidance for stock-based compensation, Wyndham Hotels measures all employee stock-based compensation awards using a fair value method and records the related expense in its Consolidated and Combined Statements of Income.

Wyndham Hotels recognizes the cost of stock-based compensation awards to employees as they provide services and the expense is recognized ratably over the requisite service period. The requisite service period is the period during which an employee is required to provide services in exchange for an award. Forfeitures are recorded upon the actual employee termination for each outstanding grant.

Derivative instruments

The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, the Company does not use derivatives for trading or speculative purposes. All derivatives are recorded at fair value as either assets or liabilities. Changes in fair value of derivatives not designated as hedging instruments and of derivatives designated as fair value hedging instruments are recognized currently in operating income and interest expense, net in the Consolidated and Combined Statements of Income, based upon the nature of the hedged item. The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments is recorded as a component of other comprehensive income. The ineffective portion is reported immediately in earnings as a component of operating or interest expense, based upon the nature of the hedged item. Amounts included in other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings.

Accumulated other comprehensive income/(loss)

Accumulated other comprehensive income/(loss) (“AOCI”) consists of accumulated foreign currency translation adjustments and unrealized gains or losses on the Company's cash flow hedges. Foreign currency translation adjustments exclude income taxes related to indefinite investments in foreign subsidiaries. Assets and liabilities of foreign subsidiaries having non-U.S.-dollar functional currencies are translated at exchange rates at the balance sheet dates. Revenues and expenses are translated at average exchange rates during the periods presented. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, are included in AOCI on the Consolidated Balance Sheets.

Former Parent’s net investment

Parent’s net investment in the Consolidated and Combined Statements of Equity represents Wyndham Worldwide’s historical net investment in Wyndham Hotels resulting from various transactions with and allocations from the former Parent. Balances due to and due from the former Parent and accumulated earnings attributable to Wyndham Hotels operations have been presented as components of former Parent’s net investment.

Recently issued accounting pronouncements

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance to replace the existing methodology for estimating credit losses with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Upon adoption, the Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. Credit losses relating to available-for-sale debt securities, of which the Company currently has none, will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Adoption of the guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align the Company’s current processes for establishing an allowance for credit losses with the new guidance. The Company will adopt the guidance on January 1, 2020, as required, and it currently estimates such adoption will result in a pre-tax cumulative-effect adjustment to retained earnings between $8 million and $12 million.

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Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued guidance which simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for the interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company believes the adoption of this guidance will not have a material effect on its financial statements and related disclosures.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. In August 2018, the FASB issued guidance to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with early adoption permitted. This guidance should be applied on either a retrospective or prospective basis. The Company believes the prospective adoption of this guidance will not have a material effect on its financial statements and related disclosures.

Recently adopted accounting pronouncements

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 adopted the guidance using the modified retrospective approach as of January 1, 2019. See Note 18 - Leases for further details.

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

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

Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued guidance which requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance requires the modified retrospective approach and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the guidance on January 1, 2018, as required, which resulted in a cumulative-effect benefit to retained earnings of $15 million.

Statement of Cash Flows. In August 2016, the FASB issued guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance requires the retrospective transition method and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the guidance on January 1, 2018, as required. The impact of this new guidance resulted in payments of, and proceeds from, development advance notes being recorded within operating activities on its Consolidated and Combined Statements of Cash Flows. Such amounts were previously reported within investing activities.

3. REVENUE RECOGNITION

The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. The Company recognizes royalty fee revenues as and when the underlying

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sales occur. The Company also receives non-refundable initial franchise fees, which are recognized as revenues over the initial non-cancellable period of the franchise agreement, commencing when all material services or conditions have been substantially performed. This occurs when a hotel opens for business in our system or when a franchise agreement is terminated after it has been determined that the hotel will not open.

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

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

The Company earns revenue from its Wyndham Rewards co-branded credit card program, which is primarily generated by cardholder spending and the enrollment of new cardholders. The advance payments received under the program are recognized as a contract liability. The program primarily contains two performance obligations: (i) brand performance services, for which revenue is recognized over the contract term on a straight-line basis, and (ii) issuance and redemption of loyalty points, for which revenue is recognized over time based upon the redemption patterns of the loyalty points earned under the program, including an estimate of loyalty points that will expire or will never be redeemed.

The Company provides management services for hotels under management contracts, which offer hotel owners all the benefits of a global brand and a full range of management, marketing and reservation services. In addition to the standard franchise services described above, the Company’s hotel management business provides hotel owners with professional oversight and comprehensive operations support services. The Company’s standard management agreement typically has a term of 10 to 20 years. The Company’s management fees are comprised of base fees, which are typically a specified percentage of gross revenues from hotel operations, and, in some cases, incentive fees, which are typically a specified percentage of a hotel’s gross operating profit. The base fees are recognized when the underlying sales occur and the management services are performed. Incentive fees are recognized when determinable, which is when the Company has met hotel operating performance metrics and the Company has determined that a significant reversal of revenues recognized will not occur.

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

The Company recognizes license and other revenues from Wyndham Destinations for use of the “Wyndham” trademark and certain other trademarks.

In addition, the Company earns revenues from its two owned hotels, which consist primarily of (i) gross room rentals, (ii) food and beverage services and (iii) on-site spa, casino, golf and shop revenues. These revenues are recognized upon the completion of services.

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Deferred revenues

Deferred revenues, or contract liabilities, generally represents payments or consideration received in advance for goods or services that the Company has not yet provided to the customer. Deferred revenues as of December 31, 2019 and December 31, 2018 are as follows:

		December 31, 2019				December 31, 2018
Deferred initial franchise fee revenues		$	136			$	127
Deferred loyalty program revenues		86				74
Deferred co-branded credit card program revenues		34				30
Deferred hotel management fee revenues		—				21
Deferred other revenues		27				21
Total		$	283			$	273

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

Practical expedients

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

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

Performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The consideration received from a customer is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The following table summarizes the Company’s remaining performance obligations for the twelve-month periods set forth below:

	2020				2021				2022				Thereafter				Total
Initial franchise fee revenue	$	29			$	15			$	14			$	78			$	136
Loyalty program revenue	53				21				9				3				86
Co-branded credit card program revenue	34				—				—				—				34
Other revenue	16				3				2				6				27
Total	$	132			$	39			$	25			$	87			$	283

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Disaggregation of net revenues

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

	Year Ended December 31,
	2019				2018				2017
Hotel Franchising
Royalties and franchise fees	$	465			$	432			$	355
Marketing, reservation and loyalty	559				489				369
License and other revenues from former Parent	131				111				75
Other	124				103				98
Total Hotel Franchising	1,279				1,135				897
Hotel Management
Royalties and franchise fees	15				9				9
Marketing, reservation and loyalty	3				2				2
Hotel management - owned properties	89				75				78
Hotel management - managed properties	36				49				30
Cost reimbursements	623				586				264
Other	2				5				—
Total Hotel Management	768				726				383
Corporate and Other	6				7				—
Net revenues	$	2,053			$	1,868			$	1,280

Capitalized contract costs

The Company incurs certain direct and incremental sales commissions costs in order to obtain hotel franchise and management contracts. Such costs are capitalized and subsequently amortized beginning upon hotel opening over the first non-cancellable period of the agreement. In the event an agreement is terminated prior to the end of the first non-cancellable period, any unamortized cost is immediately expensed. In addition, the Company also capitalizes costs associated with the sale and installation of property management systems to the Company's franchisees, which are amortized over the remaining non-cancellable period of the franchise agreement. As of December 31, 2019 and December 31, 2018, capitalized contract costs were $33 million and $24 million, respectively, of which $8 million in both years, were included in other current assets, and $25 million and $16 million, respectively, were included in other non-current assets on the Company's Consolidated Balance Sheets.

4. EARNINGS PER SHARE

The computation of basic and diluted earnings per share (“EPS”) is based on net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. On June 1, 2018, the Company’s separation from Wyndham Worldwide was effected through a tax-free distribution to Wyndham Worldwide’s stockholders of one share of the Company’s common stock for every one share of Wyndham Worldwide common stock held as of the close of business on May 18, 2018. As a result, on June 1, 2018, the Company had 99.8 million shares of common stock outstanding (inclusive of deferred shares and shares that vested upon separation). This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the date of separation.

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The following table sets forth the computation of basic and diluted EPS (in millions, except per-share data) for the years ended December 31:

	2019				2018				2017
Net income	$	157			$	162			$	230
Basic weighted average shares outstanding	96.5				99.5				99.8
Stock options and restricted stock units (“RSUs”)	0.1				0.3				—
Diluted weighted average shares outstanding	96.6				99.8				99.8
Earnings per share:
Basic	$	1.63			$	1.62			$	2.31
Diluted	1.62				1.62				2.31
Dividends:
Cash dividends declared per share	$	1.16			$	0.75			$	—
Aggregate dividends paid to shareholders	$	112			$	77			$	—

Stock repurchase program

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

	Shares			Cost				Average Price Per Share
As of January 1, 2019	2.3			$	119			$	52.51
For the twelve months ended December 31, 2019	4.5			244				54.25
As of December 31, 2019	6.8			$	363			$	53.67

The Company had $237 million of remaining availability under its program as of December 31, 2019.

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5. ACQUISITIONS

Assets acquired and liabilities assumed in business combinations were recorded on the Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Consolidated and Combined Statements of Income since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations may be subject to revision when the Company receives final information, including appraisals and other analyses. Any revisions to the fair values during the allocation period will be recorded by the Company as further adjustments to the purchase price allocations. Although, in certain circumstances, the Company has substantially integrated the operations of its acquired businesses, additional future costs relating to such integration may occur. These costs may result from integrating operating systems, relocating employees, closing facilities, reducing duplicative efforts and exiting and consolidating other activities. These costs will be recorded on the Consolidated and Combined Statements of Income as expenses.

The Company did not complete any business combinations in 2019.

The La Quinta acquisition

On May 30, 2018, the Company completed its acquisition of La Quinta Holdings Inc.’s hotel franchising and hotel management business (“La Quinta”) for $1.95 billion in cash, which includes $8 million of purchase price that the Company withheld to pay La Quinta employee-related equity award liabilities and $240 million of purchase price that the Company withheld to pay La Quinta tax liabilities, as discussed below. The addition of La Quinta’s over 900 franchised hotels and nearly 89,000 rooms increased Wyndham Hotels’ midscale presence and expanded its reach further into the upper-midscale segment of the lodging industry. In addition, this transaction expanded the Company’s number of managed hotel properties from 116 to 440 at the time of acquisition. This acquisition strengthened the Company’s position in the midscale and upper-midscale segments of the hotel industry, which has been and continues to be one of the Company’s strategic priorities.

In conjunction with the acquisition, stockholders of La Quinta Holdings received $16.80 per share in cash (approximately $1.0 billion in aggregate), and Wyndham Hotels repaid approximately $715 million of La Quinta Holdings’ debt and withheld cash of $240 million for estimated taxes assumed and expected to be incurred in connection with the taxable spin-off of La Quinta Holdings’ owned real estate assets into CorePoint Lodging, Inc. (“CorePoint”), which occurred immediately prior to the acquisition of La Quinta. Wyndham Hotels financed the $1.95 billion acquisition with proceeds from its $500 million offering of 5.375% senior notes due 2026 completed in April 2018 and a $1.6 billion term loan due 2025 that closed in connection with the acquisition.

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The allocation of the purchase price is summarized as follows:

					Amount
Total consideration (a)					$	1,951
Cash withheld to repay La Quinta Holdings Inc.’s estimated tax liability (b)					(240		)
Cash withheld to pay employee-related equity award liabilities					(8		)
Net cash consideration					1,703
Cash escrowed from CorePoint (c)	$	985
Payment of La Quinta Holdings Inc.’s long‑term debt (c)	(985		)
	—				—
Cash utilized to repay La Quinta Holdings Inc.’s long‑term debt (d)					(715		)
Net cash consideration (to shareholders of La Quinta Holdings Inc.)					$	988
Total current assets (e)					$	67
Property and equipment					17
Trademarks (f)					710
Franchise agreements (f)					260
Management contracts (f)					119
Other assets					5
Total assets acquired					$	1,178
Total current liabilities (e)					$	89
Deferred income taxes (g)					254
Long‑term debt repaid at acquisition (c)					715
Assumed tax liability (b)					240
Other liabilities					11
Total liabilities assumed					1,309
Net identifiable liabilities acquired					(131		)
Goodwill (h)					1,119
Total consideration transferred					$	988

______________________

(a)	Includes additional consideration of $1 million related to a net debt adjustment paid to CorePoint during the third quarter of 2018.

(b)	Reflects a portion of the purchase price in which $195 million and $35 million was paid in 2019 and 2018, respectively, related to the tax liability assumed in the La Quinta acquisition. Additionally, $10 million was paid directly to CorePoint in 2019 which was reported in other, net within financing activities in the Consolidated and Combined Statements of Cash Flows.

(c)	As a result of a change in control provision within La Quinta’s long-term indebtedness, CorePoint deposited $985 million into an escrow account which was utilized to repay a portion of La Quinta Holdings Inc.’s existing indebtedness.

(d)	Reflects the portion of La Quinta Holdings Inc.’s long-term debt that was required to be paid by the Company upon a change in control.

(e)	The fair values of total current assets and total current liabilities are estimated to approximate their current carrying values.

(f)

The identifiable intangible assets consist of trademarks with an indefinite life, franchise agreements which have a weighted average life of 25 years and management agreements which have a weighted average life of 15 years. The fair valuation was performed with the assistance of a third‑party valuation firm, which included the consideration of various valuation techniques that the Company deems appropriate for the measurement of fair value of the assets acquired and liabilities assumed.

The valuations of the franchise agreements and management agreements are based on a discounted cash flow method utilizing forecasted cash flows from La Quinta’s existing franchise agreements and CorePoint franchise agreements and management agreements (the “CorePoint agreements”) that are estimated to be generated over the estimated terms of such contracts. The expected cash flows projections were based on the terms of the agreements, and adjusted for inflation and the costs and expenses required to generate the revenues under such agreements.

The significant assumptions that were utilized for La Quinta’s franchise agreements were: (i) forecasted gross room revenues, (ii) a franchise fee of 4.5%, tax affected, and (iii) a discount rate of 9.5%.

The significant assumptions that were utilized for the CorePoint agreements were: (i) forecasted gross room revenues, (ii) franchise and management fee rates of 5.0% each, which were tax affected, and (iii) a discount rate of 9.5% and 10.5% for CorePoint franchise and management agreements, respectively.

(g)	The deferred tax liability primarily results from the fair value adjustments for the identifiable intangible assets. This estimate of deferred tax liabilities was determined based on the book and tax basis differences attributable to the identifiable intangible assets acquired at a combined federal and state effective tax rate.

(h)	The goodwill recognized in the La Quinta acquisition is not expected to be deductible for income tax purposes.

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La Quinta’s incremental contributions to net revenues and operating income for the three months ended December 31, 2018 were $198 million and $29 million, respectively. Pro forma net revenues and operating income would have been $2,221 million and $294 million, respectively, during the year ended December 31, 2018, if La Quinta’s historical results had been included in the Company’s Consolidated and Combined Statements of Income since January 1, 2018. For 2017, pro forma net revenues and net income would have been $2,041 million and $263 million, respectively. This acquisition was assigned to the Company’s Hotel Franchising and Hotel Management segments.

The AmericInn acquisition

During October 2017, the Company completed the acquisition of the AmericInn hotel brand and franchise system for a total purchase price of $140 million, net of cash acquired, which included a simultaneous sale of 10 owned hotels to an unrelated third party for $28 million. AmericInn’s portfolio consisted of 200 franchised hotels predominantly in the Midwestern United States. This acquisition is consistent with the Company’s strategy to expand its brand portfolio and total system size.

The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with Wyndham Hotels’ acquisition of AmericInn:

	Amount
Trade receivables	$	3
Goodwill (a)	44
Franchise agreements (b)	46
Trademarks	51
Total assets acquired	144
Other current liabilities	4
Total liabilities acquired	4
Net assets acquired	$	140

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(a)	Goodwill is expected to be deductible for tax purposes.

(b)	Franchise agreements have a weighted average life of 25 years.

This acquisition was assigned to the Company’s Hotel Franchising segment and was not material to Wyndham Hotels’ results of operations, financial position or cash flows. In connection with the acquisition of AmericInn, Wyndham Hotels incurred $2 million of acquisition-related costs, which are reported within transaction-related costs on the Consolidated and Combined Statements of Income.

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6. INTANGIBLE ASSETS

Intangible assets as of December 31, 2019 and December 31, 2018 consisted of the following:

	December 31, 2019												December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Unamortized intangible assets:
Goodwill	$	1,539											$	1,547
Trademarks (a)	$	1,393											$	1,393
Amortized intangible assets:
Franchise agreements (b)	$	895			$	460			$	435			$	895			$	434			$	461
Management agreements (c)	137				23				114				140				13				127
Trademarks (d)	3				1				2				5				1				4
Other (e)	3				1				2				6				4				2
	$	1,038			$	485			$	553			$	1,046			$	452			$	594

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(a)	Comprised of various trademarks that the Company has acquired. These trademarks are expected to generate future cash flows for an indefinite period of time.

(b)	Amortized over a period ranging from 20 to 40 years with a weighted average life of 32 years.

(c)	Amortized over a period ranging from 7 to 20 with a weighted average life of 14 years.

(d)	Amortized over a period of 20 years.

(e)	Amortized over a period ranging from 1 to 8 years with a weighted average life of 5 years.

The changes in the carrying amount of goodwill are as follows:

	Balance as of January 1, 2018				Goodwill Acquired During 2018				2018 Adjustments to Goodwill (a)				Balance as of December 31, 2018				2019 Adjustments to Goodwill (b)				Balance as of December 31, 2019
Hotel Franchising	$	385			$	1,067			$	(3	)		$	1,449			$	(8	)		$	1,441
Hotel Management	38				60				—				98				—				98
Total	$	423			$	1,127			$	(3	)		$	1,547			$	(8	)		$	1,539

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(a)	Includes $2 million related to the sale of Knights Inn brand in May 2018.

(b)	Includes $8 million related to purchase price adjustments for the La Quinta acquisition in 2018.

Amortization expense relating to amortizable intangible assets was as follows for the years ended December 31:

	2019				2018				2017
Franchise agreements	$	27			$	22			$	16
Management agreements	10				7				3
Trademarks	—				1				1
Other	1				1				—
Total (a)	$	38			$	31			$	20

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(a)	Included as a component of depreciation and amortization on the Consolidated and Combined Statements of Income.

Based on Wyndham Hotels’ amortizable intangible assets as of December 31, 2019, the Company expects related amortization expense as follows:

	Amount
2020	$	37
2021	37
2022	35
2023	35
2024	34

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7. FRANCHISING, MARKETING AND RESERVATION ACTIVITIES

Royalties and franchise fee revenues on the Consolidated and Combined Statements of Income include initial franchise fees of $18 million, $20 million and $14 million in 2019, 2018 and 2017, respectively.

In accordance with its franchise agreements, generally Wyndham Hotels is contractually obligated to expend the marketing and reservation fees it collects from franchisees for the operation of an international, centralized, brand-specific reservation system and for marketing purposes such as advertising, promotional and co-marketing programs, and training for the respective franchisees. Additionally, the Company is required to provide certain services to its franchisees, including technology and purchasing programs.

Development advance notes

The Company may, at its discretion, provide development advance notes to certain franchisees or hotel owners in order to assist them in converting to one of Wyndham Hotels’ brands, in building a new hotel to be flagged under one of Wyndham Hotels’ brands or in assisting in other franchisee expansion efforts. Provided the franchisee/hotel owner is in compliance with the terms of the franchise/management agreement, all or a portion of the development advance notes may be forgiven by Wyndham Hotels over the period of the franchise/management agreement, which typically ranges from 10 to 20 years. Otherwise, the related principal is due and payable to Wyndham Hotels. In certain instances, Wyndham Hotels may earn interest on unpaid franchisee development advance notes.

The Company recorded the following related to development advance notes on the Consolidated and Combined Financial Statements:

Consolidated Balance Sheets:	As of December 31,
	2019				2018
Development advance notes (a)	$	84			$	78

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(a)	Included within other non-current assets.

Consolidated and Combined Statements of Income:	Year Ended December 31,
	2019				2018				2017
Forgiveness of notes (a)	$	8			$	7			$	6
Bad debt expense related to notes	2				1				—
Interest earned on unpaid notes	1				1				—

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(a)	Amounts are recorded as a reduction of royalties and franchise fees and marketing, reservation and loyalty revenues.

8. INCOME TAXES

In December 2017, the United States enacted the Tax Cuts and Jobs Act (‘‘U.S. tax reform’’) and significantly changed U.S. corporate income tax laws by reducing the U.S. corporate income tax rate from 35% to 21% starting in 2018, and imposing a one-time mandatory deemed repatriation tax on undistributed historical earnings of foreign subsidiaries. Other provisions of the law were not effective until January 1, 2018 and include, but are not limited to, creating a territorial tax system which generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, eliminating or limiting the deduction of certain expenses, and imposing a minimum tax on earnings generated by foreign subsidiaries.

As of December 31, 2017, the Company had made a reasonable estimate for (i) the remeasurement of its net deferred income tax and uncertain tax liabilities based on the new reduced U.S. corporate income tax rate and (ii) the one-time deemed repatriation tax on the Company's undistributed historical earnings of foreign subsidiaries. With respect to certain other items, the Company had not yet been able to make a reasonable estimate and continued to account for those items based on its existing accounting under GAAP and the provisions of the tax laws that were in effect prior to enactment of the U.S. tax reform. One such case was the Company’s intent regarding whether to continue to assert indefinite reinvestment on a part or all the undistributed foreign earnings. During the fourth quarter of 2018, the Company completed its accounting for the tax effects of the U.S. tax reform recorded for 2017. The following table presents the impact of the accounting for the enactment of U.S. tax reform on the Company's provision for (benefit from) income taxes:

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		Year Ended December 31,
		2018				2017
Remeasurement of net deferred income tax and uncertain tax liabilities		$	(2	)		$	(87	)
One-time deemed repatriation tax on undistributed historical earnings of foreign subsidiaries		(2		)		2
Total provision for (benefit from) income taxes impact		$	(4	)		$	(85	)

Although the one-time mandatory deemed repatriation tax during 2017 and the territorial tax system created as a result of U.S. tax reform generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries, the Company continues to assert that all of the undistributed foreign earnings of $55 million will be reinvested indefinitely as of December 31, 2019. In the event the Company determines not to continue to assert that all or part of its undistributed foreign earnings are permanently reinvested, such a determination in the future could result in the accrual and payment of additional foreign withholding taxes and U.S. taxes on currency transaction gains and losses, the determination of which is not practicable.

The income tax provision consists of the following:

		Year Ended December 31,
		2019				2018				2017
Current
	Federal	$	40			$	34			$	84
	State	3				13				13
	Foreign	21				14				7
		64				61				104
Deferred
	Federal	(3		)		2				(89		)
	State	(10		)		(2		)		(1		)
	Foreign	(1		)		—				(1		)
		(14		)		—				(91		)
Provision for income taxes		$	50			$	61			$	13

Pretax income for domestic and foreign operations consisted of the following:

	Year Ended December 31,
	2019				2018				2017
Domestic	$	175			$	190			$	234
Foreign	32				33				9
Pretax income	$	207			$	223			$	243

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Deferred taxes

Deferred income tax assets and liabilities are comprised of the following:

		As of December 31,
		2019				2018
Deferred income tax assets:
	Accrued liabilities and deferred revenues	$	97			$	87
	Tax credits (a)	6				12
	Provision for doubtful accounts	17				20
	Net operating loss carryforward (b)	18				14
	Other	20				14
	Valuation allowance (c)	(19		)		(15		)
Deferred income tax assets		139				132
Deferred income tax liabilities:
	Depreciation and amortization	508				517
	Other	15				12
Deferred income tax liabilities		523				529
	Net deferred income tax liabilities	$	384			$	397
Reported in:
Other non-current assets		$	3			$	2
Deferred income taxes		387				399
	Net deferred income tax liabilities	$	384			$	397

_____________________

(a)	As of December 31, 2019, the Company had $6 million of foreign tax credits. The foreign tax credits expire no later than 2029.

(b)	As of December 31, 2019, the Company’s net operating loss carryforwards primarily relate to state net operating losses, which are due to expire at various dates, but no later than 2039.

(c)

The valuation allowance of $19 million at December 31, 2019 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $14 million, $3 million and $2 million, respectively. The valuation allowance of $15 million at December 31, 2018 relates to net operating loss carryforwards, certain deferred tax assets and foreign tax credits of $11 million, $3 million, and $1 million, respectively. The valuation allowance will be reduced when and if the Company determines it is more likely than not that the related deferred income tax assets will be realized.

The Company’s effective income tax rate differs from the U.S. federal statutory rate as follows for the years ended December 31:

	2019			2018			2017
Federal statutory rate	21.0	%		21.0	%		35.0	%
State and local income taxes, net of federal tax benefits	(3.8	)		2.9			3.6
Taxes on foreign operations at rates different than U.S. federal statutory rates	5.0			1.9			0.8
Taxes on foreign income, net of tax credits	(0.5	)		0.3			0.4
Valuation allowances	1.9			1.4			(0.1	)
Impact of U.S. tax reform	—			(1.8	)		(34.9	)
Other	0.6			1.7			0.5
	24.2	%		27.4	%		5.3	%

The effective income tax rate for 2019 and 2018 differs from the U.S. Federal income tax rate of 21% primarily due to U.S. and foreign taxes on the Company’s international operations and state taxes. During 2019, the tax effect was partially offset by one-time state tax benefits resulting from a settlement with state taxing authorities and from a change in the Company's state income tax filing position due to its spin-off from Wyndham Worldwide. The effective income tax rate for 2017 differs from the U.S. Federal income tax rate of 35% primarily due to state taxes and the net tax benefit from the impact of U.S. tax reform.

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The following table summarizes the activity related to the Company’s unrecognized tax benefits as of December 31:

	2019				2018				2017
Beginning Balance	$	13			$	12			$	13
Increases related to tax positions taken during a prior period	2				2				—
Increases related to tax positions taken during the current period	—				1				2
Decreases related to settlements with taxing authorities	(3		)		—				—
Decreases as a result of a lapse of the applicable statute of limitations	(1		)		(2		)		(2		)
Decreases related to tax positions taken during a prior period	—				—				(1		)
Ending Balance	$	11			$	13			$	12

The gross amount of the unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate was $11 million, $13 million and $12 million as of December 31, 2019, 2018 and 2017, respectively. The Company recorded both accrued interest and penalties related to unrecognized tax benefits as a component of provision for income taxes on the Consolidated and Combined Statements of Income. The amount of potential penalties and interest related to these unrecognized tax benefits recorded in the provision for income taxes was a benefit of $1 million during 2019, an expense of $1 million during 2018, and an expense of less than $1 million during 2017. The Company had a liability for potential penalties of $2 million as of December 31, 2019, 2018 and 2017 and potential interest of $2 million as of December 31, 2019 and $3 million as of both December 31, 2018 and 2017. Such liabilities are reported as a component of accrued expenses and other current liabilities and other non-current liabilities on the Consolidated Balance Sheets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

The Company files income tax returns in the U.S. federal and state jurisdictions, as well as in foreign jurisdictions. Prior to our spin-off, the Company was part of a consolidated U.S. federal income tax return and consolidated and combined state returns with its former Parent and other subsidiaries that are not included in its Consolidated and Combined Financial Statements. Income taxes as presented in the Company's Consolidated and Combined Financial Statements prior to our spin-off presented current and deferred income taxes of the consolidated federal tax filing attributed to the Company using the separate return method. The separate return method applies the accounting guidance for income taxes to the financial statements as if the Company was a separate taxpayer. The 2015 through 2019 tax years generally remain subject to examination by federal tax authorities, the years 2015 through pre-spin off 2018 tax years as part of the Company’s former Parent filing. The 2010 through 2019 tax years generally remain subject to examination by many state tax authorities. In significant foreign jurisdictions, the 2012 through the 2019 tax years generally remain subject to examination by their respective tax authorities. The statute of limitations is scheduled to expire within 12 months of the reporting date in certain taxing jurisdictions, and the Company therefore believes that it is reasonably possible that the total amount of its unrecognized tax benefits could decrease by $4 million to $5 million.

The Company made federal and state income tax payments, net of refunds, in the amount of $43 million for the twelve months ended December 31, 2019. These payments exclude $195 million of tax payments related to assumed liabilities in connection with the La Quinta acquisition. During the years 2018 and 2017, the former Parent paid $27 million and $93 million, respectively, of federal and state income tax liabilities related to the Company, which is reflected in its Consolidated and Combined Financial Statements as an increase in former Parent’s net investment. Following the Company’s spin-off in 2018, the Company made federal and state income tax payments, net of refunds, in the amount of $39 million. Additionally, the Company made foreign income tax payments, net of refunds, in the amount of $16 million in 2019 and $12 million in 2018 and 2017.

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9. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:

	As of December 31,
	2019				2018
Land	$	19			$	17
Buildings and leasehold improvements	214				212
Capitalized software	311				292
Furniture, fixtures and equipment	92				86
Finance leases	72				72
Construction in progress	21				22
	729				701
Less: Accumulated depreciation	422				375
	$	307			$	326

Wyndham Hotels recorded depreciation expense of $71 million, $68 million, and $55 million during 2019, 2018 and 2017, respectively, related to property and equipment.

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of:

	As of December 31,
	2019				2018
Accrued payroll and related expenses	$	83			$	109
Accrued loyalty program liabilities	56				54
Accrued self-insurance liabilities	29				15
Accrued taxes payable	17				15
Accrued professional expenses	12				7
Due to former Parent	10				11
Performance guarantee liability (Note 13)	10				9
Accrued restructuring (Note 16)	8				—
Accrued legal settlements (Note 13)	7				25
Accrued interest	6				6
Accrued separation expenses	5				19
Accrued marketing expenses	5				8
Operating lease liabilities (Note 18)	5				—
La Quinta tax liability (Note 5)	—				205
Other	26				19
	$	279			$	502

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11. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

The Company’s indebtedness consisted of:

	As of December 31,
	2019						2018
Long-term debt: (a)	Amount			Weighted Average Rate (b)			Amount			Weighted Average Rate (b)
$750 million revolving credit facility (due May 2023)	$	—					$	—
Term loan (due May 2025)	1,568			4.00	%		1,582			4.25	%
Senior unsecured notes (due April 2026)	494			5.38	%		494			5.38	%
Finance leases	60			4.50	%		65			4.50	%
Total long-term debt	2,122						2,141
Less: Current portion of long-term debt	21						21
Long-term debt	$	2,101					$	2,120

_____________________

(a)	The carrying amount of the term loan and senior unsecured notes are net of deferred debt issuance costs of $18 million and $21 million as of December 31, 2019 and 2018, respectively.

(b)	Weighted average interest rate based on year-end balances, including the effects from hedging.

Maturities and capacity

The Company’s outstanding debt as of December 31, 2019 matures as follows:

	Long-Term Debt
Within 1 year	$	21
Between 1 and 2 years	21
Between 2 and 3 years	21
Between 3 and 4 years	21
Between 4 and 5 years	22
Thereafter	2,016
Total	$	2,122

As of December 31, 2019, the available capacity under the Company’s revolving credit facility was as follows:

	Revolving Credit Facility
Total capacity	$	750
Less: Letters of credit	15
Available capacity	$	735

Long-term debt

$750 million Revolving Credit Facility. During May 2018, the Company entered into an agreement for a $750 million revolving credit facility expiring in May 2023. This facility is subject to an interest rate per annum equal to, at Wyndham Hotels’ option, either a base rate plus a margin ranging from 0.50% to 1.00% or LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. In addition, Wyndham Hotels will pay a commitment fee on the unused portion of the revolving credit facility of 0.20% per annum.

$1.6 billion Term Loan Agreement. During May 2018, the Company entered a credit agreement for a $1.6 billion term loan (the “Term Loan”) expiring in May 2025. The interest rate per annum applicable to the Term Loan is equal to, at the Company’s option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. The LIBOR rate with respect to the Term Loan is subject to a “floor” of 0.00%. The Term Loan began amortizing in equal quarterly installments beginning in the fourth quarter of 2018 in aggregate annual amounts equal to 1.00% of the original principal amount thereof. The Term Loan is subject to standard mandatory prepayment provisions including (i) 100% of the net cash proceeds from issuances or

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incurrence of debt by Wyndham Hotels or any of its restricted subsidiaries (other than with respect to certain permitted indebtedness); (ii) 100% (with step-downs to 50% and 0% based upon achievement of specified first-lien leverage ratios) of the net cash proceeds from certain sales or other dispositions of assets by Wyndham Hotels or any of its restricted subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; and (iii) 50% (with step-downs to 25% and 0% based upon achievement of specified first-lien leverage ratios) of annual (commencing with the 2019 fiscal year) excess cash flow of Wyndham Hotels and its restricted subsidiaries, subject to customary exceptions and limitations.

The revolving credit facility and term loan (the “Credit Facilities”) are guaranteed, jointly and severally, by certain of Wyndham Hotels’ wholly-owned domestic subsidiaries and secured by a first-priority security interest in substantially all of the assets of Wyndham Hotels and those subsidiaries. The Credit Facilities were initially guaranteed by Wyndham Worldwide, which guarantee was released immediately prior to the consummation of the spin-off. The Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, Wyndham Hotels, Inc. and its restricted subsidiaries’ ability to grant liens on Wyndham Hotels and its restricted subsidiaries’ assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and pay certain dividends and other restricted payments. The Credit Facilities require Wyndham Hotels to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum first-lien leverage ratio.

Subject to customary conditions and restrictions, Wyndham Hotels may obtain incremental term loans and/or revolving loans in an aggregate amount not to exceed (i) the greater of $550 million and 100% of EBITDA, plus (ii) the amount of all voluntary prepayments and commitment reductions under the Credit Facilities, plus (iii) additional amounts subject to certain leverage-based ratio tests.

The Credit Facilities also contain certain customary events of default, including, but not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Facilities when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Facilities subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests.

5.375% Senior Unsecured Notes. In April 2018, the Company issued $500 million of senior unsecured notes, which mature in 2026 and bear interest at a rate of 5.375% per year, for net proceeds of $493 million. Interest is payable semi-annually in arrears on October 15 and April 15 of each year, commencing on October 15, 2018. The Company used the net cash proceeds from the notes to reduce debt due to former Parent.

Finance Lease. In connection with the Company’s separation from Wyndham Worldwide, Wyndham Hotels was assigned the lease for its corporate headquarters located in Parsippany, New Jersey from its former Parent, which resulted in the Company recording a finance lease obligation and asset of $66 million and $43 million, respectively.

Deferred debt issuance costs

The Company classifies deferred debt issuance costs related to its revolving credit facility within other non-current assets on the Consolidated Balance Sheets. Such deferred debt issuance costs were $4 million and $5 million as of December 31, 2019 and 2018, respectively.

Cash flow hedge

In 2018, the Company hedged a portion of its $1.6 billion term loan. As of December 31, 2019, the pay-fixed/receive-variable interest rate swaps hedge $1.1 billion of the Company’s term loan interest rate exposure, of which $600 million expires in June 2024 and has a weighted average fixed rate of 2.54% and $500 million expires in December 2021 and has a weighted average fixed rate of 2.40%. The variable rates of the swap agreements are based on one-month LIBOR. The aggregate fair value of these interest rate swaps was a $34 million and $5 million liability as of December 31, 2019 and 2018, respectively, which was included within other non-current liabilities on the Consolidated Balance Sheets. The effect of interest rate swaps on interest expense, net on the Consolidated and Combined Statements of Income were $3 million and $2 million of expense during 2019 and 2018, respectively. There was no hedging ineffectiveness recognized in 2019 or 2018. The Company expects to reclassify approximately $10 million from AOCI to interest expense during the next 12 months.

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Interest expense, net

Wyndham Hotels incurred interest expense of $104 million, $67 million and $7 million in 2019, 2018 and 2017, respectively. Cash paid related to such interest was $100 million and $56 million for 2019 and 2018, respectively. Interest income was $4 million, $7 million and $1 million for 2019, 2018 and 2017, respectively.

12. FAIR VALUE

Wyndham Hotels 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. Wyndham Hotels’ 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.

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, 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:

	December 31, 2019
	Carrying Amount				Estimated Fair Value
Debt
Total debt	$	2,122			$	2,179

The Company estimates the fair value of its debt using Level 2 inputs based on indicative bids from investment banks or quoted market prices with the exception of finance leases, which are estimated at carrying value.

Financial instruments

Changes in interest rates and foreign exchange rates expose Wyndham Hotels to market risk. The Company uses cash flow hedges as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. As a matter of policy, the Company only enters into transactions that it believes will be highly effective at offsetting the underlying risk, and it does not use derivatives for trading or speculative purposes. The Company estimates the fair value of its derivatives using Level 2 inputs.

Interest rate risk

A portion of 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 interest rate swaps. The derivatives used to manage the risk associated with the Company’s floating rate debt are derivatives designated as cash flow hedges.

Foreign currency risk

The Company has currency rate exposure to exchange rate fluctuations worldwide particularly with respect to the Canadian Dollar, the Chinese Yuan, the Euro, the British Pound and the Argentine Peso. The Company uses foreign currency

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forward contracts at various times to manage and reduce the currency exchange rate risk associated with its foreign currency denominated receivables and payables, forecasted royalties and forecasted earnings and cash flows of foreign subsidiaries and other transactions. Losses recognized in income from freestanding foreign currency exchange contracts were $1 million for 2019 and $2 million for 2018 and 2017.

As required, the Company began accounting for Argentina as a highly inflationary economy as of July 1, 2018. The Company incurred foreign currency exchange losses related to Argentina of $5 million and $3 million during 2019 and 2018, respectively. Such losses are included in operating expenses in the Consolidated and Combined Statements of Income.

Credit risk and exposure

The Company is exposed to counterparty credit risk in the event of nonperformance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and often by requiring collateral in instances in which financing is provided. The Company mitigates counterparty credit risk associated with its derivative contracts by monitoring the amounts at risk with each counterparty to such contracts, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing its risk among multiple counterparties.

Market risk

The Company is subject to risks relating to the geographic concentration of its hotel properties, which may result in the Company's results of operations being more sensitive to local and regional economic conditions and other factors, including competition, natural disasters and economic downturns, than the Company's results of operations would be, absent such geographic concentrations. Local and regional economic conditions and other factors may differ materially from prevailing conditions in other parts of the world. Excluding cost reimbursement revenues, which are offset by cost reimbursement expense, revenues from transactions in the states of Texas and Florida as a percent of U.S. revenues were approximately 10% and 20%, respectively, during 2019 and 10% and 18%, respectively, during 2018. Revenues in the state of Florida include license and other fees from the Company's former Parent. Excluding these revenues, revenues in the state of Florida as a percent of U.S. revenues were 10% during 2019 and 2018.

13. COMMITMENTS AND CONTINGENCIES

Litigation

Wyndham Hotels is involved, at times, in claims, legal and regulatory proceedings and governmental inquiries arising in the ordinary course of its business, including but not limited to: breach of contract, fraud and bad faith claims with franchisees in connection with franchise agreements and with owners in connection with management contracts, as well as 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. The Company may also at times be involved in claims, legal and regulatory proceedings and governmental inquiries relating to bankruptcy proceedings involving efforts to collect receivables from a debtor in bankruptcy, employment matters, claims of infringement upon third parties’ intellectual property rights, claims relating to information security, privacy and consumer protection, fiduciary duty/trust claims, tax claims, environmental claims and landlord/tenant disputes. Along with many of its competitors, the Company and/or certain of its subsidiaries have been named as defendants in litigation matters filed in state and federal courts, alleging statutory and common law claims related to purported incidents of sex trafficking at certain franchised and managed hotel facilities. These matters are in the pleading or discovery stages at this time. As of December 31, 2019, the Company is aware of approximately 30 cases filed naming the Company and/or subsidiaries. Based upon the status of these matters, the Company has not made a determination as to the likelihood of loss of any one of these matters and is unable to estimate a range of losses at this time.

The Company assumed one-third of certain contingent and other corporate liabilities of Wyndham Worldwide incurred prior to the spin-off, including liabilities of Wyndham Worldwide related to, arising out of or resulting from certain terminated or divested businesses, certain general corporate matters of Wyndham Worldwide and any actions with respect to the separation plan or the distribution made or brought by any third party.

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Wyndham Hotels 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, Wyndham Hotels evaluates, among other things, the degree of probability of an unfavorable outcome, and when it is probable that a liability has been incurred, its ability to make a reasonable estimate of loss. Wyndham Hotels 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.

Wyndham Hotels believes that it has adequately accrued for such matters with reserves of $7 million and $25 million as of December 31, 2019 and December 31, 2018. The Company also had receivables of $2 million and $21 million as of December 31, 2019 and 2018, respectively, for certain matters which are covered by insurance and were included in other current assets on its Consolidated Balance Sheets. Litigation is inherently unpredictable and, although Wyndham Hotels 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 Wyndham Hotels with respect to earnings and/or cash flows in any given reporting period. As of December 31, 2019, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $10 million in excess of recorded accruals. However, Wyndham Hotels does not believe that the impact of such litigation will result in a material liability to Wyndham Hotels in relation to its combined financial position or liquidity.

Guarantees

Hotel-management guarantees

The Company had previously entered into hotel-management agreements that provide the hotel owner with a guarantee of a certain level of profitability based upon various metrics. Under such agreements, the Company was required to compensate the 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.

During 2019, the Company determined it would exit two unprofitable hotel-management agreements initiated in 2012 and 2013. One such agreement covered eight hotel properties. The Company paid $35 million in the fourth quarter of 2019 to terminate this agreement effective January 1, 2020. Upon the effective date of this agreement, the Company will no longer be required to fund any operating shortfalls under the guarantee agreement. In connection with such hotel-management agreement, the Company had a $10 million liability as of December 31, 2019, which was included in accrued expenses and other current liabilities on the Consolidated Balance Sheet that is expected to be paid in the first quarter of 2020.

The other agreement was initiated in 2013 and covered 22 hotel properties. In conjunction with this management agreement, which was subject to recapture provisions, the Company’s guarantee obligations have been exhausted, and in the third quarter of 2019, the Company elected not to support further out-of-pocket payments by its subsidiary to the hotels’ owner. The Company expected that this will result in the hotel-management agreement, including the Company’s ability to recapture out-of-pocket payments it had made to the hotels’ owner, being terminated. As a result of the decision to no longer support out-of-pocket payments and other factors during the third quarter of 2019, $48 million of receivables became fully impaired and were written off. The Company also wrote off a $10 million guarantee asset and derecognized a $13 million guarantee liability related to such management agreement. As such, the Company recorded a total net non-cash charge of $45 million which is reported within impairment, net on the Consolidated Statement of Income. The Company entered into an agreement effective October 31, 2019, which terminated the operating performance guarantees.

As of December 31, 2019, the Company only had one remaining performance guarantee. The maximum potential amount of future payments that may be made under this guarantee was $20 million with an annual cap of $5 million. This guarantee has a remaining life of approximately four years and is subject to recapture provisions in the event that future operating results exceed targets. To reflect these recapture provisions, the Company had a receivable of $5 million as of December 31, 2019, of which $1 million was included in other current assets and $4 million was included in other non-current assets on its Consolidated Balance Sheet. Such receivable was the result of payments made to date that were subject to recapture and which the Company believes will be recoverable from future operating performance.

As of December 31, 2018, in connection with all three of the then-existing performance guarantees, the Company maintained a liability of $24 million, of which $15 million was included in other non-current liabilities and $9 million was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. As of December 31, 2018, the Company also had a corresponding $11 million asset related to the guarantees, of which $1 million was included in other current assets and $10 million was included in other non-current assets on its Consolidated Balance Sheet. Such assets were

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amortized on a straight-line basis over the life of the agreements. The amortization expense for the performance guarantees noted above was less than $1 million, $1 million and $2 million for 2019, 2018 and 2017, respectively.

Additionally, as of December 31, 2018, the Company had receivables of $46 million, of which $45 million were included in other non-current assets and $1 million was included in other current assets on its Consolidated Balance Sheet, for guarantees subject to recapture provisions. The Company also had receivables of $21 million for deferred hotel management fees which were included within other non-current assets on the Consolidated Balance Sheets and were fully offset by $21 million of deferred hotel management fees which were included within deferred revenues on the Consolidated Balance Sheets. These amounts were fully written off in 2019.

Credit support provided and other indemnifications relating to Wyndham Worldwide’s sale of its European Vacation Rentals business

In May 2018, Wyndham Worldwide completed the sale of its European Vacation Rentals business to Compass IV Limited, an affiliate of Platinum Equity, LLC (“Buyer”). In connection with the sale of the European Vacation Rentals business, the Company provided certain post-closing credit support in the form of guarantees to help ensure that the business meets the requirements of certain credit card service providers, travel association and regulatory authorities. Such post-closing credit support may be enforced or called upon if the European vacation rentals business fails to meet its primary obligation to pay certain amounts when due. The European vacation rentals business has provided an indemnity to Wyndham Destinations in the event that the post-closing credit support is enforced or called upon.

Pursuant to the terms of the Separation and Distribution Agreement that was entered into in connection with the Company’s spin-off, the Company will assume one-third and Wyndham Destinations will assume two-thirds of losses that may be incurred by Wyndham Destinations or the Company in the event that these credit support arrangements are enforced or called upon by any beneficiary in respect of any indemnification claims made.

The table below summaries the post-closing credit support guarantees related to the sale of the European Vacation Rentals business, the fair values of such guarantees and the receivables from its former Parent representing two-thirds of such guarantees at December 31, 2019:

	Guarantees				Fair Value of Guarantees				Receivable from former Parent
Post-closing credit support at time of sale	$	81			$	39			$	26
Additional post-closing credit support	46				22				15
Total	$	127			$	61			$	41

The fair value of the guarantees were $61 million and $62 million as of December 31, 2019 and 2018, respectively, and were included in other non-current liabilities on the Consolidated Balance Sheets. In connection with these guarantees the Company had receivables from its former Parent of $41 million as of December 31, 2019 and 2018, which were included in other non-current assets on its Consolidated Balance Sheets.

14. STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan available to grant non-qualified stock options, incentive stock options, stock-settled appreciation rights (“SSARs”), RSUs, performance-vesting restricted stock units (“PSUs”) and other stock-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Hotels & Resorts, Inc. 2018 Equity and Incentive Plan (“Stock Plan”), which became effective on May 14, 2018, a maximum of 10.0 million shares of common stock may be awarded. As of December 31, 2019, 6.8 million shares remained available.

Incentive equity awards granted by the Company

During 2019, Wyndham Hotels’ Board approved incentive equity award grants to employees of Wyndham Hotels in the form of RSUs, stock options and PSUs.

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The activity related to the Company’s incentive equity awards for the year ended December 31, 2019 consisted of the following:

	RSUs							PSUs
	Number of RSUs			Weighted Average Grant Price				Number of PSUs			Weighted Average Grant Price
Balance as of December 31, 2018	0.5			$	61.31			—			$	—
Granted (a)	0.6			52.19				0.1			52.44
Vested	(0.1	)		61.24				—			—
Canceled	(0.2	)		57.37				—			—
Balance as of December 31, 2019	0.8		(b)	$	55.75			0.1		(c)	$	52.44

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(a)	Represents awards granted by the Company primarily in February 2019.

(b)	RSUs outstanding as of December 31, 2019 are expected to vest over time and have an aggregate unrecognized compensation expense of $34 million, which is expected to be recognized over a weighted average period of 2.9 years.

(c)	PSUs outstanding as of December 31, 2019 are expected to vest over time and have an aggregate unrecognized compensation expense of $2 million, which is expected to be recognized over a weighted average period of 2.3 years.

The activity related to stock options granted by the Company for the year ended December 31, 2019 consisted of the following:

	Number of Options			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2018	0.5			$	61.40
Granted	0.5			52.44
Exercised	—			—
Canceled	(0.1	)		57.93
Expired	—			—
Outstanding as of December 31, 2019	0.9			$	56.96			6.8		$	5
Unvested as of December 31, 2019	0.8		(a)	$	56.22			7.0		$	5
Exercisable as of December 31, 2019	0.1			$	61.40			5.2		$	—

_____________________

(a)	Unvested options as of December 31, 2019 are expected to vest over time and have an aggregate unrecognized compensation expense of $6 million, which is expected to be recognized over a weighted average period of 2.8 years.

The fair value of stock options granted by Wyndham Hotels during 2019 and 2018 were estimated on the date of the grant using the Black-Scholes option-pricing model with the relevant assumptions outlined in the table below. Expected volatility is based on both historical and implied volatilities of the stock of comparable companies over the estimated expected life of the options. The expected life represents the period of time the options are expected to be outstanding. 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 options. 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.

	2019		2018
Grant date fair value	$10.46		$11.72
Grant date strike price	$52.44		$61.40
Expected volatility	22.24%		22.72%
Expected life	6.25 years		4.25 years
Risk-free interest rate	2.63%		2.73%
Projected dividend yield	2.21%		1.63%

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Incentive equity award modification

In August 2017, in conjunction with the anticipated spin-off of Wyndham Hotels, the Wyndham Worldwide Board approved certain modifications to the incentive equity awards granted by Wyndham Worldwide. Such modifications were contingent upon the spin-off becoming probable. On May 9, 2018, Wyndham Worldwide’s Board approved the spin-off of Wyndham Hotels, resulting in an accelerated vesting of 0.4 million RSUs and 0.1 million PSUs for all outstanding equity awards granted prior to 2018.

Stock-based compensation expense

Stock-based compensation expense was $20 million, $45 million and $11 million for 2019, 2018 and 2017, respectively. For 2019 and 2018, $4 million and $36 million, respectively, was recorded within separation-related costs on the Consolidated and Combined Statements of Income. In 2018, separation-related costs included $15 million of expense as a result of the modification of the Stock Plan. Further, in 2019, $1 million was recorded within restructuring expense on the Consolidated and Combined Statements of Income.

15. SEGMENT INFORMATION

The reportable segments presented below represent Wyndham Hotels’ operating segments for which separate financial information is available and is utilized on a regular basis by its chief operating decision maker to assess performance and allocate resources. In identifying its reportable segments, Wyndham Hotels 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 “adjusted EBITDA”, which is defined as net income excluding interest expense, depreciation and amortization, impairment charges, restructuring and related charges, contract termination costs, transaction-related items (acquisition-, disposition- or separation-related), foreign currency impacts of highly inflationary countries, stock-based compensation expense and income taxes. Wyndham Hotels believes that adjusted EBITDA is a useful measure of performance for its segments which, when considered with U.S. GAAP measures, allows a more complete understanding of its operating performance. Wyndham Hotels uses these measures internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Wyndham Hotels’ presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

	Hotel Franchising				Hotel Management				Corporate and Other (a)				Total
Year Ended or as of December 31, 2019
Net revenues	$	1,279			$	768			$	6			$	2,053
Adjusted EBITDA	622				66				(75		)		613
Depreciation and amortization	72				26				11				109
Segment assets	3,817				500				216				4,533
Capital expenditures	35				8				7				50
Year Ended or as of December 31, 2018
Net revenues	$	1,135			$	726			$	7			$	1,868
Adjusted EBITDA	515				47				(55		)		507
Depreciation and amortization	72				21				6				99
Segment assets	3,829				580				567				4,976
Capital expenditures	43				27				3				73
Year Ended or as of December 31, 2017
Net revenues	$	897			$	383			$	—			$	1,280
Adjusted EBITDA	402				21				(40		)		383
Depreciation and amortization	59				16				—				75
Segment assets	1,727				400				10				2,137
Capital expenditures	35				11				—				46

_____________________

(a)	Includes the elimination of transactions between segments.

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Provided below is a reconciliation of net income to adjusted EBITDA.

	Year Ended December 31,
	2019				2018				2017
Net income	$	157			$	162			$	230
Provision for income taxes	50				61				13
Depreciation and amortization	109				99				75
Interest expense, net	100				60				6
Stock-based compensation expense	15				9				11
Impairment, net	45				—				41
Contract termination costs	42				—				—
Transaction-related expenses, net	40				36				3
Separation-related expenses	22				77				3
Transaction-related item	20				—				—
Restructuring costs	8				—				1
Foreign currency impact of highly inflationary countries	5				3				—
Adjusted EBITDA	$	613			$	507			$	383

The geographic segment information provided below is classified based on the geographic location of Wyndham Hotels’ subsidiaries.

	United States				All Other Countries (a)				Total
Year Ended or As of December 31, 2019
Net revenues	$	1,805			$	248			$	2,053
Net long-lived assets	3,619				173				3,792
Year Ended or As of December 31, 2018
Net revenues	$	1,641			$	227			$	1,868
Net long-lived assets	3,681				179				3,860
Year Ended or As of December 31, 2017
Net revenues	$	1,066			$	214			$	1,280
Net long-lived assets	1,431				185				1,616

_____________________

(a)	Includes U.S. territories.

16. OTHER EXPENSES AND CHARGES

CorePoint agreement

In October 2019, the Company entered into an agreement with CorePoint, a franchisee with which the Company also has hotel-management agreements, to resolve open issues between the two companies. As part of the agreement, the Company recorded a $20 million fee credit for past services in 2019, representing payments Wyndham is required to make to CorePoint pursuant to the agreement. Such charge is reflected as a reduction to hotel management revenues on the Consolidated and Combined Statements of Income. In addition, the two companies also agreed to finalize outstanding tax matters related to Wyndham’s acquisition of La Quinta. As a result, Wyndham also recorded a $7 million charge in 2019 related to the resolution of the tax matters, which is reflected in transaction-related costs on the Consolidated and Combined Statements of Income. The Company paid $18 million to CorePoint in 2019 related to such charges; the remaining amounts are expected to be paid primarily in 2020.

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Impairment, net

During 2019, the Company incurred a non-cash net impairment charge of $45 million associated with the termination of a hotel-management arrangement which contained operating performance guarantees and covered 22 hotel properties. The charge is comprised of a $48 million write-off of receivables, a $10 million write-off of a guarantee asset and the derecognition of a $13 million guarantee liability. See Note 13 - Commitments and Contingencies for further details.

During 2017, Wyndham Hotels recorded $41 million of non-cash impairment charges, of which $25 million was for a write-down of a guarantee asset and a development advance note receivable related to a hotel management agreement, and $16 million was primarily related to a partial write-down of management agreement assets. Such amount was recorded within impairment expense on the Consolidated and Combined Statements of Income.

Contract termination

During 2019, the Company incurred contract termination charges of $42 million. The Company entered into an agreement to terminate a hotel-management agreement which contained operating performance guarantees and covered eight hotel properties. In conjunction with this termination, the Company incurred a contract termination charge of $34 million. In addition, the Company incurred a contract termination charge of $8 million in connection with an indemnification obligation associated with the termination of a hotel-management agreement and an associated lease. As of December 31, 2019, the Company had an $8 million liability related to such charge which was included in accrued expenses and other current liabilities on its Consolidated Balance Sheet. See Note 13 - Commitments and Contingencies for further details.

Separation-related

The Company incurred separation-related costs associated with its spin-off from Wyndham Worldwide of $22 million and $77 million for the years ended December 31, 2019 and 2018, respectively. These costs primarily consist of severance, stock-based compensation and other employee-related costs.

Transaction-related, net

The Company incurred $40 million of transaction-related expenses during the year ended December 31, 2019, which were primarily related to integration activities for the acquisition of La Quinta and includes $7 million associated with the resolution of certain tax matters discussed above.

During 2018, the Company incurred $36 million of transaction-related expenses consisting of $59 million primarily related to the Company’s acquisition of La Quinta partially offset by a $23 million gain on the sale of its Knights Inn brand in May 2018. This sale was not material to the Company’s results of operations or financial position.

Restructuring

During 2019, Wyndham Hotels recorded $8 million of charges related to restructuring initiatives, primarily focused on enhancing its organizational efficiency and rationalizing its operations. These initiatives resulted in a reduction of 58 employees and are comprised of employee separation costs. The charges are recorded primarily to the Corporate and Other segment. During 2019, Wyndham Hotels made no material cash payments related to this initiative. The remaining liability of $8 million as of December 31, 2019 is expected to be paid by the end of 2020.

During 2017, Wyndham Hotels recorded $1 million of charges related to restructuring initiatives, primarily focused on realigning its brand operations. These initiatives resulted in a reduction of 12 employees. During 2017, Wyndham Hotels made $1 million of cash payments related to this initiative.

Other charges

During 2017, Wyndham Hotels recorded a $20 million write-down of property and equipment related to damage sustained from Hurricane Maria at its owned Rio Mar hotel in Puerto Rico. The property damage was fully recoverable through insurance coverage, the proceeds of which were received in 2017 and 2018.

17. TRANSACTIONS WITH FORMER PARENT

Wyndham Hotels has a number of arrangements with its former Parent for services provided between both parties as described below.

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License agreement and other agreements with former Parent

In connection with the Company’s spin-off, Wyndham Hotels and Wyndham Worldwide entered into long-term exclusive license agreements to retain Wyndham Destinations’ affiliations with one of the hospitality industry’s top-rated loyalty programs, Wyndham Rewards, as well as to continue to collaborate on inventory-sharing and customer cross-sell initiatives.

Wyndham Hotels also entered into several agreements with Wyndham Destinations that govern the relationship of the parties following the spin-off, including a separation and distribution agreement, an employee matters agreement, a tax matters agreement and a transition services agreement. In connection with these agreements, the Company recorded $6 million and $7 million of revenues during 2019 and 2018, respectively, which are reported within other revenues on the Consolidated and Combined Statements of Income.

In addition, Wyndham Hotels recorded revenues from Wyndham Destinations in the amount of $113 million, $84 million and $59 million for a license, development and non-competition agreement and $18 million, $21 million and $16 million for activities associated with the Wyndham Rewards program during 2019, 2018 and 2017, respectively. Such fees are recorded within license and other revenues from former Parent on the Consolidated and Combined Statements of Income. Wyndham Hotels also incurred $8 million of expense during 2019 as a result of an indemnification obligation to Wyndham Destinations related to the termination of a hotel-management agreement and an associated lease. Such expense is recorded within contract termination expenses on the Consolidated and Combined Statement of Income.

These agreements have either not existed historically, or may be on different terms than the terms of the arrangement or agreements that existed prior to the spin-off. The Consolidated and Combined Financial Statements do not reflect the effect of these new and/or revised agreements for periods prior to the spin-off.

Transfer of former Parent liabilities and issuances of guarantees to former Parent and affiliates

Upon the distribution of the Company’s common stock to Wyndham Worldwide shareholders, the Company entered into certain guarantee commitments with its former Parent. These guarantee arrangements relate to certain former Parent contingent tax and other corporate liabilities. The Company assumed and is responsible for one-third of such contingent liabilities while its former Parent is responsible for the remaining two-thirds. The amount of liabilities assumed by the Company in connection with the spin-off was $22 million and $24 million as of December 31, 2019 and 2018, respectively, which were included within other non-current liabilities. The Company also had a $2 million and $11 million liability due to its former Parent which was included within current liabilities on its Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively. In addition, the Company had $4 million and $44 million of tax-related receivables due from former Parent as of December 31, 2019 and 2018, respectively, which were included within current assets on its Consolidated Balance Sheets. During 2019, the Company received $28 million from its former Parent related to net tax refunds, which was included within capital contribution from former Parent on its Consolidated and Combined Statement of Cash Flows.

Wyndham Worldwide’s sale of its European Vacation Rentals business

In connection with the sale of the European Vacation Rentals business, the Company was entitled to one-third of the excess of net proceeds from the sale above a pre-set amount. Accordingly, the Company had a net receivable of $40 million as of December 31, 2018, which it received from its former Parent during 2019. Such amount was included within capital contribution from former Parent on the Company’s Consolidated and Combined Statement of Cash Flows.

During 2019, the Buyer notified Wyndham Destinations of certain proposed post-closing adjustments of approximately $44 million which could serve to reduce the net consideration received from the sale of the European Vacation Rentals business. While Wyndham Destinations intends to vigorously dispute these proposed adjustments, at this time the Company cannot reasonably estimate the probability or amount of the potential liability owed to the Buyer, if any. Any actual liability would be split one-third and two-thirds between the Company and Wyndham Destinations, respectively. As such, the Company’s exposure to this post-closing adjustment could be up to $15 million.

Cash management

Former Parent used a centralized cash management process. Prior to Company's spin-off, the majority of Wyndham Hotels’ daily cash receipts were transferred to former Parent and former Parent funded Wyndham Hotels’ operating and investing activities as needed. Accordingly, the cash and cash equivalents held by former Parent were not allocated to Wyndham Hotels prior to the spin-off. During such periods, Wyndham Hotels reflected transfers of cash between the Company and former Parent as a component of Due to former Parent, net on its Consolidated Balance Sheets.

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Net transfer to and net contribution from former Parent

The components of net transfers to and net contribution from former Parent in the Consolidated and Combined Statements of former Parent’s Net Investment were as follows:

	Year Ended December 31,
	2018				2017
Cash pooling and general financing activities	$	(110	)		$	(227	)
Indirect general corporate overhead allocations	12				35
Corporate allocations for shared services	13				29
Stock-based compensation allocations	20				11
Income taxes	27				93
Net transfers to former Parent	(38		)		(59		)
Contribution of subsidiary borrowings due to former Parent	197				—
Capital contribution from former Parent	106				—
Dividend to former Parent	(109		)		—
Other contributions from former Parent, net	66				—
Net contributions from former Parent	260				$	—
Net transfers to and net contribution from former Parent	$	222			$	(59	)

Services provided by former Parent

Prior to the Company's spin-off, Wyndham Hotels’ Consolidated and Combined Financial Statements included costs for services that its former Parent provided to the Company, including, but not limited to, information technology support, financial services, human resources and other shared services. Historically, these costs were charged to Wyndham Hotels on a basis determined by its former Parent to reflect a reasonable allocation of actual costs incurred to perform the services. During 2018 and 2017, Wyndham Hotels was charged $13 million and $29 million, respectively, for such services, which were included in operating and general and administrative expenses in Wyndham Hotels’ Consolidated and Combined Statements of Income.

Additionally, former Parent allocated indirect general corporate overhead costs to Wyndham Hotels for certain functions and services provided, including, but not limited to, executive facilities, shared service technology platforms, finance and other administrative support. Accordingly, the Company recorded $12 million and $35 million of expenses for indirect general corporate overhead from former Parent during 2018 and 2017, respectively, which are included in general and administrative expenses within its Consolidated and Combined Statements of Income.

These allocations may not, however, reflect the expense Wyndham Hotels would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may have been incurred had Wyndham Hotels been a stand-alone company would depend on a number of factors, including the chosen organizational structure, the functions Wyndham Hotels might have performed itself or outsourced and strategic decisions Wyndham Hotels might have made in areas such as information technology and infrastructure. Following the Company's spin-off, Wyndham Hotels performed these functions using its own resources or purchased services from either former Parent or third parties.

Insurance

Prior to the Company's spin-off, former Parent provided the Company with insurance coverage for general liability, property, business interruption and other risks with respect to business operations and charged the Company a fee based on estimates of claims. Wyndham Hotels was charged $1 million and $3 million for insurance during 2018 and 2017, respectively, which was included in the Consolidated and Combined Statements of Income.

Defined contribution benefit plans

Prior to the Company's spin-off, former Parent administered and maintained defined contribution savings plans and a deferred compensation plan that provided eligible employees of Wyndham Hotels an opportunity to accumulate funds for retirement. Former Parent matched the contributions of participating employees on the basis specified by each plan. Wyndham Hotels’ cost for these plans was $2 million and $6 million during 2018 and 2017, respectively.

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Subsequent to the Company's spin-off, Wyndham Hotels administers and maintains its own defined contribution savings plans and deferred compensation plan. The Company’s cost for these plans was $10 million and $4 million during 2019 and 2018, respectively.

18. LEASES

The Company adopted the new accounting guidance for leases using the modified retrospective approach as of January 1, 2019. Prior-year financial statements were not recast under the new standard, and therefore those amounts are not presented in the tables below. The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carry forward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs. The adoption of the new accounting guidance for leases resulted in the recognition of a $12 million operating right-of-use asset and a corresponding operating lease liability. Under the prior accounting standard for leases, the Company already had $41 million of assets and $59 million of liabilities related to finances leases reflected on the Company’s Consolidated Balance Sheet as of December 31, 2018.

The Company leases property and equipment under finance and operating leases. For leases with terms greater than one year, the Company records the related asset and obligation at the present value of lease payments over the term. The Company does not separate lease and nonlease components of equipment leases.

The table below presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheet.

		Classification on the Balance Sheet		December 31, 2019
Assets
Operating lease assets		Other non-current assets		$	29
Finance lease assets		Property and equipment, net		37
Total lease assets				$	66
Liabilities
Current
Operating lease liabilities		Accrued expenses and other current liabilities		$	5
Finance lease liabilities		Current portion of long-term debt		5
Non-current
Operating lease liabilities		Other non-current liabilities		24
Finance lease liabilities		Long-term debt		55
Total lease liabilities				$	89

During 2019, the Company entered into new leases related to its corporate headquarters and call center, which resulted in an increase of $22 million in both operating lease assets and lease liabilities.

The table below presents the remaining lease term and discount rates for finance and operating leases.

				December 31, 2019
Weighted-average remaining lease term
Operating leases				7.9 years
Finance leases				9.7 years
Weighted-average discount rate
Operating leases				4.7	%
Finance leases				4.5	%

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Undiscounted cash flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the Company’s Consolidated Balance Sheet as of December 31, 2019.

	Operating Leases				Finance Leases
2020	$	6			$	7
2021	5				7
2022	4				7
2023	3				7
2024	3				7
Thereafter	14				39
Total minimum lease payments	35				74
Less: amount of lease payments representing interest	6				14
Present value of future minimum lease payments	29				60
Less: current obligations under leases	5				5
Long-term lease obligations	$	24			$	55

Other information

During 2019, the Company made cash payments totaling $9 million related to its operating and finance leases which was included within operating activities, and $5 million of cash payments related to its finance leases which was included within financing activities on the Consolidated Statement of Cash Flows.

During 2019, the Company incurred finance lease expense of $5 million and $3 million for amortization of right-of-use assets and interest expense, respectively, and incurred $6 million of expense related to its operating leases. Under the prior accounting standard for leases, the Company incurred total rent expense of $8 million and $5 million during 2018 and 2017, respectively.

19. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The components of AOCI are as follows:

Net of Tax		Foreign Currency Translation Adjustments				Cash Flow Hedges				Accumulated Other Comprehensive Income/(Loss)
Balance as of December 31, 2016		$	—			$	—			$	—
Period change		5				—				5
Balance as of December 31, 2017		5				—				5
Period change		(9		)		(4		)		(13		)
Balance as of December 31, 2018		(4		)		(4		)		(8		)
Period change		3				(22		)		(19		)
Balance as of December 31, 2019		$	(1	)		$	(26	)		$	(27	)

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Provided below are selected unaudited quarterly financial data for the periods ended:

		2019
		March 31				June 30				September 30				December 31
Net revenues
	Hotel Franchising	$	269			$	331			$	379			$	300
	Hotel Management	197				201				180				190
	Corporate and Other	2				1				1				2
	Total Company	468				533				560				492
Total expenses		418				471				469				389
Operating income		50				62				91				103
Interest expense, net		24				26				25				25
Income before income taxes		26				36				66				78
Provision for income taxes		5				10				21				14
Net income		$	21			$	26			$	45			$	64
Diluted earnings per share		$	0.22			$	0.27			$	0.47			$	0.68
Diluted weighted average shares outstanding		98.2				97.4				96.3				95.0
Reconciliation of net income to adjusted EBITDA
Net income		$	21			$	26			$	45			$	64
	Provision for income taxes	5				10				21				14
	Depreciation and amortization	29				27				26				28
	Interest expense, net	24				26				25				25
	Stock-based compensation expense	3				4				4				4
	Impairment, net	—				45				—				—
	Contract termination costs	—				9				34				(1		)
	Transaction-related expenses, net	7				11				12				10
	Separation-related expenses	21				1				—				—
	Transaction-related item	—				—				20				—
	Restructuring	—				—				—				8
	Foreign currency impact of highly inflationary countries	1				—				3				1
Adjusted EBITDA		$	111			$	159			$	190			$	153
Adjusted EBITDA by segment
	Hotel Franchising	$	113			$	162			$	195			$	151
	Hotel Management	16				16				13				21
	Corporate and Other	(18		)		(19		)		(18		)		(19		)
	Total adjusted EBITDA	$	111			$	159			$	190			$	153

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		2018
		March 31				June 30				September 30				December 31
Net revenues
	Hotel Franchising	$	203			$	289			$	348			$	295
	Hotel Management	99				146				252				229
	Corporate and Other	—				—				4				3
	Total Company	302				435				604				527
Total expenses		246				396				499				445
Operating income		56				39				105				82
Interest expense, net		1				10				24				25
Income before income taxes		55				29				81				57
Provision for income taxes		16				8				23				14
Net income		$	39			$	21			$	58			$	43
Diluted earnings per share		$	0.40			$	0.21			$	0.58			$	0.43
Diluted weighted average shares outstanding		99.8				100.0				100.1				99.2
Reconciliation of net income to adjusted EBITDA
Net income		$	39			$	21			$	58			$	43
	Provision for income taxes	16				8				23				14
	Depreciation and amortization	19				22				30				29
	Interest expense, net	1				10				24				25
	Stock-based compensation expense	3				1				3				2
	Transaction-related expenses, net	2				28				7				(1		)
	Separation-related expenses	12				35				17				14
	Foreign currency impact of highly inflationary countries	—				—				4				(1		)
Adjusted EBITDA		$	92			$	125			$	166			$	125
Adjusted EBITDA by segment
	Hotel Franchising	$	86			$	129			$	178			$	122
	Hotel Management	16				8				5				18
	Corporate and Other	(10		)		(12		)		(17		)		(15		)
	Total adjusted EBITDA	$	92			$	125			$	166			$	125

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