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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to        
Commission File Number: 001-38432
wh-20210331_g1.jpg
Wyndham Hotels & Resorts, Inc.
(Exact name of registrant as specified in its charter)
Delaware
82-3356232
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
22 Sylvan Way
07054
Parsippany,
New Jersey
(Zip Code)
(Address of principal executive offices)
(973753-6000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock
WHNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ      No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
93,398,800 shares of common stock outstanding as of March 31, 2021.


Table of Contents
TABLE OF CONTENTS
Page
PART I
FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II
OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Table of Contents
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wyndham Hotels & Resorts, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of Wyndham Hotels & Resorts, Inc. and subsidiaries (the “Company”) as of March 31, 2021, the related condensed consolidated statements of income, comprehensive income (loss), cash flows, and equity for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated and combined statements of income (loss), comprehensive income (loss), cash flows, and equity for the year then ended (not presented herein); and in our report dated February 12, 2021, we expressed an unqualified opinion (which included an emphasis of a matter paragraph relating to expense allocations for certain corporate functions and services historically provided by Wyndham Worldwide Corporation) on those consolidated and combined financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

The interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.




/s/ Deloitte & Touche LLP
New York, New York
April 29, 2021



Table of Contents
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended March 31,
20212020
Net revenues
Royalties and franchise fees$78 $92 
Marketing, reservation and loyalty85 106 
Management and other fees19 32 
License and other fees20 21 
Cost reimbursements71 126 
Other
30 33 
Net revenues
303 410 
Expenses
Marketing, reservation and loyalty92 118 
Operating27 35 
General and administrative24 28 
Cost reimbursements71 126 
Depreciation and amortization24 25 
Separation-related2 1 
Restructuring  13 
Transaction-related, net 8 
Total expenses
240 354 
Operating income63 56 
Interest expense, net
28 25 
Income before income taxes35 31 
Provision for income taxes
11 9 
Net income
$24 $22 
Earnings per share
Basic$0.26 $0.23 
Diluted0.26 0.23 

See Notes to Condensed Consolidated Financial Statements.
2


Table of Contents
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
Three Months Ended March 31,
20212020
Net income$24 $22 
Other comprehensive income/(loss), net of tax
Foreign currency translation adjustments
 (3)
Unrealized gains/(losses) on cash flow hedges
14 (36)
Other comprehensive income/(loss), net of tax
14 (39)
Comprehensive income/(loss)
$38 $(17)

See Notes to Condensed Consolidated Financial Statements.
3


Table of Contents
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents
$531 $493 
Trade receivables, net
274 295 
Prepaid expenses
52 45 
Other current assets
54 67 
Total current assets
911 900 
Property and equipment, net
268 278 
Goodwill
1,525 1,525 
Trademarks, net
1,202 1,203 
Franchise agreements and other intangibles, net
503 512 
Other non-current assets
231 226 
Total assets
$4,640 $4,644 
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt
$516 $21 
Accounts payable
27 28 
Deferred revenues
78 71 
Accrued expenses and other current liabilities
203 226 
Total current liabilities824 346 
Long-term debt2,076 2,576 
Deferred income taxes
364 359 
Deferred revenues
160 158 
Other non-current liabilities
225 242 
Total liabilities
3,649 3,681 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 6.0 shares, none issued and outstanding
  
Common stock, $0.01 par value, authorized 600.0 shares, 101.1 and 100.8 issued and outstanding at March 31, 2021 and December 31, 2020
1 1 
Treasury stock, at cost – 7.7 shares at March 31, 2021 and December 31, 2020
(408)(408)
Additional paid-in capital
1,508 1,504 
Accumulated deficit(72)(82)
Accumulated other comprehensive loss
(38)(52)
Total stockholders’ equity
991 963 
Total liabilities and stockholders' equity
$4,640 $4,644 

See Notes to Condensed Consolidated Financial Statements.
4


Table of Contents
WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended March 31,
20212020
Operating activities
Net income$24 $22 
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization24 25 
Provision for doubtful accounts11 12 
Deferred income taxes
1 2 
Stock-based compensation
5 4 
Net change in assets and liabilities:
Trade receivables
10 (17)
Prepaid expenses
(7)(6)
Other current assets
13 (8)
Accounts payable, accrued expenses and other current liabilities
(24)(14)
Deferred revenues9 (2)
Payments of development advance notes(8)(3)
Other, net
6 2 
Net cash provided by operating activities
64 17 
Investing activities
Property and equipment additions
(5)(7)
Net cash used in investing activities
(5)(7)
Financing activities
Proceeds from borrowings  744 
Principal payments on long-term debt
(4)(14)
Dividends to shareholders
(15)(30)
Repurchases of common stock
 (50)
Net share settlement of incentive equity awards
(5)(2)
Other, net
3 (1)
Net cash (used in)/provided by financing activities
(21)647 
Effect of changes in exchange rates on cash, cash equivalents and restricted cash
 (2)
Net increase in cash, cash equivalents and restricted cash38 655 
Cash, cash equivalents and restricted cash, beginning of period
493 94 
Cash, cash equivalents and restricted cash, end of period
$531 $749 
See Notes to Condensed Consolidated Financial Statements.
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WYNDHAM HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited)
Common Shares Outstanding
Common Stock
Treasury
Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Loss
Total Equity
Balance as of December 31, 202093 $1 $(408)$1,504 $(82)$(52)$963 
Net income— — — — 24 — 24 
Other comprehensive income
— — — — — 14 14 
Dividends— — — — (15)— (15)
Net share settlement of incentive equity awards
— — — (5)— — (5)
Change in deferred compensation
— — — 5 — — 5 
Exercise of stock options— — — 4 — — 4 
Other— — — — 1 — 1 
Balance as of March 31, 2021
93 $1 $(408)$1,508 $(72)$(38)$991 
Common Shares Outstanding
Common Stock
Treasury
Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Equity
Balance as of December 31, 201994 $1 $(363)$1,488 $113 $(27)$1,212 
Net income— — — — 22 — 22 
Other comprehensive loss
— — — — — (39)(39)
Dividends— — — — (30)— (30)
Repurchase of common stock
(1)— (45)— — — (45)
Net share settlement of incentive equity awards
— — — (2)— — (2)
Change in deferred compensation
— — — 4 — — 4 
Cumulative effect of change in accounting standard
— — — — (10)— (10)
Balance as of March 31, 202093 $1 $(408)$1,490 $95 $(66)$1,112 
See Notes to Condensed Consolidated Financial Statements.
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WYNDHAM HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except share and per share amounts)
(Unaudited)

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 nearly 95 countries around the world.
The Condensed Consolidated Financial Statements have been prepared on a stand-alone basis. The Condensed Consolidated 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 Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.
In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In management’s opinion, the Condensed Consolidated Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s 2020 Consolidated and Combined Financial Statements included in its most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and any subsequent reports filed with the SEC.
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.

2. NEW ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting pronouncements
Simplifying the Accounting for Income Taxes. On December 18, 2019, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies the accounting standards for income taxes. The amendment clarifies and simplifies aspects of the accounting for income taxes to help promote consistent application of U.S. GAAP by eliminating certain exceptions to the general principles of ASC 740, Income Taxes. This guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company adopted the guidance on January 1, 2021, as required. There was no material impact on the Company's Condensed Consolidated Financial Statements and related disclosures as a result of adopting this new standard.


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3. REVENUE RECOGNITION
Deferred revenues
Deferred revenues, or contract liabilities, generally represent payments or consideration received in advance for goods or services that the Company has not yet provided to the customer. Deferred revenues as of March 31, 2021 and December 31, 2020 are as follows:
March 31, 2021December 31, 2020
Deferred initial franchise fee revenues
$140 $136 
Deferred loyalty program revenues
75 75 
Deferred co-branded credit card program revenues
5  
Deferred other revenues
18 18 
Total
$238 $229 

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.
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:
4/1/2021 - 3/31/20224/1/2022 - 3/31/20234/1/2023 - 3/31/2024

Thereafter

Total
Initial franchise fee revenues
$22 $9 $8 $101 $140 
Loyalty program revenues
41 23 9 2 75 
Co-branded credit card program revenues
5    5 
Other revenues
10 1 1 6 18 
Total
$78 $33 $18 $109 $238 
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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:
Three Months Ended March 31,
20212020
Hotel Franchising
Royalties and franchise fees
$75 $84 
Marketing, reservation and loyalty
85 106 
License and other fees
20 21 
Other
29 32 
Total Hotel Franchising
209 243 
Hotel Management
Royalties and franchise fees
3 8 
Owned hotel revenues
13 22 
Management fees
6 10 
Cost reimbursements
71 126 
Other
1 1 
Total Hotel Management
94 167 
Net revenues
$303 $410 

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 its franchisees, which are amortized over the remaining non-cancellable period of the franchise agreement. As of March 31, 2021 and December 31, 2020, capitalized contract costs were $33 million, of which $7 million for both periods, was included in other current assets and $26 million for both periods, was included in other non-current assets on its Condensed Consolidated Balance Sheets.

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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.
The following table sets forth the computation of basic and diluted EPS (in millions, except per share data):
Three Months Ended March 31,
20212020
Net income$24 $22 
Basic weighted average shares outstanding93.493.7
Stock options and restricted stock units (“RSUs”)0.40.2
Diluted weighted average shares outstanding
93.893.9
Earnings per share:
Basic
$0.26 $0.23 
Diluted
0.26 0.23 
Dividends:
Cash dividends declared per share
$0.16 $0.32 
Aggregate dividends paid to shareholders
$15 $30 

Stock repurchase program
The following table summarizes stock repurchase activity under the current stock repurchase program (in millions, except per share data):
SharesCostAverage Price Per Share
As of December 31, 2020
7.7 $408 $53.43 
For the three months ended March 31, 2021
   
As of March 31, 20217.7 $408 $53.43 

The Company had $191 million of remaining availability under its program as of March 31, 2021. On March 17, 2020, the Company suspended its share repurchase activity and as a condition of the April 2020 amendment to its revolving credit agreement, the Company was restricted from repurchasing shares of its stock until the waiver amendment expired on April 1, 2021 unless the Company elected to terminate the amendment earlier, which it did not.

5. ACCOUNTS RECEIVABLE
Allowance for doubtful accounts
The Company generates trade receivables in the ordinary course of its business and provides for estimated bad debts on such receivables. The Company adopted the new accounting guidance, ASU 2016-13, Measurement of Credit Losses on Financial Instruments on January 1, 2020. As a result of adopting the new guidance, the Company recorded a $10 million (net of a $2 million income tax benefit) cumulative effect adjustment to retained earnings at January 1, 2020.
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The following table sets forth the activity in the Company's allowance for doubtful accounts on trade accounts receivables for the three months ended:
20212020
Balance as of January 1,$72$47
Cumulative effect of change in accounting standard12
Provision for doubtful accounts1112
Bad debt write-offs(4)(13)
Balance as of March 31,$79$58

6. LONG-LIVED ASSETS
Property, plant and equipment
As a result of the continuing impact of COVID-19 on the Company’s results, the Company evaluated the recoverability of its net property, plant and equipment associated with its two owned hotels for impairment in the first quarter of 2021 and believes that it is more likely than not that the carrying value of those assets are recoverable from future expected cash flows, on an undiscounted basis, from such assets.
Although the Company believes that it is more likely than not that the carrying values of its net property, plant and equipment for its two owned hotels are not impaired, the impact of COVID-19 and the ultimate duration remains highly uncertain. Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and the property, plant and equipment associated with its owned hotels may be exposed to impairment.
Property, plant and equipment, net as of March 31, 2021 and December 31, 2020 was $268 million and $278 million, respectively.
Intangible assets
Goodwill

The Company evaluates the carrying value of its goodwill in each of its reporting units (i) hotel franchising, (ii) hotel management and (iii) owned hotels, compared to their respective estimated fair values on an annual basis during the fourth quarter of every year, or more frequently if circumstances indicate that the fair value of goodwill may be impaired, to the reporting units’ carrying values as required by guidance. The Company performed its annual impairment assessment of its goodwill as of October 1, 2020 and determined that no impairments existed and that the fair value of its hotel franchising and hotel management reporting units substantially exceeded its carrying value. During 2020, the Company incurred a charge to fully write-down the goodwill balance for its owned hotel reporting unit.

As a result of the continuing impact which COVID-19 is having on the hospitality industry, the Company performed a qualitative assessment of its remaining goodwill for its hotel franchising and hotel management reporting units as of March 31, 2021. Through such assessments, the Company determined that it is more likely than not that the fair value of its hotel franchising and hotel management reporting units continues to significantly exceed their carrying values.

Other Intangibles

As a result of the continuing impact of COVID-19 on the Company’s results, the Company evaluated the carrying value of each of its other indefinite-lived intangible assets compared to their respective estimated fair values in 2020 and the first quarter of 2021. The Company performed its annual impairment assessment of its other indefinite-lived intangible assets as of October 1, 2020 and determined that no impairments exist. Additionally, the Company performed a qualitative assessment of its other indefinite-lived intangible assets as of March 31, 2021 and determined through such assessments, that it was more likely than not that the fair value of such indefinite-lived intangible assets were in excess of their carrying values.

The Company also evaluates the recoverability of each of its definite-lived intangible assets by performing a qualitative assessment to determine if circumstances indicate that impairment may have occurred in 2020 and the first quarter of 2021. The Company performed a quantitative impairment assessment for a management contract and certain franchise agreements during the fourth quarter of 2020. As a result of these assessments, the Company determined these assets were not impaired.
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Additionally, the Company also performed a qualitative assessment of all its definite-lived intangible assets as of March 31, 2021 and determined through such assessments, that it was more likely than not that the future expected cash flows on an undiscounted basis were in excess of the carrying value of such assets.

Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to be negatively impacted and its intangible assets within its hotel franchising and hotel management reporting units may be exposed to future impairments. 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 its remaining goodwill, trademarks, franchise agreements and management contracts, which would adversely impact earnings.
Intangible assets as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31, 2021December 31, 2020
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Goodwill
$1,539 $14 $1,525 $1,539 $14 $1,525 
March 31, 2021December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Unamortized intangible assets:
Trademarks$1,201 $1,202 
Amortized intangible assets:
Franchise agreements$895 $493 $402 $895 $487 $408 
Management agreements136 35 101 136 33 103 
Trademarks2 1 1 2 1 1 
Other
1 1  1  1 
$1,034 $530 $504 $1,034 $521 $513 

7. FRANCHISING, MARKETING AND RESERVATION ACTIVITIES
Royalties and franchise fee revenues on the Condensed Consolidated Statements of Income include initial franchise fees of $3 million for the three months ended March 31, 2021 and 2020.
In accordance with its franchise agreements, generally the Company 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.
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 its brands, in building a new hotel to be flagged under one of its 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 the Company 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 the Company. In certain instances, the Company may earn interest on unpaid franchisee development advance notes.
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The Company recorded the following related to development advance notes on the Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets:
March 31, 2021December 31, 2020
Development advance notes (a)
$95 $92 
_____________________
(a)    Included within other non-current assets.
Condensed Consolidated Statements of Income:
Three Months Ended March 31,
20212020
Forgiveness of notes (a)
$2 $2 
Bad debt expense related to notes
 1 
______________________
(a)    Amounts are recorded as a reduction of royalties and franchise fees and marketing, reservation and loyalty revenues.

8. INCOME TAXES
The Company files income tax returns in the U.S. federal and state jurisdictions, as well as in foreign jurisdictions. Through May 31, 2018, the Company was part of a consolidated U.S. federal income tax return and consolidated and combined state returns with Wyndham Worldwide (“former Parent”). The Company is no longer subject to U.S. federal income tax examinations for years prior to 2015. The Company is no longer subject to state and local, or foreign, income tax examinations for years prior to 2010.
The Company received income tax refunds, net of payments, of $1 million and made cash income tax payments, net of refunds, of $3 million for the three months ended March 31, 2021 and 2020, respectively.
The Company’s effective tax rates were 31.4% and 29.0% during the three months ended March 31, 2021 and 2020, respectively. The increase was primarily related to remeasurement of net deferred tax liabilities as a result of changes in certain state tax rates and non-deductible separation costs, partially offset by a reduction in foreign taxes.
La Quinta Holdings, Inc. (“LQ”) and then affiliated entities in existence prior to their acquisition by the Company are currently under audit by the Internal Revenue Service (“IRS”) for tax years ended December 31, 2010 to December 31, 2016. The IRS has proposed adjustments for tax years 2010 to 2013 relating to entities that remain with CorePoint Lodging, Inc. (“CorePoint”). CorePoint has responded to the IRS, disagreeing with their proposed adjustments, and the matter was transferred to the IRS Appeals office. These proposed adjustments to the tax returns filed for these CorePoint entities, if the IRS prevails, could result in a material impact on the Company as a result of a reduction to tax attributes utilized in tax years 2014 to 2016. As part of the LQ acquisition, CorePoint has agreed to indemnify the Company for any obligations and expenses arising from any adjustments made in connection with tax years 2010 to 2013 IRS audits, including any amounts owed by LQ with respect to subsequent taxable years as a result of the disallowance of net operating losses or other tax attributes and any legal and accounting defense expenses that arise. The Company currently has not recorded a liability for tax, penalty, or interest related to the proposed adjustments as CorePoint has concluded that the positions reported on their tax returns under audit by the IRS are more-likely-than-not to be sustained based on their technical merits.
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9. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company’s indebtedness consisted of:
March 31, 2021December 31, 2020
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) 1,550 3.16%1,554 3.18%
5.375% senior unsecured notes (due April 2026) (c)
496 5.38%496 5.38%
4.375% senior unsecured notes (due August 2028)492 4.38%492 4.38%
Finance leases54 4.50%55 4.50%
Total long-term debt2,592 2,597 
Less: Current portion of long-term debt516 21 
Long-term debt$2,076 $2,576 
______________________
(a)    The carrying amount of the term loan and senior unsecured notes are net of deferred debt issuance costs of $21 million and $22 million as of March 31, 2021 and December 31, 2020, respectively.
(b)    Weighted average interest rates are based on period-end balances, including the effects from hedging.
(c)    These notes were redeemed by the Company on April 15, 2021 and therefore are classified as current debt as of March 31, 2021. See Note 17 - Subsequent Event for more information.
Maturities and capacity
The Company’s outstanding debt as of March 31, 2021 matures as follows:
Long-Term Debt
Within 1 year (a)
$516 
Between 1 and 2 years21 
Between 2 and 3 years22 
Between 3 and 4 years22 
Between 4 and 5 years1,493 
Thereafter518 
Total$2,592 
______________________
(a)    Includes the 5.375% senior unsecured notes due 2026, which the Company redeemed on April 15, 2021.

As of March 31, 2021, the available capacity under the Company’s revolving credit facility was as follows:
Revolving Credit Facility
Total capacity$750 
Less: Letters of credit15 
Available capacity$735 

Deferred debt issuance costs
The Company classifies deferred debt issuance costs related to its revolving credit facility within other non-current assets on the Condensed Consolidated Balance Sheets. Such deferred debt issuance costs were $4 million as of March 31, 2021 and December 31, 2020.
Cash flow hedge
In 2018, the Company hedged a portion of its $1.6 billion term loan. As of March 31, 2021, 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 the second quarter of 2024 and has a weighted average fixed rate of 2.53% and $500 million expires in the fourth quarter of 2024
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and has a weighted average fixed rate of 1.25%. The variable rates of the swap agreements are based on one-month LIBOR. The aggregate fair value of these interest rate swaps was a liability of $52 million and $71 million as of March 31, 2021 and December 31, 2020, respectively, which was included within other non-current liabilities on the Condensed Consolidated Balance Sheets. The effect of interest rate swaps on interest expense, net on the Condensed Consolidated Statements of Income was $6 million and $2 million of expense for the three months ended March 31, 2021 and 2020, respectively. There was no hedging ineffectiveness recognized in the three months ended March 31, 2021 and 2020. The Company expects to reclassify approximately $26 million of losses from accumulated other comprehensive income (“AOCI”) (loss) to interest expense during the next 12 months.
Interest expense, net
The Company incurred net interest expense of $28 million and $25 million for the three months ended March 31, 2021 and 2020, respectively. Cash paid related to such interest was $26 million and $17 million for the three months ended March 31, 2021 and 2020, respectively.

10. FAIR VALUE
The Company measures its financial assets and liabilities at fair value on a recurring basis and utilizes the fair value hierarchy to determine such fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable.
Level 3: Unobservable inputs used when little or no market data is available. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input (closest to Level 3) that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
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:
March 31, 2021
Carrying AmountEstimated Fair Value
Debt$2,592 $2,618 

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 the Company 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
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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. See Note 9 - Long-Term Debt and Borrowing Arrangements for the impact of such cash flow hedges.
Foreign currency risk
The Company has foreign currency rate exposure to exchange rate fluctuations worldwide, particularly with respect to the Canadian Dollar, the Chinese Yuan, the Euro, the British Pound, the Brazilian Real and the Argentine Peso. The Company uses foreign currency forward contracts at various times to manage and reduce the foreign 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. The Company recognized gains of $2 million and losses of $2 million in income from freestanding foreign currency exchange contracts during the three months ended March 31, 2021 and 2020, respectively. Such gains or losses are included in operating expenses in the Condensed Consolidated Statements of Income.
The Company accounts for Argentina as a highly inflationary economy. Foreign currency exchange losses related to Argentina were $1 million during the three months ended March 31, 2021 and were not material during the three months ended March 31, 2020. Such losses are included in operating expenses in the Condensed Consolidated 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.

11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company 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 generally are in the discovery stages at this time. As of March 31, 2021, the Company is aware of approximately 40 pending 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 records an accrual for legal contingencies when it determines, after consultation with outside counsel, that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In making such determinations, the Company evaluates, among other things, the degree of probability of an unfavorable outcome, and when it is probable that a liability has been incurred, its ability to make a reasonable estimate of loss. The Company reviews these accruals each reporting period and makes revisions based on changes in facts and circumstances, including changes to its strategy in dealing with these matters.
The Company believes that it has adequately accrued for such matters with reserves of $4 million as of March 31, 2021 and December 31, 2020. The Company also had receivables of $1 million as of March 31, 2021 and immaterial receivables as of December 31, 2020, for certain matters which are covered by insurance and were included in other current assets on its Condensed Consolidated Balance Sheets. Litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to the
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Company with respect to earnings and/or cash flows in any given reporting period. As of March 31, 2021, the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately $6 million in excess of recorded accruals. However, the Company does not believe that the impact of such litigation will result in a material liability to the Company in relation to its combined financial position or liquidity.
Guarantees
Separation-related guarantees
The Company assumed one-third of certain contingent and other corporate liabilities of former Parent incurred prior to the spin-off, including liabilities of former Parent related to, arising out of or resulting from certain terminated or divested businesses, certain general corporate matters of former Parent and any actions with respect to the separation plan or the distribution made or brought by any third party.

12. 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 March 31, 2021, 5.3 million shares remained available.
Incentive equity awards granted by the Company
The Company's Board of Directors approved incentive equity award grants to the Company's employees in the form of RSUs, stock options and PSUs.
The activity related to the Company’s incentive equity awards for the three months ended March 31, 2021 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, 20200.9 $54.15 0.2 $52.93 
Granted (a)
0.6 65.21 0.1 65.21 
Vested
(0.2)53.23 — — 
Canceled
(0.1)56.08 — — 
Balance as of March 31, 20211.2 
(b)
$59.74 0.3 
(c)
$57.51 
______________________
(a)Represents awards granted by the Company primarily in February 2021.
(b)RSUs outstanding as of March 31, 2021 are expected to vest over time and have an aggregate unrecognized compensation expense of $68 million, which is expected to be recognized over a weighted average period of 3.1 years.
(c)PSUs outstanding as of March 31, 2021 are expected to vest over time and have an aggregate unrecognized compensation expense of $16 million, which may be recognized over a weighted average period of 2.0 years based on attainment of targets.
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The activity related to stock options granted by the Company for the three months ended March 31, 2021 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, 20201.4 $55.57 
Granted
0.1 65.21 
Exercised
(0.1)54.76 
Canceled
  
Expired
  
Outstanding as of March 31, 2021
1.4 $56.18 5.3$18 
Unvested as of March 31, 2021
0.8 
(a)
$56.05 5.3$10 
Exercisable as of March 31, 2021
0.6 $56.35 5.2$8 
______________________
(a)Unvested options as of March 31, 2021 are expected to vest over time and have an aggregate unrecognized compensation expense of $19 million, which is expected to be recognized over a weighted average period of 2.5 years.
The fair value of stock options granted by the Company during 2021 and 2020 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 for both Wyndham Hotels and 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.
20212020
Grant date fair value$19.58$8.59
Grant date strike price$65.21$53.40
Expected volatility40.18%24.30%
Expected life4.25 years4.25 years
Risk-free interest rate0.40%1.21%
Projected dividend yield0.98%2.40%

Stock-based compensation expense
Stock-based compensation expense was $5 million and $4 million for the three months ended March 31, 2021 and 2020, respectively.

13. SEGMENT INFORMATION
The reportable segments presented below represent the Company's 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, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon net revenues and “adjusted EBITDA”, which is defined as net income excluding net 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, income taxes and development advance notes amortization. The Company 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. The Company uses this measure 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. The Company's presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. During the first quarter of 2021, the Company modified the definition of adjusted EBITDA to exclude the amortization of
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development advance notes to reflect how the Company's chief operating decision maker reviews operating performance beginning in 2021. The Company has applied the modified definition of adjusted EBITDA to all periods presented.
Three Months Ended March 31,
20212020
Net Revenues
Adjusted EBITDA
Net Revenues
Adjusted EBITDA (a)
Hotel Franchising
$209 $105 $243 $110 
Hotel Management
94 5 167 17 
Total Reportable Segments
303 110 410 127 
Corporate and Other
 (13) (18)
Total Company
$303 $97 $410 $109 
______________________
(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.

The table below is a reconciliation of net income to adjusted EBITDA.
Three Months Ended March 31,
2021
2020 (a)
Net income$24 $22 
Provision for income taxes11 9 
Depreciation and amortization24 25 
Interest expense, net28 25 
Stock-based compensation expense5 4 
Development advance notes amortization2 2 
Separation-related expenses2 1 
Restructuring costs 13 
Transaction-related expenses, net 8 
Foreign currency impact of highly inflationary countries
1  
Adjusted EBITDA
$97 $109 
______________________
(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.

14. OTHER EXPENSES AND CHARGES
Restructuring
The Company did not incur any restructuring charges during the three months ended March 31, 2021. The Company incurred $13 million of charges during the three months ended March 31, 2020, related to restructuring initiatives implemented in response to COVID-19. These initiatives resulted in a reduction of 262 employees and were comprised of employee separation costs. As a result, the Company recorded charges of $7 million to its Hotel Franchising segment, $5 million to its Corporate and Other segment and the remainder to its Hotel Management segment. Below is the activity for the three months ended March 31, 2021 relating to all of the 2020 restructuring plans:
2021 Activity
Liability as of December 31, 2020Cash PaymentsLiability as of
March 31,
2021
Personnel-related$7 $(4)$3 
Facility-related3 (1)2 
Total accrued restructuring$10 $(5)$5 

The remaining liability of $5 million as of March 31, 2020 is expected to be primarily paid by the end of 2021.
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Transaction-related, net
Transaction-related expenses incurred by the Company were not material during the three months ended March 31, 2021 and $8 million during the three months ended March 31, 2020. These expenses were primarily related to integration activities for the acquisition of La Quinta.
Separation-related
The Company incurred separation-related costs associated with its spin-off from former Parent of $2 million and $1 million during the three months ended March 31, 2021 and 2020, respectively.

15. TRANSACTIONS WITH FORMER PARENT
The Company has a number of arrangements with former Parent for services provided between both parties as described below.
License agreement and other agreements with former Parent
In connection with the Company’s spin-off, the Company and former Parent entered into long-term exclusive license agreements to retain former Parents’ 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.
The Company recorded revenues from former Parent in the amount of $16 million and $17 million for a license, development and non-competition agreement and $2 million and $3 million for activities associated with the Wyndham Rewards program for the three months ended March 31, 2021 and 2020, respectively. The Company also recorded revenues from a former affiliate for license fees of $2 million and $1 million for the three months ended March 31, 2021 and 2020, respectively. Such fees are recorded within license and other fees on the Condensed Consolidated Statements of Income.
Transfer of former Parent liabilities and issuances of guarantees to former Parent and affiliates
Upon the distribution of the Company’s common stock to former Parent shareholders, the Company entered into certain guarantee commitments with 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 former Parent is responsible for the remaining two-thirds. The amount of liabilities assumed by the Company in connection with the spin-off was $18 million as of March 31, 2021 and December 31, 2020, which were included within other non-current liabilities on its Condensed Consolidated Balance Sheets. The Company also had a $3 million liability due to former Parent which was included within accrued expenses and other current liabilities on its Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. In addition, the Company had $2 million and $4 million of receivables due from former Parent as of March 31, 2021 and December 31, 2020, respectively, which were included within current assets on its Condensed Consolidated Balance Sheets.

16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI are as follows:
Net of TaxForeign Currency Translation AdjustmentsCash Flow HedgesAccumulated Other Comprehensive Income/(Loss)
Balance as of December 31, 2020$