WYNDHAM WORLDWIDE CORPORATION

performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology
are the discount rate, the terminal value and expected future revenues, gross margins and operating margins, which
vary among reporting units.
We use a market multiple methodology to estimate the terminal value of each reporting unit by comparing such
reporting unit to other publicly traded companies that are similar from an operational and economic standpoint. The
market multiple methodology compares each reporting unit to the comparable companies on the basis of risk
characteristics in order to determine the risk profile relative to the comparable companies as a group. This analysis
generally focuses on quantitative considerations, which include financial performance and other quantifiable data,
and qualitative considerations, which include any factors which are expected to impact future financial performance.
The most significant assumption affecting our estimate of the terminal value of each reporting unit is the multiple of
the enterprise value to earnings before interest, tax, depreciation and amortization.
To support our estimate of the individual reporting unit fair values, a comparison is performed between the sum
of the fair values of the reporting units and our market capitalization. We use an average of our market capitalization
over a reasonable period preceding the impairment testing date as being more reflective of our stock price trend than
a single day, point-in-time market price. The difference is an implied control premium, which represents the
acknowledgment that the observed market prices of individual trades of a company’s stock may not be representative
of the fair value of the company as a whole. Estimates of a company’s control premium are highly judgmental and
depend on capital market and macro-economic conditions overall. We evaluate the implied control premium for
reasonableness.
Based on the results of our impairment evaluation performed during the fourth quarter of 2010, we determined
that no impairment charge of goodwill was required as the fair value of goodwill at our lodging and vacation
exchange and rentals reporting units was substantially in excess of the carrying value.
Based on the results of our impairment evaluation performed during the fourth quarter of 2008, we recorded a
non-cash $1,342 million charge for the impairment of goodwill at our vacation ownership reporting unit, where all
of the goodwill previously recorded was determined to be impaired. As of December 31, 2010, 2009 and 2008, our
accumulated goodwill impairment loss was $1,342 million ($1,337 million, net of tax).
The aggregate carrying values of our goodwill and other indefinite-lived intangible assets were $1,481 million
and $731 million, respectively, as of December 31, 2010 and $1,386 million and $660 million, respectively, as of
December 31, 2009. As of December 31, 2010, our goodwill is allocated between our lodging ($300 million) and
vacation exchange and rentals ($1,181 million) reporting units and other indefinite-lived intangible assets are
allocated between our lodging ($625 million) and vacation exchange and rentals ($106 million) reporting units. We
continue to monitor the goodwill recorded at our lodging and vacation exchange and rentals reporting units for
indicators of impairment. If economic conditions were to deteriorate more than expected, or other significant
assumptions such as estimates of terminal value were to change significantly, we may be required to record an
impairment of the goodwill balance at our lodging and vacation and exchange and rentals reporting units.
We also evaluate the recoverability of our 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 is 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 our growth strategy has been to acquire and integrate businesses that
complement our existing operations. We account for business combinations in accordance with the guidance for
business combinations and related literature. Accordingly, we allocate 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, we use
various recognized valuation methods including present value modeling and referenced market values (where
available). Further, we make assumptions within certain valuation techniques including discount rates and timing of
future cash flows. Valuations are performed by management or independent valuation specialists under management’s
supervision, where appropriate. We believe 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
Accounting for Restructuring Activities. During 2010, we committed to a strategic realignment initiative
targeted at reducing costs, which will impact operations at one of the call centers in our vacation exchange and
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