WYNDHAM WORLDWIDE CORPORATION

entals business and result in the termination of approximately 330 employees. During 2008, we committed to
restructuring actions and activities associated with strategic realignment initiatives targeted principally at reducing
costs, enhancing organizational efficiency, reducing our need to access the asset-backed securities market and
consolidating and rationalizing existing processes and facilities, which are accounted for under the guidance for post
employment benefits and costs associated with exit and disposal activities. Our restructuring actions require us to
make significant estimates in several areas including: (i) expenses for severance and related benefit costs; (ii) the
ability to generate sublease income, as well as our ability to terminate lease obligations; and (iii) contract
terminations. The amounts that we have accrued as of December 31, 2010 represent our best estimate of the
obligations that we incurred in connection with these actions, but could be subject to change due to various factors
including market conditions and the outcome of negotiations with third parties. Should the actual amounts differ
from our estimates, the amount of the restructuring charges could be materially impacted.
Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets to
assess their potential realization and establish a valuation allowance for portions of such assets that we believe will
not be ultimately realized. In performing this review, we make 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 could cause an increase or decrease to our valuation allowance
resulting in an increase or decrease in our effective tax rate, which could materially impact our results of operations.
For tax positions we have taken or expect to take in our tax return, we apply a more likely than not threshold,
under which, we 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 our provision for income taxes, we use judgment,
reflecting our estimates and assumptions, in applying the more likely than not threshold.
Adoption of Accounting Pronouncements
During 2011, we will adopt recently issued guidance related to the accounting for multiple-deliverable revenue
arrangements. For detailed information regarding these standards and the impact thereof on our financial statements,
see Note 2 to our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use various financial instruments, particularly swap contracts and interest rate caps to manage and reduce
the interest rate risk related to our debt. Foreign currency forwards and options are also used to manage and reduce
the foreign currency exchange rate risk associated with our foreign currency denominated receivables, payables and
forecasted royalties, forecasted earnings and cash flows of foreign subsidiaries and other transactions.
We are exclusively an end user of these instruments, which are commonly referred to as derivatives. We do not
engage in trading, market making or other speculative activities in the derivatives markets. More detailed
information about these financial instruments is provided in Note 15 to the Consolidated Financial Statements. Our
principal market exposures are interest and foreign currency rate risks.
k Our primary interest rate exposure as of December 31, 2010 was to interest rate fluctuations in the United
States, specifically LIBOR and asset-backed commercial paper interest rates due to their impact on
variable rate borrowings and other interest rate sensitive liabilities. In addition, interest rate movements in
one country, as well as relative interest rate movements between countries can impact us. We anticipate
that LIBOR and asset-backed commercial paper rates will remain a primary market risk exposure for the
foreseeable future.
k We have foreign currency rate exposure to exchange rate fluctuations worldwide and particularly with
respect to the British pound and Euro. We anticipate that such foreign currency exchange rate risk will
remain a market risk exposure for the foreseeable future.
We assess our market risk based on changes in interest and foreign currency exchange rates utilizing a
sensitivity analysis. The sensitivity analysis measures the potential impact in earnings, fair values and cash flows
based on a hypothetical 10% change (increase and decrease) in interest and foreign currency exchange rates. We
have approximately $3.7 billion of debt outstanding as of December 31, 2010. Of that total, $330 million was issued
as variable rate debt and has not been synthetically converted to fixed rate debt via an interest rate swap. A
hypothetical 10% change in our effective weighted average interest rate would not generate a material change in
interest expense.
The fair values of cash and cash equivalents, trade receivables, accounts payable and accrued expenses and
other current liabilities approximate carrying values due to the short-term nature of these assets. We use a discounted
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