WYNDHAM WORLDWIDE CORPORATION

Goodwill
In accordance with the guidance for goodwill and other intangible assets, the Company tests goodwill for
potential impairment annually (during the fourth quarter of each year subsequent to completing the Company’s
annual forecasting process) and between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount.
The process of evaluating goodwill for impairment involves the determination of the fair value of the Company’s
reporting units as described in Note 2 — Summary of Significant Accounting Policies. Because quoted market prices for
the Company’s reporting units are not available, management must apply judgment in determining the estimated fair
value of these reporting units for purposes of performing the annual goodwill impairment test. Management uses all
available information to make these fair value determinations, including the present values of expected future cash flows
using discount rates commensurate with the risks involved in the assets. Inherent in such fair value determinations are
certain judgments and estimates relating to future cash flows, including the Company’s interpretation of current economic
indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. Due
to the uncertainties associated with such estimates, actual results could differ from such estimates. In performing its
impairment analysis, the Company developed the estimated fair values for its reporting units using a combination of the
discounted cash flow methodology and the market multiple methodology.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected
future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash
flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing
the stream of projected future cash flows. The discounted cash flow methodology uses the Company’s projections of
financial 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.
The Company uses 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 to it 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 the Company’s 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 the Company’s estimate of the individual reporting unit fair values, a comparison is performed
between the sum of the fair values of the reporting units and the Company’s market capitalization. The Company
uses an average of its market capitalization over a reasonable period preceding the impairment testing date as being
more reflective of the Company’s 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. The Company concluded that the implied control premium estimated from its analysis is reasonable.
During the fourth quarters of 2010 and 2009, the Company performed its annual goodwill impairment test and
determined that no impairment was required as the fair value of goodwill at its lodging and vacation exchange and
rentals reporting units was substantially in excess of the carrying value.
During the fourth quarter of 2008, after estimating the fair values of the Company’s three reporting units as of
December 31, 2008, the Company determined that its lodging and vacation exchange and rentals reporting units
passed the first step of the goodwill impairment test, while the vacation ownership reporting unit did not pass the
first step.
As described in Note 2 — Summary of Significant Accounting Policies, the second step of the goodwill
impairment test uses the estimated fair value of the Company’s vacation ownership segment from the first step as
the purchase price in a hypothetical acquisition of the reporting unit. The significant hypothetical purchase price
allocation adjustments made to the assets and liabilities of the vacation ownership segment in this second step
calculation were in the areas of:
(1) Adjusting the carrying value of Vacation Ownership Contract Receivables to their estimated fair
values,
(2) Adjusting the carrying value of customer related intangible assets to their estimated fair values,
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