This excerpt taken from the WYN 10-Q filed May 7, 2009.
Significant Accounting Policies
Intangible Assets. With regard to the goodwill and other indefinite-lived intangible assets recorded in connection with business combinations, the Company annually (during the fourth quarter of each year subsequent to completing its annual forecasting process) or, more frequently if circumstances indicate impairment may have occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount, reviews the reporting units carrying values as required by Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
Because quoted market prices for the Companys 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. In performing its impairment analysis, the Company develops its estimated fair values for its reporting units using a combination of the discounted cash flow methodology and the market multiple methodology. The Company uses the discounted cash flow methodology to establish fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The Company uses the 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.
Based on the results of the Companys impairment evaluation performed during the fourth quarter of 2008, the Company recorded a non-cash $1,342 million charge for the impairment of goodwill at its vacation ownership
reporting unit, where all of the goodwill previously recorded was determined to be impaired. The aggregate carrying values of the Companys goodwill and other indefinite-lived intangible assets were $1,341 million and $659 million, respectively, as of March 31, 2009 and $1,353 million and $660 million, respectively, as of December 31, 2008. The Companys goodwill is allocated between its lodging ($297 million) and vacation exchange and rentals ($1,044 million) reporting units and other indefinite-lived intangible assets are allocated among its three reporting units. The Company continues to monitor the goodwill recorded at its 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, the Company may be required to record an impairment of the goodwill balance at its lodging and vacation exchange and rentals reporting units.
Allowance for Loan Losses. In the Companys vacation ownership segment, it provides for estimated vacation ownership contract receivable cancellations at the time of VOI sales by recording a provision for loan losses on the Consolidated Statements of Income. The Company assesses the adequacy of the allowance for loan losses based on the historical performance of similar vacation ownership contract receivables. The Company uses a technique referred to as static pool analysis, which tracks defaults for each years sales over the entire life of those contract receivables. The Company considers current defaults, past due aging, historical write-offs of contracts, consumer credit scores (FICO scores) in the assessment of borrowers credit strength and expected loan performance. The Company also considers whether the historical economic conditions are comparable to current economic conditions. If current conditions differ from the conditions in effect when the historical experience was generated, the Company adjusts the allowance for loan losses to reflect the expected effects of the current environment on uncollectibility.
Restricted Cash. The largest portion of the Companys restricted cash relates to securitizations. The remaining portion is comprised of cash held in escrow related to the Companys vacation ownership business and cash held in all other escrow accounts.
Securitizations: In accordance with the contractual requirements of the Companys various vacation ownership contract receivable securitizations, a dedicated lockbox account, subject to a blocked control agreement, is established for each securitization. At each month end, the total cash in the collection account from the previous month is analyzed and a monthly servicer report is prepared by the Company, which details how much cash should be remitted to the noteholders for principal and interest payments, and any cash remaining is transferred by the trustee back to the Company. Additionally, as required by various securitizations, the Company holds an agreed-upon percentage of the aggregate outstanding principal balances of the VOI contract receivables collateralizing the asset-backed notes in a segregated trust (or reserve) account as credit enhancement. Each time a securitization closes and the Company receives cash from the noteholders, a portion of the cash is deposited in the reserve account. Such amounts were $165 million and $155 million as of March 31, 2009 and December 31, 2008, respectively, of which $84 million and $80 million were recorded within other current assets as of March 31, 2009 and December 31, 2008, respectively, and $81 million and $75 million were recorded within other non-current assets as of March 31, 2009 and December 31, 2008, respectively, on the Consolidated Balance Sheets.
Escrow Deposits: Laws in most U.S. states require the escrow of down payments on VOI sales, with the typical requirement mandating that the funds be held in escrow until the rescission period expires. As sales transactions are consummated, down payments are collected and are subsequently placed in escrow until the rescission period has expired. Depending on the state, the rescission period can be as short as three calendar days or as long as 15 calendar days. In certain states, the escrow laws require that 100% of VOI purchaser funds (excluding interest payments, if any), be held in escrow until the deeding process is complete. Where possible, the Company utilizes surety bonds in lieu of escrow deposits. Escrow deposit amounts were $27 million and $30 million as of March 31, 2009 and December 31, 2008, respectively, of which $27 million and $28 million were recorded within other current assets as of March 31, 2009 and December 31, 2008, respectively, and $2 million was recorded within other non-current assets as of December 31, 2008, on the Consolidated Balance Sheets.