Edgar Filing: REALOGY HOLDINGS CORP.

Document

______________________________________________________________________________________________________________________________________________________________________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

^{___________________________}

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-35674

REALOGY HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

20-8050955

(I.R.S. Employer Identification Number)

Commission File No. 333-148153

REALOGY GROUP LLC

(Exact name of registrant as specified in its charter)

20-4381990

(I.R.S. Employer Identification Number)

Delaware

(State or other jurisdiction of incorporation or organization)

175 Park Avenue

Madison, NJ 07940

(Address of principal executive offices) (Zip Code)

(973) 407-2000

(Registrants' telephone number, including area code)

^{___________________________}

Indicate by check mark whether the Registrants (1) have 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) have been subject to such filing requirements for the past 90 days.

Realogy Holdings Corp. Yes þ No ¨ Realogy Group LLC Yes ¨ No þ

Indicate by check mark whether the Registrants have 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 Registrants were required to submit such files).

Realogy Holdings Corp. Yes þ No ¨ Realogy Group LLC Yes þ No ¨

Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, or emerging growth companies. 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
Realogy Holdings Corp.	þ	¨	¨	¨	¨
Realogy Group LLC	¨	¨	þ	¨	¨

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. ¨

Indicate by check mark whether the Registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act).

Realogy Holdings Corp. Yes ¨ No þ Realogy Group LLC Yes ¨ No þ

There were 118,155,158 shares of Common Stock, $0.01 par value, of Realogy Holdings Corp. outstanding as of October 31, 2018.

__________________________________________________________________________________________________________________

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TABLE OF CONTENTS



	Page
Introductory Note		1
Forward-Looking Statements		1

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Report of Independent Registered Public Accounting Firm for Realogy Holdings Corp.	3
	Report of Independent Registered Public Accounting Firm for Realogy Group LLC	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	5
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	6
	Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risks	54
Item 4.	Controls and Procedures	55
PART II	OTHER INFORMATION	57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
Signatures		60
Exhibit Index		61

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INTRODUCTORY NOTE

Except as otherwise indicated or unless the context otherwise requires, the terms "we," "us," "our," "our company," "Realogy," "Realogy Holdings" and the "Company" refer to Realogy Holdings Corp., a Delaware corporation, and its consolidated subsidiaries, including Realogy Intermediate Holdings LLC, a Delaware limited liability company ("Realogy Intermediate"), and Realogy Group LLC, a Delaware limited liability company ("Realogy Group"). Neither Realogy Holdings, the indirect parent of Realogy Group, nor Realogy Intermediate, the direct parent company of Realogy Group, conducts any operations other than with respect to its respective direct or indirect ownership of Realogy Group. As a result, the consolidated financial positions, results of operations and cash flows of Realogy Holdings, Realogy Intermediate and Realogy Group are the same.

Realogy Holdings is not a party to the Amended and Restated Credit Agreement dated as of March 5, 2013, as amended from time to time (the "Senior Secured Credit Facility") and the Term Loan A Agreement dated as of October 23, 2015, as amended from time to time (the "Term Loan A Facility") and certain references in this report to our consolidated indebtedness exclude Realogy Holdings with respect to indebtedness under the Senior Secured Credit Facility and Term Loan A Facility. In addition, while Realogy Holdings is a guarantor of Realogy Group's obligations under its unsecured notes, Realogy Holdings is not subject to the restrictive covenants in the indentures governing such indebtedness.

As used in this Quarterly Report on Form 10-Q, the terms "4.50% Senior Notes," "5.25% Senior Notes" and "4.875% Senior Notes" refer to our 4.50% Senior Notes due 2019, our 5.25% Senior Notes due 2021 and our 4.875% Senior Notes due 2023, respectively, and are referred to collectively as the "Unsecured Notes."

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "believe," "expect," "anticipate," "intend," "project," "estimate," "plan," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts.

In particular, information appearing under "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, it is based on management's current plans and expectations, expressed in good faith and believed to have a reasonable basis. However, we can give no assurance that any such expectation or belief will result or will be achieved or accomplished.

The following include some, but not all, of the factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:


•	adverse developments or the absence of sustained improvement in general business, economic and political conditions or the U.S. residential real estate markets, either regionally or nationally, including but not limited to:


◦	a decline or a lack of improvement in the number of homesales;


◦	stagnant or declining home prices or a reduction in the affordability of housing;


◦	increasing mortgage rates and/or constraints on the availability of mortgage financing;


◦	insufficient or excessive home inventory levels by market and price point;


◦	a lack of improvement or deceleration in the building of new housing and/or irregular timing or volume of new development closings;


◦	the potential negative impact of certain provisions of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) (i) on home values over time in states with high property, sales and state and local income taxes and (ii) on homeownership rates; and/or


◦	a deterioration in other economic factors that particularly impact the residential real estate market and the business segments in which we operate whether broadly or by geography and price segments;

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•	increased competition in the industry and for independent sales agents whether through traditional competitors, competitors with alternative business models or other industry participants otherwise competing for a portion of gross commission income;


•	continuing pressure on the share of gross commission income paid by our company owned brokerages and our affiliated franchisees to their independent affiliated sales agents;


•	our geographic and high-end market concentration;


•	our inability to enter into franchise agreements with new franchisees or renew existing franchise agreements at current contractual royalty rates without increasing the amount and prevalence of sales incentives;


•	the lack of revenue growth or declining profitability of our franchisees and company owned brokerage operations;


•	changes in corporate relocation practices resulting in fewer employee relocations, reduced relocation benefits, increasing competition in corporate relocation or the loss of one or more significant affinity clients;


•	an increase in the experienced claims losses of our title underwriter;

•

our failure or alleged failure to comply with laws, regulations and regulatory interpretations and any changes or stricter interpretations of any of the foregoing, including but not limited to (1) state or federal employment laws or regulations that would require reclassification of independent contractor sales agents to employee status, (2) privacy or data security laws and regulations and (3) RESPA or federal or state consumer protection or similar laws;


•	risks relating to our ability to return capital to stockholders pursuant to our stock repurchase program;


•	risks and growing costs related to cybersecurity threats to our data and customer, franchisee, employee and independent sales agent data; and


•	risks associated with our substantial indebtedness and interest obligations and restrictions contained in our debt agreements, including risks relating to having to dedicate a significant portion of our cash flows from operations to service our debt.

More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Form 10-K"), particularly under the captions "Forward-Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." You should consider these factors in connection with any forward-looking statements that may be made by us and our businesses generally.

All forward-looking statements herein speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this report. Except as is required by law, we expressly disclaim any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this report. For any forward-looking statement contained in this report, our public filings or other public statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Realogy Holdings Corp.

Results of Review of Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Realogy Holdings Corp. and its subsidiaries as of September 30, 2018, and the related condensed consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and2017, including 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), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of operations, comprehensive income, equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheetinformation as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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 the standards of the PCAOB. A review of interim financial information 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/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

November 2, 2018

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of Realogy Group LLC

Results of Review of Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Realogy Group LLC and its subsidiaries as of September 30, 2018, and the related condensed consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and 2017, including 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) and in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of operations, comprehensive income, equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("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 the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information 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 or in accordance with auditing standards generally accepted in the United States of America, 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/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

November 2, 2018

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REALOGY HOLDINGS CORP. AND REALOGY GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Revenues
Gross commission income	$	1,246		$	1,250		$	3,536		$	3,505
Service revenue	268			261			728			710
Franchise fees	109			111			302			296
Other	53			52			159			159
Net revenues	1,676			1,674			4,725			4,670
Expenses
Commission and other agent-related costs	902			887			2,556			2,462
Operating	387			394			1,171			1,162
Marketing	63			63			199			195
General and administrative	80			82			244			269
Former parent legacy cost (benefit), net	—			1			—			(10		)
Restructuring costs, net	9			2			45			9
Depreciation and amortization	49			50			146			149
Interest expense, net	41			41			120			127
Loss on the early extinguishment of debt	—			1			7			5
Total expenses	1,531			1,521			4,488			4,368
Income before income taxes, equity in (earnings) losses and noncontrolling interests	145			153			237			302
Income tax expense	40			67			73			131
Equity in (earnings) losses of unconsolidated entities	1			(10		)	3			(7		)
Net income	104			96			161			178
Less: Net income attributable to noncontrolling interests	(1		)	(1		)	(2		)	(2		)
Net income attributable to Realogy Holdings and Realogy Group	$	103		$	95		$	159		$	176

Earnings per share attributable to Realogy Holdings:
Basic earnings per share	$	0.84		$	0.70		$	1.26		$	1.28
Diluted earnings per share	$	0.83		$	0.69		$	1.25		$	1.26
Weighted average common and common equivalent shares of Realogy Holdings outstanding:
Basic	122.7			136.1			126.5			137.8
Diluted	123.6			138.1			127.6			139.4

Cash dividends declared per share	$	0.09		$	0.09		$	0.27		$	0.27

See Notes to Condensed Consolidated Financial Statements.

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REALOGY HOLDINGS CORP. AND REALOGY GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income	$	104		$	96		$	161		$	178
Currency translation adjustment	—			1			(2		)	3
Defined benefit pension plan - amortization of actuarial loss to periodic pension cost	—			1			1			1
Other comprehensive income (loss), before tax	—			2			(1		)	4
Income tax expense related to items of other comprehensive income amounts	—			1			—			1
Other comprehensive income (loss), net of tax	—			1			(1		)	3
Comprehensive income	104			97			160			181
Less: comprehensive income attributable to noncontrolling interests	(1		)	(1		)	(2		)	(2		)
Comprehensive income attributable to Realogy Holdings and Realogy Group	$	103		$	96		$	158		$	179

See Notes to Condensed Consolidated Financial Statements.

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REALOGY HOLDINGS CORP. AND REALOGY GROUP LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)



	September 30, 2018			December 31, 2017
	September 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	226		$	227
Restricted cash	11			7
Trade receivables (net of allowance for doubtful accounts of $9 and $11)	180			153
Relocation receivables	334			223
Other current assets	154			179
Total current assets	905			789
Property and equipment, net	284			289
Goodwill	3,712			3,710
Trademarks	749			749
Franchise agreements, net	1,243			1,294
Other intangibles, net	261			284
Other non-current assets	284			222
Total assets	$	7,438		$	7,337
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	181		$	156
Securitization obligations	264			194
Current portion of long-term debt	727			127
Accrued expenses and other current liabilities	395			478
Total current liabilities	1,567			955
Long-term debt	2,806			3,221
Deferred income taxes	378			327
Other non-current liabilities	244			212
Total liabilities	4,995			4,715
Commitments and contingencies (Note 9)
Equity:
Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none issued and outstanding at September 30, 2018 and December 31, 2017	—			—
Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized, 119,932,166 shares issued and outstanding at September 30, 2018 and 131,636,870 shares issued and outstanding at December 31, 2017	1			1
Additional paid-in capital	4,970			5,285
Accumulated deficit	(2,485		)	(2,631		)
Accumulated other comprehensive loss	(47		)	(37		)
Total stockholders' equity	2,439			2,618
Noncontrolling interests	4			4
Total equity	2,443			2,622
Total liabilities and equity	$	7,438		$	7,337

See Notes to Condensed Consolidated Financial Statements.

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REALOGY HOLDINGS CORP. AND REALOGY GROUP LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Nine Months Ended September 30,
	2018			2017
Operating Activities
Net income	$	161		$	178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	146			149
Deferred income taxes	59			129
Amortization of deferred financing costs and discount	11			12
Loss on the early extinguishment of debt	7			5
Equity in (earnings) losses of unconsolidated entities	3			(7		)
Stock-based compensation	31			38
Mark-to-market adjustments on derivatives	(20		)	6
Other adjustments to net income	(1		)	(2		)
Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:
Trade receivables	(26		)	(13		)
Relocation receivables	(112		)	(30		)
Other assets	(15		)	(33		)
Accounts payable, accrued expenses and other liabilities	(18		)	—
Dividends received from unconsolidated entities	3			24
Other, net	(5		)	(11		)
Net cash provided by operating activities	224			445
Investing Activities
Property and equipment additions	(73		)	(69		)
Payments for acquisitions, net of cash acquired	(1		)	(13		)
Investment in unconsolidated entities	(15		)	(34		)
Proceeds from investments in unconsolidated entities	19			—
Other, net	10			17
Net cash used in investing activities	(60		)	(99		)
Financing Activities
Net change in revolving credit facility	180			(10		)
Payments for refinancing of Term Loan B	(4		)	—
Proceeds from refinancing of Term Loan A & A-1	17			—
Amortization payments on term loan facilities	(17		)	(31		)
Net change in securitization obligations	70			29
Debt issuance costs	(16		)	(6		)
Cash paid for fees associated with early extinguishment of debt	—			(1		)
Repurchase of common stock	(302		)	(180		)
Dividends paid on common stock	(34		)	(37		)
Proceeds from exercise of stock options	—			7
Taxes paid related to net share settlement for stock-based compensation	(10		)	(11		)
Payments of contingent consideration related to acquisitions	(21		)	(18		)
Other, net	(23		)	(19		)
Net cash used in financing activities	(160		)	(277		)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	(1		)	2
Net increase in cash, cash equivalents and restricted cash	3			71
Cash, cash equivalents and restricted cash, beginning of period	234			281
Cash, cash equivalents and restricted cash, end of period	$	237		$	352
Supplemental Disclosure of Cash Flow Information
Interest payments (including securitization interest of $6 and $5 for the periods presented)	$	118		$	111
Income tax payments, net	10			10

See Notes to Condensed Consolidated Financial Statements.

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REALOGY HOLDINGS CORP. AND REALOGY GROUP LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in millions)

(Unaudited)


1.	BASIS OF PRESENTATION

Realogy Holdings Corp. ("Realogy Holdings", "Realogy" or the "Company") is a holding company for its consolidated subsidiaries including Realogy Intermediate Holdings LLC ("Realogy Intermediate") and Realogy Group LLC ("Realogy Group") and its consolidated subsidiaries. Realogy, through its subsidiaries, is a global provider of residential real estate services. Neither Realogy Holdings, the indirect parent of Realogy Group, nor Realogy Intermediate, the direct parent company of Realogy Group, conducts any operations other than with respect to its respective direct or indirect ownership of Realogy Group. As a result, the consolidated financial positions, results of operations, comprehensive income and cash flows of Realogy Holdings, Realogy Intermediate and Realogy Group are the same.

The accompanying Condensed Consolidated Financial Statements include the financial statements of Realogy Holdings and Realogy Group. Realogy Holdings' only asset is its investment in the common stock of Realogy Intermediate, and Realogy Intermediate's only asset is its investment in Realogy Group. Realogy Holdings' only obligations are its guarantees of certain borrowings and certain franchise obligations of Realogy Group. All expenses incurred by Realogy Holdings and Realogy Intermediate are for the benefit of Realogy Group and have been reflected in Realogy Group's Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with Article 10 of Regulation S-X. Interim results may not be indicative of full year performance because of seasonal and short-term variations. The Company has eliminated all material intercompany transactions and balances between entities consolidated in these financial statements. In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and the related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ materially from those estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

In management's opinion, the accompanying unaudited Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair statement of Realogy Holdings and Realogy Group's financial position as of September 30, 2018 and the results of operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. The Consolidated Balance Sheet at December 31, 2017 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.

Fair Value Measurements

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.



Level Input:		Input Definitions:

Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II		Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The availability of observable inputs can vary from asset to asset and is affected by a wide variety of factors, including, for example, the type of asset, whether the asset is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or

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unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level III. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The fair value of financial instruments is generally determined by reference to quoted market values. 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 fair value of interest rate swaps is determined based upon a discounted cash flow approach.

The Company measures financial instruments at fair value on a recurring basis and recognizes transfers within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer occurred.

The following table summarizes fair value measurements by level at September 30, 2018 for assets and liabilities measured at fair value on a recurring basis:



	Level I		Level II		Level III		Total
Deferred compensation plan assets (included in other non-current assets)	$	2	$	—	$	—	$	2
Interest rate swaps (included in other non-current assets)	—		15		—		15
Interest rate swaps (included in other non-current liabilities)	—		2		—		2
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		11		11

The following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value on a recurring basis:



	Level I		Level II		Level III		Total
Deferred compensation plan assets (included in other non-current assets)	$	3	$	—	$	—	$	3
Interest rate swaps (included in other current and non-current liabilities)	—		13		—		13
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		34		34

The fair value of the Company’s contingent consideration for acquisitions is measured using a probability weighted-average discount rate to estimate future cash flows based upon the likelihood of achieving future operating results for individual acquisitions. These assumptions are deemed to be unobservable inputs and as such the Company’s contingent consideration is classified within Level III of the valuation hierarchy. The Company reassesses the fair value of the contingent consideration liabilities on a quarterly basis.

The following table presents changes in Level III financial liabilities measured at fair value on a recurring basis:



	Level III
Fair value of contingent consideration at December 31, 2017	$	34
Additions: contingent consideration related to acquisitions completed during the period	1
Reductions: payments of contingent consideration	(22		)
Changes in fair value (reflected in the Condensed Consolidated Statement of Operations)	(2		)
Fair value of contingent consideration at September 30, 2018	$	11

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The following table summarizes the principal amount of the Company’s indebtedness compared to the estimated fair value, primarily determined by quoted market values, at:



	September 30, 2018				December 31, 2017
Debt	Principal Amount		Estimated Fair Value (a)		Principal Amount		Estimated Fair Value (a)
Senior Secured Credit Facility:
Revolving Credit Facility	$	250	$	250	$	70	$	70
Term Loan B	1,072		1,073		1,083		1,085
Term Loan A Facility:
Term Loan A	741		741		391		393
Term Loan A-1	—		—		342		343
4.50% Senior Notes	450		452		450		457
5.25% Senior Notes	550		549		550		569
4.875% Senior Notes	500		467		500		495
Securitization obligations	264		264		194		194

_______________


(a)	The fair value of the Company's indebtedness is categorized as Level II.

Equity Method Investments

At September 30, 2018 and December 31, 2017, the Company had various equity method investments aggregating $53 million and $74 million, respectively, which are recorded within other non-current assets on the accompanying Condensed Consolidated Balance Sheets. The $53 million investment balance at September 30, 2018 included $46 million for the Company's investment in Guaranteed Rate Affinity, LLC ("Guaranteed Rate Affinity"). The Company's interest in PHH Home Loans, LLC ("PHH Home Loans") was sold to a subsidiary of PHH Corporation in the first quarter of 2018. The $74 million investment balance at December 31, 2017 included $48 million for the Company's investment in Guaranteed Rate Affinity and $19 million for the Company's remaining investment in PHH Home Loans. The Company received net cash proceeds of $19 million reducing the investment balance in PHH Home Loans to zero in the first quarter of 2018.

For the three and nine months ended September 30, 2018, the Company recorded equity losses of $1 million and $3 million, respectively, at the Title and Settlement Services segment primarily related to costs associated with the ramp up of operations of Guaranteed Rate Affinity. The Company recorded $10 million and $7 million of earnings related to its equity investments for the three and nine months ended September 30, 2017, respectively, primarily related to earnings from the first two phases of the sale of PHH Home Loans' assets to Guaranteed Rate Affinity, partially offset by the recognition of certain exit costs at PHH Home Loans.

The Company received $3 million and $24 million in cash dividends from equity method investments during the nine months ended September 30, 2018 and 2017, respectively. The Company invested $4 million into Guaranteed Rate Affinity during the first quarter of 2018 and $34 million into Guaranteed Rate Affinity during the nine months ended September 30, 2017.

Income Taxes

The Company's provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income before income taxes for the period. In addition, non-recurring or discrete items are recorded in the period in which they occur. The provision for income taxes was an expense of $40 million and $67 million for the three months ended September 30, 2018 and 2017, respectively, and an expense of $73 million and $131 million for the nine months ended September 30, 2018 and 2017, respectively.

Derivative Instruments

The Company records derivatives and hedging activities on the balance sheet at their respective fair values. The Company uses foreign currency forward contracts largely to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated receivables and payables. The Company primarily manages its foreign currency exposure to the Euro, British Pound, Swiss Franc and Canadian Dollar. The Company has not elected to utilize hedge accounting for these forward contracts; therefore, any change in fair value is recorded in the Condensed Consolidated Statements of Operations. However, the fluctuations in the value of these forward contracts generally offset

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the impact of changes in the value of the underlying risk that they are intended to economically hedge. As of September 30, 2018, the Company had outstanding foreign currency forward contracts in an asset position with a fair value of less than $1 million and a notional value of $27 million. As of December 31, 2017, the Company had outstanding foreign currency forward contracts in a liability position with a fair value of less than $1 million and a notional value of $25 million.

The Company also enters into interest rate swaps to manage its exposure to changes in interest rates associated with its variable rate borrowings. Interest rate swaps with a notional value of $425 million expired February 10, 2018. As of September 30, 2018, the Company had interest rate swaps with an aggregate notional value of $1,600 million to offset the variability in cash flows resulting from the term loan facilities as follows:



Notional Value (in millions)		Commencement Date	Expiration Date
$600		August 2015	August 2020
$450		November 2017	November 2022
$400	(a)	August 2020	August 2025
$150	(a)	November 2022	November 2027

_______________


(a)	During the second quarter of 2018, the Company entered into four new forward starting interest rate swaps, two with a notional value of $125 million and two with a notional value of $150 million.

The swaps help to protect our outstanding variable rate borrowings from future interest rate volatility. The Company has not elected to utilize hedge accounting for these interest rate swaps; therefore, any change in fair value is recorded in the Condensed Consolidated Statements of Operations.

The fair value of derivative instruments was as follows:



Not Designated as Hedging Instruments	Balance Sheet Location	September 30, 2018		December 31, 2017
Interest rate swap contracts	Other non-current assets	$	15	$	—
Interest rate swap contracts	Other current and non-current liabilities	2		13

The effect of derivative instruments on earnings was as follows:



Derivative Instruments Not Designated as Hedging Instruments	Location of (Gain) or Loss Recognized for Derivative Instruments	(Gain) or Loss Recognized on Derivatives
		Three Months Ended September 30,					Nine Months Ended September 30,
		2018			2017		2018			2017
Interest rate swap contracts	Interest expense	$	(7	)	$	—	$	(19	)	$	4
Foreign exchange contracts	Operating expense	—			1		(1		)	2

Restricted Cash

Restricted cash primarily relates to amounts specifically designated as collateral for the repayment of outstanding borrowings under the Company’s securitization facilities. Such amounts approximated $11 million and $7 million at September 30, 2018 and December 31, 2017, respectively.

Supplemental Cash Flow Information

Significant non-cash transactions during the nine months ended September 30, 2018 and 2017 included capital lease additions of $11 million and $13 million, respectively, which resulted in non-cash additions to property and equipment, net and other non-current liabilities.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers" (the "new revenue standard"). The objective of the new revenue standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. After a review of the Company's revenue streams, the Company determined that the new revenue standard did not have a material impact on financial results as the majority of the Company's revenue is recognized at the completion of a homesale transaction which did not result in a change in the timing of recognition of revenue transactions under the new revenue standard. The Company adopted the new revenue standard on January 1, 2018 using the modified retrospective transition method in which the cumulative effect of applying the new revenue standard was

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recognized as an adjustment to the opening balance of retained earnings. See Note 2, "Revenue Recognition" for further details.

In February 2018, the FASB issued a new standard which permits companies to reclassify certain income tax effects resulting from the 2017 Tax Act, called "stranded tax effects", from accumulated other comprehensive income ("AOCI") to retained earnings. According to the new guidance, the reclassification amount should include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the 2017 Tax Act related to items remaining in AOCI. The guidance is effective for all companies for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption is permitted. The Company early adopted this standard in the first quarter of 2018 which resulted in a debit to Accumulated other comprehensive loss and a credit to Accumulated deficit for $9 million. The Company’s accounting policy for releasing income tax effects from AOCI is to release those effects when our entire portfolio of the type of item is liquidated.

In June 2018, the FASB issued a new standard related to non-employee share-based payment accounting. The new guidance eliminates specific accounting for non-employee share-based payments and aligns the treatment for awards issued to employees and non-employees reducing the complexity of measurement of non-employee awards and creating a single accounting model. The new standard is applied to all new awards granted after the date of adoption. In addition, all liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established by the adoption date should be remeasured at fair value as of the adoption date with a cumulative effect adjustment to opening retained earnings in the fiscal year of adoption. If early adoption of the new guidance is chosen in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company elected to early adopt this guidance during the second quarter of 2018. There was an immaterial impact upon adoption.

Recently Issued Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs"). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In February 2016, the FASB issued its new standard on leases which requires virtually all leases to be recognized on the balance sheet. Lessees will recognize a right-of-use asset and a lease liability for all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for lease incentives, prepayments and initial direct costs. For income statement purposes, leases will be classified as either operating or finance leases. Operating leases will result in straight-line expense, similar to current operating leases, while finance leases will result in a front-loaded expense pattern, similar to current capital leases. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines.

The new standard is effective on January 1, 2019, with early adoption permitted, requiring a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. In July 2018, the FASB issued an ASU that allows entities to elect an optional transition relief giving companies the option to apply the provisions of the new guidance at the effective date (e.g., January 1, 2019), as opposed to the earliest comparative period presented in the financial statements under the modified retrospective transition approach (January 1, 2017), and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the new standard during the first quarter of 2019 and will elect the optional transition relief. The new standard allows for an optional package of practical expedients during transition which permit companies to not reassess prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company plans to elect this package of practical expedients; however, the Company does not expect to elect the use of hindsight practical expedients and therefore current lease terms largely remained unchanged.

The new standard also allows practical expedients for future accounting under the new standard. The Company plans to elect the short-term lease recognition exemption and will not recognize a lease obligation and right-of-use asset on its balance sheet for all leases with terms of 12 months or less. The Company also plans to elect the practical expedient to not separate lease and non-lease components for all of its leases resulting in a larger lease liability recorded on the balance sheet.

The Company is still evaluating the impact of the standard on its consolidated financial statements but currently believes that the most significant effects of adoption relate to the recognition of new right-of-use assets and lease liabilities on the balance sheet for real estate operating leases. Future lease obligations are disclosed in Note 13. "Commitments and

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Contingencies" of the Annual Report on Form 10-K for the year ended December 31, 2017. The Company is in the process of evaluating its policies and internal controls, as well as implementing a new lease management system which will be utilized to account for leases under the new guidance once adopted.

In August 2018, the SEC issued a final rule that amends certain disclosure requirements as part of the SEC’s overall project to improve disclosure effectiveness and simplify compliance. The final rule eliminates redundant, duplicative and overlapping requirements which are substantially similar to current GAAP or other SEC disclosure requirements, as well as amends or removes outdated and superseded requirements. However, in some situations, the amendments expanded disclosure requirements, such as an analysis of changes in stockholders’ equity will now be required for the current and comparative quarter and year-to-date interim periods. The amended rules become effective 30 days after publication in the Federal Register. The Company has included its statement of changes in stockholders' equity for the three and nine month periods ended September 30, 2018 and September 30, 2017 to conform with the new requirements.


2.	REVENUE RECOGNITION

Adoption of the New Revenue Standard

Effective January 1, 2018, the Company adopted the new revenue standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard; however, the comparative prior period amounts have not been restated and continue to be reported in accordance with historic accounting under ASC Topic 605. The majority of the Company's revenue continues to be recognized at the completion of a homesale transaction under the new revenue standard, however as a result of the adoption the Company recognized additional contract liabilities and deferred assets associated with certain other revenue streams. As of January 1, 2018, the Company recorded a net debit to its opening Accumulated deficit of $22 million, net of tax, due to the cumulative impact of adopting the new revenue standard, with the impact primarily related to the recognition of additional contract liabilities for initial area development fees and deferred assets for prepaid commissions.

Contract Liabilities for Initial Area Development Fees ("ADF"):

Contract liabilities are recorded when cash payments are received or due in advance of the Company's performance. The Company records these as deferred revenues and are classified as current or non-current liabilities in the Condensed Consolidated Balance Sheets based on the expected timing of revenue recognition.

The Real Estate Franchise Services segment collects an initial ADF for international territory transactions, which are recorded as deferred revenue when received and recognized into revenue over the term of the agreement, typically 25 years, as consideration for the right to access and benefit from Realogy’s brands. In the event an ADF agreement is terminated prior to the end of its term, the unamortized deferred revenue balance will be recognized into revenue immediately upon termination. ADFs were recognized as revenue upfront when received under historical guidance.

Prepaid Commissions:

The incremental direct costs of obtaining a contract, which primarily consist of franchise sales commissions, are deferred and amortized generally over the estimated life of the customer relationship for domestic and international contracts. The Company classifies prepaid commissions as current or non-current assets in the Condensed Consolidated Balance Sheets based on the expected timing of recognizing expense.

The Real Estate Franchise Services segment recognizes a deferred asset for commissions paid to Realogy franchise sales employees upon the sale of a new franchise. The amount of commissions is calculated as a percentage of the anticipated gross commission income of the new franchisee or the amount of the ADF and is amortized on a straight-line basis over the estimated life of franchise customer relationships, 30 years for domestic franchise agreements, or the agreement term for international franchise agreements which is generally 25 years. Franchise sales commissions were expensed upfront when paid under historical guidance.

Practical Expedients and Exemptions:

The Company elected to apply the practical expedient that only requires the Company to apply the revenue standard to contracts that were open as of the beginning of the earliest period presented which impacted the amount of prepaid commissions capitalized.

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The majority of the Company's contracts are transactional in nature or have a duration of one-year or less. Accordingly, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The cumulative effect of the changes made to the Condensed Consolidated Balance Sheets for the adoption of the new revenue standard were as follows:



	Balance Sheet accounts prior to the new revenue standard adoption adjustments			Adjustments due to the adoption of the new revenue standard			Balance Sheet accounts after the new revenue standard adoption adjustments
ASSETS
Current assets:
Trade receivables	$	153		$	1		$	154
Other current assets	179			2			181
Total current assets	789			3			792
Other non-current assets	222			23			245
Total assets	$	7,337		$	26		$	7,363

LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses and other current liabilities	$	478		$	2		$	480
Total current liabilities	955			2			957
Deferred income taxes	327			(8		)	319
Other non-current liabilities	212			54			266
Total liabilities	4,715			48			4,763
Equity:
Accumulated deficit (a)	(2,622		)	(22		)	(2,644		)
Accumulated other comprehensive loss (a)	(46		)	—			(46		)
Total stockholders' equity	2,618			(22		)	2,596
Total equity	2,622			(22		)	2,600
Total liabilities and equity	$	7,337		$	26		$	7,363

_______________


(a)	Beginning balances have been adjusted for the adoption of the accounting standard update on stranded tax effects related to the 2017 Tax Act which resulted in a debit to Accumulated other comprehensive loss and a credit to Accumulated deficit of $9 million. See Note 1, "Basis of Presentation" in the "Recently Adopted Accounting Pronouncements" section for additional information.

The impact of adopting the new revenue standard, as compared to historic guidance under ASC Topic 605, was immaterial to the Company's Condensed Consolidated Financial Statements as of and for the nine months ended September 30, 2018.

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Revenue Recognition

Revenue is recognized upon the transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services in accordance with the new revenue standard. The Company's revenue is disaggregated by major revenue categories on our Condensed Consolidated Statements of Operations and further disaggregated by business segment as follows:



	Three Months Ended September 30, 2018 vs September 30, 2017 (e)
	Real Estate Franchise Services				Company Owned Brokerage Services				Relocation Services				Title and Settlement Services				Corporate and Other						Total Company
	2018		2017		2018		2017		2018		2017		2018		2017		2018			2017			2018		2017
Gross commission income (a)	$	—	$	—	$	1,246	$	1,250	$	—	$	—	$	—	$	—	$	—		$	—		$	1,246	$	1,250
Service revenue (b)	—		—		3		1		107		110		158		150		—			—			268		261
Franchise fees (c)	189		192		—		—		—		—		—		—		(80		)	(81		)	109		111
Other (d)	32		32		19		16		1		1		4		4		(3		)	(1		)	53		52
Net revenues	$	221	$	224	$	1,268	$	1,267	$	108	$	111	$	162	$	154	$	(83	)	$	(82	)	$	1,676	$	1,674



	Nine Months Ended September 30, 2018 vs September 30, 2017 (e)
	Real Estate Franchise Services				Company Owned Brokerage Services				Relocation Services				Title and Settlement Services				Corporate and Other						Total Company
	2018		2017		2018		2017		2018		2017		2018		2017		2018			2017			2018		2017
Gross commission income (a)	$	—	$	—	$	3,536	$	3,505	$	—	$	—	$	—	$	—	$	—		$	—		$	3,536	$	3,505
Service revenue (b)	—		—		7		6		289		287		432		417		—			—			728		710
Franchise fees (c)	531		525		—		—		—		—		—		—		(229		)	(229		)	302		296
Other (d)	103		106		50		45		3		3		12		14		(9		)	(9		)	159		159
Net revenues	$	634	$	631	$	3,593	$	3,556	$	292	$	290	$	444	$	431	$	(238	)	$	(238	)	$	4,725	$	4,670

_______________


(a)	Approximately 75% of the Company's total net revenues related to gross commission income at the Company Owned Brokerage Services segment, which is recognized at a point in time at the closing of a homesale transaction.

(b)

Approximately 15% of the Company's total net revenues related to service fees primarily consisting of title and escrow fees at the Title and Settlement Services segment, which are recognized at a point in time at the closing of a homesale transaction, and relocation fees at the Relocation Services segment, which are recognized as revenue when or as the related performance obligation is satisfied, which is dependent on the type of service performed. Relocation fees at the Relocation Services segment primarily include: (i) referral fees which are recognized at a point in time of the closing of a homesale transaction, (ii) outsourcing fees, which are management fees charged to clients frequently related to a bundle of relocation services performed and are recognized over the average time period to complete a move, and (iii) referral commissions from third party suppliers which are recognized at the time of the completion of the related service.


(c)	Approximately 5% of the Company's total net revenues related to franchise fees at the Real Estate Franchise Services segment, primarily domestic royalties, which are recognized at a point in time when the underlying franchisee revenue is earned (upon close of the homesale transaction).


(d)	Approximately 5% of the Company's total net revenues related to other revenue, which comprised of brand marketing funds received at the Real Estate Franchise Services segment from franchisees and other miscellaneous revenues across all of the business segments.


(e)	Prior period amounts have not been adjusted under the modified retrospective method.

The Company's revenue streams are discussed further below by business segment:

Real Estate Franchise Services

The Company franchises its real estate brands to real estate brokerage businesses that are independently owned and operated. Franchise revenue principally consists of royalty and marketing fees from the Company’s franchisees. The royalty received is primarily based on a gross percentage (generally 6%) of the franchisee’s gross commission income. Royalty fees are accrued as the underlying franchisee revenue is earned (upon close of the homesale transaction). Annual volume incentives given to certain franchisees on royalty fees are recorded as a reduction to revenue and are accrued for in relative proportion to the recognition of the underlying gross franchise revenue. Non-standard sales incentives are recorded

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as a reduction to revenue ratably over the related performance period or from the date of issuance through the remaining life of the related franchise agreement. Franchise revenue also includes domestic initial franchise fees which are generally non-refundable and recognized by the Company as revenue upon the execution or opening of a new franchisee office to cover the upfront costs associated with opening the franchisee for business under one of Realogy’s brands.

The Company also earns marketing fees from its franchisees and utilizes such fees to fund marketing campaigns on behalf of its franchisees. As such, brand marketing fund fees are recorded as deferred revenue when received and recognized into revenue as earned when these funds are spent on marketing activities. The balance for deferred brand marketing fund fees decreased from $13 million at January 1, 2018 to $8 million at September 30, 2018 primarily due to amounts recognized into revenue matching expenses for marketing activities, partially offset by additional fees received from franchisees during the nine months ended September 30, 2018.

The Company collects initial ADFs for international territory transactions, which are recorded as deferred revenue when received and recognized into franchise revenue over the average 25 year life of the related franchise agreement as consideration for the right to access and benefit from Realogy’s brands. The balance for deferred ADFs decreased from $58 million at January 1, 2018 to $55 million at September 30, 2018 due to revenues of $4 million recognized during the nine months ended September 30, 2018 that were included in the deferred revenue balance at the beginning of the period, partially offset by $1 million of additional area development fees received during the nine months ended September 30, 2018.

In addition, the Company recognizes a deferred asset for commissions paid to Realogy franchise sales employees upon the sale of a new franchise as these are considered costs of obtaining a contract with a customer that are expected to provide benefits to the Company for longer than one year. The amount of commissions is calculated as a percentage of the anticipated gross commission income of the new franchisee or ADF and is amortized over 30 years for domestic franchise agreements or the agreement term for international franchise agreements (generally 25 years). The amount of prepaid commissions was $24 million at both January 1, 2018 and September 30, 2018.

Company Owned Real Estate Brokerage Services

As an owner-operator of real estate brokerages, the Company assists home buyers and sellers in listing, marketing, selling and finding homes. Real estate commissions earned by the Company’s real estate brokerage business are recorded as revenue at a point in time which is upon the closing of a real estate transaction (i.e., purchase or sale of a home). These revenues are referred to as gross commission income. The commissions the Company pays to real estate agents are recognized concurrently with associated revenues and presented as the commission and other agent-related costs line item on the accompanying Condensed Consolidated Statements of Operations.

The Company has relationships with developers, primarily in major cities, to provide marketing and brokerage services in new developments. New development closings generally have a development period of between 18 and 24 months from contracted date to closing. In some cases, the Company receives advanced commissions which are recorded as deferred revenue when received and recognized as revenue when the new development closes. The balance of advanced commissions related to developments was a liability of $10 million at both January 1, 2018 and September 30, 2018. During the nine months ended September 30, 2018, the balance increased $5 million related to additional commissions received for new developments, offset by a $5 million decrease due to revenues recognized on units closed.

Relocation Services

The Company provides relocation services to corporate and government clients for the transfer of their employees ("transferees"). Such services include homesale assistance including the purchasing and/or selling of a transferee’s home and providing home equity advances to transferees (generally guaranteed by the individual's employer), arranging household goods moving services, and other relocation services such as expense processing, relocation policy counseling, relocation-related accounting, coordinating visa and immigration support, intercultural and language training and destination services. In the majority of relocation transactions, the gain or loss on the sale of a transferee’s home is generally borne by the individual's employer. Clients may pay an outsourcing management fee that can cover several of the relocation services listed above, according to the clients' specific needs. In addition, the Company provides home buying and selling assistance to members of Affinity organizations.

The Company earns referral commission revenue primarily from real estate brokers for the home sale and purchase for transferees and Affinity members, which is recognized at a point in time when the underlying property closes, and revenues from other third-party service providers where the Company earns a referral commission, which is recognized at the point in

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time at the completion of services. Furthermore, the Company generally earns interest income on the funds it advances on behalf of the transferring employee, which is recorded within other revenue (as is the corresponding interest expense on the securitization obligations) in the accompanying Condensed Consolidated Statements of Operations.

The Company earns revenues from outsourcing management fees charged to clients for the performance and facilitation of relocation services. Outsourcing management fees are recorded as deferred revenue when billed (usually at the start of the relocation) and are recognized as revenue over the average time period required to complete the transferee's move, or a phase of the move that the fee covers, which is typically 3 to 6 months depending on the move type. The balance for outsourcing management fees was a liability of $5 million at both January 1, 2018 and September 30, 2018. During the nine months ended September 30, 2018, the balance increased $48 million primarily related to additions due to new management fees billed on new relocation files in advance of the Company satisfying its performance obligation, offset by a $48 million decrease as a result of revenues recognized as the performance obligations were satisfied.

The Relocation Services segment manages the Cartus Broker Network, which is a network of real estate brokers consisting of our company owned brokerage operations, select franchisees and independent real estate brokers who have been approved to become members. Network fees are billed in the fourth quarter of the previous year for the following year's membership and recognized into revenue on a straight-line basis each month during the membership period. The balance for Cartus Broker Membership decreased from $8 million at January 1, 2018 to $3 million at September 30, 2018 primarily due to $7 million of revenues recognized during the nine months ended September 30, 2018 that were included in the deferred revenue balance at the beginning of the period, partially offset by a $2 million increase related to new network fees.

Title and Settlement Services

The Company provides title and closing services, which include title search procedures for title insurance policies, homesale escrow and other closing services. Title revenues and title and closing service fees are recorded at a point in time which occurs at the time a homesale transaction or refinancing closes. The Company also owns an underwriter of title insurance. For unaffiliated agents, the underwriter recognizes policy premium revenue on a gross basis (before deduction of agent commission) upon notice of policy issuance from the agent. For affiliated title agents, the underwriter recognizes the incremental policy premium revenue upon the effective date of the title policy as the agent commission revenue is already recognized by the affiliated title agent.

Contract Balances (Deferred Revenue)

The following table shows the change in the Company's contract liabilities related to revenue contracts by reportable segment for the period:



	Nine Months Ended September 30, 2018
	Beginning Balance at January 1, 2018		Additions during the period		Recognized as Revenue during the period			Ending Balance at September 30, 2018
Real Estate Franchise Services (a)	$	79	$	88	$	(93	)	$	74
Company Owned Real Estate Brokerage Services	17		12		(14		)	15
Relocation Services	18		66		(71		)	13
Total	$	114	$	166	$	(178	)	$	102

_______________


(a)	Revenues recognized include intercompany marketing fees paid by the Company Owned Real Estate Brokerage Services segment.

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3.	INTANGIBLE ASSETS

Goodwill by segment and changes in the carrying amount are as follows:



	Real Estate Franchise Services			Company Owned Brokerage Services			Relocation Services			Title and Settlement Services			Total Company
Gross goodwill as of December 31, 2017	$	3,315		$	1,062		$	641		$	478		$	5,496
Accumulated impairment losses	(1,023		)	(158		)	(281		)	(324		)	(1,786		)
Balance at December 31, 2017	2,292			904			360			154			3,710
Goodwill acquired (a)	—			2			—			—			2
Balance at September 30, 2018	$	2,292		$	906		$	360		$	154		$	3,712

_______________


(a)	Goodwill acquired during the nine months ended September 30, 2018 relates to the acquisition of three real estate brokerage operations.

Intangible assets are as follows:



	As of September 30, 2018						As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable—Franchise agreements (a)	$	2,019	$	776	$	1,243	$	2,019	$	725	$	1,294
Indefinite life—Trademarks (b)	$	749			$	749	$	749			$	749
Other Intangibles
Amortizable—License agreements (c)	$	45	$	11	$	34	$	45	$	10	$	35
Amortizable—Customer relationships (d)	549		352		197		549		335		214
Indefinite life—Title plant shares (e)	18				18		18				18
Amortizable—Pendings and listings (f)	—		—		—		2		1		1
Amortizable—Other (g)	32		20		12		33		17		16
Total Other Intangibles	$	644	$	383	$	261	$	647	$	363	$	284

_______________


(a)	Generally amortized over a period of 30 years.


(b)	Primarily relates to the Century 21^®, Coldwell Banker^®, ERA^®, Corcoran^®, Coldwell Banker Commercial^® and Cartus tradenames, which are expected to generate future cash flows for an indefinite period of time.


(c)	Relates to the Sotheby’s International Realty^® and Better Homes and Gardens^® Real Estate agreements which are being amortized over 50 years (the contractual term of the license agreements).


(d)	Relates to the customer relationships at the Relocation Services segment, the Title and Settlement Services segment and our Company Owned Real Estate Brokerage Services segment. These relationships are being amortized over a period of 2 to 20 years.


(e)	Ownership in a title plant is required to transact title insurance in certain states. The Company expects to generate future cash flows for an indefinite period of time.


(f)	Generally amortized over a period of 5 months.


(g)	Consists of covenants not to compete which are amortized over their contract lives and other intangibles which are generally amortized over periods ranging from 5 to 10 years.

Intangible asset amortization expense is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Franchise agreements	$	17	$	16	$	51	$	50
License agreements	1		1		1		1
Customer relationships	5		5		17		18
Pendings and listings	—		2		1		3
Other	1		1		3		4
Total	$	24	$	25	$	73	$	76

Based on the Company’s amortizable intangible assets as of September 30, 2018, the Company expects related amortization expense for the remainder of 2018, the four succeeding years and thereafter to be approximately $25 million, $97 million, $95 million, $93 million, $92 million and $1,084 million, respectively.

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4.	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of:



	September 30, 2018		December 31, 2017
Accrued payroll and related employee costs	$	106	$	140
Accrued volume incentives	34		41
Accrued commissions	36		38
Restructuring accruals	11		5
Deferred income	60		68
Accrued interest	34		13
Contingent consideration for acquisitions	7		26
Due to former parent	18		18
Other	89		129
Total accrued expenses and other current liabilities	$	395	$	478

5. SHORT AND LONG-TERM DEBT

Total indebtedness is as follows:



	September 30, 2018		December 31, 2017
Senior Secured Credit Facility:
Revolving Credit Facility	$	250	$	70
Term Loan B	1,056		1,063
Term Loan A Facility:
Term Loan A	736		390
Term Loan A-1	—		339
4.50% Senior Notes	447		444
5.25% Senior Notes	547		546
4.875% Senior Notes	497		496
Total Short-Term & Long-Term Debt	$	3,533	$	3,348
Securitization Obligations:
Apple Ridge Funding LLC	$	250	$	181
Cartus Financing Limited	14		13
Total Securitization Obligations	$	264	$	194

Indebtedness Table

As of September 30, 2018, the Company’s borrowing arrangements were as follows:



	Interest Rate	Expiration Date	Principal Amount		Unamortized Discount and Debt Issuance Costs		Net Amount
Senior Secured Credit Facility:
Revolving Credit Facility (1)	(2)	February 2023	$	250	$ *		$	250
Term Loan B	(3)	February 2025	1,072		16		1,056
Term Loan A Facility:
Term Loan A	(4)	February 2023	741		5		736
Senior Notes	4.50%	April 2019	450		3		447
Senior Notes	5.25%	December 2021	550		3		547
Senior Notes	4.875%	June 2023	500		3		497
Securitization obligations: (5)
Apple Ridge Funding LLC (6)		June 2019	250		*		250
Cartus Financing Limited (7)		August 2019	14		*		14
Total (8)			$	3,827	$	30	$	3,797

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*	The debt issuance costs related to our Revolving Credit Facility and securitization obligations are classified as a deferred financing asset within other assets.

(1)

As of September 30, 2018, the Company had $1,400 million of borrowing capacity under its Revolving Credit Facility, with $1,150 million of available capacity. The Revolving Credit Facility expires in February 2023 but is classified on the balance sheet as current due to the revolving nature of the facility. On October 31, 2018, the Company had $253 million in outstanding borrowings under the Revolving Credit Facility, leaving $1,147 million of available capacity.

(2)

Interest rates with respect to revolving loans under the Senior Secured Credit Facility at September 30, 2018 were based on, at the Company's option, (a) adjusted London Interbank Offering Rate ("LIBOR") plus an additional margin or (b) JP Morgan Chase Bank, N.A.'s prime rate ("ABR") plus an additional margin, in each case subject to adjustment based on the then current senior secured leverage ratio. Based on the previous quarter senior secured leverage ratio, the LIBOR margin was 2.25% and the ABR margin was 1.25% for the three months ended September 30, 2018.


(3)	The Term Loan B provides for quarterly amortization payments totaling 1% per annum of the original principal amount. The interest rate with respect to term loans under the Term Loan B is based on, at the Company’s option, (a) adjusted LIBOR plus 2.25% (with a LIBOR floor of 0.75%) or (b) ABR plus 1.25% (with an ABR floor of 1.75%).

(4)

The Term Loan A provides for quarterly amortization payments, which commenced on June 30, 2018, totaling per annum 2.5%, 2.5%, 5.0%, 7.5% and 10.0% of the original principal amount of the Term Loan A, with the balance of the Term Loan A due at maturity on February 8, 2023. The interest rates with respect to the Term Loan A are based on, at the Company's option, (a) adjusted LIBOR plus an additional margin or (b) ABR plus an additional margin, in each case subject to adjustment based on the then current senior secured leverage ratio. Based on the previous quarter senior secured leverage ratio, the LIBOR margin was 2.25% and the ABR margin was 1.25% for the three months ended September 30, 2018.


(5)	Available capacity is subject to maintaining sufficient relocation related assets to collateralize these securitization obligations.


(6)	As of September 30, 2018, the Company utilized the full borrowing capacity of $250 million under the Apple Ridge Funding LLC securitization program.


(7)	Consists of a £10 million revolving loan facility and a £5 million working capital facility. As of September 30, 2018, the Company had $20 million of borrowing capacity under the Cartus Financing Limited securitization program leaving $6 million of available capacity. In August 2018, Realogy Group extended the existing Cartus Financing Limited securitization program to August 2019.


(8)	Not included in this table is the Company's Unsecured Letter of Credit Facility which had a capacity of $66 million with $64 million utilized at a weighted average rate of 3.33% at September 30, 2018.

Maturities Table

As of September 30, 2018, the combined aggregate amount of maturities for long-term borrowings, excluding securitization obligations, for the remainder of 2018 and each of the next four years is as follows:



Year	Amount
Remaining 2018 (a)	$	257
2019	480
2020	44
2021	612
2022	81

_______________

(a)

Remaining 2018 includes amortization payments totaling $4 million and $3 million for the Term Loan A and Term Loan B facilities, respectively, as well as $250 million of revolver borrowings under the Revolving Credit Facility which expires in February 2023 but is classified on the balance sheet as current due to the revolving nature of the facility. The current portion of long term debt of $727 million shown on the condensed consolidated balance sheet consists of $447 million of 4.50% Senior Notes due April 2019, four quarters of amortization payments totaling $19 million and $11 million for the Term Loan A and Term Loan B facilities, respectively, and $250 million of revolver borrowings under the Revolving Credit Facility. The Company is evaluating different alternatives to repay the 4.50% Senior Notes due in April 2019 including refinancing or using existing available liquidity.

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Senior Secured Credit Facility

In February 2018, the Company entered into fifth and sixth amendments to the Amended and Restated Senior Secured Credit Agreement dated as of March 5, 2013 (as amended, amended and restated, modified or supplemented from time to time, the "Senior Secured Credit Agreement") that respectively (i) replaced the approximately $1,100 million Term Loan B due July 2022 with a new $1,080 million Term Loan B due February 2025 and (ii) increased the borrowing capacity under its Revolving Credit Facility to $1,400 million from the prior $1,050 million and extended the maturity date to February 2023 from October 2020.

The Senior Secured Credit Agreement provides for:

(a)

the Term Loan B issued in the original aggregate principal amount of $1,080 million with a maturity date of February 2025. The Term Loan B has quarterly amortization payments totaling 1% per annum of the initial aggregate principal amount. The interest rate with respect to term loans under the Term Loan B is based on, at Realogy Group's option, adjusted LIBOR plus 2.25% (with a LIBOR floor of 0.75%) or ABR plus 1.25% (with an ABR floor of 1.75%); and

(b)

a $1,400 million Revolving Credit Facility with a maturity date of February 2023, which includes a $125 million letter of credit subfacility. The interest rate with respect to revolving loans under the Revolving Credit Facility is based on, at Realogy Group's option, adjusted LIBOR or ABR plus an additional margin subject to the following adjustments based on the Company’s then current senior secured leverage ratio:



Senior Secured Leverage Ratio	Applicable LIBOR Margin	Applicable ABR Margin
Greater than 3.50 to 1.00	2.50%	1.50%
Less than or equal to 3.50 to 1.00 but greater than or equal to 2.50 to 1.00	2.25%	1.25%
Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00	2.00%	1.00%
Less than 2.00 to 1.00	1.75%	0.75%

The Senior Secured Credit Agreement permits the Company to obtain up to $500 million of additional credit facilities from lenders reasonably satisfactory to the administrative agent and us, without the consent of the existing lenders under the new senior secured credit facility, plus an unlimited amount if Realogy Group's senior secured leverage ratio is less than 3.50 to 1.00 on a pro forma basis. Subject to certain restrictions, the Senior Secured Credit Agreement also permits us to issue senior secured or unsecured notes in lieu of any incremental facility.

The obligations under the Senior Secured Credit Agreement are secured to the extent legally permissible by substantially all of the assets of Realogy Group, Realogy Intermediate and all of their domestic subsidiaries, other than certain excluded subsidiaries.

Realogy Group’s Senior Secured Credit Agreement contains financial, affirmative and negative covenants and requires Realogy Group to maintain (so long as the Revolving Credit Facility is outstanding) a senior secured leverage ratio, not to exceed 4.75 to 1.00. The leverage ratio is tested quarterly regardless of the amount of borrowings outstanding and letters of credit issued under the revolver at the testing date. Total senior secured net debt does not include unsecured indebtedness, including the Unsecured Notes as well as the securitization obligations. At September 30, 2018, Realogy Group was in compliance with the senior secured leverage ratio covenant.

Term Loan A Facility

In February 2018, Realogy Group entered into a second amendment to the Term Loan A senior secured credit agreement. Under the amendment, the Company aggregated the existing $435 million Term Loan A and $355 million Term Loan A-1 tranches due October 2020 and July 2021, respectively, into a new single tranche of $750 million Term Loan A due February 2023. The Term Loan A provides for quarterly amortization payments totaling per annum 2.5%, 2.5%, 5.0%, 7.5% and 10.0% of the original principal amount of the Term Loan A, which commence on June 30, 2018 and continue through February 8, 2023. The interest rates with respect to the Term Loan A are based on, at our option, adjusted LIBOR or ABR plus an additional margin subject to the following adjustments based on the Company’s then current senior secured leverage ratio:

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Senior Secured Leverage Ratio	Applicable LIBOR Margin	Applicable ABR Margin
Greater than 3.50 to 1.00	2.50%	1.50%
Less than or equal to 3.50 to 1.00 but greater than or equal to 2.50 to 1.00	2.25%	1.25%
Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00	2.00%	1.00%
Less than 2.00 to 1.00	1.75%	0.75%

Consistent with the Senior Secured Credit Agreement, the Term Loan A Facility permits the Company to obtain up to $500 million of additional credit facilities from lenders reasonably satisfactory to the administrative agent and the Company, without the consent of the existing lenders under the Term Loan A, plus an unlimited amount if the Company's senior secured leverage ratio is less than 3.50 to 1.00 on a pro forma basis. Subject to certain restrictions, the Term Loan A Facility also permits us to issue senior secured or unsecured notes in lieu of any incremental facility.

Unsecured Notes

The 4.50% Senior Notes, 5.25% Senior Notes and 4.875% Senior Notes (collectively the "Unsecured Notes") are unsecured senior obligations of Realogy Group that mature on April 15, 2019, December 1, 2021 and June 1, 2023, respectively. Interest on the Unsecured Notes is payable each year semiannually on April 15 and October 15 for the 4.50% Senior Notes and June 1 and December 1 for both the 5.25% Senior Notes and 4.875% Senior Notes.

The Unsecured Notes are guaranteed on an unsecured senior basis by each domestic subsidiary of Realogy Group that is a guarantor under the Senior Secured Credit Facility and Realogy Group's outstanding debt securities and are guaranteed by Realogy Holdings on an unsecured senior subordinated basis. The indentures governing the Unsecured Notes contain affirmative and negative covenants of Realogy Group and the subsidiary guarantors.

Other Debt Facilities

The Company has an Unsecured Letter of Credit Facility to provide for the issuance of letters of credit required for general corporate purposes by the Company. At September 30, 2018, the capacity of the facility was $66 million, which expires in December 2019. At December 31, 2017, the capacity was $74 million, however $8 million of capacity under the facility expired in September 2018. As of September 30, 2018 and December 31, 2017, the Company utilized $64 million and $69 million of the capacity, respectively.

The fixed pricing to the Company is based on a spread above the credit default swap rate for senior unsecured debt obligations of the Company over the applicable letter of credit period. Realogy Group's obligations under the Unsecured Letter of Credit Facility are guaranteed on an unsecured senior basis by each domestic subsidiary of Realogy Group that is a guarantor under the Senior Secured Credit Facility and Realogy Group's outstanding debt securities.

Securitization Obligations

Realogy Group has secured obligations through Apple Ridge Funding LLC under a securitization program. As of September 30, 2018, the Company utilized the full borrowing capacity of $250 million under the Apple Ridge Funding LLC securitization program.

Realogy Group, through a special purpose entity known as Cartus Financing Limited, has agreements providing for a £10 million revolving loan facility and a £5 million working capital facility. In August 2018, Realogy Group extended the existing Cartus Financing Limited securitization program to August 2019. As of September 30, 2018, there were $14 million of outstanding borrowings on the facilities. These Cartus Financing Limited facilities are secured by the relocation assets of a U.K. government contract in this special purpose entity and are therefore classified as permitted securitization financings as defined in Realogy Group’s Senior Secured Credit Facility and the indentures governing the Unsecured Notes.

The Apple Ridge entities and the Cartus Financing Limited entity are consolidated special purpose entities that are utilized to securitize relocation receivables and related assets. These assets are generated from advancing funds on behalf of clients of Realogy Group’s relocation business in order to facilitate the relocation of their employees. Assets of these special purpose entities are not available to pay Realogy Group’s general obligations. Under the Apple Ridge program, provided no termination or amortization event has occurred, any new receivables generated under the designated relocation management agreements are sold into the securitization program and as new eligible relocation management agreements are entered into, the new agreements are designated to the program. The Apple Ridge program has restrictive covenants and trigger events, including performance triggers linked to the age and quality of the underlying assets, foreign obligor limits, multicurrency

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limits, financial reporting requirements, restrictions on mergers and change of control, any uncured breach of Realogy Group’s senior secured leverage ratio under Realogy Group’s Senior Secured Credit Facility, and cross-defaults to Realogy Group’s material indebtedness. The occurrence of a trigger event under the Apple Ridge securitization facility could restrict our ability to access new or existing funding under this facility or result in termination of the facility, either of which would adversely affect the operation of our relocation business.

Certain of the funds that Realogy Group receives from relocation receivables and related assets must be utilized to repay securitization obligations. These obligations were collateralized by $336 million and $218 million of underlying relocation receivables and other related relocation assets at September 30, 2018 and December 31, 2017, respectively. Substantially all relocation related assets are realized in less than twelve months from the transaction date. Accordingly, all of Realogy Group’s securitization obligations are classified as current in the accompanying Condensed Consolidated Balance Sheets.

Interest incurred in connection with borrowings under these facilities amounted to $2 million for both the three months ended September 30, 2018 and 2017, and $6 million and $5 million for the nine months ended September 30, 2018 and 2017, respectively. This interest is recorded within net revenues in the accompanying Condensed Consolidated Statements of Operations as related borrowings are utilized to fund Realogy Group's relocation business where interest is generally earned on such assets. These securitization obligations represent floating rate debt for which the average weighted interest rate was 3.7% and 3.3% for the nine months ended September 30, 2018 and 2017, respectively.

Loss on the Early Extinguishment of Debt and Write-Off of Financing Costs

As a result of the refinancing transactions in February 2018, the Company recorded a loss on the early extinguishment of debt of $7 million and wrote off financing costs of $2 million to interest expense during the first nine months of 2018.

As a result of the refinancing transaction in January 2017 and a reduction of the Unsecured Letter of Credit Facility in September of 2017, the Company recorded losses on the early extinguishment of debt of $5 million during the nine months ended September 30, 2017.


6.	RESTRUCTURING COSTS

Restructuring charges were $9 million and $45 million for the three and nine months ended September 30, 2018, respectively, and $2 million and $9 million for the three and nine months ended September 30, 2017, respectively. The components of the restructuring charges for the three and nine months ended September 30, 2018 and 2017 were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Personnel-related costs (1)	$	3	$	1	$	20	$	7
Facility-related costs (2)	3		—		15		1
Internal use software impairment (3)	3		—		10		—
Other restructuring costs (4)	—		1		—		1
Total restructuring charges (5)	$	9	$	2	$	45	$	9

_______________


(1)	Personnel-related costs consist of severance costs provided to employees who have been terminated and duplicate payroll costs during transition.


(2)	Facility-related costs consist of costs associated with planned facility closures such as contract termination costs, lease payments, net of applicable sublease income, that will continue to be incurred under the contract for its remaining term without economic benefit to the Company, accelerated depreciation on asset disposals and other facility and employee relocation related costs.


(3)	Internal use software impairment relates to development costs capitalized for a project that was determined to not meet the Company's strategic goals when analyzed by the Company's new leadership team. $7 million was recognized during the first quarter of 2018 and an additional $3 million was recognized during the third quarter of 2018.


(4)	Other restructuring costs consist of costs related to professional fees, consulting fees and other costs associated with restructuring activities which are primarily included in the Corporate and Other business segment.


(5)	The three and nine months ended September 30, 2018 includes $9 million and $43 million, respectively, of expense related to the Leadership Realignment and Other Restructuring Activities program and zero and $2 million, respectively, of expense related to the Business Optimization Initiative program.

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Leadership Realignment and Other Restructuring Activities

Beginning in the first quarter of 2018, the Company commenced the implementation of a plan to drive its business forward and enhance stockholder value. The key aspects of this plan include senior leadership realignment, an enhanced focus on technology and talent, as well as further attention on office footprint and other operational efficiencies.

The following is a reconciliation of the beginning and ending reserve balances for the restructuring program related to Leadership Realignment and Other Restructuring Activities:



	Personnel-related costs			Facility-related costs			Internal use software impairment			Total
Balance at December 31, 2017	$	—		$	—		$	—		$	—
Restructuring charges	20			13			10			43
Costs paid or otherwise settled	(15		)	(5		)	(10		)	(30		)
Balance at September 30, 2018	$	5		$	8		$	—		$	13

The following table shows the total costs currently expected to be incurred by type of cost the restructuring program related to Leadership Realignment and Other Restructuring Activities:



	Total amount expected to be incurred		Amount incurred to date		Total amount remaining to be incurred
Personnel-related costs	$	31	$	20	$	11
Facility-related costs	20		13		7
Internal use software impairment	10		10		—
Total	$	61	$	43	$	18

The following table shows the total costs currently expected to be incurred by reportable segment for the restructuring program related to Leadership Realignment and Other Restructuring Activities:



	Total amount expected to be incurred		Amount incurred to date		Total amount remaining to be incurred
Real Estate Franchise Services	$	3	$	3	$	—
Company Owned Real Estate Brokerage Services	36		28		8
Relocation Services	9		9		—
Title and Settlement Services	2		1		1
Corporate and Other	11		2		9
Total	$	61	$	43	$	18

Business Optimization Initiative

During the fourth quarter of 2015, the Company began a business optimization initiative that focused on maximizing the efficiency and effectiveness of the cost structure of each of the Company's business units. The action was designed to improve client service levels across each of the business units while enhancing the Company's profitability and incremental margins. The plan focused on several key areas of opportunity which include process improvement efficiencies, office footprint optimization, leveraging technology and media spend, centralized procurement, outsourcing administrative services and organizational design. The expected costs of activities undertaken in connection with the restructuring plan are largely complete. At December 31, 2017, the remaining liability was $7 million. During the nine months ended September 30, 2018, the Company incurred facility-related costs of $2 million and paid or settled costs of $6 million, resulting in a remaining accrual of $3 million.

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7.	EQUITY

Condensed Consolidated Statement of Changes in Equity for Realogy Holdings



	Three Months Ended September 30, 2018
	Common Stock				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Non- controlling Interests		Total Equity


	Shares		Amount
Balance at June 30, 2018	124.6		$	1	$	5,073		$	(2,588	)	$	(47	)	$	3	$	2,442
Net income	—		—		—			103			—			1		104
Other comprehensive income	—		—		—			—			—			—		—
Repurchase of common stock	(4.7	)	—		(102		)	—			—			—		(102		)
Exercise of stock options	—		—		—			—			—			—		—
Stock-based compensation	—		—		10			—			—			—		10
Issuance of shares for vesting of equity awards	—		—		—			—			—			—		—
Shares withheld for taxes on equity awards	—		—		—			—			—			—		—
Dividends declared ($0.09 per share)	—