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.

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, 2020 and the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The Consolidated Balance Sheet at December 31, 2019 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, 2019.

A strong recovery in the residential real estate market began late in the second quarter of 2020, following a period of sharp decline in homesale transactions starting in the final weeks of the first quarter of 2020. The Company attributes the recovery to date to a favorable mortgage rate environment, low inventory contributing to higher average homesale price, and increased demand as the quarantine restrictions in place in many states have begun to be relaxed. In addition, the Company observed growing strength in certain trends that it believes are largely driven by behavioral changes related to the COVID-19 crisis, including home buyer preferences for certain geographies, including suburban locations and attractive tax and weather destinations and second home purchases.

In mid-March 2020, the Company began taking a series of proactive cost-saving measures in reaction to the evolving COVID-19 crisis, including salary reductions, furloughs and reductions in marketing and other spending which resulted in substantial cost-savings in the second quarter of 2020 to partially offset the decline in revenues. While these temporary cost-saving measures resulted in cost savings in the second and third quarters of 2020, almost all of such measures were reversed during the third quarter of 2020 based upon the significant improvement in the volume of homesale transactions and ongoing business needs.

There remain significant uncertainties regarding the COVID-19 crisis, including the severity, duration and extent of the pandemic. The Company's business could be negatively impacted if the crisis, including adverse economic consequences of the crisis, worsen, if directives and mandates requiring businesses to again curtail or cease normal operations are reinstated, if mortgage rates rise, or if housing inventory constraints, across geographies and price point, limit homesale transaction growth. These negative impacts may be more pronounced in future periods and could have a material adverse effect on the Company's results of operations and liquidity.

See Note 3, "Goodwill and Intangible Assets", to the Condensed Consolidated Financial Statements for additional information on goodwill and intangible asset impairment charges recorded in the first quarter of 2020 due to the impact on future earnings related to the COVID-19 pandemic which qualified as a triggering event for all of the Company's reporting units as of March 31, 2020, and Note 5, "Short and Long-Term Debt", to the Condensed Consolidated Financial Statements for additional information on the Company's amendments to the Senior Secured Credit Agreement and Term Loan A Agreement, pursuant to which the senior secured leverage ratio has been eased and certain other covenants have been tightened.

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 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.


	Level I		Level II		Level III		Total
Deferred compensation plan assets (included in other non-current assets)	$	1	$	—	$	—	$	1
Interest rate swaps (included in other non-current liabilities)	—		94		—		94
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		4		4


	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 current and non-current liabilities)	—		47		—		47
Contingent consideration for acquisitions (included in accrued expenses and other current liabilities and other non-current liabilities)	—		—		4		4

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.


	Level III
Fair value of contingent consideration at December 31, 2019	$	4
Additions: contingent consideration related to acquisitions completed during the period	1
Reductions: payments of contingent consideration	(1)
Changes in fair value (reflected in general and administrative expenses)	—
Fair value of contingent consideration at September 30, 2020	$	4


	September 30, 2020				December 31, 2019
Debt	Principal Amount		Estimated Fair Value (a)		Principal Amount		Estimated Fair Value (a)
Senior Secured Credit Facility:
Revolving Credit Facility	$	140	$	140	$	190	$	190
Term Loan B	1,050		1,003		1,058		1,048
Term Loan A Facility:
Term Loan A	694		664		717		705
7.625% Senior Secured Second Lien Notes	550		578		—		—
5.25% Senior Notes	—		—		550		557
4.875% Senior Notes	407		403		407		401
9.375% Senior Notes	550		570		550		572

The Company's investment in Guaranteed Rate Affinity, LLC ("Guaranteed Rate Affinity") at Realogy Title Group had investment balances of $99 million and $60 million at September 30, 2020 and December 31, 2019, respectively. The Company recorded equity earnings of $51 million and $5 million related to its investment in Guaranteed Rate Affinity during the three months ended September 30, 2020 and 2019, respectively. The Company recorded equity earnings of $95 million and $12 million related to its investment in Guaranteed Rate Affinity during the nine months ended September 30, 2020 and 2019, respectively. The Company received $56 million in cash dividends from Guaranteed Rate Affinity during the nine months ended September 30, 2020 and no cash dividends during the nine months ended September 30, 2019. The Company invested $2 million of cash into Guaranteed Rate Affinity during the nine months ended September 30, 2019.

The Company's other equity method investments at Realogy Title Group had investment balances totaling $9 million at both September 30, 2020 and December 31, 2019. The Company recorded equity earnings from the operations of these equity method investments of $2 million during both the three months ended September 30, 2020 and 2019. The Company recorded equity earnings from the operations of these equity method investments of $3 million during both the nine months ended September 30, 2020 and 2019. The Company received $3 million and $2 million in cash dividends from these equity method investments during the nine months ended September 30, 2020 and 2019, respectively.

The provision for income taxes was an expense of $54 million and a benefit of $23 million for the three months ended September 30, 2020 and 2019, respectively, and a benefit of $67 million and $22 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company records derivatives and hedging activities on the balance sheet at their respective fair values. The Company enters into interest rate swaps to manage its exposure to changes in interest rates associated with its variable rate borrowings. Interest rates swaps with a notional value of $600 million expired on August 7, 2020. As of September 30, 2020, the Company had interest rate swaps with an aggregate notional value of $1,000 million to offset the variability in cash flows resulting from the term loan facilities as follows:

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.


Derivative Instruments Not Designated as Hedging Instruments	Location of Loss Recognized for Derivative Instruments	Loss Recognized on Derivatives
		Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Interest rate swap contracts	Interest expense	$	—	$	12	$	59	$	50

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 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,
	Realogy Franchise Group				Realogy Brokerage Group				Realogy Title Group				Corporate and Other				Total Company
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Gross commission income (a)	$	—	$	—	$	1,458	$	1,201	$	—	$	—	$	—	$	—	$	1,458	$	1,201
Service revenue (b)	14		24		9		2		207		165		—		—		230		191
Franchise fees (c)	227		186		—		—		—		—		(94)		(78)		133		108
Other (d)	21		30		12		19		6		5		(3)		(4)		36		50
Net revenues	$	262	$	240	$	1,479	$	1,222	$	213	$	170	$	(97)	$	(82)	$	1,857	$	1,550


	Nine Months Ended September 30,
	Realogy Franchise Group				Realogy Brokerage Group				Realogy Title Group				Corporate and Other				Total Company
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Gross commission income (a)	$	—	$	—	$	3,227	$	3,310	$	—	$	—	$	—	$	—	$	3,227	$	3,310
Service revenue (b)	41		66		18		7		494		430		—		—		553		503
Franchise fees (c)	502		505		—		—		—		—		(213)		(215)		289		290
Other (d)	66		108		36		52		16		14		(7)		(9)		111		165
Net revenues	$	609	$	679	$	3,281	$	3,369	$	510	$	444	$	(220)	$	(224)	$	4,180	$	4,268


	Beginning Balance at January 1, 2020		Additions during the period		Recognized as Revenue during the period		Ending Balance at September 30, 2020
Realogy Franchise Group:
Deferred area development fees (a)	$	48	$	—	$	(5)	$	43
Deferred brand marketing fund fees (b)	13		45		(50)		8
Other deferred income related to revenue contracts	11		19		(21)		9
Total Realogy Franchise Group	72		64		(76)		60
Realogy Brokerage Group:
Advanced commissions related to development business (c)	9		6		(6)		9
Other deferred income related to revenue contracts	4		1		(2)		3
Total Realogy Brokerage Group	13		7		(8)		12
Total	$	85	$	71	$	(84)	$	72

(a)The Company collects initial area development fees ("ADF") 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. 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.

The Company estimates the allowance necessary to provide for uncollectible accounts receivable. The estimate is based on historical experience, combined with a review of current conditions and forecasts of future losses, and includes specific accounts for which payment has become unlikely. The process by which the Company calculates the allowance begins in the individual business units where specific problem accounts are identified and reserved primarily based upon the age profile of the receivables and specific payment issues, combined with reasonable and supportable forecasts of future losses.

Significant non-cash transactions during the nine months ended September 30, 2020 and 2019 included finance lease additions of $9 million and $12 million, respectively, which resulted in non-cash additions to property and equipment, net and other non-current liabilities.

The Company adopted the new accounting standard on Financial Instruments—Credit Losses (Topic 326) effective January 1, 2020. The new standard amends the guidance for measuring credit losses on certain financial instruments and financial assets, including trade receivables. The standard requires that companies recognize an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial instrument. The valuation allowance for credit losses should be recognized and measured based on historical experience, current conditions and expectations of the future. The initial adoption of this guidance did not have an impact to the Company’s Condensed Consolidated Financial Statements upon adoption on January 1, 2020.

The Company considers the applicability and impact of all Accounting Standards Updates ("ASUs"). Recently issued standards 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.

The FASB issued its new standard on Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity which simplifies the accounting for instruments with characteristics of liabilities and equity, including convertible debt. The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock resulting in fewer embedded conversion features being separately recognized from the host contract and the interest rate of more convertible debt instruments being closer to the coupon interest rate, as compared with current guidance. The new standard also amends the derivative guidance for the “own stock” scope exception, which exempts qualifying instruments from being accounted for as derivatives if certain criteria are met. In addition, the standard changes the diluted earnings per share calculation for instruments that may be settled in cash or shares and for convertible instruments. The new standard is effective for reporting periods beginning on or after December 15, 2021 with early adoption permitted as of January 1, 2021. The new standard requires adoption using either a full or modified retrospective approach and is not expected to have an impact on the Company's financial statements.