What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-11 · 177 added, 117 removed, 440 unchanged (40% of the section changed)

5 unchanged sentences

Three Months Ended

Six Months Ended

Initial franchise and relicensing fees

6 unchanged sentences

Marketing and reservation system

Provision for credit losses

Total operating expenses

Impairment of goodwill

Impairment of long-lived assets

Loss on asset dispositions and impairments

Loss on sale of business

Gain on sale of assets, net

4 unchanged sentences

Loss on extinguishment of debt

Other losses (gains)

Other (gains) losses

Equity in net loss of affiliates

Total other income and expenses, net

Income before income taxes

Income (loss) before income taxes

Income tax (benefit) expense

Basic earnings per share

Diluted earnings per share

Net (loss) income

Basic (losses) earnings per share

Diluted (losses) earnings per share

Cash dividends declared per share

5 unchanged sentences

Three Months Ended

Six Months Ended

Net (loss) income

Other comprehensive (loss) income, net of tax:

2 unchanged sentences

Other comprehensive (loss) income, net of tax

Comprehensive income

Comprehensive (loss) income

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

March 31, 2020

June 30, 2020

December 31, 2019

34 unchanged sentences

160,000,000 shares authorized;

95,065,638 shares issued at March 31, 2020 and December 31, 2019;

55,340,423 and 55,702,628 shares outstanding at March 31, 2020 and December 31, 2019, respectively

95,065,638 shares issued at June 30, 2020 and December 31, 2019;

55,363,895 and 55,702,628 shares outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid-in-capital

Accumulated other comprehensive loss

Treasury stock, at cost;

39,725,215 and 39,363,010 shares at March 31, 2020 and December 31, 2019, respectively

Treasury stock, at 39,701,743 and 39,363,010 shares at June 30, 2020 and December 31, 2019, respectively

Retained earnings

6 unchanged sentences

(IN THOUSANDS)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Provision for credit losses, net

Impairment of long-lived assets

Loss on sale of business

Loss on asset disposition and impairments

Impairment of goodwill

4 unchanged sentences

Equity in net losses from unconsolidated joint ventures, less distributions received

Franchise agreement acquisition cost, net of reimbursements

Franchise agreement acquisition costs, net of reimbursements

Change in working capital and other, net of acquisition

4 unchanged sentences

Proceeds from sales of assets

Payment on business disposition, net

Contributions to equity method investments

8 unchanged sentences

Net borrowings pursuant to revolving credit facilities

Net borrowings pursuant to term loan

Principal payments on long-term debt

1 unchanged sentence

Dividends paid

Debt issuance costs

Proceeds from issuance of long-term debt

26 unchanged sentences

Balance as of March 31, 2019

Other comprehensive income (loss)

Share based payment activity

Dividends declared ($0.215 per share)

Treasury purchases

Balance as of June 30, 2019

Comprehensive

7 unchanged sentences

Balance as of March 31, 2020

Other comprehensive income (loss)

Share based payment activity (3)

Dividends declared (3)

Treasury purchases

Balance as of June 30, 2020

(1) Impact of adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update (“ASU”) No.

6 unchanged sentences

In light of uncertainty resulting from the COVID-19 pandemic, we have taken the action to suspend future, undeclared dividends for at least the remainder of 2020.

Reference Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the second quarter of 2020, dividends were paid upon vesting of certain performance-based stock grants which are captured in Share based payment activity.

The accompanying notes are an integral part of these consolidated financial statements.

8 unchanged sentences

Except as otherwise disclosed, all adjustments are of a normal recurring nature.

Certain prior year amounts in our Consolidated Statements of Income have been reclassified in order to maintain comparability with current year presentation.

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.

24 unchanged sentences

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15").

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The Company adopted ASU

2018-15 on a prospective basis on January 1, 2020.

internal-use software (and hosting arrangements that include an internal-use software license).

The Company adopted ASU 2018-15 on a prospective basis on January 1, 2020.

As the majority of the Company's hosting arrangements are service contracts, the capitalization and subsequent amortization of implementation costs incurred after adoption are expected to impact the timing, but not classification, of expense recognition.

17 unchanged sentences

Loyalty points are typically redeemed within three years of issuance.

Significant changes in the contract liabilities balances during the period December 31, 2019 to March 31, 2020 are as follows:

Significant changes in the contract liabilities balances during the period December 31, 2019 to June 30, 2020 are as follows:

(in thousands)

2 unchanged sentences

Revenue recognized in the period

Balance as of March 31, 2020

Balance as of June 30, 2020

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 164.9 million as of March 31, 2020 .

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 160.7 million as of June 30, 2020 .

This amount represents fixed transaction price that will be recognized as revenue in future periods, which is primarily captured in the consolidated balance sheet as current and non-current deferred revenue.

3 unchanged sentences

Three Months Ended

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

(in thousands)

7 unchanged sentences

Total revenues

Six Months Ended

June 30, 2020

June 30, 2019

(in thousands)

Point in time

Initial franchise and relicensing fees

Procurement services

Marketing and reservation system

Total Topic 606 revenues

Non-Topic 606 revenues

Total revenues

Non-Topic 606 revenues primarily represent revenue from leasing and are presented in Owned hotels and Other revenues in the consolidated statements of income.

As presented in Note 11 , the Corporate & Other segment amounts represent $ 10.9 million and $ 3.3 million for the three months ended March 31, 2020 and 2019 , respectively, and are included in the Over time column of Other revenues and the Owned Hotels and Non-Topic 606 revenues rows.

As presented in Note 11 , the Corporate & Other segment amounts represent $ 4.5 million and $ 4.1 million for the three months ended June 30, 2020 and 2019 , respectively, $ 15.4 million and $ 7.4 million for the six months ended June 30, 2020 and 2019 , respectively, and are included in the Over time column of Other revenues and the Owned Hotels and Non-Topic 606 revenues rows.

The remaining revenues relate to the Hotel Franchising segment.

Royalty fees and Marketing and reservation system revenues are presented net of $ 0.8 million in intersegment revenues for the three months ended March 31, 2020 as described in Note 11 .

Royalty fees and Marketing and reservation system revenues are presented net of $ 0.1 million in intersegment revenues for the three months ended June 30, 2020 and $ 0.9 million in intersegment revenues for the six months ended June 30, 2020 , as described in Note 11 .

Notes Receivable and Allowance for Credit Losses

The Company has provided financing in the form of notes receivable loans to franchisees to support the development of properties in strategic markets.

As of March 31, 2020 and December 31, 2019 , the Company had $ 140.0 million and $ 133.0 million , respectively, in notes receivable loans outstanding.

As of June 30, 2020 and December 31, 2019 , the Company had $ 143.7 million and $ 133.0 million , respectively, in notes receivable loans outstanding.

The Company has developed a systematic methodology to determine its allowance for credit losses across our portfolio of notes receivable loans.

10 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

Total notes receivable

Total allowance for notes receivable losses

Total allowance for notes receivable credit losses

Total notes receivable, net of allowance

8 unchanged sentences

The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses, including the impacts of adopting Topic 326.

The provisions recorded in the six months ended June 30, 2020 reflect the increased likelihood of adverse outcomes on loans to borrowers with contemplation to impacts of the COVID-19 pandemic and estimates of other expected credit losses.

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Reserves established from adoption of Topic 326

Provision for credit losses

Ending balance

1 unchanged sentence

Although the Company considers loans to be in default if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past due.

The Company applies payments received for loans on non-accrual status first to interest and then to principal.

The Company applies payments received for loans on non-accrual

status first to interest and then to principal.

The Company does not resume interest accrual until all delinquent payments are received.

The amortized cost basis of notes receivable on non-accrual status was $ 1.7 million at both March 31, 2020 and December 31, 2019 .

The Company has identified loans totaling approximately $ 14.2 million and $ 16.3 million , respectively, with stated interest rates that are less than market rate, representing a total discount of $ 1.2 million and $ 1.3 million as of March 31, 2020 and December 31, 2019 , respectively.

The amortized cost basis of notes receivable on non-accrual status was $ 29.9 million and $ 1.7 million at June 30, 2020 and December 31, 2019 , respectively.

The Company has identified loans totaling approximately $ 14.2 million and $ 16.3 million , respectively, with stated interest rates that are less than market rate, representing a total discount of $ 1.1 million and $ 1.3 million as of June 30, 2020 and December 31, 2019 , respectively.

These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.

2 unchanged sentences

Notes Receivable

As of March 31, 2020

As of June 30, 2020

As of December 31, 2019

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of March 31, 2020 .

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of June 30, 2020 .

Refer to Note 12 .

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 124.9 million and $ 126.5 million as of March 31, 2020 and December 31, 2019 , respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 125.8 million and $ 126.5 million as of June 30, 2020 and December 31, 2019 , respectively.

The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs").

2 unchanged sentences

The Company maintains a portfolio of investments owned through noncontrolling interests in equity method investments with one or more partners.

The Company has equity method investments in joint ventures that represent VIEs totaling $ 74.4 million on the consolidated balance sheets at both March 31, 2020 and December 31, 2019 .

The Company has equity method investments in joint ventures that represent VIEs totaling $ 72.7 million and $ 74.4 million on the consolidated balance sheets at June 30, 2020 and December 31, 2019 , respectively.

These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

2 unchanged sentences

Although the Company is not the primary beneficiary of these VIEs, it does exercise significant influence through its equity ownership and as a result the Company's investment in these entities is accounted for under the equity method.

For the three months ended March 31, 2020 and 2019 , the Company recognized losses totaling $ 2.0 million and $ 2.4 million , respectively, from these investments.

For the three months ended June 30, 2020 and 2019 , the Company recognized losses totaling $ 2.6 million and $ 1.6 million , respectively, from these investments.

For the six months ended June 30, 2020 and 2019 , the Company recognized losses totaling $ 4.6 million and $ 4.0 million , respectively, from these investments.

The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain limited payment guaranties described in Note 12 of these financial statements.

Debt consists of the following:

March 31, 2020

June 30, 2020

December 31, 2019

(in thousands)

$400 million senior unsecured notes due 2022 with an effective interest rate of 6.0% less deferred issuance costs of $2.1 million and $2.3 million at March 31, 2020 and December 31, 2019, respectively

$400 million senior unsecured notes due 2029 with an effective interest rate of 3.88%, less a discount and deferred issuance costs of $5.8 million and $6.0 million at March 31, 2020 and December 31, 2019, respectively

$600 million senior unsecured revolving credit facility with an effective interest rate of 1.91% and 2.76%, less deferred issuance costs of $2.6 million and $2.7 million at March 31, 2020 and December 31, 2019, respectively

$400 million senior unsecured notes due 2022 with an effective interest rate of 6.0% less deferred issuance costs of $1.9 million and $2.3 million at June 30, 2020 and December 31, 2019, respectively

$400 million senior unsecured notes due 2029 with an effective interest rate of 3.88%, less a discount and deferred issuance costs of $5.7 million and $6.0 million at June 30, 2020 and December 31, 2019, respectively

$600 million senior unsecured revolving credit facility with an effective interest rate of 1.49% and 2.76%, less deferred issuance costs of $2.4 million and $2.7 million at June 30, 2020 and December 31, 2019, respectively

$250 million term loan due 2021 with an effective interest rate of 3.25%, less a discount and deferred issuance costs of $0.8 million at June 30, 2020

Construction loan with an effective interest rate of 6.23%, less deferred issuance costs of $0.6 million at December 31, 2019.

Fixed rate collateralized mortgage with an effective interest rate of 4.57%, plus a fair value adjustment of $0.1 million and $0.2 million at March 31, 2020 and December 31, 2019, respectively

Economic development loans with an effective interest rate of 3.0% at March 31, 2020 and December 31, 2019, respectively

Less current portion

Total long-term debt

The Company increased borrowings on its senior unsecured revolving credit facility by $ 396.8 million in the first quarter of 2020, primarily to increase liquidity in response to the COVID-19 pandemic.

Fixed rate collateralized mortgage with an effective interest rate of 4.57%, plus a fair value adjustment of $0.1 million and $0.2 million at June 30, 2020 and December 31, 2019, respectively

Economic development loans with an effective interest rate of 3.0% at June 30, 2020 and December 31, 2019, respectively

Current portion of long-term debt

Long-term debt

The Company increased borrowings on its senior unsecured revolving credit facility by $ 170.3 million and entered into a $ 250 million unsecured term loan in the six months ended June 30, 2020, primarily to increase liquidity in response to the COVID-19 pandemic.

The additional drawn amounts that were not otherwise utilized for operational purposes during the quarter are being held as cash on the Company’s consolidated balance sheet.

5 unchanged sentences

On March 5, 2020 , the Company paid off the construction loan in the amount $ 33.1 million inclusive of accrued and unpaid interest and recorded a loss on extinguishment of debt of $ 0.6 million .

On April 16, 2020 , the Company entered into a senior unsecured credit agreement, which provides for a $ 250 million unsecured term loan with a scheduled maturity date of April 15, 2021 , subject to an optional one-year extension that can be requested by the Company prior to the initial maturity date, with any such extension subject to the consent of the lenders under the Credit Agreement and certain customary conditions.

On April 16, 2020 , the Company entered into a senior unsecured credit agreement, which provides for a $ 250 million unsecured term loan (the "Term Loan") with a scheduled maturity date of April 15, 2021 , subject to an optional one-year extension that can be requested by the Company prior to the initial maturity date, with any such extension subject to the consent of the lenders under the Credit Agreement and certain customary conditions.

On July 23, 2020 , the Company issued $ 450 million aggregate principal amount of 3.700 % senior unsecured notes due 2031 (the "2020 Senior Notes").

The 2020 Senior Notes mature on January 15, 2031.

Interest on the 2020 Senior Notes is payable semi-annually on January 15 th and July 15 th of each year, commencing January 15, 2021.

In connection with the closing of the sale of the 2020 Senior Notes, on July 23, 2020 , the Company announced the early tender results of a cash tender offer (the “Tender Offer”) for the purchase of approximately $ 183.4 million aggregate principal amount of the Company’s 5.750 % senior unsecured notes due 2022 (the “2012 Senior Notes”).

The Company used the net proceeds of the 2020 Senior Note offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the Term Loan in full and fund the purchase price of the 2012 Senior Notes tendered and accepted by the Company for purchase pursuant to the Tender Offer.

In contemplation of the Term Loan repayment from proceeds of the 2020 Senior Note issuance, the Term Loan has been classified as a long-term liability at June 30, 2020.

Refer to Note 14 and the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

Accumulated Other Comprehensive Loss

The following represents the changes in accumulated other comprehensive loss, net of tax, by component for the three months ended March 31, 2020 and 2019 :

The following represents the changes in accumulated other comprehensive loss, net of tax, by component for the six months ended June 30, 2020 and 2019 :

(in thousands)

3 unchanged sentences

Other comprehensive loss before reclassification

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Balance as of March 31, 2020

Balance as of June 30, 2020

(in thousands)

5 unchanged sentences

Net current period other comprehensive income (loss)

Balance as of March 31, 2019

During the three months ended March 31, 2019 , $ 0.2 million was reclassified from accumulated other comprehensive loss to Interest expense in the Company's Consolidated Statements of Income with reference to a cash flow hedge loss on an interest rate contract.

Balance as of June 30, 2019

During the three and six months ended June 30, 2019 , $ 0 and $ 0.4 million , respectively, was reclassified from accumulated other comprehensive loss to Interest expense in the Company's Consolidated Statements of Income with reference to a cash flow hedge loss on an interest rate contract.

There was no income tax expense or benefit.

There were no amounts reclassified during the three months ended March 31, 2020 , as the debt related to the Interest rate contract was paid off in December 2019.

There were no amounts reclassified during the three and six months ended June 30, 2020 , as the debt related to the Interest rate contract was paid off in December 2019.

Fair Value Measurements

8 unchanged sentences

Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument.

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the three months ended March 31, 2020 .

As of March 31, 2020 and December 31, 2019 , the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

As of June 30, 2020 and December 31, 2019 , the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands)

As of March 31, 2020

As of June 30, 2020

Mutual funds (1)

5 unchanged sentences

Other financial instruments disclosure

The Company believes that the fair value of its current assets and current liabilities approximate their reported carrying amounts due to the short-term nature of these items.

The Company believes that the fair value of its current assets and current liabilities, including the Term Loan prior to its repayment in July 2020, approximate their reported carrying amounts due to the short-term nature of these items.

In addition, the interest rates of the Company's senior unsecured revolving credit facility adjust frequently based on current market rates;

3 unchanged sentences

The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates.

For further information on the Notes Receivable, refer to Note 3 .

For further information on notes receivable, refer to Note 3 .

The fair values of the Company's $ 400 million senior unsecured notes due 2022 and $ 400 million senior unsecured notes due 2029 are classified as Level 2, as the significant inputs are observable in an active market.

At March 31, 2020 and December 31, 2019 , the $ 400 million senior unsecured notes due 2022 had an approximate fair value of $ 374.8 million and $ 432.0 million , respectively.

At March 31, 2020 and December 31, 2019 , the $ 400 million senior unsecured notes due 2029 had an approximate fair value of $ 322.6 million and $ 403.4 million , respectively.

At June 30, 2020 and December 31, 2019 , the $ 400 million senior unsecured notes due 2022 had an approximate fair value of $ 423.3 million and $ 432.0 million , respectively.

At June 30, 2020 and December 31, 2019 , the $ 400.0 million senior unsecured notes due 2029 had an approximate fair value of $ 400.6 million and $ 403.4 million , respectively.

Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment.

Settlement of such fair value amounts may not be possible and may not be a prudent management decision.

The effective income tax rates were ( 82.5 )% and 17.5 % for the three months ended March 31, 2020 and 2019 , respectively.

The effective income tax rates were 11.8 % and 21.0 % for the three months ended June 30, 2020 and 2019 , respectively.

The effective income tax rates were ( 92.3 )% and 20.0 % for the six months ended June 30, 2020 and 2019 , respectively.

The effective income tax rate for the three months ended June 30, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

The effective income tax rate for the three months ended June 30, 2019 was the same as the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation of $ 1.0 million and the impact of foreign operations, offset by state income taxes.

On January 1, 2018, the Company adopted ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other than Inventory ("ASU 2016-16"), which provides guidance on recognition of current income tax consequences for inter-company asset transfers (other than inventory) at the time of transfer.

1 unchanged sentence

In accordance with ASU 2016-16, the Company recorded the $ 30.6 million benefit and a corresponding deferred tax asset in the first quarter of 2020.

The effective income tax rate for the three months ended March 31, 2020 was further lowered by $ 2.4 million of excess tax benefits from share-based compensation, partially offset by state income taxes.

The effective income tax rate for the three months ended March 31, 2020 would have been 18.1 % without the reorganization of its foreign legal entity structure.

The effective income tax rate for the three months ended March 31, 2019 was lower than the U.S.

federal income tax rate of 21.0% primarily due to $ 2.0 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support

companies affected by the COVID-19 pandemic and their employees.

Based on our preliminary analysis of the CARES Act, we do not expect a significant impact to our consolidated financial statements.

The effective income tax rate for the six months ended June 30, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to this $ 30.6 million benefit, $ 2.7 million of excess tax benefits from share-based compensation, and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

The effective income tax

rate for the six months ended June 30, 2019 was lower than the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation of $ 3.0 million and the impact of foreign operations, partially offset by state income taxes.

Share-Based Compensation and Capital Stock

The components of the Company’s pretax share-based compensation activity and associated income tax (expense) benefit are as follows for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The components of the Company’s pretax share-based compensation activity and associated income tax (expense) benefit are as follows for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Performance vested restricted stock units

Total share-based compensation expense (benefit)

Income tax expense (benefit)

Refer to the discussion of Performance Vested Restricted Stock Units (“PVRSUs”) leveraging for unvested grants below.

A summary of stock-based award activity as of March 31, 2020 and changes during the three months ended are presented below:

A summary of stock-based award activity as of June 30, 2020 and changes during the six months ended are presented below:

Stock Options

5 unchanged sentences

Exercised/Vested

Outstanding at March 31, 2020

Options exercisable at March 31, 2020

(1) PVRSUs outstanding have been increased by 30,116 units due to the Company exceeding the targeted performance conditions contained in PVRSUs granted in prior periods which vested in the three months ending March 31, 2020 .

Outstanding at June 30, 2020

Options exercisable at June 30, 2020

The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock on the date of grant.

8 unchanged sentences

Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date.

Vesting service period of shares granted during the three months ended March 31, 2020 range from 36 to 48 months .

Vesting service period of shares granted during the six months ended June 30, 2020 range from 12 to 48 months .

The Company has granted PVRSUs to certain employees.

The vesting of these stock awards is contingent upon the Company achieving performance targets over a 36 to 48 month requisite service period and the employees' continued employment.

The performance conditions affect the number of shares that will ultimately vest and can range between 0 % and 200 % of the shares granted.

The vesting of these stock awards is contingent upon the Company achieving performance targets over a 36 month requisite service period and the employees' continued employment.

The performance conditions affect the number of shares that will ultimately vest and can range between 0 % and 200 % of the shares

Management monitors the leveraging of unvested PVRSUs and adjusts the leveraging percentages based on estimated achievement of performance targets.

During the three months ended March 31, 2020 , the Company reduced the leveraging factor for 227,114 unvested PVRSUs to 0 % , based on management's estimate of achievement of performance targets with contemplation to impacts from the COVID-19 pandemic, contained in PVRSUs granted in the current and prior periods.

During the six months ended June 30, 2020 , the Company reduced the leveraging factor for 239,437 unvested PVRSUs to 0 % , based on management's estimate of achievement of performance targets with contemplation to impacts from the COVID-19 pandemic, contained in PVRSUs granted in the current and prior periods.

Share Repurchases and Redemptions

The Company purchased 548,031 shares of common stock under the share repurchase program at a total cost of $ 43.3 million during the three months ended March 31, 2020 .

During the three months ended March 31, 2020 , the Company redeemed 128,103 shares of common stock at a total cost of approximately $ 12.1 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

There were no purchases of common stock under the share repurchase program during the three months ended June 30, 2020 .

The Company purchased 548,031 shares of common stock under the share repurchase program at a total cost of $ 43.3 million during six months ended June 30, 2020 .

During the three and six months ended June 30, 2020 , the Company redeemed 6,525 and 115,525 shares of common stock at a total cost of approximately $ 0.5 million and $ 11.2 million , respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

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Earnings Per Share

The computation of basic and diluted earnings per common share is as follows:

The computation of basic and diluted (losses) earnings per common share is as follows:

Three Months Ended

Six Months Ended

(in thousands, except per share amounts)

Computation of Basic Earnings Per Share:

Income allocated to participating securities

Net income available to common shareholders

Net (loss) income

Loss (income) allocated to participating securities

Net (loss) income available to common shareholders

Weighted average common shares outstanding – basic

Basic earnings per share

Computation of Diluted Earnings Per Share:

Income allocated to participating securities

Net income available to common shareholders

Basic (losses) earnings per share

Net (loss) income

Loss (income) allocated to participating securities

Net (loss) income available to common shareholders

Weighted average common shares outstanding – basic

1 unchanged sentence

Weighted average common shares outstanding – diluted

Diluted earnings per share

Diluted (losses) earnings per share

The Company's unvested restricted shares contain rights to receive nonforfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share ("EPS").

The calculation of EPS for common stock shown above excludes the income attributable to the unvested restricted share awards from the numerator and excludes the dilutive impact of those awards from the denominator.

At March 31, 2020 and 2019 , the Company had 1.0 million and 1.1 million outstanding stock options, respectively.

The Company had 1.0 million outstanding stock options at both June 30, 2020 and 2019 .

Stock options are included in the diluted EPS calculation using the treasury stock method and average market prices during the period, unless the stock options would be anti-dilutive.

For the three months ended March 31, 2020 , no anti-dilutive stock options were excluded from the diluted EPS calculation.

For the three months ended March 31, 2019 , 0.2 million anti-dilutive stock options were excluded from the diluted EPS calculation.

For the three months ended June 30, 2020 , 1.0 million anti-dilutive stock options were excluded from the diluted EPS calculation.

For the six months ended June 30, 2020 , 0.2 million anti-dilutive stock options were excluded from the diluted EPS calculation.

For the three months ended June 30, 2019 , no anti-dilutive stock options were excluded from the diluted EPS

For the six months ended June 30, 2019 , 0.2 million anti-dilutive stock options were excluded from the diluted EPS calculation.

PVRSUs are also included in the diluted EPS calculation when the performance conditions have been met at the reporting date.

However, at March 31, 2020 and 2019 , PVRSUs totaling 253,459 and 324,140 , respectively, were excluded from the computation since the performance conditions had not been met.

However, at June 30, 2020 and 2019 , PVRSUs totaling 245,593 and 315,561 , respectively, were excluded from the computation since the performance conditions had not been met.

Reportable Segment Information

13 unchanged sentences

The following table presents the financial information for the Company's segments:

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

(in thousands)

Intersegment Eliminations

Operating income (loss)

Income (loss) before income taxes

Three Months Ended March 31, 2019

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

(in thousands)

Intersegment Eliminations

Operating income (loss)

7 unchanged sentences

The maximum exposure of principal incidental to these limited payment guaranties is $ 5.7 million , plus unpaid expenses and accrued unpaid interest.

As of March 31, 2020 and December 31, 2019 , the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for two of the transactions in the form of a membership interest pledge as collateral for the guaranty.

The Company has the following commitments outstanding at March 31, 2020 :

As of June 30, 2020 and December 31, 2019 , the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for the guaranty.

The Company has the following commitments outstanding at June 30, 2020 :

The Company provides financing in the form of franchise agreement acquisition payments to franchisees for property improvements, hotel development efforts and other purposes.

These payments are typically made at commencement of construction or hotel opening, in accordance with agreed upon provisions in individual franchise agreements.

At March 31, 2020 , the Company had commitments to extend an additional $ 296.3 million for these purposes provided the conditions of the payment are met by its franchisees.

At June 30, 2020 , the Company had commitments to extend an additional $ 288.2 million for these purposes provided the conditions of the payment are met by its franchisees.

To the extent existing unconsolidated joint ventures proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $ 9.3 million to support their efforts to construct Cambria hotels.

1 unchanged sentence

The Company has committed to provide an aggregate of approximately $ 15.6 million , upon certain conditions being met.

As of March 31, 2020 , $ 23.8 million have been disbursed.

As of June 30, 2020 , $ 13.4 million have been disbursed.

In March 2018, the Company entered into a construction loan agreement for the rehabilitation and development of a former office building into a hotel through a consolidated joint venture with a commercial lender, which is secured by the building.

9 unchanged sentences

In addition, these parties are also generally indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement.

While some of these indemnities extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations).

of limitations).

There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these indemnities, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these indemnifications as the triggering events are not subject to predictability.

2 unchanged sentences

The Company has a management fee arrangement for marketing services with a joint venture partner.

For the three months ended March 31, 2020 and 2019 , fees earned and payroll costs reimbursed under this arrangement totaled $0.4 million and $ 0.3 million , respectively.

For the three months ended June 30, 2020 and 2019 , fees earned and payroll costs reimbursed under this arrangement totaled $ 0.1 million and $ 0.6 million , respectively.

For the six months ended June 30, 2020 and 2019 , fees earned and payroll costs reimbursed under this arrangement totaled $ 0.5 million and $ 0.9 million , respectively.

The Company has entered into franchise agreements with certain of the unconsolidated joint ventures discussed in Note 4 .

Pursuant to these franchise agreements, for the three months ended March 31, 2020 and 2019 , the Company recorded royalty and marketing reservation system fees of approximately $ 4.6 million and $ 4.6 million , respectively.

The Company recorded $ 1.6 million and $ 1.4 million as a receivable due from these joint ventures as of March 31, 2020 and December 31, 2019 , respectively.

In addition, the Company paid commissions of $ 37 thousand and $ 50 thousand for the three months ended March 31, 2020 and 2019 , respectively, to an on-line travel agent for which the Company is a joint venture member.

Pursuant to these franchise agreements, for the three months ended June 30, 2020 and 2019 , the Company recorded royalty and marketing reservation system fees of approximately $ 2.2 million and $ 7.0 million , respectively.

For the six months ended June 30, 2020 and 2019 , the Company recorded royalty and marketing reservation system fees of approximately $ 6.8 million and $ 11.6 million , respectively.

The Company recorded $ 1.8 million and $ 1.4 million as a receivable due from these joint ventures as of June 30, 2020 and December 31, 2019 , respectively.

In addition, the Company paid commissions of $ 12 thousand and $ 0.1 million for three months ended June 30, 2020 and 2019 , respectively, and $ 49 thousand and $ 0.1 million for the six months ended June 30, 2020 and 2019 , respectively, to an on-line travel agent for which the Company is a joint venture member.

Subsequent Events

On April 16, 2020 , the Company entered into the Credit Agreement, which provides for a $ 250 million Term Loan (the "Term Loan") with a scheduled maturity date of April 15, 2021 , subject to an optional one-year extension that can be requested by the Company prior to the initial maturity date.

The effectiveness of such extension is subject to the consent of the lenders under the Credit Agreement and certain customary conditions.

The Term Loan and all accrued but unpaid interest thereon must be repaid in full on the maturity date.

Upon the occurrence of certain asset sales, debt issuances and equity issuances, subject to the exceptions set forth in the Credit Agreement, the Company is required to make certain mandatory principal prepayments of the Term Loan in an amount equal to 100 % of the net cash proceeds of such transactions.

The Credit Agreement provides that the Company may elect to have the Term Loan bear interest at a rate equal to (i) LIBOR (subject to a floor of 1.00 % ) plus a margin ranging from 200 to 275 basis points or (ii) a base rate plus a margin ranging from 100 to 175 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating.

The Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments and effecting mergers and/or asset sales.

With respect to dividends and stock repurchases, the Company may not declare or make any payment, subject to certain exceptions set forth in the Credit Agreement, if (i) there is an existing event of default or if the payment would create an event of default or (ii) (x) the Company’s total leverage ratio exceeds 4.0 to 1.0 or (y) liquidity (defined in the Credit Agreement as the Company’s unrestricted cash and cash equivalents plus undrawn amounts under the Company’s existing senior unsecured revolving credit facility) is less than $ 250 million , in each case, both before or immediately after giving effect to such payment.

The Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0 .

If the Company maintains an Investment Grade Rating, as defined in the Credit Agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.

The Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Credit Agreement to be immediately due and payable.

The proceeds of the Term Loan were utilized to reduce borrowings on the Company’s senior unsecured revolving credit facility.

On July 9, 2020 , the Company announced it entered into an underwriting agreement for the issuance and sale of the 2020 Senior Notes.

Concurrent with the offering of the 2020 Senior Notes, the Company commenced the Tender Offer to purchase up to $ 160.0 million aggregate principal of the 2012 Senior Notes, subject to increase or decrease.

The Tender Offer was subsequently upsized to $ 180.0 million aggregate principal amount of the 2012 Senior Notes.

On July 23, 2020 , the Company closed its sale of $ 450.0 million aggregate principal amount of the 2020 Senior Notes.

The Company used the net proceeds of the 2020 Senior Notes offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the Term Loan in full and fund the purchase price of the 2012 Senior Notes tendered and accepted by the Company for purchase pursuant to the Tender Offer.

We estimate the 2012 Senior Notes tender and full repayment of the Term Loan will result in a loss on extinguishment of debt of approximately $ 16.0 million in the third quarter of 2020.

Interest on the 2020 Senior Notes is payable semi-annually on January 15 th and July 15 th of each year, commencing on January 15, 2021.

The interest rate payable on the 2020 Senior Notes will be subject to adjustment based on certain rating events.

The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity.

If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date), the redemption price will be equal to 100 % of the principal amount of the 2020 Senior Notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101 % of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

Additionally, on July 23, 2020 , the Company issued a press release announcing the early tender results and an increase in the aggregate principal maximum tender amount from $ 180.0 million to $ 183.4 million .

The Tender Offer expired on August 5, 2020 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements