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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-03-02 · 752 added, 733 removed, 818 unchanged (64% of the section changed)

Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Choice Privileges Loyalty Program

Description of the Matter

The Company recognized $81.2 million loyalty point revenues, net of the cost of redemptions, and had a point liability and deferred revenue of $129.7 million and $60.4 million, respectively, as of December 31, 2019 associated with the Choice Privileges Loyalty Program ("Loyalty Program").

As discussed in Note 2 to the consolidated financial statements, loyalty points represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits.

Description of the Matter The Company recognized $79.1 million in revenues from loyalty points redeemed, net of the cost of redemptions, and had a point liability and deferred revenue of $120.4 million and $63.6 million, respectively, as of December 31, 2020 associated with the Choice Privileges Loyalty Program (“Loyalty Program”).

As discussed in Note 1 to the consolidated financial statements, loyalty points earned represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits.

The liability for the Loyalty Program is developed based on an estimate of the eventual redemption rates and point values using various actuarial methods.

The amount of the loyalty program fees in excess of the point liability represents deferred revenue, which is recognized to revenue as points are redeemed including an estimate of future forfeitures ("breakage").

The amount of the Loyalty Program fees in excess of the point liability represents deferred revenue, which is recognized to revenue as points are redeemed including an estimate of future forfeitures.

Auditing the Loyalty Program results is complex due to:

(1) the high volume of data and complexity of models used to monitor and account for the Loyalty Program results;

and (2) the complexity of estimating the standalone selling price per Loyalty Program point, including the estimated redemption rate of Loyalty Program points.

Such estimates are complex given the significant estimation uncertainty associated with redemption activity.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for the Loyalty Program during the year.

For example, we tested controls over management’s review of the assumptions and data inputs used in the accounting model and actuarial methods to estimate the ultimate redemption rate of Loyalty Program points.

To test the recognition of revenues and liabilities associated with the Loyalty Program, we included actuarial specialists on our team and performed audit procedures that included, among others, testing the clerical accuracy and consistency with US GAAP of the accounting model developed by the Company to recognize revenue and the liabilities associated with the Loyalty Program.

We also tested significant inputs into the accounting model, including the estimated standalone selling price and recognition of points earned and redeemed during the period whereby we involved our actuarial specialists to assist in our testing procedures.

We evaluated management’s methodology for estimating the redemption rate of Loyalty Program points, as well as tested underlying data and actuarial assumptions used in estimating the ultimate redemption rate.

Asset Acquisition

Description of the Matter

During 2019, the Company acquired the remaining 60% ownership interest in four Cambria properties for net consideration of $169.0 million as disclosed in Note 25 to the financial statements.

The purchase represents an asset acquisition based on the concentration of value in the acquired land and buildings.

Auditing the accounting for this acquisition was complex due to:

(1) the magnitude of total assets acquired and (2) the significant estimation involved in determining the relative fair value of the acquired assets.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the acquisition.

Our tests included controls over the estimation process supporting the allocation of the relative fair values to each qualifying asset.

We also tested management’s controls over the review of selected assumptions used in the valuation methods.

For the acquisition of these assets, we read the purchase agreement, evaluated the significant assumptions and methods used in developing the fair value estimates, and tested the recognition of the assets acquired and liabilities assumed at fair value.

We included valuation specialists in our team and evaluated, among other things, whether the significant assumptions used in valuing these assets were appropriate.

Specifically, when evaluating assumptions related to the acquisition of each property, we assessed the operating metrics against competitive market trends, and assessed the appropriateness and sensitivity of the discount and terminal capitalization rates utilized in the valuation model.

We also utilized various external sources in order to validate the land, building, site and furniture and fixtures value to determine reasonableness.

(1) the complexity of the models used to account for the Loyalty Program results;

and (2) the complexity of estimating the future redemption rate and Loyalty Program point values.

Such estimates are highly judgmental given the significant estimation uncertainty associated with expected redemption activity.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for the Loyalty Program during the year.

For example, we tested controls over management’s review of the assumptions and data inputs used in the accounting model and the actuarial methods used to estimate the redemption rate of Loyalty Program points.

To test the recognition of revenues and liabilities associated with the Loyalty Program, we performed audit procedures that included, among others, testing the completeness and accuracy of the data and significant assumptions used in the model and assessing the accounting model developed by the Company to recognize the related revenue and the liabilities.

For example, we tested significant inputs into the accounting model, including the Loyalty Program point value and the recognition of points earned and redeemed during the period.

With the assistance of our actuarial specialists, we evaluated management’s methodologies as well as the actuarial assumptions used in estimating the Loyalty Program redemption rate.

/s/ Ernst & Young LLP

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Tysons, Virginia

March 2, 2020

February 26, 2021

CONSOLIDATED FINANCIAL STATEMENTS

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CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Years Ended December 31,

2020 2019 2018

Royalty fees $ 263,308 $ 388,151 $ 376,676

Initial franchise and relicensing fees 25,906 27,489 26,072

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Marketing and reservation system 402,568 577,426 543,677

Owned hotels 20,168 20,282 —

Other 16,880 40,043 42,791

Total revenues 774,072 1,114,820 1,041,304

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Marketing and reservation system 446,847 579,139 534,266

Owned hotels 16,066 14,448 —

Total operating expenses 637,268 781,248 718,623

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Income before income taxes 53,006 269,929 273,258

Income tax (benefit) expense ( 22,381 ) 47,051 56,903

Net income $ 75,387 $ 222,878 $ 216,355

Basic earnings per share $ 1.36 $ 4.00 $ 3.83

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31,

(IN THOUSANDS)

Years Ended December 31,

2020 2019 2018

Net income $ 75,387 $ 222,878 $ 216,355

Other comprehensive income (loss), net of tax:

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(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

December 31, 2020 December 31, 2019

Current assets

Cash and cash equivalents $ 234,779 $ 33,766

Receivables (net of allowance for doubtful accounts of $18,482 and $15,905, respectively)

Receivables (net of allowance for credit losses of $ 59,424 and $ 18,482 , respectively)

149,921 141,566

Income taxes receivable 4,186 11,126

Notes receivable, net of allowances

Notes receivable 28,227 26,265

Allowance for notes receivable credit losses ( 4,179 ) ( 861 )

Other current assets 19,980 24,727

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Operating lease right-of-use assets 17,688 24,088

Goodwill 159,196 159,196

Intangible assets, net 303,725 290,421

Notes receivable, net of allowances

Notes receivable 111,090 106,749

Allowance for notes receivable credit losses ( 15,305 ) ( 3,695 )

Investments, employee benefit plans, at fair value 29,104 24,978

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Deferred income taxes 67,745 20,747

Other assets 88,396 97,442

Total assets $ 1,587,333 $ 1,386,672

LIABILITIES AND SHAREHOLDERS’ DEFICIT

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39,530,084 and 39,363,010 shares at December 31, 2020 and December 31, 2019, respectively

( 1,260,478 ) ( 1,219,905 )

Retained earnings 1,024,500 968,833

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

(IN THOUSANDS)

Years Ended December 31,

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 75,387 $ 222,878 $ 216,355

Adjustments to reconcile net income to net cash provided by operating activities:

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Gain on disposal of assets, net — ( 2,103 ) ( 56 )

Provision for bad debts, net

Non-cash stock compensation and other charges 9,690 17,615 15,986

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Equity in net losses from unconsolidated joint ventures, less distributions received 15,439 12,562 7,389

Franchise agreement acquisition cost, net of reimbursements

Franchise agreement acquisition costs, net of reimbursements ( 36,479 ) ( 38,944 ) ( 52,929 )

Change in working capital and other, net of acquisition 6,491 ( 13,584 ) 8,511

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Proceeds from sales of assets — 10,585 3,053

Asset acquisition, net of cash acquired

Asset acquisitions, net of cash acquired — ( 168,954 ) ( 3,179 )

Proceeds from sale of unconsolidated joint venture 7,435 8,937 —

Proceeds from sale of tax credits for rehabilitation of historic building 9,197 — —

Business acquisition, net of cash acquired — — ( 231,317 )

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Proceeds from issuance of long term debt — 422,376 9,037

Proceeds from issuance of Term Loan 249,500 — —

Proceeds from issuance of 2020 Senior Notes 447,723 — —

Net (repayments) borrowings pursuant to revolving credit facilities ( 18,480 ) ( 72,400 ) 20,600

Principal payments on long-term debt, including premium on extinguishment

Principal payments on long-term debt ( 473,857 ) ( 250,497 ) ( 603 )

Payments to extinguish long-term debt ( 14,347 ) ( 6,312 ) —

Debt issuance costs ( 4,620 ) ( 3,936 ) ( 2,590 )

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Proceeds from exercise of stock options 10,203 21,410 41,360

Net cash used in financing activities

Net cash provided by (used in) financing activities 115,398 ( 12,495 ) ( 129,417 )

Net change in cash and cash equivalents 200,980 6,894 ( 207,773 )

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Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 1,421 $ 959 $ 5,949

Seller-financing to purchaser

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

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(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Outstanding Common

Value Additional

Capital Accumulated

Comprehensive

Income (Loss)

Income (Loss) Treasury

Stock Retained

Earnings Total

Balance as of December 31, 2017 56,679,968 $ 951 $ 182,448 $ ( 4,699 ) $ ( 1,064,573 ) $ 627,272 $ ( 258,601 )

Other comprehensive income

Net income — — — — — 216,355 216,355

Other comprehensive income (loss) — — — ( 747 ) — — ( 747 )

Share based payment activity 918,397 — 30,722 — 25,627 — 56,349

Dividends declared

Dividends declared ($ 0.215 per share)

— — — — — ( 48,449 ) ( 48,449 )

Treasury purchases ( 1,919,158 ) — — — ( 148,679 ) — ( 148,679 )

Balance as of December 31, 2018 55,679,207 $ 951 $ 213,170 $ ( 5,446 ) $ ( 1,187,625 ) $ 795,178 $ ( 183,772 )

Other comprehensive income

Net income — — — — — 222,878 222,878

Other comprehensive income (loss) — — — 896 — — 896

Share based payment activity 654,694 — 19,698 — 18,358 — 38,056

Dividends declared

Dividends declared ($ 0.215 per share)

— — — — — ( 48,609 ) ( 48,609 )

Treasury purchases ( 631,273 ) — — — ( 50,638 ) — ( 50,638 )

— — ( 1,708 ) — — ( 614 ) ( 2,322 )

Balance as of December 31, 2019 55,702,628 $ 951 $ 231,160 $ ( 4,550 ) $ ( 1,219,905 ) $ 968,833 $ ( 23,511 )

Cumulative-effect adjustment (2)

— — — — — ( 6,831 ) ( 6,831 )

Net income — — — — — 75,387 75,387

Other comprehensive income (loss) — — — ( 96 ) — — ( 96 )

Share based payment activity (3)

506,953 — 2,761 — 14,877 ( 437 ) 17,201

Dividends declared (3)

— — — — — ( 12,452 ) ( 12,452 )

Treasury purchases ( 674,027 ) — — — ( 55,450 ) — ( 55,450 )

Balance as of December 31, 2020 55,535,554 $ 951 $ 233,921 $ ( 4,646 ) $ ( 1,260,478 ) $ 1,024,500 $ ( 5,752 )

(1) Impacts of i) adoption of Topic 606 related to a foreign joint venture accounted for as an equity method investment on Retained Earnings and ii) transaction resulting in an increase in ownership of a consolidated joint venture for the construction and operation of a Cambria Hotel on Additional Paid-in-Capital.

(2) Reflects the cumulative effect of Topic 326, which was adopted on January 1, 2020.

Refer to Note 1 for additional details.

(3) During the fourth quarter of 2019, the Company's board of directors announced a 5 % increase to the quarterly dividend rate to $ 0.225 per share from $ 0.215 per share, beginning with the dividend payable in the first quarter of 2020.

On February 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

The dividend was payable on April 16, 2020 to shareholders of record on April 2, 2020.

Subsequent to the payment of the dividend, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends while the pandemic is significantly impacting travel.

During 2020, accumulated dividends were paid to certain shareholders 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.

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Basis of Presentation

The accompanying consolidated financial statements present the financial position, results of operations and cash flows of Choice Hotels International, Inc., a Delaware corporation and subsidiaries (the "Company").

The Company consolidates entities under its control, including variable interest entities where it is deemed to be the primary beneficiary.

Investments in unconsolidated affiliates where the Company is not deemed to be the primary beneficiary but where the Company exercises significant influence over the operating and financial policies of the investee are accounted for by the equity method.

All significant inter-company accounts and transactions have been eliminated in consolidation.

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Accordingly, ultimate results could differ from those estimates.

In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments that are necessary to fairly present the financial position, results of operations and cash flows of the Company.

On July 23, 2019, the Company acquired the remaining interests in four operating Cambria hotels.

The transaction has been accounted for as an asset acquisition and accordingly, assets and liabilities were recorded at cost and attributed to each asset class on a relative fair value basis.

Refer to Note 25.

As a result of this transaction and the opening of a Cambria hotel previously under development by the Company on August 1, 2019, the Company owns five open and operating Cambria hotels.

The results of these hotels are primarily captured in the Owned hotels revenue and operating expense line items in the Company's consolidated statements of income.

On February 1, 2018, the Company acquired 100 % of the issued and outstanding equity interest of WoodSpring Hotels Franchise Services ("WoodSpring").

The transaction has been accounted for using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date.

The results have been consolidated with the Company since February 1, 2018.

Refer to Note 25.

Revenue Recognition

Refer to Note 2 Revenue .

Accounts Receivable and Credit Risk

Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount.

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable.

The Company determines the allowance considering historical write-off experience and a review of aged receivable balances.

However, the Company considers its credit risk associated with trade receivables to be partially mitigated due to the dispersion of these receivables across a large number of geographically diverse franchisees.

The Company records bad debt expense in SG&A and marketing and reservation system expenses in the accompanying consolidated statements of income based on its assessment of the ultimate realizability of trade receivables considering historical collection experience and the economic environment.

When the Company determines that an account is not collectible, the account is written-off to the associated allowance for doubtful accounts.

Advertising Costs

The Company expenses advertising costs as the advertising occurs.

Advertising expense was $ 158.4 million , $ 141.8 million , and $ 114.1 million for the years ended December 31, 2019, 2018 and 2017 , respectively.

The Company includes advertising costs primarily in marketing and reservation system expenses on the accompanying consolidated statements of income.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents.

The Company maintains cash balances in domestic banks, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation.

In addition, the Company also maintains cash balances in international banks which do not provide deposit insurance.

Capitalization Policies

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.

Leasehold improvements are amortized over the shorter of the lease term or their useful lives.

Major renovations and replacements incurred during construction are capitalized.

Additionally, the Company capitalizes any interest incurred during construction of property and equipment or the development of software.

Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and any related gain or loss is recognized in the accompanying consolidated statements of income.

Maintenance, repairs and minor replacements are charged to expense as incurred.

Costs for computer software developed for internal use are capitalized during the application development stage and depreciated using the straight-line method over the estimated useful lives of the software.

Software licenses pertaining to cloud computing arrangements that are capitalized are amortized using the straight-line method over the shorter of the cloud computing arrangement term or their useful lives.

Assets Held for Sale

The Company considers assets to be held for sale when all of the following criteria are met:

Management commits to a plan to sell an asset;

It is unlikely that the disposal plan will be significantly modified or discontinued;

The asset is available for immediate sale in its present condition;

Actions required to complete the sale of the asset have been initiated;

Sale of the asset is probable and the Company expects the completed sale will occur within one year;

The asset is actively being marketed for sale at a price that is reasonable given its current market value.

Upon designation as an asset held for sale, the Company records the carrying value of each asset at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and ceases recording depreciation.

the carrying amount before the asset was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the asset been continuously classified as held and used;

the fair value at the date of the subsequent decision not to sell.

Valuation of Long-Lived Assets, Intangibles, and Goodwill

The Company evaluates the potential impairment of property and equipment and other long-lived assets, including franchise rights and other definite-lived intangibles, annually or earlier upon the occurrence of an event or when other circumstances indicate that the Company may not be able to recover the carrying value of the asset.

When indicators of impairment are present, recoverability is assessed based on net, undiscounted expected cash flows.

If the net, undiscounted expected cash flows are less than the carrying amount of the assets, an impairment charge is recorded for the excess of the carrying value over the fair value of the asset.

The fair value of intangibles and long lived assets are estimated primarily using undiscounted cash flow analyses.

Significant management judgment is involved in evaluating indicators of impairment and developing any required projections to test for recoverability or estimate the fair value of an asset.

Furthermore, if management uses different projections or if different conditions occur in future periods, future-operating results could be materially impacted.

The Company recognized impairments on franchise sales commission assets and franchise agreement acquisition cost intangibles resulting from terminations of franchisees from the Choice system as discussed in Note 2.

During the first quarter of 2019, the SaaS for vacation rentals reporting unit recognized impairment of long-lived assets as discussed in Note 6.

Other than these recognized impairments, the Company did not identify any indicators of impairment of long-lived assets during the years ended December 31, 2019, 2018 and 2017 .

The Company evaluates the impairment of goodwill and intangible assets with indefinite lives annually as of December 31 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the asset.

In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether

it is more likely than not that the fair value of the reporting unit or the indefinite lived intangible asset is less than its carrying amount.

If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required.

If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed for goodwill.

For indefinite-lived intangibles, the carrying value is compared to the fair value of the asset and an impairment charge is recognized for any excess.

The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangibles.

The Company determines the fair value of its reporting units and indefinite-lived intangibles using income and market methods.

Goodwill is allocated to the Company's reporting units, which are determined by the availability of discrete financial information relied upon by segment management.

Goodwill has been allocated to two reporting units:

(1) Hotel Franchising and (2) SaaS for vacation rentals.

The Company performed the qualitative impairment analysis for the Hotel Franchising reporting unit, concluding that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount.

As such, no impairment was recorded and a quantitative test was not required.

The Company performed the quantitative test for the SaaS for vacation rentals reporting unit during the fourth quarter of 2018 and first quarter of 2019 determining that the carrying value of the reporting unit exceeded the fair value.

As a result, the Company recognized a goodwill impairment of $ 4.3 million and $ 3.1 million in the fourth quarter of 2018 and first quarter of 2019, respectively.

The SaaS for vacation rentals reporting unit was sold during the second quarter of 2019, resulting in the write-off of the remaining goodwill.

Refer to Note 6.

Other than the SaaS for vacation rental reporting unit, the Company did not record any impairment of goodwill or intangible assets with indefinite lives during the years ended December 31, 2019, 2018 and 2017 .

Variable Interest Entities

In accordance with the guidance for the consolidation of variable interest entities ("VIE"), the Company analyzes its variable interests to determine if the entity in which the Company has a variable interest is a VIE.

The Company's variable interests include equity investments, loans, and guaranties.

The analysis includes both quantitative and qualitative consideration.

For those entities determined to be VIEs, a further quantitative and qualitative analysis is performed to determine if the Company will be deemed the primary beneficiary.

The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.

The Company consolidates those entities in which it is determined to be the primary beneficiary.

Valuation of Investments in Equity Method Investments

The Company evaluates an investment in a venture for impairment when circumstances indicate that the carrying value may not be recoverable, for example due to loan defaults, significant under performance relative to historical or projected operating performance, and significant negative industry or economic trends.

When there is indication that a loss in value has occurred, the Company evaluates the carrying value compared to the estimated fair value of the investment.

Fair value is based upon internally developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers.

If the estimated fair value is less than carrying value, management uses its judgment to determine if the decline in value is other-than-temporary.

In determining this, the Company considers factors including, but not limited to, the length of time and extent of the decline, loss of values as a percentage of the cost, financial condition and near-term financial projections, the Company's intent and ability to recover the lost value and current economic conditions.

For declines in value that are deemed other-than-temporary, impairments are charged to earnings.

Foreign Operations

The United States dollar is the functional currency of the consolidated entities operating in the United States.

The functional currency for the consolidated entities operating outside of the United States is generally the currency of the primary economic environment in which the entity primarily generates and expends cash.

The Company translates the financial statements of consolidated entities whose functional currency is not the United States dollar into United States dollars.

The Company translates assets and liabilities at the exchange rate in effect as of the financial statement date and translates income statement accounts using the weighted average exchange rate for the period.

The Company includes translation adjustments from foreign exchange and the effect of exchange rate changes on inter-company transactions of a long-term investment nature as a separate component of shareholders’ deficit.

The Company reports foreign currency transaction gains and losses and the effect of inter-company transactions of a short-term or trading nature in SG&A expenses on the consolidated statements of income.

Foreign currency transaction (gains) losses for the years ended December 31, 2019, 2018 and 2017 were $( 0.1 ) million , $ 0.3 million , and $( 3 ) thousand , respectively.

The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in interest rates.

All outstanding derivative financial instruments are recognized at their fair values as assets or liabilities.

The impact on earnings from recognizing the fair values of these instruments depends on their intended use, their hedge designation and their effectiveness in offsetting changes in the fair values of the exposures they are hedging.

The Company does not use derivatives for trading purposes.

The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments are recorded as a component of accumulated other comprehensive income (loss) and the ineffective portion is reported currently in earnings.

The amounts included in accumulated other comprehensive income are reclassified into earnings in the same period during which the hedged item affects earnings.

Amounts reported in earnings are classified consistent with the item being hedged.

The Company formally documents all relationships between its hedging instruments and hedged items at inception, including its risk management objective and strategy for establishing various hedge relationships.

Cash flows from hedging instruments are classified in the consolidated statements of cash flows consistent with the items being hedged.

Hedge accounting is discontinued prospectively when (i) the derivative instrument is no longer effective in offsetting changes in fair value or cash flows of the underlying hedged item, (ii) the derivative instrument expires, is sold, terminated or exercised, or (iii) designating the derivative instrument as a hedge is no longer appropriate.

The effectiveness of derivative instruments is assessed at inception and on an ongoing basis.

At December 31, 2019 and 2018 , there were no outstanding derivative positions.

The Company has historically issued certain guaranties to support the growth of its brands.

A liability is recognized for the fair value of such guaranties upon inception of the guaranty and upon any subsequent modification, such as renewals, when the Company remains contingently liable.

The fair value of a guaranty is the estimated amount at which the liability could be settled in a current transaction between willing unrelated parties.

The Company evaluates these guaranties on a quarterly basis to determine if there is a probable loss requiring recognition.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) and issued subsequent amendments to the initial guidance at various points thereafter (collectively referred to as "Topic 842").

Topic 842 requires a lessee to recognize operating leases on its balance sheet by recording liabilities for its lease obligations and assets for its right-of-use ("ROU") of the underlying assets as of the lease commencement dates.

This differs from prior treatment of operating leases in accordance with Accounting Standards Codification ("ASC") 840, Leases (Topic 840) ("Topic 840"), as operating leases were not captured on a lessee's consolidated balance sheet.

Topic 842 prescribes that entities should recognize expenses on their consolidated statements of income in a manner similar to Topic 840 whereby minimum lease payments are recognized on a straight-line basis over a lease term.

The Company elected to apply the package of practical expedients that allows entities to forego reassessing at the transition date:

(i) whether expired or existing contracts are or contain leases;

(ii) lease classification for any expired or existing leases;

and (iii) whether initial direct costs for existing leases qualify for capitalization.

Topic 842 allows entities an optional transitional method to apply the transition requirements at the effective date, rather than at the beginning of the earliest comparative period.

An entity’s reporting for the comparative periods presented in the year of adoption continues to be in accordance with Topic 840, including the disclosure requirements of Topic 840.

The Company adopted Topic 842 on January 1, 2019 using this optional transition method and therefore, the financial results reported in periods prior to January 1, 2019 are unchanged.

Adoption of the standard during the first quarter of 2019 resulted in the recording of operating lease ROU assets of $28.0 million and operating lease liabilities of $38.5 million as of March 31, 2019.

Topic 842 did not have an impact on our consolidated statements of income.

Refer to Note 20.

The accompanying consolidated financial statements of Choice Hotels International, Inc.

and its subsidiaries (together the "Company") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").

All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments that are necessary to fairly present the consolidated financial statements.

Revenue Recognition

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Primarily consists of the points issued under the Company’s guest loyalty program, Choice Privileges.

Point in time sale of goods:

The Company administered the delivery of chip-enabled credit card readers to its franchisees in 2017 and 2018 to aid in compliance with industry standards in exchange for a fee.

Revenue was recognized at the point in time shipment was made to the franchisee within Other revenue.

The Company determined the standalone selling price was equal to the amount invoiced to the franchisee.

Brand intellectual property

Fees generated from the brand intellectual property are recognized to revenue over time as hotel owners pay for access to these services for the duration of the franchise agreement.

Fees generated from brand intellectual property are recognized to revenue over time as hotel owners pay for access to these services for the duration of the franchise agreement.

Franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed up-front fees that usually represent an insignificant portion of the transaction price.

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or (iii) existing franchise agreements are extended.

These revenues are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement.

These fees are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement.

The enforceable period is the period from hotel opening to the first point the franchisee or the Company can terminate the franchise agreement without incurring a significant penalty.

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• Marketing and reservation system activities also include revenues generated from the Company’s guest loyalty program.

The revenue recognition of this program is discussed in Material rights for free or discounted good or services to hotel guests below .

The revenue recognition of this program is discussed in Material rights for free or discounted goods or services to hotel guests below .

Marketing and reservation system expenses are those expenses incurred to facilitate the delivery of marketing and reservation system services, including direct expenses and an allocation of costs for certain administrative activities required to carry out marketing and reservation services.

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The Company’s franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available and recover such advances in future periods through additional fee assessments or reduced spending.

Material rights for free or discounted good or services to hotel guests

During the years ended December 31, 2020, and 2019, marketing and reservation system expenses exceeded revenues by $ 44.3 million and $ 1.7 million, respectively.

During the year ended December 31, 2018, marketing and reservation system revenues exceeded expenses by $ 9.4 million.

The deficit generated during the year ended December 31, 2020 is a result of lower marketing and reservation fees generated and incremental spend by the Company to support franchisees during the COVID-19 pandemic.

Material rights for free or discounted goods or services to hotel guests

Choice Privileges is the Company’s frequent guest loyalty program, which enables members to earn points based on their spending levels with the Company’s franchisees.

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The amount of the loyalty program fees in excess of the point liability represents current and non-current Deferred revenue , which is recognized to revenue as points are redeemed including an estimate of future forfeitures (“breakage”).

The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability.

The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability, which was adjusted in the first quarter of 2020 to reflect an anticipated longer issuance to redemption period in light of impacts from the COVID-19 pandemic.

As of December 31, 2020, the current and non-current deferred revenue balances are $ 23.0 million and $ 40.6 million, respectively.

Loyalty points are typically redeemed within three years of issuance.

Loyalty program point redemption revenues are recognized within marketing and reservation system revenue in the consolidated statements of income.

program point redemption revenues are recognized within marketing and reservation system revenue in the consolidated statements of income.

The Company also earns revenues on contracts incidental to the support of operations for franchised hotels, including purchasing operations.

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The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to hotel guests.

Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on

market and income methods, which represent significant judgments.

Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on market and income methods, which represent significant judgments.

The amounts allocated to brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, primarily within Procurement services revenue.

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Variable consideration is determined at the conclusion of each period, and allocated to and recognized in the current period.

The Company owned five hotels at December 31, 2019, from which the Company derives revenues.

The Company owned five hotels at December 31, 2020 and December 31, 2019, from which the Company derives revenues.

As a hotel owner, the Company has performance obligations to provide accommodations to hotel guests and in return the Company earns a nightly fee for an agreed upon period that is generally payable at the time the hotel guest checks out of the hotel.

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These primarily consist of food and beverage, incidentals and parking fees.

The Company presents taxes collected from customers and remitted to governmental authorities on a net basis and, therefore, they are excluded from revenues in the consolidated financial statements.

Accounts & Notes Receivable and Allowances for Credit Losses

Refer to the Recently Adopted Accounting Standards section below and Note 4.

Advertising Costs

The Company expenses advertising costs as the advertising occurs.

Advertising expense was $ 88.5 million, $ 158.4 million, and $ 141.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company includes advertising costs primarily in marketing and reservation system expenses in the consolidated statements of income.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents.

The Company maintains cash balances in domestic banks, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation.

In addition, the Company also maintains cash balances in international banks which do not provide deposit insurance.

Capitalization Policies

Property and equipment are recorded at cost and depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets.

Leasehold improvements are amortized over the shorter of the lease term or their useful lives.

Major renovations and replacements incurred during construction are capitalized.

Costs for computer software developed for internal use are capitalized during the application development stage and amortized using the straight-line method over the estimated useful lives of the software.

The Company capitalizes interest incurred during construction of property and equipment.

Interest capitalized as a cost of property and equipment totaled $ 0.1 million and $ 0.2 million for the years ended December 31, 2020 and 2019.

As construction in progress and software development are completed and placed in service, they are transferred to appropriate property and equipment categories and depreciation begins.

Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and any related gain or loss is recognized in the consolidated statements of income.

Maintenance, repairs and minor replacements are charged to expense as incurred.

A summary of the ranges of estimated useful lives upon which depreciation rates are based follows:

Computer equipment and software 2 - 7 years

Buildings and leasehold improvements 10 - 40 years

Furniture, fixtures, vehicles and equipment 3 - 10 years

Assets Held for Sale

The Company considers assets to be held for sale when all of the following criteria are met:

• Management commits to a plan to sell an asset;

• It is unlikely that the disposal plan will be significantly modified or discontinued;

• The asset is available for immediate sale in its present condition;

• Actions required to complete the sale of the asset have been initiated;

• Sale of the asset is probable and the Company expects the completed sale will occur within one year;

• The asset is actively being marketed for sale at a price that is reasonable given its current market value.

If at any time these criteria are no longer met, subject to certain exceptions, the assets previously classified as held for sale are reclassified as held and used and measured individually at the lower of (a) the carrying amount before the asset was classified as held for sale, adjusted for any depreciation or amortization expense that would have been recognized had the asset been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

Valuation of Long-Lived Assets, Intangibles, and Goodwill

The Company evaluates the potential impairment of property and equipment and other long-lived assets, including franchise rights and other intangible assets with definite lives, annually or earlier upon the occurrence of an event or when other circumstances indicate that the Company may not be able to recover the carrying value of the asset.

When indicators of impairment are present, recoverability is assessed based on undiscounted expected cash flows.

If the undiscounted expected cash flows are less than the carrying amount of the assets, an impairment charge is recorded for the excess of the carrying value over the fair value of the asset.

The fair value of intangibles and long-lived assets are estimated primarily using undiscounted cash flow analyses.

Significant management judgment is involved in evaluating indicators of impairment and developing any required projections to test for recoverability or estimate the fair value of an asset.

Furthermore, if management uses different projections or if different conditions occur in future periods, future-operating results could be materially impacted.

The Company did not identify any indicators of impairment of long-lived assets from the Hotel Franchising reporting unit during the years ended December 31, 2020, 2019 and 2018, other than impairments on franchise sales commission assets and franchise agreement acquisition cost intangibles resulting from terminations of franchisees from the Choice system as discussed in Note 2.

During 2020, the Company recognized impairments of long-lived assets attributable to a commercial office building and a real estate parcel.

During 2019, the Company recognized impairments of long-lived assets attributable to the SaaS for vacation rentals reporting unit.

Refer to Note 6.

In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the indefinite lived intangible asset is less than its carrying amount.

If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required.

If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed whereby the carrying value is compared to the fair value of the asset and an impairment charge is recognized for any excess.

The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangibles.

The Company determines the fair value of its reporting units and indefinite-lived intangibles using income and market methods.

Goodwill is allocated to the Company's reporting units, which are determined by the availability of discrete financial information relied upon by segment management.

As of December 31, 2020, the Company's goodwill is allocated to the Hotel Franchising reporting unit.

As such, a quantitative test was not required and no impairment was recorded.

Historically, goodwill has been partially allocated to the SaaS for vacation rentals reporting unit.

As a result, the Company recognized a goodwill impairment of $ 4.3 million and $ 3.1 million in the fourth quarter of 2018 and first quarter of 2019, respectively.

The SaaS for vacation rentals reporting unit was sold during the second quarter of 2019, resulting in the write-off of the remaining goodwill.

Refer to Note 6.

Other than the SaaS for vacation rentals reporting unit, the Company did no t record any impairment of goodwill or intangible assets with indefinite lives during the years ended December 31, 2020, 2019 and 2018.

Variable Interest Entities

In accordance with the guidance for the consolidation of variable interest entities ("VIE"), the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE.

The Company's variable interests include equity investments, loans, and guaranties.

Determination if a variable interest is a VIE includes both quantitative and qualitative consideration.

For those entities determined to be VIEs, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary.

The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant.

The Company would consolidate those entities in which it is determined to be the primary beneficiary.

As of December 31, 2020, the Company is not the primary beneficiary of any VIE.

The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements.

Valuation of Investments in Equity Method Investments

When there is indication that a loss in value has occurred, the Company evaluates the carrying value compared to the estimated fair value of the investment.

Fair value is based upon internally-developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers.

If the estimated fair value is less than carrying value, management uses its judgment to determine if the decline in value is other-than-temporary.

For declines in value that are deemed other-than-temporary, impairments are charged to earnings.

During the year ended December 31, 2020, the Company recognized impairment charges of $ 7.3 million related to four separate equity method investments.

The impairment charges are classified as equity in net loss of affiliates in the consolidated statements of income.

Refer to Note 8.

Foreign Operations

The United States dollar is the functional currency of the consolidated entities operating in the United States.

The Company translates the financial statements of consolidated entities whose functional currency is not the United States dollar into United States dollars.

The Company includes translation adjustments from foreign exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of shareholders’ deficit.

Foreign currency transaction (gains) losses for the years ended December 31, 2020, 2019 and 2018 were $( 0.4 ) million, $( 0.1 ) million, and $ 0.3 million, respectively.

The Company determines if an arrangement is a lease and classification as operating or financing at lease inception.

Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets.

At December 31, 2020 and 2019, the Company did not have any leases classified as financing.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

Operating lease ROU assets are further offset by any prepaid rent, lease incentives and initial direct costs incurred.

When a lease agreement does not provide an implicit rate, the Company utilizes its incremental borrowing rate based on the information available at commencement date in determining the present value of future minimum lease payments.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments include certain index-based changes in rent, certain non-lease components (such as maintenance and other services provided by the lessor), and other charges included in the lease.

Variable lease payments are excluded from future minimum lease payments and expensed as incurred.

The Company has made elections to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee nor account for leases with an initial term of 12 months or less on the balance sheet.

These short-term leases are expensed on a straight-line basis over the lease term.

The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases ("Topic 842") on January 1, 2019, using the optional transitional method to apply Topic 842 at the effective date rather than at the beginning of the earliest comparative period.

Topic 842 did not have an impact on the Company's consolidated statements of income.

Refer to Note 19.

The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in interest rates.

All outstanding derivative financial instruments are recognized at their fair values

as assets or liabilities.

The Company does not use derivatives for trading purposes.

The amounts included in accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged item affects earnings.

Amounts reported in earnings are classified consistent with the item being hedged.

Cash flows from hedging instruments are classified in the consolidated statements of cash flows consistent with the items being hedged.

The effectiveness of derivative instruments is assessed at inception and on an ongoing basis.

At December 31, 2020 and 2019, there were no outstanding derivative positions.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance at various points thereafter ("Topic 326").

Under legacy standards, we recognized an impairment of receivables when it was probable that a loss had been incurred.

Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts (which includes losses that may be incurred in future periods), and enhanced disclosures to provide insight to significant estimates and judgments used in estimating credit losses.

The scope and provisions of Topic 326 impact the allowance for the Company's notes and accounts receivables.

The Company adopted Topic 326 on January 1, 2020 using the modified retrospective approach resulting in a cumulative-effect adjustment of $ 6.8 million with respect to notes receivable (inclusive of deferred taxes), recorded in retained earnings as of the date of adoption.

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

The Company monitors the risk and performance of our portfolio by the level of security in collateral (i.e., senior, subordinated or unsecured).

As each of the Company’s notes receivable loans has unique risk characteristics, the Company deploys its methodology to calculate allowances for credit losses at the individual notes receivable loan level.

The Company primarily utilizes a discounted cash flow ("DCF") approach to measure the credit allowance, influenced by the key economic variables of each note receivable loan.

The Company identified the key economic variables for these loans to be loan-to-cost ("LTC") or loan-to-value ("LTV") ratios and debt service coverage ratio ("DSCR").

The LTC or LTV ratio represents the loan principal relative to the project cost or value and is an indication of the ability to be re-paid principal at loan maturity.

The DSCR represents borrower net operating income as a percentage of the interest and principal payments incurred (i.e., debt service) on all debt of the borrower and is an indication of the ability of the borrower to timely pay amounts due during the term of the loan.

The LTC or LTV ratios and DSCR are considered during loan underwriting as indications of risk and, accordingly, we believe these factors are the most representative risk indicators for calculating the allowance for credit loss.

Loans with higher LTC or LTV ratios and lower DSCR ratios generally are representative of loans with greater risk and, accordingly, have higher credit allowances as a percentage of loan principal.

Conversely, loans with lower LTC or LTV ratios and higher DSCR ratios generally are representative of loans with lesser risk and, accordingly, have lower credit allowances as a percentage of loan principal.

Collateral-dependent financial assets are financial assets for which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty.

For collateral-dependent loans, expected credit losses are based on the fair value of the collateral, less selling costs if repayment will be from the sale of the collateral.

Management assesses the credit quality of the portfolio and adequacy of credit loss allowances on an at least quarterly basis.

Significant judgment is required in this analysis.

Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount.

The allowance for credit losses is the Company’s best estimate of the amount of expected credit losses inherent in the

accounts receivable balance.

The Company determines the allowance considering historical write-off experience, review of aged receivable balances and customer payment trends, the economic environment, and other available evidence.

The Company records provisions for credit losses in SG&A expenses and marketing and reservation system expenses in the accompanying consolidated statements of income.

When the Company determines that an account is not collectible, the account is written-off to the associated allowance for credit losses.

Historically, the Company has considered its credit risk associated with accounts receivables to be partially mitigated due to the dispersion of these receivables across a large number of geographically diverse franchisees.

During the year ended December 31, 2020, the Company recorded provisions for credit losses on accounts receivable of $ 15.6 million in SG&A expenses and $ 26.0 million in marketing and reservation system expenses, with contemplation to economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected credit losses.

These provisions represent the material valuation activity for the accounts receivable allowance for credit losses.

Refer to Note 4 for further discussion of notes receivable and rollforward of our allowance for credit losses.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13").

ASU 2018-13 modifies disclosure requirements on fair value measurements.

The Company adopted ASU 2018-13 on a retrospective basis on January 1, 2020, with limited modifications to its fair value footnote disclosure.

Refer to Note 14.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) :

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.

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.

Contract Liabilities

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Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 163.8 million as of December 31, 2019 .

The aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 156.2 million as of December 31, 2020.

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

Based on practical expedient elections permitted by Topic 606, the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less.

Based on practical expedient elections permitted by ASU 2014-09, Revenue From Contracts with Customers (Topic 606) and subsequent amendments ("Topic 606"), the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less.

Capitalized Franchise Agreement Costs

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Capitalized franchise sales commissions are $ 54.3 million and $ 55.7 million within Other assets as of December 31, 2020 and 2019, respectively.

Amortization expense and impairment loss for the years ended December 31, 2019 , 2018 and 2017 were $ 10.0 million , $ 9.0 million and $ 7.8 million , respectively, and is reflected within SG&A expenses.

The Company makes certain payments to customers as an incentive to enter in to new franchise agreements (“Franchise agreement acquisition cost”).

Amortization expense and impairment loss for the years ended December 31, 2020, 2019 and 2018 were $ 9.7 million, $ 10.0 million and $ 9.0 million, respectively, and are reflected within SG&A expenses.

The Company makes certain payments to customers as an incentive to enter into new franchise agreements (“franchise agreement acquisition cost”).

These payments are recognized as an adjustment to transaction price and capitalized as an intangible asset.

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Impairments from hotel terminations for the years ended December 31, 2020, 2019 and 2018 were $ 2.0 million, $ 1.0 million and $ 0.3 million, respectively, and are recorded within SG&A expenses and marketing and reservation system expenses.

The Company presents taxes collected from customers and remitted to governmental authorities on a net basis and therefore they are excluded from revenues in the consolidated financial statements.

Disaggregation of Revenue

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Year Ended December 31, 2020

Point in time

(in thousands)

(in thousands) Over time Point in time Total

Royalty fees $ 263,308 $ — $ 263,308

Initial franchise and relicensing fees 25,906 — 25,906

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Marketing and reservation system 325,785 76,783 402,568

Total Topic 606 revenues

Owned hotels 16,824 2,912 19,736

Other 15,838 — 15,838

Topic 606 revenues $ 690,580 $ 82,018 772,598

Non-Topic 606 revenues 1,474

Total revenues $ 774,072

Year Ended December 31, 2019

Point in time

(in thousands)

(in thousands) Over time Point in time Total

Royalty fees $ 388,151 $ — $ 388,151

Initial franchise and relicensing fees 27,489 — 27,489

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Marketing and reservation system 499,368 78,058 577,426

Total Topic 606 revenues

Owned hotels 17,345 2,821 20,166

Other 38,860 141 39,001

Topic 606 revenues $ 1,029,461 $ 84,201 1,113,662

Non-Topic 606 revenues 1,158

Total revenues $ 1,114,820

Year Ended December 31, 2018

Point in time

(in thousands)

(in thousands) Over time Point in time Total

Royalty fees $ 376,676 $ — $ 376,676

Initial franchise and relicensing fees 26,072 — 26,072

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Marketing and reservation system 490,025 53,652 543,677

Total Topic 606 revenues

Owned hotels — — —

Other 40,360 1,058 41,418

Topic 606 revenues $ 982,629 $ 57,302 1,039,931

Non-Topic 606 revenues 1,373

Total revenues $ 1,041,304

Marketing and reservation system and Procurement services point in time revenues represent loyalty points redeemed by members for benefits (including with third-party partners) including adjustments to estimated redemption rates, net of the cost of redemptions of $ 79.1 million, $ 81.2 million, and $ 56.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The remaining revenues relate to the Hotel Franchising segment.

Royalty fees and Marketing and reservation system revenues are presented net of $ 1.7 million in intersegment revenues described in Note 21.

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 1.5 million, $ 1.7 million, and zero for the years ended December 31, 2020, 2019 and 2018, respectively.

Other Current Assets

Other current assets consist of the following at:

Other current assets consist of the following:

(in thousands) 2020 2019

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Other current assets 3,816 3,711

Land held for sale

Land held for sale represented a parcel of land previously acquired by the Company as part of its program to incent franchise development in strategic markets for the Company's Cambria Hotels brand.

During the year ended December 31, 2019 , the Company sold the parcel of land, with a book value of $ 7.0 million recognizing a gain on sale of $ 0.1 million .

Notes Receivable and Allowance for Losses

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

The Company utilizes the level of security it has in the notes receivable as its primary credit quality indicator (i.e., senior, subordinated or unsecured) when determining the appropriate allowances for uncollectible loans.

The Company considers loans to be past due and in default when payments are not made when due.

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 principal.

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

Interest income associated with these notes receivable is reflected in the accompanying consolidated statements of income under the caption interest income.

The Company assesses the collectibility of its senior notes receivable by comparing the market value of the underlying assets to the carrying value of the outstanding notes.

In addition, the Company evaluates the property’s operating performance, the borrower’s compliance with the terms of the loan and franchise agreements, and all related personal guaranties that have been provided by the borrower.

For subordinated or unsecured receivables, the Company assesses the property’s operating performance, the subordinated equity available to the Company, the borrower’s compliance with the terms of the loan and franchise agreements, and the related personal guaranties that have been provided by the borrower.

The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement.

The Company measures loan impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral.

For impaired or restructured loans that are provided a concession, the Company establishes a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral.

The Company applies its loan impairment policy individually to all notes receivable in the portfolio and does not aggregate loans for the purpose of applying such policy.

For impaired loans, the Company recognizes interest income on a cash basis.

For restructured loans that are provided a concession, the Company recognizes interest as earned as long as the borrower is in compliance with the restructured loan terms.

The Company assesses the adequacy of its loan reserves on a quarterly basis.

If it is likely that a loan will not be collected based on financial or other business indicators, it is the Company’s policy to establish a valuation allowance with a corresponding charge to SG&A expenses in the accompanying consolidated statements of income in the quarter when it is deemed uncollectible.

Recoveries of impaired loans are recorded as a reduction of SG&A expenses in the quarter received.

The following table shows the composition of the Company's notes receivable balances:

Credit Quality Indicator:

Total other current assets $ 19,980 $ 24,727

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.

The composition of notes receivable balances based on the level of security credit quality indicator and the allowance for credit losses is as follows:

(in thousands) 2020 2019

Senior $ 104,716 $ 98,545

Subordinated 33,234 32,153

Unsecured 1,367 2,316

Total notes receivable 139,317 133,014

Allowance for losses on receivables specifically evaluated for impairment

Allowance for losses on non-impaired loans

Total loan reserves

Net carrying value

Current portion, net

Long-term portion, net

The Company classifies notes receivable due within one year as current assets.

The Company determined that approximately $ 52.0 million and $ 52.1 million of its notes receivable were impaired at December 31, 2019 and 2018 .

The total unpaid principal balances of these impaired notes, which were current on principal and interest payments based on their restructured loan maturity terms, as of both December 31, 2019 and 2018 were $ 51.8 million .

The Company recorded allowances for credit losses on these impaired loans totaling $ 4.4 million for both the years ended December 31, 2019 and 2018 , respectively.

For the years ended December 31, 2019 and 2018 , the average notes receivable on non-accrual status was approximately $ 1.7 million and $ 1.8 million .

The Company recognized approximately $ 2.8 million and $ 44 thousand of interest income on impaired loans at December 31, 2019 and 2018 , respectively, on the cash basis.

The Company provided loan reserves on non-impaired loans totaling $ 0.1 million and $ 0.3 million at December 31, 2019 and 2018 , respectively.

The Company has identified loans totaling approximately $ 16.3 million and $ 12.9 million , respectively, with stated interest rates that are less than market rate, representing a total discount of $ 1.3 million and $ 1.5 million , respectively, at December 31, 2019 and 2018 .

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

Past due balances of notes receivable by credit quality indicators are as follows:

Total allowance for notes receivable credit losses 19,484 4,556

Total notes receivable, net of allowance $ 119,833 $ 128,458

Current portion, net of allowance $ 24,048 $ 25,404

Long-term portion, net of allowance $ 95,785 $ 103,054

Amortized cost basis by year of origination and level of security credit quality indicator are as follows:

(in thousands) 2020 2019 2018 Prior Total

Senior $ — $ 28,643 $ 15,200 $ 60,873 $ 104,716

Subordinated — 2,515 11,360 19,359 33,234

Unsecured — — 581 786 1,367

Total notes receivable $ — $ 31,158 $ 27,141 $ 81,018 $ 139,317

As of December 31, 2019

As disclosed in Note 1, Topic 326 required a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance was effective.

As of the adoption date of January 1, 2020, the Company established a credit allowance on its notes receivable loans of $ 12.9 million, an increase of $ 8.3 million from the previous loan allowance of $ 4.6 million as of December 31, 2019.

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

(in thousands) 2020 2019

Beginning balance $ 4,556 $ 4,685

Reserves established from adoption of Topic 326 8,348 —

Provisions for credit losses 7,634 —

Write-offs ( 1,054 ) ( 129 )

Ending balance $ 19,484 $ 4,556

The provisions recorded in the year ended December 31, 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.

As of December 31, 2020, one of the Company’s loans with senior and subordinated tranches met the definition of collateral-dependent and is collateralized by an operating hotel and membership interests in the borrowing entity.

This loan was previously restructured with concessions to the borrower in 2019 and 2020.

The Company uses a DCF technique to project cash flows based upon the underlying property.

In projecting these cash flows, the Company reviewed the borrower's financial statements, economic trends, industry projections for the market, and comparable sales capitalization rates.

These nonrecurring fair value measurements are considered to be in level three of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value.

Based on this analysis, the fair value of the collateral secures the carrying value of the loan to a significant extent.

As of December 31, 2020, the Company's provision for credit losses attributable to this loan is $ 7.8 million.

As a result of the COVID-19 pandemic, the Company extended interest deferral terms on certain notes receivable.

The Company considers loans to be past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral.

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 does not resume interest accrual until all delinquent payments are received based on then current loan provisions.

The amortized cost basis of notes receivable on non-accrual status was $ 28.9 million and $ 1.7 million at December 31, 2020 and 2019, respectively.

The Company has identified loans totaling approximately $ 13.1 million and $ 16.3 million, respectively, with stated interest rates that are less than market rate, representing a total discount of $ 0.8 million and $ 1.3 million as of the years ended December 31, 2020 and 2019, respectively.

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

The past due status by credit quality indicator of the notes receivable amortized cost basis are as follows:

(in thousands) 30-89 days

Past Due > 90 days

Past Due Total

Past Due Current Total Notes Receivable

As of December 31, 2020

Senior $ — $ 15,200 $ 15,200 $ 89,516 $ 104,716

Subordinated — 2,209 2,209 31,025 33,234

Unsecured — — — 1,367 1,367

$ — $ 17,409 $ 17,409 $ 121,908 $ 139,317

As of December 31, 2019

Senior $ — $ — $ — $ 98,545 $ 98,545

Subordinated — — — 32,153 32,153

Unsecured — — — 2,316 2,316

$ — $ — $ — $ 133,014 $ 133,014

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

Refer to Note 23.

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 119.3 million and $ 126.5 million at December 31, 2020 and 2019, respectively.

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

Each of these loans have stated fixed and/or variable interest amounts.

The following table summarizes the activity related to the Company’s Notes Receivable allowance for losses for the years ended December 31, 2019 and 2018 :

(in thousands)

Beginning balance

Ending balance

Transfer of Interest

On September 12, 2017, the Company entered into an agreement to transfer $ 24.2 million of a $ 49.1 million outstanding note receivable with a maturity date of November 30, 2019 to a third party.

In the first quarter of 2018, an additional $ 0.2 million was transferred for a total of $ 24.4 million of a $ 50.1 million outstanding note.

The transaction did not qualify as a sale and therefore the outstanding note receivable was not derecognized on the balance sheet.

The one-time cash proceeds were recorded as unrestricted cash and the future obligation to transfer principal and interest received under the note has been recorded within Other Long-Term Liabilities.

In addition, the proceeds from the transfer of the interest in the note receivable have been reflected on the statement of cash flows as a financing activity.

The Company retained responsibility for collecting and

distributing cash received on the note and interest paid to the participant is reflected as interest expense in the Company’s consolidated statements of income.

In February 2019 and in connection with the Company's restructuring negotiations with the borrower, the Company mutually agreed with the counter party to repurchase the $ 24.4 million note receivable previously transferred prior to the maturity date.

At December 31, 2019 and 2018 , Other Long-Term Liabilities includes $0 and $ 24.4 million , pursuant to this transaction, respectively.

The Company has determined that it is not the primary beneficiary of these VIEs.

These loans have stated fixed and/or variable interest amounts.

Property and Equipment

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Property and equipment, at cost, net $ 334,901 $ 351,502

(1) In 2019, $ 4.8 million of Assets under capital lease were transferred to Computer equipment and software as a result of adopting Topic 842 and paying off the lease.

The $ 4.8 million of Assets under capital lease for the year ended 2018 have been reclassified to conform to current year presentation.

In the third quarter of 2019, the Company completed an asset acquisition for four Cambria Hotels with a total net asset basis of $ 194.0 million .

Reference Note 25.

As construction in progress and software development are completed and placed in service, they are transferred to appropriate property and equipment categories and depreciation begins.

In the third quarter of 2019, the rehabilitation and development of a former office building into a Cambria hotel was completed and the hotel opened.

Interest capitalized as a cost of property and equipment totaled $ 0.2 million for the years ended December 31, 2019 and 2018 .

Unamortized capitalized software development costs at December 31, 2020 and 2019 totaled $ 52.2 million and $ 45.2 million, respectively.

Amortization of software development costs for the years ended December 31, 2020, 2019 and 2018 totaled $ 14.6 million, $ 9.7 million, and $ 11.2 million, respectively.

Depreciation has been computed for financial reporting purposes using the straight-line method.

A summary of the ranges of estimated useful lives upon which depreciation rates are based follows:

Computer equipment and software

Buildings and leasehold improvements

Furniture, fixtures, vehicles and equipment

Depreciation expense, excluding amounts attributable to marketing and reservation activities, for the years ended December 31, 2020, 2019 and 2018 was $ 16.9 million, $ 9.7 million and $ 5.5 million, respectively.

In the third quarter of 2019, the Company completed an asset acquisition for four Cambria Hotels with a total net asset basis of $ 194.0 million.

Refer to Note 24.

During the third quarter of 2020, the Company recognized a non-cash pre-tax long-lived asset group impairment charge for a commercial office building in the amount of $ 4.3 million.

Refer to Note 6.

Goodwill, Impairment of Assets, and Loss on Sale of Business

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(in thousands) 2020 2019

Goodwill $ 166,774 $ 173,070

Accumulated impairment losses ( 7,578 ) ( 7,578 )

Net carrying amount

Disposition — ( 6,296 )

Goodwill, net carrying amount $ 159,196 $ 159,196

The following is a summary of changes in the carrying amount of goodwill:

December 31, 2018

Foreign Exchange

December 31, 2019

(in thousands) December 31, 2019 Acquisitions Foreign Exchange Impairment Disposition December 31, 2020

Hotel Franchising $ 159,196 $ — $ — $ — $ — $ 159,196

December 31, 2017

Foreign Exchange

December 31, 2018

Other — — — — — —

Total $ 159,196 $ — $ — $ — $ — $ 159,196

(in thousands) December 31, 2018 Acquisitions Foreign Exchange Impairment Disposition December 31, 2019

Hotel Franchising $ 159,196 $ — $ — $ — $ — $ 159,196

Other 9,800 — ( 407 ) ( 3,097 ) ( 6,296 ) —

Total $ 168,996 $ — $ ( 407 ) $ ( 3,097 ) $ ( 6,296 ) $ 159,196

Goodwill has historically been allocated to two reporting units:

(1) Hotel Franchising and (2) SaaS for vacation rentals ("Other" in the table above).

Activity by reporting unit in the current and prior period is organized by reporting unit below.

Activity by reporting unit in the current and prior periods is organized by reporting unit below.

Hotel Franchising

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The Hotel Franchising reporting unit is included in the Hotel Franchising reportable segment in Note 20.

WoodSpring acquisition

On February 1, 2018, the Company acquired 100 % of the issued and outstanding equity interest of WoodSpring.

The acquisition resulted in an additional $ 93.4 million in goodwill in the Hotel Franchising reporting unit.

SaaS for vacation rentals

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The long-lived asset group was determined to be at the SaaS for vacation rentals reporting unit level.

Recoverability of the long-lived asset group was assessed based on net, undiscounted expected cash flows of the asset group, which were less than the carrying amount of the asset group.

Recoverability of the long-lived asset group was assessed based on undiscounted expected cash flows of the asset group, which were less than the carrying amount of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

6 unchanged sentences

On June 3, 2019, the SaaS for vacation rentals reporting unit was sold.

As a result of costs incurred in completing the disposition and the de-recognition of net assets of the reporting unit, including the remaining goodwill of $ 6.3 million , the Company recognized a loss on sale of $ 4.7 million .

As a result of costs incurred in completing the disposition and the derecognition of net assets of the reporting unit, including the remaining goodwill of $ 6.3 million, the Company recognized a loss on sale of $ 4.7 million.

The results of the SaaS for vacation rentals reporting unit prior to the disposition are included in the Corporate & Other segment in Note 20.

The impairment charges and loss on sale do not have an impact on the Company's liquidity or calculation of financial covenants under existing debt arrangements.

The impairment charges and loss on sale did not have an impact on the Company's liquidity or calculation of financial covenants under existing debt arrangements.

Long-lived asset group impairments

Commercial office building

On December 30, 2014, a court awarded the Company title to a commercial office building as settlement of a portion of an outstanding loan receivable for which the building was pledged as collateral.

At the time of settlement, a single tenant fully occupied the building.

The initial lease term expiration was in December 2020 and the tenant had extension options for up to 30 years.

Prior to initial lease term expiration, the tenant provided notice that the lease renewal options would not be exercised.

Management identified this as a triggering event requiring the interim reevaluation of the commercial office building's long-lived assets.

The long-lived asset group had a carrying value prior to recoverability evaluation of $ 11.1 million in property and equipment and $ 0.2 million in intangible assets as of September 30, 2020.

During the third quarter of 2020, recoverability of the long-lived asset group was assessed based on undiscounted expected cash flows of the asset group aligned with management’s present long-term strategy for the building, and management concluded the undiscounted expected cash flows were less than the carrying amount of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

To estimate the fair value of the long-lived asset group, the Company utilized a combination of market and income approach valuation methods.

The Company recognized a non-cash pretax long-lived asset group impairment charge in the amount of $ 4.3 million during the third quarter of 2020.

The results of the commercial office building are included in the Corporate & Other segment in Note 20.

The impairment charge does not have an impact on the Company's liquidity or compliance with financial covenants under existing debt arrangements.

Real estate parcel

The Company purchases real estate as part of its program to incent franchise development in strategic markets for the Cambria brand.

The real estate is classified in other assets to the extent it is not presently under active construction.

During the third quarter of 2018, the Company purchased the remaining membership interests in a VIE previously accounted for under the equity method of accounting.

The VIE held a real estate parcel and the purchase was accounted for an asset acquisition.

The financial results of the 100% owned entity have been consolidated in the Company's financial statements since August 2018.

The real estate parcel represents a long-lived asset group with a carrying value prior to recoverability evaluation of $ 29.5 million in other assets as of December 31, 2020.

Based on the impact of the COVID-19 pandemic, the Company’s assessment of the highest and best use of the real estate parcel changed and, therefore, the recoverability of the long-lived asset group was re-assessed based on undiscounted expected cash flows of the asset group from a sale, which were less than the carrying value of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

To estimate the fair value of the long-lived asset group, the Company utilized market approach valuation methods.

The Company recognized a non-cash pre-tax long-lived asset group impairment charge in the amount of $ 9.2 million during the fourth quarter of 2020.

The results of the real estate parcel are included in the Corporate & Other segment in Note 20.

The impairment charge does not have an impact on the Company's liquidity or compliance with financial covenants under existing debt arrangements.

Intangible Assets

The components of the Company's intangible assets are as follows:

As of December 31, 2019

As of December 31, 2018

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

(in thousands)

Unamortized Intangible Assets

Trademarks (1)

Amortized Intangible Assets

As of December 31, 2020 As of December 31, 2019

(in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

Franchise Rights (1)

$ 190,714 $ 98,027 $ 92,687 $ 190,637 $ 90,280 $ 100,357

Franchise Agreement Acquisition Costs (2)

Trademarks (4)

223,536 43,036 180,500 198,352 41,667 156,685

Trademarks & Other (3)

17,810 13,937 3,873 17,341 12,595 4,746

Capitalized SaaS Licenses (4)

Contract Acquisition Costs (6)

Acquired Lease Rights (7)

Represents the purchase price assigned to the WoodSpring and Suburban trademarks at acquisition.

The trademarks are expected to generate future cash flows for an indefinite period of time.

11,779 8,128 3,651 10,880 5,261 5,619

Total amortizing intangible assets 443,839 163,128 280,711 417,210 149,803 267,407

Trademarks (non-amortizing) (5)

23,014 — 23,014 23,014 — 23,014

Total intangible assets $ 466,853 $ 163,128 $ 303,725 $ 440,224 $ 149,803 $ 290,421

(1) Represents the purchase price assigned to long-term franchise contracts.

1 unchanged sentence

The franchise rights are being amortized over lives ranging from 12 to 20 years on a straight-line basis.

Represents certain payments to customers as an incentive to enter in to new franchise agreements amortized over lives ranging from 5 to 30 years on a straight-line basis commencing at hotel opening.

(2) Represents certain payments to customers as an incentive to enter into new franchise agreements generally amortized as an offset to royalty fees and marketing and reservation system fees over lives ranging from 5 to 30 years on a straight-line basis commencing at hotel opening.

Gross and accumulated amortization amounts are written off upon full amortization recognition, including at termination of an associated franchise agreement.

Refer to Note 2.

Represents definite-lived trademarks generally amortized on a straight-line basis over a period of 8 to 40 years.

Represents software licenses capitalized under a SaaS agreement.

Amortized over a period of 3 to 5 years.

Represents non-franchise customer contracts acquired in a business combination.

Amortized on a straight-line basis over a period of 5 to 12 years.

Impairment and subsequent sale of the SaaS for vacation rentals reporting unit in 2019 resulted in no remaining value.

Represents acquired lease rights recognized in conjunction with the acquisition of an office building and owned hotels.

The costs are being amortized over various terms of the leases which range from 39 months to 10 years.

(3) Represents definite-lived trademarks and other various amortizing assets generally amortized on a straight-line basis over a period of 8 years to 40 years.

(4) Represents software licenses capitalized under a SaaS agreement generally amortized on a straight-line basis over a period of 3 to 5 years.

(5) Represents the purchase price assigned to the WoodSpring and Suburban trademarks at acquisition.

The trademarks are expected to generate future cash flows for an indefinite period of time and therefore are non-amortizing.

Amortization expense for the years ended December 31, 2020, 2019 and 2018 amounted to $ 23.6 million, $ 19.4 million, and $ 19.4 million, respectively.

The estimated annual amortization expense related to the Company’s amortizable intangible assets for each of the years ending December 31, 2020 through 2024 is as follows:

(in millions)

The estimated annual amortization expense related to the Company’s amortizing intangible assets for each of the years ending December 31, 2021 through 2025 is as follows:

(in thousands)

2021 $ 22,129

2022 $ 20,428

2023 $ 18,961

2024 $ 18,579

2025 $ 18,042

During the year ended 2019, the SaaS for vacation rentals reporting unit experienced a triggering event requiring the interim reevaluation of the reporting unit's long-lived assets group resulting in the recognition of an impairment of $ 7.3 million.

The reporting unit was subsequently sold.

Reference discussion of the impairment and sale in Note 6.

Refer to Note 6.

Investments in Unconsolidated Entities

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 variable interest entities ("VIEs") totaling $ 74.4 million and $ 103.0 million on the consolidated balance sheets at December 31, 2019 and 2018 , respectively.

The Company has equity method investments in joint ventures that represent VIEs totaling $ 56.9 million and $ 74.4 million on the consolidated balance sheets at December 31, 2020 and 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.

Based on an analysis of who has the power to direct the activities that most significantly impact these entities performance and who has an obligation to absorb losses of these entities or a right to receive benefits from these entities that could potentially be significant to the entity, the Company has determined that it is not the primary beneficiary of any of these VIEs.

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 years ended December 31, 2019, 2018 and 2017 , the Company recognized losses totaling $ 11.3 million , $ 8.0 million and $ 7.1 million from the investment in these entities, respectively.

The Company has determined that it is not the primary beneficiary of any of these VIEs, however it does exercise significant influence through its equity ownership and as a result the investment in these entities is accounted for under the equity method.

The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain guaranties as described in Note 23 of these financial statements.

For the years ended December 31, 2020, 2019 and 2018, the Company recognized losses, inclusive of impairments and gains or losses upon sale, totaling $ 15.4 million, $ 11.3 million and $ 8.0 million from the investment in these entities, respectively.

During the year ended December 31, 2020, the Company recognized impairment charges of $ 7.3 million related to four separate equity method investments.

The Company assessed the estimated fair value of each investment on an individual basis and derived the value from observable prices from offers received for either the underlying collateral or the ownership interest of the unconsolidated joint venture, comparable market transactions, and DCF techniques to project cash flows based upon the underlying property.

Based on these analyses, in each case the Company determined that the fair market value declined below the carrying value and the decline is other-than-temporary.

As a result, the Company recorded impairment charges from the carrying value to the estimated fair value for each investment.

The impairment charges are classified as equity in net loss of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 20.

During the third quarter of 2019, the Company redeemed the remaining 60 % ownership interest in four of the hotels under the equity method investment and sold its 40 % ownership interest in the fifth hotel.

Following the redemption, the Company consolidated the operations of the four acquired hotels, and recognized a $ 6.0 million loss on the sale of the fifth hotel which is recorded in equity in net loss of affiliates.

The financial results of the 100% owned hotels have been consolidated in the Company's financial statements since July 23, 2019.

Refer to Note 24.

Equity method investment ownership interests at December 31, 2020 and 2019 are as follows:

Ownership Interest

Equity Method Investment

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Main Street WP Hotel Associates, LLC 50 % 50 %

FBC-CHI Hotels, LLC (2)

CS Hotel 30W46th, LLC 25 % 25 %

CS Brickell, LLC (2)

CS Maple Grove, LLC (3)

CS Hotel West Orange, LLC 50 % 50 %

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CS Lakeside Santa Clara LLC 50 % 50 %

CS Main Pleasant Hill LLC (4)

BL 219 Holdco, LP 50 % 50 %

Integrated 32 West Randolph LLC 20 % 20 %

(1) Non-variable interest entity investments

(2) During the third quarter of 2019, the Company redeemed the remaining 60 % ownership interest in four of the hotels under the equity method investment and sold its 40 % ownership interest in the fifth hotel.

The financial results of the 100% owned hotels have been consolidated in the Company's financial statements since July 23, 2019 .

Reference Note 25.

(3) During the second quarter of 2019, the Company sold its ownership interest in the equity method investment recognizing a gain of $ 1.4 million .

(4) During the fourth quarter of 2019, the Company terminated its ownership interest in the equity method investment recognizing a loss of $ 0.4 million .

(1) Non-VIE investments

(2) During the fourth quarter of 2020, the Company sold its ownership interest in the equity method investment recognizing a gain of $ 1.1 million.

(3) During the second quarter of 2020, the Company terminated its ownership interest in the equity method investment and recognized a loss of $ 0.6 million.

The following tables present summarized financial information for all unconsolidated ventures in which the Company holds an investment that is accounted for under the equity method:

1 unchanged sentence

(in thousands) 2020 2019 2018

Operating income

Revenues $ 30,364 $ 109,896 $ 118,324

Operating (loss) income ( 6,494 ) 12,617 11,790

Income (loss) from continuing operations ( 18,366 ) ( 1,400 ) 1,658

Net income (loss)

Net (loss) income $ ( 18,977 ) $ ( 2,564 ) $ 477

As of December 31,

2 unchanged sentences

Non-current assets 364,531 390,881

Total assets $ 385,577 $ 444,205

Current liabilities $ 25,735 $ 27,583

5 unchanged sentences

Capitalized franchise sales commissions (refer to Note 2)

Land and buildings

54,272 55,662

Other assets 13,821 12,080

Total other assets $ 88,396 $ 97,442

Land and buildings represents the Company's purchase of real estate as part of its program to incent franchise development in strategic markets for the Cambria Hotels brand and is classified as Other Assets as the real estate is not presently under active construction.

The Company recognized a non-cash pre-tax long-lived asset group impairment charge for a real estate parcel in the amount of $ 9.2 million during the fourth quarter of 2020.

Refer to Note 6.

Accrued Expenses and Other Current Liabilities

4 unchanged sentences

Dividends payable (1)

Deferred rent and unamortized lease incentives

Termination benefits 2,837 1,782

Income taxes payable 7,041 —

Current operating lease liabilities 10,603 10,099

Other liabilities and contingencies 6,273 11,055

Total $ 78,920 $ 90,364

(1) In light of uncertainty resulting from the COVID-19 pandemic, in the second quarter of 2020 the Company suspended future, undeclared dividends while the pandemic is significantly impacting travel.

Deferred Revenue

5 unchanged sentences

Procurement services fees 2,508 6,037

Other 2,463 3,609

Total deferred revenue $ 172,696 $ 184,256

Current portion $ 50,290 $ 71,594

1 unchanged sentence

Refer to Note 2 for revenue recognition policies resulting in the deferral of revenue, including loyalty programs and the relationship between the loyalty programs deferred revenue and the liability for the guest loyalty program.

Other Non-Current Liabilities

Other non-current liabilities consist of the following at:

(in thousands)

Deferred rent and unamortized lease incentives

Uncertain tax positions

Participating interest in notes receivable (refer to Note 4)

Other liabilities

Uncertain tax positions have been recorded for potential exposures involving tax positions that could be challenged by taxing authorities.

Debt consists of the following at:

Debt consists of the following:

(in thousands) 2020 2019

$ 400 million senior unsecured notes due 2022 with an effective interest rate of 6.0 % less deferred issuance costs of $ 0.7 million and $ 2.3 million at December 31, 2020 and December 31, 2019, respectively

$250 million senior unsecured notes with an effective interest rate of 6.19% less a discount and deferred issuance costs of $0.5 million at December 31, 2018

$600 million senior unsecured credit facility with an effective interest rate of 2.76% and 3.50%, less deferred issuance costs of $2.7 million and $3.0 million at December 31, 2019 and December 31, 2018, respectively

$ 215,827 $ 397,680

$ 400 million senior unsecured notes due 2029 with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 5.4 million and $ 6.0 million at December 31, 2020 and December 31, 2019, respectively

394,635 394,039

$ 600 million senior unsecured credit facility with an effective interest rate of 2.76 %, less deferred issuance costs of $ 2.7 million at December 31, 2019 (1)

$ 450 million senior unsecured notes due 2031 with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 6.1 million at December 31, 2020

Construction loan with an effective interest rate of 6.23% and 6.70%, less deferred issuance costs of $0.6 million and $0.9 million at December 31, 2019 and December 31, 2018, respectively

Fixed rate collateralized mortgage with an effective interest rate of 4.57%, plus a fair value adjustment of $0.2 million and $0.4 million at December 31, 2019 and December 31, 2018, respectively

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 $ 0.2 million at December 31, 2019

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

Other notes payable

Total debt $ 1,058,738 $ 851,613

Less current portion — 7,511

Total long-term debt $ 1,058,738 $ 844,102

(1) During the third quarter of 2020, the Company utilized excess cash on hand to pay down its senior unsecured revolving credit facility balance in full.

As there are no outstanding borrowings at December 31, 2020, deferred issuance costs of $ 2.4 million for the senior unsecured revolving credit facility are presented in other assets in the consolidated balance sheets.

Scheduled principal maturities of debt, net of unamortized discounts, premiums and deferred issuance costs, as of December 31, 2020 were as follows:

Construction Loan

Revolving Credit

(in thousands)

(in thousands) Senior Notes Other Notes

Payable Total

2022 215,827 — 215,827

2023 — 4,416 4,416

Thereafter 838,495 — 838,495

Total payments $ 1,054,322 $ 4,416 $ 1,058,738

Restated Senior Unsecured Credit Facility

On August 20, 2018, the Company entered into a Restated Credit Agreement, which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015.

The Restated Credit Agreement increased the commitments under the credit facility to $ 600 million and extended the final maturity date to August 20, 2023, subject to optional one -year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement.

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

The Restated Credit Agreement also provides that up to $ 35 million of borrowings under the Restated Credit Agreement may be used for alternative currency loans and up to $ 25 million of borrowings under the Revolver may be used for swingline loans.

The Company may from time to time designate one or more wholly owned subsidiaries of the Company as additional

borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.

On July 2, 2019, the Company exercised the first one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024.

On August 20, 2018, the Company entered into the Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015.

The Restated Credit Agreement provides for a $ 600 million unsecured credit facility with a maturity date of August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement.

The effectiveness of such extensions are subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions.

The Company may from time to time designate one or more wholly owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.

On July 2, 2019, the Company exercised a one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024.

On August 12, 2020, the Company exercised an additional one-year extension

on the Restated Credit Agreement for $ 525 million of the $ 600 million total capacity in exchange for a fee of $ 0.3 million.

The extended maturity date is August 20, 2025.

There are no subsidiary guarantors under the Restated Credit Agreement.

Previously, if certain subsidiaries of the Company subsequently incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, the Restated Credit Agreement required such obligated subsidiaries to guarantee the Company’s obligations under the Restated Credit Agreement (the "springing guarantee").

In the event that the springing guarantee was triggered under the Restated Credit Agreement the same subsidiary guarantees would be required under the 2012 and 2019 Senior Notes and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement.

However, on February 18, 2020, the Company amended the Restated Credit Agreement to, among other things, remove the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

However, if certain subsidiaries of the Company subsequently incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, the Restated Credit Agreement requires such obligated subsidiaries to guarantee the Company’s obligations under the Restated Credit Agreement (the "springing guarantee").

In the event that these subsidiary guarantees are triggered under the Restated Credit Agreement the same subsidiary guarantees would be required under the Company's $ 400 million senior unsecured notes due 2022 and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement.

On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the "Amendment") among the Company, Deutsche Bank AG New York Branch, as administrative agent and the lenders party thereto.

The Amendment, among other things, removes the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

The Company may at any time prior to the final maturity date increase the amount of the Restated Credit Agreement or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $ 250 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such term loan facility and certain other customary conditions are met.

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The Restated 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 or, on up to two nonconsecutive occasions, 5.5 to 1.0 for up to three consecutive quarters following a material acquisition commencing with the fiscal quarter in which such material acquisition occurred.

The Company currently maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant.

The Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant.

The Restated 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 Restated Credit Agreement to be immediately due and payable.

At December 31, 2020, the Company was in compliance with all financial covenants under the Restated Credit Agreement.

During the year ended December 31, 2020, the Company utilized excess cash on hand to pay down the senior unsecured revolving credit facility balance in full.

Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity.

Amortization of these costs is included in interest expense in the consolidated statements of income.

The proceeds of the Restated Credit Agreement are expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.

The proceeds of the Restated Credit Agreement are generally expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.

However, in light of uncertainty resulting from the COVID-19 pandemic, we determined to suspend future, undeclared dividends while the pandemic is significantly impacting travel and have temporarily suspended activity under our share repurchase program.

To preserve financial flexibility and liquidity during the COVID-19 pandemic, on April 16, 2020, the Company entered into a credit agreement (the "Credit Agreement"), which provided for the $ 250 million Term Loan (the "Term Loan") with a scheduled maturity date of April 15, 2021, subject to an optional one-year extension if requested by the Company prior to the initial maturity date.

The effectiveness of such extension was 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 was required to 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 was 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 provided 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 required 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 could 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 imposed 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 maintained an Investment Grade Rating, as defined in the Credit Agreement, then the Company would not need to comply with the consolidated fixed charge coverage ratio covenant.

The Credit Agreement included 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.

The Term Loan was subsequently paid off in full in July 2020 utilizing the proceeds of the 2020 Senior Notes.

In combination with the Tender Offer, the Company recorded a loss on extinguishment of debt of $ 16.0 million in the third quarter of 2020.

Senior Unsecured Notes Due 2031

On July 23, 2020, the Company issued unsecured senior notes in the principal amount of $ 450 million (the "2020 Senior Notes") bearing a coupon of 3.70 %.

The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15th and July 15th beginning January 15, 2021.

The Company used the net proceeds of the 2020 Senior Notes, 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 (discussed below under "Senior Unsecured Notes due 2022").

Interest on the 2020 Senior Notes is payable semi-annually on January 15th and July 15th 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 “2020 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest.

If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

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.

Senior Unsecured Notes Due 2029

On November 27, 2019, the Company issued unsecured senior notes in the principal amount of $ 400 million (the "2019 Senior Notes") at a discount of $ 2.4 million, bearing a coupon of 3.70 % with an effective rate of 3.88 %.

The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1 st and June 1 st .

The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the 2010 Senior Notes (referenced below) and for working capital and other general corporate purposes.

The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the previously outstanding senior notes in the principal amount of $ 250 million due August 28, 2020, and for working capital and other general corporate purposes.

Bond discounts and debt issuance costs incurred in connection with the 2019 Senior Notes are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity.

Amortization of these costs is included in interest expense in the consolidated statements of income.

The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before they mature.

If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “Par Call Date”), the redemption price will be equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest.

If the Company redeems the 2019 Senior Notes on or after the Par Call Date, the redemption price will equal 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity.

If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “2019 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest.

If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 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.

Senior Unsecured Notes Due 2022

On June 27, 2012 , the Company issued unsecured senior notes in the principal amount of $ 400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75 % with an effective rate of 6.0 % .

On June 27, 2012, the Company issued unsecured senior notes with a principal amount of $ 400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75 % with an effective rate of 6.00 %.

The 2012 Senior Notes will mature on July 1, 2022, with interest to be paid semi-annually on January 1 st and July 1 st .

The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, together with borrowings under the Company's senior credit facility, to pay a special cash dividend totaling approximately $ 600.7 million to stockholders on August 23, 2012 .

The Company utilized the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, together with borrowings under the Company's senior unsecured senior credit facility, to pay a special cash dividend to stockholders totaling approximately $ 600.7 million paid on August 23, 2012.

Debt issuance costs incurred in connection with the 2012 Senior Notes are amortized, utilizing the effective interest method through maturity.

Amortization of these costs is included in interest expense in the consolidated statements of income.

The Company may redeem the 2012 Senior Notes at its option at a redemption price equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity, discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points.

Senior Unsecured Notes Due 2020

On August 25, 2010 , the Company issued unsecured senior notes in the principal amount of $ 250 million (the "2010 Senior Notes") at a discount of $ 0.6 million , bearing a coupon of 5.7 % with an effective rate of 6.19 % .

The 2010 Senior Notes were scheduled to mature on August 28, 2020 , with interest to be paid semi-annually on February 28 th and August 28 th .

The Company used the net proceeds from the offering, after deducting underwriting discounts and other offering expenses, to repay outstanding borrowings and for other general corporate purposes.

Bond discounts and debt issuance costs incurred in connection with the 2010 Senior Notes were amortized on a straight-line basis, which was not materially different than the effective interest method, through maturity.

Amortization of these costs are included in interest expense in the consolidated statements of income.

On December 16, 2019, with the net proceeds from the issuance of the 2019 Senior Notes, the Company redeemed the 2010 Senior Notes prior to the maturity date of August 28, 2020.

The early redemption provisions of the 2010 Senior Notes required the Company to redeem the notes at a price equal to the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 45 basis points.

The Company paid $ 256.3 million to redeem the notes and recorded a loss on extinguishment of debt in the amount of $ 7.2 million , which included the make whole premium of $ 6.3 million and the write off of previously unamortized deferred financing fees and discounts.

The Company may redeem the 2012 Senior Notes at its option at a redemption price equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity, discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points.

Additionally, at the option of the holders of the 2012 Senior Notes, the Company may be required to repurchase all or a portion of the 2012 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.

On July 9, 2020, the Company commenced the tender offer (the "Tender Offer") to purchase up to $ 160.0 million aggregate principal amount of the Company’s 2012 Senior Notes subject to increase or decrease.

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

On July 23, 2020, the Company amended the Tender Offer by increasing the aggregate principal maximum tender amount from $ 180.0 million to $ 183.4 million.

The Tender Offer settled on July 24, 2020 for $ 197.8 million, including an early tender premium, settlement fees, and accrued interest paid.

In combination with the early pay off of the Term Loan, the Company recorded a loss on extinguishment of debt of $ 16.0 million in the third quarter of 2020.

Construction Loan

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.

The construction loan can be drawn up to $ 34.9 million , bears an interest rate at LIBOR plus a margin of 435 basis points and has a maturity date of March 28, 2022 with two one -year extension options.

The Company has made certain guaranties on this construction loan, referred to in Note 24.

At December 31, 2019 , the Company recorded $ 0.9 million of capitalized interest costs.

The Company incurred $ 0.9 million in debt issuance costs in connection with the construction loan which are amortized using the straight-line method, which is not materially different than the effective interest method, through the maturity date.

Amortization of these costs is included in interest expense in the consolidated statements of income.

During the third quarter of 2019, the Company completed construction of the hotel and purchased the remaining interest of the unaffiliated joint venture partner.

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

The construction loan can be drawn up to $ 34.9 million.

The construction was completed and the hotel opened in the third quarter of 2019, resulting in the satisfaction of the completion guaranty.

On March 5, 2020, the Company paid off the

construction loan in the amount of $ 33.1 million inclusive of accrued and unpaid interest and recorded a loss on extinguishment of debt of $ 0.6 million.

Fixed Rate Collateralized Mortgage

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In conjunction with the court award, the Company also assumed the $ 9.5 million mortgage on the property with a fixed interest rate of 7.26 %.

The mortgage, which is collateralized by the office building, requires monthly payments of principal and interest and matures in December 2020 with a balloon payment due of $ 6.9 million .

The mortgage is collateralized by the office building, requires monthly payments of principal and interest and matures in December 2020 with a balloon payment due of $ 6.9 million.

At the time of acquisition, the Company determined that the fixed interest rate of 7.26 % exceeded market interest rates and therefore the Company increased the carrying value of the debt by $ 1.2 million to record the debt at fair value.

The fair value adjustment is being amortized over the remaining term of the mortgage utilizing the effective interest method.

The fair value adjustment will be amortized over the remaining term of the mortgage utilizing the effective interest method.

The mortgage principal and outstanding interest was paid off in the amount of $ 6.9 million at maturity in December 2020.

Economic Development Loans

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Any outstanding advances at the expiration of the Company's ten-year corporate headquarters lease in 2023 will be forgiven in full.

The advances will be included in long-term debt in Company's consolidated balance sheets until the Company determines that the future performance conditions will be met over the entire term of the agreement and the Company will not be required to repay the advances.

The advances will be included in long-term debt in the Company's consolidated balance sheets until the Company determines that the future performance conditions will be met over the entire term of the agreement and the Company will not be required to repay the advances.

The Company accrues interest on the portion of the advances that it expects to repay.

The Company was in compliance with all current performance conditions as of December 31, 2019 .

On December 28, 2020, the Company reached an agreement to amend the performance conditions and waive any defaults associated with employment levels until April 1, 2021.

The Company was in compliance with all applicable current performance conditions in accordance with the amended terms of the agreement as of December 31, 2020.

Non-Qualified Retirement, Savings and Investment Plans

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The diversified investments held in the trusts totaled $ 31.4 million and $ 27.1 million as of December 31, 2020 and 2019, respectively, and are recorded at their fair value, based on quoted market prices.

At December 31, 2019 , the Company expects $ 2.1 million of the assets held in the trust to be distributed during the year ended December 31, 2020 to participants.

At December 31, 2020, the Company expects

$ 2.3 million of the assets held in the trust to be distributed during the year ended December 31, 2021 to participants.

These investments are considered trading securities and therefore the changes in the fair value of the diversified assets is included in other gains and losses in the accompanying consolidated statements of income.

The Company recorded investment gains (losses) during the years ended December 31, 2019, 2018 and 2017 of $ 4.9 million , $( 1.3 ) million , and $ 3.2 million ,

respectively.

The Company recorded investment gains (losses) during the years ended December 31, 2020, 2019 and 2018 of $ 4.2 million, $ 4.9 million, and $( 1.3 ) million, respectively.

The Deferred Compensation Plan held no shares of the Company's common stock at December 31, 2020 and 2019.

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The Company estimates the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs.

The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs on a recurring basis.

Quoted prices in active markets for identical assets and liabilities.

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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 whose fair value was determined using Level 3 inputs.

The Company's policy is to recognize transfers in and transfers out of the three levels of the fair value hierarchy as of the end of each quarterly reporting period.

There were no transfers between Level 1, 2 and 3 assets during the years ended December 31, 2019 and 2018 .

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 years ended December 31, 2020 and 2019.

As of December 31, 2020 and 2019, the Company had the following assets measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands)

(in thousands) Total Level 1 Level 2 Level 3

December 31, 2020

Mutual funds (1)

$ 28,520 $ 28,520 $ — $ —

Money market funds (1)

2,836 — 2,836 —

Total $ 31,356 $ 28,520 $ 2,836 $ —

December 31, 2019

Mutual funds (1)

$ 24,927 $ 24,927 $ — $ —

Money market funds (1)

2,192 — 2,192 —

Total $ 27,119 $ 24,927 $ 2,192 $ —

(1) Included in Investments, employee benefit plans, at fair value and other current assets on the consolidated balance sheets.

Other Financial Instruments

Other financial instruments disclosure

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

In addition, the interest rates of the Company’s Restated Credit Agreement adjust frequently based on current market rates;

accordingly its carrying amount approximates fair value.

The Company believes the fair value of notes receivable approximate their carrying value, which is estimated utilizing an analysis of future cash flows and credit worthiness for similar types of arrangements.

Based upon the availability of market data, the notes receivable have been classified as Level 3 inputs.

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

For further information on the notes receivable, see Note 4.

The fair value of the Company's $ 250 million 2010 Senior Notes, $ 400 million 2012 Senior Notes, and $ 400 million 2019 Senior Notes are classified as Level 2 as the significant inputs are observable in an active market.

At December 31, 2019 and 2018 , the $ 400 million 2012 Senior Notes had an approximate fair value of $ 432.0 million and $ 415.7 million , respectively.

On December 16, 2019 , with the net proceeds from the 2019 Senior Notes, the Company, at its option, redeemed the 2010 Senior Notes prior to the maturity date of August 28, 2020.

Refer to Note 13.

accordingly we believe its carrying amount, when amounts are drawn, approximates fair value.

The fair values of the Company's $ 400 million 2012 Senior Notes, $ 400 million 2019 Senior Notes, and $ 450 million 2020 Senior Notes are classified as Level 2 as the significant inputs are observable in an active market.

At December 31, 2019, the $ 400 million 2012 Senior Notes had an approximate fair value of $ 432.0 million.

On July 23, 2020, the Company purchased approximately $ 183.4 million aggregate principal amount of the 2012 Senior Notes.

At December 31, 2020, the $ 216.6 million remaining 2012 Senior Notes had an approximate fair value of $ 232.4 million.

At December 31, 2020 and 2019, the $ 400 million 2019 Senior Notes had an approximate fair value of $ 438.1 million and $ 403.4 million, respectively.

At December 31, 2020, the $ 450 million 2020 Senior Notes had an approximate fair value of $ 498.3 million.

Refer to Note 13 for further information on debt.

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 be possible and may not be a prudent management decision.

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

Total income before income taxes, classified by source of income, was as follows:

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(in thousands) 2020 2019 2018

$ 38,475 $ 259,943 $ 251,056

Outside the U.S.

Income from before income taxes

14,531 9,986 22,202

Income from continuing operations before income taxes $ 53,006 $ 269,929 $ 273,258

The provision for income taxes, classified by the timing and location of payment, was as follows:

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Current tax expense

Federal $ 14,345 $ 31,556 $ 48,941

State 4,303 10,154 8,966

Foreign 2,300 1,619 1,471

Deferred tax (benefit) expense

Federal ( 12,333 ) 3,380 ( 1,459 )

State ( 1,953 ) 1,635 ( 959 )

Foreign ( 29,043 ) ( 1,293 ) ( 57 )

Income taxes $ ( 22,381 ) $ 47,051 $ 56,903

Net deferred tax assets consisted of:

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Accrued compensation $ 13,251 $ 13,070

Accrued expenses

Deferred revenue 26,430 28,436

Receivable, net 18,044 5,655

Tax credits 11,671 8,978

Operating lease liabilities 6,359 7,324

Foreign net operating losses 5,749 2,330

Partnership interests

Non-US intellectual property 30,243 —

Other 5,420 2,827

Total gross deferred tax assets 117,167 68,620

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Partnership interests ( 550 ) ( 3,002 )

Other ( 2,083 ) ( 4,427 )

Deferred tax liabilities ( 29,323 ) ( 37,033 )

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The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

On the basis of this evaluation, the Company recorded a net change to its valuation allowance of $ 9.2 million to bring the total valuation allowance to $ 10.8 million as of December 31, 2019.

As of December 31, 2019, the Company had approximately $ 0.9 million of net operating losses related to state tax jurisdictions.

The state net operating losses are due to expire at various dates but no later than 2039.

Based on this evaluation, the Company recorded a net change to its valuation allowance of $ 9.3 million.

In 2020, the Company identified $ 14.3 million of state tax credit carryforwards due to expire at various dates but no later than 2035.

The Company believes that it is more likely than not that the benefits from certain state tax credit carryforwards will not be realized.

The Company believes that it is more likely than not that these benefits will not be realized.

Accordingly, the Company has provided a valuation allowance of $ 11.7 million for these credits.

As of December 31, 2019 , the Company had foreign net operating losses of $ 7.3 million .

The Company believes that it is more likely than not that the benefits from certain foreign NOL carryforwards will not be realized.

Accordingly, the Company has provided a valuation allowance of $ 5.6 million on the deferred tax assets related to the foreign net operating losses.

Most of the remaining foreign net operating losses have an indefinite carry forward life.

As of December 31, 2020, the Company had foreign net operating losses ("NOLs") of $ 19.8 million.

The Company believes that it is more likely than not that some of these benefits will not be realized.

Accordingly, the Company recorded a valuation allowance of $ 8.4 million on the deferred tax assets related to these foreign net operating losses.

We have $ 10.0 million of foreign NOLs with an indefinite carryforward life.

The remaining NOLs with limited carryforward periods will expire beginning in 2026.

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 intercompany asset transfers (other than inventory) at the time of transfer.

On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure.

In accordance with ASU 2016-16, the Company recorded a $ 34.6 million tax benefit and a corresponding deferred tax asset due to the reorganization.

As of December 31, 2020, the balance of this deferred tax asset is $ 30.2 million, net of current year amortization utilization.

Due to a decrease in the forecasted international income resulting from adverse impacts of the COVID-19 pandemic, the Company recorded a valuation allowance of $ 5.7 million reflecting a change in the anticipated realizability of this deferred tax asset.

The statutory United States federal income tax rate reconciles to the effective income tax rates for continuing operations as follows:

Year Ended December 31,

2020 2019 2018

Statutory U.S.

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State income taxes, net of federal tax benefit 4.6 % 3.5 % 2.9 %

Benefits and taxes related to foreign operations

Excess tax benefit on share-based compensation

Benefits related to foreign operations ( 4.2 ) % ( 0.6 ) % ( 0.5 ) %

Benefits related to compensation ( 5.8 ) % ( 1.3 ) % ( 1.5 ) %

Unrecognized tax positions 4.7 % 2.0 % ( 0.4 ) %

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Write-down of net deferred tax assets due to U.S.

Valuation allowance on tax credits

rate change — % — % 0.4 %

International Reorganization ( 65.2 ) % — % — %

Tax credits ( 15.2 ) % ( 9.9 ) % ( 0.5 ) %

Valuation allowance 17.5 % 3.4 % — %

Other 0.4 % ( 0.7 ) % ( 0.5 ) %

Effective income tax rates ( 42.2 ) % 17.4 % 20.8 %

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The FASB Staff Q&A, Topic 740 No.

5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred.

5, Accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred.

The Company has elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred and has incurred tax for the year ended December 31, 2020.

The effective income tax rate for the year ended December 31, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to tax credits recognized during the year of $ 11.6 million , excess tax benefits from share-based compensation, and the impact of foreign operations, partially offset by the impact of state income taxes.

federal income tax rate of 21.0% due to the impact of our international reorganization under ASU 2016-16 (partially offset by the related valuation allowance), tax credits recognized during the year of $ 3.0 million, $ 4.2 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 year ended December 31, 2019 was lower than the U.S.

federal income tax rate of 21% due to excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by the impact of state income taxes.

federal income tax rate of 21% due to tax credits recognized during the year of $ 11.6 million, $ 4.4 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by the impact of state income taxes.

As of December 31, 2020, 2019 and 2018, the Company’s gross unrecognized tax benefits totaled $ 10.2 million, $ 7.7 million, and $ 1.6 million, respectively.

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It is reasonably possible that the Company’s unrecognized tax benefits could decrease within the next 12 months by as much as $ 9.8 million due to settlements and the expiration of applicable statutes of limitations.

The Company's federal income tax return for tax years 2015 and 2016 remain subject to examination by the Internal Revenue Service for a tax credit refund claim.

Further, the Company's federal income tax return for tax years 2017 and 2018 also remain subject to examination by the Internal Revenue Service.

The Company's federal income tax return for tax years 2015 and 2016 are currently under examination by the Internal Revenue Service for a tax credit refund claim.

The Company's federal income tax return for tax years 2017 and 2018 are also under examination by the Internal Revenue Service.

Further, the Company's federal income tax return for tax year 2019 is subject to examination by the Internal Revenue Service.

The practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes.

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The Company had $ 0.5 million and $ 0.3 million of accrued interest and penalties at December 31, 2020 and 2019, respectively.

On March 27, 2020, in response to the COVID-19 pandemic, the “Coronavirus Aid, Relief and Economic Security Act” (“CARES”) was signed into law by the President of the United States.

The CARES Act includes, among other things, U.S.

corporate income tax provisions related to net operating loss carryback periods, alternative minimum tax credits, modifications to interest deduction limitations and technical corrections on tax depreciation methods for qualified improvement property.

Many other countries have also introduced various corporate income tax relief provisions in response to the pandemic.

The Company does not believe that any of these changes will have a material effect on our financial statements.

Share-Based Compensation and Capital Stock

The Company currently pays a quarterly dividend on its common stock of $ 0.225 per share, however the declaration of future dividends is subject to the discretion of the board of directors.

The Company may not declare or make any payment if there is an existing event of default under the Restated Credit Agreement or if the payment would create an event of default.

During the year ended December 31, 2019 , the Company's quarterly dividend rate was $ 0.215 per share for the first three quarters.

In the fourth quarter of 2019, the Company's board of directors announced an increase in the quarterly dividend rate to $ 0.225 per share.

Annual dividends declared during the year ended December 31, 2019 were $ 0.87 per share or $ 48.5 million .

During the year ended December 31, 2018 , the Company's quarterly dividend rate was $ 0.215 per share.

Annual dividends declared during the year ended December 31, 2018 were $ 0.86 per share or $ 48.4 million .

During the year ended December 31, 2017 , the Company's quarterly dividend rate was $ 0.215 per share.

Annual dividends declared during the year ended December 31, 2017 were $ 0.86 per share or $ 48.6 million .

In addition, during the years ended December 31, 2019, 2018 and 2017 , the Company paid previously declared but unrecorded dividends totaling $ 0.2 million , $ 0.1 million , and $ 0.1 million , respectively, that were contingent upon the vesting of performance vested restricted units.

Share-Based Compensation

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The Company estimates the share-based compensation expense for awards that will ultimately vest at the inception of the grant.

Over the life of the grant, the estimate of share-based compensation expense for awards with performance and/or service requirements is adjusted so that compensation cost is recognized only for awards that ultimately vest.

Over the life of the grant, the estimate of share-based compensation expense for awards with performance and/or service requirements is adjusted so that compensation cost is generally recognized only for awards that ultimately vest.

The Company has stock compensation plans pursuant to which it is authorized to grant stock-based awards of which 2.4 million shares of the Company's common stock remain available for grant as of December 31, 2020.

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The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

2020 2019 2018

Risk-free interest rate 0.99 % 2.46 % 2.58 %

Expected volatility 20.88 % 21.49 % 21.17 %

Expected life of stock option

Expected life of stock option 5.9 years 4.4 years 4.6 years

Dividend yield 0.99 % 1.06 % 1.05 %

Requisite service period

Contractual life

Requisite service period 4 years 4 years 4 years

Contractual life 10 years 7 years 7 years

Weighted average fair value of options granted (per option) $ 17.25 $ 15.84 $ 16.27

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Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those awards that ultimately vest.

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2019 was $ 36.5 million and $ 24.8 million , respectively.

The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2020 was $ 29.7 million and $ 22.1 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 8.9 million, $ 15.8 million and $ 26.4 million, respectively.

The Company received $ 10.2 million, $ 21.4 million and $ 41.4 million in proceeds from the exercise of 0.2 million, 0.4 million and 0.8 million employee stock options during the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes information about stock options outstanding at December 31, 2019 :

Options Outstanding

Options Exercisable

Range of Exercise Prices

Number Outstanding at December 31, 2019

Weighted Average

Contractual Life

Exercise Price

Number Exercisable at December 31, 2019

The following table summarizes information about stock options outstanding as of December 31, 2020:

Options Outstanding Options Exercisable

Range of Exercise Prices Number Outstanding at December 31, 2020 Weighted Average

Contractual Life Weighted

Exercise Price Number Exercisable at December 31, 2020 Weighted

Exercise Price

$ 45.59 to $ 55.00

223,012 2.12 years $ 51.27 223,012 $ 51.27

$ 55.01 to $ 65.00

194,337 2.2 years $ 62.15 169,042 $ 62.34

$ 65.01 to $ 85.00

247,337 4.7 years $ 81.32 88,201 $ 81.39

$ 85.01 to $ 91.28

154,924 9.2 years $ 91.28 — $ —

819,610 4.2 years $ 70.48 480,255 $ 60.70

Restricted Stock

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For the Year Ended December 31,

2020 2019 2018

Restricted shares granted 158,133 167,731 101,325

Weighted average grant date fair value per share $ 90.18 $ 81.92 $ 81.21

Aggregate grant date fair value ($000)

Aggregate grant date fair value (in thousands) $ 14,260 $ 13,741 $ 8,229

Restricted shares forfeited 36,860 32,735 46,785

Vesting service period of shares granted

12 - 48 months

Vesting service period of shares granted 12 - 48 months

12 - 48 months

Fair value of shares vested ($000)

Fair value of shares vested (in thousands) $ 9,000 $ 10,671 $ 8,025

Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those restricted stock grants that ultimately vest.

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The Company has granted performance vested restricted stock units (“PVRSU”) to certain employees.

The fair value is measured by the market price of the Company’s common stock on the date of grant.

The vesting of these stock awards is contingent upon the Company achieving performance targets at the end of specified performance periods and the employees’ continued employment.

The performance conditions affect the number of shares that will ultimately vest.

The range of possible stock-based awards vesting is generally between 0 % and 200 % of the initial target.

If minimum performance targets are not attained then no awards will vest under the terms of the various PVRSU agreements.

Compensation expense related to these awards is recognized over the requisite period based on the Company's estimate of the achievement of the various performance targets.

The Company grants two types of PVRSU awards:

PVRSUs with performance conditions based on internal performance metrics and PVRSUs with market conditions based on the Company's total shareholder return ("TSR") relative to a predetermined peer group.

The vesting of PVRSU stock awards is contingent upon the Company achieving internal performance or TSR targets over a specified period and the employees' continued employment for a service period.

These performance and market conditions affect the number of shares that will ultimately vest.

During the year ended December 31, 2020, PVRSU awards granted had service periods ranging from 31 - 36 months with award vesting ranges generally between 0 % and 200 % of the initial units granted.

The fair value of PVRSUs based on internal performance metrics is measured by the market price of the Company's common stock on the date of award grant.

Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions.

Management monitors current results and forecasts of the relevant internal performance metrics and, as necessary, adjusts the performance-based leveraging of unvested PVRSUs.

Compensation expense is recognized only on those PVRSUs that ultimately vest.

The Company has currently estimated that between 0 % and 115 % of the various award targets will be achieved.

Compensation expense is recognized ratably over the requisite service period only on those PVRSUs that ultimately vest.

During the year ended December 31, 2020, the Company reduced the leveraging factor for 230,647 unvested PVRSUs granted in the current and prior periods to 0 %, based on management's estimate of achievement of performance targets with contemplation to impacts from the COVID-19 pandemic.

The fair value of TSR PVRSUs are estimated using a Monte Carlo simulation method as of the date of award grant.

Compensation expense is recognized ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

The following table is a summary of activity related to PVRSU grants:

For the Years Ended December 31,

Performance vested restricted stock units granted at target

2020 2019 2018

PVRSUs granted at target 170,471 83,934 100,919

Weighted average grant date fair value per share $ 134.26 $ 81.15 $ 81.25

Aggregate grant date fair value ($000)

Stock units forfeited

Requisite service period

36 - 48 months

36 - 39 months

30 - 36 months

Aggregate grant date fair value (in thousands) $ 22,888 $ 6,811 $ 8,200

PVRSUs forfeited & expired 33,080 18,379 27,255

Requisite service period 31 - 36 months

36 to 48 months

36 to 39 months

During the years ended December 31, 2020, 2019 and 2018, PVRSUs totaling 176,471 , 73,242 and 31,048 , respectively, vested at a fair value of $ 17.5 million, $ 5.5 million, and $ 2.5 million, respectively.

During the year ended December 31, 2020, an 30,116 additional units were awarded because the Company's performance exceeded the conditions provided in the awards.

During the year ended December 31, 2019, an additional 1,583 units were awarded because the Company's performance exceeded the conditions provided in the awards.

During the year ended December 31, 2018, PVRSU award vested at target, therefore no additional PVRSU units were awarded.

During the year ended December 31, 2017 , an additional 9,491 PVRSU units were awarded because the Company's performance exceeded the conditions provided in the awards.

There were no stock units forfeited from the cancellation of shares for the year ended December 31, 2019 due to the Company not achieving certain performance conditions contained in the stock awards.

Stock units forfeited include the cancellation of 416 , and 14,754 shares for the years ended December 2018 and 2017, respectively, since the Company did not achieve certain performance conditions contained in the stock awards.

A summary of stock-based award activity as of December 31, 2019, 2018 and 2017 and the changes during the years are presented below:

Stock Options

Restricted Stock

Performance Vested

As a result of the Company's operating results not achieving certain performance conditions contained in the PVRSU awards, there were PVRSUs that expired of 16,117 shares for the year ended December 31, 2020, zero for the year ended December 31, 2019, and 416 shares for the year ended December 31, 2018.

A summary of stock-based award activity as of December 31, 2020, 2019 and 2018 and the changes during those years are presented below:

Stock Options Restricted Stock Performance Vested

Restricted Stock Units

Weighted Average Exercise Price

Options Weighted Average Exercise Price Weighted

Remaining Contractual

Life Shares Weighted

Average Grant

Date Fair Value

Date Fair Value Shares Weighted

Average Grant

Date Fair Value

Outstanding at January 1, 2019

Outstanding as of January 1, 2020 873,895 $ 61.69 312,097 $ 75.23 330,716 $ 70.03

Granted 158,620 91.28 158,133 90.18 170,471 134.26

Performance-based leveraging* — — — — 30,116 60.68

Exercised/vested ( 209,209 ) 49.17 ( 128,931 ) 69.80 ( 176,471 ) 58.68

Outstanding at December 31, 2019

Options exercisable at December 31, 2019

Expired — — — — ( 16,117 ) 60.50

Forfeited ( 3,696 ) 91.28 ( 36,860 ) 81.98 ( 16,963 ) 82.25

Outstanding as of December 31, 2020 819,610 $ 70.48 4.2 years 304,439 $ 84.48 321,752 $ 109.25

Options exercisable as of December 31, 2020 480,255 $ 60.70 2.5 years

* PVRSU units outstanding have been increased by 30,116 units during the year ended December 31, 2020, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods.

Stock Options

Restricted Stock

Performance Vested

Stock Options Restricted Stock Performance Vested

Restricted Stock Units

Weighted Average Exercise Price

Options Weighted Average Exercise Price Weighted

Remaining Contractual

Life Shares Weighted

Average Grant

Date Fair Value

Date Fair Value Shares Weighted

Average Grant

Date Fair Value

Outstanding at January 1, 2018

Outstanding as of January 1, 2019 1,186,180 $ 54.13 303,765 $ 65.06 336,820 $ 63.28

Granted 141,827 81.15 167,731 81.92 83,934 81.15

Performance-based leveraging* — — — — 1,583 51.49

Exercised/vested ( 446,456 ) 47.96 ( 126,664 ) 60.39 ( 73,242 ) 50.69

Outstanding at December 31, 2018

Options exercisable at December 31, 2018

Stock Options

Restricted Stock

Performance Vested

Expired — — — — — —

Forfeited ( 7,656 ) 51.49 ( 32,735 ) 72.54 ( 18,379 ) 72.50

Outstanding as of December 31, 2019 873,895 $ 61.69 3.5 years 312,097 $ 75.23 330,716 $ 70.03

Options exercisable as of December 31, 2019 513,924 $ 55.10 2.6 years

* PVRSU units outstanding have been increased by 1,583 units during the year ended December 31, 2019, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods.

Stock Options Restricted Stock Performance Vested

Restricted Stock Units

Weighted Average Exercise Price

Options Weighted Average Exercise Price Weighted

Remaining Contractual

Life Shares Weighted

Average Grant

Date Fair Value

Date Fair Value Shares Weighted

Average Grant

Date Fair Value

Outstanding at January 1, 2017

Performance-Based Leveraging*

Outstanding as of January 1, 2018 1,976,326 $ 50.80 348,876 $ 57.05 294,204 $ 56.95

Granted 109,045 81.55 101,325 81.21 100,919 81.25

Exercised/vested ( 832,809 ) 49.66 ( 99,651 ) 55.64 ( 31,048 ) 60.60

Outstanding at December 31, 2017

Options exercisable at December 31, 2017

* PVRSU units outstanding have been increased by 9,491 units during the year ended December 31, 2017 , due to the Company exceeding the targeted performance conditions contained in PVRSUs granted in prior periods.

Expired ( 2,018 ) 63.47 — — ( 416 ) 64.49

Forfeited ( 64,364 ) 55.79 ( 46,785 ) 60.40 ( 26,839 ) 64.49

Outstanding as of December 31, 2018 1,186,180 $ 54.13 3.5 years 303,765 $ 65.06 336,820 $ 63.28

Options exercisable as of December 31, 2018 753,681 $ 49.55 2.7 years

The components of the Company’s pretax stock-based compensation expense and associated income tax benefits are as follows:

For the Year Ended December 31,

(In millions)

(in thousands) 2020 2019 2018

Stock options $ 1,975 $ 2,194 $ 2,433

1 unchanged sentence

Performance vested restricted stock units ( 3,466 ) 6,409 5,798

Income tax benefits

Total share-based compensation expense $ 7,241 $ 16,646 $ 14,990

Income tax benefit $ 1,706 $ 4,010 $ 3,583

The total unrecognized compensation costs related to stock-based awards that have not yet vested and the related weighted average amortization period over which the costs are to be recognized as of December 31, 2020 are as follows:

Unrecognized Compensation Expense on Unvested Awards

Weighted Average Remaining Amortization Period

(in millions)

Stock options

Restricted stock

Performance vested restricted stock units

(in thousands) Unrecognized Compensation Expense on Unvested Awards Weighted Average Remaining Amortization Period

Stock options $ 3,696 2.6 years

Restricted stock 18,173 2.4 years

Performance vested restricted stock units 33,137 1.6 years

Total $ 55,006

During the fourth quarter of 2019, the Company's board of directors announced a 5 % increase to the quarterly dividend rate to $ 0.225 per share from $ 0.215 per share, beginning with the dividend payable in the first quarter of 2020.

On February 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock for $ 12.5 million.

The dividend was payable on April 16, 2020 to shareholders of record on April 2, 2020.

Subsequent to the payment of the dividend, in light of uncertainty resulting from the COVID-19 pandemic, the Company’s board of directors suspended future, undeclared dividends while the pandemic is significantly impacting travel.

During the year ended December 31, 2019, the Company's quarterly dividend rate was $ 0.215 per share for the first three quarters and was $ 0.225 per share in the fourth quarter of 2019.

Annual dividends declared during the year ended December 31, 2019 were $ 0.87 per share or $ 48.5 million.

During the year ended December 31, 2018, the Company's quarterly dividend rate was $ 0.215 per share.

Annual dividends declared during the year ended December 31, 2018 were $ 0.86 per share or $ 48.4 million.

The Company may not declare or make any payment if under the Restated Credit agreement there is an existing event of default or if the payment would create an event of default.

In addition, during the years ended December 31, 2020, 2019 and 2018, the Company paid previously declared but unrecorded dividends totaling $ 0.4 million, $ 0.2 million, and $ 0.1 million, respectively, that were contingent upon the vesting of performance vested restricted units.

Share Repurchases and Redemptions

The Company purchased stock under a stock repurchase program to return excess capital to its shareholders.

The Company may purchase stock under a stock repurchase program to return excess capital to its shareholders.

Treasury stock activity is recorded at cost in the accompanying consolidated financial statements.

The Company repurchased 0.5 million 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.

In light of uncertainty resulting from the COVID-19 pandemic, the Company subsequently temporarily suspended activity under the share repurchase program and no additional repurchases were made pursuant to the program for the balance of 2020.

During the year ended December 31, 2019, the Company repurchased 0.6 million shares of its common stock under the repurchase program at a total cost of $ 44.1 million.

During the year ended December 31, 2018, the Company repurchased 1.8 million shares of its common stock under the repurchase program at a total cost of $ 141.2 million.

During the year ended December 31, 2017 , the Company repurchased 3,100 shares of its common stock under the repurchase program at a total cost of 0.2 million .

On a cumulative basis through December 31, 2020, the Company repurchased 51.6 million shares of its common stock (including 33.0 million prior to the two -for-one stock split effected in October 2005) under the share repurchase program at a total cost of $ 1.5 billion.

During 2019 , the Company redeemed 79,603 shares of common stock at a total cost of $ 6.5 million from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of performance vested restricted stock units and restricted stock grants.

During 2018 and 2017 , the Company redeemed 92,366 and 154,950

shares of common stock at a total cost of $ 7.4 million and $ 9.6 million , respectively.

During 2020, the Company redeemed 0.1 million shares of common stock at a total cost of approximately $ 12.2 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.

During 2019 and 2018, the Company redeemed 79,603 and 92,366 shares of common stock at a total cost of $ 6.5 million and $ 7.4 million, respectively, from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program initiated in June 1998.

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Total accumulated other comprehensive loss $ ( 4,646 ) $ ( 4,550 ) $ ( 5,446 )

Cash Flow Hedge

In July 2010 , the Company entered into an interest rate swap agreement to protect itself from an increase in the market interest rate on $ 250 million of 10-year , fixed rate debt with the coupon to be set at market interest rates.

The interest rate swap agreement was designated as a cash flow hedge under the accounting guidance for derivatives and hedging.

In August 2010 , upon issuance of the related fixed-rate debt, the Company terminated and settled the interest rate swap agreement for a cash payment of $ 8.7 million .

The Company recorded the effective portion of this deferred loss as a component of accumulated other comprehensive income (loss) and is amortizing it over the term of the related debt as interest expense.

The ineffective portion was recognized immediately as a component of earnings under interest expense in the Company’s consolidated statements of income.

On December 16, 2019, the Company paid off the 2010 Senior Notes early and the unamortized deferred loss of $ 0.6 million was written off and recorded as a loss on extinguishment of debt.

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

Year Ended December 31, 2019

Year Ended December 31, 2018

Loss on Cash Flow Hedge

Foreign Currency Items

Loss on Cash Flow Hedge

Foreign Currency Items

(in thousands)

Year Ended December 31, 2020 Year Ended December 31, 2019

(in thousands) Loss on Cash Flow Hedge Foreign Currency Items Total Loss on Cash Flow Hedge Foreign Currency Items Total

Beginning Balance $ — $ ( 4,550 ) $ ( 4,550 ) $ ( 1,436 ) $ ( 4,010 ) $ ( 5,446 )

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive income — — — 1,436 — 1,436

Net current period other comprehensive income (loss)

Net current period other comprehensive (loss) income — ( 96 ) ( 96 ) 1,436 ( 540 ) 896

Ending Balance $ — $ ( 4,646 ) $ ( 4,646 ) $ — $ ( 4,550 ) $ ( 4,550 )

The amounts below were reclassified from other accumulated other comprehensive income (loss) to the following line items in the Company's Consolidated Statements of Income.

There is no income tax expense (benefit) attributable to these components.

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)

Affected Line Item in the Consolidated Statement of Income

Year Ended December 31,

(In thousands)

Loss on cash flow hedge:

Interest rate contract

Interest expense

Interest rate contract

Loss on extinguishment of debt

During the year ended December 31, 2019, $ 0.8 million and $ 0.6 million was reclassified from accumulated other comprehensive loss to Interest expense and Loss on extinguishment of debt, respectively, 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 year ended December 31, 2020, as the debt related to the Interest rate contract was paid off in December 2019.

Earnings Per Share

The Company’s unvested restricted shares contain rights to receive nonforfeitable dividends and thus are participating securities requiring the computation basic earnings per share (“EPS”) using the two-class method.

The unvested restricted shares are both potential common shares and participating securities, the Company calculates diluted earnings per share by the more dilutive of the treasury stock method or the two-class method.

The calculation of EPS for net income available to common shareholders shown below excludes the distribution of dividends and undistributed earnings attributable to participating securities from the numerator.

Stock options are included in the diluted earnings per share calculation unless the stock options are anti-dilutive.

PVRSUs are also included in the diluted earnings per share calculation if the performance or market conditions have been met as of the reporting date.

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

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(in thousands, except per share amounts) 2020 2019 2018

Computation of Basic Earnings Per Share:

Net income $ 75,387 $ 222,878 $ 216,355

Income allocated to participating securities ( 423 ) ( 1,352 ) ( 1,248 )

2 unchanged sentences

Basic earnings per share $ 1.36 $ 4.00 $ 3.83

Computation of Diluted Earnings Per Share:

Net income $ 75,387 $ 222,878 $ 216,355

Income allocated to participating securities ( 423 ) ( 1,346 ) ( 1,241 )

2 unchanged sentences

Diluted effect of stock options and PVRSUs 354 310 471

Weighted average commons shares outstanding - diluted

Weighted average common shares outstanding - diluted 55,529 55,668 56,601

Diluted earnings per share $ 1.35 $ 3.98 $ 3.80

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 December 31, 2019, 2018 and 2017 , the Company had 0.9 million , 1.2 million , and 2.0 million outstanding stock options, respectively.

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

For the years ended December 31, 2019 and 2017 , no anti-dilutive stock options were excluded from the diluted earnings per share calculation.

For the year ended December 31, 2018 , the Company excluded 0.1 million of anti-dilutive stock options from the diluted earnings per share calculation.

PVRSUs are also included in the diluted earnings per share calculation if the performance conditions have been met at the reporting date.

However, at December 31, 2019, 2018 and 2017 , PVRSUs totaling 168,244 , 242,942 , and 251,228 , respectively, were excluded from the computation since the performance conditions had not been met.

The Company determines if an arrangement is a lease and classification as operating or financing at lease inception.

Operating leases are included in operating lease ROU assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets.

The Company does not have any leases classified as financing.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

Operating lease ROU assets are further offset by any prepaid rent, lease incentives and initial direct costs incurred.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Variable lease payments include certain index-based changes in rent, certain nonlease components (such as maintenance and other services provided by the lessor), and other charges included in the lease.

Variable lease payments are excluded from future minimum lease payments and expensed as incurred.

The Company elected the practical expedient to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee and made a policy election to not account for leases with an initial term of 12 months or less on the balance sheet.

These short-term leases are expensed on a straight-line basis over the lease term.

The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect:

Year Ended December 31,

(in thousands) 2020 2019 2018

Stock Options 155 — 106

PVRSUs 231 168 243

The Company has operating leases primarily for office space, buildings, and equipment.

4 unchanged sentences

Operating lease cost $ 9,700 $ 9,837

Short-term lease cost 280 —

Sublease income — ( 84 )

1 unchanged sentence

Leases recorded on the consolidated balance sheet consist of the following:

December 31, 2019

(in thousands) 2020 2019

10 unchanged sentences

Operating lease assets obtained in exchange for operating lease liabilities $ 2,364 $ 3,818

Weighted-average remaining lease term

Weighted-average remaining lease term 2.24 years 3.09 years

Weighted-average discount rate (1)

3.55 % 3.60 %

(1) Discount rates used for existing operating leases upon adoption of Topic 842 were established based on remaining lease term as of January 1, 2019.

Maturities of lease liabilities are as follows:

As of December 31, 2019

Maturities of lease liabilities as of December 31, 2020 are as follows:

(in thousands)

2021 $ 11,237

Total minimum lease payments $ 24,417

1 unchanged sentence

Present value of minimum lease payments $ 23,342

During the year ended December 31, 2019 , the Company entered into a sale and leaseback transaction in which we sold an office building for a gain of $ 2.0 million within the Marketing and reservation system line item on the consolidated statements of income and entered into a lease terminating in 2020.

During the year ended December 31, 2019, the Company entered into a sale and leaseback transaction in which we sold an office building for a gain of $ 2.0 million within the Marketing and reservation system line item on the consolidated statements of income and entered into a lease that terminated in 2020.

This lease is included in the tables above.

The Company adopted Topic 842 on January 1, 2019 using the optional transition method to present comparative periods prior to adoption date in accordance with Topic 840, including disclosure.

The following table discloses future minimum lease payments in accordance with Topic 840:

As of December 31, 2018

(in thousands)

2019 (net of minimum sublease rentals of $124)

In the third quarter of 2019, we entered into two office lease agreements with unrelated third-parties that we expect to account for as operating leases.

These leases are not reflected in our consolidated balance sheets or in the table above as the leases have not commenced.

A lease with an approximately 3-year term is expected to commence in the first quarter of 2020 and a lease with an approximately 10-year term is expected to commence in the third quarter of 2021.

The Company leases to third-party tenants (i) an office building with a remaining lease term of less than two years and (ii) a restaurant space within an operating hotel with a remaining lease term of less than ten years .

Income for the two leases comprises of fixed and fixed escalating lease payments of $ 1.2 million for the year ended December 31, 2019 .

In the third quarter of 2019, we entered into one office lease agreement with an unrelated third-party that we expect to account for as an operating lease.

This lease is not reflected in our consolidated balance sheets or in the table above as the leases have not commenced.

The lease has an approximate 10 -year term and expected to commence in the third quarter of 2021.

The Company leases to third-party tenants (i) a commercial office building with a lease term that expired as of December 31, 2020 and (ii) a restaurant space within an operating hotel with a remaining lease term of less than nine years .

Income for the two leases comprises of fixed and fixed escalating lease payments of $ 1.4 million and $ 1.2 million, respectively, for the years ended December 31, 2020 and 2019.

Neither lease contains an option to purchase the underlying assets.

4 unchanged sentences

The terms of the lease agreements are consistent with the terms of lease agreements that the Company has entered into with unrelated third parties for use of the aircraft.

During the year ended December 31, 2019 , the Company received $ 12 thousand pursuant to this arrangement.

During the years ended December 31, 2020 and 2019, the Company received $ 0.2 million and $ 12 thousand, respectively, pursuant to this arrangement.

In December 2013, the Company's board of directors approved an arrangement between the Company and an entity controlled by the family members of the Company's largest shareholder to sublease approximately 2,200 square feet of office space located in Chevy Chase, Maryland.

In May 2016, the sublease was amended for the expansion of the office space.

The sublease was not renewed following April 2019.

The sublease had a month-to-month term, with a 90 -day notice period and annual lease payments totaling approximately $ 0.1 million.

The sublease was not renewed following April 2019.

During the year ended December 31, 2019, the Company received approximately $ 49 thousand in rent payments associated with this lease.

Subsequent to the sublease and affiliated lease ending in the office space in April 2019, the entity controlled by family member of the Company's largest shareholder entered into a separate lease with the third-party lessor.

The Company reimburses the entity for use of the space by the Company's Chairman.

During the year ended December 31, 2019 , the Company reimbursed the entity approximately $ 76 thousand .

Reportable Segment Information

Hotel Franchising:

Hotel Franchising includes the Company's hotel franchising operations consisting of its fourteen brands.

The fourteen brands are aggregated within this segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

Subsequently, the entity affiliated with the Company's largest shareholder entered into a separate lease with a third-party lessor and the Company reimburses the entity for use of the space by the Company's Chairman.

During the years ended December 31, 2020 and 2019, the Company reimbursed the entity approximately $ 66 thousand and $ 76 thousand, respectively.

Reportable Segments

The Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its 14 brands.

The 14 brands are aggregated within this segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

Revenues from the hotel franchising business include royalty fees, initial franchise and relicensing fees, marketing and reservation system fees, procurement services revenue and other hotel franchising related revenue.

The Company is obligated under its hotel franchise agreements to provide marketing and reservation services appropriate for the operation of its systems.

These services do not represent separate reportable segments as their operations are directly related to the Company's hotel franchising business.

The revenues received from franchisees that are used to pay for part of the Company's ongoing operations are included in hotel franchising revenues and are offset by the related expenses paid for marketing and reservation system activities to calculate hotel franchising operating income.

The Company evaluates its hotel franchising segment based primarily on the results of the segment without allocating corporate expenses, income taxes or indirect general and administrative expenses, which are included in the Corporate & Other column.

Corporate & Other revenues include owned hotel revenues and rental income related to an office building owned by the Company, as well as revenues related to the Company's vacation rental activities and its SaaS technology solutions divisions which provide cloud-based property management software to non-franchised hoteliers and vacation rental management companies.

Equity in earnings or losses from hotel franchising related joint ventures is allocated to the Company's hotel franchising segment.

The Company does not allocate interest expense, interest income, other gains and losses or income taxes to its segments.

The Company evaluates its hotel franchising segment based primarily on the results of the segment without allocating corporate expenses, indirect general and administrative expenses, interest expense, interest income, other gains and losses or income taxes, which are included in the Corporate & Other column.

Corporate & Other revenues include owned hotel revenues, rental income related to an office building owned by the Company, and revenues related to the Company's SaaS technology solutions division which provide cloud-based property management software to non-franchised hoteliers.

The intersegment revenue adjustment is from the elimination of Hotel Franchising revenue which include royalty and marketing and reservation system fees charged to our owned hotels against franchise fee expense recognized by our owned hotels in Corporate & Other operating income (loss).

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For the Year Ended December 31, 2020

Hotel Franchising

Intersegment Eliminations

(In thousands)

(in thousands) Hotel Franchising Corporate

& Other Intersegment Eliminations Consolidated

Revenues $ 747,329 $ 28,257 $ ( 1,514 ) $ 774,072

Operating income (loss) 191,301 ( 69,248 ) — 122,053

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For the Year Ended December 31, 2019

Hotel Franchising

Intersegment Eliminations

(In thousands)

(in thousands) Hotel Franchising Corporate

& Other Intersegment Eliminations Consolidated

Revenues $ 1,085,860 $ 30,700 $ ( 1,740 ) $ 1,114,820

Operating income (loss) 392,405 ( 73,763 ) — 318,642

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For the Year Ended December 31, 2018

Hotel Franchising

Intersegment Eliminations

(In thousands)

(in thousands) Hotel Franchising Corporate

& Other Intersegment Eliminations Consolidated

Revenues $ 1,027,047 $ 14,257 $ — $ 1,041,304

Operating income (loss) 378,014 ( 59,540 ) — 318,474

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No terms were substantially modified with respect to the five operating hotels under franchise.

On June 5, 2019 and June 27, 2019 , the Company and Sunburst entered into master development agreements which provide Sunburst geographic exclusivity in two specified regions for development of six WoodSpring branded hotels.

One new franchise agreement was signed between the Company and Sunburst during the year ended December 31, 2019 .

In June 2019, the Company and Sunburst entered into master development agreements which provide Sunburst geographic exclusivity in two specified regions for development of six WoodSpring branded hotels.

For each of the years ended December 31, 2020 and 2019, there was one new franchise agreement signed between the Company and Sunburst.

As of December 31, 2020, Sunburst operates 4 hotels under franchise with the Company.

Total franchise fees, including royalty, marketing and reservation system fees, paid by Sunburst to the Company, included in the accompanying consolidated financial statements were $ 1.8 million , $ 1.9 million , and $ 2.0 million for the years ended December 31, 2019, 2018 and 2017 , respectively.

Total franchise fees, including royalty and marketing and reservation system fees, paid by Sunburst to the Company included in the accompanying consolidated financial statements were $ 0.5 million, $ 1.8 million, and $ 1.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020 and 2019, accounts receivable included $ 0.1 million and $ 0.2 million, respectively, due from Sunburst.

The Company and family members of the Company's largest shareholder entered into an agreement that allows those family members to lease the Company aircraft from time to time for their personal use;

additionally, the have had leasing arrangements with an entity controlled by the family members of the Company's largest shareholder.

Refer to Note 20, Operating Leases.

Foreign Subsidiary Credit Agreement

In August 2016 , the Company entered into a credit agreement with a related party to a foreign subsidiary.

Borrowings under the agreement carry an interest rate of 4.0 % per year.

As of December 31, 2018 , the Company had $ 0.6 million outstanding under this agreement, which was reflected within the current portion of long term debt on the balance sheet.

The Company settled the outstanding balance as part of the sale of the SaaS for vacation rentals reporting unit in the second quarter of 2019.

Transactions with Unconsolidated Joint Ventures

In August 2015 , the Company entered into a $ 24.4 million promissory note with a development company which is a member of one of the Company’s unconsolidated joint ventures.

In October 2016, the Company increased the loan and funded an additional $ 1.0 million .

The Company has advanced a total of $ 25.4 million as of December 31, 2019 .

The promissory note matures on September 3, 2023 , bears interest at variable rates, and is payable monthly.

In October 2017 , May 2018 , and December 2018 , the Company entered into three promissory notes with a development company which is a member of one of the Company's unconsolidated joint ventures formed in 2018.

The October 2017 promissory note matured in January 2019 and was repaid in full.

The May 2018 and December 2018 promissory notes were extended and mature in May 2020 and March 2020 , respectively, bear interest at fixed and variable rates, and are payable monthly.

At December 31, 2019 , the outstanding balance of the promissory notes totaled $ 20.5 million .

In May 2019 , the Company entered into a joint venture agreement with a development company which has outstanding promissory notes totaling $ 50.1 million as of December 31, 2019 .

The Company has determined the promissory notes are impaired and recorded allowances for credit losses on these impaired loans in the amount of $ 2.8 million .

The promissory notes mature in November 2022 , bear interest at fixed and variable rates, and are payable monthly.

The Company extends loans to various unconsolidated joint ventures or members of our unconsolidated joint ventures.

The Company has a total principal balance on these loans of $ 90.7 million and $ 96.0 million as of December 31, 2020 and December 31, 2019, respectively.

These loans mature at various dates and bear interest at fixed and variable rates that is typically payable monthly.

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

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The Company recorded $ 2.4 million and $ 1.4 million as a receivable due from these joint ventures as of December 31, 2020 and 2019, respectively.

In addition, the Company paid commissions of $ 0.3 million , $ 0.2 million , and $ 0.2 million for the years ended December 31, 2019, 2018 and 2017 , respectively, to an online travel agent for which the Company is a joint venture member.

Commitments and Contingencies

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The Company entered into various limited payment guaranties with regards to the Company’s VIEs supporting the VIE’s efforts to develop and own hotels franchised under the Company’s brands.

Under these limited payment guaranties, the Company has agreed to guaranty a portion of the outstanding debt until certain conditions are met such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full, or (d) the Company, through its affiliates, ceases to be a member of the VIE.

Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full, or (d) the Company, through its affiliates, ceases to be a member of the VIE.

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

The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties was remote as of December 31, 2019 and

December 31, 2018 .

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.

In a prior year, the Company transferred $ 24.4 million of a $ 50.1 million outstanding note receivable with a maturity date of November 30, 2019 to a third party.

Refer to Note 4.

Under the agreement, the counter party had the right to require the Company to purchase the outstanding interest in the note under certain circumstances, including if the Company declares a default against the borrower and enters into foreclosure proceedings.

In February 2019, in connection with the Company's restructuring negotiations with the borrower, the Company mutually agreed with the counter party to repurchase the $ 24.4 million previously transferred prior to the maturity date.

The Company retains the full loan balance as recorded in Notes receivable, net of allowances as of December 31, 2019 .

The Company has the following commitments outstanding:

As of December 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 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 December 31, 2020:

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

At December 31, 2019 , the Company had commitments to extend an additional $ 300.4 million for these purposes provided certain conditions are met by its franchisees.

The Company committed to make additional capital contributions totaling $ 10.1 million to existing joint ventures related to the construction of various hotels to be operated under the Company's Cambria Hotels brand.

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

At December 31, 2020, the Company had commitments to extend an additional $ 304.6 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 $ 8.4 million to support their efforts to construct Cambria hotels.

• The Company committed to provide financing in the form of mezzanine loans or credit facilities to franchisees for Choice brand development efforts.

The Company has committed to provide an aggregate of approximately $ 34.6 million , upon certain conditions being met.

As of December 31, 2019 , $ 17.7 million has been disbursed.

The construction loan can be drawn up to $ 34.9 million .

The Company has a carve-out guaranty and the unaffiliated joint venture partner has a completion guaranty in relation to the loan, in which both parties are required to meet certain financial covenants relating to liquidity and net worth.

The rehabilitation of the building is considered a qualified asset that requires a significant amount of time to prepare for its intended use.

Therefore, any interest costs incurred during the development period of the building is considered an element of the historical cost of the qualifying asset.

At December 31, 2019 , the Company has borrowed $ 33.1 million of the construction loan and recorded $ 0.9 million of capitalized interest costs.

The construction was completed and the hotel opened in the third quarter of 2019, resulting in the satisfaction of the completion guaranty.

Additionally, the Company purchased the remaining interest of the unaffiliated joint venture partner in the third quarter of 2019.

For the year ended December 31, 2020, the Company has committed to provide an aggregate of approximately $ 1.0 million, upon certain conditions being met.

As of December 31, 2020, no amounts 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 was secured by the building.

The Company had a carve-out guaranty on the loan to the extent amounts drawn were outstanding.

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.

• The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees.

In accordance with terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing and reservation services appropriate to support the operation of the overall system.

To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years.

To the extent revenues

collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years.

Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to assess and collect such amounts.

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The results of WoodSpring have been consolidated with the Company since February 1, 2018 and are included in the Company’s Hotel Franchising segment.

The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets and liabilities assumed as of February 1, 2018.

The Company completed its assessment of the WoodSpring acquisition in the third quarter of 2018, identifying no adjustments to the fair value determination.

As a result, the purchase price allocation is final as of the third quarter of 2018, with no adjustments made from the preliminary allocation.

The fair value of the assets and liabilities is as follows:

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Contract assets 115,000

Tradename 22,000

Goodwill 93,384

Accounts payable ( 348 )

Total Consideration $ 231,567

The purchase price was based on the projected business growth and cash flows over the next several years and indicated a value that was in excess of the existing net book value of the business, resulting in the recognition of various identifiable intangible assets and goodwill as follows:

(in thousands)

Franchise agreements acquired

WoodSpring tradename

The excess value recorded in goodwill is expected to be recovered through growth within the existing customer base, improvements in hotel RevPAR and new agreements signed with new franchisees and developers.

The full amount of goodwill is deductible for tax purposes.

The Company's pro forma results of operations for this acquisition have not been presented here because the effect of this acquisition was not material to the Company's consolidated results of operations.

Selected Quarterly Financial Data—(Unaudited)

First Quarter

(in thousands, except per share data)

Operating income

Income before income taxes

Earnings per share:

First Quarter

(in thousands, except per share data)

Operating income

Income before income taxes

Earnings per share:

(1) The sum of the earnings per share for the four quarters may differ from annual earnings per share due to the required method of computing the weighted average shares in interim periods.

The matters which affect the comparability of the quarterly results include the following:

The Company’s revenues and operating income reflect the industry’s seasonality and as a result are lower in the first and fourth quarters and higher in the second and third quarters.

Marketing and Reservation System Activities:

Due to the seasonal nature of the Company’s hotel franchising business or multi-year investments that are required to support franchise operations, quarterly or annual deficits and surpluses may be generated from the Company’s contractual obligation to utilize marketing and reservation system revenues to provide franchise services defined in the franchise agreements.

During the year ended December 31, 2019, the Company incurred surpluses (deficits) from marketing and reservation system activities totaling ($ 9.8 ) million , $ 12.3 million , ($ 1.4 ) million and ($ 2.9 ) million , respectively, in the first, second, third and fourth quarters.

During the year ended December 31, 2018, the Company incurred surpluses (deficits) from marketing and reservation system activities totaling ($ 12.2 ) million , $ 20.8 million , $ 14.0 million and ($ 13.2 ) million , respectively, in the first, second, third and fourth quarters.

Investment income and losses:

The Company’s net income reflects gains and losses related to the Company’s investments held in non-qualified retirement plans and are subject to market conditions.

Operating income and net income in 2019 reflect the Company's acquisition of four operating hotels in the third quarter of 2019.

A fifth hotel previously under development by the Company opened in the third quarter of 2019.

The Company recognized revenue related to these hotels totaling $ 8.7 million and $ 11.6 million during the third and fourth quarters of 2019, respectively.

The addition of these owned hotels contributed operating income of $ 0.5 million and $ 0.4 million for the third and fourth quarter of 2019, respectively.

In addition, the Company sold an unconsolidated joint venture interest resulting in a loss of $ 6.0 million in the third quarter of 2019.

Refer to Notes 8 and 25 of our consolidated financial statements.

During the fourth quarter of 2019, the Company recorded a loss on extinguishment of debt of $ 7.2 million for the early redemption of the unsecured senior notes in the principal amount of $ 250 million due in August 2020 prior to their maturity date.

The Company acquired WoodSpring on February 1, 2018 and incurred acquisition transaction and integration costs totaling $ 4.2 million , $ 0.8 million , $ 0.6 million and $ 1.3 million in SG&A expenses in the first, second, third and fourth quarters of 2018, respectively.

The Company's fourth quarter 2018 results reflect an impairment of non-hotel franchising goodwill of $ 4.3 million in the impairment of goodwill line item and a loan valuation allowance charge of $ 2.8 million in SG&A expenses.

In addition, the Company recognized an additional impairment of non-hotel franchising goodwill and long-lived assets of $ 3.1 million and $ 7.3 million , respectively, in the first quarter of 2019 related to the Company's SaaS for vacation rentals reporting unit.

The reporting unit was disposed of on June 3, 2019 and the Company recognized an additional $ 4.7 million loss on the sale during the second quarter of 2019.

Refer to Item 7, Critical Accounting Policies and Note 6 to our consolidated financial statements for additional information.

Future Adoption of Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and issued subsequent amendments to the initial guidance at various points thereafter ("Topic 326"), which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Topic 326 requires enhanced disclosures, including qualitative and quantitative requirements, to provide insight to significant estimates and judgments used in estimating credit losses and the amounts recorded in the financial statements.

The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years.

Topic 326 requires the use of the modified retrospective approach for adoption.

The Company will adopt Topic 326 on January 1, 2020 and currently expects a cumulative-effect adjustment to be recorded in retained earnings as of the date of adoption that will not be material to the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13").

ASU 2018-13 modifies disclosure requirements on fair value measurements.

The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the adoption of ASU 2018-13 to have an impact on the consolidated financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) :

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

The guidance is effective for

annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

The Company plans to adopt ASU 2018-15 on a prospective basis on January 1, 2020.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12").

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T he Company is evaluating the effect of adopting ASU 2019-12 but does not expect adoption will have a material impact on the consolidated financial statements and disclosures.

Subsequent Events

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.

On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure, resulting in the recognition of income tax benefits and a deferred tax asset in the first quarter of 2020 in accordance with ASU 2016-16.

On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the “Amendment”) among the Company, Deutsche Bank AG New York Branch, as administrative agent (the “Administrative Agent”) and the lenders party thereto.

The Amendment amended the Restated Credit Agreement.

Prior to the Amendment, the Credit Agreement provided that if certain subsidiaries of the Company were to incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, those obligated subsidiaries were required to guarantee the Company’s obligations under the unsecured revolving credit facility provided pursuant to the Restated Credit Agreement (the “springing guarantee”).

The Amendment, among other things, removes the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

On February 28, 2020, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

The dividend is payable on April 16, 2020 to shareholders of record on April 2, 2020.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data