What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-10 · 158 added, 105 removed, 457 unchanged (37% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Royalty fees $ 106,242 $ 50,152 $ 172,289 $ 120,491

12 unchanged sentences

159,320 142,618 298,269 314,011

Loss on impairment of assets — ( 1,226 ) — ( 1,226 )

Operating income 119,024 7,889 163,022 54,671

3 unchanged sentences

Loss on extinguishment of debt — — — 607

Other (gain) loss ( 1,205 ) 4,729

Equity in net loss of affiliates 5,997 1,955

Other (gains) losses ( 2,108 ) ( 3,556 ) ( 3,313 ) 1,173

Equity in net (gain) loss of affiliates ( 1,179 ) 3,486 4,818 5,441

Total other income and expenses, net 7,170 10,767 22,458 27,150

Income before income taxes 28,710 30,399

Income (loss) before income taxes 111,854 ( 2,878 ) 140,564 27,521

Income tax expense (benefit) 25,972 ( 437 ) 32,345 ( 25,501 )

Net income $ 22,337 $ 55,463

Basic earnings per share $ 0.40 $ 1.00

Diluted earnings per share $ 0.40 $ 0.99

Net income (loss) $ 85,882 $ ( 2,441 ) $ 108,219 $ 53,022

Basic earnings (losses) per share $ 1.54 $ ( 0.04 ) $ 1.95 $ 0.96

Diluted earnings (losses) per share $ 1.53 $ ( 0.04 ) $ 1.93 $ 0.95

Cash dividends declared per share $ 0.225 $ — $ 0.225 $ 0.225

4 unchanged sentences

(IN THOUSANDS)

Three Months Ended

Net income $ 22,337 $ 55,463

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net income (loss) $ 85,882 $ ( 2,441 ) $ 108,219 $ 53,022

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Other comprehensive income (loss), net of tax 71 187 123 ( 477 )

Comprehensive income $ 22,389 $ 54,799

Comprehensive income (loss) $ 85,953 $ ( 2,254 ) $ 108,342 $ 52,545

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

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Current assets

36 unchanged sentences

160,000,000 shares authorized;

95,065,638 shares issued at March 31, 2021 and December 31, 2020;

55,537,836 and 55,535,554 shares outstanding at March 31, 2021 and December 31, 2020, respectively

95,065,638 shares issued at June 30, 2021 and December 31, 2020;

55,646,993 and 55,535,554 shares outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in-capital 246,604 233,921

1 unchanged sentence

Treasury stock, at cost;

39,527,802 and 39,530,084 shares at March 31, 2021 and December 31, 2020, respectively

39,418,645 and 39,530,084 shares at June 30, 2021 and December 31, 2020, respectively

( 1,258,295 ) ( 1,260,478 )

7 unchanged sentences

(IN THOUSANDS)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Franchise agreement acquisition cost amortization 6,294 5,558

Loss on asset disposition and impairments — 1,226

Loss on debt extinguishment — 607

11 unchanged sentences

Distributions from equity method investments — 3,113

Proceeds from sale of equity method investments 11,830 —

Purchases of investments, employee benefit plans ( 931 ) ( 1,932 )

Proceeds from sales of investments, employee benefit plans 1,994 1,901

Issuance of notes receivable — ( 5,778 )

Purchase/issuance of notes receivable ( 17,918 ) ( 7,730 )

Collection of notes receivable 63 63

3 unchanged sentences

Net borrowings pursuant to revolving credit facilities — 170,300

Net borrowings pursuant to term loan — 249,500

Principal payments on long-term debt — ( 33,369 )

Debt issuance costs — ( 492 )

Purchase of treasury stock ( 5,362 ) ( 54,536 )

1 unchanged sentence

Proceeds from exercise of stock options 9,115 2,768

Net cash (used in) provided by financing activities ( 2,201 ) 297,933

Net cash provided by financing activities 3,753 308,943

Net change in cash and cash equivalents 73,207 280,862

32 unchanged sentences

Balance as of March 31, 2020 55,340,423 $ 951 $ 221,553 $ ( 5,214 ) $ ( 1,265,888 ) $ 1,004,744 $ ( 43,854 )

Net income — — — — — ( 2,441 ) ( 2,441 )

Other comprehensive income (loss) — — — 187 — — 187

Share-based payment activity (2)

29,997 — 2,166 — 1,825 ( 171 ) 3,820

Dividends declared (2)

— — — — — — —

Treasury purchases ( 6,525 ) — — — ( 464 ) — ( 464 )

Balance as of June 30, 2020 55,363,895 $ 951 $ 223,719 $ ( 5,027 ) $ ( 1,264,527 ) $ 1,002,132 $ ( 42,752 )

Outstanding Common

14 unchanged sentences

Balance as of March 31, 2021 55,537,836 $ 951 $ 237,538 $ ( 4,594 ) $ ( 1,261,494 ) $ 1,046,834 $ 19,235

Net income — — — — — 85,882 85,882

Other comprehensive income (loss) — — — 71 — — 71

Share-based payment activity (2)

111,895 — 9,066 — 3,516 1 12,583

Dividends declared ($ 0.225 per share) (2)

— — — — — ( 12,521 ) ( 12,521 )

Treasury purchases ( 2,738 ) — — — ( 317 ) — ( 317 )

Balance as of June 30, 2021 55,646,993 $ 951 $ 246,604 $ ( 4,523 ) $ ( 1,258,295 ) $ 1,120,196 $ 104,933

(1) Reflects the cumulative effect of ASU 2016-13 , Financial Instruments - Credit Losses (Topic 326) and subsequent amendments issued thereafter (collectively "Topic 326"), which was adopted on January 1, 2020.

6 unchanged sentences

On May 7, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

Refer to Note 14.

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

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Loyalty points are typically redeemed within three years of issuance.

Significant changes in the contract liabilities balances during the period December 31, 2020 to March 31, 2021 are as follows:

Significant changes in the contract liabilities balances during the period December 31, 2020 to June 30, 2021 are as follows:

(in thousands)

2 unchanged sentences

Revenue recognized in the period ( 39,461 )

Balance as of March 31, 2021 $ 152,526

Balance as of June 30, 2021 $ 161,706

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 152.5 million as of March 31, 2021.

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 161.7 million as of June 30, 2021.

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

2 unchanged sentences

Three Months Ended Three Months Ended

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020

(in thousands) Over time Point in time Total Over time Point in time Total

8 unchanged sentences

Total revenues $ 278,344 $ 151,733

Six Months Ended Six Months Ended

June 30, 2021 June 30, 2020

(in thousands) Over time Point in time Total Over time Point in time Total

Royalty fees $ 172,289 $ — $ 172,289 $ 120,491 $ — $ 120,491

Initial franchise and relicensing fees 12,755 — 12,755 13,960 — 13,960

Procurement services 22,241 1,042 23,283 23,449 1,045 24,494

Marketing and reservation system 200,995 26,514 227,509 153,765 36,297 190,062

Owned hotels 11,068 2,058 13,126 9,660 1,654 11,314

Other 12,108 — 12,108 8,850 — 8,850

Total Topic 606 revenues $ 431,456 $ 29,614 461,070 $ 330,175 $ 38,996 369,171

Non-Topic 606 revenues 221 737

Total revenues $ 461,291 $ 369,908

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

As presented in Note 11, the Corporate & Other segment amounts represent $ 6.0 million and $ 10.9 million for the three months ended March 31, 2021 and 2020, respectively, and are included in the Over time column of Other revenues and the Owned Hotels and Non-Topic 606 revenues rows.

As presented in Note 11, the Corporate & Other segment amounts represent $ 10.9 million and $ 4.5 million for the three months ended June 30, 2021 and 2020, respectively, and $ 17.0 million and $ 15.4 million for the six months ended June 30, 2021 and 2020, respectively, and are included in the Over time column of Other revenues and the Owned Hotels and Non-Topic 606 revenues rows.

The remaining revenues relate to the Hotel Franchising segment.

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 0.3 million and $ 0.8 million for the three months ended March 31, 2021 and 2020, respectively .

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 0.7 million and $ 0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $ 1.0 million and $ 0.9 million for the six months ended June 30, 2021 and 2020, respectively.

Notes Receivable and Allowance for Credit Losses

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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) March 31, 2021 December 31, 2020

(in thousands) June 30, 2021 December 31, 2020

Senior $ 123,415 $ 104,716

6 unchanged sentences

Long-term portion, net of allowance $ 67,922 $ 95,785

During the second quarter of 2021, the Company acquired a senior note with collateral in an underlying operating hotel for $ 17.9 million.

The acquired senior note has an origination date in June 2018.

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

5 unchanged sentences

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

(in thousands) March 31, 2021 December 31, 2020

(in thousands) June 30, 2021 December 31, 2020

Beginning balance $ 19,484 $ 4,556

3 unchanged sentences

Ending balance $ 20,039 $ 19,484

The provisions recorded in the three months ended March 31, 2021 primarily results from changes in the classification of certain loans as collateral-dependent and associated revisions to their allowances.

Allowances for credit losses attributable to collateral-dependent loans is $ 3.5 million and $ 7.8 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, two loans with senior or subordinated tranches met the definition of collateral-dependent and are collateralized by either land parcels or membership interests in the borrowing entities.

The provisions recorded in the six months ended June 30, 2021 primarily result from changes in the classification of certain loans as collateral-dependent and associated revisions to their allowances.

Allowances for credit losses attributable to collateral-dependent loans are $ 9.1 million and $ 7.8 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, three loans with senior and/ or subordinated tranches met the definition of collateral-dependent and are collateralized by either land parcels, an operating hotel, or membership interests in the borrowing entities.

The Company used a discounted cash flow ("DCF") technique to project cash flows or a market approach via quoted market prices to value the underlying collateral.

2 unchanged sentences

Based on these analyses, the fair value of collateral secures the carrying value of each loan to a significant extent.

During the first quarter of 2021, a loan with senior and subordinated tranches, that met the definition of collateral-dependent as of December 31, 2020, was restructured and as a result no longer meets the classification of collateral-dependent as of March 31, 2021.

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 considers loans 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.

The Company suspends the accrual of interest when payments on loans are more than 30 days past due or upon a loan being classified as collateral-dependent.

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 $ 50.7 million and $ 28.9 million at March 31, 2021 and December 31, 2020, respectively.

The Company has identified loans totaling approximately $ 13.1 million as of both March 31, 2021 and December 31, 2020, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.6 million and $ 0.8 million as of March 31, 2021 and December 31, 2020, respectively.

The amortized cost basis of notes receivable on non-accrual status was $ 68.7 million and $ 28.9 million at June 30, 2021 and December 31, 2020, respectively.

The Company has identified loans totaling approximately $ 13.1 million as of both June 30, 2021 and December 31, 2020, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.5 million and $ 0.8 million as of June 30, 2021 and December 31, 2020, respectively.

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

2 unchanged sentences

Past Due 31-89 days

Past Due > 90 days

Past Due Total

1 unchanged sentence

Notes Receivable

As of March 31, 2021

As of June 30, 2021

Senior $ 17,918 $ — $ 15,200 $ 33,118 $ 90,297 $ 123,415

7 unchanged sentences

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

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of March 31, 2021.

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of June 30, 2021.

Refer to Note 12.

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 120.1 million and $ 119.3 million as of March 31, 2021 and December 31, 2020, respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 138.1 million and $ 119.3 million as of June 30, 2021 and December 31, 2020, respectively.

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

2 unchanged sentences

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

The Company has equity method investments in joint ventures that represent VIEs totaling $ 51.6 million and $ 56.9 million on the consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively.

The Company has equity method investments in joint ventures that represent VIEs totaling $ 41.1 million and $ 56.9 million on the consolidated balance sheets at June 30, 2021 and December 31, 2020, 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 determined that it is not the primary beneficiary of any of these VIEs.

could potentially be significant to the entity, the Company determined that it is not the primary beneficiary of any of these VIEs.

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.

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

For the three months ended March 31, 2021 and 2020, the Company recognized losses totaling $ 6.4 million and $ 2.0 million, respectively, from these investments that represent VIEs.

For the three months ended June 30, 2021 and 2020, the Company recognized (gains) losses totaling $( 0.9 ) million and $ 2.6 million, respectively, from these investments that represent VIEs.

For the six months ended June 30, 2021 and 2020, the Company recognized losses totaling $ 5.5 million and $ 4.6 million, respectively, from these investments that represent VIEs.

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

4 unchanged sentences

The impairment charge is classified as equity in net loss of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 11.

During the second quarter of 2021, the Company sold its ownership interest in three separate equity method investments.

The Company recognized a cumulative gain of $ 2.6 million on the sales of these investments, which is recorded in equity in net (gain) loss of affiliates.

Debt consists of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in thousands)

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 6.0 million and $ 6.1 million at March 31, 2021 and December 31, 2020, respectively

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 5.8 million and $ 6.1 million at June 30, 2021 and December 31, 2020, respectively

$ 444,165 $ 443,860

$ 400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 5.2 million and $ 5.4 million at March 31, 2021 and December 31, 2020, respectively

$ 400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 5.1 million and $ 5.4 million at June 30, 2021 and December 31, 2020, respectively

394,936 394,635

$ 400 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.6 million and $ 0.7 million at March 31, 2021 and December 31, 2020, respectively

$ 400 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.5 million and $ 0.7 million at June 30, 2021 and December 31, 2020, respectively

216,085 215,827

$ 600 million senior unsecured revolving credit facility (1)

Economic development loans with an effective interest rate of 3.00 % at March 31, 2021 and December 31, 2020, respectively

Economic development loans with an effective interest rate of 3.00 % at June 30, 2021 and December 31, 2020, respectively

Long-term debt $ 1,059,602 $ 1,058,738

(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 and the facility remains undrawn upon as of December 31, 2020 and March 31, 2021.

As there are no outstanding borrowings at December 31, 2020 or March 31, 2021, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.4 million and $ 2.3 million, respectively, are presented in non-current Other Assets in the Consolidated Balance Sheets.

As there are no outstanding borrowings at June 30, 2021 or December 31, 2020, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.2 million and $ 2.4 million, respectively, are presented in non-current Other Assets in the Consolidated Balance Sheets.

Refer to Note 12 and the Liquidity and Capital Resources header of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information.

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2021 and 2020 are as follows:

The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2021 and 2020 are as follows:

(in thousands)

Balance as of December 31, 2020 $ ( 4,646 )

Other comprehensive loss before reclassification 52

Other comprehensive income (loss) before reclassification 123

Net current period other comprehensive income (loss) 123

Balance as of March 31, 2021 $ ( 4,594 )

Balance as of June 30, 2021 $ ( 4,523 )

(in thousands)

Balance as of December 31, 2019 $ ( 4,550 )

Other comprehensive loss before reclassification ( 664 )

Other comprehensive income (loss) before reclassification ( 477 )

Net current period other comprehensive income (loss) ( 477 )

Balance as of March 31, 2020 $ ( 5,214 )

The other comprehensive loss before reclassification for both the three months ended March 31, 2021 and 2020 relate to foreign currency items.

Balance as of June 30, 2020 $ ( 5,027 )

The other comprehensive income (loss) before reclassification for both the six months ended June 30, 2021 and 2020 relate to foreign currency items.

Fair Value Measurements

8 unchanged sentences

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

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the three months ended March 31, 2021.

As of March 31, 2021 and December 31, 2020, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

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 six months ended June 30, 2021.

As of June 30, 2021 and December 31, 2020, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands) Total Level 1 Level 2 Level 3

As of March 31, 2021

As of June 30, 2021

Mutual funds (1)

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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 March 31, 2021 and December 31, 2020, the $ 216.6 million remaining 2012 Senior Notes had an approximate fair value of $ 228.8 million and $ 232.4 million.

At March 31, 2021 and December 31, 2020, the $ 400 million 2019 Senior Notes had an approximate fair value of $ 418.9 million and $ 438.1 million, respectively, and the $ 450 million 2020 Senior Notes had an approximate fair value of $ 471.9 million and $ 498.3 million, respectively.

At June 30, 2021 and December 31, 2020, the $ 216.6 million remaining 2012 Senior Notes had an approximate fair value of $ 227.1 million and $ 232.4 million.

At June 30, 2021 and December 31, 2020, the $ 400 million 2019 Senior Notes had an approximate fair value of $ 433.7 million and $ 438.1 million, respectively, and the $ 450 million 2020 Senior Notes had an approximate fair value of $ 487.9 million and $ 498.3 million, respectively.

Refer to Note 5 for further information on debt.

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

The effective income tax rates were 22.2 % and ( 82.5 )% for the three months ended March 31, 2021 and 2020, respectively.

The effective income tax rate for the three months ended March 31, 2021 was higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes and foreign operations, partially offset by $ 0.8 million of excess tax benefits from share-based compensation.

The effective income tax rate for the three months ended March 31, 2020 was lower than the U.S.

The effective income tax rates were 23.2 % and 11.8 % for the three months ended June 30, 2021 and 2020, respectively.

The effective income tax rates were 23.0 % and ( 92.3 )% for the six months ended June 30, 2021 and 2020, respectively.

The effective income tax rate for the three months ended June 30, 2021 was higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes, partially offset by $ 1.2 million of excess tax benefits from share-based compensation.

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

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

The effective income tax rate for the six months ended June 30, 2021 was higher than the U.S.

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

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

federal income tax rate of 21.0% primarily due to the impact of our international reorganization in accordance with 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, that resulted in a $ 30.6 million tax benefit.

The effective income tax rate was also lower due to $ 2.4 million of excess tax benefits from share-based compensation.

The effective income tax rate was also lower due to $ 2.7 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

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

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Share-Based Compensation and Capital Stock

The components of the Company’s pretax share-based compensation activity and associated income tax benefit are as follows for three months ended March 31, 2021 and 2020:

Three Months Ended

The components of the Company’s pretax share-based compensation activity and associated income tax benefit (expense) are as follows for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2021 2020 2021 2020

2 unchanged sentences

Performance vested restricted stock units 3,144 ( 324 ) 4,810 ( 5,511 )

Total share-based compensation expense $ 4,801 $ ( 2,752 )

Total share-based compensation expense (benefit) $ 6,399 $ 2,265 $ 11,200 $ ( 487 )

Income tax benefit (expense) $ 1,556 $ ( 539 ) $ 2,723 $ 116

A summary of share-based award activity as of and changes during the three months ended March 31, 2021 are presented below:

A summary of share-based award activity as of and changes during the six months ended June 30, 2021 are presented below:

Stock Options Restricted Stock Performance Vested

11 unchanged sentences

Forfeited — — ( 9,051 ) 87.09 ( 1,357 ) 101.85

Outstanding at March 31, 2021 1,052,184 $ 80.19 5.7 years 257,337 $ 88.79 341,186 $ 113.22

Options exercisable at March 31, 2021 556,285 $ 65.32 3.1 years

(1) PVRSUs outstanding have been increased by 920 units in the three months ended March 31, 2021 due to the Company exceeding the targeted performance conditions contained in PVRSUs granted in prior periods.

Outstanding at June 30, 2021 947,155 $ 82.46 5.9 years 248,562 $ 90.25 415,812 $ 113.91

Options exercisable at June 30, 2021 451,256 $ 66.30 3.2 years

(1) PVRSUs outstanding have been increased by 75,911 units in the six months ended June 30, 2021 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Stock Options

10 unchanged sentences

On May 7, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

Refer to Note 14.

Restricted Stock Awards

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

The fair value of restricted stock awards is measured by the market price of the Company's common stock on the

date of grant.

The service period of restricted stock awards granted during the three months ended March 31, 2021 range from 9 to 48 months.

The fair value of restricted stock awards is measured by the market price of the Company's common stock on the date of grant.

The service period of restricted stock awards granted during the six months ended June 30, 2021 range from 9 to 48 months.

Performance Vested Restricted Stock Units

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These performance and market conditions affect the number of shares that will ultimately vest.

During the three months ended March 31, 2021, the Company granted PVRSUs with market conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

During the six months ended June 30, 2021, the Company granted PVRSUs with market conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

The fair value of PVRSUs with only internal performance conditions is measured by the market price of the Company's common stock on the date of award grant.

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Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions, with subsequent adjustments made for performance-based leveraging of unvested PVRSUs, as necessary.

During the three months ended March 31, 2020, the Company reduced the leveraging factor for 227,114 unvested PVRSUs periods to 0 %.

During the six months ended June 30, 2020, the Company reduced the leveraging factor for 239,437 unvested PVRSUs to 0 %.

Share Repurchases and Redemptions

There were no purchases of common stock under the share repurchase program during the three months ended March 31, 2021.

During three months ended March 31, 2021, the Company redeemed 46,499 shares of common stock at a total cost of $ 5.1 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, the Company temporarily suspended activity under the Company's share repurchase program.

1 unchanged sentence

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

During both the three and six months ended June 30, 2021, there were 1,582 purchases of common stock under the share repurchase program at a total cost of $ 0.2 million.

During the three and six months ended June 30, 2021, the Company redeemed 1,156 and 47,655 shares of common stock at a total cost of $ 0.1 million and $ 5.4 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

Earnings Per Share

6 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in thousands, except per share amounts) 2021 2020 2021 2020

Net income $ 22,337 $ 55,463

Income allocated to participating securities ( 110 ) ( 317 )

Net income available to common shareholders $ 22,227 $ 55,146

Net income (loss) $ 85,882 $ ( 2,441 ) $ 108,219 $ 53,022

(Income) loss allocated to participating securities ( 324 ) 14 ( 463 ) ( 301 )

Net income (loss) available to common shareholders $ 85,558 $ ( 2,427 ) $ 107,756 $ 52,721

Weighted average shares of common stock outstanding – basic 55,389 55,054 55,326 55,199

Basic earnings per share $ 0.40 $ 1.00

Net income $ 22,337 $ 55,463

Income allocated to participating securities ( 110 ) ( 316 )

Net income available to common shareholders $ 22,227 $ 55,147

Basic earnings (losses) per share $ 1.54 $ ( 0.04 ) $ 1.95 $ 0.96

Net income (loss) $ 85,882 $ ( 2,441 ) $ 108,219 $ 53,022

(Income) loss allocated to participating securities ( 324 ) 14 ( 463 ) ( 300 )

Net income (loss) available to common shareholders $ 85,558 $ ( 2,427 ) $ 107,756 $ 52,722

Weighted average shares of common stock outstanding – basic 55,389 55,054 55,326 55,199

Diluted effect of stock options and PVRSUs 398 334

Dilutive effect of stock options and PVRSUs 411 — 405 258

Weighted average shares of common stock outstanding – diluted 55,800 55,054 55,731 55,457

Diluted earnings per share $ 0.40 $ 0.99

Diluted earnings (losses) per share $ 1.53 $ ( 0.04 ) $ 1.93 $ 0.95

The following securities have been excluded from the calculation of diluted weighted average shares of common stock outstanding as the inclusion of these securities would have an anti-dilutive effect or the performance or market conditions have not been met:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in thousands) 2021 2020 2021 2020

8 unchanged sentences

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 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.

Equity in earnings or losses from hotel franchising related joint ventures is allocated to the Company's hotel franchising segment.

4 unchanged sentences

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

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020

(in thousands) Hotel

6 unchanged sentences

Income (loss) before income taxes $ 134,025 $ ( 22,171 ) $ — $ 111,854 $ 29,811 $ ( 32,689 ) $ — $ ( 2,878 )

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

(in thousands) Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated Hotel

Franchising Corporate &

Other Intersegment Eliminations Consolidated

Revenues $ 445,310 $ 16,972 $ ( 991 ) $ 461,291 $ 355,365 $ 15,417 $ ( 874 ) $ 369,908

Operating income (loss) $ 190,753 $ ( 27,731 ) $ — $ 163,022 $ 84,311 $ ( 29,640 ) $ — $ 54,671

Income (loss) before income taxes $ 185,936 $ ( 45,372 ) $ — $ 140,564 $ 78,390 $ ( 50,869 ) $ — $ 27,521

Commitments and Contingencies

5 unchanged sentences

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

As of March 31, 2021 and December 31, 2020, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

As of June 30, 2021 and December 31, 2020, 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 March 31, 2021:

The Company has the following commitments outstanding at June 30, 2021:

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

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

At March 31, 2021, the Company had commitments to extend an additional $ 291.2 million for these purposes provided the conditions of the payment are met by its franchisees.

At June 30, 2021, the Company had commitments to extend an additional $ 271.4 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 $ 8.3 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.

In the first quarter of 2021, the Company has committed to provide an aggregate of

approximately $ 1.0 million, upon certain conditions being met.

As of March 31, 2021, no amounts have been disbursed.

At June 30, 2021, the Company has committed to provide an aggregate of approximately $ 7.7 million, upon certain conditions being met, and no ne of these amounts have been disbursed.

• The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees.

11 unchanged sentences

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

For the three months ended March 31, 2021 and 2020, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.2 million and $ 0.4 million, respectively.

For the three months ended June 30, 2021 and 2020, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.3 million and $ 0.1 million, respectively.

For both the six months ended June 30, 2021 and 2020, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.5 million.

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

Pursuant to these franchise agreements, for the three months ended March 31, 2021 and 2020, the Company recorded royalty and marketing reservation system fees of approximately $ 2.9 million and $ 4.6 million, respectively.

The Company recorded $ 2.2 million and $ 2.4 million as a receivable due from these joint ventures as of March 31, 2021 and December 31, 2020, respectively.

Subsequent Events

On May 7, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock and approved resumption of the share repurchase program.

The dividend is payable on July 16, 2021, to stockholders of record on July 1, 2021.

Pursuant to these franchise agreements, for the three months ended June 30, 2021 and 2020, the Company recorded royalty, marketing reservation system, and other fees of approximately $ 4.1 million and $ 2.2 million, respectively.

For the six months ended June 30, 2021 and 2020, the Company recorded royalty, marketing reservation system, and other fees of approximately $ 7.0 million and $ 6.8 million, respectively.

The Company recorded $ 2.6 million and $ 2.4 million as a receivable due from these joint ventures as of June 30, 2021 and December 31, 2020, respectively.

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

What changed 10-Q

Item 1. Financial Statements