What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-10 · 236 added, 139 removed, 343 unchanged (52% of the section changed)

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Impact of the COVID-19 Pandemic

The evolving spread of COVID-19 has caused significant disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located.

The COVID-19 pandemic continues to cause disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located.

The COVID-19 pandemic has led governments and other authorities and businesses around the world to impose or recommend measures intended to control its spread, including temporary closures of and occupancy limits on many businesses, travel restrictions, cancellation of events, social distancing measures and other governmental regulations.

As a result, the COVID-19 pandemic and its consequences have dramatically reduced travel and demand for hotel rooms, which has had a material adverse impact on the hospitality industry and the Company both financially and operationally.

The development of effective vaccines and on-going distribution and

vaccination efforts are significant and positive developments.

However, the extent to which the COVID-19 pandemic will continue to impact the hospitality industry and our operations remains uncertain and will depend largely on future developments, including the rate and pace of vaccination in the broader population, the severity and duration of resurgences or variants of the virus, and the effectiveness of actions by government authorities and the public to contain the pandemic.

The impacts of COVID-19 on the Company's business were first experienced toward the end of the first quarter of 2020, with domestic occupancy levels ranging between 25.5% and 32.5% in the last ten days of March resulting in significant decreases in revenue per available room ("RevPAR").

As a result, the COVID-19 pandemic and its consequences have reduced travel and demand for hotel rooms, which has had a material adverse impact on the hospitality industry and the Company both financially and operationally.

The development of effective vaccines and the on-going distribution and vaccination efforts have been significant and positive developments.

decreases in revenue per available room ("RevPAR").

These trends steadily improved, albeit remained significantly impacted, over the remainder of 2020, resulting in full year 2020 domestic RevPAR experiencing a decline of approximately 30.7% from full year 2019.

For the reasons cited above, we expect our results of operations to continue to be impacted in 2021.

The first quarter 2021 domestic RevPAR experienced declines of approximately 4.4% and 18.7% relative to first quarter 2020 and first quarter 2019, respectively.

As of both March 31, 2021 and April 30, 2021, there were less than 1% of Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election, compared to approximately 10% as of March 31, 2020.

The Company continued to experience significant negative impacts through the first quarter of 2021, although an increase in leisure travel reservations was observed in March 2021 that steadily improved through June 2021.

The second quarter 2021 domestic RevPAR experienced an increase of approximately 96.2% and a decrease of only 1.1% relative to second quarter 2020 and second quarter 2019, respectively.

As of both June 30, 2021 and June 30, 2020, there were less than 1% of Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election.

While the ultimate impact and duration of COVID-19 is uncertain and will depend on future developments, which are difficult to predict, the Company believes that it will continue to benefit in the long-term from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements.

Further, as of March 31, 2021, the Company had approximately $823.0 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility.

Further, as of June 30, 2021, the Company had approximately $908.0 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility.

Based on our business model and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business.

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The duration of these measures cannot be predicted at this time.

The measures that remain in effect or have been added to during the first quarter of 2021 include, but are not limited to, the following:

• Implemented fee-deferral programs for domestic and international franchisees.

• Reduced one-time reputation management fees and guest relations handling fees.

• Extended capital-intensive brand deadlines and created more flexible brand standard options to assist franchisees.

• Advised franchisees on benefits and eligibility requirements of government relief SBA programs and other CARES Act and American Rescue Plan Act of 2021 provisions.

• Established a proactive, ongoing multi-channel franchisee outreach and education program that is actively assisting our franchisees in accessing newly available capital.

• Revised the Company's guest cancellation policy to provide travelers greater flexibility during these challenging times.

• Implemented travel restrictions and work-from-home practices for the Company’s employees.

The Company made a priority of working closely with its franchisees to drive business to their hotels across a wide variety of industries and government and emergency-management agencies.

Many of the Company's franchisees committed their rooms inventory at discounted rates, or on a complimentary basis, to support their communities in dealing with the effects of the pandemic, opening their hotels for hospital overflows and providing temporary housing for first responders, the National Guard, healthcare workers, critical infrastructure workers and others in dire need.

In addition, the Company provided hotel room donations to Operation Homefront to help ill and injured service members that were displaced by the pandemic.

The Company also teamed up with Serta, Inc.

to contribute to its “Stay Home, Send Beds” initiative, which provided bed donations to help address nationwide shortages at hospitals and temporary medical facilities.

The measures that remain in effect during the second quarter of 2021 include, but are not limited to, the following:

• Preserving fee-deferral programs for domestic and international franchisees.

• Continuing to extend capital-intensive brand deadlines and offer more flexible brand standard options to assist franchisees.

• Advising franchisees on benefits and eligibility requirements of government relief SBA programs and other CARES Act and American Rescue Plan Act of 2021 provisions.

• Maintaining a proactive, ongoing multi-channel franchisee outreach and education program that is actively assisting our franchisees in accessing available capital.

As disclosed above, domestic occupancy and RevPAR of the Company's branded hotels continue to be impacted.

However, approximately 90% of the Company’s domestic hotels are in suburban, small town and interstate locations and have experienced less severe operational declines related to COVID-19 than hotels in urban centers or resorts.

Based on industry data, the Company's brands have been performing ahead of its upper-midscale, midscale and economy chain scale competitors, and the Company’s hotels have experienced relatively stronger same-store RevPAR share gains versus their local competition during the first quarter of 2021 relative to the first quarter of 2019.

While a recovery in the hospitality industry has commenced, industry projections anticipate that recovery to 2019 operating performance span multiple years.

Based on industry data, the Company's brands have been performing ahead of its upper-midscale, midscale and economy chain scale competitors, and the Company’s hotels have experienced relatively stronger same-store RevPAR share gains versus their local competition during th e second quarter of 2021 relative to the second quarter of 2019.

While a recovery in the hospitality industry has commenced, industry projections anticipate that recovery to 2019 operating performance will span multiple years.

As the industry recovery continues, the Company believes it will continue to benefit from the faster rebound of leisure demand as a result of its higher share of leisure travel mix relative to competitors.

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While the Company believes that the long-term fundamentals of the business remain strong, it will continue to adjust business contingency plans as the COVID-19 pandemic evolves.

For additional information, see Risk Factors in Part II, Item 1A of this Form 10-Q.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,138 hotels open comprising 603,767 rooms and 1,001 hotels under construction, awaiting conversion or approved for development comprising 84,450 rooms as of March 31, 2021, located in 50 states, the District of Columbia and more than 40 countries and territories outside the United States.

For additional information, see Risk Factors in Part II, Item 1A of our first quarter 2021 Form 10-Q and 2020 Form 10-K.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,111 hotels open comprising 601,245 rooms and 944 hotels under construction, awaiting conversion or approved for development comprising 80,420 rooms as of June 30, 2021, located in 50 states, the District of Columbia and more than 40 countries and territories outside the United States.

Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe™, Ascend Hotel Collection®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Extended Stay Hotel®, WoodSpring Suites®, Everhome Suites®, and Cambria® Hotels (collectively, the "Choice brands").

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and our ability to manage costs.

The number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the Company’s results because our fees are based upon

room revenues or the number of rooms at owned and franchised hotels.

All of these factors have been and we expect will continue to be disrupted by the COVID-19 pandemic.

The number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the Company’s results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels.

All of these factors have been and may continue to be disrupted by the COVID-19 pandemic.

The key industry standard for measuring hotel-operating performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized.

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Accordingly, over the long-term, any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results.

The effects of the COVID-19 pandemic on our first quarter 2021 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and below under the heading "Operations Review".

The effects of the COVID-19 pandemic on our second quarter 2021 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and below under the heading "Operations Review".

We are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation system activities.

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Greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company.

While we continue to actively manage and eliminate certain discretionary marketing and reservation system expenditures, as a result of lower occupancy and therefore, lower marketing and reservation system fees generated, we realized marketing and reservation expenditures in excess of fees in the first quarter of 2021, and anticipate expenditures to exceed fees for the remainder of 2021.

Due to increased RevPAR growth during the second quarter of 2021 and our management of discretionary marketing and reservation system expenditures, we anticipate marketing and reservation revenues to be in line with expenses for full year 2021.

Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise.

We have developed an operating system dedicated to our franchisees’ success that focuses on delivering guests to hotels and reducing hotel operating costs.

As discussed above, the Company has taken measures to combat the impact of the COVID-19 pandemic on our business.

These measures have been and remain an immediate priority in order to mitigate the financial impacts to our franchisees and the Company.

We believe these immediate measures support the Company's preparedness and complement the strategic priorities we execute against to create value for our shareholders over the long-term.

As discussed above, the Company has taken and is continuing to take measures to combat the impact of the COVID-19 pandemic on our business.

These measures have been and remain a priority in order to mitigate the financial impacts to our franchisees and the Company.

We believe these measures support the Company's preparedness and complement the strategic priorities we execute against to create value for our shareholders over the long-term.

These key long-term goals are as follows:

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Improving the performance of the hotels in our system, strategically growing the system through additional franchise sales, and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.

As disclosed above, the Company's hotels have and are presently continuing to experience declines in occupancy and RevPAR and there still remains a small subset of hotels with temporarily suspended operations resulting from the impacts of the COVID-19 pandemic.

These declines and suspended operations have impacted the profitability of the Company in the first quarter of 2021 and will impact the Company for as long as the COVID-19 pandemic is significantly impacting travel.

As disclosed above, prior to the second quarter of 2021, the Company's hotels experienced declines in occupancy and RevPAR resulting from the impacts of the COVID-19 pandemic.

The declines impacted the profitability of the Company and the negative impact to the Company could return if a resurgence of the COVID-19 pandemic significantly impacts travel.

Maximizing Financial Returns and Creating Value for Shareholders.

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hotel ownership;

and exploring growth opportunities in business areas that are adjacent or complementary to our core hotel franchising business, which leverage our core competencies and are additive to our franchising

business model.

The timing and amount of these investments are subject to market and other conditions.

In light of uncertainty resulting from the COVID-19 pandemic and to preserve liquidity, we have limited significant discretionary investments and intend to continue to do so until such time as we determine conditions are appropriate to resume any such activity.

In light of uncertainty resulting from the COVID-19 pandemic and to preserve liquidity, we have limited certain discretionary investments until such time as we determine conditions are appropriate to resume such activity.

We believe our growth investments and strategic priorities, when properly implemented, will enhance our profitability, maximize our financial returns and continue to generate value for our shareholders.

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Royalty fees, operating income, net income and diluted earnings per share ("EPS") represent key measurements of our financial performance.

These measurements are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's operations is primarily focused on the size, performance and potential growth of the hotel franchise system as well as our variable overhead costs.

These measurements are primarily driven by the operations of our hotel franchise

system and therefore, our analysis of the Company's operations is primarily focused on the size, performance and potential growth of the hotel franchise system as well as our variable overhead costs.

Our discussion of results excludes the Company’s marketing and reservation system revenues and expenses.

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As a result, the Company generally excludes the financial impacts of this program from the analysis of its operations.

Due to the seasonal nature of the Company’s hotel franchising business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees due to the impacts of the COVID-19 pandemic, quarterly and/or annual deficits may be generated.

During the three months ended March 31, 2021, marketing and reservation system expenses exceeded revenues by $6.7 million, respectively.

During the three months ended March 31, 2020, marketing and reservation system revenues exceeded expenses by $20.1 million.

Due to the seasonal nature of the Company’s hotel franchising business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees for certain periods resulting from the impacts of the COVID-19 pandemic, quarterly and/or annual deficits may be generated.

During the six months ended June 30, 2021, marketing and reservation system revenues exceeded expenses by $16.1 million.

During the six months ended June 30, 2020, marketing and reservation system expenses exceeded revenues by $29.7 million.

Refer to MD&A heading "Operations Review" for additional analysis of our results.

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Calculation of Revenues, excluding marketing and reservation system activities

Three Months Ended March 31,

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

(in thousands) 2021 2020 2021 2020

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Operations Review

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2021 and 2020

Summarized financial results for the three months ended March 31, 2021 and 2020 are as follows:

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2021 and 2020

Summarized financial results for the three months ended June 30, 2021 and 2020 are as follows:

(in thousands) 2021 2020

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159,320 142,618

Loss on impairment of assets — (1,226)

Operating income 119,024 7,889

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Loss on extinguishment of debt — —

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

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

Other (gains) losses (2,108) (3,556)

Equity in net (gain) loss of affiliates (1,179) 3,486

Total other income and expenses, net 7,170 10,767

Income before income taxes 28,710 30,399

Income (loss) before income taxes 111,854 (2,878)

Income tax expense (benefit) 25,972 (437)

Net income $ 22,337 $ 55,463

Net income (loss) $ 85,882 $ (2,441)

Results of Operations

The Company recorded income before income taxes of $28.7 million for the three-month period ended March 31, 2021, a $1.7 million decrease from the same period of the prior year.

The decrease in income before income taxes primarily reflects a $2.8 million decrease in operating income, a $4.0 million increase in equity in net loss of affiliates, a $1.0 million decrease in interest income, and a $0.4 million increase in interest expense, partially offset by a $5.9 million increase in other gains, and a $0.6 million loss on extinguishment of debt for the three-month period ended March 31, 2020.

Operating income decreased $2.8 million primarily due to a $4.3 million decrease in royalty revenues, a $3.1 million decrease in owned hotels revenues in excess of expenses, a $2.6 million decrease in procurement services revenues, a $2.5 million decrease in other revenues, a $1.9 million increase in SG&A expenses, and a $1.9 million decrease in initial franchise and relicensing fees, partially offset by a $13.3 million decrease in the net deficit generated from marketing and reservation system activities.

The Company recorded income before income taxes of $111.9 million for the three-month period ended June 30, 2021, a $114.8 million increase from the same period of the prior year.

The increase in income before income taxes primarily reflects a $111.1 million increase in operating income, a $4.7 million increase in equity in net (gain) loss of affiliates, and a $1.4 million decrease in interest expense, partially offset by a $1.5 million decrease in other (gains) losses and a $1.0 million decrease in interest income for the three-month period ended June 30, 2020.

Operating income increased $111.1 million primarily due to a $56.0 million increase in royalty revenues, a $32.3 million increase in the net surplus generated from marketing and reservation system activities, a $9.4 million decrease in SG&A expenses, a $5.3 million increase in other revenues, a $4.6 million increase in owned hotels revenues in excess of expenses, a $1.4 million increase in procurement services revenues, and a $0.6 million increase in initial franchise and relicensing fees.

The primary reasons for these fluctuations, including the impact of the COVID-19 pandemic, are described in more detail below.

Domestic royalty fees for the three months ended March 31, 2021 decreased $3.3 million to $63.0 million from $66.3 million for the three months ended March 31, 2020, a decrease of 5.0%.

The decrease in domestic royalties reflect a 4.4% decrease in domestic RevPAR.

System-wide RevPAR decreased due to a 6.4% decrease in average daily rates, partially offset by a 100 basis point increase in occupancy.

The decrease in domestic royalties is partially offset by an increase in the number of domestic franchised hotel rooms and a 7 basis point increase in the effective royalty rate from 4.95% for the three months ended March 31, 2020 to 5.02% for the three months ended March 31, 2021.

Domestic royalty fees for the three months ended June 30, 2021 increased $54.4 million to $102.8 million from $48.3 million for the three months ended June 30, 2020, an increase of 112.6%.

The increase in domestic royalties reflect a 96.2% increase in domestic RevPAR.

System-wide RevPAR increased due to a 23.1% increase in average daily rates and a 2,320 basis point increase in occupancy.

The increase in domestic royalties is also due to a 1.6% increase in the number of domestic franchised hotel rooms and a 7 basis point increase in the effective royalty rate from 4.94% for the three months ended June 30, 2020 to 5.01% for the three months ended June 30, 2021.

A summary of the Company's domestic franchised hotels operating information is as follows:

Three Months Ended Three Months Ended Change

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020

Rate Occupancy RevPAR Average

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Total $ 82.72 62.3 % $ 51.54 $ 67.21 39.1 % $ 26.27 23.1 % 2,320 bps 96.2 %

A summary of domestic hotels and rooms in our franchise system at March 31, 2021 and 2020 by brand is as follows:

March 31, 2021 March 31, 2020 Variance

A summary of domestic hotels and rooms in our franchise system at June 30, 2021 and 2020 by brand is as follows:

June 30, 2021 June 30, 2020 Variance

Hotels Rooms Hotels Rooms Hotels Rooms % %

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Total Domestic Franchises 5,955 469,081 5,917 461,484 38 7,597 0.6 % 1.6 %

As of both March 31, 2021 and April 30, 2021, there were less than 1% of the Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election.

As of both June 30, 2021 and June 30, 2020, there were less than 1% of the Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election.

These temporarily suspended hotels are included in the summary table above of domestic hotels in our franchise system.

International royalty fees for the three months ended March 31, 2021 decreased $1.0 million to $3.1 million compared to the three months ended March 31, 2020 as a result of temporarily suspended operations and declines in RevPAR performance.

The international franchise system decreased by 48 hotels (from 1,219 as of March 31, 2020 to 1,171 as of March 31, 2021) and

3,135 rooms (from 136,350 as of March 31, 2020 to 133,215 as of March 31, 2021).

As of March 31, 2021 and April 30, 2021, approximately 4% and 3%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

We expect the uncertainty surrounding the pandemic, including an increase in the prevalence in variants as well as the rate and pace of vaccinations around the world, to continue to impact the number of domestic and international hotels that temporarily suspend operations.

International royalty fees for the three months ended June 30, 2021 increased $1.7 million to $3.5 million compared to the three months ended June 30, 2020 as a result of improvements in RevPAR performance, despite reductions of the international franchise system size by 45 hotels (from 1,201 as of June 30, 2020 to 1,156 as of June 30, 2021) and 3,370 rooms (from

135,534 as of June 30, 2020 to 132,164 as of June 30, 2021).

As of June 30, 2021 and June 30, 2020, approximately 2% and 7%, respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

We expect the uncertainty surrounding the potential duration of the pandemic, including an increase in the prevalence in variants, as well as the rate and pace of vaccinations around the world, to continue to impact the number of domestic and international hotels that temporarily suspend operations.

Initial Franchise and Relicensing Fees

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relicensing fees include fees charged to new owners of a franchised property whenever an ownership change occurs and the property remains in the franchise system, as well as fees required to renew existing franchise agreements.

During the first quarter of 2021, the Company awarded 89 domestic franchise agreements representing 11,780 rooms compared to 58 franchising agreements representing 4,656 rooms for the first quarter of 2020.

Domestic franchise agreements awarded for new construction hotels totaled 15 contracts representing 1,282 rooms during the three months ended March 31, 2021, compared to 16 contracts representing 1,361 rooms for the three months ended March 31, 2020.

Conversion hotel awarded franchise agreements totaled 74 representing 10,498 rooms for the three months ended March 31, 2021, compared to 42 agreements representing 3,295 rooms for the three months ended March 31, 2020.

The Company awarded 52 domestic relicensing contracts during the three months ended March 31, 2021, compared to 75 executed during the three months ended March 31, 2020.

The Company awarded 12 domestic renewal agreements during the three months ended March 31, 2021, compared to 10 awarded during the three months ended March 31, 2020.

During the second quarter of 2021, the Company awarded 111 domestic franchise agreements representing 8,888 rooms compared to 93 franchising agreements representing 6,793 rooms for the second quarter of 2020.

Domestic franchise agreements awarded for new construction hotels totaled 41 contracts representing 4,011 rooms during the three months ended June 30, 2021, compared to 34 contracts representing 2,936 rooms for the three months ended June 30, 2020.

Conversion hotel awarded franchise agreements totaled 70 representing 4,877 rooms for the three months ended June 30, 2021, compared to 59 agreements representing 3,857 rooms for the three months ended June 30, 2020.

The Company awarded 128 domestic relicensing contracts during the three months ended June 30, 2021, compared to 35 executed during the three months ended June 30, 2020.

The Company awarded 8 domestic renewal agreements during the three months ended June 30, 2021, compared to 10 awarded during the three months ended June 30, 2020.

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

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Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue decreased from $7.3 million for the three months ended March 31, 2020 to $5.4 million for the three months ended March 31, 2021.

At March 31, 2021, the Company had 943 franchised hotels with 77,292 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 1,000 hotels and 80,390 rooms at March 31, 2020.

The number of new construction franchised hotels in the Company's domestic pipeline decreased from 762 at March 31, 2020 to 709 at March 31, 2021.

Initial franchise and relicensing fee revenue increased from $6.7 million for the three months ended June 30, 2020 to $7.3 million for the three months ended June 30, 2021.

At June 30, 2021, the Company had 884 franchised hotels with 72,312 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 982 hotels and 78,517 rooms at June 30, 2020.

The number of new construction franchised hotels in the Company's domestic pipeline decreased from 741 at June 30, 2020 to 663 at June 30, 2021.

New construction hotels typically average 18 to 36 months to open after the franchise agreement is executed.

The number of conversion franchised hotels in the Company's domestic pipeline decreased from 238 hotels at March 31, 2020 to 234 hotels at March 31, 2021.

The number of conversion franchised hotels in the Company's domestic pipeline decreased from 241 hotels at June 30, 2020 to 221 hotels at June 30, 2021.

Conversion hotels typically open three to six months after the execution of a franchise agreement.

The Company had an additional 58 franchised hotels with 7,158 rooms under construction, awaiting conversion or approved for development in its international system as of March 31, 2021, compared to 55 hotels and 6,200 rooms at March 31, 2020.

The Company had an additional 60 franchised hotels with 8,108 rooms under construction, awaiting conversion or approved for development in its international system as of June 30, 2021, compared to 53 hotels and 6,612 rooms at June 30, 2020.

Fluctuations in the Company’s pipeline are primarily due to the timing of hotel openings and the timing of signing new franchise agreements.

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Procurement Services:

Revenues decreased $2.6 million from $13.8 million for the three months ended March 31, 2020 to $11.2 million for the three months ended March 31, 2021.

The decrease in revenues primarily reflects the decrease in fees affiliated with travel-related partnerships and qualified vendors.

Due to anticipated lower occupancy at our franchised hotels for the remainder of 2021 and the cancellation of the 2021 annual convention, we anticipate there will continue to be fewer purchases made from travel-related partners and qualified vendors for the remainder of 2021, from which we earn a fee.

Revenues increased $1.4 million from $10.7 million for the three months ended June 30, 2020 to $12.1 million for the three months ended June 30, 2021.

These results reflect an increase in fees generated from travel-related partnerships and qualified vendors resulting from increased occupancy during the second quarter of 2021 at our franchised hotels.

Other Revenues:

Other revenues declined $2.5 million from $6.9 million for the three months ended March 31, 2020 to $4.4 million for the three months ended March 31, 2021.

The decline primarily represents the reduction and, in some cases, suspension of reputation management, guest relation, and finance charges to our franchisees in addition to a decrease in non-compliance and termination fees.

Other revenues increased $5.3 million from $2.4 million for the three months ended June 30, 2020 to $7.7 million for the three months ended June 30, 2021 driven by an increase in non-compliance fees and other franchising revenues.

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $30.3 million for the three months ended March 31, 2021, an increase of $1.9 million from the three months ended March 31, 2020.

SG&A expenses for the three months ended March 31, 2021 and 2020 include approximately $0.2 million and $1.0 million, respectively, related to the Company's alternative growth initiatives and expenses related to operations and maintenance of an office building.

Excluding SG&A expenses for alternative growth initiatives and office building operations, SG&A for the three months ended March 31, 2021 increased $2.7 million to $30.1 million in the current year primarily due to an increase in the Company's deferred compensation liabilities based on increases in the underlying investments, partially offset by implemented cost mitigation measures resulting from the COVID-19 pandemic, including reductions of certain domestic and international positions and non-essential expenditures.

Loss on Extinguishment of Debt:

During the first quarter of 2020, the Company recorded a loss on the extinguishment of debt of $0.6 million related to the early pay off of the Company's construction loan in the amount of $33.1 million, inclusive of accrued and unpaid interest.

Refer to the "Liquidity and Capital Resources" header for additional discussion.

The Company recorded other net gains of $1.2 million for the three months ended March 31, 2021, compared to other net losses of $4.7 million for the three months ended March 31, 2020.

SG&A expenses were $34.5 million for the three months ended June 30, 2021, a decrease of $9.4 million from the three months ended June 30, 2020.

SG&A expenses for the three months ended June 30, 2021 and 2020 include approximately $0.6 million and $0.5 million, respectively, related to the Company's alternative growth initiatives and expenses related to operations and maintenance of an office building.

Excluding SG&A expenses for alternative growth initiatives and office building operations, SG&A for the three months ended June 30, 2021 decreased $9.5 million to $33.9 million in the current quarter primarily due to a decrease in provision for credit losses in Trade Receivables and Notes Receivables recorded in accordance with Topic 326, a lesser increase in the Company's deferred compensation liabilities based on lower relative increases in the underlying investments, and continuous impact of implemented cost mitigation measures related to COVID-19 pandemic, including reductions of certain domestic and international positions and non-essential expenditures.

Loss on impairment of assets :

In the second quarter of 2020, the Company recognized $1.2 million charge related to a prospective self-development project the Company elected to no longer pursue.

Other (Gains) Losses:

The Company recorded other net gains of $2.1 million for the three months ended June 30, 2021, compared to other net gains of $3.6 million for the three months ended June 30, 2020.

The gains relate to increases in the Company's deferred compensation assets based on increases in the underlying investments.

Equity in Net Loss of Affiliates :

The Company recorded net losses of $6.0 million from its unconsolidated joint ventures for the three months ended March 31, 2021, compared to net losses of $2.0 million for the three months ended March 31, 2020.

Equity in Net (Gain) Loss of Affiliates :

The Company recorded net gains of $1.2 million from its unconsolidated joint ventures for the three months ended June 30, 2021, compared to net losses of $3.5 million for the three months ended June 30, 2020.

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

The fluctuation is primarily attributable to the impairment of an unconsolidated joint venture resulting in a loss of $4.8 million in the first quarter of 2021, in addition to increased losses of operating joint venture hotels as impacted by the COVID-19 pandemic.

The fluctuation is primarily attributable to the sale of the ownership interest of an unconsolidated joint venture resulting in a gain of $2.6 million in the second quarter of 2021, in addition to increased losses for the three months ended June 30, 2020 of operating joint venture hotels as impacted by the COVID-19 pandemic.

Refer to Note 4 to our consolidated financial statements for additional information.

We anticipate the results recognized from these investments will continue to be impacted by the uncertainty of the COVID-19 pandemic for the remainder of 2021.

Income Tax Expense (Benefit):

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 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.

Operations Review

Comparison of Operating Results for the Six-Month Periods Ended June 30, 2021 and 2020

Summarized financial results for the six months ended June 30, 2021 and 2020 are as follows:

(In thousands) 2021 2020

Royalty fees $ 172,289 $ 120,491

Initial franchise and relicensing fees 12,755 13,960

Procurement services 23,283 24,494

Marketing and reservation system 227,509 190,062

Owned hotels 13,347 11,530

Other 12,108 9,371

Total revenues 461,291 369,908

OPERATING EXPENSES

Selling, general and administrative 64,737 72,318

Depreciation and amortization 12,594 12,927

Marketing and reservation system 211,458 219,756

Owned hotels 9,480 9,010

Total operating expenses

298,269 314,011

Loss on impairment of assets — (1,226)

Operating income 163,022 54,671

OTHER INCOME AND EXPENSES, NET

Interest expense 23,468 24,462

Interest income (2,515) (4,533)

Loss on extinguishment of debt — 607

Other (gains) losses (3,313) 1,173

Equity in net (gain) loss of affiliates 4,818 5,441

Total other income and expenses, net 22,458 27,150

Income (loss) before income taxes 140,564 27,521

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

Net income (loss) $ 108,219 $ 53,022

Results of Operations

The Company recorded income before income taxes of $140.6 million for the six-month period ended June 30, 2021, a $113.1 million increase from the same period of the prior year.

The increase in income before income taxes reflects a $108.3 million increase in operating income, a $4.5 million increase in other (gains) losses, and a $1.0 million decrease in interest expense, partially offset by $2.0 million decrease in interest income.

Operating income increased $108.3 million primarily due to a $51.8 million increase in royalty revenues, a $45.7 million increase in the net surplus generated from marketing and reservation system activities, a $7.6 million decrease in SG&A expenses, a $2.7 million increase in other revenues, and recognition of $1.2 million loss on impairment of long-lived assets during the six-month period ended June 30, 2020, partially offset by a $1.2 million decrease in initial franchise and relicensing fees and $1.2 million decrease in procurement services revenues.

The primary reasons for these fluctuations are described in more detail below.

Domestic royalty fees for the six months ended June 30, 2021 increased $51.1 million to $165.8 million, a 45% increase compared to the six months ended June 30, 2020.

The increase in royalties reflect a 39.2% increase in RevPAR.

System-wide RevPAR increased due to a 1,210 basis point increase in occupancy rates and a 8.5% increase in average daily rates.

The increase in domestic royalties is also due to a 1.6% increase in the number of domestic franchised hotel rooms and a 7 basis point increase in the effective royalty rate from 4.94% for the six months ended June 30, 2020 to 5.01% for the six months ended June 30, 2021.

A summary of the Company's domestic franchised hotels operating information is as follows:

Six Months Ended Six Months Ended Change

June 30, 2021 June 30, 2020

Rate Occupancy RevPAR Average

Rate Occupancy RevPAR

Comfort $ 89.83 57.2 % $ 51.36 $ 84.20 42.6 % $ 35.85 6.7 % 1,460 bps 43.3 %

Sleep 80.68 56.0 % 45.20 76.92 43.5 % 33.46 4.9 % 1,250 bps 35.1 %

Quality 77.41 50.7 % 39.21 71.07 38.7 % 27.49 8.9 % 1,200 bps 42.6 %

Clarion 79.03 39.7 % 31.37 72.51 31.4 % 22.75 9.0 % 830 bps 37.9 %

Econo Lodge 63.54 48.2 % 30.61 57.15 38.1 % 21.79 11.2 % 1,010 bps 40.5 %

Rodeway 63.53 49.6 % 31.49 58.39 40.9 % 23.87 8.8 % 870 bps 31.9 %

WoodSpring 49.03 80.1 % 39.26 45.99 69.7 % 32.07 6.6 % 1,040 bps 22.4 %

MainStay 75.34 59.5 % 44.83 76.21 51.3 % 39.07 (1.1) % 820 bps 14.7 %

Suburban 51.97 70.5 % 36.62 52.52 61.4 % 32.24 (1.0) % 910 bps 13.6 %

Cambria Hotels 116.93 50.8 % 59.40 120.89 36.7 % 44.41 (3.3) % 1,410 bps 33.8 %

Ascend Hotel Collection 123.91 50.1 % 62.04 115.48 39.7 % 45.89 7.3 % 1,040 bps 35.2 %

Total $ 77.09 54.8 % $ 42.23 $ 71.08 42.7 % $ 30.33 8.5 % 1,210 bps 39.2 %

International royalty fees for the six months ended June 30, 2021 increased $0.7 million to $6.5 million compared to the six months ended June 30, 2020 as a result of increases in RevPAR performance, despite reductions of the international franchise system decreasing by 45 hotels (from 1,201 as of June 30, 2020 to 1,156 as of June 30, 2021) and 3,370 rooms (from 135,534 as of June 30, 2020 to 132,164 as of June 30, 2021).

Initial Franchise and Relicensing Fees

Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement;

During the six months ended June 30, 2021, the Company awarded 200 domestic franchise agreements representing 20,668 rooms compared to 151 franchise agreements representing 11,449 rooms for the six months ended June 30, 2020.

Domestic franchise agreements awarded for new construction hotels totaled 56 representing 5,293 rooms during the six months ended June 30, 2021 compared to 50 franchise agreements representing 4,297 rooms for the six months ended June 30, 2020.

Conversion hotel awarded franchise agreements totaled 144 representing 15,375 rooms for the six months ended June 30, 2021 compared to 101 franchise agreements representing 7,152 rooms for the six months ended June 30, 2020.

The Company awarded 180 domestic relicensing contracts during the six months ended June 30, 2021, compared to 110 executed during the six months ended June 30, 2020.

The Company awarded 20 domestic renewal agreements during both the six months ended June 30, 2021 and 2020.

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated.

Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement.

Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue decreased $1.2 million from $14.0 million during the six months ended June 30, 2020 to $12.8 million during six months ended June 30, 2021.

Given the uncertainty as to the duration of the COVID-19 pandemic and virus variants, there is additional uncertainty with respect to the opening of new construction hotels, which are reliant on, amongst other things, access to liquidity, availability of

construction labor and materials, and local governmental approvals and entitlements, all of which may be constrained during the duration of the pandemic.

Procurement Services:

Revenues decreased $1.2 million from $24.5 million for the six months ended June 30, 2020 to $23.3 million for the six months ended June 30, 2021.

These results reflect a decrease in fees generated from travel-related partnerships and qualified vendors resulting from lower occupancy at our franchised hotels in the first quarter of 2021 stemming from impacts of the COVID-19 pandemic.

Other Revenues:

Other revenues increased $2.7 million from $9.4 million for the six months ended June 30, 2020 to $12.1 million in the same period of the current year driven by an increase in non-compliance fees and other franchising revenues.

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $64.7 million for the six months ended June 30, 2021, a decrease of $7.6 million from the six months ended June 30, 2020.

SG&A expenses for the six months ended June 30, 2021 and 2020 include approximately $0.8 million and $1.5 million, respectively, related to the Company's alternative growth initiatives and expenses related to operations and maintenance of an office building.

Excluding SG&A for alternative growth initiatives and office building operations, SG&A for the six months ended June 30, 2021 decreased $6.9 million to $63.9 million in the current year primarily due to a decrease in provision for credit losses in Trade Receivables and Notes Receivables recorded in accordance with Topic 326, continuous impact of implemented cost mitigation measures resulting from the COVID-19 pandemic, including reductions of certain domestic and international positions and non-essential expenditures, offset by increases in the Company's deferred compensation liabilities based on relative net increases in the underlying investments.

Loss on impairment of assets :

In the second quarter of 2020, the Company recognized $1.2 million charge related to a prospective self-development project the Company was no longer pursuing.

Interest Expense:

The Company recorded interest expense of $23.5 million for the six months ended June 30, 2021, a decrease of $1.0 million from the six months ended June 30, 2020.

The decrease in interest expense is a result of lower effective interest rates on outstanding borrowings in the comparative periods.

Interest Income:

The Company recorded interest income of $2.5 million for the six months ended June 30, 2021, a decrease of $2.0 million from the six months ended June 30, 2020.

The decrease in interest income is primarily a result of an increase in loans on non-accrual of interest status.

Loss on Extinguishment of Debt:

During the first quarter of 2020, the Company recorded a loss on the extinguishment of debt of $0.6 million related to the early pay off of a construction loan in the amount of $33.1 million, inclusive of accrued and unpaid interest.

Other (Gains) Losses :

The Company recorded other net gains of $3.3 million for the six months ended June 30, 2021, compared to other net losses of $1.2 million for the six months ended June 30, 2020.

The gains relate to increases in the Company's deferred compensation assets based on increases in the underlying investments.

Equity in Net (Gain) Loss of Affiliates :

The Company recorded net losses of $4.8 million from its unconsolidated joint ventures for the six months ended June 30, 2021 compared to net losses of $5.4 million for the six months ended June 30, 2020.

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

We anticipate the results recognized from these investments will continue to be impacted by the COVID-19 pandemic for the remainder of 2021.

Income Tax Expense (Benefit):

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 23.0% and (92.3)% for the six months ended June 30, 2021 and 2020, respectively.

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, 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.

On March 27, 2020, the CARES Act was signed into law.

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" ("CARES") Act was signed into law.

The CARES Act provided opportunities to support companies affected by the COVID-19 pandemic and contained numerous income tax provisions.

The provisions in the CARES Act do not have any significant impact to the Company's consolidated financial statements.

The provisions in the CARES Act do not have any significant impact to our consolidated financial statements.

Liquidity and Capital Resources

In response to the COVID-19 pandemic, we have taken steps to adjust the Company’s cost structure and increase its financial flexibility and liquidity.

At March 31, 2021, the Company had approximately $823.0 million in cash and available borrowing capacity through its senior unsecured revolving credit facility.

At June 30, 2021, the Company had approximately $908.0 million in cash and available borrowing capacity through its senior unsecured revolving credit facility.

As of March 31, 2021, we were in compliance with the financial covenants of our credit agreements and expect to remain in such compliance.

As of June 30, 2021, we were in compliance with the financial covenants of our credit agreements and expect to remain in such compliance.

In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we determined to suspend future, undeclared dividends and temporarily suspended activity under the Company's share repurchase program.

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Operating Activities

During the three months ended March 31, 2021 and 2020, net cash provided by operating activities totaled $0.1 million and $5.8 million, respectively.

Operating cash flows decreased $5.7 million primarily due to a decrease in operating income, excluding certain non-cash charges, and timing of working capital items.

During the six months ended June 30, 2021 and 2020, net cash provided by operating activities totaled $102.4 million and $1.5 million, respectively.

Operating cash flows increased $100.9 million primarily due to an increase in operating income, excluding certain non-cash charges, and timing of working capital items.

In conjunction with brand and development programs, we make certain payments to franchisees as an incentive to enter into new franchise agreements or perform designated improvements to properties under existing franchise agreements ("franchise agreement acquisition costs").

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If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards, the franchisee must repay the unamortized incentive payment plus interest.

During the three months ended March 31, 2021 and 2020, the Company's net advances for these purposes totaled $6.8 million and $7.1 million, respectively.

During the six months ended June 30, 2021 and 2020, the Company's net advances for these purposes totaled $18.1 million and $12.6 million, respectively.

The timing and amount of these cash flows are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands.

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.

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

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Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to recover such advances in future periods through additional fee assessments or reduced spending.

During the three months ended March 31, 2021, and 2020, marketing and reservation system expenses exceeded revenues by $6.7 million and $20.0 million, respectively.

During the six months ended June 30, 2021, marketing and reservation system revenues exceeded expenses by $16.0 million.

During the six months ended June 30, 2020, marketing and reservation system expenses exceeded revenues by $29.7 million.

Investing Activities

Cash utilized for investing activities totaled $9.7 million and $14.8 million for the three months ended March 31, 2021 and 2020, respectively.

The decrease in cash utilized for investing activities for the three months ended March 31, 2021 primarily reflects the following items:

During the three months ended March 31, 2021 and 2020, capital expenditures in property and equipment totaled $9.4 million and $6.2 million, respectively.

Cash utilized for investing activities totaled $33.0 million and $29.5 million for the six months ended June 30, 2021 and 2020, respectively.

The increase in cash utilized for investing activities for the six months ended June 30, 2021 primarily reflects the following items:

During the six months ended June 30, 2021 and 2020, capital expenditures in property and equipment totaled $23.4 million and $21.1 million, respectively.

The increase in capital expenditures primarily reflects costs incurred to support the continued growth of the Cambria Hotels brand.

During the three months ended March 31, 2021 and 2020, the Company invested $1.0 million and $2.2 million, respectively, in joint ventures accounted for under the equity method of accounting.

In addition, the Company received distributions from these joint ventures totaling $0.2 million for the three months ended March 31, 2020, and no distributions for the three months ended March 31, 2021.

During the second quarter of 2021, the Company realized proceeds of $11.8 million from the sale of membership interests on three separate variable interest entity ("VIE") previously accounted for under the equity method of accounting.

During the six months ended June 30, 2021 and 2020, the Company invested $1.1 million and $3.0 million, respectively, in joint ventures accounted for under the equity method of accounting.

In addition, the Company received distributions from these joint ventures totaling $3.1 million for the six months ended June 30, 2020, and no distributions for the six months ended June 30, 2021.

The Company's investment in these joint ventures primarily relates to ventures that support the Company's efforts to promote the growth of our Cambria Hotels brand.

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These loans bear interest and are expected to be repaid in accordance with the terms of the loan arrangements.

During the three months ended March 31, 2021, the Company advanced no amounts and received repayments totaling $0.1 million for these purposes.

For the three months ended March 31, 2020, the Company advanced and received repayments totaling $5.8 million and $0.1 million for these purposes, respectively.

At March 31, 2021, the Company had commitments to extend an additional $1.0 million for these purposes provided certain conditions are met by its franchisees.

During the six months ended June 30, 2021, the Company advanced no amounts and received repayments totaling $0.1 million for these purposes, and acquired a senior note with collateral in an underlying operating hotel for $17.9 million.

For the six months ended June 30, 2020, the Company advanced and received repayments totaling $7.7 million and $0.1 million for these purposes, respectively.

At June 30, 2021, the Company had commitments to extend an additional $7.7 million for these purposes provided certain conditions are met by its franchisees.

From time to time, our board of directors authorizes specific transactions and general programs which permit us to provide financing, investment and guaranties, and similar credit support to qualified franchisees, as well as to acquire, develop, and resell real estate and hotels to incent franchise development.

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Our support of the Cambria Hotels brand’s growth is expected to be primarily in the form of franchise agreement acquisition costs, joint venture investments, hotel ownership and development, senior mortgage loans, development loans, mezzanine lending, and through the operation of a land-banking program.

With respect to our lending, hotel ownership

and joint venture investments, we generally expect to recycle these loans and investments within a five year period.

At March 31, 2021, the Company had approximately $537.5 million outstanding pursuant to these financial support activities.

With respect to our lending, hotel ownership and joint venture investments, we generally expect to recycle these loans and investments within a five year period.

At June 30, 2021, the Company had approximately $541.7 million outstanding pursuant to these financial support activities.

Financing Activities

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There are no subsidiary guarantors under the Restated Credit Agreement.

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").

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.

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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 March 31, 2021, the Company maintained a total leverage ratio of 3.94x and was in compliance with all financial covenants under the Restated Credit Agreement.

The senior unsecured revolving credit facility was paid down in full during the third quarter of 2020 and remains undrawn upon as of December 31, 2020 and March 31, 2021.

At June 30, 2021, the Company maintained a total leverage ratio of 3.08x and was in compliance with all financial covenants under the Restated Credit Agreement.

The senior unsecured revolving credit facility was paid down in full during the third quarter of 2020 and remains undrawn as of December 31, 2020 and June 30, 2021.

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.

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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.

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

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In accordance with these agreements, the governmental entities agreed to advance approximately $4.4 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions.

At March 31, 2021, the Company had been fully advanced the amounts due pursuant to these agreements.

At June 30, 2021, the Company had been fully advanced the amounts due pursuant to these agreements.

These advances bear interest at a rate of 3% per annum.

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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 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 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.

At March 31, 2021, the Company was in active discussions with the lending governmental entities to amend the agreements to modify the Company’s employment level requirements for 2020 and future years based on the impact of the COVID-19 pandemic and to waive prior and existing items of non-compliance associated with the employment level requirements.

The Company commenced paying quarterly dividends in 2004.

In 2012, the Company elected to pay a special cash dividend totaling approximately $600 million.

During the three months ended March 31, 2021, the Company paid no cash dividends.

The most recent dividend declaration from the Company's board of directors was on February 28, 2020 in the amount of $0.225 per share and paid on April 16, 2020.

At June 30, 2021, the Company was in active discussions with the lending governmental entities to amend the agreements to modify the Company’s employment level requirements for 2020 and future years based on the impact of the COVID-19 pandemic and to waive prior and existing items of non-compliance associated with the employment level requirements.

In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we determined to suspend future, undeclared dividends.

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

The most recent dividend declaration from the Company's board of directors was on May 7, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock (total $12.5 million) to be paid in July 2021.

During the six months ended June 30, 2021, the Company paid no cash dividends.

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.

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In 1998, we instituted a share repurchase program which has generated substantial value for our shareholders.

During the three months ended March 31, 2021, the Company repurchased no shares of its common stock under the share repurchase program.

Through March 31, 2021, 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 program at a total cost of $1.5 billion.

Considering the effect of the two-for-one stock split, the Company has repurchased 84.6 million shares at an average price of $17.55 per share.

As of March 31, 2021, the Company had 3.4 million shares remaining under the current share repurchase authorization.

However, in April 2020 in light of uncertainty resulting from the COVID-19 pandemic, we temporarily suspended activity under our share repurchase program.

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

On May 7, 2021, the Company's board of directors approved resumption of the share repurchase program.

During the 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.

During the six months ended June 30, 2021, the Company repurchased 1,582 shares of its common stock under the share repurchase program at a total cost of $0.1 million.

Through June 30, 2021, 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 program at a total cost of $1.5 billion.

Considering the effect of the two-for-one stock split, the Company has repurchased 84.6 million shares at an average price of $17.56 per share.

As of June 30, 2021, the Company had 3.4 million shares remaining under the current share repurchase authorization.

During the six months ended June 30, 2021, the Company redeemed 47,655 shares of common stock at a total cost of $5.4 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.

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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 our guaranty.

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the timing and amount of future dividends and share repurchases;

changes to general, domestic and foreign economic conditions, including access to liquidity and capital as a result of COVID-19;

changes to general, domestic and

foreign economic conditions, including access to liquidity and capital as a result of COVID-19;

future domestic or global outbreaks of epidemics, pandemics or contagious diseases or fear of such outbreaks;

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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 2. Management’s Discussion and Analysis