What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 180 added, 128 removed, 487 unchanged (39% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

22 unchanged sentences

Total other income and expenses, net 7,517 26,606 29,975 53,755

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

Income before income taxes 151,589 24,094 292,153 51,615

Income tax expense (benefit) 34,934 9,594 67,279 ( 15,907 )

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

Net income $ 116,655 $ 14,500 $ 224,874 $ 67,522

Basic earnings per share $ 2.10 $ 0.26 $ 4.05 $ 1.22

Diluted earnings per share $ 2.08 $ 0.26 $ 4.01 $ 1.21

Cash dividends declared per share $ 0.225 $ — $ 0.450 $ 0.225

4 unchanged sentences

(IN THOUSANDS)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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

Net income $ 116,655 $ 14,500 $ 224,874 $ 67,522

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Other comprehensive income (loss), net of tax ( 57 ) 240 66 ( 237 )

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

Comprehensive income $ 116,598 $ 14,740 $ 224,940 $ 67,285

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

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Current assets

Cash and cash equivalents $ 415,116 $ 234,779

Receivables (net of allowance for credit losses of $ 57,726 and $ 59,424 , respectively)

Accounts receivable (net of allowance for credit losses of $ 48,275 and $ 59,424 , respectively)

197,999 149,921

2 unchanged sentences

71,334 24,048

Other current assets 27,294 19,980

Prepaid expenses and other current assets 26,520 19,980

Total current assets 710,969 432,914

Property and equipment, at cost, net 342,121 334,901

Property and equipment, at cost (net of accumulated depreciation and amortization of $ 248,693 and $ 223,421 , respectively)

351,768 334,901

Operating lease right-of-use assets 10,655 17,688

Goodwill 159,196 159,196

Intangible assets, net 307,559 303,725

Intangible assets (net of accumulated amortization of $ 175,548 and $ 163,128 , respectively)

306,008 303,725

Notes receivable (net of allowance for credit losses of $ 12,611 and $ 15,305 , respectively)

10 unchanged sentences

Deferred revenue 80,607 50,290

Current portion of long-term debt 216,217 —

Liability for guest loyalty program 76,541 43,308

11 unchanged sentences

160,000,000 shares authorized;

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

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

55,630,704 and 55,535,554 shares outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in-capital 253,361 233,921

1 unchanged sentence

Treasury stock, at cost;

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

39,434,934 and 39,530,084 shares at September 30, 2021 and December 31, 2020, respectively

( 1,261,926 ) ( 1,260,478 )

7 unchanged sentences

(IN THOUSANDS)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

4 unchanged sentences

Franchise agreement acquisition cost amortization 9,734 8,343

Loss on asset disposition and impairments — 1,226

Loss on debt extinguishment — 607

Loss on impairment of assets — 5,516

Loss on extinguishment of debt — 16,565

Non-cash stock compensation and other charges 24,277 4,748

Non-cash interest and other investment (income) loss ( 6,824 ) 1,097

Non-cash interest and other investment income ( 11,039 ) ( 465 )

Deferred income taxes ( 34,285 ) ( 31,411 )

6 unchanged sentences

Investment in intangible assets ( 3,113 ) ( 1,212 )

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

Contributions to equity method investments ( 2,150 ) ( 4,620 )

Distributions from equity method investments — 3,113

Proceeds from sale of equity method investments 11,830 —

Distributions and sale proceeds from equity method investments 15,554 3,362

Purchases of investments, employee benefit plans ( 1,279 ) ( 2,254 )

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of Term Loan — 249,500

Proceeds from issuance of 2020 Senior Notes — 447,723

Net borrowings pursuant to revolving credit facilities — ( 18,200 )

Net borrowings pursuant to term loan — 249,500

Principal payments on long-term debt — ( 466,915 )

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

Debt issuance costs ( 365 ) ( 4,620 )

2 unchanged sentences

Proceeds from exercise of stock options 10,817 6,615

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

Net cash (used in) provided by financing activities ( 12,115 ) 119,324

Net change in cash and cash equivalents 180,560 158,468

40 unchanged sentences

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

Net income — — — — — 14,500 14,500

Other comprehensive income (loss) — — — 240 — — 240

Share based payment activity (2)

101,857 — 4,802 — 2,424 3 7,229

Dividends declared (2)

— — — — — — —

Treasury purchases ( 7,504 ) — — — ( 621 ) — ( 621 )

Balance as of September 30, 2020 55,458,248 951 228,521 ( 4,787 ) ( 1,262,724 ) 1,016,635 ( 21,404 )

Outstanding Common

22 unchanged sentences

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

Net income — — — — — 116,655 116,655

Other comprehensive income (loss) — — — ( 57 ) — — ( 57 )

Share based payment activity (2)

23,757 — 6,757 — 1,045 6 7,808

Dividends declared ($ 0.225 per share) (2)

— — — — — ( 12,517 ) ( 12,517 )

Treasury purchases ( 40,046 ) — — — ( 4,676 ) — ( 4,676 )

Balance as of September 30, 2021 55,630,704 951 253,361 ( 4,580 ) ( 1,261,926 ) 1,224,340 212,146

(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.

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During 2020 and 2021, accumulated dividends were paid to certain shareholders upon vesting of certain performance vested restricted stock units ("PVRSU") which are captured in Share-based payment activity.

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

On May 7, 2021 and September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

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 June 30, 2021 are as follows:

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

(in thousands)

2 unchanged sentences

Revenue recognized in the period ( 58,264 )

Balance as of June 30, 2021 $ 161,706

Balance as of September 30, 2021 $ 174,899

Remaining Performance Obligations

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

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 174.9 million as of September 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

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

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

8 unchanged sentences

Total revenues $ 323,369 $ 210,771

Six Months Ended Six Months Ended

June 30, 2021 June 30, 2020

Nine Months Ended Nine Months Ended

September 30, 2021 September 30, 2020

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

9 unchanged sentences

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

As presented in Note 11, the Corporate & Other segment amounts represent $ 10.9 million and $ 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.

As presented in Note 11, the Corporate & Other segment amounts represent $ 13.5 million and $ 6.4 million for the three months ended September 30, 2021 and 2020, respectively, and $ 30.5 million and $ 21.8 million for the nine months ended September 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 $ 0.7 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

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $ 0.9 million and $ 0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 1.9 million and $ 1.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Receivables and Allowance for Credit Losses

Notes Receivable

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

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

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

The Company's credit quality indicator is the level of security in the note receivable.

The composition of notes receivable balances by credit quality indicator and the allowance for credit losses is as follows:

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

Senior $ 123,526 $ 104,716

6 unchanged sentences

Long-term portion, net of allowance $ 67,755 $ 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.

During the second quarter of 2021, the Company acquired a senior note collateralized by an 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:

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

(in thousands) 2021 2020 2019 Prior Total

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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) June 30, 2021 December 31, 2020

(in thousands) September 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 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 provisions recorded in the nine months ended September 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 September 30, 2021 and December 31, 2020, respectively.

As of September 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.

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

The Company reviewed the borrower's financial statements, economic trends, industry projections for the market, and comparable sales capitalization rates, which represent significant inputs to the cash flow projections.

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

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 June 30, 2021.

In September 2021, the Company reached a settlement with a borrower holding a loan classified as collateral-dependent, collateralized by an operating hotel.

The key terms of the settlement resulted in a deed in lieu of foreclosure on the operating hotel in exchange for releasing obligations pursuant to the senior and mezzanine loans and the associated franchise agreement.

The property was exchanged in full settlement of the senior and mezzanine loans and will be recorded at fair value as of the acquisition date of October 1, 2021.

The Company will account for the acquisition of the hotel as an asset acquisition in the fourth quarter of 2021.

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

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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 $ 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.

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

The Company has identified loans totaling approximately $ 13.1 million as of both September 30, 2021 and December 31, 2020, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.4 million and $ 0.8 million as of September 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.

6 unchanged sentences

Notes Receivable

As of June 30, 2021

As of September 30, 2021

Senior $ — $ — $ 17,917 $ 17,917 $ 105,609 $ 123,526

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 June 30, 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 September 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 $ 138.1 million and $ 119.3 million as of June 30, 2021 and December 31, 2020, respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 138.5 million and $ 119.3 million as of September 30, 2021 and December 31, 2020, respectively.

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

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

Accounts Receivable

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

During the nine months ended September 30, 2020, the Company recorded provisions for credit losses on accounts receivable of $ 10.4 million in SG&A expenses and $ 18.0 million in marketing and reservation system expenses, in consideration of the economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected credit losses.

During nine months ended September 30, 2021, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 2.2 million in SG&A expenses and $ 4.2 million in marketing and reservation system expenses, after considering improved collection patterns and economic and credit conditions.

Investments in Unconsolidated Entities

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

The Company has equity method investments in joint ventures that represent VIEs totaling $ 41.1 million and $ 56.9 million on the consolidated balance sheets at June 30, 2021 and December 31, 2020, respectively.

The Company has equity method investments in joint ventures that represent VIEs totaling $ 40.5 million and $ 56.9 million on the consolidated balance sheets at September 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.

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

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.

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 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.

For the three months ended September 30, 2021 and 2020, the Company recognized (gains) losses totaling $( 2.5 ) million and $ 2.3 million, respectively, from these investments that represent VIEs.

For the nine months ended September 30, 2021 and 2020, the Company recognized losses totaling $ 3.0 million and $ 6.9 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.

During the first quarter of 2021, the Company recognized an impairment charge of $ 4.8 million related to an equity method investment.

During the first quarter of 2021, the Company recognized an other-than-temporary impairment of $ 4.8 million related to an equity method investment.

The Company assessed the estimated fair value of the investment from comparable market transactions of the investment.

Based on this analysis, the Company determined that the fair market value declined below the carrying value and the decline is other-than-temporary.

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

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.

As a result, the Company recorded an other-than-temporary impairment from the carrying value to the estimated fair value for the investment.

The other-than-temporary impairment 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.

During the third quarter of 2021, a joint venture for which the Company maintains an ownership interest sold its underlying assets.

The Company received a distribution and recognized a gain of $ 4.3 million, which is recorded in equity in net (gain) loss of affiliates.

Debt consists of the following:

June 30, 2021 December 31, 2020

September 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 $ 5.8 million and $ 6.1 million at June 30, 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 $ 5.7 million and $ 6.1 million at September 30, 2021 and December 31, 2020, respectively

$ 444,318 $ 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 $ 5.1 million and $ 5.4 million at June 30, 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 $ 4.9 million and $ 5.4 million at September 30, 2021 and December 31, 2020, respectively

395,086 394,635

$ 400 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.5 million and $ 0.7 million at June 30, 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 $ 0.4 million and $ 0.7 million at September 30, 2021 and December 31, 2020, respectively

216,217 215,827

$ 600 million senior unsecured revolving credit facility (1)

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

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

Total debt $ 1,060,037 $ 1,058,738

Less current portion 216,217 —

Long-term debt $ 843,820 $ 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 as of June 30, 2021 and December 31, 2020.

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.

As there are no outstanding borrowings at September 30, 2021 or December 31, 2020, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.4 million and $ 2.4 million, respectively, are presented in non-current Other assets in the consolidated balance sheets.

In August 2021, the Company executed a one-year extension on the senior unsecured revolving credit facility for $ 540 million of the $ 600 million total capacity in exchange for fees of $ 0.4 million.

The extended maturity date is August 20, 2026.

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 six months ended June 30, 2021 and 2020 are as follows:

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

(in thousands)

2 unchanged sentences

Net current period other comprehensive income (loss) 66

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

Balance as of September 30, 2021 $ ( 4,580 )

(in thousands)

2 unchanged sentences

Net current period other comprehensive income (loss) ( 237 )

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.

Balance as of September 30, 2020 $ ( 4,787 )

The other comprehensive income (loss) before reclassification for both the nine months ended September 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 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:

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 nine months ended September 30, 2021.

As of September 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 June 30, 2021

As of September 30, 2021

Mutual funds (1)

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

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

At 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.

The fair values of the Company's senior unsecured notes are classified as Level 2, as the significant inputs are observable in an active market.

Refer to Note 5 for further information on debt.

At September 30, 2021 and December 31, 2020, the carrying amounts and fair values are as follows:

September 30, 2021 December 31, 2020

(in thousands) Carrying Amount Fair Value Carrying Amount Fair Value

2020 Senior Notes $ 444,318 $ 484,574 $ 443,860 $ 498,290

2019 Senior Notes 395,086 428,544 394,635 438,104

2012 Senior Notes 216,217 224,688 215,827 232,381

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

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

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 $ 2.7 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.

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 effective income tax rates were 23.1 % and 39.4 % for the three months ended September 30, 2021 and 2020, respectively.

The effective income tax rates were 23.0 % and ( 30.8 )% for the nine months ended September 30, 2021 and 2020, respectively.

The effective income tax rate for the three months ended September 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 $ 0.4 million of excess tax benefits from share-based compensation and $ 0.7 million of additional federal research and development ("R&D") tax credits.

The effective income tax rate for the nine months ended September 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 $ 2.4 million of excess tax benefits from share-based compensation and $ 0.7 million of additional federal R&D tax credits.

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

On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure that resulted in a $ 30.6 million tax benefit.

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

Due to a decrease in the forecasted income of international entities resulting from adverse impacts of the COVID-19 pandemic, the Company recorded a valuation allowance of $ 5.1 million in the third quarter of 2020 reflecting a change in the anticipated realizability of this deferred tax asset.

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

federal income tax rate of 21.0% primarily due to the establishment of a valuation allowance of $ 5.1 million and state income taxes, partially offset by the impact of foreign operations, a $ 1.5 million adjustment to our deferred taxes, and $ 0.7 million of excess tax benefits from share-based compensation.

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

federal income tax rate of 21.0% due to the impacts of ASU-2016 and the corresponding valuation allowance, $ 3.4 million of excess tax benefits from share-based compensation, an adjustment to our deferred taxes, and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

Share-Based Compensation and Capital Stock

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

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Performance vested restricted stock units 2,950 675 7,760 ( 4,836 )

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 six months ended June 30, 2021 are presented below:

Total share-based compensation expense $ 6,168 $ 3,378 $ 17,368 $ 2,891

Income tax expense $ 1,498 $ 805 $ 4,219 $ 689

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

Stock Options Restricted Stock Performance Vested

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Forfeited ( 1,629 ) 104.87 ( 15,401 ) 89.79 ( 3,324 ) 95.98

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.

Outstanding at September 30, 2021 917,334 $ 83.10 5.8 years 238,310 $ 91.12 415,507 $ 114.05

Options exercisable at September 30, 2021 425,571 $ 67.02 3.1 years

(1) PVRSUs outstanding have been increased by 75,476 units in the nine months ended September 30, 2021 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Stock Options

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(1) In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended 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.

On May 7, 2021 and September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock.

Restricted Stock Awards

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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.

The service period of restricted stock awards granted during the nine months ended September 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 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.

During the nine months ended September 30, 2021, the Company granted PVRSUs with market conditions, PVRSUs with performance 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 six months ended June 30, 2020, the Company reduced the leveraging factor for 239,437 unvested PVRSUs to 0 %.

During the nine months ended September 30, 2020, the Company reduced the leveraging factor for 230,647 unvested PVRSUs to 0 %.

Share Repurchases and Redemptions

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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.

During the three and nine months ended September 30, 2021, there were 34,746 and 36,328 purchases of common stock under the share repurchase program at a total cost of $ 4.0 million and $ 4.2 million, respectively.

During the three and nine months ended September 30, 2021, the Company redeemed 5,300 and 52,955 shares of common stock at a total cost of $ 0.7 million and $ 5.8 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

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The diluted earnings weighted average shares of common stock outstanding includes stock options, PVRSUs and RSUs.

Stock options are included in the calculation, unless the exercise price is lower than the Company’s average share price for the period as the inclusion would be anti-dilutive.

PVRSUs are included in the calculation if the performance condition has been met or the market condition is probable as of the reporting date.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

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

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

Net income $ 116,655 $ 14,500 $ 224,874 $ 67,522

(Income) loss allocated to participating securities ( 420 ) ( 78 ) ( 910 ) ( 378 )

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Weighted average shares of common stock outstanding – basic 55,427 55,106 55,360 55,167

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

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

Basic earnings per share $ 2.10 $ 0.26 $ 4.05 $ 1.22

Net income $ 116,655 $ 14,500 $ 224,874 $ 67,522

(Income) loss allocated to participating securities ( 420 ) ( 78 ) ( 910 ) ( 377 )

3 unchanged sentences

Weighted average shares of common stock outstanding – diluted 55,905 55,410 55,789 55,440

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

Diluted earnings per share $ 2.08 $ 0.26 $ 4.01 $ 1.21

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands) 2021 2020 2021 2020

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

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

Three Months Ended September 30, 2021 Three Months Ended September 30, 2020

(in thousands) Hotel

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Income (loss) before income taxes $ 172,338 $ ( 20,749 ) $ — $ 151,589 $ 69,208 $ ( 45,114 ) $ — $ 24,094

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

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

(in thousands) Hotel

10 unchanged sentences

Contingencies

The Company entered into various limited payment guaranties with regards to the Company’s VIEs supporting the VIE’s efforts to develop and own hotels franchised under the Company’s brands.

Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full or (d) the Company, through its affiliates, ceases to be a member of the VIE.

The Company entered into various limited payment guaranties with regards to the Company’s VIEs supporting their efforts to develop and own hotels franchised under the Company’s brands.

its affiliates, ceases to be a member of the VIE.

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

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.

As of September 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 June 30, 2021:

The Company has the following commitments outstanding at September 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 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.

At September 30, 2021, the Company had commitments to extend an additional $ 269.2 million for these purposes provided the conditions of the payment are met by its franchisees.

• To the extent existing unconsolidated joint ventures proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $ 7.5 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.

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.

At September 30, 2021, the Company has committed to provide an aggregate of approximately $ 7.7 million, upon certain conditions being met, and none of these amounts have been disbursed.

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

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

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.

For the three months ended September 30, 2021 and 2020, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.6 million and $ 0.5 million, respectively.

For both the nine months ended September 30, 2021 and 2020, fees earned and payroll costs reimbursed under this arrangement totaled $ 1.1 million and $ 0.9 million, respectively.

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

Pursuant to these franchise agreements, for the three months ended 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.

Pursuant to these franchise agreements, for the three months ended September 30, 2021 and 2020, the Company recorded royalty, marketing reservation system, and other fees of approximately $ 8.0 million and $ 3.6 million, respectively.

For the nine months ended September 30, 2021 and 2020, the Company recorded royalty, marketing reservation system, and other fees of approximately $ 15.0 million and $ 10.4 million, respectively.

The Company recorded $ 3.0 million and $ 2.4 million as a receivable due from these joint ventures as of September 30, 2021 and December 31, 2020, respectively.

Assets Held for Sale

Assets held for sale of $ 6.4 million are recorded within Prepaid expenses and other current assets on the consolidated balance sheets and relate to a commercial office building previously awarded to the Company pursuant to a court settlement.

No revision to the carrying value was recorded upon reaching held for sale classification.

As a result of the Company's long range planning process, management pursued a sale of the commercial office building.

The building was sold in November 2021 .

Subsequent Events

On October 4, 2021, an office lease with an approximate 10 -year term with an unrelated third party commenced.

The Company expects to account for this lease as an operating lease and establish a lease liability and right-of-use asset of approximately $ 34.6 million and $ 25.3 million, respectively, during the fourth quarter of 2021.

On October 12, 2021, the Company executed a purchase and sale agreement for a parcel of land recorded at $ 8.7 million within Property and equipment, at cost, net on the consolidated balance sheets.

As a result, this parcel of land is deemed to meet held for sale classification in October 2021.

Management expects to sell the parcel of land in 2022.

On October 21, 2021, the Company entered into an office lease agreement with an unrelated third-party with an approximately 11 year term.

This office lease is expected to commence in 2023.

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