What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 158 added, 147 removed, 432 unchanged (41% of the section changed)

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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.

The development of effective vaccines and the on-going distribution and vaccination efforts have been significant and positive developments and we believe have contributed to improved operating metrics since the second quarter of 2021.

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 continue 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 2020 resulting in significant

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.

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.

The third quarter 2021 domestic RevPAR experienced an increase of approximately 56.4% and 11.4% relative to third quarter 2020 and third quarter 2019, respectively.

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

Further, as of September 30, 2021, the Company had approximately $1.0 billion 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 during the second quarter of 2021 include, but are not limited to, the following:

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

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

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• 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 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.

The Company's properties are also well distributed in drive-to markets, which the Company believes will lead in the demand recovery for the industry.

The Company's properties are also well distributed in drive-to markets, which the Company believes will lead in the demand recovery and foreseeable future for the industry.

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.

Given our strong liquidity and credit profile, the Company's board of directors declared on May 7, 2021, a quarterly cash dividend of $0.225 per share of common stock and approved resumption of the share repurchase program.

Additionally, on September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock, which was paid in October 2021.

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 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.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,102 hotels open comprising 601,776 rooms and 912 hotels under construction, awaiting conversion or approved for development comprising 78,547 rooms as of September 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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Historically, the hotel industry has been seasonal in nature.

For most hotels, demand is ordinarily lower in November through February than during the remainder of the year.

For most hotels, demand is ordinarily

lower in November through February than during the remainder of the year.

Our principal source of revenues is franchise fees based on the gross room revenues or number of rooms of our franchised properties.

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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 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".

The effects of the COVID-19 pandemic on our third 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.

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.

Due to increased RevPAR growth during the second and third quarters of 2021 and our management of discretionary marketing and reservation system expenditures, we anticipate marketing and reservation revenues to exceed 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.

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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, 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.

As disclosed above, prior to the second and third quarters 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.

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Additionally, on September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock.

The Company also allocates capital to financing, investment and guaranty support to incent franchise development for certain brands in strategic markets;

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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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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.

During the nine months ended September 30, 2021, marketing and reservation system revenues exceeded expenses by $56.7 million.

During the nine months ended September 30, 2020, marketing and reservation system expenses exceeded revenues by $36.4 million.

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

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

Additionally, on September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock.

We believe the Company’s cash flow from operations and available financing capacity is sufficient to meet the expected future operating, investing and financing needs of the business.

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Calculation of Revenues, excluding marketing and reservation system activities

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

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

(in thousands) 2021 2020 2021 2020

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Operations Review

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:

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

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

(in thousands) 2021 2020

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Total other income and expenses, net 7,517 26,606

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

Income before income taxes 151,589 24,094

Income tax expense (benefit) 34,934 9,594

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

Net income $ 116,655 $ 14,500

Results of Operations

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 Company recorded income before income taxes of $151.6 million for the three-month period ended September 30, 2021, a $127.5 million increase from the same period of the prior year.

The increase in income before income taxes primarily reflects a $108.4 million increase in operating income, recognition of a $16.0 million loss on extinguishment of debt during the three-month period ended September 30, 2020, a $5.0 million increase in equity in net (gain) loss of affiliates, and a $1.1 million decrease in interest expense, partially offset by a $2.4 million decrease in other (gains) losses for the three-month period ended September 30, 2020.

Operating income increased $108.4 million primarily due to a $47.6 million increase in royalty revenues, a $47.4 million increase in the net surplus generated from marketing and reservation system activities, a $5.0 million increase in other revenues, a $3.9 million increase in owned hotels revenues in excess of expense, recognition of $4.3 million in impairment of assets during the three-month period ended September 30, 2020, and a $2.9 million increase in procurement services revenues, partially offset by a $3.3 million increase in SG&A expenses.

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 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%.

Domestic royalty fees for the three months ended September 30, 2021 increased $46.6 million to $123.0 million from $76.4 million for the three months ended September 30, 2020, an increase of 61.0%.

The increase in domestic royalties reflect a 56.4% increase in domestic RevPAR.

System-wide RevPAR increased due to a 25.6% increase in average daily rates and a 1,280 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.

The increase in domestic royalties is also due to a 1.2% increase in the number of domestic franchised hotel rooms and a 8 basis point increase in the effective royalty rate from 4.91% for the three months ended September 30, 2020 to 4.99% for the three months ended September 30, 2021.

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

Three Months Ended Three Months Ended Change

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

Rate Occupancy RevPAR Average

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Total $ 94.59 64.9 % $ 61.37 $ 75.29 52.1 % $ 39.24 25.6 % 1,280 bps 56.4 %

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

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

September 30, 2021 September 30, 2020 Variance

Hotels Rooms Hotels Rooms Hotels Rooms % %

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Total Domestic Franchises 5,942 467,473 5,934 462,139 8 5,334 0.1 % 1.2 %

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.

As of both September 30, 2021 and September 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 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.

International royalty fees for the three months ended September 30, 2021 increased $1.0 million to $4.3 million compared to the three months ended September 30, 2020 as a result of improvements in RevPAR performance, despite reductions of the international franchise system size by 32 hotels (from 1,192 as of September 30, 2020 to 1,160 as of September 30, 2021) and

13 rooms (from 134,316 as of September 30, 2020 to 134,303 as of September 30, 2021).

As of September 30, 2021 and September 30, 2020, approximately 2% 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 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.

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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 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.

During the third quarter of 2021, the Company awarded 89 domestic franchise agreements representing 7,640 rooms compared to 81 franchising agreements representing 6,573 rooms for the third quarter of 2020.

Domestic franchise agreements awarded for new construction hotels totaled 32 contracts representing 3,178 rooms during the three months ended September 30, 2021, compared to 21 contracts representing 1,805 rooms for the three months ended September 30, 2020.

Conversion hotel awarded franchise agreements totaled 57 representing 4,462 rooms for the three months ended September 30, 2021, compared to 60 agreements representing 4,768 rooms for the three months ended September 30, 2020.

The Company awarded 56 domestic relicensing contracts during the three months ended September 30, 2021, compared to 54 executed during the three months ended September 30, 2020.

The Company awarded 6 domestic renewal agreements during the three months ended September 30, 2021, compared to 5 awarded during the three months ended September 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 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.

Initial franchise and relicensing fee revenue remained unchanged at $6.1 million for both the three months ended September 30, 2020 and September 30, 2021.

At September 30, 2021, the Company had 859 franchised hotels with 71,346 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 945 hotels and 76,155 rooms at September 30, 2020.

The number of new construction franchised hotels in the Company's domestic pipeline decreased from 710 at September 30, 2020 to 652 at September 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 241 hotels at June 30, 2020 to 221 hotels at June 30, 2021.

The number of conversion franchised hotels in the Company's domestic pipeline decreased from 235 hotels at September 30, 2020 to 207 hotels at September 30, 2021.

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

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.

The Company had an additional 53 franchised hotels with 7,201 rooms under construction, awaiting conversion or approved for development in its international system as of September 30, 2021, compared to 48 hotels and 5,592 rooms at September 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 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.

Revenues increased $2.9 million from $10.1 million for the three months ended September 30, 2020 to $13.0 million for the three months ended September 30, 2021.

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

Other Revenues:

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.

Other revenues increased $5.0 million from $3.6 million for the three months ended September 30, 2020 to $8.6 million for the three months ended September 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 $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.

SG&A expenses were $35.1 million for the three months ended September 30, 2021, an increase of $3.3 million from the three months ended September 30, 2020.

SG&A expenses for the three months ended September 30, 2021 and 2020 include approximately $0.3 million and $0.4 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 September 30, 2021 increased $3.4 million to $34.8 million in the current quarter primarily due to cost increases for general corporate purposes and lifting of certain cost mitigation measures related to the COVID-19 pandemic, partially offset by a decrease in provision for credit losses in accounts receivable recorded in accordance with Topic 326 and a decrease in the Company's deferred compensation liabilities based on decreases 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 elected to no longer pursue.

In the third quarter of 2020, the Company recognized $4.3 million charge related to the long-lived assets of a commercial office-building owned by the Company.

Loss on Extinguishment of Debt:

During the third quarter of 2020, the Company recorded a loss on the extinguishment of debt of $16.0 million related to the Tender Offer and early pay off of the Term Loan.

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.

The Company recorded other net losses of $0.4 million for the three months ended September 30, 2021, compared to other net gains of $2.0 million for the three months ended September 30, 2020.

The current period losses relate to decreases in the Company's deferred compensation assets based on decreases in the underlying investments and foreign currency transaction losses.

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.

The Company recorded net gains of $3.3 million from its unconsolidated joint ventures for the three months ended September 30, 2021, compared to net losses of $1.7 million for the three months ended September 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 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.

The fluctuation is primarily attributable to the distribution from an unconsolidated joint venture which sold its underlying assets resulting in a gain of $4.3 million in the third quarter of 2021, in addition to increased losses for the three months ended September 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.

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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.

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 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 R&D tax credits.

On January 1, 2018, the Company adopted ASU 2016-16, which provides guidance on recognition of current income tax consequences for intercompany asset transfers (other than inventory) at the time of transfer.

On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure 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 excess tax benefits from share-based compensation.

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:

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2021 and 2020

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

(In thousands) 2021 2020

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Total other income and expenses, net 29,975 53,755

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

Income before income taxes 292,153 51,615

Income tax expense (benefit) 67,279 (15,907)

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

Net income $ 224,874 $ 67,522

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 Company recorded income before income taxes of $292.2 million for the nine-month period ended September 30, 2021, a $240.6 million increase from the same period of the prior year.

The increase in income before income taxes reflects a $216.8 million increase in operating income, recognition of a $16.6 million loss on extinguishment of debt during the nine-month period ended September 30, 2020, a $5.7 million increase in equity of net (gains) losses of affiliates, a $2.0 million increase in other (gains) losses, and a $2.1 million decrease in interest expense, partially offset by $2.6 million decrease in interest income.

Operating income increased $216.8 million primarily due to a $99.4 million increase in royalty revenues, a $93.1 million increase in the net surplus generated from marketing and reservation system activities, expenses, a $7.9 million increase in other revenues, a $5.3 million increase in owned hotels revenues in excess of expenses, a $4.3 million decrease in SG&A expenses, recognition of $5.5 million in impairment of assets during the nine-month period ended September 30, 2020, a $1.7 million increase in procurement services revenues, partially offset by a $1.1 million decrease in initial franchise and relicensing fees.

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.

Domestic royalty fees for the nine months ended September 30, 2021 increased $97.7 million to $288.8 million, a 51% increase compared to the nine months ended September 30, 2020.

The increase in royalties reflect a 46.0% increase in RevPAR.

System-wide RevPAR increased due to a 1,230 basis point increase in occupancy rates and a 15.1% 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.

The increase in domestic royalties is also due to a 1.2% increase in the number of domestic franchised hotel rooms and a 7 basis point increase in the effective royalty rate from 4.93% for the nine months ended September 30, 2020 to 5.00% for the nine months ended September 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

Nine Months Ended Nine Months Ended Change

September 30, 2021 September 30, 2020

Rate Occupancy RevPAR Average

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Total $ 83.70 58.2 % $ 48.71 $ 72.71 45.9 % $ 33.36 15.1 % 1,230 bps 46.0 %

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).

International royalty fees for the nine months ended September 30, 2021 increased $1.6 million to $10.9 million compared to the nine months ended September 30, 2020 as a result of increases in RevPAR performance, despite reductions of the international franchise system decreasing by 32 hotels (from 1,192 as of September 30, 2020 to 1,160 as of September 30, 2021) and 13 rooms (from 134,316 as of September 30, 2020 to 134,303 as of September 30, 2021).

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.

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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.

During the nine months ended September 30, 2021, the Company awarded 289 domestic franchise agreements representing 28,308 rooms compared to 232 franchise agreements representing 18,022 rooms for the nine months ended September 30, 2020.

Domestic franchise agreements awarded for new construction hotels totaled 88 representing 8,471 rooms during the nine months ended September 30, 2021 compared to 71 franchise agreements representing 6,102 rooms for the nine months ended September 30, 2020.

Conversion hotel awarded franchise agreements totaled 201 representing 19,837 rooms for the nine months ended September 30, 2021 compared to 161 franchise agreements representing 11,920 rooms for the nine months ended September 30, 2020.

The Company awarded 236 domestic relicensing contracts during the nine months ended September 30, 2021, compared to 164 executed during the nine months ended September 30, 2020.

The Company awarded 19 domestic renewal agreements during both the nine months ended September 30, 2021, compared to 25 executed during nine months ended September 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 $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.

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

Initial franchise and relicensing fee revenue decreased $1.1 million from $20.0 million during the nine months ended September 30, 2020 to $18.9 million during nine months ended September 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.

Revenues increased $1.7 million from $34.6 million for the nine months ended September 30, 2020 to $36.3 million for the nine months ended September 30, 2021.

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

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.

Other revenues increased $7.9 million from $12.9 million for the nine months ended September 30, 2020 to $20.8 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.

SG&A expenses were $99.8 million for the nine months ended September 30, 2021, a decrease of $4.3 million from the nine months ended September 30, 2020.

SG&A expenses for the nine months ended September 30, 2021 and 2020 include approximately $1.1 million and $1.9 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 nine months ended September 30, 2021 decreased $3.4 million to $98.8 million in the current year primarily due to a decrease in provision for credit losses in accounts and notes receivable recorded in accordance with Topic 326, partially offset by cost increases for general corporate purposes and lifting of certain cost mitigation measures related to the COVID-19 pandemic, and an increase in the Company's deferred compensation liabilities based on 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.

For the nine months ended September 30, 2020, the Company recognized a $1.2 million charge related to a prospective self-development project the Company is no longer pursuing and a $4.3 million impairment charge related to the long-lived assets of a commercial office building owned by the Company.

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 Company recorded interest expense of $35.1 million for the nine months ended September 30, 2021, a decrease of $2.1 million from the nine months ended September 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 Company recorded interest income of $3.7 million for the nine months ended September 30, 2021, a decrease of $2.6 million from the nine months ended September 30, 2020.

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

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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.

During the third quarter of 2020, the Company recorded a loss on the extinguishment of debt of $16.0 million related to the Tender Offer and early pay off of the Term Loan.

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.

The Company recorded other net gains of $2.9 million for the nine months ended September 30, 2021, compared to other net gains of $0.9 million, an increase of $2.0 million for the nine months ended September 30, 2020.

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

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.

The Company recorded net losses of $1.5 million from its unconsolidated joint ventures for the nine months ended September 30, 2021 compared to net losses of $7.2 million for the nine months ended September 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 sales of ownership interests of and

distributions from unconsolidated joint ventures resulting in gains of $2.6 million in the second quarter of 2021 and $4.3 million in the third quarter of 2021, in addition to increased losses for the three months ended September 30, 2020 of operating joint venture hotels as impacted by the COVID-19 pandemic, partially offset by an other-than-temporary impairment of an unconsolidated joint venture resulting in a loss of $4.8 million in the first quarter of 2021.

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 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 $2.7 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 our consolidated financial statements.

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 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, 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.

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% primarily due to the impacts ASU 2016-16 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.

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

At September 30, 2021, the Company had approximately $1.0 billion in cash and available borrowing capacity through its senior unsecured revolving credit facility.

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

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

Based on the current quarterly dividend rate of $0.225 per share of common stock, the company expects to pay dividends totaling approximately $25 million during 2021, subject to declaration by the Board of Directors.

Additionally, on September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock.

As a result, the company expects to pay dividends totaling approximately $25 million during 2021.

Operating Activities

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.

During the nine months ended September 30, 2021 and 2020, net cash provided by operating activities totaled $245.2 million and $69.7 million, respectively.

Operating cash flows increased $175.5 million primarily due to an increase in operating income, excluding certain non-cash charges, and timing of working capital items.

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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 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.

During the nine months ended September 30, 2021 and 2020, the Company's net advances for these purposes totaled $28.5 million and $17.0 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 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.

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 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.

During the nine months ended September 30, 2021, marketing and reservation system revenues exceeded expenses by $56.7 million.

During the nine months ended September 30, 2020, marketing and reservation system expenses exceeded revenues by $36.4 million.

Investing Activities

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 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.

Cash utilized for investing activities totaled $52.6 million and $30.5 million for the nine months ended September 30, 2021 and 2020, respectively.

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

During the nine months ended September 30, 2021 and 2020, capital expenditures in property and equipment totaled $46.1 million and $32.2 million, respectively.

The increase in capital expenditures primarily reflects costs incurred to support the continued growth of the Cambria Hotels brand, including acquisition of a land parcel in the third quarter of 2021 to develop into a Cambria hotel.

During the nine months ended September 30, 2020, the Company realized proceeds of $9.2 million from the sale of state tax credits earned from rehabilitation improvements made to a historic building converted to a Cambria Hotel.

The proceeds were applied to lower the basis of the owned hotel property and equipment.

The Company maintains equity method investments related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

During the nine months ended September 30, 2021 and 2020, the Company invested $2.2 million and $4.6 million, respectively, to support these efforts.

In addition, during the nine months ended September 30, 2021 and 2020, the Company received distributions and sales proceeds from these joint ventures totaling $3.4 million and $15.6 million, respectively.

To the extent existing unconsolidated joint ventures proceed to the hotel construction phase, the Company is committed to make additional capital contributions totaling $7.5 million to support these efforts.

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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 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.

During the nine months ended September 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 nine months ended September 30, 2020, the Company advanced and received repayments totaling $9.8 million and $5.1 million for these purposes, respectively.

At September 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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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.

At September 30, 2021, the Company had approximately $561.9 million outstanding pursuant to these financial support activities.

Financing Activities

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The extended maturity date is August 20, 2025.

On August 11, 2021, the Company executed a one-year extension on the senior unsecured 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.

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 provides that the Company may elect to have borrowings bear interest at a rate equal to (i) LIBOR plus a margin ranging from 90 to 150 basis points or (ii) a base rate plus a margin ranging from 0 to 50 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0.

On August 11, 2021, we amended the Restated Credit Agreement to provide customary language for the replacement of LIBOR with an alternative benchmark rate if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, or if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative.

The Restated Credit Agreement requires the Company to pay a fee on the total commitments, calculated on the basis of the actual daily amount of the commitments (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0).

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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 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.

At September 30, 2021, the Company maintained a total leverage ratio of 2.65x 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 September 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 June 30, 2021, the Company had been fully advanced the amounts due pursuant to these agreements.

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

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.

The Company was in compliance with all applicable current performance conditions as of September 30, 2021.

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

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.

Given our strong liquidity and credit profile, on May 7, 2021, the Company's board of directors declared, a quarterly cash dividend of $0.225 per share of common stock and approved resumption of the share repurchase program.

Additionally, on September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $0.225 per share of common stock.

The declaration of future dividends is subject to the discretion of our board of directors.

During the nine months ended September 30, 2021, the Company paid $12.5 million in 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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On May 7, 2021, the Company's board of directors approved resumption of the share repurchase program.

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.

During the nine months ended September 30, 2021, the Company repurchased 36,328 shares of its common stock under the share repurchase program at a total cost of $4.2 million.

Through September 30, 2021, the Company repurchased 51.7 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 84.7 million shares at an average price of $17.60 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.

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

During the nine months ended September 30, 2021, the Company redeemed 52,955 shares of common stock at a total cost of $5.8 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.

Off Balance Sheet Arrangements

The Company has 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.

The Company has 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.

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

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

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 our guaranty.

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These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management.

Such statements may relate to projections of the Company's revenue, expenses, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, the our ability to benefit from any rebound in travel demand, our liquidity, our ability to assist franchisees through relief or other financial measures, our ability to achieve cost savings and reduce discretionary spending and investments, and the impact of COVID-19 and economic conditions on our future operations, among other matters.

Such statements may relate to projections of the Company's revenue, expenses, Adjusted EBITDA, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, RevPAR, our ability to benefit from any rebound in travel demand, our liquidity, and the impact of COVID-19 and economic conditions on our future operations, among other matters.

We caution you not to place undue reliance on any such forward-looking statements.

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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