CHOICE HOTELS INTERNATIONAL INC /DE 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 63 Consolidated Statements of Income 65 Consolidated Statements of Comprehensive Income 66 Consolidated Balance Sheets 67 Consolidated Statements of Cash Flows 68 Consolidated Statements of Shareholders' Equity (Deficit) 70 Notes to Consolidated Financial Statements 71 62 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Choice Hotels International, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Choice Hotels International, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 63 Table of Contents Accounting for Choice Privileges Loyalty Program Description of the Matter The Company recognized $66.2 million in revenues from loyalty points redeemed, net of the cost of redemptions, and had a point liability and deferred revenue of $128.6 million and $82.7 million, respectively, as of December 31, 2021 associated with the Choice Privileges Loyalty Program (“Loyalty Program”). As discussed in Note 1 to the consolidated financial statements, loyalty points earned represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits. The liability for the Loyalty Program is developed based on an estimate of the eventual redemption rates, including the on-going impacts anticipated from the COVID-19 pandemic on future redemption behavior, and point values using various actuarial methods. The amount of the Loyalty Program fees in excess of the point liability represents deferred revenue, which is recognized to revenue as points are redeemed including an estimate of future forfeitures. Auditing the Loyalty Program results is complex due to: (1) the complexity of the models used to account for the Loyalty Program results; and (2) the complexity of estimating the future redemption rate and Loyalty Program point values. Such estimates are highly judgmental given the significant estimation uncertainty associated with expected redemption activity. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process of accounting for the Loyalty Program during the year. For example, we tested controls over management’s review of the assumptions and data inputs used in the accounting model and the actuarial methods used to estimate the ultimate redemption rate of Loyalty Program points. To test the recognition of revenues and liabilities associated with the Loyalty Program, we performed audit procedures that included, among others, testing the completeness and accuracy of the data and significant assumptions used in the model and assessing the accounting model developed by the Company to recognize the related revenue and the liabilities. For example, we tested significant inputs into the accounting model, including the Loyalty Program point value and the recognition of points earned and redeemed during the period. With the assistance of our actuarial specialists, we evaluated management’s methodologies as well as the actuarial assumptions used in estimating the Loyalty Program expected redemption rate. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2014. Tysons, Virginia February 24, 2022 64 Table of Contents CONSOLIDATED FINANCIAL STATEMENTS CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Years Ended December 31, 2021 2020 2019 REVENUES Royalty fees $ 397,218 $ 263,308 $ 388,151 Initial franchise and relicensing fees 26,342 25,906 27,489 Procurement services 50,393 45,242 61,429 Marketing and reservation system 528,843 402,568 577,426 Owned hotels 37,833 20,168 20,282 Other 28,669 16,880 40,043 Total revenues 1,069,298 774,072 1,114,820 OPERATING EXPENSES Selling, general and administrative 145,623 148,910 168,937 Depreciation and amortization 24,773 25,831 18,828 Marketing and reservation system 444,946 446,847 579,139 Owned hotels 24,754 16,066 14,448 Total operating expenses 640,096 637,654 781,352 Impairment of goodwill — — ( 3,097 ) Impairment of long-lived assets ( 282 ) ( 14,751 ) ( 7,259 ) Gain (loss) on sale of business and assets, net 13 — ( 4,574 ) Operating income 428,933 121,667 318,538 OTHER EXPENSES AND INCOME, NET Interest expense 46,680 49,028 46,807 Interest income ( 4,981 ) ( 7,688 ) ( 9,996 ) Loss on extinguishment of debt — 16,565 7,188 Other gains, net ( 5,134 ) ( 4,533 ) ( 4,966 ) Equity in net loss of affiliates 15,876 15,289 9,576 Total other expenses (income), net 52,441 68,661 48,609 Income before income taxes 376,492 53,006 269,929 Income tax expense (benefit) 87,535 ( 22,381 ) 47,051 Net income $ 288,957 $ 75,387 $ 222,878 Basic earnings per share $ 5.20 $ 1.36 $ 4.00 Diluted earnings per share $ 5.15 $ 1.35 $ 3.98 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) Years Ended December 31, 2021 2020 2019 Net income $ 288,957 $ 75,387 $ 222,878 Other comprehensive income (loss), net of tax: Amortization of loss on cash flow hedge — — 1,436 Foreign currency translation adjustment 72 ( 96 ) ( 540 ) Other comprehensive income (loss), net of tax 72 ( 96 ) 896 Comprehensive income $ 289,029 $ 75,291 $ 223,774 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) December 31, 2021 December 31, 2020 ASSETS Current assets Cash and cash equivalents $ 511,605 $ 234,779 Accounts receivables (net of allowance for credit losses of $ 34,149 and $ 59,424 , respectively) 153,147 149,921 Income taxes receivable 12,511 4,186 Notes receivable (net of allowance for credit losses of $ 4,318 and $ 4,179 , respectively) 54,453 24,048 Prepaid expenses and other current assets 29,945 19,980 Total current assets 761,661 432,914 Property and equipment, net 377,367 334,901 Operating lease right-of-use assets 34,183 17,688 Goodwill 159,196 159,196 Intangible assets, net 312,389 303,725 Notes receivable (net of allowance for credit losses of $ 12,461 and $ 15,305 , respectively) 66,451 95,785 Investments, employee benefit plans, at fair value 33,946 29,104 Investments in affiliates 27,967 57,879 Deferred income taxes 68,643 67,745 Other assets 90,021 88,396 Total assets $ 1,931,824 $ 1,587,333 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable $ 81,169 $ 83,329 Accrued expenses and other current liabilities 104,472 78,920 Deferred revenue 81,538 50,290 Liability for guest loyalty program 86,765 43,308 Current portion of long-term debt 216,351 — Total current liabilities 570,295 255,847 Long-term debt 844,123 1,058,738 Long-term deferred revenue 105,785 122,406 Deferred compensation and retirement plan obligations 38,690 33,756 Income taxes payable 20,642 23,394 Operating lease liabilities 35,492 12,739 Liability for guest loyalty program 41,785 77,071 Other liabilities 9,130 9,134 Total liabilities 1,665,942 1,593,085 Commitments and Contingencies Common stock, $ 0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at December 31, 2021 and December 31, 2020; 55,609,226 and 55,535,554 shares outstanding at December 31, 2021 and December 31, 2020, respectively 951 951 Additional paid-in-capital 259,317 233,921 Accumulated other comprehensive loss ( 4,574 ) ( 4,646 ) Treasury stock, at cost; 39,456,412 and 39,530,084 shares at December 31, 2021 and December 31, 2020, respectively ( 1,265,032 ) ( 1,260,478 ) Retained earnings 1,275,220 1,024,500 Total shareholders’ equity (deficit) 265,882 ( 5,752 ) Total liabilities and shareholders’ equity (deficit) $ 1,931,824 $ 1,587,333 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Years Ended December 31, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 288,957 $ 75,387 $ 222,878 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,773 25,831 18,828 Depreciation and amortization - marketing and reservation system 25,721 22,625 17,294 Franchise agreement acquisition cost amortization 13,222 11,310 7,992 Impairment of goodwill — — 3,097 Impairment of long-lived assets 282 14,751 7,259 Loss on sale of business, net — — 4,674 Loss on extinguishment of debt — 16,565 7,188 Loss (gain) on sale and disposal of assets, net 530 — ( 2,103 ) Non-cash stock compensation and other charges 35,731 9,690 17,615 Non-cash interest, investment, and affiliate income ( 13,509 ) ( 6,723 ) ( 4,010 ) Deferred income taxes ( 1,006 ) ( 44,826 ) 9,810 Equity in net loss of affiliates, less distributions received 23,985 15,439 12,562 Franchise agreement acquisition costs, net of reimbursements ( 38,230 ) ( 36,479 ) ( 38,944 ) Change in working capital and other, net of acquisition 23,240 6,491 ( 13,584 ) Net cash provided by operating activities 383,696 110,061 270,556 CASH FLOWS FROM INVESTING ACTIVITIES Investment in property and equipment ( 74,294 ) ( 33,603 ) ( 57,342 ) Investment in intangible assets ( 3,573 ) ( 1,359 ) ( 6,699 ) Proceeds from sales of assets 6,119 — 10,585 Asset acquisitions, net of cash acquired — — ( 168,954 ) Cash received from extinguishment of notes receivable 301 — — Proceeds from sale of tax credits for rehabilitation of historic building — 9,197 — Payment on business disposition, net — — ( 10,783 ) Contributions to investments in affiliates ( 2,778 ) ( 5,454 ) ( 27,828 ) Distributions and sales proceeds from investments in affiliates 15,554 10,798 19,178 Purchases of investments, employee benefit plans ( 1,705 ) ( 2,562 ) ( 3,175 ) Proceeds from sales of investments, employee benefit plans 2,609 2,478 2,217 Issuance of notes receivable ( 20,133 ) ( 9,845 ) ( 20,722 ) Collections of notes receivable 213 6,494 14,231 Other items, net ( 1,239 ) ( 623 ) ( 1,875 ) Net cash used in investing activities ( 78,926 ) ( 24,479 ) ( 251,167 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long term debt — — 422,376 Proceeds from issuance of Term Loan — 249,500 — Proceeds from issuance of 2020 Senior Notes — 447,723 — Net (repayments) borrowings pursuant to revolving credit facilities — ( 18,480 ) ( 72,400 ) Principal payments on long-term debt — ( 473,857 ) ( 250,497 ) Payments to extinguish long-term debt — ( 14,347 ) ( 6,312 ) Debt issuance costs ( 365 ) ( 4,620 ) ( 3,936 ) Purchases of treasury stock ( 13,365 ) ( 55,450 ) ( 50,638 ) Dividends paid ( 25,044 ) ( 25,274 ) ( 48,089 ) Payments on transfer of interest in notes receivable — — ( 24,409 ) Proceeds from exercise of stock options 11,054 10,203 21,410 Net cash (used in) provided by financing activities ( 27,720 ) 115,398 ( 12,495 ) 68 Table of Contents Net change in cash and cash equivalents 277,050 200,980 6,894 Effect of foreign exchange rate changes on cash and cash equivalents ( 224 ) 33 230 Cash and cash equivalents at beginning of period 234,779 33,766 26,642 Cash and cash equivalents at end of period $ 511,605 $ 234,779 $ 33,766 Supplemental disclosure of cash flow information: Cash payments during the year for Income taxes, net of refunds $ 106,539 $ 8,605 $ 41,859 Interest, net of capitalized interest $ 43,939 $ 45,145 $ 48,179 Non-cash investing and financing activities Dividends declared but not paid $ 13,208 $ — $ 12,535 Asset acquisition from extinguishment of note receivable $ 21,133 $ — $ — Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 3,518 $ 1,421 $ 959 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Common Stock - Shares Outstanding Common Stock - Par Value Additional Paid-in- Capital Accumulated Other Comprehensive Loss Treasury Stock Retained Earnings Total Balance as of December 31, 2018 55,679,207 $ 951 $ 213,170 $ ( 5,446 ) $ ( 1,187,625 ) $ 795,178 $ ( 183,772 ) Net income — — — — — 222,878 222,878 Other comprehensive income (loss), net of tax — — — 896 — — 896 Share-based payment activity 654,694 — 19,698 — 18,358 — 38,056 Dividends declared ($ 0.215 per share quarterly) — — — — — ( 48,609 ) ( 48,609 ) Treasury purchases ( 631,273 ) — — — ( 50,638 ) — ( 50,638 ) Other (1) — — ( 1,708 ) — — ( 614 ) ( 2,322 ) Balance as of December 31, 2019 55,702,628 $ 951 $ 231,160 $ ( 4,550 ) $ ( 1,219,905 ) $ 968,833 $ ( 23,511 ) Cumulative-effect adjustment (2) — — — — — ( 6,831 ) ( 6,831 ) Net income — — — — — 75,387 75,387 Other comprehensive income (loss), net of tax — — — ( 96 ) — — ( 96 ) Share-based payment activity (3) 506,953 — 2,761 — 14,877 ( 437 ) 17,201 Dividends declared (3) — — — — — ( 12,452 ) ( 12,452 ) Treasury purchases ( 674,027 ) — — — ( 55,450 ) — ( 55,450 ) Balance as of December 31, 2020 55,535,554 $ 951 $ 233,921 $ ( 4,646 ) $ ( 1,260,478 ) $ 1,024,500 $ ( 5,752 ) Net income — — — — — 288,957 288,957 Other comprehensive income (loss), net of tax — — — 72 — — 72 Share-based payment activity (3) 185,867 — 25,396 — 8,811 8 34,215 Dividends declared (3) — — — — — ( 38,245 ) ( 38,245 ) Treasury purchases ( 112,195 ) — — — ( 13,365 ) — ( 13,365 ) Balance as of December 31, 2021 55,609,226 $ 951 $ 259,317 $ ( 4,574 ) $ ( 1,265,032 ) $ 1,275,220 $ 265,882 (1) Impacts of i) adoption of Topic 606 related to a foreign affiliate accounted for as an equity method investment on Retained Earnings and ii) transaction resulting in an increase in ownership of a consolidated affiliate on Additional Paid-in-Capital. (2) R eflects 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. Refer to Note 4. (3) During the fourth quarter of 2019, the Company's board of directors announced a 5 % increase to the quarterly dividend rate to $ 0.225 per share from $ 0.215 per share, beginning with the dividend payable in the first quarter of 2020. On February 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock. The dividend was payable on April 16, 2020 to shareholders of record on April 2, 2020. In April 2020, subsequent to the payment of the dividend and in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends. 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 and September 9, 2021, the Company's board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock. On December 6, 2021, the Company's board of directors approved a 6 % increase in the quarterly cash dividend and declared a quarterly cash dividend of $ 0.2375 per share of common stock. The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements of Choice Hotels International, Inc. and its subsidiaries (together the "Company") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying consolidated financial statements include all adjustments that are necessary to fairly present the Company's consolidated financial statements. Certain prior year amounts in our consolidated financial statements have been reclassified in order to maintain comparability with current year presentation. Foreign currency transaction gains and losses that were previously presented in SG&A expenses are now presented within other gains in the consolidated statements of income. The reclassification had no effect on the Company’s previously reported net income. Revenue Recognition Revenues are primarily derived from franchise agreements with third-party hotel owners. The majority of the Company’s performance obligations are a series of distinct services, as described in more detail below, for which the Company receives variable consideration through franchise fees. The Company enters into franchise agreements to provide franchisees with a limited non-exclusive license to utilize the Company’s registered brand trade names and trademarks, marketing and reservation services, and other miscellaneous franchise services. These agreements typically have an initial term from 10 to 30 years, with provisions permitting franchisees or the Company to terminate the franchise agreement upon designated anniversaries of the hotel opening before the end of the initial term. An up-front initial or relicensing fee is assessed to third-party hotel owners to affiliate with our brands, which is typically paid prior to agreement execution and is non-refundable. After hotel opening, fees are typically generated based on a percentage of gross room revenues or as designated transactions and events occur (such as when a reservation is delivered to the hotel through a specified channel) and are due to the Company in the following month. The franchise agreements are comprised of multiple performance obligations, which may require significant judgment in identifying. The primary performance obligations are as follows: • License of brand intellectual property and related services (“brand intellectual property”): Grants the right to access the Company’s intellectual property associated with brand trade names, trademarks, reservation systems, property management systems and related services. • Material rights for free or discounted goods or services to hotel guests: Primarily consists of the points issued under the Company’s guest loyalty program, Choice Privileges. Brand intellectual property Fees generated from brand intellectual property are recognized to revenue over time as hotel owners pay for access to these services for the duration of the franchise agreement. Franchise fees are typically based on the sales or usage of the underlying hotel (i.e., after the completion of a hotel stay), with the exception of fixed up-front fees that usually represent an insignificant portion of the transaction price. Variable transaction price is determined for the period when the underlying gross room revenues and transactions or events which generate fees are known. Franchise fees include the following: • Royalty fees . Royalty fees are earned in exchange for a license to brand intellectual property typically based on a percentage of gross room revenues. These fees are billed and collected monthly and revenues are recognized in the same period that the underlying gross room revenues are earned by the Company’s franchisees. • Initial franchise and relicensing fees . Initial and relicensing fees are charged when (i) new hotels enter the franchise system; (ii) there is a change of ownership; or (iii) existing franchise agreements are extended. These fees are recognized as revenue ratably as services are provided over the enforceable period of the 71 Table of Contents franchise agreement. The enforceable period is the period from hotel opening to the first point the franchisee or the Company can terminate the franchise agreement without incurring a significant penalty. Deferred revenues from initial and relicensing fees will typically be recognized over a five to ten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby remaining deferred amounts will be recognized to revenue in the period of termination. • Other revenue. Other revenue is a combination of miscellaneous non-marketing and reservation system fees, inclusive of quality assurance, non-compliance and franchisee training fees, and is recognized in the period the designated transaction or event has occurred. The Company’s franchise agreements require the payment of marketing and reservation system fees. The Company is obligated to use these marketing and reservation system fees to provide marketing and reservation services such as advertising, providing a centralized reservation and property management system, providing reservation and revenue management services, and performing certain franchise services to support the operation of the overall franchise system. These services are comprised of multiple fees including the following: • Fees based on a percentage of gross room revenues are recognized in the period the gross room revenue was earned, based on the underlying hotel’s sales or usage. • Fees based on the occurrence of a designated transaction or event are recognized in the period the transaction or event occurred. • System implementation fees charged to franchisees are deferred and recognized as revenue over the enforceable period of the franchise agreement. • Marketing and reservation system activities also include revenues generated from the Company’s guest loyalty program. The revenue recognition of this program is discussed in Material rights for free or discounted goods or services to hotel guests below . Marketing and reservation system expenses are those expenses incurred to facilitate the delivery of marketing and reservation system services, including direct expenses and an allocation of costs for certain administrative activities required to carry out marketing and reservation services. Marketing and reservation system expenses are recognized as services are incurred or goods are received, and as such may not equal marketing and reservation system revenues in a specific period but are expected to equal revenues earned from franchisees over time. The Company’s franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available and recover such advances in future periods through additional fee assessments or reduced spending. Material rights for free or discounted goods or services to hotel guests Choice Privileges is the Company’s frequent guest loyalty program, which enables members to earn points based on their spending levels with the Company’s franchisees. The points, which the Company accumulates and tracks on the members’ behalf, may be redeemed for free accommodations or other benefits (e.g., gift cards to participating retailers). The Company collects from franchisees a percentage of loyalty program members’ gross room revenue from completed stays to operate the program. At such time points are redeemed for free accommodations or other benefits, the Company reimburses franchisees or third parties based on a rate derived in accordance with the franchise or vendor agreement. Loyalty points represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits. The transaction price is variable and determined in the period when the loyalty points are earned and the underlying gross room revenues are known. No loyalty program revenues are recognized at the time the loyalty points are issued. The Company is an agent in coordinating delivery of the services between the loyalty program member and franchisee or third party, and as a result, revenues are recognized net of the cost of redemptions. The estimated value of future redemptions is reflected in current and non-current Liability for guest loyalty program in our consolidated balance sheets. The liability for guest loyalty program is developed based on an estimate of the eventual redemption rates, including the on-going impacts anticipated from the COVID-19 pandemic on future redemption behavior, and point values using various actuarial methods. These significant judgments determine the required point liability attributable to outstanding points, which is relieved as redemption costs are processed. The amount of the loyalty program fees in excess of the point liability represents current and non-current Deferred revenue , which is recognized to revenue as points are redeemed including an estimate of future forfeitures (“breakage”). The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability. As of December 31, 2021, the current and non-current deferred revenue balances are $ 55.8 million and $ 26.9 million, respectively. Loyalty points are typically 72 Table of Contents redeemed within three years of issuance. Loyalty program point redemption revenues are recognized within marketing and reservation system revenue in the consolidated statements of income. The Company also earns revenues on contracts incidental to the support of operations for franchised hotels, including purchasing operations. Partnership Agreements The Company maintains various agreements with third-party partners, including the co-branding of the Choice Privileges credit card. The agreements typically provide for use of the Company’s marks, limited access to the Company’s distribution channels, and sale of Choice Privileges points, in exchange for fees primarily comprising variable consideration paid each month. Choice Privileges members can earn points through participation in the partner’s program. Partnership agreements include multiple performance obligations. The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to hotel guests. Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on market and income methods, which represent significant judgments. The amounts allocated to brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, primarily within procurement services revenue. The amounts allocated to material rights for free or discounted goods or services to hotel guests are recognized to revenue as points are redeemed including an estimate of breakage, primarily within marketing and reservation system revenue. Qualified Vendors The Company generates procurement services revenues from qualified vendors. Qualified vendor revenues are generally based on marketing services provided by the Company on behalf of and access provided to the qualified vendors to hotel owners and guests. The Company provides these services in exchange for either fixed consideration or a percentage of revenues earned by the qualified vendor pertaining to purchases by the Company’s franchisees or guests. Fixed consideration is paid in installments based on a contractual schedule, with an initial payment typically due at contract execution. Variable consideration is typically paid quarterly after sales to franchisees or guests have occurred. Qualified vendor agreements comprise a single performance obligation, which is satisfied over time based on the access afforded and services provided to the qualified vendor for the stated duration of the agreement. Fixed consideration is allocated and recognized ratably to each period over the term of the agreement. Variable consideration is determined and recognized in the period when sales to franchisees or guests from vendors are known or cash payment has been remitted. Qualified vendor revenues are recognized within procurement services revenue. Other The Company is party to other non-franchising agreements that generate revenue within Other revenue in the consolidated statements of income which are primarily SaaS arrangements for non-franchised hoteliers. SaaS agreements typically include fixed consideration for installment and other initiation fees paid at contract onset, and variable consideration for recurring subscription revenue paid monthly. SaaS agreements comprise a single performance obligation, which is satisfied over time based on the access to the software for the stated duration of the agreement. Fixed consideration is allocated and recognized ratably to each period over the term of the agreement. Variable consideration is determined at the conclusion of each period, and allocated to and recognized in the current period. Owned Hotels The Company owned six hotels at December 31, 2021 and five hotels at December 31, 2020, from which the Company derives revenues. As a hotel owner, the Company has performance obligations to provide accommodations to hotel guests and in return the Company earns a nightly fee for an agreed upon period that is generally payable at the time the hotel guest checks out of the hotel. The Company typically satisfies the performance obligations over the length of the stay and recognizes the revenue on a daily basis, as the hotel rooms are occupied and services are rendered. Other ancillary goods and services at owned hotels are purchased independently of the hotel stay at standalone selling prices and are considered separate performance obligations, which are satisfied at the point in time when the related good or service is provided to the guest. These primarily consist of food and beverage, incidentals and parking fees. 73 Table of Contents Sales Taxes The Company presents taxes collected from customers and remitted to governmental authorities on a net basis and, therefore, they are excluded from revenues in the consolidated financial statements. Notes & Accounts Receivable and Allowances for Credit Losses The Company provides financing in the form of notes receivable loans to franchisees to support the development of properties in strategic markets. The Company has developed a systematic methodology to determine its allowance for credit losses across our portfolio of notes receivable loans. The Company monitors the risk and performance of our portfolio by the level of security in collateral (i.e., senior, subordinated or unsecured), which is the Company's credit quality indicator. As each of the Company’s notes receivable loans has unique risk characteristics, the Company deploys its methodology to calculate allowances for credit losses at the individual notes receivable loan level. The Company primarily utilizes a discounted cash flow ("DCF") technique to measure the credit allowance, influenced by the key economic variables of each note receivable loan. The Company identified the key economic variables for these loans to be loan-to-cost ("LTC") or loan-to-value ("LTV") ratios and debt service coverage ratio ("DSCR"). The LTC or LTV ratio represents the loan principal relative to the project cost or value and is an indication of the ability to be re-paid principal at loan maturity. The DSCR represents property-specific net operating income as a percentage of the interest and principal payments incurred (i.e., debt service) on all debt of the borrower for the property and is an indication of the ability of the borrower to timely pay amounts due during the term of the loan. The LTC or LTV ratios and DSCR are considered during loan underwriting as indications of risk and, accordingly, we believe these factors are the most representative risk indicators for calculating the allowance for credit loss. Loans with higher LTC or LTV ratios and lower DSCR ratios generally are representative of loans with greater risk and, accordingly, have higher credit allowances as a percentage of loan principal. Conversely, loans with lower LTC or LTV ratios and higher DSCR ratios generally are representative of loans with lesser risk and, accordingly, have lower credit allowances as a percentage of loan principal. In preparing or updating a DCF model as the basis for the credit allowance, the Company develops various recovery scenarios and, based on the key economic variables and present status of the loan and underlying collateral, applies a probability-weighting to the outputs of the scenarios. Collateral-dependent financial assets are financial assets for which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty. For collateral-dependent loans, expected credit losses are based on the fair value of the collateral, less selling costs if repayment will be from the sale of the collateral. The Company calculates fair value of the collateral using a DCF technique to project cash flows or a market approach via quoted market prices. In developing cash flow projections, the Company will review the borrower's financial statements for the property, economic trends, industry projections for the market where the property is located, and comparable sales capitalization rates. Management assesses the credit quality of the notes receivable portfolio and adequacy of credit loss allowances on an at least quarterly basis and records provisions for credit losses in SG&A expenses. Significant judgment is required in this analysis. Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount. The allowance for credit losses is the Company’s best estimate of the amount of expected credit losses inherent in the accounts receivable balance. The Company determines the allowance considering historical write-off experience, review of aged receivable balances and customer payment trends, the economic environment, and other available evidence. The Company records provisions for credit losses on accounts receivable in SG&A expenses and marketing and reservation system expenses in the accompanying consolidated statements of income. When the Company determines that an account is not collectible, the account is written-off to the associated allowance for credit losses. Refer to Note 4 for further discussion of receivables and allowances for credit losses. Advertising Costs The Company expenses advertising costs as the advertising occurs. Advertising expense was $ 81.5 million, $ 88.5 million, and $ 158.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company includes advertising costs primarily in marketing and reservation system expenses in the consolidated statements of income. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. 74 Table of Contents The Company maintains cash balances in domestic banks, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation. In addition, the Company also maintains cash balances in international banks which do not provide deposit insurance. Capitalization Policies Property and equipment are generally recorded at cost and depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or their useful lives. Major renovations and replacements incurred during construction are capitalized. Costs for computer software developed for internal use are capitalized during the application development stage and amortized using the straight-line method over the estimated useful lives of the software. Software licenses pertaining to cloud computing arrangements that are capitalized are amortized using the straight-line method over the shorter of the cloud computing arrangement term or their useful lives. The Company capitalizes interest incurred during construction of property and equipment. Interest capitalized as a cost of property and equipment totaled $ 0.7 million and $ 0.1 million during the years ended December 31, 2021 and 2020, respectively. As construction in progress and software development are completed and placed in service, they are transferred to appropriate property and equipment categories and depreciation begins. Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and any related gain or loss is recognized in the consolidated statements of income. Maintenance, repairs and minor replacements are charged to expense as incurred. The Company has made certain acquisitions of hotel assets which are recorded at the fair value of consideration exchanged. Refer to Note 24. A summary of the ranges of estimated useful lives from original place in service date for depreciation and amortization purposes are as follows: Computer equipment and software 2 - 7 years Buildings and leasehold improvements 10 - 40 years Furniture, fixtures, vehicles and equipment 3 - 10 years Assets Held for Sale The Company considers assets to be held for sale when all of the following criteria are met: • Management commits to a plan to sell an asset; • It is unlikely that the disposal plan will be significantly modified or discontinued; • The asset is available for immediate sale in its present condition; • Actions required to complete the sale of the asset have been initiated; • Sale of the asset is probable and the Company expects the completed sale will occur within one year; and • The asset is actively being marketed for sale at a price that is reasonable given its current market value. Upon designation as an asset held for sale, the Company records the carrying value of each asset as a component of other current assets at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and ceases recording depreciation. Refer to Note 3. If at any time these criteria are no longer met, subject to certain exceptions, the assets previously classified as held for sale are reclassified as held and used and measured individually at the lower of (a) the carrying amount before the asset was classified as held for sale, adjusted for any depreciation or amortization expense that would have been recognized had the asset been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell. Valuation of Long-Lived Assets, Intangibles, and Goodwill The Company groups its long-lived assets, including property and equipment and definite-lived intangible assets (e.g., franchise rights, franchise agreement acquisition costs), at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company evaluates the potential impairment of its long-lived asset groups annually as of December 31 or earlier when other circumstances indicate that the Company may not be able to recover the carrying value of the asset group. When indicators of impairment are present, recoverability is assessed based on undiscounted expected cash flows. If the undiscounted expected cash flows are less than the carrying amount of the asset group, an impairment charge is measured and recorded, as applicable, for the excess of the carrying value over the fair value of the asset group. The fair value of long-lived asset groups are estimated primarily using discounted cash flow analyses representing the highest and best use by an independent market participant. Significant management judgment is involved in evaluating 75 Table of Contents indicators of impairment and developing any required projections to test for recoverability or estimate fair value. Furthermore, if management uses different projections or if different conditions occur in future periods, future-operating results could be materially impacted. The Company did not identify any indicators of impairment of long-lived assets from the Hotel Franchising reporting unit during the years ended December 31, 2021, 2020 and 2019, other than impairments on franchise sales commission assets and franchise agreement acquisition cost intangibles recorded within SG&A expenses and marketing and reservation system expenses as discussed in Note 2. During 2020, the Company recognized impairments of long-lived assets attributable to a commercial office building and a real estate parcel. During 2019, the Company recognized impairments for the full amount of long-lived assets attributable to the SaaS for vacation rentals reporting unit of $ 7.3 million. Refer to Note 6. The Company evaluates the impairment of goodwill and intangible assets with indefinite lives annually as of December 31 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the asset. In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the indefinite lived intangible asset is less than its carrying amount. If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required. If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed whereby the carrying value is compared to the fair value of the asset and an impairment charge is recognized, as applicable, for the excess of the carrying value over the fair value. The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangibles. The Company determines the fair value of its reporting units and indefinite-lived intangibles using income and market methods. Goodwill is allocated to the Company's reporting units. The Company's reporting units are determined primarily by the availability of discrete financial information relied upon by chief operating decision maker ("CODM") to assess performance and make operating segment resource allocation decisions. As of December 31, 2021, the Company's goodwill is allocated solely to the Hotel Franchising reporting unit. The Company performed the qualitative impairment analysis for the Hotel Franchising reporting unit, concluding that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. As such, a quantitative test was not required and no impairment was recorded. Historically, goodwill was partially allocated to the SaaS for vacation rentals reporting unit. The Company performed the quantitative test for the SaaS for vacation rentals reporting unit during prior periods, including the first quarter of 2019, determining that the carrying value of the reporting unit exceeded the fair value. As a result, the Company recognized a goodwill impairment of $ 3.1 million in the first quarter of 2019. The SaaS for vacation rentals reporting unit was sold during the second quarter of 2019, resulting in the derecognition of net assets of the reporting unit, including the remaining goodwill, and the recognition of a loss on sale of $ 4.7 million. Refer to Note 6. Other than the SaaS for vacation rentals reporting unit, the Company did no t record any impairment of goodwill or intangible assets with indefinite lives during the years ended December 31, 2021, 2020 and 2019. Variable Interest Entities In accordance with the guidance for the consolidation of variable interest entities ("VIE"), the Company identifies its variable interests and analyzes to determine if the entity in which the Company has a variable interest is a VIE. The Company's variable interests include equity investments, loans, and guaranties. Determination if a variable interest is a VIE includes both quantitative and qualitative consideration. For those entities determined to be VIEs, a further quantitative and qualitative analysis is performed to determine if the Company is deemed the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant. The Company would consolidate those entities in which it is determined to be the primary beneficiary. As of December 31, 2021, the Company is not the primary beneficiary of any VIE. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements. Investments in unconsolidated affiliates where the Company is not deemed to be the primary beneficiary but where the Company exercises significant influence over the operating and financial policies of the investee are accounted for using the equity method. 76 Table of Contents Valuation of Investments in Affiliates The Company evaluates an investment in an affiliate for impairment when circumstances indicate that the carrying value may not be recoverable, for example due to loan defaults, significant under performance relative to historical or projected operating performance, and significant negative industry, market or economic trends. When there is indication that a loss in value has occurred, the Company evaluates the carrying value compared to the estimated fair value of the investment. Fair value is based upon internally-developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers. If the estimated fair value is less than carrying value, management uses its judgment to determine if the decline in value is other-than-temporary. In determining this, the Company considers factors including, but not limited to, the length of time and extent of the decline, loss of values as a percentage of the cost, financial condition and near-term financial projections, the Company's intent and ability to recover the lost value, and current economic conditions. For declines in value that are deemed other-than-temporary, impairments are charged to earnings. During the years ended December 31, 2021 and 2020, the Company recognized impairment charges of $ 19.3 million and $ 7.3 million, respectively, related to multiple investments in affiliates accounted for under the equity method. The impairment charges are classified as equity in net loss of affiliates in the consolidated statements of income. The Company recognized no impairment charges during the year ended December 31, 2019. Refer to Note 8. Foreign Operations The United States dollar is the functional currency of the consolidated entities operating in the United States. The functional currency for the consolidated entities operating outside of the United States is generally the currency of the primary economic environment in which the entity primarily generates and expends cash. The Company translates the financial statements of consolidated entities whose functional currency is not the United States dollar into United States dollars. The Company translates assets and liabilities at the exchange rate in effect as of the financial statement date and translates income statement accounts using the approximate weighted average exchange rate for the period. The Company includes translation adjustments from foreign exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature as a separate component of shareholders’ equity (deficit). The Company reports foreign currency transaction gains and losses and the effect of inter-company transactions of a short-term or trading nature in SG&A expenses on the consolidated statements of income. Foreign currency transaction (gains) losses for the years ended December 31, 2021, 2020 and 2019 were $ 0.4 million, $( 0.4 ) million, and $( 0.1 ) million, respectively. Leases The Company determines if an arrangement is a lease and classification as operating or financing at lease inception. Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. At December 31, 2021 and 2020, the Company did not have any leases classified as financing. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Operating lease ROU assets are further offset by any prepaid rent, lease incentives and initial direct costs incurred. When a lease agreement does not provide an implicit rate, the Company utilizes its incremental borrowing rate based on the information available at commencement date in determining the present value of future minimum lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments include certain index-based changes in rent, certain non-lease components (such as maintenance and other services provided by the lessor), and other charges included in the lease. Variable lease payments are excluded from future minimum lease payments and expensed as incurred. The Company has made elections to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee nor account for leases with an initial term of 12 months or less on the balance sheet. These short-term leases are expensed on a straight-line basis over the lease term. The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases ("Topic 842") on January 1, 2019, using the optional transitional method to apply Topic 842 at the effective date rather than at the beginning of the earliest comparative period. Topic 842 did not have an impact on the Company's consolidated statements of income. Refer to Note 19. Derivatives The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in interest rates. All outstanding derivative financial instruments are recognized at their fair values as assets or liabilities. The impact on earnings from recognizing the fair values of these instruments depends on their intended 77 Table of Contents use, their hedge designation and their effectiveness in offsetting changes in the fair values of the exposures they are hedging. The Company does not use derivatives for trading purposes. The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments are recorded as a component of accumulated other comprehensive loss and the ineffective portion is reported currently in earnings. The amounts included in accumulated other comprehensive loss are reclassified into earnings in the same period during which the hedged item affects earnings. Amounts reported in earnings are classified consistent with the item being hedged. The Company formally documents all relationships between its hedging instruments and hedged items at inception, including its risk management objective and strategy for establishing various hedge relationships. Cash flows from hedging instruments are classified in the consolidated statements of cash flows consistent with the items being hedged. Hedge accounting is discontinued prospectively when (i) the derivative instrument is no longer effective in offsetting changes in fair value or cash flows of the underlying hedged item, (ii) the derivative instrument expires, is sold, terminated or exercised, or (iii) designating the derivative instrument as a hedge is no longer appropriate. The effectiveness of derivative instruments is assessed at inception and on an ongoing basis. At December 31, 2021 and 2020, there were no outstanding derivative positions. Recently Adopted & Issued Accounting Standards In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance in Accounting Standards Codification ("ASC") 740, Income Taxes . The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have material impacts on our consolidated financial statements and disclosures. 2. Revenue Contract Liabilities Contract liabilities relate to (i) advance consideration received, such as initial franchise and relicensing fees paid when a franchise agreement is executed and system implementation fees paid at time of installation, for services considered to be part of the brand intellectual property performance obligation and (ii) amounts received when Choice Privileges points are issued but for which revenue is not yet recognized since the related points have not been redeemed. Significant changes in the contract liabilities balances during 2021 are as follows: (in thousands) Balance as of December 31, 2020 $ 156,227 Increases to the contract liability balance due to cash received 102,213 Revenue recognized in the period ( 83,015 ) Balance as of December 31, 2021 $ 175,425 Remaining Performance Obligations The aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 175.4 million as of December 31, 2021. This amount represents fixed transaction price that will be recognized as revenue in future periods, which is primarily captured in the balance sheet within current and non-current deferred revenue. Based on practical expedient elections permitted by ASU 2014-09, Revenue From Contracts with Customers (Topic 606) and subsequent amendments ("Topic 606"), the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less. Capitalized Franchise Agreement Costs Sales commissions earned by Company personnel upon execution of a franchise agreement (“franchise sales commissions”) meet the requirement to be capitalized as an incremental cost of obtaining a contract with a customer. Capitalized franchise sales commission are amortized on a straight-line basis over the estimated benefit period of the arrangement, unless the franchise agreement is terminated and the hotel exits the system whereby remaining capitalized amounts will be expensed in the period of termination. The estimated benefit period is the Company's estimate of the duration a hotel will remain in the Choice 78 Table of Contents system. Capitalized franchise sales commissions are $ 55.5 million and $ 54.3 million within Other assets as of December 31, 2021 and 2020, respectively. Amortization expense and impairment charges for the years ended December 31, 2021, 2020 and 2019 were $ 11.9 million, $ 9.7 million and $ 10.0 million, respectively, and are recorded within SG&A expenses. The Company makes certain payments to customers as an incentive to enter into new franchise agreements (“franchise agreement acquisition cost”). These payments are recognized as an adjustment to transaction price and capitalized as an intangible asset. Franchise agreement acquisition cost intangibles are amortized on a straight-line basis over the estimated benefit period of the arrangement as an offset to royalty fees and marketing and reservation system fees. Impairments from adverse franchise agreement activity, including terminations and significant delinquencies in construction or invoice payments, for the years ended December 31, 2021, 2020 and 2019 were $ 11.1 million, $ 2.0 million and $ 1.0 million, respectively, and are recorded within SG&A expenses and marketing and reservation system expenses. Disaggregation of Revenue The following table presents our revenues by over time and point in time recognition: Year Ended December 31, 2021 (in thousands) Over time Point in time Total Royalty fees $ 397,218 $ — $ 397,218 Initial franchise and relicensing fees 26,342 — 26,342 Procurement services 47,878 2,515 50,393 Marketing and reservation system 465,184 63,659 528,843 Owned hotels 31,747 5,642 37,389 Other 28,669 — 28,669 Topic 606 revenues $ 997,038 $ 71,816 1,068,854 Non-Topic 606 revenues 444 Total revenues $ 1,069,298 Year Ended December 31, 2020 (in thousands) Over time Point in time Total Royalty fees $ 263,308 $ — $ 263,308 Initial franchise and relicensing fees 25,906 — 25,906 Procurement services 42,919 2,323 45,242 Marketing and reservation system 325,785 76,783 402,568 Owned hotels 16,824 2,912 19,736 Other 15,838 — 15,838 Topic 606 revenues $ 690,580 $ 82,018 772,598 Non-Topic 606 revenues 1,474 Total revenues $ 774,072 Year Ended December 31, 2019 (in thousands) Over time Point in time Total Royalty fees $ 388,151 $ — $ 388,151 Initial franchise and relicensing fees 27,489 — 27,489 Procurement services 58,248 3,181 61,429 Marketing and reservation system 499,368 78,058 577,426 Owned hotels 17,345 2,821 20,166 Other 38,860 141 39,001 Topic 606 revenues $ 1,029,461 $ 84,201 1,113,662 Non-Topic 606 revenues 1,158 Total revenues $ 1,114,820 Marketing and reservation system and Procurement services point in time revenues represent loyalty points redeemed by members for benefits (with both franchisees and third-party partners), net of the cost of redemptions. For the years ended 79 Table of Contents December 31, 2021, 2020 and 2019, these net revenues, inclusive of adjustments to estimated redemption rates, were $ 66.2 million, $ 79.1 million, and $ 81.2 million, respectively. Non-Topic 606 revenues represent revenue from leasing and are presented in Owned hotels and Other revenues in the consolidated statements of income. As presented in Note 20, the Corporate & Other segment amounts represent $ 45.7 million, $ 28.3 million, and $ 30.7 million for the years ended December 31, 2021, 2020 and 2019, 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 $ 2.9 million, $ 1.5 million, and $ 1.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. 3 . Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: December 31, (in thousands) 2021 2020 Prepaid expenses $ 15,610 $ 16,164 Other current assets 5,870 3,816 Land held for sale 8,465 — Total prepaid expenses and other current assets $ 29,945 $ 19,980 Land held for sale represents a parcel of land previously acquired to support the Company's program to stimulate development of certain brands. In October 2021, the Company committed to a plan to market the land for sale and executed a purchase and sale agreement. As a result, the land is deemed to meet held for sale classification during the fourth quarter of 2021, and the Company recognized a $ 0.3 million charge, reflected within Impairment of long-lived assets on the consolidated statements of income, for the carrying value in excess of fair value less costs to sell. The agreed upon transaction price in the purchase and sale agreement was determined to approximate fair value under a market valuation approach. The impairment of the land is included in the Corporate & Other segment in Note 20. The land was subsequently sold on January 18, 2022. 80 Table of Contents 4. Receivables and Allowance for Credit Losses Notes Receivable The composition of notes receivable balances based on the level of security credit quality indicator and the allowances for credit losses is as follows: December 31, (in thousands) 2021 2020 Senior $ 108,370 $ 104,716 Subordinated 27,801 33,234 Unsecured 1,512 1,367 Total notes receivable 137,683 139,317 Total allowance for notes receivable credit losses 16,779 19,484 Total notes receivable, net of allowance $ 120,904 $ 119,833 Current portion, net of allowance $ 54,453 $ 24,048 Long-term portion, net of allowance $ 66,451 $ 95,785 Amortized cost basis by year of origination and level of security credit quality indicator are as follows: (in thousands) 2021 2020 2019 Prior Total Senior $ 2,166 $ — $ 29,004 $ 77,200 $ 108,370 Subordinated — — 2,826 24,975 27,801 Unsecured — — — 1,512 1,512 Total notes receivable $ 2,166 $ — $ 31,830 $ 103,687 $ 137,683 The adoption of Topic 326 required a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance was effective. As of the adoption date of January 1, 2020, the Company established an incremental credit allowance on its notes receivable loans of $ 8.3 million. The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses, including the impacts of adopting Topic 326: December 31, (in thousands) 2021 2020 2019 Beginning balance $ 19,484 $ 4,556 $ 4,685 Reserves established from adoption of Topic 326 — 8,348 — Provisions for credit losses 709 7,634 — Write-offs ( 3,414 ) ( 1,054 ) ( 129 ) Ending balance $ 16,779 $ 19,484 $ 4,556 The provisions recorded in the year ended December 31, 2021 primarily result from changes in the classification of certain loans as collateral-dependent and associated revisions to their allowances. The write-offs for the year ended December 31, 2021 are associated with a loan that was settled in exchange for an operating hotel on October 1, 2021; refer to acquisition disclosures in Note 24. Allowances for credit losses attributable to collateral-dependent loans are $ 6.3 million and $ 7.8 million as of December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, two loans with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by the membership interests in the borrowing entities and either the associated land parcels or an operating hotel. The Company used a DCF technique to project cash flows or a market approach via quoted market prices to value the underlying collateral. 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. 81 Table of Contents 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 December 31, 2021. As a result of the COVID-19 pandemic, the Company extended interest deferral terms on certain notes receivable. The Company considers loans to be past due when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral. Although the Company considers loans to be past due if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past due. The Company applies payments received for loans on non-accrual status first to interest and then to principal. The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions. The amortized cost basis of notes receivable on non-accrual status was $ 44.1 million and $ 28.9 million at December 31, 2021 and 2020, respectively. The Company has identified loans totaling approximately $ 7.5 million and $ 13.1 million, respectively, with stated interest rates that are less than market rate, representing a total discount of $ 0.3 million and $ 0.8 million as of the years ended December 31, 2021 and 2020, respectively. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan. The past due status by credit quality indicator of the notes receivable amortized cost basis are as follows: (in thousands) 1-30 days Past Due 30-89 days Past Due > 90 days Past Due Total Past Due Current Total Notes Receivable As of December 31, 2021 Senior $ — $ — $ — $ — $ 108,370 $ 108,370 Subordinated — — 2,209 2,209 25,592 27,801 Unsecured — — — — 1,512 1,512 $ — $ — $ 2,209 $ 2,209 $ 135,474 $ 137,683 As of December 31, 2020 Senior $ — $ — $ 15,200 $ 15,200 $ 89,516 $ 104,716 Subordinated — — 2,209 2,209 31,025 33,234 Unsecured — — — — 1,367 1,367 $ — $ — $ 17,409 $ 17,409 $ 121,908 $ 139,317 The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of December 31, 2021. Refer to Note 23. Variable Interest through Notes Issued The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 120.2 million and $ 119.3 million at December 31, 2021 and 2020, respectively. The Company has determined that it is not the primary beneficiary of these VIEs. These loans have stated fixed and/or variable interest amounts. For collateral-dependent loans, the Company has no exposure to the borrowing VIE beyond the note receivable and limited commitments addressed in Note 23. Accounts Receivable Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount. During the year ended December 31, 2020, the Company recorded provisions for credit losses on accounts receivable of $ 15.6 million in SG&A expenses and $ 26.0 million in marketing and reservation system expenses, in consideration of the economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected credit losses. During the year ended December 31, 2021, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 4.4 million in SG&A expenses and $ 7.3 million in marketing and reservation system expenses, after considering improved collection patterns and economic and credit conditions. During the years ended December 31, 2020 and December 31, 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 0.6 million and $ 13.5 million, respectively. 82 Table of Contents 5. Property and Equipment The components of property and equipment are: December 31, (in thousands) 2021 2020 Land and land improvements $ 32,255 $ 29,001 Construction in progress and software under development 66,832 30,776 Computer equipment and software 214,814 217,594 Buildings and leasehold improvements 233,255 218,421 Furniture, fixtures, vehicles and equipment 62,703 62,530 Property and equipment 609,859 558,322 Less: Accumulated depreciation and amortization ( 232,492 ) ( 223,421 ) Property and equipment, net $ 377,367 $ 334,901 Unamortized capitalized software development costs at December 31, 2021 and 2020 totaled $ 52.0 million and $ 52.2 million, respectively. Amortization of software development costs for the years ended December 31, 2021, 2020 and 2019 totaled $ 14.1 million, $ 14.6 million, and $ 9.7 million, respectively. Depreciation expense, excluding amounts attributable to marketing and reservation activities, for the years ended December 31, 2021, 2020 and 2019 was $ 16.5 million, $ 16.9 million and $ 9.7 million, respectively. In the fourth quarter of 2021, the Company acquired a hotel property through a deed in lieu foreclosure at the fair value of $ 21.1 million as of the acquisition date of October 1, 2021. In the third quarter of 2019, the Company completed an asset acquisition of four Cambria Hotels with a total net asset basis of $ 194.0 million. Refer to Note 24. During the third quarter of 2020, the Company recognized a non-cash pre-tax long-lived asset group impairment charge for a commercial office building in the amount of $ 4.3 million. Refer to Note 6. 6. Goodwill, Impairment of Assets, and Sale of Business and Assets Goodwill The following table details the carrying amount of our goodwill: December 31, (in thousands) 2021 2020 Goodwill $ 166,774 $ 166,774 Accumulated impairment losses ( 7,578 ) ( 7,578 ) Goodwill, net carrying amount $ 159,196 $ 159,196 Goodwill was historically allocated to two reporting units: (1) Hotel Franchising and (2) SaaS for vacation rentals. In 2019, the Company recognized non-cash pre-tax impairment charges for the SaaS for vacation rentals long-lived asset group and goodwill. In January 2019, the Company became aware that a key customer of the SaaS for vacation rentals reporting unit provided the unit’s management team with a letter purporting to terminate the customer’s contract. Recoverability of the $ 7.3 million SaaS for vacation rentals long-lived asset group was assessed based on undiscounted expected cash flows of the asset group, which were less than the carrying amount of the asset group. The Company recognized a non-cash pre-tax long-lived asset group impairment charge for the full amount of SaaS for vacation rentals long-lived assets. The carrying value of the SaaS for vacation rentals reporting unit, after adjustment for the long-lived asset impairment, exceeded the fair value of the reporting unit by $ 3.1 million, resulting in an additional non-cash pre-tax impairment charge on the SaaS for vacation rentals reporting unit's goodwill in this amount. The SaaS for vacation rentals reporting unit was subsequently sold in 2019, and as a result of costs incurred in completing the disposition and the derecognition of net assets of the reporting unit, including the remaining goodwill of the SaaS for vacation rentals reporting unit, the Company recorded a loss on sale of $ 4.7 million. The results of the SaaS for vacation rentals reporting unit prior to the disposition are included in the Corporate & Other segment in Note 20. For the years ended December 31, 2021 and 2020, goodwill is entirely attributable to the Hotel Franchising reporting unit. The Company assessed the qualitative factors attributable to the Hotel Franchising reporting unit and determined it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. The Hotel Franchising reporting unit is 83 Table of Contents included in the Hotel Franchising reportable segment in Note 20. There were no changes in the carrying amount of goodwill during the years ended December 31, 2021 and 2020. Long-lived asset group impairments Commercial office building On December 30, 2014, a court awarded the Company title to a commercial office building as settlement of a portion of an outstanding loan receivable for which the building was pledged as collateral. Prior to initial lease term expiration of the building's single tenant, the tenant provided notice that lease renewal options would not be exercised. Management identified this as a triggering event requiring the interim reevaluation of the commercial office building's long-lived assets. During the third quarter of 2020, recoverability of the long-lived asset group was assessed based on undiscounted expected cash flows of the asset group aligned with management’s present long-term strategy for the building, and management concluded the undiscounted expected cash flows were less than the carrying amount of the asset group. An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group. To estimate the fair value of the long-lived asset group, the Company utilized a combination of market and income approach valuation methods. The Company recognized a non-cash pretax long-lived asset group impairment charge in the amount of $ 4.3 million during the third quarter of 2020. In 2021, the Company committed to a plan to sell the commercial office building, meeting held for sale classification in the third quarter of 2021. The building was sold in November 2021 for $ 6.1 million, resulting in a gain of $ 13 thousand reflected within gain (loss) on sale of business and assets, net on the consolidated statements of income in the fourth quarter of 2021. The results of the commercial office building are included in the Corporate & Other segment in Note 20. Real estate parcel During the third quarter of 2018, the Company purchased the remaining membership interests in a VIE previously accounted for under the equity method of accounting. The VIE held a real estate parcel and the purchase was accounted for as an asset acquisition. The financial results of the 100% owned entity have been consolidated in the Company's financial statements since August 2018. The real estate parcel represents a long-lived asset group with a carrying value prior to recoverability evaluation of $ 29.5 million in other assets as of December 31, 2020. Based on the impact of the COVID-19 pandemic, the Company’s assessment of the highest and best use of the real estate parcel changed and, therefore, the recoverability of the long-lived asset group was re-assessed based on undiscounted expected cash flows of the asset group from a sale, which were less than the carrying value of the asset group. An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group. To estimate the fair value of the long-lived asset group, the Company utilized market approach valuation methods. The Company recognized a non-cash pre-tax long-lived asset group impairment charge in the amount of $ 9.2 million during the fourth quarter of 2020. The results of the real estate parcel are included in the Corporate & Other segment in Note 20. 7. Intangible Assets The components of the Company's intangible assets are as follows: As of December 31, 2021 As of December 31, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Franchise Rights (1) $ 190,641 $ 105,604 $ 85,037 $ 190,714 $ 98,027 $ 92,687 Franchise Agreement Acquisition Costs (2) 263,718 66,373 197,345 223,536 43,036 180,500 Trademarks & Other (3) 16,152 12,403 3,749 17,810 13,937 3,873 Capitalized SaaS Licenses (4) 14,773 11,529 3,244 11,779 8,128 3,651 Total amortizing intangible assets 485,284 195,909 289,375 443,839 163,128 280,711 Trademarks (non-amortizing) (5) 23,014 — 23,014 23,014 — 23,014 Total intangible assets $ 508,298 $ 195,909 $ 312,389 $ 466,853 $ 163,128 $ 303,725 (1) Represents the purchase price assigned to long-term franchise contracts. The unamortized balance relates primarily to the acquisition of the WoodSpring franchise rights. The franchise rights are being amortized over lives ranging from 12 to 20 years on a straight-line basis. (2) Represents certain payments to customers as an incentive to enter into new franchise agreements generally amortized as an offset to royalty fees and marketing and reservation system fees over lives ranging from 5 to 30 years on a straight-line basis commencing at 84 Table of Contents hotel opening. Gross and accumulated amortization amounts are written off upon full amortization recognition, including at termination of an associated franchise agreement. Refer to Note 2 for discussion of impairments recognized. (3) Represents definite-lived trademarks and other various amortizing assets generally amortized on a straight-line basis over a period of 8 years to 40 years. (4) Represents software licenses capitalized under a SaaS agreement generally amortized on a straight-line basis over a period of 3 to 5 years. (5) Represents the purchase price assigned to the WoodSpring and Suburban trademarks at acquisition. The trademarks are expected to generate future cash flows for an indefinite period of time and therefore are non-amortizing. Amortization expense for the years ended December 31, 2021, 2020 and 2019 amounted to $ 25.2 million, $ 23.6 million, and $ 19.4 million, respectively. The estimated annual amortization expense related to the Company’s amortizing intangible assets for each of the next five years is as follows: (in thousands) 2022 $ 24,340 2023 $ 22,631 2024 $ 21,631 2025 $ 21,140 2026 $ 20,341 8. Investments in Affiliates The Company maintains equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets. The Company has investments in affiliates that represent VIEs totaling $ 25.2 million and $ 56.9 million on the consolidated balance sheets at December 31, 2021 and 2020, respectively. The Company has determined that it is not the primary beneficiary of any of these VIEs, however it does exercise significant influence through its equity ownership and as a result the investment in these affiliates is accounted for under the equity method. The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain guaranties as described in Note 23 of these financial statements. For the years ended December 31, 2021, 2020 and 2019, the Company recognized losses from investments in VIEs, inclusive of impairments and gains/losses upon sales of ownership interests in or distributions resulting from sales of underlying assets of affiliates, totaling $ 18.9 million, $ 15.4 million and $ 11.3 million, respectively. These amounts are classified as equity in net loss of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 20. During the years ended December 31, 2021 and 2020, the Company recognized impairment charges of $ 19.3 million and $ 7.3 million, respectively, related to certain equity method investments. The Company estimated the fair value of each investment on an individual basis and derived the value from a combination of observable prices from offers received for either the underlying collateral or the ownership interest of the unconsolidated affiliate, comparable market transactions, and DCF techniques to project cash flows for the investment based upon the underlying property. There are judgments and assumptions in each of these fair value determinations, including our selection of comparable market transactions, the amount and timing of expected future cash flows, long-term growth rates, and sales capitalization rates. These nonrecurring fair value measurements are classified as level three of the fair value measurement hierarchy, as the Company utilized unobservable inputs which are significant to the overall fair value. Based on these analyses, in each case the Company determined that the fair market value declined below the carrying value and the decline is other-than-temporary. As a result, the Company recorded impairment charges from the carrying value to the estimated fair value for each investment. The Company recognized no impairment charges during the year ended December 31, 2019. During the years ended December 31, 2021, 2020 and 2019, the Company recognized net gains (losses) upon sales of ownership interests in or distributions resulting from sales of underlying assets of affiliates of $ 6.9 million, $ 0.5 million, and $( 5.0 ) million, respectively. 85 Table of Contents Investment in affiliate ownership interests at December 31, 2021 and 2020 are as follows: Ownership Interest December 31, 2021 December 31, 2020 Main Street WP Hotel Associates, LLC 50 % 50 % CS Hotel 30W46th, LLC (2) — % 25 % CS Hotel West Orange, LLC 50 % 50 % City Market Hotel Development, LLC 43 % 43 % CS Woodlands, LLC 50 % 50 % 926 James M. Wood Boulevard, LLC 75 % 75 % CS Dallas Elm, LLC (2) — % 45 % Choice Hotels Canada, Inc. (1) 50 % 50 % Pine Street Long Beach LLC (2) — % 50 % SY Valley Vineyard Resorts LLC (2) — % 50 % CS Lakeside Santa Clara LLC 50 % 50 % BL 219 Holdco, LP 50 % 50 % Integrated 32 West Randolph LLC 20 % 20 % (1) Non-VIE investments (2) The Company sold its ownership interest in the equity method investment or received distributions resulting from the sale of underlying assets of the affiliate during 2021 The following tables present summarized financial information for all unconsolidated ventures in which the Company holds an investment in affiliate that is accounted for under the equity method: Year Ended December 31, (in thousands) 2021 2020 2019 Revenues $ 35,514 $ 30,364 $ 109,896 Operating (loss) income 2,299 ( 6,494 ) 12,617 Income (loss) from continuing operations ( 5,227 ) ( 18,366 ) ( 1,400 ) Net (loss) income ( 1,593 ) ( 18,977 ) ( 2,564 ) As of December 31, (in thousands) 2021 2020 Current assets $ 31,209 $ 21,046 Non-current assets 242,567 364,531 Total assets $ 273,776 $ 385,577 Current liabilities $ 30,365 $ 25,735 Non-current liabilities 81,090 263,459 Total liabilities $ 111,455 $ 289,194 86 Table of Contents 9. Other Assets Other assets consist of the following at: December 31, (in thousands) 2021 2020 Land and buildings $ 20,303 $ 20,303 Capitalized franchise sales commissions (refer to Note 2) 55,535 54,272 Other assets 14,183 13,821 Total other assets $ 90,021 $ 88,396 Land and buildings represents the Company's purchase of real estate as part of its program to stimulate development of certain brands and is classified as Other assets as the real estate is not presently under active construction. The Company recognized a non-cash pre-tax long-lived asset group impairment charge for a real estate parcel in the amount of $ 9.2 million during the fourth quarter of 2020. Refer to Note 6. 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: December 31, (in thousands) 2021 2020 Accrued compensation and benefits $ 54,911 $ 37,454 Accrued interest 15,140 14,712 Dividends payable (1) 13,435 — Termination benefits 509 2,837 Income taxes payable 125 7,041 Current operating lease liabilities 11,998 10,603 Other liabilities 8,354 6,273 Total $ 104,472 $ 78,920 (1) In light of uncertainty resulting from the COVID-19 pandemic, in the second quarter of 2020 the Company suspended future, undeclared dividends. In the second quarter of 2021, the Company resumed the declaration of dividends. Refer to Note 16. 11. Deferred Revenue Deferred revenue consists of the following: December 31, (in thousands) 2021 2020 Initial franchising and relicensing fees $ 96,628 $ 97,340 Loyalty programs 82,742 63,625 System implementation fees 5,865 6,760 Procurement services fees 1,410 2,508 Other 678 2,463 Total deferred revenue $ 187,323 $ 172,696 Current portion $ 81,538 $ 50,290 Long-term portion $ 105,785 $ 122,406 Refer to Note 2 for revenue recognition policies resulting in the deferral of revenue, including loyalty programs and the relationship between the loyalty programs deferred revenue and the liability for the guest loyalty program. 87 Table of Contents 12. Debt Debt consists of the following: December 31, (in thousands) 2021 2020 $ 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 $ 5.5 million and $ 6.1 million at December 31, 2021 and December 31, 2020, respectively 444,470 443,860 $ 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 $ 4.8 million and $ 5.4 million at December 31, 2021 and December 31, 2020, respectively 395,237 394,635 $ 400 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.0 % less deferred issuance costs of $ 0.2 million and $ 0.7 million at December 31, 2021 and December 31, 2020, respectively $ 216,351 $ 215,827 $ 600 million senior unsecured credit facility (1) — — Economic development loans with an effective interest rate of 3.0 % at December 31, 2021 and December 31, 2020, respectively 4,416 4,416 Total debt $ 1,060,474 $ 1,058,738 Less current portion 216,351 — Total long-term debt $ 844,123 $ 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. As there are no outstanding borrowings at December 31, 2021 and December 31, 2020, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.3 million and $ 2.4 million, respectively, are presented in non-current Other assets in the consolidated balance sheets. Scheduled principal maturities of debt, net of unamortized discounts, premiums and deferred issuance costs, as of December 31, 2021 were as follows: (in thousands) Senior Notes Other Notes Payable Total 2022 216,351 — 216,351 2023 — 4,416 4,416 2024 — — — 2025 — — — 2026 — — — Thereafter 839,707 — 839,707 Total payments $ 1,056,058 $ 4,416 $ 1,060,474 Restated Senior Unsecured Credit Facility On August 20, 2018, the Company entered into the Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015. The Restated Credit Agreement provides for a $ 600 million unsecured credit facility with a maturity date of August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement. The effectiveness of such extensions are subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions. The Restated Credit Agreement also provides that up to $ 35 million of borrowings under the Restated Credit Agreement may be used for alternative currency loans and up to $ 25 million of borrowings under the Restated Credit Agreement may be used for swingline loans. The Company may from time to time designate one or more wholly owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions. On July 2, 2019, the Company exercised a one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024. On August 12, 2020, the Company exercised an additional one-year extension on the Restated Credit Agreement for $ 525 million of the $ 600 million total capacity in exchange for a fee of $ 0.3 million. The extended maturity date is August 20, 2025. 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. 88 Table of Contents 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"). In the event that these subsidiary guarantees are triggered under the Restated Credit Agreement the same subsidiary guarantees would be required under the Company's $ 400 million senior unsecured notes due 2022 and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement. On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the "Amendment") among the Company, Deutsche Bank AG New York Branch, as administrative agent and the lenders party thereto. The Amendment, among other things, removes the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors. The Company may at any time prior to the final maturity date increase the amount of the Restated Credit Agreement or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $ 250 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such term loan facility and certain other customary conditions are met. 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 provisions 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). The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments and effecting mergers and/or asset sales. With respect to dividends, the Company may not declare or make any payment if there is an existing event of default or if the payment would create an event of default. The Restated Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0 or, on up to two nonconsecutive occasions, 5.5 to 1.0 for up to three consecutive quarters following a material acquisition commencing with the fiscal quarter in which such material acquisition occurred. The Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant. The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable. At December 31, 2021, the Company was in compliance with all financial covenants under the Restated Credit Agreement. In the third quarter of 2020, the Company utilized excess cash on hand to pay down the senior unsecured revolving credit facility balance in full; the facility remains undrawn as of December 31, 2020 and December 31, 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. Amortization of these costs is included in interest expense in the consolidated statements of income. The proceeds of the Restated Credit Agreement are generally expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement. 89 Table of Contents Term Loan To preserve financial flexibility and liquidity during the COVID-19 pandemic, on April 16, 2020, the Company entered into a credit agreement (the "Credit Agreement"), which provided for the $ 250 million Term Loan (the "Term Loan") with a scheduled maturity date of April 15, 2021, subject to an optional one-year extension if requested by the Company prior to the initial maturity date. The Term Loan and all accrued but unpaid interest thereon was required to be repaid in full on the maturity date. The Credit Agreement provided that the Company may elect to have the Term Loan bear interest at a rate equal to (i) LIBOR (subject to a floor of 1.00 %) plus a margin ranging from 200 to 275 basis points or (ii) a base rate plus a margin ranging from 100 to 175 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating. The proceeds of the Term Loan were utilized to reduce borrowings on the Company’s senior unsecured revolving credit facility. The Term Loan was subsequently paid off in full in July 2020 utilizing the proceeds of the 2020 Senior Notes described below. In combination with the Tender Offer, the Company recorded a loss on extinguishment of debt of $ 16.0 million in the third quarter of 2020. Senior Unsecured Notes Due 2031 On July 23, 2020, the Company issued unsecured senior notes in the principal amount of $ 450 million (the "2020 Senior Notes") bearing a coupon of 3.70 % with an effective rate of 3.86 %. The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15th and July 15th beginning January 15, 2021. The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions and other offering expenses, to repay the Term Loan in full and fund the purchase price of the 2012 Senior Notes tendered and accepted by the Company for purchase pursuant to the tender offer (discussed below under "Senior Unsecured Notes due 2022"). Interest on the 2020 Senior Notes is payable semi-annually on January 15th and July 15th of each year, commencing on January 15, 2021. The interest rate payable on the 2020 Senior Notes will be subject to adjustment based on certain rating events. The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date) (the “2020 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest. If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101 % of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase. Senior Unsecured Notes Due 2029 On November 27, 2019, the Company issued unsecured senior notes in the principal amount of $ 400 million (the "2019 Senior Notes") at a discount of $ 2.4 million, bearing a coupon of 3.70 % with an effective rate of 3.88 %. The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1 st and June 1 st . The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the previously outstanding senior notes in the principal amount of $ 250 million due August 28, 2020, and for working capital and other general corporate purposes. Bond discounts and debt issuance costs incurred in connection with the 2019 Senior Notes are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity. Amortization of these costs is included in interest expense in the consolidated statements of income. The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “2019 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest. If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 90 Table of Contents 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101 % of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase. Senior Unsecured Notes Due 2022 On June 27, 2012, the Company issued unsecured senior notes with a principal amount of $ 400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75 % with an effective rate of 6.00 %. The 2012 Senior Notes will mature on July 1, 2022, with interest to be paid semi-annually on January 1 st and July 1 st . The Company utilized the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, together with borrowings under the Company's senior unsecured senior credit facility, to pay a special cash dividend to stockholders totaling approximately $ 600.7 million paid on August 23, 2012. Debt issuance costs incurred in connection with the 2012 Senior Notes are amortized, utilizing the effective interest method through maturity. Amortization of these costs is included in interest expense in the consolidated statements of income. The Company may redeem the 2012 Senior Notes at its option at a redemption price equal to the greater of (a) 100 % of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity, discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points. Additionally, at the option of the holders of the 2012 Senior Notes, the Company may be required to repurchase all or a portion of the 2012 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101 % of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase. On July 9, 2020, the Company commenced the tender offer (the "Tender Offer") to purchase up to $ 160.0 million aggregate principal amount of the Company’s 2012 Senior Notes subject to increase or decrease. The Tender Offer was subsequently upsized to $ 180.0 million aggregate principal amount of the 2012 Notes. On July 23, 2020, the Company amended the Tender Offer by increasing the aggregate principal maximum tender amount from $ 180.0 million to $ 183.4 million. The Tender Offer settled on July 24, 2020 for $ 197.8 million, including an early tender premium, settlement fees, and accrued interest paid. In combination with the early pay off of the Term Loan, the Company recorded a loss on extinguishment of debt of $ 16.0 million in the third quarter of 2020. The Company's 2012 Senior Notes mature on July 1, 2022 with a principal maturity, net of unamortized deferred issuance costs, of $ 216.4 million. Construction Loan In March 2018, the Company entered into a construction loan agreement for the rehabilitation and development of a former office building into a Cambria Hotel through a consolidating affiliate with a commercial lender, which is secured by the building. The construction was completed and the hotel opened in the third quarter of 2019, resulting in the satisfaction of the completion guaranty. On March 5, 2020, the Company paid off the construction loan in the amount of $ 33.1 million inclusive of accrued and unpaid interest and recorded a loss on extinguishment of debt of $ 0.6 million. Fixed Rate Collateralized Mortgage On December 30, 2014, a court awarded the Company title to an office building as settlement for a portion of an outstanding loan receivable for which the building was pledged as collateral. In conjunction with the court award, the Company also assumed the $ 9.5 million mortgage on the property with a fixed interest rate of 7.26 %. The mortgage was collateralized by the office building, required monthly payments of principal and interest and matured in December 2020 with a balloon payment due of $ 6.9 million. Payments were made in each quarter of 2020, with the balloon payment of $ 6.9 million made at maturity in December 2020. Economic Development Loans The Company entered into economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in April 2013. 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 December 31, 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. Repayment of the advances is contingent upon the Company achieving certain performance conditions. Performance conditions are measured annually on December 31 st and primarily relate to maintaining certain levels of employment within the various jurisdictions. If the Company fails to meet an annual performance condition, the Company may be required to repay a portion 91 Table of Contents or all of the advances including accrued interest by April 30 th following the measurement date. Any outstanding advances at the expiration in 2023 of the Company's current ten-year corporate headquarters lease 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. The Company was in compliance with all applicable current performance conditions as of December 31, 2021. 13. Non-Qualified Retirement, Savings and Investment Plans The Company sponsors two non-qualified retirement savings and investment plans for certain employees and senior executives. Employee and Company contributions are maintained in separate irrevocable trusts. Legally, the assets of the trusts remain those of the Company; however, access to the trusts’ assets is severely restricted. The trusts cannot be revoked by the Company or an acquirer, but the assets are subject to the claims of the Company’s general creditors. The participants do not have the right to assign or transfer contractual rights in the trusts. In 2002, the Company adopted the Choice Hotels International, Inc. Executive Deferred Compensation Plan ("EDCP") which became effective January 1, 2003. Under the EDCP, certain executive officers may defer a portion of their salary into an irrevocable trust and invest these amounts in a selection of available diversified investment options. In 1997, the Company adopted the Choice Hotels International, Inc. Non-Qualified Retirement Savings and Investment Plan ("Non-Qualified Plan"). The Non-Qualified Plan allows certain employees who do not participate in the EDCP to defer a portion of their salary and invest these amounts in a selection of available diversified investment options. Under the EDCP and Non-Qualified Plan, (together, the "Deferred Compensation Plan"), the Company recorded current and long-term deferred compensation liabilities of $ 40.8 million and $ 36.0 million at December 31, 2021 and 2020, respectively, related to these deferrals and credited investment return under these two deferred compensation plans. Compensation expense is recorded in SG&A expense on the Company’s consolidated statements of income based on the change in the deferred compensation obligation related to earnings credited to participants as well as changes in the fair value of diversified investments. The net increase in compensation expense recorded in SG&A for the years ended December 31, 2021, 2020 and 2019 were $ 6.1 million, $ 4.5 million, and $ 5.3 million, respectively. Under the Deferred Compensation Plan, the Company has invested the employee salary deferrals in diversified long-term investments which are intended to provide investment returns that offset the earnings credited to the participants. The diversified investments held in the trusts totaled $ 36.1 million and $ 31.4 million as of December 31, 2021 and 2020, respectively, and are recorded at their fair value, based on quoted market prices. At December 31, 2021, the Company expects $ 2.1 million of the assets held in the trust to be distributed during the year ended December 31, 2022 to participants. These investments are considered trading securities and therefore the changes in the fair value of the diversified assets is included in other gains, net in the accompanying consolidated statements of income. The Company recorded investment gains during the years ended December 31, 2021, 2020 and 2019 of $ 5.6 million, $ 4.2 million, and $ 4.9 million, respectively. The Deferred Compensation Plan held no shares of the Company's common stock at December 31, 2021 and 2020. 14. Fair Value Measurements The Company estimates the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs on a recurring basis. Level 1 : Quoted prices in active markets for identical assets and liabilities. The Company’s Level 1 assets consist of marketable securities (primarily mutual funds) held in the Deferred Compensation Plan. Level 2 : Observable inputs, other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable. The Company’s Level 2 assets consist of money market funds held in the Deferred Compensation Plan. Level 3 : 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 on a recurring basis whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the years ended December 31, 2021 and 2020. 92 Table of Contents As of December 31, 2021 and 2020, the Company had the following assets measured at fair value on a recurring basis: Fair Value Measurements at Reporting Date Using (in thousands) Total Level 1 Level 2 Level 3 December 31, 2021 Mutual funds (1) $ 33,555 $ 33,555 $ — $ — Money market funds (1) 2,520 — 2,520 — Total $ 36,075 $ 33,555 $ 2,520 $ — December 31, 2020 Mutual funds (1) $ 28,520 $ 28,520 $ — $ — Money market funds (1) 2,836 — 2,836 — Total $ 31,356 $ 28,520 $ 2,836 $ — (1) Included in Investments, employee benefit plans, at fair value and other current assets on the consolidated balance sheets. Other financial instruments disclosure The Company believes that the fair values of its current assets and current liabilities approximate their reported carrying amounts due to the short-term nature of these items. In addition, the interest rates of the Company’s Restated Credit Agreement adjust frequently based on current market rates; accordingly we believe its carrying amount, when amounts are drawn, approximates fair value. 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 12 for further information on debt. At December 31, 2021 and December 31, 2020, the carrying amounts and fair values are as follows: December 31, 2021 December 31, 2020 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value 2020 Senior Notes $ 444,470 $ 477,675 $ 443,860 $ 498,290 2019 Senior Notes 395,237 425,984 394,635 438,104 2012 Senior Notes 216,351 221,702 215,827 232,381 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. 15. Income Taxes Total income before income taxes, classified by source of income, was as follows: Year Ended December 31, (in thousands) 2021 2020 2019 U.S. $ 355,408 $ 38,475 $ 259,943 Outside the U.S. 21,084 14,531 9,986 Income from continuing operations before income taxes $ 376,492 $ 53,006 $ 269,929 The provision for income taxes, classified by the timing and location of payment, was as follows: Year Ended December 31, (in thousands) 2021 2020 2019 Current tax expense Federal $ 71,573 $ 14,345 $ 31,556 State 15,605 4,303 10,154 Foreign 1,041 2,300 1,619 Deferred tax (benefit) expense Federal ( 2,690 ) ( 12,333 ) 3,380 State ( 1,254 ) ( 1,953 ) 1,635 Foreign 3,260 ( 29,043 ) ( 1,293 ) Income tax expense (benefit) $ 87,535 $ ( 22,381 ) $ 47,051 93 Table of Contents Net deferred tax assets as of December 31, 2021 were as follows: December 31, (in thousands) 2021 2020 Deferred tax assets: Accrued compensation $ 13,997 $ 13,251 Deferred revenue 36,666 26,430 Receivable, net 11,776 18,044 Tax credits 14,217 11,671 Operating lease liabilities 6,621 6,359 Partnership interests 4,398 — Foreign net operating losses 7,478 5,749 Non-U.S. intellectual property 21,402 30,243 Other 5,727 5,420 Total gross deferred tax assets 122,282 117,167 Less: Valuation allowance ( 19,734 ) ( 20,099 ) Deferred tax assets $ 102,548 $ 97,068 Deferred tax liabilities: Property, equipment and intangible assets $ ( 28,276 ) $ ( 20,331 ) Operating lease ROU assets ( 4,350 ) ( 6,359 ) Partnership interests — ( 550 ) Other ( 1,279 ) ( 2,083 ) Deferred tax liabilities ( 33,905 ) ( 29,323 ) Net deferred tax assets $ 68,643 $ 67,745 The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Based on this evaluation, the Company recorded a net change to its valuation allowance of $ 0.4 million due to a $ 2.9 million decrease in the foreign valuation allowance, primarily related to the Dutch deferred tax asset, partially offset by a $ 2.5 million increase in the valuation allowance related to state tax credits. In 2021, the Company identified $ 14.2 million of state tax credit carryforwards due to expire between 2030 and 2035. The Company believes that it is more likely than not that these benefits will not be realized. Accordingly, the Company has provided a tax-effected valuation allowance of $ 14.2 million for these credits. Additionally, the Company has provided a tax-effected valuation allowance of $ 5.5 million on its foreign deferred tax assets. As of December 31, 2021, the Company had gross foreign net operating losses ("NOLs") of $ 26.6 million. The Company believes that it is more likely than not that some of these benefits will not be realized. Accordingly, the Company recorded a gross valuation allowance of $ 7.0 million on the deferred tax assets related to these foreign net operating losses. We have $ 26.0 million of foreign NOLs with an indefinite carryforward life. On January 1, 2018, the Company adopted ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other than Inventory ("ASU 2016-16"), which provides guidance on recognition of current income tax consequences for intercompany asset transfers (other than inventory) at the time of transfer. On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure. In accordance with ASU 2016-16, the Company recorded a tax benefit of $ 34.6 million and a corresponding deferred tax asset due to the reorganization. In 2020, due to a decrease in our forecasted international income resulting from adverse impacts of the COVID-19 pandemic, the Company recorded a valuation allowance of $ 5.7 million reflecting a change in the anticipated realizability of this deferred tax asset. In 2021, due to changes in Dutch tax law, the Company reduced the carrying value of the deferred tax asset by $ 4.2 million and decreased the corresponding valuation allowance by $ 2.7 million. As of December 31, 2021, the balance of this deferred tax asset is $ 21.4 million, net of current year amortization, and the balance of the corresponding valuation allowance is $ 3.0 million. 94 Table of Contents The statutory United States federal income tax rate reconciles to the effective income tax rates for continuing operations as follows: Year Ended December 31, 2021 2020 2019 Statutory U.S. federal income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 3.1 % 4.6 % 3.5 % Benefits related to foreign operations ( 0.2 ) % ( 4.2 ) % ( 0.6 ) % Expenses (benefits) related to compensation, net 0.5 % ( 5.8 ) % ( 1.3 ) % Unrecognized tax positions 0.2 % 4.7 % 2.0 % International Reorganization 1.1 % ( 65.2 ) % — % Tax credits ( 1.8 ) % ( 15.2 ) % ( 9.9 ) % Valuation allowance ( 0.2 ) % 17.5 % 3.4 % Other ( 0.4 ) % 0.4 % ( 0.7 ) % Effective income tax rates 23.3 % ( 42.2 ) % 17.4 % The Company's effective income tax rates from continuing operations were 23.3 %, ( 42.2 )% and 17.4 % for the years ended December 31, 2021, 2020 and 2019, respectively. The effective income tax rate for the year ended December 31, 2021 was higher than the U.S. federal income tax rate of 21.0% primarily due to state income taxes, $ 1.7 million of additional tax expense related to compensation, and a $ 1.5 million reduction in the net carrying value of our Dutch deferred tax asset, partially offset by tax credits of $ 3.7 million. The effective income tax rate for the year ended December 31, 2020 was lower than the U.S. federal income tax rate of 21% due to the impact of our international reorganization under ASU 2016-16 (partially offset by the related valuation allowance), tax credits of $ 3.0 million, $ 3.1 million of additional tax benefit related to compensation, and the impact of foreign operations, partially offset by state income taxes, and a change in estimated uncertain tax positions. As of December 31, 2021, 2020 and 2019, the Company’s gross unrecognized tax benefits totaled $ 11.1 million, $ 10.2 million, and $ 7.7 million, respectively. After considering the deferred income tax accounting impact, it is expected that approximately $ 8.0 million of the total as of December 31, 2021 would favorably affect the effective tax rate if resolved in the Company’s favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits: (in thousands) 2021 2020 2019 Balance, January 1 $ 10,193 $ 7,738 $ 1,588 Changes for tax positions of prior years 156 1,174 4,633 Increases for tax positions related to the current year 1,618 1,281 2,084 Settlements and lapsing of statutes of limitations ( 820 ) — ( 567 ) Balance, December 31 $ 11,147 $ 10,193 $ 7,738 It is reasonably possible that the Company’s unrecognized tax benefits could decrease within the next 12 months by as much as $ 9.5 million due to settlements and the expiration of applicable statutes of limitations. The Company's federal income tax return for tax years 2015 and 2016 are currently under examination by the Internal Revenue Service for a tax credit refund claim. The Company's federal income tax return for tax years 2017 and 2018 are also under examination by the Internal Revenue Service. Further, the Company's federal income tax returns for tax years 2019 and 2020 are subject to examination by the Internal Revenue Service. The practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes. The Company did not incur any material interest or penalties for 2021 and 2020. The Company had $ 0.4 million and $ 0.5 million of accrued interest and penalties on December 31, 2021 and 2020, respectively. The Tax Cuts and Jobs Act subjects a U.S. shareholder to a minimum tax on "global intangible low-taxed income" ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred and has incurred tax for the year ended December 31, 2021. 95 Table of Contents On March 27, 2020, in response to the COVID-19 pandemic, the “Coronavirus Aid, Relief and Economic Security Act” (“CARES”) was signed into law by the President of the United States. The CARES Act includes, among other things, U.S. corporate income tax provisions related to net operating loss carryback periods, alternative minimum tax credits, modifications to interest deduction limitations and technical corrections on tax depreciation methods for qualified improvement property. Many other countries have also introduced various corporate income tax relief provisions in response to the pandemic. The Company does not believe that any of these changes will have a material effect on our financial statements. 16. Share-Based Compensation and Capital Stock Share-Based Compensation The Company recognizes compensation cost related to share-based payment transactions in the financial statements based on the fair value of the equity or liability instruments issued. Compensation expense related to the fair value of share-based awards is recognized over the requisite service period. Over the life of the grant, the estimate of share-based compensation expense for awards with performance and/or service requirements is adjusted so that compensation cost i s rec ognized only for awards that ultimately vest; for the grants with market conditions, the fair value of the award is determined at grant date and expensed over the life of the grant. The Company has stock compensation plans pursuant to which it is authorized to grant stock-based awards of which 2.1 million shares of the Company's common stock remain available for grant as of December 31, 2021. The Company’s policy allows the issuance of new or treasury shares to satisfy stock-based awards. Restricted stock, stock options, stock appreciation rights and performance share awards may be granted to officers, key employees and non-employee directors with contractual terms set by the Compensation and Management Development Committee of the Board of Directors. Stock Options The Company granted approximately 0.3 million, 0.2 million and 0.1 million options to certain employees of the Company at a fair value of approximately $ 7.9 million, $ 2.7 million and $ 2.2 million during the years ended December 31, 2021, 2020 and 2019, respectively. The stock options granted by the Company had an exercise price equal to the market price of the Company’s common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: 2021 2020 2019 Risk-free interest rate 0.94 % 0.99 % 2.46 % Expected volatility 29.23 % 20.88 % 21.49 % Expected life of stock option 5.9 years 5.9 years 4.4 years Dividend yield 0.82 % 0.99 % 1.06 % Requisite service period 4 years 4 years 4 years Contractual life 10 years 10 years 7 years Weighted average fair value of options granted (per option) $ 28.00 $ 17.25 $ 15.84 The expected life of the options and volatility are based on the historical data which is believed to be indicative of future exercise patterns and volatility. Historical volatility is calculated based on a period that corresponds to the expected life of the stock option. The dividend yield and the risk-free rate of return are calculated on the grant date based on the then current dividend rate and the risk-free rate for the period corresponding to the expected life of the stock option. Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those awards that ultimately vest. The aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2021 was $ 66.4 million and $ 37.5 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 10.6 million, $ 8.9 million and $ 15.8 million, respectively. The Company received $ 11.1 million, $ 10.2 million and $ 21.4 million in proceeds from the exercise of 0.2 million, 0.2 million and 0.4 million employee stock options during the years ended December 31, 2021, 2020 and 2019, respectively. The following table summarizes information about stock options outstanding as of December 31, 2021: 96 Table of Contents Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding at December 31, 2021 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at December 31, 2021 Weighted Average Exercise Price $ 45.59 to $ 55.00 156,462 1.16 $ 51.49 156,462 $ 51.49 $ 55.01 to $ 65.00 84,038 2.10 60.86 84,038 60.86 $ 65.01 to $ 85.00 239,981 3.75 81.31 142,673 81.35 $ 85.01 to $ 91.28 153,692 8.17 91.28 38,419 91.28 $ 91.29 to $ 104.87 276,771 9.16 104.87 — — 910,944 5.54 $ 83.14 421,592 $ 67.09 Restricted Stock The following table is a summary of activity related to restricted stock grants: For the Year Ended December 31, 2021 2020 2019 Restricted shares granted 61,009 158,133 167,731 Weighted average grant date fair value per share $ 111.25 $ 90.18 $ 81.92 Aggregate grant date fair value (in thousands) $ 6,787 $ 14,260 $ 13,741 Restricted shares forfeited 19,209 36,860 32,735 Vesting service period of shares granted 9 - 48 months 12 - 48 months 12 - 48 months Fair value of shares vested (in thousands) $ 11,927 $ 9,000 $ 10,671 Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those restricted stock grants that ultimately vest. The fair value of grants is measured by the market price of the Company’s common stock on the date of grant. Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date. Awards granted to retirement eligible non-employee directors are recognized over the shorter of the requisite service period or the length of time until retirement since the terms of the grant provide that awards will vest upon retirement. Performance Vested Restricted Stock Units The Company has granted performance vested restricted stock units (“PVRSU”) to certain employees. The Company grants three types of PVRSU awards: i) PVRSUs with performance conditions based on internal performance metrics, ii) PVRSUs with market conditions based on the Company's total shareholder return ("TSR") relative to a predetermined peer group, and iii) PVRSUs with both performance and market conditions. The vesting of PVRSU awards is contingent upon the Company achieving internal performance and/or TSR targets over a specified period and the employees' continued employment for a service period. These performance and market conditions affect the number of shares that will ultimately vest. During the year ended December 31, 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 generally between 0 % and 300 % of the initial units granted. The fair value of PVRSUs with only internal performance metrics is measured by the market price of the Company's common stock on the date of award grant. Compensation expense is recognized ratably over the requisite service period based on the Company's estimate of the achievement of the performance conditions. Management monitors current results and forecasts of the relevant internal performance metrics and, as necessary, adjusts the performance-based leveraging of unvested PVRSUs. The fair value of PVRSUs with market conditions is estimated using a Monte Carlo simulation method as of the date of award grant. Compensation expense is recognized ratably over the requisite service period, regardless of whether the market conditions are achieved and the awards ultimately vest. The fair value of PVRSUs with both performance and market conditions is estimated using a Monte Carlo simulation as of the date of award grant. Compensation is recognized ratable 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. 97 Table of Contents The Company has currently estimated that between 0 % and 300 % of the various award targets will be achieved. During the year ended December 31, 2020, the Company reduced the leveraging factor for 230,647 unvested PVRSUs granted in the current and prior periods to 0 %, based on management's estimate of achievement of performance targets with contemplation to impacts from the COVI D-19 pandemic. The following table is a summary of activity related to PVRSU grants: For the Years Ended December 31, 2021 2020 2019 PVRSUs granted at target 98,544 170,471 83,934 Weighted average grant date fair value per share $ 108.75 $ 134.26 $ 81.15 Aggregate grant date fair value (in thousands) $ 10,716 $ 22,888 $ 6,811 PVRSUs forfeited & expired 78,500 33,080 18,379 Requisite service period 9 - 60 months 31 to 36 months 36 to 48 months During the years ended December 31, 2021, 2020 and 2019, PVRSUs totaling 3,986 , 176,471 and 73,242 , respectively, vested at a fair value of $ 0.3 million, $ 17.5 million, and $ 5.5 million, respectively. During the year ended December 31, 2021, an additional 920 units were awarded because the Company's performance exceeded the conditions provided in the awards. During the year ended December 31, 2020, an additional 30,116 units were awarded because the Company's performance exceeded the conditions provided in the awards. During the year ended December 31, 2019, an additional 1,583 units were awarded because the Company's performance exceeded the conditions provided in the awards. As a result of the Company's operating results not achieving certain performance conditions contained in the PVRSU awards, the number of PVRSUs that expired was 72,944 shares for the year ended December 31, 2021, 16,117 shares for the year ended December 31, 2020, and no shares for the year ended December 31, 2019. A summary of stock-based award activity as of December 31, 2021, 2020 and 2019 and the changes during those years are presented below: 2021 Stock Options Restricted Stock Performance Vested Restricted Stock Units Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Outstanding as of January 1, 2021 819,610 $ 70.48 304,439 $ 84.48 321,752 $ 109.25 Granted 280,811 104.87 61,009 111.25 98,544 108.75 Performance-based leveraging* — — — — 74,832 107.51 Exercised/vested ( 185,437 ) 59.61 ( 109,640 ) 80.83 ( 3,986 ) 81.55 Expired — — — — ( 72,944 ) 81.55 Forfeited ( 4,040 ) 104.87 ( 19,209 ) 90.23 ( 5,556 ) 55.76 Outstanding as of December 31, 2021 910,944 $ 83.14 5.5 years 236,599 $ 92.60 412,642 $ 114.70 Options exercisable as of December 31, 2021 421,592 $ 67.09 2.8 years * PVRSU units outstanding have been increased by 74,832 units during the year ended December 31, 2021, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods. 98 Table of Contents 2020 Stock Options Restricted Stock Performance Vested Restricted Stock Units Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Outstanding as of January 1, 2020 873,895 $ 61.69 312,097 $ 75.23 330,716 $ 70.03 Granted 158,620 91.28 158,133 90.18 170,471 134.26 Performance-based leveraging* — — — — 30,116 60.68 Exercised/vested ( 209,209 ) 49.17 ( 128,931 ) 69.80 ( 176,471 ) 58.68 Expired — — — — ( 16,117 ) 60.50 Forfeited ( 3,696 ) 91.28 ( 36,860 ) 81.98 ( 16,963 ) 82.25 Outstanding as of December 31, 2020 819,610 $ 70.48 4.2 years 304,439 $ 84.48 321,752 $ 109.25 Options exercisable as of December 31, 2020 480,255 $ 60.70 2.5 years * PVRSU units outstanding have been increased by 30,116 units during the year ended December 31, 2020, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods. 2019 Stock Options Restricted Stock Performance Vested Restricted Stock Units Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Outstanding as of January 1, 2019 1,186,180 $ 54.13 303,765 $ 65.06 336,820 $ 63.28 Granted 141,827 81.15 167,731 81.92 83,934 81.15 Performance-based leveraging* — — — — 1,583 51.49 Exercised/vested ( 446,456 ) 47.96 ( 126,664 ) 60.39 ( 73,242 ) 50.69 Expired — — — — — — Forfeited ( 7,656 ) 51.49 ( 32,735 ) 72.54 ( 18,379 ) 72.50 Outstanding as of December 31, 2019 873,895 $ 61.69 3.5 years 312,097 $ 75.23 330,716 $ 70.03 Options exercisable as of December 31, 2019 513,924 $ 55.10 2.6 years * PVRSU units outstanding have been increased by 1,583 units during the year ended December 31, 2019, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods. The components of the Company’s pretax stock-based compensation expense and associated income tax benefits are as follows: For the Year Ended December 31, (in thousands) 2021 2020 2019 Stock options $ 3,396 $ 1,975 $ 2,194 Restricted stock 9,281 8,731 8,043 Performance vested restricted stock units 10,703 ( 3,466 ) 6,409 Total share-based compensation expense $ 23,380 $ 7,241 $ 16,646 Income tax benefit $ 5,648 $ 1,706 $ 4,010 99 Table of Contents The total unrecognized compensation costs related to stock-based awards that have not yet vested and the related weighted average amortization period over which the costs are to be recognized as of December 31, 2021 are as follows: (in thousands) Unrecognized Compensation Expense on Unvested Awards Weighted Average Remaining Amortization Period Stock options $ 8,050 2.8 years Restricted stock 13,976 2.1 years Performance vested restricted stock units 25,973 1.4 years Total $ 47,999 Dividends During the fourth quarter of 2021, the Company's board of directors announced a 6 % increase to the quarterly dividend rate to $ 0.2375 per share from $ 0.225 per share, beginning with the dividend payable in the first quarter of 2022. During the fourth quarter of 2019, the Company's board of directors announced a 5 % increase to the quarterly dividend rate to $ 0.225 per share from $ 0.215 per share, beginning with the dividend payable in the first quarter of 2020. On February 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $ 0.225 per share of common stock for $ 12.5 million. The dividend was payable on April 16, 2020 to shareholders of record on April 2, 2020. Subsequent to the payment of the dividend, in light of uncertainty resulting from the COVID-19 pandemic, the Company’s board of directors suspended future, undeclared dividends while the pandemic is significantly impacting travel. 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. During the year ended December 31, 2021, the Company's quarterly dividend rate was $ 0.225 per share for the second and third quarter and was $ 0.2375 per share in the fourth quarter of 2021. Annual dividends declared during the year ended December 31, 2021 were $ 0.688 per share or $ 38.2 million. During the year ended December 31, 2020, the Company's quarterly dividend rate was $ 0.225 per share. Annual dividends declared during the year ended December 31, 2020 were $ 0.225 per share or $ 12.5 million. During the year ended December 31, 2019, the Company's quarterly dividend rate was $ 0.215 per share for the first three quarters and was $ 0.225 per share in the fourth quarter of 2019. Annual dividends declared during the year ended December 31, 2019 were $ 0.87 per share or $ 48.5 million. The Company may not declare or make any payment if under the Restated Credit agreement there is an existing event of default or if the payment would create an event of default. In addition, during the years ended December 31, 2021, 2020 and 2019, the Company paid previously declared but unrecorded dividends totaling $ 8 thousand, $ 0.4 million, and $ 0.2 million, respectively, that were contingent upon the vesting of performance vested restricted units. Share Repurchases and Redemptions The Company may purchase stock under a stock repurchase program to return excess capital to its shareholders. Treasury stock activity is recorded at cost in the accompanying consolidated financial statements. During the year ended December 31, 2019, the Company repurchased 0.6 million shares of its common stock under the repurchase program at a total cost of $ 44.1 million. During the three months ended March 31, 2020, the Company repurchased 0.5 million shares of common stock under the share repurchase program at a total cost of $ 43.3 million. In light of uncertainty resulting from the COVID-19 pandemic, the Company subsequently temporarily suspended activity under the share repurchase program and no additional repurchases were made pursuant to the program for the balance of 2020. On May 7, 2021, the Company's board of directors approved resumption of the share repurchase program. During the year ended December 31, 2021, the Company repurchased 57,754 shares of its common stock under the repurchase program at a total cost of $ 7.3 million. On a cumulative basis through December 31, 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 share repurchase program at a total cost of $ 1.5 billion. During 2021, the Company redeemed 54,441 shares of common stock at a total cost of approximately $ 6.0 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants. During 2020 and 2019, the Company redeemed 0.1 million and 79,603 shares of common stock at a total cost of $ 12.2 million and $ 6.5 million, respectively, from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of 100 Table of Contents options and vesting of performance vested restricted stock units and restricted stock grants. These redemptions were outside the share repurchase program initiated in June 1998. 17. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss is as follows: December 31, (in thousands) 2021 2020 2019 Foreign currency translation adjustments $ ( 4,574 ) $ ( 4,646 ) $ ( 4,550 ) Total accumulated other comprehensive loss $ ( 4,574 ) $ ( 4,646 ) $ ( 4,550 ) The following represents the changes in accumulated other comprehensive loss, net of tax by component for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 Year Ended December 31, 2020 (in thousands) Foreign Currency Items Total Foreign Currency Items Total Beginning Balance $ ( 4,646 ) $ ( 4,646 ) $ ( 4,550 ) $ ( 4,550 ) Other comprehensive gain (loss) before reclassification 72 72 ( 96 ) ( 96 ) Ending Balance $ ( 4,574 ) $ ( 4,574 ) $ ( 4,646 ) $ ( 4,646 ) During the year ended December 31, 2019, $ 0.8 million and $ 0.6 million was reclassified from accumulated other comprehensive loss to Interest expense and Loss on extinguishment of debt, respectively, in the Company's consolidated statements of income with reference to a cash flow hedge loss on an interest rate contract. There was no income tax expense or benefit. There were no amounts reclassified during the year ended December 31, 2020 or December 31, 2021, as the debt related to the Interest rate contract was paid off in December 2019. 18. Earnings Per Share The Company’s shares of restricted stock contain rights to receive nonforfeitable dividends and thus are participating securities requiring the computation of basic earnings per share (“EPS”) using the two-class method. As the shares of restricted stock are both potential shares of common stock and participating securities, the Company calculates diluted earnings per share by the more dilutive of the treasury stock method or the two-class method. The calculation of EPS for net income available to common shareholders excludes the distribution of dividends and undistributed earnings attributable to participating securities from the numerator. The diluted earnings weighted average shares of common stock outstanding includes stock options, PVRSUs and RSUs. 101 Table of Contents The computation of basic and diluted earnings per common share is as follows: Year Ended December 31, (in thousands, except per share amounts) 2021 2020 2019 Numerator: Net income $ 288,957 $ 75,387 $ 222,878 Income allocated to participating securities ( 1,125 ) ( 423 ) ( 1,352 ) Net income available to common shareholders $ 287,832 $ 74,964 $ 221,526 Denominator: Weighted average common shares outstanding - basic 55,379 55,175 55,358 Basic earnings per share $ 5.20 $ 1.36 $ 4.00 Numerator: Net income $ 288,957 $ 75,387 $ 222,878 Income allocated to participating securities ( 1,125 ) ( 423 ) ( 1,346 ) Net income available to common shareholders $ 287,832 $ 74,964 $ 221,532 Denominator: Weighted average common shares outstanding - basic 55,379 55,175 55,358 Diluted effect of stock options and PVRSUs 504 354 310 Weighted average common shares outstanding - diluted 55,883 55,529 55,668 Diluted earnings per share $ 5.15 $ 1.35 $ 3.98 The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect: Year Ended December 31, (in thousands) 2021 2020 2019 Stock Options — 155 — PVRSUs 155 231 168 19. Leases Lessee The Company has operating leases primarily for office space, buildings, and equipment. Our leases have remaining lease terms of one month to eleven years , some of which may include options to extend leases for up to five years and some which may include options to terminate the leases within one year . The Company's lease costs were as follows: Year Ended December 31, (in thousands) 2021 2020 Operating lease cost $ 9,499 $ 9,700 Short-term lease cost 325 280 Sublease income ( 134 ) — Total lease cost $ 9,690 $ 9,980 102 Table of Contents Leases recorded on the consolidated balance sheet consist of the following: December 31, (in thousands) 2021 2020 Assets: Operating lease right-of-use assets $ 34,183 $ 17,688 Liabilities: Current operating lease liabilities $ 11,998 $ 10,603 Long-term operating lease liabilities 35,492 12,739 Total lease liabilities $ 47,490 $ 23,342 On October 4, 2021, an office lease with an approximate 10 -year term with an unrelated third party commenced. The Company accounted for this lease as an operating lease and established a lease liability and right-of-use asset of approximately $ 34.6 million and $ 25.3 million, respectively, during the fourth quarter of 2021. Other information related to the Company's lease arrangements is as follows: Year Ended December 31, (in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,528 $ 11,926 ROU assets obtained in exchange for lease liabilities in non-cash transactions: Operating lease assets obtained in exchange for operating lease liabilities $ 25,852 $ 2,364 Weighted-average remaining lease term 7.66 years 2.24 years Weighted-average discount rate (1) 2.79 % 3.55 % (1) Discount rates used for existing operating leases upon adoption of Topic 842 were established based on remaining lease term as of January 1, 2019. Maturities of lease liabilities as of December 31, 2021 are as follows: (in thousands) 2022 $ 13,119 2023 7,435 2024 3,878 2025 3,855 2026 3,788 Thereafter 20,443 Total minimum lease payments $ 52,518 Less imputed interest 5,028 Present value of minimum lease payments $ 47,490 In the fourth quarter of 2021, the Company entered into one office lease agreement with an unrelated third-party that we expect to account for as an operating lease. This lease is not reflected in our consolidated balance sheets or in the table above as the lease has not commenced. The lease has an approximate 11 -year term and expected to commence in the fourth quarter of 2023. Related Party The Company and family members of the Company's largest shareholder entered into an agreement that allows those family members to lease the Company aircraft from time to time for their personal use. The agreement provides for lease payments that contribute towards the fixed costs associated with the aircraft as well as reimbursement of the Company’s variable costs associated with operation of the aircraft, in compliance with, and to the extent authorized by, applicable regulatory requirements. The terms of the lease agreements are consistent with the terms of lease agreements that the Company has entered into with unrelated third parties for use of the aircraft. During the years ended December 31, 2021 and 2020, the Company received $ 0.2 million and $ 0.2 million, respectively, pursuant to this arrangement. In December 2013, the Company's board of directors approved an arrangement between the Company and an entity controlled by the family members of the Company's largest shareholder to sublease approximately 2,200 square feet of office space 103 Table of Contents located in Chevy Chase, Maryland. The sublease had a month-to-month term, with a 90 -day notice period and annual lease payments totaling approximately $ 0.1 million. The sublease was not renewed following April 2019. During the year ended December 31, 2019, the Company received approximately $ 49 thousand in rent payments associated with this lease. Subsequently, the entity affiliated with the Company's largest shareholder entered into a separate lease with a third-party lessor and the Company reimburses the entity for use of the space by the Company's Chairman. During the years ended December 31, 2020 and 2019, the Company reimbursed the entity approximately $ 66 thousand and $ 76 thousand, respectively. 20. Reportable Segments The Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its 14 brands. The 14 brands are aggregated within this segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments. Revenues from the hotel franchising business include royalty fees, initial franchise and relicensing fees, marketing and reservation system fees, procurement services revenue and other hotel franchising related revenue. The Company is obligated under its hotel franchise agreements to provide marketing and reservation services appropriate for the operation of its systems. The revenues received from franchisees that are used to pay for part of the Company's ongoing operations are included in hotel franchising revenues and are offset by the related expenses paid for marketing and reservation system activities to calculate hotel franchising operating income. Equity in earnings or losses from hotel franchising related investments in affiliates is allocated to the Company's hotel franchising segment. The Company evaluates its hotel franchising segment based primarily on the results of the segment without allocating corporate expenses, indirect general and administrative expenses, interest expense, interest income, other gains and losses or income taxes, which are included in the Corporate & Other column. Corporate & Other revenues include owned hotel revenues, rental income related to an office building owned by the Company, and revenues related to the Company's SaaS technology solutions division which provide cloud-based property management software to non-franchised hoteliers. The intersegment revenue adjustment is from the elimination of Hotel Franchising revenue which include royalty and marketing and reservation system fees charged to our owned hotels against franchise fee expense recognized by our owned hotels in Corporate & Other operating income (loss). Our President and Chief Executive Officer, who is our CODM, does not use assets by operating segment when assessing performance or making operating segment resource allocation decisions and therefore assets by segment are not disclosed below. The following tables present the financial information for the Company's segments: For the Year Ended December 31, 2021 (in thousands) Hotel Franchising Corporate & Other Intersegment Eliminations Consolidated Revenues $ 1,026,409 $ 45,740 $ ( 2,851 ) $ 1,069,298 Operating income (loss) 485,199 ( 56,266 ) — 428,933 Depreciation and amortization 8,050 16,723 — 24,773 Income (loss) before income taxes 468,894 ( 92,402 ) — 376,492 For the Year Ended December 31, 2020 (in thousands) Hotel Franchising Corporate & Other Intersegment Eliminations Consolidated Revenues $ 747,329 $ 28,257 $ ( 1,514 ) $ 774,072 Operating income (loss) 191,301 ( 69,634 ) — 121,667 Depreciation and amortization 8,000 17,831 — 25,831 Income (loss) before income taxes 176,012 ( 123,006 ) — 53,006 For the Year Ended December 31, 2019 (in thousands) Hotel Franchising Corporate & Other Intersegment Eliminations Consolidated Revenues $ 1,085,860 $ 30,700 $ ( 1,740 ) $ 1,114,820 Operating income (loss) 392,405 ( 73,867 ) — 318,538 Depreciation and amortization 7,995 10,833 — 18,828 Income (loss) before income taxes 382,829 ( 112,900 ) — 269,929 104 Table of Contents The results of the Company's international operations are included in the Hotel Franchising and Corporate & Other segments. Revenues generated by foreign operations, including royalty, marketing and reservations system fees and other revenues for the years ended December 31, 2021, 2020 and 2019 were $ 46.8 million, $ 42.6 million, and $ 69.5 million, respectively. 21. Related Party Transactions Transactions with Company's Largest Shareholder Effective October 15, 1997, Choice Hotels International, Inc., which included both a franchising business and owned hotel business, separated the businesses via a spin-off into two companies: Sunburst Hospitality Corporation (referred to hereafter as “Sunburst”) and the Company. Subsequent to the spin-off, the Company’s largest shareholder retained significant ownership percentages in both Sunburst and the Company. As part of the spin-off, Sunburst and the Company entered into a strategic alliance agreement (as amended, the "Strategic Alliance Agreement"). Among other things, the Strategic Alliance Agreement provided for revised royalty and system fees and the determination of liquidated damages related to the termination of Choice branded Sunburst properties. The liquidated damage provisions extend through the life of the existing Sunburst franchise agreements. On June 5, 2019, the Strategic Alliance Agreement was terminated and replaced with addenda to each of the five hotels under franchise at that time. The addenda preserve certain terms from the Strategic Alliance Agreement with respect to the five hotels, including the revised royalty and system fee and liquidated damage provisions, which would also apply to new franchise agreements signed for the five hotels (as either a renewal or a change to another Choice brand not contemplated at the time of original agreement execution). No terms were substantially modified with respect to the five operating hotels under franchise. In June 2019, the Company and Sunburst entered into master development agreements which provide Sunburst geographic exclusivity in two specified regions for development of five WoodSpring branded hotels. For the years ended December 31, 2021 and 2020, there were zero and one new franchise agreement signed between the Company and Sunburst, respectively. As of December 31, 2021, Sunburst operates four hotels under franchise with the Company. Total franchise fees, including royalty and marketing and reservation system fees, paid by Sunburst to the Company included in the accompanying consolidated financial statements were $ 0.4 million, $ 0.5 million, and $ 1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of both December 31, 2021 and 2020, accounts receivable due from Sunburst were $ 0.1 million. 22. Transactions with Unconsolidated Affiliates The Company extends loans to various unconsolidated affiliates or members of our unconsolidated affiliates. The Company has a total principal balance on these loans of $ 90.7 million as of both December 31, 2021 and December 31, 2020, respectively. These loans mature at various dates and bear interest at fixed and variable rates. The Company signed a management fee arrangement for marketing services with a partner in an unconsolidated affiliate. For the years ended December 31, 2021, 2020 and 2019, fees earned and payroll costs reimbursed under this arrangement totaled $ 1.4 million, $ 1.3 million and $ 2.3 million, respectively. The Company entered into franchise agreements with certain of the unconsolidated affiliates listed within Note 8. Pursuant to these franchise agreements, the Company recorded royalty and marketing and reservation system fees of approximately $ 20.2 million, $ 13.9 million, and $ 25.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company recorded $ 2.7 million and $ 2.4 million as a receivable due from these unconsolidated affiliates as of December 31, 2021 and 2020, respectively. 23. Commitments and Contingencies The Company is not a party to any litigation other than litigation in the ordinary course of business. The Company's management and legal counsel do not expect that the ultimate outcome of any of its currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations or cash flows. 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 maximum exposure of principal incidental to these limited payment guaranties is $ 5.7 million, plus unpaid expenses and accrued unpaid interest. As of December 31, 2021 and 105 Table of Contents 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. Commitments The Company has the following commitments outstanding at December 31, 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 December 31, 2021, the Company had commitments to extend an additional $ 278.6 million for these purposes provided the conditions of the payment are met by its franchisees. • To the extent existing unconsolidated affiliates 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 loans or credit facilities to franchisees for Choice brand development efforts. For the year ended December 31, 2021, the Company has committed to provide an aggregate of approximately $ 9.7 million, upon certain conditions being met. As of December 31, 2021, $ 2.2 million has been disbursed. • The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. In accordance with terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing and reservation services appropriate to support the operation of the overall system. To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to assess and collect such amounts. In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies another party for breaches of representations and warranties. Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements. The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters in debt or equity security issuances and (vi) parties under certain operating agreements. In addition, these parties are also generally indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. While some of these indemnities extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these indemnities, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these indemnifications as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as indemnifications of landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates potential liability. 24. Acquisitions 2021 Asset Acquisition In September 2021, the Company reached a settlement with a borrower holding a senior and mezzanine loan classified as collateral-dependent, collateralized by an operating hotel. As a collateral-dependent financial asset, the expected credit losses as of September 30, 2021 were determined based on the fair value of the operating hotel. As of September 30, 2021, the notes receivable, net of allowance for credit losses, balance was $ 21.1 million. 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 recorded at the fair value of $ 21.1 million as of the acquisition date of October 1, 2021. The fair value was estimated using an income approach valuation method based on discounted cash flows of the collateralized operating hotel utilizing historical operating performance, industry projections for the market, and comparable sales capitalization rates. 106 Table of Contents In accordance with the provisions of ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01") , the purchase represents an asset acquisition based on the concentration of value in the acquired land and building. The $ 21.1 million was re-characterized from Notes receivable, net of allowance for credit losses, and attributed to each asset class based on a relative fair value allocation to qualifying assets, resulting in $ 4.8 million to land, $ 14.2 million to building and improvements, $ 1.8 million to furniture, fixtures, and equipment, and $ 0.3 million to net assets assumed (inclusive of cash). The relative fair values for each asset class were estimated using a combination of income and market approach valuations methods. 2019 Asset Acquisition Prior to July 23, 2019, the Company held a 40 % ownership interest of an affiliate that owned five Cambria hotels recorded as an investment in unconsolidated entities. On July 23, 2019, the Company redeemed the remaining 60 % ownership interest in four of the hotels for approximately $ 169.0 million cash paid (inclusive of $ 0.7 million in capitalized transaction costs), net of cash acquired. The transaction was funded with cash and borrowings under the Company's revolving credit facility. In accordance with the provisions of ASU 2017-01, the purchase represents an asset acquisition based on the concentration of value in the acquired land and buildings. This assessment was performed on the four hotels as a group of similar identifiable assets based on the similar risk characteristics as operating Cambria Hotels. The $ 25.0 million previously in investments in unconsolidated entities is included in the total net asset basis of $ 194.0 million. The total net asset basis was attributed to each asset and asset class based on a relative fair value allocation to qualifying assets, resulting in $ 21.7 million to land, $ 148.4 million to building and improvements, $ 27.0 million to furniture, fixtures, and equipment, $ 0.8 million to an in-place lease intangible asset, and $ 3.9 million to net liabilities assumed. 25. Subsequent Events On February 24, 2022, the Company's board of directors declared a quarterly cash dividend of $ 0.2375 per share of common stock. The dividend is payable on April 15, 2022 to shareholders of record on April 1, 2022 . ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.