What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-04 · 296 added, 133 removed, 503 unchanged (46% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Royalty fees $ 121,449 $ 106,242 $ 212,188 $ 172,289

Initial franchise and relicensing fees 6,222 7,328 14,624 12,755

Royalty, licensing and management fees $ 144,020 $ 127,317 $ 356,208 $ 299,606

Initial franchise fees 7,011 6,149 21,635 18,904

Procurement services 14,401 13,010 47,887 36,293

Marketing and reservation system 189,382 135,988 316,019 227,509

Owned hotels 19,992 11,377 49,220 24,724

Other 31,432 8,645 51,588 20,753

Other revenues from franchised and managed properties 197,410 156,871 513,429 384,380

Total revenues 414,266 323,369 1,039,967 784,660

2 unchanged sentences

Depreciation and amortization 8,726 5,883 20,436 18,477

Marketing and reservation system 153,846 113,285 267,496 211,458

Owned hotels 13,158 7,054 32,004 16,534

Other expenses from franchised and managed properties 190,541 116,216 458,037 327,674

Total operating expenses

19 unchanged sentences

(IN THOUSANDS)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

9 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets

26 unchanged sentences

Current portion of long-term debt 2,976 216,351

Liability for guest loyalty program 78,955 86,765

Liability for guest loyalty programs 82,461 86,765

Total current liabilities 426,383 570,295

4 unchanged sentences

Operating lease liabilities 70,564 35,492

Liability for guest loyalty program 37,684 41,785

Liability for guest loyalty programs 49,113 41,785

Other liabilities 10,564 9,130

3 unchanged sentences

160,000,000 shares authorized;

95,065,638 shares issued at June 30, 2022 and December 31, 2021;

55,780,322 and 55,609,226 shares outstanding at June 30, 2022 and December 31, 2021, respectively

95,065,638 shares issued at September 30, 2022 and December 31, 2021;

53,773,667 and 55,609,226 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in-capital 284,092 259,317

1 unchanged sentence

Treasury stock, at cost;

39,285,316 and 39,456,412 shares at June 30, 2022 and December 31, 2021, respectively

41,291,971 and 39,456,412 shares at September 30, 2022 and December 31, 2021, respectively

( 1,507,423 ) ( 1,265,032 )

7 unchanged sentences

(IN THOUSANDS)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization 20,436 18,477

Depreciation and amortization – marketing and reservation system 14,608 12,076

Depreciation and amortization – marketing, reservation, and system 23,237 18,364

Gain on sale and disposal of business and assets, net ( 16,688 ) —

Franchise agreement acquisition cost amortization 7,623 6,294

Amortization - franchise agreement acquisition cost 11,558 9,734

Stock compensation and other charges 28,621 24,277

10 unchanged sentences

Proceeds from sale of business and assets 140,554 —

Proceeds from termination of intangibles 5,698 —

Business acquisition, net of cash acquired ( 550,431 ) —

Contributions to investments in affiliates ( 4,264 ) ( 2,150 )

7 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Payments to extinguish acquired debt ( 55,975 ) —

Proceeds from acquired derivative 1,943 —

Net borrowings pursuant to revolving credit facilities 315,000 —

Principal payments on 2012 senior notes ( 216,571 ) —

Debt issuance costs ( 24 ) ( 365 )

Purchase of treasury stock ( 15,140 ) ( 5,362 )

Purchases of treasury stock ( 246,530 ) ( 10,039 )

Dividends paid ( 39,697 ) ( 12,528 )

Proceeds from exercise of stock options 2,361 10,817

Net cash (used in) provided by financing activities ( 39,258 ) 3,753

Net cash used in financing activities ( 239,493 ) ( 12,115 )

Net change in cash and cash equivalents ( 457,952 ) 180,560

39 unchanged sentences

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

Net income — — — — — 116,655 116,655

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

Share based payment activity (1)

23,757 — 6,757 — 1,045 6 7,808

Dividends declared ($ 0.225 per share) (1)

— — — — — ( 12,517 ) ( 12,517 )

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

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

Outstanding Common

22 unchanged sentences

Balance as of June 30, 2022 55,780,322 $ 951 $ 274,384 $ ( 4,811 ) $ ( 1,276,090 ) $ 1,422,291 $ 416,725

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

In May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our board of directors, and declared a quarterly cash dividend of $ 0.225 per share of common stock.

Net income — — — — — 103,080 103,080

Other comprehensive income (loss), net of tax — — — ( 902 ) — — ( 902 )

Share based payment activity (1)

( 1,655 ) — 9,708 — 55 — 9,763

Dividends declared ($ 0.2375 per share) (1)

— — — — — ( 12,767 ) ( 12,767 )

Treasury purchases ( 2,005,000 ) — — — ( 231,388 ) — ( 231,388 )

Balance as of September 30, 2022 53,773,667 $ 951 $ 284,092 $ ( 5,713 ) $ ( 1,507,423 ) $ 1,512,604 $ 284,511

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

In May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by the Company's board of directors, and 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.

7 unchanged sentences

The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc.

and its subsidiaries (together the "Company") have been prepared by the Company in accordance 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").

and its subsidiaries (together "Choice" or the "Company") have been prepared by the Company in accordance 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 between the Company and its subsidiaries have been eliminated in consolidation.

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Interim results are not necessarily indicative of the entire year results.

Acquisition of Radisson Hotels Americas

On August 11, 2022, the Company completed the acquisition (the "Transaction") of (1) all of the issued and outstanding shares of Radisson Hospitality, Inc.

and (2) certain trademarks held by Radisson Hospitality Belgium BV/SRL (collectively referred to as "Radisson Hotels Americas").

With the close of this Transaction, Choice Hotels International has added approximately 67,000 rooms across the United States, Canada, Caribbean and Latin America.

The Transaction expands the Company's footprint in international markets and the upper-upscale and upscale full-service segments and enhances guest offerings in the core upper-midscale segment.

It also accelerates our asset-light strategy of growth in higher revenue travel segments and locations.

The Company has determined it is the accounting acquirer of Radisson Hotels Americas and has accounted for the Transaction as a business combination using the acquisition method of accounting.

Accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date.

Other revenues and expenses from franchised and managed properties

In conjunction with the third quarter acquisition of Radisson Hotels Americas, Inc., which resulted in the Company acquiring certain management contracts, the Company has revised its historical presentation of marketing, reservation and system fees and expenses to include fees and expenses related to the acquired management contracts.

The presentation of Other revenues from franchised and managed properties represents amounts contractually reimbursable by, or amounts billed and collected in advance from, owners of franchised and managed properties, relating to certain costs and expenses paid by us in support of the operations of these properties.

Indirect and direct reimbursements are as follows:

• Direct reimbursements include payroll and related costs and certain other operating costs of the managed and franchised properties' operations, which are contractually reimbursed to us by the property owners as expenses are incurred.

Revenue is recognized based on the amount of expenses incurred by Choice, which are presented as other expenses from managed and franchised properties in our consolidated statements of operations, that are then reimbursed to us by the property owner typically on a monthly basis, which results in no net effect on operating income or net income.

• Indirect reimbursements include marketing, reservation, system and other expenses associated with our brand programs and shared services, which are paid from royalties and program fees collected by Choice from the managed and franchised properties.

Indirect reimbursements are typically billed and collected monthly, based on the underlying hotel's sales or usage (such as gross room revenue or number of reservations processed), and revenue is generally recognized as services are provided.

The expenses incurred by Choice to operate the marketing and brand programs

and shared services are recognized as incurred and presented as Other expenses from managed and franchised properties in our consolidated statements of income and are expected to equal the revenues earned from indirect reimbursements over time.

Royalty, licensing and management fees

In conjunction with the Transaction, the Company has revised its historical presentation of Royalty fees to Royalty, licensing and management fees to reflect current and future period activity, which includes revenue associated with the acquired management contracts.

Initial franchise fees

The Company has revised its historical presentation of Initial franchise and relicensing fees to Initial franchise fees.

Summary of Significant Accounting Policies

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Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08").

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Topic 606, as opposed to at fair value.

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Revenue from Contracts with Customers (Topic 606) , as if the acquirer had originated the contracts at the date of the business combination.

ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted.

The Company has elected to early adopt ASU 2021-08 in the second quarter of 2022.

The adoption has no present impact on the Company's consolidated financial statements, but will impact the accounting for contract assets and contract liabilities acquired in future business combinations.

The Company elected to early adopt ASU 2021-08 in the second quarter of 2022.

There was no retrospective impact to our consolidated financial statement as a result of the adoption.

ASU 2021-08 was applied in the accounting for the acquisition of Radisson Hotels Americas, and accordingly, the Company determined that the carrying value of the contract assets and contract liabilities of Radisson Hotels Americas reflects fair value (see Note 15).

Recently Issued Accounting Standards

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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.

Deferred revenues from initial and relicensing fees and system implementation fees are typically 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 are recognized to revenue in the period of termination.

Contract liabilities relate to (i) advance consideration received, such as initial franchise 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 loyalty points are issued, but for which revenue is not yet recognized since the related loyalties points have not been redeemed.

Deferred revenues from initial fees and system implementation fees are typically 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 are recognized to revenue in the period of termination.

Loyalty points are typically redeemed within three years of issuance.

Significant changes in the contract liabilities balances during the period December 31, 2021 to June 30, 2022 are as follows:

Significant changes in the contract liabilities balances during the period December 31, 2021 to September 30, 2022 are as follows:

(in thousands)

Balance as of December 31, 2021 $ 175,425

Assumption of contract liabilities from Radisson Hotels Americas acquisition 30,031

Increases to the contract liability balance due to cash received 84,356

Revenue recognized in the period ( 86,473 )

Balance as of June 30, 2022 $ 174,690

Balance as of September 30, 2022 $ 203,339

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 174.7 million as of June 30, 2022.

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 203.3 million as of September 30, 2022.

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

2 unchanged sentences

Three Months Ended Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

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

Royalty fees $ 121,449 $ — $ 121,449 $ 106,242 $ — $ 106,242

Initial franchise and relicensing fees 6,222 — 6,222 7,328 — 7,328

Royalty, licensing and management fees $ 143,987 $ 33 $ 144,020 $ 127,317 $ — $ 127,317

Initial franchise fees 7,011 — 7,011 6,149 — 6,149

Procurement services 13,628 773 14,401 12,285 725 13,010

Marketing and reservation system 148,126 41,256 189,382 121,944 14,044 135,988

Owned hotels 14,854 5,115 19,969 9,614 1,652 11,266

Other 31,432 — 31,432 8,645 — 8,645

Other revenues from franchised and managed properties 178,349 19,061 197,410 145,216 11,655 156,871

Total Topic 606 revenues $ 389,261 $ 24,982 414,243 $ 309,226 $ 14,032 323,258

1 unchanged sentence

Total revenues $ 414,266 $ 323,369

Six Months Ended Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended Nine Months Ended

September 30, 2022 September 30, 2021

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

Royalty fees $ 212,188 $ — $ 212,188 $ 172,289 $ — $ 172,289

Initial franchise and relicensing fees 14,624 — 14,624 12,755 — 12,755

Royalty, licensing and management fees $ 356,175 $ 33 $ 356,208 $ 299,606 $ — $ 299,606

Initial franchise fees 21,635 — 21,635 18,904 — 18,904

Procurement services 45,503 2,384 47,887 34,526 1,767 36,293

Marketing and reservation system 260,382 55,637 316,019 200,995 26,514 227,509

Owned hotels 39,490 9,500 48,990 20,683 3,709 24,392

Other 51,588 — 51,588 20,753 — 20,753

Other revenues from franchised and managed properties 438,734 74,695 513,429 346,211 38,169 384,380

Total Topic 606 revenues $ 953,125 $ 86,612 1,039,737 $ 740,683 $ 43,645 784,328

1 unchanged sentence

Total revenues $ 1,039,967 $ 784,660

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.

As presented in Note 11, the Corporate & Other segment amounts represent $ 19.4 million and $ 10.9 million for the three months ended June 30, 2022 and 2021, respectively, and $ 33.7 million and $ 17.0 million for the six months ended June 30, 2022 and 2021, respectively, and are included in the Over time column of Other revenues and the Owned hotels and Non-Topic 606 revenues rows.

Other revenues from franchised and managed properties and Royalty, licensing and management fees 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.

Other revenues include contract termination fees of $ 22.6 million related to the termination of 110 WoodSpring units.

The termination fees recognized represent the $ 67.4 million in consideration less the carrying basis of the related contract intangibles.

As presented in Note 11, the Corporate & Other segment revenue amounts represent $ 29.7 million and $ 13.5 million for the three months ended September 30, 2022 and 2021, respectively, and $ 63.4 million and $ 30.5 million for the nine months ended September 30, 2022 and 2021, 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 $ 1.3 million and $ 0.7 million for the three months ended June 30, 2022 and 2021, respectively, and $ 2.2 million and $ 1.0 million for the six months ended June 30, 2022 and 2021, respectively.

Royalty, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $ 1.6 million and $ 0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 3.7 million and $ 1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Receivables and Allowance for Credit Losses

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

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Senior $ 95,501 $ 108,370

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The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses:

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Beginning balance $ 16,779 $ 19,484

2 unchanged sentences

Ending balance $ 11,413 $ 16,779

As of June 30, 2022 and December 31, 2021, one loan and two loans, respectively, with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel.

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

As of September 30, 2022 and December 31, 2021, one and two loans, respectively, with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel.

The Company used a discounted cash flow ("DCF") 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.

Allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million and $ 6.3 million as of June 30, 2022 and December 31, 2021, respectively.

The write-offs for the year ended June 30, 2022 and December 31, 2021 are associated with loans previously classified as collateral-dependent that were settled in exchange for an operating hotel on April 14, 2022 and October 1, 2021, respectively.

Based on these analyses, the fair value of collateral secures substantially all of the carrying value of each loan.

Allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million and $ 6.3 million as of September 30, 2022 and December 31, 2021, respectively.

The write-offs for the year ended September 30, 2022 and December 31, 2021 are primarily associated with loans previously classified as collateral-dependent that were settled in exchange for an operating hotel on April 14, 2022 and October 1, 2021, respectively, as well as one loan that was settled under negotiated terms.

Refer to Note 15 regarding the second quarter 2022 asset acquisition accounting.

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

The Company considers loans past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral.

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The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions.

The amortized cost basis of notes receivable on non-accrual status was $ 18.2 million and $ 44.1 million at June 30, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $ 7.5 million as of both June 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.2 million and $ 0.3 million as of June 30, 2022 and December 31, 2021, respectively.

The amortized cost basis of notes receivable on non-accrual status was $ 18.2 million and $ 44.1 million at September 30, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $ 4.8 million and $ 7.5 million as of September 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.1 million and $ 0.3 million as of September 30, 2022 and December 31, 2021, respectively.

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

6 unchanged sentences

Notes Receivable

As of June 30, 2022

As of September 30, 2022

Senior $ — $ — $ 15,188 $ 15,188 $ 80,313 $ 95,501

7 unchanged sentences

$ — $ — $ 2,209 $ 2,209 $ 135,474 $ 137,683

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of June 30, 2022.

The Company evaluated its off-balance-sheet credit exposure for loan commitments and determined the likelihood of having to perform is remote as of September 30, 2022.

Refer to Note 12.

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 101.7 million and $ 120.2 million as of June 30, 2022 and December 31, 2021, respectively.

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 102.3 million and $ 120.2 million as of September 30, 2022 and December 31, 2021, respectively.

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

2 unchanged sentences

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

During six months ended June 30, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 1.1 million in SG&A expenses and $ 0.3 million in marketing and reservation system expenses.

During the six months ended June 30, 2021, the Company recorded reversal of provisions for credit losses on accounts receivable of $ 0.1 million in SG&A expenses and provisions of $ 0.2 million in marketing and reservation system expenses.

During the six months ended June 30, 2022 and 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 11.2 million and $ 2.4 million, respectively.

During the nine months ended September 30, 2022, the Company recorded reversals of provisions for credit losses on accounts receivable of $ 0.4 million in SG&A expenses and provisions of $ 0.5 million in marketing and reservation system expenses.

During the nine months ended September 30, 2021, the Company recorded reversal of provisions for credit losses on accounts receivable of $ 2.2 million in SG&A expenses and provisions of $ 4.2 million in marketing and reservation system expenses.

During the nine months ended September 30, 2022 and 2021, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 12.9 million and $ 5.5 million, respectively.

The Company assumed $ 33.0 million of trade accounts receivable as a result of the Radisson acquisition.

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 $ 24.1 million and $ 25.2 million on the consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively.

The Company has investments in affiliates that represent VIEs totaling $ 24.4 million and $ 25.2 million on the consolidated balance sheets at September 30, 2022 and December 31, 2021, 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.

For the three months ended June 30, 2022 and 2021, the Company recognized losses (gains) totaling $ 0.9 million and $( 0.9 ) million, respectively, from these investments that represent VIEs.

For the six months ended June 30, 2022 and 2021, the Company recognized losses totaling $ 1.7 million and $ 5.5 million, respectively, from these investments that represent VIEs.

For the three months ended September 30, 2022 and 2021, the Company recognized losses (gains) totaling $ 1.1 million and $( 2.5 ) million, respectively, from these investments that represent VIEs.

For the nine months ended September 30, 2022 and 2021, the Company recognized losses totaling $ 2.7 million and $ 3.0 million, respectively, from these investments that represent VIEs.

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

The Company recognized no impairment charges related to equity method investments during the six months ended June 30, 2022.

The Company recognized no impairment charges related to equity method investments, nor did we sell an ownership in a joint venture during the nine months ended September 30, 2022.

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

2 unchanged sentences

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

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

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

As a result, the Company recorded an other-than-

temporary impairment from the carrying value to the estimated fair value for the investment.

The other-than-temporary impairment is classified as equity in net loss (gain) of affiliates in the consolidated statements of income and captured in the Hotel Franchising reportable segment in Note 11.

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

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

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

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

Debt consists of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in thousands)

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 5.2 million and $ 5.5 million at June 30, 2022 and December 31, 2021, respectively

$ 450 million senior unsecured notes due 2031 ("2020 Senior Notes") with an effective interest rate of 3.86 %, less a discount and deferred issuance costs of $ 5.1 million and $ 5.5 million at September 30, 2022 and December 31, 2021, respectively

$ 444,927 $ 444,470

$ 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 $ 4.5 million and $ 4.8 million at June 30, 2022 and December 31, 2021, respectively

$ 400 million senior unsecured notes due 2029 ("2019 Senior Notes") with an effective interest rate of 3.88 %, less a discount and deferred issuance costs of $ 4.3 million and $ 4.8 million at September 30, 2022 and December 31, 2021, respectively

395,688 395,237

$ 216.6 million senior unsecured notes due 2022 ("2012 Senior Notes") with an effective interest rate of 6.00 %, less deferred issuance costs of $ 0.2 million at December 31, 2021 (1)

216,571 216,351

$ 600 million senior unsecured revolving credit facility (1)

Economic development loans with an effective interest rate of 3.00 % at June 30, 2022 and December 31, 2021, respectively

$ 600 million senior unsecured revolving credit facility with an effective interest rate of 3.89 % less deferred issuance costs of $ 1.9 million and $ 2.3 million at September 30, 2022 and December 31, 2021, respectively

Economic development loans with an effective interest rate of 3.00 % at September 30, 2022 and December 31, 2021, respectively

Total debt (2)

$ 1,158,118 $ 1,060,474

Less current portion (1)

1 unchanged sentence

Long-term debt $ 1,155,142 $ 844,123

(1) During the third quarter of 2020, the Company utilized excess cash on hand to pay down its senior unsecured revolving credit facility balance in full and the facility remains undrawn as of June 30, 2022 and December 31, 2021.

As there are no outstanding borrowings at June 30, 2022 or December 31, 2021, deferred issuance costs for the senior unsecured revolving credit facility of $ 2.0 million and $ 2.3 million, respectively, are presented in non-current Other assets in the consolidated balance sheets.

(1) The 2012 Senior Notes matured on July 1, 2022.

The outstanding principal of $ 216.6 million was re-paid at maturity.

(2) As part of the Transaction, we assumed debt that was subsequently paid off.

For additional details refer to Note 15.

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

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2022 and 2021 are as follows:

The changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2022 and 2021 are as follows:

(in thousands)

2 unchanged sentences

Net current period other comprehensive income (loss) ( 1,139 )

Balance as of June 30, 2022 $ ( 4,811 )

Balance as of September 30, 2022 $ ( 5,713 )

(in thousands)

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Net current period other comprehensive income (loss) 66

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

The other comprehensive income (loss) before reclassification for both the six months ended June 30, 2022 and 2021 relate to foreign currency items.

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

The other comprehensive income (loss) before reclassification for both the nine months ended September 30, 2022 and 2021 relate to foreign currency items.

Fair Value Measurements

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

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the six months ended June 30, 2022.

As of June 30, 2022 and December 31, 2021, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

The Company does not currently have any assets recorded at fair value whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the nine months ended September 30, 2022.

As of September 30, 2022 and December 31, 2021, the Company had the following assets recorded in the consolidated balance sheets measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date Using

(in thousands) Total Level 1 Level 2 Level 3

As of June 30, 2022

As of September 30, 2022

Mutual funds (1)

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Refer to Note 5 for further information on debt, including the maturity of the 2012 Senior Notes.

At June 30, 2022 and December 31, 2021, the carrying amounts and fair values are as follows:

June 30, 2022 December 31, 2021

At September 30, 2022 and December 31, 2021, the carrying amounts and fair values are as follows:

September 30, 2022 December 31, 2021

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

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

The effective income tax rates were 25.3 % and 23.2 % for the three months ended June 30, 2022 and 2021, respectively.

The effective income tax rates were 24.5 % and 23.0 % for the six months ended June 30, 2022 and 2021, respectively.

The effective income tax rate for the three and six months ended June 30, 2022 and 2021 was higher than the U.S.

The effective income tax rates were 24.6 % and 23.1 % for the three months ended September 30, 2022 and 2021, respectively.

The effective income tax rates were 24.5 % and 23.0 % for the nine months ended September 30, 2022 and 2021, respectively.

The effective income tax rate for the three months ended September 30, 2022 was higher than the U.S.

federal income tax rate of 21% primarily due to the impact of state income taxes.

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

federal income tax rate of 21% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.

The effective income tax rates for the nine months ended September 30, 2022 and 2021 were higher than the U.S.

federal income tax rate of 21% primarily due to the impact of state income taxes, partially offset by excess tax benefits from share-based compensation.

Share-Based Compensation and Capital Stock

The components of the Company’s pretax share-based compensation activity are as follows for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

The components of the Company’s pretax share-based compensation activity are as follows for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands) 2022 2021 2022

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Total share-based compensation expense $ 9,866 $ 6,168 $ 26,860 $ 17,368

A summary of share-based award activity as of and changes during the six months ended June 30, 2022 are presented below:

A summary of share-based award activity as of and changes during the nine months ended September 30, 2022 are presented below:

Stock Options Restricted Stock Performance Vested

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Forfeited ( 3,255 ) 131.73 ( 11,433 ) 106.12 ( 3,819 ) 125.04

Outstanding at June 30, 2022 1,020,748 $ 94.07 5.9 392,480 $ 128.25 465,678 $ 136.02

Options exercisable at June 30, 2022 546,114 $ 76.29 3.8

(1) PVRSUs outstanding have been increased by 21,281 units in the six months ended June 30, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Outstanding at September 30, 2022 1,035,210 $ 94.39 5.7 397,242 $ 128.38 469,813 $ 136.32

Options exercisable at September 30, 2022 546,114 $ 76.29 3.5

(1) PVRSUs outstanding have been increased by 27,775 units in the nine months ended September 30, 2022 due to the Company exceeding the targeted performance conditions contained in PVRSUs.

Stock Options

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

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

date of grant.

The service period of restricted stock awards granted during the six months ended June 30, 2022 range from 9 to 60 months.

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

The service period of restricted stock awards granted during the nine months ended September 30, 2022 range from 9 to 60 months.

Performance Vested Restricted Stock Units

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

During the six months ended June 30, 2022, the Company granted PVRSUs with market conditions, PVRSUs with performance conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

During the nine months ended September 30, 2022, the Company granted PVRSUs with market conditions, PVRSUs with performance conditions and PVRSUs with performance and market conditions with requisite service periods between 9 months and 60 months with award vesting ranges between 0 % and 300 % of the initial units granted.

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

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

On September 14, 2022, the Company’s board of directors approved an increase in the number of the shares authorized under its share repurchase program by five million shares, bringing the total program to approximately 6.7 million shares authorized as of that date.

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

During the six months ended June 30, 2022, 68,486 shares of common stock were purchased under the share repurchase program at a total cost of $ 9.9 million.

There were no purchases of stock under the share repurchase program during the three months ended June 30, 2022.

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

During the three months ended June 30, 2022 and 2021, the Company redeemed 2,422 and 1,156 shares of common stock at a total cost of $ 0.3 million and $ 0.1 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During the six months ended June 30, 2022 and 2021, the Company redeemed 34,848 and 47,655 shares of common stock at a total cost of $ 5.2 million and $ 5.4 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During the three months ended September 30, 2022, 2,004,386 shares of common stock were purchased under the share repurchase program at a total cost of $ 231.3 million.

During the nine months ended September 30, 2022, 2,072,872 shares of common stock were purchased under the share repurchase program at a total cost of $ 241.2 million.

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

During the three months ended September 30, 2022 and 2021, the Company redeemed 614 and 5,300 shares of common stock at a total cost of $ 0.1 million and $ 0.7 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During the nine months ended September 30, 2022 and 2021, the Company redeemed 35,462 and 52,955 shares of common stock at a total cost of $ 5.3 million and $ 5.8 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands, except per share amounts) 2022 2021 2022 2021

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The following securities have been excluded from the calculation of diluted weighted average shares of common stock outstanding as the inclusion of these securities would have an anti-dilutive effect:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands) 2022 2021 2022 2021

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Reportable Segment Information

The Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its fourteen brands.

The fourteen 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 Hotel Franchising reportable segment includes the Company's hotel franchising operations consisting of its 23 brands and brand extensions.

The 23 brands and brand extensions 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 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.

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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.

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).

Corporate & Other revenues include owned hotel revenues and revenues related to the Company's SaaS technology solutions division which provide cloud-based property management software to non-franchised hoteliers.

Intersegment revenue adjustment is from the elimination of Hotel Franchising revenue which include royalty fees, marketing and reservation system fees, management fees, payroll costs and other cost reimbursements charged to our owned hotels against hotel operating expenses recognized by our owned hotels in Corporate & Other operating income (loss).

Our President and Chief Executive Officer, who is our chief operating decision maker, does not use assets by operating segment when assessing performance or making operating segment resource allocations decisions and therefore assets by segment are not disclosed below.

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

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

(in thousands) Hotel

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Income (loss) before income taxes $ 162,162 $ ( 25,386 ) $ — $ 136,776 $ 172,338 $ ( 20,749 ) $ — $ 151,589

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

(in thousands) Hotel

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

As of June 30, 2022 and December 31, 2021, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

As of September 30, 2022 and December 31, 2021, the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for the guaranty.

The Company has the following commitments outstanding at June 30, 2022:

The Company has the following commitments outstanding at September 30, 2022:

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

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

At June 30, 2022, the Company had commitments to extend an additional $ 269.4 million for these purposes provided the conditions of the payment are met by its franchisees.

At September 30, 2022, the Company had commitments to extend an additional $ 302.5 million for these purposes provided the conditions of the payment are met by its franchisees.

• As part of the acquisition of Radisson Hotels Americas, the Company entered into a long-term management arrangement, with an expiration date of July 31, 2031, to manage eight hotel properties owned by a third-party.

In conjunction with the management arrangement, the Company entered into a guarantee with the third-party to fund any shortfalls in the payment of the third-party owner’s priority stipulated in the management agreement up to a maximum amount of $ 46 million.

On November 1, 2021, an amended and restated management agreement was executed between the Company and the third party.

The maximum guarantee under the agreement is $ 22 million.

There are no potential guaranteed payments until January 2023 and future performance is expected to be sufficient to cover the terms of the

Accordingly, no liability was recorded as of September 30, 2022 in accrued liabilities within the consolidated balance sheets.

• To the extent existing unconsolidated affiliates proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $ 7.7 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.

At June 30, 2022, the Company has remaining commitments of approximately $ 5.5 million, upon certain conditions being met.

At September 30, 2022, the Company has remaining commitments of approximately $ 1.8 million, upon certain conditions being met.

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

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The Company has a management fee arrangement for marketing services with a partner in an unconsolidated affiliate.

For the three months ended June 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.6 million and $ 0.3 million, respectively.

For the six months ended June 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.9 million and $ 0.5 million, respectively.

For the three months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.8 million and $ 0.6 million, respectively.

For the nine months ended September 30, 2022 and 2021, fees earned and payroll costs reimbursed under this arrangement totaled $ 1.7 million and $ 1.1 million, respectively.

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

Pursuant to these franchise agreements, for the three months ended June 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 6.4 million and $ 4.1 million, respectively.

For the six months ended June 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 10.6 million and $ 7.0 million, respectively.

The Company recorded $ 3.6 million and $ 2.7 million as a receivable due from these affiliates as of June 30, 2022 and December 31, 2021, respectively.

Pursuant to these franchise agreements, for the three months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 8.9 million and $ 8.0 million, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recorded royalty and marketing reservation system fees of approximately $ 19.5 million and $ 15.0 million, respectively.

The Company recorded $ 4.8 million and $ 2.7 million as a receivable due from these affiliates as of September 30, 2022 and December 31, 2021, respectively.

As part of the acquisition of Radisson Hotels Americas as discussed in Note 15, the Company has a management fee arrangement with an investment in an unconsolidated affiliate accounted for under the cost method.

For the three and nine months ended September 30, 2022, fees earned and payroll costs reimbursed under this arrangement totaled $ 0.6 million.

Assets Held for Sale

Assets held for sale of $ 28.3 million are recorded within Prepaid expenses and other current assets on the consolidated balance sheets related to an owned Cambria hotel asset.

The hotel met held for sale classification as of May 2022.

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

The building was sold to a third-party franchisee in July 2022, resulting in derecognition from the balance sheet and recognition of a gain on sale of approximately $ 16.0 million in the third quarter of 2022 in the Corporate & Other segment .

A second owned Cambria hotel asset met held for sale classification in April 2022 and sale consummated to a third-party franchisee in June 2022, resulting in derecognition from the balance sheet and recognition of a gain on sale in the second quarter of 2022 in the Corporate & Other segment.

The hotel met held for sale classification as of September 2022.

Based on the fair value of the hotel, less costs to sell, a $ 2.2 million impairment charge was recorded to offset the Gain on sale of business and assets, net line item on the consolidated statement of income during the third quarter of 2022 within the Corporate & Other segment for reflect the reduction in the asset's carrying value.

The building was sold to a third-party franchisee in October 2022, which will result in derecognition from the balance sheet in the fourth quarter of 2022 .

Two separate owned Cambria hotel assets met held for sale classification and had sales consummated to third-party franchisees during the nine months ended September 30, 2022, resulting in derecognition from the balance sheet in the second and third quarters of 2022 and recognition of gains of $ 2.9 million and $ 15.9 million respectively, during the nine months ended September 30, 2022 in the Corporate & Other segment.

April 2022 Asset Acquisition

In April 2022, the Company reached a settlement with a borrower holding a senior and mezzanine loan classified as collateral-dependent, collateralized by an operating hotel.

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The property was exchanged in full settlement of the senior and mezzanine loans and recorded at the fair value of $ 20.4 million as of the acquisition date of April 14, 2022.

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.

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.

In accordance with the provisions of ASU 2017-01, Business Combinations (Topic 805):

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The $ 20.4 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 $ 3.3 million to land, $ 16.6 million to building and improvements, $ 1.3 million to furniture, fixtures, and equipment, and $( 0.8 ) million to net liabilities assumed.

Subsequent Events

On June 12, 2022, the Company signed a definitive purchase agreement to acquire 100 % of Radisson Hospitality, Inc.

(“Radisson Hotels Americas") for a purchase price of approximately $ 675 million.

As of August 4, 2022, the transaction has not closed.

On July 19, 2022, the Company received a termination notice from an ownership group of approximately 111 open and operating WoodSpring properties.

The termination notice indicates the group's intent to exit the majority of these 111 properties from the Choice system in September 2022 and acknowledges termination fees due pursuant to the associated franchise agreements.

This termination notice will be evaluated in the third quarter of 2022 .

August 2022 Radisson Hotels Americas Acquisition

On August 11, 2022, the Company completed the acquisition of Radisson Hotels Americas.

The accounting purchase price for the Transaction was $ 673.9 million, which includes the base purchase price of $ 675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses.

To fund the Transaction, Choice drew $ 175.0 million on the Company's existing $ 600.0 million unsecured credit facility (the "Revolver"), and funded the remainder with cash on hand.

Additionally, in connection with the acquisition, we recorded $ 24.9 million and $ 29.0 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three and nine months ended September 30, 2022, respectively.

Preliminary Fair Values of Assets Acquired and Liabilities Assumed

The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets acquired and liabilities assumed as of August 11, 2022.

These preliminary fair values are based on management’s estimates and assumptions, using the best information available at the time of this filing.

The final valuation and related allocation of the purchase price will be completed no later than 12 months after the closing date.

The final acquisition accounting adjustments may b e materially different and may include (1) changes in fair value of property and equipment and associated salvage values, (2) changes in allocations to intangible assets, such trade names, acquired franchise and management agreements, above and below market leases, as well as goodwill;

and (3) other changes to assets and liabilities, such as working capital.

The preliminary allocation of the purchase price, as presented in our Consolidated Balance Sheet:

Assets acquired Amount

Cash and cash equivalents $ 113,023

Restricted cash 10,403

Accounts receivable 32,972

Notes receivables - current 1,709

Prepaid expenses and other current assets 8,139

Property and equipment 125,441

Operating lease right-of-use of assets 42,315

Intangible assets 447,400

Notes receivable - noncurrent 2,592

Investment in affiliates 471

Other assets 2,129

Total assets acquired $ 786,594

Liabilities assumed

Accounts payable 8,295

Accrued expenses and other current liabilities 15,987

Deferred revenue - current (1)

Liability for guest loyalty program - current (1)

Long-term debt 55,975

Long-term deferred revenue (1)

Deferred compensation and retirement plan obligations 9,265

Operating lease liabilities 42,705

Liability for guest loyalty program - noncurrent (1)

Other liabilities 3,052

Total liabilities assumed $ 181,245

Fair value of net assets acquired $ 605,349

Goodwill 68,507

Total purchase consideration $ 673,856

(1) The Deferred revenue (including deferred affiliation fees) and Liability for guest loyalty program balances were assumed at their carrying value at the date of the acquisition pursuant to the application of ASU 2021-08 (see Note 1).

Property and Equipment

The following table presents the preliminary estimates of fair value of the acquired property and equipment, which is primarily concentrated at three acquired hotel properties, and their estimated weighted average remaining useful lives.

Estimated Useful Life Estimated Fair Value

(in years) (in thousands)

Land N/A $ 7,159

Construction in progress N/A 3,190

Building and leasehold improvements 24.4 93,934

Site improvements 23.1 586

Furniture, fixtures and equipment 3.9 8,334

Computer equipment and software 2.0 12,238

Total $ 125,441

We provisionally estimated the value of the property and equipment through a combination of income, cost and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, discount rates, capitalization rates and capital expenditure needs of the hotels.

We are continuing to assess the marketplace assumptions and property conditions, which could result in changes to these provisional values.

Identified Intangible Assets

The following table presents our preliminary estimates of the fair value of the acquired identified intangible assets and their estimated useful lives:

Estimated Useful Life Estimated Fair Value

(in years) (in thousands)

Trade names N/A $ 223,700

Franchise agreements 15.5 220,400

Management agreements 15.5 3,300

Total $ 447,400

The fair value of the trade names was provisionally estimated using the relief-from-royalty method.

This method applies an estimated royalty rate to forecasted future cash flows, discounted to present value.

The fair value of the franchise and management agreements was preliminarily estimated using a multi-period excess earnings method, a variation of the income approach.

This method uses the present value of incremental after-tax cash flows attributable to the intangible asset to estimate fair value.

These valuation methodologies utilize Level 3 assumptions, and we are continuing to assess the assumptions used in estimating these values as well as the respective useful lives, which could result in changes to these provisional values.

As part of the Transaction, we assumed a mortgage of $ 56.0 million related to an acquired hotel property.

Subsequent to the acquisition closing date, this amount was repaid in full using cash we acquired.

Related to the mortgage, we acquired $ 10.4 million in restricted cash, for which restrictions were lifted upon repayment.

Operating Leases

The Company measured operating lease liabilities assumed at the present value of remaining payments as of the acquisition date, discounted using Choice's applicable incremental borrowing rate, in accordance with Leases (Topic 842) .

The corresponding right-of-use assets acquired were measured at the value of the lease liabilities, further adjusted for favorable or unfavorable lease terms as compared to market terms.

We are continuing to assess market assumptions, which could change our preliminary estimate.

Pursuant to the terms of the Transaction, the parties agree to jointly make a valid, timely election under Section 338(h)(10) of the U.S.

Internal Revenue Code and under any similar provisions of state or local law with respect to the purchase of the shares of Radisson Hotels Americas.

Under this election, the parties agreed to treat the Transaction for federal income tax purposes as if it had been structured as an asset sale and purchase.

As a result of this election, the tax basis of the assets acquired and liabilities assumed by Choice were reset to fair value at the time of the acquisition, which results in the elimination of previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill.

Because the accounting for the Transaction is ongoing, the resulting deferred tax balances are still being finalized.

Pro Forma Results of Operations

The following unaudited pro forma information presents the combined results of operations of Choice and Radisson Hotels Americas as if we had completed the Transaction on January 1, 2021, but using our preliminary fair values of assets acquired and liabilities assumed as of the acquisition date.

The unaudited pro forma information reflects adjustments relating to (i) the allocation of purchase price and related adjustments, including incremental depreciation and amortization expense based on the preliminary fair values of the property and equipment assets and intangible assets acquired;

(ii) the incremental impact of the Revolver draw on interest expense and amortization of financing costs;

(iii) nonrecurring transaction costs;

and (iv) income tax impact of the aforementioned pro forma adjustments.

As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies.

Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the transaction had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

Nine Months Ended

September 30,

(in thousands) 2022 2021

Revenues $ 1,189,792 $ 928,669

Net income 304,770 173,822

Radisson Hotels Americas Results of Operations

The results of Radisson Hotels Americas have been consolidated with the Company since August 11, 2022 and are included in the Company’s Consolidated Statement of Income for the nine months ended September 30, 2022.

The following table presents these results of the 51 days from the closing date through September 30, 2022.

(in thousands) August 11, 2022 - September 30, 2022

Revenues $ 40,203

Net income (loss) ( 1,380 )

The excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in RevPAR, cost synergies and new agreements signed with new franchisees and developers.

Goodwill for the Transaction is fully attributable to the Hotel Franchising reportable segment and is fully deductible for tax purposes.

The following table details the carrying amount of the Company's goodwill, including goodwill arising from the acquisition of Radisson Hotels Americas, as of September 30, 2022.

(in thousands) September 30, 2022

Goodwill, excluding goodwill arising from Radisson Hotels Americas acquisition $ 166,774

Accumulated impairment losses ( 7,578 )

Goodwill arising from Radisson Hotels Americas acquisition 68,507

Goodwill, net carrying amount $ 227,703

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

What changed 10-Q

Item 1. Financial Statements