What changed in this filing

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Item 1. Financial Statements

2023-11-07 compared with 2023-08-08 · 234 added, 229 removed, 455 unchanged (50% of the section changed)

1 unchanged sentence

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(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,

2023 2022 2023 2022

18 unchanged sentences

Interest income ( 1,897 ) ( 2,348 ) ( 5,836 ) ( 5,256 )

Other (gain) loss ( 2,187 ) 5,559 ( 4,095 ) 7,275

Equity in net (gain) loss of affiliates ( 185 ) 40 ( 122 ) ( 204 )

Other loss (gain) 1,343 2,303 ( 2,752 ) 9,578

Equity in net gain of affiliates ( 1,801 ) ( 1,075 ) ( 1,923 ) ( 1,279 )

Total other income and expenses, net 13,813 8,242 36,011 35,127

7 unchanged sentences

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

6 unchanged sentences

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets

7 unchanged sentences

Total current assets 352,812 347,922

Property and equipment, at cost (net of accumulated depreciation and amortization of $ 280,298 and $ 253,323 , respectively)

Property and equipment (net of accumulated depreciation and amortization of $ 292,786 and $ 253,323 , respectively)

469,771 427,306

5 unchanged sentences

49,831 55,577

Investments, employee benefit plans, at fair value 36,278 31,645

Investments for employee benefit plans, at fair value 35,815 31,645

Investments in affiliates 55,081 30,647

18 unchanged sentences

Total liabilities 2,159,824 1,947,515

Commitments and Contingencies

Commitments and contingencies (Note 12)

Common stock, $ 0.01 par value;

160,000,000 shares authorized;

95,065,638 shares issued at June 30, 2023 and December 31, 2022;

50,565,881 and 52,200,903 shares outstanding at June 30, 2023 and December 31, 2022, respectively

95,065,638 shares issued at September 30, 2023 and December 31, 2022;

50,026,433 and 52,200,903 shares outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in-capital 321,790 298,053

1 unchanged sentence

Treasury stock, at cost;

44,499,757 and 42,864,735 shares at June 30, 2023 and December 31, 2022, respectively

45,039,205 and 42,864,735 shares at September 30, 2023 and December 31, 2022, respectively

( 1,987,262 ) ( 1,694,857 )

4 unchanged sentences

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Depreciation and amortization – marketing and reservation system 27,544 23,237

Gain on sale and disposal of business and assets, net — ( 3,309 )

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

Franchise agreement acquisition cost amortization 14,616 11,558

Non-cash stock compensation and other charges 23,689 17,770

Non-cash share-based compensation and other charges 34,670 28,621

Non-cash interest, investment, and affiliate (income) loss, net ( 1,709 ) 9,135

Deferred income taxes ( 4,315 ) ( 22,402 )

Equity in net gain of affiliates, less distributions received 637 745

Equity in net (gain) loss of affiliates, less distributions received ( 621 ) 2,451

Franchise agreement acquisition costs, net of reimbursements ( 72,867 ) ( 32,947 )

2 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in property and equipment ( 45,684 ) ( 49,866 )

Investment in intangible assets ( 1,385 ) ( 1,824 )

Proceeds from sale of assets and business — 32,893

Asset acquisition, net of cash acquired — ( 856 )

Investments in property and equipment ( 81,403 ) ( 66,084 )

Investments in intangible assets ( 1,893 ) ( 3,247 )

Asset acquisitions, net of cash paid — ( 856 )

Proceeds from the sale of assets and business — 140,554

Proceeds from the termination of intangible assets — 5,698

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

Contributions to investments in affiliates ( 24,573 ) ( 4,264 )

Proceeds from sale of equity method investments 868 —

Purchases of investments, employee benefit plans ( 3,206 ) ( 3,294 )

Proceeds from sales of investments, employee benefit plans 1,099 1,854

Issuance of notes receivable ( 4,284 ) ( 1,987 )

Proceeds from the sale of affiliates 868 —

Purchases of investments for employee benefit plans ( 3,678 ) ( 3,719 )

Proceeds from sales of investments for employee benefit plans 1,263 1,896

Issuances of notes receivable ( 4,319 ) ( 5,617 )

Collections of notes receivable 9,923 701

2 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 191,500 315,000

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

Debt issuance costs ( 755 ) ( 24 )

Purchases of treasury stock ( 304,400 ) ( 246,530 )

Proceeds from exercise of stock options 5,616 2,359

Proceeds from the exercise of stock options 6,719 2,361

Dividends paid ( 42,073 ) ( 39,697 )

2 unchanged sentences

Effect of foreign exchange rate changes on cash and cash equivalents ( 50 ) ( 1,112 )

Cash and cash equivalents at beginning of period 41,566 511,605

Cash and cash equivalents at end of period $ 36,167 $ 607,185

Cash and cash equivalents, beginning of period 41,566 511,605

Cash and cash equivalents, end of period $ 36,432 $ 52,541

Supplemental disclosure of cash flow information:

4 unchanged sentences

Dividends declared but not paid $ 15,239 $ 12,776

Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 8,716 $ 5,715

Investment in property, equipment and intangible assets acquired in accounts payable and accrued liabilities $ 8,064 $ 5,352

Asset acquisition from extinguishment of note receivable $ — $ 20,446

1 unchanged sentence

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

24 unchanged sentences

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

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)

— — — — — ( 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

Outstanding Common

24 unchanged sentences

Balance as of June 30, 2023 50,565,881 $ 951 $ 311,288 $ ( 4,522 ) $ ( 1,917,031 ) $ 1,664,005 $ 54,691

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

(2) Beginning January 1, 2023, Treasury purchases include excise tax as imposed by the Inflation Reduction Act of 2022.

Net income — — — — — 92,024 92,024

Other comprehensive income (loss), net of tax — — — ( 191 ) — — ( 191 )

Share-based payment activity (1)

22,372 — 10,502 — 403 — 10,905

Dividends declared ($ 0.2875 per share)

— — — — — ( 14,382 ) ( 14,382 )

Treasury purchases (2)

( 561,820 ) — — — ( 70,634 ) — ( 70,634 )

Balance as of September 30, 2023 50,026,433 $ 951 $ 321,790 $ ( 4,713 ) $ ( 1,987,262 ) $ 1,741,647 $ 72,413

(1) During certain periods presented, accumulated dividends were paid to certain shareholders upon vesting of their performance vested restricted stock units ("PVRSU") which are presented in Share-based payment activity.

(2) Beginning January 1, 2023, Treasury purchases include an excise tax as imposed by the Inflation Reduction Act of 2022.

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

CHOICE HOTELS INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2 unchanged sentences

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

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").

and subsidiaries (collectively, "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.

4 unchanged sentences

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted.

Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2023.

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

Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022 and the notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 1, 2023.

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

Acquisition of Radisson Hotels Americas

1 unchanged sentence

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

The Company determined it is the accounting acquirer of Radisson Hotels Americas and 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 August 11, 2022 acquisition date, with the exception of certain asset and liabilities which were accounted for in accordance with provisions of ASU 2021-08, Business Combinations (Topic 805):

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

Accordingly, the assets acquired and the liabilities assumed were recorded at their fair values as of the August 11, 2022 acquisition date, with the exception of certain assets and liabilities which were accounted for in accordance with the provisions of ASU 2021-08, Business Combinations (Topic 805):

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

The Company finalized the purchase price allocation for the Transaction in the third quarter of 2023.

Refer to Note 14.

Accordingly, our consolidated statements of income include Radisson Hotels Americas' results of operations in the three and six months ended June 30, 2023, but exclude Radisson Hotels Americas' results of operations in the three and six months ended June 30, 2022, as this period was prior to the acquisition date of the Transaction.

The Company's consolidated statements of income include Radisson Hotels Americas' results of operations in the three and nine months ended September 30, 2023, but our consolidated statements of income only partially include Radisson Hotels Americas' results of operations in the three and nine months ended September 30, 2022 because the Company did not acquire Radisson Hotels Americas until August 11, 2022.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are detailed in the “Summary of Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2022, inclusive of elements attributable to Radisson Hotels Americas balances and activity.

Recently Adopted Accounting Standards

2 unchanged sentences

ASU 2022-02 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

The Company adopted ASU 2022-02 on a prospective basis effective January 1, 2023, and concluded there is no material impact to the consolidated financial statements or disclosures through the second quarter of 2023.

Contract Liabilities

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.

Contract liabilities relate to (i) advance consideration received related to services considered to be a part of the brand intellectual property performance obligation, such as initial franchise fees that are paid when a franchise agreement is executed and system implementation fees that are paid at the time of installation, and (ii) amounts received when loyalty points are issued but the associated revenue has not yet been recognized since the related loyalty 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, 2022 to June 30, 2023 are as follows:

The following table summarizes the significant changes in the contract liabilities balances during the period from December 31, 2022 to September 30, 2023:

(in thousands)

2 unchanged sentences

Revenue recognized in the period ( 99,475 )

Balance as of June 30, 2023 $ 207,791

Balance as of September 30, 2023 $ 215,189

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $ 207.8 million as of June 30, 2023.

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.

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 software as a service ("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.

The aggregate amount of the transaction price that is allocated to unsatisfied, or partially unsatisfied, performance obligations was $ 215.2 million as of September 30, 2023.

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

Based on the 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 software as a service ("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.

Disaggregation of Revenue

Three Months Ended Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

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

6 unchanged sentences

Total revenues $ 398,230 $ 27,327 $ 425,557 $ 389,284 $ 24,982 $ 414,266

Six Months Ended Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended Nine Months Ended

September 30, 2023 September 30, 2022

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

6 unchanged sentences

Total revenues $ 1,101,771 $ 83,998 $ 1,185,769 $ 953,355 $ 86,612 $ 1,039,967

Owned hotels point in time revenues represent goods and services purchased independently of the hotel stay, such as food and beverage, incidentals, and parking fees.

The remaining 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 revenue amounts represent $ 26.6 million and $ 19.4 million for the three months ended June 30, 2023 and 2022, respectively, and $ 52.6 million and $ 33.7 million for the six months ended June 30, 2023 and 2022, respectively, and are included in the Over time column of Other revenue and the Owned hotels revenue row.

The owned hotels revenues that are recognized at a point in time represent the goods and services that are purchased independently of the hotel stay, such as food and beverage, incidentals, and parking fees.

The remaining revenues that are recognized at a point in time represent the loyalty points that are redeemed by members for benefits (with both franchisees and third-party partners), net of the cost of redemptions.

During the three and nine months ended September 30, 2022, Other revenues included contract termination fee revenue of $ 22.7 million from the exit of 110 WoodSpring units in September 2022.

The contract termination fee revenue consisted of $ 67.4 million in consideration, less the $ 44.7 million in intangible assets that were initially recognized on the date of the WoodSpring acquisition.

As presented in Note 11, the Corporate & Other segment revenue amounts are $ 33.8 million and $ 29.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 86.5 million and $ 63.4 million for the nine months ended September 30, 2023 and 2022, respectively, and are primarily included in Other revenue and Owned hotels revenue in the consolidated statements of income.

The remaining revenues relate to the Hotel Franchising & Management reportable segment.

Royalty, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $ 1.0 million and $ 1.3 million for the three months ended June 30, 2023 and 2022, respectively, and $ 3.3 million and $ 2.2 million for the six months ended June 30, 2023 and 2022, respectively.

Royalty, licensing and management fees and Other revenues from franchised and managed properties are presented net of intersegment revenues of $ 4.0 million and $ 1.6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 7.3 million and $ 3.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Receivables and Allowance for Credit Losses

Notes Receivable

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

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

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

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

(in thousands) June 30, 2023 December 31, 2022

The following table summarizes the composition of the notes receivable balances by credit quality indicator and the allowance for credit losses:

(in thousands) September 30, 2023 December 31, 2022

Senior $ 86,374 $ 95,466

2 unchanged sentences

Total notes receivable $ 110,946 $ 118,215

Total allowance for notes receivable credit losses 8,514 10,172

Total notes receivable, net of allowance $ 102,931 $ 108,043

Current portion, net of allowance $ 52,909 $ 52,466

Long-term portion, net of allowance $ 50,022 $ 55,577

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

allowance for credit losses 8,389 10,172

Total notes receivable, net of allowance for credit losses $ 102,557 $ 108,043

Current portion, net of allowance for credit losses $ 52,726 $ 52,466

Long-term portion, net of allowance for credit losses $ 49,831 $ 55,577

The following table summarizes the amortized cost basis of the notes receivable by the year of origination and credit quality indicator:

(in thousands) 2023 2022 2021 2020 2019 Prior Total

4 unchanged sentences

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

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Beginning balance $ 10,172 $ 16,779

2 unchanged sentences

Ending balance $ 8,389 $ 10,172

As of both June 30, 2023 and December 31, 2022, one loan with a senior tranche met the definition of collateral-dependent and is collateralized by membership interests in the borrowing entities and the associated land parcel.

The Company used a market approach via quoted market prices to value the underlying collateral.

As of both September 30, 2023 and December 31, 2022, one note receivable loan with a senior credit quality indicator met the definition of collateral-dependent and is collateralized by membership interests in the borrowing entities and the associated land parcel.

The Company used a market approach using 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 substantially all of the carrying value of the loan.

Allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million as of both June 30, 2023 and December 31, 2022, respectively.

Recoveries for the six months ended June 30, 2023 are primarily associated with cash collections pursuant to a settlement agreement with a borrower.

Recoveries for the year ended December 31, 2022 are primarily associated with a loan previously classified as collateral-dependent that was settled in exchange for an operating hotel on April 14, 2022.

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.

These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy because they are unobservable inputs which are significant to the overall fair value.

Based on the Company's analysis, the fair value of the collateral secures substantially all of the carrying value of the loan.

The allowances for credit losses attributable to collateral-dependent loans are $ 0.9 million as of both September 30, 2023 and December 31, 2022, respectively.

Recoveries during the nine months ended September 30, 2023 were primarily associated with cash collections pursuant to a settlement agreement with a borrower.

Recoveries during the year ended December 31, 2022 were primarily associated with a loan that was previously classified as collateral-dependent and was settled in exchange for an operating hotel on April 14, 2022.

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

The Company suspends the accrual of interest when payments on loans are more than 30 days past due or upon a loan being classified as collateral-dependent.

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 $ 16.6 million and $ 18.7 million at June 30, 2023 and December 31, 2022, respectively.

The Company has identified loans totaling approximately $ 4.6 million and $ 4.8 million as of June 30, 2023 and December 31, 2022, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $ 0.1 million as of both June 30, 2023 and December 31, 2022, 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 balances by credit quality indicator of notes receivable are as follows:

The Company applies the payments received for loans on a non-accrual status first to interest and then to principal.

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

The amortized cost basis of the notes receivable in a non-accrual status was $ 16.5 million and $ 18.7 million as of September 30, 2023 and December 31, 2022, respectively.

The Company has notes receivable loans totaling approximately $ 4.4 million and $ 4.8 million as of September 30, 2023 and December 31, 2022, respectively, with stated interest rates that are lower than market interest rates, representing a total unamortized discount of less than $ 0.1 million as of both September 30, 2023 and December 31, 2022.

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

The following table summarizes the past due balances by credit quality indicator of the notes receivable:

(in thousands) 1- 30 days

4 unchanged sentences

Notes Receivable

As of June 30, 2023

As of September 30, 2023

Senior $ — $ — $ 44,283 $ 44,283 $ 42,091 $ 86,374

8 unchanged sentences

Variable Interest through Notes Issued

The Company has issued notes receivables to certain entities that have created variable interests in these borrowers totaling $ 98.7 million and $ 103.2 million as of June 30, 2023 and December 31, 2022, respectively.

The Company has issued notes receivable loans to certain entities that have created variable interests in the associated borrowers totaling $ 98.4 million and $ 103.2 million as of September 30, 2023 and December 31, 2022, respectively.

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

Accounts Receivable

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

During the six months ended June 30, 2023, the Company recorded provisions for credit losses on accounts receivable of $ 2.9 million in selling, general and administrative ("SG&A") expenses and $ 3.4 million in marketing and reservation system expenses.

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

During the six months ended June 30, 2023 and 2022, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 5.3 million and $ 11.2 million, respectively.

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

During the nine months ended September 30, 2023, the Company recognized provisions for credit losses on accounts receivable of $ 4.2 million in selling, general and administrative ("SG&A") expenses and $ 4.0 million in other expenses from franchised and managed properties.

During the nine months ended September 30, 2022, the Company recognized a reversal of provisions for credit losses on accounts receivable of $ 0.4 million in SG&A expenses and provisions for credit losses on accounts receivable of $ 0.5 million in other expenses from franchised and managed properties.

During the nine months ended September 30, 2023 and 2022, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $ 2.8 million and $ 12.9 million, respectively.

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 Everhome Suites and Cambria Hotels in strategic markets.

The Company has investments in affiliates that represent VIEs totaling $ 37.0 million and $ 24.5 million on the consolidated balance sheets at June 30, 2023 and December 31, 2022, 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 both the three months ended June 30, 2023 and 2022, the Company recognized losses totaling $ 0.9 million from these investments that represent VIEs.

For the six months ended June 30, 2023 and 2022, the Company recognized losses totaling $ 2.3 million and $ 1.7 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, 2023 and 2022.

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

As of September 30, 2023 and December 31, 2022, the Company had total investments in affiliates in the consolidated balance sheets of $ 55.1 million and $ 30.6 million, respectively, which included investments in affiliates that represent VIEs of $ 45.3 million and $ 24.4 million, respectively.

The Company has determined that it is not the primary beneficiary of any of these VIEs, however the Company does exercise significant influence through its equity ownership and as a result, the investments in these affiliates are accounted for under the equity method.

During the three months ended September 30, 2023 and 2022, the Company recognized losses totaling $ 0.9 million and $ 1.1 million, respectively, from these investments that represent VIEs.

During the nine months ended September 30, 2023 and 2022, the Company recognized losses totaling $ 3.2 million and $ 2.7 million, respectively, from these investments that represent VIEs.

The Company's maximum exposure to losses related to its investments in the VIEs is limited to the total of its respective equity investment as well as certain limited payment guaranties, which are described in Note 12 of these consolidated financial statements.

The Company recognized no impairment charges related to its equity method investments during the nine months ended September 30, 2023 and 2022.

Debt consists of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(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 $ 4.6 million and $ 4.9 million at June 30, 2023 and December 31, 2022, 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 $ 4.5 million and $ 4.9 million at September 30, 2023 and December 31, 2022, respectively

$ 445,537 $ 445,080

$ 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 $ 3.9 million and $ 4.2 million at June 30, 2023 and December 31, 2022, 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 $ 3.7 million and $ 4.2 million at September 30, 2023 and December 31, 2022, respectively

396,290 395,838

$ 850 million senior unsecured revolving credit facility with an effective interest rate of 6.27 % less deferred issuance costs of $ 2.2 million and $ 1.8 million at June 30, 2023 and December 31, 2022, respectively (1)

$ 850 million senior unsecured revolving credit facility with an effective interest rate of 6.40 % less deferred issuance costs of $ 2.1 million and $ 1.8 million at September 30, 2023 and December 31, 2022, respectively (1)

549,445 358,189

Economic development loans with an effective interest rate of 3.00 % at June 30, 2023 and December 31, 2022, respectively

Economic development loans with an effective interest rate of 3.00 % at September 30, 2023 and December 31, 2022, respectively

$ 1,395,688 $ 1,203,523

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The Amendment provides, among other things, for (i) an increase in the aggregate amount of commitments under the Company's existing $ 600 million unsecured credit facility (the "Revolver") by $ 250 million (the “Increased Commitments”) to an aggregate amount of $ 850 million and (ii) the replacement of the interest reference rate for U.S.

dollar-denominated borrowings under the Revolver from LIBOR to an adjusted Secured Overnight Financing Rate.

dollar-denominated borrowings under the Revolver from the London Interbank Offered Rate ("LIBOR") to an adjusted Secured Overnight Financing Rate ("SOFR").

The pricing and other terms applicable to the Increased Commitments are the same as those applicable to the existing revolving loan commitments that were in effect prior to the Amendment.

Except as amended by the Amendment, the remaining terms of the unsecured credit facility remain in full force and effect.

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.

Refer to Note 12 and the Liquidity and Capital Resources section 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, 2023 and 2022 are as follows:

The changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2023 and 2022 were as follows:

(in thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassification 498

Balance as of June 30, 2023 $ ( 4,522 )

Balance as of September 30, 2023 $ ( 4,713 )

(in thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassification ( 1,139 )

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

The other comprehensive income (loss) before reclassification for both the six months ended June 30, 2023 and 2022 relate to foreign currency items, and there were no amounts reclassified from accumulated other comprehensive loss during either period.

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

The other comprehensive income (loss) before reclassification for both the nine months ended September 30, 2023 and 2022 relate to foreign currency items, and there were no amounts reclassified from accumulated other comprehensive loss during either period.

Fair Value Measurements

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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.

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 1 assets consist of marketable securities (primarily mutual funds) held in the Company's Deferred Compensation Plan.

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 Company's Deferred Compensation Plan.

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, 2023 and year ended December 31, 2022.

As of June 30, 2023 and December 31, 2022, 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 on a recurring basis 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, 2023 and year ended December 31, 2022.

As of September 30, 2023 and December 31, 2022, the Company recognized the following assets at fair value on a recurring basis in the consolidated balance sheets:

Fair Value Measurements at Reporting Date Using

(in thousands) Total Level 1 Level 2 Level 3

As of June 30, 2023

As of September 30, 2023

Mutual funds (1)

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Total $ 32,385 $ 29,143 $ 3,242 $ —

(1) Included in Investments, employee benefit plans, at fair value and Prepaid expenses and other current assets on the consolidated balance sheets.

(1) The current assets at fair value noted above are presented in Prepaid expenses and other assets, and the long-term assets at fair value noted above are presented in Investments for employee benefit plans, at fair value, in 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 senior unsecured revolving credit facility adjust frequently based on current market rates;

accordingly, we believe its carrying amount 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.

In addition, the interest rate on the senior unsecured revolving credit facility adjusts frequently based on current market interest rates;

accordingly, the Company believes the carrying amount approximates fair value.

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

Refer to Note 5 for further information on debt.

At June 30, 2023 and December 31, 2022, the carrying amounts and fair values are as follows:

June 30, 2023 December 31, 2022

As of September 30, 2023 and December 31, 2022, the carrying amounts and the fair values were as follows:

September 30, 2023 December 31, 2022

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

1 unchanged sentence

2019 Senior Notes 396,290 345,196 395,838 349,368

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

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

The effective income tax rates were 24.7 % and 25.3 % for the three months ended June 30, 2023 and 2022, respectively.

The effective income tax rates were 23.6 % and 24.5 % for the six months ended June 30, 2023 and 2022, respectively.

The effective income tax rates for the three and six months ended June 30, 2023 and 2022, were higher than the U.S.

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

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

The effective income tax rates were 24.1 % and 24.6 % for the three months ended September 30, 2023 and 2022, respectively.

The effective income tax rates were 23.8 % and 24.5 % for the nine months ended September 30, 2023 and 2022, respectively.

The effective income tax rates for the three and nine months ended September 30, 2023 and 2022 were higher than the U.S.

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

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, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

The components of the Company’s share-based compensation expense for the three and nine months ended September 30, 2023 and 2022 were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands) 2023 2022 2023

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Total share-based compensation expense $ 9,988 $ 9,866 $ 31,965 $ 26,860

A summary of share-based award activity as of and changes during the six months ended June 30, 2023 are presented below:

A summary of the share-based award activity during the nine months ended September 30, 2023 is presented below:

Stock Options Restricted Stock Performance Vested

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Forfeited ( 8,660 ) 126.49 ( 10,370 ) 116.26 ( 12,365 ) 134.36

Outstanding at June 30, 2023 984,327 $ 101.99 6.0 356,704 $ 136.05 470,650 $ 136.34

Options exercisable at June 30, 2023 595,927 $ 90.02 4.5

(1) Revision to PVRSUs outstanding in the six months ended June 30, 2023 is based on the Company's performance relative to the targeted performance conditions contained in PVRSUs.

The fair value of the restricted stock awards and the PVRSUs with performance conditions granted during the six months ended June 30, 2023 were equal to the market price of the Company’s common stock on date of grant.

Outstanding at September 30, 2023 964,164 $ 102.30 5.9 367,394 $ 135.87 479,567 $ 136.11

Stock options exercisable at September 30, 2023 581,426 $ 90.42 4.4

(1) Any revisions to the outstanding PVRSUs during the nine months ended September 30, 2023 is based on the Company's performance relative to the targeted performance conditions in the respective PVRSUs.

The fair value of the restricted stock awards and the PVRSUs with performance conditions that were granted during the nine months ended September 30, 2023 was equal to the market price of the Company’s common stock on the date of grant.

The fair value of the PVRSUs with market conditions based on the Company’s total shareholder return relative to a predetermined peer group was estimated using a Monte Carlo simulation method as of the grant date.

The requisite service periods for restricted stock and PVRSUs granted was between 9 months and 48 months.

PVRSU award vesting ranges between 0 % and 230 % of the initial units granted.

The requisite service periods for the restricted stock and PVRSUs was between 9 months and 48 months.

PVRSU awards have vesting ranges between 0 % and 230 % of the initial units granted.

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 during the six months ended June 30, 2023 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

The fair value of the options granted during the nine months ended September 30, 2023 was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate 4.10 %

Expected volatility 30.90 %

Expected life of stock option 6.0 years

Expected life of the stock option 6.0 years

Dividend yield 0.9 %

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Contractual life 10 years

Weighted average fair value of options granted (per option) $ 42.59

Weighted average fair value of the stock options granted (per stock option) $ 42.59

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 shares of restricted stock are both potential shares of common stock and participating securities so the Company calculates diluted earnings per share by using the more dilutive of the treasury stock method or the two-class method.

The calculation of EPS for the net income available to common shareholders excludes the distribution of dividends and the undistributed earnings attributable to the participating securities from the numerator.

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

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,

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

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands, except per share amounts) 2023 2022 2023 2022

8 unchanged sentences

Weighted average shares of common stock outstanding – basic 50,041 54,847 50,641 55,233

Dilutive effect of stock options and PVRSUs 365 524 405 583

Dilutive effect of stock options, PVRSUs, and RSUs 430 395 413 520

Weighted average shares of common stock outstanding – diluted 50,471 55,242 51,054 55,753

Diluted earnings per share $ 1.81 $ 1.85 $ 4.47 $ 4.93

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,

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

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands) 2023 2022 2023 2022

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The Hotel Franchising & Management reportable segment includes the Company's hotel franchising operations consisting of its 22 brands and brand extensions and hotel management operations of 13 Radisson Hotels Americas hotels (inclusive of 3 owned hotels).

The 22 brands and brand extensions and hotel management operations are aggregated within this reportable segment considering their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

Revenues from the hotel franchising and management business include royalty fees, initial franchise fees and relicensing fees, cost reimbursement revenues, procurement services revenue, base and incentive management fees, and other hotel franchising and management related revenue.

The Company provides certain services under its hotel franchise and management agreements which result in direct and indirect reimbursements.

The cost reimbursement revenues received from franchisees are included in hotel franchising and management revenues and are offset by related expenses to calculate hotel franchising operating income.

Equity in earnings or losses from hotel franchising related investment in affiliates is allocated to the Company's Hotel Franchising & Management reportable segment.

The Company evaluates its Hotel Franchising & Management reportable 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 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 & Management revenue which include royalty fees, management and cost reimbursement fees charged to our owned hotels against franchise and management fee expense 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 22 brands and brand extensions and the hotel management operations are aggregated together within this reportable segment because of their similar economic characteristics, types of customers, distribution channels and regulatory business environments.

The revenues from the hotel franchising and management business include royalty fees, initial franchise fees and relicensing fees, cost reimbursement revenues, procurement services revenue, base and incentive management fees, and other hotel franchising and management-related revenue.

The Company provides certain services under its franchise and management agreements which result in direct and indirect reimbursements.

The cost reimbursement revenues received from the franchisees are included in hotel franchising and management revenues and are offset by the related expenses in order to calculate hotel franchising and management operating income.

The equity in the earnings or losses from the hotel franchising-related investment in affiliates is allocated to the Hotel Franchising & Management reportable segment.

The Company evaluates its Hotel Franchising & Management reportable 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, and income taxes, all of which are included in the Corporate & Other column.

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

Intersegment Eliminations to revenues is the elimination of Hotel Franchising & Management revenue which includes royalty fees, management and cost reimbursement fees charged to our owned hotels against the franchise and management fee expense that is 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 when making operating segment resource allocation 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, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

(in thousands) Hotel

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Income (loss) before income taxes $ 169,260 $ ( 48,031 ) $ — $ 121,229 $ 162,162 $ ( 25,386 ) $ — $ 136,776

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(in thousands) Hotel

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Contingencies

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

The Company entered into various limited payment guaranties with regards to the Company’s VIEs in order to support their efforts to develop and own hotels that are 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.

As of June 30, 2023, the maximum unrecorded exposure of principal incidental to these limited payment guaranties is $ 4.1 million, plus unpaid expenses and accrued unpaid interest, and the Company believed the likelihood of having to perform under these guaranties was remote.

The Company has the following commitments outstanding at June 30, 2023:

As of September 30, 2023, the maximum unrecorded exposure of principal incidental to these limited payment guaranties is $ 4.5 million, plus unpaid expenses and accrued unpaid interest.

The Company believes the likelihood of having to perform under these guaranties is remote.

In the event of performance, the Company has recourse for certain of the guaranties in the form of partial guaranties from third parties.

The Company has the following outstanding commitments as of September 30, 2023:

• 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, 2023, the Company had commitments to extend an additional $ 336.0 million for these purposes provided the conditions of the payment are met by its franchisees.

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

As of September 30, 2023, the Company had commitments for an additional $ 350.3 million in franchise agreement acquisition payments, provided the conditions for the payments are met by the 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 hotels 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.

The maximum guarantee under the agreement is $ 22 million.

The Company believes the future performance of the hotels is expected to be sufficient on both an annual basis and over the duration of the agreement.

Accordingly, no liability was recorded as of June 30, 2023 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 $ 15.7 million to support their efforts to construct Everhome Suites and 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, 2023, the Company has remaining commitments of less than $ 0.1 million, upon certain conditions being met.

Accordingly, no liability was recognized as of September 30, 2023 in the consolidated balance sheets.

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

In accordance with terms of our legacy Choice 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.

The legacy Radisson Hotels Americas franchise agreements have similar provisions regarding marketing fees to be used for marketing activities.

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 accordance with the terms of our legacy Choice franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees to provide marketing and reservation services that are appropriate to support the operation of the overall system.

The legacy Radisson Hotels Americas franchise agreements have similar provisions regarding the marketing fees that need to be used for marketing activities.

To the extent the revenues collected exceed the expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years.

Conversely, to the extent the expenditures incurred exceed the revenues collected, the Company has the contractual enforceable right to assess and collect such amounts from the franchisees.

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.

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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.

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 the future payments that could be made under these indemnifications as the triggering events are not subject to predictability.

With respect to certain of the aforementioned indemnities, such as the indemnifications of the 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.

Transactions with Unconsolidated Affiliates

The Company has management fee arrangements with certain of the unconsolidated affiliates discussed in Note 4.

The fees earned and payroll costs reimbursed under these arrangements totaled $ 1.9 million and $ 0.6 million for the three months ended June 30, 2023 and 2022, respectively, and $ 3.7 million and $ 0.9 million for the six months ended June 30, 2023 and 2022, respectively.

The Company has management fee arrangements with certain of its unconsolidated affiliates that are discussed in Note 4.

The fees earned and the payroll costs reimbursed under these arrangements totaled $ 2.4 million and $ 0.8 million for the three months ended September 30, 2023 and 2022, respectively, and $ 6.1 million and $ 1.7 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company has entered into franchise agreements with certain unconsolidated affiliates.

Pursuant to these franchise agreements, for the three months ended June 30, 2023 and 2022, the Company recorded royalty and marketing reservation system fees of approximately $ 7.8 million and $ 6.4 million, respectively.

For the six months ended June 30, 2023 and 2022, the Company recorded royalty and marketing reservation fees of approximately $ 13.6 million and $ 10.6 million, respectively.

The Company recorded $ 4.9 million and $ 3.9 million as a receivable due from these affiliates as of June 30, 2023 and December 31, 2022, respectively.

August 2022 Radisson Hotels Americas Acquisition

Pursuant to these franchise agreements, for the three months ended September 30, 2023 and 2022, the Company recognized royalty and marketing reservation system fees of approximately $ 9.4 million and $ 8.9 million, respectively.

For the nine months ended September 30, 2023 and 2022, the Company recognized royalty and marketing reservation fees of approximately $ 23.1 million and $ 19.5 million, respectively.

The Company recognized $ 5.2 million and $ 3.9 million as a receivable from these affiliates as of September 30, 2023 and December 31, 2022, respectively.

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 senior unsecured credit facility, and funded the remainder with cash on hand.

Additionally, in connection with the acquisition, we recorded $ 9.4 million and $ 19.7 million of transaction, transition, and severance expense, included within Selling, general and administrative, during the three and six months ended June 30, 2023, 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.

During the fourth quarter of 2022 and first quarter of 2023, the Company recorded net measurement period adjustments that revised goodwill by a $ 9.1 million reduction and $ 1.5 million increase, respectively, as presented in the table below.

The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date.

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

To fund the Transaction, Choice drew down $ 175.0 million on the Company's existing senior unsecured credit facility and then funded the remainder with cash on hand.

In connection with the acquisition, we recognized $ 10.9 million and $ 30.6 million during the three and nine months ended September 30, 2023, respectively, and $ 24.9 million and $ 29.0 million during the three and nine months ended September 30, 2022, respectively, of transaction, transition, and severance expenses which are included within Selling, general and administrative in the consolidated statements of income.

Fair Values of the Assets Acquired and the Liabilities Assumed

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

During the fourth quarter of 2022 and the first quarter of 2023, the Company recorded certain net measurement period adjustments that reduced goodwill by $ 9.1 million and increased goodwill by $ 1.5 million, respectively, which is presented in the table below.

The Company made these measurement period adjustments to reflect the

facts and circumstances that existed as of the acquisition date and did not result from any intervening events subsequent to the acquisition date.

The measurement period adjustments resulted in no impact to our consolidated statements of income.

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, including measurement period adjustments, as presented in our consolidated balance sheets:

The final valuation and related allocation of the purchase price was completed in the third quarter of 2023.

The final allocation of the purchase price, including all measurement period adjustments, as presented in our consolidated balance sheets is as follows:

(in thousands) August 11, 2022 - original Measurement Period Adj - 4th quarter 2022 Measurement Period Adj - 1st quarter 2023 August 11, 2022 - as adjusted

29 unchanged sentences

Total purchase consideration $ 673,856 $ — $ — $ 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.

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

Refer to 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.

The following table presents the estimated 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

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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.

Total property and equipment $ 125,441

We 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 hotel properties.

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:

The following table presents the estimated fair values of the acquired identified intangible assets and their estimated useful lives:

Estimated Useful Life Estimated Fair Value

3 unchanged sentences

Management agreements 15.5 3,300

Total $ 447,100

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 related to an acquired hotel property.

The mortgage had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024.

Subsequent to the acquisition closing date, the mortgage, inclusive of the outstanding interest and fees, was repaid in full in the amount of $ 56.0 million using cash we acquired.

Additionally, the interest rate cap agreement was terminated, which resulted in a payment to Choice in the amount of $ 1.9 million.

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

Total intangible assets $ 447,100

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

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

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

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

These valuation methodologies utilize Level 3 assumptions.

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

The mortgage loan had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024.

Subsequent to the acquisition date, the mortgage loan and the outstanding interest and fees, was repaid in full in the amount of $ 56.0 million using cash we acquired in the Transaction.

Additionally, the interest rate cap agreement was terminated, which resulted in a $ 1.9 million payment to Choice.

In conjunction with assuming the mortgage loan, we acquired $ 10.4 million in restricted cash, for which the restrictions were lifted upon repayment of the mortgage loan.

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.

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

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

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.

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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.

As a result of this election, the tax basis of the assets acquired and the liabilities assumed by Choice were reset to fair value on the date of the acquisition, which results in the elimination of any

previously established deferred income tax balances and the establishment of new balances that reflect the new tax basis, including tax deductible goodwill.

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.

(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.

The following unaudited pro forma information presents the combined results of operations of Choice and Radisson Hotels Americas as if the Transaction was completed on January 1, 2021, but using the fair values of the assets acquired and the 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 fair values of the acquired property and equipment and intangible assets, (ii) the incremental impact of the Revolver draw on interest expense and the amortization of financing costs, (iii) nonrecurring transaction costs, and (iv) the 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.

Six Months Ended

(in thousands) June 30, 2022

Nine Months Ended

(in thousands) September 30, 2022

Revenues $ 1,189,792

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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 three and six months ended June 30, 2023.

The following table presents these results.

Three Months Ended Six Months Ended

(in thousands) June 30, 2023 June 30, 2023

Revenues $ 73,113 $ 135,496

Net income 7,713 10,981

The $ 61.0 million excess value recorded in goodwill is primarily attributable to value we expect to realize from the existing customer base, improvements in Revenue per Available Room ("RevPAR"), cost synergies and new agreements signed with new franchisees and developers.

The Company's consolidated statements of income include Radisson Hotels Americas’ results of operations since the August 11, 2022 acquisition date.

Radisson Hotels Americas contributed $ 40.2 million and $ 1.4 million in total revenues and net loss, respectively, for both the three and nine months ended September 30, 2022.

The $ 61.0 million of goodwill is primarily attributable to the value we expect to realize from the existing customer base, improvements in Revenue per Available Room ("RevPAR"), cost synergies, and new agreements signed with franchisees and developers.

Goodwill for the Transaction is fully attributable to the Hotel Franchising & Management 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 June 30, 2023.

The following table details the carrying amount of the Company's goodwill, including the goodwill arising from the acquisition of Radisson Hotels Americas, as of September 30, 2023.

(in thousands)

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

What changed 10-Q

Item 1. Financial Statements