DELAWARE | 52-1209792 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer | x | Accelerated filer | o | |
Non-accelerated filer | o | Smaller reporting company | o | |
Emerging growth company | o | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o |
CLASS | SHARES OUTSTANDING AT JUNE 30, 2018 | |
Common Stock, Par Value $0.01 per share | 56,633,606 |
PAGE NO. | |
ITEM 1. | FINANCIAL STATEMENTS |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
REVENUES | |||||||||||||||
Royalty fees | $ | 103,219 | $ | 91,599 | $ | 179,917 | $ | 159,893 | |||||||
Initial franchise and relicensing fees | 6,481 | 5,728 | 12,695 | 11,534 | |||||||||||
Procurement services | 17,833 | 14,372 | 27,771 | 21,735 | |||||||||||
Marketing and reservation system | 157,347 | 140,477 | 264,348 | 239,330 | |||||||||||
Other | 10,561 | 8,840 | 20,104 | 17,392 | |||||||||||
Total revenues | 295,441 | 261,016 | 504,835 | 449,884 | |||||||||||
OPERATING EXPENSES | |||||||||||||||
Selling, general and administrative | 46,270 | 44,038 | 87,134 | 77,783 | |||||||||||
Depreciation and amortization | 3,669 | 1,659 | 6,722 | 3,385 | |||||||||||
Marketing and reservation system | 136,568 | 128,780 | 255,796 | 236,774 | |||||||||||
Total operating expenses | 186,507 | 174,477 | 349,652 | 317,942 | |||||||||||
Gain on sale of land and building, net | 82 | — | 82 | — | |||||||||||
Operating income | 109,016 | 86,539 | 155,265 | 131,942 | |||||||||||
OTHER INCOME AND EXPENSES, NET | |||||||||||||||
Interest expense | 11,705 | 11,280 | 23,014 | 22,485 | |||||||||||
Interest income | (1,643 | ) | (1,438 | ) | (3,252 | ) | (2,702 | ) | |||||||
Other gains | (503 | ) | (576 | ) | (383 | ) | (1,473 | ) | |||||||
Equity in net (income) loss of affiliates | (567 | ) | 859 | 5,401 | 2,939 | ||||||||||
Total other income and expenses, net | 8,992 | 10,125 | 24,780 | 21,249 | |||||||||||
Income before income taxes | 100,024 | 76,414 | 130,485 | 110,693 | |||||||||||
Income taxes | 20,185 | 25,729 | 25,560 | 35,739 | |||||||||||
Net income | $ | 79,839 | $ | 50,685 | $ | 104,925 | $ | 74,954 | |||||||
Basic earnings per share | $ | 1.41 | $ | 0.90 | $ | 1.85 | $ | 1.33 | |||||||
Diluted earnings per share | $ | 1.40 | $ | 0.89 | $ | 1.83 | $ | 1.32 | |||||||
Cash dividends declared per share | $ | 0.215 | $ | 0.215 | $ | 0.43 | $ | 0.43 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 79,839 | $ | 50,685 | $ | 104,925 | $ | 74,954 | |||||||
Other comprehensive income, net of tax: | |||||||||||||||
Amortization of loss on cash flow hedge | 216 | 216 | 431 | 431 | |||||||||||
Foreign currency translation adjustment | (1,869 | ) | 1,423 | (1,014 | ) | 1,991 | |||||||||
Other comprehensive income (loss), net of tax | (1,653 | ) | 1,639 | (583 | ) | 2,422 | |||||||||
Comprehensive income | $ | 78,186 | $ | 52,324 | $ | 104,342 | $ | 77,376 |
June 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 37,148 | $ | 235,336 | |||
Receivables (net of allowance for doubtful accounts of $14,087 and $12,221, respectively) | 186,034 | 125,870 | |||||
Income taxes receivable | 50 | — | |||||
Notes receivable, net of allowance | 29,237 | 13,256 | |||||
Other current assets | 30,683 | 25,967 | |||||
Total current assets | 283,152 | 400,429 | |||||
Property and equipment, at cost, net | 112,567 | 83,374 | |||||
Goodwill | 173,741 | 80,757 | |||||
Intangible assets, net | 248,469 | 100,492 | |||||
Notes receivable, net of allowances | 78,921 | 80,136 | |||||
Investments, employee benefit plans, at fair value | 20,349 | 20,838 | |||||
Investments in unconsolidated entities | 133,478 | 134,226 | |||||
Deferred income taxes | 23,310 | 27,224 | |||||
Other assets | 49,029 | 67,715 | |||||
Total assets | $ | 1,123,016 | $ | 995,191 | |||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | |||||||
Current liabilities | |||||||
Accounts payable | $ | 72,266 | $ | 67,839 | |||
Accrued expenses and other current liabilities | 73,940 | 84,315 | |||||
Deferred revenue | 58,190 | 52,142 | |||||
Current portion of long-term debt | 1,099 | 1,232 | |||||
Liability for guest loyalty program | 81,178 | 79,123 | |||||
Total current liabilities | 286,673 | 284,651 | |||||
Long-term debt | 795,124 | 725,292 | |||||
Long-term deferred revenue | 103,754 | 98,459 | |||||
Deferred compensation and retirement plan obligations | 24,866 | 25,566 | |||||
Income taxes payable | 29,041 | 29,041 | |||||
Deferred income taxes | — | 39 | |||||
Liability for guest loyalty program | 48,592 | 48,701 | |||||
Other liabilities | 38,918 | 42,043 | |||||
Total liabilities | 1,326,968 | 1,253,792 | |||||
Commitments and Contingencies | |||||||
Common stock, $0.01 par value, 160,000,000 shares authorized; 95,065,638 shares issued at June 30, 2018 and December 31, 2017 and 56,633,606 and 56,679,968 shares outstanding at June 30, 2018 and December 31, 2017, respectively | 951 | 951 | |||||
Additional paid-in-capital | 204,899 | 182,448 | |||||
Accumulated other comprehensive loss | (5,282 | ) | (4,699 | ) | |||
Treasury stock (38,432,032 and 38,385,670 shares at June 30, 2018 and December 31, 2017, respectively), at cost | (1,112,376 | ) | (1,064,573 | ) | |||
Retained earnings | 707,856 | 627,272 | |||||
Total shareholders’ deficit | (203,952 | ) | (258,601 | ) | |||
Total liabilities and shareholders’ deficit | $ | 1,123,016 | $ | 995,191 |
Six Months Ended | |||||||
June 30, | |||||||
2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 104,925 | $ | 74,954 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 6,722 | 3,385 | |||||
Depreciation and amortization – marketing and reservation system | 10,048 | 10,157 | |||||
Franchise agreement acquisition cost amortization | 4,375 | 3,305 | |||||
Loss (gain) on disposal of assets | (82 | ) | 4 | ||||
Provision for bad debts, net | 4,356 | 1,707 | |||||
Non-cash stock compensation and other charges | 7,716 | 8,082 | |||||
Non-cash interest and other (income) loss | 808 | (274 | ) | ||||
Deferred income taxes | 3,828 | (732 | ) | ||||
Equity in net losses from unconsolidated joint ventures, less distributions received | 6,702 | 3,543 | |||||
Franchise agreement acquisition cost, net of reimbursements | (20,326 | ) | (14,108 | ) | |||
Change in working capital and other, net of acquisition | (65,258 | ) | (25,915 | ) | |||
Net cash provided by operating activities | 63,814 | 64,108 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Investment in property and equipment | (21,611 | ) | (10,687 | ) | |||
Investment in intangible assets | (1,329 | ) | (2,228 | ) | |||
Proceeds from sales of assets | 3,052 | — | |||||
Business acquisition, net of cash acquired | (231,317 | ) | — | ||||
Contributions to equity method investments | (7,206 | ) | (42,127 | ) | |||
Distributions from equity method investments | 1,210 | 1,696 | |||||
Purchases of investments, employee benefit plans | (2,047 | ) | (1,736 | ) | |||
Proceeds from sales of investments, employee benefit plans | 1,828 | 2,094 | |||||
Issuance of mezzanine and other notes receivable | (19,005 | ) | (14,977 | ) | |||
Collections of mezzanine and other notes receivable | 3,505 | 552 | |||||
Other items, net | 232 | 110 | |||||
Net cash used in investing activities | (272,688 | ) | (67,303 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net borrowings pursuant to revolving credit facilities | 69,000 | 23,200 | |||||
Principal payments on long-term debt | (362 | ) | (309 | ) | |||
Purchase of treasury stock | (70,573 | ) | (7,414 | ) | |||
Dividends paid | (24,454 | ) | (24,333 | ) | |||
Debt issuance costs | (914 | ) | — | ||||
Proceeds from issuance of long term debt | 352 | — | |||||
Proceeds from transfer of interest in notes receivable | 173 | — | |||||
Proceeds from exercise of stock options | 38,059 | 6,590 | |||||
Net cash provided by (used in) financing activities | 11,281 | (2,266 | ) | ||||
Net change in cash and cash equivalents | (197,593 | ) | (5,461 | ) | |||
Effect of foreign exchange rate changes on cash and cash equivalents | (595 | ) | 955 | ||||
Cash and cash equivalents at beginning of period | 235,336 | 202,463 | |||||
Cash and cash equivalents at end of period | $ | 37,148 | $ | 197,957 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash payments during the period for: | |||||||
Income taxes, net of refunds | $ | 22,470 | $ | 30,813 | |||
Interest, net of capitalized interest | $ | 21,558 | $ | 21,206 | |||
Non-cash investing and financing activities: | |||||||
Dividends declared but not paid | $ | 12,114 | $ | 12,133 | |||
Investment in property and equipment acquired in accounts payable | $ | 3,393 | $ | 895 |
1. | Basis of Presentation and Significant Accounting Policies |
• | Initial and relicensing fees earned upon execution of a franchise agreement are recognized as revenue ratably as services are provided over the enforceable period of the franchise license arrangement. This represents a change from prior practice, whereby the Company typically recognized revenue for initial and relicensing fees in full in the period of agreement execution. |
• | Sales commissions, which are paid upon the execution of a franchise agreement, are recognized ratably over the period a hotel is expected to remain in the Company's franchise system rather than expensed as incurred. |
• | Franchise agreement acquisition costs are capitalized as intangible assets, as opposed to notes receivable. Amortization of franchise agreement acquisition costs are recognized as a reduction of revenue rather than as a component of depreciation and amortization. |
• | Revenue related to the Choice Privileges program, which is reported as a component of marketing and reservation system fees, is deferred as points are awarded and recognized upon point redemption, net of reward reimbursements paid to a third-party. Previously, revenue was recognized on a gross basis at the time the points were issued with a |
• | Topic 606 also impacted the Company’s accounting for surpluses and deficits generated from marketing and reservation system activities. The Company has historically, consistent with its existing agreements, not earned a profit or generated a loss from marketing and reservation activities, and as a result, the Company recorded excess marketing and reservation system revenues or expenses as assets or liabilities on the Company’s balance sheet prior to the adoption of Topic 606. However, as a result of the adoption of Topic 606, the Company will no longer defer revenues and expenses or record assets and liabilities when system revenues exceed expenses in the current period or vice versa. The Company intends to manage these activities to break-even over time but anticipates that net income or loss may be generated quarterly due to the seasonal nature of the hotel industry and annually based on the level of investments needed for new initiatives that benefit our franchisees. |
Three Months Ended June 30, 2017 | |||||||||||
As Previously Reported | Adoption of Topic 606 | As Adjusted | |||||||||
Statement of Income | (in thousands, except per share amounts) | ||||||||||
Total revenues | $ | 276,799 | $ | (15,783 | ) | $ | 261,016 | ||||
Total operating expenses | 199,293 | (24,816 | ) | 174,477 | |||||||
Income before income taxes | 67,381 | 9,033 | 76,414 | ||||||||
Income taxes | 22,386 | 3,343 | 25,729 | ||||||||
Net income | 44,995 | 5,690 | 50,685 | ||||||||
Diluted earnings per share | 0.79 | 0.10 | 0.89 |
Six Months Ended June 30, 2017 | |||||||||||
As Previously Reported | Adoption of Topic 606 | As Adjusted | |||||||||
Statement of Income | (in thousands, except per share amounts) | ||||||||||
Total revenues | $ | 474,697 | $ | (24,813 | ) | $ | 449,884 | ||||
Total operating expenses | 344,684 | (26,742 | ) | 317,942 | |||||||
Income before income taxes | 108,764 | 1,929 | 110,693 | ||||||||
Income taxes | 35,025 | 714 | 35,739 | ||||||||
Net income | 73,739 | 1,215 | 74,954 | ||||||||
Diluted earnings per share | 1.30 | 0.02 | 1.32 |
December 31, 2017 | |||||||||||
As Previously Reported (1)(2) | Adoption of Topic 606 | As Adjusted | |||||||||
Balance Sheet | (in thousands) | ||||||||||
Receivables (net of allowance for doubtful accounts) | $ | 125,452 | $ | 418 | $ | 125,870 | |||||
Current notes receivable, net of allowances | 13,904 | (648 | ) | 13,256 | |||||||
Other current assets | 28,241 | (2,274 | ) | 25,967 | |||||||
Intangible assets, net | 14,672 | 85,820 | 100,492 | ||||||||
Notes receivable, net of allowances | 147,993 | (67,857 | ) | 80,136 | |||||||
Deferred income tax asset | 13,335 | 13,889 | 27,224 | ||||||||
Other assets | 29,479 | 38,236 | 67,715 | ||||||||
Accounts payable(1) | 67,839 | — | 67,839 | ||||||||
Accrued expenses and other current liabilities(1) | 84,315 | — | 84,315 | ||||||||
Current deferred revenue(2) | 13,190 | 38,952 | 52,142 | ||||||||
Current liability for guest loyalty program(2) | 79,183 | (60 | ) | 79,123 | |||||||
Deferred revenue(1)(2) | 18,335 | 80,124 | 98,459 | ||||||||
Liability for guest loyalty program(2) | 48,738 | (37 | ) | 48,701 | |||||||
Other liabilities(1)(2) | 46,939 | (4,896 | ) | 42,043 | |||||||
Retained earnings | 673,771 | (46,499 | ) | 627,272 |
2. | Revenue |
• | License of brand intellectual property and related services (“brand intellectual property”): Grants the right to access the Company’s intellectual property associated with brand trade names, trademarks, reservation systems, property management systems and related services. |
• | Material rights for free or discounted goods or services to hotel guests: Primarily consists of the points issued under the Company’s guest loyalty program, Choice Privileges. |
• | Point in time sale of goods: The Company administers the delivery of chip-enabled credit card readers to its franchisees to aid in compliance with industry standards in exchange for a fee. Revenue is recognized at the point in time shipment is made to the franchisee within Other revenue. The Company determined the standalone selling price is equal to the amount invoiced to the franchisee. |
• | Royalty fees. Royalty fees are earned in exchange for a license to brand intellectual property typically based on a percentage of gross room revenues. These fees are billed and collected monthly and revenues are recognized in the same period that the underlying gross room revenues are earned by the Company’s franchisees. |
• | Initial franchise and relicensing fees. Initial and relicensing fees are charged when (i) new hotels enter the franchise system; (ii) there is a change of ownership; or (iii) existing franchise agreements are extended. These revenues are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement. The enforceable period is the period from hotel opening to the first point the franchisee or the Company can terminate the franchise agreement without incurring a significant penalty. Deferred revenues from initial and relicensing fees will typically be recognized over a five to ten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby remaining deferred amounts will be recognized to revenue in the period of termination. |
• | Other revenue. Other revenue is a combination of miscellaneous non-marketing and reservation system fees, inclusive of quality assurance non-compliance and franchisee training fees, and is recognized in the period the designated transaction or event has occurred. |
• | Fees based on a percentage of gross room revenues are recognized in the period the gross room revenue was earned, based on the underlying hotel’s sales or usage. |
• | Fees based on the occurrence of a designated transaction or event are recognized in the period the transaction or event occurred. |
• | System implementation fees charged to franchisees are deferred and recognized as revenue over the enforceable period of the franchise agreement. |
• | Marketing and reservation system activities also include revenues generated from the Company’s guest loyalty program. The revenue recognition of this program is discussed in Material rights for free or discounted good or services to hotel guests below. |
(in thousands) | |||
Balance as of December 31, 2017 | $ | 132,339 | |
Increases to the contract liability balance due to cash received | 39,687 | ||
Revenue recognized in the period | (30,557 | ) | |
Balance as of June 30, 2018 | $ | 141,469 |
Three Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, 2018 | June 30, 2017 | ||||||||||||||||||||||
Over time | Point in time | Total | Over time | Point in time | Total | ||||||||||||||||||
Revenues: | (in thousands) | (in thousands) | |||||||||||||||||||||
Royalty fees | $ | 103,219 | $ | — | $ | 103,219 | $ | 91,599 | $ | — | $ | 91,599 | |||||||||||
Initial franchise and relicensing fees | 6,481 | — | 6,481 | 5,728 | — | 5,728 | |||||||||||||||||
Procurement services | 16,919 | 914 | 17,833 | 13,816 | 556 | 14,372 | |||||||||||||||||
Marketing and reservation system | 130,616 | 26,731 | 157,347 | 120,564 | 19,913 | 140,477 | |||||||||||||||||
Other | 10,024 | 185 | 10,209 | 6,917 | 1,564 | 8,481 | |||||||||||||||||
Total Topic 606 revenues | $ | 267,259 | $ | 27,830 | 295,089 | $ | 238,624 | $ | 22,033 | 260,657 | |||||||||||||
Non-Topic 606 revenues | 352 | 359 | |||||||||||||||||||||
$ | 295,441 | $ | 261,016 |
Six Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, 2018 | June 30, 2017 | ||||||||||||||||||||||
Over time | Point in time | Total | Over time | Point in time | Total | ||||||||||||||||||
Revenues: | (in thousands) | (in thousands) | |||||||||||||||||||||
Royalty fees | $ | 179,917 | $ | — | $ | 179,917 | $ | 159,893 | $ | — | $ | 159,893 | |||||||||||
Initial franchise and relicensing fees | 12,695 | — | 12,695 | 11,534 | — | 11,534 | |||||||||||||||||
Procurement services | 26,484 | 1,287 | 27,771 | 20,949 | 786 | 21,735 | |||||||||||||||||
Marketing and reservation system | 231,744 | 32,604 | 264,348 | 213,416 | 25,914 | 239,330 | |||||||||||||||||
Other | 18,544 | 857 | 19,401 | 13,654 | 3,042 | 16,696 | |||||||||||||||||
Total Topic 606 revenues | $ | 469,384 | $ | 34,748 | 504,132 | $ | 419,446 | $ | 29,742 | 449,188 | |||||||||||||
Non-Topic 606 revenues | 703 | 696 | |||||||||||||||||||||
$ | 504,835 | $ | 449,884 |
3. | Other Current Assets |
June 30, 2018 | December 31, 2017 | ||||||
(in thousands) | |||||||
Prepaid expenses | $ | 19,028 | $ | 14,205 | |||
Other current assets | 4,655 | 4,762 | |||||
Land held for sale | 7,000 | 7,000 | |||||
Total | $ | 30,683 | $ | 25,967 |
4. | Notes Receivable and Allowance for Losses |
June 30, 2018 | December 31, 2017 | ||||||||
Credit Quality Indicator | (in thousands) | ||||||||
Senior | $ | 85,763 | $ | 73,700 | |||||
Subordinated | 21,631 | 18,647 | |||||||
Unsecured | 2,901 | 3,182 | |||||||
Total notes receivable | 110,295 | 95,529 | |||||||
Allowance for losses on non-impaired loans | 490 | 490 | |||||||
Allowance for losses on receivables specifically evaluated for impairment | 1,647 | 1,647 | |||||||
Total loan reserves | 2,137 | 2,137 | |||||||
Net carrying value | $ | 108,158 | $ | 93,392 | |||||
Current portion, net | $ | 29,237 | $ | 13,256 | |||||
Long-term portion, net | 78,921 | 80,136 | |||||||
Total | $ | 108,158 | $ | 93,392 |
30-89 days Past Due | > 90 days Past Due | Total Past Due | Current | Total Notes Receivable | |||||||||||||||
(in thousands) | |||||||||||||||||||
As of June 30, 2018 | |||||||||||||||||||
Senior | $ | 2,603 | $ | 3,019 | $ | 5,622 | $ | 80,141 | $ | 85,763 | |||||||||
Subordinated | — | — | — | 21,631 | 21,631 | ||||||||||||||
Unsecured | — | — | — | 2,901 | 2,901 | ||||||||||||||
$ | 2,603 | $ | 3,019 | $ | 5,622 | $ | 104,673 | $ | 110,295 | ||||||||||
As of December 31, 2017 | |||||||||||||||||||
Senior | $ | — | $ | — | $ | — | $ | 73,700 | $ | 73,700 | |||||||||
Subordinated | — | — | — | 18,647 | 18,647 | ||||||||||||||
Unsecured | — | — | — | 3,182 | 3,182 | ||||||||||||||
$ | — | $ | — | $ | — | $ | 95,529 | $ | 95,529 |
5. | Investments in Unconsolidated Entities |
6. | Debt |
June 30, 2018 | December 31, 2017 | ||||||
(in thousands) | |||||||
$400 million senior unsecured notes with an effective interest rate of 6.0% less deferred issuance costs of $3.6 million and $3.9 million at June 30, 2018 and December 31, 2017, respectively | $ | 396,445 | $ | 396,057 | |||
$250 million senior unsecured notes with an effective interest rate of 6.19% less a discount and deferred issuance costs of $0.7 million and $0.8 million at June 30, 2018 and December 31, 2017, respectively | 249,335 | 249,182 | |||||
$450 million senior unsecured credit facility with an effective interest rate of 3.39% and 2.84%, less deferred issuance costs of $1.8 million and $2.1 million at June 30, 2018 and December 31, 2017, respectively | 137,224 | 67,936 | |||||
Fixed rate collateralized mortgage with an effective interest rate of 4.57%, plus a fair value adjustment of $0.5 million and $0.6 million at June 30, 2018 and December 31, 2017, respectively | 8,529 | 8,853 | |||||
Economic development loans with an effective interest rate of 3.0% at June 30, 2018 and December 31, 2017, respectively | 4,064 | 3,712 | |||||
Other notes payable | 626 | 784 | |||||
Total debt | $ | 796,223 | $ | 726,524 | |||
Less current portion | 1,099 | 1,232 | |||||
Total long-term debt | $ | 795,124 | $ | 725,292 |
7. | Accumulated Other Comprehensive Loss |
Loss on Cash Flow Hedge | Foreign Currency Items | Total | |||||||||
(in thousands) | |||||||||||
Beginning balance, December 31, 2017 | $ | (2,298 | ) | $ | (2,401 | ) | $ | (4,699 | ) | ||
Other comprehensive income before reclassification | — | (1,014 | ) | (1,014 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | 431 | — | 431 | ||||||||
Net current period other comprehensive income | 431 | (1,014 | ) | (583 | ) | ||||||
Ending balance, June 30, 2018 | $ | (1,867 | ) | $ | (3,415 | ) | $ | (5,282 | ) |
Component | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in the Consolidated Statement of Income | ||||||||
Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | |||||||||
(in thousands) | ||||||||||
Loss on cash flow hedge | ||||||||||
Interest rate contract | $ | 216 | $ | 431 | Interest expense | |||||
— | — | Tax (expense) benefit | ||||||||
$ | 216 | $ | 431 | Net of tax |
8. | Fair Value Measurements |
Fair Value Measurements at Reporting Date Using | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | (in thousands) | ||||||||||||||
As of June 30, 2018 | |||||||||||||||
Mutual funds(1) | $ | 21,508 | $ | 21,508 | $ | — | $ | — | |||||||
Money market funds(1) | 1,664 | — | 1,664 | — | |||||||||||
$ | 23,172 | $ | 21,508 | $ | 1,664 | $ | — | ||||||||
As of December 31, 2017 | |||||||||||||||
Money market funds, included in cash and cash equivalents | $ | 50,419 | $ | — | $ | 50,419 | $ | — | |||||||
Mutual funds(1) | 20,869 | 20,869 | — | — | |||||||||||
Money market funds(1) | 1,702 | — | 1,702 | — | |||||||||||
$ | 72,990 | $ | 20,869 | $ | 52,121 | $ | — |
(1) | Included in Investments, employee benefit plans at fair value and Other current assets on the consolidated balance sheets. |
9. | Income Taxes |
10. | Share-Based Compensation and Capital Stock |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Stock options | $ | 0.6 | $ | 1.1 | $ | 1.3 | $ | 2.2 | |||||||
Restricted stock | 1.6 | 1.7 | 3.3 | 3.4 | |||||||||||
Performance vested restricted stock units | 1.5 | 1.1 | 2.6 | 2.1 | |||||||||||
Total | $ | 3.7 | $ | 3.9 | $ | 7.2 | $ | 7.7 | |||||||
Income tax benefits | $ | 0.9 | $ | 1.5 | $ | 1.7 | $ | 2.9 |
Stock Options | Restricted Stock | Performance Vested Restricted Stock Units | ||||||||||||||||||||
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||
Outstanding at January 1, 2018 | 1,976,326 | $ | 50.80 | 348,876 | $ | 57.05 | 294,204 | $ | 56.95 | |||||||||||||
Granted | 109,045 | 81.55 | 94,574 | 81.38 | 97,490 | 81.55 | ||||||||||||||||
Exercised/Vested | (741,265 | ) | 51.34 | (89,609 | ) | 55.82 | (28,971 | ) | 61.49 | |||||||||||||
Expired | (2,018 | ) | 63.47 | — | — | — | — | |||||||||||||||
Forfeited | (53,075 | ) | 56.15 | (33,643 | ) | 57.51 | (20,545 | ) | 62.82 | |||||||||||||
Outstanding at June 30, 2018 | 1,289,013 | $ | 52.85 | 3.8 years | 320,198 | $ | 64.53 | 342,178 | $ | 63.21 | ||||||||||||
Options exercisable at June 30, 2018 | 842,719 | $ | 48.05 | 3.1 years |
2018 Grants | |||
Risk-free interest rate | 2.58 | % | |
Expected volatility | 21.17 | % | |
Expected life of stock option | 4.6 years | ||
Dividend yield | 1.05 | % | |
Requisite service period | 4 years | ||
Contractual life | 7 years | ||
Weighted average fair value of options granted (per option) | $ | 16.27 |
11. | Earnings Per Share |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(In thousands, except per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Computation of Basic Earnings Per Share: | |||||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 79,839 | $ | 50,685 | $ | 104,925 | $ | 74,954 | |||||||
Income allocated to participating securities | (462 | ) | (359 | ) | (627 | ) | (535 | ) | |||||||
Net income available to common shareholders | $ | 79,377 | $ | 50,326 | $ | 104,298 | $ | 74,419 | |||||||
Denominator: | |||||||||||||||
Weighted average common shares outstanding – basic | 56,364 | 56,073 | 56,414 | 56,007 | |||||||||||
Basic earnings per share | $ | 1.41 | $ | 0.90 | $ | 1.85 | $ | 1.33 | |||||||
Computation of Diluted Earnings Per Share: | |||||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 79,839 | $ | 50,685 | $ | 104,925 | $ | 74,954 | |||||||
Income allocated to participating securities | (459 | ) | (357 | ) | (623 | ) | (532 | ) | |||||||
Net income available to common shareholders | $ | 79,380 | $ | 50,328 | $ | 104,302 | $ | 74,422 | |||||||
Denominator: | |||||||||||||||
Weighted average common shares outstanding – basic | 56,364 | 56,073 | 56,414 | 56,007 | |||||||||||
Diluted effect of stock options and PVRSUs | 468 | 355 | 557 | 361 | |||||||||||
Weighted average common shares outstanding – diluted | 56,832 | 56,428 | 56,971 | 56,368 | |||||||||||
Diluted earnings per share | $ | 1.40 | $ | 0.89 | $ | 1.83 | $ | 1.32 |
12. | Condensed Consolidating Financial Statements |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Royalty fees | $ | 97,414 | $ | 39,194 | $ | 10,377 | $ | (43,766 | ) | $ | 103,219 | |||||||||
Initial franchise and relicensing fees | 6,349 | — | 132 | — | 6,481 | |||||||||||||||
Procurement services | 17,345 | 258 | 440 | (210 | ) | 17,833 | ||||||||||||||
Marketing and reservation system | 117,741 | 144,761 | 4,119 | (109,274 | ) | 157,347 | ||||||||||||||
Other | 8,093 | 135 | 2,734 | (401 | ) | 10,561 | ||||||||||||||
Total revenues | 246,942 | 184,348 | 17,802 | (153,651 | ) | 295,441 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling, general and administrative | 45,438 | 38,999 | 5,834 | (44,001 | ) | 46,270 | ||||||||||||||
Marketing and reservation system | 126,281 | 116,196 | 3,741 | (109,650 | ) | 136,568 | ||||||||||||||
Depreciation and amortization | 2,295 | 578 | 796 | — | 3,669 | |||||||||||||||
Total operating expenses | 174,014 | 155,773 | 10,371 | (153,651 | ) | 186,507 | ||||||||||||||
Gain on sale of land and building, net | — | 175 | (93 | ) | — | 82 | ||||||||||||||
Operating income | 72,928 | 28,750 | 7,338 | — | 109,016 | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | ||||||||||||||||||||
Interest expense | 11,386 | — | 319 | — | 11,705 | |||||||||||||||
Equity in earnings of consolidated subsidiaries | (32,528 | ) | (165 | ) | — | 32,693 | — | |||||||||||||
Other items, net | (744 | ) | (288 | ) | (1,681 | ) | — | (2,713 | ) | |||||||||||
Total other income and expenses, net | (21,886 | ) | (453 | ) | (1,362 | ) | 32,693 | 8,992 | ||||||||||||
Income before income taxes | 94,814 | 29,203 | 8,700 | (32,693 | ) | 100,024 | ||||||||||||||
Income taxes | 14,975 | 4,759 | 451 | — | 20,185 | |||||||||||||||
Net income | $ | 79,839 | $ | 24,444 | $ | 8,249 | $ | (32,693 | ) | $ | 79,839 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Royalty fees | $ | 169,029 | $ | 75,403 | $ | 18,847 | $ | (83,362 | ) | $ | 179,917 | |||||||||
Initial franchise and relicensing fees | 12,401 | — | 294 | — | 12,695 | |||||||||||||||
Procurement services | 27,024 | 382 | 718 | (353 | ) | 27,771 | ||||||||||||||
Marketing and reservation system | 206,136 | 251,187 | 7,865 | (200,840 | ) | 264,348 | ||||||||||||||
Other | 14,095 | 135 | 6,367 | (493 | ) | 20,104 | ||||||||||||||
Total revenues | 428,685 | 327,107 | 34,091 | (285,048 | ) | 504,835 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling, general and administrative | 86,795 | 71,613 | 12,624 | (83,898 | ) | 87,134 | ||||||||||||||
Marketing and reservation system | 235,528 | 212,051 | 9,367 | (201,150 | ) | 255,796 | ||||||||||||||
Depreciation and amortization | 3,944 | 1,127 | 1,651 | — | 6,722 | |||||||||||||||
Total operating expenses | 326,267 | 284,791 | 23,642 | (285,048 | ) | 349,652 | ||||||||||||||
Gain on sale of land and buildings, net | — | 175 | (93 | ) | — | 82 | ||||||||||||||
Operating income | 102,418 | 42,491 | 10,356 | — | 155,265 | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | ||||||||||||||||||||
Interest expense | 22,377 | — | 637 | — | 23,014 | |||||||||||||||
Equity in earnings of consolidated subsidiaries | (43,294 | ) | 906 | — | 42,388 | — | ||||||||||||||
Other items, net | (1,241 | ) | 5,328 | (2,321 | ) | — | 1,766 | |||||||||||||
Total other income and expenses, net | (22,158 | ) | 6,234 | (1,684 | ) | 42,388 | 24,780 | |||||||||||||
Income before income taxes | 124,576 | 36,257 | 12,040 | (42,388 | ) | 130,485 | ||||||||||||||
Income taxes | 19,651 | 5,486 | 423 | — | 25,560 | |||||||||||||||
Net income | $ | 104,925 | $ | 30,771 | $ | 11,617 | $ | (42,388 | ) | $ | 104,925 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Royalty fees | $ | 85,945 | $ | 41,918 | $ | 10,821 | $ | (47,085 | ) | $ | 91,599 | |||||||||
Initial franchise and relicensing fees | 5,548 | — | 180 | — | 5,728 | |||||||||||||||
Procurement services | 14,312 | — | 60 | — | 14,372 | |||||||||||||||
Marketing and reservation system | 128,970 | 111,793 | 3,849 | (104,135 | ) | 140,477 | ||||||||||||||
Other | 6,521 | 41 | 2,582 | (304 | ) | 8,840 | ||||||||||||||
Total revenues | 241,296 | 153,752 | 17,492 | (151,524 | ) | 261,016 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling, general and administrative | 46,997 | 37,842 | 6,592 | (47,393 | ) | 44,038 | ||||||||||||||
Marketing and reservation system | 123,045 | 105,544 | 4,322 | (104,131 | ) | 128,780 | ||||||||||||||
Depreciation and amortization | 377 | 469 | 813 | — | 1,659 | |||||||||||||||
Total operating expenses | 170,419 | 143,855 | 11,727 | (151,524 | ) | 174,477 | ||||||||||||||
Operating income | 70,877 | 9,897 | 5,765 | — | 86,539 | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | ||||||||||||||||||||
Interest expense | 11,138 | — | 142 | — | 11,280 | |||||||||||||||
Equity in earnings of consolidated subsidiaries | (12,195 | ) | (21 | ) | — | 12,216 | — | |||||||||||||
Other items, net | (423 | ) | 968 | (1,700 | ) | — | (1,155 | ) | ||||||||||||
Total other income and expenses, net | (1,480 | ) | 947 | (1,558 | ) | 12,216 | 10,125 | |||||||||||||
Income before income taxes | 72,357 | 8,950 | 7,323 | (12,216 | ) | 76,414 | ||||||||||||||
Income taxes | 21,672 | 3,573 | 484 | — | 25,729 | |||||||||||||||
Net income | $ | 50,685 | $ | 5,377 | $ | 6,839 | $ | (12,216 | ) | $ | 50,685 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Royalty fees | $ | 149,541 | $ | 72,653 | $ | 21,335 | $ | (83,636 | ) | $ | 159,893 | |||||||||
Initial franchise and relicensing fees | 11,159 | — | 375 | — | 11,534 | |||||||||||||||
Procurement services | 21,613 | — | 122 | — | 21,735 | |||||||||||||||
Marketing and reservation system | 216,670 | 205,517 | 7,322 | (190,179 | ) | 239,330 | ||||||||||||||
Other | 12,808 | 81 | 4,994 | (491 | ) | 17,392 | ||||||||||||||
Total revenues | 411,791 | 278,251 | 34,148 | (274,306 | ) | 449,884 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Selling, general and administrative | 84,445 | 65,113 | 12,379 | (84,154 | ) | 77,783 | ||||||||||||||
Marketing and reservation system | 225,726 | 193,186 | 8,014 | (190,152 | ) | 236,774 | ||||||||||||||
Depreciation and amortization | 761 | 980 | 1,644 | — | 3,385 | |||||||||||||||
Total operating expenses | 310,932 | 259,279 | 22,037 | (274,306 | ) | 317,942 | ||||||||||||||
Gain on sale of land and buildings, net | — | — | — | — | — | |||||||||||||||
Operating income | 100,859 | 18,972 | 12,111 | — | 131,942 | |||||||||||||||
OTHER INCOME AND EXPENSES, NET | ||||||||||||||||||||
Interest expense | 22,201 | — | 284 | — | 22,485 | |||||||||||||||
Equity in earnings of consolidated subsidiaries | (25,387 | ) | 434 | — | 24,953 | — | ||||||||||||||
Other items, net | (787 | ) | 1,896 | (2,345 | ) | — | (1,236 | ) | ||||||||||||
Total other income and expenses, net | (3,973 | ) | 2,330 | (2,061 | ) | 24,953 | 21,249 | |||||||||||||
Income before income taxes | 104,832 | 16,642 | 14,172 | (24,953 | ) | 110,693 | ||||||||||||||
Income taxes | 29,878 | 5,599 | 262 | — | 35,739 | |||||||||||||||
Net income | $ | 74,954 | $ | 11,043 | $ | 13,910 | $ | (24,953 | ) | $ | 74,954 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net income | $ | 79,839 | $ | 24,444 | $ | 8,249 | $ | (32,693 | ) | $ | 79,839 | ||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Amortization of loss on cash flow hedge | 216 | — | — | — | 216 | ||||||||||||||
Foreign currency translation adjustment | (1,869 | ) | — | (1,869 | ) | 1,869 | (1,869 | ) | |||||||||||
Other comprehensive income (loss), net of tax | (1,653 | ) | — | (1,869 | ) | 1,869 | (1,653 | ) | |||||||||||
Comprehensive income | $ | 78,186 | $ | 24,444 | $ | 6,380 | $ | (30,824 | ) | $ | 78,186 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net income | $ | 104,925 | $ | 30,771 | $ | 11,617 | $ | (42,388 | ) | $ | 104,925 | ||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Amortization of loss on cash flow hedge | 431 | — | — | — | 431 | ||||||||||||||
Foreign currency translation adjustment | (1,014 | ) | — | (1,014 | ) | 1,014 | (1,014 | ) | |||||||||||
Other comprehensive income (loss), net of tax | (583 | ) | — | (1,014 | ) | 1,014 | (583 | ) | |||||||||||
Comprehensive income | $ | 104,342 | $ | 30,771 | $ | 10,603 | $ | (41,374 | ) | $ | 104,342 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net income | $ | 50,685 | $ | 5,377 | $ | 6,839 | $ | (12,216 | ) | $ | 50,685 | ||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Amortization of loss on cash flow hedge | 216 | — | — | — | 216 | ||||||||||||||
Foreign currency translation adjustment | 1,423 | — | 1,423 | (1,423 | ) | 1,423 | |||||||||||||
Other comprehensive income (loss), net of tax | 1,639 | — | 1,423 | (1,423 | ) | 1,639 | |||||||||||||
Comprehensive income | $ | 52,324 | $ | 5,377 | $ | 8,262 | $ | (13,639 | ) | $ | 52,324 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net income | $ | 74,954 | $ | 11,043 | $ | 13,910 | $ | (24,953 | ) | $ | 74,954 | ||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||
Amortization of loss on cash flow hedge | 431 | — | — | — | 431 | ||||||||||||||
Foreign currency translation adjustment | 1,991 | — | 1,991 | (1,991 | ) | 1,991 | |||||||||||||
Other comprehensive income (loss), net of tax | 2,422 | — | 1,991 | (1,991 | ) | 2,422 | |||||||||||||
Comprehensive income | $ | 77,376 | $ | 11,043 | $ | 15,901 | $ | (26,944 | ) | $ | 77,376 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS | |||||||||||||||||||
Cash and cash equivalents | $ | 7,467 | $ | 47 | $ | 29,634 | $ | — | $ | 37,148 | |||||||||
Receivables | 150,487 | 24,297 | 11,743 | (493 | ) | 186,034 | |||||||||||||
Other current assets | 29,115 | 60,225 | 9,995 | (39,365 | ) | 59,970 | |||||||||||||
Total current assets | 187,069 | 84,569 | 51,372 | (39,858 | ) | 283,152 | |||||||||||||
Property and equipment, at cost, net | 46,535 | 26,680 | 39,352 | — | 112,567 | ||||||||||||||
Goodwill | 159,196 | — | 14,545 | — | 173,741 | ||||||||||||||
Intangible assets, net | 233,488 | 2,605 | 12,376 | — | 248,469 | ||||||||||||||
Notes receivable, net of allowances | 20,796 | — | 58,125 | — | 78,921 | ||||||||||||||
Investments, employee benefit plans, at fair value | — | 20,349 | — | — | 20,349 | ||||||||||||||
Investments in affiliates | 314,114 | 48,799 | — | (362,913 | ) | — | |||||||||||||
Advances to affiliates | 9,774 | 195,935 | 21 | (205,730 | ) | — | |||||||||||||
Deferred income taxes | 17,036 | 6,851 | 169 | (746 | ) | 23,310 | |||||||||||||
Other assets | 1,048 | 159,781 | 21,678 | — | 182,507 | ||||||||||||||
Total assets | $ | 989,056 | $ | 545,569 | $ | 197,638 | $ | (609,247 | ) | $ | 1,123,016 | ||||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | |||||||||||||||||||
Accounts payable | $ | 25,119 | $ | 43,246 | $ | 4,394 | $ | (493 | ) | $ | 72,266 | ||||||||
Accrued expenses and other current liabilities | 68,504 | 30,648 | 14,153 | (39,365 | ) | 73,940 | |||||||||||||
Deferred revenue | 25,702 | 30,305 | 2,183 | — | 58,190 | ||||||||||||||
Current portion of long-term debt | — | — | 1,099 | — | 1,099 | ||||||||||||||
Liability for guest loyalty program | — | 80,949 | 229 | — | 81,178 | ||||||||||||||
Total current liabilities | 119,325 | 185,148 | 22,058 | (39,858 | ) | 286,673 | |||||||||||||
Long-term debt | 783,004 | 4,064 | 8,056 | — | 795,124 | ||||||||||||||
Long-term deferred revenue | 78,529 | 23,132 | 2,093 | — | 103,754 | ||||||||||||||
Deferred compensation & retirement plan obligations | — | 24,852 | 14 | — | 24,866 | ||||||||||||||
Advances from affiliates | 202,278 | 1,433 | 2,019 | (205,730 | ) | — | |||||||||||||
Income tax payable | — | — | 29,041 | — | 29,041 | ||||||||||||||
Other liabilities | 9,872 | 59,581 | 18,803 | (746 | ) | 87,510 | |||||||||||||
Total liabilities | 1,193,008 | 298,210 | 82,084 | (246,334 | ) | 1,326,968 | |||||||||||||
Total shareholders’ (deficit) equity | (203,952 | ) | 247,359 | 115,554 | (362,913 | ) | (203,952 | ) | |||||||||||
Total liabilities and shareholders’ deficit | $ | 989,056 | $ | 545,569 | $ | 197,638 | $ | (609,247 | ) | $ | 1,123,016 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS | |||||||||||||||||||
Cash and cash equivalents | $ | 12,671 | $ | 38 | $ | 222,627 | $ | — | $ | 235,336 | |||||||||
Receivables | 107,470 | 6,120 | 12,480 | (200 | ) | 125,870 | |||||||||||||
Other current assets | 12,507 | 60,569 | 9,930 | (43,783 | ) | 39,223 | |||||||||||||
Total current assets | 132,648 | 66,727 | 245,037 | (43,983 | ) | 400,429 | |||||||||||||
Property and equipment, at cost, net | 47,736 | 18,114 | 17,524 | — | 83,374 | ||||||||||||||
Goodwill | 65,813 | — | 14,944 | — | 80,757 | ||||||||||||||
Intangible assets, net | 5,122 | 83,441 | 11,929 | — | 100,492 | ||||||||||||||
Notes receivable, net of allowances | 22,193 | — | 57,943 | — | 80,136 | ||||||||||||||
Investments, employee benefit plans, at fair value | — | 20,838 | — | — | 20,838 | ||||||||||||||
Investments in affiliates | 475,434 | 47,172 | — | (522,606 | ) | — | |||||||||||||
Advances to affiliates | 10,517 | 120,466 | — | (130,983 | ) | — | |||||||||||||
Deferred income taxes | 20,548 | 9,335 | 169 | (2,828 | ) | 27,224 | |||||||||||||
Other assets | 189 | 160,045 | 41,707 | — | 201,941 | ||||||||||||||
Total assets | $ | 780,200 | $ | 526,138 | $ | 389,253 | $ | (700,400 | ) | $ | 995,191 | ||||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | |||||||||||||||||||
Accounts payable | $ | 15,326 | $ | 48,213 | $ | 4,500 | $ | (200 | ) | $ | 67,839 | ||||||||
Accrued expenses and other current liabilities | 73,225 | 41,814 | 13,059 | (43,783 | ) | 84,315 | |||||||||||||
Deferred revenue | 24,984 | 25,301 | 1,857 | — | 52,142 | ||||||||||||||
Current portion of long-term debt | — | — | 1,232 | — | 1,232 | ||||||||||||||
Liability for guest loyalty program | — | 78,899 | 224 | — | 79,123 | ||||||||||||||
Total current liabilities | 113,535 | 194,227 | 20,872 | (43,983 | ) | 284,651 | |||||||||||||
Long-term debt | 713,175 | 3,712 | 8,405 | — | 725,292 | ||||||||||||||
Long-term deferred revenue | 75,367 | 20,552 | 2,540 | — | 98,459 | ||||||||||||||
Deferred compensation & retirement plan obligations | — | 25,552 | 14 | — | 25,566 | ||||||||||||||
Advances from affiliates | 126,691 | 1,294 | 2,998 | (130,983 | ) | — | |||||||||||||
Income taxes payable | — | — | 29,041 | — | 29,041 | ||||||||||||||
Other liabilities | 10,033 | 62,806 | 20,772 | (2,828 | ) | 90,783 | |||||||||||||
Total liabilities | 1,038,801 | 308,143 | 84,642 | (177,794 | ) | 1,253,792 | |||||||||||||
Total shareholders’ (deficit) equity | (258,601 | ) | 217,995 | 304,611 | (522,606 | ) | (258,601 | ) | |||||||||||
Total liabilities and shareholders’ deficit | $ | 780,200 | $ | 526,138 | $ | 389,253 | $ | (700,400 | ) | $ | 995,191 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 234,961 | $ | 20,558 | $ | 10,579 | $ | (202,284 | ) | $ | 63,814 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||
Investment in property and equipment | (4,456 | ) | (11,711 | ) | (5,444 | ) | — | (21,611 | ) | ||||||||||
Investment in intangible assets | (1,329 | ) | — | — | — | (1,329 | ) | ||||||||||||
Business acquisition, net of cash acquired | (231,317 | ) | — | — | — | (231,317 | ) | ||||||||||||
Proceeds from sale of assets | — | 175 | 2,877 | — | 3,052 | ||||||||||||||
Contributions to equity method investments | — | (7,157 | ) | (49 | ) | — | (7,206 | ) | |||||||||||
Distributions from equity method investments | — | 564 | 646 | — | 1,210 | ||||||||||||||
Issuance of mezzanine and other notes receivable | (19,005 | ) | — | — | — | (19,005 | ) | ||||||||||||
Collections of mezzanine and other notes receivable | 3,505 | — | — | — | 3,505 | ||||||||||||||
Purchases of investments, employee benefit plans | — | (2,047 | ) | — | — | (2,047 | ) | ||||||||||||
Proceeds from sales of investments, employee benefit plans | — | 1,828 | — | — | 1,828 | ||||||||||||||
Advances to and investments in affiliates | — | (6,564 | ) | — | 6,564 | — | |||||||||||||
Divestment in affiliates | — | 4,011 | — | (4,011 | ) | — | |||||||||||||
Other items, net | 232 | — | — | — | 232 | ||||||||||||||
Net cash used in investing activities | (252,370 | ) | (20,901 | ) | (1,970 | ) | 2,553 | (272,688 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||
Net borrowings pursuant to revolving credit facilities | 69,000 | — | — | — | 69,000 | ||||||||||||||
Principal payments on long-term debt | — | — | (362 | ) | — | (362 | ) | ||||||||||||
Proceeds from the issuance of long-term debt | — | 352 | — | — | 352 | ||||||||||||||
Purchase of treasury stock | (70,573 | ) | — | — | — | (70,573 | ) | ||||||||||||
Debt issuance costs | — | — | (914 | ) | — | (914 | ) | ||||||||||||
Proceeds from exercise of stock options | 38,059 | — | — | — | 38,059 | ||||||||||||||
Proceeds from transfer of interest in notes receivable | 173 | — | — | — | 173 | ||||||||||||||
Proceeds from contributions from affiliates | — | — | 6,564 | (6,564 | ) | — | |||||||||||||
Distributions to affiliates | — | — | (4,011 | ) | 4,011 | — | |||||||||||||
Dividends paid | (24,454 | ) | — | (202,284 | ) | 202,284 | (24,454 | ) | |||||||||||
Net cash provided by (used in) financing activities | 12,205 | 352 | (201,007 | ) | 199,731 | 11,281 | |||||||||||||
Net change in cash and cash equivalents | (5,204 | ) | 9 | (192,398 | ) | — | (197,593 | ) | |||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | (595 | ) | — | (595 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 12,671 | 38 | 222,627 | — | 235,336 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 7,467 | $ | 47 | $ | 29,634 | $ | — | $ | 37,148 |
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 9,541 | $ | 42,479 | $ | 12,745 | $ | (657 | ) | $ | 64,108 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||
Investment in property and equipment | (9,120 | ) | (1,344 | ) | (223 | ) | — | (10,687 | ) | ||||||||||
Investment in intangible assets | (1,499 | ) | (729 | ) | — | — | (2,228 | ) | |||||||||||
Contributions to equity method investments | — | (42,090 | ) | (37 | ) | — | (42,127 | ) | |||||||||||
Distributions from equity method investments | — | — | 1,696 | — | 1,696 | ||||||||||||||
Issuance of mezzanine and other notes receivable | (5,444 | ) | — | (9,533 | ) | — | (14,977 | ) | |||||||||||
Collections of mezzanine and other notes receivable | 552 | — | — | — | 552 | ||||||||||||||
Purchases of investments, employee benefit plans | — | (1,736 | ) | — | — | (1,736 | ) | ||||||||||||
Proceeds from sales of investments, employee benefit plans | — | 2,094 | — | — | 2,094 | ||||||||||||||
Advances to and investments in affiliates | — | (484 | ) | — | 484 | — | |||||||||||||
Divestment in affiliates | — | 1,707 | — | (1,707 | ) | — | |||||||||||||
Other items, net | — | 113 | (3 | ) | — | 110 | |||||||||||||
Net cash used in investing activities | (15,511 | ) | (42,469 | ) | (8,100 | ) | (1,223 | ) | (67,303 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||
Net borrowings pursuant to revolving credit facilities | 23,200 | — | — | — | 23,200 | ||||||||||||||
Principal payments on long-term debt | — | — | (309 | ) | — | (309 | ) | ||||||||||||
Purchase of treasury stock | (7,414 | ) | — | — | — | (7,414 | ) | ||||||||||||
Proceeds from exercise of stock options | 6,590 | — | — | — | 6,590 | ||||||||||||||
Proceeds from contributions from affiliates | — | — | 484 | (484 | ) | — | |||||||||||||
Distributions to affiliates | — | — | (1,707 | ) | 1,707 | — | |||||||||||||
Dividends paid | (24,333 | ) | — | (657 | ) | 657 | (24,333 | ) | |||||||||||
Net cash provided by (used in) financing activities | (1,957 | ) | — | (2,189 | ) | 1,880 | (2,266 | ) | |||||||||||
Net change in cash and cash equivalents | (7,927 | ) | 10 | 2,456 | — | (5,461 | ) | ||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | 955 | — | 955 | ||||||||||||||
Cash and cash equivalents at beginning of period | 14,696 | 159 | 187,608 | — | 202,463 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 6,769 | $ | 169 | $ | 191,019 | $ | — | $ | 197,957 |
13. | Reportable Segment Information |
Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 | ||||||||||||||||||||||
(In thousands) | Hotel Franchising | Corporate & Other | Consolidated | Hotel Franchising | Corporate & Other | Consolidated | |||||||||||||||||
Revenues | $ | 292,186 | $ | 3,255 | $ | 295,441 | $ | 258,459 | $ | 2,557 | $ | 261,016 | |||||||||||
Operating income (loss) | $ | 122,665 | $ | (13,649 | ) | $ | 109,016 | $ | 101,447 | $ | (14,908 | ) | $ | 86,539 | |||||||||
Income (loss) before income taxes | $ | 123,233 | $ | (23,209 | ) | $ | 100,024 | $ | 100,588 | $ | (24,174 | ) | $ | 76,414 | |||||||||
Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 | ||||||||||||||||||||||
(In thousands) | Hotel Franchising | Corporate & Other | Consolidated | Hotel Franchising | Corporate & Other | Consolidated | |||||||||||||||||
Revenues | $ | 497,808 | $ | 7,027 | $ | 504,835 | $ | 444,772 | $ | 5,112 | $ | 449,884 | |||||||||||
Operating income (loss) | $ | 182,023 | $ | (26,758 | ) | $ | 155,265 | $ | 159,703 | $ | (27,761 | ) | $ | 131,942 | |||||||||
Income (loss) before income taxes | $ | 176,622 | $ | (46,137 | ) | $ | 130,485 | $ | 156,764 | $ | (46,071 | ) | $ | 110,693 |
14. | Commitments and Contingencies |
• | The Company provides financing in the form of franchise agreement acquisition payments to franchisees for property improvements, hotel development efforts and other purposes. At June 30, 2018, the Company had commitments to extend an additional $225.4 million for these purposes provided certain conditions are met by its franchisees. |
• | The Company committed to make additional capital contributions totaling $26.6 million to existing unconsolidated and consolidated joint ventures related to the construction of various hotels to be operated under the Company's Cambria Hotels brand. |
• | The Company committed to provide financing in the form of mezzanine loans or credit facilities to franchisees for Choice brand development efforts. The Company has committed to provide an aggregate of approximately $13.9 million, upon certain conditions being met. As of June 30, 2018, $1.3 million have been disbursed. |
• | In March 2018, the Company entered into a construction loan agreement for the rehabilitation and development of a former office building into a hotel through a consolidated joint venture with a commercial lender, which is secured by the building. The construction loan can be drawn up to $34.9 million. The Company has a carve-out guaranty and the unaffiliated joint venture partner has a completion guaranty in relation to the loan, in which both parties are required to meet certain financial covenants relating to liquidity and net worth. The rehabilitation of the building is considered a qualified asset in which requires a significant amount of time to prepare for its intended use. Therefore, any interest costs incurred during the development period of the building is considered an element of the historical cost of the qualifying asset. For the six months ended June 30, 2018, the Company has not drawn on the construction loan or recorded any capitalized interest costs. |
• | The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. These fees are described in Note 2 Revenue. In accordance with terms of our franchise agreements, the Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing and reservation services appropriate to support the operation of the overall system. To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to assess and collect such amounts. |
15. | Transactions with Unconsolidated Joint Ventures |
16. | Acquisition |
(in thousands) | |||
Cash | $ | 250 | |
Accounts receivables | 1,258 | ||
Prepaid | 23 | ||
Contract assets | 115,000 | ||
Tradename | 22,000 | ||
Goodwill | 93,384 | ||
Accounts payable | (348 | ) | |
Total Consideration | $ | 231,567 |
(in thousands) | Useful Life | |||||
Franchise agreements acquired | $ | 115,000 | 12-20 years | |||
WoodSpring tradename | 22,000 | Indefinite | ||||
Goodwill | 93,384 | Indefinite | ||||
Total | $ | 230,384 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Total Revenues | $ | 295,441 | $ | 261,016 | $ | 504,835 | $ | 449,884 | |||||||
Adjustments: | |||||||||||||||
Marketing and reservation system revenues | (157,347 | ) | (140,477 | ) | (264,348 | ) | (239,330 | ) | |||||||
Non-hotel franchising activities | (3,255 | ) | (2,557 | ) | (7,027 | ) | (5,112 | ) | |||||||
Hotel Franchising Revenues | $ | 134,839 | $ | 117,982 | $ | 233,460 | $ | 205,442 |
(in thousands) | 2018 | 2017 | |||||
REVENUES | |||||||
Royalty fees | $ | 103,219 | $ | 91,599 | |||
Initial franchise and relicensing fees | 6,481 | 5,728 | |||||
Procurement services | 17,833 | 14,372 | |||||
Marketing and reservation system | 157,347 | 140,477 | |||||
Other | 10,561 | 8,840 | |||||
Total revenues | 295,441 | 261,016 | |||||
OPERATING EXPENSES | |||||||
Selling, general and administrative | 46,270 | 44,038 | |||||
Depreciation and amortization | 3,669 | 1,659 | |||||
Marketing and reservation system | 136,568 | 128,780 | |||||
Total operating expenses | 186,507 | 174,477 | |||||
Gain on sale of land and building, net | 82 | — | |||||
Operating income | 109,016 | 86,539 | |||||
OTHER INCOME AND EXPENSES, NET | |||||||
Interest expense | 11,705 | 11,280 | |||||
Interest income | (1,643 | ) | (1,438 | ) | |||
Other gains | (503 | ) | (576 | ) | |||
Equity in net (income) loss of affiliates | (567 | ) | 859 | ||||
Total other income and expenses, net | 8,992 | 10,125 | |||||
Income before income taxes | 100,024 | 76,414 | |||||
Income taxes | 20,185 | 25,729 | |||||
Net income | $ | 79,839 | $ | 50,685 |
For the Three Months Ended June 30, 2018 | For the Three Months Ended June 30, 2017 | Change | |||||||||||||||||||||||||||
Average Daily Rate | Occupancy | RevPAR | Average Daily Rate | Occupancy | RevPAR | Average Daily Rate | Occupancy | RevPAR | |||||||||||||||||||||
Comfort Inn | $ | 97.22 | 70.2 | % | $ | 68.20 | $ | 95.96 | 70.6 | % | $ | 67.76 | 1.3% | (40 | ) | bps | 0.6% | ||||||||||||
Comfort Suites | 100.38 | 73.8 | % | 74.07 | 98.54 | 73.4 | % | 72.32 | 1.9% | 40 | bps | 2.4% | |||||||||||||||||
Sleep | 87.28 | 70.1 | % | 61.17 | 84.84 | 69.9 | % | 59.27 | 2.9% | 20 | bps | 3.2% | |||||||||||||||||
Quality | 81.67 | 64.3 | % | 52.52 | 80.36 | 63.6 | % | 51.12 | 1.6% | 70 | bps | 2.7% | |||||||||||||||||
Clarion | 86.19 | 62.6 | % | 53.91 | 85.70 | 63.9 | % | 54.76 | 0.6% | (130 | ) | bps | (1.6)% | ||||||||||||||||
Econo Lodge | 64.10 | 58.1 | % | 37.21 | 63.31 | 57.6 | % | 36.48 | 1.2% | 50 | bps | 2.0% | |||||||||||||||||
Rodeway | 64.92 | 59.4 | % | 38.59 | 64.94 | 58.7 | % | 38.12 | —% | 70 | bps | 1.2% | |||||||||||||||||
WoodSpring Suites* | 46.60 | 81.6 | % | 38.00 | 42.31 | 82.1 | % | 34.75 | 10.1% | (50 | ) | bps | 9.4% | ||||||||||||||||
MainStay | 84.68 | 74.9 | % | 63.39 | 76.88 | 72.4 | % | 55.62 | 10.1% | 250 | bps | 14.0% | |||||||||||||||||
Suburban | 56.23 | 78.6 | % | 44.22 | 52.42 | 78.2 | % | 41.00 | 7.3% | 40 | bps | 7.9% | |||||||||||||||||
Cambria Hotels | 155.55 | 74.6 | % | 115.99 | 142.23 | 77.2 | % | 109.78 | 9.4% | (260 | ) | bps | 5.7% | ||||||||||||||||
Ascend Hotel Collection | 132.25 | 60.0 | % | 79.39 | 129.17 | 56.8 | % | 73.32 | 2.4% | 320 | bps | 8.3% | |||||||||||||||||
Total* | $ | 83.64 | 67.2 | % | $ | 56.23 | $ | 81.67 | 67.0 | % | $ | 54.73 | 2.4% | 20 | bps | 2.7% |
June 30, 2018 | June 30, 2017 | Variance | |||||||||||||||||||||
Hotels | Rooms | Hotels | Rooms | Hotels | Rooms | % | % | ||||||||||||||||
Comfort Inn | 1,071 | 83,753 | 1,093 | 84,956 | (22 | ) | (1,203 | ) | (2.0 | )% | (1.4 | )% | |||||||||||
Comfort Suites | 568 | 44,128 | 565 | 43,721 | 3 | 407 | 0.5 | % | 0.9 | % | |||||||||||||
Sleep | 387 | 27,579 | 385 | 27,574 | 2 | 5 | 0.5 | % | — | % | |||||||||||||
Quality | 1,584 | 122,850 | 1,493 | 116,961 | 91 | 5,889 | 6.1 | % | 5.0 | % | |||||||||||||
Clarion | 166 | 21,988 | 163 | 22,159 | 3 | (171 | ) | 1.8 | % | (0.8 | )% | ||||||||||||
Econo Lodge | 830 | 50,568 | 843 | 51,757 | (13 | ) | (1,189 | ) | (1.5 | )% | (2.3 | )% | |||||||||||
Rodeway | 601 | 34,292 | 586 | 34,085 | 15 | 207 | 2.6 | % | 0.6 | % | |||||||||||||
WoodSpring Suites | 245 | 29,386 | — | — | 245 | 29,386 | NM | NM | |||||||||||||||
MainStay | 61 | 4,263 | 56 | 4,074 | 5 | 189 | 8.9 | % | 4.6 | % | |||||||||||||
Suburban | 52 | 5,481 | 59 | 6,578 | (7 | ) | (1,097 | ) | (11.9 | )% | (16.7 | )% | |||||||||||
Cambria Hotels | 37 | 5,301 | 31 | 4,160 | 6 | 1,141 | 19.4 | % | 27.4 | % | |||||||||||||
Ascend Hotel Collection | 161 | 13,286 | 135 | 10,877 | 26 | 2,409 | 19.3 | % | 22.1 | % | |||||||||||||
Total Domestic Franchises | 5,763 | 442,875 | 5,409 | 406,902 | 354 | 35,973 | 6.5 | % | 8.8 | % |
(in thousands) | 2018 | 2017 | |||||
REVENUES: | |||||||
Royalty fees | $ | 179,917 | $ | 159,893 | |||
Initial franchise and relicensing fees | 12,695 | 11,534 | |||||
Procurement services | 27,771 | 21,735 | |||||
Marketing and reservation system | 264,348 | 239,330 | |||||
Other | 20,104 | 17,392 | |||||
Total revenues | 504,835 | 449,884 | |||||
OPERATING EXPENSES: | |||||||
Selling, general and administrative | 87,134 | 77,783 | |||||
Depreciation and amortization | 6,722 | 3,385 | |||||
Marketing and reservation system | 255,796 | 236,774 | |||||
Total operating expenses | 349,652 | 317,942 | |||||
Gain on sale of land and building, net | 82 | — | |||||
Operating income | 155,265 | 131,942 | |||||
OTHER INCOME AND EXPENSES, NET: | |||||||
Interest expense | 23,014 | 22,485 | |||||
Interest income | (3,252 | ) | (2,702 | ) | |||
Other gains | (383 | ) | (1,473 | ) | |||
Equity in net losses of affiliates | 5,401 | 2,939 | |||||
Total other income and expenses, net | 24,780 | 21,249 | |||||
Income before income taxes | 130,485 | 110,693 | |||||
Income taxes | 25,560 | 35,739 | |||||
Net income | $ | 104,925 | $ | 74,954 |
For the Six Months Ended June 30, 2018 | For the Six Months Ended June 30, 2017 | Change | ||||||||||||||||||||||||||||
Average Daily Rate | Occupancy | RevPAR | Average Daily Rate | Occupancy | RevPAR | Average Daily Rate | Occupancy | RevPAR | ||||||||||||||||||||||
Comfort Inn | $ | 93.46 | 64.3 | % | $ | 60.07 | $ | 92.00 | 64.7 | % | $ | 59.48 | 1.6 | % | (40) | bps | 1.0 | % | ||||||||||||
Comfort Suites | 97.95 | 69.8 | % | 68.36 | 96.16 | 69.3 | % | 66.65 | 1.9 | % | 50 | bps | 2.6 | % | ||||||||||||||||
Sleep | 84.64 | 65.1 | % | 55.10 | 82.29 | 65.0 | % | 53.51 | 2.9 | % | 10 | bps | 3.0 | % | ||||||||||||||||
Quality | 79.09 | 59.4 | % | 46.98 | 77.45 | 58.5 | % | 45.32 | 2.1 | % | 90 | bps | 3.7 | % | ||||||||||||||||
Clarion | 83.37 | 57.5 | % | 47.94 | 82.30 | 58.9 | % | 48.45 | 1.3 | % | (140) | bps | (1.1 | )% | ||||||||||||||||
Econo Lodge | 61.73 | 53.9 | % | 33.25 | 60.64 | 53.2 | % | 32.26 | 1.8 | % | 70 | bps | 3.1 | % | ||||||||||||||||
Rodeway | 62.75 | 55.8 | % | 35.03 | 62.61 | 55.1 | % | 34.51 | 0.2 | % | 70 | bps | 1.5 | % | ||||||||||||||||
WoodSpring Suites* | 45.81 | 80.0 | % | 36.66 | 41.42 | 79.5 | % | 32.95 | 10.6 | % | 50 | bps | 11.3 | % | ||||||||||||||||
MainStay | 81.40 | 69.4 | % | 56.46 | 74.51 | 67.1 | % | 49.99 | 9.2 | % | 230 | bps | 12.9 | % | ||||||||||||||||
Suburban | 54.86 | 76.1 | % | 41.74 | 51.74 | 76.2 | % | 39.44 | 6.0 | % | (10) | bps | 5.8 | % | ||||||||||||||||
Cambria Hotels | 143.98 | 70.8 | % | 101.88 | 133.34 | 72.9 | % | 97.16 | 8.0 | % | (210) | bps | 4.9 | % | ||||||||||||||||
Ascend Hotel Collection | 124.97 | 56.7 | % | 70.86 | 123.71 | 54.1 | % | 66.96 | 1.0 | % | 260 | bps | 5.8 | % | ||||||||||||||||
Total | $ | 80.59 | 62.8 | % | $ | 50.58 | $ | 78.65 | 62.4 | % | $ | 49.05 | 2.5 | % | 40 | bps | 3.1 | % |
• | Royalty fees. Royalty fees are earned in exchange for a license to brand intellectual property typically based on a percentage of gross room revenues. These fees are billed and collected monthly and revenues are recognized in the same period that the underlying gross room revenues are earned by the Company’s franchisees. |
• | Initial franchise and relicensing fees. Initial and relicensing fees are charged when (i) new hotels enter the franchise system; (ii) there is a change of ownership; or (iii) existing franchise agreements are extended. These revenues are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement. The enforceable period is the period from hotel opening to the first point the franchisee or the Company can terminate the franchise agreement without incurring a significant penalty. Deferred revenues from initial and relicensing fees will typically be recognized over a five to ten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby remaining deferred amounts will be recognized to revenue in the period of termination. |
• | Other revenue. Other revenue is a combination of miscellaneous non-marketing and reservation system fees, inclusive of quality assurance non-compliance and franchisee training fees, and is recognized in the period the designated transaction or event has occurred. |
• | Marketing and reservation system revenues. The Company’s franchise agreements require the payment of marketing and reservation system fees. The Company is obligated to use these marketing and reservation system fees to provide marketing and reservation services such as advertising, providing a centralized reservation and property management system, providing reservation and revenue management services, and performing certain franchise services to support the operation of the overall franchise system. These services are comprised of multiple fees including the following: |
▪ | Fees based on a percentage of gross room revenues are recognized in the period the gross room revenue was earned, based on the underlying hotel’s sales or usage. |
▪ | Fees based on the occurrence of a designated transaction or event are recognized in the period the transaction or event occurred. |
▪ | System implementation fees charged to franchisees are deferred and recognized as revenue over the term of the franchise agreement. |
▪ | Marketing and reservation system activities also include revenues generated from the Company’s guest loyalty program. The revenue recognition of this program is discussed in Choice Privileges Loyalty Program below. |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Month Ending | Total Number of Shares Purchased or Redeemed | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1),(2) | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs, End of Period | |||||||||
January 31, 2018 | 22,168 | $ | 71.90 | — | 4,016,795 | ||||||||
February 28, 2018 | 44,347 | 80.43 | — | 4,016,795 | |||||||||
March 31, 2018 | 451,324 | 81.44 | 432,165 | 3,584,630 | |||||||||
April 30, 2018 | 189,696 | 79.71 | 188,284 | 3,396,346 | |||||||||
May 31, 2018 | 10,076 | 79.41 | 10,076 | 3,386,270 | |||||||||
June 30, 2018 | 159,918 | 79.65 | 158,815 | 3,227,455 | |||||||||
Total | 877,529 | $ | 80.42 | 789,340 | 3,227,455 |
(1) | The Company’s share repurchase program was initially approved by the board of directors on June 25, 1998. The program has no fixed dollar amount or expiration date. Since the program's inception through June 30, 2018, the Company has repurchased 49.5 million shares (including 33.0 million prior to the two-for-one stock split effected in October 2005) of common stock at a total cost of $1.3 billion. Considering the effect of the two-for-one stock split, the Company has repurchased 82.5 million shares at an average price of $16.01 a share. |
(2) | During the six months ended June 30, 2018, the Company redeemed 88,189 shares of common stock from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of restricted stock and performance vested restricted stock unit grants. These redemptions were not part of the board repurchase authorization. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit Number | Description | |
3.01(a) | ||
3.02(b) | ||
3.03(c) | ||
3.04(d) | ||
3.05(e) | ||
31.1* | ||
31.2* | ||
32* | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Presentation Linkbase Document | |
* | Filed herewith |
(a) | Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Registration Statement on Form S-4, filed August 31, 1998 (Reg. No. 333-62543). |
(b) | Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed May 1, 2013. |
(c) | Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed February 16, 2010. |
(d) | Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed April 29, 2015. |
(e) | Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K filed on January 13, 2016. |
CHOICE HOTELS INTERNATIONAL, INC. | ||
August 8, 2018 | By: | /s/ PATRICK S. PACIOUS |
Patrick S. Pacious | ||
President & Chief Executive Officer | ||
CHOICE HOTELS INTERNATIONAL, INC. | ||
August 8, 2018 | By: | /s/ DOMINIC E. DRAGISICH |
Dominic E. Dragisich | ||
Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Choice Hotels International, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
(d) | Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
August 8, 2018 | /s/ PATRICK S. PACIOUS |
Patrick S. Pacious | |
President & Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Choice Hotels International, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and |
(d) | Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
August 8, 2018 | /s/ DOMINIC E. DRAGISICH |
Dominic E. Dragisich | |
Chief Financial Officer |
August 8, 2018 | /s/ PATRICK S. PACIOUS |
Patrick S. Pacious | |
President & Chief Executive Officer | |
August 8, 2018 | /s/ DOMINIC E. DRAGISICH |
Dominic E. Dragisich | |
Chief Financial Officer |
Document And Entity Information |
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Jun. 30, 2018
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Document and Entity Information [Abstract] | |
Entity Registrant Name | CHOICE HOTELS INTERNATIONAL INC /DE |
Trading Symbol | chh |
Entity Central Index Key | 0001046311 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2018 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | Q2 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 56,633,606 |
Consolidated Statements of Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
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REVENUES | ||||
Royalty fees | $ 103,219 | $ 91,599 | $ 179,917 | $ 159,893 |
Initial franchise and relicensing fees | 6,481 | 5,728 | 12,695 | 11,534 |
Procurement services | 17,833 | 14,372 | 27,771 | 21,735 |
Marketing and reservation system | 157,347 | 140,477 | 264,348 | 239,330 |
Other | 10,561 | 8,840 | 20,104 | 17,392 |
Total revenues | 295,441 | 261,016 | 504,835 | 449,884 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 46,270 | 44,038 | 87,134 | 77,783 |
Depreciation and amortization | 3,669 | 1,659 | 6,722 | 3,385 |
Marketing and reservation system | 136,568 | 128,780 | 255,796 | 236,774 |
Total operating expenses | 186,507 | 174,477 | 349,652 | 317,942 |
Gain on sale of land and building, net | 82 | 0 | 82 | 0 |
Operating income | 109,016 | 86,539 | 155,265 | 131,942 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 11,705 | 11,280 | 23,014 | 22,485 |
Interest income | (1,643) | (1,438) | (3,252) | (2,702) |
Other gains | (503) | (576) | (383) | (1,473) |
Equity in net (income) loss of affiliates | (567) | 859 | 5,401 | 2,939 |
Total other income and expenses, net | 8,992 | 10,125 | 24,780 | 21,249 |
Income before income taxes | 100,024 | 76,414 | 130,485 | 110,693 |
Income taxes | 20,185 | 25,729 | 25,560 | 35,739 |
Net income | $ 79,839 | $ 50,685 | $ 104,925 | $ 74,954 |
Basic earnings per share (in dollars per share) | $ 1.41 | $ 0.90 | $ 1.85 | $ 1.33 |
Diluted earnings per share (in dollars per share) | 1.40 | 0.89 | 1.83 | 1.32 |
Cash dividends declared per share (in dollars per share) | $ 0.215 | $ 0.215 | $ 0.43 | $ 0.43 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 79,839 | $ 50,685 | $ 104,925 | $ 74,954 |
Other comprehensive income, net of tax: | ||||
Amortization of loss on cash flow hedge | 216 | 216 | 431 | 431 |
Foreign currency translation adjustment | (1,869) | 1,423 | (1,014) | 1,991 |
Other comprehensive income (loss), net of tax | (1,653) | 1,639 | (583) | 2,422 |
Comprehensive income | $ 78,186 | $ 52,324 | $ 104,342 | $ 77,376 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
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Statement of Financial Position [Abstract] | ||
Receivables, allowance for doubtful accounts | $ 14,087 | $ 12,221 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 160,000,000 | 160,000,000 |
Common stock, shares issued (in shares) | 95,065,638 | 95,065,638 |
Common stock, shares outstanding (in shares) | 56,633,606 | 56,679,968 |
Treasury stock, shares (in shares) | 38,432,032 | 38,385,670 |
Basis of Presentation and Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Basis of Presentation 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 United States of America generally accepted accounting principles ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2018 (the "10-K"). Interim results are not necessarily indicative of the entire year results. All inter-company transactions and balances between Choice Hotels International, Inc. and its subsidiaries have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On February 1, 2018, the Company acquired 100% of the issued and outstanding equity interest of WoodSpring Hotels Franchise Services ("WoodSpring"). The transaction has been accounted for using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The results of WoodSpring have been consolidated with the Company since February 1, 2018. See Note 16 for additional information. Summary of Significant Accounting Policies The Company’s significant accounting policies are detailed in Note 1 “Summary of Significant Accounting Policies” in the Annual Report on Form 10-K for the year ended December 31, 2017. The significant accounting policies that changed in 2018 are set forth below. Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts with Customers (Topic 606) and issued subsequent amendments to the initial guidance at various points of 2015 and 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 (these ASUs collectively referred to as "Topic 606"). The Company adopted Topic 606 as of January 1, 2018 using the full retrospective method of adoption. The provisions of Topic 606 impacted the Company’s revenue recognition as follows:
All amounts and disclosures set forth in this Form 10-Q reflect the necessary adjustments required for the adoption of Topic 606, including the reclassification of prior year balances to conform to current year presentation. See Note 2 for further details on the adoption of Topic 606 and impact to the Company's significant accounting policies. In accordance with Topic 606 requirements, the disclosure of the impact of adoption on the Company's prior period consolidated statements of income and balance sheet is presented below. The adoption of Topic 606 had no impact to cash from or used in operating, financing, or investing activities, but resulted in certain reclassifications within cash flows from operating activities, on the prior period consolidated statement of cash flows.
(1) The Company performed reclassifications of certain payroll taxes from Accrued expenses and other current liabilities to Accounts payable totaling $4.3 million, and the entirety of Income taxes payable to Accrued expenses and other current liabilities totaling $2.8 million. In addition, $4.3 million was reclassified from Other liabilities to Deferred revenue. (2) As a result of adoption of Topic 606 and in accordance with reporting requirements, the Company performed revisions to the presentation within Total liabilities in the consolidated balance sheet to add non-current Deferred revenue and current and non-current Liability for guest loyalty program line items. Amounts originally captured in current Deferred revenue and Other liabilities have been reclassified to the new line items in the table above. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15") and in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash ("ASU 2016-18"), which collectively provide additional guidance on nine specific cash flow issues. The Company adopted ASU 2016-15 and ASU 2016-18 on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"). ASU 2016-16 provides guidance on recognition of current income tax consequences for inter-company asset transfers (other than inventory) at the time of transfer. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and adds guidance for partial sales of nonfinancial assets. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting ("ASU 2017-09"), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize most leases on their balance sheet by recording a liability for its lease obligation and an asset for its right to use the underlying asset as of the lease commencement date. The standard requires entities to determine whether an arrangement contains a lease or a service agreement as the accounting treatment is different between the two arrangements. The standard also requires the lessee to evaluate whether a lease is a financing lease or an operating lease as the accounting and presentation guidance between the two are different. ASU 2016-02 also modifies the classification criteria and accounting for sales-type and direct financing leases for lessors. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt the standard on January 1, 2019 and apply the package of practical expedients available upon adoption. The Company is currently assessing the impact that ASU 2016-02 will have on its financial statements and disclosures. The Company expects the ASU to have a material effect on its consolidated balance sheet as a result of recognizing a lease obligation and right-of-use asset for the Company's operating leases. This differs from present day treatment of operating leases, which primarily are not captured on the Company's consolidated balance sheet in accordance with current GAAP. The Company does not expect a material effect on its consolidated statements of income. |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | Revenue Revenue Recognition Revenues are primarily derived from franchise agreements with third-party hotel owners. The majority of the Company’s performance obligations are a series of distinct services, as described in more detail below, for which the Company receives variable consideration through franchise fees. The Company enters into franchise agreements to provide franchisees with a limited non-exclusive license to utilize the Company’s registered brand trade names and trademarks, marketing and reservation services, and other miscellaneous franchise services. These agreements typically have an initial term from five to thirty years, with provisions permitting franchisees or the Company to terminate the franchise agreement upon designated anniversaries of the hotel opening before the end of the initial term. An up-front initial or relicensing fee is assessed to third-party hotel owners to affiliate with our brands, which is typically paid prior to agreement execution and is non-refundable. After hotel opening, fees are generated based on a percentage of gross room revenues or as designated transactions and events occur (such as when a reservation is delivered to the hotel through a specified channel) and are due to the Company in the following month. The franchise agreements are comprised of multiple performance obligations, which may require significant judgment in identifying. The primary performance obligations are as follows:
Brand intellectual property Fees generated from the brand intellectual property are recognized to revenue over time as hotel owners pay for access to these services for the duration of the franchise agreement. Franchise fees are typically based on the sales or usage of the underlying hotel, with the exception of fixed up-front fees that usually represent an insignificant portion of the transaction price. The variable consideration is recognizable after the completion of a hotel stay. As a result, variable transaction price is determined for the period when the underlying gross room revenues and transactions or events which generate fees are known. Franchise fees include the following:
The Company’s franchise agreements require the payment of marketing and reservation system fees. The Company is obligated to use these marketing and reservation system fees to provide marketing and reservation services such as advertising, providing a centralized reservation and property management system, providing reservation and revenue management services, and performing certain franchise services to support the operation of the overall franchise system. These services are comprised of multiple fees including the following:
Marketing and reservation system expenses are those expenses incurred to facilitate the delivery of marketing and reservation system services, including direct expenses and an allocation of costs for certain administrative activities required to carry out marketing and reservation services. Marketing and reservation system expenses are recognized as services are incurred or goods are received, and as such may not equal marketing and reservation system revenues in a specific period but are expected to equal revenues earned from franchisees over time. The Company’s franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available and recover such advances in future periods through additional fee assessments or reduced spending. Material rights for free or discounted good or services to hotel guests Choice Privileges is the Company’s frequent guest loyalty program, which enables members to earn points based on their spending levels with the Company’s franchisees. The points, which the Company accumulates and tracks on the members’ behalf, may be redeemed for free accommodations or other benefits (e.g., gift cards to participating retailers). The Company collects from franchisees a percentage of program members’ gross room revenue from completed stays to operate the program. At such time points are redeemed for free accommodations or other benefits, the Company reimburses franchisees or third parties based on a rate derived in accordance with the franchise or vendor agreement. Loyalty points represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits. The transaction price is variable and determined in the period when the loyalty points are earned and the underlying gross room revenues are known. No loyalty program revenues are recognized at the time the loyalty points are issued. The Company is an agent in coordinating delivery of the services between the loyalty program member and franchisee or third party, and as a result, revenues are recognized net of the cost of redemptions. The estimated fair value of future redemptions is reflected in current and non-current Liability for guest loyalty program in our consolidated balance sheets. The liability for guest loyalty program is developed based on an estimate of the eventual redemption rates and point values using various actuarial methods. These significant judgments determine the required point liability attributable to outstanding points, which is relieved as redemption costs are processed. The amount of the loyalty program fees in excess of the point liability represents current and non-current Deferred revenue, which is recognized to revenue as points are redeemed including an estimate of future forfeitures (“breakage”). The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability. As of June 30, 2018, the current and non-current deferred revenue balances are $29.2 million and $17.5 million, respectively. Loyalty program point redemption revenues are recognized within marketing and reservation system revenue in the consolidated statements of income. The Company also earns revenues on contracts incidental to the support of operations for franchised hotels, including purchasing operations. Partnerships The Company maintains various agreements with third-party partners, including the co-branding of the Choice Privileges credit card. The agreements typically provide for use of the Company’s marks, limited access to the Company’s distribution channels, and sale of Choice Privileges points, in exchange for fees primarily comprising variable consideration paid each month. Choice Privileges members can earn points through participation in the partner’s program. Partnership agreements include multiple performance obligations. The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to hotel guests. Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on market and income methods, which represent significant judgments. The amounts allocated to brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, primarily within Procurement services revenue. The amounts allocated to material rights for free or discounted goods or services to hotel guests are recognized to revenue as points are redeemed including an estimate of breakage, primarily within Marketing and reservation system revenue. Qualified Vendors The Company generates procurement services revenues from qualified vendors. Procurement services revenues are generally based on marketing services provided by the Company on behalf of the qualified vendors to hotel owners and guests. The Company provides these services in exchange for either fixed consideration or a percentage of revenues earned by the qualified vendor pertaining to purchases by the Company’s franchisees or guests. Fixed consideration is paid in installments based on a contractual schedule, with an initial payment typically due at contract execution. Variable consideration is typically paid quarterly after sales to franchisees or guests have occurred. Qualified vendor agreements comprise a single performance obligation, which is satisfied over time based on the access afforded and services provided to the qualified vendor for the stated duration of the agreement. Fixed consideration is allocated and recognized ratably to each period over the term of the agreement. Variable consideration is determined and recognized in the period when sales to franchisees or guests from vendors are known or cash payment has been remitted. Qualified vendor revenues are recognized within Procurement services revenue. Other The Company is party to other non-franchising agreements that generate revenue within Other revenue in the consolidated statements of income which are primarily Software as a Service (“SaaS”) arrangements for non-franchised hoteliers and vacation rental management companies. SaaS agreements typically include fixed consideration for installment and other initiation fees paid at contract onset, and variable consideration for recurring subscription revenue paid monthly. SaaS agreements comprise a single performance obligation, which is satisfied over time based on the access to the software for the stated duration of the agreement. Fixed consideration is allocated and recognized ratably to each period over the term of the agreement. Variable consideration is determined at the conclusion of each period, and allocated to and recognized in the current period. 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 points are issued under the Choice Privileges loyalty program but for which revenue is not yet recognized since the related points have not been redeemed. Initial and relicensing fees paid on WoodSpring franchise agreements executed after February 1, 2018 are included in the "Increases to the contract liability balance due to cash received" caption in the table below. No WoodSpring amounts are included in the "Revenue recognized in the period" caption, as WoodSpring balances were not included in the contract liability balance as of December 31, 2017. See Note 16 for additional information. Significant changes in the contract liabilities balances during the period December 31, 2017 to June 30, 2018 are as follows:
Remaining Performance Obligations The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $141.5 million as of June 30, 2018. This amount represents fixed transaction price that will be recognized as revenue in future periods, which is primarily captured in the balance sheet as current and non-current deferred revenue. Based on practical expedient elections permitted by Topic 606, the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less. Additionally, as part of transition to Topic 606, the Company elected to not disclose the amount of the transaction price allocated to the remaining performance obligations as of December 31, 2017 or provide an explanation of when revenue is expected to be recognized. Capitalized Franchise Agreement Costs Sales commissions earned by Company personnel upon execution of a franchise agreement (“franchise sales commissions”) meet the requirement to be capitalized as an incremental cost of obtaining a contract with a customer. Capitalized franchise sales commission are amortized on a straight-line basis over the estimated benefit period of the arrangement, unless the franchise agreement is terminated and the hotel exits the system whereby remaining capitalized amounts will be expensed in the period of termination. The estimated benefit period is equal to or greater than the period of enforceable rights on the franchise agreement. Capitalized franchise sales commissions are $45.4 million within Other assets as of June 30, 2018. Amortization expense and impairment loss for the three and six months ended June 30, 2018 was $2.2 million and $4.2 million, respectively, and is reflected within selling, general and administrative expenses. The Company makes certain payments to customers as an incentive to enter in to new franchise agreements (“Franchise agreement acquisition cost”). These payments are recognized as an adjustment to transaction price and capitalized as an intangible asset. Franchise agreement acquisition cost intangibles are amortized on a straight-line basis over the estimated benefit period of the arrangement as an offset to royalty fees and marketing and reservation system fees. Impairments from hotel terminations are recorded within the selling, general and administrative expenses and marketing and reservations expenses. Sales Taxes The Company presents taxes collected from customers and remitted to governmental authorities on a net basis and therefore they are excluded from revenues in the consolidated financial statements. Disaggregation of Revenue The following table presents our revenues by over time and point in time recognition:
Non-Topic 606 revenues represent revenue from operations of office buildings and parking lots and are presented in Other revenues in the consolidated statements of income. As presented in Note 13, the Corporate & Other amounts represent $3.3 million and $2.6 million for the three months ended June 30, 2018 and 2017, respectively, and $7.0 million and $5.1 million for six months ended June 30, 2018 and 2017, respectively, and are included in the Over time column of Other revenues and Non-Topic 606 revenues row. The remaining revenues relate to the hotel franchising segment. |
Other Current Assets |
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Other Current Assets | Other Current Assets Other current assets consist of the following:
Land held for sale represents certain parcels of land previously acquired by the Company as part of its program to incent franchise development in strategic markets for the Company's Cambria Hotels brand. During the six months ended June 30, 2018, the Company sold one parcel of land, classified as a long-term asset as of December 31, 2017, with a total book value of $3.0 million recognizing a gain on sale of $82 thousand. As of June 30, 2018, the Company has $7.0 million of Land held for sale, which represents one parcel of land that is expected to be sold prior to March 31, 2019. |
Notes Receivable and Allowance for Losses |
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Notes Receivable and Allowance for Losses | Notes Receivable and Allowance for Losses The following table shows the composition of the Company's notes receivable balances:
The Company utilizes the level of security it has in the mezzanine and other notes receivable as its primary credit quality indicator (i.e., senior, subordinated or unsecured) when determining the appropriate allowances for uncollectible loans. The Company considers loans to be past due and in default when payments are not made when due. Although the Company considers loans to be in default if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past due. The Company applies payments received for loans on non-accrual status first to interest and then principal. The Company does not resume interest accrual until all delinquent payments are received. For impaired loans, the Company recognizes interest income on a cash basis. The Company determined that approximately $1.8 million of its subordinated mezzanine and other notes receivable were impaired at both June 30, 2018 and December 31, 2017, and recorded allowance for credit losses on these impaired loans totaling $1.6 million at both June 30, 2018 and December 31, 2017. The average mezzanine and other notes receivable on non-accrual status was approximately $1.8 million and $1.9 million for the six months ended June 30, 2018 and 2017, respectively. Approximately $43 thousand and $44 thousand of interest income on impaired loans was recognized on a cash basis during the six months ended June 30, 2018 and 2017. The Company provided loan reserves on non-impaired loans totaling $0.5 million at June 30, 2018 and December 31, 2017. There were no changes in total loan reserves between December 31, 2017 and June 30, 2018. Past due balances of mezzanine and other notes receivable by credit quality indicators are as follows:
Variable Interest through Notes Issued The Company has issued mezzanine and other notes receivables to certain entities that have created variable interests in these borrowers totaling $50.6 million and $35.2 million as of June 30, 2018 and December 31, 2017, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). Each of these loans have stated fixed and/or variable interest amounts. The Company has identified loans totaling approximately $5.9 million and $2.1 million, respectively, with stated interest rates that are less than market rate, representing a total discount of $0.9 million and $0.1 million, respectively, as of June 30, 2018 and December 31, 2017. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan. Transfer of interest On September 12, 2017, the Company entered into an agreement to transfer $24.2 million of a $49.1 million outstanding note receivable with a maturity date of November 30, 2019 to a third party. In the first quarter of 2018, an additional $0.2 million was transferred for a total of $24.4 million. The transaction did not qualify as a sale and therefore the outstanding note receivable was not de-recognized on the balance sheet. The one-time cash proceeds were recorded as unrestricted cash and the future obligation to transfer principal and interest received under the note has been recorded within Other Long-Term liabilities. The Company retains responsibility for collecting and distributing cash received on the note and interest paid to the participant is reflected as interest expense in the Company’s consolidated statements of income. As of June 30, 2018 and December 31, 2017, Other Long-Term liabilities includes $24.4 million and $24.2 million, respectively, pursuant to this transaction. |
Investments in Unconsolidated Entities |
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Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Investments in Unconsolidated Entities | Investments in Unconsolidated Entities The Company maintains a portfolio of investments owned through noncontrolling interest in equity method investments with one or more partners. Investments in unconsolidated entities include investments in joint ventures totaling $129.2 million and $130.2 million at June 30, 2018 and December 31, 2017, respectively, that the Company determined to be VIEs. These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria hotels in strategic markets. Based on an analysis of who has the power to direct the activities that most significantly impact these entities performance and who has an obligation to absorb losses of these entities or a right to receive benefits from these entities that could potentially be significant to the entity, the Company determined that it is not the primary beneficiary of any of these VIEs. The Company based its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and the relevant development, operating management and financial agreements. Although the Company is not the primary beneficiary of these VIEs, it does exercise significant influence through its equity ownership and as a result the Company's investment in these entities is accounted for under the equity method. For the three months ended June 30, 2018 and 2017, the Company recognized losses totaling $0.1 million and $1.4 million, respectively, from these investments. For the six months ended June 30, 2018 and 2017, the Company recognized losses totaling $6.5 million and $3.9 million, respectively, from these investments. The Company's maximum exposure to losses related to its investments in VIEs is limited to its equity investments as well as certain guaranties described in Note 14 "Commitments and Contingencies" of these financial statements. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt Debt consists of the following:
For additional information regarding the senior unsecured credit facility and other debt, see the "Debt" caption under the "Liquidity and Capital Resources" section in Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss The following represents the changes in accumulated other comprehensive loss, net of tax, by component for the six months ended June 30, 2018:
The amounts reclassified from accumulated other comprehensive loss during the three and six months ended June 30, 2018 were reclassified to the following line items in the Company's Consolidated Statements of Income.
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Fair Value Measurements |
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Fair Value Measurements | Fair Value Measurements The Company estimates the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs. Level 1: Quoted prices in active markets for identical assets and liabilities. The Company’s Level 1 assets consist of marketable securities (primarily mutual funds) held in the Company's Deferred Compensation Plan. Level 2: Observable inputs, other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable. The Company’s Level 2 assets consist of money market funds held in the Company's Deferred Compensation Plan and those recorded in cash and cash equivalents. Level 3: Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument. The Company does not currently have any assets whose fair value was determined using Level 3 inputs. The Company's policy is to recognize transfers in and transfers out of the three levels of the fair value hierarchy as of the end of each quarterly reporting period. There were no transfers between Level 1, 2 and 3 assets during the three and six months ended June 30, 2018. As of June 30, 2018 and December 31, 2017, the Company had the following assets measured at fair value on a recurring basis:
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Other Financial Instruments The Company believes that the fair value of its current assets and current liabilities approximate their reported carrying amounts due to the short-term nature of these items. In addition, the interest rates of the Company's Credit Facility adjust frequently based on current market rates; accordingly its carrying amount approximates fair value. The Company estimates the fair value of notes receivable, which approximate their carrying value, utilizing an analysis of future cash flows and credit worthiness for similar types of arrangements. Based upon the availability of market data, the notes receivable have been classified as Level 3 inputs. The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates. For further information on the notes receivables, see Note 4. The money market funds previously included in cash and cash equivalents were used to fund the WoodSpring acquisition on February 1, 2018. See Note 16 for further information on the acquisition. The fair values of the Company's $250 million and $400 million senior notes are classified as Level 2 as the significant inputs are observable in an active market. At June 30, 2018 and December 31, 2017, the $250 million senior notes had an approximate fair value of $259.2 million and $269.2 million, respectively. At June 30, 2018 and December 31, 2017, the $400 million senior notes had an approximate fair value of $417.5 million and $440.1 million, respectively. 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 and may not be a prudent management decision. |
Income Taxes |
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Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The effective income tax rates were 20.2% and 33.7% for the three months ended June 30, 2018 and 2017, respectively. The effective income tax rates were 19.6% and 32.3% for the six months ended June 30, 2018 and 2017, respectively. The effective income tax rate for the three and six months ended June 30, 2018 was lower than the U.S. federal income tax rate of 21% due to the impact of foreign operations and excess tax benefits from share-based compensation of $1.9 million and $3.5 million, respectively, partially offset by state income taxes. The effective income tax rate for the three and six months ended June 30, 2017 was lower than the U.S. federal income tax rate of 35% due to the impact of foreign operations and excess tax benefits from share-based compensation of $0.6 million and $1.8 million, partially offset by state income taxes. The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings. The Company applied the guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effects of the Act. As of June 30, 2018, the Company made a reasonable estimate of the tax effects of the Act and will continue to refine its calculations as additional analysis is completed. Estimates may also be affected as additional clarification and understanding of the tax law is provided. These changes could be material to income tax expense. The Act subjects a U.S. shareholder to a minimum tax on “global intangible low-taxed income” ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred and expects to incur tax for the year ended December 31, 2018. |
Share-Based Compensation and Capital Stock |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation and Capital Stock | Share-Based Compensation and Capital Stock The components of the Company’s pretax share-based compensation expense and associated income tax benefits are as follows for the three and six months ended June 30, 2018 and 2017:
A summary of stock-based award activity as of June 30, 2018 and changes during the six months ended are presented below:
The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:
Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date. Vesting service period of shares granted during the three and six months ended June 30, 2018 range from 12 - 48 months. The Company has granted performance vested restricted stock units ("PVRSU") to certain employees. The vesting of these stock awards is contingent upon the Company achieving performance targets over a 36 month performance period and the employees' continued employment. The performance conditions affect the number of shares that will ultimately vest and can range between 0% and 200% of the shares granted. Share Repurchases and Redemptions The Company purchased 357,175 and 789,340 shares of common stock under the share repurchase program at a total cost of $28.5 million and $63.5 million during the three and six months ended June 30, 2018, respectively. During the three and six months ended June 30, 2018, the Company redeemed 2,515 and 88,189 shares of common stock at a total cost of approximately $0.2 million and $7.1 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. These redemptions were outside the share repurchase program. |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The computation of basic and diluted earnings per common share is as follows:
The Company's unvested restricted shares contain rights to receive non-forfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share ("EPS"). The calculation of EPS for common stock shown above excludes the income attributable to the unvested restricted share awards from the numerator and excludes the dilutive impact of those awards from the denominator. At June 30, 2018 and 2017, the Company had 1.3 million and 2.2 million outstanding stock options, respectively. Stock options are included in the diluted earnings per share calculation using the treasury stock method and average market prices during the period, unless the stock options would be anti-dilutive. For the three and six months ended June 30, 2018, 0.1 million anti-dilutive stock options were excluded from the diluted earnings per share calculation. For the three months ended June 30, 2017, no anti-dilutive stock options were excluded from the diluted earnings per share calculation. For the six months ended June 30, 2017, the Company excluded 0.4 million of anti-dilutive stock options from the diluted earnings per share calculation. PVRSUs are also included in the diluted earnings per share calculation when the performance conditions have been met at the reporting date. However, at June 30, 2018 and 2017, PVRSUs totaling 324,434 and 294,334, respectively, were excluded from the computation since the performance conditions had not been met. |
Condensed Consolidating Financial Statements |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Financial Statements | Condensed Consolidating Financial Statements The Company’s Senior Notes due 2020 and 2022 are guaranteed jointly, severally, fully and unconditionally, subject to certain customary limitations, by certain of the Company’s domestic subsidiaries. There are no legal or regulatory restrictions on the payment of dividends to Choice Hotels International, Inc. from subsidiaries that do not guarantee the Senior Notes. As a result of the guarantee arrangements, the following condensed consolidating financial statements are presented. Investments in subsidiaries are accounted for under the equity method of accounting. The financial results for the 2017 periods have been updated to reflect the Company's adoption of Topic 606 as discussed in Note 1. Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Three Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Three Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet As of June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet As of December 31, 2017 (in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
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Reportable Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reportable Segment Information | Reportable Segment Information Hotel Franchising: Hotel franchising includes the Company's hotel franchising operations consisting of its twelve brands. The twelve brands are aggregated within this segment in consideration of 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 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. These services do not represent separate reportable segments as their operations are directly related to the Company's hotel franchising business. The revenues received from franchisees that are used to pay for part of the Company's ongoing operations are included in hotel franchising revenues and are offset by the related expenses paid for marketing and reservation activities to calculate hotel franchising operating income. The financial results for the three and six months ended June 30, 2017 have been updated to reflect the Company's adoption of Topic 606 as discussed in Note 1. In addition, the financial results related to SkyTouch are now reported as a component of Corporate & Other. The Company evaluates its hotel franchising segment based primarily on the results of the segment without allocating corporate expenses, income taxes or indirect general and administrative expenses, which are included in the Corporate & Other column. Corporate & Other revenues include rental income related to an office building owned by the Company, as well as revenues related to the Company's vacation rental activities and its SaaS technology solutions divisions which provide cloud-based property management software to non-franchised hoteliers and vacation rental management companies. Equity in earnings or losses from hotel franchising related joint ventures is allocated to the Company's hotel franchising segment. The Company does not allocate interest expense, interest income, other gains and losses or income taxes to its segments. The following table presents the financial information for the Company's hotel franchising segment:
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Commitments and Contingencies |
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Jun. 30, 2018 | |||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies The Company is not a party to any litigation other than litigation in the ordinary course of business. The Company's management and legal counsel do not expect that the ultimate outcome of any of its currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations or cash flows. Contingencies The Company entered in to various limited payment guaranties with regards to the Company’s VIEs supporting the VIE’s efforts to develop and own hotels franchised under the Company’s brands. Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full or (d) the Company, through its affiliates, ceases to be a member of the VIE. The maximum exposure of principal incidental to these limited payment guaranties is $11.2 million, plus unpaid expenses and accrued unpaid interest. The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties is remote as of June 30, 2018 and December 31, 2017. In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for our guaranty. The Company transferred a portion of an outstanding note receivable to a third party for $24.4 million. Under the agreement, the counter party may require the Company to purchase the outstanding interest in the note if the Company declares a default against the borrower and enters into foreclosure proceedings. The Company believes the likelihood of foreclosure on the note is remote as of June 30, 2018. Commitments The Company has the following commitments outstanding at June 30, 2018:
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 or possible environmental contamination issues. Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements. The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters in debt or equity security issuances and (vi) parties under certain operating agreements. In addition, these parties are also generally indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. While some of these indemnities extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these indemnities, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these indemnifications as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as indemnifications of landlords against third party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates potential liability. |
Transactions with Unconsolidated Joint Ventures |
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Equity Method Investments and Joint Ventures [Abstract] | |
Transactions with Unconsolidated Joint Ventures | Transactions with Unconsolidated Joint Ventures The Company has a management fee arrangement for marketing services with a joint venture partner. For the three and six months ended June 30, 2018, fees earned and payroll costs reimbursed under this arrangement totaled $0.4 million and $0.8 million, respectively. For the three and six months ended June 30, 2017, fees earned and payroll costs reimbursed under this arrangement totaled $0.4 million and $0.8 million, respectively. The Company has entered into franchise agreements with certain of the unconsolidated joint ventures discussed in Note 5. Pursuant to these franchise agreements, for the three months ended June 30, 2018 and 2017, the Company recorded royalty and marketing reservation system fees of approximately $6.3 million and $8.1 million, respectively. For the six months ended June 30, 2018 and 2017, the Company has recorded royalty and marketing reservation system fees of approximately $10.9 million and $12.0 million, respectively. The Company recorded $1.8 million and $1.3 million as a receivable due from these joint ventures as of June 30, 2018 and December 31, 2017, respectively. In addition, the Company paid commissions of $46 thousand and $45 thousand for the three months ended June 30, 2018 and 2017, respectively, and $90 thousand and $67 thousand for the six months ended June 30, 2018 and 2017, respectively, to an on-line travel agent for which the Company is a joint venture member. |
Acquisition |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition | Acquisition On February 1, 2018, the Company acquired 100% of the issued and outstanding equity interest of WoodSpring. At the time of the acquisition, WoodSpring franchised 239 economy extended stay hotels across 35 U.S. states. The total consideration was $231.6 million, which consisted of cash paid, net of cash acquired, of $231.3 million as well as liabilities assumed of $0.4 million and a preliminary working capital adjustment of $0.1 million. The transaction has been accounted for using the acquisition method of accounting and accordingly, assets acquired, and liabilities assumed were recorded at their fair values as of the acquisition date. The results of WoodSpring have been consolidated with the Company since February 1, 2018 and are included in the Company’s hotel franchising segment. The Company allocated the purchase price based upon a preliminary assessment of the fair value of the assets and liabilities assumed as of February 1, 2018. The Company continues to gather information concerning the valuation of assets acquired and liabilities assumed and is in the process of reviewing the preliminary assessment with its valuation specialists and as a result the allocation is not final. The preliminary fair value of the assets and liabilities is as follows:
The purchase price, subject to customary adjustments, was based on the projected business growth and cash flows over the next several years and indicated a value that was in excess of the current net book value of the business, resulting in the recognition of various identifiable intangible assets and goodwill as follows:
The excess value recorded in goodwill is expected to be recovered through growth within the existing customer base, improvements in hotel RevPAR and new agreements signed with new franchisees and developers. The full amount of goodwill is deductible for tax purposes. The Company's pro forma results of operations for this acquisition have not been presented here because the effect of this acquisition was not material to the Company's consolidated results of operations. |
Basis of Presentation and Significant Accounting Policies (Policy) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Accounting | 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 United States of America generally accepted accounting principles ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2018 (the "10-K"). Interim results are not necessarily indicative of the entire year results. All inter-company transactions and balances between Choice Hotels International, Inc. and its subsidiaries have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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Recently Adopted Accounting Guidance and Future Adoption of Recently Announced Accounting Guidance | Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts with Customers (Topic 606) and issued subsequent amendments to the initial guidance at various points of 2015 and 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 (these ASUs collectively referred to as "Topic 606"). The Company adopted Topic 606 as of January 1, 2018 using the full retrospective method of adoption. The provisions of Topic 606 impacted the Company’s revenue recognition as follows:
All amounts and disclosures set forth in this Form 10-Q reflect the necessary adjustments required for the adoption of Topic 606, including the reclassification of prior year balances to conform to current year presentation. See Note 2 for further details on the adoption of Topic 606 and impact to the Company's significant accounting policies. In accordance with Topic 606 requirements, the disclosure of the impact of adoption on the Company's prior period consolidated statements of income and balance sheet is presented below. The adoption of Topic 606 had no impact to cash from or used in operating, financing, or investing activities, but resulted in certain reclassifications within cash flows from operating activities, on the prior period consolidated statement of cash flows.
(1) The Company performed reclassifications of certain payroll taxes from Accrued expenses and other current liabilities to Accounts payable totaling $4.3 million, and the entirety of Income taxes payable to Accrued expenses and other current liabilities totaling $2.8 million. In addition, $4.3 million was reclassified from Other liabilities to Deferred revenue. (2) As a result of adoption of Topic 606 and in accordance with reporting requirements, the Company performed revisions to the presentation within Total liabilities in the consolidated balance sheet to add non-current Deferred revenue and current and non-current Liability for guest loyalty program line items. Amounts originally captured in current Deferred revenue and Other liabilities have been reclassified to the new line items in the table above. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15") and in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash ("ASU 2016-18"), which collectively provide additional guidance on nine specific cash flow issues. The Company adopted ASU 2016-15 and ASU 2016-18 on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"). ASU 2016-16 provides guidance on recognition of current income tax consequences for inter-company asset transfers (other than inventory) at the time of transfer. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and adds guidance for partial sales of nonfinancial assets. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting ("ASU 2017-09"), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The Company adopted this ASU on January 1, 2018, and it did not have an impact on the Company's consolidated financial statements. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize most leases on their balance sheet by recording a liability for its lease obligation and an asset for its right to use the underlying asset as of the lease commencement date. The standard requires entities to determine whether an arrangement contains a lease or a service agreement as the accounting treatment is different between the two arrangements. The standard also requires the lessee to evaluate whether a lease is a financing lease or an operating lease as the accounting and presentation guidance between the two are different. ASU 2016-02 also modifies the classification criteria and accounting for sales-type and direct financing leases for lessors. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt the standard on January 1, 2019 and apply the package of practical expedients available upon adoption. The Company is currently assessing the impact that ASU 2016-02 will have on its financial statements and disclosures. The Company expects the ASU to have a material effect on its consolidated balance sheet as a result of recognizing a lease obligation and right-of-use asset for the Company's operating leases. This differs from present day treatment of operating leases, which primarily are not captured on the Company's consolidated balance sheet in accordance with current GAAP. The Company does not expect a material effect on its consolidated statements of income. |
Basis of Presentation and Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of New Accounting Pronouncements and Changes in Accounting Principles |
(1) The Company performed reclassifications of certain payroll taxes from Accrued expenses and other current liabilities to Accounts payable totaling $4.3 million, and the entirety of Income taxes payable to Accrued expenses and other current liabilities totaling $2.8 million. In addition, $4.3 million was reclassified from Other liabilities to Deferred revenue. (2) As a result of adoption of Topic 606 and in accordance with reporting requirements, the Company performed revisions to the presentation within Total liabilities in the consolidated balance sheet to add non-current Deferred revenue and current and non-current Liability for guest loyalty program line items. Amounts originally captured in current Deferred revenue and Other liabilities have been reclassified to the new line items in the table above. |
Revenue (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract with Customer, Liability | Significant changes in the contract liabilities balances during the period December 31, 2017 to June 30, 2018 are as follows:
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Disaggregation of Revenue | The following table presents our revenues by over time and point in time recognition:
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Other Current Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets, Current [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Other Current Assets | Other current assets consist of the following:
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Notes Receivable and Allowance for Losses (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable and Allowance for Losses [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Notes Receivable | The following table shows the composition of the Company's notes receivable balances:
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Mezzanine & Other Notes Receivable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable and Allowance for Losses [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past Due Balances Of Notes Receivable | Past due balances of mezzanine and other notes receivable by credit quality indicators are as follows:
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Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Components Of Debt | Debt consists of the following:
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Accumulated Other Comprehensive Loss (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Accumulated Other Comprehensive Loss | The following represents the changes in accumulated other comprehensive loss, net of tax, by component for the six months ended June 30, 2018:
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Reclassifications From Accumulated Other Comprehensive Income (Loss) | The amounts reclassified from accumulated other comprehensive loss during the three and six months ended June 30, 2018 were reclassified to the following line items in the Company's Consolidated Statements of Income.
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Fair Value Of Assets | As of June 30, 2018 and December 31, 2017, the Company had the following assets measured at fair value on a recurring basis:
________________________
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Share-Based Compensation and Capital Stock (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pre-Tax Stock-Based Compensation Expenses And Associated Income Tax Benefits | The components of the Company’s pretax share-based compensation expense and associated income tax benefits are as follows for the three and six months ended June 30, 2018 and 2017:
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Summary Of Change In Stock-Based Award Activity | A summary of stock-based award activity as of June 30, 2018 and changes during the six months ended are presented below:
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Weighted Average Assumptions Of Black-Scholes Option-Pricing Model | The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:
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Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation Of Basic And Diluted Earnings Per Common Share | The computation of basic and diluted earnings per common share is as follows:
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Condensed Consolidating Financial Statements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Statement Of Income | Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
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Condensed Consolidating Statement of Comprehensive Income | Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Three Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Three Months Ended June 30, 2017 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Comprehensive Income For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
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Condensed Consolidating Balance Sheet | Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet As of June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet As of December 31, 2017 (in thousands)
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Condensed Consolidating Statement Of Cash Flows | Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2018 (Unaudited, in thousands)
Choice Hotels International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2017 (Unaudited, in thousands)
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Reportable Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Financial Information For Company's Franchising Segment | The following table presents the financial information for the Company's hotel franchising segment:
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Acquisition (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Business Acquisitions, by Acquisition | The preliminary fair value of the assets and liabilities is as follows:
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Intangible Assets Acquired as Part of Business Combination | The purchase price, subject to customary adjustments, was based on the projected business growth and cash flows over the next several years and indicated a value that was in excess of the current net book value of the business, resulting in the recognition of various identifiable intangible assets and goodwill as follows:
|
Revenue Contract Liability (Details) $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Changes in Contract Liability [Roll Forward] | |
Contract with customer, liability, beginning | $ 132,339 |
Increases to the contract liability balance due to cash received | 39,687 |
Revenue recognized in the period | (30,557) |
Contract with customer, liability, ending | $ 141,469 |
Other Current Assets Schedule of Other Current Assets (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2018
USD ($)
parcelofland
|
Dec. 31, 2017
USD ($)
parcelofland
|
|
Property, Plant and Equipment [Line Items] | |||
Prepaid expenses | $ 19,028 | $ 19,028 | $ 14,205 |
Other current assets | 4,655 | 4,655 | 4,762 |
Land held for sale | 7,000 | 7,000 | 7,000 |
Total | 30,683 | 30,683 | $ 25,967 |
Parcels of land, sold | parcelofland | 1 | ||
Property, plant and equipment, book value | 112,567 | $ 112,567 | $ 83,374 |
Parcels of land, held for sale | parcelofland | 1 | ||
Land | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, book value | 3,000 | $ 3,000 | |
Gain on sale of equipment | $ 82 |
Notes Receivable and Allowance for Losses Schedule Of Notes Receivable (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Notes Receivable and Allowance for Losses [Line Items] | ||
Notes receivable | $ 110,295 | $ 95,529 |
Allowance for losses on non-impaired loans | 490 | 490 |
Allowance for losses on receivables specifically evaluated for impairment | 1,647 | 1,647 |
Total loan reserves | 2,137 | 2,137 |
Net carrying value | 108,158 | 93,392 |
Current portion, net | 29,237 | 13,256 |
Long-term portion, net | 78,921 | 80,136 |
Senior | ||
Notes Receivable and Allowance for Losses [Line Items] | ||
Notes receivable | 85,763 | 73,700 |
Subordinated | ||
Notes Receivable and Allowance for Losses [Line Items] | ||
Notes receivable | 21,631 | 18,647 |
Unsecured | ||
Notes Receivable and Allowance for Losses [Line Items] | ||
Notes receivable | $ 2,901 | $ 3,182 |
Investments in Unconsolidated Entities (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Investments in joint ventures included in unconsolidated entities | $ 129.2 | $ 129.2 | $ 130.2 | ||
Net (income) loss attributable to variable interest entities | $ 0.1 | $ 1.4 | $ 6.5 | $ 3.9 |
Accumulated Other Comprehensive Loss - Amounts Reclassified from Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Tax (expense) benefit | $ (20,185) | $ (25,729) | $ (25,560) | $ (35,739) |
Reclassification out of Accumulated Other Comprehensive Income | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Net of tax | 216 | 431 | ||
Interest rate contract | Loss on Cash Flow Hedge | Reclassification out of Accumulated Other Comprehensive Income | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Interest expense | 216 | 431 | ||
Tax (expense) benefit | $ 0 | $ 0 |
Income Taxes Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Income Tax Disclosure [Abstract] | ||||
Effective income tax rate (percent) | 20.20% | 33.70% | 19.60% | 32.30% |
Share-based compensation cost, amount | $ 1.9 | $ 3.5 | $ 0.6 | $ 1.8 |
Share-Based Compensation and Capital Stock Pre-Tax Stock-Based Compensation Expenses And Associated Income Tax Benefits (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Share-Based Compensation and Capital Stock [Line Items] | ||||
Share-based compensation expense | $ 3.7 | $ 3.9 | $ 7.2 | $ 7.7 |
Income tax benefits | 0.9 | 1.5 | 1.7 | 2.9 |
Stock options | ||||
Share-Based Compensation and Capital Stock [Line Items] | ||||
Share-based compensation expense | 0.6 | 1.1 | 1.3 | 2.2 |
Restricted stock | ||||
Share-Based Compensation and Capital Stock [Line Items] | ||||
Share-based compensation expense | 1.6 | 1.7 | 3.3 | 3.4 |
Performance Vested Restricted Stock Units | ||||
Share-Based Compensation and Capital Stock [Line Items] | ||||
Share-based compensation expense | $ 1.5 | $ 1.1 | $ 2.6 | $ 2.1 |
Share-Based Compensation and Capital Stock Weighted Average Assumptions Of Black-Scholes Option-Pricing Model (Details) - Stock options |
6 Months Ended |
---|---|
Jun. 30, 2018
$ / shares
| |
Share-Based Compensation and Capital Stock [Line Items] | |
Risk-free interest rate (percent) | 2.58% |
Expected volatility (percent) | 21.17% |
Expected life of stock option | 4 years 7 months 6 days |
Dividend yield (percent) | 1.05% |
Requisite service period | 4 years |
Contractual life | 7 years |
Weighted average fair value of options granted (in dollars per share) | $ 16.27 |
Earnings Per Share Computation Of Basic And Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Numerator: | ||||
Net income | $ 79,839 | $ 50,685 | $ 104,925 | $ 74,954 |
Income allocated to participating securities | (462) | (359) | (627) | (535) |
Net income available to common shareholders | $ 79,377 | $ 50,326 | $ 104,298 | $ 74,419 |
Denominator: | ||||
Weighted average common shares outstanding – basic (in shares) | 56,364 | 56,073 | 56,414 | 56,007 |
Basic earnings per share (in dollars per share) | $ 1.41 | $ 0.90 | $ 1.85 | $ 1.33 |
Numerator: | ||||
Income allocated to participating securities | $ (459) | $ (357) | $ (623) | $ (532) |
Net income available to common shareholders | $ 79,380 | $ 50,328 | $ 104,302 | $ 74,422 |
Denominator: | ||||
Weighted average common shares outstanding – basic (in shares) | 56,364 | 56,073 | 56,414 | 56,007 |
Diluted effect of stock options and PVRSUs (in shares) | 468 | 355 | 557 | 361 |
Weighted average common shares outstanding – diluted (in shares) | 56,832 | 56,428 | 56,971 | 56,368 |
Diluted earnings per share (in dollars per share) | $ 1.40 | $ 0.89 | $ 1.83 | $ 1.32 |
Earnings Per Share Narrative (Details) - shares |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
Outstanding stock options (in shares) | 1,289,013 | 2,200,000 | 1,289,013 | 2,200,000 | 1,976,326 |
Stock options | |||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
Antidilutive securities excluded from EPS computation (in shares) | 100,000 | 0 | 100,000 | 400,000 | |
Performance Vested Restricted Stock Units | |||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
PVRSUs excluded from EPS calculation due to performance conditions not met (in shares) | 324,434 | 294,334 |
Condensed Consolidating Statement Of Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
REVENUES | ||||
Royalty fees | $ 103,219 | $ 91,599 | $ 179,917 | $ 159,893 |
Initial franchise and relicensing fees | 6,481 | 5,728 | 12,695 | 11,534 |
Procurement services | 17,833 | 14,372 | 27,771 | 21,735 |
Marketing and reservation system | 157,347 | 140,477 | 264,348 | 239,330 |
Other | 10,561 | 8,840 | 20,104 | 17,392 |
Total revenues | 295,441 | 261,016 | 504,835 | 449,884 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 46,270 | 44,038 | 87,134 | 77,783 |
Marketing and reservation system | 136,568 | 128,780 | 255,796 | 236,774 |
Depreciation and amortization | 3,669 | 1,659 | 6,722 | 3,385 |
Total operating expenses | 186,507 | 174,477 | 349,652 | 317,942 |
Gain on sale of land and building, net | 82 | 0 | 82 | 0 |
Operating income | 109,016 | 86,539 | 155,265 | 131,942 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 11,705 | 11,280 | 23,014 | 22,485 |
Equity in earnings of consolidated subsidiaries | 0 | 0 | 0 | 0 |
Other items, net | (2,713) | (1,155) | 1,766 | (1,236) |
Total other income and expenses, net | 8,992 | 10,125 | 24,780 | 21,249 |
Income before income taxes | 100,024 | 76,414 | 130,485 | 110,693 |
Income taxes | 20,185 | 25,729 | 25,560 | 35,739 |
Net income | 79,839 | 50,685 | 104,925 | 74,954 |
Eliminations | ||||
REVENUES | ||||
Royalty fees | (43,766) | (47,085) | (83,362) | (83,636) |
Initial franchise and relicensing fees | 0 | 0 | 0 | 0 |
Procurement services | (210) | 0 | (353) | 0 |
Marketing and reservation system | (109,274) | (104,135) | (200,840) | (190,179) |
Other | (401) | (304) | (493) | (491) |
Total revenues | (153,651) | (151,524) | (285,048) | (274,306) |
OPERATING EXPENSES | ||||
Selling, general and administrative | (44,001) | (47,393) | (83,898) | (84,154) |
Marketing and reservation system | (109,650) | (104,131) | (201,150) | (190,152) |
Depreciation and amortization | 0 | 0 | 0 | 0 |
Total operating expenses | (153,651) | (151,524) | (285,048) | (274,306) |
Gain on sale of land and building, net | 0 | 0 | 0 | |
Operating income | 0 | 0 | 0 | 0 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 0 | 0 | 0 | 0 |
Equity in earnings of consolidated subsidiaries | 32,693 | 12,216 | 42,388 | 24,953 |
Other items, net | 0 | 0 | 0 | 0 |
Total other income and expenses, net | 32,693 | 12,216 | 42,388 | 24,953 |
Income before income taxes | (32,693) | (12,216) | (42,388) | (24,953) |
Income taxes | 0 | 0 | 0 | 0 |
Net income | (32,693) | (12,216) | (42,388) | (24,953) |
Parent | ||||
REVENUES | ||||
Royalty fees | 97,414 | 85,945 | 169,029 | 149,541 |
Initial franchise and relicensing fees | 6,349 | 5,548 | 12,401 | 11,159 |
Procurement services | 17,345 | 14,312 | 27,024 | 21,613 |
Marketing and reservation system | 117,741 | 128,970 | 206,136 | 216,670 |
Other | 8,093 | 6,521 | 14,095 | 12,808 |
Total revenues | 246,942 | 241,296 | 428,685 | 411,791 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 45,438 | 46,997 | 86,795 | 84,445 |
Marketing and reservation system | 126,281 | 123,045 | 235,528 | 225,726 |
Depreciation and amortization | 2,295 | 377 | 3,944 | 761 |
Total operating expenses | 174,014 | 170,419 | 326,267 | 310,932 |
Gain on sale of land and building, net | 0 | 0 | 0 | |
Operating income | 72,928 | 70,877 | 102,418 | 100,859 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 11,386 | 11,138 | 22,377 | 22,201 |
Equity in earnings of consolidated subsidiaries | (32,528) | (12,195) | (43,294) | (25,387) |
Other items, net | (744) | (423) | (1,241) | (787) |
Total other income and expenses, net | (21,886) | (1,480) | (22,158) | (3,973) |
Income before income taxes | 94,814 | 72,357 | 124,576 | 104,832 |
Income taxes | 14,975 | 21,672 | 19,651 | 29,878 |
Net income | 79,839 | 50,685 | 104,925 | 74,954 |
Guarantor Subsidiaries | ||||
REVENUES | ||||
Royalty fees | 39,194 | 41,918 | 75,403 | 72,653 |
Initial franchise and relicensing fees | 0 | 0 | 0 | 0 |
Procurement services | 258 | 0 | 382 | 0 |
Marketing and reservation system | 144,761 | 111,793 | 251,187 | 205,517 |
Other | 135 | 41 | 135 | 81 |
Total revenues | 184,348 | 153,752 | 327,107 | 278,251 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 38,999 | 37,842 | 71,613 | 65,113 |
Marketing and reservation system | 116,196 | 105,544 | 212,051 | 193,186 |
Depreciation and amortization | 578 | 469 | 1,127 | 980 |
Total operating expenses | 155,773 | 143,855 | 284,791 | 259,279 |
Gain on sale of land and building, net | 175 | 175 | 0 | |
Operating income | 28,750 | 9,897 | 42,491 | 18,972 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 0 | 0 | 0 | 0 |
Equity in earnings of consolidated subsidiaries | (165) | (21) | 906 | 434 |
Other items, net | (288) | 968 | 5,328 | 1,896 |
Total other income and expenses, net | (453) | 947 | 6,234 | 2,330 |
Income before income taxes | 29,203 | 8,950 | 36,257 | 16,642 |
Income taxes | 4,759 | 3,573 | 5,486 | 5,599 |
Net income | 24,444 | 5,377 | 30,771 | 11,043 |
Non-Guarantor Subsidiaries | ||||
REVENUES | ||||
Royalty fees | 10,377 | 10,821 | 18,847 | 21,335 |
Initial franchise and relicensing fees | 132 | 180 | 294 | 375 |
Procurement services | 440 | 60 | 718 | 122 |
Marketing and reservation system | 4,119 | 3,849 | 7,865 | 7,322 |
Other | 2,734 | 2,582 | 6,367 | 4,994 |
Total revenues | 17,802 | 17,492 | 34,091 | 34,148 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 5,834 | 6,592 | 12,624 | 12,379 |
Marketing and reservation system | 3,741 | 4,322 | 9,367 | 8,014 |
Depreciation and amortization | 796 | 813 | 1,651 | 1,644 |
Total operating expenses | 10,371 | 11,727 | 23,642 | 22,037 |
Gain on sale of land and building, net | (93) | (93) | 0 | |
Operating income | 7,338 | 5,765 | 10,356 | 12,111 |
OTHER INCOME AND EXPENSES, NET | ||||
Interest expense | 319 | 142 | 637 | 284 |
Equity in earnings of consolidated subsidiaries | 0 | 0 | 0 | 0 |
Other items, net | (1,681) | (1,700) | (2,321) | (2,345) |
Total other income and expenses, net | (1,362) | (1,558) | (1,684) | (2,061) |
Income before income taxes | 8,700 | 7,323 | 12,040 | 14,172 |
Income taxes | 451 | 484 | 423 | 262 |
Net income | $ 8,249 | $ 6,839 | $ 11,617 | $ 13,910 |
Reportable Segment Information Narrative (Details) |
Jun. 30, 2018
brand
|
---|---|
Segment Reporting [Abstract] | |
Number of brands | 12 |
Reportable Segment Information Schedule Of Financial Information For Company's Franchising Segment (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Reportable Segment Information [Line Items] | ||||
Revenues | $ 295,441 | $ 261,016 | $ 504,835 | $ 449,884 |
Operating income (loss) | 109,016 | 86,539 | 155,265 | 131,942 |
Income (loss) before income taxes | 100,024 | 76,414 | 130,485 | 110,693 |
Corporate & Other | ||||
Reportable Segment Information [Line Items] | ||||
Revenues | 3,255 | 2,557 | 7,027 | 5,112 |
Operating income (loss) | (13,649) | (14,908) | (26,758) | (27,761) |
Income (loss) before income taxes | (23,209) | (24,174) | (46,137) | (46,071) |
Hotel Franchising | Operating Segments | ||||
Reportable Segment Information [Line Items] | ||||
Revenues | 292,186 | 258,459 | 497,808 | 444,772 |
Operating income (loss) | 122,665 | 101,447 | 182,023 | 159,703 |
Income (loss) before income taxes | $ 123,233 | $ 100,588 | $ 176,622 | $ 156,764 |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Oct. 31, 2017 |
Sep. 12, 2017 |
---|---|---|---|---|---|
Commitments and Contingencies [Line Items] | |||||
Limited payment guaranties | $ 11,200 | ||||
Notes receivable outstanding | 108,158 | $ 93,392 | |||
Other commitment | $ 13,900 | ||||
Other commitment, payment | 1,300 | ||||
Construction loan | 34,900 | ||||
Forgivable Notes Receivable | |||||
Commitments and Contingencies [Line Items] | |||||
Other commitment | 225,400 | ||||
Capital contributions to joint ventures | |||||
Commitments and Contingencies [Line Items] | |||||
Other commitment | 26,600 | ||||
Notes Receivable | |||||
Commitments and Contingencies [Line Items] | |||||
Notes receivable outstanding | $ 24,400 | $ 24,400 | $ 49,100 |
Transactions with Unconsolidated Joint Ventures (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Related Party Transaction [Line Items] | |||||
Receivables | $ 186,034 | $ 186,034 | $ 125,870 | ||
Joint Venture Partner | |||||
Related Party Transaction [Line Items] | |||||
Fees earned and payroll costs reimbursed from marketing services arrangement | 400 | $ 400 | 800 | $ 800 | |
Member of Unconsolidated Joint Venture | |||||
Related Party Transaction [Line Items] | |||||
Royalty and marketing and reservation system fees | 6,300 | 8,100 | 10,900 | 12,000 | |
Receivables | 1,800 | 1,800 | $ 1,300 | ||
Commissions paid to travel agent | $ 46 | $ 45 | $ 90 | $ 67 |
Acquisition (Details) - WoodSpring $ in Millions |
Feb. 01, 2018
USD ($)
state
hotel
|
---|---|
Business Acquisition [Line Items] | |
Business acquisition, percentage of voting interests acquired | 100.00% |
Number of hotels acquired | hotel | 239 |
Number of states in which acquired business operates | state | 35 |
Business combination, consideration transferred, gross | $ 231.6 |
Business combination, consideration transferred, net | 231.3 |
Business combination, consideration transferred, liabilities incurred | 0.4 |
Business combination, working capital adjustment | $ 0.1 |
Acquisition Preliminary (Details) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Feb. 01, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 173,741 | $ 80,757 | |
WoodSpring | |||
Business Acquisition [Line Items] | |||
Cash | $ 250 | ||
Accounts receivables | 1,258 | ||
Prepaid | 23 | ||
Contract assets | 115,000 | ||
Tradename | 22,000 | ||
Goodwill | 93,384 | ||
Accounts payable | (348) | ||
Total Consideration | $ 231,567 |
Acquisition Intangible Assets (Details) - USD ($) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Feb. 01, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Goodwill | $ 173,741 | $ 80,757 | |
WoodSpring | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Goodwill | $ 93,384 | ||
Total | 230,384 | ||
WoodSpring | Franchise Rights | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Franchise agreements acquired | 115,000 | ||
Trade Names | WoodSpring | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
WoodSpring tradename | $ 22,000 | ||
Minimum | Franchise Rights | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Franchise agreements acquired (useful life) | 12 years | ||
Maximum | Franchise Rights | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Franchise agreements acquired (useful life) | 20 years |
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