Edgar Filing: CHOICE HOTELS INTERNATIONAL INC /DE

CHH-10Q-06.30.2014

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 001-13393

_____________________________________________

CHOICE HOTELS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________



DELAWARE		52-1209792
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 CHOICE HOTELS CIRCLE, SUITE 400

ROCKVILLE, MD 20850

(Address of principal executive offices)

(Zip Code)

(301) 592-5000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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CLASS		SHARES OUTSTANDING AT JUNE 30, 2014
Common Stock, Par Value $0.01 per share		58,433,234

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX




	PAGE NO.

PART I. FINANCIAL INFORMATION:

Item 1—Financial Statements (Unaudited)	4
Consolidated Statements of Income—For the three and six months ended June 30, 2014 and 2013	4
Consolidated Statements of Comprehensive Income—For the three and six months ended June 30, 2014 and 2013	5
Consolidated Balance Sheets—As of June 30, 2014 and December 31, 2013	6
Consolidated Statements of Cash Flows—For the six months ended June 30, 2014 and 2013	7
Notes to Consolidated Financial Statements	8
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3—Quantitative and Qualitative Disclosures About Market Risk	67
Item 4—Controls and Procedures	68

PART II. OTHER INFORMATION:

Item 1—Legal Proceedings	69
Item 1A—Risk Factors	70
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3—Defaults Upon Senior Securities	70
Item 4—Mine Safety Disclosures	70
Item 5—Other Information	70
Item 6—Exhibits	71

SIGNATURE	72

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PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
REVENUES:				(Restated)						(Restated)
Royalty fees	$	77,670		$	72,638		$	136,210		$	128,746
Initial franchise and relicensing fees	4,722			4,416			8,462			8,193
Procurement services	8,020			7,546			12,798			11,496
Marketing and reservation	103,766			104,072			193,372			186,395
Other	3,486			2,258			6,558			4,271
Total revenues	197,664			190,930			357,400			339,101

OPERATING EXPENSES:
Selling, general and administrative	31,413			29,731			58,093			56,399
Depreciation and amortization	2,332			2,388			4,610			4,429
Marketing and reservation	103,766			104,072			193,372			186,395
Total operating expenses	137,511			136,191			256,075			247,223

Operating income	60,153			54,739			101,325			91,878
OTHER INCOME AND EXPENSES, NET:
Interest expense	10,710			10,807			20,881			21,577
Interest income	(347		)	(659		)	(850		)	(1,303		)
Other (gains) and losses	(474		)	147			(533		)	(563		)
Equity in net (income) loss of affiliates	30			(60		)	65			81
Total other income and expenses, net	9,919			10,235			19,563			19,792
Income from continuing operations before income taxes	50,234			44,504			81,762			72,086
Income taxes	14,955			12,880			25,014			20,686
Income from continuing operations, net of income taxes	35,279			31,624			56,748			51,400
Income from discontinued operations, net of income taxes	121			183			1,762			150
Net income	$	35,400		$	31,807		$	58,510		$	51,550

Basic earnings per share
Continuing operations	$	0.61		$	0.54		$	0.97		$	0.88
Discontinued operations	—			—			0.03			—
	$	0.61		$	0.54		$	1.00		$	0.88
Diluted earnings per share
Continuing operations	$	0.60		$	0.54		$	0.96		$	0.88
Discontinued operations	—			—			0.03			—
	$	0.60		$	0.54		$	0.99		$	0.88

Cash dividends declared per share	$	0.185		$	0.185		$	0.37		$	0.37

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

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED, IN THOUSANDS)



	Three Months Ended					Six Months Ended
	June 30					June 30
	2014		2013			2014		2013
			(Restated)					(Restated)
Net income	$	35,400	$	31,807		$	58,510	$	51,550
Other comprehensive income (loss), net of tax:
Amortization of loss on cash flow hedge	216		216			431		431
Foreign currency translation adjustment	509		(2,082		)	1,030		(2,327		)
Other comprehensive income (loss), net of tax	725		(1,866		)	1,461		(1,896		)
Comprehensive income	$	36,125	$	29,941		$	59,971	$	49,654

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

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)



	June 30, 2014			December 31, 2013
ASSETS
Current assets
Cash and cash equivalents	$	211,542		$	167,795
Receivables (net of allowance for doubtful accounts of $13,188 and $12,187, respectively)	119,763			82,385
Deferred income taxes	29,733			26,684
Investments, employee benefit plans, at fair value	176			400
Other current assets	23,789			29,710
Total current assets	385,003			306,974
Property and equipment, at cost, net	58,238			67,852
Goodwill	65,813			65,813
Franchise rights and other identifiable intangibles, net	8,389			9,953
Advances, marketing and reservation activities	—			5,844
Notes receivable, net of allowances	34,492			31,872
Investments, employee benefit plans, at fair value	17,270			15,950
Deferred income taxes	1,121			—
Other assets	58,116			52,164
Total assets	$	628,442		$	556,422
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	50,892		$	41,663
Accrued expenses	52,398			56,625
Deferred revenue	67,365			61,188
Current portion of long-term debt	11,970			10,088
Deferred compensation and retirement plan obligations	579			2,492
Income taxes payable	17,459			2,282
Total current liabilities	200,663			174,338
Long-term debt	777,536			783,471
Deferred compensation and retirement plan obligations	23,260			22,527
Deferred income taxes	—			5,149
Other liabilities	39,493			23,808
Total liabilities	1,040,952			1,009,293
Commitments and Contingencies
Common stock, $0.01 par value, 160,000,000 shares authorized; 95,065,638 shares issued at June 30, 2014 and December 31, 2013 and 58,433,234 and 58,638,863 shares outstanding at June 30, 2014 and December 31, 2013, respectively	584			586
Additional paid-in-capital	118,976			117,768
Accumulated other comprehensive loss	(4,756		)	(6,217		)
Treasury stock (36,632,404 and 36,426,775 shares at June 30, 2014 and December 31, 2013, respectively), at cost	(916,893		)	(918,031		)
Retained earnings	389,579			353,023
Total shareholders’ deficit	(412,510		)	(452,871		)
Total liabilities and shareholders’ deficit	$	628,442		$	556,422

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

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)



	Six Months Ended
	June 30
	2014			2013
				(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	58,510		$	51,550
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,610			4,695
Gain on sale of assets	(2,849		)	—
Provision for bad debts, net	1,383			1,753
Non-cash stock compensation and other charges	4,711			5,566
Non-cash interest and other (income) loss	719			967
Deferred income taxes	(9,273		)	8,236
Dividends received from equity method investments	546			535
Equity in net loss of affiliates	65			81
Changes in assets and liabilities:
Receivables	(39,518		)	(40,349		)
Advances to/from marketing and reservation activities, net	31,522			5,631
Forgivable notes receivable, net	(6,692		)	(3,595		)
Accounts payable	8,316			9,893
Accrued expenses	(5,247		)	(18,463		)
Income taxes payable/receivable	15,198			1,198
Deferred revenue	6,231			(3,318		)
Other assets	(1,102		)	(1,664		)
Other liabilities	(1,298		)	7,271
Net cash provided by operating activities	65,832			29,987
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(7,314		)	(22,035		)
Proceeds from sales of assets	12,216			—
Equity method investments	(6,946		)	(1,851		)
Purchases of investments, employee benefit plans	(1,220		)	(1,580		)
Proceeds from sales of investments, employee benefit plans	641			3,934
Issuance of mezzanine and other notes receivable	(2,223		)	—
Collections of mezzanine and other notes receivable	9,743			201
Other items, net	(296		)	(304		)
Net cash provided (used) in investing activities	4,601			(21,635		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facility	—			15,200
Principal payments on long-term debt	(4,112		)	(4,095		)
Proceeds from the issuance of long-term debt	26			—
Purchases of treasury stock	(4,544		)	(3,651		)
Dividends paid	(21,957		)	(11,261		)
Excess tax benefits from stock-based compensation	1,319			1,146
Proceeds from exercise of stock options	1,547			5,973
Net cash provided (used) by financing activities	(27,721		)	3,312
Net change in cash and cash equivalents	42,712			11,664
Effect of foreign exchange rate changes on cash and cash equivalents	1,035			(2,051		)
Cash and cash equivalents at beginning of period	167,795			134,177
Cash and cash equivalents at end of period	$	211,542		$	143,790
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Income taxes, net of refunds	$	19,594		$	11,652
Interest	$	20,595		$	22,033
Non-cash investing and financing activities:
Dividends declared but not paid	$	10,810		$	10,766
Issuance of common stock pursuant to share based compensation plans	$	8,024		$	9,395
Investment in property and equipment acquired in accounts payable	$	688		$	6,096

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

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.	Company Information and Significant Accounting Policies

The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc. and subsidiaries (together the "Company") have been prepared by the Company 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 our 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 accounting principles generally accepted in the United States of America ("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, 2013 and notes thereto included in the Company’s Form 10-K, filed with the SEC on March 3, 2014 (the "10-K") as well as the information provided below under the heading "Revision to Prior Annual Financial Statements and Restatement of Prior Interim Financial Statements". The Company intends to amend its 10-K as soon as administratively practical to revise its previously issued audited financial statements and amend its report on internal control over financial reporting. 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.

Revision to Prior Annual Financial Statements and Restatement of Prior Interim Financial Statements

In connection with the preparation of the consolidated financial statements for the second quarter of 2014, the Company reviewed its accounting policies and practices, including the historical practice of reporting royalty and certain marketing and reservation fees one month in arrears as compared to when the gross room revenues (on which the fees are based) are earned by the Company's franchisees. The Company previously determined that the impact of the revenue recognition timing related to these revenues on its annual financial statements was not material and therefore reported these revenues one month in arrears despite the fact that these fees meet the definition of being earned and realizable in the same period that the underlying gross room revenues are earned by its franchisees. However, during the current period, the Company reassessed the impact of reporting these revenues one month in arrears on interim periods and determined that this revenue recognition practice, which was not in accordance with GAAP, was material to interim periods due to the seasonality of the Company's business. As a result, the Company has corrected its revenue recognition method to recognize royalty and certain marketing and reservation system fees as revenue in the same period as the gross room revenues are earned by its franchisees.

In accordance with Accounting Standards Codification ("ASC") 250 (SEC's Staff Accounting Bulletin 99, "Materiality"), the Company assessed the materiality of the misapplication of GAAP and concluded that the restatement of revenues was not material to any of its previously issued annual financial statements but was material to certain interim periods. In accordance with the accounting guidance in ASC 250 (SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements"), the Company will restate its previously issued interim financial statements for the periods ended March 31, 2014 and 2013 and September 30, 2013 and 2012 through the filing of amended quarterly filings on Form 10-Q and has restated the interim financial periods for June 30, 2013 in this interim financial report. In addition, the Company will revise its previously issued audited financial statements for the years ended December 31, 2011, 2012, and 2013 to correct the presentation of revenues and amend its report on internal control over financial reporting.

The following tables present the effect of this and other immaterial errors for the financial statement line items impacted in the affected periods included within this interim financial report. In addition, these amounts have been adjusted to reflect the Company's discontinued operations reported in the first quarter of 2014.

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Consolidated Statements of Income



	Three Months Ended June 30, 2013										Six Months Ended June 30, 2013
	As Previously Reported		Discontinued Operations			Adjustment			As Restated		As Previously Reported		Discontinued Operations			Adjustment			As Restated
	(in thousands, except per share amounts)
Royalty fees	$	68,379	$	—		$	4,259		$	72,638	$	118,115	$	—		$	10,631		$	128,746
Marketing and reservation revenues	99,645		—			4,427			104,072		176,085		—			10,310			186,395
Hotel operations	1,334		(1,334		)	—			—		2,290		(2,290		)	—			—
Total revenues	183,578		(1,334		)	8,686			190,930		320,450		(2,290		)	20,941			339,101

Selling, general and administrative	30,180		—			(449		)	29,731		57,096		—			(697		)	56,399
Depreciation and amortization	2,520		(132		)	—			2,388		4,695		(266		)	—			4,429
Marketing and reservation expenses	99,645		—			4,427			104,072		176,085		—			10,310			186,395
Hotel operations	911		(911		)	—			—		1,786		(1,786		)	—			—
Total operating expenses	133,256		(1,043		)	3,978			136,191		239,662		(2,052		)	9,613			247,223

Operating income	50,322		(291		)	4,708			54,739		80,788		(238		)	11,328			91,878

Income from continuing operations before income taxes	40,087		(291		)	4,708			44,504		60,996		(238		)	11,328			72,086
Income taxes	11,853		(108		)	1,135			12,880		17,239		(88		)	3,535			20,686
Income from continuing operations, net of income taxes	28,234		(183		)	3,573			31,624		43,757		(150		)	7,793			51,400

Basic earnings per share, continuing operations	$	0.48	$	—		$	0.06		$	0.54	$	0.75	$	—		$	0.13		$	0.88
Diluted earnings per share, continuing operations	$	0.48	$	—		$	0.06		$	0.54	$	0.74	$	—		$	0.14		$	0.88

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	Six Months Ended June 30, 2013
	As Previously Reported			Adjustment			As Restated
Consolidated Statement of Cash Flows	(in thousands)
Net income	$	43,757		$	7,793		$	51,550
Provision for bad debts, net	1,420			333			1,753
Non-cash stock compensation and other charges	5,581			(15		)	5,566
Deferred income taxes	4,169			4,067			8,236
Change in assets and liabilities
Receivables	(21,156		)	(19,193		)	(40,349		)
Advances to/from marketing and reservation activities, net	(2,945		)	8,576			5,631
Income taxes payable/receivable	1,729			(531		)	1,198
Net cash provided by operating activities	28,957			1,030			29,987
Investment in property and equipment	(21,005		)	(1,030		)	(22,035		)
Net cash used in investing activities	(20,605		)	(1,030		)	(21,635		)



	As of December 31, 2013
	As Previously Reported			Adjustment			As Revised
Consolidated Balance Sheet	(in thousands)
Receivables	$	53,521		$	28,864		$	82,385
Deferred income taxes	7,220			19,464			26,684
Total current assets	258,646			48,328			306,974
Property and equipment, at cost, net	66,092			1,760			67,852
Advances, marketing and reservation activities	19,127			(13,283		)	5,844
Deferred income taxes	20,282			(20,282		)	—
Total assets	539,899			16,523			556,422
Deferred income taxes	—			5,149			5,149
Total liabilities	1,004,144			5,149			1,009,293
Retained earnings	341,649			11,374			353,023
Total shareholders' deficit	(464,245		)	11,374			(452,871		)

The following tables present the effect of this and other immaterial errors for the financial statement line items impacted in the Company's quarterly reports on Form 10-Q which will be amended for the interim periods ended March 31, 2014 and September 30, 2013 and corresponding prior year periods. These amended reports will be filed with the SEC as soon as administratively possible. In addition, these amounts have been adjusted to reflect the Company's discontinued operations reported in the first quarter of 2014.

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Consolidated Statements of Income



	Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
	As Previously Reported		Adjustment		As Restated		As Previously Reported		Adjustment			As Restated
	(in thousands, except per share amounts)
Royalty fees	$	51,681	$	6,859	$	58,540	$	49,736	$	6,372		$	56,108
Marketing and reservation revenues	84,012		5,594		89,606		76,440		5,883			82,323
Total revenues	147,283		12,453		159,736		135,916		12,255			148,171

Selling, general and administrative	26,463		217		26,680		26,916		(248		)	26,668
Depreciation and amortization	2,122		156		2,278		2,041		—			2,041
Marketing and reservation expenses	84,012		5,594		89,606		76,440		5,883			82,323
Total operating expenses	112,597		5,967		118,564		105,397		5,635			111,032

Operating income	34,686		6,486		41,172		30,519		6,620			37,139

Income from continuing operations before income taxes	25,042		6,486		31,528		20,962		6,620			27,582
Income taxes	7,711		2,348		10,059		5,406		2,400			7,806
Income from continuing operations, net of income taxes	17,331		4,138		21,469		15,556		4,220			19,776

Basic earnings per share, continuing operations	$	0.30	$	0.07	$	0.37	$	0.27	$	0.07		$	0.34
Diluted earnings per share, continuing operations	$	0.29	$	0.07	$	0.36	$	0.26	$	0.08		$	0.34



	Three Months Ended March 31, 2014								Three Months Ended March 31, 2013
Consolidated Statements of Cash Flow	As Previously Reported			Adjustment		As Restated			As Previously Reported			Adjustment			As Restated
	(in thousands)
Net cash provided by operating activities	$	5,264		$	—	$	5,264		$	145		$	450		$	595
Investment in property and equipment	(3,015		)	—		(3,015		)	(13,645		)	(450		)	(14,095		)
Net cash provided (used) by investing activities	1,027			—		1,027			(12,087		)	(450		)	(12,537		)

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	As of March 31, 2014
	As Previously Reported			Adjustment			As Restated
Consolidated Balance Sheet	(in thousands)
Receivables	$	59,241		$	40,906		$	100,147
Deferred income taxes	7,220			21,202			28,422
Total current assets	277,714			62,108			339,822
Property and equipment, at cost, net	56,664			1,604			58,268
Advances, marketing and reservation activities	18,856			(18,696		)	160
Deferred income taxes	20,321			(20,321		)	—
Total assets	554,900			24,695			579,595
Deferred income taxes	—			9,196			9,196
Total liabilities	1,009,533			9,196			1,018,729
Retained earnings	349,458			15,511			364,969
Total shareholders' deficit	(454,633		)	15,499			(439,134		)

Consolidated Statements of Income



	Three Months Ended September 30, 2013										Nine Months Ended September 30, 2013
	As Previously Reported		Discontinued Operations			Adjustment			As Restated		As Previously Reported		Discontinued Operations			Adjustment			As Restated
	(in thousands, except per share amounts)
Royalty fees	$	83,107	$	—		$	(3,647	)	$	79,460	$	201,222	$	—		$	6,984		$	208,206
Marketing and reservation revenues	126,296		—			(1,487		)	124,809		302,381		—			8,823			311,204
Hotel operations	1,310		(1,310		)	—			—		3,600		(3,600		)	—			—
Total revenues	223,162		(1,310		)	(5,134		)	216,718		543,612		(3,600		)	15,807			555,819

Selling, general and administrative	26,982		—			(573		)	26,409		84,078		—			(1,270		)	82,808
Depreciation and amortization	2,379		(127		)	20			2,272		7,074		(393		)	20			6,701
Marketing and reservation expenses	126,296		—			(1,487		)	124,809		302,381		—			8,823			311,204
Hotel operations	956		(956		)	—			—		2,742		(2,742		)	—			—
Total operating expenses	156,613		(1,083		)	(2,040		)	153,490		396,275		(3,135		)	7,573			400,713

Operating income	66,549		(227		)	(3,094		)	63,228		147,337		(465		)	8,234			155,106

Income from continuing operations before income taxes	57,592		(227		)	(3,094		)	54,271		118,588		(465		)	8,234			126,357
Income taxes	16,080		(84		)	(298		)	15,698		33,319		(172		)	3,237			36,384
Income from continuing operations, net of income taxes	41,512		(143		)	(2,796		)	38,573		85,269		(293		)	4,997			89,973

Basic earnings per share, continuing operations	$	0.71	$	—		$	(0.05	)	$	0.66	$	1.46	$	—		$	0.08		$	1.54
Diluted earnings per share, continuing operations	$	0.70	(0.01		)	$	(0.04	)	$	0.65	$	1.45	$	—		$	0.08		$	1.53

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	Three Months Ended September 30, 2012										Nine Months Ended September 30, 2012
	As Previously Filed		Discontinued Operations			Adjustment			As Restated		As Previously Filed		Discontinued Operations			Adjustment		As Restated
	(in thousands, except per share amounts)
Royalty fees	$	80,845	$	—		$	(2,807	)	$	78,038	$	194,762	$	—		$	8,225	$	202,987
Marketing and reservation revenues	119,062		—			(1,097		)	117,965		284,624		—			9,721		294,345
Hotel operations	1,238		(1,238		)	—			—		3,440		(3,440		)	—		—
Total revenues	210,413		(1,238		)	(3,904		)	205,271		513,203		(3,440		)	17,946		527,709

Selling, general and administrative	23,170		—			(98		)	23,072		72,073		—			249		72,322
Depreciation and amortization	1,995		(135		)	—			1,860		5,989		(401		)	—		5,588
Marketing and reservation expenses	119,062		—			(1,097		)	117,965		284,624		—			9,721		294,345
Hotel operations	933		(933		)	—			—		2,609		(2,609		)	—		—
Total operating expenses	145,160		(1,068		)	(1,195		)	142,897		365,295		(3,010		)	9,970		372,255

Operating income	65,253		(170		)	(2,709		)	62,374		147,908		(430		)	7,976		155,454

Income from continuing operations before income taxes	55,668		(170		)	(2,709		)	52,789		133,840		(430		)	7,976		141,386
Income taxes	11,291		(63		)	(1,076		)	10,152		37,604		(160		)	3,303		40,747
Income from continuing operations, net of income taxes	44,377		(107		)	(1,633		)	42,637		96,236		(270		)	4,673		100,639

Basic earnings per share, continuing operations	$	0.77	$	—		$	(0.03	)	$	0.74	$	1.66	$	(0.01	)	$	0.08	$	1.73
Diluted earnings per share, continuing operations	$	0.76	$	—		$	(0.03	)	$	0.73	$	1.65	$	—		$	0.08	$	1.73



	Nine Months Ended September 30, 2013
Consolidated Statement of Cash Flows	As Previously Filed			Adjustment			As Restated
	(in thousands)
Net cash provided by operating activities	$	105,009		$	1,480		$	106,489
Investment in property and equipment	(26,442		)	(1,480		)	(27,922		)
Net cash used in investing activities	(28,350		)	(1,480		)	(29,830		)

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	As of September 30, 2013									As of December 31, 2012
	As Previously Reported			Adjustment			As Restated			As Previously Reported			Adjustment			As Revised
Consolidated Balance Sheets	(in thousands)
Receivables	$	62,605		$	40,282		$	102,887		$	52,270		$	27,729		$	79,999
Income taxes receivable	—			—			—			2,732			(531		)	2,201
Deferred income taxes	4,136			23,231			27,367			4,136			22,062			26,198
Total current assets	258,267			63,513			321,780			233,470			49,260			282,730
Property and equipment, at cost, net	65,540			1,460			67,000			51,651			—			51,651
Advances, marketing and reservation activities	32,564			(18,494		)	14,070			42,179			(12,712		)	29,467
Deferred income taxes	19,496			(19,496		)	—			15,418			(15,418		)	—
Total assets	555,709			26,983			582,692			510,772			21,130			531,902
Deferred income taxes	—			11,722			11,722			—			10,864			10,864
Total liabilities	1,040,433			11,722			1,052,155			1,059,676			10,864			1,070,540
Retained earnings	325,005			15,264			340,269			272,260			10,266			282,526
Total shareholders' deficit	(484,724		)	15,261			(469,463		)	(548,904		)	10,266			(538,638		)

The following tables present the effect of this and other immaterial errors for the financial statement line items impacted for the years ended December 31, 2011, 2012, and 2013 which will be revised prospectively in future annual filings. In addition, these amounts have been adjusted to reflect the Company's discontinued operations reported in the first quarter of 2014.

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Consolidated Statements of Income



	Year Ended December 31, 2013										Year Ended December 31, 2012
	As Previously Reported		Discontinued Operations			Adjustment			As Revised		As Previously Reported		Discontinued Operations			Adjustment			As Revised
	(in thousands, except per share amounts)
Royalty fees	$	267,229	$	—		$	583		$	267,812	$	260,782	$	—		$	898		$	261,680
Marketing and reservation revenues	403,099		—			4,534			407,633		384,784		—			4,894			389,678
Hotel operations	4,774		(4,774		)	—			—		4,573		(4,573		)	—			—
Total revenues	724,307		(4,774		)	5,117			724,650		691,509		(4,573		)	5,792			692,728

Selling, general and administrative	113,567		—			(1,854		)	111,713		101,852		—			27			101,879
Depreciation and amortization	9,469		(526		)	113			9,056		8,226		(535		)	—			7,691
Marketing and reservation expenses	403,099		—			4,534			407,633		384,784		—			4,894			389,678
Hotel operations	3,678		(3,678		)	—			—		3,505		(3,505		)	—			—
Total operating expenses	529,813		(4,204		)	2,793			528,402		498,367		(4,040		)	4,921			499,248

Operating income	194,494		(570		)	2,324			196,248		193,142		(533		)	871			193,480

Income from continuing operations before income taxes	156,918		(570		)	2,324			158,672		169,168		(533		)	871			169,506
Income taxes	44,317		(211		)	1,216			45,322		48,481		(198		)	(55		)	48,228
Income from continuing operations, net of income taxes	112,601		(359		)	1,108			113,350		120,687		(335		)	926			121,278

Basic earnings per share, continuing operations	$	1.92	$	—		$	0.02		$	1.94	$	2.08	$	—		$	0.01		$	2.09
Diluted earnings per share, continuing operations	$	1.91	$	(0.01	)	$	0.02		$	1.92	$	2.07	$	(0.01	)	$	0.02		$	2.08

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	Year Ended December 31, 2011
	As Previously Reported		Discontinued Operations			Adjustment		As Revised
	(in thousands, except per share amounts)
Royalty fees	$	245,426	$	—		$	1,049	$	246,475
Marketing and reservation revenues	349,036		—			5,116		354,152
Hotel operations	4,356		(4,356		)	—		—
Total revenues	638,793		(4,356		)	6,165		640,602

Selling, general and administrative	106,404		—			32		106,436
Depreciation and amortization	8,024		(527		)	—		7,497
Marketing and reservation expenses	349,036		—			5,116		354,152
Hotel operations	3,466		(3,466		)	—		—
Total operating expenses	466,930		(3,993		)	5,148		468,085

Operating income	171,863		(363		)	1,017		172,517

Income from continuing operations before income taxes	158,057		(363		)	1,017		158,711
Income taxes	47,661		(135		)	352		47,878
Income from continuing operations, net of income taxes	110,396		(228		)	665		110,833

Basic earnings per share, continuing operations