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IL0647AM022809
BEST WESTERN INTERNA Donnelley Financial 12.7.19 ADG
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Other revenues increased $1.4 million, or 7.0%, to $21.5 million
for the six months ended May 31, 2018 as
compared to $20.1 million for the same period in 2017, primarily due to
higher fees from international hotels to
cover higher expenses, higher interest income from higher interest rates
and cash balances and an increase in
International affiliation fees.
Program revenues increased $12.8 million, or 16.6%, to $89.7 million
for the six months ended May 31,
2018 as compared to $76.9 million for the same period in 2017, primarily
due to the continued strength of the
BWR program.
Expenses
Expenses were $193.2 million for the six months ended May 31, 2018 as
compared to $171.5 million for the
same period in 2017, an increase of $21.7 million, or 12.7%. Expense
summaries for the six months ended
May 31, 2018 and changes from the six months ended May 31, 2017 are
explained below:
Compensation, taxes and benefits increased $4.4 million, or 6.7%,
to $70.1 million for the six months ended
May 31, 2018 as compared to $65.7 million for the same period in 2017,
due to resources needed to drive
revenue to our Best Western-branded hotels, support operations and
support growth in self-funding programs.
Additionally, there was a general increase in resources over the prior
year.
Advertising and promotion increased $1.8 million, or 5.0%, to $37.9
million for the six months ended
May 31, 2018 as compared to $36.1 million for the same period in 2017 to
promote the brand and drive revenues
to Best Western-branded hotels.
Depreciation and amortization decreased $1.5 million, or 20.3%, to
$5.9 million for the six months ended
May 31, 2018 as compared to $7.4 million for the same period in 2017,
due to assets which were fully depreciated
in 2017. The Company anticipates increases in depreciation and
amortization in the future as the Company makes
continued investments in capital assets and infrastructure to drive
revenue to hotels and enhance systems.
General and administrative expenses increased $6.5 million, or
19.9%, to $39.2 million for the six months
ended May 31, 2018 as compared to $32.7 million for the same period in
2017, primarily due to higher
technology support costs and non-recurring legal and audit fees related
to the Conversion.
Program cost of sales increased $10.5 million, or 35.5%, to $40.1
million for the six months ended May 31,
2018 as compared to $29.6 million for the same period in 2017, primarily
due to the continued growth of the
BWR program. During 2018, the Company identified and corrected a
consistent one-month lag in its recognition
of the redemption of free night vouchers, which resulted in a $2.4
million overstatement of accounts receivable
as of November 30, 2017 and a net $0.1 million overstatement of program
cost of sales during the six months
ended May 31, 2017, based on the rollover impact of prior periods. The
Company concluded that the effect of the
overstatement was not material to prior period financial statements, nor
is the correction material to the expected
annual operating results for fiscal 2018 and; therefore, we corrected
the overstatement in the financial statements
for the second quarter of 2018, which resulted in $2.4 million of
program cost of sales being recorded in the
second quarter of 2018 that related to prior periods
Income taxes
Income tax provision was $2.0 million for the six months ended May
31, 2018 as compared to $1.2 million
for the same period in 2017. The Company's effective income tax rate for
operations was 36%, for the six
months ended May 31, 2018 and 47% for the same period in 2017. The
effective income tax rate from operations
for the six months ended May 31, 2018 was higher than the United States
federal income tax rate of 21%
primarily due to state income taxes and non-deductible items. The
effective income tax rate was also negatively
affected by the re-measurement of net deferred tax assets, which was
required due to the passage of the Tax Cuts
and Jobs Act on December 22, 2017. The effective income tax rate from
operations for the six months ended
May 31, 2017 was higher than the United States federal income tax rate
of 34% primarily due to state income
taxes and non-deductible items.
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BEST WESTERN INTERNA Donnelley Financial 12.7.19
ADG pellc0cw 13-Sep-2018 16:25 EST 560524 TX 64
5*
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1C
Program cost of sales decreased $10.7 million, or 14.1%, to $65.3
million for fiscal 2017 as compared to
$76.0 million for fiscal 2016, primarily due to globalization of the
Company's BWR program that resulted in a
one-time issuance and sale of additional reward points in 2016. The net
impact of this transaction increased
Program cost of sales and the BWR liability by $15.3 million in 2016.
During 2018, the Company identified and
corrected a consistent one-month lag in its recognition of the
redemption of free night vouchers, which resulted
in a $2.4 million overstatement of accounts receivable as of November
30, 2017 and a net $1.0 million and a net
$0.3 million understatement of program cost of sales in fiscal 2017 and
2016, respectively, based on the rollover
impact of prior periods. The Company concluded that the effect of the
overstatement was not material to prior
period financial statements, nor is the correction material to the
expected annual operating results for fiscal 2018
and; therefore, we corrected the overstatement in the financial
statements for the second quarter of 2018, which
resulted in $2.4 million of program cost of sales being recorded in the
second quarter of 2018 that related to prior
periods.
Income taxes
Income tax provision was $4.4 million for fiscal 2017 as compared
to $3.8 million for fiscal 2016. The
Company's effective income tax rates for operations were 44% and 36%,
for fiscal 2017 and fiscal 2016,
respectively. The effective income tax rate from operations for fiscal
2017 was higher than the United States
federal income tax rate of 34% primarily due to state income taxes and
non-deductible items. The effective
income tax rate from operations for fiscal 2016 was higher than the
United States federal income tax rate of 34%
primarily due to state income taxes and non-deductible items, offset by
non-recurring IRS refunds.
Liquidity and capital resources
The following table summarizes our primary sources of cash in the
periods presented:
Six months ended Fiscal Years Ended
May 31, November 30,
2018 2017 2017 2016
(in millions)
Cash flows provided by operating activities . . . . . . . . . . . .
.. $14.8 $14.9 $ 38.3 $ 41.3
Cash flows used in investing activities . . . . . . . . . . . . . .
.. . . (5.5) (12.8) (18.3) (34.7)
Net change in cash, restricted cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
.. . . . . . . . . $ 9.3 $ 2.1 $ 20.0 $ 6.6
Overview
We finance our business primarily with existing cash, return on
investments and cash generated from our
operations. Cash and cash equivalents include highly liquid money market
instruments that have original
maturities of three months or less at the date of purchase. Restricted
cash relates to remitted funds by Members in
payment of annual dues for the subsequent year. Such funds are held in a
custodial account and not available to
the Company until December 1 of the following fiscal year.
As of May 31, 2018, the Company had total cash, restricted cash and cash
equivalents of $85.6 million, as
compared to $58.4 million cash, restricted cash and cash equivalents as
of May 31, 2017, or a $27.2 million
increase. With no restricted cash, cash available for operations totaled
$85.6 million as of May 31, 2018.
As of November 30, 2017, the Company had total cash, restricted cash and
cash equivalents of $76.3 million,
including $8.9 million of restricted cash, as compared to $56.3 million
cash, restricted cash and cash equivalents
as of November 30, 2016, or a $20.0 million increase. Cash available for
operations totaled $67.4 million as of
November 30, 2017.
64