Condensed Consolidating Financial Statements (Tables)

3 Months Ended

Mar. 31, 2012

Condensed Consolidating Financial Statements

Condensed Consolidating Statement Of Income

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Three Months Ended March 31, 2012

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	42,126		$	26,220		$	7,058		$	(27,551	)	$	47,853
Initial franchise and relicensing fees	2,433			—			95			—			2,528
Procurement services	3,148			—			167			—			3,315
Marketing and reservation	59,653			72,684			4,387			(65,795		)	70,929
Other items, net	3,441			978			125			—			4,544
Total revenues	110,801			99,882			11,832			(93,346		)	129,169
OPERATING EXPENSES:
Selling, general and administrative	24,487			22,828			4,585			(27,551		)	24,349
Marketing and reservation	61,554			70,900			4,270			(65,795		)	70,929
Other items, net	706			1,901			219			—			2,826
Total operating expenses	86,747			95,629			9,074			(93,346		)	98,104
Operating income	24,054			4,253			2,758			—			31,065
OTHER INCOME AND EXPENSES, NET:
Interest expense	4,216			(1,103		)	4			—			3,117
Equity in earnings of consolidated subsidiaries	(6,881		)	—			—			6,881			—
Other items, net	(202		)	(2,003		)	(80		)	—			(2,285		)
Total other income and expenses, net	(2,867		)	(3,106		)	(76		)	6,881			832
Income before income taxes	26,921			7,359			2,834			(6,881		)	30,233
Income taxes	6,924			3,058			254			—			10,236
Net income	$	19,997		$	4,301		$	2,580		$	(6,881	)	$	19,997

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Three Months Ended March 31, 2011

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	38,501		$	27,107		$	6,221		$	(28,035	)	$	43,794
Initial franchise and relicensing fees	2,614			—			107			—			2,721
Procurement services	3,165			—			96			—			3,261
Marketing and reservation	50,171			68,794			3,901			(59,899		)	62,967
Other items, net	1,247			864			427			—			2,538
Total revenues	95,698			96,765			10,752			(87,934		)	115,281
OPERATING EXPENSES:
Selling, general and administrative	23,603			23,871			4,408			(28,035		)	23,847
Marketing and reservation	52,772			66,055			4,039			(59,899		)	62,967
Other items, net	708			1,864			216			—			2,788
Total operating expenses	77,083			91,790			8,663			(87,934		)	89,602
Operating income	18,615			4,975			2,089			—			25,679
OTHER INCOME AND EXPENSES, NET:
Interest expense	4,173			(951		)	2			—			3,224
Equity in earnings of consolidated subsidiaries	(5,073		)	—			—			5,073			—
Other items, net	(198		)	(723		)	1,453			—			532
Total other income and expenses, net	(1,098		)	(1,674		)	1,455			5,073			3,756
Income before income taxes	19,713			6,649			634			(5,073		)	21,923
Income taxes	3,983			2,534			(324		)	—			6,193
Net income	$	15,730		$	4,115		$	958		$	(5,073	)	$	15,730

Condensed Consolidating Balance Sheet

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of March 31, 2012

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	4,926		$	550	$	85,836	$	—		$	91,312
Receivables, net	45,119			1,965		6,206		—			53,290
Other current assets	14,035			21,768		5,281		(7,208		)	33,876
Total current assets	64,080			24,283		97,323		(7,208		)	178,478
Property and equipment, at cost, net	9,192			40,904		1,213		—			51,309
Goodwill	60,620			5,193		200		—			66,013
Franchise rights and other identifiable intangibles, net	10,463			3,179		2,753		—			16,395
Receivable – marketing and reservation fees	63,690			—		—		—			63,690
Investment in and advances to affiliates	293,122			234,479		8,176		(535,777		)	—
Investments, employee benefit plans, at fair value	—			12,625		—		—			12,625
Deferred income taxes	—			29,907		295		(6,653		)	23,549
Other assets	13,611			7,252		10,310		—			31,173
Total assets	$	514,778		$	357,822	$	120,270	$	(549,638	)	$	443,232
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	8,727		$	31,414	$	4,987	$	—		$	45,128
Accrued expenses	13,513			13,704		1,313		—			28,530
Deferred revenue	9,823			60,224		783		—			70,830
Current portion of long-term debt	—			659		20		—			679
Deferred compensation & retirement plan obligations	—			19,184		—		—			19,184
Other current liabilities	4,568			14,231		413		(7,208		)	12,004
Total current liabilities	36,631			139,416		7,516		(7,208		)	176,355
Long-term debt	255,359			2,353		68		—			257,780
Deferred compensation & retirement plan obligations	—			19,633		7		—			19,640
Advances from affiliates	235,087			420		9,607		(245,114		)	—
Other liabilities	13,877			8,351		58		(6,653		)	15,633
Total liabilities	540,954			170,173		17,256		(258,975		)	469,408
Total shareholders’ (deficit) equity	(26,176		)	187,649		103,014		(290,663		)	(26,176		)
Total liabilities and shareholders’ deficit	$	514,778		$	357,822	$	120,270	$	(549,638	)	$	443,232

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of December 31, 2011

(In Thousands)

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	23,370		$	432	$	83,255	$	—		$	107,057
Receivables, net	44,620			2,407		5,985		—			53,012
Other current assets	12,190			25,997		5,226		(8,686		)	34,727
Total current assets	80,180			28,836		94,466		(8,686		)	194,796
Property and equipment, at cost, net	9,013			41,755		1,224		—			51,992
Goodwill	60,620			5,193		192		—			66,005
Franchise rights and other identifiable intangibles, net	11,061			3,334		2,860		—			17,255
Receivable, marketing and reservation fees	54,014			—		—		—			54,014
Investments, employee benefit plans, at fair value	—			11,678		—		—			11,678
Investment in and advances to affiliates	285,996			235,571		8,323		(529,890		)	—
Deferred income taxes	—			29,050		313		(6,698		)	22,665
Other assets	13,808			7,538		7,938		—			29,284
Total assets	$	514,692		$	362,955	$	115,316	$	(545,274	)	$	447,689
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	5,324		$	28,831	$	4,234	$	—		$	38,389
Accrued expenses	18,288			33,584		1,979		—			53,851
Deferred revenue	13,584			54,582		659		—			68,825
Deferred compensation and retirement plan	—			18,935		—		—			18,935
Current portion of long-term debt	—			654		19		—			673
Other current liabilities	—			11,404		1,174		(8,686		)	3,892
Total current liabilities	37,196			147,990		8,065		(8,686		)	184,565
Long-term debt	249,443			2,519		70		—			252,032
Deferred compensation & retirement plan obligations	—			20,587		6		—			20,593
Advances from affiliates	239,903			468		9,853		(250,224		)	—
Other liabilities	13,711			9,027		20		(6,698		)	16,060
Total liabilities	540,253			180,591		18,014		(265,608		)	473,250
Total shareholders’ (deficit) equity	(25,561		)	182,364		97,302		(279,666		)	(25,561		)
Total liabilities and shareholders' deficit	$	514,692		$	362,955	$	115,316	$	(545,274	)	$	447,689

Condensed Consolidating Statement Of Cash Flows

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2012

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided (used) by operating activities	$	5,388		$	(5,888	)	$	4,912		$	—	$	4,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(1,354		)	(1,688		)	(87		)	—		(3,129		)
Equity method investments	—			—			(2,600		)	—		(2,600		)
Issuance of notes receivable	(3,136		)	(583		)	—			—		(3,719		)
Collection of notes receivable	44			107			—			—		151
Purchases of investments, employee benefit plans	—			(743		)	—			—		(743		)
Proceeds from sales of investments, employee benefit plans	—			8,652			—			—		8,652
Other items, net	(108		)	—			—			—		(108		)
Net cash provided (used) by investing activities	(4,554		)	5,745			(2,687		)	—		(1,496		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facility	5,900			—			—			—		5,900
Repayments of long-term debt	—			(161		)	(5		)			(166		)
Purchase of treasury stock	(14,854		)	—			—			—		(14,854		)
Dividends paid	(10,713		)	—			—			—		(10,713		)
Excess tax benefits from stock-based compensation	—			422			—			—		422
Proceeds from exercise of stock options	389			—			—			—		389
Net cash provided (used) by financing activities	(19,278		)	261			(5		)	—		(19,022		)
Net change in cash and cash equivalents	(18,444		)	118			2,220			—		(16,106		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			361			—		361
Cash and cash equivalents at beginning of period	23,370			432			83,255			—		107,057
Cash and Cash Equivalents at End of Period	$	4,926		$	550		$	85,836		$	—	$	91,312

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2011

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided from (used in) operating activities	$	4,590		$	(15,659	)	$	5,852		$	—	$	(5,217	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(205		)	(1,601		)	(29		)	—		(1,835		)
Equity method investments	—			—			(1,600		)	—		(1,600		)
Issuance of notes receivable	(49		)	(1,406		)	(22		)	—		(1,477		)
Collections of notes receivable	—			7			—			—		7
Purchases of investments, employee benefit plans	—			(897		)	—			—		(897		)
Proceeds from sales of investments, employee benefit plans	—			310			—			—		310
Other items, net	(113		)	13			5			—		(95		)
Net cash used in investing activities	(367		)	(3,574		)	(1,646		)	—		(5,587		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facility	7,900			—			—			—		7,900
Repayments of long-term debt	—			—			(5		)	—		(5		)
Purchase of treasury stock	(2,207		)	—			—			—		(2,207		)
Debt issuance costs	(2,207		)	—			—			—		(2,207		)
Excess tax benefits from stock-based compensation	1			833			—			—		834
Dividends paid	(10,950		)	—			—			—		(10,950		)
Proceeds from exercise of stock options	2,238			—			—			—		2,238
Net cash provided (used) in financing activities	(5,225		)	833			(5		)	—		(4,397		)
Net change in cash and cash equivalents	(1,002		)	(18,400		)	4,201			—		(15,201		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			347			—		347
Cash and cash equivalents at beginning of period	4,849			18,659			67,751			—		91,259
Cash and cash equivalents at end of period	$	3,847		$	259		$	72,299		$	—	$	76,405