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.

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Year Ended December 31, 2016

(in thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	300,119		$	145,946		$	42,249		$	(167,767	)	$	320,547
Initial franchise and relicensing fees	23,284			—			669			—			23,953
Procurement services	30,355			—			871			—			31,226
Marketing and reservation system	482,836			431,125			16,232			(404,477		)	525,716
Other items, net	15,040			631			8,119			(591		)	23,199
Total revenues	851,634			577,702			68,140			(572,835		)	924,641
OPERATING EXPENSES:
Selling, general and administrative	163,891			131,517			21,678			(168,358		)	148,728
Marketing and reservation system	499,656			414,302			16,235			(404,477		)	525,716
Depreciation and amortization	1,838			7,456			2,411			—			11,705
Total operating expenses	665,385			553,275			40,324			(572,835		)	686,149
Gain on sale of assets, net	—			453			(50		)	—			403
Operating income	186,249			24,880			27,766			—			238,895
OTHER INCOME AND EXPENSES, NET:
Interest expense	43,866			1			579			—			44,446
Equity in earnings of consolidated subsidiaries	(48,073		)	641			—			47,432			—
Other items, net	(1,402		)	(1,047		)	(3,082		)	—			(5,531		)
Other income and expenses, net	(5,609		)	(405		)	(2,503		)	47,432			38,915
Income from continuing operations before income taxes	191,858			25,285			30,269			(47,432		)	199,980
Income taxes	52,487			7,912			210			—			60,609
Net income	$	139,371		$	17,373		$	30,059		$	(47,432	)	$	139,371

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Year Ended December 31, 2015

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	280,739		$	134,944	$	46,055		$	(160,230	)	$	301,508
Initial franchise and relicensing fees	23,934			—		746			—			24,680
Procurement services	26,387			—		684			—			27,071
Marketing and reservation system	446,358			454,916		15,827			(428,338		)	488,763
Other items, net	13,744			—		4,203			(91		)	17,856
Total revenues	791,162			589,860		67,515			(588,659		)	859,878
OPERATING EXPENSES:
Selling, general and administrative	154,591			120,800		19,184			(160,321		)	134,254
Marketing and reservation system	464,439			437,378		15,284			(428,338		)	488,763
Depreciation and amortization	2,405			7,595		1,542			—			11,542
Total operating expenses	621,435			565,773		36,010			(588,659		)	634,559
Operating income	169,727			24,087		31,505			—			225,319
OTHER INCOME AND EXPENSES, NET:
Interest expense	42,276			2		555			—			42,833
Equity in earnings of consolidated subsidiaries	(45,155		)	373		—			44,782			—
Other items, net	(957		)	198		(740		)	—			(1,499		)
Other income and expenses, net	(3,836		)	573		(185		)	44,782			41,334
Income from continuing operations before income taxes	173,563			23,514		31,690			(44,782		)	183,985
Income taxes	45,534			10,351		71			—			55,956
Income from from continuing operations, net of income taxes	128,029			13,163		31,619			(44,782		)	128,029
Income from discontinued operations, net of income taxes	—			—		—			—			—
Net income	$	128,029		$	13,163	$	31,619		$	(44,782	)	$	128,029

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Year Ended December 31, 2014

(in thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
REVENUES:
Royalty fees	$	262,540		$	121,295		$	44,357	$	(140,654	)	$	287,538
Initial franchise and relicensing fees	18,753			—			728		—			19,481
Procurement services	22,959			23			837		—			23,819
Marketing and reservation system	367,726			369,359			18,783		(343,249		)	412,619
Other items	13,758			16			739		—			14,513
Total revenues	685,736			490,693			65,444		(483,903		)	757,970
OPERATING EXPENSES:
Selling, general and administrative	137,759			110,504			13,809		(140,654		)	121,418
Marketing and reservation system	383,584			354,342			17,942		(343,249		)	412,619
Depreciation and amortization	3,038			5,679			648		—			9,365
Total operating expenses	524,381			470,525			32,399		(483,903		)	543,402
Operating income	161,355			20,168			33,045		—			214,568
OTHER INCOME AND EXPENSES, NET:
Interest expense	41,454			3			29		—			41,486
Equity in earnings of consolidated subsidiaries	(45,426		)	(765		)	—		46,191			—
Other items, net	(1,465		)	567			222		—			(676		)
Other income and expenses, net	(5,437		)	(195		)	251		46,191			40,810
Income from continuing operations before income taxes	166,792			20,363			32,794		(46,191		)	173,758
Income taxes	43,632			7,922			731		—			52,285
Income from continuing operations, net of income taxes	123,160			12,441			32,063		(46,191		)	121,473
Income from discontinued operations, net of income taxes	—			—			1,687		—			1,687
Net income	$	123,160		$	12,441		$	33,750	$	(46,191	)	$	123,160

Choice Hotels International, Inc.

Condensed Consolidating Statement of Comprehensive Income

For the Year Ended December 31, 2016

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net income	$	139,371		$	17,373	$	30,059		$	(47,432	)	$	139,371
Other comprehensive income (loss), net of tax:
Amortization of loss on cash flow hedge	862			—		—			—			862
Foreign currency translation adjustment	(606		)	—		(606		)	606			(606		)
Other comprehensive income (loss), net of tax	256			—		(606		)	606			256
Comprehensive income	$	139,627		$	17,373	$	29,453		$	(46,826	)	$	139,627

Choice Hotels International, Inc.

Condensed Consolidating Statement of Comprehensive Income

For the Year Ended December 31, 2015

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net income	$	128,029		$	13,163	$	31,619		$	(44,782	)	$	128,029
Other comprehensive income (loss), net of tax:
Amortization of loss on cash flow hedge	862			—		—			—			862
Foreign currency translation adjustment	(2,669		)	—		(2,669		)	2,669			(2,669		)
Other comprehensive income (loss), net of tax	(1,807		)	—		(2,669		)	2,669			(1,807		)
Comprehensive income	$	126,222		$	13,163	$	28,950		$	(42,113	)	$	126,222

Choice Hotels International, Inc.

Condensed Consolidating Statement of Comprehensive Income

For the Year Ended December 31, 2014

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated

Net income	$	123,160		$	12,441	$	33,750		$	(46,191	)	$	123,160
Other comprehensive income (loss), net of tax:
Amortization of loss on cash flow hedge	861			—		—			—			861
Foreign currency translation adjustment	(1,615		)	—		(1,615		)	1,615			(1,615		)
Other comprehensive income (loss), net of tax	(754		)	—		(1,615		)	1,615			(754		)
Comprehensive income	$	122,406		$	12,441	$	32,135		$	(44,576	)	$	122,406

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of December 31, 2016

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	14,696		$	159	$	187,608	$	—		$	202,463
Receivables, net	96,128			1,556		9,802		(150		)	107,336
Other current assets	9,120			29,281		4,470		(7,797		)	35,074
Total current assets	119,944			30,996		201,880		(7,947		)	344,873
Property and equipment, at cost, net	44,236			21,718		18,107		—			84,061
Goodwill	65,813			—		13,092		—			78,905
Franchise rights and other identifiable intangibles, net	5,279			3,494		6,965		—			15,738
Notes receivable, net of allowances	16,285			42,398		51,925		—			110,608
Investments, employee benefit plans, at fair value	—			16,975		—		—			16,975
Investments in affiliates	526,166			50,798		—		(576,964		)	—
Advances to affiliates	14,929			123,074		17		(138,020		)	—
Deferred income taxes	40,459			14,234		—		(1,881		)	52,812
Other assets	18,259			76,933		53,304		—			148,496
Total assets	$	851,370		$	380,620	$	345,290	$	(724,812	)	$	852,468
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	14,296		$	29,705	$	4,220	$	(150	)	$	48,071
Accrued expenses and other current liabilities	31,352			45,179		3,857		—			80,388
Deferred revenue	132,217			—		1,107		(106		)	133,218
Other current liabilities	8,480			7		1,195		(7,691		)	1,991
Total current liabilities	186,345			74,891		10,379		(7,947		)	263,668
Long-term debt	826,551			3,712		9,146		—			839,409
Deferred compensation & retirement plan obligations	—			21,584		11		—			21,595
Advances from affiliates	135,879			1,188		953		(138,020		)	—
Other liabilities	13,944			15,631		11,451		(1,881		)	39,145
Total liabilities	1,162,719			117,006		31,940		(147,848		)	1,163,817
Total shareholders’ (deficit) equity	(311,349		)	263,614		313,350		(576,964		)	(311,349		)
Total liabilities and shareholders’ deficit	$	851,370		$	380,620	$	345,290	$	(724,812	)	$	852,468

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of December 31, 2015

(in thousands)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	13,529		$	19	$	179,893	$	—		$	193,441
Receivables	79,381			1,132		8,992		(153		)	89,352
Other current assets	19,029			14,176		5,331		(10,376		)	28,160
Total current assets	111,939			15,327		194,216		(10,529		)	310,953
Property and equipment, at cost, net	37,857			33,575		16,726		—			88,158
Goodwill	60,620			5,193		13,514		—			79,327
Franchise rights and other identifiable intangibles, net	2,965			1,013		7,970		—			11,948
Notes receivable, net of allowance	18,866			38,957		24,749		—			82,572
Investments, employee benefit plans, at fair value	—			17,674		—		—			17,674
Investments in affiliates	473,448			37,182		—		(510,630		)	—
Advances to affiliates	17,144			212,773		7,789		(237,706		)	—
Deferred income taxes	10,664			33,936		—		(2,166		)	42,434
Other assets	319			45,383		38,348		(106		)	83,944
Total assets	$	733,822		$	441,013	$	303,312	$	(761,137	)	$	717,010
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	12,359		$	48,238	$	3,987	$	(153	)	$	64,431
Accrued expenses and other current liabilities	29,099			45,601		6,378		(10,271		)	70,807
Deferred revenue	8,749			61,890		1,053		(105		)	71,587
Current portion of long-term debt	—			430		761		—			1,191
Total current liabilities	50,207			156,159		12,179		(10,529		)	208,016
Long-term debt	799,212			3,712		10,021		—			812,945
Deferred compensation & retirement plan obligations	—			22,849		10		—			22,859
Advances from affiliates	235,629			257		1,820		(237,706		)	—
Other liabilities	44,673			15,755		10,933		(2,272		)	69,089
Total liabilities	1,129,721			198,732		34,963		(250,507		)	1,112,909
Total shareholders’ (deficit) equity	(395,899		)	242,281		268,349		(510,630		)	(395,899		)
Total liabilities and shareholders’ deficit	$	733,822		$	441,013	$	303,312	$	(761,137	)	$	717,010

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2016

(in thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	63,838		$	53,468		$	35,386		$	(657	)	$	152,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(21,338		)	(2,554		)	(1,299		)	—			(25,191		)
Investment in intangible assets	(680		)	(1,900		)	—			—			(2,580		)
Acquisitions, net of cash acquired	—			—			(1,341		)	—			(1,341		)
Acquisitions of real estates	—			—			(28,583		)	—			(28,583		)
Proceeds from sale of assets	—			—			11,462			—			11,462
Contributions to equity method investments	—			(34,593		)	(68		)	—			(34,661		)
Distributions from equity method investments	—			—			3,700			—			3,700
Issuance of mezzanine and other notes receivable	(8,382		)	—			(24,222		)	—			(32,604		)
Collections of mezzanine and other notes receivable	11,070			—			—			—			11,070
Purchases of investments, employee benefit plans	—			(1,661		)	—			—			(1,661		)
Proceeds from sales of investments, employee benefit plans	—			1,911			—			—			1,911
Advances to and investments in affiliates	—			(29,327		)	—			29,327			—
Divestment in affiliates	—			15,226			—			(15,226		)	—
Other items, net	100			—			(89		)	—			11
Net cash used in investing activities	(19,230		)	(52,898		)	(40,440		)	14,101			(98,467		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) pursuant to revolving credit facilities	26,000			—			(205		)	—			25,795
Principal payments on long-term debt	—			(430		)	(558		)	—			(988		)
Proceeds from the issuance of long-term debt	—			—			—			—			—
Purchase of treasury stock	(35,926		)	—			—			—			(35,926		)
Proceeds from other debt agreements	—			—			550			—			550
Proceeds from exercise of stock options	12,951			—			—			—			12,951
Debt issuance costs	(284		)	—			—			—			(284		)
Proceeds from contributions from affiliates	—			—			29,327			(29,327		)	—
Distributions to affiliates	—			—			(15,226		)	15,226			—
Dividends paid	(46,182		)	—			(657		)	657			(46,182		)
Net cash provided from (used in) financing activities	(43,441		)	(430		)	13,231			(13,444		)	(44,084		)
Net change in cash and cash equivalents	1,167			140			8,177			—			9,484
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(462		)	—			(462		)
Cash and cash equivalents at beginning of period	13,529			19			179,893			—			193,441
Cash and cash equivalents at end of period	$	14,696		$	159		$	187,608		$	—		$	202,463

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2015

(in thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	100,755		$	23,814		$	41,167		$	(657	)	$	165,079
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(20,242		)	(6,952		)	(571		)	—			(27,765		)
Investment in intangible assets	(619		)	—			(114		)	—			(733		)
Business acquisitions, net of cash acquired	—			—			(13,269		)	—			(13,269		)
Proceeds from sale of assets	93			4,661			1,593			—			6,347
Acquisitions of real estate	(319		)	—			(8,881		)	—			(9,200		)
Contributions to equity method investments	—			(22,205		)	(1,532		)	—			(23,737		)
Distributions from equity method investments	—			—			518			—			518
Issuance of mezzanine and other notes receivable	(12,753		)	—			(24,131		)	—			(36,884		)
Collections of mezzanine and other notes receivable	4,849			—			—			—			4,849
Purchases of investments, employee benefit plans	—			(3,220		)	—			—			(3,220		)
Proceeds from sales of investments, employee benefit plans	—			3,170			—			—			3,170
Advances to and investments in affiliates	—			(9,418		)	—			9,418			—
Divestment in affiliates	—			10,735			—			(10,735		)	—
Other items, net	49			(49		)	114			—			114
Net cash used in investing activities	(28,942		)	(23,278		)	(46,273		)	(1,317		)	(99,810		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments pursuant to revolving credit facilities	159,000			—			(133		)	—			158,867
Principal payments on long-term debt	(129,374		)	(718		)	(409		)	—			(130,501		)
Proceeds from the issuance of long-term debt	—			176			—			—			176
Purchase of treasury stock	(72,873		)	—			—			—			(72,873		)
Debt issuance costs	(2,169		)	—			—			—			(2,169		)
Proceeds from exercise of stock options	7,056			—			—			—			7,056
Proceeds from contributions from affiliates	—			—			9,418			(9,418		)	—
Distributions to affiliates	—			—			(10,735		)	10,735			—
Dividends paid	(45,214		)	—			(657		)	657			(45,214		)
Net cash provided from (used in) financing activities	(83,574		)	(542		)	(2,516		)	1,974			(84,658		)
Net change in cash and cash equivalents	(11,761		)	(6		)	(7,622		)	—			(19,389		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(2,049		)	—			(2,049		)
Cash and cash equivalents at beginning of period	25,290			25			189,564			—			214,879
Cash and cash equivalents at end of period	$	13,529		$	19		$	179,893		$	—		193,441

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2014

(in thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	141,037		$	24,521		$	22,711		$	(657	)	$	187,612
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(11,234		)	(9,134		)	(578		)	—			(20,946		)
Investment in intangible assets	(594		)	—			(42		)	—			(636		)
Proceeds from sale of assets	27			516			15,069			—			15,612
Contributions to equity method investments	—			(11,390		)	(6,399		)	—			(17,789		)
Issuance of mezzanine and other notes receivable	(3,340		)	—			—			—			(3,340		)
Collections of mezzanine and other notes receivable	11,289			—			—			—			11,289
Purchases of investments, employee benefit plans	—			(2,794		)	—			—			(2,794		)
Proceeds from sales of investments, employee benefit plans	—			964			—			—			964
Advances to and investments in affiliates	(1,000		)	(5,578		)	—			6,578			—
Divestment in affiliates	—			3,426			—			(3,426		)	—
Other items, net	98			—			(104		)	—			(6		)
Net cash provided from (used in) investing activities	(4,754		)	(23,990		)	7,946			3,152			(17,646		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt	(9,375		)	(701		)	(32		)	—			(10,108		)
Proceeds from the issuance of long-term debt	—			176			74			—			250
Purchase of treasury stock	(77,972		)	—			—			—			(77,972		)
Proceeds from exercise of stock options	10,098			—			—			—			10,098
Proceeds from contributions from affiliates	—			—			6,578			(6,578		)	—
Distributions to affiliates	—			—			(3,426		)	3,426			—
Dividends paid	(43,529		)	—			(657		)	657			(43,529		)
Net cash provided from (used in) financing activities	(120,778		)	(525		)	2,537			(2,495		)	(121,261		)
Net change in cash and cash equivalents	15,505			6			33,194			—			48,705
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(1,621		)	—			(1,621		)
Cash and cash equivalents at beginning of period	9,785			19			157,991			—			167,795
Cash and cash equivalents at end of period	$	25,290		$	25		$	189,564		$	—		$	214,879