Condensed Consolidating Financial Statements (Tables)

9 Months Ended

Sep. 30, 2017

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 EndedSeptember 30, 2017

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	98,079		$	44,819		$	11,304		$	(49,950	)	$	104,252
Initial franchise and relicensing fees	6,275			—			128			—			6,403
Procurement services	7,944			84			149			(74		)	8,103
Marketing and reservation system	141,057			123,841			4,481			(101,616		)	167,763
Other	6,237			45			2,653			(368		)	8,567
Total revenues	259,592			168,789			18,715			(152,008		)	295,088
OPERATING EXPENSES:
Selling, general and administrative	50,969			40,875			4,629			(50,109		)	46,364
Depreciation and amortization	370			1,937			788			—			3,095
Marketing and reservation system	149,993			114,865			4,804			(101,899		)	167,763
Total operating expenses	201,332			157,677			10,221			(152,008		)	217,222
Loss on sale of assets, net	—			—			(32		)	—			(32		)
Operating income	58,260			11,112			8,462			—			77,834
OTHER INCOME AND EXPENSES, NET:
Interest expense	11,220			—			179			—			11,399
Other items, net	(442		)	596			(2,233		)	—			(2,079		)
Equity in earnings of consolidated subsidiaries	(19,105		)	(751		)	—			19,856			—
Total other income and expenses, net	(8,327		)	(155		)	(2,054		)	19,856			9,320
Income before income taxes	66,587			11,267			10,516			(19,856		)	68,514
Income taxes	18,992			1,137			790			—			20,919
Net income	$	47,595		$	10,130		$	9,726		$	(19,856	)	$	47,595

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

For the Three Months EndedSeptember 30, 2016

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	90,462		$	32,059		$	12,090		$	(38,497	)	$	96,114
Initial franchise and relicensing fees	6,187			—			97			—			6,284
Procurement services	7,344			—			271			—			7,615
Marketing and reservation system	140,792			99,595			4,771			(93,140		)	152,018
Other	3,443			75			2,305			(277		)	5,546
Total revenues	248,228			131,729			19,534			(131,914		)	267,577
OPERATING EXPENSES:
Selling, general and administrative	38,876			28,591			5,664			(38,774		)	34,357
Depreciation and amortization	467			1,910			609			—			2,986
Marketing and reservation system	143,920			97,018			4,220			(93,140		)	152,018
Total operating expenses	183,263			127,519			10,493			(131,914		)	189,361
Gain on sale of assets, net	—			—			402			—			402
Operating income	64,965			4,210			9,443			—			78,618
OTHER INCOME AND EXPENSES, NET:
Interest expense	11,006			1			143			—			11,150
Other items, net	(234		)	(1,150		)	(1,348		)	—			(2,732		)
Equity in earnings of consolidated subsidiaries	(13,548		)	(166		)	—			13,714			—
Total other income and expenses, net	(2,776		)	(1,315		)	(1,205		)	13,714			8,418
Income before income taxes	67,741			5,525			10,648			(13,714		)	70,200
Income taxes	20,176			2,169			290			—			22,635
Net income	$	47,565		$	3,356		$	10,358		$	(13,714	)	$	47,565

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

For theNine Months Ended September 30, 2017

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	249,222		$	117,472		$	32,619		$	(133,586	)	$	265,727
Initial franchise and relicensing fees	18,089			—			301			—			18,390
Procurement services	25,068			84			569			(74		)	25,647
Marketing and reservation system	385,393			329,597			12,078			(291,795		)	435,273
Other	17,824			126			7,657			(859		)	24,748
Total revenues	695,596			447,279			53,224			(426,314		)	769,785
OPERATING EXPENSES:
Selling, general and administrative	128,481			106,183			16,990			(134,236		)	117,418
Depreciation and amortization	1,131			5,581			2,503			—			9,215
Marketing and reservation system	401,871			312,352			13,128			(292,078		)	435,273
Total operating expenses	531,483			424,116			32,621			(426,314		)	561,906
Loss on sale of assets, net	—			—			(32		)	—			(32		)
Operating income	164,113			23,163			20,571			—			207,847
OTHER INCOME AND EXPENSES, NET:
Interest expense	33,421			—			463			—			33,884
Other items, net	(1,230		)	2,492			(4,577		)	—			(3,315		)
Equity in earnings of consolidated subsidiaries	(40,129		)	(317		)	—			40,446			—
Total other income and expenses, net	(7,938		)	2,175			(4,114		)	40,446			30,569
Income before income taxes	172,051			20,988			24,685			(40,446		)	177,278
Income taxes	50,717			4,172			1,055			—			55,944
Net income	$	121,334		$	16,816		$	23,630		$	(40,446	)	$	121,334

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2016

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	231,717		$	109,172		$	31,110		$	(124,831	)	$	247,168
Initial franchise and relicensing fees	16,741			—			405			—			17,146
Procurement services	23,088			—			631			—			23,719
Marketing and reservation system	380,153			344,161			12,322			(324,443		)	412,193
Other	10,039			212			6,707			(738		)	16,220
Total revenues	661,738			453,545			51,175			(450,012		)	716,446
OPERATING EXPENSES:
Selling, general and administrative	120,804			98,125			16,155			(125,569		)	109,515
Depreciation and amortization	1,314			5,596			1,797			—			8,707
Marketing and reservation system	394,059			330,959			11,618			(324,443		)	412,193
Total operating expenses	516,177			434,680			29,570			(450,012		)	530,415
Gain on sale of assets, net	—			—			402			—			402
Operating income	145,561			18,865			22,007			—			186,433
OTHER INCOME AND EXPENSES, NET:
Interest expense	33,036			1			429			—			33,466
Other items, net	(1,082		)	(319		)	(1,820		)	—			(3,221		)
Equity in earnings of consolidated subsidiaries	(36,053		)	409			—			35,644			—
Total other income and expenses, net	(4,099		)	91			(1,391		)	35,644			30,245
Income before income taxes	149,660			18,774			23,398			(35,644		)	156,188
Income taxes	42,110			6,366			162			—			48,638
Net income	$	107,550		$	12,408		$	23,236		$	(35,644	)	$	107,550

Condensed Consolidating Statement of Comprehensive Income

	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	47,595	$	10,130	$	9,726	$	(19,856	)	$	47,595
Other comprehensive income, net of tax:
Amortization of loss on cash flow hedge	215		—		—		—			215
Foreign currency translation adjustment	851		—		851		(851		)	851
Other comprehensive income, net of tax	1,066		—		851		(851		)	1,066
Comprehensive income	$	48,661	$	10,130	$	10,577	$	(20,707	)	$	48,661

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

For the Three Months Ended September 30, 2016

(Unaudited, in thousands)

	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	47,565	$	3,356	$	10,358	$	(13,714	)	$	47,565
Other comprehensive income, net of tax:
Amortization of loss on cash flow hedge	215		—		—		—			215
Foreign currency translation adjustment	137		—		137		(137		)	137
Other comprehensive income, net of tax	352		—		137		(137		)	352
Comprehensive income	$	47,917	$	3,356	$	10,495	$	(13,851	)	$	47,917

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

For the Nine Months EndedSeptember 30, 2017

(Unaudited, in thousands)

	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	121,334	$	16,816	$	23,630	$	(40,446	)	$	121,334
Other comprehensive income, net of tax:
Amortization of loss on cash flow hedge	646		—		—		—			646
Foreign currency translation adjustment	2,842		—		2,842		(2,842		)	2,842
Other comprehensive income, net of tax	3,488		—		2,842		(2,842		)	3,488
Comprehensive income	$	124,822	$	16,816	$	26,472	$	(43,288	)	$	124,822

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

For the Nine Months EndedSeptember 30, 2016

(Unaudited, in thousands)

	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	107,550	$	12,408	$	23,236	$	(35,644	)	$	107,550
Other comprehensive income, net of tax:
Amortization of loss on cash flow hedge	646		—		—		—			646
Foreign currency translation adjustment	1,036		—		1,036		(1,036		)	1,036
Other comprehensive income, net of tax	1,682		—		1,036		(1,036		)	1,682
Comprehensive income	$	109,232	$	12,408	$	24,272	$	(36,680	)	$	109,232

Condensed Consolidating Balance Sheet

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

As of September 30, 2017

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	25,521		$	130	$	213,197	$	—		$	238,848
Receivables, net	138,257			1,891		12,014		(490		)	151,672
Other current assets	11,674			64,539		15,483		(26,893		)	64,803
Total current assets	175,452			66,560		240,694		(27,383		)	455,323
Property and equipment, at cost, net	48,003			18,840		16,768		—			83,611
Goodwill	65,813			—		14,706		—			80,519
Intangible assets, net	4,816			3,046		6,887		—			14,749
Notes receivable, net of allowances	22,121			54,881		62,801		—			139,803
Investments, employee benefit plans, at fair value	—			19,749		—		—			19,749
Investment in affiliates	490,505			49,428		—		(539,933		)	—
Advances to affiliates	10,114			103,322		—		(113,436		)	—
Deferred income taxes	—			16,419		—		(8,584		)	7,835
Other assets	189			117,432		41,982		—			159,603
Total assets	$	817,013		$	449,677	$	383,838	$	(689,336	)	$	961,192
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	20,956		$	43,764	$	4,031	$	(490	)	$	68,261
Accrued expenses and other current liabilities	21,434			35,657		9,424		—			66,515
Deferred revenue	12,749			122,303		1,930		(26		)	136,956
Other current liabilities	26,867			—		1,302		(26,867		)	1,302
Total current liabilities	82,006			201,724		16,687		(27,383		)	273,034
Long-term debt	787,764			3,712		8,525		—			800,001
Deferred compensation and retirement plan obligations	—			24,342		13		—			24,355
Advances from affiliates	111,052			1,414		970		(113,436		)	—
Other liabilities	36,571			14,079		22,116		(8,584		)	64,182
Total liabilities	1,017,393			245,271		48,311		(149,403		)	1,161,572
Total shareholders’ (deficit) equity	(200,380		)	204,406		335,527		(539,933		)	(200,380		)
Total liabilities and shareholders’ deficit	$	817,013		$	449,677	$	383,838	$	(689,336	)	$	961,192

Choice Hotels International, Inc. and Subsidiaries

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
Intangible assets, 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
Investment 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 and 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

Condensed Consolidating Statement Of Cash Flows

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

For the Nine Months EndedSeptember 30, 2017

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	101,749		$	44,489		$	19,438		$	(657	)	$	165,019
Cash Flows From Investing Activities
Investment in property and equipment	(14,336		)	(2,908		)	(270		)	—			(17,514		)
Investment in intangible assets	(1,647		)	(729		)	—			—			(2,376		)
Contributions to equity method investments	—			(44,819		)	(57		)	—			(44,876		)
Distributions from equity method investments	—			2,136			2,171			—			4,307
Purchases of investments, employee benefit plans	—			(2,140		)	—			—			(2,140		)
Proceeds from sales of investments, employee benefit plans	—			2,150			—			—			2,150
Issuance of mezzanine and other notes receivable	(9,032		)	—			(9,533		)	—			(18,565		)
Collections of mezzanine and other notes receivable	630			—			—			—			630
Advances to and investment in affiliates	—			(574		)	—			574			—
Divestment in affiliates	—			2,253			—			(2,253		)	—
Other items, net	—			113			(4		)	—			109
Net cash used by investing activities	(24,385		)	(44,518		)	(7,693		)	(1,679		)	(78,275		)
Cash Flows from Financing Activities
Net (repayments) borrowings pursuant to revolving credit facilities	(40,000		)	—			26			—			(39,974		)
Principal payments on long-term debt	—			—			(484		)	—			(484		)
Proceeds from transfer of interest in notes receivable	9,032			—			15,205			—			24,237
Purchases of treasury stock	(8,887		)	—			—			—			(8,887		)
Dividends paid	(36,483		)	—			(657		)	657			(36,483		)
Proceeds from contributions from affiliates	—			—			574			(574		)	—
Distributions to affiliates	—			—			(2,253		)	2,253			—
Proceeds from exercise of stock options	9,799			—			—			—			9,799
Net cash provided (used) by financing activities	(66,539		)	—			12,411			2,336			(51,792		)
Net change in cash and cash equivalents	10,825			(29		)	24,156			—			34,952
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			1,433			—			1,433
Cash and cash equivalents at beginning of period	14,696			159			187,608			—			202,463
Cash and cash equivalents at end of period	$	25,521		$	130		$	213,197		$	—		$	238,848

Choice Hotels International, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

For the Nine Months EndedSeptember 30, 2016

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	21,358		$	43,956		$	23,752		$	(657	)	$	88,409
Cash Flows From Investing Activities
Investment in property and equipment	(12,579		)	(4,749		)	(256		)	—			(17,584		)
Investment in intangible assets	(482		)	—			—			—			(482		)
Proceeds from sales of assets	—			—			8,360			—			8,360
Acquisitions of real estate	—			—			(25,263		)	—			(25,263		)
Business acquisition, net of cash acquired	—			—			(1,341		)	—			(1,341		)
Contributions to equity method investments	—			(24,128		)	(51		)	—			(24,179		)
Distributions from equity method investments	—			—			3,700			—			3,700
Purchases of investments, employee benefit plans	—			(1,430		)	—			—			(1,430		)
Proceeds from sales of investments, employee benefit plans	—			1,395			—			—			1,395
Issuance of mezzanine and other notes receivable	(5,306		)	—			(14,975		)	—			(20,281		)
Collections of mezzanine and other notes receivable	11,040			—			—			—			11,040
Advances to and investment in affiliates	—			(25,902		)	—			25,902			—
Divestment in affiliates	—			11,858			—			(11,858		)	—
Other items, net	100			—			(40		)	—			60
Net cash used by investing activities	(7,227		)	(42,956		)	(29,866		)	14,044			(66,005		)
Cash Flows from Financing Activities
Net borrowings pursuant to revolving credit facilities	53,000			—			(186		)	—			52,814
Debt issuance costs	(284		)	—			—			—			(284		)
Principal payments on long-term debt	—			(430		)	(406		)	—			(836		)
Proceeds from contributions from affiliates	—			—			25,902			(25,902		)	—
Purchases of treasury stock	(33,958		)	—			—			—			(33,958		)
Dividends paid	(34,690		)	—			(657		)	657			(34,690		)
Distributions to affiliates	—			—			(11,858		)	11,858			—
Proceeds from exercise of stock options	6,802			—			—			—			6,802
Net cash provided (used) by financing activities	(9,130		)	(430		)	12,795			(13,387		)	(10,152		)
Net change in cash and cash equivalents	5,001			570			6,681			—			12,252
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			260			—			260
Cash and cash equivalents at beginning of period	13,529			19			179,893			—			193,441
Cash and cash equivalents at end of period	$	18,530		$	589		$	186,834		$	—		$	205,953