Condensed Consolidating Financial Statements (Tables)

9 Months Ended

Sep. 30, 2011

Condensed Consolidating Financial Statements

Condensed Consolidating Statement Of Income

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Three Months Ended September 30, 2011

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	69,968		$	20,112		$	8,746		$	(21,471	)	$	77,355
Initial franchise and relicensing fees	3,363			0			106			0			3,469
Procurement services	3,984			0			0			0			3,984
Marketing and reservation	91,827			89,219			4,803			(81,456		)	104,393
Other items, net	1,652			1,236			232			0			3,120
Total revenues	170,794			110,567			13,887			(102,927		)	192,321
OPERATING EXPENSES:
Selling, general and administrative	20,510			19,019			4,497			(21,471		)	22,555
Marketing and reservation	94,644			86,779			4,426			(81,456		)	104,393
Other items, net	703			2,044			226			0			2,973
Total operating expenses	115,857			107,842			9,149			(102,927		)	129,921
Operating income	54,937			2,725			4,738			0			62,400
OTHER INCOME AND EXPENSES, NET:
Interest expense	4,209			(984		)	3			0			3,228
Equity in earnings of consolidated subsidiaries	(5,186		)	0			0			5,186			0
Other items, net	(153		)	2,646			(287		)	0			2,206
Total other income and expenses, net	(1,130		)	1,662			(284		)	5,186			5,434
Income before income taxes	56,067			1,063			5,022			(5,186		)	56,966
Income taxes	13,765			533			366			0			14,664
Net income	$	42,302		$	530		$	4,656		$	(5,186	)	$	42,302

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Three Months Ended September 30, 2010

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	66,259		$	21,727		$	7,507		$	(22,928	)	$	72,565
Initial franchise and relicensing fees	1,970			0			0			0			1,970
Procurement services	3,756			0			0			0			3,756
Marketing and reservation	90,518			86,315			4,386			(78,352		)	102,867
Other items, net	1,568			1,069			6			0			2,643
Total revenues	164,071			109,111			11,899			(101,280		)	183,801
OPERATING EXPENSES:
Selling, general and administrative	23,243			19,622			3,219			(22,928		)	23,156
Marketing and reservation	95,355			82,306			3,558			(78,352		)	102,867
Other items, net	880			1,820			201			0			2,901
Total operating expenses	119,478			103,748			6,978			(101,280		)	128,924
Operating income	44,593			5,363			4,921			0			54,877
OTHER INCOME AND EXPENSES, NET:
Interest expense	2,134			(272		)	2			0			1,864
Equity in earnings of consolidated subsidiaries	(9,756		)	0			0			9,756			0
Other items, net	(147		)	(1,492		)	(374		)	0			(2,013		)
Total other income and expenses, net	(7,769		)	(1,764		)	(372		)	9,756			(149		)
Income before income taxes	52,362			7,127			5,293			(9,756		)	55,026
Income taxes	11,868			2,137			527			0			14,532
Net income	$	40,494		$	4,990		$	4,766		$	(9,756	)	$	40,494

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2011

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
REVENUES:
Royalty fees	$	163,639		$	73,930		$	24,619	$	(78,292	)	$	183,896
Initial franchise and relicensing fees	8,550			0			118		0			8,668
Procurement services	13,706			0			0		0			13,706
Marketing and reservation	220,512			245,302			13,292		(220,914		)	258,192
Other items, net	4,692			3,173			576		0			8,441
Total revenues	411,099			322,405			38,605		(299,206		)	472,903
OPERATING EXPENSES:
Selling, general and administrative	72,589			65,805			12,839		(78,292		)	72,941
Marketing and reservation	228,660			237,509			12,937		(220,914		)	258,192
Other items, net	2,117			5,787			665		0			8,569
Total operating expenses	303,366			309,101			26,441		(299,206		)	339,702
Operating income	107,733			13,304			12,164		0			133,201
OTHER INCOME AND EXPENSES, NET:
Interest expense	12,612			(2,900		)	7		0			9,719
Equity in earnings of consolidated subsidiaries	(19,056		)	0			0		19,056			0
Other items, net	(558		)	1,884			1,153		0			2,479
Total other income and expenses, net	(7,002		)	(1,016		)	1,160		19,056			12,198
Income before income taxes	114,735			14,320			11,004		(19,056		)	121,003
Income taxes	29,125			5,826			442		0			35,393
Net income	$	85,610		$	8,494		$	10,562	$	(19,056	)	$	85,610

Choice Hotels International, Inc.

Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2010

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Royalty fees	$	153,597		$	68,596		$	21,137		$	(72,301	)	$	171,029
Initial franchise and relicensing fees	6,537			0			0			0			6,537
Procurement services	13,612			0			0			0			13,612
Marketing and reservation	209,543			233,654			11,554			(212,655		)	242,096
Other items, net	4,606			3,045			145			0			7,796
Total revenues	387,895			305,295			32,836			(284,956		)	441,070
OPERATING EXPENSES:
Selling, general and administrative	68,450			61,119			10,528			(72,301		)	67,796
Marketing and reservation	219,945			224,359			10,447			(212,655		)	242,096
Other items, net	2,848			5,411			598			0			8,857
Total operating expenses	291,243			290,889			21,573			(284,956		)	318,749
Operating income	96,652			14,406			11,263			0			122,321
OTHER INCOME AND EXPENSES, NET:
Interest expense	3,597			(441		)	4			0			3,160
Equity earnings of consolidated subsidiaries	(20,718		)	0			0			20,718			0
Other items, net	(328		)	(1,043		)	(1,164		)	0			(2,535		)
Total other income and expenses, net	(17,449		)	(1,484		)	(1,160		)	20,718			625
Income before income taxes	114,101			15,890			12,423			(20,718		)	121,696
Income taxes	30,803			6,242			1,353			0			38,398
Net income	$	83,298		$	9,648		$	11,070		$	(20,718	)	$	83,298

Condensed Consolidating Balance Sheet

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of September 30, 2011

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	40,518		$	386	$	83,830	0			$	124,734
Receivables	53,976			1,805		6,228		0			62,009
Other current assets	5,598			15,169		4,018		(1,771		)	23,014
Total current assets	100,092			17,360		94,076		(1,771		)	209,757
Property and equipment, at cost, net	10,188			42,096		1,220		0			53,504
Goodwill	60,620			5,193		208		0			66,021
Franchise rights and other identifiable intangibles, net	11,488			3,488		2,937		0			17,913
Receivable – marketing and reservation fees	54,040			0		0		0			54,040
Investment in and advances to affiliates	278,794			213,423		4,992		(497,209		)	0
Investments, employee benefit plans, at fair value	0			22,017		0		0			22,017
Deferred income taxes	1,817			19,751		12		0			21,580
Other assets	10,230			7,528		5,331		0			23,089
Total assets	$	527,269		$	330,856	$	108,776	$	(498,980	)	$	467,921
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	11,639		$	28,616	$	4,274	$	0		$	44,529
Accrued expenses	14,886			20,744		1,455		0			37,085
Deferred revenue	20,317			55,406		920		0			76,643
Current portion of long-term debt	0			671		20		0			691
Income taxes payable	20,154			0		1,092		(1,117		)	20,129
Other current liabilities	0			3,374		0		(654		)	2,720
Total current liabilities	66,996			108,811		7,761		(1,771		)	181,797
Long-term debt	249,427			2,811		82		0			252,320
Deferred compensation & retirement plan obligations	0			33,812		6		0			33,818
Advances from affiliates	218,768			471		12,779		(232,018		)	0
Other liabilities	6,519			7,876		32		0			14,427
Total liabilities	541,710			153,781		20,660		(233,789		)	482,362
Total shareholders’ (deficit) equity	(14,441		)	177,075		88,116		(265,191		)	(14,441		)
Total liabilities and shareholders’ deficit	$	527,269		$	330,856	$	108,776	$	(498,980	)	$	467,921

Choice Hotels International, Inc.

Condensed Consolidating Balance Sheet

As of December 31, 2010

(In Thousands)

	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	4,849		$	18,659	$	67,751	$	0		$	91,259
Receivables	40,160			2,055		5,423		0			47,638
Other current assets	5,193			19,616		6,444		(6,568		)	24,685
Total current assets	50,202			40,330		79,618		(6,568		)	163,582
Property and equipment, at cost, net	11,586			42,678		1,398		0			55,662
Goodwill	60,620			5,193		228		0			66,041
Franchise rights and other identifiable intangibles, net	13,315			3,953		3,557		0			20,825
Receivable, marketing and reservation fees	42,507			0		0		0			42,507
Investments, employee benefit plans, at fair value	0			23,365		0		0			23,365
Investment in and advances to affiliates	251,245			186,045		7,338		(444,628		)	0
Deferred income taxes	4,560			19,745		130		0			24,435
Other assets	7,339			7,366		600		0			15,305
Total assets	$	441,374		$	328,675	$	92,869	$	(451,196	)	$	411,722
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	5,700		$	31,475	$	3,993	$	0		$	41,168
Accrued expenses	19,257			26,890		1,671		0			47,818
Deferred revenue	14,070			52,256		996		0			67,322
Current portion of long-term debt	0			403		17		0			420
Other current liabilities	0			3,206		0		(654		)	2,552
Revolving credit facility	200			0		0		0			200
Income taxes payable	9,395			0		2,297		(5,914		)	5,778
Total current liabilities	48,622			114,230		8,974		(6,568		)	165,258
Long-term debt	249,379			2,137		38		0			251,554
Deferred compensation & retirement plan obligations	0			35,707		0		0			35,707
Advances from affiliates	192,077			1,097		10,137		(203,311		)	0
Other liabilities	9,367			7,880		27		0			17,274
Total liabilities	499,445			161,051		19,176		(209,879		)	469,793
Total shareholders’ (deficit) equity	(58,071		)	167,624		73,693		(241,317		)	(58,071		)
Total liabilities and shareholders’ deficit	$	441,374		$	328,675	$	92,869	$	(451,196	)	$	411,722

Condensed Consolidating Statement Of Cash Flows

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months ended September 30, 2011

(Unaudited, in thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided (used) from operating activities	$	96,333		$	(10,502	)	$	20,062		$	0	$	105,893
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(2,460		)	(5,395		)	(274		)	0		(8,129		)
Equity method of investments	0			0			(3,600		)	0		(3,600		)
Issuance of notes receivable	(1,404		)	(2,916		)	0			0		(4,320		)
Collections of notes receivable	0			15			0			0		15
Purchases of investments, employee benefit plans	0			(1,051		)	0			0		(1,051		)
Proceeds from sales of investments, employee benefit plans	0			566			0			0		566
Other items, net	(289		)	(5		)	(18		)	0		(312		)
Net cash used in investing activities	(4,153		)	(8,786		)	(3,892		)	0		(16,831		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) pursuant to revolving credit facilities	(200		)	0			0			0		(200		)
Repayments of long-term debt	0			(55		)	(19		)	0		(74		)
Proceeds from the issuance of long-term debt	0			0			75			0		75
Purchase of treasury stock	(24,796		)	0			0			0		(24,796		)
Debt issuance costs	(2,356		)	0			0			0		(2,356		)
Excess tax benefits from stock-based compensation	38			1,070			0			0		1,108
Dividends paid	(32,923		)	0			0			0		(32,923		)
Proceeds from exercise of stock options	3,726			0			0			0		3,726
Net cash provided (used) in financing activities	(56,511		)	1,015			56			0		(55,440		)
Net change in cash and cash equivalents	35,669			(18,273		)	16,226			0		33,622
Effect of foreign exchange rate changes on cash and cash equivalents	0			0			(147		)	0		(147		)
Cash and cash equivalents at beginning of period	4,849			18,659			67,751			0		91,259
Cash and cash equivalents at end of period	$	40,518		$	386		$	83,830		$	0	$	124,734

Choice Hotels International, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2010

(Unaudited, in Thousands)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided from operating activities	$	79,156		$	17,001		$	12,082		$	0	$	108,239
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment	(1,409		)	(15,993		)	(271		)	0		(17,673		)
Acquisitions, net of cash acquired	0			0			(466		)	0		(466		)
Issuance of notes receivable	(7,906		)	(995		)	0			0		(8,901		)
Purchases of investments, employee benefit plans				(1,396		)	0			0		(1,396		)
Proceeds from sales of investments, employee benefit plans	0			1,018			0			0		1,018
Collections of notes receivable	5,000			55			0			0		5,055
Other items, net	(351		)	23			32			0		(296		)
Net cash used in investing activities	(4,666		)	(17,288		)	(705		)	0		(22,659		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments pursuant to revolving credit facility	(271,100		)	0			0			0		(271,100		)
Proceeds from the issuance of long-term debt	247,733			0			0			0		247,733
Principal payments of long-term debt	0			0			(20		)	0		(20		)
Settlement of forward starting interest rate swap agreement	(8,663		)	0			0			0		(8,663		)
Purchase of treasury stock	(11,171		)	0			0			0		(11,171		)
Dividends paid	(32,884		)	0			0			0		(32,884		)
Other items, net	512			336			0			0		848
Net cash provided (used) in financing activities	(75,573		)	336			(20		)	0		(75,257		)
Net change in cash and cash equivalents	(1,083		)	49			11,357			0		10,323
Effect of foreign exchange rate changes on cash and cash equivalents	0			0			1,355			0		1,355
Cash and cash equivalents at beginning of period	4,281			303			63,286			0		67,870
Cash and cash equivalents at end of period	$	3,198		$	352		$	75,998		$	0	$	79,548