Choice Hotels International, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30,
Variance
2008 2007
$ %
(In thousands, except per share
amounts)
REVENUES:
Royalty fees
$63,776 $59,176 $4,600
8%
Initial franchise and relicensing
fees
8,146 7,649
497 6%
Brand solutions
6,472 5,995
477 8%
Marketing and reservation
85,336 80,592 4,744
6%
Hotel operations
1,288 1,193
95 8%
Other
2,102 1,886
216 11%
Total revenues
167,120 156,491 10,629
7%
OPERATING EXPENSES:
Selling, general and administrative
34,275 25,605 8,670
34%
Depreciation and amortization
2,070 2,137
(67) (3%)
Marketing and reservation
85,336 80,592 4,744
6%
Hotel operations
861 794
67 8%
Total operating expenses
122,542 109,128 13,414
12%
Operating income
44,578 47,363 (2,785) (6%)
OTHER INCOME AND EXPENSES, NET:
Interest expense
2,693 3,217 (524)
(16%)
Interest and other investment
(income) loss
(141) (1,721) 1,580 (92%)
Equity in net income of affiliates
(201) (181) (20)
11%
Total other income and expenses,
net 2,351 1,315 1,036
79%
Income before income taxes
42,227 46,048 (3,821) (8%)
Income taxes
15,219 17,403 (2,184) (13%)
Net income
$27,008 $28,645 $(1,637) (6%)
Weighted average shares outstanding-
basic
62,181 65,475
Weighted average shares outstanding-
diluted
62,863 66,599
Basic earnings per share
$0.43 $0.44 $(0.01)
(2%)
Diluted earnings per share
$0.43 $0.43 $-
0%
Six Months Ended June 30,
Variance
2008 2007 $
%
(In thousands, except per share
amounts)
REVENUES:
Royalty fees
$111,556 $102,504 $9,052 9%
Initial franchise and relicensing fees
14,190 12,580 1,610 13%
Brand solutions
9,814 8,981 833
9%
Marketing and reservation
153,762 141,379 12,383 9%
Hotel operations
2,330 2,289 41
2%
Other
4,323 3,687 636
17%
Total revenues
295,975 271,420 24,555 9%
OPERATING EXPENSES:
Selling, general and administrative
57,830 49,505 8,325 17%
Depreciation and amortization
4,127 4,252 (125)
(3%)
Marketing and reservation
153,762 141,379 12,383 9%
Hotel operations
1,626 1,535 91
6%
Total operating expenses
217,345 196,671 20,674 11%
Operating income
78,630 74,749 3,881
5%
OTHER INCOME AND EXPENSES, NET:
Interest expense
6,530 6,214 316
5%
Interest and other investment (income)
loss
927 (2,322) 3,249 (140%)
Equity in net income of affiliates
(502) (375) (127) 34%
Total other income and expenses,
net 6,955 3,517 3,438
98%
Income before income taxes
71,675 71,232 443
1%
Income taxes
26,090 26,272 (182) (1%)
Net income
$45,585 $44,960 $625
1%
Weighted average shares outstanding-
basic
61,966 65,627
Weighted average shares outstanding-
diluted
62,733 66,823
Basic earnings per share
$0.74 $0.69 $0.05
7%
Diluted earnings per share
$0.73 $0.67 $0.06
9%
Choice Hotels International, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, December 31,
2008
2007
(Unaudited)
ASSETS
Cash and cash equivalents
$56,545 $46,377
Accounts receivable, net
45,776
40,855
Deferred income taxes
1,982
2,387
Investments, employee benefit plans,
at fair value
8,952
1,002
Other current assets
15,856
15,330
Total current assets
129,111 105,951
Fixed assets and intangibles, net
140,556 141,679
Receivable -- marketing fees
18,389
6,782
Investments, employee benefit plans,
at fair value
24,321
33,488
Other assets
36,378
40,484
Total assets
348,755 328,384
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses
$78,078 $96,195
Deferred revenue
52,796
48,660
Other current liabilities
14,230
2,661
Total current liabilities
145,104 147,516
Long-term debt
264,300 272,378
Deferred compensation & retirement
plan obligations
36,569
43,132
Other liabilities
17,982
22,419
Total liabilities
463,955 485,445
Common stock, $0.01 par value
628
621
Additional paid-in-capital
85,950
86,243
Accumulated other comprehensive income
1,248
346
Treasury stock, at cost
(781,311) (798,110)
Retained earnings
578,285 553,839
Total shareholders' deficit
(115,200) (157,061)
Total liabilities and shareholders'
deficit
$348,755 $328,384
Choice Hotels International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June 30,
2008
2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$45,585 $44,960
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization
4,127
4,252
Provision for bad debts
271
(528)
Non-cash stock compensation and other
charges 7,795
6,891
Non-cash interest and other (income)
loss 1,716
(1,598)
Dividends received from equity method
investees
438
295
Equity in net income of affiliates
(502)
(375)
Changes in assets and liabilities,
net of acquisitions:
Receivables
(5,107) (3,654)
Receivable - marketing and
reservation fees, net
(14,209)
1,731
Accounts payable
(8,558)
(277)
Accrued expenses
(9,685) (12,678)
Income taxes payable/receivable
5,317
12,580
Deferred income taxes
2,518
(4,680)
Deferred revenue
4,136
1,817
Other assets
285 (1,278)
Other liabilities
3,772
9,688
NET CASH PROVIDED BY OPERATING ACTIVITIES
37,899
57,146
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment
(5,460) (5,786)
Acquisitions, net of cash acquired
-
(343)
Purchases of investments, employee
benefit plans
(6,068) (5,701)
Proceeds from sales of investments,
employee benefit plans
5,678
1,551
Issuance of notes receivable
(1,684) (3,255)
Collections of notes receivable
257
469
Other items, net
(52)
(359)
NET CASH USED IN INVESTING ACTIVITIES
(7,329) (13,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
(100,000)
(422)
Net borrowings pursuant to revolving
credit facility
91,900
27,000
Excess tax benefits from stock-based
compensation
4,303
3,765
Purchase of treasury stock
(1,506) (47,341)
Dividends paid
(21,013) (19,751)
Proceeds from exercise of stock
options
5,914
4,516
NET CASH USED IN FINANCING ACTIVITIES
(20,402) (32,233)
Net change in cash and cash equivalents
10,168
11,489
Cash and cash equivalents at
beginning of period
46,377
35,841
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$56,545 $47,330
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL OPERATING INFORMATION
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Six Months Ended June 30, 2008*
Average Daily
Rate Occupancy RevPAR
Comfort Inn
$76.67 56.4%
$43.22
Comfort Suites
88.35 59.3%
52.41
Sleep
70.33 56.4%
39.66
Midscale without Food & Beverage
78.41 57.0%
44.71
Quality
68.85 48.7%
33.56
Clarion
82.06 47.0%
38.58
Midscale with Food & Beverage
71.73 48.4%
34.69
Econo Lodge
52.63 43.1%
22.66
Rodeway
51.40 44.6%
22.93
Economy
52.31 43.4%
22.72
MainStay
71.77 62.7%
44.99
Suburban
42.19 63.5%
26.81
Extended Stay
49.77 63.3%
31.52
Total Domestic System
$71.63 52.2%
$37.36
For the Six Months Ended June 30, 2007*
Average Daily
Rate Occupancy RevPAR
Comfort Inn
$73.42 57.6%
$42.29
Comfort Suites
85.64 62.4%
53.45
Sleep
67.32 58.7%
39.55
Midscale without Food & Beverage
75.19 58.8%
44.18
Quality
66.62 49.6%
33.03
Clarion
77.42 47.2%
36.57
Midscale with Food & Beverage
69.18 49.0%
33.90
Econo Lodge
51.36 43.9%
22.52
Rodeway
49.87 42.6%
21.23
Economy
51.04 43.6%
22.24
MainStay
67.91 64.0%
43.47
Suburban
39.58 67.2%
26.59
Extended Stay
45.47 66.5%
30.23
Total Domestic System
$68.89 53.5%
$36.83
Change
Average Daily
Rate Occupancy
RevPAR
Comfort Inn
4.4% (120)bps
2.2%
Comfort Suites
3.2% (310)bps
(1.9%)
Sleep
4.5% (230)bps
0.3%
Midscale without Food & Beverage
4.3% (180)bps
1.2%
Quality
3.3% (90)bps
1.6%
Clarion
6.0% (20)bps
5.5%
Midscale with Food & Beverage
3.7% (60)bps
2.3%
Econo Lodge
2.5% (80)bps
0.6%
Rodeway
3.1% 200 bps
8.0%
Economy
2.5% (20)bps
2.2%
MainStay
5.7% (130)bps
3.5%
Suburban
6.6% (370)bps
0.8%
Extended Stay
9.5% (320)bps
4.3%
Total Domestic System
4.0% (130)bps
1.4%
* Operating statistics represent hotel operations
from December through
May
For the Three Months Ended June 30, 2008*
Average Daily
Rate Occupancy RevPAR
Comfort Inn
$79.05 62.1%
$49.11
Comfort Suites
90.19 64.4%
58.12
Sleep
72.44 62.5%
45.26
Midscale without Food & Beverage
80.61 62.7%
50.53
Quality
70.79 54.0%
38.22
Clarion
83.88 52.7%
44.16
Midscale with Food & Beverage
73.64 53.7%
39.54
Econo Lodge
53.96 47.5%
25.63
Rodeway
52.83 47.9%
25.30
Economy
53.67 47.6%
25.55
MainStay
74.00 66.9%
49.50
Suburban
43.15 67.6%
29.16
Extended Stay
51.15 67.4%
34.47
Total Domestic System
$73.57 57.4%
$42.22
For the Three Months Ended June 30, 2007*
Average Daily
Rate Occupancy RevPAR
Comfort Inn
$75.62 63.9%
$48.29
Comfort Suites
87.54 67.8%
59.36
Sleep
69.74 65.4%
45.63
Midscale without Food & Beverage
77.32 64.9%
50.18
Quality
68.96 55.4%
38.19
Clarion
80.13 53.1%
42.51
Midscale with Food & Beverage
71.58 54.8%
39.24
Econo Lodge
52.85 48.4%
25.55
Rodeway
51.47 46.1%
23.71
Economy
52.56 47.8%
25.14
MainStay
69.53 69.7%
48.43
Suburban
40.39 70.7%
28.56
Extended Stay
46.65 70.5%
32.88
Total Domestic System
$70.98 59.1%
$41.92
Change
Average Daily
Rate Occupancy
RevPAR
Comfort Inn
4.5% (180)bps
1.7%
Comfort Suites
3.0% (340)bps
(2.1%)
Sleep
3.9% (290)bps
(0.8%)
Midscale without Food & Beverage
4.3% (220)bps
0.7%
Quality
2.7% (140)bps
0.1%
Clarion
4.7% (40)bps
3.9%
Midscale with Food & Beverage
2.9% (110)bps
0.8%
Econo Lodge
2.1% (90)bps
0.3%
Rodeway
2.6% 180 bps
6.7%
Economy
2.1% (20)bps
1.6%
MainStay
6.4% (280)bps
2.2%
Suburban
6.8% (310)bps
2.1%
Extended Stay
9.6% (310)bps
4.8%
Total Domestic System
3.6% (170)bps
0.7%
* Operating statistics represent hotel operations
from March through
May
For the Quarter Ended For the Six Months Ended
06/30/2008 06/30/2007 06/30/2008 06/30/2007
System-wide effective
royalty rate
4.20% 4.14%
4.20% 4.14%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
(UNAUDITED)
June 30, 2008 June 30, 2007
Hotels Rooms Hotels Rooms
Comfort Inn
1,449 113,230 1,424 111,230
Comfort Suites
504 39,155 453
35,494
Sleep
353 26,179 340
25,338
Midscale without Food & Beverage
2,306 178,564 2,217 172,062
Quality
868 82,120 783
75,840
Clarion
170 23,099 161
23,378
Midscale with Food & Beverage
1,038 105,219 944
99,218
Econo Lodge
834 51,947 819
49,882
Rodeway
319 18,761 256
15,412
Economy
1,153 70,708 1,075 65,294
MainStay
32 2,448 29
2,166
Suburban
57 6,930 60
7,853
Extended Stay
89 9,378 89
10,019
Cambria Suites
7 766
1 119
Domestic Franchises
4,593 364,635 4,326 346,712
International Franchises
1,115 99,030 1,148 99,114
Total Franchises
5,708 463,665 5,474 445,826
Variance
Hotels Rooms %
%
Comfort Inn
25 2,000 1.8%
1.8%
Comfort Suites
51 3,661 11.3% 10.3%
Sleep
13 841 3.8%
3.3%
Midscale without Food & Beverage
89 6,502 4.0%
3.8%
Quality
85 6,280 10.9%
8.3%
Clarion
9 (279) 5.6%
(1.2%)
Midscale with Food & Beverage
94 6,001 10.0%
6.0%
Econo Lodge
15 2,065 1.8%
4.1%
Rodeway
63 3,349 24.6% 21.7%
Economy
78 5,414 7.3%
8.3%
MainStay
3 282 10.3%
13.0%
Suburban
(3) (923) (5.0%) (11.8%)
Extended Stay
- (641) 0.0%
(6.4%)
Cambria Suites
6 647 600.0% 543.7%
Domestic Franchises
267 17,923 6.2%
5.2%
International Franchises
(33) (84) (2.9%) (0.1%)
Total Franchises
234 17,839 4.3%
4.0%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION BY BRAND
DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS
(UNAUDITED)
For the Six Months For the Six Months
Ended June 30, Ended June 30,
% Change
2008
2007
New
New
New
Con-
Con
Con-
struc- Conver- struc- Conver- struc-
Conver-
tion sion Total tion sion Total tion sion
Total
Comfort Inn
22 27 49 16
20 36 38% 35%
36%
Comfort Suites
42 3 45 40
3 43 5%
0% 5%
Sleep
32 2 34 16
1 17 100% 100% 100%
Midscale without
Food & Beverage
96 32 128 72
24 96 33% 33%
33%
Quality
2 75 77 5
63 68 (60%) 19% 13%
Clarion
5 21 26 4
21 25 25% 0%
4%
Midscale with
Food & Beverage
7 96 103 9
84 93 (22%) 14% 11%
Econo Lodge
1 39 40 2
28 30 (50%) 39% 33%
Rodeway
2 48 50 -
39 39 NM 23%
28%
Economy
3 87 90 2
67 69 50% 30%
30%
MainStay
1 - 1
4 1 5 (75%)
(100%) (80%)
Suburban
4 - 4
7 2 9 (43%)
(100%) (56%)
Extended Stay
5 - 5
11 3 14 (55%) (100%)
(64%)
Cambria Suites
5 - 5
15 - 15 (67%)
NM (67%)
Total Domestic
System
116 215 331 109 178
287 6% 21% 15%
For the Three For the Three
Months Ended June Months Ended June % Change
30, 2008 30,
2007
New
New
New
Con-
Con
Con-
struc- Conver- struc- Conver- struc-
Conver-
tion sion Total tion sion Total tion sion
Total
Comfort Inn
11 18 29 11
17 28 0%
6% 4%
Comfort Suites
27 - 27 26
2 28 4% (100%) (4%)
Sleep
21 - 21
8 1 9 163%
(100%) 133%
Midscale without
Food & Beverage
59 18 77 45
20 65 31% (10%) 18%
Quality
2 47 49 4
28 32 (50%) 68% 53%
Clarion
4 11 15 2
15 17 100% (27%) (12%)
Midscale with
Food & Beverage
6 58 64 6
43 49 0% 35%
31%
Econo Lodge
- 20 20 1
15 16 (100%) 33% 25%
Rodeway
1 30 31 -
28 28 NM
7% 11%
Economy
1 50 51 1
43 44 0% 16%
16%
MainStay
- - -
4 1 5 (100%) (100%)(100%)
Suburban
2 - 2
3 1 4 (33%)
(100%) (50%)
Extended Stay
2 - 2
7 2 9 (71%)
(100%) (78%)
Cambria Suites
4 - 4
9 - 9 (56%)
NM (56%)
Total Domestic
System
72 126 198 68 108
176 6% 17% 13%
CHOICE HOTELS INTERNATIONAL, INC.
DOMESTIC HOTEL PIPELINE
OF HOTELS UNDER CONSTRUCTION, AWAITING
CONVERSION OR APPROVED FOR DEVELOPMENT
(UNAUDITED)
A hotel in the domestic pipeline does not always
result in an open and
operating hotel due to various factors.
June 30, 2008 June 30, 2007
Units
Units
New
New
Conver- Constr- Conver- Constr
sion uction Total sion uction Total
Comfort Inn
50 128 178 42
121 163
Comfort Suites
3 280 283 3
240 243
Sleep Inn
2 149 151 -
108 108
Midscale without Food
& Beverage
55 557 612 45
469 514
Quality
81 16 97
68 11 79
Clarion
36 9 45
23 7 30
Midscale with Food & Beverage
117 25 142
91 18 109
Econo Lodge
43 3 46
44 4 48
Rodeway
54 3 57
61 1 62
Economy
97 6 103 105
5 110
MainStay
2 35 37
1 33 34
Suburban
1 36 37
5 30 35
Extended Stay
3 71 74
6 63 69
Cambria Suites
- 61 61
- 56 56
272 720 992 247
611 858
Variance
New
Conversion Construction Total
Units % Units %
Units %
Comfort Inn
8 19% 7
6% 15 9%
Comfort Suites
- 0% 40 17%
40 16%
Sleep Inn
2 NM 41 38%
43 40%
Midscale without Food
& Beverage
10 22% 88 19%
98 19%
Quality
13 19% 5 45%
18 23%
Clarion
13 57% 2 29%
15 50%
Midscale with Food & Beverage
26 29% 7 39%
33 30%
Econo Lodge
(1) (2%) (1) (25%) (2)
(4%)
Rodeway
(7) (11%) 2 200%
(5) (8%)
Economy
(8) (8%) 1 20%
(7) (6%)
MainStay
1 100% 2 6%
3 9%
Suburban
(4) (80%) 6 20%
2 6%
Extended Stay
(3) (50%) 8 13%
5 7%
Cambria Suites
- NM 5
9% 5 9%
25 10% 109 18%
134 16%
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
CALCULATION OF FRANCHISING REVENUES AND ADJUSTED
FRANCHISING MARGINS
Three Months Ended Six Months Ended
(dollar amounts in thousands)
June 30,
June 30,
2008 2007 2008
2007
Franchising Revenues:
Total Revenues
$167,120 $156,491 $295,975 $271,420
Adjustments:
Marketing and reservation
revenues
(85,336) (80,592) (153,762) (141,379)
Hotel Operations
(1,288) (1,193) (2,330) (2,289)
Franchising Revenues
$80,496 $74,706 $139,883 $127,752
Franchising Margins:
Operating Margin:
Total Revenues
$167,120 $156,491 $295,975 $271,420
Operating Income
$44,578 $47,363 $78,630 $74,749
Operating Margin
26.7% 30.3% 26.6%
27.5%
Adjusted Franchising Margins:
Franchising Revenues
$80,496 $74,706 $139,883 $127,752
Operating Income
$44,578 $47,363 $78,630 $74,749
Acceleration of management
succession plan benefits
6,069 -
6,069 -
Executive termination benefits
- -
- 3,690
Hotel Operations
(427) (399) (704)
(754)
$50,220 $46,964 $83,995 $77,685
Adjusted Franchising Margins
62.4% 62.9% 60.0%
60.8%
CALCULATION OF ADJUSTED NET INCOME AND ADJUSTED
DILUTED EARNINGS PER SHARE
(EPS)
(In thousands, except per share Three
Months Ended Six Months Ended
amounts)
June 30,
June 30,
2008 2007 2008
2007
Net Income
$27,008 $28,645 $45,585 $44,960
Adjustments:
Acceleration of management
succession plan
3,799 -
3,799 -
Executive termination benefits
- -
- 2,310
Adjusted Net Income
$30,807 $28,645 $49,384 $47,270
Weighted average shares
outstanding -- diluted
62,863 66,599 62,733
66,823
Diluted Earnings Per Share
$0.43 $0.43 $0.73
$0.67
Adjustments:
Acceleration of management
succession plan
0.06 -
0.06 -
Executive termination benefits
- -
- 0.04
Adjusted Diluted Earnings Per
Share (EPS)
$0.49 $0.43 $0.79
$0.71
Adjusted EBITDA Reconciliation
(in millions)
YTD YTD Full
Q2 2008 Q2 2007 2008 2007 Year
Actuals Actuals Actuals Actuals 2008
Operating Income (per GAAP)
$44.6 $47.4 $78.6 $74.7 $181.5
Acceleration of management
succession plan
6.1 - 6.1
- 6.1
Executive termination benefits
- -
- 3.7
-
Depreciation and amortization
2.1 2.1 4.1
4.3 8.9
Adjusted Earnings before interest,
taxes, depreciation &
amortization (non-GAAP)
$52.8 $49.5 $88.8 $82.7 $196.5
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