SILVER SPRING, Md., July 28 /PRNewswire-FirstCall/ -- Choice Hotels International, Inc., today reported the following highlights for second quarter 2008:
-- Adjusted diluted earnings per share ("EPS") for second quarter 2008 were $0.49, a 14% increase compared to $0.43 in the same period of the prior year. Diluted EPS were $0.43 for second quarter 2008 compared to $0.43 for second quarter 2007. Adjusted diluted EPS for second quarter 2008 excludes a $3.8 million after-tax charge (approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan.
-- Adjusted earnings before interest, taxes and depreciation ("Adjusted EBITDA") increased 7% to $52.8 million for second quarter 2008, compared to $49.5 million for second quarter 2007. Operating income for second quarter 2008 was $44.6 million compared to $47.4 million for second quarter 2007. Adjusted EBITDA for second quarter 2008 excludes a $6.1 million charge resulting from the acceleration of the Company's management succession plan discussed above.
-- Domestic unit growth increased 6.2 percent from June 30, 2007.
-- Domestic system-wide revenue per available room (RevPAR) increased 0.7% for second quarter 2008 compared to the same period of the prior year.
-- The effective royalty rate increased 6 basis points to 4.20% for the three months ended June 30, 2008 compared to 4.14% for the same period of the prior year.
-- Franchising revenues increased 8% and total revenues increased 7% for second quarter 2008 compared to the same period in 2007. Year to date franchising revenues and total revenues increased 10% and 9%, respectively compared to the same period of 2007.
-- Executed 198 new domestic hotel franchise contracts during the second quarter of 2008, an increase of 13% compared to 176 for second quarter 2007. Overall, year to date, new domestic hotel franchise contracts executed increased 15% to 331 compared to 287 in the same period of the prior year.
-- The number of domestic hotels under construction, awaiting conversion or approved for development increased 16% to 992 hotels representing 80,292 rooms; the worldwide pipeline increased 16% to 1,096 hotels representing 89,116 rooms.
"The continued appeal of Choice's brands to the development community manifested itself in the second quarter as the company achieved strong domestic unit growth and franchise sales results," said Stephen P. Joyce, president and chief executive officer. "While the near term domestic RevPAR environment is challenging, we believe that Choice's franchise business model, strong brands and strong balance sheet position us well for continued success. I am excited about the opportunities to grow our brands both domestically and internationally and to deploy our capital in ways that create value for our shareholders."
Outlook for 2008
The company's third quarter 2008 diluted EPS is expected to be $0.55. The company expects full year 2008 adjusted diluted EPS of $1.79. Adjusted diluted earnings before interest, taxes, depreciation and amortization ("EBITDA") for full-year 2008 are expected to be approximately $196.5 million. These estimates include the following assumptions:
-- The company expects net domestic unit growth of approximately 5.5% in 2008;
-- RevPAR is expected to decline approximately 4.0% for third quarter 2008 and decline approximately 1.5% for full-year 2008;
-- The effective royalty rate is expected to increase 5 basis points for full-year 2008;
-- All figures assume the existing share count and an effective tax rate of 36.5% for third quarter 2008 and 36.5% for full year 2008;
-- All figures exclude a $6.1 million charge ($3.8 million after-tax and approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan.
Use of Free Cash Flow
The company has consistently used its free cash flow (cash flow from operations less capital expenditures) generated from its operations to return value to shareholders, primarily through share repurchases and dividends.
For the six months ended June 30, 2008, the company paid $21 million of cash dividends to shareholders. The annual dividend rate per common share is $0.68.
The company has authorization to purchase up to an additional 3.2 million shares under the share repurchase program. Repurchases will continue to be made in the open market and through privately negotiated transactions subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 38.6 million shares of its common stock for a total cost of $895.9 million through July 25, 2008. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 71.5 million shares under the share repurchase program at an average price of $12.52 per share.
Our Board has authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees to incent multi-unit franchise development in top markets. We expect to opportunistically deploy this capital over the next several years. Our current expectation is that our annual investment in these programs would range from $20 to $40 million beginning in 2009 (2008 investment in these programs is not expected to be significant), depending on market and other conditions. In addition to these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, also subject to market and other conditions.
Conference Call
Choice will conduct a conference call on Tuesday, July 29, 2008 at 9:30 a.m. EDT to discuss the company's second quarter results. The dial-in number to listen to the call is 1-800-230-1074. International callers should dial 612-234-9960. The conference call also will be Webcast simultaneously via the company's Web site, http://www.choicehotels.com/. Interested investors and other parties wishing to access the call on the Web should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.
The audio of the call will be archived and available on http://www.choicehotels.com/ beginning at 10:30 a.m. EDT on July 29 and will be available through August 29, 2008 by calling 1-800-475-6701 and entering access code 929522. The international dial-in for the replay is 320-365-3844, access code 929522. In addition, the call will be archived and available on choicehotels.com via the Investor Info link until August 29, 2008.
About Choice Hotels
Choice Hotels International franchises more than 5,700 hotels, representing more than 460,000 rooms, in the United States and 40 countries and territories. As of June 30, 2008, 992 hotels are under construction, awaiting conversion or approved for development in the United States, representing 80,292 rooms, and an additional 104 hotels, representing 8,824 rooms, are under construction, awaiting conversion or approved for development in more than 20 countries and territories. The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide.
Additional corporate information may be found on the Choice Hotels Web site, which may be accessed at http://www.choicehotels.com/.
Forward-Looking Statements
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the federal securities law. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan," project," "assume" or similar words of futurity identify statements that are forward-looking and that we intend to be included within the Safe Harbor protections provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements may relate to projections for the company's revenue, earnings and other financial and operational measures, company debt levels, payment of stock dividends, and future operations. We caution you not to place undue reliance on any forward-looking statements, which are made as of the date of this press release. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.
Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions; operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on February 29, 2008. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Statement Concerning Non-GAAP Financial Measurements
Adjusted diluted earnings per share, adjusted EBITDA, franchising revenues and adjusted franchising margins are non-GAAP financial measurements. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States (GAAP), such as diluted earnings per share, operating income, total revenues and operating margins. The company's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement. We discuss management's reasons for reporting these non-GAAP measures below.
Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Our management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is a commonly used measure of performance in our industry. In addition, it is used by analysts, lenders, investors and others, as well as by us, to facilitate comparisons between the Company and its competitors because it excludes certain items that can vary widely across different industries or among companies within the same industry.
Franchising Revenues and Margins: The Company reports franchising revenues and margins which exclude marketing and reservations revenues and hotel operations. Marketing and reservation activities are excluded from revenues and operating margins since the Company is contractually required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing fees not expended are recorded as a payable on the Company's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements. In addition, the Company has the contractual authority to require that the franchisees in the system at any given point repay the Company for any deficits related to marketing and reservation activities. Hotel operations are excluded since they do not reflect the most accurate measure of the Company's core franchising business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the Company and its competitors.
Adjusted EBITDA, Adjusted Franchising Margins and Adjusted Diluted EPS: The Company's management also uses Adjusted EBITDA, Adjusted Franchising Margins and Adjusted Diluted EPS which exclude the impact of the acceleration of the Company's management succession plan in the second quarter of 2008 and the impact of termination benefits incurred related to the separation of certain executive officers in the six months ended June 30, 2007. The Company utilizes these non-GAAP measures to enable investors to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of on-going operations.
Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, and Rodeway Inn are proprietary trademarks and service marks of Choice Hotels International, Inc.
(c) 2008 Choice Hotels International, Inc. All rights reserved. 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
