Choice Hotels Results

Choice Hotels International Reports Flat Net Income for Third Quarter

Choice Hotels

Choice Hotels International, Inc. (NYSE: CHH)  today reported its results for the three months ended September 30, 2017. Net income for the 2017 third quarter was $47.6 million, or $0.84 per diluted share, compared to $47.6 million or $0.84 per diluted share for the 2016 third quarter. Third quarter adjusted diluted earnings per share (EPS) was $0.95, a 13 percent increase from the 2016 third quarter. Third quarter adjusted earnings before income taxes, depreciation and amortization (EBITDA) was $92.5 million, compared to $82.0 million in the prior-year third quarter, a 13 percent increase from the 2016 third quarter.

"Choice Hotels is uniquely positioned in the industry as a company at the intersection of hospitality, franchising and technology. Our strong brands, focus on the guest experience and franchisee profitability, and industry-leading technology solutions and tools continue to drive positive results," said Patrick Pacious, president and chief executive officer, Choice Hotels. "In the third quarter, our impressive performance was highlighted by a 13 percent increase in adjusted diluted earnings per share and a nearly 3 percent increase in our domestic unit growth."

Highlights of the company's third quarter 2017 results are as follows:

Overall Results

  • Adjusted diluted EPS for the third quarter was $0.95, a 13 percent increase from the third quarter of the prior year.

  • Adjusted EBITDA totaled $92.5 million for the third quarter, a 13 percent increase from the third quarter of the prior year.

  • Adjusted EBITDA from hotel franchising activities for the third quarter increased 9 percent from the third quarter of the prior year to $94.0 million. 

  • Total revenues and hotel franchising revenues for the third quarter both increased 10 percent from the third quarter of the prior year.

Royalties

  • Domestic royalty fees for the third quarter totaled $98.3 million, an 8.4 percent increase from the third quarter of the prior year.

  • Domestic system-wide revenue per available room (RevPAR) increased 2.1 percent for the third quarter compared to the third quarter of the prior year. Occupancy and average daily rates increased 70 basis points and 1.2 percent, respectively, in the third quarter compared to the same period of 2016. 

  • Effective royalty rate increased 19 basis points for the third quarter of 2017, compared to the third quarter of the prior year.

  • Domestic franchised hotels, as of September 30, 2017, increased 2.8 percent from September 30, 2016.

  • Quality Inn surpassed 1,500 open domestic hotels during the third quarter, and the number of domestic hotels under this brand increased over 7 percent from September 30, 2016.

  • Domestic and international rooms, as of September 30, 2017, increased 2.1 percent and 2.3 percent, respectively, from September 30, 2016. 

Development

  • New, executed domestic franchised hotel development contracts totaled 133 in the third quarter. Executed domestic franchised hotel development for the nine months ended September 30, 2017, totaled 415, a 10 percent increase from the same period of the prior year. 

  • The company executed 24 new domestic franchise agreements during the third quarter for its upscale brands, Cambria Hotels and the Ascend Hotel Collection, a 71 percent increase from the same period of the prior year. The domestic pipeline for the company's upscale brands now exceeds 135 hotels.

  • Domestic relicensing and contract renewal transactions totaled 121 for the three months ended September 30, 2017, a 6 percent increase from the same period of 2016.

  • The company's total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of September 30, 2017, increased 16 percent to 751 hotels from September 30, 2016. 

  • The new construction domestic pipeline totaled 530 hotels at September 30, 2017, a 26 percent increase from September 30, 2016.

Use of Cash Flows

Dividends

During the nine months ended September 30, 2017, the company paid cash dividends totaling approximately $36 million. Based on the current quarterly dividend rate of $0.215 per common share, the company expects to pay dividends of approximately $49 million during 2017.

Share Repurchases

During the nine months ended September 30, 2017, the company repurchased $9 million of common stock under its share repurchase program as well as repurchases from employees in connection with tax withholding and option exercises relating to awards under the company's equity incentive plans. The company currently has authorization to purchase up to 4.0 million additional shares under its share repurchase program.  

Hotel Development & Financing

Pursuant to its program to encourage acceleration of the growth of the upscale Cambria Hotels brand, the company advanced approximately $75 million in support of the brand's development during the nine months ended September 30, 2017. The company also recycled approximately $29 million of prior investments in Cambria Hotels development projects, resulting in net advances of $46 million for the current year. Advances under this program are primarily in the form of joint venture investments, forgivable key money loans, senior mortgage loans, development loans, mezzanine lending, and through the operation of a land-banking program. On September 30, 2017, the company had approximately $244 million reflected in its consolidated balance sheet pursuant to these financial support activities. With respect to lending and joint venture investments, the company generally expects to recycle these loans and investments within a five-year period.

Special Items

During the three and nine months ended September 30, 2017, the company accelerated certain compensation expenses totaling $12.0 million in conjunction with the company's chief executive officer succession plan. In addition, the company recognized an impairment on a below market lease intangible recorded in conjunction with the company's acquisition of an office building leased to a third-party in 2014. The impairment of this below market lease intangible resulted in a reduction to the company's selling, general and administrative expenses totaling $1.2 millionduring the three and nine months ended September 30, 2017. These special items impacted diluted EPS by $0.11 per share for the three and nine months ended September 30, 2017.

During the nine months ended September 30, 2016, the company recorded an executive termination benefit charge of approximately $2.2 million. This special item impacted diluted EPS by $0.02 per share for the nine months ended September 30, 2016. 

The company evaluates the non-GAAP measures presented herein that exclude executive termination benefits, impairment of below market lease costs and acceleration of the company's executive succession plan because those non-GAAP measures allow for period-over-period comparison of ongoing core operations before the impact of these charges. These non-GAAP measures, which are reconciled to the comparable GAAP measures in Exhibit 6, include adjusted net income, adjusted diluted EPS, adjusted hotel franchising selling, general and administrative expenses, adjusted EBITDA, adjusted hotel franchising EBITDA and adjusted hotel franchising margins.  

Outlook

The company's consolidated 2017 outlook reflects the following assumptions:

Consolidated Outlook

  • Adjusted EBITDA for full-year 2017 is expected to range between $294 million and $298 million. 
  • The company's fourth-quarter 2017 adjusted diluted EPS is expected to range between $0.60 and $0.62. 
  • The company expects full-year 2017 adjusted diluted EPS to range between $2.84 and $2.88. 
  • The effective tax rate is expected to be approximately 33 percent for the fourth quarter and 32 percent for full-year 2017. 
  • All estimates for 2017 exclude costs associated with the company's executive succession plan and impairment of lease acquisition costs. 
  • Adjusted diluted EPS estimates are based on the current number of shares outstanding, and thus do not factor in any changes that may occur due to new equity grants or any further repurchases of common stock under the company's share repurchase program. 
  • The adjusted diluted EPS and consolidated adjusted EBITDA estimates assume that the company incurs net reductions in adjusted EBITDA related to non-hotel franchising activities at the midpoint of the range for these investments.

Hotel Franchising 

  • Adjusted EBITDA from hotel franchising activities for full-year 2017 is expected to range between $301 million and $305 million. 
  • Net domestic unit growth for 2017 is expected to range between approximately 2.5 percent and 3 percent. 
  • RevPAR is expected to increase between 1 percent and 3 percent for the fourth quarter and range between 2 percent and 3 percent for full-year 2017. 
  • The effective royalty rate is expected to increase between 17 and 19 basis points for full-year 2017 as compared to full-year 2016.

Non-Hotel Franchising Activities

  • Net reductions in full-year 2017 adjusted EBITDA, relating to the company's non-hotel franchising operations are expected to be approximately $7 million. 

Adjusted Net Income and Adjusted Diluted Earnings Per Share: Adjusted net income and diluted EPS excludes the impact of executive termination benefits, impairment of lease acquisition costs and the acceleration of the company's executive succession plan. We exclude these items because they occur infrequently and can vary considerably from period to period without reference to the company's operating performance. We consider adjusted net income and diluted EPS to be an indicator of operating performance because excluding these items allows for period-over period comparisons of our ongoing operations.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization: Adjusted EBITDA reflects net income excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, other (gains) and losses, equity in net income of unconsolidated affiliates, mark to market adjustments on non-qualified retirement plan investments, executive termination benefits, impairment of lease acquisition costs and acceleration of the company's executive succession plan. We consider adjusted EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use adjusted EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. Adjusted EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Mark to market adjustments on non-qualified retirement plan investments recorded in SG&A are excluded from EBITDA as the company accounts for these investments in accordance with accounting for deferred compensation arrangements when investments are held in a rabbi trust and invested.  Changes in the fair value of the investments are recognized as both compensation expense in SG&A and other gains and losses.  As a result, the changes in the fair value of the investments do not have a material impact on the company's net income. These amounts are excluded from EBITDA as they can vary widely across reporting periods based on the performance of the investments and are not an indicator of the operating performance of the company.

Hotel Franchising Revenues, Adjusted Hotel Franchising EBITDA, Adjusted Hotel Franchising SG&A and Margins:  The company reports hotel franchising revenues, adjusted hotel franchising EBITDA, adjusted franchising hotel SG&A and margins which exclude marketing and reservation system revenues; the SkyTouch Technology division; vacation rental activities including operations that provide Software as a Service ("SaaS") technology solutions to vacation rental management companies; and revenue generated from the ownership of an office building that is leased to a third-party.  These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors. Marketing and reservation system activities are excluded from these measures since the company is required by its franchise agreements to use the fees collected for marketing and reservation activities; as such, no income or loss to the company is generated. Cumulative marketing and reservation system fees not expended are recorded as a liability in the company's financial statements and are carried over to the next year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company's financial statements and recovered in future periods.  SkyTouch Technology is a division of the company that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company. The operations for SkyTouch Technology and our vacation rental activities are excluded since they do not reflect the company's core franchising business but are adjacent, complementary lines of business. 

© 2017 Choice Hotels International, Inc.  All rights reserved.

 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 1

Consolidated Statements of Income

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

Variance

Variance

2017

2016

$

%

2017

2016

$

%

(In thousands, except per share amounts)

REVENUES:

Royalty fees

$            104,252

$              96,114

$     8,138

8%

$            265,727

$            247,168

$     18,559

8%

Initial franchise and relicensing fees

6,403

6,284

119

2%

18,390

17,146

1,244

7%

Procurement services

8,103

7,615

488

6%

25,647

23,719

1,928

8%

Marketing and reservation system

167,763

152,018

15,745

10%

435,273

412,193

23,080

6%

Other

8,567

5,546

3,021

54%

24,748

16,220

8,528

53%

      Total revenues

295,088

267,577

27,511

10%

769,785

716,446

53,339

7%

OPERATING EXPENSES:

Selling, general and administrative

46,364

34,357

12,007

35%

117,418

109,515

7,903

7%

Depreciation and amortization

3,095

2,986

109

4%

9,215

8,707

508

6%

Marketing and reservation system

167,763

152,018

15,745

10%

435,273

412,193

23,080

6%

Total operating expenses

217,222

189,361

27,861

15%

561,906

530,415

31,491

6%

Gain (loss) on sale of assets, net

(32)

402

(434)

(108%)

(32)

402

(434)

(108%)

Operating income

77,834

78,618

(784)

(1%)

207,847

186,433

21,414

11%

OTHER INCOME AND EXPENSES, NET:

Interest expense

11,399

11,150

249

2%

33,884

33,466

418

1%

Interest income

(1,575)

(836)

(739)

88%

(4,277)

(2,502)

(1,775)

71%

Other gains

(778)

(746)

(32)

4%

(2,251)

(1,005)

(1,246)

124%

Equity in net (income) loss of affiliates

274

(1,150)

1,424

(124%)

3,213

286

2,927

1023%

Total other income and expenses, net

9,320

8,418

902

11%

30,569

30,245

324

1%

Income before income taxes

68,514

70,200

(1,686)

(2%)

177,278

156,188

21,090

14%

Income taxes

20,919

22,635

(1,716)

(8%)

55,944

48,638

7,306

15%

Net income

$              47,595

$              47,565

$         30

0%

$            121,334

$            107,550

$     13,784

13%

Basic earnings per share

$                  0.84

$                  0.85

$     (0.01)

(1%)

$                  2.15

$                  1.91

$        0.24

13%

Diluted earnings per share

$                  0.84

$                  0.84

$          -

0%

$                  2.14

$                  1.90

$        0.24

13%

 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 2

Consolidated Balance Sheets

(In thousands, except per share amounts)

 September 30, 

 December 31, 

2017

2016

(Unaudited)

ASSETS

Cash and cash equivalents

$           238,848

$         202,463

Accounts receivable, net

151,672

107,336

Other current assets

64,803

35,074

Total current assets

455,323

344,873

Fixed assets and intangibles, net

178,879

178,704

Notes receivable, net of allowances

139,803

110,608

Investments in unconsolidated entities

131,128

94,839

Investments, employee benefit plans, at fair value

19,749

16,975

Other assets

36,310

106,469

Total assets

$           961,192

$         852,468

LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable 

$              68,261

$            48,071

Accrued expenses and other current liabilities

66,515

81,184

Deferred revenue

136,956

133,218

Current portion of long-term debt

1,302

1,195

Total current liabilities

273,034

263,668

Long-term debt

800,001

839,409

Deferred compensation & retirement plan obligations  

24,355

21,595

Other liabilities

64,182

39,145

Total liabilities

1,161,572

1,163,817

Total shareholders' deficit

(200,380)

(311,349)

Total liabilities and shareholders' deficit

$           961,192

$         852,468

 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 3

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended September 30,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                  121,334

$            107,550

Adjustments to reconcile net income to net cash provided

 by operating activities:

  Depreciation and amortization  

9,215

8,707

  Loss (gain) on disposal of assets

32

(377)

  Provision for bad debts, net

1,796

1,093

  Non-cash stock compensation and other charges

20,369

11,037

  Non-cash interest and other (income) loss

(451)

807

  Deferred income taxes

44,777

(4,329)

  Equity in net losses from unconsolidated joint ventures less distributions received

4,278

1,654

Changes in assets and liabilities, net of acquisition:

  Receivables

(47,520)

(42,426)

  Advances to/from marketing and reservation activities, net

43,697

(25,783)

  Forgivable notes receivable, net

(21,443)

(15,109)

  Accounts payable

19,679

(3,532)

  Accrued expenses and other current liabilities

(11,540)

(14,261)

  Income taxes payable/receivable

(20,114)

21,368

  Deferred revenue

3,650

49,976

  Other assets

(1,162)

(9,958)

  Other liabilities

(1,578)

1,992

 NET CASH PROVIDED BY OPERATING ACTIVITIES 

165,019

88,409

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(17,514)

(17,584)

Investment in intangible assets

(2,376)

(482)

Contributions to equity method investments

(44,876)

(24,179)

Distributions from equity method investments

4,307

3,700

Purchases of investments, employee benefit plans

(2,140)

(1,430)

Proceeds from sales of investments, employee benefit plans

2,150

1,395

Issuance of mezzanine and other notes receivable

(18,565)

(20,281)

Collections of mezzanine and other notes receivable

630

11,040

Proceeds from sales of assets

-

8,360

Acquisitions of real estate

-

(25,263)

Business acquisition, net of cash acquired

-

(1,341)

Other items, net

109

60

 NET CASH USED IN INVESTING ACTIVITIES 

(78,275)

(66,005)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (repayments) borrowings pursuant to revolving credit facilities

(39,974)

52,814

Principal payments on long-term debt

(484)

(836)

Debt issuance costs

-

(284)

Purchases of treasury stock

(8,887)

(33,958)

Dividends paid

(36,483)

(34,690)

Proceeds from transfer of interest in notes receivable

24,237

-

Proceeds from exercise of stock options

9,799

6,802

 NET CASH USED BY FINANCING ACTIVITIES

(51,792)

(10,152)

Net change in cash and cash equivalents

34,952

12,252

Effect of foreign exchange rate changes on cash and cash equivalents

1,433

260

Cash and cash equivalents at beginning of period

202,463

193,441

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                  238,848

$            205,953

 

Exhibit 4

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Nine Months Ended September 30, 2017

For the Nine Months Ended September 30, 2016

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort Inn

$             95.42

67.8%

$          64.70

$             93.78

67.2%

$         63.00

1.7%

60

bps

2.7%

Comfort Suites

98.05

71.4%

70.01

97.44

70.8%

69.01

0.6%

60

bps

1.4%

Sleep

83.93

67.1%

56.34

83.09

66.4%

55.14

1.0%

70

bps

2.2%

Quality

80.46

61.5%

49.50

78.97

60.8%

48.00

1.9%

70

bps

3.1%

Clarion

85.09

61.7%

52.53

83.67

59.7%

49.95

1.7%

200

bps

5.2%

Econo Lodge

63.71

56.1%

35.74

62.33

55.3%

34.47

2.2%

80

bps

3.7%

Rodeway

65.73

57.9%

38.04

64.14

57.3%

36.74

2.5%

60

bps

3.5%

MainStay

76.65

69.7%

53.42

77.34

66.2%

51.18

(0.9%)

350

bps

4.4%

Suburban

51.99

77.1%

40.10

50.15

76.0%

38.11

3.7%

110

bps

5.2%

Cambria hotel & suites

136.93

75.1%

102.83

 NA 

 NA 

 NA 

 NA 

 NA 

 NA 

Ascend Hotel Collection

128.86

56.6%

72.87

130.34

59.0%

76.95

(1.1%)

(240)

bps

(5.3%)

Total  (1)

$             84.98

63.9%

$          54.28

$             83.71

63.2%

$         52.91

1.5%

70

bps

2.6%

For the Three Months Ended September 30, 2017

For the Three Months Ended September 30, 2016

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort Inn

$           101.25

73.9%

$          74.82

$           100.02

73.4%

$         73.41

1.2%

50

bps

1.9%

Comfort Suites

101.43

75.5%

76.55

100.95

74.6%

75.35

0.5%

90

bps

1.6%

Sleep

86.85

71.3%

61.88

86.59

70.6%

61.15

0.3%

70

bps

1.2%

Quality

85.44

67.2%

57.43

84.31

66.4%

55.96

1.3%

80

bps

2.6%

Clarion

89.83

67.3%

60.46

88.98

66.4%

59.08

1.0%

90

bps

2.3%

Econo Lodge

68.87

61.7%

42.51

67.44

60.9%

41.08

2.1%

80

bps

3.5%

Rodeway

70.78

63.0%

44.56

69.72

62.3%

43.45

1.5%

70

bps

2.6%

MainStay

80.42

74.8%

60.17

79.91

71.5%

57.13

0.6%

330

bps

5.3%

Suburban

52.46

78.9%

41.39

51.09

78.2%

39.96

2.7%

70

bps

3.6%

Cambria hotel & suites

142.84

79.1%

112.95

 NA 

 NA 

 NA 

 NA 

 NA 

 NA 

Ascend Hotel Collection

137.02

60.9%

83.40

138.97

63.0%

87.50

(1.4%)

(210)

bps

(4.7%)

Total  (1)

$             89.78

69.2%

$          62.08

$             88.74

68.5%

$         60.81

1.2%

70

bps

2.1%

For the Quarter Ended

For the Nine Months Ended

9/30/2017

9/30/2016

9/30/2017

9/30/2016

System-wide effective royalty rate

4.58%

4.39%

(1)

4.57%

4.39%

(1)

(1)Totals for the three and nine months ended September 30, 2016 have been revised from previous disclosures to include the operating statistics for the Cambria hotel & suites brand

 

Exhibit 5

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

September 30, 2017

September 30, 2016

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Comfort Inn

1,083

84,427

1,126

87,346

(43)

(2,919)

(3.8%)

(3.3%)

Comfort Suites

566

43,857

565

43,610

1

247

0.2%

0.6%

Sleep

382

27,365

378

27,035

4

330

1.1%

1.2%

Quality

1,509

117,948

1,407

111,564

102

6,384

7.2%

5.7%

Clarion

160

21,267

164

22,456

(4)

(1,189)

(2.4%)

(5.3%)

Econo Lodge

839

51,322

853

52,773

(14)

(1,451)

(1.6%)

(2.7%)

Rodeway

595

34,331

526

30,058

69

4,273

13.1%

14.2%

MainStay

57

4,135

54

4,020

3

115

5.6%

2.9%

Suburban

59

6,578

58

6,471

1

107

1.7%

1.7%

Cambria hotel & suites

31

4,160

25

3,113

6

1,047

24.0%

33.6%

Ascend Hotel Collection

140

11,062

119

9,761

21

1,301

17.6%

13.3%

Domestic Franchises

5,421

406,452

5,275

398,207

146

8,245

2.8%

2.1%

International Franchises

1,136

113,542

1,144

110,945

(8)

2,597

(0.7%)

2.3%

Total Franchises

6,557

519,994

6,419

509,152

138

10,842

2.1%

2.1%

 

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

(UNAUDITED)

HOTEL FRANCHISING REVENUES AND ADJUSTED HOTEL FRANCHISING MARGINS

(dollar amounts in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2017

2016

2017

2016

Hotel Franchising Revenues:

Total Revenues

$              295,088

$               267,577

$              769,785

$               716,446

Adjustments:

     Marketing and reservation system revenues

(167,763)

(152,018)

(435,273)

(412,193)

     Non-hotel franchising activities

(2,859)

(2,424)

(7,971)

(6,521)

Hotel Franchising Revenues

$              124,466

$               113,135

$              326,541

$               297,732

Adjusted Hotel Franchising Margins:

Operating Margin:

Total Revenues

$              295,088

$               267,577

$              769,785

$               716,446

Operating Income

$                77,834

$                 78,618

$              207,847

$               186,433

     Operating Margin

26.4%

29.4%

27.0%

26.0%

Adjusted Hotel Franchising Margin:

Hotel Franchising Revenues

$              124,466

$               113,135

$              326,541

$               297,732

Operating Income

$                77,834

$                 78,618

$              207,847

$               186,433

Mark to market adjustments on non-qualified retirement plan investments

773

748

2,214

1,003

Executive termination benefits

-

-

-

2,206

Acceleration of executive succession plan

11,964

-

11,964

-

Impairment of lease acquisition costs, net

(1,185)

-

(1,185)

-

Non-hotel franchising activities operating loss

2,414

5,400

8,320

17,140

Adjusted Hotel Franchising Operating Income

$                91,800

$                 84,766

$              229,160

$               206,782

     Adjusted Hotel Franchising Margins

73.8%

74.9%

70.2%

69.5%

ADJUSTED HOTEL FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES

(dollar amounts in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2017

2016

2017

2016

Total Selling, General and Administrative Expenses

$                46,364

$                 34,357

$              117,418

$               109,515

Mark to market adjustments on non-qualified retirement plan investments

(773)

(748)

(2,214)

(1,003)

Executive termination benefits

-

-

-

(2,206)

Acceleration of executive succession plan

(11,964)

-

(11,964)

-

Impairment of lease acquisition costs, net

1,185

-

1,185

-

Non-hotel franchising activities

(4,387)

(6,723)

(13,482)

(20,438)

Adjusted Hotel Franchising Selling, General and Administration Expenses

$                30,425

$                 26,886

$                90,943

$                 85,868

ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

(dollar amounts in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2017

2016

2017

2016

Net income

$                47,595

$                 47,565

$              121,334

$               107,550

Income taxes

20,919

22,635

55,944

48,638

Interest expense

11,399

11,150

33,884

33,466

Interest income

(1,575)

(836)

(4,277)

(2,502)

Other (gains) losses

(778)

(746)

(2,251)

(1,005)

Equity in net (income) loss of affiliates

274

(1,150)

3,213

286

(Gain) loss on sale of assets

32

(402)

32

(402)

Depreciation and amortization

3,095

2,986

9,215

8,707

Executive termination benefits

-

-

-

2,206

Acceleration of executive succession plan

11,964

-

11,964

-

Impairment of lease acquisition costs, net

(1,185)

-

(1,185)

-

Mark to market adjustments on non-qualified retirement plan investments

773

748

2,214

1,003

Adjusted EBITDA

$                92,513

$                 81,950

$              230,087

$               197,947

Hotel franchising 

$                94,041

$                 86,248

$              235,598

$               211,864

Non-hotel franchising activities

(1,528)

(4,298)

(5,511)

(13,917)

$                92,513

$                 81,950

$              230,087

$               197,947

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (EPS)

(dollar amounts in thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2017

2016

2017

2016

Net Income

$                47,595

$                 47,565

$              121,334

$               107,550

Adjustments:

Executive termination benefits

-

-

-

1,394

Acceleration of executive succession plan

7,207

-

7,207

-

Impairment of lease acquisition costs, net

(747)

-

(747)

-

Adjusted Net Income

$                54,056

$                 47,565

$              127,795

$               108,944

Diluted Earnings Per Share

$                   0.84

$                     0.84

$                   2.14

$                     1.90

Adjustments:

Executive termination benefits

-

-

-

0.02

Acceleration of executive succession plan

0.12

-

0.12

-

Impairment of lease acquisition costs, net

(0.01)

-

(0.01)

-

Adjusted Diluted Earnings Per Share (EPS)

$                   0.95

$                     0.84

$                   2.25

$                     1.92

ADJUSTED EBITDA FULL YEAR FORECAST

(dollar amounts in thousands)

Range

Estimated Adjusted EBITDA

Fiscal Year 2017

Net income

$              154,600

$               157,300

Income taxes

72,700

74,000

Interest expense

45,400

45,400

Interest income

(5,800)

(5,800)

Other gains

(2,200)

(2,200)

Equity in net loss of affiliates

3,200

3,200

Depreciation and amortization

13,100

13,100

Acceleration of management succession plan

12,000

12,000

Impairment of lease acquisition costs, net

(1,200)

(1,200)

Mark to market adjustments on non-qualified retirement plan investments

2,200

2,200

Adjusted EBITDA

$              294,000

$               298,000

Hotel franchising 

$              301,000

$               305,000

Non-hotel franchising activities

(7,000)

(7,000)

$              294,000

$               298,000

ADJUSTED DILUTED EARNINGS PER SHARE (EPS) FULL YEAR FORECAST

(dollar amounts in thousands, except per share amounts)

Range

Fiscal Year 2017

Net Income

$              154,600

$               157,300

Adjustments:

Acceleration of executive succession plan

7,207

7,207

Impairment of lease acquisition costs, net

(747)

(747)

Adjusted Net Income

$              161,061

$               163,761

Diluted Earnings Per Share

$                   2.73

$                     2.77

Adjustments:

Acceleration of executive succession plan

0.12

0.12

Impairment of lease acquisition costs, net

(0.01)

(0.01)

Adjusted Diluted Earnings Per Share (EPS)

$                   2.84

$                     2.88



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