Choice Hotels Reports Record Results For First Quarter 2006: Diluted EPS up 44%, Net Income up 47% Over Prior Year

SILVER SPRING, Md., April 25 /PRNewswire-FirstCall/ -- Choice Hotels International, Inc., today reported the following highlights for the first quarter of 2006:

* Diluted earnings per share (EPS) increased 44% to $0.26, compared to $0.18 for first quarter 2005. * Net income grew 47% from $12.0 million in first quarter 2005 to $17.7 million in the same period of this year. * Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 32% to $32.4 million from $24.6 million in first quarter 2005. * Operating income increased 35% to $30.1 million, compared to $22.3 million for the same period in 2005. * Total revenues increased 20% to $109.4 million compared to the first quarter of 2005. * Domestic system-wide revenue per available room (RevPAR) increased 9.4% compared to the first quarter of 2005. * Domestic unit growth increased 5.2% compared to the first quarter 2005 (excluding the acquisition of Suburban, domestic unit growth increased 3.6%). * Year-to-date new domestic hotel franchise contracts were up 17% to 120, with new construction contracts increasing 41 percent to 48, as compared to 34 in first quarter 2005, including 10 contracts for the new Cambria Suites brand, as compared to 13 for the full year 2005. * Franchising revenues were up 22% for first quarter. * The domestic hotel pipeline of hotels under construction, awaiting conversion or approved for development increased more than 60% to 653 hotels, representing 51,157 rooms; an additional 69 hotels, representing 6,223 rooms, were in the worldwide pipeline at March 31, 2006.

"Choice's franchising business model continues to deliver strong revenue and earnings growth, as evidenced by our track record of outstanding results and total returns to shareholders, which have been in excess of 45% on an annualized basis over the past five years," said Charles A. Ledsinger, Jr., president and chief executive officer. "Choice has shown that it can generate solid, predictable growth in a wide variety of economic conditions and industry cycles, further underscoring the strength of our business model and the predictability of our business. As a result, we are confident that the combination of our sound operating strategies and the strength of the lodging and hospitality industry positions us well for continued top-line and bottom- line growth."

"We also are quite pleased with the significant increase in our new construction projects, particularly our new upscale Cambria Suites brand," continued Ledsinger. "Since we introduced the brand a little over a year ago, we have executed 23 contracts, including 10 in the first quarter of this year."

Outlook for 2006

The company's second quarter 2006 diluted EPS is expected to be $0.36 to $0.39. Full-year 2006 diluted EPS is expected to be $1.46 to $1.49. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is expected to be $175 million to $179 million for full-year 2006. These estimates include the following assumptions.

* The company expects net domestic unit growth of approximately 4% in 2006; * RevPAR is expected to increase 6% to 7.5% for second quarter 2006 and 5.5% to 7% for full-year 2006; * The effective royalty rate is expected to increase 3 basis points for full-year 2006; * All figures assume the existing share count, include stock-based compensation expense and assume an effective tax rate of 36.5% for full-year 2006. 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. This is primarily achieved through share repurchases and dividends.

For the quarter ended March 31, 2006, the company paid $8.4 million of cash dividends to shareholders. The annual dividend rate per common share is $0.52.

The company has remaining authorization to purchase up to 5.1 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 shares has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 33.6 million shares of its common stock for a total cost of $711.9 million through April 25, 2006. Considering the effect of the two-for-one stock split in October 2005, the company has repurchased 66.6 million shares at an average price of $10.69 per share.

The company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.

Conference Call

Choice will conduct a conference call on Wednesday, April 26, 2006, at 10 a.m. EDT to discuss the company's first quarter 2006 results. The call-in number to listen to the call is 1-800-553-0351. The conference call also will be Web cast 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/ for those unable to listen to the call on April

26. The call will also be available for replay until May 26, 2006, by calling 1-800-475-6701 (access code 824816).

Items Impacting Comparability Acquisition of Suburban

During 2005, the company acquired Suburban Franchise Holding Company, Inc. ("Suburban"), which included 67 Suburban Extended Stay Hotel units open and operating in the United States. The results of operations for Suburban have been included in the company's results of operations since September 28, 2005.

Two-for-One Stock Split

In October 2005, the company effected a two-for-one stock split of its outstanding shares of common stock, par value $.01 per share. Unless otherwise noted, all share information in this release and in the accompanying exhibits, including per share amounts, have been proportionally adjusted as if the two- for-one stock split had been effective as of the date or period presented.

About Choice Hotels

Choice Hotels International franchises more than 5,200 hotels, representing more than 425,000 rooms, in the United States and more than 40 countries and territories. As of March 31, 2006, 653 hotels are under development in the United States, representing 51,157 rooms, and an additional 69 hotels, representing 6,223 rooms, are under development in more than 20 countries and territories. The company's Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites and Suburban Extended Stay Hotel brands serve guests worldwide.

Additional corporate information may be found on Choice Hotels' Internet site, which may be accessed at http://www.choicehotels.com/.

Forward-Looking Statements

Certain matters discussed in this press release may constitute forward- looking statements within the meaning of the federal securities law. Such statements are based on management's beliefs, assumptions and expectations, which in turn are based on information currently available to management. Actual performance and results could differ from those expressed in or contemplated by the forward-looking statements due to a number of risks, uncertainties and other factors, many of which are beyond Choice's ability to predict or control. For further information on factors that could impact Choice the statements contained therein, we refer you to the filings made by Choice with the Securities and Exchange Commission, including its form 10-K for the period ended December 31, 2005.

Statement Concerning Non-GAAP Financial Measurements

Franchising revenues, franchising margins, EBITDA, and free cash flows are non-GAAP financial measurements. These financial measurements are presented as supplemental disclosures because they are used by management in reviewing and analyzing the company's performance. 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 total revenues, operating income, operating margins, and cash flows from operations. The company's calculation of these measurements may be different from the calculation used by other companies and therefore comparability may be limited. The company has included exhibits accompanying this release that reconcile these measures to the comparable GAAP measurement.

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.

Choice Hotels International, Inc. Consolidated Statements of Income (Unaudited) Three Months Ended March 31, Variance 2006 2005 $ % (In thousands, except per share amounts) REVENUES: Royalty fees $39,864 $33,642 $6,222 18% Initial franchise and relicensing fees 5,643 4,311 1,332 31% Partner services 2,782 2,640 142 5% Marketing and reservation 57,976 49,043 8,933 18% Hotel operations 980 920 60 7% Other 2,173 612 1,561 255% Total revenues 109,418 91,168 18,250 20% OPERATING EXPENSES: Selling, general and administrative 18,275 16,753 1,522 9% Depreciation and amortization 2,349 2,325 24 1% Marketing and reservation 57,976 49,043 8,933 18% Hotel operations 745 748 (3) (0%) Total operating expenses 79,345 68,869 10,476 15% Operating income 30,073 22,299 7,774 35% OTHER INCOME AND EXPENSES: Interest expense 4,040 3,607 433 12% Interest and other investment (income) loss (704) 131 (835) 637% Equity in net income of affiliates (258) (199) (59) 30% Other - (133) 133 (100%) Total other income and expenses, net 3,078 3,406 (328) (10%) Income before income taxes 26,995 18,893 8,102 43% Income taxes 9,330 6,894 2,436 35% Net income $17,665 $11,999 $5,666 47% Weighted average shares outstanding- basic 64,781 64,141 Weighted average shares outstanding- diluted 66,728 66,643 Basic earnings per share $0.27 $0.19 $0.08 42% Diluted earnings per share $0.26 $0.18 $0.08 44% Choice Hotels International, Inc. Consolidated Balance Sheets (In thousands) March 31, December 31, 2006 2005 (Unaudited) ASSETS Cash and cash equivalents $19,936 $16,921 Accounts receivable, net 34,313 37,155 Deferred income taxes 2,607 2,616 Other current assets 5,500 6,308 Total current assets 62,356 63,000 Fixed assets and intangibles, net 147,689 150,376 Receivable -- marketing fees 22,875 13,225 Investments, employee benefit plans, at fair value 27,441 23,337 Other assets 13,569 15,162 Total assets $273,930 $265,100 LIABILITIES AND SHAREHOLDERS' DEFICIT Current portion of long-term debt $10,146 $146 Other current liabilities 120,292 119,999 Total current liabilities 130,438 120,145 Long-term debt 249,151 273,972 Deferred compensation & retirement plan obligations 33,308 28,987 Other liabilities 8,643 9,172 Total liabilities 421,540 432,276 Total shareholders' deficit (147,610) (167,176) Total liabilities and shareholders' deficit $273,930 $265,100 Choice Hotels International, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended March 31, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $17,665 $11,999 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,349 2,325 Gain on sale of assets - (133) Provision for bad debts (409) 15 Non-cash stock compensation 3,369 1,182 Non-cash interest and other investment (income) loss (505) 289 Equity in net income of affiliates (258) (199) Changes in assets and liabilities, net of acquisitions: Receivables 3,231 (2,021) Receivable - marketing and reservation fees, net (8,319) (7,396) Accounts payable 5,785 4,820 Accrued expenses and other (8,665) (3,595) Income taxes payable 708 3,597 Deferred income taxes 1,799 1,542 Deferred revenue 2,450 2,023 Other current assets 808 (1,297) Other liabilities 4,275 3,716 NET CASH PROVIDED BY OPERATING ACTIVITIES 24,283 16,867 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in property and equipment (1,193) (2,993) Proceeds from disposition of assets - 1,706 Issuance of notes receivable (649) (264) Proceeds from sales of investments 859 941 Purchases of investments (4,353) (3,604) Other items, net 131 (266) NET CASH USED IN INVESTING ACTIVITIES (5,205) (4,480) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (37) (36) Net (repayments) borrowings pursuant to revolving credit facility (14,800) 4,097 Stock-based compensation windfall tax benefits 5,050 - Purchase of treasury stock (1,277) (14,052) Dividends paid (8,436) (7,235) Proceeds from exercise of stock options 3,437 4,944 NET CASH USED IN FINANCING ACTIVITIES (16,063) (12,282) Net change in cash and cash equivalents 3,015 105 Cash and cash equivalents at beginning of period 16,921 28,518 CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,936 $28,623 CHOICE HOTELS INTERNATIONAL, INC. SUPPLEMENTAL OPERATING INFORMATION DOMESTIC HOTEL SYSTEM (UNAUDITED) For the Three Months Ended March 31, 2006 Average Daily Rate Occupancy RevPAR COMFORT INN $67.12 51.7% $34.70 COMFORT SUITES 79.18 58.8% 46.58 QUALITY 61.79 44.9% 27.77 CLARION 76.25 42.5% 32.44 SLEEP 62.00 51.8% 32.14 MAINSTAY 65.31 57.0% 37.23 ECONO LODGE 48.54 39.0% 18.92 RODEWAY 46.80 39.0% 18.23 TOTAL DOMESTIC SYSTEM* $64.93 48.1% $31.23 For the Three Months Ended March 31, 2005 Average Daily Rate Occupancy RevPAR COMFORT INN $63.34 49.5% $31.37 COMFORT SUITES 73.50 55.5% 40.77 QUALITY 59.22 43.7% 25.87 CLARION 69.98 41.8% 29.24 SLEEP 57.69 50.1% 28.90 MAINSTAY 60.62 54.3% 32.92 ECONO LODGE 46.16 38.8% 17.92 RODEWAY 45.34 39.4% 17.87 TOTAL DOMESTIC SYSTEM* $61.21 46.6% $28.54 Change Average Daily Rate Occupancy RevPAR COMFORT INN 6.0% 220 bps 10.6% COMFORT SUITES 7.7% 330 bps 14.3% QUALITY 4.3% 120 bps 7.3% CLARION 9.0% 70 bps 10.9% SLEEP 7.5% 170 bps 11.2% MAINSTAY 7.7% 270 bps 13.1% ECONO LODGE 5.2% 20 bps 5.6% RODEWAY 3.2% -40 bps 2.0% TOTAL DOMESTIC SYSTEM* 6.1% 150 bps 9.4% * Amounts exclude Suburban activity from January 1, 2006 through March 31, 2006 because comparable pre-acquisition data for Q1 2005 is not available For the Three Months Ended 03/31/2006 03/31/2005 System-wide effective royalty rate* 4.09% 4.08% CHOICE HOTELS INTERNATIONAL, INC. SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA (UNAUDITED) March 31, 2006 March 31, 2005 Hotels Rooms Hotels Rooms COMFORT INN 1,418 111,032 1,430 112,461 COMFORT SUITES 415 32,666 393 31,021 QUALITY 670 66,657 594 60,545 CLARION 151 23,157 154 23,058 SLEEP 322 24,384 316 24,133 MAINSTAY 27 2,047 27 2,150 SUBURBAN 64 8,460 - - ECONO LODGE 818 50,144 788 49,043 RODEWAY 185 11,387 166 10,219 DOMESTIC FRANCHISES 4,070 329,934 3,868 312,630 INTERNATIONAL FRANCHISES 1,168 98,456 1,140 94,679 TOTAL FRANCHISES 5,238 428,390 5,008 407,309 Variance Hotels Rooms % % COMFORT INN (12) (1,429) (0.8%) (1.3%) COMFORT SUITES 22 1,645 5.6% 5.3% QUALITY 76 6,112 12.8% 10.1% CLARION (3) 99 (1.9%) 0.4% SLEEP 6 251 1.9% 1.0% MAINSTAY - (103) 0.0% (4.8%) SUBURBAN 64 8,460 NM NM ECONO LODGE 30 1,101 3.8% 2.2% RODEWAY 19 1,168 11.4% 11.4% DOMESTIC FRANCHISES 202 17,304 5.2% 5.5% INTERNATIONAL FRANCHISES 28 3,777 2.5% 4.0% TOTAL FRANCHISES 230 21,081 4.6% 5.2% CHOICE HOTELS INTERNATIONAL, INC. SUPPLEMENTAL INFORMATION BY BRAND DEVELOPMENT RESULTS -- NEW HOTEL CONTRACTS (UNAUDITED) For the Three For the Three Months Ended Months Ended March 31, 2006 March 31, 2005 New New Construction Conversion Total Construction Conversion Total COMFORT INN 15 13 28 8 10 18 COMFORT SUITES 12 - 12 13 - 13 QUALITY 2 25 27 1 30 31 CLARION 1 9 10 1 3 4 SLEEP 3 - 3 7 1 8 MAINSTAY 2 1 3 - - - SUBURBAN 3 - 3 - - - CAMBRIA 10 - 10 1 - 1 ECONO LODGE - 9 9 3 16 19 RODEWAY - 15 15 - 9 9 TOTAL DOMESTIC SYSTEM 48 72 120 34 69 103 % Change New Construction Conversion Total COMFORT INN 88% 30% 56% COMFORT SUITES (8%) NM (8%) QUALITY 100% (17%) (13%) CLARION 0% 200% 150% SLEEP (57%) (100%) (63%) MAINSTAY NM NM NM SUBURBAN NM NM NM CAMBRIA 900% NM 900% ECONO LODGE (100%) (44%) (53%) RODEWAY NM 67% 67% TOTAL DOMESTIC SYSTEM 41% 4% 17% CHOICE HOTELS INTERNATIONAL, INC. SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (UNAUDITED) CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS (dollar amounts in thousands) Three Months Ended March 31, 2006 2005 Franchising Revenues: Total Revenues $109,418 $91,168 Adjustments: Marketing and reservation revenues (57,976) (49,043) Hotel Operations (980) (920) Franchising Revenues $50,462 $41,205 Franchising Margins: Operating Margin: Total Revenues $109,418 $91,168 Operating Income $30,073 $22,299 Operating Margin 27.5% 24.5% Franchising Margin: Franchising Revenues $50,462 $41,205 Operating Income $30,073 $22,299 Less: Hotel Operations 235 172 $29,838 $22,127 Franchising Margins 59.1% 53.7% EBITDA Reconciliation (in millions) Full-Year Q1 2006 Q1 2005 2006 Actuals Actuals Outlook Operating Income (per GAAP) $30.1 $22.3 $165 - $169 Depreciation and amortization 2.3 2.3 10 Earnings before interest, taxes, depreciation & amortization (non-GAAP) $32.4 $24.6 $175 - $179