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Choice Hotels, With 4,810 Franchised Hotels, Reports
2003 Net Income of $71.9 million, Compared
to Prior Year Net Income of $ 60.8 million
Brand Operating Statistics
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SILVER SPRING, Md. (February 11, 2004) � Choice Hotels International, Inc. (NYSE:CHH) today reported 2003 net income of $71.9 million, or $1.96 diluted earnings per share (EPS). Net income and diluted EPS for fourth quarter 2003 were $20.7 million and $0.57 per share, respectively. Both full year 2003 and fourth quarter net income and diluted EPS include a $3.4 million, or $0.09 per share, gain resulting from the December 19, 2003 prepayment of an outstanding senior subordinated note by Sunburst Hospitality Corporation. 

The company also reported full year 2003 adjusted net income of $68.5 million compared to $60.8 million for the same period in 2002. Full year 2003 adjusted diluted earnings per share (EPS) increased to $1.87 or 23% over $1.52 per share reported for the previous year. Adjusted net income and adjusted diluted EPS presented for full year and fourth quarter 2003 exclude the gain on the Sunburst note prepayment. 

�Record franchise development was the hallmark of the year, with 470 new executed contracts representing more than 41,000 rooms,� said Charles A. Ledsinger, Jr., president and chief executive officer.  �The lodging franchise community greatly values the more than 50 million guest visits made to our hotels each year, as evidenced by the 55% growth in new deals.�

He added, �In addition, our strong multi-brand marketing programs enjoyed great success, such as our �two-for-one� fall promotion that gained nearly a half million members for our Choice Privileges frequent traveler program.  This marketing success underscores the strength that we bring to our brands, thus making it possible to drive unit growth of 4.4% and enjoy a 30% increase in initial and relicensing fees.�

Adjusted net income for fourth quarter 2003 was $17.3 million, compared to $15.1 million for fourth quarter 2002. Adjusted diluted EPS was $0.48 for fourth quarter 2003, a 20% increase compared to the same period in 2002. Because of the Sunburst note prepayment, the company anticipates that interest income for 2004 will be reduced by $4.7 million, or $0.08 per diluted share, assuming the existing diluted share count.

Year-End & Fourth Quarter Performance

The company�s 2003 full year revenues were $386.1 million, compared to $365.6 million in 2002. Franchising revenues, which include royalty fees, initial and relicensing fees, partner services income and other income, increased 8.7% to $187.1 million from $172.1 for 2002. For fourth quarter 2003, revenues were $95.2 million compared to $84.3 million for fourth quarter 2002. Franchising revenues for fourth quarter 2003 increased 15.5% to $48.5 million from $42.0 million in fourth quarter 2002. 

Operating income increased to $114.0 million for 2003, an increase of approximately 9% over the $104.7 million reported for 2002.  For fourth quarter 2003, operating income increased 15% from $24.6 million to $28.3 million.
The company reported royalty revenues of $151.3 million for 2003, compared to $142.9 million for 2002, an increase of 5.9%.  For fourth quarter 2003, royalty revenues increased 10.8% to $38.1 million, compared to $34.4 million for the same period in 2002. 

Initial and relicensing fee revenues increased 30.2% and 52.8% for full year 2003 and fourth quarter 2003, respectively. Initial and relicensing fees were $16.8 million and $5.5 million for full year 2003 and fourth quarter 2003, respectively, compared to $12.9 million and $3.6 million for the same periods in 2002.

The company also reported partner services revenues increased to $13.2 million for full year 2003 compared to $11.9 million for 2002, a 10.9% increase. Fourth quarter 2003 partner services revenues increased to $3.6 million from $2.8 million in 2002, a 28.6% increase.

System-wide domestic revenue per available room (RevPAR) was $34.21 in 2003, compared to $34.48 for 2002.  For fourth quarter 2003, RevPAR was $34.07, an approximately 5% increase compared to $32.46 for the same period a year ago. 
For the year 2003, the effective royalty rate increased four basis points from 3.97% to 4.01%. 

2003 Unit Growth

In 2003, the total number of domestic Choice hotels on-line grew 4.4% to 3,636 from 3,482 for 2002.  For the year, the total number of domestic hotel rooms increased 4.2% to 294,268 from 282,423 in 2002.  Choice executed 470 new domestic hotel franchise contracts in 2003, representing 41,039 rooms, an increase of 54.6% and 60.0% respectively over the 304 executed domestic franchise contracts and 25,657 rooms in 2002.  This development activity marked the first time Choice has topped the 40,000 room level in a single year.

A net of 154 domestic hotels, representing 11,845 rooms, were opened in 2003, compared to 155, representing 11,909 rooms, in 2002.  At the end of 2003, Choice had 401 hotels under development in its domestic hotel system, representing 31,409 rooms, compared to 310 hotels, representing 23,766 rooms, at the end of 2002.

As of December 31, 2003, the total number of Choice hotels worldwide grew 3.1% to 4,810 from 4,664 as of the same date a year ago.  This represents an increase of 4.0% in the number of rooms open to 388,618 from 373,722.  At the end of 2003, Choice had 90 hotels under development in countries outside of the United States, representing 8,468 rooms.

First Quarter & Full Year 2004 Estimates

The company also announced that it expects first quarter 2004 diluted EPS to be in the range of $0.26 to $0.28 and full year 2004 diluted EPS in the range of $2.00 to $2.03, assuming the current diluted share count.

Notable Events

Among the notable company events occurring since the previous earnings report:

  • Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 29.5 million shares of common stock at an average price of $17.69 per share at a total cost of $522.0 million, as of January 30, 2004.  During calendar year 2003, the company purchased 2.9 million shares of common stock.  Total shares outstanding as of January 30, 2004 are 34.4 million.  The company repurchased approximately 1.0 million shares during the fourth quarter of 2003 at a total cost of $36.4 million.  Under the existing repurchase authorization, the company can acquire another 1.8 million shares.
  • On January 26, 2004, Choice paid a cash dividend of $0.20 on outstanding shares of common stock to holders of record on January 16, 2004.
  • On February 10, 2004, Choice�s Board of Directors declared a cash dividend of $0.20 on outstanding shares of common stock payable on April 26, 2004 to holders of record on April 12, 2004.
  • Choice announced new spring marketing promotions, including the �Stay Twice, Earn a Free Night,� program that enables guests who join or already belong to the company�s Choice Privileges frequent traveler program to stay twice and earn a free night at the company�s mid-priced brand hotels and the �Earn Nights & Flights, Twice As Fast� program to get double EA$Y CHOICE stamps for free nights and airline miles at the company�s economy brand hotels.
Non-GAAP Financial Measures

Adjusted net income, adjusted diluted earnings per share and franchising revenues 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 net income, diluted earnings per share or total revenues.  The company�s calculation of adjusted net income, adjusted diluted earnings per share and franchising revenues may be different from the calculation used by other companies and therefore comparability may be limited. The company has included exhibits accompanying this release which reconcile these measures to the comparable GAAP measurement.
 

Choice Hotels International, Inc. Exhibit 1
Consolidated Statements of Income
(Unaudited)




(In thousands, except per share    Three Months      Twelve Months
 amounts)                              Ended             Ended
                                 Dec. 31, Dec. 31, Dec. 31,  Dec. 31,
REVENUES:                         2003     2002      2003      2002
                                 ----------------- -------------------

Royalty fees                     $38,130  $34,355  $151,326  $142,943
Initial franchise and
 relicensing fees                  5,514    3,620    16,799    12,881
Partner services                   3,597    2,820    13,227    11,860
Marketing and reservation         45,871   41,545   195,420   190,145
Hotel operations                     826      802     3,565     3,331
Other                              1,220    1,168     5,767     4,402
                                 ----------------- -------------------
      Total revenues              95,158   84,310   386,104   365,562

OPERATING EXPENSES:

Selling, general and
 administrative                   17,823   14,436    62,860    56,520
Depreciation and amortization      2,753    3,034    11,225    11,251
   Marketing and reservation      45,871   41,545   195,420   190,145
   Hotel operations                  399      736     2,616     2,946
                                 ----------------- -------------------
Total operating expenses          66,846   59,751   272,121   260,862

Operating income                  28,312   24,559   113,983   104,700

OTHER INCOME AND EXPENSES:
Interest expense                   2,612    3,251    11,597    13,136
Interest and other investment
 income                           (4,979)  (1,305)   (9,568)   (4,549)
Equity in net (income) losses of
 affiliates                         (247)    (472)     (582)       71
Other                                122      224       129       224
                                 ----------------- -------------------
Total other income and expenses   (2,492)   1,698     1,576     8,882
                                 ----------------- -------------------

Income before income taxes        30,804   22,861   112,407    95,818
Income taxes                      10,084    7,765    40,544    34,974
                                 ----------------- -------------------
Net income                       $20,720  $15,096   $71,863   $60,844
                                 ================= ===================
 

Weighted average shares
 outstanding-basic                35,303   37,248    35,699    39,333
                                 ================= ===================

Weighted average shares
 outstanding-diluted              36,513   37,938    36,674    40,057
                                 ================= ===================

Basic earnings per share           $0.59    $0.41     $2.01     $1.55
                                 ================= ===================

Diluted earnings per share         $0.57    $0.40     $1.96     $1.52
                                 ================= ===================
 
 
 
 

Choice Hotels International, Inc.                            Exhibit 2
Consolidated Balance Sheets
(Unaudited)
 

(In thousands)                                     Dec. 31,  Dec. 31,
                                                     2003      2002
                                                   --------- ---------
 

ASSETS

Cash and cash equivalents                           $20,031   $12,227
Accounts receivable, net                             33,623    32,629
Other current assets                                  2,966     3,349
                                                   --------- ---------
       Total current assets                          56,620    48,205

Fixed assets and intangibles, net                   150,256   161,606
Note receivable from Sunburst                             -    41,318
Receivable -- marketing and reservation fees         32,368    44,916
Other assets                                         26,071    18,496
                                                   --------- ---------

              Total assets                          265,315   314,541
                                                   ========= =========
 
 
 

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current portion of long-term debt                    23,829    23,796
Other current liabilities                            75,630    61,850
                                                   --------- ---------
       Total current liabilities                     99,459    85,646

Long-term debt                                      222,823   283,995
Deferred income taxes and other liabilities          61,220    58,699
                                                   --------- ---------

       Total liabilities                            383,502   428,340
                                                   --------- ---------

       Total shareholders' deficit                 (118,187) (113,799)
                                                   --------- ---------

              Total liabilities and shareholders'
               deficit                             $265,315  $314,541
                                                   ========= =========
 
 
 
 
 

Choice Hotels International, Inc.                            Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
 
 

(In thousands)                                    Tweleve Months Ended
                                                   Dec. 31,  Dec. 31,
                                                     2003      2002
                                                   -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                          $71,863   $60,844

Adjustments to reconcile net income to net cash
 provided
 by operating activities:
  Depreciation and amortization                      11,225    11,251
  Gain on Sunburst Hospitality note prepayment       (3,383)        -
  Provision for bad debts                              (189)    1,256
  Non-cash stock compensation and other charges       2,226     1,666
  Non-cash interest and other investment income      (1,532)   (2,128)
  Equity in net income and losses of affiliates           -        71

Changes in assets and liabilities, net of
 acquisitions:
  Receivables                                          (887)   (5,538)
  Receivable -- marketing and reservation fees, net  24,726    17,219
  Current liabilities                                12,185    (3,911)
  Income taxes payable/receivable and other assets   (3,151)    5,391
  Deferred income taxes and other liabilities         2,984    12,897
                                                   -------------------

 NET CASH PROVIDED BY OPERATING ACTIVITIES          116,067    99,018
                                                   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from Prepayment of Sunburst Hospitality
 note                                                44,701         -
Investment in property and equipment                 (8,480)  (12,233)
Acquisition of Flag                                  (1,211)   (2,173)
Proceeds from disposition of property                   498         -
Other items, net                                     (8,306)     (277)
                                                   -------------------

 NET CASH PROVIDED BY (UTILIZED IN) INVESTING
  ACTIVITIES                                         27,202   (14,683)
                                                   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term debt                        214,900   314,400
Principal payments of long-term debt               (276,104) (288,220)
Purchase of treasury stock                          (80,358) (120,931)
Proceeds from exercise of stock options               6,097     5,772
                                                   -------------------

 NET CASH UTILIZED IN FINANCING ACTIVITIES         (135,465)  (88,979)
                                                   -------------------

Net change in cash and cash equivalents               7,804    (4,644)
Cash and cash equivalents at beginning of period     12,227    16,871
                                                   -------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD          $20,031   $12,227
                                                   ===================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the period for:
   Income taxes, net of refunds                     $49,559   $14,674
   Interest                                         $13,357   $14,132
Non-cash investing activities:
   Conversion of note receivable into Flag equity
    interest                                             $-    $1,061
Non-cash financing activities:
   Declaration of dividend                           $6,899        $-
   Non-cash financing activities related to
    employee stock options exercised:
      Income tax benefit realized                    $1,770    $1,762
      Treasury shares received for employee tax
       withholding obligations                          $98        $-
      Common shares surrendered in-lieu of exercise
       price                                           $181        $-
 
 
 
 
 

CHOICE HOTELS                   Exhibit 4
                             INTERNATIONAL
              SUPPLEMENTAL OPERATING INFORMATION BY BRAND
                         DOMESTIC HOTEL SYSTEM
                              (UNAUDITED)
 

                           For the Quarter      Twelve Months
                                Ended               Ended
                               Dec. 31,            Dec. 31,
                            2003     2002       2003     2002
                          -------- --------   -------- --------

COMFORT INN
  Hotels                    1,413    1,362      1,413    1,362
  Rooms                   111,218  106,838    111,218  106,838
  Avg. Daily Rate          $64.01   $62.41     $64.05   $63.43
  Occupancy %               58.6%    57.3%      58.2%    59.3%
  RevPAR                   $37.54   $35.75     $37.28   $37.62
 

COMFORT SUITES
  Hotels                      370      345        370      345
  Rooms                    29,198   27,488     29,198   27,488
  Avg. Daily Rate          $71.64   $70.53     $72.58   $71.99
  Occupancy %               60.8%    58.8%      61.2%    61.4%
  RevPAR                   $43.58   $41.48     $44.44   $44.17
 

QUALITY
  Hotels                      508      455        508      455
  Rooms                    52,766   48,472     52,766   48,472
  Avg. Daily Rate          $62.43   $61.61     $64.19   $63.82
  Occupancy %               51.8%    49.4%      51.6%    52.0%
  RevPAR                   $32.31   $30.43     $33.14   $33.16
 

CLARION
  Hotels                      138      132        138      132
  Rooms                    20,737   20,006     20,737   20,006
  Avg. Daily Rate          $71.78   $72.75     $72.27   $73.88
  Occupancy %               48.8%    49.7%      49.2%    51.8%
  RevPAR                   $35.04   $36.18     $35.55   $38.26
 

SLEEP
  Hotels                      309      301        309      301
  Rooms                    23,678   23,061     23,678   23,061
  Avg. Daily Rate          $58.32   $56.88     $58.01   $57.36
  Occupancy %               58.2%    54.8%      57.5%    56.8%
  RevPAR                   $33.95   $31.16     $33.33   $32.57
 

MAINSTAY
  Hotels                       26       40         26       40
  Rooms                     2,063    3,445      2,063    3,445
  Avg. Daily Rate          $60.26   $61.79     $61.50   $61.50
  Occupancy %               63.4%    66.9%      62.9%    67.9%
  RevPAR                   $38.21   $41.36     $38.70   $41.77
 

ECONO LODGE
  Hotels                      734      715        734      715
  Rooms                    45,420   44,522     45,420   44,522
  Avg. Daily Rate          $48.80   $45.95     $47.88   $47.36
  Occupancy %               46.5%    46.9%      47.5%    49.4%
  RevPAR                   $22.71   $21.52     $22.76   $23.38
 

RODEWAY
  Hotels                      138      132        138      132
  Rooms                     9,188    8,591      9,188    8,591
  Avg. Daily Rate          $49.99   $46.23     $49.84   $49.00
  Occupancy %               43.5%    42.8%      44.8%    45.5%
  RevPAR                   $21.73   $19.76     $22.32   $22.29
 

TOTAL CHOICE - DOMESTIC
  Hotels                    3,636    3,482      3,636    3,482
  Rooms                   294,268  282,423    294,268  282,423
  Avg. Daily Rate          $62.31   $60.75     $62.53   $61.96
  Occupancy %               54.7%    53.4%      54.7%    55.6%
  RevPAR                   $34.07   $32.46     $34.21   $34.48
  Effective Royalty Rate    4.06%    3.95%      4.01%    3.97%
 
 
 
 

                     CHOICE HOTELS INTERNATIONAL             Exhibit 5
                       SUPPLEMENTAL INFORMATION
   CALCULATION OF ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS
                            PER SHARE (EPS)
                              (UNAUDITED)
 

(In thousands, except per share amounts)
                              Three Months Ended  Twelve Months Ended
                               Dec. 31,  Dec. 31,  Dec. 31,  Dec. 31,
                                 2003      2002      2003      2002
                               ------------------  ------------------

Adjusted Net Income

Net Income                     $20,720   $15,096   $71,863   $60,844
Adjustments:
   December 2003 Gain on
    Sunburst Note Prepayment
    Included in Net Income      (3,383)        -    (3,383)        -
                               ------------------  ------------------
Adjusted Net Income            $17,337   $15,096   $68,480   $60,844
                               ------------------  ------------------
 

Weighted average shares
 outstanding-diluted            36,513    37,938    36,674    40,057

Diluted Earnings Per Share       $0.57     $0.40     $1.96     $1.52
Adjustments:
   December 2003 Gain on
    Sunburst Note Prepayment
    Included in Net Income       (0.09)        -     (0.09)        -
                               ------------------  ------------------
Adjusted Diluted Earnings Per
 Share (EPS)                     $0.48     $0.40     $1.87     $1.52
                               ------------------  ------------------
 

                     CHOICE HOTELS INTERNATIONAL             Exhibit 6
                       SUPPLEMENTAL INFORMATION
                  CALCULATION OF FRANCHISING REVENUES
                              (UNAUDITED)
 

(In thousands, except per share amounts)
                     Three Months Ended  Twelve Months Ended
                      Dec. 31,  Dec. 31,  Dec. 31,   Dec. 31,
                        2003      2002      2003       2002
                      ------------------  --------------------

Franchising Revenues
 and Margins

Total Revenues        $95,158   $84,310   $386,104   $365,562
Adjustments:
   Marketing and
    reservation
    revenues          (45,871)  (41,545)  (195,420)  (190,145)
   Hotel Operations      (826)     (802)    (3,565)    (3,331)
                      ------------------  --------------------
Franchising Revenues  $48,461   $41,963   $187,119   $172,086
                      ------------------  --------------------
 

Choice Hotels International is the second-largest hotel franchisor in the world with 4,810 hotels open, representing 388,618 rooms, and another 401 hotels under development in the United States, representing 31,409 rooms, as of December 31, 2003. An additional 90 hotels, representing 8,468 rooms, are under development in 19 other countries as of December 31, 2003.  Choice�s Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.

Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities law. 

###

Contact:
Joseph M. Squeri
Senior Vice President, Development, and Chief Financial Officer 
Tel:  (301) 592-5006
www.choicehotels.com

 
Also See: Choice Presents Inn of the Year Awards to the Best of Each Brand / May 2003
Choice Hotels Adds 41,000 Franchise Rooms in 2003; Reports 342 Conversions and 128 New Construction Contracts / January 2004
.

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