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Choice Hotels Reports Full Year 2004 Net Income of
$74.3 million Compared to Prior Year Net Income
of $71.9 million
Executes 552 New Domestic Hotel Franchise Contracts
Hotel Operating Statistics

.

SILVER SPRING, Md. (February 15, 2005) – Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for the fourth quarter and full year 2004:
  • Diluted earnings per share for full year 2004 were $2.15 compared to $1.96 for 2003; Diluted earnings per share for fourth quarter 2004 were $0.60 compared to $0.57 for fourth quarter 2003;
  • Adjusted diluted earnings per share for full year 2004 were $2.16, up 16% from $1.87 for the same period in 2003, on a non-GAAP basis, excluding specified items;
  • Royalty revenues up 13% and 11% for fourth quarter and full year 2004, respectively, total revenues up 12% and 11% for fourth quarter and full year, respectively;
  • Domestic unit growth of 5.4%;
  • Domestic system-wide revenue per available room increased 7.9% for fourth quarter 2004 and 5.1% for full year 2004 compared to prior year results;
  • Year-to-date new domestic hotel franchise contracts up 17% to a record 552;
  • Domestic hotels under development increased in 2004 by more than 14% to 460 hotels representing 35,652 rooms at year end 2004; worldwide hotels under development grew 16% to 569 hotels at year end 2004, representing 45,167 rooms;
  • Company returned more than $175 million of cash to shareholders in 2004 through a combination of treasury share repurchases and dividends;
  • Company announces 2005 full year guidance of $2.38 to $2.42 diluted earnings per share.
“Choice Hotels enjoyed yet another record-setting year in 2004 as we added more than 15,000 rooms to our domestic system and achieved a significant milestone with more than 400,000 rooms open worldwide,” said Charles A. Ledsinger, Jr., president and chief executive officer.  “We had a second consecutive record development year, with more than 550 contracts for new franchises executed, which positions us well for unit growth in 2005 and beyond.”

He added, “We are also encouraged by strengthening industry fundamentals that contributed to an increase in domestic RevPAR of nearly 8% in the fourth quarter. We are optimistic that the strong momentum reflected in our 2004 results will carry forward into next year.  We are especially excited with this month’s announcement of the launch of our new upscale brand, Cambria Suites, which has received an enthusiastic reception from developers.”

Full Year 2004 & Fourth Quarter Performance

Choice reported full year 2004 net income of $74.3 million, or $2.15 diluted earnings per share (EPS), a 10% increase in diluted EPS over the same period for 2003.  For full year 2003, the company reported net income of $71.9 million, or $1.96 diluted EPS.

Adjusted net income for full year 2004 was $74.8 million, compared to adjusted net income of $68.5 million for the same period in 2003. Adjusted diluted EPS was $2.16 for full year 2004, a 16% increase compared to the same period in 2003. Adjusted net income and adjusted diluted EPS presented for full year 2004 exclude a $0.4 million (net of related tax effect), or $0.01 per share, loss on extinguishment of debt. Adjusted net income and adjusted diluted EPS presented for full year 2003 exclude a $3.4 million gain (net of related tax effect), or $0.09 per share, attributable to the prepayment of a note receivable from Sunburst Hospitality Corporation (“Sunburst”) which was repaid to the Company in December 2003.

Operating income for full year 2004 increased 10% from $114.0 million to $125.0 million.  Franchising margins for 2004 increased to 60.9% from 60.4% for full year 2003.

The company also reported total revenues of $428.8 million for 2004, compared to $386.1 million in 2003, an increase of 11%. Franchising revenues, which include royalty revenues, initial and relicensing fees, partner services and other revenue, for 2004 were $203.8 million, an increase of 9% from the $187.1 million reported a year ago.

Royalty revenues for 2004 were $167.2 million, compared to $151.3 million for 2003, an increase of 11%.

System-wide domestic revenue per available room (RevPAR) was $35.95 for full year 2004, compared to $34.21 for 2003, a 5.1% increase.

For fourth quarter 2004, Choice reported net income of $20.3 million or $0.60 diluted EPS compared to net income of $20.7 million and $0.57 diluted EPS reported for fourth quarter 2003.

Net income of $20.3 million for fourth quarter 2004 increased 17% compared to adjusted net income of $17.3 million for the same period in 2003. Diluted EPS for fourth quarter 2004 increased 25% compared to adjusted diluted EPS of $0.48 for fourth quarter 2003.  Adjusted net income and adjusted diluted EPS presented for fourth quarter 2003 exclude a $3.4 million gain (net of related tax effect), or $0.09 per share, gain on the Sunburst note receivable prepayment.

Operating income for fourth quarter 2004 increased 11% to $31.5 million, compared to $28.3 million for the same period a year ago.

Total revenues were $106.9 million for the three months ended December 31, 2004, an increase of 12% compared to $95.2 million for the same period in 2003. Franchising revenues for the last three months of 2004 increased 11% to $53.7 million, compared to $48.5 million for the same period a year ago.

Royalty revenues for fourth quarter 2004 were $42.9 million, compared to $38.1 million for the same period a year ago, an increase of 13%. 

System-wide domestic RevPAR was $35.96 for the last three months of 2004, compared to $33.34 for the same period in 2003, a 7.9% gain. 

2004 Unit Growth

The number of domestic Choice hotels on-line grew by 5.4% to 3,834 (309,586 rooms on-line) as of December 31, 2004 from 3,636 (294,268 rooms on-line) as of the same date a year ago.  Net domestic franchise additions in 2004 were 198 compared to 154 net domestic franchise additions in 2003, a 29% increase.   In fourth quarter 2004, net domestic franchise additions were 38, an increase of 9% compared to 35 for the same period a year ago. 

Choice executed 552 new domestic hotel franchise contracts representing 47,277 rooms in 2004, compared to 470 new contracts representing 41,039 rooms for the same period a year ago, increases of approximately 17% and 15% respectively.  For the quarter ended December 31, 2004, Choice executed 198 new domestic hotel franchise contracts, representing 17,078 rooms, compared to 176 contracts, representing 15,075 rooms, for the same period in 2003, increases of 12% and 13% respectively.  These increases in executed new franchise contracts and an increase in the number of existing franchise relicensings have contributed to better than 19% increases in initial franchise and relicensing fees for both the three month period and year ended December 31, 2004, compared to the same periods in 2003.

For full year 2004, 182 contracts for new construction hotel franchises, representing 12,799 rooms were executed, compared to 128 contracts, representing 8,649 rooms for the same period a year ago, representing increases of approximately 42% and 48%, respectively. For the three months ended December 31, 2004, 82 contracts for new construction hotels representing 5,931 rooms were executed, representing increases of 64% and 82%, respectively, compared to 50 contracts, representing 3,250 rooms, for new construction hotels for the same period a year ago.

As of December 31, 2004, Choice had 460 hotels under development in its domestic hotel system, representing 35,652 rooms, compared to 401 hotels and 31,409 rooms at the same date in 2003, increases of 15% and 14%, respectively.

As of December 31, 2004, the number of Choice hotels on-line worldwide grew 3.5% to 4,977 from 4,810 as of the same date a year ago.  This growth represents an increase of 3.9% in the number of rooms open to 403,806 from 388,618.  As of December 31, 2004, Choice had 569 hotels under development worldwide, representing 45,167 rooms, compared to 491 hotels and 39,877 rooms at the same date in 2003.

Use of Free Cash Flow

The company has consistently used the free cash flow (cash flows from operations less capital expenditures) generated from its operations to return value to its shareholders.  This is primarily achieved through share repurchases and dividends.

During 2004, the company purchased 3.2 million shares of its common stock at an average price of $46.45 per share for a total cost of $148.3 million. For the three months ended December 31, 2004, the company purchased 0.9 million shares of its common stock at a total cost of $47.1 million. The company has remaining authorization to purchase up to 1.8 million shares. Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 32.5 million shares of its common stock at an average price of $20.38 per share and a total cost of $663 million, through December 31, 2004.  Total shares outstanding as of December 31, 2004, are 32.3 million. 

During 2004, the company paid $27.7 million of cash dividends to shareholders. The current annual dividend rate on the company’s common stock is $0.90 per share.

The company expects to continue to return value to its shareholders through a combination of share repurchases and dividends.

First Quarter & Full-Year 2005

The company’s first quarter 2005 diluted EPS is expected to be $0.32 to $0.34.  These first quarter estimates assume the existing share count and RevPAR growth of approximately 5% to 6%. Full year 2005 diluted EPS is expected to be $2.38 to $2.42. These estimates assume the existing share count and RevPAR growth of approximately 5% to 7%. These estimates exclude the effect of adopting Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R) related to unvested stock options granted prior to 2003.

Non-GAAP Financial Measures

Franchising revenues, franchising margins, adjusted net income, adjusted diluted EPS and free cash flow 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 margins, net income, diluted EPS 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 which reconcile these measures to the comparable GAAP measurement.
 

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




(In thousands, except per       Three Months Ended Twelve Months Ended
share amounts)                  December  December December  December
                                31, 2004  31, 2003 31, 2004  31, 2003
                                ------------------ ------------------
REVENUES:

Royalty fees                     $42,914  $38,130  $167,151 $151,326
Initial franchise and 
 relicensing fees                  6,566    5,514    20,112   16,799
Partner services                   3,242    3,597    12,524   13,227
Marketing and reservation         52,204   45,871   221,313  195,420
Hotel operations                     967      826     3,729    3,565
Other                                993    1,220     3,977    5,767
                                ------------------ ------------------
      Total revenues             106,886   95,158   428,806  386,104

OPERATING EXPENSES:

Selling, general and
 administrative                   20,042   17,823    69,654   62,860
Depreciation and amortization      2,422    2,753     9,947   11,225
Marketing and reservation         52,204   45,871   221,313  195,420
Hotel operations                     742      399     2,892    2,616
                                ------------------ ------------------
      Total operating expenses    75,410   66,846   303,806  272,121

Operating income                  31,476   28,312   125,000  113,983

OTHER INCOME AND EXPENSES:
Interest expense                   3,328    2,612    11,605   11,597
Interest and other investment
 income                             (783)  (1,546)   (1,093)  (6,185)
Gain on prepayment of note
 receivable from Sunburst              -   (3,433)        -   (3,383)
Equity in net income of
 affiliates                         (271)    (247)     (722)    (582)
Loss on extinguishment of debt         -        -       696        -
Other                                 (4)     122       (10)     129
                                ------------------ ------------------
      Total other income and 
       expenses                    2,270   (2,492)   10,476    1,576
                                ------------------ ------------------

Income before income taxes        29,206   30,804   114,524  112,407
Income taxes                       8,874   10,084    40,179   40,544
                                ------------------ ------------------
Net income                       $20,332  $20,720   $74,345  $71,863
                                ================== ==================
 

Weighted average shares
 outstanding-basic                 32,350   35,303    33,203   35,699
                                 ================== ==================

Weighted average shares
 outstanding-diluted               33,716   36,513    34,500   36,674
                                 ================== ==================

Basic earnings per share            $0.63    $0.59     $2.24    $2.01
                                 ================== ==================

Diluted earnings per share          $0.60    $0.57     $2.15    $1.96
                                 ================== ==================
 

Choice Hotels International, Inc.                         Exhibit 2
Consolidated Balance Sheets

(In thousands)                               December 31, December 31,
                                                 2004         2003
                                             ------------ ------------
                                             (Unaudited)

ASSETS

Cash and cash equivalents                        $27,554      $20,031
Accounts receivable, net                          34,611       33,631
Deferred income taxes                              2,252        1,957
Other current assets                               4,212        3,613
                                             ------------ ------------
      Total current assets                        68,629       59,232

Fixed assets and intangibles, net                140,214      150,256
Receivable -- marketing and reservation fees      21,683       32,368
Other assets                                      31,862       25,416
                                             ------------ ------------

            Total assets                         262,388      267,272
                                             ------------ ------------

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current portion of long-term debt                 10,146       23,829
Other current liabilities                         90,945       78,382
                                             ------------ ------------
      Total current liabilities                  101,091      102,211

Long-term debt                                   318,557      222,823
Deferred income taxes                              6,974       21,562
Other liabilities                                 38,819       38,863
                                             ------------ ------------

      Total liabilities                          465,441      385,459
                                             ------------ ------------

      Total shareholders' deficit               (203,053)    (118,187)
                                             ------------ ------------

            Total liabilities and
             shareholders' deficit              $262,388     $267,272
                                             ------------ ------------
 

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

(In thousands)                                 Twelve Months Ended
                                             December 31, December 31,
                                                 2004         2003
                                             -------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                       $74,345      $71,863

Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation and amortization                    9,947       11,225
  Gain on Sunburst Hospitality note
   prepayment                                          -       (3,383)
  Provision for bad debts                           (157)        (189)
  Non-cash stock compensation                      4,019        2,226
  Non-cash interest and other investment
   income                                           (463)        (886)
  Loss on extinguishment of debt                     696            -
  Equity in net income of affiliates                (722)        (582)

Changes in assets and liabilities, net of
 acquisitions:
  Receivables                                       (735)        (887)
  Receivable -- marketing and reservation
   fees, net                                      19,743       24,726
  Accounts payable                                   978        6,439
  Accrued expenses and other                      12,802        7,616
  Income taxes payable                             2,854       (2,675)
  Deferred income taxes                          (14,883)      (7,970)
  Other current assets                              (599)         383
  Other liabilities                                  (26)       7,579
                                             ------------ ------------

 NET CASH PROVIDED BY OPERATING ACTIVITIES       107,799      115,485
                                             ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment              (6,859)      (8,480)
Proceeds from disposition of property                  -          498
Prepayment of Sunburst Hospitality note                -       44,701
Issuance of notes receivable                      (2,264)      (4,433)
Acquisition of flag                                    -       (1,211)
Purchases of investments, net                     (4,157)      (2,673)
Other items, net                                    (436)        (618)
                                             ------------ ------------

 NET CASH (USED IN) PROVIDED BY INVESTING
  ACTIVITIES                                     (13,716)      27,784
                                             ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term debt                     192,000            -
Principal payments of long-term debt            (267,739)     (17,404)
Net borrowings (repayments) pursuant to
 revolving credit facility                       157,725      (43,800)
Debt issue costs                                  (1,010)           -
Purchase of treasury stock                      (148,273)     (80,358)
Dividends paid                                   (27,690)           -
Proceeds from exercise of stock options            8,427        6,097
                                             ------------ ------------

 NET CASH USED IN FINANCING ACTIVITIES           (86,560)    (135,465)
                                             ------------ ------------

Net change in cash and cash equivalents            7,523        7,804
Cash and cash equivalents at beginning of
 period                                           20,031       12,227
                                             ------------ ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD       $27,554      $20,031
                                             ============ ============
 

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

                      Three Months Ended        Twelve Months Ended
                   December 31, December 31, December 31, December 31,
                       2004         2003         2004         2003
                   ------------ ------------ ------------ ------------

COMFORT INN
  Hotels                 1,432        1,413        1,432        1,413
  Rooms                112,325      111,218      112,325      111,218
  Avg. Daily Rate       $65.70       $62.80       $65.53       $64.05
  Occupancy %             61.3%        58.6%        60.1%        58.2%
  RevPAR                $40.29       $36.82       $39.37       $37.28
 

COMFORT SUITES
  Hotels                   389          370          389          370
  Rooms                 30,682       29,198       30,682       29,198
  Avg. Daily Rate       $72.90       $70.68       $73.68       $72.58
  Occupancy %             64.1%        60.8%        64.1%        61.2%
  RevPAR                $46.70       $42.99       $47.26       $44.44
 

QUALITY
  Hotels                   576          508          576          508
  Rooms                 58,785       52,766       58,785       52,766
  Avg. Daily Rate       $61.85       $60.90       $63.62       $64.19
  Occupancy %             53.8%        51.8%        54.1%        51.6%
  RevPAR                $33.30       $31.52       $34.41       $33.14
 

CLARION
  Hotels                   158          138          158          138
  Rooms                 23,652       20,737       23,652       20,737
  Avg. Daily Rate       $72.47       $70.63       $72.37       $72.27
  Occupancy %             50.7%        48.8%        51.1%        49.2%
  RevPAR                $36.71       $34.48       $36.97       $35.55
 

SLEEP
  Hotels                   311          309          311          309
  Rooms                 23,766       23,678       23,766       23,678
  Avg. Daily Rate       $59.67       $57.24       $59.50       $58.01
  Occupancy %             60.3%        58.2%        59.5%        57.5%
  RevPAR                $35.99       $33.32       $35.42       $33.33
 

MAINSTAY
  Hotels                    27           26           27           26
  Rooms                  2,150        2,063        2,150        2,063
  Avg. Daily Rate       $61.93       $58.87       $61.09       $61.50
  Occupancy %             65.2%        63.4%        62.2%        62.9%
  RevPAR                $40.36       $37.33       $37.97       $38.70
 

ECONO LODGE
  Hotels                   781          734          781          734
  Rooms                 48,301       45,420       48,301       45,420
  Avg. Daily Rate       $48.75       $46.97       $48.92       $47.88
  Occupancy %             47.9%        46.5%        48.2%        47.5%
  RevPAR                $23.36       $21.86       $23.57       $22.76
 

RODEWAY
  Hotels                   160          138          160          138
  Rooms                  9,925        9,188        9,925        9,188
  Avg. Daily Rate       $50.09       $47.37       $52.33       $49.84
  Occupancy %             49.3%        43.5%        48.7%        44.8%
  RevPAR                $24.67       $20.59       $25.49       $22.32
 

TOTAL CHOICE - DOMESTIC
  Hotels                 3,834        3,636        3,834        3,636
  Rooms                309,586      294,268      309,586      294,268
  Avg. Daily Rate       $63.17       $60.98       $63.56       $62.53
  Occupancy %             56.9%        54.7%        56.6%        54.7%
  RevPAR                $35.96       $33.34       $35.95       $34.21
  Effective Royalty
   Rate                   4.05%        4.06%        4.04%        4.01%
 

                   CHOICE HOTELS INTERNATIONAL, INC.         Exhibit 5
                       SUPPLEMENTAL INFORMATION
                CALCULATION OF FRANCHISING REVENUES AND
                          FRANCHISING MARGINS
                              (UNAUDITED)

(dollar amounts in thousands)   Three Months Ended Twelve Months Ended
                                December  December December  December
                                31, 2004  31, 2003 31, 2004  31, 2003
                                ------------------ ------------------

Franchising Revenues:

Total Revenues                  $106,886  $95,158  $428,806 $386,104
Adjustments:
     Marketing and Reservation
      Revenues                   (52,204) (45,871) (221,313)(195,420)
     Hotel Operations               (967)    (826)   (3,729)  (3,565)
                                ------------------ ------------------
Franchising Revenues             $53,715  $48,461  $203,764 $187,119
                                ------------------ ------------------

Franchising Margins:

Operating Margin:

Total Revenues                  $106,886  $95,158  $428,806 $386,104
Operating Income                 $31,476  $28,312  $125,000 $113,983
                                ------------------ ------------------
     Operating Margin               29.4%    29.8%     29.2%    29.5%
                                ------------------ ------------------

Franchising Margin:

Franchising Revenues             $53,715  $48,461  $203,764 $187,119

Operating Income                 $31,476  $28,312  $125,000 $113,983
Less: Hotel Operations               225      427       837      949
                                ------------------ ------------------
                                 $31,251  $27,885  $124,163 $113,034
                                ------------------ ------------------

                                ------------------ ------------------
     Franchising Margins            58.2%    57.5%     60.9%    60.4%
                                ------------------ ------------------
 

                   CHOICE HOTELS INTERNATIONAL, INC.         Exhibit 6
                       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
                                December  December December  December
                                31, 2004  31, 2003 31, 2004  31, 2003
                                ------------------ ------------------

Adjusted Net Income

Net Income                       $20,332  $20,720   $74,345  $71,863
Adjustments:
  Debt Extinguishment Costs            -        -       433        -
  Gain on Sunburst Note
   Prepayment                          -   (3,433)        -   (3,383)
                                ------------------ ------------------
Adjusted Net Income              $20,332  $17,287   $74,778  $68,480
                                ------------------ ------------------
 

Weighted average shares
 outstanding-diluted              33,716   36,513    34,500   36,674

Diluted Earnings Per Share         $0.60    $0.57     $2.15    $1.96
Adjustments:
  Debt Extinguishment Costs            -        -      0.01        -
  Gain on Sunburst Note
   Prepayment                          -    (0.09)        -    (0.09)
                                ------------------ ------------------
Adjusted Diluted Earnings Per
 Share (EPS)                       $0.60    $0.48     $2.16    $1.87
                                ------------------ ------------------

Choice Hotels International franchises more than 4,900 hotels, representing approximately 400,000 rooms, in the United States and 41 other countries and territories.  As of December 31, 2004, 460 hotels are under development in the United States, representing 35,652 rooms, and an additional 109 hotels, representing 9,515 rooms, are under development in 21 countries and territories.  Its Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.

Contact:
John Hawkins
Vice President
Tel: (301) 592-5075
john_hawkins@choicehotels.com
www.choicehotels.com
Also See: 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 / Hotel Operating Statistics / February 2004
Choice Hotels Names the Best Hotel Within Each Brand; The 2004 Inn of the Year Awards / May 2004


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