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 Choice Hotels Reports Full Year 2005 Net Income of $87.6 million
Compared to Prior Year Net Income of $74.3 million; Executes
639 New Domestic Hotel Franchise Contracts
Hotel Operating Statistics 
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SILVER SPRING, Md. - Feb. 14, 2006 -- Choice Hotels International, Inc., (NYSE:CHH - News) today reported the following highlights for the fourth quarter and full-year 2005, including records for full-year and fourth-quarter earnings per share, revenues and domestic hotel franchise contracts: 
  • Diluted earnings per share (EPS) for full-year 2005 were $1.32 compared to $1.08 for 2004; Diluted earnings per share for fourth quarter 2005 were $0.32 compared to $0.30 for fourth quarter 2004;
  • Adjusted diluted EPS (on a non-GAAP basis, excluding specified items) for full-year 2005 were $1.26, up 18% from $1.07 for the same period in 2004; Adjusted diluted EPS for fourth quarter 2005 were $0.32, up 14% from $0.28 for the fourth quarter of 2004;
  • Earnings before interest taxes and depreciation expense ("EBITDA") for full-year 2005 increased 13% to $153 million from $135 million in 2004. Operating income increased more than 15% for both full-year and fourth quarter 2005 compared to the same periods in the prior year, to $143.8 million and $36.2 million, respectively;
  • Domestic unit growth increased 5.6%; excluding the acquisition of Suburban, domestic unit growth increased 3.9%;
  • Domestic system-wide revenue per available room (RevPAR) increased 7.3% for fourth-quarter 2005 and 6.1% for full-year 2005 compared to prior year results;
  • Full year 2005 new domestic hotel franchise contracts up 16% to a record 639;
  • Franchising revenues up 16% and 13% for fourth quarter and full-year 2005, respectively; Total revenues up 14% and 11% for fourth quarter and full-year, respectively;
  • The domestic hotel pipeline of hotels under construction, awaiting conversion or approved for development increased more than 30% to 603 hotels representing 46,464 rooms; the worldwide pipeline increased 21% to 687 hotels, representing 54,075 rooms;
  • According to Smith Travel Research ("STR") Choice branded system-wide market share in the United States has increased 89 basis points to 7.35% of total industry rooms since 2002. The total number of domestic hotel rooms has increased at an annual rate of less than 1% per annum during these same 3 years. 
"We are very pleased with our performance for the fourth quarter and for the full-year 2005. We achieved record results, including record franchise sales and our highest year-end domestic hotel pipeline. These results provide solid momentum heading into 2006 and reflect the strength and sustainability of our business model," said Charles A. Ledsinger, Jr., president and chief executive officer. "While continuing to invest in the business, we also returned nearly $80 million to our shareholders through share repurchases and dividends during the year."
He added, "We continue to be encouraged by our strong pipeline, the healthy operating environment for the lodging industry and the development potential for the two brands we added to our portfolio in 2005, the upscale Cambria Suites brand and Suburban Extended Stay Hotels."

During 2005, the company acquired Suburban Franchise Holding Company, Inc., which included 67 Suburban Extended Stay Hotels 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.

Diluted earnings per share for each of the full-year and fourth quarter periods ended December 31, 2005 and 2004 include reductions of income tax expense related to the resolution of certain tax contingencies. Diluted earnings per share for full-year 2005 include additional income tax expense related to the company's repatriation of foreign earnings pursuant to the American Jobs Creation Act. Diluted earnings per share for full-year 2004 include certain costs related to the extinguishment of debt. To present results on a comparable basis the company has provided adjusted diluted earnings per share amounts that exclude these items.

Use of Free Cash Flow

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

During the year ended December 31, 2005, the company repurchased approximately 1.1 million shares (including 0.5 million prior to the 2 for 1 stock split effected in October 2005) of its common stock for a total cost of $48.6 million. The company has remaining authorization to purchase up to 5.1 million shares. No minimum number of shares has been fixed. Since Choice announced its stock repurchase program on June 25, 1998 and through February 14, 2006, the company has repurchased 33.6 million shares (including 33.0 million prior to the 2 for 1 stock split effected in October 2005) of its common stock at an average price of $21.16 per share and for a total cost of $711.9 million.
For the year ended December 31, 2005, the company paid $30.2 million of cash dividends to shareholders. The annual dividend rate per common share is $0.52.

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

Outlook for 2006

The company's first quarter 2006 diluted EPS is expected to be $0.19 to $0.21. Full-year 2006 diluted EPS is expected to be $1.38 to $1.41. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is expected to be $170 million to $173 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 6.5% to 8% for first quarter 2006 and 5% to 6% 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 37.5%. 
Conference Call

Choice will conduct a conference call on Wednesday, February 15, 2006 at 9 a.m. Eastern time to discuss the company's fourth quarter and full-year 2005 results. The call-in number to listen to the call is 1-800-230-1059. The conference call also will be Webcast simultaneously via the company's Web site, 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 www.choicehotels.com for those unable to listen to the call on February 15. The call will also be available for replay until March 15, 2006 by calling 1-800-475-6701. The access code for the replay is: 814000.

Two-For-One Stock Split

The company effected a two-for-one stock split of its outstanding shares of common stock, par value $.01 per share, effective on October 21, 2005. 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 (unless otherwise noted).
 


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

                                     Three Months Ended December 31,
                                    ----------------------------------
                                                           Variance
                                      2005      2004       $       %
                                    --------- --------- -------- -----
(In thousands, except per share
 amounts)

REVENUES:

  Royalty fees                       $49,120   $42,904   $6,216    14%
  Initial franchise and relicensing
   fees                                8,717     6,566    2,151    33%
  Partner services                     3,024     3,242     (218)  (7%)
  Marketing and reservation           58,629    52,001    6,628    13%
  Hotel operations                     1,079       967      112    12%
  Other                                1,416       993      423    43%
                                    --------- --------- -------- -----
      Total revenues                 121,985   106,673   15,312    14%

OPERATING EXPENSES:

  Selling, general and
   administrative                     23,987    20,013    3,974    20%
  Depreciation and amortization        2,282     2,422     (140)  (6%)
  Marketing and reservation           58,629    52,001    6,628    13%
  Hotel operations                       840       771       69     9%
                                    --------- --------- -------- -----
      Total operating expenses        85,738    75,207   10,531    14%

Operating income                      36,247    31,466    4,781    15%

OTHER INCOME AND EXPENSES:
  Interest expense                     4,031     3,328      703    21%
  Interest and other investment
   (income) loss                        (134)     (793)     659  (83%)
  Equity in net income of affiliates    (182)     (271)      89  (33%)
  Loss on extinguishment of debt           -         -        -   ---
  Other                                   (3)       (4)       1  (25%)
                                    --------- --------- -------- -----
      Total other income and
       expenses                        3,712     2,260    1,452    64%
                                    --------- --------- -------- -----

Income before income taxes            32,535    29,206    3,329    11%
Income taxes                          10,983     8,874    2,109    24%
                                    --------- --------- -------- -----
Net income                           $21,552   $20,332   $1,220     6%
                                    ========= ========= ======== =====
 

Weighted average shares outstanding-
 basic                                64,360    64,700
                                    ========= =========

Weighted average shares outstanding-
 diluted                              66,360    67,432
                                    ========= =========

Basic earnings per share               $0.33     $0.31    $0.02     7%
                                    ========= ========= ======== =====

Diluted earnings per share             $0.32     $0.30    $0.02     8%
                                    ========= ========= ======== =====
 

                                     Twelve Months Ended December 31,
                                    ----------------------------------
                                                           Variance
                                      2005      2004       $       %
                                    --------- --------- -------- -----
(In thousands, except per share
 amounts)

REVENUES:

  Royalty fees                      $187,340  $167,135  $20,205    12%
  Initial franchise and relicensing
   fees                               25,388    20,112    5,276    26%
  Partner services                    13,382    12,524      858     7%
  Marketing and reservation          243,123   220,732   22,391    10%
  Hotel operations                     4,293     3,729      564    15%
  Other                                3,873     3,976     (103)  (3%)
                                    --------- --------- -------- -----
      Total revenues                 477,399   428,208   49,191    11%

OPERATING EXPENSES:

  Selling, general and
   administrative                     78,250    69,542    8,708    13%
  Depreciation and amortization        9,051     9,947     (896)  (9%)
  Marketing and reservation          243,123   220,732   22,391    10%
  Hotel operations                     3,225     3,004      221     7%
                                    --------- --------- -------- -----
      Total operating expenses       333,649   303,225   30,424    10%

Operating income                     143,750   124,983   18,767    15%

OTHER INCOME AND EXPENSES:
  Interest expense                    15,325    11,605    3,720    32%
  Interest and other investment
   (income) loss                      (1,094)   (1,110)      16   (1%)
  Equity in net income of affiliates    (803)     (722)     (81)   11%
  Loss on extinguishment of debt           -       696     (696)   NM
  Other                                 (420)      (10)    (410) 4100%
                                    --------- --------- -------- -----
      Total other income and
       expenses                       13,008    10,459    2,549    24%
                                    --------- --------- -------- -----

Income before income taxes           130,742   114,524   16,218    14%
Income taxes                          43,177    40,179    2,998     7%
                                    --------- --------- -------- -----
Net income                           $87,565   $74,345  $13,220    18%
                                    ========= ========= ======== =====
 

Weighted average shares outstanding-
 basic                                64,429    66,406
                                    ========= =========

Weighted average shares outstanding-
 diluted                              66,336    69,000
                                    ========= =========

Basic earnings per share               $1.36     $1.12    $0.24    21%
                                    ========= ========= ======== =====

Diluted earnings per share             $1.32     $1.08    $0.24    23%
                                    ========= ========= ======== =====
 

Choice Hotels International, Inc.                            Exhibit 2
Consolidated Balance Sheets
 

(In thousands)                               December 31, December 31,
                                                 2005         2004
                                             ------------ ------------
                                             (Unaudited)

ASSETS

Cash and cash equivalents                        $16,921      $28,518
Accounts receivable, net                          37,155       34,611
Deferred income taxes                              2,616        2,252
Other current assets                               6,308        4,212
                                             ------------ ------------
      Total current assets                        63,000       69,593

Fixed assets and intangibles, net                150,376      142,907
Receivable -- marketing and reservation fees      13,225       21,683
Other assets                                      38,499       29,169
                                             ------------ ------------

            Total assets                         265,100      263,352
                                             ------------ ------------
 

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current portion of long-term debt                    146       10,146
Other current liabilities                        119,999       91,909
                                             ------------ ------------
      Total current liabilities                  120,145      102,055

Long-term debt                                   273,972      318,557
Deferred income taxes                                  -        6,974
Other liabilities                                 38,159       38,819
                                             ------------ ------------

      Total liabilities                          432,276      466,405
                                             ------------ ------------

      Total shareholders' deficit               (167,176)    (203,053)
                                             ------------ ------------

            Total liabilities and
             shareholders' deficit              $265,100     $263,352
                                             ------------ ------------
 

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

(In thousands)                                   Twelve Months Ended
                                                      December 31,
                                                 ---------------------
                                                    2005       2004
                                                 ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                         $87,565    $74,345

Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                      9,051      9,947
  Gain on sale of assets                              (386)         -
  Provision for bad debts                              391       (157)
  Non-cash stock compensation                        5,288      4,019
  Non-cash interest and other investment income       (294)      (463)
  Loss on extinguishment of debt                         -        696
  Equity in net income of affiliates                  (803)      (722)

Changes in assets and liabilities, net of
 acquisitions:
  Receivables                                       (2,415)      (735)
  Receivable - marketing and reservation fees,
   net                                              19,393     19,743
  Accounts payable                                   1,923        978
  Accrued expenses and other                        12,894      6,702
  Income taxes payable                              11,250      2,854
  Deferred income taxes                            (13,318)   (14,883)
  Deferred revenue                                   8,822      6,381
  Other current assets                              (2,040)      (599)
  Other liabilities                                 (4,414)       (26)
                                                 ---------- ----------

 NET CASH PROVIDED BY OPERATING ACTIVITIES         132,907    108,080
                                                 ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment               (11,504)    (6,859)
Proceeds from disposition of assets                  2,811          -
Issuance of notes receivable                        (2,667)    (2,264)
Proceeds from sales of investments                   3,539      4,506
Purchases of investments                            (8,929)    (8,664)
Acquisition of Surburban, net of cash acquired      (7,314)         -
Other items, net                                       214       (435)
                                                 ---------- ----------

 NET CASH USED IN INVESTING ACTIVITIES             (23,850)   (13,716)
                                                 ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term debt                             -    192,000
Principal payments of long-term debt                  (150)  (267,739)
Net (repayments) borrowings pursuant to revolving
 credit facility                                   (55,129)   157,725
Debt issuance costs                                   (193)    (1,010)
Purchase of treasury stock                         (49,154)  (148,273)
Dividends paid                                     (30,241)   (27,690)
Proceeds from exercise of stock options             14,213      8,427
                                                 ---------- ----------

 NET CASH USED IN FINANCING ACTIVITIES            (120,654)   (86,560)
                                                 ---------- ----------

Net change in cash and cash equivalents            (11,597)     7,804
Cash and cash equivalents at beginning of period    28,518     20,714
                                                 ---------- ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD         $16,921    $28,518
                                                 ========== ==========
 

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

                      For the Year Ended        For the Year Ended
                       December 31, 2005         December 31, 2004
                   ------------------------- -------------------------
                   Average                   Average 
                    Daily                     Daily
                    Rate   Occupancy RevPAR   Rate   Occupancy RevPAR
                   ------- --------- ------- ------- --------- -------

COMFORT INN        $68.84      61.7% $42.45  $65.53      60.1% $39.37

COMFORT SUITES      77.51      66.3%  51.36   73.68      64.1%  47.26

QUALITY             64.86      54.6%  35.41   63.62      54.1%  34.41

CLARION             74.62      52.5%  39.15   72.37      51.1%  36.97

SLEEP               62.52      61.0%  38.16   59.50      59.5%  35.42

MAINSTAY            64.76      65.7%  42.54   61.09      62.2%  37.97

ECONO LODGE         50.95      48.2%  24.56   48.92      48.2%  23.57

RODEWAY             49.91      46.7%  23.31   52.33      48.7%  25.49
                   ------- --------- ------- ------- --------- -------

TOTAL DOMESTIC
 SYSTEM*           $66.24      57.6% $38.15  $63.56      56.6% $35.95
                   ======= ========= ======= ======= ========= =======
 

                             Change              
                   --------------------------    
                   Average 
                    Daily                 
                    Rate   Occupancy  RevPAR     
                   ------- --------- --------    
                                                 
COMFORT INN           5.1%   160 bps     7.8%    
                                                 
COMFORT SUITES        5.2%   220 bps     8.7%    
                                                 
QUALITY               1.9%    50 bps     2.9%    
                                                 
CLARION               3.1%   140 bps     5.9%    
                                                 
SLEEP                 5.1%   150 bps     7.7%    
                                                 
MAINSTAY              6.0%   350 bps    12.0%    
                                                 
ECONO LODGE           4.1%     0 bps     4.2%    
                                                 
RODEWAY             (4.6%)  -200 bps   (8.6%)    
                   ------- --------- --------    
                                                 
TOTAL DOMESTIC                                   
 SYSTEM*              4.2%   100 bps     6.1%    
                   ======= ========= ========    
                                                 

                    For the Quarter Ended     For the Quarter Ended
                       December 31, 2005         December 31, 2004
                   ------------------------- -------------------------
                   Average                   Average 
                    Daily                     Daily
                    Rate   Occupancy RevPAR   Rate   Occupancy RevPAR
                   ------- --------- ------- ------- --------- -------

COMFORT INN        $68.81      63.4% $43.65  $65.70      61.3% $40.29

COMFORT SUITES      77.28      68.2%  52.70   72.90      64.1%  46.70

QUALITY             63.47      55.1%  34.95   61.85      53.8%  33.30

CLARION             75.70      53.9%  40.80   72.47      50.7%  36.71

SLEEP               62.68      62.0%  38.88   59.67      60.3%  35.99

MAINSTAY            65.55      68.1%  44.64   61.93      65.2%  40.36

ECONO LODGE         50.83      47.9%  24.35   48.75      47.9%  23.36

RODEWAY             48.01      44.7%  21.47   50.09      49.3%  24.67
                   ------- --------- ------- ------- --------- -------

TOTAL DOMESTIC
 SYSTEM*           $65.99      58.5% $38.60  $63.17      56.9% $35.96
                   ======= ========= ======= ======= ========= =======
 

                             Change
                   --------------------------
                   Average 
                    Daily
                    Rate   Occupancy  RevPAR
                   ------- --------- --------

COMFORT INN           4.7%   210 bps     8.3%

COMFORT SUITES        6.0%   410 bps    12.8%

QUALITY               2.6%   130 bps     5.0%

CLARION               4.5%   320 bps    11.1%

SLEEP                 5.0%   170 bps     8.0%

MAINSTAY              5.8%   290 bps    10.6%

ECONO LODGE           4.3%     0 bps     4.2%

RODEWAY             (4.2%)  -460 bps  (13.0%)
                   ------- --------- --------

TOTAL DOMESTIC
 SYSTEM*              4.5%   160 bps     7.3%
                   ======= ========= ========
 

* Amounts exclude Suburban activity from October 1, 2005 through
  December 31, 2005 because comparable pre-acquisition data for Q4
  2004 is not available
 

                         For the Quarter Ended    For the Year Ended
                         ---------------------- ----------------------
                         12/31/2005 12/31/2004  12/31/2005 12/31/2004

System-wide effective
 royalty rate                  4.08%      4.05%       4.08%      4.04%
 
 

              CHOICE HOTELS INTERNATIONAL, INC.              EXHIBIT 5
           SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
                         (UNAUDITED)

             December 31,   December 31,            
                 2005           2004               Variance
            -------------- -------------- ----------------------------
            Hotels  Rooms  Hotels  Rooms  Hotels  Rooms    %      %
            ------ ------- ------ ------- ------ ------- ------ ------

COMFORT INN  1,428 111,598 1,432  112,325    (4)   (727) (0.3%) (0.6%)

COMFORT
 SUITES        411  32,251   389   30,682    22   1,569    5.7%   5.1%

QUALITY        660  66,316   576   58,785    84   7,531   14.6%  12.8%

CLARION        153  23,554   158   23,652    (5)    (98) (3.2%) (0.4%)

SLEEP          319  24,205   311   23,766     8     439    2.6%   1.8%

MAINSTAY        27   2,047    27    2,150     -    (103)   0.0% (4.8%)

SUBURBAN        65   8,568     -        -    65   8,568     NM     NM

ECONO LODGE    805  49,763   781   48,301    24   1,462    3.1%   3.0%

RODEWAY        180  11,051   160    9,925    20   1,126   12.5%  11.3%
            ------ ------- ------ ------- ------ ------- ------ ------

DOMESTIC
 FRANCHISES  4,048 329,353 3,834  309,586   214  19,767    5.6%   6.4%

INTERNATIONAL
 FRANCHISES  1,162  97,703 1,143   94,220    19   3,483    1.7%   3.7%
            ------ ------- ------ ------- ------ ------- ------ ------

TOTAL
 FRANCHISES  5,210 427,056 4,977  403,806   233  23,250    4.7%   5.8%
            ====== ======= ====== ======= ====== ======= ====== ======
 

                                                             EXHIBIT 6
                  CHOICE HOTELS INTERNATIONAL, INC.
                  SUPPLEMENTAL INFORMATION BY BRAND
              DEVELOPMENT RESULTS -- NEW HOTEL CONTRACTS
                             (UNAUDITED)

                For the Year Ended            For the Year Ended
                 December 31, 2005             December 31, 2004
           ----------------------------- -----------------------------

               New                           New
           Construction Conversion Total Construction Conversion Total
           ------------ ---------- ----- ------------ ---------- -----

COMFORT INN         53         56   109           38         71   109

COMFORT
 SUITES             89          5    94           79          5    84

QUALITY              5        148   153            8        133   141

CLARION              4         31    35            2         28    30

SLEEP               55          2    57           33         --    33

MAINSTAY            14         --    14           16          1    17

CAMBRIA
 SUITES             13         --    13           --         --    --

ECONO LODGE          4         85    89            4         97   101

RODEWAY             --         75    75            2         35    37

           ------------ ---------- ----- ------------ ---------- -----
TOTAL
 DOMESTIC
 SYSTEM            237        402   639          182        370   552
           ============ ========== ===== ============ ========== =====
 

                                % Change
                      -----------------------------

                          New
                      Construction Conversion Total
                      ------------ ---------- -----

COMFORT INN                    39%      (21%)    0%

COMFORT
 SUITES                        13%         0%   12%

QUALITY                      (38%)        11%    9%

CLARION                       100%        11%   17%

SLEEP                          67%        NM    73%

MAINSTAY                     (13%)     (100%) (18%)

CAMBRIA
 SUITES                        NM         NM    NM

ECONO LODGE                     0%      (12%) (12%)

RODEWAY                     (100%)       114%  103%

                      ------------ ---------- -----
TOTAL
 DOMESTIC
 SYSTEM                        30%         9%   16%
                      ============ ========== =====
 

            For the Three Months Ended    For the Three Months Ended
                 December 31, 2005             December 31, 2004
           ----------------------------- -----------------------------

               New                           New
           Construction Conversion Total Construction Conversion Total
           ------------ ---------- ----- ------------ ---------- -----

COMFORT INN         18         16    34           20         26    46

COMFORT
 SUITES             49          1    50           34          1    35

QUALITY              1         36    37            2         39    41

CLARION              2         16    18           --          7     7

SLEEP               19          1    20           13         --    13

MAINSTAY             4         --     4           11         --    11

CAMBRIA              5         --     5           --         --    --

ECONO LODGE         --         24    24            1         29    30

RODEWAY             --         28    28            1         14    15

           ------------ ---------- ----- ------------ ---------- -----
TOTAL
 DOMESTIC
 SYSTEM             98        122   220           82        116   198
           ============ ========== ===== ============ ========== =====
 

                                % Change
                      -----------------------------

                          New
                      Construction Conversion Total
                      ------------ ---------- -----

COMFORT INN                  (10%)      (38%) (26%)

COMFORT
 SUITES                        44%         0%   43%

QUALITY                      (50%)       (8%) (10%)

CLARION                        NM        129%  157%

SLEEP                          46%        NM    54%

MAINSTAY                     (64%)        NM  (64%)

CAMBRIA                        NM         NM    NM

ECONO LODGE                 (100%)      (17%) (20%)

RODEWAY                     (100%)       100%   87%

                      ------------ ---------- -----
TOTAL
 DOMESTIC
 SYSTEM                        20%         5%   11%
                      ============ ========== =====
 

                   CHOICE HOTELS INTERNATIONAL, INC.         EXHIBIT 7
              SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
                              (UNAUDITED)

CALCULATION OF FRANCHISING 
 REVENUES AND
 FRANCHISING MARGINS

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

                               2005      2004       2005       2004
                             --------- --------- ---------- ----------
Franchising Revenues:

Total Revenues               $121,985  $106,673   $477,399   $428,208
Adjustments:
     Marketing and
      reservation revenues    (58,629)  (52,001)  (243,123)  (220,732)
     Hotel Operations          (1,079)     (967)    (4,293)    (3,729)
                             --------- --------- ---------- ----------
Franchising Revenues          $62,277   $53,705   $229,983   $203,747
                             --------- --------- ---------- ----------

Franchising Margins:

Operating Margin:

Total Revenues               $121,985  $106,673   $477,399   $428,208
Operating Income              $36,247   $31,466   $143,750   $124,983
                             --------- --------- ---------- ----------
     Operating Margin            29.7%     29.5%      30.1%      29.2%
                             --------- --------- ---------- ----------

Franchising Margin:

Franchising Revenues          $62,277   $53,705   $229,983   $203,747

Operating Income              $36,247   $31,466   $143,750   $124,983
Less: Hotel Operations            239       196      1,068        725
                             --------- --------- ---------- ----------
                              $36,008   $31,270   $142,682   $124,258
                             --------- --------- ---------- ----------

                             --------- --------- ---------- ----------
     Franchising Margins         57.8%     58.2%      62.0%      61.0%
                             --------- --------- ---------- ----------
 

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

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

                               2005      2004       2005       2004
                             --------- --------- ---------- ----------

Net Income                    $21,552   $20,332    $87,565    $74,345
Adjustments:
  Debt Extinguishment Costs         -         -          -        433
  Reversal of Provisions for
   Income Tax Contingencies      (454)   (1,153)    (4,855)    (1,182)
  Income Tax Expense Incurred
   Due to Foreign Earnings
   Repatriation                     -         -      1,192          -
                             --------- --------- ---------- ----------
Adjusted Net Income           $21,098   $19,179    $83,902    $73,596
                             --------- --------- ---------- ----------

Weighted average shares
 outstanding-diluted           66,360    67,432     66,336     69,000

Diluted Earnings Per Share      $0.32     $0.30      $1.32      $1.08
Adjustments:
  Debt Extinguishment Costs         -         -          -       0.01
  Reversal of Provisions for
   Income Tax Contingencies     (0.00)    (0.02)     (0.08)     (0.02)
  Income Tax Expense Incurred
   Due to Foreign Earnings
   Repatriation                     -         -       0.02          -
                             --------- --------- ---------- ----------
Adjusted Diluted Earnings
 Per Share (EPS)                $0.32     $0.28      $1.26      $1.07
                             --------- --------- ---------- ----------
 

EBITDA Reconciliation

(in millions)
                             Full-Year Full-Year Full-Year
                               2004      2005      2006
                              Actuals   Actuals   Outlook
                             --------- --------- ---------- 

  Operating Income (per GAAP)    $125      $144  $160-$163
  Depreciation and
   amortization                    10         9         10
                             --------- --------- ----------
  Earnings before interest,
   taxes, depreciation &
   amortization (non-GAAP)       $135      $153  $170-$173
                             ========= ========= ==========

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 December 31, 2005, 603 hotels are under development in the United States, representing 46,464 rooms, and an additional 84 hotels, representing 7,611 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 Hotels brands serve guests worldwide.

Additional corporate information may be found on Choice Hotels' Internet site, which may be accessed at 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, 2004.

Statement Concerning Non-GAAP Financial Measurements

Adjusted diluted earnings per share, franchising revenues, franchising margins, free cash flows and earnings before interest, taxes, depreciation and amortization ("EBITDA") 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 diluted earnings per share, total revenues, operating income margins, cash flows from operations and operating income. 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 Hotels, Econo Lodge, and Rodeway Inn are proprietary trademarks and service marks of Choice Hotels International, Inc..
© 2006 Choice Hotels International, Inc. All rights reserved.

.
Contact:

Choice Hotels International, Inc.
Joseph M. Squeri 
Executive Vice President, Operations 
and Chief Financial Officer
301-592-5006
.
Also See: 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 / February 2005
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

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