SILVER SPRING, Md. | Choice Hotels International, Inc., (NYSE:CHH) today reported the following highlights for the fourth quarter and full-year 2006:

  • Diluted earnings per share (“EPS”) for full-year 2006 were $1.68, up 27% compared to $1.32 for full-year 2005; Diluted EPS for fourth quarter 2006 were $0.37, a 16% increase compared to $0.32 for the same period in 2005.
  • Adjusted diluted EPS for full-year 2006 were $1.49, an 18% increase compared to $1.26 for full-year 2005; Adjusted diluted EPS for fourth quarter 2006 were $0.36, up 13% compared to $0.32 reported in the same period of the prior year.
  • Operating income increased 16% to $166.6 million for full-year 2006, as compared to $143.8 reported in the same period of the prior year. Operating income for fourth quarter 2006 increased 10% to $39.9 million compared to $36.2 million reported for the same period in 2005.
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") for full-year 2006 increased 15% to $176 million from $153 million in 2005. EBITDA for fourth quarter 2006 was $42.3 million, an increase of 10% compared to $38.5 million reported for the same period in 2005.
  • Franchising revenues and total revenues increased 14% for full-year 2006. Franchising revenues increased 10% and total revenues increased 18% for fourth quarter 2006 compared to the same period of the prior year.
  • New domestic hotel franchise contracts for full-year 2006 increased 13% to a record 720. Fourth quarter new domestic hotel franchise contracts increased 21% to 267 compared to fourth quarter 2005.
  • Domestic unit growth increased 4 percent for 2006.
  • Domestic system-wide revenue per available room (RevPAR) increased 6.1% for full-year 2006 and 3.7% for the fourth quarter. Domestic RevPAR for the company’s midscale without food and beverage brands increased approximately 9% for 2006 and approximately 6% for the fourth quarter of 2006.
  • The domestic hotel pipeline of hotels under construction, awaiting conversion or approved for development increased more than 43% to 860 hotels representing 66,238 rooms; the worldwide pipeline increased 35% to 930 hotels representing 72,555 rooms.
  • Thirty domestic hotel contracts executed for the new upscale Cambria Suites brand during 2006, with 43 executed since the brand was introduced in 2005.

“2006 was another strong year for Choice Hotels, as we saw significant growth in domestic franchise contracts for both new construction and conversion hotels,” said Charles A. Ledsinger, Jr., vice chairman and chief executive officer. “We are very pleased with Cambria Suites’ progress and the momentum we are seeing for the brand among hotel developers. For 2007 and beyond, our solid operating model, prudent management of our strong portfolio of ten brands, and continued focus on both new construction and conversion markets positions Choice for continued long-term growth.”

Outlook for 2007

The company’s first quarter 2007 diluted EPS is expected to be $0.23. The company expects full year 2007 diluted EPS of $1.59. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for full-year 2007 is expected to be approximately $186 million. These estimates include the following assumptions.

  • The company expects net domestic unit growth of approximately 4% in 2007;
  • RevPAR is expected to increase 2% for first quarter 2007 and 4% for full-year 2007;
  • The effective royalty rate is expected to increase 3 basis points for full-year 2007;
  • All figures assume the existing share count and assume an effective tax rate of 36.25%;
  • All figures assume approximately $3.6 million ($0.03 diluted EPS) in first-quarter 2007 and $4.5 million ($0.04 diluted EPS) for full-year 2007, respectively, of severance costs related to the previously announced termination of certain executive officers.

Adjusted Net Income and Diluted EPS

Net income and diluted earnings per share for the three and twelve months ended December 31, 2006 include a reduction of income tax expense related to reversal of provisions for certain income tax contingencies of approximately $0.2 million and $12.8 million, respectively. Net income and diluted earnings per share for the twelve months ended December 31, 2006 also include a loss of approximately $0.3 million ($0.2 million, net of the related tax effect) related to the extinguishment of debt. Those items represent diluted EPS of $0.01 and $0.19, net, for the three and twelve months ended December 31, 2006, respectively. Adjusted diluted EPS and adjusted net income for the three and twelve months ended December 31, 2006 exclude these items.

Net income and diluted earnings per share for the twelve months ended December 31, 2005 include additional income tax expense of approximately $1.2 million related to the Company's plan to repatriate approximately $23.5 million of foreign earnings pursuant to the American Jobs Creation Act. Net income and diluted earnings per share for the three and twelve months ended December 31, 2005 include a reduction of income tax expense related to the reversal of provisions for certain income tax contingencies of approximately $0.5 million and $4.9 million, respectively. Those items represent diluted EPS of less than $0.01, net, for the three months and $0.06, net, for the twelve months ended December 31, 2006. Adjusted diluted EPS and adjusted net income for the three and twelve months ended December 31, 2005 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 its operations to return value to shareholders. This is primarily achieved through share repurchases and dividends.

For the twelve months ended December 31, 2006, the company paid $35.4 million of cash dividends to shareholders. The annual dividend rate per common share was increased 15% by the Board of Directors in September 2006 and is now $0.60.

The company has authorization to purchase up to an additional 5.1 million shares under the share repurchase program. Repurchases will continue to be made in the open market and through privately negotiated transactions subject to market and other conditions. No minimum number of shares has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 33.6 million shares of its common stock for a total cost of $711.9 million through February 13, 2007. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 66.6 million shares at an average price of $10.69 per share.

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

Conference Call

Choice will conduct a conference call on Wednesday, February 14, 2007 at 9:30 a.m. EST to discuss the company’s fourth quarter and full-year 2006 results. The call-in number to listen to the call is 1-877-209-0397. International callers should dial 612-332-0637. The conference call also will be Web cast 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 14th. The call will also be available for replay beginning at 4:30 p.m. EST on February 14 and will be available until March 14 by calling 1-800-475-6701, access code 860608. International callers should dial 320-365-3844 and enter access code 860608.

Items Impacting Comparability

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

About Choice Hotels | Choice Hotels International franchises more than 5,300 hotels, representing more than 435,000 rooms, in the United States and more than 40 countries and territories. As of December 31, 2006, 860 hotels are under development in the United States, representing 66,238 rooms, and an additional 70 hotels, representing 6,317 rooms, are under development in more than 15 countries and territories. The company’s Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites and Suburban Extended Stay Hotel brands serve guests worldwide.

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

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. The company’s Form 10-K for the year ended December 31, 2005 details some of the important risk factors that you should review.

Statement Concerning Non-GAAP Financial Measurements

Adjusted net income, adjusted diluted EPS, franchising revenues, franchising margins, EBITDA, and free cash flows are non-GAAP financial measurements. These financial measurements are presented as supplemental disclosures because they are used by management in reviewing and analyzing the company’s performance. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States (GAAP), such as net income, diluted earnings per share, total revenues, operating income, operating margins, and cash flows from operations. The company’s calculation of these measurements may be different from the calculation used by other companies and therefore comparability may be limited. The company has included exhibits accompanying this release that reconcile these measures to the comparable GAAP measurement.

Anne Madison
VP, Corporate Communications
301-592-6723
Choice