Press Releases

Choice Hotels Reports 2nd Quarter Recurring Diluted EPS Increases 19%; Revenues Up 10% for 2nd Quarter
Company Comfortable With Consensus EPS Estimates For Full Years 2001 and 2002
PRNewswire
SILVER SPRING, Md.

Choice Hotels International, Inc. , the world's second largest hotel franchisor, today reported second quarter 2001 recurring net income of $14.4 million, or $0.32 recurring diluted earnings per share (EPS), compared to the $14.3 million in recurring net income and $0.27 recurring diluted EPS reported for second quarter 2000.

"We are pleased that our second quarter results exceeded analysts' expectations, particularly in an economic environment that has challenged us and our strongest competitors," said Charles A. Ledsinger, Jr., president and chief executive officer. "Our franchising business continues to generate strong cash flow and the predictability of our long-term contracts makes Choice much less susceptible to economic cycles than owner-operator competitors."

He continued, "Total revenues grew 10% in the second quarter and have grown 8% so far this year, despite slow industry growth. Our continued emphasis on technology, brand improvement and operational efficiencies has translated into solid financial performance."

The company also announced that it is comfortable with the consensus estimate for 2001 diluted recurring EPS of $1.28, excluding potential equity or impairment losses on its investment in Friendly Hotels plc. Choice also anticipates that third quarter 2001 diluted EPS should reach the consensus estimate of $0.43.

In addition, the company expressed its comfort with the consensus of diluted recurring EPS of $1.44 for 2002, given the current number of shares outstanding.

Ledsinger concluded, "As a service business providing value to our franchisees, we continue to use our size and scale to improve business performance while evaluating other opportunities. We remain keenly focused on generating system growth and driving shareholder value with the goal of leveraging our position as a services company with well-known consumer brands."

Second Quarter Results

Recurring earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $29.4 million for the second quarter and $49.7 million for the first six months of 2001, respective increases of 8.5% and 6.9% over the $27.1 million for second quarter 2001 and $46.5 million for the first half of 2000. EBITDA margins remain consistent at 65% for the second quarter and 63% for the year-to-date through June 30.

The company reported royalty revenues of $36.0 million for second quarter 2001, compared to $34.3 million for second quarter 2000, an increase of 5.0%. The system-wide domestic effective royalty rate increased from 3.79% in second quarter 2000 to 3.94% for the second quarter of 2001. Domestic revenue per available room (RevPAR) was $37.10 for the second quarter of 2001, compared to $37.28 for the same period a year ago.

For the first six months of 2001, Choice reported recurring net income of $23.2 million or $0.51 recurring diluted EPS versus recurring net income of $24.2 million and $0.45 recurring diluted EPS for the first six months of 2000.

Royalty revenues for the first half of 2001 increased 6.4% to $63.0 million from the $59.2 million for the same period of a year ago. The system- wide domestic effective royalty rate increased 10 basis points for the first six months of 2001 to 3.91% from 3.81% for the same period a year ago. Domestic RevPAR also was up 2.0% from $32.17 for the first half of 2000 to $32.82 for the first six months of 2001.

During the three months ended June 30, 2001, the company recorded an equity loss of $0.8 million related to changes in its equity investment in Friendly Hotels plc. The equity loss is excluded from the company's recurring net income and recurring diluted EPS. In the event that Friendly has future liquidity issues, the company does not intend to fund future losses.

Internet Growth

Choice continues to emphasize cost-effective electronic distribution channels for its reservations activity. Total net revenue sold over the Internet was $62.3 million for second quarter 2001, an increase of 53.5% over the $40.6 million sold in second quarter 2000. Choice Hotels' proprietary web site, http://www.choicehotels.com/ , generated more than 53% of the total Internet volume for the quarter.

Internet reservations represented 7.2% of total system sales for second quarter 2001, up from 4.7% for the same period a year ago.

For the year-to-date through June 30, total net revenue sold over the Internet was $111.6 million, an increase of 66% over the $67.2 million for the same period a year ago. Internet reservations year-to-date represent 7.4% of total system sales, up from the 4.6% reported for the same period in 2000. Of this year's total revenues, 4.0% was generated through Choice's proprietary Web site, http://www.choicehotels.com/ .

The average room rate booked through the company's Internet site was up 2.9% for second quarter 2001 to $77.56 from $75.41 for the same period a year ago. This result compares to system-average daily rates of $62.21 for the second quarter 2001 and $60.56 for the same period a year ago. In addition, the Internet is a less expensive channel for booking reservations.

System Growth

Choice signed 68 hotel franchise contracts in second quarter 2001, compared to the 67 contracts signed in the same period a year ago. Through June 30, 2001, the company has signed 125 new contracts, representing 10,781 rooms. The company has signed 72 contracts to convert existing hotels to a Choice brand in the first half of 2001, up from 65 conversions from the same period a year ago.

As of June 30, 2001, the total number of Choice hotels worldwide on-line grew 3.0% to 4,433 from 4,303 as of the same date a year ago. As of the same date, the total number of rooms worldwide increased 3.3% to 354,761 from 343,511 as of the same date a year ago.

The company had 662 franchised hotels with 55,972 rooms either in design or under construction in its worldwide hotel system as of June 30, 2001.

Notable Events

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

  *  The company announced on July 17 that it has been authorized by its
     Board of Directors to repurchase up to an additional five million
     shares of common stock.  Since Choice announced its stock repurchase
     program on June 25, 1998, the company has purchased 19.7 million shares
     of common stock at an average price of $14.50 and a total cost of
     $285.9 million, as of July 20, 2001.  Since January 1, 2001, the
     company has purchased 10.6 million shares of common stock.  Total
     shares outstanding as of July 20, 2001 are 43.0 million.

  *  Moody's Investor Service confirmed its investment grade debt ratings
     for Choice and upgraded its rating outlook from negative to stable.
     The company completed refinancing of its credit facility in the amount
     of $260 million, with a feature allowing Choice to obtain additional
     commitments up to $325 million.

  *  The company has launched a re-imaging campaign for three of its brands:
     Quality, Comfort Suites and Sleep Inn.  Under the program, almost 1,400
     existing hotels worldwide will adopt new logos and signage for these
     brands.

  *  Choice's Board of Directors was honored by HVS Executive Search as the
     industry's top performing board at the 23rd Annual New York University
     International Hospitality Industry Investment Conference in June.

Choice Hotels International is the second-largest hotel franchisor in the world with 4,433 hotels open worldwide, representing 354,761 rooms, and another 455 hotels under development in the United States, representing 34,948 rooms. An additional 207 hotels, representing 21,024 rooms, are under development in 42 other countries as of June 30, 2001. Its Comfort, 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. 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 and the statements contained therein, we refer you to the filings made by Choice with the Securities and Exchange Commission, including its registration statement on Form S-4 and report on Form 10-Q for the period ended June 30, 1999.

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

Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Guest Privileges and ChoiceBuys.com are registered trademarks, service marks and trade names of Choice Hotels International, Inc. Choice Hotels also owns and uses common law marks, including Profit Manager.

                    Choice Hotels International, Inc.
                       Consolidated Balance Sheets

  (In thousands)                                  June 30,      December 31,
                                                    2001            2000
                                                (Unaudited)

  ASSETS

  Cash and cash equivalents                        $6,998           $19,701
  Other current assets                             32,862            32,385
       Total current assets                        39,860            52,086

  Fixed assets and intangibles, net               173,388           174,772
  Investment in Friendly Hotels plc                31,859            34,616
  Note receivable from Sunburst
   Hospitality Corp.                               36,957           137,492
  Advances to marketing and reservation
   funds                                           52,819            57,824
  Other assets                                     28,334            27,330

             Total assets                         363,217           484,120


  LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

  Current portion of long-term debt                11,396            50,046
  Other current liabilities                        46,185            43,782
       Total current liabilities                   57,581            93,828

  Long-term debt                                  276,400           247,179
  Deferred income taxes and other                  49,973            53,020

       Total liabilities                          383,954           394,027

       Total shareholders' (deficit)
        equity                                    (20,737)           90,093

             Total liabilities and
              shareholders' (deficit)
              equity                             $363,217          $484,120


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

  (In thousands, except per share
  amounts)                            Three Months Ended Six Months Ended
                                       June 30, June 30, June 30, June 30,
  Revenues                               2001     2000     2001    2000

  Royalty fees                         $36,048  $34,328  $63,003  $59,213
  Initial franchise fees and
   relicensing fees                      3,331    3,435    5,649    6,782
  Partner service revenue                3,964    2,088    5,902    4,386
  Hotel operations                         921      -      1,706      -
  Other                                    943    1,314    2,297    2,429
        Total revenues                  45,207   41,165   78,557   72,810

  Operating expenses

  Selling, general and administrative   15,188   14,071   27,676   26,299
  Hotel operations                         661      -      1,181      -
  Depreciation and amortization          3,002    3,053    5,892    5,555
        Total operating expenses        18,851   17,124   34,749   31,854

  Operating income                      26,356   24,041   43,808   40,956

  Other
  Interest and dividend income          (1,023)  (3,911)  (2,172)  (7,776)
  Interest expense                       3,770    4,609    8,082    9,225
  Equity loss-Friendly Hotels plc          763      164    2,921    1,889
  Gain on sale of investments              (42)     -        (42)     -
  Write-off of deferred financing
   costs                                   650      -        650      -
  Loss on early prepayment of note         -      4,100      -      4,100
        Total other                      4,118    4,962    9,439    7,438

  Income before income taxes            22,238   19,079   34,369   33,518
  Income taxes                           8,673    7,441   13,404   13,072
  Net income                           $13,565  $11,638  $20,965  $20,446


  Recurring net income (a)             $14,421  $14,297  $23,167  $24,182

  Weighted average shares outstanding   44,349   53,092   44,759   53,038

  Diluted shares outstanding            44,778   53,534   45,174   53,688

  Diluted earnings per share             $0.30    $0.22    $0.46    $0.38

  Diluted recurring earnings per share
   (a)                                   $0.32    $0.27    $0.51    $0.45


  (a)  Recurring net income and diluted recurring earnings per share
       exclude the impact of the equity loss-Friendly Hotels, gain on sale
       of investments and the loss on early prepayment of note, after the
       effect of income taxes.


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

  (In thousands)                                      Six Months Ended
                                                 June 30,           June 30,
                                                   2001               2000
  CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income                                      $20,965           $20,446

  Reconciliation of net income to net
   cash provided
   by operating activities:
    Depreciation and amortization                   5,892             5,555
    Deferred income taxes and other                (3,452)            7,779
    Equity loss on Friendly Hotels plc              2,921             1,889
    Non-cash interest and dividend
     income                                        (2,117)           (7,668)
    Write-off of deferred financing
     costs                                            650               -
    Provision for bad debts                           124              (433)
    Loss on early prepayment of note                  -               4,100

  Changes in assets and liabilities:
    Change in income taxes
     payable/receivable and other                   6,994            (2,417)
    Change in accounts payable and
     accrued expenses                              (4,592)          (10,115)
    Change in receivables                            (260)            1,499

   NET CASH PROVIDED BY OPERATING
    ACTIVITIES                                     27,125            20,635

  CASH FLOW FROM INVESTING ACTIVITIES:

  Proceeds from Sunburst Hospitality
   Corp. note receivable                          101,954               -
  Repayments from/(advances to)
   marketing and reservation funds, net            10,795           (20,412)
  Investment in property and equipment             (7,627)           (9,321)
  Other items, net                                     33             1,370

   NET CASH PROVIDED (UTILIZED) BY
    INVESTING ACTIVITIES                          105,155           (28,363)

  CASH FLOW FROM FINANCING ACTIVITIES:

  Principal payments of long-term
   borrowings                                    (356,461)          (31,585)
  Proceeds from long-term borrowings,
   net of financing costs                         344,392            60,300
  Purchase of treasury stock                     (134,552)          (16,465)
  Proceeds from exercise of stock
   options                                          1,638             1,201

   NET CASH (UTILIZED) PROVIDED BY
    FINANCING ACTIVITIES                         (144,983)           13,451

  Net change in cash and cash
   equivalents                                    (12,703)            5,723
  Cash and cash equivalents, beginning
   of period                                       19,701            11,850

  CASH AND CASH EQUIVALENTS, END OF
   PERIOD                                          $6,998           $17,573

  SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION
  Cash payments during the period for:
    Income taxes, net of refunds                  $10,250            $7,989
    Interest                                       10,095            11,446
  Non-cash investing activities:
    Property assumed through the
     restructuring of Sunburst
     Hospitality Corp. note receivable              1,475               -


                         Choice Hotels International
                 Supplemental Operating Information By Brand
                            Domestic Hotel System
                                 (Unaudited)

                                         For the Quarter
                                              Ended        Six Months Ended
                                             June 30,           June 30,
                                           2001     2000     2001     2000

  COMFORT INN
       Hotels                              1,276    1,265    1,276    1,265
       Rooms                             100,029   99,124  100,029   99,124
       Avg. Daily Rate (ADR)              $62.87   $60.51   $61.36   $58.89
       Occupancy %                         62.7%    65.0%    56.5%    57.6%
       RevPAR                             $39.44   $39.35   $34.68   $33.92

  COMFORT SUITES
       Hotels                                295      250      295      250
       Rooms                              23,267   20,141   23,267   20,141
       Avg. Daily Rate (ADR)              $73.54   $71.49   $72.45   $70.29
       Occupancy %                         66.0%    68.3%    61.0%    62.1%
       RevPAR                             $48.54   $48.85   $44.22   $43.66

  QUALITY
       Hotels                                428      432      428      432
       Rooms                              48,400   48,990   48,400   48,990
       Avg. Daily Rate (ADR)              $65.76   $63.60   $63.69   $61.21
       Occupancy %                         58.1%    59.3%    52.6%    52.4%
       RevPAR                             $38.17   $37.72   $33.49   $32.08

  CLARION
       Hotels                                113      113      113      113
       Rooms                              17,972   18,892   17,972   18,892
       Avg. Daily Rate (ADR)              $78.91   $82.09   $77.44   $80.17
       Occupancy %                         57.1%    62.5%    52.0%    55.6%
       RevPAR                             $45.03   $51.32   $40.28   $44.54

  SLEEP
       Hotels                                274      247      274      247
       Rooms                              21,171   18,825   21,171   18,825
       Avg. Daily Rate (ADR)              $57.54   $55.42   $55.78   $53.87
       Occupancy %                         60.6%    62.3%    54.7%    55.0%
       RevPAR                             $34.89   $34.53   $30.49   $29.64

  MAINSTAY
       Hotels                                 38       32       38       32
       Rooms                               3,372    2,958    3,372    2,958
       Avg. Daily Rate (ADR)              $64.11   $62.76   $63.78   $60.87
       Occupancy %                         67.3%    71.6%    63.2%    66.1%
       RevPAR                             $43.13   $44.93   $40.28   $40.21

  ECONO LODGE
       Hotels                                680      682      680      682
       Rooms                              42,418   42,906   42,418   42,906
       Avg. Daily Rate (ADR)              $46.47   $45.11   $44.91   $43.64
       Occupancy %                         52.6%    53.7%    47.7%    47.4%
       RevPAR                             $24.45   $24.24   $21.41   $20.70

  RODEWAY
       Hotels                                145      155      145      155
       Rooms                               9,558   10,209    9,558   10,209
       Avg. Daily Rate (ADR)              $47.30   $46.30   $45.57   $44.64
       Occupancy %                         48.6%    50.8%    44.7%    45.5%
       RevPAR                             $23.00   $23.53   $20.36   $20.31

  TOTAL CHOICE - DOMESTIC
       Hotels                              3,249    3,176    3,249    3,176
       Rooms                             266,187  262,045  266,187  262,045
       Avg. Daily Rate (ADR)              $62.21   $60.56   $60.69   $58.88
       Occupancy %                         59.6%    61.6%    54.1%    54.6%
       RevPAR                             $37.10   $37.28   $32.82   $32.17
       Effective Royalty Rate              3.94%    3.79%    3.91%    3.81%

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SOURCE: Choice Hotels International

Contact: John Hawkins, +1-301-592-5075, or Fax: +1-301-592-6177, or
John_hawkins@choicehotels.com; or Joe Squeri, Sr. Vice President, Chief
Financial Officer and Treasurer, +1-301-592-5006, both of Choice Hotels
International, Inc.