Choice Hotels International, Inc.,
* Adjusted diluted earnings per share (EPS) for the third quarter
increased 16% to $0.50, compared to adjusted diluted EPS of $0.43 for
the third quarter 2005. Diluted EPS for the third quarter 2006 was
$0.69, compared to $0.48 for the same period in 2005.
* Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased 14% to $56.9 million from $50.0 million in third
quarter 2005.
* Operating income increased 14% to $54.6 million, compared to $47.8
million for the same period in 2005.
* New domestic hotel franchise contracts in the third quarter of 2006
increased 24% to 178 over the prior year.
* Initial franchise and relicensing fees increased 34% for third quarter
2006.
* Royalty revenues rose 11% and franchising revenues increased 13% for
third quarter 2006.
* Domestic system-wide RevPAR increased approximately 5% for the quarter
and approximately 7% year-to-date. Domestic revenue per available room
(RevPAR) for the Company's midscale without food and beverage brands
increased approximately 7% for the quarter and approximately 10% year-
to-date.
* The domestic hotel pipeline of hotels under construction, awaiting
conversion or approved for development increased more than 48% to 736
hotels representing 57,117 rooms; the worldwide pipeline increased 39%
to 808 hotels representing 63,579 rooms.
* Domestic unit growth increased 3.2% compared to third quarter 2005.
* Five new contracts executed for the upscale Cambria Suites brand during
the quarter, with 20 signed year-to-date and 33 since the brand was
introduced in 2005.
"The strong growth we are seeing in domestic franchise contracts for both new construction and conversion hotels demonstrates that the demand for our brands is strong," said Charles A. Ledsinger, Jr., vice chairman and chief executive officer. "As a result, we remain confident in our ability to achieve our long-term growth objectives by leveraging the combined strength of our high-caliber management team, sound business strategies and brand-centric organization to benefit our shareholders, franchisees, hotel guests and associates."
Outlook for 2006
The company's fourth quarter 2006 diluted EPS is expected to be $0.34. The company expects full year 2006 adjusted diluted EPS of $1.47, which excludes the effect of the reversal of provisions for certain income tax contingencies and the loss on extinguishment of debt described below. The company's full year 2006 diluted EPS is expected to be $1.66. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is expected to be $175 million. These estimates include the following assumptions.
* The company expects net domestic unit growth of approximately 4% in
2006;
* RevPAR is expected to increase 4.5% for fourth quarter 2006 and 5.5%
for full-year 2006;
* The effective royalty rate is expected to increase 2 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 36.5% for
fourth quarter 2006.
Adjusted Net Income and Diluted EPS
Net income and diluted earnings per share for the three and nine months ended September 30, 2006 include a reduction of income tax expense related to reversal of provisions for certain income tax contingencies of approximately $12.8 million and $12.6 million, respectively. Net income and diluted earnings per share for the nine months ended September 30, 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 $0.19, net, for the three and nine months ended September 30, 2006. Adjusted diluted EPS and adjusted net income for the three and nine months ended September 30, 2006 exclude these items.
Net income and diluted earnings per share for the three and nine months ended September 30, 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 and a reduction of income tax expense related to the resolution of certain tax contingencies of approximately $4.9 million. Those items represent diluted EPS of $0.05, net, for the three and nine months ended September 30, 2005. Adjusted diluted EPS and adjusted net income for the three and nine months ended September 30, 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 nine months ended September 30, 2006, the company paid $25.5 million of cash dividends to shareholders. The annual dividend rate per common share was increased 15% by the Board of Directors in September 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 October 30, 2006. 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 Tuesday, October 31, 2006, at 10 a.m. EST to discuss the company's third quarter 2006 results. The call-in number to listen to the call is 1-877-209-0397. International callers should dial 612-288-0329. The conference call also will be Web cast simultaneously via the company's Web site, http://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 http://www.choicehotels.com/ for those unable to listen to the call on October 31st. The call will also be available for replay until November 30, 2006, by calling 1-800-475-6701 (access code 842696). International callers should dial 320-365-3844 and enter access code 842696
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 430,000 rooms, in the United States and more than 40 countries and territories. As of September 30, 2006, 736 hotels are under development in the United States, representing 57,117 rooms, and an additional 72 hotels, representing 6,462 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 Hotel brands serve guests worldwide.
Additional corporate information may be found on Choice Hotels' Internet site, which may be accessed at http://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. 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
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 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.
Cambria Suites, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, and Rodeway Inn are proprietary trademarks and service marks of Choice Hotels International, Inc.
Choice Hotels International, Inc. Exhibit 1
Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30,
Variance
2006 2005 $ %
(In thousands, except per share
amounts)
REVENUES:
Royalty fees $64,364 $58,063 $6,301 11%
Initial franchise and
relicensing fees 7,733 5,769 1,964 34%
Partner services 3,171 3,122 49 2%
Marketing and reservation 73,001 72,841 160 0%
Hotel operations 1,182 1,153 29 3%
Other 1,545 1,003 542 54%
Total revenues 150,996 141,951 9,045 6%
OPERATING EXPENSES:
Selling, general and administrative 20,279 18,311 1,968 11%
Depreciation and amortization 2,344 2,188 156 7%
Marketing and reservation 73,001 72,841 160 0%
Hotel operations 820 824 (4) (0%)
Total operating expenses 96,444 94,164 2,280 2%
Operating income 54,552 47,787 6,765 14%
OTHER INCOME AND EXPENSES:
Interest expense 3,207 3,815 (608) (16%)
Interest and other investment
(income) loss (569) (721) 152 (21%)
Equity in net income of affiliates (349) (267) (82) 31%
Loss on extinguishment of debt - - - NM
Other - (197) 197 (100%)
Total other income and
expenses, net 2,289 2,630 (341) (13%)
Income before income taxes 52,263 45,157 7,106 16%
Income taxes 5,906 12,691 (6,785) (53%)
Net income $46,357 $32,466 $13,891 43%
Weighted average shares outstanding-
basic 65,668 64,756
Weighted average shares outstanding-
diluted 67,152 66,963
Basic earnings per share $0.71 $0.50 $0.21 42%
Diluted earnings per share $0.69 $0.48 $0.21 44%
Nine Months Ended September 30,
Variance
2006 2005 $ %
(In thousands, except per share
amounts)
REVENUES:
Royalty fees $157,374 $138,220 $19,154 14%
Initial franchise and
relicensing fees 20,099 16,671 3,428 21%
Partner services 10,853 10,358 495 5%
Marketing and reservation 203,719 184,494 19,225 10%
Hotel operations 3,342 3,214 128 4%
Other 5,567 2,457 3,110 127%
Total revenues 400,954 355,414 45,540 13%
OPERATING EXPENSES:
Selling, general and administrative 60,796 54,263 6,533 12%
Depreciation and amortization 7,335 6,769 566 8%
Marketing and reservation 203,719 184,494 19,225 10%
Hotel operations 2,365 2,385 (20) (1%)
Total operating expenses 274,215 247,911 26,304 11%
Operating income 126,739 107,503 19,236 18%
OTHER INCOME AND EXPENSES:
Interest expense 11,291 11,294 (3) (0%)
Interest and other investment
(income) loss (1,099) (994) (105) 11%
Equity in net income of affiliates (737) (621) (116) 19%
Loss on extinguishment of debt 342 - 342 NM
Other - (383) 383 (100%)
Total other income and
expenses, net 9,797 9,296 501 5%
Income before income taxes 116,942 98,207 18,735 19%
Income taxes 28,784 32,194 (3,410) (11%)
Net income $88,158 $66,013 $22,145 34%
Weighted average shares outstanding-
basic 65,272 64,452
Weighted average shares outstanding-
diluted 67,009 66,630
Basic earnings per share $1.35 $1.02 $0.33 32%
Diluted earnings per share $1.32 $0.99 $0.33 33%
Choice Hotels International, Inc. Exhibit 2
Consolidated Balance Sheets
(In thousands) September 30, December 31,
2006 2005
(Unaudited)
ASSETS
Cash and cash equivalents $27,078 $16,921
Accounts receivable, net 45,280 37,155
Deferred income taxes 2,622 2,616
Other current assets 6,000 6,308
Total current assets 80,980 63,000
Fixed assets and intangibles, net 144,170 150,376
Receivable -- marketing fees 4,675 13,225
Investments, employee benefit plans,
at fair value 29,096 23,337
Other assets 27,347 15,162
Total assets 286,268 265,100
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt 146 146
Other current liabilities 128,845 119,999
Total current liabilities 128,991 120,145
Long-term debt 187,411 273,972
Deferred compensation & retirement
plan obligations 35,464 28,987
Other liabilities 12,709 9,172
Total liabilities 364,575 432,276
Total shareholders' deficit (78,307) (167,176)
Total liabilities and
shareholders' deficit $286,268 $265,100
Choice Hotels International, Inc. Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Nine Months Ended September 30,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $88,158 $66,013
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,335 6,769
Gain on sale of assets - (383)
Provision for bad debts 35 102
Non-cash stock compensation and other charges 8,250 3,877
Non-cash interest and other investment income (385) (346)
Loss on extinguishment of debt 342 -
Equity in net income of affiliates (737) (621)
Changes in assets and liabilities,
net of acquisitions:
Receivables (8,149) (8,089)
Receivable - marketing and
reservation fees, net 18,585 13,351
Accounts payable (2,227) (1,545)
Accrued expenses and other (17,237) 5,041
Income taxes payable 19,776 23,842
Deferred income taxes (12,319) (7,006)
Deferred revenue 7,142 4,000
Other assets 476 87
Other liabilities 5,888 (6,179)
NET CASH PROVIDED BY OPERATING ACTIVITIES* 114,933 98,913
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (5,281) (10,242)
Proceeds from disposition of assets - 2,811
Issuance of notes receivable (1,780) (1,456)
Proceeds from sales of investments 2,885 3,239
Purchases of investments (7,976) (7,723)
Acquisition of Suburban, net of cash acquired - (7,345)
Other items, net 570 (515)
NET CASH USED IN INVESTING ACTIVITIES (11,582) (21,231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (109) (109)
Net repayments pursuant to revolving
credit facility (86,500) (32,604)
Debt issuance costs (477) (193)
Excess tax benefits from stock-based compensation 12,550 -
Purchase of treasury stock (1,326) (23,935)
Dividends paid (25,494) (21,813)
Proceeds from exercise of stock options 8,162 9,705
NET CASH USED IN FINANCING ACTIVITIES (93,194) (68,949)
Net change in cash and cash equivalents 10,157 8,733
Cash and cash equivalents at
beginning of period 16,921 28,518
CASH AND CASH EQUIVALENTS AT END OF PERIOD $27,078 $37,251
* Net cash provided by operating activities for the nine months ended
September 30, 2005 includes approximately $6.0 million of excess
tax benefits related to stock-based compensation. Effective January 1,
2006, the Company began reporting these excess tax benefits as
cash flows from financing activities as a result of the adoption of
Statement of Financial Accounting Standards No. 123R
"Accounting for Stock-Based Compensation"
CHOICE HOTELS INTERNATIONAL, INC. EXHIBIT 4
SUPPLEMENTAL OPERATING INFORMATION
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Nine Months Ended
September 30, 2006
Average Daily
Rate Occupancy RevPAR
Comfort Inn $73.06 62.9% $45.92
Comfort Suites 83.12 67.4% 55.99
Sleep 66.58 62.3% 41.48
Midscale without Food & Beverage 74.22 63.7% 47.25
Quality 67.27 55.6% 37.40
Clarion 79.18 51.2% 40.56
Midscale with Food & Beverage 70.10 54.5% 38.20
Econo Lodge 53.21 47.7% 25.38
Rodeway 52.32 46.7% 24.44
Economy 53.05 47.5% 25.20
MainStay 67.39 68.2% 45.97
Total Domestic System* $69.86 58.1% $40.60
For the Nine Months Ended
September 30, 2005
Average Daily
Rate Occupancy RevPAR
Comfort Inn $68.85 61.1% $42.05
Comfort Suites 77.59 65.6% 50.91
Sleep 62.46 60.7% 37.91
Midscale without Food & Beverage 69.68 61.9% 43.11
Quality 65.37 54.4% 35.57
Clarion 74.25 52.0% 38.59
Midscale with Food & Beverage 67.71 53.8% 36.39
Econo Lodge 50.99 48.3% 24.64
Rodeway 50.57 47.4% 23.99
Economy 50.92 48.2% 24.53
MainStay 64.48 64.9% 41.84
Total Domestic System* $66.33 57.3% $37.99
Change
Average Daily
Rate Occupancy RevPAR
Comfort Inn 6.1% 180 bps 9.2%
Comfort Suites 7.1% 180 bps 10.0%
Sleep 6.6% 160 bps 9.4%
Midscale without Food & Beverage 6.5% 180 bps 9.6%
Quality 2.9% 120 bps 5.1%
Clarion 6.6% -80 bps 5.1%
Midscale with Food & Beverage 3.5% 70 bps 5.0%
Econo Lodge 4.4% -60 bps 3.0%
Rodeway 3.5% -70 bps 1.9%
Economy 4.2% -70 bps 2.7%
MainStay 4.5% 330 bps 9.9%
Total Domestic System* 5.3% 80 bps 6.9%
For the Three Months Ended
September 30, 2006
Average Daily
Rate Occupancy RevPAR
Comfort Inn $78.25 72.6% $56.79
Comfort Suites 86.19 73.3% 63.22
Sleep 69.80 69.6% 48.61
Midscale without Food & Beverage 78.67 72.3% 56.88
Quality 71.73 64.7% 46.42
Clarion 82.51 57.1% 47.14
Midscale with Food & Beverage 74.19 62.8% 46.60
Econo Lodge 57.22 56.1% 32.11
Rodeway 57.14 54.9% 31.38
Economy 57.20 55.9% 31.96
MainStay 68.86 77.1% 53.12
Total Domestic System* $73.99 66.5% $49.23
For the Three Months Ended
September 30, 2005
Average Daily
Rate Occupancy RevPAR
Comfort Inn $73.81 71.6% $52.87
Comfort Suites 80.71 73.5% 59.32
Sleep 65.77 69.1% 45.43
Midscale without Food & Beverage 74.03 71.6% 53.02
Quality 69.99 63.5% 44.42
Clarion 77.94 60.1% 46.87
Midscale with Food & Beverage 72.01 62.6% 45.07
Econo Lodge 55.11 57.1% 31.49
Rodeway 56.80 54.8% 31.10
Economy 55.38 56.7% 31.42
MainStay 67.97 73.4% 49.89
Total Domestic System* $70.59 66.5% $46.93
Change
Average Daily
Rate Occupancy RevPAR
Comfort Inn 6.0% 100 bps 7.4%
Comfort Suites 6.8% -20 bps 6.6%
Sleep 6.1% 50 bps 7.0%
Midscale without Food & Beverage 6.3% 70 bps 7.3%
Quality 2.5% 120 bps 4.5%
Clarion 5.9% -300 bps 0.6%
Midscale with Food & Beverage 3.0% 20 bps 3.4%
Econo Lodge 3.8% -100 bps 2.0%
Rodeway 0.6% 10 bps 0.9%
Economy 3.3% -80 bps 1.7%
MainStay 1.3% 370 bps 6.5%
Total Domestic System* 4.8% 0 bps 4.9%
* Amounts exclude Suburban activity from January 1, 2006 through September
30, 2006 because comparable pre-acquisition data for Q3 2005 is not
available
For the Quarter For the Nine Months
Ended Ended
9/30/2006 9/30/2005 9/30/2006 9/30/2005
System-wide effective
royalty rate 4.08% 4.07% 4.09% 4.08%
CHOICE HOTELS INTERNATIONAL, INC. EXHIBIT 5
SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
(UNAUDITED)
Sept. 30, 2006 Sept. 30, 2005
Hotels Rooms Hotels Rooms
Comfort Inn 1,411 110,525 1,440 112,903
Comfort Suites 427 33,573 410 32,142
Sleep 327 24,609 316 24,032
Midscale without Food & Beverage 2,165 168,707 2,166 169,077
Quality 709 69,699 644 64,908
Clarion 160 23,733 148 22,685
Midscale with Food & Beverage 869 93,432 792 87,593
Econo Lodge 815 50,013 803 49,851
Rodeway 217 13,245 172 10,646
Economy 1,032 63,258 975 60,497
MainStay 27 2,046 28 2,190
Suburban 64 8,441 67 8,942
Extended Stay 91 10,487 95 11,132
Domestic Franchises 4,157 335,884 4,028 328,299
International Franchises 1,171 98,811 1,167 98,058
Total Franchises 5,328 434,695 5,195 426,357
Variance
Hotels Rooms % %
Comfort Inn (29) (2,378) (2.0%) (2.1%)
Comfort Suites 17 1,431 4.1% 4.5%
Sleep 11 577 3.5% 2.4%
Midscale without Food & Beverage (1) (370) (0.0%) (0.2%)
Quality 65 4,791 10.1% 7.4%
Clarion 12 1,048 8.1% 4.6%
Midscale with Food & Beverage 77 5,839 9.7% 6.7%
Econo Lodge 12 162 1.5% 0.3%
Rodeway 45 2,599 26.2% 24.4%
Economy 57 2,761 5.8% 4.6%
MainStay (1) (144) (3.6%) (6.6%)
Suburban (3) (501) (4.5%) (5.6%)
Extended Stay (4) (645) (4.2%) (5.8%)
Domestic Franchises 129 7,585 3.2% 2.3%
International Franchises 4 753 0.3% 0.8%
Total Franchises 133 8,338 2.6% 2.0%
CHOICE HOTELS INTERNATIONAL, INC. EXHIBIT 6
SUPPLEMENTAL INFORMATION BY BRAND
DEVELOPMENT RESULTS -- NEW HOTEL CONTRACTS
(UNAUDITED)
For the Nine Months Ended
September 30, 2006
New
Construction Conversion Total
Comfort Inn 38 43 81
Comfort Suites 55 3 58
Sleep 27 1 28
Midscale without Food & Beverage 120 47 167
Quality 5 100 105
Clarion 1 22 23
Midscale with Food & Beverage 6 122 128
Econo Lodge - 43 43
Rodeway 2 73 75
Economy 2 116 118
MainStay 5 1 6
Suburban 9 5 14
Extended Stay 14 6 20
Cambria Suites 20 - 20
Total Domestic System 162 291 453
For the Nine Months Ended
September 30, 2005
New
Construction Conversion Total
Comfort Inn 33 40 73
Comfort Suites 42 4 46
Sleep 36 1 37
Midscale without Food & Beverage 111 45 156
Quality 4 112 116
Clarion 2 15 17
Midscale with Food & Beverage 6 127 133
Econo Lodge 4 61 65
Rodeway - 47 47
Economy 4 108 112
MainStay 10 - 10
Suburban - - -
Extended Stay 10 - 10
Cambria Suites 8 - 8
Total Domestic System 139 280 419
% Change
New
Construction Conversion Total
Comfort Inn 15% 8% 11%
Comfort Suites 31% (25%) 26%
Sleep (25%) 0% (24%)
Midscale without Food & Beverage 8% 4% 7%
Quality 25% (11%) (9%)
Clarion (50%) 47% 35%
Midscale with Food & Beverage 0% (4%) (4%)
Econo Lodge (100%) (30%) (34%)
Rodeway NM 55% 60%
Economy (50%) 7% 5%
MainStay (50%) NM (40%)
Suburban NM NM NM
Extended Stay 40% NM 100%
Cambria Suites 150% NM 150%
Total Domestic System 17% 4% 8%
For the Three Months Ended September 30, 2006
New
Construction Conversion Total
Comfort Inn 14 25 39
Comfort Suites 14 1 15
Sleep 17 1 18
Midscale without Food & Beverage 45 27 72
Quality - 43 43
Clarion - 4 4
Midscale w/ Food & Beverage - 47 47
Econo Lodge - 20 20
Rodeway 1 25 26
Economy 1 45 46
MainStay 2 - 2
Suburban 3 3 6
Extended Stay 5 3 8
Cambria Suites 5 - 5
Total Domestic System 56 122 178
For the Three Months Ended September 30, 2005
New
Construction Conversion Total
Comfort Inn 13 15 28
Comfort Suites 13 1 14
Sleep 14 - 14
Midscale without Food & Beverage 40 16 56
Quality 2 40 42
Clarion 1 7 8
Midscale w/ Food & Beverage 3 47 50
Econo Lodge - 12 12
Rodeway - 22 22
Economy - 34 34
MainStay 1 - 1
Suburban - - -
Extended Stay 1 - 1
Cambria Suites 2 - 2
Total Domestic System 46 97 143
% Change
New
Construction Conversion Total
Comfort Inn 8% 67% 39%
Comfort Suites 8% 0% 7%
Sleep 21% NM 29%
Midscale without Food & Beverage 13% 69% 29%
Quality (100%) 8% 2%
Clarion (100%) (43%) (50%)
Midscale w/ Food & Beverage (100%) 0% (6%)
Econo Lodge NM 67% 67%
Rodeway NM 14% 18%
Economy NM 32% 35%
MainStay 100% NM 100%
Suburban NM NM NM
Extended Stay 400% NM 700%
Cambria Suites 150% NM 150%
Total Domestic System 22% 26% 24%
CHOICE HOTELS INTERNATIONAL, INC. EXHIBIT 7
DOMESTIC HOTEL PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING
CONVERSION OR APPROVED FOR DEVELOPMENT
(UNAUDITED)
A hotel in the domestic pipeline does not always result in an open and
operating hotel due to various factors.
September 30, 2006
Units
New
Conversion Construction Total
Comfort Inn 50 108 158
Comfort Suites 5 197 202
Sleep Inn - 95 95
Midscale without Food & Beverage 55 400 455
Quality 67 11 78
Clarion 14 4 18
Midscale with Food & Beverage 81 15 96
Econo Lodge 32 5 37
Rodeway 56 2 58
Economy 88 7 95
MainStay 1 33 34
Suburban 4 19 23
Extended Stay 5 52 57
Cambria Suites - 33 33
229 507 736
September 30, 2005
Units
New
Conversion Construction Total
Comfort Inn 32 68 100
Comfort Suites 2 132 134
Sleep Inn 1 77 78
Midscale without Food & Beverage 35 277 312
Quality 51 11 62
Clarion 10 2 12
Midscale with Food & Beverage 61 13 74
Econo Lodge 34 9 43
Rodeway 32 1 33
Economy 66 10 76
MainStay 1 26 27
Suburban - - -
Extended Stay 1 26 27
Cambria Suites - 8 8
163 334 497
Variance
New
Conversion Construction Total
Units % Units % Units %
Comfort Inn 18 56% 40 59% 58 58%
Comfort Suites 3 150% 65 49% 68 51%
Sleep Inn (1) -100% 18 23% 17 22%
Midscale without Food & Beverage 20 57% 123 44% 143 46%
Quality 16 31% - 0% 16 26%
Clarion 4 40% 2 100% 6 50%
Midscale with Food & Beverage 20 33% 2 15% 22 30%
Econo Lodge (2) -6% (4) -44% (6) -14%
Rodeway 24 75% 1 100% 25 76%
Economy 22 33% (3) -30% 19 25%
MainStay - 0% 7 27% 7 26%
Suburban 4 NM 19 NM 23 NM
Extended Stay 4 400% 26 100% 30 111%
Cambria Suites - NM 25 313% 25 313%
66 40% 173 52% 239 48%
CHOICE HOTELS INTERNATIONAL, INC. EXHIBIT 8
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS
(dollar amounts in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Franchising Revenues:
Total Revenues $150,996 $141,951 $400,954 $355,414
Adjustments:
Marketing and reservation
revenues (73,001) (72,841) (203,719) (184,494)
Hotel Operations (1,182) (1,153) (3,342) (3,214)
Franchising Revenues $76,813 $67,957 $193,893 $167,706
Franchising Margins:
Operating Margin:
Total Revenues $150,996 $141,951 $400,954 $355,414
Operating Income $54,552 $47,787 $126,739 $107,503
Operating Margin 36.1% 33.7% 31.6% 30.2%
Franchising Margin:
Franchising Revenues $76,813 $67,957 $193,893 $167,706
Operating Income $54,552 $47,787 $126,739 $107,503
Less: Hotel Operations 362 329 977 829
$54,190 $47,458 $125,762 $106,674
Franchising Margins 70.5% 69.8% 64.9% 63.6%
CALCULATION OF ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER
SHARE (EPS)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Net income $46,357 $32,466 $88,158 $66,013
Adjustments:
Loss on Debt Extinguishment Costs - - 217 -
Reversal of Provisions for Income
Tax Contingencies (12,785) (4,896) (12,581) (4,896)
Income Tax Expense Incurred Due to
Foreign Earnings Repatriation 1,192 1,192
Adjusted Net Income $33,572 $28,762 $75,794 $62,309
Weighted average shares outstanding-
diluted 67,152 66,963 67,009 66,630
Diluted Earnings Per Share $0.69 $0.48 $1.32 $0.99
Adjustments:
Loss on Debt Extinguishment Costs - - - -
Reversal of Provisions for Income
Tax Contingencies (0.19) (0.07) (0.19) (0.07)
Income Tax Expense Incurred Due to
Foreign Earnings Repatriation - 0.02 - 0.02
Adjusted Diluted Earnings Per
Share (EPS) $0.50 $0.43 $1.13 $0.94
EBITDA Reconciliation
(in millions)
Full-Year
Q3 2006 Q3 2005 2006
Actuals Actuals Outlook
Operating Income (per GAAP) $54.6 $47.8 $165.2
Depreciation and amortization 2.3 2.2 9.8
Earnings before interest, taxes,
depreciation & amortization (non-
GAAP) $56.9 $50.0 $175.0
First Call Analyst:
FCMN Contact: david_peikin@choicehotels.com
SOURCE: Choice Hotels International
CONTACT: David White, Chief Financial Officer, +1-301-592-5117, or Anne
Madison, Vice President, Corporate Communications, +1-301-592-6723, both of
Choice Hotels International
Web site: http://www.choicehotels.com/
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