Choice Hotels Enhances Franchisee Support Services And Streamlines Operations (12/00)

Choice Hotels International, Inc., the world's second largest hotel franchiser, announced a corporate wide reorganization designed to provide more consistent service for franchisees and create a more competitive overhead structure. Choice will take a charge of up to $6.0 million related to this restructuring in the fourth quarter.

The Company also announced that Sunburst Hospitality Corporation intends to monetize $25 million of the remaining $60 million note receivable from Sunburst. This monetization would lead to a charge in the fourth quarter of approximately $4.0 million. As a result, the aggregate cash proceeds Choice will receive from Sunburst will total approximately $102 million. These cash proceeds will be available in January 2001 and will be used principally to pay down debt, pursue strategic investments and repurchase shares. The Company will also take an equity loss of approximately $7.0 million related to its investment in Friendly Hotels plc, a U.K. based hotel operator. The equity loss reflects the impact of Friendly's recently announced restructuring and asset disposition plan.

These charges could result in a reduction in diluted earnings per share for the fourth quarter of up to $0.19.

"We are taking actions to make Choice a more focused and competitive organization," said Charles A. Ledsinger, Jr., president and chief executive officer of Choice Hotels. "Taken together, these initiatives will improve our operations, strengthen our balance sheet and better position us for growth, allowing us to generate strong financial performance and deliver enhanced value to our shareholders."

The reorganization of U.S. operations has two fundamental objectives: to improve service and support to Choice's franchisees and to create a focused, more competitive overhead structure. The reorganization will improve communication between teams providing initial training and support for new hotels and the teams that work with franchisees on an ongoing basis. In addition, the number of regional offices will be reduced from five to three, Franchise sales activities will be centralized in Silver Spring, MD, and marketing operations will be realigned to focus on developing new ways to drive business to hotels. The level of property systems installation support was also significantly decreased as the Company neared completion of the deployment of its property management system. Brand management will be consolidated into four segments: Emerging Brands (Sleep and MainStay); Economy Brands (Econo Lodge and Rodeway Inn), and two core brands, one for Quality and Clarion, the other for Comfort Inn and Comfort Suites. Several overseas offices will be closed as a part of the Company's program to streamline operations. The reorganization is expected to result in a net reduction of nearly 140 positions. The reorganization charge also included the costs related to the termination of an in-room internet initiative, which the Company launched earlier in the year.

Ledsinger added, "We looked across our company with an eye toward creating a more value-added approach to serving franchisees and delivering business to their hotels. We also examined how we can increase our development of new hotels and improve our franchise sales operations. We believe the reorganization will improve our operations while reducing operating costs."

Choice Hotels International is the second largest hotel franchiser in the world with 4,371 hotels open, representing 349,392 rooms, and another 694 hotels under development, representing 61,244 rooms, in 41 countries as of September 30, 2000. Its Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.