SILVER SPRING, Md. - Oct. 28, 2004 -- Choice Hotels International,
Inc. (NYSE:CHH) today reported the following highlights for the third quarter
of 2004:
-
Diluted earnings per share for the third quarter was $0.73, an 11% increase
compared to $0.66 in the third quarter of 2003;
-
Adjusted diluted EPS for the third quarter up 16% to $0.74, excluding the
effects of third quarter 2004 debt extinguishment costs, compared to $0.64
for third quarter 2003, excluding interest earned in that quarter related
to a note receivable from Sunburst, which was repaid in December 2003;
-
Domestic unit growth of 5.4%;
-
Year-to-date net domestic property additions were 160 hotels, up 34%;
-
Year-to-date new domestic hotel franchise contracts up 20% to 354;
-
The domestic hotel pipeline is up more than 17% to 397 hotels representing
30,776 rooms; the worldwide pipeline grew 15% to 492 hotels, representing
39,127 rooms;
-
Year-to-date royalty revenues up 10%;
-
Year-to-date total revenues up 11%;
-
Third quarter operating income up 7% to $42.5 million.
"We added nearly 6,000 rooms to the domestic hotel system in the third
quarter and close to 15,000 rooms during the last twelve months," said
Charles A. Ledsinger, Jr., president and chief executive officer. "We are
extremely pleased with this robust development, as unit growth is critical
to our financial success. We now have almost 500 hotels under development
worldwide. As evidenced by a 34% increase in net domestic hotel additions
this year, our sharp focus on bringing properties on-line quickly has paid
off."
He added, "We also are greatly encouraged by growth of almost 30% in
new construction projects year-to-date, which enhances the overall quality
of the system. As we continue to focus on enhancing consistency in our
brands, we will be better positioned to build guest loyalty through improved
guest satisfaction."
Third Quarter Performance
Choice reported third quarter 2004 net income of $24.9 million, or $0.73
diluted earnings per share (EPS), an 11% increase in diluted EPS over the
same period of a year ago. At the end of third quarter 2003, the company
reported net income of $24.3 million, or $0.66 diluted EPS.
The company also reported total revenues of $127.5 million for third
quarter 2004, compared to $105.9 million for the same period in 2003, an
increase of 20%. Franchising revenues, which include royalty revenues,
initial and relicensing fees, partner services and other revenue, for the
third quarter of 2004 were $61.1 million, an increase of 9% from the $56.3
million reported in the same period a year ago.
Royalty revenues for third quarter 2004 were $51.8 million, compared
to $48.3 million for the same period in 2003, an increase of 7%.
System-wide domestic revenue per available room (RevPAR) was $44.35
in third quarter 2004, compared to $43.44 for the third quarter of 2003,
an increase of 2%.
For the first nine months of 2004, Choice reported net income of $54.0
million or $1.55 diluted EPS, increases of 6% and 12% respectively over
the $51.1 million and $1.38 diluted EPS reported for the first nine months
of 2003. Operating income through September 30, 2004 increased 9% to $93.5
million, compared to $85.7 million for the same period a year ago. Franchising
margins increased to 61.9% for the nine months ended September 30, 2004
compared to 61.4% for the same period in 2003.
Total revenues were $321.9 million for the nine months ended September
30, 2004, an increase of 11%, compared to $290.9 million for the same period
in 2003. Franchising revenues for the first nine months of 2004 increased
8% to $150.0 million, compared to $138.7 million for the same period a
year ago.
Royalty revenues for the first nine months of 2004 were $124.2 million,
compared to $113.2 million for the same period a year ago, an increase
of 10%. Domestic RevPAR was $35.95 for the first nine months of 2004, compared
to $34.50 for the first nine months of 2003, a gain of 4%.
Net income and diluted EPS for the third quarter and nine months ended
September 30, 2004 include a loss of approximately $0.7 million ($0.4 million,
net of the related tax effect) related to the extinguishment of debt. This
item represented diluted EPS of $0.01 for the three and nine months ended
September 30, 2004.
Net income and diluted earnings per share for the quarter and nine months
ended September 30, 2003 included approximately $1.2 million ($0.7 million,
net of the related tax effect) and $3.5 million ($2.2 million, net of the
related tax effect) respectively of interest income attributable to a note
receivable from Sunburst Hospitality Corporation, which was repaid to the
Company in December 2003. Revenues, operating income, net income and diluted
earnings per share for the nine months ended September 30, 2003 also included
approximately $1.7 million ($1.1 million, net of the related tax effect)
of liquidated damages received from Sunburst for franchise terminations.
Those items represented diluted EPS of $0.02 and $0.09 respectively for
the three and nine months ended September 30, 2003.
2004 Unit Growth
The total number of domestic Choice hotels on-line grew by 5.4% to 3,796
(306,797 rooms on-line) as of September 30, 2004 from 3,601 (291,827 rooms
on-line) as of the same period a year ago. Net domestic property additions
in the third quarter of 2004 were 73 compared to 39 net domestic additions
in the same period of 2003, an 87% increase. For the first nine months
of this year, net domestic property additions were 160, an increase of
34% compared to 119 for the same period of a year ago.
Choice executed 122 new domestic hotel franchise contracts representing
10,162 rooms in third quarter 2004, compared to 108 new contracts representing
8,269 rooms for the same period a year ago, increases of approximately
13% and 23% respectively. For the year 2004 through September 30, Choice
has executed 354 new domestic hotel franchise contracts, representing 30,149
rooms, compared to 294 contracts, representing 25,964 rooms, for the same
period in 2003, increases of 20% and 16% respectively. These increases
in executed contracts and an increase in the number of existing franchise
relicensings have contributed to 22% and 20% increases in initial franchise
and relicensing fees respectively for the three and nine months ended September
30, 2004, compared to the same periods in 2003.
In third quarter 2004, 40 contracts for new construction hotels, representing
2,732 rooms were executed, compared to 30 contracts, representing 2,052
rooms for the same period a year ago, each representing an increase of
approximately 33%. For the nine months ended September 30, 2004, 100 contracts
for new construction hotels representing 6,868 rooms were executed, both
representing increases of better than 27%, compared to 78 contracts, representing
5,399 rooms, for new construction hotels for the same period a year ago.
As of September 30, 2004, the total number of Choice hotels worldwide
grew 4% to 4,959 from 4,773 as of the same date a year ago. This growth
represents an increase of 5% in the number of rooms open to 402,519 from
384,814. At the end of third quarter 2004, Choice had 492 hotels under
development worldwide, representing 39,127 rooms, compared to 426 hotels
and 35,417 rooms in 2003, increases of 15% and 10%, respectively.
Use of Free Cash Flow
The company has consistently used the free cash flow generated from
its operations to return value to its shareholders. This is primarily achieved
through share repurchases and, more recently, dividends.
During the third quarter of this year, the company purchased 0.4 million
shares of common stock at a total cost of $21.6 million. For the nine months
ended September 30, 2004, the company purchased 2.3 million shares of common
stock at a total cost of $101.3 million. The company has remaining authorization
to purchase up to 2.8 million shares. Since Choice announced its stock
repurchase program on June 25, 1998, the company has purchased 31.6 million
shares of common stock at an average price of $19.49 per share and a total
cost of $616 million, as of October 28, 2004. Total shares outstanding
as of September 30, 2004, are 33.0 million.
On September 15, 2004, Choice's Board of Directors declared a cash dividend
of $0.225 on outstanding shares of common stock payable on October 22,
2004 to holders of record on October 8, 2004. This dividend represents
a 12.5% increase over the previous quarterly rate of $0.20 and raises the
indicated annual dividend rate on the company's common stock from $0.80
to $0.90 per share.
The company expects to continue to return value to its shareholders
through a combination of share repurchases and dividends.
Fourth Quarter & Full-Year 2004
The company's fourth quarter 2004 diluted EPS is expected to be $0.53
to $0.55. Full year 2004 diluted EPS is expected to be $2.09 to $2.11,
excluding the effect of the third quarter 2004 loss on extinguishment of
debt. These estimates assume the existing share count and RevPAR growth
in the fourth quarter of approximately 6% to 7%.
Non-GAAP Financial Measures
Franchising revenues, franchising margins and adjusted diluted EPS 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 margins and diluted EPS. 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 an exhibit accompanying this release which reconcile
these measures to the comparable GAAP measurement.
Choice Hotels International, Inc.
Exhibit 1
Consolidated Statements of Income
(Unaudited)
(In thousands, except per
Three Months Ended Nine Months Ended
share amounts)
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004
2003
----------------- -------------------
REVENUES:
Royalty fees
$51,846 $48,346 $124,237 $113,196
Initial franchise and
relicensing fees
4,927 4,026 13,546
11,285
Partner services
3,027 2,953 9,282
9,630
Marketing and reservation
65,380 48,639 169,109 149,549
Hotel operations
1,018 955 2,762
2,739
Other
1,312 974 2,984
4,547
----------------- -------------------
Total revenues
127,510 105,893 321,920 290,946
OPERATING EXPENSES:
Selling, general and
administrative
16,374 14,135 49,612 45,037
Depreciation and amortization
2,489 2,583 7,525
8,472
Marketing and reservation
65,380 48,639 169,109 149,549
Hotel operations
778 764 2,150
2,217
----------------- -------------------
Total operating expenses
85,021 66,121 228,396 205,275
Operating income
42,489 39,772 93,524 85,671
OTHER INCOME AND EXPENSES:
Interest expense
2,921 2,893 8,277
8,985
Interest and other investment
income
(99) (1,675) (767) (4,917)
Loss on extinguishment of debt
696 -
696 -
----------------- -------------------
Total other income and
expenses
3,518 1,218 8,206
4,068
----------------- -------------------
Income before income taxes
38,971 38,554 85,318 81,603
Income taxes
14,055 14,209 31,305 30,460
----------------- -------------------
Net income
$24,916 $24,345 $ 54,013 $ 51,143
================= ===================
Weighted average shares
outstanding-basic
32,807 35,635 33,489 36,045
================= ===================
Weighted average shares
outstanding-diluted
34,259 36,745 34,870 36,936
================= ===================
Basic earnings per share
$ 0.76 $ 0.68 $ 1.61 $
1.42
================= ===================
Diluted earnings per share
$ 0.73 $ 0.66 $ 1.55 $
1.38
================= ===================
Choice Hotels International, Inc.
Exhibit 2
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2004 2003
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents
$ 30,548 $ 20,031
Accounts receivable, net
42,500 33,631
Deferred income taxes
2,256 1,957
Other current assets
3,377 3,613
------------- ------------
Total current assets
78,681 59,232
Fixed assets and intangibles, net
141,055 150,256
Receivable -- marketing and reservation
fees
21,315 32,368
Other assets
29,566 25,416
------------- ------------
Total assets
270,617 267,272
------------- ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt
8,746 23,829
Other current liabilities
86,005 78,382
------------- ------------
Total current liabilities
94,751 102,211
Long-term debt
299,379 222,823
Deferred income taxes
13,195 21,562
Other liabilities
38,163 38,863
------------- ------------
Total liabilities
445,488 385,459
------------- ------------
Total shareholders' deficit
(174,871) (118,187)
------------- ------------
Total
liabilities and
shareholders' deficit
$ 270,617 $ 267,272
------------- ------------
Choice Hotels International, Inc.
Exhibit 3
Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
Nine Months Ended
September 30, September 30,
2004 2003
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 54,013 $ 51,143
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
7,525 8,472
Provision for bad debts
215 213
Non-cash stock compensation
3,100 1,489
Non-cash interest and other investment
income
(215) (1,032)
Loss on extinguishment of debt
695
-
Equity in net income of affiliates
(451) (335)
Changes in assets and liabilities, net of
acquisitions:
Receivables
(9,032) (5,602)
Receivable -- marketing and reservation
fees, net
18,222 13,438
Current liabilities
22 2,362
Income taxes payable and current other
assets
10,356 10,628
Deferred income taxes, other non
current assets and liabilities
(9,227) 929
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
75,223 81,705
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment
(4,266) (7,076)
Proceeds from disposition of property
- 498
Acquisition of flag
- (1,211)
Issuance of notes receivable
(1,781) (3,244)
Purchases of investments, net
(2,772) (418)
Other items, net
(431) 344
---------------------------
NET CASH USED IN INVESTING ACTIVITIES
(9,250) (11,107)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt
383,425 66,800
Principal payments of long-term debt
(454,000) (78,573)
Net borrowings (repayments) pursuant to
revolving credit facility
132,000 (16,000)
Debt issue costs
(1,010)
-
Purchase of treasury stock
(101,336) (43,725)
Dividends paid
(20,125)
-
Proceeds from exercise of stock options
5,590 4,370
---------------------------
NET CASH USED IN FINANCING ACTIVITIES
(55,456) (67,128)
---------------------------
Net change in cash and cash equivalents
10,517 3,470
Cash and cash equivalents at beginning of
period
20,031 12,227
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $
30,548 $ 15,697
===========================
CHOICE HOTELS INTERNATIONAL,
INC.
Exhibit 4
SUPPLEMENTAL
OPERATING INFORMATION BY BRAND
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
Three Months Ended
Nine Months Ended
September 30, September 30, September 30, September 30,
2004 2003
2004 2003
------------- ------------- ------------- -------------
COMFORT INN
Hotels
1,433 1,404
1,433 1,404
Rooms
112,323 110,646
112,323 110,646
Avg. Daily
Rate
$70.21 $68.84
$65.47 $64.48
Occupancy %
69.7% 69.3%
59.7% 58.1%
RevPAR
$48.95 $47.74
$39.06 $37.44
COMFORT SUITES
Hotels
383 367
383 367
Rooms
30,210 29,057
30,210 29,057
Avg. Daily
Rate
$76.49 $75.21
$73.95 $73.23
Occupancy %
71.7% 69.6%
64.2% 61.4%
RevPAR
$54.87 $52.34
$47.45 $44.94
QUALITY
Hotels
549 503
549 503
Rooms
56,522 51,865
56,522 51,865
Avg. Daily
Rate
$68.88 $70.52
$64.24 $65.36
Occupancy %
63.4% 61.7%
54.2% 51.6%
RevPAR
$43.68 $43.52
$34.80 $33.71
CLARION
Hotels
157 135
157 135
Rooms
23,555 20,385
23,555 20,385
Avg. Daily
Rate
$74.98 $76.29
$72.33 $72.82
Occupancy %
58.4% 57.5%
51.3% 49.3%
RevPAR
$43.82 $43.84
$37.07 $35.92
SLEEP
Hotels
311 305
311 305
Rooms
23,807 23,387
23,807 23,387
Avg. Daily
Rate
$62.94 $61.02
$59.44 $58.27
Occupancy %
67.4% 66.7%
59.3% 57.2%
RevPAR
$42.45 $40.71
$35.23 $33.33
MAINSTAY
Hotels
27 24
27 24
Rooms
2,150 1,903
2,150 1,903
Avg. Daily
Rate
$64.37 $64.46
$60.78 $62.08
Occupancy %
67.9% 72.4%
61.1% 62.8%
RevPAR
$43.71 $46.65
$37.14 $39.00
ECONO LODGE
Hotels
770 728
770 728
Rooms
47,468 45,504
47,468 45,504
Avg. Daily
Rate
$53.38 $52.59
$48.97 $48.17
Occupancy %
56.7% 57.6%
48.3% 47.9%
RevPAR
$30.26 $30.27
$23.64 $23.06
RODEWAY
Hotels
166 135
166 135
Rooms
10,762 9,080
10,762 9,080
Avg. Daily
Rate
$57.92 $56.65
$53.13 $50.65
Occupancy %
58.6% 54.8%
48.5% 45.2%
RevPAR
$33.93 $31.05
$25.78 $22.91
TOTAL CHOICE -
DOMESTIC
Hotels
3,796 3,601
3,796 3,601
Rooms
306,797 291,827
306,797 291,827
Avg. Daily
Rate
$67.80 $67.08
$63.70 $63.06
Occupancy %
65.4% 64.8%
56.4% 54.7%
RevPAR
$44.35 $43.44
$35.95 $34.50
Effective
Royalty
Rate
4.04% 4.03%
4.04% 4.00%
Exhibit 5
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION
CALCULATION OF FRANCHISING
REVENUES AND FRANCHISING MARGINS
(UNAUDITED)
(dollar amounts in thousands) Three Months Ended
Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004
2003
------------------- -------------------
Franchising Revenues:
Total Revenues
$127,510 $105,893 $321,920 $290,946
Adjustments:
Marketing and Reservation
Revenues
(65,380) (48,639) (169,109) (149,549)
Hotel Operations
(1,018) (955) (2,762) (2,739)
------------------- -------------------
Franchising Revenues
$ 61,112 $ 56,299 $150,049 $138,658
------------------- -------------------
Franchising Margins:
Operating Margin:
Total Revenues
$127,510 $105,893 $321,920 $290,946
Operating Income
$ 42,489 $ 39,772 $ 93,524 $ 85,671
------------------- -------------------
Operating Margin
33.3% 37.6% 29.1%
29.4%
------------------- -------------------
Franchising Margin:
Franchising Revenues
$ 61,112 $ 56,299 $150,049 $138,658
Operating Income
$ 42,489 $ 39,772 $ 93,524 $ 85,671
Less: Hotel Operations
240 191
612 522
------------------- -------------------
$ 42,249 $ 39,581 $ 92,912 $ 85,149
------------------- -------------------
------------------- -------------------
Franchising Margins
69.1% 70.3% 61.9%
61.4%
------------------- -------------------
Exhibit 6
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION
CALCULATION OF ADJUSTED NET INCOME AND ADJUSTED
DILUTED EARNINGS PER SHARE (EPS)
(UNAUDITED)
(In thousands, except
per share amounts)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004
2003
------------------ ------------------
Adjusted Net Income
Net Income
$ 24,916 $ 24,345 $ 54,013 $ 51,143
Adjustments:
Debt Extinguishment
Costs
433
433
Interest Income
Attributable to a Note
Receivable from Sunburst
Hospitality Corporation
(Sunburst)
- (731)
- (2,195)
Liquidated Damages from
Sunburst for Franchise
Terminations
- -
- (1,058)
------------------ ------------------
Adjusted Net Income
$ 25,349 $ 23,614 $ 54,446 $ 47,890
------------------ ------------------
Weighted average shares
outstanding-diluted
34,259 36,745 34,870
36,936
Diluted Earnings Per Share
$ 0.73 $ 0.66 $ 1.55
$ 1.38
Adjustments:
Debt Extinguishment Costs
0.01 -
0.01 -
Interest Income
Attributable to a Note
Receivable from Sunburst
Hospitality Corporation
(Sunburst)
- (0.02)
- (0.06)
Liquidated Damages from
Sunburst for Franchise
Terminations
- -
- (0.03)
------------------ ------------------
Adjusted Diluted Earnings
Per Share (EPS)
$ 0.74 $ 0.64 $ 1.56
$ 1.29
------------------ ------------------
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Choice Hotels International franchises more than 4,900 hotels, representing
approximately 400,000 rooms, in the United States and 40 other countries
and territories. As of September 30, 2004, 397 hotels are under development
in the United States, representing 30,776 rooms, and an additional 95 hotels,
representing 8,351 rooms, are under development in 22 countries and territories.
Its Comfort Inn, Comfort Suites, 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.
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