Company Exceeds 4,000 Domestic Units Open
New Domestic Hotel Franchise Contracts Rise 17%
SILVER SPRING, Md. - Oct. 27, 2005--Choice Hotels International, Inc.,
(NYSE:CHH) today reported the following highlights for the third quarter
of 2005:
-
Adjusted diluted earnings per share (EPS) for the third quarter increased
16% to $0.43, excluding the tax effects related to the resolution of certain
tax contingencies and the Company's repatriation of foreign earnings pursuant
to the American Jobs Creation Act, compared to adjusted diluted EPS of
$0.37 for the third quarter 2004, which excluded the effects of debt extinguishment
costs; Diluted EPS for the third quarter 2005 was $0.48, compared to $0.36
for the same period in 2004;
-
Operating income increased 12% to $47.8 million for third quarter 2005
compared to $42.5 million for the same period of the prior year;
-
Domestic unit growth increased 6.1%, including the acquisition of the 67
unit Suburban Extended Stay Hotels chain on September 28, 2005;
-
New hotel franchise contracts increased 17% for third quarter 2005 to 143,
year-to-date new domestic hotel franchise contracts were up 18% to 419;
-
Initial franchise and relicensing fees increased 17% for third quarter
2005;
-
Royalty revenues rose 12% and franchising and total revenues each increased
11% for third quarter 2005;
-
Domestic system-wide revenue per available room (RevPAR) increased 5.8%
to $46.93 for third quarter 2005 compared to third quarter 2004;
-
Effective royalty rate increased 3 basis points to 4.07% for third quarter
2005;
-
The domestic hotel pipeline of hotels under construction, awaiting conversion
or approved for development increased more than 25% to 497 hotels representing
37,688 rooms; the worldwide pipeline increased 18% to 581 hotels, representing
45,368 rooms;
-
Company announces 2005 fourth quarter guidance of $0.29 to $0.31 diluted
earnings per share; full year 2005 guidance updated to $1.22 to $1.24 adjusted
diluted earnings per share.
"We are pleased that royalty revenues and new hotel franchise contracts
continue to grow at a strong pace," said Charles A. Ledsinger, Jr., president
and chief executive officer. "Our franchise contract, unit and RevPAR growth
continues to demonstrate the strength of our value proposition to hotel
developers and consumers. In addition, the acquisition of the Suburban
Extended Stay Hotels chain gives us an immediate leadership position in
a fast-growing segment."
He added, "The recent stock split and dividend increase demonstrate
Choice's ongoing commitment to building and returning value to shareholders.
We are enthusiastic about the company's 2005 performance to date and we
expect continued success for the remainder of the year."
Two-For-One Stock Split
The Company affected a two-for-one stock split of its outstanding shares
of common stock, par value $.01 per share, effective on October 21, 2005.
All share information on the financial statements and in this release,
including per share amounts, have been proportionally adjusted as if the
two-for-one stock split had been effective as of the date or period presented.
Third Quarter 2005 Performance
Choice reported third quarter 2005 net income of $32.5 million, or $0.48
diluted earnings per share, a 33% increase in diluted EPS over the same
period in 2004.
Operating income for third quarter 2005 increased 12% from $42.5 million
to $47.8 million. Franchising margins for the third quarter increased to
69.8% from 69.1% reported for the same period a year ago.
Royalty revenues for third quarter 2005 were $58.1 million, compared
to $51.8 million for third quarter 2004, a 12% increase.
The company also reported total revenues of $142.1 million for third
quarter 2005, compared to $127.5 million in third quarter 2004, an increase
of 11%. Franchising revenues, which include royalty revenues, initial franchise
and relicensing fees, partner services and other revenue, increased 11%
in third quarter 2005 to $68.0 million from $61.1 million for the same
period a year ago.
System-wide RevPAR was $46.93 for third quarter 2005, compared to $44.35
for the same period in 2004, a 5.8% increase.
For the third quarter of 2005, the effective royalty rate increased
3 basis points from 4.04% to 4.07%.
For the first nine months of 2005, Choice reported net income of $66.0
million, or $0.99 diluted EPS, increases of 22% and 29% respectively over
the $54.0 million and $0.77 diluted EPS reported for the first nine months
of 2004. Operating income through September 30, 2005 increased 15% to $107.5
million, compared to $93.5 million for the same period a year ago.
For the first three quarters of 2005, royalty revenues grew 11% to $138.2
million from $124.2 million in the first nine months of 2004.
For the first nine months of 2005, total revenues were $355.7 million,
an increase of 11% over the same period in 2004. Franchising revenues were
$167.7 million, a 12% increase over the $150.0 million reported in the
first nine months of 2004. Franchising margins for the first nine months
of 2005 increased to 63.5% from 61.9% for the same period a year ago.
System-wide RevPAR was $37.99 for the nine months ended September 30,
2005, compared to $35.95 for the same period in 2004, an increase of 5.7%.
The effective royalty rate for the first three quarters of 2005 was
4.08%, a 4 basis point improvement from 4.04% for 2004.
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.
Net income and diluted earnings per share for the 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.
Unit Growth
The number of domestic Choice hotels on-line, excluding franchises obtained
in the acquisition of Suburban Extended Stay Hotels, grew by 4.3% to 3,961
(319,357 rooms on-line) as of September 30, 2005, from 3,796 (306,797 rooms
on-line) as of the same period a year ago. Net domestic franchise additions
in third quarter 2005 were 35, compared to 73 for the same period in 2004.
For the first nine months of this year, net domestic franchise additions
were 127, compared to 160 for the same period a year ago. Net domestic
franchise additions declined as a result of franchise terminations increasing
from 120 in 2004 to 174 in 2005. The increase in franchise terminations
reflects a concerted effort to terminate under performing franchises and
replace them with higher quality units.
On September 28, 2005, the Company acquired the Suburban Extended Stay
Hotels brand representing 67 units open and operating in the United States.
Acquisition of this brand increased the Company's domestic units under
contract to 4,028 units a 6.1% increase over the number of units at September
30, 2004.
Choice executed 143 new domestic hotel franchise contracts representing
11,757 rooms in third quarter 2005, compared to 122 new contracts representing
10,162 rooms for the same period a year ago, increases of 17% and 16%,
respectively. For the year through September 30, 2005, Choice has executed
419 new domestic hotel franchise contracts, representing 34,995 rooms,
compared to 354 contracts, representing 30,149 rooms, for the same period
in 2004, increases of 18% and 16%, respectively. These increases in executed
contracts and an increase in the number of existing franchise relicensings
have contributed to a 17% and 23% increase in initial franchise and relicensing
fees for the three and nine months ended September 30, 2005, respectively,
over the same periods of the prior year.
For third quarter 2005, 46 contracts for new construction hotel franchises,
representing 3,435 rooms, were executed, compared to 40 contracts, representing
2,722 rooms for the same period a year ago, increases of approximately
15% and 26%, respectively. For the nine months ended September 30, 2005,
139 contracts for new construction hotels representing 10,490 rooms were
executed, representing increases of 39% and 53%, respectively, compared
to 100 contracts, representing 6,858 rooms, for new construction hotels
for the same period a year ago.
As of September 30, 2005, Choice had 497 hotels under development in
its domestic hotel system, representing 37,688 rooms, compared to 397 hotels
and 30,776 rooms at the same date in 2004, increases of 25% and 22%, respectively.
Also as of September 30, 2005, the number of Choice hotels on-line worldwide
grew 3% to 5,128 from 4,959 as of the same date a year ago. This growth
represents an increase of 4% in the number of rooms open to 417,415 from
402,519. As of September 30, 2005, Choice had 581 hotels under development
worldwide, representing 45,368 rooms, compared to 492 hotels, representing
39,127 rooms, at the same date in 2004.
Use of Free Cash Flow
The company has consistently used the 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, 2005, the company purchased
0.8 million shares of its common stock at an average price of $30.15 per
share for a total cost of $23.9 million. Since October 1, 2005 and through
October 27, 2005, the company has purchased an additional 0.6 million shares
of its common stock at an average price of $32.02 per share for a total
cost of $17.9 million. The company has remaining authorization to purchase
up to 2.3 million shares. Since Choice announced its stock repurchase program
on June 25, 1998 and through October 27, 2005, the company has purchased
66.4 million shares of its common stock at an average price of $10.61 per
share and a total cost of $704.5 million.
For the nine months ended September 30, 2005, the company paid $21.8
million of cash dividends to shareholders. On September 14, 2005, the Company's
board of directors approved an increase in the quarterly cash dividend
on the common stock from $0.1125 to $0.13 per common share payable on October
21, 2005 to shareholders of record on October 7, 2005. This increase will
result in an annual dividend rate per share of $0.52, a 15.5% increase
from the previous annual dividend rate of $0.45.
The company expects to continue to return value to its shareholders
through a combination of share repurchases and dividends.
Fourth Quarter & Full Year 2005
The company's fourth quarter diluted EPS is expected to be $0.29 to
$0.31. These fourth quarter estimates assume the existing share count and
RevPAR growth of approximately 5% to 6%. Full year adjusted diluted EPS
is expected to be $1.22 to $1.24. Adjusted diluted EPS excludes the 3rd
quarter 2005 tax effects of the repatriation of foreign earnings and resolution
of tax contingencies. Full year diluted EPS is expected to be $1.27 to
$1.29. These estimates assume the existing share count and RevPAR growth
for full year 2005 of approximately 5% to 6%.
Adjusted diluted earnings per share, franchising revenues, franchising
margins 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 diluted earnings per share, total
revenues, operating income 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.
Choice Hotels International, Inc. Exhibit 1
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
(In thousands, except per
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
share amounts)
2005 2004 2005
2004
------------------- -------------------
REVENUES:
Royalty fees
$ 58,063 $ 51,845 $138,220 $124,231
Initial franchise and
relicensing fees
5,769 4,927 16,671
13,546
Partner services
3,122 3,027 10,358
9,282
Marketing and reservation
72,961 65,379 184,814 169,107
Hotel operations
1,153 1,018 3,214
2,762
Other
1,003 1,312 2,457
2,983
------------------- -------------------
Total revenues
142,071 127,508 355,734 321,911
OPERATING EXPENSES:
Selling, general and
administrative
18,346 16,374 54,360
49,612
Depreciation and amortization
2,188 2,489 6,769
7,525
Marketing and reservation
72,961 65,379 184,814 169,107
Hotel operations
789 778 2,288
2,150
------------------- -------------------
Total operating expenses
94,284 85,020 248,231 228,394
Operating income
47,787 42,488 107,503 93,517
OTHER INCOME AND EXPENSES:
Interest expense
3,815 2,921 11,294
8,277
Interest and other investment
(income) loss
(721) 75
(994) (323)
Equity in net income of
affiliates
(267) (175) (621)
(451)
Loss on extinguishment of
debt
- 696
- 696
Gain on sale of assets
(197) -
(383) -
------------------- -------------------
Total other income and
expenses
2,630 3,517 9,296
8,199
------------------- -------------------
Income before income taxes
45,157 38,971 98,207
85,318
Income taxes
12,691 14,055 32,194
31,305
------------------- -------------------
Net income
$ 32,466 $ 24,916 $ 66,013 $ 54,013
=================== ===================
Weighted average shares
outstanding-basic
64,756 65,613 64,452
66,978
=================== ===================
Weighted average shares
outstanding-diluted
66,963 68,519 66,630
69,740
=================== ===================
Basic earnings per share
$ 0.50 $ 0.38 $ 1.02
$ 0.81
=================== ===================
Diluted earnings per share $
0.48 $ 0.36 $ 0.99 $
0.77
=================== ===================
Choice Hotels International, Inc.
Exhibit 2
Consolidated Balance Sheets
(In thousands)
Sept. 30, Dec. 31,
2005 2004
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents
$ 37,251 $ 28,518
Accounts receivable, net
42,926 34,611
Deferred income taxes
2,252 2,252
Other current assets
4,265 4,212
----------- -----------
Total
current assets
86,694 69,593
Fixed assets and intangibles, net
152,795 142,907
Receivable -- marketing and reservation fees
14,891 21,683
Other assets
34,183 29,169
----------- -----------
Total assets
288,563 263,352
----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt
775 10,146
Other current liabilities
120,319 91,909
----------- -----------
Total
current liabilities
121,094 102,055
Long-term debt
295,892 318,557
Deferred income taxes
2,479 6,974
Other liabilities
33,689 38,819
----------- -----------
Total
liabilities
453,154 466,405
----------- -----------
Total
shareholders' deficit
(164,591) (203,053)
----------- -----------
Total liabilities and
shareholders' deficit $
288,563 $ 263,352
----------- -----------
Choice Hotels International, Inc.
Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
Sept. 30, Sept. 30,
2005 2004
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 66,013 $ 54,013
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
6,769 7,525
Gain on sale of assets
(383) -
Provision for bad debts
102 215
Non-cash stock compensation
3,877 3,100
Non-cash interest and other investment (income)
loss
(346) 157
Loss on extinguishment of debt
- 696
Equity in net income of affiliates
(621) (451)
Changes in assets and liabilities, net of
acquisitions:
Receivables
(8,089) (9,032)
Receivable - marketing and reservation fees, net
13,351 18,222
Accounts payable
(1,545) (2,368)
Accrued expenses and other
5,041 3,040
Income taxes payable
23,842 10,120
Deferred income taxes
(7,006) (8,666)
Deferred revenue
4,000 (839)
Other current assets
87 236
Other liabilities
(6,179) (934)
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
98,913 75,034
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment
(10,242) (4,266)
Proceeds from disposition of assets
2,811 -
Issuance of notes receivable
(1,456) (1,781)
Proceeds from sales of investments
3,239 3,318
Purchases of investments
(7,723) (6,090)
Acquisition of surburban, net of cash acquired
(7,413) -
Other items, net
(447) (431)
---------------------
NET CASH USED IN INVESTING ACTIVITIES
(21,231) (9,250)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt
- 192,000
Principal payments of long-term debt
(109) (267,693)
Net (repayments) borrowings persuant to revolving
credit facility
(32,604) 137,118
Debt issuance costs
(193) (1,010)
Purchase of treasury stock
(23,935) (101,336)
Dividends paid
(21,813) (20,125)
Proceeds from exercise of stock options
9,705 5,590
---------------------
NET CASH USED IN FINANCING ACTIVITIES
(68,949) (55,456)
---------------------
Net change in cash and cash equivalents
8,733 10,328
Cash and cash equivalents at beginning of period
28,518 20,714
---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 37,251 $ 31,042
=====================
CHOICE
HOTELS INTERNATIONAL, INC.
Exhibit 4
SUPPLEMENTAL OPERATING INFORMATION BY BRAND
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2005 2004 2005
2004
--------- --------- --------- ---------
COMFORT INN
Hotels
1,440 1,433 1,440
1,433
Rooms
112,903 112,323 112,903 112,323
Avg. Daily Rate
$73.81 $70.21 $68.85
$65.47
Occupancy %
71.6% 69.7% 61.1%
59.7%
RevPAR
$52.87 $48.95 $42.05
$39.06
COMFORT SUITES
Hotels
410 383
410 383
Rooms
32,142 30,210 32,142
30,210
Avg. Daily Rate
$80.71 $76.49 $77.59
$73.95
Occupancy %
73.5% 71.7% 65.6%
64.2%
RevPAR
$59.32 $54.87 $50.91
$47.45
QUALITY
Hotels
644 549
644 549
Rooms
64,908 56,522 64,908
56,522
Avg. Daily Rate
$69.99 $68.88 $65.37
$64.24
Occupancy %
63.5% 63.4% 54.4%
54.2%
RevPAR
$44.42 $43.68 $35.57
$34.80
CLARION
Hotels
148 157
148 157
Rooms
22,685 23,555 22,685
23,555
Avg. Daily Rate
$77.94 $74.98 $74.25
$72.33
Occupancy %
60.1% 58.4% 52.0%
51.3%
RevPAR
$46.87 $43.82 $38.59
$37.07
SLEEP
Hotels
316 311
316 311
Rooms
24,032 23,807 24,032
23,807
Avg. Daily Rate
$65.77 $62.94 $62.46
$59.44
Occupancy %
69.1% 67.4% 60.7%
59.3%
RevPAR
$45.43 $42.45 $37.91
$35.23
MAINSTAY
Hotels
28 27
28 27
Rooms
2,190 2,150 2,190
2,150
Avg. Daily Rate
$67.97 $64.37 $64.48
$60.78
Occupancy %
73.4% 67.9% 64.9%
61.1%
RevPAR
$49.89 $43.71 $41.84
$37.14
ECONO LODGE
Hotels
803 770
803 770
Rooms
49,851 47,468 49,851
47,468
Avg. Daily Rate
$55.11 $53.38 $50.99
$48.97
Occupancy %
57.1% 56.7% 48.3%
48.3%
RevPAR
$31.49 $30.26 $24.64
$23.64
RODEWAY
Hotels
172 166
172 166
Rooms
10,646 10,762 10,646
10,762
Avg. Daily Rate
$56.80 $57.92 $50.57
$53.13
Occupancy %
54.8% 58.6% 47.4%
48.5%
RevPAR
$31.10 $33.93 $23.99
$25.78
TOTAL CHOICE - DOMESTIC
Hotels
3,961 3,796 3,961
3,796
Rooms
319,357 306,797 319,357 306,797
Avg. Daily Rate
$70.59 $67.80 $66.33
$63.70
Occupancy %
66.5% 65.4% 57.3%
56.4%
RevPAR
$46.93 $44.35 $37.99
$35.95
Effective Royalty Rate
4.07% 4.04% 4.08%
4.04%
CHOICE HOTELS
INTERNATIONAL, INC.
Exhibit 5
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,
2005 2004 2005
2004
------------------- -------------------
Franchising Revenues:
Total Revenues
$142,071 $127,508 $355,734 $321,911
Adjustments:
Marketing and reservation
revenues
(72,961) (65,379) (184,814) (169,107)
Hotel Operations
(1,153) (1,018) (3,214) (2,762)
------------------- -------------------
Franchising Revenues
$ 67,957 $ 61,111 $167,706 $150,042
------------------- -------------------
Franchising Margins:
Operating Margin:
Total Revenues
$142,071 $127,508 $355,734 $321,911
Operating Income
$ 47,787 $ 42,488 $107,503 $ 93,517
------------------- -------------------
Operating Margin
33.6% 33.3% 30.2%
29.1%
------------------- -------------------
Franchising Margin:
Franchising Revenues
$ 67,957 $ 61,111 $167,706 $150,042
Operating Income
$ 47,787 $ 42,488 $107,503 $ 93,517
Less: Hotel Operations
364 240
926 612
------------------- -------------------
$ 47,423 $ 42,248 $106,577 $ 92,905
------------------- -------------------
------------------- -------------------
Franchising Margins
69.8% 69.1% 63.5%
61.9%
------------------- -------------------
CHOICE HOTELS INTERNATIONAL, INC.
Exhibit 6
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,
2005 2004 2005
2004
------------------- -------------------
Adjusted Net Income
Net Income
$ 32,466 $ 24,916 $ 66,013 $ 54,013
Adjustments:
Debt Extinguishment Costs
- 433
- 433
Reversal of Provisions for
Income Tax Contingencies
(4,896) - (4,896)
-
Income Tax Expense
Incurred Due to Foreign
Earnings Repatriation
1,192 -
1,192 -
------------------- -------------------
Adjusted Net Income
$ 28,762 $ 25,349 $ 62,309 $ 54,446
------------------- -------------------
Weighted average shares
outstanding-diluted
66,963 68,519 66,630
69,740
Diluted Earnings Per Share $
0.48 $ 0.36 $ 0.99 $
0.77
Adjustments:
Debt Extinguishment Costs
- 0.01
- 0.01
Reversal of Provisions for
Income Tax Contingencies
(0.07) -
(0.07) -
Income Tax Expense
Incurred Due to Foreign
Earnings Repatriation
0.02 -
0.02 -
------------------- -------------------
Adjusted Diluted Earnings Per
Share (EPS)
$ 0.43 $ 0.37 $ 0.94
$ 0.78
------------------- ------------------- |
Choice Hotels International franchises more than 5,000 hotels, representing
more than 400,000 rooms, in the United States and more than 40 countries
and territories. As of September 30, 2005, 497 hotels are under development
in the United States, representing 37,688 rooms, and an additional 84 hotels,
representing 7,680 rooms, are under development in more than 40 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 Hotels 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.
© 2005 Choice Hotels International, Inc. All rights reserved.
|