Choice Hotels Reports 3rd Quarter Recurring Diluted Eps Increases 22%; Revenues Up 6% for 3rd Quarter; Company Results Exceed Consensus Estimates by Four Cents.Business Editors SILVER SPRING, Md.--(BUSINESS WIRE)--Oct. 18, 2001 Choice Hotels International, Inc. (NYSE NYSE See: New York Stock Exchange :CHH CHH Cartilage Hair Hypoplasia CHH Crustacean Hyperglycemic Hormone CHH Carter Holt Harvey Limited (Australia & New Zealand) CHH Chuan Hup Holdings Limited (Singapore) CHH Certified Hardware Hosineer ), the world's second largest hotel franchisor, today reported third quarter 2001 recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. net income of $19.8 million, or $0.45 recurring diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ), compared to the $19.4 million in recurring net income and $0.37 recurring diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS reported for third quarter 2000, thus exceeding consensus estimates by four cents. "We are extremely pleased with the strong performance achieved in the third quarter," said Charles Charles, archduke of Austria Charles, 1771–1847, archduke of Austria; brother of Holy Roman Emperor Francis II. Despite his epilepsy, he was the ablest Austrian commander in the French Revolutionary and Napoleonic wars; however, he was handicapped by A. Ledsinger, Jr., president and chief executive officer. "As we see with our results, Choice is much less susceptible susceptible /sus·cep·ti·ble/ (su-sep´ti-b'l) 1. readily affected or acted upon. 2. lacking immunity or resistance and thus at risk of infection. sus·cep·ti·ble adj. to economic cycles than our owner-operator An owner-operator is a type of business owner, who typically works and runs their own business. An owner-operator will usually be responsible for day-to-day operations, such as inventory, finances, labor control, etc. competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. ." He continued, "Despite a distinct softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in the economy, our revenues grew 6% for the quarter and have grown 7% year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. . Our EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become growth is steady, reaching 8% for the quarter and more than 7% for the year-to-date." The company also announced that, given the industry RevPAR RevPAR A performance metric in the hotel industry which stands for "revenue per available room." RevPAR is typically calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate. decline since September September: see month. 11, it expects fourth quarter 2001 recurring diluted EPS to be in the range of $0.27 to $0.31, or $1.23 to $1.27 for the full 2001 year. In addition, the company noted that, assuming RevPAR declines in 2002 in the 1% to 5% range, recurring diluted EPS for the year should fall into the range of $1.31 to $1.37, given the current number of shares outstanding. "While the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. effects of the aftermath AFTERMATH. A right to have the last crop of grass or pasturage. 1 Chit. Pr. 181. of September 11 are not yet known, we expect our brands and hotels to be less sensitive to the overall industry decline, given our franchise structure and hotel locations," said Ledsinger. In discussing the aftermath of September 11, Ledsinger noted, "We have seen our business rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective from an initially precipitous drop-off. While RevPAR dropped 25% from the previous year's level initially, after about six days we began to see increased reservations activity and we now have daily RevPAR averaging about 10% under last year. More importantly, our average daily rate has held up relatively steady during this crisis." He added, "This performance confirms that our mid-priced, limited service products serve us well in a time of economic and political uncertainty. Because about 75% of our business reaches our hotels by car, we are extremely well-positioned in our highway locations to attract first-time guests whose travel patterns are taking them more in our direction now." Third Quarter Results Recurring earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
The company reported royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. revenues of $44.6 million for third quarter 2001, compared to $43.4 million for third quarter 2000, an increase of 2.8%. Because Choice's practice is to bill franchisees on monthly actual performance in arrears Adv. 1. in arrears - in debt; "he fell behind with his mortgage payments"; "a month behind in the rent"; "a company that has been run behindhand for years"; "in arrears with their utility bills" behindhand, behind , royalty revenues for September hotel performance are recognized in the fourth quarter. The system-wide domestic effective royalty rate increased from 3.88% in third quarter 2000 to 3.96% for the third quarter of 2001. Domestic revenue per available room (RevPAR) was $44.85 for the third quarter of 2001, compared to $45.85 for the same period a year ago. For the first nine months of 2001, Choice reported recurring net income of $42.9 million or $0.96 recurring diluted EPS versus recurring net income of $43.6 million and $0.82 recurring diluted EPS for the first nine months of 2000. Royalty revenues for the first nine months of 2001 increased 4.9% to $107.6 million from the $102.6 million for the same period of a year ago. The system-wide domestic effective royalty rate increased 9 basis points for the first nine months of 2001 to 3.93% from 3.84% for the same period a year ago. Domestic RevPAR also was up 0.7% from $36.76 for the first nine months of 2000 to $37.00 for the first nine months of 2001. Partner service revenue, which in part operates through Choice's proprietary ChoiceBuys.com online purchasing system, increased 39% in third quarter 2001 to $3 million. For the year-to-date, partner service revenue has increased 36%. Total debt to rolling 12-month EBITDA declined to 2.42 times from 2.83 times a year earlier, reflecting the 28.6% improvement in cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses and the monetization Monetization The securitization of the gross revenues of a contract. of key investments. Choice's franchising business model does not require significant ongoing maintenance capital expenditures. During the three months ended September 30, 2001, the company recorded an equity loss of $11.7 million related to changes in its equity investment in Friendly Hotels plc. Friendly continues to restructure its organization to strengthen its balance sheet, improve its operations and accelerate growth of its franchising business. Further adverse fixed asset valuation adjustments due to a decline in economic conditions, incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. professional fees associated with the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and balance sheet accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. adjustments primarily account for the $11.7 million charge. Further writedowns relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc this investment may occur in the future. The equity loss is excluded from the company's recurring net income and recurring diluted EPS. In the event that Friendly has future liquidity issues, the company does not intend to fund future losses. System Growth Choice signed 74 hotel franchise contracts in third quarter 2001, compared to the 65 contracts signed in the same period a year ago. Through September 30, 2001, the company has signed 199 new contracts, representing 16,697 rooms. The company has signed 123 contracts to convert existing hotels to a Choice brand in the first nine months of 2001, up from 91 conversions from the same period a year ago. As of September 30, 2001, the total number of Choice hotels worldwide online grew 2.8% to 4,495 from 4,371 as of the same date a year ago. As of the same date, the total number of rooms worldwide increased 2.6% to 358,631 from 349,392 as of the same date a year ago. The company had 643 franchised hotels with 53,959 rooms either in design or under construction in its worldwide hotel system as of September 30, 2001. Notable Events Among the notable company events occurring since the previous earnings report: -- Launched the "Thanks for Traveling" campaign to rally the industry to encourage travel in the wake of the September 11 terrorist attacks. The promotional campaign is open to all travel companies to adapt for their use and includes Choice-specific advertising programs and grassroots involvement of more than 3,300 domestic hotels. -- Announced a "Guaranteed Return" program to assist franchisees with signage costs related to the Quality, Comfort Suites and Sleep Inn brands, which are undergoing a major re-imaging program. -- Introduced a frequent traveler promotion, called EA$Y CHOICE, for its budget brands, Econo Lodge and Rodeway Inn, that features free stays and airline miles. -- Unveiled the next generation of prototype for its Sleep Inn brand, featuring a combination of standard rooms and suites and expanded work areas in each room to help meet travelers' business needs. -- Completed the roll out of a "last room" sell function at more than 2,400 hotels, allowing synchronization of the hotel's Profit Manager property management system with the Choice 2001 central reservations system. -- Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 20.5 million shares of common stock at an average price of $14.77 and a total cost of $303.5 million, as of October 11, 2001. Since January 1, 2001, the company has purchased 11.5 million shares of common stock. Total shares outstanding as of September 30, 2001 are 42.5 million. The company repurchased 2.1 million shares during the third quarter of 2001 at a total cost of $41.0 million. Since September 11, 2001, no significant share repurchases have occurred. Choice Hotels International is the second-largest hotel franchisor in the world with 4,495 hotels open worldwide, representing 358,631 rooms, and another 450 hotels under development in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , representing 34,455 rooms. An additional 193 hotels, representing 19,504 rooms, are under development in 42 other countries as of September 30, 2001. Its Comfort, Quality, Clarion A family of application development systems for Windows from SoftVelocity, Inc., Pompano Beach, FL (www.softvelocity.com). Clarion provides a comprehensive set of tools for development, including a screen builder, 4GL and application generator. , Sleep Inn, Econo Lodge Econo Lodge is an economy motel chain based in the United States. Econo Lodge is the second largest brand in the Choice Hotels system. It is one of the best known names of its category and provides affordable rooms to budget travelers. , Rodeway Inn Rodeway Inn is an upper-priced economy chain of motels in the United States and Canada. Rodeway Inn is a brand of the Choice Hotels group. There are over 150 locations in North America. and MainStay Suites Mainstay Suites is a brand of mid-priced extended stay hotels franchised by Choice Hotels International. Mainstay Suites hotels provide comfortable and affordable accommodations to extended stay travelers as well as provide many amenities to its guests. brands serve guests worldwide. Certain matters discussed in this press release may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 Form 10-Q See 10-Q. for the period ended June June: see month. 30, 1999. Additional corporate information may be found on the Choice Hotels' internet site, which may be accessed at www.choicehotels.com. Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Choice Privileges privileges, n the authority granted to a physician or dental professional by a hospital governing board to provide patient care in the hospital. Clinical privileges are limited to the individual's license, experience, and competence. , EA$Y CHOICE 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 Statements of Income
(Unaudited)
(In thousands,
except per Three Months Ended Nine Months Ended
share amounts) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
Revenues ----------------------- ----------------------
Royalty fees $ 44,618 $ 43,390 $ 107,621 $ 102,603
Initial franchise
fees and
relicensing fees 3,509 3,279 9,159 10,061
Partner service
revenue 2,964 2,131 8,866 6,517
Hotel operations 793 334 2,498 334
Other 1,327 979 3,624 3,408
----------------------- ----------------------
Total revenues 53,211 50,113 131,768 122,923
Operating
expenses
Selling, general
and
administrative 14,014 14,308 41,690 40,608
Hotel operations 728 174 1,909 174
Depreciation and
amortization 3,060 2,830 8,952 8,385
----------------------- ----------------------
Total operating
expenses 17,802 17,312 52,551 49,167
Operating income 35,409 32,801 79,217 73,756
Other
Interest and
dividend income (1,079) (3,908) (3,251) (11,684)
Interest expense 3,981 4,897 12,062 14,121
Equity loss/
(gain)-Friendly
Hotels plc 11,653 (109) 14,574 1,780
Gain on sale of
investments -- -- (42) --
Write-off of
deferred
financing
costs -- -- 650 --
Loss on early
prepayment of
note -- -- -- 4,100
----------------------- ----------------------
Total other 14,555 880 23,993 8,317
----------------------- ----------------------
Income before
income taxes 20,854 31,921 55,224 65,439
Income taxes 8,346 12,449 21,750 25,521
----------------------- ----------------------
Net income $ 12,508 $ 19,472 $ 33,474 $ 39,918
======================= ======================
Recurring net
income (a) $ 19,780 $ 19,404 $ 42,948 $ 43,586
======================= ======================
Weighted average
shares
outstanding 42,853 52,768 44,214 52,874
======================= ======================
Diluted shares
outstanding 43,583 53,119 44,598 53,324
======================= ======================
Diluted earnings
per share $ 0.29 $ 0.37 $ 0.75 $ 0.75
======================= ======================
Recurring
diluted
earnings per
share (a) $ 0.45 $ 0.37 $ 0.96 $ 0.82
======================= ======================
(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 Balance Sheets
(In thousands) Sept. 30, Dec. 31,
2001 2000
--------- ---------
(Unaudited)
ASSETS
Cash and cash equivalents $ 8,746 $ 19,701
Other current assets 36,135 32,385
--------- ---------
Total current assets 44,881 52,086
Fixed assets and intangibles, net 171,544 174,772
Investment in Friendly Hotels plc 24,500 34,616
Note receivable from Sunburst Hospitality Corp. 38,008 137,492
Advances to marketing and reservation funds 42,800 57,824
Other assets 22,405 27,330
--------- ---------
Total assets 344,138 484,120
========= =========
LIABILITIES AND (DEFICIT) EQUITY
Current portion of long-term debt 12,604 50,046
Other current liabilities 58,966 43,782
--------- ---------
Total current liabilities 71,570 93,828
Long-term debt 266,959 247,179
Deferred income taxes and other 42,800 53,020
--------- ---------
Total liabilities 381,329 394,027
--------- ---------
Total shareholders' (deficit) equity (37,191) 90,093
--------- ---------
Total liabilities and shareholders'
(deficit) equity $ 344,138 $ 484,120
========= =========
Choice Hotels International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Nine Months Ended
Sept. 30, Sept. 30,
2001 2000
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,474 $ 39,918
Reconciliation of net income to net
cash provided by operating
activities:
Equity loss on Friendly Hotels plc 14,574 1,780
Deferred income taxes and other (10,080) 6,565
Depreciation and amortization 8,952 8,385
Non-cash interest and dividend
income (3,168) (11,512)
Write-off of deferred financing
costs 650 --
Provision for bad debts 195 (349)
Loss on early prepayment of note -- 4,100
Changes in assets and liabilities:
Change in income taxes payable/
receivable and other 21,116 11,321
Change in receivables (4,452) (5,111)
Change in accounts payable and
accrued expenses (2,894) (9,718)
----------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 58,367 45,379
----------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from Sunburst Hospitality
Corp. note receivable 101,954 --
Repayments from/(advances to)
marketing and reservation funds,
net 23,729 (13,160)
Investment in property and equipment (11,178) (12,812)
Other items, net 1,486 1,947
----------------------
NET CASH PROVIDED (UTILIZED)
BY INVESTING ACTIVITIES 115,991 (24,025)
----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments of long-term
borrowings (627,009) (65,721)
Proceeds from long-term borrowings,
net of financing costs 606,692 65,800
Purchase of treasury stock (174,668) (20,415)
Proceeds from exercise of stock
options 9,672 1,313
----------------------
NET CASH UTILIZED BY
FINANCING ACTIVITIES (185,313) (19,023)
----------------------
Net change in cash and cash
equivalents (10,955) 2,331
Cash and cash equivalents,
beginning of period 19,701 11,850
----------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 8,746 $ 14,181
======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash payments during the period for:
Income taxes, net of refunds $ 11,190 $ 8,378
Interest 12,572 15,736
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 Nine Months
Quarter Ended Ended
September 30, September 30,
2001 2000 2001 2000
------- ------- ------- -------
COMFORT INN
Hotels 1,301 1,284 1,301 1,284
Rooms 102,071 100,557 102,071 100,557
Avg. Daily
Rate (ADR) $68.03 $66.86 $64.03 $62.03
Occupancy % 72.0% 74.0% 61.8% 63.1%
RevPAR $48.95 $49.46 $39.58 $39.14
COMFORT SUITES
Hotels 300 267 300 267
Rooms 23,654 21,188 23,654 21,188
Avg. Daily
Rate (ADR) $75.90 $74.73 $73.80 $72.02
Occupancy % 70.5% 73.8% 64.4% 66.2%
RevPAR $53.48 $55.13 $47.53 $47.68
QUALITY
Hotels 430 433 430 433
Rooms 48,073 49,286 48,073 49,286
Avg. Daily
Rate (ADR) $69.81 $69.20 $66.11 $64.37
Occupancy % 65.2% 67.6% 56.9% 57.5%
RevPAR $45.52 $46.79 $37.63 $37.02
CLARION
Hotels 115 115 115 115
Rooms 17,652 18,542 17,652 18,542
Avg. Daily
Rate (ADR) $81.90 $84.03 $79.21 $81.56
Occupancy % 62.8% 66.3% 55.8% 59.0%
RevPAR $51.45 $55.69 $44.23 $48.12
SLEEP
Hotels 278 257 278 257
Rooms 21,455 19,857 21,455 19,857
Avg. Daily
Rate (ADR) $59.80 $58.70 $57.36 $55.82
Occupancy % 66.6% 68.5% 58.8% 59.8%
RevPAR $39.82 $40.19 $33.74 $33.35
MAINSTAY
Hotels 40 34 40 34
Rooms 3,492 3,099 3,492 3,099
Avg. Daily
Rate (ADR) $65.77 $66.10 $64.55 $62.91
Occupancy % 73.1% 77.2% 66.7% 70.0%
RevPAR $48.10 $50.99 $43.04 $44.03
ECONO LODGE
Hotels 687 692 687 692
Rooms 42,849 43,405 42,849 43,405
Avg. Daily
Rate (ADR) $51.82 $50.83 $47.75 $46.51
Occupancy % 61.6% 63.7% 52.5% 52.8%
RevPAR $31.93 $32.37 $25.09 $24.57
RODEWAY
Hotels 145 152 145 152
Rooms 9,388 9,972 9,388 9,972
Avg. Daily
Rate (ADR) $55.19 $55.55 $49.46 $48.77
Occupancy % 55.6% 60.2% 48.5% 50.1%
RevPAR $30.71 $33.44 $24.01 $24.45
TOTAL CHOICE
- DOMESTIC
Hotels 3,296 3,234 3,296 3,234
Rooms 268,634 265,906 268,634 265,906
Avg. Daily
Rate (ADR) $66.51 $65.73 $63.01 $61.57
Occupancy % 67.4% 69.8% 58.7% 59.7%
RevPAR $44.85 $45.85 $37.00 $36.76
Effective
Royalty Rate 3.96% 3.88% 3.93% 3.84%
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