Choice Hotels Reports Recurring Diluted EPS of $0.43 for 4th Quarter, $1.55 for Full Year 2002; Increases of 48% and 24% Respectively.Business Editors SILVER SPRING, Md.--(BUSINESS WIRE)--Feb. 12, 2003 Company Also Reports Domestic Unit Growth of 4.7% For 2002 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 ) today reported 2002 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 $62.0 million, or $1.55 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. ), a 24% increase in recurring EPS over the previous year. These results exceeded consensus estimates by $0.06. The company reported recurring net income of $16.2 million for fourth quarter 2002, compared to $12.6 million for fourth quarter 2001. 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 was $0.43 for fourth quarter 2002, compared to $0.29 for the same period in 2001. The company's recurring net income for 2002 excluded $1.1 million or $0.03 per share of non-recurring restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. and losses on property dispositions. The company's recurring 2001 results excluded $41.3 million, or $0.93 per share, of non-recurring restructuring charges and losses from its investment in Friendly Hotels. Excluding these charges, recurring net income increased 11.5%. Net income for fourth quarter 2002 and the full year 2002 was $15.1 million and $60.8 million, respectively. Diluted EPS for fourth quarter 2002 and the full year 2002 were $0.40 and $1.52, respectively. "Exceptionally strong unit growth was a prime driver in our 2002 performance," 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. "This continued strong demand for our brands underscores the value franchisees find in the products and services we deliver to their hotels." He added, "In addition to increasing demand, we are seeing a rise in the retention rate of franchisees as well as a measurable increase in franchisee satisfaction." Year-End year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. & Fourth Quarter Performance Net income for the fourth quarter and full twelve months of 2002 includes approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.8 million and $1.6 million, respectively, of tax credits and state tax benefits. The net impact of these tax benefits was to increase diluted EPS by approximately $0.02 and $0.04 for the fourth quarter and full twelve months of 2002, respectively. 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.
1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges, for 2001. Recurring franchise EBITDA margins increased to 68.1% for 2002 from 67.0% for 2001. 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 $142.9 million for 2002, compared to $140.2 million for 2001, an increase of 1.9%. For fourth quarter 2002, royalty revenues increased 5.5% to $34.4 million, compared to $32.6 million for the same period in 2001. System-wide domestic revenue per available room (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. ) was $34.48 in 2002, compared to $35.83 for 2001. For fourth quarter 2002, RevPAR was $32.46, compared to $32.50 for the same period a year ago. For the year 2002, the effective royalty rate increased 2 basis points from 3.95% to 3.97%. 2002 Unit Growth In 2002, the total number of domestic Choice hotels on-line grew 4.7% to 3,482 from 3,327 for 2001. For the year, the total number of domestic hotel rooms increased 4.4% to 282,423 from 270,514 in 2001. Choice executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. 304 new domestic hotel franchise contracts in 2002 and opened a total of 290 domestic hotels. At the end of 2002, Choice had 310 hotels under development in its domestic hotel system, representing 23,766 rooms. As of December December: see month. 31, 2002, the total number of Choice hotels worldwide grew 2.6% to 4,664 from 4,545 as of the same date a year ago. This represents an increase of 3.1% in the number of rooms open of 373,722 from 362,549. At the end of 2002, Choice had 164 hotels under development in countries outside of 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 17,799 rooms. First Quarter & Year 2003 Estimates The company also announced that it expects first quarter 2003 diluted EPS to be in the range of $0.23 to $0.25 and full year 2003 diluted EPS in the range of $1.65 to $1.68. Notable Events Among the notable company events occurring since the previous earnings report: -- Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 26.7 million shares of common stock at an average price of $16.44 per share and a total cost of $439.0 million, as of February 11, 2003. During calendar year 2002, the company purchased 5.4 million shares of common stock. Total shares outstanding as of December 31, 2002, are 37.2 million. The company repurchased approximately 1.4 million shares during the fourth quarter of 2002 at a total cost of $29.9 million. -- The company extended the contract of President and Chief Executive Officer Charles A. Ledsinger, Jr., for another four years to run through October 2006. -- Choice unveiled two new construction prototypes for its Econo Lodge brand, including one with an inn and suites option to provide rooms for more extended stays. These new designs offer developers more cost-efficient construction alternatives in the economy segment. -- David White was elected Vice President and Controller by the Board of Directors. -- The company named Brent Russell to serve as president and chief executive officer of Flag Choice Hotels, its consolidated subsidiary in Australia. Choice Hotels International is the second-largest hotel franchisor in the world with 4,664 hotels open, representing 373,722 rooms, and another 310 hotels under development in the United States, representing 23,766 rooms, as of December 31, 2002. An additional 164 hotels, representing 17,799 rooms, are under development in 27 other countries as of December 31, 2002. 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 September September: see month. 30, 2001. Additional corporate information may be found on the Choice Hotels' Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the 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. Exhibit 1
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share
amounts) Three Months Ended Twelve Months Ended
December December December December
31, 31, 31, 31,
REVENUES: 2002 2001 2002 2001
------------------ -------------------
Royalty fees $34,355 $32,564 $142,943 $140,185
Initial franchise and
relicensing fees 3,620 3,728 12,881 12,887
Partner services revenue 2,820 3,176 11,860 12,042
Marketing and reservation
revenues 41,545 50,546 190,145 168,170
Hotel operations 802 716 3,331 3,215
Other revenue 1,168 1,304 4,402 4,929
------------------ -------------------
Total revenues 84,310 92,034 365,562 341,428
OPERATING EXPENSES:
Selling, general and
administrative 12,820 14,367 54,904 56,075
Restructuring charges 1,616 5,940 1,616 5,940
Impairment of Friendly
investment - 22,713 - 22,713
Depreciation and amortization 3,034 3,500 11,251 12,452
Marketing and reservation
expenses 41,545 50,546 190,145 168,170
Hotel operations 736 591 2,946 2,501
------------------ -------------------
Total operating expenses 59,751 97,657 260,862 267,851
Operating income 24,559 (5,623) 104,700 73,577
OTHER INCOME AND EXPENSES:
Interest and other investment
income (1,305) (1,079) (4,549) (4,329)
Interest expense 3,251 3,401 13,136 15,445
Equity in net (gain) losses of
affiliates (413) 1,862 25 16,436
Minority interest in net income
of consolidated subsidiary (59) - 46 -
Loss (gain) on disposition of
property 224 - 224 (42)
Write-off of deferred financing
costs - - - 650
------------------ -------------------
Total other income and expenses 1,698 4,184 8,882 28,160
------------------ -------------------
Income before income taxes 22,861 (9,807) 95,818 45,417
Income taxes 7,765 9,340 34,974 31,090
------------------ -------------------
Net income $15,096 $(19,147) $60,844 $14,327
================== ===================
Weighted average shares
outstanding-basic 37,248 42,285 39,333 44,174
================== ===================
Weighted average shares
outstanding-diluted 37,938 42,883 40,057 44,572
================== ===================
Basic earnings per share $0.41 $(0.45) $1.55 $0.32
================== ===================
Diluted earnings per share $0.40 $(0.45) $1.52 $0.32
================== ===================
Recurring net income (a) $16,245 $12,632 $61,993 $55,579
================== ===================
Recurring diluted earnings per
share (a) $0.43 $0.29 $1.55 $1.25
================== ===================
(a) Recurring net income and recurring diluted earnings per share
exclude the impact of restructuring charges, asset impairment
and the equity loss on Friendly Hotels PLC, loss (gain) on
disposition of property and write-off of deferred financing
costs.
Choice Hotels International, Inc. Exhibit 2
Consolidated Balance Sheets
(In thousands) December December
31, 31,
2002 2001
---------- ----------
(Unaudited)
ASSETS
Cash and cash equivalents $12,227 $16,871
Accounts receivable, net 32,451 25,223
Other current assets 3,349 889
---------- ----------
Total current assets 48,027 42,983
Fixed assets and intangibles, net 161,606 167,335
Note receivable from Sunburst 41,318 39,059
Receivable from marketing and reservation funds 44,916 49,358
Other assets 18,515 22,443
---------- ----------
Total assets 314,382 321,178
---------- ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt 23,796 13,563
Other current liabilities 61,707 57,614
---------- ----------
Total current liabilities 85,503 71,177
Long-term debt 283,995 267,733
Deferred income taxes and other liabilities 58,683 46,807
---------- ----------
Total liabilities 428,181 385,717
---------- ----------
Total shareholders' deficit (113,799) (64,539)
---------- ----------
Total liabilities and shareholders'
deficit $314,382 $321,178
---------- ----------
Choice Hotels International, Inc. Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Twelve Months Ended
December December
31, 31,
2002 2001
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $60,844 $14,327
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization 11,251 12,452
Non-cash interest and other investment income (2,128) (4,219)
Provision for bad debts 1,256 476
Non-cash stock compensation and other charges 724 2,210
Minority interest in net income of consolidated
subsidiary 46 -
Equity in net (gain) losses of affiliates 25 16,436
Impairment of Friendly investment - 22,713
Write-off of deferred financing costs - 650
Changes in assets and liabilities, net of
acquisitions:
Receivables (5,360) 6,465
Receivable from marketing and reservation funds,
net 17,219 20,267
Current liabilities (4,054) 9,381
Income taxes payable/receivable and other assets 6,330 6,361
Deferred income taxes and other liabilities 12,881 (5,807)
-------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 99,034 101,712
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (12,233) (13,532)
Acquisition of Flag (2,173) -
Other items, net (471) (684)
Proceeds from Sunburst note - 101,954
-------------------
NET CASH (UTILIZED IN) PROVIDED BY INVESTING
ACTIVITIES (14,877) 87,738
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 314,400 772,028
Principal payments of long-term debt (288,220) (790,795)
Purchase of treasury stock (120,768) (185,807)
Proceeds from exercise of stock options 5,787 12,294
-------------------
NET CASH UTILIZED IN FINANCING ACTIVITIES (88,801) (192,280)
-------------------
Net change in cash and cash equivalents (4,644) (2,830)
Cash and cash equivalents at beginning of period 16,871 19,701
-------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,227 $16,871
===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the period for:
Income taxes, net of refunds $14,674 $29,013
Interest 14,132 18,039
Non-cash investing activities:
Properties assumed through the restructuring of
Sunburst note $- $1,475
Conversion of note receivable into Flag equity
interest 1,061 -
Non-cash financing activities:
Income tax benefit realized from employee stock
options exercised $1,763 $3,895
Choice Hotels International, Inc. Exhibit 4
Net Franchise EBITDA Margin Analysis
(Unaudited)
(In thousands) Three Months Twelve Months
Ended Ended
December December December December
31, 31, 31, 31,
NET FRANCHISE EBITDA MARGINS 2002 2001 2002 2001
----------------- -------------------
Franchise revenues:
Royalty fees $34,355 $32,564 $142,943 $140,185
Initial franchise and relicensing
fees 3,620 3,728 12,881 12,887
Partner services revenue 2,820 3,176 11,860 12,042
Other 1,168 1,304 4,402 4,929
----------------- -------------------
Total revenues 41,963 40,772 172,086 170,043
Selling, general and
administrative 12,820 14,367 54,904 56,075
----------------- -------------------
Net franchise EBITDA margin 29,143 26,405 117,182 113,968
Net franchise EBITDA margin
percentages 69.4% 64.8% 68.1% 67.0%
Note: The company analyzes the profitability of its business based
on net franchise EBITDA margins as defined above. Marketing and
reservation fees are excluded as these represent contractual
pass-throughs and are not profitable components of the company's
business. Hotel operations are excluded as they are not a core
operating activity of the company.
Choice Hotels International, Inc. Exhibit 5
Reconciliation of Net Income to Recurring Net Income
(Unaudited)
(In thousands) Three Months Twelve Months
Ended Ended
December December December December
31, 31, 31, 31,
2002 2001 2002 2001
------------------ -----------------
Net income (loss) $15,096 $(19,147) $60,844 $14,327
Adjustments to net income (loss)
for non-recurring
items, net of 37.6% tax rate
Restructuring charges 1,009 3,707 1,009 3,707
Impairment of Friendly Hotels
plc investment
(including $12.7 million tax
valuation allowance) - 26,910 - 26,910
Equity loss on Friendly
investment - 1,162 - 10,256
Loss (gain) on disposition of
property 140 - 140 (27)
Write-off of deferred financing
costs - - - 406
------------------ -----------------
Total adjustments to net (loss)
income 1,149 31,779 1,149 41,252
------------------ -----------------
Recurring net income $16,245 $12,632 $61,993 $55,579
================== =================
CHOICE HOTELS INTERNATIONAL Exhibit 6
SUPPLEMENTAL OPERATING INFORMATION BY BRAND
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Quarter For the Year
Ended Ended
December 31, December 31,
2002 2001 2002 2001
-------- --------- --------- ---------
COMFORT INN
Hotels 1,362 1,315 1,362 1,315
Rooms 106,838 102,855 106,838 102,855
Avg. Daily Rate $62.41 $61.55 $63.43 $63.41
Occupancy % 57.3% 58.1% 59.3% 60.9%
RevPAR $35.75 $35.75 $37.62 $38.59
COMFORT SUITES
Hotels 345 306 345 306
Rooms 27,488 24,143 27,488 24,143
Avg. Daily Rate $70.53 $71.47 $71.99 $73.22
Occupancy % 58.8% 59.3% 61.4% 63.0%
RevPAR $41.48 $42.35 $44.17 $46.16
QUALITY
Hotels 455 430 455 430
Rooms 48,472 48,014 48,472 48,014
Avg. Daily Rate $61.61 $60.25 $63.82 $64.72
Occupancy % 49.4% 50.7% 52.0% 55.3%
RevPAR $30.43 $30.53 $33.16 $35.80
CLARION
Hotels 132 119 132 119
Rooms 20,006 18,032 20,006 18,032
Avg. Daily Rate $72.75 $74.85 $73.88 $78.14
Occupancy % 49.7% 50.2% 51.8% 54.3%
RevPAR $36.18 $37.57 $38.26 $42.46
SLEEP
Hotels 301 285 301 285
Rooms 23,061 21,945 23,061 21,945
Avg. Daily Rate $56.88 $55.97 $57.36 $57.02
Occupancy % 54.8% 53.8% 56.8% 57.5%
RevPAR $31.16 $30.11 $32.57 $32.79
MAINSTAY
Hotels 40 39 40 39
Rooms 3,445 3,410 3,445 3,410
Avg. Daily Rate $61.79 $62.77 $61.50 $64.09
Occupancy % 66.9% 63.5% 67.9% 65.8%
RevPAR $41.36 $39.86 $41.77 $42.20
ECONO LODGE
Hotels 715 691 715 691
Rooms 44,522 42,936 44,522 42,936
Avg. Daily Rate $45.95 $45.88 $47.36 $47.30
Occupancy % 46.9% 48.0% 49.4% 51.4%
RevPAR $21.52 $22.02 $23.38 $24.30
RODEWAY
Hotels 132 142 132 142
Rooms 8,591 9,179 8,591 9,179
Avg. Daily Rate $46.23 $47.26 $49.00 $48.94
Occupancy % 42.8% 43.4% 45.5% 47.2%
RevPAR $19.76 $20.51 $22.29 $23.11
TOTAL CHOICE - DOMESTIC
Hotels 3,482 3,327 3,482 3,327
Rooms 282,423 270,514 282,423 270,514
Avg. Daily Rate $60.75 $60.13 $61.96 $62.31
Occupancy % 53.4% 54.0% 55.6% 57.5%
RevPAR $32.46 $32.50 $34.48 $35.83
Effective Royalty Rate 3.95% 3.99% 3.97% 3.95%
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