Choice Hotels Reports Third Quarter Earnings Per Share Gain of 22% and Operating Income Increase of 8.7%.Business Editors SILVER SPRING, Md.--(BUSINESS WIRE)--Oct. 22, 2003 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. Exceeds Consensus by Three Cents; Company Raises Full Year EPS Estimates New Domestic Hotel Franchise Contracts Rise 39% Year-to-Date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. 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 third quarter 2003 net income of $24.3 million, or $0.66 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), a 22% increase in EPS over the same period of a year ago. These results exceeded consensus estimates by $0.03 per share. The company reported net income of $21.9 million, or $0.54 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, for the third quarter of 2002. The company also announced that its operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. increased to $39.8 million for third quarter 2003, an 8.7% gain over the $36.6 million reported at the end of third quarter 2002. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for the nine months ended September September: see month. 30, 2003, increased to $82.0 million, up $7.3 million from the same period a year ago. "Our performance this quarter demonstrates and underscores the ability of our franchising business model to generate a consistently strong 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. He added, "We're we're Contraction of we are. we're we are especially pleased by the outstanding results in 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. domestic franchise hotel contracts, which are up 39% year-to-date to nearly 300 contracts representing more than 25,000 rooms. We view these contracts as a strong endorsement A signature on a Commercial Paper or document. An endorsement on a negotiable instrument, such as a check or a promissory note, has the effect of transferring all the rights represented by the instrument to another individual. of our brands as well as our franchise system and its services. More importantly, these contracts extend our development pipeline, ensuring future unit growth that will drive royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. and earnings." Third Quarter Performance 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 $48.3 million for third quarter 2003, compared to $46.3 million for the same period in 2002, an increase of 4.3%. The system-wide domestic effective royalty rate increased four basis points from 3.99% in third quarter 2002 to 4.03% for the same period in 2003. 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 $43.44 in third quarter 2003, compared to $43.79 for the third quarter of 2002. For the first nine months of 2003, Choice reported net income of $51.1 million or $1.38 diluted EPS, increases of 11.8% and 23.2% respectively over the $45.7 million and $1.12 diluted EPS reported for the first nine months of 2002. Operating income through September 30, 2003 increased to $85.7 million, compared to $80.1 million for the same period a year ago. Royalty revenues for the first nine months of 2003 were $113.2 million, compared to $108.6 million for the same period a year ago. The system-wide domestic effective royalty rate increased two basis points from 3.98% for the first nine months of 2002 to 4.00% for the same period in 2003. Domestic RevPAR was $34.50 for the first nine months of 2003, compared to $35.17 for the same period in 2002. The company adopted Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," and began expensing the cost of stock options based on their estimated fair value for all awards granted after January January: see month. 1, 2003. During the third quarter 2003, the company's net income includes approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.2 million of expense related to stock options. For all of 2003, the expense associated with stock options is expected to be $0.7 million. 2003 Unit Growth The total number of domestic Choice hotels on-line grew by 4.9% to 3,601 (291,827 rooms on-line) as of September 30, 2003 from 3,434 (279,135 rooms on-line) as of the same period a year ago. For the first nine months of this year, net domestic property additions were 119, compared to 107 for the same period of a year ago. Choice executed 108 new domestic hotel franchise contracts representing 8,269 rooms in third quarter 2003, compared to 82 new contracts representing 7,053 rooms for the same period a year ago. For the first nine months of 2003, Choice has executed 294 new domestic hotel franchise contracts, representing 25,964 rooms, compared to 211 contracts, representing 17,936 rooms, for the same period in 2002. The fees arising from the increased number of executed contracts, combined with an increase in the number of relicensings, resulted in a 14.2% and 21.9% increase in initial franchise and relicensing fees for the three and nine months ended September 30, 2003, compared to the same period in 2002. As of September 30, 2003, the total number of Choice hotels worldwide grew 3.3% to 4,773 from 4,622 as of the same date a year ago. This growth represents an increase of 4.0% in the number of rooms open to 384,814 from 370,075. At the end of third quarter 2003, Choice had 426 hotels under development worldwide, representing 35,417 rooms. Fourth Quarter & Year 2003 Estimates The company's fourth quarter 2003 earnings are expected to be in the range of $0.42 to $0.44, with full year 2003 diluted EPS are expected to be between $1.80 and $1.82, up from the previous full year estimate of $1.74 to $1.77 that was announced on July July: see month. 23, 2003. Stock Repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. Program and Dividend Policy Since Choice announced its stock repurchase program on June June: see month. 25, 1998, the company has purchased 28.3 million shares of common stock at an average price of $16.90 per share and a total cost of $478.4 million, as of October October: see month. 21, 2003. The Company has remaining authorization The right or permission to use a system resource; the process of granting access. See access control. to purchase up to 3.1 million shares. Total shares outstanding as of September 30, 2003, are 35.7 million. On August 13, 2003, Choice announced its Board's intention to initiate INITIATE. A right which is incomplete. By the birth of a child, the husband becomes tenant by the curtesy initiate, but his estate is not consummate until the death of the wife. 2 Bouv. Inst. n. 1725. payment of a cash dividend on its common stock beginning in the fourth quarter of 2003. The plan approved by the Board anticipates an initial quarterly dividend of $0.20, or $0.80 per share annually. The actual declaration of dividends, and the setting of record and payment dates, is subject to final determination by the Board each quarter after its review of the company's financial performance. Conference Call Choice will conduct a conference call on Thursday Thursday: see week. , October 23, 2003 at 11 a.m. Eastern time to discuss the third quarter and year-to-date 2003 results. The call-in call-in adj. Being in a format such that listeners or viewers are invited to have their telephone conversations with the host or guests on a show broadcast to other listeners: a call-in radio show. n. number to listen to the call is 1-888-273-9891. The conference call also will be Webcast simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics via the company's Web site, www.choicehotels.com. The audio of the call will be archived and available on the company's Web site and also available for replay until November November: see month. 23 by calling 1-800-475-6701. The access code for the replay is: 699972. Choice Hotels International is the second-largest hotel franchisor in the world with 4,773 hotels open, representing 384,814 rooms, 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. and 41 other countries and territories. As of September 30, 2003, 338 hotels are under development in the United States, representing 26,059 rooms, and an additional 88 hotels, representing 9,358 rooms, are under development in 17 countries and territories. Choice's Comfort Inn, Comfort Suites, 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 Form 10-Q Form 10-Q See 10-Q. for the period ended March 31, 2003. 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 Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites are registered trademarks, service marks and trade names of Choice Hotels International, Inc.
Choice Hotels International, Inc. Exhibit 1
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share
amounts) Three Months Ended Nine Months Ended
Sept. 30,Sept. 30, Sept. 30,Sept. 30,
REVENUES: 2003 2002 2003 2002
------------------ ------------------
Royalty fees $48,346 $46,349 $113,196 $108,588
Initial franchise and
relicensing fees 4,026 3,524 11,285 9,261
Partner services 2,953 2,548 9,630 9,040
Marketing and reservation 48,639 50,251 149,549 148,600
Hotel operations 955 920 2,739 2,529
Other 974 1,438 4,547 3,234
------------------ ------------------
Total revenues 105,893 105,030 290,946 281,252
OPERATING EXPENSES:
Selling, general and
administrative 14,135 14,681 45,037 42,084
Depreciation and amortization 2,583 2,692 8,472 8,217
Marketing and reservation
expense 48,639 50,251 149,549 148,600
Hotel operations 764 821 2,217 2,210
------------------ ------------------
Total operating expenses 66,121 68,445 205,275 201,111
Operating income 39,772 36,585 85,671 80,141
OTHER INCOME AND EXPENSES:
Interest expense 2,893 3,287 8,985 9,885
Interest and other investment
income (1,675) (530) (4,917) (2,806)
Minority interest in net income
of consolidated subsidiary - 105 - 105
------------------ ------------------
Total other income and expenses 1,218 2,862 4,068 7,184
------------------ ------------------
Income before income taxes 38,554 33,723 81,603 72,957
Income taxes 14,209 11,856 30,460 27,209
------------------ ------------------
Net income $24,345 $21,867 $51,143 $45,748
================== ==================
Weighted average shares
outstanding-basic 35,635 39,035 36,045 40,036
================== ==================
Weighted average shares
outstanding-diluted 36,745 39,755 36,936 40,786
================== ==================
Basic earnings per share $0.68 $0.55 $1.42 $1.14
================== ==================
Diluted earnings per share $0.66 $0.54 $1.38 $1.12
================== ==================
Choice Hotels International, Inc. Exhibit 2
Consolidated Balance Sheets
(In thousands) September December
30, 31,
2003 2002
----------- ---------
(Unaudited)
ASSETS
Cash and cash equivalents $15,697 $12,227
Accounts receivable, net 38,508 32,470
Other current assets 3,138 3,349
----------- ---------
Total current assets 57,343 48,046
Fixed assets and intangibles, net 153,483 161,606
Note receivable from Sunburst 41,318 41,318
Receivable -- marketing and reservation fees 41,094 44,916
Other assets 20,796 18,496
----------- ---------
Total assets 314,034 314,382
----------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt 27,471 23,796
Other current liabilities 73,671 61,707
----------- ---------
Total current liabilities 101,142 85,503
Long-term debt 252,595 283,995
Deferred income taxes and other liabilities 59,315 58,683
----------- ---------
Total liabilities 413,052 428,181
----------- ---------
Total shareholders' deficit (99,018) (113,799)
----------- ---------
Total liabilities and shareholders'
deficit $314,034 $314,382
----------- ---------
Choice Hotels International, Inc. Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) September September
30, 30,
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $51,143 $45,748
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization 8,472 8,217
Provision for bad debts 213 653
Non-cash stock compensation and other charges 1,489 615
Non-cash interest and other investment income (1,032) (1,515)
Minority interest in net income of consolidated
subsidiary - 105
Changes in assets and liabilities, net of
acquisitions:
Receivables (5,602) (7,353)
Receivable -- marketing and reservation fees,
net 13,438 5,071
Current liabilities 2,362 (1,681)
Income taxes payable/receivable and other assets 10,628 13,818
Deferred income taxes and other liabilities 929 10,995
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 82,040 74,673
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (7,076) (8,225)
Proceeds from disposition of property 498 -
Acquisition of Flag (1,211) (1,557)
Other items, net (3,653) (933)
--------- ---------
NET CASH UTILIZED IN INVESTING ACTIVITIES (11,442) (10,715)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 102,800 271,071
Principal payments of long-term debt (130,573) (251,168)
Purchase of treasury stock (43,725) (90,839)
Proceeds from exercise of stock options 4,370 5,318
--------- ---------
NET CASH UTILIZED IN FINANCING ACTIVITIES (67,128) (65,618)
--------- ---------
Net change in cash and cash equivalents 3,470 (1,660)
Cash and cash equivalents at beginning of period 12,227 16,871
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,697 $15,211
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments during the period for:
Income taxes, net of refunds $23,558 $1,642
Interest $8,474 $9,541
Non-cash investing activities:
Conversion of note receivable into Flag equity
interest $- $1,061
Non-cash financing activities related to employee
stock options exercised:
Income tax benefit realized $815 $1,399
Treasury shares received for employee tax
withholding obligations $98 $-
Common shares surrendered in-lieu of exercise
price $181 $-
CHOICE HOTELS INTERNATIONAL Exhibit 4
SUPPLEMENTAL OPERATING INFORMATION BY BRAND
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
COMFORT INN
Hotels 1,404 1,339 1,404 1,339
Rooms 110,646 105,147 110,646 105,147
Avg. Daily Rate $68.84 $68.66 $64.48 $63.76
Occupancy % 69.3% 70.5% 58.1% 60.0%
RevPAR $47.74 $48.41 $37.44 $38.26
COMFORT SUITES
Hotels 367 331 367 331
Rooms 29,057 26,227 29,057 26,227
Avg. Daily Rate $75.21 $74.62 $73.23 $72.48
Occupancy % 69.6% 69.4% 61.4% 62.3%
RevPAR $52.34 $51.80 $44.94 $45.13
QUALITY
Hotels 503 453 503 453
Rooms 51,865 48,870 51,865 48,870
Avg. Daily Rate $70.52 $69.73 $65.36 $64.51
Occupancy % 61.7% 61.8% 51.6% 52.8%
RevPAR $43.52 $43.11 $33.71 $34.06
CLARION
Hotels 135 130 135 130
Rooms 20,385 19,708 20,385 19,708
Avg. Daily Rate $76.29 $78.75 $72.82 $74.25
Occupancy % 57.5% 60.0% 49.3% 52.5%
RevPAR $43.84 $47.28 $35.92 $38.97
SLEEP
Hotels 305 300 305 300
Rooms 23,387 23,024 23,387 23,024
Avg. Daily Rate $61.02 $60.29 $58.27 $57.52
Occupancy % 66.7% 65.8% 57.2% 57.5%
RevPAR $40.71 $39.69 $33.33 $33.05
MAINSTAY
Hotels 24 41 24 41
Rooms 1,903 3,515 1,903 3,515
Avg. Daily Rate $64.46 $63.51 $62.08 $61.41
Occupancy % 72.4% 74.5% 62.8% 68.2%
RevPAR $46.65 $47.32 $39.00 $41.09
ECONO LODGE
Hotels 728 703 728 703
Rooms 45,504 43,762 45,504 43,762
Avg. Daily Rate $52.59 $52.33 $48.17 $47.80
Occupancy % 57.6% 59.6% 47.9% 50.2%
RevPAR $30.27 $31.18 $23.06 $24.01
RODEWAY
Hotels 135 137 135 137
Rooms 9,080 8,882 9,080 8,882
Avg. Daily Rate $56.65 $56.03 $50.65 $49.84
Occupancy % 54.8% 55.7% 45.2% 46.4%
RevPAR $31.05 $31.20 $22.91 $23.13
TOTAL CHOICE - DOMESTIC
Hotels 3,601 3,434 3,601 3,434
Rooms 291,827 279,135 291,827 279,135
Avg. Daily Rate $67.08 $66.67 $63.06 $62.35
Occupancy % 64.8% 65.7% 54.7% 56.4%
RevPAR $43.44 $43.79 $34.50 $35.17
Effective
Royalty Rate 4.03% 3.99% 4.00% 3.98%
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