Press Releases

Choice Hotels Reports Third Quarter 2012 Diluted EPS of $0.76 Per Share and Domestic RevPAR Growth of 5.6%
New Domestic Hotel Franchise Contracts Rise 13%
PR Newswire
SILVER SPRING, Md.

SILVER SPRING, Md., Oct. 24, 2012 /PRNewswire/ -- Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for the third quarter of 2012:

    --  Diluted earnings per share ("EPS") for the third quarter of 2012 of
        $0.76 compared to diluted EPS of $0.71 for the third quarter of 2011, a
        7% increase.
    --  Earnings before interest, taxes, depreciation and amortization
        ("EBITDA") increased 4% to $67.3 million for the three months ended
        September 30, 2012, compared to $64.5 million for the three months ended
        September 30, 2011. Operating income increased 5% from $62.4 million for
        the three months ended September 30, 2011 to $65.3 million for the same
        period of 2012.
    --  Franchising revenues increased 4% to $90.1 million for the three months
        ended September 30, 2012 from $86.7 million for the same period of 2011.
        Total revenues increased 9% to $210.4 million for the three months ended
        September 30, 2012 compared to the same period of 2011.
    --  Domestic royalty fees for the three months ended September 30, 2012
        increased $4.1 million to $74.3 million from $70.2 million in the three
        months ended September 30, 2011, an increase of 6%.
    --  Franchising margins increased 50 basis points from 71.6% for the three
        months ended September 30, 2011 to 72.1% for the same period of the
        current year.
    --  The effective income tax rate for the three months ended September 30,
        2012 was 20.3% compared to 25.7% for the same period of the prior year.
    --  Income tax expense for the three months ended September 30, 2012
        includes discrete items and current tax benefits totaling $7.7 million
        or $0.13 EPS that were not contemplated in the company's previous EPS
        guidance.
    --  Domestic unit and room growth increased 1.3 percent and 1.0 percent from
        September 30, 2011, respectively.
    --  Domestic system-wide revenue per available room ("RevPAR") increased
        5.6% for the three months ended September 30, 2012 compared to the same
        period of 2011 as occupancy and average daily rates increased 180 basis
        points and 2.7 percent, respectively.
    --  The company executed 89 new domestic hotel franchise contracts for the
        three months ended September 30, 2012 compared to 79 new domestic hotel
        franchise contracts in the same period of the prior year, a 13%
        increase.
    --  The number of worldwide hotels under construction, awaiting conversion
        or approved for development as of September 30, 2012 was 435 hotels
        representing 36,150 rooms.
    --  A special cash dividend in the amount of $10.41 per share or
        approximately $600.7 million in the aggregate was paid on August 23,
        2012. The special cash dividend was paid with the proceeds of the
        company's recent offering of $400 million 5.75% unsecured senior notes
        and its new $350 million senior credit facility entered into on July 25,
        2012. As a result of these transactions, and as contemplated in the
        company's previously provided EPS guidance, interest expense increased
        $6.9 million to $10.2 million for the three months ended September 30,
        2012 compared to the same period of the prior year.

"The lodging industry continues to improve despite challenging global economic conditions and this is reflected in our third quarter results," said Stephen P. Joyce, president and chief executive officer. "Our RevPAR increased by approximately 6%, driven by a further improvement of hotel occupancy levels and the pricing power of our brands. We are also pleased by the continued improvement of the development environment. We will continue to invest in programs designed to drive more reservations through our central channels, improve guest loyalty and improve the value of our brands in an effort to drive incremental business to our franchisees."

Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.

 

Dividends

 

For the nine months ended September 30, 2012, the company paid $632.8 million of cash dividends to shareholders which included a special cash dividend in the amount of $10.41 per share or approximately $600.7 million paid on August 23, 2012. The company's current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.

Share Repurchases

 

During the nine months ended September 30, 2012, the company repurchased 0.5 million shares for a total cost of $19.9 million and has authorization to purchase up to an additional 1.4 million shares under this program. The company did not repurchase any shares of common stock under the share repurchase program during the three months ended September 30, 2012. We expect to continue making repurchases under our share repurchase program in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 45.3 million shares of its common stock for a total cost of $1.1 billion through June 30, 2012. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 78.3 million shares through September 30, 2012 under the share repurchase program at an average price of $13.89 per share.

 

Other

 

Our board of directors previously authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees as well as to acquire and resell real estate to incent franchise development for certain brands in strategic markets. Over the next several years, we expect to continue to opportunistically deploy capital pursuant to these programs to promote growth of our emerging brands. The amount and timing of the investment in these programs will be dependent on market and other conditions. Notwithstanding these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.

Balance Sheet

 

At September 30, 2012, the company had gross debt of $819.0 million and cash and cash equivalents totaling $115.1 million resulting in net debt of $703.9 million.

On June 27, 2012, the company issued unsecured senior notes in an aggregate principal amount of $400 million, in an underwritten, registered public offering. These notes will mature in July 2022 and bear a coupon rate of interest of 5.75%. Considering bond issuance costs, the company's effective interest costs related to these senior notes is approximately 5.94%.

On July 25, 2012, the company entered into a senior secured credit facility consisting of a $200 million revolving credit tranche and a $150 million term loan tranche, with a four year term. The company may elect to have borrowings under the senior secured credit facility bear interest at (i) a base rate plus a margin ranging from 100 to 325 basis points based on the company's total leverage ratio or (ii) LIBOR plus a margin ranging from 200 to 425 basis points based on the company's total leverage ratio. As a result of entering into the senior secured credit facility, the company's existing $300 million senior unsecured revolving credit facility was terminated. Under the $300 million senior unsecured revolving credit facility the company could elect to have borrowings bear interest at (i) a base rate plus a margin ranging from 5 to 80 basis points based on the company's credit rating or (ii) LIBOR plus a margin ranging from 105 to 180 basis points based on the company's credit rating.

The proceeds from the issuance of the $400 million senior notes and the company's new senior secured credit facility were utilized to pay the special cash dividend.

 

Outlook
The company's fourth quarter 2012 diluted EPS is expected to be at least $0.40. The company expects full-year 2012 diluted EPS to range between $2.05 and $2.07. EBITDA for full-year 2012 are expected to range between $201 million and $202.5 million. These estimates include the following assumptions:

    --  The company expects net domestic unit growth to increase by
        approximately 1% in 2012;
    --  RevPAR is expected to increase approximately 4% for fourth quarter of
        2012 and increase between 6% and 6.5% for full-year 2012;
    --  The effective royalty rate is expected to remain flat for full-year
        2012;
    --  All figures assume the existing share count;
    --  An effective tax rate of 33.0% for the fourth quarter and 29.1% for
        full-year 2012 and we expect our recurring effective tax rate for future
        periods to be approximately 31.5%.

 

 

Conference Call
Choice will conduct a conference call on Thursday, October 25, 2012 at 9:30 a.m. EDT to discuss the company's third quarter 2012 results. The dial-in number to listen to the call is 1-866-383-8003, and the access code is 78277943. International callers should dial 1-617-597-5330 and enter the access code 78277943. The conference call also will be Webcast simultaneously via the company's Web site, www.choicehotels.com. Interested investors and other parties wishing to access the call via the Webcast should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.

The call will be recorded and available for replay beginning at 12:30 p.m. EDT on Thursday, October 25, 2012 through Thursday, November 1, 2012 by calling 1-888-286-8010 and entering access code 20807104. The international dial-in number for the replay is 1-617-801-6888, access code 20807104. In addition, the call will be archived and available on www.choicehotels.com via the Investor Info link.

 

About Choice Hotels
Choice Hotels International, Inc. franchises approximately 6,200 hotels, representing more than 495,000 rooms, in the United States and more than 30 other countries and territories. As of September 30, 2012, 360 hotels, representing 29,000 rooms, were under construction, awaiting conversion or approved for development in the United States. Additionally, 75 hotels, representing approximately 7,000 rooms, were under construction, awaiting conversion or approved for development in more than 20 other countries and territories. The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide. In addition, via its Ascend Collection membership program, travelers have upscale lodging options at historic, boutique and unique hotels.

 

Additional corporate information may be found on the Choice Hotels International, Inc. web site, which may be accessed at www.choicehotels.com.

Forward-Looking Statements
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan"," project," "assume" or similar words of futurity identify such forward-looking statements. These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements may relate to projections of the company's revenue, earnings and other financial and operational measures, company debt levels, ability to repay outstanding indebtedness, payment of dividends, and future operations, among other matters. We caution you not to place undue reliance on any such forward-looking statements. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions; operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 29, 2012 and our quarterly reports filed on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Statement Concerning Non-GAAP Financial Measurements Presented in Exhibit 8

EBITDA, franchising revenues and franchising margins are non-GAAP financial measurements. 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 operating income, total revenues and operating margins. The company's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement. We discuss management's reasons for reporting these non-GAAP measures below.

Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Our management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is a commonly used measure of performance in our industry. In addition, it is used by analysts, lenders, investors and others, as well as by us, to facilitate comparisons between the company and its competitors because it excludes certain items that can vary widely across different industries or among companies within the same industry.

Franchising Revenues and Margins: The company reports franchising revenues and margins which exclude marketing and reservation revenues and hotel operations. Marketing and reservation activities are excluded from revenues and operating margins since the company is required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing system fees not expended are recorded as a liability on the company's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of system fees collected for marketing and reservation activities are recorded as a receivable on the company's financial statements. In addition, the company has the contractual authority to require that the franchisees in the system at any given point repay the company for any deficits related to marketing and reservation activities. Hotel operations are excluded since they do not reflect the most accurate measure of the company's core franchising business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.

 

 

Choice Hotels, Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, Rodeway Inn and Ascend Collectionare proprietary trademarks and service marks of Choice Hotels International.

 

 

 

    Choice Hotels International, Inc.
                                                                                                                                                                       Exhibit 1
    Consolidated Statements of Income
    (Unaudited)



                                                 Three Months Ended September 30,              Nine Months Ended September 30,
                                                 --------------------------------              -------------------------------
                                                                                            Variance                                                          Variance
                                                                             2012     2011                    $                 %             2012      2011                 $    %
                                                                             ----     ----                  ---                ---            ----      ----               ---   ---
    (In thousands, except per share amounts)

    REVENUES:

       Royalty fees                                                       $80,845  $77,090               $3,755                        5% $194,762  $182,504           $12,258           7%
       Initial franchise and relicensing fees                               3,247    3,583                 (336)                     (9%)    8,953     9,083              (130)        (1%)
       Procurement services                                                 3,839    4,103                 (264)                     (6%)   13,990    14,037               (47)        (0%)
       Marketing and reservation                                          119,062  104,393               14,669                       14%  284,624   258,192            26,432          10%
       Hotel operations                                                     1,238    1,236                    2                        0%    3,440     3,173               267           8%
       Other                                                                2,182    1,916                  266                       14%    7,434     5,914             1,520          26%
                                                                            -----    -----                  ---                      ---     -----     -----             -----         ---
          Total revenues                                                  210,413  192,321               18,092                        9%  513,203   472,903            40,300           9%

    OPERATING EXPENSES:

       Selling, general and administrative                                 23,170   22,555                  615                        3%   72,073    72,941              (868)        (1%)
       Depreciation and amortization                                        1,995    2,073                  (78)                     (4%)    5,989     5,976                13           0%
       Marketing and reservation                                          119,062  104,393               14,669                       14%  284,624   258,192            26,432          10%
       Hotel operations                                                       933      900                   33                        4%    2,609     2,593                16           1%
                                                                              ---      ---                  ---                      ---     -----     -----               ---         ---
    Total operating expenses                                              145,160  129,921               15,239                       12%  365,295   339,702            25,593           8%

    Operating income                                                       65,253   62,400                2,853                        5%  147,908   133,201            14,707          11%

    OTHER INCOME AND EXPENSES, NET:
       Interest expense                                                    10,166    3,228                6,938                      215%   16,823     9,719             7,104          73%
       Interest income                                                       (425)    (506)                  81                     (16%)   (1,156)     (937)             (219)         23%
       Loss on extinguishment of debt                                         526        -                  526                NM              526         -               526   NM
       Other (gains) and losses                                              (511)   2,673               (3,184)                   (119%)   (2,137)    3,678            (5,815)      (158%)
       Equity in net (income) loss of affiliates                             (171)      39                 (210)                   (538%)       12      (262)              274       (105%)
       Total other income and expenses, net                                 9,585    5,434                4,151                       76%   14,068    12,198             1,870          15%
                                                                            -----    -----                -----                      ---    ------    ------             -----         ---

    Income before income taxes                                             55,668   56,966               (1,298)                     (2%)  133,840   121,003            12,837          11%
    Income taxes                                                           11,291   14,664               (3,373)                    (23%)   37,604    35,393             2,211           6%
                                                                           ------   ------               ------                             ------    ------             -----
    Net income                                                            $44,377  $42,302               $2,075                        5%  $96,236   $85,610           $10,626          12%
                                                                          =======  =======               ======                      ===   =======   =======           =======         ===


    Basic earnings per share                                                $0.77    $0.71                $0.06                        8%    $1.66     $1.43             $0.23          16%
                                                                            =====    =====                =====                      ===     =====     =====             =====         ===

    Diluted earnings per share                                              $0.76    $0.71                $0.05                        7%    $1.65     $1.43             $0.22          15%
                                                                            =====    =====                =====                      ===     =====     =====             =====         ===

 

 

 

    Choice Hotels International, Inc.                                                                                                       Exhibit 2
    Consolidated Balance Sheets
                                                                                                                                                     
                                                                                                                                                     
    (In thousands, except per share amounts)                                           September 30,                              December 31,
                                                                                                       2012                                    2011
                                                                                                       ----                                    ----
                                                                                     (Unaudited)
                                                                                                                                                     
    ASSETS
                                                                                                                                                     
    Cash and cash equivalents                                                                      $115,064                                $107,057
    Accounts receivable, net                                                                         66,196                                  53,012
    Investments, employee benefit plans, at fair value                                                3,668                                  12,094
    Other current assets                                                                             29,749                                  22,633
                                                                                                     ------                                  ------
                               Total
                               current
                               assets                                                               214,677                                 194,796
                                                                                                                                                     
    Fixed assets and intangibles, net                                                               133,382                                 135,252
    Receivable -- marketing and reservation fees                                                     46,249                                  54,014
    Investments, employee benefit plans, at fair value                                               12,530                                  11,678
    Other assets                                                                                     76,233                                  51,949
                                                                                                     ------                                  ------
                                                                                                                                                     
                               Total
                               assets                           $483,071                                     $447,689
                                                                --------                                     --------
                                                                                                                                                     
                                                                                                                                                     
                                                                                                                                                     
    LIABILITIES AND SHAREHOLDERS' DEFICIT
                                                                                                                                                     
    Accounts payable and accrued expenses                                                           $87,784                                 $92,240
    Deferred revenue                                                                                 76,949                                  68,825
    Deferred compensation & retirement plan obligations                                              17,870                                  18,935
    Current portion of long-term debt                                                                10,065                                     673
    Other current liabilities                                                                        14,506                                   3,892
                                                                                                     ------                                   -----
                               Total current
                               liabilities                       207,174                                      184,565
                                                                                                                                                     
    Long-term debt                                                                                  808,911                                 252,032
    Deferred compensation & retirement plan obligations                                              19,992                                  20,593
    Other liabilities                                                                                16,391                                  16,060
                                                                                                     ------                                  ------
                                                                                                                                                     
                               Total
                               liabilities                                                        1,052,468                                 473,250
                                                                                                                       
                                                                                                                                                     
    Common stock, $0.01 par value                                                                       581                                     583
    Additional paid-in-capital                                                                      107,939                                 102,665
    Accumulated other comprehensive loss                                                             (5,904)                                 (6,801)
    Treasury stock, at cost                                                                        (930,487)                               (916,955)
    Retained earnings                                                                               258,474                                 794,947
                                                                                                    -------                                 -------
                                                                                                                                                     
                               Total
                               shareholders'
                               deficit                          (569,397)                                    (25,561)
                                                                                                             
                                                                                                                                                     
                               Total
                               liabilities
                               and
                               shareholders'
                               deficit                          $483,071                                     $447,689
                                                                --------                                     --------

 

 

    Choice Hotels International,
     Inc.                                                                     Exhibit 3
    Consolidated Statements of
     Cash Flows
    (Unaudited)



    (In thousands)                  Nine Months Ended September 30,
                                    -------------------------------

                                                                        2012                2011
                                                                        ----                ----
    CASH FLOWS FROM OPERATING
     ACTIVITIES:

    Net income                                                       $96,236             $85,610

    Adjustments to reconcile net
     income to net cash provided
     by operating activities:
      Depreciation and amortization                                    5,989               5,976
      Provision for bad debts, net                                     1,802                 845
      Non-cash stock compensation
       and other charges                                               7,306              10,262
      Non-cash interest and other
       (income) loss                                                    (633)              3,079
      Loss on extinguishment of
       debt                                                              526                   -
      Dividends received from
       equity method investments                                         855                 316
      Equity in net (income) loss
       of affiliates                                                      12                (262)

    Changes in assets and
     liabilities:
      Receivables                                                    (17,405)            (15,494)
      Receivable -marketing and
       reservation fees, net                                          20,811              (1,474)
      Accounts payable                                                 5,980               4,468
      Accrued expenses                                               (10,309)            (10,584)
      Income taxes payable/
       receivable                                                     12,786              14,354
      Deferred income taxes                                           (1,627)              2,839
      Deferred revenue                                                 8,018               9,375
      Other assets                                                    (7,458)               (556)
      Other liabilities                                               (1,613)             (2,861)
                                                                      ------              ------

     NET CASH PROVIDED BY
      OPERATING ACTIVITIES                                           121,276             105,893
                                                                     -------             -------

    CASH FLOWS FROM INVESTING
     ACTIVITIES:

    Investment in property and
     equipment                                                       (12,525)             (8,129)
    Equity method investments                                         (9,454)             (3,600)
    Purchases of investments,
     employee benefit plans                                           (1,191)             (1,051)
    Proceeds from sales of
     investments, employee
     benefit plans                                                    10,909                 566
    Issuance of notes receivable                                      (7,305)             (4,320)
    Collections of notes
     receivable                                                          326                  15
    Other items, net                                                    (322)               (312)
                                                                        ----                ----

     NET CASH USED IN INVESTING
      ACTIVITIES                                                     (19,562)            (16,831)
                                                                     -------             -------

    CASH FLOWS FROM FINANCING
     ACTIVITIES:

    Net borrowings (repayments)
     pursuant to revolving credit
     facilities                                                       16,725                (200)
    Repayments of long-term debt                                        (502)                (74)
    Proceeds from the issuance of
     long-term debt                                                  543,500                  75
    Purchase of treasury stock                                       (22,227)            (24,796)
    Dividends paid                                                  (632,751)            (32,923)
    Excess tax benefits from
     stock-based compensation                                            793               1,108
    Debt issuance costs                                               (4,753)             (2,356)
    Proceeds from exercise of
     stock options                                                     4,695               3,726
                                                                       -----               -----

     NET CASH USED IN FINANCING
      ACTIVITIES                                                     (94,520)            (55,440)
                                                                     -------             -------

    Net change in cash and cash
     equivalents                                                       7,194              33,622
    Effect of foreign exchange
     rate changes on cash and
     cash equivalents                                                    813                (147)
    Cash and cash equivalents at
     beginning of period                                             107,057              91,259
                                                                     -------              ------

    CASH AND CASH EQUIVALENTS AT
     END OF PERIOD                                                  $115,064            $124,734
                                                                    ========            ========

 

 

                                                                                                                                                                                                            CHOICE HOTELS INTERNATIONAL, INC.                                                                                              Exhibit 4
                                                                                                                                                                                                           SUPPLEMENTAL OPERATING INFORMATION
                                                                                                                                                                                                                  DOMESTIC HOTEL SYSTEM
                                                                                                                                                                                                                       (UNAUDITED)




                                                                                     For the Nine Months Ended September 30, 2012*                           For the Nine Months Ended September 30, 2011*                       Change
                                                                                      --------------------------------------------                            --------------------------------------------                       ------

                                                                                              Average Daily                                                                                                               Average Daily                                                  Average Daily
                                                                                                  Rate                             Occupancy                                        RevPAR                                    Rate                    Occupancy            RevPAR             Rate          Occupancy          RevPAR
                                                                                                  ----                             ---------                                        ------                                    ----                    ---------            ------             ----          ---------          ------

    Comfort Inn                                                                                                   $81.52                          59.2%                                            $48.24                                     $79.24                 57.0%        $45.18               2.9%           220  bps        6.8%
    Comfort Suites                                                                                                 85.62                          61.8%                                             52.92                                      83.92                 58.4%         49.05               2.0%           340  bps        7.9%
    Sleep                                                                                                          72.29                          56.3%                                             40.68                                      69.92                 53.5%         37.39               3.4%           280  bps        8.8%
    Quality                                                                                                        69.84                          51.8%                                             36.14                                      67.95                 49.9%         33.90               2.8%           190  bps        6.6%
    Clarion                                                                                                        74.98                          49.4%                                             37.00                                      73.76                 46.7%         34.42               1.7%           270  bps        7.5%
    Econo Lodge                                                                                                    55.76                          48.7%                                             27.13                                      54.75                 47.2%         25.83               1.8%           150  bps        5.0%
    Rodeway                                                                                                        53.59                          51.3%                                             27.48                                      52.13                 48.6%         25.33               2.8%           270  bps        8.5%
    MainStay                                                                                                       69.27                          70.4%                                             48.79                                      66.17                 67.1%         44.38               4.7%           330  bps        9.9%
    Suburban                                                                                                       41.24                          69.9%                                             28.82                                      40.24                 67.7%         27.25               2.5%           220  bps        5.8%
    Ascend Collection                                                                                             112.27                          63.5%                                             71.25                                     109.82                 59.9%         65.81               2.2%           360  bps        8.3%
                                                                                                                  ------                          ----                                              -----                                     ------                 ----          -----               ---            ---  ---        ---

    Total                                                                                                         $73.65                          55.5%                                            $40.89                                     $71.78                 53.3%        $38.24               2.6%           220  bps        6.9%
                                                                                                                  ======                          ====                                             ======                                     ======                 ====         ======               ===            ===  ===        ===

    * Operating statistics represent hotel operations from December through August


                                                                                   For the Three Months Ended September 30, 2012*                      For the Three Months Ended September 30, 2011*                      Change
                                                                                   ---------------------------------------------                        ---------------------------------------------                      ------

                                                                                              Average Daily                                                                                                               Average Daily                                                  Average Daily
                                                                                                  Rate                             Occupancy                                        RevPAR                                    Rate                    Occupancy            RevPAR             Rate          Occupancy          RevPAR
                                                                                                  ----                             ---------                                        ------                                    ----                    ---------            ------             ----          ---------          ------

    Comfort Inn                                                                                                   $87.58                          70.2%                                            $61.46                                     $85.05                 68.6%        $58.31               3.0%           160  bps        5.4%
    Comfort Suites                                                                                                 89.69                          70.2%                                             62.93                                      87.23                 67.8%         59.13               2.8%           240  bps        6.4%
    Sleep                                                                                                          76.09                          64.8%                                             49.32                                      73.15                 62.9%         46.02               4.0%           190  bps        7.2%
    Quality                                                                                                        75.02                          61.2%                                             45.88                                      72.90                 59.8%         43.60               2.9%           140  bps        5.2%
    Clarion                                                                                                        79.73                          58.7%                                             46.82                                      78.13                 55.1%         43.01               2.0%           360  bps        8.9%
    Econo Lodge                                                                                                    60.60                          57.7%                                             34.97                                      59.32                 56.4%         33.45               2.2%           130  bps        4.5%
    Rodeway                                                                                                        59.62                          60.8%                                             36.23                                      58.23                 58.8%         34.22               2.4%           200  bps        5.9%
    MainStay                                                                                                       73.17                          76.5%                                             55.96                                      69.45                 77.3%         53.68               5.4%           (80) bps        4.2%
    Suburban                                                                                                       42.62                          75.1%                                             32.03                                      41.00                 72.8%         29.85               4.0%           230  bps        7.3%
    Ascend Collection                                                                                             115.98                          71.4%                                             82.77                                     113.61                 67.3%         76.50               2.1%           410  bps        8.2%
                                                                                                                  ------                          ----                                              -----                                     ------                 ----          -----               ---            ---  ---        ---

    Total                                                                                                         $78.63                          65.0%                                            $51.09                                     $76.53                 63.2%        $48.39               2.7%           180  bps        5.6%
                                                                                                                  ======                          ====                                             ======                                     ======                 ====         ======               ===            ===  ===        ===


    * Operating statistics represent hotel operations from June through August



                                                                                          For the Quarter Ended                                                            For the Nine Months Ended
                                                                                          ---------------------                                                            -------------------------
                                                                                                               9/30/2012                     9/30/2011                                                                                     9/30/2012            9/30/2011

    System-wide effective royalty rate                                                                              4.29%                         4.29%                                                                                         4.31%                4.32%

 

 


                                                                           CHOICE HOTELS INTERNATIONAL, INC.                                                                  Exhibit 5
                                                                        SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
                                                                                      (UNAUDITED)



                             September 30, 2012  September 30, 2011                Variance
                             ------------------  ------------------                --------

                                   Hotels               Rooms                Hotels                             Rooms         Hotels      Rooms          %          %
                                   ------               -----                ------                             -----         ------      -----         ---        ---

    Comfort Inn                            1,367                106,970              1,413                            110,652        (46)       (3,682)     (3.3%)     (3.3%)
    Comfort Suites                           603                 46,647                616                             47,667        (13)       (1,020)     (2.1%)     (2.1%)
    Sleep                                    390                 28,232                392                             28,431         (2)         (199)     (0.5%)     (0.7%)
    Quality                                1,101                 95,469              1,037                             90,368         64         5,101        6.2%       5.6%
    Clarion                                  187                 26,943                189                             27,448         (2)         (505)     (1.1%)     (1.8%)
    Econo Lodge                              803                 49,248                782                             48,381         21           867        2.7%       1.8%
    Rodeway                                  409                 23,336                378                             20,820         31         2,516        8.2%      12.1%
    MainStay                                  39                  2,997                 39                              3,027          -           (30)       0.0%     (1.0%)
    Suburban                                  60                  6,978                 58                              6,934          2            44        3.4%       0.6%
    Ascend Collection                         56                  4,946                 46                              4,084         10           862       21.7%      21.1%
    Cambria Suites                            19                  2,221                 19                              2,215          -             6        0.0%       0.3%
                                             ---                  -----                ---                              -----        ---           ---        ---        ---

    Domestic Franchises                    5,034                393,987              4,969                            390,027         65         3,960        1.3%       1.0%

    International Franchises               1,165                102,942              1,169                            103,473         (4)         (531)     (0.3%)     (0.5%)
                                           -----                -------              -----                            -------        ---          ----      -----      -----

    Total Franchises                       6,199                496,929              6,138                            493,500         61         3,429        1.0%       0.7%
                                           =====                =======              =====                            =======        ===         =====        ===        ===

 

 

                                                                                                                                                                                                                                          Exhibit 6
                                                                                                                                CHOICE HOTELS INTERNATIONAL, INC.
                                                                                                                                SUPPLEMENTAL INFORMATION BY BRAND
                                                                                                                       DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS
                                                                                                                                           (UNAUDITED)




                          For the Nine Months Ended September 30, 2012   For the Nine Months Ended September 30,
                                                                                           2011                       % Change
                           -------------------------------------------- ---------------------------------------     --------

                                               New                                                                                                       New                                             New
                                           Construction                                Conversion                Total                              Construction           Conversion     Total     Construction        Conversion                Total
                                           ------------                                ----------                -----                              ------------           ----------     -----     ------------        ----------                -----

    Comfort Inn                                                      10                                       17          27                                             6             28        34                 67%             (39%)               (21%)
    Comfort Suites                                                   11                                        4          15                                             7              4        11                 57%                0%                 36%
    Sleep                                                            17                                        1          18                                             6              1         7                183%                0%                157%
    Quality                                                           -                                       88          88                                             -             49        49                 NM                80%                 80%
    Clarion                                                           -                                       14          14                                             -             12        12                 NM                17%                 17%
    Econo Lodge                                                       -                                       33          33                                             -             36        36                 NM               (8%)                (8%)
    Rodeway                                                           -                                       46          46                                             -             32        32                 NM                44%                 44%
    MainStay                                                          2                                        1           3                                             1              3         4                100%             (67%)               (25%)
    Suburban                                                          1                                        1           2                                             2              2         4               (50%)             (50%)               (50%)
    Ascend Collection                                                 1                                        8           9                                             2              9        11               (50%)             (11%)               (18%)
    Cambria Suites                                                    4                                        -           4                                             4              -         4                  0%     NM                             0%
                                                                    ---                                      ---         ---                                           ---            ---       ---                ---     ---                           ---

    Total Domestic System                                            46                                      213         259                                            28            176       204                 64%               21%                 27%
                                                                    ===                                      ===         ===                                           ===            ===       ===                ===               ===                 ===





                          For the Three Months Ended September 30, 2012    For the Three Months Ended September
                                                                                         30, 2011                   % Change
                          ---------------------------------------------   -------------------------------------     --------

                                               New                                                                                                       New                                             New
                                           Construction                                Conversion                Total                              Construction           Conversion     Total     Construction        Conversion                Total
                                           ------------                                ----------                -----                              ------------           ----------     -----     ------------        ----------                -----

    Comfort Inn                                                       4                                        5           9                                             1             10        11                300%             (50%)               (18%)
    Comfort Suites                                                    4                                        -           4                                             6              -         6               (33%)               NM                (33%)
    Sleep                                                             6                                        -           6                                             3              -         3                100%               NM                 100%
    Quality                                                           -                                       25          25                                             -             14        14                 NM                79%                 79%
    Clarion                                                           -                                        7           7                                             -              4         4                 NM                75%                 75%
    Econo Lodge                                                       -                                       15          15                                             -             18        18                 NM              (17%)               (17%)
    Rodeway                                                           -                                       15          15                                             -             14        14                 NM                 7%                  7%
    MainStay                                                          1                                        -           1                                             -              -         -                 NM                NM                  NM
    Suburban                                                          1                                        -           1                                             -              1         1                 NM             (100%)                  0%
    Ascend Collection                                                 -                                        4           4                                             2              4         6              (100%)                0%               (33%)
    Cambria Suites                                                    2                                        -           2                                             2              -         2                  0%               NM                   0%
                                                                    ---                                      ---         ---                                           ---            ---       ---                ---               ---                 ---

    Total Domestic System                                            18                                       71          89                                            14             65        79                 29%                9%                 13%
                                                                    ===                                      ===         ===                                           ===            ===       ===                ===               ===                 ===

 

 

                                                                                                                                                                                                                                                                                                                               Exhibit 7
                                                                                                                                                                                             CHOICE HOTELS INTERNATIONAL, INC.
                                                                                                                                                           DOMESTIC HOTEL PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING CONVERSION OR APPROVED FOR DEVELOPMENT
                                                                                                                                                                                                        (UNAUDITED)

    A hotel in the domestic pipeline does not always result in an open and operating hotel due to various factors.


                                                                                                                                                                                                                                                                                      Variance
                                                                                                                                                                                                                                                                                      --------
                                                                               September 30, 2012                                       September 30, 2011
                                                                                    Units                                                Units                                  Conversion                                      New Construction                     Total
                                                                                    -----                                                -----                                  ----------                                      ----------------                     -----
                                                                            Conversion                             New Construction        Total              Conversion                                New Construction                                   Total           Units                %        Units       %                   Units       %
                                                                            ----------                             ----------------        -----              ----------                                ----------------                                   -----           -----               ---       -----      ---                  -----      ---

    Comfort Inn                                                                                23                                    39             62                         23                                              47                                 70               -                  0%        (8)      (17%)                  (8)     (11%)
    Comfort Suites                                                                              1                                    77             78                          1                                             105                                106               -                  0%       (28)      (27%)                 (28)     (26%)
    Sleep                                                                                       1                                    38             39                          -                                              62                                 62               1           NM              (24)      (39%)                 (23)     (37%)
    Quality                                                                                    37                                     3             40                         29                                               5                                 34               8                 28%        (2)      (40%)                   6        18%
    Clarion                                                                                    18                                     1             19                         10                                               1                                 11               8                 80%         -          0%                   8        73%
    Econo Lodge                                                                                23                                     1             24                         31                                               1                                 32              (8)              (26%)         -          0%                  (8)     (25%)
    Rodeway                                                                                    25                                     -             25                         18                                               1                                 19               7                 39%        (1)     (100%)                   6        32%
    MainStay                                                                                    1                                    18             19                          3                                              28                                 31              (2)              (67%)       (10)      (36%)                 (12)     (39%)
    Suburban                                                                                    2                                    14             16                          1                                              20                                 21               1                100%        (6)      (30%)                  (5)     (24%)
    Ascend Collection                                                                           9                                     4             13                          7                                               5                                 12               2                 29%        (1)      (20%)                   1         8%
    Cambria Suites                                                                              -                                    25             25                          -                                              32                                 32               -           NM               (7)      (22%)                  (7)     (22%)
                                                                                              ---                                   ---            ---                        ---                                             ---                                ---             ---           ---             ---       ----                  ---      ----

                                                                                              140                                   220            360                        123                                             307                                430              17                 14%       (87)      (28%)                 (70)     (16%)
                                                                                              ===                                   ===            ===                        ===                                             ===                                ===             ===                ===        ===       ====                  ===      ====

 

                                                       CHOICE HOTELS INTERNATIONAL, INC.      Exhibit 8
                                                  SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
                                                                  (UNAUDITED)

    CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS

    (dollar amounts in thousands)                                                                    Three Months Ended September 30,        Nine Months Ended September 30,
                                                                                                     --------------------------------        -------------------------------

                                                                                                                                        2012                                    2011                          2012                                            2011
                                                                                                                                        ----                                    ----                          ----                                            ----
                Franchising Revenues:

                Total Revenues                                                                                                    $210,413                                $192,321                      $513,203                                        $472,903
                Adjustments:
                     Marketing and reservation revenues                                                                           (119,062)                               (104,393)                     (284,624)                                       (258,192)
                     Hotel operations                                                                                               (1,238)                                 (1,236)                       (3,440)                                         (3,173)
                Franchising Revenues                                                                                               $90,113                                 $86,692                      $225,139                                        $211,538


                Franchising Margins:

                Operating Margin:

                Total Revenues                                                                                                    $210,413                                $192,321                      $513,203                                        $472,903
                Operating Income                                                                                                   $65,253                                 $62,400                      $147,908                                        $133,201
                     Operating Margin                                                                                                 31.0%                                   32.4%                         28.8%                                           28.2%


                Franchising Margin:

                Franchising Revenues                                                                                               $90,113                                 $86,692                      $225,139                                        $211,538

                Operating Income                                                                                                   $65,253                                 $62,400                      $147,908                                        $133,201
                Hotel operations                                                                                                      (305)                                   (336)                         (831)                                           (580)
                                                                                                                                   $64,948                                 $62,064                      $147,077                                        $132,621
                                                                                                                                   -------                                 -------                      --------                                        --------

                    Franchising Margins                                                                                               72.1%                                   71.6%                         65.3%                                           62.7%




    EBITDA Reconciliation

    (in millions)
                                                                                                            Q3 2012 Actuals                        Q3 2011 Actuals                   Nine Months Ended             Nine Months Ended September 30, 2011 Actuals    Full-Year 2012
                                                                                                                                                                                     September 30, 2012                                                               Outlook
                                                                                                                                                                                           Actuals
                                                                                                                                                                                          -------

                Operating Income (per GAAP)                                                                                          $65.3                                   $62.4                        $147.9                                          $133.2                $192.9 - $194.4
                Depreciation and amortization                                                                                          2.0                                     2.1                           6.0                                             6.0                            8.1

                Earnings before interest, taxes, depreciation & amortization (non-GAAP)                                              $67.3                                   $64.5                        $153.9                                          $139.2                  $201 - $202.5

 

 

SOURCE Choice Hotels International, Inc.

 

SOURCE: Choice Hotels International, Inc.

 

Choice Hotels Reports Third Quarter 2012 Diluted EPS of $0.76 Per Share and Domestic RevPAR Growth of 5.6%

New Domestic Hotel Franchise Contracts Rise 13%

PR Newswire

SILVER SPRING, Md., Oct. 24, 2012 /PRNewswire/ -- Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for the third quarter of 2012:

  • Diluted earnings per share ("EPS") for the third quarter of 2012 of $0.76 compared to diluted EPS of $0.71 for the third quarter of 2011, a 7% increase. 
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 4% to $67.3 million for the three months ended September 30, 2012, compared to $64.5 million for the three months ended September 30, 2011. Operating income increased 5% from $62.4 million for the three months ended September 30, 2011 to $65.3 million for the same period of 2012.
  • Franchising revenues increased 4% to $90.1 million for the three months ended September 30, 2012 from $86.7 million for the same period of 2011.  Total revenues increased 9% to $210.4 million for the three months ended September 30, 2012 compared to the same period of 2011.
  • Domestic royalty fees for the three months ended September 30, 2012 increased $4.1 million to $74.3 million from $70.2 million in the three months ended September 30, 2011, an increase of 6%.
  • Franchising margins increased 50 basis points from 71.6% for the three months ended September 30, 2011 to 72.1% for the same period of the current year.
  • The effective income tax rate for the three months ended September 30, 2012 was 20.3% compared to 25.7% for the same period of the prior year.
  • Income tax expense for the three months ended September 30, 2012 includes discrete items and current tax benefits totaling $7.7 million or $0.13 EPS that were not contemplated in the company's previous EPS guidance.
  • Domestic unit and room growth increased 1.3 percent and 1.0 percent from September 30, 2011, respectively. 
  • Domestic system-wide revenue per available room ("RevPAR") increased 5.6% for the three months ended September 30, 2012 compared to the same period of 2011 as occupancy and average daily rates increased 180 basis points and 2.7 percent, respectively.   
  • The company executed 89 new domestic hotel franchise contracts for the three months ended September 30, 2012 compared to 79 new domestic hotel franchise contracts in the same period of the prior year, a 13% increase.
  • The number of worldwide hotels under construction, awaiting conversion or approved for development as of September 30, 2012 was 435 hotels representing 36,150 rooms.
  • A special cash dividend in the amount of $10.41 per share or approximately $600.7 million in the aggregate was paid on August 23, 2012. The special cash dividend was paid with the proceeds of the company's recent offering of $400 million 5.75% unsecured senior notes and its new $350 million senior credit facility entered into on July 25, 2012. As a result of these transactions, and as contemplated in the company's previously provided EPS guidance, interest expense increased $6.9 million to $10.2 million for the three months ended September 30, 2012 compared to the same period of the prior year.

"The lodging industry continues to improve despite challenging global economic conditions and this is reflected in our third quarter results," said Stephen P. Joyce, president and chief executive officer. "Our RevPAR increased by approximately 6%, driven by a further improvement of hotel occupancy levels and the pricing power of our brands.  We are also pleased by the continued improvement of the development environment. We will continue to invest in programs designed to drive more reservations through our central channels, improve guest loyalty and improve the value of our brands in an effort to drive incremental business to our franchisees."

Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.

 

Dividends

 

For the nine months ended September 30, 2012, the company paid $632.8 million of cash dividends to shareholders which included a special cash dividend in the amount of $10.41 per share or approximately $600.7 million paid on August 23, 2012. The company's current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.

Share Repurchases

 

During the nine months ended September 30, 2012, the company repurchased 0.5 million shares for a total cost of $19.9 million and has authorization to purchase up to an additional 1.4 million shares under this program.  The company did not repurchase any shares of common stock under the share repurchase program during the three months ended September 30, 2012. We expect to continue making repurchases under our share repurchase program in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 45.3 million shares of its common stock for a total cost of $1.1 billion through June 30, 2012. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 78.3 million shares through September 30, 2012 under the share repurchase program at an average price of $13.89 per share.

 

Other

 

Our board of directors previously authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees as well as to acquire and resell real estate to incent franchise development for certain brands in strategic markets.  Over the next several years, we expect to continue to opportunistically deploy capital pursuant to these programs to promote growth of our emerging brands.  The amount and timing of the investment in these programs will be dependent on market and other conditions.  Notwithstanding these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.

Balance Sheet

 

At September 30, 2012, the company had gross debt of $819.0 million and cash and cash equivalents totaling $115.1 million resulting in net debt of $703.9 million

On June 27, 2012, the company issued unsecured senior notes in an aggregate principal amount of $400 million, in an underwritten, registered public offering. These notes will mature in July 2022 and bear a coupon rate of interest of 5.75%. Considering bond issuance costs, the company's effective interest costs related to these senior notes is approximately 5.94%.

On July 25, 2012, the company entered into a senior secured credit facility consisting of a $200 million revolving credit tranche and a $150 million term loan tranche, with a four year term. The company may elect to have borrowings under the senior secured credit facility bear interest at (i) a base rate plus a margin ranging from 100 to 325 basis points based on the company's total leverage ratio or (ii) LIBOR plus a margin ranging from 200 to 425 basis points based on the company's total leverage ratio.  As a result of entering into the senior secured credit facility, the company's existing $300 million senior unsecured revolving credit facility was terminated. Under the $300 million senior unsecured revolving credit facility the company could elect to have borrowings bear interest at (i) a base rate plus a margin ranging from 5 to 80 basis points based on the company's credit rating or (ii) LIBOR plus a margin ranging from 105 to 180 basis points based on the company's credit rating.

The proceeds from the issuance of the $400 million senior notes and the company's new senior secured credit facility were utilized to pay the special cash dividend.

 

Outlook
The company's fourth quarter 2012 diluted EPS is expected to be at least $0.40. The company expects full-year 2012 diluted EPS to range between $2.05 and $2.07.  EBITDA for full-year 2012 are expected to range between $201 million and $202.5 million. These estimates include the following assumptions:

  • The company expects net domestic unit growth to increase by approximately 1% in 2012;
  • RevPAR is expected to increase approximately 4% for fourth quarter of 2012 and increase between 6% and 6.5% for full-year 2012;
  • The effective royalty rate is expected to remain flat for full-year 2012;
  • All figures assume the existing share count;
  • An effective tax rate of 33.0% for the fourth quarter and 29.1% for full-year 2012 and we expect our recurring effective tax rate for future periods to be approximately 31.5%.

 

 

Conference Call
Choice will conduct a conference call on Thursday, October 25, 2012 at 9:30 a.m. EDT to discuss the company's third quarter 2012 results. The dial-in number to listen to the call is 1-866-383-8003, and the access code is 78277943. International callers should dial 1-617-597-5330 and enter the access code 78277943.  The conference call also will be Webcast simultaneously via the company's Web site, www.choicehotels.com.  Interested investors and other parties wishing to access the call via the Webcast should go to the Web site and click on the Investor Info link.  The Investor Information page will feature a conference call microphone icon to access the call.

The call will be recorded and available for replay beginning at 12:30 p.m. EDT on Thursday, October 25, 2012 through Thursday, November 1, 2012 by calling 1-888-286-8010 and entering access code 20807104. The international dial-in number for the replay is 1-617-801-6888, access code 20807104. In addition, the call will be archived and available on www.choicehotels.com via the Investor Info link.

 

About Choice Hotels
Choice Hotels International, Inc. franchises approximately 6,200 hotels, representing more than 495,000 rooms, in the United States and more than 30 other countries and territories.  As of September 30, 2012, 360 hotels, representing 29,000 rooms, were under construction, awaiting conversion or approved for development in the United States.  Additionally, 75 hotels, representing approximately 7,000 rooms, were under construction, awaiting conversion or approved for development in more than 20 other countries and territories.  The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands serve guests worldwide.  In addition, via its Ascend Collection membership program, travelers have upscale lodging options at historic, boutique and unique hotels.

 

Additional corporate information may be found on the Choice Hotels International, Inc. web site, which may be accessed at www.choicehotels.com.

Forward-Looking Statements
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan"," project," "assume" or similar words of futurity identify such forward-looking statements.  These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management.  Such statements may relate to projections of the company's revenue, earnings and other financial and operational measures, company debt levels, ability to repay outstanding indebtedness, payment of dividends, and future operations, among other matters.   We caution you not to place undue reliance on any such forward-looking statements.  Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements.  Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions;  operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness.  These and other risk factors are discussed in detail in the Risk Factors section of the company's Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 29, 2012 and our quarterly reports filed on Form 10-Q.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Statement Concerning Non-GAAP Financial Measurements Presented in Exhibit 8

EBITDA, franchising revenues and franchising margins are non-GAAP financial measurements.  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 operating income, total revenues and operating margins.  The company's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited.  The company has included an exhibit accompanying this release that reconciles these measures to the comparable GAAP measurement. We discuss management's reasons for reporting these non-GAAP measures below.

Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Our management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is a commonly used measure of performance in our industry. In addition, it is used by analysts, lenders, investors and others, as well as by us, to facilitate comparisons between the company and its competitors because it excludes certain items that can vary widely across different industries or among companies within the same industry.

Franchising Revenues and Margins:  The company reports franchising revenues and margins which exclude marketing and reservation revenues and hotel operations.  Marketing and reservation activities are excluded from revenues and operating margins since the company is required by its franchise agreements to use these fees collected for marketing and reservation activities. Cumulative reservation and marketing system fees not expended are recorded as a liability on the company's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of system fees collected for marketing and reservation activities are recorded as a receivable on the company's financial statements. In addition, the company has the contractual authority to require that the franchisees in the system at any given point repay the company for any deficits related to marketing and reservation activities.  Hotel operations are excluded since they do not reflect the most accurate measure of the company's core franchising business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.

 

 

Choice Hotels, Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, Rodeway Inn and Ascend Collectionare proprietary trademarks and service marks of Choice Hotels International.

 

 

 

Choice Hotels International, Inc.

               

 

Exhibit 1

Consolidated Statements of Income

                   

(Unaudited)

                       
                                     
                                     
                                 
       

Three Months Ended September 30,

 

Nine Months Ended September 30,

               

Variance

         

Variance

       

2012

 

2011

 

$

 

%

 

2012

 

2011

 

$

 

%

(In thousands, except per share amounts)

                             
                                     

REVENUES:

                                 
                                     

   Royalty fees

   

$                 80,845

 

$              77,090

 

$     3,755

 

5%

 

$              194,762

 

$               182,504

 

$     12,258

 

7%

   Initial franchise and relicensing fees

3,247

 

3,583

 

(336)

 

(9%)

 

8,953

 

9,083

 

(130)

 

(1%)

   Procurement services

 

3,839

 

4,103

 

(264)

 

(6%)

 

13,990

 

14,037

 

(47)

 

(0%)

   Marketing and reservation 

 

119,062

 

104,393

 

14,669

 

14%

 

284,624

 

258,192

 

26,432

 

10%

   Hotel operations

   

1,238

 

1,236

 

2

 

0%

 

3,440

 

3,173

 

267

 

8%

   Other

     

2,182

 

1,916

 

266

 

14%

 

7,434

 

5,914

 

1,520

 

26%

      Total revenues

 

210,413

 

192,321

 

18,092

 

9%

 

513,203

 

472,903

 

40,300

 

9%

                                     

OPERATING EXPENSES:

                               
                                     

   Selling, general and administrative

23,170

 

22,555

 

615

 

3%

 

72,073

 

72,941

 

(868)

 

(1%)

   Depreciation and amortization

 

1,995

 

2,073

 

(78)

 

(4%)

 

5,989

 

5,976

 

13

 

0%

   Marketing and reservation

 

119,062

 

104,393

 

14,669

 

14%

 

284,624

 

258,192

 

26,432

 

10%

   Hotel operations

   

933

 

900

 

33

 

4%

 

2,609

 

2,593

 

16

 

1%

Total operating expenses

 

145,160

 

129,921

 

15,239

 

12%

 

365,295

 

339,702

 

25,593

 

8%

                                     

Operating income

   

65,253

 

62,400

 

2,853

 

5%

 

147,908

 

133,201

 

14,707

 

11%

                                     

OTHER INCOME AND EXPENSES, NET:

                             

   Interest expense

   

10,166

 

3,228

 

6,938

 

215%

 

16,823

 

9,719

 

7,104

 

73%

   Interest income

   

(425)

 

(506)

 

81

 

(16%)

 

(1,156)

 

(937)

 

(219)

 

23%

   Loss on extinguishment of debt

526

 

-

 

526

 

NM

 

526

 

-

 

526

 

NM

   Other (gains) and losses

 

(511)

 

2,673

 

(3,184)

 

(119%)

 

(2,137)

 

3,678

 

(5,815)

 

(158%)

   Equity in net (income) loss of affiliates

(171)

 

39

 

(210)

 

(538%)

 

12

 

(262)

 

274

 

(105%)

   Total other income and expenses, net

9,585

 

5,434

 

4,151

 

76%

 

14,068

 

12,198

 

1,870

 

15%

                                     

Income before income taxes

 

55,668

 

56,966

 

(1,298)

 

(2%)

 

133,840

 

121,003

 

12,837

 

11%

Income taxes

   

11,291

 

14,664

 

(3,373)

 

(23%)

 

37,604

 

35,393

 

2,211

 

6%

Net income

   

$                 44,377

 

$              42,302

 

$     2,075

 

5%

 

$                96,236

 

$                85,610

 

$     10,626

 

12%

                                     
                                     

Basic earnings per share

 

$                     0.77

 

$                  0.71

 

$      0.06

 

8%

 

$                   1.66

 

$                    1.43

 

$        0.23

 

16%

                                     

Diluted earnings per share

 

$                     0.76

 

$                  0.71

 

$      0.05

 

7%

 

$                   1.65

 

$                    1.43

 

$        0.22

 

15%

                                     
                                     

 

 

 

Choice Hotels International, Inc.

     

Exhibit 2

Consolidated Balance Sheets

       
               
               

(In thousands, except per share amounts)

 September 30, 

 

 December 31, 

         

2012

 

2011

         

(Unaudited)

   
               

ASSETS

           
               

Cash and cash equivalents

   

$           115,064

 

$         107,057

Accounts receivable, net

   

66,196

 

53,012

Investments, employee benefit plans, at fair value

3,668

 

12,094

Other current assets

   

29,749

 

22,633

 

Total current assets

   

214,677

 

194,796

               

Fixed assets and intangibles, net

 

133,382

 

135,252

Receivable -- marketing and reservation fees

46,249

 

54,014

Investments, employee benefit plans, at fair value

12,530

 

11,678

Other assets

     

76,233

 

51,949

               
   

Total assets

 

$           483,071

 

$         447,689

               
               
               

LIABILITIES AND SHAREHOLDERS' DEFICIT

     
               

Accounts payable and accrued expenses

$              87,784

 

$            92,240

Deferred revenue

   

76,949

 

68,825

Deferred compensation & retirement plan obligations

17,870

 

18,935

Current portion of long-term debt

 

10,065

 

673

Other current liabilities

   

14,506

 

3,892

 

Total current liabilities

 

207,174

 

184,565

               

Long-term debt

   

808,911

 

252,032

Deferred compensation & retirement plan obligations  

19,992

 

20,593

Other liabilities

     

16,391

 

16,060

               
 

Total liabilities

   

1,052,468

 

473,250

               

Common stock, $0.01 par value

 

581

 

583

Additional paid-in-capital

   

107,939

 

102,665

Accumulated other comprehensive loss

(5,904)

 

(6,801)

Treasury stock, at cost

   

(930,487)

 

(916,955)

Retained earnings

   

258,474

 

794,947

               
 

Total shareholders' deficit

 

(569,397)

 

(25,561)

               
   

Total liabilities and shareholders' deficit

$           483,071

 

$         447,689

               

 

 

Choice Hotels International, Inc.

   

Exhibit 3

Consolidated Statements of Cash Flows

     

(Unaudited)

     
       
       
   

(In thousands)

Nine Months Ended September 30,

       
 

2012

 

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

     
       

Net income

$                    96,236

 

$              85,610

       

Adjustments to reconcile net income to net cash provided 

     

 by operating activities:

     

  Depreciation and amortization  

5,989

 

5,976

  Provision for bad debts, net

1,802

 

845

  Non-cash stock compensation and other charges

7,306

 

10,262

  Non-cash interest and other (income) loss

(633)

 

3,079

  Loss on extinguishment of debt

526

 

-

  Dividends received from equity method investments

855

 

316

  Equity in net (income) loss of affiliates

12

 

(262)

       

Changes in assets and liabilities:

     

  Receivables

(17,405)

 

(15,494)

  Receivable - marketing and reservation fees, net

20,811

 

(1,474)

  Accounts payable

5,980

 

4,468

  Accrued expenses

(10,309)

 

(10,584)

  Income taxes payable/receivable

12,786

 

14,354

  Deferred income taxes

(1,627)

 

2,839

  Deferred revenue

8,018

 

9,375

  Other assets

(7,458)

 

(556)

  Other liabilities

(1,613)

 

(2,861)

       

 NET CASH PROVIDED BY OPERATING ACTIVITIES

121,276

 

105,893

       

CASH FLOWS FROM INVESTING ACTIVITIES:

     
       

Investment in property and equipment

(12,525)

 

(8,129)

Equity method investments

(9,454)

 

(3,600)

Purchases of investments, employee benefit plans

(1,191)

 

(1,051)

Proceeds from sales of investments, employee benefit plans

10,909

 

566

Issuance of notes receivable

(7,305)

 

(4,320)

Collections of notes receivable

326

 

15

Other items, net

(322)

 

(312)

       

 NET CASH USED IN INVESTING ACTIVITIES

(19,562)

 

(16,831)

       

CASH FLOWS FROM FINANCING ACTIVITIES:

     
       

Net borrowings (repayments) pursuant to revolving credit facilities

16,725

 

(200)

Repayments of long-term debt

(502)

 

(74)

Proceeds from the issuance of long-term debt

543,500

 

75

Purchase of treasury stock

(22,227)

 

(24,796)

Dividends paid

(632,751)

 

(32,923)

Excess tax benefits from stock-based compensation

793

 

1,108

Debt issuance costs

(4,753)

 

(2,356)

Proceeds from exercise of stock options

4,695

 

3,726

       

 NET CASH USED IN FINANCING ACTIVITIES

(94,520)

 

(55,440)

       

Net change in cash and cash equivalents

7,194

 

33,622

Effect of foreign exchange rate changes on cash and cash equivalents

813

 

(147)

Cash and cash equivalents at beginning of period

107,057

 

91,259

       

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                  115,064

 

$            124,734

       

 

 

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 4

SUPPLEMENTAL OPERATING INFORMATION 

 

DOMESTIC HOTEL SYSTEM

 

(UNAUDITED)

 
                                           
                                           
                                           
                                           
   

For the Nine Months Ended September 30, 2012*

 

For the Nine Months Ended September 30, 2011*

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$             81.52

 

59.2%

 

$          48.24

 

$             79.24

 

57.0%

 

$         45.18

 

2.9%

 

220

bps

 

6.8%

   

Comfort Suites

 

85.62

 

61.8%

 

52.92

 

83.92

 

58.4%

 

49.05

 

2.0%

 

340

bps

 

7.9%

   

Sleep

 

72.29

 

56.3%

 

40.68

 

69.92

 

53.5%

 

37.39

 

3.4%

 

280

bps

 

8.8%

   

Quality

 

69.84

 

51.8%

 

36.14

 

67.95

 

49.9%

 

33.90

 

2.8%

 

190

bps

 

6.6%

   

Clarion

 

74.98

 

49.4%

 

37.00

 

73.76

 

46.7%

 

34.42

 

1.7%

 

270

bps

 

7.5%

   

Econo Lodge

 

55.76

 

48.7%

 

27.13

 

54.75

 

47.2%

 

25.83

 

1.8%

 

150

bps

 

5.0%

   

Rodeway

 

53.59

 

51.3%

 

27.48

 

52.13

 

48.6%

 

25.33

 

2.8%

 

270

bps

 

8.5%

   

MainStay

 

69.27

 

70.4%

 

48.79

 

66.17

 

67.1%

 

44.38

 

4.7%

 

330

bps

 

9.9%

   

Suburban

 

41.24

 

69.9%

 

28.82

 

40.24

 

67.7%

 

27.25

 

2.5%

 

220

bps

 

5.8%

   

Ascend Collection

 

112.27

 

63.5%

 

71.25

 

109.82

 

59.9%

 

65.81

 

2.2%

 

360

bps

 

8.3%

   
                                           

Total 

 

$             73.65

 

55.5%

 

$          40.89

 

$             71.78

 

53.3%

 

$         38.24

 

2.6%

 

220

bps

 

6.9%

   
                                           

* Operating statistics represent hotel operations from December through August

                             
                                           
                                           
   

For the Three Months Ended September 30, 2012*

 

For the Three Months Ended September 30, 2011*

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$             87.58

 

70.2%

 

$          61.46

 

$             85.05

 

68.6%

 

$         58.31

 

3.0%

 

160

bps

 

5.4%

   

Comfort Suites

 

89.69

 

70.2%

 

62.93

 

87.23

 

67.8%

 

59.13

 

2.8%

 

240

bps

 

6.4%

   

Sleep

 

76.09

 

64.8%

 

49.32

 

73.15

 

62.9%

 

46.02

 

4.0%

 

190

bps

 

7.2%

   

Quality

 

75.02

 

61.2%

 

45.88

 

72.90

 

59.8%

 

43.60

 

2.9%

 

140

bps

 

5.2%

   

Clarion

 

79.73

 

58.7%

 

46.82

 

78.13

 

55.1%

 

43.01

 

2.0%

 

360

bps

 

8.9%

   

Econo Lodge

 

60.60

 

57.7%

 

34.97

 

59.32

 

56.4%

 

33.45

 

2.2%

 

130

bps

 

4.5%

   

Rodeway

 

59.62

 

60.8%

 

36.23

 

58.23

 

58.8%

 

34.22

 

2.4%

 

200

bps

 

5.9%

   

MainStay

 

73.17

 

76.5%

 

55.96

 

69.45

 

77.3%

 

53.68

 

5.4%

 

(80)

bps

 

4.2%

   

Suburban

 

42.62

 

75.1%

 

32.03

 

41.00

 

72.8%

 

29.85

 

4.0%

 

230

bps

 

7.3%

   

Ascend Collection

 

115.98

 

71.4%

 

82.77

 

113.61

 

67.3%

 

76.50

 

2.1%

 

410

bps

 

8.2%

   
                                           

Total 

 

$             78.63

 

65.0%

 

$          51.09

 

$             76.53

 

63.2%

 

$         48.39

 

2.7%

 

180

bps

 

5.6%

   
                                           
                                           

* Operating statistics represent hotel operations from June through August

                               
                                           
                                           
                                           
   

For the Quarter Ended

     

For the Nine Months Ended

                     
   

9/30/2012

 

9/30/2011

     

9/30/2012

 

9/30/2011

                     
                                           

System-wide effective royalty rate

 

4.29%

 

4.29%

     

4.31%

 

4.32%

                     
                                           

 

 

                                   

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 5

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

 

(UNAUDITED)

 
                                   
                                   
                                   
   

September 30, 2012

 

September 30, 2011

 

Variance

 
                                   
   

Hotels

 

Rooms

 

Hotels

 

Rooms

 

Hotels

 

Rooms

 

%

 

%

 
                                   

Comfort Inn

 

1,367

 

106,970

 

1,413

 

110,652

 

(46)

 

(3,682)

 

(3.3%)

 

(3.3%)

 

Comfort Suites

 

603

 

46,647

 

616

 

47,667

 

(13)

 

(1,020)

 

(2.1%)

 

(2.1%)

 

Sleep

 

390

 

28,232

 

392

 

28,431

 

(2)

 

(199)

 

(0.5%)

 

(0.7%)

 

Quality

 

1,101

 

95,469

 

1,037

 

90,368

 

64

 

5,101

 

6.2%

 

5.6%

 

Clarion

 

187

 

26,943

 

189

 

27,448

 

(2)

 

(505)

 

(1.1%)

 

(1.8%)

 

Econo Lodge

 

803

 

49,248

 

782

 

48,381

 

21

 

867

 

2.7%

 

1.8%

 

Rodeway

 

409

 

23,336

 

378

 

20,820

 

31

 

2,516

 

8.2%

 

12.1%

 

MainStay

 

39

 

2,997

 

39

 

3,027

 

-

 

(30)

 

0.0%

 

(1.0%)

 

Suburban

 

60

 

6,978

 

58

 

6,934

 

2

 

44

 

3.4%

 

0.6%

 

Ascend Collection

 

56

 

4,946

 

46

 

4,084

 

10

 

862

 

21.7%

 

21.1%

 

Cambria Suites

 

19

 

2,221

 

19

 

2,215

 

-

 

6

 

0.0%

 

0.3%

 
                                   

Domestic Franchises

 

5,034

 

393,987

 

4,969

 

390,027

 

65

 

3,960

 

1.3%

 

1.0%

 
                                   

International Franchises

 

1,165

 

102,942

 

1,169

 

103,473

 

(4)

 

(531)

 

(0.3%)

 

(0.5%)

 
                                   

Total Franchises

 

6,199

 

496,929

 

6,138

 

493,500

 

61

 

3,429

 

1.0%

 

0.7%

 
                                   
                                   

 

 

                                   

Exhibit 6

 

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

                                       
                                       
                                       
                                       
   

For the Nine Months Ended September 30, 2012

 

For the Nine Months Ended September 30, 2011

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

10

 

17

 

27

 

6

 

28

 

34

 

67%

 

(39%)

 

(21%)

 

Comfort Suites

 

11

 

4

 

15

 

7

 

4

 

11

 

57%

 

0%

 

36%

 

Sleep

 

17

 

1

 

18

 

6

 

1

 

7

 

183%

 

0%

 

157%

 

Quality

 

-

 

88

 

88

 

-

 

49

 

49

 

NM

 

80%

 

80%

 

Clarion

 

-

 

14

 

14

 

-

 

12

 

12

 

NM

 

17%

 

17%

 

Econo Lodge

 

-

 

33

 

33

 

-

 

36

 

36

 

NM

 

(8%)

 

(8%)

 

Rodeway

 

-

 

46

 

46

 

-

 

32

 

32

 

NM

 

44%

 

44%

 

MainStay

 

2

 

1

 

3

 

1

 

3

 

4

 

100%

 

(67%)

 

(25%)

 

Suburban

 

1

 

1

 

2

 

2

 

2

 

4

 

(50%)

 

(50%)

 

(50%)

 

Ascend Collection

 

1

 

8

 

9

 

2

 

9

 

11

 

(50%)

 

(11%)

 

(18%)

 

Cambria Suites

 

4

 

-

 

4

 

4

 

-

 

4

 

0%

 

NM

 

0%

 
                                       

Total Domestic System

 

46

 

213

 

259

 

28

 

176

 

204

 

64%

 

21%

 

27%

 
                                       
                                       
                                       
                                       
                                       
   

For the Three Months Ended September 30, 2012

 

For the Three Months Ended September 30, 2011

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

4

 

5

 

9

 

1

 

10

 

11

 

300%

 

(50%)

 

(18%)