Choice Hotels Reports Full Year 2009 Adjusted Diluted EPS of $1.71, Domestic Unit Growth of 4.0%
SILVER SPRING, Md., Feb. 11 - Choice Hotels International, Inc. (NYSE:CHH) today reported the following highlights for fourth quarter and full year 2009:
Full Year Results
— Adjusted diluted earnings per share (“EPS”) for full year 2009 were
$1.71 compared to $1.77 for full year 2008. Diluted EPS were $1.63 for
full year 2009 compared to $1.59 for 2008. Adjusted diluted EPS for
full year 2009 and 2008 exclude special items, as described below,
totaling $0.08 and $0.18, respectively.
— Excluding special items, adjusted earnings before interest, taxes and
depreciation (“EBITDA”) were $163.7 million for the year ended
December 31, 2009, compared to $200.5 million for full year 2008.
Operating income for the year ended December 31, 2009 was $148.1
million compared to $174.6 million for the same period of 2008.
— Franchising revenues declined $45.6 million or 15% from $300.3 million
for the year ended December 31, 2008 to $254.7 million for the same
period of the current year. Total revenues declined $77.5 million or
12% to $564.2 million for the year ended December 31, 2009 compared to
the same period of the prior year.
— Adjusted selling, general and administrative (“SG&A”) costs for full
year 2009 totaled $91.9 million which represented a 9% decline from
the same period of the prior year. Adjusted SG&A costs exclude
special items totaling $7.3 million and $17.7 million for the year
ended December 31, 2009 and 2008, respectively.
— Interest and other investment income for the year ended December 31,
2009 improved by approximately $13.6 million from the same period of
the prior year primarily due to the appreciation in the fair value of
investments held in the company’s non-qualified employee benefit plans
during the current period compared to a decline in the fair value of
these investments in the prior year.
— Domestic unit and room growth increased 4.0 percent and 3.9 percent,
respectively, from December 31, 2008.
— Domestic system-wide revenue per available room (“RevPAR”) declined
14.4% for full year 2009 compared to full year 2008.
— The effective royalty rate increased 6 basis points to 4.26% for the
year ended December 31, 2009 compared to 4.20% for the same period of
the prior year.
— The company executed 369 new domestic hotel franchise contracts for
the year ended December 31, 2009, a decline of 47% compared to the 698
contracts executed in the same period of the prior year.
— The number of domestic hotels under construction, awaiting conversion
or approved for development declined 26% from December 31, 2008 to 727
hotels representing 57,140 rooms; the worldwide pipeline declined 24%
from December 31, 2008 to 843 hotels representing 66,585 rooms.
Fourth Quarter Results
— Adjusted EPS for fourth quarter 2009 were $0.43 compared to $0.41 for
the same period of the prior year. Diluted EPS were $0.40 for fourth
quarter 2009 compared to $0.30 for fourth quarter 2008. Adjusted
diluted EPS for fourth quarter 2009 and 2008 exclude certain special
items, as described below, totaling $0.03 and $0.11, respectively.
— Excluding special items, adjusted EBITDA were $39.7 million for the
three months ended December 31, 2009, compared to $46.9 million for
the same period of 2008. Operating income for both the three months
ended December 31, 2009 and 2008 were $34.1 million.
— Franchising revenues declined 13% from $71.3 million for the three
months ended December 31, 2008 to $62.2 million for the same period of
2009. Total revenues for the three months ended December 31, 2009
declined 9% compared to the same period of 2008.
— Adjusted SG&A costs for the fourth quarter of 2009 totaled $22.6
million which represented a 9% decline from the same period of the
prior year. Adjusted SG&A costs exclude special items totaling $3.5
million and $10.8 million for the three months ended December 31, 2009
and 2008, respectively.
— Interest and other investment income for the three months ended
December 31, 2009 improved by approximately $5.0 million from the same
period of the prior year primarily due to the appreciation in the fair
value of investments held in the company’s non-qualified employee
benefit plans during the current period compared to a decline in the
fair value of these investments in the same period of the prior year.
— Domestic system-wide revenue per available room (“RevPAR”) declined
14.4% for the fourth quarter of 2009 compared to the same period of
2008.
— The effective royalty rate increased 7 basis points to 4.30% for the
three months ended December 31, 2009 compared to 4.23% for the same
period of the prior year.
— The company executed 112 new domestic hotel franchise contracts for
the three months ended December 31, 2009, a decline of 46% compared to
the 207 contracts executed in the same period of the prior year.
“Despite operating in the midst of an incredibly difficult environment, which has resulted in industry-wide RevPAR declines and a significant decrease in domestic hotel transactions, the company has remained focused on returning value to our shareholders,” said Stephen P. Joyce, president and chief executive officer. “During 2009, we returned more than $100 million to our shareholders through a combination of share repurchases and dividends at a time when many other companies have reduced or eliminated their dividend and share repurchase programs. Additionally, we continued to build on our strong track record of domestic system growth on account of our well-known family of value-oriented brands. While the near-term domestic RevPAR and franchise sales environments remain challenging, we believe that our franchise business model, strong brands and strong balance sheet position us for long-term profitable growth and a continued ability to return value to our shareholders.”
Special Items
During the three months and year ended December 31, 2009, the company recorded employee termination benefits of approximately $2.3 million and $4.6 million, respectively. The company also incurred a curtailment loss related to freezing the benefits payable under its Supplemental Executive Retirement Plan totaling $1.2 million for the three months and year ended December 31, 2009. In addition, during the year ended December 31, 2009, the company recorded a $1.5 million charge related to the sublease of a portion of its office space. These special items represent diluted EPS of $0.03 and $0.08 for the three months and year ended December 31, 2009, respectively.
During the three months and year ended December 31, 2008, the company recorded employee termination benefits of approximately $2.7 million and $3.5 million, respectively. The company also incurred benefit costs resulting from the acceleration of the company’s management succession plan of $0.5 million and $6.6 million during the three months and year ended December 31, 2008. Furthermore, during the three months and year ended December 31, 2008, the company recognized $7.6 million related to an increase in reserves on impaired notes receivable. These special items represented diluted EPS of $0.11 and $0.18 for the three months and year ended December 31, 2008, respectively.
Outlook for 2010
The uncertainty around the current economic environment and credit market conditions and their impact on travel patterns and hotel development activities makes it difficult to predict future results, particularly as they relate to underlying assumptions for RevPAR, new hotel franchise and relicensing sales and interest and investment income and expense.
The company’s first quarter 2010 diluted EPS is expected to be $0.25. The company expects full-year 2010 diluted EPS to be between $1.65 and $1.70. EBITDA for full-year 2010 are expected to be between $166 million and $170 million. These estimates include the following assumptions:
— The company expects net domestic unit growth of approximately 2% in
2010;
— RevPAR is expected to decline approximately 12% for first quarter of
2010 and decline between 2% and 4% for full-year 2010;
— The effective royalty rate is expected to increase 6 basis points for
full-year 2010;
— All figures assume the existing share count and an effective tax rate
of 36.5% for the first quarter and full-year 2010;
— Projections assume that the company’s existing credit facility remains
in place for full-year 2010.
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.
For the year ended December 31, 2009 the company paid $44.3 million of cash dividends to shareholders. The current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.
During the three months ended December 31, 2009, the company purchased approximately 0.1 million shares of its common stock at an average price of $31..06 for a total cost of $2.1 million under the share repurchase program. During the year ended December 31, 2009, the company purchased approximately 2.1 million shares of its common stock at an average price of $27.03 for a total cost of $57.4 million. Subsequent to December 31, 2009 and through February 11, 2010, the company repurchased an additional 0.2 million shares at a total cost of $5.0 million at an average price of $31.85 and has authorization to purchase up to an additional 3.7 million shares under this program. We expect to continue making repurchases 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 42.9 million shares of its common stock for a total cost of $1 billion through December 31, 2009. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 75.9 million shares through December 31, 2009 under the share repurchase program at an average price of $13.28 per share.
Our Board has authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees to incent multi-unit franchise development in top markets. We expect to opportunistically deploy this capital over the next several years. Our annual investment in these programs is 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.
Impact of the Adoption of New Accounting Pronouncements on Earnings Per Share
In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position Emerging Issues Task Force No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarified that all share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Therefore, awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied rather than the treasury stock method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. In addition, once effective, all prior period earnings per share data presented must be adjusted retrospectively to conform to the provisions of FSP EITF 03-6-1.
The company’s outstanding unvested restricted stock awards contain rights to non-forfeitable dividends and as a result, the company applied this guidance in the first quarter of 2009. The two-class method of calculating earnings per share is more dilutive to both basic and diluted shares outstanding than the previously utilized treasury stock method. In accordance with FSP EITF 03-6-1, the company has retrospectively adjusted its basic and diluted shares outstanding for the three months and year ended December 31, 2008 under the two-class method which resulted in a reduction of the company’s basic and diluted earnings per share for the year ended December 31, 2008 from $1.62 to $1.61 and $1.60 to $1.59 per share, respectively. In addition, basic earnings per share for the three months ended December 31, 2008 have been revised from $0.31 to $0.30 per share.
Conference Call
Choice will conduct a conference call on Friday, February 12, 2010 at 10:00 a.m. EST to discuss the company’s fourth quarter and full-year 2009 results. The dial-in number to listen to the call is 1-866-383-7989, and the access code is 25293408. International callers should dial 1-617-597-5328 and enter the access code 25293408. The conference call also will be Webcast simultaneously via the company’s Web site, http://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 1:00 p.m. EST on February 12, 2010 through March 12, 2010 by calling 1-888-286-8010 and entering access code 35986582. The international dial-in number for the replay is 617-801-6888, access code 35986582. In addition, the call will be archived and available on http://www.choicehotels.com via the Investor Info link.
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