SILVER SPRING, Md. - Feb. 11, 2013 // PRNewswire // - Choice Hotels International, Inc., (NYSE:CHH) today reported the following highlights for the fourth quarter and full year 2012:
"2012 was a record breaking year for the company in terms of operating performance. We established new company records for the size of the domestic franchise system, total franchising revenues, franchising margins, operating cash flows, operating income and earnings per share," said Stephen P. Joyce, president and chief executive officer. "We are very pleased with our development results which increased 42 percent over the prior year, highlighted by the conversion of 46 properties, formerly operated as Jameson Inns, to our system and the execution of several Cambria Suites agreements in key markets important for Cambria's long-term success. We remain optimistic that the development and RevPAR environments will continue to improve and result in further growth of our business in 2013."
On December 27, 2012, the company settled its supplemental executive retirement plan and paid the actuarial equivalent of the lump sum value of the full accrued benefit to each participant. As a result of the settlement, the company recognized a settlement loss in SG&A expense totaling $1.8 million for the three months and year ended December 31, 2012. In addition, during the year ended December 31, 2012, the company recorded employee termination benefits charges in SG&A of approximately $0.5 million and recognized a loss on the extinguishment of debt totaling $0.5 million. These special items represent diluted EPS of $0.03 and $0.04 for the three months and year ended December 31, 2012, respectively.
During the three months and year ended December 31, 2011, the company recorded employee termination benefit charges included in SG&A expenses of approximately $3.6 million and $4.4 million, respectively. In addition, during the year ended December 31, 2011, the company reduced the carrying amount of a parcel of land held for sale resulting in a loss of $1.8 million included in other gains and losses. These special items represent diluted EPS of $0.04 and $0.07 for the three months and year ended December 31, 2011, respectively.
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, 2012, the company paid $654.1 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.
During the year ended December 31, 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 December 31, 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 December 31, 2012. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 78.3 million shares through December 31, 2012 under the share repurchase program at an average price of $13.89 per share.
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. During the year ended December 31, 2012, the company advanced, net of repayments, approximately $41 million related to mezzanine financing and sliver equity investments to construct Cambria Suites in such markets as New York City and White Plains, New York, Phoenix, Arizona and Plano, Texas. At December 31, 2012 the company had approximately $68 million outstanding related to this program. Over the next several years, we expect to continue to opportunistically deploy capital pursuant to these programs to promote growth of our emerging brands. We expect these advances to range between $20 million and $40 million per year, however, 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.
At December 31, 2012, the company had gross debt of $855.3 million and cash and cash equivalents totaling $134.2 million resulting in net debt of $721.1 million. At December 31, 2011, the company had gross debt of $252.7 million and cash equivalents totaling $107.1 million resulting in net debt of $145.6 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 paid on August 23, 2012.
At December 31, 2012 and 2011, the company had outstanding mezzanine financing, real estate investments and sliver equity investments totaling $68 million and $27 million, respectively pursuant to its program to offer financing and investment support to incent franchise development for the Cambria Suites brand in strategic markets. These investments are reported in other current assets and other assets on the company's consolidated balance sheet.
The company's first quarter 2013 diluted EPS is expected to be $0.26. The company expects full-year 2013 diluted EPS to range between $1.96 and $1.98. EBITDA for full-year 2013 are expected to range between $215 million and $217 million. These estimates include the following assumptions:
Choice will conduct a conference call on Tuesday, February 12, 2013 at 9:00 a.m. EST to discuss the company's fourth quarter 2012 results. The dial-in number to listen to the call is 1-800-591-6930, and the access code is 96459022. International callers should dial 1-617-614-4908 and enter the access code 96459022. 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 11:00 a.m. EST on Tuesday, February 12, 2013 through Tuesday, February 19, 2013 by calling 1-888-286-8010 and entering access code 56450518. The international dial-in number for the replay is 1-617-801-6888, access code 56450518. In addition, the call will be archived and available on www.choicehotels.com via the Investor Info link.
Choice Hotels International, Inc. franchises approximately 6,200 hotels, representing more than 499,000 rooms, in the United States and more than 30 other countries and territories. As of December 31, 2012, 394 hotels, representing more than 31,000 rooms, were under construction, awaiting conversion or approved for development in the United States. Additionally, 88 hotels, representing approximately 7,800 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, as well as its Ascend Hotel Collection membership program, serve guests worldwide.
Additional corporate information may be found on the Choice Hotels International, Inc. web site, which may be accessed at www.choicehotels.com.
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.
Adjusted diluted EPS, adjusted EBITDA, franchising revenues, adjusted franchising margins and adjusted SG&A expenses 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 diluted EPS, 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.
Adjusted Diluted EPS, Adjusted EBITDA, Adjusted SG&A and Adjusted Franchising Margins: The company's management also uses adjusted diluted EPS, adjusted EBITDA, adjusted SG&A and adjusted franchising margins which exclude the loss on settlement of a pension plan, employee termination benefits, a loss on extinguishment of debt as well as a reduction in the carrying amount of land held for sale. The company utilizes these non-GAAP measures to enable investors to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of on-going operations.
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.
© 2013 Choice Hotels International, Inc. All rights reserved.
SOURCE Choice Hotels International, Inc.
David White
Senior Vice President
Chief Financial Officer & Treasurer
+1-301-592-5117
Robin Pence
Vice President
Public Relations
+1-301-592-5186
Choice Hotels International is one of the largest and most successful lodging franchisors in the world.