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Choice Hotels International Inc. Reports Operating Results (10-K)

February 29, 2012 | About:
10qk

10qk

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Choice Hotels International Inc. (CHH) filed Annual Report for the period ended 2011-12-31.

Choice Htl Intl has a market cap of $2.24 billion; its shares were traded at around $37.63 with a P/E ratio of 19.8 and P/S ratio of 3.5. The dividend yield of Choice Htl Intl stocks is 2%. Choice Htl Intl had an annual average earning growth of 9% over the past 10 years. GuruFocus rated Choice Htl Intl the business predictability rank of 2-star.

Highlight of Business Operations:

Results of Operation: Royalty fees, operating income, net income and diluted earnings per share (“EPS”) represent key measurements of these value drivers. In 2011, royalty fees revenue totaled approximately $247.2 million, a 7% increase from 2010. Operating income totaled $171.9 million for the year ended December 31, 2011, a 7% increase from 2010. Net income for the year ended December 31, 2011 increased $3.0 million to $110.4 million and diluted EPS were $1.85 compared to $1.80 for the year ended December 31, 2010. These measurements will continue to be a key management focus in 2012 and beyond.

The Company recorded adjusted net income of $114.3 million for the year ended December 31, 2011, a $5.8 million or 5% increase from $108.5 million for the year ended December 31, 2010. The increase in adjusted net income for the year ended December 31, 2011 is primarily attributable to a $13.8 million or 9% increase in adjusted operating income and a lower effective income tax rate. These increases were partially offset by a $6.3 million increase in interest expense due to the issuance of $250 million of senior notes in August 2010 which carry a higher effective interest rate than the Company s revolving credit facility in place in 2010 and a $0.6 million decline in the fair value of investments held in the Company's non-qualified employee benefit plans compared to a $2.1 million appreciation of these investments in the prior year. Adjusted operating income increased 9% as the Company s franchising revenues increased by $22.6 million or 9% partially offset by a $9.2 million or 10% increase in adjusted SG&A.

Total marketing and reservation system revenues were $349.0 million and $329.2 million for the years ended December 31, 2011 and 2010 respectively. Depreciation and amortization attributable to marketing and reservation activities was $13.3 million and $12.4 million for the years ended December 31, 2011 and 2010, respectively. Interest expense attributable to reservation activities was $4.1 million and $1.1 million for the years ended December 31, 2011 and 2010, respectively. Marketing and reservation activities provided $0.6 million in operating cash flow for the year ended December 31, 2011 compared to providing $4.7 million in operating cash flows in the prior year.

The Company recorded adjusted net income of $108.5 million for the year ended December 31, 2010, a $5.7 million or 5.5% increase from $102.8 million for the year ended December 31, 2009. The increase in adjusted net income for the year ended December 31, 2010 is primarily attributable to a $7.1 million or 5% increase in adjusted operating income and a decline in the effective income tax rate from 34.8% to 32.1%. These items were partially offset by a $5.1 million decline in other income and expenses, net resulting from a lower appreciation in the fair value of investments held in the Company s non-qualified employee benefit plans compared to the prior year and an increase in interest expense due to the issuance of $250 million of senior notes which carry a higher effective interest rate than the Company s revolving credit facility. Adjusted operating income increased $7.1 million as the Company s franchising revenues increased by $8.1 million or 3% partially offset by a $0.9 million increase in adjusted SG&A.

Total marketing and reservation system revenues were $329.2 million and $305.4 million for 2010 and 2009, respectively. Depreciation and amortization attributable to marketing and reservation activities was $12.4 million and $10.3 million for the years ended December 31, 2010 and 2009, respectively. Interest expense attributable to reservation activities was $1.1 million and $0.3 million for 2010 and 2009, respectively. Marketing and reservation activities provided $4.7 million in cash flow for the year ended December 31, 2010 compared to utilizing $12.2 million in cash flows in the prior year. As of December 31, 2010 and 2009, the Company s balance sheet includes a receivable of $42.5 million and $33.9 million, respectively resulting from cumulative marketing and reservation expenses incurred in excess of cumulative system fee revenues earned. These receivables are recorded as an asset in the financial statements as 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 reservations activities. The Company s current franchisees are legally obligated to pay any assessment the Company imposes on its franchisees to obtain reimbursement of such deficit regardless of whether those constituents continue to generate gross room revenue and whether or not they joined the system following the deficit s occurrence. The Company has no present intention to accelerate repayment of the deficit from current franchisees. Our ability to recover these receivables may be adversely impacted by certain factors, including, among others, declines in the ability of our franchisees to generate revenues at properties they franchise from us, lower than expected franchise system growth of certain brands and/or lower than expected international franchise system growth. An extended period of occupancy or room rate declines or a decline in the

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