Comfort Inn 2011 Annual Report Download

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Table of Contents
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
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
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¨
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 
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 
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 
 
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large
accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer x Accelerated filer o Smaller reporting company o Non-accelerated filer o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No
The aggregate market value of common stock of Choice Hotels International, Inc. held by non-affiliates was $972,511,421 as of June 30, 2011 based upon a closing price of
$33.36 per share.
The number of shares outstanding of Choice Hotels International, Inc.’s common stock at February 15, 2012 was 58,096,972.

Certain portions of our definitive proxy statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the Annual Meeting of
Shareholders to be held on April 30, 2012, are incorporated by reference under Part III.

Table of contents

  • Page 1
    ... check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No  The aggregate market value of common stock of Choice Hotels International, Inc. held by non-affiliates was $972,511,421 as of June 30, 2011...

  • Page 2
    ... 14. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accounting Fees and Services 109 109...

  • Page 3
    ... outside the United States. Choice franchises lodging properties under the following proprietary brand names: Comfort Inn ®, Comfort Suites ®, Quality®, Clarion®, Sleep Inn ®, Econo Lodge ®, Rodeway Inn ®, MainStay Suites ®, Suburban Extended Stay Hotel ®, Cambria Suites ® and Ascend...

  • Page 4
    ... required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide support activities. These expenditures help to enhance awareness and increase consumer preference for our brands. Greater awareness and preference promotes long-term growth in business...

  • Page 5
    ...'s brand standards. Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee and a marketing/reservation reimbursement. A franchisor's revenues are dependent on the number of rooms in its system and the top-line performance...

  • Page 6
    ...following chart demonstrates these trends: US Lodging Industry Trends-1997 - 2011 Tverage Daily Room Change in TDR Versus Prior Change in CPI Versus Prior Revenue Per Tvailable Room (RevPTR) New Rooms Year Occupancy Rates Rates (TDR) Tdded (Gross) Year Year 1997 1998 1999 2000 2001 2002...

  • Page 7
    ... performance. The large franchise lodging chains, including us, generally provide a number of support services to hotel operators to improve the financial performance of their properties including central reservation and property management systems, marketing and advertising programs, training and...

  • Page 8
    ...positions us well within the lodging industry. Our Cambria Suites, Comfort Inn, Comfort Suites, Sleep Inn, Suburban Extended Stay Hotel and MainStay Suites are primarily new build brands which offer hotel developers an array of choices at various price points for transient and extended stay business...

  • Page 9
    ... Choice brand names: Comfort Inn, Comfort Suites, Cambria Suites, Quality, Clarion, Ascend Collection, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites and Suburban Extended Stay Hotel. The following table presents key statistics related to our domestic franchise system over the five years ended...

  • Page 10
    ... provide extended stay guests with the all-suite accommodations they want without the cost of services they do not need. All hotels offer complimentary high-speed internet access. Principal competitors include Extended Stay America, InTown Suites, Studio 6 and Value Place. Econo Lodge : Econo Lodge...

  • Page 11
    ... the Year Ended December 31, 2007 2008 2009 2010 2011 COMFORT INN DOMESTIC SYSTEM Number of properties, end of period Number of rooms, end of period 1,434 112,042 1,462 114,573 1,447 113,633 1,435 112,169 1,399 109,330 Royalty fees ($000) Average occupancy percentage Average daily room rate...

  • Page 12
    ... in building the Choice brands in their respective markets. Master franchising relationships typically provide lower revenues to the Company as the master franchisees are responsible for managing certain necessary services (such as training, quality assurance, reservations and marketing) to support...

  • Page 13
    12

  • Page 14
    ... brands except Cambria Suites, MainStay Suites and Suburban Extended Stay Hotel through Choice Hotels Canada Inc. ("CHC") a joint venture owned 50% by us and 50% by InnVest Management Holdings Ltd. CHC is one of the largest lodging organizations in Canada with 303 of our franchised properties open...

  • Page 15
    ... of our Comfort, Quality and Sleep brands in India. Furthermore, Choice BV entered into a 20-year master franchise agreement with Inovoa Hotels and Resorts Private Limited ("IHR") to franchise our Clarion brand in India. As of December 31, 2011, Choice BV/CHN and IHR had 25 and 2 properties open and...

  • Page 16
    Table of Contents The following table summarizes Choice's non-domestic franchise system as of December 31, 2011: Comfort Comfort Econo Suites Quality Clarion Sleep Tscend Mainstay Suburban Lodge Rodeway Total Australia Canada Czech Republic France Germany India Italy Jordan Malaysia ...

  • Page 17
    ... as of and for the year ended December 31, 2011: Tpproved for Development Hotels Open and Operational Hotels Rooms Rooms Tdditions Repositionings Terminations Comfort Comfort Suites Quality Ascend Collection Clarion Sleep Inn MainStay Suites Econo Lodge Rodeway Inn 1,953 628 1,417 63 327...

  • Page 18
    ...-time affiliation fee; a royalty fee; and a marketing and reservation system fee. In prior years, the Company's standard franchise agreements contained a separate marketing and reservation fee for the Cambria Suites, Comfort, Quality, Clarion and Sleep Inn brands. Since 2007, the Company's standard...

  • Page 19
    ...as well as third party call center service providers. Reservation agents trained on the reservation system can match each caller with a Choice-branded hotel meeting the caller's needs. Our CRS provides a data link to our franchised properties as well as to airline reservation systems such as Amadeus...

  • Page 20
    ...lower cost, more targeted marketing campaigns to our consumers, deliver incremental business to our franchised hotels and is an important selling point for our franchise sales personnel. Choice Privileges members contribute over a quarter of the Company's domestic gross room revenues and the program...

  • Page 21
    ... service marks Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria Suites, Suburban Extended Stay Hotel, Ascend Collection, Choice Privileges and related marks and logos are material to our business. We, directly...

  • Page 22
    ... agreements. We consider our relations with our employees to be good. EXECUTIVE OFFICERS OF CHOICE HOTELS INTERNTTIONTL, INC. The name, age, title, present principal occupation, business address and other material occupations, positions, offices and employment of each of the executive officers...

  • Page 23
    ... from fees based on room revenues at hotels franchised under our brands. As such, our business is subject, directly or through our franchisees, to the following risks common in the lodging and franchising industry, among others: • changes in the number of hotels operating under franchised brands...

  • Page 24
    ... lodging franchisors based primarily on the value and quality of each franchisor's brand and services, the extent to which affiliation with that franchisor may increase the hotel operator's reservations and profits, and the franchise fees charged. Demographic, economic or other changes in markets...

  • Page 25
    ... hotels to a Choice brand, include, among others: the availability of hotel management, staff and other personnel; the cost and availability of suitable hotel locations; the availability and cost of capital to allow hotel owners and developers to fund investments; cost effective and timely...

  • Page 26
    ... and guaranty support for third parties may result in exposure to losses. As a result of our program to make financial support available to developers in the form of loans, credit support, such as guarantees, and equity investments, we are subject to investment and credit risks that we would...

  • Page 27
    ... and financial condition of our franchisees and result in declines in the number of franchised properties and/or franchise fees and other revenues derived from our franchising business. In addition, at times, the Company provides financial support to our franchisees via notes and guarantees. Factors...

  • Page 28
    ... our senior management will be able to successfully execute and implement our growth and operating strategies. Our international operations are subject to political and monetary risks. We have franchised properties open and operating in over 30 countries and territories outside of the United States...

  • Page 29
    ... levels of government. Among the options have been a range of proposals included in the tax and budget policies recommended to the United States Congress by the United States Department of the Treasury to modify the federal tax rules related to the imposition of United States federal corporate...

  • Page 30
    ... or lawsuits. Our business requires the collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our employees and customers as such information is entered into, processed, summarized, and reported by the...

  • Page 31
    ... executive offices are located at 10750 Columbia Pike, Silver Spring, MD 20901. The offices are leased from a third party. We lease one office building and own a second office building in Phoenix, AZ, which houses our reservation and property systems' information technology operations. The Company...

  • Page 32
    ... of Choice Hotels International, Inc. common stock made by the Company during the year ended December 31, 2011. Total Number of Shares Purchased as Part of Publicly Tnnounced Plans or Programs(1),(2) Maximum Number of Shares that may yet be Purchased Under the Plans or Programs, End of Period Month...

  • Page 33
    Table of Contents (2) During the year ended December 31, 2011, the Company redeemed 67,426 shares of common stock from employees to satisfy minimum tax-withholding requirements related to the vesting of restricted stock grants. These redemptions were not part of the board repurchase authorization....

  • Page 34
    ... Lines Index * $100 invested on 12/31/06 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved 12/06 6/07 12/07 6/08 12/08 6/09 12/09 6/10 12/10 6/11 12/11 Choice...

  • Page 35
    ... include Comfort Inn, Comfort Suites, Quality, Clarion, Ascend Collection, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel and Cambria Suites (collectively, the "Choice brands"). The Company's domestic operations are conducted solely through direct franchising...

  • Page 36
    ...hotel rooms in the various hotel lodging price categories; growth in the number of hotel rooms under franchise; occupancy and room rates achieved by the hotels under franchise; the effective royalty rate achieved; the level of franchise sales and relicensing activity; and our ability to manage costs...

  • Page 37
    ... and services designed to increase business delivery to and/or reduce operating and development costs for our franchisees. These products and services include national marketing campaigns, a central reservation system, property and yield management systems, quality assurance standards and qualified...

  • Page 38
    ... borrowing rates on the fixed rate long-term debt issued in the third quarter of 2010, a $0.6 million decline in the fair value of investments held in the Company's non-qualified benefit plans compared to a $2.1 million appreciation in the fair value of these investments in the prior year period...

  • Page 39
    ... financial results for the years ended December 31, 2011 and 2010 are as follows: 2011 2010 (In thousands, except per share amounts) REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Hotel operations Other Total revenues $ 247,240 13,557...

  • Page 40
    ... operating income which exclude employee termination benefits for the years ended December 31, 2011 and 2010 . Adjusted net income and adjusted EPS for the year ended December 31, 2011 also exclude a $1.8 million loss on assets held for sale resulting from the Company reducing the carrying amount...

  • Page 41
    ... 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...

  • Page 42
    ...development declined 21% from the prior year primarily due to the opening of 256 franchised units during the year ended December 31, 2011 coupled with a 7% decline in the execution of new franchise agreements due to the difficult credit environment. The Company had an additional 82 franchised hotels...

  • Page 43
    ...679 rooms for 2010. Conversion hotel franchise executed contracts totaled 277 representing 23,973 rooms for the year ended December 31, 2011 compared to 298 agreements representing 25,626 rooms for the year ended December 31, 2010 . Domestic initial fee revenue, included in the initial franchise and...

  • Page 44
    ...a developer incentive program in June 2011, the Company executed fewer franchise agreements in the current year that included incentives. Revenues associated with agreements including incentives are deferred and recognized when the incentive criteria are met or the agreement is terminated, whichever...

  • Page 45
    ... 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 number of hotel rooms in our franchise system could result in the generation of insufficient funds to recover marketing and reservation advances...

  • Page 46
    ... due to the issuance of fixed rate long-term debt and lower appreciation in the fair value of investments held in the Company's nonqualified employee benefits plans compared to the prior year period. Summarized financial results for the years ended December 31, 2010 and 2009 are as follows: 2010...

  • Page 47
    ... and adjusted operating income which exclude employee termination benefits for 2010 and 2009 as well as a curtailment loss related to freezing the benefits under the Company's Supplemental Executive Retirement Plan ("SERP") and a loss related to a sublease of office space and the impairment charges...

  • Page 48
    ... fair value of investments held in the Company's nonqualified 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...

  • Page 49
    .... A summary of the domestic hotels and available rooms at December 31, 2010 and 2009 by brand is as follows: December 31, 2010 Hotels December 31, 2009 Variance Rooms Hotels Rooms Hotels % Rooms % Comfort Inn Comfort Suites Sleep Quality Clarion Econo Lodge Rodeway MainStay 1,435 623 398...

  • Page 50
    ...197 rooms for 2009. Conversion hotel franchise executed contracts totaled 298 representing 25,626 rooms for the year ended December 31, 2010 compared to 313 agreements representing 25,959 rooms for the year ended December 31, 2009. Domestic initial fee revenue, included in the initial franchise and...

  • Page 51
    ... million reported for the same period of the prior year. Marketing and Reservations : The Company's franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. The fees, which are based on a percentage of the franchisees' gross room revenues, are...

  • Page 52
    ... year ended December 31, 2011 compared to $144.9 million for the same period of 2010. Cash flow from operating activities declined from the prior year primarily due to the timing of upfront payments from the Company's co-branded credit card partner related to the Company's loyalty program resulting...

  • Page 53
    ...in the next twelve months. Financing Activities Financing cash flows relate primarily to the Company's borrowings, treasury stock purchases and dividends. Debt On February 24, 2011, the Company entered into a new $300 million senior unsecured revolving credit agreement (the "Revolver"), with Wells...

  • Page 54
    ...a result of these measures, during the year ended December 31, 2011, the Company recorded a $6.6 million charge in SG&A and marketing and reservation expenses related to termination benefits provided to employees separating from service with the Company. These expenses include $5.8 million of salary...

  • Page 55
    ... system fees is charged to marketing and reservation expenses. Initial franchise and relicensing fees are recognized, in most instances, in the period the related franchise agreement is executed because the initial franchise and relicensing fees are non-refundable and the Company is not required to...

  • Page 56
    ... offered by credit card companies. The points, which we accumulate and track on the members' behalf, may be redeemed for free accommodations or other benefits. We provide Choice Privileges as a marketing program to franchised hotels and collect a percentage of program members' room revenue from...

  • Page 57
    ...by comparing the market value of the underlying assets to the carrying value of the outstanding notes. In addition, the Company evaluates the property's operating performance, the borrower's compliance with the terms of the loan and franchise agreements, and all related personal guarantees that have...

  • Page 58
    ...information regarding the Company's unrecognized tax benefits is provided in Note 18 to Consolidated Financial Statements. Pension, Profit Sharing and Incentive Plans The Company sponsors two non-qualified retirement savings and investment plans for certain employees and senior executives. Employee...

  • Page 59
    ...Qualified Plan held shares of the Company's common stock with a market value of $0.9 million at both December 31, 2011 and 2010 . The Company is subject to risk from changes in debt and equity prices from our non-qualified retirement savings plan investments in debt securities and common stock. The...

  • Page 60
    ..., 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...

  • Page 61
    Table of Contents Item 8. Financial Statements and Supplementary Data. TTBLE OF CONTENTS Report of Independent Registered Public Accounting Firm 61 62 67 Consolidated Financial Statements Notes to Consolidated Financial Statements 60

  • Page 62
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 63
    ...Years Ended December 31, 2011 2010 2009 (In thousands, except per share amounts) REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Hotel... (gains) and losses Equity in net income of affiliates Other income and expenses, net 13,806 158,057...

  • Page 64
    ...12,094 22,633 194,796 51,992 66,005 Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Receivable-marketing and reservation fees Investments, employee benefit plans, at fair value Deferred income taxes Other assets 17,255 54...

  • Page 65
    ...-cash interest and other (income) loss Dividends received from equity method investments Equity in net income of affiliates 8,342 3,547 9,304 (1,711) 1,155 (1,226) (9,229) Changes in assets and liabilities, net of acquisitions: Receivables Receivable-marketing and reservation fees, net Accounts...

  • Page 66
    Capital lease obligation $ $ $ $ 908 Issuance of restricted shares of common stock Issuance of performance vested restricted stock units 9,604 Issuance of treasury stock to employee stock purchase plan - 739 $ $ $ $ 2,538 9,233 256 625 $ $ $ $ - 7,150 462 622 The accompanying notes are an...

  • Page 67
    ...1,283 165 2,213 3,805 102,055 2,213 - 14,992 - - 2,817 Exercise of stock options Issuance of restricted stock and PVRSU Cancellation of restricted stock Stock compensation related to stock options Amortization of deferred compensation related to restricted (7,612) 1,336 2,817 7,609 (1,335...

  • Page 68
    ...300) Stock compensation related to stock options Tmortization of deferred compensation related to restricted stock grants and PVRSU - - - - (1,681,324 ) 21,096 - - (17) 8,482 - - - - $ - - (53,397) 739 $ - (43,506) 8,482 Dividends declared - - - $ (43,506) Treasury purchases Issuance...

  • Page 69
    ... outside the United States under the brand names: Comfort Inn ®, Comfort Suites ®, Quality® , Clarion®, Sleep Inn ®, Econo Lodge ®, Rodeway Inn ®, MainStay Suites ®, Suburban Extended Stay Hotel ®, Cambria Suites ® and Ascend Collection®. Our direct lodging property real estate exposure...

  • Page 70
    ... affiliated partners' programs, such as those offered by credit card companies. The points, which the Company accumulates and tracks on the members' behalf, may be redeemed for free accommodations or other benefits. The Company provides Choice Privileges as a marketing program to franchised hotels...

  • Page 71
    ... at December 31, 2011. The Company includes advertising costs primarily in marketing and reservation expenses on the accompanying consolidated statements of income. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less at the...

  • Page 72
    ... date and translates income statement accounts using the weighted average exchange rate for the period. The Company includes translation adjustments from foreign exchange and the effect of exchange rate changes on inter-company transactions of a long-term investment nature as a separate component of...

  • Page 73
    ... for the allowance for credit losses, credit quality information, impaired loan information, modification information, non-accrual and past-due information. The disclosures as of the end of a reporting period are required for interim and annual reporting. The Company has updated its disclosures...

  • Page 74
    ...22,633 $ 11,089 8,070 3,966 1,131 24,256 Land held for sale represents the Company's purchase of various parcels of real estate as part of its program to incent franchise development in strategic markets for certain brands. The Company has acquired this real estate with the intent to resell it to...

  • Page 75
    ...by comparing the market value of the underlying assets to the carrying value of the outstanding notes. In addition, the Company evaluates the property's operating performance, the borrower's compliance with the terms of the loan and franchise agreements, and all related personal guarantees that have...

  • Page 76
    ... credit standards, the Company may declare a default under the promissory note and commence collection efforts with respect to the full amount of the then-current outstanding principal and interest. In accordance with the terms of the promissory notes, the initial principal sum and related interest...

  • Page 77
    ...financial reporting purposes using the straight-line method. A summary of the ranges of estimated useful lives upon which depreciation rates are based follows: Computer equipment and software Buildings and improvements Furniture, fixtures and equipment Capital lease (telephone equipment) 3-5 years...

  • Page 78
    ... long-term franchise contracts. As of December 31, 2011 and 2010 , the unamortized balance relates primarily to the Econo Lodge, Suburban Extended Stay Hotel and Choice Hotels Australasia franchise rights. The franchise rights are being amortized over lives ranging from 5 to 17 years. Amortization...

  • Page 79
    .... The franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available. As a result, expenditures by the Company in support of marketing and reservation services in excess of available revenues are...

  • Page 80
    ...4,631 1,052 35 67,322 10. Other Non-Current Liabilities Other non-current liabilities consist of the following at: December 31, 2011 (In thousands) 2010 Uncertain tax positions Deferred rental expenses Deferred revenue Termination benefits (see note 26) Other liabilities Total $ 6,499 $ 7,751...

  • Page 81
    ..., stock repurchases, dividends, investments and other permitted uses. At December 31, 2011, no amounts were outstanding under the Revolver. On August 25, 2010, the Company completed a $250 million senior unsecured note offering ("the Senior Notes") at a discount of $0.6 million , bearing a coupon...

  • Page 82
    ...investments in certain non-domestic lodging franchise companies that conduct franchise operations for the Company's brands under master franchise relationships. Revenues generated by foreign operations, including royalty, marketing and reservations system fees and other revenues, for the years ended...

  • Page 83
    ..., marketing and reservation system fees and other revenues from CHC and CHIL. 14. Pension Plan The Company sponsors an unfunded non-qualified defined benefit plan ("SERP") for certain senior executives. The Company accounts for the SERP in accordance with applicable guidance which requires the...

  • Page 84
    ... pension cost for the year ended December 31, 2012 are as follows: (In thousands) Service cost Interest cost Amortization Prior service cost Loss Net periodic benefit cost $ - 526 - - 128 $ 654 The SERP projected benefit obligation was included as a liability in the current and long-term...

  • Page 85
    ... diversified investment options. Effective January 1, 2010, the Moody's Average Corporate Bond Rate Yield Index plus 300 basis points is no longer an investment option for salary deferrals made on compensation earned after December 31, 2009. The Company recorded current and long-term deferred...

  • Page 86
    ... compensation plans and those recorded in cash and cash equivalents. Level 3: Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument. The Company does not currently have...

  • Page 87
    ...,634 The provision for income taxes, classified by the timing and location of payment, was as follows: Years ended December 31, 2011 2010 2009 in thousands Current tax expense Federal State Foreign Deferred tax (benefit) expense Federal State Foreign Income taxes $ 40,642 $ 2,629 1,712 2,151...

  • Page 88
    ...rate if resolved in the Company's favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits: 2011 2010 (In thousands) 2009 Balance, January 1 Changes for tax positions of prior years Increases for tax positions related to the current year...

  • Page 89
    ...-pricing model with the following weighted average assumptions: 2011 Risk-free interest rate Expected volatility Expected life of stock option Dividend yield Requisite service period Contractual life Weighted average fair value of options granted (per option) 2010 2009 $ 2.10% 39.51% 4.4 years...

  • Page 90
    ... by the market price of the Company's common stock on the date of grant. The vesting of these stock awards is contingent upon the Company achieving performance targets at the end of specified performance periods and the employees' continued employment. The performance conditions affect the number of...

  • Page 91
    ...conditions contained in the stock awards by 35%, an additional 5,123 shares were earned and issued. All PVRSU units forfeited during the year ended December 31, 2009 were related to employee terminations. A summary of stock-based award activity as of December 31, 2011, 2010 and 2009 and the changes...

  • Page 92
    ... conditions contained in PVRSUs granted in prior periods during the year ended December 31, 2009. The components of the Company's pretax stock-based compensation expense and associated income tax benefits are as follows for the years ended December 31: (in millions) 2011 2010 2009 Stock options...

  • Page 93
    ... with the termination of certain Company officers, stock option and restricted stock compensation expense for the year ended December 31, 2011 includes an additional $0.2 million and $0.5 million , respectively of expense related to the acceleration of award vesting conditions. Stock option and...

  • Page 94
    ...coupon to be set at market interest rates. The interest rate swap agreement was designated as a cash flow hedge under the guidance for derivatives and hedging. In August 2010, upon issuance of the related fixed-rate debt, the Company terminated and settled the interest rate swap agreement for a cash...

  • Page 95
    ... stock options, respectively. Stock options are included in the diluted earnings per share calculation using the treasury stock method and average market prices during the period, unless the stock options would be anti-dilutive. For years ended December 31, 2011, 2010, and 2009, the Company...

  • Page 96
    ...to Choice Hotels International, Inc. from subsidiaries that do not guarantee the Senior Notes. As a result of the guarantee arrangements, the following condensed consolidating financial statements are presented. Investments in subsidiaries are accounted for under the equity method of accounting. 94

  • Page 97
    ... Income For the Year Ended December 31, 2011 (In thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other items, net Total revenues $ 219,699...

  • Page 98
    ... Income For the Year Ended December 31, 2010 (In thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other items, net Total revenues $ 205,668...

  • Page 99
    ... Statement of Income For the Year Ended December 31, 2009 (In thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other items, net $ Total...

  • Page 100
    ...and cash equivalents Receivables $ Other current assets Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Investments, employee benefit plans, at fair value Investment in and advances to affiliates Receivable, marketing and...

  • Page 101
    ...and cash equivalents Receivables $ Other current assets Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Investments, employee benefit plans, at fair value Investment in and advances to affiliates Receivable, marketing and...

  • Page 102
    ... (564) plans Proceeds from sales of investments, employee benefit plans Other items, net Net cash used in investing activities (12,019) (23,804) CTSH FLOWS FROM FINTNCING TCTIVITIES: Net borrowings (repayments) pursuant to revolving credit facility Principal payments on long-term debt Proceeds...

  • Page 103
    ..., employee benefit plans Other items, net - - (474) (1,948) 1,649 144 - - 11 (769) 1,649 (319) Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Proceeds from the issuance of long-term debt Net repayments pursuant to revolving credit facility Principal payments on long...

  • Page 104
    ... under its franchise agreements to provide marketing and reservation services appropriate for the successful operation of its systems. These services do not represent separate reportable segments as their operations are directly related to the Company's franchising business. The revenues received...

  • Page 105
    ... 31, 2011, 2010 and 2009 , respectively. All other long-lived assets of the Company are associated with domestic activities. 25. Related Party Transactions Effective October 15, 1997, Choice Hotels International, Inc. which included both a franchising business and owned hotel business, separated...

  • Page 106
    ...terms of the agreement, the related party is permitted to utilize up to 50% of the designated employee's overall working time and in return is required to reimburse the Company for 50% of the Company's overall costs associated with the individual's employment. During the year ended December 31, 2011...

  • Page 107
    ... feet of office space in a to-be constructed office building located in Rockville, Maryland (the "Building"). The Company has an option to extend the Lease beyond the initial term for up to 15 years at then current fair market rent. As part of the consideration to the Company for execution of the...

  • Page 108
    ...income reflects gains and losses related to the Company's investments held in non-qualified retirement plans and are subject to market conditions. Year Ended December 31, 2011 results: • • Termination benefits: The Company's operating results include employee termination benefits for the first...

  • Page 109
    ... federal tax benefits, $0.4 million of foreign tax credits for open tax years and an adjustment of $1.9 million for unrecognized tax positions. • Year Ended December 31, 2010 results: • • Termination benefits: The Company's operating results include employee termination benefits for the...

  • Page 110
    ... subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making...

  • Page 111
    ... Owners and Management and Related Stockholder Matters. The required equity compensation plan information table is set forth herein and all other required information will be set forth under "Security Ownership of Certain Beneficial Owners and Management" and "Board of Directors" in the Company...

  • Page 112
    ... report. Schedule II-Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable. 3. Exhibit Exhibits Number Description 3.01(a) 3.02(j) 4.01(o) Restated Certificate of Incorporation of Choice Hotels Franchising, Inc. (renamed Choice Hotels International...

  • Page 113
    ... Agreement between the Company and David White, dated August 1, 2011 Valuation and Qualifying Accounts Code of Ethics Subsidiaries of Choice Hotels International, Inc. Consent of PricewaterhouseCoopers LLP 21.01* 23.01* 31.1* 31.2* 32* Certification of Chief Executive Officer Pursuant to Rule...

  • Page 114
    ... an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K dated August 1, 2011, filed August 4, 2011. (s) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2002...

  • Page 115
    ... Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHOICE HOTELS INTERNATIONAL, INC. By: /s/ STEPHEN P. JOYCE Stephen P. Joyce President and Chief Executive Officer Dated: February 29, 2012 113

  • Page 116
    ... Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...Senior Vice President, Chief Financial Officer & Treasurer (Principal Financial Officer) /s/ SCOTT E. OAKSMITH Scott E. Oaksmith Controller (Principal Accounting Officer) February 29, 2012...

  • Page 117
    Exhibit 13.01 CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars) Balance at Beginning of Description Accounts Receivable: Year ended December 31, 2011 Allowance for Doubtful Accounts Year ended December 31, 2010 Allowance for ...

  • Page 118
    ... Choice Hotels Internwtionwl Services Corp., w Delwwwre corporwtion Choice Internwtionwl Hospitwlity Services, Inc., w Delwwwre corporwtion Choice Hotels Licensing Co. B.V., w Netherlwnds compwny Dry Pocket Rowd Hotel Development, LLC, w Delwwwre limited liwbility compwny Pwrk Lwne Drive Hotel...

  • Page 119
    ..., No. 333-142676, No. 333-41357, No. 333-67737 and No. 333-106218) and norm S-3ASR (No. 333-168914) of Choice Hotels International, Inc. of our report dated nebruary 29, 2012 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial...

  • Page 120
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2012 /S / STEPHEN P. JOYCE Stephen P. Joyce President and Chief Executive Officer

  • Page 121
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2012 /S / DAVID L. WHITE David L. White Senior Vice President, Chief Financial Officer...

  • Page 122
    ...EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER The undersigned hereby cerdify dhad dhe Annual Repord on Form 10-K for dhe year ended December 31, 2011 filed by Choice...29, 2012 /S/ STEPHEN P. JOYCE Stephen P. Joyce President and Chief Executive Officer /S/ DAVID L. WHITE David L. White Senior Vice ...

  • Page 123