Comfort Inn 2013 Annual Report Download - page 22

Table of Contents
constructing their properties prior to or after joining the system. Department personnel assist franchisees in meeting our brand specifications by providing
technical expertise and cost-savings suggestions.
Competition
Competition among franchise lodging chains is intense in attracting potential franchisees, retaining existing franchisees and generating reservations for
franchisees. Franchise contracts are typically long-term in nature, but most allow the hotel owner to opt-out of the agreement at mutually agreed upon
anniversary dates.
We believe that hotel operators choose lodging franchisors based primarily on the value and quality of each franchisor’s brand(s) and services and the
extent to which affiliation with that franchisor may increase the franchisee’s reservations and profits. We also believe that hotel operators select a franchisor in
part based on the franchisor’s reputation among other franchisees and the success of its existing franchisees.
Since our franchise system revenues are based on franchisees’ gross room revenues, our prospects for growth are largely dependent upon the ability of
our franchisees to compete in the lodging market, our ability to convert competitor franchises and independent hotels to our brands and the ability of existing
and potential franchisees to obtain financing to construct new hotels.
The ability of a hotel to compete may be affected by a number of factors, including the location and quality of the property, the number and quality of
competing lodging facilities nearby, its affiliation with a recognized name brand and general regional and local economic conditions. We believe the effect of
local economic conditions on our results is substantially reduced by our range of products and room rates and the geographic diversity of our franchised
properties, which are open and operating in 50 states, the District of Columbia and over 30 countries and territories outside the United States.
We believe that our focus on core business strategies, combined with our financial strength and size, geographic diversity, scale and distribution will
enable us to remain competitive.
Service Marks and Other Intellectual Property
The 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 Hotel Collection, Choice Privileges, SkyTouch Technology and related marks and logos are
material to our business. We, directly and through our franchisees, actively use these marks. All of the material marks are registered with the United States
Patent and Trademark Office. In addition, we have registered certain of our marks with the appropriate governmental agencies in over 100 countries where we
are doing business or anticipate doing business in the foreseeable future. We seek to protect our brands and marks throughout the world, although the strength
of legal protection available varies from country to country. Depending on the jurisdiction, trademarks and other registered marks are valid as long as they are
in use and/or their registrations are properly maintained and they have not been found to have become generic.
Seasonality
The hotel industry is seasonal in nature. For most hotels, demand is lower in December through March than during the remainder of the year. Our
principal source of revenues is franchise fees based on the gross room revenues of our franchised properties. The Company’s franchise fee revenues and
operating income reflect the industry’s seasonality and historically have been lower in the first quarter than in the second, third or fourth quarters.
Regulation
The Federal Trade Commission (the "FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico)
regulate the sale of franchises. The FTC requires franchisors to make extensive disclosure to prospective franchisees but does not require registration. A
number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales. In addition, several states
have "franchise relationship laws" that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of
these agreements. While our franchising operations have not been materially adversely affected by such regulations, we cannot predict the effect of future
regulation or legislation.
Our franchisees are responsible for compliance with all laws and government regulations applicable to the hotels they own or operate. The lodging
industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverage (such
as health and liquor license laws), building and zoning requirements and laws governing employee relations, including minimum wage requirements,
overtime, working conditions and work permit requirements.
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