Comfort Inn 2014 Annual Report Download

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Table of Contents
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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 ý 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 ý
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 ý 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 ý 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 ý
The aggregate market value of common stock of Choice Hotels International, Inc. held by non-affiliates was $1,494,600,978 as of June 30, 2014 based upon a closing price of
$47.11 per share.
The number of shares outstanding of Choice Hotels International, Inc.’s common stock at February 17, 2015 was 57,354,284.

Table of contents

  • Page 1
    ...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 ý The aggregate market value of common stock of Choice Hotels International, Inc. held by non-affiliates was $1,494,600,978 as of June 30, 2014...

  • Page 2
    ... DOCUMENTS INCORPORTTED BY REFERENCE. 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 24, 2015, are incorporated by reference under Part...

  • Page 3
    ...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 128 128 128 128 128 Market...

  • Page 4
    ...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® hotels & suites, and Ascend...

  • Page 5
    ... to manage costs. The number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the Company's results because our royalty and marketing and reservation system fees are primarily based upon room revenues or the number of rooms at franchised hotels...

  • Page 6
    ... 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 fee. A franchisor's revenues are dependent on the number of rooms in its system and the top-line performance of those hotels. Earnings...

  • Page 7
    ... US Lodging Industry Trends: 2000 - 2014 Tverage Daily Room Rates (TDR) Change in TDR Versus Prior Year Change in CPI Versus Prior Year Year Occupancy Rates Revenue Per Tvailable Room (RevPTR) New Rooms Tdded (Gross) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 63...

  • Page 8
    .... The large franchise lodging chains, including us, generally provide a number of support services to hotel operators designed to improve the financial performance of their properties including central reservation and property management systems, marketing and advertising programs, training and...

  • Page 9
    ... 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 during periods...

  • Page 10
    ... (or 10 th , as applicable) year. Our franchisees operate domestically under one of eleven Choice brand names: Comfort Inn, Comfort Suites, Cambria hotels and suites, Quality, Clarion, Ascend Hotel Collection, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites and Suburban Extended Stay Hotel. 10

  • Page 11
    .... Comfort Suites hotels offer a complimentary hot breakfast, fitness center, business center, and free high-speed internet access, as well as a marketplace with snacks and beverages for purchase. The brand competes with Hampton and Fairfield Inn. Sleep Inn: Sleep Inn is a new construction brand that...

  • Page 12
    ... 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 is the premier brand...

  • Page 13
    ... daily room rate (ADR) RevPAR MTINSTTY SUITES DOMESTIC SYSTEM Number of properties, end of period Number of rooms, end of period Royalty fees ($000) Average occupancy percentage Average daily room rate (ADR) RevPAR ECONO LODGE DOMESTIC SYSTEM Number of properties, end of period Number of rooms, end...

  • Page 14
    ... grow and hotel owners seek the economies of centralized reservations systems and marketing programs. We believe that international franchise operations will provide a significant long-term growth opportunity for the Company and as a result we have embarked on a multi-year investment in information...

  • Page 15
    ... lodging organizations in Canada with 309 of our franchised properties open and operating as of December 31, 2014. The Company conducts direct franchising operations for its extended stay and Cambria Suites brands in Canada through its wholly-owned subsidiary, Choice Hotels International Licensing...

  • Page 16
    ... rights to the Comfort, Quality, Sleep and Clarion brands. The agreement was executed in 1994 for a term of twenty years. In May 2014, we renewed the master franchise agreement for an additional 20-year term through May of 2034, with certain rights by both parties to terminate the contract early...

  • Page 17
    ... table summarizes Choice's non-domestic franchise system as of December 31, 2014: Comfort Suites Econo Lodge Comfort Quality Clarion Sleep Tscend Mainstay Suburban Rodeway Total Tustralia Canada Czech Republic France Germany India Italy Malaysia Mexico New Zealand Portugal Singapore...

  • Page 18
    ...both sales managers as well as franchise sales directors. This organization emphasizes the benefits of affiliating with the Choice system, our commitment to improving hotel profitability, our central reservation delivery services, our marketing and customer loyalty programs, our training and support...

  • Page 19
    ... 2014 Marketing and Reservation System Fees (3) Brand Initial Fee Per Room/Minimum Royalty Fees (3) Cambria hotel & suites Comfort Inn Comfort Suites Quality Inn Ascend Hotel Collection Clarion Sleep Inn MainStay Suites Econo Lodge Rodeway Inn Suburban Extended Stay Hotel _____ (1) Royalty rate...

  • Page 20
    ...program, Choice Privileges, for all of the Choice brands to attract and retain travelers by rewarding frequent stays with points towards free hotel stays and other rewards. Choice Privileges participants earn points redeemable for free stays in Choice brand properties. The Company also offers guests...

  • Page 21
    ...We also design our marketing campaigns to drive reservation traffic directly to our proprietary channels to minimize the impact that third party reservation sites may have on the pricing of our inventory. In addition, we have introduced programs such as our Best Internet Rate Guarantee program which...

  • Page 22
    ...Intellectual Property The service marks Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria hotels & suites, Suburban Extended Stay Hotel, Ascend Hotel Collection, Choice Privileges, SkyTouch Technology and related...

  • Page 23
    ... that have several hotel related software products, as well as companies that offer a single product or service aimed at a particular niche. In addition, our products and services compete with room reservation systems developed and marketed by major hotel chains for their corporate-owned operations...

  • Page 24
    ... material occupations, positions, offices and employment of each of the executive officers of the Company as of December 31, 2014 are set forth below. The business address of each executive officer is 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850. Name Tge Position Stewart W. Bainum...

  • Page 25
    ... 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 26
    ...the number of hotels franchised under the Choice brands. We compete with other lodging companies for franchisees. As a result, the terms of new franchise agreements may not be as favorable as our current franchise agreements. For example, competition may require us to reduce or change fee structures...

  • Page 27
    ..., we are currently planning to expand our international operations in many of the markets where we currently operate, as well as in selected new markets. This may require considerable management time as well as start-up expenses for market development before any significant revenues and earnings are...

  • Page 28
    ... new owners will choose to affiliate with our brands. The hotel industry is highly competitive. Competition for hotel guests is based primarily on the level of service, quality of accommodations, convenience of locations and room rates. Our franchisees compete for guests with other hotel properties...

  • Page 29
    ... is obligated to use the system fees it collects from the current franchisees comprising its various hotel brands to provide system services, such as marketing and reservations services, appropriate to fulfill our obligations under the Company's franchise agreements. In discharging our obligation to...

  • Page 30
    ... of non-United States entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, revenues from international jurisdictions typically are earned in local currencies, which subjects us to risks associated with currency fluctuations...

  • Page 31
    ... 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 32
    ...could force changes in our marketing strategies. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our revenues. We also obtain access to potential customers from travel service providers and other companies with whom...

  • Page 33
    ... risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Item 1B. None. Unresolved Staff Comments. Item 2. Properties. Our principal executive offices are located at 1 Choice Hotels Circle, Suite 400...

  • Page 34
    ... II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The shares of the Company's common stock are listed and traded on the New York Stock Exchange. The following table sets forth information on the high and low sales prices of the...

  • Page 35
    ... of Choice Hotels International, Inc. common stock made by the Company during the year ended December 31, 2014. 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 36
    ... RETURN PERFORMTNCE The graph below compares the cumulative 5-year total return of holders of Choice Hotels International, Inc.'s common stock with the cumulative total returns of the NYSE Composite index and the S&P Hotels, Resorts & Cruise Lines index. The graph tracks the performance of a $100...

  • Page 37
    ... 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information included elsewhere in this annual report. Company results (in millions, except per share data) Ts of and for the year ended December 31, 2010 2011 2012 2013 2014 Total...

  • Page 38
    ... States. Our brand names include Comfort Inn, Comfort Suites, Quality, Clarion, Ascend Hotel Collection, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel and Cambria hotels & suites (collectively, the "Choice brands"). The Company's domestic franchising operations...

  • Page 39
    ...; the level of franchise sales and relicensing activity; and our ability to manage costs. The number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the Company's results because our fees are based upon room revenues or the number of rooms at...

  • Page 40
    ... year ended December 31, 2014, the Company paid cash dividends totaling approximately $43.5 million. We expect to continue to pay dividends in the future, subject to declaration by our board of directors as well as future business performance, economic conditions, changes in income tax regulations...

  • Page 41
    ... and facilitates comparisons between the Company and its competitors. Calculation of Franchising Revenues Year Ended December 31, (in thousands) 2014 2013 2012 Total Revenues Less Adjustments: Marketing and reservation system revenues SkyTouch division Franchising Revenues $ 757,970 (412,619...

  • Page 42
    ... of Tdjusted EBITDT Year Ended December 31, (in thousands) 2014 2013 2012 Income from continuing operations, net of income taxes Income taxes Interest expense Interest income Loss on extinguishment of debt Other (gains) and losses Equity in net (income) loss of affiliates Depreciation and...

  • Page 43
    ... value of investments held in the Company's non-qualified benefit plans during the year ended December 31, 2014 compared to a $1.6 million appreciation in fair value during 2013. The decline in equity in net (income) loss of affiliates in 2014 compared to 2013 primarily reflects pre-opening costs of...

  • Page 44
    ... point increase in occupancy rates and a 3.0% increase in average daily rates. A summary of the Company's domestic franchised hotels operating information for the years ending December 31, 2014 and 2013 is as follows: 2014* Tverage Daily Rate Comfort Inn Comfort Suites Sleep Quality Clarion Econo...

  • Page 45
    ...units from 243 for the year ended December 31, 2013 to 261 for the year ended December 31, 2014. The increase in net terminations is primarily related to the removal of hotels for non-compliance with the Company's rules, regulations and standards as well as non-payment of franchise fees. In addition...

  • Page 46
    ...the number of franchise agreements executed. A summary of executed domestic franchise agreements by brand for the years ended December 31, 2014 and 2013 is as follows: 2014 New Construction Comfort Inn Comfort Suites Sleep Quality Clarion Econo Lodge Rodeway MainStay Suburban Ascend Hotel Collection...

  • Page 47
    ... development at December 31, 2014 and 2013 by brand is as follows: December 31, 2014 December 31, 2013 Conversion Variance New Construction Units % Units Total % Conversion Comfort Inn Comfort Suites Sleep Quality Clarion Econo Lodge Rodeway MainStay Suburban Ascend Hotel Collection Cambria New...

  • Page 48
    ... franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. The fees, which are primarily based on a percentage of the franchisees' gross room revenues, are used exclusively by the Company for expenses associated with providing franchise services...

  • Page 49
    ... Results Summarized financial results for the years ended December 31, 2013 and 2012 are as follows: 2013 (in thousands) 2012 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other Total revenues OPERTTING EXPENSES: Selling, general and...

  • Page 50
    ... 80 basis point increase in occupancy rates and a 1.5% increase in average daily rates. A summary of the Company's domestic franchised hotels operating information for the years ending December 31, 2013 and 2012 is as follows: 2013* Tverage Daily Rate Comfort Inn Comfort Suites Sleep Quality Clarion...

  • Page 51
    ... 226 for the year ended December 31, 2012 to 243 for the year ended December 31, 2013. The increase in net terminations is primarily related to the removal of hotels for non-compliance with the Company's rules, regulations and standards as well as non-payment of franchise fees partially offset by...

  • Page 52
    ... of Contents A summary of executed domestic franchise agreements by brand for the years ended December 31, 2013 and 2012 is as follows: 2013 New Construction Comfort Inn Comfort Suites Sleep Quality Clarion Econo Lodge Rodeway MainStay Suburban Ascend Hotel Collection Cambria Total Domestic System...

  • Page 53
    ... of its corporate headquarters in April 2013 as well as an increase in amortization related to the issuance of forgivable notes receivable in conjunction with brand and development programs. Marketing and Reservations: The Company's franchise agreements require the payment of franchise fees, which...

  • Page 54
    ... costs. The increase in excess fees collected in 2013 compared to 2012 primarily reflects increased revenues related to growth in the number of units, RevPAR in the franchise system and the size of the Company's loyalty program. The decline in cumulative advances for marketing and reservation...

  • Page 55
    ... including the implementation of various development and brand incentive programs, the level of franchise sales and the timing of hotel openings. At December 31, 2014, the Company had commitments to extend an additional $42.5 million for these purposes provided certain conditions are met by its...

  • Page 56
    ... and interest payments from the redemption date to the date of maturity discounted to the redemption date on a semi-annual basis at the Treasury rate, plus 45 basis points. Senior Secured Credit Facility On July 25, 2012, the Company entered into a $350 million senior secured credit facility...

  • Page 57
    ...ii) a base rate plus a margin ranging from 100 to 325 basis points based on the Company's total leverage ratio. The New Credit Facility requires the Company to pay a fee on the undrawn portion of the New Revolver, calculated on the basis the average daily unused amount of the New Revolver multiplied...

  • Page 58
    ... 26, 2012, the Company's board of directors declared a special cash dividend in the amount of $10.41 per share or approximately $600.7 million in the aggregate, which was paid on August 23, 2012. The Company utilized the proceeds from the 2012 Senior Notes and the New Credit Facility for payment of...

  • Page 59
    ... During the year ended December 31, 2014, the Company repurchased 1.4 million of its common stock under the repurchase program at a total cost of $72.6 million. These shares were purchased from family members of the Company's largest shareholder. Through December 31, 2014, the Company repurchased 46...

  • Page 60
    ...arrangement. Marketing and Reservation Revenues and Expenses. The Company's franchise agreements require the payment of certain marketing and reservation system fees, which are used exclusively by the Company for expenses associated with providing franchise services such as national marketing, media...

  • Page 61
    ...those 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 62
    ...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 63
    ... ability to grow our franchise system; exposure to risks relating to development activities; fluctuations in the supply and demand for hotels rooms; the level of acceptance of alternative growth strategies we may implement; operating risks associated with our international operations; the outcome of...

  • Page 64
    ... savings plan investments in debt securities and common stock, which have a carrying value of $17.8 million at December 31, 2014, which we account for as trading securities. The Company will continue to monitor the exposure in these areas and make the appropriate adjustments as market conditions...

  • Page 65
    ... and Supplementary Data. TTBLE OF CONTENTS Report of Independent Registered Public Accounting Firms Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Cash Flow Consolidated Statements of Shareholders' Deficit...

  • Page 66
    ... respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Choice Hotels International, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2014, based on...

  • Page 67
    ...the Board of Directors and Shareholders of Choice Hotels International, Inc.: In our opinion, the consolidated balance sheet as of December 31, 2013 and the related consolidated statements of income, comprehensive income, shareholders' deficit and cash flows for each of two years in the period ended...

  • Page 68
    ... CHOICE HOTELS INTERNTTIONTL, INC. TND SUBSIDITRIES CONSOLIDTTED STTTEMENTS OF INCOME Years Ended December 31, 2014 2013 (in thousands, except per share amounts) 2012 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other Total revenues...

  • Page 69
    ... STTTEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2014 2013 2012 (in thousands) Net income Other comprehensive income (loss), net of tax: Amortization of loss on cash flow hedge Foreign currency translation adjustment Amortization of pension related costs, net of tax: Actuarial...

  • Page 70
    ... receivable Deferred income taxes Investments, employee benefit plans, at fair value Other current assets Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Advances, marketing and reservation activities Notes receivable, net...

  • Page 71
    ... to revolving credit facilities Principal payments on long-term debt Debt issuance costs Excess tax benefits from stock-based compensation Purchase of treasury stock Dividends paid Proceeds from exercise of stock options Net cash used in financing activities Net change in cash and cash equivalents...

  • Page 72
    Equity method investments Debt issuance costs Issuance of common stock pursuant to share based compensation plan Investment in property and equipment Acquisitions, long-term debt assumed $ $ $ $ $ 2,827 - 8,439 15,670 10,667 $ $ $ $ $ - - 9,798 658 - $ $ $ $ $ 3,900 6,500 9,517 - - The ...

  • Page 73
    ... 31, 2011 Net income Other comprehensive income Exercise of stock options Issuance of restricted stock Cancellation of restricted stock Share based compensation on equity awards Excess tax benefits on equity awards Dividends declared Treasury purchases Other Balance as of December 31, 2012 Net...

  • Page 74
    ... agreement is terminated, whichever occurs first. Royalty and marketing and reservation system revenues, which are typically based on a percentage of gross room revenues or the number of hotel rooms of each franchisee, are recorded when earned and realizable from the franchisee. Franchise fees based...

  • Page 75
    ...in 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 76
    ... 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 date of purchase to be cash equivalents. At December 31, 2014 and...

  • Page 77
    ... fair value of the investment. Fair value is based upon internally developed discounted cash flow models, third-party appraisals, and if appropriate, current estimated net sales proceeds from pending offers. If the estimated fair value is less than carrying value, management uses its judgment to...

  • Page 78
    ... for the years ended December 31, 2014, 2013 and 2012 were a $0.9 million loss, $0.4 million loss and a $0.1 million gain, respectively. Derivatives The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations...

  • Page 79
    ... financing to franchisees in support of the development of properties in strategic markets. Interest income associated with these notes receivable is reflected in the accompanying consolidated statements of income under the caption interest income. The Company expects the owners to repay the loans...

  • Page 80
    ... with the terms of the loan and franchise agreements, and all related personal guarantees that have been provided by the borrower. In addition, for properties under development, the Company evaluates the progress of development as compared to the project's development schedule and cost budget. For...

  • Page 81
    ... the year ended December 31, 2014, the borrower repaid the Company an amount equal to its original loan acquisition cost of $7.9 million and the Company does not expect to receive further payments. At December 31, 2013, the carrying amount of this loan, which was reported under senior mezzanine...

  • Page 82
    ...notes was $5.0 million, $4.2 million and $2.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. A summary of the Company's notes receivable and related allowances are as follows: December 31, 2014 (in thousands) Forgivable Notes Receivable Mezzanine & Other Notes Receivable...

  • Page 83
    ...of software development costs for the years ended December 31, 2014, 2013 and 2012 totaled $6.3 million, $3.8 million and $3.3 million, respectively. Depreciation has been computed for financial reporting purposes using the straight-line method. A summary of the ranges of estimated useful lives upon...

  • Page 84
    ...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 25 years. Amortization expense for the years ended December 31, 2014, 2013 and 2012 amounted to...

  • Page 85
    ... Company for prior year advances. Under the terms of these agreements, the Company has the contractually enforceable right to assess and collect from its current franchisees, fees sufficient to pay for the marketing and reservation services the Company has procured for the benefit of the franchise...

  • Page 86
    ... at December 31, 2014 and 2013, respectively, that the Company has determined to be variable interest entities ("VIEs"). These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Suites hotels in strategic markets. Based on an...

  • Page 87
    ... 50% The following tables present summarized financial information for all unconsolidated ventures in which the Company holds an investment that is accounted for under the equity method. Year Ended December 31, 2014 2013 (in thousands) 2012 Revenues $ Operating income (loss) Income from continuing...

  • Page 88
    ... and franchise fees Procurement services fees Other Total $ 57,757 6,439 1,936 250 66,382 $ 53,875 5,354 1,504 455 61,188 $ $ 11. Other Non-Current Liabilities Other non-current liabilities consist of the following at: December 31, 2014 (in thousands) 2013 Marketing and reservation liability...

  • Page 89
    ... underwriting discounts and commissions and other offering expenses, together with borrowings under the Company's senior credit facility, to pay a special cash dividend totaling approximately $600.7 million paid to stockholders on August 23, 2012. The Company's 2012 Senior Notes are guaranteed...

  • Page 90
    ..., by certain of the Company's domestic subsidiaries. The subsidiary guarantors currently include all subsidiaries that guarantee the obligations under the Company's Indenture governing the terms of its 2010 and 2012 Senior Notes. The New Credit Facility is secured by first priority pledges of...

  • Page 91
    ... the year ended December 31, 2012. The remaining unamortized deferred fees related to the Old Credit Facility are being amortized, on a straight-line basis through the maturity of the New Credit Facility. Borrowings under the Old Credit Facility bore interest at (i) a base rate plus a margin ranging...

  • Page 92
    ...portion of the advances that it expects to repay. The Company was in compliance with all current performance conditions as of December 31, 2014. 13. Pension Plan The Company sponsored an unfunded non-qualified defined benefit plan ("SERP") for certain senior executives. The Company accounted for the...

  • Page 93
    ... (gain) Benefit payments Settlement payments Projected benefit obligation, end of year $ 11,896 526 (85) (414) (11,923) - $ For the year ended December 31, 2012 the Company recorded $2.8 million for the expenses related to the SERP which are included in SG&A and marketing and reservation expense...

  • Page 94
    ... statements of income. The Company recorded investment gains (losses) during the years ended December 31, 2014, 2013 and 2012 of $(49) thousand, $0.3 million, and $1.2 million, respectively. In addition, the EDCP Plan held shares of the Company's common stock with a market value of $0.2 million and...

  • Page 95
    ...amounts may be possible and may not be a prudent management decision. 16. 401(k) Retirement Plan The Company sponsors a 401(k) retirement plan for all eligible employees. For the years ended December 31, 2014, 2013 and 2012, the Company recorded compensation expense of $3.5 million, $3.7 million and...

  • Page 96
    ...169,506 The provision for income taxes, classified by the timing and location of payment, was as follows: Year Ended December 31, 2014 2013 (in thousands) 2012 Current tax expense Federal State Foreign Deferred tax (benefit) expense Federal State Foreign Income taxes $ 67,985 6,278 1,689 (21,398...

  • Page 97
    ... rate if resolved in the Company's favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits: 2014 2013 (in thousands) 2012 Balance, January 1 Changes for tax positions of prior years Increases for tax positions related to the current year...

  • Page 98
    ... 31, 2014. The Company's policy allows the issuance of new or treasury shares to satisfy stock-based awards. Restricted stock, stock options, stock appreciation rights and performance share awards may be granted to officers, key employees and non-employee directors with contractual terms set by...

  • Page 99
    ... certain employees of the Company at a fair value of approximately $5.7 million, $1.7 million and $1.6 million during the years ended December 31, 2014, 2013 and 2012, respectively. The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock...

  • Page 100
    ... 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 101
    ... 57,176 units were terminated in accordance with an amended and restated employment agreement of an executive officer. A summary of stock-based award activity as of December 31, 2014, 2013 and 2012 and the changes during the years are presented below: 2014 Stock Options Weighted Tverage Remaining...

  • Page 102
    ... reflects the option price in effect at the time of the transaction. 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) 2014 2013 2012 Stock options Restricted stock Performance...

  • Page 103
    ... of 10-year, fixed rate debt with the 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...

  • Page 104
    ... Line Item in the Tccumulated Other Comprehensive Consolidated Statement Income(Loss) of Income Year Ended December 31, 2014 Year Ended December 31, 2013 Component (in thousands) Loss on cash flow hedge Interest rate contract $ $ 861 - 861 $ $ 862 - 862 Interest expense Tax (expense) benefit...

  • Page 105
    ... stock method and average market prices during the period, unless the stock options would be anti-dilutive. For the years ended December 31, 2014 and 2013, no anti-dilutive stock options were excluded from the diluted earnings per share calculation. For the year ended December 31, 2012 , the Company...

  • Page 106
    ... the years ended December 31, 2014, 2013 and 2012, respectively. The Company received sublease rental income related to real estate leased to third-parties totaling $0.4 million, $0.3 million and $0.3 million during the years ended December 31, 2014, 2013 and 2012. Future minimum lease payments are...

  • Page 107
    ...Choice Hotels International, Inc. Condensed Consolidating Statement of Income For the Year Ended December 31, 2014 (in thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services...

  • Page 108
    ...Choice Hotels International, Inc. Condensed Consolidating Statement of Income For the Year Ended December 31, 2013 (in thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services...

  • Page 109
    ...Choice Hotels International, Inc. Condensed Consolidating Statement of Income For the Year Ended December 31, 2012 (in thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services...

  • Page 110
    Table of Contents Choice Hotels International, Inc. Condensed Consolidating Statement of Comprehensive Income For the Year Ended December 31, 2014 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net income Other comprehensive income (loss), net...

  • Page 111
    Table of Contents Choice Hotels International, Inc. Condensed Consolidating Statement of Comprehensive Income For the Year Ended December 31, 2013 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net income Other comprehensive income (loss), net...

  • Page 112
    ...Choice Hotels International, Inc. Condensed Consolidating Statement of Comprehensive Income For the Year Ended December 31, 2012... on cash flow hedge Foreign currency translation adjustment Amortization of pension related costs, net of tax: Actuarial loss Settlement of pension plan Other comprehensive...

  • Page 113
    ...Cash and cash equivalents Receivables, net Other current assets Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Notes receivable, net of allowances Investments, employee benefit plans, at fair value Investments in affiliates...

  • Page 114
    ... Total current assets Property and equipment, at cost, net Goodwill Franchise rights and other identifiable intangibles, net Advances, marketing and reservations activities Notes receivable, net of allowances Investments, employee benefit plans, at fair value Investments in affiliates Advances to...

  • Page 115
    ...from sales of investments, employee benefit plans Advances to and investments in affiliates Other items, net Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Principal payments on long-term debt Proceeds from the issuance of long-term debt Purchase of treasury stock Excess...

  • Page 116
    ..., employee benefit plans Proceeds from sales of investments, employee benefit plans Advances to and investments in affiliates Other items, net Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Net repayments pursuant to revolving credit facilities Principal payments on long...

  • Page 117
    ..., employee benefit plans Proceeds from sales of investments, employee benefit plans Advances to and investments in affiliates Other items, net Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Net borrowings pursuant to revolving credit facilities Principal payments on long...

  • Page 118
    ... of customers, distribution channels and regulatory business environments. Revenues from the franchising business include royalty fees, initial franchise and relicensing fees, marketing and reservation system fees, procurement services revenue and other franchising related revenue. The Company is...

  • Page 119
    ... in the franchising segment. Revenues generated by foreign operations, including royalty, marketing and reservations system fees and other revenues for the years ended December 31, 2014, 2013 and 2012 were $57.6 million, $57.3 million and $55.6 million, respectively. Long-lived assets related to...

  • Page 120
    ... of Choice branded Sunburst properties. The liquidated damage provisions extend through the life of the existing Sunburst franchise agreements. As of December 31, 2014, Sunburst operates 10 hotels under franchise with the Company. Total franchise fees, including royalty, marketing and reservation...

  • Page 121
    ... Cambria hotel & suites hotels. 25. Termination Charges During the year ended December 31, 2014 the Company recorded a $1.8 million charge in SG&A and marketing and reservation expenses related to salary and benefit continuation termination benefits provided to employees separating from service with...

  • Page 122
    ... ventures, related to the construction of various hotels to be operated under the Company's Cambria Suites brand. These commitments are expected to be funded in the next twelve months. In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities...

  • Page 123
    ... operations of the hotels after the disposal transaction. The operations related to these three Company-owned hotels were reported as a component of "Corporate and Other" for segment reporting purposes. The results of operations for the years ended December 31, 2014, 2013 and 2012 presented in these...

  • Page 124
    Table of Contents Ts of December 31, 2014 Ts of December 31, 2013 (in thousands) Cash Receivables, net Other current assets Income taxes receivable Total current assets Property and equipment, at cost, net Total assets Accounts payable Accrued expenses Income taxes payable Total liabilities Net ...

  • Page 125
    ...a result are lower in the first and fourth quarters and higher in the second and third quarters. • Investment income and losses: The Company's net income reflects gains and losses related to the Company's investments held in non-qualified retirement plans and are subject to market conditions. 124

  • Page 126
    ... Disclosure. The Company changed its independent registered public accounting firm effective May 27, 2014 from PricewaterhouseCoopers LLP to Ernst & Young LLP. Information regarding the change in the independent registered public accounting firm was disclosed in a Current Report on Form 8-K filed...

  • Page 127
    ... executed a plan in the second quarter of 2014, with the oversight of the Audit Committee of the Board of Directors, to remediate this material weakness. Our remediation included updating the Company's revenue recognition method to recognize royalty and certain marketing and reservation system fees...

  • Page 128
    ...the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Choice Hotels International, Inc. and subsidiaries as of December 31, 2014, and the related consolidated statements of income, shareholders' deficit and cash flows for the year the ended...

  • Page 129
    ... Hotels Circle, Suite 400, Rockville, MD 20850 (telephone number (301) 592-5026). Item 11. Executive Compensation. The required information will be set forth under "Executive Compensation" and "Board Compensation and Management Development Committee Report on Executive Compensation" in the Company...

  • Page 130
    ... of Item 15 is submitted under Item 8 of this Report on Form 10-K. 2. Financial Statement Schedules Report of Independent Registered Public Accounting Firm required pursuant to Item 15(a)2 is submitted under Item 8 of this report. Schedule II-Valuation and Qualifying Accounts All other schedules are...

  • Page 131
    ... Senior Secured Credit Facility dated July 25, 2012 among Choice Hotels International, Inc., Deutsche Bank AG New York Branch as administrative agent, Wells Fargo Bank, National Association, as syndication agent, and a syndication of lenders Indenture, dated August 25, 2010 between the Company and...

  • Page 132
    ... as an exhibit to Choice Hotels International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2008, filed March 2, 2009. (h) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K dated February...

  • Page 133
    ... to Choice Hotels International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2002, filed March 31, 2003. (r) Incorporated by reference to the identical document filed as an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K dated June 22, 2012, filed...

  • Page 134
    ... 15(d) of the 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: March 2, 2015...

  • Page 135
    ... March 2, 2015 Director March 2, 2015 President and Chief Executive Officer (Principal Executive Officer) March 2, 2015 Director March 2, 2015 Director March 2, 2015 Director March 2, 2015 Director March 2, 2015 Director March 2, 2015 Director March 2, 2015 Senior Vice President...

  • Page 136
    ...HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars) Description Accounts Receivable: Year ended December 31, 2014 Allowance for Doubtful Accounts Year ended December 31, 2013 Allowance for Doubtful Accounts Year ended December 31, 2012...

  • Page 137
    ... 31, 2014. Certain U.S. subsidiaries are not named because they were not significant in the aggregate. Choice Hotels International, Inc. has no parent. Name of Subsidiary AF Holding Subsidiary Corporation Brentwood Boulevard Hotel Development, LLC CHH VM 2010 LLC CHI COH Holding Company LLC CHI...

  • Page 138
    Park Lane Drive Hotel Development, LLC Quality Hotels Limited Delaware United Kingdom Georgia Georgia Suburban Franchise Holding Company, Inc. Suburban Franchise Systems, Inc.

  • Page 139
    Exhibit 23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by...(No. 333-194128) of Choice Hotels International, Inc. of our report dated March 3, 2014, except for the effects of the revision related to revenue recognition and other immaterial errors ...

  • Page 140
    ...and subsidiaries and the effectiveness of internal control over financial reporting of Choice Hotels International, Inc. and subsidiaries included in this Annual Report (Form 10-K) of Choice Hotels International, Inc. for the year ended December 31, 2014. /s/ Ernst & Young LLP McLean, Virginia March...

  • Page 141
    ... financial 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: March 2, 2015 /S/ STEPHEN P. JOYCE Stephen P. Joyce President and Chief Executive Officer

  • Page 142
    ... 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: March 2, 2015 /S/ DAVID L. WHITE David L. White Senior Vice President, Chief Financial Officer...

  • Page 143
    ...EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER The undersigned hereby cerdify dhad dhe Annual Repord on Form 10-K for dhe year ended December 31, 2014 filed by Choice... JOYCE Stephen P. Joyce President and Chief Executive Officer /S/ DAVID L. WHITE David L. White Senior Vice President, Chief Financial...

  • Page 144