Comfort Inn 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Comfort Inn annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 59

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59

2005 ANNUAL REPORT

Table of contents

  • Page 1
    2005 ANNUAL REPORT

  • Page 2
    ... 25 percent larger than industry standard. In-room features include separate living/work environments, luxury bedding and linens; a refrigerator and microwave; movable, ergonomic desk; high speed wireless Internet access; ï¬,at panel televisions and premium cable channels with Pay-Per-View options.

  • Page 3
    ...1996, Choice became a public company trading on the New York Stock Exchange under the symbol CHH. Today, Choice Hotels International is one of the largest and most successful lodging companies in the world. With a commitment to serving the traveling public by offering high-standard accommodations at...

  • Page 4
    ...388,618 4,664 474 373,722 4,545 689 362,549 Per share amounts have been retroactively adjusted for the two-for-one stock split effected in the form of a stock dividend distributed on October 21, 2005, to shareholders of record on October 7, 2005. 2 CHOICE HOTELS INTERNATIONAL 2005 ANNUAL REPORT

  • Page 5
    ..., our franchised hotels will have greater pricing power and the opportunity to further drive revenue per available room (RevPAR), which rose 6.1% domestically in 2005. This time last year, I told you that Choice's key goals had four main areas of focus: (1) guest satisfaction; (2) building brand...

  • Page 6
    ...MainStay Suites extended stay brand, we now have two outstanding products to offer developers in a dynamic part of the lodging industry. On the international front, we continue to work with our partners in opening up new markets while building our existing base of operations in Canada, Latin America...

  • Page 7
    ... many price points positions us extremely well for another great year in 2006. I look forward to the future as Choice continues to evolve into a global franchising powerhouse. Charles A. Ledsinger, Jr. President and Chief Executive Officer March 2006 CHOICE HOTELS INTERNATIONAL 2005 ANNUAL REPORT...

  • Page 8
    ... booking capability. MAY â- Choice signs a global preferred third-party partner agreement with Expedia and Hotels.com, giving its 5,000 hotels greater exposure to potential travelers worldwide. â- The company joins forces with the National Park Foundation (NPF) to support programs, promotions...

  • Page 9
    ...descriptive categories to assist hotels in finding the right company for their specific needs. AUGUST â- In an effort to drive more business to its hotels, Choice partners with the American Express Corporate Card division to be the exclusive mid-scale hotel chain in the American Express Savings...

  • Page 10

  • Page 11
    ...'s Discussion and Analysis of Financial Condition and Results of Operation ...Management's Report on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements ...Notes to Consolidated Financial Statements ...10 24 25 27...

  • Page 12
    ... include Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria Suites, Suburban Extended Stay Hotel and Flag Hotels. Approximately 95% of the Company's revenues are derived from hotels franchised in the United States. During 2005, the Company...

  • Page 13
    ...stock at a total cost of $711.9 million, or an average price of $21.16 per share since the program's inception. On December 8, 2005, the board of directors authorized a 3 million share increase in the number of shares available for repurchase under the program. Our cash flows from operations support...

  • Page 14
    ...effective royalty rate achieved; 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 at franchised hotels. The key industry standard for...

  • Page 15
    Summarized financial results for the years ended December 31, 2005 and 2004 are as follows: 2005 2004 (In thousands) REVENUES: Royalty fees ...Initial franchise and relicensing fees ...Partner services ...Marketing and reservation ...Hotel operations ...Other ...Total revenues ...OPERATING EXPENSES...

  • Page 16
    ... compensation costs including variable franchise sales and key management incentive compensation and increased travel and entertainment expenses related to the expansion of the franchise sales force. Marketing and Reservations: The Company's franchise agreements require the payment of franchise fees...

  • Page 17
    ... recorded as an asset in the financial statements as the Company has the contractual authority to require that the franchisees in the system at any given point repay the Company for any deficits related to marketing and reservations activities. The Company's current franchisees are legally obligated...

  • Page 18
    ... benefit plan assets. Summarized financial results for the years ended December 31, 2004 and 2003 are as follows: 2004 2003 (In thousands) REVENUES: Royalty fees ...Initial franchise and relicensing fees ...Partner services ...Marketing and reservation ...Hotel operations ...Other ...Total revenues...

  • Page 19
    ... other management personnel, costs related to retirement of a board member, adoption of the fair value method of accounting for stock compensation and increased professional fees related to Sarbanes-Oxley compliance efforts. Marketing and Reservations: Total marketing and reservations revenues were...

  • Page 20
    ...-wide property and yield management systems and upgrades to disaster recovery hardware and financial and reservation systems. During 2005, investing cash flows included the payment of $7.3 million related to the Company's acquisition of Suburban. During 2003, the Company received a cash payment of...

  • Page 21
    ... 31, 2005, the total long-term debt outstanding for the Company was $274.1 million, of which $0.1 million was scheduled to mature in the twelve months ending December 31, 2006. On September 14, 2005, the Company's board of directors declared a two-for-one stock split effected in the form of a stock...

  • Page 22
    ... and require the use of complex judgment or significant estimates in their application. Additional discussion of these policies is included in Note 1 to our consolidated financial statements. Revenue Recognition. We recognize continuing franchise fees, including royalty, marketing and reservations...

  • Page 23
    ... in affiliated partners' programs, such as those offered by credit card companies. The points may be redeemed for free accommodations or other benefits. Points cannot be redeemed for cash. The Company collects a percentage of program members' room revenue from participating franchises. Revenues are...

  • Page 24
    ... share as if the Company had applied the fair value recognition provisions of SFAS No. 148 to all stock compensation for the three years ended December 31, 2005 is set forth in Note 1 to our consolidated financial statements. SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R") was...

  • Page 25
    ... hotel owners to fund investments and construction of hotels; the cost and other effects of legal proceedings; and other risks described from time to time in our filings with the Securities and Exchange Commission ("SEC"), including those set forth under Item 1A "Risk Factors" in the Company's Form...

  • Page 26
    ... financial reporting. The Company's internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles...

  • Page 27
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we...

  • Page 28
    ... financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely...

  • Page 29
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2005 2004 2003 (In thousands, except per share amounts) REVENUES: Royalty fees ...Initial franchise and relicensing fees ...Partner services ...Marketing and reservation ...Hotel operations...

  • Page 30
    ... ...Other current assets ...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...

  • Page 31
    ... of cash flow information: Cash payments during the year for: Income taxes, net of refunds ...Interest ...Non-cash investing activities: Acquisition of Suburban, liabilities assumed ...Non-cash financing activities: Declaration of dividends ...Income tax benefit realized related to stock options...

  • Page 32
    ... adjustment for gains on available for sale securities included in net income ...Other comprehensive income ...Comprehensive income ...Exercise of stock options ...Issuance and cancellation of restricted stock ...Stock compensation related to stock options ...Amortization of deferred compensation...

  • Page 33
    ... brand names: Comfort Inn, Comfort Suites, Cambria Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel and Flag Hotels. Principles of Consolidation. The consolidated financial statements include the accounts of Choice Hotels International, Inc...

  • Page 34
    ...card companies. The points, which we accumulate and track on the members' behalf, may be redeemed for free accommodations, airline frequent flier program miles or other benefits. Points cannot be redeemed for cash. We provide Choice Privileges as a marketing program to participating hotels. The cost...

  • Page 35
    ... balance sheet. 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 36
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) flows, discounted at the loan's effective interest rate. The Company recorded $0.2 million of impairment charges related to notes receivable during the year ended December 31, 2005 and no ...

  • Page 37
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Compensation," for all employee awards granted, modified, or settled after January 1, 2003. Therefore, the cost related to stock-based employee compensation included in the determination of net ...

  • Page 38
    ...-average number of common shares outstanding after consideration of the dilutive effect of stock options and unvested restricted stock. Use of Estimates. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and require...

  • Page 39
    ... marketing and reservation activities, for the years ended December 31, 2005, 2004 and 2003 was $4.0 million, $5.0 million and $6.5 million, respectively. Depreciation has been computed for financial reporting purposes using the straight-line method. A summary of the ranges of estimated useful lives...

  • Page 40
    ...-term franchise contracts. As of December 31, 2005 and 2004, the unamortized balance relates primarily to the Econo Lodge, Suburban Extended Stay Hotel and Flag franchise rights. The franchise rights are being amortized over lives ranging from 5 to 17 years. Amortization expense for the years ended...

  • Page 41
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) point repay any deficits related to marketing and reservation activities. The Company's current franchisees are legally obligated to pay any assessment the Company imposes on its franchisees to ...

  • Page 42
    ... royalty, marketing and reservation fees, paid by Sunburst to the Company, net of royalty fee credits, included in the accompanying consolidated financial statements were $5.3 million for each of the years ended December 31, 2005, 2004 and 2003. As of December 31, 2005 and 2004, accounts receivable...

  • Page 43
    ... option of the Company, including LIBOR plus 0.60% to 2.0%, based upon the credit rating of the Company and the loan type. The Old Credit Facility required the Company to pay annual fees ranging, based upon the credit rating of the Company, between 1/15 of 1% to 1/2 of 1% of the aggregate available...

  • Page 44
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company has a line of credit with a bank providing up to an aggregate of $10 million of borrowings which is due upon demand. The line of credit ranks pari-pasu (or equally) with the Revolver...

  • Page 45
    ... INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Choice Hotels Scandinavia The Company accounted for its investment, representing 1% of the outstanding common stock of Choice Hotels Scandinavia ("CHS") as an available for sale security in accordance with SFAS 115. During...

  • Page 46
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company accounted for the Suburban Transaction in accordance with SFAS No. 141, "Business Combinations". The Company allocated the purchase price based upon a preliminary assessment of the ...

  • Page 47
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company sponsors an unfunded non-qualified defined benefit plan ("SERP") for certain senior executives. No assets are held with respect to the plan, therefore benefits are funded as paid to ...

  • Page 48
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company sponsors two non-qualified retirement savings and investment plans for certain employees and senior executives whose pre-tax deferrals are limited under the Company's 401(k) plan. ...

  • Page 49
    ... 31, 2005 since these earnings are considered to be permanently invested in foreign operations. On October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed into law. The AJCA included a temporary one-time incentive for United States multinational corporations to repatriate...

  • Page 50
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A reconciliation of income tax expense at the statutory rate to income tax expense included in the accompanying consolidated statements of income follows: Years ended December 31, 2005 2004 2003...

  • Page 51
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Restricted Stock. The following table is a summary of activity related to restricted stock grants to non-employee directors and key employees for the year ended December 31, 2005 2004 2003 ...

  • Page 52
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosures," requires companies to provide additional note disclosures about employee stock-based compensation plans based ...

  • Page 53
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The components of other comprehensive income are as follows: Amount Before Taxes Income Tax (Expense)/Benefit Amount Net of Taxes 2005 Net unrealized loss ...Reclassification adjustment for ...

  • Page 54
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The effect of dilutive securities is computed using the treasury stock method and average market prices during the period. 19. Leases The Company enters into operating leases primarily for ...

  • Page 55
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Year Ended December 31, 2003 Corporate Elimination Franchising & Other Adjustments Consolidated (In thousands) Revenues ...Operating income (loss) ...Depreciation and amortization ...Capital ...

  • Page 56
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 23. Related Party Transactions During 2005 and 2003, the Company repurchased 0.1 million shares and 1.0 million shares of its common stock at a total cost of $6.0 million and $24.8 million, ...

  • Page 57
    CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 25. Selected Quarterly Financial Data - (Unaudited) First Quarter Second Third Fourth Quarter Quarter Quarter (In thousands, except per share data) 2005 Revenues ...Operating income ...Income ...

  • Page 58
    ... Management Consultant Lecturer University of Virginia Darden Graduate School of Business Director: OnLine Resources Corporation Select Comfort Corporation Gordon A. Smith President Global Commerical Card Group American Express Travel Related Services, Inc. David Sullivan Chairman Advisory Board...

  • Page 59