Comfort Inn 2015 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 $1,788,577,527 as of June 30, 2015 based upon a closing price of
$54.25 per share.
The number of shares outstanding of Choice Hotels International, Inc.’s common stock at February 16, 2016 was 56,389,126.

Table of contents

  • Page 1
    ... 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 $1,788,577,527 as of June 30, 2015 based upon a closing price of $54.25 per share. The number of shares outstanding of Choice Hotels International, Inc...

  • 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 22, 2016, 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 126 126 126 126 126 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
    ... revenues, we also collect marketing and reservation system fees to provide support activities for the franchise system. Our operating results can also be improved through our company-wide efforts related to improving property level performance. The Company's hotel franchising business currently...

  • 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
    ...fifteen years: US Lodging Industry Trends: 2001 - 2015 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) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013...

  • 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
    ... diversified brand offerings positions us well within the lodging industry. Our Cambria hotel and 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...

  • 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
    ... high-value accommodations for both business and leisure travelers. Comfort Inn hotels offer complimentary hot breakfast with hearty and healthy options, a swimming pool and/or exercise room, and free high-speed internet access. Principal competitor brands include Holiday Inn Express and Country Inn...

  • 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
    ...For the Year Ended December 31, 2011 2012 2013 2014 2015 1,147 Number of rooms, end of period 107,111 Royalty fees ($000) $ $ $ $ $ 20,166 _____ (1) Reporting of operating statistics (e.g., average occupancy percentage and average daily room rate) of international franchisees is not required by all...

  • Page 16
    ... relationship with Atlantica Holdings International, Ltd. ("Atlantica"). As of December 31, 2015, Atlantica had 64 open properties in its development territory. The Company's master franchise agreement with Atlantica grants rights to the Comfort, Quality, Sleep and Clarion brands, which rights are...

  • Page 17
    ... table summarizes Choice's international franchise system as of December 31, 2015: 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
    ... the year ended December 31, 2015: Tpproved for Development Hotels Rooms Tdditions Open and Operational Hotels Rooms Units Repositionings Terminations Comfort Comfort Suites Quality Ascend Hotel Collection Clarion Sleep Inn MainStay Suites Econo Lodge Rodeway Inn Suburban Cambria Totals Franchise...

  • Page 19
    ...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 is $33.00 per room per month or 4% of gross room revenue. (2) Marketing and reservation system fees are...

  • Page 20
    ... 31, 2015. Growing the membership of the Choice Privileges program as well as increasing the number of room nights consumed by existing members will continue to be a focus of the Company. Marketing and advertising programs are directed by our marketing department, which utilizes the services of...

  • Page 21
    ... 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 franchisees' inventory. In addition, we have introduced programs such as our Best Internet Rate Guarantee program...

  • 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
    ... companies 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, SkyTouch products and services compete with room reservation systems developed and marketed by major hotel chains for their corporate...

  • Page 24
    ... material occupations, positions, offices and employment of each of the executive officers of the Company as of December 31, 2015 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
    ... labor, climate change, employment and regulations applicable under the Office of Foreign Asset Control and the Foreign Corrupt Practices Act; • the financial condition of franchisees and travel related companies; • franchisors' ability to develop and maintain positive relations with current and...

  • 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
    ... make the risks related to our international operations more significant over time. Instability in the credit markets may impact the ability of our franchisees to expand or construct new locations. Our growth strategy relies on the ability of our franchisees to expand or open new franchises and to...

  • Page 29
    ... 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 30
    ... preference for our brands and our reputation could suffer and our franchise agreements with these franchisees could terminate. Our franchised properties are governed by the terms of franchise agreements. Substantially all of these agreements require property owners to comply with standards that are...

  • Page 31
    ... and equity compensation plans. Government franchise and tax regulation could impact our business. The Federal Trade Commission (the "FTC"), various states and certain foreign jurisdictions where we market franchises regulate the sale of franchises. The FTC requires franchisors to make extensive...

  • Page 32
    ... in our information systems could adversely affect our business. The lodging industry depends upon the use of sophisticated technology and systems including those utilized for reservations, property management, procurement, hotel revenue management, operation of our customer loyalty programs and our...

  • Page 33
    ... property management system. The failure of any third-party operator to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules and regulations could result in material adverse consequences to our business. Our investment in new...

  • Page 34
    ... 2. Properties. Our principal executive offices are located at 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850 and are leased from a third party. We lease two office buildings and own a third office building in Phoenix, AZ, which houses our reservation and property systems' information...

  • Page 35
    ..., subject to future business performance, economic conditions and changes in the current income tax regulations. In addition, the Company's unsecured revolving credit facility contains limitations on the Company's ability to pay dividends. The Company may not make dividend payments if there is an...

  • Page 36
    ... by the Company during the year ended December 31, 2015. 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 Ending Total Number of Shares Purchased or Redeemed...

  • Page 37
    ... The graph below matches Choice Hotels International, Inc.'s cumulative 5-Year total shareholder return on 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 investment in our common...

  • Page 38
    ... 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, 2011 2012 2013 2014 2015 Total Revenues Operating Income Income...

  • Page 39
    ... 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 40
    ...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 franchised hotels. The key industry standard for measuring hotel-operating...

  • Page 41
    ... of revenues earned as it further develops SkyTouch's product offerings and expands its customer base. In August 2015, the Company completed the acquisition of a company that provides software as a service solution for vacation rental management companies. This business provides central reservations...

  • Page 42
    ...an office building that is leased to a third-party, rather than total revenues when analyzing the performance of the business. Marketing and reservation activities are excluded from franchising revenues since the Company is contractually required by its franchise agreements to use the fees collected...

  • Page 43
    ... primarily reflect the performance of investments held in the Company's non-qualified retirement, savings and investment plans which can vary widely from period to period based on market conditions. Calculation of Tdjusted EBITDT Year Ended December 31, (in thousands) 2015 2014 2013 Income from...

  • Page 44
    ... Results Summarized financial results for the years ended December 31, 2015 and 2014 are as follows: 2015 (in thousands) 2014 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other Total revenues OPERTTING EXPENSES: Selling, general and...

  • Page 45
    ... in average daily rates. A summary of the Company's domestic franchised hotels operating information for the years ending December 31, 2015 and 2014 is as follows: 2015* Tverage Daily Rate Comfort Inn Comfort Suites Sleep Quality Clarion Econo Lodge Rodeway MainStay Suburban Ascend Hotel Collection...

  • Page 46
    ... property improvement plans required to be completed prior to opening but typically open within three to four months after the execution of a franchise agreement. Net domestic franchise terminations decreased from 261 for the year ended December 31, 2014 to 253 for the year ended December 31, 2015...

  • Page 47
    ... Company's increasing brand and property standards required to operate their hotel within in the Comfort family of brands. A summary of executed domestic franchise agreements by brand for the years ended December 31, 2015 and 2014 is as follows: 2015 New Construction Comfort Inn Comfort Suites Sleep...

  • Page 48
    ... in the current year primarily due to increased costs related to the Company's franchise development activities and expansion of the Company's franchised hotel quality assurance program. Marketing and Reservations: The Company's franchise agreements require the payment of franchise fees, which...

  • Page 49
    ... fees resulting from RevPAR increases and unit growth; increasing revenues from the Choice Privileges loyalty program resulting from the growth in membership and average daily rates attributable to member stays. In addition, marketing and reservation system revenues recognized during the year ended...

  • Page 50
    ... Results Summarized financial results for the years ended December 31, 2014 and 2013 are as follows: 2014 (in thousands) 2013 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other Total revenues OPERTTING EXPENSES: Selling, general and...

  • Page 51
    ... 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 Lodge Rodeway MainStay Suburban Ascend Hotel Collection...

  • Page 52
    ...including the complexity of the property improvement plans required to be completed prior to opening but typically open within three to four months after the execution of a franchise agreement. Net domestic franchise terminations increased by 18 units from 243 for the year ended December 31, 2013 to...

  • Page 53
    ... of hotel financing, cost of capital and the presence of an active real estate market. 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...

  • Page 54
    ... 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 55
    ...and promotional costs to support various brand programs as well as an expansion of the Company's information technology workforce to support improvements to the Company's various property management and central reservation technologies that are designed to deliver guests to our franchised hotels. In...

  • Page 56
    ... and amount of these cash flows is dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales and the timing of hotel openings. At December 31, 2015, the Company had commitments to extend an additional $115.0 million...

  • Page 57
    ... 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 58
    ...basis of the average daily unused amount of the New Revolver multiplied by 0.20% per annum. If the Company achieves an Investment Grade Rating and it elects to use the ratingsbased pricing grid set forth in the Credit Agreement, then the Company will be required to pay a fee on the total commitments...

  • Page 59
    ...program at a total cost of $1.2 billion. As of the year ended December 31, 2015, the Company has 1.7 million shares remaining under the current share repurchase authorization. We currently believe that our cash flows from operations will support our ability to complete the current board of directors...

  • Page 60
    ... guaranty. On September 4, 2015, the Company entered into a limited payment guaranty with regards to a VIE's $13.3 million bank loan for the design, development, and construction of a new hotel franchised under one of the Company's brands in the United States. Under the terms of the limited guaranty...

  • Page 61
    ... the related franchise agreement is executed because the initial franchise and relicensing fees are non-refundable and the Company is not required to provide initial services to the franchisee prior to hotel opening. We defer the initial franchise and relicensing fee revenue related to franchise...

  • Page 62
    ...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 63
    ... 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 64
    ... temporary differences related to investments in certain foreign subsidiaries and corporate affiliates. The temporary differences consist primarily of undistributed earnings that are considered permanently reinvested in operations outside the United States. If management's intentions change in the...

  • Page 65
    ... information related to our adoption of new accounting standards in 2015 and for information on our anticipated adoption of recently issued accounting standards. Item 7T. Quantitative and Qualitative Disclosures Tbout Market Risk. The Company is exposed to market risk from changes in interest rates...

  • Page 66
    ... 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 67
    ..., 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, 2015, based on criteria established in Internal Control-Integrated Framework issued by...

  • Page 68
    Table of Contents Report of Independent Registered Public Tccounting Firm To the Board of Directors and Shareholders of Choice Hotels International, Inc.: In our opinion, the consolidated statements of income, of comprehensive income, and of cash flows for the year ended December 31, 2013 present ...

  • Page 69
    ... CHOICE HOTELS INTERNTTIONTL, INC. TND SUBSIDITRIES CONSOLIDTTED STTTEMENTS OF INCOME Years Ended December 31, 2015 2014 (in thousands, except per share amounts) 2013 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation Other Total revenues...

  • Page 70
    Table of Contents CHOICE HOTELS INTERNTTIONTL, INC. TND SUBSIDITRIES CONSOLIDTTED STTTEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2015 2014 2013 (in thousands) Net income Other comprehensive income (loss), net of tax: Amortization of loss on cash flow hedge Foreign currency ...

  • Page 71
    ..., net of allowances 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 unconsolidated entities Deferred...

  • Page 72
    ...other notes receivable Purchases of investments, employee benefit plans Proceeds from sales of investments, employee benefit plans Proceeds from sale of assets Other items, net Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES Proceeds from the issuance of long-term debt Net...

  • Page 73
    Dividends declared but not paid Equity method investments Investment in property and equipment acquired in accounts payable Acquisitions, long-term debt assumed $ $ $ $ 11,548 - 3,717 - $ $ $ $ 11,176 2,827 15,670 10,667 $ $ $ $ 10,785 - 658 - The accompanying notes are an integral part of ...

  • Page 74
    ... Other Balance as of December 31, 2014 Net income Other comprehensive income Share based payment activity Dividends declared Treasury purchases Other Balance as of December 31, 2015 58,171,059 - - 571,684 - (103,880) - 58,638,863 - - 550,205 - (1,510,070) (341,278) 57,337,720 - - 443,040 - (1,444...

  • Page 75
    ... are non-refundable and the Company is not required to provide initial services to the franchisee prior to hotel opening. The initial franchise and relicensing fees related to executed franchise agreements which include incentives, such as future potential cash rebates or forgivable promissory notes...

  • Page 76
    ... when earned to reimburse the Company for costs incurred to operate the program, including administrative costs, marketing, promotion, and performing member services. Accounts Receivable and Credit Risk Accounts receivable consist primarily of franchise and related fees due from hotel franchises and...

  • Page 77
    ... the years ended December 31, 2015, 2014 and 2013, respectively. 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...

  • Page 78
    ...using undiscounted cash flow analysis. The Company did not identify any indicators of impairment of long-lived assets during the years ended December 31, 2015, 2014 and 2013. Significant management judgment is involved in evaluating indicators of impairment and developing any required projections to...

  • Page 79
    ...for the years ended December 31, 2015, 2014 and 2013 were $0.5 million, $1.1 million and $0.4 million, respectively. Derivatives The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in interest rates. All...

  • Page 80
    ...Contents current assets to long-term debt within its consolidated balance sheets as of December 31, 2015 and 2014, respectively. In August 2015, the FASB issued ASU No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" ("ASU 2015-15...

  • Page 81
    ... 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 82
    ... for the year ended 2014. Forgivable Notes Receivable In conjunction with brand and development programs, the Company may provide financing to franchisees for property improvements and other purposes in the form of forgivable unsecured promissory notes which bear interest at market rates. Under...

  • Page 83
    ..., 2014 Credit Quality Indicator Total Total Senior Subordinated Unsecured Total notes receivable Allowance for losses on non-impaired loans Allowance for losses on receivables specifically evaluated for impairment Total loan reserves Net carrying value Current portion, net Long-term portion, net...

  • Page 84
    ...of software development costs for the years ended December 31, 2015, 2014 and 2013 totaled $9.6 million, $6.3 million and $3.8 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 85
    ... of time. Represents the purchase price assigned to long-term franchise contracts. The unamortized balance relates primarily to the acquisition of the Econo Lodge, Suburban and Choice Hotels Australia franchise rights. The franchise rights are being amortized over lives ranging from 5 to 25 years on...

  • Page 86
    ... Company's franchise agreements require the payment of franchise fees, which include marketing and reservation system fees. The Company is obligated to use the marketing and reservation system revenues it collects from the current franchisees comprising its various hotel brands to provide marketing...

  • Page 87
    ...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 hotels and suites in strategic markets. Based on an analysis of who has the power to direct the activities that most significantly...

  • Page 88
    ... the Company's purchase 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 develop the land for the eventual construction of a hotel operated under the Company's brands or...

  • Page 89
    ... and franchise fees Procurement services fees Other Total $ 62,258 6,530 2,353 446 71,587 $ 57,757 6,439 1,936 250 66,382 $ $ 12. Other Non-Current Liabilities Other non-current liabilities consist of the following at: December 31, 2015 (in thousands) 2014 Marketing and reservation liability...

  • Page 90
    ... "2012 Senior Notes") at par, bearing a coupon of 5.75% with an effective rate of 6.0%. The 2012 Senior Notes will mature on July 1, 2022, with interest to be paid semi-annually on January 1 st and July 1 st . The Company used the net proceeds of this offering, after deducting underwriting discounts...

  • Page 91
    ...the Credit Agreement. The subsidiary guarantors currently include all subsidiaries that guarantee the obligations under the Company's Indenture governing the terms of its 5.75% senior notes due 2022 and its 5.70% senior notes due 2020. If the Company achieves and maintains an Investment Grade Rating...

  • Page 92
    ...basis of the average daily unused amount of the New Revolver multiplied by 0.20% per annum. If the Company achieves an Investment Grade Rating and it elects to use the ratingsbased pricing grid set forth in the Credit Agreement, then the Company will be required to pay a fee on the total commitments...

  • Page 93
    ... and Non-Qualified Plan, (together, the "Deferred Compensation Plan"), the Company recorded current and long-term deferred compensation liabilities of $23.0 million and $24.6 million at December 31, 2015 and 2014, respectively, related to these deferrals and credited investment return under these...

  • Page 94
    ... appropriate interest and discount rates. For further information on the notes receivable see Note 3. The fair value of the Company's $250 million and $400 million senior notes are classified as Level 2 as the significant inputs are observable in an active market. At December 31, 2015 and 2014, the...

  • Page 95
    ...,672 The provision for income taxes, classified by the timing and location of payment, was as follows: Year Ended December 31, 2015 2014 (in thousands) 2013 Current tax expense Federal State Foreign Deferred tax (benefit) expense Federal State Foreign Income taxes $ 50,794 5,476 592 (112) (737...

  • Page 96
    ... rate if resolved in the Company's favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits: 2015 2014 (in thousands) 2013 Balance, January 1 Changes for tax positions of prior years Increases for tax positions related to the current year...

  • Page 97
    ... the fourth quarter of 2014, the Company's board of directors announced an increase in the quarterly dividend rate to $0.195 per share for an annual rate of $0.75 or $43.4 million. During the year ended December 31, 2015, the Company maintained its quarterly dividend rate of $0.195 per share for the...

  • Page 98
    ...Company had an exercise price equal to the market price of the Company's common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: 2015 Risk-free interest rate...

  • Page 99
    ... 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 100
    ...December 31, 2015, 2014 and 2013 and the changes during the years are presented below: 2015 Stock Options ...year ended December 31, 2015, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods. 2014 Stock Options Weighted Tverage Exercise Price...

  • Page 101
    ... 2.7 years 2.4 years 2.3 years $ The Company announced a stock repurchase program on June 25, 1998 to return excess capital to its shareholders. Treasury stock activity is recorded at cost in the accompanying consolidated financial statements. During the year ended December 31, 2015, the Company...

  • Page 102
    ... 2010, the Company entered into an interest rate swap agreement to protect itself from an increase in the market interest rate on $250 million 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...

  • Page 103
    ... Company's Consolidated Statements of Income. Tmount Reclassified from Tffected Line Item in the Tccumulated Other Comprehensive Consolidated Statement Income(Loss) of Income Year Ended December 31, 2015 Year Ended December 31, 2014 Component (in thousands) Loss on cash flow hedge Interest rate...

  • Page 104
    ... 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 the year ended December 31, 2015, the Company excluded 0.5 million of anti-dilutive stock option...

  • Page 105
    ... are accounted for under the equity method of accounting. On July 21, 2015, the Company refinanced its existing $350 million senior credit facility ("Old Credit Facility") by entering into a new senior unsecured revolving credit facility ("New Credit Facility"). As a result of this refinancing...

  • Page 106
    ...Choice Hotels International, Inc. Condensed Consolidating Statement of Income For the Year Ended December 31, 2015 (in thousands) Guarantor Subsidiaries Non-Guarantor Subsidiaries Parent Eliminations Consolidated REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services...

  • 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
    Table of Contents Choice Hotels International, Inc. Condensed Consolidating Statement of Comprehensive Income For the Year Ended December 31, 2015 (in thousands) Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net income Other comprehensive income (loss), net...

  • 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
    ...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 Advances...

  • Page 113
    ...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 Advances...

  • Page 114
    ... sales of investments, employee benefit plans Advances to and investments in affiliates Divestment in affiliates Other items, net Net cash used in investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Net borrowings (repayments) pursuant to revolving credit facilities Principal payments on long...

  • Page 115
    ...of investments, employee benefit plans Proceeds from sales of investments, employee benefit plans Advances to and investments in affiliates Divestment in affiliates Other items, net Net cash provided from (used in) investing activities CTSH FLOWS FROM FINTNCING TCTIVITIES: Principal payments on long...

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

  • Page 117
    ... Company is obligated under its franchise agreements to provide marketing and reservation services appropriate for the 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...

  • Page 118
    ...-owned subsidiaries. The results of the Company's international operations are included 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, 2015, 2014 and 2013 were $51...

  • Page 119
    ... the 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. This arrangement was terminated in...

  • Page 120
    .... In August 2015, the Company entered into a promissory note with a development company which is a member of one of the Company's unconsolidated joint ventures. The Company has advanced $23.8 million to purchase and provide required property improvements to a Cambria hotel & suites. The Company may...

  • Page 121
    ... guaranty. On September 4, 2015, the Company entered into a limited payment guaranty with regards to a VIE's $13.3 million bank loan for the design, development and construction of a new hotel franchised under one of the Company's brands in the United States. Under the terms of the limited guaranty...

  • Page 122
    ...wholly owned subsidiaries, a Software as a Service ("SaaS") solution for vacation rental management companies. MHB provides central reservations systems, property management systems and integrated software applications including point-of-sale and is included in our Corporate and Other in our segment...

  • Page 123
    ...in the 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, 2015, 2014 and 2013 presented in...

  • Page 124
    ... quarters may differ from annual earnings per share due to the required method of computing the weighted average shares in interim periods. The matters which affect the comparability of the quarterly results include the following: • Seasonality: The Company's revenues and operating income reflect...

  • Page 125
    ... an open and operating office building located in Houston, Texas for $16.0 million to be later developed into a Cambria hotel and suites. On February 16, 2016, the Company announced changes to its customer loyalty program, Choice Privileges, which alter the programs rules and regulations concerning...

  • Page 126
    ... during the fourth quarter of 2015 that materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting. Management's Report on Internal Control Over Financial Reporting The management of Choice Hotels International, Inc. and its subsidiaries...

  • Page 127
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Choice Hotels International, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, shareholders' deficit and cash...

  • Page 128
    ... be directed to General Counsel, 1 Choice 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...

  • Page 129
    Table of Contents The required information will be set forth under "Principal Accounting Fees and Services" and "Audit Committee Report" in the Company's proxy statement, and reference is expressly made to the proxy statement for the specific information incorporated in this Form 10-K. PTRT IV Item ...

  • Page 130
    ... Credit Agreement dated July 21, 2015 among Choice Hotels International, Inc., Deutsche Bank AG New York Branch, as administrative agent, Wells Fargo Bank, National Association, as syndication agent and swingline lender, and a syndication of lenders Senior Secured Credit Facility dated July 25, 2012...

  • Page 131
    ... Balances) Amended and Restated Choice Hotels International, Inc. Executive Deferred Compensation Plan (for Non-Grandfather Account Balances) Non-Competition, Non-Solicitation & Severance Benefit Agreement between the Company and Patrick Pacious, dated May 5, 2011 Amendment to Non-Competition, Non...

  • Page 132
    ... an exhibit to Choice Hotels International, Inc.'s Current Report on Form 8-K dated August 1, 2011, filed August 4, 2011. (q) 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 133
    ... requirements of Section 13 or 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...

  • Page 134
    ...29, 2016 President and Chief Executive Officer (Principal Executive Officer) February 29, 2016 Director February 29, 2016 Director February 29, 2016 Director February 29, 2016 Director February 29, 2016 Director February 29, 2016 Director February 29, 2016 Senior Vice President, Chief...

  • Page 135
    ... CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars) Description Accounts Receivable: Year ended December 31, 2015 Allowance for Doubtful Accounts Year ended December 31, 2014 Allowance for Doubtful Accounts Year ended December...

  • Page 136
    ...Choice Hotels Canada, Inc. Choice Hotels de Mexico de R.L. de C.V. Choice Hotels Franchise GmbH Choice Hotels France S.A.S. Choice Hotels International Holding Company C.V. Choice Hotels International Licensing ULC Choice Hotels International Services Corp. Choice Hotels Licensing B.V. Choice Hotels...

  • Page 137
    ... Plains LLC CS WO LLC International CH Holding Company C.V. Maxxton Holding B.V Maxxton B.V. MG CS Member LLC OP McCrea Indianapolis LLC ORL CS Member LLC Ortel Partners, LLC Quality Hotels Limited Suburban Franchise Holding Company, Inc. Suburban Franchise Systems, Inc. Delaware Delaware Delaware...

  • Page 138
    ... 333-67737 and No. 333-106218) and norm S-3 ASR (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 discussed in Note 1 to the consolidated financial statements, and...

  • Page 139
    ...schedule of Choice Hotels International, Inc. 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, 2015...

  • Page 140
    ... 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, 2016 /s/ Stephen P. Joyce Stephen P. Joyce President and Chief Executive Officer

  • Page 141
    ... 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, 2016 /s/ David L. White David L. White Senior Vice President, Chief Financial Officer...

  • Page 142
    ...EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER The undersigned hereby cerdify dhad dhe Annual Repord on Form 10-K for dhe year ended December 31, 2015 filed by Choice... Joyce Stephen P. Joyce President and Chief Executive Officer /s/ David L. Whide David L. White Senior Vice President, Chief Financial...

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