SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7,
1996].
For the fiscal year ended December 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from to
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Commission file number 001-13393
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CHOICE HOTELS INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-1209792
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
10750 Columbia Pike, Silver Spring, Maryland 20901
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(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code (301) 592-5000
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, Par Value $.01 per share New York Stock Exchange
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Preferred Stock Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
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(Title of Class)
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed in Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months as 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 x No
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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 the Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock of Choice Hotels
International, Inc. held by non-affiliates was $503,618,114 as of March 8, 2002
based upon a closing price of $22.33 per share.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of Choice Hotels International, Inc.'s
Common Stock at March 8, 2002 was 41,331,557.
DOCUMENTS INCORPORATED BY REFERENCE.
Certain portions of Registrant's annual report to stockholders for the fiscal
year ended December 31, 2001 are incorporated by reference under Parts I and II.
Certain portions of Registrant's definitive proxy statement, to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the close of the Registrant's fiscal year, are incorporated by
reference under Part III.
2
PART I
FORWARD-LOOKING STATEMENTS
Certain statements in this report that are not historical facts constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act. Words such as "believes," "anticipates," "expects,"
"intends," "estimates," "projects," and other similar expressions, which are
predictions of or indicate future events and trends, typically identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within each of our business segments; business
strategies and their intended results; the balance between supply of and demand
for hotel rooms; our ability to obtain new franchise agreements; our ability to
develop and maintain positive relations with current and potential hotel owners;
the effect of international, national and regional economic conditions; the
availability of capital to allow us and potential 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, including those set forth under the heading
"Risk Factors" in our Report on Form 10-Q for the period ended September 30,
2001. Given these uncertainties, you are cautioned not to place undue reliance
on such statements. We also undertake no obligation to publicly update or revise
any forward-looking statement to reflect current or future events or
circumstances.
Item 1. Business
Overview
Choice Hotels International, Inc. (the "Company" or "Choice") is the
world's second largest franchisor of hotel properties with 4,545 hotels open and
operating in 38 countries at December 31, 2001. In addition, at December 31,
2001, we had 689 franchise properties currently under development representing a
total of 56,360 rooms. Choice franchises lodging properties under one of our
proprietary brand names (the "Choice brands"): Comfort(R), Comfort Suites(R),
Quality(R), Clarion(R), Sleep Inn(R), Econo Lodge(R), Rodeway Inn(R) and
MainStay Suites(R). We franchise hotels in all 50 states, Puerto Rico and the
District of Columbia and 36 additional countries, with 97% of our franchising
revenue generated from hotels franchised in the United States. With recognized
brands and a diverse and growing franchisee base, we believe we have a strong
foundation for continued growth.
Choice is a lodging franchisor with low capital expenditure
requirements. Our direct real estate exposure is limited to three company-owned
MainStay Suites(R). With a focus on hotel franchising versus ownership, we
benefit from the economies of scale inherent in the franchising business. The
fee and cost structure of our business provides significant opportunities to
increase profits by increasing the number of franchise properties. Our business
is based on franchise revenues that consist of an initial fee and ongoing
royalty fees, which are based as a percentage of the franchisees' gross room
revenues, partner service revenues and other miscellaneous items.
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In addition to these fees, we also collect marketing and reservation fees to
support centralized marketing and reservation activities.
The principal factors that affect our results are: (i) growth in the
number of hotels under franchise; (ii) occupancies and room rates achieved by
the hotels under franchise; (iii) the number and relative mix of franchised
hotels; (iv) effective royalty rates achieved; and (v) our ability to manage
costs. The number of rooms at franchised properties and occupancies and room
rates at those properties significantly affect our results because royalty fees
are based upon room revenues at franchised hotels. The variable overhead costs
associated with franchise system growth are substantially less than incremental
royalty fees generated from new franchisees, therefore we are able to capture a
significant portion of these royalty fees as operating income. Continued growth
of our franchise business should enable us to capture increasing benefits from
the operating leverage in place which would improve operating margins.
Company History
Prior to becoming a separate, publicly-held company on October 15, 1997
pursuant to the Company Spin-off (as defined below), the Company was known as
Choice Hotels Franchising, Inc. and was a wholly-owned subsidiary of Choice
Hotels International, Inc. ("Former Choice"). On October 15, 1997, Former Choice
distributed to its stockholders its hotel franchising business (which had
previously been primarily conducted by the Company) and its European hotel
ownership and franchising business through a pro rata distribution to its
stockholders of all of the stock of the Company (the "Company Spin-off"). At the
time of the Company Spin-off, the Company changed its name to "Choice Hotels
International, Inc.," and Former Choice changed its name to "Sunburst
Hospitality Corporation." References herein to the Company's former parent
corporation prior to the Company Spin-off are to "Former Choice," and reference
to such corporation after the Company Spin-off are to "Sunburst."
Prior to November 1996, Former Choice was a subsidiary of Manor Care,
Inc. ("Manor Care") which, directly and through its subsidiaries, engaged in the
hotel franchising business currently conducted by the Company as well as the
ownership and management of hotels (together with the hotel franchising
business, the "Lodging Business") and the health care business. On November 1,
1996, Manor Care separated the Lodging Business from its health care business
through a pro rata distribution to the holders of Manor Care's common stock of
all of the stock of Former Choice (the "Former Choice Spin-off"). In connection
with the Former Choice Spin-off, the Company became a wholly-owned subsidiary of
Former Choice and remained as such until consummation of the Company Spin-off.
The Lodging Industry/(1)/
As of December 31, 2001, there were approximately 4.1 million hotel
rooms in the United States in hotels/motels containing twenty or more rooms. Of
those rooms, approximately
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/(1)/ Source: Smith Travel Research
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1.2 million rooms were not affiliated with a national or regional brand, while
the remaining approximately 2.9 million rooms were affiliated with a brand
either through franchise or the ownership/management of a national or regional
chain.
Historically, the industry added hotel rooms to its inventory due
largely to a favorable hotel lending environment, the ability of hotel operators
to regularly increase room rates and the deductibility of passive tax losses,
which encouraged hotel development. As a result, the lodging industry saw an
oversupply of rooms and a decrease in industry performance.
Industry performance recovered sharply in the mid-1990's and continued
positive growth until 2001. The recession of 2001 coupled with the events of
September 11, 2001 caused profitability in the industry to decline for the first
time in nearly a decade. Nonetheless, the industry remained profitable through
this most difficult period.
Prior to 2001, the industry had seen consistent gains in RevPAR, a key
operating statistic for the industry. RevPAR is calculated by multiplying the
percentage of occupied rooms by the average daily room rate realized. From 1993
through 2000, the lodging industry was able to increase its average daily rate
("ADR") at a pace faster than the increase in the Consumer Price Index ("CPI"),
a common measure of inflation published by the US Department of Labor. The
following chart demonstrates these trends:
The US Lodging Industry's Trends From 1995 - 2001
Increases in Average
Room Daily Increase Increase Revenue Per
Revenue Room in ADR in CPI Available New
Versus Occupancy Rates Versus Versus Room Profits Rooms
Year Prior Year Rates (ADR) Prior Year Prior Year (RevPAR) (in billions) Added
- ---- ------------ ---------- ---------- ------------ ----------- ----------- -------------- ------------
1995 ..... 6.7% 65.1% $65.81 4.7% 2.9% $42.83 $8.5 64,000
1996 ..... 8.9% 65.0% $70.81 7.6% 2.9% $46.06 $12.5 101,000
1997 ..... 8.8% 64.5% $75.16 6.1% 1.9% $48.50 $17.0 128,000
1998 ..... 7.7% 64.0% $78.62 4.4% 2.3% $50.29 $22.0 143,000
1999 ..... 7.4% 63.3% $81.27 4.0% 2.7% $51.44 $23.0 143,148
2000 ..... 8.6% 63.5% $85.24 4.7% 3.4% $54.13 $24.0 121,476
2001 ..... -4.7% 60.1% $84.85 -0.5% 2.9% $50.99 $16.7 101,279
However, due to a downturn in the worldwide economy experienced during
2001, coupled with the terrorist attacks of September 11, industry and RevPAR
performance has suffered, which has led to reduced royalties and decreased hotel
development. Development of newly constructed hotels is expected to decline
further as funding from the hotel development lending market has significantly
decreased due to market uncertainty and an inability to effectively value
properties.
The lodging inventory has begun to show signs of economic recovery
during the first two months of 2002. Although occupancy and RevPAR figures for
2002 remain below 2001 levels, these factors are showing a return to more normal
and predictable levels of business.
We believe the lodging industry can be divided into three price
categories: luxury or upscale, mid-scale and economy. Typically, the luxury
category generally has room rates above
5
$80 per night, the mid-scale category generally has room rates between $50 and
$79 per night and the economy category generally has room rates less than $50
per night. Additionally, a new category has emerged of extended-stay hotels that
primarily serve guests who stay at a hotel five consecutive nights. These hotels
span the industry's three price categories.
Service is a distinguishing characteristic in the lodging industry.
Generally, there are three levels of service: full-service hotels (which offer
food and beverage services, meeting rooms, room service and similar guest
services); limited-service hotels (which offer amenities such as swimming pools,
continental breakfast, or similar services); and all-suites hotels (which
usually have limited public areas, but offer guests two rooms or one room with
distinct areas, and which may or may not offer food and beverage services).
Our Econo Lodge(R) and Rodeway Inn(R) brands compete primarily in the
limited-service economy market; our Comfort(R), Comfort Suites(R), Quality(R)
and Sleep Inn(R) brands compete primarily in the limited-service middle-market.
Our MainStay Suites(R) brand competes primarily in the all-suites middle-market.
Our Clarion(R) brand competes primarily in the full-service upscale market.
New hotels opened in recent years typically have been hotels without
on-premise food and beverage, as these hotels are less costly to develop, enjoy
higher gross margins, and tend to have better access to financing. These hotels
typically operate in the economy and mid-scale categories and are located in
suburban or highway locations. From 1991 to 2001, the average room count in new
hotels declined from 122 to 101 primarily because hotel developers found it
difficult to obtain financing of more than $3 million from their primary lending
sources (local banks and Small Business Administration-guaranteed loan
programs).
In recent years, operators of hotels not owned or managed by major
lodging companies have increasingly joined national hotel franchise chains as a
means of remaining competitive with hotels owned by or affiliated with national
lodging companies. Because the costs of owning and operating a hotel are
generally fixed, increases in revenues generated by affiliation with a franchise
lodging chain can improve a hotel's financial performance. Of approximately
1,258 hotel properties that changed their affiliation in 2001, 60% converted
from independent status to affiliation with a chain or converted from one chain
to another, while only 387 converted from affiliation with a chain to
independent status. A total of 365 independent properties switched to a
franchise chain in 2001.
The large franchise lodging chains, including us, generally provide a
number of services to hotel operators to improve the financial performance of
their properties including national reservation systems, marketing and
advertising programs, training and education programs, property systems, revenue
enhancement services, and direct sales programs. We believe that national
franchise chains with a larger number of hotels enjoy greater brand awareness
among potential guests than those with fewer numbers of hotels, and that greater
brand awareness can increase the desirability of a hotel to its potential
guests.
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We believe that hotel operators choose lodging franchisors based
primarily on the perceived value and quality of each franchisor's brand and its
services, and the extent to which affiliation with that franchisor may increase
the franchisee's reservations and profits.
Franchise Business
Economics of Franchise Business. The fee and cost structure of our
business provides significant opportunities for us to increase profits by
increasing the number of franchised properties. As a hotel franchisor, we derive
substantially all of our franchise revenue from franchise fees. Our franchise
fees consist of an initial fee and ongoing royalty, marketing and reservation
fees which are typically based on a percentage of the franchisee's gross room
revenues. The royalty portion of the franchise fee is intended to cover our
operating expenses, such as expenses incurred in quality assurance,
administrative support and other franchise services and to provide us with
operating profits. The marketing and reservation portion of the franchise fee
are used exclusively by our marketing and reservation funds for the expenses
associated with national marketing and media advertising and providing such
franchise services as the central reservation system.
Much of the variable costs associated with our activities are
reimbursed by the franchisees through the initial fees, and marketing and
reservation fees. The royalty fees generated from franchisees more than cover
the fixed costs of the business at its current level. The variable overhead
costs associated with franchise system growth are substantially less than
incremental royalty fees generated from new franchisees, therefore we are able
to capture a significant portion of these royalty fees as operating income.
Strategy. Our business strategy is designed to create consistent growth
by leveraging Choice's large and well-known global hotel brands, proven
franchise sales capabilities, effective marketing efforts and reservations
delivery, many RevPAR enhancing services and technology, and financial strength
created by our significant free cash flow.
Specific elements of our strategy include building strong brands,
delivering exceptional services, reaching more consumers and leveraging size,
scale and distribution.
Build Strong Brands. Each of our brands has particular attributes and
strengths, including exceptionally high awareness with both consumers and
developers. Our strategy is to utilize the strengths of each brand for both unit
growth and RevPAR gains that create royalty growth.
We have a wide array of well-known and established brands that meet the
needs of many types of guests and can be developed at various price points and
can be applied to both new and existing hotels. This ensures that we have
opportunities for creating unit growth in various types of markets, with various
types of customers, and during both industry contraction and growth cycles.
During times of lower industry supply growth and tighter capital markets, we can
rely on gaining conversions from hotels seeking the awareness and proven
performance provided by our brands. Over the past 10 years, the industry has
seen a significant movement of hotels from independent to chain affiliation,
with affiliated hotels increasing from 46% of the market in 1990
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to 60% of the market in 2000 and 2001. This trend is likely to continue, as
industry RevPAR growth remains soft. When industry conditions become more
favorable, a greater portion of our unit growth will come from our new
construction brands. We believe that a large number of markets can still support
our hotel brands, and the growth potential for our brands remains strong.
To keep our brand images contemporary and communicate positive changes
to our brands, including new prototypes and enhanced system quality, Choice
announced new brand logos for its Quality(R), Sleep Inn(R) and Comfort Suites(R)
brands during 2001. Expected to be complete during 2002, these new logos signal
Choice's commitment to enhancing our brands to both developers and consumers
alike.
We will ensure each of our brands remain appealing to hotel owners and
guests alike by continuing to create integrated brand and development strategies
for our brands that leverage each brands' unique strengths and identify the most
appropriate methods for both system growth and RevPAR improvement. We will also
focus on creating a customer-driven quality assurance program across all of our
brands to ensure each hotel is consistently and effectively meeting guest needs.
Deliver Exceptional Services. We have successfully created a wide array
of services and local customer touch points to help franchisees improve
performance. Our field staff, in combination with strong technology products,
directly helps property owners effectively manage their properties to improve
RevPAR performance. Marketing services help create effective positioning for
brands and drive guest stays. Reservations services deliver a high percentage of
guests directly to properties. These services create revenue gains for hotel
owners and translate into both higher royalty rates for Choice and improved
returns for owners, leading to further unit growth. These services also make
Choice brands attractive to both experienced hotel owners and developers new to
the industry. We will continue to align these services directly on customer
needs, focus on those activities that generate the highest revenue for our
customers, and ensuring efficient, effective, and coordinated service delivery
minimizes overhead costs.
Reach More Consumers. Hotel owners greatly value the large delivery of
guests we provide through corporate and brand marketing, reservations, key
account sales, and Choice's loyalty programs, Choice Privileges and EA$Y Choice.
Our strategy is to continue to maximize the effectiveness of these services and
programs to deliver both leisure and business travelers to Choice-branded
hotels. Our emphasis will be on stressing our very powerful leisure market,
while improving overall contributions from business travelers.
Choice will continue to increase awareness of its hotels through its
multi-branded national marketing campaign using re-imaged signs and our "Power
of Being There. Go" tagline. This campaign is intended to generate the most
compelling voice in the limited service segment and utilize Choice's significant
size to create even greater awareness for our brands. Local and regional co-op
marketing campaigns will continue to leverage the national marketing programs to
drive business to Choice properties at a local level. The Choice Privileges
program has also been enhanced through the introduction of airline mile options.
Our continued focus on overall
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brand quality coupled with these new initiatives is designed to stimulate room
demand for our franchised hotels through improved guest satisfaction.
Leverage Size, Scale and Distribution. We will focus on identifying
methods for utilizing the significant number of hotels in our system using our
size to reduce costs, and increase returns, for hotel owners. We will continue
to create partnerships with endorsed vendors that both make low-cost products
available to our franchisees and streamline the purchasing process through the
use of effective purchasing technology. These efforts also benefit the company
in enhancing brand quality, creating enhanced cash flows for Choice, and making
the selection of a Choice brand even more compelling. We intend to continue to
expand this business and identify new methods for decreasing hotel operating
costs by increasing penetration internally, creating new vendor relationships,
and identifying opportunities for external growth.
Over the past year, Choice has taken aggressive steps to improve the
efficiency of its operations, including a reorganization and consolidation of
reservation centers in November 2001. Management will continue to revise our
structure, create more efficient internal processes and use technology to lower
cost and improve results.
Franchise System
Our franchise hotels operate under one of the Choice brand names:
Comfort(R), Comfort Suites(R), Quality(R), Clarion(R), Sleep Inn(R), Econo
Lodge(R), Rodeway Inn(R) and MainStay Suites(R). The following table presents
key statistics relative to our domestic franchise system over the fiscal year
ended May 31, 1997, for the seven-month period ended December 31, 1997 and for
the five fiscal years ended December 31, 2001.
COMBINED DOMESTIC FRANCHISE SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
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1997 1997 1997 1998 1999 2000 2001
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Number of properties, end of period .. 2,781 2,880 2,880 3,039 3,123 3,244 3,327
Number of rooms, end of period ....... 235,431 242,161 242,161 252,357 258,120 265,962 270,514
Royalty fees ($000) .................. $ 91,724 $ 65,271 $ 99,144 $109,240 $120,932 $131,702 $133,244
Average Royalty Rate/(1)/ ............ 3.4% 3.5% 3.5% 3.6% 3.7% 3.8% 3.9%
Average occupancy percentage ......... 62.6% 66.2% 62.3% 61.0% 60.5% 59.8% 57.5%
Average daily room rate (ADR) ........ $ 51.92 $ 54.97 $ 53.89 $ 56.23 $ 58.42 $ 61.45 $ 62.31
RevPAR/(2)/ .......................... $ 32.52 $ 36.39 $ 33.56 $ 34.30 $ 35.33 $ 36.72 $ 35.83
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/(1)/ Represents domestic royalty fees as a percentage of aggregate gross room
revenues of all of the domestic Choice brand franchised hotels.
/(2)/ The Company's RevPAR figure for each fiscal year is an average of the
RevPAR calculated for each month in the fiscal year. The Company
calculates RevPAR each month based on information actually reported by
franchisees on a timely basis to the Company.
We have approximately 2,400 domestic franchisees and operate in all 50
states and the District of Columbia. Approximately 97% of the total royalty
income is generated from domestic franchise operations. Consequently, our
analysis of our franchise system is focused on
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the domestic operations. Currently, no master franchisee or other franchisee
accounts for 5% or more of Choice's royalty revenues or total revenues.
Brand Positioning
Our brands offer consumers a wide range of choices from economy hotels
to upscale, full service properties.
Comfort. Our largest brand is Comfort. Comfort Inns offer rooms in the
mid-scale without food and beverage category and is targeted to business and
leisure travelers. Principal competitor brands include Baymont, Fairfield Inn,
Hampton Inn, Holiday Express and LaQuinta. Comfort Suites offer business and
leisure guests a large room with separate living and sleeping areas. This
product competes in the upper portion of the mid-scale without food and beverage
category against brands such as AmeriSuites, Hampton Inn and Suites and Spring
Hill. At December 31, 2001, there were 1,713 Comfort Inn properties and 319
Comfort Suites properties with a total of 131,647, and 25,472 rooms,
respectively, open and operating worldwide. An additional 281 Comfort Inn and
Comfort Suites properties with a total of 20,255 rooms were under development.
During 2001, we added 140 Comfort properties while terminating 48.
Comfort properties are located in the United States and in Argentina,
Australia, the Bahamas, Belgium, Brazil, Canada, Cayman Islands, Costa Rica,
Czech Republic, Denmark, Egypt, El Salvador, Finland, France, Germany, India,
Ireland, Italy, Jamaica, Japan, Lebanon, Norway, Portugal, Puerto Rico, Sweden,
Switzerland, Thailand, Turks & Caicos, the United Kingdom and the United Arab
Emirates. The following chart summarizes the Comfort system in the United
States:
COMFORT DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
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1997 1997 1997 1998 1999 2000 2001
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Number of properties, end of period............ 1,255 1,304 1,304 1,394 1,470 1,568 1,621
Number of rooms, end of period................. 102,722 105,384 105,384 110,682 112,727 122,761 126,998
Royalty fees ($000)............................ $ 50,758 $36,446 $55,261 $ 61,153 $68,177 $75,968 $78,690
Average occupancy percentage................... 67.2% 71.3% 66.6% 65.4% 64.8% 63.7% 61.3%
Average daily room rate (ADR).................. $ 54.17 $57.15 $55.74 $ 58.19 $ 60.57 $ 63.77 $ 65.30
RevPAR......................................... $ 36.39 $40.75 $37.15 $ 38.03 $ 39.26 $ 40.60 $ 40.01
Quality. Certain Quality Inns, Quality Inns and Suites, and Quality
Suites hotels compete in the mid-scale with food and beverage category. Quality
Inns, Quality Inns and Suites, and Quality Suites are targeted to business and
leisure travelers. Principal competitor brands include Best Western, Holiday
Inn, Howard Johnson and Ramada Inn. At December 31, 2001, there were 746 Quality
Inn and Quality Inns and Suites properties with a total of 78,918 rooms, and 53
Quality Suites properties with a total of 5,842 rooms open worldwide. An
additional 178 Quality Inn, Quality Inns and Suites and Quality Suites
properties with a total of 18,028 rooms were
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under development. During 2001, a total of 82 Quality properties were added
while 49 were terminated.
Quality properties are located in the United States and in Australia,
Brazil, Canada, Chile, Costa Rica, the Czech Republic, Denmark, Egypt, Finland,
France, Germany, Honduras, India, Indonesia, Ireland, Italy, Lebanon, Malaysia,
New Zealand, Norway, Portugal, Sweden, Thailand, the United Kingdom and the
United Arab Emirates. The following chart summarizes the Quality system in the
United States:
QUALITY DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
------------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
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Number of properties, end of period............ 409 419 419 430 431 436 430
Number of rooms, end of period................. 50,487 50,674 50,674 50,151 49,331 49,191 48,014
Royalty fees ($000)............................ $17,623 $14,459 $18,488 $20,187 $21,034 $21,753 $20,605
Average occupancy percentage................... 61.3% 63.8% 60.2% 58.9% 58.0% 57.6% 55.3%
Average daily room rate (ADR).................. $ 54.61 $ 57.58 $56.79 $ 60.02 $ 61.89 $64.05 $64.72
RevPAR......................................... $ 33.46 $ 36.73 $34.19 $ 35.35 $ 35.90 $36.86 $35.80
Clarion. Clarion Inns, Clarion Hotels, Clarion Resorts and Clarion
Suites hotels are full-service properties with on-premise food and beverage
facilities and operate in the upscale category. Clarion properties are targeted
to business and leisure travelers. Principal competitor brands include Crowne
Plaza, Four Points by Sheraton, Radisson, Courtyard by Marriott and Doubletree.
At December 31, 2001, there were 160 Clarion properties with a total of
23,658 rooms open and operating worldwide and an additional 28 properties with a
total of 4,082 rooms under development. During 2001, 25 Clarion properties were
added while 18 were terminated. The properties are located in the United States,
Argentina, Australia, Canada, China, Costa Rica, Denmark, France, Germany,
Guatemala, Honduras, Indonesia, Ireland, Italy, Japan, Norway and the United
Kingdom. The following chart summarizes the Clarion system in the United States:
CLARION DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
------------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
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Number of properties, end of period........... 92 96 96 105 112 114 119
Number of rooms, end of period................ 14,721 16,161 16,161 17,878 18,815 18,537 18,032
Royalty fees ($000)........................... $ 4,081 $ 2,957 $ 5,061 $ 5,447 $ 6,491 $ 7,796 $ 7,189
Average occupancy percentage.................. 63.3% 64.7% 62.3% 60.5% 59.0% 58.8% 54.3%
Average daily room rate (ADR)................. $ 67.76 $ 71.53 $ 70.67 $ 72.25 $ 74.17 $ 81.37 $ 78.14
RevPAR........................................ $ 42.86 $ 46.29 $ 44.05 $ 43.73 $ 43.74 $ 47.86 $ 42.46
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Sleep Inn. Established in 1988, Sleep Inn is a new-construction hotel
brand in the lower portion of the mid-scale without food and beverage category.
Sleep Inns are targeted to the business and leisure traveler. Principal
competitor brands include Fairfield Inn, Holiday Express, LaQuinta and Red Roof.
At December 31, 2001, there were 295 Sleep Inn properties with a total
of 22,731 rooms open and operating worldwide. An additional 73 properties with a
total of 5,261 rooms were under development. During 2001, 29 Sleep Inn
properties were added while 2 were terminated. The properties are located in the
United States, Brazil, Canada, Japan and the United Kingdom. The following chart
summarizes the Sleep system in the United States:
SLEEP DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
------------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
------------------------------------------------------------------------------------
Number of properties, end of period............ 131 156 156 197 224 261 285
Number of rooms, end of period................. 9,635 11,538 11,538 14,924 17,199 20,158 21,945
Royalty fees ($000)............................ $ 3,343 $2,630 $ 3,926 $5,337 $ 7,241 $ 8,713 $ 9,635
Average occupancy percentage................... 63.9% 66.5% 63.0% 62.0% 60.6% 59.6% 57.5%
Average daily room rate (ADR).................. $ 48.11 $50.54 $ 49.41 $51.32 $ 53.91 $ 55.82 $ 57.02
RevPAR......................................... $ 30.75 $33.60 $ 31.11 $31.82 $ 32.66 $ 33.25 $ 32.79
Econo Lodge. Econo Lodge hotels operate in the economy category of the
lodging industry. Econo Lodges are primarily targeted to senior citizens and
rely to a large extent on strong roadside name recognition. Principal competitor
brands include Days Inn, Motel 6, Ramada Limited, Red Carpet Inn, Super 8 and
Travelodge.
At December 31, 2001, there were 730 Econo Lodge properties with a
total of 44,788 rooms open and operating in the United States and Canada, and an
additional 66 properties with a total of 4,298 rooms under development in those
two countries. During 2001, 42 Econo Lodge properties were added while 28 were
terminated. The following chart summarizes the Econo Lodge system in the United
States:
ECONO LODGE DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
------------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
------------------------------------------------------------------------------------
Number of properties, end of period............ 682 692 692 698 691 684 691
Number of rooms, end of period................. 44,636 45,050 45,050 44,458 43,754 42,611 42,936
Royalty fees ($000)............................ $13,288 $ 8,991 $13,687 $13,975 $14,313 $14,490 $14,100
Average occupancy percentage................... 56.4% 60.7% 56.1% 54.3% 54.0% 52.9% 51.4%
Average daily room rate (ADR).................. $ 41.33 $ 43.86 $ 42.35 $ 43.55 $ 45.01 $ 46.33 $47.30
RevPAR......................................... $ 23.30 $ 26.63 $ 23.75 $ 23.65 $ 24.32 $ 24.51 $24.30
12
Rodeway Inn. The Rodeway Inn brand competes in the economy category and
is primarily targeted to senior citizens. Principal competitor brands include
Ho-Jo Inn, Ramada Limited, Red Roof Inn, Shoney's Inn, Super 8 and Motel 6. At
December 31, 2001, there were 142 Rodeway Inn properties with a total of 9,179
rooms open and operating in the United States and an additional 19 properties
with a total of 1,231 rooms under development in the United States and Canada.
During 2001, 12 Rodeway properties were added while 21 were terminated. The
following chart summarizes the Rodeway system in the United States:
RODEWAY DOMESTIC SYSTEM
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
------------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
------------------------------------------------------------------------------------
Number of properties, end of period............ 217 209 209 196 166 147 142
Number of rooms, end of period................. 13,509 12,997 12,997 12,447 10,613 9,605 9,179
Royalty fees ($000)............................ $2,631 $1,756 $2,671 $2,678 $2,552 $2,391 $2,171
Average occupancy percentage................... 52.7% 54.7% 51.4% 50.1% 50.7% 50.3% 47.2%
Average daily room rate (ADR).................. $41.15 $44.11 $43.15 $44.03 $45.57 $48.25 $48.94
RevPAR......................................... $21.68 $24.13 $22.20 $22.04 $23.09 $24.25 $23.11
MainStay Suites. MainStay Suites, our newest hotel brand, is a midscale
extended-stay lodging product targeted to travelers who book hotel rooms for
five nights or more. As of December 31, 2001, there were 39 open hotels with
3,410 rooms and an additional 26 properties with 2,097 rooms under development.
During 2001, 6 MainStay Suites properties were added while 1 was terminated.
The MainStay Suites brand is designed to fill the gap in the midscale
category between existing upscale and economy extended-stay lodging products.
Principal competitors brands include Candlewood Suites, Homestead Village,
Sierra Suites and TownePlace Suites. The following chart summarizes the MainStay
Suites system in the United States:
MAINSTAY DOMESTIC SYSTEM
As of and For the Year Ended
December 31,
-------------------------------
1999 2000 2001
-------------------------------
Number of properties, end of period...... 29 34 39
Number of rooms, end of period........... 2,681 3,099 3,410
Royalty fees ($000)...................... $1,124 $ 586 $ 853
Average occupancy percentage............. 66.0% 70.0% 65.8%
Average daily room rate (ADR)............ 58.87 $ 63.69 $ 64.09
RevPAR................................... $38.88 $ 44.59 $ 42.20
13
International Franchise Operations
We conduct our international business through master franchise
arrangements, direct franchise agreements, and investments in overseas
hospitality companies that are involved with both hotel management and
franchising. The use of our brands by third parties overseas are governed by
master franchising agreements which generally provide the master franchisee with
the right to the brands in a specific geographic region, usually for a fee. As
of December 31, 2001, we had 1,218 franchise hotels in 37 countries outside of
the United States. The following table illustrates the growth of our
international operations over the fiscal year ended May 31, 1997, for the seven
month period ended December 31, 1997 and for the five fiscal years ended
December 31, 2001.
COMBINED INTERNATIONAL FRANCHISE SYSTEM(1)
As of and
As of and For For the Seven
the Year Ended Months Ended As of and For the Year Ended
May 31, December 31, December 31,
-----------------------------------------------------------------------------------
1997 1997 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------
Number of properties, end of period..... 563 605 605 632 1,125 1,148 1,218
Number of rooms, end of period.......... 47,603 50,639 50,639 53,095 80,134 84,389 92,035
Royalty fees ($000)..................... $1,672 $958 $2,303 $ 4,902 $ 6,949 $5,286 $ 5,215
/(1)/ Master franchise contracts do not currently require the reporting of
operating statistics (e.g. average occupancy percentage and average daily
room rate) of the underlying hotels, thus RevPAR is not calculated for
foreign hotels.
Europe. Through our relationships with Friendly Hotels PLC (Currently
known as C.H.E. Group PLC) ("Friendly") and Choice Hotels Scandinavia ("CHS"),
we are the second largest branded hotel chain in Europe. As of December 31,
2001, Friendly's portfolio consisted of 338 properties which were owned, managed
or franchised. CHS had 135 open properties at December 31, 2001.
In May 1996, we granted to Friendly a master franchise agreement for
the United Kingdom and Ireland. In January 1998, we also granted Friendly the
master franchise rights for continental Europe (excluding Scandinavia). Both
agreements include the Comfort, Quality and Clarion brands for a ten-year
period. In exchange, we received shares of common stock and were to receive an
$8.0 million payment, payable in eight equal annual installments. As of December
31, 2001, we held 1,227,622 shares of common stock and 31,097,755 shares of
5.75% convertible preferred stock in Friendly.
On January 19, 2001, the shareholders of Friendly approved a capital
reorganization intended to provide Friendly with a stronger balance sheet and
improve its operations. Pursuant to the capital reorganization, we waived
certain royalty and marketing fees due from Friendly for the period between
December 27, 1999 and December 31, 2005, waived the then five remaining annual
installments of the master franchise agreement and provided Friendly with a
(pound)7.8 million (approximately US $11.4 million) secured letter of credit, in
consideration for, among other things, a reduction in the conversion price of
our convertible preferred shares from 150 pence to
14
60 pence. Other modifications to our convertible preferred shares include a
change in the dividend rate from 5.75% (payable in cash) to 2% per annum, if
payable in additional convertible preferred shares. Friendly may alternatively
elect to pay cash dividends at the rate of 3.5% per annum up until January 30,
2013 and thereafter at the rate of 5.75%. In addition, accrued dividends due to
us as of February 7, 2001 were converted to additional convertible preferred
shares of Friendly. As of December 31, 2001, Friendly had drawn (pound)5.3
million (approximately US $7.7 million) of the available letter of credit and
the balance available on the letter of credit was reduced to (pound)5.0 million
(approximately US $7.3 million) as of January 21, 2002. The letter of credit
will expire on June 30, 2002.
During 2001, Friendly settled a $4.0 million deferred consideration due
to us through the issuance of 2,404,013 convertible preferred shares. The effect
of the reduction in the conversion price together with the conversion of
dividend arrearage to additional convertible preferred shares of Friendly and
the settlement of the deferred consideration, both resulting in the issuance of
convertible preferred shares, on a fully converted basis, the Company's
ownership in Friendly would have been approximately 71%. No dividends were
accrued during 2001 or 2000.
We did not control Friendly nor have the requirement to consolidate
Friendly for financial reporting purposes. Our fully converted holding in
Friendly was 71%, but voting rights in that percentage would only have been
granted to us if we had converted the convertible preferred shares to ordinary
shares. As of December 31, 2001, we only had 5.4% of the voting rights.
Additionally, we had appointed three of the eight existing directors to the
board of Friendly, and therefore could not control any vote. These appointed
directors did not have the legal right under English law to vote on resolutions
regarding matters where we were a related party.
In addition to the capital reorganization, Friendly commenced a
non-core real estate asset disposal program to de-leverage its balance sheet. In
order to enable its disposal program, Friendly revalued its real estate
portfolio at December 31, 2000 and recognized a non-cash write-down of
(pound)49.1 million. We recognized equity losses of $(16.4 million) and $(12.1
million) for the years ended December 31, 2001 and 2000 related to mid-year
adverse fixed asset valuation adjustments due to a decline in economic
conditions and incremental professional fees associated with the reorganization.
On February 21, 2002, Friendly announced that it had been unable to
find an acceptable buyer for its business and would terminate such efforts at
this time. Given the bid period termination and the adverse economic conditions
of Friendly, we disposed of our entire preferred and common equity interest in
Friendly on March 20, 2002, and immediately relinquished our three seats on
Friendly's board of directors. Accordingly, we reduced its investment in
Friendly to zero through a $22.7 million charge to reflect the permanent
impairment of our asset as of December 31, 2001.
Canada. We conduct our operation in Canada through Choice Hotels
Canada, Inc. a joint venture owned 50% by us and 50% by W-westmont, a subsidiary
of Westmont Hospitality.
15
Choice Hotels Canada is the largest lodging organization in Canada with 240
franchised properties open as of December 31, 2001.
Australia. In June 1998, we entered into a strategic alliance with Flag
International Limited ("FIL"). Pursuant to the transaction, a subsidiary of FIL,
Flag Choice Hotels ("FCH"), was formed to conduct franchise operations in
Australia. Through July 2002, we are obligated to provide a loan facility to FCH
in an amount up to A$5.0 million, of which A$3.75 million may be converted to an
additional 30% equity holding in FCH. As of December 31, 2001, we held 15% of
FCH through the conversion of A$1.875 million in notes and held one seat on
FCH's board of directors. Upon conversion of the remaining 15%, we will be
entitled to an additional board seat. As of December 31, 2001, FCH had 65
franchised properties opened under the Choice brands and 346 franchised hotels
under the Flag brands. Through ongoing discussions with individual property
owners, FCH will continue its efforts to convert appropriate Flag branded
properties to the appropriate Choice brands.
Other International Relationships. We have various master franchise and
area representative arrangements in place with local hotel management and
franchising companies located in South America, India, New Zealand, Central
America, Japan, Indonesia, and Egypt. In addition, the Company has direct
franchise relationships with four properties in the Caribbean, two properties
each in Thailand, Malaysia, and Lebanon, and one property each in China, Dubai,
and Tunisia.
Franchise Sales
We have identified key market areas for hotel development based on
supply/demand relationships and strategic objectives. Development opportunities
are typically first offered; (i) to existing franchisees; and then to (ii)
developers of hotels; (iii) owners of independent hotels and motels; (iv) owners
of hotels affiliated with other franchisors' brands; and; (v) contractors who
construct any of the foregoing. In considering hotels for conversion to one of
the Choice brands, or sites for development of new hotels, we consider locations
which are close to major highways, airports, tourist attractions and business
centers that attract travelers.
At December 31, 2001, we employed approximately 22 sales directors,
each of whom is responsible for a particular region or geographic area. Sales
directors contact potential franchisees directly and receive compensation based
on sales generated. Franchise sales efforts emphasize the benefits of
affiliating with one of the Choice brands, our commitment to improving RevPAR,
our television, radio and print brand advertising campaigns, the Choice
reservation system, our training and support systems (including our proprietary
property management system) and our history of growth and profitability. Because
the Choice brands cover a broad spectrum of the lodging marketplace, we are able
to offer each prospective franchisee a brand that fits its needs, lessening the
chances that the prospective franchisee would need to consider a competing
franchise system.
Because retention of existing franchisees is important to our growth
strategy, we created a formal Impact Policy in 1992, which was revised in July
1999, which offers existing franchisees
16
the right to object to a same-brand property within a 15 mile radius. The Impact
Policy protects franchisees from the opening of a same-brand property within a
specific distance, which can range from one to seven miles, depending upon the
market in which the property is located.
During fiscal 2001, Choice received 756 franchise applications for new
additions and relicensing of existing hotels, signed 300 new addition franchise
agreements and placed 225 new properties into operation in the United States
under the Choice brands. Of those placed into operations, 107 were newly
constructed hotels. By comparison, during the twelve month period ended December
31, 2000, we received 801 franchise applications for new additions and
relicensing of existing hotels, signed 298 new addition franchise agreements and
added 274 new properties into operation in the U.S. An application received may
not always result in a signed franchise agreement during the year received or at
all due to an applicant being unable to obtain financing or because the Company
and the applicant are unable to agree on the financial terms of the franchise
agreement.
Franchise Agreements
Our standard franchise agreement grants a franchisee the right to
non-exclusive use of our franchise system in the operation of a single hotel at
a specified location, typically for a period of 20 years, with certain rights to
each of the franchisor and franchisee to terminate the franchise agreement
before the twentieth year. When the responsibility for development is sold to a
master franchisee, that party has the responsibility to sell to local
franchisees the Choice brands and the master franchisee generally must manage
the delivery of necessary services (such as training, quality assurance,
reservations and marketing) to support the franchised hotels in the master
franchise area. The master franchisee collects the fees paid by the local
franchisee and remits an agreed share to us. Master franchise agreements
generally have a term of at least 10 years. We have only entered into master
franchise agreements with respect to franchise hotels outside the United States.
Either party to a franchise agreement, other than master franchise
agreements, can terminate a franchise agreement prior to the conclusion of their
term under certain circumstances, such as at certain anniversaries of the
agreement. Early termination options give us flexibility in eliminating or
re-branding properties which become weak performers for reasons other than
contractual failure by the franchisee. We also have the right to terminate a
franchise agreement if a franchisee fails to bring properties into compliance
with contractual or quality standards within specified periods of time. Master
franchise agreements typically contain provisions permitting us to terminate the
agreement for failure to meet a specified development schedule.
In 2001, we continued to place great focus on enforcing quality
standards. Terminations of open properties that failed to meet quality assurance
standards or contractual obligations were 142 properties in 2001 (28 of which
were mutually agreed upon terminations) and 161 properties in 2000 (36 of which
were mutual terminations).
Franchise fees vary among the different Choice brands, but generally
are competitive with the industry average within their market group. Franchise
fees usually have four
17
components: an initial, one-time affiliation fee; a royalty fee; a marketing
fee; and a reservation fee. Proceeds from the marketing fee and reservation fee
are used exclusively to fund marketing programs and the Company's central
reservation system, respectively. Most marketing fees support marketing programs
designed to support all of the Choice brands, while some contribute to
brand-specific marketing programs. Royalty fees and affiliation fees are the
principal sources of profits for us.
The standard franchise agreements typically require our franchisees to
pay the following fees:
QUOTED FEES BY BRAND
Initial Fee On-Going Fees as a Percentage of Gross Room Revenues
Per Room/ --------------------------------------------------------
Brand Minimum Royalty Fees Marketing Fees Reservation Fees
----- ----------------- -------------- --------------- -----------------
Comfort Inn............................. $300/$50,000 5.25% 2.1% 1.75%
Comfort Suites.......................... $300/$50,000 5.25% 2.1% 1.75%
Quality Inn............................. $300/$35,000 4.0% 2.1% 1.75%
Quality Suites.......................... $300/$50,000 4.0% 2.1% 1.25%
Sleep Inn............................... $300/$40,000 4.5% 2.1% 1.75%
Clarion................................. $300/$40,000 3.75% 1.0% 1.25%
Econo Lodge............................. $250/$25,000 4.0% 3.5%(1) --
MainStay Suites......................... $300/$30,000 4.5% 2.5%(1) --
Rodeway................................. $250/$25,000 3.5% 1.25% 1.25%
- -------------
/(1)/ Fee includes both Marketing and Reservation Fees.
We have increased our average royalty rate since fiscal year 1993,
primarily by increasing the number of higher royalty fee contracts in the
franchise system and due to the escalation of royalty fees as franchise
agreements mature. For the twelve months ended December 31, 2001, our average
royalty rate for all Choice domestic brand hotels was 3.95%.
Franchise Operations
Our operations are designed to improve RevPAR for our franchisees, as
this is the measure of performance that most directly impacts franchisee
profitability. We believe that by helping our franchisees to become more
profitable we will enhance our ability to both retain our existing franchisees
and attract new franchisees. The key aspects of our franchise operations are:
Central Reservation System. On average, approximately 25% of the room
nights booked at franchisees' properties are reserved through a central
reservation system, which is supported by our toll-free telephone reservation
system, our proprietary Internet site, and global distribution systems. Our
reservation system consists of a computer reservation system known as CHOICE
2001, three reservation centers in North America and several international
reservation centers run by us or our master franchisees. Operators trained on
the CHOICE 2001 system can match each caller with a Choice-branded hotel meeting
the caller's needs. It provides an instant data link to our franchised
properties as well as to the Amadeus, Galileo, SABRE and Worldspan airline
reservation systems that facilitates the reservation process for travel agents.
We also offer our
18
rooms for sale on our own proprietary Internet site (choicehotels.com) as well
as those of other travel companies.
To define more sharply the market and image for each of our brands, we
began advertising separate toll-free reservation numbers for all of our brands
in fiscal year 1995, although we allow our reservation agents to cross-sell the
Choice brands. If a room in the Choice hotel brand requested by a customer is
not available in the location or price range that the ustomer desires, the agent
may offer the customer a room in another Choice-branded hotel that meets the
customer's needs. Cross-selling enables Choice and its franchisees to capture
additional business.
On-line reports generated by the CHOICE 2001 system enable franchisees
to analyze their reservation patterns over time. In addition, we provide a yield
management product for our franchisees to allow them to improve the management
of their mix of rates and occupancy based on current and forecasted demand on a
property-by-property basis. We also market to our franchisees a property
management product. Such products are designed to manage the financial and
operations information of an individual hotel and improve its efficiency.
Property Management System. Our proprietary property and yield
management system, Profit Manager by Choice Hotels, is designed to help
franchisees maximize profitability and compete more effectively by managing
their rooms inventory, rates and reservations. The Profit Manager system
synchronizes each hotel's inventory with the CHOICE 2001 system, giving
reservation sales agents last room sell capabilities at every hotel. Profit
Manager includes a revenue management feature that calculates and suggests
optimum rates and length of stays based on each hotel's past performance and
projected occupancy. We believe that Profit Manager provides Choice Hotels with
a competitive advantage over hotels and franchise systems that do not have
standardized property and yield management systems.
As of March 15, 2002, approximately 2,600 hotels in the United States
and Canada are using Profit Manager, with approximately 1,700 of those hotels
utilizing the revenue management function.
Brand Name Marketing and Advertising. Our marketing and advertising
programs are designed to heighten consumer awareness and preference for the
Choice brands. Marketing and advertising efforts include national television and
radio advertising, print advertising in consumer and trade media and promotional
events, including joint marketing promotions with vendors and corporate
partners.
In May 2001, a new multi-branded national marketing campaign, "The
Power of Being There, Go", was introduced. Choice also took a leadership
position in the marketplace by rapidly introducing the "Thanks for Traveling"
theme which became an industry "rallying cry" immediately after September 11,
2001.
Numerous marketing and sales programs are conducted which target
specific groups, including corporate travelers, senior citizens, motorist club
members, families, government and
19
military employees, and meeting planners. Other marketing efforts include
domestic and international trade show programs, publication of group and tour
rate directories, direct-mail programs, electronic direct marketing e-mail
programs, centralized commissions for travel agents, fly-drive programs in
conjunction with major airlines, and annual publication of a Travel and Vacation
Directory.
In 1998, we launched a loyalty program called Guest Privileges at four
of our brands (Comfort, Clarion, Quality and Sleep) to attract and retain
frequent travelers. As of December 31, 2001, the program had 1.2 million
members. In 2001, Choice renamed the program Choice Privileges in order to
communicate the link of the program to Choice Hotels. In 2001, we launched a
promotion called EA$Y CHOICE at our Econo Lodge and Rodeway Inn brands. The EA$Y
CHOICE promotion is a stamp redemption program and requires no program to join.
Additionally, Choice now offers all guests the ability to earn airline miles in
American AAdvantage(R) and US Airways Dividend Miles(R). As of February 1, 2002,
Delta and Northwest became airline partners. It is anticipated that additional
airlines will be added in 2002. Choice Privileges and EA$Y CHOICE participants
can earn airline miles or points/ stamps.
Marketing and advertising programs are directed by our marketing
department, which utilizes the services of independent advertising agencies. We
also employ home-based sales personnel geographically located across the United
States using personal sales calls, telemarketing and other techniques to target
specific customer groups, such as potential corporate clients in areas where our
franchised hotels are located, the motor coach market, and meeting planners. All
sales personnel sell business for all of the Choice brands.
Our franchise service directors work with franchisees to maximize
RevPAR. These directors advise franchisees on topics such as marketing their
hotels, improving quality and maximizing the benefits offered by the Choice
reservations system.
Quality Assurance Programs. Consistent quality standards are critical
to the success of a hotel franchise. We have established quality standards for
all of our franchised brands which cover housekeeping, maintenance, brand
identification and level of services offered. We inspect properties for
compliance with our quality standards when application is made for admission to
the franchise system. The compliance of existing franchisees with quality
standards is monitored through scheduled and unannounced Quality Assurance
Reviews conducted optimally twice per year at each property. Properties which
fail to maintain a minimum score are reinspected on a more frequent basis until
deficiencies are cured, or until such properties are terminated.
To encourage compliance with quality standards, various brand-specific
incentives and awards are used to reward franchisees who maintain consistent
quality standards. We identify franchisees whose properties operate below
minimum quality standards and assist them in complying with brand
specifications. Franchisees who fail to improve on identified quality matters
may be subject to consequences ranging from written warnings to termination of
the franchisee's franchise agreement. During the twelve months ended December
31, 2001, 72 domestic properties were terminated for failure to maintain minimum
quality assurance scores.
20
Training. We maintain a training department which conducts mandatory
training programs for all franchisees and their employees. Regularly scheduled
regional and national training meetings are also conducted for both
property-level staff and managers. Training programs teach franchisees how to
take advantage of the Choice reservation system and marketing programs, and
fundamental hotel operations such as housekeeping, maintenance, and inventory
yield management.
Training is conducted by a variety of methods, including group
instruction seminars and video programs. We have developed an interactive
computer-based training system that will train hotel employees at their own
pace. Franchisees will be required to purchase hardware to operate the training
system, and will use software developed by us.
Design and Construction. We maintain a design and construction
department to assist franchisees in refurbishing, renovating, or constructing
their properties prior to or after joining the system. Department personnel
assist franchisees in meeting our brand specifications by providing technical
expertise and cost-savings suggestions.
Financial Assistance Programs. From time to time, we establish programs
or help franchisees obtain financing through; (i) a wholly owned subsidiary;
(ii) strategic partnerships with hotel lenders; and (iii) by referral to hotel
lenders for hotel refinancing, acquisition, renovation and development.
One of the past programs was a "Construction to Permanent Financing"
program under which Saloman Smith Barney together with Suburban Capital Markets,
Inc. offered $100 million in financing per year to qualified franchises and the
Company guaranteed such loans with a maximum guarantee amount of $10 million. At
December 31, 2000, loans outstanding under this program were $6.0 million and
the Company's guarantee covered $3.0 million of these loans. In 2001, the $6.0
million loan was settled, removing the Company's open guarantee of $3.0 million.
The program had been terminated in 1999.
During 2001, the Company implemented a low-cost signage leasing program
to assist franchisees with costs related to the reimaging of the Quality,
Comfort Suites and Sleep brands. The company expects to meet its goal of having
the re-imaging project completed by May 31, 2002.
Competition
Competition among franchise lodging chains is intense, both in
attracting potential franchisees to the system and in generating reservations
for franchisees.
We believe that hotel operators choose lodging franchisors based
primarily on the perceived value and quality of each franchisor's brand and
services, and the extent to which affiliation with that franchisor may increase
the franchisee's reservations and profits. We believe that hotel operators
select a franchisor in part based on the franchisor's reputation among other
franchisees, and the success of its existing franchisees.
21
Choice is the second largest hotel franchisor in the world in terms of
number of open hotels. In the United States, Cendant Corporation (formerly HFS,
Inc.), with over 6,275 franchised hotels, is the largest franchisor. Six
Continents (formerly Bass Hotels & Resorts) has 2,314, Hilton has 1,935,
Marriott International, Inc. has 1,916, Accor has 1,219, Carlson Hospitality has
554, and Starwood Hotels and Resorts has 377 properties.(1)
Our prospects for growth are largely dependent upon the ability of our
franchisees to compete in the lodging market, since our franchise system
revenues are based on franchisees' gross room revenues and the ability of our
franchisees to obtain financing to construct new hotels.
The ability of a hotel to compete may be affected by a number of
factors, including the location and quality of its property, the number and
quality of competing properties nearby, its affiliation with a recognized name
brand, and general regional and local economic conditions. The effect of local
economic conditions on our results is substantially reduced by the geographic
diversity of our franchised properties, which are located in all 50 states and
in 37 other countries, as well as its range of products and room rates.
Service Marks and Other Intellectual Property
The service marks Quality, Comfort, Comfort Suites, Clarion, Sleep Inn,
Econo Lodge, Rodeway Inn, MainStay Suites and related marks and logos are
material to our business. We, directly and through our franchisees, actively use
these marks. All of the material marks are registered with the United States
Patent and Trademark Office. In addition, we have registered certain of our
marks with the appropriate governmental agencies in over 100 countries where we
are doing business or anticipate doing business in the foreseeable future. We
seek to protect our brands and marks throughout the world, although the strength
of legal protection available varies from country to country.
Seasonality
Our principal sources of revenues are franchise fees based on the gross
room revenues of our franchised properties. We experience seasonal revenue
patterns similar to those of the lodging industry in general. This seasonality
can be expected to cause quarterly fluctuations in our revenues, profit margins
and net income.
Regulation
Our franchisees are responsible for compliance with all laws and
government regulations applicable to the hotels they own or operate. The lodging
industry is subject to numerous federal, state and local government regulations,
including those relating to the preparation and sale of food and beverage (such
as health and liquor license laws), building and zoning requirements and
- -----------------
/(1)/ Source: Smith Travel Research
22
laws governing employee relations, including minimum wage requirements,
overtime, working conditions and work permit requirements.
The Federal Trade Commission (the "FTC"), various states and certain
other foreign jurisdictions (including France, Province of Alberta, Canada, and
Mexico) regulate the sale of franchises. The FTC requires franchisors to make
extensive disclosure to prospective franchisees but does not require
registration. A number of states in which our franchises operate require
registration or disclosure in connection with franchise offers and sales. In
addition, several states have "franchise relationship laws" or "business
opportunity laws" that limit the ability of the franchisor to terminate
franchise agreements or to withhold consent to the renewal or transfer of these
agreements. While our franchising operations have not been materially adversely
affected by such regulation, we cannot predict the effect of future regulation
or legislation.
Impact of Inflation and Other External Factors
Our principal sources of revenues are franchise fees. Franchise fees
can be impacted by external factors, including, in particular: the supply of
hotel rooms within the lodging industry relative to the demand for rooms by
travelers, and inflation.
Although we believe industry-wide supply and demand for hotel rooms
recently has been fairly balanced, any excess in supply that might develop in
the future could unfavorably impact room revenues at our franchised hotels
either by reducing the number of rooms reserved at such franchised properties or
by restricting the rates hotel operators can charge for their rooms. In
addition, an excess supply of hotel rooms may discourage potential franchisees
from opening new hotels, reducing the franchise fees received by us. However, we
benefit from an increasing supply of hotels as it serves to increase franchise
fees.
Although we believe that increases in the rate of inflation will
generally result in comparable increases in hotel room rates, severe inflation
could contribute to a slowing of the national economy. Such a slowdown could
result in reduced travel by both business and leisure travelers, potentially
resulting in less demand for hotel rooms, which could result in a temporary
reduction in room rates and fewer room reservations, negatively impacting our
revenues. A weak economy could also reduce demand for new hotels, negatively
impacting the franchise fees received by us.
Among the other unpredictable external factors which may affect our fee
stream are wars, terrorist incidents, airline strikes, gasoline shortages and
severe weather.
Employees
We employ domestically approximately 1,446 people as of December 31,
2001. None of our employees are represented by unions or covered by collective
bargaining agreements. We consider our relations with our employees to be
satisfactory.
23
Item 2. Properties
Our principal executive offices are located at 10750 Columbia Pike,
Silver Spring, Maryland 20901. The offices are leased from a third party. We own
our reservation and property yield system office in Phoenix, AZ, and our
reservation centers in Minot, ND and Grand Junction, CO, which we had previously
leased. We also occupy additional space in Toronto, Canada, on a month-to-month
basis. In 2001, we closed four leased regional offices. We remain obligated
under three of these leases. In addition, we lease 5 sales offices across the
United States. Management believes that its executive, reservation systems and
sales offices are sufficient to meet its present needs and does not anticipate
any difficulty in securing additional or alternative space, as needed, on terms
acceptable to the Company.
In September 2000, we acquired three MainStay Suites hotels from
Sunburst. The hotels are located in Brentwood, TN, Pittsburgh, PA and Greer, SC.
Item 3. Legal Proceedings
The Company is not a party to any litigation, other than routine
litigation incidental to its business. None of such litigation, either
individually or in the aggregate, is expected to be material to the business,
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2001.
EXECUTIVE OFFICERS OF CHOICE HOTELS INTERNATIONAL, INC.
The name, age, title, present principal occupation, business address
and other material occupations, positions, offices and employment of each of the
executive officers of the Company are set forth below. The business address of
each executive officer is 10750 Columbia Pike, Silver Spring, Maryland 20901,
unless otherwise indicated.
Name Age Position
---- --- --------
Stewart Bainum, Jr. .................... 55 Chairman of the Board of Directors
Charles A. Ledsinger, Jr. .............. 52 Chief Executive Officer and President
Steven T. Schultz....................... 55 Executive Vice President, Franchise Operations
Joseph M. Squeri ....................... 36 Senior Vice President, Development and Chief Financial
Officer
Michael J. DeSantis .................... 43 Senior Vice President, General Counsel and Secretary
Bruce N. Haase ......................... 41 Senior Vice President, International
Thomas Mirgon .......................... 45 Senior Vice President, Administration
Daniel Rothfeld ........................ 42 Senior Vice President, E-Commerce & Emerging Business
Gary Thomson ........................... 47 Senior Vice President, Chief Information Officer
Wayne Wielgus .......................... 47 Senior Vice President, Marketing
Gregory A. Bublitz ..................... 46 Vice President, Finance and Controller
24
Background of Executive Officers:
Stewart Bainum, Jr., Chairman of the Board of the Company from March
1987 to November 1996 and since October 1997; Director of the Company since
1977; Chairman of the Board of Sunburst since November 1996; Chairman of the
Board of Manor Care, Inc. since September, 1998; Chairman of the Board and Chief
Executive Officer of Manor Care, Inc. from March 1987 to September, 1998; Chief
Executive Officer of Manor Care, Inc. and its subsidiary ManorCare Health
Services, Inc. ("MCHS") from March 1987 to September, 1998 and President from
June 1989 to September, 1998; Vice Chairman of the Board of Vitalink Pharmacy
Services, Inc. ("Vitalink") from December 1994 to September, 1998; Vice Chairman
of the Board of Manor Care and subsidiaries from June 1982 to March 1987;
Director of Manor Care from August 1981 to September 1998, of Vitalink from
September 1991 to September, 1998, of MCHS from 1976 to September 1998; Chairman
of the Board and Chief Executive Officer of Vitalink from September 1991 to
February 1995 and President and Chief Executive Officer from March 1987 to
September 1991.
Charles A. Ledsinger, Jr., President, Chief Executive Officer and
Director of the Company since August, 1998; President and Chief Operating
Officer of St. Joe Company from February 1998 to August 1998, Senior Vice
President and Chief Financial Officer of St. Joe Company from May 1997 to
February 1998; Senior Vice President and Chief Financial Officer of Harrah's
Entertainment, Inc. from June 1995 to May 1997; Senior Vice President and Chief
Financial Officer of Promus Companies Incorporated from August 1990 to June
1995. Director: FelCor Lodging Trust, Inc., Friendly's Ice Cream Corporation and
TBC.
Steven T. Schultz. Executive Vice President, Domestic Hotels of
the Company since May 1999; Executive Vice President and Chief Development
Officer of La Quinta Inns, Inc. from 1997 to April 1999; Senior Vice
President-Development of La Quinta Inns, Inc. from 1992 to 1997.
Joseph M. Squeri. Senior Vice President, Development and Chief
Financial Officer since March 2002. He was Senior Vice President and Chief
Financial Officer of the Company since June 1999; Treasurer of the Company since
April 1998; Vice President, Finance and Controller of the Company from March
1997 to June 1999 and of Former Choice from March 1997 to October 1997.
Michael J. DeSantis. Senior Vice President, General Counsel and
Secretary of the Company since June 1997 and of Former Choice from June 1997 to
October 1997; Senior Attorney for Former Choice from November 1996 to June 1997;
Senior Attorney for Manor Care from January 1996 to October 1996; Vice
President, Associate General Counsel and Assistant Secretary for Caterair
International Corporation from April 1994 to December 1995; Assistant General
Counsel of Caterair International from May 1990 to March 1994.
25
Bruce N. Haase, Senior Vice President, International of the Company
since October 2000. He was Vice President - Finance and Treasurer from April
2000 until October 2000. He was Vice President, Finance and Treasurer of The
Ryland Group, Inc., in Columbia, Maryland, from August 1999 until March 2000 and
Vice President and Treasurer from October 1995 until August 1999.
Thomas Mirgon. Senior Vice President, Administration since April 1998;
Senior Vice President, Human Resources of the Company from March 1997 to April
1998 and of Former Choice from March 1997 to October 1997; Vice President,
Administration of Interim Services from August 1993 to February 1997; employed
by Taco Bell Corp. from January 1986 to August 1993, last serving as Senior
Director, Field Human Resources from February 1992 to August 1993.
Daniel Rothfeld. Senior Vice President, E-Commerce and Emerging
Business Opportunities since December 2000. He was Vice President - Partner
Services from December 1997 until December 2000 and Vice President of Corporate
Services of Interim Services, Inc., in Ft. Lauderdale, Florida, from January
1987 until December 1997.
Gary Thomson. Senior Vice President and Chief Information
Officer of Choice since August 2000. He was Vice President - Information Systems
Technologies from November 1993 until August 2000.
Wayne Wielgus. Senior Vice President, Marketing of Choice September
2000. He was Vice President, Marketing of Best Western International, Inc., in
Phoenix, Arizona, from 1996 until September 2000.
Gregory A. Bublitz. Vice President, Finance and Controller of
Choice since December 2000. He was Vice President - Finance from January 2000
until December 2000. He was an independent business consultant in Columbia,
Maryland, from February 1999 until December 1999. He was Vice President and CFO
of Wise Metals Co., Inc., in Linthicum, Maryland, from October 1996 until
January 1999 and Vice President, Marketing & Customer Service for Alumax Primary
Aluminum Corporation, in Norcross, Georgia, from August 1995 until September
1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Prior to the Spin-off, the Company was a wholly-owned subsidiary of
Former Choice. In the Spin-off, Former Choice distributed to its shareholders
all of its interest in the Company on the basis of one share of Company common
stock for each share of Former Choice common stock. The Spin-off resulted in
approximately 60 million shares of Company common stock outstanding as of
October 16, 1997.
26
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 prices of the Company's Common Stock for the two most recent fiscal
years.
QUARTERLY MARKET PRICE RANGE OF COMMON STOCK
(Unaudited)
Quarters Ended Market Price Per Share
-----------------------------------------------------------
High Low
-----------------------------------------------------------
FISCAL 2001
March $15.50 $11.00
June 16.00 11.90
September 23.80 13.48
December 23.98 16.00
FISCAL 2000
March $17.375 $13.50
June 15.9375 9.9375
September 11.1875 7.50
December 14.25 8.875
The Company paid no dividends during the twelve month period ended
December 31, 2001. The Company does not anticipate the payment of any cash
dividends on its common stock in the foreseeable future. Payment of dividends on
Company common stock will also be subject to limitations as may be imposed by
the Company's credit facilities from time to time. The declaration of dividends
will be subject to the discretion of the Board of Directors.
As of March 10, 2002, there were 1,606 record holders of Company common stock.
Item 6. Selected Financial Data.
As Revised (See Note 1 to the Consolidated Financial Statements)
Seven Months Fiscal Year
Years ended December 31, Ended December 31, Ended May 31,
2001 2000 1999 1998 1997 1997
---------- --------- ---------- --------- --------------------- ----------------
Company Results (In millions, except per share data)
Total Assets $321.2 $484.1 $464.7 $398.2 $386.4 $573.1
Long-term Debt 281.3 297.2 307.4 279.2 282.8 372.0
Franchise Revenues (a) 165.1 160.2 151.6 138.1 82.4 118.2
Total Revenues 341.4 352.8 324.2 295.4 183.1 274.4
Net Income 14.3 42.4 57.2 55.3 27.3 34.7
Basic Earnings per Share $0.32 $0.80 $1.04 $0.94 $0.46 $0.55
Diluted Earnings per Share $0.32 $0.80 $1.03 $0.93 $0.45 $0.55
27
(a) Reflects franchise revenues exclusive of marketing and reservation
pass through fees.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
The required information is included in the 2001 Annual Report and is
incorporated here by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.
The Company is exposed to market risk from changes in interest rates
and the impact of fluctuations in foreign currencies on the Company's foreign
investments. The Company manages its exposure to this market risk through the
monitoring of its available financing alternatives including in certain
circumstances the use of derivative financial instruments. The Company's
strategy to manage exposure to changes in interest rates and foreign currencies
remains unchanged from 1997. Furthermore, the Company does not foresee any
significant changes in exposure in these areas or in how such exposure is
managed in the near future.
At December 31, 2001 and 2000, the Company had $281.3 million and
$297.2 million of debt outstanding at effective interest rates of 4.9% and 7.3%,
respectively. A hypothetical change of 10% in the Company's effective interest
rate from year-end 2001 levels would increase or decrease interest expense by
$0.7 million. The Company will refinance the $150 million variable rate term
loan as it amortizes throughout the expected maturity dates. Upon expiration of
the Credit Facility in 2006, the Company expects to refinance its obligations.
For more information related to the Company's use of interest rate instruments,
see Long-Term Debt and Fair Value of Financial Instruments in the Notes to the
Consolidated Financial Statements.
The Company does not have any derivative financial instruments related
to its foreign investments.
28
Item 8. Financial Statements and Supplementary Data.
The required information is included in the 2001 Annual Report and is
incorporated here by reference. See Item 14 for the Index to Financial
Statements and Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The required information on directors will be contained 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. The
required information on executive officers is set forth in Part I of this Form
10-K under an unnumbered item captioned "Executive Officers of Choice Hotels
International, Inc."
Item 11. Executive Compensation.
The required information will be set forth under "Executive
Compensation" and "Board Compensation Committee Report on Executive
Compensation--Compensation of the Chief Executive Officer" 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The required information will be set forth under "Security Ownership of
Certain Beneficial Owners and Executive Officers" and "Board of Directors" 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.
Item 13. Certain Relationships and Related Transactions.
The required information will be set forth under "Certain Relationships
and Related Transactions" and "Board of Directors--Compensation Committee
Interlocks and Insider Participation" 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.
29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Documents Filed as Part of this Report
1. Financial Statements
The following information is included on the corresponding pages of the
2001 Annual Report:
Report of Independent Public Accountants ...................... p. F-11
Consolidated Statements of Income.............................. p. F-12
Consolidated Balance Sheets.................................... p. F-13
Consolidated Statements of Cash Flows.......................... p. F-14
Consolidated Statements of
Shareholders' Equity and Comprehensive Income.................. p. F-15
Notes to Consolidated Financial Statements..................... pp. F-16-33
2. Financial Statement Schedules
The following reports are filed herewith.
Report of Independent Public Accountants on Schedule II
Schedule II - Valuation and Qualifying Accounts
Report of Independent Public Accountants
All other schedules are not applicable.
3. Exhibits
Exhibit
Number Description
------ -----------
3.01(a) Restated Certificate of Incorporation of Choice Hotels Franchising, Inc.
3.02(a) Amended and Restated Bylaws of Choice Hotels International, Inc.
4.01(c) Competitive Advance and Multi-Currency Credit Facilities Agreement dated June 29, 2001 among
Choice Hotels International, Inc., Chase Manhattan Bank, as Agent and certain Lenders
("Credit Agreement")
4.02(k) First Amendment to Credit Agreement dated October 1, 2001 among Choice Hotels International,
Inc., Chase Manhattan Bank, as Agent, and certain Lenders.
4.03(h) Registration Agreement dated April 28, 1998 between Choice Hotels International, Inc. and
Salomon Brothers, Inc., Bear Stearns & Co. Inc. and Lehman Brothers Inc.
4.04(h) Indenture dated as of May 4, 1998, by and among the Company, Quality Hotels Europe, Inc., QH Europe
Partnership and Marine Midland Bank, as Trustee, with respect to the 7.125% Senior Notes due 2008
of the Company.
4.05(h) Specimen certificate of 7.125% Senior Note due 2008 (Original Note) (Attached as an exhibit
to the Indenture set forth as Exhibit 4.08)
30
4.06(h) Specimen certificate of 7.125% Senior Note due 2008 (Exchange Note) (Attached as an exhibit
to the Indenture set forth as Exhibit 4.08).
4.07(b) Guarantee Agreement dated October 15, 1997 between Quality Hotels Europe, Inc. and The Chase
Manhattan Bank.
4.08(b) Supplement No. 1 to the guarantee Agreement dated April 28, 1998 among Choice Hotels
International, Inc., Quality Hotels Europe, Inc., QH Europe Partnership and The Chase
Manhattan Bank.
4.09(b) Indemnity, Subrogation and Contribution Agreement, dated April 28, 1998 among Choice Hotels
International, Inc., Quality Hotels Europe, Inc., QH Europe Partnership and The Chase
Manhattan Bank.
4.10(g) Rights Agreement, dated as of February 19, 1998, between Choice Hotels International, Inc.
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
10.01(l) Amended and Restated Employment Agreement between Choice Hotels International, Inc. and
Charles A. Ledsinger, Jr. dated April 13, 1999.
10.02(d) Amended and Restated Employment Agreement dated as of October 15, 1997 by and between Choice
Hotels Franchising, Inc. (renamed Choice Hotels International, Inc.) and Stewart Bainum, Jr.
10.03(i) Amended and Restated Employment Agreement dated April 13, 1999 by and between Choice Hotels
International, Inc. and Thomas Mirgon.
10.04(f) Choice Hotels International, Inc. Non-Employee Director Stock Option and Deferred
Compensation Stock Purchase Plan.
10.05(f) Choice Hotels International, Inc. 1997 Non-Employee Director Stock Compensation Plan.
10.06(f) Choice Hotels International, Inc. 1997 Long-Term Incentive Plan.
10.07(i) Second Amended and Restated Employment Agreement dated April 13, 1999 between Choice Hotels
International, Inc. and Michael J. DeSantis.
10.08(j) Commercial Lease dated May 29, 1998 among Columbia Pike I, LLC and Colesville Road, LLC (each
an assignee of Manor Care, Inc.) and Choice Hotels International, Inc.
10.09(i) Employment Agreement dated June 3, 1999 between Choice Hotels International, Inc. and Joseph
M. Squeri.
10.10(n) Employment Agreement dated May 3, 2000 between Choice Hotels International, Inc. and Daniel
Rothfeld.
10.11(n) Employment Agreement dated August 18, 2000 between Choice Hotels International, Inc. and
Wayne Wielgus.
10.12(o) Amended and Restated Supplemental Executive Retirement Plan.
10.13* Amended and Restated Employment Agreement dated as of November 12, 2001 between Choice Hotels
International, Inc. and Steven T. Schultz.
13.01* Annual Report to Shareholders.
13.02* Schedule II -- Valuation and Qualifying Accounts
21.01* Subsidiaries of Choice Hotels International, Inc.
23.01* Report of Arthur Andersen LLP.
23.02* Letter to the Securities and Exchange Commission regarding representations of Arthur Andersen LLP.
- ----------------------------
* Filed herewith
(a) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Registration Statement on Form S-4,
filed August 31, 1998 (Reg. No. 333-62543).
(b) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Amendment No. 1 to Registration
Statement on Form S-4, filed October 14, 1998 (Reg. No. 333-62543).
(c) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2001 filed on August 6, 2001.
31
(d) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Current Report on Form 8-K dated
October 15, 1997, filed on October 29, 1997.
(e) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Current Report on Form 8-K dated
October 15, 1997, filed on December 16, 1997.
(f) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Registration Statement filed on Form
S-8, filed on December 2, 1997 (Reg. No. 333-41357).
(g) 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 19, 1998, filed on March 11, 1998.
(h) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q filed for
the quarterly period ended March 31, 1998, filed on May 15, 1998.
(i) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q filed for
the quarter ended June 30, 1998, filed on August 11, 1998.
(j) 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, 1998, filed on March 30, 1999.
(k) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 filed on November 13, 2001.
(l) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, filed on August 16, 1999.
(m) 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, 1999, filed March 30, 2000.
(n) Incorporated by reference to the identical document filed as an exhibit to
Choice Hotels International, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000, filed November 14, 2000.
(o) 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, 2000, filed April 2, 2001.
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 2001.
32
SIGNATURES
Pursuant to the 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/ Charles A. Ledsinger, Jr.
-------------------------------------
Charles A. Ledsinger, Jr.
President and Chief Executive Officer
Dated: March 26, 2002
33
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stewart Bainum, Jr. Chairman, Director March 26, 2002
----------------------------
Stewart Bainum, Jr.
/s/ Charles A. Ledsinger, Jr. President, Chief Executive March 26, 2002
---------------------------- Officer & Director
Charles A. Ledsinger, Jr.
/s/ Barbara Bainum Director March 26, 2002
----------------------------
Barbara Bainum
/s/ Larry R. Levitan Director March 26, 2002
----------------------------
Larry R. Levitan
/s/ William L. Jews Director March 26, 2002
----------------------------
William L. Jews
/s/ Raymond E. Schultz Director March 26, 2002
----------------------------
Raymond E. Schultz
/s/ Jerry E. Robertson Director March 26, 2002
----------------------------
Jerry E. Robertson
/s/ Joseph M. Squeri Senior Vice President, March 26, 2002
---------------------------- Development and Chief
Joseph M. Squeri Financial Officer
34