<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITEIS EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _________________
Commission File Number 1-11915
A. Full title of the plan and address of the plan, if different from that of
the issuer named below:
SUNBURST HOSPITALITY CORP. RETIREMENT SAVINGS & INVESTMENT PLAN
---------------------------------------------------------------
(Formerly Choice Hotels International, Inc. Retirement
Savings & Investment Plan)
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principle executive office:
SUNBURST HOSPITALITY CORPORATION
10770 COLUMBIA PIKE, SILVER SPRING, MD. 20901
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Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Financial Statements
As of December 31, 1999 and 1998
Together With Auditors' Report
<PAGE>
Report of Independent Public Accountants
To the Trustee of the Sunburst Hospitality Corporation Retirement,
Savings and Investment Plan:
We have audited the accompanying statements of net assets available for benefits
of the Sunburst Hospitality Corporation Retirement, Savings and Investment Plan
(the "Plan" - see Note 1) as of December 31, 1999 and 1998, and the related
statement of changes in net assets available for benefits for the year ended
December 31, 1999. These financial statements and the schedules referred to
below are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and of reportable transactions are presented for
purposes of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, are fairly stated, in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Vienna, Virginia
June 7, 2000
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Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Table of Contents
Page
Statements of Net Assets Available for Benefits
As of December 31, 1999 and 1998 1
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 1999 2
Notes to Financial Statements
As of December 31, 1999 3
Schedule H, Part IV (i) - Schedule of Assets Held for Investment Purposes
As of December 31, 1999 8
Schedule H, Part IV (j) - Schedule of Reportable Transactions
For the Year Ended December 31, 1999 9
Schedule H, Part IV (b) - Schedule of Loans or Fixed Income Obligations
As of December 31, 1999 *
Schedule H, Part IV (c) - Schedule of Leases in Default or
Classified as Uncollectible
As of December 31, 1999 *
Schedule H, Part IV (d) - Schedule of Nonexempt Transactions
For the Year Ended December 31, 1999 *
* Schedules omitted because there were no such transactions, obligations, or
leases in default.
<PAGE>
Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Statements of Net Assets Available for Benefits
As of December 31, 1999 and 1998
1999 1998
---------- ----------
Assets:
Investments (Note 3) $6,736,955 $5,503,989
Contributions Receivable-
Employer, paid subsequent to year end 229,379 201,162
Participant, paid subsequent to year end 59,141 29,213
---------- ----------
Net assets available for benefits $7,025,475 $5,734,364
========== ==========
The accompanying notes are an integral part of these statements.
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Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 1999
Additions:
Additions to net assets attributed to-
Investment income:
Net appreciation in fair value of investments (Note 3) $ 405,194
Interest 15,253
Dividends and other 478,970
----------
899,417
Contributions:
Participant 748,159
Employer 229,379
Rollover 37,732
----------
1,015,270
----------
Total additions 1,914,687
Deductions:
Deductions from net assets attributed to-
Benefits paid to participants (622,576)
Participant directed expenses (1,000)
----------
Total deductions (623,576)
----------
Net increase 1,291,111
Net assets available for benefits, beginning of year 5,734,364
----------
Net assets available for benefits, end of year $7,025,475
==========
The accompanying notes are an integral part of this statement
2
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Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Notes to Financial Statements
As of December 31, 1999
1. Nature of the Organization and Description of the Plan:
The Sunburst Hospitality Corporation Retirement, Savings and Investment Plan
(the "Plan") is a defined contribution, salary deferral plan available to the
employees of Sunburst Hospitality Corporation ("Sunburst"). Sunburst is a
leading national hotel company that owns and operates approximately 75 hotels.
Choice Hotels International, Inc. was formerly a subsidiary of Manor Care, Inc.
("Manor Care"). On November 1, 1996, Manor Care separated its lodging business
from its health care business by distributing to its shareholders all of the
outstanding common stock of Choice Hotels International, Inc. (the "Manor Care
Distribution"). On October 15, 1997, Choice Hotels International, Inc. separated
its franchising and European hotel business from its owned hotel business by
distributing to its shareholders the common stock of Choice Hotels Franchising
(the "Choice Distribution"). Subsequent to the Choice Distribution, Choice
Hotels International, Inc. changed its name to Sunburst Hospitality Corporation
and Choice Hotels Franchising changed its name to Choice Hotels International,
Inc. In connection with the Choice Distribution, the name of the original Choice
Hotels International, Inc. Retirement, Savings and Investment Plan was changed
to the Sunburst Hospitality Corporation Retirement, Savings and Investment Plan.
On January 1, 1998, the Sunburst Hospitality Corporation Retirement, Savings and
Investment Plan was split and the Choice Hotels International, Inc. Retirement
Savings and Investment Plan was formed in order to maintain a separate plan for
eligible Choice employees. The assets of both plans were initially co-mingled as
a master trust with transactions separately recorded. Effective August 1, 1998,
the Plan changed its trustee from Chase Manhattan Bank to Merrill Lynch Trust
Company ("Merrill Lynch") and the assets of the master plan were split between
the Plan and the Choice Hotels International, Inc. Retirement, Savings and
Investment Plan.
The following description of the Plan provides general information only.
Participants should refer to the plan agreement for a more complete description
of the Plan's provisions.
General
The Plan, established on October 1, 1996, is a participant directed, defined
contribution, salary deferral plan subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
Eligibility and Contributions
All employees of Sunburst are eligible to participate in the Plan if they are:
. At least 21 years of age
. Have completed one year of service
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. Have worked at least 1,000 hours in the previous year
Participants may elect to contribute up to 5 percent of their annual
compensation to the Plan, subject to IRS limitations.
Sunburst matches an employee's contributions, up to a total match of 6 percent
of employee salary.
Length of Service Percentage Match
------------------------- --------------------
1 - 5 years 25%
6 - 9 years 75%
10 years or more 100%
Each participant's account is credited with the participant's contribution and
allocations of (a) Sunburst contributions and (b) Plan earnings, and charged
with an allocation of administrative expenses. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Forfeitures
Sunburst has the right to apply amounts forfeited by employees to reduce
employer contributions. In 1999, forfeitures of $0 were used to reduce the
employer contribution and allocated to the plan funds in conjunction with
Sunburst matching contributions.
Payment of Benefits and Vesting
Participants are immediately vested in all participant contributions and
earnings on such contributions. Participants vest in the Sunburst contributions
20 percent per year beginning at the end of their third year, resulting in full
vesting at the end of their seventh year.
On termination of service due to death, disability or retirement, a participant
may elect to receive either a lump sum amount equal to the value of the
participant's vested interest in his or her account, or annual installments over
a 20-year period. For termination of service due to other reasons, a participant
may receive the value of the vested interest in his or her account as a lump-sum
distribution only.
Participants who leave Sunburst with a balance of less than $5,000 are required
to roll the money over into another 401(k) or IRA account, or receive a direct
payment after withholding of applicable federal and state tax provisions. If the
participant's balance is greater than $5,000, the participant may retain their
investment in the Plan for as long as IRS regulations allow.
Loans
Participant loans are made available to all participants who have a vested
account balance. The minimum loan amount is $750 and the maximum loan amount is
the lesser of $50,000 or 50 percent of a participant's vested account balance.
Interest rates are equal to 1 percent above the Prime Rate on the date the loan
is issued and there is a $50 loan-processing fee per loan. Participants may not
have more than one loan outstanding at any time. Loans receivable are valued at
cost which approximates fair value.
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2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Purchases and sales of
securities are recorded on a trade-date basis. Dividends are recorded when
declared. All income is allocated daily.
Trustee Fees
Investment management fees are netted against investment earnings in each fund.
Trustee fees and all administrative expenses of the Plan are currently paid by
Sunburst. Sunburst currently has no intention to seek reimbursement from the
Plan for prior or future expenses paid by Sunburst.
New Accounting Pronouncement
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 99-3 "Accounting for
and Reporting of Certain Defined Contribution Plan Investments and Other
Disclosure Matters" ("SOP 99-3"), which eliminates the requirement for a defined
contribution plan to disclose participant directed investment programs. SOP 99-3
was adopted for the 1999 financial statements and as such, the 1998 financial
statements have been reclassified to eliminate the participant directed fund
investment program disclosures.
Reclassification
Certain amounts and balances from 1998 have been reclassified to conform with
1999 presentation.
3. Investments:
The following presents investments that represent 5 percent or more of the
Plan's net assets:
<TABLE>
<CAPTION>
As of December 31
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Alliance Premier Growth Fund $2,249,009 $1,635,308
Merrill Lynch Capital Fund 1,329,457 1,359,917
Hotchkis & Wiley International Equity Fund 728,891 562,150
Merrill Lynch Retirement Preservation Trust 1,559,186 1,445,929
</TABLE>
During 1999, the Plan's investments (including gains and losses on investments
bought and sold during the year) appreciated in value $405,194 as follows:
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Mutual funds $357,341
Common stock 47,853
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$405,194
=========
4. Federal Income Tax Status:
The Plan has not yet received a determination letter from the Internal Revenue
Service. However, management believes that the Plan, as designed, is in
compliance with the applicable requirements of Section 401(a) of the Internal
Revenue Code. Management believes that the Plan is operating as intended and, as
such, continues to comply with these requirements.
5. Plan Termination:
Although it has not expressed any intent to do so, Sunburst has the right under
the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA.
6. Related-Party Transactions:
Certain Plan investments are shares of mutual funds and common collective trusts
managed by Merrill Lynch. As Merrill Lynch is the trustee, these transactions
qualify as party-in-interest.
7. Multi-Employer Status:
As discussed in Note 1, subsequent to the Choice Distribution, the original
Choice Hotels International Inc. Retirement, Savings and Investment Plan changed
its name to the Sunburst Hospitality Corporation Retirement, Savings, and
Investment Plan and this plan was available to the employees of both Choice and
Sunburst. However, on January 1, 1998, the Plan was split into the Sunburst
Hospitality Corporation Retirement, Savings and Investment Plan and the Choice
Hotels International, Inc. Retirement, Savings and Investment Plan. These plans
are now available to the respective employees of Sunburst and Choice.
8. Reconciliation of Financial Statements to Form 5500:
The following is a reconciliation of net assets available for Plan benefits per
the financial statements to the Form 5500 for the year ended December 31, 1999:
<TABLE>
<S> <C>
Net assets available for Plan benefits per financial statements $7,025,475
Amounts allocated to withdrawing participants --
------------
Net assets available for Plan benefits per the Form 5500 $7,025,475
============
</TABLE>
6
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The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31, 1999:
<TABLE>
<S> <C>
Benefits paid to participants per the financial statements $622,576
---------
Add- Amounts allocated to withdrawing participants at
December 31, 1999 --
---------
Less- Amounts allocated to withdrawing participants at
December 31, 1998 (14,378)
---------
Benefits paid to participants per the Form 5500 $608,198
=========
</TABLE>
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have occurred but have not been paid as of December 31.
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Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Schedule H, Part IV (i) - Schedule of Assets Held for Investment Purposes
As of December 31, 1999
<TABLE>
<CAPTION>
Description of Current
Identity of Issue Investment Cost Value
------------------------------- ----------------------- ----------- -------------
<S> <C> <C> <C>
Alliance Premier Growth Fund Mutual Fund $1,772,205 $2,249,009
Merrill Lynch Capital Fund* Mutual Fund 1,430,917 1,329,457
Hotchkis & Wiley International
Equity Fund Mutual Fund 684,264 728,891
Merrill Lynch S&P 500 Index
Fund* Mutual Fund 229,861 259,840
Pimco Small Cap Value Fund Mutual Fund 68,249 65,282
Pimco Total Return Fund Mutual Fund 24,610 23,596
Merrill Lynch Retirement
Preservation Trust* Common/Collective Trust 1,559,186 1,559,186
Sunburst Hospitality Common
Stock Fund* Common Stock 339,881 274,884
Choice Hotels Common Stock
Fund Common Stock 21,411 21,175
Manor Care Common Stock
Fund Common Stock 64,025 27,442
Participant Loan Fund (maturing
at various dates with interest
rates ranging from 8.75%
to 9.25%)* 198,193 198,193
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Total assets held for
investment purposes $6,392,802 $6,736,955
========== ==========
</TABLE>
*Represents party-in-interest to the Plan
8
<PAGE>
Sunburst Hospitality Corporation
Retirement, Savings and Investment Plan
Schedule H, Part IV (j) -- Schedule of Reportable Transactions
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Purchase Expense Incurred
Identity of Party Description of Asset Price Selling Price Lease Rental With Transaction
------------------------------------------- ----------------------- -------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Alliance Premier Growth Fund Mutual Fund $546,818 $ -- $ -- $ --
Alliance Premier Growth Fund Mutual Fund -- 299,224 -- --
Merrill Lynch Capital Fund* Mutual Fund 322,855 -- -- --
Merrill Lynch Capital Fund* Mutual Fund -- 259,272 -- --
Hotchkis & Wiley International Equity Fund Mutual Fund -- 114,698 -- --
Hotchkis & Wiley International Equity Fund Mutual Fund 204,388 -- -- --
Merrill Lynch S&P 500 Index Fund* Mutual Fund 232,122 -- -- --
Merrill Lynch S&P 500 Index Fund* Mutual Fund -- 51,638 -- --
Merrill Lynch Retirement Preservation Trust * Common/Collective Trust 457,170 -- -- --
Merrill Lynch Retirement Preservation Trust* Common/Collective Trust -- 341,992 -- --
<CAPTION>
Current Value of Asset
Identity of Party Cost of Asset on Transaction Date Net Gain/(Loss)
------------------------------------------- ------------- ---------------------- --------------
<S> <C> <C> <C>
Alliance Premier Growth Fund $546,818 $546,818 $ --
Alliance Premier Growth Fund 254,535 299,224 44,689
Merrill Lynch Capital Fund* 322,855 322,855 --
Merrill Lynch Capital Fund* 262,480 259,272 (3,208)
Hotchkis & Wiley International Equity Fund 117,832 114,698 (3,134)
Hotchkis & Wiley International Equity Fund 204,388 204,388 --
Merrill Lynch S&P 500 Index Fund* 232,122 232,122 --
Merrill Lynch S&P 500 Index Fund* 47,355 51,638 4,283
Merrill Lynch Retirement Preservation Trust * 457,170 457,170 --
Merrill Lynch Retirement Preservation Trust* 341,992 341,992 --
</TABLE>
*These transactions qualify as party-in-interest transactions as described in
Note 6.
1
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the administrative
committee (or other persons who administer the employee benefit plan) has duly
caused this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SUNBURST HOSPITALITY CORPORATION
Date: July , 2000 /s/ Gregory Miller
--------------------- -----------------------
By: Gregory Miller
Senior Vice President,
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report, included in this Form 11-K, into the Company's
previously filed Registration Statement S-8, File No. 333-17577.
ARTHUR ANDERSEN LLP
Vienna, Virginia
July 6, 2000
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