<PAGE>
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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
------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _______________
Commission File Number 1-13393
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A. Full title of the plan and address of the plan, if different from that of
the issuer named below:
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:
Choice Hotels International, Inc.
10750 Columbia Pike, Silver Spring, Maryland 20901
<PAGE>
Page 2
Report of Independent Public Accountants
To Trustee of the Choice Hotels International, Inc.
Retirement, Savings and Investment Plan:
We have audited the accompanying statements of net assets available for benefits
of the Choice Hotels International, Inc. 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
audits 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
<PAGE>
Choice Hotels International, Inc.
Retirement, Savings and Investment Plan
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Statement 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 *
</TABLE>
*Schedules omitted because there were no such transactions,
obligations, or leases in default.
<PAGE>
Choice Hotels International, Inc.
Retirement, Savings and Investment Plan
Statement of Net Assets Available for Benefits
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Assets:
Investments (Note 3) $30,103,107 $24,870,752
Contributions receivable-
Employer, paid subsequent to year end 1,016,866 882,350
Participant, paid subsequent to year end 176,897 68,569
----------- -----------
Net assets available for benefits $31,296,870 $25,821,671
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
Choice Hotels International, Inc.
Retirement, Savings and Investment Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 1999
<TABLE>
<S> <C>
Additions:
Additions to the net assets attributed to-
Investment income:
Net appreciation in fair value of investments (Note 3) $ 2,838,675
Participant loan interest 38,500
Dividends and other 1,856,739
-----------
4,733,914
Contributions:
Participant 2,277,660
Employer 1,016,866
Rollover 279,112
-----------
3,573,638
-----------
Total additions 8,307,552
Deductions:
Deductions from net assets attributed to-
Benefits paid to participants (2,829,703)
Participant directed expenses (2,650)
-----------
Total deductions (2,832,353)
-----------
Net increase 5,475,199
Net assets available for benefits:
Beginning of year 25,821,671
-----------
End of year $31,296,870
===========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
Choice Hotels International, Inc.
Retirement, Savings and Investment Plan
Notes to Financial Statements
As of December 31, 1999
1. Nature of the Organization and Description of the Plan:
Prior to January 1, 1998, the employees of Choice Hotels International, Inc.
("Choice") were part of the Sunburst Hospitality Corporation Retirement, Savings
and Investment Plan ("Sunburst Plan"). The Sunburst Plan was a defined
contribution, salary deferral plan available to the employees of Choice and
Sunburst Hospitality Corporation ("Sunburst"). Sunburst is a leading national
hotel company that owns and operates approximately 75 hotels. Choice is of the
second largest franchiser of hotels in the world. Choice franchises
approximately 3,500 hotels operated under the following brand names: Quality
Inn, Comfort Inn, Clarion, Sleep Inn, Rodeway Inn, EconoLodge, and Mainstay
Suites.
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, a new Choice Hotels International, Inc. Retirement, Savings
and Investment Plan (the "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 Sunburst Hospitality Corporation Retirement, Savings and
Investment Plan and the 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 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 Choice are eligible to participate in the Plan if they are:
. At least 21 years of age
. Have completed one year of service
. Have worked at least 1,000 hours in the previous year
Participants may elect to contribute up to 15 percent of their annual
compensation to the Plan, subject to IRS limitations. Choice matches an
employee's contributions, up to a total match of 6 percent of employee salary.
<TABLE>
<CAPTION>
Length of Service Percentage Match
----------------- ----------------
<S> <C>
1 - 5 years 25%
6 - 9 years 75%
10 years or more 100%
</TABLE>
3
<PAGE>
Each participant's account is credited with the participant's contribution and
allocations of (a) Choice 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
Choice has the right to apply amounts forfeited by employees to reduce employer
contributions. In 1999, forfeitures of $4,856 were used to reduce the employer
contribution and allocated to the plan funds in conjunction with Choice's
matching contributions.
Payment of Benefits and Vesting
Participants are immediately vested in all participant contributions and
earnings on such contributions. Participants vest in the Choice 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 twenty-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 Choice 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.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of 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
Choice. Choice currently has no intention to seek reimbursement from the Plan
for prior or future expenses paid by Choice.
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.
4
<PAGE>
Reclassifications
Certain amounts and balances from 1998 have been reclassified to conform with
the 1999 presentation.
5
<PAGE>
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 $12,581,780 $9,978,372
Merrill Lynch Capital Fund 4,623,226 6,419,617
Hotchkis & Wiley International Equity Fund 2,920,263 2,753,386
Merrill Lynch S&P 500 Index Fund 1,855,378 213,979
Merrill Lynch Retirement Preservation Trust 4,057,884 2,980,870
Choice Hotels Common Stock Fund 2,632,940 1,753,572
</TABLE>
During 1999, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value by
$2,838,675 as follows:
<TABLE>
<S> <C>
Mutual funds $2,292,928
Common stock 539,779
Common/collective trusts 5,968
----------
$2,838,675
==========
</TABLE>
4. Nonparticipant-Directed Investments:
Nonparticipant-directed investments consist of the Choice match which is
invested in Choice common stock when submitted to the trustee. As of December
31, 1999 and 1998, Choice common stock which was nonparticipant-directed was
$2,367,013 and $1,572,954 of investments. The change in net assets is as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Change in net assets:
Contributions $ 882,350
Dividends 11,627
Net appreciation 485,110
Benefits paid to participants (193,564)
Transfers to participant-directed investments (391,464)
---------
$ 794,059
=========
</TABLE>
5. 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.
6. Plan Termination:
Although it has not expressed any intent to do so, Choice 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
<PAGE>
7. Related-Party Transactions:
The investment in Choice common stock constitutes a party-in-interest
transaction. In addition, certain Plan investments are shares of mutual funds
and common collective trusts managed by Merrill Lynch. As Merrill Lynch is the
trustee, these transactions also qualify as party-in-interest.
8. 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.
9. 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 $31,296,870
Amounts allocated to withdrawing participants --
-----------
Net assets available for Plan benefits per the Form 5500 $31,296,870
===========
</TABLE>
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 $2,829,703
Add- Amounts allocated to withdrawing participants at
December 31, 1999 --
Less- Amounts allocated to withdrawing participants at
December 31, 1998 (152,293)
----------
Benefits paid to participants per the Form 5500 $2,677,410
==========
</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.
10. Subsequent Events:
Effective January 1, 2000, the Plan amended the vesting schedule and company
match percentages.
7
<PAGE>
Choice Hotels International, Inc.
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
Identity of Issue Investment Cost Current Value
------------------------------------ --------------- ----------- -------------
<S> <C> <C> <C>
Alliance Premier Growth Fund Mutual Fund $ 9,929,887 $12,581,780
Merrill Lynch Capital Fund* Mutual Fund 4,967,826 4,623,226
Hotchkis & Wiley International Mutual Fund 2,736,956 2,920,263
Equity Fund
Merrill Lynch S&P 500 Index Fund* Mutual Fund 1,675,285 1,855,378
Pimco Total Return Fund Mutual Fund 417,353 400,459
Pimco Small Cap Value Fund Mutual Fund 333,881 315,360
Merrill Lynch Retirement Common/Collective 4,052,101 4,057,884
Preservation Trust* Trust
Choice Hotels Common Stock Fund* Common Stock 2,209,956 2,632,940
Sunburst Hospitality Common Common Stock 984 687
Stock Fund
Participant Loan Fund (maturing at
various dates with interest rates 557,335 557,335
ranging from 8.75% to 9.50%)*
Self-directed RCMA option 157,795 157,795
----------- -----------
Total assets held for investment purposes $27,039,359 $30,103,107
=========== ===========
</TABLE>
*Represents party-in-interest to the Plan
8
<PAGE>
Choice Hotels International, Inc.
Retirement, Savings and Investment Plan
Schedule H, Part IV (j) - Schedule of Reportable Transactions
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Identity of Party Description of Asset Purchase Price Selling Price Lease Rental
------------------------------------------- ----------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Alliance Premier Growth Fund Mutual Fund $3,319,038 $ $ --
-- --
Alliance Premier Growth Fund Mutual Fund -- 2,986,424 --
Merrill Lynch Capital Fund* Mutual Fund 1,038,704 -- --
Merrill Lynch Capital Fund* Mutual Fund -- 2,510,174 --
Hotchkis & Wiley International Equity Fund Mutual Fund 759,562 -- --
Hotchkis & Wiley International Equity Fund Mutual Fund -- 1,000,831 --
Merrill Lynch S&P 500 Index Mutual Fund 1,717,192 -- --
Merrill Lynch S&P 500 Index Mutual Fund -- 384,168 --
Merrill Lynch Retirement Preservation Trust* Common/Collective Trust 2,120,548 -- --
Merrill Lynch Retirement Preservation Trust* Common/Collective Trust -- 1,077,829 --
Choice Hotels Common Stock Fund* Common Stock 1,062,304 -- --
Choice Hotels Common Stock Fund* Common Stock -- 722,221 --
<CAPTION>
Expense Incurred Cost of Asset Current Value of Asset Net Gain/(Loss)
Identity of Party With Transaction on Transaction Date
-------------------------------------- ----------------- ------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
Alliance Premier Growth Fund $ -- $3,319,038 $3,319,038 $ --
Alliance Premier Growth Fund -- 2,490,736 2,986,424 495,688
Merrill Lynch Capital Fund* -- 1,038,704 1,038,704 --
Merrill Lynch Capital Fund* -- 2,540,035 2,510,174 (29,861)
Hotchkis & Wiley International Equity Fund -- 759,562 759,562 --
Hotchkis & Wiley International Equity Fund -- 1,015,177 1,000,831 (14,346)
Merrill Lynch S&P 500 Index -- 1,717,192 1,717,192 --
Merrill Lynch S&P 500 Index -- 369,972 384,168 14,196
Merrill Lynch Retirement Preservation Trust -- 2,120,548 2,120,548 --
Merrill Lynch Retirement Preservation Trust -- 1,077,829 1,077,829 --
Choice Hotels Common Stock Fund* -- 1,062,304 1,062,304 --
Choice Hotels Common Stock Fund* -- 640,719 722,221 81,502
</TABLE>
*These transactions qualify as party-in-interest transactions as described in
Note 7.
9
