Comfort Inn 2004 Annual Report Download - page 14

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the Company’s balance sheet includes a receivable of $21.7 million and $32.4 million, respectively, for marketing
and reservation fees. This receivable is recorded as an asset in the financial statements as the Company has the
contractual authority to require that the franchisees in the system at any given point repay the Company for any
deficits related to marketing and reservations activities. The Company’s current franchisees are legally obligated to
pay any assessment the Company imposes on its franchisees to obtain reimbursement of such deficit regardless of
whether those constituents continue to generate gross room revenue. The Company has no present intention to
accelerate repayment of the deficit from current franchisees.
Other Income and Expenses: Interest expense was $11.6 million for each of the years ended December 31,
2004 and 2003. The Company’s weighted average interest rate as of December 31, 2004 was 4.58% compared to
4.29% as of December 31, 2003. Other income and expense includes a loss on extinguishment of debt of
approximately $0.7 million attributable to the refinancing of the Company’s senior credit facility during the third
quarter. Other income and expenses for the year ended December 31, 2003 also includes approximately a $3.4
million gain on prepayment and $4.5 million of interest income earned on a note receivable from Sunburst,
which was repaid in December 2003. Interest and other investment income for the year ended December 31,
2004 also reflects the reduction of investment income attributable to non-qualified employee benefit plan assets.
Income Taxes: The Company’s effective income tax provision rate was 35.08% for the year ended
December 31, 2004, a decrease of 99 basis points from the effective income tax provision rate of 36.07% for the
year ended December 31, 2003. The reduction in the effective income tax provision rate resulted partially from
an increase in foreign income, which is taxed at lower income tax rates than the statutory U.S. income tax rates.
Also, the favorable resolution of several state income tax issues in the current year and the increase in taxable
income over non-tax deductible items between the two periods decreased the effective income tax provision rate.
Income tax expense for 2004 includes approximately $1.2 million of income tax benefits resulting from the
reversal of income tax contingencies. Income tax expense for 2003 includes $1.5 million of provisions for
income tax contingencies. Depending upon the outcome of certain income tax contingencies during 2005, up to
$6.6 million of income tax benefits may be reflected in our 2005 results of operations.
Net income for fiscal 2004 increased by 3.5% to $74.3 million, and diluted earnings per share increased
9.7% to $2.15 in 2004 from $1.96 reported for 2003. A portion of the increase in diluted earnings per share is
attributable to stock repurchases made by the Company in 2004 and prior years.
F-6