Comfort Inn 2005 Annual Report Download - page 12

Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand
Choice Hotels International, Inc. and subsidiaries (together “the Company”). MD&A is provided as a supplement
to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes.
Overview
We are a hotel franchisor with franchise agreements representing 5,210 hotels open and 687 hotels under
development as of December 31, 2005, with 427,056 rooms and 54,075 rooms, respectively, in 49 states, the
District of Columbia and more than 45 countries and territories outside the United States. Our brand names
include Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites,
Cambria Suites, Suburban Extended Stay Hotel and Flag Hotels. Approximately 95% of the Company’s revenues
are derived from hotels franchised in the United States.
During 2005, the Company acquired 100% of the stock of Suburban Franchise Holding Company, Inc.
(“Suburban”) and its wholly owned subsidiary, Suburban Franchise Systems, Inc for $12.8 million. Suburban is
the franchisor of Suburban Extended Stay Hotel and at acquisition had 67 units (8,942 rooms) operating in the
economy extended stay segment primarily in the southeastern United States. The acquisition allowed the
Company to enter, on an accelerated basis, the economy extended stay segment, a market in which it did not
previously compete. The results of Suburban have been consolidated with the Company since September 28,
2005.
On September 14, 2005, the Company’s board of directors declared a two-for one stock split effected in the
form of a stock dividend. The stock dividend was distributed on October 21, 2005 to shareholders of record on
October 7, 2005. Share data and earnings per share data included in MD&A reflect the stock split, applied
retroactively, to all periods presented.
Our Company generates revenues, income and cash flows primarily from initial and continuing royalty fees
attributable to our franchise agreements. Revenues are also generated from partner services endorsed vendor
arrangements, hotel operations and other sources.
We are contractually required by our franchise agreements to use the marketing and reservation fees we
collect for system-wide marketing and reservation activities. These expenditures, which include advertising costs
and costs to maintain our central reservations system, help to enhance awareness and increase consumer
preference for our brands. Greater awareness and preference promotes long-term growth in business delivery to
our franchisees, which ultimately increases franchise fees earned by the Company.
Our Company articulates its mission as a commitment to our customer’s profitability by providing our
customers with hotel franchises that generate the highest return on investment of any hotel franchise. We have
developed an operating system dedicated to our franchisees’ success: One that focuses on delivering guests to our
franchised hotels and reducing costs for our hotel owners. We strive every day to continuously improve our
franchise offerings to enhance our customer’s profitability and create the highest return on investment of any
hotel franchise.
We believe that executing our strategic priorities creates value. Our Company focuses on two key value
drivers:
Profitable Growth. Our success is dependent on improving the performance of our hotels, increasing our
system size by selling additional hotel franchises and effective royalty rate improvement. We attempt to improve
our franchisees’ revenues and overall profitability by providing a variety of products and services designed to
increase business delivery to and/or reduce operating and development costs for our franchisees. These products
and services include national marketing campaigns, a central reservation system, property and yield management
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