Comfort Inn 2011 Annual Report Download - page 37

Table of Contents
hotel franchises that strive to generate the highest return on investment of any hotel franchise. We have developed an operating system dedicated to our
franchisees’ success that focuses on delivering guests to our franchised hotels and reducing costs for our hotel owners.
We believe that executing our strategic priorities creates value for our shareholders. 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, effective royalty rate improvement and maintaining a disciplined cost structure. 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 systems,
quality assurance standards and qualified vendor relationships. We believe that healthy brands, which deliver a compelling return on investment for
franchisees, will enable us to sell additional hotel franchises and raise royalty rates. We have established multiple brands that meet the needs of many types of
guests, and can be developed at various price points and applied to both new and existing hotels. This ensures that we have brands suitable for creating growth
in a variety of market conditions. Improving the performance of the hotels under franchise, growing the system through additional franchise sales and
improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.
Maximizing Financial Returns and Creating Value for Shareholders. Our capital allocation decisions, including capital structure and uses of capital,
are intended to maximize our return on invested capital and create value for our shareholders. We believe our strong and predictable cash flows create a strong
financial position that provides us a competitive advantage. Currently, our business does not require significant capital to operate and grow. Therefore, we can
maintain a capital structure that generates high financial returns and use our excess cash flow to increase returns to our shareholders.
Historically, we have returned value to our shareholders in two primary ways: share repurchases and dividends. In 1998, we instituted a share
repurchase program which has generated substantial value for our shareholders. During the year ended December 31, 2011, the Company purchased 1.6
million shares of its common stock under the share repurchase program at an average price of $31.59 for a total cost of $51.0 million. Through December 31,
2011, we have repurchased 44.8 million shares (including 33.0 million prior to the two-for-one stock split affected in October 2005) of common stock at a total
cost of $1.1 billion since the program’s inception. Considering the effect of the two-for-one stock split, the Company has repurchased 77.8 million shares at
an average price of $13.73 per share. We currently believe that our cash flows from operations will support our ability to complete the repurchase of
approximately 2.0 million shares remaining as of December 31, 2011 under the current stock repurchase authorization of the board of directors. Upon
completion of the current authorization, our board of directors will evaluate the advisability of additional share repurchases.
During the year ended December 31, 2011, we paid cash dividends totaling approximately $43.7 million and we presently expect to continue to pay
dividends in the future, subject to business performance, economic conditions, changes in income tax
regulations and other factors. Based on our present dividend rate and outstanding share count, aggregate annual dividends for 2012 would be approximately
$42.9 million.
Our board of directors previously authorized us to enter into programs which permit us to offer investment, financing and guaranty support to qualified
franchisees as well as acquire and resell real estate to incent franchise development for certain brands in strategic markets. Recent market conditions have
resulted in an increase in opportunities to incentivize development under these programs and as a result over the next several years, we expect to deploy capital
opportunistically pursuant to these programs to promote growth of our emerging brands. The amount and timing of the investment in these programs will be
dependent on market and other conditions. Our current expectation is that our annual investment in these programs will range from $20 million to $40 million.
Notwithstanding these programs, the Company expects to continue to return value to its shareholders through a combination of share repurchases and
dividends, subject to business performance, economic conditions, changes in income tax regulations and other factors.
We believe these value drivers, when properly implemented, will enhance our profitability, maximize our financial returns and continue to generate value
for our shareholders. The ultimate measure of our success will be reflected in the items below.
Results of Operation: Royalty fees, operating income, net income and diluted earnings per share (“EPS”) represent key measurements of these value
drivers. In 2011, royalty fees revenue totaled approximately $247.2 million, a 7% increase from 2010. Operating income totaled $171.9 million for the year
ended December 31, 2011, a 7% increase from 2010. Net income for the year ended December 31, 2011 increased $3.0 million to $110.4 million and diluted
EPS were $1.85 compared to $1.80 for the year ended December 31, 2010. These measurements will continue to be a key management focus in 2012 and
beyond.
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