Comfort Inn 2011 Annual Report Download - page 44

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Table of Contents
developer incentives that were executed in prior years. In addition, due to the expiration of a developer incentive program in June 2011, the Company executed
fewer franchise agreements in the current year that included incentives. Revenues associated with agreements including incentives are deferred and recognized
when the incentive criteria are met or the agreement is terminated, whichever comes first.
The number of franchise applications received and the number of franchise agreements executed are dependent on the availability of hotel financing, cost
of capital and the presence of an active real estate market. Improvements in these areas should serve as a positive catalyst in the number of franchise
applications received and ultimately the number of franchise agreements executed.
A summary of executed domestic franchise agreements by brand for the years ended December 31, 2011 and 2010 is as follows:















Comfort Inn 


7
32
39
71 %
44 %
49 %
Comfort Suites 

21
2
23
(43)%
100 %
(30)%
Sleep

9
1
10
— %
100 %
10 %
Quality


1
104
105
(100)%
(23)%
(24)%
Clarion


0
37
37
NM
(49)%
(49)%
Econo Lodge


0
67
67
NM
(16)%
(15)%
Rodeway


1
39
40
(100)%
26 %
23 %
MainStay
8
2
10
(25)%
50 %
(10)%
Suburban
5
1
6
— %
300 %
50 %
Ascend Collection


1
13
14
100 %
8 %
14 %
Cambria Suites
6
0
6
33 %
NM
33 %
Total Domestic System 


59
298
357
(7)%
(7)%
(7)%
Relicensing fees include fees charged to the new owners of a franchised property whenever an ownership change occurs and the property remains in the
franchise system as well as fees required to renew expiring franchise contracts. Relicensing contracts increased 45% from 103 during 2010 to 149 for the year
ended December 31, 2011. Renewals of expired contracts increased from 7 for the year ended December 31, 2010 to 13 during the current year. As a result of
the increase in contracts and the mix of brands relicensing, revenues increased 28% from $3.1 million in 2010 to $4.0 million for 2011. The Company’s
relicensing activity in 2012 and beyond is dependent on the availability and cost of capital as well as the presence of an active real estate market for hotel
transactions.
Selling, General and Administrative Expenses: The cost to operate the franchising business is reflected in SG&A expenses on the consolidated
statements of income. SG&A expenses were $106.4 million for 2011, an increase of $11.9 million from the 2010 total of $94.5 million. Adjusted SG&A
costs, which exclude certain items described above, for full year 2011 totaled $102.0 million which represented a 10% increase from the adjusted SG&A of
$92.8 million reported for the same period of the prior year. The $9.2 million increase in adjusted SG&A was primarily attributable to higher franchise sales
and management incentive compensation, increased costs related to the Company's annual franchisee convention and foreign currency fluctuations partially
offset by lower compensation expense recognized on deferred compensation arrangements as described in more detail in Other Income and Expenses, Net and
bad debt recoveries on impaired development loans.
Marketing and Reservations : The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation
system fees. The fees, which are based on a percentage of the franchisees’ gross room revenues, are used exclusively by the Company for expenses associated
with providing franchise services such as central reservation systems, national marketing and media advertising. The Company is contractually obligated to
expend the marketing and reservation system fees it collects from franchisees in accordance with the franchise agreements; as such, no income or loss to the
Company is generated.
Total marketing and reservation system revenues were $349.0 million and $329.2 million for the years ended December 31, 2011 and 2010 respectively.
Depreciation and amortization attributable to marketing and reservation activities was $13.3 million and $12.4 million for the years ended December 31, 2011
and 2010, respectively. Interest expense attributable to reservation activities was $4.1 million and $1.1 million for the years ended December 31, 2011 and
2010, respectively. Marketing and reservation activities provided $0.6 million in operating cash flow for the year ended December 31, 2011 compared to
providing $4.7 million in operating cash flows in the prior year.
43