Comfort Inn 2011 Annual Report Download - page 54

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Table of Contents
the Treasury rate, plus 45 basis points.
In July 2010, the Company entered into an interest rate swap agreement to protect itself from an increase in the market interest rate on $250 million of
10-year, fixed rate debt with the coupon to be set at market interest rates. The interest rate swap agreement was designated as a cash flow hedge under the
guidance for derivatives and hedging. In August 2010, upon issuance of the related fixed-rate debt, the Company terminated and settled the interest rate swap
agreement for a cash payment of $8.7 million. The Company recorded the effective portion of this deferred loss as a component of accumulated other
comprehensive income (loss). The ineffective portion was calculated at less than $0.1 million and was recognized immediately as a component of earnings
under interest expense in the Company’s consolidated statements of income during the year ended December 31, 2010. The effective portion of the deferred loss
is being amortized over the term of the related debt as interest expense in the Company’s consolidated statements of income.
As a result of the issuance of the Senior Notes, the Company’s borrowing costs have increased as the Company’s Revolver carries an interest rate of
LIBOR plus approximately 50 basis points which has been lower than the effective rate of the Senior Notes.
Dividends
The Company currently maintains the payment of a quarterly dividend on its common shares outstanding, however, the declaration of future dividends
are subject to the discretion of our board of directors. During the year ended December 31, 2011, the Company declared and paid cash dividends at a quarterly
rate of $0.185 per share totaling approximately $43.7 million. The Company’s quarterly dividend rate remained unchanged from the year ended December 31,
2010. We expect that cash dividends will continue to be paid in the future, subject to future business performance, economic conditions and changes in tax
regulations. Based on our present dividend rate and outstanding share count, aggregate annual dividends for 2012 would be approximately $42.9 million.
Share Repurchases
During the year ended December 31, 2011, the Company repurchased 1.6 million shares of its common stock under the share repurchase program at
the total cost of $51.0 million for an average price of $31.59 per share. Since the program’s inception through December 31, 2011, we 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. Considering
the effect of the two-for-one stock split, the Company repurchased 77.8 million shares at an average price of $13.73 per share through December 31, 2011. At
December 31, 2011, the Company had approximately 2.0 million shares remaining under the current stock repurchase authorization. Upon completion of the
current authorization, our board of directors will evaluate the advisability of additional share repurchases. Subsequent to December 31, 2011 through
February 29, 2012, the Company purchased an additional 0.2 million shares of its common stock under the share repurchase program for a total cost of $7.3
million for an average price of $36.41 per share.
Other items
Our board of directors previously authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified
franchisees as well as to 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. Over the next several years, we expect to continue 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 market and other conditions.
Approximately $83.2 million of the Company’s cash and cash equivalents at December 31, 2011 pertain to undistributed earnings of the Company’s
consolidated foreign subsidiaries. Since the Company’s intent is for such earnings to be reinvested by the foreign subsidiaries, the Company has not provided
additional United States income taxes on these amounts. While the Company has no intention to utilize these cash and cash equivalents in its domestic
operations, any change to this policy would result in the Company incurring additional United States income taxes on any amounts utilized domestically.
During the fourth quarter of 2011, the Company implemented measures to increase its productivity and streamline services that are projected to result in
a reduction in future SG&A expenses. As a result of these measures, during the year ended December 31, 2011, the Company recorded a $6.6 million charge
in SG&A and marketing and reservation expenses related to termination benefits provided to employees separating from service with the Company. These
expenses include $5.8 million of salary and benefits continuation and $0.8 million related to the acceleration of share-based compensation for
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