Comfort Inn 2013 Annual Report Download - page 39

Table of Contents
approximately $0.6 million. In addition to these revenues, we also collect marketing and reservation system fees to support centralized marketing and
reservation activities for the franchise system. The Company's hotel franchising business currently has relatively low capital expenditure requirements.
The principal factors that affect the Company’s results are: the number and relative mix of franchised hotel rooms in the various hotel lodging price
categories; growth in the number of hotel rooms under franchise; occupancy and room rates achieved by the hotels under franchise; the effective royalty rate
achieved; the level of franchise sales and relicensing activity; and our ability to manage costs. The number of rooms at franchised properties and occupancy
and room rates at those properties significantly affect the Company’s results because our fees are based upon room revenues at franchised hotels. The key
industry standard for measuring hotel-operating performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average
daily room rate realized. Our variable overhead costs associated with franchise system growth of our established brands have historically been less than
incremental royalty fees generated from new franchises. Accordingly, continued growth of our franchise business should enable us to realize benefits from the
operating leverage in place and improve operating results.
We are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation
activities. These expenditures, which include advertising costs and costs to maintain our central reservations and property management systems, 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 and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company.
Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with 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 goals:
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 primarily through share
repurchases, dividends or investing in growth opportunities.
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. Since the program's inception through December 31, 2013, we have
repurchased 45.3 million shares (including 33.0 million prior to the two-for-one stock split effected 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 has repurchased 78.3 million shares at an average price of $13.89 per share. At
December 31, 2013, we had approximately 1.4 million shares remaining under the current share repurchase authorization. We currently believe that our cash
flows from operations will support our ability to complete the current board of directors repurchase authorization and upon completion of the current
authorization, our board of directors will evaluate the advisability of additional share repurchases.
The Company commenced paying quarterly dividends in 2004 and in 2012 the Company elected to pay a special cash dividend totaling approximately
$600 million. The Company currently maintains the payment of a quarterly dividend on its common shares outstanding of $0.185 per share, however the
declaration of future dividends are subject to the discretion of the
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