Comfort Inn 2013 Annual Report Download - page 48

Table of Contents
in other gains and losses. These increases in the current year SG&A expenses were partially offset by a loss on settlement of the Company's pension plan
totaling $1.8 million recognized during the year ended December 31, 2012 resulting from the recognition of previously unrecognized actuarial losses which had
been recorded as a component of the Company's accumulated other comprehensive loss on the Company's consolidated balance sheets. In addition, expenses
declined by $3.3 million resulting from lower management incentive plan compensation earned based on Company earnings per share performance.
Depreciation and Amortization: Expenses increased $1.2 million from $8.2 million for the year ended December 31, 2012 to $9.5 million for the
year ended December 31, 2013. The increase in depreciation and amortization expenses primarily reflects additional capital expenditures incurred in
conjunction with the Company's relocation of its corporate headquarters in April 2013 as well as an increase in amortization related to the issuance of
forgivable notes receivable in conjunction with brand and development programs.
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 primarily 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 $403.1 million and $384.8 million for the years ended December 31, 2013 and 2012, respectively.
The increase in revenues was primarily due to improved system fees resulting from system growth and RevPAR increases as well as increased revenues from
the Choice Privileges loyalty program resulting from the growth in program membership. Depreciation and amortization attributable to marketing and
reservation activities was $16.0 million and $14.5 million for the years ended December 31, 2013 and 2012, respectively. Interest expense attributable to
reservation activities was $3.7 million and $4.0 million for the years ended December 31, 2013 and 2012 , respectively.
As of December 31, 2013 and 2012, the Company’s balance sheets include deferred costs of $19.1 million and $42.2 million, respectively resulting
from cumulative marketing and reservation expenses incurred in excess of cumulative system fee revenues earned. During the year ended December 31, 2013,
the Company collected $23.1 million of marketing and reservation system revenue in excess of expense incurred compared to $11.8 million for the year ended
December 31, 2012. The fees collected in excess of expenses incurred were utilized to reimburse the Company for a portion of the outstanding cumulative
advances for marketing and reservation expenses. This resulted in expense recognition of an equivalent amount of previously unrecognized costs. The increase
in excess fees collected in 2013 compared to 2012 primarily reflects increased revenues related to growth in the number of units, RevPAR in the franchise
system and the size of the Company's loyalty program.
The decline in cumulative advances for marketing and reservation activities since December 31, 2012 reflects the Company's strategy to recover prior
year advances for marketing and reservation activities in future periods. Costs incurred in excess of fees collected are deferred and recorded as an asset in the
financial statements as the Company has the contractual authority to recover the deficits incurred related to marketing and reservation activities from the
franchisees in the system at any given point in time. The Company’s current franchisees are contractually obligated to pay any assessment the Company
imposes on its franchisees to obtain reimbursement of such deficit regardless of whether those constituents continue to generate gross room revenue and
whether or not they joined the system following the deficit’s occurrence. The Company expects to recover the deferred costs over a period of time by expending
fewer amounts on marketing and reservation activities than marketing and reservation system fees collected, depending on the marketing and reservation needs
of the system. Conversely, cumulative marketing and reservation system fees not expended are recorded as a liability in the financial statements and are carried
over to the next fiscal year and expended in accordance with the franchise agreements.
Interest Expense: Interest expense increased $15.3 million from the prior year to $42.5 million for the year ended December 31, 2013 due to the
issuance of the Company's $400 million senior notes due in 2022 with an effective rate of 5.94% on June 27, 2012 as well as the $350 million senior secured
credit facility entered into by the Company on July 25, 2012. The Company utilized the proceeds from these debt issuances to pay a special cash dividend on
August 23, 2012 totaling approximately $600.7 million to common stockholders.
Loss on Extinguishment of Debt: In conjunction with the refinancing of the Company's $300 million revolving credit facility, which was scheduled to
mature in February 2016, the Company recognized a $0.5 million loss on extinguishment of debt during the year ended December 31, 2012.
Other Gains and Losses: Other gains and losses decreased $0.2 million from a gain of $2.0 million in 2012 to a gain of $1.8 million in 2013
primarily due to the fluctuations in the fair value of investments held in the Company's non-qualified employee benefit plans.
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