Comfort Inn 2013 Annual Report Download - page 56

Table of Contents
Net Income and Diluted EPS: Diluted EPS increased 12% to $2.07 for 2012 from the $1.85 reported for 2011 due to a 9% increase in net income as
well as the repurchases of the Company's common stock. The increase in net income reflects the items discussed above.
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Operating Activities
Net cash flows provided by operating activities were $152.0 million for the year ended December 31, 2013 compared to $150.1 million for the same
period of 2012. Cash flow from operating activities increased primarily due to an increase in operating income, a $12.1 million improvement in cash flows
from marketing and reservation activities, a $2.6 million decline in net disbursements to franchisees for property improvements and other purposes utilizing
forgivable notes receivable and a $12 million decline in the payout of deferred compensation benefits as the prior year cash flows reflected the settlement of the
Company's pension plan. These improvements were partially offset by a $26.4 million increase in cash paid for interest due to the issuance of additional debt
in June and July of 2012 to pay a special cash dividend in August 2012 totaling approximately $600.7 million
In conjunction with brand and development programs, the Company provides financing to franchisees for property improvements and other purposes in
the form of forgivable notes receivable. If the franchisee remains in the system in good standing over the term of the promissory note, the Company forgives the
outstanding principal balance and related interest. Since these forgivable notes are predominantly forgiven ratably over the term of the promissory note rather
than repaid, the Company classifies the related issuance and collections of these notes as operating activities. During the years ended December 31, 2013, 2012
and 2011, the Company's net advances for these purposes totaled $8.3 million, $10.9 million and $3.5 million, respectively. The timing and amount of these
cash flows is dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales
and the timing of hotel openings. At December 31, 2013, the Company had commitments to extend an additional $13.1 million for these purposes provided
certain conditions are met by its franchisees, of which $7.8 million is expected to be advanced in the next twelve months. In addition, during the year ended
December 31, 2013, the Company announced a property improvement incentive program for its domestic Comfort Inn and Comfort Suites hotels to incent
hotel owners to renovate their properties to accelerate improvement of the brand's product quality and consistency, guest satisfaction and brand performance.
The Company has committed to provide financing in the form of forgivable promissory notes to qualifying domestic hotels for a portion of their Company
approved and completed property improvement expenses. Financing will be provided upon the completion and Company certification of the renovations. At
December 31, 2013, the Company had commitments to extended $32.0 million for this purpose provided certain conditions are met by its franchisees. These
commitments are expected to be funded in the next twelve months.
Net operating cash provided by marketing and reservation activities totaled $42.4 million for the year ended December 31, 2013 compared to $30.3
million during the year ended December 31, 2012. The improvement in cash flows from marketing and reservation activities primarily reflects an
improvement in marketing and reservation system fees resulting from system size expansion and RevPAR performance, improved financial performance of the
Company's loyalty programs and cost management of the Company's customer contact centers. Based on the current economic conditions, the Company
expects marketing and reservation activities to provide cash flows from operations ranging between $18 million and $22 million in 2014.
Investing Activities
Cash utilized in investing activities totaled $27.5 million, $47.1 million and $20.3 million for the years ended December 31, 2013, 2012 and 2011,
respectively. The decline in cash utilized for investing activities from 2012 to 2013 primarily reflects a decline in the amount of cash outlays for mezzanine
and other notes receivable, an increase in collections of outstanding mezzanine and other notes receivable and a decline in equity method investments entered
into during the year ended December 31, 2013. The decline in cash used in these investing activities was partially offset by an increase in capital expenditures
and a decline in proceeds from the sale of investments held in trust related to the Company's deferred compensation plans during the year ended December 31,
2013. Additional information regarding these items is as follows:
During the year ended December 31, 2013, 2012 and 2011, the Company sold investments totaling $4.2 million, $11.2 million and $0.6 million,
respectively, and utilized the proceeds to distribute participant deferred compensation balances from the Company's non-qualified retirement plans. The decline
in proceeds from the sale of investments primarily reflects the timing of employee terminations and their deferred compensation distribution elections.
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