Comfort Inn 2002 Annual Report Download - page 18

Liquidity and Capital Resources
Net cash provided by operating activities was $99.0 million for the year ended December 31, 2002,
representing a slight decrease of $2.7 million from $101.7 million for the year ended December 31, 2001. The
decrease in cash provided by operating activities was primarily due to lower repayments related to marketing and
reservation activities offset by improved management of working capital. As of December 31, 2002, the total
long-term debt outstanding for the Company was $307.8 million, $23.8 million of which matures in the next
twelve months.
During each of the past three years, the Company has realigned its corporate structure to increase its
strategic focus on delivering value-added services and support to franchisees, including centralizing the
Company’s franchise service and sales operations, consolidating its brand management functions and realigning
its call center operations. The Company recorded a $1.6 million restructuring charge in 2002 of which
approximately $0.4 million was paid in 2002. The restructuring charges represented employee severance and
termination benefits. The restructuring was initiated and completed in 2002 and the Company expects the
remaining liability to be paid during 2003. The Company paid $3.1 million related to the 2001 restructuring
liability during the year ended December 31, 2002, and expects the remaining $0.6 million liability to be
substantially paid in 2003. The Company paid $0.2 million related to the 2000 restructuring liability for the year
ended December 31, 2002, which completed the restructuring.
The Company received net cash repayments related to marketing and reservation activities totaling
$17.2 million and $20.3 million during the years ended December 31, 2002 and 2001, respectively. The 2002 and
2001 net repayments are associated with cost reductions from restructured operations, growth in fees from
normal operations and increases in property and yield management fees. The Company expects marketing and
reservation activities to generate positive cash flows between $16.0 million and $19.0 million in 2003.
Cash (utilized in) provided by investing activities for the years ended December 31, 2002, 2001 and 2000,
was ($14.7 million), $87.7 million and ($16.6 million), respectively. During the years ended December 31, 2002,
2001 and 2000, capital expenditures totaled $12.2 million, $13.5 million and $16.6 million, respectively. Capital
expenditures include the installation of system-wide property and yield management systems, upgrades to
financial and reservation systems, computer hardware and renovations to the Company’s corporate headquarters
(including a franchisee learning and training center). During 2001, the Company received a cash payment of
$101.9 million from Sunburst related to a note receivable due to the Company.
On September 1, 2000, the Company monetized $16.3 million in principal and interest of the $115 million
principal, five-year Subordinated Term Note (the “Old Note”) to Sunburst issued in October 1997. The Company
received three MainStay Suites properties through the monetization transaction. In connection with an
amendment of the strategic alliance agreement between the Company and Sunburst, effective October 15, 2000,
interest payable on the Old Note accrued at a rate of 11% per annum compounded daily. The Company
implemented this amendment prospectively beginning on January 1, 1999, and recognized interest on the
outstanding principal and accrued interest amounts at an effective rate of 10.58%. Total interest accrued at
December 31, 2000 was $42.2 million. On January 5, 2001, the Company received $101.9 million, a parcel of
land valued at approximately $1.5 million and a $35 million seven-year senior subordinated note bearing interest
at 11 3/8% (the “New Note”) in settlement of the balance of the Old Note. In 2000, the Company recognized a
pre-tax loss of $3.5 million resulting from this transaction. The New Note accrued interest up until June 2002, at
which point interest became payable semi-annually in arrears. As of December 31, 2002, the Company’s balance
sheet includes an interest receivable from Sunburst of $2.3 million which is included in other current assets in the
accompanying consolidated balance sheets and was paid to the Company by Sunburst in January 2003.
Financing cash flows relate primarily to the Company’s borrowings under its credit lines and treasury stock
purchases. In June 2001, the Company entered into a five-year $265 million competitive advance and multi-
currency credit facility. The credit facility provides for a term loan of $115 million and a revolving credit facility
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