Comfort Inn 2005 Annual Report Download - page 19

to 1,143, a decline of 2.6% for the year ended December 31, 2004. As of December 31, 2004, the Company had
460 franchised hotels with 35,652 rooms either under construction, awaiting conversion or approved for
development in its domestic system as compared to 401 hotels and 31,409 rooms at December 31, 2003. The
Company had an additional 109 franchised hotels with 9,515 rooms under development in its international
system as of December 31, 2004 as compared to 90 hotels and 8,468 rooms at December 31, 2003.
Domestic initial fee revenue, included in initial franchise and relicensing fees caption above, generated from
executed franchise agreements increased 17.7% to $13.3 million for the year ended December 31, 2004 from
$11.3 million for the year ended December 31, 2003. The increase reflects domestic franchise agreements
executed in 2004 of 552 new contracts representing 47,227 rooms compared to 470 agreements representing
41,039 rooms executed in 2003, increases of 17% and 15%, respectively. During 2004, 182 of the executed
agreements were for new construction hotel franchises, representing 12,799 rooms, compared to 128 contracts,
representing 8,649 rooms for the same period a year ago, increases of approximately 42% and 48%, respectively.
Relicensing fees increased 23.6% to $6.8 million for the year ended December 31, 2004 from $5.5 million
for the year ended December 31, 2003. Relicensing fees are charged to the new property owner of a franchised
property whenever an ownership change occurs and the property remains in the franchise system. Other revenues
declined from $5.7 million for the year ended December 31, 2003 to $4.0 million for the year ended
December 31, 2004, primarily as the result of reduced termination awards revenue, which are generated when
franchises exit the system prior to contractually agreed-upon dates. Other revenues for the year ended
December 31, 2003, included approximately $1.7 million of liquidated damages received from Sunburst for the
termination of certain franchises.
Franchise Expenses: The cost to operate the franchising business is reflected in selling, general and
administrative expenses. Selling, general and administrative expenses were $69.5 million for the year ended
December 31, 2004, an increase of $6.7 million from the year ended December 31, 2003 total of $62.8 million.
As a percentage of revenues, excluding marketing and reservation fees and hotel operations, total SG&A
expenses were 34.1% for the year ended December 31, 2004 compared to 33.5% for 2003. The increase is
attributable to increased costs associated with performance based incentive compensation for sales and other
management personnel, costs related to retirement of a board member, adoption of the fair value method of
accounting for stock compensation and increased professional fees related to Sarbanes-Oxley compliance efforts.
Marketing and Reservations: Total marketing and reservations revenues were $220.7 million and $195.2
million for the years ended December 31, 2004 and 2003, respectively. Depreciation and amortization
attributable to marketing and reservation activities was $9.1 million and $12.1 million for the years ended
December 31, 2004 and 2003, respectively. Interest expense attributable to reservation activities was $1.5 million
and $1.3 million for the years ended December 31, 2004 and 2003, respectively. Marketing and reservations
activities provided positive cash flow of $19.7 million and $24.7 million for the years ended December 31, 2004
and 2003, respectively. As of December 31, 2004 and 2003, the Company’s balance sheet includes a receivable
of $21.7 million and $32.4 million, respectively, for marketing and reservation fees.
Other Income and Expenses: Other income and expense, net increased $9.0 million to an expense of $10.5
million for the year ended December 31, 2004 from $1.5 million for the same period in 2003. Interest expense
was $11.6 million for each of the years ended December 31, 2004 and 2003. The Company’s weighted average
interest rate as of December 31, 2004 was 4.58% compared to 4.29% as of December 31, 2003. Other income
and expense includes a loss on extinguishment of debt of approximately $0.7 million attributable to the
refinancing of the Company’s senior credit facility during the third quarter. Other income and expenses for the
year ended December 31, 2003 also includes approximately a $3.4 million gain on prepayment and $4.5 million
of interest income earned on a note receivable from Sunburst, which was repaid in December 2003. Interest and
other investment income for the year ended December 31, 2004 also reflects the reduction of investment income
attributable to non-qualified employee benefit plan assets.
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