Comfort Inn 2007 Annual Report Download - page 31

increased initial fee revenue; ongoing royalty fees and brand solutions revenues. In addition, our operating results can also
be improved through our company wide efforts related to improving property level performance. At December 31, 2007,
the Company estimates that based on its current domestic portfolio of hotels under franchise that a 1% change in RevPAR
or rooms under franchise would increase or decrease royalty revenues by $2.4 million and a 1 basis point change in the
Company’ s effective royalty rate would increase or decrease domestic royalties by $0.5 million. In addition to these
revenues, we also collect marketing and reservation fees to support centralized marketing and reservation activities for the
franchise system. As a lodging franchisor, Choice 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;
growth in the number of hotel rooms under franchise; occupancy and room rates achieved by the hotels under franchise;
the effective royalty rate achieved; 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 revenue per
available room (“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 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 contractually required by our franchise agreements to use the marketing and reservation fees we collect for
system-wide marketing and reservation activities. These expenditures, which include advertising costs and costs to
maintain our central reservations system, 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, which ultimately
increases franchise fees earned by the Company.
Our Company articulates its mission as a commitment to our customers’ profitability by providing our customers
with hotel franchises that 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 strive every day to continuously improve our franchise offerings to enhance our
customers’ profitability and create the highest return on investment of any hotel franchise.
We believe that executing our strategic priorities creates value. Our Company focuses on two key value drivers:
Profitable Growth. Our success is dependent on improving the performance of our hotels, increasing our system size
by selling additional hotel franchises and effective royalty rate improvement. 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 endorsed 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. 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. Through
December 31, 2007, we have repurchased 38.6 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 $895.9 million since the program’ s inception. Considering
the effect of the two-for-one stock split, the Company has repurchased 71.5 million shares at an average price of $12.52
per share through December 31, 2007. In September 2007, the Company’ s board of directors authorized an increase under
the Company’ s existing stock repurchase program to acquire up to an additional three million shares of its outstanding
common stock. At December 31, 2007, the Company had 3.2 million shares remaining under the current authorization of
the board of directors. The Company expects to continue to return value to its shareholders through a combination of
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