Comfort Inn 2007 Annual Report Download - page 37

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of $12.0 million and $19.0 million for the years ended December 31, 2007 and 2006, respectively. As of December 31,
2007 and 2006, the Company’ s balance sheet includes a receivable of $6.8 million and $6.7 million, respectively resulting
from cumulative marketing expenses incurred in excess of cumulative marketing fee revenues earned. These receivables
are recorded as an asset in the financial statements as the Company has the contractual authority to require that the
franchisees in the system at any given point repay the Company for any deficits related to marketing and reservations
activities. The Company’ s current franchisees are legally 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. The Company has no present intention to accelerate repayment of the deficit from current franchisees. A
payable has been recorded in the Company’ s balance sheet within other long-term liabilities related to cumulative
reservation fee revenues received in excess of reservation fee expenses incurred totaling $11.9 million and $8.4 million at
December 31, 2007 and 2006, respectively. Cumulative reservation and marketing fees not expended are recorded as a
payable in the financial statements and are carried over to the next fiscal year and expended in accordance with the
franchise agreements.
Other Income and Expenses, Net: Other income and expenses, net, were $11.3 million for both 2007 and 2006.
Interest expense increased slightly from $14.1 million for the year ended December 31, 2006 to $14.3 million due to
higher average outstanding borrowings during the year. The Company’ s weighted average interest rate declined from
6.6% as of December 31, 2006 to 6.0% as of December 31, 2007. Interest and other investment income declined from
$2.0 million in 2006 to $1.8 million primarily due to a decline in the fair value of investments held in non-qualified
employee benefit plans. Other income and expenses, net for the year ended December 31, 2006 include a loss on
extinguishment of debt of $0.3 million attributable to the refinancing of our senior credit facility.
Income Taxes: The Company’ s effective income tax provision rate was 36.0% for 2007, compared to an effective
income tax provision rate of 27.4% for 2006. The effective income tax rate increased primarily due to the prior year
resolution of provisions for income tax contingencies totaling approximately $12.8 million compared to $0.3 million
during 2007. Depending upon the outcome of certain income tax contingencies up to an additional $1.6 million of
additional tax benefits may be reflected in our 2008 results of operations from the resolution of tax contingency reserves.
Net income for 2007 decreased by 1% to $111.3 million, and diluted earnings per share increased 1% to $1.70 for
2007 from $1.68 reported for 2006.
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