Comfort Inn 2007 Annual Report Download - page 38

Comparison of 2006 Operating Results and 2005 Operating Results
The Company recorded net income of $112.8 million for the year ended December 31, 2006, an increase of $25.2
million, or 29% from $87.6 million for the year ended December 31, 2005. The increase in net income for the year is
primarily attributable to a $22.9 million improvement in operating income and a decline in the effective income tax rate
from 33.0% to 27.4%. The effective income tax rate declined primarily due to the resolution of tax contingencies of
approximately $12.8 million in 2006 compared to $4.9 million in 2005 as well as an additional $1.2 million of income tax
expense in 2005 related to the Company’ s repatriation of foreign earnings. Operating income increased as a result of a
$32.1 million, or 14% increase in franchising revenues (total revenues excluding marketing and reservation revenues and
hotel operations) primarily offset by an $8.9 million or 11% increase in selling, general and administrative expense.
Summarized financial results for the years ended December 31, 2006 and 2005 are as follows:
2006
2005
(In thousands, except
per share amounts)
REVENUES:
Royalty fees .............................................................................................................................................. $ 211,645 $ 187,340
Initial franchise and relicensing fees......................................................................................................... 29,629 25,388
Brand solutions ......................................................................................................................................... 13,945 13,382
Marketing and reservation ........................................................................................................................ 273,267 237,822
Hotel operations........................................................................................................................................ 4,505 4,293
Other ......................................................................................................................................................... 6,912 3,873
Total revenues ................................................................................................................................. 539,903 472,098
OPERATING EXPENSES:
Selling, general and administrative........................................................................................................... 87,112 78,250
Depreciation and amortization.................................................................................................................. 9,705 9,051
Marketing and reservation ........................................................................................................................ 273,267 237,822
Hotel operations........................................................................................................................................ 3,194 3,225
Total operating expenses ................................................................................................................. 373,278 328,348
Operating income...................................................................................................................................... 166,625 143,750
OTHER INCOME AND EXPENSES:
Interest expense......................................................................................................................................... 14,098 15,325
Interest and other investment income ....................................................................................................... (2,041) (1,094)
Equity in net income of affiliates.............................................................................................................. (1,052) (803)
Loss on extinguishment of debt ................................................................................................................ 342 —
Other ......................................................................................................................................................... — (420)
Other income and expenses, net ...................................................................................................... 11,347 13,008
Income before income taxes ..................................................................................................................... 155,278 130,742
Income taxes ............................................................................................................................................. 42,491 43,177
Net income................................................................................................................................................ $ 112,787 $ 87,565
Weighted average shares outstanding-diluted........................................................................................... 67,050 66,336
Diluted earnings per share ........................................................................................................................ $ 1.68 $ 1.32
Management analyzes its business based on franchising revenues, which is total revenues excluding marketing and
reservation revenues and hotel operations, and franchise operating expenses that are reflected as selling, general and
administrative expenses.
Franchising Revenues: Franchising revenues were $262.1 million for the year ended December 31, 2006 compared
to $230.0 million for the year ended December 31, 2005. The growth in franchising revenues is primarily due to increases
in royalty revenues and initial and relicensing fees and other revenues of approximately 13%, 17% and 78%, respectively.
Domestic royalty fees increased $19.1 million to $195.5 million from $176.4 million in 2005, an increase of 10.8%.
Excluding the franchises obtained in the September 28, 2005 acquisition of Suburban, the increase in royalties is
attributable to a combination of factors including a 3.3% increase in the number of domestic franchised hotel rooms, a
6.1% increase in RevPAR and an increase in the effective royalty rate of the domestic hotel system to 4.10% from 4.08%.
System-wide RevPAR increases resulted primarily from an average daily rate (“ADR”) increase of 5.2% from the prior
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