Comfort Inn 2005 Annual Report Download - page 40

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pursuant to SFAS No. 142, the Company is not required to amortize goodwill.
Franchise rights represent the unamortized purchase price assigned to acquire long-term franchise contracts.
As of December 31, 2005 and 2004, the unamortized balance relates primarily to the Econo Lodge, Suburban
Extended Stay Hotel and Flag franchise rights. The franchise rights are being amortized over lives ranging from
5 to 17 years. Amortization expense for the years ended December 31, 2005, 2004 and 2003 amounted to $3.6
million, $3.4 million and $3.4 million, respectively. Franchise rights are net of accumulated amortization of
$45.6 million and $42.1 million at December 31, 2005 and 2004, respectively. The estimated annual amortization
expense related to the Company’s franchise rights for each of the years ending December 31, 2006 through 2010
is as follows:
Year (In millions)
2006 ............................................................ $4.0
2007 ............................................................ 3.9
2008 ............................................................ 3.8
2009 ............................................................ 3.8
2010 ............................................................ 3.8
Franchise rights and other identifiable intangible assets include approximately $3.8 million and $2.7 million
of unamortized intangible assets related to trademarks at December 31, 2005 and 2004, respectively. Trademarks
acquired in the Suburban acquisition have an indefinite life and therefore pursuant to SFAS 142 no amounts have
been amortized. The costs of registering and renewing existing trademarks are being amortized over ten years.
Amortization expense for the years ended December 31, 2005, 2004 and 2003 amounted to $0.5 million, $0.4
million and $0.3 million, respectively. Trademarks are net of accumulated amortization of $3.7 million and $3.3
million at December 31, 2005 and 2004, respectively. The estimated annual amortization expense related to the
Company’s trademarks for each of the years ending December 31, 2006 through 2010 is as follows;
Year (In millions)
2006 ............................................................ $0.5
2007 ............................................................ 0.5
2008 ............................................................ 0.5
2009 ............................................................ 0.4
2010 ............................................................ 0.4
6. Receivable-Marketing and Reservation Fees
The Company’s franchise agreements require the payment of franchise fees, which include marketing and
reservation fees. The Company is obligated to use the marketing and reservation fees it assesses against the
current franchisees comprising its various hotel brand systems to provide marketing and reservation services
appropriate for the successful operation of the systems. In discharging its obligation to provide sufficient and
appropriate marketing and reservation services, the Company has the right to expend funds in an amount
reasonably necessary to ensure the provision of such services, whether or not such amount is currently available
to the Company for reimbursement. The franchise agreements provide the Company the right to advance monies
to the franchise system when the needs of the system surpass the balances currently available.
Under the terms of these agreements, the Company has the legally enforceable right to assess and collect
from its current franchisees fees sufficient to pay for the marketing and reservation services the Company has
procured for the benefit of the franchise system, including fees to reimburse the Company for past services
rendered. The Company has the contractual authority to require that the franchisees in the system at any given
38