Comfort Inn 2013 Annual Report Download - page 75

Table of Contents
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Organization
Choice Hotels International, Inc., a Delaware corporation, and subsidiaries (“the Company”) is primarily in the business of hotel franchising. As of
December 31, 2013, the Company had franchise agreements representing 6,340 open hotels and 503 hotels under construction, awaiting conversion or
approved for development in 50 states, the District of Columbia and more than 35 countries and territories outside the United States under the brand names:
Comfort Inn®, Comfort Suites®, Quality® , Clarion®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Extended Stay Hotel ®,
Cambria Suites® and Ascend Hotel Collection®.
Basis of Presentation
The accompanying consolidated financial statements present the financial position, results of operations and cash flows of Choice Hotels International,
Inc. and subsidiaries. The Company consolidate entities under our control, including variable interest entities where it is deemed to be the primary beneficiary.
Investments in unconsolidated affiliates, including corporate joint ventures and certain other entities, in which the Company owns 50% or less and exercises
significant influence over the operating and financial policies of the investee are accounted for by the equity method. All significant inter-company accounts
and transactions have been eliminated in consolidation.
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America
("GAAP") and require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Accordingly, ultimate results could differ from those estimates.
In our opinion, the accompanying consolidated financial statements include all adjustments that are necessary to fairly present our financial position
and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature.
Revision to Prior Period Financial Statements
In the second quarter of 2013, a misapplication of GAAP was identified related to the presentation of cash flows pursuant to forgivable notes receivable.
Previously, the Company applied Accounting Standards Codification ("ASC") 230 "Statement of Cash Flows" paragraphs 12 and 13 when reporting cash
outflows and cash collections related to these notes receivable and as a result reported these items as cash flows from investing activities. Beginning with the
second quarter of 2013, the Company has revised its presentation of these cash flows in accordance with ASC 230 paragraphs 22 and 23 to reclassify them to
operating activities on the Company's Consolidated Statements of Cash Flows.
In conjunction with brand and development programs, the Company issues forgivable notes receivable to qualifying franchisees for property
improvements and other purposes. Under the terms of the forgivable promissory notes, the Company ratably reduces the outstanding principal balance and
related interest over the term of the loan contingent upon the franchisee remaining within the franchise system and operating in accordance with the terms of the
franchise agreement including credit, quality and brand standards. Therefore, the predominant reduction of these notes receivable is through non-cash
operating expenses and not cash collections of note receivable amounts. As a result, the Company revised the cash flow classification of these forgivable notes
receivable from investing activities to operating activities.
In accordance with ASC 250 (SEC's Staff Accounting Bulletin 99, "Materiality"), the Company assessed the materiality of the misapplication of
GAAP and concluded that the reclassification of these cash flows was not material to any of its previously issued annual or interim financial statements. In
accordance with the accounting guidance in ASC 250 (SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements"), the Company has revised its previously issued financial statements to correct the
presentation of these cash flows beginning with the financial statements in the Quarterly Report on Form 10-Q filed on August 9, 2013 for the quarterly period
ended June 30, 2013. These revisions did not impact the Company's previously reported net income, comprehensive income, assets, liabilities or shareholders'
deficit.
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