Comfort Inn 2013 Annual Report Download - page 76

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Table of Contents
The following tables present the effect of the correction of the classification of the cash flows related to forgivable notes receivable on selected line items
included in the Company's Consolidated Statements of Cash Flows for the affected periods included in these Consolidated Financial Statements:











Net cash provided by operating
activities:
Forgivable notes receivable,
net $ —
$(10,898)
$(10,898)
$ —
$(3,475)
$(3,475)
Net cash provided by
operating activities 161,020
(10,898)
150,122
134,844
(3,475)
131,369
Net cash used in investing
activities:
Issuance of mezzanine and
other notes receivable (34,925)
11,189
(23,736)
(12,766)
3,539
(9,227)
Collections of mezzanine and
other notes receivable 3,561
(291)
3,270
4,754
(64)
4,690
Net cash used in investing
activities (57,999)
10,898
(47,101)
(23,804)
3,475
(20,329)
Revenue Recognition
The Company enters into franchise agreements to provide franchisees with various marketing services, a centralized reservation system and limited non-
exclusive rights to utilize the Company’s registered trade names and trademarks. These agreements typically have an initial term from ten to twenty years with
provisions permitting franchisees or the Company to terminate after five, ten, or fifteen years under certain circumstances. In most instances, initial franchise
and relicensing fees are recognized upon execution of the franchise agreement because the initial franchise and relicensing fees are non-refundable and the
Company is not required to provide initial services to the franchisee prior to hotel opening. The initial franchise and relicensing fees related to executed
franchise agreements which include incentives, such as future potential cash rebates or forgivable promissory notes, are deferred and recognized when the
incentive criteria are met or the agreement is terminated, whichever occurs first.
The Company may also enter into master development agreements ("MDAs") with developers that grant limited exclusive development rights and
preferential franchise agreement terms for one-time, non-refundable fees. When these fees are not contingent upon the number of agreements executed under the
MDA, the Company recognizes these up-front fees pro-rata over the MDAs’ contractual life. Fees that are contingent upon the execution of franchise agreements
under the MDA are recognized as the franchise agreements are executed.
Royalty and marketing and reservation system revenues, which are typically based on a percentage of gross room revenues or the number of hotel rooms
of each franchisee, are recorded when earned and receivable from the franchisee. An estimate of uncollectible revenue is charged to bad debt expense and
included in selling, general and administrative ("SG&A") and marketing and reservation expenses in the accompanying consolidated statements of income.
The Company generates procurement services revenues from qualified vendors. Procurement services revenues are generally earned based on the level of
goods or services purchased from qualified vendors by hotel franchise owners and hotel guests who stay in the Company’s franchised hotels or based on
marketing services provided by the Company on behalf of the qualified vendors to hotel owners and guests. The Company recognizes procurement services
revenues when the services are performed or the product is delivered, evidence of an arrangement exists, the fee is fixed and determinable and collectibility is
probable. The Company defers the recognition of procurement services’ revenues related to upfront fees. Such upfront fees are generally recognized over a
period corresponding to the Company’s estimate of the life of the arrangement.
Marketing and Reservation Revenues and Expenses
The Company’s franchise agreements require the payment of certain marketing and reservation system fees, which are used exclusively by the
Company for expenses associated with providing franchise services such as national marketing, media advertising, central reservation systems and
technology services. The Company is contractually obligated to expend the
75