Comfort Inn 2014 Annual Report Download - page 74

Table of Contents


 
Basis of Presentation
The accompanying consolidated financial statements present the financial position, results of operations and cash flows of Choice Hotels International,
Inc., a Delaware corporation and subsidiaries (the "Company"). The Company consolidates entities under its 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 the opinion of management, the accompanying consolidated financial statements include
all normal and recurring adjustments that are necessary to fairly present the financial position, results of operations and cash flows of the Company.
The financial statements for the years ended December 31, 2013 and 2012 have been revised related to revenue recognition and other immaterial errors
as disclosed in the Company's Form 10-K/A, filed with the Securities and Exchange Commission on November 3, 2014.
Discontinued Operations
In the first quarter of 2014, the Company's management approved a plan to dispose of the three Company owned Mainstay Suites hotels. As a result, the
Company has reported the operations related to these three hotels as discontinued operations. The Company's results of operations for the periods included
in this Form 10-K have also been recast to account for these operations as discontinued. For additional information regarding discontinued operations, see
Note 27, Discontinued Operations.
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.
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 realizable from the franchisee. Franchise fees based on a percentage of gross room revenues are
recognized in the same period that the underlying gross room revenues are earned by the Company's franchisees. 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 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 or determinable and collectibility is
reasonably assured. 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.
73