Comfort Inn 2014 Annual Report Download - page 78

Table of Contents
statements of consolidated entities whose functional currency is not the United States dollar into United States dollars. The Company translates assets and
liabilities at the exchange rate in effect as of the financial statement date and translates income statement accounts using the weighted average exchange rate
for the period. The Company includes translation adjustments from foreign exchange and the effect of exchange rate changes on inter-company transactions
of a long-term investment nature as a separate component of shareholders’ deficit. The Company reports foreign currency transaction gains and losses and the
effect of inter-company transactions of a short-term or trading nature in SG&A expenses on the consolidated statements of income. Foreign currency
transaction gains and losses for the years ended December 31, 2014, 2013 and 2012 were a $0.9 million loss, $0.4 million loss and a $0.1 million gain,
respectively.
Derivatives
The Company periodically uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in
interest rates. All outstanding derivative financial instruments are recognized at their fair values as assets or liabilities. The impact on earnings from
recognizing the fair values of these instruments depends on their intended use, their hedge designation and their effectiveness in offsetting changes in the fair
values of the exposures they are hedging. The Company does not use derivatives for trading purposes.
The effective portion of changes in fair value of derivatives designated as cash flow hedging instruments are recorded as a component of accumulated
other comprehensive income (loss) and the ineffective portion is reported currently in earnings. The amounts included in accumulated other comprehensive
income are reclassified into earnings in the same period during which the hedged item affects earnings. Amounts reported in earnings are classified consistent
with the item being hedged.
The Company formally documents all relationships between its hedging instruments and hedged items at inception, including its risk management
objective and strategy for establishing various hedge relationships. Cash flows from hedging instruments are classified in the consolidated statements of cash
flows consistent with the items being hedged.
Hedge accounting is discontinued prospectively when (i) the derivative instrument is no longer effective in offsetting changes in fair value or cash
flows of the underlying hedged item, (ii) the derivative instrument expires, is sold, terminated or exercised, or (iii) designating the derivative instrument as a
hedge is no longer appropriate. The effectiveness of derivative instruments is assessed at inception and on an ongoing basis.
Guarantees
The Company has historically issued certain guarantees to support the growth of its brands. A liability is recognized for the fair value of such
guarantees upon inception of the guarantee and upon any subsequent modification, such as renewals, when the Company remains contingently liable. The
fair value of a guarantee is the estimated amount at which the liability could be settled in a current transaction between willing unrelated parties. The
Company evaluates these guarantees on a quarterly basis to determine if there is a probable loss requiring recognition.
Recently Adopted Accounting Guidance
In February 2013, the Financial Accounting Standards Board ("FASB") issued ASU No. 2013-04, "Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date" ("ASU 2013-04"). The ASU requires entities to measure
obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at
the reporting date, as the sum of the following: (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b)
any additional amount the reporting entity expects to pay on behalf of its co-obligors. Required disclosures include a description of the joint-and-several
arrangement and the total outstanding amount of the obligation for all joint parties. The ASU permits entities to aggregate disclosures (as opposed to
providing separate disclosures for each joint-and-several obligation). ASU 2013-04 was effective for all interim and annual periods beginning after December
15, 2013. The Company adopted this ASU on January 1, 2014 and it did not have a material impact on its financial statements.
In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain
Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-05"). ASU 2013-05 clarifies that when a
reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign
entity, the parent is required to apply the guidance in ASC 830 "Foreign Currency Matters" Subtopic 830-30 to release any related cumulative translation
adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the
complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The provisions of ASU 2013-05
are effective prospectively for reporting periods beginning after December 15, 2013
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