Comfort Inn 2002 Annual Report Download - page 29

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impairment Policy.
The Company evaluates the impairment of property and equipment and other long-lived assets, including
franchise rights and other definite-lived intangibles, in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 states that an impairment of long-lived assets has
occurred whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured based on net, undiscounted expected cash flows. Assets are considered
to be impaired if the net, undiscounted expected cash flows are less than the carrying amount of the assets.
Impairment charges are recorded based upon the difference between the carrying value of the asset and the fair
value. The Company did not record any impairment on long-lived assets during the three years ended
December 31, 2002.
The Company evaluates the impairment of goodwill in accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” which requires goodwill to be assessed on at least an annual basis for impairment using
a fair value basis. Because the Company operates in one reporting segment in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information” and related interpretations, the fair value
of the Company’s total assets are used to determine if goodwill may be impaired. According to SFAS No. 142,
quoted market prices in active markets are the best evidence of fair value and shall be used as the basis for the
measurement if available. The Company did not record any impairment of goodwill in 2002, 2001 or 2000 based
on assessments performed by the Company.
The Company evaluates the collectibility of notes receivable in accordance with SFAS No. 114,
“Accounting by Creditors For Impairment of a Loan”. SFAS No. 114 states that a loan is impaired when, based
on current information and events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. All amounts due according to the contractual terms
means that both the contractual interest payments and the contractual principal payments of a loan will be
collected as scheduled in the loan agreement. The Company reviews outstanding notes receivable on a periodic
basis to ensure that each is fully collectible by reviewing the financial condition of its debtors. If the Company
concludes that it will be unable to collect all amounts due, the Company will record an impairment charge based
on the present value of expected future cash flows, discounted at the loan’s effective interest rate. The Company
did not record any impairment charges related to notes receivable during the years ended December 31, 2002 or
2001. During the year ended December 31, 2000, the Company recorded $7.6 million of impairment losses
related to its subordinated term note to Sunburst Hospitality Corporation (see Note 7).
Deferred Financing Costs.
Debt financing costs are deferred and amortized, using the effective interest method, over the term of the
related debt. As of December 31, 2002 and 2001, deferred financing costs were $2.1 million and $2.7 million,
respectively, and are included in other non-current assets on the accompanying consolidated balance sheets.
Investments.
The Company accounts for its investments in the common stock of Choice Hotels Scandinavia (“CHS”) in
accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” and SFAS
No. 130 “Reporting Comprehensive Income.” The Company accounts for its investment in Choice Hotels
Canada, Inc. (“CHC”) in accordance with Accounting Principles Board Opinion (“APB”) No. 18 “The Equity
Method of Accounting for Investments in Common Stock.”
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