Comfort Inn 2002 Annual Report Download - page 34

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized unaudited income statement data for Friendly is as follows:
For the Years Ended
December 31,
2001 2000
Unaudited
(In thousands)
Net revenues ............................................. $124,845 $138,135
Gross profit .............................................. 69,167 76,032
Loss from continuing operations .............................. (5,023) (40,193)
Net loss after preferred dividends ............................. (8,036) (50,640)
On February 21, 2002, Friendly announced that it had been unable to find an acceptable buyer for its
business and would terminate efforts to sell its business. Given this termination and the adverse economic
conditions of Friendly, the Company disposed of its entire preferred and common equity interest in Friendly on
March 20, 2002, and immediately relinquished its three seats on Friendly’s board of directors. Accordingly, the
Company wrote-off its entire investment in Friendly through a $22.7 million charge to reflect the permanent
impairment of this asset as of December 31, 2001.
6. Receivable-Marketing and Reservation Fees
The Company’s franchise agreements require the payment of franchise fees which include marketing and
reservation fees. The Company is obligated to use the marketing and reservation fees it assesses against the
current franchisees comprising its various hotel brand systems to provide marketing and reservation services
appropriate for the successful operation of the systems. In discharging its obligation to provide sufficient and
appropriate marketing and reservation services, the Company has the right to expend funds in an amount
reasonably necessary to ensure the provision of such services, whether or not such amount is currently available
to the Company for reimbursement. The franchise agreements provide the Company the right to advance monies
to the franchise system when the needs of the system surpass the balances currently available.
Under the terms of these agreements, the Company has the legally enforceable right to assess and collect
from its current franchisees fees sufficient to pay for the marketing and reservation services the Company has
procured for the benefit of the franchise system, including fees to reimburse the Company for past services
rendered. The Company has the contractual authority to require that the franchisees in the system at any given
point repay any deficits related to marketing and reservation activities. The Company’s current franchisees are
legally obliged to pay any assessment the Company imposes on its franchisees to obtain reimbursement of such
deficit regardless of whether those constituents continue to generate gross room revenue. The Company has no
present intention to accelerate repayment of the deficit from current franchisees.
The marketing and reservation fees receivable at December 31, 2002 and 2001 was $44.9 million and
$49.4 million, respectively. Depreciation and amortization expense attributable to marketing and reservation
activities was $13.0 million and $11.8 million for the years ended December 31, 2002 and 2001, respectively.
Interest expense attributable to reservation activities was $1.4 million and $2.0 million for the years ended
December 31, 2002 and 2001, respectively.
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