Comfort Inn 2003 Annual Report Download - page 26

services such as national marketing, media advertising, central reservation systems and technology services. The
Company is contractually obligated to expend the marketing and reservation fees it collects from franchisees in
accordance with the franchise agreements; as such, no income or loss to the Company is generated. In accordance
with our contracts, we include in marketing and reservation expenses an allocation of costs for certain activities,
such as human resources, legal, accounting, etc., required to carry out marketing and reservation activities.
The Company records marketing and reservation revenues and expenses in accordance with Emerging
Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,”
which requires that these revenues and expenses be recorded gross. In addition, net advances from and
repayments related to marketing and reservation activities are presented as cash flows from operating activities.
Credit Risk and Exposure.
Substantially all of the Company’s trade receivables as well as the receivable for marketing and reservation
fees are due from hotel franchisees. However, the Company considers its credit risk associated with trade
receivables and the receivable for marketing and reservation fees to be partially mitigated due to the dispersion of
these receivables across a large number of geographically diverse franchisees.
The Company records bad debt expense in selling, general and administrative expenses and marketing and
reservation expenses in the accompanying consolidated statements of income based on its assessment of the
ultimate realizability of receivables considering historical collection experience and the economic environment.
When the Company determines that an account is not collectible, the account is written-off to the associated
allowance for doubtful accounts.
Advertising Costs.
The Company expenses advertising costs as the advertising occurs in accordance with American Institute of
Certified Public Accountants, Statement of Position 93-7, “Reporting on Advertising Costs.” Advertising
expense was $52.8 million, $50.7 million and $41.8 million for the years ended December 31, 2003, 2002 and
2001, respectively. The Company includes advertising costs primarily in marketing and reservation expenses on
the accompanying consolidated statements of income.
Cash and Cash Equivalents.
The Company considers all highly liquid investments purchased with a maturity of three months or less at
the date of purchase to be cash equivalents. As of December 31, 2003 and 2002, $7.2 million and $5.0 million,
respectively, of book overdrafts representing outstanding checks in excess of funds on deposit are included in
accounts payable in the accompanying consolidated balance sheets.
Capitalization Policies.
Property and equipment are recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets. Major renovations, replacements and interest incurred during construction are
capitalized. Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated
from the accounts and any related gain or loss is recognized in the accompanying consolidated statements of
income. Maintenance, repairs and minor replacements are charged to expense as incurred.
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
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