Comfort Inn 2005 Annual Report Download - page 44

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has a line of credit with a bank providing up to an aggregate of $10 million of borrowings
which is due upon demand. The line of credit ranks pari-pasu (or equally) with the Revolver. Borrowings under
the line of credit bear interest at rates established at the time of borrowing based on prime minus 175 basis
points.
In conjunction with the Company’s merger with Suburban, the Company assumed a bank loan with an
outstanding balance of $0.6 million and a maturity date of October 13, 2005. The Company repaid this loan at
maturity.
11. Foreign Operations
The Company accounts for foreign currency translation in accordance with SFAS No. 52, “Foreign
Currency Translation.” Revenues generated by foreign operations, including royalty, marketing and reservations
fees, for the years ended December 31, 2005, 2004 and 2003 were $24.0 million, $22.0 million and $19.1
million, respectively. Net income, including equity in the income of equity method investments, attributable to
the Company’s foreign operations was $6.7 million, $5.4 million and $2.9 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Choice Hotels Australasia
On July 1, 2002, the Company acquired a controlling interest in Choice Hotels Australasia Pty. Ltd.
(“CHA”) (“the CHA transaction”). Pursuant to the CHA Transaction, the Company converted an existing $1.1
million convertible note due from CHA into an additional 15% of CHA’s equity (beyond the 15% equity interest
held prior to the CHA Transaction) and purchased an additional 25% of CHA’s equity for approximately $1.6
million increasing the Company’s total ownership in CHA to 55% as of July 1, 2002.
Pursuant to the CHA Transaction, the Company gave the seller the right to “put” the remaining 45% equity
interest in CHA to the Company for approximately $1.1 million. The put right was permitted to be exercised
between January 1, 2003 and June 30, 2007. The Company accounted for the put right in accordance with SFAS
133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS 133 requires the recognition of all
derivatives, except certain qualifying hedges, as either assets or liabilities measured at fair value, with changes in
value reflected as current period income or loss unless specific hedge accounting criteria are met. The seller
exercised the put right in January 2003. The put transaction closed in February 2003, at which time CHA became
a wholly owned subsidiary.
The Company accounted for the CHA Transaction in accordance with SFAS No. 141, “Business
Combinations.” The excess of the total purchase price over the net tangible assets acquired of approximately $4.3
million was allocated to identifiable intangible assets as follows:
Estimated Fair Value
Estimated
Useful Lives
(in thousands)
Trademarks and non-compete agreements .............. $ 235 5years
Franchiserights ................................... 4,115 5-15years
$4,350
The Company began consolidating the results of CHA on July 1, 2002. Based in Melbourne, Australia, CHA
is a franchisor of certain hotel brands in Australia, Papua New Guinea, American Samoa, Fiji and New Zealand.
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