Comfort Inn 2005 Annual Report Download - page 45

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Choice Hotels Scandinavia
The Company accounted for its investment, representing 1% of the outstanding common stock of Choice
Hotels Scandinavia (“CHS”) as an available for sale security in accordance with SFAS 115. During 2005, the
Company sold its investment in CHS for approximately $1.0 million resulting in a realized gain of $0.2 million.
At December 31, 2004 the investment was included in other non-current assets in the accompanying consolidated
balance sheets at its fair value of $1.0 million based on quoted market prices. During the years ended
December 31, 2004 and 2003, the Company recognized approximately $0.2 million, and $0.1 million
respectively, of unrealized gains attributable to this investment as a component of other comprehensive income.
Choice Hotels Canada, Inc.
The Company has a 50% interest in Choice Hotels Canada, Inc. (“CHC”), a joint venture with a third party.
During 2005, 2004 and 2003, the Company recorded $0.8 million, $0.7 million and $0.6 million, respectively,
based on CHC’s results for the twelve months ended November 30, 2005, 2004 and 2003 of equity method
income related to this investment pursuant to APB Opinion No. 18 in the accompanying consolidated statements
of income. The Company received dividends from CHC of $0.7 million, $0.8 million and $0.4 million for the
years ended December 31, 2005, 2004 and 2003, respectively. During 2005, 2004 and 2003, the Company
recognized in the accompanying consolidated statements of income, revenues of $7.7 million, $7.1 million and
$6.2 million, respectively, including royalty, marketing, reservation fees and other revenues from CHC.
12. Acquisition of Suburban Franchise Holding Company, Inc.
During 2005, the Company acquired 100% of the stock of Suburban Franchise Holding Company, Inc.
(“Suburban”) (the “Suburban Transaction”) and its wholly owned subsidiary, Suburban Franchise Systems, Inc.
The initial purchase price for Suburban was $12.8 million, which consisted of cash paid, net of cash acquired, of
$7.3 million, liabilities assumed of $4.5 million and direct acquisition and exit costs totaling $1.0 million.
Included in the purchase price was a working capital look-back adjustment escrow totaling $0.5 million, which is
payable on March 28, 2006. The merger provides for contingent cash payments, of up to $5 million, to be made
upon the satisfaction of the following conditions:
• $2.5 million payable if at any time prior to the 3rd anniversary of closing, at least 84 Suburban franchises
are open or under construction and at least 79 are open on that date;
• An additional $2.5 million payable if at any time prior to the 3rd anniversary of closing, but in no event
prior to the 2nd anniversary of closing, at least 100 Suburban franchises are open or under construction
and at least 90 are open on that date;
• Both contingent payments are subject to at least 51 of the existing Suburban franchises open at the
acquisition date, remaining open when the contingent payment is otherwise earned.
No liabilities have been recorded related to the contingent cash payments. If the contingent consideration is
earned, the purchase price of Suburban will be adjusted at that time. The results of operations for Suburban have
been included in the Company’s results of operations since September 28, 2005.
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