Comfort Inn 2005 Annual Report Download - page 46

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company accounted for the Suburban Transaction in accordance with SFAS No. 141, “Business
Combinations”. The Company allocated the purchase price based upon a preliminary assessment of the fair value of
assets acquired and liabilities assumed as of September 28, 2005. The total purchase price was allocated based on a
preliminary analysis by management of the respective fair values of the acquired assets and liabilities as follows:
Estimated Fair Value
($000)
Tangible assets .............................................. $ 431
Intangible assets ............................................. 7,201
Goodwill .................................................. 5,208
Total assets acquired ......................................... 12,840
Liabilities assumed ........................................... (5,526)
Cash paid, net of cash acquired ................................. $ 7,314
Suburban is the franchisor of Suburban Extended Stay Hotel, a 67-unit, 8,942 room (at the date of
consolidation) lodging chain operating in the economy extended stay segment primarily in the southeastern
United States. The acquisition of Suburban allowed the Company to enter, on an accelerated basis, the economy
extended stay segment, a market in which it did not previously compete. The purchase price of Suburban was
based on the projected business growth and cash flows of Suburban over the next several years and indicated a
value that was in excess of the current net book value of the business, resulting in the recognition of various
identifiable intangible assets and goodwill as follows:
Estimated Fair Value
Estimated
Useful Lives
($000)
Franchise Contracts ............................. $ 6,187 10years
TrademarksandTradenames ...................... 1,014 Indefinite life
Goodwill ...................................... 5,208 Indefinite life
$12,409
Goodwill and intangible assets are not deductible for tax purposes. The allocations of the purchase price are
preliminary and subject to revision as analyses are finalized. The Company continues to gather information
concerning the valuation of assets acquired and liabilities assumed (including the identified intangible assets and
their associated lives). The pro forma results of operations as if Suburban had been combined at the beginning of
2004 and 2005, would not be materially different from the Company’s reported results for those periods.
13. Pension, Profit Sharing, and Incentive Plans
The Company sponsors a 401(k) retirement plan for all eligible employees. For the years ended
December 31, 2005, 2004 and 2003, the Company recorded compensation expense of $3.2 million, $2.8 million
and $1.7 million, respectively, representing matching contributions for plan participants. In accordance with the
plan, the Company will make its 2005 matching contribution with Company stock in the first quarter of 2006.
The Company will purchase shares with a fair value equal to the Company’s matching contribution and deposit
the shares in the participant’s accounts with the plan investment custodian. Effective January 1, 2006, the
Company invoked the safe harbor matching contribution set forth in its 401(k) retirement plan. As a result,
beginning with 2006 plan contributions, the Company will begin matching plan participant contributions in cash
as bi-weekly deductions are made.
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