Comfort Inn 2007 Annual Report Download - page 58

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
The Company evaluates the impairment of goodwill and trademarks with indefinite lives in accordance with SFAS
No. 142, “Goodwill and Other Intangible Assets,” which requires intangible assets to be assessed on at least an annual
basis for impairment using a fair value basis. Because the Company has one reporting unit pursuant to SFAS No. 142 the
fair value of the Company’ s net assets are used to determine if goodwill may be impaired. The Company did not record
any impairment of goodwill during the three years ended December 31, 2007, based on assessments performed by the
Company. In addition, the Company did not record any impairment of trademarks during the three years ended
December 31, 2007.
The Company evaluates the collectibility of notes receivable in accordance with SFAS No. 114, “Accounting by
Creditors For Impairment of a Loan.” SFAS No. 114 states that a loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan
agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as scheduled in the loan agreement. The Company reviews
outstanding notes receivable on a periodic basis to ensure that each is fully collectible. If the Company concludes that it
will be unable to collect all amounts due, the Company will record an impairment charge based on the present value of
expected future cash flows, discounted at the loan’ s effective interest rate. The Company recorded $0.2 million. $0.1
million and $0.2 million of impairment charges related to notes receivable during the years ended December 31, 2007,
December 31, 2006 and December 31, 2005, respectively.
Deferred Financing Costs
Debt financing costs are deferred and amortized, using the effective interest method, over the term of the related
debt. As of December 31, 2007 and 2006, unamortized deferred financing costs were $0.8 million and $1.0 million,
respectively, and are included in other non-current assets in the accompanying consolidated balance sheets.
On June 16, 2006, the Company entered into a $350 million senior unsecured revolving credit agreement (“the
Revolver”), with a syndicate of lenders. The proceeds from the Revolver were used to refinance and terminate the
Company’ s revolving credit facility entered into in July 2004 (“2004 Facility”). The Company accounted for the
refinancing of the 2004 Facility in accordance with Emerging Issues Task Force (“EITF”) Issue No. 98-14, “Debtor’ s
Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF No. 98-14”). Pursuant to EITF
No. 98-14, the Company recorded a loss on extinguishment of debt of approximately $0.3 million during the year ended
December 31, 2006.
Investments
The Company accounts for its investments in Choice Hotels Canada, Inc. (“CHC”) and Choice Hospitality (India)
Private Ltd (“CHN”) in accordance with Accounting Principles Board Opinion (“APB”) No. 18, “The Equity Method of
Accounting for Investments in Common Stock.” The Company accounted for its investment in the common stock of
Choice Hotels Scandinavia (“CHS”) in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities,” and SFAS No. 130, “Reporting Comprehensive Income” until the sale of this investment in August
2005.
Derivatives
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and
reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires the recognition of the fair value of derivatives in the balance sheet, with
changes in the fair value recognized either in earnings or as a component of other comprehensive income dependent upon
the nature of the derivative. SFAS No. 133 also states that any deferred gain on previous hedging activity does not meet
the definition of a liability, due to a lack of expected future cash flows and therefore should be included in comprehensive
income. As of December 31, 2007 and 2006 the Company had no derivative financial instruments.
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