Comfort Inn 2007 Annual Report Download - page 66

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
and are forgiven and amortized over that time period if the franchisee remains in the system in good standing. As of
December 31, 2007 and 2006, the unamortized balance of these notes totaled $7.6 million and $9.1 million, net of
allowance of $0.8 million and $1.0 million, respectively. Amortization expense included in the accompanying
consolidated statements of income related to the notes was $1.8 million, $1.8 million and $1.4 million for the years ended
December 31, 2007, 2006 and 2005, respectively. At December 31, 2007, the Company had commitments to extend an
additional $7.3 million in interest-free notes receivable provided certain commitments are met by its franchisees.
Other Notes Receivable
During 2007, the Company provided financing to a franchisee in support of the development of Cambria Suites
properties. At December 31, 2007, the balance of these notes totaled $1.5 million, net of a $0.2 million allowance. In
March 2007, the Company advanced $1 million bearing no interest and due on April 1, 2009. The note receivable was
recorded at a $0.1 million discount based on an effective interest rate of 8.25%. In December 2007, the Company
advanced an additional $0.8 million in support of these Cambria Suites development projects and has a commitment to
advance an additional $2.2 million during 2008 under this promissory note. This note bears interest at 10% per annum and
is due and payable on April 1, 2009. These notes have been personally guaranteed by one of the franchisee’ s principal
owners.
8. Transactions with Sunburst
Effective October 15, 1997, Choice Hotels International, Inc. (“CHI”), which at that point included both the
franchising business and owned hotel business, separated the businesses via a spin-off of the Company. CHI changed its
name to Sunburst Hospitality Corporation (referred to hereafter as “Sunburst”). As part of the spin-off, Sunburst and the
Company entered into a strategic alliance agreement. Among other things, the strategic alliance agreement, as amended,
provided for the determination of liquidated damages related to the termination of Choice branded Sunburst properties.
The liquidated damage provisions extend through the life of existing Sunburst franchise agreements. As of December 31,
2007, Sunburst operates 26 hotels under franchise with the Company.
Total franchise fees, including royalty, marketing and reservation fees, paid by Sunburst to the Company, included
in the accompanying consolidated financial statements were $5.2 million, $5.0 million and $5.3 million for the years
ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007 and 2006, accounts receivable included
$0.4 million due from Sunburst.
9. Accrued Expenses and Other
Accrued expenses and other consists of the following:
December 31,
2007
2006
(In thousands)
Accrued salaries and benefits ....................................................................................................................... $ 25,060 $ 27,752
Dividends payable ........................................................................................................................................ 10,499 9,912
Accrued interest............................................................................................................................................ 1,228
1,432
Other liabilities and contingencies................................................................................................................ 4,120
6,210
Total................................................................................................................................................... $ 40,907 $ 45,306
Other liabilities and contingencies at December 31, 2006 include accruals for the current portion of estimated tax
contingencies. These accruals were recorded for potential exposures involving tax positions that could be challenged by
taxing authorities.
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