Comfort Inn 2007 Annual Report Download - page 82

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
Deferred tax assets were comprised of the following:
December 31,
2007
2006
(In thousands)
Property, equipment and intangible assets........................................... $ (12,101) $ (10,078)
Gross deferred tax liabilities................................................................ (12,101) (10,078)
Foreign operations............................................................................... 1,576 752
Accrued expenses ................................................................................ 20,802 17,509
Accrued compensation ........................................................................ 19,039 15,256
Other.................................................................................................... 2,276 802
Gross deferred tax assets ..................................................................... 43,693 34,319
Net deferred tax asset .......................................................................... $ 31,592 $ 24,241
Included in the accompanying consolidated balance sheet as follows:
December 31,
2007
2006
(In thousands)
Current net deferred tax assets.................................................................. $ 2,387 $ 1,790
Non-current net deferred tax assets........................................................... 29,205 22,451
Net deferred tax asset................................................................................ $ 31,592 $ 24,241
No provision has been made for U.S. federal income taxes on approximately $38.5 million of accumulated and
undistributed earnings of foreign subsidiaries at December 31, 2007 since these earnings are considered to be permanently
invested in foreign operations.
On October 22, 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed into law. The AJCA included a
temporary one-time incentive for United States multinational corporations to repatriate undistributed earnings of foreign
subsidiaries by providing an 85 percent dividends received deduction for qualifying dividends from controlled foreign
corporations, as defined in the AJCA, at an effective tax cost of 5.25 percent on any such repatriated foreign earnings. The
Company elected to apply this provision to qualifying earnings repatriations in 2005. During the fourth quarter of 2005,
the Company repatriated earnings totaling $23.5 million, resulting in the recordation of additional income tax expense
totaling approximately $1.2 million.
A reconciliation of income tax expense at the statutory rate to income tax expense included in the accompanying
consolidated statements of income follows:
Years ended December 31,
2007
2006 2005
(In thousands, except Federal
income tax rate)
Federal income tax rate...................................................................................... 35% 35% 35%
Federal taxes at statutory rate............................................................................. $ 60,860
$ 54,347 $ 45,760
State income taxes, net of federal tax benefit..................................................... 3,678 3,116 2,436
Foreign income taxed at different rates.............................................................. (3,417) (3,675) (1,932)
Unrecognized tax benefits.................................................................................. (363) (12,791) (4,456)
Other .................................................................................................................. 1,827
1,494 1,369
Income tax expense .................................................................................. $ 62,585 $ 42,491 $ 43,177
Effective January 1, 2007, the Company adopted the provisions of FIN 48. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’ s financial statements in accordance with FASB Statement
No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the
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