Comfort Inn 2007 Annual Report Download - page 83

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This
pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. As a result of the implementation of FIN 48, the Company increased its existing
reserves for uncertain tax positions by $3.1 million with a corresponding net reduction to opening additional paid-in-
capital and retained earnings. Accrued interest and penalties of $0.1 million were recorded against retained earnings as of
January 1, 2007.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
(In thousands)
Balance, January 1, 2007 ........................................................................................................................... $ 7,086
Additions for tax positions of the current year........................................................................................... 1,253
Additions for tax positions of the prior year .............................................................................................. —
Reductions for tax positions of prior years for:
Changes in judgment........................................................................................................................ —
Settlements during the period........................................................................................................... —
Lapse of applicable statutes of limitations ....................................................................................... (1,616)
Balance, December 31, 2007 ..................................................................................................................... $ 6,723
As of January 1, 2007 and December 31, 2007, the Company had $7.1 million and $6.7 million, respectively of total
unrecognized tax benefits of which approximately $4.0 million and $3.5 million, respectively would affect the effective
tax rate if recognized. These unrecognized tax benefits relate principally to state tax positions and stock based
compensation deductions. Estimated interest and penalties related to the underpayment of income taxes are classified as a
component of income tax expense in the consolidated statements of income and totaled $0.2 million for the year ended
December 31, 2007. Accrued interest and penalties were $1.1 million and $1.3 million as of January 1, 2007 and
December 31, 2007, respectively. The Company believes it is reasonably possible it will recognize tax benefits of up to
$1.6 million within the next twelve months. This is due to the anticipated lapse of applicable statutes of
limitations regarding state tax positions and stock-based compensation deductions.
The Company’ s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax
authorities. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple
state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years
through 2003. Substantially all material state and local and foreign income tax matters have been concluded for years
through 2003. U.S. federal income tax returns for 2004 through 2006 are currently open for examination.
We have estimated and accrued for certain tax assessments and the expected resolution of uncertain tax benefits
which arise in the course of our business. The ultimate outcome of these impact the determination of income tax expense
and may not be resolved until several years after the related tax returns have been filed. Predicting the outcome of such
tax assessments involves uncertainty and accordingly, actual results could differ from those estimates.
18. Capital Stock
The Company has stock compensation plans pursuant to which it is authorized to grant stock-based awards of up to
3.2 million shares of the Company’ s common stock, of which 2.8 million shares remain available for grant as of
December 31, 2007. The Company’ s policy allows the issuance of new or treasury shares to satisfy stock-based awards.
Restricted stock, stock options, stock appreciation rights and performance share awards may be granted to officers, key
employees and non-employee directors with contractual terms set by the Compensation Committee of the Board of
Directors.
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