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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company owned approximately 5.4% of Friendly’s outstanding ordinary shares at December 31, 2001. The fair market value of the ordinary shares at December 31, 2001 was $0.3 million. Summarized unaudited balance sheet data for Friendly is as follows:
| |
December 31, 2001 |
 |
|
| |
Unaudited |
| |
(In thousands) |
| Current assets |
$ |
20,530 |
|
| Non-current assets |
|
107,744 |
|
| Current liabilities |
|
59,114 |
|
| Non-current liabilities |
|
45,573 |
|
| Preferred stock |
|
23,104 |
|
| Shareholders’ equity |
|
23,587 |
|
Summarized unaudited income statement data for Friendly is as follows:
| |
For the Year Ended |
| |
December 31, 2001 |
|
|
| |
Unaudited |
| |
(In thousands) |
| Net revenues |
$ |
124,845 |
|
| Gross profit |
|
69,167 |
|
| Loss from continuing operations |
|
(5,023 |
) |
| Net loss after preferred dividends |
|
(8,036 |
) |
On February 21, 2002, Friendly announced that it had been unable to find an acceptable buyer for its business and would terminate efforts to sell its business. Given this termination and the adverse economic conditions of Friendly, the Company disposed of its entire preferred and common equity interest in Friendly on March 20, 2002, and immediately relinquished its three seats on Friendly’s board of directors. The Company wrote-off its entire investment in Friendly through a $22.7 million charge to reflect the permanent impairment of this asset as of December 31, 2001.
6. Receivable-Marketing and Reservation Fees
The Company’s franchise agreements require the payment of franchise fees which include marketing and reservation fees. The Company is obligated to use the marketing and reservation fees it assesses against the current franchisees comprising its various hotel brand systems to provide marketing and reservation services appropriate for the successful operation of the systems. In discharging its obligation to provide sufficient and appropriate marketing and reservation services, the Company has the right to expend funds in an amount reasonably necessary to ensure the provision of such services, whether or not such amount is currently available to the Company for reimbursement. The franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available.
Under the terms of these agreements, the Company has the legally enforceable right to assess and collect from its current franchisees fees sufficient to pay for the marketing and reservation services the Company has procured for the benefit of the franchise system, including fees to reimburse the Company for past services rendered. The Company has the contractual authority to require that the franchisees in the system at any given point repay any deficits related to marketing and reservation activities. The Company’s current franchisees are legally obliged to pay any assessment the Company imposes on its franchisees to obtain reimbursement of such deficit regardless of whether those constituents continue to generate gross room revenue. The Company has no present intention to accelerate repayment of the deficit from current franchisees.
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