Comfort Inn 2004 Annual Report Download - page 48

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In December 1999, the Company entered into an interest rate swap agreement to fix certain of its variable
rate debt in order to reduce the Company’s exposure to fluctuations in interest rates. On March 3, 2000, the
interest rate swap agreement was settled resulting in a deferred gain. In accordance with SFAS 133, the
unamortized gain was reclassified in 2001 to other comprehensive income and is being amortized over the
original life of the related debt as a reduction of interest expense. In each of 2004, 2003 and 2002, the Company
recorded approximately $67,000, net of taxes, of amortization related to this deferred gain.
16. Earnings Per Share
The following table reconciles the number of shares used in the basic and diluted earnings per share
calculations.
Years Ended December 31,
2004 2003 2002
(In millions, except per
share amounts)
Computation of Basic Earnings Per Share:
Net income ............................................................. $74.3 $71.9 $60.8
Weighted average shares outstanding-basic ................................... 33.2 35.7 39.3
Basic earnings per share ................................................... $2.24 $2.01 $1.55
Computation of Diluted Earnings Per Share:
Net income for diluted earnings per share ..................................... $74.3 $71.9 $60.8
Weighted average shares outstanding-basic ................................... 33.2 35.7 39.3
Effect of Dilutive Securities:
Employee stock option and restricted stock plan ................................ 1.3 1.0 0.8
Weighted average shares outstanding-diluted .................................. 34.5 36.7 40.1
Diluted earnings per share ................................................. $2.15 $1.96 $1.52
The effect of dilutive securities is computed using the treasury stock method and average market prices
during the period. In 2002, the Company excluded 50,000 anti-dilutive options from the computation of diluted
earnings per share.
17. Leases
The Company enters into operating leases primarily for office space and computer equipment. Rental
expense under non-cancelable operating leases was approximately $12.8 million, $15.2 million and $12.9 million
for the years ended December 31, 2004, 2003 and 2002, respectively. The Company received sublease rental
income related to computer equipment leased to franchisees totaling $8.8 million, $10.2 million and $9.1 million
during the years ended December 31, 2004, 2003 and 2002, respectively. Future minimum lease payments are as
follows:
2005 2006 2007 2008 2009 Thereafter Total
(In thousands)
Minimum lease payments ........... $10,842 $ 6,429 $3,878 $3,884 $3,943 $14,056 $43,032
Minimum sublease rentals ........... (7,171) (2,642) (45) — — — (9,858)
$ 3,671 $ 3,787 $3,833 $3,884 $3,943 $14,056 $33,174
F-40