Comfort Inn 2002 Annual Report Download - page 12

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on the present value of expected future cash flows, discounted at the loan’s effective interest rate. The Company
did not record any impairment charges related to notes receivable during the years ended December 31, 2002 or
2001. During the year ended December 31, 2000, the Company recorded $7.6 million of impairment losses
related to its subordinated term note to Sunburst Hospitality Corporation (see Note 7).
Stock Compensation
The Company accounts for its stock-based employee compensation plans in accordance with the provisions
of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and
related interpretations. As such, compensation expense related to fixed employee stock options is recorded only
if on the date of grant the fair value of the underlying stock exceeds the exercise price. The Company adopted the
disclosure only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” which allows
entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and to
provide pro forma net income disclosures as if the fair value based method of accounting, described in SFAS No.
123 had been applied to employee stock option grants.
Effective January 1, 2003, the Company adopted, in accordance with SFAS No. 148, “Accounting for
Stock-Based Compensation—Transition and Disclosure,” the fair value based method of accounting for stock
option awards granted on or after January 1, 2003.
Comparison of 2002 Operating Results and 2001 Operating Results
The Company recorded net income of $60.8 million for the year ended December 31, 2002, an increase of
$46.5 million from net income of $14.3 million for the year ended December 31, 2001. Net income in 2001
included an impairment charge of $22.7 million associated with the Company’s determination to write-off its
entire investment in Friendly Hotels PLC (currently known as C.H.E. Group PLC) (“Friendly”). Net income for
2001 also reflects $10.3 million of equity losses (net of taxes) in Friendly.
F-4