Comfort Inn 2002 Annual Report Download - page 31

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Taxes.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that
have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax basis of assets and liabilities using
enacted rates expected to apply to taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Earnings per Share.
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted-average
number of common shares outstanding. Diluted earnings per share, assumes dilution and is computed based on
the weighted-average number of common shares outstanding after consideration of the dilutive effect of stock
options.
Use of Estimates.
The consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States and require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Property and Equipment
The components of property and equipment in the consolidated balance sheets are:
December 31,
2002 2001
(In thousands)
Land .................................................... $ 4,117 $ 4,090
Facilities in progress ....................................... 1,631 735
Building and improvements ................................. 35,861 34,210
Furniture, fixtures and equipment ............................. 94,691 86,301
136,300 125,336
Less: Accumulated depreciation .............................. (71,650) (54,878)
$ 64,650 $ 70,458
As facilities in progress are completed and placed in service, they are transferred to appropriate fixed asset
categories and depreciation begins. Depreciation expense, excluding amounts attributable to marketing and
reservation activities, for the years ended December 31, 2002, 2001 and 2000 was $5.6 million, $4.6 million and
$3.0 million, respectively. Depreciation has been computed for financial reporting purposes using the straight-
line method. A summary of the ranges of estimated useful lives upon which depreciation rates is based follows:
Building and improvements ......................................... 10-40 years
Furniture, fixtures and equipment .................................... 3-20 years
3. Goodwill
Goodwill primarily relates to the excess of the purchase price of the Company’s stock in excess of the
recorded minority interest acquired. Prior to January 1, 2002, the Company amortized goodwill on a straight-line
basis over 40 years. Such amortization amounted to $2.0 million and $2.3 million for the years ended
December 31, 2001 and 2000, respectively.
F-23