Comfort Inn 2002 Annual Report Download - page 39

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The purchase price allocation is preliminary and further refinements may be made. The Company began
consolidating the results of Flag on July 1, 2002. The pro forma results of operations as if Flag had been
combined at the beginning of 2001 and 2002, would not be materially different from the Company’s reported
results for those periods.
Choice Hotels Scandinavia
The Company accounts for its investment in the common stock of Choice Hotels Scandinavia (“CHS”) as an
available for sale security in accordance with SFAS 115. The investment is included in other non-current assets
in the accompanying consolidated balance sheets at fair value. As of December 31, 2002 and 2001, the fair value
of the Company’s investment in CHS was $0.6 million, based on quoted market prices. During the years ended
December 31, 2002, 2001 and 2000, the Company recognized approximately $89,000, $178,000 and $176,000,
respectively of unrealized gains (losses) related to this investment as a component of other comprehensive
income or loss.
Choice Hotels Canada, Inc.
The Company has a 50% interest in Choice Hotels Canada, Inc. (“CHC”), a joint venture with a third party.
During 2002, the Company recorded $476,000 of dividend income related to this investment in the
accompanying consolidated statements of income. The dividend was received by Choice in January 2003 and is
included in accounts receivable on the accompanying consolidated balance sheet.
12. Pension, Profit Sharing, and Incentive Plans
During 2002, 2001 and 2000, employees of the Company participated in a 401(k) retirement plan sponsored
by the Company. For the years ended December 31, 2002, 2001 and 2000, the Company recorded compensation
expense of $1.5 million, $1.7 million and $1.6 million, respectively, related to the plan. In accordance with the
plan, the Company is permitted to make its matching contribution with Company stock. On an annual basis, the
Company purchases shares with a fair value equal to the Company’s matching contribution and deposits the
shares in the participant’s accounts with the plan investment custodian.
The Company has adopted the Choice Hotels International, Inc. Amended and Restated Supplemental
Executive Retirement Plan (the “SERP”), a non-qualified defined benefit plan for certain senior executives. The
Company accounts for the SERP in accordance with Statement of Financial Accounting Standards No. 87,
“Employers Accounting for Pensions”. For the years ended December 31, 2002, 2001 and 2000, the Company
recorded $0.3 million, $0.2 million and $0.2 million, respectively, of expense related to the SERP which was
included in selling, general and administrative expense in the accompanying consolidated statements of income.
As of December 31, 2002 and 2001, a liability of $1.1 million and $0.8 million, respectively, related to the SERP
was included in other non-current liabilities in the accompanying consolidated balance sheets.
The Company maintains a non-qualified retirement savings and investment plan for certain employees
whose pre-tax deferrals are limited under the Company’s 401(k) Plan. Employee and Company contributions are
maintained in an irrevocable trust. Legally, the assets remain those of the Company; however, access to the trust
assets is severely restricted. The trust cannot be revoked by the employer or an acquiror, but the assets are subject
to the claims of the Company’s general creditors. The employee has no right to assign or transfer contractual
rights in the trust. The Company accounts for the plan in accordance with Emerging Issues Task Force (“EITF”)
No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested.” Pursuant to EITF 97-14, as of December 31, 2002 and 2001, the Company has recorded a
deferred compensation liability of $8.6 million and $9.0 million, respectively, in other non-current liabilities in
the accompanying consolidated balance sheets. The change in the deferred compensation obligation related to
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