Comfort Inn 2002 Annual Report Download - page 44

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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
remaining life of the related debt as a reduction of interest expense. Amortization of approximately $67,000 was
recorded in 2002 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,
2002 2001 2000
(In millions, except per share amounts)
Computation of Basic Earnings Per Share:
Net income .............................................................. $60.8 $14.3 $42.4
Weighted average shares outstanding-basic ..................................... 39.3 44.2 52.9
Basic earnings per share .................................................... $1.55 $0.32 $0.80
Computation of Diluted Earnings Per Share: ....................................
Net income for diluted earnings per share ...................................... $60.8 $14.3 $42.4
Weighted average shares outstanding-basic ..................................... 39.3 44.2 52.9
Effect of Dilutive Securities:
Employee stock option plan ................................................. 0.8 0.4 0.4
Weighted average shares outstanding-diluted ................................... 40.1 44.6 53.3
Diluted earning per share ................................................... $1.52 $0.32 $0.80
The effect of dilutive securities is computed using the treasury stock method and average market prices
during the period. In 2002 and 2000, the Company excluded 50,000 and 2,725,696 anti-dilutive options from the
computation of diluted earnings per share, respectively.
17. Leases
The Company enters into operating leases primarily for office space and computer equipment. Rental
expense under non-cancelable operating leases was approximately $12.9 million, $12.0 million and $10.2 million
for the years ended December 31, 2002, 2001 and 2000, respectively. The Company received sublease rental
income related to computer equipment leased to franchisees totaling $9.1 million, $7.6 million and $5.0 million
during the years ended December 31, 2002, 2001 and 2000, respectively. Future minimum lease payments are as
follows:
2003 2004 2005 2006 2007 Thereafter Total
(In thousands)
Minimum lease payments ........... $9,395 $ 7,258 $ 4,685 $3,457 $3,547 $20,051 $48,393
Minimum sublease rentals .......... (6,213) (3,988) (1,323) — — — (11,524)
$ 3,182 $ 3,270 $ 3,362 $3,457 $3,547 $20,051 $36,869
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