Comfort Inn 2003 Annual Report Download - page 38

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the Company recognized approximately $98,000, $89,000 and ($178,000), respectively, of unrealized gains
(losses) attributable to this investment.
Choice Hotels Canada, Inc.
The Company has a 50% interest in Choice Hotels Canada, Inc. (“CHC”), a joint venture with a third party.
During 2003 and 2002, the Company recorded $0.6 million and $0.5 million, respectively, of equity method
income related to this investment pursuant to APB No. 18 in the accompanying consolidated statements of
income. The Company received dividends from CHC of $0.4 million and $0.5 million for the years ended
December 31, 2003 and 2002, respectively. During 2003, 2002 and 2001, the Company recognized in the
accompanying consolidated statements of income, revenues of $6.7 million, $4.7 million and $5.5 million,
respectively, including royalty, marketing, reservation fees and other franchise revenues from CHC.
12. Pension, Profit Sharing, and Incentive Plans
The Company sponsors a 401(k) retirement plan for all eligible employees. For the years ended December
31, 2003, 2002 and 2001, the Company recorded compensation expense of $1.7 million, $1.5 million and $1.7
million, respectively, representing matching contributions for plan participants. In accordance with the plan, the
Company makes 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 sponsors a non-qualified defined benefit plan (“SERP”) for certain senior executives. The
Company accounts for the SERP in accordance with SFAS No. 87, “Employers Accounting for Pensions.” For
the years ended December 31, 2003, 2002 and 2001, the Company recorded $0.4 million, $0.3 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, 2003 and 2002, a liability
of $1.7 million and $1.1 million, respectively, related to the SERP was included in other non-current liabilities in
the accompanying consolidated balance sheets.
The Company sponsors two non-qualified retirement savings and investment plans for certain employees
and certain senior executives whose pre-tax deferrals are limited under the Company’s 401(k) Plan. Employee
and Company contributions are maintained in separate irrevocable trusts. Legally, the assets of the trusts remain
those of the Company; however, access to the trusts’ assets is severely restricted. The trusts’ cannot be revoked
by the Company or an acquiror, but the assets are subject to the claims of the Company’s general creditors. The
participants do not have the right to assign or transfer contractual rights in the trusts. The Company accounts for
these plans 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, 2003 and 2002, the Company had recorded a deferred compensation liability of $13.3
million and $8.6 million, respectively, in other non-current liabilities in the accompanying consolidated balance
sheets. The change in the deferred compensation obligation related to changes in the fair value of the diversified
investments held in trust and to earnings credited to participants is recorded in compensation expense. The
diversified investments held in the trusts were $12.1 million and $7.9 million as of December 31, 2003 and 2002,
respectively, and are recorded at their fair value, based on quoted market prices, in other non-current assets on
the accompanying consolidated balance sheets. The change in the fair value of the diversified assets held in trust
is recorded in accordance with SFAS 115 as trading security income (loss).
F-31