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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As facilities in progress are completed and placed in service, they are transferred to appropriate property and equipment categories and depreciation begins. Depreciation expense, excluding amounts attributable to marketing and reservation activities, for the years ended December 31, 2003, 2002 and 2001 was $6.5 million, $5.6 million and $4.6 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 are based follows:
| Computer equipment and software |
3-5 years |
|
| Buildings and improvements |
10-40 years |
|
| Furniture, fixtures and equipment |
3-20 years |
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3. Goodwill
Goodwill relates to the purchase price of a minority interest in the Company for consideration in excess of the recorded minority interest. Prior to January 1, 2002, the Company amortized goodwill on a straight-line basis over 40 years. Such amortization amounted to $2.0 million for the year ended December 31, 2001.
On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” pursuant to which the Company is no longer required to amortize goodwill. The impact of the adoption of SFAS No. 142 on net income, basic earnings per share and diluted earnings per share for the year ended December 31, 2001, as if the adoption had taken place on January 1, 2001 is as follows:
| |
Year Ended |
| |
December 31, 2001 |
|
 |
|
| |
(In thousands, |
|
| |
except per share |
|
| |
amounts) |
|
| Reported net income |
$ |
14,327 |
|
| Add back: Goodwill amortization |
|
1,995 |
|
|
|
| Adjusted net income |
$ |
16,322 |
|
|
|
| Basic earnings per share: |
|
|
|
| Reported net income |
$ |
0.32 |
|
| Goodwill amortization |
|
0.05 |
|
|
|
| Adjusted basic earnings per share |
$ |
0.37 |
|
|
|
| Diluted earnings per share: |
|
|
|
| Reported net income |
$ |
0.32 |
|
| Goodwill amortization |
|
0.04 |
|
|
|
| Adjusted diluted earnings per share |
$ |
0.36 |
|
|
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4. Franchise Rights and Other Intangibles
Franchise rights represent the unamortized purchase price assigned to acquired long-term franchise
contracts. As of December 31, 2003 and 2002, the unamortized balance relates primarily to the Econo Lodge and Flag franchise rights. The franchise rights are being amortized over lives ranging from 5 to 15 years. Amortization expense for the years ended December 31, 2003, 2002 and 2001 amounted to $3.4 million, $3.1 million and $3.0 million, respectively. Franchise rights are net of accumulated amortization of $38.5 million and $35.1 million at December 31, 2003 and 2002, respectively. The estimated annual amortization expense related to the Company’s franchise rights for each of the years ending December 31, 2004 through 2008 is $3.4 million.
Other non-current assets includes approximately $2.7 million and $2.5 million of unamortized intangible assets related to trademarks at December 31, 2003 and 2002, respectively. The trademarks are being amortized over ten years. Amortization expense for the years ended December 31, 2003, 2002 and 2001 amounted to $0.3
million, $0.4 million and $0.4 million, respectively. The estimated annual amortization expense related to the Company’s trademarks for each of the years ending December 31, 2004 through 2008 is $0.3 million.
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