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Comparison of 2003 Operating Results and 2002 Operating Results
The Company recorded net income of $71.9 million for the year ended December 31, 2003, an increase of $11.1 million from $60.8 million for the year ended December 31, 2002. Net income in 2003 included a $3.4 million gain on the prepayment of the Sunburst Hospitality note. In addition to the note prepayment gain, the increase in net income for the period is attributable to improved operating income resulting from a $15.0 million, or 8.7%, increase in franchise revenues partially offset by increased selling, general and administrative costs.
Summarized financial results for the years ended December 31, 2003 and 2002 are as follows:
| |
2003 |
|
2002 |
 |
|
|
| |
(In thousands) |
| REVENUES: |
| Royalty fees |
$ |
151,326 |
|
$ |
142,943 |
|
| Initial franchise and relicensing fees |
|
16,799 |
|
|
12,881 |
|
| Partner services |
|
13,227 |
|
|
11,860 |
|
| Marketing and reservation |
|
195,420 |
|
|
190,145 |
|
| Hotel operations |
|
3,565 |
|
|
3,331 |
|
| Other |
|
5,767 |
|
|
4,402 |
|
|
|
|
| Total revenues |
|
386,104 |
|
|
365,562 |
|
|
|
|
| OPERATING EXPENSES: |
| Selling, general and administrative |
|
62,860 |
|
|
56,520 |
|
| Depreciation and amortization |
|
11,225 |
|
|
11,251 |
|
| Marketing and reservation |
|
195,420 |
|
|
190,145 |
|
| Hotel operations |
|
2,616 |
|
|
2,946 |
|
|
|
|
| Total operating expenses |
|
272,121 |
|
|
260,862 |
|
|
|
|
| Operating income |
|
113,983 |
|
|
104,700 |
|
|
|
|
| Interest expense |
|
11,597 |
|
|
13,136 |
|
| Interest and other investment income |
|
(6,185 |
) |
|
(4,549 |
) |
| Gain on prepayment of note receivable from Sunburst |
|
(3,383 |
) |
|
— |
|
| Equity in net (income) losses of affiliates |
|
(582 |
) |
|
71 |
|
| Other |
|
129 |
|
|
224 |
|
|
|
|
| Total other income and expenses |
|
1,576 |
|
|
8,882 |
|
|
|
|
| Income before income taxes |
|
112,407 |
|
|
95,818 |
|
| Income taxes |
|
40,544 |
|
|
34,974 |
|
|
|
|
| Net income |
$ |
71,863 |
|
$ |
60,844 |
|
|
|
|
|
|
|
|
| Weighted average shares outstanding-diluted |
|
36,674 |
|
|
40,057 |
|
|
|
|
| Diluted earnings per share |
$ |
1.96 |
|
$ |
1.52 |
|
|
|
|
|
|
|
|
Franchise Revenues: Franchise revenues were $187.1 million for the year ended December 31, 2003 compared to $172.1 million for the year ended December 31, 2002. Royalty fees increased $8.4 million to $151.3 million from $142.9 million in 2002, an increase of 5.9%. The increase in royalties is attributable to a 4.2% increase in the number of domestic franchised hotel rooms and an increase in the effective royalty rate of the domestic hotel system to 4.01% from 3.97%, partially offset by a 0.8% decrease in RevPAR. Domestic initial fee revenue, included in the initial franchise and relicensing fees caption above, generated from executed franchise contracts increased 36.1% to $11.3 million for the year ended December 31, 2003 from $8.3 million for the year ended December 31, 2002. In addition, international royalty fees increased approximately $2.9 million during 2003 as a result of the consolidation of Flag Choice Hotels beginning in July 2002. The increase reflects domestic franchise agreements executed in 2003 of 470, compared to 304 agreements executed in 2002. Relicensing fees increased 19.6% to $5.5 million for the year ended December 31, 2003 from $4.6 million for the year ended December 31, 2002. Relicensing fees are charged to the new property owner of a franchised property whenever an ownership change occurs and the property remains in the franchise system. Revenues generated from partner services increased 10.9% to $13.2 million for the year ended December 31, 2003 from $11.9 million for the year ended December 31, 2002.
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