The number of domestic rooms on-line increased to 294,268 from 282,423, an increase of 4.2% for the year ended December 31, 2003. For 2003, the total number of domestic hotels on-line grew 4.4% to 3,636 from 3,482 for 2002. International rooms on-line increased to 94,350 as of December 31, 2003 from 91,299 as of December 31, 2002, an increase of 3.3%. The total number of international hotels on-line decreased slightly to 1,174 from 1,182, a decrease of 0.7% for the year ended December 31, 2003. As of December 31, 2003, the Company had 401 franchised hotels with 31,409 rooms either in design or under construction in its domestic system. The Company had an additional 90 franchised hotels with 8,468 rooms under development in its international system as of December 31, 2003.

     Franchise Expenses: The cost to operate the franchising business is reflected in selling, general and administrative expenses. Selling, general and administrative expenses were $62.9 million for the year ended December 31, 2003, an increase of $6.4 million from the year ended December 31, 2002 total of $56.5 million. As a percentage of revenues, excluding marketing and reservation fees and hotel operations, total SG&A expenses were 33.6% for the year ended December 31, 2003, compared to 32.8% for 2002. The increase is attributable to increased costs associated with the adoption of the fair value method of accounting for stock options, performance based incentive compensation for sales and other management personnel, retirement plan costs and the consolidation of Flag Choice Hotels upon acquisition of a controlling interest on July 1, 2002.

     Marketing and Reservations: Total marketing and reservation revenues were $195.4 million and $190.1 million for the years ended December 31, 2003 and 2002, respectively. Depreciation and amortization attributable to marketing and reservation activities was $12.1 million and $13.0 million for the years ended December 31, 2003 and 2002, respectively. Interest expense attributable to reservation activities was $1.3 million and $1.4 million for the years ended December 31, 2003 and 2002, respectively. Marketing and reservation activities provided positive cash flow of $24.7 million and $17.2 million for the years ended December 31, 2003 and 2002, respectively. As of December 31, 2003 and 2002, the Company’s balance sheet includes a receivable of $32.4 million and $44.9 million, respectively, for marketing and reservation fees. This receivable is recorded as an asset in the financial statements as the Company has the contractual authority to require that the franchisees in the system at any given point repay the Company for any deficits related to marketing and reservation activities. The Company’s current franchisees are legally obligated to pay any assessment the Company imposes on its franchisees to obtain reimbursement of such deficit regardless of whether those constituents continue to generate gross room revenue. The Company has no present intention to accelerate repayment of the deficit from current franchisees.

     Interest and Other: Interest expense of $11.6 million in the year ended December 31, 2003 is down $1.5 million from $13.1 million in the year ended December 31, 2002 due primarily to lower effective interest rates and lower average outstanding debt balances. The Company’s weighted average interest rate as of December 31, 2003 was 4.29% compared to 4.39% as of December 31, 2002. Included in the results for 2003 and 2002 is approximately $4.5 million and $4.6 million, respectively, of interest income earned on the note receivable from Sunburst.

     Income Taxes: The Company’s effective income tax provision rate was 36.07% for the year ended December 31, 2003, a decrease of 43 basis points from the effective income tax provision rate of 36.50% for the year ended December 31, 2002. The reduction in the effective income tax provision rate resulted partially from an increase in foreign income which are taxed at lower income tax rates than the statutory U.S. income tax rates. Also, the increase in taxable income over non-tax deductible items between the two periods decreased the effective income tax rate.