CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     On December 19, 2003, Sunburst redeemed the New Note for approximately $47.1 million (including accrued interest of $2.2 million). The Company recognized a gain of $3.4 million in the accompanying consolidated statement of income for the year ended December 31, 2003 related to the note prepayment. The Company also recognized tax benefits of approximately $1.3 million in 2003 through reduction of liabilities for tax contingencies as a result of the gain on the transaction.

     As a result of the December 2003 repayment of the New Note by Sunburst, no interest income was recognized related to the note in 2004. The Company recognized interest income related to the New Note of $4.5 million and $4.6 million for the years ended December 31, 2003 and 2002, respectively.

     Total franchise fees, including royalty, marketing and reservation fees, paid by Sunburst to the Company, net of royalty fee credits, included in the accompanying consolidated financial statements were $5.3 million, $5.3 million and $6.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, accounts receivable included $0.9 million and $1.1 million due from Sunburst, respectively.

     During 2002, the Company recognized a restructuring charge expense of $1.6 million pursuant to SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The restructuring charge related to employee severance and termination benefits for 23 employees resulting from corporate realignment initiatives and is included in selling, general and administrative expenses in the accompanying consolidated statements of income. The restructuring was initiated and completed in 2002. Approximately $0.3 million of the expense was related to stock compensation for certain severed employees and was credited directly to additional paid-in capital. During 2003 and 2002, the Company paid approximately $0.9 million and $0.4 million in cash related to this restructuring. The payments made during 2003 satisfied the Company’s obligations related to the 2002 restructuring resulting in no liability remaining at December 31, 2003.

     During 2001, the Company recognized a restructuring charge expense of $5.9 million pursuant to Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The restructuring charge included $5.3 million related to a corporate realignment designed to increase the Company’s strategic focus on delivering value-added services to franchisees, including centralizing the Company’s franchise service and sales operations, consolidating its brand management functions and realigning its call center operations and is included in selling, general and administrative expenses in the accompanying consolidated statements of income. Of this $5.3 million, $5.1 million related to severance and termination benefits for 64 employees (consisting of brand management and new hotels support, reservation sales and administrative personnel and franchise sales and operations support) and $0.2 million relates to the cancellation of preexisting contracts for termination of domestic leases. The remaining $0.6 million of the $5.9 million was due to exit costs related to the termination of a corporate hotel construction project. Through December 31, 2002, the Company had paid cash of $4.4 million related to this restructuring. Approximately $0.9 million of the restructuring expense related to stock compensation for certain severed employees was reclassified from the restructuring liability during 2002 to additional paid-in capital. The Company paid approximately $0.5 million in cash related to this restructuring during 2003. As a result of these payments, the Company’s obligations related to the 2001 restructuring were satisfied and approximately $0.1 million was recorded as a reduction of selling, general and administrative expense in the accompanying consolidated statements of income for the year ended December 31, 2003, resulting in no liability remaining at December 31, 2003.