Comparison of Calendar Year 1999 Operating Results and Calendar Year 1998
Operating Results

The Company recorded net income of $57.2 million for the year ended December 31, 1999, an increase of $1.9 million, compared to net income of $55.3 million for the year ended December 31, 1998. Net income in 1998 included a $7.2 million extraordinary gain from the early extinguishment of debt. The increase in net income for 1999 was primarily attributable to an increase in the effective royalty rates achieved, an increase in franchise revenue as a direct result of improvements in the operating performance of hotels, and the addition of new franchisees to the system. Lower net interest costs versus 1998 also contributed favorably to the 1999 results.

Summarized financial results for the years ended December 31, 1999 and 1998 are as follows:

Franchise Revenues: Net franchise revenues were $157.7 million for 1999 and $143.6 million for 1998. Royalties increased $13.5 million to $128.7 million from $115.2 million in 1998, an increase of 11.7 %. The increase in royalties is attributable to a 2.3% increase in the number of domestic franchised hotel rooms, an increase in the effective royalty rate of the domestic hotel system to 3.7% from 3.6%, and an improvement in domestic RevPAR of 3.0%. Domestic initial fee revenue generated from franchise contracts signed was $10.1 million down from $13.1 million in 1998. Total franchise agreements signed in 1999 were 318, a decline from the 440 total agreements executed in 1998. An increasingly competitive hotel franchising environment, coupled with stricter hotel brand standards being enforced by the Company, contributed to the decline in the total franchise agreements signed in the period. Revenues generated from partner service relationships increased to $9.1 million from $6.4 million in 1998.

The number of domestic rooms on-line increased to 258,120 from 252,357, an increase of 2.3% for the year ended December 31, 1999. For 1999, the total number of domestic hotels on-line grew 2.8% to 3,123 from 3,039 for 1998. The total number of international hotels on-line increased to 1,125 from 632, an increase of 78.0% for the year ended December 31, 1999. International rooms on-line increased to 80,134 as of December 31, 1999 from 53,095, an increase of 50.9%. As of December 31, 1999, the Company had 596 franchised hotels with 46,664 rooms either in design or under construction in its domestic system. The Company had an additional 165 franchised hotels with 17,431 rooms under development in its international system as of December 31, 1999.

Franchise Expenses: Selling, general and administrative expenses were $55.9 million for 1999, an increase of $3.0 million from the 1998 total of $52.9 million. As a percentage of net franchise revenues, selling, general and administrative expenses declined to 35.4% in 1999 from 36.8% in 1998. The improvement in the franchising margins relates to the economies of scale generated from operating a larger franchisee base and improvements in franchised hotel performance.