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Summarized financial results for the years ended December 31, 2002 and 2001 are as follows:
| |
2002 |
|
2001 |
 |
|
|
| |
(In thousands) |
| REVENUES: |
| Royalty fees |
$ |
142,943 |
|
$ |
140,185 |
|
| Initial franchise and relicensing fees |
|
12,881 |
|
|
12,887 |
|
| Partner services |
|
11,860 |
|
|
12,042 |
|
| Marketing and reservation |
|
190,145 |
|
|
168,170 |
|
| Hotel operations |
|
3,331 |
|
|
3,215 |
|
| Other |
|
4,402 |
|
|
4,929 |
|
|
|
|
| Total revenues |
|
365,562 |
|
|
341,428 |
|
|
|
|
| OPERATING EXPENSES: |
| Selling, general and administrative |
|
56,520 |
|
|
62,015 |
|
| Impairment of Friendly investment |
|
— |
|
|
22,713 |
|
| Depreciation and amortization |
|
11,251 |
|
|
12,452 |
|
| Marketing and reservation |
|
190,145 |
|
|
168,170 |
|
| Hotel operations |
|
2,946 |
|
|
2,501 |
|
|
|
|
| Total operating expenses |
|
260,862 |
|
|
267,851 |
|
|
|
|
| Operating income |
|
104,700 |
|
|
73,577 |
|
| Interest expense |
|
13,136 |
|
|
15,445 |
|
| Interest and other investment income |
|
(4,549 |
) |
|
(4,329 |
) |
| Equity in net losses of affiliates |
|
71 |
|
|
16,436 |
|
| Other |
|
224 |
|
|
608 |
|
|
|
|
| Income before income taxes |
|
95,818 |
|
|
45,417 |
|
| Income taxes |
|
34,974 |
|
|
31,090 |
|
|
|
|
| Net income |
$ |
60,844 |
|
$ |
14,327 |
|
|
|
|
|
|
|
|
Franchise Revenues. Franchise revenues were $172.1 million for the year ended December 31, 2002 compared to $170.0 million for the year ended December 31, 2001. Royalty fees increased $2.7 million to $142.9 million from $140.2 million in 2001, an increase of 1.9%. The increase in royalties is primarily attributable to a 4.4% increase in the number of domestic franchised hotel rooms and an increase in the effective royalty rate of the domestic hotel system to 3.97% from 3.95%, offset by a 3.8% decrease in RevPAR. Domestic initial fee revenue, included in the initial franchise and relicensing fees caption above, generated from executed franchise contracts increased 7.8% to $8.3 million for the year ended December 31, 2002 from $7.7 million for the year ended December 31, 2001. Relicensing fees declined 11.5% to $4.6 million for the year ended December 31, 2002 from $5.2 million for the year ended December 31, 2001. 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. The decrease in relicensing fees in 2002 reflects a lower number of such ownership changes in 2002 compared to 2001. Total domestic franchise agreements executed in 2002 were 304, compared to 300 total agreements executed in 2001. Revenues generated from partner services were $11.9 million, compared to $12.0 million in 2001.
The number of domestic rooms on-line increased to 282,423 from 270,514, an increase of 4.4% for the year ended December 31, 2002. For 2002, the total number of domestic hotels on-line grew 4.7% to 3,482 from 3,327 for 2001. International rooms on-line decreased slightly to 91,299 as of December 31, 2002 from 92,035 as of December 31, 2001, a decrease of 0.8%. The total number of international hotels on-line decreased to 1,182 from 1,218, a decrease of 3.0% for the year ended December 31, 2002. The decrease in international hotels online is primarily due to termination of certain Flag properties which failed to maintain the Company’s brand standards
or which declined to formalize a franchise relationship following the Company’s acquisition of a controlling interest in Flag Choice Hotels during 2002. As of December 31, 2002, the Company had 310 franchised hotels with 23,766 rooms either in design or under construction in its domestic system. The Company had an additional 164 franchised hotels with 17,799 rooms under development in its international system as of December 31, 2002.
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