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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
      2002         2001         2000
  (In thousands, except
per share amounts)
    As Revised
(See Note 1)
REVENUES:  
  Royalty fees $ 142,943   $ 140,185   $ 137,721
  Initial franchise and relicensing fees 12,881     12,887     12,154
  Partner services 11,860     12,042     10,300
  Marketing and reservation 190,145     168,170     185,367
  Hotel operations 3,331     3,215     1,249
  Other 4,402     4,929     6,050
    Total revenues 365,562     341,428     352,841
OPERATING EXPENSES:  
  Selling, general and administrative   54,904     56,075     57,178
  Restructuring charges   1,616     5,940     5,637
  Impairment of Friendly investment   —     22,713     —
  Depreciation and amortization   11,251     12,452     11,623
  Marketing and reservation expense   190,145     168,170     185,367
  Hotel operations   2,946     2,501     609
    Total operating expenses   260,862     267,851     260,414
  Operating income   104,700     73,577     92,427
OTHER INCOME AND EXPENSES:  
  Interest expense   13,136     15,445     18,490
  Interest and other investment income   (4,549)     (4,329)     (15,534)
  Equity in net losses of affiliates   71     16,436     12,071
  Loss (gain) on disposition of property   224     (42)     253
  Write-off of deferred financing costs   —     650     —
  Loss on Sunburst note   —     —     7,565
    Total other income and expenses   8,882     28,160     22,845
Income before income taxes   95,818     45,417     69,582
Income taxes   34,974     31,090     27,137
Net income $ 60,844   $ 14,327   $ 42,445
Weighted average shares outstanding-basic   39,333     44,174     52,895
Weighted average shares outstanding-diluted   40,057     44,572     53,253
Basic earnings per share $ 1.55   $ 0.32   $ 0.80
Diluted earnings per share $ 1.52   $ 0.32   $ 0.80
 
The accompanying notes are an integral part of these consolidated financial statements.
 
CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
     December 31,
2002 		   December 31,
2001
    (In thousands, except
share amounts)
ASSETS:
Current assets        
   Cash and cash equivalents   $ 12,227   $ 16,871
   Receivables (net of allowance for doubtful accounts of $6,035 and $5,392,       respectively)   32,451   25,223
   Other current assets   3,349   889
       Total current assets   48,027   42,983
Property and equipment, at cost, net   64,650   70,458
Goodwill   60,620   60,620
Franchise rights, net   36,336   36,257
Receivable—marketing and reservation fees   44,916   49,358
Note receivable from Sunburst   41,318   39,059
Other assets   18,515   22,443
      Total assets   $ 314,382   $ 321,178

LIABILITIES AND SHAREHOLDERS’ DEFICIT:
Current liabilities        
   Current portion of long-term debt   $ 23,796   $ 13,563
   Accounts payable   23,142   24,724
   Accrued expenses and other   29,686   30,054
   Income taxes payable   8,879   2,836
      Total current liabilities   85,503   71,177
   Long-term debt   283,995   267,733
   Deferred income taxes and other liabilities   58,683   46,807
      Total liabilities   428,181   385,717


Commitments and Contingencies
SHAREHOLDERS’ DEFICIT:
   Common stock, $ .01 par value; 160,000,000 shares authorized; 62,755,708 shares       issued; 37,163,216 and 41,997,637 shares outstanding at December 31, 2002 and
      2001, respectively 		  371   420
   Additional paid-in-capital   73,100   70,130
   Accumulated other comprehensive income (loss)   42   (354)
   Deferred compensation   (3,492)   (2,857)
   Treasury stock (25,592,492 and 20,758,071 shares at December 31, 2002 and 2001,       respectively)   (423,839)   (311,053)
   Retained earnings   240,019   179,175
      Total shareholders’ deficit   (113,799)   (64,539)
      Total liabilities and shareholders’ deficit   $ 314,382   $ 321,178
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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