9. Accrued Expenses and Other

     Accrued expenses and other consisted of the following at:

	December 31,
		2002			2001
	(In thousands)
Accrued salaries and benefits	$	15,175		$	13,131
Accrued interest		2,343			2,616
Accrued restructuring		1,518			4,884
Deferred loyalty program		6,569			6,397
Other		4,081			3,026
Total	$	29,686		$	30,054

     Deferred loyalty program accrued expenses consist primarily of liabilities associated with the Company's Choice Privileges program. Choice Privileges is a frequent guest incentive program that enables members to earn points based on their spending levels at participating brands. The points may be redeemed for free accommodation or other benefits. Points can not be redeemed for cash.

     The Company collects 5% of program member's room revenue from participating franchises. Revenues are deferred equal to the fair value of the future redemption obligation. Actuarial methods are used to estimate the eventual redemption rates and point values. Upon redemption of points, the Company recognizes the previously deferred revenue as well as the corresponding expense relating to the cost of the awards redeemed.

10. Long-Term Debt

     Debt consisted of the following at:

	December 31,
		2002			2001
	(In thousands)
$265 million competitive advance and multi-currency revolving credit facility with an     effective rate of 3.05% and 3.69% at December 31, 2002 and 2001, respectively	$	200,708		$	180,525
$100 million senior notes with an effective rate of 7.22% at December 31, 2002 and 2001		99,655			99,591
$10 million line of credit with an effective rate of 2.50% at December 31, 2002		6,400			—
Other notes with an average effective rate of 3.30% and 4.90% at December 31, 2002 and 2001, respectively		1,028			1,180
Total debt	$	307,791		$	281,296

     Scheduled maturities of debt as of December 31, 2002 were as follows:

Year	(In thousands)
2003	$	23,796
2004		21,237
2005		26,503
2006		136,177
2007		146
Thereafter		99,932
Total	$	307,791

     On June 29, 2001, the Company refinanced its senior credit facility (the "New Credit Facility") in the amount of $260 million with a new maturity date of June 29, 2006. The New Credit Facility originally provided for a term loan of $150 million and a revolving credit facility of $110 million, $37 million of which is available for borrowings in foreign currencies. On September 29, 2001, the Company signed an amendment to the New Credit Facility, for an additional $5 million under the revolving credit facility, bringing the total amount of available commitments to $265 million. The amendment also transferred $35 million from the term loan to the revolving credit facility. As amended, the term loan amount is $115 million and the revolving credit facility is $150 million. The New Credit Facility includes customary financial and other covenants that require the maintenance of certain ratios including maximum leverage and interest coverage and restricts the Company's ability to make certain investments, incur debt and dispose of assets, among other restrictions. As of December 31, 2002, the Company is in compliance with all covenants under the New Credit Facility. The term loan ($98.7 million of which is outstanding at December 31, 2002) is payable over five years, $17.3 million of which is due in 2003. Borrowings under the New Credit Facility are, at the option of the borrower, at one of several rates including LIBOR plus 0.60% to 2.0%, based upon the credit rating of the Company and the loan type. In addition, the Company has the option to request participating banks to bid on loan participation at lower rates than those contractually provided by the New Credit Facility. The New Credit Facility requires the Company to pay annual fees of of 1% to ½ of 1%, based upon the credit rating of the Company.

     On May 1, 1998, the Company issued $100 million of senior unsecured notes (the "Notes") at a discount of $0.6 million, bearing a coupon rate of 7.13% with an effective rate of 7.22%. The Notes will mature on May 1, 2008. Interest on the Notes is paid semi-annually.

     In August 2002, the Company entered into a new $10.0 million revolving line of credit with a maturity of August 2003. The new line of credit includes customary financial and other covenants that require the maintenance of certain ratios identical to those included in the Company's existing senior credit facility. Borrowings under the line of credit bear interest at rates established at the time of borrowing based on prime minus 175 basis points. The Company had $6.4 million outstanding at December 31, 2002 under this line of credit.

11. Foreign Operations

     The Company accounts for foreign currency translation in accordance with SFAS No. 52, "Foreign Currency Translation." Revenues generated by foreign operations for the years ended December 31, 2002, 2001 and 2000 were $6.3 million, $5.2 million and $5.3 million, respectively. Net income (loss) attributable to the Company's foreign operations was $2.4 million, $(35.2 million) and $(12.3 million) for the years ended December 31, 2002, 2001 and 2000, respectively.

   Flag Choice Hotels

     On July 1, 2002, the Company acquired a controlling interest in Flag Choice Hotels ("Flag") (the "Flag Transaction"). Flag, based in Melbourne, Australia, is a franchisor of certain hotel brands in Australia, Papua New Guinea, Fiji and New Zealand. The acquisition of a controlling interest in Flag gave the Company the ability to control the Choice and Flag brands in Australia, Papua New Guinea and Fiji and the Flag brand in New Zealand.

     Pursuant to the Flag Transaction, the Company converted an existing $1.1 million convertible note due from Flag into an additional 15% of Flag's equity (beyond the 15% equity interest held prior to the Flag Transaction) and purchased an additional 25% of Flag's equity for approximately $1.6 million. As of July 1, 2002, the Company's total ownership in Flag is 55%.

     Pursuant to the Flag Transaction, the Company gave the seller the right to "put" the remaining 45% equity interest in Flag to the Company for approximately $1.1 million. The put right was permitted to be exercised between January 1, 2003 and June 30, 2007. The Company accounts for the put right in accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 requires the recognition of all derivatives, except certain qualifying hedges, as either assets or liabilities measured at fair value, with changes in value reflected as current period income or loss unless specific hedge accounting criteria are met. The fair value of the put rights was $0 at December 31, 2002, and accordingly, there was no impact on reported net income for the year ended December 31, 2002. The seller exercised the put right in January 2003 for the remaining 45%. The put transaction closed in February 2003, at which time Flag became a wholly-owned subsidiary.

     The Company accounted for the Flag Transaction in accordance with SFAS No. 141, "Business Combinations". The excess of the purchase price over the net tangible assets acquired of approximately $3.1 million has been allocated to identifiable intangible assets as follows:

	Estimated Fair Value			Estimated Useful Lives
		($000)
Trademarks and non-compete agreements	$	235		5 years
Franchise rights		2,904		5-15 years
	$	3,139

     The purchase price allocation is preliminary and further refinements may be made. The Company began consolidating the results of Flag on July 1, 2002. The pro forma results of operations as if Flag had been combined at the beginning of 2001 and 2002, would not be materially different from the Company's reported results for those periods.

   Choice Hotels Scandinavia

     The Company accounts for its investment in the common stock of Choice Hotels Scandinavia ("CHS") as an available for sale security in accordance with SFAS 115. The investment is included in other non-current assets in the accompanying consolidated balance sheets at fair value. As of December 31, 2002 and 2001, the fair value of the Company's investment in CHS was $0.6 million, based on quoted market prices. During the years ended December 31, 2002, 2001 and 2000, the Company recognized approximately $89,000, $178,000 and $176,000, respectively of unrealized gains (losses) related to this investment as a component of other comprehensive income or loss.

   Choice Hotels Canada, Inc.

     The Company has a 50% interest in Choice Hotels Canada, Inc. ("CHC"), a joint venture with a third party. During 2002, the Company recorded $476,000 of dividend income related to this investment in the accompanying consolidated statements of income. The dividend was received by Choice in January 2003 and is included in accounts receivable on the accompanying consolidated balance sheet.