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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

        For the Quarterly Period Ended March 31, 2003

OR

        For the Transition Period from              to             

Commission File Number 001-13125

EXTENDED STAY AMERICA, INC.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (864) 573-1600

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    x   No    ¨             

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    x   No    ¨             

At April 30, 2003, the registrant had issued and outstanding an aggregate of 94,030,669 shares of Common Stock.

PART I

FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

EXTENDED STAY AMERICA, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

See notes to the unaudited condensed consolidated financial statements

1

EXTENDED STAY AMERICA, INC.

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

See notes to the unaudited condensed consolidated financial statements

2

EXTENDED STAY AMERICA, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

See notes to the unaudited condensed consolidated financial statements

3

EXTENDED STAY AMERICA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003

NOTE 1 — BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and include the accounts of Extended Stay America, Inc. and subsidiaries (the “Company”). In this Quarterly Report on Form 10-Q, the words “Extended Stay America”, “Company”, “we”, “ours”, and “us” refer to Extended Stay America, Inc. and its subsidiaries unless the context suggests otherwise. All significant intercompany accounts and transactions have been eliminated in consolidation.

These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The condensed consolidated balance sheet data at December 31, 2002 was derived from audited financial statements of the Company but does not include all disclosures required by generally accepted accounting principles.

Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

For the three months ended March 31, 2003 and 2002, the computation of diluted earnings per share does not include approximately 10.5 million and 2.3 million, respectively, weighted average shares of common stock represented by outstanding options because the exercise price of the options was greater than the average market price of our common stock during the period.

Income Taxes

Our estimated annual effective income tax rate decreased during 2002 from 40% to 39%, reflecting a reduction in estimated state income taxes resulting from state tax planning and credits. Accordingly, the provision for income taxes in the first quarter of 2002 reflects a $3.0 million reduction in expense associated with adjusting our deferred tax assets and liabilities to reflect the lower rate.

Stock Option Plans

At March 31, 2003, we have six stock-based employee compensation plans. We account for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share for the quarters ended March 31, 2003, and 2002 as if we had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock Based Compensation,” to stock-based employee compensation.

4

New Accounting Pronouncement

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include the assets, liabilities and activities of another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities (more commonly referred to as special-purpose entities or off-balance sheet structures), FIN 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. Prior to FIN 46, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to older entities in the first fiscal year or interim period beginning after June 15, 2003. The adoption of this interpretation did not have a material effect on our financial statements.

NOTE 2 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following: