Choice Hotels International, Inc. and Subsidiaries

A summary of the option activity under the above plans is as follows as of December 31, 1999 and 1998:

The following table summarizes information about stock options outstanding at December 31, 1999:

SFAS No. 123, “Accounting for Stock-Based Compensation,” requires companies to provide additional disclosures about employee stock-based compensation plans based on a fair value based method of accounting. As permitted by this accounting standard, the Company continues to account for these plans under APB Opinion 25, under which no compensation cost has been recognized.

For purposes of the proforma disclosure, compensation cost for the Company’s stock option plan was determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123. The fair value of each option grant has been estimated on the date of grant using an option-pricing model with the following weighted average assumptions used for grants in 1999 and 1998:

If options had been reported as compensation expense based on their fair value, pro forma net income would have been $56.4 million and $54.0 million for the years ended December 31, 1999 and December 31, 1998, and pro forma diluted earnings per share would have been $1.01 and $0.90, respectively. Since this methodology has not been applied to options granted prior to the Sunburst distribution date, the resulting pro forma compensation cost is not likely to be representative of that to be expected in future years.

Comprehensive Income

As of January 1, 1998, the Company adopted SFAS No. 130, “Reporting Comprehensive Income,” which establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company’s net income or shareholders’ equity. SFAS No. 130 requires unrealized gains or losses on the Company’s available-for-sale securities and the foreign currency translation adjustments, which prior to adoption were reported separately in shareholders’ equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130.