Choice Hotels International, Inc. and Subsidiaries

The following table presents the financial information for the Company’s franchising segment.

The Company’s international operations had revenues of $6.9 million, $5.8 million, $16.2 million and $27.5 million for the years ended December 31, 1999 and 1998, the seven months ended December 31, 1997 and the fiscal year ended May 31, 1997, respectively. Long-lived assets related to international operations were $20.6 million and $16.4 million as of December 31, 1999 and 1998, respectively. All other long-lived assets of the Company are associated with domestic activities. In addition, the Company had a $41.2 million and $41.6 million investment in Friendly as of December 31, 1999 and 1998, respectively.

Commitments and Contingencies

The Company is a defendant in a number of lawsuits arising in the ordinary course of business. In the opinion of management and general counsel to the Company, the ultimate outcome of such litigation will not have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Fair Value of Financial Instruments

The balance sheet carrying amount of cash and cash equivalents and receivables approximate fair value due to the short term nature of these items. Long-term debt consists of bank loans and senior notes. Interest rates on bank loans adjust frequently based on current market rates; accordingly, the carrying amount of bank loans is equivalent to fair value.

The Note Receivable from Sunburst has an approximate fair value of $135.0 million and $127.5 million at December 31, 1999 and 1998, respectively, based on its current yield to maturity. The $100 million unsecured senior notes have an approximate fair value at December 31, 1999 and 1998 of $93.9 million and $97.6 million, respectively, based on their current yield to maturity.