DEAR SHAREHOLDERS I am pleased to report that Choice Hotels International enjoyed a very successful year in 2001, despite the challenges of a sluggish economy and the aftershocks of the September terrorist attacks.

The company recorded steady recurring EBITDA growth of 4.6% for the year, met Wall Street’s consensus on recurring earnings of $1.25 per share, achieved 1.8% growth in royalty fees and enjoyed domestic unit growth of 2.6%. These results demonstrate the power of our franchising business model to perform well even in uncertain times.

How did we succeed in such an unsettled environment? The bottom line is that we created a sound strategic platform in 1999, Unlocking the Power of Choice, and we’ve stuck with it. We’ve made modifications along the way, but our core business model remains sound, our strategy is on target and we’ve made significant strides in building the value of the company. We continue to generate strong cash flow, with a high level of predictability provided by the annuity nature of our long-term franchise contracts.

As part of our effort to help the company achieve more of its potential, we created a leaner, more nimble organization that is closer to our customer and better positioned for future growth. We reinvigorated our already strong brands through new images for three of them and creation of a new integrated, multi-brand marketing campaign. By using technology wisely and strategically to improve all phases of our business, we have given our franchisee partners and our associates valuable tools to help them drive performance.

Yet, are we satisfied? No. We recognize that significant challenges remain in the marketplace, and that the economy, though showing encouraging signs of recovery, is still lagging. So we have to keep up our drive for superior performance.

Even though Choice’s systemwide RevPAR declined overall by 2.4% in 2001, we fared better than the average industry drop of 7.0%. More importantly, our average daily rate (ADR) remains above that of the previous year, holding relatively steady even as occupancy declined markedly in the fourth quarter and overall for the year.

With a business mix that skews 65% leisure and 35% business, we were not hit as hard as some other hotel companies more concentrated in urban areas and more reliant on business travel.

Because about 75% of our business reaches our hotels by car, we are extremely wellpositioned in our highway locations to continue to attract our regular customers as well as first-time guests whose travel patterns now take them more in our direction.

CONTINUED UNIT GROWTH IN 2002
We are working off a solid financial base from 2001. Clearly that success is due in large measure to our business model as a mid-priced franchisor better positioned to weather down economic cycles.

Unit growth remains at the heart of our business. On the development side, our plan for 2001 held up very well, helped by a strong fourth quarter. This success was due in part to the fact that in uncertain economic times, independent and under-performing branded hotels tend to look at more proven brands to help them. We clearly benefited because we could offer the performance, service and support hotels are seeking.

More importantly, we succeeded because of the intense focus we place on driving unit growth in challenging times. Our associates rallied to the cause, working hard to help us land new contracts and showing a firm determination to succeed.