CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

16. Earnings Per Share

The following table illustrates the reconciliation of the earnings and number of shares used in the basic and diluted earnings per share calculations.

The effect of dilutive securities is computed using the treasury stock method and average market prices during the period. In 2000 and 1999, the Company excluded 2,725,696 and 206,031 anti-dilutive options from the computation of diluted earnings per share, respectively.

17. Leases

The Company enters into operating leases primarily for office space and computer equipment. Rental expense under non-cancelable operating leases was approximately $12.0 million, $10.2 million and $4.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. The Company received sublease rental income related to computer equipment leased to franchisees totaling $7.6 million, $5.0 million and $0.6 million during the years ended December 31, 2001, 2000 and 1999, respectively. Future minimum lease payments are as follows:

18. Reportable Segment Information

The Company has a single reportable segment encompassing its franchising business. Franchising revenues are comprised of royalty fees, initial franchise and relicensing fees, marketing and reservation fees and partner services revenue and other. The Company is obligated under its franchise agreements to provide marketing and reservation services appropriate for the successful operation of its systems. These funds do not represent separate reportable segments as their operations are directly related to the Company’s franchising business. The revenues received from franchisees that are used to pay for part of the Company’s central on-going operations are included in franchising revenues and are offset by the related expenses paid from the marketing and reservation funds to calculate franchising operating income. Corporate and other revenue consists of product sales and hotel operations. The Company does not allocate interest and dividend income, interest expense or income taxes to its franchising segment.