Net income before extraordinary item for the year was $48.1 million, or $0.81 diluted EPS, representing a 24% increase in net income and a 29% increase in diluted EPS compared to prior year net income before extraordinary item of $38.7 million, or $0.63 diluted EPS.

Included in 1998 diluted EPS is a pre-tax gain of approximately $2.4 million related to the sale of certain equity securities held by the company. Exclusive of this gain, diluted EPS was $0.78 for the year. In third quarter 1998, the company reported an after-tax gain of $7.2 million related to the early extinguishment of certain long-term debt obligations.

For fourth quarter 1998, the company reported net income of $12.2 million, or $0.21 diluted EPS, compared to $10.7 million, or $0.18 diluted EPS for the same period a year ago.

"Choice Hotels enjoyed another banner year in 1998, with strong unit growth in our franchised hotels and the development of new revenue streams through our strategic partnerships," said Charles A. Ledsinger, Jr., president and chief executive officer.

He continued, "Looking ahead, we anticipate our hotel unit growth will remain strong, both in new construction and conversions. We also are exploring ways to leverage the distribution opportunities provided by our hotel system."

The company reported franchise-related revenues of $143.0 million for 1998, compared to $134.3 million for 1997. In fourth quarter 1998, franchise- related revenues were $37.2 million, compared to $35.9 million for fourth quarter 1997. Franchise-related revenues exclude product sales and European hotel operations revenue. The company sold its European hotel operations to Friendly Hotels PLC in January 1998.

Royalty revenues for 1998 increased 9% to $115.4 million from $106.3 million for 1997. For fourth quarter 1998, royalty revenues were $29.6 million, an 8% increase over the $27.3 million recorded for the same period in 1997. For 1998, the total number of domestic Choice hotels on-line grew 6% to 3,039 from 2,880 for 1997. For the year, the total number of domestic rooms increased 4% to 252,357 from 242,161 in 1997. Choice executed 440 new hotel franchise contracts in 1998, a 5% increase over 1997 contracts.

A total of 318 hotels were opened in 1998 and 159 properties were terminated, resulting in a net addition of 159 hotels to the domestic system. In fourth quarter 1998, the company added 56 hotels and terminated 41 properties in its domestic system. The terminations reflect the company's ongoing initiative to remove properties that do not meet Choice Hotels' strict quality standards.

As of December 31, 1998, the company had 866 franchised hotels with 75,232 rooms either in design or under construction in its domestic hotel system, compared to 725 franchised hotels with 62,384 rooms as of the same date a year ago. The company has an additional 611 franchised hotels with 40,375 rooms under development in its international system.

Notable Fourth Quarter Events

Among the notable company events occurring in fourth quarter 1998:

• Launch of Guest Privileges, a rewards program for frequent guests of the Comfort, Quality, Clarion, Sleep Inn and MainStay Suites brands. More than 130,000 people have signed up for membership since the program's inception in early October.
• Announcement of an agreement with Sunburst Hospitality (NYSE: SNB) to strengthen the companies' strategic alliance to enhance development of the extended-stay MainStay Suites hotel brand. Under the terms of the agreement, Choice will retain ownership of the MainStay Suites brand and Sunburst will commit to develop a total of 25 MainStay Suites hotels by October 2001.
• Continuation of the stock repurchase program announced June 25, 1998. The company has purchased 4.4 million shares of common stock as of January 31, 1999, and has remaining authority to acquire up to 4.3 million shares.

The forward-looking statements contained in this release are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers of this press release are referred to the company's filings with the Securities and Exchange Commission, including the company's form 10 Registration Statement for further discussion of factors which could affect future results. Additional corporate information may be found on the Choice Hotels' internet site, which may be accessed at: www.hotelchoice.com Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites are registered trademarks and service marks of Choice Hotels International Inc.