Comfort Inn 2014 Annual Report Download - page 41

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Table of Contents

The Company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the United States ("GAAP")
when analyzing and discussing its results with the investment community. This information should not be considered as an alternative to any measure of
performance as promulgated under GAAP. The Company’s calculation of these measurements may be different from the calculations used by other companies
and therefore comparability may be limited. We have included a reconciliation of these measures to the comparable GAAP measurement below as well as our
reasons for reporting these non-GAAP measures.
Franchising Revenues: The Company utilizes franchising revenues, which exclude revenues from marketing and reservation system activities and the
SkyTouch division, rather than total revenues when analyzing the performance of the business. Marketing and reservation activities are excluded from
franchising revenues since the Company is contractually required by its franchise agreements to use the fees collected for marketing and reservation
activities; as such, no income or loss to the Company is generated. Cumulative marketing and reservation system fees not expended are recorded as a liability
in the Company’s financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements. Cumulative
marketing and reservation expenditures incurred in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in
the Company’s financial statements and recovered in future periods. SkyTouch is a division of the Company that develops and markets cloud-based
technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the
Company. SkyTouch operations are excluded from franchising revenue since they do not reflect the Company's core franchising business but are an adjacent,
complimentary line of business. This non-GAAP measure is a commonly used measure of performance in our industry and facilitates comparisons between the
Company and its competitors.




2013
2012
Total Revenues  
$ 724,650
$ 692,728
Less Adjustments:
Marketing and reservation system revenues 
(407,633)
(389,678)
SkyTouch division 
(33)
—
Franchising Revenues  
$ 316,984
$ 303,050
Adjusted EBITDA: We also utilize adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") to analyze our results
which reflects earnings excluding the impact of interest expense, interest income, loss on extinguishment of debt, provision for income taxes, depreciation
and amortization, other (gains) and losses and equity in net (income) loss of unconsolidated affiliates. We consider Adjusted EBITDA to be an indicator of
operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use Adjusted
EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries
or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit
ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary
because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result,
effective tax rates and provision for income taxes can vary considerably among companies. Adjusted EBITDA also excludes depreciation and amortization
because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These
differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Additionally, Adjusted EBITDA is also utilized as a performance indicator as it excludes equity in net (income) loss of unconsolidated affiliates and other
(gains) and losses which primarily reflect the performance of investments held in the Company's non-qualified retirement, savings and investment plans
which can vary widely from period to period based on market conditions.
41