NOTE 18. SEGMENTS

Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by our Chief Executive Officer, who is our chief operating decision maker, to assess performance and make decisions regarding the allocation of resources. Our operating and reportable segments are defined as follows:

Owned hotels —This segment derives its earnings from the operation of owned hotel properties located in the United States.

Franchise and management —This segment derives its earnings primarily from revenues earned under various franchise and management agreements relating to our owned, franchised, and managed hotels, which provide for us to earn compensation for the licensing of our brand to franchisees, as well as for services rendered, such as hotel management and providing access to certain shared services and marketing programs such as reservations, Returns, and property management systems.

Corporate and other includes revenues generated and operating expenses incurred in connection with the overall support and brand management of our owned, managed, and franchised hotels and operations.

The performance of our operating segments is evaluated primarily based upon Adjusted EBITDA, which should not be considered an alternative to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. We define Adjusted EBITDA as our net income (exclusive of non-controlling interests) before interest expense, income tax expense (benefit), and depreciation and amortization, further adjusted to exclude certain items, including, but not limited to: gains, losses, and expenses in connection with: (i) asset dispositions; (ii) debt modifications/retirements; (iii) non-cash impairment charges; (iv) discontinued operations; (v) equity based compensation and (vi) other items.

The table below shows summarized consolidated financial information by segment:

	2015			2014			2013
	(in thousands)
Revenues
Owned hotels	$	911,491		$	870,061		$	778,898
Franchise and management ⁽¹⁾		114,610			94,002			55,542
Segment revenues		1,026,101			964,063			834,440
Other fee-based revenues from franchise and managed properties		23,204			21,481			19,065
Corporate and other ⁽²⁾		126,469			116,805			97,177
Intersegment elimination ⁽³⁾		(145,800	)		(125,411	)		(76,789	)
Total revenues	$	1,029,974		$	976,938		$	873,893
Adjusted EBITDA
Owned hotels		314,278			312,067			311,809
Franchise and management		114,610			94,002			55,542
Segment Adjusted EBITDA		428,888			406,069			367,351
Corporate and other		(34,846	)		(36,180	)		(40,544	)
Adjusted EBITDA	$	394,042		$	369,889		$	326,807

(1)

This segment includes intercompany fees which are charged to our owned hotels to reflect that certain functions, such as licensing and management, are included in the franchise and management segment. Prior to the IPO, we charged aggregate fees of 2.0% (0.33% license fees for trademark rights and 1.67% management fee for management services) to our owned hotels. In connection with the IPO, we entered into a new franchise agreement with our owned hotels, which covers certain services as well as trademark rights, and a new management agreement and terminated the existing agreements with our owned hotels. The new agreements, which commenced April 14, 2014, provide for a franchise fee of 4.5% of gross room revenues and a management fee of 2.5% of gross operating revenues for our owned hotels. Our consolidated financial information by segment for periods prior to April 14, 2014 presented herein reflects the historical aggregate fees of 2.0%.

(2)

Includes revenues related to our brand management programs and other cost reimbursements. The portions of these fees that are charged to our owned hotels, which totaled $75.1 million, $68.4 million and $53.7 million for the years ended December 31, 2015, 2014 and 2013, respectively, are eliminated in the accompanying consolidated financial statements. The franchise agreement we entered into with our owned hotels upon effectiveness of the IPO also includes a reservation fee of 2.0% of gross room revenues, which is reflected in corporate and other.

(3)

Includes management, license, franchise, BMF, Returns and other cost reimbursements totaling $145.8 million, $125.4 million and $76.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. These fees are charged to owned hotels and are eliminated in the accompanying consolidated financial statements.

The table below provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income (loss) attributable to La Quinta Holdings’ stockholders for the years ended December 31, 2015, 2014 and 2013:

	2015			2014			2013
	(in thousands)
Adjusted EBITDA	$	394,042		$	369,889		$	326,807
Fixed asset impairment loss		(50,121	)		(5,308	)		(19,533	)
Income (loss) from discontinued operations		—			(377	)		8,636
Gain on sale from discontinued operations		—			—			10,714
Loss on sale		(4,088	)		—			—
Loss on retirement of assets		(445	)		(177	)		(359	)
Gain (loss) related to casualty disasters		(1,824	)		6,772			1,825
Loss on extinguishment of debt, net		—			(2,030	)		—
Equity Based Compensation		(18,814	)		(58,007	)		—
Severance Charges ⁽¹⁾		(11,021	)		—			—
Other gains (losses), net ⁽²⁾		4,347			821			(2,697	)
EBITDA		312,076			311,583			325,393
Interest expense		(86,614	)		(120,994	)		(148,806	)
Income tax expense		(22,487	)		(28,805	)		(3,665	)
Recognition of net deferred tax liabilities upon C-corp conversion		—			(321,054	)		—
Depreciation and amortization		(176,263	)		(174,137	)		(170,401	)
Non-controlling interests		(347	)		(3,890	)		1,455
Net income (loss) attributable to the Company	$	26,365		$	(337,297	)	$	3,976

(1)	Includes cash and non-cash charges relating to the departure of the Company’s former President and Chief Executive Officer.

(2)	Other gains (losses), net primarily consists of net income (loss) attributable to the BMF (which, over time, runs at a break-even level, but may reflect a profit or loss from period to period), insurance proceeds from business interruption and litigation reserve adjustments.

The following table presents assets for our reportable segments, reconciled to consolidated amounts as of December 31, 2015, 2014 and 2013:

	2015		2014 (1)		2013 (1)
	(in thousands)
Total Assets
Owned hotels	$	2,682,394	$	2,874,098	$	2,917,759
Franchise and management		192,284		191,410		192,191
Total segments assets		2,874,678		3,065,508		3,109,950
Corporate and other		111,166		114,265		51,761
Total	$	2,985,844	$	3,179,773	$	3,161,711

(1)

We have elected to early adopt ASU No. 2015-03 and ASU No. 2015-17 as of the fourth quarter of 2015. Accordingly, debt issuance costs in the amount of $26.2 million which were formerly classified as a non-current asset in deferred costs have been reclassified as an offset to long-term debt and net deferred tax assets in the amount of $59.7 million which were formerly classified as current assets at December 31, 2014 have been reclassified as an offset to non-current liabilities for 2014. For 2013, debt issuance costs in the amount of $8.1 million which were formerly classified as a non-current asset in deferred costs have been reclassified as an offset to long-term debt and no reclassification for deferred taxes was required.

The following table presents capital expenditures for our reportable segments, reconciled to our consolidated amounts:

	2015		2014		2013
	(in thousands)
Owned hotels	$	82,139	$	65,150	$	97,336
Franchise and management		—		—		—
Total segment capital expenditures		82,139		65,150		97,336
Corporate and other		18,637		13,480		18,193
Total	$	100,776	$	78,630	$	115,529