Times Change and USALI Has Now Changed With Them! Presented by: Arlene Ramirez, MBA, CHAE, CHE HFTP Global Vice President

Agenda History of the USALI, the committee that maintains it and the process of revising it. Examine some of the significant changes to the 11th Revised Edition of the USALI, as compared to the 10th Revised Edition, and the reasons for making the changes. Identify how some of the changes will affect future reporting within your organization.

History First edition published in 1926 and was entitled “Uniform Systems of Accounts of Hotels” First system of accounts in lodging industry and possibly first effort for any industry at the time Produced by the Hotel Association of New York In 1961 the American Hotel & Lodging Association (AH&LA) appointed the National Association of Accountants to develop a uniform system for small hotels and motels

History…. Book was revised in 1979 and then again in 1986 In 1996 a decision was made to combine both books and for the publication to be named “Uniform System of Accounts for the Lodging Industry”(USALI) November 2011 the process began to update the 10th Edition The latest version will be effective January 1, 2015

Purpose “to provide operating statements that are formatted to provide hotel owners, managers and other interested parties with information and data that are pertinent to the unique operating environment of the lodging industry.”

Who Makes Changes Hotel Association of New York AH&LA HFTP Copyright Financial Management Committee Education Institute HFTP Sponsor

FMC Members Individual Hotel Owners Hotel Chains Educators Public Accounting Smith Travel Research / PKF Consulting Owner Representatives / Asset Managers Management Companies Consultants

Owner / Asset Managers Kim Gauthier, Thayer Lodging Group Craig Mason, Host Hotels Howard Issacson, RLJ Lodging Trust Michelle Russo, Hotel AVE Larry Kaminsky, LaSalle Hotels Ray Martz, Pebblebrook Chad Crandell, CHM Hotels Jeff Carter, CW Capital Mike Denicola, Felcor Vicki Richman, HVS Hotel Management

Brands & Management Companies Marriott Four Seasons Starwood Peabody Hotels Hyatt Inntegrated Hospitality Management Fairmont Carlson Hotels JHM Hotels The Temling Group

Considerations Intended to be consistent with US Generally Accepted Accounting Principles (GAAP) To increase applicability worldwide some language has been adjusted so it is more global in nature Due to references in many industry contracts and documents, the 11th Edition must be followed in order to be “in conformity with USALI”

Changes Practices Industry Practices •Accounting Practice Technology Cluster Services Sustainability Distribution Channels Globalization Ratio Analysis New Terminology •Accounting Practice IFRS GAAP

Summary Operating Statement Operating Revenue Rooms Food and Beverage Other Operated Departments Miscellaneous Income Total Operating Revenue Used to be Misc. Income

Summary Operating Statement Undistributed Operating Expenses Administrative and General Information and Telecommunications Systems Sales and Marketing Property Operations and Maintenance Utilities Total Undistributed Expenses Gross Operating Profit Management Fees Income Before Non-Operating Income and Expenses Used to be Fixed Charges

Summary Operating Statement Non-Operating Income and Expenses Income Rent Property and Other Taxes Insurance Other Total Non-Operating Income and Expenses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) Less: Replacement Reserve EBITDA Less Replacement Reserve Used to be Net Income

Two Statements For Operators For Owner’s Ends with EBITDA less Replacement Reserve For Owner’s Deducts Interest, Depreciation and Amortization Ends with Net Income

Owners Ending EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) Interest, Depreciation, and Amortization Interest Depreciation Amortization Total Interest, Depreciation and Amortization Income Before Income Taxes Income Taxes Net Income

Multiple Departments Payroll Costs to Labor Costs Outsourced Labor recognized Aggregated Salaries and Wages for Management and Non- Management are presented in department schedules Service Charge Distribution is presented as a cost category Global approach taken with payroll tax and benefit categories Expat benefit categories added

Labor Reporting Labor Costs and Related Expenses Salaries, Wages, Contracted Labor and Bonuses Salaries and Wages Management Non-Management Sub-Categories as needed Sub-Total: Salaries and Wages Service Charge Distribution Contracted, Leased or Outsourced Labor Bonuses and Incentives Total Salaries, Wages, Service Charges, Contracted Labor and Bonuses Payroll-Related Expenses Payroll Taxes Supplemental Pay Employee Benefits Total Payroll Related Expenses Total Labor Costs and Related Expenses

Multiple Departments Gross versus Net applications (section added) Treatment of mandatory service charges, surcharges and gratuities A new expense category added for Cluster Services Department specific Reservation Expenses are charged to appropriate operating department All administrative telecommunications expenses are recorded in the Information and Telecommunications Systems department

Operating Departments Room Revenue Segmentation Package Revenue language clarified and package breakage treatment addressed Resort Fees moved to Misc. Income Rebates/subsidies for groups moved to a Contra Revenue account versus being a commissions Additional Complimentary Services and Gifts expense category F&B In-Room/Media Entertainment Mixed Ownership guidance

Rooms Segmentation

Service Charges

Food and Beverage Combined Food and Beverage Operations Audio Visual revenue recognition expanded Public Room set-up charges added Gift certificate revenue recognition expanded Cover Customer Changes in some expense categories

Food and Beverage

Gift Certificates Included in Miscellaneous Other Revenue are unused or forfeited deposits related to gift certificates that are not otherwise required to be escheated to the state or local jurisdiction, or un- presented and expired prepaid food and beverage coupons. Only the discounted value of the prepaid food and beverage coupons not redeemed, or the amount not required to be escheated to the state or local jurisdiction should be recorded as revenue.

Telecommunications No longer an Other Operated Department. Revenues and cost of sales moved to “Guest Communication” in Minor Operated Departments. Cost of administrative phone calls and internet connectivity moved to new “Information and Telecommunications Systems” department. Cost of complimentary phone calls and internet connectivity moved to new “Information and Telecommunications Systems” department. All other telecommunications related expenses (labor, maintenance, operating supplies) moved to new “Information and Telecommunications Systems” department.

Miscellaneous Income Department name changed from Rentals and Other Income to Miscellaneous Income. Items recorded here: Unused or forfeited Gift Cards or Gift Certificates, and un-presented or expired Prepaid Coupons Unused revenue from a package The entire amount of a mandatory resort fee Additional guidance provided regarding the definitions for Commissions, Business Interruption Insurance, Foreign Currency Exchange and Interest Income

Undistributed Departments Information & Telecommunication Systems Consolidate all hotel expenses associated for information and telecommunication systems to provide better line of sight cost management Includes cost of cell phones, administrative call and internet services, and complimentary call and internet services. System expenses categorized by type of technology or by area benefiting from technology solution

Undistributed Expenses Additional guidance regarding the handling of Foreign Currency Exchange income and expenses. Eliminated segregation of Sales and Marketing expenses. Clarified Revenue Management and Catering Sales Functions as Sales and Marketing expenses. Utility Taxes was eliminated as a separate expense category in the Utilities Department. Contract Services was added as an expense category in the Utilities Department.

Non-Operating Income and Expenses “Fixed Charges Section”. Changed title from “Rent, Property & Other Taxes and Insurance” to reflect that there are other items affecting the property income statement that are not from hotel operations. Revenue includes income from other parts of the facility that are not controlled or directed by hotel operations, such as interest income, antenna or billboard leases.

Non-Operating Income and Expenses Added category for owner specific expenses associated with the property not related to operations including asset manager fees and unrealized foreign exchange gains and losses. Added clarification that rent of buildings used for employee housing should be included herein. However, rent reimbursement to employees and the cost of operating employee housing is a Payroll Related Benefit.

Non-Operating Income and Expenses

Summary Financial Statements Included statement of comprehensive income which replaces income statement Included reference to International Financial Reporting Standards (IFRS) Included gift certificates and cards in current liability section Expanded explanation of inventories Expanded explanation of operating equipment Included explanation of pre-opening expenses Section 3 illustrates a statement of comprehensive income

Other Sections Financial Ratios and Operating Metrics Expanded Cover changed to Customer Utility Ratios expanded Foundation laid for tracking hotel’s environmental impact Revenue and Expense Guide Revenue Guide added Sortable and searchable format