-
Comparable owned hotel RevPAR increases 2.9%
-
Fees increase 11% from RevPAR growth across all brands, unit growth
-
Timeshare revenue increases 45%
-
Strong performance results in diluted EPS of $.10
BEVERLY HILLS, Calif. - April 28, 2004 - Hilton Hotels Corporation (NYSE:HLT)
today reported financial results for the first quarter ended March 31,
2004. Contributing to strong quarterly results were significant increases
in the company's management/franchise fee and timeshare businesses, along
with strong revenue per available room (RevPAR) gains at the company's
comparable owned hotels and each of the company's brands.
The company reported first quarter 2004 net income of $37 million,
versus $9 million in the 2003 quarter. Diluted net income per share was
$.10 in the first quarter, compared with $.02 in the 2003 period. The 2004
quarter was impacted by the following non-recurring items, which combined
to benefit the quarter by less than $.01 per share: 1) $4 million of pre-tax
losses on asset dispositions; 2) a $3 million pre-tax increase to interest
income related to interest received on a favorable settlement of a prior
year Federal income tax matter; and 3) a $2.5 million benefit to the tax
provision from the utilization of tax loss carryforwards.
The 2003 quarter included two non-recurring items (a charge related
to the impairment of certain public company equity securities held by the
company and a benefit from utilization of tax loss carryforwards) that
combined to adversely impact that quarter by approximately $.02 per share.
The 2004 first quarter also reflects the implementation of Financial
Accounting Standards Board Interpretation No. 46 (FIN 46), which resulted
in the consolidation of a previously unconsolidated managed hotel. The
implementation of FIN 46 resulted in an increase in other revenue and expenses
from managed and franchised properties and certain other expenses in the
2004 period. However, it had no impact on reported net income or net income
per share.
Hilton reported 2004 first quarter total company operating income of
$131 million (a 52 percent increase from $86 million in the 2003 period)
on total revenue of $994 million (an increase of 9 percent from $909 million
in the 2003 quarter.) Total company earnings before interest, taxes, depreciation,
amortization and non-recurring items ("Adjusted EBITDA") were $219 million
in the 2004 quarter, compared with $197 million in the 2003 period, an
increase of 11 percent. Adjusting for the impact of owned hotel sales since
the first quarter of 2003, the aforementioned non-recurring items in 2003
and the implementation of FIN 46, revenue, operating income and Adjusted
EBITDA increased 11 percent, 31 percent and 15 percent, respectively.
Owned Hotel Results
Hilton's owned hotels showed both occupancy and average daily rate
(ADR) increases during the quarter as a result of continued improvement
in business transient and group travel. In addition, many of the company's
owned hotels in U.S. gateway cities benefited from increased demand from
international visitors (primarily from Europe due to the weak dollar),
while resort and leisure destinations benefited from continuing strong
leisure demand.
Company-owned hotels in New York, the Washington, D.C. area, Hawaii
and Phoenix posted particularly strong results in the quarter. San Francisco,
while improving, remains a generally soft market. As anticipated, the company's
owned hotels in Chicago posted weak results in the quarter owing to a reduction
in the number of citywide conventions in the market compared to 2003.
Across all brands, revenues from the company's owned hotels (majority
owned and controlled hotels) in the first quarter were essentially flat
with the 2003 period at $482 million, due primarily to property sales.
Total revenues from comparable owned properties were up approximately 6
percent in the quarter. RevPAR from comparable owned hotels increased 2.9
percent in the quarter (in spite of weakness in Chicago which adversely
impacted RevPAR growth by two points), with occupancy increasing 1.6 points
to 68.3 percent and ADR increasing 0.6 percent to $146.65. Group room nights
(up more than 3 percent) and revenues from food-and-beverage were both
strong in the quarter.
Total owned hotel expenses in the first quarter were essentially flat
with the year-ago period at $371 million, again as a result of property
sales. Expenses at the comparable owned hotels increased approximately
5 percent in the quarter, due primarily to the increase in occupied rooms.
Excluding the impact of property sales on owned hotel revenues and
expenses, owned hotel margins in the 2004 first quarter, when compared
to the 2003 quarter, improved 50 basis points to 23 percent.
System-wide RevPAR; Management/Franchise Fees
Improved business trends, particularly in business transient travel,
along with continued strong leisure demand and favorable year-over-year
comparisons, enabled all of Hilton's brands to report significant RevPAR
increases in the first quarter, contributing to an exceptionally strong
quarter for the company's fee-based business. Systemwide RevPAR growth
at the company's brands (including franchise properties) was as follows:
Hilton Garden Inn, 10.7 percent; Homewood Suites by Hilton, 7.1 percent;
Doubletree, 6.7 percent; Hilton, 6.2 percent; Hampton Inn, 6.0 percent;
and Embassy Suites, 4.5 percent.
Management and franchise fees for the quarter totaled $89 million,
an 11 percent increase from $80 million in the 2003 period. The aforementioned
RevPAR increases accounted for approximately half of the fee increase,
with the addition of new units accounting for the other half.
Brand Development/Unit Growth
RevPAR index figures (year-to-date February 2004 as measured by Smith
Travel Research) show continued and significant occupancy and rate premiums
for the following Hilton brands: Embassy Suites, 123.9; Homewood Suites
by Hilton, 122.3; Hampton Inn, 118.9; Hilton Garden Inn, 118.0; and Hilton,
109.8. Doubletree's RevPAR index for the period was 97.7.
In the first quarter 2004, the company added 27 properties and 3,238
rooms to its system as follows: Hampton Inn, 14 hotels and 1,196 rooms;
Hilton Garden Inn, 8 hotels and 1,206 rooms; Homewood Suites by Hilton,
2 hotels and 185 rooms; Doubletree, 1 hotel and 290 rooms; Conrad, 1 hotel
and 313 rooms; and Hilton Grand Vacations, 1 property and 48 units. Fifteen
hotels and 2,852 rooms were removed from the system during the quarter
due primarily to product quality issues. At March 31, 2004, the Hilton
system consisted of 2,185 properties and 348,869 rooms.
The company had approximately 400 hotels and 55,000 rooms in its development
pipeline at March 31, 2004. Hilton has more hotel rooms under construction
in the U.S. than any other company, according to data from Smith Travel
Research.
Brand development activity in the first quarter and April 2004 included
the opening of the new 450-room Hilton Omaha at the Omaha Convention Center.
In January, the company introduced "Make It Hampton," an innovative brand
transformation program that will bring a wide range of new products and
services to the 1,260-unit Hampton Inn system by 2005.
Also during the quarter, Hampton Inn and Hilton Garden Inn opened their
15th and sixth hotels, respectively, in Canada, while Embassy Suites announced
development of its first hotel in Mexico, scheduled to open in Mexico City
in early 2005. The company also announced development of a new 387-room
Hilton and 79-suite Homewood Suites by Hilton hotel at the new Buffalo
Thunder Resort near Santa Fe, New Mexico. Conrad Hotels opened its newest
property in Bali and signed an agreement to manage a new Conrad on the
Las Vegas Strip; the first freestanding Conrad Hotel in North America,
located in Miami, is scheduled to open in summer 2004. Additionally, a
survey of customers by Business Travel News named Homewood Suites by Hilton
the #1 upper upscale extended-stay brand.
Hilton Grand Vacations
Continuing a string of strong performances, the company's vacation
ownership business, Hilton Grand Vacations Company (HGVC), posted another
exceptional quarter, reporting first quarter revenue of $109 million, an
increase of 45 percent from $75 million in the 2003 period. First quarter
expenses were $82 million in the 2004 quarter compared with $56 million
in the 2003 period. Overall unit sales in the quarter were up 29 percent,
while the average unit sales price increased 2 percent.
HGVC results were strong across the system, with particularly robust
sales at its new properties in Orlando and Las Vegas. The first phase of
96 units at the Orlando property (the company's second timeshare development
in that market) is virtually sold out, and in Las Vegas, the first phase
of 283 units at HGVC's new property on the Las Vegas Strip (its third development
in Las Vegas) is exceeding original expectations in terms of unit sales
and profitability. Hilton recently announced it would begin development
of the second phase (a 38-story, 431-unit tower) of the Las Vegas Strip
property by year-end 2004, with occupancy expected in summer 2006. Upon
opening of Phase II, approximately half of the planned four-tower, 1,577-unit
project will have been completed.
Distribution/Technology
During the first quarter, Hilton reported significant increases in
both call volume and gross reservations, confirming the improving demand
trends the company has experienced since the third quarter 2003. Year-to-date
March 31, call volume through Hilton's call centers was up 10 percent (up
17 percent in March alone) over the 2003 period, while gross reservations
through Hilton Reservations Worldwide, the Global Distribution System and
all Internet sources increased 16 percent (up 24 percent in March alone.)
Reservations made via Hilton's proprietary brand websites continue
to grow at a rapid pace. In February 2004, the company reported record-breaking
gross online reservations and revenue from bookings on its brand websites;
such reservations increased 34 percent over February 2003, while expected
revenue from such bookings increased 41 percent. For the month, 83 percent
of all online room nights came directly through the company's own brand
websites. Online reservations (from all sources) account for roughly 13
percent of Hilton's total bookings.
During the quarter the company successfully tested self-service check-in
kiosks at the Hilton New York and Hilton Chicago. Based on enthusiastic
customer response on ease-of-use and time-saving, the company in 2004 will
be placing kiosks at the majority of its owned hotels and several of its
larger managed properties.
Corporate Finance
At March 31, 2004, Hilton had total debt of $3.7 billion (net of $325
million allocated to Caesars Entertainment, Inc. and $100 million of debt
resulting from the consolidation of a managed hotel upon the implementation
of FIN 46, which is non-recourse to Hilton.) This represents a reduction
of $100 million during the first quarter. Approximately 15 percent of the
company's debt is floating rate debt. Cash and equivalents totaled approximately
$144 million at March 31, 2004. The company's average basic and diluted
share counts for the first quarter were 381 million and 389 million, respectively.
Consolidated net interest expense (interest expense net of interest
and dividend income) declined $8 million in the first quarter due to lower
average debt balances and the aforementioned benefit to interest income
due to the settlement of a prior year Federal tax matter.
Hilton's debt currently has an average life of 9.5 years, at an average
cost of approximately 6.6 percent.
At March 31, 2004, the company had approximately $770 million of available
capacity under its line of credit.
The company's effective tax rate in the first quarter was 34 percent.
During the quarter, the company's provision for income tax benefited from
the utilization of tax loss carryforwards ($2.5 million) as a result of
the sale of the Doubletree La Posada. Excluding this benefit, the company's
effective tax rate was 38.5 percent.
Total hotel capital expenditures in the quarter were $28 million, with
an additional $9 million expended for timeshare development.
Revised 2004 Outlook
The company provided a revised and more optimistic outlook for 2004
based on its strong first quarter results, along with the following factors:
a continued strengthening of the U.S. economy; steady improvement in business
transient and group travel expected to result in increased pricing power;
an increase in international visitors from Europe to such U.S. gateway
destinations as New York and Washington, D.C.; and an anticipated strong
summer travel season. Strong leisure travel is expected to benefit such
markets as San Diego, Santa Barbara and Hawaii, while Boston and New York
will benefit this summer from the two political conventions. Hawaii continues
to experience robust visitation from the U.S. mainland, and is seeing improvement
in travel from Japan.
Hilton provided the following updated guidance for full-year 2004:
-
Total revenue: $4.155 billion range
-
Total Adjusted EBITDA: $990 million range
-
Total operating income: $635 million range
-
Comparable owned hotel RevPAR: Increase of 5 - 7%
-
Diluted earnings per share: Low to mid $.50 range
Total capital spending in 2004 remains on track with previous guidance,
approximately $275 million, broken out as follows: approximately $155 million
for routine improvements and technology, $60 million for timeshare projects
and $60 million for hotel special projects.
Unit growth for 2004 continues to anticipate 115-130 hotels and 15,000-17,000
rooms added to the Hilton system.
"The positive trends that we began seeing in the fourth quarter last
year gained strength as we entered 2004, resulting not only in a very strong
first quarter but confirming our belief that the turnaround in the lodging
business is firmly underway," said Stephen F. Bollenbach, president and
chief executive officer of Hilton Hotels Corporation. "All facets of our
business performed extremely well, and the indicators we are currently
seeing -- such as the significant increases in call and reservations volume,
improved group business and a steady decline in full-service supply growth
-- bode well certainly for the remainder of this year and, we believe,
for future years.
"Achieving a more desirable mix of business as a result of increased
business and group travel should enable us to command greater pricing power
in 2004 than at any time in the last four years; this year, for the first
time since 2000, we expect that about half of our owned hotel RevPAR growth
will come from room rate increases. Along with our continuing focus
on cost management, this will help us grow our margins."
Mr. Bollenbach continued: "We are particularly excited about the performance
of our fee-based and timeshare businesses, both of which have shown consistently
outstanding results over the last several quarters. Hotel owners continue
to prefer Hilton brands due to the RevPAR premiums these brands command,
as well as for innovative programs such as `Make It Hampton', and our OnQ
technology platform.
Mr. Bollenbach concluded: "Travelers are taking to the road in ever-increasing
numbers, a strong summer travel season is just around the corner and the
long-awaited industry recovery is on track. We are enthusiastic about the
outlook for our industry and our company, and confident in our ability
to leverage our owned asset base, Family of Brands, distribution capabilities
and technology leadership position to take full advantage of this upswing
and grow our company for our shareholders."
HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)
Three Months Ended
March 31,
2003 2004 %
Change
---------- ---------- ---------
Revenue
Owned hotels
$483 $482
-%
Leased hotels
24 26
8
Management and franchise fees
80 89
11
Timeshare and other income
83 120
45
---------- ----------
670 717
7
Other revenue from managed and
franchised properties
239 277
16
---------- ----------
909 994
9
Expenses
Owned hotels
372 371
-
Leased hotels
23 25
9
Depreciation and amortization
86 83
(3)
Impairment loss and related costs
17 -
-
Other operating expenses
75 101
35
Corporate expense, net
19 19
-
---------- ----------
592 599
1
Other expenses from managed and
franchised properties
239 274
15
---------- ----------
831 873
5
Operating income from
unconsolidated affiliates
8 10
25
---------- ----------
Operating income
86 131
52
Interest and dividend income
7 10
43
Interest expense
(75) (70)
(7)
Net interest from unconsolidated
affiliates and non-controlled
interests
(5) (6)
20
Net loss on asset dispositions
(1) (4)
300
---------- ----------
Income before taxes and minority
and non-controlled interests
12 61
408
Provision for income taxes
(1) (21)
-
Minority and non-controlled
interests, net
(2) (3)
50
---------- ----------
Net income
$9 $37
311%
========== ==========
Net income per share
Basic
$.02 $.10
400%
========== ==========
Diluted
$.02 $.10
400%
========== ==========
Average shares - basic
377 381
1%
========== ==========
Average shares - diluted
403 389
(3)%
========== ==========
Results in the 2004 first quarter reflect the
implementation,
effective January 1, 2004, of Financial Accounting
Standards Board
Interpretation No. 46, revised December 2003 (FIN
46), "Consolidation
of Variable Interest Entities." FIN 46 requires
that a variable
interest entity (VIE), as defined, be consolidated
by the company
that is subject to the majority of the risk of
loss from the VIE's
activities, or is entitled to receive a majority
of the entity's
residual returns, or both. We identified
one management contract,
which due to the terms of an existing performance
guarantee,
qualifies as a VIE and of which we are the primary
beneficiary. As a
result, this previously unconsolidated managed
hotel has been
consolidated as of January 1, 2004. The
revenue and operating
expenses of this property are included in other
revenue and expenses
from managed and franchised properties in the
accompanying financial
highlights. Implementation of FIN 46 had
no impact on reported net
income, net income per share or Adjusted EBITDA.
HILTON
HOTELS CORPORATION
U.S. Owned Statistics (1)
Three Months Ended
March 31,
2003 2004 %/pt Change
--------- --------- ------------
Hilton
Occupancy
66.8% 68.6% 1.8 pts
Average Rate
$152.96 $153.32
0.2%
RevPAR
$102.13 $105.22
3.0%
All Other
Occupancy
66.6% 66.3% (0.3) pts
Average Rate
$104.81 $106.90
2.0%
RevPAR
$69.77 $70.91
1.6%
Total
Occupancy
66.7% 68.3% 1.6 pts
Average Rate
$145.79 $146.65
0.6%
RevPAR
$97.30 $100.15
2.9%
(1) Statistics are for comparable hotels, and include
only those
hotels in the system as of March
31, 2004, and owned by us since
January 1, 2003.
HILTON HOTELS CORPORATION
Systemwide Statistics (1)
Three Months Ended
March 31,
2003 2004 %/pt Change
-------- -------- ------------
Hilton
Occupancy
64.0% 67.0% 3.0 pts
Average Rate
$127.42 $129.31
1.5%
RevPAR
$81.56 $86.60
6.2%
Hilton Garden Inn
Occupancy
61.1% 66.5% 5.4 pts
Average Rate
$95.30 $96.85
1.6%
RevPAR
$58.19 $64.43
10.7%
Doubletree
Occupancy
62.8% 66.6% 3.8 pts
Average Rate
$102.73 $103.32
0.6%
RevPAR
$64.46 $68.78
6.7%
Embassy Suites
Occupancy
67.5% 70.0% 2.5 pts
Average Rate
$122.00 $122.84
0.7%
RevPAR
$82.33 $86.03
4.5%
Homewood Suites by Hilton
Occupancy
66.6% 70.5% 3.9 pts
Average Rate
$95.10 $96.38
1.3%
RevPAR
$63.37 $67.90
7.1%
Hampton
Occupancy
61.0% 63.2% 2.2 pts
Average Rate
$77.74 $79.54
2.3%
RevPAR
$47.43 $50.26
6.0%
Other
Occupancy
52.8% 64.5% 11.7 pts
Average Rate
$117.94 $120.29
2.0%
RevPAR
$62.25 $77.53
24.5%
(1) Statistics are for comparable hotels, and include
only those
hotels in the system as of March
31, 2004, and owned, operated or
franchised by us since January
1, 2003.
HILTON HOTELS CORPORATION
Supplementary Statistical Information
March
2003
2004
Number of
Number of
Properties Rooms Properties Rooms
----------- -------------------- --------
Hilton
Owned
38 28,568
36 27,492
Leased
1 499
1 499
Joint Venture
7 2,737
10 4,177
Managed
17 10,601
24 13,750
Franchised
168 45,213
158 42,361
----------- -------- ----------- --------
231 87,618
229 88,279
Hilton Garden Inn
Owned
1 162
1 162
Joint Venture
2 280
2 280
Managed
- -
3 391
Franchised
160 21,941
185 25,383
----------- -------- ----------- --------
163 22,383
191 26,216
Doubletree
Owned
9 3,156
8 2,894
Leased
6 2,151
6 2,144
Joint Venture
30 8,868
25 7,427
Managed
57 15,375
38 10,035
Franchised
52 11,787
73 17,020
----------- -------- ----------- --------
154 41,337
150 39,520
Embassy Suites
Owned
5 1,023
4 881
Joint Venture
27 7,279
27 7,279
Managed
57 14,699
54 14,136
Franchised
82 18,540
89 20,257
----------- -------- ----------- --------
171 41,541
174 42,553
Homewood Suites by Hilton
Owned
3 398
3 398
Managed
34 4,135
36 4,304
Franchised
85 9,302
93 10,243
----------- -------- ----------- --------
122 13,835
132 14,945
Hampton
Owned
1 133
1 133
Managed
23 3,018
35 4,461
Franchised
1,198 121,502 1,225 123,409
----------- -------- ----------- --------
1,222 124,653 1,261 128,003
Timeshare
28 3,289
31 3,692
Other
Owned
1 300
1 300
Joint Venture
3 1,392
3 1,394
Managed
12 3,639
12 3,559
Franchised
- -
1 408
----------- -------- ----------- --------
16 5,331
17 5,661
Total
Owned
58 33,740
54 32,260
Leased
7 2,650
7 2,643
Joint Venture
69 20,556
67 20,557
Managed
200 51,467
202 50,636
Timeshare
28 3,289
31 3,692
Franchised
1,745 228,285 1,824 239,081
----------- -------------------- --------
TOTAL PROPERTIES
2,107 339,987 2,185 348,869
=========== ==================== ========
Change to
March 2003 December 2003
Number of Number
of
Properties Rooms Properties Rooms
----------- ------- ----------- -------
Hilton
Owned
(2) (1,076) -
(4)
Leased
- -
- -
Joint Venture
3 1,440
- -
Managed
7 3,149
- (353)
Franchised
(10) (2,852) (1)
(376)
----------- ------- ----------- -------
(2) 661
(1) (733)
Hilton Garden Inn
Owned
- -
- -
Joint Venture
- -
- -
Managed
3 391
- -
Franchised
25 3,442
8 1,206
----------- ------- ----------- -------
28 3,833
8 1,206
Doubletree
Owned
(1) (262) (1)
(262)
Leased
- (7)
- -
Joint Venture
(5) (1,441) -
-
Managed
(19) (5,340) (6) (1,550)
Franchised
21 5,233
2 718
----------- ------- ----------- -------
(4) (1,817) (5) (1,094)
Embassy Suites
Owned
(1) (142)
- -
Joint Venture
- -
- -
Managed
(3) (563)
- -
Franchised
7 1,717
- -
----------- ------- ----------- -------
3 1,012
- -
Homewood Suites by Hilton
Owned
- -
- -
Managed
2 169
- -
Franchised
8 941
2 185
----------- ------- ----------- -------
10 1,110
2 185
Hampton
Owned
- -
- -
Managed
12 1,443
1 138
Franchised
27 1,907
5 322
----------- ------- ----------- -------
39 3,350
6 460
Timeshare
3 403
1 48
Other
Owned
- -
- -
Joint Venture
- 2
- 1
Managed
- (80)
1 313
Franchised
1 408
- -
----------- ------- ----------- -------
1 330
1 314
Total
Owned
(4) (1,480) (1)
(266)
Leased
- (7)
- -
Joint Venture
(2) 1
- 1
Managed
2 (831)
(4) (1,452)
Timeshare
3 403
1 48
Franchised
79 10,796 16
2,055
----------- ------- ----------- -------
TOTAL PROPERTIES
78 8,882
12 386
=========== ======= =========== =======
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of
Adjusted EBITDA to EBITDA and Net Income
Historical Data
($ in millions)
Three Months Ended
March 31,
2003 2004
% Change
----------- ----------- ---------
Adjusted EBITDA
$197 $219
11%
Proportionate share of
depreciation and amortization
of unconsolidated affiliates
(7) (7)
-
Non-recurring items
(17) -
-
Operating interest and dividend
income
(1) (1)
-
Operating income from non-
controlled interests
- 3
-
Net loss on asset dispositions
(1) (4)
300
Minority and non-controlled
interests, net
(2) (3)
50
----------- -----------
EBITDA
169 207
22
Depreciation and amortization
(86) (83)
(3)
Interest expense, net
(73) (66)
(10)
Provision for income taxes
(1) (21)
-
----------- -----------
Net income
$9 $37
311%
=========== ===========
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of
Adjusted EBITDA to EBITDA and Net Income
Future Performance - Full Year 2004 Outlook
($ in millions, except per share amounts)
Estimated
Full Year
2004
Adjusted EBITDA
$990
Proportionate share of depreciation and amortization
of
unconsolidated affiliates
(30)
Operating interest and dividend income
(3)
Operating income from non-controlled interests
8
Net loss on asset dispositions
(4)
Minority and non-controlled interests, net
(9)
EBITDA
952
Depreciation and amortization
(332)
Interest expense, net
(280)
Provision for income taxes
(132)
Net income
$208
Diluted EPS
$.53
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Owned Hotel Revenue and Expenses
Adjusted for Asset Sales
($ in millions)
Three Months Ended
March 31,
2003 2004
% Change
------------ ----------- ---------
Revenue - owned hotels
$483 $482
Less sold hotels
(30) (3)
------------ -----------
Revenue - comparable owned hotels
$453 $479
6%
============ ===========
Expenses - owned hotels
$372 $371
Less sold hotels
(21) (2)
------------ -----------
Expenses - comparable owned hotels
$351 $369
5%
============ ===========
NON-GAAP FINANCIAL MEASURES
Regulation G, "Conditions for Use of
Non-GAAP Financial Measures,"
prescribes the conditions for use of non-GAAP financial
information
in public disclosures. We believe that our presentation
of EBITDA and
Adjusted EBITDA, which are non-GAAP financial measures,
are important
supplemental measures of operating performance to investors.
The
following discussion defines these terms and why we believe
they are
useful measures of our performance.
EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation
and amortization
(EBITDA) is a commonly used measure of performance in
our industry
which we believe, when considered with measures calculated
in
accordance with United States Generally Accepted Accounting
Principles
(GAAP), gives investors a more complete understanding
of operating
results before the impact of investing and financing
transactions and
income taxes and facilitates comparisons between us and
our
competitors. Management has historically adjusted EBITDA
when
evaluating operating performance because we believe that
the inclusion
or exclusion of certain recurring and non-recurring items
described
below is necessary to provide the most accurate measure
of our core
operating results and as a means to evaluate period-to-period
results.
We have chosen to provide this information to investors
to enable them
to perform more meaningful comparisons of past, present
and future
operating results and as a means to evaluate the results
of core
on-going operations. We do not reflect such items when
calculating
EBITDA; however, we adjust for these items and refer
to this measure
as Adjusted EBITDA. We have historically reported this
measure to our
investors and believe that the continued inclusion of
Adjusted EBITDA
provides consistency in our financial reporting. We use
Adjusted
EBITDA in this press release because we believe it is
useful to
investors in allowing greater transparency related to
a significant
measure used by management in its financial and operational
decision making. Adjusted EBITDA is among the more significant
factors
in management's internal evaluation of total company
and individual
property performance and in the evaluation of incentive
compensation
related to property management. Management also uses
Adjusted EBITDA
as a measure in determining the value of acquisitions
and
dispositions. Adjusted EBITDA is also widely used by
management in the
annual budget process. Externally, we believe these measures
continue
to be used by investors in their assessment of our operating
performance and the valuation of our company. Adjusted
EBITDA for 2004
reflects EBITDA adjusted for the following items:
-- Gains and Losses on Asset Dispositions
and Non-Recurring
Items
We exclude from Adjusted EBITDA the
effect of gains and
losses on asset dispositions and non-recurring
items, such
as asset write-downs and impairment
losses. We believe the
inclusion of these items is not consistent
with reflecting
the on-going performance of our assets.
Management
believes it is useful to exclude gains
and losses on asset
dispositions as these amounts are
not reflective of our
operating performance or the performance
of our assets and
the amount of such items can vary
dramatically from period
to period. The timing and selection
of an asset for
disposition is subject to a number
of variables that are
generally unrelated to our on-going
operations.
-- Proportionate Share of Depreciation
and Amortization of
Unconsolidated Affiliates
Our consolidated results include the
equity earnings from our
unconsolidated affiliates after the
deduction of our
proportionate share of depreciation
and amortization expense
from unconsolidated affiliates. We
exclude our proportionate
share of depreciation and amortization
expense from
unconsolidated affiliates from Adjusted
EBITDA to provide a
more accurate measure of our proportionate
share of core
operating results before investing
activities and to provide
consistency with the performance measure
we use for our
consolidated properties.
-- Operating Interest and Dividend
Income
Interest and dividend income from investments
related to
operating activities is included in
our calculation of
Adjusted EBITDA. We consider this
income, primarily interest
on notes receivable issued to properties
we manage or
franchise and dividend income from
investments related to the
development of our core businesses,
to be a part of our core
operating results.
-- Non-Controlled Interest
The consolidation of non-controlled
interests in accordance
with Financial Accounting Standards
Board Interpretation No.
46 (FIN 46) resulted in an increase
in certain revenue and
expenses in the 2004 period, however,
it had no net impact
to our consolidated net income. We
exclude from Adjusted
EBITDA the corresponding amounts of
operating income, net
interest expense, tax provision and
non-controlled interest
reported on our income statement to
the extent these amounts
belong to other ownership interests.
These exclusions are
shown in their respective lines on
the Reconciliation of
Adjusted EBITDA to EBITDA and Net
Income.
-- Minority Interest, Net
We exclude the minority interest in
the income or loss of our
consolidated joint ventures because
these amounts effectively
include our minority partners' proportionate
share of
depreciation, amortization, interest
and taxes, which are
excluded from EBITDA.
Limitations on the Use of Non-GAAP
Measures
The use of EBITDA and Adjusted EBITDA
has certain limitations. Our
presentation of EBITDA and Adjusted EBITDA may be different
from the
presentation used by other companies and, therefore,
comparability may
be limited. Depreciation expense for various long-term
assets,
interest expense, income taxes and other items have been
and will be
incurred and are not reflected in the presentation of
EBITDA or
Adjusted EBITDA. Each of these items should also be considered
in the
overall evaluation of our results. Additionally, EBITDA
and Adjusted
EBITDA do not consider capital expenditures and other
investing
activities and should not be considered as a measure
of our liquidity.
We compensate for these limitations by providing the
relevant
disclosure of our depreciation, interest and income tax
expense,
capital expenditures and other items both in our reconciliations
to
the GAAP financial measures and in our consolidated financial
statements, all of which should be considered when evaluating
our
performance.
EBITDA and Adjusted EBITDA are used
in addition to and in conjunction with results presented in accordance
with GAAP. EBITDA and Adjusted EBITDA should not be considered as an alternative
to net income, operating income, or any other operating performance measure
prescribed by GAAP, nor should these measures be relied upon to the exclusion
of GAAP financial measures. EBITDA and Adjusted EBITDA reflect additional
ways of viewing our operations that we believe, when viewed with our GAAP
results and the reconciliations to the corresponding GAAP financial measures,
provide a more complete understanding of factors and trends affecting our
business than could be obtained absent this disclosure. Management strongly
encourages investors to review our financial information in its entirety
and not to rely on a single financial measure. |
This press release contains "forward-looking statements" within the
meaning of Federal securities law, including statements concerning business
strategies and their intended results, and similar statements concerning
anticipated future events and expectations that are not historical facts.
|
