| BEVERLY HILLS, Calif. - July 28, 2003 -- Hilton
Hotels Corporation (NYSE:HLT) today reported financial results for the
second quarter and six months ended June 30, 2003.
Contributing to generally weak quarterly results were the conflict in
Iraq, and continuing pressure on average daily room rates (ADR). Margins
in the quarter were adversely impacted primarily by lower ADR, along with
increased healthcare and other insurance costs. The quarter benefited from
a combination of lower depreciation and amortization expense and reduced
net interest expense when compared with the 2002 quarter.
Hilton reported second quarter net income of $54 million, versus $76
million in the 2002 quarter. Diluted net income per share was $.14 in the
second quarter 2003, compared with $.20 in the 2002 quarter.
Hilton reported 2003 second quarter total company operating income of
$164 million (compared with $203 million in the 2002 period), on total
revenue of $983 million (compared with $1.035 billion in the corresponding
2002 period). Total company earnings before interest, taxes, depreciation,
amortization and non-recurring items ("Adjusted EBITDA," see attachment)
were $252 million in the 2003 second quarter, compared with $303 million
in the 2002 quarter.
Owned Hotel Results
Many of Hilton's owned hotels experienced solid occupancy levels during
the second quarter primarily as a result of comparatively strong leisure-oriented
business. The company's properties in New York, Boston, Chicago, Hawaii,
Phoenix, New Orleans and Santa Barbara posted occupancy levels of 75 percent-plus
during the quarter.
Across all brands, revenue from the company's owned hotels (majority
owned and controlled hotels) totaled $531 million in the second quarter,
a 7 percent decline from the 2002 period, while total expenses increased
2 percent to $376 million. The company's comparable owned hotels also reported
a 7 percent revenue decline and 2 percent expense increase during the quarter.
The primary factor behind the revenue decline was a 6.9 percent RevPAR
decline from comparable owned properties during the quarter.
Occupancy at these hotels declined to 73.6 percent from 76.0 percent
a year ago. ADR declined 3.9 percent to $146.07 owing to soft demand and
limited pricing power from business travelers and higher-rated groups.
Additionally, reduced business from food and beverage and other hotel items
adversely impacted owned hotel revenues.
Owned hotel profitability was impacted primarily by the aforementioned
RevPAR, food and beverage and other revenue declines, as well as higher
insurance costs.
System-wide RevPAR; Management/Franchise Fees
Second quarter system-wide RevPAR at each of the company's brands (including
franchise properties) declined as follows:
Hampton Inn, 2.1 percent;
Hilton Garden Inn, 2.3 percent;
Homewood Suites by Hilton, 2.5 percent;
Embassy Suites, 3.7 percent;
Doubletree, 6.0 percent, and
Hilton, 6.1 percent.
Management and franchise fees for the quarter totaled $88 million, compared
with $87 million a year ago. RevPAR declines were offset by additional
fees from managed and franchised hotels added to the system.
Brand Development/Unit Growth
Year-to-date June 2003 (the latest period for which data is available),
all but one of the company's brands commanded significant market premiums
over their respective segment competitors. With 100 representing a brand's
fair share of the market, the Hilton brands (according to Smith Travel
Research) posted RevPAR index numbers as follows for the first six months
of 2003: Embassy Suites, 125.2; Homewood Suites by Hilton, 119.5; Hampton
Inn, 118.8; Hilton Garden Inn, 114.0; Hilton, 108.7, and Doubletree, 99.3.
In the second quarter, the company added 19 hotels and 2,566 rooms to
its system as follows:
Hampton Inn, 8 hotels and 648 rooms;
Hilton Garden Inn, 4 hotels and 460 rooms;
Doubletree, 3 hotels and 598 rooms;
Homewood Suites by Hilton, 2 hotels and 204 rooms;
Embassy Suites, 1 hotel and 248 rooms;
other (the former Adam's Mark in Memphis as noted below), 1 hotel and
408
rooms.
Seven hotels and 1,502 rooms were removed from the system during the
quarter. As of June 30, 2003, the Hilton system consisted of 2,119 properties
and 341,051 rooms.
During the quarter, the company announced the addition to the system
of five franchised Doubletree hotels in Tennessee, four of which are in
the process of being converted from an independent brand, and the other
(in Memphis) which has been converted from a Hilton.
The former Adam's Mark hotel in Memphis will become a 408-room Hilton
in spring 2004 following a major renovation, and the company also during
the quarter secured the management contract for the 426-room Hilton Cancun
Beach & Golf Resort in Mexico, previously a Hilton franchised hotel.
In early July, the company announced a management agreement for a new
203-room Conrad Hotel in Miami, Florida, scheduled to open in January 2004.
Hilton Grand Vacations
The company's vacation ownership business, Hilton Grand Vacations Company
(HGVC), reported second quarter revenue (included in "other fees and income")
of $79 million, flat with the 2002 quarter, while second quarter expenses
(included in "other operating expenses") were $58 million, a $4 million
increase from the 2002 period.
Overall unit sales were up 9 percent over the 2002 period, with strong
sales at the company's new projects in Las Vegas (first phase opening late
2003) and Orlando. The first phase of the Orlando project is expected to
be virtually sold out when it opens in early 2004. The average unit sales
price increased 7 percent across the HGVC system during the quarter. HGVC
revenue and profitability during the quarter were impacted by the mix of
sales, the required accounting for the new Las Vegas and Orlando projects;
the accounting for the Hilton Club in New York, and the sale of timeshare
receivables in June and November 2002.
Hilton-Branded Websites, Technology
Internet bookings continue to be strong on Hilton's branded websites.
The company said the month of June saw record online reservations, total
room nights and gross sales from its proprietary brand websites. During
that month, these totals (which exclude online reservations at Hilton International
properties) were approximately 437,000 reservations (or approximately 14,500
per day); 857,000 room nights, and $100 million in gross sales. Approximately
13 percent of the company's total reservations are currently made via the
internet, with approximately 80 percent of those made through Hilton's
proprietary brand websites.
Hilton's proprietary OnQ system -- a single technology platform linking
the company's brands and hotels to enhance customer service and loyalty
and maximize operational efficiencies -- is on track for installation at
virtually all of the company's 2,100-plus hotels by year-end 2003.
Corporate Finance
At June 30, 2003, Hilton had total debt of $4.11 billion (net of $325
million of debt allocated to Park Place Entertainment), a reduction of
$33 million during the second quarter. Approximately 23 percent of the
company's debt is floating rate debt. Cash and equivalents totaled approximately
$59 million at June 30, 2003. The company's average basic and diluted shares
outstanding for the
second quarter were 377 million and 395 million, respectively.
Consolidated net interest expense (interest expense net of interest
and dividend income) declined $4 million in the second quarter due to lower
average debt balances and interest rates. Hilton's debt currently has an
average life of nine years, at an average cost of approximately 6.2 percent.
At June 30, 2003, the company had approximately $730 million of available
capacity under its various lines of credit.
During the quarter, the company sold $575 million of convertible senior
notes at 3.375 percent. The notes will be convertible into shares of Hilton's
common stock at a conversion price of $22.50 per share upon the occurrence
of certain events. The company used the proceeds to redeem all of its 5
percent convertible subordinated notes due 2006, and to repay indebtedness
under its existing revolving credit facility.
The company's effective tax rate for the second quarter was approximately
37.1 percent, versus 28.2 percent last year. Adjusting for the impact of
the tax benefit on the sale of Harrison Conference Centers, the company's
effective tax rate was 37.3 percent in the 2002 quarter.
Total hotel capital expenditures in the quarter were $45 million, with
an additional $21 million expended for timeshare development.
Other Items
As previously mentioned, the 2003 second quarter saw a decline in consolidated
depreciation and amortization expense. This decline of $8 million was due
to property sales and a $5 million one-time depreciation expense adjustment
made at certain properties.
Net corporate expense totaled $19 million in the second quarter, compared
to $13 million in the 2002 period. Corporate expense in the 2002 quarter
included a benefit of approximately $4 million related to the reversal
of a note receivable bad debt reserve.
Six-Month Results
For the six-month period ended June 30, 2003, Hilton reported net income
of $63 million, compared to $110 million in the corresponding 2002 period.
Diluted net income per share was $.17 versus $.30 in the 2002 period. Operating
income for the six months was $250 million (compared with $340 million
in the 2002 period) based on revenue of $1.90 billion (versus $1.96 billion
in the 2002 period). For the 2003 six-month period, when compared to the
same period last year, total company Adjusted EBITDA declined 16 percent
to $449 million.
2003 Outlook
While the company anticipates a moderate level of quarterly improvement
in the second half of 2003 when compared with the first six months of the
year, it noted that the general environment remains challenging -- low
visibility, sluggish business travel and increased costs -- warranting
a conservative outlook for the remainder of the year.
Based on first-half results and expectations for the second half of
the year, the company provided the following updated guidance for full
year 2003:
Full Year 2003 Estimates
Total revenue
Approximately $3.85 billion
Total operating income
$510 - $525 million
Total Adjusted EBITDA
$900 - $915 million
Comparable owned hotel RevPAR Approximately
3% decline
Diluted earnings per share
$.35 - $.37
Total capital spending in 2003 is expected to remain in the $360 million
range, with approximately $165 million being spent on routine improvements
and technology, $110 million on timeshare projects, $50 million on special
projects at owned hotels and $35 million at the Hilton Hawaiian Village
related to the mold situation. The company said that the hotel's Kalia
Tower is expected to reopen to guests in September 2003.
Hilton remains on track to add 100 to 115 hotels and 12,000 to 15,000
rooms to its system in 2003. Conversions to one of Hilton's brands are
expected to account for approximately 10 percent of the unit growth. The
company's current development pipeline remains strong with approximately
380 hotels and 52,000 rooms approved and in design, or under construction.
Stephen F. Bollenbach, president and chief executive officer of Hilton
Hotels Corporation, said: "A somewhat disappointing second quarter resulted
from a continued difficult environment in which to raise room rates, particularly
at our owned, city-center hotels. At issue is the mix of business; we are
not yet seeing pricing power in the profitable business transient segment.
Our occupancy levels are solid, but pressure on rate is impacting RevPAR
and, along with cost increases, our margins.
"Leisure demand, while price sensitive, is healthy, and we are seeing
strong summer bookings at many of our hotels in resort and tourist destinations.
This is also helping our hotels that have a `drive-to' customer base, such
as Hampton Inns. Until market conditions change to increase demand from
business travelers, commanding pricing power will continue to be a challenge.
"There are some encouraging signs, including a recent pick-up in reservations
activity, and an increase in bookings at our own branded websites. Also,
based on the excellent market share performances of all the Hilton Family
of Brands, and our ability to continue adding units to our system, we are
pleased that customers and owners alike are telling us they prefer our
hotels and our brands. New construction activity at the full-service end
of the market continues to decline, which bodes well for the hotels that
we own. In spite of a tough environment for the hotel industry, we are
pleased with our timeshare business. Sales results thus far at our new
Las Vegas and Orlando timeshare properties have been very strong, and Hawaii
continues to sell well."
Mr. Bollenbach concluded: "As we head into the second half of what's
been a difficult year so far, we have reasons to look forward to improvement.
Our focus will continue to be on building occupancy, watching our costs
and improving our balance sheet."
HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)
Three Months Ended Six Months
Ended
June 30
June 30
2002 2003 % Change 2002
2003 % Change
------ ----- --------- ------- ------- ---------
Revenue
Owned hotels
$572 $531 (7)% $1,053 $1,014
(4)%
Leased hotels
30 27 (10)
59 51 (14)
Management and
franchise fees
87 88 1
168 168 -
Other fees and
income
93 95 2
192 186 (3)
------ -----
------- -------
782 741 (5)
1,472 1,419 (4)
Other revenue from
managed and
franchised
properties
253 242 (4)
484 481 (1)
------ -----
------- -------
1,035 983 (5)
1,956 1,900 (3)
Expenses
Owned hotels
370 376 2
715 748 5
Leased hotels
27 24 (11)
53 47 (11)
Depreciation and amortization
87 79 (9)
172 165 (4)
Impairment loss
and related costs
10 - -
10 17 70
Other operating
expenses
72 79 10
152 154 1
Corporate expense,
net
13 19 46
30 38 27
------ -----
------- -------
579 577 -
1,132 1,169 3
Other expenses
from managed and
franchised
properties
253 242 (4)
484 481 (1)
------ -----
------- -------
832 819 (2)
1,616 1,650 2
Operating income
203 164 (19)
340 250 (26)
Interest and dividend
income
14 8 (43)
28 15 (46)
Interest expense
(87) (77) (11) (174)
(152) (13)
Net interest from
unconsolidated
affiliates
(5) (4) (20)
(10) (9) (10)
Net loss on asset
dispositions
(15) (2) (87)
(15) (3) (80)
------ -----
------- -------
Income before taxes
and minority
interest
110 89 (19)
169 101 (40)
Provision for income taxes (31)
(33) 6
(54) (34) (37)
Minority interest,
net
(3) (2) (33)
(5) (4) (20)
------ -----
------- -------
Net income
$76 $54 (29)% $110
$63 (43)%
====== =====
======= =======
Net income per share(a)
Basic
$.20 $.14 (30)% $.30
$.17 (43)%
====== =====
======= =======
Diluted
$.20 $.14 (30)% $.30
$.17 (43)%
====== =====
======= =======
Average shares -
basic
374 377 1 %
372 377 1 %
====== =====
======= =======
Average shares -
diluted
403 395 (2)%
399 399 - %
====== =====
======= =======
(a) The sum of EPS for the first two quarters in
2002 and 2003 differs from the year to date EPS in the respective periods
due to the required method of computing EPS in each period.
HILTON HOTELS CORPORATION
U.S. Owned Statistics(a)
Three Months Ended
Six Months Ended
June 30
June 30
2002 2003 %/pt
2002 2003 %/pt
Change
Change
------- --------- -------- ------- --------- ---------
Hilton
Occupancy
77.3% 74.4% (2.9)pts 72.0%
70.5% (1.5) pts
Average
Rate
$159.45 $153.30 (3.9)% $158.48 $153.29
(3.3)%
RevPAR
$123.25 $114.03 (7.5)% $114.13 $108.13
(5.3)%
All Other
Occupancy
69.3% 69.7% 0.4 pts 67.4%
68.7% 1.3 pts
Average
Rate
$108.99 $106.00 (2.7)% $109.78 $106.84
(2.7)%
RevPAR
$ 75.57 $ 73.93 (2.2)% $ 73.98 $ 73.43
(0.7)%
Total
Occupancy
76.0% 73.6% (2.4)pts 71.3%
70.3% (1.0) pts
Average
Rate
$152.03 $146.07 (3.9)% $151.06 $145.95
(3.4)%
RevPAR
$115.56 $107.56 (6.9)% $107.66 $102.53
(4.8)%
(a) Statistics are for comparable hotels, and include
only those
hotels in the system as of June
30, 2003 and owned by us since January 1, 2002.
HILTON HOTELS CORPORATION
System-wide Statistics(a)
Three Months Ended Six
Months Ended
June 30
June 30
2002 2003 %/pt
2002 2003 %/pt
Change
Change
-------- -------- -------- ------- -------- ----------
Hilton
Occupancy
72.5% 69.9% (2.6)pts 68.7%
67.3% (1.4) pts
Average
Rate
$129.16 $125.67 (2.7)% $129.91 $126.24
(2.8)%
RevPAR
$ 93.60 $ 87.88 (6.1)% $ 89.27 $ 84.97
(4.8)%
Hilton
Garden Inn
Occupancy
69.3% 69.0% (0.3)pts 64.9%
65.8% 0.9 pts
Average
Rate
$ 96.87 $ 95.05 (1.9)% $ 96.43 $ 94.83
(1.7)%
RevPAR
$ 67.10 $ 65.54 (2.3)% $ 62.62 $ 62.40
(0.4)%
Doubletree
Occupancy
69.8% 67.3% (2.5)pts 66.5%
65.0% (1.5) pts
Average
Rate
$102.61 $ 99.89 (2.7)% $103.37 $100.68
(2.6)%
RevPAR
$ 71.58 $ 67.25 (6.0)% $ 68.76 $ 65.49
(4.8)%
Embassy
Suites
Occupancy
72.4% 71.5% (0.9)pts 69.9%
69.6% (0.3) pts
Average
Rate
$121.70 $118.69 (2.5)% $122.58 $119.79
(2.3)%
RevPAR
$ 88.10 $ 84.83 (3.7)% $ 85.73 $ 83.34
(2.8)%
Homewood
Suites by
Hilton
Occupancy
76.8% 75.9% (0.9)pts 73.3%
72.4% (0.9) pts
Average
Rate
$ 95.91 $ 94.61 (1.4)% $ 95.69 $ 94.40
(1.3)%
RevPAR
$ 73.65 $ 71.83 (2.5)% $ 70.17 $ 68.37
(2.6)%
Hampton
Occupancy
72.1% 70.3% (1.8)pts 67.2%
65.9% (1.3) pts
Average
Rate
$ 78.01 $ 78.35 0.4 % $ 77.61 $ 77.81
0.3 %
RevPAR
$ 56.22 $ 55.05 (2.1)% $ 52.13 $ 51.26
(1.7)%
Other
Occupancy
62.0% 39.5% (22.5)pts 59.5%
46.4% (13.1) pts
Average
Rate
$131.98 $141.24 7.0 % $124.48 $129.98
4.4 %
RevPAR
$ 81.83 $ 55.85 (31.7)% $ 74.12 $ 60.33 (18.6)%
(a) Statistics are for comparable hotels, and include
only those hotels in the system as of June 30, 2003 and owned, operated
or franchised by us since January 1, 2002.
HILTON HOTELS CORPORATION
Supplementary Statistical Information
June
Change to
2002
2003 June 2002 December 2002
Number of Number of
Number of Number of
Proper- Rooms Proper- Rooms Proper- Rooms Proper- Rooms
ties ties
ties ties
------------- -------------- ------------- -------------
Hilton
Owned
39 29,091 38 28,572
(1) (519) (1) (413)
Leased
1 499 1
499 - -
- -
Joint
Venture
5 1,863 7
2,739 2 876
1 448
Managed 15
9,968 20 11,664 5
1,696 3 1,063
Franchised 173 46,589
165 44,341 (8) (2,248) (3) (993)
------------- -------------- ------------- -------------
233 88,010 231 87,815
(2) (195) - 105
Hilton
Garden Inn
Owned
1 162 1
162 - -
- -
Joint
Venture
2 280 2
280 - -
- -
Franchised 141 19,487
164 22,401 23 2,914
6 746
------------- -------------- ------------- -------------
144 19,929 167 22,843
23 2,914 6 746
Doubletree
Owned
9 3,156 9
3,156 - -
- -
Leased
6 2,151 6
2,151 - -
- -
Joint
Venture 30
8,273 28 8,420 (2)
147 (2) (121)
Managed 58
16,344 48 12,474 (10) (3,870)
(9)(3,228)
Franchised 49 11,161
61 14,420 12 3,259
9 2,628
------------- -------------- ------------- -------------
152 41,085 152 40,621
- (464) (2) (721)
Embassy
Suites
Owned
5 1,023 5
1,023 - -
- -
Joint
Venture 24
6,581 27 7,279
3 698 3
698
Managed 61
15,589 57 14,699 (4)
(890) (4) (890)
Franchised 78 17,802
83 18,788 5 986
4 839
------------- -------------- ------------- -------------
168 40,995 172 41,789
4 794 3
647
Homewood
Suites by
Hilton
Owned
7 905 3
398 (4) (507) (4) (507)
Managed 30
3,605 34 4,135
4 530 4
530
Franchised 74
7,925 87 9,606 13
1,681 3 388
------------- -------------- ------------- -------------
111 12,435 124 14,139
13 1,704 3 411
Hampton
Owned
1 133 1
133 - -
- -
Managed 27
3,566 24 3,101 (3)
(465) (1) (167)
Franchised 1,147 116,890 1,204
121,966 57 5,076 24 2,326
--------------- -------------- ------------- -------------
1,175 120,589 1,229 125,200 54
4,611 23 2,159
Timeshare 25
2,969 28 3,289
3 320 1
172
Other
Owned
1 300 1
300 - -
- -
Joint
Venture
4 1,598 3
1,393 (1) (205) -
(7)
Managed 11
2,944 11 3,254
- 310 -
15
Franchised 13
3,043 1 408
(12) (2,635) 1 408
------------- -------------- ------------- -------------
29 7,885 16
5,355 (13) (2,530) 1 416
Total
Owned
63 34,770 58 33,744
(5) (1,026) (5) (920)
Leased
7 2,650 7
2,650 - -
- -
Joint
Venture 65
18,595 67 20,111
2 1,516 2 1,018
Managed 202
52,016 194 49,327 (8) (2,689)
(7)(2,677)
Timeshare 25
2,969 28 3,289
3 320 1
172
Franchised 1,675 222,897 1,765
231,930 90 9,033 44 6,342
--------------- -------------- ------------- -------------
TOTAL
PROPERTIES 2,037 333,897 2,119
341,051 82 7,154 35 3,935
=============== ============== ============= =============
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of
Adjusted EBITDA to EBITDA and Net Income
Historical Data
($ in millions)
Three Months Ended Six Months Ended
June 30
June 30
2002 2003 % Change 2002 2003 % Change
----- ----- ---------- ----- ----- ----------
Adjusted EBITDA
$303 $252 (17)% $534 $449
(16)%
Proportionate share of
depreciation and
amortization
of unconsolidated
affiliates
(6) (7) 17
(13) (14) 8
Non-recurring items
(2) - -
(2) (17) -
Pre-opening expense
(1) - -
(1) - -
Operating interest and
dividend income
(4) (2) (50)
(6) (3) (50)
Net loss on asset
dispositions
(15) (2) (87) (15)
(3) (80)
Minority interest, net (3)
(2) (33) (5)
(4) (20)
----- -----
----- -----
EBITDA
272 239 (12)
492 408 (17)
Depreciation and
amortization
(87) (79) (9) (172) (165)
(4)
Interest expense, net (78) (73)
(6) (156) (146) (6)
Provision for income
taxes
(31) (33) 6
(54) (34) (37)
----- -----
----- -----
Net income
$76 $54 (29)% $110
$63 (43)%
===== =====
===== =====
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of
Adjusted EBITDA to EBITDA and Net Income
Future Performance - Full Year 2003 Outlook ($ in millions, except per
share amounts)
Low End Estimate High End Estimate
Full Year Full
Year
2003
2003
-------
-------
Adjusted EBITDA
$900
$915
Proportionate share of
depreciation and
amortization
of unconsolidated
affiliates
(28)
(28)
Non-recurring items
(17)
(17)
Operating interest and
dividend income
(5)
(5)
Net loss on asset
dispositions
(3)
(3)
Minority interest, net
(6)
(6)
-----
-----
EBITDA
841
856
Depreciation and
amortization
(338)
(338)
Interest expense, net
(295)
(294)
Provision for income
taxes
(77)
(83)
-----
-----
Net income
$131
$141
=====
=====
Diluted EPS
$.35
$.37
=====
=====
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,
when considered with GAAP measures, we believe 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. Due to recent
guidance from the Securities and Exchange Commission, we now do not reflect
such items when calculating EBITDA, however, we continue to 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 2003 reflects EBITDA
adjusted for the following items:
--
Gains and Losses on Asset Dispositions and
Non-Recurring Items: We exclude the effect of gains and losses on asset
dispositions and non-recurring items, such as asset write-downs and impairment
losses, from Adjusted EBITDA. 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 of, 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.
--
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.
Prior to January 1, 2003, we also adjusted
EBITDA for pre-opening expense, which we no longer exclude, and adjusted
only the non-cash portion of non-recurring items.
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 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, when viewed with our GAAP results
and the reconciliations to the corresponding GAAP financial measures, we
believe 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.
|
