Starwood reports forst quarter 2006 results
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Starwood reports forst quarter 2006 results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-04-27
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Starwood Hotels & Resorts Worldwide, Inc. (NYSE:
First Quarter 2006 Highlights
Excluding special items, EPS from continuing operations increased 17.1% to $0.41
compared to $0.35 for the first quarter of 2005. Including special items, EPS from
continuing operations was $0.34 compared to $0.36 in the first quarter of 2005.
Worldwide system-wide REVPAR, excluding Le Méridien, increased 10.3%
compared to the first quarter of 2005. System-wide REVPAR for Same-Store Hotels
in North America increased 12.1% when compared to the first quarter of 2005.
Worldwide REVPAR for Same-Store Owned Hotels grew 9.8% in total; W Hotels
(15.8%), Westin (10.6%), Sheraton (8.0%), and St. Regis/Luxury Collection (6.0%),
with most of these brands experiencing both ADR and occupancy gains.
North America REVPAR at Same-Store Owned Hotels increased 12.8% when
compared to the first quarter of 2005. ADR for these hotels increased 10.6%.
Margins at Starwood branded Same-Store Owned Hotels in North America and
Worldwide improved approximately 300 and 225 basis points, respectively, when
compared to the first quarter of 2005.
Management and franchise revenues increased 34.2% when compared to 2005,
including fees from the Le Méridien hotels (15.8% excluding the Le Méridien hotels).
Excluding residential sales, contract sales at vacation ownership properties were up
18.5% when compared to 2005. However, reported revenues from vacation
ownership and residential sales decreased $37 million when compared to 2005
primarily due to the higher amount of contract sales at properties which were in the
preliminary stages of construction during 2006 and the application of percentage of
completion accounting to such sales.
Excluding special items, income from continuing operations increased 18.2% to $91
million compared to $77 million in the same period of 2005. Net income, including
special items and a one-time expense of $72 million (after-tax) related to the
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implementation of a new timeshare accounting rule, was $5 million compared to $79
million in the first quarter of 2005.
Total Company Adjusted EBITDA decreased 7.6% to $266 million when compared
to $288 million in 2005. The year over year reduction is due primarily to asset sales,
continued lost business from last year’s hurricanes, stock option expenses, and a
loss on an unconsolidated joint venture hotel being marketed for sale.
On April 10, 2006 the Company completed the sale of 28 hotels to Host Hotels &
Resorts, Inc. (“Host”) for $3.54 billion. An additional seven hotels are expected to
be sold to Host during the second quarter with $661 million of additional cash
consideration to be paid to the Company and $31 million of additional debt to be
assumed by Host.
Since January 1, 2006, the Company has returned more than $3.5 billion to
shareholders including $2.8 billion in connection with the Host transaction, $447
million for the repurchase of 7 million shares of its stock and $276 million in
dividends.
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported
EPS from continuing operations for the first quarter of 2006 of $0.34 compared to $0.36 in
the first quarter of 2005. Excluding special items, EPS from continuing operations was
$0.41 for the first quarter of 2006 compared to $0.35 in the first quarter of 2005. Special
items net to a $14 million loss and include debt defeasance costs and transition costs
associated with the Le Méridien transaction, offset by net gains realized on the sale of
several hotels.
Income from continuing operations, including the special items discussed above, was $77
million in the first quarter of 2006 compared to $79 million in 2005. Excluding special
items, income from continuing operations was $91 million for the first quarter of 2006
compared to $77 million in 2005.
Income from continuing operations for the first quarter of 2006 as compared to 2005 was
impacted by four major items:
Operating income (before depreciation) was impacted as a result of the sale of 16
hotels since the first quarter of 2005. These hotels had $5 million of revenues and
$5 million of expenses in 2006 as compared to $56 million of revenues and $44
million of expenses in the same quarter of 2005.
As a result of last year’s hurricanes, operating income at the Company’s owned
hotels in New Orleans and Cancun, Mexico was down $4 million, net of business
interruption insurance.
The Company implemented SFAS 123(R), “Share Based Payment” on January 1,
2006 which resulted in approximately $12 million of non-cash stock option expense.
The Company recorded an $8 million impairment loss on an unconsolidated joint
venture hotel that is being marketed for sale.
Net income (after a one-time expense of $72 million (after-tax) related to the
implementation of SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions”
which was recorded as a cumulative effect of a change in accounting) was $5 million and
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EPS was $0.02 in the first quarter of 2006 compared to $79 million and EPS of $0.36 in the
first quarter of 2005. The effective tax rate for the first quarter of 2006 was 15.8%.
Total Company Adjusted EBITDA decreased 7.6% to $266 million when compared to $288
million in 2005. Cash flow from operations was $145 million compared to cash flow from
operations of $59 million in 2005.
Steven J. Heyer, CEO, said ”It was an outstanding quarter. We beat our growth
expectations in all business segments, delivering North America Owned REVPAR growth
of 12.8% and margin growth of 300 basis points. Worldwide System-wide REVPAR grew
10.3% and our management and franchise revenues grew over 34%, continued evidence
that the lodging business remains robust.
We remain focused on our strategic initiatives – service excellence; brand development;
pipeline development; vacation ownership growth; real estate development and
repositioning. We launched new advertising programs for Westin and Sheraton, and we
began to retrain our associates around the world to deliver branded signature services to
our guests. We also completed the most significant component of the Le Meridien
integration.
Since the beginning of the year, we returned more than $3.5 billion in value to our
shareholders. We closed on the bulk of the assets sales to Host, returning $2.8 billion
directly to shareholders in Host stock and cash, we repurchased $447 million or 7 million
shares of our stock and we paid $276 million in dividends.”
Operating Results
First Quarter Ended March 31, 2006
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Same-Store Owned Hotels increased 9.8%. REVPAR at Same-
Store Owned Hotels in North America increased 12.8%; 15.8% at W, 13.6% at Westin,
13.4% at St. Regis/Luxury Collection and 10.3% at Sheraton. REVPAR growth was
particularly strong at the Company’s owned hotels in New York, San Diego, Atlanta,
Seattle and Chicago. Internationally, Same-Store Owned Hotel REVPAR increased 3.4%
excluding the impact of foreign exchange. As reported, in US dollars, Same-Store Owned
Hotel REVPAR increased 1.8%, with Latin America up 21.0%, Europe down 2.2%, and
Asia Pacific down 16.2%.
Revenues at Same-Store Owned Hotels in North America increased 12.0% while costs
and expenses increased 7.9% when compared to 2005. Margins at Starwood branded
Same-Store Hotels increased 300 basis points.
Revenues at Same-Store Owned Hotels Worldwide increased 8.9% while costs and
expenses increased 6.0% when compared to 2005. Margins at Starwood branded Same-
Store Hotels increased 225 basis points.
Reported revenues at owned, leased and consolidated joint venture hotels were $822
million when compared to $813 million in 2005. Reported revenues were impacted by the
sale of 16 hotels since the end of the first quarter of 2005. These hotels contributed $5
million in revenues in 2006 compared to $56 million in the same quarter of 2005. Reported
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revenues were also negatively impacted by $10 million from changes in foreign exchange
rates.
Reported operating income (before depreciation) from owned, leased and consolidated
joint venture hotels was impacted by two factors:
As discussed earlier, total Company operating income (before depreciation) was
impacted as a result of the sale of 16 hotels since the first quarter of 2005. These
hotels had $5 million of revenues and $5 million of expenses in 2006 as compared
to $56 million of revenues and $44 million of expenses in the same quarter of 2005.
As a result of last year’s hurricanes, operating income at the Company’s owned
hotels in New Orleans and Cancun, Mexico was down $4 million, net of business
interruption insurance.
Management and Franchise Fees
Worldwide system-wide (owned, managed and franchised) REVPAR, excluding Le
Méridien, increased 10.3% compared to the first quarter of 2005. System-wide REVPAR
for Same-Store Hotels in North America, excluding Le Méridien hotels, increased 12.1%;
W Hotels 15.1%, St. Regis/Luxury Collection 13.0%, Westin 12.4% and Sheraton 11.2%.
Management fees, franchise fees and other income were $132 million, up $28 million, or
26.9%, from the first quarter of 2005. Management fees grew by 55.6% to $56 million and
franchise fees grew 20.0% to $36 million. The increase is related to the addition of new
hotels (including Le Méridien), growth in REVPAR of existing hotels under management,
offset in part by fees associated with hotels that left the system.
Le Méridien hotels contributed approximately $14 million of management and franchise
fees during the first quarter of 2006. The integration of Le Méridien, which the Company
acquired in November of last year, is proceeding well. During the first quarter, the
Company completed the full integration of the reservations, distribution, loyalty and sales
functions, allowing Le Méridien hotels to take advantage of the power of Starwood’s global
infrastructure and sales and marketing systems, giving it a solid foundation for growth.
During the first quarter of 2006, the Company signed 28 hotel management and franchise
contracts (representing approximately 7,700 rooms; 12 Westin, 10 Sheraton, 2 W Hotels, 2
Four Points by Sheraton, 1 St. Regis and 1 Le Méridien) including the Sheraton
Philadelphia City Center (Philadelphia, Pennsylvania, 757 rooms), Westin Beijing at
Chaoyang (Beijing, China, 558 rooms) and the Sheraton Guangzhou-Teem Plaza
(Guangzhou, China, 442 rooms). Of the hotels signed in the quarter, 20 were new builds
and 8 were conversions from other brands. The Company had approximately 260 hotels
and approximately 76,000 rooms in its active global development pipeline at March 31,
2006, with roughly half of that number in international locations. The Company expects to
sign approximately 150 hotel management and franchise contracts in 2006.
During the first quarter of 2006, nine new hotels and resorts (representing approximately
1,600 rooms) entered the system, including the Westin Arlington Gateway (Arlington,
Virginia, 336 rooms) and the Le Meridien St. Julians (St. Julians, Malta, 276 rooms). Eight
properties (representing approximately 2,100 rooms) were removed from the system
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during the quarter. The Company expects to open more than 50 hotels (representing
approximately 14,000 rooms) in 2006.
Vacation Ownership
While sales of vacation ownership intervals were up 18.5%, total vacation ownership
revenues decreased $32 million or 17.1% to $155 million when compared to 2005 due
primarily to the impact of percentage of completion accounting for pre-sales at projects
under construction. The average price per vacation ownership unit sold increased
approximately 6.1% to $28,708, and the number of contracts signed increased
approximately 11.3% when compared to 2005. Fractional sales at the St. Regis in New
York in the first quarter of 2006 were higher than anticipated due to a faster than expected
start to the project.
While reported revenues were down year over year as discussed above, reported
expenses were relatively flat primarily as a result of the accelerated recognition of sales
and marketing expenses in accordance with the new timeshare accounting rules which
were implemented effective January 1, 2006.
During the first quarter of 2006, the Company was actively selling vacation ownership
interests at 15 resorts, compared to 11 resorts in the first quarter 2005. New resorts in
active sales included the Westin Lagunamar Resort in Cancun, Mexico. In addition, the
Company started pre-sales at the Westin Princeville Resort in Kauai, Hawaii and the St.
Regis Residence Club in New York during the quarter. Starwood Vacation Ownership is
also in the predevelopment phase of several new vacation ownership resorts.
During the first quarter of 2006, the Company recorded a one time expense of $72 million
(after-tax) as a cumulative effect of a change in accounting associated with the adoption of
SFAS No.152, “Accounting for Real Estate Time-Share Transactions.”
Residential
The Company recognized residential revenues of approximately $39 million from
continuing sales at the St. Regis Museum Tower in San Francisco, a decrease of $5 million
compared to 2005. To date, the Company has invested approximately $334 million in the
St. Regis San Francisco project which opened in November 2005. Through March 31,
2006, the Company has recognized approximately $237 million in revenues from the sale
of the project’s 102 condominiums. The condominiums have sold faster than anticipated in
the first quarter and, as of the end of the quarter, only three condominiums remained
available for sale.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 29.3% over the first quarter
of 2005. Approximately $10 million of the increase is related to stock based compensation,
including approximately $9 million of stock option expense. The remainder of the increase
primarily relates to costs of sales and other expenses at the Company’s Bliss Spa
business.
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Asset Sales
On April 10, 2006, the Company completed the sale of 28 hotels to Host for total
consideration of approximately $3.54 billion (including cash, Host stock and the
assumption of debt). The Company expects to complete the sale of the seven remaining
hotels in the portfolio later this quarter and expects to receive proceeds of $661 million in
cash and $31 million in the form of property level debt which Host will assume when those
sales are closed.
In addition to the portfolio of hotels sold to Host, during the first quarter of 2006, the
Company sold five wholly-owned hotels for cash proceeds of approximately $269 million
and recorded a net pre-tax gain of approximately $30 million associated with these sales.
It is anticipated that two additional hotels will be sold in the second quarter of 2006 for
approximate cash proceeds of $105 million.
Capital
Gross capital spending during the quarter included approximately $70 million in
renovations of hotel assets including construction capital at the Sheraton Hotel & Towers in
New York, New York and the Sheraton Centre Toronto Hotel in Toronto, Canada.
Investment spending on gross VOI inventory was $39 million, which was offset by cost of
sales of $34 million associated with VOI sales during the quarter. The inventory spend
included VOI construction at the Westin Ka’anapali Ocean Resort Villas North in Maui,
Hawaii, the Sheraton Vistana Villages in Orlando, Florida, the Westin Princeville Resort in
Kauai, Hawaii and the Westin Kierland Villas in Scottsdale, Arizona.
Share Repurchase
During the first quarter of 2006, the Company repurchased approximately 7 million shares
at a total cost of approximately $447 million. At March 31, 2006, approximately $596
million remained available under the Company’s Board authorized share repurchase
program. Starwood had approximately 218 million shares outstanding (including
partnership units and exchangeable preferred shares) at March 31, 2006.
Dividend
The 2005 annual dividend of $0.84 per share, declared on December 20, 2005, was paid
on January 20, 2006. Also during the first quarter of 2006, Starwood Hotels & Resorts (the
“Trust”) declared a dividend of $0.21 per share, which was paid on March 10, 2006. In
addition, the Trust declared a second quarter dividend of $0.21 per share, which was paid
on April 7, 2006. It is currently expected that, subject to the approval of the Board of
Directors, the remaining 2006 dividend of $0.42 per share will be declared by the
Corporation in December 2006 to be paid in January 2007, as set forth in the recently
announced dividend policy that was adopted by the Board of Directors.
Balance Sheet
At March 31, 2006, the Company had total debt (including debt classified as held for sale)
of $4.226 billion and cash and cash equivalents (including $295 million of restricted cash)
of $1.055 billion, or net debt of $3.171 billion, compared to net debt of $2.941 billion at the
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end of 2005. Following the first phase of the Host transaction, net debt decreased by
approximately $677 million (representing the gross cash proceeds received by Starwood in
the transaction and debt assumed by Host) to approximately $2.5 billion and is expected to
further decrease upon the closing of the sale of the remaining assets to Host later this
quarter with $661 million of expected cash consideration and $31 million of debt to be
assumed.
At March 31, 2006, debt was approximately 56% fixed rate and 44% floating rate and its
weighted average maturity was 4.9 years with a weighted average interest rate of 6.09%.
The Company had cash (including total restricted cash) and availability under domestic
and international revolving credit facilities of approximately $1.619 billion.
Outlook
All comments in the following paragraphs and certain comments in this release above are
deemed to be forward-looking statements. These statements reflect expectations of the
Company’s performance given its current base of assets and its current understanding of
external economic and geo-political environments. Actual results may differ materially.
The Company’s guidance for 2006 assumes:
The closing of the 28 hotels sold to Host on April 10th, the closing of four deferred
European hotels in early May and three deferred hotels by the end of the second
quarter. Revenues and direct expenses in the second quarter from the Host hotels
are expected to be $37 million and $27 million.
Additional owned, leased and consolidated joint venture hotel revenues and
expenses of $110 million and $90 million for the balance of the year from the three
Canadian hotels which were originally included in the Host portfolio and which are
now being retained by Starwood.
Stock option expense of $45 million or $0.13 per Share for the full year per our
previous guidance.
Income of $30 million related to the amortization of the deferred gain associated
with the sale of the hotels to Host for the period subsequent to the sale (annualized
amount of $42 million is lower than the previous guidance of $50 million per year
primarily due to the three Canadian hotels which are now being retained by
Starwood).
For the three months ended June 30, 2006, if REVPAR at Same-Store Owned Hotels in
North America increases approximately 10% - 12% versus the same period in 2005:
Adjusted EBITDA would be expected to be approximately $295 million assuming:
Worldwide and North America Same-Store Owned Hotel EBITDA growth of 15%
to 17%.
Worldwide and North America Same-Store Owned Hotel margin improvement of
approximately 150 - 200 basis points.
Growth from management and franchise fees of approximately 45% to 50%
including fees earned from the hotels sold to Host and 20% to 22%, excluding
these hotels sold to Host.
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A decline in operating income from our vacation ownership and residential
business of $10 million to $15 million due to percentage of completion
accounting for pre-sales at new timeshare projects. This guidance reflects a
shift of approximately $10 million of operating income for the vacation ownership
and residential business from the second quarter to the first quarter of 2006 as a
result of faster than anticipated fractional sales at the St. Regis New York and
faster sales of the condominiums at the St. Regis in San Francisco.
Income from continuing operations, excluding special items, would be expected to
be approximately $130 million at an effective tax rate of approximately 20%.
EPS would be expected to be approximately $0.58.
For the full year 2006, assuming REVPAR at Same-Store Owned Hotels in North America
increases approximately 9% – 11% versus 2005:
Full year Adjusted EBITDA would be expected to be approximately $1.260 billion
assuming:
Worldwide and North America Same-Store Owned Hotel EBITDA growth of 15%
to 17%.
Worldwide and North America Same-Store Owned Hotel margin improvement of
approximately 150 - 200 basis points.
Growth from management and franchise fees of approximately 45% to 50%
including fees from the hotels sold to Host and 20% to 22%, excluding fees from
the hotels sold to Host.
An increase in operating income from our vacation ownership and residential
business of $25 million to $35 million (including gains on sales of vacation
ownership notes receivable of $10 million to $15 million)
Full year income from continuing operations, excluding special items, would be
expected to be approximately $513 million at an effective tax rate of approximately
28.5%. This assumes a 20% tax rate in the second quarter and a 35% tax rate for
the remainder of the year.
Full year EPS would be expected to be approximately $2.28.
Full year capital expenditures (excluding timeshare inventory) would be
approximately $500 million, including $200 million for maintenance, renovation and
technology and $300 million for other growth initiatives. Additionally, net capital
expenditures for timeshare inventory would be approximately $175 million.
For the full year the Company expects cash interest expense of approximately $205
million and cash taxes of approximately $150 million.
The Company’s guidance excludes the first quarter special items discussed below as well
as:
Transition costs associated with the Le Méridien transaction which closed in 2005 of
approximately $9 million in the second quarter and $25 million in the full year.
A one time income tax item which will be recorded in the second quarter in
connection with the closing of the Host transaction.
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Special Items
The Company recorded net charges of $14 million (after-tax) for special items in the first
quarter of 2006 compared to $2 million of net credits (after-tax) in the same period of 2005.
Special items in the first quarter of 2006 primarily relate to debt defeasance costs and
transition costs associated with the Le Méridien transaction, partially offset by the net gains
realized on the sale of several hotels.
The following represents a reconciliation of income from continuing operations before
special items to income from continuing operations after special items (in millions, except
per share data):
Three Months Ended
March 31,
2006 2005
Income from continuing operations before special items ............. $ 91 $ 77
EPS before special items .............................................................. $ 0.41 $ 0.35
Special Items
Restructuring and other special charges, net (a) ............................ (9) —
Debt defeasance costs (b)............................................................... (37) —
Gain on asset dispositions and impairments, net (c) .................... 25 1
Total special items – pre-tax ......................................................... (21) 1
Income tax benefit (expense) for special items (d) ........................ 8 (1)
Reserves and credits associated with tax matters (e) ................... (1) 2
Total special items – after-tax ........................................................ (14) 2
Income from continuing operations ............................................... $ 77 $ 79
EPS including special items .......................................................... $ 0.34 $ 0.36
(a) Restructuring and other special charges, net primarily related to transition costs associated with the Le Méridien
transaction.
(b) During the three months ended March 31, 2006, the Company completed two transactions whereby it was
released from certain debt obligations that allowed Starwood to sell certain hotels that previously served as
collateral for such debt. The Company incurred expenses totaling $37 million in connection with the early
extinguishment of these debt obligations. These expenses are reflected in interest expense in the Company’s
consolidated statement of income.
(c) For the three months ended March 31, 2006, primarily reflects the net gains recorded on the sale of five hotels
partially offset by an adjustment to reduce the gain on the sale of a hotel in 2004 as certain contingencies
associated with that sale became probable in the quarter. For the three months ended March 31, 2005, reflects
the reversal of a reserve related to the financing of a hotel previously sold, which is no longer required as the
loan has been repaid, offset in part by the net loss from the sale of two hotels.
(d) Represents taxes on special items at the Company’s incremental tax rate.
(e) During the three months ended March 31, 2006, the Company recorded an adjustment to the deferred taxes
related to the deferred gain on the sale of a hotel in 2005. Income tax benefit in the three months ended March
31, 2005 reflects a state tax refund related to tax years prior to the 1995 split-up of ITT Corporation.
The Company has included the above supplemental information concerning special items
to assist investors in analyzing Starwood’s financial position and results of operations. The
Company has chosen to provide this information to investors to enable them to perform
meaningful comparisons of past, present and future operating results and as a means to
emphasize the results of core on-going operations.
Starwood will be conducting a conference call to discuss the first quarter financial results at
10:30 a.m. (EST) today. The conference call will be available through simultaneous
webcast in the Investor Relations/Press Releases section of the Company’s website at
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http://www.starwoodhotels.com. A replay of the conference call will also be available from
12:30 p.m. (EST) today through Thursday, May 4 at 12:00 midnight (EST) on both the
Company’s website and via telephone replay at (719) 457-0820 (access code 4397589).
Definitions
All references to EPS, unless otherwise noted, reflect earnings per diluted share from
continuing operations. All references to “net capital expenditures” mean gross capital
expenditures for timeshare and fractional inventory net of cost of sales. EBITDA
represents net income before interest expense, taxes, depreciation and amortization. The
Company believes that EBITDA is a useful measure of the Company’s operating
performance due to the significance of the Company’s long-lived assets and level of
indebtedness. EBITDA is a commonly used measure of performance in its industry which,
when considered with GAAP measures, the Company believes gives a more complete
understanding of the Company’s ability to service debt, fund capital expenditures, pay
income taxes and pay cash distributions. It also facilitates comparisons between the
Company and its competitors. The Company’s management has historically adjusted
EBITDA (i.e., “Adjusted EBITDA”) when evaluating operating performance for the total
Company as well as for individual properties or groups of properties because the Company
believes that the inclusion or exclusion of certain recurring and non-recurring items, such
as the special items described on page 9 of this release and/or revenues and costs and
expenses from hotels sold, is necessary to provide the most accurate measure of core
operating results and as a means to evaluate comparative results. The Company’s
management also used Adjusted EBITDA as a measure in determining the value of
acquisitions and dispositions and it is used in the annual budget process. Due to guidance
from the Securities and Exchange Commission, the Company now does not reflect such
items when calculating EBITDA; however, the Company continues to adjust for these
special items and refers to this measure as Adjusted EBITDA. The Company has
historically reported this measure to its investors and believes that the continued inclusion
of Adjusted EBITDA provides consistency in its financial reporting and enables investors to
perform more meaningful comparisons of past, present and future operating results and
provides a means to evaluate the results of its core on-going operations. EBITDA and
Adjusted EBITDA are not intended to represent cash flow from operations as defined by
GAAP and such metrics should not be considered as an alternative to net income, cash
flow from operations or any other performance measure prescribed by GAAP. The
Company’s calculation of EBITDA and Adjusted EBITDA may be different from the
calculations used by other companies and, therefore, comparability may be limited.
All references to Same-Store Owned Hotels reflect the Company’s owned, leased and
consolidated joint venture hotels, excluding hotels sold to date, undergoing significant
repositionings or for which comparable results are not available (i.e., hotels not owned
during the entire periods presented or closed due to seasonality or hurricane damage.)
REVPAR is defined as revenue per available room. ADR is defined as average daily rate.
All references to contract sales or originated sales reflect vacation ownership sales before
revenue adjustments for percentage of completion accounting methodology.
All references to management and franchise revenues represent base and incentive fees,
franchise fees and termination fees offset by payments by Starwood under performance
and other guarantees.
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Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure
companies in the world with approximately 850 properties in more than 95 countries and
145,000 employees at its owned and managed properties. Starwood® Hotels is a fully
integrated owner, operator and franchisor of hotels and resorts with the following
internationally renowned brands: St. Regis®, The Luxury Collection®, Sheraton®,
Westin®, Four Points® by Sheraton, W®, Le Méridien® and the recently announced
aloft(SM). Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the
premier developers and operators of high quality vacation interval ownership resorts. For
more information, please visit www.starwoodhotels.com.
** Please contact Starwood’s new, toll-free media hotline at (866) 4-STAR-PR
(866-478-2777) for photography or additional information.**
Note: This press release contains forward-looking statements within the meaning of federal securities
regulations. Forward-looking statements are not guarantees of future performance and involve risks and
uncertainties and other factors that may cause actual results to differ materially from those anticipated at the
time the forward-looking statements are made. Further results, performance and achievements may be
affected by general economic conditions including the prospects for improved performance internationally,
the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations,
cyclicality of the real estate and the hotel and vacation ownership businesses, operating risks associated with
the hotel and vacation ownership businesses, relationships with associates and labor unions, customers and
property owners, the impact of the internet reservation channels, our reliance on technology, domestic and
international political and geopolitical conditions, competition, governmental and regulatory actions (including
the impact of changes in U.S. and foreign tax laws and their interpretation), travelers’ fears of exposure to
contagious diseases, risk associated with the level of our indebtedness, risk associated with potential
acquisitions and dispositions, and other circumstances and uncertainties. These risks and uncertainties are
presented in detail in our filings with the Securities and Exchange Commission. Although we believe the
expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can
give no assurance that our expectations will be attained or that results will not materially differ. We undertake
no obligation to publicly update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
Three Months Ended
March 31,
2006 2005
%
Variance
Revenues
Owned, leased and consolidated joint venture hotels ............................................................. $ 822 $ 813 1.1
Vacation ownership and residential sales and services .......................................................... 194 231 (16.0)
Management fees, franchise fees and other income .............................................................. 132 104 26.9
Other revenues from managed and franchised properties (a) .................................................. 293 258 13.6
1,441 1,406 2.5
Costs and Expenses
Owned, leased and consolidated joint venture hotels ............................................................. 640 641 0.2
Vacation ownership and residential.......................................................................................... 165 167 1.2
Selling, general, administrative and other ............................................................................... 106 82 (29.3)
Restructuring and other special charges, net........................................................................... 9 — n/m
Depreciation ............................................................................................................................ 68 105 35.2
Amortization ............................................................................................................................. 5 5 —
Other expenses from managed and franchised properties (a) ................................................. 293 258 (13.6)
1,286 1,258 (2.2)
Operating income .................................................................................................................... 155 148 4.7
Equity earnings from unconsolidated ventures, net ................................................................ 6 13 (53.8)
Interest expense, net of interest income of $6 and $2 ............................................................ (97) (62) (56.5)
Gain on asset dispositions and impairments, net .................................................................... 25 1 n/m
Income from continuing operations before taxes and minority equity ..................................... 89 100 (11.0)
Income tax expense ................................................................................................................ (14) (21) 33.3
Minority equity in net loss ......................................................................................................... 2 — n/m
Income from continuing operations ......................................................................................... 77 79 (2.5)
Cumulative effect of accounting change .................................................................................. ( (72) — n/m
Net income .............................................................................................................................. $ 5 $ 79 (93.7)
Earnings (Loss) Per Share – Basic
Continuing operations ............................................................................................................. $ 0.35 $ 0.37 (5.4)
Cumulative effect of accounting change .................................................................................. (0.33) — n/m
Net income .............................................................................................................................. $ 0.02 $ 0.37 (94.6)
Earnings (Loss) Per Share – Diluted
Continuing operations ............................................................................................................. $ 0.34 $ 0.36 (5.6)
Cumulative effect of accounting change .................................................................................. (0.32) — n/m
Net income .............................................................................................................................. $ 0.02 $ 0.36 (94.4)
Weighted average number of Shares ...................................................................................... 215 212
Weighted average number of Shares assuming dilution ......................................................... 225 221
(a) The Company includes in revenues the reimbursement of costs incurred on behalf of managed hotel property owners and
franchisees with no added margin and includes in costs and expenses these reimbursed costs. These costs relate primarily to
payroll costs at managed properties where the Company is the employer.
n/m = not meaningful
-13-
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31,
2006
December 31,
2005
(unaudited)
Assets
Current assets:
Cash and cash equivalents ................................................................................. $ 760 $ 897
Restricted cash ................................................................................................... 286 295
Accounts receivable, net of allowance for doubtful accounts of $48 and $50 ..... 576 642
Inventories ............................................................................................................ 363 280
Prepaid expenses and other ................................................................................ 161 169
Total current assets............................................................................................... 2,146 2,283
Investments .............................................................................................................. 393 403
Plant, property and equipment, net ......................................................................... 3,986 4,113
Assets held for sale (a) .............................................................................................. 2,848 2,955
Goodwill and intangible assets, net ......................................................................... 2,299 2,298
Other assets (b) ......................................................................................................... 410 402
$ 12,082 $ 12,454
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt (c) ..................... $ 758 $ 1,219
Accounts payable ................................................................................................. 150 156
Accrued expenses ................................................................................................ 931 1,049
Accrued salaries, wages and benefits ................................................................. 212 297
Accrued taxes and other ...................................................................................... 108 158
Total current liabilities ....................................................................................... 2,159 2,879
Long-term debt (c) ..................................................................................................... 3,361 2,818
Long-term debt held for sale (d)................................................................................. 107 108
Deferred income taxes ............................................................................................. 514 562
Other liabilities ......................................................................................................... 1,042 851
7,183 7,218
Minority interest ........................................................................................................ 23 25
Commitments and contingencies
Stockholders’ equity:
Class A exchangeable preferred shares of the Trust; $0.01 par value;
authorized 30,000,000 shares; outstanding 562,222 and 562,222 shares at
March 31, 2006 and December 31, 2005, respectively .................................. — —
Class B exchangeable preferred shares of the Trust; $0.01 par value;
authorized 15,000,000 shares; outstanding 0 and 24,627 shares at
March 31, 2006 and December 31, 2005, respectively............................................. — —
Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares;
outstanding 216,254,061 and 217,218,781 shares at March 31, 2006 and
December 31, 2005, respectively ..................................................................... 2 2
Trust Class B shares of beneficial interest; $0.01 par value; authorized
1,000,000,000 shares; outstanding 216,254,061 and 217,218,781 shares at
March 31, 2006 and December 31, 2005, respectively ................................... 2 2
Additional paid-in capital .......................................................................................... 5,106 5,412
Deferred compensation ........................................................................................... — (53)
Accumulated other comprehensive loss .................................................................. (317) (322)
Retained earnings..................................................................................................... 83 170
Total stockholders’ equity ................................................................................. 4,876 5,211
$ 12,082 $ 12,454
(a) Includes 35 hotels expected to be sold in connection with the definitive agreement signed on November 14, 2005 with Host
Hotels & Resorts, Inc. The Company completed the sale of 28 of these hotels on April 10, 2006 and expects to sell the
remaining seven hotels in the second quarter of 2006.
(b) Includes restricted cash of $9 million and $12 million at March 31, 2006 and December 31, 2005, respectively.
(c) Excludes Starwood’s share of unconsolidated joint venture debt aggregating approximately $478 million and $469 million at
March 31, 2006 and December 31, 2005, respectively.
(d) Represents the debt that is expected to be assumed by Host Hotels & Resorts, Inc. in connection with the definitive agreement
signed on November 14, 2005.
-14-
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations – Historical Data
(in millions)
Three Months Ended
March 31,
2006
2005
%
Variance
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Net income .................................................................................................................. $ 5 $ 79 (93.7)
Interest expense(a) ....................................................................................................... 108 69 56.5
Income tax expense .................................................................................................... 14 21 (33.3)
Depreciation(b) .............................................................................................................. 76 114 (33.3)
Amortization (c) .............................................................................................................. 7 6 16.7
EBITDA......................................................................................................................... 210 289 (27.3)
Gain on asset dispositions and impairments, net ......................................................... (25) (1) n/m
Restructuring and other special charges, net ............................................................... 9 — n/m
Cumulative effect of accounting change....................................................................... 72 — n/m
Adjusted EBITDA.......................................................................................................... $ 266 $ 288 (7.6)
(a) Includes $5 million and $5 million of interest expense related to unconsolidated joint ventures for the three months
ended March 31, 2006 and 2005, respectively.
(b) Includes $8 million and $9 million of Starwood’s share of depreciation expense of unconsolidated joint ventures for
the three months ended March 31, 2006 and 2005, respectively.
(c) Includes $2 million and $1 million of Starwood’s share of amortization expense of unconsolidated joint ventures for
the three months ended March 31, 2006 and 2005, respectively.
Three Months Ended
March 31,
2006 2005
Cash Flow Data
Net income ............................................................................................................................. $ 5 $ 79
(Increase) decrease in restricted cash ................................................................................... 12 (58)
Adjustments to income from continuing operations, changes in working capital, and other .. 128 38
Cash from operating activities ........................................................................................... $ 145 $ 59
Cash from (used for) investing activities ......................................................................... $ 204 $ (69)
Cash from (used for) financing activities ......................................................................... $ (487) $ 2
-15-
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations – Future Performance
(In millions)
Three Months Ended
June 30, 2006
Year Ended
December 31, 2006
$ 124 Net income...................................................................................... $ 418
50 Interest expense ............................................................................. 242
29 Income tax expense ........................................................................ 195
83 Depreciation and amortization ........................................................ 335
286 EBITDA ........................................................................................... 1,190
— Gain on asset disposition and impairments, net .............................. (25)
9 Restructuring and other special charges, net .................................. 23
— Cumulative effect of accounting change.......................................... 72
$ 295 Adjusted EBITDA............................................................................. $ 1,260
Three Months Ended
June 30, 2006
Year Ended
December 31, 2006
$ 124 Income from continuing operations ................................................... 490
$ 0.55 EPS ................................................................................................... $ 2.18
Special Items
9 Restructuring and other special charges, net.................................... 23
— Debt defeasance costs...................................................................... 37
— Gain on asset dispositions and impairments, net ........................... (25)
9 Total special items – pre-tax ............................................................. 35
(3) Income tax (benefit) expense on special items ................................. (13)
— Reserves and credits associated with tax matters ............................ 1
6 Total special items – after-tax .......................................................... 23
$ 130 Income from continuing operations excluding special items............. $ 513
$ 0.58 EPS excluding special items ............................................................. $ 2.28
Three Months
Ended
June 30, 2005
Year Ended
December 31, 2005
$ 145 Net income .................................................................................... $ 422
68 Interest expense
............................................................................ 283
47 Income tax expense
...................................................................... 218
108 Depreciation
................................................................................... 423
6 Amortization .................................................................................... 26
374 EBITDA ........................................................................................... 1,372
17 Loss on asset dispositions and impairments, net .......................... 30
— Discontinued operations
................................................................ 2
— Restructuring and other special charges, net ................................ 13
$ 391 Adjusted EBITDA ........................................................................... $ 1,417
-16-
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations – Future Performance (continued)
(in millions)
Reconciliation from Previous Full Year Guidance to Current Full Year Guidance
Previous full year 2006 EBITDA guidance (1) $ 1,210
First Quarter Impact
Add: Q1 performance above prior guidance 28
Less: Residential and vacation ownership operating income accelerated into Q1 from Q2 (10)
18
Impact related to the Host transaction
Add: Expected balance of year results from retained Canadian hotels
Revenues 110
Expenses (90)
Add: Expected second quarter results from deferred hotels to be sold to Host in the second
quarter
Revenues 37
Expenses (27)
Less: Reduction in gain amortization (primarily due to retained Canadian hotels) (8)
22
Balance of year forecast
Add: Increase in management and franchise fees 10
Add: Additional business interruption insurance and other income 10
Less: Reduced residential and vacation ownership operating income (10)
10
Current full year 2006 EBITDA guidance $ 1,260
Previous full year EPS guidance (1) $ 2.14
Add: EPS associated with the EBITDA increase discussed above 0.15
Less: Increased depreciation expense primarily associated with the retained Canadian hotels. (0.04)
Less: Increased interest expense due to the retention of the Canadian hotels, delayed closing of the
Host transaction and the retention of the SHC bonds. (0.08)
Add: Lower tax rate primarily due to the benefit from the payment of the second quarter 2006 dividend
from the Trust. 0.14
Less: Higher shares outstanding primarily due to adjustments to stock options and restricted stock as
a result of the depairing of the class B shares in connection with the Host transaction. (0.03)
Current full year 2006 EPS guidance $ 2.28
(1) See Starwood’s fourth quarter 2005 earnings release for the non-GAAP to GAAP reconciliation of the previous EPS and EBITDA guidance.
-17-
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations – Same Store Owned Hotel Revenue and Expenses
(In millions)
(1) Same-Store Owned Hotel Results exclude 16 hotels sold or closed in 2006 and 2005 and 14 hotels without comparable results.
Three Months Ended
March 31,
Same-Store Owned Hotels (1)
Worldwide
2006
2005
%
Variance
Revenue
Same-Store Owned Hotels ........................................................................................................................ $ 735 $ 675 8.9
Hotels Sold or Closed in 2006 and 2005 (16 hotels)................................................................................... 5 56 (91.1)
Hotels Without Comparable Results (14 hotels) ......................................................................................... 82 82 —
Total Owned, Leased and Consolidated Joint Venture Hotels Revenue ......................................................... $ 822 $ 813 1.1
Costs and Expenses
Same-Store Owned Hotels ........................................................................................................................ $ 570 $ 538 (6.0)
Hotels Sold or Closed in 2006 and 2005 (16 hotels)................................................................................... 5 44 88.6
Hotels Without Comparable Results (14 hotels) ......................................................................................... 65 60 (8.3)
Other ancillary hotel operations.................................................................................................................. — (1) (100.0)
Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses........................................ $ 640 $ 641 0.2
Three Months Ended
March 31,
Same-Store Owned Hotels
North America 2006 2005
%
Variance
Revenue
Same-Store Owned Hotels ....................................................................................................................... $ 543 $ 485 12.0
Hotels Sold or Closed in 2006 and 2005 (14 hotels) ................................................................................. 5 47 (89.4)
Hotels Without Comparable Results (7 hotels) .......................................................................................... 72 62 16.1
Total Owned, Leased and Consolidated Joint Venture Hotels Revenue ......................................................... $ 620 $ 594 4.4
Costs and Expenses
Same-Store Owned Hotels ........................................................................................................................ $ 417 $ 387 (7.9)
Hotels Sold or Closed in 2006 and 2005 (14 hotels) .................................................................................. 5 36 86.1
Hotels Without Comparable Results (7 hotels) .......................................................................................... 54 44 (22.7)
Other ancillary hotel operations.................................................................................................................. (1) (2) (50.0)
Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses ....................................... $ 475 $ 465 (2.2)
Three Months Ended
March 31,
Same-Store Owned Hotels
International
2006
2005
%
Variance
Revenue
Same-Store Owned Hotels .................................................................................................................. $ 192 $ 190 1.0
Hotels Sold or Closed in 2006 and 2005 (2 hotels) ............................................................................... — 9 (100.0)
Hotels Without Comparable Results (7 hotels) .................................................................................... 10 20 (50.0)
Total Owned, Leased and Consolidated Joint Venture Hotels Revenue ......................................................... $ 202 $ 219 (7.8)
Costs and Expenses
Same-Store Owned Hotels ................................................................................................................. $ 153 $ 151 (1.0)
Hotels Sold or Closed in 2006 and 2005 (2 hotels) .............................................................................. — 8 100.0
Hotels Without Comparable Results (7 hotels) .................................................................................... 11 16 31.3
Other ancillary hotel operations ........................................................................................................... 1 1 —
Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses ...................................... $ 165 $ 176 6.3
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