Starwood Reports Third Quarter 2005 Results
Starwood Hotels & Resorts Worldwide, Inc. today reported EPS from continuing operations for the third quarter of 2005 of $0.18 compared to $0.49 in the third quarter of 2004. Excluding special items of $91 million, which primarily relate to tax expense on the adoption of a plan to repatriate foreign earnings in accordance with the American Jobs Creation Act of 2004 and additional tax expense related to the 1998 disposition of ITT World...
Third Quarter 2005 Highlights:
- EPS from continuing operations for the third quarter of 2005 was $0.18, compared to $0.49 in the third quarter of 2004. Excluding special items which primarily relate to tax expense on the adoption of a plan to repatriate foreign earnings in accordance with the American Jobs Creation Act of 2004 and additional tax expense related to the 1998 disposition of ITT World Directories, EPS from continuing operations was $0.58 for the third quarter of 2005 compared to $0.40 for the third quarter of 2004.
- REVPAR at Same-Store Owned Hotels in North America and worldwide increased 13.2% and 11.9%, respectively, when compared to the third quarter of 2004. ADR increased 10.1% and 8.5% in North America and worldwide, respectively.
- Margins at Starwood branded Same-Store Owned Hotels in North America improved approximately 280 basis points when compared to the third quarter of 2004.
- Globally, REVPAR for Same-Store Owned Hotels grew for W Hotels (24.5%), followed by St. Regis/Luxury Collection (11.2%), Westin (10.3%), and Sheraton (10.3%), with each of these brands experiencing both ADR and occupancy gains.
- Third-party management and franchise fees in the quarter increased 11.4% when compared to 2004.
- Vacation ownership and residential revenues, which exclude gains on sales of notes receivable, increased 33.1%. Excluding the fractional sales at the St. Regis Aspen and residential sales at the St. Regis in San Francisco, contract sales at vacation ownership properties were up 14.4% when compared to 2004.
- Net income for the third quarter of 2005 was $39 million, compared to net income of $107 million in the third quarter of 2004. Excluding special items, income from continuing operations was $131 million in the third quarter of 2005 compared to $85 million in the same period of 2004.
- Total Company Adjusted EBITDA, including the impact of Hurricanes Dennis, Katrina and Rita, increased 19.2% to $347 million when compared to $291 million in 2004. The Company's two owned hotels and one joint venture hotel in New Orleans and its owned hotel in Key West were negatively impacted by Hurricanes Dennis, Katrina and Rita. In addition to the loss of business from these storms, $4 million of insurance deductible expenses and cleanup and associate relocation costs are reflected in these results.
- According to Smith Travel Research system-wide market share in North America increased 50 basis points when compared to 2004.
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported EPS from continuing operations for the third quarter of 2005 of $0.18 compared to $0.49 in the third quarter of 2004. Excluding special items of $91 million, which primarily relate to tax expense on the adoption of a plan to repatriate foreign earnings in accordance with the American Jobs Creation Act of 2004 and additional tax expense related to the 1998 disposition of ITT World Directories, EPS from continuing operations was $0.58 for the third quarter of 2005 compared to $0.40 in the third quarter of 2004. Income from continuing operations was $40 million in the third quarter of 2005 compared to $105 million in 2004. Excluding special items, income from continuing operations was $131 million for the third quarter of 2005 compared to $85 million in 2004. Net income (after discontinued operations) was $39 million and EPS was $0.17 in the third quarter of 2005 compared to $107 million and EPS of $0.50 in the third quarter of 2004. The effective tax rate for the third quarter of 2005, including the two special tax items discussed above, was 72.3%.
Steven J. Heyer, CEO, said "Our Third Quarter performance was outstanding. Our operators remain committed to industry leading top line growth, while at the same time driving industry leading margin expansion through productivity initiatives. We remain focused on developing differentiated brand specific service excellence and emotional content. With strong brands comes significant opportunity to expand our footprint - particularly given that our brands are currently underrepresented versus our competitive set.
At the same time, we are working hard to unlock the inherent value of our owned real estate portfolio through aggressive portfolio management. We believe there will always be an important role for real estate if that real estate has significant upside development potential via timeshare, residential or repositioning.
Assets that do not fit our strategic criteria will be marketed for sale and we are in various stages of discussions with numerous interested parties. We expect that between today and twelve months from now we will likely enter into agreements for the sale of $2 - $4 billion of assets. In most cases we expect to retain long term management or franchise contracts, maintaining our footprint while unlocking value for reinvestment in the business and for share repurchase - a core strategic principle.
Our core lodging businesses remain strong. The time is right to harvest previously unrecognized assets, build on our innovative culture, build world class brands, drive related growth and secure our position as the premier owned, management and franchise hotel and resort company."
Operating Results:
Third Quarter Ended September 30, 2005
Cash flow from operations was $588 million compared to $195 million in 2004. Total Company Adjusted EBITDA was $347 million compared to $291 million in 2004.
Owned, Leased and Consolidated Joint Venture Hotels
REVPAR for Same-Store Owned Hotels in North America and worldwide increased 13.2% and 11.9%, respectively, when compared to 2004. REVPAR at Same-Store Owned Hotels in North America increased 24.5% at W, 21.6% at St. Regis/Luxury Collection, 10.8% at Sheraton, and 10.5% at Westin. REVPAR growth was particularly strong at the Company's owned hotels in New York, Seattle, Chicago, Los Angeles, Maui, Toronto, San Diego, San Francisco, and Atlanta. Revenue from transient travel was up 17.4% in North America when compared to 2004. Internationally, Same-Store Owned Hotel REVPAR increased 8.4%, with Latin America up 18.2% (REVPAR in owned hotels in Argentina, Brazil, Peru and resort areas in Mexico was particularly strong), Europe up 6.9%, and Asia Pacific up 5.6%. Excluding the favorable effects of foreign exchange, REVPAR increased 6.4% internationally.
Total revenues at Same-Store Owned Hotels worldwide increased 10.3% to $848 million when compared to $769 million in 2004 while costs and expenses at the hotels increased 7.0% to $624 million in 2005 compared to $583 million in 2004. Total revenues at Same-Store Owned Hotels in North America increased 10.9% to $613 million in 2005 when compared to $553 million in 2004 while costs and expenses at these hotels increased 7.4% to $454 million when compared to $423 million in 2004.
System-wide REVPAR; Management/Franchise Fees
System-wide (owned, managed and franchised) REVPAR for Same-Store Hotels in North America increased 11.7%; W Hotels 23.8%, St. Regis/Luxury Collection 18.2%, Sheraton 11.5%, Four Points by Sheraton 10.7%, and Westin 9.3%. For the twelfth quarter in a row, total Company market share in North America increased for the Company's owned and managed hotels as well as for system-wide hotels. Total third-party management and franchise fees were $91 million, up $9 million, or 11.4%, from last year.
Distribution
Starwood's central distribution systems gross bookings during the third quarter of 2005 increased approximately 7.7% when compared to 2004. Gross online bookings through proprietary branded websites increased 19.8% as compared to 2004, with gross dollar bookings from the proprietary branded sites increasing 32.3%. Gross online dollar bookings represented approximately 11.6% of the overall gross dollar bookings, with 76.1% of that coming from our proprietary branded websites, as compared to 10.3% of overall gross dollar bookings, with 73.3% of that from proprietary branded websites in 2004.
Vacation Ownership and Residential
Vacation ownership and residential revenue, which excludes gains on sales of notes receivable (there were no sales of notes receivable in the third quarter of 2005), was up $58 million, or 33.1% to $233 million when compared to 2004 primarily due to residential sales at the St. Regis Museum Tower in San Francisco. Vacation ownership sales increased at our resorts in Orlando, Scottsdale and Maui and decreased at our resort in Rancho Mirage, California, where substantially all of the available inventory has been sold. Contract sales, excluding fractional sales at the St. Regis Aspen and residential sales at the St. Regis in San Francisco, were up 14.4% when compared to 2004. The average price per timeshare unit sold increased approximately 7.7% to $21,595, and the number of contracts signed increased approximately 6.2% when compared to 2004.
In the third quarter of 2005, the Company continued selling condominiums at the St. Regis Museum Tower which is in the final stages of construction in San Francisco, and recognized revenues of approximately $57 million. This mixed-use project (hotel and residential) received a temporary certificate of occupancy earlier this month, and is expected to open in early November.
In addition to its robust pipeline of existing vacation ownership inventory, the Company continues to evaluate its existing owned real estate for potential conversion to vacation ownership, fractional, or residential projects. For example, the Company is converting two floors of the St. Regis hotel in New York into fractional units and has partially demolished the Sheraton in Cancun, Mexico where it will build a timeshare development that is expected to have up to 73 units upon completion of the first phase. The Company is also working with its business partners to develop similar conversion opportunities at managed hotels.
Currently, the Company is working on new phases at the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii, the Westin Kierland Villas in Scottsdale, Arizona, the Sheraton Broadway Plantation in Myrtle Beach, South Carolina, and the Sheraton Vistana Villages in Orlando, Florida.
In addition to the expansion at the existing properties above, Starwood Vacation Ownership is in the predevelopment phase of several new vacation ownership resorts including one in Princeville on the island of Kauai, Hawaii. The Company is also working on a third St. Regis-branded fractional resort in Punta Mita, Mexico.
As mentioned earlier, the Company did not sell any notes receivable and thereby did not recognize any gains during the third quarter of 2005 compared to gains of $3 million in the same period of 2004.
Brand Development/Unit Growth
During the third quarter, the Company signed 17 hotel management and franchise contracts (representing approximately 4,000 rooms) including the Westin Paris (Paris, France, 438 rooms), Sheraton Maitland (Maitland, Florida, 396 rooms), Sheraton Carlsbad (Carlsbad, California, 350 rooms) and Four Points by Sheraton Shanghai Pudong (Shanghai, China, 340 rooms). Nine new hotels and resorts (representing approximately 1,500 rooms) entered the system, including the Sheraton Myrtle Beach Convention Center Hotel (Myrtle Beach, South Carolina, 402 rooms), and the Sheraton Oran Hotel & Towers (Oran, Algeria, 321 rooms). Ten properties (representing approximately 2,300 rooms) were removed from the system during the quarter (4 Sheratons, 3 Four Points, 2 Luxury Collection and 1 unbranded). The Company had approximately 200 hotels and approximately 53,000 rooms in its active global development pipeline at September 30, 2005, with roughly half of that number in international locations.
In September 2005, the Company opened its second Remede Spa in the St. Regis hotel in New York, and in October 2005 opened a new Bliss spa, its sixth overall, in the W Lakeshore hotel in Chicago.
In the fourth quarter of 2005 and in 2006, the Company plans to open 2 new Bliss spas in W hotels in Dallas and Los Angeles, and a new Remede Spa in the St. Regis hotel in San Francisco with several others in various planning stages.
Results for the Nine Months Ended September 30, 2005:
EPS from continuing operations was $1.18 compared to $1.21 in 2004. Excluding special items, EPS from continuing operations was $1.63 compared to $1.05 in 2004. Income from continuing operations was $264 million compared to $258 million in 2004. Excluding special items, income from continuing operations was $364 million compared to $225 million in 2004. Net income (after discontinued operations) was $263 million and EPS was $1.18 compared to $295 million and $1.38, respectively, in 2004.
Cash flow from operations was $818 million compared to $377 million in 2004. Total Company Adjusted EBITDA was $1.026 billion compared to $823 million in 2004.
Capital:
Gross capital spending during the quarter included approximately $57 million in renovations of hotel assets including construction capital at the St. Regis in New York, New York, the Westin Long Beach in Long Beach, California, and the Sheraton Centre Toronto Hotel in Toronto, Canada. Investment spending on gross VOI inventory was $27 million, which was more than offset by cost of sales of $43 million tied to VOI sales during the quarter. The inventory spend included VOI construction at the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii, the Sheraton Vistana Villages in Orlando, Florida, and the Westin Kierland Villas in Scottsdale, Arizona. Additionally during the quarter, further investment spending of $85 million included the ongoing development of the St. Regis Museum Tower in San Francisco which will consist of 260 hotel rooms and 102 condominium units. Through September 30, 2005, the Company has invested $294 million in the St. Regis Museum Tower project, which, as discussed earlier, is expected to open in early November 2005. The Company expects to realize gross proceeds of approximately $245 million from the sale of the project's condominiums and has recognized approximately $156 million in revenues to date.
Balance Sheet:
At September 30, 2005, the Company had total debt of $4.307 billion and cash and cash equivalents (including $262 million of restricted cash) of $1.171 billion, or net debt of $3.136 billion, compared to net debt of $3.460 billion at the end of the second quarter of 2005. In addition, the Company continues to have an investment in the senior debt of Le Meridien hotels and at September 30, 2005 the balance of that investment including accrued interest was $225 million.
At September 30, 2005, debt was approximately 78% fixed rate and 22% floating rate and its weighted average maturity was 4.4 years with a weighted average interest rate of 6.15%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $2.172 billion.
2005 Asset Sales
In the nine months ended September 30, 2005, in addition to the sale of three hotels in joint ventures that we hold minority interest in, the Company sold six wholly owned hotels for total cash proceeds of $132 million. In addition, the Company signed purchase and sale agreements for another three hotels for gross proceeds of approximately $334 million. These sales are expected to close before the end of 2005. The Company's guidance for 2006 includes only management or franchise fees expected from these sold hotels.
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.
For the fourth quarter of 2005, if REVPAR at Same-Store Owned Hotels in North America increases approximately 10% -12% versus the same period in 2004:
- Adjusted EBITDA would be expected to be approximately $384 million, an increase of 17.4% when compared to $327 million in the same period of 2004.
- Net income would be expected to be approximately $143 million, an increase of 16.3% when compared to income from continuing operations before special items in the fourth quarter of 2004.
- EPS would be expected to be $0.64, an increase of 12.3% when compared to EPS from continuing operations before special items in the fourth quarter of 2004.
For the full year 2005, based on the fourth quarter 2005 assumptions above:
- Full year revenues, including other revenues from managed and franchised properties, would be expected to be approximately $6.0 billion.
- Full year Adjusted EBITDA would be expected to increase approximately 22.6% to approximately $1.410 billion, when compared to 2004 Adjusted EBITDA of $1.150 billion.
- Full year net income before special items would be expected to be approximately $506 million at approximately a 24% effective tax rate, which assumes an annual dividend of $0.84 per Share (payable in January 2006), when compared to 2004 income from continuing operations before special items of approximately $348 million at a 13.9% effective tax rate.
- Full year EPS before special items would be expected to increase approximately 40.1% to $2.27 when compared to 2004 EPS from continuing operations before special items of $1.62.
- Full year capital expenditures (excluding timeshare inventory) would be approximately $550 million, including $300 million for maintenance, renovation and technology, approximately $100 million for the completion of the St. Regis San Francisco multi-use project under construction, and $150 million for other growth initiatives. Additionally, net capital expenditures for timeshare inventory would be approximately $100 million.
- For the full year the Company expects cash interest expense of approximately $284 million and cash taxes of approximately $462 million.
For the full year 2006, if REVPAR at Same-Store Owned Hotels in North America increases approximately 8% - 10% versus the full year 2005:
- Full year Adjusted EBITDA, after adjusting for 2005 asset sales that we believe would have contributed approximately $30 million of EBITDA in 2006, is expected to be approximately $1.560 billion, when compared to 2005 Adjusted EBITDA of $1.410 billion. The Adjusted EBITDA estimate includes margin improvement of approximately 200 basis points.
- Full year income from continuing operations would be expected to be approximately $611 million at a 27% effective tax rate, which assumes an annual dividend of $0.84 per Share (payable in January 2007), when compared to 2005 net income before special items of approximately $506 million at a 24% effective tax rate.
- Full year EPS would be expected to increase approximately 19% to $2.70 when compared to 2005 EPS before special items of $2.27.
- The Company's guidance for 2006 above excludes the impact of SFAS 123R which requires the Company to begin expensing options in 2006. Stock option expense is expected to be approximately $40 to $45 million on a pre-tax basis or $0.13 to $0.15 of EPS. While the Board of Directors has not made final decisions on stock based compensation for 2006, the guidance assumes a shift to more restricted stock which adds $10 to $15 million to restricted stock expense in the 2006 EBITDA guidance with a commensurate reduction in option expense.
- The 2006 guidance also excludes the impact of the adoption of SFAS 152, Accounting for Real Estate Time-Sharing Transactions, which is expected to result in a one-time pre-tax charge of approximately $100 to $120 million in the first quarter of 2006.
- The 2006 guidance also excludes transition costs associated with the Meridien transaction which is assumed to close by year end 2005.
Special Items:
The Company recorded net charges of $91 million (after-tax) for special items in the third quarter of 2005 compared to $20 million of net credits (after-tax) in the same period of 2004.
Special items in the third quarter of 2005 primarily relate to tax expense on the adoption of a plan to repatriate foreign earnings in accordance with the American Jobs Creation Act of 2004, additional tax expense related to the Company's 1998 disposition of ITT World Directories and losses on the sale of two 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 Nine Months
Ended Ended
September 30, September 30,
-------------- -------------
2005 2004 2005 2004
----- ----- ----- -----
Income from continuing operations before
$ 131 $ 85 special items $ 364 $ 225
----- ----- ----- -----
$0.58 $0.40 EPS before special items $1.63 $1.05
----- ----- ----- -----
Special Items
Restructuring and other special credits,
- 37 net (a) - 37
Adjustment to costs associated with
- - construction remediation (b) - 4
Loss on asset dispositions and
(16) (4) impairments, net (c) (32) (8)
----- ----- ----- -----
(16) 33 Total special items - pre-tax (32) 33
Income tax benefit (expense) for special
6 (13) items (d) 11 (12)
Tax expense on repatriation of foreign
(47) - earnings (e) (47) -
Reserves and settlements associated with
(34) - tax matters (f) (32) 12
----- ------ ----- -----
(91) 20 Total special items - after-tax (100) 33
----- ----- ----- -----
$ 40 $ 105 Income from continuing operations $ 264 $ 258
----- ----- ----- -----
$0.18 $0.49 EPS including special items $1.18 $1.21
===== ===== ===== =====
(a) During the three and nine months ended September 30, 2004, the
Company reversed a $37 million reserve previously recorded through
restructuring and other special credits due to a favorable
judgment in a litigation matter.
(b) Represents adjustments to the Company's share of costs for
construction remediation efforts at a property owned by a vacation
ownership unconsolidated joint venture that were previously
recorded in 2002.
(c) For the three months ended September 30, 2005, primarily reflects
the losses recorded on the sale of two hotels. For the nine months
ended September 30, 2005, the loss also reflects impairment
charges associated with the Sheraton hotel in Cancun, Mexico that
is being partially demolished in order to build vacation ownership
units. Loss of $4 million and $8 million for the three and nine
months ended September 30, 2004, respectively, reflects impairment
charges primarily associated with the Company's investment in a
joint venture that owns a hotel managed by the Company and the
renovation of a portion of the W New York for the Bliss spa.
(d) Represents taxes on special items at the Company's incremental tax
rate.
(e) Represents tax expense associated with the adoption of a plan to
repatriate foreign earnings, in accordance with the American Jobs
Creation Act of 2004.
(f) The Company recorded a tax charge of approximately $40 million for
the three and nine months ended September 30, 2005 to increase its
tax reserves relating to the Company's 1998 disposition of World
Directories as a result of a recent United States Tax Court
decision against another taxpayer. This amount also includes tax
refunds of $6 million and $8 million in the three and nine months
ended September 30, 2005, respectively, related to tax years prior
to the 1995 split-up of ITT Corporation. Tax benefit of $12
million in the nine months ended September 30, 2004 reflects the
favorable results of certain changes to the Federal tax rules.
Starwood will be conducting a conference call to discuss the third quarter financial results at 10:30 a.m. (EDT) today. The conference call will be available through simultaneous webcast in the Investor Relations/Press Releases section of the Company's website at www.starwoodhotels.com. A replay of the conference call will also be available from 1:30 p.m. (EDT) today through Wednesday, November 2 at 12:00 midnight (EDT) on both the Company's website and via telephone replay at (719) 457-0820 (access code 9041603).
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 8 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 reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
% %
2005 2004 Variance 2005 2004 Variance
------ ------ -------- ------ ------ ---------
Revenues
Owned, leased and
consolidated joint
$ 871 $ 811 7.4 venture hotels $2,623 $2,448 7.1
Vacation ownership
and residential
233 175 33.1 sales and services 697 443 57.3
Management fees,
franchise fees and
126 105 20.0 other income 349 299 16.7
Other revenues from
managed and
franchised
266 245 8.6 properties (a) 792 736 7.6
------ ------ -------- ------ ------ ---------
1,496 1,336 11.9 4,461 3,926 13.6
Costs and Expenses
Owned, leased and
consolidated joint
646 617 (4.7) venture hotels 1,962 1,864 (5.3)
Vacation ownership
169 132 (28.0) and residential 503 334 (50.6)
Selling, general,
administrative and
98 74 (32.4) other 274 244 (12.3)
- Restructuring and
other special
(37) (100.0) credits, net - (37) (100.0)
99 103 3.9 Depreciation 305 306 0.3
4 4 - Amortization 13 13 -
Other expenses from
managed and
franchised
266 245 (8.6) properties (a) 792 736 (7.6)
------ ------ -------- ------ ------ ---------
1,282 1,138 (12.6) 3,849 3,460 (11.2)
214 198 8.1 Operating income 612 466 31.3
Gain on sale of VOI
- 3 (100.0) notes receivable - 11 (100.0)
Equity earnings
from
unconsolidated
9 6 50.0 ventures, net 40 22 81.8
Interest expense,
net of interest
income of $6, $1,
(59) (64) 7.8 $11 and $2 (181) (193) 6.2
Loss on asset
dispositions and
(16) (4) n/m impairments, net (32) (8) n/m
------ ------ -------- ------ ------ ---------
Income from
continuing
operations before
taxes and minority
148 139 6.5 equity 439 298 47.3
(60) (34) (76.5) Income tax expense (128) (41) n/m
Tax expense on
repatriation of
(47) - n/m foreign earnings (47) - n/m
Minority equity in
(1) - n/m net (income) loss - 1 (100.0)
------ ------- -------- ------- ------ ---------
Income from
continuing
40 105 (61.9) operations 264 258 2.3
Discontinued
operations:
Loss from
(1) - n/m operations (b) (1) - n/m
Gain on
- 2 (100.0) disposition (c) - 37 (100.0)
------- ------ -------- ------- ------ ---------
$ 39 $ 107 (63.6) Net income $ 263 $ 295 (10.8)
====== ====== ======== ====== ====== =========
Earnings Per
Share - Basic
Continuing
$ 0.19 $ 0.51 (62.7) operations $ 1.22 $ 1.25 (2.4)
Discontinued
(0.01) 0.01 n/m operations - 0.18 (100.0)
------ ------ -------- ------- ------ ---------
$ 0.18 $ 0.52 (65.4) Net income $ 1.22 $ 1.43 (14.7)
====== ====== ======== ====== ====== =========
Earnings Per Share
- Diluted
Continuing
$ 0.18 $ 0.49 (63.3) operations $ 1.18 $ 1.21 (2.5)
Discontinued
(0.01) 0.01 n/m operations - 0.17 (100.0)
------ ------ -------- ------- ------ ---------
$ 0.17 $ 0.50 (66.0) Net income $ 1.18 $ 1.38 (14.5)
====== ====== ======== ====== ====== =========
Weighted average
218 208 number of Shares 216 207
====== ====== ====== ======
Weighted average
number of Shares
226 215 assuming dilution 223 214
====== ====== ====== ======
(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.
(b) 2005 activity represents a sales and use tax assessment related to
the Company's gaming business disposed of in 1999 for periods
prior to its disposition.
(c) 2004 activity represents the reversal of reserves that are no
longer required as the related contingencies have been resolved
and the favorable resolution of certain tax matters related to the
1999 divestiture of the Company's gaming business.
n/m = not meaningful
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
September 30, December 31,
2005 2004
------------- ------------
Assets (unaudited)
-------------
Current assets:
Cash and cash equivalents $ 909 $ 326
Restricted cash 251 347
Accounts receivable, net of allowance for
doubtful accounts of $58 and $58 642 482
Inventories 281 371
Prepaid expenses and other 187 157
----------- -----------
Total current assets 2,270 1,683
Investments 408 453
Plant, property and equipment, net 6,777 6,997
Goodwill and intangible assets, net 2,539 2,544
Other assets (a) 745 621
----------- -----------
$ 12,739 $ 12,298
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current
maturities of long-term debt (b) $ 604 $ 619
Accounts payable 149 200
Accrued expenses 802 872
Accrued salaries, wages and benefits 262 299
Accrued taxes and other 471 138
----------- -----------
Total current liabilities 2,288 2,128
Long-term debt (b) 3,703 3,823
Deferred income taxes 611 880
Other liabilities 682 652
----------- -----------
7,284 7,483
Minority interest 25 27
Exchangeable units and Class B preferred
shares, at redemption value of $38.50 - -
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 597,825 shares at September 30, 2005
and December 31, 2004, respectively - -
Corporation common stock; $0.01 par value;
authorized 1,050,000,000 shares;
outstanding 219,272,686 and 208,730,800
shares at September 30, 2005 and December
31, 2004, respectively 2 2
Trust Class B shares of beneficial
interest; $0.01 par value; authorized
1,000,000,000 shares; outstanding
219,272,686 and 208,730,800 shares at
September 30, 2005 and December 31, 2004,
respectively 2 2
Additional paid-in capital 5,593 5,121
Deferred compensation (64) (14)
Accumulated other comprehensive loss (298) (255)
Retained earnings (accumulated deficit) 195 (68)
----------- -----------
Total stockholders' equity 5,430 4,788
----------- -----------
$ 12,739 $ 12,298
=========== ===========
(a) Includes restricted cash of $11 million and $10 million at
September 30, 2005 and December 31, 2004, respectively.
(b) Excludes Starwood's share of unconsolidated joint venture debt
aggregating approximately $421 million and $438 million at
September 30, 2005 and December 31, 2004, respectively.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Historical Data
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
% %
2005 2004 Variance 2005 2004 Variance
----- ----- --------- ------ ------ ---------
Reconciliation of
Net Income to
EBITDA and
Adjusted EBITDA
$ 39 $ 107 (63.6) Net income $ 263 $ 295 (10.8)
70 68 (2.9) Interest expense(a) 207 209 1.0
Income tax
106 35 n/m expense(b) 174 8 n/m
108 111 2.7 Depreciation(c) 330 330 -
6 6 - Amortization(d) 18 18 -
----- ----- --------- ------ ------ ---------
329 327 0.6 EBITDA 992 860 15.3
Adjustment to costs
associated with
construction
- - - remediation - (4) (100.0)
Loss on asset
dispositions and
16 4 n/m impairments, net 32 8 n/m
Restructuring and
other special
- (37) (100.0) credits, net - (37) (100.0)
Discontinued
2 (3) n/m operations(e) 2 (4) n/m
----- ----- --------- ------ ------ ---------
$ 347 $ 291 19.2 Adjusted EBITDA $1,026 $ 823 24.7
===== ===== ========= ====== ====== =========
(a) Includes $5 and $3 million of interest expense related to
unconsolidated joint ventures for the three months ended September
30, 2005 and 2004, respectively, and $15 and $14 million for the
nine months ended September 30, 2005 and 2004, respectively.
(b) Includes $47 million of tax expense on the repatriation of foreign
earnings for the three and nine months ended September 30, 2005.
Also includes $(1) and $1 million of tax expense (benefit)
recorded in discontinued operations for the three months ended
September 30, 2005 and 2004, respectively, and $(1) and $(33)
million for the nine months ended September 30, 2005 and 2004,
respectively.
(c) Includes $9 and $8 million of Starwood's share of depreciation
expense of unconsolidated joint ventures for the three months
ended September 30, 2005 and 2004, respectively, and $25 and $24
million for the nine months ended September 30, 2005 and 2004,
respectively.
(d) Includes $2 and $2 million of Starwood's share of amortization
expense of unconsolidated joint ventures for the three months
ended September 30, 2005 and 2004, respectively, and $5 and $5
million for the nine months ended September 30, 2005 and 2004,
respectively.
(e) Excludes the taxes already added back as noted in (b) above.
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
2005 2004 2005 2004
------ ------ ------ ------
Cash Flow Data
$ 39 $ 107 Net income $ 263 $ 295
Exclude:
1 (2) Discontinued operations, net 1 (37)
----- ----- ----- -----
40 105 Income from continuing operations 264 258
258 (67) (Increase) decrease in restricted cash 97 (197)
Adjustments to income from continuing
operations, changes in working capital,
290 157 and other 457 315
----- -----
588 195 Cash from continuing operations 818 376
- - Cash from discontinued operations - 1
----- ----- ----- -----
$ 588 $ 195 Cash from operating activities $ 818 $ 377
===== ===== ===== =====
$(103) $ (80) Cash used for investing activities $ (254) $(324)
===== ===== ===== =====
Cash from (used for) financing
$ 45 $ (50) activities $ 34 $(251)
===== ===== ===== =====
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Future Performance
(In millions)
Year Ended
December 31, 2005
-----------------
Net income before special items $ 506
Special items (see page 8) (100)
---------------
Net income $ 406
===============
EPS before special items $ 2.27
Special items (see page 8) (0.45)
---------------
EPS $ 1.82
===============
Three Months Year Ended December
Ended 31,
December 31, 2005 2005 2006
----------------- --------- ---------
$ 143 Net Income $ 406 $ 611
77 Interest expense 284 270
48 Income tax expense 222 226
116 Depreciation and amortization 464 453
-------------- --------- ---------
384 EBITDA 1,376 1,560
Loss on asset dispositions and
- impairments, net 32 -
- Discontinued operations 2 -
--------------- --------- ----------
$ 384 Adjusted EBITDA $ 1,410 $ 1,560
============== ========= =========
Three Months Ended Year Ended
December 31, 2004 December 31, 2004
------------------ -----------------
$ 100 Net income $ 395
66 Interest expense 275
26 Income tax expense 34
115 Depreciation 445
8 Amortization 26
---------------- ---------------
315 EBITDA 1,175
Loss on asset dispositions and
25 impairments, net 33
(13) Discontinued operations (17)
Restructuring and other special
- credits, net (37)
Adjustment to costs associated
- with construction remediation (4)
---------------- ---------------
$ 327 Adjusted EBITDA $ 1,150
================ ===============
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Same Store Owned Hotel Revenue
and Expenses
(In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
Same-Store Owned
% Hotels (1) %
2005 2004 Variance Worldwide 2005 2004 Variance
----- ----- -------- ------ ------ ---------
Revenue
Same-Store Owned
$ 848 $ 769 10.3 Hotels $2,498 $2,299 8.7
Hotels Sold or
Closed in 2005 and
3 17 (82.4) 2004 (7 hotels) 27 52 (48.1)
Hotels Without
Comparable Results
15 20 (25.0) (7 hotels) 92 91 1.1
Other ancillary
5 5 - hotel operations 6 6 -
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 871 $ 811 7.4 Revenue $2,623 $2,448 7.1
===== ===== ======== ====== ====== =========
Costs and Expenses
Same-Store Owned
$ 624 $ 583 (7.0) Hotels $1,864 $1,750 (6.5)
Hotels Sold or
Closed in 2005 and
2 15 86.7 2004 (7 hotels) 23 44 47.7
Hotels Without
Comparable Results
18 17 (5.9) (7 hotels) 72 66 (9.1)
Other ancillary
2 2 - hotel operations 3 4 25.0
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 646 $ 617 (4.7) Costs and Expenses $1,962 $1,864 (5.3)
===== ===== ======== ====== ====== =========
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
% Same-Store Owned %
2005 2004 Variance Hotels North America 2005 2004 Variance
------ ------ -------- ------ ------ ---------
Revenue
Same-Store Owned
$ 613 $ 553 10.9 Hotels $1,799 $1,665 8.0
Hotels Sold or
Closed in 2005 and
3 12 (75.0) 2004 (6 hotels) 23 38 (39.5)
Hotels Without
Comparable Results
14 16 (12.5) (6 hotels) 80 78 2.6
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 630 $ 581 8.4 Revenue $1,902 $1,781 6.8
===== ===== ======== ====== ====== =========
Costs and Expenses
Same-Store Owned
$ 454 $ 423 (7.4) Hotels $1,342 $1,272 (5.5)
Hotels Sold or
Closed in 2005 and
2 11 81.8 2004 (6 hotels) 18 32 43.8
Hotels Without
Comparable Results
17 14 (21.4) (6 hotels) 65 57 (14.0)
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 473 $ 448 (5.6) Costs and Expenses $1,425 $1,361 (4.7)
===== ===== ======== ====== ====== =========
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
Same-Store
% Owned Hotels %
2005 2004 Variance International 2005 2004 Variance
------ ------ -------- ------ ------- ---------
Revenue
Same-Store Owned
$ 235 $ 216 8.8 Hotels $ 699 $ 634 10.3
- Hotels Sold or
Closed in 2005 and
5 (100.0) 2004 (1 hotel) 4 14 (71.4)
Hotels Without
Comparable Results
1 4 (75.0) (1 hotel) 12 13 (7.7)
Other ancillary
5 5 - hotel operations 6 6 -
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 241 $ 230 4.8 Revenue $ 721 $ 667 8.1
===== ===== ======== ====== ====== =========
Costs and Expenses
Same-Store Owned
$ 170 $ 160 (6.3) Hotels $ 522 $ 478 (9.2)
- Hotels Sold or
Closed in 2005 and
4 100.0 2004 (1 hotel) 5 12 58.3
Hotels Without
Comparable Results
1 3 66.7 (1 hotel) 7 9 22.2
- Other ancillary
2 2 hotel operations 3 4 25.0
----- ----- -------- ------ ------ ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$ 173 $ 169 (2.4) Costs and Expenses $ 537 $ 503 (6.8)
===== ===== ======== ====== ====== =========
(1) Same-Store Owned Hotel Results exclude 7 hotels sold or closed in
2005 and 2004 and 7 hotels without comparable results.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Hotel Results - Same Store Owned Hotels(1)
For the Three Months Ended
September 30, 2005
UNAUDITED
WORLDWIDE NORTH AMERICA
--------------------- ---------------------
2005 2004 Var. 2005 2004 Var.
------- ------- ----- ------- ------- -----
128 Hotels 85 Hotels
--------------------- ---------------------
SAME STORE OWNED HOTELS
REVPAR ($) 126.76 113.29 11.9% 127.00 112.22 13.2%
ADR ($) 171.69 158.17 8.5% 165.65 150.49 10.1%
OCCUPANCY (%) 73.8% 71.6% 2.2 76.7% 74.6% 2.1
56 34
--------------------- ---------------------
SHERATON
REVPAR ($) 105.60 95.78 10.3% 114.87 103.72 10.8%
ADR ($) 147.38 136.40 8.0% 151.26 138.35 9.3%
OCCUPANCY (%) 71.6% 70.2% 1.4 75.9% 75.0% 0.9
36 22
--------------------- ---------------------
WESTIN
REVPAR ($) 132.48 120.07 10.3% 117.49 106.35 10.5%
ADR ($) 177.29 164.36 7.9% 154.43 141.36 9.2%
OCCUPANCY (%) 74.7% 73.1% 1.6 76.1% 75.2% 0.9
9 3
--------------------- ---------------------
ST. REGIS/LUXURY
COLLECTION
REVPAR ($) 239.32 215.30 11.2% 201.11 165.34 21.6%
ADR ($) 372.22 363.58 2.4% 318.04 292.31 8.8%
OCCUPANCY (%) 64.3% 59.2% 5.1 63.2% 56.6% 6.6
10 10
--------------------- ---------------------
W
REVPAR ($) 202.21 162.38 24.5% 202.21 162.38 24.5%
ADR ($) 246.66 214.15 15.2% 246.66 214.15 15.2%
OCCUPANCY (%) 82.0% 75.8% 6.2 82.0% 75.8% 6.2
17 16
--------------------- ---------------------
OTHER
REVPAR ($) 106.43 95.90 11.0% 105.72 95.78 10.4%
ADR ($) 132.95 124.84 6.5% 131.83 126.86 3.9%
OCCUPANCY (%) 80.1% 76.8% 3.3 80.2% 75.5% 4.7
(1) Hotel Results exclude 7 hotels sold or closed and 6 hotels without
comparable results during 2004 and 2005
(2) See next page for breakdown by division
INTERNATIONAL(2)
----------------------
2005 2004 Var.
------- ------- ------
43 Hotels
----------------------
SAME STORE OWNED HOTELS
REVPAR ($) 126.09 116.37 8.4%
ADR ($) 191.79 184.02 4.2%
OCCUPANCY (%) 65.7% 63.2% 2.5
22
----------------------
SHERATON
REVPAR ($) 85.94 79.01 8.8%
ADR ($) 137.41 131.30 4.7%
OCCUPANCY (%) 62.5% 60.2% 2.3
14
----------------------
WESTIN
REVPAR ($) 179.93 163.32 10.2%
ADR ($) 255.42 246.80 3.5%
OCCUPANCY (%) 70.4% 66.2% 4.2
6
----------------------
ST. REGIS/LUXURY COLLECTION
REVPAR ($) 293.93 290.39 1.2%
ADR ($) 446.63 459.46 (2.8%)
OCCUPANCY (%) 65.8% 63.2% 2.6
W
REVPAR ($)
ADR ($)
OCCUPANCY (%)
1
----------------------
OTHER
REVPAR ($) 110.56 96.62 14.4%
ADR ($) 139.49 114.35 22.0%
OCCUPANCY (%) 79.3% 84.5% (5.2)
(1) Hotel Results exclude 7 hotels sold or closed and 6 hotels without
comparable results during 2004 and 2005
(2) See next page for breakdown by division
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Hotel Results - Same Store Owned Hotels(1)
For the Three Months Ended
September 30, 2005
UNAUDITED
EUROPE LATIN AMERICA
----------------------- ----------------------
2005 2004 Var. 2005 2004 Var.
-------- ------- ------ -------- ------- -----
28 Hotels 11 Hotels
----------------------- ----------------------
SAME STORE OWNED HOTELS
REVPAR ($) 175.42 164.10 6.9% 59.38 50.22 18.2%
ADR ($) 253.15 248.43 1.9% 102.98 93.98 9.6%
OCCUPANCY (%) 69.3% 66.1% 3.2 57.7% 53.4% 4.3
11 8
----------------------- ----------------------
SHERATON
REVPAR ($) 112.51 105.99 6.2% 52.71 43.55 21.0%
ADR ($) 161.66 154.75 4.5% 97.55 89.82 8.6%
OCCUPANCY (%) 69.6% 68.5% 1.1 54.0% 48.5% 5.5
11 3
----------------------- ----------------------
WESTIN
REVPAR ($) 216.09 196.51 10.0% 84.67 75.56 12.1%
ADR ($) 308.36 307.66 0.2% 118.57 104.58 13.4%
OCCUPANCY (%) 70.1% 63.9% 6.2 71.4% 72.3% (0.9)
6
-----------------------
ST. REGIS/LUXURY
COLLECTION
REVPAR ($) 293.93 290.39 1.2%
ADR ($) 446.63 459.46 (2.8%)
OCCUPANCY (%) 65.8% 63.2% 2.6
OTHER
REVPAR ($)
ADR ($)
OCCUPANCY (%)
(1) Hotel Results exclude 7 hotels sold or closed and 6 hotels without
comparable results during 2004 and 2005
ASIA PACIFIC
---------------------
2005 2004 Var.
------- ------- -----
4 Hotels
---------------------
SAME STORE OWNED HOTELS
REVPAR ($) 115.11 109.03 5.6%
ADR ($) 156.56 139.44 12.3%
OCCUPANCY (%) 73.5% 78.2% (4.7)
3
---------------------
SHERATON
REVPAR ($) 117.90 116.63 1.1%
ADR ($) 168.41 156.93 7.3%
OCCUPANCY (%) 70.0% 74.3% (4.3)
WESTIN
REVPAR ($)
ADR ($)
OCCUPANCY (%)
ST. REGIS/LUXURY COLLECTION
REVPAR ($)
ADR ($)
OCCUPANCY (%)
1
---------------------
OTHER
REVPAR ($) 110.56 96.62 14.4%
ADR ($) 139.49 114.35 22.0%
OCCUPANCY (%) 79.3% 84.5% (5.2)
(1) Hotel Results exclude 7 hotels sold or closed and 6