UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 2003
WESTCOAST HOSPITALITY CORPORATION
Exact Name of Registrant as Specified in Charter)
Washington 001-13957 91-1032187
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification No.)
201 W. North River Drive
Suite 100
Spokane, Washington 99201
(Address of Principal (Zip Code)
Executive Offices)
(509) 459-6100
(Registrant's telephone number, including area code)
ITEM 7. Financial Statements and Exhibits
(c) Exhibits.
The following exhibit is furnished pursuant to Item 12 hereof:
Exhibit No. Exhibit
------------- -----------------------------------------------------------------
99.1 Press release dated February 3, 2004 reporting third quarter
2003 financial results
ITEM 12. Results of Operations and Financial Condition
On February 2, 2004, the registrant issued a press release setting forth its
fourth quarter 2003 financial results. A copy of the press release is furnished
as Exhibit 99.1 to this Form 8-K.
The press release disclosed that the registrant's net loss for the three months
ended December 31, 2003 and 2002 was $2,038,000 and $1,353,000 respectively.
EBITDA (defined as net income before income taxes, interest expense,
depreciation and amortization) for the same periods was $2,276,000 and
$3,070,000, respectively. The press release also disclosed that the registrant's
net income for the years ended December 31, 2003 and 2002 was $1,219,000 and
$8,007,000, respectively. EBITDA for the same periods was $25,269,000 and
$33,610,000, respectively. A reconciliation of EBITDA to net income for these
periods was attached to the press release.
The information furnished in this report on Form 8-K shall not be deemed "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933
or the Exchange Act, except as expressly set forth by specific reference in such
a filing.
By filing this report on Form 8-K, WestCoast Hospitality Corporation makes no
admission as to the materiality of any information in this report. WestCoast
Hospitality Corporation reserves the right to discontinue the availability of
the information in the attached exhibit from its website at any time.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTCOAST HOSPITALITY CORPORATION
(Registrant)
/s/ Peter P. Hausback
Vice President,
Date: February 2, 2004 Chief Financial Officer
(Signature)
EXHIBIT INDEX
Exhibit No. Exhibit
------------ -----------------------------------------------------------------
99.1 Press release dated February 2, 2004 reporting fourth
quarter 2003 financial results
Exhibit 99.1
WestCoast Hospitality Corporation Announces Fourth Quarter and Year End
Financial Results
February 3, 2004
SPOKANE, Wash. - WestCoast Hospitality Corporation (NYSE: WEH) today announced
financial results for the fourth quarter and year ended December 31, 2003. The
Company reported total revenue of $41.2 million for the fourth quarter of 2003,
compared to $44.4 million for the comparable period in 2002. EBITDA (earnings
before interest, taxes, depreciation and amortization) was $2.3 million in the
fourth quarter of 2003 compared to $3.1 million for the fourth quarter of 2002.
Loss per share was $0.20 in the fourth quarter of 2003, compared to a per share
loss of $0.15 in the prior year fourth quarter. RevPAR (revenue per available
room) for comparable hotels (hotels owned, leased, managed and franchised for at
least one year) decreased 3.7% from $33.95 in the fourth quarter of 2002 to
$32.68 in the comparable period of 2003, due to a 3.5% decrease in average daily
rate, to $66.54, and a slight decrease in occupancy, to 49.1% for the fourth
quarter of 2003.
Total revenue for 2003 was $184.0 million compared to $194.2 million in 2002.
EBITDA was $25.3 million in 2003 compared to $33.6 million in 2002, and the loss
per share in 2003 was $0.10 compared to diluted earnings per share of $0.41 in
2002. During 2003, the Company generated $11.3 million of net cash provided from
operating activities and ended 2003 with cash on hand of $13.1 million compared
to $2.7 million at the end of 2002. A number of repositioning initiatives
impacted year-on-year financial comparisons, including the following: results
from the first quarter of 2002 included a $3.0 million pre-tax gain on the sale
of an office building; 2003 results included more than $794,000 of conversion
expenses including a non-cash write down of signage related to the re-branding
of hotels to the Red Lion name; the Company completed the refinance and
replacement of its revolving credit facility in the second and third quarter of
2003, resulting in a non-cash write-off of $927,000 in loan fees; in the second
quarter of 2003 the Company realized a loss on disposition of partnership
interest of $443,000; and, the Company during 2003 recaptured approximately $2.1
million of non-cash depreciation expense associated with assets that were
reclassified in 2003 as no longer held for sale. The above items accounted for a
decline in income before taxes of $7.3 million in 2003 compared to 2002.
The Company reported hotel and restaurant revenue at owned and leased hotels of
$36.4 million for the fourth quarter of 2003, compared to $38.9 million in the
comparable period of 2002. Revenue declines were primarily a result of reduced
group business as compared to the fourth quarter of 2002. A large component of
2002 group business which was not repeated in 2003 was from the Transportation
Security Administration, which conducted extensive training during that time.
The Company expects to experience normal seasonal declines in revenue during the
fourth quarter and was able to reduce the impact of these declines through
effective expense management, lowering hotel operating expenses by $1.6 million
compared to the prior year quarter. The Company continued in the fourth quarter
to strengthen its market penetration through implementation of its Alternate
Distribution Channel management system and increased sales efforts, which
mitigated the decline in group business with increased occupancy in the
transient leisure markets. This strategy has successfully increased customer
market share, albeit at a reduced average daily rate. The Company intends to
focus on increasing its occupancy percentage and then increase its rate
structure to the extent permitted by any improvement in the general economy and
increase in travel demand.
During the quarter, the Company announced the disposition of the 245-room Red
Lion River Inn in a sale and leaseback transaction. The sale provided a pre-tax
gain of $7.0 million of deferred income, which is being recognized over the
initial 15-year lease term. The Company continues to operate the property as the
Red Lion River Inn under an operating lease, which also includes three five-year
renewal options. On January 13, 2004, the Company announced that proceeds from
the sale were used to acquire the 172-room Red Lion Hotel Yakima Gateway in a
Section 1031 tax deferred exchange. This hotel was previously operated by the
Company through an operating lease.
On November 4, 2003, the Company announced a proposed public offering of $40
million ($46 million with over allotment option) of trust preferred securities
by WestCoast Hospitality Capital Trust, a Delaware statutory trust sponsored by
the Company. The offering is expected to commence during the first quarter of
2004. Upon completion of the offering, approximately $30 million of the net
proceeds will be used to redeem all of the outstanding Series A and Series B
Preferred Stock of the Company and the balance of the proceeds will be used for
general corporate purposes.
For the quarter, franchise, central services and development revenue was
$700,000 compared to $800,000 in the prior year period. The decrease in revenue
was primarily due to a reduction in royalty fees resulting from a net decline in
the number of hotels franchised by the Company. Operating expenses for the
fourth quarter of 2003 declined $185,000 compared to the prior year comparable
period.
Entertainment division revenue was $2.0 million in the fourth quarter of 2003
compared to $2.5 million in the prior year fourth quarter. The revenue decline
was primarily due to a reduction in the number of entertainment presentations
during the fourth quarter of 2003. Expenses declined by $541,000 during the
fourth quarter of 2003 compared to the comparable period of 2002, also primarily
due to the reduction in entertainment presentations. The reduction in
presentations was due to scheduling differences from the prior year quarter.
Real estate division revenue was $2.1 million during the fourth quarter of 2003
compared to $2.2 million in the prior year comparable period. The year-on-year
decline was due primarily to a reduction in fee income compared to the prior
year quarter. Expenses declined $52,000 during the fourth quarter of 2003
compared to the fourth quarter of 2002. On January 22, 2004, the Company
announced a lease agreement with Sterling Savings Bank to occupy approximately
45,000 square feet of office space in the Company-owned Crescent Building in
Spokane, Washington.
Depreciation and amortization increased $406,000 during the quarter to $3.0
million, compared to $2.6 million for the fourth quarter of 2002. During the
second and third quarter of 2003, three Company-owned assets were reclassified
from assets held for sale to property and equipment. Depreciation on these
assets in the fourth quarter of 2003 was the primary reason for the increased
depreciation expense during that period as compared to the prior year quarter.
Interest expense increased $328,000 to $2.9 million during the fourth quarter of
2003 compared to the comparable prior year quarter, primarily due to the
Company's securing $55.2 million of long-term fixed-rate debt and paying off the
outstanding balance on its revolving credit facility. The new debt carries an
interest rate of 6.7% for ten years, which the Company believes is a favorable
long-term rate.
WestCoast Hospitality Corporation is a NYSE-listed hospitality and leisure
company primarily engaged in the ownership, management, development and
franchising of mid-scale, full service hotels under its WestCoast(R) and Red
Lion(R) brands. In addition, through its entertainment division, which includes
its TicketsWest.com, Inc. subsidiary, it engages in event ticket distribution
and promotes and presents a variety of entertainment productions. G&B Real
Estate Services, its real estate division, engages in traditional real
estate-related services, including developing, managing and acting as a broker
for sales and leases of commercial and multi-unit residential properties.
Registered trademarks of WestCoast Hospitality Corporation and its affiliates
protect the use of "WestCoast", "Red Lion", "TicketsWest" and "G&B" and various
derivatives of those usages.
This press release contains forward-looking statements within the meaning of
federal securities law, including statements concerning plans, objectives,
goals, strategies, projections of future events or performance and underlying
assumptions (many of which are based, in turn upon further assumptions). The
forward-looking statements in this press release are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those expressed. Such risks and uncertainties include, among
others, economic cycles; international conflicts; changes in future demand and
supply for hotel rooms; competitive conditions in the lodging industry;
relationships with franchisees and properties; impact of government regulations;
ability to obtain financing; changes in energy, healthcare, insurance and other
operating expenses; ability to sell non-core assets; ability to locate lessees
for rental property and managing and leasing properties owned by third parties;
dependency upon the ability and experience of executive officers and ability to
retain or replace such officers as well as other matters discussed in the
Company's annual report on Form 10-K for the 2002 fiscal year and in other
documents filed by the Company with the Securities and Exchange Commission.
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands)
Three months ended December 31,
2003 2002 $ Change % Change
Revenue:
Hotels and restaurants $ 36,430 $ 38,861 $ (2,431) -6.3%
Franchise, central services and development 692 797 (105) -13.2%
Entertainment 1,972 2,450 (478) -19.5%
Real estate 2,071 2,204 (133) -6.0%
Corporate services 81 82 (1) -1.2%
----------------------------------------------
Total revenues 41,246 44,394 (3,148) -7.1%
----------------------------------------------
Operating expenses:
Hotels and restaurants 35,542 37,157 (1,615) -4.3%
Franchise, central services and development 251 436 (185) -42.4%
Entertainment 1,646 2,187 (541) -24.7%
Real estate 1,191 1,243 (52) -4.2%
Corporate services 71 62 9 14.5%
Depreciation and amortization 2,985 2,579 406 15.7%
Gain on asset dispositions including recoveries (189) (1) (188) -18800.0%
Conversion expenses - 6 (6) -100.0%
----------------------------------------------
Total direct expenses 41,497 43,669 (2,172) -5.0%
Undistributed corporate expenses 600 466 134 28.8%
----------------------------------------------
Total expenses 42,097 44,135 (2,038) -4.6%
----------------------------------------------
Operating income (loss) (851) 259 (1,110) -428.6%
Other income (expense):
Interest expense (2,910) (2,582) (328) -12.7%
Interest income 111 118 (7) -5.9%
Other income (expense), net (132) 16 (148) -925.0%
Equity income in investments, net 19 (2) 21 -1050.0%
Minority interest in partnerships 144 100 44 -44.0%
----------------------------------------------
Loss before income taxes (3,619) (2,091) (1,528) 73.1%
Income tax benefit (1,581) (738) (843) 114.2%
----------------------------------------------
Net loss (2,038) (1,353) (685) 50.6%
Preferred stock dividend (626) (640) 14 2.2%
----------------------------------------------
Loss applicable to common shareholders $ (2,664) $ (1,993) $ (671) 33.7%
==============================================
EBITDA1 $ 2,276 $ 3,070 (794) -25.9%
EBITDA as a percentage of revenues 5.5% 6.9%
(1) The definition of "EBITDA" and how that measure relates to net income is
discussed below under Non-GAAP Financial Measures. EBITDA represents earnings
before interest expense, income taxes, depreciation, and amortization. EBITDA is
not intended to represent net income as defined by generally accepted accounting
principles in the United States and such information should not be considered as
an alternative to net income, cash flows from operations or any other measure of
performance prescribed by generally accepted accounting principles in the United
States. We utilize EBITDA because management believes that investors find it to
be a useful tool to perform more meaningful comparisons of past, present and
future operating results and as a means to evaluate the results of core on-going
operations.
WestCoast Hospitality Corporation
Earnings (Loss) Per Share and Hotel Statistics
(unaudited)
(shares in thousands)
Three months ended December 31,
2003 2002 $ Change % Change
Loss per share:
Basic $ (0.20) $ (0.15)
Diluted $ (0.20) $ (0.15)
Weighted average shares - basic 13,006 12,982
Weighted average shares - diluted (1) 13,006 12,982
Comparable Hotel Statistics:
Combined (owned, leased, managed and franchised) (2)
Average occupancy(3) (6) 49.1% 49.2%
ADR(4) $ 66.54 $ 68.98 $ (2.44) -3.5%
RevPAR(5) (6) $ 32.68 $ 33.95 $ (1.27) -3.7%
(1)For the three months ended December 31, 2003 and 2002 both operating
partnership units outstanding and options to purchase common stock were
anti-dilutive and are therefore not included in the calculation of loss per
share.
(2)Includes hotels owned, leased, managed and franchised for greater than one
year by WestCoast Hospitality Corporation.
(3)Average occupancy represents total paid rooms divided by total available
rooms. Total available rooms represents the number of rooms available multiplied
by the number of days in the reported period.
(4)Average daily rate ("ADR") represents total room revenues divided by the
total number of paid rooms occupied by hotel guests.
(5)Revenue per available room ("RevPAR") represents total room and related
revenues divided by total available rooms, net of rooms out of service due to
significant renovations.
(6)Rooms under renovation were excluded from RevPAR and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPAR or
average occupancy.
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands)
Year ended December 31,
2003 2002 $ Change % Change
Revenue:
Hotels and restaurants $ 163,101 $ 173,320 $ (10,219) -5.9%
Franchise, central services and development 3,642 4,137 (495) -12.0%
Entertainment 7,980 7,430 550 7.4%
Real estate 8,914 9,001 (87) -1.0%
Corporate services 337 283 54 19.1%
----------------------------------------------
Total revenues 183,974 194,171 (10,197) -5.3%
----------------------------------------------
Operating expenses:
Hotels and restaurants 142,145 148,675 (6,530) -4.4%
Franchise, central services and development 1,518 1,990 (472) -23.7%
Entertainment 6,974 6,343 631 9.9%
Real estate 4,815 4,778 37 0.8%
Corporate services 313 222 91 41.0%
Depreciation and amortization 13,032 10,517 2,515 23.9%
(Gain) loss on asset dispositions including recoveries 390 (3,166) 3,556 112.3%
Conversion expenses 392 14 378 2700.0%
---------------------------------------------
Total direct expenses 169,579 169,373 206 0.1%
Undistributed corporate expenses 2,640 2,117 523 24.7%
---------------------------------------------
Total expenses 172,219 171,490 729 0.4%
---------------------------------------------
Operating income 11,755 22,681 (10,926) -48.2%
Other income (expense):
Interest expense (11,150) (10,717) (433) -4.0%
Interest income 414 372 42 11.3%
Other income (expense), net (339) 20 (359) -1795.0%
Equity income in investments, net 119 28 91 325.0%
Minority interest in partnerships 288 (8) 296 3700.0%
---------------------------------------------
Income before income taxes 1,087 12,376 (11,289) -91.2%
Income tax expense (benefit) (132) 4,369 (4,501) -103.0%
---------------------------------------------
Net income 1,219 8,007 (6,788) -84.8%
Preferred stock dividend (2,541) (2,577) 36 1.4%
---------------------------------------------
Income (loss) applicable to common shareholders $ (1,322) $ 5,430 $ (6,752) -124.3%
=============================================
EBITDA1 $ 25,269 $ 33,610 (8,341) -24.8%
EBITDA as a percentage of revenues 13.7% 17.3%
(1) The definition of "EBITDA" and how that measure relates to net income is
discussed below under Non-GAAP Financial Measures. EBITDA represents earnings
before interest expense, income taxes, depreciation, and amortization. EBITDA is
not intended to represent net income as defined by generally accepted accounting
principles in the United States and such information should not be considered as
an alternative to net income, cash flows from operations or any other measure of
performance prescribed by generally accepted accounting principles in the United
States. We utilize EBITDA because management believes that investors find it to
be a useful tool to perform more meaningful comparisons of past, present and
future operating results and as a means to evaluate the results of core on-going
operations.
WestCoast Hospitality Corporation
Earnings (Loss) Per Share and Hotel Statistics
(unaudited)
Year ended December 31,
2003 2002 $ Change % Change
Earnings (loss) per share:
Basic $ (0.10) $ 0.42
Diluted $ (0.10) $ 0.41
Weighted average shares - basic 12,999 12,975
Weighted average shares - diluted (1) (2) 12,999 13,285
Comparable Hotel Statistics:
Combined (owned, leased, managed and franchised) (3)
Average occupancy(4) (7) 56.7% 56.9%
ADR(5) $ 69.92 $ 72.28 $ (2.36) -3.3%
RevPAR(6) (7) $ 39.65 $ 41.14 $ (1.49) -3.6%
(1)For the year ended December 31, 2003 both operating partnership units
outstanding and options to purchase common stock were anti-dilutive and are
therefore not included in the calculation of loss per share.
(2)December 31, 2002 balance reflects dilution from both outstanding options to
purchase common stock and operating partnership units outstanding.
(3)Includes hotels owned, leased, managed and franchised for greater than one
year by WestCoast Hospitality Corporation.
(4)Average occupancy represents total paid rooms divided by total available
rooms. Total available rooms represents the number of rooms available multiplied
by the number of days in the reported period.
(5)Average daily rate ("ADR") represents total room revenues divided by the
total number of paid rooms occupied by hotel guests.
(6)Revenue per available room ("RevPAR") represents total room and related
revenues divided by total available rooms, net of rooms out of service due to
significant renovations.
(7)Rooms under renovation were excluded from RevPAR and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPAR or
average occupancy.
WestCoast Hospitality Corporation
Consolidated Balance Sheets
(unaudited)
($ in thousands, except share data)
December 31, December 31,
2003 2002
Assets:
Current assets:
Cash and cash equivalents $ 8,121 $ 752
Restricted cash 4,952 1,949
Accounts receivable, net 9,306 9,559
Inventories 2,140 2,040
Assets held for sale - 34,408
Prepaid expenses and other 2,137 2,693
--------------------------------------
Total current assets 26,656 51,401
Property and equipment, net 264,039 241,255
Goodwill 28,042 28,042
Intangible assets, net 14,412 15,188
Other assets, net 20,076 20,824
--------------------------------------
Total assets $ 353,225 $ 356,710
======================================
Liabilities:
Current liabilities:
Accounts payable $ 6,990 $ 6,773
Accrued payroll and related benefits 4,849 6,173
Accrued interest payable 775 695
Advance deposits 253 198
Other accrued expenses 8,069 8,494
Long-term debt, due within one year 5,667 4,889
Notes payable to bank - 52,100
Capital lease obligations, due within one year - 268
---------------------------------------
Total current liabilities 26,603 79,590
Long-term debt, due after one year 145,770 101,206
Deferred income 9,279 2,626
Deferred income taxes 16,761 16,261
Minority interest in partnerships 2,623 2,911
---------------------------------------
Total liabilities 201,036 202,594
---------------------------------------
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized;
$0.01 par value 588,236 and 602,630 shares
issued and outstanding 6 6
Additional paid-in capital, preferred stock 29,406 30,125
Common stock - 50,000,000 shares authorized;
$0.01 par value; 13,006,361 and 12,981,878 shares
issued and outstanding 130 130
Additional paid-in capital, common stock 84,196 84,083
Retained earnings 38,451 39,772
---------------------------------------
Total stockholders' equity 152,189 154,116
---------------------------------------
Total liabilities and stockholders' equity $ 353,225 $ 356,710
=======================================
WestCoast Hospitality Corporation
Consolidated Statement of Cash Flows
(unaudited)
($ in thousands)
December 31, December 31,
2003 2002
Operating activities:
Net income $ 1,219 $ 8,007
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,032 10,517
(Gain) loss on disposition of property and equipment and other assets 390 (3,166)
Non-cash reduction of preferred stock resulting in gain (616) -
Write-off of deferred loan fees 927 -
Deferred income tax provision 500 1,921
Minority interest in partnerships (288) 8
Equity in investments (118) (28)
Compensation expense related to stock issuance 14 15
Provision for doubtful accounts 338 1,053
Change in current assets and liabilities:
Restricted cash (3,003) (827)
Accounts receivable (168) (1,556)
Inventories (100) 105
Prepaid expenses and other 569 (1,322)
Accounts payable and income taxes payable 217 1,046
Accrued payroll and related benefits (1,324) (693)
Accrued interest payable 100 (82)
Other accrued expenses and advance deposits (350) (692)
--------------------------------------------
Net cash provided by operating activities 11,339 14,306
--------------------------------------------
Investing activities:
Additions to property and equipment (7,339) (10,708)
Proceeds from disposition of property and equipment 5,367 1,845
Proceeds from disposition of investment 485 192
Other, net 176 15
--------------------------------------------
Net cash used in investing activities (1,311) (8,656)
--------------------------------------------
Financing activities:
Proceeds from note payable to bank 47,700 10,800
Repayment of note payable to bank (99,800) (12,950)
Proceeds from long-term debt 55,200 -
Proceeds from short-term debt 2,658 -
Repayment of long-term debt (3,892) (4,257)
Proceeds from issuance of common stock under
employee stock purchase plan 99 102
Preferred stock dividend payments (2,561) (1,937)
Principal payments on capital lease obligations (268) (384)
Additions to deferred financing costs (1,547) (848)
Additions to deferred offering costs (248) -
Distribution to stockholders and partners - (37)
----------------------------------------------------
Net cash used in financing activities (2,659) (9,511)
----------------------------------------------------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 7,369 (3,861)
Cash and cash equivalents at beginning of year 752 4,613
----------------------------------------------------
Cash and cash equivalents at end of year $ 8,121 $ 752
====================================================
WestCoast Hospitality Corporation
Reconciliation of EBITDA to Net Income
(unaudited)
($ in thousands)
The following is a reconciliation for each period presented of EBITDA to net
income (loss):
Three months ended Year ended
December 31, December 31,
2003 2002 2003 2002
EBITDA $ 2,276 $ 3,070 $ 25,269 $ 33,610
Income tax benefit (expense) 1,581 738 132 (4,369)
Interest expense (2,910) (2,582) (11,150) (10,717)
Depreciation and amortization (2,985) (2,579) (13,032) (10,517)
----------------- ---------------- ----------------- --------------
Net income (loss) $ (2,038) $ (1,353) $ 1,219 $ 8,007
================= ================ ================= ==============
NON-GAAP FINANCIAL MEASURES
EBITDA is defined as earnings (or "net income") before interest, taxes,
depreciation and amortization. EBITDA is considered a non-GAAP financial
measurement. We believe it is a useful financial performance measure for us and
for our shareholders and is a complement to net income and other financial
performance measures provided in accordance with generally accepted accounting
principles in the United States ("GAAP").
We use EBITDA to measure the financial performance of our owned and leased
hotels because it excludes interest, taxes, depreciation and amortization, which
bear little or no relationship to operating performance. By excluding interest
expense, EBITDA measures our financial performance irrespective of our capital
structure or how we finance our properties and operations. We generally pay
federal and state income taxes on a consolidated basis, taking into account how
the applicable taxing laws apply to our company in the aggregate. By excluding
taxes on income, we believe EBITDA provides a basis for measuring the financial
performance of our operations excluding factors that our hotels cannot control.
By excluding depreciation and amortization expense, which can vary from hotel to
hotel based on historical cost and other factors unrelated to the hotels'
financial performance, EBITDA measures the financial performance of our hotels
without regard to their historical cost. For all of these reasons, we believe
that EBITDA provides us and investors with information that is relevant and
useful in evaluating our business.
However, because EBITDA excludes depreciation and amortization, it does not
measure the capital we require to maintain or preserve our fixed assets. In
addition, because EBITDA does not reflect interest expense, it does not take
into account the total amount of interest we pay on outstanding debt nor does it
show trends in interest costs due to changes in our borrowings or changes in
interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as
reported by other companies that do not define EBITDA exactly as we define the
term. Because we use EBITDA to evaluate our financial performance, we reconcile
it to net income, which is the most comparable financial measure calculated and
presented in accordance with GAAP. EBITDA does not represent cash generated from
operating activities determined in accordance with GAAP, and should not be
considered as an alternative to operating income or net income determined in
accordance with GAAP as an indicator of performance or as an alternative to cash
flows from operating activities as an indicator of liquidity.