SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ...................... to ......................
Commission file number 1-3427
HILTON HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2058176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip code)
(310) 278-4321
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1996 --- Common Stock, $2.50 par value ---
48,852,239 shares.
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
HILTON HOTELS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income
(in millions, except per share amounts)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------- --------------------
Revenue Rooms $ 165.6 151.2 320.7 287.7
Food and beverage 74.0 67.4 144.6 129.1
Casino 112.7 133.9 219.4 252.0
Management and franchise fees 31.5 25.2 61.2 49.3
Other 59.4 30.3 107.0 58.9
Operating income
from unconsolidated affiliates 26.8 16.2 47.0 29.1
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470.0 424.2 899.9 806.1
- --------------------------------------------------------------------------------------- ----------------------
Expenses Rooms 49.4 47.2 97.6 91.1
Food and beverage 61.3 57.8 120.7 111.7
Casino 58.1 60.1 121.7 116.1
Other costs and expenses 175.5 146.8 346.3 294.0
Corporate expense 13.0 7.3 21.9 14.2
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357.3 319.2 708.2 627.1
- --------------------------------------------------------------------------------------- ----------------------
Operating income 112.7 105.0 191.7 179.0
Interest and dividend income 8.7 9.2 16.2 15.7
Interest expense (17.5) (24.3) (38.8) (46.8)
Interest expense, net, from
unconsolidated affiliates (4.3) (3.5) (7.0) (7.1)
Property transactions - .3 - 1.0
- --------------------------------------------------------------------------------------- ----------------------
Income before income taxes
and minority interest 99.6 86.7 162.1 141.8
Provision for income taxes 39.1 32.6 63.6 54.1
Minority interest, net 1.3 1.2 2.7 2.8
- --------------------------------------------------------------------------------------- ----------------------
Net income $ 59.2 52.9 95.8 84.9
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- --------------------------------------------------------------------------------------- ----------------------
Net income per share $ 1.20 1.09 1.96 1.75
- --------------------------------------------------------------------------------------- ----------------------
- --------------------------------------------------------------------------------------- ----------------------
Average number
of shares 49.2 48.7 48.8 48.6
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- --------------------------------------------------------------------------------------- ----------------------
Consolidated Balance Sheets
(in millions)
June 30, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------
Assets Current assets
Cash and equivalents $ 290.4 338.0
Temporary investments 56.3 70.7
Other current assets 336.3 308.6
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Total current assets 683.0 717.3
Investments 564.6 595.3
Property and equipment, net 1,713.7 1,695.9
Other assets 62.2 51.8
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Total assets $ 3,023.5 3,060.3
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Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 304.1 306.5
Current maturities of long-term debt 56.8 216.8
Income taxes payable 22.0 11.6
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Total current liabilities 382.9 534.9
Long-term debt 1,101.2 1,069.7
Deferred income taxes and other liabilities 189.6 202.0
Stockholders' equity 1,349.8 1,253.7
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Total liabilities and stockholders' equity $ 3,023.5 3,060.3
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Consolidated Statements of Cash Flows
(in millions)
Six months ended
June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
Operating activities Net income $ 95.8 84.9
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 74.0 70.3
Change in working capital components:
Other current assets 27.5 21.0
Accounts payable and accrued expenses (18.4) (25.8)
Income taxes payable 10.4 3.2
Increase (decrease) in deferred income taxes .6 (1.1)
Decrease in other liabilities (10.2) (17.1)
Unconsolidated affiliates' distributions
in excess of earnings 7.9 15.3
Gain from property transactions - (1.0)
Other (.5) (.3)
--------------------------------------------------------------------------------
Net cash provided by operating activities 187.1 149.4
- ---------------------------------------------------------------------------------------------------------
Investing activities Capital expenditures (81.2) (106.8)
Additional investments (36.7) (46.8)
Decrease in temporary investments 17.6 109.0
Payments on notes and other investments 1.0 8.7
--------------------------------------------------------------------------------
Net cash used in investing activities (99.3) (35.9)
- ---------------------------------------------------------------------------------------------------------
Financing activities (Decrease) increase in commercial paper
borrowings and revolving loans (457.2) 95.9
Long-term borrowings 490.0 -
Reduction of long-term debt (161.5) (78.3)
Issuance of common stock 22.6 5.6
Cash dividends (29.3) (28.9)
--------------------------------------------------------------------------------
Net cash used in financing activities (135.4) (5.7)
- ---------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and equivalents (47.6) 107.8
Cash and equivalents at beginning of year 338.0 184.4
- ---------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 290.4 292.2
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Summary of Operations
(dollars in millions, except per share and average rate amounts)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------
Revenue Hotels $ 232.2 181.4 429.6 339.8
Gaming 237.8 242.8 470.3 466.3
--------------------------------------------------------------------------------
Total $ 470.0 424.2 899.9 806.1
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Operating Hotels $ 82.1 58.7 137.3 97.8
income Gaming 43.6 53.6 76.3 95.4
Corporate expense (13.0) (7.3) (21.9) (14.2)
--------------------------------------------------------------------------------
Total 112.7 105.0 191.7 179.0
Net interest expense (13.1) (18.6) (29.6) (38.2)
Property transactions - .3 - 1.0
Provision for income taxes (39.1) (32.6) (63.6) (54.1)
Minority interest, net (1.3) (1.2) (2.7) (2.8)
- ----------------------------------------------------------------------------------------------------
Net income $ 59.2 52.9 95.8 84.9
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- ----------------------------------------------------------------------------------------------------
Average number of
shares 49.2 48.7 48.8 48.6
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Percentage of
occupancy Hotels 77 75 74 72
Gaming 91 88 90 86
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Average rate Hotels $ 133 125 135 127
Gaming 73 70 74 70
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June 30, 1996 June 30, 1995
------------------------------ -------------------------------
Number of Available Casino Number of Available Casino
Properties Rooms Sq. ft. Properties Rooms Sq. ft.
- -------------------------------------------------------------------------------------------------------------
Hotels Wholly owned or leased 17 8,603 - 18 9,106 -
Partially owned 15 14,963 - 15 14,992 -
Managed 26 15,849 - 23 14,786 -
Franchised 167 42,788 - 160 40,914 -
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Total hotels 225 82,203 - 216 79,798 -
Gaming Owned, partially owned and
managed casinos and
hotel-casinos 10 12,782 617,000 10 12,782 602,000
- -------------------------------------------------------------------------------------------------------------
Total 235 94,985 617,000 226 92,580 602,000
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE
The calculations of common and equivalent shares, net income and net income per
share are as follows:
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Shares outstanding
beginning of period 48,784,804 48,193,096 48,337,178 48,114,723
Net common shares issued/
issuable upon exercise
of certain stock
options 451,405 479,828 434,373 466,399
---------- ---------- ---------- ----------
Common and equivalent
shares 49,236,209 48,672,924 48,771,551 48,581,122
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (in millions) $59.2 $52.9 $95.8 $84.9
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $1.20 $1.09 $1.96 $1.75
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends declared per share $.30 $.30 $.60 $.60
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The consolidated financial statements presented herein have been prepared by the
Company in accordance with the accounting policies described in its 1995 Annual
Report to Stockholders and should be read in conjunction with the Notes to
Consolidated Financial Statements which appear in that report.
The statements for the three and six months ended June 30, 1996 and 1995 are
unaudited; however, in the opinion of management, all adjustments (which include
only normal recurring accruals) have been made which are considered necessary to
present fairly the operating results for the unaudited periods.
The consolidated financial statements for the 1995 periods reflect certain
reclassifications to conform with classifications adopted in 1996. These
classifications have no effect on net income.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended
June 30,
1996 1995
------ ------
(in millions)
Cash paid during the period for the following:
Interest, net of amounts capitalized $40.9 46.5
Income taxes 46.3 51.5
NOTE 3: INVESTMENTS
Summarized operating results of the Company's unconsolidated affiliates are as
follows:
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
(in millions) (in millions)
Revenue $358.6 324.5 711.8 621.1
Expenses 304.2 291.8 594.7 558.9
Net Income 47.9 32.0 101.2 56.5
NOTE 4: ACQUISITION OF BALLY ENTERTAINMENT CORPORATION
On June 6, 1996 the Company entered into an agreement with Bally Entertainment
Corporation ("Bally") pursuant to which Bally will merge with and into the
Company. If the merger is consummated, each share of Bally common stock issued
and outstanding immediately prior to the merger would be converted into the
right to receive one share of common stock of the Company, after giving effect
to a contemplated 4 for 1 split of the Company's common stock. In the event
that the trading price of the Company's common stock (after giving effect to
the contemplated stock split) is less than $27.00 per share, each holder of
Bally common stock will receive an additional cash payment, up to $3.00 per
share, equal to the excess of $27.00 over such trading price. Each share of
Bally's Preferred Redeemable Increased Dividend Equity Securities, 8% PRIDES,
Convertible Preferred Stock outstanding immediately prior to the merger will be
converted into the right to receive one share of newly authorized Preferred
Redeemable Increased Dividend Equity Securities, 8% PRIDES, Convertible
Preferred Stock of the Company. In addition, the Company will assume Bally's
net debt of approximately $1 billion.
The transaction, which has been approved by both Bally's and the Company's
Boards of Directors, is subject to approval by the companies' stockholders and
various regulatory agencies, including gaming regulators of several states, and
is expected to close by year end 1996.
NOTE 5: SUPPLEMENTAL SEGMENT DATA
Supplemental hotel segment data for the three and six months ended June 30, 1996
and 1995 are as follows:
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in millions) (in millions)
Revenue
Rooms $105.1 94.4 199.3 177.8
Food and beverage 39.2 36.1 74.3 67.7
Management and franchise fees 27.2 22.6 52.7 44.4
Other 38.8 13.9 67.2 27.5
Operating income
from unconsolidated affiliates 21.9 14.4 36.1 22.4
------ ----- ----- -----
232.2 181.4 429.6 339.8
------ ----- ----- -----
Expenses
Rooms 28.5 27.4 56.2 53.2
Food and beverage 30.5 28.7 59.7 55.9
Other costs and expenses 91.1 66.6 176.4 132.9
------ ----- ----- -----
150.1 122.7 292.3 242.0
------ ----- ----- -----
Hotel operating income $82.1 58.7 137.3 97.8
------ ----- ----- -----
------ ----- ----- -----
Supplemental gaming segment data for the three and six months ended June 30,
1996 and 1995 are as follows:
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in millions) (in millions)
Revenue
Rooms $60.5 56.8 121.4 109.9
Food and beverage 34.8 31.3 70.3 61.4
Casino 112.7 133.9 219.4 252.0
Management and franchise fees 4.3 2.6 8.5 4.9
Other 20.6 16.4 39.8 31.4
Operating income
from unconsolidated affiliates 4.9 1.8 10.9 6.7
------ ----- ----- -----
237.8 242.8 470.3 466.3
------ ----- ----- -----
Expenses
Rooms 20.9 19.8 41.4 37.9
Food and beverage 30.8 29.1 61.0 55.8
Casino 58.1 60.1 121.7 116.1
Other costs and expenses 84.4 80.2 169.9 161.1
------ ----- ----- -----
194.2 189.2 394.0 370.9
------ ----- ----- -----
Gaming operating income $43.6 53.6 76.3 95.4
------ ----- ----- -----
------ ----- ----- -----
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED JUNE 30, 1996 AND 1995
- ----------------------------------------------------------
OVERVIEW
Net income for the 1996 second quarter increased 12 percent to $59.2 million or
$1.20 per share, compared to $52.9 million or $1.09 per share in 1995. Total
revenue in the 1996 quarter increased 11 percent to $470.0 million, while total
operating income increased seven percent to $112.7 million from $105.0 million
in 1995.
HOTELS
Hotel revenue for the 1996 quarter was $232.2 million, an increase of 28 percent
over 1995, while hotel operating income increased 40 percent to $82.1 million
from $58.7 million last year. Adjusting for the impact of consolidating the
Company's vacation ownership projects in Las Vegas and Orlando beginning in
1996, revenue increased 18 percent; the impact of this consolidation on
operating income was not significant. The hotel segment continues to benefit
from strong industry fundamentals, particularly in the full service segment.
The increase in demand continues to outpace supply growth, resulting in higher
occupancy levels and substantial pricing power. The Company took advantage of
these strong fundamentals in the second quarter, producing operating income
increases at nearly all of its owned and partially owned hotels. Occupancy for
hotels owned or managed was 77 percent in 1996 compared to 75 percent in 1995.
Average room rate increased six percent to $133 from $125 in the prior year.
All of the Company's ten major full service properties demonstrated improved
operating results compared to the 1995 period. Operating income from the
Waldorf=Astoria increased $3.3 million over the 1995 second quarter on the
continued strength of individual business traveler and leisure guest stays.
Revenue per available room increased 18 percent over the 1995 quarter. Double
digit growth in revenue per available room was also attained at the O'Hare
Hilton, the Palmer House Hilton and the 50% owned
Chicago Hilton and Towers. Combined results from these three properties
increased $4.7 million over the prior year. Results improved at other major
market full service properties, including the 50% owned New York Hilton and
Towers and the 50% owned San Francisco Hilton and Towers, both of which
benefited from significant room rate increases, and the 50% owned Washington
Hilton and Towers, which achieved improved occupancy. Operating income at these
three partially owned properties improved a combined $3.5 million over the 1995
second quarter. Results at the 50% owned Hilton Hawaiian Village improved $1.9
million from the prior year on continued favorable leisure travel trends. As a
group, the operating income contribution from these ten properties (which also
includes the New Orleans Hilton Riverside and Towers and the 50% owned Capital
Hilton) improved 42 percent over the 1995 quarter. Occupancy at these hotels
was 83 percent versus 79 percent in the 1995 quarter, with average daily rate
increasing to $151 from $140 and revenue per available room improving 14
percent.
Benefiting from major renovation projects completed in 1995, operating income at
the San Diego Hilton Beach and Tennis Resort and the Portland Hilton increased a
combined $2.3 million over the prior year. Revenue per available room at these
two wholly owned properties increased 26 percent from the 1995 second quarter.
Hotel management and franchise fees increased $4.6 million in 1996 to $27.2
million. Fee revenue is based primarily on operating revenue at managed
properties and rooms revenue at franchised hotels.
Future operating results could be unfavorably impacted by additional capacity or
factors which influence demand, including increases in transportation and fuel
costs or sustained recessionary periods. The Company does not anticipate any
meaningful near term increase in supply in the full service segment given the
long lead times inherent in this type of construction. The Company also
believes its financial strength, market presence and diverse product line will
enable it to remain competitive in the hotel segment.
GAMING
Total gaming revenue decreased two percent in the 1996 second quarter to $237.8
million from $242.8 million in 1995. Casino revenue, a component of gaming
revenue, decreased 16 percent to $112.7 million in 1996 compared to $133.9
million in the prior year. Gaming operating income decreased 19 percent to
$43.6 million from $53.6 million in the 1995 second quarter.
Results at the Las Vegas Hilton decreased $18.9 million from the prior year,
primarily due to a significant reduction in the win percentage on its premium
play baccarat business. The baccarat win percentage decreased 39 points from a
much higher than normal win percentage in the 1995 second quarter, while
baccarat volume was consistent with the prior year. Results at the Las Vegas
Hilton are more volatile than the Company's other casinos because this property
caters to the premium play segment of the market. Future fluctuations in
premium play volume and win percentage could result in continued volatility in
operating income at this property.
The Flamingo Hilton - Las Vegas recorded an $8.5 million increase in operating
income, continuing to benefit from major expansion and enhancement projects
completed in 1995. Occupancy was 98 percent for the quarter and revenue per
available room increased 19 percent compared to the prior year. Combined
results from the Reno Hilton and the Flamingo Hilton - Reno decreased $5.3
million from the comparable 1995 quarter. Both properties demonstrated lower
occupancy and reduced room rates due to increased competition and the absence of
the city's major bowling convention. Operating income from the Flamingo Hilton
- - Laughlin and the Company's river casino operations in New Orleans were
consistent with the 1995 second quarter.
Equity and fee income from the 19.9% owned Hotel Conrad and Jupiters Casino in
Australia increased $2.7 million from the prior year, primarily due to increased
table game win compared to the 1995 period. Equity and fee income from the
19.9% owned Conrad International Treasury, which opened in April 1995
in Brisbane, increased $1.6 million. Fee income from the one-third owned
consortium which operates and manages Casino Windsor was consistent with the
prior year.
Combined table hold for the Nevada hotel-casinos decreased to 18 percent in the
1996 second quarter from 29 percent in the 1995 period, driven by the variance
in premium play hold at the Las Vegas Hilton. Occupancy for the Nevada hotel-
casinos was 93 percent in the 1996 quarter compared to 90 percent last year.
The average room rate for the Nevada properties increased three percent to $70.
The gaming industry continues to experience growth and increasing competition,
particularly in existing markets. Competitors have announced and are developing
new projects which will add significant room supply and casino space to the Las
Vegas market over the next several years. These additions could adversely
impact the Company's future gaming income.
CORPORATE EXPENSE
Corporate expense increased $5.7 million to $13.0 million in the 1996 second
quarter. The 1996 period includes a $4.4 million non-cash charge for stock-
based compensation related to the 1996 Chief Executive Stock Incentive Plan.
FINANCING ACTIVITIES
Interest and dividend income totaled $8.7 million in the 1996 period compared to
$9.2 million in 1995. Consolidated interest expense decreased $6.8 million to
$17.5 million due to lower average debt levels and lower interest rates compared
to the 1995 second quarter. Interest expense from unconsolidated affiliates
increased $.8 million.
INCOME TAXES
The effective income tax rate for the 1996 period was 39.3 percent compared to
37.6 percent in 1995. The Company's effective income tax rate is determined by
the level and composition of pretax income subject to varying foreign, state and
local taxes.
MINORITY INTEREST
The minority interest results from the consolidation of the 67.4% owned New
Orleans Hilton Riverside and Towers.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- -----------------------------------------------------
OVERVIEW
Net income for the six month period was $95.8 million or $1.96 per share, an
increase of 13 percent over last year. Total revenue in the 1996 period
increased 12 percent to $899.9 million, while total operating income increased
seven percent to $191.7 million from $179.0 million in 1995.
HOTELS
Hotel revenue increased 26 percent to $429.6 million for the six month period
from $339.8 million in 1995, while hotel operating income increased 40 percent
to $137.3 million from $97.8 million in the 1995 period. Adjusting for the
impact of consolidating the Company's vacation ownership projects in Las Vegas
and Orlando beginning in 1996, revenue increased 17 percent; the impact of this
consolidation on operating income was not significant. Operating income
increased at most of the Company's owned and partially owned hotels. Occupancy
for hotels owned or managed was 74 percent in 1996 compared to 72 percent in
1995. Average room rates increased six percent to $135 from $127 in the prior
year.
Strong individual business traveler and leisure guest volume coupled with a
seven percent increase in average room rate drove a $6.1 million increase in
operating income at the Waldorf=Astoria. The O'Hare Hilton, the Palmer House
Hilton and the 50% owned Chicago Hilton and Towers each achieved gains in
both occupancy and average rate, resulting in double digit growth in revenue per
available room. Combined results from these three properties increased $6.2
million over the prior year. Strong volume and increased average rates also led
to operating income improvements at other major market full service properties,
including the 50% owned New York Hilton and Towers, the 50% owned San Francisco
Hilton and Towers and the 50% owned Washington Hilton and Towers. Operating
income from these three partially owned properties improved a combined $6.8
million over the 1995 period. Results from the 50% owned Hilton Hawaiian
Village improved $3.3 million on continued strength in leisure travel. Combined
operating income contribution from the Company's ten major full service
properties improved 42 percent over the first six months of 1995. Occupancy at
these hotels increased two points to 77 percent in 1996, with average daily rate
increasing to $151 from $141 and revenue per available room increasing ten
percent.
Combined operating income from the San Diego Hilton Beach and Tennis Resort and
the Portland Hilton increased $5.6 million, reflecting the completion of major
renovation projects in 1995.
Hotel management and franchise fees for the six month period increased $8.3
million to $52.7 million.
GAMING
Total gaming revenue in the 1996 six month period increased one percent to
$470.3 million from $466.3 million in 1995. Casino revenue, a component of
gaming revenue, was $219.4 million in 1995 compared to $252.0 million in the
prior year. Gaming operating income decreased 20 percent to $76.3 million from
$95.4 million in the 1995 period.
Operating income at the Las Vegas Hilton decreased $40.4 million from the prior
year, resulting in an operating loss for the period, primarily due to decreased
volume and an abnormally low win percentage on its premium play baccarat
business. The baccarat win percentage decreased 22 points from a higher than
normal win percentage in the 1995 period and baccarat drop decreased 26 percent
from record
volume in the prior year. Results from the Flamingo Hilton - Las Vegas
increased $18.2 million in the 1996 six month period, reflecting improved
occupancy, average rate and gaming volume following the completion of major
expansion and enhancement projects in 1995. Increased competition and
absence of the city's major bowling convention resulted in reduced occupancy
and room rate pressures at the Flamingo Hilton - Reno and the Reno Hilton.
Combined results from these two properties decreased $6.5 million from the
1995 period. Operating income from the Flamingo Hilton - Laughlin was
consistent with the prior year. Equity and fee income from the Company's
river casino operations in New Orleans, which operated a smaller facility in
the 1996 period, decreased $1.1 million.
Equity and fee income from the 19.9% owned Hotel Conrad and Jupiters Casino
increased $5.0 million from the prior year, primarily due to increased table
game win. Benefiting from a full six months of operations, equity and fee
income from the 19.9% owned Conrad International Treasury increased $3.1
million. Fee income from the one-third owned consortium which operates and
manages Casino Windsor increased $1.5 million from the 1995 period.
Combined table hold for the Nevada hotel-casinos decreased to 16 percent in the
1996 period from 24 percent in the prior year, primarily due to the variance in
premium play hold at the Las Vegas Hilton. Occupancy for the Nevada hotel-
casinos was 92 percent in the 1996 period versus 88 percent last year. The
average room rate for Nevada increased four percent to $72.
CORPORATE EXPENSE
Corporate expense increased $7.7 million to $21.9 million in the 1996 six month
period. The 1996 period includes a $4.4 million non-cash charge for stock-based
compensation related to the 1996 Chief Executive Stock Incentive Plan.
FINANCING ACTIVITIES
Interest and dividend income totaled $16.2 million in the 1996 period compared
to $15.7 million in the prior year. Consolidated interest expense decreased
$8.0 million to $38.8 million in the 1996 period due to lower average debt
levels and lower interest rates. Interest expense from unconsolidated
affiliates was consistent between periods.
INCOME TAXES
The effective income tax rate for the 1996 period was 39.2 percent compared to
38.2 percent in 1995.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
Net cash provided by operating activities totaled $187.1 million for the six
months ended June 30, 1996 compared to $149.4 million in the same period last
year. Working capital increased to $300.1 million at June 30, 1996 from $182.4
million at December 31, 1995. This increase was primarily the result of
utilizing long-term financing to fund current debt maturities. Capital
expenditures during the period totaled $81.2 million, while new investments
amounted to $36.7 million.
Refurbishment programs are continually underway at the Company's hotel and
casino properties. In addition, construction projects continued at a number of
Company properties during the 1996 quarter. In January 1996 the Company broke
ground on the "Star Trek: The Experience at the Las Vegas Hilton" attraction and
related themed casino, which is scheduled to open in Spring 1997. Construction
is proceeding on the 90% owned Flamingo Casino - Kansas City, which will include
a casino, hotel, concessions and entertainment facilities. The casino is on
schedule for an August 1996 opening; the hotel is expected to be in operation by
mid-1997. Construction also continues on schedule at the 43% owned Conrad
International Punta del Este Resort and Casino in Punta del Este, Uruguay, with
a planned January 1997 casino opening.
In January 1996 the Company announced plans to target mid-market business
travelers through a major expansion of its franchising program using the
Hilton Garden Inn product. The Company plans to franchise as many as 100 new
Hilton Garden Inns over the next five years, approximately 80 percent of
which will be new construction with the remainder to be conversions of
existing properties. The Company has committed up to $100 million to
facilitate the initial development of the Garden Inn product, which will
primarily take the form of joint venture investments and subordinated loans.
The Company anticipates that capital expenditures and investments in 1996,
including the funding requirements associated with the aforementioned
projects, will total approximately $380 million. In addition, the Company
plans to significantly grow its room base through selective acquisition of
large full service hotels. The Company intends to fund these expenditures
through internal cash flows or new borrowings.
LONG-TERM DEBT
Long-term debt at June 30, 1996 totaled $1.1 billion, consistent with total
long-term debt at December 31, 1995. During the six month period the Company
repaid $457.2 million of long-term debt, representing all borrowings under its
commercial paper program and revolving bank credit lines. In May 1996 the
Company completed a $500 million public offering of 5% convertible subordinated
notes.
The Company's long-term revolving credit facilities had an aggregate commitment
at June 30, 1996 of $597.5 million, all of which was available to the Company.
In addition, $30 million in financing remains available under the Company's
Series B Medium Term Note program.
PART II OTHER INFORMATION
- --------------------------------
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on Thursday, May 9,
1996 at the Beverly Hilton in Beverly Hills, California.
Approximately 86 percent of the eligible shares were voted.
The following were elected to Hilton's Board of Directors for a
three year term expiring in 1999: Stephen F. Bollenbach, Dieter
H. Huckestein, Donald R. Knab, and Benjamin V. Lambert, each of
whom received approximately 99 percent of the votes cast.
The stockholders also approved the 1996 Stock Incentive Plan and
the 1996 Chief Executive Stock Incentive Plan, each having
received approximately 97 percent of the votes cast.
Additionally, the ratification of Arthur Andersen LLP to serve as
auditors for the Company for fiscal 1996 was adopted by 99
percent of the votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Agreement and Plan of Merger between Hilton Hotels Corporation and
Bally Entertainment Corporation dated as of June 6, 1996.
10.2 Consulting Agreement by and between Hilton Hotels Corporation and
Arthur M. Goldberg dated as of June 6, 1996.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
On June 13, 1996 the Company filed a report on Form 8-K under Item 5 Other
Events to report that it had entered into an agreement and plan of merger,
dated as of June 6, 1996 with Bally Entertainment Corporation ("Bally"),
pursuant to which Bally will merge with and into the Company.
SIGNATURES
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 thereunto duly authorized.
HILTON HOTELS CORPORATION
(Registrant)
Date: August 7, 1996 /s/ Matthew J. Hart
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Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: August 7, 1996 /s/ William C. Lebo, Jr.
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William C. Lebo, Jr.
Senior Vice President and
General Counsel