HILTON HOTELS CORPORATION
1997 FINANCIAL REVIEW
26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
36 CONSOLIDATED STATEMENTS OF INCOME
37 CONSOLIDATED BALANCE SHEETS
38 CONSOLIDATED STATEMENTS OF CASH FLOW
39 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
54 SUPPLEMENTARY FINANCIAL INFORMATION
55 FIVE YEAR SUMMARY
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STRATEGIC AND FINANCIAL OBJECTIVES
Management's primary objective is to maximize shareholder value. Management
will continue to pursue this objective through the execution of the following
strategies -- make efficient use of the Company's strong balance sheet and
favorable capital markets, grow the hotel business by buying and owning
full-service hotels in major market locations, expand the Company's gaming
operations through acquisition and new development, leverage the Hilton brand
name worldwide and maximize operating efficiencies. Management believes that
these strategies have resulted, and will continue to result, in strong cash
flow growth and enhanced shareholder value.
FINANCIAL CONDITION
LIQUIDITY
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------- ------- -------
EBITDA(1)
Hotels $ 548 392 301
Gaming 539 233 267
Corporate expense, net (78) (48) (25)
-------- ------- -------
Total $1,009 577 543
-------- ------- -------
-------- ------- -------
Net cash provided by operating activities $ 598 438 380
Net cash used in investing activities (625) (530) (127)
Net cash (used in) provided by financing activities (31) 47 (49)
Capital expenditures 531 242 186
Additional investments 154 104 97
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. EBITDA is presented supplementally because management
believes it allows for a more complete analysis of results of operations.
This information should not be considered as an alternative to any
measure of performance or liquidity as promulgated under generally
accepted accounting principles (such as net income or cash provided by or
used in operating, investing and financing activities) nor should it be
considered as an indicator of the overall financial performance of the
Company. The Company's calculation of EBITDA may be different from the
calculation used by other companies and therefore comparability may be
limited.
EBITDA increased $432 million or 75 percent compared to the prior year. The
increase was primarily attributable to the favorable supply-demand
environment which has led to higher room rates at the Company's owned and
partially owned full-service hotels, the 1996 acquisition of Bally
Entertainment Corporation (Bally) and the 1996 acquisition of the majority of
The Prudential Insurance Company of America's (Prudential) interest in six
full-service hotels.
ACQUISITIONS AND CAPITAL SPENDING
Expenditures required to complete acquisitions and capital spending programs
in 1998 will be financed through available cash flows and general corporate
borrowings. The Company seeks to expand its gaming and hotel segments while
maintaining diversity in its operations and a balance of cash flows generated
by each segment.
GAMING
Growth in the gaming segment occurs primarily through acquisition and new
development. In December 1996, the Company consummated its acquisition of
Bally through the merger of Bally with and into the Company (Bally Merger).
Aggregate consideration consisted of approximately 53 million shares of the
Company's common stock and approximately 15 million shares of the Company's
Preferred Redeemable Increased Dividend Equity Securities, 8% PRIDES,
Convertible Preferred Stock (PRIDES), for a combined equity value of $1.9
billion and assumption of Bally subsidiary debt totaling $1.2 billion.
HILTON HOTELS CORPORATION
Construction has been completed on the 43% owned Conrad International Punta
del Este Resort and Casino in Punta del Este, Uruguay. This $200 million
project includes a 38,000 square foot casino, which opened in January 1997,
and a 300-room luxury hotel which opened in stages over the latter half of
1997. As of December 31, 1997, the Company had provided $97 million in debt
financing for this project.
In April 1997, the Company began construction on the $760 million, 2,900-room
Paris Casino-Resort which will feature an 85,000 square foot casino, thirteen
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. In addition to a 50-story replica of the
Eiffel Tower, the resort will also feature replications of some of the French
city's most recognized landmarks including the Arc de Triomphe, the Paris
Opera House, The Louvre and rue de la Paix. This project, which is adjacent
to Bally's Las Vegas, is expected to be completed in the 1999 third quarter.
In June 1997, Bally's Grand Inc., a majority owned subsidiary of the Company
which owns Bally's Las Vegas, agreed to settle pending shareholder litigation
and pursuant thereto repurchased certain outstanding shares of common stock
and warrants. As a result, the Company's indirect ownership of Bally's Grand
Inc. increased from 84% to 95% at a cost of $55 million. Under the terms of
the settlement, the Company will acquire the remaining interest it does not
currently own in 1998 for $43 million.
On July 1, 1997, the Company opened its new western-themed casino, The Wild
Wild West in Atlantic City. This $110 million project is located on
approximately four acres of Boardwalk property adjacent to Bally's Park Place
and features a 75,000 square foot casino complex. On July 31, 1997, the
Company opened its new 300-room tower at The Atlantic City Hilton. This $50
million project increased the property's room capacity by nearly 60 percent.
The Company's new themed 22,000 square foot SpaceQuest casino addition at the
Las Vegas Hilton opened in November 1997, in conjunction with its venture
with Paramount Parks, Inc. for an attraction called "Star Trek: The
Experience at the Las Vegas Hilton" which opened in January 1998. The
Company's share of costs for this project totaled approximately $70 million.
In October 1997, the Company acquired a 42% interest in the partnership which
operates Bally's Saloon*Gambling Hall*Hotel in Robinsonville, Mississippi,
thereby increasing the Company's ownership to 100%. Consideration totaled $18
million and included cash and shares of the Company's common stock.
In addition to an estimated $420 million in 1998 expenditures related to the
aforementioned gaming projects, the Company anticipates spending
approximately $140 million in the gaming segment in 1998 on normal capital
replacements, approximately $20 million on structural and technology upgrades
and ADA/safety compliance projects and approximately $60 million on
improvement projects that are evaluated on a ROI basis.
HOTELS
Growth in the hotel segment continues through selective acquisition of large
full-service hotels in major market locations. During the 1996 fourth
quarter, the Company acquired the majority of Prudential's ownership
interests in the Chicago Hilton and Towers, San Francisco Hilton and Towers,
Washington Hilton and Towers, New York Hilton and Towers, Rye Town Hilton and
Capital Hilton hotels for a combined cost of approximately $430 million. In
December 1997 and January 1998, the Company acquired the remaining interests
in such properties, other than Prudential's .5% interest in the New York
Hilton and Towers, for a total cost of $27 million.
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In February 1997, the Company acquired the 591-room Anchorage Hilton hotel in
Anchorage, Alaska for approximately $67 million. The Company invested an
additional $3 million to renovate certain areas of the hotel.
In July 1997, the Company's Board of Directors approved a renovation of the
New York Hilton and Towers, including new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking New York City. This $85 million project is expected
to be completed in late 1999.
In September 1997, the Company began construction on a new 600-room hotel at
the center of Boston's Logan Airport. This $100 million project is expected
to be completed in late 1999.
In January 1998, the Company purchased The Prospect Company's 92.5% ownership
interest in the 458-room McLean Hilton and office building complex in McLean,
Virginia located just outside Washington D.C., thereby increasing the
Company's ownership to 100%. In March 1998, the Company purchased the
300-room Hilton at Short Hills, a "Five Diamond" hotel located in Short
Hills, New Jersey.
In addition to an estimated $250 million in 1998 expenditures related to the
aforementioned hotel projects, the Company intends to spend approximately
$100 million in the hotel segment in 1998 on normal capital replacements,
upgrades and compliance projects. Additionally, the Company expects to make
further acquisitions in 1998.
OTHER DEVELOPMENTS
In January 1997, the Company finalized various agreements with Ladbroke Group
PLC, whose wholly owned subsidiary, Hilton International Co. (HI), owns the
rights to the Hilton name outside the United States. The agreements provide
for the reunification of the Hilton brand worldwide through a strategic
alliance between the companies, including cooperation on sales and marketing,
loyalty programs and other operational matters. The Company and HI have
integrated their reservation systems and worldwide sales offices, launched
the Hilton HHonors-Registered Trademark- Worldwide loyalty program, and have
developed and are continuing to develop joint marketing initiatives. In
addition, the agreements give the Company the ability to franchise Hilton
properties in Canada and Mexico.
In February 1997, the Company sold its 30% equity interest in the Conrad
International Hong Kong for total consideration of approximately $112
million, or approximately 15 times 1997 EBITDA. The transaction resulted in a
$70 million gain which is being amortized over the remaining life of the
management contract.
The Company continues to improve its franchise business through the expansion
of the Hilton Garden Inn-Registered Trademark- product. At December 31, 1997,
the Company had approximately 100 Garden Inn properties either open, under
construction or in development and expects to have 200 such franchise
properties either open, under construction or in development by the year
2000. In addition, in the fourth quarter of 1997, the Company signed
agreements with Chartwell Leisure Inc. to franchise 20 Garden Inn properties
throughout Mexico.
In January 1997, the Company commenced an offer (the ITT Offer) to acquire
ITT Corporation (ITT) in a combination cash and stock transaction. In
connection with the ITT Offer, the Company sought to have its nominees
elected to the ITT board of directors at the ITT 1997 annual meeting of
shareholders. On November 12, 1997, the shareholders of ITT re-elected the
existing directors of ITT at such annual meeting, and on November 13, 1997,
the Company terminated the ITT Offer. Expenses related to the Company's
attempt to acquire ITT, net of the gain recognized on the sale of ITT stock
previously purchased by the Company, totaled $15 million.
HILTON HOTELS CORPORATION
LONG-TERM DEBT
Long-term debt at December 31, 1997 totaled $2.7 billion, compared with $2.6
billion at December 31, 1996. In February 1997, the Company redeemed its 6%
Convertible Subordinated Notes due 1998 and its 10% Convertible Subordinated
Notes due 2006. These notes, formerly obligations of Bally, had outstanding
principal balances of $1 million and $70 million, respectively.
At December 31, 1997, $282 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility supported the
issuance of commercial paper, leaving approximately $1.5 billion of the
revolving bank credit facility available to the Company at such date.
During April 1997, the Company issued $375 million of 7.95% Senior Notes due
2007, under an effective shelf registration statement (the Shelf) on file
with the Securities and Exchange Commission registering up to $1 billion in
debt or equity securities. In June 1997, the Company issued $300 million of
7.375% Senior Notes due 2002, under the Shelf. In July 1997, the Company
issued $325 million of 7% Senior Notes due 2004, the remaining balance under
the Shelf. The Company used the proceeds from these offerings to repay its
revolving credit facility and a portion of its commercial paper borrowings
which were incurred primarily to fund cash tender offers to purchase the
outstanding debt securities of former Bally subsidiaries.
In October 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. In December 1997, the Company issued $200 million of 7.2%
Senior Notes due 2009 and $200 million of 7.5% Senior Notes due 2017 under
this shelf.
The weighted average interest rate and term of total debt issued during 1997
was 7.4% and 10 years, respectively. The terms of any additional securities
offered pursuant to the $2.5 billion shelf registration statement will be
determined by market conditions at the time of issuance.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $3.4 billion or $13.53 per share at December 31,
1997. Book value per share was $12.90 in 1996 and $6.50 in 1995. Dividends
paid on common shares were $.32 per share in 1997, $.305 per share in 1996
and $.30 per share in 1994.
Pursuant to the Company's stock repurchase program, during 1997 the Company
repurchased 1.5 million shares, or 7.5 percent of the total authorized to be
repurchased, for an aggregate purchase price of $40 million. The timing of
the stock purchases are made at the discretion of the Company's management,
subject to certain business and market conditions.
OTHER MATTERS
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on
the Company's financial position or results of operations.
The Company has developed preliminary plans to address the possible exposures
related to the impact on its computer systems of the year 2000. Key
financial, information and operational systems are being assessed and
preliminary plans have been developed to address system modifications
required by December 31, 1999. The financial impact of making the required
systems changes is not expected to be material to the Company's financial
position or results of operations.
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1997 and 1996 is as follows:
Percent
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 Change
- --------------------------------------------------------------- -------- -----------
Revenue $5,316 3,940 35%
EBITDA 1,009 577 75
Operating income 596 329 81
Income before extraordinary item 250 156 60
Net income 250 82 205
Basic EPS
Income before extraordinary item per share .95 .79 20
Net income per share .95 .41 132
Diluted EPS
Income before extraordinary item per share .94 .79 19
Net income per share .94 .41 129
HOTELS
The hotel segment includes the consolidated results of the Company's owned
and leased properties, affiliates operated under long-term management
agreements and franchise fees. Operating results are reduced by the portion
of earnings of non-controlled affiliates applicable to other ownership
interests. At December 31, 1997, the Company owned and partially owned,
managed and franchised 32, 27 and 180 properties, respectively, totaling
approximately 85,000 rooms worldwide.
Hotel segment results are primarily affected by volume (as measured by
occupancy), pricing (as measured by average room rate) and the Company's
ability to manage costs. Increased demand has outpaced lodging supply growth
in most markets in which the Company operates, resulting in revenue per
available room (REVPAR) increases at nearly all of the Company's owned and
partially owned hotels and resorts. Hotel revenue for 1997 was $2.7 billion,
an increase of nine percent over 1996. EBITDA for the hotel division was $548
million for 1997, a 40 percent increase compared to 1996, while operating
income increased 65 percent to $448 million. Occupancy for hotels owned or
managed increased to 74.6 percent in 1997 compared to 74.3 percent in 1996
while average room rates increased eight percent. This resulted in an
increase in REVPAR of eight percent for owned or managed hotels over 1996
levels.
Hotel segment results are significantly influenced by the operating results
of the Company's principal downtown/convention, resort and airport locations
where it has large equity interests. A strong domestic economy continues to
fuel increases in both business and leisure travel volume. Room nights
related to individual business travel (IBT), company meetings and leisure
guests each increased from the prior year. Limited supply growth continues to
result in substantial pricing power in many key markets. As a result, the
Company improved margins and increased EBITDA and operating income at nearly
all of its owned and partially owned hotels.
HILTON HOTELS CORPORATION
Combined EBITDA from the Company's ten major full-service properties
increased $100 million over the prior year. Of this increase, approximately
$54 million resulted from the increased ownership interests acquired from
Prudential and the balance was due to improved operating results. Combined
results from the Waldorf=Astoria and the New York Hilton and Towers increased
$22 million compared to 1996. Continued strong demand, particularly in the
leisure and the higher rate IBT segments, contributed to a double-digit
REVPAR increase at each of these two properties. Double-digit percentage
gains in average room rates and REVPAR led the San Francisco Hilton and
Towers to an $8 million or 25 percent increase in EBITDA compared to last
year. Increased convention volume at the Washington Hilton and Towers and
strong IBT growth at the Capital Hilton led to a combined EBITDA increase of
$8 million at these properties in 1997. Combined EBITDA from the Hilton
Hawaiian Village, impacted by the poor economic conditions in Asia, and the
New Orleans Hilton Riverside and Towers, impacted by the closure of the
Flamingo Casino--New Orleans and a weak city-wide convention year, was even
with the prior year. Occupancy for these ten major full-service hotels (which
includes three properties in Chicago) was 79.3 percent versus 78.9 percent in
1996. The average room rate increased to $165.98 in 1997 from $152.40 and
REVPAR improved ten percent between periods. Combined EBITDA margins
increased two points to 34 percent.
Strong supply-demand fundamentals led to an eight percent increase in REVPAR
at the Company's other 13 full-service domestic owned and partially owned
properties. These properties generated a $25 million increase in EBITDA year
over year, including $11 million in EBITDA from the Anchorage Hilton which
was acquired in February 1997.
Franchise fee revenue, including initial and termination fees, increased $8
million in 1997 to $51 million. Franchise fees are based primarily on a
percentage of rooms revenue.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $5 million in 1997 to $103 million.
Hotel segment results were adversely effected by $25 million of non-recurring
charges ($22 million non-cash) in 1996. These charges included the write-down
of certain investments and notes receivable to estimated fair market value.
Although the supply-demand balance in the Company's major markets generally
remains favorable, future operating results could be adversely impacted by
increased capacity and weak demand. These conditions could limit the
Company's ability to pass through inflationary increases in operating costs
in the form of higher rates. Increases in transportation and fuel costs or
sustained recessionary periods could also unfavorably impact future results.
However, the Company believes that its financial strength, market presence
and diverse product line will enable it to remain extremely competitive.
GAMING
The gaming segment includes the consolidated results of the Company's owned
properties and affiliates operated under long-term management agreements.
Operating results are reduced by the portion of earnings of non-controlled
affiliates applicable to other ownership interests. The Company operates its
gaming business under the Hilton, Bally, Flamingo and Conrad brand names. The
gaming segment includes five wholly owned and one majority owned Nevada hotel
casinos; two wholly owned Atlantic City hotel casinos; wholly owned riverboat
gaming operations in Kansas City, Missouri and Robinsonville, Mississippi; a
partially owned riverboat gaming operation in New Orleans, Louisiana; two
partially owned hotel casinos in Australia; managed gaming operations in
Windsor, Ontario, Canada; and a partially owned hotel casino in Punta del
Este, Uruguay. The Company also operated a riverboat in New Orleans which
ceased operations on October 1, 1997.
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Company's Nevada gaming operations offer a diversified product and
service mix which appeal to a broad spectrum of customers. The Flamingo
Hilton--Las Vegas caters to the broad Las Vegas middle market, while Bally's
Las Vegas caters to convention groups and the mid to upper middle market. The
Las Vegas Hilton primarily caters to premium players and the convention
market, however, the property has implemented strategies to broaden its
customer base. The Flamingo Hilton--Reno focuses on middle market activity,
while the Reno Hilton targets both convention and middle market activity. The
Flamingo Hilton--Laughlin targets the budget market segment.
Total gaming revenue increased 82 percent in 1997 to $2.6 billion from $1.4
billion in 1996. Casino revenue, a component of gaming revenue, increased 114
percent to $1.8 billion in 1997 compared to $857 million in the prior year.
EBITDA from the gaming division was $539 million compared to $233 million in
the prior year and gaming operating income increased 109 percent to $228
million from $109 million in 1996. The Company's gaming division benefited
from the addition of the Bally properties in Las Vegas, Atlantic City,
Mississippi and New Orleans, the addition of The Wild Wild West casino in
Atlantic City, improved international results and a return to a normal
baccarat win percentage at the Las Vegas Hilton. Gaming revenue, casino
revenue and EBITDA increased $1.2 billion, $923 million and $298 million,
respectively, as a result of the Bally acquisition.
The completion of a number of room expansion projects and the opening of new
hotel casinos led to a six percent increase in room supply in Las Vegas
compared to the prior year. These capacity additions contributed to a five
point decline in occupancy at the Las Vegas Hilton in 1997, which was offset
slightly by a six percent increase in average room rate. However, a 28
percent increase in the property's premium play baccarat volume combined with
an eight point increase in the baccarat win percentage resulted in a $16
million increase in EBITDA to $45 million in 1997. 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 the results at this property. However, the Company
believes that its implementation of new casino marketing and entertainment
strategies and the opening of the "Star Trek" attraction and SpaceQuest
casino will broaden the Las Vegas Hilton's customer base and create
additional mid-level play.
New capacity additions also affected the Flamingo Hilton--Las Vegas, which
posted a five point decrease in occupancy compared to the prior year. This
decrease in occupancy contributed to a four percent decrease in slot handle
and a seven percent decrease in table game volume resulting in an EBITDA
decrease of $5 million compared to the prior year. Bally's Las Vegas
generated EBITDA of $93 million in 1997, an increase of seven percent from
1996. In addition to a six percent increase in average room rate, which
counteracted the effects of declining occupancy, slot revenue increased by
seven percent on higher volume. Due to the completion of the Bally merger on
December 18, 1996, this property's results included in 1996 were not
significant.
Occupancy for the Nevada hotel casinos was 86.5 percent in 1997 compared to
90.5 percent last year. The average room rate for the Nevada properties was
$76.53 compared to $73.57 in 1996. The 1996 statistical information includes
the results of Bally's Las Vegas for comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $155 million and $29 million, respectively, in 1997. The
properties' results were not significant to the Company last year, however,
full year 1996 EBITDA at these properties totaled $131 million and $38
million, respectively. The results of Bally's Park Place include a new
casino, The Wild Wild West, which opened on July 1, 1997. Revenue from The
Wild Wild West casino has been almost entirely incremental, resulting in
strong margin gains. The Atlantic City Hilton's EBITDA was impacted by a
lower table game win percentage and the effects of its tower construction on
casino volume.
HILTON HOTELS CORPORATION
Occupancy and average room rate for the Atlantic City hotel casinos were 91.3
percent and $90.35, respectively, in 1997. Although not included in the
Company's 1996 period, occupancy and average room rate were 92.7 percent and
$91.33, respectively.
The gaming segment also benefited from the opening of the Conrad
International Punta del Este Resort and Casino which contributed EBITDA of $9
million in 1997.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $91 million to $214 million in 1997. This
increase primarily resulted from the addition of the Bally properties.
Gaming segment results were adversely effected by non-recurring charges
totaling $102 million ($96 million non-cash) in 1997 and $38 million ($29
million non-cash) in 1996. The 1997 charges include an impairment loss
relating to the Flamingo Casino--Kansas City and an impairment loss and other
costs associated with the closure of the Flamingo Casino--New Orleans. The
1996 charges included the write-off of pre-opening expenses for the Flamingo
Casino--Kansas City and losses associated with a planned relocation of the
Flamingo Casino--New Orleans.
The gaming industry continues to experience growth primarily in existing
markets. The Las Vegas and Atlantic City markets are becoming increasingly
competitive due to new developments and expansion projects which challenge
the Company's existing market share. These projects could adversely impact
the Company's future gaming income.
CORPORATE EXPENSE, NET
Corporate expense increased $28 million in 1997 to $80 million. The 1997
expense includes $25 million in costs related to the Company's efforts to
acquire ITT, $6 million of non-recurring litigation costs and increased costs
associated with the Company's development of its Garden Inn product. These
costs were partially offset by a $10 million gain recognized on the sale of
ITT stock previously purchased by the Company.
FINANCING ACTIVITIES
Interest and dividend income increased $4 million compared with the prior
year. Interest expense, net of amounts capitalized, increased $84 million
primarily due to additional debt resulting from the Bally acquisition.
Interest expense, net, from equity investments increased $6 million over 1996.
INCOME TAXES
The effective income tax rate in 1997 increased to 41.7% from 39.7% in 1996
primarily due to the amortization of non-deductible goodwill recorded as a
result of the Bally acquisition. The Company's effective income tax rate is
determined by the level and composition of pretax income and the mix of
income subject to varying foreign, state and local taxes.
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FISCAL 1996 COMPARED WITH FISCAL 1995
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1996 and 1995 is as follows:
PERCENT
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995 CHANGE
- -------------------------------------------------------------- ------- ----------
Revenue $3,940 3,555 11%
EBITDA 577 543 6
Operating income 329 355 (7)
Income before extraordinary item 156 173 (10)
Net income 82 173 (53)
Basic EPS
Income before extraordinary item per share .79 .90 (12)
Net income per share .41 .90 (54)
Diluted EPS
Income before extraordinary item per share .79 .89 (11)
Net income per share .41 .89 (54)
HOTELS
Consolidated hotel revenue increased 11 percent in 1996 to $2.5 billion.
REVPAR for owned or managed hotels increased nine percent in 1996. Hotel
EBITDA increased 30 percent in 1996 to $392 million and operating income
increased 31 percent to $272 million.
Combined EBITDA from the Waldorf=Astoria and the New York Hilton and Towers
increased $18 million compared to 1995. Strong IBT and leisure guest volume
contributed to a combined REVPAR increase of 12 percent over the prior year
for these two properties. Double-digit REVPAR growth also helped support a
$15 million combined increase in the EBITDA of the Palmer House Hilton, the
O'Hare Hilton and the Chicago Hilton and Towers. International guest volume
at the Hilton Hawaiian Village increased eight percent over 1995 levels,
contributing to a $7 million increase in EBITDA. International room nights
accounted for over 60 percent of total volume at the Hilton Hawaiian Village
in 1996. Company meeting volume rose 40 percent at the San Francisco Hilton
and Towers, which posted double-digit REVPAR growth and a $10 million
increase in EBITDA. Combined EBITDA from these ten major full-service hotels
and resorts, which also include the Capital Hilton, the New Orleans Hilton
Riverside and Towers and the Washington Hilton and Towers increased $50
million, including $13 million as a result of the increased ownership
interests acquired from Prudential in the fourth quarter of 1996.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $5 million in 1996 to $98 million.
Occupancy for hotels owned or managed increased to 74.3 percent in 1996
compared to 72.8 percent in 1995. Average room rates increased seven percent
over 1995.
GAMING
Total gaming revenue increased ten percent to $1.4 billion in 1996 compared
to $1.3 billion in 1995. Casino revenue was $857 million in 1996 compared to
$791 million in 1995. Gaming EBITDA was $233 million in 1996, a 13 percent
decrease from $267 million in 1995 and gaming operating income was $109
million in 1996, a 39 percent decrease from $179 million in 1995.
EBITDA at the Las Vegas Hilton decreased $61 million compared to the prior
year primarily due to lower than normal drop combined with a significant
reduction in the win percentage on its premium play baccarat business. The
baccarat win percentage decreased 13 points from a more normalized win
percentage in the prior year.
HILTON HOTELS CORPORATION
Benefiting from a significant renovation and expansion effort completed in
1995, the Flamingo Hilton - Las Vegas posted outstanding results in 1996.
Occupancy increased six points to 95.5 percent and REVPAR increased 15
percent from 1995 levels. EBITDA increased $26 million from the prior year. A
generally soft market affected EBITDA at the Flamingo Hilton - Laughlin which
decreased $3 million compared to 1995. Combined EBITDA from the Reno Hilton
and the Flamingo Hilton - Reno decreased $11 million from the prior year
primarily due to increased competition and adverse weather conditions
resulting in lower occupancy and average room rates.
Occupancy for the Nevada hotel casinos was 90.2 percent and 88.4 percent in
1996 and 1995, respectively. Average room rates increased four percent in
1996.
The EBITDA contribution from the properties acquired in the Bally Merger on
December 18, 1996 were not significant to the 1996 results.
EBITDA from the 19.9% owned Conrad Jupiters, Gold Coast hotel casino in
Australia increased $7 million from 1995, primarily due to increased table
game win and double-digit REVPAR growth. Benefiting from a full year of
operations, EBITDA from the 19.9% owned Conrad International Treasury Casino,
Brisbane increased $4 million.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $35 million to $123 million in 1996.
CORPORATE EXPENSE, NET
Corporate expense increased $20 million in 1996 to $52 million. The 1996
expense includes a $10 million charge for stock-based compensation related to
the 1996 Chief Executive Stock Incentive Plan and a $5 million non-recurring
charge related to certain executive terminations.
FINANCING ACTIVITIES
Interest and dividend income increased $3 million compared with the prior
year. Interest expense, net of amounts capitalized, decreased $5 million.
Adjusting for realized losses on the sale of certain investments included in
interest expense in 1996, interest expense decreased $13 million. This
decrease is primarily due to lower average debt levels and lower interest
rates. Interest expense, net, from equity investments decreased $5 million
from 1995.
INCOME TAXES
The effective income tax rate in 1996 was 39.7% compared to 36.4% in 1995.
The 1995 effective income tax rate benefited from $6 million in credits
resulting from the favorable resolution of Federal tax issues for prior years
and higher utilization of foreign tax credits.
EXTRAORDINARY LOSS
The costs and expenses incurred in connection with the extinguishment of
debt, including tender and defeasance premiums, resulted in an extraordinary
loss in 1996 totaling $74 million, net of a tax benefit of $52 million.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance, and are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although the Company
believes the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------- ------ ------
REVENUE
Hotels $2,732 2,517 2,265
Gaming 2,584 1,423 1,290
------ ------ ------
5,316 3,940 3,555
------ ------ ------
EXPENSES
Hotels 2,284 2,245 2,057
Gaming 2,356 1,314 1,111
Corporate, net 80 52 32
------ ------ ------
4,720 3,611 3,200
------ ------ ------
OPERATING INCOME 596 329 355
Interest and dividend income 42 38 35
Interest expense (172) (88) (93)
Interest expense, net, from equity investments (18) (12) (17)
------ ------ ------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 448 267 280
Provision for income taxes 187 106 102
Minority interest, net 11 5 5
------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEM 250 156 173
Extraordinary loss on extinguishment of debt,
net of tax benefit of $52 -- (74) --
------ ------ ------
NET INCOME $ 250 82 173
------ ------ ------
------ ------ ------
BASIC EARNINGS PER SHARE
Income before extraordinary item $ .95 .79 .90
Extraordinary loss -- (.38) --
------ ------ ------
Net income per share $ .95 .41 .90
------ ------ ------
------ ------ ------
DILUTED EARNINGS PER SHARE
Income before extraordinary item $ .94 .79 .89
Extraordinary loss -- (.38) --
------ ------ ------
Net income per share $ .94 .41 .89
------ ------ ------
------ ------ ------
see notes to consolidated financial statements
HILTON HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS) DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------- ------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 330 388
Temporary investments 43 50
Accounts receivable, net 403 400
Other current assets 235 283
------ ------
Total current assets 1,011 1,121
------ ------
INVESTMENTS, PROPERTY AND OTHER ASSETS
Investments 409 373
Property and equipment, net 4,994 4,698
Goodwill 1,313 1,295
Other assets 99 100
------ ------
Total investments, property and other assets 6,815 6,466
------ ------
TOTAL ASSETS $7,826 7,587
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 865 864
Current maturities of long-term debt 65 101
Income taxes payable 11 3
------ ------
Total current liabilities 941 968
------ ------
Long-term debt 2,709 2,606
Deferred income taxes 603 598
Insurance reserves and other 190 204
------ ------
Total liabilities 4,443 4,376
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% PRIDES convertible preferred stock, 15 million shares outstanding
at the end of each year 15 15
Common stock, 249 million shares outstanding at the end of each year 628 627
Additional paid-in capital 1,759 1,745
Retained earnings 1,040 931
Other 11 4
------ ------
3,453 3,322
Less treasury stock, at cost 70 111
------ ------
Total stockholders' equity 3,383 3,211
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,826 7,587
------ ------
------ ------
see notes to consolidated financial statements
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN MILLIONS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------- ------ ------
OPERATING ACTIVITIES
Net income $ 250 82 173
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt -- 74 --
Depreciation and amortization 300 178 142
Non-cash items 94 23 --
Amortization of loan costs 3 1 1
Change in working capital components:
Inventories 5 23 (11)
Accounts receivable (3) (13) (41)
Other current assets 41 (19) 25
Accounts payable and accrued expenses 1 (21) 71
Income taxes payable 5 43 4
Change in deferred income taxes (24) (22) 1
Change in other liabilities (82) 20 (14)
Distributions from equity investments in excess of earnings 13 33 30
Gain from asset sales (13) (5) (1)
Other 8 41 --
-------- ------- -----
Net cash provided by operating activities 598 438 380
-------- ------- -----
INVESTING ACTIVITIES
Capital expenditures (531) (242) (186)
Additional investments (154) (104) (97)
Change in temporary investments 18 83 139
Proceeds from asset sales 123 -- --
Payments on notes and other 56 21 17
Acquisitions, net of cash acquired (137) (288) --
-------- ------- -----
Net cash used in investing activities (625) (530) (127)
-------- ------- -----
FINANCING ACTIVITIES
Change in commercial paper borrowings and revolving loans (1,218) 1,041 189
Long-term borrowings 1,393 492 1
Reduction of long-term debt (111) (1,457) (192)
Issuance of common stock 38 31 11
Purchase of common stock (40) -- --
Cash dividends (93) (60) (58)
-------- ------- -----
Net cash (used in) provided by financing activities (31) 47 (49)
-------- ------- -----
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (58) (45) 204
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 388 433 229
-------- ------- -----
CASH AND EQUIVALENTS AT END OF YEAR $ 330 388 433
-------- ------- -----
-------- ------- -----
see notes to consolidated financial statements
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
8% PRIDES
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED TREASURY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) STOCK STOCK CAPITAL EARNINGS OTHER STOCK
- --------------------------------------------------- ----- ------- -------- ----- ---------
BALANCE, DECEMBER 31, 1994 $ -- 494 -- 795 (6) (154)
Exercise of stock options -- -- -- (1) -- 12
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- (1) --
Net income -- -- -- 173 -- --
Dividends ($.30 per share) -- -- -- (58) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1995 -- 494 -- 909 (7) (142)
Exercise of stock options -- -- -- -- -- 31
Bally acquisition 15 133 1,735 -- -- --
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- 6 --
Change in unrealized gain/loss
on marketable securities,
net of deferred tax -- -- -- -- 5 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 82 -- --
Dividends ($.305 per share) -- -- -- (60) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1996 15 627 1,745 931 4 (111)
Issuance of common stock -- 1 4 -- -- 5
Exercise of stock options -- -- -- (48) -- 76
Treasury stock acquired -- -- -- -- -- (40)
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- (4) --
Change in unrealized gain/loss
on marketable securities,
net of deferred tax -- -- -- -- 11 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 250 -- --
Dividends
PRIDES($.89 per share) -- -- -- (13) -- --
Common ($.32 per share) -- -- -- (80) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1997 $15 628 1,759 1,040 11 (70)
---- --- ----- ------ --- -----
---- --- ----- ------ --- -----
see notes to consolidated financial statements
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NATURE OF OPERATIONS
Hilton Hotels Corporation and subsidiaries (the Company) is primarily engaged
in the ownership, management and franchising of hotels, resorts and vacation
ownership properties and the ownership and management of casinos and hotel
casino properties. The Company operates in select markets throughout the
world, predominately in the United States. Revenue and income are derived
from two business segments: hotel operations and gaming operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hilton Hotels
Corporation and its majority owned and controlled subsidiaries. The Company
also consolidates the operating results and working capital of affiliates
operated under long-term management agreements, including such affiliates in
which the Company has investments of 50% or less. These agreements
effectively convey to the Company the right to use the properties in exchange
for payments to the property owners, which are based primarily on the
properties' profitability. The consolidated financial statements include the
following amounts related to managed hotels:
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------- ------ ------
Revenue $1,826 2,187 2,015
Operating expenses, including remittances to owners 1,696 2,035 1,904
Current assets(1) and current liabilities 299 344
(1) Including cash and equivalents of $126 million and $115 million,
respectively.
All material intercompany transactions are eliminated and net earnings are
reduced by the portion of the earnings of affiliates applicable to other
ownership interests. There are no significant restrictions on the transfer of
funds from the Company's wholly owned subsidiaries to Hilton Hotels
Corporation.
CASH AND EQUIVALENTS
Cash and equivalents include investments with initial maturities of three
months or less.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the aggregate of gaming wins and losses. The revenue
components presented in the consolidated financial statements and the notes
thereto exclude the retail value of rooms, food and beverage provided to
customers on a complimentary basis. The estimated cost of providing these
promotional allowances, primarily classified as casino expenses through
interdepartmental allocations, is as follows:
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------ ------ ------
Rooms $ 33 14 11
Food and beverage 119 40 37
------ ------ ------
Total cost of promotional allowances $ 152 54 48
------ ------ ------
------ ------ ------
HILTON HOTELS CORPORATION
CURRENCY TRANSLATION
Assets and liabilities denominated in most foreign currencies are translated
into U.S. dollars at year-end exchange rates and related gains and losses,
net of applicable deferred income taxes, are reflected in stockholders'
equity. Gains and losses from foreign currency transactions and translation
of balance sheets in highly inflationary economies are included in earnings.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Interest incurred during
construction of facilities is capitalized and amortized over the life of the
asset. Costs of improvements are capitalized. Costs of normal repairs and
maintenance are charged to expense as incurred. Upon the sale or retirement
of property and equipment, the cost and related accumulated depreciation are
removed from the respective accounts, and the resulting gain or loss, if any,
is included in income.
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized over the shorter of
the asset life or lease term. The service lives of assets are generally 40
years for buildings, 30 years for riverboats and eight years for building
improvements and furniture and equipment.
The carrying value of the Company's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then a loss is recognized in the income
statement using a fair value based model.
GOODWILL
The excess of purchase price over the fair value of net assets of businesses
acquired (goodwill) is amortized using the straight-line method over 40
years. The Company periodically evaluates the carrying value of goodwill and
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows, as well as other factors.
PRE-OPENING COSTS
Costs associated with the opening of new properties or major additions to
properties are deferred and amortized over the shorter of the period
benefited or one year.
UNAMORTIZED LOAN COSTS
Debt discount and issuance costs incurred in connection with the placement of
long-term debt are capitalized and amortized to interest expense, principally
on the bonds outstanding method.
SELF-INSURANCE
The Company is self-insured for various levels of general liability, workers'
compensation and employee medical and life insurance coverage. Insurance
reserves include the present values of projected settlements for claims.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
Company has adopted SFAS No. 128 for the year ended December 31, 1997 and all
prior-period earnings per share (EPS) data presented herein has been restated
to conform to the new presentation. Basic EPS is computed by dividing net
income available to common stockholders (net income less preferred dividends)
by the weighted average number of common shares outstanding for the period.
The weighted average number of common shares outstanding for 1997, 1996 and
1995 were 250 million, 197 million and 193 million, respectively. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted. The dilutive
effect of the assumed exercise of stock options and convertible securities
increased the weighted average number of common shares by 31 million, 12
million and 2 million for 1997, 1996 and 1995, respectively. In addition, the
increase to net income resulting from interest on convertible securities
assumed to have not been paid was $15 million and $9 million for 1997 and
1996, respectively.
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications to conform with classifications adopted in 1997. These
classifications have no effect on net income.
ACQUISITIONS
Effective December 18, 1996, the Company completed the merger of Bally
Entertainment Corporation (Bally) with and into the Company pursuant to an
agreement dated June 6, 1996. Aggregate consideration consisted of
approximately 53 million shares of the Company's common stock and
approximately 15 million shares of the Company's Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(PRIDES) for a combined equity value of $1.9 billion and assumption of Bally
subsidiary debt totaling $1.2 billion.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the acquisition cost of $3.1 billion has been
allocated to the assets acquired and liabilities assumed based on estimates
of their fair value. A total of $1.3 billion, representing the excess of
acquisition cost over the fair value of Bally's tangible net assets, has been
allocated to goodwill and is being amortized over 40 years.
The Company's consolidated results of operations have incorporated Bally's
activity from the effective date of the merger. The following unaudited pro
forma information has been prepared assuming that this acquisition had taken
place at the beginning of the respective periods. This pro forma information
does not purport to be indicative of future results or what would have
occurred had the acquisition been made as of those dates.
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995
- ------------------------------------------------------------------------- -------
Revenue $5,041 4,565
Operating income 525 550
Income before extraordinary item 243 278
Net income 169 278
Basic EPS
Income before extraordinary item per share .93 1.08
Net income per share .63 1.08
Diluted EPS
Income before extraordinary item per share .93 1.06
Net income per share .63 1.06
During the 1996 fourth quarter, the Company acquired the majority of The
Prudential Insurance Company of America's (Prudential) ownership interests in
the Chicago Hilton and Towers, San Francisco Hilton and Towers, Washington
Hilton and Towers, New York Hilton and Towers, Rye Town Hilton and Capital
Hilton hotels for a combined cost of approximately $430 million. The purchase
price has been allocated to the assets acquired and liabilities assumed using
the purchase method of accounting. The pro forma impact on operations of the
Prudential acquisitions and acquisitions completed during 1997 were not
significant.
HILTON HOTELS CORPORATION
EXTRAORDINARY ITEM
In December 1996, the Company completed cash tender offers and consent
solicitations for substantially all of the outstanding notes of certain
wholly owned subsidiaries including the 9 1/4% Bally's Park Place Funding,
Inc. First Mortgage Notes due 2004; 10 5/8% GNF, Corp. First Mortgage Notes
due 2003 and Bally Casino Holdings, Inc. Senior Discount Notes. The remaining
untendered notes were defeased. The Company also purchased 99.1% of the
outstanding 10 3/8% First Mortgage Notes due 2003 of Bally's Grand, Inc. Cash
consideration for the repurchase and defeasance, including premiums, totaled
$1.2 billion, which resulted in an after tax extraordinary loss of $74
million, net of a tax benefit of $52 million.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996 are as follows:
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
Hotel accounts receivable $309 334
Less allowance for doubtful accounts 11 10
------ ------
298 324
------ ------
Casino accounts receivable
Less allowance for doubtful accounts 129 106
24 30
------ ------
105 76
------ ------
Total $403 400
------ ------
------ ------
The allowance provided for estimated uncollectible casino receivables, net of
recoveries, is included in casino expenses in the amount of $29 million, $25
million and $19 million in 1997, 1996 and 1995, respectively.
INVENTORIES
Included in other current assets at December 31, 1997 and 1996 are
inventories of $77 million and $82 million, respectively, determined on a
first-in, first-out basis.
INVESTMENTS
Investments at December 31, 1997 and 1996 are as follows:
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
Equity investments
Hotels (eight in 1997, seven in 1996) $ 52 78
Hotels casinos (four in 1997, five in 1996) 84 101
Notes receivable 114 73
Other 35 25
------ ------
285 277
Notes receivable (non equity investments) 86 69
Marketable securities and other 38 27
------ ------
Total $409 373
------ ------
------ ------
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 are as follows:
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- -------
Land $ 763 712
Buildings and leasehold improvements 4,162 3,823
Riverboats 53 128
Furniture and equipment 942 891
Property held for sale or development 39 40
Construction in progress 196 106
-------- -------
6,155 5,700
Less accumulated depreciation 1,161 1,002
-------- -------
Total $4,994 4,698
-------- -------
-------- -------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1997 and 1996 are as
follows:
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
Accounts and notes payable $205 200
Accrued salaries and wages 96 87
Remittances due to owners 9 64
Other accrued expenses 555 513
------ ------
Total $865 864
------ ------
------ ------
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is as follows:
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- -------
Industrial development revenue bonds at
adjustable rates, due 2015 $ 82 82
Senior notes, with an average rate of 7.5%,
due 1998 to 2017 1,797 422
Mortgage notes, 6.5% to 10.4%, due 1998 to 2011 116 133
5% Convertible subordinated notes due 2006 491 491
10% Convertible subordinated notes due 2006 --- 70
Commercial paper 280 1,423
Revolving loans --- 75
Other 8 11
-------- -------
2,774 2,707
Less current maturities 65 101
-------- -------
Net long-term debt $2,709 2,606
-------- -------
-------- -------
Interest paid, net of amounts capitalized, was $148 million, $88 million and
$95 million in 1997, 1996 and 1995, respectively. Capitalized interest
amounted to $18 million, $6 million and $3 million, respectively.
HILTON HOTELS CORPORATION
Debt maturities during the next five years are as follows:
(IN MILLIONS)
- ----------------------------------------------------------------------------
1998 $ 65
1999 425
2000 10
2001 14
2002 570
During 1997 and 1996, the Company issued and renewed commercial paper for
varying periods with interest at market rates. In 1997 and 1996 average
amounts of commercial paper outstanding were $891 million and $260 million,
respectively, with the largest amounts outstanding at any one time being $1.5
billion and $1.4 billion, respectively. Weighted average interest rates were
5.84% and 5.57%, respectively.
During 1996, the Company entered into a long-term revolving credit facility
with an aggregate commitment of $1.75 billion, which expires in 2001. A
commitment fee of .085% per annum is paid on the unused portion of the
commitments. At December 31, 1997, $282 million of the aggregate commitment
supported the issuance of commercial paper, leaving approximately $1.5
billion of the revolving bank credit facility available to the Company at
such date.
In February 1997, the Company redeemed its 6% Convertible Subordinated Notes
due 1998 and its 10% Convertible Subordinated Notes due 2006. These notes,
formerly obligations of Bally, had outstanding principal balances of $1
million and $70 million, respectively.
During April 1997, the Company issued $375 million of 7.95% Senior Notes due
2007, under an effective shelf registration statement (the Shelf) on file
with the Securities and Exchange Commission registering up to $1 billion in
debt or equity securities. In June 1997, the Company issued $300 million of
7.375% Senior Notes due 2002, under the Shelf. In July 1997, the Company
issued $325 million of 7% Senior Notes due 2004, the remaining balance under
the Shelf. The Company used the proceeds from these offerings to repay its
revolving credit facility and a portion of its commercial paper borrowings
which were incurred primarily to fund cash tender offers to purchase the
outstanding debt securities of former Bally subsidiaries.
In October 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. In December 1997, the Company issued $200 million of 7.2%
Senior Notes due 2009 and $200 million of 7.5% Senior Notes due 2017 under
this shelf.
The weighted average interest rate and term of total debt issued during 1997
was 7.4% and 10 years, respectively. The terms of any additional securities
offered pursuant to the $2.5 billion shelf registration statement will be
determined by market conditions at the time of issuance.
Provisions under various loan agreements require the Company to comply with
certain financial covenants which include limiting the amount of outstanding
indebtedness.
FINANCIAL INSTRUMENTS
CASH EQUIVALENTS, TEMPORARY INVESTMENTS AND LONG-TERM MARKETABLE SECURITIES
The fair value of cash equivalents, temporary investments and long-term
marketable securities is estimated based on the quoted market price of the
investments.
LONG-TERM DEBT
The estimated fair value of long-term debt is based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The estimated fair values of the Company's financial instruments at December
31, 1997 and 1996 are as follows:
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- -------------------------------- ------------------- -------------------
Cash and equivalents, temporary
investments and long-term
marketable securities $ 411 411 462 462
Long-term debt
(including current maturities) 2,774 2,870 2,707 2,738
INCOME TAXES
The provisions for income taxes for the three years ended December 31 are as
follows:
(IN MILLIONS) 1997 1996 1995
- --------------------------- ------ ----- -----
Current
Federal $191 108 81
State, foreign and local 35 22 20
----- ----- -----
226 130 101
Deferred (39) (24) 1
----- ----- -----
Total $187 106 102
----- ----- -----
----- ----- -----
During 1997, 1996 and 1995 the Company paid income taxes of $150 million,
$83 million and $95 million, respectively.
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
(IN MILLIONS) 1997 1996
- ----------------------------------- ------ -----
Deferred tax assets
Accrued expenses $ 21 47
Bad debt reserves 18 17
Self-insurance reserves 20 21
Benefit plans 18 22
Net operating losses 8 29
AMT Credits 12 12
Other asset reserves 22 19
Foreign tax credit carryovers
(expire beginning in 2000) 6 5
Disposition of assets 30 --
Other 77 64
------ -----
232 236
Valuation allowance (10) (9)
------ ------
222 227
------ -----
Deferred tax liabilities
Fixed assets, primarily depreciation (661) (663)
Equity investments (54) (65)
Other (52) (37)
------ -----
(767) (765)
------ -----
Net deferred tax liability $(545) (538)
------ -----
------ -----
HILTON HOTELS CORPORATION
The reconciliation of the Federal income tax rate and the Company's effective
tax rate is as follows:
1997 1996 1995
- ---------------------------- ------- ----- -----
Federal income tax rate 35.0% 35.0 35.0
Increase (reduction) in taxes:
State and local income taxes,
net of Federal tax benefits 4.1 2.7 3.1
Foreign taxes, net .5 .6 (.9)
Goodwill amortization 2.6 -- --
Other (.5) 1.4 (.8)
------- ----- -----
Effective tax rate 41.7% 39.7 36.4
------- ----- -----
------- ----- -----
CAPITAL STOCK
Four hundred million shares of common stock with a par value of $2.50 per
share are authorized, of which 251 million were issued at December 31, 1997
and 1996, including treasury shares of two million in both periods.
Authorized preferred stock includes 25 million shares of preferred stock with
a par value of $1.00 per share. Fifteen million shares of 8% PRIDES
convertible preferred stock were issued and outstanding at December 31, 1997
and 1996.
Generally, holders of PRIDES have the right to vote upon matters coming
before any meeting of the holders of common stock on the basis of 4/5 of a
vote for each share of PRIDES held. On October 3, 1999, each share of PRIDES
mandatorily converts into 1.12 shares of common stock and the right to
receive an amount in cash equal to any accrued and unpaid dividends thereon.
At any time prior to October 3, 1999, unless previously redeemed, each share
of PRIDES is convertible at the option of the holder into .92 of a share of
common stock. The shares of PRIDES are not redeemable by the Company prior to
October 3, 1998; thereafter, for a period of one year, each share of PRIDES
is convertible at the option of the Company into .92 of a share of common
stock.
Pursuant to the Company's stock repurchase program, during 1997 the Company
repurchased 1.5 million shares, or 7.5 percent of the total authorized to be
repurchased, for an aggregate purchase price of $40 million. The timing of
the stock purchases are made at the discretion of the Company's management,
subject to certain business and market conditions.
The Company has a Share Purchase Rights Plan under which a right is attached
to each share of the Company's common stock. The rights may only become
exercisable under certain circumstances involving actual or potential
acquisitions of the Company's common stock by a specified person or
affiliated group. Depending on the circumstances, if the rights become
exercisable, the holder may be entitled to purchase units of the Company's
junior participating preferred stock, shares of the Company's common stock or
shares of common stock of the acquiror. The rights remain in existence until
July 25, 1998 unless they are terminated, exercised or redeemed.
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, compensation expense
recognized was different than what would have otherwise been recognized under
the fair value based method defined in SFAS No. 123, "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated as follows:
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS) 1997 1996 1995
- ---------------------- ------- ------ ------
Net Income
As reported $250 82 173
Pro forma 239 75 172
Basic EPS
As reported .95 .41 .90
Pro forma .91 .38 .90
Diluted EPS
As reported .94 .41 .89
Pro forma .90 .38 .89
At December 31, 1997, 22 million shares of common stock were reserved for the
exercise of options under the Company's 1990, 1996 and 1997 Stock Plans.
Options may be granted to directors, salaried officers and other key
employees of the Company to purchase common stock at not less than the fair
market value at the date of grant. Generally, options may be exercised in
installments commencing one year after the date of grant. The 1990 and 1996
Stock Plans also permit the granting of Stock Appreciation Rights (SARs). No
SARs have been granted as of December 31, 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend
yield of one percent for each of the three years; expected volatility of 32,
27 and 18 percent; risk-free interest rates of 6.49, 6.33 and 7.58 percent
and expected lives of 6 years for each of the three years.
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below:
WEIGHTED
OPTIONS AVERAGE
PRICE RANGE PRICE OPTIONS AVAILABLE
(PER SHARE) (PER SHARE) OUTSTANDING FOR GRANT
- --------------------------- --------------- ------------ ------------ ------------
Balance at December 31, 1994 $ 7.09 - 17.41 $12.96 7,084,260 983,804
Granted 16.47 - 19.11 16.58 916,200 (916,200)
Exercised 7.09 - 17.41 10.01 (889,820) --
Cancelled 9.53 - 17.41 16.43 (284,900) 278,900
--------------- ------------ ------------ -----------
Balance at December 31, 1995 7.36 - 19.11 13.68 6,825,740 346,504
Authorized -- 12,000,000
Granted 18.67 - 29.38 20.87 9,777,900 (9,777,900)
Exercised 7.36 - 19.11 11.13 (2,135,426) --
Cancelled 7.41 - 26.95 17.33 (688,758) 653,158
--------------- ------------ ------------ -----------
Balance at December 31, 1996 7.36 - 29.38 18.99 13,799,456 3,221,762
Authorized -- 6,200,000
Granted 25.06 - 33.47 26.29 3,046,990 (3,046,990)
Exercised 7.41 - 25.50 14.64 (1,418,185) --
Cancelled 11.73 - 26.95 21.79 (796,642) 795,892
--------------- ------------ ------------ -----------
Balance at December 31, 1997 $ 7.36 - 33.47 $20.79 14,631,619 7,170,664
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
HILTON HOTELS CORPORATION
The following table summarizes information about stock options outstanding at
December 31, 1997:
OPTIONS OUTSTANDING OPTION EXERCISABLE
------------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
$ 7.36 - 17.41 2,599,169 5.38 $14.91 1,923,819 $14.21
18.67 - 18.67 6,000,000 3.08 18.67 1,500,000 18.67
23.02 - 33.47 6,032,450 8.35 25.43 1,836,075 25.86
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
$ 7.36 - 33.47 14,631,619 5.66 $20.79 5,259,894 $19.55
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
Effective January 1, 1997, the Company adopted the 1997 Employee Stock
Purchase Plan by which the Company is authorized to issue up to two million
shares of common stock to its full-time employees. Under the terms of the
Plan, employees can elect to have a percentage of their earnings withheld to
purchase the Company's common stock.
Under provisions of Nevada, New Jersey and other gaming laws, and the
Company's restated certificate of incorporation as amended, certain
securities of the Company are subject to restrictions on ownership which may
be imposed by specified governmental authorities. Such restrictions may
require the holder to dispose of the securities or, if the holder refuses to
make such disposition, the Company may be obligated to repurchase the
securities.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory retirement plan (Basic Plan) covering
substantially all regular full-time, nonunion employees. The Company also has
plans covering qualifying employees and non-officer directors (Supplemental
Plans). Benefits for all plans are based upon years of service and
compensation, as defined.
The Company's funding policy is to contribute not less than the minimum
amount required under Federal law but not more than the maximum deductible
for Federal income tax purposes. After December 31, 1996, employees will not
accrue additional benefits for future service under either the Basic or
Supplemental Plans. Plan assets will be used to pay benefits due employees
for service through that date.
The following sets forth the funded status for the Basic Plan as of December
31, 1997 and 1996:
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------------------- ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $(201) and $(194), respectively $(214) (214)
-------- ------
-------- ------
Projected benefit obligation for service rendered to date $(214) (214)
Plan assets at fair value, primarily listed securities and temporary investments 242 199
-------- ------
Projected benefit obligation less than (in excess of) plan assets 28 (15)
Unrecognized gain (41) --
-------- ------
Accrued pension cost $ (13) (15)
-------- ------
-------- ------
Pension cost includes the following components:
Service cost $ -- 12
Interest cost on projected benefit obligation 15 17
Actual return on assets (47) (31)
Net amortization 30 1
-------- ------
Net periodic cost before allocation (2) (1)
Cost allocated to managed properties -- 2
-------- ------
Net periodic pension cost $ (2) (3)
-------- ------
-------- ------
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (continued)
Included in plan assets at fair value are equity securities of the Company of
$35 million and $36 million at December 31, 1997 and 1996, respectively.
The following sets forth the funded status for the Supplemental Plans as of
December 31, 1997 and 1996:
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------------------- ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $(17) and $(20), respectively $(17) (20)
-------- ------
-------- ------
Projected benefit obligation for service rendered to date $(17) (20)
Plan assets at fair value 12 14
-------- ------
Projected benefit obligation in excess of plan assets (5) (6)
Unrecognized net loss 1 --
-------- ------
Accrued pension cost $ (4) (6)
-------- ------
-------- ------
Pension cost includes the following components:
Service cost $ -- 1
Interest cost on projected benefit obligation 1 2
Actual return on assets (1) (1)
Net amortization (2) 2
-------- ------
Net periodic pension cost $ (2) 4
-------- ------
-------- ------
The discount rate used in determining the actuarial present values of the
projected benefit obligations was seven percent in 1997 and 1996, with the
rate of increase in future compensation projected at five percent in 1996.
The expected long-term rate of return on assets is eight percent.
A significant number of the Company's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. The Company
contributed and charged to expense $22 million, $12 million and $10 million
in 1997, 1996 and 1995, respectively, for such plans. Information from the
plans' administrators is not sufficient to permit the Company to determine
its share, if any, of unfunded vested benefits.
The Company also has other employee investment plans whereby the Company
contributes certain percentages of employee contributions. The cost of these
plans is not significant.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, the Company
reserves the right to change, modify or discontinue these benefits. The
Company does not provide postretirement health care benefits to its
employees. The cost of the benefits provided is not significant.
HILTON HOTELS CORPORATION
SEGMENTS OF BUSINESS
Financial data of the Company's business segments for the years ended
December 31 are as follows:
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------- ------- -------
Depreciation and amortization(1)
Hotels $ 91 63 57
Gaming 207 111 78
Corporate 2 4 7
-------- ------- -------
Total $ 300 178 142
-------- ------- -------
-------- ------- -------
Capital expenditures(1)
Hotels $ 88 46 54
Gaming 434 190 124
Corporate 9 6 8
-------- ------- -------
Total $ 531 242 186
-------- ------- -------
-------- ------- -------
Assets
Hotels $2,054 1,958 1,571
Gaming 5,561 5,269 1,380
Corporate 211 360 492
-------- ------- -------
Total $7,826 7,587 3,443
-------- ------- -------
-------- ------- -------
(1)Excludes proportionate share of equity investments.
Supplemental hotels segment operating data for the years ended December 31
are as follows:
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------- ------- -------
Revenue
Rooms $1,580 1,473 1,324
Food and beverage 721 661 612
Franchise fees 51 43 39
Other products and services 380 340 290
-------- ------- -------
Total 2,732 2,517 2,265
-------- ------- -------
Expenses
Rooms 409 420 401
Food and beverage 545 507 475
Other expenses, including remittances
to owners 1,330 1,318 1,181
-------- ------- -------
2,284 2,245 2,057
-------- ------- -------
Hotels operating income $ 448 272 208
-------- ------- -------
-------- ------- -------
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental gaming segment operating data for the years ended December 31
are as follows:
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------- ------ ------
Revenue
Rooms $ 325 261 238
Food and beverage 267 196 170
Casino 1,832 857 791
Other products and services 160 109 91
-------- ------ -------
2,584 1,423 1,290
-------- ------ -------
Expenses
Rooms 115 88 83
Food and beverage 231 167 150
Casino 1,000 466 400
Other expenses, including remittances to owners 1,010 593 478
-------- ------ -------
2,356 1,314 1,111
-------- ------ -------
Gaming operating income $ 228 109 179
-------- ------ -------
-------- ------ -------
LEASES
The Company operates seven properties under noncancelable operating leases,
all of which are for land only, having remaining terms up to 36 years. Upon
expiration of four of the leases, the Company has renewal options of 25, 30,
30 and 40 years. Six leases require the payment of additional rentals based
on varying percentages of revenue or income. Minimum lease commitments under
noncancelable operating leases approximate $13 million annually through 2002
with an aggregate commitment of $186 million through 2033.
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, the Company had contractual commitments at its wholly
owned or leased properties for major expansion and rehabilitation projects of
approximately $450 million.
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on
the Company's financial position or results of operations.
HILTON HOTELS CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HILTON HOTELS CORPORATION:
We have audited the accompanying consolidated balance sheets of Hilton Hotels
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hilton Hotels Corporation
and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
February 2, 1998
HILTON HOTELS CORPORATION
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS AND OCCUPANCY(1) OPERATING NET BASIC DILUTED DIVIDENDS HIGH/LOW
STOCK PRICES) HOTELS GAMING REVENUE EBITDA(2) INCOME INCOME EPS(3) EPS(3) PER SHARE STOCK PRICE
- ------------------------------------- ---------- ---------- ----------- -------- ------- --------- ----------- -------------
1997
1st Quarter 71.8% 87.2 $1,303 231 157 68 .26 .26 .08 30.00/24.00
2nd Quarter 78.5 87.8 1,360 278 203 93 .36 .34 .08 30.13/24.25
3rd Quarter 77.7 86.2 1,314 276 198 94 .36 .35 .08 34.06/26.75
4th Quarter 70.3 82.0 1,339 224 38 (5) (.03) (.03) .08 35.81/26.06
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
Year 74.6% 85.8 $5,316 1,009 596 250 .95 .94 .32 35.81/24.00
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
1996
1st Quarter 71.6% 88.7 $ 957 127 79 37 .19 .19 .075 24.94/15.28
2nd Quarter 77.0 91.3 1,004 158 113 59 .30 .30 .075 30.50/23.50
3rd Quarter 76.8 88.7 943 148 101 54 .28 .27 .075 28.63/23.34
4th Quarter 71.7 84.0 1,036 144 36 (68) (.33) (.33) .08 31.75/25.63
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
Year 74.3% 88.1 $3,940 577 329 82 .41 .41 .305 31.75/15.28
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
As of December 31, 1997, there were approximately 15,500 stockholders of
record.
EBITDA(2)
(IN MILLIONS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------ ------ --------
EBITDA
Hotels $ 548 392 301
Gaming 539 233 267
Corporate expense, net (78) (48) (25)
---------- ------ --------
Total $ 1,009 577 543
---------- ------ --------
---------- ------ --------
Reconciliation to income before extraordinary items
EBITDA $ 1,009 577 543
Interest and dividend income 42 38 35
Interest expense (172) (88) (93)
Interest expense, net, from equity investments (18) (12) (17)
Depreciation and amortization(4) (319) (225) (188)
Non-cash items (94) (23) --
Provision for income taxes (187) (106) (102)
Minority interest, net (11) (5) (5)
---------- ------ --------
Income before extraordinary item $ 250 156 173
---------- ------ --------
---------- ------ --------
(1) Properties owned or managed.
(2) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items.
(3) The sum of Basic and Diluted EPS for the four quarters may differ from
the annual EPS due to the required method of computing weighted average
number of shares in the respective periods.
(4) Includes proportionate share of equity investments.
HILTON HOTELS CORPORATION
FIVE YEAR SUMMARY
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AND AVERAGE RATE AMOUNTS) YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------ ----- ----- ----- -----
OPERATING DATA
REVENUE
Hotels $ 2,732 2,517 2,265 2,112 1,844
Gaming 2,584 1,423 1,290 1,189 1,057
---------- -------- -------- -------- --------
Total $ 5,316 3,940 3,555 3,301 2,901
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
EBITDA(1)
Hotels $ 548 392 301 240 199
Gaming 539 233 267 244 234
Corporate expense, net (78) (48) (25) (23) (22)
---------- -------- -------- -------- --------
Total $ 1,009 577 543 461 411
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
BASIC EARNINGS PER SHARE
Income before cumulative effect
of accounting changes and
extraordinary item $ .95 .79 .90 .64 .54
Cumulative effect of accounting changes, net -- -- -- -- .02
Extraordinary loss, net -- (.38) -- -- --
---------- -------- -------- -------- --------
Net income $ .95 .41 .90 .64 .56
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
DILUTED EARNINGS PER SHARE
Income before cumulative effect
of accounting changes and
extraordinary item $ .94 .79 .89 .63 .53
Cumulative effect of accounting changes, net -- -- -- -- .02
Extraordinary loss, net -- (.38) -- -- --
---------- -------- -------- -------- --------
Net income $ .94 .41 .89 .63 .55
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
GENERAL INFORMATION
OCCUPANCY(2)
Hotels 74.6% 74.3 72.8 69.6 66.8
Gaming 85.8% 88.1 86.3 87.4 86.2
AVERAGE RATES(2)
Hotels $ 145.33 134.92 126.50 120.29 112.73
Gaming $ 78.81 72.63 68.77 64.36 62.07
CASINO SQUARE FOOTAGE 1,040,000 937,000 626,000 526,000 435,000
NUMBER OF PROPERTIES AT YEAR END
Owned or partially owned hotels 32 31 33 33 33
Managed hotels 27 28 24 24 26
Franchised hotels 180 172 162 161 171
Owned, partially owned and managed
casinos and hotel casinos 12 12 9 8 7
Wholly or partially owned riverboats 3 4 1 1 --
---------- -------- -------- -------- --------
Total 254 247 229 227 237
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
AVAILABLE ROOMS AT YEAR END
Owned or partially owned hotels 23,799 23,092 24,098 24,098 24,151
Managed hotels 15,779 16,776 15,096 15,686 15,940
Franchised hotels 45,092 43,694 41,687 40,436 42,816
Wholly or partially owned casinos 17,590 17,612 12,782 12,080 12,045
---------- -------- -------- -------- --------
Total 102,260 101,174 93,663 92,300 94,952
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items.
(2) Properties owned or managed.
HILTON HOTELS CORPORATION
BOARD OF DIRECTORS
Stephen F. Bollenbach(1,4)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
A. Steven Crown(2,3)
GENERAL PARTNER, HENRY CROWN
& COMPANY, CHICAGO, ILLINOIS -- DIVERSIFIED MANUFACTURING OPERATIONS AND REAL
ESTATE VENTURES
Peter M. George(2,3)
GROUP CHIEF EXECUTIVE -- LADBROKE GROUP PLC, AND CHAIRMAN -- HILTON
INTERNATIONAL, CO., HERTS, ENGLAND -- HOTEL AND GAMING COMPANY
Arthur M. Goldberg
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND
PRESIDENT -- GAMING OPERATIONS
Barron Hilton(1,4)
CHAIRMAN
Eric M. Hilton
VICE CHAIRMAN EMERITUS
Dieter H. Huckestein
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- HOTEL OPERATIONS
Robert L. Johnson(2,3)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BLACK ENTERTAINMENT TELEVISION -- CABLE
PROGRAMMING SERVICES, AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BET HOLDINGS,
INC., WASHINGTON, D.C. -- DIVERSIFIED MEDIA HOLDING COMPANY
Donald R. Knab(1,2,3,4)
PRESIDENT, DONALD R. KNAB ASSOCIATES, INC., PONTE VEDRA BEACH, FLORIDA --
INVESTMENT ADVISORS
Benjamin V. Lambert(2,4)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, EASTDIL REALTY CO., L.L.C., NEW YORK --
REAL ESTATE INVESTMENT BANKERS
Donna F. Tuttle(2,3,4)
PRESIDENT, KORN TUTTLE CAPITAL GROUP, LOS ANGELES, CALIFORNIA -- FINANCIAL
CONSULTING AND INVESTMENTS
Sam D. Young, Jr.(1,2,3)
RETIRED CHAIRMAN AND A DIRECTOR, TEXAS COMMERCE BANK, EL PASO, TEXAS, AND
CHAIRMAN, TRANS-WEST ENTERPRISES, INC., EL PASO, TEXAS -- INVESTMENTS
(1) MEMBERS OF THE EXECUTIVE COMMITTEE
(2) MEMBERS OF THE AUDIT COMMITTEE
(3) MEMBERS OF THE PERSONNEL AND
COMPENSATION COMMITTEE
(4) MEMBERS OF THE NOMINATING COMMITTEE
CORPORATE EXECUTIVE OFFICERS
Barron Hilton
CHAIRMAN
Stephen F. Bollenbach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thomas E. Gallagher
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Arthur M. Goldberg
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- GAMING OPERATIONS
Matthew J. Hart
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dieter H. Huckestein
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- HOTEL OPERATIONS
CORPORATE SENIOR OFFICERS
James M. Anderson
SENIOR VICE PRESIDENT --
LABOR RELATIONS AND
PERSONNEL ADMINISTRATION
Marc A. Grossman
SENIOR VICE PRESIDENT --
CORPORATE AFFAIRS
Robert M. La Forgia
SENIOR VICE PRESIDENT AND CONTROLLER
Scott A. LaPorta
SENIOR VICE PRESIDENT AND TREASURER
Ted Middleton, Jr.
SENIOR VICE PRESIDENT --
DEVELOPMENT AND FINANCE
Bernard J. Murphy
SENIOR VICE PRESIDENT --
CORPORATE COMPLIANCE
Patrick B. Terwilliger
SENIOR VICE PRESIDENT --
ARCHITECTURE AND CONSTRUCTION
SECRETARY
Cheryl L. Marsh
VICE PRESIDENT AND CORPORATE SECRETARY
CORPORATE INFORMATION
Executive Offices
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
310.278.4321
Transfer Agent and Registrar for Common Stock and PRIDES
CHASEMELLON
SHAREHOLDER SERVICES, L.L.C.
85 CHALLENGER ROAD
OVERPECK CENTRE
RIDGEFIELD PARK, NEW JERSEY 07660
www.chasemellon.com
1.888.224.2751
Independent Public Accountants
ARTHUR ANDERSEN LLP
Form 10-K
STOCKHOLDERS WISHING TO RECEIVE A COPY OF THE COMPANY'S ANNUAL REPORT ON THE
SECURITIES AND EXCHANGE COMMISSION'S FORM 10-K, EXCLUSIVE OF THE EXHIBITS
THERETO, MAY DO SO WITHOUT CHARGE BY WRITING TO DIRECTOR -- INVESTOR
RELATIONS, HILTON HOTELS CORPORATION, 9336 CIVIC CENTER DRIVE, BEVERLY HILLS,
CALIFORNIA 90210.
Annual Meeting
THE ANNUAL MEETING OF STOCKHOLDERS
IS SCHEDULED TO BE HELD AT THE BEVERLY HILTON, 9876 WILSHIRE BOULEVARD, BEVERLY
HILLS, CALIFORNIA, ON
MAY 7, 1998 AT 10:00 A.M.
Hotel Reservation Information
1.800.HILTONS
Visit our website at:
http://www.hilton.com