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 March 31, 1998
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 April 30, 1998 --- Common Stock, $2.50 par value ---
246,796,565 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
March 31,
1998 1997
- - --------------------------------------------------------------------------------------------------------------
Revenue Hotels $ 699 667
Gaming 697 636
----------------------------------------------------------------------
1,396 1,303
Expenses Hotels 597 582
Gaming 600 551
Corporate, net 13 13
----------------------------------------------------------------------
1,210 1,146
----------------------------------------------------------------------
Operating Income 186 157
Interest and dividend income 11 13
Interest expense (50) (43)
Interest expense, net, from equity investments (6) (4)
----------------------------------------------------------------------
Income Before Income Taxes
and Minority Interest 141 123
Provision for income taxes 61 51
Minority interest, net 3 4
----------------------------------------------------------------------
Net Income $ 77 68
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ .30 .26
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ .29 .26
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
see notes to consolidated financial statements
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
March 31, December 31,
1998 1997
- - --------------------------------------------------------------------------------------------------------------
Assets Cash and equivalents $ 328 330
Temporary investments 31 43
Accounts receivable, net 413 403
Other current assets 248 235
----------------------------------------------------------------------
Total current assets 1,020 1,011
Investments 427 409
Property and equipment, net 5,279 4,994
Goodwill 1,335 1,313
Other assets 101 99
----------------------------------------------------------------------
Total investments, property and other assets 7,142 6,815
----------------------------------------------------------------------
Total Assets $8,162 7,826
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Liabilities and Accounts payable and accrued expenses $ 865 865
Stockholders' Equity Current maturities of long-term debt 65 65
Income taxes payable 55 11
----------------------------------------------------------------------
Total current liabilities 985 941
Long-term debt 3,030 2,709
Deferred income taxes and other liabilities 784 793
Stockholders' equity 3,363 3,383
----------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $8,162 7,826
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
see notes to consolidated financial statements
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three months ended
March 31,
1998 1997
- - ------------------------------------------------------------------------------------------------------------------
Operating Activities Net income $ 77 68
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 78 68
Amortization of loan costs 1 1
Change in working capital components:
Accounts receivable and other current assets (26) 30
Accounts payable and accrued expenses - 2
Income taxes payable 44 35
Change in deferred income taxes 1 (17)
Change in other liabilities (12) (79)
Distributions from equity investments (less than)
in excess of earnings (11) 1
Other (5) 9
--------------------------------------------------------------------------
Net cash provided by operating activities 147 118
- - ------------------------------------------------------------------------------------------------------------------
Investing Activities Capital expenditures (165) (139)
Additional investments (18) (77)
Change in temporary investments 12 (1)
Proceeds from property sales - 100
Payments on notes and other 10 14
Acquisitions, net of cash acquired (213) (69)
--------------------------------------------------------------------------
Net cash used in investing activities (374) (172)
- - ------------------------------------------------------------------------------------------------------------------
Financing Activities Change in commercial paper borrowings
and revolving loans 325 129
Reduction of long-term debt (5) (74)
Issuance of common stock 9 10
Purchase of common stock (81) -
Cash dividends (23) (23)
--------------------------------------------------------------------------
Net cash provided by financing activities 225 42
- - ------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Equivalents (2) (12)
Cash and Equivalents at Beginning of Year 330 388
- - ------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 328 376
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
see notes to consolidated financial statements
HILTON HOTELS CORPORATION AND SUBSIDIARIES
PROPERTY STATISTICS
Three months ended
March 31,
Owned or Managed 1998 1997
- - ---------------------------------------------------------------------------------------------------------
Occupancy Hotels 70.5% 71.8
Gaming 85.3 87.2
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Average rate Hotels $ 157.41 146.66
Gaming 79.36 77.38
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- - ---------------------------------------------------------------------------------------------------------
Revpar Hotels $ 110.90 105.31
Gaming 67.68 67.48
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------ -------------------------------------
Number of Available Casino Number of Available Casino
Properties Rooms Sq. ft. Properties Rooms Sq. ft.
- - -----------------------------------------------------------------------------------------------------------------------------
Hotels Owned and partially owned 33 24,099 - 32 23,793 -
Managed 26 15,479 - 28 16,695 -
Franchised 181 44,629 - 177 45,063 -
--------------------------------------------------------------------------------------------------------------
Total hotels 240 84,207 - 237 85,551 -
Gaming Owned, partially owned and
managed casinos and
hotel-casinos 15 17,588 1,042,000 16 16,992 963,000
- - -----------------------------------------------------------------------------------------------------------------------------
Total 255 101,795 1,042,000 253 102,543 963,000
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The consolidated financial statements presented herein have been prepared by
Hilton Hotels Corporation and subsidiaries (the Company) in accordance with the
accounting policies described in its 1997 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 months ended March 31, 1998 and 1997 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 and financial position for the unaudited
periods.
The consolidated financial statements for the 1997 period reflect certain
reclassifications to conform with classifications adopted in 1998. These
classifications have no effect on net income.
NOTE 2: CONSOLIDATION OF AFFILIATES
The consolidated financial statements include the following amounts related to
managed hotels:
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Revenue $500 493
Operating expenses, including
remittances to owners 457 460
At March 31, 1998 At December 31, 1997
----------------- --------------------
Current assets(1) and current liabilities $ 330 299
(1) Including cash and equivalents of $100 and $126, respectively.
NOTE 3: EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common stockholders
(net income less preferred dividends of $3 million in each quarter) by the
weighted average number of common shares outstanding for the period. The
weighted average number of common shares outstanding for the three months ended
March 31, 1998 and 1997 were 247 million and 249 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 32 million and 31
million for the three months ended March 31, 1998 and 1997, respectively. In
addition, the increase to net income resulting from interest on convertible
securities assumed to have not been paid was $4 million for each of the three
month periods ended March 31, 1998 and 1997.
NOTE 4: SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 20 38
Income taxes 5 6
NOTE 5: SUPPLEMENTAL SEGMENT DATA
Supplemental hotel segment data for the three months ended March 31, 1998 and
1997 are as follows:
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Revenue
Rooms $ 398 381
Food and beverage 195 184
Franchise fees 12 12
Other products and services 94 90
---- ----
699 667
---- ----
Expenses
Rooms 98 99
Food and beverage 145 139
Other expenses, including
remittances to owners 354 344
---- ----
597 582
---- ----
Hotel operating income $ 102 85
---- ----
---- ----
Supplemental gaming segment data for the three months ended March 31, 1998 and
1997 are as follows:
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Revenue
Rooms $ 80 79
Food and beverage 70 66
Casino 504 450
Other products and services 43 41
---- ----
697 636
---- ----
Expenses
Rooms 25 29
Food and beverage 67 56
Casino 266 242
Other expenses, including
remittances to owners 242 224
---- ----
600 551
---- ----
Gaming operating income $ 97 85
---- ----
---- ----
NOTE 6: COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company has adopted SFAS No. 130
beginning January 1, 1998. The statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements or in the footnotes to the
interim financial statements. Comprehensive income for the three months ended
March 31, 1998 and 1997 is as follows:
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Net Income $ 77 68
Change in unrealized holding gains on securities (5) 9
---- ----
Comprehensive Income $ 72 77
---- ----
---- ----
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY
Three months ended
March 31,
1998 1997
---- ----
(in millions)
Net cash provided by operating activities $147 118
Net cash used in investing activities (374) (172)
Net cash provided by financing activities 225 42
OTHER DATA
EBITDA (1)
Hotels $130 111
Gaming 153 133
Corporate expense, net (13) (13)
---- ----
Total $270 231
---- ----
---- ----
(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 liquidity and 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.
Cash provided by operating activities totaled $147 million compared to $118
million in the prior year. Total EBITDA for the 1998 quarter was $270 million,
an increase of $39 million over the 1997 quarter. These increases are
attributable primarily to continued strength at the majority of the Company's
owned and partially owned hotels, the addition of "The Wild Wild West" casino in
Atlantic City and the benefit of the newly opened hotel rooms at the Company's
casino in Punta del Este, Uruguay.
ACQUISITIONS AND CAPITAL SPENDING
Cash used in investing activities totaled $374 million compared to $172 million
in the 1997 quarter, primarily due to increased capital expenditures and
acquisition spending. Expenditures required to complete acquisitions and
capital spending programs in 1998 will be financed through available cash flows
and general corporate borrowings.
Growth in the hotel segment continues through selective acquisition of large
full-service hotels in major market locations. In December 1997 and January
1998, the Company acquired the remaining ownership interests in six full service
hotels from The Prudential Insurance Company of America for a total cost of $27
million, thereby increasing the Company's ownership interest in each property to
100%.
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 remaining 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
interest 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 April 1998, the Company purchased the 407-room Westin Hotel in Charlotte,
North Carolina (re-named the Hilton Charlotte) and the 395-room DFW Lakes Hilton
Executive Conference Center at Dallas-Ft. Worth International Airport for a
combined cost of approximately $170 million.
In addition to an estimated $425 million in 1998 expenditures related to the
aforementioned hotel acquisition and new construction projects, the Company
intends to spend approximately $100 million in the hotel segment in 1998 on
normal capital replacements, upgrades and compliance projects. The Company also
expects to make further acquisitions in 1998.
Growth in the gaming segment occurs primarily through acquisition and new
development. 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, settled 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 acquired the remaining interest in March 1998 for $44
million, increasing the Company's ownership to 100%.
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 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.
LONG-TERM DEBT
Long-term debt at March 31, 1998 totaled $3.0 billion, compared with $2.7
billion at December 31, 1997. Cash provided by financing activities totaled
$225 million compared to $42 million in the 1997 quarter, primarily due to
increases in commercial paper borrowings to fund acquisitions.
At March 31, 1998, approximately $606 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 $1.14 billion of the
revolving bank debt facility available to the Company at such date.
In October 1997, the Company filed a shelf registration statement (Shelf) with
the Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. At March 31, 1998, available financing under the Shelf
totaled $2.1 billion. The terms of any additional securities offered pursuant
to the Shelf will be determined by market conditions at the time of issuance.
STOCKHOLDER'S EQUITY
Pursuant to the Company's stock repurchase program, during the 1998 first
quarter the Company repurchased 2.8 million shares, or 14 percent of the total
authorized to be repurchased, for an aggregate purchase price of $81 million.
The timing of the stock purchases are made at the discretion of the Company's
management, subject to certain business and market conditions.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1998 AND 1997
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended March 31, 1998 and 1997 is a follows:
(in millions, except per share amounts) 1998 1997 % CHANGE
---- ---- --------
Revenue $1,396 1,303 7%
Operating income 186 157 18%
Net income 77 68 13%
Basic EPS .30 .26 15%
Diluted EPS .29 .26 12%
Other Data
- - ----------
EBITDA(1)
Hotels $ 130 111 17%
Gaming 153 133 15%
Corporate expense, net (13) (13) - %
------ ----- ---
Total $ 270 231 17%
------ ----- ---
------ ----- ---
(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 liquidity and 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.
HOTELS
Hotel revenue for the 1998 quarter was $699 million, an increase of five percent
over 1997. EBITDA from the hotel division was $130 million for the 1998 first
quarter, a 17 percent increase compared to $111 million a year ago, while hotel
operating income increased 20 percent to $102 million from $85 million last
year.
Consolidated revenue was negatively impacted by decreased occupancy and average
room rates at the Company's managed properties in Hong Kong and Egypt. Hong
Kong has been impacted by the poor economic conditions in Asia, while tourism in
Egypt has been affected by recent terrorist activity.
Excluding the impact of these three managed properties, hotel revenue increased
six percent from the 1997 first quarter.
Results at the Company's domestic properties benefited from the timing of the
Easter holiday, which typically results in reduced occupancy levels. The Easter
holiday fell in the month of April during 1998 and in the month of March in the
prior year. In addition, the Company continues to benefit from a strong U.S.
economy and limited supply growth in most of its key domestic markets. These
positive fundamentals combined with the Company's focus on yield management and
operating efficiencies has resulted in significant improvement in hotel
operating margins. EBITDA margins for U.S. owned and managed hotels improved
1.6 points to 33 percent. Occupancy was 71.9 percent in 1998 compared to 73.0
percent in 1997. The average room rate increased eight percent to $158.39 from
$146.89 in the prior year.
EBITDA from the Company's ten major full-service properties increased $14
million or 22 percent over the prior year quarter. Combined EBITDA from the
Waldorf=Astoria and the New York Hilton and Towers increased $4 million over the
1997 first quarter. Growth in the individual business traveler (IBT) segment
contributed to REVPAR increases at these two properties of six percent and eight
percent, respectively. REVPAR increased 26 percent, 9 percent and 12 percent at
the Chicago Hilton and Towers, the O'Hare Hilton and the Palmer House Hilton,
respectively, leading to a combined EBITDA increase of $5 million in the 1998
period. Each of these properties maintained strong occupancies and achieved
significant room rate growth from the IBT segment. Margins also benefited from
warm weather conditions in the mid-west which positively impacted energy and
property maintenance costs. EBITDA at the San Francisco Hilton and Towers
increased $2 million due primarily to an 11 percent increase in average room
rate which drove a three point improvement in EBITDA margin.
EBITDA from the Hilton Hawaiian Village in Honolulu declined slightly from the
prior year as adverse economic conditions in Asia continue to impact growth.
The expected decline in international leisure room nights was somewhat mitigated
by strong group meeting demand. Occupancy declined four points, while
the average rate increased two percent. The Company expects continued
softness in the international leisure segment in the near term.
Combined occupancy for the Company's ten major full-service hotels (which also
includes properties in New Orleans and Washington D.C.) was 72.8 percent versus
73.9 percent in the 1997 quarter. The average room rate increased to $173.13 in
the 1998 first quarter from $160.81 and REVPAR improved six percent between
periods. Excluding the impact of Hawaii from these ten properties, EBITDA
increased 27 percent and REVPAR increased eight percent.
The Company's other full-service domestic owned and equity properties recorded a
seven percent increase in REVPAR. These properties, typically located in large
secondary markets and suburban locations, generated a $5 million increase in
EBITDA over the prior year quarter, including $2 million in EBITDA from the
McLean Hilton which was acquired in January 1998.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of equity investments, increased $2 million from the prior
year to $28 million.
Although the supply-demand balance in the Company's major markets generally
remains favorable, future operating results could be adversely impacted by
industry overcapacity and weak demand, which could restrict the Company's
ability to raise room rates to keep pace with the rate of inflation. In
addition, the Company's occupancy ratios are affected by general economic
conditions, as well as by competition, work stoppages and other factors
affecting particular properties. Occupancy ratios at the Company's hotels could
also be adversely impacted by a decrease in travel resulting from fluctuations
in the worldwide economy and by excess industry capacity. However, the Company
believes that its financial and operating strength, market presence and diverse
product line will enable it to remain extremely competitive.
GAMING
Total gaming revenue increased 10 percent in the 1998 first quarter to $697
million from $636 million in 1997. Casino revenue, a component of gaming
revenue, increased 12 percent to $504 million in 1998 compared to $450 million
in the prior year. Gaming division EBITDA increased 15 percent to $153 million
from $133 last year and gaming operating income increased 14 percent to $97
million. The Company's gaming division benefited from the July 1997 opening of
"The Wild Wild West" casino at Bally's Park Place in Atlantic City, the
introduction of 300 hotel rooms at the Conrad International Punta del Este in
late 1997 and improved market conditions in Reno.
EBITDA at the Las Vegas Hilton decreased $2 million from the prior year to $17
million. Despite an above normal baccarat hold percentage in the 1998 period,
baccarat revenue decreased due to reduced international baccarat volume and a
difficult comparison due to the exceptionally high level of baccarat play in the
1997 first quarter. The implementation of new casino marketing strategies and
the opening of the "Star Trek" attraction and SpaceQuest casino have resulted in
additional non-baccarat casino volume at this property. Non-baccarat table game
volume increased 47 percent from the 1997 first quarter, while slot volume
increased 25 percent. 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.
EBITDA from the Flamingo Hilton - Las Vegas decreased $2 million from the prior
year quarter to $25 million. An increase in slot volume mitigated a decrease in
table game revenue; however, results were adversely impacted by a two point
decrease in occupancy and a five percent decrease in average room rate. Bally's
Las Vegas generated EBITDA of $25 million in the first quarter of 1998, a
decrease of $2 million from last year, resulting from a decrease in the table
game win percentage and decreased slot volume. Occupancy declined two points
from the 1997 first quarter.
Combined EBITDA from the Reno Hilton and the Flamingo Hilton - Reno increased $4
million from the 1997 quarter. Both Reno properties recorded higher occupancy
and casino volume compared to the 1997 period.
Occupancy for the Nevada hotel-casinos was 86.1 percent in the 1998 quarter
compared to 88.5 percent last year. The average room rate for the Nevada
properties was $78.95 compared to $76.56 in the 1997 first quarter.
In Atlantic City, Bally's Park Place generated EBITDA of $37 million, an
increase of 23 percent from last year's $30 million. The increase is primarily
attributable to the opening of "The Wild Wild West" casino in July 1997, which
has resulted in significant growth in both table game and slot volume compared
to the prior year. The 300-room tower addition at the Atlantic City Hilton was
absorbed without reducing occupancy, resulting in increases in table game and
slot volume. However, decreases in both the table game hold and slot win
percentages, combined with increased promotional expenses, resulted in a $1
million EBITDA decrease compared to the prior year.
Occupancy for the Atlantic City hotel-casinos was 94.1 percent in the 1998 first
quarter compared to 89.9 percent last year. The average room rate for the
Atlantic City properties was $73.60 compared to $78.56 in the 1997 quarter.
The opening of 300 hotel rooms in the latter half of 1997 resulted in tremendous
growth in casino volume at the 43% owned Conrad Punta del Este Resort and Casino
in Punta del Este, Uruguay. EBITDA totaled $14 million, a $10 million increase
over the prior year. Results from this property are highly seasonal, with the
peak season falling in the first quarter.
Depreciation and amortization for the gaming division, including the Company's
proportionate share of equity investments, increased $8 million to $56 million
in the first quarter of 1998, primarily due to the Las Vegas and Atlantic City
expansion projects completed in 1997.
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.
FINANCING ACTIVITIES
Interest and dividend income totaled $11 million in the 1998 period compared to
$13 million in 1997. Consolidated interest expense increased $7 million to $50
million primarily due to higher average debt levels resulting from acquisition
spending and a full quarter of a higher average cost of debt resulting from the
Company issuing long-term fixed notes to replace floating rate debt in 1997.
INCOME TAXES
The effective income tax rate for the 1998 period increased to 43.3 percent
compared to 41.5 percent in 1997, primarily due to a higher state tax provision
in the 1998 period. 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.
ACCOUNTING CHANGES
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." This SOP requires that all nongovernmental
entities expense costs of start-up activities (pre-opening, pre-operating and
organizational costs) as those costs are incurred and requires the write-off of
any unamortized balances upon implementation. SOP 98-5 is effective for
financial statements issued for periods beginning after December 15, 1998. The
Company expects to adopt SOP 98-5 in the first quarter of 1999. Adoption of the
SOP is not expected to have a material impact on 1999 results of operations.
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.
The words "believes," "anticipates," "expects," and similar expressions are
intended to identify forward-looking statements. 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,
including those identified under "Results of Operations", 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.
PART II OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 7, 1998 at the
Beverly Hilton in Beverly Hills, California. Approximately 93 percent
of the eligible shares were voted.
The following were elected to the Company's Board of Directors for a
three year term expiring in 2001: A. Steven Crown, Arthur M. Goldberg,
Eric M. Hilton and Donna F. Tuttle, each of whom received
approximately 99 percent of the votes cast.
The stockholders voted to approve the Company's 1997 Independent
Director Stock Option Plan. Approximately 96 percent of the votes
cast were voted for such proposal. Additionally, the ratification of
Arthur Andersen LLP to serve as auditors for the Company for fiscal
1998 was adopted by 99 percent of the votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the three-month period ended March 31,
1998.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K dated March 13, 1998, under Item 5
Other Events to report the discussion of a potential transaction between
the Company and Circus Circus Enterprises, Inc. (Circus).
The Company filed a Report on Form 8-K dated March 23, 1998, under Item 5
Other Events to report that discussions between the Company and Circus had
been terminated regarding a potential transaction between the two
companies.
The Company filed a Report on Form 8-K dated April 2, 1998, under Item 5
Other Events to report that it had filed a Form S-3 Registration Statement
with the Securities and Exchange Commission with respect to the resale of
up to 24,000,000 shares of Hilton common stock held in a charitable
remainder unitrust of which Company chairman Barron Hilton is sole trustee.
The Company filed a Report on Form 8-K dated April 22, 1998, under Item 5
Other Events to report results for the three month period ended March 31,
1998.
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: May 15, 1998 /s/ MATTHEW J. HART
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Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: May 15, 1998 /s/ THOMAS E. GALLAGHER
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Thomas E. Gallagher
Executive Vice President and
General Counsel