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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1994
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)
<TABLE>
<S> <C>
DELAWARE 36-2058176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 29, 1994 --- Common Stock, $2.50 par value ---
47,976,470 shares.
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PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
ITEM 1. FINANCIAL STATEMENTS
HILTON HOTELS CONSOLIDATED
CORPORATION STATEMENTS
AND OF INCOME
SUBSIDIARIES (IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Rooms $111.3 99.9
Food and beverage 55.6 55.4
Casino 114.6 130.4
Management and franchise fees 22.1 20.1
Other 26.9 20.0
Operating income
from unconsolidated affiliates 8.3 5.8
---------------------------------------------------------------------------------------------
338.8 331.6
- - --------------------------------------------------------------------------------------------------------------------
Expenses Rooms 39.0 35.5
Food and beverage 50.0 48.3
Casino 50.6 54.6
Other costs and expenses 139.9 132.1
Corporate expense 3.6 6.5
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283.1 277.0
- - --------------------------------------------------------------------------------------------------------------------
Operating income 55.7 54.6
Interest and dividend income 5.1 5.7
Interest expense (18.5) (20.4)
Interest expense, net, from
unconsolidated affiliates (4.2) (3.5)
Foreign currency losses (.4) --
- - --------------------------------------------------------------------------------------------------------------------
Income before
income taxes 37.7 36.4
Provision for income taxes 15.0 13.3
- - --------------------------------------------------------------------------------------------------------------------
Income before
cumulative effect of
accounting changes 22.7 23.1
Cumulative effect of accounting
changes, net -- 3.4
- - --------------------------------------------------------------------------------------------------------------------
Net income $ 22.7 26.5
====================================================================================================================
Income per share:
Before cumulative effect of accounting changes $ .47 .48
Cumulative effect of accounting changes, net -- .07
- - --------------------------------------------------------------------------------------------------------------------
Net income per share $ .47 .55
====================================================================================================================
Average number of
shares 48.4 48.0
====================================================================================================================
</TABLE>
2
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HILTON HOTELS CONSOLIDATED
CORPORATION BALANCE
AND SHEETS
SUBSIDIARIES (IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 279.1 380.4
Temporary investments 81.3 98.1
Other current assets 195.4 248.5
----------------------------------------------------------------------------------------------
Total current assets 555.8 727.0
Investments 491.9 482.1
Property and equipment, net 1,436.9 1,417.5
Other assets 58.4 48.2
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Total assets $2,543.0 2,674.8
=====================================================================================================================
Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 215.5 228.5
Short-term borrowings -- 10.8
Current maturities of long-term debt 49.8 29.8
Income taxes payable 36.8 8.8
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Total current liabilities 302.1 277.9
Long-term debt 959.3 1,112.6
Deferred income taxes and other liabilities 212.2 227.6
Stockholders' equity 1,069.4 1,056.7
----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,543.0 2,674.8
=====================================================================================================================
</TABLE>
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HILTON HOTELS CONSOLIDATED
CORPORATION STATEMENTS OF
AND CASH FLOWS
SUBSIDIARIES (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities Net income $ 22.7 26.5
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 31.2 29.3
Change in working capital
components:
Other current assets 6.3 5.1
Accounts payable
and accrued expenses (12.8) (13.8)
Income taxes payable 28.0 15.2
Decrease in deferred income taxes (15.8) (20.8)
Increase in other liabilities .5 14.7
Unconsolidated affiliates'
distributions (less than) in excess of earnings (.8) 14.0
Other (4.2) (2.5)
- - --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating
activities 55.1 67.7
- - --------------------------------------------------------------------------------------------------------------------
Investing activities Capital expenditures (49.6) (24.7)
Additional investments (26.1) (3.2)
Decrease in long-term
marketable securities 12.5 43.9
Change in temporary investments 16.8 (14.9)
Payments on notes and other investments 44.1 .1
- - --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (2.3) 1.2
- - --------------------------------------------------------------------------------------------------------------------
Financing activities Long-term borrowings 4.3 --
Decrease in short-term borrowings (10.8) (65.0)
Reduction of long-term debt (137.6) (30.3)
Issuance of common stock 4.4 2.9
Cash dividends (14.4) (14.3)
- - --------------------------------------------------------------------------------------------------------------------
Net cash used in
financing activities (154.1) (106.7)
- - --------------------------------------------------------------------------------------------------------------------
Decrease in cash and equivalents (101.3) (37.8)
Cash and equivalents at beginning of year 380.4 348.5
- - --------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 279.1 310.7
====================================================================================================================
</TABLE>
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HILTON HOTELS SUMMARY
CORPORATION OF
AND OPERATIONS
SUBSIDIARIES (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Hotels $126.8 112.3
Gaming 212.0 219.3
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Total $338.8 331.6
====================================================================================================================
Operating income Hotels $ 20.7 12.8
Gaming 38.6 48.3
Corporate expense (3.6) (6.5)
---------------------------------------------------------------------------------------------
Total 55.7 54.6
Net interest expense (17.6) (18.2)
Foreign currency losses (.4) --
Provision for income taxes (15.0) (13.3)
- - --------------------------------------------------------------------------------------------------------------------
Income before
cumulative effect of
accounting changes 22.7 23.1
Cumulative effect of accounting
changes, net -- 3.4
- - --------------------------------------------------------------------------------------------------------------------
Net income $ 22.7 26.5
====================================================================================================================
Percentage of
occupancy Hotels 66 66
Gaming 85 81
====================================================================================================================
</TABLE>
5
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NET INCOME PER SHARE
The calculations of common and equivalent shares, net income and net income per
share are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1994 1993
---------- ----------
<S> <C> <C>
Common and equivalent shares
- - ----------------------------
Shares outstanding
beginning of period 47,846,854 47,677,922
Net common shares issued/
issuable upon exercise
of certain stock
options 566,790 333,784
---------- ----------
Common and equivalent
shares 48,413,644 48,011,706
========== ==========
Net income (in millions)
- - ----------
Income before cumulative
effect of accounting
changes $22.7 23.1
Cumulative effect of
accounting changes, net - 3.4
----- -----
Net income $22.7 26.5
===== =====
Net income per share
- - --------------------
Income before cumulative
effect of accounting
changes $ .47 .48
Cumulative effect of
accounting changes, net - .07
---- ----
Net income per share $ .47 .55
===== ====
Dividends declared per share $ .30 .30
===== =====
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: General
The consolidated financial statements presented herein have been prepared by
the Company in accordance with the accounting policies described in its 1993
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, 1994 and 1993 are
unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results for the unaudited periods.
Note 2: Supplemental Cash Flow Information
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<CAPTION>
Three months ended
March 31,
----------------------
1994 1993
------ ------
(in millions)
<S> <C> <C>
Cash paid during the period
for the following:
Interest, net of amounts capitalized $19.9 21.1
Income taxes 3.1 2.4
</TABLE>
Note 3: Investments
Summarized operating results of the Company's unconsolidated affiliates are as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1994 1993
------ ------
(in millions)
<S> <C> <C>
Revenue $283.7 236.9
Expenses 262.6 209.5
Net Income 15.0 10.1
</TABLE>
Note 4: Income taxes
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, which superseded previously issued standards. The Company
adopted SFAS No. 109 effective January 1, 1993. As permissible under the new
standard, the Company reflected the impact as a cumulative adjustment in the
1993 first quarter and did not restate prior periods. The new standard had a
favorable impact on net income of $8.0 million and is reflected in the
Consolidated Statements of Income under the caption "Cumulative Effect of
Accounting Changes, Net."
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5: Employee Benefit Plans
In December 1990, the FASB issued SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The Company adopted SFAS No. 106
effective January 1, 1993. As permissible under the new standard, the Company
reflected the impact as a cumulative adjustment in the 1993 first quarter and
did not restate prior periods. The new standard resulted in a charge to net
income of $4.6 million, net of a $2.3 million deferred tax benefit, and is
reflected in the Consolidated Statements of Income under the caption
"Cumulative Effect of Accounting Changes, Net."
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
CASH FLOW AND WORKING CAPITAL
Net cash provided by operating activities totaled $55.1 million for
the three months ended March 31, 1994 compared to $67.7 million in the same
period last year. The 1993 period included a $12.1 million distribution of
earnings from an unconsolidated affiliate as part of a refinancing of the
affiliate's long-term debt.
While net cash provided by operating activities remained strong,
working capital declined to $253.7 million at March 31, 1994 from $449.1
million at December 31, 1993. During the 1994 quarter the Company reduced its
borrowings under its commercial paper program and its revolving bank credit
lines by $133.4 million and disbursed $75.7 million for capital expenditures and
investments.
Capital expenditures and investments in 1994 are estimated to total
$500 million. The Company intends to fund this amount through internal cash
flows and available debt capacity or new borrowings.
The Company had previously been awarded the right to develop two
riverboat casinos in Kansas City, Missouri. However, a state constitutional
amendment permitting games of chance, such as slot machines, was defeated in a
statewide election on April 5, 1994. In light of the election results,
the Company is re-evaluating its options. It is unlikely that the Company
would open riverboat casinos in Kansas City without slot machines. At April
30, 1994 the Company had expended or committed to expend approximately $9.0
million for land-based improvements at its two designated sites in Kansas City
and approximately $17.0 million for construction of a riverboat.
LONG-TERM DEBT
Long-term debt at March 31, 1994 totaled $959.3 million compared to
$1.1 billion at December 31, 1993. Under registration statements currently on
file with the Securities and Exchange Commission, the Company can offer up to
$999.2 million in either senior notes or a combination of senior and
subordinated notes, with the subordinated notes limited to $300 million.
The Company also has authorization to issue up to $300 million in
private debt securities. However, the maximum principal amount of public debt
securities and private debt securities, either exclusively in the form of
public senior debt securities or, alternatively, in the form of one or more
combinations of public senior debt securities, public subordinated debt
securities and private debt securities, is limited to $1.0 billion.
Available financing under the aforementioned public and private
authorizations at March 31, 1994 totaled $310.9 million.
The Company has authorization to issue up to $600 million of
commercial paper. At March 31, 1994 the Company had commercial paper
borrowings of $230.7 million, all of which were classified as long-term by
virtue of $406.7 million in available long-term revolving credit lines.
Available commercial paper financing at March 31, 1994 was $369.3 million.
9
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1994 AND 1993
Total revenue in the 1994 quarter increased two percent to $338.8
million, while total operating income increased two percent to $55.7 million
from $54.6 million in 1993.
HOTELS
Hotel revenue in the 1994 quarter was $126.8 million, an increase of
13 percent over last year, while hotel operating income increased 62 percent to
$20.7 million. The hotel segment benefited from continued strong results at
its airport locations, with operating results from wholly-owned airport
properties up $1.8 million over 1993, as well as improvements at the Company's
key properties in New York, Hawaii and New Orleans.
Combined results from the Waldorf-Astoria and the 50% owned New York
Hilton & Towers increased $1.6 million over the prior year. Both New York City
properties recorded 10 percent increases in occupancies due to increased
individual business traveler (IBT) room nights at the Waldorf-Astoria and
increased convention and IBT room nights at the New York Hilton.
Operating income from the 50% owned Hilton Hawaiian Village improved
$.6 million over the prior year. Recessionary conditions in California and
Japan continued to dampen leisure travel to Hawaii.
Operating results at the New Orleans Hilton Riverside rose $1.4 million
due in part to the Company's increased ownership of that property compared to
the prior year quarter and to higher average rates. Income from the 30% owned
Conrad Hong Kong also improved over the prior year.
Hotel management and franchise fees increased $1.6 million in 1994 to
$19.7 million. Fee revenue is primarily based on operating revenue at managed
properties and room revenue at franchised hotels.
Occupancy for hotels owned or managed was 66 percent in both the 1994
and 1993 periods. Average room rates increased four percent over the prior
year.
GAMING
Total gaming revenue decreased three percent in the 1994 quarter to
$212.0 million from $219.3 million in 1993. Casino revenue, a component of
gaming revenue, was $114.6 million in 1994 compared to $130.4 million last
year. Gaming operating income decreased 20 percent to $38.6 million from $48.3
million last year.
Operating income at the Flamingo Hilton-Las Vegas decreased $3.0
million from the prior year reflecting a reduction of approximately 490
available rooms per day due to construction activities at that property. The
Las Vegas Hilton recorded a $9.8 million decrease in its operating results due
primarily to unusually high table game win percentages in the 1993 quarter.
The Reno Hilton and the Flamingo Hilton-Reno each showed increases in operating
income of $1.3 million, while results from the Flamingo Hilton-Laughlin
decreased $.7 million.
In February 1994 the Company opened its new "Queen of New
10
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Orleans" riverboat casino adjacent to the New Orleans Hilton Riverside.
This interim boat is wholly-owned by the Company and is being leased to a joint
venture, in which the Company owns a 50 percent interest, until the permanent
boat is completed. Operating income from the Queen of New Orleans for the
quarter was not significant. While operating income from the 19.96% owned
Conrad & Jupiters Casino in Australia improved slightly, operating losses from
the 25% owned Conrad Istanbul increased $.6 million over the prior year.
Continued economic and political unrest in Turkey could negatively impact
future results at this property.
Occupancy for the Nevada hotel-casinos was 88 percent in the 1994
quarter versus 84 percent last year. The average room rate for Nevada
increased four percent.
INTEREST AND DIVIDEND INCOME/EXPENSE
Interest and dividend income was $5.1 million in the 1994 quarter
compared to $5.7 million in 1993. Consolidated interest expense decreased $1.9
million, while net interest expense from unconsolidated affiliates increased
$.7 million.
INCOME TAXES
The effective income tax rate for the 1994 period was 39.8 percent
compared to 36.5 percent in 1993. 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.
The provision for income taxes in the 1994 quarter includes a Federal
provision at the statutory rate of 35 percent. The provision for income taxes
in the 1993 quarter included a Federal provision at the then 34 percent
statutory rate.
NET INCOME
First quarter net income declined two percent to $22.7 million, or
$.47 per share, from $23.1 million, or $.48 per share in 1993, before the
cumulative effect of accounting changes. The accounting changes were related
to the January 1, 1993 implementation of new accounting standards for income
taxes and postretirement benefits and resulted in additional net income of $3.4
million or $.07 per share in the 1993 first quarter. The average number of
common and equivalent shares outstanding were 48.4 million and 48.0 million in
1994 and 1993, respectively.
NEW ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, which superseded previously issued standards. The
Company adopted SFAS 109 effective January 1, 1993. As permissible under the
new standard, the Company reflected the impact as a cumulative adjustment in
the 1993 first quarter and did not restate prior periods. The new standard had
a favorable impact on net income of $8.0 million.
In December 1990, the FASB issued SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. The Company adopted SFAS 106
effective January 1, 1993. As permissible under the new standard, the Company
reflected the impact as a cumulative adjustment in the 1993 first quarter and
did not restate prior periods. The new standard resulted in a charge to net
income of $4.6 million, net of a $2.3 million deferred tax benefit.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the first quarter of fiscal 1994.
12
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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 11, 1994 /s/ Maurice J. Scanlon
______________________________
Maurice J. Scanlon
Senior Vice President -
Finance
Date: May 11, 1994 /s/ William C. Lebo, Jr.
______________________________
William C. Lebo, Jr.
Senior Vice President and
General Counsel
13
