<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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.)
9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip code)
</TABLE>
(310) 278-4321
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1995 --- Common Stock, $2.50 par value ---
48,302,409 shares.
<PAGE> 2
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)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------- ---------------
1995 1994 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue Rooms $151.2 126.6 287.7 237.9
Food and beverage 67.4 62.9 129.1 118.5
Casino 133.9 118.4 252.0 233.0
Management and franchise fees 25.2 24.4 49.3 46.5
Other 30.3 31.4 58.9 58.3
Operating income
from unconsolidated affiliates 16.2 19.3 29.1 29.2
-------------------------------------------------------------------------
424.2 383.0 806.1 723.4
-----------------------------------------------------------------------------------------
Expenses Rooms 47.2 43.2 91.1 82.2
Food and beverage 57.8 54.1 111.7 104.1
Casino 60.1 54.6 116.1 105.2
Other costs and expenses 146.8 148.9 294.0 288.8
Corporate expense 7.3 6.4 14.2 10.0
-------------------------------------------------------------------------
319.2 307.2 627.1 590.3
-----------------------------------------------------------------------------------------
Operating income 105.0 75.8 179.0 133.1
Interest and dividend income 9.2 4.8 15.7 9.9
Interest expense (24.7) (18.8) (47.1) (37.3)
Interest expense, net, from
unconsolidated affiliates (3.5) (4.0) (7.1) (8.2)
Property transactions .3 - 1.0 -
Foreign currency gains (losses) .4 - .3 (.4)
-----------------------------------------------------------------------------------------
Income before income taxes
and minority interest 86.7 57.8 141.8 97.1
Provision for income taxes 32.6 23.9 54.1 40.5
Minority interest, net 1.2 - 2.8 -
-----------------------------------------------------------------------------------------
Net income $ 52.9 33.9 84.9 56.6
=========================================================================================
Net income per share $ 1.09 .70 1.75 1.17
=========================================================================================
Average number of shares 48.7 48.3 48.6 48.3
=========================================================================================
</TABLE>
<PAGE> 3
Consolidated Balance Sheets
(in millions)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 292.2 184.4
Temporary investments 103.6 208.8
Other current assets 257.3 280.5
-------------------------------------------------------------------------
Total current assets 653.1 673.7
Investments 562.5 536.7
Property and equipment, net 1,702.6 1,664.8
Other assets 48.0 50.7
-------------------------------------------------------------------------
Total assets $2,966.2 2,925.9
==================================================================================================
Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 256.5 284.0
Current maturities of long-term debt 271.4 36.7
Income taxes payable 10.8 7.6
-------------------------------------------------------------------------
Total current liabilities 538.7 328.3
Long-term debt 1,035.2 1,251.9
Deferred income taxes and other liabilities 199.4 217.9
Stockholders' equity 1,192.9 1,127.8
-------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,966.2 2,925.9
==================================================================================================
</TABLE>
<PAGE> 4
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
Six months ended
June 30,
1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities Net income $ 84.9 56.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 70.3 63.6
Change in working capital components:
Other current assets 21.0 (3.2)
Accounts payable and accrued expenses (25.8) 18.9
Income taxes payable 3.2 10.8
Decrease in deferred income taxes (1.1) (18.0)
Change in other liabilities (17.1) (6.8)
Unconsolidated affiliates' distributions
in excess of (less than) earnings 15.3 (6.3)
Gain from property transactions (1.0) -
Other (.3) (.5)
---------------------------------------------------------------------
Net cash provided by operating activities 149.4 115.1
----------------------------------------------------------------------------------------------
Investing activities Capital expenditures (106.8) (111.5)
Additional investments (46.8) (115.9)
Decrease in long-term marketable securities - 37.5
Decrease in temporary investments 109.0 6.9
Payments on notes and other investments 8.7 51.1
---------------------------------------------------------------------
Net cash used in investing activities (35.9) (131.9)
----------------------------------------------------------------------------------------------
Financing activities Increase in commercial paper borrowings
and revolving loans 95.9 27.6
Reduction of long-term debt (78.3) (25.1)
Issuance of common stock 5.6 4.5
Cash dividends (28.9) (28.8)
---------------------------------------------------------------------
Net cash used in financing activities (5.7) (21.8)
----------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents 107.8 (38.6)
Cash and equivalents at beginning of year 184.4 380.4
----------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 292.2 341.8
==============================================================================================
</TABLE>
<PAGE> 5
Summary of Operations
(in millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------- --------------
1995 1994 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue Hotels $181.4 160.5 339.8 287.9
Gaming 242.8 222.5 466.3 435.5
---------------------------------------------------------------------
Total $424.2 383.0 806.1 723.4
=====================================================================================
Operating Hotels $ 58.7 44.2 97.8 65.5
income Gaming 53.6 38.0 95.4 77.6
Corporate expense (7.3) (6.4) (14.2) (10.0)
---------------------------------------------------------------------
Total 105.0 75.8 179.0 133.1
Net interest expense (19.0) (18.0) (38.5) (35.6)
Property transactions .3 - 1.0 -
Foreign currency gains (losses) .4 - .3 (.4)
Provision for income taxes (32.6) (23.9) (54.1) (40.5)
Minority interest, net (1.2) - (2.8) -
-------------------------------------------------------------------------------------
Net income $ 52.9 33.9 84.9 56.6
=====================================================================================
Percentage of
occupancy Hotels 75 72 72 69
Gaming 88 90 86 88
=====================================================================================
</TABLE>
<PAGE> 6
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 Six months ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding
beginning of period 48,193,096 47,976,144 48,114,723 47,846,854
Net common shares issued/
issuable upon exercise
of certain stock
options 479,828 340,570 466,399 453,680
---------- ---------- ---------- ----------
Common and equivalent
shares 48,672,924 48,316,714 48,581,122 48,300,534
========== ========== ========== ==========
Net income (in millions) $52.9 $33.9 $84.9 $56.6
===== ===== ===== =====
Net income per share $1.09 $.70 $1.75 $1.17
===== ==== ===== =====
Dividends declared per share $.30 $.30 $.60 $.60
==== ==== ==== ====
</TABLE>
<PAGE> 7
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 1994
Annual Report to Stockholders and should be read in conjunction with the Notes
to Consolidated Financial Statements which appear in that report.
The statements for the three and six months ended June 30, 1995 and 1994
are unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results for the unaudited periods.
The consolidated financial statements for the 1994 periods reflect certain
reclassifications to conform with classifications adopted in 1995. These
classifications have no effect on net income.
Note 2: Supplemental Cash Flow Information
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<CAPTION>
Six months ended
June 30,
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash paid during the period
for the following:
Interest, net of amounts capitalized $46.5 36.1
Income taxes 51.5 43.7
</TABLE>
Note 3: Investments
Summarized operating results of the Company's unconsolidated affiliates are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
(in millions) (in millions)
<S> <C> <C> <C> <C>
Revenue $324.5 306.8 621.1 590.5
Expenses 244.2 261.7 511.3 524.3
Net Income 32.0 38.2 56.5 53.2
</TABLE>
Note 4: Spin-Off of Gaming Operations
In June 1995 the Company's Board of Directors approved a plan to separate the
Company's gaming and hotel businesses by a spin-off of the gaming operations.
The transaction is expected to be tax-free, with shareholders receiving one
share of stock of the new gaming company for each share of the Company's stock.
The transaction is subject to a number of conditions including regulatory and
other third party approvals, including certain lenders, the receipt of a
favorable ruling from the IRS and other tax authorities confirming the tax-free
status of the transaction, and the final approval of the Board of Directors.
The Company is seeking to complete the spin-off by early 1996.
<PAGE> 8
<TABLE>
<CAPTION>
Supplemental hotels segment data for the three and six months ended June 30, 1995 and 1994 are as follows:
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Revenue
Rooms $ 94.4 77.5 177.8 140.3
Food and beverage 36.1 33.7 67.7 60.0
Management and franchise fees 22.6 21.9 44.4 41.6
Other 13.9 11.5 27.5 21.9
Operating income
from unconsolidated affiliates 14.4 15.9 22.4 24.1
------ ------ ------ ------
181.4 160.5 339.8 287.9
------ ------ ------ ------
Expenses
Rooms 27.4 23.6 53.2 45.0
Food and beverage 28.7 26.5 55.9 49.7
Other costs and expenses 66.6 66.2 132.9 127.7
------ ------ ------ ------
122.7 116.3 242.0 222.4
------ ------ ------ ------
Hotels operating income $ 58.7 44.2 97.8 65.5
====== ====== ====== ======
Supplemental gaming segment data for the three and six months ended June 30, 1995 and 1994 are as follows:
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
(in millions) (in millions)
Revenue
Rooms $ 56.8 49.1 109.9 97.6
Food and beverage 31.3 29.2 61.4 58.5
Casino 133.9 118.4 252.0 233.0
Management and franchise fees 2.6 2.5 4.9 4.9
Other 16.4 19.9 31.4 36.4
Operating income
from unconsolidated affiliates 1.8 3.4 6.7 5.1
------ ------ ------ ------
242.8 222.5 466.3 435.5
------ ------ ------ ------
Expenses
Rooms 19.8 19.6 37.9 37.2
Food and beverage 29.1 27.6 55.8 54.4
Casino 60.1 54.6 116.1 105.2
Other costs and expenses 80.2 82.7 161.1 161.1
------ ------ ------ ------
189.2 184.5 370.9 357.9
------ ------ ------ ------
Gaming operating income $ 53.6 38.0 95.4 77.6
====== ====== ====== ======
</TABLE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED JUNE 30, 1995 AND 1994
OVERVIEW
Net income for the second quarter increased 56 percent to $52.9 million or
$1.09 per share, compared to $33.9 million or $.70 per share in 1994. The 1995
second quarter includes a $10.6 million pre-tax adjustment to reduce
self-insured workers' compensation and public liability insurance reserves
based on the most recent actuarial estimates. Excluding the effect of the
reserve adjustment, net income increased 37 percent over the 1994 second
quarter. Total revenue in the 1995 quarter increased 11 percent to $424.2
million, while total operating income increased 39 percent to $105.0 million
from $75.8 million in 1994.
HOTELS
Hotel revenue for the 1995 quarter was $181.4 million, an increase of 13
percent over last year. Adjusting for the impact of increased ownership of the
New Orleans Hilton Riverside, which was consolidated as of June 1994, revenue
increased two percent. Hotel operating income increased 33 percent to $58.7
million from $44.2 million in the 1994 second quarter. Excluding the Hotel
segment's $3.8 million share of the insurance reserve adjustment, operating
income increased 24 percent over the comparable 1994 period. The Hotel
segment continues to benefit from a thriving lodging industry, driven by the
strength of the U.S. economy, greater international visitation and a relatively
stable supply of hotel rooms. Individual business travel and company meetings
room nights are both well ahead of 1994 levels, benefitting a majority of the
Company's owned and equity properties. Operating income improved at nearly all
of the Company's owned and partially-owned hotels compared to the 1994 second
quarter. Occupancy for hotels owned or managed was 75 percent in 1995 compared
to 72 percent in 1994. Average room rates increased four percent over the
prior year.
<PAGE> 10
Operating income from the Palmer House Hilton increased $1.4 million over the
prior year, driven by double digit increases in company meeting and individual
business traveler room nights. Income at the Waldorf-Astoria increased $.8
million over 1994 on increased occupancy and average room rate. International
room nights at this property were up 17 percent over the prior year. Operating
income from the New Orleans Hilton Riverside increased $5.0 million compared to
the 1994 second quarter. This increase includes $1.1 million attributable to
improved operating performance and $3.9 million due to the impact of increased
ownership of the property. Substantial increases in occupancy also benefitted
the 50% owned San Francisco Hilton and Towers. Operating income at this
property improved $1.3 million over the prior year.
Increased occupancy and average rate, including significant growth in
individual business traveler room nights, resulted in a $.4 million improvement
in operating results at the 50% owned Hilton Hawaiian Village. The strength of
business travel also continued to benefit the Company's airport properties in
the second quarter of 1995. Each of the Company's eight airport properties
attained increases in both revenue per available room and operating income.
Combined income for the Company's wholly-owned and partially-owned airport
properties increased $1.9 million over the prior year.
Hotel management and franchise fees increased $.7 million in 1995 to $22.6
million. Fee revenue is based primarily on operating revenue at managed
properties and room revenue at franchised hotels.
GAMING
Total gaming revenue increased nine percent in the 1995 quarter to $242.8
million from $222.5 million in 1994. Casino revenue, a component of gaming
revenue, was $133.9 million in 1995 compared to $118.4 million in the prior
year. Gaming operating income increased 41 percent to $53.6 million from
<PAGE> 11
$38.0 million in the 1994 second quarter. Excluding the Gaming segment's $6.8
million share of the self-insurance reserve adjustment, operating income
increased 23 percent.
Operating income at the Las Vegas Hilton increased $18.3 million from the prior
year due primarily to increased baccarat drop coupled with a higher hold
percentage. Premium play baccarat volume at this property has continued to be
dramatically higher since the opening of the hotel's luxury "Sky Villa" suites.
Baccarat volume was up 75 percent and the hold percentage increased 18 points
compared to the 1994 second quarter. The property also benefitted from a 19
percent increase in average room rate compared to the prior year. Results at
the Las Vegas Hilton are typically more volatile than the Company's other
casinos since this property caters to the premium play segment of the market.
Despite disruptions related to construction activities which were completed at
the end of the second quarter, the Flamingo Hilton - Las Vegas recorded a
slight increase in operating income. Competition from the Las Vegas market and
excess room capacity continue to affect the Flamingo Hilton - Laughlin, which
posted a slight decrease in operating income. Operating income from the
Flamingo Hilton - Reno increased $.9 million, primarily on higher slot income.
The Reno Hilton benefitted from the renovation of casino and public space and
completion of new restaurants to record a $3.1 million increase in operating
income. Revenue per available room at this property increased 16 percent over
the 1994 period.
Operating income from the 50% owned Flamingo Casino - New Orleans river casino
decreased $2.4 million from the 1994 second quarter. Results were
adversely impacted by heavy rains which flooded the downtown area and by
increased competition from a newly opened land based facility. Casino drop was
off 27 percent compared to the 1994 second quarter.
<PAGE> 12
Internationally, equity and fee income from the 19.9% owned Hotel Conrad
International and Jupiters Casino in Australia decreased $2.4 million from the
prior year, primarily due to significantly lower table game hold. Results from
the 19.9% owned Conrad International Treasury hotel-casino in Brisbane,
Australia, which opened in April 1995, were not material. The Company's
proportionate share of income from its management operations at Casino Windsor,
which opened in May 1994 in Windsor, Ontario, Canada, increased $1.0 million
from the prior year.
Occupancy for the Nevada hotel-casinos was 90 percent in the 1995 quarter
compared to 94 percent last year. The average room rate for Nevada increased
13 percent.
FINANCING ACTIVITIES
Interest and dividend income increased $4.4 million to $9.2 million in 1995
primarily due to higher investment balances and yields. Consolidated interest
expense increased $5.9 million due to higher average debt levels and higher
interest rates, while interest expense from unconsolidated affiliates decreased
$.5 million. Consolidated interest expense for the 1995 quarter includes $2.3
million of interest on debt at the New Orleans Hilton Riverside. The Company's
proportionate share of this expense was included in net interest expense from
unconsolidated affiliates through mid-June 1994.
INCOME TAXES
The effective income tax rate for the 1995 period was 37.6 percent compared to
41.3 percent in 1994. 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 1995 effective income tax rate benefitted from the
utilization of foreign tax credits, partially offset by increased provision for
state and local taxes.
MINORITY INTEREST
The minority interest results from the consolidation of the New Orleans Hilton
Riverside. The Company increased its ownership interest in the property from
46.8% to 67.4% in June 1994.
<PAGE> 13
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
OVERVIEW
Net income for the six month period was $84.9 million, an increase of
50 percent over last year. Excluding the effect the $10.6 million pre-tax
insurance reserve adjustment, net income increased 38 percent over the 1994
period. Total revenue in the 1995 period increased 11 percent to
$806.1 million, while total operating income increased 34 percent to
$179.0 million from $133.1 million in 1994.
HOTELS
Hotel revenue increased 18 percent to $339.8 million for the 1995 six month
period from $287.9 million in 1994. Adjusting for the impact of increased
ownership of the New Orleans Hilton Riverside, revenue increased five percent.
Hotel operating income increased 49 percent to $97.8 million from $65.5 million
in the 1994 period. Excluding the Hotel segment's $3.8 million share of the
insurance reserve adjustment, operating income increased 44 percent over the
comparable 1994 period. Operating income for the six months improved at a
majority of the Company's owned and partially-owned hotels compared to the 1994
period. Occupancy for hotels owned or managed was 72 percent in 1995 compared
to 69 percent in the 1994 period. Average room rates increased five percent
over the prior year.
Combined results from the Waldorf-Astoria and the 50% owned New York Hilton and
Towers increased $1.9 million over the 1994 period on higher average room rates
and increased individual business traveler stays. Increased business travel
also benefitted the Palmer House Hilton and the 50% owned San Francisco Hilton
and Towers, which attained operating income increases of $2.4 million and $1.4
million, respectively. Operating income from the New Orleans Hilton Riverside
increased $12.6 million compared to the 1994 six month period. This increase
includes $5.5 million attributable to improved operating performance and $7.1
million due to the impact of increased ownership of the property.
<PAGE> 14
Increased occupancy and average rate produced double digit growth in revenue
per available room at the 50% owned Hilton Hawaiian Village. Operating income
for the six months increased $1.7 million over the 1994 period. Results from
the San Diego Hilton Beach and Tennis Resort decreased $2.1 million from 1994,
reflecting a partial closure of the property for renovation. The renovation
was completed at the end of the second quarter.
All of the Company's airport locations attained increases in average room rate
and operating income compared to the 1994 six month period. Combined income
for the Company's wholly-owned and partially-owned airport properties increased
$3.0 million over the 1994 period.
Hotel management and franchise fees for the six month period increased $2.8
million to $44.4 million.
GAMING
Total gaming revenue in the 1995 six month period increased seven percent to
$466.3 million from $435.5 million in 1994. Casino revenue, a component of
gaming revenue, was $252.0 million in 1995 compared to $233.0 million in the
prior year. Gaming operating income increased 23 percent to $95.4 million from
$77.6 million in the 1994 period. Excluding the Gaming segment's $6.8 million
share of the self-insurance reserve adjustment, operating income increased 14
percent.
Operating income at the Las Vegas Hilton increased $21.5 million from the prior
year due primarily to increased baccarat drop and hold percentage. Baccarat
volume was up 92 percent and the hold percentage increased eight points
compared to the 1994 six month period. The property also benefitted from an
11 percent increase in revenue per available room compared to the prior
year. Combined results from the Flamingo Hilton - Las Vegas and the Flamingo
Hilton - Reno were consistent with the 1994 period. Results at the Reno Hilton
increased $3.2 million in the 1995 six month period, primarily due to improved
occupancy and gaming volume in the 1995 second quarter following completion of
<PAGE> 15
casino and public space renovation. Operating income at the Flamingo Hilton -
Laughlin decreased $1.4 million on lower occupancy and average room rate.
Results from the 50% owned Flamingo Casino - New Orleans river casino were
comparable with the 1994 period.
Equity and fee income from the 19.9% owned Hotel Conrad International and
Jupiters Casino in Australia decreased $4.3 million from the 1994 six month
period on lower table game hold. Operating income from Casino Windsor, which
opened in May 1994, increased $2.1 million.
Occupancy for the Nevada hotel-casinos was 88 percent in the 1995 period versus
91 percent last year. The average room rate for Nevada increased 11 percent.
CORPORATE EXPENSE
Corporate expense was $14.2 million in the first six months of 1995 compared to
$10.0 million in the 1994 period. The 1994 expense benefitted from the
reimbursement of legal costs as a result of a lawsuit settlement.
FINANCING ACTIVITIES
Interest and dividend income increased $5.8 million to $15.7 million in 1995
primarily due to higher investment balances and yields. Consolidated interest
expense increased $9.8 million due to higher average debt levels and higher
interest rates, while interest expense from unconsolidated affiliates decreased
$1.1 million. Consolidated interest expense for the 1995 six month period
includes $4.6 million of interest on debt at the New Orleans Hilton Riverside,
which was consolidated in June 1994.
<PAGE> 16
INCOME TAXES
The effective income tax rate for the 1995 period was 38.2 percent compared to
41.7 percent in 1994. The 1995 effective income tax rate benefitted from the
utilization of foreign tax credits, partially offset by increased provision for
state and local taxes.
PROPERTY TRANSACTIONS
The 1995 period includes a pretax gain on the sale of land to Hilton Grand
Vacations Company for its vacation ownership project at the Flamingo Hilton -
Las Vegas. Gains on this transaction are being recognized on an installment
basis.
MINORITY INTEREST
The minority interest results from the consolidation of the New Orleans Hilton
Riverside.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
Net cash provided by operating activities totaled $149.4 million for the six
months ended June 30, 1995 compared to $115.1 million in the same period last
year, due primarily to improved operating results. Working capital decreased
from $345.4 at December 31, 1994 to $114.4 million at June 30, 1995,
principally due to a $234.7 million increase in current maturities of long-term
debt based on the timing of debt maturities over the next year. Capital
expenditures during the period totaled $106.8 million, while new investments
amounted to $46.8 million.
During the six months ended June 30, 1995, renovation and construction projects
continued at a number of Company properties. Improvements at the Company's
gaming properties included the completion of the luxury "Sky Villa" suites at
the Las Vegas Hilton and the completion of renovation and expansion
<PAGE> 17
projects at the Flamingo Hilton - Las Vegas and Reno Hilton. April 1995 marked
the opening of the 19.9% owned Conrad International Treasury hotel-casino in
Brisbane, Australia. In addition, renovations continued at the Portland Hilton
and were completed at the San Diego Hilton Beach and Tennis Resort. In Orlando,
development of the first phase of a 360-unit vacation ownership resort adjacent
to Sea World is anticipated to be completed in the third quarter of 1995.
The Company anticipates that capital expenditures and investments will total
approximately $350 million in 1995. The Company intends to fund these
expenditures through internal cash flows, available debt capacity or new
borrowings.
LONG-TERM DEBT
Long-term debt at June 30, 1995 totaled $1.0 billion compared to $1.3 billion
at December 31, 1994. This reduction is due primarily to the aforementioned
increase in the current portion of long-term debt totaling $234.7 million.
During the first six months of 1995 the Company repurchased $57.7 million of
its long-term public debt, including $27.9 million of its $200 million Series B
Medium Term Notes. At June 30, 1995, $30.0 million in financing under this
program was still available.
The Company's long-term revolving credit facilities had an aggregate commitment
at June 30, 1995 of $597.5 million, of which $353.8 million supported the
Company's commercial paper borrowings. Excluding the portion of the
commitment which supports the issuance of commercial paper, $233.7 million of
revolving bank debt financing was available to the Company at June 30, 1995.
The Company has an effective shelf registration with the Securities and
Exchange Commission for up to $65 million of new debt securities. The terms
and conditions of the securities will be determined by market conditions at the
time of issuance.
<PAGE> 18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1991 a lawsuit was initiated by Hilton
International Co. (HI) against the Company. In this action,
HI alleged generally that the development and marketing by the
Company of its hotels outside the United States under the
Conrad name violate the terms of certain agreements between HI
and the Company. In 1964 the Company spun off its Hilton
International operations to the Company's stockholders and
entered into an agreement with HI, as subsequently amended,
generally granting the Company certain rights with respect to
the Hilton service mark in the United States and HI certain
rights to the Hilton service mark outside the United States.
The complaint sought, among other things, injunctive relief
against use by the Company of the Conrad name for its hotels
outside the United States and damages in excess of $100
million.
In May 1995 the federal judge issued an opinion permitting the
Company to continue to use the Conrad name for its hotels
outside the United States, provided that "International" is
added to the name. The Company and HI are continuing to
negotiate this issue. Damages have not been awarded to either
party and a final decision regarding the lawsuit is expected
in late summer 1995.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on Thursday, May
11, 1995 at the Beverly Hilton in Beverly Hills, California.
Approximately 90 percent of the eligible shares were voted.
The following were elected to Hilton's Board of Directors for
a three year term expiring in 1998: Raymond C. Avansino, Jr.,
A. Steven Crown, Eric M. Hilton, and Donna F. Tuttle, each of
whom received approximately 99 percent of the votes cast.
The stockholders also reapproved by a 98 percent affirmative
vote the 1990 Stock Option and Stock Appreciation Rights Plan,
with an amendment. Additionally, the ratification of Arthur
Andersen LLP to serve as auditors for the Company for fiscal
1995 was adopted by 99 percent of the votes cast.
The stockholders defeated by a 76 percent vote the
stockholder's proposal relating to the Company's executive
severance agreements.
ITEM 5. OTHER INFORMATION
In June 1995 the Company announced that its Board of Directors
has approved a plan to separate the Company's casino gaming
and hotel businesses by a spin-off of the Company's gaming
operations. As a result of the plan, the gaming and hotel
businesses will be operated as two independent publicly-held
corporations, each with its own dedicated management team and
Board of Directors. The transaction is expected to be
tax-free, with shareholders receiving one share of the new
gaming company for each of their shares of Hilton Hotels
Corporation.
The spin-off is subject to a number of conditions, including
regulatory and other third party approvals, including certain
lenders, the receipt of a ruling from the IRS and other tax
authorities confirming the tax-free status of the transaction,
and final approval of the Board of Directors. The Company is
seeking to complete the spin-off by early 1996.
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the second quarter of fiscal
1995.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILTON HOTELS CORPORATION
(Registrant)
Date: August 10, 1995 /s/ STEVE KRITHIS
-------------------------------
Steve Krithis
Senior Vice President - Finance
Date: August 10, 1995 /s/ WILLIAM C. LEBO, JR.
-------------------------------
William C. Lebo, Jr.
Senior Vice President and
General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 292,200
<SECURITIES> 103,600
<RECEIVABLES> 200,500
<ALLOWANCES> 24,100
<INVENTORY> 14,900
<CURRENT-ASSETS> 653,100
<PP&E> 2,495,400
<DEPRECIATION> 792,800
<TOTAL-ASSETS> 2,966,200
<CURRENT-LIABILITIES> 538,700
<BONDS> 1,035,200
<COMMON> 127,600
0
0
<OTHER-SE> 1,065,300
<TOTAL-LIABILITY-AND-EQUITY> 2,966,200
<SALES> 806,100
<TOTAL-REVENUES> 806,100
<CGS> 0
<TOTAL-COSTS> 602,000
<OTHER-EXPENSES> 14,200
<LOSS-PROVISION> 10,900
<INTEREST-EXPENSE> 38,500
<INCOME-PRETAX> 141,800
<INCOME-TAX> 54,100
<INCOME-CONTINUING> 84,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,900
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
