<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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ................... to......................
Commission file number 1-3427
HILTON HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2058176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip code)
(310) 278-4321
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1996 --- Common Stock, $2.50 par value ---
48,814,114 shares.
<PAGE> 2
2
PART I -- FINANCIAL INFORMATION
Company or group of companies for which report is filed:
HILTON HOTELS CORPORATION AND SUBSIDIARIES
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,
1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Revenue Rooms $155.1 136.5
Food and beverage 70.6 61.7
Casino 106.7 118.1
Management and franchise fees 29.7 24.1
Other 47.6 28.6
Operating income from unconsolidated affiliates 20.2 12.9
----------------------------------------------------------------------------------------------
429.9 381.9
- ---------------------------------------------------------------------------------------------------------------------
Expenses Rooms 48.2 43.9
Food and beverage 59.4 53.9
Casino 63.6 56.0
Other costs and expenses 170.8 147.2
Corporate expense 8.9 6.9
----------------------------------------------------------------------------------------------
350.9 307.9
- ---------------------------------------------------------------------------------------------------------------------
Operating income 79.0 74.0
Interest and dividend income 7.5 6.5
Interest expense (21.5) (22.4)
Interest expense, net, from
unconsolidated affiliates (2.7) (3.6)
Property transactions -- .7
Foreign currency gains (losses) .2 (.1)
- ---------------------------------------------------------------------------------------------------------------------
Income before
income taxes
and minority
interest 62.5 55.1
Provision for income taxes 24.5 21.5
Minority interest, net 1.4 1.6
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 36.6 32.0
=====================================================================================================================
Net income per share $ .75 .66
=====================================================================================================================
Average number of shares 48.9 48.6
=====================================================================================================================
</TABLE>
<PAGE> 3
3
HILTON HOTELS CONSOLIDATED
CORPORATION BALANCE
AND SHEETS
SUBSIDIARIES (in millions)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Assets Current assets
Cash and equivalents $ 247.4 338.0
Temporary investments 56.7 70.7
Other current assets 340.1 308.6
-----------------------------------------------------------------------------------------------
Total current assets 644.2 717.3
Investments 545.6 595.3
Property and equipment, net 1,699.2 1,695.9
Other assets 54.0 51.8
-----------------------------------------------------------------------------------------------
Total assets $2,943.0 3,060.3
======================================================================================================================
Liabilities and Current liabilities
stockholders' equity Accounts payable
and accrued expenses $ 283.4 306.5
Current maturities of long-term debt 216.8 216.8
Income taxes payable 31.2 11.6
-----------------------------------------------------------------------------------------------
Total current liabilities 531.4 534.9
Long-term debt 916.2 1,069.7
Deferred income taxes
and other liabilities 198.1 202.0
Stockholders' equity 1,297.3 1,253.7
-----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,943.0 3,060.3
======================================================================================================================
</TABLE>
<PAGE> 4
4
HILTON HOTELS CONSOLIDATED
CORPORATION STATEMENTS
AND OF CASH FLOW
SUBSIDIARIES (in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Operating activities Net income $ 36.6 32.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38.0 34.9
Change in working capital components:
Other current assets 21.9 22.4
Accounts payable and accrued expenses (33.8) (35.7)
Income taxes payable 19.6 18.1
Decrease in deferred income taxes (.7) (1.1)
Increase in other liabilities .1 1.2
Unconsolidated affiliates' distributions
in excess of earnings 5.3 8.9
Gain from property transactions -- (.7)
Other (.1) (.7)
----------------------------------------------------------------------------------------------
Net cash provided by operating activities 86.9 79.3
- ---------------------------------------------------------------------------------------------------------------------
Investing activities Capital expenditures (31.6) (54.7)
Additional investments (14.7) (21.7)
Decrease in temporary investments 17.4 75.8
Payments on notes and other investments .3 5.2
----------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (28.6) 4.6
- ---------------------------------------------------------------------------------------------------------------------
Financing activities Decrease in commercial paper borrowings
and revolving loans (152.9) (5.5)
Reduction of long-term debt (.6) (61.7)
Issuance of common stock 19.2 3.4
Cash dividends (14.6) (14.4)
----------------------------------------------------------------------------------------------
Net cash used in financing activities (148.9) (78.2)
- ---------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and equivalents (90.6) 5.7
Cash and equivalents at beginning of year 338.0 184.4
- ---------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $247.4 190.1
=====================================================================================================================
</TABLE>
<PAGE> 5
5
HILTON HOTELS SUMMARY
CORPORATION OF
AND OPERATIONS
SUBSIDIARIES (in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Revenue Hotels 197.4 158.4
Gaming 232.5 223.5
----------------------------------------------------------------------------------------------
Total 429.9 381.9
=====================================================================================================================
Operating Hotels 55.2 39.1
income Gaming 32.7 41.8
Corporate expense (8.9) (6.9)
----------------------------------------------------------------------------------------------
Total 79.0 74.0
Net interest expense (16.7) (19.5)
Property transactions -- .7
Foreign currency gains (losses) .2 (.1)
Provision for income taxes (24.5) (21.5)
Minority interest, net (1.4) (1.6)
- ---------------------------------------------------------------------------------------------------------------------
Net income 36.6 32.0
=====================================================================================================================
Percentage of Hotels 72 70
occupancy Gaming 89 84
=====================================================================================================================
</TABLE>
<PAGE> 6
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
March 31,
1996 1995
---- ----
<S> <C> <C>
Shares outstanding
beginning of period 48,337,178 48,114,723
Net common shares issued/
issuable upon exercise
of certain stock options 561,721 452,971
---------- ----------
Common and equivalent
shares 48,898,899 48,567,694
========== ==========
Net income (in millions) $36.6 $32.0
===== =====
Net income per share $.75 $.66
==== ====
Dividends declared per share $.30 $.30
==== ====
</TABLE>
<PAGE> 7
7
HILTON HOTELS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1: General
The consolidated financial statements presented herein have been prepared by
the Company in accordance with the accounting policies described in its 1995
Annual Report to Stockholders and should be read in conjunction with the Notes
to Consolidated Financial Statements which appear in that report.
The statements for the three months ended March 31, 1996 and 1995 are
unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results for the unaudited periods.
Note 2: Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
(in millions)
<S> <C> <C>
Cash paid during the period
for the following:
Interest, net of amounts capitalized $24.1 22.5
Income taxes 2.4 1.4
</TABLE>
Note 3: Investments
Summarized operating results of the Company's unconsolidated affiliates are as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
(in millions)
<S> <C> <C>
Revenue $353.2 296.6
Expenses 290.5 267.1
Net Income 53.3 24.5
</TABLE>
<PAGE> 8
8
Note 4: Supplemental Segment Data
Supplemental hotels segment data for the three months ended March 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
(in millions)
<S> <C> <C>
Revenue
Rooms $ 94.2 83.4
Food and beverage 35.1 31.6
Management and franchise fees 25.5 21.8
Other 28.4 13.6
Operating income
from unconsolidated affiliates 14.2 8.0
------ -----
197.4 158.4
------ -----
Expenses
Rooms 27.7 25.8
Food and beverage 29.2 27.2
Other costs and expenses 85.3 66.3
------ -----
142.2 119.3
------ -----
Hotels operating income $ 55.2 39.1
====== =====
</TABLE>
Supplemental gaming segment data for the three months ended March 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---- ----
(in millions)
<S> <C> <C>
Revenue
Rooms $ 60.9 53.1
Food and beverage 35.5 30.1
Casino 106.7 118.1
Management and franchise fees 4.2 2.3
Other 19.2 15.0
Operating income
from unconsolidated affiliates 6.0 4.9
------ -----
232.5 223.5
------ -----
Expenses
Rooms 20.5 18.1
Food and beverage 30.2 26.7
Casino 63.6 56.0
Other costs and expenses 85.5 80.9
------ -----
199.8 181.7
------ -----
Gaming operating income $ 32.7 41.8
====== =====
</TABLE>
<PAGE> 9
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1996 AND 1995
OVERVIEW
Net income for the 1996 first quarter increased 14 percent to $36.6 million or
$.75 per share, compared to $32.0 million or $.66 per share in 1995. Total
revenue in the 1996 quarter increased 13 percent to $429.9 million, while total
operating income increased seven percent to $79.0 million from $74.0 million in
1995.
HOTELS
Hotel revenue for the 1996 quarter was $197.4 million, an increase of 25
percent over 1995, while hotel operating income increased 41 percent to $55.2
million from $39.1 million last year. Adjusting for the impact of
consolidating the Company's vacation ownership projects in Las Vegas and
Orlando beginning in 1996, revenue increased 16 percent. The effect of
consolidating the vacation ownership projects on operating income was not
significant. The hotel segment continues to benefit from improving industry
fundamentals. The favorable supply-demand balance, particularly in the full
service segment, continues to drive higher occupancy levels and greater pricing
flexibility. The Company capitalized on these strong fundamentals in the first
quarter, producing operating income increases at nearly all of its owned and
partially owned hotels. Occupancy for hotels owned or managed was 72 percent
in 1996 compared to 70 percent in 1995. Average room rates increased five
percent over the prior year.
Operating income from the Waldorf-Astoria increased $2.7 million over the 1995
first quarter on higher occupancy, principally due to growth in leisure travel
room nights and continued strength in individual business traveler stays.
Results improved at other major market full service properties, including the
Palmer House Hilton and the 50% owned Washington Hilton and Towers, which
benefitted from higher average room rates, and the 50% owned New York Hilton
and Towers and San Francisco Hilton and Towers, which demonstrated improved
occupancies. Operating income at these four properties improved a combined
<PAGE> 10
10
$4.2 million over the prior year. In line with expectations, operating income
from the New Orleans Hilton Riverside and Towers decreased $1.3 million from an
exceptional 1995 first quarter.
A robust U.S. economy continues to fuel increased individual business traveler
room nights at the Company's airport properties. Combined income for the
Company's eight wholly-owned and partially owned airport properties increased
$2.6 million over the prior year. Revenue per available room increased 12
percent over the comparable 1995 period.
Results at the 50% owned Hilton Hawaiian Village increased $1.5 million from
the 1995 first quarter, primarily on the strength of a 10 percent increase in
average room rate. Major renovation projects completed in 1995 have led to a
combined $3.2 million increase in operating income at the San Diego Hilton
Beach and Tennis Resort and the Portland Hilton. Revenue per available room at
these two wholly-owned properties increased 30 percent from the 1995 first
quarter.
Management and franchise fees increased $3.7 million in 1996 to $25.5 million.
Fee revenue is based primarily on operating revenue at managed properties and
rooms revenue at franchised hotels.
Future operating results could be unfavorably impacted by additional capacity
or factors which influence demand, including increases in transportation and
fuel costs or sustained recessionary periods. The Company believes its
financial strength, market presence and diverse product line will enable it to
remain competitive in the hotel segment.
GAMING
Total gaming revenue increased four percent in the 1996 quarter to $232.5
million from $223.5 million in the 1995 quarter. Casino revenue, a component of
gaming revenue, decreased 10 percent to $106.7 million in 1996 compared to
$118.1 million in the comparable 1995 period. Gaming operating income decreased
22 percent to $32.7 million from $41.8 million in the 1995 first quarter.
<PAGE> 11
11
Results at the Las Vegas Hilton decreased $21.5 million from the prior year,
resulting in an operating loss for the quarter, primarily due to an abnormally
low baccarat drop and win percentage on its premium play baccarat business. The
baccarat win percentage decreased 12 points from the 1995 first quarter and
volume decreased 44 percent compared to the record volume in the first quarter
of last year. Results at the Las Vegas Hilton are more volatile than the
Company's other casinos because this property caters to the premium play segment
of the market. Future fluctuations in premium play volume and win percentage
could result in continued volatility in operating income at this property.
The Flamingo Hilton - Las Vegas recorded a $9.8 million increase in operating
income, benefitting from major expansion and enhancement projects completed in
1995. Improved occupancy and average rate resulted in a 21 percent increase in
revenue per available room compared to the prior year. Despite continued
market softness, the Flamingo Hilton - Laughlin posted a modest increase in
operating income on the strength of slot play. Combined results from the Reno
Hilton and the Flamingo Hilton - Reno decreased $1.2 million due to increased
competition and the absence of the city's major bowlers convention.
Operating income from the Company's river casino operations in New Orleans,
including equity and fee income, decreased $1.7 million from the 1995 first
quarter. In January 1996 the 50% owned joint venture replaced its river casino
with a smaller vessel owned by the Company. The smaller vessel is leased by
the Company to the 50% owned joint venture. Fee income from the one-third
owned consortium which operates and manages Casino Windsor increased $1.2
million from the prior year.
Equity and fee income from the 19.9% owned Hotel Conrad and Jupiters Casino in
Australia increased $2.3 million from the prior year, primarily due to lower
than normal table game win in the 1995 period. Equity and fee income from the
19.9% owned Conrad International Treasury, which opened in May 1995 in
Brisbane, totaled $1.5 million.
<PAGE> 12
12
Occupancy for the Nevada hotel-casinos was 92 percent in the 1996 quarter
compared to 86 percent last year. The average room rate for the Nevada
properties increased four percent.
The gaming industry continues to experience growth and increasing competition,
particularly in existing markets. Competitors have announced and are
developing new projects which will add significant room supply and casino space
to the Las Vegas market over the next three years. These additions could
adversely impact the Company's future gaming income.
FINANCING ACTIVITIES
Interest and dividend income increased $1.0 million to $7.5 million due to
higher investable balances. Consolidated interest expense was $21.5 million in
the 1996 period compared to $22.4 million in 1995, while interest expense from
unconsolidated affiliates decreased $.9 million.
INCOME TAXES
The effective income tax rate for the 1996 period was 39.2 percent compared to
39.0 percent in 1995. The Company's effective income tax rate is determined by
the level and composition of pretax income subject to varying foreign, state
and local taxes.
MINORITY INTEREST
The minority interest results from the consolidation of the 67.4% owned New
Orleans Hilton Riverside and Towers.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
Net cash provided by operating activities remained strong at $86.9 million for
the three months ended March 31, 1996 compared to $79.3 million in the same
period last year. Working capital decreased from $182.4 at December 31, 1995
<PAGE> 13
13
to $112.8 million at March 31, 1996. This decrease was primarily the result of
using working capital to reduce long-term borrowings and to fund new
construction and investments. During the 1996 quarter the Company reduced its
borrowings under its commercial paper program and revolving bank credit lines
by a total of $152.9 million. Capital expenditures during the period totaled
$31.6 million, while new investments amounted to $14.7 million.
Refurbishment programs are continually underway at the Company's hotel and
casino properties. In addition, construction projects continued at a number of
Company properties during the 1996 quarter. In January 1996 the Company broke
ground on the "Star Trek: The Experience at the Las Vegas Hilton" attraction and
related themed casino, which is scheduled to open in Spring 1997. Construction
is proceeding on the 90% owned Flamingo Casino - Kansas City, which will include
a casino, hotel, concessions and entertainment facilities. The casino is on
schedule for a Summer 1996 opening; the hotel is expected to be in operation by
Summer 1997. Construction also continues on schedule at the 43% owned Conrad
International Punta del Este Resort and Casino in Punta del Este, Uruguay, with
a planned early 1997 casino opening.
In January 1996 the Company announced plans to target mid-market business
travelers through a major expansion of its Hilton Garden Inn product. The
Company plans to add as many as 100 new Hilton Garden Inns over the next five
years, approximately 80 percent of which will be new construction with the
remainder to be conversions of existing properties. Construction of the first
phase of the expansion will begin in 1996 and is expected to be financed by the
Company, either solely or with partners.
The Company anticipates that capital expenditures and investments in 1996,
including the funding requirements associated with the aforementioned projects,
will total approximately $370 million. The Company intends to fund these
expenditures through new borrowings, available debt capacity and internal cash
flows.
<PAGE> 14
14
LONG-TERM DEBT
Long-term debt at March 31, 1996 totaled $916 million compared to $1.1 billion
at December 31, 1995. This decrease is primarily due to the $152.9 million
reduction in borrowings under its commercial paper program and revolving bank
credit lines.
The Company's long-term revolving credit facilities had an aggregate commitment
at March 31, 1996 of $597.5 million, of which $265.7 million supported the
issuance of commercial paper. Excluding balances outstanding and the portion
of the commitment which supports the issuance of commercial paper, $293.1
million of revolving bank debt financing was available to the Company at March
31, 1996. In addition, $30 million in financing remains available under the
Company's Series B Medium Term Note program.
The Company currently has an effective shelf registration with the Securities
and Exchange Commission for up to $65 million of new debt securities. In April
1996 the Company filed a registration statement with the Securities and Exchange
Commission for a proposed offering of up to $575 million principal amount
(including the $65 million effective shelf registration) of Convertible
Subordinated Notes due 2006. This registration has not yet become effective.
Upon completion of the offering, the net proceeds will be used to refinance
certain outstanding indebtedness and for general corporate purposes, including
funding the development and construction of Hilton Garden Inn properties and
additional construction costs of the Flamingo Casino - Kansas City and the "Star
Trek: The Experience at the Las Vegas Hilton" attraction.
<PAGE> 15
15
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In February 1996 the Company named Stephen F. Bollenbach
President and Chief Executive Officer. Barron Hilton, who had
held the position of Chief Executive Officer, will continue as
Chairman of the Board of Directors.
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 first quarter of fiscal
1996.
<PAGE> 16
16
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 7, 1996 ______________________________
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: May 7, 1996 _______________________________
William C. Lebo, Jr.
Senior Vice President and
General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 247,400
<SECURITIES> 56,700
<RECEIVABLES> 234,300
<ALLOWANCES> 28,300
<INVENTORY> 63,100
<CURRENT-ASSETS> 644,200
<PP&E> 2,530,300
<DEPRECIATION> 831,100
<TOTAL-ASSETS> 2,943,000
<CURRENT-LIABILITIES> 531,400
<BONDS> 916,200
0
0
<COMMON> 127,600
<OTHER-SE> 1,169,700
<TOTAL-LIABILITY-AND-EQUITY> 2,943,000
<SALES> 429,900
<TOTAL-REVENUES> 429,900
<CGS> 0
<TOTAL-COSTS> 331,100
<OTHER-EXPENSES> 8,900
<LOSS-PROVISION> 10,900
<INTEREST-EXPENSE> 16,700
<INCOME-PRETAX> 62,500
<INCOME-TAX> 24,500
<INCOME-CONTINUING> 36,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,600
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
