<PAGE>
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, 1997
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, 1997 --- Common Stock, $2.50 par
value --- 249,446,824 shares.
<PAGE>
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
MARCH 31,
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Rooms $ 460 426
Food and beverage 244 215
Casino 450 200
Franchise fees 12 10
Other products and services 137 106
-----------------------------------------------------------
1,303 957
- ----------------------------------------------------------------------------------
Expenses Rooms 128 123
Food and beverage 190 165
Casino 242 112
Other expenses, including
remittances to owners 573 469
Corporate expense 13 9
-----------------------------------------------------------
1,146 878
- ----------------------------------------------------------------------------------
Operating income 157 79
Interest and dividend income 13 7
Interest expense (43) (21)
Interest expense, net, from equity investments (4) (3)
- ----------------------------------------------------------------------------------
Income before income taxes
and minority interest 123 62
Provision for income taxes 51 24
Minority interest, net 4 1
- ----------------------------------------------------------------------------------
Net income $ 68 37
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Net income available to
common stockholders $ 65 37
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Net income per share $ .26 .19
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Average number
of shares 250 195
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 376 388
Temporary investments 26 50
Other current assets 656 713
-------------------------------------------------------------------
Total current assets 1,058 1,151
Investments 442 373
Property and equipment, net 4,846 4,698
Goodwill 1,287 1,295
Other assets 52 60
-------------------------------------------------------------------
Total assets $ 7,685 7,577
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 854 894
Current maturities of long-term debt 30 101
Income taxes payable 38 3
-------------------------------------------------------------------
Total current liabilities 922 998
Long-term debt 2,732 2,606
Deferred income taxes and other liabilities 754 762
Stockholders' equity 3,277 3,211
-------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,685 7,577
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities Net income $ 68 37
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 68 38
Amortization of debt issue costs 1 -
Change in working capital components:
Other current assets 30 44
Accounts payable and accrued expenses 2 (49)
Income taxes payable 35 20
Change in deferred income taxes (17) (1)
Change in other liabilities (79) -
Distributions from equity investments
in excess of earnings 1 5
Other 9 -
---------------------------------------------------------------------------
Net cash provided by operating activities 118 94
- --------------------------------------------------------------------------------------------------
Investing Activities Capital expenditures (139) (32)
Additional investments (77) (15)
Change in temporary investments (1) 17
Proceeds from property transactions 100 -
Payments on notes and other investments 14 1
Acquisitions, net of cash acquired (69) -
---------------------------------------------------------------------------
Net cash used in investing activities (172) (29)
- --------------------------------------------------------------------------------------------------
Financing Activities Change in commercial paper borrowings
and revolving loans 129 (153)
Reduction of long-term debt (74) (1)
Issuance of common stock 10 19
Cash dividends (23) (14)
---------------------------------------------------------------------------
Net cash provided by (used in) financing activities 42 (149)
- --------------------------------------------------------------------------------------------------
Decrease in Cash and Equivalents (12) (84)
Cash and Equivalents at Beginning of Year 388 433
- --------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 376 349
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATIONS
(dollars in millions, except average rate amounts)
Three months ended
March 31,
1997 1996
- --------------------------------------------------------------------------------
Revenue Hotels $ 667 616
Gaming 636 341
-----------------------------------------------------------------
Total $ 1,303 957
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operating Hotels $ 85 55
income Gaming 85 33
Corporate expense (13) (9)
-----------------------------------------------------------------
Total 157 79
Net interest expense (34) (17)
Provision for income taxes (51) (24)
Minority interest, net (4) (1)
- --------------------------------------------------------------------------------
Net income $ 68 37
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Occupancy Hotels 71.8 % 71.6
Gaming 87.2 88.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average rate Hotels $ 146.66 136.38
Gaming 77.38 74.39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------------------------- --------------------------------
Number of Available Casino Number of Available Casino
Properties Rooms Sq. ft. Properties Rooms Sq. ft.
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hotels Owned and partially owned 32 23,793 - 33 24,103 -
Managed 28 16,695 - 26 15,768 -
Franchised 177 45,063 - 164 42,167 -
------------------------------------------------------------------------------------------------
Total hotels 237 85,551 - 223 82,038 -
Gaming Owned, partially owned and
managed casinos and
hotel-casinos 16 16,992 963,000 10 12,782 626,000
- ---------------------------------------------------------------------------------------------------------------
Total 253 102,543 963,000 233 94,820 626,000
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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,
1997 1996
---- ----
<S> <C> <C>
Shares outstanding
beginning of period 248,717,746 193,348,712
Net common shares issued/
issuable upon exercise
of certain stock
options 1,548,165 1,669,365
---------- ---------
Common and equivalent
shares 250,265,911 195,018,077
----------- -----------
----------- -----------
Net income (in millions) $ 68 $ 37
----- -----
----- -----
Preferred dividend requirement (in millions) $ 3 $ -
----- -----
Net income available to common stockholders (in millions) $ 65 $ 37
----- -----
----- -----
Net income per share $ .26 $ .19
----- -----
----- -----
Dividends declared per common share $ .08 $.075
----- -----
----- -----
</TABLE>
<PAGE>
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 1996 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, 1997 and 1996 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 1996 period reflect certain
reclassifications to conform with classifications adopted in 1997. These
classifications have no effect on net income.
NOTE 2: BASIS OF PRESENTATION
During 1996, the Company elected to change the presentation in its consolidated
financial statements to include the operating results and working capital of
properties operated under long-term management agreements. These agreements
effectively convey to the Company the right to use the properties in exchange
for payments to the property owners, which are based primarily on the
properties' profitability. All periods presented reflect this change in
presentation which the Company believes is preferable. The consolidated
financial statements include the following amounts related to managed hotels:
current assets and current liabilities of $336 million and $344 million at March
31, 1997 and December 31, 1996, respectively, including cash and equivalents of
$161 million and $115 million, respectively; revenue of $493 million and $565
million for the three-month periods ended March 31, 1997 and 1996, respectively;
and operating expenses, including remittances to owners, of $576 million and
$527 million for the three-month periods ended March 31, 1997 and 1996,
respectively.
NOTE 3: ACQUISITION
Effective December 18, 1996, the Company completed the merger of Bally
Entertainment Corporation (Bally) with and into the Company pursuant to an
agreement dated June 6, 1996. The Company's consolidated results of operations
have incorporated Bally's activity from the effective date of the merger. The
following unaudited pro forma information has been prepared assuming that this
acquisition had taken place on January 1, 1996. This pro forma information does
not purport to be indicative of future results or what would have occurred had
the acquisition been made as of that date.
Three months ended
March 31,
(in millions, except per share amounts) 1997 1996
---- ----
(pro forma)
Revenue $ 1,303 1,239
Operating income 157 132
Net income 68 55
Net income per share .26 .21
<PAGE>
NOTE 4: ITT OFFER
In January 1997, the Company commenced an offer to acquire ITT Corporation (ITT)
in a combination cash and stock transaction. The Company offered a price of $55
for each ITT share, for a consideration of approximately $6.5 billion. The
total transaction, including assumption of ITT's outstanding debt, would be
valued at approximately $10.5 billion. The Company's offer consists of a cash
tender offer of $55 per share for a majority of the outstanding ITT shares (the
ITT Tender Offer), to be followed by a merger whereby ITT shareholders would
receive shares of the Company's common stock, par value $2.50 per share, with a
value of $55 in exchange for each remaining ITT share, subject to appropriate
collar provisions. The Company plans to fund the ITT Tender Offer from a
combination of its available cash, working capital, existing credit facilities,
borrowings under credit facilities that the Company will seek to obtain from
commercial banks and/or the issuance of public debt. The Company has reached a
preliminary understanding with HFS Incorporated (HFS) under which HFS would
license, on a long-term worldwide basis, the Sheraton trademark, franchise
systems and management agreements. The acquisition would be subject to
regulatory approvals and other conditions, and therefore there can be no
assurance that the Company would be successful in acquiring ITT, or if
successful, what effect such acquisition would have on the Company's financial
condition or results of operations.
On February 12, 1997, the board of directors of ITT recommended that the ITT
shareholders reject the Company's offer as inadequate and not in the best
interests of ITT shareholders. In response, the Company expressed its
continuing commitment to the transaction, including pursuing the transaction by
taking the matter directly to ITT shareholders.
NOTE 5: SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended
March 31,
1997 1996
---- ----
(in millions)
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 38 24
Income taxes 6 2
NOTE 6: INVESTMENTS
Summarized operating results of the Company's equity investments are as follows:
Three months ended
March 31,
1997 1996
---- ----
(in millions)
Revenue $ 236 353
Expenses 190 291
Net Income 42 53
<PAGE>
NOTE 7: SUPPLEMENTAL SEGMENT DATA
Supplemental hotel segment data for the three months ended March 31, 1997 and
1996 are as follows:
Three months ended
March 31,
1997 1996
---- ----
(in millions)
Revenue
Rooms $ 381 359
Food and beverage 178 166
Franchise fees 12 10
Other products and services 96 81
----- ----
667 616
----- ----
Expenses
Rooms 99 101
Food and beverage 134 125
Other expenses, including
remittances to owners 349 335
----- ----
582 561
----- ----
Hotel operating income $ 85 55
----- ----
----- ----
Supplemental gaming segment data for the three months ended March 31, 1997 and
1996 are as follows:
Three months ended
March 31,
1997 1996
---- ----
(in millions)
Revenue
Rooms $ 79 67
Food and beverage 66 49
Casino 450 200
Other products and services 41 25
----- ----
636 341
----- ----
Expenses
Rooms 29 22
Food and beverage 56 40
Casino 242 112
Other expenses, including
remittances to owners 224 134
----- ----
551 308
----- ----
Gaming operating income $ 85 33
----- ----
----- ----
NOTE 8: SUBSEQUENT EVENTS
On April 15, 1997, the Company issued $375 million of 10-year senior unsecured
notes. The notes will mature on April 15, 2007 and carry an interest rate of
7.95%. The Company used the proceeds to repay a portion of its outstanding
revolving credit facility.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---- ----
EBITDA (1) (in millions)
<S> <C> <C>
Hotels $ 111 79
Gaming 133 54
Corporate (13) (6)
----- -----
Total $ 231 127
----- -----
----- -----
Net cash provided by operating activities $ 118 94
Net cash used in investing activities (172) (29)
Net cash provided by (used in) financing activities 42 (149)
Capital expenditures 139 32
Additional investments 77 15
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation,
amortization and non-cash charges. EBITDA is presented
supplementally because management believes it allows for a
more complete analysis of results of operations. This
information should not be considered as an alternative to
any measure of performance or liquidity as promulgated under
generally accepted accounting principles nor should it be
considered as an indicator of the overall financial
performance of the Company.
Total EBITDA for the 1997 quarter was $231 million, an increase of $104
million over the 1996 quarter. The increase was attributable to the 1996
acquisitions of Bally Entertainment Corporation (Bally) and the majority of
The Prudential Insurance Company of America's (Prudential) interests in six
full-service hotel properties, as well as continued improvement in EBITDA and
revenue per available room (REVPAR) at the Company's large full-service
hotels. The 1997 quarter also benefited from a return to a more normalized
baccarat win percentage at the Las Vegas Hilton.
CAPITAL SPENDING
New developments and refurbishment programs are continually underway at the
Company's hotel and casino properties. Construction projects at a number of
Company properties continued during the 1997 period. Ongoing construction of
the new 300-room tower at The Atlantic City Hilton will increase its
<PAGE>
capacity by nearly 60 percent. This $50 million project is expected to be
completed by July 1997. The Company is nearing completion of "Wild Wild
West," a new western-themed casino scheduled to open in July 1997. This $110
million project is located on approximately four acres of boardwalk property
adjacent to Bally's Park Place and will feature a 70,000 square foot casino
complex.
Construction continues on "Star Trek: The Experience at the Las Vegas Hilton,"
an adult-oriented attraction being developed in collaboration with Paramount
Parks, Inc. This project will include the addition of a new 22,000 square foot
themed casino and is scheduled to open in late summer 1997. The Company's share
of costs for this project will total approximately $70 million.
Construction also continues on schedule at the approximately 43% owned Conrad
International Punta del Este Resort and Casino in Punta del Este, Uruguay. This
$193 million project includes a 38,000 square foot casino, which opened in
January 1997, and a 300-room luxury hotel which is scheduled to open in late-
1997. As of March 31, 1997, the Company has provided $67 million in debt
financing for this project.
In April 1997, the Company began construction on the $750 million, 2,900-room
Paris Casino-Resort which will feature an 85,000 square foot casino, nine theme
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 spring of 1999.
In addition to the estimated $380 million in 1997 expenditures related to the
aforementioned gaming projects, the Company anticipates spending
approximately $130 million in the gaming segment in 1997 on normal capital
replacements, structural and technology upgrades and ADA/safety compliance
projects. Improvement projects, that are evaluated using the Company's ROI
criteria, are expected to total approximately $20 million.
<PAGE>
Growth in the hotel segment continues through selective acquisition of large
full-service hotels in major market locations. In February 1997, the Company
acquired the 591-room Anchorage Hilton hotel in Anchorage, Alaska for
approximately $67 million. The Company expects to invest an additional $3
million to renovate certain areas of the hotel.
Also in February 1997, the Company sold its 30 percent interest in the Conrad
International Hong Kong for approximately $100 million plus the assumption of
$12 million of existing debt. The transaction resulted in a $70 million
gain which will be amortized over the remaining life of the existing management
contract.
The Company expects to make further acquisitions in 1997. In addition, the
Company intends to spend approximately $75 million in the hotel segment on
normal capital replacements, upgrades and compliance projects. Improvement
projects, which are subject to strict ROI analysis, are expected to total
approximately $10 million.
The estimated 1997 expenditures required to complete the aforementioned projects
and capital spending programs will be financed through available cash flows and
general corporate borrowings.
SIGNIFICANT NEW DEVELOPMENTS
In January 1997, the Company commenced an offer to acquire ITT Corporation (ITT)
in a combination cash and stock transaction. The Company offered a price of $55
for each ITT share, for a consideration of approximately $6.5 billion. The
total transaction, including assumption of ITT's outstanding debt, would be
valued at approximately $10.5 billion. The Company's offer consists of a cash
tender offer of $55 per share for a majority of the outstanding ITT shares (the
ITT Tender Offer), to be followed by a merger whereby ITT shareholders would
receive shares of the Company's common stock, par value $2.50 per share, with a
value of $55 in exchange for each remaining ITT share, subject to appropriate
collar provisions. The Company plans to fund the ITT Tender Offer from a
combination of its available cash, working capital, existing credit facilities,
borrowings under credit facilities that the Company will seek to obtain from
commercial banks and/or the issuance of public debt. The Company has reached a
<PAGE>
preliminary understanding with HFS Incorporated (HFS) under which HFS would
license, on a long-term worldwide basis, the Sheraton trademark, franchise
systems and management agreements. The acquisition would be subject to
regulatory approvals and other conditions, and therefore there can be no
assurance that the Company would be successful in acquiring ITT, or if
successful, what effect such acquisition would have on the Company's financial
condition or results of operations.
On February 12, 1997, the board of directors of ITT recommended that the ITT
shareholders reject the Company's offer as inadequate and not in the best
interests of ITT shareholders. In response, the Company expressed its
continuing commitment to the transaction, including pursuing the transaction by
taking the matter directly to ITT shareholders.
LONG-TERM DEBT
Long-term debt at March 31, 1997 totaled $2.7 billion, compared with $2.6
billion at December 31, 1996. In February 1997, the Company redeemed its 6%
Convertible Subordinated Notes due 1998 and its 10% Convertible Subordinated
Notes due 2006. These notes, formerly obligations of Bally, had outstanding
principal balances of $1 million and $70 million, respectively.
At March 31, 1997, approximately $833 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility supported the
issuance of commercial paper and $800 million was outstanding, leaving
approximately $117 million of the revolving bank debt facility available to the
Company at such date.
The Company has an effective shelf registration statement (the Shelf) on file
with the Securities and Exchange Commission registering up to $1 billion in
debt or equity securities. On April 15, 1997, the Company issued $375 million
of 10-year senior unsecured notes under the Shelf. The notes will mature on
April 15, 2007 and carry an interest rate of 7.95%. The Company used the
proceeds from the offering to repay a portion of its revolving credit facility.
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1997 AND 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended March 31, 1997 and 1996 is a follows:
(in millions, except per share amounts) 1997 1996 % Change
---- ---- --------
Revenue $ 1,303 957 36%
EBITDA 231 127 82%
Operating income 157 79 99%
Net income 68 37 84%
Net income per share .26 .19 37%
HOTELS
Hotel revenue for the 1997 quarter was $667 million, an increase of 8 percent
over 1996. EBITDA from the hotel division was $111 million for the 1997 first
quarter, a 41 percent increase, compared to $79 million a year ago, while hotel
operating income increased 55 percent to $85 million from $55 million last year.
Hotel industry fundamentals remain strong, particularly in the full-service
segment. The Company continues to benefit from a supply-demand imbalance at
most of its major full-service properties. In addition, the hotel division
benefited from increased ownership interests in six full-service hotels in
Chicago, New York, San Francisco and Washington D.C. acquired from Prudential in
the 1996 fourth quarter. Occupancy for hotels owned or managed was 71.8 percent
in 1997 compared to 71.6 percent in 1996. The average room rate increased eight
percent to $146.66 from $136.38 in the prior year.
EBITDA from the Company's ten major full-service properties increased $20
million over the prior year quarter. Of this increase, approximately $11
million resulted from the increased ownership interests acquired from
Prudential and the balance was due to improved operations. Combined EBITDA
from the Waldorf=Astoria and the New York Hilton & Towers increased $2
million over the 1996 first quarter. Growth in individual business traveler
and leisure guest volume contributed to a combined REVPAR increase at these
two properties of 12 percent over the 1996 quarter. EBITDA at the San
Francisco Hilton & Towers increased $4 million due primarily to an increase
of 110 percent in convention guest volume which contributed to an 18 percent
increase in average room rate and a six point increase in occupancy.
Occupancy for these ten major full-service hotels (which also includes
properties in Chicago, Honolulu, New Orleans and Washington D.C.) was 73.9
percent versus 71.5 percent in the 1996 quarter. The average room rate
increased to $160.81 in the 1997 first quarter from $150.31 and REVPAR
improved 11 percent between periods.
<PAGE>
Strong industry fundamentals led to a 12 percent increase in REVPAR at the
Company's other full-service domestic owned and equity properties. These
properties, typically located in large secondary markets and suburban
locations, generated a $4 million increase in EBITDA over the
prior year quarter.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of equity investments, increased $2 million to $26
million in the first quarter of 1997 compared to prior year.
Although the supply-demand balance generally remains favorable, future operating
results could be adversely impacted by increased capacity and weak demand.
These conditions could limit the Company's ability to pass through inflationary
increases in operating costs in the form of higher rates. Increases in
transportation and fuel costs or sustained recessionary periods could also
unfavorably impact future results. However, the Company believes that its
financial strength, market presence and diverse product line will enable it to
remain extremely competitive.
<PAGE>
GAMING
Total gaming revenue increased 87 percent in the 1997 first quarter to $636
million from $341 million in 1996. Casino revenue, a component of gaming
revenue, increased 125 percent to $450 million in 1997 compared to $200
million in the prior year. EBITDA from the gaming division was $133 million
compared to $54 million in the prior year first quarter and gaming operating
income increased 158 percent to $85 million from $33 million in the 1996
first quarter. The Company's gaming division benefited from the addition of
the Bally properties in Las Vegas, Atlantic City, Mississippi and New
Orleans, along with improved results at the Las Vegas Hilton. Gaming revenue,
casino revenue, EBITDA and operating income increased $276 million, $218
million, $68 million and $48 million, respectively, as a result of the Bally
aquisition.
EBITDA at the Las Vegas Hilton increased $20 million from the prior year,
primarily due to a significant increase in volume of its premium play baccarat
business coupled with a normalized win percentage. Baccarat drop increased 90%
over prior year's first quarter and the baccarat win percentage increased 18
points from a lower than normal win percentage in the 1996 first quarter.
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.
The completion of a number of room expansion projects and the opening of a
new casino led to a 12 percent increase in room supply in Las Vegas during
the first quarter. These new capacity additions impacted the Flamingo
Hilton-Las Vegas in terms of lower table game and slot volume in the casino
and a four point decrease in hotel occupancy. As a result, EBITDA at the
Flamingo Hilton-Las Vegas decreased $3 million from the prior year quarter.
Bally's Las Vegas generated EBITDA of $27 million in the first quarter of
1997. This property's results were not included in the 1996 first quarter.
Although REVPAR at Bally's Las Vegas decreased due to increased competition,
results remained consistent with the prior year due mainly to a 21% increase
in slot revenue.
A generally soft market continues to affect the Flamingo Hilton - Laughlin,
which posted a $2 million decrease in EBITDA. Combined EBITDA from the Reno
Hilton and the Flamingo Hilton - Reno decreased $4 million from the 1996
quarter. Both Reno properties recorded significantly lower occupancy due to
the effects of adverse weather conditions in the 1997 quarter.
<PAGE>
Occupancy for the Nevada hotel-casinos was 88.5 percent in the 1997 quarter
compared to 91.9 percent last year. The average room rate for the Nevada
properties was $76.56 compared to $76.73 in the 1996 first quarter. The 1996
statistical information includes the results of Bally's Las Vegas for
comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $30 million and $5 million, respectively, in the 1997 quarter.
While not included in the Company's results last year, EBITDA at these
properties totaled $29 million and $10 million, respectively, in the 1996
first quarter. The decrease at The Atlantic City Hilton was due primarily to
a three point decrease in table game win percentage.
Occupancy and average room rate for the Atlantic City hotel-casinos was 89.9
percent and $78.56, respectively, in the 1997 first quarter. Although not
included in the Company's 1996 first quarter, occupancy and average room rate
was 89.9 percent and $79.85, respectively.
The Company's newly opened casino, the approximately 43% owned Conrad
International Punta del Este Resort and Casino in Punta del Este, Uruguay,
contributed $4 million to gaming division EBITDA in the first quarter of 1997.
Depreciation and amortization for the gaming division, including the Company's
proportionate share of equity investments, increased $27 million to $48 million
in the first quarter of 1997 compared to prior year. Approximately 85 percent
of this increase resulted from the addition of the Bally properties, the
Flamingo Casino Kansas City and the Conrad International Punta del Este Resort
and Casino.
The gaming industry continues to experience growth primarily in existing
markets. The Las Vegas and Atlantic City markets are becoming increasingly
competitive due to new developments and expansion projects which challenge
the Company's existing market share. These projects could adversely impact
the Company's future gaming income.
CORPORATE EXPENSE
Corporate expense increased $4 million to $13 million in the 1997 first quarter.
The 1997 period includes a $3 million charge for stock-based compensation
related to the 1996 Chief Executive Stock Incentive Plan.
<PAGE>
FINANCING ACTIVITIES
Interest and dividend income totaled $13 million in the 1997 period compared
to $7 million in 1996. The 1997 period includes approximately $3 million in
interest income on the Company's investment in the 11.75% First Mortgage Notes
due 2002 of Claridge Hotel and Casino Corporation. Consolidated interest
expense increased $22 million to $43 million primarily due to additional debt
resulting from the Bally acquisition.
INCOME TAXES
The effective income tax rate for the 1997 period increased to 41 percent
compared to 39 percent for the 1996 period due to the additional goodwill
recorded as a result of the Bally acquisition which is not deductible for tax
purposes. 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 primarily results from the consolidation of the
approximately 84% owned Bally's Las Vegas and the approximately 67% owned New
Orleans Hilton Riverside & Towers.
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997 and earlier application is not permitted. The Company's
adoption of SFAS No. 128 is not expected to have a material impact on its
earnings per share presentation.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance, and are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although the Company
believes the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
<PAGE>
PART II OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on Thursday, May 8, 1997 at
the Beverly Hilton in Beverly Hills, California. Approximately 93
percent of the eligable shares were voted.
The following were elected to the Company's Board of Directors for a
three year term expiring in 2000: Peter M. George, Barron Hilton, Robert
L. Johnson, and Sam D. Young, Jr., each of whom received approximately
99 percent of the votes cast.
The stockholders voted to amend Article X of the Company's Restated
Certificate of Incorporation to add the definition of the term
"Securities." Approximately 99 percent of the votes cast were voted for
such proposal.
The stockholders voted to amend the Company's 1996 Stock Incentive Plan
to increase the number of shares of the Company's Common Stock
authorized for issuance from 6,000,000 to 12,000,000 shares.
Approximately 93 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 1997 was adopted by 99 percent of
the votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Release Agreement dated as of March 5, 1997 between the Company and
Eric M. Hilton.
27. Financial data schedule for the three month period ended March 31,
1997.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K dated January 21, 1997, under Item 5
Other Events to report results for both the fourth quarter and the year
ended December 31, 1996.
The Company filed a Report on Form 8-K dated April 14, 1997, under Item 5
Other Events to report that the Company entered into a Purchase Agreement
with Merrill Lynch & Co. and other underwriters named therein, with respect
to the issuance and sale of the $375,000,000 7.95% Senior Notes due 2007.
The Company filed a Report on Form 8-K dated April 15, 1997, under Item 5
Other Events to report that the Company and BNY Western Trust Company, as
trustee, have authorized and executed an Indenture dated as of April 15,
1997. The Indenture, together with the Officer's Certificate of the
Registrant, establishes the form and terms of the $375,000,000 7.95% Senior
Notes due 2007.
<PAGE>
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 14, 1997 /S/ MATTHEW J. HART
----------------------------
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: May 14, 1997 /S/ WILLIAM B. REES
----------------------------
William B. Rees
Vice President and Assistant
General Counsel
<PAGE>
Exhibit 10.1
RELEASE AGREEMENT
This Release Agreement (hereinafter referred to as "Agreement") is made
and entered into by and between ERIC M. HILTON, his agents, representatives,
attorneys, assigns, heirs, executors and administrators (hereinafter
collectively referred to as "Eric"), and HILTON HOTELS CORPORATION, its
predecessors, successors, subsidiaries, divisions, affiliates,
representatives, attorneys, directors, officers, trustees, agents and
employees (hereinafter collectively referred to as "Hilton").
In consideration of the monies, mutual promises and covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I. RETIREMENT
Eric agrees that his last day of active employment with Hilton will be
March 31, 1997 and that he will begin his pension benefits effective July 1,
1998.
II. PAYMENT OF VACATION DAYS
Hilton will pay to Eric a sum equal to the amount representing all
accrued and unused vacation days due to Eric as of March 31, 1997, subject to
the maximum number of days set forth in Hilton's vacation policy.
III. AUTOMOBILE
Ownership of that certain automobile described as a 1995 Lexus SC-400,
vehicle identification number JT8UZ30C8S0045353 will be forthwith transferred
from Hilton to Eric, and Eric agrees to be responsible for all maintenance,
operating expenses, and insurance coverage thereof as of July 1, 1998. Eric
agrees to pay any and all applicable taxes due on the remaining unamortized
residual value of the vehicle, if any.
<PAGE>
IV. VALUABLE CONSIDERATION OF RELEASE
(a) If Eric signs and does not revoke this Agreement, in consideration
of the promises made by the parties herein, Hilton will make payments to Eric
as follows:
(1) a lump sum equal to Two hundred nineteen thousand dollars and
no cents ($219,000), subject to legally required withholding deductions,
payable no later than April 15, 1997; and a lump sum equal to Four
hundred fifty one thousand dollars and no cents ($451,000) subject to
legally required withholding deductions, payable after January 1, 1998
but no later than January 31, 1998; and
(2) The sum of One hundred seventy four thousand seven hundred and
fifty two dollars and no cents ($174,752) subject to legally required
withholding deductions, payable in four (4) equal installments of Forty
three thousand six hundred and eighty eight dollars and no cents
($43,688) each on March 31, 1998, June 30, 1998, September 30, 1998, and
December 31, 1998. This payment represents the retainer fee to be paid
to Eric for consulting services to be rendered during the 1998 calendar
year.
(b) Hilton and Eric agree that Eric's right to continue medical and
dental coverage under the Hilton Group Benefit Plan as provided by COBRA
shall begin on April 1, 1997. Hilton further agrees to reimburse Eric for his
COBRA medical and dental premium payments for a period of the earlier of (i)
fifteen (15) months beginning April 1, 1997, or (ii) until Eric becomes
eligible to receive medical and/or dental benefits under another
employer-sponsored health benefits plan. Eric's participation in all Hilton
benefit plans and programs, including but not limited to, medical, dental
and other benefits under the Hilton Group Benefit Plans, the Hilton Thrift
Plan, Stock Purchase Plan, Executive Deferred Compensation Plan, Hilton's
Stock Option Plan, and vacation accrual will terminate effective March 31,
1997.
(c) Hilton agrees to provide for the transfer of the title of the
membership in the Spanish Trail Country Club in Las Vegas, Nevada, from
Hilton to Eric and to pay any transfer fees associated with such title change.
(d) Hilton further agrees to pay the cost of moving Eric's personal
effects from his offices in Beverly Hills and Las Vegas to his home in Las
Vegas. Hilton also agrees to pay Eric an amount equal to the actual cost to
cover the cost of the moving of his personal effects from Las Vegas, Nevada
to Houston, Texas. In no event, however, shall Hilton be required to pay any
amount that exceeds Fifteen thousand dollars and no cents ($15,000). This
provision shall only be applicable in the event such move occurs between
April 1, 1997 and August 1, 1998.
(e) The foregoing payment and other benefits are in full, final and
complete settlement of any and all claims, actions, damages, attorney's fees,
and/or costs which may now or hereinafter exist against Hilton arising out of
or relating to Eric's employment with
<PAGE>
Hilton. Eric agrees that the monies and other benefits described above are
above and beyond consideration to which he would otherwise have been entitled
and that this consideration constitutes extra payment in exchange for signing
this Agreement.
V. RELEASE OF ALL CLAIMS
By signing this Agreement and receiving the valuable consideration
described above, Eric hereby releases and discharges the Hilton
Indemnities/Releases, and Hilton hereby releases and discharges Eric from
any and all actions, complaints, causes of action, grievances, claims,
damages, obligations, debts, promises, losses, demands, wages, bonuses,
benefits, actual damages, compensatory damages, severance pay, mental
anguish, pain, humiliation, emotional distress, exemplary and/or punitive
damages, statutory penalties, and/or any other liabilities of any kind which
have been or could be asserted against the Hilton Indemnities/Releases
arising out of or relating in any way to Eric's employment with Hilton,
and/or any other occurrence up to and including the dates of this Agreement,
whether presently asserted or otherwise, including but not limited to:
(a) claims, demands, actions or liability arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
as amended, the Civil Rights Act of 1991, the Americans With Disabilities
Act, the Family and Medical Leave Act, the Employee Retirement Income
Security Act, the Rehabilitation Act of 1973, the California Fair Employment
and Housing Act and/or any other federal, state or local statute, ordinance
or regulation (including but not limited to claims based on race, age, sex,
sexual preference, marital status, religion, national origin, disability,
retaliation, attainment of benefit plan rights and veteran status), and/or
(b) claims, demands, actions or liability on the basis of any common
law, tort, contract, implied contract, breach of implied covenant of good
faith and fair dealing, public policy, wrongful or retaliatory discharge,
defamation, intentional infliction of emotional distress, negligence, and/or
(c) claims, demands, actions or liability relating to any Hilton Bonus
Plans, and/or
(d) claims, demands, actions or liability relating to the Hilton
Retirement Plan, and/or
(e) any other common law, statutory or other claim whatsoever arising
out of or relating to Eric's employment with Hilton and/or any other
occurrence up to and including the date of this Agreement, except such claims
which by law cannot be waived and the filing of an administrative charge.
For the purpose of implementing a full and complete release and discharge
of all parties, Eric and Hilton each expressly acknowledge that this Agreement
is also intended
<PAGE>
to include in its effect, without limitation, all claims which it or he does
not know or expect to exist in its or his favor at the time of the execution
hereof and the parties agree that this Agreement contemplates the
extinguishment of any such claim, or claims. In this connection, Eric and
Hilton each expressly waive and relinquish all rights and benefits afforded
by Section 1542 of the Civil Code of California and do so understanding and
acknowledging the significance and consequences of such specific waiver of
said provisions of law. Section 1542 of the Civil Code of California states
as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
In the event either party breaches this Agreement by suing the other in
violation of this paragraph, such party shall be required to pay the other's
litigation costs (including its reasonable attorney's fees and costs)
associated with defending against such party's lawsuit or other claim.
VI. CONFIDENTIALITY AND NON-DISPARAGEMENT
Hilton and Eric agree that, as a condition of this Agreement, the fact
of and terms and provisions of this Agreement are to remain strictly
confidential and shall not be disclosed to any other person except to
members of Eric's immediate family, his attorney and his tax/financial
advisors. Eric further agrees that he will make no negative or disparaging
statements, either written or oral, regarding Hilton. Likewise, Hilton agrees
that it will make no negative or disparaging statements, either written or
oral, regarding Eric. This paragraph will survive the termination or
expiration of this Agreement.
VII. COOPERATION
Eric agrees to cooperate with Hilton Hotels Corporation or any of the
other Releasees in any litigation or administrative proceedings involving any
matters with which Eric was involved during his Hilton employment. Hilton
Hotels Corporation agrees to reimburse Eric for reasonable travel and
out-of-pocket expenses, if any, approved by Hilton Hotels Corporation or any
of the other Releasees incurred in providing such assistance. Eric's
obligations under this paragraph are subject to the following:
(a) that no reasonably foreseeable negative effect to Eric's
employment, if he be then employed, will result, and
<PAGE>
(b) that after the 1998 calendar year, Hilton Hotels Corporation and
Eric agree to reasonable compensation for time devoted by Eric in carrying
out his obligations hereunder. In determining "reasonable compensation" as
used in this paragraph, the parties agree that compensation being paid to
Eric by his employer, if he be then employed, will be taken into account.
Eric shall be entitled to the indemnification provided pursuant to
Hilton's corporate by-laws, specifically Section 35 thereof, a copy of which
section is attached to this Agreement.
VIII. ENTIRE AGREEMENT AND SEVERABILITY
Hilton and Eric agree that this Agreement sets forth the entire
agreement between the parties and supersedes any written or oral
understandings. Other than as stated herein, Hilton and Eric acknowledge and
agree that no promise or inducement has been offered for the Agreement and no
other promises or agreements shall be binding unless reduced to writing and
signed by the parties.
Hilton and Eric agree that, to the extent that any portion or covenant
of this Agreement may be held to be invalid or legally unenforceable by a
court of competent jurisdiction, the remaining portions of this Agreement
shall not be affected and shall be given full force and effect. This Agreement
shall survive a change of control, a division of operating units into
separate entities, a merger, or any other substantial reorganization of
Hilton.
IX. KNOWING AND VOLUNTARY RELEASE
(a) Eric hereby acknowledges and agrees that Hilton has advised him to
consult with an attorney regarding the subject matter of this Release
Agreement prior to executing this Agreement.
(b) Eric further acknowledges and agrees that he has been given at
least twenty-one (21) days from the date he receives the Agreement within
which to consider this Agreement before signing below. Eric acknowledges that
he has read this Agreement and the release contained herein and understands
all of the terms hereof, that he has not been coerced, threatened or
intimidated into signing this Agreement, and that he executes this Agreement
voluntarily and with full knowledge of its meaning and consequences.
<PAGE>
(c) Eric agrees and understands that he may revoke this Agreement
within seven (7) days after he signs the Agreement and that the Agreement
shall not become effective or enforceable until eight (8) days after the date
on which Eric signs the Agreement. Any revocation must be in writing and
directed to James M. Anderson.
HILTON HOTELS CORPORATION
/s/ Eric M. Hilton By /s/ James M. Anderson
- ----------------------------- ----------------------------------
Eric M. Hilton
James M. Anderson
Senior Vice President
Date: 3-5-97 Labor Relations & Personnel Administration
----------------------
<TABLE> <S> <C>
<PAGE>
<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> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 376
<SECURITIES> 26
<RECEIVABLES> 419
<ALLOWANCES> 39
<INVENTORY> 81
<CURRENT-ASSETS> 1,058
<PP&E> 5,918
<DEPRECIATION> 1,072
<TOTAL-ASSETS> 7,685
<CURRENT-LIABILITIES> 922
<BONDS> 2,732
0
15
<COMMON> 627
<OTHER-SE> 2,635
<TOTAL-LIABILITY-AND-EQUITY> 7,685
<SALES> 1,303
<TOTAL-REVENUES> 1,303
<CGS> 0
<TOTAL-COSTS> 1,126
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 123
<INCOME-TAX> 51
<INCOME-CONTINUING> 68
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
