<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1997 - Common Stock, $2.50 par value -
250,313,615 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 Nine months ended
September 30, September 30,
1997 1996 1997 1996
- - ----------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenue Rooms $ 470 418 1,432 1,294
Food and beverage 221 184 721 620
Casino 471 223 1,369 626
Franchise fees 13 11 40 33
Other products and services 139 107 415 331
---------------------------------------------------------------------- ---------------------
1,314 943 3,977 2,904
- - ----------------------------------------------------------------------------------------- ---------------------
Expenses Rooms 133 126 393 377
Food and beverage 184 155 569 490
Casino 259 111 743 329
Other expenses, including
remittances to owners 526 435 1,665 1,378
Corporate expense 14 15 49 37
---------------------------------------------------------------------- ---------------------
1,116 842 3,419 2,611
- - ----------------------------------------------------------------------------------------- ---------------------
Operating income 198 101 558 293
Interest and dividend income 11 9 34 25
Interest expense (43) (16) (131) (55)
Interest expense, net, from equity investments (4) (2) (13) (9)
- - ----------------------------------------------------------------------------------------- ---------------------
Income before income taxes
and minority interest 162 92 448 254
Provision for income taxes 66 37 184 100
Minority interest, net 2 1 9 4
- - ----------------------------------------------------------------------------------------- ---------------------
Net income $ 94 54 255 150
- - ----------------------------------------------------------------------------------------- ---------------------
- - ----------------------------------------------------------------------------------------- ---------------------
Net income available to
common stockholders $ 91 54 245 150
- - ----------------------------------------------------------------------------------------- ---------------------
- - ----------------------------------------------------------------------------------------- ---------------------
Net income per share $ .36 .28 .98 .77
- - ----------------------------------------------------------------------------------------- ---------------------
- - ----------------------------------------------------------------------------------------- ---------------------
Average number
of shares 252 197 251 195
- - ----------------------------------------------------------------------------------------- ---------------------
- - ----------------------------------------------------------------------------------------- ---------------------
</TABLE>
1
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 347 388
Temporary investments 24 50
Other current assets 647 713
---------------------------------------------------------------------------
Total current assets 1,018 1,151
Investments 469 373
Property and equipment, net 5,003 4,698
Goodwill 1,285 1,295
Other assets 120 100
---------------------------------------------------------------------------
Total assets $ 7,895 7,617
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 856 894
Current maturities of long-term debt 24 101
Income taxes payable 22 3
---------------------------------------------------------------------------
Total current liabilities 902 998
Long-term debt 2,770 2,606
Deferred income taxes and other liabilities 779 802
Stockholders' equity 3,444 3,211
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,895 7,617
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities Net income $ 255 150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 216 111
Amortization of debt issue costs 2 -
Change in working capital components:
Other current assets 46 54
Accounts payable and accrued expenses 4 (23)
Income taxes payable 19 20
Change in deferred income taxes (33) (2)
Change in other liabilities (90) (13)
Distributions from equity investments
in excess of earnings 11 16
Other (16) 1
--------------------------------------------------------------------------
Net cash provided by operating activities 414 314
- - ------------------------------------------------------------------------------------------------
Investing activities Capital expenditures (384) (167)
Additional investments (123) (70)
Change in temporary investments 1 17
Proceeds from property transactions 100 -
Payments on notes and other investments 36 1
Acquisitions, net of cash acquired (124) -
--------------------------------------------------------------------------
Net cash used in investing activities (494) (219)
- - ------------------------------------------------------------------------------------------------
Financing activities Change in commercial paper borrowings
and revolving loans (815) (457)
Long-term borrowings 994 490
Reduction of long-term debt (94) (217)
Issuance of common stock 24 23
Cash dividends (70) (44)
--------------------------------------------------------------------------
Net cash provided by (used in) financing activities 39 (205)
- - ------------------------------------------------------------------------------------------------
Decrease in cash and equivalents (41) (110)
Cash and equivalents at beginning of year 388 433
- - ------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 347 323
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATIONS
(dollars in millions, except average rate amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue Hotels $ 654 586 2,043 1,859
Gaming 660 357 1,934 1,045
-------------------------------------------------------------------------------------------
Total $ 1,314 943 3,977 2,904
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Operating Hotels $ 113 72 338 210
income Gaming 99 44 269 120
Corporate expense (14) (15) (49) (37)
-------------------------------------------------------------------------------------------
Total 198 101 558 293
Net interest expense (36) (9) (110) (39)
Provision for income taxes (66) (37) (184) (100)
Minority interest, net (2) (1) (9) (4)
- - ---------------------------------------------------------------------------------------------------------
Net income $ 94 54 255 150
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Occupancy Hotels 77.7% 76.8 76.0 75.1
Gaming 86.2 88.7 87.1 89.6
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Average rate Hotels $138.43 129.06 143.08 132.82
Gaming 76.87 67.77 78.12 71.87
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997 September 30, 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 23,798 - 32 23,580 -
Managed 27 15,797 - 26 15,849 -
Franchised 177 44,716 - 170 43,279 -
------------------------------------------------------------------------------------------------------
Total hotels 236 84,311 - 228 82,708 -
Gaming Owned, partially owned and
managed casinos and
hotel-casinos 16 17,288 1,038,000 10 12,782 626,000
- - ----------------------------------------------------------------------------------------------------------------
Total 252 101,599 1,038,000 238 95,490 626,000
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NET INCOME PER SHARE
The calculations of common and equivalent shares, net income available to
common stockholders and net income per share are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares outstanding
beginning of period 249,661,899 195,400,356 248,717,746 193,348,712
Net common shares issued/
issuable upon exercise
of certain stock
options 2,692,440 1,879,454 2,085,801 1,784,811
----------- ----------- ----------- -----------
Common and equivalent
shares 252,354,339 197,279,810 250,803,547 195,133,523
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (in millions) $ 94 $ 54 $ 255 $ 150
---- ----- ----- ------
---- ----- ----- ------
Preferred dividend
requirement (in millions) $ 3 $ - $ 10 $ -
---- ----- ----- ------
---- ----- ----- ------
Net income available to
common stockholders (in millions) $ 91 $ 54 $ 245 $ 150
---- ----- ----- ------
---- ----- ----- ------
Net income per share $ .36 $ .28 $ .98 $ .77
---- ----- ----- ------
---- ----- ----- ------
Dividends declared per share $ .08 $.075 $ .24 $ .225
---- ----- ----- ------
---- ----- ----- ------
</TABLE>
5
<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 and nine months ended September 30, 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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in millions) 1997 1996 1997 1996
---- ---- ----- -----
<S> <C> <C> <C> <C>
Revenue $ 424 530 1,395 1,674
Operating expenses, including
remittances to owners 393 489 1,295 1,550
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1997 At December 31, 1996
--------------------- --------------------
<S> <C> <C>
Current assets and current liabilities $ 323 344
</TABLE>
Included in the above balances are cash and equivalents of $133 and $115,
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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(in millions, except per share amounts) (pro forma) (pro forma)
Revenue $ 1,314 1,242 3,977 3,778
Operating income 198 172 558 482
Net income 94 89 255 229
Net income per share .36 .35 .98 .88
</TABLE>
6
<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, was valued at approximately $10.5 billion. The Company's offer
consisted 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.
On February 11, 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. On July 16, 1997, ITT
made an announcement that its board of directors had approved a corporate
restructuring of ITT. On August 6, 1997, the Company increased its cash
tender offer to acquire ITT shares from $55 per share to $70 per share for a
consideration of approximately $8.3 billion. The total transaction,
including assumption of ITT's outstanding debt, was valued at approximately
$11.5 billion. On August 14, 1997 the board of directors of ITT recommended
that the ITT shareholders reject the Company's second offer as inadequate.
On September 29, 1997, a U.S. Federal Judge ruled ITT must hold a shareholder
meeting to vote on its proposed corporate restructuring by November 14, 1997.
On October 20, 1997, ITT abandoned its corporate restructuring plan and
agreed to be acquired by Starwood Lodging Trust (Starwood) for $13.3 billion
in cash, stock and assumed debt.
On November 3, 1997, the Company increased its cash and stock offer. The
total transaction, including assumption of ITT's outstanding debt, would be
valued at approximately $12.8 billion. Under the terms of the revised bid,
the Company will tender for 55 percent of the outstanding ITT shares at $80
in cash. This will be followed by a second-step merger for the remainder of
the ITT shares with ITT shareholders receiving two shares of the Company's
common stock for every share of ITT stock. In addition, for each share of
the Company received in the merger, ITT shareholders will also receive a
contingent value preferred share guaranteeing that the stock price of the
Company will reach $40 per share within one year after the merger, or they
will be paid an additional amount equal to the difference between the
Company's common stock price and $40 per share up to a $12 per share maximum.
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 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 November 7, 1997, Starwood raised its offer for ITT to $85 per share or
approximately $13.7 billion in cash, stock and assumed debt. On November 10,
1997, the Company amended the ITT Tender Offer to automatically terminate
upon the final election of a majority of current directors of ITT at the ITT
1997 annual meeting of shareholders. Preliminary results of the meeting, held
November 12, 1997, indicate that the current directors of ITT have been
re-elected. On November 13, 1997, the Company terminated the ITT Tender Offer.
NOTE 5: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
---- ----
<S> <C> <C>
(in millions)
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 103 60
Income taxes 142 72
</TABLE>
7
<PAGE>
NOTE 6: SUPPLEMENTAL SEGMENT DATA
Supplemental hotel segment data for the three and nine months ended
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- -----
(in millions) (in millions)
<S> <C> <C> <C> <C>
Revenue
Rooms $ 392 357 1,189 1,098
Food and beverage 155 136 526 475
Franchise fees 13 11 40 33
Other products and services 94 82 288 253
------- ------- ------- -------
654 586 2,043 1,859
------- ------- ------- -------
Expenses
Rooms 104 104 307 310
Food and beverage 127 114 401 368
Other expenses, including
remittances to owners 310 296 997 971
------- ------- ------- -------
541 514 1,705 1,649
------- ------- ------- -------
Hotel operating income $ 113 72 338 210
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Supplemental gaming segment data for the three and nine months ended September
30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- -----
(in millions) (in millions)
<S> <C> <C> <C> <C>
Revenue
Rooms $ 78 61 243 196
Food and beverage 66 48 195 145
Casino 471 223 1,369 626
Other products and services 45 25 127 78
------- ------- ------- -------
660 357 1,934 1,045
------- ------- ------- -------
Expenses
Rooms 29 22 86 67
Food and beverage 57 41 168 122
Casino 259 111 743 329
Other expenses, including
remittances to owners 216 139 668 407
------- ------- ------- -------
561 313 1,665 925
------- ------- ------- -------
Gaming operating income $ 99 44 269 120
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
8
<PAGE>
NOTE 7: INVESTMENTS
Summarized operating results of the Company's equity investments are as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- -----
(in millions) (in millions)
<S> <C> <C> <C> <C>
Revenue $ 231 364 714 1,075
Expenses 196 268 586 863
Net income 31 87 117 188
</TABLE>
The 1997 periods reflect the Company's acquisition of the majority of The
Prudential Insurance Company of America's interests in six full-service hotel
properties which were accounted for as equity investments in the 1996 periods.
NOTE 8: LITIGATION
On June 13, 1997, Bally's Grand, Inc. (BGI), a subsidiary of the Company,
announced that it had reached an agreement to settle the IN RE: BALLY'S
GRAND, INC. SHAREHOLDERS LITIGATION presently pending in the Delaware Court
of Chancery. Prior to the settlement, the Company indirectly owned
approximately 84% of the common stock of BGI. Under the terms of the
settlement, BGI has repurchased 966,747 shares of its common stock and
102,698 warrants to purchase shares of its common stock from certain
plaintiffs at a price of $52.75 per share in cash for the common stock and
$52.75 less the exercise price per warrant in cash for the warrants. At
September 30, 1997, the Company indirectly owned approximately 95% of the
outstanding common stock of BGI.
On October 9, 1997, the Company received court approval of the settlement
agreement. On October 28, 1997, a sole shareholder appealed the court
approval of the settlement agreement. On November 7, 1997, the Delaware
Supreme Court granted the Company's motion for an expedited appeal. Upon
final resolution of the appeal, BGI would be merged with a subsidiary of the
Company, and the remaining 408,862 outstanding shares of BGI's common stock
not currently owned by Company would be converted into the right to receive
$52.75 (less certain attorneys' fees) per share in cash, and the 491,784
outstanding warrants to purchase BGI common stock not currently owned by the
Company would be converted into the right to receive the difference between
$52.75 (less certain attorneys' fees) and the exercise price per warrant in
cash.
NOTE 9: SUBSEQUENT EVENTS
On October 16, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. The terms of any securities offered pursuant to the shelf
registration statement will be determined by market conditions at the time of
issuance.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- -----
EBITDA (1) (in millions) (in millions)
<S> <C> <C> <C> <C>
Hotels $137 96 410 280
Gaming 153 66 422 186
Corporate expense (14) (14) (47) (33)
---- ---- ---- -----
Total $276 148 785 433
---- ---- ---- -----
---- ---- ---- -----
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net cash provided by operating activities $414 314
Net cash used in investing activities (494) (219)
Net cash provided by (used in) financing activities 39 (205)
Capital expenditures 384 167
Additional investments 123 70
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation,
amortization and non-cash items. EBITDA is presented
supplementally because management believes it allows for a
more complete analysis of results of operations. This
information should not be considered as an alternative to
any measure of performance or liquidity as promulgated under
generally accepted accounting principles (such as net income
or cash provided by or used in operating, investing and
financing activities) nor should it be considered as an
indicator of the overall financial performance of the
Company. The Company's calculation of EBITDA may be
different from the calculation used by other companies and
therefore comparability may be limited.
EBITDA for the 1997 third quarter was $276 million, an increase of $128
million over the 1996 quarter. The increase was attributable to continued
improvement in revenue per available room (REVPAR) and EBITDA margin growth
at the Company's owned and equity hotels, as well as 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.
CAPITAL SPENDING
New developments and refurbishment programs are continually underway at the
Company's hotel and casino properties. The Company opened its new
western-themed casino, "Wild Wild West," on July 1, 1997. This $110 million
project is located on approximately four acres of boardwalk property adjacent
to
10
<PAGE>
Bally's Park Place and features a 75,000 square foot casino complex. In late
July 1997, construction was completed on a new 300-room tower at The Atlantic
City Hilton. This $50 million project increases the property's room capacity
by nearly 60 percent.
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 "SpaceQuest" casino which is scheduled to open in November 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 approximately $200 million project includes a 38,000 square foot casino,
which opened in January 1997, and a 300-room luxury hotel which is opening in
stages over the latter half of 1997. As of September 30, 1997, the Company
has provided $88 million in debt financing for this project.
In April 1997, the Company began construction on the $760 million, 2,900-room
Paris Casino-Resort which will feature an 85,000 square foot casino, nine
themed 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 mid-1999.
In addition to an estimated $380 million in 1997 expenditures related to the
aforementioned gaming projects, the Company anticipates spending
approximately $100 million in the gaming segment in 1997 on normal capital
replacements, approximately $30 million on structural and technology upgrades
and ADA/safety compliance projects and approximately $20 million on
improvement projects that are evaluated on a ROI basis.
11
<PAGE>
The Company expects to continue to grow the hotel segment 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
510-room 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 is being amortized over the remaining life of the
existing management contract.
In July 1997, the Company's Board of Directors approved a renovation of the
New York Hilton & Towers, including a new main entrance, redesigned lobby and
guest registration area, a new conference and business center and a new
health club. This $58 million project is expected to be completed in late
1999.
In September 1997, the Company's Board of Directors approved development of a
new 600-room hotel at the center of Boston's Logan Airport. Construction on
this $100 million project will begin before the end of the year and is
expected to be completed in early 2000.
In addition to the aforementioned projects, 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.
12
<PAGE>
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, was valued at approximately $10.5 billion. The Company's offer
consisted 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.
On February 11, 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. On July 16, 1997, ITT made
an announcement that its board of directors had approved a corporate
restructuring of ITT. On August 6, 1997, the Company increased its cash
tender offer to acquire ITT shares from $55 per share to $70 per share for a
consideration of approximately $8.3 billion. The total transaction, including
assumption of ITT's outstanding debt, was valued at approximately $11.5
billion. On August 14, 1997 the board of directors of ITT recommended that the
ITT shareholders reject the Company's second offer as inadequate. On September
29, 1997, a U.S. Federal Judge ruled ITT must hold a shareholder meeting to
vote on its proposed corporate restructuring by November 14, 1997. On October
20, 1997, ITT abandoned its corporate restructuring plan and agreed to be
acquired by Starwood Lodging Trust (Starwood) for $13.3 billion in cash,
stock and assumed debt.
On November 3, 1997, the Company increased its cash and stock offer. The total
transaction, including assumption of ITT's outstanding debt, would be valued at
approximately $12.8 billion. Under the terms of the revised bid, the Company
will tender for 55 percent of the outstanding ITT shares at $80 in cash. This
will be followed by a second-step merger for the remainder of the ITT shares
with ITT shareholders receiving two shares of the Company's common stock for
every share of ITT stock. In addition, for each share of the Company received
in the merger, ITT shareholders will also receive a contingent value
13
<PAGE>
preferred share guaranteeing that the stock price of the Company will reach
$40 per share within one year after the merger, or they will be paid an
additional amount equal to the difference between the Company's common stock
price and $40 per share up to a $12 per share maximum. 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 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 November 7, 1997, Starwood raised its offer for ITT to $85 per share or
approximately $13.7 billion in cash, stock and assumed debt. On November 10,
1997, the Company amended the ITT Tender Offer to automatically terminate
upon the final election of a majority of current directors of ITT at the ITT
1997 annual meeting of shareholders. Preliminary results of the meeting, held
November 12, 1997, indicate that the current directors of ITT have been
re-elected. On November 13, 1997, the Company terminated the ITT Tender
Offer.
In January 1997, the Company finalized various agreements with Ladbroke Group
PLC, whose wholly owned subsidiary, Hilton International Co. (HI), owns the
rights to the Hilton name outside the United States. The agreements provide
for the reunification of the Hilton brand worldwide through a strategic
alliance between the companies, including cooperation on sales and marketing,
loyalty programs and other operational matters. The Company and HI have
integrated their reservation systems, launched the Hilton HHonors-Registered
Trademark-Worldwide loyalty program and are continuing the integration of
worldwide sales offices and development of joint marketing initiatives.
LONG-TERM DEBT
Long-term debt at September 30, 1997 totaled $2.8 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.
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At September 30, 1997, approximately $686 million of the aggregate commitment
of the Company's five year $1.75 billion revolving credit facility supported
the issuance of commercial paper and $683 million was outstanding, leaving
approximately $381 million of the revolving bank debt facility available to
the Company at such date.
During April 1997, the Company issued $375 million of 7.95%, 10-year senior
unsecured notes due April 15, 2007, under 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. In June 1997, the
Company issued $300 million of 7.375%, 5-year senior unsecured notes due June
1, 2002, under the Shelf. On July 22, 1997, the Company issued $325 million
of 7-year senior unsecured notes, the remaining balance under the Shelf. The
7-year notes will mature on July 15, 2004 and carry an interest rate of 7%.
The Company used the proceeds from these offerings to repay its revolving
credit facility and a portion of its commercial paper borrowings. Such
outstanding indebtedness was incurred primarily to fund cash tender offers to
purchase the outstanding debt securities of certain former Bally subsidiaries
and the related consent solicitations.
On October 16, 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. The terms of any securities offered pursuant to the shelf
registration statement will be determined by market conditions at the time of
issuance.
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended September 30, 1997 and 1996 is as follows:
(in millions, except per share amounts) 1997 1996 % CHANGE
Revenue $1,314 943 39%
EBITDA 276 148 86%
Operating income 198 101 96%
Net income 94 54 74%
Net income per share .36 .28 29%
HOTELS
Hotel revenue for the 1997 third quarter was $654 million, an increase of 12
percent over 1996. EBITDA from the hotel division was $137 million for the
1997 third quarter, a 43 percent increase compared to $96 million a year ago,
while hotel operating income increased 57 percent to $113 million from $72
million last year. Favorable supply-demand conditions in most markets in
which the Company operates continue to fuel significant REVPAR increases. In
addition, the Company continues to produce solid margin improvements at most
of its owned and equity properties. The hotel division also 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 as well as the acquisition of the Anchorage Hilton in the
first quarter of 1997. Occupancy for hotels owned or managed was 77.7
percent in the 1997 third quarter compared to 76.8 percent in 1996. The
average room rate increased seven percent to $138.43 from $129.06 in the
prior year and REVPAR increased nine percent from a year ago.
EBITDA from the Company's ten major full-service properties increased $24
million over the prior year quarter. Of this increase, approximately $15
million resulted from the increased ownership interests acquired from Prudential
and the balance was due to improved operating results. These properties
continue to benefit from favorable supply-demand dynamics and continued margin
improvement. Combined EBITDA from the Waldorf=Astoria and the New York Hilton &
Towers increased $4 million over
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the 1996 third quarter. Continued strong demand, particularly in the higher
rate individual business traveler (IBT) segment contributed to a double digit
REVPAR increase at each of these two properties over the 1996 third quarter.
Increased convention volume at the Washington Hilton & Towers and strong IBT
growth at the Capital Hilton led to a combined EBITDA increase of $2 million
at these properties in the 1997 third quarter. Double digit percentage gains
in average room rates and REVPAR in the third quarter of 1997 led the San
Francisco Hilton & Towers to a $3 million increase in EBITDA compared to last
year. Occupancy for these ten major full-service hotels (which also includes
properties in Chicago, Honolulu and New Orleans) was 83.1 percent versus 82.1
percent in the 1996 quarter. The average room rate increased to $157.23 in
the 1997 third quarter from $144.66 and REVPAR improved ten percent between
periods.
Strong supply-demand fundamentals led to a seven percent increase in REVPAR
at the Company's other 13 full-service domestic owned and equity properties.
These properties generated a $10 million increase in EBITDA over the prior
year third quarter, including $6 million in EBITDA from the Anchorage Hilton
which was acquired in February 1997.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, was $24 million in the third quarters of 1997 and 1996.
Although the supply-demand balance in the Company's major markets 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.
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GAMING
Total gaming revenue increased 85 percent in the 1997 third quarter to $660
million from $357 million in 1996. Casino revenue, a component of gaming
revenue, increased 111 percent to $471 million in 1997 compared to $223
million in the prior year. EBITDA from the gaming division was $153 million
compared to $66 million in the prior year third quarter and gaming operating
income increased 125 percent to $99 million from $44 million in the 1996
quarter. The Company's gaming division benefited from the addition of the
Bally properties in Las Vegas, Atlantic City, Mississippi and New Orleans.
Gaming revenue, casino revenue, EBITDA and operating income increased $339
million, $313 million, $96 million and $72 million, respectively, as a result
of the Bally acquisition.
The completion of a number of room expansion projects and the opening of a
new hotel-casino led to an 11 percent increase in room supply in Las Vegas
compared to the prior year. These capacity additions combined with reduced
convention volume contributed to an eight point decline in occupancy at the
Las Vegas Hilton in the 1997 third quarter. Despite record premium play
baccarat volume in the 1997 third quarter, results were adversely impacted by
a 12 point decrease in the baccarat win percentage compared to the 1996
quarter. EBITDA at the Las Vegas Hilton totaled $5 million in the 1997 third
quarter, an $11 million decrease compared to 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 the results at this property. However, the Company
believes that its implementation of new casino marketing and entertainment
strategies and the opening of the "Star Trek" attraction and "SpaceQuest"
casino will broaden the Las Vegas Hilton's customer base thereby creating
additional mid-level play.
The new capacity additions are also affecting the Flamingo Hilton - Las
Vegas, which posted a five point decrease in occupancy compared to the prior
year. EBITDA at this property remained consistent compared to the prior year
quarter as the decrease in occupancy, which contributed to lower table game
volume, was offset by an increase in the table game win percentage. Bally's
Las Vegas generated EBITDA of $19 million in the third quarter of 1997, an
increase of six percent from 1996. A decrease in occupancy at this property,
primarily from the convention segment,
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was more than offset by a seven percent increase in average room rate. This
property's results were not included in the 1996 third quarter.
Combined EBITDA from the Reno Hilton and the Flamingo Hilton - Reno increased
$5 million from the 1996 third quarter, benefiting from a reduction in the
number of discounted rooms. REVPAR at both properties attained double digit
percentage increases compared to prior year despite lower occupancy levels.
Occupancy for the Nevada hotel-casinos was 86.4 percent in the 1997 quarter
compared to 90.7 percent last year. The average room rate for the Nevada
properties was $72.46 compared to $68.07 in the 1996 third 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 $59 million and $13 million, respectively, in the 1997 third
quarter. While not included in the Company's results last year, EBITDA at
these properties totaled $49 million and $16 million, respectively, in the
1996 third quarter. The results of Bally's Park Place include the new
casino, "Wild Wild West" which opened on July 1, 1997. Revenue from "Wild
Wild West" has been almost entirely incremental, resulting in strong margin
gains. Excluding the impact of CRDA and other one-time credits taken in the
1996 period, EBITDA at Bally's Park Place increased 51 percent. Declines in
boardwalk pedestrian traffic due to disruptions from construction of its new
300-room tower continued to impact The Atlantic City Hilton's EBITDA in the
third quarter of 1997.
Occupancy and average room rate for the Atlantic City hotel-casinos were 95.1
percent and $103.13, respectively, in the 1997 third quarter. Although not
included in the Company's 1996 third quarter, occupancy and average room rate
were 96.9 percent and $105.86, respectively.
Operating results from the Company's New Orleans river casino operations
remained flat, reflecting continued market softness. In October 1996, the
Company was granted approval from Louisiana
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regulators to relocate the Flamingo Casino-New Orleans to Shreveport,
Louisiana by October 1, 1997. The Company subsequently abandoned its plan to
relocate the facility and on October 1, 1997, the Flamingo Casino-New Orleans
ceased operations.
A low baccarat win percentage at the Company's approximately 20% owned casino
in the Gold Coast, Australia resulted in a decrease in the EBITDA
contribution from this property of $5 million compared to the 1996 third
quarter.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $32 million to $54 million in the third quarter
of 1997 compared to prior year. This increase primarily resulted from the
addition of the Bally properties.
The gaming industry continues to experience capacity growth primarily in
existing markets. The Las Vegas and Atlantic City markets are becoming
increasingly competitive due to new developments and expansion projects which
challenge the Company's existing market share. These projects could
adversely impact the Company's future gaming income.
FINANCING ACTIVITIES
Interest and dividend income totaled $11 million in the 1997 period compared
to $9 million in 1996. Consolidated interest expense increased from $16
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 40 percent for the 1996 period due primarily 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.
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MINORITY INTEREST
The minority interest primarily results from the consolidation of the
majority-owned New Orleans Hilton Riverside & Towers.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the nine
months ended September 30, 1997 and 1996 is as follows:
(in millions, except per share amounts) 1997 1996 % CHANGE
-------- -------- ---------
Revenue $ 3,977 2,904 37%
EBITDA 785 433 81%
Operating income 558 293 90%
Net income 255 150 70%
Net income per share .98 .77 27%
HOTELS
Hotel revenue for the 1997 nine-month period was $2.0 billion, an increase of
10 percent over 1996. EBITDA from the hotel division was $410 million for
the 1997 period, a 46 percent increase compared to $280 million a year ago,
while hotel operating income increased 61 percent to $338 million from $210
million last year. Occupancy for hotels owned or managed was 76.0 percent in
1997 compared to 75.1 percent in 1996. The average room rate increased eight
percent to $143.08 from $132.82 in the prior year, contributing to a nine
percent increase in REVPAR.
EBITDA from the Company's ten major full-service properties increased $81
million over the prior year nine-month period. Of this increase, approximately
$46 million resulted from the increased ownership interests acquired from
Prudential and the balance was due to improved operations. Continued strength
in IBT volume and average room rate coupled with double digit growth in leisure
guest volume drove a $13 million combined EBITDA increase at the Waldorf=Astoria
and the New York Hilton & Towers compared to the 1996 period. REVPAR increased
eight percent, 13 percent and 12 percent at the Chicago Hilton &
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Towers, the O'Hare Hilton and the Palmer House Hilton, respectively, leading
to a combined EBITDA increase of $6 million in the 1997 period. Each of
these properties maintained strong volume and achieved double digit room rate
growth from the IBT segment. EBITDA at the San Francisco Hilton & Towers
increased $7 million due primarily to increases in convention and leisure
guest volume coupled with a 17 percent increase in average room rate. The
Company's properties in Washington D.C. benefited from strong IBT and
convention volume and moderate room rate increases which led to a combined
EBITDA increase of $6 million at the Capital Hilton & Towers and Washington
Hilton & Towers compared to prior year. Occupancy for these ten major
full-service hotels (which also includes properties in Honolulu and New
Orleans) was 80.4 percent versus 78.8 percent in the 1996 period. The
average room rate increased to $160.92 in 1997 from $148.47 and REVPAR
improved 11 percent between periods.
The Company's other 13 full-service domestic owned and equity properties
generated a $23 million increase in EBITDA over the prior year period,
reflecting continued strength in lodging industry fundamentals and a $10
million EBITDA contribution from the addition of the Anchorage Hilton in
February 1997.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $6 million to $76 million in the 1997 period compared
to prior year.
GAMING
Total gaming revenue increased 85 percent in the 1997 nine-month period to $1.9
billion from $1.0 billion in 1996. Casino revenue increased 119 percent to $1.4
billion in 1997 compared to $626 million in the prior year. EBITDA from the
gaming division was $422 million compared to $186 million in the prior year
nine-month period and gaming operating income increased 124 percent to $269
million from $120 million in 1996. 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
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revenue, casino revenue, EBITDA and operating income increased $895 million,
$709 million, $236 million and $171 million, respectively, as a result of the
Bally acquisition.
The impact of supply growth in the Las Vegas market led to a six point
decrease in occupancy at the Las Vegas Hilton in the nine-month period of
1997. However, the property had a 23 percent increase in volume of its
premium play baccarat business coupled with a two point increase in win
percentage resulting in an EBITDA increase of $9 million in 1997 compared to
the 1996 period.
The highly competitive market conditions in Las Vegas also contributed to
lower table game and slot volume in the casino and a four point decrease in
hotel occupancy at the Flamingo Hilton - Las Vegas. As a result, EBITDA at
this property decreased $4 million from the prior year nine-month period.
Bally's Las Vegas experienced an EBITDA increase of $3 million compared to
the nine-month period in 1996, which was not included in the Company's
results, due mainly to a five percent increase in slot revenue.
A generally soft market continues to affect the Flamingo Hilton - Laughlin,
which posted a $3 million decrease in EBITDA. Combined EBITDA from the Reno
Hilton and the Flamingo Hilton - Reno increased $2 million from the 1996
period.
Occupancy for the Nevada hotel-casinos was 87.7 percent in the 1997 period
compared to 91.9 percent last year. The average room rate for the Nevada
properties was $75.68 compared to $72.74 in the 1996 nine-month period. 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 $124 million and $24 million, respectively, in 1997. While not
included in the Company's results last year, EBITDA at these properties
totaled $115 million and $41 million, respectively, in the 1996 period. The
results of Bally's Park Place include the newly opened "Wild Wild West"
casino. The Atlantic City Hilton's EBITDA continued
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to be impacted by lower table game revenue resulting from the effect of its
tower construction on occupancy and pedestrian traffic through July.
Occupancy and average room rate for the Atlantic City hotel-casinos were 93.1
percent and $92.34, respectively, in 1997. Although not included in the
Company's 1996 period, occupancy and average room rate were 93.9 percent and
$92.02, respectively.
The approximately 43% owned Conrad International Punta del Este Resort and
Casino in Punta del Este, Uruguay, which opened its casino in January 1997,
contributed $5 million to gaming division EBITDA in 1997.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $87 million to $153 million in the 1997 period
compared to prior year. This increase primarily resulted from the addition
of the Bally properties.
CORPORATE EXPENSE
Corporate expense increased $12 million to $49 million in the 1997 nine-month
period. The 1997 period includes $5 million in non-recurring litigation
costs.
FINANCING ACTIVITIES
Interest and dividend income totaled $34 million in the 1997 period compared
to $25 million in 1996. The 1997 period includes approximately $5 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 $76 million to $131 million primarily due to
additional debt resulting from the Bally acquisition.
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INCOME TAXES
The effective income tax rate for the 1997 period increased to 41 percent
compared to 39 percent for the 1996 period due primarily to the additional
goodwill recorded as a result of the Bally acquisition which is not
deductible for tax purposes.
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.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, two derivative actions purportedly brought on
behalf of Bally's Grand, Inc. (BGI) against its directors and Bally
Entertainment Corporation (Bally), one commenced in October 1995 and the
other in September 1996, were consolidated under the caption IN RE:
BALLY'S GRAND DERIVATIVE LITIGATION in the Court of Chancery of the State
of Delaware, New Castle County. Bally merged with and into the Company on
December 18, 1996. A third derivative action purportedly brought on
behalf of BGI against its directors, Bally, Bally's Grand Management Co.,
Inc., a wholly owned subsidiary of Bally, and the Company was commenced in
November 1996 under the caption TOWER INVESTMENT GROUP, INC., ET AL. V.
BALLY'S GRAND, INC., ET AL. in the Court of Chancery of the State of
Delaware, New Castle County. This action was consolidated with the IN
RE: BALLY'S GRAND DERIVATIVE LITIGATION action under the caption IN RE:
BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
On June 13, 1997, BGI announced that it had reached an agreement to settle
the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. Prior to the
settlement, the Company indirectly owned approximately 84% of the common
stock of BGI. Under the terms of the settlement, BGI has repurchased
966,747 shares of its common stock and 102,698 warrants to purchase shares
of its common stock from certain plaintiffs at a price of $52.75 per share
in cash for the common stock and $52.75 less the exercise price per warrant
in cash for the warrants.
On October 9, 1997, the Company received court approval of the settlement
agreement. On October 28, 1997, a sole shareholder appealed the court
approval of the settlement agreement. On November 7, 1997, the Delaware
Supreme Court granted the Company's motion for an expedited appeal. Upon
final resolution of the appeal, BGI would be merged with a subsidiary of
the Company, and the remaining 408,862 outstanding shares of BGI's common
stock not currently owned by the Company would be converted into the right
to receive $52.75 (less certain attorneys' fees) per share in cash, and the
491,784 outstanding warrants to purchase BGI common stock not currently
owned by the Company would be converted into the right to receive the
difference between $52.75 (less certain attorneys' fees) and the exercise
price per warrant in cash.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27. Financial data schedule for the nine-month period ended
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILTON HOTELS CORPORATION
(Registrant)
Date: November 13, 1997 /s/ MATTHEW J. HART
--------------------------------------
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: November 13, 1997 /s/ THOMAS E. GALLAGHER
--------------------------------------
Thomas E. Gallagher
Executive Vice President and
General Counsel
27
