<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, 1999
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, 1999--Common Stock, $2.50 par value--258,266,352
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,
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Rooms $ 250 183
Food and beverage 118 83
Management and franchise fees 25 27
Other revenue 101 73
--------------------------------------------------------------
494 366
Expenses Rooms 66 48
Food and beverage 89 66
Other expenses 211 147
Corporate expense,net 12 11
--------------------------------------------------------------
378 272
--------------------------------------------------------------
Operating Income 116 94
Interest income 13 2
Interest expense (52) (27)
Interest expense, net, from
unconsolidated affiliates (1) (3)
--------------------------------------------------------------
Income Before Income Taxes
and Minority Interest 76 66
Provision for income taxes 31 26
Minority interest, net 3 2
--------------------------------------------------------------
Income from Continuing
Operations 42 38
Income from discontinued gaming
operations, net of tax provision of $35 -- 39
Cumulative effect of accounting change,
net of tax benefit of $1 (2) --
--------------------------------------------------------------
Net Income $ 40 77
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Basic Earnings Per Share
Income from Continuing Operations $ .16 .14
Discontinued Operations -- .16
Cumulative Effect of Accounting Change (.01) --
--------------------------------------------------------------
Net Income Per Share $ .15 .30
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Diluted Earnings Per Share
Income from Continuing Operations $ .16 .14
Discontinued Operations -- .15
Cumulative Effect of Accounting Change (.01) --
--------------------------------------------------------------
Net Income Per Share $ .15 .29
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
see notes to consolidated financial statements
1
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HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and equivalents $ 78 47
Accounts receivable, net 225 204
Receivable from discontinued gaming
operations -- 73
Inventories 59 54
Deferred income taxes 48 48
Other current assets 38 43
------------------------------------------------------------------
Total current assets 448 469
Investments 267 262
Long-term receivable 625 625
Property and equipment, net 2,553 2,483
Other assets 97 105
------------------------------------------------------------------
Total investments, property and
other assets 3,542 3,475
------------------------------------------------------------------
Total Assets $ 3,990 3,944
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Liabilities and Accounts payable and accrued expenses $ 376 410
Stockholders' Equity Current maturities of long-term debt 64 62
Income taxes payable 38 34
------------------------------------------------------------------
Total current liabilities 478 506
Long-term debt 3,074 3,037
Deferred income taxes and other
liabilities 214 214
Stockholders' equity 224 187
------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $ 3,990 3,944
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
see notes to consolidated financial statements
2
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities Net income $ 40 77
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from discontinued gaming operations -- (39)
Cumulative effect of accounting change 2 --
Depreciation and amortization 38 24
Amortization of loan costs 1 1
Change in working capital components:
Receivables, inventories and other current assets 52 7
Accounts payable and accrued expenses (34) (15)
Income taxes payable 4 48
Change in deferred income taxes 5 7
Change in other liabilities (5) 3
Distributions from unconsolidated affiliates
less than earnings (2) (7)
Other 10 (27)
---------------------------------------------------------------------------
Net cash provided by operating activities 111 79
- -----------------------------------------------------------------------------------------------------------
Investing Activities Capital expenditures (36) (31)
Additional investments (20) (18)
Payments on notes and other 17 10
Acquisitions, net of cash acquired (73) (170)
---------------------------------------------------------------------------
Net cash used in investing activities (112) (209)
- -----------------------------------------------------------------------------------------------------------
Financing Activities Change in commercial paper borrowings and revolving
loans 39 325
Reduction of long-term debt (1) (1)
Issuance of common stock 1 9
Purchase of common stock (2) (81)
Cash dividends (5) (23)
---------------------------------------------------------------------------
Net cash provided by financing activities 32 229
- -----------------------------------------------------------------------------------------------------------
Net Transfers From Discontinued Gaming Operations -- 13
Increase in Cash and Equivalents 31 112
Cash and Equivalents at Beginning of Year 47 5
- -----------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 78 117
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
see notes to consolidated financial statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
On December 31, 1998, Hilton Hotels Corporation (Hilton or the Company)
completed a spin-off that split the Company's operations into two independent
public corporations, one for conducting its hotel business and one for
conducting its gaming business. Hilton retained ownership of the hotel
business. Hilton transferred the gaming business to a new corporation named
Park Place Entertainment Corporation (Park Place) and distributed the stock
of Park Place tax-free to Hilton stockholders on a one-for-one basis. As a
result of the spin-off, Hilton's financial statements reflect the gaming
business as discontinued operations.
The consolidated financial statements presented herein have been prepared by
Hilton in accordance with the accounting policies described in its 1998 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, 1999 and 1998 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 1998 periods reflect certain
reclassifications to conform with classifications adopted in 1999. These
reclassifications have no effect on net income.
NOTE 2: EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common
stockholders (net income less preferred dividends of $3 million in the 1998
quarter) by the weighted average number of common shares outstanding for the
period. The weighted average number of common shares outstanding totaled 261
million and 247 million for the three months ended March 31, 1999 and 1998,
respectively. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted.
The dilutive effect of the assumed exercise of stock options and convertible
securities increased the weighted average number of common shares by 24 million
and 32 million for the three months ended March 31, 1999 and 1998, respectively.
In addition, the increase to net income resulting from interest on convertible
securities assumed to have not been paid was $4 million for each of the three
month periods ended March 31, 1999 and 1998.
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
----- -----
(in millions)
<S> <C> <C>
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 25 13
Income taxes(1) 17 5
</TABLE>
(1) Includes amounts paid by the Company on behalf of the discontinued gaming
operations.
4
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NOTE 4: COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
------ -----
(in millions)
<S> <C> <C>
Net Income $ 40 77
Change in unrealized gains and losses, net of tax 1 (5)
------ -----
Comprehensive Income $ 41 72
------ -----
------ -----
</TABLE>
NOTE 5: CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP requires that all
nongovernmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and
requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. The Company's adoption of SOP 98-5 resulted in a
cumulative effect of accounting change of $2 million, net of a tax benefit of
$1 million, in the 1999 first quarter.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 31, 1998, the Company completed a spin-off of its gaming
operations. As a result, the Company's historical financial statements have
been restated to reflect the gaming business as discontinued operations. The
following discussion and analysis of financial condition and results of
operations is that of Hilton's continuing operations.
FINANCIAL CONDITION
LIQUIDITY
For the three months ended March 31, net cash provided by operating
activities was $111 million and $79 million in 1999 and 1998, respectively.
The increase was primarily attributable to continued strength at many of the
Company's U.S. owned and partially owned full-service hotels and the benefit
of cash flow from newly acquired hotel properties.
ACQUISITIONS AND CAPITAL SPENDING
Net cash used in investing activities was $112 million in the 1999 three
month period compared to $209 million last year. The decrease was due
primarily to higher acquisition spending in the 1998 period, which included
the acquisition of two full-service hotels versus one in the 1999 period.
Expenditures required to complete acquisitions and capital spending programs
in 1999 will be financed through available cash flows and general corporate
borrowings.
Growth continues through selective acquisition of large full-service hotels
in major market locations. In December 1998, the Company purchased the
394-room Sheraton Grande Torrey Pines (re-named the Hilton La Jolla Torrey
Pines). The Company leases the land underlying the hotel. The resort is
located adjacent to two world-famous Torrey Pines Golf Courses along the
Pacific Coast in La Jolla, California.
In February 1999, the Company acquired the 495-room Radisson Plaza Hotel at
Mark Center in Alexandria, Virginia (re-named the Hilton Alexandria Mark
Center) for approximately $52 million. In April
6
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1999, the Company purchased the 563-room Pointe Hilton Resort at Squaw Peak
in Phoenix, Arizona for approximately $94 million. Also in April 1999, the
Company acquired the 385-room Hilton Back Bay in Boston for approximately $70
million. The Company plans to spend approximately $12 million to renovate
guest rooms, meeting rooms, the lobby and the health club at this property.
The Company expects to make further acquisitions in 1999.
The Company is currently renovating the Hilton New York & Towers. This
project, which includes new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking Manhattan, is expected to be completed in late
1999. Renovation and construction projects are also underway at the Hilton
Seattle Airport and the Hilton Portland. The Seattle project includes
renovating existing rooms and constructing a 222-room addition, while the
Portland project involves construction of a 319-room tower addition. The
Company is also in the process of constructing a new 600-room hotel at the
center of Boston's Logan Airport and a 232-unit vacation ownership resort
adjacent to the Las Vegas Hilton, which are expected to open in the 1999
third quarter and the 1999 fourth quarter, respectively.
In addition to an estimated $200 million in 1999 expenditures related to the
aforementioned renovation and construction projects, the Company intends to
spend approximately $150 million in 1999 on normal capital replacements,
upgrades and compliance projects.
OTHER DEVELOPMENTS
The Company continues to improve its franchise business primarily through the
expansion of the Hilton Garden Inn product. In the 1999 first quarter, the
Company opened eight Garden Inn properties. The Company expects to open
approximately 65 Garden Inn properties during 1999 and anticipates having 200
such franchise properties either open or under construction in 2000.
7
<PAGE>
FINANCING
Long-term debt at March 31, 1999 totaled $3.1 billion, compared with $3.0
billion at December 31, 1998. For the three months ended March 31, 1999, cash
provided by financing activities totaled $32 million compared to $229 million
in the 1998 period. The 1998 period includes additional commercial paper
borrowings to fund acquisitions, capital expenditures and common stock
repurchases.
The debt balance includes $625 million of long-term debt which, although
allocated to Park Place under a debt assumption agreement, remains the legal
obligation of Hilton. At the time of the spin-off, Park Place assumed and
agreed to pay 100% of the amount of each payment required to be made by
Hilton under the terms of the indentures governing Hilton's $300 million
7.375% Senior Notes due 2002 and its $325 million 7% Senior Notes due 2004.
These notes remain in Hilton's long-term debt balance and a long-term
receivable from Park Place in an equal amount is included in the Company's
consolidated balance sheets. In the event of an increase in the interest rate
on these notes as a result of certain actions taken by Hilton or in certain
other limited circumstances, Hilton will be required to reimburse Park Place
for any such increase. Hilton is obligated to make any payment Park Place
fails to make and in such event Park Place shall pay to Hilton the amount of
such payment together with interest, at the rate per annum borne by the
applicable notes plus two percent, to the date of such reimbursement.
At March 31, 1999, approximately $195 million of the aggregate commitment of
the Company's $1.75 billion revolving credit facility supported the issuance
of commercial paper, leaving approximately $1.6 billion of the revolving bank
debt facility available to the Company at such date.
In October 1997, the Company filed a shelf registration statement (Shelf)
with the Securities and Exchange Commission registering up to $2.5 billion in
debt or equity securities. At March 31, 1999, available financing under the
Shelf totaled $2.1 billion. The terms of any additional securities offered
pursuant to the Shelf will be determined by market conditions at the time of
issuance.
8
<PAGE>
Pursuant to the Company's stock repurchase program, during the 1998 first
quarter the Company repurchased 2.8 million shares of common stock, or 14
percent of the total authorized to be repurchased, for an aggregate purchase
price of $81 million. During the 1999 first quarter, the Company repurchased
.1 million shares of common stock for an aggregate purchase price of $2
million. In April 1999, the Company repurchased 2.9 million shares of common
stock for an aggregate purchase price of $40 million. The Company may, at any
time, repurchase up to 12.7 million remaining shares authorized for
repurchase pursuant to such program. The timing of stock repurchases are made
at the discretion of the Company's management, subject to certain business
and market conditions.
In accordance with the terms of the indenture governing the Company's $500
million 5% Convertible Subordinated Notes due 2006, effective January 4,
1999, the conversion price was adjusted to $22.17, reflecting the gaming
spin-off.
STOCKHOLDERS' EQUITY
Dividends paid on common shares were $.02 in the 1999 first quarter compared
to $.08 in the 1998 first quarter. In October 1998, 14.8 million shares of
the Company's Preferred Redeemable Increased Dividend Equity Securities, 8%
PRIDES, Convertible Preferred Stock were converted into 13.6 million shares
of common stock.
RESULTS OF OPERATIONS
The following discussion presents an analysis of the Company's results of
operations for the three months ended March 31, 1999 and 1998. EBITDA
(earnings before interest, taxes, depreciation, amortization and non-cash
items) is presented supplementally in the tables below and in the discussion
of operating results because management believes it allows for a more
complete analysis of results of operations. Non-cash items, such as asset
write-downs and impairment losses, are excluded from EBITDA as these items do
not impact operating results on a recurring basis. This information should
not be considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as operating
income or net income), nor should it be considered as an indicator of the
9
<PAGE>
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.
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1999 AND 1998
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 1998 % Change
---- ---- --------
<S> <C> <C> <C>
Revenue $ 494 366 35%
Operating income 116 94 23%
Income from continuing operations 42 38 11%
Basic EPS from continuing operations .16 .14 14%
Diluted EPS from continuing operations .16 .14 14%
OTHER OPERATING DATA
Reconciliation of income from continuing operations to EBITDA:
Income from continuing operations $ 42 38 11%
Minority interest, net 3 2 50%
Provision for income taxes 31 26 19%
Interest expense, net, from unconsolidated affiliates 1 3 (67)%
Interest expense 52 27 93%
Interest income (13) (2) --%
Depreciation and amortization(1) 40 28 43%
--------- ---
Total EBITDA $ 156 122 28%
--------- ---
--------- ---
</TABLE>
(1) Includes proportionate share of unconsolidated affiliates.
Consolidated revenue for the 1999 first quarter was $494 million, an increase
of 35 percent over 1998. Total EBITDA was $156 million for the 1999 first
quarter, a 28 percent increase compared to $122 million a year ago, while
operating income increased 23 percent to $116 million from $94 million
last year.
The Company's domestic owned and equity hotels contributed $135 million of
EBITDA in the 1999 first quarter, compared to $103 million in the prior year.
The 1999 results were significantly impacted by earnings contributions from
hotels acquired in 1998 as well as revenue per available room (RevPAR)
increases at the Company's full-service hotels in major markets throughout
the continental U.S. Results were negatively impacted by market conditions in
Hawaii, which continue to be affected by Asian economic difficulties.
Excluding the Company's two properties in Hawaii, comparable EBITDA at the
Company's domestic owned and equity hotels increased ten percent from the
1998 first quarter. Occupancy for comparable domestic owned and equity hotels
(excluding Hawaii) was 73.2 percent versus 70.0 percent in the 1998 quarter.
The average room rate increased two percent to $159.41 in the 1999 first
quarter and RevPAR improved six percent between periods. EBITDA margins
improved one point to 32 percent.
10
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Combined EBITDA from the Hilton Chicago & Towers, the Hilton Chicago O'Hare
Airport and the Palmer House Hilton increased $5 million or 41 percent over
the prior year quarter on a combined RevPAR increase of 16 percent. Both the
Hilton Chicago & Towers and the Palmer House Hilton were able to increase
their market share in a strong city-wide convention market, resulting in
strong gains in both occupancy and average rate. The Hilton Chicago O'Hare
Airport benefited from increased volume in the higher priced individual
business traveler (IBT) segment. EBITDA at the Hilton San Francisco & Towers
increased 12 percent due to significant increases in occupancy and average
rate in the convention segment and volume increases in the IBT segment.
EBITDA from the Hilton New Orleans Riverside increased $2 million on a three
point increase in EBITDA margin and a ten percent increase in RevPAR driven
by strong increases in convention and company meeting volume. Results at the
Hilton New York & Towers have been affected by the renovation project
currently underway, which has reduced foot traffic and resulted in the
temporary closure of three food and beverage outlets. The project, which is
expected to be completed in late 1999, contributed to a four percent decline
in EBITDA in the 1999 first quarter. EBITDA from the Hilton San Diego Resort
increased $1 million, or 57 percent, from the prior year quarter on strong
volume increases and a nine point improvement in EBITDA margin. The Company
also benefited from improved results at the recently acquired Hilton East
Brunswick & Towers, Hilton Charlotte & Towers, Hilton La Jolla Torrey Pines
and the Hilton Short Hills. These four properties posted a combined $3
million, or 34 percent, EBITDA increase compared to pro forma 1998 results.
Inbound travel to Hawaii continued to be negatively impacted by Asia's
economic crisis. On a comparable basis, EBITDA from the Hilton Hawaiian
Village in Honolulu and the Hilton Waikoloa Village on the Big Island of
Hawaii declined 23 percent and 13 percent, respectively, from the prior year
quarter. The Company anticipates continued weakness in Hawaii for the
remainder of 1999 due to the impact of the Asian economic situation, with the
Hilton Hawaiian Village expected to show declining results for the full year.
The Company, however, anticipates improved market conditions and commensurate
improvement
11
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at these properties in 2000. Factors leading to this outlook include an
increase in advance bookings at the Hawaiian Village; new business to the
state generated as a result of the newly opened Hawaii Convention Center;
increased business and leisure travel coinciding with Year 2000 events and
activities, and enhanced marketing efforts in Asia and the U.S. mainland by
the State of Hawaii to attract additional visitors. Occupancy for comparable
domestic owned and equity full-service hotels (including Hawaii) was 73.3
percent compared to 71.3 percent in the 1998 quarter. The average room rate
decreased one percent to $162.59 in the 1999 first quarter and RevPAR
increased two percent.
Acquisition activity, including increased ownership of properties which were
previously partially owned and new property acquisitions, contributed
approximately $29 million of EBITDA to the first quarter of 1999. Management
and franchise fees decreased $2 million in 1999 to $25 million. This decrease
is primarily attributable to the acquisition of several previously managed
properties during 1998. Depreciation and amortization, including the
Company's proportionate share of unconsolidated affiliates, increased $12
million over the prior year to $40 million due primarily to new acquisitions.
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 in the U.S. (affecting domestic travel) and
internationally (affecting inbound travel from abroad) 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.
CORPORATE ACTIVITY
Interest income increased $11 million in the 1999 period to $13 million due
to the interest on the $625 million of Hilton public debt assumed by Park
Place at the time of the spin-off of Hilton's gaming
12
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operations. As Hilton remains the legal obligor of the debt, an equal amount
of interest is included in interest expense. Consolidated interest expense
increased $25 million to $52 million due primarily to the $625 million of
debt assumed by Park Place and higher average debt levels resulting from
acquisition spending.
The effective income tax rate for the 1999 period increased to 40.8 percent
compared to 39.4 percent for 1998. 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.
OTHER MATTERS
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable
year. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000, which
could result in miscalculations or system failures.
The Company has a Year 2000 program, the objective of which is to determine
and assess the risks of the Year 2000 issue, and plan and institute
mitigating actions to minimize those risks. The Company's standard for
compliance requires that for a computer system or business process to be Year
2000 compliant, it must be designed to operate without error in date and
date-related data prior to, on and after January 1, 2000. The Company expects
to be fully Year 2000 compliant with respect to all significant business
systems prior to December 31, 1999.
The Company's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY (IT) SYSTEMS
Information technology systems account for much of the Year 2000 work and
include all computer systems and technology managed by the Company. The
Company has assessed these core systems,
13
<PAGE>
has plans in place, and is undertaking to test and implement changes where
required. The Company has not yet identified any significant remediation. The
Company has contacted appropriate vendors and suppliers as to their Year 2000
compliance and their deliverables have been factored into the Company's plans.
NON-IT SYSTEMS
The Company has completed an inventory of all property level non-IT systems
(including elevators, electronic door locks, etc.). The Company has assessed
the majority of these non-IT systems, has plans in place, and is undertaking
to test and implement changes where required. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
SUPPLIERS
The Company is communicating with its significant suppliers to understand
their Year 2000 issues and how they might prepare themselves to manage those
issues as they relate to the Company. To date, no significant supplier has
informed the Company that a material Year 2000 issue exists which will have a
material effect on the Company.
During 1999, the Company will continually review its progress against its
Year 2000 plans and determine what contingency plans are appropriate to
reduce its exposure to Year 2000 related issues.
Based on the Company's current assessment, the costs of addressing potential
problems are expected to be less than $3 million. However, if the Company is
unable to resolve its Year 2000 issues, contingency plans to update existing
systems (i.e., reservations, payroll, etc.) are in place for which the
Company expects the cost, if any, to be an additional $3 million. If the
Company's customers or vendors identify significant Year 2000 issues in the
future and are unable to resolve such issues in a timely manner, it could
result in a material financial risk. Accordingly, the Company plans to devote
the necessary resources to resolve all significant Year 2000 issues in a
timely manner.
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<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP requires that all
nongovernmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and
requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. The Company's adoption of SOP 98-5 resulted in a
cumulative effect of accounting change of $2 million, net of a tax benefit of
$1 million, in the 1999 first quarter.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "Financial Condition," "Results of
Operations" and "Other Matters," and 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.
The words "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. 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, including those identified above under "Results of Operations"
and those in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 under the captions "Additional Information--Business
Risks" and "Competition," the effect of economic conditions, and customer
demand, 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.
15
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PART II OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 12, 1999 at the
Hilton Beverly Hills in Beverly Hills, California. Approximately, 92
percent of the eligible shares were voted.
The following were elected to the Company's Board of Directors for
a three year term expiring in 2002. Steven F. Bollenbach, Dieter H.
Huckestien, Benjamin V. Lambert and John L. Notter, each of whom
received approximately 98 percent of the votes cast.
Additionally, the ratification of Arthur Andersen LLP to serve as
auditors for the Company for fiscal 1999 was adopted by 99 percent
of the votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the three month period ended March 31,
1999.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K dated January 8, 1999, under
Item 2 Acquisition or Disposition of Assets to announce that it had
consummated the separation of its gaming business from its lodging
business through a spin-off of its indirect wholly owned subsidiary,
Park Place Entertainment Corporation.
The Company filed a Report on Form 8-K dated February 4, 1999, under
Item 5 Other Events to report results for the three and twelve month
periods ended December 31, 1998.
16
<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, 1999 /s/ MATTHEW J. HART
-----------------------------------------
Matthew J. Hart
Executive Vice President, Chief Financial
Officer and Treasurer
Date: May 14, 1999 /s/ THOMAS E. GALLAGHER
-----------------------------------------
Thomas E. Gallagher
Executive Vice President, Chief
Administrative Officer and General Counsel
17
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 236
<ALLOWANCES> 11
<INVENTORY> 59
<CURRENT-ASSETS> 448
<PP&E> 3,610
<DEPRECIATION> 1,057
<TOTAL-ASSETS> 3,990
<CURRENT-LIABILITIES> 478
<BONDS> 3,074
0
0
<COMMON> 663
<OTHER-SE> (439)
<TOTAL-LIABILITY-AND-EQUITY> 3,990
<SALES> 494
<TOTAL-REVENUES> 494
<CGS> 0
<TOTAL-COSTS> 366
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 76
<INCOME-TAX> 31
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2
<NET-INCOME> 40
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
