<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, 2000
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, 2000 --- Common Stock, $2.50 par value ---
368,307,303 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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
CONSOLIDATED STATEMENTS OF INCOME MARCH 31,
(in millions, except per share amounts) 1999 2000
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Owned hotels $ 401 554
Leased hotels - 92
Management and franchise fees 25 82
Other fees and income 49 65
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475 793
Expenses Owned hotels 270 371
Leased hotels - 86
Depreciation and amortization 38 92
Other operating expenses 39 55
Corporate expense, net 12 16
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359 620
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Operating Income 116 173
Interest and dividend income 13 19
Interest expense (52) (112)
Interest expense, net, from unconsolidated affiliates (1) (3)
Net gain on asset dispositions - 29
-------------------------------------------------------------------------------
Income Before Income Taxes
and Minority Interest 76 106
Provision for income taxes (31) (45)
Minority interest, net (3) (3)
-------------------------------------------------------------------------------
Income Before Cumulative
Effect of Accounting Change 42 58
Cumulative effect of accounting change,
net of tax benefit of $1 (2) -
-------------------------------------------------------------------------------
Net Income $ 40 58
================================================================================================================
Basic Earnings Per Share Income before cumulative effect
of accounting change $ .16 .16
Cumulative effect of accounting change (.01) -
-------------------------------------------------------------------------------
Net Income Per Share $ .15 .16
================================================================================================================
Diluted Earnings Per Share Income before cumulative effect
of accounting change $ .16 .16
Cumulative effect of accounting change (.01) -
-------------------------------------------------------------------------------
Net Income Per Share $ .15 .16
================================================================================================================
</TABLE>
see notes to consolidated financial statements
1
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<TABLE>
<CAPTION>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, MARCH 31,
(in millions) 1999 2000
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and equivalents $ 104 149
Accounts receivable, net 396 436
Inventories 90 111
Deferred income taxes 15 15
Current portion of notes receivable 78 77
Other current assets 80 69
------------------------------------------------------------------------------------
Total current assets 763 857
Investments and notes receivable 676 612
Long-term receivable 625 625
Property and equipment, net 3,892 3,896
Management and franchise contracts, net 647 635
Leases, net 216 213
Brands, net 1,048 1,041
Goodwill, net 1,277 1,274
Other assets 109 96
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Total investments, property and other assets 8,490 8,392
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Total Assets $ 9,253 9,249
================================================================================================================
Liabilities and Accounts payable and accrued expenses $ 615 555
Stockholders' Equity Current maturities of long-term debt 9 5
Income taxes payable 5 33
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Total current liabilities 629 593
Long-term debt 6,085 6,083
Deferred income taxes and other liabilities 1,124 1,121
Stockholders' equity 1,415 1,452
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Total Liabilities and Stockholders' Equity $ 9,253 9,249
================================================================================================================
</TABLE>
see notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
HILTON HOTELS CORPORATION AND SUBSIDIARIES THREE MONTHS ENDED
CONSOLIDATED STATEMENTS OF CASH FLOW MARCH 31,
(in millions) 1999 2000
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities Net income $ 40 58
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change 2 -
Depreciation and amortization 38 92
Amortization of loan costs 1 2
Gain on asset dispositions - (29)
Change in working capital components:
Receivables, inventories and other current assets 52 (50)
Accounts payable and accrued expenses (34) (60)
Income taxes payable 4 28
Change in deferred income taxes 5 (4)
Change in other liabilities (5) 9
Unconsolidated affiliates' distributions (less than)
in excess of earnings (2) 33
Other 10 7
----------------------------------------------------------------------------------------
Net cash provided by operating activities 111 86
- --------------------------------------------------------------------------------------------------------------
Investing Activities Capital expenditures (36) (66)
Additional investments (20) (31)
Proceeds from asset dispositions - 46
Payments on notes and other 17 23
Acquisitions, net of cash acquired (73) -
----------------------------------------------------------------------------------------
Net cash used in investing activities (112) (28)
- --------------------------------------------------------------------------------------------------------------
Financing Activities Change in commercial paper borrowings and revolving loans 39 (4)
Reduction of long-term debt (1) (2)
Issuance of common stock 1 -
Purchase of common stock (2) -
Cash dividends (5) (7)
----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 32 (13)
- --------------------------------------------------------------------------------------------------------------
Increase in Cash and Equivalents 31 45
Cash and Equivalents at Beginning of Year 47 104
- --------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 78 149
==============================================================================================================
</TABLE>
see notes to consolidated financial statements
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The consolidated financial statements presented herein have been prepared by
Hilton in accordance with the accounting policies described in its 1999 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 2000 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 prior periods reflect certain
reclassifications to conform with classifications adopted in the current period.
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 by
the weighted average number of common shares outstanding for the period. The
weighted average number of common shares outstanding totaled 261 million and 368
million for the three months ended March 31, 1999 and 2000, 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 23
million for the three months ended March 31, 1999 and 2000, 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 2000.
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
---- ----
(in millions)
<S> <C> <C>
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 25 88
Income taxes 17 2
</TABLE>
NOTE 4: COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
------- -------
(in millions)
<S> <C> <C>
Net Income $ 40 58
Change in unrealized gains and losses, net of tax 1 (15)
Comprehensive Income ------- -------
$ 41 43
======= =======
</TABLE>
4
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
At March 31, 2000, the Company's hotel system contained 1,779 properties
totaling approximately 303,000 rooms worldwide. The Company's brands include
Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton Inn, Homewood
Suites by Hilton, Red Lion, Conrad, Hilton Grand Vacations and Harrison
Conference Centers. The Company's system also includes certain properties that
are not Company-branded.
DEVELOPMENT
OVERVIEW
Hilton intends to grow its brands primarily through franchising and the addition
of management contracts. In addition, the Company will continue to review its
hotel portfolio in light of the November 30, 1999 acquisition of Promus Hotel
Corporation ("Promus") for potential repositioning or re-branding opportunities,
and may seek to sell certain owned assets. The Company did not purchase any
hotel properties in the first quarter and acquisition spending is not expected
to be significant in the remainder of 2000.
During the first quarter of 2000, the Company added a net 27 hotels and over
3,000 rooms to its portfolio, including a net increase of 25 franchise
properties. In early April, the 1,000th Hampton Inn was opened, marking the
shortest period of time that any new hotel brand has reached that milestone. The
Company's total development pipeline for 2000 and 2001 totals more than 400
hotels and 60,000 rooms either under construction or in design, with Hampton
Inn, Hilton Garden Inn and Homewood Suites by Hilton accounting for most of the
new development. In addition, the Company continued to develop its strong
pipeline in the first quarter by receiving and/or approving applications for 75
new franchised hotels, representing over 9,000 rooms. Our ability to grow the
number of franchised and managed hotels is affected by, among other things,
national and regional economic conditions, capital markets, credit availability,
relationships with franchisees and owners as well as competition from other
hotel franchisors and managers.
STRATEGIC ALLIANCES AND JOINT VENTURES
In 1997, the Company entered into an agreement with Hilton 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
5
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programs and other operational matters. Pursuant to these agreements, the
Company and HI launched the Hilton HHonors Worldwide loyalty program
("HHonors"). On April 3, 2000, HHonors was expanded to include the Hampton
Inn, Doubletree, Embassy Suites and Homewood Suites by Hilton brands. HHonors
is now featured in more than 2,000 hotels worldwide and has total membership
of approximately 7.5 million. The Company expects the expansion of HHonors to
have a positive impact on all the brands that participate in the program.
As of March 31, 2000, the Company leased 52 properties from RFS Hotel Investors,
Inc. ("RFS"). In January 2000, the Company entered into an agreement which gives
RFS the option to terminate these leases. As consideration for terminating the
leases, RFS will pay the Company approximately $60 million. As part of the
agreement, the Company has the option of requiring RFS to repurchase convertible
preferred stock of RFS currently owned by Hilton for approximately $13 million.
It is anticipated that the lease termination and repurchase of the convertible
preferred stock will be accomplished simultaneously in the first quarter of
2001.
ACQUISITIONS AND CAPITAL SPENDING
On November 30, 1999, Hilton completed the acquisition of Promus. As a result of
the Promus acquisition, the Company expanded its hotel count by over 1,450
properties representing more than 200,000 rooms. The Promus acquisition has
created a more diversified and balanced income stream by increasing the
percentage of revenue the Company derives from management and franchise fees
which require little or no capital investment by the Company. The integration of
Promus was substantially completed during the first quarter of 2000. The Company
believes the Promus acquisition will yield significant synergies, economies of
scale and revenue enhancements by providing greater opportunity for expansion
with multiple brands and market segments; spreading overhead over a wider base
of properties; and including the Promus brands in Hilton's HHonors program, its
central reservation system and its sales and marketing organizations. Based on
the success of the integration efforts in the first quarter, the Company
believes it will exceed its synergy targets for the year.
Capital expenditures at owned properties during the first quarter of 2000
totaled $66 million, representing maintenance capital expenditures and several
significant renovation and construction projects. These projects include the new
453-room Kalia Tower at the Hilton Hawaiian Village, which will feature a world
class health club and wellness spa, exciting retail shops and an interactive
Hawaiian cultural center. Construction on the project is scheduled to be
completed in Spring 2001. Renovation and construction projects are also underway
at the Hilton Seattle Airport and the Hilton Portland. The Seattle project
includes
6
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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 currently constructing four new Homewood Suites by Hilton
properties. New investments during the first quarter of 2000 totaled $31
million, primarily loans related to financing of Hilton Grand Vacation
timeshare unit sales.
Construction continued on a 275-unit vacation ownership resort at the Hilton
Hawaiian Village in the first quarter. Interval sales commenced during the first
quarter of 2000 with the project expected to open in the first quarter of 2001.
Costs associated with timeshare intervals are reflected as inventory until sold.
In addition to an estimated $300 million in 2000 expenditures related to
renovation and construction projects, the Company intends to spend approximately
$300 million in 2000 on normal capital replacements, upgrades and technology.
Expenditures required to complete capital spending programs in 2000 will be
financed through available cash flows and general corporate borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $111 million and $86 million
for the three months ended March 31, 1999 and 2000, respectively. The decrease
was primarily attributable to a cash inflow in the prior period related to
collection of a receivable from the Company's discontinued gaming operations.
This decrease was partially offset by continued strength at many of the
Company's owned full-service hotels and the benefit of cash flow from the hotel
properties acquired in the Promus acquisition. Net cash used in investing
activities was $112 million in 1999 compared to $28 million in 2000. The net
decrease of $84 million was due primarily to proceeds received from the sale of
securities in the 2000 period and the impact of hotel acquisition spending in
the 1999 first quarter. Net cash provided by financing activities totaled $32
million in the 1999 quarter and net cash used in financing activities totaled
$13 million in the 2000 quarter. The decrease in cash provided is attributable
to the change in commercial paper borrowings and revolving loans in the first
quarter of 2000 in comparison to the 1999 quarter.
Cash and equivalents totaled $149 million at March 31, 2000, an increase of $45
million from December 31, 1999. Hilton believes that its operating cash flow,
available borrowings under its revolving credit facilities, and the Company's
ability to obtain additional financing through various financial markets are
sufficient to meet its liquidity needs.
7
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FINANCING
The Company has two revolving credit facilities: a $1.75 billion revolving
credit facility, which expires in 2001 and a $1.85 billion revolving credit
facility, consisting of a $1.4 billion five-year revolver, which expires in 2004
and a $450 million 364-day revolver, which expires in 2000. As of March 31,
2000, approximately $1.7 billion of borrowings were outstanding under the $1.75
billion facility, $1.36 billion of borrowings were outstanding under the $1.4
billion five-year portion of the $1.85 billion facility and the $450 million
364-day portion of this facility was undrawn, leaving total revolving debt
capacity of approximately $540 million 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, 2000, 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.
On December 31, 1998, the Company completed a spin-off that transferred the
Company's gaming business to a new corporation named Park Place Entertainment
Corporation ("Park Place"). The 1999 and 2000 debt balances include $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 1999 and 2000 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
reimbursement.
STOCKHOLDERS' EQUITY
Dividends paid on common shares were $.02 per share in the first quarters of
1999 and 2000.
8
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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 2000. EBITDA (earnings
before interest, taxes, depreciation, amortization, pre-opening expense 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. EBITDA can be computed by
adding depreciation, amortization, pre-opening expense, interest and dividend
income from investments related to operating activities and non-cash items to
operating income. 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 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.
The Company operates in one business segment, hospitality and leisure. The
Company's results are significantly affected by growth in the number of
available rooms through acquisition and development, occupancy and room rates
achieved by hotels, the Company's ability to manage costs and the relative mix
of owned, leased, managed and franchised hotels.
Almost all components of revenue are favorably impacted by system-wide increases
in revenue per available room ("RevPAR"), even though the Company's revenue
comes from various sources. On a pro forma comparable hotel basis(1), RevPAR for
the three months ended March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
1999 2000 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Hilton $ 90.81 95.03 4.6%
Hilton Garden Inn 54.67 62.06 13.5
Doubletree 69.43 70.63 1.7
Embassy Suites 89.58 91.24 1.9
Homewood Suites by Hilton 67.61 70.88 4.8
Hampton 44.69 45.02 .7
Other 61.34 63.76 3.9
</TABLE>
(1) Statistics are for comparable hotels, and include only those hotels
in the system as of March 31, 2000 and owned, leased, managed or
franchised by Hilton or Promus since January 1, 1999. Statistics for
1999 include the properties acquired in the Promus acquisition on a pro
forma basis.
9
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COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1999 AND 2000
OVERVIEW
A summary of the Company's consolidated results for the three months ended March
31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 2000 % CHANGE
----- ---- --------
<S> <C> <C> <C>
Revenue $ 475 793 67%
Operating income 116 173 49
Income before cumulative effect of accounting change 42 58 38
Basic EPS before cumulative effect of accounting change .16 .16 -
Diluted EPS before cumulative effect of accounting change .16 .16 -
OTHER OPERATING DATA
Reconciliation of Net Income to EBITDA:
Net Income $ 40 58 45%
Cumulative effect of accounting change 2 -
Minority interest, net 3 3
Provision for income taxes 31 45
Net gain on asset dispositions - (29)
Interest expense, net, from unconsolidated affiliates 1 3
Interest expense 52 112
Interest and dividend income (13) (19)
------- -------
Operating Income 116 173 49%
Operating interest and dividend income - 8
Depreciation and amortization(1) 40 98
Pre-opening expense - 1
------- -------
Total EBITDA $ 156 280 79%
======= =======
</TABLE>
(1) Includes proportionate share of unconsolidated affiliates
Total revenue for the first quarter of 2000 was $793 million, an increase of 67
percent over 1999. EBITDA from operations was $296 million for the first quarter
of 2000, a 76 percent increase compared to a year ago, while total EBITDA was
$280 million for the first quarter of 2000, a 79 percent increase over the first
quarter of the prior year. Total operating income increased 49 percent to $173
million. Consolidated results in 2000 include the impact of the Promus
acquisition, which was completed on November 30, 1999. Results were also
positively impacted by strong results at most major market Hilton brand owned
hotels and the benefit of 1999 hotel acquisition and development activity.
The Company's domestic owned hotels contributed $183 million of EBITDA in the
2000 first quarter, compared to $132 million in the prior year. Acquisition and
development activity provided $39 million of incremental domestic owned EBITDA
in the quarter, of which $31 million related to the Promus acquisition. The
incremental EBITDA from the Promus acquisition included $17 million from
Doubletree owned properties and $5 million each from Embassy Suites and Homewood
Suites by Hilton owned
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properties. Results also benefited from strong performances and RevPAR gains
at many of the Company's owned properties. Particularly strong results were
seen in Hawaii, New York, and San Francisco. EBITDA growth was negatively
impacted by soft market conditions in Chicago and Phoenix. RevPAR for
comparable owned Hilton properties improved 5.3 percent in the 2000 first
quarter, with occupancy flat at 73 percent and average daily rate ("ADR") up
5.7 percent to $169.23. EBITDA margins across the Company's owned hotel
system were strong at 34 percent.
Adjusting for the Lagoon Tower, which is being converted to timeshare units,
EBITDA at the Hilton Hawaiian Village increased $5 million or 27 percent
compared to the 1999 first quarter. A 15 percent RevPAR improvement was driven
by occupancy gains in the group segment and increased rates in the individual
business traveler ("IBT") segment. The increased group volume also led to
substantial improvement in food and beverage profit. EBITDA from the Hilton New
York & Towers increased $4 million or 37 percent from the prior year. Results in
1999 were negatively impacted by the major renovation project which was
substantially completed in the fourth quarter of 1999. RevPAR improved 11
percent on strong group and IBT volume and an overall rate increase of five
percent. RevPAR at the Waldorf=Astoria also benefited from strong volume and
rate increases in the group and IBT segments, increasing nine percent from the
1999 first quarter. EBITDA from the Waldorf=Astoria increased $3 million or 24
percent from the prior year. EBITDA at the Hilton San Francisco & Towers
increased $4 million or 34 percent compared to the 1999 first quarter due to
higher volume in the group segment as a result of a strong city-wide convention
market. RevPAR at this property increased 18 percent. Combined EBITDA from the
Hilton Chicago & Towers, the Hilton Chicago O'Hare Airport and the Palmer House
Hilton decreased $4 million or 23 percent compared to the first quarter of the
prior year. This year over year decrease was due to a strong city-wide
convention market in the prior year, leading to record results in the 1999
period. Based on advance group bookings, the Company anticipates a strong
remainder of 2000 for its Chicago hotels. Combined EBITDA from the Pointe Hilton
Squaw Peak and Pointe Hilton Tapatio Cliffs decreased $1 million or four percent
compared to the 1999 first quarter due to new supply in the Phoenix market,
where barriers of entry are relatively low in comparison to our other major
market cities.
In addition to the $31 million of incremental EBITDA from domestic owned
properties mentioned above, the Promus acquisition provided incremental EBITDA
of $11 million from unconsolidated affiliates which own interests in hotels
pursuant to joint venture agreements and $6 million from properties operated by
the Company under operating lease agreements. The Company did not operate
properties under operating lease agreements prior to the Promus acquisition. The
acquisition also added incremental
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EBITDA of $17 million from management fees (primarily Doubletree and Embassy
Suites) and $33 million from franchise fees (primarily Hampton and Embassy
Suites).
Including the $50 million of incremental fee income as a result of the Promus
acquisition, management and franchise fee revenue increased $57 million in the
first quarter of 2000 to $82 million. Fee revenue is based primarily on
operating revenue at managed properties and rooms revenue at franchised
properties.
Depreciation and amortization, including the Company's proportionate share of
depreciation and amortization from its unconsolidated affiliates, increased $58
million in the first quarter of 2000 to $98 million due primarily to the
depreciation of fixed assets and the amortization of identifiable intangible
assets and goodwill associated with the Promus acquisition.
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 room 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 and diverse
market presence will enable it to remain extremely competitive.
CORPORATE ACTIVITY
In the 2000 first quarter, the Company realized a pre-tax gain on asset
dispositions of $29 million from the sale of certain marketable securities.
Corporate expense increased $4 million in the first quarter of 2000 to $16
million, primarily from incremental costs as a result of the Promus acquisition.
Interest and dividend income increased $6 million compared with the prior year,
primarily due to an increase in notes receivable outstanding. The increase in
notes receivable is a result of balances acquired in the Promus acquisition.
Interest expense, net of amounts capitalized, increased $60 million reflecting
higher debt levels due to the Promus acquisition and higher interest rates on
the Company's floating rate debt.
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The effective income tax rate for the first quarter of 2000 increased to 42.5%
from 40.8% in the first quarter of 1999. The Company's effective income tax rate
is determined by the level and composition of pretax income and the mix of
income subject to varying foreign, state and local taxes.
OTHER MATTERS
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation, those
set forth under the captions "Development," "Liquidity and Capital Resources,"
and "Results of Operations," 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, 1999
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.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or around September 7, 1999, two actions were filed in the Court of
Chancery for the State of Delaware by alleged common stockholders of
Promus on behalf of a purported class of similarly situated Promus
stockholders. The actions were captioned STEVEN GOLDSTEIN V. PROMUS
HOTEL CORPORATION, ET AL. (C.A. No. 17410NC) and JOSEPH CARCO V. PROMUS
HOTEL CORPORATION, ET AL. (C.A. No. 17411NC). The complaints in the
actions, which were substantially similar, named as defendants Promus,
the members of the Promus board of directors and Hilton, and alleged
that the Promus directors breached their fiduciary duties to Promus
stockholders by agreeing to the acquisition and by allegedly failing to
obtain the highest value for Promus stockholders, and that Hilton
allegedly aided and abetted such alleged breaches of fiduciary duty.
The complaints sought injunctive relief and monetary damages in an
unspecified amount. On March 31, 2000, the plaintiffs in both of these
actions voluntarily dismissed the suits without prejudice and without
any payment by any defendant.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 11, 2000 at the
Beverly Hilton 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 2003: Peter M. George, Barron Hilton,
Robert L. Johnson and Sam D. Young, Jr., each of whom received
approximately 99 percent of the votes cast.
The amendment to the 1996 Stock Incentive Plan to increase the number
of authorized shares of common stock available for grant thereunder by
25,000,000 shares was approved by 71 percent of the votes cast.
The ratification of Arthur Andersen LLP to serve as auditors for the
Company for fiscal 2000 was adopted by 99 percent of the votes cast.
A stockholder proposal relating to the Company's stockholder rights
plan received 26 percent of the votes cast and was rejected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the three month period ended
March 31, 2000.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K/A, dated February 14, 2000,
under Item 7. Financial Statements and Exhibits, containing certain
supplemental financial information relating to the Form 8-K filed by
the Company on December 2, 1999, as amended on December 6, 1999.
14
<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 12, 2000 /s/ MATTHEW J. HART
------------------------------------------------
Matthew J. Hart
Executive Vice President and Chief Financial Officer
Date: May 12, 2000 /s/ THOMAS E. GALLAGHER
------------------------------------------------
Thomas E. Gallagher
Executive Vice President, Chief Administrative Officer
and General Counsel
15
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<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 149
<SECURITIES> 0
<RECEIVABLES> 447
<ALLOWANCES> 11
<INVENTORY> 111
<CURRENT-ASSETS> 857
<PP&E> 4,879
<DEPRECIATION> 983
<TOTAL-ASSETS> 9,249
<CURRENT-LIABILITIES> 593
<BONDS> 6,093
0
0
<COMMON> 946
<OTHER-SE> 506
<TOTAL-LIABILITY-AND-EQUITY> 9,249
<SALES> 793
<TOTAL-REVENUES> 793
<CGS> 0
<TOTAL-COSTS> 602
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 2
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<INCOME-PRETAX> 106
<INCOME-TAX> 45
<INCOME-CONTINUING> 58
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58
<EPS-BASIC> .16
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