Hotel Online  Special Report


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 Hilton Hotels Earned $75 million in the 2nd Quarter, Up
Sharply from the $54 million a Year Ago;
-
Increased Business Travel Boosted Occupancy at High-end Urban Hotels
Hotel Operating Statistics

.

  • Comparable owned hotel RevPAR increases 8.3%, margins 30.5%
  • Fees increase 10% from RevPAR growth, new units
  • Timeshare revenue up 24%
  • Diluted EPS increases 36% to $.19 
BEVERLY HILLS, Calif. - July 28, 2004 -- Hilton Hotels Corporation (NYSE:HLT): today reported financial results for the second quarter and six months ended June 30, 2004, with the quarter's results highlighted by strong revenue per available room (RevPAR) growth at its comparable owned hotels, a significant increase in fee income and continued strong brand performance, another outstanding quarter in its vacation ownership business, and significant margin gains.

The company reported second quarter 2004 net income of $75 million, a 39 percent increase from $54 million in the 2003 period. Diluted net income per share was $.19 in the second quarter, compared with $.14 in the 2003 quarter, a 36 percent increase. The 2004 second quarter was impacted by the following non-recurring items, which combined to benefit the quarter by approximately $.01 per share: 1) a $3 million pre-tax gain on asset dispositions, 2) a $2 million pre-tax note receivable reserve, and 3) a $5 million benefit to the tax provision from the utilization of tax loss carryforwards.

Hilton reported second quarter total operating income of $188 million (a 15 percent increase from $164 million in the 2003 period) on total revenue of $1.065 billion (a 9 percent increase from $976 million in the 2003 quarter). Total company earnings before interest, taxes, depreciation, amortization, and non-recurring items ("Adjusted EBITDA") were $278 million, compared with $252 million in the 2003 period, an increase of 10 percent. Adjusting for the impact of owned hotel sales since the first quarter of 2003 and the consolidation of a previously unconsolidated managed property in the 2004 first quarter, revenue, operating income, and Adjusted EBITDA increased 11 percent, 16 percent, and 13 percent, respectively.

Owned Hotel Results

Continued strong business transient trends, improvement in group travel, and the start of a strong summer travel season combined to bring significant occupancy and/or rate increases to most of the company's major owned hotels in both business and leisure destinations.

Particularly good results were posted by company-owned hotels in New York City, the Washington, D.C. area, Hawaii, New Orleans, Boston, Phoenix, and San Diego. Occupancy levels at or near 90 percent, with significant rate increases as well, were achieved in New York and Boston. San Francisco continues to show improvement, while Chicago -- owing to a comparative lack of citywide conventions -- remains a challenging market for 2004.

Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) were $546 million, a 3 percent increase from $531 million in the 2003 period. The impact of property sales limited the revenue growth. Total revenue from comparable owned properties was up 8 percent in the quarter. RevPAR from comparable owned hotels increased 8.3 percent, in spite of the aforementioned softness in Chicago, which adversely impacted RevPAR growth by 2.3 points. Comparable owned hotel occupancy increased 3.3 points in the quarter to 76.7 percent, while average daily rate (ADR) increased 3.6 percent to $153.00. Continued improvement in the mix of business enabled second quarter RevPAR growth to be more ADR-driven than in previous periods.

Total owned hotel expenses in the second quarter were up marginally at $380 million (a 1 percent increase), reflecting the previously mentioned property sales. Expenses at the comparable owned hotels increased 6 percent in the quarter, primarily due to an increase in occupied rooms.

Excluding the impact of property sales on owned hotel revenue and expenses, owned hotel margins in the 2004 second quarter, when compared to the 2003 period, improved 140 basis points to 30.5 percent. Margin improvement resulted from a combination of the aforementioned ADR increase, an increase in food-and-beverage revenue resulting from more group room nights, and cost-per-occupied room that was approximately flat with the 2003 quarter.

Systemwide RevPAR; Management/Franchise Fees

The improved business trends that benefited the company's owned hotels in the second quarter, combined with favorable year-over-year comparisons, resulted in each of Hilton's brands reporting significant RevPAR increases in the quarter. Systemwide RevPAR growth at the company's brands (including franchise properties) was as follows: Hilton Garden Inn, 9.6 percent; Hilton, 9.5 percent; Doubletree, 8.5 percent; Embassy Suites, 6.9 percent; Hampton Inn, 6.0 percent; and Homewood Suites by Hilton, 5.9 percent.

These RevPAR gains (which accounted for approximately half of the company's fee growth in the quarter) and the addition of new units (which accounted for the other half) enabled the company to show a 10 percent increase in management and franchise fees in the quarter to $97 million.

RevPAR index figures (year-to-date May 2004 as measured by Smith Travel Research) show continued and significant occupancy and rate premiums for the following Hilton brands: Embassy Suites, 123.3; Homewood Suites by Hilton, 119.0; Hampton Inn, 117.9; Hilton Garden Inn, 116.1; and Hilton, 108.8. Doubletree's RevPAR index was 98.9.

Brand Development/Unit Growth

In the second quarter 2004, the company added 38 properties and 4,938 rooms to its system as follows: Hampton Inn, 21 hotels and 1,815 rooms; Hilton Garden Inn, 9 hotels and 1,183 rooms; Homewood Suites by Hilton, 4 hotels and 374 rooms; Doubletree, 3 hotels and 1,116 rooms; and Hilton, 1 property and 450 rooms.

Seven hotels and 922 rooms were removed from the system during the quarter. At June 30, 2004, the Hilton system consisted of 2,216 properties and 352,885 rooms. The company had more than 425 hotels and approximately 58,000 rooms in its development pipeline at June 30, 2004.

Development highlights during the quarter and early July included the conversion to the Hilton brand of a 332-room full-service hotel in Indianapolis, scheduled for mid-August; the beginning of renovation of six Doubletree properties recently acquired by USAA Real Estate Co. in suburban Kansas City, Houston, Anaheim, St. Louis, and Tulsa; the opening of Doubletree's first hotel in Canada, at Niagara Falls; and a new-build Doubletree in Bay City, Mich. (outside Detroit); groundbreaking for the first Homewood Suites by Hilton hotel in Canada, in Toronto; the opening of the Conrad Miami, the first freestanding Conrad Hotel in North America; and the signing of a management contract for a new Conrad Hotel in Indianapolis, scheduled to open in 2006.

In July, it was announced that both Hilton Garden Inn and Homewood Suites by Hilton earned first-place rankings for customer satisfaction in their respective categories from J.D. Power & Associates, while Embassy Suites and Hampton Inn each garnered top three rankings in their categories.

Hilton Grand Vacations

Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, had another strong quarter with increases in overall unit sales and average unit sales price. HGVC had second quarter revenue of $98 million, an increase of 24 percent from $79 million in the 2003 period. Expenses were $71 million in the 2004 second quarter compared with $58 million in the 2003 period. Overall unit sales in the quarter were up 34 percent, while the average unit sales price increased 7 percent.

HGVC sales continue to be strong in its three focus destinations of Hawaii, Las Vegas, and Orlando, with a particularly exceptional sales pace at its two newest properties in the latter two markets. Development of Phase II at HGVC's new Las Vegas Strip resort is on schedule to begin by year-end 2004, and development of another phase at its new Orlando property is expected to begin in early 2005.

Distribution/Technology

Improving demand in all segments -- business transient, group, and leisure -- resulted in significant increases in both call volume and gross reservations. In the second quarter 2004, call volume through Hilton's call centers was up 6 percent over the 2003 period, with gross reservations through Hilton Reservations Worldwide (HRW), the Global Distribution System (GDS), and all Internet sources up almost 12 percent (up nearly 14 percent in June alone.) Year-to-date June 30, 2004, call volume through Hilton's call centers was up more than 7 percent from the 2003 period, with gross reservations through HRW, GDS, and the Internet up approximately 14 percent.

In the second quarter, online bookings through the company's proprietary branded websites increased approximately 25 percent over the 2003 period.

Furthering its industry leadership position in the use of technology to enhance customer service, and based on successful tests at the Hilton New York and Hilton Chicago, the company said that self-service check-in kiosks would be installed at approximately 45 of its owned and/or managed hotels by year-end 2004.

Corporate Finance

At June 30, 2004, Hilton had total debt of $3.6 billion (net of $325 million allocated to Caesars Entertainment, Inc. and repaid by Caesars in July 2004, and $100 million of debt resulting from the consolidation of a managed hotel, which is non-recourse to Hilton.) This represents a reduction of $81 million during the second quarter. Borrowings under the company's $1 billion revolving credit facility were completely repaid during the second quarter. Approximately 13 percent of the company's debt is floating rate debt. Total cash and equivalents (including restricted cash) were approximately $295 million at June 30, 2004. The company's average basic and diluted share counts for the second quarter were 383 million and 391 million, respectively.

Consolidated net interest expense (interest expense net of interest and dividend income) declined by $4 million in the second quarter due primarily to lower average debt balances.

Hilton's debt currently has an average life of 9.4 years, at an average cost of approximately 6.7 percent.

Net corporate expense increased to $25 million due to the aforementioned $2 million note receivable reserve, the corporate-related costs associated with awards under the company's equity compensation plan, and higher legal costs.

The company's effective tax rate in the second quarter was 34 percent. During the quarter, the company's provision for income tax benefited from the utilization of tax loss carryforwards of approximately $5 million as a result of the sale of its interest in Travelweb, and the sale of Doubletree properties in Bakersfield and Modesto, Calif. Excluding this benefit, the company's effective tax rate was approximately 38 percent.

Total hotel capital expenditures in the quarter were $38 million, with an additional $6 million expended for timeshare development.

Six-Month Results

For the six-month period ended June 30, 2004, Hilton reported net income of $112 million, compared to $63 million in the corresponding 2003 period. Diluted net income per share was $.29 versus $.17 in the 2003 period. Operating income for the six months was $319 million (compared with $250 million in the 2003 period) based on revenue of $2.059 billion (versus $1.885 billion in the 2003 period.) For the 2004 six-month period, when compared to the same period last year, total company Adjusted EBITDA increased 11 percent to $497 million. Excluding the impact of owned hotel sales since the first quarter 2003, Adjusted EBITDA increased 14 percent.

Updated 2004 Outlook

Based on its strong second quarter results and positive outlook for the remainder of the year, the company updated and increased its estimates for full-year 2004 as follows:

  • Total revenue - $4.170 billion range
  • Total Adjusted EBITDA - $1 billion range
  • Total operating income - $650 million range
  • Comparable owned hotel RevPAR - Increase of 6-8%
  • Diluted earnings per share - Mid to high $.50 range
Total capital spending in 2004 remains consistent with previously published guidance, approximately $275 million broken out as follows: approximately $155 for routine improvements and technology, $60 million for timeshare projects, and $60 million for hotel special projects.

The company expects to add 115-130 hotels and 15,000-17,000 rooms to its system in 2004, consistent with previous guidance.

"We are very pleased with a second quarter that, even when considering the benefit of favorable year-over-year comparisons, demonstrates that our business is improving in a big way, with all aspects of our company capitalizing on these strengthening trends," said Stephen F. Bollenbach, co-chairman and chief executive officer of Hilton Hotels Corporation.

"With the strength in business transient travel that we began seeing last year and the more recent upturn in group travel, a return to true pricing power is nearing. It is significant that of the RevPAR growth at our owned hotels in the second quarter, about 40 percent came from rate increases, so we're seeing a more rate-driven environment. Demand in markets like New York, Washington, D.C., Boston, and Hawaii, coupled with little new full-service supply, will help maximize our ability to raise room rates in the future. The summer started out great, with record numbers of travelers, and we're looking forward to that continuing the rest of the summer.

"The fee income side of our business is firing on all cylinders; our fee growth is now a nice balance of new unit additions -- which we've become accustomed to over the years -- along with RevPAR growth across our system. In addition, our strategy of focusing on selective timeshare development in important year-round destinations like Hawaii, Las Vegas, and Orlando is paying off; our timeshare business had yet another banner quarter."

Mr. Bollenbach concluded: "Our continued emphasis on, and industry leadership position in, the creation and utilization of technology-based programs gives us a sustainable competitive advantage in attracting owners to our brands, enhancing the performance of those brands, maximizing customer loyalty, and bringing new customers to our properties. This kind of innovation will help us take even further advantage of the continually improving fundamentals in our industry, paving the way for even greater success in the months and years ahead."
 
 

HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)

                       Three Months Ended        Six Months Ended
                            June 30,                 June 30,
                     2003  2004   % Change    2003    2004   % Change
                     ----- ------ ---------  ------- ------- ---------
Revenue
 Owned hotels        $531   $546         3%  $1,014  $1,028         1%
 Leased hotels         27     29         7       51      55         8
 Management and
  franchise fees       88     97        10      168     186        11
 Timeshare and other
  income               88    107        22      171     227        33
                     ----- ------            ------- -------
                      734    779         6    1,404   1,496         7
 Other revenue from
  managed and
  franchised
  properties          242    286        18      481     563        17
                     ----- ------            ------- -------
                      976  1,065         9    1,885   2,059         9
Expenses
 Owned hotels         376    380         1      748     751         -
 Leased hotels         24     25         4       47      50         6
 Depreciation and
  amortization         79     83         5      165     166         1
 Impairment loss and
  related costs         -      -         -       17       -         -
 Other operating
  expenses             79     89        13      154     190        23
 Corporate expense,
  net                  19     25        32       38      44        16
                     ----- ------            ------- -------
                      577    602         4    1,169   1,201         3
 Other expenses from
  managed and
  franchised
  properties          242    285        18      481     559        16
                     ----- ------            ------- -------
                      819    887         8    1,650   1,760         7

Operating income
 from unconsolidated
 affiliates             7     10        43       15      20        33
                     ----- ------            ------- -------

Operating income      164    188        15      250     319        28

Interest and
 dividend income        8      7       (13)      15      17        13
Interest expense      (77)   (72)       (6)    (152)   (142)       (7)
Net interest from
 unconsolidated
 affiliates and non-
 controlled interests  (4)    (8)        -       (9)    (14)       56
Net (loss) gain on
 asset dispositions    (2)     3         -       (3)     (1)      (67)
                     ----- ------            ------- -------
Income before taxes
 and minority and
 non-controlled
 interests             89    118        33      101     179        77
Provision for income
 taxes                (33)   (40)       21      (34)    (61)       79
Minority and non-
 controlled
 interests, net        (2)    (3)       50       (4)     (6)       50
                     ----- ------            ------- -------
Net income            $54    $75        39%     $63    $112        78%
                     ===== ======            ======= =======

Net income per share(1)
--------------------------
Basic                $.14   $.20        43%    $.17    $.29        71%
                     ===== ======            ======= =======
Diluted              $.14   $.19        36%    $.17    $.29        71%
                     ===== ======            ======= =======

Average shares -
 basic                377    383         2%     377     382         1%
                     ===== ======            ======= =======
Average shares -
 diluted              395    391       (1)%     399     390       (2)%
                     ===== ======            ======= =======

(1) EPS for the six month periods differs from the sum of quarterly
    EPS amounts due to the required method of computing EPS in the
    respective periods.
 

HILTON HOTELS CORPORATION
                       U.S. Owned Statistics(1)

                   Three Months Ended           Six Months Ended
                         June 30,                    June 30,
                                   %/pt                        %/pt
                2003     2004      Change   2003     2004     Change
               -------- -------- ------------------ -------- ---------

Hilton
--------------
 Occupancy        74.2%    78.3%   4.1 pts    70.5%    73.4%   2.9 pts
 Average Rate  $153.23  $158.58       3.5% $153.10  $156.12       2.0%
 RevPAR        $113.72  $124.11       9.1% $107.96  $114.66       6.2%

All Other
--------------
 Occupancy        68.1%    66.9% (1.2) pts    66.7%    66.3% (0.4) pts
 Average Rate  $109.57  $110.71       1.0% $108.31  $109.72       1.3%
 RevPAR         $74.62   $74.01     (0.8)%  $72.29   $72.72       0.6%

Total
--------------
 Occupancy        73.4%    76.7%   3.3 pts    70.0%    72.5%   2.5 pts
 Average Rate  $147.75  $153.00       3.6% $147.33  $150.44       2.1%
 RevPAR        $108.44  $117.40       8.3% $103.14  $109.05       5.7%

(1) Statistics are for comparable hotels, and include only those
    hotels in the system as of June 30, 2004, and owned by us since
    January 1, 2003.
 

                      HILTON HOTELS CORPORATION
                       Systemwide Statistics(1)

                    Three Months Ended           Six Months Ended
                         June 30,                    June 30,
                                    %/pt                       %/pt
                 2003     2004      Change   2003     2004     Change
               --------- -------- ------------------ -------- --------

Hilton
--------------
 Occupancy         69.0%    73.1%   4.1 pts    66.5%    70.0%  3.5 pts
 Average Rate   $126.21  $130.49       3.4% $126.81  $129.95      2.5%
 RevPAR          $87.13   $95.39       9.5%  $84.33   $90.96      7.9%

Hilton Garden
 Inn
--------------
 Occupancy         67.9%    72.1%   4.2 pts    64.5%    69.3%  4.8 pts
 Average Rate    $95.71   $98.82       3.2%  $95.52   $97.87      2.5%
 RevPAR          $64.98   $71.23       9.6%  $61.60   $67.83     10.1%

Doubletree
--------------
 Occupancy         67.8%    71.9%   4.1 pts    65.3%    69.2%  3.9 pts
 Average Rate   $100.47  $102.82       2.3% $101.56  $103.07      1.5%
 RevPAR          $68.13   $73.92       8.5%  $66.29   $71.33      7.6%

Embassy Suites
--------------
 Occupancy         71.5%    74.4%   2.9 pts    69.5%    72.2%  2.7 pts
 Average Rate   $120.23  $123.56       2.8% $121.08  $123.21      1.8%
 RevPAR          $85.95   $91.88       6.9%  $84.15   $88.95      5.7%

Homewood Suites by
 Hilton
------------------
 Occupancy         74.0%    76.6%   2.6 pts    70.4%    73.5%  3.1 pts
 Average Rate    $94.97   $97.24       2.4%  $95.03   $96.83      1.9%
 RevPAR          $70.29   $74.45       5.9%  $66.86   $71.18      6.5%

Hampton
--------------
 Occupancy         70.0%    71.6%   1.6 pts    65.5%    67.4%  1.9 pts
 Average Rate    $79.00   $81.77       3.5%  $78.41   $80.73      3.0%
 RevPAR          $55.27   $58.59       6.0%  $51.36   $54.42      6.0%

Other
--------------
 Occupancy         40.9%    71.9%  31.0 pts    46.8%    68.2% 21.4 pts
 Average Rate   $135.16  $131.39     (2.8)% $125.51  $126.14      0.5%
 RevPAR          $55.26   $94.53      71.1%  $58.73   $86.03     46.5%

(1) Statistics are for comparable hotels, and include only those
    hotels in the system as of June 30, 2004, and owned, operated, or
    franchised by us since January 1, 2003.
 

                      HILTON HOTELS CORPORATION
                Supplementary Statistical Information

                                                June
                                    2003                 2004
                                   Number of            Number of
                              Properties   Rooms   Properties   Rooms
                             ----------- -------------------- --------
Hilton
----------------------------
 Owned                               38   28,572          36   27,492
 Leased                               1      499           1      499
 Joint Venture                        7    2,739          10    4,177
 Managed                             20   11,664          24   13,904
 Franchised                         165   44,341         159   42,973
                             ----------- -------- ----------- --------
                                    231   87,815         230   89,045
Hilton Garden Inn
----------------------------
 Owned                                1      162           1      162
 Joint Venture                        2      280           2      280
 Managed                              -        -           6      796
 Franchised                         164   22,401         191   26,161
                             ----------- -------- ----------- --------
                                    167   22,843         200   27,399
Doubletree
----------------------------
 Owned                                9    3,156           6    2,374
 Leased                               6    2,151           6    2,144
 Joint Venture                       28    8,420          25    7,427
 Managed                             48   12,474          40   10,553
 Franchised                          61   14,420          75   17,762
                             ----------- -------- ----------- --------
                                    152   40,621         152   40,260
Embassy Suites
----------------------------
 Owned                                5    1,023           4      881
 Joint Venture                       27    7,279          27    7,279
 Managed                             57   14,699          54   14,136
 Franchised                          83   18,788          89   20,264
                             ----------- -------- ----------- --------
                                    172   41,789         174   42,560
Homewood Suites by Hilton
----------------------------
 Owned                                3      398           3      398
 Managed                             34    4,135          36    4,304
 Franchised                          87    9,606          97   10,617
                             ----------- -------- ----------- --------
                                    124   14,139         136   15,319
Hampton
----------------------------
 Owned                                1      133           1      133
 Managed                             24    3,101          35    4,461
 Franchised                       1,204  121,966       1,241  124,809
                             ----------- -------- ----------- --------
                                  1,229  125,200       1,277  129,403

Timeshare                            28    3,289          31    3,740
----------------------------

Other
----------------------------
 Owned                                1      300           1      300
 Joint Venture                        3    1,393           3    1,394
 Managed                             11    3,254          12    3,465
 Franchised                           1      408           -        -
                             ----------- -------- ----------- --------
                                     16    5,355          16    5,159

Total
----------------------------
 Owned                               58   33,744          52   31,740
 Leased                               7    2,650           7    2,643
 Joint Venture                       67   20,111          67   20,557
 Managed                            194   49,327         207   51,619
 Timeshare                           28    3,289          31    3,740
 Franchised                       1,765  231,930       1,852  242,586
                             ----------- -------------------- --------

TOTAL PROPERTIES                  2,119  341,051       2,216  352,885
                             =========== ==================== ========
 

                                              Change to
                                    June 2003         December 2003
                                    Number of           Number of
                                Properties  Rooms   Properties  Rooms
                               ----------- ------- ----------- -------
Hilton
------------------------------
 Owned                                 (2) (1,080)          -      (4)
 Leased                                 -       -           -       -
 Joint Venture                          3   1,438           -       -
 Managed                                4   2,240           -    (199)
 Franchised                            (6) (1,368)          -     236
                               ----------- ------- ----------- -------
                                       (1)  1,230           -      33
Hilton Garden Inn
------------------------------
 Owned                                  -       -           -       -
 Joint Venture                          -       -           -       -
 Managed                                6     796           3     405
 Franchised                            27   3,760          14   1,984
                               ----------- ------- ----------- -------
                                       33   4,556          17   2,389
Doubletree
------------------------------
 Owned                                 (3)   (782)         (3)   (782)
 Leased                                 -      (7)          -       -
 Joint Venture                         (3)   (993)          -       -
 Managed                               (8) (1,921)         (4) (1,032)
 Franchised                            14   3,342           4   1,460
                               ----------- ------- ----------- -------
                                        -    (361)         (3)   (354)
Embassy Suites
------------------------------
 Owned                                 (1)   (142)          -       -
 Joint Venture                          -       -           -       -
 Managed                               (3)   (563)          -       -
 Franchised                             6   1,476           -       7
                               ----------- ------- ----------- -------
                                        2     771           -       7
Homewood Suites by Hilton
------------------------------
 Owned                                  -       -           -       -
 Managed                                2     169           -       -
 Franchised                            10   1,011           6     559
                               ----------- ------- ----------- -------
                                       12   1,180           6     559
Hampton
------------------------------
 Owned                                  -       -           -       -
 Managed                               11   1,360           1     138
 Franchised                            37   2,843          21   1,722
                               ----------- ------- ----------- -------
                                       48   4,203          22   1,860

Timeshare                               3     451           1      96
------------------------------

Other
------------------------------
 Owned                                  -       -           -       -
 Joint Venture                          -       1           -       1
 Managed                                1     211           1     219
 Franchised                            (1)   (408)         (1)   (408)
                               ----------- ------- ----------- -------
                                        -    (196)          -    (188)

Total
------------------------------
 Owned                                 (6) (2,004)         (3)   (786)
 Leased                                 -      (7)          -       -
 Joint Venture                          -     446           -       1
 Managed                               13   2,292           1    (469)
 Timeshare                              3     451           1      96
 Franchised                            87  10,656          44   5,560
                               ----------- ------- ----------- -------

TOTAL PROPERTIES                       97  11,834          43   4,402
                               =========== ======= =========== =======
 

                      HILTON HOTELS CORPORATION
            Supplemental Financial Information (Unaudited)
      Reconciliation of Adjusted EBITDA to EBITDA and Net Income
                           Historical Data
                           ($ in millions)

                            Three Months Ended     Six Months Ended
                                  June 30,              June 30,
                           2003  2004  % Change  2003  2004  % Change
                           ----- ----- --------- ----- ----- ---------

Adjusted EBITDA            $252  $278        10% $449  $497        11%
 Proportionate share of
  depreciation and
  amortization of
  unconsolidated
  affiliates                 (7)   (6)      (14)  (14)  (13)       (7)
 Non-recurring items          -     -         -   (17)    -         -
 Operating interest and
  dividend income            (2)   (2)        -    (3)   (3)        -
 Operating income from
  non-controlled interests    -     1         -     -     4         -
 Net (loss) gain on asset
  dispositions               (2)    3         -    (3)   (1)      (67)
 Minority and non-
  controlled interests,
  net                        (2)   (3)       50    (4)   (6)       50
                           ----- -----           ----- -----
EBITDA                      239   271        13   408   478        17
 Depreciation and
  amortization              (79)  (83)        5  (165) (166)        1
 Interest expense, net      (73)  (73)        -  (146) (139)       (5)
 Provision for income
  taxes                     (33)  (40)       21   (34)  (61)       79
                           ----- -----           ----- -----
Net income                  $54   $75        39%  $63  $112        78%
                           ===== =====           ===== =====
 

                      HILTON HOTELS CORPORATION
            Supplemental Financial Information (Unaudited)
      Reconciliation of Adjusted EBITDA to EBITDA and Net Income
             Future Performance - Full Year 2004 Outlook
              ($ in millions, except per share amounts)

                                                   Estimated
                                                   Full Year
                                                     2004
                                         -----------------------------

Adjusted EBITDA                                                $1,005
 Proportionate share of depreciation and
  amortization of unconsolidated
  affiliates                                                      (30)
 Operating interest and dividend income                            (5)
 Operating income from non-controlled
  interests                                                         8
 Net loss on asset dispositions                                    (1)
 Minority and non-controlled interests,
  net                                                              (9)
                                         -----------------------------
EBITDA                                                            968
 Depreciation and amortization                                   (330)
 Interest expense, net                                           (280)
 Provision for income taxes                                      (134)
                                         -----------------------------
Net income                                                       $224
                                         =============================

Diluted EPS                                                      $.57
                                         =============================
 

                      HILTON HOTELS CORPORATION
            Supplemental Financial Information (Unaudited)
                   Owned Hotel Revenue and Expenses
                       Adjusted for Asset Sales
                           ($ in millions)

                        Three Months Ended       Six Months Ended
                              June 30,                June 30,
                       2003  2004  % Change   2003    2004   % Change
                       ----- ----- --------- ------- ------- ---------

Revenue - owned hotels $531  $546         3% $1,014  $1,028         1%
Less sold hotels        (30)   (7)              (65)    (15)
                       ----- -----           ------- -------
Revenue - comparable
 owned hotels          $501  $539         8%   $949  $1,013         7%
                       ===== =====           ======= =======

Expenses - owned
 hotels                $376  $380         1%   $748    $751         -%
Less sold hotels        (21)   (5)              (45)    (11)
                       ----- -----           ------- -------
Expenses - comparable
 owned hotels          $355  $375         6%   $703    $740         5%
                       ===== =====           ======= =======
 

NON-GAAP FINANCIAL MEASURES
----------------------------------------------------------------------

Regulation G, "Conditions for Use of Non-GAAP Financial Measures,"
prescribes the conditions for use of non-GAAP financial information in
public disclosures. We believe that our presentation of EBITDA and
Adjusted EBITDA, which are non-GAAP financial measures, are important
supplemental measures of operating performance to investors. The
following discussion defines these terms and why we believe they are
useful measures of our performance.

EBITDA and Adjusted EBITDA
----------------------------------------------------------------------

Earnings before interest, taxes, depreciation, and amortization
(EBITDA) is a commonly used measure of performance in our industry
which we believe, when considered with measures calculated in
accordance with United States Generally Accepted Accounting Principles
(GAAP), gives investors a more complete understanding of operating
results before the impact of investing and financing transactions and
income taxes, and facilitates comparisons between us and our
competitors. Management has historically adjusted EBITDA when
evaluating operating performance because we believe that the inclusion
or exclusion of certain recurring and non-recurring items described
below is necessary to provide the most accurate measure of our core
operating results and as a means to evaluate period-to-period results.
We have chosen to provide this information to investors to enable them
to perform more meaningful comparisons of past, present, and future
operating results and as a means to evaluate the results of core
on-going operations. We do not reflect such items when calculating
EBITDA; however, we adjust for these items and refer to this measure
as Adjusted EBITDA. We have historically reported this measure to our
investors and believe that the continued inclusion of Adjusted EBITDA
provides consistency in our financial reporting. We use Adjusted
EBITDA in this press release because we believe it is useful to
investors in allowing greater transparency related to a significant
measure used by management in its financial and operational decision
making. Adjusted EBITDA is among the more significant factors in
management's internal evaluation of total company and individual
property performance and in the evaluation of incentive compensation
related to property management. Management also uses Adjusted EBITDA
as a measure in determining the value of acquisitions and
dispositions. Adjusted EBITDA is also widely used by management in
the annual budget process. Externally, we believe these measures
continue to be used by investors in their assessment of our operating
performance and the valuation of our company.  Adjusted EBITDA for
2004 reflects EBITDA adjusted for the following items:

 Gains and Losses on Asset Dispositions and Non-Recurring Items
 ---------------------------------------------------------------------

 We exclude from Adjusted EBITDA the effect of gains and losses on
 asset dispositions and non-recurring items, such as asset write-
 downs and impairment losses. We believe the inclusion of these items
 is not consistent with reflecting the on-going performance of
 our assets. Management believes it is useful to exclude gains and
 losses on asset dispositions as these amounts are not reflective of
 our operating performance or the performance of our assets and the
 amount of such items can vary dramatically from period to period. The
 timing and selection of an asset for disposition is subject to a
 number of variables that are generally unrelated to our on-going
 operations.

 Proportionate Share of Depreciation and Amortization of
 Unconsolidated Affiliates
 ---------------------------------------------------------------------

 Our consolidated results include the equity earnings from our
 unconsolidated affiliates after the deduction of our proportionate
 share of depreciation and amortization expense from unconsolidated
 affiliates. We exclude our proportionate share of depreciation and
 amortization expense from unconsolidated affiliates from Adjusted
 EBITDA to provide a more accurate measure of our proportionate
 share of core operating results before investing activities and to
 provide consistency with the performance measure we use for our
 consolidated properties.

 Operating Interest and Dividend Income
 ---------------------------------------------------------------------

 Interest and dividend income from investments related to operating
 activities is included in our calculation of Adjusted EBITDA. We
 consider this income, primarily interest on notes receivable issued
 to properties we manage or franchise and dividend income from
 investments related to the development of our core businesses, to be
 a part of our core operating results.

 Non-Controlled Interest
 ---------------------------------------------------------------------

 The consolidation of non-controlled interests in accordance with
 Financial Accounting Standards Board Interpretation No. 46 (FIN 46)
 resulted in an increase in certain revenue and expenses in the 2004
 period; however, it had no net impact to our consolidated net income.
 We exclude from Adjusted EBITDA the corresponding amounts of
 operating income, net interest expense, tax provision and
 non-controlled interest reported on our income statement to the
 extent these amounts belong to other ownership interests. These
 exclusions are shown in their respective lines on the Reconciliation
 of Adjusted EBITDA to EBITDA and Net Income.

 Minority Interest, Net
 ---------------------------------------------------------------------

 We exclude the minority interest in the income or loss of our
 consolidated joint ventures because these amounts effectively
 include our minority partners' proportionate share of depreciation,
 amortization, interest and taxes, which are excluded from EBITDA.

Limitations on the Use of Non-GAAP Measures
----------------------------------------------------------------------

The use of EBITDA and Adjusted EBITDA has certain limitations. Our
presentation of EBITDA and Adjusted EBITDA may be different from the
presentation used by other companies and, therefore, comparability may
be limited. Depreciation expense for various long-term assets,
interest expense, income taxes and other items have been and will be
incurred and are not reflected in the presentation of EBITDA or
Adjusted EBITDA. Each of these items should also be considered in the
overall evaluation of our results. Additionally, EBITDA and Adjusted
EBITDA do not consider capital expenditures and other investing
activities and should not be considered as a measure of our liquidity.
We compensate for these limitations by providing the relevant
disclosure of our depreciation, interest and income tax expense,
capital expenditures and other items both in our reconciliations to
the GAAP financial measures and in our consolidated financial
statements, all of which should be considered when evaluating our
performance.

EBITDA and Adjusted EBITDA are used in addition to and in conjunction
with results presented in accordance with GAAP. EBITDA and Adjusted
EBITDA should not be considered as an alternative to net income,
operating income, or any other operating performance measure
prescribed by GAAP, nor should these measures be relied upon to the
exclusion of GAAP financial measures. EBITDA and Adjusted EBITDA
reflect additional ways of viewing our operations that we believe,
when viewed with our GAAP results and the reconciliations to the
corresponding GAAP financial measures, provide a more complete
understanding of factors and trends affecting our business than could
be obtained absent this disclosure. Management strongly encourages
investors to review our financial information in its entirety and not
to rely on a single financial measure.

This press release contains "forward-looking statements" within the meaning of federal securities law, including statements concerning business strategies and their intended results, and similar statements concerning anticipated future events and expectations that are not historical facts. 

 

 
Contact:

Hilton Hotels Corporation
Marc Grossman, 310-205-4030
marc_grossman@hilton.com

Also See: Hilton Reports 1st Qtr Net Income of $37 million, Nearly 4 Times Higher than a Year Ago; Timeshare Income up 45% / Hotel Operating Statistics / April 2004
Hilton Reports Solid Occupancy Levels for 4th Quarter; For the Full Year 2003 Net Income Down 17% to $164 million from $198 million a Year Earlier / Hotel Operating Statistics / January 2004


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