• EPS of $.23 equals prior year quarter in a challenging RevPAR environment 
• Cost containment programs, timeshare, lower interest costs, benefit EPS 
• All brands increase market share 

The company reported net income for the second quarter of $86 million, compared to $88 million for the same quarter a year ago. Diluted net income per share of $.23 was equal to the $.23 reported for the 2000 second quarter.
    
Despite a significant drop in U.S. lodging demand, the company's aggressive cost containment programs, coupled with continued strong results at Hilton Grand Vacations, the company's vacation ownership business, and a decline in average debt levels and interest rates, enabled the company to post net income per share that was equal to last year. 
    
Quarterly results benefited also from higher-than-expected revenues from cross-selling among the brands and the success of the Hilton HHonors loyalty program, contributing to substantial gains in brand market share.
    
These factors helped offset the impact of comparatively soft results at some of Hilton's largest hotels in such markets as New York, San Francisco, Boston and Chicago, which after a record 2000, experienced lower demand in the group and independent business traveler segments. Demand among leisure travelers, however, remained solid during the quarter.
    
In addition, owned hotel results were affected by the ongoing guestrooms renovation project at the Hilton New Orleans. The May opening of the 453-room Kalia Tower at the Hilton Hawaiian Village Beach Resort & Spa had a positive impact on second quarter EBITDA (earnings before interest, taxes, depreciation, amortization, pre-opening expense and non-cash items).
    
Comparable RevPAR at the company's U.S. owned-or-operated hotels decreased 5.8 percent during the quarter, with occupancy declining 4.3 points to 73.3 percent and average daily rate (ADR) nearly flat at $136.65. Within the Hilton full-service brand, comparable owned-or-operated RevPAR decreased 7.3 percent for the quarter, with occupancy down 4.3 points to 75.4 percent and ADR off 2.1 percent to $162.69.
    
The company reported an 8 percent decline in revenue over the comparable 2000 quarter to $844 million. Total company EBITDA declined 4 percent to $345 million. The impact of 2000 and 2001 property sales (primarily the sale of leases back to RFS Hotel Investors and the sale of several Homewood Suites by Hilton properties) contributed to the decline in revenue and EBITDA in the quarter. Excluding the impact of asset sales, revenue and EBITDA declined 1 percent and 2.5 percent, respectively. Total company EBITDA margin for the quarter was strong at 40.9 percent, up 1.5 points from the 2000 quarter.
    
Across all brands, EBITDA from the company's owned hotels totaled $223 million, with comparable EBITDA down 11 percent. RevPAR from comparable owned properties declined 8 percent for the quarter.  Owned property comparable EBITDA margins were strong at 36.9 percent, compared with 38.4 percent in the 2000 quarter. The successful implementation of cost containment initiatives at the company's owned hotels helped mitigate the impact of the RevPAR decline on EBITDA.
    
System-wide RevPAR changes for the quarter at each of the Hilton brands were as follows: Hampton Inn up 3.2 percent; Hilton Garden Inn up 0.8 percent; Homewood Suites by Hilton down 0.6 percent;
Doubletree down 2.9 percent; Embassy Suites down 5.0 percent, and Hilton down 5.3 percent.
    
Management and franchise fees (across all brands) increased 5 percent to $98 million in the second quarter.
    
Brand Development/Market Share
    
Each of Hilton's brands continued to increase market share in the second quarter both in terms of unit growth, through the addition of new franchised and managed hotels, and at the property level, via outperformance of the Hilton brands in RevPAR versus their respective competitive sets.
    
In terms of unit growth, Hilton continues to expand its share of industry supply, with particular strength in the Hilton Garden Inn and Hampton Inn brands.
    
At the property level, where a RevPAR index of 100 represents a brand's "fair share" of the market, most of the Hilton brands command significant RevPAR premiums over their respective competitive sets, and all brands have shown substantial growth in RevPAR index. The brands in the Hilton portfolio (year-to-date through May) had RevPAR market share as follows: 

• Embassy Suites, 119.5 (+3.5 pts);
• Hampton Inn, 114.8 (+6.7 pts); 
• Homewood Suites by Hilton, 112.3 (+4.8 pts); 
• Hilton, 106.0 (+0.9 pts);
• Hilton Garden Inn, 103.0 (+7.6 pts). 
• The Doubletree brand, at 97.4, continued its turnaround with a 4.3-point increase in market share.

During the quarter, the company added 61 hotels and 9,015 rooms to its system as follows: Hampton Inn, 23 hotels and 2,213 rooms; Hilton Garden Inn, 12 hotels and 1,506 rooms; Homewood Suites by Hilton, 7 hotels and 762 rooms; Red Lion, 4 hotels and 484 rooms; Hilton, 1 hotel and 857 rooms; Embassy Suites, 1 hotel and 150 rooms; and other brands, 13 hotels and 3,043 rooms.  

Hotel and room additions in the quarter include the affiliation of 14 Camino Real hotel and resorts effective April 1, 2001. Eight properties and 1,563 rooms were removed from the system during the second quarter.  Year-to-date through June, the company's franchisees and owners have added a total of 95 hotels (with 13,721 rooms) spanning Hilton's family of brands.
    
At June 30, 2001, the Hilton system consisted of 1,965 properties and 325,605 rooms. The company's current development pipeline has approximately 400 hotels either approved, in design or under construction, the majority either Hampton Inns or Hilton Garden Inns. As evidence of the turnaround of Doubletree, there are currently eight new Doubletree hotels either approved, in design or under construction.
    
In June, Hilton was selected to manage a new 800-room convention hotel in Austin, Texas. The hotel, scheduled to open in early 2004, was the second such management contract awarded to Hilton in Texas in the last three months. In March, the company was named to manage a new 1,200-room convention hotel in Houston.
    
Hilton Grand Vacations
    
Hilton Grand Vacations, the company's vacation ownership business, reported strong results for the second quarter as a result of the January 2001 opening of its newest property at the Hilton Hawaiian Village Beach Resort & Spa in Waikiki, along with continued excellent sales at properties in Las Vegas, Nevada and Orlando, Florida. Unit sales at Hilton Grand Vacations increased 47 percent over the 2000 quarter.
    
Reflecting the increasing importance of vacation ownership to Hilton's overall business, Hilton Grand Vacations continues to develop properties in key resort destinations. In May, the company broke ground on two new properties, one each in Las Vegas and Orlando. The company continues to explore opportunities for additional timeshare development in both resort and urban locations.
    
Cross-selling
    
Cross-selling among all of the brands in the Hilton portfolio continues to exceed the company's expectations. Through June 2001, year-to-date cross-selling among all the Hilton family of brands through Hilton Reservations Worldwide has generated approximately $113 million in system-wide booked revenue, more than 60 percent ahead of last year's pace.
    
Additional cross-selling benefits are anticipated as a result of the June 2001 introduction of a new technology created by Hilton that enables electronic distribution and seamless cross-selling opportunities among all Hilton brands in the three leading Global Distribution Systems -- Sabre, Apollo/Galileo and Worldspan. The company also recently introduced cross-selling via the HiltonWorldwide.com website and the various Hilton branded websites.
    
Corporate Finance
    
At June 30, 2001, Hilton had total debt of $4.97 billion (net of $625 million of debt allocated to Park Place Entertainment). Approximately 38 percent of the company's debt is floating rate debt -- down from approximately 46 percent at the end of the first quarter 2001 -- and brings the company closer to its stated goal of 35 percent floating rate debt. Cash and equivalents totaled approximately $68 million at June 30, 2001. The company's average basic and diluted shares outstanding for the second quarter were 369 million and 394 million, respectively.
    
Consolidated interest expense declined 12 percent in the second quarter due to reduced debt balances and declining interest rates.
    
The company's effective tax rate declined to approximately 41 percent in 2001, compared to 42 percent in the second quarter a year ago.
   
In keeping with its goal of improving its balance sheet and maintaining financial flexibility, the company during the quarter issued $400 million seven-year Senior Unsecured Notes carrying a coupon of 7.625 percent. Proceeds from the sale were used to repay indebtedness under the company's revolving credit facility expiring October 2003.
    
During the quarter the company also sold two Homewood Suites by Hilton properties for $22 million, using the proceeds for general corporate purposes, including debt reduction. Hilton continues to pursue additional opportunities to sell non-strategic assets at attractive prices.
    
Six-month Results
    
For the six-month period ended June 30, 2001, Hilton reported net income of $141 million, compared to $146 million in the same period a year ago. Diluted net income per share was $.38 versus $.39 in the 2000 period. The first quarter 2000 included a net gain of $29 million, or $.04 per share, related to asset dispositions, specifically the sale of certain securities. On a recurring basis, Hilton's net income per share for the six-month period 2001 increased 9 percent to $.38 from $.35 in the 2000 period.
    
2001 Outlook
    
Based on what is expected to continue to be a challenging operating environment for the remainder of the year, Hilton said it anticipates system-wide RevPAR to be flat for full year 2001, with RevPAR at its owned hotels declining 3-4 percent for the year. Year-to-date group bookings were ahead of 2000, and advance bookings for the remainder of the year remain on pace with last year. Cancellations, however, were up significantly for the first six months, and further economic uncertainty could result in comparatively high cancellations for the rest of the year.
    
The company now anticipates marginal growth in EBITDA for the full year, excluding the potential impact of additional property transactions. It is expected that asset sales in 2000 and 2001, property renovations in New Orleans and San Francisco and a decline in U.S. lodging demand (compared against record 2000 results) will adversely impact revenue and EBITDA comparisons. Revenue and EBITDA are expected to benefit from the openings of the renovated Seattle Airport Hilton, and the new Kalia Tower and timeshare developments at the Hilton Hawaiian Village Beach Resort & Spa.
    
Hilton's cost containment programs have been implemented at all of its owned or operated properties, with the goal of matching last year's EBITDA margins.
    
Growth in earnings-per-share is expected as a result of increases in the company's fee-based business and its vacation ownership operations, along with lower interest costs. Successfully maintaining EBITDA margins is expected to help mitigate the impact of RevPAR declines. The company indicated it was comfortable with current analyst estimates for both the third and fourth quarters of 2001, equating to expected earnings per share for full year 2001 in the low 70-cent range. 
    
Net cash flow, after all maintenance and growth capital expenditures, is estimated to be in the $300 million range for the year. The company reiterated its goal of reducing its ratio of debt to EBITDA to approximately 3.75 times at year-end 2001, compared to a year-end 2000 figure of 4.0 times.
    
"We are very pleased to have delivered strong earnings for our shareholders in this challenging environment," said Stephen F. Bollenbach, president and chief executive officer of Hilton Hotels Corporation. "When revenue growth at the owned hotels is harder to come by, it is especially important to generate earnings from other sources, which in our second quarter were growth in fee income, our timeshare operations, successfully containing costs at both the property and corporate levels and lower interest costs.
    
"Occupancy levels and room rates at many of our large owned hotels are solid, though comparisons are difficult after last year's record results and operating challenges continue in the wake of a general slowdown in business travel," Mr. Bollenbach said. "We benefited in the second quarter by effectively managing our costs at the property level, and by continuing to do so, expect to maintain the strong EBITDA margins we reported last year.
    
"Our fee business continues to grow as owners throughout North America open new hotels spanning the entire Hilton family of brands. The fact that all of these brands are increasing market share in relation to their respective segment competitors -- in a tough RevPAR growth environment -- further strengthens their positions as the brands of choice for hotel owners."
    
Mr. Bollenbach concluded: "The environment remains challenging in many ways, but the second quarter demonstrated our ability to drive earnings growth in other areas and manage our costs. Continuing to do so will be the key to our success for the rest of this year, and we look forward to building on the successes of this past quarter."
    
 
 
 

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.