BEVERLY HILLS, Calif. - Oct. 23, 2001 - Hilton Hotels Corporation (NYSE:HLT) today reported results for the third quarter and nine months ended Sept. 30, 2001. 

As a result of severe declines in occupancy at most of its large owned hotels in urban markets in the week following the Sept. 11 terrorist attacks, the company reported net income for the third quarter of $21 million, compared to $62 million for the same quarter a year ago. Diluted net income per share was $.06 compared to $.17 in the 2000 third quarter. 

The company's continuing aggressive cost containment programs, strong sales at its Hilton Grand Vacations timeshare business and a decline in average debt levels and interest rates were positive factors in the quarter. Additionally, higher-than-expected revenues from cross-selling contributed to increases in market share for all of Hilton's brands. 

Comparable revenue per available room (RevPAR) at the company's U.S. owned-or-operated hotels decreased 17.3 percent during the quarter, with occupancy declining 8.4 points to 68.3 percent and average daily rate (ADR) declining 7.0 percent to $124.66. Within the Hilton full-service brand, comparable owned-or-operated RevPAR decreased 19.7 percent for the quarter, with occupancy down 9.3 points to 70.3 percent and ADR off 9.1 percent to $145.26. 

The company reported an 18 percent decline in revenue over the comparable 2000 quarter to $711 million. Total company earnings before interest, taxes, depreciation, amortization, pre-opening expense and non-cash items (EBITDA) declined 25 percent to $237 million. Along with the Sept. 11 attacks, 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 11 percent and 24 percent, respectively. Total company EBITDA margin for the quarter was 33.3 percent, compared to 36.6 percent in the 2000 quarter. 

Across all brands, EBITDA from the company's owned hotels totaled $137 million, with comparable EBITDA down 35.7 percent. RevPAR from comparable owned properties declined 20.5 percent for the quarter. Owned property comparable EBITDA margins were 27.4 percent, compared with 34.6 percent in the 2000 quarter. Margins were severely impacted by the immediate and unforeseen decline in business following the Sept. 11 attacks and group and convention cancellations resulting in a significant decrease in high-margin food and beverage revenues. 

System-wide RevPAR declines for the quarter at each of the Hilton brands (including franchised properties) were as follows:

• Hampton Inn, 3.3 percent; 
• Hilton Garden Inn, 7.3 percent; 
• Homewood Suites by Hilton, 7.8 percent; 
• Embassy Suites, 14.2 percent;
• Doubletree, 15.3 percent, and 
• Hilton, 18.0 percent. 

Management and franchise fees (across all brands) decreased 11 percent to $79 million in the third quarter. 

Quarterly Trends Prior To Attacks 

Prior to the events of Sept. 11, the company had been on track to report quarterly earnings per share in line with Wall Street estimates at the time, and comparable with the 2000 third quarter. RevPAR at the company's comparable owned hotels had been on pace to show a decline of approximately 9 percent vs. the 2000 period. Total company EBITDA had been expected to show an approximate 7 percent decline to $300 million. EBITDA at comparable owned hotels was trending to show an approximate 9 percent decline. EBITDA margins had been trending to be off less than 100 basis points from the 2000 quarter. 

While comparisons to the 2000 quarter were difficult -- the company having posted double-digit gains in both RevPAR and EBITDA during that period -- the benefit of Hilton's cost containment programs had been helping mitigate the impact of the RevPAR decline on EBITDA. Continuing strong timeshare results were also expected to aid the comparisons. 

Current Trends 

As announced by the company Oct. 8, Hilton noted that despite the drop in occupancy immediately following the Sept. 11 attacks, such indicators as hotel occupancy and ADR have been trending up in the past several weeks. 

For the month of October 2001 (through Oct. 20), occupancy at the company's comparable owned hotels was 66.0 percent and ADR was $153.39. At the franchised hotels (excluding Hilton and Hilton Garden Inn) October month-to-date occupancy was 69.8 percent and ADR was $84.10. 

Since mid-September, booked reservations through Hilton Reservations Worldwide, the Global Distribution Systems and the Internet have steadily increased, showing general improvement. 

Similarly, the company has seen a steady decrease in the number of group cancellations. Approximately 90 percent of the cancellations were for the months of September and October 2001. Thus far, approximately 40 percent of the cancellations have rebooked for later dates. 

Brand Development/Market Share 

Each of Hilton's brands continued to increase market share in the third 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 vs. their respective competitive sets. 

In terms of unit growth, Hilton continues to expand its share of industry supply, with particular strength in the Hampton Inn and Hilton Garden 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 continue to command significant RevPAR premiums over their respective competitive sets, and all brands have shown substantial growth in RevPAR index. According to data from Smith Travel Research, the brands in the Hilton portfolio (year-to-date through August) had RevPAR market share as follows: Embassy Suites, 120.1 (+3.6 pts.); Hampton Inn, 114.9 (+6.0 pts.); Homewood Suites by Hilton, 113.4 (+4.6 pts.); Hilton, 106.6 (+1.0 pts.); Hilton Garden Inn, 104.3 (+4.4 pts.). The Doubletree brand, at 97.7, continued its turnaround with a 4.1-point increase in market share. For the month of August, Doubletree achieved a RevPAR index of 100. 

The strong performance of Hilton brands continues to be attributable to the power of the brand names (Embassy Suites and Hampton Inn won their third consecutive J.D. Power Customer Satisfaction Awards and Homewood Suites by Hilton won a J.D.  Power Award in its first year of eligibility); aggressive cross-selling between the brands (currently running more than 50 percent ahead of the total for the full year 2000); the company's worldwide sales organization, and the impact of the Hilton HHonors loyalty program. Hilton HHonors members comprise a combined 29 percent of the occupancy at Doubletree, Hampton Inn, Embassy Suites and Homewood Suites by Hilton brands. Approximately 35 percent of the occupancy at the Hilton brand is HHonors-related. 

Hilton expects to add 180-190 hotels and approximately 25,500 rooms to its system in 2001. During the quarter, the company added 39 hotels and 5,356 rooms to its system as follows: Hampton Inn, 20 hotels and 1,684 rooms; Hilton Garden Inn, 7 hotels and 878 rooms; Embassy Suites, 5 hotels and 1,564 rooms; Homewood Suites by Hilton, 1 hotel and 95 rooms; Red Lion and other brands, 6 hotels and 1,135 rooms. Three hotels and 892 rooms were removed from the system during the third quarter. Year-to-date through September, the company's franchisees and owners have added a total of 134 hotels with 19,077 rooms, spanning Hilton's family of brands. 

At Sept. 30, 2001, the Hilton system consisted of 2,001 properties and 330,069 rooms. 

The company's current development pipeline has approximately 390 hotels either approved, in design or under construction, the majority either Hampton Inns or Hilton Garden Inns. There are currently 14 new Doubletree hotels either approved, in design or under construction. 

Hilton Grand Vacations 

Hilton Grand Vacations, the company's vacation ownership business, reported continued strong sales in the third quarter, particularly at the company's new property at the Hilton Hawaiian Village Beach Resort & Spa in Waikiki. Unit sales, also strong in Las Vegas, Nevada and Orlando, Florida, increased 24 percent over the 2000 quarter. During the third quarter, Hilton announced the postponement of previously announced timeshare projects in Las Vegas and Orlando, saying it would re-evaluate those projects at a later date. 

Cross-Selling 

Cross-selling among all of the brands in the Hilton portfolio continues to exceed the company's expectations. Through September 2001, year-to-date cross-selling among all brands through Hilton Reservations Worldwide has generated approximately $187 million in system-wide booked revenue, approximately 50 percent ahead of the total for all of 2000. 

Corporate Finance 

At Sept. 30, 2001, Hilton had total debt of $4.77 billion (net of $625 million of debt allocated to Park Place Entertainment).  Approximately 30 percent of the company's debt is floating rate debt -- down from approximately 38 percent at the end of the second quarter 2001. Cash and equivalents totaled approximately $53 million at Sept. 30, 2001. The company's average basic and diluted shares outstanding for the third quarter were 369 million and 394 million, respectively. 

Consolidated interest expense declined 19 percent in the third quarter due to reduced debt balances and declining interest rates. 

Hilton's debt currently has an average life of seven years, at an average cost of approximately 6.6 percent. 

During the quarter, the company completed two capital market transactions. The company issued $200 million of 30-year Quarterly Interest Bonds, carrying a coupon of 8 percent. Proceeds from the transaction were used to retire the amounts outstanding under Hilton's 1996 $1.75 billion revolver. The commitment under this facility was extinguished with the closing of this transaction.  Separately, the company issued $100 million of bonds in Chilean Pesos with an 8-year term and a coupon of 7.43 percent; the company has swapped out all Chilean currency exchange rate and inflation risk. Proceeds from this transaction also were used to pay down bank indebtedness. 

As of Sept. 30, 2001, the company had approximately $725 million of available capacity under its various lines of credit, and was in compliance with all of its various credit facilities. 

In October, Hilton completed a transaction with CNL Hospitality Corp. in which the two companies formed a partnership that will own four hotel properties. Hilton will operate the four hotels under long-term management agreements and retain a minority ownership interest in the partnership. 
Also in October, the company entered into a non-binding letter of intent to sell its Red Lion chain plus up to five Doubletree hotels to WestCoast Hospitality Corporation (NYSE:WEH - news). The transaction, which is subject to negotiation of a definitive agreement and the successful completion of due diligence, is expected to close by year-end 2001. Financial terms of the transaction will be announced upon signing of a definitive agreement. 

Nine-Month Results 

For the nine-month period ended Sept. 30, 2001, Hilton reported net income of $162 million, compared to $208 million in the same period a year ago. Diluted net income per share was $.44 per share vs. $.56 in the 2000 period. The 2000 nine-month results included a net gain of $32 million, or $.05 per share, related to asset dispositions, specifically the sale of certain securities. On a recurring basis, Hilton's net income per share for the nine-month period declined 14 percent to $.44 from $.51 in the 2000 period.

Fourth Quarter 2001, Full Year 2002 Preliminary Outlook 

Hilton continues to operate its business under a theory of managing for recovery, anticipating significant weakness through year-end 2001, with improvement ramping up in 2002 to business levels approximating those seen in 1999. 

Acknowledging the current challenging environment and uncertainties facing the entire lodging industry, Hilton issued preliminary guidance for both the fourth quarter 2001 and full year 2002. 

Fourth Quarter 2001 

For internal planning purposes, the company is assuming a fourth quarter RevPAR decline at its comparable owned hotels of approximately 30 percent vs. the 2000 period. Under such assumptions, the company expects to generate approximately $100-$110 million of owned hotel EBITDA during the quarter, compared to $219 million in the 2000 period, and total company EBITDA of approximately $170-$180 million, compared to $313 million in 2000. Owned hotel EBITDA margins are expected to be in the mid-20 percent range, about a 10-point decline from the 2000 quarter. Fourth quarter margins are expected to be negatively impacted by the immediate and unforeseen decline in business following the Sept. 11 attacks, and significantly reduced high-margin food and beverage revenues due to fewer group meetings. The company anticipates reporting approximately break-even diluted earnings per share (excluding the impact of property transactions, if any), compared with $.17 in the 2000 period. 

Full Year 2002 

Based on preliminary forecasts, the company is assuming 2002 RevPAR at its comparable owned hotels will be flat or show marginal growth over 2001. The company expects sequential quarterly improvement in RevPAR during 2002, with RevPAR in the second half of the year exceeding that of the comparable 1999 period. 

Total company EBITDA is expected to be approximately $1.1 billion in 2002, comparable to the pro forma $1.094 billion reported in 1999. The company expects 2002 EBITDA margins at its owned hotels to be equivalent to the 1999 levels of 34 percent. Net income per share for 2002 is expected to be in the mid-$.60 range, including $.12 per share from the new accounting rules pertaining to goodwill and intangible assets. 

The company noted that its aggressive cost containment programs, begun in earnest in the first quarter 2001, will continue in 2002 at both the corporate and property levels with an eye toward maximizing operating margins. 

As previously announced, Hilton will keep in place the majority of its capital expenditure plans for 2002, save for the postponement of two timeshare projects. The company anticipates approximately $250 million of capital expenditures during the year, of which approximately $200 million is maintenance capital spending, including technology. The company is completing renovation projects in San Francisco, New Orleans, Cleveland and Salt Lake City, as well as the new guestroom tower at the Portland Hilton. 

Based on the company's preliminary 2002 EBITDA guidance, free cash flow, after all capital expenditures, is estimated to be in the $300 million range for the year. 

The company has manageable near-term maturities. In 2002, there are $68 million of property mortgages and mortgage amortization and $267 million of debentures due; in 2003, $12 million in mortgage amortization, and the Hilton Hawaiian Village facility which has a current outstanding balance of $405 million; and in 2004, $13 million in mortgage amortization, and the $1.4 billion multi-year facility which has a current outstanding balance of approximately $900 million, including commercial paper back up. 

Hilton said that a likely slowdown in hotel construction for the remainder of 2001, combined with the pending sale of Red Lion, could impact 2002 openings. The company expects to add 130 to 160 hotels and 16,000 to 20,000 rooms to its system in 2002. However, given the challenging environment for many operators and the market share leadership position of Hilton's brands, the company anticipates having the opportunity to convert several hotels to one of the Hilton brands in 2002 and beyond, thereby potentially enhancing the company's unit growth and fee income stream. 

Stephen F. Bollenbach, president and chief executive officer of Hilton Hotels Corporation, said: "This has been an enormously difficult period for America and for the travel industry which is so important to our economy. But at Hilton, we believe in the resiliency of the American people and their need and desire to travel for business and pleasure. The trends we have seen since mid-September are validating our philosophy of managing for recovery, and our theory that after this very difficult short-term period, we will see steady improvement in 2002, with full year 2002 comparable owned hotel revenues and EBITDA returning to the levels we saw in the pro forma 1999 period ... which was a good year for our industry. 

"Certainly, there are challenges ahead of us and we are meeting them. Our cost containment programs, coupled with an experienced management team, strong brands and fee income stream, well-maintained and strategically located owned hotels, a strong balance sheet with reasonable maturities and adequate liquidity, will enable us to emerge from this crisis period in an even stronger position,'' Bollenbach said. 

"The strength of our brands and their proven ability to increase market share will, we believe, afford us the opportunity to convert other brands to go along with third party ground-up unit growth. And the commanding presence of our owned hotels in gateway cities will become even more pronounced as the introduction of new competitive supply grinds to a virtual halt. 

"Demand will continue to be a challenge for all of us in the travel industry, which is why our company remains very supportive of direct assistance to the airlines and of efforts by local, state and federal government to actively stimulate the general economy and promote tourism. These efforts, combined with our own company's sales and marketing initiatives, including Hilton HHonors, worldwide sales force and brand cross-selling, will keep people traveling for meetings, vacations and conventions.'' 

Bollenbach concluded: ``While not minimizing the challenges in front of us, we believe in the inherent strength of the travel industry, in America's resiliency, and in our own abilities and strengths that will ensure that we weather this current crisis.'' 
 

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.