• Solid margins, timeshare business contribute to EPS of $.09
• Business recovery continues with major occupancy improvement over Q401
• All Hilton brands show market share gains
• Strategic purchase of Waikoloa property enhances market leadership in Hawaii 

First quarter results were highlighted by the company's ongoing successful cost containment programs, which resulted in strong margins in a challenging environment; robust sales at the company's Hilton Grand Vacations timeshare business; market share increases for all brands in the Hilton family, and a decline in interest expense. The quarter was adversely impacted by a still comparatively sluggish U.S. economy, reduced demand from independent business travelers and a decline in international visitation. 

The company reported first quarter net income of $34 million, versus $55 million in the 2001 quarter. Diluted net income per share was $.09, compared with $.15 in the first quarter 2001. Pro forma diluted EPS in the first quarter 2001 (including $.03 per share from the new accounting rules pertaining to non-amortization of goodwill and certain intangible assets) was $.18. The 2001 quarter also benefited from the recognition of previously deferred timeshare sales in Hawaii ($.02 per share). 

Comparable revenue per available room (RevPAR) at the company's U.S. owned-or-operated hotels decreased 13.7 percent in the quarter on an occupancy decline of 4.6 points to 66.0 percent and a 7.6 percent decline in average daily rate (ADR) to $130.67. Within the Hilton full-service brand,
comparable owned-or-operated RevPAR declined 13.2 percent, with occupancy down 4.8 points to 68.1 percent, and ADR declining 7.1 percent to $155.25. 

The company reported first quarter revenue of $921 million, down 14 percent from the 2001 period.

Total company earnings before interest, taxes, depreciation, amortization and non-cash items (EBITDA) were $231 million, a 22 percent decline from the 2001 quarter. Along with the lingering affects of the September 11 attacks, the impact of 2001 property transactions (primarily CNL and the sale of the Red Lion chain) contributed to the decline in revenue and EBITDA. Excluding the impact of asset sales and the first quarter 2001 recognition of previously deferred timeshare sales in Hawaii, revenue and EBITDA declined 9 percent and 18 percent, respectively, in the first quarter 2002. Total company EBITDA margin for the quarter was 33.5 percent (EBITDA as a percentage of revenue before ``other revenue from managed and franchised properties.'') 

Across all brands, EBITDA from the company's owned hotels totaled $136 million in the first quarter, with comparable EBITDA down 20 percent from the same period a year ago. RevPAR from comparable owned properties declined 15.3 percent for the quarter; occupancy at these hotels declined 5.0 points to 66.2 percent, and ADR was off 8.9 percent to $149.49. EBITDA margins at these hotels declined 2.7 points from the 2001 first quarter, but as a result of aggressive cost containment initiatives, owned hotel EBITDA margins were a solid 27.6 percent. This represented a 2-point improvement over the fourth quarter 2001. 

The owned hotel RevPAR decline was in line with the company's expectations, but more importantly represented a significant improvement from the decline experienced in the 2001 fourth quarter, signifying strengthening demand especially among leisure travelers and groups. At comparable owned hotels, occupancy levels in particular were strong -- 66.2 percent in the first quarter versus 61.2 percent in the fourth quarter 2001 -- with ADR roughly flat, despite the first quarter being a historically weaker period and the first quarter 2002 impact of the Easter holiday. Markets maintaining strong occupancy levels or showing particular improvement include New York City, New Orleans, Washington, D.C. and Honolulu. Key markets that continue to exhibit softness are San Francisco and Chicago, though the outlook for Chicago is expected to improve. 

As has been the case in the last two reporting periods, occupancy and rates in "drive-to'' markets -- those less dependent on air travel, and where the company's Hampton Inn, Hilton Garden Inn and Homewood Suites by Hilton hotels are primarily located -- were impacted to a significantly lesser degree than hotels in major urban centers. 

System-wide RevPAR in the first quarter declined from the 2001 period at each of the Hilton brands (including franchised properties) by the following percentages: Hampton Inn, 2.7 percent; Homewood Suites by Hilton, 7.3 percent; Hilton Garden Inn, 8.4 percent; Embassy Suites, 11.0 percent; Hilton, 12.8 percent, and Doubletree, 14.6 percent. 

Management and franchise fees for the quarter totaled $81 million, a 13 percent decline from the 2001 period, due primarily to a decline in both base and incentive fees resulting from lower RevPAR. 

Brand Development/Market Share 

Picking up from where they left off in 2001, each of the company's brands increased market share during the first two months of 2002, with most of the brands commanding significant RevPAR premiums over their respective competitive sets. With 100 representing a brand's RevPAR ``fair share'' of the market, the Hilton brands (according to data from Smith Travel Research) performed as follows year-to-date February 2002: Embassy Suites, 122.6 (+3.8 pts.); Hampton Inn, 120.4 (+6.7 pts.); Homewood Suites by Hilton, 120.4 (+8.5 pts.); Hilton Garden Inn, 113.1 (+4.0 pts.); Hilton, 110.2 (+3.8 pts.), Doubletree, 97.2 (+0.5 pts). 

The company's successful cross-selling initiatives and the strength of the Hilton HHonors guest loyalty program helped contribute to this superior brand performance. In the first quarter, cross-selling through Hilton Reservations Worldwide generated approximately $74 million in system-wide booked revenue, a 19 percent increase over the 2001 period. HHonors members comprise a combined 36 percent of the occupancy at the Doubletree, Hampton Inn, Embassy Suites and Homewood Suites by Hilton brands, and is approximately the same at the Hilton brand. 

During the quarter, Hilton added 31 hotels and 4,015 rooms to its system as follows: Hampton Inn, 17 hotels and 1,581 rooms; Hilton Garden Inn, 6 hotels, 997 rooms; Doubletree, 3 hotels, 583 rooms; Homewood Suites by Hilton, 3 hotels, 420 rooms; Hilton, 1 hotel, 375 rooms; Conrad, 1 hotel, 59 rooms. Two hotels and 287 rooms were removed from the system during the quarter. At March 31, 2002, the Hilton system totaled 2,015 properties and 331,215 rooms. 

The company's current development pipeline has approximately 360 hotels either approved, in design or under construction, some 75 percent of which are either Hampton Inns or Hilton Garden Inns. As evidence of the turnaround of the Doubletree hotels, there are currently eight Doubletree hotels either in design, under construction, or being converted from other brands, with another three in the approval stage. 

During the quarter, the development of five new Hampton Inn hotels in New York City was announced by franchisees, and Hilton and Hilton International announced the management of a new luxury Conrad Hotel in Mount Juliet, Ireland. 

Additionally, the company announced today (April 23) that is has signed an agreement to manage a new 450-room convention hotel in downtown Omaha, Nebraska. The Hilton Omaha, adjacent to the new Omaha Convention Center, is scheduled to open in early 2004. This agreement represents the third such contract signed by Hilton in recent months, following announcements of new-build convention hotels Hilton will manage in Houston and Austin, Texas. 

Hilton Grand Vacations 

The company's vacation ownership business, Hilton Grand Vacations Company, had another successful quarter with strong sales in Honolulu, Las Vegas and Orlando. Excluding the recognition of deferred timeshare sales in Hawaii which had a disproportionate positive impact on the 2001 first quarter, EBITDA from timeshare improved significantly primarily as a result of an increase in average unit sales price. Unit sales in the 2002 first quarter were roughly comparable to the 2001 quarter. 

Due to the strength of this business, Hilton continues to invest prudently in timeshare development. The company has announced the resumption of development of two new projects in Las Vegas and Orlando. The Las Vegas project, located at the north end of the Las Vegas Strip, will have 295 units in its first phase and is scheduled for completion in January 2004. Currently, Hilton Grand Vacations has two successful developments in Las Vegas at the Flamingo and Las Vegas Hilton hotels. In Orlando, the new project will have 96 units in its first two phases, with completion planned for February 2004. This will be the company's second Orlando project, complementing an existing development at Sea World. 

Total development cost for phase one at the new Las Vegas property and phases one and two at the new Orlando property is estimated at $165 million, with approximately $30 million being spent in 2002. 

Additionally, Hilton Grand Vacations announced the creation of a new urban timeshare concept, with the initial development at the Hilton New York & Towers. The company is converting 112 of the hotel's guest rooms to 78 luxurious timeshare units. Opening is scheduled for December 2002. Total cost of this project is $12 million, of which approximately $10 million will be spent in 2002. 

Agreement to Purchase Hilton Waikoloa Village 

Hilton also announced today that it has agreed to purchase the renowned Hilton Waikoloa Village, a trophy 1,241-room resort property on the Big Island of Hawaii. Hilton currently manages the property for a foreign investor, and has a roughly 13 percent ownership interest. Hilton is acquiring the remaining approximately 87 percent interest for some $155 million. The consideration will be approximately $75 million cash and 5.2 million shares of Hilton common stock. Closing of the transaction is subject to customary conditions, and is expected to occur during the second quarter 2002. The common stock to be issued in the transaction will be entitled to certain registration rights following the closing. 

This world-famous resort, which sits on 62 acres on the Big Island's Kohala Coast, was first acquired by the foreign investment group and Hilton in 1993; it had opened originally in 1988 and was built at a cost of approximately $400 million. It features 90,000 square feet of meeting space, the 25,000 square-foot Kohala Spa, three swimming pools with waterfalls and water slides, a salt water lagoon with snorkeling and other water activities, access to 36 holes of golf and Dolphin Quest, a unique facility where guests can
interact with and learn about dolphins. 

"The Hilton Waikoloa Village is the definition of an irreplaceable asset, and is an important strategic property for our company and our 12 million Hilton HHonors members, and along with the Hilton Hawaiian Village on Waikiki Beach, solidifies our major presence in Hawaii,'' said Matthew J. Hart, Hilton's executive vice president and chief financial officer. ``We are acquiring the property at approximately 40 percent of its original cost, and at an attractive multiple of about 7.6 times estimated 2002 EBITDA.'' 

The company believes the transaction will be slightly accretive to 2002 earnings. 

"Using our stock at its current price was not our preferred method for completing this transaction, but it was important that we act quickly to acquire this one-of-a-kind hotel while also communicating to our debt holders and the rating agencies that we are committed to improving our credit profile,'' Mr. Hart said. 

Complementing the Hilton Waikoloa Village -- and providing important operating efficiencies and synergies -- is the 2,998-room Hilton Hawaiian Village Beach Resort & Spa. Located on Waikiki Beach on the island of Oahu, the Hilton Hawaiian Village is one of the world's foremost destination resorts. 

Corporate Finance 

At March 31, 2002, Hilton had total debt of $4.7 billion (net of $625 million of debt allocated to Park Place Entertainment, of which $300 million comes due in June 2002). Approximately 28 percent of the company's debt is floating rate debt. Cash and equivalents totaled approximately $91 million at March 31, 2002. The company's average basic and diluted shares outstanding for the first quarter were 370 million and 396 million, respectively. 

Consolidated interest expense declined 16 percent in the first quarter due to reduced debt balances and declining interest rates. Hilton's debt currently has an average life of 6.6 years, at an average cost of approximately 6.1 percent. At March 31, 2002, the company had $714 million of available capacity under its various lines of credit. 

Second Quarter, Full-Year 2002 Outlook 

Based on an anticipated strengthening U.S. economy and the resulting improvement in demand from independent business travelers, coupled with an ongoing emphasis on cost controls, new unit growth through franchising, anticipated strong timeshare sales and the impact of favorable comparisons in the second half of the year, the company said it expected to see continued sequential quarterly improvement throughout 2002 in RevPAR, EBITDA and EBITDA margin percentage gains. 

Accordingly, Hilton issued the following preliminary guidance for the second quarter 2002, and updated guidance for fiscal year 2002.

Second Quarter 2002 

The company anticipates an approximate 5 to 6 percent revenue decline in the second quarter 2002 (before ``other revenue from managed and franchised properties'') compared to the 2001 quarter due to: an estimated 1 to 2 percent decline in RevPAR at its comparable owned hotels, 2001 property sales and lower fee revenue. This will be partially offset by the positive impact of the addition of the Waikoloa property. 

The impact of these items is expected to result in total company EBITDA in the $300 million range (versus $345 million in the 2001 quarter). Owned hotel EBITDA is expected to be in the $200 million range (versus $223 million in the 2001 quarter). In addition to the effect of various property additions and sales, EBITDA is expected to be impacted by increased insurance and health care costs.

Owned hotel EBITDA margins are anticipated to be in the low to mid 30 percent range for the quarter. 

Diluted earnings per share in the second quarter is expected to be in the low 20-cent range, including $.03 per share from the new accounting rules pertaining to non-amortization of goodwill and certain intangible assets. Pro forma diluted EPS in the second quarter 2001 (including the $.03 per share) was $.26. 

Full Year 2002 

The company expects full year 2002 revenue to be down approximately 1 percent (before ``other revenue from managed and franchised properties'') due to 2001 property sales (partially offset by the Waikoloa purchase); the recognition of deferred timeshare revenues in the first quarter 2001, and a modest decline in fee revenue due to lower incentive management fees and franchise application fees. These declines will be partially offset by Hilton's reaffirmed guidance of an expected 2 to 3 percent increase in RevPAR at comparable owned hotels. As stated previously, sequential quarterly RevPAR percentage growth is expected as the year progresses. 

Total company EBITDA is expected to be up roughly 3 percent, with owned hotel EBITDA of approximately $715-720 million. The company expects owned hotel EBITDA margins to be in the low 30 percent range, with the company's aggressive cost control measures helping mitigate the impact of increased health care and insurance costs. 

Hilton expects diluted earnings per share for 2002 in the low to mid $.60 range, including $.12 per share from the adoption of the new goodwill accounting rules. On a pro forma basis (including the $.12), 2001 diluted EPS was $.57. 

With the resumption of construction at the company's two new timeshare projects in Las Vegas and Orlando, along with the new timeshare development at the Hilton New York, Hilton revised its 2002 capital spending guidance. Total cap-ex for 2002 is now estimated to be approximately $290 million (versus previous guidance of $250 million). Cap-ex spending breaks out roughly as follows: $190 million for maintenance capital spending and technology; $60 million for various return-on-investment and master plan projects, including completion of the new guest room tower at the Hilton Portland and guestroom and public space renovations at the Hilton San Francisco and Hilton New Orleans Riverside; and $40 million for the aforementioned timeshare projects. 

Based on the company's EBITDA guidance, and after all capital expenditures, interest, taxes, and dividends and the cash portion of the Waikoloa transaction, Hilton anticipates generating approximately $220 million of free cash flow in 2002. 

Hilton reconfirmed its previously issued guidance for new hotel openings in 2002. The company anticipates adding 130 to 160 hotels and 16,000 to 20,000 rooms to its system in 2002, virtually all through franchise agreements and management contracts, with the upper end of those ranges made possible through brand conversions. 

Stephen F. Bollenbach, president and chief executive officer of Hilton Hotels Corporation, said: "While the first quarter posed a number of challenges, we were encouraged on a variety of fronts. "First, the business recovery we had anticipated is in fact occurring, and in many markets business is actually rebounding faster than expected. Secondly, what softness remains, especially in the independent business traveler segment, is more related to the economy than to the events of September 11. This is certainly a more familiar environment for hotel operators, and as the economy gains strength we anticipate a return to more desirable pricing power. Finally, we met the current challenges by operating our business efficiently as evidenced by our EBITDA margins. 

"Even in a difficult environment we were able to significantly expand the Hilton system by adding hotels across all of our brands through franchising and managing. Our ability to add units is a direct result of the market share gains posted by our brands, reaffirming them as the brands-of-choice for hotel owners. In addition, our planned purchase of the Hilton Waikoloa Village keeps a very important resort property in the Hilton family, and enables us to maintain the leadership position in the key Hawaii market that we have worked so hard to achieve.'' 

Mr. Bollenbach concluded: "The takeaway from the first quarter is that our focus on watching costs helped us preserve our margins, our brands continue to perform well versus their competitors, and while there are still challenges ahead, we have come a long way toward recovery since the last few months of 2001.'' 
 
 

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.