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Press Release: Hilton Hotels Corporation
October 26, 2004
BEVERLY HILLS, CA -- Hilton Hotels Corporation (NYSE:HLT) yesterday reported financial results for the third quarter
and nine months ended September 30, 2004. The quarter benefited from strong revenue per available room (RevPAR)
growth at the company's comparable owned hotels owing to increased demand from business travelers in many of Hilton's
key markets; significant margin gains at comparable owned hotels due, in part, to improved room rates; an increase
in fee income resulting from both RevPAR growth at managed and franchised hotels and the addition of new units,
and another strong quarter from the company's vacation ownership business.
The company reported third quarter 2004 net income of $61 million, a 79 percent increase from $34 million in the
2003 period. Diluted net income per share was $.16 in the third quarter, compared with $.09 in the 2003 quarter,
a 78 percent increase. The 2004 quarter includes $10 million in pre-tax earnings from an unconsolidated joint venture
that developed a 251-unit condominium project in Myrtle Beach, S.C. The project closed on the sale of all units
in the third quarter.
Hilton reported third quarter total operating income of $171 million (a 36 percent increase from $126 million in
the 2003 period) on total revenue of $1.033 billion (a 9 percent increase from $952 million in the 2003 quarter).
Total company earnings before interest, taxes, depreciation, amortization and non-recurring items ("Adjusted
EBITDA") were $257 million, compared with $218 million in the 2003 period, an increase of 18 percent. Adjusting
for the impact of owned hotel sales since the end of the second quarter of 2003 and the consolidation of a previously
unconsolidated managed property beginning in the 2004 first quarter, revenue, operating income and Adjusted EBITDA
increased 10 percent, 36 percent and 20 percent, respectively.
Owned Hotel Results
Vibrant summer travel demand, coupled with continually improving business transient and group trends, enabled most
of the company's major owned hotels to report strong results. Hilton-owned hotels in New York and Boston showed
particularly good results owing in part to the two political conventions held in those cities; occupancy levels
at those hotels were in the high-80 to low-90 percent range, along with significant rate increases. Strong markets
in the quarter also included Honolulu, the Washington, D.C. area, San Diego, Portland and Anchorage. Chicago showed
improved occupancy levels in the quarter, and San Francisco continued to show signs of gradual improvement. New
Orleans, due to a comparative paucity of citywide conventions and the impact of the hurricanes in the Southeast,
experienced a difficult quarter.
Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $492 million,
a 1 percent increase from $487 million in the 2003 period. The impact of property sales limited the revenue growth.
Total revenue from comparable owned properties was up 7 percent in the quarter. RevPAR from comparable owned hotels
increased 7.3 percent. Comparable owned hotel occupancy increased 2.7 points to 76.7 percent, while average daily
rate (ADR) increased 3.5 percent to $146.84. Improvement in overall demand and in the mix of business enabled the
trend of more ADR-driven RevPAR gains to continue in the third quarter.
Total owned hotel expenses in the third quarter were down slightly at $365 million (a 2 percent decrease). Expenses
at the comparable owned hotels increased 4 percent in the quarter, primarily due to an increase in occupied rooms.
Owned hotel expenses in the third quarter benefited from property tax adjustments totaling approximately $4 million,
primarily at the company's owned hotels in Chicago.
Excluding the impact of property sales on owned hotel revenue and expenses, owned hotel margins in the 2004 third
quarter, when compared to the 2003 period, improved 210 basis points to 25.8 percent. Margin improvement resulted
primarily from the aforementioned ADR increase and property tax adjustments, as well as the company's continued
focus on costs. Cost-per-occupied-room (factoring out this quarter's property tax adjustments) increased less than
1 percent.
System-wide RevPAR; Management/Franchise Fees
Each of the company's brands reported significant RevPAR gains in the third quarter. On a system-wide basis RevPAR
growth by brand was as follows: Hilton, 7.6 percent; Doubletree, 7.5 percent; Hampton Inn, 6.8 percent; Hilton
Garden Inn, 6.4 percent; Homewood Suites by Hilton, 5.4 percent, and Embassy Suites, 4.5 percent.
Management and franchise fees in the third quarter increased by $15 million, or 17 percent, over the 2003 period.
Adjusting for the impact of the consolidation of a managed hotel in 2004, fees increased 13 percent from the 2003
quarter. Of the third quarter 2004 fee growth, approximately 40 percent came from RevPAR gains at franchised/ managed
hotels, and 60 percent from the addition of new units.
RevPAR index figures (year-to-date August 2004 as measured by Smith Travel Research) continue to show occupancy
and rate premiums for the majority of Hilton's brands: Embassy Suites, 123.4; Homewood Suites by Hilton, 118.6;
Hampton Inn, 117.1; Hilton Garden Inn, 115.5; Hilton, 108.8. Doubletree's RevPAR index was 99.4.
Brand Development/Unit Growth
In the third quarter 2004, the company added 36 properties and 4,775 rooms to its system as follows: Hampton Inn,
14 hotels and 1,371 rooms; Hilton Garden Inn, 13 hotels and 1,600 rooms; Hilton, 3 hotels and 887 rooms; Homewood
Suites by Hilton, 2 hotels and 214 rooms; Doubletree, 2 hotels and 343 rooms; Embassy Suites, 1 hotel and 157 rooms;
Conrad, 1 hotel and 203 rooms.
Eight hotels and 1,136 rooms were removed from the system during the quarter. At September 30, 2004, the Hilton
system consisted of 2,244 properties and 356,524 rooms. The company had approximately 450 hotels and 58,000 rooms
in its development pipeline at September 30, 2004.
Hilton Grand Vacations
Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported another strong quarter
with third quarter 2004 revenue of $109 million, an increase of 16 percent from $94 million in the 2003 period.
Expenses were $80 million in the third quarter compared with $71 million in the 2003 period. Overall unit sales
in the quarter were up 36 percent, while the average unit sales price increased 9 percent.
Sales continue to be strong across the HGVC system, which features high-quality resort properties in Hawaii, Las
Vegas and Orlando. During the quarter, HGVC announced it would break ground in February 2005 on the 70-unit Phase
V of its International Drive property in Orlando, with completion scheduled for spring 2006. Also in Orlando, the
company is adding 48 units to its existing property at Sea World. Development of the 431-unit Phase II tower at
its Las Vegas Strip property began during the third quarter.
Distribution/Technology
Hilton noted significant increases in both call volume and gross reservations in the quarter, reflecting improving
demand among all business segments -- business transient, group and leisure. In the third quarter 2004, call volume
through Hilton's call centers was up 7 percent over the 2003 period, with gross reservations through Hilton Reservations
Worldwide (HRW), the Global Distribution System (GDS) and all Internet sources up 12 percent. Year-to-date September
2004, call volume through Hilton's call centers was up 7 percent over the 2003 period, with gross reservations
through HRW, GDS and the Internet up 13 percent.
In the third quarter, online bookings through the company's proprietary branded websites increased 34 percent over
the 2003 period.
As part of its ongoing commitment to using technology to enhance customer service and strengthen its industry leadership
position in this area, the company announced two new initiatives. Remote, Web-based check-in 24 hours prior to
arrival will be available during the fourth quarter at selected hotels across all Hilton brands. This program enables
guests with password-protected online accounts to select their room type and features based on preferences and
history, and prints confirmation documents. The second program, Electronic Folio Access, enables travelers to review
online and print hotel folios following stays at any of the 2,200-plus Hilton Family of hotels, a first for a multi-brand
hotel company.
Hilton said also that as of September 2004, high speed Internet access (HSIA) was deployed in 95 percent of its
hotels system-wide; that number is expected to reach 100 percent by year-end 2004. Additionally, Hilton confirmed
that it was on pace to have self-service check-in kiosks in place at 45 of its owned and/or managed hotels by year-end
2004.
Corporate Finance
At September 30, 2004, Hilton had total debt of $3.6 billion (net of $100 million of debt resulting from the consolidation
of a managed hotel, which is non-recourse to Hilton.) Approximately 13 percent of the company's debt is floating
rate debt. Total cash and equivalents (including restricted cash) were approximately $365 million at September
30, 2004, an increase of $70 million during the third quarter. The company's average basic and diluted share counts
for the third quarter were 385 million and 393 million, respectively.
Hilton's debt currently has an average life of 9.1 years, at an average cost of approximately 6.8 percent. In September
2004, Moody's Investors Service raised its rating on Hilton to investment grade (Baa3,) citing the company's successful
debt reduction program and an improved demand environment in the lodging industry. Hilton is now rated investment
grade by two of the major rating agencies, Moody's and Standard & Poor's.
The company's effective tax rate in the third quarter was 36.5 percent.
Total hotel capital expenditures in the quarter were $40 million, with an additional $11 million expended for timeshare
development.
Nine-Month Results
For the nine-month period ended September 30, 2004, Hilton reported net income of $173 million, compared to $97
million in the corresponding 2003 period. Diluted net income per share was $.44 versus $.25 in the 2003 period.
Operating income for the nine months was $490 million (compared with $376 million in the 2003 period) based on
revenue of $3.092 billion (compared with $2.837 billion in the 2003 period). For the 2004 nine-month period, when
compared to the same period last year, total company Adjusted EBITDA increased 13 percent to $754 million. Excluding
the impact of owned hotel sales since the first quarter 2003, Adjusted EBITDA increased 16 percent.
Updated 2004 Outlook
The company's updated estimates for full-year 2004 are as follows:
Total revenue $4.140 billion range Total Adjusted EBITDA $1 billion range Total operating income $650 million range Comparable owned hotel RevPAR Increase of approximately 7% Diluted earnings per share High $.50 range
Total capital spending in 2004 remains consistent with previously published guidance, approximately $275 million,
broken out as follows: approximately $155 million for routine improvements and technology, $60 million for timeshare
projects, and $60 million for hotel renovation, return-on-investment (ROI) and special projects.
The company expects to add approximately 122 hotels and 16,000 rooms to its system in 2004.
Preliminary 2005 Outlook
While the company noted it was currently in the initial stages of its 2005 budgeting process, based on the company's
expectation of continuing strong demand trends, Hilton provided the following preliminary estimates for full-year
2005:
Comparable owned hotel RevPAR Increase of 5 - 7% Diluted earnings per share Low to mid $.70 range
Total capital spending in 2005 is expected to be in the $430 million range, with approximately $140 million for
routine improvements, $190 million for timeshare projects and $100 million in hotel renovation, ROI and special
projects.
The company expects to add 130 - 150 hotels and 16,000 - 20,000 rooms to its system in 2005.
Stephen F. Bollenbach, co-chairman and chief executive officer of Hilton Hotels Corporation, said: "Our third
quarter results were very gratifying and reflect the continuing recovery of the hotel business. All aspects of
our company -- our city-center owned hotels, fee business and timeshare operations -- are turning in exceptional
performances, and our focus on technology and financial management continues to bring benefits to our guests, customers,
franchisees and shareholders.
"More important, however, than this past quarter's results is how well positioned Hilton is to take advantage
of improving trends in our industry.
"Most of the hotels we own are in the markets that historically have been the high-demand locations for business
and leisure travelers, and where new competitive supply will be limited for the foreseeable future. Our fee and
brand development business is second to none. We are opening more hotels in the U.S. than any other company, demonstrating
the appeal of our hotel brands among owners, and have put the resources in place to enhance product and service
consistency, particularly at the Hilton brand. Timeshare has been, and will continue to be, a great business for
us, and we remain focused on our strategy of concentrating our efforts in Las Vegas, Hawaii and Orlando."
Bollenbach concluded: "What investors should take away, not just from this past quarter's results, but as
they look to the future, are five main points. First, demand is getting stronger all the time. Second, operationally
we are in the right places with the right products, brands and services. Third, we have staked out a clear industry
leadership position in the use of technology to serve our guests. Fourth, we remain committed to prudent financial
management. And finally, we expect to be strong generators of excess cash for the next several years. Along with
reinvesting in our business, we will look for opportunities to return capital to our shareholders; our bias for
accomplishing the latter would be to buy in our stock. This is the Hilton story, and we are looking forward with
optimism and enthusiasm to the remainder of 2004 and the coming years."
Note: 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. The forward-looking statements in this
press release are subject to numerous risks and uncertainties, including the effects of economic conditions; supply
and demand changes for hotel rooms; competitive conditions in the lodging industry, relationships with clients
and property owners; the impact of government regulations; and the availability of capital to finance growth, which
could cause actual results to differ materially from those expressed in or implied by the statements herein.
HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2004 % Change 2003 2004 % Change
----- ------ --------- ------- ------- ---------
Revenue
Owned hotels $487 $492 1% $1,501 $1,520 1%
Leased hotels 28 30 7 79 85 8
Management and
franchise fees 87 102 17 255 288 13
Timeshare and other
income 101 119 18 272 346 27
----- ------ ------- -------
703 743 6 2,107 2,239 6
Other revenue from
managed and
franchised
properties 249 290 16 730 853 17
----- ------ ------- -------
952 1,033 9 2,837 3,092 9
Expenses
Owned hotels 372 365 (2) 1,120 1,116 -
Leased hotels 25 26 4 72 76 6
Depreciation and
amortization 84 81 (4) 249 247 (1)
Impairment loss and
related costs - - - 17 - -
Other operating
expenses 89 101 13 243 291 20
Corporate expense 19 19 - 57 63 11
----- ------ ------- -------
589 592 1 1,758 1,793 2
Other expenses from
managed and
franchised
properties 249 290 16 730 849 16
----- ------ ------- -------
838 882 5 2,488 2,642 6
Operating income
from unconsolidated
affiliates 12 20 67 27 40 48
----- ------ ------- -------
Operating income 126 171 36 376 490 30
Interest and
dividend income 6 2 (67) 21 19 (10)
Interest expense (72) (67) (7) (224) (209) (7)
Net interest from
unconsolidated
affiliates and non-
controlled
interests (4) (6) 50 (13) (20) 54
Net loss on asset
dispositions and
other - (1) - (3) (2) (33)
Loss from non-
operating
affiliates - (3) - - (3) -
----- ------ ------- -------
Income before taxes
and minority and
non-controlled
interests 56 96 71 157 275 75
Provision for income
taxes (21) (35) 67 (55) (96) 75
Minority and non-
controlled
interests, net (1) - - (5) (6) 20
----- ------ ------- -------
Net income $34 $61 79% $97 $173 78%
===== ====== ======= =======
Net income per share
(1)
--------------------
Basic $.09 $.16 78% $.26 $.45 73%
===== ====== ======= =======
Diluted $.09 $.16 78% $.25 $.44 76%
===== ====== ======= =======
Average shares -
basic 378 385 2% 377 383 2%
===== ====== ======= =======
Average shares -
diluted 385 393 2% 394 391 (1)%
===== ====== ======= =======
(1) EPS for the nine 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 Nine Months Ended
September 30 September 30
%/pt %/pt
2003 2004 Change 2003 2004 Change
--------- --------- -------- --------- --------- --------
Hilton
------
Occupancy 74.6% 77.7% 3.1 pts 71.9% 74.9% 3.0 pts
Average
Rate $146.34 $151.71 3.7% $150.73 $154.58 2.6%
RevPAR $109.18 $117.82 7.9% $108.37 $115.72 6.8%
All Other
---------
Occupancy 69.8% 70.3% 0.5 pts 67.8% 67.6% (0.2)pts
Average
Rate $111.14 $112.00 0.8% $109.29 $110.52 1.1%
RevPAR $77.61 $78.73 1.4% $74.08 $74.74 0.9%
Total
-----
Occupancy 74.0% 76.7% 2.7 pts 71.3% 73.9% 2.6 pts
Average
Rate $141.87 $146.84 3.5% $145.42 $149.19 2.6%
RevPAR $104.93 $112.59 7.3% $103.74 $110.24 6.3%
(1) Statistics are for comparable hotels, and include only those
hotels in the system as of September 30, 2004 and owned by us
since January 1, 2003.
HILTON HOTELS CORPORATION
System-wide Statistics (1)
Three Months Ended Nine Months Ended
September 30 September 30
%/pt %/pt
2003 2004 Change 2003 2004 Change
--------- --------- -------- --------- --------- --------
Hilton
------
Occupancy 69.8% 72.3% 2.5 pts 67.6% 70.7% 3.1 pts
Average
Rate $120.40 $125.24 4.0% $124.61 $128.37 3.0%
RevPAR $84.10 $90.49 7.6% $84.25 $90.81 7.8%
Hilton
Garden Inn
-----------
Occupancy 70.3% 72.4% 2.1 pts 66.4% 70.3% 3.9 pts
Average
Rate $95.62 $98.82 3.3% $95.55 $98.20 2.8%
RevPAR $67.24 $71.55 6.4% $63.49 $69.08 8.8%
Doubletree
----------
Occupancy 68.5% 71.0% 2.5 pts 66.3% 69.9% 3.6 pts
Average
Rate $97.90 $101.48 3.7% $100.24 $102.51 2.3%
RevPAR $67.02 $72.07 7.5% $66.50 $71.62 7.7%
Embassy
Suites
-------
Occupancy 72.6% 74.2% 1.6 pts 70.5% 72.9% 2.4 pts
Average
Rate $119.19 $121.89 2.3% $120.43 $122.76 1.9%
RevPAR $86.55 $90.42 4.5% $84.96 $89.45 5.3%
Homewood
Suites by
Hilton
----------
Occupancy 75.3% 76.9% 1.6 pts 72.0% 74.6% 2.6 pts
Average
Rate $93.91 $96.93 3.2% $94.64 $96.86 2.3%
RevPAR $70.71 $74.54 5.4% $68.16 $72.31 6.1%
Hampton
-------
Occupancy 71.3% 73.8% 2.5 pts 67.4% 69.5% 2.1 pts
Average
Rate $80.47 $83.10 3.3% $79.14 $81.57 3.1%
RevPAR $57.38 $61.31 6.8% $53.38 $56.71 6.2%
Other
-----
Occupancy 69.1% 74.5% 5.4 pts 54.3% 70.3% 16.0 pts
Average
Rate $116.50 $131.16 12.6% $121.65 $127.93 5.2%
RevPAR $80.45 $97.77 21.5% $66.05 $89.97 36.2%
(1) Statistics are for comparable hotels, and include only those
hotels in the system as of September 30, 2004 and owned, operated
or franchised by us since January 1, 2003.
HILTON HOTELS CORPORATION
Supplementary Statistical Information
September
2003 2004
Number of Number of
Properties Rooms Properties Rooms
----------- -------- ----------- --------
Hilton
------
Owned 38 28,434 36 27,492
Leased 1 499 1 499
Joint Venture 7 2,739 10 4,177
Managed 20 11,664 24 13,904
Franchised 163 43,777 161 43,574
----------- -------- ----------- --------
229 87,113 232 89,646
Hilton Garden Inn
-----------------
Owned 1 162 1 162
Joint Venture 2 280 2 280
Managed 2 251 6 796
Franchised 170 23,266 204 27,761
----------- -------- ----------- --------
175 23,959 213 28,999
Doubletree
----------
Owned 9 3,156 6 2,374
Leased 6 2,145 6 2,144
Joint Venture 27 8,193 24 7,208
Managed 45 11,696 39 10,179
Franchised 70 16,319 79 18,694
----------- -------- ----------- --------
157 41,509 154 40,599
Embassy Suites
--------------
Owned 5 1,023 4 881
Joint Venture 27 7,279 27 7,279
Managed 57 14,699 54 14,136
Franchised 84 19,300 90 20,422
----------- -------- ----------- --------
173 42,301 175 42,718
Homewood Suites by Hilton
-------------------------
Owned 3 398 3 398
Managed 35 4,221 36 4,304
Franchised 91 10,002 99 10,831
----------- -------- ----------- --------
129 14,621 138 15,533
Hampton
-------
Owned 1 133 1 133
Managed 24 3,101 35 4,461
Franchised 1,225 123,760 1,248 125,252
----------- -------- ----------- --------
1,250 126,994 1,284 129,846
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 13 3,749
Franchised 1 408 - -
----------- -------- ----------- --------
16 5,355 17 5,443
Total
-----
Owned 58 33,606 52 31,740
Leased 7 2,644 7 2,643
Joint Venture 66 19,884 66 20,338
Managed 194 48,886 207 51,529
Timeshare 28 3,289 31 3,740
Franchised 1,804 236,832 1,881 246,534
----------- -------- ----------- --------
TOTAL PROPERTIES 2,157 345,141 2,244 356,524
=========== ======== =========== ========
Change to
September 2003 December 2003
Number of Number of
Properties Rooms Properties Rooms
----------- ------- ----------- -------
Hilton
------
Owned (2) (942) - (4)
Leased - - - -
Joint Venture 3 1,438 - -
Managed 4 2,240 - (199)
Franchised (2) (203) 2 837
----------- ------- ----------- -------
3 2,533 2 634
Hilton Garden Inn
-----------------
Owned - - - -
Joint Venture - - - -
Managed 4 545 3 405
Franchised 34 4,495 27 3,584
----------- ------- ----------- -------
38 5,040 30 3,989
Doubletree
----------
Owned (3) (782) (3) (782)
Leased - (1) - -
Joint Venture (3) (985) (1) (219)
Managed (6) (1,517) (5) (1,406)
Franchised 9 2,375 8 2,392
----------- ------- ----------- -------
(3) (910) (1) (15)
Embassy Suites
--------------
Owned (1) (142) - -
Joint Venture - - - -
Managed (3) (563) - -
Franchised 6 1,122 1 165
----------- ------- ----------- -------
2 417 1 165
Homewood Suites by Hilton
-------------------------
Owned - - - -
Managed 1 83 - -
Franchised 8 829 8 773
----------- ------- ----------- -------
9 912 8 773
Hampton
-------
Owned - - - -
Managed 11 1,360 1 138
Franchised 23 1,492 28 2,165
----------- ------- ----------- -------
34 2,852 29 2,303
Timeshare 3 451 1 96
---------
Other
-----
Owned - - - -
Joint Venture - 1 - 1
Managed 2 495 2 503
Franchised (1) (408) (1) (408)
----------- ------- ----------- -------
1 88 1 96
Total
-----
Owned (6) (1,866) (3) (786)
Leased - (1) - -
Joint Venture - 454 (1) (218)
Managed 13 2,643 1 (559)
Timeshare 3 451 1 96
Franchised 77 9,702 73 9,508
----------- ------- ----------- -------
TOTAL PROPERTIES 87 11,383 71 8,041
=========== ======= =========== =======
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of Adjusted EBITDA to EBITDA and Net Income
Historical Data
($ in millions)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2004 % Change 2003 2004 % Change
----- ----- --------- ----- ----- ---------
Adjusted EBITDA $218 $257 18% $667 $754 13%
Proportionate share of
depreciation and
amortization of
unconsolidated
affiliates (7) (7) - (21) (20) (5)
Non-recurring items - - - (17) - -
Operating interest and
dividend income (1) - - (4) (3) (25)
Operating income of non-
controlled interests - 2 - - 6 -
Net loss on asset
dispositions and other - (1) - (3) (2) (33)
Loss from non-operating
affiliates - (3) - - (3) -
Minority and non-
controlled interests,
net (1) - - (5) (6) 20
----- ----- ----- -----
EBITDA 209 248 19 617 726 18
Depreciation and
amortization (84) (81) (4) (249) (247) (1)
Interest expense, net (70) (71) 1 (216) (210) (3)
Provision for income
taxes (21) (35) 67 (55) (96) 75
----- ----- ----- -----
Net income $34 $61 79% $97 $173 78%
===== ===== ===== =====
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of Adjusted EBITDA to EBITDA and Net Income
Future Performance - Full Year 2004 Outlook
($ in millions, except per share amounts)
Estimated
Full Year
2004
---------
Adjusted EBITDA $1,007
Proportionate share of depreciation and amortization of
unconsolidated affiliates (28)
Operating interest and dividend income (5)
Operating income of non-controlled interests 9
Net loss on asset dispositions and other (1)
Loss from non-operating affiliates (7)
Minority and non-controlled interests, net (8)
---------
EBITDA 967
Depreciation and amortization (330)
Interest expense, net (281)
Provision for income taxes (126)
---------
Net income $230
=========
Diluted EPS $.59
=========
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Owned Hotel Revenue and Expenses
Adjusted for Asset Sales
($ in millions)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2004 % Change 2003 2004 % Change
----- ----- --------- ------- ------- ---------
Revenue - owned hotels $487 $492 1% $1,501 $1,520 1%
Less sold hotels (26) - (91) (15)
----- ----- ------- -------
Revenue - comparable
owned hotels $461 $492 7% $1,410 $1,505 7%
===== ===== ======= =======
Expenses - owned
hotels $372 $365 (2)% $1,120 $1,116 -%
Less sold hotels (20) - (65) (11)
----- ----- ------- -------
Expenses - comparable
owned hotels $352 $365 4% $1,055 $1,105 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.
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Contact:
Hilton Hotels Corporation
Marc Grossman, 310-205-4030
marc_grossman@hilton.com
Atish Shah, 310-205-8664
atish_shah@hilton.com
http://www.hiltonworldwide.com
Source: Hilton Hotels Corporation