Hilton Reports Strong Q4

Diluted EPS of $.50 vs. $.26 in 2005, an increase of 92% - Total company Adjusted EBITDA of $485 mil

. October 14, 2008

JANUARY 31, 2007. Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the fourth quarter and fiscal year ended December 31, 2006. Fourth quarter highlights compared to fourth quarter 2005 are as follows:

Diluted EPS of $.50 vs. $.26 in 2005, an increase of 92%.
Total company Adjusted EBITDA of $485 million, up 78%.
Pro forma worldwide comparable owned RevPAR increased 10.7% driven by strong rate increases and high demand in most major markets. Pro forma worldwide comparable owned margins improved 90 basis points.
Fees up 60% to $182 million on strong RevPAR and unit growth, the favorable impact of the Hilton International acquisition and a one-time termination fee.
Timeshare profitability up 11%.

Hilton reported fourth quarter 2006 net income of $207 million compared with $105 million in the 2005 quarter. Diluted net income per share was $.50 in the 2006 fourth quarter, versus $.26 in the 2005 period.

In total, non-recurring items benefited the 2006 quarter by approximately $.11 per share as follows:

$11 million pre-tax benefit ($.02 per share) from contract termination fees related to the sale of a joint-venture hotel;
$14 million pre-tax gain ($.02 per share) on foreign currency transactions;
$6 million benefit ($.01 per share) to the tax provision related to a prior year's tax return;
$36 million pre-tax gain ($.06 per share) on asset sales and other items, including a $22 million pre-tax gain from the sale of a joint-venture hotel in which the company had a minority interest.

Additionally, fourth quarter results included a revision to the full year effective tax rate primarily due to higher than expected utilization of foreign tax credits against the company's U.S. income tax liability. This revision benefited fourth quarter results by $31 million or $.07 per share. In the 2005 fourth quarter, non-recurring items benefited results by $.04 per share.

The company reported fourth quarter 2006 total operating income of $358 million (an 85 percent increase from the 2005 quarter,) on total revenue of $2.232 billion (a 106 percent increase from $1.083 billion in the 2005 quarter.) Total company earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) were $485 million, an increase of 78 percent from $273 million in the 2005 quarter.

System-wide RevPAR; Management/Franchise Fees

All of the company's brands reported significant system-wide revenue-per-available-room (RevPAR) increases, with particularly strong gains in average daily rate (ADR). On a system-wide basis (including owned, leased, managed and franchised properties) and pro forma as if the acquisition of Hilton International (HI) had occurred January 1, 2005, the company's brands showed fourth quarter RevPAR gains as follows: Scandic, 18.1 percent; Conrad, 15.8 percent; Hilton, 12.2 percent; Embassy Suites, 9.9 percent; Doubletree, 9.7 percent; Hampton, 9.0 percent; Hilton Garden Inn, 8.1 percent; and Homewood Suites by Hilton, 6.9 percent.

Management and franchise fees increased 60 percent in the fourth quarter to $182 million, benefiting from RevPAR gains, the addition of new units, and the acquisition of HI. Fees in the quarter also include a one-time $11 million management contract termination fee related to a joint-venture hotel. The property was sold and converted to a franchised hotel during the quarter.

Owned Hotel Results

Continued strong demand trends and pricing power resulted in high single digit or double digit ADR increases at many of the company's gateway hotels around the world. Business transient, group and leisure segments each showed significant ADR improvement.

Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $683 million in the fourth quarter 2006, a 39 percent increase from $490 million in the 2005 quarter. Total owned hotel expenses were up 34 percent in the quarter to $459 million.

Comparable North America (N.A.) owned revenue and expenses increased 10.7 percent and 9.2 percent, respectively. Expenses were impacted by higher insurance and marketing costs.

RevPAR from comparable N.A. owned hotels increased 10.2 percent (91 percent rate driven.) Comparable N.A. owned hotel occupancy increased 0.7 points to 76.3 percent, while ADR increased 9.2 percent to $220.77. Particularly strong RevPAR growth was reported at the company's owned hotels in Chicago, New York, San Francisco and Phoenix. Results also benefited from higher food and beverage revenue and profits in the quarter. Comparable N.A. owned hotel margins in the fourth quarter increased 90 basis points to 33.4 percent. The aforementioned higher insurance and marketing costs impacted margins by approximately 120 basis points. Renovation activity at the Waldorf=Astoria, Hilton New York and Hilton Hawaiian Village did not significantly impact results during the fourth quarter.

On a pro forma basis, as if the acquisition of HI had occurred January 1, 2005, comparable international owned revenue and expenses increased 9.7 percent and 8.7 percent, respectively. Pro forma RevPAR from international comparable owned hotels increased 12.8 percent (92 percent rate driven.) Occupancy increased 0.7 points to 68.9 percent, while ADR increased 11.7 percent to $147.34. Strong results were reported in Barcelona, Brussels, Sao Paulo and Zurich. Excluding the impact of foreign exchange, RevPAR from international comparable owned hotels increased 6.0 percent. Pro forma comparable international owned margins improved 70 basis points to 26.5 percent.

On a worldwide basis, pro forma comparable owned RevPAR increased 10.7 percent (91 percent rate driven,) with margins increasing 90 basis points to 31.8 percent. Excluding the impact of foreign exchange, worldwide pro forma comparable owned RevPAR increased 9.2 percent.

Leased Hotels

Revenue from leased hotels was $731 million in the fourth quarter 2006 compared to $24 million in the 2005 quarter, while leased hotel expenses were $605 million in the current quarter versus $22 million last year. The EBITDAR-to-rent coverage ratio was 1.9 times in the quarter.

Pro forma comparable leased revenue increased 14.0 percent, leased expenses increased 11.6 percent and margins increased 170 basis points to 17.0 percent. RevPAR from comparable leased properties increased 17.4 percent. Excluding the impact of foreign exchange, RevPAR from comparable leased hotels increased 9.9 percent. Strong results were reported at the company's leased hotels in London, Amsterdam, Paris, and across Germany and the Nordic region.

Hilton Grand Vacations

Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported an 11 percent increase in profitability in the fourth quarter of 2006 compared to 2005, due primarily to increased financing income. Although average unit sales prices increased 15 percent and unit sales increased 8 percent, percentage-of-completion accounting negatively impacted the reported results.

HGVC had fourth quarter revenue of $142 million, a 9 percent increase from $130 million in the 2005 quarter. Expenses were $121 million in the fourth quarter, compared with $111 million in the 2005 period.

Brand Development/Unit Growth

In the fourth quarter, the company added 59 properties and 9,040 rooms to its system as follows: Hilton Garden Inn, 18 hotels and 2,616 rooms; Hampton Inn, 21 hotels and 1,980 rooms; Embassy Suites, 5 hotels and 1,384 suites; Hilton, 4 hotels and 1,136 rooms; Homewood Suites by Hilton, 8 hotels and 885 suites; Doubletree, 2 hotels and 438 rooms; and other, 1 hotel and 601 rooms.

Nineteen properties and 4,066 rooms were removed from the system during the quarter. During the fourth quarter, the company added new full-service hotels in Boston, Chicago, Mexico City, Tampa, Honolulu, Kauai, and Manchester, U.K. The company also added the Qasr Al Sharq in Jeddah, Saudi Arabia to the Waldorf=Astoria Collection. In addition, the company opened new Hilton Garden Inns in Florence and Rome, Italy.

During the quarter, the company announced plans to form a joint venture with DLF Limited to develop hotel properties and serviced apartments in India. The joint-venture company plans to develop and own 50-75 midscale and extended-stay hotels over the next seven years. The company also announced an agreement to develop and franchise an initial 25 Hilton Garden Inns in Beijing, Shanghai and Tianjin, China to Deutsche Asset Management and HQ Asia Pacific. The company also announced that it has signed a management agreement for a new Conrad in Koh Samui, Thailand scheduled to open in 2008.

At December 31, 2006, the Hilton worldwide system consisted of 2,935 properties and 501,478 rooms. The company's current development pipeline is its biggest yet, and the largest for any U.S.-based hotel company, with more than 775 hotels and 110,000 rooms at December 31, 2006. Approximately 90 percent of the hotels in the current development pipeline are in the Americas (U.S., Canada, Mexico and South America,) though international development is expected to comprise an increasingly larger percentage of the company's development pipeline over the next few years.

Asset Dispositions

Hilton noted that the sale processes continue for the Scandic portfolio, 10 hotels in Continental Europe, the Hilton Caledonian in Scotland, and six properties in the U.S. First or second round bids have been received for 14 of the 17 properties for sale and Scandic.

As previously announced, during the fourth quarter the company completed the sale of two hotels located in the U.K., the 1,054-room Hilton London Metropole and the 794-room Hilton Birmingham Metropole, for lb417 million.

Corporate Finance

At December 31, 2006, Hilton had total debt of $6.97 billion (net of approximately $500 million of debt and capital lease obligations resulting from the consolidation of certain joint-venture entities and a managed hotel, which are non-recourse to Hilton,) a reduction of approximately $860 million from September 30, 2006. Of the $6.97 billion, approximately 53 percent is floating rate debt. Total cash and equivalents (including restricted cash of approximately $293 million) were approximately $420 million at December 31, 2006.

The company's average basic and diluted share counts for the fourth quarter were 387 million and 422 million, respectively. Hilton's debt currently has an average life of 6.1 years, at an average cost of approximately 6.6 percent.

Hilton's effective tax rate in the fourth quarter 2006 was 22.5 percent. As previously noted, the fourth quarter effective tax rate benefited from a higher than expected utilization of full-year 2006 foreign tax credits and a non-recurring item related to the prior year's tax return.

Total capital expenditures in the fourth quarter were approximately $300 million, including $40 million for timeshare development.

Full-Year Results

For full-year 2006, Hilton reported net income of $572 million, compared to $460 million in 2005. Diluted net income per share was $1.39 versus $1.13 in 2005. Non-recurring items benefited the 2006 full-year period by $.18 per share, versus $.28 per share in 2005. On a recurring basis (including the full year impact of a lower effective tax rate due to higher than expected utilization of foreign tax credits,) EPS was $1.21 versus $.85 in 2005, an increase of 42 percent. Total company operating income was $1.274 billion in 2006 (compared with $805 million in 2005) on revenue of $8.162 billion (compared with $4.437 billion in 2005.) Total company Adjusted EBITDA was $1.742 billion, a 53 percent increase from $1.140 billion in 2005. Management and franchise fees were $684 million, a 51% increase from $452 million in 2005. Timeshare profitability was up 19% versus 2005. The company added 223 hotels and 35,970 rooms in 2006.

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