BEVERLY HILLS, Calif.—(BUSINESS WIRE)—July 28, 2003—Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the second quarter and six months ended June 30, 2003.

Contributing to generally weak quarterly results were the conflict in Iraq, and continuing pressure on average daily room rates (ADR). Margins in the quarter were adversely impacted primarily by lower ADR, along with increased healthcare and other insurance costs. The quarter benefited from a combination of lower depreciation and amortization expense and reduced net interest expense when compared with the 2002 quarter.

Hilton reported second quarter net income of $54 million, versus $76 million in the 2002 quarter. Diluted net income per share was $.14 in the second quarter 2003, compared with $.20 in the 2002 quarter.

Hilton reported 2003 second quarter total company operating income of $164 million (compared with $203 million in the 2002 period), on total revenue of $983 million (compared with $1.035 billion in the corresponding 2002 period). Total company earnings before interest, taxes, depreciation, amortization and non-recurring items (“Adjusted EBITDA,” see attachment) were $252 million in the 2003 second quarter, compared with $303 million in the 2002 quarter.

Many of Hilton`s owned hotels experienced solid occupancy levels during the second quarter primarily as a result of comparatively strong leisure-oriented business. The company`s properties in New York, Boston, Chicago, Hawaii, Phoenix, New Orleans and Santa Barbara posted occupancy levels of 75 percent-plus during the quarter.

Across all brands, revenue from the company`s owned hotels (majority owned and controlled hotels) totaled $531 million in the second quarter, a 7 percent decline from the 2002 period, while total expenses increased 2 percent to $376 million. The company`s comparable owned hotels also reported a 7 percent revenue decline and 2 percent expense increase during the quarter. The primary factor behind the revenue decline was a 6.9 percent RevPAR decline from comparable owned properties during the quarter. Occupancy at these hotels declined to 73.6 percent from 76.0 percent a year ago. ADR declined 3.9 percent to $146.07 owing to soft demand and limited pricing power from business travelers and higher-rated groups. Additionally, reduced business from food and beverage and other hotel items adversely impacted owned hotel revenues.

Owned hotel profitability was impacted primarily by the aforementioned RevPAR, food and beverage and other revenue declines, as well as higher insurance costs.

Second quarter system-wide RevPAR at each of the company`s brands (including franchise properties) declined as follows: Hampton Inn, 2.1 percent; Hilton Garden Inn, 2.3 percent; Homewood Suites by Hilton, 2.5 percent; Embassy Suites, 3.7 percent; Doubletree, 6.0 percent, and Hilton, 6.1 percent.

Management and franchise fees for the quarter totaled $88 million, compared with $87 million a year ago. RevPAR declines were offset by additional fees from managed and franchised hotels added to the system.

Year-to-date June 2003 (the latest period for which data is available), all but one of the company`s brands commanded significant market premiums over their respective segment competitors. With 100 representing a brand`s fair share of the market, the Hilton brands (according to Smith Travel Research) posted RevPAR index numbers as follows for the first six months of 2003: Embassy Suites, 125.2; Homewood Suites by Hilton, 119.5; Hampton Inn, 118.8; Hilton Garden Inn, 114.0; Hilton, 108.7, and Doubletree, 99.3.

In the second quarter, the company added 19 hotels and 2,566 rooms to its system as follows: Hampton Inn, 8 hotels and 648 rooms; Hilton Garden Inn, 4 hotels and 460 rooms; Doubletree, 3 hotels and 598 rooms; Homewood Suites by Hilton, 2 hotels and 204 rooms; Embassy Suites, 1 hotel and 248 rooms; other (the former Adam`s Mark in Memphis as noted below), 1 hotel and 408 rooms. Seven hotels and 1,502 rooms were removed from the system during the quarter. As of June 30, 2003, the Hilton system consisted of 2,119 properties and 341,051 rooms.

During the quarter, the company announced the addition to the system of five franchised Doubletree hotels in Tennessee, four of which are in the process of being converted from an independent brand, and the other (in Memphis) which has been converted from a Hilton.

The former Adam`s Mark hotel in Memphis will become a 408-room Hilton in spring 2004 following a major renovation, and the company also during the quarter secured the management contract for the 426-room Hilton Cancun Beach & Golf Resort in Mexico, previously a Hilton franchised hotel.

In early July, the company announced a management agreement for a new 203-room Conrad Hotel in Miami, Florida, scheduled to open in January 2004.

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