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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from . . . . . . . . . . . . . . . to . . . . . . . .
. . . . . . .
Commission File Number 1-3427
HILTON HOTELS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 36-2058176
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
9336 CIVIC CENTER DRIVE 90210
BEVERLY HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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Registrant's telephone number, including area code: (310) 278-4321
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, par value $2.50 per share New York, Pacific
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Based upon the February 29, 1996 New York Stock Exchange closing price of
$93.75 per share, the aggregate market value of Registrant's outstanding Common
Stock held by non-affiliates of the Registrant was approximately $3.1 billion.
On that date, there were 48,720,634 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's annual report to stockholders for the
fiscal year ended December 31, 1995 are incorporated by reference under Parts I
and II. Certain portions of Registrant's definitive proxy statement, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the close of the Registrant's fiscal year, are incorporated
by reference under Part III.
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PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
CURRENT OPERATIONS
Hilton Hotels Corporation and its majority and wholly-owned subsidiaries are
collectively referred to as "Hilton" or the "Company," unless the context
indicates otherwise. The Company is primarily engaged in the ownership and
management of hotels and hotel-casinos. All of these properties are located in
the United States, with the exception of six hotels and three hotel-casinos
operated by the Company's wholly-owned subsidiary, Conrad International Hotels
Corporation and its subsidiaries ("Conrad International").
On February 1, 1996, Hilton owned or leased and operated 23 hotels and
managed 44 hotels partially or wholly-owned by others. In addition, 164 hotels
were operated under the "Hilton," "Hilton Garden Inn" and "Hilton Suites" names
by others pursuant to franchises granted by a subsidiary of Hilton.
Eight of the hotels have substantial gaming operations, five of which are
wholly-owned by the Company and are located in Nevada and the other three hotels
are partially owned by the Company and are located in Australia and Turkey. The
Company also partially owns and manages one river casino in the United States
and owns a minority interest in a company which operates one casino in Canada.
The Company's gaming operations accounted for approximately 71%, 58% and 50% of
its total operating income in 1993, 1994 and 1995, respectively. For additional
information, see the Ten Year Summary on pages 58 and 59 in the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1995 (the
"Stockholders Report"), which report is included as Exhibit 13 hereto and, to
the extent specific references are made thereto, incorporated herein by such
references.
The Company, along with other entities in which the Company has an
investment, is also engaged in various other activities incidental or related to
the operation of hotels and hotel-casinos. See "Additional Information."
Hilton was organized in the State of Delaware on May 29, 1946. Its principal
executive offices are located at 9336 Civic Center Drive, Beverly Hills,
California 90210, and its telephone number is (310) 278-4321.
RECENT DEVELOPMENTS
Since January 1, 1995, the Company took advantage of various opportunities
to expand its business, the most significant of which included the opening of
new vacation ownership resorts in Las Vegas, Nevada and Orlando, Florida; the
completion of the third of three new 12,600 to 15,400 square foot "Sky Villa"
luxury suites at the Las Vegas Hilton; the opening of the 136-room Conrad
International Treasury hotel-casino in Brisbane, Australia; chartering a river
casino to serve as a complementary facility for Casino Windsor in Windsor,
Ontario, Canada; the management of a 294-room hotel in Durango, Colorado, a
260-room hotel in Hurghada, Egypt and a 412-room hotel in Barcelona, Spain; and
the announcement of a major expansion of Hilton Garden Inn properties. The
Company also announced in January 1996 that it would not proceed with the
proposed spin-off of its gaming operations.
For a more detailed description of the Company's recent developments, see
"Hotel Operations," "Gaming Operations" and "Additional Information -- Vacation
Ownership" below. For a description of the Company's planned expansion
activities, see "Hotel Operations -- Expansion Program" and "Gaming Operations
- -- Expansion Program" below.
INDUSTRY SEGMENTS
Hilton's revenues and income are derived primarily from two sources: (i)
hotel operations, which include the operation of Hilton's owned or leased
hotels, management and franchise fees and operating income from unconsolidated
affiliates and (ii) gaming operations, which include the operation of Hilton's
owned hotel-casinos and management fees and operating income from partially
owned hotel-casinos and river casinos. For financial data relating to the
Company's hotel and gaming operations for the three years ended December 31,
1995, see "Segments of Business" in the Notes to the Company's Consolidated
Financial Statements on pages 55 and 56 in the Stockholders Report.
<PAGE>
The Company re-entered the international arena in November 1985, with the
opening of a hotel-casino in Queensland, Australia and, thereafter, the opening
of additional managed (and in some cases, partially owned) hotel properties in
Ireland, England, Hong Kong, Turkey, Belgium, Australia, Spain and Egypt. To
date, the amounts of revenues, operating profits and identifiable assets
attributable to geographic areas, other than the United States, have not been
material.
HOTEL OPERATIONS
OWNED HOTELS
On February 1, 1996, the following hotels were owned in fee and operated by
Hilton:
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NUMBER OF MORTGAGE
ROOMS/SUITES YEAR INDEBTEDNESS
(YEAR OF ACQUIRED AS OF FEBRUARY 1,
NAME AND LOCATION COMPLETION) BY HILTON 1996
- -------------------------------------------------- ------------- --------- -----------------
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Atlanta Airport Hilton & Towers 503 1960 $50,000,000
Atlanta, Georgia(1) (1989)
Palmer House Hilton 1,639 1988 --
Chicago, Illinois(2) (1925; 1945)
Flamingo Hilton-Las Vegas 3,642
Las Vegas, Nevada (various 1971 --
dates
through 1995)
Las Vegas Hilton 3,174
Las Vegas, Nevada (various 1971 --
dates
through 1995)
Flamingo Hilton-Laughlin 2,000 1990 --
Laughlin, Nevada (1990)
New Orleans Airport Hilton 317 1959 $32,000,000
New Orleans, Louisiana(1) (1989)
Waldorf=Astoria 1,380 1977 --
New York, New York(3) (1931)
Portland Hilton 455 1963 --
Portland, Oregon (1963)
Flamingo Hilton-Reno 604 1981 --
Reno, Nevada(4) (1978)
Reno Hilton 2,001 1992 --
Reno, Nevada (1978)
Hilton Garden Inn 195 1993 --
Southfield, Michigan(5) (1988)
Hilton Suites 224 1991 --
Auburn Hills, Michigan (1991)
Hilton Suites 203 1989 --
Brentwood, Tennessee (1989)
Hilton Suites 230 1989 --
Orange, California (1989)
Hilton Suites 226 1990 --
Phoenix, Arizona (1990)
</TABLE>
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(1) The Atlanta Airport Hilton & Towers and the New Orleans Airport Hilton were
closed and demolished in 1986 and, thereafter, rebuilt and reopened in 1989.
2
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(2) The Company owned the Palmer House Hilton from May 1946 to December 1962
and, thereafter, operated the Palmer House Hilton under a lease until
acquiring the property in February 1988.
(3) The Company operated the Waldorf=Astoria under a lease from February 1950
until acquiring the property in April 1977.
(4) An extension of the casino operation is contained in a structure located on
an adjacent block with a skywalk connecting it to the main building. This
structure is held under four long-term leases or subleases, expiring on
various dates from January 1, 2001 to August 31, 2034, including renewal
options, all of which may not necessarily be exercised.
(5) The Company managed the Hilton Garden Inn from July 1991 until acquiring the
property in July 1993.
LEASED HOTELS
Hilton leases the land upon which eight hotels have been built. Upon the
expiration of such leases, the buildings and other leasehold improvements
presently owned by Hilton revert to the landlords. See "Leases" in the Notes to
the Company's Consolidated Financial Statements on page 56 in the Stockholders
Report. Hilton, in all cases, owns all furniture and equipment, is responsible
for repairs, maintenance, operating expenses and lease rentals, and retains
complete managerial discretion over operations. Generally, Hilton pays a
percentage rental based on the gross revenues of the facility, but in some
instances the rental is a fixed amount.
On February 1, 1996, the following hotels were leased and operated by
Hilton:
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<CAPTION>
NUMBER OF
ROOMS (YEAR OF
INITIAL COMPLETION;
YEAR ACQUIRED
NAME AND LOCATION BY HILTON) EXPIRATION DATE
- ------------------------------------- ------------------------------------------------------------------------
<S> <C> <C>
Logan Airport Hilton 516 2014, with renewal options aggregating 25 years
Boston, Massachusetts(1) (1959; 1988) under specified circumstances
O'Hare Hilton 858 2018
Chicago, Illinois(2) (1973; 1991)
Oakland Airport Hilton 363 2033
Oakland, California (1970; 1970)
Pittsburgh Hilton & Towers 712 2004, with renewal options aggregating 30 years
Pittsburgh, Pennsylvania (1959; 1959)
San Diego Hilton Beach & Tennis 357 2019
Resort (1962; 1965)
San Diego, California
San Francisco Airport Hilton 527 1998
San Francisco, California (1959; 1959)
Seattle Airport Hilton 173 2004, with renewal options aggregating 30 years
Seattle, Washington (1961; 1961)
Tarrytown Hilton 236 2003, with renewal options aggregating 40 years
Tarrytown, New York(3) (1961; 1993)
</TABLE>
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(1) The Company managed and was a joint venture partner with respect to the
Logan Airport Hilton from 1975 until July 1988, when it acquired the
remaining equity interest in the joint venture leasing the land underlying
the hotel.
(2) The Company managed the O'Hare Hilton from 1974 until October 1991, when the
Company purchased the then remaining leasehold of the hotel. The O'Hare
Hilton was closed for renovation in October 1991 and reopened in July 1992.
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(3) The Company managed and was a joint venture partner with respect to the
Tarrytown Hilton from 1975 until August 1993, when it acquired the remaining
equity interest in the joint venture leasing the land underlying the hotel.
During the three years ended December 31, 1995, Hilton paid aggregate
rentals, including rentals attributable to the properties listed in the above
table, of $11,300,000, $13,300,000 and $15,300,000, respectively. For
information relating to minimum rental commitments in the future, see "Leases"
in the Notes to the Company's Consolidated Financial Statements on page 56 in
the Stockholders Report.
MANAGED HOTELS
On February 1, 1996, Hilton operated 35 domestic hotels and nine
international hotels under management agreements. Under its standard management
arrangement, Hilton operates a hotel for the benefit of its owner, which either
owns or leases the hotel and the associated personal property. Hilton's
management fee is generally based on a percentage of each hotel's gross revenues
plus, in the majority of properties, an incentive fee based on operating
performance.
Under the management agreements, all operating and other expenses are paid
by the owner, and Hilton is generally reimbursed for its out-of-pocket expenses.
In turn, Hilton's managerial discretion is subject to approval by the owner in
certain major areas, including adoption of capital budgets. In some cases, the
owner of a managed hotel is a joint venture in which Hilton has an equity
interest. In addition, the Company has a right of first refusal to purchase an
interest in certain managed hotels. For information relating to Hilton's
investment in entities that own managed properties, see "Investments" in the
Notes to the Company's Consolidated Financial Statements on pages 48 and 49 in
the Stockholders Report.
The Company has also agreed to provide loans or additional investments to
the owners of certain managed hotels under specified circumstances. See
"Commitments and Contingent Liabilities" in the Notes to the Company's
Consolidated Financial Statements on page 57 in the Stockholders Report.
On February 1, 1996, the following hotels were operated by Hilton under
management agreements:
<TABLE>
<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
- ------------------------------------- ------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC
Anaheim Hilton & Towers 1,576 2014, with renewal options aggregating 30 years,
Anaheim, California(1) (1984) subject to certain termination rights
Anchorage Hilton 591 2006, with renewal options aggregating 20 years
Anchorage, Alaska (various dates
through 1986)
Atlanta Hilton & Towers 1,224 2006, with a renewal option for 10 years
Atlanta, Georgia (1976)
Beverly Hilton 581 2007, with renewal options aggregating 20 years,
Beverly Hills, California (1955; 1967) subject to certain termination rights
Chicago Hilton & Towers 1,543 2005, with renewal options aggregating 20 years
Chicago, Illinois(2) (various dates
through 1986)
Tamarron Hilton Resort 294 2015, subject to certain termination rights
Durango, Colorado (1975)
Brunswick Hilton & Towers 405 2013, subject to certain termination rights
East Brunswick, New Jersey(1) (1989)
Hilton Hawaiian Village 2,542 1997, with renewal options aggregating 20 years
Honolulu, Hawaii(3) (various dates
through 1988)
</TABLE>
4
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<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
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<S> <C> <C>
Long Beach Hilton 393 2012, with renewal options aggregating 20 years,
Long Beach, California (1992) subject to certain termination rights
Los Angeles Airport Hilton & Towers 1,234 1999, with renewal options aggregating 10 years,
Los Angeles, California (1983) subject to certain termination rights
McLean Hilton 458 2007, with renewal options aggregating 20 years
McLean, Virginia(2) (1987)
Fontainebleau Hilton Resort & Towers 1,206 1998, with a renewal option for 10 years, subject
Miami, Florida (1954) to certain termination rights
Miami Airport Hilton & Towers 500 2004, with renewal options aggregating 20 years
Miami, Florida(2) (1983)
Minneapolis Hilton & Towers 814 2012, with renewal options aggregating 20 years,
Minneapolis, Minnesota (1992) subject to certain termination rights
Newark Airport Hilton 374 2003
Newark, New Jersey (1988)
New Orleans Hilton Riverside & Towers 1,600 2007, with a renewal option for 10 years
New Orleans, Louisiana(4) (1977; 1983)
Millenium Hilton 561 2004, with a renewal option for 10 years, subject
New York, New York (1992) to certain termination rights
New York Hilton & Towers 2,041 (5)
New York, New York(3) (1963)
Turtle Bay Hilton Golf & Tennis 485 2004, with a renewal option for 10 years
Resort (1972)
Oahu, Hawaii
Hilton at Walt Disney World 814 2003, with renewal options aggregating 20 years,
Orlando, Florida(1) (1983) subject to certain termination rights
Pasadena Hilton 291 2004, with a renewal option for 10 years, subject
Pasadena, California (1970) to certain termination rights
The Pointe Hilton Resort on 636 2012, with renewal options aggregating 20 years,
South Mountain (1986) subject to certain termination rights
Phoenix, Arizona
The Pointe Hilton Resort at Squaw 563 2012, with renewal options aggregating 20 years,
Peak (1977) subject to certain termination rights
Phoenix, Arizona
The Pointe Hilton Resort at 585 2012, with renewal options aggregating 20 years,
Tapatio Cliffs (1982) subject to certain termination rights
Phoenix, Arizona
Rye Town Hilton 438 (5)
Rye Brook, New York(3) (1973; 1978)
Hilton Palacio del Rio 481 1998, with a renewal option for 10 years
San Antonio, Texas (1968)
</TABLE>
5
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<TABLE>
<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
- ------------------------------------- ------------------------------------------------------------------------
<S> <C> <C>
San Antonio Airport Hilton 387 2001, subject to certain termination rights
San Antonio, Texas(1) (1982)
San Francisco Hilton & Towers 1,895 2005, with a renewal option for 10 years
San Francisco, California(3) (various dates
through 1988)
Hilton at Short Hills 300 2000, with a renewal option for 5 years, subject
Short Hills, New Jersey (1988) to certain termination rights
Innisbrook Hilton Resort 873 2013, subject to certain termination rights
Tarpon Springs, Florida(1) (1972)
Hilton Waikoloa Village 1,238 2013, subject to certain termination rights
Waikoloa, Hawaii(2) (1988)
Capital Hilton 543 2005, with a renewal option for 10 years
Washington, D.C.(3) (1943; 1985)
Washington Hilton & Towers 1,123 (5)
Washington, D.C.(3) (1965)
Hilton Suites 212 2009, with renewal options aggregating 20 years
Oakbrook Terrace, Illinois(1)(3) (1989)
Hilton Garden Inn 152 2012, subject to certain termination rights
Valencia, California(2) (1991)
INTERNATIONAL
Conrad International Barcelona 412 2007, with a renewal option for 5 years
Barcelona, Spain(1) (1992)
Conrad International Treasury 136 2010
Brisbane, Australia(2) (1995)
Conrad International Brussels 269 2013, with renewal options aggregating 20 years
Brussels, Belgium (1993)
Conrad International Dublin 191 2010, with renewal options aggregating 20 years
Dublin, Ireland(1)(2) (1989)
Conrad International Hong Kong 513 2021
Hong Kong(2) (1990)
Conrad International Hurghada 260 2015, with renewal options aggregating 20 years,
Hurghada, Egypt (1994) subject to certain termination rights
Conrad International Istanbul 620 2011, with a renewal option for 20 years
Istanbul, Turkey(1)(2) (1992)
Conrad International London 159 2016, with renewal options aggregating 20 years
London, England (1990)
Hotel Conrad & Jupiters Casino 605 2010
Gold Coast, (1986)
Queensland, Australia(2)
</TABLE>
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(1) Hilton has made loans to the owners of each of the referenced properties.
(2) Hilton has equity interests of less than 50% in joint ventures which own
each of the referenced properties. See "Investments" in the Notes to the
Company's Consolidated Financial Statements on pages 48 and 49 in the
Stockholders Report.
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(3) Hilton has equity interests of 50% in joint ventures which own each of the
referenced properties. See note 2 above.
(4) Hilton has a 67.4% equity interest in the joint venture which owns the New
Orleans Hilton Riverside & Towers. See note 2 above.
(5) The management agreements with respect to each of the referenced properties
expired on December 31, 1995, but Hilton continues to manage each of the
properties for the fees specified in the expired agreements.
FRANCHISE HOTELS
Pursuant to franchises granted by the Company, franchise hotels are operated
under the "Hilton," "Hilton Garden Inn" or "Hilton Suites" names. The franchise
hotels operated under the "Hilton" name are generally smaller than the full
service hotels owned, leased or managed by Hilton and average approximately 250
rooms in size. Franchise hotels bearing the "Hilton Garden Inn" name are
approximately 90 to 250 rooms in size and utilize a modular design constructed
around a courtyard containing an indoor or outdoor swimming pool. The "Hilton
Suites" properties operated pursuant to franchise agreements utilize an
all-suites design with approximately 200 to 250 suites. In each instance, Hilton
approves the plan for and the location of franchise hotels and assists in their
design.
On February 1, 1996, there were 164 franchise hotels operated by others, of
which 160 were operated under the "Hilton" name, three were operated under the
"Hilton Garden Inn" name and one was operated under the "Hilton Suites" name. In
general, each franchisee pays Hilton an initial fee based on the number of rooms
in a franchise hotel and a continuing fee based on a percentage of the
facility's room revenues. Although Hilton does not directly participate in the
management or operation of franchise hotels, it conducts periodic inspections to
ensure that Hilton's standards are maintained and renders advice with respect to
hotel operations.
The Company has continued its ongoing program of monitoring and improving
its franchise operations. The Company added six franchises to its system in
1995, while five franchise arrangements were terminated, several due to
noncompliance with the Company's standards.
EXPANSION PROGRAM
In January 1996, Hilton announced plans for a major expansion of Hilton
Garden Inn properties. Hilton plans to add up to 100 new Hilton Garden Inns over
the next five years. Approximately 80% of the additional Hilton Garden Inns are
anticipated to be newly constructed facilities, with the remainder to be
conversions of existing properties. The properties constructed during the first
phase of the Hilton Garden Inns expansion are expected to be financed by Hilton,
either solely or with local partners.
Hilton also intends to expand its domestic operations through conversion of
existing hotels into management and franchise properties in strategically
significant markets and through development and management of vacation ownership
resorts. The Company will invest in new domestic hotel projects or conversion
properties where the return on investment meets the Company's criteria.
The Company is actively exploring international hotel opportunities, with
particular emphasis on city center business hotels and resort hotels. These
international properties will generally be operated under the Conrad
International name pursuant to long-term management agreements. In certain
instances, the Company may invest in or make advances to the entity that owns a
hotel. The Company has entered into management contracts to operate the
following new hotels, the anticipated opening dates of which are indicated
parenthetically: the 350-room Conrad International Sharm El Sheikh in Egypt
(fall 1996); the 510-room Conrad International Singapore (fall 1996); the
700-room Conrad International Jakarta in Indonesia (1998); the 400-room Conrad
International Amman in Jordan (1998); and the 400-room Conrad International
Bangkok in Thailand (1999).
Negotiations relating to the management of other international hotels are in
varying stages and, in certain instances, letters of intent for management
contracts have been executed. However, no assurances can be given that
management contracts for such other hotels will be executed or that such other
hotels will be constructed and, thereafter, operated by the Company.
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The operation of hotels internationally is affected by the political and
economic conditions of the countries and regions in which they are located, in
addition to factors affecting the hotel industry generally. Certain countries
have also restricted, from time to time, the repatriation of funds. The Company
considers the foregoing factors, among others, when evaluating a management
and/or investment opportunity abroad, but the Company can give no assurances
that changes in law or governmental policy will not adversely affect
international operations in the future.
TERRITORIAL RESTRICTIONS
Hilton has entered into various agreements which restrict its right to
operate hotels in various areas, including those hereinafter described which, in
management's opinion, represent the most significant restrictions to which the
Company is subject. In addition, pursuant to an agreement entered into at the
time of Hilton's distribution on December 1, 1964 to its stockholders of all the
issued and outstanding capital stock of Hilton International Co., as
subsequently amended, Hilton may not operate facilities outside the United
States identified as "Hilton" hotels and Hilton International Co. may not
operate facilities within the continental United States identified as "Hilton"
hotels. The Company's international hotel and hotel-casino operations are
conducted under the Conrad International name. See "Hotel Operations" and
"Gaming Operations -- International Hotel-Casinos." Subject to the foregoing
restrictions as to the use of the "Hilton" name, Hilton and Hilton International
Co. can compete in all, and do compete in certain, markets. The Compass
computerized reservation system utilized by Hilton and Hilton International Co.
provides information as to their respective hotels, if any, in each market. See
"Additional Information -- Computer Systems" and "Reservation System."
The Company, under the terms of expired agreements with The Prudential
Insurance Company of America ("Prudential"), had agreed (a) that, except for the
New York Hilton & Towers and the Waldorf=Astoria (or the ownership, operation
and management of a substitute hotel having substantially the same number of
rooms) and a hotel with not more than 1,600 rooms, the Company would not own,
operate, manage or otherwise have an interest in any hotel or similar
establishment in the Borough of Manhattan, (b) that, except for the Washington
Hilton & Towers and the Capital Hilton (or the ownership, operation and
management of substitute hotels having substantially the same number of rooms),
the Company would not own, operate, manage or otherwise have an interest in any
other hotel or similar establishment in the District of Columbia, and (c) that
the Company would not own, operate, manage or otherwise have an interest in any
additional hotels or similar establishments within a radius of 20 miles of the
Rye Town Hilton, except that certain areas within said 20 mile radius have been
excluded from the territorial restriction. The Company has also entered into an
agreement with Prudential which provides that, except for the Chicago Hilton &
Towers, the Palmer House Hilton, the O'Hare Hilton and specified other
properties, the Company would not manage or operate, or possess an ownership
interest in, or license or franchise, any hotel in Chicago, except the ownership
and/or management of a hotel with less than 800 rooms at the O'Hare
International Airport and a hotel with not more than 400 rooms at any other
location in Chicago.
PROPERTY TRANSACTIONS
In 1995, the Company recorded a $1,500,000 pretax gain from property
transactions primarily as a result of the sale of land to Hilton Grand Vacations
Company for its vacation ownership resort located adjacent to the Flamingo
Hilton-Las Vegas. Gains on this transaction are being recognized on an
installment basis. See "Additional Information -- Vacation Ownership."
Hilton continuously evaluates its property portfolio and intends to dispose
of its interests in hotels or properties that, in its opinion, no longer yield
an adequate return on investment or conform to Hilton's long range plans. In so
doing, the Company expects to maintain a balanced mix of sources of revenues and
a favorable return on stockholders' equity.
FOREIGN CURRENCY TRANSACTIONS
The Company's international operations are subject to certain economic and
political risks, including foreign currency fluctuations. The Company monitors
its foreign operations and, where appropriate, adopts
8
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hedging strategies to minimize the impact of changing economic and political
environments. See "Financial Instruments" in the Notes to the Company's
Consolidated Financial Statements on pages 50 and 51 in the Stockholders Report.
GAMING OPERATIONS
NEVADA HOTEL-CASINOS
The Company owns and operates five hotel-casinos in the State of Nevada: the
3,174-room Las Vegas Hilton, the 3,642-room Flamingo Hilton-Las Vegas, the
2,000-room Flamingo Hilton-Laughlin, the 2,001-room Reno Hilton and the 604-room
Flamingo Hilton-Reno.
The Las Vegas Hilton is located adjacent to the Las Vegas Convention Center
and focuses on up-scale individual leisure guests and convention groups. The
Flamingo Hilton-Las Vegas, the Reno Hilton and the Flamingo Hilton-Reno focus
primarily on the middle market, in particular the group tour and travel segment.
The Flamingo Hilton-Laughlin targets the budget and middle market segments. Each
of the Company's hotel-casinos has gaming, convention, dining, shopping,
entertainment and, with the exception of the Flamingo Hilton-Reno, indoor and
outdoor recreational facilities. A variety of popular entertainment is featured
in theaters and lounges at each hotel. The Company also operates a vacation
ownership resort adjacent to the Flamingo Hilton-Las Vegas. See "Additional
Information -- Vacation Ownership."
The Company continues to refurbish and expand existing facilities in Nevada
to maintain their presence as premier properties in the market. In 1995, the Las
Vegas Hilton completed construction of the third of three new 12,600 to 15,400
square foot "Sky Villa" luxury suites for premium players. The Las Vegas Hilton
also completed new VIP baccarat facilities and opened a new 6,800 square foot
luxury European Suite. The Flamingo Hilton-Las Vegas completed an extensive
expansion and renovation project, including a new 600-room tower, a 10,000
square foot casino expansion, a new 21,000 square foot ballroom, remodeling of
the race and sports book, new entertainment, recreation, retail and dining
facilities, exterior enhancements and guest room renovations. The Flamingo
Hilton-Laughlin upgraded its guest room bathrooms and continued its slot machine
replacement program. The Reno Hilton completed a renovation of its casino and
the registration, entertainment and retail areas of the property, and opened a
new Johnny Rockets restaurant. The Flamingo Hilton-Reno renovated its casino and
remodeled the Top of the Flamingo Hilton restaurant.
The space utilized by the Company's casinos in Nevada, in terms of
approximate square footage, is as follows: Las Vegas Hilton -- 78,000 square
feet (inclusive of 29,000 square feet attributable to the race and sports book);
Flamingo Hilton-Las Vegas -- 74,000 square feet (inclusive of 20,000 square feet
attributable to O'Sheas Irish theme casino adjacent to the hotel); Flamingo
Hilton-Laughlin -- 58,000 square feet (inclusive of 3,000 square feet
attributable to the race and sports book); Reno Hilton -- 118,000 square feet
(inclusive of 12,000 square feet attributable to the race and sports book); and
Flamingo Hilton-Reno -- 46,000 square feet (inclusive of 2,500 square feet
attributable to the race and sports book).
Each of the hotel-casinos is open 24 hours a day, seven days a week, for
gaming activities. Games operated in these casinos include "21," craps,
roulette, big "6," baccarat, poker, keno and slot and other coin machines. The
Las Vegas Hilton's race and sports book is tied in by satellite or modem to the
casinos at the Flamingo Hilton-Las Vegas, the Flamingo Hilton-Laughlin, the Reno
Hilton and the Flamingo Hilton-Reno.
It is impracticable for Hilton's hotel-casinos to record the total amount
bet in the casinos, although the amount of chips issued for cash and credit is
determined regularly. The amount of gaming activity varies significantly from
time to time primarily due to general economic conditions, popularity of
entertainment in the hotels, and occupancy rates in the hotels and in the Las
Vegas, Laughlin and Reno markets. The amount of revenues from gaming operations
varies depending upon the amount of gaming activity as well as variations in the
odds for different games and the factor of chance. Casino activities are
conducted by experienced personnel who are supervised at all times.
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As in the case of any business extensively involved in the handling of cash,
gaming operations at the Company's hotel-casinos are subject to risk of
substantial loss as a result of dishonesty. However, the Company believes that
it has reduced such risk, by means of procedures for supervision of employees
and other controls, to the fullest extent practicable without impediment to play
and within the limits of reasonable costs. Substantially all table games and
slot machines can be monitored by remote control television and substantially
all slot machines at all five Nevada properties are monitored by computers.
The Las Vegas Hilton and, to a lesser extent, the Flamingo Hilton-Las Vegas,
the Flamingo Hilton-Reno and the Reno Hilton invite VIP customers to their
casinos and may pay for or reimburse the cost of their air transportation and
provide them with complimentary rooms, food and beverage. In addition, the Las
Vegas Hilton and the Reno Hilton have instituted special flight programs,
pursuant to which free air transportation on Company owned or chartered aircraft
and complimentary rooms, food and beverage are provided to groups or selected
persons. These persons either have established casino credit limits or cash on
deposit in the casinos and have previously evidenced a willingness to put
substantial amounts at risk at the casinos. The special flight programs are
sometimes referred to as junkets. The Las Vegas Hilton and the Reno Hilton
hosted 11 and 13 special flight programs in 1995, compared to nine and 27 such
programs in 1994, respectively.
Revenues from the Company's casinos are accounted for in accordance with
applicable laws and rules and regulations. As is customary in the Nevada gaming
industry, activities are conducted on a credit as well as a cash basis, in
accordance with procedures established and supervised by management.
Fluctuations in collecting casino receivables could have a material effect on
results of operations of these properties. An allowance is provided for
estimated uncollectible casino receivables. Casino receivables aggregated
$47,900,000, subject to a $7,600,000 (approximately 16%) reserve, at December
31, 1993; $69,100,000, subject to a $16,000,000 (approximately 23%) reserve, at
December 31, 1994; and $87,300,000, subject to a $13,500,000 (approximately 15%)
reserve, at December 31, 1995.
INTERNATIONAL HOTEL-CASINOS
The Company, through Conrad International, manages three international
hotel-casinos which feature table games and slot machines similar to those
offered at the Company's hotel-casinos in Nevada.
In April 1995, the Company commenced operation of the 136-room Conrad
International Treasury in Brisbane, Australia. This hotel-casino features a
65,000 square foot casino and has the exclusive right to conduct casino gaming
in Brisbane until 2005. The Company has a 19.9% ownership interest in this
property.
The Company also has a 19.9% ownership interest in the 605-room Hotel Conrad
& Jupiters Casino, which opened in 1985. This hotel-casino is located on the
Gold Coast in Queensland, Australia, and features a 70,000 square foot casino.
This property had the exclusive right to conduct casino gaming on Queensland's
Gold Coast through 1995.
The Company has a 25% ownership interest in the 620-room Conrad
International Istanbul, which opened in 1992. This hotel-casino includes a
12,000 square foot casino.
CASINO WINDSOR
The Company and the other two shareholders of Windsor Casino Limited ("WCL")
operate the Casino Windsor, an interim 50,000 square foot casino in Windsor,
Ontario, Canada. The Company, through Conrad International, owns a 33.3%
interest in WCL, which operates this project for the Ontario provincial
government. The Company anticipates that the interim casino will be replaced by
a permanent facility in early 1998, which will include a hotel of approximately
400 rooms, a 75,000 square foot casino, entertainment and meeting facilities.
Since December 1995, the Company has chartered a river casino to the Ontario
provincial government to serve as a complementary facility for Casino Windsor.
This vessel provides an additional 25,000 square feet of casino space for the
property.
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NEW ORLEANS RIVER CASINO
Since February 1994, the Company has operated a river casino located
adjacent to the New Orleans Hilton Riverside & Towers. The Company currently
operates a 1,500 passenger vessel which has a 20,000 square foot casino
featuring table games and slot machines similar to those offered at the
Company's hotel-casinos. This vessel is wholly-owned by the Company and leased
to a joint venture, of which the Company owns a 50% interest.
EXPANSION PROGRAM
In January 1995, the Company and Paramount Parks Inc. ("Paramount")
announced plans to build a 65,000 square foot attraction to be called "Star
Trek: The Experience at the Las Vegas Hilton." This attraction is scheduled to
open in spring 1997 and will feature a motion-based simulation ride, interactive
video and virtual reality stations, dining and souvenir shops. The building
housing the Star Trek attraction will be owned by the Company and leased to
Paramount. The attraction will also be managed by Paramount. In conjunction with
the Star Trek attraction, the Company plans to construct a themed 22,000 square
foot casino addition at the Las Vegas Hilton, which is also scheduled to open in
spring 1997.
In 1996, the Las Vegas Hilton plans to rebuild its marquee sign and renovate
700 of its guest rooms. The Flamingo Hilton-Las Vegas plans to complete a new
main entrance to the property and renovate the registration area. The Flamingo
Hilton-Laughlin plans to renovate 1,000 of its guest rooms, refinish the
exterior facade and continue its slot machine replacement program. At the Reno
Hilton, renovation of restaurants, meeting rooms and guest rooms are planned.
The Flamingo Hilton-Reno plans to renovate guest rooms and open a Benihana
restaurant.
The government of Uruguay has selected Conrad International and its partners
to develop a new 300-room hotel-casino in Punta del Este, Uruguay. This project,
which will be the first privately operated casino in Uruguay in 30 years, will
include a 38,000 square foot casino. Conrad International will manage and have
an equity interest of approximately 43% in the hotel-casino. The casino is
scheduled to open in early 1997 and the hotel is expected to commence operations
in late 1997.
Conrad International has entered into an agreement to develop and operate a
700-room hotel-casino in Cairo, Egypt. This property will feature a 17,000
square foot European-style casino. Conrad International will manage and have a
10% equity interest in the hotel-casino, which is scheduled to open in late
1997.
The Company is also developing a river casino in Kansas City, Missouri. The
Company will manage and own a 90% interest in this project, which will include a
30,000 square foot casino on a continuously docked 130,000 square foot barge,
concessions and entertainment facilities. Subject to the receipt of all required
gaming licenses and permits, this project is scheduled to open in mid-1996. The
Company also plans to build a 260-room hotel adjacent to the river casino, which
is scheduled to open in mid-1997.
The New Jersey Casino Control Commission has granted the Company's request
for a Statement of Compliance, finding that the Company satisfies all
non-facility related criteria for a casino license in Atlantic City, New Jersey.
At present, the Company does not own, nor has the Company entered into any
agreement to manage, a hotel-casino property in Atlantic City. See "Additional
Information -- Regulation and Licensing -- New Jersey Gaming Laws."
ADDITIONAL INFORMATION
VACATION OWNERSHIP
The Company owns a 50% interest in the Hilton Grand Vacations Company joint
venture ("HGVC"), which currently operates 12 vacation ownership resorts in
Florida and one in Nevada. In January 1995, HGVC commenced operation of a
200-unit vacation ownership resort adjacent to the Flamingo Hilton-Las Vegas. In
August 1995, HGVC also commenced operation of the first phase of a 360-unit
vacation ownership resort adjacent to Sea World in Orlando, Florida.
Development, construction and certain operating costs of HGVC's projects in Las
Vegas and Orlando have been substantially funded by the Company in the form of
revolving loan facilities. HGVC is actively seeking new development and
acquisition opportunities in other resort locations.
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DESIGN AND FURNISHING SERVICES
Hilton, through its wholly-owned subsidiary, Hilton Equipment Corporation,
and through its hotels division, provides design and furnishing services and
distributes furniture, furnishings, equipment and supplies to hotels and
hotel-casinos owned, leased or managed by Hilton and to hotels franchised by
Hilton or owned and operated by others. The revenues of this operation depend
primarily on the number of new hotels operated or franchised by Hilton and on
refurbishing and remodeling of existing Hilton hotels.
COMPUTER SYSTEMS
Compass Computer Services, Inc. ("Compass"), 50% of which is owned by Hilton
and the balance by Budget Rent-A-Car, Inc., operates a computerized reservation
system for, among other things, hotel reservations. This system also provides
Hilton with certain statistical data and registration packets. Compass is being
managed by Litton Computer Services.
RESERVATION SYSTEM
The Compass computerized reservation system is presently utilized by Hilton
Service Corporation, the operator of a worldwide system of reservation offices
for hotels operated by Hilton, Hilton International Co., their affiliates and
others. Hilton Service Corporation is owned 51% by Hilton and 49% by Hilton
International Co.
MARKETING
Hotel occupancy at Hilton's metropolitan and airport properties is derived
primarily from the convention and meeting market and the business traveler
market (businesspersons traveling as individuals or in small groups). Hotel
occupancy at the Company's resort properties is derived primarily from the tour
and leisure market (tourists traveling either as individuals or in groups) and
the convention and meeting market. Hotel occupancy at the Company's
hotel-casinos is derived primarily from the convention and meeting market, the
tour and leisure market and junket and VIP programs. As indicated under
"Additional Information -- Business Risks" below, these sources of business are
sensitive to general economic and other conditions. In addition, the Company
participates in certain joint marketing programs with business partners in the
airline, car rental and cruise line industries.
STATISTICAL DATA
For information regarding the Company's properties, number of available
rooms, occupancy ratios and management and franchise fees, see the Ten Year
Summary on pages 58 and 59 in the Stockholders Report.
BUSINESS RISKS
In 1995, the Company was able to increase average room rates by five percent
over 1994. The Company's future operating results could be adversely impacted by
industry overcapacity and weak demand, which could restrict the Company's
ability to raise room rates to keep pace with the rate of inflation. The
Company's business could also be adversely affected by increases in
transportation and fuel costs or sustained recessionary periods. The operating
results for the Company's hotel-casinos can be volatile depending upon the
table-game play of premium players.
Hilton's occupancy ratios are affected by general economic conditions, as
well as by competition, work stoppages and other factors affecting particular
properties. Occupancy ratios at the Company's hotels could also be adversely
impacted by a decrease in travel resulting from fluctuations in the worldwide
economy and by excess industry capacity.
COMPETITION
Hilton believes it is one of the largest operators of hotels located within
the United States. Competition from other hotels, motels and inns, including
facilities owned by local interests and facilities owned by national and
international chains, is vigorous in all areas in which Hilton operates its
facilities. Hilton hotels also compete generally with facilities offering
similar services and located in cities and other locations where Hilton hotels
are not present. The Company's precise competitive position in most areas in
which its hotels are located cannot be determined from the information and data
available to Hilton.
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To the extent that hotel capacity is expanded by others in a city where a
Hilton hotel is located, competition will increase. In this regard, recent
capacity additions have increased competition in all segments of the Las Vegas
market. Certain of the Company's competitors have announced new casino projects
in Las Vegas which, if completed, will add significant casino space and hotel
rooms to the market. Such new capacity additions to the Las Vegas market could
adversely impact the Company's gaming income. In addition, the business of
Hilton's Nevada hotel-casinos might be adversely affected if gaming operations
of the type conducted in Nevada were to be permitted under the laws of other
states, particularly California. The legalization of casino gaming in Atlantic
City, New Jersey has had an impact on the Company's Nevada hotel-casinos. The
legalization of riverboat gaming in a number of states and the operation of
casino gaming on Native American tribal lands could also impact the Company's
hotel-casinos in Nevada.
REGULATION AND LICENSING
Each of the Company's casinos is subject to extensive regulation under laws,
rules and supervisory procedures, primarily in the jurisdiction where located or
docked. Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting such gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
NEVADA GAMING LAWS. The ownership and operation of casino gaming facilities
in the State of Nevada, such as those at the Las Vegas Hilton, the Flamingo
Hilton-Las Vegas, the Flamingo Hilton-Laughlin, the Reno Hilton and the Flamingo
Hilton-Reno, are subject to the Nevada Gaming Control Act and the regulations
promulgated thereunder (the "Nevada Act") and various local regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Gaming Commission"), the Nevada State
Gaming Control Board (the "Control Board"), the Clark County Liquor and Gaming
Licensing Board (the "CCB") and the City of Reno. The Gaming Commission, the
Control Board, the CCB and the City of Reno are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company's gaming operations.
The Company's subsidiaries which operate the casinos (the "Licensees") are
required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not transferable. The
Company is registered by the Gaming Commission as a publicly-traded corporation
("Registered Corporation") and, as such, it is required periodically to submit
detailed financial and operating reports to the Gaming Commission and furnish
any other information which the Gaming Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, the
Licensees without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company and the Licensees have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or the
Licensees in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors and
certain key employees of the Licensees must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees of the Company
who are actively and directly involved in gaming activities of the Licensees may
be required to
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be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay for all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and, in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or the Licensees, the companies involved would
have to sever all relationships with such person. In addition, the Gaming
Commission may require the Company or the Licensees to terminate the employment
of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company and the Licensees are required to submit detailed financial and
operating reports to the Gaming Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by the Licensees
must be reported to, or approved by, the Gaming Commission.
If it were determined that the Nevada Act was violated by the Licensees, the
gaming licenses they hold could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Licensees, the Company and the persons involved could be subject
to substantial fines for each separate violation of the Nevada Act at the
discretion of the Gaming Commission. Further, a supervisor could be appointed by
the Gaming Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of the Company's Common Stock, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have such person's suitability as a beneficial holder of the Company's
Common Stock determined if the Gaming Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's Common Stock to report the acquisition to the Gaming Commission. The
Nevada Act requires that beneficial owners of more than 10% of the Company's
Common Stock apply to the Gaming Commission for a finding of suitability within
thirty days after the Chairman of the Control Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than 10%, but not more than
15%, of the Company's Common Stock may apply to the Gaming Commission for a
waiver of such finding of suitability if such institutional investor holds the
Common Stock for investment purposes only. An institutional investor shall not
be deemed to hold the Common Stock for investment purposes unless the Common
Stock was acquired and is held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the Board of Directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company, or any of its gaming
affiliates, or any other action which the Gaming Commission finds to be
inconsistent with holding the Company's Common Stock for investment purposes
only. Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters voted
on by stockholders; (ii) making financial and other inquiries of management of
the type normally made by securities analysts for informational purposes and not
to cause a change in its management, polices or operations; and (iii) such other
activities as the Gaming Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership or trust, it
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must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Barron Hilton, the Company's largest stockholder, has been found suitable as a
controlling stockholder of the Company.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Gaming Commission or
by the Chairman of the Control Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the Company's Common
Stock beyond such period of time as may be prescribed by the Gaming Commission
may be guilty of a criminal offense. The Company is subject to disciplinary
action if, after it receives notice that a person is unsuitable to be a
stockholder or to have any other relationship with the Company or the Licensees,
the Company (i) pays that person any dividend or interest upon voting securities
of the Company; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities for cash at fair market value. Additionally,
the CCB has taken the position that it has the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming license.
The Gaming Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Gaming Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Gaming
Commission, it (i) pays to the unsuitable person any dividend, interest or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Gaming
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Gaming Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Gaming Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Gaming Commission or the Control Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful. The Company was granted approval on
September 28, 1995 to make public offerings of securities for a period of one
year, subject to certain reporting requirements and the authority of the
Chairman of the Control Board to issue an interlocutory stop order for good
cause.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains control, may not occur without the prior
approval of the Gaming Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Control Board and Gaming Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
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The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Gaming Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Gaming
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to its
stockholders for the purpose of acquiring control of the Company.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments.
The Company and its affiliates and Licensees, who propose to become involved
in a gaming venture outside of Nevada, are required to deposit with the Control
Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay
the expenses of investigation of the Control Board of their participation in
such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Gaming Commission. Thereafter, the Company and its
affiliates and Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. These entities are also subject to
disciplinary action by the Gaming Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
LOUISIANA GAMING LAWS. The ownership and operation of a riverboat gaming
vessel in the State of Louisiana is subject to the Louisiana Riverboat Economic
Development and Gaming Control Act (the "Act"). Gaming activities are regulated
by the Louisiana Riverboat Gaming Commission (the "Commission") and the
Louisiana Riverboat Gaming Enforcement Division (the "Division"), a department
within the Louisiana State Police. The Division is responsible for investigating
the background of all applicants seeking a riverboat gaming license, issuing the
license and enforcing the laws, rules and regulations relating to riverboat
gaming activities.
The applicant, its officers, directors, key personnel, partners and persons
holding a 5% or greater interest in the holder of a gaming license are required
to be found suitable by the Division. This requires the filing of an extensive
application to the Division disclosing personal, financial, criminal, business
and other information. On October 13, 1993, the Division issued a riverboat
gaming license to the Queen of New Orleans, a joint venture of which the Company
owns a 50% interest. The Company's joint venture commenced riverboat gaming
operations in New Orleans, Louisiana on February 10, 1994.
The transfer of a Louisiana gaming license is prohibited under the Act. The
sale, assignment, transfer, pledge or disposition of securities which represent
5% or more of the total outstanding shares issued by a holder of a license is
subject to Division approval and the transferee must be found suitable. In
addition, all contracts and leases entered into by a licensee are subject to
approval and certain enterprises which transact business with the licensee must
be licensed.
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The Commission must approve all security holders of the licensee and may
find any such security holder not qualified to own those securities. Louisiana
law may require that the charter or bylaws of the licensee provide that its
securities are held subject to the condition that, if a holder is found to be
disqualified by the Commission, the holder must dispose of the securities of the
licensee. If a security holder of a licensee is found disqualified, it will be
unlawful for the security holder to (i) receive any dividend or interest with
regard to the securities; (ii) exercise, directly or indirectly, any rights
conferred by the securities; or (iii) receive any remuneration from the licensee
for services rendered or otherwise. The Commission may impose similar approval
requirements on holders of securities of any intermediary or holding company of
the licensee, but may waive those requirements with respect to holders of
publicly-traded securities of intermediary and holding companies if such holders
do not have the ability to control the publicly-traded corporation or elect one
or more directors thereof.
NEW JERSEY GAMING LAWS. The ownership and operation of hotel-casino
facilities in Atlantic City, New Jersey are subject to extensive state
regulation under the New Jersey Casino Control Act (the "Act"). No hotel-casino
facility may operate unless various licenses and approvals are obtained from New
Jersey regulatory authorities, including the Casino Control Commission (the
"Commission"). The Commission is authorized under the Act to adopt regulations
covering a broad spectrum of gaming and gaming related activities and to
prescribe the methods and forms of applications for licenses.
The Act permits an applicant to request a Statement of Compliance from the
Commission finding that it satisfies one or more of the eligibility criteria for
licensure. The Statement of Compliance request may be made prior to the
construction or acquisition of a casino in Atlantic City. It is only after all
eligibility criteria are met that a casino license may be issued. On February 4,
1991, the Company and a New Jersey subsidiary filed applications with the
Commission for a casino license under the Act. At the conclusion of the
application investigation, the Company requested a Statement of Compliance
regarding all non-facility related criteria. On June 26, 1991, the Commission
granted the Company's request for a Statement of Compliance. The Company does
not now own, nor has the Company entered into any agreement to manage, a
hotel-casino in Atlantic City. The Company filed the license application in
contemplation of possibly owning and/or operating a hotel-casino in Atlantic
City.
In order to be granted a casino license under the Act, officers and
directors of a licensee and its employees who are employed in hotel or casino
operations in Atlantic City are required to be licensed or approved by the
Commission. In addition, all contracts and leases entered into by a licensee
would be subject to approval and certain enterprises which transact business
with the licensee would themselves have to be licensed. New Jersey law also
authorizes the Commission to approve security holders of a licensee in the
manner described above under the caption "Louisiana Gaming Laws."
QUEENSLAND GAMING LAWS. Queensland, Australia, like Nevada, Louisiana and
New Jersey, has comprehensive laws and regulations governing the conduct of
casino gaming. All persons connected with the ownership and operation of a
casino, including the Company, its subsidiary that manages the Hotel Conrad &
Jupiters Casino and the Conrad International Treasury and certain of their
principal stockholders, directors and officers, must be found suitable and
licensed. A casino license once issued remains in force until surrendered or
cancelled. Queensland law defines the grounds for cancellation and, in such
event, an administrator may be appointed to assume control of the hotel-casino
complex. The Queensland authorities have conducted an investigation of, and have
found suitable, the Company and its subsidiary.
ONTARIO GAMING LAWS. Ontario, Canada also has laws and regulations
governing the conduct of casino gaming. Ontario law requires that the operator
of a casino must be found suitable and be registered. A registration once issued
remains in force until revoked. Ontario law defines the grounds for
registration, as well as revocation or suspension of such registration. The
Company and two other shareholders formed Windsor Casino Limited ("WCL") to
operate the Casino Windsor. The Ontario authorities have conducted an
investigation of, and have found suitable, the Company and the other two
shareholders of WCL in connection with the Ontario registration of WCL.
17
<PAGE>
TURKEY GAMING LAWS. Turkey has laws and regulations governing the
establishment and operation of casino gaming. The Turkish Ministry of Tourism
inspects all casino premises prior to the commencement of operations and
conducts random inspections of ongoing casino operations. Under Turkish gaming
laws, access to casinos is limited to persons carrying a foreign passport or to
Turkish citizens receiving a permit from the Ministry of Tourism. The casino
located in the Conrad International Istanbul has been authorized to conduct
casino operations by the Turkish Ministry of Tourism.
IRS REGULATIONS. The Internal Revenue Service ("IRS") requires operators of
casinos located in the United States to file information returns for U.S.
citizens (including names and addresses of winners) for keno and slot machine
winnings in excess of stipulated amounts. The IRS also requires operators to
withhold taxes on certain keno, bingo and slot machine winnings of nonresident
aliens. Management is unable to predict the extent, if any, to which such
requirements, if extended, might impede or otherwise adversely affect operations
of, and/or income from, such other games.
Regulations adopted by the IRS and the gaming regulatory authorities in
certain domestic jurisdictions in which the Company operates, or has applied for
licensing to operate, casinos require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the
patron by name and social security number. This reporting obligation commenced
in May 1985 and may have resulted in the loss of gaming revenues to
jurisdictions outside the United States which are exempt from the ambit of IRS
regulations.
OTHER LAWS AND REGULATIONS. Each of the hotels and hotel-casinos operated
by the Company is subject to extensive state and local regulations and, on a
periodic basis, must obtain various licenses and permits, including those
required to sell alcoholic beverages. Management believes that the Company has
obtained all required licenses and permits and its businesses are conducted in
substantial compliance with applicable laws.
EMPLOYEES
At February 1, 1996, Hilton employed approximately 48,000 persons, of whom
approximately 25,000 are covered by various collective bargaining agreements
providing, generally, for basic pay rates, working hours, other conditions of
employment and orderly settlement of labor disputes. Hilton believes that the
aggregate compensation benefits and working conditions afforded its employees
compare favorably with those received by employees in the hotel and gaming
industries generally. Although strikes of short duration have from time to time
occurred at certain of Hilton's facilities, Hilton believes its employee
relations are satisfactory.
ITEM 2. PROPERTIES
Hilton considers its hotels and casinos to be leading establishments with
respect to desirability of location, size, facilities, physical condition,
quality and variety of services offered in most of the areas in which they are
located. Obsolescence arising from age and condition of facilities is a factor
in the hotel and gaming industries. Accordingly, Hilton expends, and intends to
continue to expend, substantial funds to maintain its facilities in first-class
condition in order to remain competitive.
Hotels and casinos owned and operated, leased and managed by Hilton are
briefly described under Item 1 and, in particular, under the captions "Hotel
Operations" and "Gaming Operations." In addition, contemplated additions to, and
major refurbishing and remodeling of, existing properties and new hotels and
casinos presently under construction that will be operated by Hilton are briefly
described under the captions "Hotel Operations -- Expansion Program" and "Gaming
Operations -- Expansion Program" under Item 1.
ITEM 3. LEGAL PROCEEDINGS
In management's opinion, disposition of pending litigation against the
Company is not expected to have a material effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY AGE
- ------------------------- --------------------------------------------------------------- ---------
<S> <C> <C>
Barron Hilton Chairman of the Board, and previously served as Chief Executive 68
Officer until February 1996, and President until February 1993
Stephen F. Bollenbach President and Chief Executive Officer since February 1996 53
Eric M. Hilton Vice Chairman of the Board since May 1993, Executive Vice 62
President -- International Operations from May 1992 until May
1993, President, Conrad International Hotels Corporation until
May 1993, and Senior Vice President -- Real Estate Development,
International until May 1992
Floyd M. Celey, Jr. Executive Vice President and President -- Gaming Operations 56
since September 1994, Senior Vice President -- Global Gaming
Operations from May 1993 until September 1994, and prior
thereto, Senior Vice President -- Corporate Casino Operations,
Conrad International Hotels Corporation
Dieter H. Huckestein Executive Vice President and President -- Hotel Operations 52
since May 1994, Senior Vice President --
Hawaii/California/Arizona Region from May 1991 until May 1994,
and prior thereto, Senior Vice President -- Hawaiian Region
F. Michael O'Brien Executive Vice President -- Gaming Development since September 55
1995, Executive Vice President -- Gaming and Hotel Development
from September 1994 until September 1995, Senior Vice President
-- Gaming and Hotel Development from January 1994 until
September 1994, and from May 1992 until January 1994, Senior
Vice President -- Corporate Properties
Steve Krithis Senior Vice President -- Finance since November 1994, and prior 66
thereto, Vice President and Corporate Comptroller
William C. Lebo, Jr. Senior Vice President and General Counsel 52
</TABLE>
Unless otherwise noted in the table, all positions and offices with the
Company indicated have been continuously held since January 1991. The executive
officers are responsible for all major policy making functions and all other
corporate and divisional officers are responsible to, and are under the
supervision of, the executive officers. None of the above named executive
officers are related, except that Messrs. Barron and Eric Hilton are brothers.
Similar information for directors of the Company will be included under
"Election of Directors" in the Company's definitive proxy statement to be used
in connection with its annual meeting of stockholders scheduled to be held on
May 9, 1996 (the "Proxy Statement"). The Company expects to file the Proxy
Statement with the Securities and Exchange Commission prior to April 30, 1996,
and reference is expressly made thereto for the specific information
incorporated herein by the aforesaid reference.
19
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the New York and Pacific Stock
Exchanges and is traded under the symbol "HLT." Information regarding sales
prices, dividend payments and record holders with respect to the Company's
Common Stock is set forth under "Supplementary Financial Information" in the
Notes to the Company's Consolidated Financial Statements on page 57 in the
Stockholders Report, which information is incorporated herein by reference.
On July 14, 1988, Hilton adopted a Preferred Share Purchase Rights Plan
("Plan") and declared a dividend distribution of one Preferred Share Purchase
Right ("Rights") on each outstanding share of Hilton Common Stock. The Rights
are transferable only with the Common Stock until they become exercisable.
Generally, the Rights become exercisable only if a person or group (other
than Hilton Interests, as hereinafter defined) acquires 20% or more of Hilton's
Common Stock or announces a tender offer, the consummation of which would result
in ownership by a person or group of 20% or more of the Common Stock. Each Right
entitles stockholders to buy one one-hundredth of a share of a new series of
junior participating preferred stock at an exercise price of $150.
If the Company is acquired in a merger or other business combination
transaction, each Right entitles its holder to purchase, at the Right's then
current price, a number of the acquiring company's common shares having a then
current market value of twice the Right's exercise price. In addition, if a
person or group (other than Hilton Interests) acquires 30% or more of the
Company's outstanding Common Stock, otherwise than pursuant to a cash tender
offer for all shares in which such person or group increases its stake from
below 20% to 80% or more of the outstanding shares of Common Stock, each Right
entitles its holder (other than such person or members of such group) to
purchase, at the Right's then current exercise price, shares of the Company's
Common Stock having a market value of twice the Right's exercise price.
Following the acquisition by a person or group of beneficial ownership of
30% or more of the Company's Common Stock and prior to an acquisition of 50% or
more of the Common Stock, Hilton's Board of Directors may exchange the Rights
(other than Rights owned by such person or group), in whole or in part, at an
exchange ratio of one share of Common Stock (or one one-hundredth of a share of
the new series of junior participating preferred stock) per Right.
Prior to the acquisition by a person or group of beneficial ownership of 20%
or more of the Company's Common Stock, the Rights are redeemable for one cent
per Right at the option of the Company's Board of Directors.
"Hilton Interests" refer to Barron Hilton and the Conrad N. Hilton Fund and
the shares of Common Stock beneficially owned by them.
The full text of the Plan has been filed as Exhibit 4.5 hereto, and the
foregoing summary is qualified in its entirety by reference to Exhibit 4.5.
ITEM 6. SELECTED FINANCIAL DATA
See the Company's Ten Year Summary on pages 58 and 59 in the Stockholders
Report and "Segments of Business" in the Notes to the Company's Consolidated
Financial Statements on pages 55 and 56 in the Stockholders Report.
The ratio of earnings to fixed charges for the five years ended December 31,
1995 is as follows: 1995 - 3.2 to 1; 1994 - 2.8 to 1; 1993 - 2.7 to 1; 1992 -
2.9 to 1; and 1991 - 2.6 to 1. The computation of the aforesaid ratios is set
forth in Exhibit 12 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
See pages 36 through 41 in the Stockholders Report.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplemental information required
by this Item are contained in the Stockholders Report on the pages indicated,
which information is incorporated herein by reference.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent public accountants............................................... 57
Consolidated statements of income for
the three years ended December 31, 1995............................................... 42
Consolidated balance sheets as of December 31, 1995 and 1994........................... 43
Consolidated statements of cash flows for
the three years ended December 31, 1995............................................... 44
Consolidated statements of stockholders' equity for
the three years ended December 31, 1995............................................... 45
Notes to consolidated financial statements............................................. 46
Segment data for the five years ended December 31, 1995
contained in the Ten Year Summary..................................................... 58
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information respecting executive officers required by this
Item is set forth under the caption "Executive Officers" in Part I. Other
information respecting certain executive officers, as well as the required
information for directors, will be contained in the Proxy Statement, and
reference is expressly made thereto for the specific information incorporated
herein by the aforesaid reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under "Executive
Compensation" in the Proxy Statement, and except for information set forth in
the Proxy Statement under "Personnel and Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Graph," reference is
expressly made thereto for the specific information incorporated herein by the
aforesaid reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth under "Common Stock
Ownership of Certain Beneficial Owners and Executive Officers" and "Election of
Directors" in the Proxy Statement, and reference is expressly made thereto for
the specific information incorporated herein by the aforesaid reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth under "Election of
Directors -- Certain Relationships and Interests in Certain Transactions" in the
Proxy Statement, and reference is expressly made thereto for the specific
information incorporated herein by the aforesaid reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS
1. Financial Statements:
The index to consolidated financial statements and supplementary data is
set forth under Item 8 on page 21 hereof.
2. Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................... 23
Schedule II -- Valuation and Qualifying Accounts....................................... 24
Supplemental Note to Consolidated Financial Statements................................. 25
</TABLE>
All other schedules are inapplicable or the required information is included
elsewhere herein.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
Reference is made to the Index to Exhibits immediately preceding the
exhibits hereto.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SUPPLEMENTAL SCHEDULE AND SUPPLEMENTAL NOTE
To Hilton Hotels Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Hilton Hotels Corporation and
subsidiaries included in the Annual Report to Stockholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated February
1, 1996. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule II and the supplemental
note to consolidated financial statements as shown on pages 24 and 25 are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. The supplemental schedule and
the supplemental note to the consolidated financial statements have been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 1, 1996
23
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT CHARGED TO (CREDITED) BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER PERIOD
---------- ---------- ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
Hotel and other......................................... $11.4 2.0 (.6) 4.4 -- 8.4
Casino.................................................. 16.0 18.1 -- 20.6 -- 13.5
Reserve for loss on other investments..................... 20.6 -- -- 1.1 -- 19.5
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts
Hotel and other......................................... $11.6 1.7 .5 2.4 -- 11.4
Casino.................................................. 7.6 13.2 -- 4.8 -- 16.0
Reserve for loss on other investments..................... 12.5 -- -- -- 8.1(A) 20.6
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts
Hotel and other......................................... $ 7.2 1.8 4.5 1.9 -- 11.6
Casino.................................................. 14.4 10.9 -- 17.7 -- 7.6
Reserve for loss on other investments -- 12.5 -- -- -- 12.5
</TABLE>
- ------------------------
(A) Represents unrealized holding losses on certain equity securities.
24
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accounts payable and accrued expenses at December 31, consisted of:
Accounts and notes payable.................................................................... $ 94.0 87.2
Accrued salaries and wages.................................................................... 31.2 29.5
Insurance..................................................................................... 27.3 28.7
Interest...................................................................................... 18.8 20.6
Other accrued expenses........................................................................ 135.2 118.0
--------- ---------
$ 306.5 284.0
--------- ---------
--------- ---------
</TABLE>
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 14, 1996.
HILTON HOTELS CORPORATION
(Registrant)
By: STEVE KRITHIS
-----------------------------------
Steve Krithis
Senior Vice President-Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 14, 1996.
<TABLE>
<S> <C>
RAYMOND C. AVANSINO, JR. ROBERT L. JOHNSON
- ------------------------------------------- -------------------------------------------
Raymond C. Avansino, Jr. Robert L. Johnson
Director Director
STEPHEN F. BOLLENBACH DONALD R. KNAB
- ------------------------------------------- -------------------------------------------
Stephen F. Bollenbach Donald R. Knab
President and Chief Executive Officer Director
(Chief Executive Officer)
A. STEVEN CROWN STEVE KRITHIS
- ------------------------------------------- -------------------------------------------
A. Steven Crown Steve Krithis
Director Senior Vice President-Finance
(Chief Financial and Accounting Officer)
GREGORY R. DILLON BENJAMIN V. LAMBERT
- ------------------------------------------- -------------------------------------------
Gregory R. Dillon Benjamin V. Lambert
Director Director
BARRON HILTON DONNA F. TUTTLE
- ------------------------------------------- -------------------------------------------
Barron Hilton Donna F. Tuttle
Chairman of the Board Director
ERIC M. HILTON SAM D. YOUNG, JR.
- ------------------------------------------- -------------------------------------------
Eric M. Hilton Sam D. Young, Jr.
Director Director
DIETER H. HUCKESTEIN
- -------------------------------------------
Dieter H. Huckestein
Director
</TABLE>
26
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of Registrant, as amended (incorporated herein by reference
from Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987)
3.2 By-Laws of Registrant, as amended (incorporated herein by reference from Exhibit 3.2 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992)
3.3 Amendment to By-Laws of Registrant, relating to Exhibit 3.2 hereto..................................
4.1 Indenture, dated as of July 1, 1988, between Registrant and Citibank, N.A., regarding Registrant's
Subordinated Debt Securities (incorporated herein by reference from Exhibit 4.1 to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-3 (File No. 2-95746))
4.2 Indenture, dated as of July 1, 1988, between Registrant and Morgan Guaranty Trust Company of New
York, regarding Registrant's Senior Debt Securities (incorporated herein by reference from Exhibit
4.1 to Post-Effective Amendment No. 1 to Registrant's Registration Statement on Form S-3 (File No.
2-99967))
4.3 First Supplemental Indenture, dated as of June 30, 1992, between Registrant and Morgan Guaranty
Trust Company of New York, regarding Registrant's Senior Debt Securities, relating to Exhibit 4.2
hereto (incorporated herein by reference from Exhibit 4.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992)
4.4 Reimbursement Agreements, dated as of November 15, 1990, among Registrant, Swiss Bank Corporation
and the financial institutions signatory thereto (incorporated herein by reference from Exhibit 4.7
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990)
4.5 Rights Agreement, dated as of July 14, 1988, between Registrant and The First National Bank of
Chicago (incorporated herein by reference from Exhibit 1 to Registrant's Current Report on Form 8-K,
dated July 14, 1988)
10.1 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option
Agreement relating thereto , both as amended (incorporated herein by reference from Exhibit 10.5 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1989)*
10.2 Amendment, dated October 18, 1990, to the 1984 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibit 10.1 hereto (incorporated herein by reference from Exhibit 10.3 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990)*
10.3 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option
Agreement relating thereto, both as amended (incorporated herein by reference from Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990)*
10.4 Amendment, dated January 20, 1994, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibit 10.3 hereto (incorporated herein by reference from Exhibit 10.5 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)*
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.5 Amendment, dated January 19, 1995, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.3 and 10.4 hereto (incorporated herein by reference from Exhibit
10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.6 1996 Stock Incentive Plan of Registrant*............................................................
10.7 1996 Chief Executive Stock Incentive Plan of Registrant*............................................
10.8 Incentive Compensation Plan of Registrant (incorporated herein by reference from Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1980)*
10.9 Amendment, dated as of January 1, 1994, to the Incentive Compensation Plan of Registrant, relating
to Exhibit 10.8 hereto (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993)*
10.10 Retirement Plan of Registrant, as amended and restated (incorporated herein by reference from
Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.11 First Amendment, dated as of November 15, 1995, to the Retirement Plan of Registrant, relating to
Exhibit 10.10 hereto*...............................................................................
10.12 Supplemental Executive Retirement Plan of Registrant, as amended (incorporated herein by reference
from Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)*
10.13 Amendment, effective April 1, 1994, to the Supplemental Executive Retirement Plan of Registrant,
relating to Exhibit 10.12 hereto (incorporated herein by reference from Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.14 Directors' Retirement Benefit Plan of Registrant, as amended (incorporated herein by reference from
Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)*
10.15 Retirement Benefit Replacement Plan of Registrant, as amended (incorporated herein by reference from
Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992)*
10.16 Amendment, dated as of January 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibit 10.15 hereto (incorporated herein by reference from Exhibit 10.12 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)*
10.17 Amendment, effective April 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibits 10.15 and 10.16 hereto (incorporated herein by reference from Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.18 Thrift Savings Plan of Registrant, as amended and restated (incorporated herein by reference from
Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.19 First Amendment, dated as of March 16, 1995, to the Thrift Savings Plan of Registrant, relating to
Exhibit 10.18 hereto*...............................................................................
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.20 Form of Executive Employment Agreement, dated as of November 17, 1994 (incorporated herein by
reference from Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December
31, 1994)*
10.21 Employment Agreement, dated as of February 1, 1996, between Registrant and Stephen F. Bollenbach*...
11 Computation of Earnings Per Share...................................................................
12 Computation of Ratios of Earnings to Fixed Charges..................................................
13 Registrant's Annual Report to Stockholders for the year ended December 31, 1995.....................
21 List of Registrant's Subsidiaries...................................................................
23 Consent of Independent Public Accountants...........................................................
99 Undertakings........................................................................................
</TABLE>
- ------------------------
* Management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation
S-K, previously filed where indicated and incorporated herein by reference.
Pursuant to Regulation Section229.601, Item 601(b)(4)(iii) of Regulation
S-K, upon request of the Securities and Exchange Commission, the Registrant
hereby undertakes to furnish a copy of any unfiled instrument which defines the
rights of holders of long-term debt of the Registrant and its consolidated
subsidiaries (and for any of its unconsolidated subsidiaries for which financial
statements are required to be filed) wherein the total amount of securities
authorized thereunder does not exceed 10% of the total consolidated assets of
the Registrant.
29
<PAGE>
EXHIBIT 3.3
AMENDMENT TO
HILTON HOTELS CORPORATION'S
BY-LAWS
On March 14, 1996, the Board of Directors of Hilton Hotels Corporation (the
"Company") authorized an amendment to the Company's By-Laws. The revised text
of Section 23 of the By-Laws is as follows:
<PAGE>
POWERS AND DUTIES OF OFFICERS OF THE CORPORATION
23. Subject to any resolution of the Board of Directors which may specify
otherwise, the powers and duties of the various officers of the Corporation
shall be as follows:
The Chairman of the Board of Directors shall preside at all meetings of the
Board of Directors, the stockholders and the Executive Committee.
In the absence or incapacity of the Chairman of the Board, the President
shall preside at all meetings of the Board of Directors, the stockholders and
the Executive Committee.
The President shall be the chief executive officer of the Corporation.
Subject to the authority of the Board of Directors, the President shall be
responsible for the general
<PAGE>
management of the business of the Corporation and shall be responsible for
implementing the policies and programs of the Board of Directors. The President
shall have the power to appoint such agents and employees as in the President's
judgment may be necessary or proper for the transaction of the business of the
Corporation, and shall determine their duties and recommend their compensation.
The President shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation. The President shall report to the Board of
Directors through the Chairman of the Board.
The Executive Vice Presidents and the Senior Vice Presidents shall perform
such duties as may be delegated or prescribed by the President, the Board of
Directors or the Executive Committee of the Corporation.
<PAGE>
EXHIBIT 10.6
HILTON HOTELS CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive
advantage in attracting, retaining and motivating officers and employees
and to provide the Corporation and its subsidiaries with a stock plan
providing incentives more directly linked to the profitability of the
Corporation's businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set
forth below:
a. "AFFILIATE" means a corporation or other entity controlled by
the Corporation and designated by the Committee from time to time as
such.
b. "AWARD" means a Stock Appreciation Right or a Stock Option.
c. "BOARD" means the Board of Directors of the Corporation.
d. "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the meanings
set forth in Sections 7(b) and (c), respectively.
e. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
f. "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
g. "COMMITTEE" means the Committee referred to in Section 2.
h. "COMMON STOCK" means common stock, par value $2.50 per share, of the
Corporation.
i. "CORPORATION" means Hilton Hotels Corporation, a Delaware
corporation.
j. "DISABILITY" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
k. "DISINTERESTED PERSON" means a member of the Board who qualifies
as a disinterested person as defined in Rule 16b-3(c)(2), as
promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
l. "RETIREMENT" means retirement from active employment with the
Corporation, a subsidiary or Affiliate at or after age 62.
m. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
n. "FAIR MARKET VALUE" means, except as provided in Section 6(b)(ii)(2),
as of any given date, the mean between the highest and
lowest reported sales prices of the Common Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange,
on any other national securities exchange on which the Common
Stock is listed or on NASDAQ. If there is no regular public
trading market for such Common Stock, the Fair Market Value of the
Common Stock shall be determined by the Committee in good faith.
o. "INCENTIVE STOCK OPTION" means any Stock Option designated as,
and qualified as, an "incentive stock option" within the meaning of
Section 422 of the Code.
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p. "NONQUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
q. "PLAN" means the Hilton Hotels Corporation 1996 Stock Incentive Plan,
as set forth herein and as hereinafter amended from time to time.
r. "RULE 16B-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
s. "STOCK APPRECIATION RIGHT" means a right granted under Section 6.
t. "STOCK OPTION" means an option granted under Section 5.
u. "TERMINATION OF EMPLOYMENT" means the termination of the
participant's employment with the Corporation and any subsidiary or
Affiliate. A participant employed by a subsidiary or an Affiliate
shall also be deemed to incur a Termination of Employment if
the subsidiary or Affiliate ceases to be such a subsidiary or an
Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Corporation or
another subsidiary or Affiliate. Temporary absences from employment
because of illness, vacation or leave of absence and transfers among
the Corporation and its subsidiaries and Affiliates shall not be
considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Stock Option Committee or such
other committee of the Board as the Board may from time to time
designate (the "Committee"), which shall be composed of not less than
two Disinterested Persons, each of whom shall be an "outside director"
for purposes of Section 162(m)(4) of the Code, and shall be appointed by
and serve at the pleasure of the Board.
The Committee shall have authority to make recommendations to the Board
of Directors as to the granting of Awards pursuant to the terms of the
Plan to officers and employees of the Corporation and its subsidiaries and
Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) To select the officers and employees to whom Awards may from time to
time be granted;
(b) Determine whether and to what extent Incentive Stock
Options, Nonqualified Stock Options and Stock Appreciation Rights or any
combination thereof are to be granted hereunder;
(c) Determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) Determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which
may be related to the performance of the participant, the Corporation
or any subsidiary or Affiliate) and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Common Stock
relating thereto, based on such factors as the Committee shall determine;
(e) Modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time; and
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(f) Determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as
it shall from time to time deem advisable, to interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any
agreement relating thereto) and to otherwise supervise the administration of
the Plan.
The Committee may act only by a majority of its members then in
office, except that the members thereof may (i) delegate to an
officer of the Corporation the authority to make decisions pursuant to
paragraphs (c), (f), (g), (h) and (i) of Section 5 (provided that no such
delegation may be made that would cause Awards or other transactions under
the Plan to cease to be exempt from Section 16(b) of the Exchange Act)
and (ii) authorize any one or more of their number or any officer of the
Corporation to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award
shall be made in the sole discretion of the Committee or such delegate
at the time of the grant of the Award or, unless in contravention of any
express term of the Plan, at any time thereafter. All decisions made by the
Committee or any appropriately delegated officer pursuant to the
provisions of the Plan shall be final and binding on all persons, including
the Corporation and Plan participants.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 1,500,000. No participant may be granted Awards
covering in excess of 150,000 shares of Common Stock in any calendar year.
Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares.
If any Stock Option (and related Stock Appreciation Right, if
any) terminates without being exercised, shares subject to such Awards shall
again be available for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes
within the definition of such term in Section 368 of the Code) or any partial
or complete liquidation of the Corporation, the Committee or Board may make
such substitution or adjustments in the aggregate number and kind of shares
reserved for issuance under the Plan, in the number, kind and option price of
shares subject to outstanding Stock Options and Stock Appreciation Rights,
in the number and kind of shares subject to other outstanding Awards granted
under the Plan and/or such other equitable substitution or adjustments as it
may determine to be appropriate in its sole discretion; PROVIDED, HOWEVER,
that the number of shares subject to any Award shall always be a whole
number. Such adjusted option price shall also be used to determine the amount
payable by the Corporation upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
SECTION 4. ELIGIBILITY
Full-time (30 hours per week) officers and employees of the Corporation, its
subsidiaries and Affiliates who are responsible for or contribute to the
management, growth and profitability of the business of the
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Corporation, its subsidiaries and Affiliates are eligible to be granted
Awards under the Plan. No grant shall be made under this Plan to a director
who is not an officer or a salaried employee of the Corporation, its
subsidiaries or Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
Nonqualified Stock Options. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); PROVIDED, HOWEVER,
that grants hereunder are subject to the aggregate limit on grants to
individual participants set forth in Section 3. Incentive Stock Options may
be granted only to employees of the Corporation and its subsidiaries
(within the meaning of Section 424(f) of the Code). To the extent that any
Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall
constitute a Nonqualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its
face whether it is intended to be an agreement for an Incentive Stock Option
or a Nonqualified Stock Option. The grant of a Stock Option shall occur on
the date a majority of the independent directors of the Corporation ratify by
resolution the Committee's recommendation with respect to the individuals to
be participants in any grant of a Stock Option, the number of shares of
Common Stock to be subject to such Stock Option to be granted to such
individual and specifies the terms and provisions of the Stock Option. The
Corporation shall notify a participant of any grant of Stock Option, and a
written option agreement or agreements shall be duly executed and delivered
by the Corporation to the participant. Such agreement or agreements shall
become effective upon execution by the Corporation and the participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the optionee affected, to disqualify any Incentive
Stock Option under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and
conditions as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
and set forth in the option agreement, and shall not be less than the Fair
Market Value of the Common Stock subject to the Stock Option on the
date of grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the Stock Option is granted.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock
Options shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may at
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any time waive such installment exercise provisions, in whole or in
part,based on such factors as the Committee may determine. In
addition, the Committee may at any time accelerate the exercisability of
any Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this Section
5, Stock Options may be exercised, in whole or in part, at any time during
the option term by giving written notice of exercise to the Corporation
specifying the number of shares of Common Stock subject to the Stock
Option to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price by certified or bank check or such other instrument as
the Committee may accept. Payment, in full or in part, may also be
made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock
Option (based on the Fair Market Value of the Common Stock on the date
the Stock Option is exercised).
Payment for any shares subject to a Stock Option may also be made
by delivering a properly executed exercise notice to the Corporation,
together with a copy of irrevocable instructions to a broker to deliver
promptly to the Corporation the amount of sale or loan proceeds to pay
the purchase price, and, if requested, by the amount of any federal,
state, local or foreign withholding taxes. To facilitate the foregoing,
the Corporation may enter into agreements for coordinated procedures with
one or more brokerage firms.
No shares of Common Stock shall be issued until full payment
therefor has been made. An optionee shall have all of the rights of a
shareholder of the Corporation holding the class or series of Common
Stock that is subject to such Stock Option (including, if applicable, the
right to vote the shares and the right to receive dividends), when the
optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in
Section 11(a).
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution; or (ii) in the case of a Nonqualified Stock
Option, pursuant to a qualified domestic relations order (as defined in the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder) whether directly or indirectly or by means
of a trust or partnership or otherwise, under the applicable option
agreement. All Stock Options shall be exercisable, subject to the terms of
this Plan, during the optionee's lifetime, only by the optionee or by the
guardian or legal representative of the optionee or, in the case of a
Nonqualified Stock Option, its alternative payee pursuant to such qualified
domestic relations order, it being understood that the terms "holder" and
"optionee" include the guardian and legal representative of the optionee
named in the option agreement and any person to whom an option is
transferred by will or the laws of descent and distribution or, in the case
of a Nonqualified Stock Option, pursuant to a qualified domestic relations
order.
(f) TERMINATION BY DEATH. Unless otherwise determined by the Committee,
if an optionee's employment terminates by reason of death, any Stock Option
held by such optionee may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may determine,
for a period of one year (or such other period as the Committee may specify
in the option agreement) from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the shorter.
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(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine,
for a period of six months(or such other period as the Committee may specify
in the option agreement) from the date of such termination of employment or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that if the optionee dies within
such period, any unexercised Stock Option held by such optionee shall,
notwithstanding the expiration of such period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a period of
12 months from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
such Retirement, or on such accelerated basis as the Committee may
determine, for a period of two years (or such other period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee
dies within such period any unexercised Stock Option held by such optionee
shall, notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time of death
for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Retirement,
if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Nonqualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee: (A)
if an optionee incurs a Termination of Employment, all Stock Options held
by such optionee shall thereupon terminate; and (B) if an optionee incurs
a Termination of Employment for any reason other than death, Disability
or Retirement, any Stock Option held by such optionee, to the extent then
exercisable, or on such accelerated basis as the Committee may determine,
may be exercised, with the consent of the Corporation, for the lesser of
three months from the date of such Termination of Employment or the
balance of such Stock Option's term; PROVIDED, HOWEVER, that if the
optionee dies within such three-month period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. Notwithstanding the foregoing, if an
optionee incurs a Termination of Employment at or after a Change in Control
(as defined Section 7(b)), other than by reason of death, Disability or
Retirement, any Stock Option held by such optionee shall be exercisable for
the lesser of (1) six months and one day from the date of such Termination
of Employment, and (2) the balance of such Stock Option's term. In the event
of Termination of Employment, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
Nonqualified Stock Option.
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(j) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control
(the "Exercise Period"), unless the Committee shall determine otherwise at
the time of grant, an optionee shall have the right, whether or not the
Stock Option is fully exercisable and in lieu of the payment of the exercise
price for the shares of Common Stock being purchased under the Stock Option
and by giving notice to the Corporation, to elect (within the Exercise
Period) to surrender all or part of the Stock Option to the Corporation and
to receive cash, within 30 days of such notice, in an amount equal to the
amount by which the Change in Control Price per share of Common Stock on the
date of such election shall exceed the exercise price per share of Common
Stock under the Stock Option (the "Spread") multiplied by the number of
shares of Common Stock granted under the Stock Option as to which the right
granted under this Section 5(j) shall have been exercised; PROVIDED,
HOWEVER, that if the Change in Control is within six months of the date of
grant of a particular Stock Option held by an optionee who is an officer or
director of the Corporation and is subject to Section 16(b) of the Exchange
Act no such election shall be made by such optionee with respect to such
Stock Option prior to six months from the date of grant. However, if the end
of such 60-day period from and after a Change in Control is within six
months of the date of grant of a Stock Option held by an optionee who is an
officer or director of the Corporation and is subject to Section 16(b) of
the Exchange Act, such Stock Option shall be cancelled in exchange for a
cash payment to the optionee, effected on the day which is six months and
one day after the date of grant of such Option, equal to the Spread
multiplied by the number of shares of Common Stock granted under the Stock
Option. Notwithstanding the foregoing, if any right granted pursuant to this
Section 5(j) would make a Change in Control transaction ineligible for
pooling of interests accounting under APB No. 16 that but for this Section
5(j) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute the cash payable pursuant to
this Section 5(j) with Stock with a Fair Market Value equal to the cash that
would otherwise be payable hereunder.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Nonqualified Stock Option, such rights may be granted either at
or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant
of such Stock Option. A Stock Appreciation Right shall terminate and no
longer be exercisable upon the termination or exercise of the related Stock
Option.
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the
Committee. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in
Section 6(b). Stock Options which have been so surrendered shall no
longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section
6; PROVIDED, HOWEVER, that a Stock Appreciation Right shall not be
exercisable during the first six months of its term by an optionee who is
actually or potentially subject to Section 16(b) of the Exchange Act, except
that this limitation shall not apply in the event of death or Disability of
the optionee prior to the expiration of the six-month period.
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(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive an amount in cash, shares of Common Stock or both,
equal in value to the excess of the Fair Market Value of one share of
Common Stock over the option price per share specified in the related Stock
Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
In the case of Stock Appreciation Rights relating to Stock
Options held by optionees who are actually or potentially subject
to Section 16(b) of the Exchange Act, the Committee:
(1) May require that such Stock Appreciation Rights be exercised
for cash only in accordance with the applicable "window period"
provisions of Rule 16b-3; and
(2) In the case of Stock Appreciation Rights relating to
Nonqualified Stock Options, may provide that the amount to be paid in
cash upon exercise of such Stock Appreciation Rights during a Rule
16b-3 "window period" shall be based on the highest of the daily
means between the highest and lowest reported sales prices of the
Common Stock on the New York Stock Exchange or other national
securities exchange on which the shares are listed or on NASDAQ, as
applicable, on any day during such "window period."
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 3 on the number of shares of Common Stock to be issued under the
Plan, but only to the extent of the number of shares covered by the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
SECTION 7. CHANGE IN CONTROL PROVISIONS
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control, any Stock Options and
Stock Appreciation Rights outstanding as of the date such Change in Control
is determined to have occurred, and which are not then exercisable and
vested, shall become fully exercisable and vested to the full extent of the
original grant; PROVIDED, HOWEVER, that in the case of the holder of Stock
Appreciation Rights who is actually subject to Section 16(b) of the Exchange
Act, such Stock Appreciation Rights shall have been outstanding for at least
six months at the date such Change in control is determined to have occurred.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares of
common stock of the Corporation (the "Outstanding Corporation Common Stock")
or (2) the combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities") (a "Control Purchase");
excluding, however, the following: (1) Any acquisition directly from the
Corporation, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Corporation, (2) Any acquisition by the
Corporation,
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(3) Any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by
the Corporation, (4) Any acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection (iii)
of this Section 7(b), or (5) Any acquisition by Barron Hilton, the
Charitable Remainder Unitrust created by Barron Hilton to receive shares
from the Estate of Conrad N. Hilton, or the Conrad N. Hilton Fund; or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; PROVIDED, HOWEVER,
for purposes of this Section 7(b), that any individual who becomes a member
of the Board subsequent to the effective date of the Plan, whose election,
or nomination for election by the Corporation's shareholders, was approved
by a vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board (a "Board Change"); or
(iii) The approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of common stock, and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (2) no Person (other than
the Corporation, any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Corporate Transaction)
will beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed prior
to the Corporate Transaction, and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(c) CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in
Control Price" means the higher of (i) the highest reported sales price,
regular way, of a share of Common Stock in any transaction reported
on the New York Stock Exchange Composite Tape or other national exchange
on which such shares are listed or
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on NASDAQ during the 60-day period prior to and including the date of a
Change in Control or (ii) if the Change in Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price per
share of Common Stock paid in such tender or exchange offer or Corporate
Transaction; PROVIDED, HOWEVER, that (x) in the case of a Stock Option which
(A) is held by an optionee who is an officer or director of the Corporation
and is subject to Section 16(b) of the Exchange Act and (B) was granted
within 240 days of the Change in Control, then the Change in Control
Price for such Stock Option shall be the Fair Market Value of the Common
Stock on the date such Stock Option is exercised or deemed exercised and
(y) in the case of Incentive Stock Options and Stock Appreciation Rights
relating to Incentive Stock Options, the Change in Control Price shall be
in all cases the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the
extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the
value of such securities or other noncash consideration shall be
determined in the sole discretion of the Board.
SECTION 8. TERM, AMENDMENT AND TERMINATION
The Plan will terminate ten years after the effective date of the
Plan. Under the Plan, Awards outstanding as of such date shall not be
affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would (i) impair
the rights of an optionee under a Stock Option or a recipient of a Stock
Appreciation Right theretofore granted without the optionee's or recipient's
consent, except such an amendment made to cause the Plan to qualify for
the exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the
exemption provided by Rule 16b-3. In addition, no such amendment shall be
made without the approval of the Corporation's shareholders to the extent
such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any holder without the holder's
consent except such an amendment made to cause the Plan or Award to
qualify for the exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 9. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Common Stock or make payments; PROVIDED,
HOWEVER, that unless the Committee otherwise determines, the existence
of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan.
SECTION 10. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Corporation
in writing that such person is acquiring the shares without a view to
the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
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Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Corporation, or make arrangements satisfactory to the Committee regarding
the payment of, any federal, state, local or foreign taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Corporation, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement. The obligations of the Corporation under
the Plan shall be conditional on such payment or arrangements, and the
Corporation and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to the
participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by whom
any rights of the participant, after the participant's death, may be
exercised.
(f) In the case of a grant of an Award to any employee of a subsidiary
of the Corporation, the Corporation may, if the Committee so directs,
issue or transfer the shares of Common Stock, if any, covered by the
Award to the subsidiary, for such lawful consideration as the Committee may
specify, upon the condition or understanding that the subsidiary will
transfer the shares of Common Stock to the employee in accordance with the
terms of the Award specified by the Committee pursuant to the provisions of
the Plan.
(g) The Plan and all Awards made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.
SECTION 11. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of January 18, 1996, provided that it
is approved and adopted by at least a majority of the shares voted of Common
Stock of the Corporation within 12 months after such date.
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EXHIBIT 10.7
HILTON HOTELS CORPORATION
1996 CHIEF EXECUTIVE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive
advantage by attracting, retaining and motivating a Chief Executive Officer
("CEO") and to link the CEO's interests more directly to the profitability of
the Corporation's businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "AFFILIATE" means a corporation or other entity controlled by the
Corporation and designated by the Committee from time to time as such.
b. "BOARD" means the Board of Directors of the Corporation.
c. "CHANGE OF CONTROL" and "CHANGE OF CONTROL PRICE" have the meanings
set forth in Sections 6(b) and (c), respectively.
d. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
e. "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
f. "COMMITTEE" means the Committee referred to in Section 2.
g. "COMMON STOCK" means common stock, par value $2.50 per share, of the
Corporation.
h. "CORPORATION" means Hilton Hotels Corporation, a Delaware
corporation.
i. "DISABILITY" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
j. "DISINTERESTED PERSON" means a member of the Board who qualifies as a
disinterested person as defined in Rule 16b-3(c)(2), as promulgated
by the Commission under the Exchange Act, or any successor definition
adopted by the Commission.
k. "EMPLOYMENT AGREEMENT" means the Employment Agreement by and between
Hilton Hotels Corporation and Stephen F. Bollenbach dated as of the
1st day of February 1996.
l. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "FAIR MARKET VALUE" means, except as provided in Section 5(g), as of
any given date, the mean between the highest and lowest reported
sales prices of the Common Stock on the New York Stock Exchange Composite
Tape or, if not listed on such exchange, on any other national securities
exchange on which the Common Stock is listed or on NASDAQ. If there is no
regular public trading market for such Common Stock, the Fair Market Value
of the Common Stock shall be determined by the Committee in good faith.
n. "PLAN" means the Hilton Hotels Corporation 1996 Chief Executive Stock
Incentive Plan, as set forth herein and as hereinafter amended from
time to time.
o. "RULE 16B-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
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p. "STOCK OPTION" means an option granted under Section 5.
q. "TERMINATION OF EMPLOYMENT" means the termination of the CEO's
employment with the Corporation and any subsidiary or Affiliate.
Temporary absences from employment because of illness, vacation or leave of
absence shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Stock Option Committee or such
other committee of the Board as the Board may from time to time designate
(the "Committee"), which shall be composed of not less than two
Disinterested Persons, each of whom shall be an "outside director"
for purposes of Section 162(m)(4) of the Code, and shall be appointed by
and serve at the pleasure of the Board.
The Committee shall have plenary authority to grant Stock Options
pursuant to the terms of the Plan to the CEO.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan, to:
(a) Recommend to the Board of Directors whether and to what extent Stock
Options are to be granted hereunder;
(b) Determine the number of shares of Common Stock to be covered by each
Stock Option granted hereunder;
(c) Determine the terms and conditions of any Stock Option granted
hereunder (including, but not limited to, the option price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which may
be related to the performance of the optionee or the Corporation) and any
vesting acceleration or forfeiture waiver regarding any Stock Option and the
shares of Common Stock relating thereto, based on such factors as the
Committee shall determine;
(d) Modify, amend or adjust the terms and conditions of any Stock
Option, at any time or from time to time; and
(e) Determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to a Stock Option shall be deferred.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as
it shall from time to time deem advisable, to interpret the terms and
provisions of the Plan and any Stock Option issued under the Plan (and
any agreement relating thereto) and to otherwise supervise the administration
of the Plan.
The Committee may act only by a majority of its members then in
office, except that the members thereof may (i) delegate to an
officer of the Corporation the authority to make decisions pursuant to
paragraphs (c) and (f) of Section 5 (provided that no such delegation
may be made that would cause Stock Options or other transactions under the
Plan to cease to be exempt from Section 16(b) of the Exchange Act) and
(ii) authorize any one or more of their number or any officer of the
Corporation to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Stock Option shall be
made in the sole discretion of the Committee or
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such delegate at the time of the grant of the Stock Option or, unless in
contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Committee or any appropriately delegated officer pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Corporation and the CEO.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 1,500,000. The CEO may not be granted
Stock Options covering in excess of 1,500,000 shares of Common Stock in
any calendar year. Shares subject to a Stock Option under the Plan may be
authorized and unissued shares or may be treasury shares.
If any Stock Option terminates without being exercised, shares subject
to such Stock Option shall again be available for distribution in
connection with Stock Options under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes
within the efinition of such term in Section 368 of the Code) or any partial
or complete liquidation of the Corporation, the Committee or Board
may make such substitution or adjustments in the aggregate number and kind
of shares reserved for issuance under the Plan, in the number, kind and
option price of shares subject to outstanding Stock Options, in the
number and kind of shares subject to other outstanding Stock Options
granted under the Plan and/or such other equitable substitution or
adjustments as it may determine to be appropriate in its sole discretion;
PROVIDED, HOWEVER, that the number of shares subject to any Stock Option
shall always be a whole number.
SECTION 4. ELIGIBILITY
Only the CEO is eligible to be granted Stock Options under the Plan.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant the CEO Stock
Options, PROVIDED, HOWEVER, that grants hereunder are subject to the
aggregate annual limit on grants set forth in Section 3. Stock Options
shall be evidenced by option agreements, the form, terms and provisions of
which may differ. The grant of a Stock Option shall occur on the date (the
"Grant Date") a majority of the independent directors of the Corporation
ratify by resolution the Committee's recommendation with respect to the
numbers of shares of Common Stock to be subject to such Stock Option and
the terms and provisions of the Stock Option.
Unless the Committee shall determine otherwise, Stock Options granted
under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions as the
Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set
forth in the Employment Agreement.
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(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine. In
addition, the Committee may at any time accelerate the exercisability of any
Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the
Corporation specifying the number of shares of Common Stock subject to the
Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Committee
may accept. If approved by the Committee, payment, in full or in part, may
also be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock
Option is exercised).
Payment for any shares subject to a Stock Option may also be made by
delivering a properly executed exercise notice to the Corporation, together
with a copy of irrevocable instructions to a broker to deliver promptly to
the Corporation the amount of sale or loan proceeds to pay the purchase
price, and, if requested, by the amount of any federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Corporation may
enter into agreements for coordinated procedures with one or more brokerage
firms.
No shares of Common Stock shall be issued until full payment therefor
has been made. The optionee shall have all of the rights of a shareholder
of the Corporation holding the class or series of Common Stock that is
subject to such Stock Option (including, if applicable, the right to
vote the shares and the right to receive dividends), when the optionee
has given written notice of exercise and has paid in full for such shares.
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution; or (ii) pursuant to a qualified domestic relations
order (as defined in the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended. All Stock Options shall be exercisable,
subject to the terms of this Plan, during the optionee's lifetime, only by
the optionee or by the guardian or legal representative of the optionee or
its alternative payee pursuant to such qualified domestic relations order,
it being understood that the terms "holder" and "optionee" include the
guardian and legal representative of the optionee and any person to whom an
option is transferred by will or the laws of descent and distribution or
pursuant to a qualified domestic relations.
(f) TERMINATION. Unless otherwise determined by the Committee and
subject to the terms of the Employment Agreement, if the optionee's
employment terminates for any reason prior to the fifth anniversary of the
Grant Date, any Stock Option held by the optionee, to the extent such option
has become exercisable on or before the date of such termination (including
without limitation, any portion that becomes exercisable because of such
termination) shall remain exercisable until the earlier to occur of (x) the
first anniversary of such date of termination or (y) the fifth anniversary
of the Grant Date.
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(g) CASHING OUT OF STOCK OPTION. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the
portion of the shares of Common Stock for which a Stock Option is being
exercised by paying the optionee an amount, in cash or Common Stock, equal
to the excess of the Fair Market Value of the Common Stock over the option
price times the number of shares of Common Stock for which the Option is
being exercised on the effective date of such cash-out.
Cash-outs pursuant to this Section 5(g) shall comply with the "window
period" provisions of Rule 16b-3, to the extent applicable, and the
Committee may determine Fair Market Value based on the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange or
other national securities exchange on which the shares are listed or on
NASDAQ, as applicable, on any day during such "window period".
(h) CHANGE OF CONTROL CASH-OUT. The Committee may, but need not,
determine at the time of grant that, during the 60-day period from
and after a Change of Control (the "Exercise Period"), the optionee shall
have the right, whether or not the Stock Option is fully exercisable and in
lieu of the payment of the exercise price for the shares of Common Stock
being purchased under the Stock Option and by giving notice to the
Corporation, to elect (within the Exercise Period) to surrender all or part
of the Stock Option to the Corporation and to receive cash, within 30 days
of such notice, in an amount equal to the amount by which the Change of
Control Price per share of Common Stock on the date of such election shall
exceed the exercise price per share of Common Stock under the Stock Option
(the "Spread") multiplied by the number of shares of Common Stock granted
under the Stock Option as to which the right granted under this Section 5(h)
shall have been exercised; PROVIDED, HOWEVER, that if the Change of Control
is within six months of the date of grant of a particular Stock Option, no
such election shall be made by the optionee with respect to such Stock
Option prior to six months from the date of grant. However, if the end of
such 60-day period from and after a Change of Control is within six months
of the date of grant of a Stock Option, such Stock Option shall be canceled
in exchange for a cash payment to the optionee, effected on the day which is
six months and one day after the date of grant of such Option, equal to the
Spread multiplied by the number of shares of Common Stock granted under the
Stock Option. Notwithstanding the foregoing, if any right granted pursuant
to this Section 5(h) would make a Change of Control transaction ineligible
for pooling of interests accounting under APB No. 16 that but for this
Section 5(h) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute the cash payable pursuant to
this Section 5(h) with Stock with a Fair Market Value equal to the cash that
would otherwise be payable hereunder.
SECTION 6. CHANGE OF CONTROL PROVISIONS
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless the Committee shall determine otherwise, in the
event of a Change of Control, any Stock Options outstanding as of the date
such Change of Control is determined to have occurred, and which are not
then exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant.
(b) DEFINITION OF CHANGE OF CONTROL. For purposes of the Plan, a "Change
of Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (1) the then outstanding
shares of
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common stock of the Corporation (the "Outstanding Corporation Common Stock")
or (2) the combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities")(a "Control Purchase");
excluding, however, the following:(1) Any acquisition directly from the
Corporation, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Corporation, (2) Any acquisition by the
Corporation, (3) Any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation, (4) Any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (iii) of this Section 6(b), or (5) Any acquisition by Barron
Hilton, the Charitable Remainder Unitrust created by Barron Hilton to
receive shares from the Estate of Conrad N. Hilton, or the Conrad N. Hilton
Fund (together, the "Hilton Interests"); or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be herein after referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; PROVIDED, HOWEVER,
for purposes of this Section 6(b), that any individual who becomes a member
of the Board subsequent to the effective date of the Plan, whose election,
or nomination for election by the Corporation's shareholders, was approved
by a vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board (a "Board Change"); or
(iii) The approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or indirectly,
more than 50% of, respectively, the outstanding shares of common stock, and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (2) no Person (other than
the Hilton Interests, the Corporation, any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such Corporate
Transaction) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of
the outstanding voting securities of such corporation entitled to vote
generally in the election of directors except to the extent that such
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ownership existed prior to the Corporate Transaction, and (3) individuals
who were members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation resulting from
such Corporate Transaction; or
(iv) The approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(c) CHANGE OF CONTROL PRICE. For purposes of the Plan, "Change of
Control Price" means the higher of (i) the highest reported sales
price, regular way, of a share of Common Stock in any transaction reported
on the New York Stock Exchange Composite Tape or other national exchange
on which such shares are listed or on NASDAQ during the 60-day period prior
to and including the date of a Change of Control or (ii) if the Change of
Control is the result of a tender or exchange offer or a Corporate
Transaction, the highest price per share of Common Stock paid in such tender
or exchange offer or Corporate Transaction; PROVIDED, HOWEVER, that in the
case of a Stock Option which (A) is held by an optionee who is an officer
or director of the Corporation and is subject to Section 16(b) of the Exchange
Act and (B) was granted within 240 days of the Change of Control, then the
Change of Control Price for such Stock Option shall be the Fair Market Value of
the Common Stock on the date such Stock Option is exercised or deemed
exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration shall
be determined in the sole discretion of the Board.
SECTION 7. TERM, AMENDMENT AND TERMINATION
The Plan will terminate five years after the effective date of the Plan.
Under the Plan, Stock Options outstanding as of such date shall not be affected
or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
the optionee under a Stock Option theretofore granted without the optionee's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Corporation's shareholders to the extent such approval is
required by law or agreement.
The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair
the rights of the holder without the holder's consent except such an
amendment made to cause the Plan or Stock Option to qualify for the exemption
provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Stock Options which qualify for
beneficial treatment under such rules without stockholder approval.
SECTION 8. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the
Plan to deliver Common Stock or make payments; PROVIDED, HOWEVER, that unless
the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
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SECTION 9. GENERAL PROVISIONS
(a) Notwithstanding any other provision of the Plan or agreements
made pursuant thereto, the Corporation shall not be required to issue or
deliver any certificate or certificates for shares of Common Stock under
the Plan prior to fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon the CEO any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any subsidiary or Affiliate to terminate the employment of the
CEO at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the CEO for federal income tax purposes with respect
to any Stock Option under the Plan, the CEO shall pay to the Corporation, or
make arrangements satisfactory to the Committee regarding the payment of,
any federal, state, local or foreign taxes of any kind required by law to
be withheld with respect to such amount. Unless otherwise determined by
the Corporation, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Stock Option that gives rise to
the withholding requirement. The obligations of the Corporation under the
Plan shall be conditional on such payment or arrangements, and the
Corporation and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to the
optionee. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems
appropriate for the CEO to designate a beneficiary to whom any amounts
payable in the event of the CEO's death are to be paid or by whom any
rights of the CEO, after the CEO's death, may be exercised.
(f) The Plan and all Stock Options made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Delaware, without reference to principles of conflict of laws.
SECTION 10. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of February 1, 1996, provided that it
is approved and adopted by at least a majority of the shares of Common Stock
of the Corporation voting at its annual meeting scheduled to be held on May
9, 1996.
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EXHIBIT 10.11
FIRST AMENDMENT
OF
HILTON HOTELS RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1987)
WHEREAS, Hilton Hotels Corporation (the "Company") maintains the
Hilton Hotels Retirement Plan (the "Plan"); and
WHEREAS, it is desirable that the Plan be amended to provide that
(1) a terminated participant whose vested accrued benefit has a lump sum
actuarial equivalent of $3,500 or less shall receive his benefit in the form
of an immediate cash payment, (2) the actuarial equivalent of a participant's
accrued benefit payable in a lump sum shall be determined using the interest
rate and mortality assumptions prescribed by Internal Revenue Code Section
417(e)(3) as amended by the Uruguay Round Agreements Act of 1994 ("GATT"),
and (3) the GATT interest rate and mortality assumptions in effect for the
November preceding the Plan Year in which distribution is made (e.g.,
November 1994 for the 1995 Plan Year) shall apply to all participants and
certain beneficiaries under the Plan who have not commenced distribution of
their benefits as of the date this amendment is adopted; and
WHEREAS, The Hilton Hotels Pension Committee (the "Committee") and
the Board of Directors of the Company have granted the Company the authority
to adopt any amendments to the Plan which do not have the effect of
increasing the liability of a Participating Employer in a manner which would
cause a significant detriment to such Participating Employer; and
WHEREAS, nothing in this amendment creates a significant detriment
or increases the duties of the Committee under the Plan.
NOW, THEREFORE, BE IT RESOLVED, by virtue and in exercise of the
power reserved to the Company by Section 8.1 of the Plan, the Plan, as
previously amended, be and is hereby further amended, effective as of January
1, 1995 unless otherwise noted, in the following particulars:
* * *
1. The first sentence of Section 4.9(d) of the Plan is amended to
read as follows:
"(d) In the event the Actuarial Equivalent of a Participant's vested
accrued benefit determined as of his Break in Employment, or the Surviving
Spouse Benefit, is $3,500 or less, the Committee shall pay such Actuarial
Equivalent in the form of a single cash lump sum as soon as
administratively feasible, in lieu of all other benefits under the Plan."
<PAGE>
2. Section 4.9(d) of the Plan is further amended by adding the
following at the end thereof:
"Notwithstanding Appendix A and the foregoing provisions of this subsection
(d), if the lump sum Actuarial Equivalent of (i) the vested accrued benefit
of a Participant who incurred a Break in Employment prior to November 15,
1995 and who has not received a distribution prior to November 15, 1995, or
(ii) a Surviving Spouse Benefit attributable to the death of a Participant
prior to November 15, 1995, which benefit has not been distributed prior to
November 15, 1995, is $3,500 or less, such benefit shall be paid in a
single cash lump sum as soon as administratively feasible after
November 15, 1995. The Actuarial Equivalent for such distributions shall
be determined by applying the interest and mortality factors applicable to
1995, as adopted by the First Amendment to the Plan (as amended and
restated effective January 1, 1987)."
3. Appendix A of the Plan is amended by revising that portion of
the first sentence of Section A.1 immediately following the first semicolon
thereunder to read as follows:
"provided, however, that for cash lump sum calculation purposes, 'Actuarial
Equivalent' shall mean an amount of equivalent value when computed using
(i) for cash lump sum distributions made prior to January 1, 1995, the
average of the weekly bond yield on the Standard & Poor's AAA Industrial
Bond Index for the four weeks preceding the Annuity Starting Date, but no
greater than (A) 120% of the 'Applicable Interest Rate' if the present
value of the vested accrued benefit exceeds $25,000 (determined using the
'Applicable Interest Rate') and provided that the use of 120% of such rate
does not reduce the present value of the benefit below $25,000, or (B) the
'Applicable Interest Rate,' and (ii) for cash lump sum distributions made
on or after November 15, 1995, the `applicable mortality table' and the
`applicable interest rate' as described in Section 417(e)(3) of the Code
for the November immediately preceding the Plan Year in which the
distribution is made."
4. Appendix A of the Plan is further amended, effective as of
January 1, 1987, by inserting "of 1%" immediately after "0.25" thereunder.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be
signed on its behalf by its duly authorized officer as of the_________day of
_________________, 1995.
HILTON HOTELS CORPORATION
By
-----------------------
Its
----------------------
3
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT
TO
HILTON HOTELS THRIFT SAVINGS PLAN
WHEREAS, Hilton Hotels Corporation (the "Company") maintains the
Hilton Hotels Thrift Savings Plan (the "Plan"); and
WHEREAS, the IRS has requested that certain changes be made to the
Plan so that the IRS may issue a favorable determination letter with respect to
the Plan's tax qualification; and
WHEREAS, Section 8.3 of the Plan provides that the Plan may be amended
at any time if necessary to conform to the provisions and requirements of the
Internal Revenue Code.
NOW, THEREFORE, BE IT RESOLVED, by virtue and in exercise of the power
reserved to the Company pursuant to Section 8.3 of the Plan, such Plan is hereby
amended effective January 1, 1991 in the following particulars:
1. The definition of "Compensation" contained in Article I of the
Plan is amended by revising the second paragraph thereunder in its entirety to
read as follows:
"Notwithstanding the foregoing, for purposes of Section 3.5 of
this Plan, Compensation shall mean compensation actually paid by the
Company to the Participant during the Plan Year and reportable for federal
income tax purposes on Form W-2, reduced by the amounts described in Treas.
Reg. Section 1.414(s)-1(c)(3)."
2. Section 3.5 of the Plan is amended by adding the following new
subsection (f):
"(f) For purposes of performing the tests described in this
Section:
(1) if, for purposes of meeting the requirements of
Sections 401(m), 401(a)(4) and 410(b) of the Code (other than Section
410(b)(2)(A)(ii) of the Code), this Plan is aggregated with any other
plan(s) of the Company which provide for elective deferrals, employer
matching and/or employee after-tax contributions, then all
contributions subject to Section 401(m) of the Code that are made
under this Plan and such other plan(s) shall be treated as having been
made under one plan; and
(2) if any Highly Compensated Employee under this Plan
participates in any other plan(s) of the Company which provide for
elective deferrals, employer matching and/or employee after-tax
contributions, then all contributions subject to Section 401(m) of the
Code that are made by such Highly Compensated Employee under this Plan
and such other plan(s) shall be treated as having been made under one
plan."
Date: ______________________, 1995.
HILTON HOTELS CORPORATION
By _______________________________
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
AGREEMENT by and between Hilton Hotels Corporation, a
Delaware corporation (the "Company"), and Stephen F. Bollenbach (the
"Executive"), dated as of the 1st day of February, 1996.
WHEREAS, the Board of Directors of the Company (the
"Board") has determined that it is in the best interests of the Company and
its shareholders to employ the Executive as President and Chief Executive
Officer, and the Executive desires to serve in that capacity;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the
Executive, and the Executive shall serve the Company, on the terms and
conditions set forth in this Agreement, for the period beginning on the date
first above appearing (the "Commencement Date") and ending on the fifth
anniversary of the Commencement Date (the "Employment Period").
2. POSITION AND DUTIES. (a) During the Employment
Period, the Executive shall be employed as the President and Chief Executive
Officer and commencing with the Company's 1996 annual meeting of
shareholders, shall be a member of the Board of Directors of the Company. In
such capacity, the Executive shall report to the Board through the Chairman
of
<PAGE>
the Board. During the Employment Period, no executive of the Company other
than the Executive shall have a direct reporting relationship with the
Chairman of the Board. During the Employment Period, the Executive shall have
authority to make all operating decisions, plan the strategic direction of
the Company, and hire, promote and terminate employment of all personnel,
subject to the direction of the Board. During the Employment Period, the
Executive shall have such reasonable and customary powers as are generally
associated with the positions of President and Chief Executive Officer,
including, without limitation, authority to expend capital resources of the
Company and shall have, subject to the direction of the Board, authority to
fill all management positions including, without limitation, the position of
Chief Financial Officer, which position shall entitle its holder to an annual
base salary of up to approximately $450,000, an annual target incentive bonus
in the range of up to 50 to 70 per cent of base salary, and a grant of stock
options under the Company's stock incentive plans to purchase up to 50,000
shares of the Company's common stock.
(b) If, during the Employment Period, Barron Hilton
shall cease to serve as Chairman of the Board for any reason, the Executive
thereupon shall become Chairman of the Board in addition to President and
Chief Executive Officer and shall, as Chairman, report directly to the Board.
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(c) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled,
the Executive shall devote principal attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive under
this Agreement, use the Executive's reasonable best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (A) serve on corporate, civic
or charitable boards or committees (excluding those which would create a
conflict of interest), (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so
long as such activities do not materially interfere with the performance of
the Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
(d) The Executive's services shall be performed
primarily at the Company's Headquarters in Beverly Hills, California.
(e) From time to time during the Employment Period,
the Personnel and Compensation Committee of the Company's Board of Directors
(the "P&C Committee") shall consider whether, in its good faith judgment, the
Executive is
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<PAGE>
endowed with authority comparable to that typically granted to chief
executive officers of publicly held companies ("Appropriate Authority"). If
the P&C Committee shall determine that the Executive does not have
Appropriate Authority and such determination is not cured within 90 days
after the other members of the Board have received notice of such
determination, the Executive may, but need not, terminate his employment with
the Company, and such termination shall be a termination for Good Reason for
all purposes under this Agreement.
3. COMPENSATION. (a) BASE SALARY. During the
Employment Period, the Executive shall receive an annual base salary ("Annual
Base Salary") of $540,000, payable in accordance with the regular payroll
practices of the Company. During the Employment Period, the Annual Base
Salary shall be reviewed for possible increase at least annually, with any
increase being at the sole discretion of the Board or the P&C Committee. Any
increase in the Annual Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement. The Annual Base Salary shall
not be reduced after any such increase, and the term "Annual Base Salary"
shall thereafter refer to the Annual Base Salary as so increased.
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<PAGE>
(b) ANNUAL BONUS. In addition to the Annual Base
Salary, the Executive shall be eligible to receive, for each fiscal year or
portion of a fiscal year ending during the Employment Period, an annual bonus
(the "Annual Bonus") (either pursuant to the Company's annual incentive plan
or otherwise) with an annual target award opportunity of up to 100 per cent
of Annual Base Salary provided that the Executive shall receive a minimum
guaranteed award for 1996 in an amount equal to the remainder of $1,000,000
minus the amount of Annual Base Salary actually paid to the Executive in
1996. Each Annual Bonus shall be paid in a single cash lump sum no later than
90 days after the end of the fiscal year or portion thereof for which the
Annual Bonus is awarded, unless the Executive elects in writing, before the
beginning of the fiscal year for which the Annual Bonus is to be awarded (or
at such later date as may be permitted under the Company's generally
applicable policies or procedures), to defer receipt of the Annual Bonus.
(c) OTHER BENEFITS. During the Employment Period:
(i) the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs of the Company to at least
the same extent as other senior executives of the Company, provided that in
determining the Executive's participation in such plans the Incentive Options
granted hereunder shall be taken
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<PAGE>
into account; and (ii) the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in, and shall receive all
benefits under, all welfare benefit plans, practices, policies and programs
provided by the Company (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life
insurance, group life insurance, accidental death and travel accident
insurance plans and programs) to at least the same extent as other senior
executives of the Company.
(d) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in carrying out the Executive's
duties under this Agreement, provided that the Executive complies with the
generally applicable policies, practices and procedures of the Company for
submission of expense reports, receipts, or similar documentation of such
expenses.
(e) FRINGE BENEFITS. During the Employment Period,
the Executive shall be entitled to fringe benefits and perquisites in accordance
with the most favorable plans, practices, programs and policies of the Company
as in effect at the time with respect to other senior executives of the Company,
including, without limitation, the use of an automobile and payment of related
expenses; reasonable travel on
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<PAGE>
the Company's aircraft; and first-class travel accommodations on all
commercial carriers for travel related to the business of the Company.
(f) OFFICE AND SUPPORT STAFF. During the
Employment Period, the Executive shall be entitled to the office at the
Company's Beverly Hills Headquarters last occupied by Mr. Raymond C.
Avansino, Jr. during Mr. Avansino's tenure as President and Chief Operating
Officer of the Company, and to secretarial and other assistance, at least
equal to the most favorable of such as provided with respect to other senior
executives of the Company. Without limiting the generality of the foregoing,
the Executive shall at all times have a personal secretary and a personal
assistant.
(g) VACATION. During the Employment Period, the
Executive shall be entitled to four weeks of paid vacation annually.
(h) STOCK OPTIONS: (i) The Executive was granted
non-statutory stock options under the Company's 1996 Chief Executive Stock
Incentive Plan (the "Stock Plan") covering 1,500,000 shares of the Company's
common stock with an exercise price equal to $74.6875 per share (the
"Incentive Options"). The Company shall register with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, the shares
issuable upon the exercise of the
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<PAGE>
Incentive Options not later than January 1, 1997. No Incentive Option shall
be exercisable more than 5 years after the date the Incentive Option is
granted. The Incentive Options shall vest and become exercisable according
to the following schedule:
(1) 25%: on January 1, 1997.
(2) 50%: on January 1, 1998.
(3) 75%: on January 1, 1999.
(4) 100%: on January 1, 2000, or upon a Change of
Control or a Qualified Transaction (each as
defined below) or upon the occurrence of any of
the following events (each of (A), (B) and (C)
below a "Triggering Event"):
(A) termination of the Executive's employment by
the Company other than for Cause;
(B) termination of the Executive's employment
because of death or Disability; or
(C) termination of employment by the Executive
for Good Reason (as defined below).
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<PAGE>
(ii) In the event of the Executive's termination of
employment for any reason prior to the fifth anniversary of the Commencement
Date, any portion of the Incentive Options that have become vested on or
before the date of such termination (including without limitation, any
portion that becomes exercisable due to such termination) shall remain
exercisable until the earlier to occur of (x) the first anniversary of such
date of termination or (y) the fifth anniversary of the Commencement Date.
Notwithstanding the foregoing, in the event that the Executive receives the
Substitute Payment, the Incentive Option shall cease to be exercisable at the
end of the fifth trading day after the Executive receives the Substitute
Payment.
(iii) Notwithstanding the foregoing, the Incentive
Options shall terminate if the Plan is not approved by a majority of the
shares of common stock of the Company voting at its annual meeting scheduled
to be held on May 6, 1996. The Company will use its reasonable best efforts
to secure such shareholder approval. If such approval is not obtained and
unless the Company elects to implement a similar award without obtaining such
approval, this Agreement and the Executive's employment with the Company
shall terminate immediately, the Company shall pay to the Executive
$10,000,000, and the Company thereafter shall have no further
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<PAGE>
obligations under this Agreement and the Executive's sole obligations shall
be those set forth in Section 9 hereof.
(i) SUBSTITUTE PAYMENT. (1) Notwithstanding any other
provision hereof, upon the earlier to occur of:
(A) a Triggering Event; or
(B) a termination of employment by the Executive
without Good Reason on or after the third anniversary
of the Commencement Date,
the Executive shall be entitled to receive a payment (the "Substitute Payment")
not to exceed $20,000,000, equal to the excess, if any, of (x) $20,000,000 over
(y) the sum of A plus B, where
"A" equals the product of (i) the excess of the
Fair Market Value of the Company's Common Stock on
the date the Executive becomes entitled to receive
the Substitute Payment over the Fair Market Value
of the Company's Common Stock on the Commencement
Date times (ii) 1,500,000 less the sum of (x) the
number of shares of Company common stock acquired
upon exercise and disposal of which are referred
to in clause (i) of B below, (y) the number of
shares of Company common stock acquired upon
exercise and referred to in clause (ii) of B below
and (z) the number of shares of the Company's
Common Stock subject to the Incentive Option that
are not vested following the event giving rise to
the right to the Substitute Payment; and
"B" equals the sum of (i) the aggregate gain, if
any, realized by the Executive on the disposition
prior to the date the Executive becomes entitled
to receive the Substitute Payment of shares of the
Company's Common Stock acquired via exercise of
Incentive Options, and (ii) the excess, if any, of
the Fair Market Value of any shares of the Company's
common stock held by the Executive on the date
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<PAGE>
the Executive becomes entitled to the Substitute
Payment acquired via the exercise of Incentive
Options, over the price paid for those shares.
(2) The Executive may elect to receive the
Substitute Payment either in cash or the Company's common stock based on the
Fair Market Value of such stock on the date the Executive becomes entitled to
receive the Substitute Payment, provided, however, that the Company shall
have the right to require that the Substitute Payment be made in shares of
the Company's common stock if, in the opinion of the Company's accountants,
payment of the Substitute Payment in cash would make any transaction
ineligible for pooling of interests accounting under APB No. 16 that but for
payment of the Substitute Payment in cash would otherwise be eligible for
such accounting treatment. The Company shall register any shares issuable in
respect of the Substitute Payment with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended.
(3) The Executive may assign the right to receive
the Substitute Payment to a family partnership designated by the Executive.
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<PAGE>
(4) If the Executive becomes entitled to receive
the Substitute Payment because the Executive's employment terminates because
of death or Disability, then subparagraphs (1), (2) and (3), above, shall
apply with "the Executive or his estate or legal representative" substituted
for "the Executive" and "$10,000,000" substituted for "$20,000,000."
(j) LOAN. On the Commencement Date, the Company will
lend the Executive $5,000,000 (the "Loan"). The Loan will be full recourse
and will be due and payable on the earlier of (x) January 1, 2000, and (y)
the termination of the Executive's employment, and will bear interest,
compounded semi-annually, at 100 per cent of the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986,
as amended. The Loan shall be prepayable by the Executive at any time
without penalty. The Loan will be secured by a security interest which the
Executive will grant the Company in (i) the net number of shares of the
Company's common stock (after the payment of any associated tax liability)
acquired by the Executive via exercise of Incentive Options, (ii) the
Substitute Payment and (iii) the payment, if any, referred to in Section
3(h)(iii), provided that the Company shall release such security interest
from any shares as to which the Executive gives the Company notice of his
intent sell, so long as the
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<PAGE>
Executive makes arrangements reasonably satisfactory to the Company to apply
the net after tax proceeds of such sale to repay such Loan. The Company, in
lieu of receiving the security interest described in the preceding sentence,
may elect to withhold a portion of the Substitute Payment equal to the total
outstanding amount due under the Loan as of the date the Executive becomes
entitled to receive the Substitute Payment, such withheld amount, if any, to
be in full satisfaction of the Executive's repayment obligations under the
terms of the Loan.
4. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Change of Control" shall have the meaning assigned
thereto in the Stock Plan.
(b) A "Qualified Transaction" means a disposition
(whether by sale, spin-off, merger or otherwise) of substantially all of the
assets comprising either the Company's hotel business or the Company's gaming
business occuring (i) on or before June 30, 1998 or (ii) on or before
December 31, 1998, pursuant to a binding written contract entered into on or
before June 30, 1998.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment
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<PAGE>
Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's Disability during the Employment
Period. "Disability" means that (i) the Executive has been unable, for a
period of 180 consecutive business days, to perform the Executive's duties
under this Agreement, as a result of physical or mental illness or injury,
and (ii) a physician selected by the Company or its insurers, and acceptable
to the Executive or the Executive's legal representative, has determined that
the Executive's incapacity is total and permanent. A termination of the
Executive's employment by the Company for Disability shall be communicated to
the Executive by written notice, and shall be effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
unless the Executive returns to full-time performance of the Executive's
duties before the Disability Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the
Executive's employment during the Employment Period for Cause or without
Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
Agreement (other than as a result of physical or mental
illness or injury), after the Board delivers to the Executive
a written demand for substantial performance that specifically
identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's
duties;
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<PAGE>
B. illegal conduct or gross misconduct by the
Executive, in either case that is willful and results in
material and demonstrable damage to the business or reputation
of the Company; or
C. a breach of the covanants or representations
contained in Section 9.
(ii) A termination of the Executive's employment for
Cause shall be effected in accordance with the following procedures. The
Company shall give the Executive written notice ("Notice of Termination for
Cause") of its intention to terminate the Executive's employment for Cause,
setting forth in reasonable detail the specific conduct of the Executive that
it considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Special Board Meeting. The "Special Board Meeting" means a meeting of the
Board called and held specifically for the purpose of considering the
Executive's termination for Cause, that takes place not less than five and
not more than fifteen business days after the Executive receives the Notice
of Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Special Board Meeting. The
Executive's termination for Cause shall be effective when and if a resolution
is duly adopted at the Special Board Meeting, stating that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in the
Notice of
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<PAGE>
Termination for Cause, and such conduct constitutes Cause under this
Agreement.
(c) GOOD REASON. (i) The Executive may terminate
employment for Good Reason or without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any material respect with paragraph (a) or, if
applicable, (b) of Section 2 of this Agreement, or any other
action by the Company that results in a material diminution in
the Executive's position, authority, duties or
responsibilities, other than an action that is not taken in
bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive;
B. any material failure by the Company to comply with
any provision of Section 3 of this Agreement, other than a
failure that is not taken in bad faith and is remedied by the
Company promptly after receipt of notice thereof from the
Executive;
C. any requirement by the Company that the Executive's
services be rendered primarily at a location or locations
other than that provided for in paragraph (d) of Section 2 of
this Agreement, other than normal business travel;
D. any purported termination of the Executive's
employment by the Company for a reason or in a manner not
expressly permitted by this Agreement; or
E. any failure by the Company to comply with paragraph
(c) of Section 10 of this Agreement.
(ii) A termination of employment by the Executive for
Good Reason shall be effectuated by giving the Company written
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<PAGE>
notice ("Notice of Termination for Good Reason") of the termination, setting
forth in reasonable detail the specific conduct of the Company that
constitutes Good Reason and the specific provision(s) of this Agreement on
which the Executive relies. A termination of employment by the Executive for
Good Reason shall be effective on the fifth business day following the date
when the Notice of Termination for Good Reason is given, unless the notice
sets forth a later date (which date shall in no event be later than 30 days
after the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company at
least 10 business days' advance written notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination"
means the date of the Executive's death, the Disability Effective Date, the
date on which the termination of the Executive's employment by the Company
for Cause or by the Executive for Good Reason or without Good Reason, as the
case may be, is effective.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) BY
THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY OR BY THE EXECUTIVE FOR
GOOD REASON. If, during the Employment Period, the Company terminates the
Executive's employment, other than for Cause or Disability or by reason of
the Executive's death, or the
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Executive terminates employment for Good Reason, the Company, in addition to
fulfilling its obligations under Section 3 hereof, shall pay to the Executive
in a lump sum in cash within 30 days after the Date of Termination the
Executive's accrued but unpaid cash compensation (the "Accrued Obligations"),
which shall equal the sum of (1) any portion of the Executive's Annual Base
Salary through the Date of Termination that has not yet been paid, (2) an
amount representing the Annual Bonus for the year of termination based on
target, and multiplying that amount by a fraction, the numerator of which is
the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 (the "Annual Bonus Amount");
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) that has not yet been paid; and (4) any
accrued but unpaid Annual Bonuses and vacation pay.
(b) DEATH OR DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company, in addition to fulfilling its obligations under
Section 3 hereof, shall pay the Accrued Obligations to the Executive or the
Executive's estate or legal representative, as applicable, in a lump sum in cash
within 30 days after the Date of Termination, and the Company shall have no
further obligations under this Agreement.
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<PAGE>
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the
Executive's employment is terminated by the Company for Cause during the
Employment Period, the Company shall pay the Executive the Annual Base Salary
through the Date of Termination, the amount of any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon), in each case to the extent not yet paid, and the amount of any
earned but unpaid Annual Bonuses and vacation pay, and the Company shall have
no further obligations under this Agreement. If the Executive voluntarily
terminates employment during the Employment Period, other than for Good
Reason, the Company shall pay the Accrued Obligations to the Executive in a
lump sum in cash within 30 days of the Date of Termination, and the Company
shall have no further obligations under this Agreement.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in
any plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify, nor, subject to
paragraph (f) of Section 11, shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Vested
benefits and other amounts that the Executive is otherwise entitled to receive
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<PAGE>
under any plan, policy, practice or program of, or any contract or agreement
with, the Company or any of its affiliated companies on or after the Date of
Termination shall be payable in accordance with such plan, policy, practice,
program, contract or agreement, as the case may be, except as explicitly
modified by this Agreement.
8. NO MITIGATION. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced,
regardless of whether the Executive obtains other employment.
9. CONFIDENTIAL INFORMATION; NONSOLICITATION; LICENSING;
NO CONFLICT. (a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies and their
respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
paragraph (a) of Section 9) ("Confidential Information"). The Executive
shall not communicate, divulge or disseminate Confidential Information at any
time during or after the Executive's
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<PAGE>
employment with the Company, except in the good faith performance of his
duties hereunder, with the prior written consent of the Company or as
otherwise required by law or legal process. In no event shall an asserted
violation of the provisions of this paragraph (a) of Section 9 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(b) The Executive agrees that he will not, for a period
of two years after the expiration or termination of the Executive's
employment with the Company, without the prior written consent of the
Company, whether directly or indirectly, employ, whether as an employee,
officer, director, agent, consultant or independent contractor, or solicit
the employment of, any person who is or at any time during the previous
twelve months was an employee, representative, officer or director of the
Company or any of its subsidiaries.
(c) The Executive represents that he was previously
licensed by the gaming authorities in Nevada and New Jersey and knows of no
reason why a license necessary for him to perform his duties hereunder would
not be granted to or maintained by him by those or similar authorities in the
future.
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<PAGE>
(d) Executive represents to the Company that neither his
commencement of employment hereunder nor the performance of his duties
hereunder conflicts with any contractual commitment on his part to any third
party or violates or interferes with any rights of any third party.
10. SUCCESSORS. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would have been required to perform it if no
such succession had taken place. As used in this Agreement, "Company" shall
mean both the Company as defined above and any such successor that assumes
and agrees to perform this Agreement, by operation of law or otherwise.
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<PAGE>
11. ARBITRATION. The Company and the Executive mutually
consent to the resolution by arbitration of all claims or controversies
arising out of Executive's employment (or its termination) that the Company
may have against Executive or that Executive may have against the Company or
against its officers, directors, shareholders, employees or agents in their
capacity as such. The Company and the Executive shall equally share the fees
and costs of the arbitrator, and each party shall bear its own costs in
connection with any arbitration, unless the Executive shall prevail in an
arbitration proceeding as to any material issue, in which case the Company
shall reimburse the Executive for all reasonable costs, expenses and fees
incurred in connection with such arbitration.
12. LEGAL FEES. The Company agrees to pay all legal
fees incurred by the Executive in connection with the negotiation and
preparation of this Agreement, up to a maximum of $15,000.
13. MISCELLANEOUS. (a) This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without reference to principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified except
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<PAGE>
by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications under this
Agreement shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE:
c/o Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attention: Lawrence Cagney
IF TO THE COMPANY:
9336 Civic Center Drive
Beverly Hills, CA 90210
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 11. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement. If
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<PAGE>
any provision of this Agreement shall be held invalid or unenforceable in
part, the remaining portion of such provision, together with all other
provisions of this Agreement, shall remain valid and enforceable and continue
in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld
by applicable laws or regulations.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of, or to assert any right under,
this Agreement (including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 5
of this Agreement) shall not be deemed to be a waiver of such provision or
right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this
Agreement supersedes any other agreement between them concerning the subject
matter hereof.
(g) This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and
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<PAGE>
said counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization of its Board of
Directors, the Company has caused this Agreement to be executed in its name
on its behalf, all as of the day and year first above written.
-------------------------
Stephen F. Bollenbach
HILTON HOTELS CORPORATION
By
-----------------------
<PAGE>
EXHIBIT 11
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Net income per share is based on net income divided by the total of the
weighted average number of common shares outstanding during the year,
plus the equivalent shares relating to the assumed exercise of stock
options. The calculation of common shares is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Shares outstanding January 1 48,114,723 47,846,854 47,677,922
Stock option-weighted average
exercises 18,538 22,484 14,078
Outstanding when market price
exceeds exercise price at
end of periods 1,367,325 1,220,560 999,033
Less shares assumed purchased
with proceeds (977,468) (805,555) (709,285)
---------- ---------- ----------
COMMON AND COMMON EQUIVALENT
SHARES 48,523,118 48,284,343 47,981,748
========== ========== ==========
Net Income (in millions) $172.8 $121.7 106.1
========== ========== ==========
Earnings per share $3.56 2.52 2.21
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 12
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-tax income including
50% owned companies $121.3 $156.8 $156.2 $183.6 $261.5
Add: Interest expense from
Wholly owned 58.1 66.9 80.4 85.7 93.5
50% owned 10.8 7.3 9.5 9.5 20.8
Distributions from less
than 50% owned 5.2 4.8 6.4 12.1 13.5
----- ----- ----- ----- -----
SUB-TOTAL (A) 195.4 235.8 252.5 290.9 389.3
Add: Rent expense
(interest factor)
Wholly owned 1.7 1.8 2.1 2.2 2.6
50% owned 0.6 0.9 0.8 0.8 0.9
----- ----- ----- ----- -----
TOTAL (B) 197.7 238.5 255.4 293.9 392.8
===== ===== ===== ===== =====
Interest expense
Wholly owned 58.1 66.9 80.4 85.7 93.5
50% owned 10.8 7.3 9.5 9.5 20.8
Capitalized interest 5.2 4.9 2.1 8.4 3.3
----- ----- ----- ----- -----
SUB-TOTAL (C) 74.1 79.1 92.0 103.6 117.6
Add: Rent expense
(interest factor)
Wholly owned 1.7 1.8 2.1 2.2 2.6
50% owned 0.6 0.9 0.8 0.8 0.9
----- ----- ----- ------ ------
TOTAL (D) $76.4 $81.8 $94.9 $106.6 $121.1
===== ===== ===== ====== ======
RATIOS
Interest (A/C) 2.6 3.0 2.7 2.8 3.3
Fixed charges (B/D) 2.6 2.9 2.7 2.8 3.2
</TABLE>
<PAGE>
THIRTY-SIX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
STRATEGIC AND FINANCIAL OBJECTIVES
Management's primary objective is to maximize shareholder value. The commitment
to this objective is evident in the continued growth and success of the hotel
and gaming business segments, the Company's outstanding earnings and its strong
financial condition. The Company will continue to pursue this objective by
utilizing the depth and synergies of its combined resources to capitalize on the
respective strengths of the hotel and gaming business segments.
RESULTS OF OPERATION
FISCAL 1995 COMPARED WITH FISCAL 1994
OVERVIEW
The Company's net income increased 42 percent to $172.8 million or $3.56 per
share compared to $121.7 million or $2.52 per share in 1994. Consolidated
revenue in 1995 increased nine percent to $1.6 billion, while operating income
increased 24 percent to $353.6 million from $284.6 million in 1994.
HOTELS
The hotel segment includes the consolidated results of the Company's owned and
leased properties. The segment also includes equity income from unconsolidated
affiliates, management fees from both domestic and international hotel
properties and franchise fees. At December 31, 1995 the Company owned,
partially owned, managed and franchised 18, 15, 24 and 162 properties,
respectively, totaling 81,000 rooms worldwide.
Hotel segment results are primarily affected by volume (as measured by
occupancy), pricing (as measured by average room rate) and the Company's ability
to manage costs. The Company continues to benefit from the global strength of
the travel and tourism industry. In addition, increased demand outpaced lodging
supply growth again in 1995. Results in 1995 demonstrate the Company's ability
to capitalize on the sustained growth in international travel to the United
States and on increased domestic business and leisure travel by offering top
quality service and superior hotels and resorts. Occupancy for hotels owned or
managed increased to 73 percent in 1995 compared to 70 percent in 1994. Average
room rates increased five percent over 1994.
Consolidated hotel revenue increased 15 percent in 1995 to $708.8 million.
Adjusting for the increase in revenue due to the consolidation of the New
Orleans Hilton Riverside in June 1994, hotel revenue increased nine percent over
1994. Revenue per available room (RPAR) is a measure of hotel revenue
generation. RPAR for owned and managed hotels increased 10 percent in 1995, the
second consecutive year of double-digit growth.
Hotel operating income, primarily income from hotel interests and
management and franchise fee income, increased 41 percent in 1995 to $207.7
million. Adjusting for the increase in operating income due to the
consolidation of the New Orleans Hilton Riverside, operating income increased 31
percent over the prior year.
Fluctuations in hotel operating income are significantly influenced by the
operating results of the Company's principal downtown/convention, resort and
airport locations where it has large equity interests. The strength of the U.S.
economy has been a catalyst for increased business travel, which has benefitted
a majority of the Company's properties. Individual business travel and company
meeting room nights were both well ahead of 1994 levels. In addition, increased
international visitation continues to benefit a number of the Company's major
market and resort properties. Nearly all of the Company's owned and partially-
owned hotels posted increases in operating income compared to the prior year.
Results from the Waldorf=Astoria increased $5.7 million and results from
the 50% owned New York Hilton increased $5.1 million, representing a combined 58
percent increase over the prior year. Both properties produced increases in
average rate and occupancy linked to strong international room nights and
increased business travel volume. A significant increase in individual business
traveler room nights supported a $6.2 million increase in operating income at
the Palmer House Hilton. Improved occupancy also benefitted a number of the
Company's major market equity properties, including the Capital Hilton, San
Francisco Hilton and Washington Hilton, each 50% owned by the Company. Combined
results at these three properties increased $4.1 million, or 65 percent over
1994.
2
<PAGE>
THIRTY-SEVEN
Operating income from the New Orleans Hilton Riverside increased $15.0
million over the prior year. Strong operating performance led by increased
leisure and company meeting volume accounted for $8.1 million of the increase,
while $6.9 million is attributable to increased ownership of the property.
Average room rate growth in the leisure travel segment combined with
improved occupancy produced a $4.1 million increase in operating income at the
50% owned Hilton Hawaiian Village. International room nights at this property
increased eight percent as tourism from the key Japanese market remained strong.
An 11 percent increase in RPAR at the Company's five owned and partially-
owned Hilton Suites properties resulted in a $2.1 million increase in operating
income.
The strength of business travel continued to benefit the Company's airport
properties. Each of the Company's airport locations attained increases in
average room rate and operating income compared to the prior year. Combined
income for the Company's eight wholly-owned and partially-owned airport
properties increased $7.9 million, or 65 percent, over 1994 levels.
Operating income from the 30% owned Conrad International Hong Kong
increased $.9 million on a double-digit increase in average room rate.
Results at the Company's vacation ownership facility in Orlando, Florida
were adversely impacted by slower than expected sales. Results also reflect the
required recognition of previously deferred operating losses of the Orlando
project, prompted by the completion of the first phase of construction in August
1995. Combined results from the Company's Orlando and Las Vegas vacation
ownership projects decreased $8.8 million from the prior year.
Management and franchise fee revenue increased $6.4 million in 1995 to
$89.4 million. Fee revenue is based primarily on operating revenues at managed
properties and rooms revenue at franchised properties.
The Company has an ongoing program of actively monitoring and improving its
franchise hotels. In 1995, five franchise contracts, representing 845 rooms,
were terminated by the Hilton Inns franchise system, several due to
noncompliance with the Company's standards. Six properties and 2,096 rooms were
added to the franchise system in 1995. In addition, in late 1995 the Company
assumed management of the 294-room Tamarron Hilton Resort in Durango, Colorado.
In 1995 Conrad International Hotels signed management agreements for a 412-
room hotel in Barcelona, Spain, a 260-room hotel in Hurghada, Egypt and a 350-
room property under development in Sharm El Sheikh, Egypt. The Conrad
International Sharm El Sheikh is scheduled to open in Fall 1996.
Although the supply-demand imbalance continues to improve, future operating
results could be adversely impacted by overcapacity and weak demand. These
conditions could limit the Company's ability to pass through inflationary
increases in operating costs in the form of higher rates. Increases in
transportation and fuel costs or sustained recessionary periods could also
unfavorably impact future results. The Company believes that its financial
strength, market presence and diverse product line will enable it to remain
extremely competitive.
GAMING
The gaming segment includes five wholly-owned Nevada hotel-casinos, equity
income and management fees from gaming operations in New Orleans, Louisiana and
Windsor, Ontario, Canada, two partially owned hotel-casinos in Australia and one
in Istanbul, Turkey.
The Company's Nevada gaming operations offer a diversified product and
service mix which appeals to a broad spectrum of customers. The Flamingo
Hilton-Las Vegas caters to the broad Las Vegas middle market, while the Las
Vegas Hilton caters to premium players and the convention market. The Flamingo
Hilton-Reno focuses on middle market activity, while the Reno Hilton targets
both convention and middle market activity. The Flamingo Hilton-Laughlin
targets the budget market segment.
Total gaming revenue increased five percent to $940.6 million in 1995
compared to $895.6 million in 1994. Casino revenue, a component of gaming
revenue, was $511.0 million in 1995 compared to $480.6 million in 1994. Gaming
operating income was $177.8 million in 1995, a seven percent improvement from
$165.4 million in 1994.
Operating income at the Las Vegas Hilton increased $26.4 million from the
prior year primarily due to significantly higher table game win. The hotel-
casino's luxury "Sky Villa" suites and new baccarat facility have greatly
increased premium play volume. Baccarat volume more than doubled resulting in a
91 percent increase in baccarat win compared to the prior year. The property
also benefitted from a 10 percent increase in average room rate. Results at the
Las Vegas Hilton are more volatile than the Company's other casinos because this
property caters to the premium play segment of the market. Future fluctuations
in premium play volume and win percentage could result in greater volatility in
operating income at this property.
3
<PAGE>
THIRTY-EIGHT
Results at the Flamingo Hilton-Las Vegas increased $3.5 million in 1995,
despite disruptions during the first half of the year resulting from major
construction and renovation projects at the property. Average room rate
increased 11 percent over 1994 levels. Operating income at the Flamingo Hilton-
Laughlin decreased $3.3 million from the prior year, reflecting continued market
softness and competition from Las Vegas. Benefitting from the mid-year
completion of a major casino renovation, operating income from the Reno Hilton
increased $5.2 million from the prior year. Results from the Flamingo Hilton-
Reno decreased $1.2 million, primarily due to increased competition in the last
six months of 1995.
Occupancy for the Nevada hotel-casinos was 88 percent and 91 percent in
1995 and 1994, respectively. Average room rates increased seven percent in
1995.
Results from the Company's New Orleans river casino operations, including
equity and fee income, decreased $2.4 million from 1994. The 1994 results
include fee income from a wholly-owned river casino which was leased to the 50%
owned joint venture prior to November 1994, when a vessel owned by the joint
venture was placed in service.
Fee income from the one-third owned consortium which operates and manages
the Casino Windsor increased $3.2 million from the prior year. This facility
opened in May 1994. Results at the 25% owned Conrad International Istanbul
increased $.7 million due to a significant increase in occupancy.
Equity and fee income from the 19.9% owned Hotel Conrad & Jupiters Casino
in Australia decreased $11.3 million from 1994, primarily due to significantly
lower table game win. Equity and fee income from the 19.9% owned Conrad
International Treasury, which opened in May 1995 in Brisbane, totaled $2.4
million.
The gaming industry continues to experience growth in both existing markets
and new jurisdictions. The Las Vegas market is becoming increasingly
competitive, with visitor volume growth slowing and per-capita casino spending
declining. Competitors have announced new projects which, if completed, will
add approximately 15,000 rooms and 500,000 square feet of casino space to the
market over the next three years. These additions could adversely impact the
Company's future gaming income.
CORPORATE EXPENSE
Corporate expense increased $3.6 million in 1995 to $31.9 million due to $4.9
million in costs incurred in evaluating strategic alternatives to enhance
shareholder value.
INTEREST AND DIVIDEND INCOME/EXPENSE
Interest and dividend income increased $13.7 million in 1995 to $35.2 million
due to higher investable balances. Interest expense, net of amounts
capitalized, increased $7.8 million primarily due to higher average debt levels
and higher interest rates on commercial paper borrowings. The increase in
consolidated interest expense includes $4.3 million attributable to the
consolidation of the New Orleans Hilton Riverside in June 1994. Interest
expense from unconsolidated affiliates increased $4.3 million over 1994.
INCOME TAXES
The effective income tax rate in 1995 was 36.6% compared to 40.9% in 1994. The
Company's effective income tax rate is determined by the level and composition
of pretax income and the mix of income subject to varying foreign, state and
local taxes. The 1995 effective income tax rate benefitted from $5.5 million in
credits resulting from the favorable resolution of Federal tax issues for prior
years and the utilization of foreign tax credits.
The Company believes its recorded tax balances are appropriate. However,
future changes in tax law, or in the interpretation of such law, could have a
material effect on financial results. Proposed changes affecting the gaming
industry have included a Federal gaming tax, withholding requirements on gaming
winnings and limitations on the deductibility of the costs of providing meals to
employees and providing promotional items to casino customers on a complimentary
basis.
PROPERTY TRANSACTIONS
The gain from property transactions in 1995 primarily reflects a pretax gain on
the sale of land to Hilton Grand Vacations Company for its project at the
Flamingo Hilton-Las Vegas. Gains on this transaction are being recognized on an
installment basis.
MINORITY INTEREST
The minority interest results from the consolidation of the New Orleans Hilton
Riverside. The Company increased its ownership interest in the property from
46.8% to 67.4% in June 1994.
4
<PAGE>
THIRTY-NINE
FISCAL 1994 COMPARED WITH FISCAL 1993
OVERVIEW
The Company's net income increased 18 percent to $121.7 million or $2.52 per
share, compared to $102.7 million or $2.14 per share (excluding the cumulative
effect of accounting changes totaling $.07 per share) in 1993. Total operating
income increased 19 percent to $284.6 million from $239.9 million in 1993.
HOTELS
Consolidated hotel revenue increased 19 percent in 1994 to $618.3 million.
Adjusting for the increase in revenue due to the consolidation of the New
Orleans Hilton Riverside in 1994, hotel revenue increased 10 percent over 1993.
Hotel operating income increased 53 percent in 1994 to $147.5 million.
Adjusting for the increase in operating income due to the consolidation of the
New Orleans Hilton Riverside and the adverse impact of a $12.5 million loan
reserve in 1993, operating income increased 25 percent over the prior year.
During 1994 many of the Company's airport locations showed significant
improvements over 1993 results, including double-digit growth in both occupancy
and operating income at the Logan Airport Hilton, O'Hare Hilton and the San
Francisco Airport Hilton. Combined income for the Company's wholly-owned and
partially-owned airport properties increased $6.2 million over the prior year.
Significant increases in domestic and international travel contributed to a
resurgence in operating results at the Company's major market
downtown/convention properties. Combined operating income from the
Waldorf=Astoria and the 50% owned New York Hilton increased $5.2 million, or 38
percent over the prior year. International room nights at these two properties
were up a combined 61 percent over 1993 levels. Combined results from the
Palmer House Hilton and the one-third owned Chicago Hilton increased $5.4
million on improved occupancy and average rates. The operating performance of
the New Orleans Hilton Riverside improved dramatically over 1993 due to
increased convention and leisure travel room nights and the opening of the
adjacent river casino. Both occupancy and average rate increased at this
property, resulting in RPAR growth of 14 percent in 1994.
Results at the Company's resort properties also benefitted from increased
leisure travel. Operating income from the 50% owned Hilton Hawaiian Village
increased $4.6 million over 1993 as tourism from the key California and Japanese
markets increased. International room nights at this property increased 21
percent over 1993.
Operating income from the 30% owned Conrad International Hong Kong
increased $1.2 million in 1994. Increases in occupancy and average rate
resulted in a 24 percent increase in RPAR.
Management and franchise fee revenue increased $4.3 million to $83.0
million. Occupancy for hotels owned or managed increased to 70 percent in 1994
compared to 67 percent in 1993. Average room rates increased seven percent over
1993.
GAMING
Total gaming revenue increased three percent to $895.6 million in 1994 compared
to $873.5 million in 1993. Casino revenue, a component of gaming revenue, was
$480.6 million in 1994 compared to $502.1 million in 1993. Gaming operating
income was $165.4 million, a three percent decline from $170.5 million in 1993.
Excluding the results of the Company's gaming facilities in New Orleans and
Windsor, both of which commenced operations in 1994, revenue increased one
percent and operating income decreased eight percent from the prior year.
Operating income at the Flamingo Hilton-Las Vegas decreased $9.9 million
due to the impact of construction activity and the resultant temporary reduction
in available room capacity. Operating income at the Flamingo Hilton-Laughlin
decreased $2.6 million, reflecting increased room capacity in Laughlin and
competition from Las Vegas. Operating income at the Flamingo Hilton-Reno
increased 20 percent, primarily due to increases in casino win percentage and
slot revenue. Adjusting for a $3.9 million write-off of costs related to
abandoned construction plans, operating income at the Reno Hilton was comparable
with 1993.
Operating income at the Las Vegas Hilton declined $12.1 million from 1993.
A decline in premium play volume, partially offset by a one percent increase in
casino win percentage, resulted in a decrease of $10.2 million in table game
win.
Occupancy for the Nevada hotel-casinos was 91 percent and 89 percent in
1994 and 1993, respectively. Average room rates increased three percent in
1994.
In February 1994 a joint venture of which the Company is a 50% owner opened
the Queen of New Orleans river casino adjacent to the New Orleans Hilton
Riverside. This interim vessel was replaced with a permanent vessel, the
Flamingo Casino-New Orleans, in November 1994. In May 1994 a consortium of
which the Company has a one-third interest opened the Casino Windsor. Combined
operating income from these two ventures, including equity and fee income,
totaled $10.7 million.
Equity income and management fees from the 19.9% owned Hotel Conrad and
Jupiters Casino increased $9.6 million over the prior year. Results from the
25% owned Conrad International Istanbul were not significant.
5
<PAGE>
FORTY
INTEREST AND DIVIDEND INCOME/EXPENSE
Interest and dividend income decreased $.3 million in 1994 to $21.5 million due
to lower investable balances. Interest expense, net of amounts capitalized,
increased $5.3 million due to higher average debt levels and higher interest
rates; capitalized interest increased $5.0 million over 1993. Net interest
expense from unconsolidated affiliates decreased $2.4 million in 1994 to $12.2
million.
INCOME TAXES
The effective income tax rate in 1994 was 40.9% compared to 36.2% in 1992. The
1993 effective income tax rate benefitted from $9.0 million in credits resulting
from the favorable resolution of Federal and state income taxes for prior years.
These credits were partially offset by a $5.0 million increase in the provision
for income taxes due to the increase in the Federal income tax rate for
corporations from 34 percent to 35 percent. Of the $5.0 million increase, $3.3
million was attributable to the measurement of deferred income tax assets and
liabilities at the new higher rate.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
Net cash provided by operating activities increased to $330.7 million in 1995
from $230.9 million in 1994 and $226.9 million in 1993. The increase in 1995 is
due primarily to improved operating results. Working capital decreased from
$345.4 million at December 31, 1994 to $182.4 million at December 31, 1995,
principally due to a $180.1 million increase in current maturities of long-term
debt.
Capital expenditures, including those financed with construction payables,
were $185.5 million in 1995, while new investments totaled $98.3 million.
Capital expenditures and new investments totaled $265.9 million and $156.7
million, respectively, in 1994, and $157.0 million and $104.7 million,
respectively, in 1993.
Growth in the hotel segment will primarily occur through significant
domestic expansion of the Company's new Hilton Garden Inns product,
international expansion, conversions of existing domestic properties to the
Hilton brand in strategically important markets and the development and
management of vacation ownership resorts.
The Company plans to target mid-market business travelers by expanding its
Hilton Garden Inns product over the next five years. The Company anticipates
that approximately 80 percent of the planned 100 additional hotels will be new
construction with the remainder being conversions of existing properties.
Construction of 15 to 25 of the new properties is scheduled to begin in 1996 and
is expected to be financed by the Company either solely or with local partners
at a cost to the Company of approximately $100 million.
In August 1995 the Company's 50% owned Hilton Grand Vacations Company
affiliate completed development of the first phase of a 360-unit vacation
ownership resort adjacent to Sea World in Orlando, Florida. Project costs for
the Orlando project and the Company's existing 200-unit resort adjacent to the
Flamingo Hilton-Las Vegas have been funded by the Company in the form of
revolving loan facilities aggregating approximately $117 million at December 31,
1995.
Major renovation projects totaling $33 million were completed at the
wholly-owned San Diego Hilton Beach & Tennis Resort and Portland Hilton in 1995.
The Company is continuing to selectively expand and improve its worldwide
gaming operations. In early 1995 the Las Vegas Hilton opened the third of its
three luxury "Sky Villa" suites. Built at an aggregate cost of $40 million, the
suites cater to select premium casino customers. In December 1995 the property
completed construction of a new $12 million VIP baccarat facility. The opening
of the "Star Trek: The Experience at the Las Vegas Hilton" attraction and
related themed casino is scheduled for Spring 1997. This project, totaling
approximately $70 million, will occupy approximately 65,000 square feet at the
Las Vegas Hilton.
Several significant projects were completed in 1995 at the Flamingo Hilton-
Las Vegas. These expansion and enhancement projects, totaling $125 million,
include a new 600-room tower addition, a 10,000 square foot casino expansion,
remodeling of the race and sports book, new entertainment, recreation, retail
and dining facilities, exterior enhancements and room renovations. Casino
enhancements totaling $8 million were completed at the Reno Hilton in 1995.
In Missouri, the Company broke ground on the Flamingo Casino-Kansas City
located adjacent to the Missouri River near downtown Kansas City. The
development will include a 30,000 square foot casino on a continuously docked
barge, a 260-room hotel, concessions and entertainment facilities. The
estimated cost of this development is approximately $121 million, anticipated to
be funded through a combination of long-term debt and general corporate funds.
The Company will have a 90% ownership in this project. Subject to receipt of
all required gaming licenses and permits, the Company anticipates that the
casino will be in operation by mid-1996. The hotel is scheduled to open in mid-
1997.
6
<PAGE>
FORTY-ONE
In December 1995 the Company entered into agreements for the charter of a
river casino to the Ontario Casino Corporation. This vessel serves as a
complementary facility for Casino Windsor, adding an additional 25,000 square
feet of casino space. The Company has a one-third interest in the consortium
which operates and manages the temporary and river casinos for the Ontario
provincial government. The existing temporary casino facility will be replaced
by a permanent facility scheduled to open in early 1998. It is anticipated that
the permanent facility will be partially financed by the consortium with a
combination of long-term debt and equity.
April 1995 marked the opening of the Conrad International Treasury hotel-
casino in Brisbane, Australia. This $185 million project includes a 65,000
square foot casino and a 136-room luxury hotel. The Conrad International
Treasury is owned by Jupiters Limited, a 19.9% owned affiliate, and is operated
by Conrad International, the Company's international subsidiary.
Construction is proceeding on the Conrad International Punta del Este, a
hotel-casino in Punta del Este, Uruguay. This facility will feature a 300-room
hotel and a 38,000 square foot casino at an estimated cost of $172 million. The
casino is scheduled to open in January 1997; the hotel will open in late 1997.
This approximately 43% owned project is being financed with a combination of
long-term debt and equity.
In January 1996 the Company replaced its 50% owned river casino located
adjacent to the New Orleans Hilton Riverside with a smaller wholly-owned vessel.
The smaller vessel, with 20,000 square feet of casino space, will be leased by
the Company to the 50% owned joint venture. The joint venture has entered into
an agreement to sell the larger vessel, with 30,000 square feet of casino space,
to a third party.
The Company is committed to keeping its properties in first-class
condition. Refurbishment programs are continually underway at the Company's
hotel and casino properties. Capital expenditures and investments in 1996,
including funding requirements associated with the aforementioned projects, will
approximate $370 million. The Company intends to fund its portion of these
capital expenditures through internal cash flows and available debt capacity or
new borrowings.
LONG-TERM DEBT
Long-term debt at December 31, 1995 totaled $1.1 billion, 42 percent of the
Company's total capital, compared to $1.3 billion at December 31, 1994. The
reduction is due primarily to the aforementioned $180.1 million increase in the
current portion of long-term debt. During 1995 the Company repurchased $61.2
million of its long-term public debt, including $28.9 million of its $200
million Series B Medium Term Notes. At December 31, 1995, $30 million in
financing under this program was still available.
The Company has an effective shelf registration with the Securities and
Exchange Commission for up to $65 million of new debt securities. The terms and
conditions of these debt securities will be determined by market conditions at
the time of issuance.
The Company had $406.1 million in commercial paper and private notes
outstanding at December 31, 1995. The Company has entered into various long-
term revolving credit facilities with an aggregate commitment at December 31,
1995 of $597.5 million, of which $20.0 million expires in 1996, $67.5 million
expires in 1997, $70.0 million expires in 1998, $325.0 million expires in 1999
and the remaining $115.0 million expires in 2000. At December 31, 1995, $406.1
million of the aggregate commitment supported the issuance of commercial paper.
Excluding outstanding balances and the portion of the commitment which supports
the issuance of commercial paper, $140.3 million of revolving bank debt
financing was available to the Company at December 31, 1995.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $1.3 billion or $25.96 per share at December 31,
1995. Book value per share was $23.45 in 1994 and $22.11 in 1993. Dividends
paid on common shares were $1.20 per share in 1995, 1994 and 1993.
At December 31, 1995 and 1994 the company had investments in bond mutual
funds, the aggregate value of which was $7.1 million and $8.1 million below
cost, respectively. Unrealized losses, net of the related deferred tax benefit,
of $4.6 million in 1995 and $5.3 million in 1994 are deducted from stockholders'
equity.
OTHER MATTERS
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on the
Company's financial position or results of operations.
7
<PAGE>
FORTY-TWO
CONSOLIDATED STATEMENTS OF INCOME HILTON HOTELS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue Rooms $ 587.2 509.6 440.2
Food and beverage 265.7 247.2 236.8
Casino 511.0 480.6 502.1
Management and franchise fees 100.5 94.5 85.1
Other 125.4 124.2 93.8
Operating income from unconsolidated affiliates 59.6 57.8 35.5
-------- -------- --------
1,649.4 1,513.9 1,393.5
-------- -------- --------
Expenses Rooms 186.4 171.8 152.5
Food and beverage 229.4 216.4 202.4
Casino 234.9 216.3 217.5
Other costs and expenses 613.2 596.5 554.4
Corporate expense 31.9 28.3 26.8
-------- -------- --------
1,295.8 1,229.3 1,153.6
-------- -------- --------
Operating Income 353.6 284.6 239.9
Interest and dividend income 35.2 21.5 21.8
Interest expense (93.5) (85.7) (80.4)
Interest expense, net, from unconsolidated affiliates (16.5) (12.2) (14.6)
Property transactions, net 1.5 1.1 (4.5)
Foreign currency losses -- (.7) (1.3)
-------- -------- --------
Income Before Income Taxes
and Minority Interest 280.3 208.6 160.9
Provision for income taxes 102.6 85.3 58.2
Minority interest, net 4.9 1.6 --
-------- -------- --------
Income Before Cumulative
Effect of Accounting Changes 172.8 121.7 102.7
Cumulative effect of accounting changes, net -- -- 3.4
-------- -------- --------
Net Income $ 172.8 121.7 106.1
-------- -------- --------
-------- -------- --------
Income Per Share Before cumulative effect of accounting changes $ 3.56 2.52 2.14
Cumulative effect of accounting changes, net -- -- .07
-------- -------- --------
Net Income Per Share $ 3.56 2.52 2.21
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
8
<PAGE>
FORTY-THREE
CONSOLIDATED BALANCE SHEETS HILTON HOTELS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN MILLIONS) DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets Cash and equivalents $ 338.0 184.4
Temporary investments 70.7 208.8
Deferred income taxes 24.1 26.0
Other current assets 284.5 254.5
-------- --------
Total current assets 717.3 673.7
-------- --------
Investments, Property and Investments in and notes from
Other Assets unconsolidated affiliates 576.2 518.0
Other investments 19.1 18.7
Property and equipment, net 1,695.9 1,664.8
Other assets 51.8 50.7
-------- --------
Total investments, property and other assets 2,343.0 2,252.2
-------- --------
Total Assets $3,060.3 2,925.9
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Current liabilities $ 534.9 328.3
Long-term debt 1,069.7 1,251.9
Deferred income taxes 123.7 124.3
Insurance reserves and other 78.3 93.6
-------- --------
Total liabilities 1,806.6 1,798.1
-------- --------
Stockholders' Equity Preferred stock, none outstanding -- --
Common stock, 48.3 million and 48.1 million
shares outstanding, respectively 127.6 127.6
Cumulative translation adjustment (1.4) (.7)
Unrealized loss on marketable securities (4.6) (5.3)
Retained earnings 1,274.6 1,160.7
-------- --------
1,396.2 1,282.3
Less treasury shares, at cost 142.5 154.5
-------- --------
Total stockholders' equity 1,253.7 1,127.8
-------- --------
Total Liabilities and
Stockholders' Equity $3,060.3 2,925.9
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements
9
<PAGE>
FORTY-FOUR
CONSOLIDATED STATEMENTS OF CASH FLOWS
HILTON HOTELS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN MILLIONS) YEAR ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Activities Net income $ 172.8 121.7 106.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 141.9 133.3 118.9
Change in working capital components:
Inventories (.7) .7 .7
Accounts receivable (20.6) (54.7) (17.9)
Other current assets (7.2) (5.5) (19.9)
Accounts payable and accrued expenses 24.1 35.9 (8.2)
Income taxes payable 4.0 (1.2) (9.2)
Change in deferred income taxes 1.0 (20.8) (6.6)
Change in other liabilities (13.7) 7.8 29.4
Unconsolidated affiliates' distributions
in excess of earnings 29.4 5.9 20.1
(Gain) loss from property transactions (1.5) (1.1) 4.5
Other 1.2 8.9 9.0
-------- -------- --------
Net cash provided by operating activities 330.7 230.9 226.9
-------- -------- --------
Investing Activities Capital expenditures (187.1) (254.4) (156.8)
Additional investments (98.3) (156.7) (104.7)
Decrease in long-term marketable securities 1.0 62.6 91.2
Change in temporary investments 139.1 (118.8) 64.3
Payments on notes and other 17.5 60.9 5.9
-------- -------- --------
Net cash used in investing activities (127.8) (406.4) (100.1)
-------- -------- --------
Financing Activities Change in commercial paper
borrowings and revolving loans 189.2 (112.9) .8
Long-term borrowings 1.0 170.0 1.0
Reduction of long-term debt (192.6) (31.5) (46.3)
Issuance of common stock 11.0 11.5 6.9
Cash dividends (57.9) (57.6) (57.3)
-------- -------- --------
Net cash used in financing activities (49.3) (20.5) (94.9)
-------- -------- --------
Increase (Decrease) in Cash and Equivalents 153.6 (196.0) 31.9
Cash and Equivalents at Beginning of Year 184.4 380.4 348.5
-------- -------- --------
Cash and Equivalents at End of Year $ 338.0 184.4 380.4
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements
10
<PAGE>
FORTY-FIVE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
HILTON HOTELS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL CUMULATIVE TOTAL
SHARES COMMON PAID-IN TRANSLATION UNREALIZED RETAINED TREASURY STOCKHOLDERS'
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) OUTSTANDING STOCK CAPITAL ADJUSTMENT LOSS EARNINGS SHARES EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 47.7 $127.6 4.4 -- -- 1,049.0 (178.5) 1,002.5
Exercise of stock options .1 -- (2.5) -- -- -- 9.4 6.9
Cumulative translation adjustment, net
of deferred tax benefit of
$.8 million (1.5) -- -- (1.5)
Net income -- -- -- -- -- 106.1 -- 106.1
Dividends ($1.20 per share) -- -- -- -- -- (57.3) -- (57.3)
----------- ------ ----------- ---------- ---------- -------- -------- ------------
Balance, December 31, 1993 47.8 127.6 1.9 (1.5) -- 1,097.8 (169.1) 1,056.7
Exercise of stock options .3 -- (1.9) -- -- (1.2) 14.6 11.5
Cumulative translation adjustment, net
of deferred tax of $.4 million -- -- -- .8 -- -- -- .8
Unrealized loss on marketable
securities, net of deferred tax
benefit of $2.8 million (5.3) (5.3)
Net income -- -- -- -- -- 121.7 -- 121.7
Dividends ($1.20 per share) -- -- -- -- -- (57.6) -- (57.6)
----------- ------ ----------- ---------- ---------- -------- -------- ------------
Balance, December 31, 1994 48.1 127.6 -- (.7) (5.3) 1,160.7 (154.5) 1,127.8
Exercise of stock options .2 -- -- -- -- (1.0) 12.0 11.0
Cumulative translation adjustment, net
of deferred tax benefit of
$.4 million -- -- -- (.7) -- -- -- (.7)
Change in unrealized loss on marketable
securities, net of deferred tax
of $.3 million -- -- -- -- .7 -- -- .7
Net income -- -- -- -- -- 172.8 -- 172.8
Dividends ($1.20 per share) -- -- -- -- -- (57.9) -- (57.9)
----------- ------ ----------- ---------- ---------- -------- -------- ------------
Balance, December 31, 1995 48.3 $127.6 -- (1.4) (4.6) 1,274.6 (142.5) 1,253.7
----------- ------ ----------- ---------- ---------- -------- -------- ------------
----------- ------ ----------- ---------- ---------- -------- -------- ------------
</TABLE>
See notes to consolidated financial statements
11
<PAGE>
FORTY-SIX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HILTON HOTELS CORPORATION AND SUBSIDIARIES
December 31, 1995
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Hilton Hotels Corporation and subsidiaries (the Company) is primarily engaged in
the ownership, management and franchising of hotels, resorts and vacation
ownership properties and the ownership and management of casinos and hotel-
casino properties. The Company operates in select markets throughout the world,
predominately in the United States. Revenue and income are derived from two
business segments: hotel operations and gaming operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hilton Hotels
Corporation and its majority-owned subsidiaries. All material intercompany
transactions are eliminated and net earnings are reduced by the portion of the
earnings of affiliates applicable to minority shareowners. There are no
significant restrictions on the transfer of funds from the Company's wholly-
owned subsidiaries to Hilton Hotels Corporation.
Investments in 50% or less owned affiliates over which the Company has the
ability to exercise significant influence are accounted for using the equity
method.
CASH AND EQUIVALENTS
Cash and equivalents include investments with initial maturities of three months
or less.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the aggregate of gaming wins and losses. The revenue
components presented in the consolidated financial statements and the notes
thereto exclude the retail value of rooms, food and beverage provided to
customers on a complimentary basis. The estimated cost of providing these
promotional allowances is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Rooms $ 9.5 8.5 8.9
Food and beverage 29.7 28.3 27.6
------- ------- -------
Total cost of promotional allowances $ 39.2 36.8 36.5
------- ------- -------
------- ------- -------
</TABLE>
The cost of promotional allowances has been allocated to expense as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Casino $ 32.1 29.6 27.6
Other costs and expenses 7.1 7.2 8.9
------- ------- -------
</TABLE>
CURRENCY TRANSLATION
Assets and liabilities denominated in most foreign currencies are translated
into U.S. dollars at year-end exchange rates and related gains and losses, net
of applicable deferred income taxes, are reflected in stockholders' equity.
Gains and losses from foreign currency transactions and translation of balance
sheets in highly inflationary economies are included in earnings.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Interest incurred during
construction of facilities is capitalized and amortized over the life of the
asset.
Costs of improvements are capitalized. Costs of normal repairs and
maintenance are charged to expense as incurred. Upon the sale or retirement of
property and equipment, the cost and related accumulated depreciation are
removed from the respective accounts, and the resulting gain or loss, if any, is
included in income.
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized over the shorter of
the asset life or lease term. The service lives of assets are generally 40
years for buildings, 30 years for riverboats and eight years for building
improvements and furniture and equipment.
PRE-OPENING COSTS
Costs associated with the opening of new properties or major additions to
properties placed in service through December 31, 1994 were deferred and charged
to income over a three year period after the opening date. For projects placed
in service after December 31, 1994, pre-opening costs are deferred and amortized
over the shorter of the period benefitted or one year.
12
<PAGE>
FORTY-SEVEN
UNAMORTIZED LOAN COSTS
Debt discount and issuance costs incurred in connection with long-term debt are
capitalized and amortized to expense, principally on the bonds outstanding
method.
SELF-INSURANCE
The Company is self-insured for various levels of general liability, workers'
compensation and employee medical and life insurance coverage. Insurance
reserves include the present values of projected settlements for claims.
ACCOUNTING CHANGES
Effective January 1, 1993 the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The standard requires the cost of postretirement benefits
to be accrued during the period up to the date covered employees are eligible to
retire. Prior to the adoption of SFAS No. 106, the cost of these benefits was
charged to expense as incurred. The Company elected to immediately recognize
the prior periods' obligation as a cumulative adjustment in the first quarter of
1993.
Also effective January 1, 1993 the Company adopted SFAS No. 109,
"Accounting for Income Taxes", which requires, among other things, that deferred
tax balances be determined using the enacted income tax rates for the years in
which the taxes are actually paid or refunds received. The Company elected to
adopt the standard through a cumulative adjustment in the first quarter of 1993.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of common shares
outstanding plus the common share equivalents which arise from the assumed
exercise of stock options.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications to conform with classifications adopted in 1995. These
classifications have no effect on net income.
ACCOUNTS AND NOTES RECEIVABLE
Included in other current assets at December 31, 1995 and 1994 are accounts and
notes receivable as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Hotel accounts and notes receivable $ 148.3 144.8
Less allowance for doubtful accounts 8.4 11.4
------- -------
139.9 133.4
------- -------
Casino accounts receivable 87.3 69.1
Less allowance for doubtful accounts 13.5 16.0
------- -------
73.8 53.1
------- -------
Federal tax refund receivable 6.2 12.8
------- -------
Total $ 219.9 199.3
------- -------
</TABLE>
The allowance provided for estimated uncollectible casino receivables, net of
recoveries, is included in casino expenses in the amount of $17.3 million, $12.3
million and $9.5 million in 1995, 1994 and 1993, respectively.
INVENTORIES
Included in other current assets at December 31, 1995 and 1994 are inventories
of $13.9 million and $13.2 million, respectively, determined on a first-in,
first-out basis.
13
<PAGE>
FORTY-EIGHT
INVESTMENTS
The composition of the Company's total investments in and notes from
unconsolidated affiliates at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments
50% owned affiliates
Hotels (seven in 1995 and 1994) $ 217.3 229.0
Riverboat casino 8.8 8.4
Other 1.3 13.8
Less than 50% owned affiliates
Hotels (seven in 1995 and 1994) 89.4 87.4
Hotel-casinos (five in 1995 and 1994) 87.9 78.9
Other 13.9 10.3
------- -------
418.6 427.8
Notes receivable 157.6 90.2
------- -------
Total $ 576.2 518.0
------- -------
------- -------
</TABLE>
The changes in the Company's investments in such affiliates are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments, January 1 $ 427.8 351.9
Earnings, net of applicable taxes 37.3 37.9
Distributions received (66.7) (43.8)
Additional investments 21.5 94.3
Transfer of assets -- (13.3)
Other, net (1.3) .8
------- -------
Investments, December 31 $ 418.6 427.8
------- -------
------- -------
</TABLE>
Management fees totaling $39.4 million, $34.7 million and $30.2 million were
charged by the Company to its unconsolidated affiliates in 1995, 1994 and 1993,
respectively. Other group services were provided to unconsolidated affiliates
with no significant element of profit.
Summarized balance sheet information of the 50% owned affiliates at
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 198.6 189.7
Property and other assets, net 756.6 749.2
Current liabilities 216.3 89.3
Long-term debt and other 251.8 326.9
Equity 487.1 522.7
------- -------
</TABLE>
Summarized balance sheet information of the less than 50% owned affiliates at
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 148.4 140.9
Property and other assets, net 1,106.4 959.6
Current liabilities 146.8 121.7
Long-term debt and other 340.6 243.0
Equity 767.4 735.8
-------- ---------
</TABLE>
Of long-term unconsolidated affiliate obligations totaling $592.4 million at
December 31, 1995, $581.4 million is secured solely by venture assets or is
guaranteed by other venture partners without recourse to the Company.
The Company's proportionate shares of capital expenditures and depreciation
expense of unconsolidated affiliates were $60.6 million and $40.2 million,
respectively, in 1995, $60.6 million and $38.9 million, respectively, in 1994,
and $54.3 million and $39.5 million, respectively, in 1993.
14
<PAGE>
FORTY-NINE
Summarized results of operations of the 50% owned affiliates for the three
years ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 709.1 643.2 516.2
Expenses 643.5 601.2 491.8
Net income 63.3 40.7 23.1
-------- -------- --------
</TABLE>
Summarized results of operations of the less than 50% owned affiliates for the
three years ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 612.0 573.9 459.5
Expenses 540.0 473.9 407.8
Gain on extinguishment of debt -- -- 18.3
Net income 53.5 71.4 53.8
-------- -------- --------
</TABLE>
Other investments at December 31, 1995 and 1994 consist of:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term marketable securities $ -- 1.0
Other, net of $12.5 million reserve in 1995 and 1994 19.1 17.7
------- -------
Total $ 19.1 18.7
------- -------
------- -------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 158.1 158.1
Buildings and leasehold improvements 1,749.6 1,617.1
Furniture and equipment 517.5 490.7
Property held for sale or development 36.8 57.2
Construction in progress 28.2 85.6
---------- ----------
2,490.2 2,408.7
Less accumulated depreciation 794.3 743.9
---------- ----------
Total $ 1,695.9 1,664.8
---------- ----------
---------- ----------
</TABLE>
Purchases of property and equipment financed with construction payables totaled
$12.8 million, $14.4 million and $2.9 million at December 31, 1995, 1994 and
1993, respectively.
CURRENT LIABILITIES
Current liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable and accrued expenses $ 306.5 284.0
Current maturities of long-term debt 216.8 36.7
Income taxes payable 11.6 7.6
---------- ----------
Total $ 534.9 328.3
---------- ----------
---------- ----------
</TABLE>
15
<PAGE>
FIFTY
LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial development revenue bonds
at adjustable rates, due 2015 $ 82.0 82.0
Senior notes, 7.02% to 9.80%, due 1997 to 2002 636.6 827.2
Mortgage notes, 6.68% to 8.34%, due 1996 to 2011 103.5 105.2
Commercial paper 406.1 210.7
Revolving loans, with an average rate of 5.91%
at December 31, 1995 51.1 57.3
Other 7.2 6.2
---------- ----------
1,286.5 1,288.6
Less current maturities 216.8 36.7
---------- ----------
Net long-term debt $ 1,069.7 1,251.9
---------- ----------
---------- ----------
</TABLE>
Interest paid, net of amounts capitalized, was $95.3 million, $88.3 million and
$79.8 million in 1995, 1994 and 1993, respectively. Capitalized interest
amounted to $3.3 million, $7.0 million and $2.0 million, respectively.
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 216.8
1997 72.1
1998 96.8
1999 367.5
2000 122.6
----------
</TABLE>
Secured debt obligations of $82.0 million at December 31, 1995 are
collateralized by property with a net book value of $58.7 million and are
payable over remaining terms ranging to 19 years.
During 1995 the Company repurchased $61.2 million of its long-term debt,
including $28.9 million of its $200 million Series B Medium Term Notes.
Available financing under the Series B Medium Term Note program totaled $30
million at December 31, 1995.
The Company has an effective shelf registration with the Securities and
Exchange Commission for up to $65 million of new debt securities. The terms and
conditions of these debt securities will be determined by market conditions at
the time of issuance.
During 1995, 1994 and 1993 the Company issued and renewed commercial paper
and private notes for varying periods with interest at market rates. The
Company had $406.1 million, $210.7 million and $358.4 million in commercial
paper and private notes outstanding at December 31, 1995, 1994 and 1993,
respectively. In 1995, 1994 and 1993 average amounts of commercial paper and
private notes outstanding were $288.3 million, $231.3 million and $273.1
million, respectively, with the largest amounts outstanding at any one time
being $417.8 million, $327.1 million, and $358.4 million, respectively.
Weighted average interest rates were 5.98%, 4.33% and 3.16%, respectively.
The Company has entered into various long-term revolving credit facilities
with an aggregate commitment at December 31, 1995 of $597.5 million, of which
$20.0 million expires in 1996, $67.5 million expires in 1997, $70.0 million
expires in 1998, $325.0 million expires in 1999, and the remaining $115.0
million expires in 2000. At December 31, 1995, $406.1 million of the aggregate
commitment supported the issuance of commercial paper. Excluding balances
outstanding and the portion of the commitment which supports the issuance of
commercial paper, $140.3 million of revolving bank debt financing was available
to the Company at December 31, 1995.
Provisions under various loan agreements require the Company to comply with
certain financial covenants which include maintaining a minimum consolidated
tangible net worth and limiting the amount of outstanding indebtedness.
FINANCIAL INSTRUMENTS
CASH EQUIVALENTS, TEMPORARY INVESTMENTS AND LONG-TERM MARKETABLE SECURITIES
The fair value of cash equivalents, temporary investments and long-term
marketable securities is estimated based on the quoted market price of the
investments.
OTHER FINANCIAL INSTRUMENTS
It is not practicable to estimate the fair value of notes receivable and a cost
basis investment, the carrying values of which totaled $167.9 million in 1995
and $114.7 million in 1994. The Company received cash payments of $43.3 million
and $29.1 million with respect to such investments in 1995 and 1994,
respectively.
16
<PAGE>
FIFTY-ONE
LONG-TERM DEBT
The estimated fair value of long-term debt is based on the quoted market prices
for the same or similar issues or on the current rates offered to the Company
for debt of the same remaining maturities.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements to decrease its exposure
to interest rate fluctuation on its floating rate debt. At December 31, 1995
the Company was party to two interest rate swap agreements having a total
notional principal amount of $15.0 million. These swap agreements have a
weighted average fixed rate of 8.46% and an average remaining life of .9 years.
The Company is exposed to a potential financial loss in the event of
nonperformance by the other parties to the swap agreements. However, the
Company does not anticipate nonperformance by the counterparties.
The fair value of interest rate swap agreements is the estimated amount
that the Company would pay to terminate the swap agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
FOREIGN CURRENCY EXCHANGE CONTRACTS
The Company enters into foreign currency exchange contracts to hedge certain
transactions and investments denominated in foreign currencies. The purpose of
the Company's foreign currency hedge activities is to protect the Company from
the risk that cash inflows from and investments in foreign operations will be
affected by changes in exchange rates. The Company does not hold these
contracts for trading purposes.
The fair value of foreign currency exchange contracts in 1995, estimated
based on the quoted market prices of these instruments, is not significant. No
contracts were outstanding at December 31, 1994.
The estimated fair values of the Company's financial instruments at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------ -------------------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents and
temporary investments $ 408.7 408.5 393.2 392.8
Long-term marketable securities -- -- 1.0 1.0
Long-term debt (including current maturities) 1,286.5 1,317.7 1,288.6 1,261.7
Unrecognized financial instruments:
Interest rate swaps in net
payable position -- .6 -- 1.3
---------- ---------- ---------- ----------
</TABLE>
The Company invests primarily in debt securities which are held to maturity and
valued at amortized cost. The aggregate fair value of debt securities at
December 31, 1995 and 1994 was $306.5 million and $234.1 million, respectively.
The Company also has investments in bond mutual funds. As these funds are
open-ended and have no fixed maturities, the Company has classified this form of
investment as a marketable equity security. At December 31, 1995 and 1994, the
aggregate fair value of these investments totaled $70.7 million and $131.9
million, respectively, or $7.1 million and $8.1 million below cost,
respectively. The unrealized loss, net of the related deferred tax benefit, at
December 31, 1995 and 1994 of $4.6 million and $5.3 million, respectively, is
deducted from stockholders' equity.
INCOME TAXES
Effective January 1, 1993 the Company adopted SFAS No. 109, "Accounting for
Income Taxes." As permissible under the standard, the Company reflected the
impact as a cumulative adjustment in the 1993 first quarter and did not restate
prior periods. The cumulative adjustment had a favorable impact on net income
of $8.0 million.
The provisions for income taxes for the three years ended December 31, 1995
are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 80.8 84.2 65.9
State, foreign and local 20.4 19.4 1.5
------- ------- -------
101.2 103.6 67.4
Deferred 1.4 (18.3) (9.2)
------- ------- -------
Total $ 102.6 85.3 58.2
------- ------- -------
------- ------- -------
</TABLE>
17
<PAGE>
FIFTY-TWO
The components of deferred income tax expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in unconsolidated affiliates $ 12.2 (9.3) --
Bad debt reserves -- (3.4) --
Self-insurance reserves 5.2 1.1 (2.1)
Benefit plans (5.9) (4.1) (2.4)
Other asset reserves -- -- (5.0)
Other, net (10.1) (2.6) (3.0)
------- ------- -------
1.4 (18.3) (12.5)
Effect of the increase in the Federal statutory
rate on deferred income tax balances -- -- 3.3
------- ------- -------
Total $ 1.4 (18.3) (9.2)
------- ------- -------
------- ------- -------
</TABLE>
During 1995, 1994 and 1993 the Company paid income taxes of $94.7 million,
$103.8 million and $74.1 million, respectively.
The income tax effects of temporary differences between financial and
income tax reporting that gave rise to deferred income tax assets and
liabilities at December 31, 1995 and 1994, under the provisions of SFAS No. 109,
are as follows:
<TABLE>
<CAPTION>
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accrued expenses $ 13.4 14.4
Bad debt reserves 13.4 13.4
Self-insurance reserves 20.2 25.3
Benefit plans 9.7 3.8
Other asset reserves 5.6 5.5
Foreign tax credit carryovers (expire beginning 1999) 6.2 7.5
Other 25.7 15.8
-------- --------
94.2 85.7
Valuation allowance (6.2) (7.5)
-------- --------
88.0 78.2
-------- --------
Deferred tax liabilities
Fixed assets, primarily depreciation (97.8) (98.9)
Investments in unconsolidated affiliates (68.4) (53.1)
Other (21.4) (24.5)
-------- --------
(187.6) (176.5)
-------- --------
Net deferred tax liability $ (99.6) (98.3)
-------- --------
-------- --------
</TABLE>
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0 35.0
Increase (reduction) in taxes:
Adjustment to deferred tax balances due
to increase in Federal statutory rate -- -- 2.0
State and local income
taxes, net of Federal tax benefits 3.1 3.3 (.2)
Foreign taxes, net (.9) .8 .9
Benefit of dividend income (.3) (.3) (.3)
Other (.3) 2.1 (1.2)
------ ----- -----
Effective tax rate 36.6% 40.9 36.2
------ ----- -----
------ ----- -----
</TABLE>
18
<PAGE>
FIFTY-THREE
CAPITAL STOCK
Ninety million shares of common stock with a par value of $2.50 per share are
authorized, of which 51.0 million were issued at December 31, 1995 and 1994,
including treasury shares of 2.7 million and 2.9 million in 1995 and 1994,
respectively.
Ten million shares of preferred stock with a par value of $1.00 per share
are authorized. The shares are issuable in series. No shares were issued or
outstanding in 1995 or 1994.
The Company has a Share Purchase Rights Plan, under which a right is
attached to each share of the Company's common stock. The rights may only
become exercisable under certain circumstances involving actual or potential
acquisitions of the Company's common stock by a specified person or affiliated
group. Depending on the circumstances, if the rights become exercisable, the
holder may be entitled to purchase units of the Company's junior participating
preferred stock, shares of the Company's common stock or shares of common stock
of the acquiror. The rights remain in existence until July 25, 1998 unless they
are terminated, exercised or redeemed.
At December 31, 1995, 1.8 million shares of common stock were reserved for
the exercise of options under the Company's stock option plans. Options may be
granted to salaried officers and other key employees of the Company to purchase
common stock at not less than fair market value at the date of grant.
Options may be exercised in installments generally commencing one year
after the date of grant. The plan also permits the granting of Stock
Appreciation Rights (SARs). No SARs have been granted as of December 31, 1995.
<TABLE>
<CAPTION>
Options
Price Range Options Available
(Per Share) Outstanding for Grant
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1992 $21.31-111.63 1,491,874 474,339
Granted 46.94- 49.00 89,000 (89,000)
Exercised 21.31- 52.06 (174,010) --
Cancelled 29.63-111.63 (54,438) 54,438
------------- --------- ---------
Balance at December 31, 1993 28.34- 53.19 1,352,426 439,777
Authorized -- 500,000
Granted 55.19- 69.63 753,300 (753,300)
Exercised 28.34- 53.19 (269,810) --
Cancelled 29.63- 69.63 (64,851) 59,474
------------- --------- ---------
Balance at December 31, 1994 28.38- 69.63 1,771,065 245,951
Granted 65.88- 76.44 229,050 (229,050)
Exercised 28.38- 69.63 (222,455) --
Cancelled 38.13- 69.63 (71,225) 69,725
------------- --------- ---------
Balance at December 31, 1995 29.44- 76.44 1,706,435 86,626
------------- --------- ---------
--------- ---------
Exercisable at December 31, 1995 29.44- 69.63 897,279
------------- ---------
</TABLE>
Under provisions of Nevada, New Jersey and other gaming laws, and the Company's
certificate of incorporation, certain securities of the Company are subject to
restrictions on ownership which may be imposed by specified governmental
authorities. Such restrictions may require the holder to dispose of the
securities or, if the holder refuses to make such disposition, the Company may
be obligated to repurchase the securities.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory retirement plan (Basic Plan) covering
substantially all regular full-time, nonunion employees. The Company also has
plans covering qualifying officers and non-officer directors (Supplemental
Plans). Benefits for all plans are based upon years of service and
compensation, as defined.
The Company's funding policy is to contribute not less than the minimum
amount required under Federal law, but not more than the maximum deductible for
Federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for benefits expected to be
earned in the future.
19
<PAGE>
FIFTY-FOUR
The following sets forth the funded status for the Basic Plan as of December 31,
1995 and 1994:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$(163.1) and $(145.7), respectively $(182.8) (151.4)
------- -------
------- -------
Projected benefit obligation for service rendered to date $(233.2) (192.1)
Plan assets at fair value, primarily
listed securities and temporary investments 178.2 150.5
------- -------
Projected benefit obligation in excess of plan assets (55.0) (41.6)
Unrecognized net loss from changes in assumptions 45.4 43.7
Unrecognized net asset as of January 1, 1986 (6.7) (8.0)
------- -------
Accrued pension cost $ (16.3) (5.9)
------- -------
------- -------
Pension cost includes the following components:
Service cost $ 9.5 9.5
Interest cost on projected benefit obligation 15.2 13.6
Actual return on assets (33.4) (1.4)
Net amortization 19.1 (11.7)
------- -------
Net periodic cost before allocation 10.4 10.0
Cost allocated to managed properties 1.6 2.3
------- -------
Net periodic pension cost $ 8.8 7.7
------- -------
------- -------
</TABLE>
Included in plan assets at fair value are securities of the Company of $18.6
million and $19.7 million at December 31, 1995 and 1994, respectively.
The following sets forth the funded status for the Supplemental Plans as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$(18.9) and $(13.9), respectively $ (19.0) (13.9)
------- -------
------- -------
Projected benefit obligation for service rendered to date $ (28.2) (15.8)
Plan assets at fair value 13.8 13.1
------- -------
Projected benefit obligation in excess of plan assets (14.4) (2.7)
Unrecognized net loss from changes in assumptions 11.0 4.7
Unrecognized obligation as of January 1, 1986 1.7 2.1
------- -------
(Accrued) prepaid pension cost $ (1.7) 4.1
------- -------
------- -------
Pension cost includes the following components:
Service cost $ .9 1.1
Interest cost on projected benefit obligation 1.4 1.0
Actual return on assets (increase) decrease (.8) 1.0
Net amortization 4.4 5.1
------- -------
Net periodic pension cost $ 5.9 8.2
------- -------
------- -------
</TABLE>
The discount rates used in determining the actuarial present values of the
projected benefit obligations were seven percent in 1995 and eight percent in
1994, with the rate of increase in future compensation projected at five percent
in 1995 and five and one-half percent in 1994. The expected long-term rate of
return on assets is nine percent. The unrecognized net (asset) obligation is
being amortized over a 15 year period. Unrecognized net gains and losses on
plan assets are amortized over a five year period. Net periodic pension cost of
the Supplemental Plans reflects the impact of accelerated plan funding and
participant terminations prior to normal retirement dates.
A significant number of the Company's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. The Company
contributed and charged to expense $9.8 million, $9.2 million and $9.3 million
in 1995, 1994 and 1993, respectively, for such plans. Information from the
plans' administrators is not sufficient to permit the Company to determine its
share, if any, of unfunded vested benefits.
The Company also has an employee investment plan whereby the Company
contributes certain percentages of employee contributions. The cost of the plan
is not significant.
20
<PAGE>
FIFTY-FIVE
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, the Company
reserves the right to change, modify or discontinue these benefits. The Company
does not provide postretirement health care benefits to its employees.
Effective January 1, 1993 the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." As permissible
under the standard, the Company reflected the impact as a cumulative adjustment
in the 1993 first quarter and did not restate prior periods. The cumulative
adjustment resulted in a charge to net income of $4.6 million, net of a $2.3
million deferred tax benefit. The incremental effect on 1993 results of
adopting SFAS No. 106 was a pretax charge of $.9 million.
The Company's unfunded accumulated postretirement benefit obligations as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ (3.5) (2.5)
Active employees - fully eligible (2.9) (2.4)
Active employees - not fully eligible (4.5) (3.1)
------- -------
(10.9) (8.0)
Unrecognized net loss 1.3 .7
------- -------
Accumulated postretirement benefit obligation $ (9.6) (7.3)
------- -------
------- -------
Postretirement cost includes the following components:
Service cost $ .4 .5
Interest cost on projected benefit obligation .7 .7
------- -------
Total postretirement benefit cost $ 1.1 1.2
------- -------
------- -------
</TABLE>
The discount rate used in determining the actuarial present value of the
accumulated postretirement benefit obligation was seven percent in 1995 and
eight percent in 1994, with the annual rate of increase in future compensation
projected at five percent in 1995 and five and one-half percent in 1994.
SEGMENTS OF BUSINESS
Financial data of the Company's business segments for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation (1)
Hotels $ 90.2 89.3 82.8
Gaming 80.9 72.9 65.1
Corporate 4.0 3.5 3.4
--------- --------- ---------
Total $ 175.1 165.7 151.3
--------- --------- ---------
--------- --------- ---------
Capital expenditures (1)
Hotels $ 75.1 87.5 65.2
Gaming 163.4 236.4 144.2
Corporate 7.6 2.6 1.9
--------- --------- ---------
Total $ 246.1 326.5 211.3
--------- --------- ---------
--------- --------- ---------
Assets (2)
Hotels $ 1,235.5 1,270.7 940.7
Gaming 1,332.9 1,172.5 1,085.7
Corporate 491.9 482.7 648.4
--------- --------- ---------
Total $ 3,060.3 2,925.9 2,674.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) Includes proportionate share of unconsolidated affiliates.
(2) Includes investments in unconsolidated affiliates.
21
<PAGE>
FIFTY-SIX
Supplemental hotels segment operating data for the three years ended
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Rooms $ 372.6 313.9 252.9
Food and beverage 141.4 127.7 113.5
Management and franchise fees 89.4 83.0 78.7
Other products and services 58.3 51.5 44.5
Operating income from unconsolidated affiliates 47.1 42.2 30.4
------- ------- -------
708.8 618.3 520.0
------- ------- -------
Expenses
Rooms 110.0 98.3 83.9
Food and beverage 115.2 107.5 93.7
Other costs and expenses 275.9 265.0 246.2
------- ------- -------
501.1 470.8 423.8
------- ------- -------
Hotels operating income $ 207.7 147.5 96.2
------- ------- -------
------- ------- -------
</TABLE>
Supplemental gaming segment operating data for the three years ended
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Rooms $ 214.6 195.7 187.3
Food and beverage 124.3 119.5 123.3
Casino 511.0 480.6 502.1
Other products and services 67.1 72.7 49.3
Management fees 11.1 11.5 6.4
Operating income from unconsolidated affiliates 12.5 15.6 5.1
------- ------- -------
940.6 895.6 873.5
------- ------- -------
Expenses
Rooms 76.4 73.5 68.6
Food and beverage 114.2 108.9 108.7
Casino 234.9 216.3 217.5
Other costs and expenses 337.3 331.5 308.2
------- ------- -------
762.8 730.2 703.0
------- ------- -------
Gaming operating income $ 177.8 165.4 170.5
------- ------- -------
------- ------- -------
</TABLE>
LEASES
The Company operates eight properties under noncancellable operating leases, all
of which are for land only, having remaining terms up to 38 years. Upon
expiration of four of the leases, the Company has renewal options of 25, 30, 30
and 40 years. Seven leases require the payment of additional rentals based on
varying percentages of revenue or income.
Minimum lease commitments under all noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31, (In millions)
- --------------------------------------------------------------------------------------------------
<S> <C>
1996 $ 9.1
1997 8.7
1998 8.3
1999 8.1
2000 7.8
2001 to 2033 76.0
-------
Total $ 118.0
-------
-------
</TABLE>
Total lease rental expense for all operating leases is composed of:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 7.9 6.5 6.4
Additional rentals 7.4 6.8 4.9
------- ------- -------
Total $ 15.3 13.3 11.3
------- ------- -------
------- ------- -------
</TABLE>
22
<PAGE>
FIFTY-SEVEN
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1995 the Company had contractual commitments at its wholly-owned
or leased properties for major expansion and rehabilitation projects of
approximately $110 million. Additionally, the Company is committed, under
certain conditions, to invest or loan up to $74 million to entities developing
hotel, gaming and vacation ownership properties.
The Company has entered into a hotel management agreement whereby it
guarantees certain payments and loans to the hotel owners if agreed upon levels
of financial performance are not maintained. The Company does not believe it is
likely that material payments will be required under this agreement. In
addition, in the event the Company terminates this agreement, it may be
obligated to pay $12.5 million to the hotel owners.
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on the
Company's financial position or results of operations.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions, except per share amounts, stock prices and percentages)
Income Net
Before Income
Occupancy (1) Operating Income Net Per Dividends High/Low
Hotels Gaming Revenue Income Taxes Income Share Per Share Stock Price
------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1st Quarter 70% 84 $ 381.9 74.0 55.1 32.0 .66 .30 77.88/64.13
2nd Quarter 75 88 424.2 105.0 86.7 52.9 1.09 .30 79.75/65.63
3rd Quarter 76 87 385.7 52.6 33.0 24.8 .51 .30 74.13/60.38
4th Quarter 71 87 457.6 122.0 105.5 63.1 1.30 .30 68.75/60.63
---- ---- -------- ----- ----- ----- ----- ----- -----------
Year 73% 86 $1,649.4 353.6 280.3 172.8 3.56 1.20 79.75/60.38
---- ---- -------- ----- ----- ----- ----- ----- -----------
---- ---- -------- ----- ----- ----- ----- ----- -----------
1994 1st Quarter 66% 85 $ 340.4 57.3 39.3 22.7 .47 .30 74.00/54.50
2nd Quarter 72 90 383.0 75.8 57.8 33.9 .70 .30 61.25/49.75
3rd Quarter 72 90 382.7 64.2 48.2 27.0 .56 .30 66.63/53.25
4th Quarter 68 84 407.8 87.3 63.3 38.1 .79 .30 72.00/56.00
---- ---- -------- ----- ----- ----- ----- ----- -----------
Year 70% 87 $1,513.9 284.6 208.6 121.7 2.52 1.20 74.00/49.75
---- ---- -------- ----- ----- ----- ----- ----- -----------
---- ---- -------- ----- ----- ----- ----- ----- -----------
</TABLE>
(1) Properties owned or managed
As of December 31, 1995 there were approximately 4,200 stockholders of record.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Hilton Hotels Corporation:
We have audited the accompanying consolidated balance sheets of Hilton Hotels
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hilton Hotels Corporation
and subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 1, 1996
23
<PAGE>
FIFTY-EIGHT
HILTON HOTELS CORPORATION AND SUBSIDIARIES TEN YEAR SUMMARY
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data for Years Revenue
Ended December 31 Hotels (1) $2,210.2 2,066.0 1,797.9 1,678.0 1,526.5
Management fees 51.1 45.7 42.7 37.0 35.4
Franchise fees 39.2 37.3 36.0 35.4 34.0
-------- -------- -------- -------- --------
Total hotels 2,300.5 2,149.0 1,876.6 1,750.4 1,595.9
Gaming (1) 1,704.2 1,445.3 1,062.0 932.4 839.3
-------- -------- -------- -------- --------
Total 4,004.7 3,594.3 2,938.6 2,682.8 2,435.2
Less nonconsolidated managed 2,414.9 2,138.2 1,580.6 1,479.6 1,352.8
-------- -------- -------- -------- --------
Total revenue from consolidated
operations $1,589.8 1,456.1 1,358.0 1,203.2 1,082.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating income
Hotels (2) $ 207.7 147.5 96.2 91.5 92.9
Gaming (2) 177.8 165.4 170.5 153.4 115.0
Corporate expense (31.9) (28.3) (26.8) (25.0) (23.1)
-------- -------- -------- -------- --------
Total 353.6 284.6 239.9 219.9 184.8
Net interest expense (2) (74.8) (76.4) (73.2) (61.7) (62.4)
Property transactions, net 1.5 1.1 (4.5) .9 .5
Foreign currency losses -- (.7) (1.3) -- --
Provision for income taxes (102.6) (85.3) (58.2) (55.2) (38.6)
Minority interest, net (4.9) (1.6) -- -- --
-------- -------- -------- -------- --------
Net income before cumulative effect of
accounting changes 172.8 121.7 102.7 103.9 84.3
Cumulative effect of accounting changes, net -- -- 3.4 -- --
-------- -------- -------- -------- --------
Net income $ 172.8 121.7 106.1 103.9 84.3
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Depreciation (2) 175.1 165.7 151.3 137.6 128.8
Capital expenditures (2) 246.1 326.5 211.3 266.5 102.2
-------- -------- -------- -------- --------
Stockholder Data Net income per share $ 3.56 2.52 2.21 2.17 1.76
Average common and equivalent shares 48.5 48.3 48.0 47.9 47.8
Stockholders' equity $1,253.7 1,127.8 1,056.7 1,002.5 952.8
Stockholders' equity per share 25.96 23.45 22.11 21.02 20.06
Return on average stockholders' equity 14.5% 11.1 10.3 10.6 9.0
Dividends per share $ 1.20 1.20 1.20 1.20 1.20
Market price per share - high/low 80/60 74/50 61/42 53/40 50/34
-------- -------- -------- -------- --------
Financial Position at Year End Working capital $ 182.4 345.4 449.1 310.6 306.6
Assets 3,060.3 2,925.9 2,674.8 2,659.4 2,186.8
Long-term debt 1,069.7 1,251.9 1,112.6 1,087.1 789.0
Ratio of long-term debt to total capital (3) .42 .48 .46 .47 .40
-------- -------- -------- -------- --------
General Information Percentage of occupancy (1)
Hotels 73 70 67 66 64
Gaming 86 87 86 85 84
Number of properties at year end
Wholly-owned or leased hotels 18 18 18 16 16
Partially owned hotels 15 15 15 15 15
Managed hotels 24 24 26 25 23
Franchised hotels 162 161 171 180 199
Wholly or partially owned hotel-casinos 8 7 7 7 5
-------- -------- -------- -------- --------
Total 227 225 237 243 258
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Available rooms at year end
Wholly-owned or leased hotels 9,114 9,106 9,160 8,729 8,756
Partially owned hotels 14,984 14,992 14,991 13,982 13,938
Managed hotels 15,096 15,686 15,940 14,908 13,788
Franchised hotels 41,687 40,436 42,816 45,002 49,131
Wholly or partially owned hotel-casinos 12,782 12,080 12,045 12,557 9,929
-------- -------- -------- -------- --------
Total 93,663 92,300 94,952 95,178 95,542
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Includes properties owned or managed.
(2) Includes proportionate share of unconsolidated affiliates.
(3) Total capital represents total assets less current liabilities.
24
<PAGE>
FIFTY-NINE
HILTON HOTELS CORPORATION AND SUBSIDIARIES TEN YEAR SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) 1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data for Years Revenue
Ended December 31 Hotels (1) 1,558.4 1,500.6 1,395.2 1,279.4 1,228.3
Management fees 36.9 34.4 33.3 31.3 28.8
Franchise fees 34.6 34.2 33.5 31.9 30.7
-------- -------- -------- -------- --------
Total hotels 1,629.9 1,569.2 1,462.0 1,342.6 1,287.8
Gaming (1) 824.6 694.3 695.3 589.7 483.7
-------- -------- -------- -------- --------
Total 2,454.5 2,263.5 2,157.3 1,932.3 1,771.5
Less nonconsolidated managed 1,367.4 1,309.4 1,241.9 1,116.9 1,052.5
-------- -------- -------- -------- --------
Total revenue from consolidated
operations 1,087.1 954.1 915.4 815.4 719.0
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating income
Hotels (2) 120.6 129.3 115.1 100.7 83.6
Gaming (2) 130.4 102.6 128.6 107.7 88.1
Corporate expense (29.2) (25.6) (20.8) (18.3) (17.6)
-------- -------- -------- -------- --------
Total 221.8 206.3 222.9 190.1 154.1
Net interest expense (2) (54.7) (43.8) (38.1) (22.0) (22.1)
Property transactions, net -- (3.7) -- 43.8 (2.5)
Foreign currency losses -- -- -- -- --
Provision for income taxes (54.6) (48.7) (53.9) (72.0) (31.7)
Minority interest, net -- -- -- -- --
-------- -------- -------- -------- --------
Net income before cumulative effect of
accounting changes 112.5 110.1 130.9 139.9 97.8
Cumulative effect of accounting changes, net -- -- -- -- --
-------- -------- -------- -------- --------
Net income 112.5 110.1 130.9 139.9 97.8
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Depreciation (2) 119.4 104.8 89.5 80.5 71.3
Capital expenditures (2) 262.4 367.1 386.8 205.6 240.7
-------- -------- -------- -------- --------
Stockholder Data Net income per share 2.34 2.27 2.72 2.80 1.96
Average common and equivalent shares 48.1 48.5 48.1 50.0 49.9
Stockholders' equity 923.3 883.0 814.1 772.8 707.3
Stockholders' equity per share 19.44 18.40 17.03 15.80 14.23
Return on average stockholders' equity 12.5 13.0 16.5 18.9 14.4
Dividends per share 1.15 1.00 .95 .90 .90
Market price per share - high/low 84/26 116/48 55/34 46/28 40/30
-------- -------- -------- -------- --------
Financial Position at Year End Working capital 43.8 22.9 279.5 206.9 173.4
Assets 1,926.7 2,216.0 1,892.5 1,423.6 1,302.3
Long-term debt 526.6 487.1 568.5 283.7 280.9
Ratio of long-term debt to total capital (3) .31 .30 .36 .22 .24
-------- -------- -------- -------- --------
General Information Percentage of occupancy (1)
Hotels 68 69 70 68 65
Gaming 84 86 87 84 84
Number of properties at year end
Wholly-owned or leased hotels 14 13 9 8 8
Partially owned hotels 15 14 12 13 14
Managed hotels 21 22 21 22 22
Franchised hotels 208 214 225 224 223
Wholly or partially owned hotel-casinos 5 4 4 4 4
-------- -------- -------- -------- --------
Total 263 267 271 271 271
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Available rooms at year end
Wholly-owned or leased hotels 7,696 7,739 6,494 6,027 6,085
Partially owned hotels 14,311 13,750 13,409 13,528 14,350
Managed hotels 12,888 13,518 13,383 14,183 13,425
Franchised hotels 51,559 52,612 54,876 55,641 55,602
Wholly or partially owned hotel-casinos 9,929 7,411 7,326 7,318 7,318
-------- -------- -------- -------- --------
Total 96,383 95,030 95,488 96,697 96,780
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Includes properties owned or managed.
(2) Includes proportionate share of unconsolidated affiliates.
(3) Total capital represents total assets less current liabilities.
25
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
HILTON HOTELS CORPORATION
<TABLE>
<CAPTION>
State or Country
A. Wholly-owned Subsidiaries of Incorporation
------------------------- ----------------
<S> <C>
Benco, Inc. (4) Nevada
Conrad (Indonesia) Corporation (2) (5) Nevada
Conrad International (Egypt) Corporation (2) (5) Nevada
Conrad International Hotels Corporation (3) Nevada
Conrad International Hotels (HK) Ltd. (5) Hong Kong
Conrad International Hotels Limited (2) (6) Ireland
Conrad International (Spain) Corporation (2) (5) Nevada
Conrad International Investment Corporation (3) Nevada
Conrad Royalty Corporation (3) Nevada
Conrad (Thailand) Corporation (2) (5) Nevada
Destination Resorts, Inc. Arizona
Flamingo Hilton Corporation (4) Nevada
Flamingo Hilton-Laughlin, Inc. (7) Nevada
Flamingo Hilton - Reno, Inc. (4) Nevada
Hapeville Investors, Inc. Delaware
Hilton Employee Relief Fund California
Hilton Equipment Corporation Delaware
Hilton Gaming Corporation Nevada
Hilton Gaming (Switzerland County) Corporation (4) Nevada
Hilton Hawaii Corporation Delaware
Hilton Hotels Partners I, Inc. Delaware
Hilton Hotels Partners II, Inc. Delaware
Hilton Hotels U.S.A., Inc. Delaware
Hilton Inns, Inc. Delaware
Hilton Insurance Corporation Vermont
Hilton Kansas City Corporation (4) Missouri
Hilton New Jersey Corporation (2) (4) New Jersey
Hilton New Orleans Corporation (4) Louisiana
Hilton Pennsylvania Hotel Corporation Delaware
Hilton Recreation, Inc. Delaware
Hilton Resorts Corporation Delaware
Hilton San Diego Corporation California
Hilton Suites, Inc. Delaware
Hilton Supersports, Inc. (4) Nevada
Hilton Systems, Inc. Nevada
Hilton Washington Corporation New York
HKC Advertising, Inc. (8) Missouri
HKC Partners, Inc. (4) Missouri
Hotels Statler Company, Inc. Delaware
Kenner Investors, Inc. Delaware
Las Vegas Hilton Corporation (4) Nevada
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State or Country
A. Wholly-owned Subsidiaries of Incorporation
------------------------- ---------------
<S> <C>
(Continued)
Reno Hilton Resort Corporation (4) Nevada
The BAC 1-11 Corporation (4) Nevada
The Beverly Hilton Corporation (2) California
The Hotel Waldorf-Astoria Corporation (2) New York
The New Yorker Hotel Corporation (2) New York
The Palmer House Hilton Hotel Company Illinois
</TABLE>
_______________________________________________________________________________
(1) Inactive corporation.
(2) Nameholding companies.
(3) Indirect ownership. Wholly-owned by Hilton Hotels U.S.A., Inc., which is
wholly-owned by Hilton Hotels Corporation.
(4) Indirect ownership. Wholly-owned by Hilton Gaming Corporation, which is
wholly-owned by Hilton Hotels Corporation.
(5) Indirect ownership. Wholly-owned by Conrad International Hotels
Corporation, which is wholly-owned by Hilton Hotels U.S.A., Inc., which is
wholly-owned by Hilton Hotels Corporation.
(6) Indirect ownership. Wholly-owned by Conrad Royalty Corporation, which is
wholly-owned by Hilton Hotels U.S.A., Inc., which is wholly-owned by Hilton
Hotels Corporation.
(7) Indirect ownership. Wholly-owned by Flamingo Hilton Corporation, which is
wholly-owned by Hilton Gaming Corporation, which is wholly-owned by Hilton
Hotels Corporation.
(8) Indirect ownership. Wholly-owned by Hilton Kansas City Corporation, which
is wholly-owned by Hilton Gaming Corporation, which is wholly-owned by
Hilton Hotels Corporation.
<PAGE>
<TABLE>
<CAPTION>
State or
% Country of
B. Partially-owned Subsidiaries Ownership Incorporation
---------------------------- --------- -------------
<S> <C> <C>
Attiki Casinos, H.S.A. 50% Greece
Baluma S.A. (3) See (3) below. Uruguay
Baluma Holdings S.A. (4) 37.75% The Bahamas
Compass Computer Services, Inc. 50% Delaware
Earlsfort Centre Hotel Proprietors
Limited 14.7% Ireland
Grand Vacations Realty, Inc. (1) 50% Delaware
Greenroll Limited 30% Hong Kong
Hilton Service Corporation 51% Delaware
Indiana Ventures LLC (6) 48.5% Nevada
International Company for
Touristic Investments, S.A.E. 20% Egypt
Jupiters Management Limited 66.6% Australia
Jupiters Limited 19.9% Australia
Pinnacle Gaming Development Corp. (7) 48.5% Colorado
Switzerland County Development Corp. (5) 48.5% Nevada
Washington Hilton Racquet Club (2) 50% District of Columbia
Windsor Casino, Limited 33.3% Ontario, Canada
Yeditepe Beynelmilel Otelcilik
Turizm Ve Ticaret Anonim Sirketi
(Seven Hills International Hotel,
Tourism and Trade, A.S.) 25% Turkey
</TABLE>
(1) This corporation is 50%-owned by Hilton Grand Vacations Company, a joint
venture which is 50%-owned by Hilton Resorts Corporation, which is a
wholly-owned subsidiary of Hilton Hotels Corporation.
(2) This non-profit corporation is 50%-owned by Hilton Washington Corporation,
which is a wholly-owned subsidiary of Hilton Hotels Corporation.
<PAGE>
(3) This corporation is 99.9%-owned by Baluma Holdings S.A., a Bahamas
corporation [see (4) below.] The remaining .1% is owned by Conrad
International Hotels Corporation, which is a wholly-owned
subsidiary of Hilton Hotels U.S.A., Inc., which is a wholly-owned
subsidiary of Hilton Hotels Corporation.
(4) This corporation is 37.75%-owned by Conrad International Hotels
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(5) Formerly named Conrad (New Zealand) Corporation. This corporation is a
wholly-owned subsidiary of Indiana Ventures LLC, which is 48.5%-owned
by Hilton Gaming (Switzerland County) Corporation, which is a wholly-
owned subsidiary of Hilton Gaming Corporation, which is a wholly-owned
subsidiary of Hilton Hotels Corporation.
(6) This limited-liability company is 48.5%-owned by Hilton Gaming (Switzerland
County) Corporation, which is a wholly-owned subsidiary of Hilton Gaming
Corporation, which is a wholly-owned subsidiary of Hilton Hotels
Corporation.
(7) This corporation is a wholly-owned subsidiary of Switzerland County
Development Corp., which is a wholly-owned subsidiary of Indiana
Ventures LLC, which is 48.5%-owned by Hilton Gaming (Switzerland County)
Corporation, which is a wholly-owned subsidiary of Hilton Gaming
Corporation, which is a wholly-owned subsidiary of Hilton Hotels
Corporation.
C. AFFILIATES
The following are special purpose corporations formed in connection with the
operation of beverage service at particular hotels. Hilton Hotels
Corporation does not directly or indirectly own any of the shares of these
corporations.
<TABLE>
<CAPTION>
State of
Name of Corporation Incorporation
------------------- -------------
<S> <C>
Hilton Beverage Corporation Louisiana
New Orleans Hilton Beverage Corporation Louisiana
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 1, 1996, included (or incorporated by reference)
in this Form 10-K, for the year ended December 31, 1995, into the Company's
previously filed Registration Statements (File Nos. 2-90922, 2-95746,
33-26112, 33-35883 and 33-35951).
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
March 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's consolidated statements of income and consolidated balance sheets and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 338,000
<SECURITIES> 70,700
<RECEIVABLES> 241,800
<ALLOWANCES> 21,900
<INVENTORY> 13,900
<CURRENT-ASSETS> 717,300
<PP&E> 2,490,200
<DEPRECIATION> 794,300
<TOTAL-ASSETS> 3,060,300
<CURRENT-LIABILITIES> 534,900
<BONDS> 1,069,700
0
0
<COMMON> 127,600
<OTHER-SE> 1,126,100
<TOTAL-LIABILITY-AND-EQUITY> 3,060,300
<SALES> 1,649,400
<TOTAL-REVENUES> 1,649,400
<CGS> 0
<TOTAL-COSTS> 1,243,000
<OTHER-EXPENSES> 31,900
<LOSS-PROVISION> 20,900
<INTEREST-EXPENSE> 74,800
<INCOME-PRETAX> 280,300
<INCOME-TAX> 102,600
<INCOME-CONTINUING> 172,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,800
<EPS-PRIMARY> 3.56
<EPS-DILUTED> 3.56
</TABLE>
<PAGE>
EXHIBIT 99
UNDERTAKINGS
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933 (the
"Securities Act"), the Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into Registrant's Statement on
Form S-8 No. 2-90922 (filed May 2, 1990):
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
35
