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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, 1997
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)
<TABLE>
<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)
</TABLE>
Registrant's telephone number, including area code: (310) 278-4321
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ---------------------------------------- --------------------------------------
<S> <C>
Common Stock, par value $2.50 per share New York, Pacific
Preferred Redeemable Increased Dividend New York, Pacific
Equity Securities-SM-, 8% PRIDES-SM-,
Convertible Preferred Stock, par value
$1.00 per share
</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. / /
Based upon the March 12, 1998 New York Stock Exchange closing price of $33
per share, the aggregate market value of Registrant's outstanding Common Stock
held by non-affiliates of the Registrant was approximately $6.0 billion. On that
date, there were 246,507,045 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, 1997 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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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
CURRENT OPERATIONS
Hilton Hotels Corporation (together with its majority, wholly owned and
controlled subsidiaries collectively referred to herein as "Hilton" or the
"Company," unless the context indicates otherwise) is primarily engaged in the
ownership and management of hotels and hotel casinos. As of February 1, 1998,
all of these properties were located in the United States, with the exception of
nine 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, 1998, Hilton owned or leased and operated 25 hotels and
managed 34 hotels partially or wholly owned by others. In addition, 180 hotels
were operated under the Hilton, Hilton Garden Inn-Registered Trademark- and
Hilton Suites names by others pursuant to franchises granted by the Company.
On February 1, 1998, Hilton operated 11 hotel casinos, six of which are
wholly or majority owned by the Company and are located in Nevada, two of which
are wholly owned by the Company and are located in Atlantic City, New Jersey,
and the other three of which are partially owned by the Company and are located
in Australia and Uruguay. The Company also wholly or partially owns and manages
three riverboat casinos in the United States and owns a 50% interest in a
company which operates one casino in Canada. The Company's gaming operations
accounted for approximately 50%, 33% and 38% of its total operating income in
1995, 1996 and 1997, respectively. The Company's domestic gaming operations are
conducted under the Hilton, Flamingo and Bally brand names. For additional
information, see the Five Year Summary on page 55 in the Company's Annual Report
to Stockholders for the fiscal year ended December 31, 1997 (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 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
GAMING
In January 1998, the Company opened "Star Trek: The Experience at the Las
Vegas Hilton." In conjunction with the Star Trek attraction, in November 1997,
the Company opened SpaceQuest casino, a themed 22,000 square foot addition at
the Las Vegas Hilton.
In July 1997, the Company opened The Wild Wild West, a new western-themed
casino and entertainment complex connected to Bally's Park Place in Atlantic
City, New Jersey. This complex features 75,000 square feet of casino space. Also
in July 1997, The Atlantic City Hilton completed a 300-room hotel tower
addition. In October 1997, the Company acquired the remaining 42% ownership
interest in Bally's SalooniGambling HalliHotel in Mississippi. In March 1998,
the Company acquired the remaining 8% ownership interest in Bally's Grand, Inc.,
which owns Bally's Las Vegas. Each of these properties was acquired by the
Company as a result of the merger of Bally Entertainment Corporation ("Bally")
with and into the Company (the "Bally Merger") in December 1996.
In April 1997, the Company began construction of the 2,900-room Paris
Casino-Resort, which will feature an 85,000 square foot casino, 13 restaurants,
130,000 square feet of convention space and a retail shopping complex with a
French influence. This project, which is adjacent to Bally's Las Vegas, is
expected to be completed in the 1999 third quarter.
<PAGE>
HOTELS
In February 1997, the Company acquired a 100% ownership interest in the
591-room Anchorage Hilton. In January 1998, the Company acquired the remaining
92.5% ownership interest in the 458-room McLean Hilton and adjacent office
building complex in McLean, Virginia. In March 1998, the Company acquired a 100%
ownership interest in the 300-room Hilton at Short Hills in Short Hills, New
Jersey.
In December 1997 and January 1998, the Company completed the acquisition
from The Prudential Insurance Company of America ("Prudential") of the remaining
ownership interests in joint ventures which own the Capital Hilton, Chicago
Hilton and Towers, Rye Town Hilton, San Francisco Hilton and Towers and
Washington Hilton and Towers. The Company had acquired a majority of
Prudential's interests in such properties in the 1996 fourth quarter.
In July 1997, the Company's Board of Directors approved a renovation of the
New York Hilton and Towers, including new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking New York City. This project is expected to be
completed in late 1999. In September 1997, the Company began construction of a
new 600-room hotel at the center of Boston's Logan Airport, which is expected to
be completed in late 1999.
In addition, the Company continued to increase its franchise hotels through
the expansion of Hilton Garden Inns-Registered Trademark-. At December 31, 1997,
the Company had approximately 100 Hilton Garden Inn-Registered Trademark-
properties either open, under construction or in development. In December 1997,
the Company signed an agreement with Chartwell Leisure Inc. to franchise 20
Hilton Garden Inn-Registered Trademark- properties throughout Mexico.
INTERNATIONAL
In January 1997, the Company finalized agreements with Ladbroke Group PLC
("Ladbroke"), whose wholly owned subsidiary, Hilton International Co. ("HI"),
owns the rights to the Hilton name outside the United States. The agreements
provide for the reunification of the Hilton brand worldwide through a strategic
alliance between the companies, including cooperation on sales and marketing,
loyalty programs and other operational matters. The Company and HI have
integrated their reservation systems and worldwide sales offices, launched the
Hilton HHonors-Registered Trademark- Worldwide loyalty program, and have
developed and are continuing to develop joint marketing initiatives. In
addition, the alliance permits the Company and Ladbroke to acquire up to 20% of
each other's outstanding capital stock and provides for mutual participation in
certain future hotel development focusing primarily upon management contracts
and franchises. Stephen F. Bollenbach, the Company's President and Chief
Executive Officer, has become a non-executive director of Ladbroke and Peter M.
George, Chief Executive of Ladbroke, has joined the Board of Directors of Hilton
as a non-executive director.
In 1997, the Company opened two new international hotels: the 351-room
Conrad International Sharm El Sheikh Resort in Egypt and the 300-room Conrad
International Punta del Este Resort and Casino in Uruguay. The Company also
acquired an additional 17% ownership interest in Windsor Casino Limited and sold
its 30% ownership interest in the Conrad International Hong Kong during 1997.
POTENTIAL SPIN-OFF OR BUSINESS COMBINATION
On March 13, 1998, the Company announced that it was discussing a possible
transaction in which (i) the Company would split its gaming and lodging
operations into two separate publicly-traded companies through a tax-free
spin-off, and (ii) Circus Circus Enterprises, Inc., ("Circus") would merge into
the resulting gaming company in a stock-for-stock merger. On March 23, 1998, the
Company announced that discussions with Circus had terminated regarding the
proposed transaction. The Company is continuing to evaluate the possibility of
splitting its gaming and lodging operations through a spin-off, either in
connection with a business combination transaction or otherwise. The Company may
also seek to engage in a merger, business combination or other transaction in
the future, whether or not in connection with a spin-off. However, there is no
assurance that the Company will engage in any of such transactions.
2
<PAGE>
ITT OFFER
In January 1997, the Company commenced an offer (the "ITT Offer") to acquire
ITT Corporation ("ITT") in a combination cash and stock transaction. In
connection with the ITT Offer, the Company sought to have its nominees elected
to the ITT board of directors at the ITT 1997 annual meeting of shareholders. On
November 12, 1997, the shareholders of ITT re-elected the existing directors of
ITT at such annual meeting, and on November 13, 1997, the Company terminated the
ITT Offer.
For a more detailed description of the Company's recent developments, see
"Hotel Operations," "Gaming Operations" and "Additional Information--Vacation
Ownership." For a description of the Company's planned expansion activities, see
"Hotel Operations--Expansion Program" and "Gaming Operations--Expansion
Program." For additional information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 26 through 35 in the
Stockholders Report.
INDUSTRY SEGMENTS
Hilton's revenue and income are derived primarily from two sources: (i)
hotel operations, which include the operation of Hilton's owned, leased,
partially owned and managed hotels and franchise fees; and (ii) gaming
operations, which include the operation of Hilton's owned, partially owned and
managed hotel casinos and riverboat casinos. For financial data relating to the
Company's hotel and gaming operations for the three years ended December 31,
1997, see "Segments of Business" in the Notes to the Company's Consolidated
Financial Statements on pages 51 and 52 in the Stockholders Report.
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, Egypt, Singapore
and Uruguay. 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, 1998, the following hotels were owned in fee and operated by
Hilton:
<TABLE>
<CAPTION>
YEAR
NUMBER OF ACQUIRED
NAME AND LOCATION ROOMS/SUITES BY HILTON
- -------------------------------------------------- ------------- ---------
<S> <C> <C>
Anchorage Hilton 591 1997
Anchorage, Alaska(1)
Atlanta Airport Hilton and Towers 503 1960
Atlanta, Georgia(2)
Chicago Hilton and Towers 1,543 1998
Chicago, Illinois(3)
Palmer House Hilton 1,639 1988
Chicago, Illinois(4)
McLean Hilton 458 1998
McLean, Virginia(5)
New Orleans Airport Hilton 317 1959
New Orleans, Louisiana(2)
New York Hilton and Towers 2,041 1996
New York, New York(6)
Waldorf=Astoria 1,380 1977
New York, New York(7)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
NUMBER OF ACQUIRED
NAME AND LOCATION ROOMS/SUITES BY HILTON
- -------------------------------------------------- ------------- ---------
<S> <C> <C>
Portland Hilton 455 1963
Portland, Oregon
Rye Town Hilton 436 1996
Rye Brook, New York(8)
San Francisco Hilton and Towers 1,895 1996
San Francisco, California(9)
Capital Hilton 543 1996
Washington, D.C.(8)
Washington Hilton and Towers 1,123 1996
Washington, D.C.(8)
Hilton Garden Inn-Registered Trademark- 197 1993
Southfield, Michigan(10)
Hilton Suites 224 1991
Auburn Hills, Michigan
Hilton Suites 203 1989
Brentwood, Tennessee
Hilton Suites 230 1989
Orange, California
Hilton Suites 226 1990
Phoenix, Arizona
</TABLE>
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(1) The Company managed the Anchorage Hilton from December 1976 until acquiring
the property in February 1997.
(2) The Atlanta Airport Hilton and Towers and the New Orleans Airport Hilton
were closed and demolished in 1986 and, thereafter, rebuilt and reopened in
1989.
(3) The Company owned a 33% interest in the Chicago Hilton and Towers prior to
the acquisition of an additional 50% ownership interest in the property from
Prudential in 1996 and the acquisition of Prudential's remaining 17%
ownership interest in January 1998.
(4) 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.
(5) The Company owned a 7.5% interest in the McLean Hilton until acquiring the
remaining 92.5% ownership interest in January 1998.
(6) The Company has an ownership interest in excess of 99% in the joint venture
which owns the New York Hilton and Towers. The Company had a 50% ownership
interest in this property prior to the 1996 acquisition of substantially all
of Prudential's ownership interest.
(7) The Company operated the Waldorf=Astoria under a lease from February 1950
until acquiring the property in April 1977.
(8) The Company had a 50% ownership interest in these properties prior to the
acquisition of substantially all of Prudential's ownership interest in such
properties in 1996 and the acquisition of the remaining Prudential interest
in December 1997.
(9) The Company had a 50% ownership interest in the San Francisco Hilton and
Towers prior to the acquisition of substantially all of Prudential's
ownership interest in the property in 1996 and the acquisition of the
remaining Prudential interest in January 1998.
4
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(10) The Company managed the Hilton Garden Inn-Registered Trademark- from July
1991 until acquiring the property in July 1993.
As of February 1, 1998, none of the hotels referenced in the table above had
any outstanding mortgage indebtedness, except for (i) the Atlanta Airport Hilton
and Towers in the amount of $50 million; and (ii) the New Orleans Airport Hilton
in the amount of $32 million.
LEASED HOTELS
Hilton leases the land upon which seven hotels are located. 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 52 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 revenue of the facility.
On February 1, 1998, the following hotels were leased and operated by
Hilton:
<TABLE>
<CAPTION>
NUMBER OF
ROOMS
(YEAR ACQUIRED
NAME AND LOCATION BY HILTON) EXPIRATION DATE
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<S> <C> <C>
O'Hare Hilton 858 2018
Chicago, Illinois(1) (1991)
Oakland Airport Hilton 363 2033
Oakland, California (1970)
Pittsburgh Hilton and Towers 712 2004, with renewal options aggregating 30 years
Pittsburgh, Pennsylvania (1959)
San Diego Hilton Beach and Tennis 357 2019
Resort (1965)
San Diego, California
San Francisco Airport Hilton 527 1998
San Francisco, California (1959)
Seattle Airport Hilton 178 2004, with renewal options aggregating 30 years
Seattle, Washington (1961)
Tarrytown Hilton 236 2003, with renewal options aggregating 40 years
Tarrytown, New York(2) (1993)
</TABLE>
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(1) 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.
(2) 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 years ended December 31, 1995, 1996 and 1997, Hilton paid
aggregate rentals, primarily consisting of rentals attributable to the
properties listed in the above table, of $15 million, $18 million and $27
million, 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 52 in the Stockholders Report.
5
<PAGE>
MANAGED HOTELS
On February 1, 1998, Hilton operated 25 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 revenue
plus, in the majority of properties, an incentive fee based on operating
performance. The expiration dates of Hilton's management agreements range from
1998 to 2021 and generally contain renewal options ranging from five to 20
years, subject to certain termination rights.
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 43 in the
Stockholders Report.
On February 1, 1998, the following hotels were operated by Hilton under
management agreements:
<TABLE>
<CAPTION>
NAME AND LOCATION NUMBER OF ROOMS/SUITES
- ------------------------------------- ----------------------
<S> <C>
DOMESTIC
Anaheim Hilton and Towers 1,574
Anaheim, California
Atlanta Hilton and Towers 1,224
Atlanta, Georgia
Beverly Hilton 581
Beverly Hills, California
Tamarron Hilton Resort 282
Durango, Colorado
Brunswick Hilton and Towers 405
East Brunswick, New Jersey(1)
Hilton Hawaiian Village 2,545
Honolulu, Hawaii(2)
Long Beach Hilton 393
Long Beach, California
Los Angeles Airport Hilton and Towers 1,234
Los Angeles, California
Fontainebleau Hilton Resort and 1,206
Towers
Miami, Florida
Miami Airport Hilton and Towers 500
Miami, Florida
Minneapolis Hilton and Towers 821
Minneapolis, Minnesota
Newark Airport Hilton 375
Newark, New Jersey
New Orleans Hilton Riverside and 1,600
Towers
New Orleans, Louisiana(3)
Millenium Hilton 561
New York, New York
</TABLE>
6
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<TABLE>
<CAPTION>
NAME AND LOCATION NUMBER OF ROOMS/SUITES
- ------------------------------------- ----------------------
<S> <C>
Turtle Bay Hilton Golf and Tennis 485
Resort
Oahu, Hawaii
Hilton at Walt Disney World Village 814
Orlando, Florida
Pasadena Hilton 291
Pasadena, California
The Pointe Hilton Resort on South 636
Mountain
Phoenix, Arizona
The Pointe Hilton Resort at Squaw 563
Peak
Phoenix, Arizona
The Pointe Hilton Resort at Tapatio 585
Cliffs
Phoenix, Arizona
Hilton Palacio del Rio 481
San Antonio, Texas
Hilton at Short Hills 300
Short Hills, New Jersey(4)
Hilton Waikoloa Village 1,239
Waikoloa, Hawaii(5)
Hilton Suites 212
Oakbrook Terrace, Illinois(1)(2)
Hilton Garden 152
Inn-Registered Trademark-
Valencia, California(5)
INTERNATIONAL
Conrad International Barcelona 412
Barcelona, Spain(1)
Conrad International Brussels 269
Brussels, Belgium
Conrad International Dublin 191
Dublin, Ireland(5)
Conrad International Hong Kong 509
Hong Kong, China
Conrad International Hurghada Resort 260
Hurghada, Egypt
Conrad International Istanbul 625
Istanbul, Turkey(1)(5)(6)
Conrad International London 159
London, England
Conrad International Sharm El Sheikh 351
Resort
Sharm El Sheikh, Egypt
Conrad International Centennial 508
Singapore
Singapore
</TABLE>
7
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(1) Hilton has made loans which are currently outstanding to the owners of each
of the referenced properties.
(2) Hilton has equity interests of 50% in joint ventures which own each of the
referenced properties. See "Investments" in the Notes to the Company's
Consolidated Financial Statements on page 43 in the Stockholders Report.
(3) Hilton has a 67.4% equity interest in the joint venture which owns the New
Orleans Hilton Riverside and Towers. See "Investments" in the Notes to the
Company's Consolidated Financial Statements on page 43 in the Stockholders
Report.
(4) In March 1998, the Company acquired a 100% ownership interest in the Hilton
at Short Hills.
(5) Hilton has equity interests of less than 50% in entities which own each of
the referenced properties. See "Investments" in the Notes to the Company's
Consolidated Financial Statements on page 43 in the Stockholders Report.
(6) The Company operated a casino in the Conrad International Istanbul from 1992
until February 1998.
FRANCHISE HOTELS
Pursuant to franchises granted by the Company through a subsidiary,
franchise hotels are operated under the Hilton, Hilton Garden
Inn-Registered Trademark- or Hilton Suites names. The franchise hotels operated
under the Hilton name are generally smaller than the full-service hotels
operated by the Company, average approximately 250 rooms in size and target the
mid-market segment of the hotel industry. Franchise hotels bearing the Hilton
Garden Inn-Registered Trademark- name are approximately 90 to 250 rooms in size,
utilize a modular design constructed around a courtyard containing an indoor or
outdoor swimming pool and target the upper mid-market segment. The Hilton Suites
properties operated pursuant to franchise agreements utilize an all-suites
design with approximately 200 to 250 suites. In general, Hilton approves the
plan for, and the location of, franchise hotels and assists in their design.
On February 1, 1998, there were 180 franchise hotels, of which 170 were
operated under the Hilton name, eight were operated under the Hilton Garden
Inn-Registered Trademark- name and two were operated under the Hilton Suites
name. In general, franchisees pay 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 revenue. 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 nine franchises to its system in
1997, while two franchise arrangements were terminated. In addition, the Company
has received commitments for an additional 51 franchise hotels scheduled to
commence operation during the remainder of 1998.
EXPANSION PROGRAM
Hilton commenced a major expansion of Hilton Garden
Inn-Registered Trademark- properties in 1996. The additional Hilton Garden
Inns-Registered Trademark- are anticipated to be primarily newly constructed
facilities which will be operated as franchise hotels. At December 31, 1997, the
Company had approximately 100 Hilton Garden Inn-Registered Trademark- properties
either open, under construction or in development. The Company anticipates that
approximately 200 Hilton Garden Inn-Registered Trademark- properties will be
either open, under construction or in development by December 31, 2000. In
December 1997, Hilton signed an agreement with Chartwell Leisure Inc. to
franchise 20 Hilton Garden Inn-Registered Trademark- properties throughout
Mexico.
Hilton also intends to expand its domestic operations through the
acquisition of ownership interests in existing hotels, conversion of existing
hotels into management and franchise properties 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.
8
<PAGE>
In 1997, the Company commenced several major new capital projects for hotel
properties. In July 1997, the Company's Board of Directors approved a renovation
of the New York Hilton and Towers, including new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking New York City. This project is expected to be
completed in late 1999. In September 1997, the Company began construction of a
new 600-room hotel at the center of Boston's Logan Airport, which is expected to
be completed in late 1999.
The Company seeks to maintain its competitive advantage by consistently
improving its hotels through renovation programs. A number of the Company's
major properties are commencing renovation programs in 1998, including a
532-room renovation at the Chicago Hilton and Towers, a 164-room renovation at
the New Orleans Hilton Riverside and Towers and a 400-room renovation at the
O'Hare Hilton. The Waldorf=Astoria plans to renovate 299 guestrooms, including
15 of its Waldorf Towers suites, and upgrade the hotel exterior. The Capital
Hilton will begin the renovation of its guest lobby, congressional suite and
constitution suite. Also during 1998, the Hilton Hawaiian Village plans to
complete the renovation of suites and junior suites at its Diamond Head Tower
and begin a 310-room renovation at its Ali'i Tower. The San Francisco Hilton and
Towers plans to complete the renovation of seven presidential suites and begin a
185-room renovation.
The Company has entered into management contracts to operate the following
new international hotels, the anticipated opening dates of which are indicated
parenthetically: the 633-room Conrad International Cairo in Egypt (early 1999);
the 700-room Conrad International Jakarta in Indonesia (1999); and the 400-room
Conrad International Bangkok in Thailand (1999). The Company has a 10% equity
interest in the Conrad International Cairo, which will feature a 17,000 square
foot European-style casino. Future development of international hotels by the
Company will be subject to agreements entered into between the Company and
Ladbroke in January 1997. Pursuant to such agreements, Ladbroke has been granted
rights to future international development using the Conrad brand name and the
Company and Ladbroke will have the opportunity to participate in certain of each
other's future hotel development focusing primarily upon management contracts
and franchises. See "General Information--Recent Developments" and "Hotel
Operations--Territorial Restrictions."
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. 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 HI, as subsequently amended, Hilton was
prohibited from operating facilities outside the United States identified as
"Hilton" hotels and HI was prohibited from operating 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--Managed Hotels" and "Gaming
Operations--International Hotel Casinos."
In January 1997, the Company and Ladbroke, the parent company of HI, entered
into agreements to form a strategic alliance which reunites the Hilton name.
Pursuant to these agreements, the Conrad name has been licensed to HI for future
development outside the United States for a period of 20 years. HI has also
licensed the Company to develop franchise properties under the Hilton name in
Canada, Mexico and the Island of St. John, U.S. Virgin Islands. Subject to the
foregoing restrictions as to the use of the "Hilton" name, Hilton and HI can
compete in all, and do compete in certain, markets. The computerized
9
<PAGE>
reservation system utilized by Hilton and HI provides information as to their
respective hotels, if any, in each market. See "General Information--Recent
Developments," "Additional Information--Computer Systems" and "Additional
Information--Reservation System."
PROPERTY TRANSACTIONS
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 revenue and
a favorable return on stockholders' equity.
GAMING OPERATIONS
GAMING PROPERTIES
On February 1, 1998, the following hotel casinos and riverboat casinos were
wholly or partially owned and operated by Hilton:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF YEAR ACQUIRED CASINO
NAME AND LOCATION ROOMS/ SUITES BY HILTON SQUARE FOOTAGE
- --------------------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
DOMESTIC HOTEL CASINOS
Bally's Park Place Casino - Resort 1,265 1996 155,000
Atlantic City, New Jersey(1)(2)
The Atlantic City Hilton Casino Resort 805 1996 60,000
Atlantic City, New Jersey(1)(3)
Bally's Las Vegas 2,814 1996 68,000
Las Vegas, Nevada(1)(4)
Flamingo Hilton-Las Vegas 3,642 1971 93,000
Las Vegas, Nevada(5)
Las Vegas Hilton 3,174 1971 100,000
Las Vegas, Nevada(6)
Flamingo Hilton-Laughlin 2,000 1990 58,000
Laughlin, Nevada(7)
Flamingo Hilton-Reno 604 1981 46,000
Reno, Nevada(8)
Reno Hilton 2,001 1992 114,000
Reno, Nevada(9)
DOMESTIC RIVERBOAT CASINOS
Flamingo Casino-Kansas City -- 1996 30,000
Kansas City, Missouri
Bally's CasinoiLakeshore Resort -- 1996 30,000
New Orleans, Louisiana(1)(10)(11)
Bally's SalooniGambling HalliHotel 238 1996 40,000
Robinsonville, Mississippi(1)
</TABLE>
10
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<TABLE>
<S> <C> <C> <C>
INTERNATIONAL HOTEL CASINOS
Conrad International Treasury Casino, Brisbane 136 1995 65,000
Brisbane, Queensland, Australia(12)
Conrad Jupiters, Gold Coast 609 1985 70,000
Gold Coast, Queensland, Australia(12)
Conrad International Punta del Este 300 1997 38,000
Resort and Casino
Punta del Este, Uruguay(11)(13)
</TABLE>
- ---------
(1) The Company acquired the referenced properties as a result of the Bally
Merger in December 1996.
(2) Casino square footage includes 75,000 square feet attributable to The Wild
Wild West casino and 8,500 square feet attributable to the race book.
(3) Casino square footage includes 1,500 square feet attributable to the race
book.
(4) On February 1, 1998, the Company owned approximately 92% of Bally's Grand,
Inc., which owns Bally's Las Vegas. On March 26, 1998, the Company acquired
the remaining outstanding interest in Bally's Grand, Inc. See "Item 3. Legal
Proceedings." Casino square footage includes 5,000 square feet attributable
to the race and sports book.
(5) Casino square footage includes 20,000 square feet attributable to O'Sheas
Irish theme casino adjacent to the hotel.
(6) Casino square footage includes 29,000 square feet attributable to the race
and sports book and 22,000 square feet attributable to the SpaceQuest
casino.
(7) Casino square footage includes 3,000 square feet attributable to the race
and sports book.
(8) An extension of the Flamingo Hilton-Reno 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 2001 to August 2034,
including renewal options, all of which may not necessarily be exercised.
Casino square footage includes 2,500 square feet attributable to the race
and sports book.
(9) Casino square footage includes 12,000 square feet attributable to the race
and sports book.
(10) The Company has a 49.9% ownership interest in this property.
(11) The Company has made loans which are currently outstanding to the owners of
these properties.
(12) The Company has a 19.9% ownership interest in these properties.
(13) The Company has a 43% ownership interest in this property.
Each of the gaming properties listed in the above table is wholly owned by
the Company, except as referenced therein. With respect to hotel casinos listed
in the above table which are partially owned by the Company, see "Hotel
Operations--Managed Hotels" for a description of the Company's hotel management
agreements.
Revenues from the Company's casinos are accounted for in accordance with
applicable laws and rules and regulations. As is customary in the 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 $94
million, subject to an $18 million (approximately 19%) reserve, at December 31,
1995; $106 million,
11
<PAGE>
subject to a $30 million (approximately 28%) reserve, at December 31, 1996; and
$129 million, subject to a $24 million (approximately 19%) reserve, at December
31, 1997.
NEVADA HOTEL CASINOS
The Company owns and operates six hotel casinos in the State of Nevada: the
Las Vegas Hilton, the Flamingo Hilton-Las Vegas, Bally's Las Vegas, the Flamingo
Hilton-Laughlin, the Reno Hilton and the Flamingo Hilton-Reno.
The Company's Nevada gaming operations reach diverse markets by offering
gaming alternatives for premium players, convention visitors, mid-market
gamblers and budget-conscious customers. The Las Vegas Hilton is located
adjacent to the Las Vegas Convention Center and focuses on upscale individual
leisure guests and convention groups. Bally's Las Vegas is located at the "Four
Corners" on the Strip in Las Vegas and caters to convention groups and the
mid-to upper mid-market, including the group tour and travel segment. Bally's
Las Vegas is also serviced by a public monorail which connects to the MGM Grand
Hotel and Casino. The Flamingo Hilton-Las Vegas and the Flamingo Hilton-Reno
focus primarily on the mid-market, in particular the group tour and travel
segment. The Flamingo Hilton-Laughlin targets the budget and mid-market
segments. The Reno Hilton focuses primarily on the mid-market, in particular
convention groups. Each of these 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."
In January 1998, the Company opened "Star Trek: The Experience at the Las
Vegas Hilton," which was developed in collaboration with Paramount Parks Inc.
("Paramount"). This 65,000 square foot attraction features a motion based
simulation ride, interactive video and virtual reality stations, dining and
souvenir shops. The building housing the Star Trek attraction is owned by the
Company and leased to Paramount. The attraction is also managed by Paramount. In
conjunction with the Star Trek attraction, in November 1997, the Company opened
SpaceQuest casino, a themed 22,000 square foot addition at the Las Vegas Hilton.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 26 through 35 in the Stockholders Report.
In 1997, the Company continued to refurbish and expand existing facilities
in Nevada to maintain their presence as premier properties in the market. The
Las Vegas Hilton renovated approximately 850 guest rooms, remodeled the lobby in
conjunction with the Star Trek attraction, rebuilt a new marquee sign, opened
new retail stores and a parking garage and upgraded its slot machines and life
safety system. The Flamingo Hilton-Las Vegas opened a new restaurant, renovated
the casino and showroom entrance, enlarged its casino bar and added a pool bar.
Bally's Las Vegas renovated its showroom and upgraded the Jubilee Show and also
continued to renovate its life safety and building management systems. The
Flamingo Hilton-Laughlin renovated 1,000 guest rooms, installed a riverside dock
to accommodate a new boat operation and continued its slot machine replacement
program. At the Reno Hilton, the bowling center, guest room suites and
restaurant areas were renovated. The Flamingo Hilton-Reno renovated the casino,
guest rooms and the gift shop and upgraded slot machines.
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 linked 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. Bally's Las Vegas also operates a race and
sports book.
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
12
<PAGE>
in the hotels, and occupancy rates in the hotels and in the Las Vegas, Laughlin
and Reno markets. The amount of revenue 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.
As is the case of any business that extensively involves 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 six Nevada properties are monitored by computers.
The Las Vegas Hilton and, to a lesser extent, the Flamingo Hilton-Las Vegas,
Bally's Las Vegas, the Flamingo Hilton-Laughlin, 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 has a
special flight program, 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 casino and have previously
evidenced a willingness to put substantial amounts at risk at the casino. The
Las Vegas Hilton hosted 37 special flight programs in 1997, compared to 18 such
programs in 1996.
ATLANTIC CITY HOTEL CASINOS
The Company owns and operates two hotel casinos in Atlantic City, New
Jersey: the 1,265-room Bally's Park Place Casino Resort, which includes The Wild
Wild West casino ("Bally's Park Place") and the 805-room Atlantic City Hilton
Casino Resort ("The Atlantic City Hilton").
Bally's Park Place, currently the largest four-star hotel in New Jersey, is
located on an eight-acre site with ocean frontage at the intersection of Park
Place and the Boardwalk. With its strategic location on the Boardwalk and over
2,300 parking spaces, Bally's Park Place is strongly positioned to attract
significant walk-in and drive-in business. The Atlantic City Hilton is located
on approximately three acres at the intersection of Boston and Pacific Avenues
at the southern end of the Boardwalk in proximity to one of the major highways
leading into Atlantic City. This location gives The Atlantic City Hilton a
significant advantage in attracting destination oriented customers arriving by
automobile or bus.
In July 1997, the Company opened its new 75,000 square foot western-themed
casino, The Wild Wild West, located on approximately four acres of boardwalk
property adjacent to Bally's Park Place. Also in July 1997, The Atlantic City
Hilton completed a new 300-room hotel tower, which includes meeting rooms,
restaurants and other related amenities. In January 1998, the Company acquired
the Atlantic City Country Club in Northfield, New Jersey, which features an
18-hole golf course.
The Company's Atlantic City properties have gaming, dining, shopping,
entertainment, convention and meeting facilities, recreational facilities and
parking. A variety of popular entertainment, sports events and production shows
are featured at The Atlantic City Hilton. The Atlantic City casinos are open 24
hours a day, seven days a week, for gaming activities, and feature table games
and slot machines similar to those offered at the Company's Nevada hotel
casinos. Atlantic City casinos do not contain sports books. Revenue and earnings
for the Company's Atlantic City casinos peak during the summer, with less
favorable operating results in the winter.
Bally's Park Place focuses on high-end players and the mid-market segment,
including the mid- to upper mid-market slot player segment. The Atlantic City
Hilton primarily focuses on personalized service for high-end and mid-market
casino customers.
13
<PAGE>
RIVERBOAT CASINOS
The Company manages and owns equity interests in three riverboat casinos
operating in the states of Mississippi, Missouri and Louisiana. These riverboat
casinos feature table games and slot machines similar to those offered at the
Company's hotel casinos in Nevada and New Jersey.
The Company owns and manages Bally's SalooniGambling HalliHotel, a casino
and hotel complex in Robinsonville, Mississippi, near Memphis, Tennessee. In
October 1997, the Company acquired the remaining 42% ownership interest in the
entity which owned this property. The complex features a dockside casino and an
adjacent 30,000 square foot land-based facility which includes entertainment
facilities and a restaurant. The Company also owns and operates a 238-room hotel
at this complex.
The Company also owns and manages the Flamingo Casino-Kansas City, a casino
complex in Kansas City, Missouri. This wholly-owned complex features a dockside
casino and concessions and entertainment facilities. An agreement between Hilton
and the Port Authority of Kansas City provides for the Company, subject to
certain conditions, to sell 10% of its ownership interest in the complex to
locally-based minorities. In November 1997, the Missouri Supreme Court ruled
that riverboat casinos operating in man-made basins must meet certain
requirements as to contiguity with the Mississippi or Missouri rivers in order
to comply with the Missouri constitution. The Missouri Supreme Court's ruling,
if made applicable to the Flamingo Casino-Kansas City, could, unless modified by
judicial or governmental action or a statewide voter referendum, have a
significant adverse effect upon its operations. See "Additional
Information--Regulation and Licensing--Missouri Gaming Laws."
The Company has a 49.9% ownership interest in the entity which owns Bally's
CasinoiLakeshore Resort, a riverboat casino facility that operates out of South
Shore Harbor on Lake Pontchartrain in Orleans Parish, which is approximately
eight miles from the French Quarter of New Orleans.
From February 1994 through October 1, 1997, the Company operated a riverboat
casino located adjacent to the New Orleans Hilton Riverside and Towers. Since
January 1996, the Company operated a vessel featuring a 20,000 square foot
casino. This vessel is wholly owned by the Company and was leased to a joint
venture, of which the Company owns a 50% interest. In October 1996, the
Louisiana Gaming Control Board granted the Company's petition to relocate this
vessel from New Orleans to Shreveport, Louisiana by October 1, 1997. The Company
subsequently abandoned its plans to relocate the facility and, on October 1,
1997, the riverboat casino ceased operations. See "Additional
Information--Regulation and Licensing--Louisiana Gaming Laws."
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 and New Jersey.
In January 1997, the Company commenced casino operations of the Conrad
International Punta del Este Resort and Casino in Uruguay. The hotel opened in
stages over the latter half of 1997, and features convention facilities,
restaurants and related amenities.
The Company has 19.9% ownership interests in the Conrad Jupiters, Gold Coast
and the Conrad International Treasury Casino, Brisbane, both of which are
located in Queensland, Australia. The Conrad International Treasury Casino,
Brisbane has the exclusive right to conduct casino gaming in Brisbane until
2005.
CASINO WINDSOR
The Company and another shareholder of Windsor Casino Limited ("WCL")
operate the Casino Windsor, an interim 50,000 square foot casino in Windsor,
Ontario, Canada. The Company, through
14
<PAGE>
Conrad International, owns a 50% interest in WCL, which operates this property
for the Ontario provincial government. In January 1997, WCL redeemed the
shareholder interest of its third original shareholder. The Company anticipates
that the interim casino will be replaced by a permanent facility in mid 1998,
which will include a hotel of approximately 400 rooms, a 75,000 square foot
casino and entertainment and meeting facilities.
The Company also charters a riverboat 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. The riverboat
charter expires in June 1998.
EXPANSION PROGRAM
The Company continues to expand its domestic gaming operations through the
development of the 2,900-room Paris Casino-Resort, a new casino resort adjacent
to Bally's Las Vegas which will feature an 85,000 square foot casino, 13
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. In addition to a 50-story replica of the Eiffel
Tower, the resort will also feature replications of some of Paris' most
recognized landmarks, including the Arc de Triomphe, the Paris Opera House, The
Louvre and rue de la Paix. The Paris Casino-Resort is scheduled to be completed
in the 1999 third quarter.
In 1998, the Company's Nevada hotel casinos are scheduled to complete
additional expansion and renovation programs. The Las Vegas Hilton plans to
renovate an additional 850 guest rooms and the casino and sportsbook, expand
valet parking and renovate the pool and spa. The Flamingo Hilton-Las Vegas plans
to renovate guest rooms and casino areas, upgrade slots and enhance signage and
the cooling and information systems. Bally's Las Vegas plans to continue its
participation in a joint venture to erect pedestrian bridges over the Strip and
Flamingo Road connecting the property to other hotel casinos, and also plans to
remodel the ballroom and events center and upgrade elevators. The Flamingo
Hilton-Laughlin plans to renovate an additional 1,000 guest rooms, along with
the casino and the main level of the property, and continue its slot machine
replacement program. At the Reno Hilton, planned improvements include renovation
of guest room suites, slot upgrades, additional signage and enhancement of the
cooling and information systems. The Flamingo Hilton-Reno plans to continue to
renovate guest rooms and upgrade slot machines.
The Company's Atlantic City, New Jersey hotel casinos are also commencing
renovation projects in 1998. Bally's Park Place plans to renovate 500 guest
rooms and restaurant areas, expand valet parking capacity and add a new bus
terminal. The Atlantic City Hilton plans to renovate the property's previously
existing guest rooms to be consistent with the standard of the guest rooms in
the new 300-room tower addition.
ADDITIONAL INFORMATION
VACATION OWNERSHIP
Hilton Grand Vacations Company ("HGVC"), which is wholly owned by the
Company, currently operates 17 vacation ownership resorts in Florida and one in
Nevada. HGVC has developed the first 168 suites of a 420-unit vacation ownership
resort adjacent to Sea World in Orlando, Florida, and plans to complete an
additional 96 suites in the first quarter of 1999. HGVC is developing a 52-suite
vacation ownership resort in the South Beach area of Miami Beach, Florida,
through the renovation of historic art deco buildings. This resort is scheduled
to open its first 26 suites in fall 1998. HGVC is also developing a 232-suite
vacation ownership resort located adjacent to the Las Vegas Hilton. Construction
of this 16-story resort will commence in spring 1998, with opening scheduled for
summer 1999. HGVC is actively seeking new management, development and
acquisition opportunities in other destination resort locations.
15
<PAGE>
DESIGN AND FURNISHING SERVICES
Hilton, through its wholly owned subsidiary, Hilton Equipment Corporation,
and through its hotels division, provides design and furnishing services and
purchases and distributes furniture, furnishings, equipment and supplies to the
Company's hotels and hotel casinos and to hotels 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. Pursuant to an agreement between Hilton and Electronic Data
Systems Corporation ("EDS"), EDS provides certain purchasing and distribution
services on behalf of Hilton Equipment Corporation under a fee arrangement.
COMPUTER SYSTEMS
In April 1997, Hilton acquired the remaining 50% ownership interest in
Compass Computer Services, Inc. ("Compass"), which 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 managed by Litton Computer Services.
RESERVATION SYSTEM
The Compass computerized reservation system is presently utilized by Hilton
Reservations Worldwide, LLC ("HRW"), the operator of a worldwide reservation
system for hotels owned, operated or franchised by Hilton, HI, their affiliates
and others. Hilton and HI each own a 50% interest in HRW. Pursuant to agreements
entered into in January 1997 between the Company and Ladbroke, the parent
corporation of HI, the companies formed HRW to operate an updated computerized
reservation system. The new computerized reservation system, which will replace
the existing system, is expected to commence operation in late 1998. See
"General Information--Recent Developments."
MARKETING
The Company's diversified hotel and gaming segments offer multiple product
lines to a broad range of customers in many geographic markets. The Company's
hotel portfolio includes large urban hotels, airport hotels, suburban/suite
hotels and resorts. The gaming segment, with its major presence in Las Vegas and
Atlantic City, attracts premium players, convention visitors, mid-market
gamblers and budget-conscious customers.
Hotel occupancy at Hilton's metropolitan and airport properties is primarily
derived 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 primarily derived 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
primarily derived from the convention and meeting market, the tour and leisure
market and junket and VIP programs. As indicated under "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. The Company believes that its recent alliance with Ladbroke (which
currently owns the rights to the Hilton name outside the U.S.) will improve the
performance of the Company's operations as its properties benefit from the
worldwide integration of the Hilton brand, reservation systems, marketing
programs and sales organizations. See "General Information--Recent
Developments."
BUSINESS RISKS
In 1997, the Company was able to increase average room rates for its owned,
leased or managed hotels and hotel casinos by eight percent and nine percent,
respectively, over 1996. The Company's future operating results could be
adversely impacted by industry overcapacity and weak demand, which could
16
<PAGE>
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, particularly at the Las Vegas Hilton.
However, the Company believes that its implementation of new casino marketing
and entertainment strategies and the opening of the Star Trek attraction and the
SpaceQuest casino will broaden the Las Vegas Hilton's customer base and create
additional mid-level play.
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
The Company seeks to maintain the diversity and balance of its lodging and
gaming businesses while expanding both domestically and internationally. The
Company intends to improve and expand its core businesses by leveraging its
strong brand names, maximizing operating efficiencies, expanding and enhancing
properties and acquiring or developing properties as appropriate.
Hilton is one of the largest operators of full-service 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. The Company's hotels also compete generally with facilities offering
similar services and located in cities and other locations where the Company's
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.
To the extent that hotel capacity is expanded by others in a city where a
Hilton hotel is located, competition will increase. The completion of a number
of room expansion projects and the opening of new hotel casinos led to a six
percent increase in hotel capacity in Las Vegas in 1997 compared to 1996,
thereby increasing competition in all segments of the Las Vegas market. Certain
of the Company's competitors have also announced, or are developing, new casino
projects in Las Vegas and Atlantic City which, if completed, will add
significant casino space and hotel rooms to these markets. Such new capacity
additions to the Las Vegas and Atlantic City markets could adversely impact the
Company's gaming income. The business of Hilton's Nevada hotel casinos might
also be adversely affected if gaming operations of the type conducted in Nevada
were to be permitted under the laws of other states, particularly California.
Similarly, legalization of gaming operations in any jurisdiction located near
Atlantic City, New Jersey, or the establishment of new large scale gaming
operations on nearby Native American tribal lands, could adversely affect the
Company's Atlantic City hotel casinos. The expansion of riverboat gaming or
casino gaming on Native American tribal lands could also impact the Company's
gaming operations.
17
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STATISTICAL DATA
The following table sets forth certain statistical information as of and for
the year ended December 31, 1997, with respect to the Company's properties:
<TABLE>
<CAPTION>
PROPERTIES ROOMS OCCUPANCY ROOM RATE REVPAR(1)
------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Owned and managed hotels:
Domestic
Pacific/Mountain.................................... 22 15,382 74.6 138.66 103.40
North Central....................................... 7 5,494 76.3 132.13 100.82
South Central....................................... 4 2,601 76.3 128.35 97.89
New England/Middle Atlantic......................... 9 6,446 78.9 187.12 147.61
South Atlantic...................................... 8 6,371 71.5 133.19 95.17
International......................................... 9 3,284 67.8 152.28 103.19
--- --------- ----------- ----------- -----------
Total................................................. 59 39,578 74.6 145.33 108.42
--- --------- ----------- ----------- -----------
--- --------- ----------- ----------- -----------
Franchised hotels....................................... 180 45,092 70.0 90.91 63.67
--- --------- ----------- ----------- -----------
--- --------- ----------- ----------- -----------
Owned and managed hotel casinos......................... 12 17,590 85.8 78.81 67.62
--- --------- ----------- ----------- -----------
--- --------- ----------- ----------- -----------
</TABLE>
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(1) Revpar is equal to rooms revenue divided by available rooms.
For additional information regarding the Company's properties, number of
available rooms and occupancy ratios, see the Five Year Summary on page 55 in
the Stockholders Report.
YEAR 2000
The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the year 2000. Key
financial, information and operational systems are being assessed and
preliminary plans have been developed to address system modifications required
by December 31, 1999. The financial impact of making the required systems
changes is not expected to be material to the Company's financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance, and are subject to certain
risks and uncertainties which could cause actual results to differ materially
from historical results or those anticipated. Although the Company believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ENVIRONMENTAL MATTERS
The Company, like others in its industry, is subject to various federal,
state, local and, in some cases, foreign laws, ordinances and regulations that
(i) govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous or toxic wastes, or (ii) may impose liability for the
costs of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous or toxic substances or wastes
(together, "Environmental Laws").
18
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The Company endeavors to maintain compliance with Environmental Laws, but,
from time to time, the Company's operations may have resulted or may result in
noncompliance or liability for cleanup pursuant to Environmental Laws. In that
regard, the Company has been notified of contamination resulting from past
disposals of wastes at two sites to which hazardous or non-hazardous wastes may
have been sent from Company facilities in the past. Based on information
reviewed by and available to the Company, including uncertainty whether a
Company facility in fact shipped any wastes to one such site, the number of
potentially responsible parties at such sites and, where available, the volume
and type of waste sent to each such site, the Company believes that any
liability arising from such disposals under Environmental Laws would not have a
material adverse effect on its results of operations or financial condition.
Bally received notice from the current landowner of a prior Bally facility
in Chicago, Illinois that the landowner may seek to recover past and future
costs of investigating and remediating alleged soil and groundwater
contamination at the facility. The Company does not believe that Bally's prior
operations at the site have contributed to the alleged contamination; as a
result, if the current landowner pursues its claim, the Company expects to
vigorously defend against the claim. The Company cannot at this time estimate
the potential costs of investigation or cleanup, if any, however, based on
currently available information, the Company believes that any such costs would
be shared by several parties and, in any event, the cost estimates provided to
date indicate that any such liability would not have a material adverse effect
on the Company's results of operations or financial condition.
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.
Under provisions of Nevada, New Jersey, Louisiana, Mississippi, Missouri and
other gaming laws, and the Company's Restated Certificate of Incorporation, as
amended, 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.
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, Bally's 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 Nevada gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and,
depending on the facility's location, the Clark County Liquor and Gaming
Licensing Board (the "CCB") and the City of Reno. The Nevada Commission, the
Nevada 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 that 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) providing a source of state and local
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revenues through taxation and licensing fees. Change in such laws, regulations
and procedures could have an adverse effect on the Company's gaming operations.
Each subsidiary of the Company that operates a casino in Nevada
(individually, a "Corporate Licensee" and collectively, the "Corporate
Licensees") is 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 required to be registered by the Nevada Commission
as a publicly-traded corporation ("Registered Corporation") and as such, it is
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information that the Nevada Commission
may require. No person may become a stockholder of, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company and the Corporate
Licensees have obtained from the Nevada Gaming Authorities the various
registrations, findings of suitability, 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 any of
its Corporate 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 a Corporate Licensee 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 any Corporate Licensee may be required to 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. An applicant for licensing or an applicant for 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
licensing, the Nevada Gaming Authorities have the 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 any Corporate Licensee, the Company and the
Corporate Licensee would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company or a Corporate Licensee
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or questions pertaining to licensing
are not subject to judicial review in Nevada.
The Company and all Corporate Licensees are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
of a Corporate Licensee must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the gaming licenses it holds could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Corporate Licensee, 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 Nevada Commission. Further, a supervisor
could be appointed by the Nevada Commission to operate a Corporate Licensee's
gaming establishment and, under certain circumstances, earnings generated during
the supervisor's appointment (except for the reasonable rental value of the
gaming establishment) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any gaming license of a Corporate Licensee or the
appointment of a supervisor could (and revocation of any gaming license would)
have a material adverse effect on the Company's gaming operations.
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Any beneficial holder of the Company's Common Stock, Preferred Redeemable
Increased Dividend Equity Securities-SM-, 8% PRIDES-SM-, Convertible Preferred
Stock ("PRIDES") or any other voting security of the Company ("Company Voting
Securities"), 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 Company Voting Securities determined if the Nevada
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 the investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires a beneficial ownership of
more than 5% of Company Voting Securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of Company Voting Securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires
beneficial ownership of more than 10%, but not more than 15%, of Company Voting
Securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds Company Voting Securities for
investment purposes only. An institutional investor shall not be deemed to hold
Company Voting Securities for investment purposes unless Company Voting
Securities were acquired and are 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 Nevada Commission finds to be
inconsistent with holding Company Voting Securities 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 Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of Company Voting Securities who
must be found suitable is a corporation, partnership, limited partnership,
limited liability company or trust, it 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 Nevada Commission or
by the Chairman of the Nevada 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 Company Voting
Securities beyond such period of time as may be prescribed by the Nevada
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 a
Corporate Licensee, the Company (i) pays that person any dividend or interest
upon any Company Voting Securities; (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 the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
The Nevada 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 such debt security of a Registered Corporation. If the
Nevada 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
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loss of its approvals, if without the prior approval of the Nevada 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 of any Company
Voting Securities. The Nevada 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 Nevada 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 Nevada 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. On September 25, 1997, the Nevada Commission granted the Company prior
approval to make public offerings for a period of two years, subject to certain
conditions (the "Shelf Approval"). The Shelf Approval also applies to any
affiliated company wholly owned by the Company (an "Affiliate") which is a
publicly-traded corporation or would thereby become a publicly-traded
corporation pursuant to a public offering. The Shelf Approval also includes
approval for the Corporate Licensees to guarantee any security issued by, or to
hypothecate their assets to secure the payment or performance of any obligations
issued by, the Company or an Affiliate in a public offering under the Shelf
Registration. The Shelf Approval, however, may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board. The Shelf Approval does not constitute a finding,
recommendation or approval of the Nevada Gaming Authorities as to the accuracy
or adequacy of the prospectus or the investment merits of the securities offered
thereby. Any representation to the contrary is unlawful.
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 Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada 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.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada 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 Nevada
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.
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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 Corporate Licensees' 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 or serving of food or refreshments or
the selling of merchandise. Nevada Corporate Licensees that hold a license as an
operator of a slot route, or a manufacturer's or distributor's license also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of the Licensee's participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at establishments operated by a Corporate
Licensee is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could (and revocation would) have
a material adverse effect upon the operations of the Corporate Licensee.
NEW JERSEY GAMING LAWS. The ownership and operation of casino gaming
facilities in Atlantic City are subject to the New Jersey Casino Control Act
(the "New Jersey Act"), regulations of the New Jersey Casino Control Commission
(the "New Jersey Commission") and other applicable laws. No casino may operate
unless the required permits or licenses and approvals are obtained from the New
Jersey Commission. The New Jersey Commission is authorized under the New Jersey
Act to adopt regulations covering a broad spectrum of gaming and gaming related
activities and to prescribe the methods and forms of applications from all
classes of licensees. These laws and regulations concern primarily: (i) the
financial stability, integrity, responsibility, good character, honesty and
business ability of casino service suppliers and casino operators, their
directors, officers and employees, their security holders and others financially
interested in casino operations; (ii) the nature of casino hotel facilities; and
(iii) the operating methods and financial and accounting practices used in
connection with the casino operations.
Taxes are imposed by the State of New Jersey on gaming operations at the
rate of 8% of gross gaming revenues. In addition, the New Jersey Act provides
for an investment alternative tax of 2.5% of gross gaming revenues. This
investment alternative tax may be offset by investment tax credits equal to
1.25% of gross gaming revenues, which are obtained by purchasing bonds issued
by, or investing in housing or other development projects approved by, the
Casino Reinvestment Development Authority ("CRDA").
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The New Jersey Commission has broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years (subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time),
and must be renewed by filing an application which shall be acted on by the New
Jersey Commission prior to the expiration of the license in force. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines or other penalties.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
(each, an "affiliate") of a casino licensee. "Security" is defined by the New
Jersey Act to include instruments that evidence either a beneficial ownership in
an entity (such as common stock or preferred stock) or a creditor interest in an
entity (such as a bond, note or mortgage). Pursuant to the New Jersey Act, the
corporate charter of a publicly-traded affiliate of a casino licensee must
require that a holder of the company's securities dispose of such securities if
the holder's continued interest would result in the company or any other
affiliate being no longer qualified to continue as a casino licensee under the
New Jersey Act. The corporate charter of a casino licensee or any privately held
affiliate of the licensee must: (i) establish the right of prior approval by the
New Jersey Commission with regard to a transfer of any security in the company
and (ii) create the absolute right of the company to repurchase at the market
price or purchase price, whichever is less, any security in the company in the
event the New Jersey Commission disapproves a transfer of such security under
the New Jersey Act. The corporate charter of the Company has been approved by
the New Jersey Commission. The corporate charter of the Company's subsidiaries
that operate Bally's Park Place and the Atlantic City Hilton and the charters of
their privately held affiliates conform to the New Jersey Act's requirements
described above for privately held companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of such corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action. The New Jersey Commission may require divestiture of the
securities held by any disqualified holder who is required to be qualified under
the New Jersey Act (e.g., officers, directors, security holders and key casino
and other employees). In the event that disqualified persons fail to divest
themselves of such securities, the New Jersey Commission may revoke or suspend
the license. However, if an affiliate of a casino licensee is a publicly-traded
company and the New Jersey Commission makes a finding of disqualification with
respect to any holder of any security thereof who is required to be qualified,
and the New Jersey Commission also finds that: (i) such company has complied
with aforesaid charter provisions; (ii) such company has made a good faith
effort, including the prosecution of all legal remedies, to comply with any
order of the New Jersey Commission requiring the divestiture of the security
interest held by the disqualified holder; and (iii) such disqualified holder
does not have the ability to control the corporate licensee or the affiliate, or
to elect one or more members of the board of directors of such affiliate, the
New Jersey Commission will not take action against the casino licensee or its
affiliate with respect to the continued ownership of the security interest by
the disqualified holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly-traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if such
holder owns or beneficially holds 5% or more of any class of the equity
securities of such corporation, unless such presumption of control or ability to
elect is rebutted by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly-traded holding or intermediary company of a casino licensee and: (i)
the holdings were purchased for investment purposes only; (ii) there is no cause
to believe the institutional investor may be found unqualified; and (iii) upon
request by the New Jersey Commission, the institutional investor files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its other
affiliates. The New Jersey Commission may grant a waiver of qualification to an
institutional investor
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holding 10% or more of such securities upon a showing of good cause and if the
conditions specified above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly-traded
affiliate of a casino licensee to qualify as a "financial source" where the use
of the proceeds from the debt issue is related in any way to the financing of
the casino licensee. There can be no assurance that the New Jersey Commission
will continue to apply the 15% threshold, and the New Jersey Commission could at
any time establish a lower threshold for qualification. An exception to the
qualification requirement is made for institutional investors, in which case the
institutional holder is entitled to a waiver of qualification if the holder's
position in the aggregate is less than 20% of the total outstanding debt of the
affiliate and less than 50% of any outstanding publicly-traded issue of such
debt, and if the conditions specified in the above paragraph are met. As with
equity securities, a waiver of qualification may be granted to institutional
investors holding larger positions upon a showing of good cause and if all
conditions specified in the above paragraph are met.
Generally, the New Jersey Commission would require each institutional holder
seeking a waiver of qualification to execute a certificate to the effect that:
(i) the holder has reviewed the definition of institutional investor under the
New Jersey Act and believes that it meets the definition of institutional
investor; (ii) the holder purchased the securities for investment purposes only
and holds them in the ordinary course of business; (iii) the holder has no
involvement in the business activities of, and no intention of influencing or
affecting the affairs of, the issuer, the casino licensee or any affiliate; and
(iv) if the holder subsequently determines to influence or affect the affairs of
the issuer, the casino licensee or any affiliate, it shall provide not less than
30 days' notice of such intent and shall file with the New Jersey Commission an
application for qualification before taking any such action.
Commencing on the date the New Jersey Commission serves notice on a
corporate licensee or an affiliate of such corporate licensee that a security
holder of such corporation has been found disqualified, it will be unlawful for
the security holder to: (i) receive any dividends or interest upon any such
securities; (ii) exercise, directly or through any trustee or nominee, any right
conferred by such securities; or (iii) receive any remuneration in any form from
the corporate licensee for services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act by reason of
holding debt or equity securities and are not otherwise previously qualified,
are required to place the securities into an Interim Casino Authorization
("ICA") trust pending qualification. Unless and until the New Jersey Commission
has reason to believe that the investor may not qualify, the investor will
retain the ability to direct the trustee how to vote, or whether to dispose of,
the securities. If at any time the New Jersey Commission finds reasonable cause
to believe that the investor may be found unqualified, it can order the trust to
become "operative," in which case the investor will lose voting power, if any,
over the securities but will retain the right to petition the New Jersey
Commission to order the trustee to dispose of the securities.
Once an ICA trust is created and funded, and regardless of whether it
becomes operative, the investor has no right to receive a return on the
investment until the investor becomes qualified. Should an investor ultimately
be found unqualified, the trustee would dispose of the trust property, and the
proceeds would be distributed to the unqualified applicant only in an amount not
exceeding the actual cost of the trust property. Any excess proceeds would be
paid to the State of New Jersey. If the securities were sold by the trustee
pending qualification, the investor would receive only actual cost, with
disposition of the remainder of the proceeds, if any, to await the investor's
qualification hearing.
In the event it is determined that a licensee has violated the New Jersey
Act or its regulations, then under certain circumstances, the licensee could be
subject to fines or have its license suspended or revoked. In addition, if a
person who is required to qualify under the New Jersey Act fails to qualify, or
if a security holder who is required to qualify fails to qualify and does not
dispose of the related securities in the licensee or in any affiliate of the
licensee, as may be required by the New Jersey Act, then, under certain
circumstances, the licensee could have its license suspended or revoked.
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If a casino license was not renewed, was suspended for more than 120 days or
was revoked, the New Jersey Commission could appoint a conservator. The
conservator would be charged with the duty of conserving and preserving the
assets so acquired and continuing the operation of the hotel and casino of a
suspended licensee or with operating and disposing of the hotel casino
facilities of a former licensee. Such suspended licensee or former licensee,
however, would be entitled only to a fair return on its investment, to be
determined under New Jersey law, with any excess to go to the State of New
Jersey, if so directed by the New Jersey Commission. Suspension or revocation of
any licenses or the appointment of a conservator by the New Jersey Commission
would have a material adverse effect on the businesses of the Company's Atlantic
City hotel casinos.
In November 1996, the New Jersey Commission found the Company qualified as a
holding company for New Jersey casino licensees, Bally's Park Place and the
Atlantic City Hilton. Such licenses are scheduled for renewal in the year 2000.
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 Gaming Control Board (the "Board"). The Board 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 Board. The Board may, in its discretion, also review
the suitability of other security holders of, or persons affiliated with, a
licensee. This finding of suitability requires the filing of an extensive
application to the Board disclosing personal, financial, criminal, business and
other information. On March 24, 1994, the Board's predecessor issued a riverboat
gaming license to Belle of Orleans, L.L.C., a limited liability company of which
the Company owns a 49.9% interest. Belle of Orleans, L.L.C. commenced riverboat
gaming operations in New Orleans on July 9, 1995. On October 13, 1993, the
Board's predecessor issued a riverboat gaming license to the Queen of New
Orleans, a joint venture of which the Company owns a 50% interest. The Queen of
New Orleans joint venture conducted riverboat gaming operations in New Orleans
from February 10, 1994 until October 1, 1997.
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 Board 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.
If a security holder of a licensee is found unsuitable, 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 Board 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.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. On November 5,
1996, Louisiana voters determined whether each of the following types of gaming
would be prohibited or permitted in the following described Louisiana parishes:
(i) the operation of video draw poker devices in each parish; (ii) the conduct
of riverboat gaming in each parish that is contiguous to a statutorily
designated river or waterway; or (iii) the conduct of land-based casino gaming
operations in Orleans Parish. In Orleans Parish, where the Company's riverboat
casino currently operates, a majority of the voters elected to continue to
permit the three types of gaming described above. The current legislation
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does not provide for any moratorium on future local elections on gaming.
Further, the current legislation does not provide for any moratorium that must
expire before future local elections on gaming could be mandated or allowed. In
addition, a change of berth by a licensee would require voter approval in the
parish in which the new berth is located.
On October 11, 1996, the Board granted the Company's petition to relocate
the Queen of New Orleans riverboat casino from New Orleans to the City of
Shreveport by October 1, 1997. The Company subsequently abandoned its plans to
relocate the facility and, on October 1, 1997, the riverboat casino ceased
operations. The Company is negotiating with the City of New Orleans and its
partner with respect to certain obligations related to the closure of this
riverboat casino. The Company has filed a petition with the Board for approval
to transfer its interest in the Queen of New Orleans joint venture.
MISSISSIPPI GAMING LAWS. The ownership and operation of casino gaming
facilities in Mississippi are subject to extensive state and local regulation,
but primarily the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission. An owner and operator of
casino gaming facilities in Mississippi and its related holding companies must
register under the Mississippi Gaming Control Act (the "Mississippi Act") and
its gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission and various local, city and county regulatory
agencies. Although not identical, the Mississippi Act is similar to the Nevada
Act. The adopted regulations of the Mississippi Gaming Commission are also
similar in many respects to the Nevada gaming regulations.
Mississippi statutes and regulations give the Mississippi Gaming Commission
the discretion to require a suitability finding with respect to any person or
entity who acquires any security of an owner and operator of casino gaming
facilities in Mississippi, regardless of the percentage of ownership. The
current policy of the Mississippi Gaming Commission is to require any person or
entity acquiring 5% or more of any voting securities of a public company with a
licensed subsidiary or private company licensee to be found suitable. If the
owner of voting securities who is required to be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation. The sale of alcoholic beverages by
the Company is subject to licensing, control and regulation by the Alcoholic
Beverage Control Division ("ABC") of the Mississippi State Tax Commission. An
ABC license is revocable and is not transferable. The ABC of the Mississippi
State Tax Commission has full power to limit, condition, suspend or revoke any
such license.
MISSOURI GAMING LAWS. Missouri has enacted the Missouri Gaming Law (the
"MGL") and established the Missouri Gaming Commission (the "MGC"), which is
responsible for licensing and regulating riverboat gaming in Missouri. The MGL
does not specifically limit the number of licenses that the MGC may grant, but
generally authorizes the MGC to limit the number of licenses granted. The MGL
grants specific powers and duties to the MGC to supervise riverboat gaming,
implement the MGL and take other action as may be reasonable or appropriate to
enforce the MGL. The MGC may approve permanently moored ("dockside") riverboat
casinos subject to specific criteria.
The MGL extensively regulates owning and operating riverboat gaming
facilities in Missouri. Generally, a licensed company and its officers,
directors, employees, related subsidiaries and significant shareholders are
subject to such extensive regulation. The initial license and first subsequent
license renewal for an excursion gambling boat operator generally is for a
period of one year. The MGC, however, may reopen license hearings and may
terminate a license or impose additional regulations upon a licensee at any time
during the term of a license. In addition to the owner's license and operator's
license for the riverboat, individuals participating in gaming operations are
required to obtain an occupational license from the MGC. Applicants and
licensees are responsible for keeping the application and any requested
materials current, and this responsibility continues throughout any period of
licensure. In addition, Missouri has extensive licensing disclosure
requirements. In October 1996, the MGC granted a riverboat gaming license to the
Flamingo Hilton Riverboat Casino, L.P., a limited partnership wholly owned by
the
27
<PAGE>
Company. In September 1997, the MGC approved the Company's license renewal
application extending the riverboat gaming license for an additional one year
period, subject to certain conditions.
In November 1997, the Missouri Supreme Court ruled in AKIN, ET AL. V.
MISSOURI GAMING COMMISSION, ET AL. that riverboat casinos operating in man-made
basins must meet certain requirements as to contiguity with the Mississippi or
Missouri rivers in order to comply with the Missouri constitution. The Company
was not a party to AKIN, which has been dismissed. The Company and other
similarly situated riverboat casinos have filed lawsuits against the MGC
relating to these requirements as to contiguity. In January 1998, the Missouri
Circuit Court in Cole County issued a writ prohibiting the MGC from initiating a
proposed disciplinary proceeding against riverboat casinos operating in man-made
basins. The MGC has appealed this ruling to the Missouri Supreme Court. If it is
determined that the AKIN ruling is applicable to the Company's Kansas City,
Missouri riverboat casino and similarly situated riverboat casinos, the
Company's Kansas City gaming operations could be significantly adversely
affected.
Pursuant to its rulemaking authority, the MGC has adopted certain
regulations which provide, among other things, that: (i) no gaming licensee or
occupational licensee may pledge, hypothecate or transfer in any way any
license, or any interest in a license, issued by the MGC; (ii) no ownership
interest in a gaming licensee or a holding company that is not a publicly held
entity may be pledged or hypothecated in any way; (iii) at least 60 days prior
to consummation, a party must notify the MGC of its intention to transfer or
issue an ownership interest in a gaming licensee or a holding company that is
not a publicly held entity (and during such period the MGC may disapprove the
transaction or require the transaction be delayed pending further
investigation); (iv) at least 15 days prior to consummation, a party must notify
the MGC of its intention to: (a) issue an ownership interest in a publicly held
gaming licensee or holding company if such issuance would involve, directly or
indirectly, 5% or greater of the ownership interest in the gaming licensee or
holding company, (b) incur any private debt equal to or exceeding $1,000,000 by
a gaming licensee or any holding company affiliated with a gaming licensee or
(c) issue any public debt and, before or after consummation, the MGC may reopen
the gaming licensee's licensing hearing to consider the effect of the
transaction on the licensee's suitability; (v) not later than 7 days after
consummation, the following transactions must be reported to the MGC: (a) the
transfer or issuance of an ownership interest in a publicly held gaming licensee
or holding company, if such transfer or issuance would result in an entity or
group of entities acting in concert owning, directly or indirectly, a total
amount of ownership interest equaling 5% or greater of the ownership interest in
the gaming licensee or holding company and (b) any pledge or hypothecation of 5%
or more of the ownership interest in a publicly held gaming licensee or holding
company; (vi) no withdrawals of capital, loans, advances or distribution of any
type of assets in excess of 5% of accumulated earnings of a licensee to anyone
with an ownership interest in the licensee may occur without prior MGC approval;
and (vii) the MGC may take appropriate action against a licensee or other person
who has been disciplined in another jurisdiction for gaming related activity.
QUEENSLAND GAMING LAWS. Queensland, Australia, like the jurisdictions
discussed above, 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 Conrad Jupiters,
Gold Coast and the Conrad International Treasury Casino, Brisbane 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
28
<PAGE>
an investigation of, and have found suitable, the Company and the other two
shareholders of WCL in connection with the Ontario registration of WCL. In
January 1997, WCL redeemed the shareholder interest of one of its three original
shareholders.
URUGUAY GAMING LAWS. Uruguay also has laws and regulations governing the
establishment and operation of casino gaming. The Internal Auditors Bureau of
Uruguay is responsible for establishing the terms under which casino operations
are conducted, including suitability requirements of persons associated with
gaming operations, authorized games, specifications for gaming equipment,
security, surveillance and compliance. The Conrad International Punta del Este
Resort and Casino has been authorized to conduct casino operations by the
Internal Auditors Bureau of Uruguay.
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 casinos, or in
which the Company has applied for licensing to operate a casino, 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 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, 1998, Hilton employed approximately 61,000 persons, of whom
approximately 26,000 were 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 hotel 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."
29
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
BALLY MERGER LITIGATION
A purported class action against Bally, its directors and Hilton was
commenced in August 1996 under the caption PARNES V. BALLY ENTERTAINMENT
CORPORATION, ET AL. in the Court of Chancery of the State of Delaware, New
Castle County. The plaintiff alleged breaches of fiduciary duty in connection
with the Bally Merger, including allegedly illegal payments to Arthur M.
Goldberg purportedly denying Bally shareholders other than Mr. Goldberg an
opportunity to sell their shares to Hilton or any other bidder at the best
possible price. In the complaint, the plaintiff sought, among other things: (i)
an order enjoining the Bally Merger; (ii) an award of damages in an unspecified
amount; (iii) an order requiring Mr. Goldberg to disgorge his profits; and (iv)
an award of attorneys' fees and expenses. In orders dated May 13, 1997 and
February 3, 1998, this litigation was dismissed. Plaintiff has appealed this
dismissal to the Delaware Supreme Court.
Two other purported class actions relating to the Bally Merger were brought
against Bally and its directors, one commenced in April 1996 under the caption
KINDER V. BRUNET, ET AL. and the other commenced in June 1996 under the caption
LORD V. BRUNET, ET AL., in the Court of Chancery of the State of Delaware, New
Castle County. These actions were virtually identical, and the plaintiffs also
alleged breaches of fiduciary duty in connection with the Bally Merger. In the
complaint, the plaintiffs sought, among other things: (i) a declaration that
defendants breached their fiduciary duties; (ii) an order requiring defendants
to act in accordance with their fiduciary duties in order to maximize the value
obtained for Bally's shareholders; (iii) an award of damages in an unspecified
amount; and (iv) an award of expenses, including attorneys' fees. On February
27, 1998, these actions were dismissed by stipulation of the parties with the
approval of the court.
BALLY'S GRAND LITIGATION
On June 13, 1997, Bally's Grand, Inc. ("BGI") announced that it had reached
an agreement to settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
This litigation involved two derivative actions purportedly brought on behalf of
BGI against its directors and Bally, one commenced in October 1995 and the other
in September 1996, which were consolidated under the caption IN RE: BALLY'S
GRAND DERIVATIVE LITIGATION in the Court of Chancery of the State of Delaware,
New Castle County. A third derivative action purportedly brought on behalf of
BGI against its directors, Bally, Hilton and Bally's Grand Management Co., Inc.,
a wholly owned subsidiary of Bally ("BGM"), was commenced in November 1996 under
the caption TOWER INVESTMENT GROUP, INC., ET AL. V. BALLY'S GRAND, INC., ET AL.
in the Court of Chancery of the State of Delaware, New Castle County. This
action was consolidated with the original consolidated action under the caption
IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. Plaintiffs alleged breaches
of fiduciary duty and waste of corporate assets in connection with certain
actions, including the sale by BGI to Bally of the capital stock of BGI's
subsidiary that owns the land and development rights with respect to the Paris
Casino-Resort in Las Vegas (the "Paris Transaction"), alleged improper
delegation of duties by BGI's board of directors by virtue of a management
agreement (the "Management Agreement") between BGI and BGM, BGM's designation
pursuant to the Management Agreement of recipients awarded BGI stock options and
stock repurchases by BGI and Bally. Plaintiffs also alleged fraud, willful
misconduct or gross negligence by Bally and BGM in connection with the
Management Agreement, purchases of BGI stock by Bally while in possession of
material inside information concerning BGI's earnings, violation of Delaware law
by BGI's directors and Bally in connection with the Paris Transaction and aiding
and abetting by Hilton of the breaches of fiduciary duty and waste of corporate
assets by BGI's directors and Bally. The plaintiffs sought, among other things:
(i) rescission of the Paris Transaction; (ii) termination of the Management
Agreement; (iii) appointment of a custodian to manage BGI's affairs; (iv)
disgorgement by defendants of payments and profits earned as a result of the
transactions complained of; (v) compensatory damages; and (vi) costs and
expenses, including reasonable attorneys' fees.
30
<PAGE>
Prior to the settlement, Hilton indirectly owned approximately 84% of the
common stock of BGI and public shareholders owned the remaining 16%. Under the
terms of the settlement, BGI repurchased 966,747 shares of its common stock and
102,698 warrants to purchase shares of its common stock from certain plaintiffs
at a price of $52.75 per share in cash for the common stock and $52.75 less the
exercise price per warrant in cash for the warrants. Following such repurchases,
Hilton indirectly owned in excess of 90% of the outstanding common stock of BGI.
On October 9, 1997, Hilton received court approval of the settlement
agreement. Pursuant to the settlement agreement, on March 26, 1998, a Hilton
subsidiary merged into BGI, and the remaining outstanding shares of BGI common
stock not owned by Hilton were converted into the right to receive $52.75 (less
$1.38 in attorneys' fees) per share in cash, and the remaining outstanding
warrants to purchase BGI common stock not owned by Hilton were converted into
the right to receive the difference between $52.75 (less $1.38 in attorneys'
fees) and the exercise price per warrant in cash. The total amount payable to
holders of BGI common stock and warrants in the merger aggregated approximately
$43 million. Holders of BGI common stock are entitled to appraisal rights under
Delaware law in connection with such merger.
BALLY ENTERTAINMENT LITIGATION
Several purported derivative actions against Bally and certain of its former
directors, including Arthur M. Goldberg, originally filed in December 1990 and
January 1991, were consolidated under the caption IN RE: BALLY MANUFACTURING
CORPORATION SHAREHOLDERS LITIGATION in the Court of Chancery of the State of
Delaware, New Castle County. The consolidated complaint alleged, among other
things: breach of fiduciary duty, corporate mismanagement and waste of corporate
assets in connection with certain actions including, among other things, payment
of compensation, certain acquisitions by Bally, the dissemination of allegedly
materially false and misleading information, the restructuring of Bally's debt,
and a subsidiary's allegedly discriminatory practices. The plaintiffs sought,
among other things: (i) injunctions against payment of certain termination
compensation benefits and implementation of the restructuring plan; (ii)
rescission of consummated transactions and a declaration that the complained of
transactions are null and void; (iii) an accounting by individual defendants of
damages to Bally and benefits received by such defendants; (iv) the appointment
of a representative to negotiate on behalf of the former Bally stockholders in
connection with any restructuring; and (v) costs and disbursements, including a
reasonable allowance for the fees and expenses of plaintiff's attorneys,
accountants and experts. On November 6, 1997, this litigation was dismissed by
stipulation of the parties with the approval of the court.
In management's opinion, disposition of pending litigation against the
Company, including the litigation described above, is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
31
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
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 70
Officer until February 1996, and President until February 1993
Stephen F. Bollenbach President and Chief Executive Officer since February 1996 55
Thomas E. Gallagher Executive Vice President and General Counsel since July 1997 53
Arthur M. Goldberg Executive Vice President and President--Gaming Operations since 56
December 1996
Matthew J. Hart Executive Vice President and Chief Financial Officer since May 45
1996
Dieter H. Huckestein Executive Vice President and President--Hotel Operations since 54
May 1994, and Senior Vice President-- Hawaii/California/Arizona
Region until May 1994
</TABLE>
Unless otherwise noted in the table, all positions and offices with the
Company indicated have been continuously held since January 1993. 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.
All of the above named executive officers are directors of the Company,
except for Messrs. Gallagher and Hart. Prior to joining Hilton, Mr. Gallagher
served as President and Chief Executive Officer of The Griffin Group, Inc. since
April 1992, and was a partner with the law firm of Gibson, Dunn & Crutcher until
April 1992. During 1995 and 1996, Mr. Gallagher also served as President and
Chief Executive Officer of Griffin Gaming & Entertainment, Inc. (formerly
Resorts International, Inc.). Prior to joining Hilton, Mr. Hart served as Senior
Vice President and Treasurer of The Walt Disney Company since October 1995, and
as Executive Vice President and Chief Financial Officer of Host Marriott
Corporation until October 1995.
Additional 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 7, 1998 (the "Proxy Statement"). Reference is expressly made to the Proxy
Statement for the specific information incorporated herein by the aforesaid
reference. See "Cover Page-- Documents Incorporated by Reference."
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and PRIDES are listed on the New York and Pacific
Stock Exchanges and are traded under the symbols "HLT" and "HLT PR,"
respectively. 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 54 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. The
Plan expires on July 25, 1998, unless it is extended or the Rights have been
terminated, exercised or redeemed.
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 4.8 hereto, and the
foregoing summary is qualified in its entirety by reference to Exhibit 4.8.
ITEM 6. SELECTED FINANCIAL DATA
See the Five Year Summary on page 55 in the Stockholders Report and
"Segments of Business" in the Notes to the Company's Consolidated Financial
Statements on pages 51 and 52 in the Stockholders Report.
The ratio of earnings to fixed charges for the five years ended December 31,
1997 is as follows: 1997 - 3.1 to 1; 1996 - 3.3 to 1; 1995 - 3.2 to 1; 1994 -
2.8 to 1; and 1993 - 2.7 to 1. The ratio of earnings to
33
<PAGE>
combined fixed charges and preferred stock dividends for the five years ended
December 31, 1997 is as follows: 1997 - 2.8 to 1; 1996 - 3.3 to 1; 1995 - 3.2 to
1; 1994 - 2.8 to 1; and 1993 - 2.7 to 1. The computation of the aforesaid ratios
is set forth in Exhibit 12 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages 26 through 35 in the Stockholders Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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>
Consolidated statements of income for
the three years ended December 31, 1997.............................................. 36
Consolidated balance sheets as of December 31, 1997 and 1996........................... 37
Consolidated statements of cash flow for
the three years ended December 31, 1997.............................................. 38
Consolidated statements of stockholders' equity for
the three years ended December 31, 1997.............................................. 39
Notes to consolidated financial statements............................................. 40
Report of independent public accountants............................................... 53
Segment data for the five years ended December 31, 1997
contained in the Five Year Summary................................................... 55
</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 of the Company" 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 "Security
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.
34
<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 34 hereof.
2. Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................... 36
Schedule II--Valuation and Qualifying Accounts......................................... 37
</TABLE>
All other schedules are inapplicable or the required information is included
elsewhere herein.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K, dated December 17, 1997,
under the caption "Item 5. Other Events." This filing reported the sale of $200
million of 7.20% Senior Notes due 2009 and $200 million of 7.50% Senior Notes
due 2017, the announcement by the Company of certain non-recurring charges in
the fourth quarter of 1997 and the extension by the Company's Board of Directors
of the prior authorization for repurchases by the Company of its Common Stock.
(C) EXHIBITS
Reference is made to the Index to Exhibits immediately preceding the
exhibits hereto.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
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
2, 1998. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule II to consolidated
financial statements as shown on page 37 is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. The supplemental schedule to the consolidated financial statements
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states 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 2, 1998
36
<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, 1997
Allowance for doubtful accounts
Hotel and other......................................... $ 10 4 (2) 2 -- 10
Casino.................................................. 30 29 (1) 34 -- 24
Reserve for loss on investments........................... 6 -- -- 4 -- 2
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
Hotel and other......................................... $ 12 4 (2) 5 1(A) 10
Casino.................................................. 18 25 -- 26 13(A) 30
Reserve for loss on investments 20 6 -- 20 -- 6
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
Hotel and other......................................... $ 14 6 (1) 7 -- 12
Casino.................................................. 18 20 -- 20 -- 18
Reserve for loss on investments........................... 21 -- -- 1 -- 20
</TABLE>
- ---------
(A) Represents balances acquired during the period.
37
<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 26, 1998.
HILTON HOTELS CORPORATION
(Registrant)
By: MATTHEW J. HART
-----------------------------------
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
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 26, 1998.
<TABLE>
<S> <C>
STEPHEN F. BOLLENBACH DIETER H. HUCKESTEIN
- ------------------------------------------- -------------------------------------------
Stephen F. Bollenbach Dieter H. Huckestein
President and Chief Executive Officer Director
A. STEVEN CROWN ROBERT L. JOHNSON
- ------------------------------------------- -------------------------------------------
A. Steven Crown Robert L. Johnson
Director Director
PETER M. GEORGE DONALD R. KNAB
- ------------------------------------------- -------------------------------------------
Peter M. George Donald R. Knab
Director Director
ARTHUR M. GOLDBERG BENJAMIN V. LAMBERT
- ------------------------------------------- -------------------------------------------
Arthur M. Goldberg Benjamin V. Lambert
Director Director
MATTHEW J. HART DONNA F. TUTTLE
- ------------------------------------------- -------------------------------------------
Matthew J. Hart Donna F. Tuttle
Executive Vice President and Director
Chief Financial Officer
(Chief Financial and Accounting Officer)
BARRON HILTON SAM D. YOUNG, JR.
- ------------------------------------------- -------------------------------------------
Barron Hilton Sam D. Young, Jr.
Chairman of the Board Director
ERIC M. HILTON
- -------------------------------------------
Eric M. Hilton
Director
</TABLE>
38
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NUMBER DESCRIPTION PAGE
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<C> <S> <C>
3.1 Restated Certificate of Incorporation of Registrant, as amended (incorporated herein by reference
from Exhibit 4.1 to Registrant's Registration Statement on Form S-3 (File No. 333-18523))
3.2 Amendment to Restated Certificate of Incorporation of Registrant, relating to Exhibit 3.1 hereto
(incorporated herein by reference from Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1997)
3.3 By-Laws of Registrant, as amended (incorporated herein by reference from Exhibit 4.2 to
Registrant's Registration Statement on Form S-3 (File No. 333-18523))
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 Indenture, dated as of May 14, 1996, between Registrant and The Bank of New York, regarding
Registrant's 5% Convertible Subordinated Notes due 2006 (incorporated herein by reference from
Exhibit 4.6 to Registrant's Registration Statement on Form S-4 (File No. 333-10415))
4.5.1 Indenture, dated as of April 15, 1997, between Registrant and BNY Western Trust Company, regarding
Registrant's Debt Securities (incorporated herein by reference from Exhibit 4.3 to Registrant's
Current Report on Form 8-K, dated April 15, 1997)
4.5.2 Officers' Certificate containing terms of 7.95% Senior Notes due 2007 (incorporated herein by
reference from Exhibit 99 to Registrant's Current Report on Form 8-K, dated April 15, 1997)
4.5.3 Officers' Certificate containing terms of 7.375% Senior Notes due 2002 (incorporated herein by
reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated June 4, 1997)
4.5.4 Officers' Certificate containing terms of 7% Senior Notes due 2004 (incorporated herein by
reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated July 17, 1997)
4.5.5 Officers' Certificate containing terms of 7.20% Senior Notes due 2009 and 7.5% Senior Notes due
2017 (incorporated herein by reference from Exhibit 4.1 to Registrant's Current Report on Form
8-K, dated December 17, 1997)
</TABLE>
39
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<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- -------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
4.6 Credit Agreement, dated as of October 18, 1996, among Registrant, the financial institutions
signatory thereto, Morgan Guaranty Trust Company of New York, as documentation agent and The Bank
of New York, as administrative agent (incorporated herein by reference from Exhibit 4.5 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)
4.7 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)
4.8 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)
4.9 Agreement Amending Rights Agreement, dated as of July 13, 1990, among Registrant, The First
National Bank of Chicago and Manufacturers Hanover Trust Company of California, relating to
Exhibit 4.8 hereto (incorporated herein by reference from Exhibit 8 to Registrant's Form 8-A,
dated May 2, 1996)
4.10 Form of Certificate of Designations, Preferences, Rights and Limitations of Registrant's Preferred
Redeemable Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(incorporated herein by reference from Exhibit 4.10 to Registrant's Registration Statement on Form
S-4 (File No. 333-10415))
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 Amendment, dated November 14, 1996, to the 1984 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.1 and 10.2 hereto (incorporated herein by reference from
Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.4 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)*
10.5 Amendment, dated January 20, 1994, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibit 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, 1993)*
10.6 Amendment, dated January 19, 1995, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.4 and 10.5 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)*
</TABLE>
40
<PAGE>
<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- -------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.7 Amendment, dated November 14, 1996, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.4, 10.5 and 10.6
hereto (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996)*
10.8 1996 Stock Incentive Plan of Registrant, as amended*..............................................
10.9 1996 Chief Executive Stock Incentive Plan of Registrant (incorporated herein by reference from
Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995)*
10.10 1997 Independent Director Stock Option Plan of Registrant*........................................
10.11 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)*
10.12 Amendment, dated as of January 1, 1994, to the Incentive Compensation Plan of Registrant, relating
to Exhibit 10.11 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)*
10.13 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)*
10.14 First Amendment, dated as of November 15, 1995, to the Retirement Plan of Registrant, relating to
Exhibit 10.13 hereto (incorporated herein by reference from Exhibit 10.11 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995)*
10.15 Second Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to
Exhibits 10.13 and 10.14 hereto (incorporated herein by reference from Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.16 Third Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to
Exhibits 10.13, 10.14 and 10.15 hereto (incorporated herein by reference from Exhibit 10.16 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.17 Amendment, effective January 1, 1997, to the Retirement Plan of Registrant, relating to Exhibits
10.13, 10.14, 10.15 and 10.16 hereto*.............................................................
10.18 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)*
10.19 Amendment, effective April 1, 1994, to the Supplemental Executive Retirement Plan of Registrant,
relating to Exhibit 10.18 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)*
10.20 Amendment, effective December 31, 1996, to the Supplemental Executive Retirement Plan of
Registrant, relating to Exhibits 10.18 and 10.19 hereto (incorporated herein by reference from
Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
</TABLE>
41
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<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- -------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.21 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)*
10.22 First Amendment, dated July 31, 1997, to the Directors' Retirement Benefit Plan of Registrant,
relating to Exhibit 10.21 hereto*.................................................................
10.23 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)*
10.24 Amendment, dated as of January 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibit 10.23 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)*
10.25 Amendment, effective April 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibits 10.23 and 10.24 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)*
10.26 Amendment, effective December 31, 1996, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibits 10.23, 10.24 and 10.25 hereto (incorporated herein by reference from Exhibit
10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.27 Thrift Savings Plan of Registrant, as amended and restated (incorporated herein by reference from
Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.28 Amendment, effective January 1, 1996, to the Thrift Savings Plan of Registrant, relating to
Exhibit 10.27 hereto (incorporated herein by reference from Exhibit 10.26 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996)*
10.29 Amendment, effective January 1, 1997, to the Thrift Savings Plan of Registrant, relating to
Exhibits 10.27 and 10.28 hereto*..................................................................
10.30 Executive Deferred Compensation Plan of Registrant, as amended (incorporated herein by reference
from Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1996)*
10.31 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant,
relating Exhibit 10.30 hereto (incorporated herein by reference from Exhibit 10.28 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996)*
10.32 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant,
relating to Exhibits 10.30 and 10.31 hereto*......................................................
10.33 Employee Stock Purchase Plan of Registrant (incorporated herein by reference from Exhibit 10.29 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.34 Amendment, effective January 1, 1997, to the Employee Stock Purchase Plan of Registrant, relating
to Exhibit 10.33 hereto*..........................................................................
</TABLE>
42
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<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- -------------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.35 Form of Change of Control Agreement between Registrant and each of Thomas E. Gallagher, Matthew J.
Hart, Barron Hilton and Dieter H. Huckestein (incorporated herein by reference from Exhibit 10.16
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.36 Change of Control Agreement, dated as of January 30, 1996, between Registrant and Stephen F.
Bollenbach (incorporated herein by reference from Exhibit 10.31 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)*
10.37 Change of Control Agreement, dated as of April 1, 1997, between Registrant and Arthur M.
Goldberg*.........................................................................................
10.38 Employment Agreement, dated as of February 1, 1996, between Registrant and Stephen F. Bollenbach
(incorporated herein by reference from Exhibit 10.21 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995)*
10.39 Amended Consulting and Employment Agreement, dated as of November 12, 1996, between Registrant and
Arthur M. Goldberg (incorporated herein by reference from Exhibit 10.33 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996)*
10.40 First Amendment, dated as of December 14, 1996, to the Amended Consulting and Employment
Agreement, relating to Exhibit 10.39 hereto (incorporated herein by reference from Exhibit 10.34
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996)*
10.41 Deferred Compensation Agreement, dated as of January 16, 1997, between Registrant and Arthur M.
Goldberg (incorporated herein by reference from Exhibit 10.35 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)*
10.42 Letter Agreement, dated as of October 10, 1996, between Registrant and Raymond C. Avansino, Jr.
(incorporated herein by reference from Exhibit 10.36 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996)*
10.43 Release and Separation Agreement, dated as of February 19, 1997, between Registrant and William C.
Lebo, Jr. (incorporated herein by reference from Exhibit 10.37 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)*
10.44 Release Agreement, dated as of March 5, 1997, between Registrant and Eric M. Hilton (incorporated
herein by reference from Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1997)*
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, 1997...................
21 List of Registrant's Subsidiaries.................................................................
23 Consent of Independent Public Accountants.........................................................
99 Undertakings......................................................................................
</TABLE>
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* 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.
43
<PAGE>
Pursuant to Regulation Section 229.601, 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.
44
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM 10-K
UNDER
SECURITIES EXCHANGE ACT OF 1934
------------------------
HILTON HOTELS CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.8
HILTON HOTELS CORPORATION
1996 STOCK INCENTIVE PLAN, AS AMENDED
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. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
l. "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.
m. "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.
n. "NONQUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
o. "PLAN" means the Hilton Hotels Corporation 1996 Stock Incentive
Plan, as set forth herein and as hereinafter amended from time to time.
1
<PAGE>
p. "RETIREMENT" means retirement from active employment with the
Corporation, a subsidiary or Affiliate at or after age 62.
q. "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.
r. "STOCK APPRECIATION RIGHT" means a right granted under Section 6.
s. "STOCK OPTION" means an option granted under Section 5.
t. "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 members of the Board,
each of whom shall be an "outside director" for purposes of Section 162(m)(4) of
the Code and a "non-employee director" within the meaning of Rule 16b-3, and
shall be appointed by and serve at the pleasure of the Board.
The Committee shall have authority to grant 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
(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
2
<PAGE>
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 12,000,000. No participant may be granted Awards
covering in excess of 1,200,000 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 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.
3
<PAGE>
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 a 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 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.
4
<PAGE>
(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.
(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
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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, 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.
(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
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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.
(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, (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
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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 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
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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.
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
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(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 10.10
HILTON HOTELS CORPORATION
1997 INDEPENDENT DIRECTOR STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive
advantage in attracting, retaining and motivating non-employee directors 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 Board from time to time as such.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "CHANGE IN CONTROL" means 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, (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 subparagraph (iii) of this definition, 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 definition, 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
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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.
(d) "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 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 in the case of a Stock Option which (A) 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. To the extent that the
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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.
(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) "COMMON STOCK" means common stock, par value $1.00 per
share, of the Corporation.
(h) "CORPORATION" means Hilton Hotels Corporation, a Delaware
corporation.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means permanent and total disability as
determined under procedures established by the Board for purposes of the Plan.
(k) "EMPLOYEE" means any officer or other employee (as defined
in accordance with Section 3401(c) of the Code) of the Corporation or of any
corporation which is a subsidiary of the Corporation.
(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, 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 Board in good faith.
(n) "INDEPENDENT DIRECTOR" means a member of the Board who is
not an Employee.
(o) "PLAN" means the Hilton Hotels Corporation 1997 Independent
Director Stock Option Plan, as set forth herein and as hereinafter amended
from time to time.
(p) "RETIREMENT" means retirement from service as a Director at
or after age 65.
(q) "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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(r) "STOCK OPTION" means a non-qualified option to purchase
Common Stock granted under Section 5.
(s) "TERMINATION OF DIRECTORSHIP" means the time when an
optionee who is an Independent Director ceases to be a Director for any
reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or Retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
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 full Board, acting by a
majority of its members then in office.
The Board shall have plenary authority to grant Stock Options
pursuant to the terms of the Plan to Independent Directors.
Among other things, the Board shall have the authority, subject
to the terms of the Plan to:
(a) Determine the terms and conditions of any Stock Option
granted hereunder (subject to the terms and conditions of the Plan), 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 forfeiture waiver regarding any Stock Option and the
shares of Common Stock relating thereto, in accordance with the terms of the
Plan;
(b) Modify, amend or adjust the terms and conditions of any
Stock Option, at any time or from time to time;
(c) Determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to a Stock Option shall
be deferred; and
The Board 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 Board 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 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
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of their number or any officer of the Corporation to execute and deliver
documents on behalf of the Board.
Any determination made by the Board 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 Board or 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
Board 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 200,000. 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, such as 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 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
Independent Directors are eligible to be granted Stock Options
under the Plan.
SECTION 5. STOCK OPTIONS
No Stock Option granted under the Plan shall constitute an
"incentive stock option" under Section 422 of the Code. Any Stock Option
granted under the Plan shall be in such form as the Board may from time to
time approve.
During the term of the Plan, each person who is an Independent
Director as of the date of the adoption of the Plan by the Board
automatically shall be granted (i) a Stock Option to purchase two thousand
(2,000) shares of Common Stock (subject to adjustment as provided herein) on
the date of such adoption, and (ii) a Stock Option to purchase two thousand
(2,000) shares of Common Stock (subject to adjustment as provided herein) on
the date of each annual meeting of stockholders after such adoption,
beginning with the 1998 annual meeting of
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stockholders, for so long as such person remains an Independent Director.
During the term of the Plan, each person who is initially elected to the
Board after the adoption of the Plan by the Board and who is an Independent
Director at the time of such initial election automatically shall be granted
(i) a Stock Option to purchase two thousand (2,000) shares of Common Stock
(subject to adjustment as provided herein) on the date of such initial
election, and (ii) a Stock Option to purchase two thousand (2,000) shares of
Common Stock (subject to adjustment as provided herein) on the date of each
annual meeting of stockholders after such initial election for so long as
such person remains an Independent Director. All of the foregoing Stock
Option grants authorized by this Section 5 are subject to stockholder
approval of the Plan.
Stock Options shall be evidenced by option agreements, the terms
and provisions of which may differ. The grant of a Stock Option shall occur
on the dates specified above. The Corporation shall notify a participant of
any grant of a 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.
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 Board shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock
purchasable under a Stock Option shall equal 100% of 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 10
years from the date such Stock Option is granted, without variation or
acceleration hereunder, but subject to paragraphs (f), (g), (h) and (i) of
this Section 5, and no 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 from and after the date on which such Stock
Option is granted.
(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
Board 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
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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 8(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) 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) 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 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 pursuant to a qualified domestic relations order.
(f) TERMINATION BY DEATH. Unless otherwise determined by the
Board, if an optionee's directorship terminates by reason of death, any Stock
Option held by such optionee may thereafter be exercised, to the extent then
exercisable, for a period of one year (or such other period as the Board 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.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Board, if an optionee's directorship 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, for a period of one year (or such other period as the Board may
specify in the option agreement) from the date of such termination of
directorship 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.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise
determined by the Board, if an optionee's directorship 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, for a period of
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two years (or such other period as the Board may specify in the option
agreement) from the date of such termination of directorship 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.
(i) OTHER TERMINATION. Unless otherwise determined by the
Board: (A) if an optionee incurs a Termination of Directorship, other than by
death, Disability or Retirement, all Stock Options held by such optionee
shall thereupon terminate; and (B) if an optionee incurs a Termination of
Directorship for any reason other than death, Disability or Retirement, any
Stock Option held by such optionee, to the extent then exercisable, may be
exercised, for the lesser of three months from the date of such Termination
of Directorship 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 Directorship at or after a
Change in Control, 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 Directorship,
and (2) the balance of such Stock Option's term.
(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 Board 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 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 and is subject to Section 16(b) of the
Exchange Act, 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
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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
Board 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. TERM, AMENDMENT AND TERMINATION
The Plan will terminate 10 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 an 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 (i) if
such amendment would increase the limit imposed under Section 3 on the
maximum number of shares of Common Stock reserved and available for grant
under the Plan, or (ii) to the extent such approval is required by law or
agreement.
The Board may amend the terms of any Stock Option 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 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 7. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded"
plan for incentive and deferred compensation. The Board 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 Board otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 8. GENERAL PROVISIONS
(a) The Board may require each person purchasing or receiving
shares pursuant to a Stock Option 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
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certificates for such shares may include any legend which the Board deems
appropriate to reflect any restrictions on transfer.
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:
(i) 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;
(ii) 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 Board shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
(iii) Obtaining any other consent, approval, or permit from
any state or Federal governmental agency which the Board 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 or Directors.
(c) Adoption of the Plan shall not confer upon any Independent
Director any right to continue to serve as a Director, nor shall it interfere
in any way with the right of the Corporation to terminate the directorship of
any Independent Director 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 Stock Option under the Plan, the participant
shall pay to the Corporation, or make arrangements satisfactory to the Board
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. 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 Board may establish such
procedures as it deems appropriate, including making irrevocable elections,
for the settlement of withholding obligations with Common Stock.
(e) The Board 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.
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(f) The Plan and all Stock Options granted 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 9. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of July 16, 1997, 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 10.17
AMENDMENT TO
HILTON HOTELS RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1987)
WHEREAS, Hilton Hotels Corporation (the "Company") maintains the
Hilton Hotels Retirement Plan ("Plan"); and
WHEREAS, the Company has the right to amend the Plan on behalf of
itself and all Participating Affiliates; and
WHEREAS, the Company wishes to amend the Plan to provide that the
monthly benefits for participants who retire but and are subsequently rehired
shall continue to be paid following such rehire, to provide that eligibility
for the minimum benefit provided under the Plan shall be based upon vesting
service through December 31, 1996, rather than benefits service, and to
provide for payment of lump sum benefits up to an actuarial equivalent of
$5,000, as permitted by recent legislation; and
WHEREAS, it remains the intent of the Company that retirement
benefit payments under the Plan shall only commence upon the actual
retirement of a participant, and that a termination of employment is not
considered an actual retirement if there exists an intent to rehire the
participant; and
WHEREAS, benefit accruals under the Plan were frozen effective
December 31, 1996 and remain frozen notwithstanding the
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adoption this amendment;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Participants whose retirement or earlier Break in Employment
occurs on or after January 1, 1997 shall be eligible to receive the minimum
benefits described in Section 4.1(b) of the Plan if, as of the date of
retirement or earlier Break in Employment, the Participant has either (i)
completed ten or more Years of Vesting Service, or (ii) attained age 55 and
completed five or more Years of Vesting Service. For purposes of the
foregoing sentence, only Years of Vesting Service completed on or before
December 31, 1996 shall be considered. The rule described in the preceding
two sentences applies only to determine eligibility for the minimum benefits.
The amount of the Normal, Early or Late Retirement Benefit shall continue to
be calculated based upon years of Benefit Service as provided in Article IV
of the Plan.
2. The first sentence of Section 4.9(d) of the Plan is amended to
read as follows effective January 1, 1998:
"(d) In the event the Actuarial Equivalent of a Participant's vested
accrued benefit is determined as of his Break in Employment, or the
Surviving Spouse Benefit, is $5,000 or less, the Committee shall pay such
Actuarial Equivalent in the form of a single lump sum as soon as
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administratively feasible, in lieu of all other benefits under the Plan."
3. 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 has not yet received a distribution, or (ii) a
Surviving Spouse Benefit attributable to the death of a participant which
benefit has not been distributed, is $5,000 or less, such benefit shall be
paid in a single cash lump sum as soon as administratively feasible
following the adoption of this amendment to the Plan. The Actuarial
Equivalent for such distribution shall be determined by applying the
interest and mortality factors applicable to the year in which the payment
is made."
4. Section 4.10 is amended by adding the following new subsection
(d):
"(d) Effective for Participants who are reemployed on or after January 1,
1997, benefit payments shall continue to be made to such Participant
notwithstanding such reemployment."
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IN WITNESS WHEREOF, this Amendment is hereby adopted this ____ day
of January, 1998.
HILTON HOTELS CORPORATION
By_______________________
Its______________________
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EXHIBIT 10.22
FIRST AMENDMENT TO
HILTON DIRECTORS' RETIREMENT BENEFIT PLAN
FIRST AMENDMENT, dated July 31, 1997 (this "First Amendment"), to
Hilton Directors' Retirement Benefit Plan (the "Plan").
WHEREAS, Hilton Hotels Corporation, a Delaware corporation (the
"Company"), maintains the Plan;
WHEREAS, pursuant to Section 6 of the Plan, the Company has
reserved the right to amend the Plan from time to time or to terminate the
Plan at any time;
WHEREAS, the Company desires to amend the Plan as set forth in this
First Amendment; and
WHEREAS, the Company has obtained the Director Consents attached
hereto as Exhibit A;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective July 31, 1997, except as provided in this First
Amendment, each director's accrual of retirement benefits under the Plan
shall cease.
2. Effective July 31, 1997, subject to the consent of such
director, each director's retirement benefits accrued under the Plan as of
such date (as set forth on Schedule A hereto) shall be converted into that
number of Stock Units (as defined below) set forth on Schedule A hereto,
which number is determined by (a) calculating the annual retirement benefit
that such director would receive under the Plan if such retirement benefit
was fully vested and if such director retired from service as a director on
July 31, 1997 at or after age 65, (b) converting the amount obtained in (a)
above to a present value lump sum using a 6.5% discount rate and assuming
that such annual benefit would be paid to such director for ten (10) years,
(c) multiplying the amount obtained in (b) above by a fraction, the numerator
of which is the number of full months that such director served on the Board
of Directors of the Company through July 31, 1997 (not to exceed 120 months),
and the denominator of which is one hundred and twenty (120), and (d)
dividing the amount obtained in (c) above by the Average Fair Market Value
(as defined below) of one share of the Company's Common Stock, par value
$2.50 per share (the "Common Stock"), on July 31, 1997. With respect to
each director, such Stock Units shall be credited to a separate individual
account (an "Account") established and maintained by the Company for the
exclusive purpose of accounting for such director's retirement benefits which
are accrued in terms of Stock Units.
For purposes of the Plan, (a) the term "Stock Unit" shall mean a
measure of value, expressed as a share of the Common Stock, credited to a
director under the Plan, (b) the term "Average Fair Market Value" on July 31,
1997 shall mean the average of the daily closing prices per share of Common
Stock on the New York Stock Exchange Composite Tape or, if not listed
<PAGE>
on such exchange, on any other national securities exchange on which the
Common Stock is listed or on NASDAQ, in any case, for the month of July, or
if there is no regular public trading market for such Common Stock on such
date, the Average Fair Market Value shall be determined by the Board of
Directors of the Company in good faith, and (c) the term "Fair Market Value,"
as of any given date, shall mean the mean between the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange
Composite Tape on such date or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on
NASDAQ; or, if the Common Stock shall not have been traded on such date or if
such exchange is closed on such date, then the Fair Market Value shall be
determined as of the first day prior thereto on which the Common Stock was so
traded; or, if there is no regular public trading market for such Common
Stock on such date, the Fair Market Value shall be determined by the Board of
Directors of the Company in good faith.
3. Section 2 of the Plan is hereby deleted in its entirety and
replaced by the following Section 2:
"SECTION 2
PARTICIPATION
Each person listed on Schedule A hereto shall become a participant
in the Plan on the date (after the effective date of the Plan) he or she has
completed 10 years of service as a director of the Company. Following the
adoption of this First Amendment, no person other than those persons listed
on Schedule A hereto shall become a participant in the Plan."
4. Subsection 3.1 of the Plan is hereby deleted in its entirety
and replaced by the following subsection 3.1:
"3.1. RETIREMENT BENEFIT. A participant who retires as a director
of the Company at or after attaining age 65 years will be entitled to a
retirement benefit in an amount equal to the product obtained by multiplying
(x) the number of Stock Units held in such participant's Account as of the
date of such participant's retirement (the "Retirement Date"), by (y) the
Fair Market Value of one share of Common Stock on the Retirement Date."
5. Subsection 3.2 of the Plan is hereby deleted in its entirety
and replaced by the following subsection 3.2:
"3.2. REINVESTMENT OF DIVIDENDS. On each dividend payment date
with respect to the Common Stock, the Account of each participant shall be
credited with an additional number of whole and fractional Stock Units,
computed to three decimal places, equal to the product of the dividend per
share then payable, multiplied by the number of Stock Units then credited to
such Account, divided by the Fair Market Value of one share of Common Stock
on the date on which such dividend was paid."
6. Subsection 3.3 of the Plan is hereby deleted in its entirety.
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7. Subsection 4.1 of the Plan is hereby deleted in its entirety
and replaced by the following subsection 4.1:
"4.1. PAYMENT OF RETIREMENT BENEFIT. In accordance with each
participant's election, filed with the Company as described below, the
retirement benefits to which such participant is entitled under subsection
3.1 shall be paid in cash to such participant (a) as a lump sum distribution
within 30 days after the Retirement Date, (b) in 5 annual installments
commencing within 30 days after the Retirement Date, plus interest accrued
quarterly thereon at an annual rate equal to the average of the monthly
closing rates applicable to 10-year United States Treasury bonds for the 12
months immediately preceding the date of payment of such installment, or (c)
in 10 annual installments commencing within 30 days after the Retirement
Date, plus interest accrued quarterly thereon at an annual rate equal to the
average of the monthly closing rates applicable to 10-year United States
Treasury bonds for the 12 months immediately preceding the date of payment of
such installment.
Prior to September 1, 1997, each director shall file an initial
election with the Company with respect to the manner of payment of the
retirement benefits to which such director may be entitled, and such director
may, by written notice to the Company no later than one year prior to such
director's Retirement Date, change such election one time."
8. Subsection 4.2 of the Plan is hereby deleted in its entirety
and replaced by the following subsection 4.2:
"4.2. PAYMENT TO BENEFICIARY. In the event of a participant's
death after such participant's Retirement Date but before all payments under
subsection 4.1 have been made to such participant, the unpaid balance
remaining in such participant's Account as of the date of such participant's
death shall be paid to such participant's designated beneficiary hereunder,
if any, and if none, to such participant's estate, in cash as a lump sum
distribution within 30 days of the date of such participant's death."
9. The effectiveness of this First Amendment with respect to each
person listed on Schedule A hereto shall be subject to such person's written
consent to such First Amendment.
10. Except as expressly set forth herein, nothing herein shall be
deemed or construed to alter or amend the Plan in any respect, and, except as
amended and supplemented hereby, the Plan shall remain in full force and
effect in accordance with the provisions thereof. Unless the context
indicates otherwise, each reference in the Plan to "the plan" and the words
"hereof", "hereto" and words of similar import shall mean the Plan, as
amended and supplemented hereby.
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IN WITNESS WHEREOF, the Company has caused this First Amendment to
Hilton Directors' Retirement Benefit Plan to be duly executed, this ___ day of
July, 1997.
HILTON HOTELS CORPORATION
By: ____________________________
Name:
Title:
4
<PAGE>
EXHIBIT 10.29
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
HILTON HOTELS CORPORATION
AMENDING THRIFT SAVINGS PLAN
WHEREAS, this Corporation maintains the Hilton Hotels Thrift Savings
Plan (the "Plan"); and
WHEREAS, this Board of Directors has the authority to amend the Plan;
and
WHEREAS, this Board of Directors, after discussion and deliberation,
has determined that it is desirable to amend the Plan as set forth herein;
NOW, THEREFORE, BE IT RESOLVED, that Section 5.3(b) of the Plan is
amended, effective January 1, 1997, by adding the following Section 5.3(b)(iii)
thereto:
"(iii) Notwithstanding the first sentence of the first paragraph
of this Section 5.3(b), a Participant who was employed by Bally
Entertainment Corporation ("Bally") on or before December 31, 1997 and who
became an employee of the Company upon the Company's acquisition of Bally
shall become vested in his Company Contribution Account to the extent of
twenty percent (20%) upon completion of one Year of Service and twenty
percent (20%) for each additional Year of Service."
<PAGE>
EXHIBIT 10.32
HILTON HOTELS EXECUTIVE DEFERRED COMPENSATION PLAN
AMENDMENT 1997-1
WHEREAS, Hilton Hotels Corporation (the "Company") maintains the
Hilton Hotels Executive Deferred Compensation Plan (the "Plan") for certain
employees of the Company; and
WHEREAS, the Company has determined that it is desirable to amend
the Plan as set forth herein; and
WHEREAS, the Company has the authority to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective January 1,
1997, by adding the following new Section 10.9 thereto:
"10.9 - BALLY'S EMPLOYEES.
Employees of the Company who (i) were employed by Bally
Entertainment Corporation ("Bally's") prior to the Company's acquisition of
Bally's on or about December 18, 1996 (the "Acquisition"), and (ii) had
deferred compensation under any nonqualified deferred compensation
arrangement maintained by Bally's prior to the effective date of the
Acquisition ("Bally's Deferrals") shall be deemed to have deferred such
amounts to their respective Deferral Accounts under this Plan as of the
Acquisition. Bally's Deferrals shall thereafter be administered, construed
and paid solely in accordance with the provisions of this Plan. Provided,
however, that the Company shall have no obligation to pay any amounts with
respect to Bally's Deferrals which were not explicitly
<PAGE>
assumed by the Company pursuant to the terms of the Acquisition."
IN WITNESS WHEREOF, this Amendment 1997-1 is hereby adopted this
_____ day of _______________, 1997.
HILTON HOTELS CORPORATION
By: _________________________
Its: ________________________
2
<PAGE>
EXHIBIT 10.34
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
HILTON HOTELS CORPORATION
AMENDING EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, this Corporation maintains the Hilton Hotels Corporation
Employee Stock Purchase Plan (the "Plan"); and
WHEREAS, this Board of Directors has the authority to amend the Plan;
and
WHEREAS, this Board of Directors, after discussion and deliberation,
has determined that it is desirable to amend the Plan as set forth herein;
NOW, THEREFORE, BE IT RESOLVED, that Section 9 of the Plan is amended,
effective January 1, 1997, to read as follows:
"9. EXERCISE OF OPTION
Unless a Participant's Plan participation is terminated as provided in
Section 11, his or her Option for the purchase of Shares shall be
exercised automatically on the Exercise Date for that Offering Period,
without any further action on the Participant's part, and the maximum
number of whole Shares subject to such Option shall be purchased at
the Option Price with the balance of such Participant's Account. The
Committee may permit the purchase of fractional share interests and
establish such rules as it deems appropriate regarding such purchases.
If any amount remains in a Participant's Account after the exercise of
his or her Option on the Exercise Date: (i) such amount shall be
credited to such Participant's Account for the next Offering Period,
if he or she is then a Participant; or (ii) if such Participant is not
a Participant in the next Offering Period, or if the Committee so
elects, such amount shall be refunded to such Participant as soon as
administratively practicable after such date."
RESOLVED FURTHER, that Section 10 of the Plan is amended, effective
January 1, 1997, by adding the following sentence at the end thereof:
"If the Committee provides for such a recordkeeping service, the
Committee may also require or provide that any dividends paid with
respect to Shares held by the recordkeeper be used by the recordkeeper
to purchase additional Shares. The Committee may also adopt such
rules as it deems appropriate for the delivery or cash-out of
fractional share interests."
<PAGE>
EXHIBIT 10.37
CHANGE OF CONTROL AGREEMENT
AGREEMENT by and between Hilton Hotels Corporation, a Delaware
corporation (the "Company") and Arthur M. Goldberg (the "Employee"), dated as
of the 1st day of April, 1997.
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
assure that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control,
to encourage the Employee's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control,
and to provide the Employee with compensation arrangements upon a Change of
Control which provide the Employee with individual financial security and
which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
<PAGE>
The Employee and the Company are parties to the following
agreements which are being amended to the extent provided in this Change of
Control Agreement:
(i) Amended Consulting and Employment Agreement dated as of
November 12, 1996 by and among the Company, the Employee and Bally
Entertainment Corporation (the "ACE Agreement");
(ii) The First Amendment to Amended Consulting and Employment
Agreement dated as of December 14, 1996 by and among the same parties to the
ACE Agreement (the "FAACE Agreement"; the ACE Agreement and the FAACE
Agreement being collectively referred to herein as the "Employment
Agreement"); and
(iii) The Deferred Compensation Agreement dated as of January 16,
1997 by and between the Company and the Employee (the "Deferred Compensation
Agreement").
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall be the
first date during the "Change of Control Period" (as defined in Section 1(b))
on which a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if the Employee's employment with the Company is
terminated prior to the date on which a Change of Control occurs, and it is
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<PAGE>
reasonably demonstrated that such termination (1) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (2) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination.
(b) The "Change of Control Period" is the period commencing on
the date hereof and ending on the earlier to occur of (i) the third
anniversary of such date or (ii) the first day of the month next following
the Employee's attainment of age 65; PROVIDED, HOWEVER, that commencing on
the date one year after the date hereof, and on each annual anniversary of
such date (such date and each annual anniversary thereof is hereinafter
referred to as the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate on the earlier of (x) three years
from such Renewal Date or (y) the first day of the month coinciding with or
next following the Employee's attainment of age 65, unless at least 60 days
prior to the Renewal Date the Company shall give notice that the Change of
Control Period shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change
of Control" shall mean:
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<PAGE>
(i) The acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act"), (excluding, for this purpose, (A) the Company or
its subsidiaries, (B) any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of the
Company or (C) 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 Foundation, collectively the "Hilton Interests"), of
beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or
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<PAGE>
(ii) Individuals who, as of the date hereof, constitute the Board
(as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least a majority of the directors then comprising the then Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, or (B) a liquidation or dissolution of
the Company or (C) the sale of all or
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<PAGE>
substantially all of the assets of the Company.
3. EMPLOYMENT PERIOD. If there is a Change in Control, the
Company hereby agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of the Company, pursuant to
the terms of this Agreement, for the period commencing on the Effective Date
and ending on the earlier to occur of (a) the third anniversary of such date
or (b) the first day of the month coinciding with or next following the
Employee's attainment of age 65 (the "Employment Period"); provided, however,
that if the Effective Date is prior to December 18, 1999 nothing contained
herein shall prevent the Employee from terminating his employment pursuant to
the notice provision of Section 9(a)(iii) of the Employment Agreement.
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. (i) During the Employment Period,
(A) the Employee's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those
held, exercised and assigned at any time, pursuant to the Employment
Agreement, during the 90-day period immediately preceding the
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<PAGE>
Effective Date and (B) the Employee's services shall be performed at the
location where the Employee was primarily performing his services to the
Company immediately preceding the Effective Date or any office or location
less than thirty-five (35) miles from such location.
(ii) During the Employment Period, the Employee agrees to
serve as, to perform as and to devote such time and attention as is required
by Section 2 of the Employment Agreement.
(b) COMPENSATION. (i) BASE SALARY. During the Employment
Period, the Employee shall receive an annual base salary ("Base Salary") at a
semi-monthly rate at least equal to the highest semi-monthly base salary:
(A) paid to the Employee by the Company; (B) payable to the Employee by the
Company; or (C) deferred by the Employee, pursuant to Section 3 of the
Employment Agreement, during the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period,
the Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
key employees of the Company and its subsidiaries. Any increase in Base
Salary shall not serve to limit or reduce any other
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<PAGE>
obligation to the Employee under this Agreement, the Employment Agreement or
the Deferred Compensation Agreement. Base Salary shall not be reduced after
any such increase.
(ii) ANNUAL BONUS. In addition to Base Salary, the Employee
shall be awarded, for each fiscal year during the Employment Period, an
annual bonus (an "Annual Bonus") (either pursuant to the incentive
compensation plan of the Company or otherwise) in cash at least equal to the
average bonus: (A) paid; (B) payable to; or (C) deferred, pursuant to
Section 3 of the Employment Agreement, by the Employee from the Company and
its subsidiaries in respect of the three fiscal years immediately preceding
the fiscal year in which the Effective Date occurs.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to
Base Salary and Annual Bonus payable as hereinabove provided, the Employee
shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other key employees of the Company and its subsidiaries
(including Company's employee benefit plans, in each case providing benefits
which are the economic equivalent to those in effect or as subsequently
amended). Such plans, practices, policies and programs, in the aggregate,
shall provide the Employee with compensation, benefits and reward
opportunities at least as
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<PAGE>
favorable as the most favorable of such compensation, benefits and reward
opportunities provided by the Company for the Employee under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee, as provided at any time thereafter with respect to other key
employees of the Company and its subsidiaries.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Employee and/or the Employee's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
subsidiaries (including, without limitation, medical, prescription drug,
dental, vision, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs), at least
as favorable as the most favorable of such plans, practices, policies and
programs in effect at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Employee and/or the
Employee's family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries; provided, however, that
nothing contained herein shall abrogate the Company's obligations pursuant to
Section 5(b) of the Employment
-9-
<PAGE>
Agreement, all of which shall continue in full force and effect as if set
forth in full herein.
(v) EXPENSES. During the Employment Period, the Employee shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Employee in accordance with the most favorable policies,
practices and procedures of the Company and its subsidiaries in effect at any
time during the 90-day period immediately preceding the Effective Date or, if
more favorable to the Employee, as in effect at any time thereafter with
respect to other key employees of the Company and its subsidiaries.
(vi) FRINGE BENEFITS. During the Employment Period, the Employee
shall be entitled to fringe benefits, including use of an automobile and
payment of related expenses: (A) in accordance with the most favorable
plans, practices, programs and policies of the Company and its subsidiaries
in effect at any time during the 90-day period immediately preceding the
Effective Date; or (B) if more favorable to the Employee, as in effect at any
time thereafter with respect to other key employees of the Company and its
subsidiaries; or (C) if more favorable to the Employee, in whole or in part,
as provided for in Section 7 of the Employment Agreement, including, but not
by way of limitation, those set forth in Sections 7(b)(2), 7(b)(3)
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<PAGE>
and 7(b)(4) thereof.
(c) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Employee shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance:
(A) at least equal to the most favorable of the foregoing provided to the
Employee by the Company and its subsidiaries at any time during the 90-day
period immediately preceding the Effective Date; or (B) if more favorable to
the Employee, as provided at any time thereafter with respect to other key
employees of the Company and its subsidiaries; or (C) if more favorable to
the Employee, in whole or in part, as provided for in Section 7(b)(1) of the
Employment Agreement.
(d) VACATION. During the Employment Period, the Employee shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its subsidiaries as in
effect at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee, as in effect at any
time thereafter with respect to other key employees of the Company and its
subsidiaries.
(e) INDEMNIFICATION. During the Employment Period and thereafter
the Company agrees to indemnify and hold harmless the
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<PAGE>
Employee pursuant to the provisions of Section 11 of the Employment Agreement
as if the same were set forth in full herein.
5. TERMINATION. (a) DEATH OR DISABILITY. During the Employment
Period this Agreement shall terminate automatically upon the Employee's
death. During the Employment Period the Employee's employment shall not
terminate for disability, which occurrence shall be governed by the terms of
Section 9(b) of the Employment Agreement ("Disability") as if the same were
set forth fully herein.
(b) CAUSE. During the Employment Period the Company may terminate
the Employee's employment for "Cause." For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Employee
and intended to result in substantial personal enrichment of the Employee at
the expense of the Company, (ii) repeated violations by the Employee of the
Employee's obligations under Section 4 (a) of this Agreement which are
demonstrably willful and deliberate on the Employee's part and which are not
remedied in a reasonable period of time after receipt of written notice from
the Company, (iii) the conviction of the Employee of a felony, (iv) any
refusal by the Employee to provide appropriate information or to otherwise
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<PAGE>
participate and cooperate in connection with the obtaining by the Company or
any of its subsidiaries of all licenses, permits and approvals necessary to
the conduct of their gaming business, or (v) the inability of the Employee to
obtain any license, permit or other authorization required to be obtained by
the Employee as a condition to the conduct by the Company or its subsidiaries
of gaming related activities.
(c) GOOD REASON. During the Employment Period the Employee's
employment may be terminated by the Employee for Good Reason. For purposes
of this Agreement, "Good Reason" means
(i) the assignment to the Employee of any duties inconsistent
in any respect with the Employee's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Employee;
(ii) any failure by the Company to comply with
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<PAGE>
any of the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Employee;
(iii) the Company's requiring the Employee to be based at any
office or location other than that described in Section 4(a)(i)(B)
hereof, except for travel reasonably required in the performance of
the Employee's responsibilities;
(iv) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Employee shall be conclusive.
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<PAGE>
Anything in this Agreement to the contrary notwithstanding, a
termination of employment by the Employee for any reason or no reason at any
time up to and including the 30-day period immediately following the first
anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. During the Employment Period, any
termination by the Company for Cause or by the Employee for Good Reason shall
be communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the
provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than fifteen (15) days after
the giving of such notice). The failure by the Employee to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing
of Good Reason shall not waive any right of the Employee hereunder or
preclude the Employee from asserting
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<PAGE>
such fact or circumstance in enforcing his rights hereunder.
(e) DATE OF TERMINATION. During the Employment Period, "Date of
Termination" means the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i)
if the Employee's employment is terminated by the Company other than for
Cause, the Date of Termination shall be the date on which the Company
notifies the Employee of such termination and (ii) if the Employee's
employment is terminated by reason of death, the Date of Termination shall be
the date of death of the Employee.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) If the Employee's employment is terminated during the
Employment Period by reason of the Employee's death, this Agreement shall
terminate without further obligations to the Employee's legal representatives
under this Agreement, other than those obligations specifically provided for
in this Agreement (which shall be paid in accordance with their terms) and
obligations accrued or earned and vested (if applicable) by the Employee as
of the Date of Termination, which shall include for this purpose (i) the
Employee's full Base Salary through the Date of Termination at the rate in
effect on the Date of Termination or, if higher, at the highest rate in
effect at any time from the
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<PAGE>
start of the 90-day period preceding the Effective Date through the Date of
Termination (the "Highest Base Salary"), (ii) the product of (A) the Annual
Bonus paid, payable to, or deferred (pursuant to Section 3 of the Employment
Agreement) by the Employee for the last full fiscal year ending before the
Date of Termination with respect to which an Annual Bonus was awarded,
multiplied by (B) 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 and (iii) any compensation previously deferred, pursuant to
this Agreement, by the Employee (together with any accrued interest thereon)
and not yet paid by the Company and any accrued vacation pay not yet paid by
the Company (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as "Accrued Obligations"). All such Accrued
Obligations shall be paid to the Employee's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
Any and all compensation previously deferred by the Employee pursuant to the
terms of both the Employment Agreement and the Deferred Compensation
Agreement shall be paid in accordance with the terms and conditions of such
agreements. Anything in this Agreement to the contrary notwithstanding, the
Employee's family shall be entitled to receive benefits at least equal to:
(A) the most favorable
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benefits provided by the Company and any of its subsidiaries to surviving
families of employees of the Company and such subsidiaries under such plans,
programs, practices and policies relating to family death benefits, if any,
in accordance with the most favorable plans, programs, practices and policies
of the Company and its subsidiaries in effect at any time during the 90-day
period immediately preceding the Effective Date; or (B) if more favorable to
the Employee and/or the Employee's family, as in effect on the date of the
Employee's death with respect to other key employees of the Company and its
subsidiaries and their families; or (C) if more favorable to the Employee, in
whole or in part, in accordance with the terms of the Employment Agreement.
(b) CAUSE; OTHER THAN FOR GOOD REASON. If the Employee's employment
shall be terminated during the Employment Period for Cause, this Agreement shall
terminate without further obligations to the Employee other than: (i) the
obligation to pay to the Employee the Highest Base Salary through the Date of
Termination plus the amount of any compensation previously deferred, pursuant to
this Agreement, by the Employee (together with accrued interest thereon); and
(ii) to pay to the Employee any compensation previously deferred by the Employee
pursuant to both the Employment Agreement and the Deferred Compensation
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<PAGE>
Agreement; all of which shall be paid in accordance with the terms and
conditions of such agreements. If the Employee terminates employment during
the Employment Period other than for Good Reason, this Agreement shall
terminate without further obligations to the Employee, other than those
obligations accrued or earned and vested (if applicable) by the Employee
through the Date of Termination, including for this purpose, all Accrued
Obligations. All such Accrued Obligations shall be paid to the Employee in a
lump sum in cash within 30 days of the Date of Termination. Any and all
compensation previously deferred by the Employee pursuant to the terms of
both the Employment Agreement and the Deferred Compensation Agreement shall
be paid in accordance with the terms and conditions of such Agreements.
(c) GOOD REASON; OTHER THAN FOR CAUSE. If, during the Employment
Period, the Company shall terminate the Employee's employment other than for
Cause, or death or if the Employee shall terminate his employment for Good
Reason:
(i) the Company shall pay to the Employee in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. to the extent not theretofore paid, the Employee's
Highest Base Salary through the Date of Termination; and
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B. the product of (x) the Annual Bonus paid, payable to, or
deferred (pursuant to Section 3 of the Employment Agreement) by
the Employee for the last full fiscal year (if any) ending during
the Employment Period or, if higher, for the last full fiscal
year prior to the Effective Date (as applicable, the "Recent
Bonus") and (y) 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; and
C. the product of (x) 2.99 and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus; and
D. in the case of compensation previously deferred,
pursuant to this Agreement, by the Employee, all amounts
previously deferred (together with any accrued interest thereon)
and not yet paid by the Company, and any accrued vacation pay not
yet paid by the Company; and
E. the Employee shall be entitled to receive a lump-sum
cash payment equal to the amount which the Company would have
credited to the Employee's
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Company Contribution Account under the Company's Executive
Deferred Compensation Plan (the "Deferred Compensation Plan")
during the remainder of the Employment Period if during the
remainder of the Employment Period the Employee had deferred
the maximum amount of the Employee's compensation which the
Employee could have deferred under the Deferred Compensation
Plan and if the Employee's annual compensation during the
Employment Period were equal to the sum of the Employee's
Highest Base Salary and Recent Bonus. For the purposes of
determining the amount of this cash payment, no adjustment
shall be made for any amounts which the Company would have
contributed to the Employee's account in the Hilton Hotels
Thrift Savings Plan during the Employment Period; and
F. any and all compensation previously deferred by the
Employee pursuant to the terms of both the Employment Agreement
and the Deferred Compensation Agreement shall be paid in
accordance with the terms and conditions of such agreements.
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy
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may provide, the Company shall continue benefits to the Employee and/or the
Employee's family at least equal to: (A) those which would have been
provided to them in accordance with the plan, programs, practices and
policies described in Sections 4(b)(iv) and (vi) of this Agreement if the
Employee's employment had not been terminated, including health insurance and
life insurance, in accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries during the 90-day
period immediately preceding the Effective Date; or (B) if more favorable to
the Employee, as in effect at any time thereafter with respect to other key
employees and their families and for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and policies, the
Employee shall be considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such period; or (C)
if more favorable to the Employee, in whole or in part, in accordance with
the terms of the Employment Agreement.
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7. NON-EXCLUSIVITY OF RIGHTS. During and after the Employment
Period nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any benefit, bonus, incentive or other
plans, programs, policies or practices, provided by the Company or any of its
subsidiaries and for which the Employee may qualify, nor shall anything
herein limit or otherwise affect such rights as the Employee may have under
any stock option or other agreements with the Company or any of its
subsidiaries (including, but not by way of limitation, the Employment
Agreement and the Deferred Compensation Agreement). Amounts which are vested
benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its subsidiaries
at or subsequent to the Date of Termination shall be payable in accordance
with such policy, practice or program and all amounts or benefits due to the
Employee or his family pursuant to the Employment Agreement and the Deferred
Compensation Agreement shall be payable or paid in accordance with the terms
and conditions of such agreements.
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<PAGE>
8. FULL SETTLEMENT. The Company's obligation to make payments
provided for in this Agreement and otherwise to perform its obligations
hereunder and under the Employment Agreement and the Deferred Compensation
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Employee or others. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement. In
addition to the Company's obligations pursuant to the Employment Agreement
and the Deferred Compensation Agreement, and not in substitution therefore,
if the Employee is employed by the Company on the date upon which the
Effective Date occurs, the Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Employee may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Employee, the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement, the
Employment Agreement and the Deferred Compensation Agreement or any guarantee
of performance thereof (including as a result of any contest by the Employee
about the amount of any payment pursuant to Section 9 of this Agreement,
Section 10 of the Employment Agreement or Section
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<PAGE>
3 of the Deferred Compensation Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee, pursuant to the terms of this
Agreement, but determined without regard to any payments required under this
Section 9 (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, amended (the "Code"), or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that,
after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax,
imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
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<PAGE>
determinations required to be made under this Section 9, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, shall
be made by Arthur Andersen & Co. (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Employee within
15 business days of the Date of Termination, if applicable, or such earlier
time as is requested by the Company. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, or that an amount
is payable that is less than the Employee believes is proper (of which fact
the Employee shall give notice to the Accounting Firm), it shall furnish the
Employee with a written opinion that failure to report the Excise Tax (or a
lesser Excise Tax) on the Employee's applicable federal income tax return
would
-26-
<PAGE>
not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and
the Employee. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9 (c) and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit
of the Employee.
(c) The Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Employee knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the thirty-day
period following the date on which it gives such
-27-
<PAGE>
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
the Employee in writing prior to the expiration of such period that it
desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order to effectively
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
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<PAGE>
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Employee to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Employee agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; PROVIDED FURTHER,
HOWEVER, that if the Company directs the Employee to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Employee, on an interest-free basis and shall indemnify and hold the Employee
harmless, on an after-tax basis from any Excise Tax, income tax, or
employment tax, including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and provided further that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Employee with respect to which such contested amount is claimed to be due
is limited
-29-
<PAGE>
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by
the Company pursuant to Section 9(c), the Employee becomes entitled to
receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 9(c) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Employee of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Employee shall not be entitled to any refund
with respect to such claim and the Company does not notify the Employee in
writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) Notwithstanding anything contained in this Section
-30-
<PAGE>
9 to the contrary, if it shall be determined that any payment or distribution
made by the Company pursuant to the Employment Agreement or the Deferred
Compensation Agreement to or for the benefit of the Employee would be subject
to the excise tax imposed by Section 4999 of the Code, then, the Employee
shall be entitled to receive an Excise Tax Gross-Up Payment as such term is
respectively defined in Section 10 of the Employment Agreement and Section 3
of the Deferred Compensation Agreement all in accordance with such Sections
of those agreements.
10. CONFIDENTIAL INFORMATION. The Employee 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
subsidiaries, and their respective businesses, which shall have been obtained
by the Employee during the Employee's employment by the Company or any of its
subsidiaries and which shall not be or become public knowledge (other than by
acts by the Employee or his representatives in violation of this Agreement).
After termination of the Employee's employment with the Company, the Employee
shall not, without the prior written consent of the Company, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall
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<PAGE>
an asserted violation of the provisions of this Section 10 constitute a basis
for deferring or withholding any amounts otherwise payable to the Employee
under this Agreement, the Employment Agreement or the Deferred Compensation
Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Employee
and without the prior written consent of the Company shall not be assignable
by the Employee otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Employee'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 will 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 to assume
expressly and agree to perform this Agreement, the Employment Agreement and
the Deferred Compensation Agreement in the same manner and to the same extent
that the Company would be required to perform such agreements if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which
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<PAGE>
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. 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 otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder 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 EMPLOYEE:
Mr. Arthur M. Goldberg
Executive Vice President, Hilton Hotels Corporation
and President - Gaming Operations
3930 Howard Hughes Parkway
Fifth Floor
Las Vegas, Nevada 89109
IF TO THE COMPANY:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90209
Attention: General Counsel
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<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice 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.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Employee's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or
any other provision thereof.
(f) The Company represents and warrants that: (i) it is fully
authorized and empowered to enter into this Agreement; (ii) that its Board of
Directors has approved this Agreement; and (iii) that the performance of its
obligations under this Agreement will not violate any agreement between it
and any other person, firm or organization.
(g) This Agreement may be executed in two or more counterparts and
by facsimile, all of which when taken together shall constitute a signed
agreement.
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<PAGE>
(h) Until the Effective Date, the Employment Agreement and
Deferred Compensation Agreement shall remain in full force and effect and
thereafter shall remain in full force and effect according to their terms,
except as amended or modified by this Agreement.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EMPLOYEE
/s/ Arthur M. Goldberg
------------------------------
Arthur M. Goldberg
HILTON HOTELS CORPORATION
By /s/ James M. Anderson
---------------------------
Attest: /s/ Cheryl L. Marsh
-------------------------
Secretary
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<PAGE>
EXHIBIT 11
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
BASIC
- ---------------------------------------------------------------
Income (in millions)
Before extraordinary item.................................. $ 250 $ 156 $ 173
Deduct dividends on preferred shares....................... (13) -- --
------------- ------------- -------------
Income applicable to common stock before extraordinary
item..................................................... 237 156 173
Extraordinary item, net.................................... -- (74) --
------------- ------------- -------------
Income applicable to common stock.......................... $ 237 $ 82 $ 173
------------- ------------- -------------
------------- ------------- -------------
Shares
Weighted average common shares............................. 249,723,000 197,338,000 193,015,000
------------- ------------- -------------
------------- ------------- -------------
Basic earnings per common share
Income before extraordinary item........................... $ 0.95 $ 0.79 $ 0.90
Extraordinary item......................................... -- (0.38) --
------------- ------------- -------------
Net income................................................. $ 0.95 $ 0.41 $ 0.90
------------- ------------- -------------
------------- ------------- -------------
DILUTED
- ---------------------------------------------------------------
Income (in millions)
Before extraordinary item.................................. $ 250 $ 156 $ 173
Add after tax interest applicable to 5% convertible
notes.................................................... 15 9 --
------------- ------------- -------------
Before extraordinary item, as adjusted..................... 265 165 173
Extraordinary item, net.................................... -- (74) --
------------- ------------- -------------
Net income................................................. $ 265 $ 91 $ 173
------------- ------------- -------------
------------- ------------- -------------
Shares
Weighted average common shares - basic..................... 249,723,000 197,338,000 193,015,000
Assuming conversion of preferred stock..................... 13,645,000 477,000 --
Assuming conversion of 5% convertible notes................ 15,489,000 9,785,000 --
Dilutive effect of assumed option exercises (as determined
by the application of the treasury stock method)......... 2,374,000 1,756,000 1,643,000
------------- ------------- -------------
Common and common equivalent shares as adjusted............ 281,231,000 209,356,000 194,658,000
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings per common share
Income before extraordinary item........................... $ 0.94 $ 0.79 $ 0.89
Extraordinary item......................................... -- (0.35) --
------------- ------------- -------------
Net income................................................. $ 0.94 $ 0.43(1) $ 0.89
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ---------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 13 of Statement of Financial
Accounting Standards No. 128 because it produces an anti-dilutive result.
1
<PAGE>
EXHIBIT 12
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollar amounts in millions) (unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before income taxes and minority
interest (1)............................................................ $ 440 $ 235 $ 262 $ 184 $ 156
Add:
Interest expense (1).................................................... 181 96 114 95 90
Distributions from less than 50% owned companies........................ 10 18 13 12 6
Interest component of rent expense (1)(2)............................... 6 4 4 3 3
--------- --------- --------- --------- ---------
Earnings available for fixed charges...................................... $ 637 $ 353 $ 393 $ 294 $ 255
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fixed charges:
Interest expense (1).................................................... $ 181 $ 96 $ 114 $ 95 $ 90
Capitalized interest.................................................... 18 7 3 8 2
Interest component of rent expense (1)(2)............................... 6 4 4 3 3
--------- --------- --------- --------- ---------
Total fixed charges....................................................... $ 205 $ 107 $ 121 $ 106 $ 95
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges........................................ 3.1x 3.3x 3.2x 2.8x 2.7x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ---------
(1) Includes 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
1
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(dollar amounts in millions) (unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before income taxes and minority
interest (1)............................................................ $ 440 $ 235 $ 262 $ 184 $ 156
Add:
Interest expense (1).................................................... 181 96 114 95 90
Distributions from less than 50% owned companies........................ 10 18 13 12 6
Interest component of rent expense (1)(2)............................... 6 4 4 3 3
--------- --------- --------- --------- ---------
Earnings available for combined fixed charges and preferred stock
dividends............................................................... $ 637 $ 353 $ 393 $ 294 $ 255
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fixed charges and preferred stock dividends:
Interest expense (1).................................................... $ 181 $ 96 $ 114 $ 95 $ 90
Capitalized interest.................................................... 18 7 3 8 2
Interest component of rent expense (1)(2)............................... 6 4 4 3 3
Preferred stock dividends............................................... 23 1 -- -- --
--------- --------- --------- --------- ---------
Total combined fixed charges and preferred stock dividends................ $ 228 $ 108 $ 121 $ 106 $ 95
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to combined fixed charges and preferred stock
dividends............................................................... 2.8x 3.3x 3.2x 2.8x 2.7x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ---------
(1) Includes 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
2
<PAGE>
HILTON HOTELS CORPORATION
1997 FINANCIAL REVIEW
26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
36 CONSOLIDATED STATEMENTS OF INCOME
37 CONSOLIDATED BALANCE SHEETS
38 CONSOLIDATED STATEMENTS OF CASH FLOW
39 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
54 SUPPLEMENTARY FINANCIAL INFORMATION
55 FIVE YEAR SUMMARY
<PAGE>
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STRATEGIC AND FINANCIAL OBJECTIVES
Management's primary objective is to maximize shareholder value. Management
will continue to pursue this objective through the execution of the following
strategies -- make efficient use of the Company's strong balance sheet and
favorable capital markets, grow the hotel business by buying and owning
full-service hotels in major market locations, expand the Company's gaming
operations through acquisition and new development, leverage the Hilton brand
name worldwide and maximize operating efficiencies. Management believes that
these strategies have resulted, and will continue to result, in strong cash
flow growth and enhanced shareholder value.
FINANCIAL CONDITION
LIQUIDITY
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
EBITDA(1)
Hotels $ 548 392 301
Gaming 539 233 267
Corporate expense, net (78) (48) (25)
-------- ------- -------
Total $1,009 577 543
-------- ------- -------
-------- ------- -------
Net cash provided by operating activities $ 598 438 380
Net cash used in investing activities (625) (530) (127)
Net cash (used in) provided by financing activities (31) 47 (49)
Capital expenditures 531 242 186
Additional investments 154 104 97
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. EBITDA is presented supplementally because management
believes it allows for a more complete analysis of results of operations.
This information should not be considered as an alternative to any
measure of performance or liquidity as promulgated under generally
accepted accounting principles (such as net income or cash provided by or
used in operating, investing and financing activities) nor should it be
considered as an indicator of the overall financial performance of the
Company. The Company's calculation of EBITDA may be different from the
calculation used by other companies and therefore comparability may be
limited.
EBITDA increased $432 million or 75 percent compared to the prior year. The
increase was primarily attributable to the favorable supply-demand
environment which has led to higher room rates at the Company's owned and
partially owned full-service hotels, the 1996 acquisition of Bally
Entertainment Corporation (Bally) and the 1996 acquisition of the majority of
The Prudential Insurance Company of America's (Prudential) interest in six
full-service hotels.
ACQUISITIONS AND CAPITAL SPENDING
Expenditures required to complete acquisitions and capital spending programs
in 1998 will be financed through available cash flows and general corporate
borrowings. The Company seeks to expand its gaming and hotel segments while
maintaining diversity in its operations and a balance of cash flows generated
by each segment.
GAMING
Growth in the gaming segment occurs primarily through acquisition and new
development. In December 1996, the Company consummated its acquisition of
Bally through the merger of Bally with and into the Company (Bally Merger).
Aggregate consideration consisted of approximately 53 million shares of the
Company's common stock and approximately 15 million shares of the Company's
Preferred Redeemable Increased Dividend Equity Securities, 8% PRIDES,
Convertible Preferred Stock (PRIDES), for a combined equity value of $1.9
billion and assumption of Bally subsidiary debt totaling $1.2 billion.
<PAGE>
HILTON HOTELS CORPORATION
Construction has been completed on the 43% owned Conrad International Punta
del Este Resort and Casino in Punta del Este, Uruguay. This $200 million
project includes a 38,000 square foot casino, which opened in January 1997,
and a 300-room luxury hotel which opened in stages over the latter half of
1997. As of December 31, 1997, the Company had provided $97 million in debt
financing for this project.
In April 1997, the Company began construction on the $760 million, 2,900-room
Paris Casino-Resort which will feature an 85,000 square foot casino, thirteen
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. In addition to a 50-story replica of the
Eiffel Tower, the resort will also feature replications of some of the French
city's most recognized landmarks including the Arc de Triomphe, the Paris
Opera House, The Louvre and rue de la Paix. This project, which is adjacent
to Bally's Las Vegas, is expected to be completed in the 1999 third quarter.
In June 1997, Bally's Grand Inc., a majority owned subsidiary of the Company
which owns Bally's Las Vegas, agreed to settle pending shareholder litigation
and pursuant thereto repurchased certain outstanding shares of common stock
and warrants. As a result, the Company's indirect ownership of Bally's Grand
Inc. increased from 84% to 95% at a cost of $55 million. Under the terms of
the settlement, the Company will acquire the remaining interest it does not
currently own in 1998 for $43 million.
On July 1, 1997, the Company opened its new western-themed casino, The Wild
Wild West in Atlantic City. This $110 million project is located on
approximately four acres of Boardwalk property adjacent to Bally's Park Place
and features a 75,000 square foot casino complex. On July 31, 1997, the
Company opened its new 300-room tower at The Atlantic City Hilton. This $50
million project increased the property's room capacity by nearly 60 percent.
The Company's new themed 22,000 square foot SpaceQuest casino addition at the
Las Vegas Hilton opened in November 1997, in conjunction with its venture
with Paramount Parks, Inc. for an attraction called "Star Trek: The
Experience at the Las Vegas Hilton" which opened in January 1998. The
Company's share of costs for this project totaled approximately $70 million.
In October 1997, the Company acquired a 42% interest in the partnership which
operates Bally's Saloon*Gambling Hall*Hotel in Robinsonville, Mississippi,
thereby increasing the Company's ownership to 100%. Consideration totaled $18
million and included cash and shares of the Company's common stock.
In addition to an estimated $420 million in 1998 expenditures related to the
aforementioned gaming projects, the Company anticipates spending
approximately $140 million in the gaming segment in 1998 on normal capital
replacements, approximately $20 million on structural and technology upgrades
and ADA/safety compliance projects and approximately $60 million on
improvement projects that are evaluated on a ROI basis.
HOTELS
Growth in the hotel segment continues through selective acquisition of large
full-service hotels in major market locations. During the 1996 fourth
quarter, the Company acquired the majority of Prudential's ownership
interests in the Chicago Hilton and Towers, San Francisco Hilton and Towers,
Washington Hilton and Towers, New York Hilton and Towers, Rye Town Hilton and
Capital Hilton hotels for a combined cost of approximately $430 million. In
December 1997 and January 1998, the Company acquired the remaining interests
in such properties, other than Prudential's .5% interest in the New York
Hilton and Towers, for a total cost of $27 million.
<PAGE>
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In February 1997, the Company acquired the 591-room Anchorage Hilton hotel in
Anchorage, Alaska for approximately $67 million. The Company invested an
additional $3 million to renovate certain areas of the hotel.
In July 1997, the Company's Board of Directors approved a renovation of the
New York Hilton and Towers, including new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking New York City. This $85 million project is expected
to be completed in late 1999.
In September 1997, the Company began construction on a new 600-room hotel at
the center of Boston's Logan Airport. This $100 million project is expected
to be completed in late 1999.
In January 1998, the Company purchased The Prospect Company's 92.5% ownership
interest in the 458-room McLean Hilton and office building complex in McLean,
Virginia located just outside Washington D.C., thereby increasing the
Company's ownership to 100%. In March 1998, the Company purchased the
300-room Hilton at Short Hills, a "Five Diamond" hotel located in Short
Hills, New Jersey.
In addition to an estimated $250 million in 1998 expenditures related to the
aforementioned hotel projects, the Company intends to spend approximately
$100 million in the hotel segment in 1998 on normal capital replacements,
upgrades and compliance projects. Additionally, the Company expects to make
further acquisitions in 1998.
OTHER DEVELOPMENTS
In January 1997, the Company finalized various agreements with Ladbroke Group
PLC, whose wholly owned subsidiary, Hilton International Co. (HI), owns the
rights to the Hilton name outside the United States. The agreements provide
for the reunification of the Hilton brand worldwide through a strategic
alliance between the companies, including cooperation on sales and marketing,
loyalty programs and other operational matters. The Company and HI have
integrated their reservation systems and worldwide sales offices, launched
the Hilton HHonors-Registered Trademark- Worldwide loyalty program, and have
developed and are continuing to develop joint marketing initiatives. In
addition, the agreements give the Company the ability to franchise Hilton
properties in Canada and Mexico.
In February 1997, the Company sold its 30% equity interest in the Conrad
International Hong Kong for total consideration of approximately $112
million, or approximately 15 times 1997 EBITDA. The transaction resulted in a
$70 million gain which is being amortized over the remaining life of the
management contract.
The Company continues to improve its franchise business through the expansion
of the Hilton Garden Inn-Registered Trademark- product. At December 31, 1997,
the Company had approximately 100 Garden Inn properties either open, under
construction or in development and expects to have 200 such franchise
properties either open, under construction or in development by the year
2000. In addition, in the fourth quarter of 1997, the Company signed
agreements with Chartwell Leisure Inc. to franchise 20 Garden Inn properties
throughout Mexico.
In January 1997, the Company commenced an offer (the ITT Offer) to acquire
ITT Corporation (ITT) in a combination cash and stock transaction. In
connection with the ITT Offer, the Company sought to have its nominees
elected to the ITT board of directors at the ITT 1997 annual meeting of
shareholders. On November 12, 1997, the shareholders of ITT re-elected the
existing directors of ITT at such annual meeting, and on November 13, 1997,
the Company terminated the ITT Offer. Expenses related to the Company's
attempt to acquire ITT, net of the gain recognized on the sale of ITT stock
previously purchased by the Company, totaled $15 million.
<PAGE>
HILTON HOTELS CORPORATION
LONG-TERM DEBT
Long-term debt at December 31, 1997 totaled $2.7 billion, compared with $2.6
billion at December 31, 1996. In February 1997, the Company redeemed its 6%
Convertible Subordinated Notes due 1998 and its 10% Convertible Subordinated
Notes due 2006. These notes, formerly obligations of Bally, had outstanding
principal balances of $1 million and $70 million, respectively.
At December 31, 1997, $282 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility supported the
issuance of commercial paper, leaving approximately $1.5 billion of the
revolving bank credit facility available to the Company at such date.
During April 1997, the Company issued $375 million of 7.95% Senior Notes due
2007, under an effective shelf registration statement (the Shelf) on file
with the Securities and Exchange Commission registering up to $1 billion in
debt or equity securities. In June 1997, the Company issued $300 million of
7.375% Senior Notes due 2002, under the Shelf. In July 1997, the Company
issued $325 million of 7% Senior Notes due 2004, the remaining balance under
the Shelf. The Company used the proceeds from these offerings to repay its
revolving credit facility and a portion of its commercial paper borrowings
which were incurred primarily to fund cash tender offers to purchase the
outstanding debt securities of former Bally subsidiaries.
In October 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. In December 1997, the Company issued $200 million of 7.2%
Senior Notes due 2009 and $200 million of 7.5% Senior Notes due 2017 under
this shelf.
The weighted average interest rate and term of total debt issued during 1997
was 7.4% and 10 years, respectively. The terms of any additional securities
offered pursuant to the $2.5 billion shelf registration statement will be
determined by market conditions at the time of issuance.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $3.4 billion or $13.53 per share at December 31,
1997. Book value per share was $12.90 in 1996 and $6.50 in 1995. Dividends
paid on common shares were $.32 per share in 1997, $.305 per share in 1996
and $.30 per share in 1994.
Pursuant to the Company's stock repurchase program, during 1997 the Company
repurchased 1.5 million shares, or 7.5 percent of the total authorized to be
repurchased, for an aggregate purchase price of $40 million. The timing of
the stock purchases are made at the discretion of the Company's management,
subject to certain business and market conditions.
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.
The Company has developed preliminary plans to address the possible exposures
related to the impact on its computer systems of the year 2000. Key
financial, information and operational systems are being assessed and
preliminary plans have been developed to address system modifications
required by December 31, 1999. The financial impact of making the required
systems changes is not expected to be material to the Company's financial
position or results of operations.
<PAGE>
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Percent
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 Change
- --------------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
Revenue $5,316 3,940 35%
EBITDA 1,009 577 75
Operating income 596 329 81
Income before extraordinary item 250 156 60
Net income 250 82 205
Basic EPS
Income before extraordinary item per share .95 .79 20
Net income per share .95 .41 132
Diluted EPS
Income before extraordinary item per share .94 .79 19
Net income per share .94 .41 129
</TABLE>
HOTELS
The hotel segment includes the consolidated results of the Company's owned
and leased properties, affiliates operated under long-term management
agreements and franchise fees. Operating results are reduced by the portion
of earnings of non-controlled affiliates applicable to other ownership
interests. At December 31, 1997, the Company owned and partially owned,
managed and franchised 32, 27 and 180 properties, respectively, totaling
approximately 85,000 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. Increased demand has outpaced lodging supply growth
in most markets in which the Company operates, resulting in revenue per
available room (REVPAR) increases at nearly all of the Company's owned and
partially owned hotels and resorts. Hotel revenue for 1997 was $2.7 billion,
an increase of nine percent over 1996. EBITDA for the hotel division was $548
million for 1997, a 40 percent increase compared to 1996, while operating
income increased 65 percent to $448 million. Occupancy for hotels owned or
managed increased to 74.6 percent in 1997 compared to 74.3 percent in 1996
while average room rates increased eight percent. This resulted in an
increase in REVPAR of eight percent for owned or managed hotels over 1996
levels.
Hotel segment results are significantly influenced by the operating results
of the Company's principal downtown/convention, resort and airport locations
where it has large equity interests. A strong domestic economy continues to
fuel increases in both business and leisure travel volume. Room nights
related to individual business travel (IBT), company meetings and leisure
guests each increased from the prior year. Limited supply growth continues to
result in substantial pricing power in many key markets. As a result, the
Company improved margins and increased EBITDA and operating income at nearly
all of its owned and partially owned hotels.
<PAGE>
HILTON HOTELS CORPORATION
Combined EBITDA from the Company's ten major full-service properties
increased $100 million over the prior year. Of this increase, approximately
$54 million resulted from the increased ownership interests acquired from
Prudential and the balance was due to improved operating results. Combined
results from the Waldorf=Astoria and the New York Hilton and Towers increased
$22 million compared to 1996. Continued strong demand, particularly in the
leisure and the higher rate IBT segments, contributed to a double-digit
REVPAR increase at each of these two properties. Double-digit percentage
gains in average room rates and REVPAR led the San Francisco Hilton and
Towers to an $8 million or 25 percent increase in EBITDA compared to last
year. Increased convention volume at the Washington Hilton and Towers and
strong IBT growth at the Capital Hilton led to a combined EBITDA increase of
$8 million at these properties in 1997. Combined EBITDA from the Hilton
Hawaiian Village, impacted by the poor economic conditions in Asia, and the
New Orleans Hilton Riverside and Towers, impacted by the closure of the
Flamingo Casino--New Orleans and a weak city-wide convention year, was even
with the prior year. Occupancy for these ten major full-service hotels (which
includes three properties in Chicago) was 79.3 percent versus 78.9 percent in
1996. The average room rate increased to $165.98 in 1997 from $152.40 and
REVPAR improved ten percent between periods. Combined EBITDA margins
increased two points to 34 percent.
Strong supply-demand fundamentals led to an eight percent increase in REVPAR
at the Company's other 13 full-service domestic owned and partially owned
properties. These properties generated a $25 million increase in EBITDA year
over year, including $11 million in EBITDA from the Anchorage Hilton which
was acquired in February 1997.
Franchise fee revenue, including initial and termination fees, increased $8
million in 1997 to $51 million. Franchise fees are based primarily on a
percentage of rooms revenue.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $5 million in 1997 to $103 million.
Hotel segment results were adversely effected by $25 million of non-recurring
charges ($22 million non-cash) in 1996. These charges included the write-down
of certain investments and notes receivable to estimated fair market value.
Although the supply-demand balance in the Company's major markets generally
remains favorable, future operating results could be adversely impacted by
increased capacity 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.
However, 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 the consolidated results of the Company's owned
properties and affiliates operated under long-term management agreements.
Operating results are reduced by the portion of earnings of non-controlled
affiliates applicable to other ownership interests. The Company operates its
gaming business under the Hilton, Bally, Flamingo and Conrad brand names. The
gaming segment includes five wholly owned and one majority owned Nevada hotel
casinos; two wholly owned Atlantic City hotel casinos; wholly owned riverboat
gaming operations in Kansas City, Missouri and Robinsonville, Mississippi; a
partially owned riverboat gaming operation in New Orleans, Louisiana; two
partially owned hotel casinos in Australia; managed gaming operations in
Windsor, Ontario, Canada; and a partially owned hotel casino in Punta del
Este, Uruguay. The Company also operated a riverboat in New Orleans which
ceased operations on October 1, 1997.
<PAGE>
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Company's Nevada gaming operations offer a diversified product and
service mix which appeal to a broad spectrum of customers. The Flamingo
Hilton--Las Vegas caters to the broad Las Vegas middle market, while Bally's
Las Vegas caters to convention groups and the mid to upper middle market. The
Las Vegas Hilton primarily caters to premium players and the convention
market, however, the property has implemented strategies to broaden its
customer base. 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 82 percent in 1997 to $2.6 billion from $1.4
billion in 1996. Casino revenue, a component of gaming revenue, increased 114
percent to $1.8 billion in 1997 compared to $857 million in the prior year.
EBITDA from the gaming division was $539 million compared to $233 million in
the prior year and gaming operating income increased 109 percent to $228
million from $109 million in 1996. The Company's gaming division benefited
from the addition of the Bally properties in Las Vegas, Atlantic City,
Mississippi and New Orleans, the addition of The Wild Wild West casino in
Atlantic City, improved international results and a return to a normal
baccarat win percentage at the Las Vegas Hilton. Gaming revenue, casino
revenue and EBITDA increased $1.2 billion, $923 million and $298 million,
respectively, as a result of the Bally acquisition.
The completion of a number of room expansion projects and the opening of new
hotel casinos led to a six percent increase in room supply in Las Vegas
compared to the prior year. These capacity additions contributed to a five
point decline in occupancy at the Las Vegas Hilton in 1997, which was offset
slightly by a six percent increase in average room rate. However, a 28
percent increase in the property's premium play baccarat volume combined with
an eight point increase in the baccarat win percentage resulted in a $16
million increase in EBITDA to $45 million in 1997. 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
continued volatility in the results at this property. However, the Company
believes that its implementation of new casino marketing and entertainment
strategies and the opening of the "Star Trek" attraction and SpaceQuest
casino will broaden the Las Vegas Hilton's customer base and create
additional mid-level play.
New capacity additions also affected the Flamingo Hilton--Las Vegas, which
posted a five point decrease in occupancy compared to the prior year. This
decrease in occupancy contributed to a four percent decrease in slot handle
and a seven percent decrease in table game volume resulting in an EBITDA
decrease of $5 million compared to the prior year. Bally's Las Vegas
generated EBITDA of $93 million in 1997, an increase of seven percent from
1996. In addition to a six percent increase in average room rate, which
counteracted the effects of declining occupancy, slot revenue increased by
seven percent on higher volume. Due to the completion of the Bally merger on
December 18, 1996, this property's results included in 1996 were not
significant.
Occupancy for the Nevada hotel casinos was 86.5 percent in 1997 compared to
90.5 percent last year. The average room rate for the Nevada properties was
$76.53 compared to $73.57 in 1996. The 1996 statistical information includes
the results of Bally's Las Vegas for comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $155 million and $29 million, respectively, in 1997. The
properties' results were not significant to the Company last year, however,
full year 1996 EBITDA at these properties totaled $131 million and $38
million, respectively. The results of Bally's Park Place include a new
casino, The Wild Wild West, which opened on July 1, 1997. Revenue from The
Wild Wild West casino has been almost entirely incremental, resulting in
strong margin gains. The Atlantic City Hilton's EBITDA was impacted by a
lower table game win percentage and the effects of its tower construction on
casino volume.
<PAGE>
HILTON HOTELS CORPORATION
Occupancy and average room rate for the Atlantic City hotel casinos were 91.3
percent and $90.35, respectively, in 1997. Although not included in the
Company's 1996 period, occupancy and average room rate were 92.7 percent and
$91.33, respectively.
The gaming segment also benefited from the opening of the Conrad
International Punta del Este Resort and Casino which contributed EBITDA of $9
million in 1997.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $91 million to $214 million in 1997. This
increase primarily resulted from the addition of the Bally properties.
Gaming segment results were adversely effected by non-recurring charges
totaling $102 million ($96 million non-cash) in 1997 and $38 million ($29
million non-cash) in 1996. The 1997 charges include an impairment loss
relating to the Flamingo Casino--Kansas City and an impairment loss and other
costs associated with the closure of the Flamingo Casino--New Orleans. The
1996 charges included the write-off of pre-opening expenses for the Flamingo
Casino--Kansas City and losses associated with a planned relocation of the
Flamingo Casino--New Orleans.
The gaming industry continues to experience growth primarily in existing
markets. The Las Vegas and Atlantic City markets are becoming increasingly
competitive due to new developments and expansion projects which challenge
the Company's existing market share. These projects could adversely impact
the Company's future gaming income.
CORPORATE EXPENSE, NET
Corporate expense increased $28 million in 1997 to $80 million. The 1997
expense includes $25 million in costs related to the Company's efforts to
acquire ITT, $6 million of non-recurring litigation costs and increased costs
associated with the Company's development of its Garden Inn product. These
costs were partially offset by a $10 million gain recognized on the sale of
ITT stock previously purchased by the Company.
FINANCING ACTIVITIES
Interest and dividend income increased $4 million compared with the prior
year. Interest expense, net of amounts capitalized, increased $84 million
primarily due to additional debt resulting from the Bally acquisition.
Interest expense, net, from equity investments increased $6 million over 1996.
INCOME TAXES
The effective income tax rate in 1997 increased to 41.7% from 39.7% in 1996
primarily due to the amortization of non-deductible goodwill recorded as a
result of the Bally acquisition. 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.
<PAGE>
HILTON HOTELS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FISCAL 1996 COMPARED WITH FISCAL 1995
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
PERCENT
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995 CHANGE
- -------------------------------------------------------------- ------- ----------
<S> <C> <C> <C>
Revenue $3,940 3,555 11%
EBITDA 577 543 6
Operating income 329 355 (7)
Income before extraordinary item 156 173 (10)
Net income 82 173 (53)
Basic EPS
Income before extraordinary item per share .79 .90 (12)
Net income per share .41 .90 (54)
Diluted EPS
Income before extraordinary item per share .79 .89 (11)
Net income per share .41 .89 (54)
</TABLE>
HOTELS
Consolidated hotel revenue increased 11 percent in 1996 to $2.5 billion.
REVPAR for owned or managed hotels increased nine percent in 1996. Hotel
EBITDA increased 30 percent in 1996 to $392 million and operating income
increased 31 percent to $272 million.
Combined EBITDA from the Waldorf=Astoria and the New York Hilton and Towers
increased $18 million compared to 1995. Strong IBT and leisure guest volume
contributed to a combined REVPAR increase of 12 percent over the prior year
for these two properties. Double-digit REVPAR growth also helped support a
$15 million combined increase in the EBITDA of the Palmer House Hilton, the
O'Hare Hilton and the Chicago Hilton and Towers. International guest volume
at the Hilton Hawaiian Village increased eight percent over 1995 levels,
contributing to a $7 million increase in EBITDA. International room nights
accounted for over 60 percent of total volume at the Hilton Hawaiian Village
in 1996. Company meeting volume rose 40 percent at the San Francisco Hilton
and Towers, which posted double-digit REVPAR growth and a $10 million
increase in EBITDA. Combined EBITDA from these ten major full-service hotels
and resorts, which also include the Capital Hilton, the New Orleans Hilton
Riverside and Towers and the Washington Hilton and Towers increased $50
million, including $13 million as a result of the increased ownership
interests acquired from Prudential in the fourth quarter of 1996.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $5 million in 1996 to $98 million.
Occupancy for hotels owned or managed increased to 74.3 percent in 1996
compared to 72.8 percent in 1995. Average room rates increased seven percent
over 1995.
GAMING
Total gaming revenue increased ten percent to $1.4 billion in 1996 compared
to $1.3 billion in 1995. Casino revenue was $857 million in 1996 compared to
$791 million in 1995. Gaming EBITDA was $233 million in 1996, a 13 percent
decrease from $267 million in 1995 and gaming operating income was $109
million in 1996, a 39 percent decrease from $179 million in 1995.
EBITDA at the Las Vegas Hilton decreased $61 million compared to the prior
year primarily due to lower than normal drop combined with a significant
reduction in the win percentage on its premium play baccarat business. The
baccarat win percentage decreased 13 points from a more normalized win
percentage in the prior year.
<PAGE>
HILTON HOTELS CORPORATION
Benefiting from a significant renovation and expansion effort completed in
1995, the Flamingo Hilton - Las Vegas posted outstanding results in 1996.
Occupancy increased six points to 95.5 percent and REVPAR increased 15
percent from 1995 levels. EBITDA increased $26 million from the prior year. A
generally soft market affected EBITDA at the Flamingo Hilton - Laughlin which
decreased $3 million compared to 1995. Combined EBITDA from the Reno Hilton
and the Flamingo Hilton - Reno decreased $11 million from the prior year
primarily due to increased competition and adverse weather conditions
resulting in lower occupancy and average room rates.
Occupancy for the Nevada hotel casinos was 90.2 percent and 88.4 percent in
1996 and 1995, respectively. Average room rates increased four percent in
1996.
The EBITDA contribution from the properties acquired in the Bally Merger on
December 18, 1996 were not significant to the 1996 results.
EBITDA from the 19.9% owned Conrad Jupiters, Gold Coast hotel casino in
Australia increased $7 million from 1995, primarily due to increased table
game win and double-digit REVPAR growth. Benefiting from a full year of
operations, EBITDA from the 19.9% owned Conrad International Treasury Casino,
Brisbane increased $4 million.
Depreciation and amortization for the gaming division, including the
Company's proportionate share of depreciation and amortization from its
equity investments, increased $35 million to $123 million in 1996.
CORPORATE EXPENSE, NET
Corporate expense increased $20 million in 1996 to $52 million. The 1996
expense includes a $10 million charge for stock-based compensation related to
the 1996 Chief Executive Stock Incentive Plan and a $5 million non-recurring
charge related to certain executive terminations.
FINANCING ACTIVITIES
Interest and dividend income increased $3 million compared with the prior
year. Interest expense, net of amounts capitalized, decreased $5 million.
Adjusting for realized losses on the sale of certain investments included in
interest expense in 1996, interest expense decreased $13 million. This
decrease is primarily due to lower average debt levels and lower interest
rates. Interest expense, net, from equity investments decreased $5 million
from 1995.
INCOME TAXES
The effective income tax rate in 1996 was 39.7% compared to 36.4% in 1995.
The 1995 effective income tax rate benefited from $6 million in credits
resulting from the favorable resolution of Federal tax issues for prior years
and higher utilization of foreign tax credits.
EXTRAORDINARY LOSS
The costs and expenses incurred in connection with the extinguishment of
debt, including tender and defeasance premiums, resulted in an extraordinary
loss in 1996 totaling $74 million, net of a tax benefit of $52 million.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance, and are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although the Company
believes the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be attained. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
<PAGE>
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
REVENUE
Hotels $2,732 2,517 2,265
Gaming 2,584 1,423 1,290
------ ------ ------
5,316 3,940 3,555
------ ------ ------
EXPENSES
Hotels 2,284 2,245 2,057
Gaming 2,356 1,314 1,111
Corporate, net 80 52 32
------ ------ ------
4,720 3,611 3,200
------ ------ ------
OPERATING INCOME 596 329 355
Interest and dividend income 42 38 35
Interest expense (172) (88) (93)
Interest expense, net, from equity investments (18) (12) (17)
------ ------ ------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 448 267 280
Provision for income taxes 187 106 102
Minority interest, net 11 5 5
------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEM 250 156 173
Extraordinary loss on extinguishment of debt,
net of tax benefit of $52 -- (74) --
------ ------ ------
NET INCOME $ 250 82 173
------ ------ ------
------ ------ ------
BASIC EARNINGS PER SHARE
Income before extraordinary item $ .95 .79 .90
Extraordinary loss -- (.38) --
------ ------ ------
Net income per share $ .95 .41 .90
------ ------ ------
------ ------ ------
DILUTED EARNINGS PER SHARE
Income before extraordinary item $ .94 .79 .89
Extraordinary loss -- (.38) --
------ ------ ------
Net income per share $ .94 .41 .89
------ ------ ------
------ ------ ------
</TABLE>
see notes to consolidated financial statements
<PAGE>
HILTON HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN MILLIONS) DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------- ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 330 388
Temporary investments 43 50
Accounts receivable, net 403 400
Other current assets 235 283
------ ------
Total current assets 1,011 1,121
------ ------
INVESTMENTS, PROPERTY AND OTHER ASSETS
Investments 409 373
Property and equipment, net 4,994 4,698
Goodwill 1,313 1,295
Other assets 99 100
------ ------
Total investments, property and other assets 6,815 6,466
------ ------
TOTAL ASSETS $7,826 7,587
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 865 864
Current maturities of long-term debt 65 101
Income taxes payable 11 3
------ ------
Total current liabilities 941 968
------ ------
Long-term debt 2,709 2,606
Deferred income taxes 603 598
Insurance reserves and other 190 204
------ ------
Total liabilities 4,443 4,376
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% PRIDES convertible preferred stock, 15 million shares outstanding
at the end of each year 15 15
Common stock, 249 million shares outstanding at the end of each year 628 627
Additional paid-in capital 1,759 1,745
Retained earnings 1,040 931
Other 11 4
------ ------
3,453 3,322
Less treasury stock, at cost 70 111
------ ------
Total stockholders' equity 3,383 3,211
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,826 7,587
------ ------
------ ------
</TABLE>
see notes to consolidated financial statements
<PAGE>
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(IN MILLIONS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 250 82 173
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt -- 74 --
Depreciation and amortization 300 178 142
Non-cash items 94 23 --
Amortization of loan costs 3 1 1
Change in working capital components:
Inventories 5 23 (11)
Accounts receivable (3) (13) (41)
Other current assets 41 (19) 25
Accounts payable and accrued expenses 1 (21) 71
Income taxes payable 5 43 4
Change in deferred income taxes (24) (22) 1
Change in other liabilities (82) 20 (14)
Distributions from equity investments in excess of earnings 13 33 30
Gain from asset sales (13) (5) (1)
Other 8 41 --
-------- ------- -----
Net cash provided by operating activities 598 438 380
-------- ------- -----
INVESTING ACTIVITIES
Capital expenditures (531) (242) (186)
Additional investments (154) (104) (97)
Change in temporary investments 18 83 139
Proceeds from asset sales 123 -- --
Payments on notes and other 56 21 17
Acquisitions, net of cash acquired (137) (288) --
-------- ------- -----
Net cash used in investing activities (625) (530) (127)
-------- ------- -----
FINANCING ACTIVITIES
Change in commercial paper borrowings and revolving loans (1,218) 1,041 189
Long-term borrowings 1,393 492 1
Reduction of long-term debt (111) (1,457) (192)
Issuance of common stock 38 31 11
Purchase of common stock (40) -- --
Cash dividends (93) (60) (58)
-------- ------- -----
Net cash (used in) provided by financing activities (31) 47 (49)
-------- ------- -----
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (58) (45) 204
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 388 433 229
-------- ------- -----
CASH AND EQUIVALENTS AT END OF YEAR $ 330 388 433
-------- ------- -----
-------- ------- -----
</TABLE>
see notes to consolidated financial statements
<PAGE>
HILTON HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
8% PRIDES
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED TREASURY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) STOCK STOCK CAPITAL EARNINGS OTHER STOCK
- --------------------------------------------------- ----- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ -- 494 -- 795 (6) (154)
Exercise of stock options -- -- -- (1) -- 12
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- (1) --
Net income -- -- -- 173 -- --
Dividends ($.30 per share) -- -- -- (58) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1995 -- 494 -- 909 (7) (142)
Exercise of stock options -- -- -- -- -- 31
Bally acquisition 15 133 1,735 -- -- --
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- 6 --
Change in unrealized gain/loss
on marketable securities,
net of deferred tax -- -- -- -- 5 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 82 -- --
Dividends ($.305 per share) -- -- -- (60) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1996 15 627 1,745 931 4 (111)
Issuance of common stock -- 1 4 -- -- 5
Exercise of stock options -- -- -- (48) -- 76
Treasury stock acquired -- -- -- -- -- (40)
Cumulative translation
adjustment, net of
deferred tax -- -- -- -- (4) --
Change in unrealized gain/loss
on marketable securities,
net of deferred tax -- -- -- -- 11 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 250 -- --
Dividends
PRIDES($.89 per share) -- -- -- (13) -- --
Common ($.32 per share) -- -- -- (80) -- --
---- --- ----- ------ --- -----
BALANCE, DECEMBER 31, 1997 $15 628 1,759 1,040 11 (70)
---- --- ----- ------ --- -----
---- --- ----- ------ --- -----
</TABLE>
see notes to consolidated financial statements
<PAGE>
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hilton Hotels
Corporation and its majority owned and controlled subsidiaries. The Company
also consolidates the operating results and working capital of affiliates
operated under long-term management agreements, including such affiliates in
which the Company has investments of 50% or less. These agreements
effectively convey to the Company the right to use the properties in exchange
for payments to the property owners, which are based primarily on the
properties' profitability. The consolidated financial statements include the
following amounts related to managed hotels:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
Revenue $1,826 2,187 2,015
Operating expenses, including remittances to owners 1,696 2,035 1,904
Current assets(1) and current liabilities 299 344
</TABLE>
(1) Including cash and equivalents of $126 million and $115 million,
respectively.
All material intercompany transactions are eliminated and net earnings are
reduced by the portion of the earnings of affiliates applicable to other
ownership interests. There are no significant restrictions on the transfer of
funds from the Company's wholly owned subsidiaries to Hilton Hotels
Corporation.
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, primarily classified as casino expenses through
interdepartmental allocations, is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------ ------ ------
<S> <C> <C> <C>
Rooms $ 33 14 11
Food and beverage 119 40 37
------ ------ ------
Total cost of promotional allowances $ 152 54 48
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
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 AND EQUIPMENT
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.
The carrying value of the Company's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then a loss is recognized in the income
statement using a fair value based model.
GOODWILL
The excess of purchase price over the fair value of net assets of businesses
acquired (goodwill) is amortized using the straight-line method over 40
years. The Company periodically evaluates the carrying value of goodwill and
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows, as well as other factors.
PRE-OPENING COSTS
Costs associated with the opening of new properties or major additions to
properties are deferred and amortized over the shorter of the period
benefited or one year.
UNAMORTIZED LOAN COSTS
Debt discount and issuance costs incurred in connection with the placement of
long-term debt are capitalized and amortized to interest 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.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
Company has adopted SFAS No. 128 for the year ended December 31, 1997 and all
prior-period earnings per share (EPS) data presented herein has been restated
to conform to the new presentation. Basic EPS is computed by dividing net
income available to common stockholders (net income less preferred dividends)
by the weighted average number of common shares outstanding for the period.
The weighted average number of common shares outstanding for 1997, 1996 and
1995 were 250 million, 197 million and 193 million, respectively. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted. The dilutive
effect of the assumed exercise of stock options and convertible securities
increased the weighted average number of common shares by 31 million, 12
million and 2 million for 1997, 1996 and 1995, respectively. In addition, the
increase to net income resulting from interest on convertible securities
assumed to have not been paid was $15 million and $9 million for 1997 and
1996, respectively.
<PAGE>
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 1997. These
classifications have no effect on net income.
ACQUISITIONS
Effective December 18, 1996, the Company completed the merger of Bally
Entertainment Corporation (Bally) with and into the Company pursuant to an
agreement dated June 6, 1996. Aggregate consideration consisted of
approximately 53 million shares of the Company's common stock and
approximately 15 million shares of the Company's Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(PRIDES) for a combined equity value of $1.9 billion and assumption of Bally
subsidiary debt totaling $1.2 billion.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the acquisition cost of $3.1 billion has been
allocated to the assets acquired and liabilities assumed based on estimates
of their fair value. A total of $1.3 billion, representing the excess of
acquisition cost over the fair value of Bally's tangible net assets, has been
allocated to goodwill and is being amortized over 40 years.
The Company's consolidated results of operations have incorporated Bally's
activity from the effective date of the merger. The following unaudited pro
forma information has been prepared assuming that this acquisition had taken
place at the beginning of the respective periods. This pro forma information
does not purport to be indicative of future results or what would have
occurred had the acquisition been made as of those dates.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995
- ------------------------------------------------------------------------- -------
<S> <C> <C>
Revenue $5,041 4,565
Operating income 525 550
Income before extraordinary item 243 278
Net income 169 278
Basic EPS
Income before extraordinary item per share .93 1.08
Net income per share .63 1.08
Diluted EPS
Income before extraordinary item per share .93 1.06
Net income per share .63 1.06
</TABLE>
During the 1996 fourth quarter, the Company acquired the majority of The
Prudential Insurance Company of America's (Prudential) ownership interests in
the Chicago Hilton and Towers, San Francisco Hilton and Towers, Washington
Hilton and Towers, New York Hilton and Towers, Rye Town Hilton and Capital
Hilton hotels for a combined cost of approximately $430 million. The purchase
price has been allocated to the assets acquired and liabilities assumed using
the purchase method of accounting. The pro forma impact on operations of the
Prudential acquisitions and acquisitions completed during 1997 were not
significant.
<PAGE>
HILTON HOTELS CORPORATION
EXTRAORDINARY ITEM
In December 1996, the Company completed cash tender offers and consent
solicitations for substantially all of the outstanding notes of certain
wholly owned subsidiaries including the 9 1/4% Bally's Park Place Funding,
Inc. First Mortgage Notes due 2004; 10 5/8% GNF, Corp. First Mortgage Notes
due 2003 and Bally Casino Holdings, Inc. Senior Discount Notes. The remaining
untendered notes were defeased. The Company also purchased 99.1% of the
outstanding 10 3/8% First Mortgage Notes due 2003 of Bally's Grand, Inc. Cash
consideration for the repurchase and defeasance, including premiums, totaled
$1.2 billion, which resulted in an after tax extraordinary loss of $74
million, net of a tax benefit of $52 million.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
<S> <C> <C>
Hotel accounts receivable $309 334
Less allowance for doubtful accounts 11 10
------ ------
298 324
------ ------
Casino accounts receivable
Less allowance for doubtful accounts 129 106
24 30
------ ------
105 76
------ ------
Total $403 400
------ ------
------ ------
</TABLE>
The allowance provided for estimated uncollectible casino receivables, net of
recoveries, is included in casino expenses in the amount of $29 million, $25
million and $19 million in 1997, 1996 and 1995, respectively.
INVENTORIES
Included in other current assets at December 31, 1997 and 1996 are
inventories of $77 million and $82 million, respectively, determined on a
first-in, first-out basis.
INVESTMENTS
Investments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
<S> <C> <C>
Equity investments
Hotels (eight in 1997, seven in 1996) $ 52 78
Hotels casinos (four in 1997, five in 1996) 84 101
Notes receivable 114 73
Other 35 25
------ ------
285 277
Notes receivable (non equity investments) 86 69
Marketable securities and other 38 27
------ ------
Total $409 373
------ ------
------ ------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- -------
<S> <C> <C>
Land $ 763 712
Buildings and leasehold improvements 4,162 3,823
Riverboats 53 128
Furniture and equipment 942 891
Property held for sale or development 39 40
Construction in progress 196 106
-------- -------
6,155 5,700
Less accumulated depreciation 1,161 1,002
-------- -------
Total $4,994 4,698
-------- -------
-------- -------
</TABLE>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- ------
<S> <C> <C>
Accounts and notes payable $205 200
Accrued salaries and wages 96 87
Remittances due to owners 9 64
Other accrued expenses 555 513
------ ------
Total $865 864
------ ------
------ ------
</TABLE>
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------- -------
<S> <C> <C>
Industrial development revenue bonds at
adjustable rates, due 2015 $ 82 82
Senior notes, with an average rate of 7.5%,
due 1998 to 2017 1,797 422
Mortgage notes, 6.5% to 10.4%, due 1998 to 2011 116 133
5% Convertible subordinated notes due 2006 491 491
10% Convertible subordinated notes due 2006 --- 70
Commercial paper 280 1,423
Revolving loans --- 75
Other 8 11
-------- -------
2,774 2,707
Less current maturities 65 101
-------- -------
Net long-term debt $2,709 2,606
-------- -------
-------- -------
</TABLE>
Interest paid, net of amounts capitalized, was $148 million, $88 million and
$95 million in 1997, 1996 and 1995, respectively. Capitalized interest
amounted to $18 million, $6 million and $3 million, respectively.
<PAGE>
HILTON HOTELS CORPORATION
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- ----------------------------------------------------------------------------
<S> <C>
1998 $ 65
1999 425
2000 10
2001 14
2002 570
</TABLE>
During 1997 and 1996, the Company issued and renewed commercial paper for
varying periods with interest at market rates. In 1997 and 1996 average
amounts of commercial paper outstanding were $891 million and $260 million,
respectively, with the largest amounts outstanding at any one time being $1.5
billion and $1.4 billion, respectively. Weighted average interest rates were
5.84% and 5.57%, respectively.
During 1996, the Company entered into a long-term revolving credit facility
with an aggregate commitment of $1.75 billion, which expires in 2001. A
commitment fee of .085% per annum is paid on the unused portion of the
commitments. At December 31, 1997, $282 million of the aggregate commitment
supported the issuance of commercial paper, leaving approximately $1.5
billion of the revolving bank credit facility available to the Company at
such date.
In February 1997, the Company redeemed its 6% Convertible Subordinated Notes
due 1998 and its 10% Convertible Subordinated Notes due 2006. These notes,
formerly obligations of Bally, had outstanding principal balances of $1
million and $70 million, respectively.
During April 1997, the Company issued $375 million of 7.95% Senior Notes due
2007, under an effective shelf registration statement (the Shelf) on file
with the Securities and Exchange Commission registering up to $1 billion in
debt or equity securities. In June 1997, the Company issued $300 million of
7.375% Senior Notes due 2002, under the Shelf. In July 1997, the Company
issued $325 million of 7% Senior Notes due 2004, the remaining balance under
the Shelf. The Company used the proceeds from these offerings to repay its
revolving credit facility and a portion of its commercial paper borrowings
which were incurred primarily to fund cash tender offers to purchase the
outstanding debt securities of former Bally subsidiaries.
In October 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission registering up to $2.5 billion in debt or
equity securities. In December 1997, the Company issued $200 million of 7.2%
Senior Notes due 2009 and $200 million of 7.5% Senior Notes due 2017 under
this shelf.
The weighted average interest rate and term of total debt issued during 1997
was 7.4% and 10 years, respectively. The terms of any additional securities
offered pursuant to the $2.5 billion shelf registration statement will be
determined by market conditions at the time of issuance.
Provisions under various loan agreements require the Company to comply with
certain financial covenants which include 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.
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.
<PAGE>
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The estimated fair values of the Company's financial instruments at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- -------------------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cash and equivalents, temporary
investments and long-term
marketable securities $ 411 411 462 462
Long-term debt
(including current maturities) 2,774 2,870 2,707 2,738
</TABLE>
INCOME TAXES
The provisions for income taxes for the three years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- --------------------------- ------ ----- -----
<S> <C> <C> <C>
Current
Federal $191 108 81
State, foreign and local 35 22 20
----- ----- -----
226 130 101
Deferred (39) (24) 1
----- ----- -----
Total $187 106 102
----- ----- -----
----- ----- -----
</TABLE>
During 1997, 1996 and 1995 the Company paid income taxes of $150 million,
$83 million and $95 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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ----------------------------------- ------ -----
<S> <C> <C>
Deferred tax assets
Accrued expenses $ 21 47
Bad debt reserves 18 17
Self-insurance reserves 20 21
Benefit plans 18 22
Net operating losses 8 29
AMT Credits 12 12
Other asset reserves 22 19
Foreign tax credit carryovers
(expire beginning in 2000) 6 5
Disposition of assets 30 --
Other 77 64
------ -----
232 236
Valuation allowance (10) (9)
------ ------
222 227
------ -----
Deferred tax liabilities
Fixed assets, primarily depreciation (661) (663)
Equity investments (54) (65)
Other (52) (37)
------ -----
(767) (765)
------ -----
Net deferred tax liability $(545) (538)
------ -----
------ -----
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
The reconciliation of the Federal income tax rate and the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------- ------- ----- -----
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0 35.0
Increase (reduction) in taxes:
State and local income taxes,
net of Federal tax benefits 4.1 2.7 3.1
Foreign taxes, net .5 .6 (.9)
Goodwill amortization 2.6 -- --
Other (.5) 1.4 (.8)
------- ----- -----
Effective tax rate 41.7% 39.7 36.4
------- ----- -----
------- ----- -----
</TABLE>
CAPITAL STOCK
Four hundred million shares of common stock with a par value of $2.50 per
share are authorized, of which 251 million were issued at December 31, 1997
and 1996, including treasury shares of two million in both periods.
Authorized preferred stock includes 25 million shares of preferred stock with
a par value of $1.00 per share. Fifteen million shares of 8% PRIDES
convertible preferred stock were issued and outstanding at December 31, 1997
and 1996.
Generally, holders of PRIDES have the right to vote upon matters coming
before any meeting of the holders of common stock on the basis of 4/5 of a
vote for each share of PRIDES held. On October 3, 1999, each share of PRIDES
mandatorily converts into 1.12 shares of common stock and the right to
receive an amount in cash equal to any accrued and unpaid dividends thereon.
At any time prior to October 3, 1999, unless previously redeemed, each share
of PRIDES is convertible at the option of the holder into .92 of a share of
common stock. The shares of PRIDES are not redeemable by the Company prior to
October 3, 1998; thereafter, for a period of one year, each share of PRIDES
is convertible at the option of the Company into .92 of a share of common
stock.
Pursuant to the Company's stock repurchase program, during 1997 the Company
repurchased 1.5 million shares, or 7.5 percent of the total authorized to be
repurchased, for an aggregate purchase price of $40 million. The timing of
the stock purchases are made at the discretion of the Company's management,
subject to certain business and market conditions.
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.
<PAGE>
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (Continued)
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, compensation expense
recognized was different than what would have otherwise been recognized under
the fair value based method defined in SFAS No. 123, "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS) 1997 1996 1995
- ---------------------- ------- ------ ------
<S> <C> <C> <C>
Net Income
As reported $250 82 173
Pro forma 239 75 172
Basic EPS
As reported .95 .41 .90
Pro forma .91 .38 .90
Diluted EPS
As reported .94 .41 .89
Pro forma .90 .38 .89
</TABLE>
At December 31, 1997, 22 million shares of common stock were reserved for the
exercise of options under the Company's 1990, 1996 and 1997 Stock Plans.
Options may be granted to directors, salaried officers and other key
employees of the Company to purchase common stock at not less than the fair
market value at the date of grant. Generally, options may be exercised in
installments commencing one year after the date of grant. The 1990 and 1996
Stock Plans also permit the granting of Stock Appreciation Rights (SARs). No
SARs have been granted as of December 31, 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend
yield of one percent for each of the three years; expected volatility of 32,
27 and 18 percent; risk-free interest rates of 6.49, 6.33 and 7.58 percent
and expected lives of 6 years for each of the three years.
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
PRICE RANGE PRICE OPTIONS AVAILABLE
(PER SHARE) (PER SHARE) OUTSTANDING FOR GRANT
- --------------------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 7.09 - 17.41 $12.96 7,084,260 983,804
Granted 16.47 - 19.11 16.58 916,200 (916,200)
Exercised 7.09 - 17.41 10.01 (889,820) --
Cancelled 9.53 - 17.41 16.43 (284,900) 278,900
--------------- ------------ ------------ -----------
Balance at December 31, 1995 7.36 - 19.11 13.68 6,825,740 346,504
Authorized -- 12,000,000
Granted 18.67 - 29.38 20.87 9,777,900 (9,777,900)
Exercised 7.36 - 19.11 11.13 (2,135,426) --
Cancelled 7.41 - 26.95 17.33 (688,758) 653,158
--------------- ------------ ------------ -----------
Balance at December 31, 1996 7.36 - 29.38 18.99 13,799,456 3,221,762
Authorized -- 6,200,000
Granted 25.06 - 33.47 26.29 3,046,990 (3,046,990)
Exercised 7.41 - 25.50 14.64 (1,418,185) --
Cancelled 11.73 - 26.95 21.79 (796,642) 795,892
--------------- ------------ ------------ -----------
Balance at December 31, 1997 $ 7.36 - 33.47 $20.79 14,631,619 7,170,664
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTION EXERCISABLE
------------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 7.36 - 17.41 2,599,169 5.38 $14.91 1,923,819 $14.21
18.67 - 18.67 6,000,000 3.08 18.67 1,500,000 18.67
23.02 - 33.47 6,032,450 8.35 25.43 1,836,075 25.86
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
$ 7.36 - 33.47 14,631,619 5.66 $20.79 5,259,894 $19.55
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
- ---------------- ------------- ------------------ ------------------ ------------- ------------------
</TABLE>
Effective January 1, 1997, the Company adopted the 1997 Employee Stock
Purchase Plan by which the Company is authorized to issue up to two million
shares of common stock to its full-time employees. Under the terms of the
Plan, employees can elect to have a percentage of their earnings withheld to
purchase the Company's common stock.
Under provisions of Nevada, New Jersey and other gaming laws, and the
Company's restated certificate of incorporation as amended, 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 employees 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. After December 31, 1996, employees will not
accrue additional benefits for future service under either the Basic or
Supplemental Plans. Plan assets will be used to pay benefits due employees
for service through that date.
The following sets forth the funded status for the Basic Plan as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------------------- ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $(201) and $(194), respectively $(214) (214)
-------- ------
-------- ------
Projected benefit obligation for service rendered to date $(214) (214)
Plan assets at fair value, primarily listed securities and temporary investments 242 199
-------- ------
Projected benefit obligation less than (in excess of) plan assets 28 (15)
Unrecognized gain (41) --
-------- ------
Accrued pension cost $ (13) (15)
-------- ------
-------- ------
Pension cost includes the following components:
Service cost $ -- 12
Interest cost on projected benefit obligation 15 17
Actual return on assets (47) (31)
Net amortization 30 1
-------- ------
Net periodic cost before allocation (2) (1)
Cost allocated to managed properties -- 2
-------- ------
Net periodic pension cost $ (2) (3)
-------- ------
-------- ------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
Notes to Consolidated Financial Statements (continued)
Included in plan assets at fair value are equity securities of the Company of
$35 million and $36 million at December 31, 1997 and 1996, respectively.
The following sets forth the funded status for the Supplemental Plans as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------------------- ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $(17) and $(20), respectively $(17) (20)
-------- ------
-------- ------
Projected benefit obligation for service rendered to date $(17) (20)
Plan assets at fair value 12 14
-------- ------
Projected benefit obligation in excess of plan assets (5) (6)
Unrecognized net loss 1 --
-------- ------
Accrued pension cost $ (4) (6)
-------- ------
-------- ------
Pension cost includes the following components:
Service cost $ -- 1
Interest cost on projected benefit obligation 1 2
Actual return on assets (1) (1)
Net amortization (2) 2
-------- ------
Net periodic pension cost $ (2) 4
-------- ------
-------- ------
</TABLE>
The discount rate used in determining the actuarial present values of the
projected benefit obligations was seven percent in 1997 and 1996, with the
rate of increase in future compensation projected at five percent in 1996.
The expected long-term rate of return on assets is eight percent.
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 $22 million, $12 million and $10 million
in 1997, 1996 and 1995, 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 other employee investment plans whereby the Company
contributes certain percentages of employee contributions. The cost of these
plans is not significant.
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. The cost of the benefits provided is not significant.
<PAGE>
HILTON HOTELS CORPORATION
SEGMENTS OF BUSINESS
Financial data of the Company's business segments for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Depreciation and amortization(1)
Hotels $ 91 63 57
Gaming 207 111 78
Corporate 2 4 7
-------- ------- -------
Total $ 300 178 142
-------- ------- -------
-------- ------- -------
Capital expenditures(1)
Hotels $ 88 46 54
Gaming 434 190 124
Corporate 9 6 8
-------- ------- -------
Total $ 531 242 186
-------- ------- -------
-------- ------- -------
Assets
Hotels $2,054 1,958 1,571
Gaming 5,561 5,269 1,380
Corporate 211 360 492
-------- ------- -------
Total $7,826 7,587 3,443
-------- ------- -------
-------- ------- -------
</TABLE>
(1)Excludes proportionate share of equity investments.
Supplemental hotels segment operating data for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Revenue
Rooms $1,580 1,473 1,324
Food and beverage 721 661 612
Franchise fees 51 43 39
Other products and services 380 340 290
-------- ------- -------
Total 2,732 2,517 2,265
-------- ------- -------
Expenses
Rooms 409 420 401
Food and beverage 545 507 475
Other expenses, including remittances
to owners 1,330 1,318 1,181
-------- ------- -------
2,284 2,245 2,057
-------- ------- -------
Hotels operating income $ 448 272 208
-------- ------- -------
-------- ------- -------
</TABLE>
<PAGE>
HILTON HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental gaming segment operating data for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
Revenue
Rooms $ 325 261 238
Food and beverage 267 196 170
Casino 1,832 857 791
Other products and services 160 109 91
-------- ------ -------
2,584 1,423 1,290
-------- ------ -------
Expenses
Rooms 115 88 83
Food and beverage 231 167 150
Casino 1,000 466 400
Other expenses, including remittances to owners 1,010 593 478
-------- ------ -------
2,356 1,314 1,111
-------- ------ -------
Gaming operating income $ 228 109 179
-------- ------ -------
-------- ------ -------
</TABLE>
LEASES
The Company operates seven properties under noncancelable operating leases,
all of which are for land only, having remaining terms up to 36 years. Upon
expiration of four of the leases, the Company has renewal options of 25, 30,
30 and 40 years. Six leases require the payment of additional rentals based
on varying percentages of revenue or income. Minimum lease commitments under
noncancelable operating leases approximate $13 million annually through 2002
with an aggregate commitment of $186 million through 2033.
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, the Company had contractual commitments at its wholly
owned or leased properties for major expansion and rehabilitation projects of
approximately $450 million.
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.
<PAGE>
HILTON HOTELS CORPORATION
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, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
February 2, 1998
<PAGE>
HILTON HOTELS CORPORATION
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS AND OCCUPANCY(1) OPERATING NET BASIC DILUTED DIVIDENDS HIGH/LOW
STOCK PRICES) HOTELS GAMING REVENUE EBITDA(2) INCOME INCOME EPS(3) EPS(3) PER SHARE STOCK PRICE
- ------------------------------------- ---------- ---------- ----------- -------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
1st Quarter 71.8% 87.2 $1,303 231 157 68 .26 .26 .08 30.00/24.00
2nd Quarter 78.5 87.8 1,360 278 203 93 .36 .34 .08 30.13/24.25
3rd Quarter 77.7 86.2 1,314 276 198 94 .36 .35 .08 34.06/26.75
4th Quarter 70.3 82.0 1,339 224 38 (5) (.03) (.03) .08 35.81/26.06
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
Year 74.6% 85.8 $5,316 1,009 596 250 .95 .94 .32 35.81/24.00
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
1996
1st Quarter 71.6% 88.7 $ 957 127 79 37 .19 .19 .075 24.94/15.28
2nd Quarter 77.0 91.3 1,004 158 113 59 .30 .30 .075 30.50/23.50
3rd Quarter 76.8 88.7 943 148 101 54 .28 .27 .075 28.63/23.34
4th Quarter 71.7 84.0 1,036 144 36 (68) (.33) (.33) .08 31.75/25.63
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
Year 74.3% 88.1 $3,940 577 329 82 .41 .41 .305 31.75/15.28
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
----- ----- ------- ------- ------ ------ -------- -------- ------- ------------
</TABLE>
As of December 31, 1997, there were approximately 15,500 stockholders of
record.
EBITDA(2)
<TABLE>
<CAPTION>
(IN MILLIONS) YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------ ------ --------
<S> <C> <C> <C>
EBITDA
Hotels $ 548 392 301
Gaming 539 233 267
Corporate expense, net (78) (48) (25)
---------- ------ --------
Total $ 1,009 577 543
---------- ------ --------
---------- ------ --------
Reconciliation to income before extraordinary items
EBITDA $ 1,009 577 543
Interest and dividend income 42 38 35
Interest expense (172) (88) (93)
Interest expense, net, from equity investments (18) (12) (17)
Depreciation and amortization(4) (319) (225) (188)
Non-cash items (94) (23) --
Provision for income taxes (187) (106) (102)
Minority interest, net (11) (5) (5)
---------- ------ --------
Income before extraordinary item $ 250 156 173
---------- ------ --------
---------- ------ --------
</TABLE>
(1) Properties owned or managed.
(2) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items.
(3) The sum of Basic and Diluted EPS for the four quarters may differ from
the annual EPS due to the required method of computing weighted average
number of shares in the respective periods.
(4) Includes proportionate share of equity investments.
<PAGE>
HILTON HOTELS CORPORATION
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AND AVERAGE RATE AMOUNTS) YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA
REVENUE
Hotels $ 2,732 2,517 2,265 2,112 1,844
Gaming 2,584 1,423 1,290 1,189 1,057
---------- -------- -------- -------- --------
Total $ 5,316 3,940 3,555 3,301 2,901
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
EBITDA(1)
Hotels $ 548 392 301 240 199
Gaming 539 233 267 244 234
Corporate expense, net (78) (48) (25) (23) (22)
---------- -------- -------- -------- --------
Total $ 1,009 577 543 461 411
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
BASIC EARNINGS PER SHARE
Income before cumulative effect
of accounting changes and
extraordinary item $ .95 .79 .90 .64 .54
Cumulative effect of accounting changes, net -- -- -- -- .02
Extraordinary loss, net -- (.38) -- -- --
---------- -------- -------- -------- --------
Net income $ .95 .41 .90 .64 .56
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
DILUTED EARNINGS PER SHARE
Income before cumulative effect
of accounting changes and
extraordinary item $ .94 .79 .89 .63 .53
Cumulative effect of accounting changes, net -- -- -- -- .02
Extraordinary loss, net -- (.38) -- -- --
---------- -------- -------- -------- --------
Net income $ .94 .41 .89 .63 .55
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
GENERAL INFORMATION
OCCUPANCY(2)
Hotels 74.6% 74.3 72.8 69.6 66.8
Gaming 85.8% 88.1 86.3 87.4 86.2
AVERAGE RATES(2)
Hotels $ 145.33 134.92 126.50 120.29 112.73
Gaming $ 78.81 72.63 68.77 64.36 62.07
CASINO SQUARE FOOTAGE 1,040,000 937,000 626,000 526,000 435,000
NUMBER OF PROPERTIES AT YEAR END
Owned or partially owned hotels 32 31 33 33 33
Managed hotels 27 28 24 24 26
Franchised hotels 180 172 162 161 171
Owned, partially owned and managed
casinos and hotel casinos 12 12 9 8 7
Wholly or partially owned riverboats 3 4 1 1 --
---------- -------- -------- -------- --------
Total 254 247 229 227 237
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
AVAILABLE ROOMS AT YEAR END
Owned or partially owned hotels 23,799 23,092 24,098 24,098 24,151
Managed hotels 15,779 16,776 15,096 15,686 15,940
Franchised hotels 45,092 43,694 41,687 40,436 42,816
Wholly or partially owned casinos 17,590 17,612 12,782 12,080 12,045
---------- -------- -------- -------- --------
Total 102,260 101,174 93,663 92,300 94,952
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items.
(2) Properties owned or managed.
<PAGE>
HILTON HOTELS CORPORATION
BOARD OF DIRECTORS
Stephen F. Bollenbach(1,4)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
A. Steven Crown(2,3)
GENERAL PARTNER, HENRY CROWN
& COMPANY, CHICAGO, ILLINOIS -- DIVERSIFIED MANUFACTURING OPERATIONS AND REAL
ESTATE VENTURES
Peter M. George(2,3)
GROUP CHIEF EXECUTIVE -- LADBROKE GROUP PLC, AND CHAIRMAN -- HILTON
INTERNATIONAL, CO., HERTS, ENGLAND -- HOTEL AND GAMING COMPANY
Arthur M. Goldberg
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND
PRESIDENT -- GAMING OPERATIONS
Barron Hilton(1,4)
CHAIRMAN
Eric M. Hilton
VICE CHAIRMAN EMERITUS
Dieter H. Huckestein
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- HOTEL OPERATIONS
Robert L. Johnson(2,3)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BLACK ENTERTAINMENT TELEVISION -- CABLE
PROGRAMMING SERVICES, AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BET HOLDINGS,
INC., WASHINGTON, D.C. -- DIVERSIFIED MEDIA HOLDING COMPANY
Donald R. Knab(1,2,3,4)
PRESIDENT, DONALD R. KNAB ASSOCIATES, INC., PONTE VEDRA BEACH, FLORIDA --
INVESTMENT ADVISORS
Benjamin V. Lambert(2,4)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, EASTDIL REALTY CO., L.L.C., NEW YORK --
REAL ESTATE INVESTMENT BANKERS
Donna F. Tuttle(2,3,4)
PRESIDENT, KORN TUTTLE CAPITAL GROUP, LOS ANGELES, CALIFORNIA -- FINANCIAL
CONSULTING AND INVESTMENTS
Sam D. Young, Jr.(1,2,3)
RETIRED CHAIRMAN AND A DIRECTOR, TEXAS COMMERCE BANK, EL PASO, TEXAS, AND
CHAIRMAN, TRANS-WEST ENTERPRISES, INC., EL PASO, TEXAS -- INVESTMENTS
(1) MEMBERS OF THE EXECUTIVE COMMITTEE
(2) MEMBERS OF THE AUDIT COMMITTEE
(3) MEMBERS OF THE PERSONNEL AND
COMPENSATION COMMITTEE
(4) MEMBERS OF THE NOMINATING COMMITTEE
CORPORATE EXECUTIVE OFFICERS
Barron Hilton
CHAIRMAN
Stephen F. Bollenbach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thomas E. Gallagher
EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
Arthur M. Goldberg
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- GAMING OPERATIONS
Matthew J. Hart
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dieter H. Huckestein
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION, AND PRESIDENT -- HOTEL OPERATIONS
CORPORATE SENIOR OFFICERS
James M. Anderson
SENIOR VICE PRESIDENT --
LABOR RELATIONS AND
PERSONNEL ADMINISTRATION
Marc A. Grossman
SENIOR VICE PRESIDENT --
CORPORATE AFFAIRS
Robert M. La Forgia
SENIOR VICE PRESIDENT AND CONTROLLER
Scott A. LaPorta
SENIOR VICE PRESIDENT AND TREASURER
Ted Middleton, Jr.
SENIOR VICE PRESIDENT --
DEVELOPMENT AND FINANCE
Bernard J. Murphy
SENIOR VICE PRESIDENT --
CORPORATE COMPLIANCE
Patrick B. Terwilliger
SENIOR VICE PRESIDENT --
ARCHITECTURE AND CONSTRUCTION
SECRETARY
Cheryl L. Marsh
VICE PRESIDENT AND CORPORATE SECRETARY
CORPORATE INFORMATION
Executive Offices
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
310.278.4321
Transfer Agent and Registrar for Common Stock and PRIDES
CHASEMELLON
SHAREHOLDER SERVICES, L.L.C.
85 CHALLENGER ROAD
OVERPECK CENTRE
RIDGEFIELD PARK, NEW JERSEY 07660
www.chasemellon.com
1.888.224.2751
Independent Public Accountants
ARTHUR ANDERSEN LLP
Form 10-K
STOCKHOLDERS WISHING TO RECEIVE A COPY OF THE COMPANY'S ANNUAL REPORT ON THE
SECURITIES AND EXCHANGE COMMISSION'S FORM 10-K, EXCLUSIVE OF THE EXHIBITS
THERETO, MAY DO SO WITHOUT CHARGE BY WRITING TO DIRECTOR -- INVESTOR
RELATIONS, HILTON HOTELS CORPORATION, 9336 CIVIC CENTER DRIVE, BEVERLY HILLS,
CALIFORNIA 90210.
Annual Meeting
THE ANNUAL MEETING OF STOCKHOLDERS
IS SCHEDULED TO BE HELD AT THE BEVERLY HILTON, 9876 WILSHIRE BOULEVARD, BEVERLY
HILLS, CALIFORNIA, ON
MAY 7, 1998 AT 10:00 A.M.
Hotel Reservation Information
1.800.HILTONS
Visit our website at:
http://www.hilton.com
<PAGE>
EXHIBIT 21
HILTON HOTELS CORPORATION
SUBSIDIARIES, JOINT VENTURES AND AFFILIATES
A. WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
---- ----------------
<S> <C>
Atlantic City Country Club, Inc. (12) New Jersey
Bally Biloxi, Inc. (4) (11) Mississippi
Bally Data Systems, Inc. (4) Illinois
Bally Warwick, Inc. (12) New Jersey
Bally's Casino Holdings, Inc. (13) Delaware
Bally's CHLV, Inc. (14) Delaware
Bally's Grand Management Co., Inc. (14) Nevada
Bally's Intermediate Casino Holdings, Inc. (14) Delaware
Bally's Intermediate Sub, Inc. Delaware
Bally's Louisiana, Inc. (11) Louisiana
Bally's Louisiana II, Inc. (4) (11) Louisiana
Bally's Manager, Inc. (11) Maryland
Bally's Maryland, Inc. Maryland
Bally's Mexico, Inc. (4) (11) Delaware
Bally's Operator, Inc. (11) Delaware
Bally's Park Place Funding, Inc. (15) Delaware
Bally's Park Place, Inc. (14) Delaware
Bally's Park Place, Inc.(15) New Jersey
Bally's Park Place Realty Co. (12) New Jersey
Bally's Philadelphia, Inc. (11) Pennsylvania
Bally's Sub, Inc. (16) Delaware
Bally's Tunica, Inc. (11) Mississippi
Benco, Inc. (1) Nevada
B.W. Realty Corp. (12) New Jersey
Capital Hilton, L.L.C. (21) New York
Compass Computer Services, Inc. Delaware
Conrad International (Cairo) Corporation (5) Nevada
Conrad International (Egypt) Corporation (2) (5) Nevada
Conrad International (Indonesia) Corporation (2) (5) Nevada
Conrad International (Spain) Corporation (2) (5) Nevada
Conrad International (Thailand) Corporation (2) (5) Nevada
Conrad International (Thailand) Limited (9) Thailand
Conrad International Hotels Corporation (3) Nevada
Conrad International Hotels Corporation - SA
(Proprietary) Limited (9) South Africa
Conrad International Hotels (HK) Ltd. (5) Hong Kong
Conrad International Hotels Limited (2) (6) Ireland
Conrad International Investment Corporation (3) Nevada
Conrad International Investment (Jakarta)
Corporation (9) Nevada
Conrad International Management Services (Singapore)
Pte Ltd (5) Singapore
Conrad International Royalty Corporation (3) Nevada
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
---- ----------------
<S> <C>
Destination Resorts, Inc. Arizona
Flamingo Hilton Corporation (1) Nevada
Flamingo Hilton-Laughlin, Inc. (7) Nevada
Flamingo Hilton - Reno, Inc. (1) Nevada
Florida Locally Approved Gaming, Inc. (4) (18) Florida
GNF, Corp. (17) New Jersey
GNOC, Corp. New Jersey
Grand Vacations Realty, Inc. (10) Delaware
Hapeville Investors, Inc. Delaware
Hilton Chicago Corporation Nevada
Hilton D.C. Corporation Nevada
Hilton Employee Relief Fund California
Hilton Equipment Corporation Delaware
Hilton Finance Corporation Nevada
Hilton Gaming Corporation Nevada
Hilton Gaming (Switzerland County) Corporation (1) Indiana
Hilton Grand Vacations Club, LLC (4) Nevada
Hilton Grand Vacations Company, LLC (4) Nevada
Hilton Grand Vacations Development Company-
Las Vegas, LLC Nevada
Hilton Grand Vacations Development Company-
Orlando, LLC (4) Nevada
Hilton Grand Vacations Exchange Company (20) Delaware
Hilton Hawaii Corporation Delaware
Hilton Holdings, Inc. Nevada
Hilton Hotels Management, Inc. (19) 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 (1) Missouri
Hilton New Jersey Corporation (1) (2) New Jersey
Hilton New Orleans Corporation (1) Louisiana
Hilton New York Corporation Nevada
Hilton Pennsylvania Hotel Corporation Delaware
Hilton Recreation, Inc. Delaware
Hilton Resorts Corporation Delaware
Hilton San Diego Corporation California
Hilton San Francisco Corporation Nevada
Hilton Suites, Inc. Delaware
Hilton Supersports, Inc. (1) (4) Nevada
Hilton Systems, Inc. Nevada
Hilton Washington Corporation New York
HKC Advertising, Inc. (8) Missouri
HKC Partners, Inc. (1) Missouri
HLT Corporation Delaware
Hotels Statler Company, Inc. Delaware
Kenner Investors, Inc. Delaware
Las Vegas Hilton Corporation (1) Nevada
Paris Casino Corp. Nevada
Reno Hilton Resort Corporation (1) Nevada
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
---- ----------------
<S> <C>
Rye Hilton, L.L.C. (22) New York
SKA Investments, L.L.C. (4) Delaware
The BAC 1-11 Corporation (1) 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 (2) Illinois
Washington Hilton, L.L.C. (21) New York
</TABLE>
_____________________________________________________________________________
(1) Indirect ownership. Wholly-owned by Hilton Gaming Corporation, which is
wholly-owned by Hilton Hotels Corporation.
(2) Nameholding company.
(3) Indirect ownership. Wholly-owned by Hilton Hotels U.S.A., Inc., which is
wholly-owned by Hilton Hotels Corporation.
(4) Inactive.
(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 International 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.
(9) Indirect ownership. Wholly-owned by Conrad International Investment
Corporation, which is wholly-owned by Hilton Hotels U.S.A., Inc., which
is wholly-owned by Hilton Hotels Corporation.
(10) This corporation is wholly-owned by Hilton Grand Vacations Company, a joint
venture which is 50%-owned by Hilton Hotels Corporation and 50%-owned by
Hilton Resorts Corporation, which is a wholly-owned subsidiary of Hilton
Hotels Corporation.
(11) Indirect ownership. Wholly-owned by Bally's Intermediate Casino Holdings,
Inc., which is wholly-owned by Bally's Casino Holdings, Inc., which is
wholly-owned by Bally's Sub, Inc., which is wholly-owned by Bally's
Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels Corporation.
(12) Indirect ownership. Wholly-owned by Bally's Park Place, Inc. (a New Jersey
corp.), which is wholly-owned by Bally's Park Place, Inc. (a Delaware
corp.), which is wholly-owned by Bally's Casino Holdings, Inc., which is
wholly-owned by Bally's Sub, Inc., which is wholly-owned by Bally's
Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels Corporation.
(13) Indirect ownership. Wholly-owned by Bally's Sub, Inc., which is wholly-
owned by Bally's Intermediate Sub, Inc., which is wholly-owned by Hilton
Hotels Corporation.
(14) Indirect ownership. Wholly-owned by Bally's Casino Holdings, Inc., which
is wholly-owned by Bally's Sub, Inc., which is wholly-owned by Bally's
Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels Corporation.
3
<PAGE>
(15) Indirect ownership. Wholly-owned by Bally's Park Place, Inc. (a Delaware
corp.), which is wholly-owned by Bally's Casino Holdings, Inc., which is
wholly-owned by Bally's Sub, Inc., which is wholly-owned by Bally's
Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels Corporation.
(16) Indirect ownership. Wholly-owned by Bally's Intermediate Sub, Inc., which
is wholly-owned by Hilton Hotels Corporation.
(17) Indirect ownership. Wholly-owned by GNOC, Corp., which is wholly-owned by
Hilton Hotels Corporation.
(18) This corporation was formed in 1994 to serve as a political action
committee to promote the passage of pro-gaming legislation in Florida.
Currently inactive, but cannot be dissolved until a lawsuit involving the
corporation is settled.
(19) Prior to 4/4/97, this corporation was named Bally's Limited (Chicago), Inc.
and was wholly-owned by Bally's Intermediate Casino Holdings, Inc.
(20) Wholly-owned by Hilton Grand Vacations Company, which is 50%-owned by
Hilton Hotels Corporation and 50%-owned by Hilton Resorts Corporation,
which is wholly-owned by Hilton Hotels Corporation.
(21) 50.05%-owned by Hilton Hotels Corporation, and 49.95%-owned by Hilton D.C.
Corporation, which is wholly-owned by Hilton Hotels Corporation.
(22) 50.05%-owned by Hilton Hotels Corporation, and 49.95%-owned by Hilton New
York Corporation, which is wholly-owned by Hilton Hotels Corporation.
4
<PAGE>
B. PARTIALLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
% STATE OR COUNTRY
NAME OWNERSHIP OF INCORPORATION
---- --------- ----------------
<S> <C> <C>
Bally's Casino Management, Inc. (13) See (13) below. Nevada
Bally's Grand, Inc. (14) 84.738 Delaware
Bally's Grand Laundry Corporation (15) See (15) below. Nevada
Bally's Grand Property Sub I,
Inc. (4) (15) See (15) below. Nevada
Bally's Grand Property Sub II,
Inc. (15) See (15) below. Nevada
Baluma Cambio S.A. (18) See (18) below. Uruguay
Baluma Holdings S.A. (1) 43 The Bahamas
Baluma Ltda. (18) See (18) below. Brazil
Baluma S.A. (2) See (2) below. Uruguay
Belle of Orleans, L.L.C. (17) 49.9 Louisiana
Earlsfort Centre Hotel Proprietors
Limited(3) 14.7 Ireland
Grand Reservation Services, Inc. (15) See (15) below. Nevada
Grand Resorts, Inc. (15) See (15) below. Nevada
Hilton HHonors Worldwide, L.L.C. (16) 50 Delaware
Hilton Marketing Worldwide, L.L.C. (16) 50 Delaware
Hilton Reservations Worldwide,
L.L.C. (16) 50 Delaware
Indiana Ventures LLC (5) 48.5 Nevada
International Company for
Touristic Investments, S.A.E. (6) 10 Egypt
Johnnic Casino Holdings Limited (20) 24.5 South Africa
Jupiters Limited (7) See (7) below. Australia
Jupiters Management Limited (4) (8) 66.6 Australia
MeriTex, LLC (21) 50 Delaware
MGM Grand-Bally's Monorail
Limited Liability Co. (22) 50 Nevada
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
% STATE OR COUNTRY
NAME OWNERSHIP OF INCORPORATION
---- --------- ----------------
<S> <C> <C>
On Command Corporation 8.5 Delaware
Pinnacle Gaming Development
Corp. (9) 48.5 Colorado
P.T. Jakarta International Artha (19) 10 Indonesia
Switzerland County Development
Corp. (10) 48.5 Nevada
Windsor Casino Financial Limited (11) 50 Ontario, Canada
Windsor Casino Limited (11) 50 Ontario, Canada
Windsor Casino Supplies Limited (11) 50 Ontario, Canada
Yeditepe Beynelmilel Otelcilik 25 Turkey
Turizm Ve Ticaret, A.S.
(Seven Hills International Hotel,
Tourism and Trade, A.S.) (12)
</TABLE>
_______________________________________________________________________________
(1) This corporation is 43%-owned by Conrad International Investment
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(2) This corporation is 99.9%-owned by Baluma Holdings S.A., a Bahamas
corporation [see (1) above.] 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.
(3) This corporation is 14.7%-owned by Conrad International Investment
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) Inactive corporation.
(5) 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.
(6) This corporation is 10%-owned by Conrad International Investment
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(7) This corporation is 19.91%-owned by Conrad International Investment
Corporation ("CIIC"), which is a wholly-owned subsidiary of Hilton Hotels
U.S.A., Inc., which is a wholly-owned subsidiary of Hilton Hotels
Corporation.
(8) This corporation is 66.6%-owned by Conrad International Investment
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(9) 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.
6
<PAGE>
(10) 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.
(11) This corporation is 50%-owned by Conrad International Investment
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(12) This corporation is 25%-owned by Conrad International Investment
Corporation, which is a wholly-owned subsidiary of Hilton Hotels U.S.A.,
Inc., which is a wholly-owned subsidiary of Hilton Hotels Corporation.
(13) Wholly-owned by Bally's Grand Property Sub I, Inc., which is wholly-owned
by Bally's Grand, Inc., which is 84.738%-owned by Bally's CHLV, Inc.,
which is wholly-owned by Bally's Casino Holdings, Inc., which is wholly-
owned by Bally's Sub, Inc., which is wholly-owned by Bally's Intermediate
Sub, Inc., which is wholly-owned by Hilton Hotels Corporation.
(14) 84.738%-owned by Bally's CHLV, Inc., which is wholly-owned by Bally's
Casino Holdings, Inc., which is wholly-owned by Bally's Sub, Inc., which
is wholly-owned by Bally's Intermediate Sub, Inc., which is wholly-owned
by Hilton Hotels Corporation. The remainder of the Corporation's shares
are publicly held, primarily by large institutional investors. Such
publicly held shares are traded on the NASDAQ stock exchange.
(15) Wholly-owned by Bally's Grand, Inc., which is 84.738%-owned by Bally's
CHLV, Inc., which is wholly-owned by Bally's Casino Holdings, Inc., which
is wholly-owned by Bally's Sub, Inc., which is wholly-owned by Bally's
Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels
Corporation.
(16) The remaining ownership interest is held by Hilton International Co.
(17) 49.9%-owned by Bally's Louisiana, Inc.
(18) A wholly-owned subsidiary of Baluma S.A.
(19) This corporation is a wholly-owned subsidiary of Conrad International
Investment Corporation, which is wholly-owned by Hilton Hotels U.S.A.,
Inc., which is wholly-owned by Hilton Hotels Corporation.
(20) Hilton's ownership interest is held by Conrad International Hotels
Corporation - SA (Proprietary) Limited, which is wholly-owned by Conrad
International Investment Corporation, which is wholly- owned by Hilton
Hotels U.S.A., Inc., which is wholly-owned by Hilton Hotels Corporation.
(21) The remaining ownership interest is held by Pertl and Oberlander, Inc.
(22) 50%-owned by Bally's Grand, Inc., which is 84.738%-owned by Bally's
CHLV, Inc., which is wholly-owned by Bally's Casino Holdings, Inc.,
which is wholly-owned by Bally's Sub, Inc., which is wholly-owned by
Bally's Intermediate Sub, Inc., which is wholly-owned by Hilton Hotels
Corporation.
7
<PAGE>
C. JOINT VENTURES
<TABLE>
<CAPTION>
% STATE OR COUNTRY
NAME OWNERSHIP OF INCORPORATION
---- --------- ----------------
<S> <C> <C>
Avenue Louise Hotel Partners S.N.C. (2) 100 Belgium
Bally's Olympia Limited Partnership (16) 100 Delaware
Chicago Hilton Joint Venture (21) 100 Illinois
Destination Resort Affiliates (9) 50 Arizona
Flamingo Hilton Riverboat Casino,
L.P. (10) 100 Missouri
Global Resort Partners (20) 13.34 Hawaii
Grand Vacations Realty, Limited(17) 100 Florida
Grand Vacations Title, Limited (17) 100 Florida
Hapeville Hotel Limited
Partnership (11) 100 Delaware
Hilton Grand Vacations Club (19) 100 Florida
Hilton Grand Vacations Company (3) 100 Nevada
Hilton Grand Vacations
Development Company - Las Vegas (3) 100 Nevada
Hilton Grand Vacations
Development Company - Orlando (3) 100 Florida
Hilton Hawaiian Village Joint
Venture (1) 50 Hawaii
International Rivercenter Partnership 67.4 Louisiana
Kenner Hotel Limited Partnership (12) 100 Delaware
Logan Hilton Joint Venture (5) 100 Massachusetts
McLean Hotel Associates, Ltd. (18) 100 Virginia
New Orleans International Hotel(13) 26.33 Louisiana
New Orleans Rivercenter (14) 38.75 Louisiana
New York Hilton Joint Venture (1) 99.5 New York
Oakbrook Hilton Suites Joint Venture 50 Illinois
Queen of New Orleans at the 50 Louisiana
Hilton Joint Venture (6)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
% STATE OR COUNTRY
NAME OWNERSHIP OF INCORPORATION
---- --------- ----------------
<S> <C> <C>
San Francisco Hilton, L.P. (22) 100 California
Tarrytown Hilton Joint Venture (7) 100 New York
Valencia Hotel Joint Venture (8) 25 California
</TABLE>
_______________________________________________________________________________
(1) The remaining ownership interest is held by The Prudential Insurance
Company of America.
(2) 50% of this partnership is held by Conrad International Hotels Corporation.
The remaining 50% is held by Conrad International Investment Corporation.
Both partners are wholly-owned subsidiaries of Hilton Hotels U.S.A., Inc.,
which is wholly-owned by Hilton Hotels Corporation. Prior to January 1,
1994, this partnership was a Belgium corporation [CONRAD INTERNATIONAL
(BRUSSELS) SA/NV]. From January 1994 through May 1996, the partnership
was named CONRAD INTERNATIONAL (BRUSSELS) S.N.C.
(3) 50% of this joint venture is held by Hilton Hotels Corporation. The
remaining 50% is held by Hilton Resorts Corporation, which is wholly-
owned by Hilton Hotels Corporation.
(4) Inactive.
(5) 35% of this joint venture is held by Hilton Hotels Corporation. The
remaining 65% is held by Hilton Systems, Inc., which is wholly-owned by
Hilton Hotels Corporation.
(6) 50%-owned by Hilton New Orleans Corporation, which is wholly-owned by
Hilton Gaming Corporation, which is wholly-owned by Hilton Hotels
Corporation.
(7) 50% of this joint venture is held by Hilton Hotels Corporation. The
remaining 50% is held by Hilton Systems, Inc., which is wholly-owned by
Hilton Hotels Corporation.
(8) 25%-owned by Hilton Inns, Inc., which is wholly-owned by Hilton Hotels
Corporation.
(9) 50% of this joint venture is held by Destination Resorts, Inc., which is
wholly-owned by Hilton Hotels Corporation.
(10) 90% of this partnership is held by Hilton Kansas City Corporation, which
is wholly-owned by Hilton Gaming Corporation, which is wholly-owned by
Hilton Hotels Corporation. The remaining 10% is held by HKC Partners,
Inc., which is wholly-owned by Hilton Gaming Corporation, which is wholly-
owned by Hilton Hotels Corporation.
(11) 1%-owned by Hilton Hotels Partners II, Inc. (the general partner), and
99%-owned by Hapeville Investors, Inc. (the limited partner.) Both the
general and limited partners are wholly-owned by Hilton Hotels Corporation.
(12) 1%-owned by Hilton Hotels Partners I, Inc. (the general partner), and 99%-
owned by Kenner Investors, Inc. (the limited partner.) Both the general
and limited partners are wholly-owned by Hilton Hotels Corporation.
(13) This Louisiana partnership holds a 22.5% ownership interest in New Orleans
Rivercenter, another Louisiana partnership [see (14) below].
(14) Owns the parking lot at the New Orleans Hilton Riverside.
9
<PAGE>
(15) 50%-owned by Bally Indiana, Inc. and 1%-owned by Bally's Casino Indiana,
Inc.
(16) 11%-owned by Hilton Hotels Corporation, 88%-owned by Bally's Tunica, Inc.
and 1%-owned by Bally's Operator, Inc.
(17) 99%-owned by Hilton Grand Vacations Company, and 1%-owned by Grand
Vacations Realty, Inc.
(18) 7.5%-owned by Hilton Hotels Corporation, and 92.5%-owned by Kenner
Investors, Inc., which is wholly-owned by Hilton Hotels Corporation.
(19) 99%-owned by Hilton Grand Vacations Company, and 1%-owned by Hilton
Grand Vacations Exchange Company.
(20) 13.34%-owned by Hilton Recreation, Inc., which is wholly-owned by HHC.
(21) 40.24%-owned by Hilton Hotels Corporation, and 59.76%-owned by Hilton
Chicago Corporation, which is wholly-owned by Hilton Hotels Corporation.
(22) 50.25%-owned by Hilton Hotels Corporation, and 49.75%-owned by Hilton San
Francisco Corporation, which is wholly-owned by Hilton Hotels Corporation.
10
<PAGE>
D. AFFILIATES
1. 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>
2. The following nonprofit corporation serves as the owner of the health
club at the Washington Hilton & Towers. It is owned by the members of
that hotel's health club. Hilton Hotels Corporation does not have any
direct or indirect ownership interest in this corporation.
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
------------------- -------------
<S> <C>
Washington Hilton Racquet Club District of Columbia
</TABLE>
11
<PAGE>
EXHIBIT 23
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 2, 1998, included (or incorporated by reference) in this
Form 10-K, for the year ended December 31, 1997, into the Company's previously
filed Registration Statements (File Nos. 2-95746, 2-99967, 33-35951, 333-04273,
333-10415, 333-175155, 333-38047 and 333-41447).
ARTHUR ANDERSEN LLP
Los Angeles, California
March 26, 1998
1
<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>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 330
<SECURITIES> 43
<RECEIVABLES> 438
<ALLOWANCES> 35
<INVENTORY> 77
<CURRENT-ASSETS> 1,011
<PP&E> 6,155
<DEPRECIATION> 1,161
<TOTAL-ASSETS> 7,826
<CURRENT-LIABILITIES> 941
<BONDS> 2,709
0
15
<COMMON> 628
<OTHER-SE> 2,740
<TOTAL-LIABILITY-AND-EQUITY> 7,826
<SALES> 5,316
<TOTAL-REVENUES> 5,316
<CGS> 0
<TOTAL-COSTS> 4,607
<OTHER-EXPENSES> 80
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 448
<INCOME-TAX> 187
<INCOME-CONTINUING> 250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250
<EPS-PRIMARY> .95
<EPS-DILUTED> .94
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1997 SEP-30-1997 SEP-30-1996 DEC-31-1995
<CASH> 297 347 211 338
<SECURITIES> 28 24 56 71
<RECEIVABLES> 404 416 236 242
<ALLOWANCES> 39 35 29 22
<INVENTORY> 81 76 56 14
<CURRENT-ASSETS> 927 1,018 610 717
<PP&E> 6,091 6,167 2,646 2,490
<DEPRECIATION> 1,139 1,164 889 794
<TOTAL-ASSETS> 7,676 7,895 3,019 3,060
<CURRENT-LIABILITIES> 862 902 355 535
<BONDS> 2,745 2,770 1,087 1,070
0 0 0 0
15 15 0 0
<COMMON> 627 628 494 128
<OTHER-SE> 2,712 2,801 898 1,126
<TOTAL-LIABILITY-AND-EQUITY> 7,676 7,895 3,019 3,060
<SALES> 2,663 3,977 1,353 1,649
<TOTAL-REVENUES> 2,663 3,977 1,353 1,649
<CGS> 0 0 0 0
<TOTAL-COSTS> 2,242 3,349 1,005 1,243
<OTHER-EXPENSES> 35 49 37 32
<LOSS-PROVISION> 26 21 18 21
<INTEREST-EXPENSE> 88 110 39 75
<INCOME-PRETAX> 286 448 254 280
<INCOME-TAX> 118 184 100 103
<INCOME-CONTINUING> 161 255 150 173
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 161 255 150 173
<EPS-PRIMARY> .62 .98 .77 .90
<EPS-DILUTED> .60 .95 .76 .89
</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 Nos. 333-04273 (filed May 22, 1996), 333-175155 (filed December 2,
1996) and 333-41447 (filed December 4, 1997):
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.
