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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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ....................... to ......................
Commission File Number 1-3427
HILTON HOTELS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-2058176
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
9336 CIVIC CENTER DRIVE 90210
BEVERLY HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
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Registrant's telephone number, including area code: (310) 278-4321
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, par value $2.50 per share New York, Pacific
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Based upon the March 15, 1999 New York Stock Exchange closing price of
$15.25 per share, the aggregate market value of Registrant's outstanding Common
Stock held by non-affiliates of the Registrant was approximately $3.4 billion.
On that date, there were 261,069,367 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, 1998 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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TABLE OF CONTENTS
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PART I.................................................................................................... 1
ITEM 1. BUSINESS..................................................................................... 1
General Information....................................................................................... 1
Current Operations...................................................................................... 1
Recent Developments..................................................................................... 1
Ladbroke Alliance....................................................................................... 3
Industry Segments....................................................................................... 3
Hotel Operations.......................................................................................... 4
Wholly and Partially Owned Hotels....................................................................... 4
Managed Hotels.......................................................................................... 7
Franchise Hotels........................................................................................ 9
Expansion Program....................................................................................... 9
Territorial Restrictions................................................................................ 11
Potential Acquisitions.................................................................................. 11
Property Transactions................................................................................... 11
Additional Information.................................................................................... 12
Vacation Ownership...................................................................................... 12
Casino Windsor.......................................................................................... 12
Flamingo Casino-Kansas City............................................................................. 12
Design and Furnishing Services.......................................................................... 12
Reservation System...................................................................................... 13
Marketing............................................................................................... 13
Business Risks.......................................................................................... 13
Competition............................................................................................. 13
Statistical Data........................................................................................ 14
Year 2000............................................................................................... 14
Forward-Looking Statements.............................................................................. 15
Environmental Matters................................................................................... 16
Regulation and Licensing................................................................................ 16
Employees............................................................................................... 17
ITEM 2. PROPERTIES................................................................................... 17
ITEM 3. LEGAL PROCEEDINGS............................................................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 18
Executive Officers of the Company......................................................................... 19
PART II................................................................................................... 20
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................ 20
Rights Agreement.......................................................................................... 20
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ITEM 6. SELECTED FINANCIAL DATA...................................................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................. 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................................... 22
PART III.................................................................................................. 22
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................... 22
ITEM 11. EXECUTIVE COMPENSATION....................................................................... 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 22
PART IV................................................................................................... 23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................. 23
(a) Index to Financial Statements....................................................................... 23
(b) Reports on Form 8-K................................................................................. 23
(c) Exhibits............................................................................................ 23
Report of Independent Public Accountants on Supplemental Schedule......................................... 24
Schedule II--Valuation and Qualifying Accounts............................................................ 25
Signatures................................................................................................ 26
Index to Exhibits......................................................................................... 27
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PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
CURRENT OPERATIONS
Hilton Hotels Corporation ("Hilton" or the "Company") is primarily engaged,
together with its subsidiaries, in the ownership, management and franchising of
hotels. As of February 1, 1999, all of these properties were located in the
United States, with the exception of ten hotels operated under the Conrad
International name, three franchise hotels operated in Canada and three
franchise hotels operated in Mexico.
On February 1, 1999, Hilton owned an interest in or leased and operated 38
hotels and managed 24 hotels owned by others. In addition, 185 hotels were
operated under the Hilton-Registered Trademark-, Hilton Garden
Inn-Registered Trademark- and Hilton Suites-TM- names by others pursuant to
franchises granted by the Company. The Company is also engaged in various other
activities incidental or related to the operation of hotels. See "Additional
Information."
On December 31, 1998, the Company completed the spin-off of its gaming
operations. See "Recent Developments--Separation of Gaming Business."
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.
For additional information, see the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1998 (the "Stockholder Report"). The
Stockholder Report is included as Exhibit 13 to this Form 10-K and, to the
extent specific references are made to the Stockholder Report, these provisions
are incorporated in this Form 10-K by reference.
RECENT DEVELOPMENTS
SEPARATION OF GAMING BUSINESS
On December 31, 1998, the Company completed the spin-off of its gaming
operations, thereby creating a new publicly-held gaming company called Park
Place Entertainment Corporation ("Park Place"). The spin-off was accomplished
through a tax free distribution to the Company's stockholders, on a one-for-one
basis, of the shares of Park Place common stock (the "Park Place Distribution").
Following completion of the Park Place Distribution, a subsidiary of Park Place
merged with the Mississippi gaming operations of Grand Casinos, Inc. The Park
Place common stock is listed on the New York Stock Exchange and traded under the
symbol "PPE."
As a result of the Park Place Distribution, effective December 31, 1998, the
Company disposed of all of its gaming operations, and all assets and liabilities
related to the gaming operations, except as follows:
- The Company retained its 50% ownership interest in the consortium that
manages Casino Windsor for the Ontario provincial government. See
"Additional Information--Casino Windsor."
- On February 1, 1999, the Company opened the Conrad International Cairo
which features an approximately 6,000 square foot amenity casino. The
Company owns a 10% equity interest in, and manages, the Conrad
International Cairo.
- The Company owns and operates the Flamingo Casino-Kansas City in Kansas
City, Missouri. The Company has entered into an agreement to sell this
riverboat casino to a third party. Upon completion of such sale, the
proceeds of the sale will be allocated between the Company and Park Place
pursuant to an agreement entered into in connection with the Park Place
Distribution. See "Additional Information--Flamingo Casino-Kansas City."
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HOTELS
ACQUISITIONS
Since January 1, 1998, the Company has increased its ownership of
full-service hotels by acquiring 100% ownership interests in the following
properties:
- In March 1998, the Company acquired the 300-room Hilton Short Hills in
Short Hills, New Jersey.
- In April 1998, the Company acquired the 407-room Westin Hotel in
Charlotte, North Carolina (renamed the Hilton Charlotte & Towers) and the
395-room Hilton DFW Lakes Executive Conference Center in Dallas, Texas.
- In July 1998, Hilton acquired the 405-room Hilton East Brunswick & Towers
in East Brunswick, New Jersey.
- In December 1998, Hilton acquired the 394-room Sheraton Grande Torrey
Pines in La Jolla, California (renamed the Hilton La Jolla Torrey Pines).
Hilton leases the land underlying the hotel pursuant to a long-term lease.
- In February 1999, the Company acquired the 495-room Radisson Plaza Hotel
at Mark Center in Alexandria, Virginia (renamed the Hilton Alexandria Mark
Center).
The Company has also acquired ownership interests in the following
full-service hotels since January 1, 1998:
- In January 1998, the Company acquired the remaining 92.5% ownership
interest in the 458-room Hilton McLean Tysons Corner.
- In January 1998, the Company acquired from The Prudential Insurance
Company of America ("Prudential") the remaining 17% ownership interest in
the 1,543-room Hilton Chicago & Towers and the remaining fractional
interest in the 1,895-room Hilton San Francisco & Towers.
- In August 1998, the Company acquired a 75% ownership interest in the
585-room Pointe Hilton Tapatio Cliffs Resort in Phoenix, Arizona.
- In September 1998, the Company acquired from Prudential an additional 48%
ownership interest in the 2,545-room Hilton Hawaiian Village in Honolulu,
Hawaii, increasing the Company's ownership interest to 98%.
CONSTRUCTION AND RENOVATION
The Company is renovating the Hilton New York & Towers, which will include
new restaurants, a state-of-the-art business/conference center, a world-class
fitness facility, an exclusive Towers Lounge overlooking Manhattan and 37
additional guest rooms. The Company expects to complete this project in late
1999. The Company is also constructing a new 600-room hotel at the center of
Boston's Logan Airport, which the Company expects to complete in late 1999.
FRANCHISE
During 1998, the Company continued to improve its franchise business through
the expansion of Hilton Garden Inn properties, the addition of high quality
full-service properties and the removal of properties that do not meet the
Company's standards. In 1998, the Company added 19 franchises to its system
(including nine Hilton Garden Inn properties), while 11 franchise arrangements
were terminated. At December 31, 1998, the Company had approximately 125 Hilton
Garden Inn properties either open or under construction. The Company anticipates
that approximately 200 Hilton Garden Inn properties will be either open or under
construction by December 31, 2000.
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INTERNATIONAL
In July 1998, the 400-room Casino Windsor hotel casino opened in Windsor,
Ontario, Canada, which replaced a temporary casino. The Company owns a 50%
equity interest in the consortium that manages Casino Windsor for the Ontario
provincial government. In February 1999, the Company opened the 619-room Conrad
International Cairo in Egypt.
ADDITIONAL INFORMATION
For a more detailed description of the Company's recent developments, see
"Hotel Operations" and "Additional Information--Vacation Ownership" and
"--Casino Windsor." For a description of the Company's planned expansion
activities, see "Hotel Operations--Expansion Program." For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 18 through 23 in the Stockholder Report.
LADBROKE ALLIANCE
The Company has entered into 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, developed joint
marketing initiatives and adopted a new Hilton brand identity used by both
companies. In addition, the alliance permits the Company and Ladbroke to acquire
up to 20% of each other's outstanding capital stock and provides for potential
mutual participation in certain future hotel development focusing primarily upon
management contracts and franchises. To date, neither the Company nor Ladbroke
has acquired an interest in each other's capital stock. Stephen F. Bollenbach,
the Company's President and Chief Executive Officer, is a non-executive director
of Ladbroke and Peter M. George, Chief Executive of Ladbroke, is a non-executive
director of the Company.
INDUSTRY SEGMENTS
Hilton's revenue and income are derived primarily from hotel operations,
which include the operation of Hilton's owned, leased, partially owned and
managed hotels, and franchise fees.
The Company currently manages (and in some cases, partially owns) hotel
properties in Belgium, Egypt, England, Hong Kong, Ireland, Singapore, Spain and
Turkey. To date, the amounts of revenues, operating profits and identifiable
assets attributable to geographic areas other than the United States have not
been material.
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HOTEL OPERATIONS
WHOLLY AND PARTIALLY OWNED HOTELS
On February 1, 1999, Hilton wholly or partially owned and operated the
following hotels. Each of these hotels is wholly owned in fee by Hilton, except
as otherwise indicated in the table below.
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YEAR
NUMBER OF ACQUIRED
NAME AND LOCATION ROOMS/SUITES BY HILTON
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DOMESTIC
Hilton Anchorage 591 1997
Anchorage, Alaska(1)
Hilton Atlanta Airport & Towers 503 1960
Atlanta, Georgia(2)
Hilton Charlotte & Towers 407 1998
Charlotte, North Carolina
Hilton Chicago O'Hare Airport 858 1991
Chicago, Illinois(3)(4)
Hilton Chicago & Towers 1,543 1996
Chicago, Illinois(5)
Palmer House Hilton 1,639 1988
Chicago, Illinois(6)
Hilton DFW Lakes Executive Conference Center 395 1998
Dallas, Texas
Hilton East Brunswick & Towers 405 1998
East Brunswick, New Jersey(7)
Hilton Hawaiian Village 2,545 1998
Honolulu, Hawaii(8)(9)
Hilton La Jolla Torrey Pines 394 1998
La Jolla, California(3)
Hilton McLean Tysons Corner 458 1998
McLean, Virginia(10)
Hilton New Orleans Airport 317 1959
New Orleans, Louisiana(2)
Hilton New Orleans Riverside 1,600 1994
New Orleans, Louisiana(11)
Hilton New York & Towers 2,041 1996
New York, New York(12)
Waldorf=Astoria 1,380 1977
New York, New York(13)
Hilton Oakland Airport 363 1970
Oakland, California(3)
Pointe Hilton Tapatio Cliffs Resort 585 1998
Phoenix, Arizona(9)(14)
Hilton Pittsburgh & Towers 714 1959
Pittsburgh, Pennsylvania(3)
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YEAR
NUMBER OF ACQUIRED
NAME AND LOCATION ROOMS/SUITES BY HILTON
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Hilton Portland 455 1963
Portland, Oregon
Hilton Rye Town 436 1996
Rye Brook, New York(15)
Hilton San Diego Resort 357 1965
San Diego, California(3)
Hilton San Francisco & Towers 1,895 1996
San Francisco, California(16)
Hilton Seattle Airport 178 1961
Seattle, Washington(3)
Hilton Short Hills 300 1998
Short Hills, New Jersey(17)
Hilton Tarrytown 236 1993
Tarrytown, New York(3)(18)
Hilton Waikoloa Village 1,241 1993
Waikoloa, Hawaii(19)
Capital Hilton 543 1996
Washington, D.C.(15)
Hilton Washington & Towers 1,123 1996
Washington, D.C.(15)
Hilton Garden Inn Southfield 197 1993
Southfield, Michigan(20)
Hilton Garden Inn Valencia Six Flags 152 1991
Valencia, California(19)
Hilton Suites Auburn Hills 224 1991
Auburn Hills, Michigan
Hilton Suites Brentwood 203 1989
Brentwood, Tennessee
Hilton Suites Oakbrook Terrace 212 1989
Oakbrook Terrace, Illinois(9)(21)
Hilton Suites Anaheim/Orange 230 1989
Orange, California
Hilton Suites Phoenix 226 1990
Phoenix, Arizona
INTERNATIONAL
Conrad International Cairo 619 1999
Cairo, Egypt(19)
Conrad International Dublin 191 1989
Dublin, Ireland(19)
Conrad International Istanbul 625 1992
Istanbul, Turkey(9)(19)(22)
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(1) The Company managed the Hilton Anchorage from December 1976 until acquiring
the property in February 1997.
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(2) The Hilton Atlanta Airport & Towers and the Hilton New Orleans Airport were
closed and demolished in 1986 and, thereafter, rebuilt and reopened in 1989.
(3) The Company leases the land upon which each of these hotels is located.
(4) The Company managed the Hilton Chicago O'Hare Airport from 1974 until
October 1991, when the Company purchased the then remaining leasehold of the
hotel. The Hilton Chicago O'Hare Airport was closed for renovation in
October 1991 and reopened in July 1992.
(5) The Company owned a 33% interest in the Hilton Chicago & 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.
(6) 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.
(7) The Company managed the Hilton East Brunswick & Towers from May 1993 until
acquiring the property in July 1998.
(8) The Company owned a 50% interest in the Hilton Hawaiian Village until
acquiring an additional 48% interest from Prudential in September 1998.
(9) The Company has made loans which are currently outstanding to the entity
owning each of the referenced properties.
(10) The Company owned a 7.5% interest in the Hilton McLean Tysons Corner until
acquiring the remaining 92.5% ownership interest in January 1998.
(11) The Company has a 67% ownership interest in the Hilton New Orleans
Riverside. The Company owned a 25% interest in this hotel when it opened in
1977 and acquired additional ownership interests through 1994.
(12) The Company has an ownership interest in excess of 99% in the joint venture
which owns the Hilton New York & Towers. The Company had a 50% ownership
interest in this property prior to the 1996 acquisition of substantially all
of Prudential's ownership interest.
(13) The Company operated the Waldorf=Astoria under a lease from February 1950
until acquiring the property in April 1977.
(14) The Company acquired a 75% ownership interest in the Pointe Hilton Tapatio
Cliffs Resort in August 1998.
(15) 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.
(16) The Company had a 50% ownership interest in the Hilton San Francisco &
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.
(17) The Company managed the Hilton Short Hills from February 1988 until
acquiring the property in March 1998.
(18) The Company managed and was a joint venture partner with respect to the
Hilton Tarrytown from 1975 until August 1993, when it acquired the remaining
equity interest in the joint venture leasing the land underlying the hotel.
(19) The Company has ownership interests of less than 50% in each of the
referenced properties.
(20) The Company managed the Hilton Garden Inn Southfield from July 1991 until
acquiring the property in July 1993.
(21) The Company has a 50% ownership interest in the Hilton Suites Oakbrook
Terrace.
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(22) The Company operated a casino in the Conrad International Istanbul from
1992 until February 1998.
MORTGAGE INDEBTEDNESS
As of February 1, 1999, none of the majority owned hotels referenced in the
table above had any outstanding mortgage indebtedness, except for: (i) Hilton
Atlanta Airport & Towers in the amount of $50 million; (ii) Hilton New Orleans
Airport in the amount of $32 million; (iii) Hilton New Orleans Riverside in the
amount of $97 million; and (iv) Pointe Hilton Tapatio Cliffs Resort in the
amount of $48 million.
PARTIALLY OWNED HOTELS
The owners of the partially owned hotels referenced in the table above are
joint ventures in which the Company owns an equity interest. The Company has a
right of first refusal to purchase an interest in certain of these hotels. Each
of the partially owned hotels is managed by Hilton for the entity owning the
hotel. For a description of the Company's management agreements, see "Hotel
Operations--Managed Hotels."
LEASED HOTELS
As indicated in the table above, 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
35 in the Stockholder 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.
The expiration dates of these leases are as follows:
- Hilton Chicago O'Hare Airport -- 2018;
- Hilton La Jolla Torrey Pines -- 2042;
- Hilton Oakland Airport -- 2033;
- Hilton Pittsburgh & Towers -- 2004, with renewal options aggregating 30
years;
- Hilton San Diego Resort -- 2019;
- Hilton Seattle Airport -- 2004, with renewal options aggregating 30 years;
and
- Hilton Tarrytown -- 2003, with renewal options aggregating 40 years.
During the years ended December 31, 1998, 1997 and 1996, Hilton paid
aggregate rentals, primarily consisting of rentals attributable to the
properties listed in the above table, of $22 million, $19 million and $16
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 35 in the Stockholder Report.
MANAGED HOTELS
On February 1, 1999, Hilton managed 17 domestic hotels and seven
international hotels which are wholly owned by others. 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
1999 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.
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On February 1, 1999, Hilton operated the following hotels under management
agreements:
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NAME AND LOCATION NUMBER OF ROOMS/SUITES
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DOMESTIC
Hilton Anaheim 1,576
Anaheim, California
Hilton Atlanta & Towers 1,224
Atlanta, Georgia
Hilton Beverly Hills 581
Beverly Hills, California
Hilton Burbank Airport & Conference 486
Center
Burbank, California
Hilton Long Beach 393
Long Beach, California
Hilton Los Angeles Airport 1,234
Los Angeles, California
Fontainebleau Hilton Resort & Towers 1,206
Miami, Florida
Hilton Miami Airport & Towers 500
Miami, Florida
Hilton Minneapolis & Towers 814
Minneapolis, Minnesota
Hilton Newark Airport 375
Newark, New Jersey
Millenium Hilton 561
New York, New York
Hilton Turtle Bay Golf & Tennis 485
Resort
Oahu, Hawaii
Hilton in the Walt Disney World 814
Resort
Orlando, Florida
Hilton Pasadena 291
Pasadena, California
Pointe Hilton South Mountain Resort 636
Phoenix, Arizona
Pointe Hilton Squaw Peak Resort 563
Phoenix, Arizona
Hilton Palacio del Rio 481
San Antonio, Texas
INTERNATIONAL
Conrad International Barcelona 412
Barcelona, Spain(1)
Conrad International Brussels 269
Brussels, Belgium
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<CAPTION>
NAME AND LOCATION NUMBER OF ROOMS/SUITES
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Conrad International Hong Kong 512
Hong Kong, China
Conrad International Hurghada Resort 260
Hurghada, Egypt
Conrad International London 159
London, England
Conrad International Sharm El Sheikh 350
Resort
Sharm El Sheikh, Egypt
Conrad International Centennial 508
Singapore
Singapore
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(1) Hilton has made a loan which is currently outstanding to the owner of the
Conrad International Barcelona.
FRANCHISE HOTELS
Pursuant to franchises granted by the Company through a subsidiary,
franchise hotels are operated under the Hilton-Registered Trademark-, Hilton
Garden Inn-Registered Trademark- or Hilton Suites-TM- 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 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
plans for, and the location of, franchise hotels and assists in their design.
On February 1, 1999, there were 185 franchise hotels, of which 166 were
operated under the Hilton name, 17 were operated under the Hilton Garden Inn
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 19 franchises to its system in 1998
(including nine Hilton Garden Inn properties), while 11 franchise arrangements
were terminated. In addition, the Company expects to open approximately 65
Hilton Garden Inn hotels during 1999.
EXPANSION PROGRAM
GENERAL
Hilton intends to expand its domestic operations through:
- the acquisition of ownership interests in existing Hilton and non-Hilton
branded hotels;
- the conversion of existing hotels into management and franchise
properties;
- the construction of new Hilton Garden Inn and Hilton Residential Suites
properties to be operated as franchise hotels; and
- the development and management of vacation ownership resorts.
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The Company will invest in new domestic hotel projects or conversion properties
where the return on investment meets the Company's criteria.
HILTON GARDEN INNS
Hilton commenced a major expansion of Hilton Garden Inn properties in 1996.
The additional Hilton Garden Inn properties are anticipated to be primarily
newly constructed facilities which will be operated as franchise hotels. At
December 31, 1998, the Company had approximately 125 Hilton Garden Inn
properties either open or under construction. The Company anticipates that
approximately 200 Hilton Garden Inn properties will be either open or under
construction by December 31, 2000.
HILTON RESIDENTIAL SUITES
In January 1999, the Company announced that it will enter the premier
segment of the extended stay market in the United States, Canada and Mexico with
the introduction of Hilton Residential Suites-TM- hotels. The Company
anticipates that the Hilton Residential Suites properties will be primarily
newly constructed facilities to be operated as franchise hotels. These
properties will have approximately 95 to 150 guest suites. Construction of the
initial Hilton Residential Suites hotel in the United States will commence in
1999, and the Company anticipates that approximately 100 properties will be
either open or under construction by December 31, 2003.
FULL-SERVICE HOTELS
In 1998, the Company continued several major capital projects for hotel
properties. The Company is renovating the Hilton New York & Towers, which will
include new restaurants, a state-of-the-art business/ conference center, a
world-class fitness facility, an exclusive Towers Lounge overlooking Manhattan
and 37 additional guest rooms. The Company expects to complete this project in
late 1999. The Company is also constructing a new 600-room hotel at the center
of Boston's Logan Airport, which the Company expects to complete in late 1999.
The Company seeks to maintain its competitive advantage by consistently
improving its hotels through renovation and expansion programs. The Company has
recently completed, has commenced or is commencing renovation or expansion
programs at a number of major properties, including the following:
- Hilton Hawaiian Village--completed the renovation of suites and junior
suites at its Diamond Head Tower in 1998 and is renovating 310 guest rooms
at its Ali'i Tower.
- Hilton San Francisco & Towers--completed the renovation of seven
presidential suites in 1998 and is renovating 185 guest rooms.
- Hilton Seattle Airport--expects to begin construction in 1999 of a
222-room addition to the property, which will include a new conference
center and the renovation of existing rooms.
- Hilton Portland--expects to begin construction in early 2000 of a 319-room
tower addition to the property.
- Hilton McLean Tysons Corner--renovating all 458 guest rooms.
- Waldorf=Astoria--renovating 299 guest rooms, including 15 of its Waldorf
Towers suites, and upgrading the hotel exterior.
- Capital Hilton--renovating its top four floors and congressional and
senate suites.
- Additional renovation programs include: a 400-room renovation at the
Hilton Chicago O'Hare Airport, a 340-room renovation at the Hilton Chicago
& Towers, a 242-room renovation at the Hilton New Orleans Riverside, a
206-room renovation at the Hilton Atlanta Airport & Towers, a
10
<PAGE>
160-room renovation at the Hilton Rye Town and a 148-room renovation at
the Hilton Pittsburgh & Towers.
INTERNATIONAL HOTELS
The Company has entered into management contracts to operate the following
new international hotels (with anticipated opening dates indicated): the
400-room Conrad International Bangkok in Thailand (2000); and the 700-room
Conrad International Jakarta in Indonesia (2002). The Company has a 10% equity
interest in the Conrad International Jakarta. Future development of
international hotels by the Company will be subject to agreements entered into
between the Company and Ladbroke. Pursuant to such agreements, Ladbroke has
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--Ladbroke Alliance" 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 agreements which restrict its right to operate
hotels in various areas. Pursuant to an agreement entered into in 1964 at the
time Hilton distributed to its stockholders all of the issued and outstanding
capital stock of HI, Hilton was prohibited from operating facilities outside the
United States identified as "Hilton" hotels and HI was prohibited from operating
facilities within the United States identified as "Hilton" hotels. The Company
conducts its international hotel operations under the Conrad International name.
See "Hotel Operations--Wholly and Partially Owned Hotels" and "--Managed
Hotels."
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 Company has granted a license to HI to use the
Conrad name for future development outside the United States for a period of 20
years. HI has granted a license to the Company to develop franchise properties
under the Hilton, Hilton Garden Inn and Hilton Residential Suites names in
Canada, Mexico and the Island of St. John, U.S. Virgin Islands for a period of
20 years. 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.
POTENTIAL ACQUISITIONS
The Company continuously evaluates acquisition opportunities and may, from
time to time, negotiate to engage in a business combination transaction or other
acquisition. However, there is no assurance that the Company will engage in any
such transactions.
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.
11
<PAGE>
ADDITIONAL INFORMATION
VACATION OWNERSHIP
Hilton Grand Vacations Company and its related entities ("HGVC"), which are
wholly owned by the Company, currently operate 19 vacation ownership resorts in
Florida and two in Nevada and operate the HGVClub, a points based reservation
and exchange system. HGVC is currently developing the following projects:
- In 1998, HGVC commenced construction of a 232-unit vacation ownership
resort located adjacent to the Las Vegas Hilton, which HGVC expects to
open in late 1999.
- HGVC has completed 260 units of a 420-unit vacation ownership resort
located adjacent to Sea World in Orlando, Florida.
- HGVC is developing a 52-unit vacation ownership resort in the South Beach
area of Miami Beach, Florida, through the renovation of two historic art
deco buildings. HGVC anticipates completing the first 26 units of this
resort in mid 1999, with the remaining units scheduled to open in summer
1999.
HGVC is actively seeking new management, development and acquisition
opportunities in other destination resort locations.
CASINO WINDSOR
The Company owns a 50% equity interest in Windsor Casino Limited ("WCL")
which operates the Casino Windsor in Windsor, Ontario, Canada for the Ontario
provincial government. In July 1998, WCL opened the 400-room hotel casino, which
features a 75,000 square foot casino and entertainment and meeting facilities.
This facility replaced a 50,000 square foot temporary casino that WCL had
operated since 1994. See "Additional Information--Regulation and
Licensing--Ontario Gaming Laws."
FLAMINGO CASINO-KANSAS CITY
The Company owns and operates the Flamingo Casino-Kansas City, a dockside
casino complex in Kansas City, Missouri. Prior to and in connection with the
Park Place Distribution, Park Place applied to the Missouri Gaming Commission
for approval to own and operate the Flamingo Casino-Kansas City, which approval
was not received prior to the Park Place Distribution. The Company has retained
this property and agreed to cooperate with Park Place to take appropriate action
to put Park Place in the same economic position it would have been in if the
transfer had occurred on December 31, 1998. The Company and Park Place entered
into a disposition agreement providing for the sale or other disposition of the
Flamingo Casino-Kansas City. Accordingly, on January 13, 1999, the Company
entered into an agreement to sell this property to a third party. Upon
completion of such sale, the proceeds of the sale will be allocated between the
Company and Park Place pursuant to the disposition agreement. See "Additional
Information--Regulation and Licensing--Missouri Gaming Laws."
DESIGN AND FURNISHING SERVICES
Hilton, through its wholly owned subsidiary, Hilton Equipment Corporation,
provides design and furnishing services and purchases and distributes furniture,
furnishings, equipment and supplies to the Company's hotels 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. Electronic Data Systems Corporation
provides certain purchasing and distribution services on behalf of Hilton
Equipment Corporation under a fee arrangement.
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<PAGE>
RESERVATION SYSTEM
Hilton Reservations Worldwide, LLC ("HRW") operates 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. In late 1998, HRW
began using an updated computerized reservation system called Hilstar. The
Company anticipates completing the replacement of the existing computer
reservation system used at its hotel properties with Hilstar in spring 1999.
Hilstar is managed by Anasazi Inc. See "General Information--Ladbroke Alliance."
MARKETING
The Company's hotel properties offer multiple product lines to a broad range
of customers in many geographic markets. The Company's hotel portfolio includes
full-service and limited-service hotels in urban, airport, resort and suburban
locations.
The Company's metropolitan and airport properties primarily serve the
convention and meeting market and the business traveler market (businesspersons
traveling as individuals or in small groups). The Company's resort properties
primarily serve the tour and leisure market (tourists traveling either as
individuals or in groups) and the convention and meeting market. 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 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--Ladbroke
Alliance."
BUSINESS RISKS
In 1998, the Company increased average room rates for its owned, leased or
managed hotels by seven percent over 1997. The Company's future operating
results could be adversely impacted by industry overcapacity and weak demand,
which could restrict the Company's ability to raise room rates to keep pace with
the rate of inflation. The Company's business could also be adversely affected
by increases in transportation and fuel costs or sustained recessionary periods
in the U.S. (affecting domestic travel) and internationally (affecting inbound
travel from abroad).
General economic conditions, competition, work stoppages and other factors
affecting particular properties impact Hilton's occupancy ratios. Occupancy
ratios at the Company's hotels could also be negatively impacted by a decrease
in travel resulting from adverse economic conditions outside the U.S. and by
excess industry capacity.
COMPETITION
The Company seeks to maintain the quality of its lodging business while
expanding both domestically and internationally. The Company intends to improve
and expand its core business by leveraging its strong brand names, maximizing
operating efficiencies, expanding and enhancing properties and acquiring or
developing properties as appropriate.
13
<PAGE>
Hilton is one of the largest operators of full-service hotels located within
the United States. Competition in the industry is based primarily on the level
of service, quality of accomodations, convenience of locations and room rates.
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. If hotel capacity is expanded by others in a city where a Hilton hotel
is located, competition will increase.
STATISTICAL DATA
The following table sets forth certain statistical information as of and for
the year ended December 31, 1998, 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 15,457 70.8% $ 146.97 $ 104.09
North Central....................................... 7 5,487 74.9 146.59 109.74
South Central....................................... 5 2,996 74.8 142.16 106.30
New England/Middle Atlantic......................... 9 6,448 78.1 207.23 161.91
South Atlantic...................................... 9 6,778 72.6 139.04 100.98
International......................................... 9 3,286 65.2 136.85 89.27
--- --------- --- ----------- -----------
Total................................................. 61 40,452 72.7% $ 155.01 $ 112.69
--- --------- --- ----------- -----------
--- --------- --- ----------- -----------
Franchised hotels....................................... 188 46,562 68.2% $ 97.30 $ 66.36
--- --------- --- ----------- -----------
--- --------- --- ----------- -----------
</TABLE>
- - ---------
(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 39 in
the Stockholder Report.
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the Year 2000, which could result
in miscalculations or system failures.
The Company has a Year 2000 program, the objective of which is to determine
and assess the risks of the Year 2000 issue, and plan and institute mitigating
actions to minimize those risks. The Company's standard for compliance requires
that for a computer system or business process to be Year 2000 compliant, it
must be designed to operate without error in date and date-related data prior
to, on and after January 1, 2000. The Company expects to be fully Year 2000
compliant with respect to all significant business sytems prior to December 31,
1999.
The Company's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY ("IT") SYSTEMS
Information technology systems account for much of the Year 2000 work and
include all computer systems and technology managed by the Company. The Company
has assessed these core systems, has plans in place, and is undertaking to test
and implement changes where required. The Company has not
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<PAGE>
yet identified any significant remediation. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
NON-IT SYSTEMS
The Company has completed an inventory of all property level non-IT systems
(including elevators, electronic door locks, etc.). The Company has assessed the
majority of these non-IT systems, has plans in place, and is undertaking to test
and implement changes where required. The Company has contacted appropriate
vendors and suppliers as to their Year 2000 compliance and their deliverables
have been factored into the Company's plans.
SUPPLIERS
The Company is communicating with its significant suppliers to understand
their Year 2000 issues and how they might prepare themselves to manage those
issues as they relate to the Company. To date, no significant supplier has
informed the Company that a material Year 2000 issue exists which will have a
material effect on the Company.
During the remainder of 1999, the Company will continually review its
progress against its Year 2000 plans and determine what contingency plans are
appropriate to reduce its exposure to Year 2000 related issues.
Based on the Company's current assessment, the costs of addressing potential
problems are expected to be less than $3 million. However, if the Company is
unable to resolve its Year 2000 issues, contingency plans to update existing
systems (i.e. reservation, payroll, etc.) are in place for which the Company
expects the cost, if any, to be an additional $3 million. If the Company's
customers or vendors identify significant Year 2000 issues in the future and are
unable to resolve such issues in a timely manner, it could result in a material
financial risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant Year 2000 issues in a timely manner.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "General Information--Recent Developments,"
"Hotel Operations--Expansion Program" and "--Potential Acquisitions," and
"Additional Information--Vacation Ownership," "--Marketing," "--Competition,"
"--Year 2000," "--Environmental Matters" and "--Regulation and Licensing," and
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.
Words such as "believes," "anticipates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. 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, including those set forth under the captions "Additional
Information--Business Risks" and "--Competition," the effect of economic
conditions, and customer demand, 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.
15
<PAGE>
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").
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:
(i) uncertainty whether a Company facility in fact shipped any wastes to one
such site,
(ii) the number of potentially responsible parties at such sites and
(iii) 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.
REGULATION AND LICENSING
ONTARIO GAMING LAWS. Ontario, Canada 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 Ontario authorities have
conducted an investigation of, and have found suitable, the Company and the
other shareholder of WCL in connection with the Ontario registration of WCL. See
"Additional Information--Casino Windsor."
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
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 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. In October 1996, the MGC granted a
riverboat gaming license to the Company to operate the Flamingo Casino-Kansas
City.
Prior to and in connection with the Park Place Distribution, Park Place
applied to the MGC for approval to own and operate the Flamingo Casino-Kansas
City. The approval was not received prior to the Park Place Distribution. On
January 13, 1999, the Company entered into an agreement to sell this property to
a third party. This sale is subject to approval by the MGC. Upon completion of
the sale, the Company expects to cease gaming operations in Missouri and
surrender the gaming license to the MGC. See "Additional Information--Flamingo
Casino-Kansas City."
In 1998, the MGC announced that it would reopen the licensing investigation
of the Company regarding alleged actions in 1993 by a former employee of a
Company subsidiary. In January 1999, the MGC announced that it would terminate
this investigation upon completion of the sale of the Flamingo
16
<PAGE>
Casino-Kansas City described above. If this proposed sale is not completed, the
Company expects to resolve this matter to the satisfaction of the MGC.
OTHER LAWS AND REGULATIONS. Each of the hotels 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, 1999, Hilton employed approximately 38,000 persons, of whom
approximately 16,000 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 industry
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 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 industry. Accordingly, Hilton spends, and intends to continue to spend,
substantial funds to maintain its facilities in first-class condition in order
to remain competitive.
Hotels owned and operated, leased and managed by Hilton are briefly
described under "Item 1" and, in particular, under the caption "Hotel
Operations." In addition, contemplated additions to, and major refurbishing and
remodeling of, existing properties and new hotels presently under construction
that Hilton will operate are briefly described under the caption "Hotel
Operations--Expansion Program" under "Item 1."
ITEM 3. LEGAL PROCEEDINGS
A purported class action against Bally Entertainment Corporation ("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 alleges breaches of fiduciary duty
in connection with the merger of Bally with and into Hilton in December 1996
(the "Bally Merger"), including allegedly illegal payments to Arthur M. Goldberg
that purportedly denied 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 seeks, 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, the Court dismissed this
litigation. Plaintiff appealed this dismissal and, on January 25, 1999, the
Delaware Supreme Court reversed the dismissal order and remanded the case to the
Court of Chancery.
17
<PAGE>
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
At the Company's special meeting of stockholders held on November 24, 1998,
the Company's stockholders approved each of the proposals relating to the Park
Place Distribution. The voting results for each of the Park Place Distribution
proposals are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
i) Ratification of the Park Place Distribution, consisting of a special dividend to the holders of the Company's
outstanding Common Stock, on a one-for-one basis, of all of the outstanding shares of Park Place common stock.
FOR: 185,448,553 AGAINST: 6,380,604 ABSTAIN: 1,019,477
ii) Approval of the Park Place 1998 Stock Incentive Plan, including the grant of options thereunder.
FOR: 162,334,266 AGAINST: 29,379,007 ABSTAIN: 1,135,361
iii) Approval of the Park Place 1998 Independent Director Stock Option Plan.
FOR: 176,363,522 AGAINST: 15,281,119 ABSTAIN: 1,203,993
iv) Approval of an amendment and restatement of Hilton's 1996 Stock Incentive Plan, including the grant of options
thereunder.
FOR: 167,326,887 AGAINST: 24,324,629 ABSTAIN: 1,197,118
v) Ratification of the election of ten directors of Park Place, divided into three classes as follows:
Term Expiring in 2000 Term Expiring in 2001 Term Expiring in 2002
Lyle Berman A. Steven Crown Stephen F. Bollenbach
Clive S. Cummis J. Kenneth Looloian Arthur M. Goldberg
Eric M. Hilton Gilbert L. Shelton Barron Hilton
Rocco J. Marano
FOR: 182,559,908 AGAINST: 9,024,655 ABSTAIN: 1,264,071
</TABLE>
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH THE COMPANY AGE
- - ------------------------- --------------------------------------------------------------- ---------
<S> <C> <C>
Barron Hilton Chairman of the Board, and previously served as Chief Executive 71
Officer until February 1996
Stephen F. Bollenbach President and Chief Executive Officer since February 1996 56
Thomas E. Gallagher Executive Vice President and General Counsel since July 1997, 54
and Secretary since May 1998
Matthew J. Hart Executive Vice President and Chief Financial Officer since 46
April 1996, and Treasurer since January 1999
Dieter H. Huckestein Executive Vice President and President--Hotel Operations since 55
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 1994. 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 prior
thereto. 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 prior thereto.
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 12, 1999, and this information is incorporated in this Form 10-K. See "Cover
Page--Documents Incorporated by Reference."
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York and Pacific Stock
Exchanges and is traded under the symbol "HLT." In 1997 and 1998, the Company
made quarterly dividend payments of $.08 per share. Following the Park Place
Distribution, for the first quarter of 1999, the Company made a dividend payment
of $.02 per share. As of December 31, 1998, the Company had approximately 15,200
stockholders of record. The high and low sales prices of the Company's Common
Stock are set forth in the following table for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
1st Quarter.................................................................................... $ 30.00 $ 24.00
2nd Quarter.................................................................................... 30.13 24.25
3rd Quarter.................................................................................... 34.06 26.75
4th Quarter.................................................................................... 35.81 26.06
1998
1st Quarter.................................................................................... 35.50 27.50
2nd Quarter.................................................................................... 34.00 28.13
3rd Quarter.................................................................................... 28.06 16.56
4th Quarter ................................................................................... 22.81 12.50
1999
1st Quarter (through March 26, 1999)(1)........................................................ 16.69 13.88
</TABLE>
- - ---------
(1) Represents the Company's Common Stock trading on a stand alone basis
subsequent to the Park Place Distribution.
RIGHTS AGREEMENT
On July 9, 1998, the Company adopted a new preferred share purchase rights
plan (the "Rights Plan") and declared a dividend distribution of one preferred
share purchase right (a "Right") on each outstanding share of the Company's
Common Stock. The new Rights Plan replaced the Company's prior rights plan which
was adopted in 1988 and was set to expire. On September 10, 1998, the Company
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, entered into an
Amended and Restated Rights Agreement (the "Rights Agreement"). The Rights are
transferred only with the Common Stock, unless and until they become
exercisable. The Rights will expire on July 27, 2008, subject to the Company's
right to extend, unless earlier redeemed or exchanged by the Company or
terminated.
Generally, the Rights become exercisable only if a person or group (other
than Hilton Interests, as defined below):
(i) acquires beneficial ownership of 15% or more of the Company's Common
Stock (such person or group, an "Acquiring Person") or
(ii) announces a tender offer, the consummation of which would result in
ownership by a person or group of 15% or more of the Common Stock.
When exercisable, each Right entitles a shareholder to purchase from the Company
one one-hundredth of a share of Series A Junior Participating Preferred Stock at
an exercise price of $140, subject to adjustment (the "Purchase Price").
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<PAGE>
After a person becomes an Acquiring Person, each holder of a Right (other
than Rights owned by the Acquiring Person) will have the right to receive upon
exercise a number of shares of Common Stock having a market value equal to two
times the then current Purchase Price of the Right. After a person becomes an
Acquiring Person, if the Company engages in certain mergers or transfers of
assets, each holder of a Right (other than Rights owned by the Acquiring Person)
will have the right to receive upon exercise, at the Right's exercise price, a
number of the acquiring company's common shares having a market value of twice
the Right's Purchase Price.
Once a person becomes an Acquiring Person, but prior to their acquisition of
50% or more of the outstanding Common Stock, the Company's Board of Directors
may cause the Company to exchange the Rights (other than Rights owned by an
Acquiring Person), in whole or in part, for shares of Common Stock at an
exchange ratio based on the value of the Common Stock at that time, subject to
adjustment.
Prior to the acquisition by an Acquiring Person of beneficial ownership of
15% or more of the Company's Common Stock, the Rights are redeemable for $.001
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 Rights Agreement has been filed as Exhibit 4.11 to this Form 10-K, and
the foregoing summary is qualified in its entirety by reference to Exhibit 4.11.
ITEM 6. SELECTED FINANCIAL DATA
The ratio of earnings to fixed charges for the five years ended December 31,
1998 is as follows: 1998 - 3.2 to 1; 1997 - 4.0 to 1; 1996 - 4.2 to 1; 1995 -
2.8 to 1; and 1994 - 2.0 to 1.
The ratio of earnings to combined fixed charges and preferred stock
dividends for the five years ended December 31, 1998 is as follows: 1998 - 2.9
to 1; 1997 - 3.3 to 1; 1996 - 4.1 to 1; 1995 - 2.9 to 1; and 1994 - 2.0 to 1.
The computation of the aforesaid ratios is set forth in Exhibit 12 to this
Form 10-K. For additional information, see the Five Year Summary on page 39 in
the Stockholder Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages 18 through 23 in the Stockholder Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplemental information required
by this Item are contained in the Stockholder Report on the pages indicated,
which information is incorporated in this Form 10-K by reference.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Statements of Income for
the three years ended December 31, 1998.............................................. 24
Consolidated Balance Sheets as of December 31, 1998 and 1997........................... 25
Consolidated Statements of Cash Flow for
the three years ended December 31, 1998.............................................. 26
Consolidated Statements of Stockholders' Equity for
the three years ended December 31, 1998.............................................. 27
Notes to Consolidated Financial Statements............................................. 28
Report of Independent Public Accountants............................................... 36
</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 Company's Proxy
Statement, and reference is expressly made to the Proxy Statement for the
specific information incorporated in this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under "Executive
Compensation" in the Company's 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 to the Proxy Statement for the specific information
incorporated in this Form 10-K.
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 Company's Proxy Statement, and reference is expressly made to
the Proxy Statement for the specific information incorporated in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth under "Certain
Relationships and Interests in Certain Transactions" in the Company's Proxy
Statement, and reference is expressly made to the Proxy Statement for the
specific information incorporated in this Form 10-K.
22
<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 22 of this Form 10-K.
2. Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................... 24
Schedule II--Valuation and Qualifying Accounts......................................... 25
</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 October 20, 1998,
under the caption "Item 5. Other Events," to report results for the three and
nine month periods ended September 30, 1998 and disclose certain information
relating to Park Place and its merger with Grand Casinos, Inc. ("Grand").
The Company filed a Current Report on Form 8-K, dated November 10, 1998,
incorporating the Supplement, dated November 6, 1998, to the Joint Proxy
Statement of the Company and Grand, along with the press release of Park Place
relating to its tender offer for outstanding Grand debt.
The Company filed a Current Report on Form 8-K, dated November 24, 1998,
under the caption "Item 5. Other Events," to report that the stockholders of the
Company voted in favor of all proposals relating to the Park Place Distribution
at the special meeting of stockholders held on November 24, 1998.
(c) EXHIBITS
Reference is made to the Index to Exhibits immediately preceding the
exhibits to this Form 10-K.
23
<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
5, 1999. 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 25 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 5, 1999
24
<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, 1998
Allowance for doubtful accounts........................... $ 6 7 1 3 1(A) 12
Reserve for loss on investments........................... 2 -- -- 2 -- --
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts........................... $ 7 1 (2) -- -- 6
Reserve for loss on investments........................... 6 -- -- 4 -- 2
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts........................... $ 8 2 (2) 2 1(A) 7
Reserve for loss on investments........................... 20 6 -- 20 -- 6
</TABLE>
- - ---------
(A) Represents balances acquired during the period.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 26, 1999.
<TABLE>
<S> <C> <C>
HILTON HOTELS CORPORATION
(Registrant)
By: MATTHEW J. HART
-----------------------------------------
Matthew J. Hart
Executive Vice President,
Chief Financial Officer and Treasurer
</TABLE>
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, 1999.
<TABLE>
<S> <C>
STEPHEN F. BOLLENBACH DIETER H. HUCKESTEIN
- - ------------------------------------------- -------------------------------------------
Stephen F. Bollenbach Dieter H. Huckestein
President, Chief Executive Officer Director
and 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 ROBERT M. LA FORGIA
- - ------------------------------------------- -------------------------------------------
Arthur M. Goldberg Robert M. La Forgia
Director Senior Vice President and Controller
(Chief Accounting Officer)
MATTHEW J. HART BENJAMIN V. LAMBERT
- - ------------------------------------------- -------------------------------------------
Matthew J. Hart Benjamin V. Lambert
Executive Vice President, Director
Chief Financial Officer and Treasurer
BARRON HILTON DONNA F. TUTTLE
- - ------------------------------------------- -------------------------------------------
Barron Hilton Donna F. Tuttle
Chairman of the Board Director
SAM D. YOUNG, JR.
-------------------------------------------
Sam D. Young, Jr.
Director
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1998, among Registrant, Park Place
Entertainment Corporation ("Park Place"), Gaming Acquisition Corporation, GCI Lakes, Inc. and
Grand Casinos, Inc. (incorporated herein by reference from Exhibit 2.1 to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1998)
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))
3.4 Amendment to By-Laws of Registrant, relating to Exhibit 3.3 hereto................................
4.1 Indenture, dated as of July 1, 1988, between Registrant and Citibank, N.A., as Trustee, 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, as Trustee, 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, as Trustee, 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, as Trustee,
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, as
Trustee, 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 First Supplemental Indenture, dated as of December 31, 1998, among Registrant, Park Place and BNY
Western Trust Company, as Trustee, regarding Registrant's Debt Securities, relating to Exhibit
4.5.1 hereto (incorporated herein by reference from Exhibit 4.1 to Registrant's Current Report on
Form 8-K, dated January 8, 1999)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
4.5.3 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)
4.5.4 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)
4.5.5 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)
4.5.6 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)
4.6 Credit Agreement, dated as of October 18, 1996, among Registrant, Morgan Guaranty Trust Company of
New York, as Documentation Agent, The Bank of New York, as Administrative Agent, and the financial
institutions signatory thereto (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 Amendment No. 1 to Credit Agreement, dated as of December 3, 1998, among Registrant, Morgan
Guaranty Trust Company of New York, as Documentation Agent, The Bank of New York, as
Administrative Agent, and the financial institutions signatory thereto, relating to Exhibit 4.6
hereto............................................................................................
4.8 Reimbursement Agreement, 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)
4.9 First Amendment to Reimbursement Agreement, dated as of December 17, 1996, among Registrant,
Deutsche Bank AG and the financial institutions signatory thereto, relating to Exhibit 4.8
hereto............................................................................................
4.10 Second Amendment to Reimbursement Agreement, dated as of May 1, 1998, among Registrant, Deutsche
Bank AG and the financial institutions signatory thereto, relating to Exhibits 4.8 and 4.9
hereto............................................................................................
4.11 Amended and Restated Rights Agreement, dated as of September 10, 1998, between Registrant and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated herein by reference from
Exhibit 1 to Registrant's Registration Statement on Form 8-A, dated September 16, 1998)
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)*
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
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 Third Amendment, dated as of December 31, 1998, to the 1984 Stock Option and Stock Appreciation
Rights Plan of Registrant, relating to Exhibits 10.1, 10.2 and 10.3 hereto (incorporated herein by
reference from Exhibit 99.8 to Registrant's Current Report on Form 8-K, dated January 8, 1999)*
10.5 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)*
10.6 Amendment, dated January 20, 1994, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibit 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, 1993)*
10.7 Amendment, dated January 19, 1995, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.5 and 10.6 hereto (incorporated herein by reference from
Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)*
10.8 Amendment, dated November 14, 1996, to the 1990 Stock Option and Stock Appreciation Rights Plan of
Registrant, relating to Exhibits 10.5, 10.6 and 10.7 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)*
10.9 Fourth Amendment, dated as of December 31, 1998, to the 1990 Stock Option and Stock Appreciation
Rights Plan of Registrant, relating to Exhibits 10.5, 10.6, 10.7 and 10.8 hereto (incorporated
herein by reference from Exhibit 99.9 to Registrant's Current Report on Form 8-K, dated January 8,
1999)*
10.10 Amended and Restated 1996 Stock Incentive Plan of Registrant (incorporated herein by reference
from Annex F to Registrant's Joint Proxy Statement/Prospectus, dated October 23, 1998)*
10.11 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)*
10.12 First Amendment, dated as of December 31, 1998, to the Chief Executive Stock Incentive Plan of
Registrant, relating to Exhibit 10.11 hereto (incorporated herein by reference from Exhibit 99.10
to Registrant's Current Report on Form 8-K, dated January 8, 1999)*
10.13 1997 Independent Director Stock Option Plan of Registrant (incorporated herein by reference from
Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*
10.14 First Amendment, dated as of December 31, 1998, to the 1997 Independent Director Stock Option Plan
of Registrant, relating to Exhibit 10.13 hereto (incorporated herein by reference from Exhibit
99.11 to Registrant's Current Report on Form 8-K, dated January 8, 1999)*
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
10.15 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)*
10.16 Amendment, dated as of January 1, 1994, to the Incentive Compensation Plan of Registrant, relating
to Exhibit 10.15 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)*
10.17 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)*
10.18 First Amendment, dated as of November 15, 1995, to the Retirement Plan of Registrant, relating to
Exhibit 10.17 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)*
10.19 Second Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to
Exhibits 10.17 and 10.18 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)*
10.20 Third Amendment, effective December 31, 1996, to the Retirement Plan of Registrant, relating to
Exhibits 10.17, 10.18 and 10.19 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)*
10.21 Amendment, effective January 1, 1997, to the Retirement Plan of Registrant, relating to Exhibits
10.17, 10.18, 10.19 and 10.20 hereto (incorporated herein by reference from Exhibit 10.17 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*
10.22 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)*
10.23 Amendment, effective April 1, 1994, to the Supplemental Executive Retirement Plan of Registrant,
relating to Exhibit 10.22 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)*
10.24 Amendment, effective December 31, 1996, to the Supplemental Executive Retirement Plan of
Registrant, relating to Exhibits 10.22 and 10.23 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)*
10.25 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)*
10.26 First Amendment, dated July 31, 1997, to the Directors' Retirement Benefit Plan of Registrant,
relating to Exhibit 10.25 hereto (incorporated herein by reference from Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
10.27 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)*
10.28 Amendment, dated as of January 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibit 10.27 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)*
10.29 Amendment, effective April 1, 1994, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibits 10.27 and 10.28 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)*
10.30 Amendment, effective December 31, 1996, to the Retirement Benefit Replacement Plan of Registrant,
relating to Exhibits 10.27, 10.28 and 10.29 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)*
10.31 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)*
10.32 Amendment, effective January 1, 1996, to the Thrift Savings Plan of Registrant, relating to
Exhibit 10.31 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)*
10.33 Amendment, effective January 1, 1997, to the Thrift Savings Plan of Registrant, relating to
Exhibits 10.31 and 10.32 hereto (incorporated herein by reference from Exhibit 10.29 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*
10.34 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)*
10.35 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant,
relating Exhibit 10.34 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)*
10.36 Amendment, effective January 1, 1997, to the Executive Deferred Compensation Plan of Registrant,
relating to Exhibits 10.34 and 10.35 hereto (incorporated herein by reference from Exhibit 10.32
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*
10.37 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)*
10.38 Amendment, effective January 1, 1997, to the Employee Stock Purchase Plan of Registrant, relating
to Exhibit 10.37 hereto (incorporated herein by reference from Exhibit 10.34 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997)*
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
10.39 Second Amendment, dated as of December 31, 1998, to the Employee Stock Purchase Plan of
Registrant, relating to Exhibits 10.37 and 10.38 hereto (incorporated herein by reference from
Exhibit 99.12 to Registrant's Current Report on Form 8-K, dated January 8, 1999)*
10.40 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)*
10.41 Employment Agreement, dated as of December 31, 1998, between Registrant and Stephen F. Bollenbach
(incorporated herein by reference from Exhibit 99.13 to Registrant's Current Report on Form 8-K,
dated January 8, 1999)*
10.42 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)*
10.43 Distribution Agreement, dated as of December 31, 1998, between Registrant and Park Place
(incorporated herein by reference from Exhibit 99.1 to Registrant's Current Report on Form 8-K,
dated January 8, 1999)
10.44 Debt Assumption Agreement, dated as of December 31, 1998, between Registrant and Park Place
(incorporated herein by reference from Exhibit 99.2 to Registrant's Current Report on Form 8-K,
dated January 8, 1999)
10.45 Assignment and License Agreement, dated as of December 31, 1998, between Registrant, Conrad
International Royalty Corporation and Park Place (incorporated herein by reference from Exhibit
99.3 to Registrant's Current Report on Form 8-K, dated January 8, 1999)
10.46 Hilton Hotels Corporation Corporate Services Agreement, dated as of December 31, 1998, between
Registrant and Park Place (incorporated herein by reference from Exhibit 99.4 to Registrant's
Current Report on Form 8-K, dated January 8, 1999)
10.47 Park Place Entertainment Corporation Corporate Services Agreement, dated as of December 31, 1998,
between Registrant and Park Place (incorporated herein by reference from Exhibit 99.5 to
Registrant's Current Report on Form 8-K, dated January 8, 1999)
10.48 Employee Benefits and Other Employment Matters Allocation Agreement, dated as of December 31,
1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.6 to
Registrant's Current Report on Form 8-K, dated January 8, 1999)
10.49 Tax Allocation and Indemnity Agreement, dated as of December 31, 1998, between Registrant and Park
Place (incorporated herein by reference from Exhibit 99.7 to Registrant's Current Report on Form
8-K, dated January 8, 1999)
11 Computation of Earnings Per Share.................................................................
12 Computation of Ratios of Earnings to Fixed Charges................................................
13 Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1998............
21 List of Registrant's Subsidiaries.................................................................
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - -------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
23 Consent of Independent Public Accountants.........................................................
99 Undertakings......................................................................................
</TABLE>
- - ---------
* Management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation
S-K, previously filed where indicated and incorporated herein by reference.
Pursuant to Regulation 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.
33
<PAGE>
Exhibit 3.4
AMENDMENT TO BY-LAWS
On March 10, 1999, the Board of Directors of Hilton Hotels Corporation
approved an amendment to the Corporation's By-Laws, which added a new article
that reads as follows:
"Stockholder Communications
43. Notwithstanding anything to the contrary contained in these By-Laws, to the
extent permitted under applicable law at any time, the Corporation is
authorized to communicate with stockholders electronically using, without
limitation, telephone, internet or any other computer based technology, to
provide reports, proxy statements and other information to stockholders and
to permit voting by stockholders at stockholders meetings."
<PAGE>
EXHIBIT 4.7
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of December 3, 1998 to the Credit Agreement dated as of
October 18, 1996 (the "CREDIT AGREEMENT") among HILTON HOTELS CORPORATION (the
"BORROWER"), the BANKS party thereto (the "BANKS"), MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Documentation Agent (the "DOCUMENTATION AGENT") and THE
BANK OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT").
WITNESSETH:
WHEREAS, the Borrower proposes to distribute to its stockholders the
stock of Park Place Entertainment Corporation, a Subsidiary formed to hold the
Borrower's Gaming Segment; and
WHEREAS, in connection therewith, the parties hereto desire to make
certain modifications to the Credit Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Credit Agreement has the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. COVENANT AMENDMENTS. (a) The following new defined terms are
added to Section 1.01 in appropriate alphabetical order:
"PARK PLACE" means Park Place Entertainment Corporation, a Delaware
corporation, and, immediately prior to the Spin-Off, a Subsidiary holding
the assets of the Borrower's Gaming Segment.
"PPE ASSUMED NOTES" means the Borrower's $300,000,000 7.375% Notes Due
2002 and $325,000,000 7.00% Notes Due 2004.
"SPIN-OFF" means (A) the transfer to Park Place of all or
substantially all of the assets of the Borrower and its Subsidiaries
<PAGE>
comprising the Borrower's Gaming Segment and (B) the distribution by the
Borrower to its stockholders of all capital stock of Park Place held by the
Borrower.
(b) Paragraph (1) of the definition of Interest Period in Section 1.01 is
amended by the addition of "1 week or" immediately before the words "1, 2, 3 or
6 months thereafter".
(c) The maximum Leverage Ratio in Section 5.09 is changed from "4:1" to
"4.5:1".
(d) The definition of Consolidated Debt in Section 5.09 is amended by the
addition of the following proviso:
; PROVIDED that Consolidated Debt shall exclude: (A) the PPE Assumed Notes
on the conditions that (i) such Debt shall have been assumed by Park Place
on terms such that as between the Borrower and Park Place, Park Place is
obligated to make payments of principal and interest on such Debt, and to
reimburse the Borrower for any such payment made by the Borrower and (ii)
the Spin-Off shall have occurred, and (B) Debt of the Borrower or a
Subsidiary as to which a sum of cash and cash equivalents sufficient to
provide for payment in full of such Debt at its scheduled maturity or at an
earlier date at which it shall have been called for redemption shall have
been irrevocably deposited in trust for the benefit of the holders of such
Debt or a representative of such holders so as to result in legal or
in-substance defeasance thereof; PROVIDED, FURTHER, that, notwithstanding
clause (A) in the foregoing proviso, if Park Place fails to pay when due
any principal of or interest on or any other amount with respect to the PPE
Assumed Notes or reimburse the Borrower for payment thereof, and such
failure is continuing, on and after the 90th day after such payment default
first occurs any of the PPE Assumed Notes then outstanding shall be
included in Consolidated Debt, unless such Debt then would be excluded
therefrom pursuant to clause (B) in the foregoing proviso.
(e) The definition of Consolidated EBITDA in Section 5.09 is amended by the
addition of the following proviso:
; PROVIDED that Consolidated EBITDA for any period shall be adjusted on a
pro forma basis (i) to include (or exclude) amounts attributable to hotel
operations acquired (or sold or otherwise discontinued) during such period
as if such acquisition (or disposition) had occurred on the first day of
such period and (ii) to include amounts (annualized on a simple arithmetic
2
<PAGE>
basis) attributable to hotel projects which commenced operations during
such period and were in operation for at least one full fiscal quarter
during such period; PROVIDED, FURTHER, that, for purposes of determining
Consolidated EBITDA for any period, Consolidated Net Income shall exclude
any interest income attributable to the assumption or payment by Park Place
of the PPE Assumed Notes.
(f) The parties agree that the Spin-Off does not give rise to a Default
under Section 5.03 or Section 5.07.
SECTION 3. PRICING INCREASE. The table appearing in Exhibit A hereto is
substituted for the table appearing in the Pricing Schedule.
SECTION 4. REPRESENTATIONS OF BORROWER. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
SECTION 5. GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 6. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 7. EFFECTIVENESS. This Amendment shall become effective as of the
date hereof on the date (the "AMENDMENT EFFECTIVE DATE") when the Documentation
Agent shall have received from each of the Borrower and the Required Banks a
counterpart hereof signed by such party or facsimile or other written
confirmation (in form satisfactory to the Documentation Agent) that such party
has signed a counterpart hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
HILTON HOTELS CORPORATION
By: /s/ Matthew J. Hart
----------------------------------
Name: Matthew J. Hart
Title: Executive Vice President &
Chief Financial Officer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Diana H. Imhof
----------------------------------
Name: Diana H. Imhof
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Lisa Y. Brown
----------------------------------
Name: Lisa Y. Brown
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Michelle L. Hilse
----------------------------------
Name: Michelle L. Hilse
Title: Vice President
WELLS FARGO BANK
By: /s/ Timothy A. McDevitt
----------------------------------
Name: Timothy A. McDevitt
Title: Vice President
By: /s/ Donald A. Hartmann
----------------------------------
Name: Donald A. Hartmann
Title: Senior Vice President
4
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ M. Van Otterloo
----------------------------------
Name: M. Van Otterloo
Title: Senior Relationship Manager
BANKERS TRUST COMPANY
By: /s/ Alex Johnson
----------------------------------
Name: Alex Johnson
Title: Managing Director
CIBC INC.
By:
---------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK
BRANCH
By: /s/ Mary P. Daly
----------------------------------
Name: Mary P. Daly
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /s/ Stephan A. Wiedemann
----------------------------------
Name: Stephan A. Wiedemann
Title: Director
By: /s/ Hans-Josef Thiele
----------------------------------
Name: Hans-Josef Thiele
Title: Director
5
<PAGE>
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ John E. Reid
--------------------------
Name: John E. Reid
Title: Vice Presidnet
THE FUJI BANK, LIMITED, LOS
ANGELES AGENCY
By:
--------------------------
Name:
Title:
SOCIETE GENERALE
By: /s/ Alex Y. Kim
--------------------------
Name: Alex Y. Kim
Title: Vice President
DRESDNER BANK AG, NEW YORK
AND CAYMAN ISLAND BRANCHES
By: /s/ A. R. Morris
-----------------------------
Name: A. R. Morris
Title: First Vice President
By: /s/ B. Craig Erickson
--------------------------
Name: B. Craig Erickson
Title: Vice President
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By: /s/ Yasushi Satomi
--------------------------
Name: Yasushi Satomi
Title: Senior Vice President
6
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/ John E. Burda
------------------------------
Name: John E. Burda
Title: Second Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Gary W. Wessels
------------------------------
Name: Gary W. Wessels
Title: Vice President
THE SAKURA BANK LIMITED, LOS
ANGELES AGENCY
By: /s/ Masayuki Kobayashi
------------------------------
Name: Masayuki Kobayashi
Title: Joint General Manager
UNITED STATES NATIONAL BANK
OF OREGON
By: /s/ Dale Parshall
------------------------------
Name: Dale Parshall
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ J. Scott Jessup
------------------------------
Name: J. Scott Jessup
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ Jessica S. Wright
------------------------------
Name: Jessica S. Wright
Title: Vice President
7
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ Duncan M. Robertson
--------------------------
Name: Duncan M. Robertson
Title: Vice President
By: /s/ Lisa Walker
--------------------------
Name: Lisa Walker
Title: Vice President
BANK OF HAWAII
By: /s/ Robert M. Wheeler III
--------------------------
Name: Robert M. Wheeler III
Title: Vice President
CREDIT SUISSE
By: /s/ Chris T. Horgan
--------------------------
Name: Chris T. Horgan
Title: Vice President
By: /s/ Kristin Lepri
--------------------------
Name: Kristin Lepri
Title: Associate
THE DAI-ICHI KANGYO BANK, LTD
By:
--------------------------
Name:
Title:
8
<PAGE>
FIRST HAWAIIAN BANK
By: /s/ Travis Ruetenik
--------------------------
Name: Travis Ruetenik
Title: Corporate Banking Officer
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By: /s/ Shunji Sato
---------------------------
Name: Shunji Sato
Title: Deputy General Manager
MELLON BANK, N.A.
By: /s/ L. C. Ivey
--------------------------
Name: L. C. Ivey
Title: Vice President
THE MITSUI TRUST & BANKING CO., INC.
By:
--------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
LOS ANGELES BRANCH
By:
--------------------------
Name:
Title:
9
<PAGE>
THE TOYO TRUST & BANKING CO.,
LTD., LOS ANGELES AGENCY
By:
--------------------------
Name:
Title:
BANCA DI ROMA
By: /s/ Augusto Bianchi
--------------------------
Name: Augusto Bianchi
Title: 97911
By: /s/ Richard G. Dietz
--------------------------
Name: Richard G. Dietz
Title: 97271
BANQUE NATIONALE DE PARIS
By:
--------------------------
Name:
Title:
BANK ONE, LOUISIANA, NA
By: /s/ Louis Ballero
-----------------------------
Name: Louis Ballero
Title: Senior Vice President
FLEET BANK
By: /s/ John T. Harrison
--------------------------
Name: John T. Harrison
Title: Senior Vice President
HIBERNIA BANK
By: /s/ Christopher Pitre
--------------------------
Name: Christopher Pitre
Title: Vice President
10
<PAGE>
Exhibit 4.9
FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT
This FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT (this "Agreement"),
dated as of December 17, 1996, by and among HILTON HOTELS CORPORATION, a
Delaware corporation (the "Company"), DEUTSCHE BANK AG, NEW YORK BRANCH, as
issuer of the Letter of Credit (in such capacity, the "Issuer"); DEUTSCHE
BANK AG, LOS ANGELES BRANCH, THE BANK OF NEW YORK, SOCIETE GENERALE, CIBC
INC., THE SUMITOMO BANK, LIMITED, THE MITSUBISHI TRUST & BANKING CORPORATION,
AND WESTDEUTSCHE LANDESBANK GIROZENTRALE (herein collectively, the "Banks"
and individually a "Bank"); and DEUTSCHE BANK AG, NEW YORK BRANCH, as agent
(in such capacity, the "Agent") for the Banks hereunder. Unless otherwise
expressly defined herein, any capitalized term used herein and defined in the
Reimbursement Agreement (as defined below) shall have the meaning assigned to
it in the Reimbursement Agreement.
W I T N E S S E T H:
WHEREAS, the Issuer has issued that certain letter of credit No.
839-53762, dated May 16, 1996 (the "Letter of Credit"), pursuant to that certain
reimbursement agreement, dated as of May 16, 1996 (the "Original Reimbursement
Agreement"; as amended from time to time, including by this Agreement, the
"Reimbursement Agreement"), by and between the Company, the Agent, the Issuer
and the Banks;
WHEREAS, the Company, the Issuer, the Agent and the Banks each desire
to amend the Original Reimbursement Agreement in the manner and pursuant to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises made hereunder by the
Company, the Issuer, the Agent and the Banks, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. AMENDMENTS TO REIMBURSEMENT AGREEMENT.
1.1 CONSENTS. The Company, the Issuer, the Agent and each of the
Banks executing this Agreement hereby consent to the following amendments to the
Reimbursement Agreement on the terms and subject to the conditions set forth
herein.
1.2 DEFINITIONS.
1.2.1 The following definitions are hereby added to the
Reimbursement Agreement:
"'BENEFIT ARRANGEMENT' means at any time any employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by
any member of the Controlled Group.
'CONSOLIDATED DEBT' means at any date the Debt of the Company and its
Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
'CONSOLIDATED NET WORTH' means at any date the consolidated
stockholders' equity of the Company and its Consolidated Subsidiaries
determined as of such date.
'COVERED SUBSIDIARY' means at any time any Subsidiary of the Company
that has consolidated assets in an amount greater than $5,000,000.
'EFFECTIVE DATE' means December 17, 1996.
'FACILITY FEE' has the meaning set forth in Section 2.05.
'FACILITY FEE RATE' has the meaning set forth in the Pricing Schedule.
'LEVERAGE RATIO' means at any date the ratio of Consolidated Debt at
such date to Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended on or prior to such date.
'PRICING SCHEDULE' means the Schedule attached hereto identified as
such.
-2-
<PAGE>
'SIGNIFICANT SUBSIDIARY' means at any time a Subsidiary of the Company
having (i) at least 10% of the total consolidated assets of the Company and
its Subsidiaries (determined as of the last day of the most recent fiscal
quarter of the company) or (ii) at least 10% of the consolidated revenues
of the company and its Subsidiaries for the fiscal year of the Company then
most recently ended.
'STATUS' has the meaning set forth in the Pricing Schedule."
1.2.2 The following definitions are hereby deleted in their
entirety and amended in full to read as follows:
"'AUTHORIZED OFFICER' means the Chairman of the Board, the Vice
Chairman of the Board, the President, the Treasurer, the Chief Financial
Officer, the Secretary or any Assistant Secretary of the Company.
'CONSOLIDATED EBITDA' means, for any period, Consolidated Net Income
for such period before (i) income taxes, (ii) interest expense, (iii)
depreciation and amortization, (iv) minority interest, (v) extraordinary
losses or gains, (vi) discontinued operations and (vii) the cumulative
effect of changes in accounting principles.
'CONTROLLED GROUP' means the Company, any Subsidiary and all members
of a controlled group of corporations and all trades or business (whether
or not incorporated) under common control which, together with the Company
or any Subsidiary, are treated as a single employer under Section 414 of
the Internal Revenue Code.
'FEES' means any or all of the Letter of Credit Fee, the Facility Fee
and such other fees as are set forth in the Fee Letter or as may otherwise
be agreed to by the Company and the Agent, in writing, from time to time.
'LETTER OF CREDIT FEE RATE' has the meaning set forth in the Pricing
Schedule."
1.2.3 The definition of "CONSOLIDATED TANGIBLE NET WORTH" is
hereby deleted from the Reimbursement Agreement in its entirety.
-3-
<PAGE>
1.3 OTHER AMENDMENTS.
1.3.1 SECTION 2.05 Section 2.05 (including the pricing
schedule contained therein) is hereby deleted in its entirety and amended in
full to read as follows:
"Section 2.05. (a) FACILITY FEE. The Company shall pay to the Agent
for the account of the Banks ratably a facility fee (the "Facility Fee") at
a rate per annum determined daily in accordance with the Pricing Schedule.
Such Facility Fee shall accrue from and including the Effective Date to but
excluding the Expiration Date, on the daily aggregate amount of the Letter
of Credit Commitments (whether used or unused) of the Banks.
(b) LETTER OF CREDIT FEE. The Company shall pay to the Agent for
the account of the Banks ratably a letter of credit fee (the "Letter of
Credit Fee") accruing daily on the aggregate amount then available for
drawing under the Letter of Credit at a rate per annum determined in
accordance with the Pricing Schedule.
(c) PAYMENTS. Accrued fees under this Section shall be payable
quarterly in arrears on the first day of each March, June, September and
December and on the Expiration Date."
1.3.2 PRICING SCHEDULE. The Pricing Schedule attached to this
Agreement as Exhibit A is hereby incorporated into the Reimbursement Agreement
by this reference as if originally set forth in full therein.
1.3.3 SECTION 7.02(c). Section 7.02(c) is hereby deleted in its
entirety and amended in full to read as follows:
"(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b), a certificate of an
Authorized Officer (i) setting forth in reasonable detail the calculations
required to establish whether the Company was in compliance with the
requirements of clauses (g) and (h) of Section 7.07 and Section 7.10 on the
date of such financial statements, (ii) stating whether a Default or Event
of Default exists on the date of such certificate and, if any Default or
Event of Default then exists, setting forth the details thereof and the
-4-
<PAGE>
action which the Company is taking or proposes to take with respect thereto
and (iii) if the Company elects that Status shall be determined for
purposes of the Pricing Schedule on the basis of the Leverage Ratio
reflected in such certificate, a statement to such effect."
1.3.4 SECTION 7.02(d)(ii). The language "with respect to the
Company's Consolidated Tangible Net Worth" contained in Section 7.02(d)(ii)
is hereby deleted in its entirety.
1.3.5 SECTION 7.02(g). Section 7.02(g) is hereby deleted in its
entirety and amended in full to read as follows:
"(g) if and when any member of the Controlled Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV or ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent or
has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer, any Plan, a copy of such notice; (iv)
applies for a waiver of the minimum funding standard under Section 412 of
the Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a
bond or other security, a certificate of the chief financial officer or the
chief accounting officer of the Company setting forth details as to such
occurrence and action, if any,
-5-
<PAGE>
which the Company or applicable member of the Controlled Group is required
or proposes to take;"
1.3.6 SECTION 7.02(h), (i). The period at the end of Section
7.02(h) is hereby deleted and replaced with "; and" and a new Section 7.02(i) is
hereby added to the Reimbursement Agreement as follows:
"(i) forthwith, notice of any change of which the Company becomes
aware in the rating by Moody's or Standard & Poor's of the Company's
outstanding senior unsecured long-term debt securities."
1.3.7 SECTION 7.03(a). The following is hereby added at the end of
Section 7.03(a) after the word "excepted" and prior to the semi-colon:
", except where failure to do so would not have a material adverse effect
on the business, financial position, results of operations or prospects of
the Company and its Consolidated Subsidiaries, considered as a whole"
1.3.8 SECTION 7.04. (a) All references to "Subsidiary" and
"Subsidiaries" contained in Section 7.04 are hereby deleted in their entirety
and amended in full to read "Significant Subsidiary" and "Significant
Subsidiaries", respectively.
(b) The following is hereby added at the end of Section 7.04 after
the word "business" and prior to the period:
"; provided, that nothing in this Section 7.04 shall prohibit (i) the
merger of a Subsidiary into the Company or the merger or the consolidation
of a Subsidiary with or into another Person if the corporation surviving
such consolidation or merger is a Subsidiary and if, in each case, after
giving effect thereto, no Default or Event of Default shall have occurred
and be continuing or (ii) the termination of the corporate existence of any
Subsidiary if the Company in good faith determines that such termination is
in the best interest of the Company and is not materially disadvantageous
to the Banks"
1.3.9 SECTIONS 7.05 AND 7.06. All references to "Subsidiary"
contained in Sections 7.05 and 7.06 are hereby
-6-
<PAGE>
deleted in their entirety and amended in full to read "Significant Subsidiary".
1.3.10 SECTION 7.07(a). Section 7.07(a) is hereby deleted in its
entirety and amended in full to read as follows:
"(a) Liens existing as of October 18, 1996."
1.3.11 SECTION 7.07(c). Section 7.07(c) is hereby deleted in its
entirety and amended in full to read as follows:
"(c) any Lien on any assets securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring or
constructing such asset (it being understood that, for this purpose, the
acquisition of a Person is also an acquisition of the assets of such
Person); provided that the Lien attaches to such asset concurrently with or
within 180 days after the acquisition thereof, or such longer period, not
to exceed 12 months, due to the Company's inability to obtain the requisite
governmental approvals with respect to such acquisition; provided further,
that, in the case of real estate, (i) the Lien attaches within 12 months
after the latest of the acquisition thereof, the completion of construction
thereon or the commencement of full operation thereof and (ii) the Debt so
secured does not exceed the sum of (x) the purchase price of such real
estate plus (y) the costs of such construction;"
1.3.12 SECTION 7.07(f). Section 7.07(f) is hereby deleted in its
entirety and amended in full to read as follows:
"(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased (other
than to cover any transaction costs of such refinancing, extension, renewal
or refunding) and is not secured by any additional assets:
1.3.13 SECTIONS 7.07(g), (h) AND (i). The "and" at the end of
Section 7.07(g) is hereby deleted in its entirety. Section 7.07(h) is hereby
deleted in its
-7-
<PAGE>
entirety and amended in full, and a new Section 7.07(i) is hereby added, each to
read as follows:
"(h) Liens securing Debt of a Subsidiary to the Company or another
Subsidiary; and
(i) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal amount at any time
outstanding not to exceed 15% of Consolidated Net Worth."
1.3.14 SECTION 7.09. The following is hereby added at the end of
Section 7.09 immediately prior to the period:
"other than 'margin stock' issued by the Company which is retired upon
purchase."
1.3.15 SECTION 7.10. Section 7.10 is hereby deleted in its entirety
and amended in full to read as follows:
"Section 7.10. LEVERAGE RATIO. The Leverage Ratio will at no time
exceed 4:1.
1.3.16 SECTIONS 7.11 AND 7.12. Sections 7.11 and 7.12 are hereby
deleted in their entirety and amended in full to read "RESERVED".
1.3.17 SECTION 8.01(g) AND (h). Sections 8.01(g) and 8.01(h) are
hereby deleted in their entirety and amended in full to read as follows:
"(g) the Company or any Covered Subsidiary or any Significant
Subsidiary, shall fail to make any payment in respect of any Debt (other
than the Debt evidenced by (i) this Agreement, the Related Reimbursement
Agreement or the Related Documents or (ii) Non-Recourse Debt) when due or
within any applicable grace period and the aggregate principal amount of
such Debt is in excess of $100,000,000;
(h) any event or condition shall occur which results in the
acceleration of the maturity of any Debt (other than Non-Recourse Debt) in
excess of $100,000,000 of the Company or any Covered Subsidiary or any
Significant Subsidiary or enables the holder of such Debt or any Person
acting on such holder's behalf to accelerate the maturity thereof;"
-8-
<PAGE>
1.3.18 SECTIONS 8.01(i) AND (j). All references to "Subsidiary" or
"subsidiary" contained in Sections 8.01(i) and 8.01(j) are hereby deleted in
their entirety and amended in full to read "Significant Subsidiary".
1.3.19 SECTION 8.01(k). Section 8.01(k) is hereby deleted in its
entirety and amended in full to read as follows:
"(k) any member of the Controlled Group shall fail to pay when due an
amount or amounts aggregating in excess of $5,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the Controlled Group, any plan administrator of any combination
of the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
section 4007 of ERISA) in respect of, or to cause a trustee to be appointed
to administer, any Material Plan; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the Controlled Group to incur a current
payment obligation in excess of $25,000,000;"
1.3.20 SECTION 8.01(l). The reference to "Ten Million Dollars
($10,000,000)" contained in Section 8.01(l) is hereby deleted in its entirety
and amended in full to read "$25,000,000".
2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Issuer, the Agent and the Banks as follows:
2.1 AUTHORITY. The Company has all necessary power and has taken all
corporate action necessary to make this Agreement and all other agreements and
instruments executed in connection herewith the legal, valid and binding
obligations they purport to be.
2.2 NO LEGAL OBSTACLE TO AGREEMENT. The execution of this Agreement
has not constituted or resulted in and will not constitute or result in a breach
of any
-9-
<PAGE>
provision of any contract to which the Company is a party, or the violation of
any law, judgment, decree or governmental order, rule or regulation applicable
to, or result in the creation under any agreement or instrument of any security
interest, lien, charge or encumbrance upon any of the assets of, the Company,
except in favor of the Agent and the Banks or as permitted by the Reimbursement
Agreement. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance of this Agreement, or
the transactions contemplated hereby or thereby.
2.3 INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Article VI of the Reimbursement
Agreement are true and correct in all respects on and as of the date hereof, as
though made on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date.
2.4 DEFAULT. Upon this Agreement becoming effective pursuant to
Section 4.1 hereof, no Default or Event of Default has occurred and is
continuing.
3. MISCELLANEOUS.
3.1 DATE OF EFFECTIVENESS. Upon the execution hereof by the Company,
the Issuer, the Agent and the Banks, this Agreement shall become effective as of
the date first above written.
3.2 EFFECT OF AGREEMENT ON REIMBURSEMENT. Except as affected
hereby, the Reimbursement Agreement, the other Related Documents and any and
all other agreements, documents, certificates and other instruments executed
in connection therewith, shall remain in full force and effect in accordance
with their respective terms. Except as otherwise provided herein, the
Reimbursement Agreement, the other Related Documents and any and all other
agreements, documents, certificates and other instruments executed in
connection therewith, are in all respects ratified and confirmed, and nothing
contained in this Agreement shall, or shall be construed to, modify,
invalidate or otherwise affect any provision of such agreements, documents,
certificates and instruments or any right of the parties thereto.
3.3 EFFECT OF BREACH OF AGREEMENT. The Company hereby acknowledges
and agrees that a breach of or
-10-
<PAGE>
noncompliance with any of the representations, warranties, covenants or terms
contained herein shall constitute an Event of Default.
3.4 NO WAIVER OF EVENT OF DEFAULT. The execution of this Agreement by
the Issuer, the Agent and the Banks does not constitute a waiver of any Event of
Default which now exists or which may occur hereafter.
3.5 LIMITATION OF CONSENTS. The consents given hereby are one-time
consents only and are made only with respect to the matters and to the extent
described herein. Such consents are not to be construed as consents to anything
or for any purpose other than as specifically set forth in this Agreement and
shall not constitute an agreement or obligation of the Company, the Issuer, the
Agent or the Banks to grant any other or future consent.
3.6 APPLICABLE LAW; ASSIGNMENTS; ETC. This Agreement (i) SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK, (ii) shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns and (iii) may be
executed in any number of counterparts, each of which shall be deemed an
original hereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as
of the date first above written.
THE COMPANY HILTON HOTELS CORPORATION
By /s/ Scott A. LaPorta
-------------------------------
Title: Scott A. LaPorta
Senior Vice President
and Treasurer
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Attention: Scott La Porta
Senior Vice President
and Treasurer
Telephone: (310) 205-4331
Telecopier: (310) 205-7849
THE AGENT DEUTSCHE BANK AG,
NEW YORK BRANCH, as Agent
By /s/ Ross A. Howard
------------------------------
Title: Ross A. Howard
Director
By /s/ J. Scott Jessup
------------------------------
Title: J. Scott Jessup
Vice President
Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Doris Braun
Telephone: (212) 469-8636
Telecopier: (212) 469-7880
-12-
<PAGE>
THE ISSUER DEUTSCHE BANK AG,
NEW YORK BRANCH, as Issuer
of the Letter of Credit
By /s/ Ross A. Howard
-----------------------
Title: Ross A. Howard
Director
By /s/ J. Scott Jessup
-----------------------
Title: J. Scott Jessup
Vice President
Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Volker Fischer
Trade Finance
Telephone: (212) 474-7978
Telecopier: (212) 469-7989
THE BANKS DEUTSCHE BANK AG,
LOS ANGELES BRANCH
By /s/ Ross A. Howard
-----------------------
Title: Ross A. Howard
Director
By /s/ J. Scott Jessup
-----------------------
Title: J. Scott Jessup
Vice President
Deutsche Bank AG,
Los Angeles Branch
550 South Hope Street, Suite 1850
Los Angeles, California 90071
Attention: Anne Norwood
Telephone: (213) 630-7682
Telecopier: (213) 630-7655
-13-
<PAGE>
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
------------------------------
Title: Lisa Y. Brown
Vice President
The Bank of New York
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Attention: Lisa Brown
Telephone: (310) 996-8656
Telecopier: (310) 996-8667
THE SUMITOMO BANK, LIMITED
By /s/ Tatsuo Ueda
------------------------------
Title: Tatsuo Ueda
General Manager
The Sumitomo Bank, Limited
777 South Figueroa Street
Suite 2600
Los Angeles, California 90017
Attention: Al Galluzzo
Telephone: (213) 955-0855
Telecopier: (213) 623-6832
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
NEW YORK BRANCH
By /s/ [ILLEGIBLE]
------------------------------
Title: Vice President
By /s/ [ILLEGIBLE]
------------------------------
Title: Associate
Westdeutsche Landesbank
Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Attention: Karen Hoplock
Telephone: (212) 852-6087
Telecopier: (212) 852-6148
-14-
<PAGE>
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By /s/ Yasushi Satomi
-------------------------------
Title: Chief Manager &
Senior Vice President
The Mitsubishi Trust and
Banking Corporation
801 South Figueroa Street
Suite 500
Los Angeles, California 90017
Attention: Dean Kawai
Telephone: (213) 896-4666
Telecopier: (213) 687-4631
SOCIETE GENERALE
By: /s/ [ILLEGIBLE]
--------------------------------
Title: Vice President
Societe Generale
2029 Century Park East
Suite 2900
Los Angeles, California 90067
Attention: Don Schubert
Telephone: (310) 788-7104
Telecopier: (310) 551-1537
CIBC INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Title: Associate, CIBC Wood Gundy
Securities Corp., AS AGENT
CIBC Inc.
350 South Grand Avenue
Suite 2600
Los Angeles, California 90071
Attention: Dean Decker
Telephone: (213) 617-6245
Telecopier: (213) 346-0157
-15-
<PAGE>
EXHIBIT 4.10
SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT
This SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT (this "Amendment"),
dated as of May 1, 1998, by and among HILTON HOTELS CORPORATION, a Delaware
corporation (the "Company"), DEUTSCHE BANK AG, NEW YORK BRANCH, as issuer of the
Letter of Credit (in such capacity, the "Issuer"); DEUTSCHE BANK AG, NEW YORK
BRANCH AS SUCCESSOR TO DEUTSCHE BANK AG, LOS ANGELES BRANCH, THE BANK OF NEW
YORK, SOCIETE GENERALE, CIBC INC., THE SUMITOMO BANK, LIMITED, THE MITSUBISHI
TRUST & BANKING CORPORATION, AND WESTDEUTSCHE LANDESBANK GIROZENTRALE (herein
collectively, the "Existing Banks" and individually "Existing Bank"); and
DEUTSCHE BANK AG, NEW YORK BRANCH, as agent (in such capacity, the "Agent") and
each of the banks listed on Schedule A hereto (each, a "New Bank" and,
collectively, the "New Banks"). Unless otherwise expressly defined herein, any
capitalized term used herein and defined in the Reimbursement Agreement (as
defined below) shall have the meaning assigned to it in the Reimbursement
Agreement.
WITNESSETH:
WHEREAS, the Issuer has issued that certain letter of credit No.
839-53762, dated May 16, 1996 (the "Letter of Credit"), pursuant to that certain
reimbursement agreement, dated as of May 16, 1996 as amended by a First
Amendment to Reimbursement Agreement, dated as of December 17, 1996 (the
"Original Reimbursement Agreement"; as amended from time to time, including by
this Agreement, the "Reimbursement Agreement"), by and between the Company, the
Agent, the Issuer and the Banks;
WHEREAS, the Company, the Issuer, the Agent and the Banks each desire
to amend the Original Reimbursement Agreement in the manner and pursuant to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises made hereunder by the
Company, the Issuer, the Agent and the Banks, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1.1. ASSIGNMENT AND ASSUMPTION. Each Existing Bank hereby sells and
assigns to each New Bank without recourse and without representation or warranty
(other than as expressly provided herein), and each New Bank hereby purchases
and assumes from each Existing Bank, that interest in and to each Existing
Bank's rights and obligations in respect of the Letter of Credit Commitment, the
Risk Participation and the Loans set forth on Schedule A hereto under the
Reimbursement Agreement as of the date hereof which for each such New Bank
represents such New Bank's Letter of Credit Commitment as set forth on such
Schedule A (calculated after giving effect to this Amendment), and represents
all of the outstanding rights and obligations under the Reimbursement Agreement
that are being sold and assigned to each such New Bank pursuant to this
Amendment.
1.2. EFFECTIVENESS. In accordance with the requirements of Section
11.04(c) of the Reimbursement Agreement, on the Second Amendment Effective Date
(as defined below), each New Bank shall be a "Bank" party to the Reimbursement
Agreement and shall have all of the rights and obligations of a Bank with a
Letter of Credit Commitment as set forth in such Schedule A and each Existing
Bank shall be released from its obligations thereunder to a corresponding extent
and no further consent or action by any party shall be required.
1.3. REPRESENTATION AND WARRANTIES. Each Existing Bank (i) represents
and warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim; (ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Reimbursement Agreement or the Related Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Reimbursement Agreement or the Related Documents or any other instrument
or document furnished pursuant thereto; and (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or the performance or observance by the Company of any of their
respective obligations under the Reimbursement Agreement or the Related
Documents to which they are a party or any other instrument or document
furnished pursuant thereto.
1.4. CONFIRMATION. Each New Bank (i) confirms that it has received a
copy of the Reimbursement Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (ii) agrees that it will, independently
and without reliance upon the Agent, or any other New Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Reimbursement Agreement; (iii) appoints and authorizes the Agent and the
Collateral Agent to take such action as agent on its behalf and to exercise such
powers under the Reimbursement Agreement and Related Documents as are delegated
to the Agent and the Collateral Agent by the terms thereof, together with such
powers as are reasonably
-2-
<PAGE>
incidental thereto; and (iv) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Reimbursement
Agreement are required to be performed by it as a Bank.
2. EXTENSION OF SCHEDULED EXPIRATION DATE. In accordance with Section
2.01 of the Reimbursement Agreement, on and as of the Second Amendment Effective
Date the Scheduled Expiration Date shall be extended to May 16, 1999. The notice
requirement of Section 2.01 is hereby waived in respect of such extension.
3. LIMITED EFFECT. This Amendment is limited as specified and shall
not constitute a modification, acceptance or waiver of any other provision of
the Reimbursement Agreement or any other Related Document.
4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Company and the Agent.
5. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
6. EFFECTIVE DATE. This Amendment shall become effective on the date
(the "Second Amendment Effective Date") when the Company, the Agent, each
Existing Bank and each New Bank shall have signed a counterpart hereof (whether
the same or different counterparts) and shall have delivered (including by way
of facsimile transmission) the same to the Agent.
7. REFERENCE. From and after the Second Amendment Effective Date, all
references in the Reimbursement Agreement and each of the Related Documents to
the Reimbursement Agreement shall be deemed to be references to the
Reimbursement Agreement as amended hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
THE COMPANY HILTON HOTELS CORPORATION
By /s/ Scott A. La Porta
-----------------------------------------
Title: Senior Vice President
and Treasurer
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Attention: Scott La Porta
Senior Vice President
and Treasurer
Tel: (310) 205-4331
Fox: (310) 205-7849
THE AGENT DEUTSCHE BANK AG,
NEW YORK BRANCH, as Agent
By /s/ Stephan A. Wiedemann
-----------------------------------------
Title: Stephan A. Wiedemann
Director
By /s/ Susan L. Pearson
-----------------------------------------
Title: Susan L. Pearson
Director
Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Inken Finnamore
Tel: (212) 469-8348
Fax: (212) 469-8501
-4-
<PAGE>
THE ISSUER DEUTSCHE BANK AG,
NEW YORK BRANCH, as Isser
of the Letter of credit
By /s/ Stephan A. Wiedemann
-----------------------------------------
Title: Stephan A. Wiedemann
Director
By /s/ Susan L. Pearson
-----------------------------------------
Title: Susan L. Pearson
Director
Deutsche Bank AG,
New York Branch
31 West 52and Street
New York, New York 10019
Attention: Volker Fischer
Trade Finance
Tel: (212) 469-8636
Fax: (212) 469-7880
-5-
<PAGE>
THE EXISTING BANKS DEUTSCHE BANK AG, NEW YORK BRANCH,
AS SUCCESSOR TO DEUTSCHE BANK AG,
LOS ANGELES BRANCH
By /s/ Stephan A. Wiedemann
------------------------------------------
Title: Stephan A. Wiedemann
Director
By /s/ Susan L. Pearson
------------------------------------------
Title: Susan L. Pearson
Director
Deutsche Bank AG,
New York Branch as Successor to
Deutsche Bank AG,
Los Angeles Branch
31 West 52nd Street
New York, New York 10019
Attention: Thomas Foley
Vice President
Tel: (212) 469-8636
Fax: (212) 469-7880
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
------------------------------------------
Title: Lisa Y. Brown, Vice President
The Bank of New York
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Attention: Lisa Y. Brown
Tel: (310) 996-8656
Fax: (310) 996-8667
-6-
<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Goro Hirai
------------------------------------------
Title: Goro Hirai
Joint General Manager
The Sumitomo Bank, Limited
777 South Figueroa Street
Suite 2600
Los Angeles, California 90017
Attention: Al Galluzzo
Tel: (213) 955-0855
Fax: (213) 623-6832
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
NEW YORK BRANCH
By /s/ [ILLEGIBLE]
------------------------------------------
Title: Director
By /s/ Elisabeth R. Wilds
------------------------------------------
Title: Elisabeth R. Wilds
Associate
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Attention: Elisabeth Wilds
Tel: (212) 852-6322
Fax: (212) 852-6148
-7-
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ [ILLEGIBLE]
------------------------------------------
Title: Deputy General Manager
The Mitsubishi Trust and Banking
Corporation
801 South Figueroa Street
Suite 500
Los Angeles, California 90017
Attention: Dean Kawai
Tel: (213) 896-4666
Fax: (213) 687-4631
SOCIETE GENERALE
By /s/ Alex Kim
------------------------------------------
Title: Vice President
Societe Generale
2029 Century Park East
Suite 2900
Los Angeles, California 90067
Attention: Alex Kim
Tel: (310) 788-7104
Fax: (310) 551-1537
-8-
<PAGE>
CIBC INC.
By /s/ Dean J. Decker
------------------------------------------
Dean J. Decker
Executive Director
CIBC Oppenheimer Corp., AS AGENT
CIBC Inc.
350 South Grand Avenue
Suite 2600
Los Angeles, California 90071
Attention: Dean Decker
Tel: (213) 617-6245
Fax: (213) 346-0157
THE NEW BANKS DEUTSCHE BANK AG, NEW YORK BRANCH,
AS SUCCESSOR TO DEUTSCHE BANK AG,
LOS ANGELES BRANCH
By /s/ Stephan A. Wiedemann
------------------------------------------
Title: Stephan A. Wiedemann
Director
By /s/ Susan L. Pearson
------------------------------------------
Title: Susan L. Pearson
Director
Deutsche Bank AG,
New York Branch as Successor to
Deutsche Bank AG,
Los Angeles Branch
31 West 52nd Street
New York, New York 10019
Attention: Thomas Foley
Vice President
Tel: (212) 469-8636
Fax: (212) 469-7880
-9-
<PAGE>
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
------------------------------------------
Title: Lisa Y. Brown, Vice President
The Bank of New York
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Attention: Lisa Brown
Tel: (310) 996-8656
Fax: (310) 996-8667
SOCIETE GENERALE
By /s/ Alex Kim
------------------------------------------
Title: Vice President
Societe Generale
2029 Century Park East
Suite 2900
Los Angeles, California 90067
Attention: Alex Kim
Tel: (310) 788-7104
Fax: (310) 551-1537
-10-
<PAGE>
CIBC, INC.
By /s/ Dean J. Decker
------------------------------------------
Dean J. Decker Executive Director
CIBC Oppenheimer Corp., AS AGENT
CIBC Inc.
350 South Grand Avenue
Suite 2600
Los Angeles, California 90071
Attention: Dean Decker
Tel: (213) 617-6245
Fax: (213) 346-0157
BANCA NAZIONALE DE LAVORO
By /s/ Adolph S. Mascari
------------------------------------------
Title: Assistant Vice President
By /s/ [Illegible]
------------------------------------------
Title: First Vice President
BANCA NAZIONALE DEL LAVORO
25 West 51st Street
New York, NY 10019
Attention: Adolph Mascari
Tel: (212) 314-0207
Fax: (212) 765-2978
-11-
<PAGE>
EXHIBIT 11
HILTON HOTELS CORPORATION AND SUBSIDIARIES
Computation of Per Share Earnings
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
BASIC
Income (in millions)
Continuing operations $188 $183 $120
Deduct dividends on preferred shares (10) (13) -
------------- ----------- -----------
Income applicable to common stock
from continuing operations 178 170 120
Discontinued gaming operations 109 67 (38)
------------- ----------- -----------
Income applicable to common stock $287 $237 $ 82
============= =========== ===========
Shares
Weighted average common shares 250,306,000 249,723,000 197,338,000
============= =========== ===========
Basic earnings per common share
Continuing operations $0.71 $0.68 $ 0.61
Discontinued gaming operations 0.44 0.27 (0.20)
------------- ----------- -----------
Net income $1.15 $0.95 $0.41
============= =========== ===========
DILUTED
Income (in millions)
Continuing operations $188 $183 $120
Add after tax interest applicable to
5% convertible notes 15 15 9
------------- ----------- -----------
Before extraordinary item, as adjusted 203 198 129
Discontinued gaming operations 109 67 (38)
------------- ----------- -----------
Net income $312 $265 $91
------------- ----------- -----------
------------- ----------- -----------
SHARES
Weighted average common shares -- basic 250,306,000 249,723,000 197,338,000
Assuming conversion of preferred stock 9,845,000 13,645,000 477,000
Assuming conversion of 5% convertible notes 15,489,000 15,489,000 9,785,000
Dilutive effect of assumed option exercises
(as determined by the application of the
treasury stock method) 1,909,000 2,374,000 1,756,000
------------ ----------- -----------
Common and common equivalent shares
as adjusted 277,549,000 281,231,000 209,356,000
------------ ----------- -----------
------------ ----------- -----------
Diluted earnings per common share
Continuing operations $0.73(1) $0.70(1) $ 0.62 (1)
Discontinued gaming operations 0.39(1) 0.24(1) (0.18)
------------ ----------- -----------
Net income $1.12 $0.94 $ 0.44 (1)
------------ ----------- -----------
------------ ----------- -----------
</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 for continuing operations in all periods and for
net income in the 1996 period.
<PAGE>
EXHIBIT 12
HILTON HOTELS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)(unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from continuing operations before income
taxes and minority interest (1) $332 $309 $179 $136 $60
Add:
Interest expense (1) 142 99 59 73 58
Distributions from less than 50% owned
companies 3 5 14 7 6
Interest component of rent expense (1)(2) 4 4 2 3 2
---- ---- ---- ---- ----
Earnings available for fixed charges $481 $417 $254 $219 $126
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Fixed charges:
Interest expense (1) $142 $ 99 $ 59 $ 73 $ 58
Capitalized interest 4 2 - 1 2
Interest component of rent expense (1)(2) 4 4 2 3 2
---- ---- ---- ---- ----
Total fixed charges $150 $105 $ 61 $ 77 $ 62
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Ratio of earnings to fixed charges 3.2x 4.0x 4.2x 2.8x 2.0x
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- - ----------------
(1) Includes 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(dollars in millions)(unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from continuing operations before income
taxes and minority interest (1) $332 $309 $179 $136 $60
Add:
Interest expense (1) 142 99 59 73 58
Distributions from less than 50% owned
companies 3 5 14 7 6
Interest component of rent expense (1)(2) 4 4 2 3 2
---- ---- ---- ---- ----
Earnings available for combined fixed charges
and preferred stock dividends $481 $417 $254 $219 $126
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Fixed charges and preferred stock dividends:
Interest expense (1) $142 $ 99 $ 59 $ 73 $ 58
Capitalized interest 4 2 - 1 2
Interest component of rent expense (1)(2) 4 4 2 3 2
Preferred stock dividends 17 22 1 - -
---- ---- ---- ---- ----
Total combined fixed charges
and preferred stock dividends $167 $127 $ 62 $ 77 $ 62
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Ratio of earnings to combined fixed charges
and preferred stock dividends 2.9x 3.3x 4.1x 2.9x 2.0x
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- - ----------------
(1) Includes 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
18 24 25 26 27
Management's Discussion Consolidated Consolidated Consolidated Consolidated Statements
and Analysis Statements of Income Balance Sheets Statements of Cash Flow of Stockholders' Equity
- - -------------------------------------------------------------------------------------------------------------------------------
28 36 37 39
Notes to Consolidated Report of Independent Supplementary Five Year Summary
Financial Statements Public Accountants Financial Information
</TABLE>
<TABLE>
<S> <C> <C>
[PHOTO] [PHOTO] [PHOTO]
HILTON WASHINGTON & TOWERS HILTON GARDEN INN RALEIGH-DURHAM HILTON SAN DIEGO MISSION BAY RESORT
</TABLE>
17 Hilton Hotels Corporation
<PAGE>
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company")
completed a spin-off that split the Company's operations into two independent
public corporations, one for conducting its hotel business and one for
conducting its gaming business. Hilton has retained ownership of the hotel
business. Hilton transferred the gaming business to a new corporation named
Park Place Entertainment Corporation ("Park Place"), and distributed the
stock of Park Place tax-free to Hilton stockholders on a one-for-one basis.
As a result of the spin-off, Hilton's historical financial statements have
been restated to reflect the gaming business as discontinued operations. The
following discussion and analysis of financial condition and results of
operations is that of Hilton's continuing operations.
FINANCIAL CONDITION
LIQUIDITY
Net cash provided by operating activities totaled $390 million and $229
million for the years ended December 31, 1998 and 1997, respectively. The
increase was primarily attributable to continued strength at many of the
Company's owned and partially owned full-service hotels and the benefit of
cash flow from newly acquired hotel properties.
ACQUISITIONS AND CAPITAL SPENDING
Net cash used in investing activities was $1,062 million in 1998 compared to
$60 million in 1997. The increase was due primarily to new hotel acquisitions
and construction costs. In addition, the 1997 period reflects $123 million of
cash proceeds from asset sales, primarily the sale of the Company's interest
in the Conrad International Hong Kong. Expenditures required to complete
acquisitions and capital spending programs in 1999 will be financed through
available cash flows and general corporate borrowings.
Growth in the hotel segment continues through selective acquisition of
large full-service hotels in major market locations. In December 1997 and
January 1998, the Company acquired the remaining interests in the Hilton
Chicago & Towers, Hilton San Francisco & Towers, Hilton Washington & Towers,
Hilton Rye Town and Capital Hilton from The Prudential Insurance Company of
America ("Prudential"), thereby increasing the Company's ownership interest
in each property to 100%.
In January 1998, the Company purchased The Prospect Company's 92.5%
ownership interest in the 458-room Hilton McLean Tysons Corner in McLean,
Virginia located just outside Washington D.C., thereby increasing the
Company's ownership interest to 100%. In March 1998, the Company purchased
the 300-room Hilton Short Hills, a "Five Diamond" hotel located in Short
Hills, New Jersey.
In April 1998, the Company purchased the 407-room Westin Hotel in
Charlotte, North Carolina (re-named the Hilton Charlotte & Towers) and the
395-room Hilton DFW Lakes Executive Conference Center at the Dallas-Ft. Worth
International Airport. In July 1998, the Company purchased the 405-room
Hilton East Brunswick & Towers in East Brunswick, New Jersey.
In June 1998, the Company entered into an agreement with Prudential to
restructure their joint venture ownership of the 2,545-room Hilton Hawaiian
Village, and in September 1998, the Company increased its investment in the
joint venture from 50% to 98%. In August 1998, the Company acquired a 75%
interest in the 585-room Pointe Hilton Tapatio Cliffs Resort in Phoenix,
Arizona.
In December 1998, the Company purchased the 394-room Sheraton Grande Torrey
Pines (re-named the Hilton La Jolla Torrey Pines). The Company leases the
land underlying the hotel. The resort is located adjacent to two world-famous
Torrey Pines Golf Courses along the Pacific Coast in La Jolla, California.
The hotel acquisitions completed during 1998 totaled approximately $950
million, including the assumption of debt. Each of these acquisitions was
completed at a discount to replacement cost. In February 1999, the Company
acquired the 495-room Radisson Plaza Hotel at Mark Center in Alexandria,
Virginia (re-named the Hilton Alexandria Mark Center) for approximately $52
million. The Company expects to make further acquisitions in 1999.
The Company is currently renovating the Hilton New York & Towers. This
project, which includes new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking Manhattan, is expected to be completed in late
1999. Renovation and construction projects are also underway at the Hilton
Seattle Airport and the Hilton Portland. The Seattle project includes
renovating existing rooms and constructing a 222-room addition, while the
Portland project involves construction of a 319-room tower addition. The
Company is also in the process of constructing a new 600-room hotel at the
center of Boston's Logan Airport and a 232-unit vacation ownership resort
adjacent to the Las Vegas Hilton, both of which are expected to open in late
1999.
In addition to an estimated $200 million in 1999 expenditures related to
the aforementioned renovation and construction projects, the Company intends
to spend approximately $140 million in 1999 on normal capital replacements,
upgrades and compliance projects.
18 Hilton Hotels Corporation
<PAGE>
OTHER DEVELOPMENTS
The Company continues to improve its franchise business through the expansion
of the Hilton Garden Inn product, the addition of high quality full-service
properties and the removal of properties that do not meet the Company's
standards. In 1998, 11 franchise contracts, representing some 3,300 rooms,
were terminated. Ten full-service properties and approximately 3,200 rooms
were added to the franchise system in 1998. The Company added nine Garden Inn
properties in 1998, expects to open approximately 65 during 1999 and
anticipates having 200 such franchise properties either open or under
construction in 2000.
FINANCING
Long-term debt at December 31, 1998 totaled $3.0 billion, compared with $1.4
billion at December 31, 1997. The 1998 balance includes additional borrowings
to fund acquisitions and capital expenditures and increased debt related to
the restructuring of the Hilton Hawaiian Village joint venture. Cash provided
by financing activities totaled $362 million in 1998 and cash used in
financing activities totaled $15 million in 1997.
The 1998 debt balance includes $625 million of long-term debt which,
although allocated to Park Place under a debt assumption agreement, remains
the legal obligation of Hilton. At the time of the spin-off, Park Place
assumed and agreed to pay 100% of the amount of each payment required to be
made by Hilton under the terms of the indentures governing Hilton's $300
million 7.375% Senior Notes due 2002 and its $325 million 7% Senior Notes due
2004. These notes remain in Hilton's long-term debt balance and a long-term
receivable from Park Place in an equal amount is included in the Company's
1998 consolidated balance sheet. In the event of an increase in the interest
rate on these notes as a result of certain actions taken by Hilton or in
certain other limited circumstances, Hilton will be required to reimburse
Park Place for any such increase. Hilton is obligated to make any payment
Park Place fails to make, and in such event Park Place shall pay to Hilton
the amount of such payment together with interest, at the rate per annum
borne by the applicable notes plus two percent, to the date of reimbursement.
In order to facilitate the transfer of debt balances in connection with the
spin-off, in December 1998 Park Place entered into a long-term credit
facility and completed a senior subordinated note offering. Park Place used
the proceeds from the new facility and note offering to repay $1,066 million
of Hilton's commercial paper borrowings, representing an estimate of Park
Place's share of the obligation. The distribution agreement entered into
between Hilton and Park Place calls for a final reconciliation and allocation
of certain debt and cash balances, as defined. The reconciliation resulted in
an additional amount due Hilton from Park Place of $73 million. This balance
is reflected in current assets in the accompanying 1998 consolidated balance
sheet. A pro rata portion of Hilton's historical outstanding public and
corporate bank debt balances and related interest expense has been allocated
to Park Place for prior periods.
By virtue of the aforementioned agreement with Prudential to restructure
the joint venture ownership of the Hilton Hawaiian Village, effective June 1,
1998 the Company was deemed to control the joint venture, thus requiring
consolidation of this previously unconsolidated entity. The agreement also
called for the refinancing of the joint venture's existing debt under a new
joint venture revolving credit facility. In accordance with the terms of the
agreement, this new facility was used to borrow an additional $294 million
which was loaned to a Prudential affiliate and subsequently redeemed to
increase the Company's investment in the joint venture from 50% to 98%. The
consolidation of the joint venture, which includes the total borrowings under
the new facility, resulted in an increase in consolidated debt of $480
million.
At December 31, 1998, $155 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility was outstanding,
leaving approximately $1.6 billion available to the Company at such date.
In October 1997, the Company filed a shelf registration statement ("Shelf")
with the Securities and Exchange Commission registering up to $2.5 billion
in debt or equity securities. At December 31, 1998, available financing under
the Shelf totaled $2.1 billion. The terms of any additional securities
offered pursuant to the Shelf will be determined by market conditions at the
time of issuance.
Pursuant to the Company's stock repurchase program, during the 1998 first
quarter the Company repurchased 2.8 million shares of common stock, or 14
percent of the total authorized to be repurchased, for an aggregate purchase
price of $81 million. The Company may, at any time, repurchase up to 15.7
million remaining shares authorized for repurchase pursuant to such program.
The timing of stock repurchases are made at the discretion of the Company's
management, subject to certain business and market conditions.
19 Hilton Hotels Corporation
<PAGE>
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In accordance with the terms of the indenture governing the Company's $500
million 5% Convertible Subordinated Notes due 2006, effective January 4,
1999, the conversion price was adjusted to $22.17, reflecting the gaming
spin-off.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $187 million at December 31, 1998, reflecting
the spin-off of the gaming operations. Dividends paid on common shares were
$.32 per share in 1998 and 1997 and $.305 per share in 1996. Dividends are
expected to be $.08 per share in 1999.
In October 1998, 14.8 million shares of the Company's Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
were converted into 13.6 million shares of common stock.
RESULTS OF OPERATIONS
The following discussion presents an analysis of the Company's results of
operations for the years ended December 31, 1998, 1997 and 1996. EBITDA
(earnings before interest, taxes, depreciation, amortization and non-cash
items) is presented supplementally in the tables below and in the discussion
of operating results because management believes it allows for a more
complete analysis of results of operations. Non-cash items, such as asset
write-downs and impairment losses, are excluded from EBITDA as these items do
not impact operating results on a recurring basis. This information should
not be considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as operating
income or net income), 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.
FISCAL 1998 COMPARED WITH FISCAL 1997
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1998 1997 % Change
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,769 1,475 20%
Operating income 464 395 17
Income from continuing operations 188 183 3
Income from discontinued gaming operations 109 67 63
Net income 297 250 19
Basic EPS
Income from continuing operations $ .71 .68 4%
Discontinued gaming operations .44 .27 63
-------------------------------
Net income per share $ 1.15 .95 21%
-------------------------------
-------------------------------
Diluted EPS
Income from continuing operations $ .71 .68 4%
Discontinued gaming operations .41 .26 58
-------------------------------
Net income per share $ 1.12 .94 19%
-------------------------------
-------------------------------
Other Operating Data
- - --------------------
EBITDA
Operations $ 660 561 18%
Corporate expense, net (64) (64) --
-------------------------------
Total $ 596 497 20%
-------------------------------
-------------------------------
</TABLE>
The Company's continuing operations include the consolidated results of the
Company's owned, partially owned and leased hotel assets. Consolidated
results also include equity income from unconsolidated affiliates, management
and franchise fees and earnings from vacation ownership operations. At
December 31, 1998 the Company owned or partially owned ("owned"), managed and
franchised 37, 24 and 188 hotel properties, respectively, totaling
approximately 87,000 rooms worldwide.
Total revenue for 1998 was $1.8 billion, an increase of 20 percent over
1997. EBITDA from operations was $660 million for 1998, an 18 percent
increase compared to 1997, while total EBITDA was $596 million for 1998, a 20
percent increase over the prior year. Total operating income increased 17
percent to $464 million.
The Company's results are significantly influenced by the operating
performance of its owned portfolio of major market domestic full-service
properties. Operating performance is primarily affected by volume (as
measured by occupancy), pricing (as measured by average room rate), the
Company's ability to manage costs and the growth in the number of available
rooms through acquisition and development. The Company's domestic owned
hotels generated $544 million of EBITDA in 1998, with
20 Hilton Hotels Corporation
<PAGE>
comparable EBITDA increasing 11 percent over the prior year. EBITDA margins
at these hotels improved two points to 34 percent. The comparable EBITDA
increase improved to 17 percent when excluding the Hilton Hawaiian Village in
Honolulu and the Hilton Waikoloa Village on the island of Hawaii, both of
which continue to feel the effects of the Asian economic crisis. Occupancy in
1998 at comparable owned hotels declined 2.5 points to 75 percent, with the
average rate increasing 8.3 percent to $166.47, resulting in a 4.8 percent
improvement in revenue per available room ("RevPAR"). Without the Company's
Hawaii operations, RevPAR for the year at this group of properties increased
7.1 percent.
Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers
increased $24 million or 22 percent over the prior year. RevPAR gains of 10
and 11 percent, respectively, were driven by strong rate gains in both the
leisure and individual business traveler ("IBT") segments. Combined EBITDA
from the Hilton Chicago & Towers, the Hilton Chicago O'Hare Airport and the
Palmer House Hilton increased $20 million or 26 percent over the prior year.
All three properties maintained strong volume and achieved double-digit rate
growth in the IBT segment. Combined EBITDA margins at these three Chicago
properties averaged 35 percent, a five point increase from 1997. Results also
benefited from a combined EBITDA increase of $11 million from the San Diego
and San Francisco Hiltons. The San Diego property benefited from strong rate
increases in all segments and a seven point improvement in EBITDA margin. The
impact of reduced leisure demand at the Hilton San Francisco & Towers was
offset by an increase in higher rate IBT room nights. EBITDA from the Hilton
New Orleans Riverside & Towers increased $4 million or nine percent from the
prior year. Occupied rooms at this property remained flat year over year,
however decreased leisure volume was replaced with higher rate convention and
IBT business. Growth was negatively impacted by results at the Hilton
Hawaiian Village and the Hilton Waikoloa Village. On a comparable basis,
EBITDA at these properties declined 13 percent and 12 percent, respectively.
Acquisition activity, including increased ownership of properties which
were previously partially owned and new property acquisitions, added $47
million of EBITDA in 1998. The Company acquired or increased its ownership
interest in eight full-service domestic properties during 1998.
Results from the Company's vacation ownership operations increased $6
million or 32 percent from the prior year, primarily due to strong interval
sales at the Company's Orlando development. Total unit weeks sold increased
34 percent from the prior year. The Company expects the income contribution
from its vacation ownership operations to increase in 1999 with the opening
of a new development adjacent to the Las Vegas Hilton.
Management and franchise fee revenue decreased $11 million in 1998 to $104
million. This decrease is attributable primarily to the acquisition of
several previously managed properties during 1998, reduced management fees
from the Conrad International Hong Kong, which was negatively impacted by
economic conditions in Asia, and a $1 million decrease in initial and
termination fees from franchise properties. Fee revenue is based primarily on
operating revenue at managed properties and rooms revenue at franchised
properties.
Depreciation and amortization, including the Company's proportionate share
of depreciation and amortization from its unconsolidated affiliates,
increased $28 million in 1998 to $132 million due primarily to new
acquisitions.
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 in the U.S. (affecting domestic travel) and
internationally (affecting inbound travel from abroad) could also unfavorably
impact future results. However, the Company believes that its financial
strength and market presence will enable it to remain extremely competitive.
CORPORATE EXPENSE, NET
Corporate expense increased $2 million in 1998 to $67 million. The 1998
expense includes the Company's proportionate share of costs associated with
the gaming spin-off totaling $13 million. The 1997 expense includes $25
million in costs related to the Company's efforts to acquire ITT Corporation
("ITT"). The 1997 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 decreased $4 million compared with the prior
year, primarily due to lower investment balances. Interest expense, net of
amounts capitalized, increased $47 million reflecting higher debt levels due
to acquisition activity during the year and a higher average cost of debt
resulting from the Company issuing long-term notes to replace floating rate
debt in 1997. Net interest expense from unconsolidated affiliates decreased
$4 million, reflecting the mid-year consolidation of the Hilton Hawaiian
Village.
INCOME TAXES
The effective income tax rate in 1998 increased to 40.5% from 39.5% in 1997.
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.
21 Hilton Hotels Corporation
<PAGE>
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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>
(in millions, except per share amounts) 1997 1996 % Change
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $1,475 947 56%
Operating income 395 237 67
Income from continuing operations 183 120 53
Income (loss) from discontinued gaming operations 67 (38) --
Net income 250 82 205
Basic EPS
Income from continuing operations $ .68 .61 11%
Discontinued gaming operations .27 (.20) --
-----------------------------
Net income per share $ .95 .41 132%
-----------------------------
-----------------------------
Diluted EPS
Income from continuing operations $ .68 .61 11%
Discontinued gaming operations .26 (.20) --
-----------------------------
Net income per share $ .94 .41 129%
-----------------------------
-----------------------------
Other Operating Data
- - --------------------
EBITDA
Operations $ 561 401 40%
Corporate expense, net (64) (40) 60
-----------------------------
Total $ 497 361 38%
-----------------------------
-----------------------------
</TABLE>
Consolidated revenue increased 56 percent in 1997 to $1.5 billion. EBITDA
from operations was $561 million for 1997, a 40 percent increase compared to
1996, while total EBITDA increased 38 percent in 1997 to $497 million.
Operating income increased 67 percent to $395 million.
Combined EBITDA from the Company's owned domestic properties totaled $454
million, with comparable EBITDA increasing 13 percent over the prior year.
The EBITDA increase improved to 16 percent when excluding the Hilton Hawaiian
Village. Occupancy in 1997 at comparable owned hotels was flat compared to
1996 at 77.8 percent, with the average rate increasing 8.7 percent to
$153.18, resulting in a nine percent improvement in RevPAR. Excluding the
Hilton Hawaiian Village, RevPAR for the year at this group of properties
increased 10.2 percent.
Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers
increased $22 million compared to 1996. 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 Hilton San Francisco & Towers
to an $8 million or 25 percent increase in EBITDA compared to 1996. Increased
convention volume at the Hilton Washington & 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 Hilton New Orleans
Riverside & Towers, impacted by the closure of the Flamingo Casino-New
Orleans and a weak city-wide convention year, was even with the prior year.
Acquisition activity, including increased ownership of properties which
were previously partially owned and new property acquisitions, added $67
million of EBITDA in 1997. The Company acquired or increased its ownership
interest in seven full-service domestic properties in late 1996 and 1997.
Management and franchise fee revenue increased $10 million in 1997 to $115
million. Initial and termination fees from franchise properties increased $3
million.
Depreciation and amortization, including the Company's proportionate share
of depreciation and amortization from its unconsolidated affiliates,
increased $2 million in 1997 to $104 million.
Hotel 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.
CORPORATE EXPENSE, NET
Corporate expense increased $22 million in 1997 to $65 million. The 1997
expense includes net costs related to the Company's efforts to acquire ITT
and increased costs associated with the Company's development of its Hilton
Garden Inn product.
FINANCING ACTIVITIES
Interest and dividend income decreased $9 million compared with the prior
year. Interest expense, net of amounts capitalized, increased $38 million
primarily due to acquisition activity in late 1996 and early 1997. Net
interest expense from unconsolidated affiliates increased $1 million over
1996.
INCOME TAXES
The effective income tax rate in 1997 was 39.5% compared to 38.7% in 1996.
OTHER MATTERS
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable
year. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures.
22 Hilton Hotels Corporation
<PAGE>
The Company has a Year 2000 program, the objective of which is to determine
and assess the risks of the Year 2000 issue, and plan and institute
mitigating actions to minimize those risks. The Company's standard for
compliance requires that for a computer system or business process to be Year
2000 compliant, it must be designed to operate without error in date and
date-related data prior to, on and after January 1, 2000. The Company expects
to be fully Year 2000 compliant with respect to all significant business
systems prior to December 31, 1999.
The Company's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY ("IT") SYSTEMS
Information technology systems account for much of the Year 2000 work and
include all computer systems and technology managed by the Company. The
Company has assessed these core systems, has plans in place, and is
undertaking to test and implement changes where required. The Company has not
yet identified any significant remediation. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
NON-IT SYSTEMS
The Company has completed an inventory of all property level non-IT systems
(including elevators, electronic door locks, etc.). The Company has assessed
the majority of these non-IT systems, has plans in place, and is undertaking
to test and implement changes where required. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
SUPPLIERS
The Company is communicating with its significant suppliers to understand
their Year 2000 issues and how they might prepare themselves to manage those
issues as they relate to the Company. To date, no significant supplier has
informed the Company that a material Year 2000 issue exists which will have a
material effect on the Company.
During 1999, the Company will continually review its progress against its
Year 2000 plans and determine what contingency plans are appropriate to
reduce its exposure to Year 2000 related issues.
Based on the Company's current assessment, the costs of addressing
potential problems are expected to be less than $3 million. However, if the
Company is unable to resolve its Year 2000 issues, contingency plans to
update existing systems (i.e., reservation, payroll, etc.) are in place for
which the Company expects the cost, if any, to be an additional $3 million.
If the Company's customers or vendors identify significant Year 2000 issues
in the future and are unable to resolve such issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000 issues in
a timely manner.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities." This SOP requires that all
nongovernmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and
requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. The Company will adopt SOP 98-5 in the first quarter of
1999. Adoption of the SOP is not expected to have a material impact on the
1999 results of operations.
OTHER
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.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "Financial Overview," "Financial
Condition," "Results of Operations," and "Other Matters," and 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.
The words "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. 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, including those identified above under "Results of Operations"
and those in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 under the captions "Additional Information - Business
Risks," and "Competition," the effect of economic conditions, and customer
demand, 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.
23 Hilton Hotels Corporation
<PAGE>
CONSOLIDATED
STATEMENTS
OF INCOME
<TABLE>
<CAPTION>
(in millions, except per share amounts) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Rooms $ 952 779 441
Food and beverage 414 326 188
Management and franchise fees 104 115 105
Other revenue 299 255 213
-------------------------------
1,769 1,475 947
-------------------------------
EXPENSES
Rooms 237 205 127
Food and beverage 315 254 147
Other expenses 686 556 393
Corporate expense, net 67 65 43
-------------------------------
1,305 1,080 710
-------------------------------
OPERATING INCOME 464 395 237
Interest and dividend income 13 17 26
Interest expense (137) (90) (52)
Interest expense, net, from unconsolidated affiliates (4) (8) (7)
-------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 336 314 204
Provision for income taxes 136 124 79
Minority interest, net 12 7 5
-------------------------------
INCOME FROM CONTINUING OPERATIONS 188 183 120
Income (loss) from discontinued gaming operations,
net of tax provision (benefit) of $111, $63 and $(25) 109 67 (38)
-------------------------------
NET INCOME $ 297 250 82
-------------------------------
-------------------------------
Change in unrealized gains and losses, net of tax (19) 7 11
-------------------------------
Comprehensive income $ 278 257 93
-------------------------------
-------------------------------
BASIC EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61
Discontinued gaming operations .44 .27 (.20)
-------------------------------
Net income per share $ 1.15 .95 .41
-------------------------------
-------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61
Discontinued gaming operations .41 .26 (.20)
-------------------------------
Net income per share $ 1.12 .94 .41
-------------------------------
-------------------------------
</TABLE>
See notes to consolidated financial statements
24 Hilton Hotels Corporation
<PAGE>
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
(in millions) December 31, 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 47 5
Accounts receivable, net of allowance of $12 and $6, respectively 204 155
Receivable from discontinued gaming operations 73 --
Inventories 54 39
Deferred income taxes 48 31
Other current assets 43 32
--------------------
Total current assets 469 262
INVESTMENTS, PROPERTY AND OTHER ASSETS
Investments 262 233
Long-term receivable 625 --
Property and equipment, net 2,483 1,373
Net assets of discontinued gaming operations -- 3,381
Other assets 105 29
--------------------
Total investments, property and other assets 3,475 5,016
--------------------
TOTAL ASSETS $ 3,944 5,278
--------------------
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 410 268
Current maturities of long-term debt 62 31
Income taxes payable 34 9
--------------------
Total current liabilities 506 308
Long-term debt 3,037 1,437
Deferred income taxes 65 36
Insurance reserves and other 149 114
--------------------
Total liabilities 3,757 1,895
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% PRIDES convertible preferred stock -- 15
Common stock, 261 and 249 shares outstanding, respectively 663 628
Additional paid-in capital -- 1,759
Retained (deficit) earnings (347) 1,040
Other -- 11
--------------------
316 3,453
Less treasury stock, at cost 129 70
--------------------
Total stockholders' equity 187 3,383
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,944 5,278
--------------------
--------------------
</TABLE>
See notes to consolidated financial statements
25 Hilton Hotels Corporation
<PAGE>
CONSOLIDATED
STATEMENTS
OF CASH FLOW
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 297 250 82
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued gaming operations (109) (67) 38
Depreciation and amortization 125 93 67
Non-cash items -- (2) 22
Amortization of loan costs 2 1 1
Change in working capital components:
Inventories (15) 10 (42)
Accounts receivable (42) 5 (44)
Other current assets (17) (5) (8)
Accounts payable and accrued expenses 124 4 135
Income taxes payable 25 4 (8)
Change in deferred income taxes 9 (63) (11)
Change in other liabilities 5 (46) (10)
Unconsolidated affiliates' distributions (less than) in excess of earnings (17) 6 37
Other 3 39 26
-------------------------------
Net cash provided by operating activities 390 229 285
-------------------------------
INVESTING ACTIVITIES
Capital expenditures (171) (93) (49)
Additional investments (98) (97) (53)
Change in temporary investments -- 25 53
Proceeds from asset sales -- 123 --
Payments on notes and other 49 49 1
Acquisitions, net of cash acquired (842) (67) (432)
-------------------------------
Net cash used in investing activities (1,062) (60) (480)
-------------------------------
FINANCING ACTIVITIES
Change in commercial paper borrowings and revolving loans 355 (1,218) 1,041
Long-term borrowings 400 1,393 492
Reduction of long-term debt (247) (95) (1,457)
Issuance of common stock 25 38 31
Purchase of common stock (81) (40) --
Cash dividends (90) (93) (60)
-------------------------------
Net cash provided by (used in) financing activities 362 (15) 47
-------------------------------
Net transfers from (to) discontinued gaming operations 352 (191) (110)
-------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 42 (37) (258)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 5 42 300
-------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 47 5 42
-------------------------------
-------------------------------
</TABLE>
See notes to consolidated financial statements
26 Hilton Hotels Corporation
<PAGE>
CONSOLIDATED
STATEMENTS
OF STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
8% PRIDES
Convertible Additional Retained
Preferred Common Paid-in (Deficit) Treasury
(in millions, except per share amounts) Stock Stock Capital Earnings Other Stock
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 ($.32 per share) -- -- -- (80) -- --
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 15 628 1,759 1,040 11 (70)
Issuance of common stock -- 1 10 -- -- --
Exercise of stock options -- -- -- (8) -- 22
Treasury stock acquired -- -- -- -- -- (81)
Conversion of PRIDES (15) 34 (19) -- -- --
Cumulative translation adjustment,
net of deferred tax -- -- -- -- (9) --
Change in unrealized gain/loss on marketable
securities, net of deferred tax -- -- -- -- (10) --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 297 -- --
Dividends
PRIDES ($.67 per share) -- -- -- (10) -- --
Common ($.32 per share) -- -- -- (80) -- --
Spin-off of Park Place
Entertainment Corporation -- -- (1,760) (1,586) 8 --
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ -- 663 -- (347) -- (129)
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
27 Hilton Hotels Corporation
<PAGE>
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
BASIS OF PRESENTATION AND ORGANIZATION
On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company")
completed a spin-off that split the Company's operations into two independent
public corporations per an agreement dated June 30, 1998, one for conducting
its hotel business and one for conducting its gaming business. Hilton
retained ownership of the hotel business. Hilton transferred the gaming
business to a new corporation named Park Place Entertainment Corporation
("Park Place") and distributed the stock of Park Place tax-free to Hilton
stockholders on a one-for-one basis. As a result of the spin-off, Hilton's
financial statements reflect the gaming business as discontinued operations.
Also on December 31, 1998, immediately following the spin-off, Park Place
acquired, by means of a merger, the Mississippi Gaming Business of Grand
Casinos, Inc. ("Grand").
Hilton is primarily engaged in the ownership, management and development of
hotels, resorts and vacation ownership properties and the franchising of
lodging properties. Hilton operates in select markets throughout the world,
predominately in the United States.
SPIN-OFF OF GAMING OPERATIONS
As discussed above, on December 31, 1998, the Company completed a spin-off of
its gaming operations. Accordingly, results of operations and cash flows of
Park Place have been reported as discontinued operations for all periods
presented in the consolidated financial statements of Hilton. The
consolidated balance sheet as of December 31, 1997 also reflects the
Company's gaming business as discontinued operations. Summarized financial
information of the discontinued operations is presented in the following
tables:
Net assets of discontinued gaming operations:
<TABLE>
<CAPTION>
(in millions) 1997
- - ----------------------------------------------------------------------------------
<S> <C>
Current assets $ 450
Current liabilities 334
-------
Net current assets 116
Property and equipment, net 3,621
Other assets 1,559
Long-term debt, including allocated debt 1,272
Other liabilities and deferred taxes 643
-------
Net assets of discontinued gaming operations $3,381
-------
-------
</TABLE>
Income (loss) from discontinued gaming operations:
<TABLE>
<CAPTION>
(in millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $2,295 2,145 958
Costs and expenses 1,993 1,944 866
------------------------------
Operating income 302 201 92
Net interest expense 79 67 29
------------------------------
Income before income taxes and minority interest 223 134 63
Provision for income taxes 111 63 27
Minority interest, net 3 4 --
------------------------------
Income before extraordinary item 109 67 36
Extraordinary loss on extinguishment of debt,
net of tax benefit of $52 -- -- (74)
------------------------------
Income (loss) from discontinued gaming operations $ 109 67 (38)
------------------------------
------------------------------
</TABLE>
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
adopted EITF 97-2 "Application of FASB Statement No. 94 and APB Opinion No.
16 to Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements" in the fourth quarter of 1998, and, as a
result, no longer consolidates the operating results and working capital of
affiliates operated under long-term management agreements. Application of
EITF 97-2 reduced each of revenues and operating expenses by $1.3 billion and
$1.6 billion for the years ended December 31, 1997 and 1996, respectively.
Application of the standard reduced each of current assets and current
liabilities by $240 million at December 31, 1997. Application of EITF 97-2
had no impact on reported operating income, net income, earnings per share or
stockholders' equity.
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.
28 Hilton Hotels Corporation
<PAGE>
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 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 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.
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. In April 1998, the AICPA issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP
requires that all nongovernmental entities expense costs of start-up
activities (pre-opening, pre-operating and organizational costs) as those
costs are incurred and requires the write-off of any unamortized balances
upon implementation. SOP 98-5 is effective for financial statements issued
for periods beginning after December 15, 1998. The Company will adopt SOP
98-5 in the first quarter of 1999. Adoption of the SOP is not expected to
have a material impact on the 1999 results of operations.
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 ("EPS")
Basic EPS is computed by dividing net income available to common stockholders
(net income less preferred dividends of $10 million in 1998 and $13 million
in 1997) by the weighted average number of common shares outstanding for the
period. The weighted average number of common shares outstanding for 1998,
1997 and 1996 were 250 million, 250 million and 197 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 28
million, 31 million and 12 million for 1998, 1997 and 1996, respectively. In
addition, the increase to net income resulting from interest on convertible
securities assumed to have not been paid was $15 million, $15 million and $9
million for 1998, 1997 and 1996, respectively.
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 1998. These
classifications have no effect on net income.
29 Hilton Hotels Corporation
<PAGE>
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Included in inventories at December 31, 1998 and 1997 are unsold intervals at
the Company's vacation ownership properties of $42 million and $32 million,
respectively. Inventories are valued at the lower of cost or estimated net
realizable value.
INVESTMENTS
Investments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Equity investments
Hotels (seven in 1998, eight in 1997) $ 33 52
Other 58 41
Vacation ownership notes receivable 107 86
Other notes receivable 40 19
Marketable securities 24 35
------------------
Total $ 262 233
------------------
------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 379 166
Buildings and leasehold improvements 2,296 1,546
Furniture and equipment 540 384
Property held for sale or development 37 39
Construction in progress 71 18
--------------------
3,323 2,153
Less accumulated depreciation 840 780
--------------------
Total $2,483 1,373
--------------------
--------------------
</TABLE>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Accounts and notes payable $128 87
Accrued compensation and benefits 63 44
Other accrued expenses 219 137
-----------------
Total $410 268
-----------------
-----------------
</TABLE>
LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial development revenue bonds at adjustable rates, due 2015 $ 82 82
Senior notes, with an average rate of 7.6%, due 2001 to 2017 1,117 1,174
Senior notes, with an average rate of 7.2%, due 2002 to 2004 625 623
Mortgage notes, 5.9% to 8.4%, due 1999 to 2016 145 116
5% Convertible subordinated notes due 2006 492 491
Commercial paper -- 280
Revolving loans 635 --
Other 3 8
Debt allocated to discontinued gaming operations -- (1,306)
-------------------
3,099 1,468
Less current maturities 62 31
-------------------
Net long-term debt $ 3,037 1,437
-------------------
-------------------
</TABLE>
Interest paid, net of amounts capitalized, was $130 million, $74 million
and $55 million in 1998, 1997 and 1996, respectively. Capitalized interest
amounted to $4 million and $2 million in 1998 and 1997, respectively. No
interest was capitalized in 1996.
30 Hilton Hotels Corporation
<PAGE>
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(in millions)
- - ----------------------------------------------------------------------------------
<S> <C>
1999 $ 62
2000 53
2001 170
2002 572
2003 483
</TABLE>
In order to equalize the indebtedness between Hilton and Park Place at the
time of the spin-off, pro forma for the merger of Park Place and Grand,
Hilton and Park Place agreed to an allocation of the December 31, 1998 debt
balances and entered into a debt assumption agreement. Pursuant to the debt
assumption agreement, Park Place assumed and agreed to pay 100% of the amount
of each payment required to be made by Hilton under the terms of the
indentures governing Hilton's $300 million 7.375% Senior Notes due 2002 and
its $325 million 7% Senior Notes due 2004. These notes remain in Hilton's
long-term debt balance and a long-term receivable from Park Place in an equal
amount is included in the Company's 1998 consolidated balance sheet. In the
event of an increase in the interest rate on these notes as a result of
certain actions taken by Hilton or certain other limited circumstances,
Hilton will be required to reimburse Park Place for any such increase. Hilton
is obligated to make any payment Park Place fails to make, and in such event
Park Place shall pay to Hilton the amount of such payment together with
interest, at the rate per annum borne by the applicable notes plus two
percent, to the date of such reimbursement.
In order to facilitate the transfer of debt balances in connection with the
spin-off, in December 1998 Park Place entered into a long-term credit
facility and completed a senior subordinated note offering. Park Place used
the proceeds from the new facility and note offering to repay $1,066 million
of Hilton's commercial paper borrowings, representing an estimate of Park
Place's share of the obligation. The distribution agreement entered into
between Hilton and Park Place calls for a final reconciliation and allocation
of certain debt and cash balances, as defined. The reconciliation resulted in
an additional amount due Hilton from Park Place of $73 million. This balance
is reflected in current assets in the accompanying consolidated financial
statements. A pro rata portion of Hilton's historical outstanding public and
corporate bank debt balances and related interest expense has been allocated
to Park Place for prior periods.
By virtue of an agreement with Prudential to restructure the joint venture
ownership of the Hilton Hawaiian Village, effective June 1, 1998 the Company
was deemed to control the joint venture, thus requiring consolidation of this
previously unconsolidated entity. The agreement also called for the
refinancing of the joint venture's existing debt under a new joint venture
revolving credit facility. In accordance with the terms of the agreement,
this new facility was used to borrow an additional $294 million which was
loaned to a Prudential affiliate and subsequently redeemed to increase the
Company's investment in the joint venture from 50% to 98%. The consolidation
of the joint venture, which includes the total borrowings under the new
facility, resulted in an increase in consolidated debt of $480 million.
During 1996, the Company entered into a long-term revolving credit facility
with an aggregate commitment of $1.75 billion, which expires in 2001. At
December 31, 1998, $155 million was outstanding, leaving approximately $1.6
billion of the revolving credit facility available to the Company at such
date. Borrowings will generally bear interest at the London Interbank Offered
Rate ("LIBOR") plus a spread based on the Company's public debt rating or a
leverage ratio. The all in cost of borrowings under the facility was
approximately LIBOR plus 60 basis points as of December 31, 1998.
In October 1997, the Company filed a shelf registration statement ("Shelf")
with the Securities and Exchange Commission registering up to $2.5 billion in
debt or equity securities. At December 31, 1998, available financing under
the Shelf totaled $2.1 billion. The terms of any additional securities
offered pursuant to the Shelf will be determined by market conditions at the
time of issuance.
In accordance with the terms of the indenture governing the Company's $500
million 5% Convertible Subordinated Notes due 2006, effective January 4,
1999, the conversion price was adjusted to $22.17, reflecting the gaming
spin-off.
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 AND LONG-TERM MARKETABLE SECURITIES
The fair value of cash equivalents and long-term marketable securities is
estimated based on the quoted market price of the investments.
31 Hilton Hotels Corporation
<PAGE>
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- - -----------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents and long-term
marketable securities $ 71 71 40 40
Long-term debt (including current maturities) 3,099 3,123 1,468 1,517
</TABLE>
INCOME TAXES
The provisions for income taxes for the three years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 98 168 66
State, foreign and local 31 34 18
-----------------------------
129 202 84
Deferred 7 (78) (5)
-----------------------------
Total $ 136 124 79
-----------------------------
-----------------------------
</TABLE>
During 1998, 1997 and 1996 the Company paid income taxes, including amounts
paid on behalf of the discontinued gaming operations, of $165 million, $150
million and $83 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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accrued expenses $ 2 8
Self-insurance and other reserves 26 29
Benefit plans 23 6
Pre-opening costs 11 --
Foreign tax credit carryovers (expire beginning in 2000) 21 3
Disposition of assets 24 30
Other 4 --
------------------
111 76
Valuation allowance (3) (3)
------------------
108 73
------------------
Deferred tax liabilities
Fixed assets, primarily depreciation (30) (14)
Equity investments (80) (59)
Other (15) (5)
------------------
(125) (78)
------------------
Net deferred tax liability $ (17) (5)
------------------
------------------
</TABLE>
The reconciliation of the Federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<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 4.2 4.0 3.9
Foreign taxes, net -- .4 .3
Spin-off costs .8 -- --
Other .5 .1 (.5)
----------------------------
Effective tax rate 40.5% 39.5 38.7
----------------------------
----------------------------
</TABLE>
32 Hilton Hotels Corporation
<PAGE>
STOCKHOLDERS' EQUITY
Four hundred million shares of common stock with a par value of $2.50 per
share are authorized, of which 265 million and 251 million were issued at
December 31, 1998 and 1997, respectively, including treasury shares of four
million and two million in 1998 and 1997, respectively. Authorized preferred
stock includes 25 million shares of preferred stock with a par value of $1.00
per share. In October 1998, 15 million shares of 8% PRIDES convertible
preferred stock were converted into 14 million shares of common stock.
Fifteen million shares of 8% PRIDES were issued and outstanding at December
31, 1997; no preferred shares were issued or outstanding at December 31,
1998.
To reflect the spin-off of the gaming business, the $3.3 billion book value
of net assets of discontinued gaming operations as of December 31, 1998 was
charged against the Company's retained earnings and additional paid-in
capital.
The Company's Board of Directors has approved the repurchase by the Company
of up to 20 million shares of its common stock pursuant to a stock repurchase
program. The timing of the stock purchases are made at the discretion of the
Company's management. At December 31, 1998, the Company had repurchased 4.3
million shares or 22 percent of the total authorized to be repurchased. The
Company may at any time repurchase up to 15.7 million of the remaining shares
authorized for repurchase.
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 2008 unless they are terminated, exercised or redeemed.
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 below:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1998 1997 1996
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 183 178 116
Discontinued gaming operations 92 61 (41)
-----------------------------
Net income $ 275 239 75
-----------------------------
-----------------------------
Basic EPS
Income from continuing operations $ .69 .66 .59
Discontinued gaming operations .37 .25 (.21)
-----------------------------
Net income $1.06 .91 .38
-----------------------------
-----------------------------
Diluted EPS
Income from continuing operations $ .69 .66 .59
Discontinued gaming operations .35 .24 (.21)
-----------------------------
Net income $1.04 .90 .38
-----------------------------
-----------------------------
</TABLE>
At December 31, 1998, 33 million shares of common stock were reserved for the
exercise of options under the Company's Stock Incentive Plans. Options may be
granted to salaried officers, directors 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 Stock Incentive Plans also
permit the granting of Stock Appreciation Rights ("SARs"). No SARs have been
granted as of December 31, 1998.
On December 31, 1998, the effective date of the spin-off, all outstanding
options under the Stock Incentive Plans were adjusted to represent options to
purchase an equivalent number of shares of Hilton common stock and shares of
Park Place common stock. The exercise price for options to purchase Hilton
common stock were adjusted based on relative values of Hilton and Park Place
common stock at the date the Company's stock began trading on an ex-dividend
basis.
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 1998, 1997 and 1996, respectively: dividend
yield of one percent for each of the three years; expected volatility of 34,
32 and 27 percent; risk-free interest rates of 5.51, 6.49 and 6.33 percent
and expected lives of six years for each of the three years.
33 Hilton Hotels Corporation
<PAGE>
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996, 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, 1995 $ 4.68 - 12.16 $ 8.71 6,825,740 346,504
Authorized -- 12,000,000
Granted 11.88 - 18.70 13.28 9,777,900 (9,777,900)
Exercised 4.68 - 12.16 7.08 (2,135,426) --
Cancelled 4.72 - 17.15 11.03 (668,758) 653,158
-------------------------------------------------------
Balance at December 31, 1996 4.68 - 18.70 12.08 13,799,456 3,221,762
Authorized -- 6,200,000
Granted 15.95 - 21.30 16.73 3,046,990 (3,046,990)
Exercised 4.72 - 16.23 9.32 (1,418,185) --
Cancelled 7.46 - 17.15 13.87 (796,642) 795,892
-------------------------------------------------------
Balance at December 31, 1997 4.68 - 21.30 13.23 14,631,619 7,170,664
Authorized -- 12,000,000
Granted 12.17 - 27.53 18.23 9,113,850 (9,113,850)
Exercised 4.72 - 18.38 10.04 (692,067) --
Cancelled 10.48 - 21.30 15.71 (2,359,632) 2,359,632
-------------------------------------------------------
Balance at December 31, 1998 $ 4.68 - 27.53 $15.25 20,693,770 12,416,446
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.68 - 11.88 7,999,918 2.73 $11.32 4,867,168 $10.99
12.51 - 16.59 7,554,652 8.91 14.57 1,321,687 15.41
16.65 - 27.53 5,139,200 9.22 22.39 357,750 17.51
- - -------------------------------------------------------------------------------------------------------------------
$ 4.68 - 27.53 20,693,770 6.60 $15.25 6,546,605 $12.24
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</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.
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, 1998 and 1997:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Projected benefit obligation for service rendered to date $(225) (214)
Plan assets at fair value, primarily listed securities
and temporary investments 257 242
------------------
Projected benefit obligation less than plan assets 32 28
Unrecognized gain (45) (41)
------------------
Accrued pension cost $ (13) (13)
------------------
------------------
Pension cost includes the following components
Interest cost on projected benefit obligation $ 15 15
Expected return on plan assets (15) (17)
------------------
Net periodic pension cost $ -- (2)
------------------
------------------
</TABLE>
34 Hilton Hotels Corporation
<PAGE>
Included in plan assets at fair value are equity securities of Hilton and
Park Place of $21 million and $32 million at December 31, 1998 and 1997,
respectively.
The following sets forth the funded status for the Supplemental Plans as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Projected benefit obligation for service rendered to date $ (8) (17)
Plan assets at fair value -- 12
------------------
Projected benefit obligation in excess of plan assets (8) (5)
Unrecognized net loss 4 1
------------------
Accrued pension cost $ (4) (4)
------------------
------------------
Pension cost includes the following components
Interest cost on projected benefit obligation $ 1 1
Expected return on plan assets (1) (3)
------------------
Net periodic pension cost $ -- (2)
------------------
------------------
</TABLE>
The discount rate used in determining the actuarial present values of the
projected benefit obligations was 6.75 percent in 1998 and 7 percent in 1997.
The expected long-term rate of return on assets is 7.25 percent. The
projected benefit obligation and accumulated benefit obligation were $8
million and $8 million, respectively, as of December 31, 1998. The projected
benefit obligation, accumulated benefit obligation, and fair value of plan
assets for pension plans with accumulated benefit obligations in excess of
plan assets were $17 million, $17 million and $12 million, respectively, as
of December 31, 1997.
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 $11 million, $9 million and $5 million in
1998, 1997 and 1996, 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.
LEASES
The Company operates seven properties under noncancellable operating leases,
all of which are for land only, having remaining terms up to 44 years. Upon
expiration of three of the leases, the Company has renewal options of 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 2003
with an aggregate commitment of $215 million through 2042.
COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had contractual commitments at its wholly
owned or leased properties for major expansion and rehabilitation projects of
approximately $130 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.
35 Hilton Hotels Corporation
<PAGE>
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, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 5, 1999
36 Hilton Hotels Corporation
<PAGE>
SUPPLEMENTARY
FINANCIAL
INFORMATION
(unaudited)
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Revenue $ 366 457 450 496 1,769
EBITDA(1) 122 173 150 151 596
Operating income 94 142 116 112 464
Income from continuing operations 38 65 41 44 188
Income from discontinued gaming operations 39 41 38 (9) 109
Net income 77 106 79 35 297
Basic EPS(2)
Continuing operations $ .14 .25 .15 .17 .71
Discontinued gaming operations .16 .16 .16 (.03) .44
---------------------------------------------------------
Net income $ .30 .41 .31 .14 1.15
---------------------------------------------------------
---------------------------------------------------------
Diluted EPS
Continuing operations $ .14 .25 .15 .17 .71
Discontinued gaming operations .15 .14 .15 (.03) .41
---------------------------------------------------------
Net income $ .29 .39 .30 .14 1.12
---------------------------------------------------------
---------------------------------------------------------
1997
Revenue $ 321 399 369 386 1,475
EBITDA(1) 103 154 129 111 497
Operating income 76 131 105 83 395
Income from continuing operations 31 67 44 41 183
Income from discontinued gaming operations 37 26 50 (46) 67
Net income 68 93 94 (5) 250
Basic EPS
Continuing operations $ .11 .26 .16 .15 .68
Discontinued gaming operations .15 .10 .20 (.18) .27
---------------------------------------------------------
Net income $ .26 .36 .36 (.03) .95
---------------------------------------------------------
---------------------------------------------------------
Diluted EPS(2)
Continuing operations $ .11 .25 .16 .15 .68
Discontinued gaming operations .15 .09 .19 (.18) .26
---------------------------------------------------------
Net income $ .26 .34 .35 (.03) .94
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
As of December 31, 1998 there were approximately 15,200 stockholders of
record.
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and non-cash items. Non-cash items, such as asset write-downs and
impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. This information should not be
considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as
operating income or net income), 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.
(2) The sum of 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.
37 Hilton Hotels Corporation
<PAGE>
SUPPLEMENTARY
FINANCIAL
INFORMATION
(unaudited)
EBITDA(1)
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EBITDA
Operations $ 660 561 401
Corporate expense, net (64) (64) (40)
-----------------------------
Total EBITDA $ 596 497 361
-----------------------------
-----------------------------
Reconciliation to income from continuing operations:
EBITDA $ 596 497 361
Interest and dividend income 13 17 26
Interest expense (137) (90) (52)
Interest expense, net, from unconsolidated affiliates (4) (8) (7)
Depreciation and amortization(2) (132) (104) (102)
Non-cash items -- 2 (22)
Provision for income taxes (136) (124) (79)
Minority interest, net (12) (7) (5)
-----------------------------
Income from continuing operations $ 188 183 120
-----------------------------
-----------------------------
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. Non-cash items, such as asset write-downs and impairment
losses, are excluded from EBITDA as these items do not impact operating
results on a recurring basis. This information should not be considered
as an alternative to any measure of performance as promulgated under
generally accepted accounting principles (such as operating income or
net income), 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.
(2) Includes proportionate share of unconsolidated affiliates.
38 Hilton Hotels Corporation
<PAGE>
FIVE YEAR
SUMMARY
<TABLE>
<CAPTION>
(dollars in millions, except per share,
average rate and RevPAR amounts) Year Ended December 31, 1998 1997 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
REVENUE $ 1,769 1,475 947 715 622
EBITDA(1)
Operations $ 660 561 401 308 244
Corporate expense, net (64) (64) (40) (18) (20)
-------------------------------------------------
Total $ 596 497 361 290 224
-------------------------------------------------
-------------------------------------------------
BASIC EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61 .46 .22
Discontinued gaming operations .44 .27 (.20) .44 .42
-------------------------------------------------
Net income $ 1.15 .95 .41 .90 .64
-------------------------------------------------
-------------------------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61 .45 .22
Discontinued gaming operations .41 .26 (.20) .44 .41
-------------------------------------------------
Net income $ 1.12 .94 .41 .89 .63
-------------------------------------------------
-------------------------------------------------
GENERAL INFORMATION
OCCUPANCY(2) 73.4% 75.8 75.5 73.4 70.1
AVERAGE RATE(2) $ 157.51 146.00 134.59 125.79 120.88
RevPAR(2) $ 115.64 110.61 101.67 92.29 84.69
NUMBER OF PROPERTIES AT YEAR END
Owned or partially owned hotels 37 32 31 33 33
Managed hotels 24 27 28 24 24
Franchised hotels 188 180 172 162 161
-------------------------------------------------
Total 249 239 231 219 218
-------------------------------------------------
-------------------------------------------------
AVAILABLE ROOMS AT YEAR END
Owned or partially owned hotels 25,762 23,799 23,092 24,098 24,098
Managed hotels 14,690 15,779 16,776 15,096 15,686
Franchised hotels 46,562 45,092 43,694 41,687 40,436
-------------------------------------------------
Total 87,014 84,670 83,562 80,881 80,220
-------------------------------------------------
-------------------------------------------------
</TABLE>
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and non-cash items. Non-cash items, such as asset write-downs and
impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. This information should not be
considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as
operating income or net income), 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.
(2) Comparable domestic owned and managed properties.
39 Hilton Hotels Corporation
<PAGE>
BOARD OF DIRECTORS
BOARD OF DIRECTORS
STEPHEN F. BOLLENBACH(3,4)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
A. STEVEN CROWN(1,2,5)
GENERAL PARTNER, HENRY CROWN & COMPANY,
CHICAGO, ILLINOIS - DIVERSIFIED MANUFACTURING OPERATIONS,
MARINE OPERATIONS AND REAL ESTATE VENTURES
PETER M. GEORGE(1,2,3)
VICE CHAIRMAN AND GROUP CHIEF EXECUTIVE -
LADBROKE GROUP PLC, AND CHAIRMAN - HILTON INTERNATIONAL CO.,
HERTS, ENGLAND - HOTEL AND GAMING COMPANY
ARTHUR M. GOLDBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
PARK PLACE ENTERTAINMENT CORPORATION
LAS VEGAS, NEVADA - CASINO GAMING COMPANY
BARRON HILTON(3)
CHAIRMAN
DIETER H. HUCKESTEIN
EXECUTIVE VICE PRESIDENT, HILTON HOTELS CORPORATION,
AND PRESIDENT - HOTEL OPERATIONS
ROBERT L. JOHNSON(1,2,4,5)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BET HOLDINGS, INC.,
WASHINGTON, D.C. - DIVERSIFIED MEDIA HOLDING COMPANY,
CHAIRMAN AND PRESIDENT OF DISTRICT CABLEVISION, INC.
DONALD R. KNAB(1,2,3,5)
PONTE VEDRA BEACH, FLORIDA - INVESTMENT ADVISOR
BENJAMIN V. LAMBERT(1,3,5)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
EASTDIL REALTY COMPANY, L.L.C., NEW YORK -
REAL ESTATE INVESTMENT BANKERS
DONNA F. TUTTLE(1,2,3,4)
PRESIDENT, KORN TUTTLE CAPITAL GROUP, LOS ANGELES,
CALIFORNIA - FINANCIAL CONSULTING AND INVESTMENTS FIRM
SAM D. YOUNG, JR.(1,2)
CHAIRMAN, TRANS-WEST ENTERPRISES, INC.,
EL PASO, TEXAS - INVESTMENTS
CORPORATE EXECUTIVE OFFICERS
BARRON HILTON
CHAIRMAN
STEPHEN F. BOLLENBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THOMAS E. GALLAGHER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
MATTHEW J. HART
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
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
TED MIDDLETON, JR.
SENIOR VICE PRESIDENT -
DEVELOPMENT AND FINANCE
DOROTHY J. PORTER
SENIOR VICE PRESIDENT -
DIVERSITY
PATRICK B. TERWILLIGER
SENIOR VICE PRESIDENT -
ARCHITECTURE AND CONSTRUCTION
CORPORATE INFORMATION
HILTON HOTELS CORPORATION
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
310.278.4321
TRANSFER AGENT AND REGISTRAR
FOR COMMON STOCK
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 FORM
10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUSIVE OF THE
EXHIBITS THERETO, MAY DO SO WITHOUT CHARGE BY WRITING TO 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 HILTON
BEVERLY HILLS, 9876 WILSHIRE BOULEVARD, BEVERLY HILLS, CALIFORNIA, ON MAY 12,
1999 AT 10:00 A.M.
HOTEL RESERVATION INFORMATION
1.800.HILTONS
VISIT OUR WEBSITE AT:
http://www.hilton.com
(1)Members of the Audit Committee
(2)Members of the Personnel and Compensation Committee
(3)Members of the Nominating Committee
(4)Members of the Diversity Committee
(5)Members of the Compliance Committee
40 Hilton Hotels Corporation
<PAGE>
Exhibit 21
HILTON HOTELS CORPORATION
SUBSIDIARIES, JOINT VENTURES AND AFFILIATES
A. WHOLLY OWNED SUBSIDIARIES
State or Country
Name of Incorporation
---- ----------------
Bally's Grand Property Sub I, Inc. (1) Nevada
Capital Hilton, L.L.C. (8) New York
Compass Computer Services, Inc. Delaware
Conrad International (Belgium) Corporation (4) Nevada
Conrad International (Cairo) Corporation (4) Nevada
Conrad International Corporation (3) Nevada
Conrad International (Egypt) Corporation (2) (4) Nevada
Conrad International (Indonesia) Corporation (2) (4) Nevada
Conrad International (Spain) Corporation (2) (4) Nevada
Conrad International (Thailand) Corporation (2) (4) Nevada
Conrad International (Thailand) Limited (4) Thailand
Conrad International Hotels (HK) Ltd. (4) Hong Kong
Conrad International Hotels Limited (2) (4) Ireland
Conrad International Investment (Jakarta) Corporation (4) Nevada
Conrad International Management Services (Singapore) Pte Ltd (4) Singapore
Conrad International Services (12) Belgium
Destination Resorts, Inc. Arizona
DFW Bevco, Inc. (10) Texas
DFW Hilton, Inc. Nevada
Grand Vacations Realty, Inc. (6) Delaware
Hapeville Investors, Inc. Delaware
Hilton Charlotte, Inc. Nevada
Hilton Chicago Corporation Nevada
Hilton Dallas, Inc. (11) Nevada
Hilton D.C. Corporation Nevada
Hilton Employee Relief Fund California
Hilton Equipment Corporation Delaware
Hilton Finance Corporation Nevada
Hilton Fort Worth, Inc. Nevada
Hilton Grand Vacations Development Company-Las Vegas, LLC Nevada
Hilton Grand Vacations Exchange Company (6) Delaware
Hilton Hawaii Corporation Delaware
Hilton Holdings, Inc. Nevada
Hilton Hotels Partners I, Inc. Delaware
Hilton Hotels Partners II, Inc. Delaware
Hilton Hotels U.S.A., Inc. Delaware
Hilton Illinois Corp. (7) Nevada
Hilton Illinois Holdings, Inc. Delaware
Hilton Inns, Inc. Delaware
Hilton Insurance Corporation Vermont
1
<PAGE>
A. WHOLLY OWNED SUBSIDIARIES (CONTINUED)
State or Country
Name of Incorporation
---- ----------------
Hilton Kansas City Corporation Missouri
Hilton New Jersey Corporation New Jersey
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 Systems, Inc. Nevada
Hilton Texas, Inc. Nevada
Hilton Washington Corporation New York
HKC Advertising, Inc. (5) Missouri
HKC Partners, Inc. Missouri
HLT Corporation Delaware
Hotels Statler Company, Inc. Delaware
Kenner Investors, Inc. Delaware
Rye Hilton, L.L.C. (9) New York
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. (8) New York
- - --------------------------------------------------------------------------------
(1) Inactive.
(2) Nameholding company.
(3) Wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton
Hotels Corporation.
(4) Wholly owned by Conrad International Corporation, which is wholly owned by
Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(5) Wholly owned by Hilton Kansas City Corporation, which is wholly owned by
Hilton Hotels Corporation.
(6) 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.
(7) Wholly owned by Hilton Illinois Holdings, Inc., which is wholly owned by
Hilton Hotels Corporation.
(8) 50.05% owned by Hilton Hotels Corporation, and 49.95% owned by Hilton D.C.
Corporation, which is wholly owned by Hilton Hotels Corporation.
(9) 50.05% owned by Hilton Hotels Corporation, and 49.95% owned by Hilton New
York Corporation, which is wholly owned by Hilton Hotels Corporation.
2
<PAGE>
A. WHOLLY OWNED SUBSIDIARIES (CONTINUED)
(10) Wholly owned by Hilton Dallas, Inc., which is wholly owned by Hilton Fort
Worth, Inc., which is wholly owned by Hilton Hotels Corporation.
(11) Wholly owned by Hilton Fort Worth, Inc., which is wholly owned by Hilton
Hotels Corporation.
(12) .04% (four-one-hundredths of one percent) owned by Hilton Hotels
Corporation, and 99.96% owned by Conrad International Corporation, which is
wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton
Hotels Corporation.
3
<PAGE>
B. PARTIALLY OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
% State or Country
Name Ownership of Incorporation
---- --------- ----------------
<S> <C> <C>
349 West 53rd Street Realty Corp. (1)(13) See (13) below. New York
Earlsfort Centre Hotel Proprietors Limited (2) 14.7 Ireland
HHC/PTC, LLC (3) 75 Delaware
HHV Holdings LLC (4) See (4) below. Nevada
HHV Holdings II LLC (4) See (4) below. Nevada
Hilton Hawaiian Village LLC (5) 50 Hawaii
Hilton HHonors Worldwide, L.L.C. (6) 50 Delaware
Hilton Marketing Worldwide, L.L.C. (6) 50 Delaware
Hilton Reservations Worldwide, L.L.C. (6) 50 Delaware
International Company for
Touristic Investments, S.A.E. (7) 10 Egypt
MeriTex, LLC (8) See (8) below. Delaware
Oakbrook Hilton Suites and
Garden Inn LLC (9) 50 Illinois
On Command Corporation 8.5 Delaware
P.T. Jakarta International Artha (10) 10 Indonesia
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 Hotels,
Tourism and Trade, A.S.") (12)
- - -----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
B. PARTIALLY OWNED SUBSIDIARIES (CONTINUED)
(1) Inactive corporation.
(2) 14.7% owned by Conrad International Corporation, which is wholly owned by
Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(3) 75% owned by Destination Resorts, Inc., which is wholly owned by Hilton
Hotels Corporation, and 25% owned by Pointe Tapatio Resort Properties No. 1
Limited Partnership.
(4) 48% owned by Hilton Hotels Corporation and 2% owned by Hilton Recreation,
Inc. The remaining interest is held by The Prudential Insurance Company of
America.
(5) 100% owned by Hilton Hawaiian Village LLC, which is 48% owned by Hilton
Hotels Corporation, 2% owned by Hilton Recreation, Inc., and 50% owned by
The Prudential Insurance Company of America.
(6) The remaining ownership interest is held by Hilton International Co.
(7) 10% owned by Conrad International Corporation, which is wholly owned by
Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(8) Hilton Hotels Corporation owns 100% of the issued and outstanding Class B
(equity) shares. P & O, Inc. owns 100% of the issued and outstanding Class
A (managing) shares.
(9) 50% owned by Hilton Suites, Inc., which is wholly owned by Hilton Hotels
Corporation, and 50% owned by Martinique-Drury Lane Oakbrook Partnership.
This entity was converted from an Illinois partnership to an LLC effective
5/15/98.
(10) 10% owned by Conrad International Investment (Jakarta) Corporation, which
is wholly owned by Conrad International Corporation, which is wholly owned
by Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(11) 50% owned by Conrad International Corporation, which is wholly owned by
Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(12) 25% owned by Conrad International Corporation, which is wholly owned by
Hilton Hotels U.S.A., Inc., which is wholly owned by Hilton Hotels
Corporation.
(13) Wholly owned by the New York Hilton Joint Venture, which is 50% owned by
Hilton Hotels Corporation, 49.5% owned by Hilton New York Corporation, and
.5% owned by The Prudential Insurance Company of America.
5
<PAGE>
C. JOINT VENTURES
<TABLE>
<CAPTION>
% State or Country
Name Ownership of Incorporation
---- --------- ----------------
<S> <C> <C>
Avenue Louise Hotel Partners S.N.C. (1) 100 Belgium
Chicago Hilton Joint Venture (2) 100 Illinois
Destination Resort Affiliates (3) 50 Arizona
DFW Hilton Hotel Limited Partnership (4) 100 Texas
Flamingo Hilton Riverboat Casino, L.P. (5) 100 Missouri
Global Resort Partners (6) 13.34 Hawaii
Grand Vacations Realty, Limited (7) 100 Florida
Grand Vacations Title, Limited (7) 100 Florida
Hapeville Hotel Limited Partnership (8) 100 Delaware
Hilton Grand Vacations Club (9) 100 Florida
Hilton Grand Vacations Company (10) 100 Nevada
Hilton Grand Vacations
Development Company - Las Vegas (10) 100 Nevada
Hilton Grand Vacations
Development Company - Orlando (10) 100 Florida
International Rivercenter Partnership 67.4 Louisiana
Kenner Hotel Limited Partnership (11) 100 Delaware
Logan Hilton Joint Venture (12) 100 Massachusetts
McLean Hotel Associates Limited Partnership (13) 100 Virginia
New Orleans International Hotel 26.33 Louisiana
New Orleans Rivercenter 38.75 Louisiana
New York Hilton Joint Venture (14) 99.5 New York
San Francisco Hilton, L.P. (15) 100 California
Tarrytown Hilton Joint Venture (16) 100 New York
Valencia Hotel Joint Venture (17) 25 California
</TABLE>
6
<PAGE>
C. JOINT VENTURES (CONTINUED)
- - --------------------------------------------------------------------------------
(1) 50% of this partnership is owned by Conrad International Corporation, which
is wholly owned by Hilton Hotels U.S.A., Inc., which is wholly owned by
Hilton Hotels Corporation. The remaining 50% is owned by Conrad
International (Belgium) Corporation, which is wholly owned by Conrad
International Corporation, which is wholly owned by Hilton Hotels U.S.A.,
Inc., which is wholly owned by Hilton Hotels Corporation.
(2) 40.24% owned by Hilton Hotels Corporation, and 59.76% owned by Hilton
Chicago Corporation, which is wholly owned by Hilton Hotels Corporation.
(3) 50% of this joint venture is owned by Destination Resorts, Inc., which is
wholly owned by Hilton Hotels Corporation.
(4) 99% owned by DFW Hilton Inc., which is wholly owned by Hilton Hotels
Corporation, and 1% owned by Hilton Texas, Inc., which is wholly owned by
Hilton Hotels Corporation.
(5) 90% of this partnership is owned by Hilton Kansas City Corporation, which
is wholly owned by Hilton Hotels Corporation. The remaining 10% is owned
by HKC Partners, Inc., which is wholly owned by Hilton Hotels Corporation.
(6) 13.34% owned by Hilton Recreation, Inc., which is wholly owned by Hilton
Hotels Corporation
(7) 99% owned by Hilton Grand Vacations Company, and 1% owned by Grand
Vacations Realty, Inc.
(8) 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.
(9) 99% owned by Hilton Grand Vacations Company, and 1% owned by Hilton Grand
Vacations Exchange Company.
(10) 50% of this joint venture is owned by Hilton Hotels Corporation. The
remaining 50% is owned by Hilton Resorts Corporation, which is wholly owned
by Hilton Hotels Corporation.
(11) 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.
(12) 35% of this joint venture is owned by Hilton Hotels Corporation. The
remaining 65% is owned by Hilton Systems, Inc., which is wholly owned by
Hilton Hotels Corporation.
(13) 7.5% owned by Hilton Hotels Corporation, and 92.5% owned by Kenner
Investors, Inc., which is wholly owned by Hilton Hotels Corporation.
(14) The remaining ownership interest is held by The Prudential Insurance
Company of America.
(15) 50.25% owned by Hilton Hotels Corporation, and 49.75% owned by Hilton San
Francisco Corporation, which is wholly owned by Hilton Hotels Corporation.
(16) 50% of this joint venture is owned by Hilton Hotels Corporation. The
remaining 50% is owned by Hilton Systems, Inc., which is wholly owned by
Hilton Hotels Corporation.
(17) 25% owned by Hilton Inns, Inc., which is wholly owned by Hilton Hotels
Corporation.
7
<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.
State of
Name of Corporation Incorporation
------------------- -------------
Hilton Beverage Corporation Louisiana
New Orleans Hilton Beverage Corporation Louisiana
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.
State of
Name of Corporation Incorporation
------------------- -------------
Washington Hilton Racquet Club District of Columbia
8
<PAGE>
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 5, 1999, included (or incorporated by reference)
in this Form 10-K, for the year ended December 31, 1998, into the Company's
previously filed Registration Statements (File Nos. 2-95746, 2-99967,
33-35951, 333-04273, 333-10415, 333-175155, 333-18523, 333-38047 and
333-41447).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
March 30, 1999
<PAGE>
EXHIBIT 99
UNDERTAKINGS
For the purposes of complying with the amendments to the rules governing
Form S-8 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.
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