<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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)
DELAWARE 36-2058176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip code)
(310) 278-4321
(Registrant's telephone number, including area code)
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 twelve 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1999 --- Common Stock, $2.50 par value ---
254,975,911 shares.
<PAGE>
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
HILTON HOTELS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three months ended Six months ended
CONSOLIDATED STATEMENTS OF INCOME June 30, June 30,
(in millions, except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue Rooms $ 293 245 543 428
Food and beverage 134 111 249 194
Management and franchise fees 26 28 51 55
Other revenue 86 73 171 146
------------------------------------------------------------------ --------------
539 457 1,014 823
Expenses Rooms 71 57 137 105
Food and beverage 95 79 182 145
Other expenses 205 163 399 310
Corporate expense, net 14 16 26 27
------------------------------------------------------------------ --------------
385 315 744 587
------------------------------------------------------------------ --------------
Operating Income 154 142 270 236
Interest income 13 2 26 4
Interest expense (54) (33) (106) (60)
Interest expense, net, from unconsolidated affiliates - - (1) (3)
------------------------------------------------------------------ --------------
Income Before Income Taxes
and Minority Interest 113 111 189 177
Provision for income taxes 45 45 76 71
Minority interest, net 2 1 5 3
------------------------------------------------------------------ --------------
Income from Continuing Operations 66 65 108 103
Income from discontinued gaming operations,
net of tax provisions of $35 and $70 - 41 - 80
Cumulative effect of accounting change,
net of tax benefit of $1 - - (2) -
------------------------------------------------------------------ ---------------
Net Income $ 66 106 106 183
======================================================================================================= ===============
Basic Earnings Per Share
Income from Continuing Operations $ .26 .25 .42 .39
Discontinued Operations - .16 - .32
Cumulative Effect of Accounting Change - - (.01) -
------------------------------------------------------------------ --------------
Net Income Per Share $ .26 .41 .41 .71
======================================================================================================= ==============
Diluted Earnings Per Share
Income from Continuing Operations $ .25 .25 .41 .39
Discontinued Operations - .14 - .29
Cumulative Effect of Accounting Change - - (.01) -
------------------------------------------------------------------ --------------
Net Income Per Share $ .25 .39 .40 .68
======================================================================================================= ==============
</TABLE>
see notes to consolidated financial statements
1
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and equivalents $ 65 47
Accounts receivable, net 239 204
Receivable from discontinued gaming operations - 73
Inventories 68 54
Deferred income taxes 49 48
Other current assets 53 43
----------------------------------------------------------------------------------------
Total current assets 474 469
Investments 301 262
Long-term receivable 625 625
Property and equipment, net 2,703 2,483
Other assets 100 105
----------------------------------------------------------------------------------------
Total investments, property and other assets 3,729 3,475
----------------------------------------------------------------------------------------
Total Assets $ 4,203 3,944
============================================================================================================================
Liabilities and Accounts payable and accrued expenses $ 347 410
Stockholders' Equity Current maturities of long-term debt 62 62
Income taxes payable 35 34
----------------------------------------------------------------------------------------
Total current liabilities 444 506
Long-term debt 3,324 3,037
Deferred income taxes and other liabilities 222 214
Stockholders' equity 213 187
----------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 4,203 3,944
============================================================================================================================
</TABLE>
see notes to consolidated financial statements
2
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in millions)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities Net income $ 106 183
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued gaming operations - (80)
Cumulative effect of accounting change 2 -
Depreciation and amortization 81 55
Amortization of loan costs 1 1
Change in working capital components:
Receivables, inventories and other current assets 14 (47)
Accounts payable and accrued expenses (63) 27
Income taxes payable 1 31
Change in deferred income taxes 3 9
Change in other liabilities (5) 15
Distributions from unconsolidated affiliates less than earnings (5) (12)
Other 8 (34)
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 143 148
- ------------------------------------------------------------------------------------------------------------------------
Investing Activities Capital expenditures (63) (42)
Additional investments (49) (332)
Payments on notes and other 36 54
Acquisitions, net of cash acquired (237) (340)
---------------------------------------------------------------------------------------------
Net cash used in investing activities (313) (660)
- ------------------------------------------------------------------------------------------------------------------------
Financing Activities Change in commercial paper borrowings
and revolving loans 287 1,060
Reduction of long-term debt (1) (187)
Issuance of common stock 2 11
Purchase of common stock (90) (81)
Cash dividends (10) (46)
---------------------------------------------------------------------------------------------
Net cash provided by financing activities 188 757
- ------------------------------------------------------------------------------------------------------------------------
Net Transfers To Discontinued Gaming Operations - (147)
Increase in Cash and Equivalents 18 98
Cash and Equivalents at Beginning of Year 47 5
- ------------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 65 103
========================================================================================================================
</TABLE>
see notes to consolidated financial statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
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 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.
The consolidated financial statements presented herein have been prepared by
Hilton in accordance with the accounting policies described in its 1998
Annual Report to Stockholders and should be read in conjunction with the
Notes to Consolidated Financial Statements which appear in that report.
The statements for the three and six months ended June 30, 1999 and 1998 are
unaudited; however, in the opinion of management, all adjustments (which
include only normal recurring accruals) have been made which are considered
necessary to present fairly the operating results and financial position for
the unaudited periods.
The consolidated financial statements for prior periods reflect certain
reclassifications to conform with classifications adopted in the current
period. These reclassifications have no effect on net income.
NOTE 2: EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common stockholders
(net income less preferred dividends of $3 million and $7 million for the
three and six months ended June 30, 1998, respectively) by the weighted
average number of common shares outstanding for the period. The weighted
average number of common shares outstanding totaled 257 million and 259
million for the three and six months ended June 30, 1999, respectively and
247 million for the three and six months ended June 30, 1998. 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 24 million for the
three and six months ended June 30, 1999 and 32 million for the three and six
months ended June 30, 1998. In addition, the increase to net income resulting
from interest on convertible securities assumed to have not been paid was $4
million for each of the three month periods ended June 30, 1999 and 1998 and
$7 million for each of the six month periods ended June 30, 1999 and 1998.
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---- ----
(in millions)
<S> <C> <C>
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 87 46
Income taxes (1) 52 98
</TABLE>
(1) Includes amounts paid by the Company on behalf of the discontinued gaming
operations.
4
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NOTE 4: COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------ ------ ------ ------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Net Income $ 66 106 106 183
Change in unrealized gains
and losses, net of tax 13 1 14 (4)
------ ------ ------ ------
Comprehensive Income $ 79 107 120 179
====== ====== ====== ======
</TABLE>
NOTE 5: CHANGE IN ACCOUNTING PRINCIPLE
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's adoption of SOP 98-5 resulted in a
cumulative effect of accounting change of $2 million, net of a tax benefit of
$1 million, in the 1999 first quarter.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On December 31, 1998, the Company completed a spin-off of its gaming
operations. As a result, the Company'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
For the six months ended June 30, net cash provided by operating activities
was $143 million and $148 million in 1999 and 1998, respectively. Cash and
equivalents totaled $65 million at June 30, 1999, an increase of $18 million
from December 31, 1998.
ACQUISITIONS AND CAPITAL SPENDING
Net cash used in investing activities was $313 million in the 1999 six month
period compared to $660 million last year. The decrease was primarily due to
higher acquisition spending in the 1998 period which included the acquisition
of four full-service hotels, versus three in the 1999 period, and an
additional investment related to the restructuring of the Hilton Hawaiian
Village joint venture. Expenditures required to complete acquisitions and
capital spending programs in 1999 will be financed through available cash
flows and general corporate borrowings.
Growth continues through selective acquisition of large full-service hotels
in major market locations. 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.
In April 1999, the Company purchased the 563-room Pointe Hilton Squaw Peak
Resort in Phoenix, Arizona for approximately $94 million. Also in April 1999,
the Company acquired the 385-room Hilton Boston Back Bay for approximately
$70 million. The Company plans to spend approximately $12 million to renovate
6
<PAGE>
guest rooms, meeting rooms, the lobby and the health club at this property.
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 nearing completion on construction of 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, which are expected to open in the 1999
third quarter and the 1999 fourth quarter, respectively.
In June 1999, the Company announced plans to develop a 245-unit vacation
ownership resort adjacent to the Hilton Hawaiian Village. Interval sales will
commence in the first quarter of 2000 with the project expected to open in
the first quarter of 2001. In addition, in August 1999 the Company announced
that construction will begin on a 453-room tower addition at the Hilton
Hawaiian Village. Construction of the Kalia Tower is scheduled to be
complete in Spring 2001.
In addition to an estimated $260 million in 1999 development related
expenditures including those related to the aforementioned renovation and
construction projects, the Company intends to spend approximately $150
million in 1999 on normal capital replacements, upgrades and compliance
projects.
OTHER DEVELOPMENTS
The Company continues to improve its franchise business primarily through the
expansion of the Hilton Garden Inn product. As of June 30, 1999, a total of
42 Garden Inn properties were open and 70 are expected to be open by
year-end. The Company expects to have 140 Garden Inn properties open with
another 60 under construction by year-end 2000.
FINANCING
Long-term debt at June 30, 1999 totaled $3.3 billion, compared with $3.0
billion at December 31, 1998. For the six months ended June 30, 1999, cash
provided by financing activities totaled $188 million compared to $757
million in the 1998 period. Commercial paper borrowings in the 1998 period
reflect a higher level of acquisition activity and the restructuring of the
Hilton Hawaiian Village joint venture. By
7
<PAGE>
virtue of an agreement with The Prudential Insurance Company of America
(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 in the 1998
period.
The debt balance at June 30, 1999 and December 31, 1998 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 consolidated balance sheets. 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
such reimbursement.
At June 30, 1999, approximately $446 million of the aggregate commitment of
the Company's $1.75 billion revolving credit facility supported the issuance
of commercial paper, leaving approximately $1.3 billion of the revolving bank
debt facility available to the Company at such date.
8
<PAGE>
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 June 30, 1999, 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 first six
months of 1999 the Company repurchased 6.4 million shares of common stock for
an aggregate purchase price of $90 million. The Company may, at any time,
repurchase up to 9.3 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.
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 to reflect the gaming
spin-off.
STOCKHOLDERS' EQUITY
Dividends paid on common shares were $.02 and $.08 for the three months ended
June 30, 1999 and 1998, respectively and $.04 and $.16 for the six months
ended June 30, 1999 and 1998, respectively. 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 three and six month periods ended June 30, 1999 and 1998.
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
9
<PAGE>
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.
COMPARISON OF FISCAL QUARTERS ENDED JUNE 30, 1999 AND 1998
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 1998 % Change
------ ----- --------
<S> <C> <C> <C>
Revenue $ 539 457 18 %
Operating income 154 142 8 %
Income from continuing operations 66 65 2 %
Basic EPS from continuing operations .26 .25 4 %
Diluted EPS from continuing operations .25 .25 - %
</TABLE>
OTHER OPERATING DATA
Reconciliation of EBITDA to income from continuing operations:
<TABLE>
<S> <C> <C> <C>
EBITDA
Operations $ 211 188 12 %
Corporate expense, net (13) (15) (13)%
------ ------
Total EBITDA 198 173 14 %
Depreciation and amortization (1) (44) (31) 42 %
------ ------
Operating income 154 142 8 %
Interest income 13 2 - %
Interest expense (54) (33) 64 %
Provision for income taxes (45) (45) - %
Minority interest, net (2) (1) - %
------ ------
Income from continuing operations $ 66 65 2 %
====== ======
</TABLE>
(1) Includes proportionate share of unconsolidated affiliates.
Consolidated revenue for the 1999 second quarter was $539 million, an
increase of 18 percent over 1998. Total EBITDA was $198 million for the 1999
second quarter, a 14 percent increase compared to $173 million a year ago,
while operating income increased eight percent to $154 million from $142
million last year.
10
<PAGE>
The Company's domestic owned and equity hotels contributed $178 million of
EBITDA in the 1999 second quarter, compared to $159 million in the prior
year. The 1999 results were significantly impacted by earnings contributions
from hotels acquired in 1998 and 1999. The Company also benefited from strong
EBITDA growth at its properties in San Francisco, Washington D.C. and New
Orleans. Results were negatively impacted by continuing weak conditions in
Hawaii, along with softness in the New York and Chicago markets. Comparable
EBITDA at the Company's domestic owned and equity properties decreased two
percent from the 1998 second quarter. Occupancy for comparable domestic owned
and equity hotels was 78.1 percent compared to 78.2 percent in the 1998
quarter. The average room rate increased .6 percent to $168.62 in the 1999
second quarter and RevPAR increased .5 percent.
EBITDA at the Hilton San Francisco & Towers increased $3 million or 22
percent on strong city-wide group demand in the 1999 quarter. A 19 percent
increase in revenue per available room (RevPAR) resulted from increases in
occupancy and average rates in the convention segment along with a shift in
the market mix from leisure to the higher rated individual business traveler
(IBT) segment. Combined EBITDA from the Hilton Washington & Towers and
Capital Hilton increased $2 million, or 16 percent, from the prior year
quarter on a combined ten percent RevPAR increase. EBITDA from the Hilton New
Orleans Riverside increased $1 million due to a six percent increase in
RevPAR driven by strong increases in convention volume and rate. Combined
EBITDA from the Hilton Chicago & Towers, the Hilton Chicago O'Hare Airport
and the Palmer House Hilton decreased $2 million or five percent from the
prior year quarter on a combined RevPAR decrease of three percent. Soft group
demand drove the RevPAR decline, which also limited the properties' ability
to increase transient rates. Comparatively lower convention attendance also
negatively effected food and beverage and concession revenues. Results at the
Hilton New York & Towers were affected by a soft city-wide group market,
decreased transient demand and the impact of the renovation project currently
underway, which has reduced foot traffic and resulted in the temporary
closure of three food and beverage outlets. These factors contributed to a
seven percent decline in EBITDA at that property in the 1999 second quarter.
Based on advance bookings, the Company anticipates increased demand in the
group business segments in the Chicago and New York markets beginning after
Labor Day.
11
<PAGE>
On a comparable basis, EBITDA from the Hilton Hawaiian Village in Honolulu
and the Hilton Waikoloa Village on the Big Island of Hawaii declined 15
percent and 41 percent, respectively, from the prior year quarter. The
Company anticipates continued weakness in Hawaii for the remainder of 1999
due to the impact of the Asian economic situation, with the Hilton Hawaiian
Village expected to show declining results for the full year. The Company,
however, anticipates improved market conditions and commensurate improvement
at these properties in 2000. Factors leading to this outlook include an
increase in advance bookings at the Hilton Hawaiian Village; new business to
the state generated as a result of the newly opened Hawaii Convention Center;
increased business and leisure travel coinciding with Year 2000 events and
activities, and enhanced marketing efforts in Asia and the U.S. mainland by
the State of Hawaii to attract additional visitors. Excluding the Company's
two properties in Hawaii, comparable EBITDA at the Company's domestic owned
and equity hotels was flat in the 1999 second quarter. Occupancy for
comparable domestic owned and equity hotels (excluding Hawaii) was 79.8
percent versus 79.9 percent in the 1998 quarter. The average room rate
increased 1.7 percent to $168.93 in the 1999 second quarter and RevPAR
improved 1.6 percent between periods.
Acquisition activity, including increased ownership of properties which were
previously partially owned and new property acquisitions, contributed
approximately $19 million of EBITDA to the second quarter of 1999. Management
and franchise fees decreased $2 million in 1999 to $26 million primarily
attributable to the acquisition of several previously managed properties
during 1998 and 1999. Depreciation and amortization, including the Company's
proportionate share of unconsolidated affiliates, increased $13 million over
the prior year to $44 million due to new acquisitions.
Future operating results could be adversely impacted by increased capacity or
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
12
<PAGE>
unfavorably impact future results. However, the Company believes that its
financial strength, market presence and diverse product line will enable it
to remain extremely competitive.
CORPORATE ACTIVITY
Interest income increased $11 million in the 1999 period to $13 million due
to the interest on the $625 million of Hilton public debt assumed by Park
Place at the time of the spin-off of Hilton's gaming operations. As Hilton
remains the legal obligor of the debt, an equal amount of interest is
included in interest expense. Consolidated interest expense increased $21
million to $54 million primarily due to the $625 million of debt assumed by
Park Place and higher average debt levels resulting from acquisition spending.
The effective income tax rate for the 1999 period decreased to 39.8 percent
compared to 40.5 percent for 1998. The Company's effective income tax rate is
determined by the level and composition of pretax income subject to varying
foreign, state and local taxes.
13
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the six months
ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 1998 % Change
---- ---- --------
<S> <C> <C> <C>
Revenue $1,014 823 23 %
Operating income 270 236 14 %
Income from continuing operations 108 103 5 %
Basic EPS from continuing operations .42 .39 8 %
Diluted EPS from continuing operations .41 .39 5 %
</TABLE>
OTHER OPERATING DATA
Reconciliation of EBITDA to income from continuing operations:
<TABLE>
<S> <C> <C> <C>
EBITDA
Operations $ 379 321 18 %
Corporate expense, net (25) (26) (4)%
------ ------
Total EBITDA 354 295 20 %
Depreciation and amortization (1) (84) (59) 42 %
------ ------
Operating income 270 236 14 %
Interest income 26 4 - %
Interest expense (106) (60) 77 %
Interest expense, net, from unconsolidated affiliates (1) (3) (67)%
Provision for income taxes (76) (71) 7 %
Minority interest, net (5) (3) 67 %
------ ------
Income from continuing operations $ 108 103 5 %
====== ======
</TABLE>
(1) Includes proportionate share of unconsolidated affiliates.
Consolidated revenue for the 1999 six month period was $1.0 billion, an
increase of 23 percent over 1998. Total EBITDA was $354 million for the first
six months of 1999, a 20 percent increase compared to $295 million a year
ago, while operating income increased 14 percent to $270 million from $236
million last year.
The Company's domestic owned and equity hotels contributed $313 million of
EBITDA in the 1999 six month period, compared to $262 million in the prior
year. Growth was primarily the result of EBITDA contributions from hotels
acquired in 1999 and 1998. Comparable EBITDA at the Company's owned and
equity hotels was flat with the prior year six month period. Occupancy for
comparable domestic owned
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<PAGE>
and equity hotels was 75.8 percent compared to 74.8 percent in the 1998
period. The average room rate was flat at $166.41 and RevPAR increased 1.2
percent.
Combined EBITDA from the Hilton Chicago & Towers, the Hilton Chicago O'Hare
Airport and the Palmer House Hilton increased $3 million or seven percent
over the prior year six month period on a combined RevPAR increase of five
percent. A strong city-wide convention market in the first quarter of 1999
offset the softer group market and lower convention attendance experienced in
the 1999 second quarter. EBITDA at the Hilton San Francisco & Towers
increased $4 million due to significant increases in occupancy and average
rate in the convention segment and volume increases in the IBT segment
resulting in a total RevPAR increase of 15 percent. EBITDA from the Hilton
New Orleans Riverside increased $3 million on an eight percent increase in
RevPAR driven by both occupancy and average rate increases in the convention
segment. Renovations at the Hilton New York & Towers and a soft city-wide
group market in the second quarter contributed to a $2 million or six percent
decline in EBITDA in the 1999 six month period. The Company benefited from
improved results at the recently acquired Hilton Boston Back Bay, Hilton East
Brunswick & Towers, Hilton Charlotte & Towers, Hilton La Jolla Torrey Pines
and the Hilton Short Hills. These five properties posted a combined $4
million, or 18 percent, EBITDA increase compared to pro forma 1998 results.
On a comparable basis, EBITDA from the Hilton Hawaiian Village and the Hilton
Waikoloa Village declined 20 percent and 25 percent, respectively, from the
prior year period. Excluding the Company's two properties in Hawaii,
comparable EBITDA at the Company's domestic owned and equity hotels increased
four percent from the 1998 six month period. Occupancy for comparable
domestic owned and equity hotels (excluding Hawaii) was 76.5 percent versus
75.1 percent in the 1998 period. The average room rate increased 1.6 percent
to $165.25 in the 1999 period and RevPAR improved 3.6 percent between periods.
Acquisition activity contributed approximately $48 million of EBITDA to the
first six months of 1999. Management and franchise fees decreased $4 million
in 1999 to $51 million. This decrease is primarily
15
<PAGE>
attributable to the acquisition of several previously managed properties
during 1998 and 1999. Depreciation and amortization, including the Company's
proportionate share of unconsolidated affiliates, increased $25 million over
the prior year to $84 million primarily due to new acquisitions.
CORPORATE ACTIVITY
Interest income increased $22 million in the 1999 period to $26 million due
to the interest on the $625 million of Hilton public debt assumed by Park
Place at the time of the spin-off of Hilton's gaming operations. Consolidated
interest expense increased $46 million to $106 million primarily due to the
$625 million of debt assumed by Park Place and higher average debt levels
resulting from acquisition spending.
The effective income tax rate for the 1999 period increased to 40.2 percent
compared to 40.1 percent for 1998.
OTHER MATTERS
YEAR 2000
The Company continues to work 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
systems prior to December 31, 1999.
16
<PAGE>
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 are in place for which the Company expects the cost, if any, to be an
17
<PAGE>
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's adoption of SOP 98-5 resulted in a
cumulative effect of accounting change of $2 million, net of a tax benefit of
$1 million, in the 1999 first quarter.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "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
18
<PAGE>
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.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<S> <C>
27. Financial data schedule for the six month period ended June 30, 1999.
99.01 Amendment 1999-1 to the Hilton Hotels Corporation Retirement Plan.
99.02 Amendment 1999-1 to the Hilton Hotels Corporation Thrift Savings Plan.
99.03 Hilton Hotels Corporation Executive Deferred Compensation Plan, as
amended and restated effective January 1, 2000.
</TABLE>
(b) REPORTS ON FORM 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
HILTON HOTELS CORPORATION
(Registrant)
Date: August 9, 1999 /s/ MATTHEW J. HART
-----------------------------------
Matthew J. Hart
Executive Vice President,
Chief Financial Officer and Treasurer
Date: August 9, 1999 /s/ THOMAS E. GALLAGHER
-----------------------------------
Thomas E. Gallagher
Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 247
<ALLOWANCES> 8
<INVENTORY> 68
<CURRENT-ASSETS> 474
<PP&E> 3,755
<DEPRECIATION> 1,052
<TOTAL-ASSETS> 4,203
<CURRENT-LIABILITIES> 444
<BONDS> 3,324
0
0
<COMMON> 663
<OTHER-SE> (450)
<TOTAL-LIABILITY-AND-EQUITY> 4,203
<SALES> 1,014
<TOTAL-REVENUES> 1,014
<CGS> 0
<TOTAL-COSTS> 715
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 189
<INCOME-TAX> 76
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2
<NET-INCOME> 106
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.40
</TABLE>
<PAGE>
Exhibit 99.01
AMENDMENT 1999-1
HILTON HOTELS RETIREMENT PLAN
WHEREAS, Hilton Hotels Corporation (the "Company") maintains
the Hilton Hotels Retirement Plan (the "Plan"); and
WHEREAS, the Company has the authority to amend the Plan on
behalf of itself and all Participating Affiliates (as defined in the Plan); and
WHEREAS, the Company and the Plan are defendants in a civil
action pending in the United States District Court for the District of Columbia
styled KIFAFI v. HILTON HOTELS RETIREMENT PLAN, ET. AL. (the "Action"); and
WHEREAS, the Plaintiff in such Action contends that the
formula under which benefits accrued under the Plan failed to satisfy the
requirements of Section 204(b)(1) of ERISA (commonly referred to as the
"anti-backloading" provision); and
WHEREAS, the Internal Revenue Service has previously
determined that the Plan satisfies the requirements of the Internal Revenue Code
applicable to a qualified plan, and such requirements include Code Section
411(b)(1), which is substantively identical to the anti-backloading provision of
ERISA; and
WHEREAS, the Company understands that the Plan satisfies the
anti-backloading provision without any amendment, but nonetheless intends to
amend the Plan to provide benefit increases to participants for the purpose of
eliminating any controversy regarding the propriety of the rate of benefit
accruals under the Plan.
NOW, THEREFORE, the Plan is hereby amended by adding the
following new Section 4.13:
4.13 BENEFIT INCREASE.
(a) The benefit attributable to each Participant shall be
the greater of the benefit determined without respect to this Section
4.13 (the "Pre-Amendment Benefit"), or the benefit determined under
this Section 4.13 (the "New Benefit"). The New Benefit attributable to
the Participant shall be the benefit determined as if Section 4.1(a) of
the Plan were the "Revised Section 4.1(a)," set forth in subsection (b)
of this Section 4.13.
<PAGE>
(b) The "Revised Section 4.1(a)" is as follows:
'(a) A Participant may retire and
commence receiving his vested Normal Retirement Benefit on his
Normal Retirement Date. A Participant shall be 100% vested in
benefits under this Plan upon attainment of Normal Retirement
Age if the Participant is then an Employee. Except as
hereinafter provided, the amount of the monthly retirement
benefit payable each month for the life of a Participant,
commencing on his Normal Retirement Date and ending with the
benefit for the month during which his death occurs, which is
his Normal Retirement Benefit, shall be equal to the amount
determined by first multiplying (1) by (2), and then by
deducting (3), as follows:
(1) If the Participant had
completed 34 or more Years of Benefit Service as of
December 31, 1983, then (1) is the amount determined
by deducting (C) from the greater of (A) or (B), or,
if the Participant had not completed 34 or more Years
of Benefit Service as of December 31, 1983, then
(1) is the amount determined by deducting (C) from
(B):
(A) 1-1/2% of the Participant's
Average Monthly Compensation multiplied by
his Potential Years of Benefit Service, but
not more than 60% of such Average Monthly
Compensation.
(B) The sum of: (i) 2% of the
Participant's Average Monthly Compensation
multiplied by his Potential Years of Benefit
Service (up to a maximum of 25 years), plus
(ii)1/2% of his Average Monthly Compensation
multiplied by his Potential Years of Benefit
Service in excess of 25, but the sum of (i)
and (ii) shall not be more than 60% of such
Average Monthly Compensation.
(C) Fifty percent (50%) of the
"Potential Primary Social Security Benefit"
of the Participant. The Potential Primary
Social Security Benefit shall be calculated
in the same manner as set forth in the
definition of the Primary Social Security
Benefit in Section 1.2, except that the last
two sentences of the first paragraph of the
definition shall be replaced with the
following: "Such amount shall be determined
on the basis of (i) the Participant's period
of employment with the Participating
Employers and (ii), if a Participant retires
or otherwise incurs a Break in Employment
prior to age 65, by assuming the Participant
receives wages after such retirement or
other Break in Employment until age 65 at
the same rate the Participant received wages
at the time of such retirement or other
Break in Employment."
(2) A fraction, the numerator of
which is the Participant's years of Benefit Service,
and the denominator of which is the
<PAGE>
Participant's Potential Years of Benefit Service.
For purposes of the Plan, "Potential Years of Benefit
Service" shall equal the greater of (i) the
Participant's actual Years of Benefit Service or (ii)
the Years of Benefit Service the Participant would
complete, if, after first becoming a Participant,
the Participant continued to serve as an active
employee and Participant in the Plan through the
Participant's Normal Retirement Date. Potential
Years of Benefit Service under this Section 4.13 are
calculated including all Years of Benefit Service
which would have been earned had Section 4.12 not
been adopted. The value of the fraction described in
this subsection shall not exceed one.
(3) The portion of the
Participant's Integrated Benefits not related to
Social Security benefits.'
(c) The New Benefit shall be calculated with respect to
all benefits attributable to each Participant (whether or not the
Participant was an active employee as of the date the amendment adding
Section 4.13 was adopted). The benefit attributable to a Participant
may be payable to the Participant, or may be payable in whole or in
part to an alternate payee under a qualified domestic relations order,
a joint or contingent annuitant receiving benefits following the
death of a Participant (including the surviving spouse under a
Qualified Joint and Survivor Annuity), or a surviving spouse entitled
to the Surviving Spouse Benefit under the Plan. Each such person
(including each Participant), for whom the New Benefit is greater
than the Pre-Amendment Benefit is referred to in this Section 4.13 as
an "Affected Person." Notwithstanding the foregoing, any former
Employee who was not vested under the Plan at the time of his or her
termination of employment shall not be an Affected Person, and shall
not be entitled to benefit under this Section 4.13.
(d) Except for the benefit increases set forth in this
Section 4.13, the benefit freeze enacted by adding Section 4.12 to the
Plan stays in effect. Accordingly, in calculating the Pre-Amendment
Benefit and the New Benefit, no Participant shall earn actual Years of
Benefit Service for service following December 31, 1996, and any
increases to Average Monthly Compensation based upon Compensation paid
after December 31, 1996 shall be disregarded.
(e) As soon as administratively feasible following the
adoption of the amendment which added this Section 4.13 to the Plan,
the Company shall cause the amendment to be submitted to the IRS with a
request that the IRS determine that the Plan, as amended, satisfies the
qualification requirements of Section 401(a) of the Code. It is
understood that such qualification requirements include satisfaction of
Code Section 411(b)(1) and the regulations issued thereunder. As soon
as administratively feasible following the adoption of the amendment,
the Company shall cause the New Benefits to be calculated. During
the period that the New Benefits are being calculated and pending
IRS approval, benefit payments shall temporarily continue at the
Pre-Amendment Benefit level. As soon as administratively feasible
following the later of the date the New Benefits have been calculated
or the date the IRS issues a favorable determination letter concerning
the amendment Plan, the payment amounts shall be revised as follows
(the
<PAGE>
date on which an Affected Person's benefit payments are revised shall
be the Affected Person's "New Benefit Date"):
(1) If the Affected Person's Pre-Amendment
Benefit is greater than the Affected Person's New Benefit,
then no change to the Affected Person's Benefit shall be made.
(2) If the Affected Person's New Benefit is
greater than the Pre-Amendment Benefit, but no payments had
been made to the Affected Person before the New Benefit Date,
then the New Benefit shall apply to all payments made to the
Affected Person.
(3) If the Affected Person's New Benefit is
greater than the Pre-Amendment Benefit, and if payments
other than lump sum payments had been made under the
Pre-Amendment Benefit, then the New Benefit shall apply to all
payments made after the New Benefit Date, and in addition the
following retroactive payment shall be made. The retroactive
payment shall be a single lump sum payment equal to the sum of
the following amounts calculated with respect to each
Pre-Amendment Benefit payment made to the Affected Person
before the New Benefit Date: The amount determined by first
deducting (x) the monthly New Benefit from (y) the monthly New
Benefit, and then by increasing such remainder by (z) interest
on the remainder for the period from the date the
Pre-Amendment Benefit payment was made through the New Benefit
Date at an annual rate equal to the "applicable interest rate"
as described in section 417(e)(3) of the Code for the November
immediately preceding the Plan Year in which the retroactive
payment is made.
(4) If the Affected Person's New Benefit is
greater than the Pre-Amendment Benefit, and payment of the
Pre-Amendment Benefit had been made as a lump sum, then an
additional lump sum payment shall be made. The additional
lump sum payment shall be determined by first deducting (x)
the amount of the original lump sum payment, from (y) the
actuarial equivalent lump sum which would have been paid had
the New Benefit amount applied at the time the lump sum was
originally paid, and then by increasing such remainder by (z)
interest on the remainder for the period from the date the
original lump sum payment was made through the New Benefit
date at an annual rate equal to the "applicable interest rate"
as described in Section 417(e)(3) of the Code for the November
immediately preceding the Plan Year in which the retroactive
payment is made.
(5) If any portion of the benefits earned with
respect to a Participant had been split between a Participant
and an alternate payee pursuant to a qualified domestic
relations order, then any increase in benefits (including any
retroactive payments) shall be divided proportionately
according to the portion of the Pre-Amendment Benefit which
had been assigned to the alternate payee.
<PAGE>
(6) If a Participant has died before the
Participant's New Benefit date, any additional benefits
payable on behalf of the Participant under this Section 4.13
shall be payable to the surviving beneficiary or
beneficiaries, if any, under the optional form of benefit, if
any, elected by the Participant, or, if there is no such
surviving beneficiary, to the Participant's surviving spouse
or, if there is no surviving beneficiary or surviving spouse,
to the Participant's estate.
(7) The benefit payments hereunder shall be
appropriately adjusted under the actuarial factors set forth
in the plan, including but not limited to the factors
applicable to early retirement benefits, qualified joint and
survivor annuities, and other optional forms of benefits.
IN WITNESS WHEREOF, this Amendment 1999-1 is hereby adopted
this_____ day of ______, 1999.
HILTON HOTELS CORPORATION
By:
---------------------------
Its:
---------------------------
<PAGE>
Exhibit 99.02
AMENDMENT 1999-1 TO THE
HILTON HOTELS THRIFT SAVINGS PLAN
(As Amended and Restated as of January 1, 1997)
WHEREAS, Hilton Hotels Corporation (the "Company") maintains the Hilton
Hotels Thrift Savings Plan (the "Plan"); and
WHEREAS, the Company's Board of Directors (the "Board") has the
authority to amend the Plan; and
WHEREAS, the Board desires to amend the Plan, effective immediately for
any Matching Company Contributions under the Plan not paid as of the date of
adoption of this Amendment.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The first paragraph of Section 4.1 is amended to read as
follows:
"SECTION 4.1 MATCHING COMPANY CONTRIBUTIONS. With
respect to Participants who have completed five or fewer Years
of Service, at the time such Participant's contributions are
paid to the Trustee, the Company will pay to the Trustee a
corresponding contribution equal to fifty percent (50%) of the
Participant Contributions or Compensation Deferrals for the
payroll period of each such Participant (reduced by certain
forefeitures as provided in Section 6.3); provided that
the maximum Matching Company Contribution made on behalf of
any such Participant shall not exceed 3% of such Participant's
Compensation during the payroll period. With respect to
Participants who have completed more than five Years of
Service, at the time such Participant's contributions are paid
to the Trustee, the Company will pay to the Trustee a
corresponding contribution equal to seventy-five percent (75%)
of the Participant Contributions or Compensation Deferrals
for the payroll period of each such Participant (reduced by
certain forfeitures as provided in Section 6.3); provided that
the maximum Matching Company Contribution made on behalf of
any such Participant shall not exceed 4.5% of such
Participant's Compensation during the payroll period.
Notwithstanding the previous two sentences, the maximum
Matching Company Contribution made on behalf of any
Participant during a Plan Year shall not exceed 50% (for
Participants who have completed five or fewer Years of
Service at the end of the Plan Year) or 75% (for Participants
who have completed more than five Years of Service at the end
of the Plan Year) of the annual limitation contained in Code
Section 402(g)(1), as adjusted annually under Code Section
402(g)(5). Matching Company Contributions shall be deemed to
be made first with respect to a Participant's Compensation
Deferrals, and then, in the event that such Participant's
Matching Company Contributions exceed the maximum amount
which could have been made with respect to his or her
Compensation Deferrals, with respect to his or her Participant
Contributions. Notwithstanding the foregoing, to the extent
determined by the Company, the Company may at its
<PAGE>
sole discretion make an additional Matching Contribution for
any Plan Year on behalf of Participants whose Compensation
does not exceed a specified dollar amount ("Eligible
Participants"). Such additional Matching Company Contribution
for a Plan Year shall be allocated among Eligible Participants
who are Employees as of the last day of such Plan Year in the
proportion that each such Eligible Participant's Matched
Contributions for the Plan Year bears to the total of Matched
Contributions by all such Eligible Participants for such Plan
Year. Any additional Matching Company Contribution shall be
made within the time prescribed under Section 404 of the Code
and such contribution shall be deemed to be made with respect
to that Participant's Compensation Deferrals."
2. Except as provided in this Amendment, the remaining provisions
of the Plan shall be unchanged and the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the Company has caused this amendment to be
executed by its duly authorized officer on this __ day of April, 1999.
HILTON HOTELS CORPORATION
By
------------------------------------
Its
------------------------------------
<PAGE>
Exhibit 99.03
HILTON HOTELS
EXECUTIVE DEFERRED COMPENSATION PLAN
EFFECTIVE AS OF JANUARY 1, 1997
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2000)
<PAGE>
HILTON HOTELS
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
PAGE
ARTICLE I
TITLE AND DEFINITIONS
1.1 - Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PARTICIPATION
2.1 - Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
DEFERRAL ELECTIONS
3.1 - Elections to Defer Compensation. . . . . . . . . . . . . . . . . . . . . 8
3.2 - Investment Elections . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE IV
DISTRIBUTION OPTION ACCOUNTS
4.1 - Compensation Deferrals . . . . . . . . . . . . . . . . . . . . . . . . .11
4.2 - Company Contribution . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.3 - Investment Return. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE V
VESTING
5.1 - Compensation Deferrals . . . . . . . . . . . . . . . . . . . . . . . . .12
5.2 - Company Contributions. . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE VI
DISTRIBUTIONS
6.1 - Distribution Option Accounts . . . . . . . . . . . . . . . . . . . . . .13
6.2 - Election of Distribution Option. . . . . . . . . . . . . . . . . . . . .14
6.3 - Retirement Distribution Option. . . . . . . . . . . . . . . . . . . . . 14
6.4 - In-Service Distribution Option. . . . . . . . . . . . . . . . . . . . . 14
6.5 - Benefits Under the Retirement Distribution Option . . . . . . . . . . . 14
6.6 - Benefits under the In-Service Distribution Option . . . . . . . . . . . 16
6.7 - Inability to Locate Participant. . . . . . . . . . . . . . . . . . . . .17
6.8 - Payment by Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
6.9 - Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
6.10- Distributions on Disability. . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE VII
DEATH BENEFITS
7.1 - In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
7.2 - Payment of Death Benefits. . . . . . . . . . . . . . . . . . . . . . . .19
i
<PAGE>
ARTICLE VIII
ARBITRATION
8.1 - Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE IX
ADMINISTRATION
9.1 - Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
9.2 - Committee Action . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
9.3 - Powers and Duties of the Committee . . . . . . . . . . . . . . . . . . .22
9.4 - Construction and Interpretation. . . . . . . . . . . . . . . . . . . . .23
9.5 - Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
9.6 - Compensation, Expenses and Indemnity . . . . . . . . . . . . . . . . . .24
9.7 - Quarterly Statements . . . . . . . . . . . . . . . . . . . . . . . . . .24
ARTICLE X
MISCELLANEOUS
10.1 - Unsecured General Creditor. . . . . . . . . . . . . . . . . . . . . . .25
10.2 - Restriction Against Assignment. . . . . . . . . . . . . . . . . . . . .25
10.3 - Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.4 - Amendment, Modification, Suspension or Termination. . . . . . . . . . .26
10.5 - Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.6 - Receipt or Release. . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.7 - Payments on Behalf of Persons Under Incapacity. . . . . . . . . . . . .27
10.8 - Headings, etc. Not Part of Agreement. . . . . . . . . . . . . . . . . .27
ii
<PAGE>
HILTON HOTELS
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Hilton Hotels Corporation (the "Company") established a
deferred compensation plan, effective as of January 1, 1997, to provide
supplemental retirement income benefits for a select group of management and
highly compensated employees through deferrals of salary and through the
Company's contributions; and
WHEREAS, the Company now wishes to amend and restate the Plan in order
to provide more attractive and flexible features for the participants and it
believes that the adoption of this amended and restated plan will be in the best
interests of the Company;
NOW, THEREFORE, the Plan is hereby amended and restated, effective
January 1, 2000, to read as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 - TITLE.
This Plan shall be known as the Hilton Hotels Executive Deferred
Compensation Plan.
1.2 - DEFINITIONS.
Whenever the following words and phrases are used in this Plan, with
the first letter capitalized, they shall have the meanings specified below.
"Base Salary Deferral" shall mean that portion of Base Salary as to
which an Eligible Employee has made an annual irrevocable election to defer
receipt of until the date specified under the In-Service Distribution Option
and/or the Retirement Distribution Option.
"Beneficiary" or "Beneficiaries" shall mean the person or persons,
including a trustee, personal representative or other fiduciary, last designated
in writing by a Participant in accordance with procedures established by the
Committee to receive the benefits specified
<PAGE>
hereunder in the event of the Participant's death. No Beneficiary designation
shall become effective until it is filed with the Committee. If there is no
Beneficiary designation in effect, or if there is no surviving designated
Beneficiary, then the Participant's surviving spouse shall be the Beneficiary.
If there is no surviving spouse to receive any benefits payable in accordance
with the preceding sentence, the duly appointed and currently acting personal
representative of the participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the Beneficiary. In
any case where there is no such personal representative of the Participant's
estate duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary shall
mean the person or persons who can verify by affidavit or court order to the
satisfaction of the Committee that they are legally entitled to receive the
benefits specified hereunder. In the event any amount is payable under the Plan
to a minor, payment shall not be made to the minor, but instead be paid (1) to
that person's living parent(s) to act as custodian, (2) if that person's parents
are then divorced, and one parent is the sole custodial parent, to such
custodial parent, or (3) if no parent of that person is then living, to a
custodian selected by the Committee to hold the funds for the minor under the
Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which
the minor resides. If no parent is living and the Committee decides not to
select another custodian to hold the funds for the minor, then payment shall be
made to the duly appointed and currently acting guardian of the estate for the
minor or, if no guardian of the estate for the minor is duly appointed and
currently acting within 60 days after the date the amount becomes payable,
payment shall be deposited with the court having jurisdiction over the estate of
the minor.
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"Board of Directors" or "Board" shall mean the Board of Directors of Hilton
Hotels Corporation.
"Bonus Compensation Deferral" shall mean that portion of Bonus Compensation
as to which an Eligible Employee has made an annual irrevocable election to
defer receipt of until the date specified under the In-Service Distribution
Option and/or the Retirement Distribution Option.
"Change in Control" shall mean the first to occur of any of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company, or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c); or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
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majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
70% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business combination
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and (iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee appointed by the Board to administer
the Plan in accordance with Article IX, or its delegate.
"Company" shall mean Hilton Hotels Corporation, any successor corporation
and each corporation which is a member of a controlled group of corporations
(within the meaning of Section 414(b) of the Code) of which Hilton Hotels
Corporation is a component member.
"Company Contribution" shall equal the amount described in Section 4.2.
"Compensation" shall mean the total salary paid to the Eligible Employee,
including bonuses, in a Plan Year. An Eligible Employee's "Compensation" shall
consist of the Eligible Employee's "Base Salary" as in effect from time to time
during a Plan Year and the Eligible Employee's "Bonus Compensation" which shall
equal the amount of the incentive to be paid to an Eligible Employee under any
incentive plan of the Company.
"Compensation Deferral" means that portion of Compensation as to which a
Participant has made an annual irrevocable election to defer receipt until the
date specified under the In-Service Distribution Option and/or the Retirement
Distribution Option.
"Disabled" or "Disability" shall mean that a Participant is disabled due to
sickness or injury which qualifies the Participant for disability payments under
the Company's long term
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disability plan. A Participant shall be considered totally and permanently
disabled on the date he qualifies for such long term disability payments.
"Distribution Option" shall mean the two distribution options which are
available under the Plan, consisting of the Retirement Distribution Option and
the In-Service Distribution Option.
"Distribution Option Account" or "Accounts" shall mean, with respect to a
Participant, the Retirement Distribution Account and/or the In-Service
Distribution Account established on the books of account of the Company,
pursuant to Article IV, for each Participant.
"Effective Date" shall mean January 1, 1997. "Amendment Effective Date"
shall mean January 1, 2000.
"Eligible Employee" shall mean (i) officers of Hilton Hotels Corporation at
the Vice President level or higher, (ii) hotel general managers who are employed
by the Company, and (iii) Highly Compensated Employees who are selected by the
Committee to participate in the Plan pursuant to Section 2.1.
"Enrollment Agreement" shall mean the authorization form which an Eligible
Employee files with the Committee to participate in the Plan.
"Fund" or "Funds" shall mean one or more of the investments selected by the
Committee pursuant to Section 3.2(a).
"Highly Compensated Employee" shall mean an employee of the Company who the
Committee, in its discretion, anticipates will receive Compensation in excess of
the salary limitation contained in Section 401(a)(17) of the Code for the
applicable Plan Year.
"In-Service Distribution Account" shall mean the Account maintained for a
Participant to which Compensation Deferrals and Company Contributions are
credited pursuant to the In-Service Distribution Option.
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"In-Service Distribution Option" shall mean the Distribution Option
pursuant to which benefits are payable in accordance with Section 6.6.
"Investment Return" shall mean, for each Fund, an amount equal to the net
investment performance of such Fund on a given day, as determined by the
Committee.
"Participant" shall mean any Eligible Employee who elects to defer
Compensation in accordance with Section 3.1.
"Plan" shall mean the Hilton Hotels Executive Deferred Compensation Plan
set forth herein, in effect as of the Effective Date, or as amended from time to
time.
"Plan Year" shall mean the 12 consecutive month period beginning on a
January 1.
"Retirement" shall mean the termination of the Participant's employment
with the Company (for reasons other than death) at or after age 65, or, if the
Participant has 10 or more Years of Service, at or after age 55.
Notwithstanding the foregoing, a Participant who had completed at least 20 Years
of Service at the time of the Participant's Termination Date may elect to be
treated as eligible for "Retirement" and elect to have payments begin on the
first day of any month after the Participant's 55th birthday after providing the
Committee with at least 60 days written notice in the manner the Committee
prescribes.
"Retirement Distribution Account" shall mean the Account maintained for a
Participant to which Compensation Deferrals and Company Contributions are
credited pursuant to the Retirement Distribution Option.
"Retirement Distribution Option" shall mean the Distribution Option
pursuant to which benefits are payable in accordance with Section 6.5.
"Termination Date" shall mean the date of termination of a Participant's
employment with the Company.
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"Year of Vesting Service" shall mean a "Year of Service" as defined in the
Hilton Hotels Thrift Savings Plan.
ARTICLE II
PARTICIPATION
2.1 - PARTICIPATION.
Prior to December 31 of each Plan Year, the Committee shall designate which
Highly Compensated Employees shall become Eligible Employees for the following
Plan Year. An Eligible Employee designated as a Participant shall thereafter,
unless otherwise determined by the Committee, be eligible to make a Compensation
Deferral for each Plan Year by electing to defer a portion of his or her
Compensation in accordance with Section 3.1.
ARTICLE III
DEFERRAL ELECTIONS
3.1 - ELECTIONS TO DEFER COMPENSATION.
(a) Each Eligible Employee may elect to make a Compensation Deferral by
filing with the Committee an election that conforms to the requirements of this
Section 3.1, on an Enrollment Agreement provided by the Committee, no later than
December 31 of the Plan Year preceding the Plan Year for which the election is
to become effective and specifying whether the Participant elects a Base Salary
Deferral or a Bonus Compensation Deferral or a combination, the Distribution
Option Accounts to which such amounts will be credited and providing such other
information as the Committee shall require. The Enrollment Agreement must also
set forth the Participant's election as to the time and manner of distribution
from the Retirement Distribution Account and the In-Service Distribution Account
as further described in Article VI. The Committee may establish minimum or
maximum amounts that may be deferred under this Section and may change such
standards from time to time. Any such limits shall be
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communicated by the Committee to the Plan Administrator and by the Plan
Administrator to the Participants prior to the commencement of a Plan Year.
(b) Notwithstanding anything herein to the contrary, no Eligible Employee
shall be permitted to defer Compensation which the Committee reasonably
determines is required to pay the Eligible Employee's portion of payroll taxes
and contributions towards benefits (including, but not limited to, medical,
life, dental and disability) provided to the Eligible Employee and his or her
dependents.
(c) Any Compensation Deferral made under paragraph (a) of this Section 3.1
shall remain in effect and be irrevocable, notwithstanding any change in the
Participant's Compensation, for the entire Plan Year for which it is effective.
Subject to the provisions of this Section 3.1, a Participant shall file a new
election for each Plan Year. Such election shall be made on an Enrollment
Agreement filed with the Committee by December 31 of a Plan Year to make a
Compensation Deferral for Compensation to be paid beginning on January 1 of the
immediately following Plan Year.
(d) The Committee may, in its discretion, permit Employees who first
become Eligible Employees after the beginning of a Plan Year, including
Employees who become Eligible Employees because they are promoted or hired by
the Company to a position of Vice President or hotel general manager on or after
January 1 of a Plan Year, to enroll in the Plan for that Plan Year by filing a
completed and fully executed Enrollment Agreement as soon as practicable
following the date the Employee becomes an Eligible Employee but, in any event,
within 30 days after such date. Notwithstanding the foregoing, however, any
Enrollment Agreement executed by an Eligible Employee, pursuant to this section,
to make a Compensation Deferral shall apply only to such amounts as are paid to
the Eligible Employee after the date on which such Enrollment Agreement is
filed.
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3.2 - INVESTMENT ELECTIONS.
(a) At the time of making the deferral elections described in Section 3.1,
the Participant shall designate, in a manner prescribed by the Committee, which
Funds the Participant's Accounts will be deemed to be invested in for purposes
of determining the Investment Return to be credited to those Accounts. The
Funds shall be as selected by the Committee from time to time and the Committee
may add, change, or delete Funds at any time. In making the designation pursuant
to this Section 3.2, the Participant may specify that all or any whole
percentage of his Accounts be deemed to be invested in one or more of the Funds.
A Participant may change the designation made under this Section 3.2, in a
manner prescribed by the Committee, on any business day. Such change shall be
effective as soon as administratively feasible after it is received.
(b) If a Participant fails to elect a type of Fund under this Section 3.2,
he or she shall be deemed to have elected an S & P 500 Index Fund (or, if no
such Fund exists, the Fund designated by the Committee).
(c) Although the Participant may designate the Funds according to
paragraph (a) above, the Committee shall select from time to time, in its sole
discretion, for each of the Funds described in paragraph (a), a commercially
available mutual fund or contract or an investment fund established with and
administered by an investment manager selected by the Committee. The Investment
Return of each such commercially available mutual fund, contract or investment
fund shall be used to determine the amount of earnings to be credited to
Participants' Accounts under Article IV although nothing set forth in this Plan
shall require an actual investment of monies in any such mutual fund or in any
other Fund designated as a deemed investment vehicle for Compensation Deferrals.
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ARTICLE IV
DISTRIBUTION OPTION ACCOUNTS
4.1 - COMPENSATION DEFERRALS.
The Committee shall establish and maintain a Distribution Option Account or
Accounts for each Participant under the Plan. Each Participant's Distribution
Option Account shall be further divided into separate subaccounts
("subaccounts"), each of which corresponds to a Fund elected by the Participant
pursuant to Section 3.2(a). A Participant's Distribution Option Account shall
be credited as follows:
As soon as practicable after the end of each calendar month, the Committee
shall credit the subaccounts of the Participant's Distribution Option Account
with an amount equal to the Compensation Deferral by the Participant during such
payroll period in accordance with the Participant's election under Section
3.2(a); that is, the portion of the Participant's Compensation Deferral that the
Participant has elected to be deemed to be invested in a certain Fund shall be
credited to the subaccount corresponding to that Fund.
4.2 - COMPANY CONTRIBUTION.
A Participant's Distribution Option Account shall be further credited with
the Company Contribution for that Participant as follows:
(a) As soon as practicable after the end of each calendar month, the
Committee shall credit the subaccounts of the Participant's Distribution Option
Account with an amount equal to the portion of the Company Contribution, if any,
which the Participant elected to be deemed to be invested in a certain type of
Fund. A Participant's Company Contribution for any payroll period shall be
equal to 50% of the Compensation Deferral by the Participant during such payroll
period in accordance with the Participant's election under Section 3.1(a),
disregarding any such deferral in excess of 10% of the Participant's
Compensation for such payroll period;
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(b) As of the last day of each month, forfeitures that occurred under
Section 5.2 during such month shall be returned to the Company for its
unrestricted use; and
(c) Notwithstanding the above paragraphs of this Section 4.2, from
time-to-time and in its sole discretion, the Board may provide that additional
Company Contribution be credited to some or all Participants, according to the
terms and conditions determined by the Board.
4.3 - INVESTMENT RETURN.
Each subaccount of a Participant's Distribution Option Account shall, as of
each business day, be credited with earnings and debited with losses in an
amount equal to that determined by multiplying the balance credited to such
subaccount as of the previous day by the Investment Return for the corresponding
Fund pursuant to Section 3.2(a).
ARTICLE V
VESTING
5.1 - COMPENSATION DEFERRAL.
A Participant's Compensation Deferral credited to his or her Distribution
Option Account shall be 100% vested at all times.
5.2 - COMPANY CONTRIBUTION.
(a) All Company Contributions credited to a Participant's Distribution
Option Account shall become nonforfeitable in the following increments: (1) 25%
upon the Participant's completion of two Years of Vesting Service, (2) an
additional 25% (50% total) upon completion of three Years of Vesting Service,
(3) an additional 25% (75% total) upon completion of four Years of Vesting
Service, and (4) the Distribution Option Account balance shall be fully
nonforfeitable in its entirety on and after the Participant's completion of five
Years of Vesting Service.
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(b) Notwithstanding paragraph (a) of this Section 5.2, a Participant's
Distribution Option Account balance shall be fully nonforfeitable in its
entirety should: (1) the Participant die while employed by the Company, (2) the
Participant become Disabled while employed by the Company, or (3) there occur a
Change of Control.
(c) When a Participant incurs a Termination Date, the portion of the
Company Contribution credited to his or her Distribution Option Account which is
not vested shall immediately be forever forfeited to the Company, and the
Company shall have no obligation to the Participant (or Beneficiary) with
respect to such forfeited amount.
ARTICLE VI
DISTRIBUTIONS
6.1 - DISTRIBUTION OPTION ACCOUNTS. The Committee shall establish and maintain
separate Distribution Option Accounts with respect to a Participant. A
Participant's Distribution Option Accounts may consist of the Retirement
Distribution Account and/or the In-Service Distribution Account as elected by
the Participant. The amount of Base Salary Deferrals and/or Bonus Compensation
Deferrals made pursuant to Section 3.1 shall be credited by the Company to the
Participant's Distribution Option Accounts as soon as practicable after the end
of each calendar month in which such Base Salary and/or Bonus Compensation would
otherwise have been paid, in accordance with the Distribution Option irrevocably
elected by the Participant in the Enrollment Agreement. Any amount once taken
into account as Base Salary and/or Bonus Compensation for purposes of this Plan
shall not be taken into account thereafter. Company Contributions, when
credited, are credited to the Distribution Option Accounts in the same
proportion as the Base Salary and/or Bonus Compensation they match. The
Participant's Distribution Option Accounts shall be reduced by the amount of
payments made by the Company to the Participant or the Participant's Beneficiary
pursuant to this Plan.
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6.2 - ELECTION OF DISTRIBUTION OPTION. In the Enrollment Agreement filed with
the Committee for each Plan Year, an Eligible Employee shall elect the time and
manner of payment pursuant to which the Eligible Employee's Distribution Option
Accounts for that Plan Year will be distributed. Annually, the Eligible
Employee shall allocate his Compensation Deferrals and Company Contributions
between the Distribution Options in increments of ten percent, provided, however
that 100 percent of such Deferrals and Company Contributions may be allocated to
one or the other of the Distribution Options.
6.3 - RETIREMENT DISTRIBUTION OPTION. Subject to Section 6.5, distribution of
the Participant's Retirement Distribution Account shall commence upon (a) the
Participant's Retirement, or (b) if later, the Participant's attainment of age
65 as elected by the Participant in the Enrollment Agreement pursuant to which
such Retirement Distribution Account was established.
6.4 - IN-SERVICE DISTRIBUTION OPTION. Subject to Section 6.6, the Participant's
In-Service Distribution Account shall be distributed commencing in the Plan Year
elected by the Participant in the Enrollment Agreement pursuant to which such
In-Service Distribution Account was established. Notwithstanding the foregoing,
no Participant may elect to receive a distribution of any amount credited to the
Participant's In-Service Distribution Account, including any attributable
Investment Return, prior to the beginning of the third Plan Year following the
Plan Year in which the Compensation Deferral giving rise to that distribution
was made.
6.5 - BENEFITS UNDER THE RETIREMENT DISTRIBUTION OPTION. Benefits under the
Retirement Distribution Option shall be paid to a Participant as follows:
(a) BENEFITS UPON RETIREMENT. In the case of a Participant whose
employment with the Company terminates on account of his Retirement, the
Participant's Retirement Distribution Account shall be distributed in one of the
following methods, as elected by the Participant in writing either in the
Enrollment Agreement or in a separate election made prior to
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the date of the Participant's Retirement: (i) in a lump sum; or (ii) in 5, 10,
15, or 20 quarterly, semi-annual or annual installments. Any lump-sum benefit
payable in accordance with this paragraph shall be paid in, but not later than
January 31 of the Plan Year following the Plan Year in which occurs the
Participant's Retirement or, if later, attainment of age 65 as elected by the
Participant in accordance with this Section or Section 6.3, in an amount equal
to the value of such Retirement Distribution Account as of the business day the
Funds are deemed to be liquidated to make the payment. Installment payments, if
any, shall commence not later than January 31 of the Plan Year following the
Plan Year in which occurs the Participant's Retirement or if later, attainment
of age 65, as elected by the Participant in accordance with this Section or
Section 6.3, in an amount equal to (i) the value of such Retirement Distribution
Account as of the business day the Funds are deemed to be liquidated to make the
payment, divided by (ii) the number of installment payments elected by the
Participant in the Enrollment Agreement pursuant to which such Retirement
Distribution Account was established. The remaining installments shall be paid
not later than January 31 of each succeeding Plan Year in an amount equal to (i)
the value of such Retirement Distribution Account as of the business day the
Funds are deemed to be liquidated to make the payment divided by (ii) the number
of installments remaining. A Participant may change the election regarding the
manner of payment as described in Section 6.1 of the Participant's Account at
any time prior to the end of the Plan Year in which occurs the Participant's
Retirement or attainment of age 65, if later, and elected as the distribution
date by the Participant in accordance with Section 6.3.
(b) BENEFITS UPON TERMINATION OF EMPLOYMENT. In the case of a
Participant whose Service with the Company terminates prior to the earliest date
on which the Participant is eligible for Retirement, other than on account of
becoming Disabled or by reason of death, the
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vested portion of a Participant's Retirement Distribution Account shall be
distributed in a lump sum as soon as practicable following the Participant's
Termination Date.
6.6 - BENEFITS UNDER THE IN-SERVICE DISTRIBUTION OPTION. Benefits under the
In-Service Distribution Option shall be paid to a Participant as follows:
(a) IN-SERVICE DISTRIBUTIONS. In the case of a Participant who continues
in employment with the Company, the vested portion of a Participant's In-Service
Distribution Account shall be paid to the Participant commencing no later than
January 31 of the Plan Year(s) irrevocably elected by the Participant in the
Enrollment Agreement pursuant to which such In-Service Distribution Account was
established, which may be no earlier than the third Plan Year following the end
of the Plan Year in the Compensation Deferral giving rise to that distribution
was made, in one lump sum or in quarterly, semi-annual or annual installments
payable over 2, 3, 4, or 5 years. Any lump-sum benefit payable in accordance
with this paragraph shall be paid not later than January 31 of the Plan Year
elected by the Participant in accordance with Section 6.4, in an amount equal to
the vested value of the portion of such In-Service Distribution Account being
distributed as of the business day the Funds are deemed to be liquidated to make
the payment. Installment payments, if any, shall commence not later than
January 31 of the Plan Year as elected by the Participant in accordance with
Section 6.3, in an amount equal to (i) the vested value of such portion of such
In-Service Distribution Account as of the business day the Funds are deemed to
be liquidated to make the payment, divided by (ii) the number of installment
payments elected by the Participant in the Enrollment Agreement pursuant to
which such In-Service Distribution Account was established. The remaining
installments shall be paid not later than January 31 of each succeeding year in
an amount equal to (i) the vested value of such portion of the In-Service
Distribution Account as of the business day the Funds are deemed to be
liquidated to make the payment divided by (ii) the number of installments
remaining. If a
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Participant is not fully vested when the In-Service Distribution Account is to
be paid, the non-vested portion at the date of first payment will automatically
be transferred to the Retirement Distribution Account.
(b) BENEFITS UPON TERMINATION OF EMPLOYMENT. In the case of a Participant
whose employment with the Company terminates prior to the date on which the
Participant's then In-Service Distribution Account would otherwise be
distributed, other than on account of becoming Disabled or by reason of death,
the vested portion of such In-Service Distribution Account shall be distributed
either (i) in a lump sum as soon as is practicable following the Participant's
Termination Date; (ii) in installments commencing on the date such In-Service
Distribution Account would otherwise have been distributed; or (iii) in a lump
sum on the date such In-Service Distribution Account would otherwise have been
distributed, all as irrevocably elected by the Participant in the Enrollment
Agreement pursuant to which such In-Service Distribution Account was
established; provided, however, that the Company may override a Participant's
election and cause a distribution under clause (i) notwithstanding any other
election by the Participant.
6.7 - INABILITY TO LOCATE PARTICIPANT.
In the event that the Committee is unable to locate a Participant or
Beneficiary within two years following the date the Participant was to commence
receiving payment, the entire amount allocated to the Participant's Deferral
Account and Company Contribution Account shall be forfeited. If, after such
forfeiture, the Participant or Beneficiary later claims such benefit, such
benefit shall be reinstated without interest or earnings from the date payment
was to commence under Section 6.1.
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6.8 - PAYMENT BY TRUST.
The Company may cause the payment of benefits under this Plan to be made in
whole or in part by the trustee of a trust designated by the Committee (the
"Trust"). The Committee may direct the Trustee to pay the Participant's or
Beneficiary's benefit at the time and in the amount described herein. In the
event the amounts allocated to the Participant under the Trust are not
sufficient to provide the full amount of benefit payable to the Participant, the
Company shall pay the remainder of such benefit.
6.9 - WITHDRAWALS.
Any Participant may receive a distribution as set forth in this Section 6.9
prior to termination of employment. Such distribution shall be paid in the
manner provided by the Committee. The Participant shall forever forfeit 10% of
the amount of the distribution to the Company, and the Company shall have no
obligation to the Participant (or Beneficiary) with respect to such forfeited
amount. The Committee may provide that the forfeiture shall reduce the
distribution, or shall reduce the Participant's Distribution Option Accounts
remaining in the Plan. The total of all distributions to a Participant under
this Section shall not exceed the lesser of: (1) the Participant's aggregate
Compensation Deferrals under Section 3.1; or (2) the then value of the
Participant's Distribution Option Accounts.
6.10 - DISTRIBUTIONS ON DISABILITY.
If a Participant becomes Disabled, such Participant's Account shall be
distributed pursuant to the Participant's Enrollment Agreement without regard to
such Disability.
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ARTICLE VII
DEATH BENEFITS
7.1 - IN GENERAL.
Upon the death of a Participant, and before his or her Distribution Option
Accounts has been paid in full (either in a lump sum or installment payments),
his or her Beneficiary shall receive the balance of the Participant's vested
Account as of the date of death, as adjusted by subsequent gains or losses prior
to distribution, in accordance with Section 7.2.
7.2 - PAYMENT OF DEATH BENEFITS.
The death benefit payable pursuant to Section 7.1 shall be paid to the
Participant's Beneficiary as elected by the Beneficiary in the manner permitted
under the provisions of Section 6.2, but if no such timely election was made,
the payment shall be made in the form of a cash lump sum payment within 90 days
of the Participant's death.
ARTICLE VIII
ARBITRATION
8.1 - ARBITRATION.
(a) A Participant or, following the Participant's death, a
Beneficiary (collectively referred to in this section as "Claimant") may, if he
desires, submit any claim for payment under the Plan or any dispute regarding
the interpretation of the Plan to arbitration. This right to select arbitration
shall be solely that of the Claimant, and the Claimant may decide whether or not
to arbitrate in his discretion. The "right to select arbitration" does not
impose on the Claimant a requirement to submit a dispute for arbitration. The
Claimant may, in lieu of arbitration, bring an action in appropriate civil
court. The Claimant retains the right to select arbitration, even if a civil
action (including, without limitation, an action for declaratory relief) is
brought by the Company or any other fiduciary of the Plan prior to the
commencement of arbitration. If
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arbitration is selected by the Claimant after a civil action concerning the
Claimant's dispute has been brought by a person other than the Claimant, the
Company, the trustee of any grantor trust that holds assets for the purpose of
making benefit payments under the Plan ("Trustee"), and the Claimant shall take
such actions as are necessary or appropriate, including dismissal of the civil
action, so that the arbitration can be timely heard. Once arbitration is
commenced, it may not be discontinued without the unanimous consent of all
parties to the arbitration. During the lifetime of the Participant only he can
use the arbitration procedure set forth in this section.
(b) Any claim for arbitration may be submitted as follows: if the
Claimant disagrees with an interpretation of the Plan by the Company or any
fiduciary of the Plan, or disagrees with the calculation of his benefit under
the Plan, such claim may be filed in writing with an arbitrator of the
Claimant's choice who is selected by the method described in the next four
sentences. The first step of the selection shall consist of the Claimant
submitting in writing a list of five potential arbitrators to the Company and to
the Trustee. Each of the five arbitrators must be either (1) a member of the
National Academy of Arbitrators located in the state of the Claimant's
principal residence or (2) a retired California Superior Court or Appellate
Court judge. Within one week after receipt of the list, the Trustee and the
Company shall jointly select one of the five arbitrators as the arbitrator of
the dispute in question. If the Trustee and Company fail to select an
arbitrator in a timely manner (including failure to select an arbitrator by
reason of disagreement between the Trustee and the Company as to the arbitrator
to be selected), the Claimant then shall designate one of the five arbitrators
as the arbitrator of the dispute in question.
(c) The arbitration hearing shall be held within seven days (or as
soon thereafter as possible) after the selection of the arbitrator. No
continuance of said hearing shall be allowed without the mutual consent of the
Claimant, the Trustee, and the Company. Absence from or nonparticipation at the
hearing by any party shall not prevent the issuance of an award. Hearing
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procedures that will expedite the hearing may be ordered at the arbitrator's
discretion, and the arbitrator may close the hearing in his sole discretion when
he decides he has heard sufficient evidence to justify issuance of an award.
(d) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than one week after the close of the hearing. In
the event the arbitrator finds that the Claimant is entitled to the benefits he
claimed, the arbitrator shall order the Company and/or the Trustee to pay such
benefits, in the amounts and at such time as the arbitrator determines. The
obligation of the Trustee to pay such benefits shall not, however, exceed the
assets of the trust, and the Company shall be jointly and severally liable for
any amount that the Trustee is ordered to pay. The award of the arbitrator
shall be final and binding on the parties. The Company shall thereupon pay the
Claimant immediately the amount that the arbitrator orders to be paid in the
manner described in the award. The award may be enforced in any appropriate
court as soon as possible after its rendition. If any action is brought to
confirm the award, no appeal shall be taken by any party from any decision
rendered in such action.
(e) If the arbitrator determines either that the Claimant is
entitled to the claimed benefits or that the claim by the Claimant was made in
good faith, the arbitrator shall direct the Company to pay to the Claimant, and
Company agrees to pay to the Claimant in accordance with such order, an amount
equal to the Claimant's expenses in pursuing the claim, including attorneys'
fees.
ARTICLE IX
ADMINISTRATION
9.1 - COMMITTEE.
A committee shall be appointed by, and serve at the pleasure of, the Board
of Directors. The number of members comprising the Committee shall be
determined by the Board which may
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from time to time vary the number of members. A member of the Committee may
resign by delivering a written notice of resignation to the Board. The Board may
remove any member by delivering a certified copy of its resolution of removal to
such member. Vacancies in the membership of the Committee shall be filled
promptly by the Board.
9.2 - COMMITTEE ACTION.
The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter which relates solely to himself
or herself as a Participant. The Chairman or any other member or members of the
Committee designated by the Chairman may execute any certificate or other
written direction on behalf of the Committee.
9.3 - POWERS AND DUTIES OF THE COMMITTEE.
(a) The Committee, on behalf of the Participants and their Beneficiaries,
shall enforce the Plan in accordance with its terms, shall be charged with the
general administration of the Plan, and shall have all powers necessary to
accomplish its purposes, including, but not by way of limitation, the following:
(1) To select the mutual funds, contracts or investment funds to be
the Funds in accordance with Section 3.2(b) hereof;
(2) To construe and interpret the terms and provisions of this Plan
and to make factual determinations;
(3) To compute and certify to the amount and kinds of benefits
payable to Participants and their Beneficiaries;
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(4) To maintain all records that may be necessary for the
administration of the Plan;
(5) To provide for the disclosure of all information and the filing
or provision of all reports and statements to Participants,
Beneficiaries or governmental agencies as shall be required by
law;
(6) To make and publish such rules for the regulation of the Plan
and procedures for the administration of the Plan as are not
inconsistent with the terms hereof; and
(7) To appoint a plan administrator or any other agent, and to
delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to
time prescribe.
(8) On behalf of the Company, to select those Highly Compensated
Employees who shall be Eligible Employees.
9.4 - CONSTRUCTION AND INTERPRETATION.
(a) The Committee shall have full discretion to construe and interpret
the terms and provisions of this Plan, which interpretation or construction
shall be final and binding on all parties, including but not limited to, the
Company and any Participant or Beneficiary. The Committee shall administer such
terms and provisions in a uniform and nondiscriminatory manner and in full
accordance with any and all laws applicable to the Plan.
(b) Nothing contained in the Plan shall be construed to prevent the
Company from taking any action which is deemed by it to be appropriate or in its
best interest. No Participant, Beneficiary, or other person shall have any
claim against the Company as a result of such action. Any decisions, actions or
interpretations to be made under the Plan by the Company or the Board, or the
Committee acting on behalf of the Company, shall be made in its respective sole
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discretion, not as a fiduciary, need not be uniformly applied to similarly
situated individuals and shall be final, binding and conclusive on all persons
interested in the Plan.
9.5 - INFORMATION.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death, Disability, or other cause of
termination, and such other pertinent facts as the Committee may require.
9.6 - COMPENSATION, EXPENSES AND INDEMNITY.
(a) The Committee is authorized at the expense of the Company to employ
such legal counsel as it may deem advisable to assist in the performance of its
duties hereunder. Expenses and fees in connection with the administration of
the Plan shall be paid by the Company.
(b) To the extent permitted by applicable state law, the Company shall
indemnify and save harmless the Committee and each member thereof, the Board of
Directors and any delegate of the Committee who is an employee of the Company
against any and all expenses, liabilities and claims, including legal fees to
defend against such liabilities and claims arising out of their discharge in
good faith of responsibilities under or incident to the Plan, other than
expenses and liabilities arising out of willful misconduct. This indemnity
shall not preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any bylaw, agreement
or otherwise, as such indemnities are permitted under state law.
9.7 - QUARTERLY STATEMENTS.
Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Accounts on a quarterly
basis as of each March 31, June 30, September 30 and December 31.
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ARTICLE X
MISCELLANEOUS
10.1 - UNSECURED GENERAL CREDITOR.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any specific
property or assets of the Company. No assets of the Company shall be held under
any trust, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all of the Company's assets
shall be, and remain, the general unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future, and the rights of
the Participants and Beneficiaries shall be no greater than those of unsecured
general creditors.
10.2 - RESTRICTION AGAINST ASSIGNMENT.
The Company shall pay all amounts payable hereunder only to the person or
persons designated by the Plan and not to any other person or corporation. No
part of a Participant's Accounts shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Accounts be subject to execution by levy,
attachment, or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, commute, pledge,
encumber, or assign any benefits or payments hereunder in any manner whatsoever.
If any Participant, Beneficiary or successor in interest is adjudicated bankrupt
or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any distribution or payment from the Plan, voluntarily or involuntarily,
the Committee, in its discretion, may cancel such distribution or payment (or
any part thereof) to or for the benefit of such Participant, Beneficiary or
successor in interest in such manner as the Committee shall direct.
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10.3 - WITHHOLDING.
There shall be deducted from each payment made under the Plan or any
other compensation payable to the Participant (or Beneficiary) all taxes which
are required to be withheld by the Company in respect to such payment or this
Plan. The Company shall have the right to reduce any payment (or compensation)
by the amount of cash sufficient to provide the amount of said taxes.
10.4 - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION.
The Company may amend, modify, suspend or terminate the Plan in whole or
in part, except that (a) no amendment, modification, suspension or termination
shall have any retroactive effect to reduce any amounts allocated to a
Participant's Accounts, and (b) Section 8.1 may not be amended with respect to
any Participant or Beneficiary following the date the Participant or Beneficiary
makes a claim for benefits under the Plan. In the event that this Plan is
terminated, the amounts credited to a Participant's Accounts (including any
previously unvested amounts) shall be distributed to the Participant or, in the
event of his or her death, his or her Beneficiary in a lump sum within thirty
(30) days following the date of termination.
10.5 - GOVERNING LAW.
This Plan shall be construed, governed and administered in accordance
with the laws of the State of California.
10.6 - RECEIPT OR RELEASE.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee, the Company and the
Trustee. The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
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10.7 - PAYMENTS ON BEHALF OF PERSONS UNDER INCAPACITY.
In the event that any amount becomes payable under the Plan to a person
who, in the sole judgement of the Committee, is considered by reason of physical
or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgement, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.
10.8 - HEADINGS, ETC. NOT PART OF AGREEMENT.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this document to be executed
by its duly authorized officer on this 30th day of June, 1999.
HILTON HOTELS CORPORATION
By: /s/ Molly McKenzie-Swartz
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Its:SENIOR VICE PRESIDENT
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HUMAN RESOURCES
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