1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash Flow and Working Capital Net cash provided by operating activities
increased to $226.9 million in 1993 from
$226.7 million in 1992 and $223.6 million
in 1991. In 1993 the Company's working
capital increased $138.5 million to
$449.1 million.
Capital expenditures, including those
financed with construction payables, were
$157.0 million in 1993, while new
investments totaled $104.7 million.
Capital expenditures and new investments
totaled $222.2 million and $53.6 million,
respectively, in 1992, and $78.0 million
and $100.1 million, respectively, in
1991.
In 1993 the Company continued its
strategy of improving and expanding its
worldwide gaming operations. In Nevada,
the Flamingo Hilton-Las Vegas commenced
an estimated $105 million project to
build a 600-room tower, add new meeting
and ballroom facilities and create a
themed recreation area. This project is
scheduled for completion in December
1994. During 1993 the Reno Hilton
completed a $16.8 million refurbishment
of its 2,001 guest rooms, while the Las
Vegas Hilton completed an $18.1 million
exterior renovation. In 1994 the Las
Vegas Hilton will construct three luxury
suites for use by premium players. This
$40.0 million project is scheduled for
completion in November 1994.
In 1993 the Company commenced
construction of a $28.0 million,
1,500-passenger riverboat casino to be
used on an interim basis in approved
riverboat gaming jurisdictions where the
Company is in the process of constructing
permanent facilities. This interim boat,
with its 20,000 square feet of casino
space, opened as "Hilton's Queen of New
Orleans" in February 1994 and is docked
adjacent to the New Orleans Hilton
Riverside. This vessel will be replaced
in late 1994 by a 2,400-passenger
permanent riverboat with 30,000 square
feet of casino space. The permanent boat
is part of a $57.0 million joint venture,
of which the Company owns a 50% interest.
The joint venture is financing this
project with $38.5 million in bank debt
and the balance in partner contributions.
The interim riverboat is 100% owned by
the Company and is being leased to the
joint venture until the permanent boat is
completed.
In January 1993 the Company was named
the exclusive developer of two riverboat
casinos in Kansas City, Missouri.
Subject to voter approval in April 1994
of state and city-wide gaming proposals
and the receipt of all required gaming
licenses, the Company anticipates the
first boat to begin operating in late
summer 1994 and will carry 1,500
passengers and feature a 20,000
square-foot casino. The second boat,
scheduled to open in mid-1995, will have
a capacity of 2,000 passengers and 30,000
square-feet of casino space. This $132.2
million effort, which includes
significant infrastructure improvements
at both sites, will be partially financed
with Port Authority of Kansas City Bonds
and the balance through partner loans and
contributions. The Company will have a
90 percent ownership interest in this
project.
The Company and its partners are also
seeking licensing approval for an
estimated $120 million riverboat casino
in Michigan City, Indiana. Licensing
consideration is expected to begin in
spring 1995.
Internationally, the Company is
developing new hotel-casinos in a number
of venues. In December 1993 the
Provincial Government of Ontario, Canada
awarded a consortium, of which the
Company has one-third interest, the
exclusive right to develop and operate
the Province's first casino in Windsor,
located immediately across from Detroit,
Michigan. This estimated $300 million
facility, scheduled to open in early
1996, will include a 75,000 square-foot
casino, a 300-room hotel, dining
facilities and recreational amenities. A
temporary casino with 60,000 square-feet
of casino space is scheduled to open in
spring 1994. This project will be
financed with a combination of long-term
debt and equity.
TWENTY-EIGHT
2
Construction is proceeding on the
Conrad Treasury, a hotel-casino in
Brisbane, Australia. Scheduled for an
early 1995 opening, this project will
include a 65,000 square-foot casino and a
136-room luxury hotel. The Conrad
Treasury is owned by Jupiters Limited, a
partially owned affiliate, and will be
operated by Conrad Hotels, the Company's
international subsidiary.
In early 1996, Conrad Hotels
anticipates the opening of a new
hotel-casino resort in Punta del Este,
Uruguay. This estimated $110 million
facility will feature a 300-room hotel
and a 35,000 square-foot casino. This
20% owned venture will be financed with a
combination of long-term debt and equity.
The Company's Hotels Division has been
deliberate in its approach to developing
new properties because of significant
overbuilding in the industry. No new
construction of Company owned hotels is
currently underway. Growth in the hotel
segment will primarily occur through
conversions of existing properties to the
Hilton brand domestically, expansion of
the Conrad system overseas and the
development and management of vacation
ownership resorts.
In November 1993 the Company and its
partners acquired the former Hyatt
Regency Waikoloa on the Big Island of
Hawaii. Renamed the Hilton Waikoloa
Village, this 1,241-room property sits on
62 acres and includes a wide variety of
sports and recreational amenities. The
Company manages the property and owns a
13.3% interest.
In June 1993 the Company increased its
ownership in the partnerships that own
the 1,602-room New Orleans Hilton
Riverside and the adjacent land. The
Company believes the New Orleans market
will continue to grow as a popular
convention and leisure travel destination
as that city's gaming operations expand.
The Company is currently developing,
through its 50% owned Hilton Grand
Vacations Company joint venture, a
200-unit vacation ownership resort
adjacent to the Flamingo Hilton-Las Vegas
and a 360-unit resort at Sea World
Village in Orlando, Florida. The Las
Vegas project is scheduled for completion
in early 1995, and the first phase of the
Orlando project is anticipated to be
completed in summer 1995. Project costs
for both developments will be funded by
the Company in the form of revolving loan
facilities aggregating approximately $100
million.
The Company is committed to keeping its
properties in first-class condition.
Refurbishment programs are continually
underway at the Company's hotel and
hotel-casino properties. Capital
expenditures and investments in 1994,
including the funding requirements
associated with the aforementioned
projects, will approximate $500 million.
The Company intends to fund its portion
of these capital expenditures and new
investments through internal cash flows
and available debt capacity or new
borrowings.
Long-Term Debt Long-term debt at December 31, 1993
totaled $1.1 billion, 46 percent of the
Company's total capital. Under
registration statements currently on file
with the Securities and Exchange
Commission, the Company can offer up to
$999.2 million in either senior notes or
a combination of senior and subordinated
notes, with the subordinated notes
limited to $300 million.
The Company also has authorization to
issue up to $300 million in private debt
securities. However, the maximum
principal amount of public debt
securities and private debt securities,
either exclusively in the form of public
senior debt securities, or alternatively
in the form of one or more combinations
of public senior debt securities, public
subordinated debt securities and private
debt securities, is limited to $1.0
billion.
Available financing under the
aforementioned authorizations totaled
$312.6 million at December 31, 1993.
The Company has authorization to issue
$600 million of commercial paper. At
December 31, 1993 the Company had $347.6
million in available long-term revolving
credit lines supporting the issuance of
commercial paper. At December 31, 1993
the Company had total commercial paper
borrowings of $358.4 million, of which
$347.6 million was classified as
long-term by virtue of its credit
agreements. Available commercial paper
financing at December 31, 1993 was $241.6
million.
Stockholders' Equity Stockholders' equity increased $54.2
million in 1993 to $1.1 billion or $22.11
per share. Book value per share was
$21.02 in 1992 and $20.06 in 1991.
Dividends paid on common shares in 1993
were $1.20 per share, the same as in 1992
and 1991.
TWENTY-NINE
3
Other Matters In September 1992 a lawsuit was initiated
by AMRIS, an affiliate of AMR
Corporation, against affiliates of
Marriott Corporation (Marriott), Budget
Rent-A-Car, Inc. (Budget) and the
Company. The lawsuit related to the
formation of a joint venture in 1988
among the partners to develop CONFIRM, an
integrated travel reservation system
using state-of-the-art computer
technology. In April 1992 AMRIS, the
developer of CONFIRM, advised the other
partners that the scheduled delivery and
installation of CONFIRM in mid-1992
would be delayed approximately 15 to 18
months. After evaluating the impact of
this delay, Marriott, Budget and the
Company chose to discontinue their
involvement with the project. In January
1994 the Company and its partners agreed
to a settlement, pursuant to which the
Company recovered the full amount of its
investment in the partnership.
In October 1991 a lawsuit was initiated
by Hilton International Co. (HI) against
the Company. In this action, HI alleges
generally that the development and
marketing by the Company of its hotels
outside of the United States under the
Conrad name violate the terms of certain
agreements between HI and the Company.
In 1964 the Company spun off its Hilton
International operations to the Company's
stockholders and entered into an
agreement with HI, as subsequently
amended, generally granting the Company
certain rights with respect to the Hilton
service mark in the United States and HI
certain rights to the Hilton service mark
outside the United States. The complaint
seeks, among other things, injunctive
relief against use by the Company of the
Conrad name for its hotels outside of the
United States and damages in excess of
$100 million. The Company believes that
this action is without merit and is
defending against it vigorously.
In management's opinion, disposition of
the HI lawsuit is not expected to have a
material effect on the Company's
financial position.
RESULTS OF OPERATIONS
Fiscal 1993 Compared with Fiscal 1992
Overview The Company's net income decreased one
percent, before the cumulative effect of
accounting changes, to $102.7 million or
$2.14 per share, compared to $103.9
million or $2.17 per share in 1992. The
accounting changes are related to the
January 1, 1993 implementation of new
accounting standards for income taxes and
postretirement benefits and resulted in
additional net income of $3.4 million or
$.07 per share. Total operating income
increased nine percent to $239.9 million
in 1993 compared to $219.9 million in
1992.
Hotels The hotel segment includes the
consolidated results of the Company's
domestic full service and all-suite
properties. The results also include
equity income from unconsolidated
affiliates, management fees from both
domestic and international hotel
properties and franchise fees. At
December 31, 1993 the Company owned,
partially owned, managed and franchised
18, 15, 26 and 171 properties,
respectively, totaling approximately
83,000 rooms world-wide.
Consolidated hotel revenue increased 11
percent in 1993 to $520.0 million.
Revenue per available room (RPAR) is a
measure of hotel revenue generation.
RPAR for domestic hotels increased less
than one percent in 1993, while inflation
as measured by the Consumer Price Index
For All Urban Consumers measured 2.7
percent. During the past four years,
domestic RPAR has not kept pace with
inflation due to the combined effects of
a sluggish economy and industry
overbuilding. Occupancy for hotels owned
or managed increased to 67 percent in
1993 compared to 66 percent in 1992.
Average room rates increased less than
one percent over 1992.
Hotel operating income, primarily
income from hotel interests and
management and franchise fee income,
increased five percent in 1993 to $96.2
million. Operating income in 1993 was
adversely impacted by a $12.5 million
reserve for a loan made to a managed
property. Excluding this charge,
operating income increased 19 percent
over the prior year.
Fluctuations in hotel operating income
are significantly influenced by the
operating results of the Company's
principal downtown, airport and resort
locations where it has large equity
interests. During 1993 many of the
Company's airport and secondary market
locations posted income gains over the
prior year. Combined results from the
Company's wholly-owned and partially
owned airport properties increased $6.5
million over the prior year, including a
$3.4 million increase in operating
THIRTY
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income at the O'Hare Hilton. The O'Hare
Hilton reopened as a wholly-owned
property in July 1992. The 1993 period
also benefited from improved results at
the 50% owned San Francisco Hilton and
Towers and the 46.8% owned New Orleans
Hilton Riverside as well as lower
expenses for the Company's self-insurance
and frequent traveler programs.
Operating income from the Company's
hotels in New York City improved slightly
over the prior year, while results from
the 50% owned Hilton Hawaiian Village
declined $5.1 million from 1992.
Recessionary conditions in California
and Japan continued to adversely impact
leisure travel to Hawaii.
Management and franchise fee revenue
increased $6.3 million in 1993 to $78.7
million. Fee revenue is based primarily
on operating revenues at managed
properties and rooms revenue at
franchised properties.
The Company has an ongoing program of
actively monitoring and improving its
franchise hotels. In 1993, 14 franchise
contracts, representing some 3,300 rooms,
were terminated by the Hilton Inns
franchise system, many due to
noncompliance with the Company's
standards. Four properties and 1,029
rooms were added to the franchise system
in 1993.
In addition to the Hilton Waikoloa
Village, in 1993 the Company opened
and/or assumed management of five
properties in which it holds no equity
interest: the 1,000-suite Innisbrook
Hilton Resort near Tampa, Florida, the
405-room Brunswick Hilton in East
Brunswick, New Jersey, the 376-room
Newark Airport Hilton, also in New
Jersey, the 269-room Conrad Brussels in
Belgium and the 565-room Astir Palace
Hotel in Greece.
Future operating results could be
adversely impacted by industry
overcapacity and weak demand. These
conditions may 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 could also
unfavorably impact future results. The
Company believes, however, that its
strong financial condition, coupled with
its market presence and marketing
efforts, will enable it to remain highly
competitive.
Gaming The gaming segment includes five Nevada
hotel-casinos and equity income and
management fees from partially owned
hotel-casinos in Queensland, Australia
and Istanbul, Turkey.
The Company's Nevada gaming operations
offer a diversified product and service
mix which appeal to a broad spectrum of
customers. The Flamingo Hilton-Las Vegas
caters to the broad Las Vegas middle
market, while the Las Vegas Hilton caters
to premium players as well as the
convention market. The Flamingo
Hilton-Reno focuses on middle market
activity, while the Flamingo
Hilton-Laughlin targets the budget market
segment. The Reno Hilton, acquired in
August 1992, targets both convention and
middle market activity.
Total gaming revenue increased 15
percent to $873.5 million in 1993
compared to $759.2 million in 1992.
Casino revenue, a component of gaming
revenue, was $502.1 million in 1993
compared to $438.8 million in 1992.
Operating income was $170.5 million in
1993, an 11 percent increase from $153.4
million in 1992.
Operating income at the Flamingo
Hilton-Las Vegas increased $7.3 million
in 1993, while the Reno Hilton,
benefiting from its first full year of
operation, increased $5.4 million over
the prior year. Operating income at the
Flamingo Hilton properties in Laughlin
and Reno also improved over the prior
year.
Results at the Las Vegas Hilton are
more volatile than the Company's other
casinos since this property targets the
premium play segment of the market.
Operating income at this property,
however, remained consistent with 1992
levels.
Equity income and management fees from
the 19.9% owned Conrad & Jupiters Casino
in Australia increased $2.7 million over
the prior year. Results from the 25%
owned Conrad Istanbul were not
significant.
Occupancy for the Nevada hotel-casinos
was 89 percent and 87 percent in 1993 and
1992, respectively. Average room rates
increased three percent in 1993.
The competitive environment in Las
Vegas has been impacted by new capacity
additions. In 1993 three competitors
opened large new theme casinos in Las
Vegas. The addition of these casinos
increased Las Vegas' existing room
inventory by an estimated 14 percent, or
10,500 rooms. These additions could
adversely impact the Company's gaming
income in the future.
THIRTY-ONE
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Interest and Dividend Interest and dividend income increased
Income/Expense $5.4 million in 1993 to $21.8 million due
to higher investable balances. Interest
expense, net of amounts capitalized,
increased $13.5 million to $80.4 million
due to higher average debt levels and
lower amounts of capitalized interest on
construction projects. Net interest
expense from unconsolidated affiliates
increased $3.4 million in 1993 to $14.6
million.
Income Taxes The effective income tax rate in 1993 was
36.2% compared to 34.7% in 1992. The
Company's effective income tax rate is
determined by the level and composition
of pretax income and the mix of income
subject to varying foreign, state and
local taxes. The 1993 effective income
tax rate benefited from $9.0 million in
credits resulting from the favorable
resolution of Federal and state income
taxes for prior years. These credits
were partially offset by a $5.0 million
increase in the provision for income
taxes due to the enactment of the Omnibus
Budget Reconciliation Act of 1993 which,
among other things, increased the Federal
income tax rate for corporations from 34
percent to 35 percent retroactive to
January 1, 1993. Of the $5.0 million
increase, $3.3 million was attributable
to the measurement of deferred income tax
assets and liabilities at the current
enacted rate, as required by current
accounting standards.
Property Transactions The loss from property transactions in
1993 includes a pretax write-off of $4.3
million resulting from the demolition of
certain facilities at the Flamingo
Hilton-Las Vegas to permit further
expansion at that property.
Foreign Currency Losses International operations are subject to
certain economic and political risks,
including foreign currency fluctuations.
The Company monitors its foreign
operations and, where appropriate, adopts
hedging strategies to minimize the impact
of changing economic and political
environments. The foreign currency
losses of $1.3 million are primarily due
to exchange adjustments arising from the
remeasurement of the Company's operations
in Turkey into U.S. dollars.
New Accounting Standards In February 1992 the Financial Accounting
Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes,
which superseded previously issued
standards. The Company adopted SFAS No.
109 effective January 1, 1993. As
permissible under the new standard, the
Company reflected the impact as a
cumulative adjustment in the 1993 first
quarter and did not restate prior
periods. The new standard had a
favorable impact on net income of $8.0
million.
In December 1990 the FASB issued SFAS
No. 106, Employers' Accounting for
Postretirement Benefits Other Than
Pensions. The Company adopted SFAS No.
106 effective January 1, 1993. As
permissible under the new standard, the
Company reflected the impact as a
cumulative adjustment in the 1993 first
quarter and did not restate prior
periods. The new standard resulted in a
charge to net income of $4.6 million, net
of a $2.3 million deferred tax benefit.
Fiscal 1992 Compared with Fiscal 1991
Overview The Company's net income increased 23
percent to $103.9 million or $2.17 per
share compared to $84.3 million or $1.76
per share in 1991. Total operating
income increased 19 percent to $219.9
million in 1992 compared to $184.8
million in 1991.
Hotels Consolidated hotel revenue increased six
percent in 1992 to $470.4 million.
Excluding the revenues of the O'Hare
Hilton, which reopened as a wholly-owned
property at the end of July, consolidated
hotel revenues increased three percent.
Hotel operating income decreased two
percent to $91.5 million. Operating
income in 1992 included start-up losses
associated with the reopening of the
O'Hare Hilton and expenses incurred in
the rollout of the Company's new vacation
ownership venture. Adjusting for these
losses, operating income increased one
percent over 1991.
In 1992 many of the Company's airport
and secondary market locations showed
significant improvement over 1991's war
and recession depressed results.
However, conditions were difficult
THIRTY-TWO
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in the Company's primary business travel
markets, particularly New York City and
Chicago. Combined operating income from
the Waldorf-Astoria, the New York Hilton
and the Chicago Hilton declined $10.1
million from 1991.
The dual pressures of excess supply,
caused by industry overbuilding, and weak
demand, primarily due to the recessionary
economy, adversely impacted the Company's
large downtown business and convention
hotels. Competition for available demand
in these markets was intense and put
significant pressure on room rates.
Average rates were at or below 1990
levels at many of the Company's larger
properties. These conditions resulted in
lower operating margins as hotels were
unable to increase rates to offset
increases in wages and the cost of goods
and services.
Operating income from the Hilton
Hawaiian Village increased slightly over
1991 results. While international
leisure travel rebounded from the
difficult 1991 period, results were
hampered by a decline in convention room
nights and the fact that Hawaii was not
included in the domestic airfare discount
programs offered during the summer of
1992.
Management and franchise fee revenue
increased $3.0 million in 1992 to $72.4
million. Occupancy for hotels owned or
managed increased to 66 percent in 1992
compared to 64 percent in 1991. Average
room rates were down fractionally from
1991.
Gaming Total gaming revenue increased 14 percent
to $759.2 million in 1992 compared to
$668.8 million in 1991. Casino revenue,
a component of gaming revenue, was $438.8
million in 1992 compared to $392.4
million in the prior year. Operating
income was $153.4 million in 1992, a 33
percent increase from $115.0 million in
1991. Adjusting for the results of the
new Reno Hilton, revenue, casino revenue
and operating income increased six
percent, five percent and thirty percent,
respectively, from 1991 on a comparable
basis.
Operating income at the Flamingo Hilton
properties in Las Vegas and Laughlin
increased $2.6 million and $10.0 million,
respectively, from 1991 on the strength
of increased slot win and higher
occupancies and average room rates. In
1991 room rates were discounted to
stimulate business both during and after
the Persian Gulf war.
Operating income at the Las Vegas
Hilton increased $23.4 million over 1991
primarily due to an $18.5 million
decrease in bad debt expense. In 1991
the Las Vegas Hilton increased its bad
debt reserves by $13.9 million due to
less than anticipated collections on
receivables from premium players.
Operating income from the Flamingo
Hilton-Reno increased $2.3 million over
1991 due to a higher slot win. Equity
income and management fees from Conrad &
Jupiters Casino in Australia decreased
slightly from the prior year.
Occupancy for the Nevada hotel-casinos
was 87 percent and 85 percent in 1992 and
1991, respectively. Average room rates
increased five percent in 1992 compared
to a decrease of 12 percent in 1991.
Interest and Dividend Interest and dividend income increased
Income/Expense $5.1 million in 1992 to $16.4 million
primarily due to higher investable
balances. Interest expense, net of
amounts capitalized, increased $8.8
million to $66.9 million in 1992 due to
higher average debt levels. Net interest
expense from unconsolidated affiliates
decreased $4.4 million in 1992 to $11.2
million, principally due to lower debt
levels and interest rates.
Income Taxes The effective income tax rate in 1992 was
34.7% compared to 31.4% in 1991. The
1991 provision for income taxes was
reduced by $3.4 million as a result of a
favorable ruling on certain local income
tax matters.
Property Transactions In 1992 the Company recorded a $.9
million net pretax gain from property
transactions primarily as a result of the
resolution of issues associated with
prior year transactions.
THIRTY-THREE
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CONSOLIDATED STATEMENTS OF INCOME
Hilton Hotels Corporation and Subsidiaries
(In millions, except per share amounts) Year Ended December 31, 1993 1993 1992 1991
------- ------- --------
Revenue Rooms $ 440.2 386.7 345.0
Food and beverage 236.8 216.2 204.4
Casino 502.1 438.8 392.4
Management and franchise fees 85.1 79.0 76.2
Other 93.8 82.5 64.4
Operating income from unconsolidated
affiliates 35.5 26.4 30.3
------- ------- -------
1,393.5 1,229.6 1,112.7
------- ------- -------
Expenses Rooms 152.5 131.9 119.9
Food and beverage 202.4 180.3 168.4
Casino 217.5 195.6 200.1
Other costs and expenses 554.4 476.9 416.4
Corporate expense 26.8 25.0 23.1
------- ------- ------
1,153.6 1,009.7 927.9
------- ------- ------
Operating Income 239.9 219.9 184.8
Interest and dividend income 21.8 16.4 11.3
Interest expense (80.4) (66.9) (58.1)
Interest expense, net, from
unconsolidated affiliates (14.6) (11.2) (15.6)
Property transactions, net (4.5) .9 .5
Foreign currency losses (1.3) -- --
------- ----- ------
Income Before Income Taxes 160.9 159.1 122.9
Provision for income taxes 58.2 55.2 38.6
------- ----- ------
Income Before Cumulative
Effect of Accounting Changes 102.7 103.9 84.3
Cumulative effect of accounting
changes, net 3.4 -- --
------- ----- ------
Net Income $ 106.1 103.9 84.3
======= ===== ======
Income Per Share Before cumulative effect of
accounting changes $ 2.14 2.17 1.76
Cumulative effect of accounting
changes, net .07 -- --
------- ------ ------
Net Income Per Share $ 2.21 2.17 1.76
======= ====== ======
See notes to consolidated financial statements
THIRTY-FOUR
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CONSOLIDATED BALANCE SHEETS
Hilton Hotels Corporation and Subsidiaries
(In millions) December 31, 1993 1992
--------- --------
ASSETS
Current Assets Cash and equivalents $ 380.4 348.5
Temporary investments 98.1 162.4
Other current assets 248.5 164.6
--------- ------
Total current assets 727.0 675.5
--------- ------
Investments, Property and Investments in and notes from
Other Assets unconsolidated affiliates 410.4 391.6
Other investments 71.7 168.8
Property and equipment, net 1,417.5 1,374.2
Other assets 48.2 49.3
-------- -------
Total investments, property and
other assets 1,947.8 1,983.9
-------- -------
Total Assets $2,674.8 2,659.4
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Current liabilities $ 277.9 364.9
Long-term debt 1,112.6 1,087.1
Deferred income taxes 140.6 147.2
Insurance reserves and other 87.0 57.7
-------- -------
Total liabilities 1,618.1 1,656.9
-------- -------
Stockholders' Equity Preferred stock, none outstanding -- --
Common stock, 47.8 million and 47.7 million
shares outstanding, respectively 127.6 127.6
Additional paid-in capital 1.9 4.4
Cumulative translation adjustment (1.5) --
Retained earnings 1,097.8 1,049.0
-------- -------
1,225.8 1,181.0
Less treasury stock, at cost 169.1 178.5
-------- -------
Total stockholders' equity 1,056.7 1,002.5
-------- -------
Total Liabilities and
Stockholders' Equity $2,674.8 2,659.4
======== =======
See notes to consolidated financial statements
THIRTY-FIVE
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Hilton Hotels Corporation and Subsidiaries
(In millions) Year Ended December 31, 1993 1992 1991
------- ------ ------
Operating Activities Net income $ 106.1 103.9 84.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 118.9 109.3 104.8
Change in working capital components:
Inventories .7 (2.3) .8
Accounts receivable (17.9) (2.6) 32.7
Other current assets (19.9) (10.0) 2.9
Accounts payable and accrued expenses (8.2) 53.1 7.8
Income taxes payable (9.2) (1.0) (17.0)
Decrease in deferred income taxes (6.6) (14.4) (4.2)
Change in other liabilities 29.4 (11.8) 1.8
Unconsolidated affiliates' distributions
in excess of earnings 20.1 11.2 24.7
Loss (gain) from property transactions 4.5 (.9) (.5)
Other 9.0 (7.8) (14.5)
-------- ------ ------
Net cash provided by operating activities 226.9 226.7 223.6
-------- ------ ------
Investing Activities Capital expenditures (156.8) (220.9) (78.5)
Additional investments (104.7) (53.6) (100.1)
Change in long-term marketable securities 91.2 (154.8) --
Change in temporary investments 64.3 (127.4) 11.8
Payments on notes receivable 4.5 5.4 4.0
Proceeds from property transactions -- 4.7 4.1
Other 1.4 1.4 2.4
------- ------ ------
Net cash used in investing activities (100.1) (545.2) (156.3)
------- ------ ------
Financing Activities Change in short-term borrowings (54.2) 65.0 --
Long-term borrowings 56.0 373.5 344.2
Reduction of long-term debt (46.3) (32.2) (94.8)
Issuance of common stock 6.9 2.9 2.2
Cash dividends (57.3) (57.1) (57.0)
------- ------ ------
Net cash (used in) provided by financing
activities (94.9) 352.1 194.6
------- ------ ------
Increase in Cash and Equivalents 31.9 33.6 261.9
Cash and Equivalents at Beginning of Year 348.5 314.9 53.0
------- ------ ------
Cash and Equivalents at End of Year $ 380.4 348.5 314.9
======= ====== ======
See notes to consolidated financial statements
THIRTY-SIX
10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Hilton Hotels Corporation and Subsidiaries
Total
Number of Additional Cumulative Stock-
Shares Common Paid-In Translation Retained Treasury holders'
(In millions, except per share amounts) Outstanding Stock Capital Adjustment Earnings Stock Equity
----------- ------ ---------- ---------- -------- -------- --------
Balance, December 31, 1990 47.5 $127.6 10.8 -- 974.9 (190.0) 923.3
Exercise of stock options -- -- (2.2) -- -- 4.4 2.2
Net income -- -- -- -- 84.3 -- 84.3
Dividends ($1.20 per share) -- -- -- -- (57.0) -- (57.0)
---- ------ ---- ---- ------- ------ -------
Balance, December 31, 1991 47.5 127.6 8.6 -- 1,002.2 (185.6) 952.8
Exercise of stock options .2 -- (4.2) -- -- 7.1 2.9
Net income -- -- -- -- 103.9 -- 103.9
Dividends ($1.20 per share) -- -- -- -- (57.1) -- (57.1)
---- ------ ---- ---- ------- ------ -------
Balance, December 31, 1992 47.7 127.6 4.4 -- 1,049.0 (178.5) 1,002.5
Exercise of stock options .1 -- (2.5) -- -- 9.4 6.9
Cumulative translation adjustment,
net of deferred tax benefit
of $.8 million -- -- -- (1.5) -- -- (1.5)
Net income -- -- -- -- 106.1 -- 106.1
Dividends ($1.20 per share) -- -- -- -- (57.3) -- (57.3)
---- ------ ---- ---- ------- ------ -------
Balance, December 31, 1993 47.8 $127.6 1.9 (1.5) 1,097.8 (169.1) 1,056.7
==== ====== ==== ===== ======= ====== =======
See notes to consolidated financial statements
THIRTY-SEVEN
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hilton Hotels Corporation and Subsidiaries
December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements
include the accounts of Hilton Hotels
Corporation and its majority and
wholly-owned subsidiaries (the Company).
All material intercompany transactions
are eliminated. There are no significant
restrictions on the transfer of funds
from the Company's wholly-owned
subsidiaries to Hilton Hotels
Corporation.
Investments in unconsolidated
affiliates are stated at cost adjusted by
equity in undistributed earnings.
Cash and Equivalents Cash and equivalents include investments
with initial maturities or put options of
three months or less.
Casino Revenues and Casino revenues are the aggregate of
Promotional Allowances gaming wins and losses. The revenue
components presented in the consolidated
financial statements and the notes
thereto exclude the retail value of
rooms, food and beverage provided to
customers on a complimentary basis. The
estimated cost of providing these
promotional allowances is as follows:
(In millions) 1993 1992 1991
----- ---- ----
Rooms $ 8.9 8.0 7.6
Food and beverage 27.6 21.7 19.6
----- ---- ----
Total cost of promotional allowances $36.5 29.7 27.2
===== ==== ====
The cost of promotional allowances has
been allocated to expense as follows:
(In millions) 1993 1992 1991
----- ---- ----
Casino $27.6 22.4 21.3
Other costs and expenses 8.9 7.3 5.9
----- ---- ----
Currency Translation Assets and liabilities denominated in
most foreign currencies are translated
into U.S. dollars at year end exchange
rates and related gains and losses, net
of applicable deferred income taxes, are
reflected in stockholders' equity. Gains
and losses from foreign currency
transactions and translation of balance
sheets in highly inflationary economies
are included in earnings.
Property, Equipment and Property and equipment are stated at cost.
Depreciation Interest incurred during construction of
facilities is capitalized and amortized
over the life of the asset.
Costs of improvements are capitalized.
Costs of normal repairs and maintenance
are charged to expense as incurred. Upon
the sale or retirement of property and
equipment, the cost and related
accumulated depreciation are removed from
the respective accounts, and the resulting
gain or loss, if any, is included in
income.
Depreciation has been computed using the
straight-line method over the estimated
useful lives of the assets. Leasehold
improvements are amortized over the
shorter of the asset life or lease term.
Pre-Opening Costs Costs associated with the opening of new
properties or major additions to
properties are deferred and charged to
income over a three year period after the
opening date.
Unamortized Loan Costs Debt discount and issuance costs incurred
in connection with long-term debt are
capitalized and amortized to expense,
principally on the bonds outstanding
method.
Self-Insurance The Company is self-insured for various
levels of general liability, workers'
compensation and employee medical and
life insurance coverage. Insurance
reserves include the present values of
projected settlements for claims.
Accounting Changes Effective January 1, 1993 the Company
adopted Statement of Financial Accounting
Standard (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits
Other Than Pensions. The new standard
requires the cost of postretirement
benefits to be accrued during the period
up to the date
THIRTY-EIGHT
12
covered employees are eligible to retire.
Prior to the adoption of SFAS No. 106, the
cost of these benefits was charged to expense
as incurred. The Company elected to
immediately recognize the prior periods'
obligation as a cumulative adjustment in the
first quarter of 1993.
Also effective January 1, 1993 the
Company adopted SFAS No. 109, Accounting
for Income Taxes, which requires, among
other things, that deferred tax balances
be determined using the enacted income
tax rates for the years in which the
taxes are actually paid or refunds
received. The Company elected to adopt
the new standard through a cumulative
adjustment in the first quarter of 1993.
Net Income Per Share Net income per share is based on the weighted
average number of common shares outstanding
plus the common share equivalents which arise
from the assumed exercise of stock options.
Reclassifications The consolidated financial statements for
prior years reflect certain reclassifications
to conform with classifications adopted in
1993. These reclassifications have no effect
on net income.
ACCOUNTS AND NOTES RECEIVABLE Included in other current assets at
December 31, 1993 and 1992 are accounts
and notes receivable as follows:
(In millions) 1993 1992
---- ----
Hotel accounts and notes receivable $110.0 93.8
Less allowance for doubtful accounts 11.6 7.2
------ ------
98.4 86.6
------ ------
Casino accounts receivable 47.9 47.0
Less allowance for doubtful accounts 7.6 14.4
------ ------
40.3 32.6
------ ------
Federal tax refund receivable -- 1.7
------ ------
Total $138.7 120.9
====== =====
An allowance is provided for estimated
uncollectible casino receivables. Such
allowances, net of recoveries, are
included in casino expenses in the amount
of $9.5 million, $7.3 million and $25.7
million in 1993, 1992 and 1991, respectively.
INVENTORIES Included in other current assets at
December 31, 1993 and 1992 are
inventories of $13.4 million and $14.1
million, respectively, determined on a
first-in, first-out basis.
INVESTMENTS The composition of the Company's total
investments in and notes from
unconsolidated affiliates at December 31,
1993 and 1992 is as follows:
(In millions) 1993 1992
---- ----
Investments
50% owned affiliates
Hotels (seven in 1993, eight in 1992) $189.5 210.0
Riverboat casino 8.3 --
Other 14.7 16.5
Less than 50% owned affiliates
Hotels (eight in 1993, seven in 1992) 65.6 35.5
Hotel-casinos (five in 1993, two in 1992) 65.6 56.6
Other 18.5 46.7
------ ------
362.2 365.3
Notes receivable 48.2 26.3
Total $410.4 391.6
====== ======
THIRTY-NINE
13
The changes in the Company's investments
in such affiliates are as follows:
(In millions) 1993 1992
------ -----
Investments, January 1 $365.3 330.4
Earnings 20.9 15.2
Distributions received (41.0) (26.4)
Additional investments 70.1 47.3
Other, net (6.4) (1.2)
------ -----
408.9 365.3
Less amount included in other current assets 46.7 --
------ -----
Investments, December 31 $362.2 365.3
====== =====
Management fees totaling $30.2 million,
$27.7 million and $27.0 million were
charged by the Company to its
unconsolidated affiliates in 1993, 1992
and 1991, respectively. Other group
services were provided to unconsolidated
affiliates with no significant element of
profit.
Summarized balance sheet information of
the 50% owned affiliates at December 31,
1993 and 1992 is as follows:
(In millions) 1993 1992
------ -----
Current assets $129.7 151.9
Property and other assets, net 706.3 707.2
Current liabilities 145.0 63.7
Long-term debt and other 245.4 313.8
Equity 445.6 481.6
------ -----
Summarized balance sheet information of
the less than 50% owned affiliates at
December 31, 1993 and 1992 is as follows:
(In millions) 1993 1992
------ -----
Current assets $ 134.8 106.2
Property and other assets, net 1,133.0 796.5
Current liabilities 241.4 116.0
Long-term debt and other 339.5 464.1
Equity 686.9 322.6
------ -----
Of long-term unconsolidated affiliate
obligations totaling $584.9 million at
December 31, 1993, $567.4 million is
secured solely by venture assets or is
guaranteed by other venture partners
without recourse to the Company.
The Company's proportionate shares of
capital expenditures and depreciation
expense of unconsolidated affiliates were
$59.8 million and $40.1 million,
respectively, in 1993, $44.3 million and
$37.4 million, respectively, in 1992, and
$24.2 million and $34.8 million,
respectively, in 1991.
Summarized results of operations of the
50% owned affiliates for the three years
ended December 31, 1993 are as follows:
(In millions) 1993 1992 1991
------ ----- -----
Revenue $516.2 509.6 478.0
Expenses 491.8 482.4 450.6
Net income 23.1 25.3 25.0
------ ----- -----
Summarized results of operations of the
less than 50% owned affiliates for the
three years ended December 31, 1993 are
as follows:
(In millions) 1993 1992 1991
------ ----- -----
Revenue $487.8 423.1 408.3
Expenses 432.0 402.6 386.4
Gain on extinguishment of debt 18.3 -- --
Net income 56.3 20.5 21.9
------ ----- -----
Other investments at December 31, 1993 and 1992
consist of:
(In millions) 1993 1992
------ -----
Long-term marketable securities $ 63.6 154.8
Other notes, net of $12.5 million reserve in 1993 8.1 14.0
------ -----
Total $ 71.7 168.8
====== =====
FORTY
14
PROPERTY AND EQUIPMENT
Property and equipment at December 31,
1993 and 1992 are as follows:
(In millions) 1993 1992
-------- -------
Land $ 145.2 145.9
Buildings and leasehold improvements 1,366.9 1,294.0
Furniture and equipment 457.1 430.0
Property held for sale or development 13.6 13.6
Construction in progress 60.0 41.1
-------- -------
2,042.8 1,924.6
Less accumulated depreciation 625.3 550.4
-------- -------
Total $1,417.5 1,374.2
======== =======
Purchases of property and equipment
financed with construction payables
totaled $2.9 million, $2.7 million and
$1.4 million in 1993, 1992 and 1991,
respectively.
CURRENT LIABILITIES
Current liabilities at December 31, 1993
and 1992 are as follows:
(In millions) 1993 1992
------ -----
Accounts payable and accrued expenses $228.5 236.5
Short-term borrowings 10.8 65.0
Current maturities of long-term debt 29.8 45.4
Income taxes payable 8.8 18.0
------ -----
Total $277.9 364.9
====== =====
LONG-TERM DEBT
Long-term debt at December 31, 1993 and
1992 is as follows:
(In millions) 1993 1992
-------- -------
Industrial development revenue bonds
at adjustable rates, due 2015 $ 82.0 82.0
Senior notes, 7.70% to 9.95%, due 1994 to 2002 687.4 732.3
Commercial paper 347.6 315.0
Revolving loans, with an average rate of 3.48%
at December 31, 1993 22.4 --
Other 3.0 3.2
-------- -------
1,142.4 1,132.5
Less current maturities 29.8 45.4
-------- -------
Net long-term debt $1,112.6 1,087.1
======== =======
Of the $687.4 million in senior notes,
$94.5 million is redeemable by the
Company at par plus accrued interest on
June 1, 1995.
Interest paid, net of amounts
capitalized, was $79.8 million, $63.0
million and $54.8 million in 1993, 1992
and 1991, respectively. Capitalized
interest amounted to $2.0 million, $4.9
million and $5.2 million, respectively.
Debt maturities during the next five
years are as follows:
(In millions)
1994 $ 29.8
1995 34.8
1996 517.8
1997 --
1998 178.7
-----
Secured debt obligations of $82.0 million
at December 31, 1993 are collateralized
by property with a net book value of
$63.5 million and are payable over
remaining terms ranging to 21 years.
Under registration statements currently
on file with the Securities and Exchange
Commission, the
FORTY-ONE
15
Company can offer up to $999.2 million in
either senior notes or a combination of
senior and subordinated notes, with the
subordinated notes limited to $300
million.
The Company also has authorization to
issue up to $300 million in private debt
securities. However, the maximum
principal amount of public debt
securities and private debt securities,
either exclusively in the form of public
senior debt securities, public
subordinated debt securities and private
debt securities, is limited to $1 billion.
Available financing under the
aforementioned public and private
authorizations totaled $312.6 million at
December 31, 1993.
The Company has authorization to issue
up to $600 million of commercial paper.
During 1993, 1992 and 1991 the Company
issued and renewed commercial paper and
private notes for varying periods with
interest at market rates. The Company
had $358.4 million, $380.0 million and
$241.6 million in commercial paper and
private notes outstanding at December 31,
1993, 1992 and 1991, respectively. In
1993, 1992 and 1991 average amounts of
commercial paper and private notes
outstanding were $273.1 million, $210.7
million and $172.6 million, respectively,
with the largest amounts outstanding at
any one time being $358.4 million, $391.4
million, and $319.4 million, respectively.
Weighted average interest rates were 3.16%,
3.71% and 5.96%, respectively. Available
commercial paper financing at December 31,
1993 was $241.6 million.
At December 31, 1993 the Company had
$370 million in long-term revolving
credit lines, of which $347.6 million
supported the issuance of commercial
paper.
At December 31, 1993 the Company was
party to 15 interest rate swap agreements
having a total notional principal amount
of $110 million. These swap agreements
have a weighted average fixed rate of
8.52% and an average remaining life of
1.8 years. The Company is exposed to a
potential financial loss in the event of
nonperformance by the other parties to
the swap agreements. However, the
Company does not anticipate
nonperformance by the counterparties.
Provisions under various loan
agreements require the Company to comply
with certain financial covenants which
include maintaining a minimum
consolidated tangible net worth and
limiting the amount of outstanding
indebtedness.
FINANCIAL INSTRUMENTS
Cash Equivalents and The carrying amount of cash equivalents
Temporary Investments and temporary investments approximates
fair value.
Long-Term Marketable The fair value of long-term marketable
Securities securities is estimated based on the
quoted market price of the investments.
Other Financial Instruments It is not practicable to estimate the
fair value of notes receivable and a cost
basis investment, the carrying values of
which totaled $69.4 million in 1993 and
$87.2 million in 1992. The Company
received cash payments of $4.5 million
and $6.0 million with respect to such
investments in 1993 and 1992,
respectively.
Short-Term Borrowings The carrying amount of short-term
borrowings, principally commercial paper,
approximates fair value.
Long-Term Debt The estimated fair value of long-term
debt is based on the quoted market prices
for the same or similar issues or on the
current rates offered to the Company for
debt of the same remaining maturities.
Interest Rate Swap Agreements The fair value of interest rate swap
agreements is the estimated amount that
the Company would pay to terminate the
swap agreements at the reporting date,
taking into account current interest
rates and the current creditworthiness of
the swap counterparties.
Foreign Currency Exchange The fair value of foreign currency
Contracts exchange contracts is estimated based on
the quoted market prices of these
instruments.
The estimated fair values of the
Company's financial instruments at
December 31, 1993 and 1992 are as
follows:
1993 1992
---------------------- ----------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
-------- ------- ------- -------
Cash and equivalents and
temporary investments $ 478.5 478.5 510.9 510.9
Long-term marketable securities 63.6 63.6 154.8 155.2
Short-term borrowings 10.8 10.8 65.0 65.0
Long-term debt (including current
maturities) 1,142.4 1,203.5 1,132.5 1,173.5
Unrecognized financial instruments:
Interest rate swaps in net
payable position -- 9.2 -- 10.1
Foreign currency exchange contracts -- 3.2 -- --
-------- ------- ------- -------
FORTY-TWO
16
INCOME TAXES
Effective January 1, 1993 the Company
adopted SFAS No. 109, Accounting for
Income Taxes. As permissible under the
new standard, the Company reflected the
impact as a cumulative adjustment in the
1993 first quarter and did not restate
prior periods. The cumulative adjustment
had a favorable impact on net income of
$8.0 million.
The provisions for income taxes for the
three years ended December 31, 1993 are as
follows:
(In millions) 1993 1992 1991
----- ---- ----
Current
Federal $65.9 57.6 30.1
State, foreign and local 1.5 4.0 .5
----- ---- ----
67.4 61.6 30.6
Deferred (9.2) (6.4) 8.0
----- ---- ----
Total $58.2 55.2 38.6
===== ==== ====
The components of deferred income tax
expense were as follows:
(In millions) 1993 1992 1991
------ ---- ----
Fixed assets, primarily depreciation $ -- 3.3 5.3
Investments in unconsolidated affiliates -- -- 3.5
Self-insurance reserves (2.1) (4.3) (1.2)
Benefit plans (2.4) -- 4.2
Valuation reserves (5.0) -- --
Other, net (3.0) (5.4) (3.8)
------ ---- ----
(12.5) (6.4) 8.0
Effect of the increase in the Federal statutory
rate on deferred income tax balances 3.3 -- --
------ ---- ----
Total $ (9.2) (6.4) 8.0
====== ==== ====
During 1993, 1992 and 1991 the Company
paid income taxes of $74.1 million, $70.8
million and $56.8 million, respectively.
The income tax effects of temporary
differences between financial and income
tax reporting that gave rise to deferred
income tax assets and liabilities at
December 31, 1993, under the provisions
of SFAS No. 109, are as follows:
(In millions) Assets Liabilities Total
------- ----------- ------
Current deferred income taxes
Bad debt reserves $ 8.1 -- 8.1
Accrued expenses 12.5 -- 12.5
Other .9 -- .9
----- ------ ------
Total $21.5 -- 21.5
===== ====== ======
Non-current deferred income taxes
Fixed assets, primarily
depreciation $ -- (98.4) (98.4)
Investments in unconsolidated affiliates -- (63.7) (63.7)
Self-insurance reserves 26.5 -- 26.5
Benefit plans 2.7 (5.8) (3.1)
Valuation reserves 5.5 -- 5.5
Other 12.2 (19.6) (7.4)
----- ------ ------
Total $46.9 (187.5) (140.6)
===== ====== ======
FORTY-THREE
17
Reconciliation of the Federal income tax
rate and the Company's effective tax rate
is as follows:
1993 1992 1991
---- ---- -----
Federal income tax rate 35.0% 34.0 34.0
Increase (reduction) in taxes:
Adjustment to deferred tax balances due
to increase in Federal statutory rate 2.0 -- --
State, foreign and local income
taxes, net of Federal tax benefits .7 1.7 .2
Benefit of dividend and municipal bond income (.3) (.6) (1.4)
Other (1.2) (.4) (1.4)
---- ---- ----
Effective tax rate 36.2% 34.7 31.4
==== ==== ====
CAPITAL STOCK Ninety million shares of common stock
with a par value of $2.50 per share are
authorized, of which 51.0 million were
issued at December 31, 1993 and 1992,
including treasury shares of 3.2 million
and 3.3 million in 1993 and 1992,
respectively.
Ten million shares of preferred stock
with a par value of $1.00 per share are
authorized. The shares are issuable in
series. No shares were outstanding in
1993 or 1992.
The Company has a Share Purchase Rights
Plan, under which a right is attached to
each share of the Company's common stock.
The rights may only become exercisable
under certain circumstances involving
actual or potential acquisitions of the
Company's common stock by a specified
person or affiliated group. Depending on
the circumstances, if the rights become
exercisable, the holder may be entitled
to purchase units of the Company's junior
participating preferred stock, shares of
the Company's common stock or shares of
common stock of the acquiror. The rights
remain in existence until July 25, 1998
unless they are terminated, exercised or
redeemed.
At December 31, 1993, 1.8 million
shares of common stock were reserved for
the exercise of options under the
Company's stock option plans. Options
may be granted to salaried officers and
other key employees of the Company to
purchase common stock at not less than
fair market value at the date of grant.
Options may be exercised in
installments commencing one year after
the date of grant. The plan also permits
the granting of Stock Appreciation Rights
(SARs). No SARs have been granted as of
December 31, 1993.
Changes in stock options during 1993
were as follows:
Options
Price Range Options Available
(Per Share) Outstanding for Grant
------------- ----------- ---------
Balance at January 1 $21.31-111.63 1,491,874 474,339
Granted 46.94- 49.00 89,000 (89,000)
Exercised 21.31- 52.06 (174,010) --
Cancelled 29.63-111.63 (54,438) 54,438
------------- --------- -------
Balance at December 31 28.34- 53.19 1,352,426 439,777
------------- ========= =======
Exercisable at December 31 28.34- 53.19 816,748
------------- ---------
Under provisions of Nevada, New Jersey
and other gaming laws, and the Company's
certificate of incorporation, certain
securities of the Company are subject to
restrictions on ownership which may be
imposed by specified governmental
commissions. Such restrictions may
require the holder to dispose of the
securities or, if the holder refuses to
make such disposition, the Company may be
obligated to repurchase the securities.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory
retirement plan (Basic Plan) covering
substantially all regular full-time,
nonunion employees. The Company also has
plans covering qualifying officers and
non-officer directors (Supplemental
Plans). Benefits for all plans are based
upon years of service and compensation,
as defined.
The Company's funding policy is to
contribute not less than the minimum
amount required under Federal law, but
not more than the maximum deductible for
Federal income tax purposes.
Contributions are intended to provide not
only for benefits attributed to service
to date, but also for benefits expected
to be earned in the future.
FORTY-FOUR
18
The following sets forth the funded
status for the Basic Plan as of December
31, 1993 and 1992:
(In millions) 1993 1992
======= ======
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of
$(133.8) and $(109.2), respectively $(136.8) (112.6)
Projected benefit obligation for service rendered to date $(181.0) (150.0)
Plan assets at fair value, primarily
listed securities and temporary investments 150.3 132.4
------- ------
Projected benefit obligation in excess of plan assets (30.7) (17.6)
Unrecognized net loss from changes in assumptions 40.2 29.6
Unrecognized net asset as of January 1, 1986 (9.3) (10.7)
------- ------
Prepaid pension cost $ .2 1.3
======= ======
Pension cost includes the following components:
Service cost $ 8.7 6.6
Interest cost on projected benefit obligation 12.5 11.3
Actual return on assets (15.1) (8.8)
Net amortization 2.8 (3.2)
------- ------
Net periodic cost before allocation 8.9 5.9
Cost allocated to managed properties 1.9 1.6
------- ------
Net periodic pension cost $ 7.0 4.3
======= ======
Included in plan assets at fair value are
securities of the Company of $17.6
million and $12.5 million at December 31,
1993 and 1992, respectively.
The following sets forth the funded
status for the Supplemental Plans as of
December 31, 1993 and 1992:
(In millions) 1993 1992
------ ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $(16.3) and $(16.2), respectively $(16.3) (16.2)
====== ======
Projected benefit obligation for service rendered to date $(17.3) (16.5)
Plan assets at fair value 15.4 16.6
------ ------
Projected benefit obligation (in excess of) less than plan assets (1.9) .1
Unrecognized net loss from changes in assumptions 8.7 12.0
Unrecognized obligation as of January 1, 1986 2.5 2.8
------ ------
Prepaid pension cost $ 9.3 14.9
====== ======
Pension cost includes the following components:
Service cost $ .9 .6
Interest cost on projected benefit obligation 1.0 1.3
Actual return on assets (increase) decrease (1.7) .2
Net amortization 2.5 .2
------ ------
Net periodic pension cost $ 2.7 2.3
====== ======
The discount rates used in determining
the actuarial present values of the
projected benefit obligations were seven
and one-half percent in 1993 and eight
percent in 1992, with the rate of
increase in future compensation projected
at five and one-half percent in 1993 and
1992. The expected long-term rate of
return on assets is nine percent. The
unrecognized net (asset) obligation is
being amortized over a 15 year period.
Unrecognized net gains and losses on plan
assets are amortized over a five year
period.
A significant number of the Company's
employees are covered by union sponsored,
collectively bargained multi-employer
pension plans. The Company contributed
and charged to expense $9.3 million, $8.4
million and $8.2 million in 1993, 1992
and 1991, respectively, for such plans.
Information from the plans'
administrators is not sufficient to
permit the Company to determine its
share, if any, of unfunded vested
benefits.
The Company also has an employee
investment plan whereby the Company
contributes certain percentages of
employee contributions. The cost of the
plan is not significant.
FORTY-FIVE
19
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides life insurance
benefits to certain retired employees.
Under terms of the plan covering such
life insurance benefits, the Company
reserves the right to change, modify or
discontinue these benefits. The Company
does not provide postretirement health
care benefits to its employees.
Effective January 1, 1993 the Company
adopted SFAS No. 106, Employers'
Accounting for Postretirement Benefits
Other Than Pensions. As permissible
under the new standard, the Company
reflected the impact as a cumulative
adjustment in the 1993 first quarter and
did not restate prior periods. The
cumulative adjustment resulted in a
charge to net income of $4.6 million, net
of a $2.3 million deferred tax benefit.
The incremental effect on 1993 results of
adopting SFAS No. 106 was a pretax charge
of $.9 million.
The Company's unfunded accumulated
postretirement benefit obligation as of
December 31, 1993 was as follows:
(In millions) 1993
-----
Retirees $(2.5)
Active employees - fully eligible (2.9)
Active employees - not fully eligible (2.8)
-----
(8.2)
Unrecognized net loss .7
-----
Accumulated postretirement benefit obligation $(7.5)
=====
Postretirement cost includes the following components:
Service cost $ .3
Interest cost on projected benefit obligation .6
-----
Total postretirement benefit cost $ .9
=====
The discount rate used in determining the
actuarial present value of the
accumulated postretirement benefit
obligation was seven and one-half
percent, with the annual rate of increase
in future compensation projected at five
and one-half percent.
SEGMENTS OF BUSINESS
Financial data of the Company's business
segments for the years ended December 31,
1993, 1992 and 1991 are as follows:
(In millions) 1993 1992 1991
-------- ------- -------
Depreciation (1)
Hotels $ 83.4 79.5 75.7
Gaming 65.1 54.8 49.9
Corporate 3.4 3.3 3.2
-------- ------- -------
Total $ 151.9 137.6 128.8
======== ======= =======
Capital expenditures (1)
Hotels $ 70.6 76.1 69.3
Gaming 144.2 188.9 32.2
Corporate 1.9 1.5 .7
-------- ------- -------
Total $ 216.7 266.5 102.2
======== ======= =======
Assets
Hotels (2) $ 940.7 917.4 903.3
Gaming (2) 1,085.7 987.7 836.3
Corporate 648.4 754.3 447.2
-------- ------- -------
Total $2,674.8 2,659.4 2,186.8
======== ======= =======
(1) Includes Hilton's proportionate
share of unconsolidated affiliates.
(2) Includes investments in
unconsolidated affiliates.
FORTY-SIX
20
Supplemental hotels segment operating
data for the three years ended December
31, 1993 are as follows:
(In millions) 1993 1992 1991
-------- ----- -----
Revenue
Rooms $252.9 226.7 211.0
Food and beverage 113.5 104.2 100.5
Management and franchise fees 78.7 72.4 69.4
Other products and services 44.5 42.4 36.9
Operating income from unconsolidated affiliates 30.4 24.7 26.1
------ ----- -----
520.0 470.4 443.9
------ ----- -----
Expenses
Rooms 83.9 74.4 69.0
Food and beverage 93.7 86.8 83.6
Other costs and expenses 246.2 217.7 198.4
------ ----- -----
423.8 378.9 351.0
------ ----- -----
Hotels operating income $ 96.2 91.5 92.9
====== ===== =====
Supplemental gaming segment operating
data for the three years ended December
31, 1993 are as follows:
(In millions) 1993 1992 1991
------ ----- -----
Revenue
Rooms $187.3 160.0 134.0
Food and beverage 123.3 112.0 103.9
Casino 502.1 438.8 392.4
Other products and services 49.3 40.0 27.5
Management fees 6.4 6.7 6.8
Operating income from unconsolidated affiliates 5.1 1.7 4.2
------ ----- -----
873.5 759.2 668.8
------ ----- -----
Expenses
Rooms 68.6 57.5 50.9
Food and beverage 108.7 93.5 84.8
Casino 217.5 195.6 200.1
Other costs and expenses 308.2 259.2 218.0
------ ----- -----
703.0 605.8 553.8
------ ----- -----
Gaming operating income $170.5 153.4 115.0
====== ===== =====
LEASES
The Company operates eight properties
under noncancellable operating leases,
all of which are for land only, having
remaining terms up to 40 years. Upon
expiration of four of the leases, the
Company has renewal options of 25, 30, 30
and 50 years. Seven leases require the
payment of additional rentals based on
varying percentages of revenue or income.
Minimum lease commitments under
noncancellable operating leases are as
follows:
Year ending December 31, (In millions)
------------------------
1994 $ 5.4
1995 4.8
1996 3.6
1997 3.3
1998 2.9
1999 to 2033 54.2
-----
Total $74.2
=====
Total lease rental expense for all operating leases
is composed of:
(In millions) 1993 1992 1991
------ ----- -----
Minimum rentals $ 6.4 5.5 5.1
Additional rentals 4.9 4.0 3.6
----- ----- -----
Total $11.3 9.5 8.7
===== ===== =====
FORTY-SEVEN
21
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1993 the Company had
contractual commitments at its wholly-owned or
leased properties for major expansion and
rehabilitation projects of approximately $34.4
million. Additionally, the Company is committed,
under certain conditions, to invest or loan up to
$204.3 million to entities developing hotel,
gaming and vacation ownership properties.
The Company has entered into a hotel
management agreement whereby it
guarantees certain payments and loans to
the hotel owners if agreed upon levels of
financial performance are not maintained.
The Company does not believe it is likely
that material payments will be required
under this agreement. In addition, in
the event the Company terminates this
agreement, it may be obligated to pay
$9.5 million to the hotel owners.
In September 1992 a lawsuit was initiated by
AMRIS, an affiliate of AMR Corporation, against
affiliates of Marriott Corporation (Marriott),
Budget Rent-A-Car, Inc. (Budget) and the Company.
The lawsuit related to the formation of a joint
venture in 1988 among the partners to develop
CONFIRM, an integrated travel reservation system
using state-of-the-art computer technology. In
April 1992 AMRIS, the developer of CONFIRM,
advised the other partners that the scheduled
delivery and installation of CONFIRM in mid-1992
would be delayed approximately 15 to 18 months.
After evaluating the impact of this delay,
Marriott, Budget and the Company chose to
discontinue their involvement with the project.
In January 1994 the Company and its partners
agreed to a settlement, pursuant to which the
Company recovered the full amount of its
investment in the partnership.
In October 1991 a lawsuit was initiated by
Hilton International Co. (HI) against the
Company. In this action, HI alleges generally
that the development and marketing by the Company
of its hotels outside of the United States under
the Conrad name violate the terms of certain
agreements between HI and the Company. In 1964
the Company spun off its Hilton International
operations to the Company's stockholders and
entered into an agreement with HI, as
subsequently amended, generally granting the
Company certain rights with respect to the Hilton
service mark in the United States and HI certain
rights to the Hilton service mark outside the
United States. The complaint seeks, among other
things, injunctive relief against use by the
Company of the Conrad name for its hotels outside
the United States and damages in excess of $100
million. The Company believes that this action
is without merit and is defending against it
vigorously.
In management's opinion, disposition of the HI
lawsuit, and various other lawsuits pending
against the Company, is not expected to have a
material effect on the Company's financial
position.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
Quarterly Financial Data (In millions, except per share amounts,
stock prices and percentages)
Income Net
Occupancy(1) Before Income
-------------- Operating Income Net Per Dividends High/Low
Hotels Gaming Revenue Income Taxes Income Share Per Share Stock Price
------ ------ -------- --------- ------ ------ ----- --------- -----------
1993 1st Quarter (2) 66% 81 $ 331.6 54.6 36.4 26.5 .55 .30 53.25/41.75
2nd Quarter 70 87 345.2 60.2 42.5 26.8 .56 .30 53.38/42.88
3rd Quarter 68 90 346.7 66.1 40.0 20.5 .43 .30 50.00/41.50
4th Quarter 64 84 370.0 59.0 42.0 32.3 .67 .30 61.00/44.38
--- --- -------- ----- ----- ----- ---- ---- -----------
Year 67% 86 $1,393.5 239.9 160.9 106.1 2.21 1.20 61.00/41.50
=== === ======== ===== ===== ===== ==== ==== ===========
1992 1st Quarter 62% 82 $ 276.3 48.5 34.4 22.2 .46 .30 49.88/39.75
2nd Quarter 69 88 294.8 61.9 48.7 32.4 .68 .30 53.25/44.00
3rd Quarter 70 87 323.0 53.1 36.5 22.8 .48 .30 48.50/42.38
4th Quarter 64 83 335.5 56.4 39.5 26.5 .55 .30 47.25/41.38
--- --- -------- ----- ----- ----- ---- ---- -----------
Year 66% 85 $1,229.6 219.9 159.1 103.9 2.17 1.20 53.25/39.75
=== === ======== ===== ===== ===== ==== ==== ===========
(1) Properties owned or managed
(2) The 1993 1st quarter included additional net
income of $3.4 million or $.07 per share
resulting from the implementation of new
accounting standards.
As of December 31, 1993 there were approximately
5,000 stockholders of record.
FORTY-EIGHT
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Hilton Hotels Corporation:
We have audited the accompanying
consolidated balance sheets of Hilton
Hotels Corporation (a Delaware
corporation) and subsidiaries as of
December 31, 1993 and 1992, and the
related consolidated statements of
income, stockholders' equity and cash
flows for each of the three years in the
period ended December 31, 1993. These
financial statements are the
responsibility of the Company's
management. Our responsibility is to
express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance
with generally accepted auditing
standards. Those standards require that
we plan and perform the audit to obtain
reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes
examining, on a test basis, evidence
supporting the amounts and disclosures in
the financial statements. An audit also
includes assessing the accounting
principles used and significant estimates
made by management, as well as evaluating
the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our
opinion.
In our opinion, the financial
statements referred to above present
fairly, in all material respects, the
financial position of Hilton Hotels
Corporation and subsidiaries as of
December 31, 1993 and 1992 and the
results of their operations and their
cash flows for each of the three years in
the period ended December 31, 1993, in
conformity with generally accepted
accounting principles.
As discussed in the Accounting Changes
note to the consolidated financial
statements, in 1993 the Company changed
its methods of accounting for income
taxes and postretirement benefits other
than pensions.
ARTHUR ANDERSEN & CO.
Los Angeles, California
February 2, 1994
FORTY-NINE
23
HILTON HOTELS CORPORATION AND SUBSIDIARIES TEN YEAR SUMMARY
(Dollars in millions, except per share amounts) 1993 1992
-------- -------
Operating Data for Years Revenue
Ended December 31 Hotels (1) $1,826.2 1,678.0
Management fees 42.7 37.0
Franchise fees 36.0 35.4
-------- -------
Total hotels 1,904.9 1,750.4
Gaming (1) 1,062.0 932.4
-------- -------
Total 2,966.9 2,682.8
Less nonconsolidated managed 1,608.9 1,479.6
-------- -------
Total revenue from consolidated operations $1,358.0 1,203.2
======== =======
Operating income
Hotels (2) $ 96.2 91.5
Gaming (2) 170.5 153.4
Corporate expense (26.8) (25.0)
-------- -------
Total 239.9 219.9
Net interest expense (2) (73.2) (61.7)
Property transactions, net (4.5) .9
Foreign currency losses (1.3) --
Provision for income taxes (58.2) (55.2)
-------- -------
Income before cumulative effect of accounting changes 102.7 103.9
Cumulative effect of accounting changes, net 3.4 --
-------- -------
Net income $ 106.1 103.9
======== =======
Depreciation (2) 151.9 137.6
Capital expenditures (2) 216.7 266.5
-------- -------
Stockholder Data Net income per share $ 2.21 2.17
Average common and equivalent shares 48.0 47.9
Stockholders' equity $1,056.7 1,002.5
Stockholders' equity per share 22.11 21.02
Return on average stockholders' equity 10.3% 10.6
Dividends per share $ 1.20 1.20
Market price per share - high/low 61/42 53/40
-------- -------
Financial Position
at Year End Working capital $ 449.1 310.6
Assets 2,674.8 2,659.4
Long-term debt 1,112.6 1,087.1
Ratio of long-term debt to total capital (3) .46 .47
-------- -------
General Information Percentage of occupancy (1)
Hotels 67 66
Gaming 86 85
-------- -------
Number of properties at year end
Wholly-owned or leased hotels 18 16
Partially owned hotels 15 15
Managed hotels 26 25
Franchised hotels 171 180
Wholly or partially owned hotel-casinos 7 7
-------- -------
Total 237 243
======== =======
Available rooms at year end
Wholly-owned or leased hotels 9,160 8,729
Partially owned hotels 14,991 13,982
Managed hotels 15,940 14,908
Franchised hotels 42,816 45,002
Wholly or partially owned hotel-casinos 12,045 12,557
-------- -------
Total 94,952 95,178
======== =======
(1) Includes properties owned or managed.
(2) Includes Hilton's proportionate share of unconsolidated affiliates.
(3) Total capital represents total assets less current liabilities.
24
1991 1990 1989 1988 1987 1986 1985 1984
- ------- ------- ------- ------- ------- ------- ------- -------
1,526.5 1,558.4 1,500.6 1,395.2 1,279.4 1,228.3 1,138.8 1,086.3
35.4 36.9 34.4 33.3 31.3 28.8 28.2 25.4
34.0 34.6 34.2 33.5 31.9 30.7 28.2 26.2
- ------- ------- ------- ------- ------- ------- ------- -------
1,595.9 1,629.9 1,569.2 1,462.0 1,342.6 1,287.8 1,195.2 1,137.9
839.3 824.6 694.3 695.3 589.7 483.7 366.7 341.0
- ------- ------- ------- ------- ------- ------- ------- -------
2,435.2 2,454.5 2,263.5 2,157.3 1,932.3 1,771.5 1,561.9 1,478.9
1,352.8 1,367.4 1,309.4 1,241.9 1,116.9 1,052.5 877.5 831.6
- ------- ------- ------- ------- ------- ------- ------- -------
1,082.4 1,087.1 954.1 915.4 815.4 719.0 684.4 647.3
======= ======= ======= ======= ======= ======= ======= =======
92.9 120.6 129.3 115.1 100.7 83.6 90.5 107.8
115.0 130.4 102.6 128.6 107.7 88.1 76.4 69.7
(23.1) (29.2) (25.6) (20.8) (18.3) (17.6) (15.0) (10.7)
- ------- ------- ------- ------- ------- ------- ------- -------
184.8 221.8 206.3 222.9 190.1 154.1 151.9 166.8
(62.4) (54.7) (43.8) (38.1) (22.0) (22.1) (11.7) (3.2)
.5 -- (3.7) -- 43.8 (2.5) 3.1 27.9
-- -- -- -- -- -- -- --
(38.6) (54.6) (48.7) (53.9) (72.0) (31.7) (43.1) (77.5)
- ------- ------- ------- ------- ------- ------- ------- -------
84.3 112.5 110.1 130.9 139.9 97.8 100.2 114.0
-- -- -- -- -- -- -- --
- ------- ------- ------- ------- ------- ------- ------- -------
84.3 112.5 110.1 130.9 139.9 97.8 100.2 114.0
======= ======= ======= ======= ======= ======= ======= =======
128.8 119.4 104.8 89.5 80.5 71.3 65.4 58.9
102.2 262.4 367.1 386.8 205.6 240.7 293.1 261.4
- ------- ------- ------- ------- ------- ------- ------- -------
1.76 2.34 2.27 2.72 2.80 1.96 2.01 2.16
47.8 48.1 48.5 48.1 50.0 49.9 49.8 52.7
952.8 923.3 883.0 814.1 772.8 707.3 651.4 592.8
20.06 19.44 18.40 17.03 15.80 14.23 13.16 12.00
9.0 12.5 13.0 16.5 18.9 14.4 16.1 18.6
1.20 1.15 1.00 .95 .90 .90 .90 .90
50/34 84/26 116/48 55/34 46/28 40/30 37/28 29/23
- ------- ------- ------- ------- ------- ------- ------- -------
306.6 43.8 22.9 279.5 206.9 173.4 259.3 125.7
2,186.8 1,926.7 2,216.0 1,892.5 1,423.6 1,302.3 1,225.6 1,163.8
789.0 526.6 487.1 568.5 283.7 280.9 284.3 275.6
.40 .31 .30 .36 .22 .24 .26 .27
- ------- ------- ------- ------- ------- ------- ------- -------
64 68 69 70 68 65 64 64
84 84 86 87 84 84 86 84
- ------- ------- ------- ------- ------- ------- ------- -------
16 14 13 9 8 8 11 11
15 15 14 12 13 14 14 13
23 21 22 21 22 22 23 22
199 208 214 225 224 223 218 204
5 5 4 4 4 4 4 3
- ------- ------- ------- ------- ------- ------- ------- -------
258 263 267 271 271 271 270 253
======= ======= ======= ======= ======= ======= ======= =======
8,756 7,696 7,739 6,494 6,027 6,085 7,399 7,580
13,938 14,311 13,750 13,409 13,528 14,350 14,123 12,904
13,788 12,888 13,518 13,383 14,183 13,425 13,692 13,258
49,131 51,559 52,612 54,876 55,641 55,602 54,285 49,543
9,929 9,929 7,411 7,326 7,318 7,318 6,602 6,025
- ------- ------- ------- ------- ------- ------- ------- -------
95,542 96,383 95,030 95,488 96,697 96,780 96,101 89,310
======= ======= ======= ======= ======= ======= ======= =======
FIFTY-ONE