FINANCIAL INFORMATION
- - -------------------------------------------------------------------------------------------------------------------------------
18 24 25 26 27
Management's Discussion Consolidated Consolidated Consolidated Consolidated Statements
and Analysis Statements of Income Balance Sheets Statements of Cash Flow of Stockholders' Equity
- - -------------------------------------------------------------------------------------------------------------------------------
28 36 37 39
Notes to Consolidated Report of Independent Supplementary Five Year Summary
Financial Statements Public Accountants Financial Information
[PHOTO] [PHOTO] [PHOTO]
HILTON WASHINGTON & TOWERS HILTON GARDEN INN RALEIGH-DURHAM HILTON SAN DIEGO MISSION BAY RESORT
17 Hilton Hotels Corporation
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company")
completed a spin-off that split the Company's operations into two independent
public corporations, one for conducting its hotel business and one for
conducting its gaming business. Hilton has retained ownership of the hotel
business. Hilton transferred the gaming business to a new corporation named
Park Place Entertainment Corporation ("Park Place"), and distributed the
stock of Park Place tax-free to Hilton stockholders on a one-for-one basis.
As a result of the spin-off, Hilton's historical financial statements have
been restated to reflect the gaming business as discontinued operations. The
following discussion and analysis of financial condition and results of
operations is that of Hilton's continuing operations.
FINANCIAL CONDITION
LIQUIDITY
Net cash provided by operating activities totaled $390 million and $229
million for the years ended December 31, 1998 and 1997, respectively. The
increase was primarily attributable to continued strength at many of the
Company's owned and partially owned full-service hotels and the benefit of
cash flow from newly acquired hotel properties.
ACQUISITIONS AND CAPITAL SPENDING
Net cash used in investing activities was $1,062 million in 1998 compared to
$60 million in 1997. The increase was due primarily to new hotel acquisitions
and construction costs. In addition, the 1997 period reflects $123 million of
cash proceeds from asset sales, primarily the sale of the Company's interest
in the Conrad International Hong Kong. Expenditures required to complete
acquisitions and capital spending programs in 1999 will be financed through
available cash flows and general corporate borrowings.
Growth in the hotel segment continues through selective acquisition of
large full-service hotels in major market locations. In December 1997 and
January 1998, the Company acquired the remaining interests in the Hilton
Chicago & Towers, Hilton San Francisco & Towers, Hilton Washington & Towers,
Hilton Rye Town and Capital Hilton from The Prudential Insurance Company of
America ("Prudential"), thereby increasing the Company's ownership interest
in each property to 100%.
In January 1998, the Company purchased The Prospect Company's 92.5%
ownership interest in the 458-room Hilton McLean Tysons Corner in McLean,
Virginia located just outside Washington D.C., thereby increasing the
Company's ownership interest to 100%. In March 1998, the Company purchased
the 300-room Hilton Short Hills, a "Five Diamond" hotel located in Short
Hills, New Jersey.
In April 1998, the Company purchased the 407-room Westin Hotel in
Charlotte, North Carolina (re-named the Hilton Charlotte & Towers) and the
395-room Hilton DFW Lakes Executive Conference Center at the Dallas-Ft. Worth
International Airport. In July 1998, the Company purchased the 405-room
Hilton East Brunswick & Towers in East Brunswick, New Jersey.
In June 1998, the Company entered into an agreement with Prudential to
restructure their joint venture ownership of the 2,545-room Hilton Hawaiian
Village, and in September 1998, the Company increased its investment in the
joint venture from 50% to 98%. In August 1998, the Company acquired a 75%
interest in the 585-room Pointe Hilton Tapatio Cliffs Resort in Phoenix,
Arizona.
In December 1998, the Company purchased the 394-room Sheraton Grande Torrey
Pines (re-named the Hilton La Jolla Torrey Pines). The Company leases the
land underlying the hotel. The resort is located adjacent to two world-famous
Torrey Pines Golf Courses along the Pacific Coast in La Jolla, California.
The hotel acquisitions completed during 1998 totaled approximately $950
million, including the assumption of debt. Each of these acquisitions was
completed at a discount to replacement cost. In February 1999, the Company
acquired the 495-room Radisson Plaza Hotel at Mark Center in Alexandria,
Virginia (re-named the Hilton Alexandria Mark Center) for approximately $52
million. The Company expects to make further acquisitions in 1999.
The Company is currently renovating the Hilton New York & Towers. This
project, which includes new restaurants, a state-of-the-art
business/conference center, a world-class fitness facility and an exclusive
Towers Lounge overlooking Manhattan, is expected to be completed in late
1999. Renovation and construction projects are also underway at the Hilton
Seattle Airport and the Hilton Portland. The Seattle project includes
renovating existing rooms and constructing a 222-room addition, while the
Portland project involves construction of a 319-room tower addition. The
Company is also in the process of constructing a new 600-room hotel at the
center of Boston's Logan Airport and a 232-unit vacation ownership resort
adjacent to the Las Vegas Hilton, both of which are expected to open in late
1999.
In addition to an estimated $200 million in 1999 expenditures related to
the aforementioned renovation and construction projects, the Company intends
to spend approximately $140 million in 1999 on normal capital replacements,
upgrades and compliance projects.
18 Hilton Hotels Corporation
OTHER DEVELOPMENTS
The Company continues to improve its franchise business through the expansion
of the Hilton Garden Inn product, the addition of high quality full-service
properties and the removal of properties that do not meet the Company's
standards. In 1998, 11 franchise contracts, representing some 3,300 rooms,
were terminated. Ten full-service properties and approximately 3,200 rooms
were added to the franchise system in 1998. The Company added nine Garden Inn
properties in 1998, expects to open approximately 65 during 1999 and
anticipates having 200 such franchise properties either open or under
construction in 2000.
FINANCING
Long-term debt at December 31, 1998 totaled $3.0 billion, compared with $1.4
billion at December 31, 1997. The 1998 balance includes additional borrowings
to fund acquisitions and capital expenditures and increased debt related to
the restructuring of the Hilton Hawaiian Village joint venture. Cash provided
by financing activities totaled $362 million in 1998 and cash used in
financing activities totaled $15 million in 1997.
The 1998 debt balance includes $625 million of long-term debt which,
although allocated to Park Place under a debt assumption agreement, remains
the legal obligation of Hilton. At the time of the spin-off, Park Place
assumed and agreed to pay 100% of the amount of each payment required to be
made by Hilton under the terms of the indentures governing Hilton's $300
million 7.375% Senior Notes due 2002 and its $325 million 7% Senior Notes due
2004. These notes remain in Hilton's long-term debt balance and a long-term
receivable from Park Place in an equal amount is included in the Company's
1998 consolidated balance sheet. In the event of an increase in the interest
rate on these notes as a result of certain actions taken by Hilton or in
certain other limited circumstances, Hilton will be required to reimburse
Park Place for any such increase. Hilton is obligated to make any payment
Park Place fails to make, and in such event Park Place shall pay to Hilton
the amount of such payment together with interest, at the rate per annum
borne by the applicable notes plus two percent, to the date of reimbursement.
In order to facilitate the transfer of debt balances in connection with the
spin-off, in December 1998 Park Place entered into a long-term credit
facility and completed a senior subordinated note offering. Park Place used
the proceeds from the new facility and note offering to repay $1,066 million
of Hilton's commercial paper borrowings, representing an estimate of Park
Place's share of the obligation. The distribution agreement entered into
between Hilton and Park Place calls for a final reconciliation and allocation
of certain debt and cash balances, as defined. The reconciliation resulted in
an additional amount due Hilton from Park Place of $73 million. This balance
is reflected in current assets in the accompanying 1998 consolidated balance
sheet. A pro rata portion of Hilton's historical outstanding public and
corporate bank debt balances and related interest expense has been allocated
to Park Place for prior periods.
By virtue of the aforementioned agreement with Prudential to restructure
the joint venture ownership of the Hilton Hawaiian Village, effective June 1,
1998 the Company was deemed to control the joint venture, thus requiring
consolidation of this previously unconsolidated entity. The agreement also
called for the refinancing of the joint venture's existing debt under a new
joint venture revolving credit facility. In accordance with the terms of the
agreement, this new facility was used to borrow an additional $294 million
which was loaned to a Prudential affiliate and subsequently redeemed to
increase the Company's investment in the joint venture from 50% to 98%. The
consolidation of the joint venture, which includes the total borrowings under
the new facility, resulted in an increase in consolidated debt of $480
million.
At December 31, 1998, $155 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility was outstanding,
leaving approximately $1.6 billion available to the Company at such date.
In October 1997, the Company filed a shelf registration statement ("Shelf")
with the Securities and Exchange Commission registering up to $2.5 billion
in debt or equity securities. At December 31, 1998, available financing under
the Shelf totaled $2.1 billion. The terms of any additional securities
offered pursuant to the Shelf will be determined by market conditions at the
time of issuance.
Pursuant to the Company's stock repurchase program, during the 1998 first
quarter the Company repurchased 2.8 million shares of common stock, or 14
percent of the total authorized to be repurchased, for an aggregate purchase
price of $81 million. The Company may, at any time, repurchase up to 15.7
million remaining shares authorized for repurchase pursuant to such program.
The timing of stock repurchases are made at the discretion of the Company's
management, subject to certain business and market conditions.
19 Hilton Hotels Corporation
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In accordance with the terms of the indenture governing the Company's $500
million 5% Convertible Subordinated Notes due 2006, effective January 4,
1999, the conversion price was adjusted to $22.17, reflecting the gaming
spin-off.
STOCKHOLDERS' EQUITY
Stockholders' equity totaled $187 million at December 31, 1998, reflecting
the spin-off of the gaming operations. Dividends paid on common shares were
$.32 per share in 1998 and 1997 and $.305 per share in 1996. Dividends are
expected to be $.08 per share in 1999.
In October 1998, 14.8 million shares of the Company's Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
were converted into 13.6 million shares of common stock.
RESULTS OF OPERATIONS
The following discussion presents an analysis of the Company's results of
operations for the years ended December 31, 1998, 1997 and 1996. EBITDA
(earnings before interest, taxes, depreciation, amortization and non-cash
items) is presented supplementally in the tables below and in the discussion
of operating results because management believes it allows for a more
complete analysis of results of operations. Non-cash items, such as asset
write-downs and impairment losses, are excluded from EBITDA as these items do
not impact operating results on a recurring basis. This information should
not be considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as operating
income or net income), nor should it be considered as an indicator of the
overall financial performance of the Company. The Company's calculation of
EBITDA may be different from the calculation used by other companies and
therefore comparability may be limited.
FISCAL 1998 COMPARED WITH FISCAL 1997
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1998 and 1997 is as follows:
(in millions, except per share amounts) 1998 1997 % Change
- - ----------------------------------------------------------------------------------
Revenue $ 1,769 1,475 20%
Operating income 464 395 17
Income from continuing operations 188 183 3
Income from discontinued gaming operations 109 67 63
Net income 297 250 19
Basic EPS
Income from continuing operations $ .71 .68 4%
Discontinued gaming operations .44 .27 63
-------------------------------
Net income per share $ 1.15 .95 21%
-------------------------------
-------------------------------
Diluted EPS
Income from continuing operations $ .71 .68 4%
Discontinued gaming operations .41 .26 58
-------------------------------
Net income per share $ 1.12 .94 19%
-------------------------------
-------------------------------
Other Operating Data
- - --------------------
EBITDA
Operations $ 660 561 18%
Corporate expense, net (64) (64) --
-------------------------------
Total $ 596 497 20%
-------------------------------
-------------------------------
The Company's continuing operations include the consolidated results of the
Company's owned, partially owned and leased hotel assets. Consolidated
results also include equity income from unconsolidated affiliates, management
and franchise fees and earnings from vacation ownership operations. At
December 31, 1998 the Company owned or partially owned ("owned"), managed and
franchised 37, 24 and 188 hotel properties, respectively, totaling
approximately 87,000 rooms worldwide.
Total revenue for 1998 was $1.8 billion, an increase of 20 percent over
1997. EBITDA from operations was $660 million for 1998, an 18 percent
increase compared to 1997, while total EBITDA was $596 million for 1998, a 20
percent increase over the prior year. Total operating income increased 17
percent to $464 million.
The Company's results are significantly influenced by the operating
performance of its owned portfolio of major market domestic full-service
properties. Operating performance is primarily affected by volume (as
measured by occupancy), pricing (as measured by average room rate), the
Company's ability to manage costs and the growth in the number of available
rooms through acquisition and development. The Company's domestic owned
hotels generated $544 million of EBITDA in 1998, with
20 Hilton Hotels Corporation
comparable EBITDA increasing 11 percent over the prior year. EBITDA margins
at these hotels improved two points to 34 percent. The comparable EBITDA
increase improved to 17 percent when excluding the Hilton Hawaiian Village in
Honolulu and the Hilton Waikoloa Village on the island of Hawaii, both of
which continue to feel the effects of the Asian economic crisis. Occupancy in
1998 at comparable owned hotels declined 2.5 points to 75 percent, with the
average rate increasing 8.3 percent to $166.47, resulting in a 4.8 percent
improvement in revenue per available room ("RevPAR"). Without the Company's
Hawaii operations, RevPAR for the year at this group of properties increased
7.1 percent.
Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers
increased $24 million or 22 percent over the prior year. RevPAR gains of 10
and 11 percent, respectively, were driven by strong rate gains in both the
leisure and individual business traveler ("IBT") segments. Combined EBITDA
from the Hilton Chicago & Towers, the Hilton Chicago O'Hare Airport and the
Palmer House Hilton increased $20 million or 26 percent over the prior year.
All three properties maintained strong volume and achieved double-digit rate
growth in the IBT segment. Combined EBITDA margins at these three Chicago
properties averaged 35 percent, a five point increase from 1997. Results also
benefited from a combined EBITDA increase of $11 million from the San Diego
and San Francisco Hiltons. The San Diego property benefited from strong rate
increases in all segments and a seven point improvement in EBITDA margin. The
impact of reduced leisure demand at the Hilton San Francisco & Towers was
offset by an increase in higher rate IBT room nights. EBITDA from the Hilton
New Orleans Riverside & Towers increased $4 million or nine percent from the
prior year. Occupied rooms at this property remained flat year over year,
however decreased leisure volume was replaced with higher rate convention and
IBT business. Growth was negatively impacted by results at the Hilton
Hawaiian Village and the Hilton Waikoloa Village. On a comparable basis,
EBITDA at these properties declined 13 percent and 12 percent, respectively.
Acquisition activity, including increased ownership of properties which
were previously partially owned and new property acquisitions, added $47
million of EBITDA in 1998. The Company acquired or increased its ownership
interest in eight full-service domestic properties during 1998.
Results from the Company's vacation ownership operations increased $6
million or 32 percent from the prior year, primarily due to strong interval
sales at the Company's Orlando development. Total unit weeks sold increased
34 percent from the prior year. The Company expects the income contribution
from its vacation ownership operations to increase in 1999 with the opening
of a new development adjacent to the Las Vegas Hilton.
Management and franchise fee revenue decreased $11 million in 1998 to $104
million. This decrease is attributable primarily to the acquisition of
several previously managed properties during 1998, reduced management fees
from the Conrad International Hong Kong, which was negatively impacted by
economic conditions in Asia, and a $1 million decrease in initial and
termination fees from franchise properties. Fee revenue is based primarily on
operating revenue at managed properties and rooms revenue at franchised
properties.
Depreciation and amortization, including the Company's proportionate share
of depreciation and amortization from its unconsolidated affiliates,
increased $28 million in 1998 to $132 million due primarily to new
acquisitions.
Although the supply-demand balance in the Company's major markets generally
remains favorable, future operating results could be adversely impacted by
increased capacity and weak demand. These conditions could limit the
Company's ability to pass through inflationary increases in operating costs
in the form of higher rates. Increases in transportation and fuel costs or
sustained recessionary periods in the U.S. (affecting domestic travel) and
internationally (affecting inbound travel from abroad) could also unfavorably
impact future results. However, the Company believes that its financial
strength and market presence will enable it to remain extremely competitive.
CORPORATE EXPENSE, NET
Corporate expense increased $2 million in 1998 to $67 million. The 1998
expense includes the Company's proportionate share of costs associated with
the gaming spin-off totaling $13 million. The 1997 expense includes $25
million in costs related to the Company's efforts to acquire ITT Corporation
("ITT"). The 1997 costs were partially offset by a $10 million gain
recognized on the sale of ITT stock previously purchased by the Company.
FINANCING ACTIVITIES
Interest and dividend income decreased $4 million compared with the prior
year, primarily due to lower investment balances. Interest expense, net of
amounts capitalized, increased $47 million reflecting higher debt levels due
to acquisition activity during the year and a higher average cost of debt
resulting from the Company issuing long-term notes to replace floating rate
debt in 1997. Net interest expense from unconsolidated affiliates decreased
$4 million, reflecting the mid-year consolidation of the Hilton Hawaiian
Village.
INCOME TAXES
The effective income tax rate in 1998 increased to 40.5% from 39.5% in 1997.
The Company's effective income tax rate is determined by the level and
composition of pretax income and the mix of income subject to varying
foreign, state and local taxes.
21 Hilton Hotels Corporation
MD+A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the years
ended December 31, 1997 and 1996 is as follows:
(in millions, except per share amounts) 1997 1996 % Change
- - ---------------------------------------------------------------------------------
Revenue $1,475 947 56%
Operating income 395 237 67
Income from continuing operations 183 120 53
Income (loss) from discontinued gaming operations 67 (38) --
Net income 250 82 205
Basic EPS
Income from continuing operations $ .68 .61 11%
Discontinued gaming operations .27 (.20) --
-----------------------------
Net income per share $ .95 .41 132%
-----------------------------
-----------------------------
Diluted EPS
Income from continuing operations $ .68 .61 11%
Discontinued gaming operations .26 (.20) --
-----------------------------
Net income per share $ .94 .41 129%
-----------------------------
-----------------------------
Other Operating Data
- - --------------------
EBITDA
Operations $ 561 401 40%
Corporate expense, net (64) (40) 60
-----------------------------
Total $ 497 361 38%
-----------------------------
-----------------------------
Consolidated revenue increased 56 percent in 1997 to $1.5 billion. EBITDA
from operations was $561 million for 1997, a 40 percent increase compared to
1996, while total EBITDA increased 38 percent in 1997 to $497 million.
Operating income increased 67 percent to $395 million.
Combined EBITDA from the Company's owned domestic properties totaled $454
million, with comparable EBITDA increasing 13 percent over the prior year.
The EBITDA increase improved to 16 percent when excluding the Hilton Hawaiian
Village. Occupancy in 1997 at comparable owned hotels was flat compared to
1996 at 77.8 percent, with the average rate increasing 8.7 percent to
$153.18, resulting in a nine percent improvement in RevPAR. Excluding the
Hilton Hawaiian Village, RevPAR for the year at this group of properties
increased 10.2 percent.
Combined EBITDA from the Waldorf-Astoria and the Hilton New York & Towers
increased $22 million compared to 1996. Strong demand, particularly in the
leisure and the higher rate IBT segments, contributed to a double-digit
RevPAR increase at each of these two properties. Double-digit percentage
gains in average room rates and RevPAR led the Hilton San Francisco & Towers
to an $8 million or 25 percent increase in EBITDA compared to 1996. Increased
convention volume at the Hilton Washington & Towers and strong IBT growth at
the Capital Hilton led to a combined EBITDA increase of $8 million at these
properties in 1997. Combined EBITDA from the Hilton Hawaiian Village,
impacted by the poor economic conditions in Asia, and the Hilton New Orleans
Riverside & Towers, impacted by the closure of the Flamingo Casino-New
Orleans and a weak city-wide convention year, was even with the prior year.
Acquisition activity, including increased ownership of properties which
were previously partially owned and new property acquisitions, added $67
million of EBITDA in 1997. The Company acquired or increased its ownership
interest in seven full-service domestic properties in late 1996 and 1997.
Management and franchise fee revenue increased $10 million in 1997 to $115
million. Initial and termination fees from franchise properties increased $3
million.
Depreciation and amortization, including the Company's proportionate share
of depreciation and amortization from its unconsolidated affiliates,
increased $2 million in 1997 to $104 million.
Hotel results were adversely effected by $25 million of non-recurring
charges ($22 million non-cash) in 1996. These charges included the write-down
of certain investments and notes receivable to estimated fair market value.
CORPORATE EXPENSE, NET
Corporate expense increased $22 million in 1997 to $65 million. The 1997
expense includes net costs related to the Company's efforts to acquire ITT
and increased costs associated with the Company's development of its Hilton
Garden Inn product.
FINANCING ACTIVITIES
Interest and dividend income decreased $9 million compared with the prior
year. Interest expense, net of amounts capitalized, increased $38 million
primarily due to acquisition activity in late 1996 and early 1997. Net
interest expense from unconsolidated affiliates increased $1 million over
1996.
INCOME TAXES
The effective income tax rate in 1997 was 39.5% compared to 38.7% in 1996.
OTHER MATTERS
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable
year. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures.
22 Hilton Hotels Corporation
The Company has a Year 2000 program, the objective of which is to determine
and assess the risks of the Year 2000 issue, and plan and institute
mitigating actions to minimize those risks. The Company's standard for
compliance requires that for a computer system or business process to be Year
2000 compliant, it must be designed to operate without error in date and
date-related data prior to, on and after January 1, 2000. The Company expects
to be fully Year 2000 compliant with respect to all significant business
systems prior to December 31, 1999.
The Company's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY ("IT") SYSTEMS
Information technology systems account for much of the Year 2000 work and
include all computer systems and technology managed by the Company. The
Company has assessed these core systems, has plans in place, and is
undertaking to test and implement changes where required. The Company has not
yet identified any significant remediation. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
NON-IT SYSTEMS
The Company has completed an inventory of all property level non-IT systems
(including elevators, electronic door locks, etc.). The Company has assessed
the majority of these non-IT systems, has plans in place, and is undertaking
to test and implement changes where required. The Company has contacted
appropriate vendors and suppliers as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
SUPPLIERS
The Company is communicating with its significant suppliers to understand
their Year 2000 issues and how they might prepare themselves to manage those
issues as they relate to the Company. To date, no significant supplier has
informed the Company that a material Year 2000 issue exists which will have a
material effect on the Company.
During 1999, the Company will continually review its progress against its
Year 2000 plans and determine what contingency plans are appropriate to
reduce its exposure to Year 2000 related issues.
Based on the Company's current assessment, the costs of addressing
potential problems are expected to be less than $3 million. However, if the
Company is unable to resolve its Year 2000 issues, contingency plans to
update existing systems (i.e., reservation, payroll, etc.) are in place for
which the Company expects the cost, if any, to be an additional $3 million.
If the Company's customers or vendors identify significant Year 2000 issues
in the future and are unable to resolve such issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000 issues in
a timely manner.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities." This SOP requires that all
nongovernmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and
requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. The Company will adopt SOP 98-5 in the first quarter of
1999. Adoption of the SOP is not expected to have a material impact on the
1999 results of operations.
OTHER
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on
the Company's financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "Financial Overview," "Financial
Condition," "Results of Operations," and "Other Matters," and statements
relating to the Company's plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
The words "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect the Company's current views with respect to future events
and financial performance, and are subject to certain risks and
uncertainties, including those identified above under "Results of Operations"
and those in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 under the captions "Additional Information - Business
Risks," and "Competition," the effect of economic conditions, and customer
demand, which could cause actual results to differ materially from historical
results or those anticipated. Although the Company believes the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be attained.
23 Hilton Hotels Corporation
CONSOLIDATED
STATEMENTS
OF INCOME
(in millions, except per share amounts) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
REVENUE
Rooms $ 952 779 441
Food and beverage 414 326 188
Management and franchise fees 104 115 105
Other revenue 299 255 213
-------------------------------
1,769 1,475 947
-------------------------------
EXPENSES
Rooms 237 205 127
Food and beverage 315 254 147
Other expenses 686 556 393
Corporate expense, net 67 65 43
-------------------------------
1,305 1,080 710
-------------------------------
OPERATING INCOME 464 395 237
Interest and dividend income 13 17 26
Interest expense (137) (90) (52)
Interest expense, net, from unconsolidated affiliates (4) (8) (7)
-------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 336 314 204
Provision for income taxes 136 124 79
Minority interest, net 12 7 5
-------------------------------
INCOME FROM CONTINUING OPERATIONS 188 183 120
Income (loss) from discontinued gaming operations,
net of tax provision (benefit) of $111, $63 and $(25) 109 67 (38)
-------------------------------
NET INCOME $ 297 250 82
-------------------------------
-------------------------------
Change in unrealized gains and losses, net of tax (19) 7 11
-------------------------------
Comprehensive income $ 278 257 93
-------------------------------
-------------------------------
BASIC EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61
Discontinued gaming operations .44 .27 (.20)
-------------------------------
Net income per share $ 1.15 .95 .41
-------------------------------
-------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61
Discontinued gaming operations .41 .26 (.20)
-------------------------------
Net income per share $ 1.12 .94 .41
-------------------------------
-------------------------------
See notes to consolidated financial statements
24 Hilton Hotels Corporation
CONSOLIDATED
BALANCE SHEETS
(in millions) December 31, 1998 1997
- - ----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 47 5
Accounts receivable, net of allowance of $12 and $6, respectively 204 155
Receivable from discontinued gaming operations 73 --
Inventories 54 39
Deferred income taxes 48 31
Other current assets 43 32
--------------------
Total current assets 469 262
INVESTMENTS, PROPERTY AND OTHER ASSETS
Investments 262 233
Long-term receivable 625 --
Property and equipment, net 2,483 1,373
Net assets of discontinued gaming operations -- 3,381
Other assets 105 29
--------------------
Total investments, property and other assets 3,475 5,016
--------------------
TOTAL ASSETS $ 3,944 5,278
--------------------
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 410 268
Current maturities of long-term debt 62 31
Income taxes payable 34 9
--------------------
Total current liabilities 506 308
Long-term debt 3,037 1,437
Deferred income taxes 65 36
Insurance reserves and other 149 114
--------------------
Total liabilities 3,757 1,895
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% PRIDES convertible preferred stock -- 15
Common stock, 261 and 249 shares outstanding, respectively 663 628
Additional paid-in capital -- 1,759
Retained (deficit) earnings (347) 1,040
Other -- 11
--------------------
316 3,453
Less treasury stock, at cost 129 70
--------------------
Total stockholders' equity 187 3,383
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,944 5,278
--------------------
--------------------
See notes to consolidated financial statements
25 Hilton Hotels Corporation
CONSOLIDATED
STATEMENTS
OF CASH FLOW
(in millions) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 297 250 82
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued gaming operations (109) (67) 38
Depreciation and amortization 125 93 67
Non-cash items -- (2) 22
Amortization of loan costs 2 1 1
Change in working capital components:
Inventories (15) 10 (42)
Accounts receivable (42) 5 (44)
Other current assets (17) (5) (8)
Accounts payable and accrued expenses 124 4 135
Income taxes payable 25 4 (8)
Change in deferred income taxes 9 (63) (11)
Change in other liabilities 5 (46) (10)
Unconsolidated affiliates' distributions (less than) in excess of earnings (17) 6 37
Other 3 39 26
-------------------------------
Net cash provided by operating activities 390 229 285
-------------------------------
INVESTING ACTIVITIES
Capital expenditures (171) (93) (49)
Additional investments (98) (97) (53)
Change in temporary investments -- 25 53
Proceeds from asset sales -- 123 --
Payments on notes and other 49 49 1
Acquisitions, net of cash acquired (842) (67) (432)
-------------------------------
Net cash used in investing activities (1,062) (60) (480)
-------------------------------
FINANCING ACTIVITIES
Change in commercial paper borrowings and revolving loans 355 (1,218) 1,041
Long-term borrowings 400 1,393 492
Reduction of long-term debt (247) (95) (1,457)
Issuance of common stock 25 38 31
Purchase of common stock (81) (40) --
Cash dividends (90) (93) (60)
-------------------------------
Net cash provided by (used in) financing activities 362 (15) 47
-------------------------------
Net transfers from (to) discontinued gaming operations 352 (191) (110)
-------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 42 (37) (258)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 5 42 300
-------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 47 5 42
-------------------------------
-------------------------------
See notes to consolidated financial statements
26 Hilton Hotels Corporation
CONSOLIDATED
STATEMENTS
OF STOCKHOLDERS'
EQUITY
8% PRIDES
Convertible Additional Retained
Preferred Common Paid-in (Deficit) Treasury
(in millions, except per share amounts) Stock Stock Capital Earnings Other Stock
- - ----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ -- 494 -- 909 (7) (142)
Exercise of stock options -- -- -- -- -- 31
Bally acquisition 15 133 1,735 -- -- --
Cumulative translation adjustment,
net of deferred tax -- -- -- -- 6 --
Change in unrealized gain/loss on marketable
securities, net of deferred tax -- -- -- -- 5 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 82 -- --
Dividends ($.305 per share) -- -- -- (60) -- --
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 15 627 1,745 931 4 (111)
Issuance of common stock -- 1 4 -- -- 5
Exercise of stock options -- -- -- (48) -- 76
Treasury stock acquired -- -- -- -- -- (40)
Cumulative translation adjustment,
net of deferred tax -- -- -- -- (4) --
Change in unrealized gain/loss on marketable
securities, net of deferred tax -- -- -- -- 11 --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 250 -- --
Dividends
PRIDES ($.89 per share) -- -- -- (13) -- --
Common ($.32 per share) -- -- -- (80) -- --
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 15 628 1,759 1,040 11 (70)
Issuance of common stock -- 1 10 -- -- --
Exercise of stock options -- -- -- (8) -- 22
Treasury stock acquired -- -- -- -- -- (81)
Conversion of PRIDES (15) 34 (19) -- -- --
Cumulative translation adjustment,
net of deferred tax -- -- -- -- (9) --
Change in unrealized gain/loss on marketable
securities, net of deferred tax -- -- -- -- (10) --
Deferred compensation -- -- 10 -- -- --
Net income -- -- -- 297 -- --
Dividends
PRIDES ($.67 per share) -- -- -- (10) -- --
Common ($.32 per share) -- -- -- (80) -- --
Spin-off of Park Place
Entertainment Corporation -- -- (1,760) (1,586) 8 --
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ -- 663 -- (347) -- (129)
---------------------------------------------------------------
---------------------------------------------------------------
See notes to consolidated financial statements
27 Hilton Hotels Corporation
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
BASIS OF PRESENTATION AND ORGANIZATION
On December 31, 1998, Hilton Hotels Corporation ("Hilton" or the "Company")
completed a spin-off that split the Company's operations into two independent
public corporations per an agreement dated June 30, 1998, one for conducting
its hotel business and one for conducting its gaming business. Hilton
retained ownership of the hotel business. Hilton transferred the gaming
business to a new corporation named Park Place Entertainment Corporation
("Park Place") and distributed the stock of Park Place tax-free to Hilton
stockholders on a one-for-one basis. As a result of the spin-off, Hilton's
financial statements reflect the gaming business as discontinued operations.
Also on December 31, 1998, immediately following the spin-off, Park Place
acquired, by means of a merger, the Mississippi Gaming Business of Grand
Casinos, Inc. ("Grand").
Hilton is primarily engaged in the ownership, management and development of
hotels, resorts and vacation ownership properties and the franchising of
lodging properties. Hilton operates in select markets throughout the world,
predominately in the United States.
SPIN-OFF OF GAMING OPERATIONS
As discussed above, on December 31, 1998, the Company completed a spin-off of
its gaming operations. Accordingly, results of operations and cash flows of
Park Place have been reported as discontinued operations for all periods
presented in the consolidated financial statements of Hilton. The
consolidated balance sheet as of December 31, 1997 also reflects the
Company's gaming business as discontinued operations. Summarized financial
information of the discontinued operations is presented in the following
tables:
Net assets of discontinued gaming operations:
(in millions) 1997
- - ----------------------------------------------------------------------------------
Current assets $ 450
Current liabilities 334
-------
Net current assets 116
Property and equipment, net 3,621
Other assets 1,559
Long-term debt, including allocated debt 1,272
Other liabilities and deferred taxes 643
-------
Net assets of discontinued gaming operations $3,381
-------
-------
Income (loss) from discontinued gaming operations:
(in millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------
Revenues $2,295 2,145 958
Costs and expenses 1,993 1,944 866
------------------------------
Operating income 302 201 92
Net interest expense 79 67 29
------------------------------
Income before income taxes and minority interest 223 134 63
Provision for income taxes 111 63 27
Minority interest, net 3 4 --
------------------------------
Income before extraordinary item 109 67 36
Extraordinary loss on extinguishment of debt,
net of tax benefit of $52 -- -- (74)
------------------------------
Income (loss) from discontinued gaming operations $ 109 67 (38)
------------------------------
------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hilton Hotels
Corporation and its majority owned and controlled subsidiaries. The Company
adopted EITF 97-2 "Application of FASB Statement No. 94 and APB Opinion No.
16 to Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements" in the fourth quarter of 1998, and, as a
result, no longer consolidates the operating results and working capital of
affiliates operated under long-term management agreements. Application of
EITF 97-2 reduced each of revenues and operating expenses by $1.3 billion and
$1.6 billion for the years ended December 31, 1997 and 1996, respectively.
Application of the standard reduced each of current assets and current
liabilities by $240 million at December 31, 1997. Application of EITF 97-2
had no impact on reported operating income, net income, earnings per share or
stockholders' equity.
All material intercompany transactions are eliminated and net earnings are
reduced by the portion of the earnings of affiliates applicable to other
ownership interests. There are no significant restrictions on the transfer of
funds from the Company's wholly owned subsidiaries to Hilton Hotels
Corporation.
CASH AND EQUIVALENTS
Cash and equivalents include investments with initial maturities of three
months or less.
28 Hilton Hotels Corporation
CURRENCY TRANSLATION
Assets and liabilities denominated in most foreign currencies are translated
into U.S. dollars at year-end exchange rates and related gains and losses,
net of applicable deferred income taxes, are reflected in stockholders'
equity. Gains and losses from foreign currency transactions are included in
earnings.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Interest incurred during
construction of facilities is capitalized and amortized over the life of the
asset. Costs of improvements are capitalized. Costs of normal repairs and
maintenance are charged to expense as incurred. Upon the sale or retirement
of property and equipment, the cost and related accumulated depreciation are
removed from the respective accounts, and the resulting gain or loss, if any,
is included in income.
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized over the shorter of
the asset life or lease term. The service lives of assets are generally 40
years for buildings and eight years for building improvements and furniture
and equipment.
The carrying value of the Company's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then a loss is recognized in the income
statement using a fair value based model.
PRE-OPENING COSTS
Costs associated with the opening of new properties or major additions to
properties are deferred and amortized over the shorter of the period
benefited or one year. In April 1998, the AICPA issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP
requires that all nongovernmental entities expense costs of start-up
activities (pre-opening, pre-operating and organizational costs) as those
costs are incurred and requires the write-off of any unamortized balances
upon implementation. SOP 98-5 is effective for financial statements issued
for periods beginning after December 15, 1998. The Company will adopt SOP
98-5 in the first quarter of 1999. Adoption of the SOP is not expected to
have a material impact on the 1999 results of operations.
UNAMORTIZED LOAN COSTS
Debt discount and issuance costs incurred in connection with the placement of
long-term debt are capitalized and amortized to interest expense, principally
on the bonds outstanding method.
SELF-INSURANCE
The Company is self-insured for various levels of general liability, workers'
compensation and employee medical and life insurance coverage. Insurance
reserves include the present values of projected settlements for claims.
EARNINGS PER SHARE ("EPS")
Basic EPS is computed by dividing net income available to common stockholders
(net income less preferred dividends of $10 million in 1998 and $13 million
in 1997) by the weighted average number of common shares outstanding for the
period. The weighted average number of common shares outstanding for 1998,
1997 and 1996 were 250 million, 250 million and 197 million, respectively.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted. The
dilutive effect of the assumed exercise of stock options and convertible
securities increased the weighted average number of common shares by 28
million, 31 million and 12 million for 1998, 1997 and 1996, respectively. In
addition, the increase to net income resulting from interest on convertible
securities assumed to have not been paid was $15 million, $15 million and $9
million for 1998, 1997 and 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications to conform with classifications adopted in 1998. These
classifications have no effect on net income.
29 Hilton Hotels Corporation
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Included in inventories at December 31, 1998 and 1997 are unsold intervals at
the Company's vacation ownership properties of $42 million and $32 million,
respectively. Inventories are valued at the lower of cost or estimated net
realizable value.
INVESTMENTS
Investments at December 31, 1998 and 1997 are as follows:
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
Equity investments
Hotels (seven in 1998, eight in 1997) $ 33 52
Other 58 41
Vacation ownership notes receivable 107 86
Other notes receivable 40 19
Marketable securities 24 35
------------------
Total $ 262 233
------------------
------------------
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 are as follows:
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
Land $ 379 166
Buildings and leasehold improvements 2,296 1,546
Furniture and equipment 540 384
Property held for sale or development 37 39
Construction in progress 71 18
--------------------
3,323 2,153
Less accumulated depreciation 840 780
--------------------
Total $2,483 1,373
--------------------
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1998 and 1997 are as
follows:
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
Accounts and notes payable $128 87
Accrued compensation and benefits 63 44
Other accrued expenses 219 137
-----------------
Total $410 268
-----------------
-----------------
LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 is as follows:
(in millions) 1998 1997
- - ---------------------------------------------------------------------------------------------
Industrial development revenue bonds at adjustable rates, due 2015 $ 82 82
Senior notes, with an average rate of 7.6%, due 2001 to 2017 1,117 1,174
Senior notes, with an average rate of 7.2%, due 2002 to 2004 625 623
Mortgage notes, 5.9% to 8.4%, due 1999 to 2016 145 116
5% Convertible subordinated notes due 2006 492 491
Commercial paper -- 280
Revolving loans 635 --
Other 3 8
Debt allocated to discontinued gaming operations -- (1,306)
-------------------
3,099 1,468
Less current maturities 62 31
-------------------
Net long-term debt $ 3,037 1,437
-------------------
-------------------
Interest paid, net of amounts capitalized, was $130 million, $74 million
and $55 million in 1998, 1997 and 1996, respectively. Capitalized interest
amounted to $4 million and $2 million in 1998 and 1997, respectively. No
interest was capitalized in 1996.
30 Hilton Hotels Corporation
Debt maturities during the next five years are as follows:
(in millions)
- - ----------------------------------------------------------------------------------
1999 $ 62
2000 53
2001 170
2002 572
2003 483
In order to equalize the indebtedness between Hilton and Park Place at the
time of the spin-off, pro forma for the merger of Park Place and Grand,
Hilton and Park Place agreed to an allocation of the December 31, 1998 debt
balances and entered into a debt assumption agreement. Pursuant to the debt
assumption agreement, Park Place assumed and agreed to pay 100% of the amount
of each payment required to be made by Hilton under the terms of the
indentures governing Hilton's $300 million 7.375% Senior Notes due 2002 and
its $325 million 7% Senior Notes due 2004. These notes remain in Hilton's
long-term debt balance and a long-term receivable from Park Place in an equal
amount is included in the Company's 1998 consolidated balance sheet. In the
event of an increase in the interest rate on these notes as a result of
certain actions taken by Hilton or certain other limited circumstances,
Hilton will be required to reimburse Park Place for any such increase. Hilton
is obligated to make any payment Park Place fails to make, and in such event
Park Place shall pay to Hilton the amount of such payment together with
interest, at the rate per annum borne by the applicable notes plus two
percent, to the date of such reimbursement.
In order to facilitate the transfer of debt balances in connection with the
spin-off, in December 1998 Park Place entered into a long-term credit
facility and completed a senior subordinated note offering. Park Place used
the proceeds from the new facility and note offering to repay $1,066 million
of Hilton's commercial paper borrowings, representing an estimate of Park
Place's share of the obligation. The distribution agreement entered into
between Hilton and Park Place calls for a final reconciliation and allocation
of certain debt and cash balances, as defined. The reconciliation resulted in
an additional amount due Hilton from Park Place of $73 million. This balance
is reflected in current assets in the accompanying consolidated financial
statements. A pro rata portion of Hilton's historical outstanding public and
corporate bank debt balances and related interest expense has been allocated
to Park Place for prior periods.
By virtue of an agreement with Prudential to restructure the joint venture
ownership of the Hilton Hawaiian Village, effective June 1, 1998 the Company
was deemed to control the joint venture, thus requiring consolidation of this
previously unconsolidated entity. The agreement also called for the
refinancing of the joint venture's existing debt under a new joint venture
revolving credit facility. In accordance with the terms of the agreement,
this new facility was used to borrow an additional $294 million which was
loaned to a Prudential affiliate and subsequently redeemed to increase the
Company's investment in the joint venture from 50% to 98%. The consolidation
of the joint venture, which includes the total borrowings under the new
facility, resulted in an increase in consolidated debt of $480 million.
During 1996, the Company entered into a long-term revolving credit facility
with an aggregate commitment of $1.75 billion, which expires in 2001. At
December 31, 1998, $155 million was outstanding, leaving approximately $1.6
billion of the revolving credit facility available to the Company at such
date. Borrowings will generally bear interest at the London Interbank Offered
Rate ("LIBOR") plus a spread based on the Company's public debt rating or a
leverage ratio. The all in cost of borrowings under the facility was
approximately LIBOR plus 60 basis points as of December 31, 1998.
In October 1997, the Company filed a shelf registration statement ("Shelf")
with the Securities and Exchange Commission registering up to $2.5 billion in
debt or equity securities. At December 31, 1998, available financing under
the Shelf totaled $2.1 billion. The terms of any additional securities
offered pursuant to the Shelf will be determined by market conditions at the
time of issuance.
In accordance with the terms of the indenture governing the Company's $500
million 5% Convertible Subordinated Notes due 2006, effective January 4,
1999, the conversion price was adjusted to $22.17, reflecting the gaming
spin-off.
Provisions under various loan agreements require the Company to comply with
certain financial covenants which include limiting the amount of outstanding
indebtedness.
FINANCIAL INSTRUMENTS
CASH EQUIVALENTS AND LONG-TERM MARKETABLE SECURITIES
The fair value of cash equivalents and long-term marketable securities is
estimated based on the quoted market price of the investments.
31 Hilton Hotels Corporation
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT
The estimated fair value of long-term debt is based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
1998 1997
- - -----------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- - -----------------------------------------------------------------------------------------
Cash and equivalents and long-term
marketable securities $ 71 71 40 40
Long-term debt (including current maturities) 3,099 3,123 1,468 1,517
INCOME TAXES
The provisions for income taxes for the three years ended December 31 are as
follows:
(in millions) 1998 1997 1996
- - ----------------------------------------------------------------------------------
Current
Federal $ 98 168 66
State, foreign and local 31 34 18
-----------------------------
129 202 84
Deferred 7 (78) (5)
-----------------------------
Total $ 136 124 79
-----------------------------
-----------------------------
During 1998, 1997 and 1996 the Company paid income taxes, including amounts
paid on behalf of the discontinued gaming operations, of $165 million, $150
million and $83 million, respectively.
The income tax effects of temporary differences between financial and
income tax reporting that gave rise to deferred income tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
(in millions) 1998 1997
- - ---------------------------------------------------------------------------------
Deferred tax assets
Accrued expenses $ 2 8
Self-insurance and other reserves 26 29
Benefit plans 23 6
Pre-opening costs 11 --
Foreign tax credit carryovers (expire beginning in 2000) 21 3
Disposition of assets 24 30
Other 4 --
------------------
111 76
Valuation allowance (3) (3)
------------------
108 73
------------------
Deferred tax liabilities
Fixed assets, primarily depreciation (30) (14)
Equity investments (80) (59)
Other (15) (5)
------------------
(125) (78)
------------------
Net deferred tax liability $ (17) (5)
------------------
------------------
The reconciliation of the Federal income tax rate to the Company's
effective tax rate is as follows:
1998 1997 1996
- - -----------------------------------------------------------------------------------------------
Federal income tax rate 35.0% 35.0 35.0
Increase (reduction) in taxes
State and local income taxes, net of Federal tax benefits 4.2 4.0 3.9
Foreign taxes, net -- .4 .3
Spin-off costs .8 -- --
Other .5 .1 (.5)
----------------------------
Effective tax rate 40.5% 39.5 38.7
----------------------------
----------------------------
32 Hilton Hotels Corporation
STOCKHOLDERS' EQUITY
Four hundred million shares of common stock with a par value of $2.50 per
share are authorized, of which 265 million and 251 million were issued at
December 31, 1998 and 1997, respectively, including treasury shares of four
million and two million in 1998 and 1997, respectively. Authorized preferred
stock includes 25 million shares of preferred stock with a par value of $1.00
per share. In October 1998, 15 million shares of 8% PRIDES convertible
preferred stock were converted into 14 million shares of common stock.
Fifteen million shares of 8% PRIDES were issued and outstanding at December
31, 1997; no preferred shares were issued or outstanding at December 31,
1998.
To reflect the spin-off of the gaming business, the $3.3 billion book value
of net assets of discontinued gaming operations as of December 31, 1998 was
charged against the Company's retained earnings and additional paid-in
capital.
The Company's Board of Directors has approved the repurchase by the Company
of up to 20 million shares of its common stock pursuant to a stock repurchase
program. The timing of the stock purchases are made at the discretion of the
Company's management. At December 31, 1998, the Company had repurchased 4.3
million shares or 22 percent of the total authorized to be repurchased. The
Company may at any time repurchase up to 15.7 million of the remaining shares
authorized for repurchase.
The Company has a Share Purchase Rights Plan under which a right is
attached to each share of the Company's common stock. The rights may only
become exercisable under certain circumstances involving actual or potential
acquisitions of the Company's common stock by a specified person or
affiliated group. Depending on the circumstances, if the rights become
exercisable, the holder may be entitled to purchase units of the Company's
junior participating preferred stock, shares of the Company's common stock or
shares of common stock of the acquiror. The rights remain in existence until
July 2008 unless they are terminated, exercised or redeemed.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, compensation
expense recognized was different than what would have otherwise been
recognized under the fair value based method defined in SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of SFAS No. 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:
(in millions, except per share amounts) 1998 1997 1996
- - ----------------------------------------------------------------------------------
Income from continuing operations $ 183 178 116
Discontinued gaming operations 92 61 (41)
-----------------------------
Net income $ 275 239 75
-----------------------------
-----------------------------
Basic EPS
Income from continuing operations $ .69 .66 .59
Discontinued gaming operations .37 .25 (.21)
-----------------------------
Net income $1.06 .91 .38
-----------------------------
-----------------------------
Diluted EPS
Income from continuing operations $ .69 .66 .59
Discontinued gaming operations .35 .24 (.21)
-----------------------------
Net income $1.04 .90 .38
-----------------------------
-----------------------------
At December 31, 1998, 33 million shares of common stock were reserved for the
exercise of options under the Company's Stock Incentive Plans. Options may be
granted to salaried officers, directors and other key employees of the
Company to purchase common stock at not less than the fair market value at
the date of grant. Generally, options may be exercised in installments
commencing one year after the date of grant. The Stock Incentive Plans also
permit the granting of Stock Appreciation Rights ("SARs"). No SARs have been
granted as of December 31, 1998.
On December 31, 1998, the effective date of the spin-off, all outstanding
options under the Stock Incentive Plans were adjusted to represent options to
purchase an equivalent number of shares of Hilton common stock and shares of
Park Place common stock. The exercise price for options to purchase Hilton
common stock were adjusted based on relative values of Hilton and Park Place
common stock at the date the Company's stock began trading on an ex-dividend
basis.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend
yield of one percent for each of the three years; expected volatility of 34,
32 and 27 percent; risk-free interest rates of 5.51, 6.49 and 6.33 percent
and expected lives of six years for each of the three years.
33 Hilton Hotels Corporation
NOTES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996, and changes during the years ending on those dates
is presented below:
Weighted
Options Average
Price Range Price Options Available
(per share) (per share) Outstanding for Grant
- - -------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 4.68 - 12.16 $ 8.71 6,825,740 346,504
Authorized -- 12,000,000
Granted 11.88 - 18.70 13.28 9,777,900 (9,777,900)
Exercised 4.68 - 12.16 7.08 (2,135,426) --
Cancelled 4.72 - 17.15 11.03 (668,758) 653,158
-------------------------------------------------------
Balance at December 31, 1996 4.68 - 18.70 12.08 13,799,456 3,221,762
Authorized -- 6,200,000
Granted 15.95 - 21.30 16.73 3,046,990 (3,046,990)
Exercised 4.72 - 16.23 9.32 (1,418,185) --
Cancelled 7.46 - 17.15 13.87 (796,642) 795,892
-------------------------------------------------------
Balance at December 31, 1997 4.68 - 21.30 13.23 14,631,619 7,170,664
Authorized -- 12,000,000
Granted 12.17 - 27.53 18.23 9,113,850 (9,113,850)
Exercised 4.72 - 18.38 10.04 (692,067) --
Cancelled 10.48 - 21.30 15.71 (2,359,632) 2,359,632
-------------------------------------------------------
Balance at December 31, 1998 $ 4.68 - 27.53 $15.25 20,693,770 12,416,446
-------------------------------------------------------
-------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- - -----------------------------------------------------------------------------------------------
$ 4.68 - 11.88 7,999,918 2.73 $11.32 4,867,168 $10.99
12.51 - 16.59 7,554,652 8.91 14.57 1,321,687 15.41
16.65 - 27.53 5,139,200 9.22 22.39 357,750 17.51
- - -------------------------------------------------------------------------------------------------------------------
$ 4.68 - 27.53 20,693,770 6.60 $15.25 6,546,605 $12.24
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
Effective January 1, 1997, the Company adopted the 1997 Employee Stock
Purchase Plan by which the Company is authorized to issue up to two million
shares of common stock to its full-time employees. Under the terms of the
Plan, employees can elect to have a percentage of their earnings withheld to
purchase the Company's common stock.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory retirement plan ("Basic Plan") covering
substantially all regular full-time, nonunion employees. The Company also has
plans covering qualifying employees and non-officer directors ("Supplemental
Plans"). Benefits for all plans are based upon years of service and
compensation, as defined.
The Company's funding policy is to contribute not less than the minimum
amount required under Federal law but not more than the maximum deductible
for Federal income tax purposes. After December 31, 1996, employees will not
accrue additional benefits for future service under either the Basic or
Supplemental Plans. Plan assets will be used to pay benefits due employees
for service through that date.
The following sets forth the funded status for the Basic Plan as of
December 31, 1998 and 1997:
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Projected benefit obligation for service rendered to date $(225) (214)
Plan assets at fair value, primarily listed securities
and temporary investments 257 242
------------------
Projected benefit obligation less than plan assets 32 28
Unrecognized gain (45) (41)
------------------
Accrued pension cost $ (13) (13)
------------------
------------------
Pension cost includes the following components
Interest cost on projected benefit obligation $ 15 15
Expected return on plan assets (15) (17)
------------------
Net periodic pension cost $ -- (2)
------------------
------------------
34 Hilton Hotels Corporation
Included in plan assets at fair value are equity securities of Hilton and
Park Place of $21 million and $32 million at December 31, 1998 and 1997,
respectively.
The following sets forth the funded status for the Supplemental Plans as of
December 31, 1998 and 1997:
(in millions) 1998 1997
- - ----------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Projected benefit obligation for service rendered to date $ (8) (17)
Plan assets at fair value -- 12
------------------
Projected benefit obligation in excess of plan assets (8) (5)
Unrecognized net loss 4 1
------------------
Accrued pension cost $ (4) (4)
------------------
------------------
Pension cost includes the following components
Interest cost on projected benefit obligation $ 1 1
Expected return on plan assets (1) (3)
------------------
Net periodic pension cost $ -- (2)
------------------
------------------
The discount rate used in determining the actuarial present values of the
projected benefit obligations was 6.75 percent in 1998 and 7 percent in 1997.
The expected long-term rate of return on assets is 7.25 percent. The
projected benefit obligation and accumulated benefit obligation were $8
million and $8 million, respectively, as of December 31, 1998. The projected
benefit obligation, accumulated benefit obligation, and fair value of plan
assets for pension plans with accumulated benefit obligations in excess of
plan assets were $17 million, $17 million and $12 million, respectively, as
of December 31, 1997.
A significant number of the Company's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. The Company
contributed and charged to expense $11 million, $9 million and $5 million in
1998, 1997 and 1996, respectively, for such plans. Information from the
plans' administrators is not sufficient to permit the Company to determine
its share, if any, of unfunded vested benefits.
The Company also has other employee investment plans whereby the Company
contributes certain percentages of employee contributions. The cost of these
plans is not significant.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, the Company
reserves the right to change, modify or discontinue these benefits. The
Company does not provide postretirement health care benefits to its
employees. The cost of the benefits provided is not significant.
LEASES
The Company operates seven properties under noncancellable operating leases,
all of which are for land only, having remaining terms up to 44 years. Upon
expiration of three of the leases, the Company has renewal options of 30, 30
and 40 years. Six leases require the payment of additional rentals based on
varying percentages of revenue or income. Minimum lease commitments under
noncancelable operating leases approximate $13 million annually through 2003
with an aggregate commitment of $215 million through 2042.
COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had contractual commitments at its wholly
owned or leased properties for major expansion and rehabilitation projects of
approximately $130 million.
Various lawsuits are pending against the Company. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on
the Company's financial position or results of operations.
35 Hilton Hotels Corporation
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF HILTON HOTELS CORPORATION:
We have audited the accompanying consolidated balance sheets of Hilton Hotels
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hilton Hotels Corporation
and subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 5, 1999
36 Hilton Hotels Corporation
SUPPLEMENTARY
FINANCIAL
INFORMATION
(unaudited)
QUARTERLY FINANCIAL DATA
(dollars in millions, except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- - ---------------------------------------------------------------------------------------------------------------------
1998
Revenue $ 366 457 450 496 1,769
EBITDA(1) 122 173 150 151 596
Operating income 94 142 116 112 464
Income from continuing operations 38 65 41 44 188
Income from discontinued gaming operations 39 41 38 (9) 109
Net income 77 106 79 35 297
Basic EPS(2)
Continuing operations $ .14 .25 .15 .17 .71
Discontinued gaming operations .16 .16 .16 (.03) .44
---------------------------------------------------------
Net income $ .30 .41 .31 .14 1.15
---------------------------------------------------------
---------------------------------------------------------
Diluted EPS
Continuing operations $ .14 .25 .15 .17 .71
Discontinued gaming operations .15 .14 .15 (.03) .41
---------------------------------------------------------
Net income $ .29 .39 .30 .14 1.12
---------------------------------------------------------
---------------------------------------------------------
1997
Revenue $ 321 399 369 386 1,475
EBITDA(1) 103 154 129 111 497
Operating income 76 131 105 83 395
Income from continuing operations 31 67 44 41 183
Income from discontinued gaming operations 37 26 50 (46) 67
Net income 68 93 94 (5) 250
Basic EPS
Continuing operations $ .11 .26 .16 .15 .68
Discontinued gaming operations .15 .10 .20 (.18) .27
---------------------------------------------------------
Net income $ .26 .36 .36 (.03) .95
---------------------------------------------------------
---------------------------------------------------------
Diluted EPS(2)
Continuing operations $ .11 .25 .16 .15 .68
Discontinued gaming operations .15 .09 .19 (.18) .26
---------------------------------------------------------
Net income $ .26 .34 .35 (.03) .94
---------------------------------------------------------
---------------------------------------------------------
As of December 31, 1998 there were approximately 15,200 stockholders of
record.
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and non-cash items. Non-cash items, such as asset write-downs and
impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. This information should not be
considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as
operating income or net income), nor should it be considered as an
indicator of the overall financial performance of the Company. The
Company's calculation of EBITDA may be different from the calculation
used by other companies and therefore comparability may be limited.
(2) The sum of EPS for the four quarters may differ from the annual EPS due
to the required method of computing weighted average number of shares in
the respective periods.
37 Hilton Hotels Corporation
SUPPLEMENTARY
FINANCIAL
INFORMATION
(unaudited)
EBITDA(1)
(in millions) Year Ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
EBITDA
Operations $ 660 561 401
Corporate expense, net (64) (64) (40)
-----------------------------
Total EBITDA $ 596 497 361
-----------------------------
-----------------------------
Reconciliation to income from continuing operations:
EBITDA $ 596 497 361
Interest and dividend income 13 17 26
Interest expense (137) (90) (52)
Interest expense, net, from unconsolidated affiliates (4) (8) (7)
Depreciation and amortization(2) (132) (104) (102)
Non-cash items -- 2 (22)
Provision for income taxes (136) (124) (79)
Minority interest, net (12) (7) (5)
-----------------------------
Income from continuing operations $ 188 183 120
-----------------------------
-----------------------------
(1) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. Non-cash items, such as asset write-downs and impairment
losses, are excluded from EBITDA as these items do not impact operating
results on a recurring basis. This information should not be considered
as an alternative to any measure of performance as promulgated under
generally accepted accounting principles (such as operating income or
net income), nor should it be considered as an indicator of the overall
financial performance of the Company. The Company's calculation of
EBITDA may be different from the calculation used by other companies and
therefore comparability may be limited.
(2) Includes proportionate share of unconsolidated affiliates.
38 Hilton Hotels Corporation
FIVE YEAR
SUMMARY
(dollars in millions, except per share,
average rate and RevPAR amounts) Year Ended December 31, 1998 1997 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------
OPERATING DATA
REVENUE $ 1,769 1,475 947 715 622
EBITDA(1)
Operations $ 660 561 401 308 244
Corporate expense, net (64) (64) (40) (18) (20)
-------------------------------------------------
Total $ 596 497 361 290 224
-------------------------------------------------
-------------------------------------------------
BASIC EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61 .46 .22
Discontinued gaming operations .44 .27 (.20) .44 .42
-------------------------------------------------
Net income $ 1.15 .95 .41 .90 .64
-------------------------------------------------
-------------------------------------------------
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .71 .68 .61 .45 .22
Discontinued gaming operations .41 .26 (.20) .44 .41
-------------------------------------------------
Net income $ 1.12 .94 .41 .89 .63
-------------------------------------------------
-------------------------------------------------
GENERAL INFORMATION
OCCUPANCY(2) 73.4% 75.8 75.5 73.4 70.1
AVERAGE RATE(2) $ 157.51 146.00 134.59 125.79 120.88
RevPAR(2) $ 115.64 110.61 101.67 92.29 84.69
NUMBER OF PROPERTIES AT YEAR END
Owned or partially owned hotels 37 32 31 33 33
Managed hotels 24 27 28 24 24
Franchised hotels 188 180 172 162 161
-------------------------------------------------
Total 249 239 231 219 218
-------------------------------------------------
-------------------------------------------------
AVAILABLE ROOMS AT YEAR END
Owned or partially owned hotels 25,762 23,799 23,092 24,098 24,098
Managed hotels 14,690 15,779 16,776 15,096 15,686
Franchised hotels 46,562 45,092 43,694 41,687 40,436
-------------------------------------------------
Total 87,014 84,670 83,562 80,881 80,220
-------------------------------------------------
-------------------------------------------------
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and non-cash items. Non-cash items, such as asset write-downs and
impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. This information should not be
considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles (such as
operating income or net income), nor should it be considered as an
indicator of the overall financial performance of the Company. The
Company's calculation of EBITDA may be different from the calculation
used by other companies and therefore comparability may be limited.
(2) Comparable domestic owned and managed properties.
39 Hilton Hotels Corporation
BOARD OF DIRECTORS
BOARD OF DIRECTORS
STEPHEN F. BOLLENBACH(3,4)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
A. STEVEN CROWN(1,2,5)
GENERAL PARTNER, HENRY CROWN & COMPANY,
CHICAGO, ILLINOIS - DIVERSIFIED MANUFACTURING OPERATIONS,
MARINE OPERATIONS AND REAL ESTATE VENTURES
PETER M. GEORGE(1,2,3)
VICE CHAIRMAN AND GROUP CHIEF EXECUTIVE -
LADBROKE GROUP PLC, AND CHAIRMAN - HILTON INTERNATIONAL CO.,
HERTS, ENGLAND - HOTEL AND GAMING COMPANY
ARTHUR M. GOLDBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
PARK PLACE ENTERTAINMENT CORPORATION
LAS VEGAS, NEVADA - CASINO GAMING COMPANY
BARRON HILTON(3)
CHAIRMAN
DIETER H. HUCKESTEIN
EXECUTIVE VICE PRESIDENT, HILTON HOTELS CORPORATION,
AND PRESIDENT - HOTEL OPERATIONS
ROBERT L. JOHNSON(1,2,4,5)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BET HOLDINGS, INC.,
WASHINGTON, D.C. - DIVERSIFIED MEDIA HOLDING COMPANY,
CHAIRMAN AND PRESIDENT OF DISTRICT CABLEVISION, INC.
DONALD R. KNAB(1,2,3,5)
PONTE VEDRA BEACH, FLORIDA - INVESTMENT ADVISOR
BENJAMIN V. LAMBERT(1,3,5)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
EASTDIL REALTY COMPANY, L.L.C., NEW YORK -
REAL ESTATE INVESTMENT BANKERS
DONNA F. TUTTLE(1,2,3,4)
PRESIDENT, KORN TUTTLE CAPITAL GROUP, LOS ANGELES,
CALIFORNIA - FINANCIAL CONSULTING AND INVESTMENTS FIRM
SAM D. YOUNG, JR.(1,2)
CHAIRMAN, TRANS-WEST ENTERPRISES, INC.,
EL PASO, TEXAS - INVESTMENTS
CORPORATE EXECUTIVE OFFICERS
BARRON HILTON
CHAIRMAN
STEPHEN F. BOLLENBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THOMAS E. GALLAGHER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
MATTHEW J. HART
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
DIETER H. HUCKESTEIN
EXECUTIVE VICE PRESIDENT,
HILTON HOTELS CORPORATION,
AND PRESIDENT - HOTEL OPERATIONS
CORPORATE SENIOR OFFICERS
JAMES M. ANDERSON
SENIOR VICE PRESIDENT -
LABOR RELATIONS AND
PERSONNEL ADMINISTRATION
MARC A. GROSSMAN
SENIOR VICE PRESIDENT -
CORPORATE AFFAIRS
ROBERT M. LA FORGIA
SENIOR VICE PRESIDENT AND CONTROLLER
TED MIDDLETON, JR.
SENIOR VICE PRESIDENT -
DEVELOPMENT AND FINANCE
DOROTHY J. PORTER
SENIOR VICE PRESIDENT -
DIVERSITY
PATRICK B. TERWILLIGER
SENIOR VICE PRESIDENT -
ARCHITECTURE AND CONSTRUCTION
CORPORATE INFORMATION
HILTON HOTELS CORPORATION
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
310.278.4321
TRANSFER AGENT AND REGISTRAR
FOR COMMON STOCK
CHASEMELLON
SHAREHOLDER SERVICES, L.L.C.
85 CHALLENGER ROAD
OVERPECK CENTRE
RIDGEFIELD PARK, NEW JERSEY 07660
www.chasemellon.com
1.888.224.2751
INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
FORM 10-K
STOCKHOLDERS WISHING TO RECEIVE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUSIVE OF THE
EXHIBITS THERETO, MAY DO SO WITHOUT CHARGE BY WRITING TO INVESTOR RELATIONS,
HILTON HOTELS CORPORATION, 9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA
90210.
ANNUAL MEETING
THE ANNUAL MEETING OF STOCKHOLDERS IS SCHEDULED TO BE HELD AT THE HILTON
BEVERLY HILLS, 9876 WILSHIRE BOULEVARD, BEVERLY HILLS, CALIFORNIA, ON MAY 12,
1999 AT 10:00 A.M.
HOTEL RESERVATION INFORMATION
1.800.HILTONS
VISIT OUR WEBSITE AT:
http://www.hilton.com
(1)Members of the Audit Committee
(2)Members of the Personnel and Compensation Committee
(3)Members of the Nominating Committee
(4)Members of the Diversity Committee
(5)Members of the Compliance Committee
40 Hilton Hotels Corporation