Hilton Hotels Corporation

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International Guild of Hospitality & Restaurant Managers

Hilton Hotels Corporation (HLT)

Hilton Hotels Corporation (HHC), organized in 1946, is primarily engaged, together with its subsidiaries, in the ownership, management and development of hotels, resorts and timeshare properties and the franchising of lodging properties. As of December 31, 2001 , the Company's system contained 1,986 properties, totaling over 327,000 rooms worldwide. Of such properties, the Company owned an interest in and operated 130 hotels, leased nine hotels, managed 210 hotels owned by others and franchised 1,612 hotels owned and operated by third parties. Also included in the number of properties in the system are 25 timeshare properties, which the Company managed or franchised. All of these properties are located in the United States , with the exception of 11 hotels in which the Company owns an interest and/or manages and 40 hotels that it franchises.

The Company's hotel brands include Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton , Homewood Suites by Hilton, Conrad and Harrison Conference Centers . The Company's hotel system also includes certain properties that are not company branded. HHC develops and operates timeshare resorts through Hilton Grand Vacations Company and its related entities, which the Company wholly owns. The Company is also engaged in various other activities related or incidental to the operation of hotels. In June 2002, ARAMARK Corporation acquired the Harrison Conference Centers and university hotels from the Company.

Hilton hotels are the Company's upscale, full-service hotels that typically include swimming pools, gift shops and retail facilities, meeting and banquet facilities, restaurants and lounges, room service, parking facilities and other services. The Hilton brand also includes Hilton Suites hotels, which are upscale, extended stay all-suite hotels. Hilton Garden Inn hotels are the Company's upper mid-market, limited-service hotels that utilize a modular design constructed around a courtyard containing an indoor or outdoor swimming pool. Doubletree hotels are the Company's full-service hotels in the mid-market to upscale hotel category. The Doubletree brand also includes the Doubletree Guest Suites all-suite hotels and the moderately priced Doubletree Club hotels. Embassy Suites are the Company's upscale, all-suite hotels that feature two-room guest suites with a separate living room and dining/work area and a complimentary cooked-to-order breakfast. Most Embassy Suites hotels are built around a landscaped atrium. Homewood Suites by Hilton are the Company's upscale, extended stay hotels that feature residential-style accommodations including business centers, swimming pools, convenience stores and limited meeting facilities. Hampton Inn hotels are the Company's moderately priced hotels with limited food and beverage facilities. The Hampton brand also includes Hampton Inn & Suites hotels, which offer both traditional hotel room accommodations and apartment-style suites within one property.

In addition to these hotel brands, as of December 31, 2001 , there were 40 hotels, representing 9,593 rooms, operated under other brand names. Conrad hotels are the Company's upscale, full-service hotels located outside the United States . As of December 31, 2001, the Company managed, and in some cases partially owned, nine Conrad hotels, representing 3,491 rooms, located in Belgium, Egypt, England, Hong Kong, Ireland, Singapore and Turkey. The Company also owns and operates Harrison Conference Centers , which are conference centers, and hotels that target upscale corporate convention groups, executive education and training groups, sales meetings and other group meetings. As of December 31, 2001 , the Company operated 12 Harrison Conference Centers, representing 1,815 rooms.

The Company operates in three business segments: hotel ownership; managing and franchising; and timeshare.

Hotel Operations

As of December 31, 2001 , the Company owned a majority or controlling interest in and operated 65 hotels, representing 33,536 rooms. The owned hotels include some of the Company's largest and most profitable hotels, including the 1,425-room Waldorf-Astoria; the 2,086-room Hilton New York; the 2,998-room Hilton Hawaiian Village Beach Resort & Spa; the 1,895-room Hilton San Francisco; the 1,544-room Hilton Chicago; the 1,639-room Palmer House Hilton; the 1,119-room Hilton Washington; and the 1,600-room Hilton New Orleans Riverside.

As of December 31, 2001, the Company leased nine hotels, representing 2,836 rooms. Under these leases, the Company leases the hotel from its owner, manages the hotel and is generally responsible for all aspects of the hotel's operations and recognizes all revenues and substantially all expenses associated with the hotel's operations.

As of December 31, 2001, the Company had a minority or non-controlling ownership interest in and operated 65 hotels, representing 19,604 rooms. These hotels are owned by joint ventures of which the Company owns a minority or non-controlling interest. The Company has a right of first refusal to purchase additional equity interests in certain of these joint ventures.

Managing and Franchising Operations

As of December 31, 2001, the Company managed 210 hotels, representing 53,776 rooms, which are wholly owned by others. Under the standard management agreement, the Company operates a hotel for the benefit of its owner, which either owns or leases the hotel and the associated personal property. The Company's management fee is generally based on a percentage of each hotel's gross revenue plus, in the majority of properties, an incentive fee based on operating performance.

As of December 31, 2001, the Company franchised 1,612 hotels, representing 214,824 rooms, which are owned and operated by third parties. In general, franchisees pay the Company an initial fee based on the number of rooms in a franchise hotel and a continuing fee based on a percentage of the hotel's rooms revenue, which may be up to 5% of rooms revenue depending on the brand. Although HHC does not directly participate in the management or operation of franchise hotels, the Company conducts periodic inspections to ensure that its standards are maintained and render advice with respect to hotel operations.

Timeshare Operations

Hilton Grand Vacations Company and its related entities (HGVC), which the Company wholly owns, currently manages 18 timeshare resorts in Florida, two in Nevada and one in Hawaii. In addition, HGVC operates the HGVClub, a points-based reservation and exchange system. HGVC has recently opened or is currently developing several projects.

In January 2001, HGVC opened a new 264-unit timeshare resort at the Hilton Hawaiian Village Beach Resort & Spa in Honolulu, Hawaii, developed through the conversion of an apartment tower to timeshare units. HGVC has also completed 324 units of a 468-unit timeshare resort located adjacent to Sea World in Orlando, Florida.

HGVC is developing a new 1,500-unit timeshare resort on Las Vegas Boulevard in Las Vegas, Nevada and broke ground on this project in May 2001. The Company postponed this project in light of the September 11th terrorist attacks. The Company is evaluating resumption of this project. HGVC is also developing a new 384-unit timeshare resort in Orlando, Florida, and broke ground on this project in May 2001. The Company postponed this project in light of the September 11th terrorist attacks. The Company is evaluating resumption of this project.

The Company also manages two timeshare resorts and franchise two resorts in the United States under the Embassy Vacation Resort name. The Company has affiliated 28 timeshare resorts with the HGVClub. HGVC is actively seeking new management, development and acquisition opportunities in other destination resort locations.

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