UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2003
|OR                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission File Number 1-3427

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HILTON HOTELS CORPORATION(Exact Name of Registrant as Specified in its Charter)

|Delaware(State or other jurisdiction
of incorporation or organization)                    | 36-2058176(I.R.S. Employer
Identification Number)
|----------------------------------------------------------------------------------------- | -------------------------------------------------
|9336 Civic Center Drive
Beverly Hills, California(Address of principal executive offices) | 90210(Zip Code)                                  

Registrant's
telephone number, including area code:(310) 278-4321

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange
on which registeredCommon Stock, par value $2.50 per share
8% Quarterly Interest Bonds due 2031
New York, Pacific
New York


Securities
registered pursuant to Section 12(g) of the Act:    None

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    Yes ý    No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes ý    No o

Based upon the June 30, 2003, New York Stock Exchange closing price of $12.79 per share, the aggregate market value of the Registrant's outstanding Common
Stock held by non-affiliates of the Registrant was approximately $4.5 billion. There were 377,302,886 and 381,468,001 shares of Common Stock outstanding as of June 30, 2003
and February 27, 2004, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of Registrant's definitive proxy statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the close of the Registrant's fiscal year, are incorporated by reference under Part III.



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TABLE OF CONTENTS

|                       |                                   |                                                     |    | Page
|---------------------- | --------------------------------- | --------------------------------------------------- | -- | ----
|PART I                 |                                   | 1                                                  
|Item 1.                |                                   | Business                                            |    | 1   
|General Information    |                                   | 1                                                  
|                       | Current Operations                |                                                     | 1 
|                       | Recent Developments               |                                                     | 1 
|                       | Promus Acquisition                |                                                     | 2 
|                       | Separation of Gaming Business     |                                                     | 2 
|                       | Industry Segments                 |                                                     | 2 
|Operations             |                                   | 3                                                  
|                       | Hotel Properties                  |                                                     | 3 
|                       | Hotel Brands                      |                                                     | 4 
|                       | Timeshare Operations              |                                                     | 6 
|                       | Development                       |                                                     | 6 
|                       | Alliances                         |                                                     | 7 
|                       | Development Financing             |                                                     | 8 
|                       | Territorial Restrictions          |                                                     | 9 
|                       | Potential Acquisitions            |                                                     | 9 
|                       | Property Transactions             |                                                     | 9 
|                       | Statistical Information           |                                                     | 10
|Additional Information |                                   | 12                                                 
|                       | Casino Windsor                    |                                                     | 12
|                       | Design and Furnishing Services    |                                                     | 12
|                       | Reservation System                |                                                     | 12
|                       | HHonors                           |                                                     | 13
|                       | Technology and Distribution       |                                                     | 13
|                       | Trademarks                        |                                                     | 13
|                       | Marketing                         |                                                     | 14
|                       | Business Risks                    |                                                     | 14
|                       | Forward-Looking Statements        |                                                     | 16
|                       | Competition                       |                                                     | 17
|                       | Environmental Matters             |                                                     | 17
|                       | Regulation and Licensing          |                                                     | 18
|                       | Employees                         |                                                     | 18
|                       | Available Information             |                                                     | 18
|Item 2.                |                                   | Properties                                          |    | 19  
|Item 3.                |                                   | Legal Proceedings                                   |    | 19  
|Item 4.                |                                   | Submission of Matters to a Vote of Security Holders |    | 19  
|                       | Executive Officers of the Company |                                                     | 19
|                       |                                   |                                                     |    |     

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|PART II                                         |                  | 20                                                                                   
|----------------------------------------------- | ---------------- | -------------------------------------------------------------------------------------
|Item 5.                                         |                  | Market for Registrant's Common Equity and Related Stockholder Matters                
|                                                | Rights Agreement |                                                                                      
|Item 6.                                         |                  | Selected Financial Data                                                              
|Item 7.                                         |                  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Overview                                        |                  | 22                                                                                   
|Critical Accounting Policies and Estimates      |                  | 23                                                                                   
|Development and Capital Spending                |                  | 24                                                                                   
|Liquidity and Capital Resources                 |                  | 26                                                                                   
|Off-Balance Sheet Arrangements                  |                  | 32                                                                                   
|Results of Operations                           |                  | 33                                                                                   
|Other Matters                                   |                  | 39                                                                                   
|Item 7A.                                        |                  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 8.                                         |                  | Financial Statements and Supplementary Data                                          
|Consolidated Statements of Income               |                  | 42                                                                                   
|Consolidated Balance Sheets                     |                  | 43                                                                                   
|Consolidated Statements of Cash Flow            |                  | 44                                                                                   
|Consolidated Statements of Stockholders' Equity |                  | 45                                                                                   
|Notes to Consolidated Financial Statements      |                  | 46                                                                                   
|Report of Independent Auditors                  |                  | 71                                                                                   
|Predecessor Auditor's Report                    |                  | 72                                                                                   
|Supplementary Financial Information             |                  | 73                                                                                   
|Five Year Summary                               |                  | 74                                                                                   
|Item 9.                                         |                  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|Item 9A.                                        |                  | Controls and Procedures                                                              
|                                                |                  |                                                                                      

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|PART III          |                                   | 75                                                                                            
|----------------- | --------------------------------- | ----------------------------------------------------------------------------------------------
|Item 10.          |                                   | Directors and Executive Officers of the Registrant                                            
|Item 11.          |                                   | Executive Compensation                                                                        
|Item 12.          |                                   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|Item 13.          |                                   | Certain Relationships and Related Transactions                                                
|Item 14.          |                                   | Principal Accountant Fees and Services                                                        
|PART IV           |                                   | 76                                                                                            
|Item 15.          |                                   | Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|                  | (a) Index to Financial Statements |                                                                                               
|                  | (b) Reports on Form 8-K           |                                                                                               
|                  | (c) Exhibits                      |                                                                                               
|Signatures        |                                   | 77                                                                                            
|Index to Exhibits |                                   | 78                                                                                            

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PART I

Item 1. Business

GENERAL INFORMATION

Current Operations

Hilton Hotels Corporation is 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, 2003, our system contained 2,173 properties, totaling over 348,000 rooms. Of such properties, we owned an interest in and operated 122
hotels, leased seven hotels, managed 206 hotels owned by others and franchised 1,808 hotels owned and operated by third parties. Also included in the number of properties in our system are 30
timeshare properties which we managed or franchised. All of these properties are located in the United States, with the exception of 15 hotels which we own an interest in and/or manage and 50 hotels
which we franchise.

Our
hotel brands include Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, Homewood Suites by Hilton and Conrad. We develop and operate timeshare resorts through Hilton
Grand Vacations Company and its related entities, which we wholly own. We are also engaged in various other activities related or incidental to the operation of hotels.

Hilton
was organized in the State of Delaware on May 29, 1946. Our principal executive offices are located at 9336 Civic Center Drive, Beverly Hills, California 90210, and our
telephone number is (310) 278-4321.

Recent Developments



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For a description of our planned expansion activities, see "OperationsDevelopment." For additional information, see "Development and Capital
Spending" under Item 7.

Promus Acquisition

On November 30, 1999, we consummated our acquisition of Promus Hotel Corporation ("Promus") through the merger of Promus into a wholly owned subsidiary of
Hilton (the "Promus Acquisition"). As a result of the Promus Acquisition, we added over 1,450 properties representing over 200,000 rooms to our hotel system, along with a complementary portfolio of
hotel brand names including Doubletree, Embassy Suites, Hampton, Homewood Suites, Red Lion and Harrison Conference Centers. We sold our interest in the Red Lion and Harrison Conference Center brands
in 2001 and 2002, respectively. The Promus Acquisition has created a more diversified and balanced income stream by increasing the percentage of revenue that we derive from management and franchise
fees, both of which require little or no ongoing capital investment by us.

Separation of Gaming Business

On December 31, 1998, we completed a spin-off that split our operations into two independent public corporations, one for conducting our hotel
business and one for conducting our gaming business. Hilton retained ownership of the hotel business. We transferred the gaming business to a new corporation named Park Place Entertainment Corporation
(subsequently renamed Caesars Entertainment, Inc.), and distributed the stock of Park Place to our stockholders on a one-for-one basis.

Industry Segments

We operate in three reportable business segments which are based on similar products or services: Hotel Ownership; Managing and Franchising; and Timeshare. For
additional information, see "Segment Information" in the Notes to Consolidated Financial Statements under Item 8.

As
of December 31, 2003, we managed (and in some cases, partially owned) hotel properties in Belgium, Egypt, England, Hong Kong, Ireland, Mexico, Puerto Rico, Singapore, Thailand
and Turkey. We also franchised hotel properties in Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Peru, Puerto Rico and Venezuela. To date, the amounts of revenues, operating
profits and identifiable assets attributable to geographic areas outside the United States have not been material.

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OPERATIONS

Hotel Properties



As of December 31, 2003, we owned a majority or controlling financial interest in and operated 55 hotels, representing 32,526 rooms. The owned hotels
include some of our largest and most profitable hotels, including:



We
lease the land upon which 10 of our owned hotels are located. The expiration dates of the leases range up to 2044, with certain leases containing renewal options for 30 to
40 years. Under these leases, we own the buildings, leasehold improvements and all furniture and equipment; we are responsible for repairs, maintenance, operating expenses and lease rentals;
and we retain complete managerial discretion over operations. Lease terms generally require us to pay a fixed monthly base rent and may require us to pay additional rent based on a percentage of
revenue or income from the hotel. Upon the expiration of such leases, the buildings and other leasehold improvements presently owned by us revert to the landlords. For additional information, see
"Leases" in the Notes to Consolidated Financial Statements under Item 8.



As of December 31, 2003, we leased seven hotels, representing 2,643 rooms. Under these leases, we lease the hotel from its owner, manage the hotel and are
generally responsible for all aspects of the hotel's operations and recognize all revenues and substantially all expenses associated with the hotel's operations. Although, in general, replacement of
furniture, fixtures and equipment is the landlord's responsibility, we are obligated under certain leases to maintain and replace these items. Lease terms typically require us to pay a fixed monthly
base rent regardless of the performance of the hotel and a variable rent based on a percentage of revenue or income.



As of December 31, 2003, we had a minority or non-controlling financial interest in and operated 67 hotels, representing 20,556 rooms. These
hotels are owned by joint ventures in which we own a minority or non-controlling interest. We have a right of first refusal to purchase additional equity interests in certain of these
joint ventures. We manage each of the hotels for the joint venture entity owning the hotel. For additional information, see "Alliances" below.

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As of December 31, 2003, we managed 206 hotels, representing 52,088 rooms, which are wholly owned by others. Under our standard management agreement, we
operate a hotel for the benefit of its owner, which either owns or leases the hotel and the associated personal property. Our management fee is generally based on a percentage of each hotel's gross
revenue plus, in the majority of properties, an incentive fee based on operating performance. The terms of our management agreements are for various periods and generally contain renewal options,
subject to certain termination rights.

In
general, under our management agreements all operating and other expenses are paid by the owner and we are reimbursed for our out-of-pocket expenses. In turn,
our managerial discretion is subject to approval by the owner in most major areas, including the approval of capital expenditure budgets.



As of December 31, 2003, we franchised 1,808 hotels, representing 237,026 rooms, which are owned and operated by third parties. In general, franchisees pay
us 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 we do not directly participate in the management or operation of franchise hotels, we conduct periodic inspections to ensure that our standards are maintained and render advice with
respect to hotel operations. We generally approve the plans for, and the location of, franchise hotels and assist in their design.

Hotel Brands

We operate hotels through our brands described below, which target a wide variety of markets and geographic areas. According to data from Smith Travel Research,
in 2003, our Hilton, Hilton Garden Inn, Embassy Suites, Homewood Suites by Hilton and Hampton brands all commanded significant market share premiums in the system-wide RevPAR (rooms
revenue divided by the number of available rooms) index, which represents the share of RevPAR these properties attain versus their respective competitive sets. See "Development and Capital Spending"
under Item 7.



Hilton hotels are our 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. As of December 31, 2003, there were 230 Hilton hotels, representing 89,012 rooms, located in 37 states, the District of Columbia, Canada and Mexico. As of December 31, 2003, four
Hilton hotels were under construction, of which three will be franchise hotels and one will be a managed hotel.



Hilton Garden Inn hotels are our upper mid-market, limited service hotels that utilize a modular design constructed around a courtyard containing an
indoor or outdoor swimming pool. In 2003, the Hilton Garden Inn brand earned the first place J.D. Power Award for "Highest Customer Satisfaction" in its category for a second consecutive year. As of
December 31, 2003, there were 183 Hilton Garden Inn hotels, representing 25,010 rooms, located in 38 states, the District of Columbia, Canada and Mexico. As of December 31, 2003, 40
Hilton Garden Inn hotels were under construction, of which 38 will be franchise hotels and two will be managed hotels.

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Doubletree hotels are our 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. As of December 31, 2003, there were 155 Doubletree hotels, representing 40,614 rooms,
located in 38 states, the District of Columbia, Canada and Latin America. As of December 31, 2003, two Doubletree hotels were under construction, both of which will be franchise hotels.



Embassy Suites are our 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. In 2003, the Embassy Suites brand earned the first place J.D. Power
Award for "Highest Customer Satisfaction" in its category for a fifth consecutive year, a first in the history of the J.D. Power Award in the lodging category. As of December 31, 2003, there
were 174 Embassy Suites, representing 42,553 rooms, located in 37 states, the District of Columbia, Canada, Dominican Republic, Puerto Rico and Latin America. As of December 31, 2003, six
Embassy Suites hotels were under construction, of which five will be franchise hotels and one will be a managed hotel.



Homewood Suites by Hilton are our upscale, extended stay hotels that feature residential style accommodations including business centers, swimming pools,
convenience stores and limited meeting facilities. In 2003, the Homewood Suites by Hilton brand earned the first place J.D. Power Award for "Highest Customer Satisfaction" in its category. As of
December 31, 2003, there were 130 Homewood Suites, representing 14,760 rooms, located in 36 states, the District of Columbia and Canada. As of December 31, 2003, 15 Homewood Suites
hotels were under construction, all of which will be franchise hotels.



Hampton Inn hotels are our 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. As of December 31, 2003, there were 1,255 Hampton hotels, representing 127,543 rooms,
located in 49 states, Canada, Puerto Rico and Latin America. As of December 31, 2003, 66 Hampton hotels were under construction, of which 65 will be franchise hotels and one will be a managed
hotel.



In addition to our hotel brands described above, as of December 31, 2003, 16 hotels, representing 5,347 rooms, were operated under our Conrad brand,
described below, or under third party brands pursuant to contractual arrangements.



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Timeshare Operations

We conduct our timeshare operations through Hilton Grand Vacations Company and its related entities ("HGVC"), which we wholly own. As of December 31, 2003,
HGVC operated 18 timeshare resorts in Florida, three in each of Nevada and Hawaii, and one in each of Colorado and New York. We also manage two timeshare resorts and franchise two resorts in the
United States under the Embassy Vacation Resort name. In addition, HGVC operates the HGVClub, a points-based reservation and exchange system with 31 affiliated timeshare resorts.

Development



We intend to grow our hotel system primarily through franchising and the addition of management contracts, which require little or no capital investment. We will
also continue to invest in capital improvements at our owned hotels. In addition, we may seek to acquire ownership interests in hotel properties on a strategic and selective basis, either directly or
through investments in joint ventures. See "Alliances" below.

During
2003, we added a total of 116 properties, representing 16,585 rooms, to our portfolio. A total of 27 properties, representing 5,218 rooms, were removed from our system in 2003. We
expect to add approximately 115 to 130 hotels with approximately 15,000 to 17,000 rooms to our system in 2004, with Hampton and Hilton Garden Inn accounting for most of the new development.
Substantially all of this growth is expected to be through franchise and management agreements.

Total
property additions to our system in 2003 included 107 franchise properties and six managed properties owned by third parties. These additions included 22 properties which, due in
part to the market share leadership of our brands and the challenging environment for many hotel operators, were converted to our family of brands in 2003. The 22 conversions included nine
Doubletrees, eight Hamptons, three Hilton Garden Inns, one Homewood Suites by Hilton and one Hilton. The Doubletree conversions included four franchised properties in Tennessee converted from an
independent brand and the first Doubletree hotel in Canada, a 433-room property at Toronto Airport. Additions in 2003 included the first Hampton Inn in Manhattan, with a total of five
Hampton Inns expected to open in New York City by 2005, and the opening of the 512-suite Embassy Suites Niagara Falls in Ontario, Canada.

In
addition, during 2003 we secured the management contract for the 426-room Hilton Cancun Beach & Golf Resort in Mexico, previously a Hilton franchise hotel. We also
announced an agreement to convert the former Adam's Mark hotel in Memphis to a 408-room Hilton in March 2004 following a major renovation. In December 2003, we opened two new Hilton
managed convention hotels in Texas, the Hilton Americas-Houston and the Hilton Austin, with another managed convention hotel, the Hilton Omaha in Nebraska, scheduled to open in April 2004. For
information regarding development of Conrad properties, see "AlliancesHilton Group" below.

Our
ability to grow the number of managed and franchised hotels is affected by the factors set forth under "Additional InformationBusiness Risks" and
"Forward-Looking Statements," including national and regional economic conditions; the effects of actual and threatened terrorist attacks and international conflicts; credit availability;
relationships with franchisees and owners; and competition from other hotel brands.

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HGVC has recently opened or is currently developing the following projects:



HGVC
is actively seeking new management, development and acquisition opportunities in other destination resort locations. For additional information, see "Summary of Significant
Accounting PoliciesRevenue Recognition" in the Notes to Consolidated Financial Statements under Item 8.

Alliances



In 1997, we entered into agreements with Hilton Group plc ("Hilton Group"), whose wholly owned subsidiary Hilton International Co. ("HI"), owns the rights to the
Hilton name outside the United States. The agreements provide for the reunification of the Hilton brand worldwide through a strategic alliance between the companies, including cooperation on sales and
marketing, loyalty programs and other operational matters. Pursuant to these agreements, both companies have integrated their reservation systems under Hilton Reservations Worldwide, launched the
Hilton HHonors Worldwide loyalty program, integrated worldwide sales offices, developed joint marketing initiatives and adopted a Hilton brand identity used by both companies. See "Additional
InformationReservation System" and "HHonors." Stephen F. Bollenbach, our President and Chief Executive Officer, is a non-executive director of Hilton Group and
David Michels, Chief Executive of Hilton Group, is one of our non-executive directors.

In
2000, we announced the formation of a joint venture company with Hilton Group to expand the Conrad brand of luxury hotels on a worldwide basis. The joint venture company, which is
owned 50% by each of Hilton and HI, seeks to develop the Conrad brand primarily through management contracts, the construction of new hotels requiring modest investment by the joint venture partners
and through the conversion of existing hotels to the Conrad brand. We have renamed the Towers portion of the Waldorf=Astoria as the Waldorf Towers, a Conrad Hotel. We have entered into an agreement to
manage the Conrad Miami in Florida on behalf of the joint venture, which is expected to open in April 2004 and will be the first freestanding Conrad hotel in North America.

Development
of additional international hotels by us under the "Hilton" and "Conrad" names is subject to our alliance agreements with Hilton Group. See "Territorial Restrictions."
Pursuant to the joint venture with Hilton Group, management agreements have been entered into to operate the following international hotels: (i) the newly built Conrad Bali in Indonesia, which
opened in March 2004; and (ii) the Conrad Phuket in Thailand (formerly the Panwalsuri Resort & Spa), which is scheduled to convert to the Conrad brand in March 2005. We
also continue to manage and retain our ownership interest, if any, in the Conrad hotels we operated prior to formation of the joint venture. See "Hotel BrandsOther
BrandsConrad."

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Since 2001, we have entered into three separate joint venture partnerships with CNL Hospitality Corp. ("CNL"). In December 2003, we formed a
partnership with CNL that has acquired the 544-room Capital Hilton in Washington, D.C. and the 394-room Hilton La Jolla Torrey Pines outside of San Diego, California, which
properties we wholly owned at the time. We have a 25% interest in the partnership and manage both properties under long-term agreements.

In
February 2003, we completed a transaction in which we formed a partnership with CNL that has since acquired the following properties: the 500-room Doubletree at
Lincoln Centre in Dallas, Texas; the 428-room Sheraton El Conquistador Resort and Country Club in Tucson, Arizona; the 437-room Hilton Rye Town in New York; the
630-room Doubletree Crystal City in Virginia; the 267-suite Embassy Suites Crystal City in Virginia; the 257-suite Embassy Suites Santa Clara in California; and the
174-suite Embassy Suites Orlando Airport in Florida. The Dallas and Tucson properties have been converted to the Hilton brand. We contributed the Hilton Rye Town to the partnership, CNL
contributed the Doubletree Crystal City and the partnership acquired the remaining properties. We have a 25% interest in this partnership and manage each of the seven hotel properties under
long-term agreements.

In
2001, we formed a partnership with CNL that owns four hotel properties: the 500-room Hilton Miami Airport in Florida; the 276-suite Embassy Suites Portland in
Oregon; the 484-room Hilton Costa Mesa in California; and the 224-suite Hilton Suites Auburn Hills in Michigan. We contributed the Embassy Suites Portland and the Hilton Suites
Auburn Hills and CNL contributed the Hilton Miami Airport and the Hilton Costa Mesa to the partnership. We have a 30% interest in this partnership and manage each of the four hotel properties under
long-term agreements.



As of December 31, 2003, FelCor Lodging Trust Inc. ("FelCor") owned or had an interest in 74 of our hotels and we owned approximately
1.5 million shares of FelCor common stock, representing approximately 2% of FelCor's outstanding common stock.

Development Financing

We have established franchise financing programs with third party lenders to support the growth of our Hilton Garden Inn, Homewood Suites by Hilton, Hampton and
Embassy Suites hotels. As of December 31, 2003, we have provided guarantees of $50 million on loans outstanding under these programs. In addition, we have guaranteed $69 million
of debt and other obligations of unconsolidated affiliates and third parties, bringing our total guarantees to $119 million. Our outstanding guarantees have terms of one to nine years. We also
have commitments under letters of credit totaling $87 million as of December 31, 2003. We believe it is unlikely that material payments will be required under these agreements. See
"Liquidity and Capital Resources" under Item 7.

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Territorial Restrictions

Certain franchise and management agreements entered into by Hilton and Promus contain provisions that may have the effect of limiting or restricting Hilton's or
Promus' right to own, manage or franchise additional hotels, or in some cases brands, in a specified geographic area. Such provisions vary significantly in their applicability and scope and may be
subject to differing interpretations. As a result of the Promus Acquisition, we own, manage or franchise hotels in circumstances that may give rise to claims that such hotels conflict with or violate
such provisions. To the extent that such conflicts arise, we seek to resolve them by negotiation with the relevant parties. In the event that such resolution cannot be achieved, litigation may result
in damages or other remedies against us. Such remedies could include termination of the right to own, manage or franchise the relevant property. Although no assurance can be given that we will be able
to renegotiate successfully or otherwise resolve the effects of such conflicts in each instance, these conflicts have not had, and are not expected to have, a material adverse effect on our financial
position or results of operations.

We
have entered into agreements which restrict our right to operate hotels in various areas under the "Hilton" or "Conrad" names. Pursuant to an agreement entered into in 1964 at the
time we distributed to our stockholders all of the issued and outstanding capital stock of HI, we were prohibited from operating facilities outside the United States identified as "Hilton" hotels and
HI was prohibited from operating facilities within the United States identified as "Hilton" hotels. We conduct certain of our international hotel operations under the Conrad name. See "Hotel
BrandsOther BrandsConrad."

We
have entered into alliance agreements with the Hilton Group, the parent company of HI, to reunite the Hilton name. Pursuant to these agreements, HI has granted a license to us to
develop franchise properties under the Hilton and Hilton Garden Inn names in Canada, Mexico and the Island of St. John, U.S. Virgin Islands, for a period of 20 years. We have formed a joint
venture with HI to develop the Conrad brand on a worldwide basis. Subject to the foregoing restrictions as to the use of the "Hilton" and "Conrad" names, Hilton and HI can compete in all, and do
compete in certain, markets. See "AlliancesHilton Group" above.

Potential Acquisitions

We continue to evaluate acquisition opportunities and may, from time to time, negotiate to engage in a business combination transaction or other acquisition.
However, there is no assurance that we will engage in any such transactions.

Property Transactions

We continue to evaluate our portfolio of owned assets and may seek to sell certain assets from time to time. See "General InformationRecent
DevelopmentsHotel Properties" for a description of certain properties we sold in 2003 and 2004. In addition, we will continue to review our owned hotel portfolio for potential
repositioning or rebranding opportunities.

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Statistical Information

The following table sets forth certain system-wide information for our properties with respect to the number of properties and rooms as of
December 31, 2002 and 2003:

|                          |               |       |       |         |         |         |       |         |         | Change in Number of |    
|------------------------- | ------------- | ----- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | ------------------- | ---
|
|
|
|Hilton                    |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 39    |         | 28,985  |         | 36    |         | 27,496  |                     | (3 
|                          | Leased        |       | 1     |         | 499     |         | 1     |         | 499     |                     |   
|                          | Joint Venture |       | 6     |         | 2,291   |         | 10    |         | 4,177   |                     | 4  
|                          | Managed       |       | 17    |         | 10,601  |         | 24    |         | 14,103  |                     | 7  
|                          | Franchised    |       | 168   |         | 45,334  |         | 159   |         | 42,737  |                     | (9 
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 231     |         | 87,710  |       | 230     |         | 89,012              |    
|Hilton Garden Inn         |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 1     |         | 162     |         | 1     |         | 162     |                     |   
|                          | Joint Venture |       | 2     |         | 280     |         | 2     |         | 280     |                     |   
|                          | Managed       |       |      |         |        |         | 3     |         | 391     |                     | 3  
|                          | Franchised    |       | 158   |         | 21,655  |         | 177   |         | 24,177  |                     | 19 
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 161     |         | 22,097  |       | 183     |         | 25,010              |    
|Doubletree                |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 9     |         | 3,156   |         | 9     |         | 3,156   |                     |   
|                          | Leased        |       | 6     |         | 2,151   |         | 6     |         | 2,144   |                     |   
|                          | Joint Venture |       | 30    |         | 8,541   |         | 25    |         | 7,427   |                     | (5 
|                          | Managed       |       | 57    |         | 15,702  |         | 44    |         | 11,585  |                     | (13
|                          | Franchised    |       | 52    |         | 11,792  |         | 71    |         | 16,302  |                     | 19 
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 154     |         | 41,342  |       | 155     |         | 40,614              |    
|Embassy Suites            |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 5     |         | 1,023   |         | 4     |         | 881     |                     | (1 
|                          | Joint Venture |       | 24    |         | 6,581   |         | 27    |         | 7,279   |                     | 3  
|                          | Managed       |       | 61    |         | 15,589  |         | 54    |         | 14,136  |                     | (7 
|                          | Franchised    |       | 79    |         | 17,949  |         | 89    |         | 20,257  |                     | 10 
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 169     |         | 41,142  |       | 174     |         | 42,553              |    
|Homewood Suites by Hilton |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 7     |         | 905     |         | 3     |         | 398     |                     | (4 
|                          | Managed       |       | 30    |         | 3,605   |         | 36    |         | 4,304   |                     | 6  
|                          | Franchised    |       | 84    |         | 9.218   |         | 91    |         | 10,058  |                     | 7  
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 121     |         | 13,728  |       | 130     |         | 14,760              |    
|Hampton                   |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 1     |         | 133     |         | 1     |         | 133     |                     |   
|                          | Managed       |       | 25    |         | 3,268   |         | 34    |         | 4,323   |                     | 9  
|                          | Franchised    |       | 1,180 |         | 119,640 |         | 1,220 |         | 123,087 |                     | 40 
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 1,206   |         | 123,041 |       | 1,255   |         | 127,543             |    
|Timeshare                 |               | 27    |       | 3,117   |         | 30      |       | 3,644   |         | 3                   |    
|Other(1)                  |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 1     |         | 300     |         | 1     |         | 300     |                     |   
|                          | Joint Venture |       | 3     |         | 1,400   |         | 3     |         | 1,393   |                     |   
|                          | Managed       |       | 11    |         | 3,239   |         | 11    |         | 3,246   |                     |   
|                          | Franchised    |       |      |         |        |         | 1     |         | 408     |                     | 1  
|                          |               |       |       |         |         |         |       |         |         |                     |    
|                          |               | Total |       | 15      |         | 4,939   |       | 16      |         | 5,347               |    
|Total                     |               |       |       |         |         |         |       |         |         |                     |    
|                          | Owned         |       | 63    |         | 34,664  |         | 55    |         | 32,526  |                     | (8 
|                          | Leased        |       | 7     |         | 2,650   |         | 7     |         | 2,643   |                     |   
|                          | Joint Venture |       | 65    |         | 19,093  |         | 67    |         | 20,556  |                     | 2  
|                          | Managed       |       | 201   |         | 52,004  |         | 206   |         | 52,088  |                     | 5  
|                          | Franchised    |       | 1,721 |         | 225,588 |         | 1,808 |         | 237,026 |                     | 87 
|                          | Timeshare     |       | 27    |         | 3,117   |         | 30    |         | 3,644   |                     | 3  
|                          |               |       |       |         |         |         |       |         |         |                     |    
|TOTAL PROPERTIES          |               | 2,084 |       | 337,116 |         | 2,173   |       | 348,483 |         | 89                  |    
|                          |               |       |       |         |         |         |       |         |         |                     |    

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10

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For purposes of the table above, "owned" properties are those in which we have a majority or controlling financial interest and "joint venture"
properties are those in which we have a minority or non-controlling financial interest. For additional information, see "Hotel Properties" above.

The
following table sets forth certain system-wide information for our hotels with respect to occupancy rates, average room rates and revenue per available room ("RevPAR")
for the fiscal years ended December 31, 2002 and 2003:

|                          |              | 2002(1) |   | 2003(1) |   | %/pt Change |       
|------------------------- | ------------ | ------- | - | ------- | - | ----------- | ------
|Hilton                    |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 68.0    | % |             | 67.4  
|                          | Average rate |         | $ | 127.42  |   | $           | 125.24
|                          | RevPAR(2)    |         | $ | 86.64   |   | $           | 84.36 
|Hilton Garden Inn         |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 64.7    | % |             | 66.3  
|                          | Average rate |         | $ | 96.41   |   | $           | 95.03 
|                          | RevPAR(2)    |         | $ | 62.34   |   | $           | 63.02 
|Doubletree                |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 66.1    | % |             | 65.0  
|                          | Average rate |         | $ | 102.53  |   | $           | 100.47
|                          | RevPAR(2)    |         | $ | 67.73   |   | $           | 65.32 
|Embassy Suites            |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 68.9    | % |             | 69.1  
|                          | Average rate |         | $ | 120.86  |   | $           | 118.94
|                          | RevPAR(2)    |         | $ | 83.32   |   | $           | 82.24 
|Homewood Suites by Hilton |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 72.5    | % |             | 72.5  
|                          | Average rate |         | $ | 94.88   |   | $           | 93.95 
|                          | RevPAR(2)    |         | $ | 68.75   |   | $           | 68.14 
|Hampton                   |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 66.8    | % |             | 66.2  
|                          | Average rate |         | $ | 77.68   |   | $           | 78.22 
|                          | RevPAR(2)    |         | $ | 51.85   |   | $           | 51.75 
|Other(3)                  |              |         |   |         |   |             |       
|                          | Occupancy    |         |   | 61.3    | % |             | 57.2  
|                          | Average rate |         | $ | 124.87  |   | $           | 127.70
|                          | RevPAR(2)    |         | $ | 76.49   |   | $           | 73.00 

---

For
additional information regarding our hotel brands, see "Hotel Brands" above.

11

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The following table sets forth certain system-wide statistical information for our hotels by geographic region as of and for the year ended December 31, 2003:

|Regions                   |                             | Properties |    | Rooms   |        | Occupancy |      | Room Rate |        | RevPAR
|------------------------- | --------------------------- | ---------- | -- | ------- | ------ | --------- | ---- | --------- | ------ | ------
|Owned or Operated Hotels: |                             |            |    |         |        |           |      |           |        |       
|                          | Pacific/Mountain            |            | 99 |         | 36,328 |           | 68.5 | %         | $      | 121.83
|                          | North Central               |            | 42 |         | 13,477 |           | 66.3 |           |        | 121.27
|                          | South Central               |            | 67 |         | 17,592 |           | 63.9 |           |        | 108.04
|                          | New England/Middle Atlantic |            | 36 |         | 13,783 |           | 73.8 |           |        | 162.63
|                          | South Atlantic              |            | 76 |         | 21,457 |           | 70.6 |           |        | 120.53
|                          | International               |            | 15 |         | 5,176  |           | 59.0 |           |        | 127.80
|                          |                             |            |    |         |        |           |      |           |        |       
|Total                     |                             | 335        |    | 107,813 |        | 68.2      |      |           | 125.35 |       
|                          |                             |            |    |         |        |           |      |           |        |       
|Franchise Hotels          |                             | 1,808      |    | 237,026 |        | 66.2      |      |           | 89.14  |       
|                          |                             |            |    |         |        |           |      |           |        |       

In
the table above, statistics are for comparable hotels, and include only those hotels in our system as of December 31, 2003 and owned, operated or franchised by us since
January 1, 2002. For additional information regarding our number of properties, number of available rooms and statistical information, see "Supplementary Financial Information" and "Five Year
Summary" under Item 8.

ADDITIONAL INFORMATION

Casino Windsor

We own a 50% equity interest in Windsor Casino Limited, which operates the 400-room Casino Windsor in Windsor, Ontario, Canada for the Ontario
provincial government under a management contract. This hotel casino features a 75,000 square foot casino and entertainment and meeting facilities. See "Additional InformationRegulation
and LicensingOntario Gaming Laws."

Design and Furnishing Services

Hilton Supply Management, our wholly owned subsidiary, provides design and furnishing services to our hotels and to hotels owned and operated by others. These
services include the purchase and distribution of furniture, furnishings, equipment, food, beverage and operating supplies. The revenues of this operation depend primarily on the number of new hotels
we operate or franchise and on refurbishing and remodeling of our existing hotels.

Reservation System

Hilton Reservations Worldwide, LLC ("HRW") oversees and operates a computerized, worldwide reservation system for hotels owned, operated or franchised by Hilton,
Hilton Group, our respective affiliates and others. Hilton and Hilton Group each own a 50% interest in HRW. The domestic HRW reservation agents utilize an automated system that enables them to
cross-sell among all of our hotel brands which has benefited, and which we expect will continue to benefit, all of our hotel brands.

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HHonors

Under the alliance agreements we entered into with Hilton Group, Hilton and Hilton Group each own a 50% interest in the Hilton HHonors Worldwide, LLC guest
loyalty program ("HHonors"). HHonors includes the Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Homewood Suites by Hilton, Hampton and Conrad brands, as well as brands operated by Hilton
Group. Members of the HHonors program earn points based on their spending at most of the hotel properties operated or franchised by us and Hilton Group. HHonors accumulates and tracks points on the
member's behalf and fulfills the awards upon request. Points can be redeemed for hotel stays at participating properties, and for a variety of other awards such as airline tickets, cruises and car
rentals. We expect HHonors to continue to have a positive impact on our brands. See "Summary of Significant Accounting PoliciesHilton HHonors" in the Notes to Consolidated Financial
Statements under Item 8.

Technology and Distribution

We operate the Hilton worldwide internet website (www.hiltonworldwide.com) and our various hotel brand websites which provide cost effective customer service,
including online hotel reservations and HHonors enrollment. We also provide various business, technology and information services for our hotel guests.

In
2003, we introduced our proprietary OnQ system, which is a single technology platform that links our brands and hotels to enhance customer service and loyalty, as well as maximize
operational efficiencies. The OnQ system has been installed at substantially all of the hotels in our system.

In
April 2003, we announced an integrated strategy related to electronic and on-line distribution of rooms in our system. The strategy provides for new brand standards
that permit each hotel to establish its own room rates, but requires the hotel to offer such rates consistently across all designated distribution channels, including our proprietary websites, HRW
call centers, Global Distribution Systems/travel agents, and through the hotel directly. In addition, we have implemented enhancements to our major brand websites as part of the strategy.

In
December 2003, we introduced the "Our Best Rates. Guaranteed." program which offers a price-matching guarantee that is designed to encourage customers to book their
reservations through the above referenced distribution channels. We believe that this program, along with enhancements to our branded websites, has contributed to significantly increased numbers of
transactions on our proprietary websites.

Trademarks

The following trademarks used herein are owned by us and are registered as trademarks in the United States and in certain foreign countries:
Doubletree®, Doubletree Club Hotel®, Doubletree Guest Suites®, Embassy Suites Hotels®, Embassy Vacation Resort®, Hampton®,
Hampton Inn®, Hampton Inn & Suites®, HGVClub®, Hilton®, Hilton Garden Inn®, Hilton Grand Vacations Club®, Hilton Hawaiian
Village®, Homewood Suites by Hilton®, Palmer House® and Waldorf=Astoria®. The Conrad® trademark is owned by Conrad Hospitality, LLC, of
which Hilton and Hilton Group each own a 50% interest. The HHonors®, Senior HHonors®, Double Dip®, Double Dipping®, and Points &
Miles® trademarks are owned by Hilton HHonors Worldwide, LLC. We consider all of these marks, and the associated name recognition, to be valuable to our business. See "Summary of
Significant Accounting PoliciesBrands" in the Notes to Consolidated Financial Statements under Item 8.

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Marketing

Our hotel properties offer multiple product lines to a broad range of customers in many geographic markets. Our properties include full-service and
limited service hotels in urban, airport, resort and suburban locations, as well as timeshare resorts.

Our
metropolitan and airport properties primarily serve the convention and meeting market and the business traveler market (business persons traveling as individuals or in small groups).
Our resort properties primarily serve the tour and leisure market (tourists traveling either as individuals or in groups) and the convention and meeting market. Our suburban properties primarily serve
the leisure and business traveler markets. As indicated under "Business Risks" below, these sources of business are sensitive to general economic and other conditions.

We
believe that our alliance with Hilton Group (which currently owns the rights to the Hilton name outside the U.S.) has improved the performance of our operations as our properties have
benefited from the worldwide integration of the Hilton brand, reservation systems, marketing programs and sales organizations. See "OperationsAlliancesHilton Group."

Business Risks

We are subject to all of the operating risks common in the lodging and timeshare industries.Our results are significantly
affected by occupancy and room rates achieved by hotels, our ability to manage costs, the relative mix of owned, leased, managed and franchised hotels, the number and pricing of timeshare interval
sales and the change in the number of available hotel rooms through acquisition, development and disposition. Our results are also impacted by, among other things, the factors identified below and
under "ForwardLooking Statements." Any of these factors or conditions could adversely impact hotel room demand and pricing, which could limit our ability to pass through operating cost
increases in the form of higher room rates. Additionally, our ability to manage costs could be adversely impacted by increases in energy, healthcare, insurance and other operating expenses, resulting
in lower operating margins. Increases in transportation and fuel costs, changes in exchange rates or sustained recessionary periods in the U.S. (affecting domestic travel) and internationally
(affecting inbound travel from abroad) could also unfavorably impact future results.

Economic conditions may continue to negatively impact our results.We anticipate that economic factors beyond our control
will continue to create challenges for the lodging industry and us. Any continuation of the soft economic conditions that existed during 2003 could impact the recovery of independent business travel,
which would place pressure on room rates. Certain markets, including San Francisco/San Jose and Chicago, are expected to be difficult in 2004. Cost increases in healthcare, insurance and
property taxes are also expected to continue to put pressure on margins.

We may have disputes with the owners of hotels we manage.For our managed hotels, we have the responsibility to manage each
hotel at a level consistent with the standard set forth in the relevant management agreement. Such provisions vary in scope and may be subject to differing interpretations. In the ordinary course of
business, we encounter disagreements with the owners of our managed hotels as to whether the duties in our management agreements have been satisfied. To the extent that such conflicts arise, we seek
to resolve them by negotiation with the relevant parties. In the event that such resolution cannot be achieved, litigation may result in damages or other remedies against us. Such remedies could
include termination of the right to manage the relevant property. No assurance can be given that we will be able to negotiate successfully or otherwise resolve such conflicts in each instance.

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We must compete for management, franchise and timeshare agreements, which may require loans or guarantees.The terms of our
management, franchise and timeshare agreements are influenced by contract terms offered by our competitors at the time such agreements are entered into. Accordingly, we cannot assure you that
contracts we enter into or renew in the future will be on terms that are as favorable to us as those under existing agreements. In connection with entering into these contracts, we may become
obligated to make loans or guarantee the obligations of third parties. Weaker performance, in particular as a result of a soft economy, could give rise to losses under these loans and guarantees.

Internet reservation channels could impact our results.Some of our hotel rooms are booked through internet travel
intermediaries. If these bookings continue to increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. We believe
that the aim of such intermediaries is to have consumers develop loyalties to their reservation systems rather than to our lodging brands. Although we expect most of our business to continue to be
derived from traditional channels, if the amount of sales made through internet intermediaries increases significantly, this could adversely affect the rates we are able to charge for hotel rooms, and
our business and profitability may be significantly harmed.

We derive a significant portion of our earnings from certain owned hotels.We derived over one-half of our
revenue in 2003 from the operations of our owned hotels. A significant portion of these revenues were derived from our large convention hotels located in major U.S. cities. See
"OperationsHotel PropertiesOwned Hotels." Soft economic conditions in any of the markets where these properties are located and reduced business travel could adversely affect
our results from these properties and, therefore, our overall financial results. Our owned properties are also subject to risks that generally relate to investments in real estate, including changes
in zoning and tax laws and the relative illiquidity of real estate compared to other investments. If our owned properties do not generate sufficient revenues to meet operating expenses, including debt
service and capital expenditures, our income will be adversely affected.

Investing through joint ventures decreases our ability to manage risk.We have from time to time invested, and expect to
continue to invest, in joint ventures. These joint ventures include three partnerships we have recently formed with CNL Hospitality Corp., as described under
"OperationsAlliancesCNL Joint Ventures." Joint venturers often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may
involve risks such as the possibility that the co-venturer in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with our business
interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might
subject hotels owned by the joint venture to additional risk. Additionally, we may be unable to take action without the approval of our joint venture partners, or our joint venture partners could take
actions binding on the joint venture without our consent.

Our timeshare business is subject to extensive regulation.We develop, manage, market and sell timeshare intervals, which
generally entitle the buyer to occupy a fully-furnished unit for a one-week period on either an annual or an alternative-year basis. We also provide financing to purchasers of
timeshare intervals. Certain of these activities are subject to extensive state regulation in both the state in which the property is located and the states in which property is marketed and sold, as
well as Federal regulation of certain marketing practices. In addition, the laws of most states in which we sell timeshare intervals grant the purchaser a unilateral right to rescind the purchase
contract within a statutory rescission period. Although we believe that we are in material compliance with all applicable Federal, state and local laws and regulations to which timeshare properties,
marketing, sales and operations are currently subject, changes in these requirements such as the recent changes under the Federal telemarketing regulations, or a determination by a regulatory
authority that we were not in compliance, could adversely affect us.

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Risks relating to acts of God, terrorist activity and war.Our financial and operating performance may be adversely affected
by acts of God, such as natural disasters, in locations where we own and/or operate significant properties. Some types of losses, such as from earthquake, hurricane, terrorism and environmental
hazards may be either uninsurable or too expensive to justify insuring against. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we
have invested in a property, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations
related to the property. Similarly, wars (including the potential for war) and terrorist activity (including threats of terrorist activity), as well as geopolitical uncertainty and international
conflict, which impact domestic and international travel, have caused in the past, and may cause in the future, our results to differ materially from anticipated results.

In
addition, see the cautionary factors set forth under "Competition" and "Environmental Matters" below.

Forward-Looking Statements

Forward-looking statements in this report, including without limitation, those set forth under the captions "OperationsDevelopment Financing,"
"Territorial Restrictions," "Potential Acquisitions" and "Property Transactions" and "Additional InformationReservation System,"
"HHonors," "Competition," "Environmental Matters" and "Regulation and Licensing,", "Properties," "Legal Proceedings" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and statements relating to our 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," "intends," "plans," "estimates," "projects" and similar expressions are intended to identify forward-looking statements. These
forward-looking statements reflect our current views with respect to future events and financial performance and are subject to risks and uncertainties, including those identified under
"OperationsDevelopment" and "Territorial Restrictions," "Additional InformationMarketing," "Business Risks," "Competition,"
"Environmental Matters" and "Regulation and Licensing," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as:



Any
of these risks and uncertainties could cause actual results to differ materially from historical results or those anticipated. Although we believe the expectations reflected in these
forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained and caution you not to place undue reliance on such statements. We
undertake no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances.

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Competition

We seek to maintain the quality of our lodging business while expanding both domestically and internationally, primarily through franchising and the addition of
management contracts. We intend to improve our business by leveraging our strong brand names, maximizing operating efficiencies, utilizing cost containment programs and expanding and enhancing
properties. We may also acquire or develop properties as appropriate, either directly or through investments in joint ventures.

Our
position as a multi-branded owner, operator, manager and franchisor of hotels makes us one of the largest hotel companies in the United States. Competition in the industry is based
primarily on the level of service, quality of accommodations, convenience of locations and room rates. Competition from other hotels, motels and inns, including facilities owned by local interests and
facilities owned by national and international chains, is vigorous in all areas in which we operate or franchise our facilities. Our hotels also compete generally with facilities offering similar
services and located in cities and other locations where our hotels are not present. If hotel capacity is expanded by others in a city where our branded hotels are located, competition will increase.
Competition in the timeshare business is based primarily on the quality and location of timeshare resorts, the pricing of timeshare intervals and the availability of program benefits, such as exchange
programs. We believe that our focus on core business strategies, combined with our financial strength, diverse market presence, strong brands and well-maintained, strategically located
properties, will enable us to remain competitive. For additional information, see "Business Risks" above.

Environmental Matters

We, like others in our industry, are subject to various Federal, state, local and, in some cases, foreign laws, ordinances and regulations that:



Environmental
Laws could make us liable for costs of removing or cleaning up hazardous or toxic substances on, under or in property we currently own or operate or that we previously
owned or operated. Those laws could impose liability without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances or wastes. We endeavor to maintain
compliance with Environmental Laws but, from time to time, our operations may have resulted or may result in noncompliance or liability for cleanup pursuant to Environmental Laws. In that regard, we
have been notified of contamination resulting from past disposals of wastes at six sites to which hazardous or non-hazardous wastes may have been sent from our facilities in the past.
Based on information reviewed by and available to us, including:



we
believe that any liability arising from such disposals under Environmental Laws would not have a material adverse effect on our financial position or results of operations. However, there can be no
assurance that this will be the case.

For
information relating to our remediation efforts concerning mold found in certain areas of the Hilton Hawaiian Village, see "Impairment Loss and Related Costs" in the Notes to
Consolidated Financial Statements under Item 8.

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Regulation and Licensing

Ontario Gaming Laws.Ontario, Canada has laws and regulations governing the conduct of casino gaming. Ontario law requires
that the operator of a casino must be found suitable and be registered. A registration, once issued, remains in force until revoked. Ontario law defines the grounds for registration, as well as
revocation or suspension of such registration. The Ontario authorities have conducted an investigation of, and have found suitable, Hilton and the other shareholder of Windsor Casino Limited in
connection with the Ontario registration of Windsor Casino Limited. See "Additional InformationCasino Windsor."

Other Laws and Regulations.Each of the hotels and timeshare resorts we operate is subject to extensive state and local
regulations and, on a periodic basis, must obtain various licenses and permits, including those required to sell alcoholic beverages. Federal and state laws and regulations also require certain
registration, disclosure statements and other practices with respect to the franchising of hotels. We believe that we have obtained all required licenses and permits and our businesses are conducted
in substantial compliance with applicable laws.

Employees

At December 31, 2003, we employed approximately 70,000 persons, of whom approximately 18,000 were covered by various collective bargaining agreements
providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. We believe that the aggregate compensation, benefits and working
conditions afforded our employees compare favorably with those received by employees in the hotel industry generally. We believe our employee relations are satisfactory.

Available Information

Our internet website is located at www.hiltonworldwide.com. We make available free of charge through this website our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material, or furnish it to, the Securities and Exchange
Commission. Our internet website also contains our Code of Business Conduct and Ethics for officers, employees and directors, including our Chief Executive Officer and senior finance officers (the
"Code of Ethics"), our Corporate Governance Guidelines and Charters for our Audit, Compensation and Corporate Governance and Nominating Committees. See Item 10. "Directors and Executive
Officers of the Registrant" below. The information made available through our website is not incorporated by reference in this Form 10-K.

We
will provide without charge to any person, on the written or oral request of such person, a copy of our Code of Ethics, Corporate Governance Guidelines and Charters for our Audit,
Compensation and Corporate Governance and Nominating Committees. Requests should be directed to our Corporate Secretary, Hilton Hotels Corporation, 9336 Civic Center Drive, Beverly Hills, California
90210 (telephone number (310) 278-4321).

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Item 2.    Properties

We consider our hotels to be leading establishments with respect to desirability of location, size, facilities, physical condition, quality and the variety of
services offered in most of the areas in which they are located. Obsolescence arising from age and condition of facilities is a factor in the hotel industry. Accordingly, we spend, and intend to
continue to spend, substantial funds to maintain our owned facilities in first class condition in order to remain competitive.

Hotels
and timeshare properties owned, leased, managed and franchised by us are briefly described under Item 1 and, in particular, under the caption "Operations." In addition, new
properties presently under construction that we will operate are briefly described under "OperationsDevelopment" and "AlliancesHilton Group" under Item 1.

Item 3.    Legal Proceedings

We are subject to litigation in the ordinary course of our business. Management believes that resolution of pending litigation against us will not have a material
adverse effect on our financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Company

The following table sets forth certain information with respect to our executive officers.

|Name                  |  | Positions with the Company                                                                                                                                                                                   |  | Age
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---
|Stephen F. Bollenbach |  | President and Chief Executive Officer                                                                                                                                                                        |  | 61 
|Matthew J. Hart       |  | Executive Vice President and Chief Financial Officer and, from January 1999 until January 2000, Treasurer                                                                                                    |  | 51 
|Dieter Huckestein     |  | Executive Vice President and PresidentHotel Division until March 2001 and, thereafter, Executive Vice President and PresidentHotel Operations Owned and Managed                                            |  | 60 
|Thomas L. Keltner     |  | Executive Vice President and President  Franchise Hotel Group from December 1999 until March 2001 and, thereafter, Executive Vice President and PresidentBrand Performance and Franchise Development Group |  | 57 
|Madeleine A. Kleiner  |  | Executive Vice President and General Counsel since January 2001 and Corporate Secretary since March 2001                                                                                                     |  | 52 

Unless
otherwise noted in the table, all positions and offices with Hilton indicated above have been continuously held since January 1999. The executive officers are responsible
for all major policy making functions and all other corporate and divisional officers are responsible to, and are under the supervision of, the executive officers. None of the above named executive
officers are related.

Messrs. Bollenbach
and Huckestein also serve as directors of Hilton. Prior to joining Hilton, Mr. Keltner served as President, Brand Performance and Development Group of
Promus since February 1999, and as Executive Vice President and Chief Development Officer of Promus from July 1997 until February 1999. Prior to joining Hilton, Ms. Kleiner
served as Senior Executive Vice President, Chief Administrative Officer and General Counsel of H.F. Ahmanson & Company from May 1995 until October 1998, and was a partner with the
law firm of Gibson, Dunn & Crutcher prior thereto.

19

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Additional
information for our directors will be included under "Election of Directors" in our definitive proxy statement to be used in connection with our annual meeting of stockholders
scheduled to be held on May 27, 2004 (the "Proxy Statement"), and this information is incorporated in this Form 10-K. See Cover Page"Documents Incorporated by
Reference."

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Our Common Stock is listed on the New York and Pacific Stock Exchanges and is traded under the symbol "HLT." We have made quarterly dividend payments of $.02 per
share for each of the periods indicated in the table below. As of December 31, 2003, we had approximately 14,000 stockholders of record. The high and low reported sales prices per share of our
Common Stock are set forth in the following table for the periods indicated:

High

Low20021st Quarter

$
14.69

10.872nd Quarter


17.09

12.803rd Quarter


14.15

9.804th Quarter


14.00

9.5620031st Quarter


13.48

10.382nd Quarter


14.41

11.433rd Quarter


16.56

12.644th Quarter


17.50

15.6220041st Quarter (through March 10, 2004)


17.29

15.43


Rights Agreement

On November 29, 1999, we adopted a new preferred share purchase rights plan (the "Rights Plan") and declared a dividend distribution of one preferred share
purchase right (a "Right") on each outstanding share of our Common Stock. The new Rights Plan replaced our prior rights plan which had been originally adopted in 1988 and readopted in 1998 prior to
its expiration. We have entered into a Rights Agreement, dated as of November 29, 1999, which was amended as of February 15, 2001 to provide for the substitution of The Bank of New York
as Rights Agent (as amended, the "Rights Agreement"). The Rights are transferred only with the Common Stock, unless and until they become exercisable. The Rights will expire on November 29,
2009, subject to our right to extend, unless earlier redeemed or exchanged by us or terminated.

Generally,
the Rights become exercisable only if a person or group (other than Hilton Interests, as defined below):



When
exercisable, each Right entitles a shareholder to purchase from us one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise
price of $80, subject to adjustment (the "Purchase Price").

20

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After
a person becomes an Acquiring Person, each holder of a Right (other than Rights owned by the Acquiring Person) will have the right to receive, upon exercise of such Right, a number
of shares of Common Stock having a market value equal to two times the then current Purchase Price of the Right. After a person becomes an Acquiring Person, if we engage in certain mergers or
transfers of assets, each holder of a Right (other than Rights owned by the Acquiring Person) will have the right to receive upon exercise, at the Right's exercise price, a number of the acquiring
company's common shares having a market value of twice the Right's Purchase Price.

Once
a person becomes an Acquiring Person, but prior to their acquisition of 50% or more of the outstanding Common Stock, our Board of Directors may cause us to exchange the Rights
(other than Rights owned by an Acquiring Person), in whole or in part, for shares of Common Stock at an exchange ratio based on the value of the Common Stock at that time, subject to adjustment.

Prior
to a person or group becoming an Acquiring Person, the Rights are redeemable for $.001 per Right at the option of our Board of Directors.

"Hilton
Interests" refer to Barron Hilton and the Conrad N. Hilton Fund and the shares of Common Stock beneficially owned by them.

The
Rights Agreement, as amended, has been filed as Exhibits 4.8 and 4.9 to this Form 10-K, and the foregoing summary is qualified in its entirety by reference
thereto.

Item 6.    Selected Financial Data

The following selected financial data as of and for the years ended December 31, 1999 through 2003 has been derived from our consolidated financial
statements. The following data should be read in conjunction with our consolidated financial statements and the related notes thereto contained in Item 8 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Item 7.

|                             |  | Year Ended December 31,
|---------------------------- |  | -----------------------
|
|
|Results of Operations:       |  |                        
|Revenue                      |  | $                      
|Net income                   |  |                        
|Net income per shareBasic   |  |                        
|Net income per shareDiluted |  |                        
|Other Financial Data:        |  |                        
|Dividends per common share   |  | $                      
|Balance Sheet Data:          |  |                        
|Total assets                 |  | $                      
|Long-term debt               |  |                        

21

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are engaged in the ownership, management and development of hotels, resorts and timeshare properties and the franchising of lodging properties. At
December 31, 2003, our system contained 2,173 properties totaling over 348,000 rooms. Our brands include Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, Homewood Suites by
Hilton and Conrad. In addition, we develop and operate timeshare resorts through Hilton Grand Vacations Company and its related entities. We are also engaged in various other activities related or
incidental to the operation of hotels.

The
number of properties and rooms at December 31, 2003 by brand and by type are as follows:

Brand

Properties

Rooms

Type

Properties

RoomsHilton

230

89,012

Owned

55

32,526Hilton Garden Inn

183

25,010

Leased

7

2,643Doubletree

155

40,614

Joint Venture

67

20,556Embassy Suites

174

42,553



129

55,725Homewood Suites by Hilton

130

14,760

Managed

206

52,088Hampton

1,255

127,543

Franchised

1,808

237,026Other

16

5,347



2,014

289,114Timeshare

30

3,644

Timeshare

30

3,644Total

2,173

348,483

Total

2,173

348,483


Our
operations consist of three reportable segments which are based on similar products or services: Hotel Ownership, Managing and Franchising, and Timeshare. The Hotel Ownership segment
derives revenue from owned, majority owned and leased hotel properties. The Managing and Franchising segment provides services including hotel management and licensing of our family of brands to
franchisees. This segment generates its revenue from fees charged to hotel owners. As a manager of hotels, we are typically responsible for supervising or operating the hotel in exchange for fees
based on a percentage of the hotel's gross revenue, operating profits, cash flow, or a combination thereof. We charge franchise fees, depending on the brand, of up to five percent of rooms revenue in
exchange for the use of one of our brand names. The Timeshare segment consists of multi-unit timeshare resorts. This segment derives its revenue from selling and financing timeshare
intervals and operating timeshare resorts.

Our
results are significantly affected by occupancy and room rates achieved by hotels, our ability to manage costs, the relative mix of owned, leased, managed and franchised hotels, the
quantity and pricing of timeshare interval sales and the change in the number of available hotel rooms through acquisition, development and disposition. Results are also impacted by economic
conditions and capacity. Unfavorable changes in these factors could negatively impact hotel room demand and pricing which, in turn, could limit our ability to pass through operating cost increases in
the form of higher room rates. Additionally, our ability to manage costs could be adversely impacted by significant increases in operating expenses, resulting in lower operating margins. See
"Additional InformationBusiness Risks" and "Forward-Looking Statements" under Item 1 for a detailed description of these and other conditions that could adversely
affect our results of operations.

22

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We
anticipate that improving economic and political factors will create opportunities for the lodging industry and our company in 2004. Improving economic conditions are expected to
result in increased business travel, which when combined with strong leisure travel and limited full-service supply growth, should increase our ability to charge higher room rates. We also anticipate
growth in our management and franchise fee business as our system of hotels continues to increase, as well as another strong year from our timeshare business. Challenges in 2004 are expected to
include continued short reservation lead times for our group business, with markets in San Francisco/San Jose and Chicago expected to be difficult. In addition, cost increases in healthcare, insurance
and property taxes are expected to continue to put pressure on margins. We will continue to focus on managing our costs, achieving revenue per available room (RevPAR) premiums in the markets where we
operate, building occupancy, adding new units to our family of brands, leveraging technology and delivering outstanding customer service. We believe that our focus on these core strategies, combined
with our financial strength, diverse market presence, strong brands, and well-maintained, strategically located properties will enable us to remain competitive.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the 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. We evaluate our estimates and assumptions, including those related to notes receivable, valuation of long-lived assets, intangible assets,
self-insurance reserves and commitments, on an ongoing basis. We base our estimates and judgments on historical experience and other factors we believe to be reasonable under the
circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We believe the following critical
accounting policies, among others, affect our more significant estimates and assumptions used in preparing our consolidated financial statements. Actual results could differ from our estimates and
assumptions.

Notes
receivable are reflected net of an estimated allowance for uncollectable amounts. For timeshare notes receivable, this estimate is based primarily on historical experience and
assumptions with respect to future payment trends. Allowances for uncollectable amounts of other notes receivable, which includes notes from managed, franchised and unconsolidated joint venture
properties, are estimated based primarily on historical trends and analysis of underlying real estate collateral. Assessment of collateral may include estimates of future cash flow from the underlying
real estate.

Property
and equipment are stated at cost less accumulated depreciation. We also maintain cost and equity method investments in entities that own and operate hotel properties and
entities that perform other activities related or incidental to the operation of hotels. The assessment of long-lived assets for possible impairment requires us to make certain judgments,
including estimates of real estate values and future cash flow from the respective properties and investments. We review the recoverability of our long-lived assets when events or changes
in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

Our
intangible assets include management and franchise contracts, leases, brands and goodwill. The values of our management and franchise contracts and leases are amortized using the
straight-line method over the life of the agreements. The assessment of management and franchise contracts and leases requires us to make certain judgments, including estimates of future
cash flow from the respective properties. We account for brands and goodwill in accordance with Statement of Financial Accounting Standard (FAS) 142, which requires that intangible assets with
indefinite lives are not amortized, but are reviewed annually for impairment. The annual impairment review requires estimates of future cash flow with respect to the brands and estimates of the fair
value of our company and its components with respect to goodwill.

23

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We
are self-insured for various levels of general liability, workers' compensation and employee medical and dental insurance coverage. Insurance reserves include the present
values of projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data.

We
have issued letters of credit and guaranteed certain debt and obligations of unconsolidated affiliates and third parties. Under certain circumstances, we may be obligated to provide
additional letters of credit or guarantees. Assessment of the probability that we will be required to fund under these commitments requires us to make estimates of the ability of others to meet their
obligations.

The
estimates and assumptions related to notes receivable, long-lived assets, intangible assets and commitments are subject to change based on updated projections as to the
future performance of the related hotel properties. Self-insurance reserves are periodically adjusted based on historical trends, including the volume and amount of claim activity. Because
estimates are used, it is reasonably likely that there will be some variability between projected and actual results over time.

DEVELOPMENT AND CAPITAL SPENDING

Overview

We intend to grow our hotel brands primarily through franchising and the addition of management contracts, which require little or no capital investment. We will
also continue to invest in capital improvements and select projects at our owned hotels and the development of timeshare properties. In addition, we may seek to acquire ownership interests in hotel
properties on a strategic and selective basis, either directly or through investments in joint ventures. See "Joint Ventures/Alliances" below.

During
2003, we added 116 hotels with approximately 16,600 rooms to our portfolio. A total of 27 properties with approximately 5,200 rooms were removed from our system in 2003. In 2004,
we expect to add 115 to 130 hotels with 15,000 to 17,000 rooms to our system, with Hampton and Hilton Garden Inn accounting for most of the new development. Substantially all of this growth is
expected to be through franchise and management agreements.

We
believe our brand growth strategy continues to benefit from the significant market share premiums most of our brands command over their respective competitive sets. With 100
representing a brand's fair share of the market, our brands (according to Smith Travel Research) posted revenue per available room (RevPAR) index numbers as follows for 2003: Embassy Suites, 125.7;
Homewood Suites by Hilton, 119.1; Hampton Inn, 118.2; Hilton Garden Inn, 113.1; Hilton, 109.5; and Doubletree, 99.3.

In
addition, in August 2003, three of our brands earned first place awards from J.D. Power & Associates for highest customer satisfaction: Embassy Suites in the upscale
category (the fifth consecutive win for that brand), Hilton Garden Inn in the mid-priced category (its second win in as many years of eligibility) and Homewood Suites by Hilton in the
extended stay category.

We
believe the continued strong performance of our brands has enabled us to significantly enhance our development pipeline versus our industry competitors. In October 2003,
Lodging Econometrics noted that for the first time Hilton had more rooms in the active U.S. development pipeline than any other company.

Our
ability to grow the number of managed and franchised hotels is affected by the factors set forth under "Additional InformationBusiness Risks" and
"Forward-Looking Statements," under Item 1, including national and regional economic conditions; the effects of actual and threatened terrorist attacks and international conflicts;
credit availability; relationships with franchisees and owners; and competition from other hotel brands.

24

---

In
total, we anticipate spending approximately $275 million on capital expenditures in 2004, which includes $155 million on routine improvements and technology,
$55 million on timeshare projects and $65 million on hotel special projects. Routine improvements include expenditures for equipment, hotel fixtures, and wall and floor coverings.
Expenditures required to complete our capital spending programs will be financed through available cash flow and general corporate borrowings.

We
will continue to review our owned hotel portfolio for potential repositioning or rebranding opportunities and may seek to sell certain assets (see "Liquidity and Capital
ResourcesAcquisitions and Dispositions" and "Joint Ventures/Alliances").

Hotel Ownership

Capital expenditures during 2003 excluding timeshare projects totaled $202 million, including routine improvements and technology expenditures as well as
capital expenditures related to the mold remediation efforts at the Hilton Hawaiian Village. The Kalia Tower at the Hilton Hawaiian Village successfully reopened to guests in September 2003
(see "Development and Capital SpendingTimeshare").

We
continue to place a priority on making appropriate capital expenditures to maintain our owned assets. For 2004, we expect to allocate approximately six percent of owned hotel revenue
for routine improvements. As part of this program, we will be spending approximately $12 million in 2004 to upgrade the bedding at our owned hotels.

Managing and Franchising

Total property additions to our system in 2003 included 107 franchise properties and six managed properties owned by third parties. These additions included 22
properties which, due in part to the market share leadership of our brands and the challenging environment for many hotel operators, were converted to our family of brands in 2003. The 22 conversions
include nine Doubletrees, eight Hamptons, three Hilton Garden Inns, one Homewood Suites by Hilton and one Hilton. The Doubletree conversions include four franchised properties in Tennessee converted
from an independent brand and the first Doubletree hotel in Canada, a 433-room property at Toronto Airport.

Additions
in 2003 included the first Hampton Inn in Manhattan, with a total of five Hampton Inns expected to open in New York City by 2005, and the opening of the 512-suite
Embassy Suites Niagara Falls in Ontario, Canada. New openings also included the Conrad Bangkok in Bangkok, Thailand. Pursuant to a joint venture with Hilton International Co., a new managed
Conrad hotel opened in Bali, Indonesia in March 2004, while others are scheduled to open in Miami, Florida in April 2004 and Phuket, Thailand in March 2005.

New
Hilton managed convention hotels opened in Houston, Texas and Austin, Texas in December 2003, while another is on track to open in Omaha, Nebraska in April 2004. In
addition, during 2003 we secured the management contract for the 426-room Hilton Cancun Beach & Golf Resort in Mexico, previously a Hilton franchised hotel. We also announced an
agreement to convert the former Adam's Mark hotel in Memphis to a 408-room Hilton in March 2004 following a major renovation.

25

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Timeshare

We are currently developing new timeshare projects in Las Vegas, Nevada and Orlando, Florida, and have recently completed another project in Honolulu, Hawaii. The
Las Vegas project, located at the north end of the Las Vegas Strip, has 283 units in its first phase, which opened in October 2003. In Orlando, the new project will have 96 units in its first
two phases, of which phase one opened in February 2004 while phase two is scheduled for completion in May 2004. In Honolulu, we converted six floors of the Kalia Tower at the Hilton
Hawaiian Village into 72 timeshare units, which were completed in December 2003. The total construction cost for phase one at the new Las Vegas property, phases one and two at the new Orlando
property and the 72-unit Kalia Tower conversion is estimated to be $170 million, of which $84 million was spent in 2003.

Capital
expenditures associated with our timeshare operations during 2003 totaled $94 million. The capital expenditures associated with our non-lease timeshare
products are reflected as inventory until the timeshare intervals are sold. We also provide financing to the buyers of our timeshare intervals. During 2003, we issued approximately $171 million
of loans related to timeshare financings, which comprised the majority of our additional investments of $196 million. Principal collections on timeshare notes during the same period were
approximately $98 million.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Net cash provided by operating activities totaled $585 million, $675 million and $492 million for the years ended December 31, 2001,
2002 and 2003, respectively. The decrease in 2003 was due primarily to lower operating results, as well as working capital variances. The working capital variances include an increase in inventories
in 2003 related to additional spending for our timeshare developments. The increase in 2002 compared to 2001 was due to working capital variances, including the realization of an income tax receivable
in 2002 and a significant reduction in accounts receivable which benefited the 2001 period.

Net
cash provided by operating activities in 2001, 2002 and 2003 each benefited from a reduction in the valuation allowance for capital loss tax carryforwards and other items which
reduced the provision for income taxes (See "Liquidity and Capital ResourcesAcquisitions and Dispositions," "Joint Ventures / Alliances" under Item 7 and "Notes to
Consolidated Financial StatementsIncome Taxes" under Item 8). Our ability to utilize capital loss tax carryforwards to reduce our provision for income taxes is dependent on the
availability of capital loss tax carryforwards and the existence of transactions that enable these capital loss tax carryforwards to be utilized. Therefore, it should not be assumed that such benefits
will be available to us in the future.

Net
cash used in investing activities totaled $189 million in 2002 and $13 million in 2003. The decrease in net cash used in investing activities was primarily due to
increased proceeds from asset dispositions in 2003 compared to the prior year, as well as the absence of acquisition activity in 2003 in comparison to the acquisition of the Hilton Waikoloa Village in
May 2002. In addition, capital expenditures in 2003 were lower than 2002, as significant construction projects at the Hilton Portland, Hilton New Orleans Riverside and the Hilton San Francisco
were completed in 2002. Net cash used in investing activities increased $35 million from $154 million in 2001 to $189 million in 2002 primarily due to the Waikoloa purchase, an
increase in additional investments and a reduction in proceeds from asset dispositions compared to 2002, partially offset by reduced capital expenditures. The increase in additional investments was
primarily due to an increase in notes receivable issued to the buyers of our timeshare intervals, while the decrease in capital expenditures reflects higher levels of spending in 2001 related to
expansion projects at the Hilton Hawaiian Village, Hilton Portland and Hilton Seattle.

26

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Net
cash used in financing activities totaled $443 million, $467 million and $451 million in 2001, 2002 and 2003, respectively, reflecting the repayment of
long-term debt and revolving loans in excess of additional long-term borrowings. For the three years ended December 31, 2003, total debt has been reduced by
approximately $1.3 billion. The decrease in cash used in financing activities in 2003 compared to 2002 reflects higher proceeds from the issuance of common stock in 2003, which is primarily
reflective of increased stock option exercises in the 2003 period.

Our
ratio of earnings to fixed charges for the years ended December 31, 2001, 2002 and 2003 was 1.5x, 1.8x and 1.6x, respectively.

Cash
and equivalents totaled $82 million at December 31, 2003, an increase of $28 million from December 31, 2002. We believe that our operating cash flow,
available borrowings under our revolving credit facilities as described below, and our ability to obtain additional financing through various financial markets are sufficient to meet our liquidity
needs. However, any projections of future financial needs and sources of working capital are subject to uncertainty. See "Results of Operations" under Item 7 and "Additional
InformationBusiness Risks" and "Forward-Looking Statements" for further discussion of conditions that could adversely affect our estimates of future financial needs and
sources of working capital.

Financing

In June 1998, we entered into a five-year $500 million revolving credit facility to acquire the remaining 50% interest in the Hilton
Hawaiian Village. In May 2003, this facility was repaid and the commitment was extinguished.

In
August 2003, we established a new five-year revolving credit facility in the amount of $1 billion, with an option to increase the size of the facility by an
additional $250 million. This facility replaced our $1.2 billion revolving facility which was set to expire in November 2004 and our $150 million 364-day
revolving facility which was set to expire in November 2003, and the commitment under these facilities was extinguished. As of December 31, 2003, $160 million of borrowings were
outstanding under the $1 billion revolver. The capacity under our revolver is also used to support certain outstanding letters of credit. Total revolving debt capacity of approximately
$670 million was available to us at December 31, 2003.

In
the second quarter of 2003, we sold $575 million of 3.375% Convertible Senior Notes due 2023 in a private placement transaction. The notes are convertible into shares of
our common stock at an initial conversion price of $22.50 per share of common stock, upon the occurrence of certain events. We used the net proceeds from the offering to redeem our 5% Convertible
Subordinated Notes due 2006 and to repay indebtedness under our existing revolving credit facility. We have filed a registration statement with the Securities and Exchange Commission registering the
notes and underlying convertible securities for resale.

In
October 1997, we filed a shelf registration statement with the Securities and Exchange Commission registering up to $2.5 billion in debt or equity securities. At
December 31, 2003, available financing under the shelf totaled $825 million. The terms of any additional securities offered under the shelf will be determined by market conditions at the
time of issuance.

27

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In
connection with the spin-off in 1998 of our gaming business to a new corporation named Park Place Entertainment Corporation, Park Place assumed and agreed to pay 100% of
the amount of each payment required to be made by us under the terms of the indentures governing our $325 million 7% Senior Notes due 2004. Because these notes remain our legal obligation, they
are included in our long-term debt balance and a long-term receivable from Park Place in an equal amount is included in our 2002 consolidated balance sheet. These notes are classified in
our 2003 balance sheet as current maturities of long-term debt with the offsetting receivable classified in other current assets. In January 2004, Park Place changed their name to
Caesars Entertainment, Inc. We remain obligated to make any payment Caesars fails to make under these notes.

In
November 2002, we entered into a derivative contract which swaps the fixed interest payments on our $375 million 7.95% Senior Notes due 2007 to a floating interest rate
equal to the six-month London Interbank Offered Rate plus 415 basis points. In connection with our $100 million 7.43% bonds due 2009 denominated in Chilean pesos, we have a
derivative contract which swaps the principal payment to a fixed U.S. dollar amount of $100 million and fixed interest payments at 7.65% of that amount. We also have a derivative contract which
swaps the floating rate mortgage of a majority owned hotel, with a principal balance of $35 million at December 31, 2003, to a fixed interest rate. As of December 31, 2003,
approximately 17% of our long-term debt (excluding the Caesars allocated debt and including the impact of interest rate swaps) was floating rate debt.

Provisions
under various loan agreements require us to comply with certain covenants which include limiting the amount of our outstanding indebtedness. Our revolving credit facility
contains two significant financial covenants: a leverage ratio and a debt service coverage ratio. We are in compliance with our loan covenants as of December 31, 2003.

Provisions
of the financing agreement related to our 7.95% collateralized borrowings due 2010 require that certain cash reserves be maintained and also restrict the transfer of excess
cash generated by the related properties from the subsidiary hotels to the parent company if net cash flow falls below a specified level (the cash trap). The cash trap became effective in 2003 due to
reduced cash flow from the collateralized properties, primarily the Hilton San Francisco. As of December 31, 2003, cash restricted under the terms of the collateralized borrowings, including
required reserves and the cash trap, totaled $42 million. The impact of the cash trap, which is expected to remain in effect throughout 2004, is not expected to have a material impact on our
liquidity.

The
following table summarizes our significant contractual obligations as of December 31, 2003, including long-term debt and operating lease commitments:

Payments Due by PeriodContractual Obligations

Total

Less than
1 year

13
years

35
years

After
5 years(in millions)Long-term debt

$
4,139

338

62

1,029

2,710Operating leases


717

36

67

60

554Total contractual obligations

$
4,856

374

129

1,089

3,264


28

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Development Financing and Other Commercial Commitments

To assist prospective franchisees in obtaining financing for hotel projects, we have programs to provide alternative capital sources to qualified franchisees. We
have provided secondary financing to franchisees under a mezzanine financing program. Loans outstanding under this program at December 31, 2003 totaled approximately $45 million.

Hilton
Acceptance Corp. ("HilMAC"), a third party lending entity, provides first mortgage construction financing to franchisees for select Hilton Garden Inn, Homewood Suites by Hilton,
Hampton and Embassy Suites hotels. As of December 31, 2003, we guaranteed $34 million of loans outstanding under the HilMAC program. In addition to HilMAC, we have guaranteed
$16 million of obligations of our franchisees.

As
of December 31, 2003, in addition to the guarantees issued in connection with our development financing programs, we have guaranteed $69 million of debt and other
obligations of unconsolidated affiliates and third parties, bringing our total guarantees to approximately $119 million. We also have commitments under letters of credit totaling
$87 million as of December 31, 2003. We believe it is unlikely that material payments will be required under these agreements.

The
following table summarizes our development financing and other commercial commitments as of December 31, 2003:

Amount of Commitment Expiration Per PeriodCommercial Commitments

Total Amounts
Committed

Less than
1 year

13
years

45
years

After
5 years(in millions)Letters of credit

$
87

87





Guarantees


119

67

43

1

8Total commercial commitments

$
206

154

43

1

8


In
addition, we remain a guarantor on 12 operating leases sold to WestCoast Hospitality Corporation as part of the Red Lion sale on December 31, 2001 (see "Liquidity and Capital
ResourcesAcquisitions and Dispositions"). However, we have entered into an indemnification and reimbursement agreement with WestCoast, which requires WestCoast to reimburse us for any
costs and expenses incurred in connection with the guarantee. As of December 31, 2003, the minimum lease commitment under these 12 operating leases totaled approximately $5 million
annually through 2020.

We
have also provided performance guarantees to certain owners of hotels we operate under management contracts. Most of these guarantees allow us to terminate the contract rather than
fund shortfalls if specified performance levels are not achieved. In limited cases, we are obligated to fund performance shortfalls. At December 31, 2003, we have two contracts containing
performance guarantees with possible cash outlays totaling approximately $194 million through 2012. Funding under these performance guarantees totaled approximately $5 million in 2003,
and is expected to total approximately $5 million in 2004. Funding under these guarantees in future periods is dependent on the operating performance levels of these hotels over the remaining
term of the performance guarantee. Although we anticipate that the future operating performance levels of these hotels will be largely achieved, there can be no assurance that this will be the case.
In addition, we do not anticipate losing any significant management contracts in 2004.

Under
certain circumstances, we may be obligated to provide additional guarantees or letters of credit totaling $44 million, including future construction loan guarantees of an
unconsolidated joint venture totaling $18 million at December 31, 2003.

29

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Acquisitions and Dispositions

In May 2002, we purchased our partner's interest in the 1,240-room Hilton Waikoloa Village on Hawaii's Big Island, a property we manage and in
which we previously had an ownership interest of approximately 13 percent. We acquired the remaining 87 percent interest for approximately $155 million, consisting of
$75 million in cash and 5.2 million shares of our common stock.

In
the 2003 first quarter, we sold four Homewood Suites by Hilton hotel properties in two separate transactions for approximately $40 million. We continue to operate three of the
hotels under long-term management agreements and we have retained a long-term franchise contract on the fourth hotel. In the fourth quarter of 2003, an Embassy Suites hotel in
which we held a 65% interest was sold, resulting in a pre-tax loss of approximately $4 million. Also in the 2003 fourth quarter, we sold certain marketable securities, which
resulted in a pre-tax gain of approximately $2 million. In addition, we wrote off the value assigned to certain long-term management and franchise agreements that were
terminated in 2003 totaling approximately $4 million. In the aggregate, these transactions resulted in a net pre-tax loss on asset dispositions of $6 million in 2003.

In
2002, we entered into a $125 million facility with a wholly owned subsidiary of GE Capital for the sale of notes receivable originated by our timeshare business. During 2002,
we completed two sales of notes receivable under the facility, totaling approximately $119 million. These transactions resulted in a gain of approximately $5 million. Also in 2002, we
completed the sale of two owned, two leased and seven managed properties operating as Harrison Conference Centers for approximately $49 million. We recorded a $16 million
pre-tax book loss on the sale. However, the sale generated a capital gain for tax purposes, which enabled us to utilize existing capital loss tax carryforwards that had been fully reserved
in prior periods. The transaction, including the impact of the reduction of the valuation allowance associated with the capital loss tax carryforwards, resulted in a $16 million book tax
benefit. Thus, on an after-tax basis, the sale had no impact on reported net income. The total pre-tax loss on asset dispositions of $14 million in 2002 represents the
$11 million net pre-tax loss on the aforementioned asset sales and a loss of approximately $3 million primarily as a result of writing off the value assigned to several
long-term management and franchise agreements which were terminated during the year.

Our
total pre-tax loss on asset dispositions was $44 million in 2001, $42 million of which was attributable to the sale of the Red Lion hotel chain on
December 31, 2001. As the Red Lion sale also resulted in a large capital loss for tax purposes, we were able to carry back a portion of this loss to offset capital gains recorded in prior
years. The transaction, including the impact of the capital loss tax carrybacks, resulted in a $47 million book tax benefit. Thus, on an after-tax basis, the sale of Red Lion
Hotels, Inc. capital stock resulted in a gain of approximately $5 million. Total consideration of approximately $51 million from this sale included $21 million in cash and
approximately $30 million in redeemable preferred stock of WestCoast. In February 2004, WestCoast redeemed all outstanding preferred stock at face value, plus accrued preferred dividends, for
approximately $30 million in cash.

We
will continue to review our portfolio of owned assets and may seek to sell certain assets from time to time.

30

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Joint Ventures / Alliances

We maintain investments in unconsolidated affiliates, including hotel joint ventures as well as other entities that support the operations of our hotel
properties. Our investment in unconsolidated joint ventures accounted for under the equity method totaled $285 million and $302 million at December 31, 2002 and 2003,
respectively, representing three percent of total assets at the end of 2002 and four percent of total assets at the end of 2003. At December 31, 2003, our unconsolidated joint ventures
accounted for under the equity method had total assets of approximately $2.45 billion and total debt of approximately $1.31 billion. Of the $1.31 billion of total debt,
$1.25 billion is secured solely by the affiliate's assets or is guaranteed by other partners without recourse to us. We are the creditor on $49 million of the $1.25 billion of
debt.

Our
joint venture investments at December 31, 2003 include 50% interests in Hilton HHonors Worldwide, which operates the Hilton HHonors guest loyalty program, and Hilton
Reservations Worldwide, which provides reservation services. Pricing on these programs is determined on an annual basis to ensure that the fees charged or allocated to each hotel will be sufficient to
cover program costs with no element of profit. Both companies are joint ventures with Hilton Group plc, whose wholly owned subsidiary, Hilton International Co., owns the rights to the Hilton brand
name outside the United States. These companies were formed as part of a 1997 agreement to reunify the Hilton brand worldwide through a strategic alliance between Hilton and Hilton Group plc, which
included cooperation on loyalty programs, reservations and other operational matters.

Since
2001, we have entered into three separate joint venture agreements with CNL Hospitality Corp. In the third quarter of 2001, we sold one hotel directly to CNL and contributed two
hotels to our first partnership with CNL, which owns a total of four hotels. We hold a 30 percent ownership interest in the partnership and manage the four hotels under long-term
agreements. The gain resulting from the sale and contribution of these hotels has been deferred and will be recognized over the life of the long-term management contracts we retained on
each of the properties. As part of the transaction, we received a distribution of approximately $43 million from the partnership. This distribution is reflected as proceeds from asset
dispositions in the accompanying consolidated statements of cash flow.

In
the fourth quarter of 2002, we entered into our second partnership with CNL to acquire seven hotel properties. The partnership acquired the 500-room Doubletree at Lincoln
Centre in Dallas, Texas and the 428-room Sheraton El Conquistador Resort and Country Club in Tucson, Arizona in December 2002. Both properties have been converted to the Hilton
brand. In connection with the formation of the joint venture, we contributed $11 million to the partnership in December 2002.

In
the first quarter of 2003, we contributed the 437-room Hilton Rye Town in Rye Brook, New York and CNL contributed the 630-room Doubletree Crystal City in
Arlington, Virginia to the partnership. The gain resulting from our contribution of the Hilton Rye Town of approximately $35 million has been deferred and will be recognized over the life of
the long-term management contract retained on the property. Also in the first quarter of 2003, the partnership acquired the 257-suite Embassy Suites Santa Clara in Santa Clara,
California, the 267-suite Embassy Suites Crystal City in Arlington, Virginia, and the 174-suite Embassy Suites Orlando Airport in Orlando, Florida. We operate all seven hotels
under long-term management contracts and have a 25% ownership interest in the partnership.

In
connection with the structuring of the CNL partnership, including our contribution of the Hilton Rye Town, we received a cash distribution totaling approximately $46 million in
the 2003 first quarter. This distribution is reflected as proceeds from asset dispositions in the accompanying consolidated statements of cash flow. In addition, the tax gain resulting from the
contribution of the Hilton Rye Town enabled us to utilize capital loss tax carryforwards, resulting in a reduction in our provision for income taxes totaling approximately $4 million.

31

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In
the fourth quarter of 2003, we entered into our third partnership with CNL to own two hotel properties. We contributed the 544-room Capital Hilton in Washington, D.C. and
the 394-room Hilton La Jolla Torrey Pines outside of San Diego, California to the partnership. The gain resulting from our contribution of the two hotels totaling approximately
$57 million has been deferred and will be recognized over the life of the long-term management contracts retained on the properties. We have a 25% ownership interest in the
partnership. In connection with this transaction, we received a distribution from the partnership of approximately $190 million. This distribution is reflected as proceeds from asset
dispositions in the accompanying consolidated statements of cash flow. This transaction also resulted in tax gains that enabled us to utilize capital loss tax carryforwards, resulting in a reduction
in our provision for income taxes totaling approximately $22 million.

As
of December 31, 2003, we owned approximately 1.5 million shares of FelCor Lodging Trust Inc. common stock, representing approximately two percent of FelCor's
outstanding shares. FelCor owned or had an interest in 74 of our hotels as of December 31, 2003.

Stockholders' Equity

Dividends paid on common shares were $.08 per share in 2001, 2002 and 2003.

Our
Board of Directors has approved the repurchase of up to 20 million shares of our common stock pursuant to a stock repurchase program. The timing of stock purchases is made at
the discretion of management. There were no shares repurchased during 2001, 2002 or 2003 as we sought to improve our credit position by using excess cash flow to repay outstanding debt balances. As of
December 31, 2003, 9.3 million shares remained authorized for repurchase under this authority.

OFF-BALANCE SHEET ARRANGEMENTS

We have outstanding guarantees issued in connection with our development financing programs and other guarantees of debt and other obligations of unconsolidated
affiliates and third parties, as well as commitments under letters of credit. See "Liquidity and Capital ResourcesDevelopment Financing and Other Commercial Commitments" for further
information. We maintain investments in unconsolidated affiliates, including hotel joint ventures as well as other entities that support the operations of our hotel properties. We do not have
investments in or obligations with respect to unconsolidated special purpose entities and we have not entered into synthetic leasing arrangements. See "Liquidity and Capital
ResourcesJoint Ventures / Alliances" for further information.

32

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RESULTS OF OPERATIONS

The following discussion presents an analysis of our results of operations for the three years ended December 31, 2003. Our operations consist of three
reportable segments which are based on similar products or services: Hotel Ownership, Managing and Franchising, and Timeshare.

FISCAL 2003 COMPARED WITH FISCAL 2002

Overview

A summary of our consolidated results for the years ended December 31, 2002 and 2003 is as follows:

2002

2003

% Change(in millions, except per share amounts)Revenue

$
3,816

3,819


%Operating income


603

515

(15
)Net income


198

164

(17
)Basic EPS


.53

.43

(19
)Diluted EPS


.53

.43

(19
)


Overall
results in 2003 were adversely impacted by a soft U.S. economy and reduced travel as a result of the conflict in Iraq. Although demand from leisure travelers remained solid, soft
demand from business travelers and higher-rated groups resulted in overall average daily rate declines in 2003. Furthermore, 2003 results were also negatively impacted by increased healthcare,
insurance and property tax costs. The impact to operating results of property dispositions in 2002 and 2003 was partially offset by the May 2002 acquisition of the Hilton Waikoloa Village.
Results benefited from increased fee income as the result of unit growth, strong results from our timeshare operations, lower interest expense and a reduction in the provision for income taxes.

Revenue
from owned hotels totaled $2.031 billion in 2003, a decrease of three percent from $2.100 billion in 2002. Results at our owned hotels were adversely impacted by
the economic downturn in the United States and reduced travel as a result of the conflict in Iraq. At our owned hotels, we experienced downward pressure on room rates owing primarily to a shift in our
customer mix from the higher-rated group and business transient segments to the more price-sensitive leisure customer. Owing to these rate declines, our comparable owned hotels reported a three
percent revenue decline during 2003. RevPAR for comparable owned properties declined 2.9 percent for the year, with occupancy down from 71.0 percent to 70.4 percent and average
daily rate down 2.1 percent to $145.52. However, comparatively solid occupancy levels were achieved at many of our owned hotels, including those in New York, Boston and Hawaii, primarily
through increased demand from leisure customers and lower-rated groups.

Total
expenses from owned hotels increased three percent in 2003 to $1.500 billion. Expenses for our comparable owned hotels also increased three percent, or $39 million,
during 2003, of which $21 million was due to increased healthcare, insurance and property tax costs. Salaries and wages (excluding benefits), which is the largest component of the cost
structure at our owned hotels, increased 2 percent compared to the prior year.

We
expect our owned hotels will be further challenged in 2004 by short reservation lead times for our group business, with the San Francisco/San Jose and Chicago markets expected to be
difficult. These markets comprised approximately 19 percent of our owned hotel revenue in 2003. Increases in healthcare, insurance and property tax costs are also expected to continue to place
pressure on owned hotel margins. However, improving economic conditions are expected to result in increased business travel, which when combined with strong leisure travel and limited full-service
supply growth, should give rise to increased pricing power.

33

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Leased
hotel revenue totaled $103 million in 2003, an $8 million decrease compared to 2002, while leased hotel expenses declined $5 million to $96 million in
2003. The 2002 Winter Olympics benefited the prior year results at our leased property in Salt Lake City, Utah. Due to the relatively large size of the lease payments required in a hotel operating
lease, the leased properties operate at margins significantly lower than our owned hotels.

Management
and franchise fee revenue in 2003 increased $8 million or two percent to $337 million. Fee revenue is based primarily on rooms revenue at franchised properties
and total operating revenue (and to a lesser extent gross operating profits or cash flow) at managed properties. New hotel openings resulted in increased fees during the year, partially offset by
lower comparable base and incentive fees primarily due to RevPAR declines. Strong leisure demand, along with less impact from the Iraq conflict in our "drive-to" markets, enabled our
focused-service, midscale brands to post generally smaller RevPAR declines (or in the case of Hilton Garden Inn, post a RevPAR gain for the year) when compared to our full-service, urban
properties. We expect management and franchise fees to continue to increase in 2004 as economic conditions improve and our system of managed and franchised hotels continues to grow.

The
increase in timeshare and other income in 2003 is primarily the result of increased timeshare revenue. Revenue from our timeshare operations totaled $345 million, an increase
of $49 million from 2002, while timeshare expenses in 2003 totaled $259 million, a $43 million increase from 2002. Timeshare revenue and earnings are generated through developing
timeshare resorts and selling the related intervals, financing the sale of timeshare intervals and through management of timeshare resorts. Overall timeshare interval sales increased five percent in
2003, while the average sales price increased nine percent. Results in 2003 also benefited from the recognition of revenue previously deferred under the required
percentage-of-completion method of construction accounting, as the first phases of our new developments in Orlando and Las Vegas were substantially completed or opened during
2003. In addition, results in 2003 benefited from increased resort management earnings, including rental and other service income. Financing income decreased in 2003 due to the sale of receivables in
2002 and decreased interest rates. Timeshare results in 2002 were negatively impacted by a $4 million charge for remediation efforts related to mold found in certain areas of the Lagoon Tower
timeshare development, the sale of timeshare receivables, revisions to final construction costs in Hawaii (also related to the mold situation), and start-up costs in New York.

Depreciation
and amortization expense decreased $14 million in 2003 to $334 million, primarily due to property sales and one-time depreciation expense
adjustments totaling approximately $5 million made at certain properties in the 2003 second quarter.

Results
in 2003 include impairment loss and related costs totaling $22 million. These costs include a $17 million pre-tax charge related to the decline in value
of certain equity securities held by us. The decline in value of the securities was deemed to be other-than-temporary in the 2003 first quarter, thus requiring an earnings
charge, primarily based on the length of time the securities had traded below cost. The 2003 charge also includes a $5 million pre-tax impairment charge to reduce the value of an
owned Red Lion hotel and a Doubletree management contract to their respective fair values. A $21 million pre-tax charge was recorded in 2002 related to mold remediation efforts in
certain areas of the Hilton Hawaiian Village. This charge consisted of approximately $17 million for remediation efforts at the property's Kalia Tower, and the aforementioned $4 million
for remediation efforts at the Lagoon Tower timeshare development. All guest rooms in the hotel's Kalia Tower were closed in June 2002 and for the duration of the mold remediation process. The
Kalia Tower successfully reopened to guests in September 2003.

34

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Corporate Activity

Corporate expense increased $15 million in 2003 to $81 million. Our 2003 corporate expense includes a $3 million bad debt expense in the 2003
first quarter related to a note receivable that, as a result of certain events in the quarter, was deemed uncollectable. Corporate expense in 2002 includes a benefit of approximately $4 million
related to the reversal of bad debt expense for a partially reserved note receivable that was repaid during the second quarter of 2002. Excluding these bad debt expense items, corporate expense
increased $8 million, primarily due to higher legal costs compared to 2002.

Interest
and dividend income decreased $14 million compared with the prior year. The decrease reflects the repayment in June 2002 by Park Place of the $300 million
7.375% Senior Notes assumed by Park Place at the time of the spin-off of our gaming business (see "Liquidity and Capital ResourcesFinancing"). As these notes were assumed by
Park Place but remained our legal obligation prior to repayment, interest on the notes is reflected as both interest income and interest expense in our consolidated financial statements. The decrease
in interest income also reflects lower notes receivable balances in 2003. Interest expense, net of amounts capitalized, decreased $33 million reflecting lower outstanding debt balances, as well
as the aforementioned repayment by Park Place.

The
total pre-tax loss on asset dispositions of $6 million in 2003 represents the sale of four Homewood Suites by Hilton hotel properties, one Embassy Suites property
and the write off the value assigned to several long-term management and franchise agreements which were terminated during the year, partially offset by the gain on the sale of certain
marketable securities (see "Liquidity and Capital ResourcesAcquisitions and Dispositions"). The pre-tax loss on asset dispositions of $14 million in 2002 represents an
$11 million net loss on asset sales and a loss of approximately $3 million primarily as a result of writing off the value assigned to several long-term management and
franchise contracts which were terminated during the year.

The
effective income tax rate for 2003 decreased to 24% from 28% in 2002. The effective rate in 2003 benefited from a reduction in the valuation allowance for capital loss tax
carryforwards, primarily as a result of the transactions with CNL. In addition, the 2003 effective rate benefited from a reduction in the valuation allowance for capital loss tax carryforwards due to
higher than expected utilization on our 2002 Federal tax return filed in 2003. The 2003 effective rate also benefited from a settlement relating to a tax liability associated with a prior year tax
return. These benefits were partially offset by the write-off of an unutilized deferred tax asset resulting from a September stock option exercise. The 2002 tax rate reflects a reduction
in the valuation allowance associated with capital loss tax carryforwards resulting from asset sales. The 2002 rate also reflects a reduction in our valuation allowance for capital loss tax
carryforwards due to higher than expected utilization of these carryforwards on our 2001 Federal tax return filed in 2002. Excluding the aforementioned items, our effective tax rate was 35% in 2003
and 37% in 2002. Our effective tax rate is determined by the level and composition of pre-tax income and the mix of income subject to varying foreign, state and local taxes.

35

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Hotel Statistics

RevPAR for our U.S. owned and system-wide hotels for the years ended December 31, 2002 and 2003 is as follows:

U.S. owned(1)2002

2003

% ChangeHilton

$
112.13

108.49

(3.2
)%All other


71.63

71.17

(0.6
)Total


105.55

102.45

(2.9
)


---

System-wide(2)2002

2003

% ChangeHilton

$
86.64

84.36

(2.6
)%Hilton Garden Inn


62.34

63.02

1.1Doubletree


67.73

65.32

(3.6
)Embassy Suites


83.32

82.24

(1.3
)Homewood Suites by Hilton


68.75

68.14

(0.9
)Hampton


51.85

51.75

(0.2
)Other


76.49

73.00

(4.6
)


---

36

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FISCAL 2002 COMPARED WITH FISCAL 2001

Overview

A summary of our consolidated results for the years ended December 31, 2001 and 2002 is as follows:

2001

2002

% Change(in millions, except per share amounts)Revenue

$
3,952

3,816

(3
)%Operating income


632

603

(5
)Net income


166

198

19Basic EPS


.45

.53

18Diluted EPS


.45

.53

18


Results
in 2002 were adversely impacted by a soft U.S. economy, resulting in sluggish demand, primarily from independent business travelers. This reduced demand led to downward pressure
on average daily room rates. Along with the effects of the soft economy, the impact of asset sales in 2002 and 2001 contributed to the decline in revenue and operating income. Results were also
negatively impacted by a charge related to mold remediation in certain areas of the Hilton Hawaiian Village. Comparisons were also negatively impacted by increased healthcare and insurance costs, and
the recognition of previously deferred revenue and operating income from our timeshare property at the Hilton Hawaiian Village in the first quarter of 2001.

Results
in 2002, however, benefited from strong cross-selling among the brands and the success of the Hilton HHonors loyalty program which contributed to gains in market share across our
family of brands. According to data from Smith Travel Research, our Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Homewood Suites by Hilton and Hampton brands all achieved growth in the
system-wide RevPAR index, which represents the share of RevPAR these properties attain versus their respective competitive sets. Results in 2002 also benefited from our cost containment
programs which resulted in solid margins in a challenging environment, strong sales at our timeshare operations, a decline in average debt levels and interest rates, a lower effective tax rate and
easy comparisons with the latter half of 2001.

Revenue
from owned hotels totaled $2.100 billion in 2002, a decrease of one percent from $2.122 billion in 2001, while total expenses were essentially flat at
$1.462 billion. Results in 2002 were adversely impacted by the economic downturn in the U.S. compared to 2001, resulting in comparative softness across many of our major brands. Reduced demand
from independent business travelers and overall price sensitivity were particularly prevalent in 2002. Occupancy increased compared to 2001, as the decrease in independent business traveler volume was
offset by increases in leisure and group room nights, however at lower average room rates. Markets in which our hotels achieved strong results in 2002 included New York, Boston, Chicago and
Washington, D.C., while the San Francisco and Phoenix markets were soft compared to the prior year. The impact of property sales in 2002 and 2001 was partially offset by the May 2002
acquisition of the Hilton Waikoloa Village. Owned hotel operating income was also negatively impacted by mold remediation efforts at the Hilton Hawaiian Village, which resulted in a $17 million
pre-tax charge and the closure of the hotel's Kalia Tower guest rooms in June 2002. RevPAR for comparable owned properties declined 2.6 percent for the year, with occupancy
up 1.6 points to 71.1 percent and average daily rate down 4.8 percent to $148.41. As anticipated, RevPAR at comparable owned hotels showed sequential quarterly improvement through the
year. Compared with the respective 2001 quarters, RevPAR at comparable owned hotels declined 15.3 percent and 6.1 percent, respectively, in the first and second quarters of 2002, and
increased 1.2 percent and 13.2 percent, respectively, in the third and fourth quarters of 2002.

Leased
hotel revenue totaled $111 million in 2002, a $57 million decrease compared to 2001, while leased hotel expenses declined $51 million to $101 million
in 2002. The decline in revenue and expenses was primarily due to the sale of the Red Lion hotel chain in 2001.

37

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Management
and franchise fee revenue in 2002 decreased $13 million or 4 percent to $329 million. The decrease in fees reflects system-wide RevPAR
declines across most of our brands and a decline in incentive management fees, partially offset by new hotel openings. The decrease in RevPAR and incentive management fees reflects the comparative
softness in the U.S. economy versus 2001.

The
decrease in timeshare and other income in 2002 is primarily the result of lower timeshare revenue compared to 2001. Timeshare results in 2002 were negatively impacted by a
$4 million charge for remediation efforts related to mold found in certain areas of the Lagoon Tower timeshare development, the sale of receivables in June and November 2002, revisions
to final construction costs in Hawaii (also related to the mold situation), and start-up costs in New York. Results in 2002 were also adversely impacted by the deferral of revenue as
required by percentage-of-completion method of construction accounting for our new projects in Las Vegas and Orlando, as well as the required lease accounting for our new
Hilton Club project in New York. However, despite a comparatively soft economic environment, interval sales continued to be strong and average sales prices increased compared to the prior year.
Timeshare results in 2001 benefited from the recognition of previously deferred amounts associated with our timeshare project at the Hilton Hawaiian Village.

Depreciation
and amortization decreased $43 million in 2002 to $348 million. The decrease is primarily the result of discontinuing amortization of goodwill and brand values
effective January 1, 2002 in accordance with FAS 142. As required by FAS 142, the results for periods prior to its adoption have not been restated.

Corporate Activity

Corporate expense decreased $5 million in 2002 to $66 million. In 2002, we were repaid on a note receivable that we had partially reserved in 2001.
The 2002 corporate expense includes a benefit of approximately $4 million related to this reversal of bad debt expense. The 2001 expense includes a $7 million bad debt expense related to
certain notes receivable (acquired in the 1999 purchase of Promus Hotel Corporation) that, as a result of the economic impact of the events of September 11, 2001, were unlikely to be collected.
Excluding these non-recurring items, corporate expense increased $6 million in 2002, primarily the result of increased legal costs.

Interest
and dividend income decreased $21 million compared with the prior year. The decrease reflects the repayment in June 2002 by Park Place of the $300 million
7.375% Senior Notes assumed by Park Place at the time of the spin-off of our gaming business. As these notes were assumed by Park Place but remained our legal obligation prior to
repayment, interest on the notes is reflected as both interest income and interest expense in our consolidated financial statements. The decrease in interest income also reflects lower notes
receivable balances in 2002. Interest expense, net of amounts capitalized, decreased $57 million primarily due to lower outstanding debt balances and lower average interest rates, as well as
the aforementioned repayment by Park Place.

The
total pre-tax loss on asset dispositions of $14 million in 2002 represents an $11 million net loss on asset sales (see "Liquidity and Capital
ResourcesAcquisitions and Dispositions") and a loss of approximately $3 million primarily as a result of writing off the value assigned to several long-term management
and franchise agreements which were terminated during the year. We realized a pre-tax loss on asset dispositions of $44 million in 2001, primarily due to the sale of the Red Lion
hotel chain.

38

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The
effective income tax rate for 2002 decreased to 28% from 31% in 2001. The tax rate in 2002 reflects a reduction in the valuation allowance associated with capital loss tax
carryforwards resulting from asset sales. The 2002 tax rate also reflects the impact of a reduction in our valuation allowance for capital loss tax carryforwards due to higher than expected
utilization of these carryforwards on our 2001 Federal tax return filed in 2002, as well as discontinuing goodwill amortization effective January 1, 2002, which was not deductible for tax
purposes. Excluding the impact on the provision for income taxes of asset sales and the carryforward utilization, the effective tax rate for 2002 was 37%. The effective tax rate in 2001, excluding
asset sales, was 43%.

Hotel Statistics

RevPAR for our U.S. owned and system-wide hotels for the years ended December 31, 2001 and 2002 is as follows:

U.S. owned(1)2001

2002

% ChangeHilton

$
114.87

112.29

(2.2
)%All other


75.07

71.34

(5.0
)Total


108.37

105.53

(2.6
)


---

System-wide(2)2001

2002

% ChangeHilton

$
88.92

86.61

(2.6
)%Hilton Garden Inn


64.77

64.07

(1.1
)Doubletree


70.61

66.76

(5.5
)Embassy Suites


85.77

83.18

(3.0
)Homewood Suites by Hilton


70.04

68.53

(2.2
)Hampton


51.47

51.66

0.4Other


82.81

76.49

(7.6
)


---

OTHER MATTERS

New Accounting Standards

In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that guarantees issued after December 31, 2002 be recorded as liabilities at fair value,
with the offsetting entry recorded based on the circumstances in which the guarantee was issued. Adoption of FIN 45 had no impact on our historical consolidated financial statements as existing
guarantees are not subject to the measurement provisions of FIN 45. Adoption and implementation of FIN 45 for new guarantees did not have a material impact on our consolidated financial statements in
2003.

In
December 2002, the FASB issued FAS 148, "Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FAS 123." This
statement provides alternate methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. This statement also amends the disclosure requirements of
FAS 123 and Accounting Principles Board Opinion 28, "Interim Financial Reporting," to require prominent disclosures in both annual and interim consolidated financial statements about the method
of accounting for stock-based compensation and the effect of the method used on reported results. We have adopted the disclosure provisions of FAS 148.

39

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In
January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities" to expand upon existing accounting guidance that addresses when a company should include in
its financial statements the assets, liabilities and activities of another entity. Under previous accounting guidance, we generally have included another entity in our consolidated financial
statements only if we have a controlling financial interest in the entity through voting or other interests. FIN 46 changes that guidance by requiring a variable interest entity (VIE), as
defined, to be consolidated by the company that is subject to a majority of the risk of loss from the VIE's activities, or is entitled to receive a majority of the entity's residual returns, or both.
FIN 46 also requires disclosure about VIEs that a company is not required to consolidate, but in which it has a significant variable interest. These disclosures include the nature, purpose,
size and activity of the VIE as well as the holder's maximum exposure to losses as a result of involvement with the VIE.

Our
evaluation of the provisions of FIN 46 as it relates to our various forms of arrangements has focused primarily on reviewing the key terms of our joint venture agreements,
management contracts and franchise agreements against the criteria in FIN 46 to determine if any of these arrangements qualify as VIEs. In general, a VIE represents a structure used for
business purposes that either does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its
activities.

In
the first quarter of 2003, we adopted FIN 46 for VIEs created after January 31, 2003, which resulted in no impact to our consolidated financial statements. In December
2003, the FASB issued a revised FIN 46 (FIN 46R) that replaced the original interpretation and codified proposed modifications and other decisions previously issued through certain FASB
Staff Positions including the deferral of the effective date of applying FIN 46R to certain variable interests created before February 1, 2003. FIN 46R is effective
March 31, 2004 for such arrangements. We are currently evaluating the provisions of FIN 46R as it relates to our joint venture agreements, management contracts and franchise agreements
created before February 1, 2003. Although our evaluation is continuing, we have not identified VIEs in our joint ventures, management contracts or franchise agreements, and therefore we
currently expect any disclosure or consolidation requirements will be immaterial.

In
May 2003, the FASB issued FAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which is effective for the quarter
ending September 30, 2003 for financial instruments existing at May 31, 2003. This statement requires three classes of freestanding financial instruments that embody obligations of the
issuer to be classified as liabilities at fair value. Adoption of FAS 150 did not have a material impact on our consolidated financial statements.

In
December 2003, the FASB issued a revised FAS 132 (FAS 132R), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises the
required footnote disclosures without changing the measurement or recognition provisions of existing postretirement benefit accounting literature. The disclosure provisions of FAS132R require
additional disclosures regarding the types of plan assets, plan obligations, cash flows, our investment strategy, measurement dates and the components of net periodic benefit cost recognized. This
statement also amends the disclosure requirements of Accounting Principles Board Opinion 28, "Interim Financial Reporting," to require prominent disclosures in our interim consolidated financial
statements of the net periodic benefit cost and significant changes to actual contributions and projected contributions to fund benefit plans. We have adopted the disclosure provisions of
FAS 132R.

Other

We are subject to litigation in the ordinary course of our business. Management believes the resolution of pending lawsuits will not have a material adverse
effect on our financial position or results of operations.

40

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk in the form of changes in interest rates and the potential impact such changes may have on the cash flow from our floating rate debt
and the fair values of our fixed rate debt. We attempt to limit the impact of changes in interest rates to our debt portfolio by attaining an appropriate mix of borrowings under our floating rate bank
credit facilities relative to our long-term fixed rate debt. We are also exposed to interest rate risk on our floating rate notes receivable and the fair values of our fixed rate notes
receivable.

We
utilize, on a selective basis, interest rate swaps to manage our relative levels of fixed and floating rate debt. As of December 31, 2003, we had a derivative contract which
swaps the fixed interest payments on our $375 million 7.95% Senior Notes due 2007 to a floating interest rate equal to the six month LIBOR rate plus 415 basis points. We also have a derivative
contract which swaps the floating rate mortgage of one of our majority owned hotels, which had a principal balance of $35 million at December 31, 2002, to a fixed interest rate.

We
are also exposed to market risk in the form of changes in foreign currency exchange rates and the potential impact such changes may have on the cash flow related to our foreign
currency denominated debt. In August 2001, we issued $100 million of 7.43% bonds due 2009 denominated in Chilean Pesos. Payments of principal and interest on the bonds are adjusted for
movements of the Unidad de Fomento (the Chilean inflation index) published monthly by the Central Bank of Chile. We have swapped out the Chilean currency exchange rate and inflation risk by entering
into a derivative contract which swaps the principal payment to a fixed U.S. dollar amount of $100 million with fixed interest payments at 7.65% of that amount. We believe it is unlikely that
the counterparty will be unable to perform under the terms of the derivative instrument.

The
following table sets forth the scheduled maturities and the total fair value of our derivative and other financial instruments as of December 31, 2003:

|                                                                                                      |  | Maturities by Period |      |   |     |   |    
|----------------------------------------------------------------------------------------------------- |  | -------------------- | ---- | - | --- | - | ---
|
|
|ASSETSMaturities represent principal receipts, fair values represent assets                          |  |                      |      |   |     |   |    
|Timeshare notes receivable                                                                            |  | $                    | 21   |   | 20  |   | 22 
|Average interest rate                                                                                 |  |                      |      |   |     |   |    
|Other notes receivable                                                                                |  | $                    | 11   |   | 2   |   |   
|Average interest rate                                                                                 |  |                      |      |   |     |   |    
|LIABILITIESMaturities represent principal payments, fair values represent liabilities                |  |                      |      |   |     |   |    
|Fixed rate debt                                                                                       |  | $                    | (337 | ) | (13 | ) | (46
|Average interest rate                                                                                 |  |                      |      |   |     |   |    
|Floating rate debt                                                                                    |  | $                    | (1   | ) | (1  | ) | (2 
|Average interest rate                                                                                 |  |                      |      |   |     |   |    
|INTEREST RATE SWAPSMaturities represent notional amounts, fair values represent assets (liabilities) |  |                      |      |   |     |   |    
|Variable to fixed                                                                                     |  | $                    | 1    |   | 1   |   | 1  
|Average pay rate                                                                                      |  |                      |      |   |     |   |    
|Average receive rate                                                                                  |  |                      |      |   |     |   |    
|Fixed to variable                                                                                     |  | $                    |     |   |    |   |   
|Average pay rate                                                                                      |  |                      |      |   |     |   |    
|Average receive rate                                                                                  |  |                      |      |   |     |   |    
|Fixed (CLP) to Fixed ($US)                                                                            |  | $                    |     |   |    |   |   
|Average pay rate                                                                                      |  |                      |      |   |     |   |    
|Average receive rate                                                                                  |  |                      |      |   |     |   |    

The fixed rate debt includes the $325 million 7% Senior Notes due July 2004 allocated to Caesars Entertainment, Inc.
(formerly, Park Place Entertainment Corporation). As of December 31, 2003, approximately 17% of our long-term debt (excluding the Caesars allocated debt and including the impact of
interest rate swaps) was floating rate debt.

41

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Item 8.    Financial Statements and Supplementary Data

Hilton Hotels Corporation and Subsidiaries
Consolidated Statements of Income
(in millions, except per share amounts)

|                                                 |                                                       | Year ended December 31, |      
|------------------------------------------------ | ----------------------------------------------------- | ----------------------- | -----
|
|Revenue                                          |                                                       |                         |      
|                                                 | Owned hotels                                          |                         | $    
|                                                 | Leased hotels                                         |                         |      
|                                                 | Management and franchise fees                         |                         |      
|                                                 | Timeshare and other income                            |                         |      
|                                                 |                                                       |                         |      
|                                                 |                                                       |                         | 3,009
|                                                 | Reimbursed costs                                      |                         |      
|                                                 |                                                       |                         |      
|                                                 |                                                       |                         | 3,952
|Expenses                                         |                                                       |                         |      
|                                                 | Owned hotels                                          |                         |      
|                                                 | Leased hotels                                         |                         |      
|                                                 | Depreciation and amortization                         |                         |      
|                                                 | Impairment loss and related costs                     |                         |      
|                                                 | Other operating expenses                              |                         |      
|                                                 | Corporate expense, net                                |                         |      
|                                                 |                                                       |                         |      
|                                                 |                                                       |                         | 2,418
|                                                 | Reimbursed costs                                      |                         |      
|                                                 |                                                       |                         |      
|                                                 |                                                       |                         | 3,361
|Operating income from unconsolidated affiliates  |                                                       |                         | 41   
|                                                 |                                                       |                         |      
|Operating Income                                 |                                                       |                         | 632  
|                                                 | Interest and dividend income                          |                         |      
|                                                 | Interest expense                                      |                         |      
|                                                 | Interest expense, net, from unconsolidated affiliates |                         |      
|                                                 | Net loss on asset dispositions                        |                         |      
|                                                 |                                                       |                         |      
|Income Before Income Taxes and Minority Interest |                                                       |                         | 250  
|                                                 | Provision for income taxes                            |                         |      
|                                                 | Minority interest, net                                |                         |      
|                                                 |                                                       |                         |      
|Net Income                                       |                                                       | $                       | 166  
|                                                 |                                                       |                         |      
|Basic Earnings Per Share                         |                                                       | $                       | .45  
|                                                 |                                                       |                         |      
|Diluted Earnings Per Share                       |                                                       | $                       | .45  
|                                                 |                                                       |                         |      

See
notes to consolidated financial statements

42

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Hilton Hotels Corporation and Subsidiaries
Consolidated Balance Sheets
(in millions)

|                                           |                                              | December 31,
2002                                                                            |       | December 31,
2003 |      
|------------------------------------------ | -------------------------------------------- | -------------------------------------------------------------------------------------------- | ----- | ----------------- | -----
|ASSETS                                     |                                              |                                                                                              |       |                   |      
|                                           | Current Assets                               |                                                                                              |       |                   |      
|                                           |                                              | Cash and equivalents (includes restricted cash of $34 million and $73 million, respectively) |       | $                 | 54   
|                                           |                                              | Accounts receivable, net                                                                     |       |                   | 294  
|                                           |                                              | Inventories                                                                                  |       |                   | 139  
|                                           |                                              | Deferred income taxes                                                                        |       |                   | 61   
|                                           |                                              | Current portion of notes receivable, net                                                     |       |                   | 16   
|                                           |                                              | Current portion of long-term receivable                                                      |       |                   |     
|                                           |                                              | Other current assets                                                                         |       |                   | 66   
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Total current assets                         |                                                                                              |       | 630               |      
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Investments, Property and Other Assets       |                                                                                              |       |                   |      
|                                           |                                              | Investments and notes receivable, net                                                        |       |                   | 490  
|                                           |                                              | Long-term receivable                                                                         |       |                   | 325  
|                                           |                                              | Property and equipment, net                                                                  |       |                   | 3,971
|                                           |                                              | Management and franchise contracts, net                                                      |       |                   | 429  
|                                           |                                              | Leases, net                                                                                  |       |                   | 118  
|                                           |                                              | Brands                                                                                       |       |                   | 970  
|                                           |                                              | Goodwill                                                                                     |       |                   | 1,273
|                                           |                                              | Other assets                                                                                 |       |                   | 142  
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Total investments, property and other assets |                                                                                              |       | 7,718             |      
|                                           |                                              |                                                                                              |       |                   |      
|Total Assets                               |                                              | $                                                                                            | 8,348 |                   | 8,178
|                                           |                                              |                                                                                              |       |                   |      
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                              |                                                                                              |       |                   |      
|                                           | Current Liabilities                          |                                                                                              |       |                   |      
|                                           |                                              | Accounts payable and accrued expenses                                                        |       | $                 | 560  
|                                           |                                              | Current maturities of long-term debt                                                         |       |                   | 11   
|                                           |                                              | Income taxes payable                                                                         |       |                   | 4    
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Total current liabilities                    |                                                                                              |       | 575               |      
|                                           |                                              | Long-term debt                                                                               |       |                   | 4,554
|                                           |                                              | Deferred income taxes                                                                        |       |                   | 825  
|                                           |                                              | Insurance reserves and other                                                                 |       |                   | 341  
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Total liabilities                            |                                                                                              |       | 6,295             |      
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Commitments and Contingencies                |                                                                                              |       |                   |      
|                                           | Stockholders' Equity                         |                                                                                              |       |                   |      
|                                           |                                              | Common stock, 376 million and 381 million shares outstanding, respectively                   |       |                   | 962  
|                                           |                                              | Additional paid-in capital                                                                   |       |                   | 950  
|                                           |                                              | Retained earnings                                                                            |       |                   | 322  
|                                           |                                              | Accumulated other comprehensive loss                                                         |       |                   | (11  
|                                           |                                              |                                                                                              |       |                   |      
|                                           |                                              |                                                                                              | 2,223 |                   | 2,396
|                                           |                                              | Less treasury stock, at cost                                                                 |       |                   | (170 
|                                           |                                              |                                                                                              |       |                   |      
|                                           | Total stockholders' equity                   |                                                                                              |       | 2,053             |      
|                                           |                                              |                                                                                              |       |                   |      
|Total Liabilities and Stockholders' Equity |                                              | $                                                                                            | 8,348 |                   | 8,178
|                                           |                                              |                                                                                              |       |                   |      

See notes to consolidated financial statements

43

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Hilton Hotels Corporation and Subsidiaries
Consolidated Statements of Cash Flow
(in millions)

|                                            |                                                                                   | Year ended December 31,                                        |                                      
|------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------
|
|Operating Activities                        |                                                                                   |                                                                |                                      
|                                            | Net income                                                                        |                                                                | $                                    
|                                            | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                |                                      
|                                            |                                                                                   | Depreciation and amortization                                  |                                      
|                                            |                                                                                   | Amortization of loan costs                                     |                                      
|                                            |                                                                                   | Net loss on asset dispositions                                 |                                      
|                                            |                                                                                   | Impairment loss and related costs                              |                                      
|                                            |                                                                                   | Change in working capital components:                          |                                      
|                                            |                                                                                   |                                                                | Inventories                          
|                                            |                                                                                   |                                                                | Accounts receivable                  
|                                            |                                                                                   |                                                                | Other current assets                 
|                                            |                                                                                   |                                                                | Accounts payable and accrued expenses
|                                            |                                                                                   |                                                                | Income taxes payable                 
|                                            |                                                                                   | Change in deferred income taxes                                |                                      
|                                            |                                                                                   | Change in other liabilities                                    |                                      
|                                            |                                                                                   | Unconsolidated affiliates' distributions in excess of earnings |                                      
|                                            |                                                                                   | Other                                                          |                                      
|                                            |                                                                                   |                                                                |                                      
|                                            | Net cash provided by operating activities                                         |                                                                |                                      
|                                            |                                                                                   |                                                                |                                      
|Investing Activities                        |                                                                                   |                                                                |                                      
|                                            | Capital expenditures                                                              |                                                                |                                      
|                                            | Additional investments                                                            |                                                                |                                      
|                                            | Proceeds from asset dispositions                                                  |                                                                |                                      
|                                            | Payments from notes receivable and other                                          |                                                                |                                      
|                                            | Acquisitions, net of cash acquired                                                |                                                                |                                      
|                                            |                                                                                   |                                                                |                                      
|                                            | Net cash used in investing activities                                             |                                                                |                                      
|                                            |                                                                                   |                                                                |                                      
|Financing Activities                        |                                                                                   |                                                                |                                      
|                                            | Change in commercial paper borrowings and revolving loans                         |                                                                |                                      
|                                            | Long-term borrowings                                                              |                                                                |                                      
|                                            | Reduction of long-term debt                                                       |                                                                |                                      
|                                            | Issuance of common stock                                                          |                                                                |                                      
|                                            | Cash dividends                                                                    |                                                                |                                      
|                                            |                                                                                   |                                                                |                                      
|                                            | Net cash used in financing activities                                             |                                                                |                                      
|                                            |                                                                                   |                                                                |                                      
|(Decrease) Increase in Cash and Equivalents |                                                                                   |                                                                | (12                                  
|Cash and Equivalents at Beginning of Year   |                                                                                   |                                                                | 47                                   
|                                            |                                                                                   |                                                                |                                      
|Cash and Equivalents at End of Year         |                                                                                   | $                                                              | 35                                   
|                                            |                                                                                   |                                                                |                                      

See
notes to consolidated financial statements

44

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Hilton Hotels Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in millions, except per share amounts)

|                                                                               |                        | Year ended December 31, |      
|------------------------------------------------------------------------------ | ---------------------- | ----------------------- | -----
|
|COMMON STOCK                                                                   |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | 947  
|Issuance of common stock                                                       |                        |                         | 1    
|Exercise of stock options                                                      |                        |                         |     
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      
|ADDITIONAL PAID-IN CAPITAL                                                     |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | 861  
|Issuance of common stock                                                       |                        |                         | 2    
|Exercise of stock options                                                      |                        |                         |     
|Deferred compensation                                                          |                        |                         | 10   
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      
|RETAINED EARNINGS                                                              |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | 35   
|Net income                                                                     |                        |                         | 166  
|Exercise of stock options                                                      |                        |                         | (3   
|Common dividends ($.08 per share)                                              |                        |                         | (30  
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      
|ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                                  |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | 6    
|Cash flow hedge adjustment, net of deferred tax                                |                        |                         | (2   
|Cumulative translation adjustment, net of deferred tax                         |                        |                         |     
|Change in unrealized gain / loss on marketable securities, net of deferred tax |                        |                         | (9   
|Minimum pension obligation adjustment, net of deferred tax                     |                        |                         |     
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      
|TREASURY STOCK, AT COST                                                        |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | (207 
|Issuance of common stock                                                       |                        |                         |     
|Exercise of stock options                                                      |                        |                         | 6    
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      
|TOTAL STOCKHOLDERS' EQUITY                                                     |                        |                         |      
|Balance at beginning of year                                                   |                        | $                       | 1,642
|Net income                                                                     |                        |                         | 166  
|Cash flow hedge adjustment, net of deferred tax                                |                        |                         | (2   
|Cumulative translation adjustment, net of deferred tax                         |                        |                         |     
|Change in unrealized gain / loss on marketable securities, net of deferred tax |                        |                         | (9   
|Minimum pension obligation adjustment, net of deferred tax                     |                        |                         |     
|                                                                               |                        |                         |      
|                                                                               | Comprehensive income   |                         |      
|Issuance of common stock                                                       |                        |                         | 3    
|Exercise of stock options                                                      |                        |                         | 3    
|Deferred compensation                                                          |                        |                         | 10   
|Common dividends ($.08 per share)                                              |                        |                         | (30  
|                                                                               |                        |                         |      
|                                                                               | Balance at end of year |                         | $    
|                                                                               |                        |                         |      

See notes to consolidated financial statements

45

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Notes To Consolidated Financial Statements
December 31, 2003

BASIS OF PRESENTATION AND ORGANIZATION

Hilton Hotels Corporation is engaged in the ownership, management and development of hotels, resorts and timeshare properties and the franchising of lodging
properties. We operate in select markets throughout the world, predominantly in the United States. Revenue and income are derived from three reportable segments: Hotel Ownership, Managing and
Franchising, and Timeshare.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Hilton Hotels Corporation, our wholly owned subsidiaries and entities in which we have a controlling
financial interest. The determination of controlling financial interest is based upon the terms of individual joint venture agreements, including evaluation of rights held by other ownership
interests. Entities in which we have a controlling financial interest are generally comprised of majority owned joint ventures. All material intercompany transactions are eliminated and net earnings
are reduced by the portion of earnings of affiliates applicable to other ownership interests.

Cash and Equivalents

Cash and equivalents include investments with initial maturities of three months or less. Cash and equivalents includes cash related to certain consolidated
hotels, the use of which is restricted for hotel purposes under the terms of collateralized borrowings, as well as refundable deposits on the sale of timeshare intervals.

Accounts Receivable

Accounts receivable are reflected net of allowance for uncollectable accounts of $17 million and $20 million as of December 31, 2002 and
2003, respectively.

Investments

We maintain investments in unconsolidated affiliates, including hotel joint ventures as well as other entities that support the operations of our hotel
properties. Investments are accounted for using the equity method when we exercise significant influence over the venture but lack a controlling financial interest, which is determined based upon the
terms of individual joint venture agreements, including evaluation of rights held by other ownership interests. Generally, we account for investments using the equity method when we own more than a
minimal investment but have no more than a 50% ownership interest. When we have a controlling financial interest in the venture, which is generally when our ownership exceeds 50%, the balance sheet
and results of operations are consolidated, with net earnings reduced by the portion of earnings applicable to other ownership interests. All other investments in unconsolidated affiliates are
generally accounted for under the cost method. The hotels in which we own a non-controlling financial interest are an integral component of our hotel ownership segment and are strategically and
operationally important to that segment's results. Therefore, our operating income from unconsolidated affiliates is included as a component of consolidated operating income in the accompanying
consolidated statements of income.

46

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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.

Valuation of Long-Lived Assets

The carrying value of our long-lived 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 the lowest level of identifiable expected future cash flow, then a loss is recognized in the income statement using a
fair value based model.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Interest incurred during construction of facilities is capitalized and depreciated over
the life of the asset. Costs of improvements are capitalized. These capitalized costs may include structural costs, equipment, fixtures and floor and wall coverings. Costs of normal repairs and
maintenance are charged to expense as incurred.

Depreciation
is provided using the straight-line method over the estimated useful life of the assets. Leasehold improvements are depreciated over the shorter of the asset
life or lease term. The service lives of assets are generally 40 years for buildings and three to eight years for building improvements and furniture and equipment. Depreciation expense for
2001, 2002 and 2003 was $262 million, $283 million and $270 million, respectively.

Management and Franchise Contracts

Management and franchise contracts acquired in acquisitions that were accounted for as purchases are recorded at the estimated present value of net cash flow
expected to be received over the lives of the contracts. This value is amortized using the straight-line method over the remaining contract lives. Costs incurred to acquire individual
management and franchise contracts are amortized using the straight-line method over the life of the respective contract. Accumulated amortization of management and franchise contracts
totaled $143 million and $185 million at December 31, 2002 and 2003, respectively.

Leases

Leases acquired in acquisitions that were accounted for as purchases are recorded at the estimated present value of net cash flow expected to be received over the
lives of the lease agreements. This value is amortized using the straight-line method over the remaining lease terms. Accumulated amortization of leases totaled $11 million and
$15 million at December 31, 2002 and 2003, respectively.

47

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Brands

The brand names of hotels acquired in acquisitions are assigned a fair market value. To arrive at a value for each brand name, an estimation is made of the amount
of royalty income that could be generated from the brand name if it was licensed to an independent third-party owner. The resulting cash flow is discounted back using the estimated weighted average
cost of capital for each respective brand name. Effective January 1, 2002, we account for brands in accordance with Statement of Financial Accounting Standard (FAS) 142, which requires that
intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment. Prior to January 1, 2002, brand values were amortized using the straight-line
method over 40 years.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. We account for goodwill in accordance with
FAS 142, which requires that goodwill is not amortized, but is reviewed annually for impairment. Prior to January 1, 2002, goodwill was amortized using the straight-line
method over 40 years.

Derivative Instruments

We have an outstanding swap agreement which qualifies for hedge accounting as a cash flow hedge of a foreign currency denominated liability. The gain or loss on
the change in fair value of the derivative is included in earnings to the extent it offsets the earnings impact of changes in fair value of the hedged obligation. Any difference is deferred in
accumulated other comprehensive income or loss, a component of stockholders' equity.

We
have an interest rate swap on certain fixed rate senior notes which qualifies as a fair value hedge. This derivative impacts earnings to the extent of increasing or decreasing actual
interest expense on the hedged notes to simulate a floating interest rate. Changes in the fair value of the derivative are offset by an adjustment to the value of the hedged notes. We also have an
interest rate swap on the floating rate mortgage of a consolidated joint venture which qualifies as a cash flow hedge. This derivative impacts earnings to the extent of increasing or decreasing actual
interest expense on the hedged mortgage to simulate a fixed interest rate, with any incremental fair value change deferred in accumulated other comprehensive income or loss.

There
were no amounts recognized or reclassified into earnings for the years ended December 31, 2001, 2002 or 2003 due to hedge ineffectiveness or due to excluding from the
assessment of effectiveness any component of the derivatives. We assess on a quarterly basis the effectiveness of our hedges in offsetting the variability in the cash flow or fair values of the hedged
obligations.

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 over
the lives of the related debt. These balances are included in other assets in our consolidated balance sheets.

Self-Insurance

We are self-insured for various levels of general liability, workers' compensation and employee medical and dental insurance coverage. Insurance
reserves include the present values of projected settlements for known and incurred, but not reported claims.

48

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Revenue Recognition

Revenue is generally recognized as services are performed. Owned and leased hotel revenue represents primarily room rentals and food and beverage sales from
owned, majority owned and leased hotels.

Management
fees represent fees earned from hotels managed by us, usually under long-term contracts with the hotel owner. Management fees include a base fee, which is
generally a percentage of hotel revenue, and an incentive fee, which is generally based on the hotel's profitability. We recognize base fees as revenue when earned in accordance with the terms of the
contract. In interim periods we recognize incentive fees that would be due if the contract were terminated at the end of the interim period.

Franchise
fees represent fees received in connection with the franchise of our brand names, usually under long-term contracts with the hotel owner. Depending on the brand, we
charge franchise royalty fees of up to five percent of rooms revenue. We recognize fee revenue as earned, in accordance with FAS 45, "Accounting for Franchise Fee Revenue."

Timeshare
and other income primarily consists of earnings from timeshare operations and also includes revenue generated by the incidental support of hotel operations. Timeshare revenue
is generated primarily from the sale and financing of timeshare intervals and operating timeshare resorts. We recognize revenue from deeded timeshare sales in accordance with FAS 66, "Accounting for
Real Estate Sales." Sales are included in revenue when a minimum of a 10 percent down payment has been received and certain minimum sales thresholds have been attained. During periods of
construction, profits from timeshare sales are recognized under the percentage-of-completion method. Our Hilton Club timeshare product is accounted for as a
long-term lease with a reversionary interest rather than the sale of a deeded interest in real estate. Hilton Club sales revenue is recognized over the term of the lease.

We
incur certain reimbursable costs on behalf of managed hotel properties and franchisees. We report reimbursements from managed properties and franchisees as revenue and the related
costs as expenses. These costs, which relate primarily to payroll costs at managed properties where we are the employer, are reflected in reimbursed costs within both revenue and expenses in the
consolidated statements of income. Since the reimbursements are made based upon the costs incurred with no added margin, the presentation of these reimbursed costs has no effect on our operating
income, total or per share net income, cash flow or financial position.

Hilton HHonors

Hilton HHonors is a guest loyalty program operated by Hilton HHonors Worldwide (HHW), a joint venture 50% owned by us and 50% owned by Hilton Group plc. Hilton
Group's wholly owned subsidiary, Hilton International Co., owns the rights to the Hilton brand name outside the United States. The HHonors program is operated for the benefit of the Hilton family of
brands worldwide.

Members
of the HHonors program earn points based on their spending at most of the hotel properties operated and franchised by us and Hilton Group. HHW accumulates and tracks points on
the member's behalf and fulfills the awards upon request. Points can be redeemed for hotel stays at participating properties, and for a variety of other awards such as airline tickets, cruises and car
rentals. As we exercise significant influence over the operation of HHW but lack a controlling financial interest, our investment in HHW is accounted for under the equity method.

49

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HHonors
is provided as a guest loyalty program to participating hotels. HHW charges the cost of operating the program, including the estimated fair value of award redemption, to
participating hotels based on member's qualifying expenditures. The charges do not include a markup or profit element. We record our share of program costs, which we expense and pay to HHW based upon
contractual amounts when qualified members stay at our hotels. When members redeem awards at our hotels, we receive contractual amounts from HHW.

Earnings Per Share (EPS)

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. The
weighted average number of common shares outstanding for 2001, 2002 and 2003 were 369 million, 374 million and 378 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 25 million, 27 million and 15 million in 2001, 2002 and 2003, respectively. In addition, the increase to net income
resulting from interest on convertible securities assumed to have not been paid was approximately $15 million in 2001, $16 million in 2002, and $6 million in 2003.

Stock-Based Compensation

We apply Accounting Principles Board Opinion 25 and related interpretations in accounting for our stock-based compensation plans. No compensation cost is
reflected in net income related to our stock option plans for the periods presented, as all options had an exercise price greater than or equal to the market value of the underlying common stock on
the date of grant. Had the expense for our stock-based compensation plans been determined using the fair value based method defined in FAS 123, "Accounting for Stock-Based Compensation," our
net income and net income per share would have been reduced to the pro forma amounts indicated below:

2001

2002

2003Net incomeAs reported

$
166

198

164Incremental compensation expense


16

20

17As adjusted

$
150

178

147Basic earnings per shareAs reported

$
.45

.53

.43As adjusted

$
.41

.48

.39Diluted earnings per shareAs reported

$
.45

.53

.43As adjusted

$
.41

.48

.39


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
2001, 2002 and 2003, respectively: dividend yield of one percent for each of the three years; expected volatility of 48, 34 and 35 percent; risk-free interest rates of 5.2, 4.6 and
3.0 percent and expected lives of six years for 2001 and five years for both 2002 and 2003.

50

---

We
also provide supplemental retirement benefits to eligible senior officers in the form of fixed stock units that settle for shares of our common stock on a
one-for-one basis. The compensation expense associated with the benefits is expensed over a four year vesting period. The aggregate expense under these plans totaled
$8 million, $7 million and $6 million in 2001, 2002 and 2003, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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 our estimates and assumptions.

Reclassifications

Our proportionate share of equity in earnings from unconsolidated affiliates has been reclassified in our consolidated statements of income to a separate account
classification entitled "Operating income from unconsolidated affiliates." The reclassification resulted in a reduction of revenue totaling $41 million and $31 million in 2001 and 2002,
respectively. The reclassification had no impact on our operating income, total or per share net income, cash flow or financial position. Certain other prior period amounts have been reclassified to
conform with the current year presentation.

New Accounting Standards

Effective January 1, 2002 we adopted FAS 142, "Goodwill and Other Intangible Assets." The rules require that goodwill and other intangible assets
with indefinite lives are not amortized, but are reviewed annually for impairment. We expect to receive future benefits from previously acquired goodwill and brands over an indefinite period of time
and therefore no longer amortize them. Our impairment reviews of goodwill and brands did not result in an impairment charge in 2002 or 2003. As required by FAS 142, the results for the periods
prior to its adoption have not been restated. The reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill and brand amortization
net of the related tax effect for the year ended December 31, 2001 are as follows:

Net incomeAs reported

$
166Goodwill and brand amortization, net of tax


49As adjusted

$
215Basic earnings per shareAs reported

$
.45As adjusted

$
.58Diluted earnings per shareAs reported

$
.45As adjusted

$
.57


51

---

In
January 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) issued EITF Issue 01-14, "Income Statement Characterization of
Reimbursements Received for `Out-of-Pocket' Expenses Incurred." In accordance with Issue 01-14 we changed our method of reporting reimbursable costs incurred on behalf of managed hotel
properties and franchisees. We report reimbursements from managed properties and franchisees as revenue and the related costs as expenses. These costs, which related primarily to payroll costs at
managed properties where we are the employer, are reflected in reimbursed costs within both revenue and expenses in the consolidated statements of income. Revenue and expenses for 2001 have been
reclassified to conform with the current presentation. These reimbursements totaled $943 million in 2001. Since the reimbursements are made based upon the costs incurred with no added margin,
the adoption of this guidance has no effect on our operating income, total or per share net income, cash flow or financial position.

In
November 2002, the FASB issued FASB Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires that guarantees issued after December 31, 2002 be recorded as liabilities at fair value, with the offsetting entry recorded based on the circumstances
in which the guarantee was issued. Adoption of FIN 45 had no impact on our historical consolidated financial statements as existing guarantees are not subject to the measurement provisions of FIN 45.
Adoption and implementation of FIN 45 for new guarantees did not have a material impact on our consolidated financial statements in 2003.

In
December 2002, the FASB issued FAS 148, "Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FAS 123." This
statement provides alternate methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. This statement also amends the disclosure requirements of
FAS 123 and Accounting Principles Board Opinion 28, "Interim Financial Reporting," to require prominent disclosures in both annual and interim consolidated financial statements about the method
of accounting for stock-based compensation and the effect of the method used on reported results. We have adopted the disclosure provisions of FAS 148.

In
January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities" to expand upon existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of another entity. Under previous accounting guidance, we generally have included another entity in our consolidated
financial statements only if we have a controlling financial interest in the entity through voting or other interests. FIN 46 changes that guidance by requiring a variable interest entity
(VIE), as defined, to be consolidated by the company that is subject to a majority of the risk of loss from the VIE's activities, or is entitled to receive a majority of the entity's residual returns,
or both. FIN 46 also requires disclosure about VIEs that a company is not required to consolidate, but in which it has a significant variable interest. These disclosures include the nature,
purpose, size and activity of the VIE as well as the holder's maximum exposure to losses as a result of involvement with the VIE.

Our
evaluation of the provisions of FIN 46 as it relates to our various forms of arrangements has focused primarily on reviewing the key terms of our joint venture agreements,
management contracts and franchise agreements against the criteria in FIN 46 to determine if any of these arrangements qualify as VIEs. In general, a VIE represents a structure used for
business purposes that either does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its
activities.

52

---

In
the first quarter of 2003, we adopted FIN 46 for VIEs created after January 31, 2003, which resulted in no impact to our consolidated financial statements. In
December 2003, the FASB issued a revised FIN 46 (FIN 46R) that replaced the original interpretation and codified proposed modifications and other decisions previously issued
through certain FASB Staff Positions including the deferral of the effective date of applying FIN 46R to certain variable interests created before February 1, 2003. FIN 46R is
effective March 31, 2004 for such arrangements. We are currently evaluating the provision of FIN 46R as it relates to our joint venture agreements, management contracts and franchise
agreements created before February 1, 2003. Although our evaluation is continuing, we have not identified VIEs in our joint ventures, management contracts or franchise agreements, and therefore
we currently expect any disclosure or consolidation requirements will be immaterial.

In
May 2003, the FASB issued FAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which is effective for the quarter
ending September 30, 2003 for financial instruments existing at May 31, 2003. This statement requires three classes of freestanding financial instruments that embody obligations of the
issuer to be classified as liabilities at fair value. Adoption of FAS 150 did not have a material impact on our consolidated financial statements.

In
December 2003, the FASB issued a revised FAS 132 (FAS 132R), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises the
required footnote disclosures without changing the measurement or recognition provisions of existing postretirement benefit accounting literature. The disclosure provisions of FAS132R require
additional disclosures regarding the types of plan assets, plan obligations, cash flows, our investment strategy, measurement dates and the components of net periodic benefit cost recognized. This
statement also amends the disclosure requirements of Accounting Principles Board Opinion 28, "Interim Financial Reporting," to require prominent disclosures in our interim consolidated financial
statements of the net periodic benefit cost and significant changes to actual contributions and projected contributions to fund benefit plans. We have adopted the disclosure provisions of
FAS 132R.

53

---



ACQUISITIONS AND DISPOSITIONS

Acquisition of the Hilton Waikoloa Village

In May 2002, we purchased our partner's interest in the 1,240-room Hilton Waikoloa Village on Hawaii's Big Island, a property we manage and in
which we previously had an ownership interest of approximately 13 percent. We acquired the remaining 87 percent interest for approximately $155 million, consisting of
$75 million in cash and 5.2 million shares of our common stock. In 2003, we completed the final determination of the fair value of the fixed assets acquired, which resulted in an
increase to goodwill totaling approximately $21 million.

Asset Dispositions

In the 2003 first quarter, we sold four Homewood Suites by Hilton properties in two separate transactions for approximately $40 million. We continue to
operate three of the hotels under long-term management agreements and we have retained a long-term franchise contract on the fourth hotel. In the fourth quarter of 2003, an
Embassy Suites hotel in which we held a 65% interest was sold, resulting in a net pre-tax loss of approximately $4 million. Also in the 2003 fourth quarter, we sold certain
marketable securities, which resulted in a pre-tax gain of approximately $2 million. In addition, we wrote off the value assigned to certain long-term management and
franchise agreements that were terminated in 2003 totaling approximately $4 million. In the aggregate, these transactions resulted in a net pre-tax loss on asset dispositions of
$6 million in 2003.

In
2002, we entered into a $125 million facility with a wholly owned subsidiary of GE Capital for the sale of notes receivable originated by our timeshare business. During 2002,
we completed two sales of notes receivable under the facility, totaling approximately $119 million. These transactions resulted in a gain of approximately $5 million. Also in 2002, we
completed the sale of two owned, two leased and seven managed properties operating as Harrison Conference Centers for approximately $49 million. We recorded a $16 million
pre-tax book loss on the sale. However, the sale generated a capital gain for tax purposes, which enabled us to utilize existing tax loss carryforwards that had been fully reserved in
prior periods. The transaction, including the impact of the reduction of the valuation allowance associated with the capital loss tax carryforwards, resulted in a $16 million book tax benefit.
Thus, on an after-tax basis, the sale had no impact on reported net income. The total pre-tax loss on asset dispositions of $14 million in 2002 represents the
$11 million net pre-tax loss on the aforementioned asset sales and a loss of approximately $3 million primarily as a result of writing off the value assigned to several
long-term management and franchise agreements which were terminated during the year.

On
December 31, 2001, we sold the Red Lion hotel chain to WestCoast Hospitality Corporation through a sale of the capital stock of Red Lion Hotels, Inc. The Red Lion
portfolio consisted of 41 Red Lion hotels (eight owned, 11 leased and 22 franchised) and two Doubletree hotels (one owned and one leased) with a total of approximately 6,500 rooms. Total consideration
of approximately $51 million included approximately $21 million of cash and approximately $30 million in redeemable preferred stock of WestCoast. The preferred stock is in two
$15 million series, which pay preferred dividends of 7% and 10% annually. The preferred stock is accounted for as a cost basis investment in our consolidated financial statements.

54

---

Our
total pre-tax loss on asset dispositions was $44 million in 2001, $42 million of which was attributable to the Red Lion sale. As the Red Lion sale also
resulted in a large capital loss for tax purposes, we were able to carry back a portion of this loss to offset capital gains recorded in prior years. The transaction, including the impact of the
capital loss tax carrybacks, resulted in a $47 million book tax benefit. Thus, on an after-tax basis, the sale of Red Lion Hotels, Inc. capital stock resulted in a gain of
approximately $5 million.

CNL Transactions

Since 2001, we have entered into three separate joint venture agreements with CNL Hospitality Corp. In the third quarter of 2001, we sold one hotel directly to
CNL and contributed two hotels to our first partnership with CNL, which owns a total of four hotels. We hold a 30 percent ownership interest in the partnership and manage the four hotels under
long-term agreements. The gain resulting from the sale and contribution of these hotels has been deferred and will be recognized over the life of the long-term management contracts we retained on each
of the properties. As part of the transaction, we received a distribution of approximately $43 million from the partnership. This distribution is reflected as proceeds from asset dispositions
in the accompanying consolidated statements of cash flow.

In
the fourth quarter of 2002, we entered into our second partnership with CNL to acquire seven hotel properties. The partnership acquired the 500-room Doubletree at Lincoln
Centre in Dallas, Texas and the 428-room Sheraton El Conquistador Resort and Country Club in Tucson, Arizona in December 2002. Both properties have been converted to the Hilton
brand. In connection with the formation of the joint venture, we contributed $11 million to the partnership in December 2002.

In
the first quarter of 2003, we contributed the 437-room Hilton Rye Town in Rye Brook, New York and CNL contributed the 630-room Doubletree Crystal City in
Arlington, Virginia to the second partnership. The gain resulting from our contribution of the Hilton Rye Town of approximately $35 million has been deferred and will be recognized over the
life of the long-term management contract retained on the property. Also in the first quarter of 2003, the partnership acquired the 257-suite Embassy Suites Santa Clara in
Santa Clara, California, the 267-suite Embassy Suites Crystal City in Arlington, Virginia, and the 174-suite Embassy Suites Orlando Airport in Orlando, Florida. We operate all
seven hotels under long-term management contracts and have a 25% ownership interest in the partnership.

In
connection with the structuring of the CNL partnership, including our contribution of the Hilton Rye Town, we received a cash distribution totaling approximately $46 million in
the 2003 first quarter. This distribution is reflected as proceeds from asset dispositions in the accompanying consolidated statements of cash flow. In addition, the tax gain resulting from the
contribution of the Hilton Rye Town enabled us to utilize capital loss tax carryforwards, resulting in a reduction in our provision for income taxes totaling approximately $4 million.

In
the fourth quarter of 2003, we entered into our third partnership with CNL to own two hotel properties. We contributed the 544-room Capital Hilton in Washington, D.C. and
the 394-room Hilton La Jolla Torrey Pines outside of San Diego, California to the partnership. The gain resulting from our contribution of the two hotels totaling approximately
$57 million has been deferred and will be recognized over the life of the long-term management contracts retained on the properties. We have a 25% ownership interest in the
partnership. In connection with this transaction, we received a distribution from the partnership of approximately $190 million. This distribution is reflected as proceeds from asset
dispositions in the accompanying consolidated statements of cash flow. This transaction also resulted in tax gains that enabled us to utilize capital loss tax carryforwards, resulting in a reduction
in our provision for income taxes totaling approximately $22 million.

55

---

IMPAIRMENT LOSS AND RELATED COSTS

Results in 2003 include impairment loss and related costs totaling $22 million. These costs include a $17 million pre-tax charge in the
first quarter related to the decline in value of certain equity securities held by us. The decline in value of the securities was deemed to be other-than-temporary in the 2003
first quarter, thus requiring an earnings charge, primarily based on the length of time the securities had traded below cost. This charge is included in the corporate and other unallocated expenses
portion of our segment results. The 2003 charge also includes a $4 million fair value adjustment in our Hotel Ownership segment to reduce the carrying value of an owned Red Lion hotel and a
$1 million fair value adjustment in our Managing and Franchising segment to reduce the carrying value of a Doubletree management contract. Both charges resulted from an impairment analysis
performed in the fourth quarter of 2003.

Results
in 2002 include a charge of $21 million for mold remediation in certain areas of the Hilton Hawaiian Village. The charge includes approximately $17 million for
remediation efforts at the property's Kalia Tower, which is included in our Hotel Ownership segment, and approximately $4 million for remediation efforts at the Lagoon Tower timeshare
development. The Kalia Tower successfully reopened to hotel guests in September 2003.

INVENTORIES

Included in inventories at December 31, 2002 and 2003 are unsold intervals at our vacation ownership properties of $124 million and
$180 million, respectively. Inventories are valued at the lower of cost or estimated net realizable value.

INVESTMENTS AND NOTES RECEIVABLE

Investments and notes receivable at December 31, 2002 and 2003 are as follows:

2002

2003(in millions)Equity investmentsHotels

$
255

274Other


30

28Timeshare notes receivable, with an average rate of 13.5%, due 2004 to 2013


96

165Other notes receivable, with an average rate of 7.3%, due 2004 to 2015


73

71Marketable securities


21

21Other investments


31

31506

590Less current portion of notes receivable


(16
)
(32
)Total

$
490

558


Notes
receivable are reflected net of allowances for uncollectable amounts of $8 million and $11 million as of December 31, 2002 and 2003, respectively.

56

---

Our
investments in unconsolidated affiliates accounted for under the equity method totaled $285 million and $302 million at December 31, 2002 and 2003, respectively,
representing approximately three percent and four percent of total assets at the end of 2002 and 2003, respectively. At December 31, 2003, our unconsolidated affiliates accounted for under the
equity method had total assets of approximately $2.45 billion and total debt of approximately $1.31 billion. Of the $1.31 billion of total debt, $1.25 billion is secured
solely by the affiliate's assets or is guaranteed by other partners without recourse to us. We are the creditor on $49 million of the $1.25 billion of debt.

PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2002 and 2003 are as follows:

2002

2003(in millions)Land

$
561

535Buildings and leasehold improvements


3,698

3,587Furniture and equipment


929

846Property held for sale or development


40

40Construction in progress


61

145,289

5,022Less accumulated depreciation


(1,318
)
(1,381
)Total

$
3,971

3,641


ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at December 31, 2002 and 2003 are as follows:

2002

2003(in millions)Accounts and notes payable

$
108

84Accrued compensation and benefits


151

147Deposits


17

21Accrued property tax


29

29Accrued interest


37

35Other accrued expenses


218

237Total

$
560

553


57

---

LONG-TERM DEBT

Long-term debt at December 31, 2002 and 2003 is as follows:

2002

2003(in millions)Industrial development revenue bonds at adjustable rates, due 2015

$
82

82Senior notes, with an average rate of 7.3%, due 2007 to 2031(1)


2,050

2,0497% Senior notes, due 2004(2)


325

325Mortgage notes, 4.0% to 8.6%, due 2006 to 2022(1)


353

3487.95% Collateralized borrowings, due 2010


486

479Chilean inflation-indexed note, effective rate of 7.65%, due 2009(1)


100

1195% Convertible subordinated notes due 2006


497

3.375% Contingently convertible senior notes due 2023




575Revolving loans


670

160Other


2

24,565

4,139Less current maturities of long-term debt


(11
)
(338
)Net long-term debt

$
4,554

3,801


---

Interest
paid, net of amounts capitalized, was $324 million, $291 million and $261 million in 2001, 2002 and 2003, respectively. Capitalized interest totaled
$10 million, $5 million and $7 million in 2001, 2002 and 2003, respectively.

Debt
maturities are as follows:

(in millions)2004(1)

$
3382005


142006


482007


4332008


596Thereafter


2,710Total

$
4,139


---

In
June 1998, we entered into a five-year $500 million revolving credit facility to acquire the remaining 50% interest in the Hilton Hawaiian Village. In
May 2003, this facility was repaid and the commitment was extinguished.

58

---

In
August 2003, we established a new five-year revolving credit facility in the amount of $1 billion, with an option to increase the size of the facility by an
additional $250 million. This facility replaced our $1.2 billion revolving facility which was set to expire in November 2004 and our $150 million 364-day
revolving facility which was set to expire in November 2003, and the commitment under these facilities was extinguished. As of December 31, 2003, $160 million of borrowings were
outstanding under the $1 billion revolver. Borrowings under this facility bear interest at LIBOR plus a spread based on our public debt rating or leverage ratio. The all-in
borrowing cost under this facility was approximately LIBOR plus 125 basis points at December 31, 2003. The capacity under our revolver is also used to support certain outstanding letters of
credit. Total revolving debt capacity of approximately $670 million was available to us at December 31, 2003.

In
the second quarter of 2003, we sold $575 million of 3.375% Convertible Senior Notes due 2023 in a private placement transaction. The notes are convertible into shares of our
common stock at an initial conversion price of $22.50 per share of common stock, upon the occurrence of certain events. We used the net proceeds from the offering to redeem our 5% Convertible
Subordinated Notes due 2006 and to repay indebtedness under our existing revolving credit facility. We have filed a registration statement with the Securities and Exchange Commission registering the
notes and underlying convertible securities for resale.

In
October 1997, we filed a shelf registration statement with the Securities and Exchange Commission registering up to $2.5 billion in debt or equity securities. At
December 31, 2003, available financing under the shelf totaled $825 million. The terms of any additional securities offered under the shelf will be determined by market conditions at the
time of issuance.

In
connection with the spin-off in 1998 of our gaming business to a new corporation named Park Place Entertainment Corporation, Park Place assumed and agreed to pay 100% of
the amount of each payment required to be made by us under the terms of the indentures governing our $325 million 7% Senior Notes due 2004. Because these notes remain our legal obligation, they
are included in our long-term debt balance and a long-term receivable from Park Place in an equal amount is included in our 2002 consolidated balance sheet. These notes are classified in
our 2003 balance sheet as current maturities of long-term debt with the offsetting receivable classified in other current assets. In January 2004, Park Place changed their name to
Caesars Entertainment, Inc. We remain obligated to make any payment Caesars fails to make under these notes.

In
November 2002, we entered into a derivative contract which swaps the fixed interest payments on our $375 million 7.95% Senior Notes due 2007 to a floating interest rate
equal to the six-month London Interbank Offered Rate plus 415 basis points. In connection with our $100 million 7.43% bonds due 2009 denominated in Chilean pesos, we have a
derivative contract which swaps the principal payment to a fixed U.S. dollar amount of $100 million and fixed interest payments at 7.65% of that amount. We also have a derivative contract which
swaps the floating rate mortgage of a majority owned hotel, with a principal balance of $35 million at December 31, 2003, to a fixed interest rate. As of December 31, 2003,
approximately 17% of our long-term debt (excluding the Caesars allocated debt and including the impact of interest rate swaps) was floating rate debt.

Provisions
under various loan agreements require us to comply with certain covenants which include limiting the amount of our outstanding indebtedness. Our revolving credit facilities
contain two significant financial covenants: a leverage ratio and a debt service coverage ratio. We are in compliance with our loan covenants as of December 31, 2003.

59

---

Provisions
of the financing agreement related to our 7.95% collateralized borrowings due 2010 require that certain cash reserves be maintained and also restrict the transfer of excess
cash generated by the related properties from the subsidiary hotels to the parent company if net cash flow falls below a specified level (the cash trap). The cash trap became effective in 2003 due to
reduced cash flow from the collateralized properties, primarily the Hilton San Francisco. As of December 31, 2003, cash restricted under the terms of the collateralized borrowings, including
required reserves and the cash trap, totaled $42 million. The impact of the cash trap, which is expected to remain in effect throughout 2004, is not expected to have a material impact on our
liquidity.

FINANCIAL INSTRUMENTS

The estimated fair values of our financial instruments at December 31, 2002 and 2003 are as follows:

2002

2003Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value(in millions)Cash and equivalents and long-term marketable securities

$
75

75

103

103Timeshare notes receivable (including current portion)


96

100

165

169Other notes receivable (including current portion)


73

74

71

70Derivative assets


7

7

26

26Long-term debt (including current maturities)


(4,565
)
(4,571
)
(4,139
)
(4,464
)Derivative liabilities


(9
)
(9
)
(2
)
(2
)


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.

Timeshare and Other Notes Receivable

The estimated fair value of timeshare and other notes receivable is based on recent market prices or the expected future cash flows discounted at risk adjusted
rates.

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 us
for debt of the same remaining maturities.

Derivative Instruments

The fair value of derivative assets and liabilities is based on the present value of estimated future cash flow, including the use of foreign currency forward
exchange rates, as appropriate.

60

---

INCOME TAXES

The provision for income taxes for the three years ended December 31 are as follows:

2001

2002

2003(in millions)CurrentFederal

$
83

129

77State, foreign and local


34

20

16117

149

93Deferred


(40
)
(68
)
(40
)Total

$
77

81

53


During
2001, 2002 and 2003, we paid income taxes of $150 million, $58 million and $44 million, respectively, net of refunds received.

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, 2002 and
2003 are as follows:

2002

2003(in millions)Deferred tax assetsCompensation

$
88

75Deferred income


15

Insurance


34

49Business combination expense


1

Franchise system funds


13

17Reserves


3

20NOL carryforwards, expiring 2005 to 2008


1

1Capital loss carryforward, expiring 2006


47

14202

176Valuation allowance


(52
)
(19
)150

157Deferred tax liabilitiesBasis difference


(213
)
(187
)Property


(224
)
(181
)Investments


(84
)
(86
)Brand value


(390
)
(378
)Deferred income




(4
)Accrued interest expense




(9
)Other


(3
)
(9
)(914
)
(854
)Net deferred tax liability

$
(764
)
(697
)


61

---



The reconciliations of the Federal income tax rate to our effective tax rate for the three years ended December 31 are as follows:

2001

2002

2003Federal income tax rate

35.0
%
35.0

35.0Increase (reduction) in taxesState and local income taxes, net of Federal tax benefits

3.9

1.5

.8Foreign taxes, net

3.1

2.0

2.3Goodwill

4.7



Federal income tax credits

(4.4
)
(2.9
)
(3.8
)Disposition of Red Lion Hotels, Inc. capital stock

(13.4
)


Change in deferred tax asset valuation allowance



(8.4
)
(13.3
)Option exercises





4.4Refund claim





(2.8
)Other

1.9

1.2

1.2Effective tax rate

30.8
%
28.4

23.8


Capital
loss tax carryforwards available to offset future capital gains are recorded as deferred tax assets and are fully reserved until evidence indicates it is more likely than not
that the benefit will be realized. The deferred tax assets related to capital loss tax carryforwards are fully reserved at December 31, 2003.

Our
tax provision, deferred taxes and effective rate in 2003 were impacted by a reduction in the valuation allowance for capital loss tax carryforwards, primarily as a result of the
transactions with CNL. In addition, our tax provision, deferred taxes and effective rate were impacted by a reduction in the valuation allowance for capital loss tax carryforwards due to higher than
expected utilization on our 2002 Federal tax return filed in 2003, as well as a settlement relating to a tax liability associated with a prior year tax return. These items resulted in a reduction of
the tax provision and effective rate in 2003. These benefits were partially offset by the write-off of an unutilized deferred tax asset resulting from a September stock option exercise.
Excluding the impact of these items, our effective rate in 2003 was 35%.

Deferred
taxes were also impacted in 2003 by the settlement and closure of certain tax audits and the adjustment of certain deferred tax balances, each related to our acquisition of
Promus Hotel Corporation in 1999. In accordance with the provisions of FAS 109, these changes in estimates were reflected as an adjustment of goodwill related to the Promus acquisition and did
not impact the tax provision in 2003. These adjustments resulted in a reduction of both goodwill and deferred income taxes and other liabilities totaling approximately $48 million.

Our
tax provision, deferred taxes and effective rate in 2002 were impacted by asset sales, which generated capital gains for tax purposes, enabling us to utilize capital loss tax
carryforwards generated by the Red Lion sale in 2001. The reduction of the valuation allowance for capital loss tax carryforwards resulted in a reduction of the tax provision and effective rate in
2002. Also in 2002, our tax provision, deferred taxes and effective rate were impacted by higher than expected utilization of capital loss tax carryforwards on our 2001 Federal tax return filed in
2002. This reduction in the valuation allowance for capital loss tax carryforwards also resulted in a reduction of the tax provision and effective rate for 2002. Excluding the impact of asset sales
and the impact of the higher utilization of capital loss tax carryforwards on our 2002 Federal tax return, our effective rate in 2002 was 37%.

62

---

Our
tax provision, deferred taxes and effective rate in 2001 were impacted by the sale of the Red Lion Hotels, Inc. capital stock on December 31, 2001. The sale resulted in
a large capital loss for tax purposes. A portion of the capital loss was carried back to offset capital gains recorded in prior years, resulting in a reduction of the tax provision and effective tax
rate in 2001. Excluding the impact of the Red Lion sale, our effective tax rate in 2001 was 43%.

STOCKHOLDERS' EQUITY

Five hundred million shares of common stock with a par value of $2.50 per share are authorized, of which 384 million and 389 million were issued at
December 31, 2002 and 2003, respectively, including treasury shares of eight million in both 2002 and 2003. We have 25 million shares of preferred stock with a par value of $1.00 per
share authorized for issuance. No preferred shares were issued or outstanding at December 31, 2002 and 2003.

Our
Board of Directors has approved our repurchase of up to 20 million shares of our common stock pursuant to a stock repurchase program. The timing of stock purchases are made at
the discretion of management. There were no shares repurchased during 2001, 2002 or 2003. As of December 31, 2003, 9.3 million shares remained authorized for repurchase under this
authority.

We
have a Preferred Share Purchase Rights Plan under which a right is attached to each share of our common stock. The rights may only become exercisable under certain circumstances
involving actual or potential acquisitions of 20% or more of our common stock by certain people or groups. Depending on the circumstances, if the rights become exercisable, the holder may be entitled
to purchase units of our junior participating preferred stock, shares of our common stock or shares of common stock of the acquiror. The rights remain in existence until November 2009 unless
they are terminated, exercised or redeemed.

63

---

STOCK PLANS

At December 31, 2003, 46 million shares of common stock were reserved for the exercise of options under our stock incentive plans. Options may be
granted to salaried officers, directors and other key employees to purchase our 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,
2003.

A
summary of the status of our stock option plans as of December 31, 2001, 2002 and 2003, and changes during the years ending on those dates, is presented below:

Options Price
Range
(per share)

Weighted
Average Price
(per share)

Options
Outstanding

Available
for GrantBalance at December 31, 2000

$
4.6827.53

$13.66

28,283,017

29,055,457Granted


10.6412.22

12.20

5,986,300

(5,986,300
)Exercised


4.6811.08

9.52

(335,206
)
Cancelled


6.6620.56

13.66

(1,402,975
)
1,218,437Balance at December 31, 2001


6.6627.53

13.44

32,531,136

24,287,594Granted


11.8513.95

11.86

7,469,400

(7,469,400
)Exercised


6.6614.84

9.86

(1,455,096
)
Cancelled


6.6620.66

12.40

(1,654,675
)
1,624,900Balance at December 31, 2002


6.6627.53

13.33

36,890,765

18,443,094Granted


11.8713.40

11.88

7,144,775

(7,144,775
)Exercised


6.6616.23

11.46

(9,542,341
)
Cancelled


6.6619.65

13.27

(1,248,825
)
1,209,025Balance at December 31, 2003


6.6627.53

13.56

33,244,374

12,507,344


The
following table summarizes information about stock options outstanding at December 31, 2003:

Options Outstanding

Options ExercisableExercise Price

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price$
6.6610.64

3,723,396

5.6

$  9.23

2,352,221

$  9.2611.0811.85

6,676,050

7.8

11.82

1,573,725

11.7311.8713.40

11,069,231

8.3

12.00

1,799,256

12.2413.6327.53

11,775,697

4.4

17.37

9,775,697

15.306.6627.53

33,244,374

6.5

13.56

15,500,899

13.66


64

---

EMPLOYEE BENEFIT PLANS

We have a noncontributory retirement plan (Basic Plan) which covers many of our non-union employees. Benefits are based upon years of service and
compensation, as defined. The annual measurement date for the Basic Plan is December 31. Since December 31, 1996, employees have not accrued additional benefits under the Basic Plan.
Therefore, the projected benefit obligation is equal to the accumulated benefit obligation, and both are referred to simply as the "benefit obligation" below. Plan assets will be used to pay benefits
due employees for service through December 31, 1996. As employees have not accrued additional benefits since 1996, we do not utilize a rate of compensation increase assumption in calculating
our benefit obligation. The assumptions used to determine our benefit obligations at December 31, 2002 and 2003 are as follows:

2002

2003Discount Rate

6.75
%
6.00


The
rollforwards of our benefit obligations and fair value of plan assets for the years ended December 31, 2002 and 2003 are as follows:

2002

2003(in millions)Benefit obligation at beginning of year

$
263

257Interest cost


16

18Actuarial (gain) loss


(8
)
39Benefits paid


(14
)
(17
)Benefit obligation at end of year

$
257

2972002

2003(in millions)Fair value of plan assets at beginning of year

$
269

262Actual return on plan assets


7

33Benefits paid


(14
)
(17
)Fair value of plan assets at end of year

$
262

278


65

---

The
investment objectives for the Basic Plan are preservation of capital, current income and long-term growth of capital. Substantially all plan assets are managed by outside
investment managers. Asset allocations are reviewed quarterly. Equity securities are primarily S&P 500 and S&P 400 index funds. Equity securities include Hilton common stock in the amounts of
$12 million and $14 million at December 31, 2002 and 2003, respectively, representing approximately 5% of total plan assets in each period. Debt securities are U.S. Treasury and
government agency debt securities. The expected long-term return on plan assets is based on the following assumed rates of return for the assets held: 4% to 7% for government debt
securities and 8% to 10% for U.S. common stocks. The asset allocations for the Basic Plan, as a percentage of total plan assets at December 31, 2002 and 2003, are as follows:

2002

2003Equity securities

32
%
50Debt securities

68

50Total

100
%
100


The
following table provides a reconciliation between the funded status of the Basic Plan and the accrued benefit cost liability on the balance sheet for the years ended
December 31, 2002 and 2003, as well as the other components recognized in our consolidated balance sheets:

2002

2003(in millions)Funded status

$
5

(19
)Unrecognized actuarial (gain) loss


(14
)
12Unamortized prior service cost


6

5Accrued benefit cost


(3
)
(2
)Intangible assets




5Additional minimum liability




(16
)Accumulated other comprehensive loss, excluding tax impact




11Net amount recognized

$
(3
)
(2
)


Comprehensive
income for 2003 includes a net $7 million adjustment reflecting the $11 million increase related to the minimum pension liability shown in the table above,
net of the deferred tax impact. There was no such adjustment in 2002 or 2001.

As
described above, employees have not accrued additional benefits under the Basic Plan since 1996. Therefore, we do not utilize a rate of compensation increase assumption in calculating
the net periodic benefit cost. The key actuarial assumptions used to determine the annual benefit cost for the years ended December 31, 2001, 2002 and 2003 are as follows:

2001

2002

2003Discount Rate

7.25
%
7.00

6.75Expected long-term return on plan assets

7.25

7.25

7.25


66

---

Our
annual benefit (cost)/income for the years ended December 31, 2001, 2002 and 2003 consisted of the following:

2001

2002

2003(in millions)Expected return on plan assets

$
20

19

20Interest cost


(18
)
(16
)
(18
)Amortization of prior service cost


(1
)
(1
)
(1
)Amortization of net gain


2

3

Net annual benefit income

$
3

5

1


We
do not expect to make any contribution to the Basic Plan in 2004. As of December 31, 2003, the benefits expected to be paid in the next five fiscal years and in the aggregate
for the five fiscal years thereafter are as follows:

(in millions)2004

$
162005


162006


172007


172008


172009-2013


92


We
also have plans covering qualifying employees and non-officer directors (Supplemental Plans). Benefits for the Supplemental Plans are based upon years of service and
compensation, as defined. Since December 31, 1996, employees and non-officer directors have not accrued additional benefits under the Supplemental Plans. These plans are
self-funded by us and therefore have no plan assets isolated to pay benefits due employees. As of December 31, 2002 and 2003, these plans have benefit obligations of
$8 million and $9 million, respectively, which are fully accrued in our consolidated balance sheets. Pension expense under the Supplemental Plans for the years ended December 31,
2001, 2002 and 2003 was not significant.

Certain
employees are covered by union sponsored, collectively bargained multi-employer pension plans. We contributed and charged to expense $18 million per year for the years
ended December 31, 2001, 2002 and 2003 for such plans. Information from the plans' administrators is not sufficient to permit us to determine our share, if any, of unfunded vested benefits.

We
have various employee investment plans whereby we contribute certain percentages of employee contributions. The aggregate expense under these plans totaled $10 million in 2001,
$11 million in 2002 and $12 million in 2003.

67

---

SEGMENT INFORMATION

Our operations consist of three reportable segments which are based on similar products or services: Hotel Ownership, Managing and Franchising, and Timeshare. The
Hotel Ownership segment derives revenue primarily from owned, majority owned and leased hotel properties. The Managing and Franchising segment provides services including hotel management and
licensing of our family of brands to franchisees. This segment generates its revenue from fees charged to hotel owners. The Timeshare segment consists of multi-unit timeshare resorts. This
segment produces its results from the sale and financing of timeshare intervals and operating timeshare resorts. Segment results are presented net of consolidating eliminations for fee based services
at the operating income level, without allocating corporate expenses, which is the basis used by management to evaluate segment performance.

Segment
assets as of December 31 are as follows:

2002

2003(in millions)AssetsHotel Ownership

$
5,278

5,001Managing and Franchising


2,114

2,048Timeshare


257

425Corporate and other


699

704Total assets

$
8,348

8,178


At
December 31, 2003, the Hotel Ownership segment includes goodwill and brand values totaling $609 million and $98 million, respectively, and the Managing and
Franchising segment includes goodwill and brand values totaling $631 million and $872 million, respectively. Prior to the adoption of FAS 142 in 2002, goodwill and brands were not
allocated among the segments.

68

---

Segment
results for the three years ended December 31 are as follows:

2001

2002

2003(in millions)RevenueHotel Ownership

$
2,347

2,239

2,167Managing and Franchising


1,285

1,281

1,307Timeshare


320

296

345Total revenue

$
3,952

3,816

3,819Operating IncomeHotel Ownership

$
470

412

343Managing and Franchising


290

278

284Timeshare


86

73

82Corporate and other unallocated expenses


(214
)
(160
)
(194
)Total operating income


632

603

515Interest and dividend income


64

43

29Interest expense


(385
)
(328
)
(295
)Interest expense, net, from unconsolidated affiliates


(17
)
(19
)
(20
)Net loss on asset dispositions


(44
)
(14
)
(6
)Income before income taxes and minority interest


250

285

223Provision for income taxes


(77
)
(81
)
(53
)Minority interest, net


(7
)
(6
)
(6
)Net income

$
166

198

164


LEASES

We lease hotel properties and land under operating leases. As of December 31, 2003, we leased seven hotels. Our hotel leases require the payment of rent
equal to the greater of a minimum rent or percentage rent based on a percentage of revenue or income, and expire through December 2020, with varying renewal options. Our land leases represent
ground leases for certain owned hotels and, in addition to minimum rental payments, may require the payment of additional rents based on varying percentages of revenue or income. Total rent expense
incurred under our leases was $57 million, $55 million and $54 million in 2001, 2002 and 2003, respectively, which included minimum rent payments of $36 million,
$37 million and $39 million in 2001, 2002 and 2003, respectively.

Minimum
lease commitments under noncancelable operating leases are as follows:

(in millions)2004

$
362005


352006


322007


312008


29Thereafter


554Total, through 2065

$
717


69

---

COMMITMENTS AND CONTINGENCIES

We have established franchise financing programs with third party lenders to support the growth of our Hilton Garden Inn, Homewood Suites by Hilton, Hampton and
Embassy Suites hotels. As of December 31, 2003, we have provided guarantees of $50 million on loans outstanding under the programs. In addition, we have guaranteed $69 million of
debt and other obligations of unconsolidated affiliates and third parties, bringing our total guarantees to approximately $119 million. Our outstanding guarantees have terms of one to nine
years. We also have commitments under letters of credit totaling $87 million as of December 31, 2003. We believe it is unlikely that material payments will be required under these
agreements.

In
addition, we remain a guarantor on 12 operating leases sold to WestCoast Hospitality Corporation as part of the Red Lion sale on December 31, 2001. However, we have entered
into an indemnification and reimbursement agreement with WestCoast, which requires WestCoast to reimburse us for any costs and expenses incurred in connection with the guarantee. The minimum lease
commitment under these 12 operating leases totals approximately $5 million annually through 2020.

We
have also provided performance guarantees to certain owners of hotels we operate under management contracts. Most of these guarantees allow us to terminate the contract rather than
fund shortfalls if specified performance levels are not achieved. In limited cases, we are obligated to fund performance shortfalls. At December 31, 2003, we have two contracts containing
performance guarantees with possible cash outlays totaling approximately $194 million through 2012. Funding under these performance guarantees totaled approximately $5 million in 2003,
and is expected to total approximately $5 million in 2004. Funding under these guarantees in future periods is dependent on the operating performance levels of these hotels over the remaining
term of the performance guarantee. Although we anticipate that the future operating performance levels of these hotels will be largely achieved, there can be no assurance that this will be the case.
In addition, we do not anticipate losing any significant management contracts in 2004.

Our
consolidated financial statements at December 31, 2003 include liabilities of approximately $4 million for potential obligations under our outstanding guarantees. Under
certain circumstances, we may be obligated to provide additional guarantees or letters of credit totaling $44 million, including future construction loan guarantees of an unconsolidated joint
venture totaling $18 million at December 31, 2003.

At
December 31, 2003, we had contractual commitments of approximately $24 million for construction and renovation projects at certain owned and majority owned properties.

We
are subject to litigation in the ordinary course of our business. Management believes the resolution of pending lawsuits will not have a material adverse effect on our financial
position or results of operations.

70

---



REPORT OF INDEPENDENT AUDITORS

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 (the Company) as of December 31, 2002 and 2003,
and the related consolidated statements of income, stockholders' equity, and cash flow for each of the two years in the period ended December 31, 2003. 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. The consolidated statements of income, stockholders' equity,
and cash flow for the year ended December 31, 2001 were audited by other auditors who have ceased operations and whose report dated January 29, 2002 expressed an unqualified opinion on
those statements before the revisions described in the "Summary of Significant Accounting PoliciesNew Accounting Standards" note to the consolidated financial statements.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Hilton Hotels Corporation and subsidiaries as
of December 31, 2002 and 2003, and the consolidated results of their operations and their cash flow for each of the two years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.

As
discussed above, the consolidated statements of income, stockholders' equity, and cash flow for the year ended December 31, 2001 were audited by other auditors who have ceased
operations. These financial statements have been revised to include the following:



However,
we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such revisions and disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

SIGNATURE

Ernst &
Young LLP
Los Angeles, California
January 30, 2004

71

---

PREDECESSOR AUDITOR'S REPORT

THIS REPORT IS A COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP, NOR HAS ARTHUR ANDERSEN
LLP PROVIDED ITS CONSENT TO THE INCLUSION OF THEIR REPORT IN OUR FORM 10-K.

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, 2000 and 2001, and the
related consolidated statements of income, stockholders' equity and cash flow for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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, 2000 and 2001 and the results of their operations and their cash flow for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN

Arthur
Andersen LLP
Los Angeles, California
January 29, 2002

72

---



SUPPLEMENTARY FINANCIAL INFORMATION (unaudited)As of December 31, 2003 there were approximately 14,000 stockholders of record.

Quarterly Financial Data

|                 |  | 1st
Quarter |      | 2nd
Quarter |       | 3rd
Quarter |      | 4th
Quarter |      | Total
|---------------- |  | ----------- | ---- | ----------- | ----- | ----------- | ---- | ----------- | ---- | -----
|
|2003             |  |             |      |             |       |             |      |             |      |      
|Revenue          |  | $           | 909  |             | 976   |             | 952  |             | 982  |      
|Operating income |  |             | 86   |             | 164   |             | 126  |             | 139  |      
|Net income       |  |             | 9    |             | 54    |             | 34   |             | 67   |      
|Basic EPS        |  | $           | ..02 |             | ..14  |             | ..09 |             | ..18 |      
|                 |  |             |      |             |       |             |      |             |      |      
|Diluted EPS(1)   |  | $           | .02  |             | .14   |             | .09  |             | .17  |      
|                 |  |             |      |             |       |             |      |             |      |      
|2002             |  |             |      |             |       |             |      |             |      |      
|Revenue          |  | $           | 910  |             | 1,028 |             | 926  |             | 952  |      
|Operating income |  |             | 137  |             | 203   |             | 127  |             | 136  |      
|Net income       |  |             | 34   |             | 76    |             | 48   |             | 40   |      
|Basic EPS        |  | $           | ..09 |             | ..20  |             | ..13 |             | ..11 |      
|                 |  |             |      |             |       |             |      |             |      |      
|Diluted EPS      |  | $           | .09  |             | .20   |             | .13  |             | .11  |      
|                 |  |             |      |             |       |             |      |             |      |      

---

Comparable System-Wide Statistical Information(2)

|Year ended December 31, 2003 |                        | Occupancy |      | Average Rate |        | RevPAR |   
|---------------------------- | ---------------------- | --------- | ---- | ------------ | ------ | ------ | --
|Hilton                       |                        | 67.4      | %    | $            | 125.24 |        | $ 
|                             | Change from prior year |           | (0.6 | ) pts        |        | (1.7   | )%
|Hilton Garden Inn            |                        | 66.3      | %    | $            | 95.03  |        | $ 
|                             | Change from prior year |           | 1.6  | pts          |        | (1.4   | )%
|Doubletree                   |                        | 65.0      | %    | $            | 100.47 |        | $ 
|                             | Change from prior year |           | (1.1 | ) pts        |        | (2.0   | )%
|Embassy Suites               |                        | 69.1      | %    | $            | 118.94 |        | $ 
|                             | Change from prior year |           | 0.2  | pts          |        | (1.6   | )%
|Homewood Suites by Hilton    |                        | 72.5      | %    | $            | 93.95  |        | $ 
|                             | Change from prior year |           |     | pts          |        | (1.0   | )%
|Hampton                      |                        | 66.2      | %    | $            | 78.22  |        | $ 
|                             | Change from prior year |           | (0.6 | ) pts        |        | 0.7    | % 
|Other                        |                        | 57.2      | %    | $            | 127.70 |        | $ 
|                             | Change from prior year |           | (4.1 | ) pts        |        | 2.3    | % 

---

73

---

FIVE YEAR SUMMARY

|                                 |                                        | Year ended December 31,
|-------------------------------- | -------------------------------------- | -----------------------
|
|
|OPERATING DATA                   |                                        |                        
|REVENUE                          |                                        | $                      
|INCOME                           |                                        |                        
|                                 | Income from continuing operations      |                        
|                                 | Cumulative effect of accounting change |                        
|                                 |                                        |                        
|                                 |                                        | Net income             
|                                 |                                        |                        
|BASIC EARNINGS PER SHARE         |                                        |                        
|                                 | Income from continuing operations      |                        
|                                 | Cumulative effect of accounting change |                        
|                                 |                                        |                        
|                                 |                                        | Net income             
|                                 |                                        |                        
|DILUTED EARNINGS PER SHARE       |                                        |                        
|                                 | Income from continuing operations      |                        
|                                 | Cumulative effect of accounting change |                        
|                                 |                                        |                        
|                                 |                                        | Net income             
|                                 |                                        |                        
|CASH DIVIDENDS PER COMMON SHARE  |                                        | $                      
|OTHER INFORMATION                |                                        |                        
|NUMBER OF PROPERTIES AT YEAR END |                                        |                        
|                                 | Owned (1)                              |                        
|                                 | Leased                                 |                        
|                                 | Joint venture                          |                        
|                                 | Managed                                |                        
|                                 | Franchised                             |                        
|                                 | Timeshare                              |                        
|                                 |                                        |                        
|                                 |                                        | Total                  
|                                 |                                        |                        
|AVAILABLE ROOMS AT YEAR END      |                                        |                        
|                                 | Owned (1)                              |                        
|                                 | Leased                                 |                        
|                                 | Joint venture                          |                        
|                                 | Managed                                |                        
|                                 | Franchised                             |                        
|                                 | Timeshare                              |                        
|                                 |                                        |                        
|                                 |                                        | Total                  
|                                 |                                        |                        

---

74

---



Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain
unconsolidated entities. As we do not control these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain
with respect to our consolidated subsidiaries.

As
required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2003, the end of the period
covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance
level.

There
have been no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

PART III

Item 10.    Directors and Executive Officers of the Registrant

Certain of the information respecting executive officers required by this Item is set forth under the caption "Executive Officers of the Company" in
Part I. Other information respecting executive officers, as well as the required information for directors, will be set forth under "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K.

The
Company has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to our officers, employees and directors, including the Company's principal executive
officer, principal financial officer, principal accounting officer and controller or persons performing similar functions. This Code of Ethics is posted on our internet website located at
www.hiltonworldwide.com (click on "Investor Relations", then "Corporate Governance"). See "Additional InformationAvailable Information" under Item 1.

Item 11.    Executive Compensation

The information required by this Item will be set forth under "Executive Compensation," "Compensation Committee Report on Executive CompensationChief
Executive Officer Compensation," "Retirement Plans" and "Change of Control Agreements" in our Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information
incorporated in this Form 10-K.

75

---

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be set forth under "Security Ownership of Certain Beneficial Owners and Executive Officers", "Election of Directors"
and "Equity Compensation Plan Information" in our Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this
Form 10-K.

Item 13.    Certain Relationships and Related Transactions

The information required by this Item will be set forth under "Certain Relationships and Related Transactions" in our Proxy Statement, and reference is expressly
made to the Proxy Statement for the specific information incorporated in this Form 10-K.

Item 14.    Principal Accountant Fees and Services

The information required by this Item will be set forth under "Election of DirectorsAudit Fee Summary" and "Audit Committee
Pre-Approval Policy" in our Proxy Statement, and reference is expressly made to the Proxy Statement for the specific information incorporated in this Form 10-K.

PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K









76

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, as of March 10, 2004.

| |  | HILTON HOTELS CORPORATION(Registrant)
| |  | -------------------------------------
| |  | By:                                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
indicated as of March 10, 2004.

|                                                                                                          |  |                                                   
|--------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|/s/STEPHEN F. BOLLENBACHStephen F. Bollenbach
President, Chief Executive Officer
and Director             |  | /s/BENJAMIN V. LAMBERTBenjamin V. Lambert
Director
|/s/A. STEVEN CROWNA. Steven Crown
Director                                                                |  | /s/DAVID MICHELSDavid Michels
Director            
|/s/PETER M. GEORGEPeter M. George
Director                                                                |  | /s/JOHN H. MYERSJohn H. Myers
Director            
|/s/MATTHEW J. HARTMatthew J. Hart
Executive Vice President and
Chief Financial Officer                    |  | /s/JOHN L. NOTTERJohn L. Notter
Director          
|/s/BARRON HILTONBarron Hilton
Chairman of the Board                                                       |  | /s/DONNA F. TUTTLEDonna F. Tuttle
Director        
|/s/DIETER HUCKESTEINDieter Huckestein
Director                                                            |  | /s/PETER V. UEBERROTHPeter V. Ueberroth
Director  
|/s/ROBERT L. JOHNSONRobert L. Johnson
Director                                                            |  | /s/SAM D. YOUNGSam D. Young
Director              
|/s/ROBERT M. LA FORGIARobert M. La Forgia
Senior Vice President and Controller
(Chief Accounting Officer) |  |                                                   

77

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INDEX TO EXHIBITS

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger, dated as of June 30, 1998, among Registrant, Park Place Entertainment Corporation ("Park Place"), Gaming Acquisition Corporation, GCI Lakes, Inc. and Grand Casinos, Inc. (incorporated herein
by reference from Exhibit 2.1 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1998)            
|2.2            |  | Agreement and Plan of Merger, dated as of September 3, 1999, as amended, among Registrant, Promus Hotel Corporation and Chicago Hilton, Inc. (incorporated herein by reference from Appendix A to Registrant's Registration Statement on Form S-4 (File
No. 333-89437))                                                                                 
|3.1            |  | Restated Certificate of Incorporation of Registrant, as amended (incorporated herein by reference from Exhibit 4.1 to Registrant's Registration Statement on Form S-3 (File No. 333-18523))                                                                                                                                                             
|3.2            |  | Amendment to Restated Certificate of Incorporation of Registrant, relating to Exhibit 3.1 hereto (incorporated herein by reference from Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997)                                                                                                                   
|3.3            |  | Amendment to Restated Certificate of Incorporation of Registrant, relating to Exhibits 3.1 and 3.2 hereto (incorporated herein by reference from Appendix F to Registrant's Registration Statement on Form S-4 (File No. 333-89437))                                                                                                                    
|3.4            |  | By Laws of Registrant, as amended (incorporated herein by reference from Exhibit 4.2 to Registrant's Registration Statement on Form S-3 (File No. 333-18523))                                                                                                                                                                                           
|3.5            |  | Amendment to By Laws of Registrant, relating to Exhibit 3.4 hereto (incorporated herein by reference from Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998)                                                                                                                                                  
|3.6            |  | Amendment to By Laws of Registrant, relating to Exhibits 3.4 and 3.5 hereto (incorporated herein by reference from Appendix G to Registrant's Registration Statement on Form S-4 (File No. 333-89437))                                                                                                                                                  
|3.7            |  | Amendment to By Laws of Registrant, relating to Exhibits 3.4, 3.5 and 3.6 hereto (incorporated herein by reference from Exhibit 3.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)                                                                                                                                    
|4.1            |  | Indenture, dated as of July 1, 1988, between Registrant and Morgan Guaranty Trust Company of New York, as Trustee, regarding Registrant's Senior Debt Securities (incorporated herein by reference from Exhibit 4.1 to Post Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-3 (File No. 299967))                             
|4.2            |  | First Supplemental Indenture, dated as of June 30, 1992, between Registrant and Morgan Guaranty Trust Company of New York, as Trustee, regarding Registrant's Senior Debt Securities, relating to Exhibit 4.1 hereto (incorporated herein by reference
from Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992)
|4.3            |  | Indenture, dated as of April 22, 2003, between Registrant and BNY Western Trust Company, as Trustee, regarding Registrant's 3.375% Convertible Senior Notes due 2023, including the form of Note thereof (incorporated herein by reference from Exhibit
4.1 to Registrant's Registration Statement on Form S-3 (File No. 333-107159))                   
|               |  |                                                                                                                                                                                                                                                                                                                                                         

78

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|4.4.1  |  | Indenture, dated as of April 15, 1997, between Registrant and BNY Western Trust Company, as Trustee, regarding Registrant's Debt Securities (incorporated herein by reference from Exhibit 4.3 to Registrant's Current Report on Form 8-K, dated April 15,
1997)                                                                                                                                                                            
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4.2  |  | First Supplemental Indenture, dated as of December 31, 1998, among Registrant, Park Place and BNY Western Trust Company, as Trustee, regarding Registrant's Debt Securities, relating to Exhibit 4.4.1 hereto (incorporated herein by reference from
Exhibit 4.1 to Registrant's Current Report on Form 8-K, dated January 8, 1999)                                                                                                         
|4.4.3  |  | Officers' Certificate containing terms of 7.95% Senior Notes due 2007 (incorporated herein by reference from Exhibit 99 to Registrant's Current Report on Form 8-K, dated April 15, 1997)                                                                                                                                                                                                                                                   
|4.4.4  |  | Officers' Certificate containing terms of 7% Senior Notes due 2004 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated July 17, 1997)                                                                                                                                                                                                                                                    
|4.4.5  |  | Officers' Certificate containing terms of 7.20% Senior Notes due 2009 and 7.5% Senior Notes due 2017 (incorporated herein by reference from Exhibit 4.1 to Registrant's Current Report on Form 8-K, dated December 17, 1997)                                                                                                                                                                                                                
|4.4.6  |  | Officers' Certificate containing terms of 8.25% Senior Notes due 2011 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated February 12, 2001)                                                                                                                                                                                                                                             
|4.4.7  |  | Officers' Certificate containing terms of 7.625% Senior Notes due 2008 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated May 10, 2001)                                                                                                                                                                                                                                                 
|4.4.8  |  | Officers' Certificate containing terms of 8% Quarterly Interest Bonds due 2031 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated August 16, 2001)                                                                                                                                                                                                                                      
|4.4.9  |  | Officers' Certificate containing terms of 7.43% Chilean Inflation Indexed (UF) Notes due 2009 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated August 29, 2001)                                                                                                                                                                                                                       
|4.4.10 |  | Officers' Certificate containing terms of 7.625% Senior Notes due 2012 (incorporated herein by reference from Exhibit 99.01 to Registrant's Current Report on Form 8-K, dated November 21, 2002)                                                                                                                                                                                                                                            
|4.5    |  | Five Year Credit Agreement, dated as of August 29, 2003, among Registrant, Bank of America, N.A., as Administrative Agent, and the financial institutions signatory thereto (incorporated herein by reference from Exhibit 4.1 to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 2003)                                                                                                                       
|4.6    |  | Loan Agreement, dated as of September 27, 2000, among Phoenix SP Hilton LLC, S.F. Hilton, Inc., Chicago Hilton LLC, Short Hills Hilton LLC and McLean Hilton LLC, as Borrowers, and Secore Financial Corporation, as Lender (incorporated herein by
reference from Exhibit 99.01 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2000)                                                                     
|4.7    |  | First Amendment to Loan Agreement, dated as of October 30, 2000, among Phoenix SP Hilton LLC, S.F. Hilton, Inc., Chicago Hilton LLC, Short Hills Hilton LLC and McLean Hilton LLC, as Borrowers, and Morgan Stanley Dean Witter Mortgage Capital Inc., as
Lender, relating to Exhibit 4.6 hereto (incorporated herein by reference from Exhibit 99.02 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2000)
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             

79

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|4.8  |  | Rights Agreement, dated as of November 29, 1999, between Registrant and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (incorporated herein by reference from Exhibit 1 to Registrant's Registration Statement on Form 8-A, dated
December 1, 1999)                                                            
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9  |  | Amendment to Rights Agreement Changing Rights Agent, dated as of February 15, 2001, between Registrant and The Bank of New York, as Rights Agent, relating to Exhibit 4.8 hereto (incorporated herein by reference from Exhibit 4.22 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2000)     
|4.10 |  | Registration Rights Agreement, dated April 22, 2003, between Registrant, UBS Warburg LLC and Deutsche Bank Securities Inc., relating to Registrant's 3.375% Convertible Senior Notes due 2023 (incorporated herein by reference from Exhibit 4.3 to
Registrant's Registration Statement on Form S-3 (File No. 333-107159))
|10.1 |  | 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option Agreement relating thereto, both as amended (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989)*                                      
|10.2 |  | Amendment, dated October 18, 1990, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibit 10.1 hereto (incorporated herein by reference from Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990)*                                       
|10.3 |  | Amendment, dated November 14, 1996, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.1 and 10.2 hereto (incorporated herein by reference from Exhibit 10.3 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996)*                            
|10.4 |  | Third Amendment, dated as of December 31, 1998, to the 1984 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.1, 10.2 and 10.3 hereto (incorporated herein by reference from Exhibit 99.8 to Registrant's Current
Report on Form 8-K, dated January 8, 1999)*                        
|10.5 |  | 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, together with the Stock Option Agreement relating thereto, both as amended (incorporated herein by reference from Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990)*                                      
|10.6 |  | Amendment, dated January 20, 1994, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibit 10.5 hereto (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993)*                                       
|10.7 |  | Amendment, dated January 19, 1995, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5 and 10.6 hereto (incorporated herein by reference from Exhibit 10.5 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994)*                             
|10.8 |  | Amendment, dated November 14, 1996, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5, 10.6 and 10.7 hereto (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996)*                      
|     |  |                                                                                                                                                                                                                                                                                                                           

80

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|10.9  |  | Fourth Amendment, dated as of December 31, 1998, to the 1990 Stock Option and Stock Appreciation Rights Plan of Registrant, relating to Exhibits 10.5 through 10.8 hereto (incorporated herein by reference from Exhibit 99.9 to Registrant's Current
Report on Form 8-K, dated January 8, 1999)*          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 |  | Amended and Restated 1996 Stock Incentive Plan of Registrant (incorporated herein by reference from Exhibit 4.1 to Registrant's Post Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-04273))*                                                                                
|10.11 |  | Amendment, dated as of November 14, 2001, to the Amended and Restated 1996 Stock Incentive Plan of Registrant, relating to Exhibit 10.10 hereto (incorporated herein by reference from Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 2001)*                     
|10.12 |  | 1996 Chief Executive Stock Incentive Plan of Registrant (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995)*                                                                                                              
|10.13 |  | First Amendment, dated as of December 31, 1998, to the Chief Executive Stock Incentive Plan of Registrant, relating to Exhibit 10.12 hereto (incorporated herein by reference from Exhibit 99.10 to Registrant's Current Report on Form 8-K, dated January
8, 1999)*                                       
|10.14 |  | 1997 Independent Director Stock Option Plan of Registrant (incorporated herein by reference from Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)*                                                                                                           
|10.15 |  | First Amendment, dated as of December 31, 1998, to the 1997 Independent Director Stock Option Plan of Registrant, relating to Exhibit 10.14 hereto (incorporated herein by reference from Exhibit 99.11 to Registrant's Current Report on Form 8-K, dated
January 8, 1999)*                                
|10.16 |  | Second Amendment, dated as of November 11, 1999, to the 1997 Independent Director Stock Option Plan of Registrant, relating to Exhibits 10.14 and 10.15 hereto (incorporated herein by reference from Exhibit 10.15 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1999)*      
|10.17 |  | Third Amendment, dated as of November 14, 2001, to the 1997 Independent Director Stock Option Plan of Registrant, relating to Exhibits 10.14, 10.15 and 10.16 hereto (incorporated herein by reference from Exhibit 10.17 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2001)*
|10.18 |  | Directors' Stock and Deferred Retainer Plan of Registrant (incorporated herein by reference from Exhibit 99.1 to Registrant's Registration Statement on Form S-8 (File No. 333-72906))*                                                                                                                    
|10.19 |  | Incentive Compensation Plan of Registrant (incorporated herein by reference from Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1980)*                                                                                                                            
|10.20 |  | Retirement Plan of Registrant, as amended and restated (incorporated herein by reference from Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)*                                                                                                              
|10.21 |  | Amendment 2002-1 to the Retirement Plan of Registrant, relating to Exhibit 10.20 hereto (incorporated herein by reference from Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)*                                                                             
|10.22 |  | Amendment 2002-2 to the Retirement Plan of Registrant, relating to Exhibits 10.20 and 10.21 hereto (incorporated herein by reference from Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)*                                                                  
|      |  |                                                                                                                                                                                                                                                                                                            

81

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|10.23 |  | Amendment 2002-3 to the Retirement Plan of Registrant, relating to Exhibits 10.20, 10.21 and 10.22 hereto (incorporated herein by reference from Exhibit 10.23 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)
*                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | Supplemental Executive Retirement Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)*                                                                                                 
|10.25 |  | Amendment, effective April 1, 1994, to the Supplemental Executive Retirement Plan of Registrant, relating to Exhibit 10.24 hereto (incorporated herein by reference from Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994)*                               
|10.26 |  | Amendment, effective December 31, 1996, to the Supplemental Executive Retirement Plan of Registrant, relating to Exhibits 10.24 and 10.25 hereto (incorporated herein by reference from Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996)*                
|10.27 |  | Doubletree Hotels Corporation Supplemental Executive Retirement Plan, dated as of February 15, 1997, as amended by letter dated December 9, 1997 (incorporated herein by reference from Exhibit 10.29 to the Promus Hotel Corporation Annual Report on
Form 10-K for the year ended December 31, 1998)*
|10.28 |  | Directors' Retirement Benefit Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991)*                                                                                                     
|10.29 |  | First Amendment, dated July 31, 1997, to the Directors' Retirement Benefit Plan of Registrant, relating to Exhibit 10.28 hereto (incorporated herein by reference from Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997)*                                 
|10.30 |  | Retirement Benefit Replacement Plan of Registrant, as amended (incorporated herein by reference from Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992)*                                                                                                    
|10.31 |  | Amendment, dated as of January 1, 1994, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibit 10.30 hereto (incorporated herein by reference from Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993)*                              
|10.32 |  | Amendment, effective April 1, 1994, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibits 10.30 and 10.31 hereto (incorporated herein by reference from Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994)*                       
|10.33 |  | Amendment, effective December 31, 1996, to the Retirement Benefit Replacement Plan of Registrant, relating to Exhibits 10.30, 10.31 and 10.32 hereto (incorporated herein by reference from Exhibit 10.24 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996)*            
|10.34 |  | 401(k) Savings Plan of Registrant, as amended and restated effective January 1, 2001 (incorporated herein by reference from Exhibit 99.01 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2001)*                                                                           
|10.35 |  | Amendment 2001-1 to the 401(k) Savings Plan of Registrant, relating to Exhibit 10.34 hereto (incorporated herein by reference from Exhibit 10.38 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)*                                                                     
|      |  |                                                                                                                                                                                                                                                                                                        

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|10.36 |  | Amendment 2002-1 to the 401(k) Savings Plan of Registrant, relating to Exhibits 10.34 and 10.35 hereto (incorporated herein by reference from Exhibit 10.37 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002)*                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.37 |  | Amendment 2002-2 to the 401(k) Savings Plan of Registrant, relating to Exhibits 10.34, 10.35 and 10.36 hereto (incorporated herein by reference from Exhibit 10.38 to Registrant's Annual Report on Form 10-K for the year ended December 31,
2002)*                                                      
|10.38 |  | Executive Deferred Compensation Plan of Registrant, as amended and restated effective January 1, 2000 (incorporated herein by reference from Exhibit 10.39 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999)*                                                              
|10.39 |  | Amendment 2001-1 to the Executive Deferred Compensation Plan of Registrant, relating to Exhibit 10.38 hereto (incorporated herein by reference from Exhibit 10.40 to Registrant's Annual Report on Form 10-K for the year ended December 31,
2001)*                                                       
|10.40 |  | Amendment 2001-2 to the Executive Deferred Compensation Plan of Registrant, relating to Exhibits 10.38 and 10.39 hereto (incorporated herein by reference from Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the year ended December 31,
2001)*                                            
|10.41 |  | Amendment 2002-1 to the Executive Deferred Compensation Plan of Registrant, relating to Exhibits 10.38, 10.39 and 10.40 hereto (incorporated herein by reference from Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 2002)*                                
|10.42 |  | Supplemental Retirement and Retention Plan of Registrant, dated as of June 1, 2000 (incorporated herein by reference from Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000)*                                                                                 
|10.43 |  | First Amendment to the Supplemental Retirement and Retention Plan of Registrant, relating to Exhibit 10.42 hereto (incorporated herein by reference from Exhibit 10.46 to Registrant's Annual Report on Form 10-K for the year ended December 31,
2001)*                                                  
|10.44 |  | Form of Change of Control Agreement between Registrant and each of Matthew J. Hart, Dieter Huckestein, Thomas L. Keltner and Madeleine A. Kleiner (incorporated herein by reference from Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999)*                  
|10.45 |  | First Amendment to form of Change of Control Agreement, relating to Exhibit 10.44 hereto (incorporated herein by reference from Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)*                                                                           
|10.46 |  | Employment Agreement, dated as of March 9, 2000, between Registrant and Stephen F. Bollenbach (incorporated herein by reference from Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1999)*                                                                      
|10.47 |  | First Amendment, dated as of November 14, 2001, to Employment Agreement between Registrant and Stephen F. Bollenbach, relating to Exhibit 10.46 hereto (incorporated herein by reference from Exhibit 10.50 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 2001)*             
|10.48 |  | Letter Agreement, dated as of May 23, 2002, amending Employment Agreement between Registrant and Stephen F. Bollenbach, relating to Exhibits 10.46 and 10.47 hereto (incorporated herein by reference from Exhibit 10.52 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2002)*
|      |  |                                                                                                                                                                                                                                                                                                           

83

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|10.49 |  | Agreement, dated as of September 10, 2003, between Registrant and Stephen F. Bollenbach (incorporated herein by reference from Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30,
2003)*                                
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.50 |  | Distribution Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.1 to Registrant's Current Report on Form 8-K, dated January 8, 1999)                                                    
|10.51 |  | Debt Assumption Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.2 to Registrant's Current Report on Form 8-K, dated January 8, 1999)                                                 
|10.52 |  | Assignment and License Agreement, dated as of December 31, 1998, between Registrant, Conrad International Royalty Corporation and Park Place (incorporated herein by reference from Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated January
8, 1999)
|10.53 |  | Employee Benefits and Other Employment Matters Allocation Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.6 to Registrant's Current Report on Form 8-K, dated January 8,
1999)       
|10.54 |  | Tax Allocation and Indemnity Agreement, dated as of December 31, 1998, between Registrant and Park Place (incorporated herein by reference from Exhibit 99.7 to Registrant's Current Report on Form 8-K, dated January 8, 1999)                                    
|11    |  | Computation of Earnings Per Share                                                                                                                                                                                                                                  
|12    |  | Computation of Ratios of Earnings to Fixed Charges                                                                                                                                                                                                                 
|21    |  | List of Registrant's Subsidiaries                                                                                                                                                                                                                                  
|23    |  | Consent of Independent Auditors                                                                                                                                                                                                                                    
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                 
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                 
|32.1  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                 
|32.2  |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                 
|99    |  | Undertakings                                                                                                                                                                                                                                                       

---

Pursuant
to Regulation §229.601, Item 601(b)(4)(iii) of Regulation S-K, upon request of the Securities and Exchange Commission, the Registrant
hereby undertakes to furnish a copy of any unfiled instrument which defines the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries (and for any of its
unconsolidated subsidiaries for which financial statements are required to be filed) wherein the total amount of securities authorized thereunder does not exceed 10% of the total consolidated assets
of the Registrant.

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