Analysis Of Hiltlon's Annual Report

1. Introduction

1.1 History of Hilton Hotels Corporation

Hilton Hotel Corporation was created by Conrad Hilton who purchased his first hotel in Cisco, Texas in 1919. The first hotel which carried Hiltons name was opened in Dallas in 1925. In 1943 Hilton hotels became the first coast-to-coast chain of hotel in America, which was placed on the emphasis on the service of business customers. Then Hilton became the richest man in the world. In 1949 he opened his first hotel outside of the USA in Puerto Rico. Conrad Hilton died in 1979 and his son Barron Hilton followed and by the year 2000 Hilton Hotel Corporation had nearly 500 hotels around the world. Hilton Hotels Corporation is engaged in the ownership, management and development of hotels, timeshare properties and the franchising of lodging properties.

2. Sources of impact on performance

2.1 Economic weakness

Hilton has its main activities in the USA and Canada. The recent economic downturn in the USA had several impacts on Hilton because the company's activity is around this region. This economic weakness in the USA led to cost cutting activities by a lot of business companies. Because this reduction of business travel activities occurred, less hotel stays and pressure on pricing of room rates resulted. Especially metropolitan and airport properties were infected. The danger of terrorist attacks in the USA led to a latent fear of traveling by airplane. In 2003 SARS disease was active in Toronto. In addition these two facts had a general impact on the reduction of traveling activities.

2.2 Expansion of brand

In 2003 the aim of Hilton was to increase the number of franchised hotels and rooms. The company could raise the number of 87 hotels and 11'438 rooms. Franchisers have to pay an initial and a continuing fee based on room revenue. The development pipeline contains 52'000 hotel rooms in USA (more than any other company). Hilton is expecting a further increase of this segment of business.

2.3 Occupancy and costumer service

Despite of the sluggish demand from business travelers and groups there was a strength in leisure travel which enabled Hilton to maintain a solid occupancy (en 2003: - 0.6 % to 70.4 %). The result was a shift from high-rated group and business travelers to more price sensitive leisure costumers. There was an enhancement of a costumer service tool and an implementation of a new online distribution strategy with pricing integrity. In 2003 there was an increasing demand of internet booking (10% up to 13 % in 2003). 85 % comes in through own branded websites; 15 % come from agencies.

2.4 Transactions and costs

In 2003 Hilton sold some fully owned hotels to CNL Hospitality Corp. as a joint venture. The net cash flow of this transaction was used to reduce the long term debts to US $ 3'801 million. As a result of low interest rates lower outstanding mortgages and loans were renewed at fixed rates and net paid interests declined. Costs increased by 3 %, especially expenses for healthcare, insurance and property taxes rose to US $ 21 million.

Salaries and wages as the largest component of cost rose by 2 %.

3. Facts and figures

3.1 Profit and loss accounts

This table is an essential information about the segmented results on page 69 of Form 10-K. The expenses and depreciation can be found on page 42 of Form 10-K. (See reference list) It shows especially how the revenues and the net income of the three very important segments performed in the last three years.

Consolidated statements of income($) 2001 2002 2003

Revenue

Hotel Ownership 2'347 2'239 2'167

Managing and Franchising 1'285 1'281 1'307

Timeshare 320 296 345

Total revenue 3'952 3'816 3'819

Less expenses and depreciation

Expenses (without interests) 2'929 2'844 2'948

Depreciation 391 369 356

Total expenses and depreciation 3'320 3'213 3'304

Operating income

Hotel Ownership 470 412 343

Managing