SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
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For the Year Ended December 31, 2006 |
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Commission file number 1-11463 |
HILTON HOTELS 401(k) SAVINGS PLAN
(Full title of the plan)
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
(Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office)
36-2058176
(I.R.S. Employer Identification No.)
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Hilton Hotels 401(k) Savings Plan
Year ended December 31, 2006
with Report of Independent Registered Public Accounting Firm
Hilton Hotels 401(k) Savings Plan
Financial Statements and Supplemental Schedules
Year ended December 31, 2006
Contents
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Financial Statements |
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Supplemental Schedules |
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Schedule H, Line 4a – Schedule of Delinquent Participant Contributions |
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Schedule H, Line 4i – Schedule of Assets (Held at End of Year) |
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Report of Independent Registered Public Accounting Firm
The Administrative
Committee and Participants
Hilton Hotels 401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits of Hilton Hotels 401(k) Savings Plan as of December 31, 2006 and 2005, and the related statement of changes in net assets available for benefits for the year ended December 31, 2006. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 net assets available for benefits of the Plan at December 31, 2006 and 2005, and the changes in its net assets available for benefits for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets (held at end of year) as of December 31, 2006 and delinquent participant contributions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
June 25, 2007
Los Angeles, California
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Hilton Hotels 401(k) Savings Plan
Statements of Net Assets Available for Benefits
(in thousands)
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December 31 |
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2006 |
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2005 |
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Assets |
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Investments, at fair value |
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$ |
663,206 |
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$ |
581,087 |
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Non-interest bearing cash |
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2,044 |
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1,544 |
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Receivables: |
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Participant contributions |
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7 |
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21 |
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Employer contributions |
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5 |
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13 |
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Due from broker for securities sold |
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1,067 |
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120 |
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Total receivables |
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1,079 |
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154 |
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Total assets |
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666,329 |
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582,785 |
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Liabilities |
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Due to broker for securities purchased |
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2,861 |
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1,715 |
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Total liabilities |
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2,861 |
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1,715 |
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Net assets available for benefits |
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$ |
663,468 |
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$ |
581,070 |
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See accompanying notes.
2
Hilton Hotels 401(k) Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2006
(in thousands)
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Additions: |
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Contributions: |
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Participant contributions |
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$ |
49,989 |
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Employer contributions |
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25,643 |
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Rollover contributions |
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5,034 |
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Total contributions |
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80,666 |
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Investment income: |
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Interest and dividends |
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19,475 |
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Net appreciation in fair value of investments |
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45,205 |
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Total additions |
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145,346 |
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Deductions: |
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Benefits paid to participants |
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61,901 |
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Administrative expenses |
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1,047 |
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Total deductions |
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62,948 |
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Net increase |
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82,398 |
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Net assets available for benefits, beginning of year |
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581,070 |
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Net assets available for benefits, end of year |
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$ |
663,468 |
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See accompanying notes.
3
Hilton Hotels 401(k) Savings Plan
December 31, 2006
1. Plan Description
The following description of the Hilton Hotels 401(k) Savings Plan (the Plan), formerly the Hilton Hotels Thrift Savings Plan, provides only general information. Participants should refer to the plan document for a complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering eligible employees of Hilton Hotels Corporation (the Company and Plan Sponsor) and affiliated companies that have adopted the Plan and have been approved by the Company’s Board of Directors as being eligible for participation. The Hilton Hotels Thrift Savings Plan was established effective January 1, 1979, and was subsequently restated on November 6, 1996. Effective January 1, 2001, the Hilton Hotels Thrift Savings Plan was amended and the name of the Plan was changed to the Hilton Hotels 401(k) Savings Plan. The Company and participating affiliated companies are herein collectively referred to as “Hilton.” The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
Although the Company expects to continue the Plan indefinitely, the Company has the right under the Plan to discontinue the Plan, subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. The Board of Directors of the Company reserves the right to amend all or any part of the Plan at any time.
The Plan is administered by a committee (the Plan Administrator) appointed by the Company’s Board of Directors. Wachovia Trust Company acts as trustee and record-keeper.
Participation in the Plan is voluntary. Each employee of Hilton who is not covered by a collective bargaining agreement (unless such agreement provides for participation) is eligible to participate in the Plan. Effective January 1, 2005, the Plan was amended to change the eligibility requirements for employees to 90 consecutive days of Eligibility Service, as defined in the plan document.
Contributions
Participants may contribute from 1% to 50% of their compensation on a pretax basis each year. The Company contributes an amount equal to 100% of the first 3% plus 50% of the next 2% of a participant’s compensation that is contributed.
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The Plan was amended effective January 1, 2002, such that the maximum Matching Company Contributions, as defined in the plan document, made on behalf of any participant during a plan year shall not exceed the annual limitation contained in the Internal Revenue Code (the Code) Section 402(g)(5).
Each participant may contribute to the Plan any amount which is attributable to a distribution from another qualified plan if such distribution meets the requirements for a tax-free rollover. Contributions are subject to certain limitations of the Code.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, the Company’s contributions and a daily allocation of plan earnings, based on the participant’s share in the income, gains or losses of the investment funds in which assets are invested.
Vesting
Effective January 1, 2001, participants are immediately vested in both their contributions and in the Company’s Matching Contributions, plus actual earnings thereon.
Investment Options
Participants may direct their employee and employer contributions in 1% increments with certain limitations in one of, or a combination of, the various investment options provided in the Plan. Effective January 1, 2005, the Plan Administrator implemented policies and procedures to limit or preclude excessive or abusive trading practices.
Participant Loans
Each participant may borrow from his account a minimum of $1,000 up to a maximum of the lesser of $50,000 reduced by the outstanding balance of other loans, or 50% of the value of the vested balance. Loan transactions are treated as transfers to or from the account from which they are made. Loan terms range up to 5 years, unless the loan is used for the purchase of a primary residence, in which case the loan term is up to 15 years. Each loan is secured by the balance in the participant’s account. Loans bear interest at a fixed rate equal to the prime rate on
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the last day of the month preceding the month in which the loan is made. As of December 31, 2006, interest rates on outstanding loans ranged from 4% to 10.5%. Principal and interest are payable in equal installments over the loan term.
Withdrawals
If a participant has a financial hardship, as defined in the plan document, the participant may be eligible to take a hardship withdrawal from his account. In addition, a participant may withdraw amounts from his after-tax contributions and rollover contributions at any time for any reason subject to applicable taxes.
Payment of Benefits
On termination of service, including termination due to death, disability or retirement, a participant or his beneficiary generally receives the value of the participant’s vested interest in their account in one lump-sum distribution. Effective March 28, 2005, if a participant’s account exceeds $1,000, the participant’s written request for distribution must be obtained prior to distribution.
Forfeitures
Forfeitures pertaining to nonvested balances of participants who terminated prior to January 1, 2001, employer match refunds and stale checks may be used to pay expenses and fees in connection with the administration of the Plan or may be used to reduce employer matching contributions. Forfeitures totaled approximately $253,000 and $391,000 at December 31, 2006 and 2005, respectively. During the year ended December 31, 2006, plan expenses and fees were reduced by approximately $338,000 from forfeited amounts.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting.
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Use of Estimate
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Investments in mutual funds and common stock are stated at fair value based on quoted market prices. Interest and non-interest bearing cash and participant loans are valued at cost, which approximates fair value. Investments in common trust funds are stated at estimated fair values, which have been determined based on the unit value of the funds.
The Hilton Hotels Corporation Stock Fund (the Fund) is tracked on a unitized basis. The Fund consists of Hilton common stock and cash sufficient to meet the Fund’s daily cash needs. Unitizing the Fund allows for daily trades. The value of a unit reflects the combined value of the Hilton common stock and cash held by the Fund.
Purchases and sales of investments are recorded on the trade date. Dividends are recorded on the ex-dividend date. Interest income is recorded on the accrual basis.
Net Appreciation (Depreciation) in Fair Value of Investments
All realized and unrealized appreciation (depreciation) in the fair value of investments is shown in the accompanying Statement of Changes in Net Assets Available for Benefits as net appreciation in fair value of investments.
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Risks and Uncertainties
The Plan provides for various investment options in investment securities. Investment securities are exposed to various risks such as interest rate risk, market risk and credit risk. The Plan’s exposure to credit loss in the event of nonperformance of investments is limited to the carrying value of such instruments. The Plan’s concentration of credit risk and market risk is dictated by the Plan’s provisions as well as those of ERISA and the participants’ investment preference.
Payment of Benefits
Benefits are recorded when paid.
New Accounting Pronouncement
In December 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP) which is effective for financial statements for annual periods ending after December 15, 2006. The SEI Trust Company Stable Asset Fund held by the Plan holds guaranteed investment contracts which are subject to the FSP. Adoption of the FSP had an immaterial impact on the financial statements as the contract values approximate estimated fair values.
3. Tax Status of the Plan
The Plan has received a determination letter from the Internal Revenue Service dated April 11, 2002, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this issuance of the determination letter, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Sponsor has indicated that it will take the necessary steps, if any, to bring the Plan’s operations into compliance with the Code.
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4. Investments
The following table presents the fair value of investments that represent 5% or more of the Plan’s net assets as of December 31, 2006 and 2005 (in thousands):
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2006 |
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2005 |
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Investments at fair value: |
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Mutual funds: |
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Fidelity Investments Growth Company Fund |
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$ |
109,689 |
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$ |
98,347 |
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American Funds Balanced Fund |
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104,680 |
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91,795 |
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GE Institutional S&P 500 Index Fund |
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102,396 |
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88,041 |
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Neuberger Berman Genesis Institutional Fund |
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47,263 |
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45,351 |
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Templeton Foreign Fund |
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47,897 |
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32,045 |
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PIMCO Total Return Fund |
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41,759 |
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41,023 |
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Common trust fund: |
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SEI Trust Company Stable Asset Fund |
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124,736 |
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114,254 |
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During the year ended December 31, 2006, the Plan’s investments (including investments bought, sold and held during the year) appreciated in value as follows (in thousands):
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Mutual funds |
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$ |
33,515 |
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Common trust fund |
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5,016 |
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Common stock |
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6,674 |
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$ |
45,205 |
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5. Party-In-Interest Transactions
Certain Plan investments are managed by the trustee or are shares of stock of Hilton; therefore, these transactions qualify as party-in-interest transactions for which a statutory exemption exists.
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Supplemental Schedules
Hilton Hotels 401(k) Savings Plan
Schedule H, Line 4a – Schedule of Delinquent Participant Contributions
EIN: 36-2058176 Plan: 101
Year ended December 31, 2006
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Participant Contributions |
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Total that Constitutes |
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$ 14,852 |
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$ 14,852 |
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Hilton Hotels 401(k) Savings Plan
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
EIN: 36-2058176 Plan: 101
December 31, 2006
(In thousands, except for share and unit information)
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Identity of Issue |
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Description of Investment, including |
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Current |
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Hilton Common Stock Fund: |
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*Hilton Hotels Corporation |
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Common Stock, 874,533 shares |
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$ |
21,244 |
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*Wachovia Bank, N.A. |
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Money Market |
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439 |
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*Participant loans |
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Interest rates ranging from 4% to 10.5% |
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28,112 |
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Mutual Funds: |
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Fidelity Investments |
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Growth Company Fund, 1,573,510.33 shares |
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109,689 |
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American Funds |
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Balanced Fund, 5,503,703.54 shares |
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104,680 |
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GE Institutional |
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S&P 500 Index Fund Institutional Class,7,601,785.29 shares |
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102,396 |
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Neuberger Berman |
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Genesis Institutional Fund, 1,033,758 shares |
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47,263 |
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Templeton |
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Foreign Fund, 3,524,418.91 shares |
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47,897 |
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PIMCO |
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Total Return Fund, 2,960,680.54 units |
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41,759 |
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GE Institutional |
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U.S. Equity Fund Service Class, 2,478,744.36 shares |
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32,893 |
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Various |
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Self Managed Account |
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2,098 |
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Common Trust Fund: |
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SEI Trust Company |
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Stable Asset Fund, 10,258,716.34 units |
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124,736 |
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Total investments |
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$ |
663,206 |
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*Represents a party-in-interest as defined by ERISA.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
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HILTON HOTELS 401(k) SAVINGS PLAN |
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DATED: June 25, 2007 |
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By |
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/s/ PATRICIA MCCANN |
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PATRICIA MCCANN |
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