HILTON HOTELS CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Financial Statements.
(1) BASIS OF CONSOLIDATION
The consolidated statements include all divisions and subsidiaries
(all wholly-owned) of Hilton Hotels Corporation (the Company)
and a majority interest of the Company in an affiliated partnership
with the exception that the subsidiary, Hilton Hotels International,
Inc. (International) excludes from its consolidation certain foreign
divisions and subsidiaries due either to unstable political situations
or to currency restrictions or both. These latter operations are
carried as investments and income therefrom is included in consolidation when received in the United States.
Investments in and advances to non-consolidated foreign divisions and subsidiaries of International at December 31, 1962
aggregated $1,087,141., whereas that Company's equity in the net
assets of such divisions and subsidiaries was $1,517,758.
Consolidated earned surplus at December 31, 1962 included
$10,363,279., representing the combined undistributed net earnings
of consolidated subsidiaries.
Notes received in connection with sales of various properties since
1952 were secured by either first, second, real estate leasehold or
chattel mortgages. These notes require various periodic payments
and their maturities range from September 30, 1963 to July 1, 1976.
Required payments receivable for the next five years approximate
$916,402., 1963; $279,221., 1964; $400,099., 1965; $1,640,374.,
1966; and $142,563., 1967.
The profit on those sales that qualify as installment sales under
Treasury regulations has been deferred and there will be taken into
income that portion of the profits as applies to payments on the
installment sales contracts in the year in which such payments are
received. At December 31, 1962, $3,068,209., of such profit was
deferred, and accordingly, during the next five years as the aforementioned payments are received, there will be included in income
(taxable at the then effective long-term capital gains rate) the
following: $777,672., 1963; $138,872., 1964; $226,561., 1965;
$994,254., 1966; and $47,201., 1967.
Investments and advances of the Company and its wholly-owned
subsidiary Hilton Hotels International, Inc., in 50% owned companies aggregated $8,803,014., while the equity in the net assets of
such companies amounted to $8,421,579.
(3) FIXED ASSETS
A major portion of these assets are pledged to secure mortgages or
other long-term debt of the consolidated companies. Fixed assets
were carried at cost or were carried over from predecessor companies together with related depreciation reserves at predecessors'
basis. Additions to such assets were carried at cost.
The investment in Statler Hotels Delaware Corporation, which
was merged with the Company as at August 1, 1962, was acquired
at $10,851,157.19 more than the book value of the equity thus
acquired. This excess was treated as additional cost of fixed
assets, and, the total cost of fixed assets thus acquired was allocated
to the various Statler Hilton properties.
Depreciation of fixed assets has been computed on the basis of the
straight-line method for accounting purposes. For income tax
purposes, the Company has elected to compute depreciation on the
sum-of-the-digits method with respect to certain additions to fixed
assets. Accordingly, the Company has included in the provision for
income taxes and in the balance sheet an amount equal to the
Federal income tax benefit from the use of this method of accelerated depreciation.
<4) FEDERAL TAXES ON INCOME
Federal income tax returns of the Company subsequent to 1957
and returns of subsidiaries and predecessor companies for 1954 and
subsequent years are either under or subject to examination by the
Internal Revenue Service.
(5) LONG-TERM DEBT
A trust indenture securing the AlA% fifteen-year convertible debentures of the Company (conversion privileges expired January 2,
1958), maturing January 1, 1970 requires annual sinking fund payments on January 15th of each year in an amount sufficient to
redeem at the principal amount without premium, 3% for each of
the years through 1962 and 4% for each of the years thereafter.
The Company has complied with this provision.
The Company's 6% subordinated debentures maturing October
15, 1984 are entitled to the benefit of an annual sinking fund commencing October 15, 1965. The Company is obligated to pay into
the sinking fund on or before October 15th in each year from 1965
to 1969 a sum equal to 2% of the largest principal amount of
debentures outstanding on or prior to August 31, 1965, and thereafter annually, an amount equal to 1/15th of the principal amount
of debentures outstanding on October 15, 1969 after giving effect to
redemptions out of the sinking fund payment made for that date.
The 4% twenty-five year sinking fund debentures maturing
July 1, 1983 are entitled to the benefits of an annual sinking fund,
beginning July 1, 1962, in an amount sufficient to redeem, at their
principal amount, without premium, 2% of the highest principal
amount at any time outstanding. The company has complied
with this provision.
The annual sinking fund and maturity requirements on total
long-term debt for each of the next five years ending December 31,
follows: 1963, $5,011,511.; 1964, $14,155,601.; 1965, $3,475,580.;
1966, $3,598,511.; and 1967, $3,721,940.
(6) CAPITAL STOCK
All of the outstanding 5% cumulative first preferred Series "A"
shares were redeemed at par during 1962, and all of the outstanding 5J^% Series "A" preferred shares were either converted into
common stock of the Company or redeemed at a redemption
price of $26,395 per share.
450,000 shares of common stock of the Company have been
reserved for the exercise of warrants which were originally attached
to the $30,000,000. issue in 1959 of 6% subordinated sinking fund
debentures of the Company. Each $1,000 debenture unit carried
a warrant to purchase 15 shares of common stock. The warrants
provide that this stock may be purchased at $42 per share until
October 15, 1963; $46. per share thereafter to October 15, 1967;
and, $50. per share thereafter to October 15, 1971, the expiration
date of the warrants.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has commitments with a balance of approximately
$15,810,000. in connection with contracts for the construction