The Company has obtained a first mortgage construction loan
commitment on The Portland Hilton in the amount of $5,000,000.
At December 31, 1962, $890,000. of the funds available under this
loan had been drawn down.
Guarantees of loans to subsidiaries or 50% owned companies
were: First Mortgage loan of $1,960,650. on the Hilton Inn, New
Orleans and the first maturing $7,500,000. of a $15,000,000. First
Mortgage loan of Hilton-Burns Hotels Company, Inc., which had
been paid down to $14,901,791. at December 31, 1962. The
Company has agreed to guarantee $2,500,000. of a $10,000,000.
loan commitment of the 25% owned Rock-Hil-Uris, Inc. Of the
amount so guaranteed by the Company, $150,000. had been drawn
down at December 31, 1962.
The subsidiary, Hilton Hotels International, Inc. has subscribed
and paid for a 50% interest ($375,000) in the share capital of
Kahala Hilton Hotel Company, Inc. (Kahala), a hotel under
construction. In addition, International has agreed to purchase
$1,125,000. of 5% debenture notes of Kahala.
In connection with the two hotels in The Netherlands, Hilton
Hotels International, Inc. (lessee) subscribed to 1,000,000 guilders
in the share capital of each company and made payments amounting in the aggregate to $414,595. The total balance payable under
the subscriptions is $138,875. at the current exchange rate. In
accordance with lease terms for the London Hilton, International
is required to furnish the hotel at an estimated cost of $4,000,000.
A loan in the amount of $900,000. maturing November 15, 1966
entered into by lessor companies of the Acapulco Hilton and the
Continental Hilton has been guaranteed by International and
another person. Securities of two Mexican companies have been
pledged to secure the loan. International is also guarantor of a
$100,000. obligation of Hilton of Panama, S. A., a wholly-owned
subsidiary; $3,500,000. ($3,249,767. U.S.) First Mortgage Bonds
of a 50% owned Canadian subsidiary; and $1,000,000. of a
$4,000,000. mortgage bond issue of a 50% owned Hawaiian subsidiary. Hilton Hotels (UK), Ltd., a wholly owned subsidiary of
Hilton Hotels International, Inc., has arranged to borrow a total
of 1,250,000 pounds sterling ($3,500,000) from Lloyds Bank Ltd.
in connection with furnishing the London Hilton Hotel. As at
December 31, 1962, the sterling equivalent to $250,253.72 had
been drawn against the loan agreement by an overdraft. It is
indicated that the total borrowings will be evidenced by demand
notes of Hilton Hotels (UK), Ltd., endorsed by Hilton Hotels
International, Inc., but these documents had not been completed
prior to the conclusion of our examination.
The Company is contingently liable as guarantor respecting two
second mortgage notes aggregating $8,064,929. which were sold
as part of the transaction involving the sale and leaseback of the
Beverly Hilton Hotel under which sale the Company has the
option to repurchase the hotel in 1966 or 1967 at a price of
$14,315,050., the original sale price attributable to the land and
buildings comprising the hotel.
The Company has purchased $700,000. of 6}^% notes, maturing
January 1, 1971, of the 50% owned Hilton-Uris, Inc. (hotel under
construction) and is committed to purchase an additional $2,300,000.
of such notes. An agreement has been made with Rock-Hil-Uris,
Inc. (hotel under construction) in which the Company has a
$500,000. investment, representing 25% of the capital stock, whereby the Company will purchase up to $3,750,000. principal amount
of Series "A" notes of the affiliate and $1,570,000. of such notes
had been purchased to December 31, 1962. Both hotels when
completed will be operated by Hilton Hotels Corporation under
Hilton Inns, Inc., a subsidiary, has entered into first mortgage
loan contracts under which a group of institutional investors have
agreed to lend up to $18,000,000. of which $8,460,000. was drawn
down prior to December 31, 1962. The Company has received a
$16,000,000. loan commitment in connection with the construction
of a Hilton Hotel in San Francisco. No funds have been drawn
down under this commitment.
In connection with the Hilton Inns mortgage contracts, a plan of
recapitalization was adopted by the Board of Directors of the
wholly-owned subsidiary, Hilton Inns, Inc., wherein and whereby
the subsidiary redeemed 700,000 shares of its common capital stock,
$10. par value, from Hilton Hotels Corporation and issued in exchange therefor $7,000,000. principal amount of 5% subordinated
notes, Series 1. The subsidiary issued an additional $1,000,000. of
5% subordinated notes, Series 1, together with a $8,580,000. issue
of 5% subordinated notes, Series 2, in full satisfaction of its open
account indebtedness to the parent. The latter Series 2 notes have
been paid down to $1,720,000. at December 31, 1962. Both the
Series 1 and Series 2 notes bear a maturity date of October 31, 1984.
By mutual agreement between the Company and Hilton Inns,
Inc., no interest on these notes was accrued for the year 1962.
The Company is obligated to make an additional capital contribution of $225,000. to the partnership in which it now has a
majority interest (Hawaiian Village Development Company), and
is to further purchase $2,025,000. of subordinated notes of the
partnership unless such additional capital contribution and purchase of subordinated notes are made by other persons.
Subsequent to the year end, under an offer dated December 17,
1962 which expired January 24, 1963, the Company acquired an
additional 300,000 shares of its $2.50 par value common stock for
the treasury at a total cost of $8,572,021.
The Company's investment in Hilton Credit Corporation at
December 31, 1962 consisted of 33.46% of the common stock of
that corporation carried at a cost of $1,035,005., and 5% subordinated notes in the face amount of $1,900,000. As of January
15, 1963 the Company offered to purchase up to 1,390,706 shares of
Hilton Credit Corporation common stock at a price of $3.25 per
share. As of March 1, 1963, 1,042,612 shares were so acquired at a
total cost of $3,388,489. As a result, the Company's ownership of
Hilton Credit Corporation increased to approximately 68% of
that corporation's outstanding common stock. As of December 31,
1962, unaudited financial statements of Hilton Credit Corporation
indicated a profit of $799,446. for the eight months then ended and
a deficiency of $1,526,844. in total shareholders' equity, of which
deficiency, $510,882. was applicable to the Company's 33.46%
stock investment interest at that date. At March 1, 1963, such
deficiency applicable to the Company's then 68% stock interest
amounted to $922,653. (unaudited).
The Company and its subsidiaries are engaged in various litigation, but the Company's legal counsel does not anticipate that any
amounts that the Company or its subsidiaries may be required to
pay by reason thereof will be of material importance.
(8) LONG-TERM LEASES
The Company and its subsidiaries operate or will operate certain
properties under leases ranging from two years and ten months to
fifty-two years and three months from December 31, 1962 with
options to renew in some instances. The total minimum annual
fixed or basic rentals payable (exclusive of real estate taxes, insurance and other occupancy charges) under such leases for each of the
next five years ending December 31, follows: 1963, $6,443,361.;
1964, $6,447,111.; 1965, $6,438,778.; 1966, $5,934,611.; and, 1967,
Rental based on a percentage of gross operating profit and other
lease obligations of a Canadian subsidiary of Hilton Hotels International, Inc., are guaranteed by both International and by the
Company. Under the terms of the Caribe Hilton lease, International and the Company are liable for the tenant's obligations
under the lease which, among other things, require payment of a
small fixed rental and additional rental based on gross operating
profit. International is contingently liable for performance under
all other leases entered into by or assigned to its foreign subsidiaries.
The Company has not been released from its obligations under a
ground lease which was assigned to Hilton Inns, Inc.
The subsidiary, International, has negotiated preliminary contracts or agreements for the operation of hotels (certain of which
are now under construction), or under consideration, on sites outside the Continental United States, subject to fulfillment of certain
conditions and execution of final leases. In general, International
or its subsidiaries are required to furnish initial operating inventories and maintain sufficient working capital. Leases basically
provide for a rental based on a percentage of gross operating profit.