Notes to Financial Statements
1—BASIS OF CONSOLIDATION
The consolidated statements include all subsidiaries with the
exception that the wholly-owned subsidiary, Hilton Hotels International, Inc., included in consolidation, adopted the policy,
beginning January l, 1959, of excluding from its consolidation
the operation of certain foreign subsidiaries and divisions (formerly
included in consolidation), due either to unstable political situations or to currency restrictions or both. The operations now
excluded are those in Berlin, Germany; Madrid, Spain; Havana,
Cuba; Istanbul, Turkey and Cairo, Egypt. These operations are
now carried as investments and income therefrom will be included in consolidation when received.
Investments in and advances to non-consolidated foreign subsidiaries and divisions of $2,720,794 at December 31, 1959
exceeded the Company's equity in the net assets of such subsidiaries and divisions by approximately $1,340,000. In the opinion
of management, there has been no permanent impairment in the
value of the investments in foreign companies and divisions, and
consequently, no provision has been made for possible losses.
Consolidated earned surplus at December 31, 1959 included
$8,488,129, representing the combined undistributed net earnings of consolidated subsidiaries.
Installment sales contract and other notes received in connection
with sales of various properties since 1952 were, with the exception of a $128,943 promissory note at December 31, 1959, secured
by either first, second, chattel or real estate leasehold mortgages.
These notes require various periodic payments and their maturities range from March 1, 1960 to July 1, 1976. The required payments receivable for the next five years approximate $3,718,388,
1960; $2,464,449, 1961; $1,271,386, 1962; $1,730,615, 1963; and
It is the policy to defer the profit on those sales that qualify as
installment sales under Treasury regulations, taking into income
that portion of the profit as applies to payments on the installment
sales contract in the year in which such payments are received.
At December 31, 1959, $13,207,904 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:
$2,322,486, 1960; $1,633,618, 1961; $1,023,722, 1962; $1,506,421,
1963; and $865,774, 1964.
On March 1, 1958 the Company entered into a 5%, $13,000,000
bank loan agreement maturing April 2, 1963 with right to extend
maturity to October 1, 1963. Payments against this loan (which
was reduced to $3,490,239 at December 31, 1959) are to equal
payments received from installment sales contracts and other
notes which were deposited with the lender for purposes of
collection and application of the proceeds from such notes under
the terms of the loan agreement.
A major portion of these assets are pledged to secure mortgages
or other long-term debt of the consolidated companies. Furniture,
furnishings and equipment owned by the Company in "Statler
Hilton Hotels" under lease from an affiliate, Statler Hotels
Delaware Corporation, are pledged as additional security under
a mortgage of that company. Fixed assets were carried at cost, or
were carried over from predecessor companies together with related depreciation reserves at predecessors' basis, plus additions
at cost. With one minor exception, depreciation of fixed assets
has been computed on the basis of the straight-line method.
4—FEDERAL TAXES ON INCOME
Federal income tax returns of the Company have been examined
and settled through the year 1953. Returns of the Company
subsequent to 1953 and returns of subsidiaries and predecessor
companies for 1954 and subsequent years are either under or
subject to examination.
The trust indenture securing the 4V2% fifteen-year convertible
debentures of the Company (conversion privileges expired January 2, 1958) requires annual sinking fund payments on January
15 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 sinking fund debentures,
with warrants attached, 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 15 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 of a subsidiary are entitled to the benefit of an annual sinking fund, beginning July 1, 1962, in an amount sufficient to redeem, at their
principal amount without premium, in each year, 2% of the
highest principal amount at any time outstanding.
The aggregate annual sinking fund and maturity requirements
on the total long-term debt at December 31,1959 for each of the
next five years ending December 31, follows: 1960, $8,235,085;
1961, $3,912,128; 1962, $2,171,157; 1963, $2,779,644; and
The 5% cumulative first preferred Series "A" shares are subject
to redemption, without premium, out of sinking fund payments,
made on or before January 1st in each year in an amount sufficient
to redeem 2% of the maximum number of shares theretofore
issued and outstanding. The Company has complied with this
sinking fund provision.
The 5J/2% Series "A" preferred shares were issued in connection with an exchange of shares with stockholders of Savoy-Plaza,
Inc., which company was merged into Hilton Hotels Corporation
on December 31, 1958. These shares will be convertible at the
option of the holders, at any time after January 1, 1960, into
common stock of the Company at a conversion price of $35.50
per share (170,865 common shares of the Company have been
reserved for this purpose), and, at the option of the Company,
such Series "A" shares will be redeemable at $26.25 plus accrued
dividends on and after January 1, 1961 to the date fixed for
450,000 shares of common stock of the Company have been
reserved for the exercise of warrants 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