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. excludes from its consolidation four foreign divisions and subsidiaries due either to unstable political situations or to currency
restrictions or both. These 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 at December 31,1961 aggregated $187,393., whereas
the Company's equity in the net assets of such divisions and subsidiaries was $880,218.
Consolidated earned surplus at December 31, 1961 included
$9,282,240., 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 or real estate leasehold
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 $440,760.,
1962; $904,270., 1963; $266,341., 1964; $386,428., 1965; and
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, 1961, $3,361,438. 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: $293,229., 1962; $777,672., 1963; $138,872., 1964; $226,561.,
1965 and $994,254., 1966.
The Company's equity in the 50% owned Hilton-Burns Hotels
Company, Inc. (hotel in operation) and its equity in the 50%
owned Hilton-Uris, Inc. (hotel under construction) in respect of
investments and advances aggregating $6,723,784. and $1,000,000.
respectively, amounted to $6,681,114. and $1,000,000.
(3) FIXED ASSETS
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. 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 1953
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 4}/2% 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 o
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
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 annual sinking fund and maturity requirements on total
long-term debt for each of the next five years ending December 31,
follows: 1962, $2,372,593.; 1963, $2,535,919.; 1964, $4,622,561.;
1965, $2,519,379.; and 1966, $2,564,272.
(6) CAPITAL STOCK
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 provision.
5M% Series "A" preferred shares are convertible at the option