NOTES TO FINANCIAL STATEMENTS
1. basis of consolidation — Included in the Consolidated Balance Sheet are the wholly-owned subsidiaries, State-Monroe Equipment Corporation, a
non-operating unit which holds title to the furnishings and equipment of the Palmer House, Chicago and Hilton Hotels International, Inc., which
holds amongst its assets 7,310 shares of capital common stock of Bermuda Development Company, Ltd., which is carried as an investment in the
consolidation. The Corporation has adopted the policy of non-consolidation of companies which are not wholly-owned subsidiaries. Holdings of Mayflower Hotel Corporation representing 69.53% of the capital stock of that Corporation are carried in the accompanying balance sheet as investments
at cost, such cost being $1,008,132.22 greater than book value at date of acquisition and $596,186.48 greater than book value at December 31, 1948.
Holdings in the Bermuda Development Company, Ltd., represents approximately 7% of the capital common stock. At quoted official exchange
rates, the par value in dollars amounted to $294,775.75 against a cost of $265,832.00.
2. inventories — Inventories of saleable merchandise and operating supplies were ascertained by physical count and were priced at cost, which basis
has been consistently followed by the various operating units of the Company. Stocks of saleable merchandise representing primarily food and
beverages, comprising the major part of the inventories represent normal turnover needs of current business.
3. fixed assets, depreciation and amortization — As of July 31, 1948 Hilton Hotels Corporation acquired the Palm Beach Biltmore Hotel from
The Neil House Hotel Company (formerly Palm Beach Biltmore Company) at a cost of $2,108,527.38 payment therefore being made by a transfer
to the Neil House Hotel Company (formerly Palm Beach Biltmore Company) of certain interests of Hilton Hotels Corporation in the Neil House
Company and the Palm Beach Biltmore Company at no book gain or loss. The property which is carried in the consolidation at cost of acquisition
plus subsequent additions, at cost, was sold on January 1, 1949 for $1,711,347.77 after deducting estimated expenses of sale. The net book value of
the property on January 1, 1949 was $2,004,326.61 thereby establishing a loss approximating $292,978.84 which is not included in the accompanying statements.
Except for the Palm Beach Biltmore Hotel, which is carried at cost, fixed asset values and depreciation reserves have been carried over from
the predecessor companies. The fixed asset values represent cost to predecessor companies, plus additions at cost.
Depreciation on buildings has been determined according to the straight line method on the basis of an estimated over-all life from date of
original construction, ranging from 50 years in the case of the Plaza Hotel of New York, to 40 to 45 years in the case of the Palmer House, the
Stevens Hotel and the Town House to a 30 year life for the Lubbock Hilton Hotel.
Leaseholds and improvements are being amortized over the remaining life of the existing leases.
Furniture, furnishings and equipment are depreciated on a straight line basis at varying rates by classifications in accordance with the estimated
useful life of the respective assets.
Expenditures for rehabilitation, alterations and revisions are charged to a special classification and amortized over varying periods of from
three to ten years.
Current depreciation rates being applied to cost basis by individual properties appear to be reasonable and adequate and in accordance with
Operating equipment, represents reserve stock inventories of linens, china, glassware and silverware at cost, and, stocks in use shown at
net values after deduction of reserves covering estimated depreciation and depletion of such stocks through loss and discard.
4. due from employees and officers for stock purchases — In accordance with the agreement of consolidation 50,000 shares of common stock
were reserved for offering to key employees at a price of $17.50 per share, payment therefor to be made in installments over a period not
exceeding four (4) years. (Since extended for a period of two (2) years by action of the Board of Directors.) As of December 31, 1946 a total
of 44,342 shares were subscribed for by various employees. Of this total, subscriptions to 9,357 shares have been cancelled to date, leaving a
total of 34,985 shares subscribed for as of December 31, 1948 at a total cost of $612,237.50. Of this amount, $265,300.00 has been paid on
account, leaving an unpaid balance of $346,937.50 as of the balance sheet date. This unpaid balance is secured by signed purchase agreements
of the individual employees. The shares so subscribed have been issued as partially paid shares entitled to dividends only to the extent to which
the purchase price therefor has been paid.
5<. provision- for federal and state taxes on income — As of December 31, 1948, this account consisted of the following:
Federal Income Tax Liability of Predecessor Companies— (Unpaid Balances) Palmer House Company . . . $24,833.94
New Mexico Hilton Hotel Company 28,014.45
Federal and State Income Tax Liability of Hilton Hotels Corporation for the Year Ended December 31, 1948- (Estimated)
The provision for Federal income taxes for the year ended December 31, 1948 has been estimated at approximately 38% of the operating
profits and 25% of capital gains for that period.