Federal income tax returns of predecessor companies have not been examined nor passed upon by the United States Treasury Department
as indicated below:
Stevens Hotel Corporation — Year 1945 and to May 31, 1946.
The Plaza Hotel Corporation - Years 1943, 1944, 1945 and to May 31, 1946.
Lubbock Hilton Hotel Company — Year Ended May 31, 1946.
New Mexico Hilton Hotel Company, Inc. — Year 1945 and to May 31, 1946.
Palmer House Company — Year 1945 and to May 31, 1946.
Dayton-Biltmore Hotel- (A Partnership) - Year 1945 and to May 31, 1946.
Federal income tax returns of the Hilton Hotels Corporation have not been examined nor passed upon by the United States Treasury
Department for the seven months ended December 31, 1946 and for the calendar years 1947 and 1948.
As of the date of consolidation, the Corporation set up a Reserve for Contingencies (see Note 6) to cover claims, taxes on other charges, including additional income or excess profits taxes which might be asserted against the consolidating companies.
6. reserve for contingencies — The Board of Directors established as of June 1, 1946 the Reserve for Contingencies of $1,700,000.00 to cover
claims which may be asserted under various federal statutes and regulations, including claims for Federal income and excess profits taxes of the
consolidating companies, such reserve so created being deemed by the Board of Directors to be reasonably adequate to cover all such contingencies.
7. convertible preference stock — Since the date of consolidation the Company has purchased for the Treasury 132,467-97/100 shares of its own
convertible preference stock at a total cost of $4,946,902.87, the discount thereon being credited to capital surplus. Of the total shares so purchased
17,388-97/100 shares have been permanently retired and cancelled.
On January 31, 1949 the Board of Directors of Hilton Hotels Corporation approved the following offer to the holders of its convertible preference stocks, the offer to remain open to, and expiring at the close of business on February 15, 1949:
"1. The price to be paid will be $40 per share payable as outlined below.
2. (a) One-fifth of the shares to be sold by each selling stockholder pursuant to this offer will be purchased by the Corporation on February
15, 1949, and payment therefor made promptly thereafter, (b) As to the remaining shares to be sold by each selling stockholder, the
Corporation will have an option to purchase an additional one-fifth (of the original number of shares) exercisable by notice in writing
mailed at any time on or before January 31, 1950, and an additional one-fifth on or before the 31st day of January of each of the next three
calendar years, the option as to the final one-fifth to expire on January 31, 1953. Each such option shall be exercised by written notice
mailed on or before said dates. When any option is exercised, payment for the shares purchased shall be made promptly thereafter against
proper delivery of the shares, (c) If the Corporation should not exercise its option to purchase any of said shares on or before the option
date covering said shares, the option as to the remaining unpurchased shares shall be extinguished.
3. So long as the option is outstanding, each of the stockholders accepting said offer shall waive all dividends on said stock. If at any time
the option shall be extinguished because of failure of the Corporation to exercise the same, said waiver of dividend shall likewise be
extinguished retroactively to the date the waiver commenced with respect to the shares thus released from the option, so that all dividends
which would have been paid on said shares but for the waiver shall be promptly paid after the extinguishment of the option.
4. So long as the option is outstanding, the stock certificates for the shares covered thereby shall be stamped with an appropriate legend
evidencing the existence of the option and the waiver of dividends thereon. If at any time this option shall be terminated, new certificates
with the legend removed will be issued."
8. common stock — Common stock shares have been reserved for the conversion of convertible preference shares at the option of the holders thereof
at the rate of two shares of common stock for each share of convertible preference stock.
9. general — Contractual obligation and commitments approximating $355,000.00 were in existence at December 31, 1948 and comprised construction work at the Town House, conversion of DC current to AC current at the Stevens and a changeover from generating steam and electricity at the
Plaza to the purchase thereof from public utilities.
A suit has been instituted by various minority stockholders of Mayflower Hotel Corporation naming amongst others as defendants the Hilton
Hotels Corporation involving together with other things challenge of management fees and charges of the latter to Mayflower Hotel Corporation since
acquisition of the controlling stock in December 1946. Such suit is pending in the United States Court of Appeals in the District of Columbia.
1. consolidated income — Consolidated income includes the wholly-owned subsidiaries State-Monroe Equipment Corporation and Hilton Hotels
International, Inc., but not the partly-owned Mayflower Hotel Corporation or hotels of the Bermuda Development Company, Ltd. (Reference is made
to Balance Sheet Note 1.)
Other income includes management fees and charges earned by Hilton Hotels Corporation as per contracts with the non-consolidated partly-
owned subsidiary and other Hilton operated hotels.
The Corporation's share for the year ended December 31, 1948, of net profits, less dividends received, of unconsolidated subsidiaries, which
have not been reflected herein, amounted to $202,872.58, and for the year ended December 31, 1947, such share amounted to $249,056.02.
2. general — Operations shown for the year ended December 31, 1947 have been restated from previously issued reports for comparative purposes only.
Reference is made to Balance Sheet Note 3 relative to loss on sale of Palm Beach Biltmore Hotel subsequent to December 31, 1948.