carries its holdings in Thompson as an investment. The
earnings of Thompson are not reflected in Sheraton's
earnings as reported to you herewith. Thompson has
been paying off preferred stock, which is now reduced
to a nominal amount, and has not been paying dividends
on its common stock. Three of the principal officers of
Sheraton are directors of Thompson and are in close
touch with its affairs. It is believed that Thompson is a
very valuable investment for Sheraton.
Sheraton also owns more than 97% of the preferred
and 40% of the common stock of the National Cuba
Hotel Corporation. This company owns the Beverly
Wilshire Hotel in Beverly Hills, California, the Blackstone in Chicago, the Gotham in New York, in addition
to the Hotel Nacional in Havana. There are presently
approximately $2,000,000 of interest arrears on the outstanding issue of $5,380,100 in income bonds. As a result
the holders of the income bonds control the company.
The board of directors is composed of nine members, of
which five represent the bondholders and four represent
Sheraton. Upon payment of the arrears of interest,
control of the company reverts to the preferred stockholders until arrears amounting at this time to approximately $2,000,000 on the preferred stock are paid.
When Sheraton acquired its interest in National
Cuba Hotel Corporation in 1946 (through the merger
with U. S. Realty), the arrears on the debentures were
$4,700,000 and the mortgages on the three United
States hotels owned by the National Cuba Company
amounted to $4,600,000. The mortgages today amount
to $3,500,000. Thus the debt ahead of the preferred has
been reduced in the intervening years by approximately
$3,800,000 and the position of the preferred has improved to that extent. The National Cuba Company
does a gross volume of business of approximately
$11,000,000 annually, and it has an operating profit before depreciation, interest on the income debentures and
income taxes of approximately $1,600,000. Earnings
this year after depreciation, and interest and amortization on the debentures, but before income tax approximates $650,000.
None of the earnings are in any way reflected in
Sheraton's earnings statement. Sheraton carries its
shares of preferred and common of the National Cuba
Company as an asset in its balance sheet at a value
which is deemed to be very conservative.
On August 3, 1953, Sheraton paid, in addition to its
regular dividend, a five percent stock dividend. This is
the second successive stock dividend paid by the Company. Since all dividends paid by the Company,
including the stock dividend are covered by earnings,
the .Sheraton shares received can be sold without
causing a so-called "impairment of principal." Stockholders wishing to retain these shares, however, can
do so without the income tax liability to which they
might be subject had the 5% stock dividend been
paid in cash, and reinvested in Sheraton stock. In
this way each stockholder may in his own discretion
elect, either to retain the shares or sell them to realize
cash. Any cash thus realized is taxable as a capital gain
to the extent that the proceeds received exceed the prorata cost basis of the shares sold, determined by dividing the total basis of shares held prior to the stock dividend by the total number of old and new shares held
after the stock dividend.
GUEST SERVICES at every Sheraton Hotel
are all that could be desired. No effort is spared
to make certain that guests' wishes are fulfilled.
Sheraton employees are carefully screened prior to
employment and just as carefully trained in the
performance of their duties. By their efficiency,
courtesy and ready spirit of service, Sheraton perT
sonnel make Sheraton guests feel that a personal
interest is taken in their welfare.