22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 —Basis of Consolidation
The consolidated financial statements include figures of the Corporation and its 50% or more owned subsidiaries* except Sheraton Mediterranean Ltd. which, since February 1961, has operated the Sheraton-Tel
Aviv Hotel in Israel and except two domestic subsidiaries excluded in
prior years which act as transfer agent and purchasing agent of the Corporation and most of the subsidiaries.
The equity of the subsidiaries excluded from the financial statements,
based on audited financial statements, was $118,000 more than the cost
of these investments. The equity in the net income of these companies for
the year ended April 30, 1961 was $29,345. Dividends received from these
subsidiaries during the yeac totalled $295,100.
The securities of certain of the consolidated subsidiaries of Sheraton
Corporation of America were acquired at costs which were less than the
book values of the equities thus acquired. That difference is shown in the
balance sheet as Surplus from Consolidation. The securities of certain of
the consolidated subsidiaries were acquired at more than the book values
of the equities thus acquired. That difference has been treated in these
statements as follows:
As additional cost of fixed assets owned, allocated on a pro rata basis,
$1,596,382 to land and leaseholds and $3,292,486 to buildings.
As goodwill from consolidation, the unamortized portion of which,
$314,566, is included in Other Assets.
The remaining difference between the investments in subsidiaries consolidated, as shown by the parent's books, and the parent's equity in the
net assets of such subsidiaries is included in Earned Surplus, representing
accumulated undistributed earnings since acquisition.
The properties of Canadian subsidiaries are included at Canadian
dollar cost after adjustment to United States dollar equivalents reflecting
exchange rates in effect at dates of acquisition and after adjustment to increase first mortgage bonds to par. The amounts of the first mortgage
bonds of the Canadian subsidiaries due after April 30, 1962 are reflected
at their United States dollar equivalents, using the exchange rate in effect
at the date the indebtedness was incurred but not less than par. The current assets and liabilities are reflected at the April 30, 1961 exchange rate.
Investments are pledged to secure notes, contracts, mortgages and
bonds payable as follows:
Securities — Other than Marketable — Book Value $ 1,336,269
(Estimated Value $1,342,500)
Securities of Subsidiaries — Eliminated in
Consolidation — Book Value 10,766,056
Mortgage of Subsidiary — Eliminated in
Consolidation —Book Value 308,077
Mortgages Receivable — Book Value 5,266,743
(Estimated Value $6,476,698)
3 —Property, Plant and Equipment
Substantially all of the real estate and furniture and equipment are
pledged to secure mortgages and other long-term debt.
Officers' estimated values are based primarily upon earnings before
deducting interest, depreciation and income taxes, and after adjustment
for unusual repairs. These earnings are capitalized at varying rates (generally 10% to 12^4%), depending upon the type, age and location of the
property, competition, debt financing and other factors.
4 -Long-Term Indebtedness
Bonds and Mortgages Payable include obligations of the Corporation as follows:
6% Debentures, due April 1, 1979 $ 2,028,600
4?4% Convertible Debentures, due March 1, 1967 1,037,000
5% Debentures, due March 1, 1967 6,704,500
6Vi% Income Subordinated Debentures,
due January 1, 1981 13,348,100
The Trust Indentures and supplements thereto require annual sinking
fund payments as follows:
6% Debentures, due April 1, 1979
$130,952 on April 1 of each year in cash or in Debentures at
their face value. The redemption price for sinking fund reduces from 101 */i through September 30, 1959 to par at
September 30, 1969. The payment required April 1, 1961
was paid in full. Debentures in the Treasury at April 30,
1961 aggregated $1,400.
4%% and 5% Debentures, due March 1, 1967
The requirement for these two issues of Debentures is the same
in total as originally in effect for the 4%% Debentures. The
amount to be redeemed annually is allocated to the two issues
on the basis of the respective principal amounts outstanding at the close of business on January 15 of each year.
On March 1 of each year, not more than $557,000 and not less
than $250,000 principal amount of Debentures. The redemption price for sinking fund reduces from 101 through
March 1, 1960 to par at March 1, 1963. Debentures in the
Treasury at April 30, 1961 aggregated $18,500.
6Vi% Debentures, due January 1, 1981
3% of the principal amount of the Debentures outstanding on
the previous January 1. The redemption price for sinking
fund reduces Vs of 1% annually from 101 through January
1, 1973 to par at January 1, 1981. The payment required
December 31, 1960 was paid in full. Debentures in the
Treasury at April 30, 1961 aggregated $50,800.
7Vl% Debentures, due January 1, 1989
1961 through 1964, 3% of the principal amount of Debentures
issued prior to the preceding November 1 plus the excess of
the calculated purchase fund payment over the amount paid
to purchase tendered Debentures or $100,000, whichever is
1965 through 1979, $750,000.
1980 through 1988, 10% of the principal amount of Debentures
outstanding at October 31, 1979.
The redemption price for sinking fund reduces '/g of 1% annually from 1021/4 at January 1, 1965 to par at January 1,
Debentures aggregating $92,000 were tendered and retired, at
the option of the bondholders, on January 1, 1961. Debentures in the Treasury at April30,1961 aggregated $81,300.
The 4^4% Debentures are convertible until redemption or maturity
dates as follows:
First Conversion Option — each $1,000 principal amount is
convertible as to $500 into 32.4 shares of Common Stock
and as to the other $500 into a Debenture for that amount.
Second Conversion Option — each $500 principal amount
of Debentures received under the first conversion option is
convertible into 16.2 shares of Common Stock.
The number of shares into which the Debentures are convertible
is to be adjusted in certain events, including split-ups, reclassifications and certain stock dividends.
Federal and State Taxes include taxes applicable to gains on sales of
real estate. These gains will be reported for taxation on the installment
basis as principal payments are received on second mortgages held on the
5 —Capital Shares
Hie Corporation's charter was amended during the fiscal year ended
April 30, 1961 to authorize the issuance of 100,000 shares of Preferred
Stock, $100 par value. This stock is issuable in series and at terms, at time
of issue, within the discretion of the Board of Directors. An initial series
of 15,120 shares of 4% Cumulative Convertible Preferred Stock was issued
in September 1960. These shares are presently convertible into Common
at the rate of 2l/2 shares of Common for each share of Preferred.
The charter was further amended to increase the number of authorized Common shares, par $ .50, from 6,000,000 to 10,000,000 shares.
The 4% Cumulative Convertible Preferred Stock is redeemable on or
after January 1, 1966 in whole or in part at par plus accumulated dividends to date of redemption.
So long as any shares of the 4% Cumulative Convertible Preferred
Stock are outstanding, the Corporation, on and after September 1,1966,
shall not declare and pay any dividends on its Common Stock, except
dividends payable in Common Stock, or purchase or redeem any shares
of Common Stock, unless it shall have paid or set aside for payment with
respect to each prior fiscal year, beginning with the Corporation's fiscal
year ending April 30,1966, as a Sinking Fund for the purchase or redemption of the Preferred shares, the lesser of (1) the total number of shares outstanding multiplied by $8.50, or (2) an amount equal to the net profits of
the Corporation for such fiscal year less cumulative dividends payable
upon such stock for that year.
Of the total Common shares shown as issued and issuable, 8,789
shares are issuable upon surrender of old shares of United States Realty
and Improvement Company and shares of Sheraton Corporation and its
Of the total Common shares shown as authorized, shares are reserved as follows: