NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23
37,800 for the conversion of the issued 4% Cumulative Convertible Preferred Stock.
200,548 shares for the exercise of warrants sold with the 6% sinking fund Debentures. Each warrant entitles the holder to
buy, through October 1, 1964, 1.2 shares of the Corporation's Common Stock ($ .50 Par) for $10, payable in cash
or an equivalent face amount of Debentures of the 6%
series, without adjustment for dividends or accrued interest.
47,935 shares for the conversion of 4%% sinking fund Debentures, of which 47,595 shares are applicable to Debentures
outstanding, and 340 shares are applicable to Debentures
held in the Treasury.
357,109 shares for the exercise of the warrants issued with the
5% sinking fund Debentures. Each warrant entitles the
holder to buy, through September 1, 1966, 1.2 shares of the
Corporation's Common Stock ($ .50 Par) for $25, payable
in cash or an equivalent face amount of 5% Debentures,
without adjustment for dividends or accrued interest.
No fractional shares will be issued as a result of the exercise of
warrants or conversion provisions described above, but
cash adjustments will be made in lieu thereof.
0 — Earned Surplus
The portion of consolidated earned surplus applicable to Canadian
subsidiaries is $7,026,496, which is subject to a 15% withholding tax on
In connection with an issue of Debentures in October 1956, payment
of dividends by a Canadian subsidiary is restricted to earnings accumulated subsequent to August 31, 1955. The foregoing amount includes approximately $2,495,000 of earnings accumulated to August 31, 1955,
which are subject to this restriction.
Dividends or other payments of any kind with respect to subordinated debt, capital stock or warrants, other than stock dividends, may be
made only out of consolidated net income of Sheraton Corporation of
America and Subsidiaries since April 30, 1953, and only if full sinking
fund payments have been made to the date of such payments. Accumulated net income available for dividends or such other payments as at
April 30, 1961 amounted to $18,740,518.
7— Long-Term Leases
As at April 30,1961, Sheraton Corporation of America was obligated
as guarantor of a subsidiary office building lease expiring in 2010. As a
result of improvements paid for and to be paid for by the lessor, a new
estimated rental up to a maximum annual rent of $900,000 will be effective for the period May 1, 1961 to November 30, 1961. Thereafter, when
the improvements are completed and paid for, the annual rent will be
approximately $420,000 until December 1981, at which date the rent will
be $195,000. The revised rental will be guaranteed in full until a rate of
tenant occupancy of 92% has been achieved, after which the guarantee
is limited to payment of no more than $1,000,000, reducing $100,000 a
year to a minimum of $100,000.
Performance by subsidiaries of the terms of the leases of two hotels
(including rent of approximately $1,210,000 per year) is guaranteed by
the Corporation for the first ten years of the leases. One of the leases is
guaranteed for an additional period of fifteen years (annual rent approximately $306,000).
Agreements have been made for the lease of hotels by subsidiaries of
the Corporation, effective when construction is completed. The performance by subsidiaries of the terms of the leases is guaranteed in part by
8 — Commitments and Contingent Liabilities
The Corporation is liable as guarantor of certain notes and mortgages
payable of subsidiaries. All of these obligations are included as liabilities
in the consolidated balance sheet.
The Corporation is contingently liable as guarantor of a First Mortgage payable by a non-affiliated company secured by real estate formerly
owned by a subsidiary. The real estate was sold in December 1955 for
$3,600,000. The terms of the mortgage require equal quarterly payments
of $26,562, applicable first to interest at 5% per annum and the balance
to principal. As at April 30, 1961, the unpaid principal balance was
$960,623. The guarantee of the Corporation remains in effect until the
principal balance is reduced to $750,000.
On June 14, 1955, the Corporation executed an Agreement and
Declaration of Trust, creating the Sheraton Employees Savings Plan.
Upon voluntary or involuntary withdrawal, an employee is entitled to receive, as a minimum, his contribution plus interest at 3% per annum. The
Corporation is obligated to pay any deficiency which may exist in the
Trust in computing this amount.
Contracts have been entered into with respect to major construction
projects for construction in progress amounting to approximately
$8,300,000, in addition to liabilities already recorded on such contracts.
9 — Pensions and Savings
The parent company has established a voluntary non-contributory
Pension Plan and Trust covering all parent company employees and employees of certain subsidiaries in the United States who have completed
two years of continuous service, have attained age 30 and have not reached
The required contributions to the Pension Trust applicable to the
year ended April 30, 1961 were $202,199, representing the annual cost of
the Pension Plan for that period (inclusive of cost to two subsidiaries) as
estimated by the actuaries. The foregoing amount represents the annual
level cost of the Plan, based upon the funding of past and future service
together, exclusive of expenses of administering the Plan.
Effective May 1, 1958, a subsidiary established a trusteed non-
contributory Pension Plan covering all its eligible employees. The estimated annual cost of the Plan is approximately $246,037, of which
$13,492 was applicable to past service benefits based on amortizing the
cost over a thirty-year period. The unfunded cost of past service benefits
was approximately $1,703,838 at April 30, 1961.
The Corporation and substantially all of its United States subsidiaries
inaugurated an Employees Savings Plan, the details of which are set forth
in an Agreement and Declaration of Trust dated June 14, 1955. The Plan
provides that the employing companies will match, to not more than 25%,
contributions made by employees to not more than 6% of their pay. The
total expense to the companies for the year was $63,129.
IO— Amortization of Debt Discount and Expense
The debt discount and expense, incurred in connection with the 6%,
434% and 5% Debentures, is being amortized over the lives of the respective issues, giving effect to reductions in outstanding Debentures. Similar
expense, applicable to the 61/2% and 1Vi% Debentures and other debt,
is being amortized uniformly on a straight line basis over the various
periods of time from the respective inceptions of the debts to their respective maturities.
REPORT OF INDEPENDENT
To the Stockholders,
Sheraton Corporation of America,
We have examined the accompanying consolidated balance sheet of
Sheraton Corporation of America and its subsidiaries as at April 30,1961
and the related consolidated surplus and income statements for the year
These consolidated statements have been prepared from financial
statements of Sheraton Corporation of America and Subsidiaries which
have been audited by us or by other independent accountants who have
submitted to us their certificates concerning the underlying statements
which were examined by them.
The results of the operations of the companies purchased, sold or
liquidated are included in the surplus and income statements for the
periods during which they were majority owned.
Our examinations of the statements, of Sheraton Corporation of
America and of those subsidiaries which were examined by us were made
in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We had
made similar examinations for the year ended April 30, 1960.
On the basis of the foregoing explanations, in our opinion, the
accompanying consolidated balance sheet, the related consolidated
statements of surplus and income, and the explanatory notations fairly
present the financial condition of Sheraton Corporation of America and
Subsidiaries as at April 30, 1961 and the results of their transactions for
the years ended April 30, 1961 and 1960, in conformity with generally accepted principles of accounting applied on a basis consistent with that of
the preceding year.
HARRIS, KERR, FORSTER & COMPANY
Boston, Massachusetts, July 28,1961