NOTES TO CONSOLIDATED FINANCIAL STAtWm
For the Year ended April 30v 1965
1— Basis of Consolidation
The consolidated financial statements include the Corporation
and its 50% or more owned subsidiaries, except Sheraton Mediterranean Ltd., which since 1961 has leased and operated the Sheraton-
Tel Aviv Hotel in Israel, and Sheraton de Venezuela, C.A., which
since April 1963 has managed the Macuto-Sheraton Hotel in Venezuela; also, 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 $129,182 more
than the cost of these investments. The equity in the net income of
these companies for the year ended April 30, 1965 was $111,910.
Dividends received from these subsidiaries during the year totalled
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 book values of the equities thus acquired. That
difference has been treated in these statements as additional cost of
fixed assets owned, allocated on a pro rata basis to land and leaseholds and to buildings, and as goodwill from consolidation, the
unamortized portion of which, $741,333, 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 reflected in Earned
Surplus, representing accumulated undistributed earnings less losses
Revenue of properties operated under management agreements
and franchised properties are not included in the Consolidated
Income Statement. Management Fees and Franchise Fees received
from those operations, however, are reflected under the caption
"Gross Operating Income — Other."
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, 1966 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 of the Canadian and other
foreign operations are reflected at April 30, 1965 exchange rates.
Income and expenses of foreign operations, except for depreciation and financing expenses, have been converted to United States
dollar equivalents at the average rates of exchange for the respective
periods after adjustment for the difference arising from the conversion of the assets and liabilities described above.
Securities — Other than Marketable have been valued as follows:
At Estimated Value for Bonds Held $ 37,500
At Estimated Value for Securities Closely Held 56,870
At Estimated Value for Securities of a Garage
Corporation Serving a Subsidiary's Hotel 5,000
At Market Value for Securities with
Sales Restrictions 1,423,982
Investments are pledged to secure notes, contracts, mortgages
and bonds payable as follows:
Securities — Marketable $ 1,329,758
(Market Value -$1,270,531)
Securities—Other than Marketable 944,872
(At Values Described Above — $1,193,695)
Securities of Subsidiaries —
Eliminated in Consolidation 13,614,418
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.
Bonds and Mortgages Payable include obligations of the Corporation as follows:
6%Debentures, due April 1, 1979 $ 1,492,800
4%% Convertible Debentures,
due March 1, 1967 738,500
5% Debentures, due March 1, 1967 4,779,000
6i/2% Income Subordinated Debentures,
due January 1, 1981 11,496,000
The Trust Indentures and supplements thereto require annual
sinking fund payments as follows:
6% Debentures, due April 1, 1979
$ 130,952 on April I, of each year in cash or in Debentures
at their face value. The redemption price for sinking
fund reduces from 101i/£ through September *30,
1959 to par at September 30, 1969. The payment
required April 1, 1965 was paid in full. Debentures
in the Treasury at April 30, 1965 aggregated $600.
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 $552300 and not
less than $250,000 principal amount of Debentures.
The redemption price for sinking fund was reduced
to par at March 1, 1963. Debentures in the Treasury
at April 30, 1965 aggregated $32,500.
6y2% 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 ys of 1%annually from
101 through January 1, 1973 to par at January 1,
1981. The payment required December 31, 1964 was
paid in full. The amortization requirement on December 31, 1965 is $355,900. Debentures in the Treasury
at April 30, 1965 aggregated $365,700, which exceeds
the foregoing requirement.
7y2% Debentures, due January 1, 1989
1965 through 1979, $990,000 on January 1 of each year.
1980 through 1988, 10% of the principal amount of Debentures outstanding at October 31, 1979.
The redemption price for sinking fund reduces i/8 of 1%
annually from 102i/£ at January 1, 1965 to par at
January 1, 1985.
Debentures aggregating $990,000 were retired on January
1, 1965. Debentures in the Treasury at April 30, 1965
The 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
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 properties sold.
5— Capital Shares
The Corporation's charter authorizes the issuauce 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 1960. These shares
are presently convertible into Common at the rate of one share of
Common for each $45 par value of Preferred and are 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 $830, 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 authorized, shares are
reserved as follows: