NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended April 30,1965
30,240 shares for the conversion of the issued 4% Cumulative Convertible Preferred Stock.
34,522 shares for the conversion of 4^% Sinking Fund
Debentures, of which 34,117 shares are applicable to
Debentures outstanding and 405 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 Common Stock ($.50 Par) for $25; payable in cash or an equivalent face amount of 5%
Debentures, without adjustment for dividends or
131,700 shares for the exercise of the warrants sold at
$.75 per warrant to officers and employees during the
year ended April 30, 1962. Each warrant entitles the
holder to buy, to November 1976, one share of Common Stock ($.50 Par) for $50, payable in cash.
No fractional shares will be issued as a result of the ex-
excise of warrants or conversion provisions described
above, but cash adjustments will be made in lieu
The portion of consolidated earned surplus applicable to Canadian subsidiaries is $8,303,454, which is subject to a 15% withholding tax on dividends.
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 this
purpose as at April 30, 1965 exceeded the amount of earned surplus
at that date.
As at April 30, 1965, Sheraton Corporation of America was
obligated as guarantor of a subsidiary office building lease expiring
in 2010. The present annual rental of $420,343 will be reduced in
December 1981 to approximately $195,000. The guarantee is limited
to payment of no more than $900,000, reducing $100,000 a year to
a minimum of $100,000 in the event such amounts are deposited
Certain hotels and motor inns are operated at April 30, 1965
under leases with annual minimum rentals totalling approximately
$5,500,000. Of this amount, approximately $4,400,000 represents the
annual rents under those leases which are guaranteed by the Corporation for varying terms in accordance with the lease terms.
At April 30, 1965, other long-term lease rental obligations on
garages, parking lots, etc. executed by subsidiaries of the Corporation
were at an annual rate of approximately $400,000.
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.
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 and commitments made with
respect to major construction projects for construction in progress
amounting to approximately $2,000,000 in addition to liabilities already recorded at April 30, 1965.
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 age 65.
The required contributions to the Pension Trust applicable
to the year ended April 30, 1965 were $187,054, representing the annual cost of the Pension Plan for that period (inclusive of cost to
three subsidiaries) as estimated by the actuaries. The foregoing
amount represents current service benefits of $176,040 and a contribution to past service benefits of $10,956. The remaining unfunded cost
of past service benefits is approximately $49,000, which the Corporation intends to fund over the succeeding five years. These amounts
are 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 $279,477, of which $92,389
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 $1,495,500 at April 30, 1965.
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, based on formula limitations, the
employing companies will pay up to 25% of employees' contributions
which may be made up to 6% of their pay.
IO—Consolidated Income Statement
Adjustments of income resulting from the examination of Federal Income Tax returns for prior years are reflected in the consolidated statement of Earned Surplus tor the year ended April 30, 1965.
The consolidated income statement for the year ended April 30, 1964
has been restated to reflect such adjustments applicable to that year
which results in an increase in net income of $65,286. This resulted
from a reduction in depreciation of $274,260, an increase in Interest
Expense and Federal and Foreign Income Taxes of $58,028 and
The debt discount and expense, incurred in connection with the
6%, 4%% 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 6)4% and 7i/£% Debentures and other debts 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, giving effect to acquisitions in excess of annual requirements.
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
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, 1965
and the related consolidated surplus and income
statements for the year then ended. Our examination was 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 a
similar examination for the year ended April 30,
In our opinion, the accompanying consolidated balance sheet and the related consolidated
statements of surplus and income, present fairly
the financial condition of Sheraton Corporation of
America and Subsidiaries as at April 30, 1965 and
the results of their operations for the years ended
April 30, 1965 and 1964, in conformity with
generally accepted principles of accounting applied on a consistent basis.
HARRIS, KERR, FORSTER & COMPANY
Boston, Massachusetts, July 9, 1965