NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1—Basis of Consolidation
The consolidated financial statements include the Corporation
and its 50% or more owned subsidiaries, except Sheraton Mediterranean Ltd. which, since February 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 $34,595 more than
the cost of these investments. The equity in the net income of these
companies for the year ended April 30, 1963 was $67,719.
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 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, $238,844, 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 since
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 30,1964
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, 1963 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.
Investments are pledged to secure notes, contracts, mortgages
and bonds payable as follows:
Securities — Marketable
(Estimated Value $1,098,116)
Securities — Other than Marketable
(Estimated Value $1,155,660)
Securities of Subsidiaries —- Eliminated
Mortgage of Subsidiary — Eliminated
(Estimated Value $924,213)
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 $ 1,755,700
A%% Convertible Debentures, due March 1, 1967 894,500
5% Debentures, due March 1, 1967 5,757,500
6JHi% Income Subordinated Debentures
due January 1, 1981 12,598,400
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^ through September 30, 1959 to par
at September 30, 1969. The payment required Apru 1,
1963 was paid in full. Debentures in the Treasury at
April 30, 1963 aggregated $1,500.
4\K% 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 $552,500 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,
1963 aggregated $3,000.
6^£% 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 '/s of 1% annually from 101
through January 1, 1973 to par at January 1, 1981.
The payment required December 31, 1962 was paid in
full. Debentures in the Treasury at April 30, 1963
1}4% Debentures, due January 1, 1989
1962 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 less.
1965 through 1979, $990,000.
1980 through 1988, 10% of the principal amount of Debentures outstanding at October 31, 1979.
The redemption price for sinking fund reduces V& of 1 %
annually from 10234 at January 1, 1965 to par at
January 1, 1985.
Debentures aggregating $533,000 were tendered and retired,
at the option of the bondholders, on January 1, 1963.
Debentures in the Treasury at April 30, 1963 aggregated $124,300.
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
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 properties sold. Also included are deferred income taxes
represented by the accumulated reduction in Federal income taxes
resulting from the deduction of the Investment Tax Credit. This
amount is being amortized over a period of ten years.
The Corporation's charter authorizes 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 1960. These shares are
presently convertible into Common at the rate of 2x/i shares of
Common for each share 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
$8.50, or (2) an amount equal to the net profits of the Corporation for
such fiscal year less cumulative dividends payable upon such stock
for that year.
Of the total Common shares shown as authorized, shares are
reserved as follows:
37,800 shares for the conversion of the issued 4% Cumulative
Convertible Preferred Stock.
181,849 shares for the exercise of warrants sold with the 6%
Sinking Fund Debentures. Each warrant entitles the
holder to buy, through October 1, 1964, 1.2 shares of
Common Stock ($.50 Par) for $10, payable in cash or
an equivalent face amount of Debentures of the 6%
series, without adjustment for dividends or accrued
41,115 shares for the conversion of 4^% Sinking Fund
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