NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of Common Stock ($.50 Par) for $25, payable in
cash or an equivalent face amount of 5% Debentures,
without adjustment for dividends or accrued interest.
144,550 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 exercise
of warrants or conversion provisions described above,
but cash adjustments will be made in lieu thereof.
The portion of consolidated earned surplus applicable to Canadian subsidiaries is $10,168,554, 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,' 1963 exceeded the amount of earned surplus at that date.
As at April 30, 1963, Sheraton Corporation of America was
obligated as guarantor of a subsidiary office building lease expiring in
2010. The present annual rental of $394,000 will be increased in
September 1963 to approximately $420,000 as a result of improvements to be paid for by the lessor. The rentals will be guaranteed in
full until certain conditions have been met under the lease, after
which the guarantee is limited to no more than $1,000,000, reducing
$100,000 a year to a minimum of $100,000 if such amounts are deposited with the lessor.
The Sheraton-Fontenelle, Sheraton-Montrose, Sherwyn (Louisville), Sheraton-Oklahoma, Sheraton-Russell, Royal Hawaiian,
Sheraton-Dallas, Sheraton-Portland, Sheraton-Baltimore, Sheraton-
Atlantic, Sheraton-Lincoln (Houston), Sheraton - East, Sheraton-
Kingston and Sheraton-Maui hotels and motor inns are operated at
April 30, 1963 under leases with annual rentals totalling approximately $3,900,000. The performance of leases by the subsidiaries
operating the Sheraton-Dallas, Sheraton-Portland, Sheraton-Maui
and Sheraton-Lincoln hotels (annual rent approximately $2,230,000)
is guaranteed by the Corporation for varying terms in accordance
with the lease terms. Payment of the annual ground rental on the
Sheraton-Atlantic Hotel and Sheraton-East Hotel included in the
above total, in die annual amount of $845,000, is also guaranteed by
At April 30, 1963, other long-term lease rental obligations on
garages, parking lots, etc. executed by subsidiaries of the Corporation
were at an annual rate of approximately $200,000.
An Agreement has been made for the lease of a hotel by a subsidiary of the Corporation, effective when construction is completed.
The performance by the subsidiary of the terms of the lease is to be
guaranteed by the Corporation. Initial annual minimum rental for
the first year will be approximately $589,000.
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 and
loans to the lessor of a hotel property amounting to approximately
$9,700,000 in addition to liabilities already recorded at April 30,1963.
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 30,1963 were $210,908, 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 repre
sents the annual level cost of the Plan, based upon the funding of past
and future service together, exclusive of expenses of administering
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 $284,245, of which $88,880 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 $1,549,500 at April 30, 1963.
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
income statement for the year ended April 30, 1963. These adjustments increased net income by $337,000. Depreciation expense for
the year was reduced by $1,682,000 to reflect cumulative adjustments
in the depreciation accounts for the prior years involved. Federal
Income Taxes and interest thereon were charged against earnings in
the amounts of $1,003,000 and $342,000 respectively.
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 63^% and 7J^% 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, 1963 and the related consolidated surplus and income
statements for the year then ended.
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
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 30,1963 and the results of their
transactions for the years ended April 30, 1963 and 1962, 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 17, 1963