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*
information regarding certain adjustments, see
page 14.)
Gainings
Gains in net asset value plus cash dividends
distributed, under our theory of "net worth accounting" provide what we consider the most
meaningful measure of performance available.
Gainings is the term we apply to this yardstick
of performance.
Such gainings for the past year amounted to
$1.60 per share compared with $3.44 last year.
This measure, although fundamental in many
respects in guiding Company policy, is often
quite properly discounted by many investors, for
its accuracy is limited to the Company's ability
to measure objectively and accurately its property values, a procedure recognized to be open
to possible abuse. Sheraton takes every possible
precaution to make its figures accurate.
Long Term Debt
Sheraton's fixed long term debt, excluding
Income Debentures and Capital Income Debentures, amounted to $141,801,834 compared with
$138,798,298 a year ago. When all income
debentures are included as a part of the Company's long term debt, the combined contingent
and fixed long term indebtedness amounted to
$178,830,234 compared with $176,320,713 a year
ago.
The long term "fixed" indebtedness was
38.9% of total assets at estimated values determined by our officers, after deducting current
liabilities. This ratio becomes 49.0% when all
income debentures and capital income debentures are taken into account. If lease obligations
are considered as liabilities to the extent of four
times the annual rental requirements, the ratio
becomes 52.9%. Ratios of long term debt for the
past two years have shown a moderate decline.
This favorable trend, however, may not be too
significant since the margin of possible error in
determining net asset values could exceed this
narrow difference.
Bank Loans and Cash Position
Bank loans of the parent company incurred
to finance certain acquisitions and improvements
reached $5,000,000 during the year. These loans,
however, were paid off in full before the end of
the fiscal year.
Cash on hand and in banks was $16,597,125
compared with $13,645,563 a year ago.
Thompson Industries, Inc.
Thompson Industries, Inc. reported earnings of $739,102 for the fiscal year compared
with $1,220,834 for the preceding year. This
decline affected Sheraton's reported earnings in
fiscal 1961 adversely, when compared with the
previous year, to the extent of eight cents a share.
Thompson Industries, Inc. is an 86% owned
Sheraton subsidiary which is normally subject to
the cyclical trends in the automobile industry.
The currently rising national economy suggests Thompson Industries, Inc. may now be
more likely to contribute towards improving
rather than retarding Sheraton's relative performance during the current fiscal year.
Since Thompson Industries, Lie, a manufacturing company, does not enjoy comparable
depreciation deductions available to a hotel
corporation owning most of its properties, its
earnings normally represent a relatively large
proportion of Sheraton's total consolidated reported earnings. Thompson's contribution to
Sheraton's cash flow is relatively less significant.
Hotel Operations
Sheraton's earnings from hotel and other
operations, excluding Thompson Industries, Inc.,
before interest, depreciation and income taxes,
despite several presumably nonrecurring adverse
factors, were some $29,900,000 this year compared with $29,500,000 last year. Income taxes
on these earnings were somewhat lower since
over a million dollars more depreciation as
compared with last year, was charged off. Our
upward trend in basic hotel earnings in the face
of a recession ran counter to the general experience in the industry. This favorable trend
presently shows signs of accelerating.
Sheraton's immediate objective is a minimum rise of eleven per cent a year in net asset
value and in cash flow. Although eleven per cent
a year compounded annually is far below our
historical average annual growth experience over
more than two decades, our eleven per cent goal
does exceed our performance during,the past
three years — a period which included two
recessions and several other significant though
presumably nonrecurring adverse circumstances.
Profit Margins
Somewhat narrower profit margins than
have been customary were largely due to higher
than customary overhead, to heavier competition, and to higher interest rates. Despite these
recent handicaps, we believe that our goal of
achieving an eleven per cent a year growth
pattern is not only attainable; we think it should
be our minimum objective.
High overhead which alone accounts for
a major portion of our overall net shrinkage in
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