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Sheraton Corporation of America, 1961 Annual Report
Image 18
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Starwood Hotels & Resorts. Sheraton Corporation of America, 1961 Annual Report - Image 18. 1961. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. University of Houston Digital Library. Web. May 25, 2019. https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1314.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Starwood Hotels & Resorts. (1961). Sheraton Corporation of America, 1961 Annual Report - Image 18. Annual Reports from the Hospitality Industry Archives. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. Retrieved from https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1314

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Starwood Hotels & Resorts, Sheraton Corporation of America, 1961 Annual Report - Image 18, 1961, Annual Reports from the Hospitality Industry Archives, Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, accessed May 25, 2019, https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1314.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

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Compound Item Description
Title Sheraton Corporation of America, 1961 Annual Report
Creator (LCNAF)
  • Starwood Hotels & Resorts
Publisher Starwood Hotels & Resorts
Date 1961
Description Sheraton Corporation of America Annual Report for the year ending on April 30, 1961.
Subject.Topical (LCSH)
  • Hospitality industry
  • Hotel management
  • Corporation reports
Subject.Name (LCNAF)
  • Starwood Hotels & Resorts
Genre (AAT)
  • annual reports
  • business records
Language English
Type (DCMI)
  • Text
  • Image
Original Item Location Conrad N. Hilton Papers
Digital Collection Annual Reports from the Hospitality Industry Archives
Digital Collection URL http://digital.lib.uh.edu/collection/hiltonar
Repository Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston
Repository URL http://www.uh.edu/hilton-college/About/hospitality-industry-archives
Use and Reproduction No Copyright - United States
File Name index.cpd
Item Description
Title Image 18
Format (IMT)
  • image/jpeg
File Name hiltonar_201609_023_018.jpg
Transcript 16 termination of the probable useful life of that building. No book value was recorded for this leasehold since we sold the property for full market value. In December of this year, the rental payments required of us will be reduced by approximately four hundred and seventy-five thousand dollars a year at the very time when tenants, due to major improvements we have made to the property, especially in recent months, will be paying substantially higher rentals. These tenants now include some of the nation's foremost corporations. Probable basic earnings of seven or eight hundred thousand dollars a year after reduced rental obligations to the lessor next December indicate a present market value for this leasehold of over five million dollars. The asset value of this leasehold, reflecting its fair market value, has been building up gradually over eleven years when rental costs and expenses of modernization were absorbing nearly all the income of the property. While neither book values nor earnings were reflecting this gradual rise in value, our indicated net asset values were reflecting more accurately the economic consequences of this sale and lease-back transaction. This is an illustration of how significant expenditures for modernization and improvements can extend the useful life of a building for many years, and thereby create values not otherwise reflected by ordinary financial statements. Net Worth Accounting As basic accounting procedures, particularly with reference to depreciation, are employed by Sheraton in connection with the preparation and certification of the Income Statement, we believe that the earnings disclosed therein are not a true measure of economic performance. For example, a part of Sheraton's depreciation, in accordance with applicable federal and state regulations, has been established on an accelerated basis. This accelerated depreciation, and frequently our straight line depreciation, do not necessarily relate to the economics of any given year. Therefore to provide a system of accounting that can reflect from year to year with reasonable accuracy economic facts that are not ordinarily revealed by conventional accounting procedures, we rely on what we call a system of "Net Worth Accounting." Under this concept, we compute each year changes in market values of our various properties and other assets, including leasehold property interests. We determine at the beginning and end of each accounting period the fair market value of each property through the application of the appropriate multiplier (price earnings ratio) to the adjusted basic earnings for the preceding year. Purchasers of income real estate usually pay little attention to basic earnings of earlier years except to establish a trend. This may appear drastic, but it conforms to practical experience. Our asset valuations of leasehold interests merely reflect the fair market value of future earnings power, duly discounted at a rate which ordinarily runs at twelve per cent or more per annum until such time as future earning power becomes fully available. This becomes significant in many sale and lease-back transactions where high lease rentals during the early years virtually eliminate all operating earnings. After determining the change in market value during a given year, capitalized improvements made during the period are taken into consideration in the following manner. If a decline in market value has been determined for any property for a given year, this amount plus the cost of improvements becomes the measure of actual loss and is deducted as a "depreciation substitute" from operating income in place of conventional depreciation reserves. If the value of the property for some reason rose during the year, over and above the investment in improvements, this depreciation substitute is added instead of being subtracted in determining earnings. In the latter case, the "depreciation substitute," which for convenience we might call the "net worth factor," becomes a "negative" deduction, and hence an addition to earnings. Under this method of accounting, adjusted earnings are referred to as "net worth profit." This procedure actually corresponds to some extent, to the practice of manufacturers when taking annual inventories — except that the concept of "the lower of cost or market" is not applicable. This is because, unlike manufacturers' inventories which are periodically revalued through the process of frequent turnover, hotels are often held for many decades without ever being sold. Under the concept of net worth accounting, the role of depreciation reserves becomes limited to measuring the income tax liability. The depreciation substitute, or "net worth factor" replaces the more theoretical annual depreciation or deterioration with a much more scientific measure of the actual changes in market value — either up or down — of all the various fluctuating assets of a business. With several hundreds of millions of assets required in Sheraton's business, nearly all subject to major variations in value — an approach of this nature is clearly essential. The importance of a "depreciation substitute" is evident when considering the value of one of the larger, and one of the oldest Sheraton hotels. This hotel next year would normally reach the end of its original fifty-year life. Annual depreciation reserves would then have served to "write off" the entire original cost of the building. The problem of normal accounting procedure is illustrated by the fact that this hotel, whose theoretical value should be approaching zero, is actually recording close to the highest earnings — both basic and reported — in its forty- nine-year history. The property at fair market value is presently worth nearly twice what it originally cost to build nearly fifty years ago. Under "net worth accounting," reported earnings, instead of being penalized each year by unrealistic depreciation reserves, would have been augmented by the appropriate depreciation substitute, or "net worth factor." Ultimately — so that net worth accounting can be protected against possible abuse, independent net worth audits based on these principles of net worth accounting would develop. Eventually perhaps, a new professional corps of independent "certified public evaluators" will arise so that recognized evaluation certificates can be attached to evaluation statements, just as certificates of independent certified public accountants presently validate audited financial statements. In the meantime Sheraton's concept of "gain-