Modified Earnings (Ratio Chart) (See discussion in Chairman's comments below)
1948 1949 1950 1951 1952
1954 1955 1956 1957
1959 1960 1961 1962 1963 1964 1965 1966
despite the slackening this spring in automobile production. Thompson makes
metal trim, wire harnesses, welding guns,
and plastic accessories. Thompson profits
were increased as the result of the sale
of an unprofitable metal stampings plant
and by increasing profit margins in the
wire harness division. Prospects for this
year appear bright because of the backlog of orders presently on the books.
For the second time In four years, the
"Sheraton-Thompson Special," driven by
A. J. Foyt, won the Indianapolis "500"
We were very pleased that a hundred
Sheraton stockholders participated in the
Second Annual Stockholders Tour which
visited San Francisco, Honolulu, Maui,
Hong Kong, Tokyo, and Los Angeles. The
first tour in 1966 covered Sheraton hotels
in the Caribbean. Plans are already being
formulated for next year's tour.
Our new second generation electronic
reservation system, "Reservatron II," the
most advanced automated reservation system in the hotel and motel industry, Is
now In operation connecting all mainland
hotels in the United States and Canada.
It is the successor to our "Reservatron I"
Installed ten years ago, the nation's first
electronic hotel reservation system. The
new equipment will contribute to increased occupancy as well as improve
service to our guests.
We expect shortly to enter a new but
related Industry. While a hospital is basically a hotel with medical facilities, hospital rates are necessarily related to medical
services available, whether used or not.
Sheraton is planning to build convalescent
hospitals to serve the needs of those who
are recuperating and do not need, and
would prefer not to pay for, extensive
medical services, We expect to break
ground this fall for our first convalescent
Much of the past decade had seen a
comparatively stable dollar; however, we
see indication of rising inflationary pressures. Sheraton's equity in its real estate
should benefit from inflation especially
due to the leverage provided by mortgage
This coming year looks promising. The
backlog of convention sales is not only at
an all time peak but is 11% above last
year. This, coupled with the Company's
plan for further improvement in profit
margins as well as Increased sales, should
improve next year's earnings.
On the basis of such yardsticks as sales
volume, total assets at estimated market
value, cash earnings, and number of hotel
rooms owned, Sheraton Is presently the
world's largest hotel corporation. This carries with It responsibilities which our
Sheraton staff of over 26,000 is prepared
to assume. The Company's ambitious
training and development programs are a
measure of its recognition of these responsibilities. Our new five-year plan is
especially designed to achieve a sustained long-range growth of earnings.
We hope and sincerely believe that next
year we will again be able to report substantial improvement in our net income.
Your patronage of Sheraton hotels and
motor inns will help us to achieve that
For some years we have attempted to
develop a method of accounting which
will provide a satisfactory measure and a
realistic appraisal of our management objectives, performance, and accomplishments. Stockholders may be interested
in studying the following presentation of
a concept which we refer to as "Modified
The adverse effect of excess depreciation on the reported earnings of Sheraton
is a matter that may be of interest to
shareholders of the Company, especially
because of the magnitude of the reserves
permissible under present accounting
practice and because of certain provisions
of existing treasury rulings.
Although some corporations, notably
public utilities, meet the problem posed
by high allowable depreciation reserves
by reporting differently for purposes of
income taxes and when reporting to shareholders, this procedure is not generally
practical for certain reasons for a hotel
enterprise. Accordingly, Sheraton follows
the practice of setting up maximum depreciation reserves both for tax purposes
and when officially reporting to shareholders.
It is true that heretofore somewhat
more realistic earnings figures have been
Included in Company annual and semiannual reports under the heading of "adjusted earnings." Such earnings are based
on a formula that in practice tends to
reduce depreciation reserves by approximately 25%. This latter approach, however, still provides excessive depreciation.
The resolution of the problem of needed
depreciation can determine whether operating earnings of 91 cents a share for
fiscal '67 as reported are the correct
amount, or whether $1.94 a share (after
provision for possible added income taxes)
is more realistic. Based on actual experience over the past 15 years, the net
amount of depreciation needed in order to
maintain constant Sheraton's property
values can be demonstrated to be only
about half of the $210 million provided
out of current earnings for this purpose
during these 15 years. If this conclusion
is correct, the higher earnings figure
should be accurate.
The conclusion that depreciation reserves are excessive is supported in part