H Group Holding, Inc. and Subsidiaries - Page 17




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               royalties are adjusted for, that HIC, HHK and HS appear                 
               to have the proper relationships in terms of adjusted                   
               operating income.  * * *                                                
               The perceived imbalance was due to the absence of hotel                 
          expenses on the management subsidiaries’ books and the fact that             
          numerous HHK’s and HS’ expenses were absorbed by the flagship                
          hotel’s sharing of space and employees.  Some of HIC’s expenses,             
          however, were attributable to its role as a parent organization              
          and as the management entity for hotels in Europe, Central                   
          America, and parts of the Middle East and would not be                       
          attributable to HHK and HS.  BVS considered the expenses of HIC              
          and its U.S. subsidiaries but limited the comparison to the                  
          operating revenues.33  BVS did not consider the fact that HIC                
          received dividends as a “parent” and that some of the dividend               
          income could be associated with the management relationship.                 
          Significantly, BVS’ profit-split methodology was intended to                 
          reflect the proportion of assets each entity had contributed.                
          That narrowly focused approach overlooks the contribution of                 
          labor and expertise, which are the most important elements in a              
          service industry.  Although BVS' methodology was designed to rely            
          on asset proportioning, BVS’ conclusion essentially relies on                




               33  It appears that BVS’ analyses exclude the losses                    
          incurred from the expenses of HIC for the hotels in Brussels and             
          Nice.                                                                        





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