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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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