Notes to Consolidated Financial
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The accompanying consolidated financial statements
include accounts of the Company and all majority-owned
domestic and foreign subsidiaries. All material intercompany transactions have been eliminated.
Acquisitions and 1971 Restatements:
The 1971 financial statements have been restated to
include (a) a previously unconsolidated wholly-owned
finance subsidiary which merged with the Company in
1972; (b) Farrell's, Inc. which was acquired by the Company in June, 1972, in a transaction accounted for as a
pooling of interests; and (c) consistent classifications of
accounts. The net effect of these restatements was to increase sales and net income as originally reported in
1971 by $4,582,150 and $69,784. There was no effect on
earnings per share.
During 1972, the Company acquired three food service
companies (including Farrell's, Inc.) for 264,850 shares of
common stock. These combinations were accounted for
as poolings of interests. The three companies had combined sales of $12,127,000 and net income of $501,000
for 1972 and total assets of $5,520,000 at dates of acquisition.
During 1972, the Company acquired a cruise ship company, a 45% interest in another cruise ship company and
a restaurant chain for $16,580,000. These acquisitions
were accounted for as purchases with a resulting cost in
excess of net assets of $3,955,000. The results of operations of these companies are included from the dates of
acquisition and include sales of $4,493,000 and net income of $548,000. Proforma results of operations prior to
the dates of acquisition, as required by Accounting Principles Board Opinion 16, are not available for the cruise
ship companies since the acquisition included the reorganization of two privately owned companies and the
purchase of individual assets from a third company.
Results for the restaurant chain are not significant.
The accompanying financial statements include net
assets in foreign countries of $11,326,000 at July 28, 1972.
Foreign sales and operating income for the year then
ended, as a percent of total sales and profits, were 8.8%
Foreign assets and liabilities have been translated to
U. S. dollars at year-end exchange rates, except net
properties have been translated at rates prevailing when
acquired. The income accounts have been translated at
aDproximately the average monthly exchange rates. The
effect on net income of gains and losses from translations
and exchange transactions was not significant.
Investment in Duman Investments, Inc.:
The Company has a 25% equity interest (with 50%
voting rights) in Duman Investments, Inc., the landlord of
the New Orleans Marriott Hotel, which is leased to the
Company and opened in late July 1972. In addition, the
Company has a right to convert $1,000,000 of debentures
for an additional 24% non-voting equity interest. At July
28. 1972, Duman had total assets of $30,674,000 and total
liabilities of $27,993,000, of which $23,729,000 are current
28 liabilities. Duman has a $23,000,000 permanent mortgage
loan commitment scheduled for closing in October, 1972.
The Company has guaranteed $3,264,000 of Duman's
Interest of $1,612,000 in 1972 and $1,273,000 in 1971
on construction financing was capitalized as part of the
construction costs. See Note 3 for description of accounting for construction financing.
Depreciation and Amortization:
Depreciation and amortization are calculated on the
straight-line method for financial statement purposes and,
where permitted, on accelerated methods for tax purposes. The following lives are used for financial statement
Buildings and Improvements 20 to 40 Years
Leasehold Improvements Shorter of Life of
Lease or Asset
Furniture and Equipment 2 to 20 Years
Cruise Ships 20 Years
Leasehold interest under lease-
Equipment 4 to 20 Years
Buildings and Improvements ... 25 to 45 Years
Deferred income taxes are recognized for differences
between book and tax accounting for depreciation, interest during construction, pre-opening expenses, payments
to individuals for covenants not to compete obtained in
connection with acquisitions, and deferred stock compensation.
U. S. taxes are not accrued on undistributed earnings
of foreign subsidiaries where management considers
such earnings to be permanently invested.
The Company uses the flow through method of accounting for investment tax credits.
Deferred Management Stock Compensation:
Compensation for deferred stock bonus awards is recorded in the year in which the bonus is earned, adjusted
for anticipated forfeitures, and is based on the market
price at the date awarded. Compensation for deferred
stock contracts is recorded for the shares contingently
vested in each year and is based on the market price as
of the date of contracts. Other stock compensation which
is subject to restrictions is expensed over the period of
Computation of Earnings per Share:
Earnings per share of common stock are based on the
weighted average number of shares of common stock
outstanding during each year, which were 28,656,595 for
1972 and 27,156,260 for 1971 (adjusted for 1972 stock
Conversion of the outstanding subordinated debt and
distribution of the total shares reserved under the stock
purchase plan and awarded under deferred stock compensation agreements would not have a material effect on
earnings per share.
Cosf in Excess of Net Assets of Businesses Acquired:
The cost in excess of net assets of businesses acquired
prior to October 31, 1970 ($13,501,960), is not being
amortized. The cost in excess of net assets of businesses
acquired subsequent to October 31, 1970 ($4,370,612), is
being amortized in accordance with Accounting Principles Board Opinion 17 over periods up to 40 years.
Initial franchise fees and monthly royalty fees based on
sales are accrued as earned.
Deferred charges consist of the following: