Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include accounts of the Company and all subsidiaries. Investments in companies representing 20% to 50% interests
are accounted for under the equity method. All material intercompany transactions and balances have been
The 1974 financial statements have been reclassified
to be consistent with the captions used in 1975, including amounts previously shown for condominium units
held for sale and theme park pre-opening. Operating
Groups' sales have been regrouped to report on a
comparable basis the transfer in fiscal 1975 of Food
Service Management and Highway divisions from
Restaurant Operations to Business and Professional
Services (formerly In-Flite Services), and the transfer
of two specialty restaurants from Hotels to Restaurant
The consolidated financial statements include net
assets of foreign subsidiaries of $14,954,000 at July 25,
1975 and $16,680,000 at July 26, 1974. Foreign sales
and net income (loss) after interest, intercompany
charges and foreign tax, as a percent of consolidated
sales and net income were 10% and (1)% in 1975 and
were 11% and 3% in 1974, respectively.
Financial statements of foreign subsidiaries have
been translated into U.S. dollars as follows: current
assets, long-term receivables and all liabilities at year
end rates of exchange; property, equipment and depreciation reserves and expense at the rates in effect
when the respective assets were acquired; and sales and
expenses (except depreciation) at the average rates
during the year. Exchange adjustments are charged or
credited to income and are not significant.
Sales of condominium units are recorded when both
parties are bound by sales contracts and all conditions
precedent to closing have been performed, including
receipt of appropriate down payments. The Company
had condominium sales of $7,379,000 in 1975 and
$5,469,000 in 1974.
Land and Ship Purchased
for Future Operations or Resale:
In connection with the development of properties,
the Company has acquired land to be used for future
operations and/or for eventual resale. Carrying costs
are capitalized to the extent that estimated realizable
value exceeds land and accumulated carrying costs. In
fiscal 1975, the Company decided not to refurbish a
ship which was included in construction in progress
at July 26, 1974 and is currently considering alternatives for use of the ship.
Construction Financing and Interest Capitalized:
Interest cost is capitalized as part of construction
costs or carrying costs of land purchased for future
operations or resale to properly reflect the total costs
of property. Interest is capitalized by applying the
effective interest rate on the related borrowings to the
balance of costs incurred. If all interest had been expensed when incurred, net income as reported would
have been reduced by $4,785,000 in 1975 and $2,458,-
000 in 1974. See Note 5 for description of accounting
for construction financing.
United States and foreign income taxes are based on
reported income. Deferred income taxes are provided
for timing differences between book and taxable income, principally depreciation, interest, stock compensation and lease costs. See Note 4 for analysis of
Investment tax credits are accounted for using the
Provision for United States taxes has not been made
on unremitted earnings of foreign subsidiaries because
management considers these earnings to be permanently invested.
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
quoted market price at the date awarded.
Computations of Earnings Per Share:
Earnings per share of common stock are based on
the weighted average number of shares outstanding
during each year, which was 32,277,204 for 1975 and
31,868,019 for 1974 (adjusted for 1975 2i/2% stock
dividend). Conversion of subordinated debt and distribution of shares reserved would not have a material
effect on earnings per share.
Cosf in Excess of Net Assets
of Businesses Acquired:
Of the cost in excess of net assets of businesses acquired, $12,936,000 relates to acquisitions prior to
October 31, 1970 (at which time amortization became
mandatory) and is not being amortized because in the
opinion of management, it has continuing value. The
remaining $6,024,000 is being amortized over periods
up to 40 years.
Costs incurred prior to opening are deferred and
amortized over three years for hotels and one year for
other major operations. Management is currently planning to amortize such costs for theme parks over five
years. Similar costs for all other operations are expensed as incurred.
Issuance costs on long-term debt are deferred and
amortized over the repayment term. Costs of developing data processing systems and research and development costs are expensed as incurred.
Property and Equipment:
Depreciation and amortization are calculated on
the straight-line method for financial statement purposes based on the following lives: