Company to repay any amounts borrowed thereunder from the
proceeds of its proposed sale of common stock discussed in
Note 10 or. in -the event the stock is not sold, then from other
sources at a date not later than December 31. 1971. In any
event, the commitment will be reduced by the amount of any
5. Stock Compensation and Stock Purchase Plan:
Deferred stock bonus awards and contracts have been made
with 308 employees. The shares contingently vest pro rata
until retirement, after which they are distributed in ten annual
installments (see Note 8 for present accounting policies). Adjusted for forfeitures, stock dividends and splits, shares awarded, contingently vested and fully vested are as follows:
July 31. 1970 July 27, 1969
Shares contingently vested.
Shares fully vested
The Company has a qualified stock purchase plan for employees to purchase up to 81,186 shares of common stock
under a Payroll Deduction Plan. The purchase price is the
quoted market value at January 2, 1970 ($36.81 per share,
adjusted for the 21/2% stock dividend paid in 1970) or 100%
of the quoted market value at January 31, 1971, whichever
is less. The number of shares reserved for issuance and the
purchase price under the plan are both subject to adjustment
as a result of antidilution provisions. Approximately 1600
employees are participating in the 1970 plan. Their current
rate of payroll deductions indicates that approximately 40,300
new shares (based on the July 31, 1970 quoted market price)
may be purchased at the employees' discretion in 1971. Under
the fiscal 1969 plan employees purchased 23,442 shares, in
36,250 shares of common stock have been issued to key executives under restricted deferred compensation agreements.
The market value, as of the contract dates, in excess of cash
received was $1,101,581 and is being expensed ($35,456 in
1970) over the restriction periods which expire at various
dates to 1981. For contracts representing 19,700 of these
shares, the number of shares, if any, to be released from the
restrictions each year is dependent upon the increase in the
Company's consolidated earnings each year over the prior
year and because of these restrictions, the excess of market
value over cash received ($525,744) will be recorded (charged
to expense) as the restrictions are released.
6. Convertible Subordinated Debt:
Fiscal Year Amount Outstanding
Issued Due July 27, 1969 July 31, 1970 Interest Rate
Conversion Unissued Common
Price Stock Reserved
$ 5,000,000 $ 5,000,000 5'/i%
15,000,000 15,000,000 SYi%
8,000,000 7,840,000 6'/,%
The $35.90 conversion price for the $5,000,000 in notes can
be reduced to $31.22 per share depending on the market price
of the stock during October, 1971. All conversion prices are
subject to antidilution provisions. The subordinated debt is
convertible into common stock at any time. Annual principal
payments of $2,000,000 begin May, 1980, on the 51/a% notes.
Annual principal payments of $400,000 on the 6%% debentures begin June ,1979.
The 5%% note agreements require the Company to limit cash
dividends to an amount not in excess of cumulative net income after July 28,1968, plus $3,000,000.
7. Earnings Per Share:
Earnings per share have been calculated based on weighted
average shares outstanding during the year, 12,425,941
shares in 1970 and 12,009,584 shares in 1969.
Conversion of the outstanding subordinated debt and distribution of the total shares under deferred stock compensation agreements has no material effect on earnings per share
for fiscal 1969 or 1970.
8. Accounting Policies:
Depreciation and amortization are calculated on the straight-
line method for financial statement purposes and, where permitted, on accelerated methods for tax purposes, based on
the following lives:
Land Improvements 3 to 20 Years
Buildings and Improvements.... 20 to 40 Years
Leasehold Improvements. .... .Shorter of Life of Lease or
Furniture and Equipment 4 to 20 Years
Automotive Equipment 2 to 8 Years
Leasehold interest under lease-
Equipment 4 to 20 Years
Buildings and Improvements.. 20 to 45 Years
Deferred income taxes are recognized primarily 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 profits of foreign
subsidiaries, because management believes such profits to be
permanently invested. Such taxes through 1970, after foreign
tax credits, would not be material.
Deferred Stock Compensation:
Compensation for deferred stock bonus awards is recorded
in the year in which the bonus is earned, based on the quoted
market price on the date awarded, and for deferred stock contracts is recorded for the shares contingently vested in each
fiscal year based on the quoted market price as of the date of
the contracts, adjusted for subsequent stock dividends and
splits. The future income tax benefit to the Company when
shares are issued to retired employees is accrued as a reduction of the deferred tax liability based on the quoted market
price when the awards are made.
Deferred Financing and Pre-opening Expenses:
Underwriting fees, debt discount, commissions and expenses
of long-term financing are deferred and amortized over the
life of the loan.
Employee costs, supplies and services required to make ready
new hotels and major hotel additions are deferred until the
property is open for business, after which the pre-opening
expenses are amortized over three years. Pre-opening expenses of other operations are expensed as incurred.
9. Short-term Investment:
The Company has a note purchased for $4,087,500 which
matures in December 1971 at a face amount of $5,000,000.
On July 31, 1970 the Company sold to its Employees Profit
Sharing Trust, at the Company's prorated discount cost, a
participation interest of $500,000 in this note. The Company's
remaining interest in the note as of July 31. 1 970 is included
in short-term investments, since the note is currently marketable at a price which approximates cost. Subsequent to July
31, 1970 an additional $1,100,000 participation was sold to
the Trust. The Company believes that this participation provides the Trust with a convenient means of temporarily investing reserve funds without incurring brokerage costs. The
Company has agreed to repurchase the participation at the
convenience of the Trust at the prorated discount cost.
10. Proposed Financing and Changes in Working
The Board of Directors has authorized the sale of approximately 900,000 shares of common stock and the Company is
in the process of filing a registration statement with the Securities and Exchange Commission. Proceeds from the proposed
sale of the Company's common stock will be used to retire the
short-term financing covered by the bank loan commitment
discussed in Note 4. The Company's net working capital
decreased significantly since July 31,1970 primarily as the result of additional construction expenditures, additional short-
term borrowings, and additional advances made to the unconsolidated finance subsidiary discussed in Note 2.
The Company is presently negotiating with banks to obtain a
five year commitment to provide a loan or loans of up to