| Transcript |
Notes to Consolidated Financial Statements
(1) Principles of Consolidation and Acquisitions:
The accompanying consolidated financial statements include accounts of all subsidiaries, (after eliminating all material intercompany transactions) except Marriott Financial Services, Inc. which
investment is carried at cost plus equity in undistributed earnings
(see Note 2). The accounts of foreign subsidiaries are included in
the consolidated financial statements after translation to U.S.
dollars.
During 1969, the Company acquired several foreign and domestic
businesses in exchange for cash and stock. All of these acquisitions
were accounted for as purchases except Chef-Aire Shirley, S. A. de
C. V., which was acquired in exchange for 45,642 shares of common stock and was accounted for as a pooling of interests. The
consolidated financial statements for 1968 and prior years were not
restated, as the amounts relating to the transaction were not material.
The cost in excess of net assets of acquired businesses is shown in
the accompanying balance sheet under Other Assets and has a continuing value which is not being amortized. In connection with the
acquisition of Roy Rogers Western Foods, Inc. in 1968, the Company may be required to issue additional shares of common stock in
1970. Such additional shares, if any, will be based on 1970 sales
from areas initially franchised by the sellers, and, therefore, cannot
be determined at this time.
(2) Unconsolidated Finance Subsidiary:
During 1969, the Company formed a subsidiary, Marriott Financial
Services, Inc. (MFS) to provide financing for the Company's franchisees and has negotiated 25 such financing agreements to provide
$6,350,000 of financing. In addition, MFS is providing construction financing of $20,000,000 ($2,300,000 advanced as of July 27,
1969) to the landlord of the New Orleans Hotel against a permanent
loan commitment and has provided $25,000,000 for temporary
financing (three years) to the landlord of the Essex House in New
York City. Including options, the Company will lease the New
Orleans Hotel for 55 years and is leasing the Essex House for 43
years.
The Company acquired a 25% equity in the landlord of the New
Orleans Hotel and has an option to acquire an additional 24%
during the three years following the hotel opening by converting
debentures it now owns into $1,000,000 of class B stock of the
landlord. Also, the Company has a three year option to purchase 50%
of the Essex House at the landlord's cost and a second option running three years later to purchase the remainder at the then appraised
value but at not less than $16,500,000.
Until this subsidiary establishes its own credit lines, the Company
will guarantee MFS's borrowings. The Company has guaranteed the
$27,000,000 of commercial paper issued as of July 27, 1969, and
loan commitments of an additional $20,000,000 described above.
M FS's condensed balance sheet as of July 27,1969 is as follows:
Assets (in thousands)
Real estate leased to Marriott franchisees
Construction advances—New Orleans Hotel
First mortgage trust on Essex House
Second mortgage trust on Essex House
Rental contracts and other assets
$ 900
2,300
22,000
3,000
800
29,000
Less Liabilities
Short term commercial paper guaranteed by Marriott
Corporation
Other liabilities
27,000
200
Net worth and advances from parent
27,200
1,800
(3) Depreciation and Changes in Lives of Properties:
Depreciation and amortization are calculated on the straight-line
method for financial statement purposes and, where permitted, on
accelerated methods for tax purposes. Deferred taxes are recorded
where appropriate.
Based on a reevaluation in 1969, the useful lives of high-rise hotels
and the food processing plant were extended from 33 years to 40
and 45 years, respectively. If this change had not been made, income
before extraordinary items and net income for 1969 would have
been $150,000 less.
(4) Federal Income Taxes:
The Company and its subsidiaries file separate income tax returns.
Federal income tax returns for fiscal years prior to 1964 have been
examined and settled. The Federal income tax returns for the fiscal
years 1964 through 1967 are currently being reviewed by the Internal Revenue Service. In the opinion of management, any adjustments for such years will not have, in the aggregate, a material
adverse effect on the Company's consolidated financial statements.
The provision for income taxes has been increased by the federal
surtax provision in the amount of $655,000 and $329,000 for 1969
and 1968, respectively, and has been decreased by investment credits
in the amount of $988,000 and $827,000 for 1969 and 1968, respectively. The provision also includes deferred income taxes of
$2,818,000 and $1,495,000 for fiscal years 1969 and 1968, respectively, relating to differences between book and tax accounting
for depreciation, interest during construction, pre-opening expense,
non-competition payments, and deferred stock compensation.
U. S. taxes have not been accrued on undistributed profits of foreign
subsidiaries because management considers such profits to be permanently invested. Any such taxes, after foreign tax credits, would
not be material.
(5) Long-Term Obligations:
Maturities of long-term obligations, excluding the convertible subordinated notes, are as follows:
Fiscal Year
Interest rates
1971
1972
1973
to 1994
Total
Mortgages
and Notes
4J4—9*ie%
$ 6,188,800
3,163,511
1,403,718
19,279,856
$30,035,885
Lease-Purchase
Obligations
5—7%%
$ 2,655,014
2,747,640
2,425,806
37,628,242
$45,456,702
Lease-purchase obligations are in substance installment purchases
and are recorded as leasehold interest at the discounted amount of
future rentals. These leases are made with corporations owned by
the Marriott Foundation and provide for the recovery of principal
and interest and a nominal profit.
In addition to the foregoing leases, the Company has other leases
which are not installment purchases and which have an average
remaining term of 16 years as of July 27, 1969. Minimum annual
rentals amount to approximately $5,800,000 as of July 27, 1969.
Most of these leases have renewal privileges and require additional
rentals under percentage clauses relating to sales-
Loan commitments of $18,725,000 for construction which will be
completed during the next twelve months have been obtained as of
July 27, 1969. In addition, the Company has obtained temporary
construction financing of $9,720,000 at July 27, 1969, which will
be replaced by permanent financing upon completion of the
various projects.
(6) Stock Compensation and Stock Purchase Plan:
Deferred stock bonus awards and contracts have been made with
197 employees. The shares contingently vest pro rata until retirement, after which they are distributed in ten annual installments.
Adjusted for forfeitures, stock dividends and splits, a total of 280,547
shares has been awarded, of which 100,890 shares had contingently vested on July 27, 1969.
Compensation for deferred stock bonus awards is recorded in the
year in which the bonus is earned, and for deferred stock contracts
is recorded for the shares contingently vested in each fiscal year
based on the fair market value when the awards are made (see Note
9 for change in pricing method of contract awards). The future
income tax benefit to the Company when shares are issued to retired
employees is included as a reduction of deferred taxes.
During fiscal 1969, 11,250 shares of common stock were sold to a
24
|
