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 financial statements have been reclassified to be
consistent with the captions used in 1974. The 1973
balance sheet amounts for leasehold interest under
lease purchase obligations have been reclassified to the
respective property categories and the related obligations have been reclassified to mortgage notes payable.
The consolidated financial statements include net
assets of foreign subsidiaries of $16,680,000 at July 26,
1974 and $12,806,000 at July 27, 1973. Foreign sales and
net income, as a percent of consolidated sales and net
income after tax, were 11% and 3% in 1974 and were
10% and 11% in 1973, 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 of exchange
in effect when the respective assets were acquired; and
sales and expenses (except depreciation) at the average rates in effect during the year. Exchange adjustments resulting from the translation of construction
loans are credited or charged to the related property
account; other adjustments are charged or credited to
income and are not significant.
Sales of condominium units are recorded when both
parties are bound by terms of sales contracts and all
conditions precedent to closing have been performed,
including receipt of appropriate down payments. The
Company had condominium sales of $5,469,000 and
$5,036,000 in 1974 and 1973, respectively.
Land Purchased for Future Operations or Resale:
In connection with the development of properties,
the Company often acquires land to be used for future
operations and/or for eventual resale. Carrying costs
are capitalized to the extent estimated realizable value
exceeds land costs and accumulated carrying costs.
Construction Financing and Capitalized Interest:
Interest of $5,144,000 in 1974 and $2,802,000 in 1973
was capitalized as part of construction cost or carrying
cost of land purchased for future operations or resale.
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 recorded
for timing differences between book and taxable income, principally depreciation, interest during construction, deferred stock compensation and lease costs.
Investment tax credits are on the "flow-through"
method and are recognized in the year the related
property and equipment are placed in service.
Provision for United States taxes has not been made
on unremitted earnings of foreign subsidiaries as these
earnings are considered to be permanently invested.
The Company's equity in unremitted earnings of foreign subsidiaries, which are considered to be permanently invested, aggregated $6,628,000 at July 26, 1974.
If this amount were distributed, United States taxes
would be reduced by foreign 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
quoted market price at the date awarded.
outation 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 31,090,751 for 1974 and
30,917,633 for 1973 (adjusted for 1974 2'/2% stock dividend). Conversion of subordinated debt and distribution of shares reserved would not have a material
effect on earnings per share.
Cost in Excess of Net Assets of Businesses Acquired:
Of the cost in excess of net assets of businesses acquired, $13,595,000 relates to companies acquired prior
to October 31, 1970 and is not being amortized. The
remaining $3,072,000 is being amortized over periods
up to 40 years.
Deferred Pre-Opening Costs and Other Deferred Costs:
Costs incurred prior to the opening of certain operations are deferred and amortized, following dates of
opening, as follows: hotels—three years; theme parks
—five years; and other major operations—one year.
Such costs for smaller operations are expensed as incurred.
Deferred financing costs are amortized over the term
of the related loan. Other deferred charges are amortized over periods of up to five years.
Costs of developing data processing systems and
research and development costs are expensed as incurred.
Depreciation and Amortization:
Depreciation and amortization are calculated on the
straight-line method for financial statement purposes
based on the following lives:
Buildings and improvements 25 to 45 Years
Leasehold improvements Shorter of life of
lease or asset
Furniture and equipment 2 to 20 Years
Cruise ships 20 Years
Maintenance and repairs are expensed. Replacements and improvements, including costs of converting units, are capitalized. Costs of replaced property
less accumulated depreciation and salvage are
charged or credited to income.
Royalty and Franchise Fees:
Royalty fees are accrued on a monthly basis. Initial
franchise fees are not significant.
During 1974, the Company acquired either the principal assets or stock of the Manners Restaurants Division
of Consolidated Foods Corporation (operator of 38 Big