Notes to Consolidated Financial Statements
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
The consolidated financial statements include net assets of foreign subsidiaries of $42,979,000 at July 28, 1978 and $39,305,000
at July 29,1977. Foreign sales and net income after interest, intercompany charges and foreign tax, as a percent of consolidated
sales and net income were 8% and 15% in 1978 and 8% and 13% in
Financial statements of foreign subsidiaries are translated into
U.S. dollars in accordance with the provisions of Statement of
Financial Accounting Standards No. 8. Translation losses were
$538,000 in 1978 and $594,000 in 1977.
The two theme parks operate primarily during the summer season. Operating costs incurred during the off-season are deferred
(included in prepaid expenses). These deferred costs and annual
depreciation are charged to expense during the operating season
based on budgeted sales. Interest and general and administrative
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:
Buildings and improvements-
Furniture and equipment
25 to 45 years
shorter of life of lease or asset
2 to 15 years
Maintenance and repairs are expensed. New unit costs include
interest, rent charges and real estate taxes incurred during construction. Replacements and improvements, including most costs
of converting units, are capitalized.
Upon sale or retirement of property and equipment (excluding
normal sales or retirements of theme park rides and equipment),
the costs less accumulated depreciation and salvage are charged or
credited to income. Theme park rides and equipment are depreciated under the composite method and no gain or loss is recognized
on normal sales or retirements.
Cost 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 $6,415,000 at July 28,1978 is being amortized over periods of up to 40 years.
Costs incurred prior to opening are deferred and amortized over
three years for hotels, five years for theme parks and one year for
other major operations. Similar costs for all other operations are
expensed as incurred.
Interest cost is capitalized as part of construction costs or carrying costs of land to properly reflect the total costs of property.
Interest is capitalized by applying the effective interest rate on the
related borrowings to costs incurred. If all interest had been
expensed when incurred, net income as reported would have been
increased by $858,000 ($.02 per share) in 1978 and $213,000
($.01 per share) in 1977.
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 and stock compensation. Investment tax credits are accounted
for using the "flow-through" method.
Provision for United States taxes has not been made on unremitted earnings of foreign subsidiaries because management considers these earnings to be permanently invested. Total unremitted
earnings were $13,445,000 as of July 28, 1978.
Computations of Earnings Per Share:
Earnings per share assuming no dilution are based on the
weighted average number of shares outstanding during each year,
which was 36,667,663 for 1978 and 36,568,300 for 1977.
Earnings per share assuming full dilution assumes the conversion of convertible debentures and includes the dilutive effect of
employee stock options and deferred stock compensation.
The Company has a 49% interest, with an option to purchase the
remaining 51% after 1985, in a limited partnership which owns the
New Orleans Marriott Hotel. The hotel is leased to the Company
for 55 years including renewal options, with rentals based solely
on profits. The partnership is constructing a 430-room addition
and, at various times during the year, the Company advanced the
partnership funds for this addition. The maximum advanced at
any time during the year was $14,316,000. The Company also
has guaranteed to complete the project at the estimated cost of
$20,500,000 and to obtain or provide the permanent mortgage
financing. The partnership has a permanent mortgage commitment of $46,000,000, secured only by the property to finance this
addition and refinance the existing mortgage. At July 28,1978,
$15,766,000 has been spent on this project. At July 28,1978, the
partnership has total assets of $48,412,000 and total liabilities of
The Company has a 49% interest in a limited partnership which
owns the 1,214-room Downtown Chicago Marriott Hotel. The hotel
is leased to the Company for 80 years including renewal options,
with rentals based solely on profits. At July 28,1978, the partnership has total assets of $78,059,000 and total liabilities of