and development costs, including those related to
the theme parks, are expensed as incurred.
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
$4,375,000 in 1976 and $4,402,000 in 1975. See
"DEBT" 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
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.
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 (adjusted for stock dividends and stock splits), which was 34,363,515 for
1976 and 33,084,134 for 1975. Distribution of shares
reserved would not have a material effect on earnings per share.
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. At July 30, 1976, the partnership had total assets of $31,653,000 and total
liabilities of $27,348,000. The Company has guaranteed a $5,000,000 bank loan due in 1978.
The Company has a 49% interest in a limited
partnership which is constructing a 1,214-room
hotel in downtown Chicago. The hotel will be
leased to the Company for 80 years including renewal options, with rentals based solely on profits.
The Company has agreed to contribute approximately $4,000,000, net of construction period tax
benefits, to the partnership as of the earlier of completion of the hotel or August, 1978. A commitment
for permanent financing of $54,000,000 has been
obtained, to be secured only by the property.
The Company has a 45% equity interest in Sun
Line Greece Special Shipping Company, Inc., the
owner of the cruise ship M.S. Stella Solaris. At its
fiscal year-end (December 31, 1975), Sun Line
Greece had total assets of $22,698,000 and total
liabilities of $19,015,000, including $11,921,000 of
debt, and $4,000,000 advanced by stockholders, of
which $1,800,000 was the Company's share. The
Company has guaranteed 45% of the debt.
The excess of the Company's investment over
the underlying net assets of minority-owned affiliates is $3,108,000 and is being amortized over periods of up to 40 years.
Reconciliation of the United States statutory tax rate
of 48% and the Company's consolidated income tax
1976 &?■ 1975
United States income tax rate 48.0% 48.0%
State income taxes on U.S. pre-tax
income, net of U.S. tax benefit 3.5 3.4
Other items, net 0.3 (0.5)
Effective gross income tax rate 51.8 50.9
Investment tax credit —
Theme Parks (6.3)
Other (5.1) (7.7)
Effective net income tax rate 40.4% 43.2%
Deferred income tax provisions are attributable to:
Excess of tax over book
$ 7,522,000 $3,353,000
Other items, net
Maturities of Debt at July 30,1976:
The Company has debt of $127,400,000 as of
July 30,1976 at interest rates which vary based on
the prime lending rate or London Euro-dollar
Summary of Pledged Assets:
As of July 30,1976, property and equipment, at
cost, excluding land and ship purchased for future
operations or resale and construction in progress,
totals $782,518,000, of which $360,936,000 (46%)
is pledged or mortgaged.