<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 For the quarterly period ended July 31, 1997 .
-------------------
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 For the transition period from to .
-------- ---------
Commission File Number 333-31025
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KSL RECREATION GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0747103
---------------- --------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
56-140 PGA Boulevard
La Quinta, California 92253
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
760/564-1088
------------
(Registrant's telephone number, including area code)
N/A
-----------
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X , No .
----- -----
Shares outstanding of the Registrant's common stock
as of September 30, 1997
1,000
Class
Common Stock, $0.01 par value
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KSL RECREATION GROUP, INC.
INDEX
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Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets, July 31, 1997 and October 31, 1996 1
Condensed consolidated statements of operations for the three months and
nine months ended July 31, 1997 and 1996 3
Condensed consolidated statements of cash flows for the nine months ended
July 31, 1997 and 1996 5
Notes to condensed consolidated financial statements 7
Item 2. Management's discussion and analysis of financial condition and
results of operations 11
Part II. Other Information 14
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, JULY 31, OCTOBER 31,
EXCEPT PER SHARE DATA) 1997 1996
------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,104 $ 9,343
Restricted cash 2,814 5,512
Trade receivables, net of allowance for doubtful
receivables of $694 and $1,573, respectively 8,604 11,046
Inventories 6,423 7,266
Current portion of notes receivable, net 2,770 1,658
Other receivables 1,350 1,559
Prepaid expenses and other 1,926 2,221
-------- --------
Total current assets 30,991 38,605
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $60,228 and $44,916, respectively 355,428 362,381
NOTE RECEIVABLE FROM AFFILIATE 21,222 --
NOTES RECEIVABLE, less current portion 4,913 4,015
RESTRICTED CASH, less current portion 81 7,743
RECEIVABLE FROM PARENT -- 43,891
RECEIVABLES FROM AFFILIATES -- 3,694
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED ENTITIES, net of accumulated
amortization of $12,704 and $10,007, respectively 83,714 86,411
OTHER ASSETS, net 31,979 31,182
-------- --------
$528,328 $577,922
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
1
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, JULY 31, OCTOBER 31,
EXCEPT PER SHARE DATA) 1997 1996
------ ------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,434 $ 7,280
Accrued liabilities 19,228 16,506
Current portion of obligations under capital leases 3,126 2,407
Current portion of long-term debt 1,000 4,611
Customer and other deposits 3,042 3,412
Payable to affiliates 70 705
Due to Lake Lanier Islands Development Authority 1,865 3,874
Deferred income 2,614 1,581
-------- --------
Total current liabilities 34,379 40,376
LONG-TERM DEBT, less current portion 259,000 260,416
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 4,658 3,977
-------- --------
Total long-term liabilities, less current portion 263,658 264,393
MEMBER DEPOSITS 41,549 34,026
DEFERRED INCOME TAXES 16,760 16,760
MINORITY INTERESTS IN EQUITY OF SUBSIDIARY 254 391
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized
and outstanding -- --
Additional paid-in capital 197,361 227,394
Accumulated deficit (25,633) (5,418)
-------- --------
Total stockholder's equity 171,728 221,976
-------- --------
$528,328 $577,922
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
2
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
(AMOUNTS IN THOUSANDS, JULY 31, JULY 31,
EXCEPT PER SHARE DATA) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Rooms revenue $ 8,770 $ 6,377 $ 44,757 $ 37,791
Food and beverage sales 10,143 8,990 39,822 34,697
Golf fees 9,765 8,436 33,245 28,374
Dues and fees 6,373 6,373 18,551 17,254
Merchandise sales 2,718 2,694 11,677 11,047
Other 4,731 3,408 17,289 13,666
-------- -------- --------- ---------
Total revenues 42,500 36,278 165,341 142,829
EXPENSES:
Costs of goods sold:
Food and beverage 2,975 2,790 10,940 10,169
Merchandise and other 2,497 2,282 9,789 9,427
Payroll and benefits 16,330 14,978 51,053 47,884
Depreciation and amortization 6,481 6,118 19,397 17,504
Other 14,259 12,972 43,552 39,264
-------- -------- --------- ---------
Total expenses 42,542 39,140 134,731 124,248
-------- -------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (42) (2,862) 30,610 18,581
OTHER INCOME (EXPENSE):
Interest income 750 274 995 812
Interest expense (7,394) (7,801) (23,244) (20,869)
-------- -------- --------- ---------
Other expense, net (6,644) (7,527) (22,249) (20,057)
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
(AMOUNTS IN THOUSANDS, JULY 31, JULY 31,
EXCEPT PER SHARE DATA) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE MINORITY
INTERESTS, INCOME TAXES AND
EXTRAORDINARY ITEM $ (6,686) $(10,389) $ 8,361 $ (1,476)
MINORITY INTERESTS IN LOSS (INCOME)
OF SUBSIDIARY (45) (26) 137 52
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (6,731) (10,415) 8,498 (1,424)
INCOME TAX EXPENSE 28 147 2,223 144
-------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (6,759) (10,562) 6,275 (1,568)
EXTRAORDINARY GAIN (LOSS) ON
EARLY EXTINGUISHMENT OF DEBT,
net of income tax benefit of $2,007 in 1997
and expense of $16,757 in 1996 (31) -- (3,169) 32,120
-------- -------- -------- --------
NET INCOME (LOSS) $ (6,790) $(10,562) $ 3,106 $ 30,552
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS (LOSS) PER SHARE:
Before extraordinary item $ (6,759) $(10,562) $ 6,275 $ (1,568)
Extraordinary gain (loss) (31) -- (3,169) 32,120
-------- -------- -------- --------
TOTAL EARNINGS (LOSS) PER SHARE $ (6,790) $(10,562) $ 3,106 $ 30,552
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 1,000 1,000 1,000 1,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE
NINE MONTHS ENDED
JULY 31,
(AMOUNTS IN THOUSANDS) 1997 1996
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,106 $ 30,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,397 17,504
Amortization of debt financing costs 1,519 1,712
Extraordinary loss (gain) on debt extinguishment 5,176 (48,256)
Deferred income taxes -- 16,760
Provision for losses on trade receivables (879) 479
Minority interests in loss of subsidiary (137) (52)
(Gain) loss on sales of property, net 192 (134)
Effects of changes on:
Restricted cash 10,361 (9,228)
Trade receivables 3,321 (563)
Inventories 842 (160)
Other receivables 210 2,382
Prepaid expenses and other 294 178
Receivables from affiliates 3,059 (3,567)
Receivable from Parent 43,891 8,939
Other assets (306) (776)
Accounts payable (3,846) (5,590)
Accrued liabilities 2,722 3,053
Customer and other deposits (371) 264
Deferred income 940 1,189
Due to Lake Lanier Islands Development Authority (2,009) 2,716
------- -------
Net cash provided by (used in) operating activities 87,482 17,402
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of investment in partnership 1,621 --
Purchases of property and equipment (6,265) (17,431)
Notes receivable from affiliate (21,222) 23,065
Investment in partnerships (515) (581)
Collections on notes receivable 2,578 1,129
Acquisition of golf course facilities -- (15,274)
Sales of property and equipment 186 231
------- -------
Net cash (used in) provided by investing activities (23,617) (8,861)
See accompanying notes to consolidated financial statements.
5
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
FOR THE
NINE MONTHS ENDED
JULY 31,
(AMOUNTS IN THOUSANDS) 1997 1996
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance $300,362 $147,186
Principal payments on long-term debt and obligations
under capital leases (307,516) (151,348)
Member deposits, net 3,145 2,168
Capital contributions and dividends to Parent (60,199) --
Proceeds from capital contributions 9,000 5,005
Debt financing costs (10,896) (3,328)
-------- --------
Net cash (used in) provided by financing activities (66,104) (317)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,239) 8,224
CASH AND CASH EQUIVALENTS, beginning of period 9,343 9,968
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,104 $ 18,192
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid (net of amounts capitalized) $ 18,498 $ 16,694
-------- --------
-------- --------
Income taxes paid $ 424 $ 9
-------- --------
-------- --------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases $ 3,539 $ 1,027
Notes receivable issued for member deposits 4,378 1,605
Note receivable issued from sale of assets 211 --
Dividend to Parent of partnership interests 2,155 --
Trade-in of equipment under capital lease 397
See accompanying notes to consolidated financial statements.
6
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
KSL Recreation Group, Inc. and subsidiaries (the Company) is engaged in the
ownership and management of golf courses, private clubs, resorts and activities
related thereto.
The unaudited interim condensed consolidated financial statements presented
herein have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q and do not include
all of the information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, these condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals) necessary to
present fairly the Company's consolidated financial position, results of
operations and cash flows. These unaudited interim condensed consolidated
financial statements should be read in conjunction with the other disclosures
contained herein and with the unaudited consolidated financial statements and
notes thereto included in the Company's consolidated financial statements for
the year ended October 31, 1996 contained in the Company's Registration
Statement dated September 11, 1997. Operating results for interim periods are
not necessarily indicative of results that may be expected for the entire fiscal
year.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
NOTE 2. EARNINGS PER SHARE
Earnings per share for the three-month and nine-month periods ended July
31, 1997 and 1996 are computed by dividing net income by the weighted average
number of outstanding common shares during the respective periods.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share (EPS),"
which will require the Company to disclose basic EPS and diluted EPS for all
periods for which an income statement is presented, and which will replace
earnings per share disclosures currently being made. The Company is required to
adopt this standard effective November 1, 1997. For pro forma disclosure
purposes, basic EPS for the current reporting and comparable periods in the
prior year computed in accordance with SFAS No. 128 would be equal to primary
EPS, as included in the accompanying unaudited interim condensed consolidated
financial statements.
7
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. LONG-TERM OBLIGATIONS
DEBT FINANCING - In April 1997, the Company sold $125,000 in aggregate
principal amount of 10.25% senior subordinated redeemable notes (the Notes) and
entered into a new credit facility providing for term loans of up to $100,000
and a revolving credit portion of up to $175,000. The proceeds from the Notes,
together with $100,000 of term loans under the new credit facility and a $75,000
drawing under the revolving credit portion of the new credit facility
(collectively, the Refinancings) were used (i) to repay approximately $265,000
of outstanding indebtedness of the Company (ii) to make a loan of approximately
$20,800 to KSL Land Corporation (KSL Land), which was used to repay indebtedness
of KSL Land with respect to which a subsidiary of the Company was a co-obligor,
(iii) to pay prepayment penalties and fees and expenses incurred in connection
with the Refinancings and (iv) for general corporate purposes.
The Notes bear interest at 10.25%, payable semiannually, and mature May
2007. The Notes are redeemable beginning May 2002, at the Company's option, at
various rates ranging from 105.125% at May 2002 decreasing to 100% at May 2005
and thereafter. The Company is required to offer to buy the Notes at 101% upon
a change of control, as defined in the Notes agreement.
The credit facility terms are as follows:
INTEREST
(AT THE COMPANY'S ANNUAL PRINCIPAL
OPTION) AMORTIZATION MATURITY
$50,000 Term A Loan LIBOR + 2.75% or
ABR + 1.75% $500 May 2005
$50,000 Term B Loan LIBOR + 3.00% or
ABR + 2.00% $500 May 2006
Revolving Credit Loan LIBOR + 2.25% or
ABR + 1.25% May 2004
The terms of the credit facility limit borrowings under the revolving
credit loan to $175,000. The borrowings limitation decreases to $163,750 in May
2000, $152,500 in May 2001, $137,500 in May 2002 and $118,750 in May 2003. The
terms of the credit facility also contain certain financial covenants including
interest coverage, fixed charges and leverage ratios.
The Company expensed the net deferred financing costs, prepayment fees and
other costs, which aggregated approximately $5,176 related to the debt that was
extinguished as a result of the Refinancings. Such amount is reflected as an
extraordinary loss on early extinguishment of debt, net of income tax benefit of
$2,007, in the accompanying consolidated statements of operations for the
periods ended July 31, 1997.
8
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Concurrent with the Refinancings, the Company provided dividends to its
Parent of $23,321 and a return of capital of $39,033, including a transfer of
the Company's $2,155 investment in certain limited partnerships at historical
cost (which approximated fair value); and settled receivables/payables with its
Parent and affiliates. During the period ended July 31, 1997, the Parent had
provided capital contributions of $9,000 for purposes of the Lake Lanier Islands
sublease (Note 4).
The $20,800 loan to KSL Land bears interest at 8.0% and is payable to the
Company in cash or through increases to the principal amount of the note. The
loan matures in June 1999. Interest for the three months ended July 31, 1997,
has been capitalized into principal.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
Comprehensive Income: During 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income," which established
standards for the reporting and displaying of comprehensive income.
Comprehensive income is defined as all changes in a Company's net assets except
changes resulting from transactions with shareholders. If differs from net
income in that certain items currently recorded to equity would be a part of
comprehensive income. Comprehensive income must be reported in a financial
statement with the cumulative total presented as a component of equity. This
statement will be adopted by the Company beginning November 1, 1998.
Segment Information: In June, 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which will be effective for the Company beginning November
1, 1998. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company believes the segment information
required to be disclosed under SFAS No. 131 will be more comprehensive than
previously provided, including expanded disclosure of income statement and
balance sheet items. The Company has not yet completed its analysis of the
operating segments on which it will report.
NOTE 5. SUBSEQUENT EVENTS
In August 1997, the Company, through a subsidiary, closed the sublease of
Lake Lanier Islands and an agreement to purchase certain fixed assets for
$9,000. A management agreement provided that the lessor and the Company would
be placed in the same economic position if the sublease transaction had closed
on May 15, 1996. Accordingly, the Company was credited with the net earnings
(as defined) of the operations from May 15, 1996 to August 1, 1997 (the closing
date) less amounts earned by the Company pursuant to the management agreement.
Such net amount paid by the Company will be recognized as an adjustment to the
recorded value of the assets leased pursuant to the sublease. The sublease will
be accounted for as a capital lease. Accordingly, the Company will record the
net assets acquired pursuant to the sublease and will recognize the net present
value of the related minimum lease payments.
9
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
In August 1997, the Company, through a subsidiary, acquired Grand Traverse
Resort, a 425 room hotel and related golf and recreational facilities, located
in Traverse City, Michigan for a purchase price of approximately $45,000. The
acquisition will be accounted for using the purchase method of accounting. The
purchase price was financed under the revolving credit portion of the Company's
new credit facility (Note 3).
10
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JULY 31, 1997 (1997 THIRD QUARTER) AS COMPARED TO THE
THREE MONTHS ENDED JULY 31, 1996 (1996 THIRD QUARTER).
REVENUES - Revenues increased by $6,222, or 17.2% from $36,278 in the 1996
Third Quarter to $42,500 in the 1997 Third Quarter. Over half of this increase
was attributable to increases in rooms revenues and food and beverage revenues,
driven by increased occupancy and increased daily room rates at the resort
properties. Additionally, golf fees increased 15.8% from the 1996 Third Quarter
to the 1997 Third Quarter.
EXPENSES OF OPERATIONS - Expenses of operations increased by $3,402, or
8.7% from $39,140 in the 1996 Third Quarter to $42,542 in the 1997 Third
Quarter. Cost of sales increased by 7.9% from the 1996 Third Quarter, due
mainly to the Company's increased sales levels in food and beverage.
Approximately one-third of the increase in expenses was due to increases in
variable payroll and benefit expenses of $1,352, or 9.0% from the 1996 Third
Quarter to the 1997 Third Quarter. Depreciation and amortization increased by
5.9% in the 1997 Third Quarter over the 1996 Third Quarter due to the addition
of capital improvements at the resort properties.
NET INTEREST EXPENSE - Net interest expense decreased by $883, or 11.7%
from $7,527 in the 1996 Third Quarter to $6,644 in the 1997 Third Quarter. This
was primarily due to the favorable change in interest rates of the Refinancings.
EXTRAORDINARY ITEMS - The extraordinary item of $31, net of income tax
benefit of $0, in the 1997 Third Quarter was an additional expense of financing
costs associated with borrowings that were refinanced in April 1997. There were
no extraordinary items in the 1996 Third Quarter.
NET INCOME(LOSS) - Net loss decreased by $3,772, or 35.7% from a loss of
$10,562 in the 1996 Third Quarter to a loss of $6,790 in the 1997 Third Quarter
as a result of the factors discussed above. Excluding the effect of
extraordinary items in the 1997 Third Quarter, net loss after tax decreased by
$3,803 or 36.0% from a loss of $10,562 in the 1996 Third Quarter to a loss of
$6,759 in the 1997 Third Quarter.
11
<PAGE>
KSL RECREATION GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED JULY 31, 1997 (1997 NINE MONTHS) AS COMPARED TO THE NINE
MONTHS ENDED JULY 31, 1996 (1996 NINE MONTHS).
REVENUES - Revenues increased by $22,512 or 15.8% from $142,829 in the 1996
Nine Months to $165,341 in the 1997 Nine Months. Over half of this increase was
attributable to increases in rooms revenue and food and beverage revenues,
driven by increased occupancy and increased daily room rates at the resort
properties. Additionally, golf fees increased 17.2% from the 1996 Nine Months
to 1997 Nine Months.
EXPENSES OF OPERATIONS - Expenses of operations increased by $10,483, or
8.4% from $124,248 in the 1996 Nine Months to $134,731 in the 1997 Nine Months.
Cost of sales increased by 5.8% from the 1996 Nine Months, due mainly to the
Company's increased sales levels in merchandise and food and beverage.
Approximately 30% of the increase in expenses of operations was due to increases
in variable payroll and benefit expenses of $3,169, or a 6.6% increase from
the 1996 Nine Months to the 1997 Nine Months. Depreciation and amortization
increased by 10.8% due to the completion of capital improvements at the
resort properties. As a percentage of revenues, expenses of operations
declined from 87.0% of revenues in the 1996 Nine Months to 81.5% of revenues
in the 1997 Nine Months.
NET INTEREST EXPENSE - Net interest expense increased by $2,192, or 10.9%
from $20,057 in the 1996 Nine Months to $22,249 in the 1997 Nine Months. This
was primarily due to an increase in indebtedness associated with the acquisition
of four golf facilities in fiscal 1996 and increased amortization of debt issue
costs associated with the refinance of a resort property in December 1995.
EXTRAORDINARY ITEMS - The extraordinary item of $3,169, net of income tax
benefit of $2,007, in the 1997 Nine Months is the expense of prepayment
penalties and financing costs associated with borrowings that were refinanced in
April 1997. The extraordinary item recorded in the 1996 Nine Months was the
result of the Company and a lender reaching a compromise debt settlement, as a
result of which the Company retired indebtedness and recorded an extraordinary
gain, net of income taxes, of $32,120.
NET INCOME - Net income decreased by $27,446, or 89.8% from $30,552 in the
1996 Nine Months to $3,106 in the 1996 Nine Months as a result of the factors
discussed above. Excluding the effect of extraordinary items in both the 1996
and 1997 Nine Months, net income after tax increased by $7,843 or 500% from a
net loss of $1,568 in the 1996 Nine Months to net income of $6,275 in the 1997
Nine Months.
LIQUIDITY AND CAPITAL RESOURCES
During the 1997 Nine Months, cash flow provided by operating activities was
$87,482, compared to $17,402 for the 1996 Nine Months. This increase in the
1997 Nine Months was primarily due to the settlement of receivables due from the
Parent and affiliates of $46,950 and the release of restricted cash to
12
<PAGE>
KSL RECREATION GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
operating cash of $10,361 due to the new credit facility. The positive impact
on cash from the settlement of these receivables was offset by the cash used in
financing activities to provide a dividend and a net return of capital to the
Parent of $51,199. During the 1997 Nine Months, cash flow used by investing
activities aggregated $23,617 as compared to cash provided by investing
activities of $8,861 for the 1996 Nine Months. This change in cash flows from
investing activities was primarily attributable to the repayment to the Company
of a $23,065 note by an affiliate in the 1996 Nine Months, as compared to the
issuance of a $21,222 note by the Company to an affiliate in the 1997 Nine
Months, offset by the decline in capital expenditures and golf course facility
acquisitions of $26,440 in the 1997 Nine Months compared to the 1996 Nine
Months.
In April 1997, the Company issued $125,000 of Senior Notes (the Notes)
which carry interest at 10.25%. The Company also entered into a $275,000 credit
agreement. The credit agreement provides for term loans of $100,000 and
revolving loan of $175,000. The Company believes that its liquidity, capital
resources and cash flows from existing operations will be sufficient to fund
capital expenditures, working capital requirements and interest and principal
payments on its indebtedness for the foreseeable future. The Company currently
expects that it will acquire additional resorts, golf facilities or other
recreational facilities, and in connection therewith, expects to incur
additional indebtedness. There can be no assurances that additional
indebtedness or funding will be available in the future.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations concerning future events, activities,
conditions and any and all statements that are not historical facts are
forward-looking statements. Actual results may differ materially from those
projected. Forward-looking statements involve risks and uncertainties. A
change in any one or a combination of factors could affect the Company's future
financial performance. Also, the Company's past performance is not necessarily
evidence of or an indication of the Company's future financial performance.
13
<PAGE>
KSL RECREATION GROUP, INC.
Part II. Other Information
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
14
<PAGE>
KSL RECREATION GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KSL RECREATION GROUP, INC.
Dated: October 24, 1997 By: /s/ John K. Saer, Jr.
---------------------
Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 7,104
<SECURITIES> 0
<RECEIVABLES> 9,298
<ALLOWANCES> 694
<INVENTORY> 6,423
<CURRENT-ASSETS> 30,991
<PP&E> 415,656
<DEPRECIATION> 60,228
<TOTAL-ASSETS> 528,328
<CURRENT-LIABILITIES> 34,379
<BONDS> 125,000
0
0
<COMMON> 0
<OTHER-SE> 171,728
<TOTAL-LIABILITY-AND-EQUITY> 528,328
<SALES> 96,256
<TOTAL-REVENUES> 165,341
<CGS> 20,729
<TOTAL-COSTS> 134,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 933
<INTEREST-EXPENSE> 23,244
<INCOME-PRETAX> 8,498
<INCOME-TAX> 2,223
<INCOME-CONTINUING> 6,275
<DISCONTINUED> 0
<EXTRAORDINARY> (3,169)
<CHANGES> 0
<NET-INCOME> 3,106
<EPS-PRIMARY> 3,106
<EPS-DILUTED> 3,106
</TABLE>
