<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 April 30, 1998.
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
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 June 12, 1998
1,000
Class
Common Stock, $0.01 par value
<PAGE>
KSL RECREATION GROUP, INC.
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations for the three and
six months ended April 30, 1998 and 1997 . . . . . . . . . . . . . . . . 3
Condensed consolidated balance sheets, April 30, 1998 and October 31,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed consolidated statements of cash flows for the six months
ended April 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . 7
Notes to condensed consolidated financial statements . . . . . . . . . . . 9
Item 2. Management's discussion and analysis of financial condition and
results of operations . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 16
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE>
KSL RECREATION GROUP, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
(AMOUNTS IN THOUSANDS, APRIL 30, APRIL 30,
EXCEPT PER SHARE DATA) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rooms $ 25,723 $ 21,095 $ 44,803 $ 35,987
Food and beverage 19,836 15,903 36,123 29,679
Golf fees 15,202 13,908 25,782 23,480
Dues and fees 6,891 6,096 13,270 12,178
Other 16,977 13,562 30,253 23,789
--------- --------- --------- ---------
Total revenues 84,629 70,564 150,231 125,113
EXPENSES:
Payroll and benefits 23,863 18,034 46,198 35,326
Other expenses 28,599 23,682 54,017 43,884
Depreciation and amortization 8,506 6,758 16,660 12,954
Corporate fee 1,951 812 3,916 1,625
--------- --------- --------- ---------
Total expenses 62,919 49,286 120,791 93,789
--------- --------- --------- ---------
INCOME FROM OPERATIONS 21,710 21,278 29,440 31,324
OTHER INCOME (EXPENSE):
Interest income 670 149 1,299 246
Interest expense (8,451) (7,572) (16,904) (15,851)
--------- --------- --------- ---------
Other expense, net (7,781) (7,423) (15,605) (15,605)
</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 SIX MONTHS ENDED
(AMOUNTS IN THOUSANDS, APRIL 30, APRIL 30,
EXCEPT PER SHARE DATA) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME BEFORE MINORITY
INTEREST, INCOME TAXES AND
EXTRAORDINARY ITEM $ 13,929 $ 13,855 $ 13,835 $ 15,719
MINORITY INTERESTS IN LOSS OF SUBSIDIARY 46 105 149 182
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 13,975 13,960 13,984 15,901
INCOME TAX EXPENSE 5 2,066 5 2,195
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 13,970 11,894 13,979 13,706
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, net of income
tax benefit of ($2,007) in 1997 3,138 3,138
--------- --------- --------- ---------
NET INCOME $ 13,970 $ 8,756 $ 13,979 $ 10,568
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC AND DILUTED EARNINGS PER SHARE:
Before extraordinary item $ 13,970 $ 11,894 $ 13,979 $ 13,706
Extraordinary loss 3,138 3,138
--------- --------- --------- ---------
TOTAL BASIC AND DILUTED EARNINGS PER
SHARE $ 13,970 $ 8,756 $ 13,979 $ 10,568
--------- --------- --------- ---------
--------- --------- --------- ---------
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 BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, APRIL 30, OCTOBER 31,
EXCEPT PER SHARE DATA) 1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,043 $ 24,056
Restricted cash 1,098 1,790
Trade receivables, net of allowance for doubtful
receivables of $817 and $722, respectively 25,571 14,185
Inventories 9,315 7,383
Current portion of notes receivable 3,535 1,946
Prepaid expenses and other current assets 5,515 3,865
--------- ---------
Total current assets 47,077 53,225
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $79,486 and $66,847, respectively 506,191 431,436
NOTE RECEIVABLE FROM AFFILIATE 22,526 21,653
NOTES RECEIVABLE, less current portion 5,573 5,177
RESTRICTED CASH, less current portion 101 101
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED ENTITIES, net of accumulated
amortization of $15,915 and $13,756, respectively 114,266 90,343
OTHER ASSETS, net 33,477 34,106
--------- ---------
$ 729,211 $ 636,041
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, APRIL 30, OCTOBER 31,
EXCEPT PER SHARE DATA) 1998 1997
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,724 $ 6,948
Accrued liabilities 16,945 16,899
Accrued interest payable 2,680 10,149
Current portion of long-term debt 1,042 1,000
Current portion of obligations under capital leases 2,908 3,044
Deferred income, customer deposits and other 10,952 6,458
-------- --------
Total current liabilities 41,251 44,498
LONG-TERM DEBT, less current portion 399,719 326,500
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 35,177 35,476
OTHER LIABILITIES 1,286 1,168
MEMBER DEPOSITS 54,308 44,759
DEFERRED INCOME TAXES 15,202 15,202
MINORITY INTERESTS IN EQUITY OF SUBSIDIARY 98 247
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized
and outstanding -- --
Additional paid-in capital 197,535 197,535
Accumulated deficit (15,365) (29,344)
-------- --------
Total stockholder's equity 182,170 168,191
-------- --------
$729,211 $636,041
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
APRIL 30,
(AMOUNTS IN THOUSANDS) 1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,979 $ 10,568
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 16,660 12,954
Extraordinary loss on early extinguishment of debt -- 5,145
Amortization of debt issuance costs 475 1,247
Provision for losses on trade receivables 95 (116)
Provision for losses on notes receivables 40 --
Minority interests in loss of subsidiary (149) (182)
Loss on sales of property, net 3 187
Changes in operating assets and liabilities, net of effects from
investments in subsidiaries:
Restricted cash 693 9,419
Trade receivables (11,232) (9,241)
Inventories (997) 74
Prepaid expenses and other current assets (1,602) (1,017)
Notes receivable (74) 234
Other assets (251) (275)
Receivable from parent -- 43,885
Receivable from affiliates -- 2,882
Accounts payable (224) (1,445)
Accrued liabilities (1,090) 2,473
Accrued interest payable (7,469) (2,714)
Deferred income, customer deposits and other current liabilities 3,920 1,164
Other liabilities 118 143
--------- --------
Net cash provided by operating activities 12,895 75,385
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired (87,673) --
Acquisition of golf course facilities (11,479) --
Purchases of property and equipment (10,726) (3,732)
Collections on member notes receivable 2,190 1,546
Notes receivable from affiliate, net (873) (20,800)
Investment in partnerships -- (515)
Proceeds from sale of investment in partnership -- 1,621
Proceeds from sales of property and equipment -- 174
--------- --------
Net cash used in investing activities (108,561) (21,706)
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
APRIL 30,
(AMOUNTS IN THOUSANDS) 1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance $ 71,000 $ 300,362
Principal payments on long-term debt and obligations
under capital leases (2,419) (266,730)
Debt financing costs (336) (10,606)
Member deposits, net 5,408 2,047
Capital distributions and dividends to parent -- (60,199)
Proceeds from capital contributions -- 9,000
-------- ---------
Net cash provided by (used in) financing activities 73,653 (26,126)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (22,013) 27,553
CASH AND CASH EQUIVALENTS, beginning of period 24,056 9,329
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,043 $ 36,882
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 24,373 $ 17,230
-------- ---------
-------- ---------
Income taxes paid $ 504 $ 424
-------- ---------
-------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases $ 982 $ 3,539
Notes receivable issued for member deposits 4,141 2,848
Assumption of debt on golf course facility acquisition 3,261 --
Note receivable issued from sale of assets -- 211
Dividend to parent of investments in partnerships -- 2,155
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
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
Company's audited consolidated financial statements and notes thereto
contained in the Company's Form 10-K for the year ended October 31, 1997.
Operating results for interim periods are not necessarily indicative of
results that may be expected for the entire fiscal year. Certain
reclassifications have been made in the consolidated financial statements to
conform to the 1998 presentation.
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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share
(EPS)", which requires the Company to disclose basic EPS and diluted EPS for
all periods for which an income statement is presented. The Company has adopted
this standard effective November 1, 1997. The EPS data for the current
reporting and comparable periods in the prior year have been computed in
accordance with SFAS No. 128 and are included in the accompanying unaudited
interim condensed consolidated financial statements. There was no difference
between reported EPS computed in accordance with SFAS No. 128 and amounts that
were or would have been reported using the Company's previous method of
accounting for EPS.
NOTE 3. ACQUISITION
On April 21, 1998, the Company, through a wholly owned subsidiary, acquired
substantially all the assets and certain liabilities of the Claremont Resort
and Spa, a 279 room luxury hotel and spa located in Oakland, California for
approximately $88,000. The purchase was financed under the revolving credit
portion of the Company's credit facility (see Note 4) and has been accounted
for using the purchase method of accounting. Accordingly, the operating
results of the Claremont have been included in the Company's consolidated
financial statements since acquisition. The Company acquired assets at fair
value of approximately $64,700, net of assumed liabilities of approximately
$1,700. The excess of the aggregate purchase price over the fair value of the
net assets acquired of approximately $25,000 is being amortized over 30 years.
9
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
The following are the Company's unaudited proforma consolidated results
of operations for the six months ended April 30 which assume the Claremont
transaction occurred as of November 1, 1996:
<TABLE>
<CAPTION>
(In thousands, except share data)
1998 1997
-------- --------
<S> <C> <C>
Revenues $165,328 $139,270
Income before extraordinary item 10,933 10,977
Net income 10,933 7,839
Net earnings per share 10,933 7,839
</TABLE>
The unaudited proforma results do not necessarily represent results which
would have occurred if the acquisition had taken place as of the beginning of
the fiscal periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
Also, in the quarter ended April 30, 1998 the Company acquired, in
separate transactions, two golf course facilities for an aggregate purchase
price of approximately $14,800, including the assumption of certain
liabilities of approximately $3,300. The acquisitions were financed under
the revolving credit portion of the Company's credit facility and have been
accounted for using the purchase method of accounting. Accordingly, the
operating results of the two facilities have been included in the Company's
consolidated financial statements since acquisition. The proforma results
of operations of these two facilities were not material to the Company.
NOTE 4. LONG-TERM DEBT
On April 20, 1998, the Company entered into an Amended and Restated Credit
Agreement which provided for a $100,000 increase in the revolving loan
capacity thus increasing the total revolving loan capacity to $275,000. The
term loan amount of $100,000 and its associated repayment schedule remains
unchanged. Outstanding borrowings under the revolving credit line were
$173,500 as of April 30, 1998. The terms of the Company's credit facility,
including the revolving credit line, contain certain financial covenants. The
Company is in compliance with all required financial covenants at April 30,
1998.
NOTE 5. RELATED PARTY TRANSACTION
Effective April 1, 1998, a wholly owned subsidiary of the Company, KSL
Desert Resorts, Inc. ("Desert Resorts"), entered into a management agreement
with an unconsolidated affiliate, KSL Land II Corporation ("Land"), whereby
Land will provide development services for the entitlement, subdivision,
construction, marketing, and sale of approximately 97 single family detached
units on approximately eleven acres of real estate currently owned by Desert
Resorts. The development site is adjacent to the Desert Resorts' La Quinta
Resort & Club. The contractor and project management fees for these services
are calculated as 6.0% of the Project Sales Revenues, as defined, and are
expected to total approximately $3,400. Also, Land is to be paid by Desert
Resorts a marketing fee in an amount equal to 2.75% of the Project Sales
Revenues. Such marketing fee will be used by Land primarily to pay marketing,
sales and promotional expenses to third parties. The project is expected to
have an eighteen-month build out ending in fiscal 1999.
10
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
NOTE 6. SUBSEQUENT EVENT
On May 29, 1998, KSL Hotel Corp. ("Doral"), a wholly-owned indirect
subsidiary of the Company and owner of Doral Golf Resort and Spa, entered
into a non-binding letter of intent for the sale, development, construction
and marketing of interval ownership units on approximately ten acres of real
property currently being utilized by Doral as a golf course. If a definitive
agreement is reached, the sales price for the real estate would be $9,500,
and the transaction would be expected to close no earlier than December 1998,
subject to due diligence review and obtaining certain land use approvals.
11
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED APRIL 30, 1998 (1998 SECOND QUARTER) AS COMPARED
TO THE THREE MONTHS ENDED APRIL 30, 1997 (1997 SECOND QUARTER).
REVENUES - Revenues increased by $14,065 or 19.9% from $70,564 in the
1997 Second Quarter to $84,629 in the 1998 Second Quarter. Approximately 52.4%
of this increase, or $7,369 was attributable to the acquisition of Grand
Traverse Resort and the sublease of Lake Lanier Islands (referred to
collectively as the Additions) which occurred subsequent to the 1997 Second
Quarter. Excluding the effect of the Additions for which the Second Quarter is
off-season, revenues increased 9.5% from the 1997 Second Quarter to the 1998
Second Quarter. For the company as a whole, room revenue increased by 21.9%,
of which 63.9% was attributable to the Additions with the remainder resulting
from increased average daily rates. Approximately 55.5% of the increase in
food and beverage and 50.2% of the increase in other revenue was also due to
the Additions. Golf fees increased by 9.3% from the 1997 Second Quarter to the
1998 Second Quarter due to increases in both paid rounds and green fee rates.
EXPENSES - Expenses of operations increased by $13,633 or 27.7% from
$49,286 in the 1997 Second Quarter to $62,919 in the 1998 Second Quarter.
Approximately 73.1% of this increase, or $9,962 was due to the Additions.
Excluding the effect of the Additions, expenses of operations increased 7.4%
from the Second Quarter of 1997 to the Second Quarter of 1998. Depreciation
and amortization associated with the Additions totaled $1,633. Due to
increased corporate support of the Additions, and increased corporate
resources focused on operations in treasury, membership and retail functions,
the corporate fee increased by $1,139 from the 1997 Second Quarter.
NET INCOME - Net income increased by $5,214 from $8,756 in the 1997
Second Quarter to $13,970 in the 1998 Second Quarter as a result of the
factors discussed above. Additionally, the Company incurred in the 1997
Second Quarter an extraordinary loss of $3,138, net of income tax benefit of
$2,007, due to the extinguishment of debt consisting of prepayment penalties
and financing costs associated with the previous borrowings that were
refinanced in April 1997. Excluding the Additions, net income increased in
the 1998 Second Quarter by $9,742 or 111.1%; that increase was offset by a
decrease in net income of $4,542, attributable to the Additions, for which
the Second Quarter is off-season.
ADJUSTED EBITDA - Adjusted EBITDA increased by $3,689, or 12.1% from
$30,421 in the 1997 Second Quarter to $34,110 in the 1998 Second Quarter. This
increase was primarily attributable to the above factors and an increase in Net
Membership Deposits of $1,615 from $2,178 in the 1997 Second Quarter to $3,793
in the 1998 Second Quarter. Excluding the Additions, for which the Second
Quarter is off-season, Adjusted EBITDA increased in the 1998 Second Quarter by
$4,591, or 15.3%.
12
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED APRIL 30, 1998 (1998 SIX MONTHS) AS COMPARED TO THE SIX
MONTHS ENDED APRIL 30, 1997 (1997 SIX MONTHS).
REVENUES - Revenues increased by $25,118 or 20.1% from $125,113 in the
1997 Six Months to $150,231 in the 1998 Six Months. Approximately 56.0% of
this increase, or $14,067 was attributable to the Additions. Excluding the
effect of the Additions, for which the six months was off-season, revenues
increased 8.8% from the 1997 Six Months to the 1998 Six Months. Approximately
59.1% of the room revenue increase was from the Additions with the remainder
resulting from increased average daily rates. Approximately 66.5% of the
increase in food and beverage and 58.1% of the increase in other revenue was
also attributable to the Additions. Golf fees increased by 9.8% from the 1997
Six Months to the 1998 Six Months due to increases in both paid rounds and
green fee rates.
EXPENSES - Expenses of operations increased by $27,002 or 28.8% from
$93,789 in the 1997 Six Months to $120,791 in the 1998 Six Months.
Approximately 72% of this increase, or $19,449 was due to the Additions.
Excluding the effect of the Additions, for which the Six Months are the
off-season, expenses of operations increased 8.1% from the 1997 Six Months to
the 1998 Six Months, reflecting a higher volume of business. Depreciation
and amortization associated with the Additions totaled $3,156. Due to
increased corporate support of the Additions, and increased corporate
resources focused on operations in treasury, membership and retail
functions, the corporate fee increased by $2,291 from the 1997 Six Months.
NET INCOME - Net income increased by $3,411, from $10,568 in the 1997 Six
Months to $13,979 in the 1998 Six Months as a result of the factors discussed
above. Additionally, the Company incurred in the 1997 Six Months an
extraordinary loss of $3,138, net of income tax benefit of $2,007, due to a
loss on extinguishment of debt consisting of prepayment penalties and financing
costs associated with the previous borrowings that were refinanced in April
1997. Excluding the Additions, net income increased in the 1998 Six Months by
$12,565 or 118.9%; that increase was offset by a decrease in net income of
$9,154, attributable to the Additions, for which the Six Months is off-season.
ADJUSTED EBITDA - Adjusted EBITDA increased by $5,654, or 11.7% from
$48,383 in the 1997 Six Months to $54,037 in the 1998 Six Months. This
increase was primarily attributable to the above factors, and an increase in
Net Membership Deposits of $4,004 from $3,593 in the 1997 Six Months to $7,597
in the 1998 Six Months. Excluding the Additions, for which the Six Months is
off-season, Adjusted EBITDA increased in the 1998 Six Months by $7,621, or
16.1%.
The foregoing discussion includes comparative financial information on the
Company's Adjusted EBITDA, which is defined as net income before income tax
expense (benefit), net interest expense, depreciation and amortization,
extraordinary items and certain non-cash items, plus Net Membership Deposits.
Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing members
who have converted to new membership plans, in cash, plus principal payments in
cash received on notes in respect thereof, minus the amount of any refunds paid
in cash with respect to such deposits. Information regarding Adjusted EBITDA
has been provided because the Company believes that it assists in understanding
the Company's operating results. The Company views cash flow from membership
sales as an important component of operating cash flow measure, as membership
sales are recurring in nature as the club builds its membership and replaces
the natural turnover.
13
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
Adjusted EBITDA should not be construed as an indicator of the Company's
operating performance or as an alternative to operating income as determined
in accordance with Generally Accepted Accounting Principles ("GAAP").
Additionally, Adjusted EBITDA should not be construed by investors as a
measure of the Company's liquidity or ability to meet all cash needs or as an
alternative to cash flows from operating, investing and financing activities
as determined in accordance with GAAP, nor should Adjusted EBITDA be
construed by investors as an alternative to any other determination under
GAAP.
LIQUIDITY AND CAPITAL RESOURCES
During the 1998 Six Months, cash flow provided by operating activities
was $12,895, compared to $75,385 for the 1997 Six Months. This decrease was
primarily due to a number of transactions completed in conjunction with the
refinancing of the Company in 1997, including the settlement of receivables
due from Parent and its affiliates of $46,767, the release of restricted cash
to operating cash of $9,419 and a $4,755 change in accrued interest payable.
During the 1998 Six Months, cash flow used in investing activities aggregated
$108,561 as compared to cash used in investing activities of $21,706 for the
1997 Six Months. This change in cash flows from investing activities was
primarily due to: the acquisition of the Claremont Resort and Spa for
approximately $88,000 (see Note 3 of notes to condensed consolidated
financial statements in Part I, Item 1 of this Quarterly Report); the
acquisition of two golf course facilities in the 1998 Six Months for
approximately $11,500 and related assumption of approximately $3,300 in debt;
and the advance to an unconsolidated affiliate of $20,800 in the 1997 Six
Months. Cash provided by financing activities was $73,653 in the 1998 Six
Months compared to cash used in financing activities of $26,126 in the 1997
Six Months. This change is attributable to approximately $35,000 increase in
principal amounts on net debt and leases, period to period, and $10,606 of
debt refinancing costs and $51,199 of dividends and net capital
contributions, both occurring in the 1997 Six Months. Also, see Note 4 of
notes to condensed consolidated financial statements in Part I, Item 1 of
this Quarterly Report.
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.
14
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
OTHER MATTERS
The Company relies heavily on computer technology throughout its
businesses to effectively carry out its day-to-day operations. As the
millennium approaches, the Company is assessing all of its computer systems to
ensure that they are "Year 2000"-compliant. In this process, the Company
expects to both replace some systems and upgrade others, which are not Year
2000-compliant, in order to meet its internal needs and those of its customers.
The Company expects its Year 2000 project to be completed on a timely basis.
However, there can be no assurance that the systems of other companies on which
the Company may rely also will be timely converted or that such failure to
convert by another company would not have an adverse effect on the Company's
systems. Costs related to this project will continue through calendar 1999.
These costs are difficult to estimate accurately and they will not necessarily
be incremental. The Company's stated expectations regarding its Year 2000
project constitute forward-looking statements. Actual results could differ
materially from the Company's expectations due to unanticipated technological
difficulties, project vendor delays and project vendor cost overruns. Reference
is also made to the safe harbor statement below.
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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the quarterly period ended April 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. (a) Financial Data Schedule for the period ended April 30, 1998
27. (b) Restated Financial Schedule for the fiscal year ended October 31,
1997 and the period ended July 31, 1997.
(b) Reports on Form 8-K
On or about May 3,1998, a current report on Form 8-K dated April 20, 1998
was filed reporting the acquisition of substantially all the assets and
certain liabilities of the Claremont Resort & Spa pursuant to an Agreement
of Purchase and Sale between Claremont Hotel, LLC, a Delaware limited
liability company, and Harsch Investment Corp., an Oregon corporation (the
sellers) and the Company, dated March 5, 1998, and as amended April 6 and
April 20, 1998. The acquisition closed on April 21, 1998.
16
<PAGE>
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: June 15, 1998 By: /s/ John K. Saer, Jr.
--------------------------------
Vice President, Chief Financial
Officer and Treasurer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 2,043
<SECURITIES> 0
<RECEIVABLES> 26,388
<ALLOWANCES> 817
<INVENTORY> 9,315
<CURRENT-ASSETS> 47,077
<PP&E> 585,677
<DEPRECIATION> 79,486
<TOTAL-ASSETS> 729,211
<CURRENT-LIABILITIES> 41,251
<BONDS> 434,896
0
0
<COMMON> 0
<OTHER-SE> 182,170
<TOTAL-LIABILITY-AND-EQUITY> 729,211
<SALES> 45,885
<TOTAL-REVENUES> 150,231
<CGS> 19,257
<TOTAL-COSTS> 120,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 16,904
<INCOME-PRETAX> 13,984
<INCOME-TAX> 5
<INCOME-CONTINUING> 13,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,979
<EPS-PRIMARY> 13,979
<EPS-DILUTED> 13,979
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED
JULY 31, 1997 AND THE YEAR ENDED OCTOBER 31, 1997
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1997
<PERIOD-START> NOV-01-1996 NOV-01-1996
<PERIOD-END> JUL-31-1997 OCT-31-1997
<CASH> 7,104 24,056
<SECURITIES> 0 0
<RECEIVABLES> 9,298 14,907
<ALLOWANCES> 694 722
<INVENTORY> 6,423 7,383
<CURRENT-ASSETS> 30,991 53,225
<PP&E> 415,656 498,283
<DEPRECIATION> 60,228 66,847
<TOTAL-ASSETS> 528,328 636,041
<CURRENT-LIABILITIES> 34,379 44,498
<BONDS> 263,658 361,976
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 171,728 168,191
<TOTAL-LIABILITY-AND-EQUITY> 528,328 636,041
<SALES> 51,499 69,035
<TOTAL-REVENUES> 165,341 226,070
<CGS> 20,729 29,429
<TOTAL-COSTS> 134,731 193,232
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 933 1,193
<INTEREST-EXPENSE> 23,244 31,709
<INCOME-PRETAX> 8,498 2,944
<INCOME-TAX> 2,223 143
<INCOME-CONTINUING> 6,275 2,801
<DISCONTINUED> 0 0
<EXTRAORDINARY> (3,169) (3,164)
<CHANGES> 0 0
<NET-INCOME> 3,106 (363)
<EPS-PRIMARY> 3,106 (363)
<EPS-DILUTED> 3,106 (363)
</TABLE>
