<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 20, 1998
KSL RECREATION GROUP, INC.
(Exact name of Registrant as specified in its charter)
Commission File Number 333-31025
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)
- --------------------------------------------------------------------------------
Page 1 of 40 pages
Exhibit Index is on Page 6
<PAGE>
2. ACQUISITION OR DISPOSITION OF ASSETS
On April 21, 1998, KSL Recreation Group, Inc. (the Company), through a
wholly-owned subsidiary, acquired substantially all of the assets and certain
liabilities of The Claremont, also known as the Claremont Resort & Spa (the
Property), a resort hotel located in Oakland, California, pursuant to an
agreement of purchase and sale between Claremont Hotel, L.L.C., a Delaware
limited liability company, and Harsch Investment Corp., an Oregon corporation
(Sellers), and the Company dated March 5, 1998 and as amended on April 6,
1998 and April 20, 1998 (Agreement). The Company, by unanimous consent of
the Board of Directors, approved and assigned the Agreement and all rights,
title, interest and obligations thereunder to a newly formed, wholly-owned
subsidiary of the Company, KSL Claremont Resort, Inc., a Delaware corporation
formed on March 12, 1998. There is no relationship between the Sellers and
the Company, nor with any associates or affiliates of the Company.
The purchase price of the Property, including the real property,
improvements, personal property and certain liabilities, was approximately
$88 million paid in cash (exclusive of closing costs). The acquisition was
accounted for using the purchase method of accounting and was financed under
the revolving credit portion of the Company's credit facility pursuant to the
Credit Agreement among the Company, various financial institutions,
Donaldson, Lufkin & Jenrette Securities Corporation, The Bank of Nova Scotia
and BancAmerica Securities, Inc. dated April 30, 1997.
The Property is situated on approximately twenty-two acres in the San
Francisco Bay Area and features 279 luxury hotel rooms which include a
forty-room wing equipped with high-speed Internet access for business
travelers, four restaurants including fine dining, a 32,000 square foot
conference center, two pools, three spas, ten tennis courts, a pool and
tennis club with approximately 960 members, and a complete European-style spa
and fitness center. The historic Claremont Hotel was built in 1915 and
approximately $51 million in renovations, additions and upgrades have been
made since 1978. The Sellers acquired the Property in 1954. The Company is
only the fourth owner of the Property.
The Company intends to continue to operate the Property as a resort hotel
and spa.
5. OTHER EVENTS
On April 20, 1998, the Company entered into an amended and restated
credit agreement (Restated Credit Facility) with various financial
institutions, Donaldson, Lufkin & Jenrette Securities Corporation, The Bank
of Nova Scotia and BancAmerica Securities, Inc. The terms of the Restated
Credit Facility provide for an increase in the revolving loan capacity of
$100 million, thus increasing the total revolving loan capacity to $275
million (the Revolving Credit Facility). The term loan amount of $100
million (the Term Loan Facility) remains unchanged.
The interest rate under the Revolving Credit Facility is determined at
the option of the Company from either LIBOR or the alternate base rate (ABR).
ABR is the highest of (i) the administrative agent's prime rate or (ii) the
federal funds effective rate plus one-half of 1%. The applicable margin to
LIBOR varies from 0.625% to 2.250%, and the applicable margin to the ABR
varies from 0.000% to 1.250%. In both cases, the applicable margin is
determined by the pro forma Leverage Ratio, as defined, at the end of each
quarter.
The loans under the Term Loan Facility are comprised of Term A loans ($50
million) and Term B loans ($50 million). The interest rate for the Term A
loans is determined at the option of the Company from either LIBOR or the
ABR. Previously the applicable margin to LIBOR was 2.750% and the applicable
margin to the ABR was 1.750%. Under the Restated Credit Facility for Term A
loans, the applicable margin to LIBOR varies
2
<PAGE>
from 1.750% to 2.500%, and the applicable margin to the ABR varies from
0.500% to 1.250%. In both cases, the applicable margin is determined by the
pro forma Leverage Ratio, as defined, at the end of each quarter.
The interest rate for the Term B loans is determined at the option of the
Company from either LIBOR or the ABR. Previously the applicable margin to
LIBOR was 3.000% and the applicable margin to the ABR was 2.000%. Under the
Restated Credit Facility for Term B loans, the applicable margin to LIBOR
varies from 1.750% to 2.500%, and the applicable margin to the ABR varies
from 0.500% to 1.250%. In both cases, the applicable margin is determined by
the pro forma Leverage Ratio, as defined, at the end of each quarter.
There are no other material changes in the Restated Credit Facility.
7. FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements, pro forma financial
information and exhibits, if any, filed as part of this report:
(a) (1) Financial statements of Claremont Hotel Corporation for the 11-month
period ended December 1, 1997 and for the years ended December 31,
1996 and 1995 and independent auditors' report.
(2) Financial statements of Claremont Hotel, L.L.C. for the period from
December 2, 1997 (date of inception) to December 31, 1997 and
independent auditors' report.
(3) Unaudited interim financial statements of Claremont Hotel, L.L.C. for
the three months ended March 31, 1998.
(b) (1) Unaudited historical and pro forma condensed consolidated statements
of operations for the fiscal year ended October 31, 1997 and the six
months ended April 30, 1998.
(2) Unaudited historical condensed consolidated balance sheet as of
April 30, 1998.
Exhibits
- --------
*10.1 Agreement of purchase and sale between Claremont Hotel, L.L.C., Harsch
Investment Corp. and KSL Recreation Group, Inc., dated March 5, 1998.
*10.2 First amendment agreement of purchase and sale between Claremont
Hotel, L.L.C., Harsch Investment Corp. and KSL Recreation Group, Inc.,
dated April 6, 1998.
*10.3 Second amendment agreement of purchase and sale between Claremont
Hotel, L.L.C., Harsch Investment Corp. and KSL Recreation Group, Inc.,
dated April 20, 1998.
10.4 Credit agreement, dated as of April 30, 1997, among KSL Recreation
Group, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
as a co-syndication agent and documentation agent, The Bank of Nova
Scotia, as a co-syndication agent and administrative agent, and
BancAmerica Securities, Inc., as syndication agent, filed as Exhibit
10.1 to the Company's registration statement on Form S-4, File No.
333-31025, is hereby incorporated by reference.
3
<PAGE>
*10.5 Amended and restated credit agreement, dated as of April 20, 1998,
among KSL Recreation Group, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as a co-syndication agent and documentation
agent, The Bank of Nova Scotia, as a co-syndication agent and
administrative agent, and BancAmerica Securities, Inc., as syndication
agent.
*Previously filed.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KSL RECREATION GROUP, INC.
By: /s/ JOHN K. SAER, JR.
-------------------------------
John K. Saer, Jr.
Vice President, Chief Financial
Officer and Treasurer
Date: July 2, 1998
5
<PAGE>
EXHIBIT INDEX
Listed below are the financial statements, pro forma financial information
and exhibits filed as part of this report.
<TABLE>
<CAPTION>
Exhibit Sequentially
no. Description numbered page
- ------- ----------- -------------
<S> <C> <C>
** Unaudited historical and pro forma condensed consolidated statements
of operations for the fiscal year ended October 31, 1997 and the six
months ended April 30, 1998 7
** Unaudited historical condensed consolidated balance sheet as of April
30, 1998 11
** Financial statements of Claremont Hotel Corporation for the 11-month
period ended December 1, 1997 and for the years ended December 31,
1996 and 1995 and independent auditors' report. 13
** Financial statements of Claremont Hotel L.L.C. for the period from
December 2, 1997 (date of inception) to December 31, 1997 and
independent auditors' report 25
** Unaudited interim financial statements of Claremont Hotel, L.L.C. for
the three months ended March 31, 1998 35
* Agreement of purchase and sale between Claremont Hotel, L.L.C., Harsch
Investment Corp. and KSL Recreation Group, Inc. dated March 5, 1998
* First amendment agreement of purchase and sale between Claremont
Hotel, L.L.C., Harsch Investment Corp. and KSL Recreation Group, Inc.
dated April 6, 1998
* Second amendment agreement of purchase and sale between Claremont
Hotel, L.L.C. Harsch Investment Corp. and KSL Recreation Group,
Inc. dated April 20, 1998
Credit agreement, dated as of April 30, 1997, among KSL Recreation
Group, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
as a co-syndication agent and documentation agent, The Bank of Nova
Scotia, as a co-syndication agent and administrative agent, and
BancAmerica Securities, Inc., as syndication agent, filed as Exhibit
10.1 to the Company's registration statement on Form S-4, file no.
333-31025, is hereby incorporated by reference
* Amended and restated credit agreement, dated as of April 20, 1998,
among KSL Recreation Group, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as a co-syndication agent and documentation
agent, The Bank of Nova Scotia, as a co-syndication agent and
administrative agent, and BancAmerica Securities, Inc., as
syndication agent
</TABLE>
* Previously filed
** Filed herewith
6
<PAGE>
UNAUDITED HISTORICAL AND PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma statements of operations (the Pro
Forma Financial Statements) have been derived through the application of pro
forma adjustments to the Company's historical consolidated financial
statements. The Pro Forma Financial Statements have been prepared to reflect
the Claremont Acquisition.
The Pro Forma Financial Statements for the year ended October 31, 1997
and the six months ended April 30, 1998 give effect to the Claremont
Acquisition as if such acquisition had occurred at the beginning of the
earliest period presented. The unaudited historical consolidated balance
sheet of the Company as of April 30, 1998, as included in the Company's
report on Form 10-Q, filed on June 15, 1998 and as included herein, gives
effect to the Claremont Acquisition as such acquisition was consummated prior
to April 30, 1998.
The Pro Forma Financial Statements do not purport to present the actual
results of operations that would have occurred had the acquisition occurred
on the dates specified, nor do they purport to be indicative of the results
of operations or financial condition the Company may achieve in the future.
No effect has been given for operating or synergistic benefits that may be
realized through a combination of the entities. The Pro Forma Financial
Statements are based on certain assumptions and adjustments described in the
notes hereto and should be read in conjunction therewith.
The Pro Forma Financial Statements should be read in conjunction with
the information included in this report on Form 8-K and the historical
consolidated financial statements of the Company and notes thereto contained
in the Company's Form 10-K for the year ended October 31, 1997 and Form 10-Q
for the quarterly period ended April 30, 1998.
7
<PAGE>
KSL RECREATION GROUP, INC.
UNAUDITED HISTORICAL AND PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Company Claremont Pro forma
historical historical adjustments
year ended year ended increase Pro forma
October 31, 1997 December 31, 1997(A) (decrease) Company
---------------- ------------------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES $226,070 $30,815 $ - $256,885
EXPENSES 193,232 27,419 1,630 (C) 221,265
(1,016) (D)
--------- -------- ------ -------
INCOME (LOSS) FROM
OPERATIONS 32,838 3,396 (614) 35,620
OTHER INCOME (942) (F)
(EXPENSE), net (30,037) 942 (7,887) (E) (37,924)
--------- -------- ------ -------
INCOME (LOSS) BEFORE
MINORITY INTEREST,
INCOME TAXES AND
EXTRAORDINARY
ITEM 2,801 4,338 (9,443) (2,304)
MINORITY INTERESTS IN
LOSS OF SUBSIDIARY 143 - - 143
--------- -------- ------ -------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY
ITEM 2,944 4,338 (9,443) (2,161)
INCOME TAX EXPENSE
(BENEFIT) 143 (1,872) (B) 1,872 (G) 143
--------- -------- ------ -------
INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEM 2,801 6,210 (11,315) (2,304)
EXTRAORDINARY LOSS (3,164) - - (3,164)
--------- -------- ------ -------
NET INCOME (LOSS) $(363) $6,210 $(11,315) $(5,468)
--------- -------- ------ -------
--------- -------- ------ -------
BASIC AND DILUTED
EARNINGS (LOSS) PER
SHARE:
BEFORE
EXTRAORDINARY ITEM $2,801 $6,210 $(11,315) $(2,304)
EXTRAORDINARY LOSS (3,164) - - (3,164)
--------- -------- ------ -------
TOTAL BASIC AND DILUTED
EARNINGS (LOSS) PER
SHARE $ (363) $6,210 $(11,315) $(5,468)
--------- -------- ------ -------
--------- -------- ------ -------
WEIGHTED AVERAGE
NUMBER OF SHARES 1,000 1,000 1,000 1,000
--------- -------- ------ -------
--------- -------- ------ -------
</TABLE>
See accompanying notes to unaudited historical and
pro forma condensed consolidated statements of operations
8
<PAGE>
KSL RECREATION GROUP, INC.
UNAUDITED HISTORICAL AND PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Company Claremont Pro forma
historical historical adjustments
six months ended six months ended increase Pro forma
April 30, 1998 March 31, 1998 (H) (decrease) Company
-------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES $150,231 $15,097 $ - $165,328
EXPENSES 120,791 13,976 318 (C) 134,777
(308) (D)
-------- ------- ------- --------
INCOME (LOSS) FROM
OPERATIONS 29,440 1,121 (10) 30,551
OTHER INCOME
(EXPENSE), net (15,605) 371 (189) (F) (19,345)
(3,922) (E)
-------- ------- ------- --------
INCOME (LOSS) BEFORE
MINORITY INTEREST
AND INCOME TAXES 13,835 1,492 (4,121) 11,206
MINORITY INTERESTS IN
LOSS OF SUBSIDIARY 149 - - 149
-------- ------- ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES 13,984 1,492 (4,121) 11,355
INCOME TAX EXPENSE 5 - - 5
-------- ------- ------- --------
NET INCOME (LOSS) $ 13,979 $1,492 $(4,121) $ 11,350
-------- ------- ------- --------
-------- ------- ------- --------
BASIC AND DILUTED
EARNINGS (LOSS)
PER SHARE $13,979 $1,492 $(4,121) $11,350
-------- ------- ------- --------
-------- ------- ------- --------
WEIGHTED AVERAGE
NUMBER OF SHARES 1,000 1,000 1,000 1,000
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
See accompanying notes to unaudited historical and
pro forma condensed consolidated statements of operations
9
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO UNAUDITED HISTORICAL AND PRO FORMA
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in thousands)
(A) Reflects the combined results of Claremont Hotel Corporation for the
eleven-month period ended December 1, 1997 and of Claremont Hotel,
L.L.C. for the period December 2, 1997 (date of inception) to December
31, 1997. The Company does not believe that such amounts would have
been materially different had the results of operations for the periods
presented been adjusted to reflect the results of operations consistent
with the Company's fiscal period.
(B) Reflects the income tax benefit of Claremont Hotel Corporation for the
eleven-month period ended December 1, 1997. The income tax benefit
resulted primarily from reduced deferred income taxes related to a change
in the entity's tax filing status from a C corporation to an S corporation
in 1997. Claremont Hotel, L.L.C., as an S corporation, recorded no tax
provision for the period December 2, 1997 (date of inception) to
December 31, 1997 as the tax obligations and/or benefits are recognized on
the tax returns of its members.
(C) Reflects the increase (decrease) in depreciation and amortization expense
of $797 and $833, respectively, for the year ended October 31, 1997 and
$(99) and $417, respectively, for the six months ended April 30, 1998.
(D) Reflects the elimination of corporate fees charged by the predecessor
owner.
(E) Reflects the additional interest expense that would have been incurred by
the Company on additional borrowings under the Revolving Credit Facility to
fund the Claremont Acquisition at a rate of approximately 9%.
(F) Reflects the elimination of interest income earned by Claremont Hotel
Corporation on its loan to its parent.
(G) Reflects the elimination of Claremont Hotel Corporation's income tax
benefit [See (B)].
(H) Reflects the unaudited interim combined results of operations of Claremont
Hotel Corporation and Claremont Hotel, L.L.C. for the six months ended
March 31, 1998 less results of operations for the nine-day period from
April 21, 1998 (date of acquisition) to April 30, 1998, which are included
in the Company's results of operations for the six months ended April 30,
1998. The Company does not believe that such amounts would have been
materially different had the results of operations for the period presented
been adjusted to reflect the results of operations consistent with the
Company's fiscal period.
10
<PAGE>
KSL RECREATION GROUP, INC.
UNAUDITED HISTORICAL CONDENSED CONSOLIDATED
BALANCE SHEET AS OF APRIL 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,043
Restricted cash 1,098
Trade receivables, net of allowance for
doubtful receivables of $817 25,571
Inventories 9,315
Current portion of notes receivable 3,535
Prepaid expenses and other current assets 5,515
--------
TOTAL CURRENT ASSETS 47,077
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $79,486 506,191
NOTE RECEIVABLE FROM AFFILIATE 22,526
NOTES RECEIVABLE, less current portion 5,573
RESTRICTED CASH, less current portion 101
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED ENTITIES, net of accumulated
amortization of $15,915 114,266
OTHER ASSETS, net 33,477
--------
$729,211
--------
--------
</TABLE>
11
<PAGE>
KSL RECREATION GROUP, INC.
UNAUDITED HISTORICAL CONDENSED CONSOLIDATED
BALANCE SHEET AS OF APRIL 30, 1998 (Continued)
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $6,724
Accrued liabilities 16,945
Accrued interest payable 2,680
Current portion of long-term debt 1,042
Current portion of obligations under capital leases 2,908
Deferred income, customer deposits and other 10,952
--------
TOTAL CURRENT LIABILITIES 41,251
LONG-TERM DEBT, less current portion 399,719
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 35,177
OTHER LIABILITIES 1,286
MEMBER DEPOSITS 54,308
DEFERRED INCOME TAXES 15,202
MINORITY INTERESTS IN EQUITY OF SUBSIDIARY 98
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares
authorized and outstanding -
Additional paid-in capital 197,535
Accumulated deficit (15,365)
--------
Total stockholder's equity 182,170
--------
$729,211
--------
--------
</TABLE>
12
<PAGE>
CLAREMONT HOTEL CORPORATION
FINANCIAL STATEMENTS FOR THE ELEVEN-MONTH PERIOD
ENDED DECEMBER 1, 1997 AND THE YEARS
ENDED DECEMBER 31, 1996 AND 1995
AND INDEPENDENT AUDITORS' REPORT
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Claremont Hotel Corporation:
We have audited the accompanying balance sheets of Claremont Hotel
Corporation (the Company) as of December 1, 1997 and December 31, 1996, and
the related statements of operations, stockholder's equity and cash flows for
the eleven-month period ended December 1, 1997 and the years ended December
31, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Claremont Hotel Corporation
as of December 1, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the above-stated periods in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, effective December 2,
1997, the Company's stockholder contributed the Company's assets and related
liabilities to a newly formed Delaware limited liability company owned by
certain charitable foundations.
As more fully described in Note 1, effective January 1, 1997, the Parent
caused the Company to become part of the Parent; and, therefore, the Company
had no separate legal status or existence for the eleven-month period ended
December 1, 1997. The financial statements of the Company have been prepared
from separate records maintained by the Company as well as from the combined
records of the Parent.
Deloitte & Touche LLP
June 26, 1998
Costa Mesa, California
14
<PAGE>
CLAREMONT HOTEL CORPORATION
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Eleven-month Year ended
period ended December 31,
December 1, ------------------------
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
REVENUES:
Rooms $11,350 $10,052 $9,068
Food and beverage 8,800 9,366 8,554
Spa 3,434 3,380 2,541
Dues and fees 2,752 2,834 2,705
Other 1,609 1,765 1,657
------- ------ ------
Total revenues 27,945 27,397 24,525
EXPENSES:
Payroll and benefits 12,270 12,087 10,814
Cost of food and beverage 2,699 2,872 2,742
Other expenses 7,392 6,762 6,251
Depreciation 1,498 1,533 1,506
Management fee (Note 6) 972 950 854
------- ------ ------
Total operating expenses 24,831 24,204 22,167
------- ------ ------
INCOME FROM OPERATIONS 3,114 3,193 2,358
OTHER INCOME (Note 6) 942 1,041 852
------- ------ ------
INCOME BEFORE INCOME TAXES 4,056 4,234 3,210
INCOME TAX EXPENSE (BENEFIT) (Note 5) (1,872) 1,709 1,298
------- ------ ------
NET INCOME $5,928 $2,525 $1,912
------- ------ ------
------- ------ ------
PRO FORMA DATA (unaudited) (Note 2):
Historical income before income taxes $4,056
Pro forma income tax expense 1,612
-------
Pro forma net income $2,444
-------
-------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
CLAREMONT HOTEL CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
December 1, December 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 494 $ 318
Trade receivables, net of allowance for doubtful receivables of
$35 and $48, respectively 2,968 2,083
Inventories (Note 3) 960 840
Deferred income taxes 13 484
Prepaid expenses and other 75 123
------- -------
Total current assets 4,510 3,848
PROPERTY AND EQUIPMENT, net (Note 4) 24,934 23,134
RECEIVABLE FROM PARENT (Note 6) 9,896 9,281
------- -------
$39,340 $36,263
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $1,027 $1,907
Accrued payroll and benefits 858 732
Accrued liabilities 1,202 1,251
Deferred income, customer deposits and other 853 495
------- -------
Total current liabilities 3,940 4,385
DEFERRED INCOME TAXES 84 2,490
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 100 shares authorized and outstanding
Additional paid-in capital 5,976 5,976
Retained earnings 29,340 23,412
------- -------
Total stockholder's equity 35,316 29,388
------- -------
$39,340 $36,263
------- -------
------- -------
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
CLAREMONT HOTEL CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
-------- ---------- -------- -------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 $ - $5,976 $18,975 $24,951
Net income 1,912 1,912
------- ------ ------- -------
BALANCE, December 31, 1995 5,976 20,887 26,863
Net income 2,525 2,525
------- ------ ------- -------
BALANCE, December 31, 1996 5,976 23,412 29,388
Net income 5,928 5,928
------- ------ ------- -------
BALANCE, December 1, 1997 $ - $5,976 $29,340 $35,316
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CLAREMONT HOTEL CORPORATION
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Eleven-month Year ended
period ended December 31,
December 1, ------------------------
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,928 $ 2,525 $ 1,912
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,498 1,533 1,506
Provision for losses on trade receivables (13) 26 (13)
Deferred income taxes (1,935) (20) 16
Loss on disposal of property, net 20 180
Changes in operating assets and liabilities:
Trade receivables (872) (771) 216
Inventories (120) (161) 110
Prepaid expenses and other 48 5 (37)
Accounts payable (880) 1,053 (16)
Accrued payroll and benefits 126 166 (183)
Accrued liabilities (49) 216 167
Deferred income, customer deposits and other 358 (68) 16
------- ------- -------
Net cash provided by operating activities 4,109 4,684 3,694
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,318) (5,348) (1,789)
Receivable from Parent (615) 929 (1,929)
------- ------- -------
Net cash used in investing activities (3,933) (4,419) (3,718)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 176 265 (24)
CASH AND CASH EQUIVALENTS, beginning of period 318 53 77
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 494 $ 318 $ 53
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
(Dollars in thousands)
1. GENERAL
Claremont Hotel Corporation (the Company) operates the Claremont Resort &
Spa (the Claremont), which is a leisure destination, business hotel and
conference facility, with a world-class spa and lifestyle enhancement
center and private tennis club located in Oakland, California. The
historic Claremont hotel was built in 1915.
The Company was a wholly-owned corporate subsidiary of Harsch Investment
Corp. (the Parent) through December 31, 1996. Effective January 1, 1997,
the Parent caused the Company to become part of the Parent; and, therefore,
the Company had no separate legal status or existence for the eleven-month
period ended December 1, 1997. The financial statements of the Company
have been prepared from separate records maintained by the Company as well
as from the combined records of the Parent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - The Company considers all highly-liquid investments with
original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated primarily at the lower of cost,
determined on the first-in, first-out method, or market.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Generally, the estimated useful lives
are 15 to 40 years for buildings and improvements and 3 to 10 years for
furniture, fixtures and equipment. Improvements are capitalized while
maintenance and repairs are charged to expense as incurred. Assets under
capital leases, if any, are amortized using the straight-line method over
the shorter of the lease term or estimated useful lives of the assets.
Depreciation of assets under capital leases, if any, is included in
depreciation expense.
LONG-LIVED ASSETS - Management reviews real estate and other long-lived
assets for possible impairment whenever events or circumstances indicate
the carrying amount of an asset may not be recoverable. If there is an
indication of impairment, management prepares an estimate of future cash
flows (undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition. If these cash flows are
less than the carrying amount of the asset, an impairment loss is
recognized to write down the asset to its estimated fair value. The fair
value is estimated at the present value of future cash flows discounted at
a rate commensurate with management's estimate of
19
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
- -------------------------------------------------------------------------------
(Dollars in thousands)
the business risks. Real estate assets, if any, for which management has
committed to a plan to dispose of the assets, whether by sale or
abandonment, are reported at the lower of carrying amount or fair value
less cost to sell. Preparation of estimated expected future cash flows is
inherently subjective and is based on management's best estimate of
assumptions concerning expected future conditions.
INCOME TAXES - The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING
FOR INCOME TAXES, which requires an asset and liability approach in
accounting for income taxes. Under this method, a deferred tax liability
or asset is recognized for the estimated future tax effects attributable to
temporary differences in the recognition of accounting transactions for tax
and reporting purposes and from carryforwards. Measurement of the deferred
items is based on enacted tax laws. In the event the future consequence of
differences result in a deferred tax asset, SFAS No. 109 requires an
evaluation of the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a deferred tax
asset is recorded when it is more likely than not that some portion or all
of the deferred tax asset will not be realized.
The Company is included in the consolidated income tax returns of the
Parent. Prior to January 1, 1997, the Company was treated as a C
corporation. Effective January 1, 1997, the Parent, along with the Company
changed its tax filing status to an S corporation (Note 1). Accordingly,
the provision for income taxes for the years ended December 31, 1996 and
1995 was computed utilizing the separate return basis by applying the
applicable federal and state income tax rates to the Company's pretax
earnings as if the Company were a C corporation. The provision for income
taxes for the period ended December 1, 1997 was computed by applying the
California franchise tax rate for S corporations of 1.5% to the Company's
pretax earnings. As a result of the change in tax filing status and
applicable tax rates, the Company recorded approximately $1,935 of income
tax benefit in the period ended December 1, 1997 related to the reduction
of deferred income taxes.
REVENUE RECOGNITION - Revenues related to dues and fees are recognized as
income in the period in which the service is provided. Other revenues are
recognized at the time of sale or rendering of service.
PRO FORMA NET INCOME - Pro forma net income for the period ended
December 1, 1997 represents the results of operations adjusted to reflect a
provision for income tax on historical income before income taxes based on
a C corporation income tax status comparable to the other periods
presented. The difference between the pro forma income tax rates utilized
and the federal statutory rate of 35% relates primarily to state income
taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, other receivables, accounts payable and accrued liabilities
approximate their fair values because of the short maturity of these
financial instruments.
20
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
- ----------------------------------------------------------------------------
(Dollars in thousands)
USE OF ESTIMATES - 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.
ACCOUNTING PRONOUNCEMENTS - 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. It
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 must be adopted for fiscal years
beginning after December 15, 1997.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 1, December 31,
1997 1996
----------- ------------
<S> <C> <C>
China, silver, glassware and linen $685 $521
Food and beverage 206 205
Merchandise 69 114
---- ----
$960 $840
---- ----
---- ----
</TABLE>
21
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
- ----------------------------------------------------------------------------
(Dollars in thousands)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 1, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Land $ 677 $ 677
Buildings and improvements 30,345 24,559
Furniture, fixtures and equipment 9,514 7,478
Construction in progress 303 4,867
-------- --------
40,839 37,581
Less accumulated depreciation (15,905) (14,447)
-------- --------
Property and equipment, net $ 24,934 $ 23,134
-------- --------
-------- --------
</TABLE>
5. INCOME TAXES
The components of the federal and state income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
Eleven-
month
period Year ended
ended December 31,
December 1, ---------------------
1997 1996 1995
----------- ------ ------
<S> <C> <C> <C>
Current:
Federal $ - $1,329 $ 985
State 63 400 297
------- ------ ------
63 1,729 1,282
Deferred:
Federal (1,552) (15) 12
State (383) (5) 4
------- ------ ------
(1,935) (20) 16
------- ------ ------
Total $(1,872) $1,709 $1,298
------- ------ ------
------- ------ ------
</TABLE>
22
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
- ----------------------------------------------------------------------------
(Dollars in thousands)
Taxes on income vary from the statutory Federal income tax rate applied to
earnings before taxes as follows:
<TABLE>
<CAPTION>
Eleven-
month
period Year ended
ended December 31,
December 1, ---------------------
1997 1996 1995
----------- ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate applied to
earnings before taxes 0.0 % 35.0 % 35.0 %
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefits 1.5 % 6.1 % 6.1 %
Change in tax filing status (46.2)%
Other (1.5)% (0.7)% (0.7)%
----- ---- ----
Total (46.2)% 40.4 % 40.4 %
----- ---- ----
----- ---- ----
</TABLE>
Deferred income tax assets and liabilities arising from differences between
accounting and financial statement purposes and tax purposes, less valuation
reserves, are as follows:
<TABLE>
<CAPTION>
December 1, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Deferred tax assets:
Deferred income $ 6 $ 163
Other 9 397
---- -------
Total deferred tax assets 15 560
Deferred tax liabilities:
Basis difference in assets 84 2,490
Other 2 76
---- -------
Total deferred tax liabilities 86 2,566
---- -------
Net deferred tax liability $(71) $(2,006)
---- -------
---- -------
</TABLE>
23
<PAGE>
CLAREMONT HOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN-MONTH PERIOD ENDED DECEMBER 1, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (CONTINUED)
- ----------------------------------------------------------------------------
(Dollars in thousands)
Prior to January 1, 1997, the Company was treated as a C corporation.
Effective January 1, 1997, the Parent, along with the Company changed
its tax filing status to an S corporation (Note 1). Accordingly, the
provision for income taxes for the years ended December 31, 1996 and
1995 was computed utilizing the separate return basis by applying the
applicable federal and state income tax rates to the Company's pretax
earnings as if the Company were a C corporation. The provision for
income taxes for the period ended December 1, 1997 was computed by
applying the California franchise tax rate for S corporations of 1.5% to
the Company's pretax earnings. As a result of the change in tax filing
status and applicable tax rates, the Company recorded approximately
$1,935 of income tax benefit in the period ended December 1, 1997
related to the reduction of deferred income taxes.
6. RELATED-PARTY TRANSACTIONS
The receivable from Parent of $9,896 and $9,281 at December 1, 1997 and
December 31, 1996, respectively, related to loans by the Company to the
Parent to fund Parent's operating costs and to fund certain of the Parent's
long-term-investments. Interest on such receivable is earned at prime
rate. The Company recorded interest income of $942, $1,041 and $852 for
the eleven-month period ended December 1, 1997 and the years ended
December 31, 1996 and 1995, respectively, related to this receivable.
Management fees of $972, $950 and $845 for the eleven-month period ended
December 1, 1997 and the years ended December 31, 1996 and 1995,
respectively, were paid to the Parent for management advisory services.
7. COMMITMENTS AND CONTINGENCIES
The Company is a party to various litigation matters which are incidental
to its business. Although the results of the litigation cannot be
predicted with certainty, management believes that the final outcome of
such matters will not have a material adverse effect on the Company's
financial statements.
8. SUBSEQUENT EVENTS
Effective December 2, 1997, the Company's stockholder contributed
substantially all of the Company's assets and related liabilities to a
newly formed Delaware limited liability company owned by two nonprofit
charitable foundations (the Contribution). Concurrent with the
Contribution, the Company's receivable from Parent was settled and the
Company was effectively liquidated.
24
<PAGE>
CLAREMONT HOTEL, L.L.C.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1997
(DATE OF INCEPTION) TO DECEMBER 31, 1997
AND INDEPENDENT AUDITORS' REPORT
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members
of Claremont Hotel, L.L.C.:
We have audited the accompanying balance sheets of Claremont Hotel, L.L.C.
(the Company) as of December 2, 1997 (date of inception) and December 31,
1997, and the related statements of operations, members' capital and cash
flows for the period from December 2, 1997 (date of inception) to December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Claremont Hotel, L.L.C. as
of December 2, 1997 and December 31, 1997, and the results of its operations
and its cash flows for the period from December 2, 1997 (date of inception)
to December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the financial statements, the Company sold
substantially all its assets and certain liabilities in April 1998.
Deloitte & Touche LLP
June 26, 1998
Costa Mesa, California
26
<PAGE>
CLAREMONT HOTEL, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<S> <C>
REVENUES:
Rooms $ 845
Food and beverage 1,406
Spa 306
Dues and fees 242
Other 71
------
Total revenues 2,870
EXPENSES:
Payroll and benefits 1,255
Cost of food and beverage 397
Other expenses 658
Depreciation 234
Management fee (Note 5) 44
------
Total operating expenses 2,588
------
NET INCOME $ 282
------
------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
CLAREMONT HOTEL, L.L.C.
BALANCE SHEETS
AS OF DECEMBER 2, 1997 (DATE OF INCEPTION) AND DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
December 2, December 31,
1997 1997
(date of
inception)
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 494 $ 2,348
Trade receivables, net of allowance for doubtful receivables of
$35 and $41, respectively 2,968 2,594
Inventories (Note 3) 960 1,000
Prepaid expenses and other 119 110
------- -------
Total current assets 4,541 6,052
PROPERTY AND EQUIPMENT, net (Note 4) 61,692 61,464
------- -------
$66,233 $67,516
------- -------
------- -------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,027 $ 1,334
Accrued payroll and benefits 858 734
Accrued liabilities 1,202 1,727
Deferred income, customer deposits and other 853 768
Payable to affiliate (Note 5) 38 796
------- -------
Total current liabilities 3,978 5,359
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7 )
MEMBERS' CAPITAL 62,255 62,157
------- -------
$66,233 $67,516
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
CLAREMONT HOTEL, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Harold and
Arlene Jordan and
Schnitzer Mina
CARE Schnitzer
Foundation Foundation Total
---------- ---------- -------
<S> <C> <C> <C>
BALANCE, December 2, 1997 (Date of inception) $ - $ - $ -
Contribution of net assets 48,870 13,385 62,255
Net income 221 61 282
Distributions (298) (82) (380)
------- ------- -------
BALANCE, December 31, 1997 $48,793 $13,364 $62,157
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------
(In thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 282
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 234
Provision for losses on trade receivables 6
Changes in operating assets and liabilities:
Trade receivables 368
Inventories (40)
Prepaid expenses and other 9
Accounts payable 307
Accrued payroll and benefits (124)
Accrued liabilities 525
Deferred income, customer deposits and other (85)
Payable to affiliate 758
------
Net cash provided by operating activities 2,240
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (6)
CASH FLOWS FROM FINANCING ACTIVITIES -
Distributions (380)
------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,854
CASH AND CASH EQUIVALENTS, beginning of period 494
------
CASH AND CASH EQUIVALENTS, end of period $2,348
------
------
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
CLAREMONT HOTEL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(Dollars in thousands)
1. GENERAL
Claremont Hotel, L.L.C. (the Company), a Delaware limited liability
company, was formed to own and operate the Claremont Resort & Spa (the
Claremont), which is a leisure destination, business hotel and conference
facility, with a world-class spa and lifestyle enhancement center and
private tennis club located in Oakland, California. The historic Claremont
hotel was built in 1915. The Company is owned by the Harold and Arlene
Schnitzer CARE Foundation (78.5%) and the Jordan and Mina Schnitzer
Foundation (21.5%) (collectively, the Members). The Members are nonprofit
charitable foundations.
Effective December 2, 1997, the assets and liabilities of the Claremont
were contributed to the Members by an affiliated corporation and
subsequently transferred to the Company. The assets and liabilities
transferred as of December 2, 1997 have been recorded based on their
estimated fair value at the date of contribution. Fair value was
determined based on appraisals and other information available to the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - The Company considers all highly-liquid investments with
original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated primarily at the lower of cost or
estimated fair value at date of contribution, determined on the first-in,
first-out method, or market.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost or
estimated fair value at date of contribution. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets. Generally, the estimated useful lives are 15 to 40 years
for buildings and improvements and 3 to 10 years for furniture, fixtures
and equipment. Improvements are capitalized while maintenance and repairs
are charged to expense as incurred.
LONG-LIVED ASSETS - Management reviews real estate and other long-lived
assets for possible impairment whenever events or circumstances indicate
the carrying amount of an asset may not be recoverable. If there is an
indication of impairment, management prepares an estimate of future cash
flows (undiscounted and without interest charges) expected to result from
the use of the asset and its eventual disposition. If these cash flows are
less than the carrying amount of the asset, an impairment loss is
recognized to write down the asset to its estimated fair value. The fair
value is estimated at the present value of future cash flows discounted at
a rate commensurate with management's estimate of the business risks. Real
estate assets, if any, for which management has committed to a plan to
31
<PAGE>
CLAREMONT HOTEL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (Continued)
- -------------------------------------------------------------------------------
(Dollars in thousands)
dispose of the assets, whether by sale or abandonment, are reported at the
lower of carrying amount or fair value less cost to sell. Preparation of
estimated expected future cash flows is inherently subjective and is based
on management's best estimate of assumptions concerning expected future
conditions.
INCOME TAXES - As a limited liability company, the Company is subject only
to a California minimum franchise tax and minor fees based on gross
revenues, which taxes and fees were not material during the period. The
income tax effects of the Company's activities are recognized in the tax
returns of the Members.
REVENUE RECOGNITION - Revenues related to dues and fees are recognized as
income in the period in which the service is provided. Other revenues are
recognized at the time of sale or rendering of service.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, other receivables, accounts payable and accrued liabilities
approximate their fair values because of the short maturity of these
financial instruments.
USE OF ESTIMATES - 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.
ACCOUNTING PRONOUNCEMENTS - During 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (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. It 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 January 1, 1998.
32
<PAGE>
CLAREMONT HOTEL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (Continued)
- -------------------------------------------------------------------------------
(Dollars in thousands)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 2, December 31,
1997 1997
----------- ------------
<S> <C> <C>
China, silver, glassware, linen $ 685 $ 717
Food and beverage 206 216
Merchandise 69 67
----- -------
$ 960 $ 1,000
----- -------
----- -------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 2, December 31,
1997 1997
----------- ------------
<S> <C> <C>
Land $ 15,931 $ 15,931
Buildings and improvements 41,302 41,302
Furniture, fixtures and equipment 4,157 4,163
Construction in progress 302 302
-------- --------
61,692 61,698
Less accumulated depreciation - (234)
-------- --------
Property and equipment, net $ 61,692 $ 61,464
-------- --------
-------- --------
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The payable to affiliates of $38 and $796 at December 2, 1997 and
December 31, 1997, respectively, relates to advances to the Company by a
certain affiliate to fund the Company's operating costs. Management fees
of $44 for the period ended December 31, 1997 were paid to the same
affiliate for management advisory services.
33
<PAGE>
CLAREMONT HOTEL, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 2, 1997 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 (Continued)
- -------------------------------------------------------------------------------
(Dollars in thousands)
6. COMMITMENTS AND CONTINGENCIES
The Company is a party to various litigation matters which are incidental
to its business. Although the results of the litigation cannot be
predicted with certainty, management believes that the final outcome of
such matters will not have a material adverse effect on the Company's
financial statements.
7. SUBSEQUENT EVENTS
On April 21, 1998, the Company sold substantially all its assets and
certain liabilities to a third-party buyer for approximately $88,000.
34
<PAGE>
CLAREMONT HOTEL, L.L.C.
UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
35
<PAGE>
CLAREMONT HOTEL, L.L.C.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Rooms $ 3,177
Food and beverage 2,474
Dues and fees 780
Spa 964
Other 364
-------
Total revenues 7,759
EXPENSES:
Payroll and benefits 3,646
Cost of food and beverage 725
Other expenses 1,777
Depreciation 706
Management fee 78
-------
Total operating expenses 6,932
-------
INCOME FROM OPERATIONS 827
OTHER INCOME 28
-------
NET INCOME $ 855
-------
-------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
CLAREMONT HOTEL, L.L.C.
BALANCE SHEET
AS OF MARCH 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,450
Trade receivables, net of allowance for
doubtful receivables of $36 2,128
Inventories 932
Prepaid expenses and other 197
--------
Total current assets 5,707
PROPERTY AND EQUIPMENT, net 61,290
--------
$ 66,997
--------
--------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,273
Accrued payroll and benefits 996
Accrued liabilities 1,618
Deferred income, customer deposits and other 753
Payable to affiliate 283
--------
Total current liabilities 4,923
MEMBERS' CAPITAL 62,074
--------
$ 66,997
--------
--------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
CLAREMONT HOTEL, L.L.C.
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Harold and
Arlene Jordan and
Schnitzer Mina
CARE Schnitzer
Foundation Foundation Total
<S> <C> <C> <C>
BALANCE, December 31, 1997 $ 48,793 $ 13,364 $ 62,157
Net income 671 184 855
Distributions (736) (202) (938)
-------- -------- --------
BALANCE, March 31, 1998 $ 48,728 $ 13,346 $ 62,074
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
CLAREMONT HOTEL, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
- ------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 855
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 706
Provision for losses on trade receivables (5)
Changes in operating assets and liabilities:
Trade receivables 471
Inventories 68
Prepaid expenses and other (87)
Accounts payable (61)
Accrued payroll and benefits 262
Accrued liabilities (109)
Deferred income, customer deposits and other (15)
Payable to affiliate (513)
-------
Net cash provided by operating activities 1,572
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (532)
CASH FLOWS FROM FINANCING ACTIVITIES -
Distributions (938)
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS 102
CASH AND CASH EQUIVALENTS, beginning of period 2,348
-------
CASH AND CASH EQUIVALENTS, end of period $ 2,450
-------
-------
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
CLAREMONT HOTEL, L.L.C.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
(Dollars in thousands)
1. GENERAL
Claremont Hotel, L.L.C. (the Company), a Delaware limited liability
company, was formed to own and operate the Claremont Resort & Spa (the
Claremont), which is a leisure destination, business hotel and conference
facility, with a world-class spa and lifestyle enhancement center and
private tennis club located in Oakland, California.
The unaudited interim financial statements presented herein 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 financial statements
contain all adjustments (consisting of normal recurring accruals) necessary
to present fairly the Company's financial position, results of operations
and cash flows. These unaudited interim financial statements should be
read in conjunction with the other disclosures contained herein and with
the Company's audited financial statements and notes thereto contained in
the Company's audited financial statements for the period from December 2,
1997 (date of inception) to December 31, 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.
2. SUBSEQUENT EVENTS
On April 21, 1998, the Company sold substantially all of its assets and
certain liabilities to a third-party buyer for approximately $88,000.
40
