<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, 2000 .
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)
55-880 PGA Boulevard
La Quinta, California 92253
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
760/564-8000
------------
(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 11, 2000
1,000
Class
Common Stock, $0.01 par value
=======================================================================
<PAGE>
KSL RECREATION GROUP, INC.
INDEX
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations for the three and
six months ended April 30, 2000 and 1999 .............................3
Condensed consolidated balance sheets, April 30, 2000 and October
31, 1999..............................................................4
Condensed consolidated statements of cash flows for the six months
ended April 30, 2000 and 1999.........................................6
Notes to condensed consolidated financial statements.....................8
Item 2. Management's discussion and analysis of financial condition
and results of operations............................................11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders..............15
Item 6. Exhibits and Reports on Form 8-K.................................15
Signatures................................................................16
</TABLE>
<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 share and per share data) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rooms $ 52,858 $ 47,291 $ 92,456 $ 74,843
Food and beverage 32,670 29,692 57,613 52,256
Golf fees 13,074 15,704 21,122 26,698
Dues and fees 5,257 7,849 10,372 15,356
Merchandise sales 7,267 6,525 12,429 11,324
Spa revenues 6,827 5,046 12,195 8,420
Other 16,858 13,461 30,232 23,160
Real estate sales 9,163 608 11,433 641
--------- --------- --------- ---------
Total revenues 143,974 126,176 247,852 212,698
EXPENSES:
Payroll and benefits 38,689 36,876 74,211 67,650
Cost of real estate 7,624 348 9,806 374
Other expenses 43,299 39,695 80,610 72,407
Depreciation and amortization 12,373 14,349 24,272 26,121
Corporate fee 2,555 2,582 5,110 5,165
--------- --------- --------- ---------
Total operating expenses 104,540 93,850 194,009 171,717
--------- --------- --------- ---------
INCOME FROM OPERATIONS 39,434 32,326 53,843 40,981
OTHER INCOME (EXPENSE):
Interest income 272 820 605 1,395
Interest expense (12,103) (13,603) (24,517) (24,613)
--------- --------- --------- ---------
Other expense, net (11,831) (12,783) (23,912) (23,218)
--------- --------- --------- ---------
INCOME BEFORE MINORITY
INTERESTS AND INCOME TAXES 27,603 19,543 29,931 17,763
MINORITY INTERESTS IN LOSS OF SUBSIDIARY -- 12 -- 118
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 27,603 19,555 29,931 17,881
INCOME TAX EXPENSE 10,592 7,812 11,523 7,162
--------- --------- --------- ---------
NET INCOME $ 17,011 $ 11,743 $ 18,408 $ 10,719
========= ========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE $ 17,011 $ 11,743 $ 18,408 $ 10,719
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 1,000 1,000 1,000 1,000
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(amounts in thousands) April 30, October 31,
2000 1999
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,431 $ 9,369
Restricted cash 7,759 10,421
Trade receivables, net of allowance for doubtful
receivables of $756 and $712, respectively 31,670 21,855
Inventories 13,768 12,467
Current portion of notes receivable 7,660 4,015
Other receivables 4,562 6,048
Prepaid expenses and other current assets 5,936 6,116
---------- ----------
Total current assets 82,786 70,291
REAL ESTATE UNDER DEVELOPMENT 5,225 8,947
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $121,887 and $102,378, respectively 751,521 736,254
NOTES RECEIVABLE, less current portion 4,058 3,754
RESTRICTED CASH, less current portion 7,994 8,150
EXCESS OF COST OVER NET ASSETS OF
ACQUIRED ENTITIES, net of accumulated
amortization of $25,338 and $22,863 respectively 103,303 105,775
OTHER ASSETS, net 90,116 92,897
---------- ----------
$1,045,003 $1,026,068
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Continued)
<TABLE>
<CAPTION>
(amounts in thousands, April 30, October 31,
except share data) 2000 1999
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,065 $ 13,411
Income taxes payable 10,005 10,441
Accrued liabilities 25,623 28,572
Accrued interest payable 1,508 1,642
Current portion of long-term debt 1,000 1,000
Current portion of obligations under capital leases 1,319 1,303
Customer and other deposits 18,370 18,173
Deferred income and other 5,433 2,732
---------- ----------
Total current liabilities 75,323 77,274
LONG-TERM DEBT, less current portion 533,000 549,000
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 33,051 32,806
OTHER LIABILITIES 1,781 1,705
MEMBER DEPOSITS 110,344 92,187
DEFERRED INCOME TAXES 16,286 16,286
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 25,000 shares authorized,
1,000 outstanding -- --
Additional paid-in capital 256,810 256,810
Retained earnings 18,408 --
---------- ----------
Total stockholder's equity 275,218 256,810
---------- ----------
$1,045,003 $1,026,068
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
KSL RECREATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
six months ended
April 30,
(amounts in thousands) 2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,408 $ 10,719
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 24,272 26,121
Amortization of debt issuance costs 508 498
Provision for losses on trade receivables 274 282
Deferred income taxes -- 7,200
Provision for losses on notes receivables 63 --
Minority interests in loss of subsidiary -- (118)
Loss on sale of property and equipment, net 58 78
Changes in operating assets and liabilities, net of effects from
investments in subsidiaries:
Restricted cash 2,818 901
Trade receivables (10,089) (4,558)
Inventories (1,301) (1,553)
Prepaid expenses and other current assets 180 (2,061)
Other receivables 1,486 (151)
Notes receivable 973 (200)
Other assets 20 (339)
Accounts payable (1,346) 119
Accrued liabilities (2,949) 655
Income taxes payable (436) --
Accrued interest payable (134) (214)
Customer and other deposits 197 3,032
Deferred income and other current liabilities 2,701 3,698
Other liabilities 76 117
-------- ---------
Net cash provided by operating activities 35,779 44,226
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired -- (105,149)
Purchases of property and equipment (34,031) (22,589)
Collections on member notes receivable 3,138 2,282
Notes receivable from affiliate, net -- (946)
Investment in real estate under development 3,722 (7,205)
Proceeds from sale of property and equipment -- 224
-------- ---------
Net cash used in investing activities (27,171) (133,383)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<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) 2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from Parent $ -- $ 110,000
Revolving line of credit, net (15,000) (18,750)
Principal payments on long-term debt and obligations
under capital leases (1,580) (2,434)
Debt financing costs -- (81)
Member deposits 13,928 6,644
Member refunds (3,894) (1,886)
-------- ---------
Net cash (used in) provided by financing activities (6,546) 93,493
-------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,062 4,336
CASH AND CASH EQUIVALENTS, beginning of period 9,369 5,248
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 11,431 $ 9,584
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid (net of amounts capitalized) $ 24,143 $ 23,179
Income taxes paid $ 11,960 $ 550
NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases $ 841 $ 3,571
Notes receivable issued for member deposits 8,186 5,989
Assumption of debt of acquired properties -- 275,000
Trade-in of equipment under capital lease -- 517
Capital contribution of minority interest from Parent -- 8,868
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<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 its subsidiaries (collectively, the Company)
is engaged in the ownership and management of resorts, spas, golf courses,
private clubs, 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 accounting principles generally accepted
in the United States of America. 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, 1999. 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 2000 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.
The Company has adopted AICPA Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities," effective November 1, 1999. The adoption
of SOP 98-5 did not have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statements of financial position and measure
those instruments at fair value. The Company is required to adopt SFAS No. 133
in fiscal 2001. The Company is in the process of evaluating the adoption of this
standard, but does not believe that is will have a material effect on the
consolidated financial statements.
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(amounts in thousands)
NOTE 2. Acquisition
On December 29, 1998, the Company, through a wholly-owned subsidiary,
acquired substantially all the assets and certain liabilities of the Grand
Wailea Resort Hotel & Spa (Grand Wailea), a 779-room resort in Maui, Hawaii for
approximately $372,775 (exclusive of closing costs), including the assumption of
approximately $275,000 in mortgage financing. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the operating results of
the Grand Wailea have been included in the Company's consolidated financial
statements since acquisition. The excess of the purchase price over the debt
assumed, acquisition related costs, and working capital were funded with a
$110,000 equity investment by the Parent to the Company.
The following are the Company's unaudited consolidated results of
operations for the six months ended April 30, 2000, compared to the pro forma
consolidated results of operations for the six months ended April 30, 1999,
which assume the Grand Wailea transaction occurred as of November 1, 1998:
<TABLE>
<CAPTION>
(In thousands, except per share data)
2000 1999
-------- --------
<S> <C> <C>
Revenues $247,852 $224,659
Income before income taxes 29,931 14,576
Net income 18,408 7,414
Net income per share 18,408 7,414
</TABLE>
The unaudited pro forma 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.
NOTE 3. Long-Term Debt and Restricted Cash
The Company has a revolving credit line which currently allows maximum
borrowings of $257,320. The Company's outstanding borrowings under the revolving
credit line were $37,000 at April 30, 2000. The terms of the Company's credit
facility, including the revolving credit line, contain certain financial
covenants. The Company is in compliance with the required financial covenants of
the credit facility and other debt instruments at April 30, 2000.
In March 1999, the Company entered into interest rate swap agreements in
which $270,000 of variable rate debt was swapped for fixed rate debt bearing a
LIBOR rate of 5.57%. The agreements mature in November 2002. The amounts to be
received or paid pursuant to these agreements are accrued and recognized through
an adjustment to interest expense in the accompanying consolidated statements of
operations over the life of the agreement. The estimated fair value of the
agreements as of April 30, 2000 are $9,606.
<PAGE>
KSL RECREATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(amounts in thousands)
NOTE 4. Real Estate and Other Transactions
During the six month period ended April 30, 2000, the Company sold
nineteen single family detached units for $11,433. Sixty-three units have been
sold out of a total of sixty-eight single family detached units that have been
completed or are under construction on a site adjacent to La Quinta Resort &
Club in California. An additional thirty units are planned. During the six month
period ended April 30, 2000, marketing and project management expenses of $627
have been incurred by the Company with an affiliate in connection with this
development.
On September 30, 1999, the Company sold all of the common stock of its
indirectly wholly-owned subsidiary KSL Fairways Golf Corporation (Fairways Golf)
pursuant to a stock purchase agreement with a third party. Revenue and loss
before income taxes for Fairways Golf was approximately $19,969 and $3,755,
respectively, for the six month period ended April 30, 1999.
NOTE 5. Segment Information
The Company's reportable operating segments include the Resort segment and
the Real Estate segment. The Resort segment provides service-based recreation
through resorts, spas, golf courses, private clubs and activities related
thereto. The Real Estate segment develops and sells real estate in and around
the Company's Resort operations. The Company utilizes the expertise of an
affiliate in determining real estate projects to undertake.
The Company evaluates segment performance based on income from operations.
Because the Company does not evaluate performance based on net income at the
operating segment level, the Company's other income and expenses and income
taxes are not tracked internally by segment. Therefore, such information is not
presented.
Operating segment data for the three months and six months ended April 30,
are as follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
April 30, April 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Resort
Revenues $134,099 $ 125,808 $235,465 $ 212,297
Income from Operations 37,566 32,345 51,768 41,017
Real Estate
Revenues 9,875 368 12,387 401
Income (loss) from Operations 1,868 (19) 2,075 (36)
Consolidated
Revenues 143,974 126,176 247,852 212,698
Income from Operations 39,434 32,326 53,843 40,981
</TABLE>
The Real Estate segments' identifiable assets were $8,451 and $13,918 at
April 30, 2000 and October 31, 1999, respectively. All of the remaining assets
of the Company are related to the Resort segment, other than the deferred income
taxes which is considered a corporate asset and is not identifiable to either
segment. Substantially all of the depreciation and amortization expense relates
to the Resort segment.
<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, 2000 (2000 Second Quarter) as compared to the
three months ended April 30, 1999 (1999 Second Quarter).
Revenues - Revenues increased by $17,798 or 14.1%, from $126,176 in the
1999 Second Quarter to $143,974 in the 2000 Second Quarter. Of this increase,
$28,614 reflects the increase in revenues at operations owned in both the 2000
and 1999 Second Quarters, representing a 24.8% increase in 2000 Second Quarter
revenues at these properties; real estate sales accounted for $8,555 of this
increase over the 1999 Second Quarter. Overall revenue growth reflected the
increase in occupied room nights of 11.5% over the 1999 Second Quarter. A
decrease of $10,816 was attributable to the disposition of Fairways Golf
(Disposition) on September 30, 1999.
During the 2000 Second Quarter, the Company was engaged in ongoing capital
improvements at all of its resorts, which the Company believes will add to
future revenues. These capital improvements include: at Desert Resorts the
ongoing construction of the Casitas single family homes and the completion of
the Greg Norman clubhouse; at Doral, the completion of a member clubhouse, and
the renovation of the White course by Greg Norman; and at The Claremont,
completion of extensive room and common area renovations and the ongoing
construction of a new spa. While management believes these capital improvements
will enhance the guest experience and provide future revenue growth, their
short-term impact has included some disruption in normal business levels.
Expenses - Expenses of operations increased by $10,690, or 11.4%, from
$93,850 in the 1999 Second Quarter to $104,540 in the 2000 Second Quarter.
Approximately $10,159 of expenses of operations in the 1999 Second Quarter were
associated with the Disposition. Continuing real estate operations accounted for
an increase of $7,295 or 35.0% of the overall increase in expenses, excluding
the effect of the Disposition. Excluding the effect of real estate and the
Disposition, expense of resort operations increased $13,554 primarily due to
business volume and expanded services, from the 1999 Second Quarter to the 2000
Second Quarter.
Other Income (Expense) - Other income (expense) decreased $952 from net
expense of $12,783 for the 1999 Second Quarter to net expense of $11,831 for the
2000 Second Quarter. Of this decrease, $1,759 related to the reduction of debt
from the Disposition, offset by a slight increase in net interest expense of
$807 associated with ongoing operations.
Net Income -Net income increased by $5,268 from $11,743 in the 1999 Second
Quarter to $17,011 in the 2000 Second Quarter. Excluding the Disposition, the
Company's 2000 Second Quarter income before income taxes increased by $6,958 or
33.5%, as compared to the 1999 Second Quarter. Income tax expense increased by
$2,780 from $7,812 for the 1999 Second Quarter to $10,592 in the 2000 Second
Quarter.
Adjusted EBITDA - Adjusted EBITDA increased by $10,847 or 21.6%, from
$50,269 in the 1999 Second Quarter to $61,116 in the 2000 Second Quarter.
Excluding the Disposition, Adjusted EBITDA increased by $12,367 or 26.0%.
Adjusted Net Membership Deposits increased from $3,443 in the 1999 Second
Quarter to $9,299 in the 2000 Second Quarter, reflecting strong membership
growth at Desert Resorts and Grand Wailea.
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands) (continued)
Six months ended April 30, 2000 (2000 Six Months) as compared to the six
months ended April 30, 1999 (1999 Six Months).
Revenues - Revenues increased by $35,154 or 16.5%, from $212,698 in the
1999 Six Months to $247,852 in the 2000 Six Months. Of this increase, $29,497
reflects the increase in revenues at operations owned during the full 2000 and
1999 Six Months, representing a 19.2% increase in 2000 Six Months revenues at
these properties; real estate sales accounted for $11,037 of this increase over
the 1999 Six Months. The remainder of the change in revenue is a $25,418
increase attributable to the acquisition of the Grand Wailea Resort Hotel & Spa
(the Addition) on December 28, 1998, offset by a decrease of $19,761
attributable to the disposition of Fairways (Disposition) during fiscal year
1999.
During the 2000 Six Months, the Company was engaged in ongoing capital
improvements at all of its resorts, which the Company believes will add to
future revenues. These capital improvements include: at Desert Resorts, the
completion of the Greg Norman golf course and the ongoing construction of the
Greg Norman clubhouse and fifty Casita style resort homes adjacent to the La
Quinta Resort; at Doral, the ongoing construction of a member clubhouse and the
complete rebuild of the White golf course by Greg Norman; at The Claremont,
completion of extensive room and common area renovations and the ongoing
construction of a new Spa; and at Grand Traverse and Lake Lanier, the completion
of substantial room renovations. While management believes these capital
improvements will enhance the guest experience and provide future revenue
growth, their short-term impact has included some disruption in normal business
levels.
Expenses - Expenses of operations increased by $22,292 or 13.0%, from
171,717 in the 1999 Six Months to $194,009 in the 2000 Six Months. Approximately
$19,024 was due to the Addition, offset by $19,967 associated with the
Disposition. Real estate operations accounted for an increase of $9,432 or 42.3%
of the overall increase in expenses. Excluding the effect of the Addition,
Disposition and real estate, expenses of resort operations increased 11.2%,
primarily due to an increase in business volume and expanded services, from the
1999 Six Months to the 2000 Six Months.
Other Income (Expense) - Other income (expense) increased $694 from net
expense of $23,218 for the 1999 Six Months to net expense of $23,912 for the
2000 Six Months. Net interest expense increased $6,267 related to debt
associated with the Addition. This increase was offset by interest reductions of
$3,520 and $2,053 related to the reduction of debt from the Disposition and the
reduction of debt by the ongoing operations, respectively.
Net Income - Net income increased by $7,689 from net income of $10,719 in
the 1999 Six Months to a net income of $18,408 in the 2000 Six Months. Income
tax expense increased from $7,162 to $11,523. Excluding the Addition and
Disposition, the Company's 2000 Six Months net income was $18,914 a 28.8%
increase as compared to the 1999 Six Months.
Adjusted EBITDA - Adjusted EBITDA increased by $16,997 or 22.8%, from
$74,526 in the 1999 Six Months to $91,523 in the 2000 Six Months. Excluding the
effect of the Addition and Disposition, Adjusted EBITDA increased by $10,199 or
18.6%. Adjusted Net Membership Deposits increased by $6,230 or 87.8% from the
1999 Six Months.
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands) (Continued)
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, non-recurring charges and non-cash items, plus Adjusted Net
Membership Deposits. Adjusted Net Membership Deposits is defined as Net
Membership Deposits, excluding Net Membership Deposits which were paid in
connection with the initial conversion of members to new membership plans, and
excluding Net Membership Deposits (and subsequent refunds of such deposits) that
are purchased as part of an acquisition. 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. Also, the
significant payroll and operating expenses necessary to create, sell and
maintain a private club operation are treated as ongoing expenses in the
Company's Statements of Operations and therefore recognizing the cash flow from
sales is an appropriate match in determining the overall performance of the club
operation. It is important to note that the membership cash flow included in
Adjusted EBITDA is only the cash amount collected, net of financed sales and
refunds. From the Company's perspective, EBITDA and net membership cash flow
together, which along with certain non-cash items comprise Adjusted EBITDA,
provide the most accurate measure of the recurring cash flow performance of the
operations. As structured, these private club membership sales are not treated
as revenue for Generally Accepted Accounting Principles ("GAAP") purposes and
therefore do not appear in the Company's Statements of Operations, but are
reflected in the Company's Statements of Cash Flows.
RECONCILIATIONS OF CONSOLIDATED NET INCOME TO ADJUSTED EBITDA
<TABLE>
<CAPTION>
For the For the
Three months ended Six months ended
April 30, April 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $17,011 $11,743 $18,408 $10,719
Adjustments to net income:
Income tax expense 10,592 7,812 11,523 7,162
Net interest expense 11,831 12,783 23,912 23,218
Depreciation and amortization 12,373 14,349 24,272 26,121
------- ------- ------- -------
EBITDA 51,807 46,687 78,115 67,220
------- ------- ------- -------
Adjustments to EBITDA:
Net Membership Deposits 9,228 3,443 13,172 7,040
Excluded Membership Refunds 71 -- 155 57
------- ------- ------- -------
Adjusted Net Membership Deposits 9,299 3,443 13,327 7,097
Non-cash items 10 139 81 209
------- ------- ------- -------
Adjusted EBITDA $61,116 $50,269 $91,523 $74,526
======= ======= ======= =======
</TABLE>
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 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.
The Company's Adjusted EBITDA may not be comparable to similarly titled measures
reported by other companies.
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands) (Continued)
Liquidity and Capital Resources
During the 2000 Six Months, cash flow provided by operating activities was
$35,779 compared to $44,226 for the 1999 Six Months. This change was primarily
due to decreases in depreciation and amortization of $1,849; decreases in
deferred income tax of $7,200. During the 2000 Six Months, cash flow used in
investing activities aggregated $27,171 for the 2000 Six Months as compared to
$133,383 for the 1999 Six Months. This change was primarily due to the Company's
acquisition of the Grand Wailea Resort Hotel & Spa comprising an investment of
$105,149, the Company's net proceeds related to real estate under development of
$10,927, and an additional $11,442 in purchases of property and equipment. Cash
used in financing activities was $6,546 in the 2000 Six Months compared to
$93,493 provided by financing activities in the 1999 Six Months. This change is
primarily attributable to capital contributions of $110,000 associated with the
purchase of Grand Wailea in the 1999 Six Months, offset by a decrease in net
usage of the revolving line of credit of $3,750.
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.
<PAGE>
KSL RECREATION GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in thousands) (Continued)
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.
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, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. (a) Financial Data Schedule for the period ended April 30, 2000.
(b) Reports on Form 8-K
None
<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 13, 2000 By: /s/ John K. Saer, Jr.
---------------------------------------
Vice President, Chief Financial Officer
and Treasurer
