UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
Form 10-QSB
-----------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
--------------------
Commission File No. 0-3858
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INTERNATIONAL LEISURE HOSTS, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Wyoming 86-0224163
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3207 S. Hardy Drive
- -------------------------------
Tempe, AZ 85282
- ------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code (602) 829-7600
----------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock as of the close of the latest practicable date. There were 694,577 shares
of $.01 par value common stock outstanding as of October 31, 1997.
Page 1 of 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Summarized Financial Information
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September March
30, 1997 31, 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 409,504 $ 48,258
Accounts receivable 2,216 31,828
Accounts receivable (affiliate) 9,800
Income tax refund receivable 88,447 146,404
Merchandise inventories 157,622 118,418
Prepaid expenses and other 42,513 17,045
----------- -----------
Total current assets 700,302 371,753
----------- -----------
PROPERTY AND EQUIPMENT:
Buildings and improvements on leased land 5,996,121 5,700,227
Equipment 2,025,069 1,644,002
Leasehold improvements 310,000 310,000
Construction in progress 38,008 213,899
----------- -----------
Total property and equipment 8,369,198 7,868,128
Less accumulated depreciation and amortization 3,024,946 2,879,362
----------- -----------
Property and equipment - net 5,344,252 4,988,766
----------- -----------
DEPOSITS 2,478 2,478
----------- -----------
TOTAL $ 6,047,032 $ 5,362,997
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 209,704 $ 128,027
Construction 114,694 29,226
Note payable 995,000
Accrued liabilities 306,895 79,347
Accrued liabilities (affiliate) 163,209
Advance deposits 75,095 159,791
Current portion of long-term debt 489,500
----------- -----------
Total current liabilities 1,701,388 1,049,100
DEFERRED INCOME TAXES 196,589 196,589
LONG-TERM DEBT 445,500
----------- -----------
Total liabilities 1,897,977 1,691,189
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 100,000 shares: issued none
Common stock, $.01 par value - authorized 2,000,000 shares: issued, 718,373 shares 7,184 7,184
Additional paid-in capital 656,426 656,426
Retained earnings 3,563,357 3,086,110
Common stock in treasury - at cost, 23,796 shares (77,912) (77,912)
----------- -----------
Total shareholders' equity 4,149,055 3,671,808
----------- -----------
TOTAL $ 6,047,032 $ 5,362,997
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 2 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the six months ended For the three months ended
September 30 September 30
----------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales of merchandise $1,474,641 $1,308,917 $1,129,884 $1,087,854
Room, cabin and trailer space rentals 1,598,378 1,436,844 1,251,120 1,030,393
Interest 3,366 2,621 3,324 2,426
Other income 236,653 141,256 170,131 107,427
---------- ---------- ---------- ----------
Total revenues 3,313,038 2,889,638 2,554,459 2,228,100
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Operating 1,502,790 1,073,474 890,051 657,733
Cost of merchandise 807,883 764,940 585,947 562,740
General and administrative 83,946 289,196 46,957 176,553
Depreciation and amortization 169,482 127,714 84,741 63,857
Interest expense 44,690 22,604
---------- ---------- ---------- ----------
Total costs and expenses 2,608,791 2,255,324 1,630,300 1,460,883
---------- ---------- ---------- ----------
Income before income tax 704,247 634,314 924,159 767,217
Provision for income taxes 227,000 211,000 308,000 259,300
---------- ---------- ---------- ----------
NET INCOME $ 477,247 $ 423,314 $ 616,159 $ 507,917
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.69 $ 0.61 $ 0.89 $ 0.73
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
Page 3 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 718,373 $7,184 $656,426 $3,086,110 ($77,912)
Net income 477,247
---------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 718,373 $7,184 $656,426 $3,563,357 ($77,912)
</TABLE>
See notes to consolidated financial statements
Page 4 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended September 30,
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 477,247 $ 423,314
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 169,482 127,714
Gain on disposal of property and equipment (8,059)
Changes in assets and liabilities:
Accounts receivable 29,612 (8,206)
Accounts receivable (affiliate) 9,800
Merchandise inventories (39,204) (30,710)
Prepaid income taxes 57,957 75,600
Prepaid expenses and other (25,468) (14,719)
Accounts payable 81,677 30,323
Note payable - affiliate (163,209)
Accrued liabilities 227,548 408,341
Advance deposits (84,696) (69,085)
--------- ---------
Net cash provided by operating activities 732,687 942,572
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (545,445) (671,989)
Proceeds from disposal of property and equipment 28,536
Cash and accounts payable segregated for construction
of replacement property 85,468
--------- ---------
Net cash used in investing activities (431,441) (671,989)
--------- ---------
FINANCING ACTIVITIES:
Common stock purchased for treasury (400)
Borrowings from bank line of credit, net 60,000
--------- ---------
60,000 (400)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 361,246 270,183
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 48,258 49,645
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 409,504 $ 319,828
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 44,690 $ 1,021
========= =========
</TABLE>
See notes to consolidated financial statements
Page 5 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Month Periods Ending September 30, 1997 and 1996
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been and are of a normal
recurring nature. Operating results for the six months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1998. The enclosed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended March
31, 1997.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company operates in one business segment, the operation under a concession
contract with the National Park Service of Flagg Ranch Village, a full-service
resort motel and RV/campground located in the John D. Rockefeller Jr. Memorial
Parkway, approximately four miles north of Grand Teton National Park and two
miles south of the southern entrance to Yellowstone National Park.
Principles of Consolidation - The consolidated financial statements include the
accounts of International Leisure Hosts, Ltd., and Lewis & Clark Lodge, its
wholly-owned subsidiary (collectively, the "Company"). All intercompany
transactions and accounts have been eliminated in consolidation.
Merchandise inventories are stated at the lower of aggregate cost (first-in,
first-out basis) or market.
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives, which range from 5 years to 40 years for such assets.
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated useful life of the related asset or the term of the
lease.
Income taxes have been accounted for in accordance with SFAS No. 109, Accounting
for Income Taxes. Deferred income taxes have been provided for the temporary
differences between financial statement and income tax reporting on certain
transactions.
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 period. Actual results could differ from those estimates.
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding. The weighted average number of
common shares outstanding was 694,577 and
Page 6 of 12
<PAGE>
694,649 for the six months ended September 30, 1997 and 1996, respectively, and
694,677 and 694,586 shares for the three months ended September 30, 1997 and
1996, respectively.
Statements of Cash Flows - For purposes of the consolidated statements of cash
flows, cash and cash equivalents represent cash in banks, money market funds,
and certificates of deposit with initial maturities of three months or less.
Estimated Fair Value of Financial Instruments - The Company has estimated the
fair value of its financial instruments using available market data. However,
considerable judgment is required in interpreting market data to develop
estimates of fair value. The use of different market assumptions or
methodologies may have a material effect on the estimates of fair values. The
carrying values of cash, receivables, lines of credit, accounts payable, accrued
expenses, and long-term debt approximate fair values due to the short-term
maturities or market rates of interest.
Reclassifications - Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company receives its operating authorization from the National Park Service
("NPS"). The NPS Contract (the "Contract) which became effective on January 1,
1990, will expire on December 31, 2009. Under the terms of the Contract, prior
to December 31, 1999, the Company is required to move its existing 54-unit
riverside motel from its current location to the high ground above the river, to
provide for new employee housing and make certain other improvements. If the
Company chooses to meet these requirements by moving the riverside motel and
converting it into employee housing plus building additional employee support
facilities, then the cost is estimated to be between $2,400,000 and $2,800,000
depending on the number of employee housing units and the extent of additional
improvements required by the NPS. If the Company builds new lodging units to
replace the 54-unit riverside motel, the additional cost to build these units
will be between $1,000,000 and $1,200,000. This would result in a total cost of
relocation and new construction combined of between $3,400,000 and $4,000,000.
The fee expense to the NPS under the Contract is calculated at 2% of gross
receipts (as defined), subject to review and possible adjustment every five
years, For the six months ended September 30, 1997 and 1996, this fee amounted
to $63,000 and $54,000, respectively.
Flagg Ranch faces competition from hotels, camping areas and RV facilities in
Yellowstone and Grand Teton National Parks, as well as from a large number of
hotels and motels in Wyoming, Montana and Idaho, offering some facilities which
are similar to those offered by Flagg Ranch. In addition, the business of Flagg
Ranch is susceptible to weather conditions and unfavorable trends in the economy
as a whole. Business could be significantly affected depending upon actions
which might be taken by the NPS if cutbacks are made to their budget. If the NPS
decides to close Yellowstone National Park for the winter months, then Flagg
Ranch would have to discontinue its winter operations. NPS budget cutbacks could
also negatively impact the length of the summer season and the number of
visitors to the Parks and have a corresponding negative impact on Flagg Ranch
revenues.
Page 7 of 12
<PAGE>
On May 20, 1997, the Fund for Animals, Biodiversity Legal Foundation et. al.
filed a lawsuit against the NPS challenging the action of the NPS regarding
winter use of Yellowstone and Grand Teton National Parks. The plaintiffs had
asked the Federal Court to stop winter activities, primarily snowmobiling and
related snow grooming, until environmental impacts are documented. A settlement
agreement was reached that requires the NPS to prepare an environmental impact
statement ("EIS") over the next three years, during which time period the parks
will continue activities under the existing winter visitor-use plan. If the NPS
were to suspend or terminate winter activities in Yellowstone National Park as a
result of the EIS, then Flagg Ranch would have to suspend or discontinue its
winter operations.
3. TRANSACTIONS WITH AFFILIATED COMPANIES AND RELATED PARTIES
Included in operating expenses and general and administrative expenses for the
six months ended September 30, 1997 and 1996, are management fees and
administrative expenses of approximately $45,000, and $228,000, respectively,
paid to affiliated companies. Subsequent to September 30, 1997 the Company has
borrowed money from an affiliated company. As of November 5, 1997, the Company
owed the affiliated company $930,000.
All affiliated companies referred to in these financial statements are owned by
family members of Elizabeth A. Nicoli, who are the majority owners of the
Company or by Robert L. Walker, the President of the Company.
4. CREDIT FACILITY
Subsequent to September 30, 1997 the Company refinanced all current and
long-term bank debt with an entity owned and controlled by the Company
president. The new credit facility provides for maximum borrowings of
$1,000,000. The draw period under the facility runs until September 30, 1998.
Interest is payable monthly on the outstanding principal balance at a rate equal
to prime plus .50% (9.0% as of September 30, 1997). The credit facility is
collateralized by all accounts, an assignment of the Contract and all
improvements the Company has made to the Flagg Ranch property. As of November 5,
1997 there were outstanding borrowings of $930,000. Due to the refinancing, all
long-term debt as of September 30, 1997 has been reclassified as current.
Page 8 of 12
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The statements contained in this Report regarding managements anticipation of
the Company's facility completion schedules, quality of facilities, fulfillment
of National Park Service requirements, consumer response to marketing efforts,
ability to offset inflation and adequacy of financing constitute "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Management's anticipation is based upon assumptions
regarding levels of competition, acceptance of facilities by consumers,
favorable weather conditions, ability to complete facility construction, the
market in which the Company operates, the stability of the economy and stability
of the regulatory environment. Any of these assumptions could prove inaccurate,
and therefore there can be no assurance that the forward-looking information
will prove to be accurate.
The Company's net income for the six months ended September 30, 1997 was
$477,000 ($.69 per share). This compares to net income of $423,000 ($.61 per
share) for the six months ended September 30, 1996. The $54,000 increase in
income was due primarily to additional revenue as a consequence of the
additional 42 cabin units which opened in December 1996. Changes to the
Company's revenues and expenses for the six months ended September 30, 1997 and
September 30, 1996 are summarized below. All references to years represent six
month periods ending September 30 of the stated year.
Flagg Ranch, the principal business of the Company, is operated as a seasonal
resort. The two seasons coincide with the opening and closing dates of
Yellowstone and Grand Teton National Parks. The summer season runs from
approximately May 15 through October 15 and the winter season runs from late
December through mid-March.
Revenues
- --------
Total revenues for 1997 increased by $423,000 or 15% from 1996. Of this
increase, $321,000 was from motel and cabin rentals, $146,000 from food
services, $58,000 from float trip revenue, $26,000 from horse rental revenue,
$4,000 in gasoline revenue and $18,000 in miscellaneous income. Decreases of
$85,000 in RV park rentals, $40,000 in Gift shop sales, and $25,000 in grocery
store sales offset the above increases. The primary reason for the increase in
motel and cabin rentals is the additional 42 new cabin units which opened in
December 1996. This represents approximately a 40% increase in available rental
units over last year. The primary reason for the decline in RV park rentals was
a decline in the number of recreational vehicle and tent sites available for
rent to the public. On a temporary basis, approximately twenty-five recreational
vehicle sites and one tent site were being utilized by construction workers and
employees during the construction of new facilities at Flagg Ranch.
Expenses
- --------
The ratio of cost of merchandise sold to sales of merchandise was 55% in 1997 as
compared to 53% in 1996. Operating expenses increased by $429,000 or 40% in 1997
as compared to 1996. The ratio of operating expenses to total revenue increased
to 45% in 1997 from 37% in 1996. The primary increase in operating expenses was
a $209,000 increase in labor costs. This was partially attributable to the early
adoption of the increase in the minimum wage which took effect on September 1,
1997. In addition, the labor costs increased
Page 9 of 12
<PAGE>
due to the 42 additional new lodging units. Other increases in operating
expenses included $74,000 related to river float trips and horseback riding
operations, $28,000 in repairs and maintenance, $8,000 in supplies, $26,000 in
utilities, $12,000 in insurance, $6,000 in advertising, $10,000 in Property
taxes, $44,000 in interest and $6,000 in other miscellaneous expenses. The
revenues from river float trips and horseback riding operations were up 65% in
the six month period resulting in the related increases in operating expenses.
The other increases in operating expenses related primarily to the increased
costs associated with the new 42 cabin units combined with costs associated with
flood control due to the unusually high levels of the Snake River this past
spring.
Inflation
- ---------
The Company expects that it will be able to offset increased costs and expenses,
principally labor, caused by inflation, by increasing prices on its services
with minimal effect on operations.
Liquidity and Capital Resources
- -------------------------------
During the past fiscal year the Company incurred costs of approximately
$1,200,000 to substantially complete construction of the 42 new cabins as well
as other related improvements. During the six months ended September 30, 1997,
the Company incurred costs of approximately $216,000 related to the above
construction projects. In addition the Company has purchased new snowmobiles for
the winter season at a cost of approximately $299,000, which in the past were
leased from an affiliated company. As a result, the working capital decreased to
a negative $1,003,000 at September 30, 1997 from a negative $106,000 at
September 30, 1996.
The Company may incur additional costs of between $3,400,000 and $4,000,000
prior to December 31, 1999 to construct new motel units replacing the existing
54-unit riverside motel complex and other improvements and to relocate employee
housing units as required under the NPS Contract, subject to finalization of an
amended building and improvement program under the contract.
The Company intends to fund these improvements through existing cash funds and
cash generated from operations, plus additional borrowings from lenders. Cash
generated from operations was $430,000, $139,000, and $766,000 for the fiscal
years ended 1997, 1996 and 1995, respectively. Cash generated from operations
for the six months ended September 30, 1997 and 1996 was $733,000 and $943,000,
respectively. The construction funds will have to be obtained from outside
sources to the extent they exceed cash generated from operations.
Page 10 of 12
<PAGE>
PART II - OTHER INFORMATION
ITEM I. Legal Proceedings
-----------------
None.
ITEM 2. Changes in Securities
---------------------
None.
ITEM 3. Defaults upon Senior Securities
-------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
None.
ITEM 5. Other Materially Important Events
---------------------------------
Daniel J. Ryan resigned as Chief Financial Officer effective
September 30, 1997 and was replaced by Michael P. Perikly.
Elizabeth A. Nicoli resigned as President effective September
30, 1997 and was replaced by Robert L. Walker. F. Ray Evarts
resigned as Treasurer effective September 30, 1997 and was
replaced by Michael P. Perikly. These resignations and
appointments were in connection with the entry of the
controlling shareholders of the Company into an agreement to
sell their shares in the Company to Mr. Walker. Pursuant to
such agreement, 67,381 shares were sold on September 30, 1997
and 404,288 shares will be sold at a closing, subject to NPS
approval, anticipated in March, 1998.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
Page 11 of 12
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
INTERNATIONAL LEISURE HOSTS, LTD.
---------------------------------
(REGISTRANT)
DATE: November 5, 1997 BY: /s/ Robert L. Walker
----------------- --------------------------------------
Robert L. Walker
President
DATE: November 5, 1997 BY: /s/ F. Ray Evarts
------------------ -------------------------------------
F. Ray Evarts
Secretary
DATE: November 5, 1997 BY: /s/ Michael P. Perikly
------------------ -------------------------------------
Michael P. Perikly
Treasurer, Chief Financial Officer
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 409,504
<SECURITIES> 0
<RECEIVABLES> 2,216
<ALLOWANCES> 0
<INVENTORY> 157,622
<CURRENT-ASSETS> 700,302
<PP&E> 8,369,198
<DEPRECIATION> 3,024,946
<TOTAL-ASSETS> 6,047,032
<CURRENT-LIABILITIES> 1,701,388
<BONDS> 0
0
0
<COMMON> 7,184
<OTHER-SE> 4,141,871
<TOTAL-LIABILITY-AND-EQUITY> 6,047,032
<SALES> 1,474,641
<TOTAL-REVENUES> 3,313,038
<CGS> 807,883
<TOTAL-COSTS> 2,564,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,690
<INCOME-PRETAX> 704,247
<INCOME-TAX> 227,000
<INCOME-CONTINUING> 477,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 477,247
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
