UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
Form 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
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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
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Tempe, AZ 85282
- ------------------------------- ---------------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code (602) 829-7600
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1702 East Highland Avenue, Suite 312, Phoenix, Arizona 85016 (Former address)
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 December 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>
December March
31, 1997 31, 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 74,346 $ 48,258
Accounts receivable 761 31,828
Accounts receivable (affiliate) 9,800
Income tax refund receivable 2,226 146,404
Merchandise inventories 137,756 118,418
Prepaid expenses and other 60,884 17,045
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Total current assets 275,974 371,753
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PROPERTY AND EQUIPMENT:
Buildings and improvements on leased land 5,017,059 5,700,227
Equipment 1,706,470 1,644,002
Leasehold improvements 325,600 310,000
Construction in progress 44,759 213,899
----------- -----------
Total property and equipment 7,093,888 7,868,128
Less accumulated depreciation and amortization 1,822,029 2,879,362
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Property and equipment - net 5,271,859 4,988,766
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DEPOSITS 3,977 2,478
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TOTAL $ 5,551,810 $ 5,362,997
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 49,369 $ 128,027
Construction 29,226
Note payable (affiliate) 1,105,000
Accrued liabilities 154,182 79,347
Accrued liabilities (affiliate) 163,209
Advance deposits 228,332 159,791
Current portion of long-term debt 489,500
----------- -----------
Total current liabilities 1,536,882 1,049,100
DEFERRED INCOME TAXES 196,589 196,589
LONG-TERM DEBT 445,500
----------- -----------
Total liabilities 1,733,471 1,691,189
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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 3,232,640 3,086,110
Common stock in treasury - at cost, 23,796 shares (77,912) (77,912)
----------- -----------
Total shareholders' equity 3,818,838 3,671,808
----------- -----------
TOTAL $ 5,551,810 $ 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 nine months ended For the three months ended
December 31 December 31
-------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales of merchandise $1,579,214 $1,568,920 $ 104,573 $ 137,922
Room, cabin and trailer space rentals 1,679,159 1,396,993 80,781 79,209
Snowmobile and related rentals 132,514 100,737 132,514 106,454
Interest 3,511 3,981 145 2,926
Other income 247,418 162,264 10,765 16,746
---------- ---------- ---------- ----------
Total revenues 3,641,817 3,232,895 328,779 343,257
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Operating 1,989,474 1,555,641 486,684 464,148
Cost of merchandise 882,293 898,964 74,410 134,024
General and administrative 208,320 401,598 124,374 112,402
Depreciation and amortization 266,119 191,571 96,637 63,857
Interest expense 67,080 22,390
---------- ---------- ---------- ----------
Total costs and expenses 3,413,286 3,047,774 804,495 774,431
---------- ---------- ---------- ----------
Income (loss) before income tax 228,531 185,121 (475,716) (431,174)
Provision (benefit) for income taxes 82,000 50,000 (145,000) (161,000)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 146,531 $ 135,121 ($ 330,716) ($ 270,174)
========== ========== ========== ==========
NET INCOME (LOSS)
PER COMMON SHARE $ 0.21 $ 0.19 $ (0.48) $ (0.39)
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
Page 3 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 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 146,531
----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 718,373 $7,184 $656,426 $3,232,641 ($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>
Nine months ended December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 146,531 $ 135,121
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 266,119 191,571
Gain on disposal of property and equipment (11,079)
Changes in assets and liabilities:
Accounts receivable 31,067 (11,362)
Accounts receivable (affiliate) 9,800
Merchandise inventories (19,338) (52,342)
Income tax receivable 126,707 75,600
Prepaid expenses and other (27,867) (25,694)
Accounts payable (107,884) 149,191
Note payable - affiliate (163,209)
Accrued liabilities 74,835 355,860
Advance deposits 68,541 82,880
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Net cash provided by operating activities 394,223 900,825
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INVESTING ACTIVITIES:
Purchases of property and equipment (574,671) (1,152,985)
Proceeds from disposal of property and equipment 36,536
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Net cash used in investing activities (538,135) (1,152,985)
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FINANCING ACTIVITIES:
Proceeds from Bank Line of Credit 330,000
Common stock purchased for treasury (400)
Borrowings from affiliated company 170,000
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Net cash provided by financing activities 170,000 329,600
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NET INCREASE IN CASH AND CASH EQUIVALENTS 26,088 77,440
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 48,258 49,645
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 74,346 $ 127,085
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 67,080 $ 0
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 5 of 12
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Month Periods Ending December 31, 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 nine months ended December 31, 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 available to
common shareholders by the weighted average number of common shares outstanding.
The weighted average number of common shares
Page 6 of 12
<PAGE>
outstanding was 694,577 and 694,624 shares for the nine months ended December
31, 1997 and 1996, respectively, and 694,577 shares for the three months ended
December 31, 1997 and 1996.
Earnings Per Share - In March, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." The Statement requires the dual presentation of basic and diluted
earnings per share ("EPS") on the face of the earnings statement and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. The Statement will be effective for the Company's 1998 fiscal
year. Adoption of this Statement does not impact the EPS calculations for the
quarters and nine months ended December 31, 1997 and 1996.
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.
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. The
Company has chosen to meet these requirements by moving the riverside motel and
converting it into employee housing plus building additional employee support
facilities. The cost to do this is estimated to be between $1,200,000 and
$2,100,000 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 $2,200,000 and
$3,300,000. The company has not made a decision at this time regarding replacing
the riverside motel with new lodging units.
The fee expense payable 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 nine months ended December 31, 1997 and 1996, this fee
amounted to $69,000 and $61,000, 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
Page 7 of 12
<PAGE>
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.
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
nine months ended December 31, 1997 and 1996, are management fees and
administrative expenses of approximately $123,000, and $320,000, respectively,
paid to affiliated companies. During the quarter the Company has borrowed money
from an affiliated company. As of December 31, 1997, the Company owed the
affiliated company $1,105,000.
All affiliated companies referred to in these financial statements are owned by
family members of Elizabeth A. Nicoli, who were previously the majority owners
of the Company or by Robert L. Walker, the President and current majority owner
of the Company.
4. CREDIT FACILITY
During the quarter the Company refinanced all current and long-term bank debt
with an affiliated company owned and controlled by the Company president. The
new credit facility provides for maximum borrowings of $1,200,000. The draw
period under the facility expires on September 30, 1998. Interest is payable
monthly on the outstanding principal balance at a rate equal to prime plus .50%
(9.0% as of December 31, 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 December 31, 1997 there were outstanding
borrowings of $1,105,000.
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 nine months ended December 31, 1997 was
$147,000 ($.21 per share). This compares to net income of $135,000 ($.19 per
share) for the nine months ended December 31, 1996. The $12,000 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 nine months ended December 31, 1997 and
December 31, 1996 are summarized below. All references to years represent nine
month periods ending December 31 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 $409,000 or 13% from 1996. Of this
increase, $315,000 was from motel and cabin rentals, $88,000 from food services,
$58,000 from float trip revenue, $26,000 from horse rental revenue, $52,000 in
tent rentals, $19,000 in snowmobile rentals, and $14,000 in miscellaneous
income. Decreases of $85,000 in RV park rentals, $47,000 in Gift shop sales,
$26,000 in grocery store sales, and $5,000 in gasoline 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 an
approximate 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 sites available for rent to the public. On a temporary
basis, approximately twenty-five recreational vehicle sites 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 56% in 1997 as
compared to 57% in 1996. Operating expenses increased by $434,000 or 28% in 1997
as compared to 1996. The ratio of operating expenses to total revenue increased
to 55% in 1997 from 48% in 1996. The primary increase in operating expenses was
a $315,000 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, $86,000 in repairs and maintenance, $15,000 in Property taxes,
$66,000 in interest and $12,000 in credit card processing charges. Decreases in
a number of other expenses totaling about $68,000 offset these increases. The
revenues from river float trips and horseback riding operations were up 65% in
the nine 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 during the
Spring of 1997.
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 nine months
ended December 31, 1997, the Company incurred costs of approximately $216,000
reion 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 $1,261,000 at December 31, 1997 from a negative $677,000 at December
31, 1996.
The Company may incur additional costs of between $1,200,000 and $2,100,000
prior to December 31, 1999 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 nine months ended December 31, 1997 and 1996 was $394,000 and $901,000,
respectively. The construction funds will have to be obtained from outside
sources to the extent they exceed cash generated from operations. There is no
guarantee that the Company will be able to procure financing on favorable terms.
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
---------------------------------
George B. Toney resigned as a director effective December 5, 1997 and
was replaced by Robert L. Walker. In addition, Michael P. Perikly was
elected as a director to fill a vacancy on the board.
The controlling shareholders of the Company entered into an agreement
to sell their shares in the Company to Mr. Robert L. Walker during the
prior quarter. Pursuant to such agreement, 67,381 shares were sold on
September 30, 1997 and 404,288 shares were sold on November 14, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
8-K reports: Current Report on Form 8-K dated October 23, 1997
Current Report on Form 8-K dated December 8, 1997
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: February 4, 1998 BY: /s/ Robert L. Walker
------------------------- ------------------------------------
Robert L. Walker
President
DATE: February 4, 1998 BY: /s/ Michael P. Perikly
------------------------- ------------------------------------
Michael P. Perikly
Principal Financial Officer and
Chief Accounting Officer
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 74,346
<SECURITIES> 0
<RECEIVABLES> 2,226
<ALLOWANCES> 0
<INVENTORY> 137,756
<CURRENT-ASSETS> 275,974
<PP&E> 7,093,888
<DEPRECIATION> 1,822,029
<TOTAL-ASSETS> 5,551,810
<CURRENT-LIABILITIES> 1,536,882
<BONDS> 0
0
0
<COMMON> 7,184
<OTHER-SE> 3,811,654
<TOTAL-LIABILITY-AND-EQUITY> 5,551,810
<SALES> 1,579,214
<TOTAL-REVENUES> 3,641,817
<CGS> 882,293
<TOTAL-COSTS> 3,413,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,080
<INCOME-PRETAX> 228,531
<INCOME-TAX> 82,000
<INCOME-CONTINUING> 146,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,531
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
