UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
-----------------
Commission File NO. 0-3858
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 December 31, 1998.
Page 1 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - SUMMARIZED FINANCIAL INFORMATION
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED BALANCE SHEETS
December March
31, 1998 31, 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 163,861 $ 212,593
Accounts receivable 8,516 23,300
Accounts receivable from related party 0 82,800
Income tax refund receivable 367 23,471
Merchandise inventories 134,641 50,394
Prepaid expenses and other 80,562 10,491
Deferred income taxes 19,603 19,603
----------- -----------
Total current assets 407,550 422,652
----------- -----------
PROPERTY AND EQUIPMENT:
Buildings and improvements 5,026,838 5,017,059
Equipment 1,885,975 1,421,234
Leasehold improvements 325,600 325,600
Construction in progress 806,080 48,145
----------- -----------
Total property and equipment 8,044,493 6,812,038
Less accumulated depreciation and
amortization 2,114,283 1,845,325
----------- -----------
Property and equipment - net 5,930,210 4,966,713
----------- -----------
DEPOSITS 4,902 3,402
----------- -----------
TOTAL $ 6,342,662 $ 5,392,767
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 175,073 $ 70,570
Related party 22,359 17,929
Note payable under line of credit
from related party 1,500,000 1,105,000
Accrued liabilities 219,529 61,323
Advance deposits 164,987 113,093
----------- -----------
Total current liabilities 2,081,948 1,367,915
DEFERRED INCOME TAXES 196,589 196,589
----------- -----------
Total liabilities 2,278,537 1,564,504
----------- -----------
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 3,478,427 3,242,565
Common stock in treasury - at cost,
23,796 shares (77,912) (77,912)
----------- -----------
Total shareholders' equity 4,064,125 3,828,263
----------- -----------
TOTAL $ 6,342,662 $ 5,392,767
=========== ===========
See notes to consolidated financial statements
Page 2 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
For the nine months For the three months
ended December 31, 1998 ended December 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES:
Sales of merchandise $1,525,382 $1,579,214 $ 142,232 $ 104,573
Room, cabin and trailer
space rentals 1,473,881 1,679,159 73,540 80,781
Interest 1,233 3,511 0 145
Other income 281,894 379,933 117,540 143,280
---------- ---------- --------- ---------
Total revenues 3,282,390 3,641,817 333,312 328,779
---------- ---------- --------- ---------
COSTS AND EXPENSES:
Operating 1,508,481 1,989,474 375,794 486,684
Cost of merchandise 924,670 882,293 81,869 74,410
General and administrative 147,283 208,320 46,309 124,374
Depreciation and amortization 273,333 266,119 100,678 96,637
Interest expense 52,761 67,080 12,925 22,390
---------- ---------- --------- ---------
Total costs and expenses 2,906,528 3,413,286 617,575 804,495
---------- ---------- --------- ---------
Income before income tax 375,862 228,531 (284,263) (475,716)
Provision for income taxes 140,000 82,000 (103,000) (145,000)
---------- ---------- --------- ---------
NET INCOME $ 235,862 $ 146,531 $(181,263) $(330,716)
========== ========== ========= =========
NET INCOME
PER COMMON SHARE $ 0.34 $ 0.21 $ (0.26) $ (0.48)
========== ========== ========= =========
See notes to consolidated financial statements
Page 3 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
Common Stock Additional
---------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
------ ------ ------- -------- -----
BALANCE, MARCH 31, 1998 718,373 $7,184 $656,426 $3,242,565 $(77,912)
Net income 235,862
------- ------ -------- ---------- --------
BALANCE, DECEMBER 31, 1998 718,373 $7,184 $656,426 $3,478,427 $(77,912)
======= ====== ======== ========== ========
See notes to consolidated financial statements
Page 4 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
December 30,
--------------------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income $ 235,862 $ 146,531
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 273,333 266,119
Gain on disposal of property and equipment (14,010) (11,079)
Changes in assets and liabilities:
Accounts receivable 14,784 31,067
Accounts receivable related party 82,800 9,800
Merchandise inventories (84,247) (19,338)
Prepaid income tax 23,104 126,707
Prepaid expenses and other (71,571) (27,867)
Accounts payable trade 104,503 (107,884)
Accounts payable related party 4,430 (163,209)
Accrued liabilities 158,208 74,835
Advance deposits 51,894 68,541
----------- -----------
Net cash provided by operating activities 779,090 394,223
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,252,188) (574,671)
Proceeds from disposal of property and equipment 29,366 36,536
----------- -----------
Net cash used in investing activities (1,222,822) (538,135)
----------- -----------
FINANCING ACTIVITIES:
Borrowings from affiliated company 395,000 170,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (48,732) 26,088
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 212,593 48,258
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 163,861 $ 74,346
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 77,826 $ 67,080
=========== ===========
See notes to consolidated financial statements
Page 5 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Month Period Ending December 31, 1998 and 1997
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 made and are of a
normal recurring nature. Operating results for the nine months ended December
31, 1998 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1999. 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, 1998.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
International Leisure Hosts, Ltd. (the "Company") operates in one business
segment, the ownership and operation of Flagg Ranch, a full-service resort motel
and trailer park 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.
SIGNIFICANT ACCOUNTING POLICIES are as follows:
a. MERCHANDISE INVENTORIES are stated at the lower of aggregate cost
(first-in, first-out basis) or market.
b. PROPERTY AND EQUIPMENT are stated at cost. Depreciation is computed
primarily by an accelerated method 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.
c. INCOME TAXES have been accounted for in accordance with Statement of
Financial Accounting Standards ("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.
d. 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.
e. NET INCOME (LOSS) PER COMMON SHARE - In 1998, the company adopted and
retroactively applied SFAS No. 128, EARNINGS PER SHARE, which had no
Page 6 of 13
<PAGE>
effect on the computation or presentation of earnings per share data. Net
income (loss) 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 for the nine months ended
December 31, 1998 and 1997.
f. 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.
g. 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.
h. NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the FASB issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which is effective for financial statements
for fiscal years beginning after December 15, 1997 and established
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company does not believe the
adoption of SFAS No. 130 will have a material impact on its financial
statement presentation or related disclosures.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which is effective for fiscal years
beginning after December 15, 1997 and establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company operates in one business segment and does not
believe that the adoption of SFAS No. 131 will have a material impact on
its financial statements or related disclosures.
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, which began in summer 1998 with expected completion in summer 1999.
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
Page 7 of 13
<PAGE>
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, which has been recorded as operating 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 nine months ended
December 31, 1998 and 1997, this fee amounted to $64,000 and $69,000,
respectively.
Flagg Ranch faces competition from hotels, camping areas and trailer 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.
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 have
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
is required to suspend or terminate winter activities in Yellowstone National
Park, Flagg Ranch would have to suspend or discontinue its winter operations.
3. TRANSACTIONS WITH AFFILIATED COMPANIES AND RELATED PARTIES
General and administrative expenses for the nine months ended December 31, 1998
and 1997 include management fees and administrative expenses paid to related
parties of approximately $102,000 and $123,000, respectively. All related
parties referred to in these financial statements were family members of
Elizabeth A. Nicoli who were the majority owners of the Company for the nine
months ended December 31, 1997. Related parties during the nine months ended
December 31, 1998 are the Company's majority owner, Robert Walker or his
affiliated companies.
During October 1998, the Company incurred borrowings under a line of credit from
a related party (see note 4 below). Interest paid pursuant to these borrowings
for the nine months ended December 31, 1998 totaled $77,826.
4. NOTE PAYABLE UNDER LINE OF CREDIT
During October 1998, the Company entered into a line of credit agreement
("Agreement") with an affiliated company expiring September 30, 1999, which
provides for secured borrowings of up to $1,500,000 at an interest rate of prime
plus .5 percent. Borrowings under the Agreement are collateralized by the assets
and improvements of Flagg Ranch. The Company has borrowed $1,500,000 on this
line of credit as of December 31, 1998.
Page 8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Report regarding management's 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, 1998 was
$236,000 ($.34 per share). This compares to net income of $147,000 ($.21 per
share) for the nine months ended December 31, 1997. The $89,000 increase in
income was due primarily to a reduction in operating costs. Changes to the
Company's revenues and expenses for the nine months ended December 31, 1998 and
December 31, 1997 are summarized below. All references to years represent the
nine month period 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 1998 decreased by $359,000 or 10% from 1997. Of this
decrease, $227,000 was from motel and cabin rentals, $105,000 from food
services, $40,000 from float trip revenue, $33,000 from horse rental revenue,
$14,000 in gasoline sales, $21,000 in snowmobile rentals and related winter
activities, and $6,000 in miscellaneous income. Increases of $22,000 in RV park
rentals, $37,000 in Gift shop sales, and $28,000 in grocery store sales offset
the above decreases. The primary reason for the decrease in motel and cabin
rentals is due to the conversion of the riverside motel from available rental
units to employee dormitories. This represents an approximate 37% decrease in
available rental units from last year. This decrease also caused the decreases
in revenues from float trips, horse rentals, gasoline sales and food service.
The primary reason for the increase in RV park rentals was an increase 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 during 1997.
Page 9 of 13
<PAGE>
EXPENSES
The ratio of cost of merchandise sold to sales of merchandise was 61% in 1998
and 56% in 1997. Operating expenses decreased by $481,000 or 24% in 1998 as
compared to 1997. The ratio of operating expenses to total revenue decreased to
46% in 1998 from 55% in 1997. The primary decrease in operating expenses was a
$385,000 decrease in labor costs. This was primarily attributable to cutbacks
made in the labor force at the beginning of the year. In addition, the labor
costs decreased due to the reduced number of lodging units. Other decreases in
operating expenses included $107,000 related to river float trips and horseback
riding operations, $18,000 in utilities, $6,000 in office supplies, $11,000 in
commissions, $4,000 in franchise fees, and $88,000 in repairs and maintenance.
Offsetting these decreases were increases in operating expenses including
$36,000 in operating supplies, $25,000 in advertising, $20,000 in insurance,
$9,000 in snowmobile parts, $15,000 in telephone, $9,000 in credit card fees,
$8,000 in licenses and fees, and a number of other expenses totaling about
$16,000.
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 last fiscal year the company began a project to relocate the
riverside motel and other buildings located along the Snake river to higher
ground for use as employee dormitories as well as the construction of new
employee RV spaces and other ancillary buildings. During the nine months ended
December 31, 1998, the Company incurred costs of approximately $758,000 related
to the above construction projects. In addition the Company has purchased new
vehicles and other construction equipment at a cost of $494,000. As a result,
the working capital decreased to a negative $1,674,000 at December 31, 1998 from
a negative $945,000 at March 31, 1998.
The Company may incur additional costs of between $600,000 and $1,500,000 prior
to December 31, 1999 to relocate employee housing units as required under the
NPS 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 $432,000, $430,000, and $139,000 for the fiscal
years ended 1998, 1997 and 1996, respectively. Cash generated from operations
for the nine months ended December 31, 1998 and 1997 was $779,000 and $394,000,
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 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. 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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page
The following consolidated financial statements of
International Leisure Hosts, Ltd. are included in Part I, Item 1:
Consolidated Balance Sheets - December 31, 1998
and March 31, 1998 2
Consolidated Statements of Income - 9 months ended
December 31, 1998, 1997 3
Consolidated Statements of Shareholders' Equity -
9 months ended December 31, 1998 4
Consolidated Statements of Cash Flows-
9 months ended December 31, 1998, 1997 5
Notes to consolidated financial statements 6
Page 11 of 13
<PAGE>
(a) 3. The following exhibits are incorporated by reference as
indicated:
3.1 By-Laws-Adopted June 22, 1992-Filed with Form 10-K dated
March 31, 1992
3.2 Articles of Incorporation-Filed with Form 10-K dated
March 31, 1986, pages 32-41
10.1 United States Department of the Interior National Park
Service Contract-Filed with Form 10-Q dated December 31,
1989
27 Financial Data Schedule-Filed Herewith
Page 12 of 13
<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 10, 1998 BY: ROBERT L. WALKER
----------------- ----------------------------------
Robert L. Walker
President
DATE: February 10, 1998 BY: MICHAEL P. PERIKLY
----------------- ----------------------------------
Michael P. Perikly
Principal Financial Officer and
Chief Accounting Officer
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 163,861
<SECURITIES> 0
<RECEIVABLES> 8,516
<ALLOWANCES> 0
<INVENTORY> 134,641
<CURRENT-ASSETS> 407,550
<PP&E> 8,044,493
<DEPRECIATION> 2,114,283
<TOTAL-ASSETS> 6,342,662
<CURRENT-LIABILITIES> 2,081,948
<BONDS> 0
0
0
<COMMON> 7,184
<OTHER-SE> 4,056,941
<TOTAL-LIABILITY-AND-EQUITY> 6,342,662
<SALES> 1,525,382
<TOTAL-REVENUES> 3,282,390
<CGS> 924,670
<TOTAL-COSTS> 2,906,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,761
<INCOME-PRETAX> 375,862
<INCOME-TAX> 140,000
<INCOME-CONTINUING> 235,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,862
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
