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 September 30, 1999
Commission File NO. 0-3858
INTERNATIONAL LEISURE HOSTS, LTD.
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(Exact name of Registrant as specified in its charter)
Wyoming 86-0224163
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3207 S. Hardy Drive Tempe, AZ 85282
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code (480) 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 694,477 shares
of $.01 par value common stock outstanding as of September 30, 1999.
Page 1 of 12
PART I - FINANCIAL INFORMATION
ITEM 1 - Summarized Financial Information
INTERNATIONAL LEISURE HOSTS, LTD.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1999 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 826,045 $ 296,291
Accounts receivable 1,501 9,854
Merchandise inventories 92,956 92,481
Prepaid expenses and other 25,151 18,936
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Total current assets 945,653 417,562
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PROPERTY AND EQUIPMENT:
Buildings and improvements 5,474,057 5,421,138
Equipment 1,822,336 1,815,620
Leasehold improvements 325,600 325,600
Construction in process 801,741 446,206
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Total property and equipment 8,423,734 8,008,564
Less accumulated depreciation and amortization 2,425,719 2,215,754
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Property and equipment - net 5,998,015 5,792,810
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DEPOSITS 1,500
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TOTAL $ 6,943,668 $ 6,211,872
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable under line of credit
from related party $ 1,460,000 $ 1,460,000
Accounts payable:
Trade 232,409 110,240
Related party 20,613
Construction 33,219
Income taxes payable 225,832 117,684
Accrued liabilities 56,483 44,257
Advance deposits 80,712 166,842
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Total current liabilities 2,109,268 1,899,023
DEFERRED INCOME TAXES 193,076 193,076
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Total liabilities 2,302,344 2,092,099
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COMMITMENTS AND CONTINGENCIES (NOTE 2)
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized
100,000 shares: none issued
Common stock, $.01 par value - authorized
2,000,000 shares: 718,373 shares issued 7,184 7,184
Additional paid-in capital 656,426 656,426
Retained earnings 4,056,326 3,534,075
Less common stock in treasury -
at cost, 23,896 shares (78,612) (77,912)
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Total shareholders' equity 4,641,324 4,119,773
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TOTAL $ 6,943,668 $ 6,211,872
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See notes to unaudited condensed consolidated financial statements
Page 2 of 12
INTERNATIONAL LEISURE HOSTS, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six months ended Three months ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
REVENUES:
Sales of merchandise $1,538,327 $1,383,150 $1,182,571 $1,053,476
Room, cabin and trailer space rentals 1,509,505 1,400,341 1,176,005 1,078,791
Other rentals and income 206,398 152,450 158,657 125,760
Net gain on asset disposals 11,159 11,904 13,209 4,694
Interest 7,170 1,233 5,727 1,152
---------- ---------- ---------- ----------
Total revenues 3,272,559 2,949,078 2,536,169 2,263,873
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of merchandise 908,231 842,801 698,796 657,401
Operating 1,172,825 1,132,623 746,677 669,525
General and administrative 37,502 33,849 12,031 13,959
General and administrative - related party 72,101 67,125 37,945 34,911
Depreciation and amortization 213,889 172,656 107,058 87,833
Interest - related party 36,760 39,836 16,580 17,058
---------- ---------- ---------- ----------
Total costs and expenses 2,441,308 2,288,890 1,619,087 1,480,687
---------- ---------- ---------- ----------
Income before income taxes 831,251 660,188 917,082 783,186
Provision for income taxes 309,000 233,000 318,000 271,000
---------- ---------- ---------- ----------
NET INCOME $ 522,251 $ 427,188 $ 599,082 $ 512,186
========== ========== ========== ==========
NET INCOME
PER COMMON SHARE $ 0.75 $ 0.62 $ 0.86 $ 0.74
========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements
Page 3 of 12
INTERNATIONAL LEISURE HOSTS, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
September 30,
--------------------------
1999 1998
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OPERATING ACTIVITIES:
Net income $ 522,251 $ 427,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 213,889 172,656
Net (gain) on asset disposals (11,159) (11,904)
Changes in assets and liabilities:
Accounts receivable 8,353 13,915
Accounts receivable from related party 82,800
Merchandise inventories (475) (38,496)
Prepaid expenses and other (4,715) (63,060)
Accounts payable - trade 122,169 92,232
Accounts payable - related party 20,613 17,234
Accounts payable - construction 33,219 179,465
Income taxes payable 108,148 0
Accrued liabilities 12,226 253,343
Advance deposits (86,130) (34,036)
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Net cash provided by operating activities 938,389 1,091,337
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INVESTING ACTIVITIES:
Purchases of property and equipment (451,685) (737,433)
Proceeds from sale of property and equipment 43,750 16,210
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Net cash used in investing activities (407,935) (721,223)
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FINANCING ACTIVITIES:
Common stock purchased for treasury (700) 0
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NET INCREASE IN CASH AND CASH EQUIVALENTS 529,754 370,114
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 296,291 212,593
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 826,045 $ 582,707
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 60,390 $ 49,981
=========== ===========
- Cash paid for income taxes $ 70,000 $ 0
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See notes to unaudited condensed consolidated financial statements
Page 4 of 12
INTERNATIONAL LEISURE HOSTS, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Month Periods Ended September 30, 1999 and 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 Resort, 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.
The accompanying unaudited condensed 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 six months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000. 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, 1999.
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 by
straight-line and accelerated methods over the estimated useful lives,
which range from 5 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.
The Company reviews the carrying values of its long-lived assets and
identifiable intangibles for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of assets to be held and
used may not be recoverable. For assets to be disposed of, the Company
reports long-lived assets and certain identifiable intangibles at the lower
of carrying amount or fair value less cost to sell.
c. 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
Page 5 of 12
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 - Net income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding was 694,519 and 694,577 shares for the six month periods ended
September 30, 1999 and 1998, respectively.
f. STATEMENTS OF CASH FLOWS - For purposes of the condensed 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 PRONOUNCEMENT - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, but has delayed the effective date from
fiscal years beginning after June 15, 1999 to June 15, 2000. Management has
not completed the analysis of the effects SFAS No. 133 will have on its
financial statements. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivatives
embedded in other contracts, and for hedging activities. It requires that
entities record all derivatives as either assets or liabilities, measured
at fair value.
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 November 30, 2000, 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 2000.
The remaining cost of this relocation is estimated to be between $850,000 and
$1,150,000 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 is estimated to be between $1,000,000 and $1,200,000. This would result in
a combined total cost of relocation and new construction of between $1,850,000
and $2,350,000. The Company has not made a decision at this time regarding
replacing the riverside motel with new lodging units.
Page 6 of 12
The Contract fee to the NPS 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, 1999 and 1998, this fee amounted to $63,450 and $58,000,
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"). In July 1999 a draft EIS was prepared and made available for
public comment (comment period ends December 1, 1999). The NPS will prepare a
final EIS some time around October 2000. 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 six months ended September 30, 1999
and 1998 include management fees and administrative expenses paid to related
parties of approximately $58,000 and $67,000, respectively. Related parties
during the six months ended September 30, 1999 and 1998 refer to 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 six months ended September 30, 1999 totaled $60,390.
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 $1,460,000 on this
line of credit as of September 30, 1999. The terms of the Agreement contain,
among other provisions, requirements for maintaining minimum cash flows (as
defined in the Agreement) and places limitations on the Company's ability to
make loans. As of September 30, 1999 the Company was not in compliance with the
minimum cash flow requirement. On October 1, 1999 the Agreement was renewed
until September 30, 2000.
Page 7 of 12
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 six months ended September 30, 1999 was
$522,000 ($.75 per share). This compares to net income of $427,000 ($.62 per
share) for the six months ended September 30, 1998. The $95,000 increase in
income was due primarily to increased revenues. The Company's net income for the
quarter ended September 30, 1999 was $599,000 ($.86 per share). This compares to
net income of $512,000 ($.74 per share) for the quarter ended September 30,
1998. Changes in the Company's revenues and expenses for the six months ended
September 30, 1999 and 1998 are summarized below. These changes are also
representative of the changes that occurred during the current quarter period.
All references to years represent the six month period 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. Therefore, the first quarter ended June 30, 1999
consists of only forty-five days of operations.
REVENUES
Total revenues for 1999 increased by $323,000 or 11% from 1998. Of this
increase, $17,000 was from motel and cabin rentals, $93,000 from RV park
rentals, $32,000 from food and beverage revenue, $39,000 in grocery store sales,
$51,000 in gift shop sales, $33,000 in gasoline sales, $18,000 from float trip
revenue, $30,000 from horse rental revenue, and $10,000 in miscellaneous income.
The primary reasons for the increases in all revenue categories is an overall
increase in the number of guests staying at Flagg Ranch as well as an associated
increase in per capita spending by the Company's guests.
EXPENSES
The ratio of cost of merchandise sold to sales of merchandise was 59% and 61%,
respectively, in 1999 and 1998. Operating expenses increased by $40,000 or 4% in
1999 as compared to 1998. The ratio of operating expenses to total revenue
decreased to 36% in 1999 from 38% in 1998. The primary increase in operating
expenses was $32,000 in outside services. Other increases included $18,000 in
utilities, $5,000 in office supplies, $4,000 in repairs and maintenance, $10,000
in advertising, $5,000 in travel agent commissions, $4,000 in printing, $12,000
in insurance and a number of other expenses totaling $11,000. Offsetting these
Page 8 of 12
increases were decreases of $42,000 in operating supplies, $6,000 in telephone,
$3,000 in Company travel, $5,000 in licenses and fees and a number of other
decreases totaling $5,000. The increase in depreciation expense was attributable
to the transfer of finished construction to fixed assets from construction in
process.
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 six months ended
September 30, 1999, the Company incurred costs of approximately $400,000 related
to the above construction projects. In addition the Company has purchased new
vehicles and other construction equipment at a cost of $52,000. The Company's
working capital increased to a negative $1,164,000 at September 30, 1999 from a
negative $1,481,000 at March 31, 1999.
The Company may incur additional costs of between $850,000 and $1,150,000 prior
to November 30, 2000 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 $964,000, $432,000, and $430,000 for
the fiscal years ended 1999, 1998 and 1997, respectively. Cash generated from
operations for the six months ended September 30, 1999 and 1998 was $948,000 and
$1,091,000, 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.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Both the Company's accounting software as well as its reservation systems are
already year 2000 compliant. Management has determined that the year 2000 issue
will not pose significant operational problems for its computer systems. As a
result, all costs associated with this conversion are being expensed as
incurred.
Page 9 of 12
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Page 10 of 12
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 financial statements of International Leisure
Hosts, Ltd. are included in Part I, Item 1:
Condensed Consolidated Balance Sheets - September 30, 1999
(Unaudited) and March 31, 1999 2
Condensed Consolidated Statements of Income - 3 and 6 months
ended September 30, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows- 3 and 6
months ended September 30, 1999 and1998 (Unaudited) 4
Notes to unaudited condensed consolidated financial statements 5
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
Page 11 of 12
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
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 10, 1999 BY: /s/ Robert L. Walker
------------------------------------
Robert L. Walker
Chairman and Chief Executive Officer
DATE: November 10, 1999 BY: /s/ Michael P. Perikly
------------------------------------
Michael P. Perikly
President and Principal Financial
Officer
Page 12 of 12