PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTERNATIONAL LEISURE HOSTS, LTD.
----------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0- 11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
INTERNATIONAL LEISURE HOSTS, LTD.
3207 SOUTH HARDY DRIVE
TEMPE, ARIZONA 85282
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of International Leisure Hosts,
Ltd., a Wyoming corporation (the "Company"), will be held on January 4, 2002, at
10:00 a.m., local time, at the Company's corporate offices at 3207 S. Hardy
Drive, Tempe, Arizona 85282 for the following purposes:
1. To elect directors and chairman to serve for the ensuing year
and until their successors are elected;
2. To ratify the appointment of Deloitte & Touche LLP as
independent accountants of the Company for the fiscal year
ending March 31, 2002; and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on December 14,
2001 are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
Sincerely,
Michael P. Perikly, President
December 17, 2001
Tempe, Arizona
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Whether or not you expect to attend the Meeting, please complete, date
and sign the enclosed Proxy and mail it promptly in the enclosed envelope to
assure representation of your shares. No postage need be affixed if mailed in
the United States. If you attend the Annual Meeting, you may revoke the proxy
card and vote your shares in person.
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INTERNATIONAL LEISURE HOSTS, LTD.
3207 South Hardy Drive
Tempe, Arizona 85282
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
January 4, 2002
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited by the Board of Directors of
International Leisure Hosts, Ltd. (the "Company") for use at the Annual Meeting
of Shareholders ("Annual Meeting") to be held January 4, 2002 at 10:00 a.m.,
local time, or at any adjournment thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Shareholders. The corporate
offices of the Company are located at 3207 South Hardy Drive, Tempe, Arizona
85282 and its telephone number at that address is (480) 829-7600.
The Annual Meeting will be held at the Company's offices located at
3207 South Hardy Drive, Tempe, Arizona 85282.
These proxy solicitation materials were mailed on or about December 18,
2001.
Record Date And Share Ownership
Shareholders of record at the close of business on December 14, 2001
are entitled to notice of and to vote at the meeting. At the record date,
694,457 shares of the Company's Common Stock, $.01 par value ("Common Stock"),
were issued and outstanding (excluding 23,966 treasury shares). As of May 22,
2001, the following table sets forth share ownership by each director, by all
officers and directors as a group, and by persons known by the Company to be or
who may be deemed to be the beneficial owners of more than 5% of the Company's
Common Stock:
Number Percent
Name and Address of Shares of Total
- ---------------- ---------- --------
Robert L. Walker 366,669 (A) 52.8%
Director
P.O. Box 187
Moran, WY 83013
A. Clarene Law 3,000 *
Director
P.O. Box 575
Jackson, WY 83001
Michael P. Perikly 2,500 *
President
3207 S. Hardy Drive
Tempe, Arizona 85282
1
Number Percent
Name and Address of Shares of Total
- ---------------- ---------- --------
William S. Levine 124,233 (B) 17.9%
Director
Levine Investments Limited
Partnership
1702 E. Highland Ave., #312
Phoenix, Arizona 85016
Krist A. Jake 73,800 (C) 10.6%
P.O. Box 640219
San Francisco, CA 94164
Bar-B-Bar Corporation 37,307 (D) 5.4%
Max C. Chapman, Jr.
P.O. Box 194
Scarborough, New York 10510
All Officers and 496,402 71.5%
Directors as a
group (4 persons)
- -----------------------
* Less than 1%
(A) Includes shares owned jointly with Mr. Walker's wife.
(B) Based on Schedule 13G filed with the Securities and Exchange Commission
on March 12, 1998 by William S. Levine and Levine Investments Limited
Partnership.
(C) Based on Schedule 13G filed with the Securities and Exchange Commission
on June 7, 1997 by Krist A. Jake.
(D) Based upon Form 13D filed with the Securities and Exchange Commission
on December 6, 1991 by Bar-B- Bar Corporation and Max C. Chapman, Jr.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
Voting and Solicitation
Each shareholder present in person or by proxy at the Annual Meeting
shall be entitled to one vote for each full share of stock registered in the
name of such shareholder on the record date.
Every shareholder entitled to vote at the Annual Meeting may do so
either (i) in person or (ii) by one or more agents authorized by a written proxy
executed by the person or such shareholder's duly authorized agent, whether by
manual signature, typewritten, telegraphic transmission or otherwise. Every
proxy must be executed in writing (which shall include telegraphing or cabling)
by the shareholder or by his duly authorized agent.
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of the Company. All shares represented by
properly executed proxies, unless such proxies have previously been revoked,
will be voted in accordance with the direction on the proxies. If no direction
is indicated, the shares will be voted in favor of the proposals to be acted
upon at the Annual Meeting.
Provided a quorum is present, the affirmative vote of a majority of the
combined voting power of the Common Stock present in person or represented by
proxy at the Annual Meeting and entitled to vote is required for the election
2
of each nominee and the approval of Proposal 2. The presence at the Annual
Meeting in person or by proxy of shareholders holding of record a majority of
the total number of shares of Common Stock then issued and outstanding, and
entitled to vote, shall be sufficient to constitute a quorum for the transaction
of any business. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other personnel
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers, and regular employees, without
additional compensation, personally or by telephone or telegram.
Deadline for Receipt of Shareholder Proposals
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Annual Meeting for the fiscal year ending
March 31, 2002, must be received by the Company no later than July 1, 2002, in
order that they may be included in the proxy statement and form of proxy
relating to that meeting.
If a shareholder wishes to present to the Company an item for
consideration as an agenda item for a meeting of shareholders, he must give
timely notice to the Secretary of the Company and give a brief description of
the business desired to be discussed. To be timely for this meeting, such notice
must be delivered to or mailed to and received by the Company at its corporate
offices no later than December 21, 2001.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
Five persons have been nominated for election as directors (including
Robert L. Walker, who has also been nominated for election as Chairman of the
Board of Directors) at the Annual Meeting to be held on January 4, 2002. If any
of the nominees shall be unable or unwilling to serve, it is intended that the
proxy will be voted for the election of such other person or persons as the
Company's management may recommend in the place of such nominee. The management
has no reason to believe that any of the nominees will be unable or unwilling to
serve.
The names of the nominees and certain information about them are set
forth below:
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
Robert L. Walker 68 CEO, Chairman and Director 1997
of the Company
A. Clarene Law 67 Owner and CEO of 1992
Elk Country Motels
Bonnie J. Walker 65 Gift shop manager 1999
of the Company
Secretary/Treasurer of PNI, Inc.
William S. Levine 69 Director, Infinity 1999
Broadcasting Corporation
Victor W. Riches 51 Real Estate Developer 1999
3
All directors will hold office until the next Annual Meeting of
Shareholders and the election and qualification of their successors. Directors
may be removed by a majority vote of the shareholders at the Annual Meeting or
special meeting called for such purpose.
The Company's officers, except for the chairman, are elected by the
directors and serve at the pleasure of the directors. The Company does not have
any employment contracts with its employees.
Business Experience of Nominees, Directors and Officers
Robert L. Walker was elected Chairman and C.E.O. on April 23, 1999. He
also served as President from September 30, 1997 to April 22, 1999. Mr. Walker
has been an executive with numerous companies over the last 36 years. From 1976
to the present, he has been President of PNI, Inc., a privately owned investment
company. From 1989 to 1994 he was President and Chairman of Turf Paradise, Inc.,
an Arizona based, publicly traded company that owns and operates a thoroughbred
horse racing facility conducting pari-mutuel wagering.
A. Clarene Law was elected to the Board of Directors on September 11,
1992. She is the owner and Chief Executive Officer of Elk Country Motels which
operates four motel properties aggregating 270 rooms in Jackson, Wyoming. Mrs.
Law has over 35 years experience in the hospitality industry.
Bonnie J. Walker was elected to the Board of Directors on April 23,
1999. She has served on numerous boards and committees of various charitable
organizations and since late 1997 has been associated with the Company in
various capacities.
William S. Levine was elected to the Board of Directors on April 23,
1999. He has been the Chairman and C.E.O. of Outdoor Systems, Inc., a national
billboard company that recently merged with a subsidiary of the National
Broadcasting Company. He is currently a director of Infinity Broadcasting
Corporation and the Chairman of Infinity Outdoor, Inc. Additionally, he has
served on various boards of directors of both private and public companies and
is an owner and officer of numerous privately-owned firms.
Victor W. Riches was elected to the Board of Directors on April 23,
1999. He graduated from the Arizona State University College of Law (Magna Cum
Laude) in 1975. He has served on numerous Boards, Committees and Offices of both
charitable and non-charitable organizations, including: Turf Paradise, Inc.,
Arizona Center for the Handicapped, Bethany Ranch Home, YMCA of Metropolitan
Phoenix, as well as many others. Mr. Riches has published numerous articles in a
variety of trade magazines. He currently is a real estate developer in Arizona,
Nevada and California.
Michael P. Perikly, CPA, was elected President of the Company on April
23, 1999. Prior to that he served as Treasurer and Chief Financial Officer of
the Company from September 30, 1997 to April 22, 1999. He also served on the
Board of Directors from December, 1997 until April, 1999. From 1990 to the
present, he has been Chief Financial Officer of PNI, Inc., a privately owned
investment company. From 1989 to 1994, Mr. Perikly was the Chief Financial
Officer, Secretary and Treasurer of Turf Paradise, Inc.
Thomas J. Kase, CPA, was elected Secretary/Treasurer of the Company on
April 23, 1999. He is currently with the firm of Gaintner Bandler Reed, PLC. Mr.
Kase graduated from Loyola University in Los Angeles and has been a certified
public accountant since 1974.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's
directors, its executive officers, and any person holding more than 10% of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose any failure to file by
these dates. All of these filing requirements were satisfied during the year
ended March 31, 2000. In making these disclosures, the Company has relied solely
on written representations of its directors and executive officers and copies of
the reports that they have filed with the Commission.
4
Audit Committee
The Company does not have a formal auditing committee. Instead, the
Board of Directors fulfills this responsibility. The Board has reviewed and
discussed the audited financial statements with management as well as certain
matters required by SAS 61. In addition, the Board has received disclosures
regarding the auditors' independence as required by 15 BS No. 1 and has
discussed this with the auditors. Based on their review, the Board has
recommended that the audited financial statements be included in the Form
10-KSB.
Board Meetings and Committees
During fiscal 2000, there was no compensation, nominating or other
Board of Directors' committee performing similar functions.
The Board of Directors executed one Consent of Action in Lieu of
Meeting during the fiscal year ended March 31, 2001.
Executive Officers*
Name of Officer Age Principal Occupation
- --------------- --- --------------------
Robert L. Walker 68 Chairman/CEO/ Director
Michael P. Perikly 50 President
Thomas J. Kase 53 Secretary/Treasurer
* See "Business Experience of Nominees, Directors and Officers" above for a
biographical summary.
Remuneration of Directors and Officers
The following table sets forth, with respect to the years ended March
31, 2001, 2000 and 1999, compensation awarded to, earned by or paid to the
Company's chief executive officer, President, and Secretary/Treasurer.
SUMMARY COMPENSATION TABLE
(A) (B) (C)
Name and principal
Position Year Salary
- ------------------ ---- ------
Robert L. Walker 2001 -
CEO* 2000 -
1999 -
Michael P. Perikly 2001 $125,000
President** 2000 75,000
All executive officers
as a group (three) 2001 $ 125,000
(three) 2000 $ 75,000
(three) 1999 $ 36,000
All executive officers as a group received cash compensation for services
rendered to the Company over the three years, a portion of which was paid
pursuant to the management contracts described below under the heading "Certain
Transactions."
5
* Robert L. Walker became Chairman of the Company and its Chief Executive
Officer on April 23, 1999 and served as President from September 30,
1997 to April 22, 1999.
** Michael P. Perikly became President of the Company on April 23, 1999.
There are no compensation arrangements for directors.
Certain Transactions
General and administrative - related party expenses for the years ended
March 31, 2001, 2000 and 1999 represent management fees and administrative
expenses paid to related parties and totaled $267,774, $219,038, and $155,713,
respectively. Related parties during the years ended March 31, 2001, 2000 and
1999 are owned by the Company's current majority owner, Robert Walker, or family
members. Related parties during the years ended March 31, 2001 and 2000 also
include a company owned by the Company's current President, Michael P. Perikly.
The Company incurred borrowings under line of credit agreements with
related parties (Note 5). Interest incurred for the years ended March 31, 2001,
2000 and 1999 was $112,115, $123,230 and $108,985, respectively. For fiscal
years 2001, 2000 and 1999, the Company capitalized $52,465, $44,932 and $39,019
of interest, respectively.
During 1999, the Company repurchased 41 snowmobiles from a related
party for $75,645. The Company subsequently sold the snowmobiles to an unrelated
entity and recognized a loss of approximately $14,000.
At March 31, 2000, the Company recorded payables of $70,563 to related
parties for certain operating expenses paid by the related parties on behalf of
the Company.
During the years ended March 31, 2001 and 2000, the Company paid
approximately $30,000 each year to a related party for construction costs
related to the new employee housing and other facility improvements.
PROPOSAL 2
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP as
independent accountants and recommends that it's shareholders vote FOR
ratification of such appointment to audit the consolidated financial statements
of the Company for the fiscal year ending March 31, 2002. Deloitte & Touche LLP
has audited the Company's financial statements annually since April, 1983. Its
representatives are not expected to be present at the meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy card or sheet to vote the shares they
represent as the Board of Directors may recommend.
AVAILABLE INFORMATION
The Company files annual reports on Form 10-KSB with the Securities and
Exchange Commission. A copy of the Form 10-KSB Annual Report for the fiscal year
ended March 31, 2001 may be obtained, free of charge, upon written request by
any shareholder to Michael P. Perikly, President, International Leisure Hosts,
Ltd., 3207 S. Hardy Drive, Tempe, Arizona 85282.
6
BY ORDER OF THE BOARD OF DIRECTORS,
/S/ Thomas J. Kase
Thomas J. Kase
Secretary
Tempe Arizona
December 17, 2001
7
INTERNATIONAL LEISURE HOSTS, LTD.
a Wyoming Corporation
Ticker Symbol "ILHL"
2001 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
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FISCAL YEAR ENDED MARCH 31,
(In thousands except per share amounts)
----------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Revenues $4,539 $4,739 $4,218 $4,631 $4,094
Net Income (Loss) 427 341 292 156 (113)
Net Income (Loss) Per Share-Basic .61 .49 .42 .23 (.16)
Total Assets 6,710 6,533 6,212 5,393 5,363
Long-Term Obligations 0 0 0 0 446
Shareholders' Equity 4,887 4,460 4,120 3,828 3,672
Book Value Per Share 7.04 6.42 5.93 5.51 5.29
COMMON STOCK
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International Leisure Hosts, Ltd. common stock is traded on the OTC
bulletin board, quoted by NASDAQ under the symbol "ILHL". The following table
sets forth the high and low bid prices for the stock for each quarter for fiscal
years 2000 and 2001.
Bid
-------------------------
High Low
------- -------
Quarter Ended
-------------
June 30, 1999 $ 5 1/4 $ 4 3/4
September 30, 1999 5 4
December 31, 1999 5 5
March 31, 2000 5 4 1/4
June 30, 2000 5 3 1/2
September 30, 2000 4 7/8 4
December 31, 2000 5 1/2 4 1/2
March 31, 2001 5 4 3/4
Over-the-counter market quotations reflect inter-dealer prices, without
retail markup, markdown or commissions and may not necessarily represent actual
transactions. As of March 31, 2001 there were 694,457 shares of outstanding
common stock and an estimated 600 shareholders of record.
The level of trading during fiscal year 2001 was approximately 9,600
shares the first quarter, 11,100 shares the second quarter, 5,900 shares the
third quarter, and 300 shares the fourth quarter ended March 31, 2001. As is
readily evident from this trading, ILHL's trading activity has been limited and
the volume of transactions should not of itself be deemed to constitute an
"established public trading market." A public trading market having the
characteristics of depth, liquidity and orderliness depends on the existence of
market makers as well as the presence of willing buyers and sellers, which are
circumstances over which the Company does not have control.
It is the policy of the Company not to pay dividends but instead to
retain corporate earnings for use in the operation and expansion of its
business.
PRESIDENT'S LETTER
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Dear Shareholders:
I am pleased to report that your Company performed extremely well in
the fiscal year ended 2001 and had one of its most profitable years ever.
Although total revenues decreased 4% from 2000, primarily due to a fire during
the summer that forced the resort to close for two weeks, we ended the year with
net income of $427,000, a 25% increase over the prior year's net income of
$341,000. A significant portion of this increase came from our winter season,
one of the best in the last five years.
The last several years have been extremely good for Flagg Ranch, with
our income climbing from a negative $113,000 in 1997 to $427,000 last year, but,
as I indicated in last year's report, the future, unfortunately, does not look
as promising. The National Park Service has issued regulations to ban the use of
snowmobiles in most of the parks beginning in the winter of 2002/2003. Once the
ban is in effect, we anticipate up to a 35% reduction in revenues due to the
loss of our winter snowmobile business in the future.
A lawsuit, filed by the snowmobile manufacturer and other interested
parties to overturn the NPS ban, has recently been settled, with the requirement
that the Park Service reopen the snowmobile issue. The Park Service will be
issuing a supplemental environmental impact statement early in 2002 for public
comment with a final determination being made by the 4th quarter of 2002. While
there is no requirement that the Park Service overturn their ban, we are hopeful
that some form of snowmobiling will be allowed in Yellowstone and Grand Teton
Parks in the future.
In addition to the uncertainty regarding the winter snowmobile issue,
the events of September 11th, coupled with the downturn in the economy in the
last half of 2001, are having an extremely negative impact on next year's
financial results. We are already experiencing a 30% decrease in our
reservations for the 2001/2002 winter season. This could translate to a loss of
revenue of over $300,000 for the year. While we are hopeful that, with time,
travel and tourism levels will increase to pre-September levels, we feel
obligated to inform our shareholders of the current impact of the tourism
slowdown.
Thanks to the hard work of our employees, the redevelopment of Flagg
Ranch is very near completion. The 54 motel units located along the Snake River
along with three cabins have been converted into employee housing. The
relocation of the motel units to the upper bench in accordance with our federal
concession contract was about 80% complete at the end of the fiscal year, and as
of December, 2001, was 100% complete.
As always, I encourage you to come to Flagg Ranch and see your resort.
We thank you for your involvement with International Leisure Hosts, Ltd. and
pledge to continue our efforts to enhance the value of the Company.
Sincerely,
/S/ Michael P. Perikly
Michael P. Perikly
President
1
CORPORATE OVERVIEW
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THE BUSINESS
The Company's principal business is the ownership and operation of
Flagg Ranch Resort ("Flagg"), 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 ("Grand Teton") and two miles south of the
southern entrance of Yellowstone National Park ("Yellowstone"). Flagg's location
is ideal.
Flagg provides overnight accommodations to national park visitors for
up to 328 persons per night via its 92 cabins. In addition to the cabin units,
Flagg operates a full service trailer park and campground that provides water,
electrical and sewer connections for 97 recreational vehicles, plus 74 campsites
without utility hookups.
Flagg undertook major redevelopment efforts in fiscal years 1995 and
1996 which included construction of a new main lodge building, 92 new cabin
units, a maintenance building and a laundry facility. The new lodge and cabins
opened for business in May 1995. The lodge, which replaced existing facilities,
includes a restaurant, lounge, gift shop, grocery store, front desk and gasoline
station. The new cabin units replaced 42 rustic cabin units and a 54-unit motel,
both of which were removed from the property.
Flagg is operated as a seasonal resort. The two seasons, summer and
winter, coincide with the opening and closing dates of the two national parks.
SUMMER SEASON
The summer season, which runs from approximately May 23rd through
October 8th of each year, is the height of activity at Flagg. In addition to the
motel and trailer park/campground accommodations, Flagg offers numerous services
and activities for the guests' enjoyment including Snake River float trips,
horseback riding and a variety of scenic hiking trails. The summer season
accounted for 65% and 72%, respectively, of Flagg's fiscal 2001 and 2000
operating revenues.
Prior to the recently completed redevelopment of its facilities, Flagg
was not a destination stop in the summer, but instead provided basic services
for visitors to the two national parks. Most of the guests stayed one to two
nights and the majority of the patrons represented overflow from other national
park facilities similar to those provided by Flagg. However, with the completion
of the new main lodge and cabin units, management believes that Flagg now offers
facilities equal to or superior to those of other national park concessionaires.
As a result, Flagg intends to develop a reputation as a destination location for
visitors, in addition to catering to guests staying for only one to two nights.
WINTER SEASON
The winter season, which runs from mid-December through early-March
accounted for 35% and 28%, respectively, of Flagg's fiscal 2001 and 2000
operating revenues. Yellowstone receives approximately 150 to 400 inches of
snowfall per year which turns the park into a winter recreational destination.
The National Park Service ("NPS") grooms, but does not plow, the snow on the
roads inside the park. The only modes of transportation into the park are
snowmobile and snowcoach.
Management believes that Flagg's location at the south entrance to
Yellowstone makes it a premiere location for winter visitors. The road is well
plowed from Jackson, Wyoming to the Flagg entrance offering easy access to Flagg
for visitors. However, visitors cannot proceed past Flagg and
2
into Yellowstone unless they are traveling via snowmobile or snowcoach. Flagg is
the only vendor licensed by the NPS with unguided snowmobile tours at the south
entrance to Yellowstone. In fiscal year 2001, Flagg had a fleet of 85 Polaris
snowmobiles available to the public for rental. In addition, Flagg offers daily
trips to Old Faithful Lodge in Yellowstone via its two 11-passenger snowcoachs.
Cross-country skis and snowshoes are also available for rental.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
The Flagg facilities are located on approximately 70 acres in the John
D. Rockefeller Jr. Memorial Parkway. This entire tract of land which the Company
utilizes is owned by the Federal Government and its usage is governed by the
terms of the NPS Contract (the "Contract"). The Company receives its operating
authorization from the NPS. The Contract which became effective on January 1,
1990 will expire on December 31, 2009. The terms and conditions of the Contract
are under the direct supervision of the Superintendent of Grand Teton National
Park.
The Contract requires the Company to provide certain services to the
public and authorizes other services that may be offered each year. The Contract
grants the NPS the right to regulate the adequacy, types and charges of all
services offered to the public. Proprietary rights to certain facility
improvements constructed by the Company (including the new lodge and new cabin
units) have been granted to the Company under the terms of the Contract;
however, the NPS may terminate the Contract and purchase the Company's
improvements, upon a determination that the public interest requires Federal
Government ownership of the improvements. In such event, the Federal Government
is required to pay a price for said improvements equal to the cost of
reconstruction less depreciation.
During fiscal year 2000, the Company incurred costs of
approximately $625,000 to move its employee housing from its current location to
the high ground above the river. During fiscal year 2001, the Company incurred
additional costs of approximately $433,000 related to this move.
Under the terms of the Contract, the Company is required to move the
existing 54-unit riverside motel, which has been converted to employee housing,
from its current location to the high ground above the Snake River and make
other improvements prior to December 31, 2002. The remaining cost is estimated
to be between $250,000 and $500,000 depending on the extent of additional
improvements required by the NPS.
RESULTS OF OPERATIONS
The Company's net income was $427,000, $.61 per share for the year
ended March 31, 2001. This compares to net income of $341,000, $.49 per share,
in 2000 and net income of $292,000, $.42 per share, in 1999. The primary factor
contributing to the $86,000 increase in 2001 net income was an increase in
snowmobile and snowcoach rentals during the winter season. Changes in the
Company's revenues and expenses for the fiscal years 2001 and 2000 are
summarized below. All references to years represent fiscal years ended March 31.
Revenues
Total revenues for 2001 decreased by $200,000 or 4% from 2000. Of this
decrease, $264,000 was from lodging, $56,000 from RV/tent rental, $130,000 from
food service, $52,000 from grocery store sales, $65,000 from gift shop sales,
$16,000 from float trip revenue, $13,000 from trail ride revenue, and $3,000 in
interest income. Offsetting these decreases were increases of $8,000 in gasoline
sales, $185,000 in snowmobile rental, $14,000 in snowcoach rental, $19,000 in
transportation revenue, and $173,000 in other income, primarily insurance
proceeds from the Company's business interruption policy. All of the decreases
are mainly attributable to the temporary closure of the Company's resort during
the summer season due to wildfires in Yellowstone and Grand Teton Parks.
Increases in winter activities, snowmobile, snowcoach and transportation, are
due to
4
higher numbers of winter visitors, possibly due to the anticipated future
elimination of snowmobile use in the Parks. Gasoline sales increased due to
increases in unit sales prices.
Total revenues for 2000 increased by $520,000 or 12% over 1999. Of this
increase, $63,000 was from lodging, $91,000 from RV/tent rental, $48,000 from
food service, $45,000 in gift shop sales, $51,000 in grocery store sales,
$55,000 in gasoline sales, $18,000 from float trip revenue, $30,000 from trail
ride revenue, $82,000 from snowmobile revenue, $26,000 from snowcoach revenue,
$4,000 from transportation revenue, and $10,000 in interest income. A decrease
of $3,000 in other revenue offset these increases. The increased occupancy
levels and number of guests contributed to the increases in food service, gift
shop, grocery store/gasoline sales and activity rentals. In addition, increases
in gasoline prices also contributed to the increase in gasoline sales.
Costs and Expenses
The ratio of cost of merchandise sold to sales of merchandise was 59%
in 2001, 60% in 2000, and 60% in 1999. Ending merchandise inventories increased
from approximately $101,000 at March 31, 2000 to approximately $112,000 at March
31, 2001 mainly due to increases in gift shop and snowmobile clothing inventory.
Operating expenses decreased by $155,000 or 7% in 2001 as compared to
2000. In addition, the ratio of operating costs to operating revenues decreased
to 44% in 2001 from 45% in 2000. The major decreases in expenses consisted of
$111,000 in labor, $18,000 in utilities, $12,000 in equipment rental, $14,000 in
outside services, $19,000 in telephone, $36,000 in Company vehicle/travel,
$16,000 in printing, $3,000 in property taxes, $6,000 in franchise fees and
$7,000 in various other accounts. The above decreases were partially offset by
increases of $39,000 in operating supplies, $4,000 in office supplies, $4,000 in
repairs and maintenance, $14,000 in snowmobile parts and gas, $3,000 in credit
card fees, $11,000 in postage and freight, $3,000 in licenses and fees, and
$9,000 in insurance. Labor, utilities, outside services, and franchise fees all
decreased due to the temporary closure of the property during the summer due to
wildfires. Telephone costs decreased due to a change in the long distance
carrier which resulted in lower per minute charges. Snowmobile parts and gas
increased due to the increased rentals which include the first tank of gas.
Insurance increased due to increases in health insurance rates.
Operating expenses increased by $153,000 or 8% in 2000 as compared to
1999; however, the ratio of operating costs to operating revenues decreased to
45% in 2000 from 47% in 1999. The major increases in expenses consisted of
$21,000 in labor, $19,000 in utilities, $36,000 in snowmobile parts and gas,
$3,000 in Company vehicle/travel, $32,000 in outside services, $7,000 in
printing, $11,000 in credit card costs, $43,000 in insurance, $13,000 in
franchise fee, and $17,000 in miscellaneous. The above increases were partially
offset by decreases of $32,000 in operating supplies, $8,000 in telephone, and
$9,000 in licenses and fees. The increase in insurance costs was the result of
implementing a health insurance plan for year round employees. Outside services
increased due to the increased revenue from the horse and float activities.
Snowmobile parts and gas increased due to half of the snowmobile fleet being out
of warranty and due to the increased rentals which include the first tank of
gas.
General and administrative expenses increased by $135,000 or 49% in
2001 as compared to 2000 primarily due to higher management fees and increased
legal fees due to the proposed elimination of winter snowmobiling. The increases
consisted of $49,000 in management fees, $5,000 in office supplies, $9,000 in
travel/transportation, $63,000 in legal and accounting fees, and $12,000 in fire
related expenses. These increases were offset by a decrease in postage and
freight of $2,000 and various other expenses of $1,000.
General and administrative expenses increased by $66,000 or 31% in 2000
as compared to 1999. The increases consisted of $63,000 in management fees,
$2,000 in postage and freight, $1,000
5
in travel/transportation, and $3,000 in legal and accounting fees. These
increases were partially offset by a decrease in office expenses of $3,000.
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
Working capital decreased to a negative $1,360,000 at March 31, 2001
from a negative $1,339,000 at March 31, 2000. Current assets decreased by
$248,000 primarily due to decreases in cash and accounts receivable. Current
liabilities decreased by $227,000 primarily due to a reduction in notes payable
under lines of credit. This also accounts for the reduction in cash at March 31,
2001 from the prior year.
Further, during fiscal 2001, the Company incurred costs of
approximately $433,000 related to certain construction projects. The Company may
incur additional costs of between $250,000 and $500,000 prior to December 31,
2002 to complete the relocation of 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. Cash generated from operations was
$884,000, $706,000, and $964,000 for the fiscal years ended 2001, 2000 and 1999,
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.
During October 2000, the Company renewed a line of credit agreement
("Agreement") with an affiliated company expiring September 30, 2001, which
provides for collateralized 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 $585,000 on
this line of credit as of March 31, 2001. The terms of the Agreement contain,
among other provisions, requirements for maintaining minimum cash flows (as
defined in the Agreement) and place limitations on the Company's ability to make
loans. As of March 31, 2001, the Company was not in compliance with the minimum
cash flow requirement. On May 17, 2001, the Company received a waiver of
noncompliance for the year ended March 31, 2001.
During October 2000, the Company entered into a line of credit
agreement with Jackson State Bank ("JSB Agreement"), which provides for
collateralized borrowings of up to $500,000 at an interest rate of prime plus
.875 percent. Borrowings under the JSB Agreement are collateralized by the
assets and improvements of Flagg Ranch. The Company has borrowed $422,420 on the
JSB Agreement as of March 31, 2001.
During December 2000, the Company entered into an Agreement with an
affiliated company expiring November 30, 2001, which provides for collateralized
borrowings of up to $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 $250,000 on this line of credit as of
March 31, 2001. The terms of the Agreement contain, among other provisions,
requirements for maintaining minimum cash flows (as defined in the Agreement)
and place limitations on the Company's ability to make loans. As of March 31,
2001, the Company was not in compliance with the minimum cash flow requirement.
On May 17, 2001, the Company received a waiver of noncompliance for the year
ended March 31, 2001.
6
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
----------- -----------
ASSETS (Note 5)
CURRENT ASSETS:
Cash and cash equivalents $ 174,991 $ 306,354
Accounts receivable 1,338 130,436
Merchandise inventories 11,200 100,936
Prepaid expenses and other 18,754 17,466
----------- -----------
Total current assets 307,085 555,192
----------- -----------
PROPERTY AND EQUIPMENT (Notes 3 and 5):
Buildings and improvements 6,258,425 6,248,824
Equipment 2,010,789 1,701,557
Leasehold improvements 325,600 325,600
Construction in progress 726,833 294,176
----------- -----------
Total property and equipment 9,321,647 8,570,157
Less accumulated depreciation and amortization 2,918,567 2,592,796
----------- -----------
Property and equipment - net 6,403,080 5,977,361
----------- -----------
TOTAL $ 6,710,165 $ 6,532,553
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable under line of credit from related party (Note 5) $ 835,000 $ 1,460,000
Note payable under line of credit (Note 5) 422,420
Accounts payable:
Trade 201,639 105,291
Related party (Note 4) 70,563
Income taxes payable 24,454 59,851
Accrued liabilities 44,750 49,371
Advance deposits 139,012 149,151
----------- -----------
Total current liabilities 1,667,275 1,894,227
DEFERRED INCOME TAXES (Note 2) 156,076 178,076
----------- -----------
Total liabilities 1,823,351 2,072,303
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 100,000 shares: none issued
Common stock, $.01 par value - authorized 2,000,000 shares: 7,184 7,184
718,373 shares issued
Additional paid-in capital 656,426 656,426
Retained earnings 4,302,166 3,875,352
----------- -----------
4,965,776 4,538,962
Less common stock in treasury - at cost, 23,966 (2001)
and 23,916 (2000) shares (78,962) (78,712)
----------- -----------
Shareholders' equity - net 4,886,814 4,460,250
----------- -----------
TOTAL $ 6,710,165 $ 6,532,553
=========== ===========
See notes to consolidated financial statements
7
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
---------- ---------- ----------
REVENUES (Note 3):
Sales of merchandise $1,769,628 $2,016,254 $1,833,844
Room, cabin and trailer space rentals 1,428,073 1,748,613 1,578,763
Snowmobile rentals 814,082 629,559 562,284
Other rentals and income 340,481 331,128 240,313
Insurance proceeds 177,011
Interest 9,923 13,175 3,161
---------- ---------- ----------
Total revenues 4,539,198 4,738,729 4,218,365
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of merchandise 1,052,514 1,217,105 1,099,505
Operating (Note 3) 1,977,198 2,132,352 1,979,078
General and administrative 145,610 59,255 56,330
General and administrative - related party (Note 4) 267,774 219,038 155,713
Net loss on asset disposals (Note 4) 25,399 55,849 13,628
Depreciation and amortization 360,916 454,555 395,757
Interest:
Related party (Notes 4 and 5) 59,650 78,298 69,966
Other 21,347
---------- ---------- ----------
Total costs and expenses 3,910,408 4,216,452 3,769,977
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 628,790 522,277 448,388
PROVISION FOR INCOME TAXES (Note 2) 201,976 181,000 156,878
---------- ---------- ----------
NET INCOME $ 426,814 $ 341,277 $ 291,510
========== ========== ==========
NET INCOME PER COMMON SHARE - BASIC (Note 1) $ 0.61 $ 0.49 $ 0.42
========== ========== ==========
See notes to consolidated financial statements
8
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
Common Stock Additional
-------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
------- ---------- ---------- ---------- ----------
BALANCE, APRIL 1, 1998 718,373 $ 7,184 $ 656,426 $3,242,565 ($ 77,912)
Net income 291,510
------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1999 718,373 7,184 656,426 3,534,075 (77,912)
Purchase of common stock (800)
Net income 341,277
------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 2000 718,373 7,184 656,426 3,875,352 (78,712)
Purchase of common stock (250)
Net income 426,814
------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 2001 718,373 $ 7,184 $ 656,426 $4,302,166 ($ 78,962)
======= ========== ========== ========== ==========
See notes to consolidated financial statements
9
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2001, 2000, AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 426,814 $ 341,277 $ 291,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 360,916 454,555 395,757
Deferred income taxes (22,000) (15,000) 16,090
Net loss on asset disposals 25,399 55,849 13,628
Changes in assets and liabilities:
Accounts receivable 129,098 (120,582) 13,446
Accounts receivable from related party 82,800
Income tax refund receivable 23,471
Merchandise inventories (11,066) (8,455) (42,087)
Prepaid expenses and other (1,289) 2,970 (8,445)
Deposits 1,902
Accounts payable - trade 96,349 (4,949) 39,670
Accounts payable - related party (70,563) 70,563 (17,929)
Income taxes payable (35,397) (57,833) 117,684
Accrued liabilities (4,621) 5,114 (17,066)
Advance deposits (10,139) (17,691) 53,749
----------- ----------- -----------
Net cash provided by operating activities 883,501 705,818 964,180
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (913,884) (916,114) (1,301,447)
Proceeds from sale of property and equipment 101,850 221,159 65,965
----------- ----------- -----------
Net cash used in investing activities (812,034) (694,955) (1,235,482)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock purchased for treasury (250) (800)
Proceeds from line of credit 1,007,420 395,000
Payments on line of credit (1,210,000) (40,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (202,830) (800) 355,000
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH (131,363) 10,063 83,698
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 306,354 296,291 212,593
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 174,991 $ 306,354 $ 296,291
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 80,997 $ 123,230 $ 108,985
=========== =========== ===========
Cash paid for income taxes $ 202,500 $ 259,000 $ 0
=========== =========== ===========
See notes to consolidated financial statements
10
INTERNATIONAL LEISURE HOSTS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
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.
Significant Accounting Policies - The Company prepares its financial
statements in accordance with accounting principles generally accepted
in the United States of America. A summary of significant accounting
policies is as follows:
a. Basis of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiary after
elimination of all significant intercompany transactions and
accounts.
b. Cash Equivalents - 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.
c. Merchandise inventories are stated at the lower of aggregate
cost (first-in, first-out basis) or market.
d. 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.
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.
e. Income taxes - Deferred income taxes have been provided for
the temporary differences between financial statement and
income tax reporting on certain transactions.
f. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America 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.
g. Net Income per Common Share - Basic net income per common
share is computed by dividing net income by the weighted
average number of common shares outstanding.
11
The weighted average number of common shares outstanding was
694,407, 694,492, and 694,577 for 2001, 2000 and 1999,
respectively. Diluted net income per share reflects potential
dilution that could occur from common shares issuable through
stock options, warrants or other convertible securities;
however, the Company has no dilutive securities.
h. 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, and accrued expenses approximate
fair values due to the short-term maturities or market rates
of interest.
i. New Accounting Pronouncement - The Financial Accounting
Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. The effective
date of SFAS No. 133 is fiscal years beginning after June 15,
2000. 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.
Management has determined that there will not be significant
impact to the financial statements from implementing SFAS No.
133.
2. INCOME TAXES
The provision for federal income taxes for the years ended March 31
consists of the following:
2001 2000 1999
--------- --------- ---------
Current $ 223,976 $ 196,000 $ 140,788
Deferred (22,000) (15,000) 16,090
--------- --------- ---------
Total $ 201,976 $ 181,000 $ 156,878
========= ========= =========
A reconciliation of the provision for income taxes and the amount that
would be computed using statutory federal income tax rates on income
before income taxes for the years ended March 31 is set forth below:
2001 2000 1999
--------- --------- ---------
Income taxes at federal rates $ 213,789 $ 177,574 $ 152,400
Other - net (11,813) 3,426 4,478
--------- --------- ---------
Provision for income taxes $ 201,976 $ 181,000 $ 156,878
========= ========= =========
Deferred income taxes result from temporary differences on the
recognition of certain revenue and expense items for tax and financial
statement purposes, principally the gain on settlement
12
of involuntary conversion in 1982, which resulted from fire damage,
which resulted in a deferred tax liability of $194,990.
3. 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, 2002, the Company is
required to move its existing 54-unit riverside motel from its current
location to the high ground above the Snake 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 2002. The remaining cost of this relocation is
estimated to be between $250,000 and $500,000 depending on the number
of employee housing units and the extent of additional improvements
required by the NPS.
The extensive capital investments which were required by the Company's
current Contract, were made based on the Park providing road access in
the winter and full winter services (i.e. snowmobile rentals) for the
duration of the Contract. These services are necessary to allow the
Company to recover its substantial investment and provide a reasonable
opportunity to realize a profit consistent with the Contract and
applicable law. The Company relied on the Park's representations to
expend millions of dollars in facilities improvements. Precluding the
Company from offering its full spectrum of winter activities would
materially and fundamentally alter key contract features and
substantially interfere with the Company's ability to recover its
investments or realize planned profit.
The Contract fee to the NPS is calculated at 2 percent of gross
receipts (as defined), subject to review and possible adjustment every
five years. For the years ended March 31, 2001, 2000 and 1999, this fee
amounted to $86,910, $93,064, and $79,712, respectively, which has been
recorded as operating expense.
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 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
required the NPS to prepare an environmental impact statement ("EIS")
during which time period the Parks continued activities under the then
existing winter visitor-use plan.
Upon completion of the EIS, the NPS prepared a draft winter-use plan
with several alternatives. The NPS has adopted the draft winter-use
plan which eliminates snowmobiling from the Park with a phase-in period
of three years during which time the winter snowmobiling operation may
be continued.
13
A lawsuit has been filed by various other organizations to overturn the
NPS's decision and other efforts to either overturn or modify the
winter-use plan are ongoing. If these efforts are unsuccessful, then
Flagg Ranch would have to suspend or discontinue winter operations
completely. This would have a significant negative impact on the
revenues and financial results of the Company. During fiscal 2001,
winter operations accounted for approximately 35 percent of total
revenues.
Proprietary rights to certain facility improvements constructed by the
Company (including the new lodge and new cabin units) have been granted
to the Company under the terms of the Contract; however, the NPS may
terminate the Contract and purchase the Company's improvements, upon a
determination that the public interest requires Federal Government
ownership of the improvements. In such event, the Federal Government is
required to pay a price for said improvements equal to the cost of
reconstruction less depreciation. If, however the Contract is
terminated by the Federal Government for default by the Company for
unsatisfactory performance as defined in the Contract, then the Federal
Government is required to pay a price equal to the tax basis of the
improvements. At the end of the Contract, if the Company is not the
successful bidder on a new contract for the property, then the Federal
Government is required to purchase from the Company the improvements
(including the new lodge and new cabin units) made to the property at a
price equal to the cost of reconstruction less depreciation.
The Department of Labor ("DOL") has notified the Company, on behalf of
current and past employees, that additional overtime is due for the
period beginning November 1, 1997. Currently the Company pays overtime
for any hours in excess of 48 during a one week period. The Company, as
well as other Park concessioners in the area, have operated under an
exemption that exists in the Fair Labor Standards Act. The DOL has
claimed that this exemption does not apply due to conflicting language
in the Contract Work Hours Safety Standard Act which requires overtime
to be paid to laborers and mechanics working on a government contract
after 40 hours worked during a week. If the DOL prevails, the estimate
of the additional expense to the Company ranges from $40,000 to
$60,000. While there is no guarantee, the Company believes it will not
be subject to the additional overtime payments.
During the Company's 2000 summer season, Yellowstone National Park and
the surrounding areas were evacuated due to fire danger, causing a
disruption to the Company's business. The Company filed a claim under
its business interruption policy but is still in negotiations for the
final payment. Total proceeds received as of March 31, 2001 were
$177,000.
4. TRANSACTIONS WITH RELATED PARTIES
General and administrative - related party expenses for the years ended
March 31, 2001, 2000 and 1999 represent management fees and
administrative expenses paid to related parties and totaled $267,774,
$219,038, and $155,713, respectively. Related parties during the years
ended March 31, 2001, 2000 and 1999 are owned by the Company's current
majority owner, Robert Walker, or family members. Related parties
during the years ended March 31, 2001 and 2000 also include a company
owned by the Company's current President, Michael P. Perikly.
The Company incurred borrowings under line of credit agreements with
related parties (Note 5). Interest incurred for the years ended March
31, 2001, 2000 and 1999 was $112,115, $123,230 and $108,985,
respectively. For fiscal years 2001, 2000 and 1999, the Company
capitalized $52,465, $44,932 and $39,019 of interest, respectively.
14
During 1999, the Company repurchased 41 snowmobiles from a related
party for $75,645. The Company subsequently sold the snowmobiles to an
unrelated entity and recognized a loss of approximately $14,000.
At March 31, 2000, the Company recorded payables of $70,563 to related
parties for certain operating expenses paid by the related parties on
behalf of the Company.
During the years ended March 31, 2001 and 2000, the Company paid
approximately $30,000 each year to a related party for construction
costs related to the new employee housing and other facility
improvements.
5. NOTES PAYABLE UNDER LINES OF CREDIT
The Company has a line of credit agreement ("Agreement") with an
affiliated company expiring September 30, 2001, which provides for
collateralized 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 $585,000 on this line of credit as of March 31,
2001. 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 March 31, 2001, the Company was not in compliance with the
minimum cash flow requirement. On May 17, 2001, the Company received a
waiver of noncompliance for the year ended March 31, 2001.
The Company has a line of credit agreement with Jackson State Bank
("JSB Agreement"), which provides for collateralized borrowings of up
to $500,000 at an interest rate of prime plus .875 percent. Borrowings
under the JSB Agreement are collateralized by the assets and
improvements of Flagg Ranch. The Company has borrowed $422,420 on the
JSB Agreement as of March 31, 2001.
The Company has an Agreement with an affiliated company expiring
November 30, 2001, which provides for collateralized borrowings of up
to $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 $250,000 on this line of
credit as of March 31, 2001. 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 March 31, 2001, the Company was not in
compliance with the minimum cash flow requirement. On May 17, 2001, the
Company received a waiver of noncompliance for the year ended March 31,
2001.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
International Leisure Hosts, Ltd.
Tempe, Arizona
We have audited the accompanying consolidated balance sheets of International
Leisure Hosts, Ltd. and subsidiary (the "Company") as of March 31, 2001 and
2000, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended March 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 2001 and
2000, and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
May 17, 2001
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CORPORATE INFORMATION
Directors Officers
- --------- --------
Robert L. Walker Robert L. Walker
Chairman and Director of Chairman and Chief
International Leisure Hosts, Ltd. Executive Officer
Bonnie J. Walker Michael P. Perikly
Secretary/Treasurer of President
PNI, INC.
A. Clarene Law Thomas J. Kase
Owner and Chief Executive Officer Secretary and Treasurer
of Elk Country Motels
William S. Levine
Director, Infinity Broadcasting Corporation
Chairman, Infinity Outdoor, Inc.
Victor W. Riches
Real Estate developer in Arizona
Annual Meeting
The annual meeting of the shareholders of International Leisure Hosts,
Ltd., will be held at the Company's corporate offices located at 3207
S. Hardy Drive, Tempe, Arizona 85282 on January 4, 2002, at 10:00 a.m.,
local time.
Form 10-KSB
A copy of the Form 10-KSB annual report as filed with the Securities
and Exchange Commission is available to any shareholder upon written
request. Requests should be directed to the attention of Michael P.
Perikly, President, International Leisure Hosts, Ltd., 3207 S. Hardy
Drive, Tempe, Arizona 85282.
Registrar and Transfer Agent Legal Counsel
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American Stock Transfer & Trust Co Rothgerber Johnson & Lyons, LLP
New York, New York Denver, Colorado
Independent Accountants
Deloitte & Touche LLP
Phoenix, Arizona
Corporate Headquarters
International Leisure Hosts, Ltd.
3207 S. Hardy Drive
Tempe, Arizona 85282
(480) 829-7600
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