UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
Form 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2003
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Commission File No. 0-3858
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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 Identification No.)
incorporation or organization)
3207 S. Hardy Drive
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Tempe, AZ 85282
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(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code (480) 829-7600
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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
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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 694,407 shares
of $.01 par value common stock outstanding as of December 31, 2003.
Page 1 of 21
PART I - FINANCIAL INFORMATION
ITEM 1 - Summarized Financial Information
INTERNATIONAL LEISURE HOSTS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December March
31, 2003 31, 2003
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,866 $ 73,263
Accounts receivable 15,663 29,878
Income tax refund receivable 36,090
Deferred tax asset 9,308 44,035
Merchandise inventories 84,269 72,230
Prepaid expenses and other 39,440 27,059
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Total current assets 188,546 282,555
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PROPERTY AND EQUIPMENT:
Buildings and improvements 7,525,591 7,525,591
Equipment 1,353,665 1,668,896
Leasehold improvements 325,600 325,600
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Total property and equipment 9,204,856 9,520,087
Less accumulated depreciation and amortization 3,194,685 3,245,804
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Property and equipment - net 6,010,171 6,274,283
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TOTAL $ 6,198,717 $ 6,556,838
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable under line of credit from related party $ 500,000 $ 585,000
Note payable under line of credit 500,000
Accounts payable:
Trade 71,775 49,326
Related party 62,238 22,123
Accrued liabilities 71,966 42,318
Advance deposits 106,920 114,014
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Total current liabilities 812,899 1,312,781
DEFERRED INCOME TAXES 150,184 150,184
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Total liabilities 963,083 1,462,965
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 100,000 shares: none issued
Common stock, $.01 par value - authorized 2,000,000 shares: issued 718,373 shares 7,184 7,184
Additional paid-in capital 656,426 656,426
Retained earnings 4,650,986 4,509,225
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5,314,596 5,172,835
Less common stock in treasury - at cost, 23,966 shares (78,962) (78,962)
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Shareholders' equity - net 5,235,634 5,093,873
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TOTAL $ 6,198,717 $ 6,556,838
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See notes to condensed consolidated financial statements
Page 2 of 21
INTERNATIONAL LEISURE HOSTS, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
December 31, December 31,
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2003 2002 2003 2002
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REVENUES:
Sales of merchandise $ 22,094 $ 67,860 $ 1,307,389 $ 1,368,388
Room, cabin and trailer space rentals 27,356 1,545,513 1,491,531
Other rentals and income 10,770 133,817 141,825 280,880
Net gain (loss) on asset disposals 37,124 78,565 (28,490)
Interest 214 774 813 2,904
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Total revenues 70,202 229,807 3,074,105 3,115,213
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COSTS AND EXPENSES:
Cost of merchandise 12,742 86,298 791,223 873,217
Operating 168,401 305,190 1,364,182 1,433,607
General and administrative 51,047 19,449 138,655 74,419
General and administrative - related party 74,257 76,704 321,725 222,852
Depreciation and amortization 67,083 86,139 213,707 248,933
Interest 1,177 6,740 11,695 11,980
Interest - related party 7,089 8,069 22,929 29,285
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Total costs and expenses 381,796 588,589 2,864,116 2,894,293
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(Loss) income before income taxes (311,594) (358,782) 209,989 220,920
(Benefit) provision for income taxes (99,045) (125,000) 68,227 75,000
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NET (LOSS) INCOME ($ 212,549) ($ 233,782) $ 141,762 $ 145,920
=========== =========== =========== ===========
NET (LOSS) INCOME
PER COMMON SHARE:
Basic $ (0.31) $ (0.34) $ 0.20 $ 0.21
=========== =========== =========== ===========
Diluted $ (0.31) $ (0.34) $ 0.20 $ 0.21
=========== =========== =========== ===========
See notes to unaudited condensed consolidated financial statements
Page 3 of 21
INTERNATIONAL LEISURE HOSTS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended December 31,
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2003 2002
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OPERATING ACTIVITIES:
Net income $ 141,762 $ 145,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 213,707 248,933
Net (gain) loss on asset disposals (78,565) 28,490
Deferred income tax benefit 34,727
Changes in assets and liabilities:
Accounts receivable 14,215 4,665
Income tax refund receivable 36,090
Merchandise inventories (12,039) (43,924)
Prepaid expenses and other (12,381) (29,543)
Accounts payable - trade 22,449 86,506
Accounts payable - related party 40,115 (5,000)
Income taxes payable 63,228
Accrued liabilities (33,580) (11,543)
Advance deposits (7,094) 87,397
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Net cash provided by operating activities 422,634 511,901
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INVESTING ACTIVITIES:
Purchases of property and equipment (28,181) (432,269)
Proceeds from sale of property and equipment 157,150 49,617
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Net cash provided by (used in) investing activities 128,969 (382,652)
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FINANCING ACTIVITIES:
Loan (payments to) proceeds from bank (500,000) 325,000
Loan payments to related party (85,000) (350,000)
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Net cash used in financing activities (585,000) (25,000)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (33,397) 104,249
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 73,263 49,664
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,866 $ 153,913
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 34,624 $ 50,424
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- Cash paid for income tax $ 0 $ 90,000
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See notes to unaudited condensed consolidated financial statements
Page 4 of 21
INTERNATIONAL LEISURE HOSTS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Month Periods Ended December 31, 2003 and 2002
(UNAUDITED)
The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America 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 accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments and reclassifications considered necessary for a fair and comparable
presentation have been made and are of a normal recurring nature. Operating
results for the nine months ended December 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2004. 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, 2003.
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 ("Flagg Ranch"), a
full-service resort motel and trailer park located in the John D. Rockefeller
Jr. Memorial Parkway, approximately four miles north of Grand Teton National
Park and two miles south of the southern entrance to Yellowstone National Park.
Significant Accounting Policies - 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. Revenue Recognition - The Company recognizes lodging revenue at the
completion of a room night and for other ancillary revenue as the
services are provided.
c. Cash and cash equivalents - Cash and cash equivalents represent cash in
banks, money market funds, and certificates of deposit with initial
maturities of three months or less.
d. Merchandise inventories are stated at the lower of aggregate cost
(first-in, first-out basis) or market.
e. Property and equipment are stated at cost. Depreciation is computed by
the straight-line method 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.
Page 5 of 21
The Company reviews the carrying value of its long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable in accordance
with the provisions of Statement of Financial Accounting Standard
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Impairment losses, if any, are recorded as a
component of earnings from operations.
f. Income taxes - Income taxes are accounted for under the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires
recognition of deferred tax assets and liabilities for the estimated
future tax consequences of events attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which the differences
are expected to be recovered or settled. Net deferred tax assets are
reduced through the establishment of a valuation allowance at such time
as, based upon available evidence, it is more likely than not that the
deferred tax assets will not be realized. The Company believes that
there is sufficient positive evidence to support the conclusion not to
record a valuation allowance.
g. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
h. Accounting for stock options - At the Company's Annual Meeting held on
January 21, 2003, the Company's Shareholders ratified and adopted the
2002 Stock Option Plan. The 2002 Stock Option Plan allows the
Compensation Committee of the Board of Directors to grant stock options
to officers, directors and employees of the Company. The Company has
100,000 stock options available for issuance. For the quarter ended
December 31, 2003, the Company has issued stock options for 82,000
shares under the 2002 Stock Option Plan at an option price of $5.50 per
share, which is greater than the fair market value of the Company's
common stock on the date of grant. The Company accounts for stock
option grants to employees under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related Interpretations. The
Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure".
Accordingly, no compensation cost has been recognized for these stock
option grants. Awards under the plan vest immediately. The following
table illustrates the effect on net income and earnings per share if
the fair value based method had been applied to all outstanding awards
in each period presented, using the Black-Scholes valuation model:
Page 6 of 21
Three months ended Nine months ended
December 31, December 31,
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2003 2002 2003 2002
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Net (loss) income as reported ($212,549) ($233,782) $ 141,762 $ 145,920
Deduct: Total stock-based employee compensation 133,189 133,189
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Pro forma net (loss) income (345,738) (233,782) 8,573 145,920
========= ========= ========= =========
Net (loss) income per share-basic as reported $ (0.31) $ (0.34) $ 0.20 $ 0.21
Pro forma net (loss) income per share-basic $ (0.50) $ (0.34) $ 0.01 $ 0.21
i. 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. The weighted average number of common shares
outstanding was 694,407 for both 2003 and 2002. Diluted net income per
share reflects potential dilution that could occur from common shares
issuable through stock options, warrants or other convertible
securities. Options to purchase 82,000 shares of common stock at $5.50
per share were outstanding during the quarter ended December 31, 2003
but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of
the common shares and would be anti-dilutive.
j. 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.
k. New Accounting Pronouncements - In November 2002, the FASB issued
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation addresses the disclosures
to be made by a guarantor in its financial statements and its
obligations under guarantees. The Interpretation also clarifies the
requirements related to the recognition of a liability by the guarantor
at the inception of a guarantee. Initial recognition of a liability
shall be applied only on a prospective basis to guarantees issued or
modified after December 31, 2002. This interpretation did not have a
material impact on the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-- Transition and Disclosure". This Statement
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. Specifically, SFAS No. 148 prohibits companies
from utilizing the prospective method of transition, the only method
offered under the original SFAS No. 123, in fiscal years beginning
after December 15, 2003. However, the statement permits two additional
transition methods for companies that adopt the fair value method of
accounting for stock-based compensation, which include the modified
prospective and retroactive restatement methods. Under the prospective
method, expense is recognized for all employee awards granted,
modified, or settled after the
Page 7 of 21
beginning of the fiscal year in which the recognition provisions are
first applied. The modified prospective method recognizes stock-based
employee compensation cost from the beginning of the fiscal year in
which the provisions are first applied, as if the fair value method had
been used to account for all employee awards granted, modified, or
settled in fiscal years beginning after December 15, 1994. Under the
retroactive restatement method, all periods presented are restated to
reflect stock-based employee compensation cost under the fair value
method for all employee awards granted, modified, or settled in fiscal
years beginning after December 15, 1994. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results using a prescribed
specific tabular format and requiring disclosure in the "Summary of
Significant Accounting Policies" or its equivalent. The Company
currently has a stock option plan in place and options for 82,000
shares have been granted as of December 31, 2003. The Company has
adopted the new disclosure requirements during the current quarterly
period and is currently evaluating the impact of the fair value method
of accounting for stock-based employee compensation under all three
methods.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 is effective for the Company for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003. SFAS No. 150 requires that an issuer classify a
financial instrument within its scope as a liability or in some
circumstances an asset that was previously classified as equity. This
standard will not have any effect on the Company.
2. STOCK OPTIONS
The fair value of the Company's stock-based awards to employees was estimated
assuming no expected dividends and the following weighted-average assumptions
for the quarter ended December 31:
2003
----
Expected life from vest date 5
Volatility 34.35%
Risk-free interest rate 3.39%
The weighted-average estimated fair value of stock options granted
during the quarter ended December 31, 2003 was $1.62.
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 was 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 met these requirements
Page 8 of 21
by moving the riverside motel and converting it into employee housing, plus
building additional employee support facilities.
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 provide a reasonable opportunity to realize a
profit consistent with the Contract and applicable law.
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
nine months ended December 31, 2003 and 2002, this fee amounted to $57,200 and
$60,597, 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.
On December 16, 2003, the U.S. District Court in Washington, D.C. issued an
order setting aside the recent NPS winter use plan and rule that allowed for
limited snowmobile use in Yellowstone and Grand Teton National Parks and the
John D. Rockefeller, Jr. Memorial Parkway. As a result of this ruling the prior
winter use plan and regulations of November 18, 2002 are now in effect, which
phases out snowmobile use in the three parks.
The decision to phase out snowmobile use was signed in a November 2000 Record of
Decision (ROD), with the rule to implement that decision signed in January 2001.
The rule called for the gradual phase out of all recreational snowmobile use by
the winter season of 2003-2004 in favor of NPS-managed mass transit snowcoaches.
The November 18, 2002 rule delayed the implementation of this decision for one
year to allow the NPS to complete the Supplemental Environmental Impact
Statement and plan for the transition fo mass-transit snowcoaches.
Under the November 18, 2002 regulation, daily snowmobile use this winter season
will be set at levels that are expected to lead to an approximately 50 percent
reduction from historic use levels. All snowmobiles that enter Yellowstone will
be required to be accompanied by an NPS-permitted guide and travel in groups of
no more than eleven, including the guide. Effective the winter of 2004-2005,
snowmobile access to the three parks will be eliminated.
Based on the November 18, 2002 rule, the NPS has informed the Company that the
Company's allocation of snowmobile trips into Yellowstone National Park will be
severely restricted. Before the Record of Decision, the NPS had authorized the
Company to rent a maximum of 85 guided or unguided snowmobiles for use in
Yellowstone National Park. Under the new Record of Decision, the NPS will allow
the Company an entrance allocation of only 10 guided snowmobiles per day (9
rental machines and 1 guide machine).
Page 9 of 21
The Company believes this limited entrance allocation this winter season will
severely impact the Company's financial viability of operation during the winter
season. Winter operations this year have been significantly scaled back. The
lodging, restaurant, gift shop and lounge will not be open this winter, and, per
the requirement of the NPS only the grocery store and gas station will be open.
If snowmobile access to the parks is eliminated in future winter seasons, the
Company will have no choice but to discontinue all winter operations.
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 the physical wear and tear on the facilities.
The Company has recently entered into preliminary discussions with the NPS to
amend the terms of the Contract and accelerate the expiration date. If this
occurs the NPS would then select an interim operator to operate the resort until
such time as a prospectus is issued, a bidding process takes place and a
permanent operator is selected. The interim operator will be required to pay to
the Company a fee equal to its annual depreciation plus an amount equal to the
book value of its fixed assets times the current prime lending rate. While there
is no assurance that the discussions will be successful, if a prospectus is
issued it is not the Company's intention to enter a bid for the operation of
Flagg Ranch. The successor concessioner, and/or the Federal Government will be
required to purchase from the Company the improvements made to the property at a
price equal to the cost of reconstruction less physical depreciation as well as
the personal property at its fair value.
During the nine months ended December 31, 2003, the Company's President was
eligible for a bonus, based on reduction in the debt of the Company. A bonus of
$100,000 is payable when the debt of the Company has been reduced to $500,000.
An additional bonus of $100,000 is payable when the debt of the Company has been
eliminated. As the Company's debt has decreased to $500,000, the first $100,000
bonus was earned in the quarter ended September 30, 2003.
4. TRANSACTIONS WITH RELATED PARTIES
General and administrative - related party expenses for the nine months ended
December 31, 2003 and 2002 represent management fees and administrative expenses
paid to related parties and totaled $322,000 and $223,000, respectively. These
amounts are broken out in further detail below. Related parties during the nine
months ended December 31, 2003 and 2002 include entities owned by the Company's
current majority owner, Robert Walker, or family members, and a company owned by
the Company's current President, Michael P. Perikly.
Page 10 of 21
For the nine months ended December 31, 2003 and 2002, the Company charged to
operations $129,475 and $130,602, respectively, for management services to PNI,
Inc. and Walker Consulting, Inc., companies owned by the Company's majority
owner, Robert L. Walker.
For the nine months ended December 31, 2003 and 2002, the Company charged to
operations $147,250 (including the bonus of $100,000 payable to the Company's
President) and $47,250, respectively, for management services to KCH
Enterprises, Inc., a company owned by the Company's current President, Michael
P. Perikly.
For the nine months ended December 31, 2003 and 2002, the Company charged to
operations $45,000 each period for building rent to RLW & BJW Enterprises,
L.L.C., a company owned by the Company's current majority owner, Robert L.
Walker.
The Company incurred borrowings under line of credit agreements with related
parties (Note 4). Interest incurred for the nine months ended December 31, 2003
and 2002 was $23,000 and $36,000, respectively. For fiscal year 2002, the
Company capitalized $6,500 of interest from related party agreements.
5. NOTES PAYABLE UNDER LINES OF CREDIT
The Company has a line of credit agreement ("Agreement") with an affiliated
company expiring September 30, 2004, which provides for collateralized
borrowings of up to $1,500,000 at an interest rate of prime plus .875 percent.
Borrowings under the Agreement are collateralized by the assets and improvements
of Flagg Ranch. The Company has borrowed $500,000 on this line of credit as of
December 31, 2003. 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 December 31,
2003, the Company was not in compliance with the minimum cash flow requirement.
Management of the affiliated company has executed a waiver of non-compliance
with the loan covenants.
The Company had a line of credit agreement with Jackson State Bank ("JSB
Agreement") which was paid off during the quarter ended September 30, 2003.
Interest incurred for the nine months ended December 31, 2003 and 2002 was
$12,000 and $15,000, respectively. For fiscal year 2002, the Company capitalized
$3,000 of interest from the bank line of credit agreement.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements contained in this Report regarding the Company's quality of
facilities, 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 acceptance of facilities by
consumers, favorable weather conditions, 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.
Page 11 of 21
The Company's net income for the nine months ended December 31, 2003 was
$142,000 ($.20 per share). This compares to a net income of $146,000 ($.21 per
share) for the nine months ended December 31, 2002. Changes in the Company's
revenues and expenses for the nine months and quarters ended December 31, 2003
and 2002 are summarized below. All references to years, represent the nine
months ended December 31 of the stated year.
Flagg Ranch, the principal business of the Company, is operated as a seasonal
resort. The two seasons coincide with the opening and closing dates of
Yellowstone and Grand Teton National Parks. The summer season runs from
approximately May 23 through December 31 and the winter season runs from late
December through early March.
The Company has recently entered into preliminary discussions with the NPS to
amend the terms of the Contract and accelerate the expiration date of December
31, 2009. If this occurs the NPS would then select an interim operator to
operate the resort until such time as a prospectus is issued, a bidding process
takes place and a permanent operator is selected. The interim operator will be
required to pay to the Company a fee equal to its annual depreciation plus an
amount equal to the book value of its fixed assets times the current prime
lending rate. While there is no assurance that the discussions will be
successful, if a prospectus is issued it is not the Company's intention to enter
a bid for the operation of Flagg Ranch. The successor concessioner, and/or the
Federal Government will be required to purchase from the Company the
improvements made to the property at a price equal to the cost of reconstruction
less physical wear and tear on the facilities, not to exceed fair market value,
as well as the personal property at its fair value.
Revenues
- --------
Total revenues for 2003 decreased by $41,000 or 1.3% from 2002. Of this
decrease, $53,000 was in food and beverage sales, $21,000 in gift shop sales,
$2,000 in trail ride revenue, $123,000 in winter activities revenue and $21,000
in other revenue. Increases of $47,000 in cabin rentals, $7,000 in RV park
rentals, $11,000 in grocery store sales, $1,000 in gasoline sales, $1,000 from
guided fishing trip revenue, $5,000 from float trip revenue and $107,000 from
gain on sale of assets, partially offset the above decreases.
Total revenues for the three months ended December 31, 2003 decreased by
$160,000 or 69.5% from 2002. Of this decrease, $28,000 was from cabin rentals,
$17,000 from food and beverage sales, $9,000 from grocery store sales, $17,000
from gift shop sales, $3,000 from gasoline sales, $122,000 from winter
activities revenue and $1,000 from other revenue. An increase of $37,000 from
gain on sale of assets partially offset the above decreases.
The decreases in revenue (and expenses) for both the three and nine month
periods ended December 31, 2003, are mainly attributable to the reductions in
the number of snowmobiles the Company is allowed to rent during the winter
season. Because of the significant reductions, the Company did not open the
lodging, gift shop or restaurant and lounge this winter season.
Expenses
- --------
The ratio of cost of merchandise sold to sales of merchandise was 61% and 64%,
respectively, for 2003 and 2002. The ratio of operating expenses to total
revenue was 44% and 46%, respectively, in 2003 and 2002.
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Operating expenses decreased by $69,000 in 2003 as compared to 2002. Of this
decrease, $36,000 was in labor, $10,000 in utilities, $7,000 in office supplies,
$4,000 in repairs and maintenance, $8,000 in snowmobile parts/gas, $42,000 in
advertising, $4,000 in telephone, $10,000 in postage and freight, $4,000 in
licenses, $2,000 in property tax and $3,000 in franchise fees. Offsetting these
decreases were increases of $11,000 in operating supplies, $5,000 in equipment
rental, $20,000 in commissions, $5,000 in company vehicle/travel, $9,000 in
credit card fees, $10,000 in insurance and $1,000 in other items. General and
administrative expenses increased $64,000 or 86.3% in 2003 as compared to 2002
primarily as a result of legal expenses relating to the winter issue plan.
General and administrative expenses - related party increased by $99,000 or
44.4% in 2003 as compared to 2002 as a result of the bonus earned by the
Company's President for meeting certain debt reduction benchmarks.
Operating expenses for the three months ended December 31, 2003 decreased by
$137,000 from 2002. Of this decrease, $70,000 was in labor, $15,000 in
utilities, $9,000 in operating supplies, $2,000 in office supplies, $4,000 in
repairs and maintenance, $11,000 in snowmobile parts/gas, $28,000 in
advertising, $1,000 in postage and freight, $5,000 in licenses, $5,000 in
insurance, $1,000 in property tax and $4,000 in franchise fees. Offsetting these
decreases were increases of $4,000 in equipment rental, $3,000 in telephone,
$1,000 in commissions, $4,000 in company vehicle/travel and $6,000 in credit
card fees. General and administrative expenses increased $32,000 or 162.5% in
2003 as compared to 2002 as a result of legal expenses relating to the winter
use plan. General and administrative expenses - related party decreased by
$2,000 or 3.2% in 2003 as compared to 2002.
Inflation
- ---------
The Company expects that it will be able to offset increases in costs and
expenses, caused by inflation, by increasing prices on its services with minimal
effect on operations.
Liquidity and Capital Resources
- -------------------------------
Working capital deficit decreased to $624,000 at December 31, 2003 from
$1,030,000 at March 31, 2003. Current assets decreased by $94,000 primarily due
to decreases in cash, accounts receivable and deferred income tax benefit.
Current liabilities decreased by $499,000 primarily due to a decrease in note
payable under line of credit.
The Company has a line of credit agreement ("Agreement") with an affiliated
company expiring September 30, 2004, which provides for collateralized
borrowings of up to $1,500,000 at an interest rate of prime plus .875 percent.
Borrowings under the Agreement are collateralized by the assets and improvements
of Flagg Ranch. The Company has borrowed $500,000 on this line of credit as of
December 31, 2003. 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 December 31,
2003, the Company was not in compliance with the minimum cash flow requirement.
Management of the affiliated company has executed a waiver of non-compliance
with the loan covenants.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our discussion and analysis of our financial condition and results of operations
are based upon our financial
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statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). During preparation of
these financial statements, we are required to make estimates and judgements
that affect the reported amounts of assets, liabilities revenue and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to inventories, fixed
assets, income taxes, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances. The results form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following are our critical accounting policies:
We recognize sales when evidence of a sale exists; that is, for lodging revenue
at the end of each day; for other retail sales, when the actual sale occurs and
possession of the product is transferred to the customer.
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance and
repairs are charged to expense as incurred. Depreciation is provided over the
estimated useful lives of the related assets using the straight-line method for
financial statement purposes. The Company uses other depreciation methods
(generally accelerated) for tax purposes where appropriate. The Company has
written down its winter use assets to their fair value at March 31, 2003. The
Company has not made any adjustments to the value of its facilities under SFAS
No. 144 as the NPS contract allows it to recover the value of its facilities and
facility improvements at the end of the contract period.
We write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by us,
additional inventory write-downs may be required.
We estimate our actual current tax exposure together with the temporary
differences that have resulted from the differing treatment of items dictated by
GAAP versus U.S. tax laws. These temporary differences result in deferred tax
assets and liabilities.
ITEM 3. Controls and Procedures
Under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of disclosure controls and procedures has been evaluated as
of December 31, 2003, and, based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these controls and procedures
are effective. There were no significant changes in internal controls or in
other factors that significantly affected these controls during the quarterly
period ended December 31, 2003, or are reasonably likely to significantly
affect, our internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports
filed or submitted under the Securities Exchange Act of
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1934 ("Exchange Act") is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Page 15 of 21
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 Information
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 (Unaudited)-
December 31, 2003 and March 31, 2003 2
Condensed Consolidated Statements of Operations (Unaudited) -
Nine months ended December 31, 2003 and 2002 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended December 31, 2003 and 2002 4
Notes to 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
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
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
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99.3 Chief Executive Officer - 302 Certification
99.4 Chief Financial Officer - 302 Certification
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)
/s/ ROBERT L. WALKER
-----------------------------------------
DATE: February 12, 2004 BY: ROBERT L. WALKER
Chairman and Chief Executive Officer
/s/ MICHAEL P. PERIKLY
-----------------------------------------
DATE: February 12, 2004 BY: MICHAEL P. PERIKLY
President and Principal Financial Officer
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