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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 001-13003
SILVERLEAF RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-2259890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1221 RIVER BEND DRIVE, SUITE 120 75247
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 214-631-1166
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR NYSE
VALUE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
---------------
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Common Stock on March
13, 2000 as reported on the New York Stock Exchange, was approximately
$24,177,081. At March 13, 2000, there were 12,889,417 shares of the Registrant's
Common Stock outstanding.
Documents Incorporated by Reference: Certain portions of the Registrant's
Definitive Proxy Statement, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the close of
the Registrant's 1999 fiscal year, are incorporated by reference in Part III of
this Form 10-K.
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FORM 10-K INDEX
PAGE
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PART I
Items 1 and 2. Business and Properties.................................................... 4
Item 3. Legal Proceedings.......................................................... 37
Item 4. Submission of Matters to a Vote of Security Holders........................ 37
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 37
Item 6. Selected Financial Data.................................................... 38
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 40
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................. 47
Item 8. Financial Statements and Supplementary Data................................ 47
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................ 47
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 47
Item 11. Executive Compensation..................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 49
Item 13. Certain Relationships and Related Transactions............................. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 49
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
OVERVIEW
Silverleaf Resorts, Inc. ("Silverleaf" or the "Company") is a leading
developer, marketer, and operator of "drive-to" timeshare resorts. Silverleaf
currently owns and/or operates fourteen "drive-to resorts" in Texas, Missouri,
Illinois, Alabama, Georgia, South Carolina, Pennsylvania, and Tennessee (the
"Drive-to Resorts"). Silverleaf also owns and/or operates four "destination
resorts" in Missouri, Mississippi, and Massachusetts (the "Destination
Resorts"). The Company also owns four properties that are currently under
development, including two properties being developed as Drive-to Resorts near
Kansas City, Missouri, and Philadelphia, Pennsylvania, and two properties being
developed as Destination Resorts in Las Vegas, Nevada, and Galveston, Texas
(collectively, the "New Resorts"). The Drive-to Resorts are designed to appeal
to vacationers seeking comfortable and affordable accommodations in locations
convenient to their residences and are located proximate to major metropolitan
areas. Silverleaf locates its Drive-to Resorts near principal market areas to
facilitate more frequent "short stay" getaways, which it believes is a growing
vacation trend. Silverleaf's Destination Resorts, which are located in or near
areas with national tourist appeal, offer Silverleaf customers the opportunity
to upgrade into a more upscale resort area as their lifestyles and travel
budgets permit. Both the Drive-to Resorts and the Destination Resorts
(collectively, the "Existing Resorts") provide a quiet, relaxing vacation
environment. The New Resorts extend Silverleaf's core strategy of drive-to
getaways with opportunity to upgrade to Destination Resorts. Silverleaf believes
its resorts offer its customers an economical alternative to commercial vacation
lodging. The average price for an annual one-week vacation ownership ("Vacation
Interval") for a two-bedroom unit at the Existing Resorts was $8,896 for 1999
and $8,166 for 1998, which compares favorably to an industry average price of
$13,017 for 1998.
Owners of Silverleaf Vacation Intervals ("Silverleaf Owners") enjoy benefits
which are uncommon in the timeshare industry. These benefits include (i) use of
vacant lodging facilities at the Existing Resorts at no extra cost through
Silverleaf's "Endless Escape" program; (ii) year-round access to the Existing
Resorts' non-lodging amenities such as fishing, boating, horseback riding,
tennis, or golf on a daily basis for little or no additional charge; and (iii)
the right to exchange a Vacation Interval for a different time period or
different Existing Resort through Silverleaf's internal exchange program. These
benefits are subject to availability and other limitations. Most Silverleaf
Owners may also enroll in the Vacation Interval exchange network operated by
Resort Condominiums International ("RCI").
OPERATIONS
Silverleaf is in the business of marketing and selling Vacation Intervals.
Silverleaf's principal activities in this regard include (i) acquiring and
developing timeshare resorts; (ii) marketing and selling one week annual and
biennial Vacation Intervals to prospective first-time owners as well as leasing
unsold Vacation Intervals (i.e., sampler sales); (iii) marketing and selling
upgraded Vacation Intervals to existing Silverleaf Owners; (iv) providing
financing for the purchase of Vacation Intervals; and (v) operating timeshare
resorts. The Company has substantial in-house capabilities which enable it to
coordinate all aspects of development and expansion of the Existing Resorts and
New Resorts and the potential development of any future resorts, including site
selection, design, and construction pursuant to standardized plans and
specifications. The Company also performs substantially all marketing and sales
functions internally and continues to make significant investments in operating
technology, including sophisticated telemarketing and computer systems and
proprietary software applications. The Company identifies potential purchasers
through internally developed marketing techniques, and sells Vacation Intervals
through on-site sales offices located at certain of its resorts which are
located in close proximity to major metropolitan areas. This practice allows the
Company an alternative to the more expensive marketing costs of subsidized
airfare and lodging which are typically associated with the timeshare industry.
As part of the Vacation Interval sales process, the Company offers potential
purchasers financing of up to 90% of the purchase price over a seven-year to
ten-year period. The Company has historically financed its operations by
borrowing from third-party lending institutions at an advance rate of up to 85%
of eligible customer receivables. At December 31, 1999, the Company had a
portfolio of approximately 51,886 customer promissory notes totaling
approximately $317.5 million with an average yield of 13.7% per annum, which
compares favorably to the Company's weighted average cost of borrowings of 9.2%
per annum. At December 31, 1999, approximately $14.3 million in principal, or
4.5% of the Company's loans to Silverleaf Owners, were 61 to 120 days past due,
and approximately $27.4 million in principal, or 8.6% of the Company's loans to
Silverleaf Owners, were more than 120 days past due. The Company provides for
uncollectible notes by reserving an amount which management believes is
sufficient to cover anticipated losses from customer defaults.
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Each Existing Resort has a timeshare owners' association (a "Club"). Each
Club operates through a centralized organization, either Silverleaf Club or
Crown Club (collectively "Management Clubs"), to manage the Existing Resorts on
a collective basis. Crown Club consists of several individual Club agreements
which have terms of two to five years with a minimum of two renewal options
remaining. The Management Clubs, in turn, have contracted with the Company to
perform the supervisory, management, and maintenance functions at the Existing
Resorts on a collective basis. All costs of operating the Existing Resorts,
including management fees to the Company, are to be covered by monthly dues paid
by Silverleaf Owners to their respective Clubs as well as income generated by
the operation of certain amenities at the Existing Resorts.
RECENT DEVELOPMENTS
o INVESTMENTS IN MARKETING PROGRAMS AND TECHNOLOGY. During 1999, the
Company was able to increase its tour flow and sales through significant
investments in marketing programs, such as implementation of an automated
scanning system to improve efficiency in leads processing, addition of a
fourth telemarketing call center, and investments in state-of-the-art
predictive dialing equipment for its call centers. Due to recent growth
rates and implementation of new leads generation programs, the Company is
experiencing higher than anticipated marketing costs in the first quarter
of 2000. The Company has increased its headcount at the call centers
significantly since the fourth quarter of 1999, which created
inefficiencies due to lack of available training resources. In addition,
the Company is moving towards reliance on national retail chains for its
leads generation efforts, in addition to the traditional local programs.
The transition to national programs has been slower in generating leads
than originally planned.
o INCREASED SALES OF VACATION INTERVALS AT EXISTING RESORTS. The Company
has been successful in improving internal sales growth at the Existing
Resorts. During 1999, Silverleaf sold 15,829 Vacation Intervals
(excluding upgrades) compared to 12,934 and 6,592 during 1998 and 1997,
respectively. Total sales increased to $195.5 million in 1999 from $138.4
million and $70.1 million in 1998 and 1997, respectively.
o INCREASED CREDIT FACILITIES. The Company increased its revolving credit
facilities to $310.0 million during 1999, from $130.0 million at December
31, 1998.
o IMPROVEMENTS IN COLLECTION EFFORTS. The Company has improved its
provision for uncollectible notes from 12.1% of Vacation Interval sales
in 1998 to 10.0% of Vacation Interval sales in 1999. This is primarily
the result of improvements in the collection efforts, including increased
staffing, improved collections administrative software, and the
implementation of a program through which certain delinquent loans are
assumed by existing owners with a consistent payment history. Collection
efforts have also been enhanced with the implementation of auto-payment
mechanisms. In late 1998, the Company initiated an auto-debit program
whereby new Vacation Interval buyers can elect to have their monthly dues
and installment payments charged directly to their bank accounts. In
December 1999, Vacation Interval buyers were given the option to have
their monthly dues and installment payments charged directly to their
credit cards.
o CONTINUED DEVELOPMENT OF TIMBER CREEK RESORT. Timber Creek Resort,
located 50 miles south of St. Louis, Missouri, has 72 existing units.
Silverleaf intends to develop approximately 528 additional units (27,456
Vacation Intervals) at the Timber Creek Resort. During 1999, the Company
completed construction of a state-of-the-art miniature golf course at the
resort.
o CONTINUED DEVELOPMENT OF FOX RIVER RESORT. Fox River Resort, located
approximately 70 miles southwest of Chicago, Illinois, has 126 existing
units. Silverleaf intends to develop approximately 674 additional units
(35,048 Vacation Intervals) on this property. During 1999, the Company
added 66 units at the resort and purchased undeveloped land near the
resort for $805,000.
o CONTINUED DEVELOPMENT OF OAK N' SPRUCE RESORT. Oak N' Spruce Resort,
located 134 miles west of Boston, has 180 existing units. Silverleaf
intends to develop approximately 520 additional units (27,040 Vacation
Intervals) at this resort. During 1999, the Company added 48 units,
lighted tennis facilities, and an outdoor pool at the resort.
o CONTINUED DEVELOPMENT OF THE VILLAGES. The Villages Resort, located on
the shores of Lake Palestine, approximately 100 miles east miles east of
Dallas, Texas, has 294 existing units. Silverleaf intends to develop
approximately 406 additional units (20,908 Vacation Intervals) at this
resort. During 1999, the Company added 18 units at the resort and
purchased undeveloped land near the resort for $1.5 million.
o CONTINUED DEVELOPMENT OF HOLIDAY HILLS RESORT. Holiday Hills Resort,
located two miles east of Branson, Missouri, in Taney County, has 176
existing units. Silverleaf intends to develop approximately 624
additional units (32,396 Vacation Intervals) at
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this resort. During 1999, the Company added 98 units at the resort,
completed construction of several amenities, including an outdoor pool,
clubhouse, restaurant, and a conference room and pro shop overlooking the
golf course, and purchased undeveloped land near the resort for $500,000.
o CONTINUED DEVELOPMENT OF HILL COUNTRY RESORT. Hill Country Resort,
located near Canyon Lake in the hill country of central Texas between
Austin and San Antonio, has 226 existing units. Silverleaf intends to
develop approximately 374 additional units (19,418 Vacation Intervals) at
this resort. During 1999, the Company added 37 units, a state-of-the-art
miniature golf course, and an activity center at the resort.
o CONTINUED DEVELOPMENT OF APPLE MOUNTAIN RESORT. Apple Mountain Resort,
located 72 miles north of Atlanta, Georgia, has 48 existing units.
Silverleaf intends to develop approximately 560 additional units (29,120
Vacation Intervals) at this resort. During 1999, the Company completed
construction of several amenities at the resort, including a 9,445 square
foot administration building and activity center, tennis court, swimming
pool, stable and corral, miniature golf course, and volleyball and
basketball courts.
o DEVELOPMENT OF GALVESTON, TEXAS, SITE. In December 1997 and February
1998, Silverleaf acquired two adjoining tracts of land in Galveston,
Texas, for approximately $1.7 million, to be developed as a new
beach-front Gulf Coast Destination Resort (i.e., Silverleaf's Seaside
Resort). Silverleaf intends to develop approximately 282 units (14,664
Vacation Intervals) at this resort. During 1999, the Company began
construction on the first 24 units at this resort. Completion of these
units will occur in the second quarter of 2000.
o DEVELOPMENT OF NEW RESORTS. In November 1997, Silverleaf acquired a
two-acre parcel near the "strip" in Las Vegas, Nevada, for $2.7 million.
Silverleaf intends to develop this property as a new Destination Resort,
which will contain approximately 157 units (8,164 Vacation Intervals). In
December 1998, the Company purchased 1,940 acres of undeveloped land near
Philadelphia, Pennsylvania, for approximately $1.9 million. The property
will be developed as a Drive-to Resort (i.e., Beech Mountain Resort).
Silverleaf intends to develop 408 units (21,216 Vacation Intervals) at
this resort. In September 1998, the Company purchased 260 acres of
undeveloped land near Kansas City, Missouri, for approximately $1.5
million. The property will be developed as a Drive-to Resort (i.e.,
Lakeview Lodge). Silverleaf intends to develop approximately 608 units
(31,616 Vacation Intervals) at this resort.
GROWTH STRATEGY
Silverleaf intends to grow through the following strategies:
INCREASING DEVELOPMENT AND SALES OF VACATION INTERVALS. Silverleaf intends
to capitalize on its significant expansion capacity at the Existing Resorts and
the New Resorts by increasing marketing, sales, and development activities. At
December 31, 1999, Silverleaf owned approximately 1,641 acres of land that were
available for further development of timeshare units and amenities under
Silverleaf's master plan. Silverleaf's master plan projects development of 6,099
additional units (including 204 units presently under construction), which would
result in 316,682 additional Vacation Intervals. During 1999, Silverleaf has
enhanced its marketing efforts, including increased telemarketing capacity
through investments in computer and automated dialing technology, increased its
sales force, enhanced its lead generation methods, completed the construction of
new sales offices and other amenities, enhanced its collection efforts, and
commenced the development of new lodging facilities. Furthermore, Silverleaf
continues to emphasize its Endless Escape program designed to accommodate
shorter, "getaway" vacations and market secondary products such as biennial
(alternate year) intervals and short-term leasing packages ("Samplers") which
are designed to broaden Silverleaf's potential market with a wider price range
of product.
INCREASING SALES OF UPGRADED INTERVALS. Silverleaf believes it can continue
to improve operating margins by increasing sales of upgraded Vacation Intervals
to existing Silverleaf Owners since these sales have significantly lower sales
and marketing costs. Upgrades by a Silverleaf Owner include the purchase of a
Vacation Interval (i) in a newly designed and constructed standard unit; (ii) in
a larger or higher quality unit; (iii) during a more desirable time period; (iv)
at a different Drive-to Resort; or (v) at a Destination Resort. Silverleaf has
designed specific marketing and sales programs to sell upgraded Vacation
Intervals to Silverleaf Owners. Silverleaf continues to construct higher
quality, larger units for sale as upgraded Vacation Intervals, as well as
developing sites at Las Vegas and Galveston as new upgrade locations. For
example, at Ozark Mountain Resort in Branson, Missouri, luxury "Presidents View"
units are offered for sale at prices ranging from $12,500 to $21,000 per
Vacation Interval. Vacation Intervals exchanged for upgraded Vacation Intervals
are added back to inventory, at historical cost, for resale at the current sales
price. Sales of upgrades increased to $50.4 million in 1999 from $30.0 million
in 1998 (upgrade sales represented 26.4% of Silverleaf's Vacation Interval sales
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in 1999 as compared to 22.1% for 1998). Silverleaf incurs additional sales
commissions upon the resale of Vacation Intervals reconveyed to Silverleaf by
purchasers of upgraded Vacation Intervals. Such sales absorb their proportionate
share of marketing costs to the extent they displace the sale of another
Vacation Interval, although they do not directly result in incremental marketing
costs.
DEVELOPMENT OF ADDITIONAL RESORTS AND ACQUISITIONS. In 1999, Silverleaf
acquired undeveloped land for future development near three of its resorts.
Silverleaf continues to seek new properties for Drive-to Resorts in scenic
wooded areas on lakes or waterways that are near major metropolitan areas with
favorable demographic characteristics. For Destination Resorts, Silverleaf seeks
popular destination resort areas that are easily accessible to Silverleaf
Owners. Silverleaf is currently exploring a number of other property acquisition
opportunities, and intends to continue analyzing expansion through acquiring
and/or developing additional resorts.
COMPETITIVE ADVANTAGES
Silverleaf believes the following characteristics afford it certain
competitive advantages:
CONVENIENT DRIVE-TO LOCATIONS. Silverleaf's Drive-to Resorts are located
within a two-hour drive of a majority of the target customers' residences, which
accommodates the growing demand for shorter, more frequent, close-to-home
vacations. This proximity facilitates use of Silverleaf's Endless Escape
Program, allowing Silverleaf Owners to use vacant units for no additional
charge, subject to availability and certain limitations. Silverleaf believes it
is the only timeshare operator in the industry which offers its customers these
benefits. Silverleaf Owners can also conveniently enjoy non-lodging resort
amenities year-round on a "country-club" basis.
SUBSTANTIAL INTERNAL GROWTH CAPACITY. At December 31, 1999, Silverleaf had
an inventory of 17,073 Vacation Intervals, and a master plan to construct new
units which will result in up to 241,022 additional Vacation Intervals at the
Existing Resorts and 75,660 Vacation Intervals at the New Resorts. Silverleaf's
master plan for construction of new units is contingent upon future sales at the
Existing Resorts and New Resorts and the availability of financing, grant of
governmental permits, and future land-planning and site-layout considerations.
IN-HOUSE OPERATIONS. Silverleaf has in-house marketing, sales, financing,
development, and property management capabilities. While Silverleaf utilizes
outside contractors to supplement internal resources, when appropriate, the
breadth of Silverleaf's internal capabilities allows greater control over all
phases of its operations and helps maintain operating standards and reduce
overall costs.
LOWER CONSTRUCTION AND OPERATING COSTS. Silverleaf has developed and
generally employs standard architectural designs and operating procedures which
it believes significantly reduce construction and operating expenses.
Standardization and integration also allow Silverleaf to rapidly develop new
inventory in response to demand. Weather permitting, new units at Existing
Resorts can normally be constructed on an "as needed" basis within 180 days.
CENTRALIZED PROPERTY MANAGEMENT. Silverleaf presently operates all of the
Existing Resorts on a centralized and collective basis, with operating and
maintenance costs paid from Silverleaf Owners' monthly dues. Silverleaf believes
that consolidation of resort operations benefits Silverleaf Owners by providing
them with a uniform level of service, accommodations, and amenities on a
standardized, cost-effective basis. Integration also facilitates Silverleaf's
internal exchange program, and the Endless Escape Program.
EXPERIENCED MANAGEMENT. The Company's senior management has extensive
experience in the acquisition, development, and operation of timeshare resorts.
Robert E. Mead, Chairman of the Board and Chief Executive Officer, has more than
20 years of experience in the timeshare industry and since 1995 has served as a
trustee member of American Resort Developers Association ("ARDA"), the primary
trade association for the timeshare industry. The Company's senior officers have
an average of eighteen years of experience in the timeshare industry.
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RESORTS SUMMARY
The following tables set forth certain information regarding each of the
Existing Resorts and New Resorts at December 31, 1999, unless otherwise
indicated.
EXISTING RESORTS
VACATION INTERVALS
UNITS AT RESORTS AT RESORTS
------------------------- -------------------------
PRIMARY INVENTORY INVENTORY DATE
MARKET AT PLANNED AT PLANNED SALES
RESORT/LOCATION SERVED 12/31/99 EXPANSION(B) 12/31/99 EXPANSION COMMENCED
- ---------------------- ------------- --------- ------------ --------- ------------- ---------
DRIVE-TO RESORTS
Holly Lake Dallas- 130 108 427 5,508(d) 1982
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 294 406 1,796 20,908(f)(i) 1980
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 64 16 189 800(d) 1987
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 154 446(i) 1,532 23,176(e)(i) 1988
Conroe, TX
Hill Country Austin-San 226(h) 374(i) 2,755 19,418(e)(i) 1984
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 72 528(i) 1,901 27,456(e)(i) 1997
DeSoto, MO MO
Fox River Chicago, IL 126 674(i) 1,911 35,048(e)(i) 1997
Sheridan, IL
Apple Mountain Atlanta, GA 48 560(i) 1,770 29,120(e)(i) 1999
Clarkesville, GA
Treasure Lake Central PA 145 --(f) 959 --(f) 1998
Dubois, PA
Alpine Bay Central AL 54 --(f) 4 --(f) 1998
Alpine, AL
Beech Mountain Lakes Eastern PA, 54 --(f) 124 --(f) 1998
Drums, PA NY
Foxwood Hills Eastern SC, 114 --(f) 322 --(f) 1998
Westminster, SC Western GA
Tansi Resort Nashville- 124 --(f) 367 --(f) 1998
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 37 --(f) 342 --(f) 1998
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS LOCATIONS
Ozark Mountain Branson, 136 388(i) 444 20,152(e)(i) 1982
Kimberling City, MO MO
Holiday Hills Branson, 176 624(i) 898 32,396(e)(i) 1984
Branson, MO MO
Oak N' Spruce Boston, MA 180 520(i) 1,164 27,040(e)(i) 1998
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 80 --(e) 168 --(e) 1998
Gautier, MS MS
----- ------ ------ -------
Total 2,214 4,644 17,073 241,022
===== ====== ====== =======
VACATION INTERVALS
SOLD
--------------------- AVERAGE
PRIMARY IN SALES
MARKET THROUGH 1999 PRICE AMENITIES/
RESORT/LOCATION SERVED 12/31/99 ONLY (A) IN 1999 ACTIVITIES(C)
- ---------------------- ------------- -------- -------- --------- -------------
DRIVE-TO RESORTS
Holly Lake Dallas- 6,073 1,179 $ 7,390 B,F,G,H,M,S,T
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 13,084 2,552 7,996 B,F,H,M,S,T
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 3,011 450 7,596 F,M,S,T(g)
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 6,284 1,623 9,403 B,F,H,M,S,T
Conroe, TX
Hill Country Austin-San 8,625 1,681 9,279 H,M,S,T(g)
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 1,843 1,049 8,617 B,F,G,H,M,S,T
DeSoto, MO MO
Fox River Chicago, IL 4,641 2,967 9,923 B,F,G,H,M,S,T
Sheridan, IL
Apple Mountain Atlanta, GA 726 671 9,877 G,H,M,S,T
Clarkesville, GA
Treasure Lake Central PA 6,372 57 4,975 G,B,F,S,T,M
Dubois, PA
Alpine Bay Central AL 2,750 1 5,344 G,B,F,S,T,M
Alpine, AL
Beech Mountain Lakes Eastern PA, 2,630 57 4,530 B,F,S,T
Drums, PA NY
Foxwood Hills Eastern SC, 5,396 253 7,690 G,T,F,S,M(g)
Westminster, SC Western GA
Tansi Resort Nashville- 5,905 27 6,676 T,G,F,B,M
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 1,545 -- -- G,F,M,S,T
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS LOCATIONS
Ozark Mountain Branson, 6,404 296 9,699 B,F,H,M,S,T
Kimberling City, MO MO
Holiday Hills Branson, 8,118 903 10,465 G,S,T(g)
Branson, MO MO
Oak N' Spruce Boston, MA 8,196 2,052 8,421 F,G,S,T
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 3,912 11 3,573 B,F,G,M,S,T
Gautier, MS MS
------ ------ --------
Total 95,515 15,829 $ 8,896
====== ====== ========
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NEW RESORTS
PRIMARY DATE PLANNED PLANNED EXISTING AND PLANNED
RESORT/LOCATION MARKET SERVED ACQUIRED UNITS(i) INTERVALS(i) AMENITIES/ACTIVITIES
---------------- ------------- --------- ---------- ------------ --------------------
Galveston, TX........ Houston, TX 1997(j) 282 14,664(e) B,F,M,S,T
Las Vegas, NV........ Las Vegas, NV 1997 157 8,164(e) S
Smithville, MO....... Kansas City, MO 1998 608(k) 31,616(e)(k) F,M,S,T(g)
Drums, PA............ Philadelphia, PA 1998 408(k) 21,216(e)(k) B,F,M,S,T
----- ------
Total........ 1,455 75,660
===== ======
- ----------
(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 1999, upgrade sales at
the Existing Resorts were as follows:
AVERAGE SALES PRICE
FOR THE YEAR
ENDED 12/31/99
UPGRADED VACATION -- NET OF
RESORT INTERVALS SOLD EXCHANGED INTERVAL
------------------ ----------------- -------------------
Holly Lake....................... 302 $ 3,664
The Villages..................... 1,208 4,686
Lake O' The Woods................ 175 3,661
Piney Shores..................... 895 4,390
Hill Country..................... 1,535 4,845
Timber Creek..................... 475 3,793
Fox River........................ 741 3,756
Ozark Mountain................... 940 5,180
Holiday Hills.................... 3,712 4,388
Oak N' Spruce.................... 1,218 4,032
Beech Mountain................... 16 5,462
Treasure Lake.................... 154 5,230
Foxwood Hills.................... 4 3,917
Apple Mountain................... 25 1,913
------ -------
11,400 $ 4,420
====== =======
(b) Represents units included in the Company's master plan. This plan is subject
to change based upon various factors, including consumer demand, the
availability of financing, grant of governmental land-use permits, and
future land-planning and site layout considerations. The following chart
reflects the status of certain planned units at December 31, 1999:
LAND-USE LAND-USE LAND-USE
PROCESS PROCESS PROCESS CURRENTLY IN SHELL
NOT STARTED PENDING COMPLETE CONSTRUCTION COMPLETE TOTAL
----------- ------- -------- ------------ -------- -----
Holly Lake................................... 54 -- 50 -- 4 108
The Villages................................. 162 180 40 24 -- 406
Lake O' The Woods............................ -- -- 16 -- -- 16
Piney Shores................................. 266 -- 180 -- -- 446
Hill Country................................. 175 -- 172 24 3 374
Timber Creek................................. 156 276 96 -- -- 528
Fox River.................................... 248 240 138 48 -- 674
Ozark Mountain............................... 364 -- 12 -- 12 388
Holiday Hills................................ 268 132 150 60 14 624
Oak N' Spruce................................ 304 96 72 48 -- 520
Apple Mountain............................... 482 -- 78 -- -- 560
----- --- ----- --- --- -----
2,479 924 1,004 204 33 4,644
===== === ===== === === =====
"Land-Use Process Pending" means that the Company has commenced the
process which the Company believes is required under current law in order to
obtain the necessary land-use authorizations from the applicable local
governmental authority with jurisdiction, including submitting for approval
any architectural drawings, preliminary plats, or other attendant items as
may be required.
"Land-Use Process Complete" means either that (i) the Company believes
that it has obtained all necessary land-use authorizations under current law
from the applicable local governmental authority with jurisdiction,
including the approval and filing of any required preliminary or final plat
and the issuance of building permit(s), in each case to the extent
applicable, or (ii) upon payment of any required filing or other fees, the
Company believes that it will under current law obtain such necessary
authorizations without further process.
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"Shell Complete" units are currently devoted to such uses as a general
store, registration office, sales office, activity center, construction
office, or pro shop. The Company anticipates that these units will continue
to be used for such purposes during 2000.
(c) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating; F -- fishing; G -- golf;
H -- horseback riding; M -- miniature golf; S -- swimming pool; and
T -- tennis.
(d) These figures are based on either 50 or 51 one-week intervals per unit.
(e) These figures are based primarily on 52 one-week intervals per unit.
(f) The Company has management rights with respect to these resorts and
presently has no ability to expand the resorts.
(g) Boating is available near the resort.
(h) Includes three units which have not been finished-out for accommodations and
which are currently used for other purposes.
(i) Engineering, architectural, and construction estimates have not been
completed by the Company, and there can be no assurance that the Company
will develop these properties at the unit numbers currently projected.
(j) One portion of this tract was acquired in February 1998.
(k) The Company has not commenced the timeshare permit process. The Company has
commenced the land use permit process.
FEATURES COMMON TO EXISTING RESORTS
Drive-to Resorts are primarily located in rustic areas offering Silverleaf
Owners a quiet, relaxing vacation environment. Furthermore, the resorts offer
different vacation activities, including golf, fishing, boating, swimming,
horseback riding, tennis, and archery. Destination Resorts are located in or
near areas with national tourist appeal. Features common to the Existing Resorts
include the following:
ENDLESS ESCAPE PROGRAM. The Company's Endless Escape Program offers
Silverleaf Club members a benefit not typically enjoyed by many other timeshare
owners. In addition to the right to use a unit one week per year, the Endless
Escape Program allows Silverleaf Club members to also use vacant units at any of
the Company's owned resorts for no additional charge. The Endless Escape Program
is limited based on the availability of units. Silverleaf Owners who have
utilized the resort less frequently are given priority to use the program and
may only use an interval with an equal or lower rating than the owned Vacation
Interval. The Company believes this program is important as many vacationers
prefer shorter two to three day vacations.
The Company amended the Endless Escape Program for customers purchasing a
Vacation Interval after July 1, 1998. Customers purchasing a Vacation Interval
at a Drive-to Resort after July 1, 1998 are unable to use the Endless Escape
Program at the Company's Destination Resorts. However, customers who became
Silverleaf Owners before such date are able to use the Endless Escape Program at
all Destination Resorts, except the Galveston and Las Vegas resorts. Silverleaf
Owners who purchase a Vacation Interval at any Destination Resort after such
date are able to use the Endless Escape Program at any of the Company's owned
resorts.
YEAR-ROUND USE OF AMENITIES. Even when not using the lodging facilities,
Silverleaf Owners have unlimited year-round day usage of the amenities located
at the Existing Resorts, such as boating, fishing, miniature golf, tennis,
swimming, or hiking, for little or no additional cost. Certain amenities,
however, such as golf, horseback riding, or watercraft rentals, may require a
usage fee.
EXCHANGE PRIVILEGES. Each Silverleaf Owner has certain exchange privileges
which may be used on an annual basis to (i) exchange an interval for a different
interval (week) at the same resort so long as the different interval is of an
equal or lower rating; or (ii) exchange an interval for the same interval (week)
at any other of the Existing Resorts. These intra-company exchange rights are a
convenience Silverleaf provides its members as an accommodation to them, and are
conditioned upon availability of the desired interval or resort. The Company
executed approximately 2,044 intra-company exchanges in 1999. In addition, for
an annual fee of approximately $86, most Silverleaf Owners may join the exchange
program administered by RCI.
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DEEDED OWNERSHIP. The Company typically sells a Vacation Interval which
entitles the owner to use a specific unit for a designated one-week interval
each year. The Vacation Interval purchaser receives a recorded deed which grants
the purchaser a percentage interest in a specific unit for a designated week.
The Company also sells a biennial (alternate year) Vacation Interval, which
allows the owner to use a unit for a one-week interval every other year with
reduced dues.
MANAGEMENT CLUBS. Each of the Existing Resorts has a Club for the benefit of
the Silverleaf Owners. The Clubs operate under one of the Management Clubs to
manage the Existing Resorts on a centralized and collective basis. The
Management Clubs have contracted with the Company to perform the supervisory,
management, and maintenance functions granted by the Clubs to the Management
Clubs. Costs of these operations are covered by monthly dues paid by Silverleaf
Owners to their respective Clubs together with income generated by the operation
of certain amenities at the Existing Resorts. Due to Nevada timeshare laws, the
proposed resort in Las Vegas will be managed by the Company as a separate club.
ON-SITE SECURITY. The Existing Resorts are patrolled by security personnel
who are either employees of the Management Clubs or personnel of independent
security service companies which have contracted with the Clubs.
DESCRIPTION OF EXISTING RESORTS OWNED AND OPERATED BY THE COMPANY
HOLLY LAKE RESORT. Holly Lake is a family-oriented golf resort located in
the Piney Woods of East Texas, approximately 105 miles east of Dallas. The
timeshare portion of Holly Lake is part of a 4,300 acre mixed-use development of
single-family lots and timeshare units with other third-party developers. The
Company owns approximately 2,740 acres within Holly Lake, of which approximately
2,667 acres may not be developed due to deed restrictions. At December 31, 1999,
approximately 27 acres were developed and approximately 46 remaining acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 130 units were completed and an additional 108 units
are planned for development. Three different types of units are offered at the
resort: (i) two bedroom, two bath, wood siding, and stucco fourplexes; (ii) one
bedroom, one bath, one sleeping loft, log construction duplexes; and (iii) two
bedroom, two bath, log construction fourplexes. Each unit has a living room with
sleeper sofa and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and vaulted ceilings. Certain units include
interior ceiling fans, imported ceramic tile, over-sized sliding glass doors,
and rattan and pine furnishings.
Amenities at the resort include an 18-hole golf course with pro shop,
19th-hole private club and restaurant, Holly Lake restaurant, country store,
indoor rodeo arena and stables, six tennis courts (two lighted), four different
lakes (one with sandy swimming beach and swimming dock, one with boat launch for
water skiing), two swimming pools with bathhouses, children's pool and pavilion,
recently completed hiking/nature trail, children's playground area, two
miniature golf courses, five picnic areas, activity center with big screen
television, gameroom with arcade games and pool tables, horseback trails,
activity areas for basketball, horseshoes, volleyball, shuffleboard, and
archery, and camp sites with electrical and water hookups. Silverleaf Owners can
also rent canoes, bicycles, and water trikes. Homeowners in neighboring
subdivisions are entitled to use the amenities at Holly Lake pursuant to
easements or use agreements.
At December 31, 1999, the resort contained 6,500 Vacation Intervals, of
which 427 intervals remained available for sale. The Company plans to build an
additional 108 units, which would yield an additional 5,508 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,900 to $10,800 for one-week stays. During 1999, 1,179 Vacation Intervals were
sold.
THE VILLAGES AND LAKE O' THE WOODS RESORTS. The Villages and Lake O' The
Woods are sister resorts located on the shores of Lake Palestine, approximately
100 miles east of Dallas, Texas. The Villages, located approximately five miles
northwest of Lake O' The Woods, is an active sports resort popular for
water-skiing and boating. Lake O' The Woods is a quiet wooded resort where
Silverleaf Owners can enjoy the seclusion of dense pine forests less than two
hours from the Dallas-Fort Worth metroplex. The Villages is a mixed-use
development of single-family lots and timeshare units, while Lake O' The Woods
has been developed solely as a timeshare resort. The two resorts contain
approximately 650 acres, of which approximately 379 may not be developed due to
deed restrictions. At December 31, 1999, approximately 103 acres were developed,
such that approximately 168 remaining acres are currently planned by the Company
to be used for future development.
At December 31, 1999, 294 units were completed at The Villages and 64 units
were completed at Lake O' The Woods. An additional 406 units and 16 units are
planned for development at The Villages and Lake O' The Woods, respectively.
There are five different types of units at these resorts: (i) three bedroom, two
and one-half bath, wood siding exterior duplexes and fourplexes (two units);
(ii) two bedroom, two and one-half bath, wood siding exterior duplexes and
fourplexes; (iii) two bedroom, two bath, brick and
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siding exterior fourplexes; (iv) two bedroom, two bath, siding exterior
fourplexes, sixplexes, and three-story twelveplexes; and (v) one bedroom, one
bath with two-bed loft sleeping area, log construction duplexes. Amenities
within each unit include full kitchen, whirlpool tub, and color television.
Certain units include interior ceiling fans, ceramic tile, and/or a fireplace.
"Presidents Harbor" units feature a larger, more spacious floor plan (1,255
square feet), front and back verandas, washer and dryer, and a more elegant
decor.
Both resorts are situated on Lake Palestine, a 27,000 acre public lake.
Recreational facilities and improvements at The Villages include a full service
marina with convenience store, boat launch, water-craft rentals, and covered and
locked rental boat stalls; two swimming pools; lighted tennis court; miniature
golf course; nature trails; camp sites; riding stables; soccer/softball field;
children's playground; RV sites; a new 9,445 square foot activity center with
movie theater, wide-screen television, reading room, tanning beds, pool table,
and small indoor gym; and competitive sports facilities which include horseshoe
pits, archery range, and shuffleboard, volleyball, and basketball courts.
Silverleaf Owners at The Villages can also rent or use bicycles, jet skis, motor
boats, paddle boats, pontoon boats, and water trikes. Neighboring homeowners are
also entitled to use these amenities pursuant to a use agreement.
Recreational facilities at Lake O' The Woods include swimming pool,
bathhouse, lighted tennis court, a recreational beach area with picnic areas, a
fishing pier on Lake Palestine, nature trails, soccer/softball field, children's
playground, RV sites, an activity center with wide-screen television and pool
table, horseshoe pits, archery range, putting green, miniature golf course,
shuffleboard, volleyball, and basketball courts. Guests can also ride horses or
rent bicycles.
At December 31, 1999, The Villages contained 14,880 total Vacation
Intervals, of which 1,796 remained available for sale. The Company plans to
build 406 additional units at The Villages, which would yield an additional
20,908 Vacation Intervals available for sale. At December 31, 1999, Lake O' The
Woods contained 3,200 total Vacation Intervals, of which 189 remained available
for sale. The Company plans to build 16 additional units at Lake O' The Woods,
which would yield 800 additional Vacation Intervals available for sale. Vacation
Intervals at The Villages and Lake O' The Woods are currently priced from $6,900
to $11,800 for one-week stays (and start at $4,500 for biennial intervals),
while one-week "Presidents Harbor" intervals are priced at $8,400 to $19,000
depending on the value rating of the interval. During 1999, 2,552 and 450
Vacation Intervals were sold at The Villages and Lake O' The Woods,
respectively.
PINEY SHORES RESORT. Piney Shores Resort is a quiet, wooded resort ideally
located for day-trips from metropolitan areas in the southeastern Gulf Coast
area of Texas. Piney Shores Resort is located on the shores of Lake Conroe,
approximately 40 miles north of Houston, Texas. At December 31, 1999, the resort
contained approximately 116 acres, of which approximately 34 acres are planned
by the Company for future development.
At December 31, 1999, 154 units were completed and an additional 446 units
are planned for development. All units are two bedroom, two bath units and will
comfortably accommodate up to six people. Amenities include a living room with
sleeper, full kitchen, whirlpool tub, color television, and interior ceiling
fans. Certain "lodge-style" units feature stone fireplaces, white-washed pine
wall coverings, "age-worn" paint finishes, and antique furnishings.
The primary recreational amenity at the resort is Lake Conroe, a 21,000 acre
public lake. Other recreational facilities and improvements available at the
resort include a swimming pool with spa, a new bathhouse complete with showers
and restrooms, lighted tennis court, miniature golf course, stables, horseback
riding trails, children's playground, picnic areas, boat launch, beach area for
swimming, 4,626-square foot activity center with big-screen television, 32-seat
movie theatre, covered wagon rides, and facilities for horseshoes, archery,
shuffleboard, and basketball.
At December 31, 1999, the resort contained 7,816 Vacation Intervals, of
which 1,532 remained available for sale. The Company intends to build 446
additional units, which would yield an additional 23,176 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,900 to $19,000 for one-week stays (and start at $4,500 for biennial
intervals). During 1999, 1,623 Vacation Intervals were sold.
HILL COUNTRY RESORT. Hill Country Resort is located near Canyon Lake in the
hill country of central Texas between Austin and San Antonio. At December 31,
1999, Hill Country Resort contained approximately 122 acres, of which
approximately 25 acres are currently planned by the Company to be used for
future development.
At December 31, 1999, 226 units were completed and an additional 374 units
are planned for development. Twenty units are single story, while all other
units are two-story structures in which the bedrooms and baths are located on
the second story. Each unit contains two bedrooms, two bathrooms, living room
with sleeper sofa, and full kitchen. Other amenities within each unit include
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whirlpool tub, color television, and interior design details such as vaulted
ceilings. Certain units include interior ceiling fans, imported ceramic tile,
over-sized sliding glass doors, rattan and pine furnishings, or fireplace. 64
units feature the Company's new "lodge style". "Presidents Villas" units feature
a larger, more spacious floor plan (1,228 square feet), front and back verandas,
washer and dryer, and a more elegant decor.
Amenities at the resort include a 7,943-square foot activity center with
electronic games, pool table, and wide-screen television, miniature golf course,
a children's playground area, barbecue and picnic areas, enclosed swimming pool
and heated spa, children's wading pool, newly-constructed tennis court, archery
range, and activity areas for shuffleboard, basketball, horseshoes, and
volleyball. Area sights and activities include water-tubing on the nearby
Guadalupe River and visiting the many tourist attractions in San Antonio, such
as Sea World, The Alamo, The River Walk, and the San Antonio Zoo.
At December 31, 1999, the resort contained 11,380 Vacation Intervals, of
which 2,755 remained available for sale. The Company plans to build 374
additional units, which collectively would yield 19,418 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,900 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals), while one-week "Presidents Villas" intervals are priced at
$8,400 to $21,000 depending on the value rating of the interval. During 1999,
1,681 Vacation Intervals were sold.
OZARK MOUNTAIN RESORT. Ozark Mountain Resort is a family-oriented resort
located on the shores of Table Rock Lake, which features bass fishing. The
resort is located approximately 15 miles from Branson, Missouri, a family music
and entertainment center, 233 miles from Kansas City, and 276 miles from St.
Louis. Ozark Mountain Resort is a mixed-use development of timeshare and
condominium units. At December 31, 1999, the resort contained approximately 116
acres, of which approximately 82 acres are currently planned by the Company to
be used for future development.
At December 31, 1999, 136 units were completed and an additional 388 units
are planned for development. There are two types of units at the resort: (i) two
bedroom, two bath, one-story fourplexes and (ii) two bedroom, two bath,
three-story sixplexes. Each standard unit includes two large bedrooms, two
bathrooms, living room with sleeper sofa, and full kitchen. Other amenities
within each unit include whirlpool tub, color television, and vaulted ceilings.
Certain units contain interior ceiling fans, imported ceramic tile, over-sized
sliding glass doors, rattan or pine furnishings, or fireplace. "Presidents View"
units feature a panoramic view of Table Rock Lake, a larger, more spacious floor
plan (1,255 square feet), front and back verandas, washer and dryer, and a more
elegant decor.
The primary recreational amenity available at the resort is Table Rock Lake,
a 43,100-acre public lake. Other recreational facilities and improvements at the
resort include a swimming beach with dock, an activities center with pool table,
covered boat dock and launch ramp, olympic-sized swimming pool, concession area
with dressing facilities, lighted tennis court, nature trails, horseback riding
trails, two picnic areas, two playgrounds, miniature golf course, and a
competitive sports area accommodating volleyball, basketball, tetherball,
horseshoes, shuffleboard, and archery. Guests can also rent or use canoes,
paddle boats, or rowboats. Owners of neighboring condominium units developed by
the Company in the past are also entitled to use these amenities pursuant to use
agreements with the Company. Similarly, owners of Vacation Intervals are
entitled to use certain amenities of these condominium developments, including a
wellness center featuring a jacuzzi and exercise equipment.
At December 31, 1999, the resort contained 6,848 Vacation Intervals, of
which 444 remained available for sale. The Company plans to build 388 additional
units which would yield an additional 20,152 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,900 to
$13,000 for one-week stays, while one-week "Presidents View" intervals are
priced at $12,500 to $21,000 depending on the value rating of the interval.
During 1999, 296 Vacation Intervals were sold.
HOLIDAY HILLS RESORT. Holiday Hills Resort is a resort community located in
Taney County, Missouri, two miles east of Branson, Missouri. The resort is 224
miles from Kansas City and 267 miles from St. Louis. The resort is heavily
wooded by cedar, pine, and hardwood trees, and is favored by Silverleaf Owners
seeking quality golf and nightly entertainment in nearby Branson. Holiday Hills
Resort is a mixed-use development of single-family lots, condominiums, and
timeshare units. At December 31, 1999, the resort contained approximately 395
acres, including a 91-acre golf course, of which approximately 119 acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 176 units were completed and an additional 624 units
are planned for future development. There are four types of timeshare units at
this resort: (i) two bedroom, two bath, one-story fourplexes, (ii) one bedroom,
one bath, with upstairs loft, log construction duplexes, (iii) two bedroom, two
bath, two-story fourplexes, and (iv) two bedroom, two bath, three-story
sixplexes. Each unit includes a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units will include a fireplace,
ceiling fans, imported tile, oversized sliding glass doors, vaulted ceilings,
and rattan or pine furniture. "Presidents Fairways"
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units feature a larger, more spacious floor plan (1,255 square feet), front and
back verandas, washer and dryer, and a more elegant decor.
Taneycomo Lake, a popular lake for trout fishing, is approximately three
miles from the resort, and Table Rock Lake is approximately ten miles from the
resort. Amenities at the resort include a newly renovated 18-hole golf course,
miniature golf course, tennis court, picnic area, camp sites, archery range,
basketball court, activity area which includes shuffleboard, horseshoes, and a
children's playground, a new 5,356 square foot clubhouse that includes a pro
shop, restaurant, and meeting space, and a new 2,800 square foot outdoor
swimming pool with a wellness center. Lot and condominium unit owners are also
entitled to use these amenities pursuant to use agreements between the Company
and certain homeowners' associations.
At December 31, 1999, the resort contained 9,016 Vacation Intervals, of
which 898 remained available for sale. The Company plans to build 624 additional
units, which would yield an additional 32,396 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,900 to
$14,000 for one-week stays (and start at $6,000 for biennial intervals), while
one-week "Presidents Fairways" intervals are priced at $12,500 to $21,000
depending on the value rating of the interval. During 1999, 903 Vacation
Intervals were sold.
TIMBER CREEK RESORT. In August 1997, the Company acquired the Timber Creek
Resort in Desoto, Missouri. The resort is located approximately 50 miles south
of St. Louis. Prior to its acquisition by the Company, Timber Creek Resort was
operated as a campground by a nationwide campground operator. At December 31,
1999, the resort contained approximately 331 acres, of which approximately 142
acres are currently planned by the Company to be used for development.
At December 31, 1999, 72 units were completed and an additional 528 units
are planned for future development. All units are two bedroom, two bath units.
Amenities within each new unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units will include a
fireplace, ceiling fans, imported ceramic tile, oversized sliding glass doors,
and rattan or pine furniture.
The primary recreational amenity available at the resort is a 35-acre
fishing lake. Other amenities, either existing or currently under construction,
include a clubhouse, a par three executive golf course, swimming pool, two
lighted tennis courts, themed miniature golf course, volleyball court,
shuffleboard/multi-use sports court, archery, horseback riding trail with stable
and corral, a welcome center, and hook-ups for recreational vehicles. The
Company plans to construct a lake pavilion, indoor pool, indoor heated cedar
sauna, and boat docks. Other planned improvements by the Company include
conversion of the existing sales and registration buildings and renovation of
the clubhouse and clubhouse pool. The Company is obligated to maintain and
provide campground facilities for members of the previous owner's campground
system.
At December 31, 1999, the resort contained 3,744 Vacation Intervals and
1,901 Vacation Intervals remained available for sale. The Company plans to build
528 additional units, which would collectively yield 27,456 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,400 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals). During 1999, 1,049 Vacation Intervals were sold.
FOX RIVER RESORT. In August 1997, the Company acquired the Fox River Resort
in Sheridan, Illinois. The resort is located approximately 70 miles southwest of
Chicago. Prior to its acquisition by the Company, Fox River Resort was operated
as a campground by a nationwide campground operator. At December 31, 1999, the
resort contained approximately 371 acres, of which approximately 216 acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 126 units are completed and an additional 674 units
are planned for future development. All units are two bedroom, two bath units.
Amenities within each unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units will include a
fireplace, ceiling fans, imported ceramic tile, oversized sliding glass doors,
and rattan or pine furniture.
Amenities currently available or under construction at the resort include a
new par three five-hole executive golf course, outdoor swimming pool, clubhouse,
covered pool, miniature golf course, horseback riding trails, stable and corral,
welcome center, new sales and registration buildings, and hook-ups for
recreational vehicles. The Company plans to construct a tennis court, sports
court, shuffleboard courts, outdoor pavilion, playground, and children's movie
theater. The Company also offers winter recreational activities at this resort,
including ice-skating, snowmobiling, and cross-country skiing. The Company is
obligated to maintain and provide campground facilities for members of the
previous owner's campground system.
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At December 31, 1999, the resort contained 6,552 Vacation Intervals and
1,911 Vacation Intervals remained available for sale. The Company plans to build
674 additional units, which would collectively yield 35,048 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,400 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals). During 1999, 2,967 Vacation Intervals were sold.
OAK N' SPRUCE RESORT. In December 1997, the Company acquired the Oak N'
Spruce Resort in the Berkshire mountains of western Massachusetts. The resort is
located approximately 134 miles west of Boston and 114 miles north of New York
City. Oak N' Spruce Resort is a mixed-use development which includes a hotel and
timeshare units. At December 31, 1999, the resort contained approximately 240
acres, of which approximately 120 acres are currently planned by the Company to
be used for future development.
At December 31, 1999, the resort had 180 units and an additional 520 units
are planned for development. There are seven types of existing units at the
resort: (i) studio flat, (ii) one-bedroom flat, (iii) one-bedroom townhouse,
(iv) two-bedroom flat, (v) two-bedroom townhouse, (vi) two-bedroom, flex-time,
and (vii) two-bedroom, lockout. There is also a 21-room hotel at the resort
which could be converted to timeshare use. Amenities within each new unit will
include a living room with sleeper sofa, full kitchen, whirlpool tub, and color
television. Certain units will include a fireplace, ceiling fans, imported
ceramic tile, oversized sliding glass doors, and rattan or pine furniture.
Amenities at the resort include two indoor heated swimming pools with hot
tubs, one outdoor olympic-sized, spring fed pool with bar and snack bar, sauna,
health club, nine-hole golf course, ski rentals, shuffleboard, basketball and
tennis courts, horseshoe pits, hiking and ski trails, and activity areas for
sledding and badminton. The resort is also near Beartown State Forest.
At December 31, 1999, the resort contained 9,360 Vacation Intervals, of
which 1,164 remained available for sale. The Company plans to build 520
additional "lodge-style" units, which would yield an additional 27,040 Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,400 to $14,000 for one-week stays (and start at $3,700 for
biennial intervals). During 1999, 2,052 Vacation Intervals were sold.
APPLE MOUNTAIN RESORT. In October 1998, the Company acquired the Apple
Mountain Resort in Clarkesville, Georgia, which is approximately 125 miles north
of Atlanta, Georgia. The resort is situated on 285 acres of beautiful open
pastures and rolling hills, with 162 acres being the resort's golf course. At
December 31, 1999, approximately 91 acres are currently planned by the Company
to be used for future development.
At December 31, 1999, the resort had 48 units and an additional 560 units
are planned for development. The "Lodge Get-A-Way" units were the first units
developed. Each unit is approximately 827 square feet with all units being two
bedrooms, two full baths. Amenities within each unit include a living room with
sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units
include a fireplace, ceiling fans, imported ceramic tile, oversized sliding
glass doors, electronic door locks, and rattan or pine furniture.
Amenities at the resort include a 9,445 square foot administration building
and activity center featuring a wide screen television, pool tables, arcade
games, snack area, and movie theatre. Other amenities at the resort include a
tennis court, swimming pool, horseshoes, stable and corral, shuffleboard,
archery, miniature golf course, and volleyball and basketball courts. This
resort is located in the Blue Ridge Mountains and offers accessibility to many
other outdoor recreational activities, including Class 5 white water rapids. A
member services building is currently under construction.
The primary recreational amenity available to the resort is an established
18-hole golf course situated on approximately 150 acres of open fairways and
rolling hills. Elevation of the course is 1,530 feet at the lowest point and
1,600 feet at the highest point. The course is designed with approximately
104,000 square feet of bent grass greens. The course's tees total approximately
2 acres, fairways total approximately 24 acres, and primary roughs total
approximately 29 acres, all covered with TIF 419 Bermuda. The balance of grass
totals approximately 95 acres and is covered with Fescue. The course has 19 sand
bunkers totaling 19,800 square feet and there are approximately seven miles of
cart paths. Lining the course are apple orchards totaling approximately four
acres, with white pine roughs along twelve of the fairways. The course has a
five-acre irrigation lake and two ponds, one approximately 3,000 square feet and
located on the fourth hole and the second approximately 1,500 square feet and
located on the fifteenth hole. The driving range covers approximately nine acres
and has 20,000 square feet of tee area covered in TIF 419 Bermuda. The pro shop
offers a full line of golfing accessories and equipment. There is also a golf
professional on site to offer lessons and to plan events for the club.
At December 31, 1999, the resort contained 2,496 Vacation Intervals, of
which 1,770 remained available for sale. The Company
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plans to build 560 additional "lodge-style" units, which would yield an
additional 29,120 Vacation Intervals available for sale. Vacation Intervals at
the resort are currently priced from $7,400 to $11,800 for one-week stays (and
start at $4,500 for biennial intervals). During 1999, 671 Vacation Intervals
were sold.
DESCRIPTION OF EXISTING RESORTS MANAGED BY THE COMPANY
The management rights to the following resorts were acquired via the
acquisition of Crown Resort Co., LLC in May 1998.
ALPINE BAY RESORT. Alpine Bay Resort is located in Talledega County,
Alabama, near Lake Logan Martin and is approximately 50 miles east of
Birmingham. The resort contains 54 units and includes a golf course, pro shop
lounge, outdoor pool, and tennis courts. At December 31, 1999, there are four
unsold Vacation Intervals at this resort. During 1999, one Silverleaf Club
Endless Escape Program membership was sold. No further development is planned at
this resort.
HICKORY HILLS RESORT. Hickory Hills is located in Jackson County,
Mississippi, near the Pascagoula River and is approximately 20 miles east of
Biloxi. The resort contains 80 units and has a golf course, restaurant/lounge,
outdoor pool, clubhouse, fitness center, miniature golf course, tennis courts,
and playground. At December 31, 1999, there are approximately 168 unsold
Vacation Intervals at this resort. During 1999, 11 Vacation Intervals and
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
BEECH MOUNTAIN LAKES RESORT. Beech Mountain Lakes is located in Butler
Township, Luzerne County, Pennsylvania, and is approximately 30 miles south of
Wilkes Barre-Scranton. The resort contains 54 units and has a restaurant/lounge,
indoor pool/sauna, clubhouse, fitness center, tennis courts, and pontoon boat.
At December 31, 1999, there are approximately 124 unsold Vacation Intervals at
this resort. During 1999, 57 Vacation Intervals and Silverleaf Club Endless
Escape Program memberships were sold. No further development is planned at this
resort.
TREASURE LAKE RESORT. Treasure Lake is located in Sandy Township, Clearfield
County, Pennsylvania, and is approximately 160 miles northeast of Pittsburgh.
The resort contains 145 units and has two golf courses, a restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, tennis courts, and pontoon boat. At
December 31, 1999, there are approximately 959 unsold Vacation Intervals at this
resort. During 1999, 57 Vacation Intervals and Silverleaf Club Endless Escape
Program memberships were sold. No further development is planned at this resort.
FOXWOOD HILLS RESORT. Foxwood Hills is located in Oconee County, South
Carolina, near Lake Hartwell and is approximately 100 miles northeast of
Atlanta. The resort contains 114 units and has a golf course, restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, miniature golf course, tennis
courts, pontoon boat, and playground. At December 31, 1999, there are
approximately 322 unsold Vacation Intervals at this resort. During 1999, 253
Vacation Intervals and Silverleaf Club Endless Escape Program memberships were
sold. No further development is planned at this resort.
TANSI RESORT. Tansi Resort is located in Cumberland County, Tennessee, and
is approximately 75 miles west of Knoxville. The resort contains 124 units and
has a golf course, restaurant/lounge, indoor pool/sauna, outdoor pool,
clubhouse, fitness center, miniature golf course, tennis courts, and playground.
At December 31, 1999, there are approximately 367 unsold Vacation Intervals at
this resort. During 1999, 27 Vacation Intervals and Silverleaf Club Endless
Escape Program memberships were sold. No further development is planned at this
resort.
WESTWIND MANOR RESORT. Westwind Manor is located in Wise County, Texas, on
Lake Bridgeport and is approximately 65 miles northwest of the Dallas-Fort Worth
metroplex. The resort contains 37 units and has a golf course,
restaurant/lounge, outdoor pool, clubhouse, miniature golf course, tennis
courts, and playground. At December 31, 1999, there are approximately 342 unsold
Vacation Intervals at this resort. During 1999, no Vacation Intervals or
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
DESCRIPTION OF NEW RESORTS
Silverleaf has four locations that are presently in various stages of
development or pre-development as New Resorts. Except as specifically set forth
below, the Company has not scheduled target dates for construction, completion
of initial units, or commencement of sales and marketing efforts for these
locations. Until such target dates have been definitively designated, the
Company will continue to evaluate the development potential of each of these New
Resorts.
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SILVERLEAF'S SEASIDE RESORT. In December 1997 and February 1998, the Company
acquired over 83 acres of land, including beachfront, in Galveston, Texas. These
adjacent tracts are located approximately 50 miles south of Houston, Texas, and
were acquired for development as a new Destination Resort. Prior to its
acquisition by the Company, one tract was operated by a nationwide campground
operator.
The Company plans to build 282 new units situated in three-story 12-plex
buildings, with construction of 24 units in process as of December 31, 1999.
Completion of these 24 units will occur in the second quarter of 2000. Sales
efforts began in January 2000. All units will be two bedroom, two bath units.
Amenities within each unit will include two large bedrooms, two bathrooms (one
with a whirlpool tub), living room with sleeper sofa, full kitchen, color
television, and vaulted ceilings. This resort will also include the Company's
upscale "Presidents Dunes" units which will overlook the Gulf of Mexico and
offer 1,255 square feet of floor space, front and back verandas, washer and
dryer, and a more elegant decor.
The primary amenity at the resort is the Gulf of Mexico. This site has 635
feet of beachfront. Other currently existing amenities include a lodge with
kitchen, sports court, and swimming pool. The Company is obligated to maintain
and provide campground facilities for members of the previous owner's campground
system.
The Company plans to build 282 units which would yield 14,664 Vacation
Intervals for sale. Sales efforts began in January 2000. Vacation Intervals at
the resort will be priced from $7,400 to $17,500 for one-week stays (and start
at $5,500 for biennial intervals).
SILVERLEAF'S LAS VEGAS RESORT. In November 1997, the Company acquired a two
acre parcel of land two blocks off the "strip" in Las Vegas, Nevada, for
development as a new Destination Resort. The Company plans to build a five-story
tower and a nine-story tower which will include approximately 157 units,
including 83 two-bedroom and 74 one-bedroom units. This resort will feature
balconies, washer and dryer, whirlpool tubs, living room with sleeper sofa, full
kitchen, and color television.
Amenities at the resort will include a swimming pool, health spa with sauna,
exercise facilities, children's theatre, and video arcade. The resort will also
feature a waterfall cascading down the front of one tower.
The Company plans to build 157 units which would yield 8,164 Vacation
Intervals for sale. The Company anticipates Vacation Intervals at the resort
will be priced from $9,500 to $13,500 for one-week stays.
LAKEVIEW LODGE. In September 1998, the Company completed its purchase of 260
acres of undeveloped land near Kansas City, Missouri, to be developed as a
Drive-to Resort. At December 31, 1999, 608 units are planned for development,
with all units being two bedroom, two bath. Amenities within each unit will
include a living room with sleeper sofa, full kitchen, whirlpool tub, and color
television. Certain units will include a fireplace, ceiling fans, imported
ceramic tile, oversized sliding glass doors, and rattan or pine furniture.
The primary recreational amenity available at the resort is an adjoining
fishing lake. Other planned amenities include a clubhouse, outdoor pavilion,
swimming pool, lighted tennis courts, themed miniature golf course, volleyball
court, shuffleboard/multi-use sports court, archery, horseback riding trail,
stable and corral, lake pavilion, indoor pool, indoor heated cedar sauna,
welcome center, and hook-ups for recreational vehicles.
The Company plans to build 608 units which would yield 31,616 Vacation
Intervals for sale. The resort is in the preliminary development phase. Vacation
Intervals at the resort will be priced from $6,500 to $12,500 for one-week stays
(and start at $3,800 for biennial intervals).
BEECH MOUNTAIN RESORT. In December 1998, the Company acquired 1,998 acres of
undeveloped land near Philadelphia, Pennsylvania, to be developed as a Drive-to
Resort. At December 31, 1999, all units planned for development will be two
bedroom, two bath. Amenities within each unit will include a living room with
sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units
will include a fireplace, ceiling fans, imported ceramic tile, oversized sliding
glass doors, and rattan or pine furniture.
The primary recreational amenity available at the resort is a fishing lake.
Other planned amenities include a clubhouse, outdoor pavilion, swimming pool,
lighted tennis courts, themed miniature golf course, volleyball court,
shuffleboard/multi-use sports court, archery, horseback riding trail, stable and
corral, lake pavilion, indoor pool, indoor heated cedar sauna, welcome station,
and hook-ups for recreational vehicles.
The Company has received regulatory approval to develop 408 units, which
would yield 21,216 Vacation Intervals for sale. The
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resort is in the preliminary development phase. Vacation Intervals at the resort
will be priced from $6,500 to $12,500 for one-week stays (and start at $3,800
for biennial intervals).
MARKETING AND SALES
Marketing is the process by which the Company attracts potential customers
to visit and tour an Existing Resort or attend a sales presentation. Sales is
the process by which the Company seeks to sell a Vacation Interval to a
potential customer once he arrives for a tour at an Existing Resort or attends a
sales presentation. In 1999, the Company was able to increase its tour flow and
sales through significant investments in marketing programs, such as
implementation of an automated scanning system to improve efficiency in leads
processing, addition of a fourth telemarketing call center, and investments in
state-of-the-art predictive dialing equipment for its call centers. Due to
recent growth rates and implementation of new leads generation programs, the
Company is experiencing higher than anticipated marketing costs in the first
quarter of 2000. The Company has increased its headcount at the call centers
significantly since the fourth quarter of 1999, which created inefficiencies due
to lack of available training resources. In addition, the Company is moving
towards reliance on national retail chains for its leads generation efforts, in
addition to the traditional local programs. The transition to national programs
has been slower in generating leads than originally planned.
MARKETING. The Company's in-house marketing staff develops prospects through
a variety of marketing programs specifically designed to attract the Company's
target customers. Databases of new prospects are principally developed through
cooperative arrangements between Database Research, Inc., a subsidiary of the
Company, and other local businesses and special event sponsors. Under these
cooperative marketing programs, basic demographic information of potential
customers is solicited on a voluntary basis from individuals who patronize these
businesses or events. After entering this demographic information into its
permanent database, the Company utilizes its systems to identify prospects who
meet the Company's marketing criteria. Using the Company's automated dialing and
bulk mailing equipment, in-house marketing specialists conduct coordinated
telemarketing and direct mail procedures which invite prospects to tour one of
the Company's resorts and receive an incentive, such as a free gift.
SALES. The Company actively sells its Vacation Intervals primarily through
on-site salespersons at certain Existing Resorts. Upon arrival at an Existing
Resort for a scheduled tour, the prospect is met by a member of the Company's
on-site salesforce who conducts the prospect on a 90 minute tour of the resort
and its related amenities. At the conclusion of the tour, the sales
representative explains the benefits and costs of becoming a Silverleaf Owner.
The presentation also includes a description of the financing alternatives
offered by the Company. Prior to the closing of any sale, a verification officer
(a salaried employee of the Company) interviews each prospect to ensure
compliance with Company sales policies and regulatory agency requirements. No
sale becomes final until a statutory waiting period (which varies from state to
state) of three to fifteen calendar days has passed.
Sales representatives receive commissions ranging from 5% to 14% of the
sales price depending on established guidelines. Sales managers also receive
commissions of 1% to 3% and are subject to commission chargebacks in the event
the purchaser fails to make the first required payment. Sales directors also
receive commissions of 1% to 3%, which are also subject to chargebacks.
Prospects who are interested in a lower priced product are offered biennial
(alternate year) intervals or Samplers, which entitle the prospect to sample a
resort for a specified number of nights. The prospect may apply the cost of a
Sampler against the down-payment on a Vacation Interval if purchased at a later
date. In addition, the Company actively markets upgraded Vacation Intervals to
existing Silverleaf Owners. Although most upgrades are sold by the Company's
in-house sales staff, the Company has contracted with a third party to assist in
offsite marketing of upgrades at the Destination Resorts. These upgrade programs
have been well received by Silverleaf Owners and accounted for approximately
26.4% and 22.1% of the Company's gross revenues from Vacation Interval sales for
1999 and 1998, respectively. By offering Samplers and upgraded Vacation
Intervals, the Company believes it offers an affordable product for all
prospects in its target market. Also, by offering products with a range of
prices, the Company attempts to attract younger purchasers with its lower-priced
products and gradually upgrade such purchasers over time as their earnings
increase.
Because the Company's sales representatives are a critical component of the
sales and marketing effort, the Company continually strives to attract, train,
and retain a dedicated salesforce. The Company provides intensive sales
instruction and training which, coupled with the representative's valuable local
knowledge, assists the sales representatives in acquainting prospects with the
resort's benefits. Each sales representative is an employee of the Company and
receives some employment benefits. At December 31, 1999, the Company employed
approximately 856 sales representatives at its Existing Resorts.
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CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers typically make a down payment of at least 10% of
the purchase price and deliver a promissory note to the Company for the balance.
The promissory notes generally bear interest at a fixed rate, are generally
payable over a seven-year to ten-year period, and are secured by a first
mortgage on the Vacation Interval. The Company bears the risk of defaults on
these promissory notes, and this risk is heightened inasmuch as the Company
generally does not verify the credit history of its customers and will provide
financing if the customer is presently employed and meets certain household
income criteria.
The Company's credit experience is such that in 1999 it allocated 10.0% of
the purchase price of Vacation Intervals to its provision for uncollectible
notes. In addition, in 1999 the Company decreased sales by $3.7 million for
customer returns (cancellations of sales transactions in which the customer
fails to make the first installment payment) and increased operating, general
and administrative expenses by $1.2 million for customer releases (voluntary
cancellations of properly recorded sales transactions which in the opinion of
management is consistent with the maintenance of overall customer goodwill). If
a buyer of a Vacation Interval defaults, the Company generally must foreclose on
the Vacation Interval and attempt to resell it; the associated marketing,
selling, and administrative costs from the original sale are not recovered; and
sales and marketing costs must be incurred again to resell the Vacation
Interval. Although the Company, in many cases, may have recourse against a
Vacation Interval buyer for the unpaid price, certain states have laws which
limit or hinder the Company's ability to recover personal judgments against
customers who have defaulted on their loans. For example, under Texas law, if
the Company were to pursue a post-foreclosure deficiency claim against a
customer, the customer may file a court proceeding to determine the fair market
value of the property foreclosed upon. In such event, the Company may not
recover a personal judgment against the customer for the full amount of the
deficiency, but may recover only to the extent that the indebtedness owed to the
Company exceeds the fair market value of the property. Accordingly, the Company
has generally not pursued this remedy. In 1998, the Company implemented a
program through which a significant number of delinquent loans have been assumed
by existing owners with a consistent payment history.
Prior to 1996, the Company sold customer promissory notes and mortgages to
third parties, generally with recourse, as a means of financing its operations.
As a result, the Company may be required to repurchase customer promissory notes
previously sold which become delinquent. The Company takes these contingent
obligations into account in establishing its allowance for uncollectible notes.
At December 31, 1999, the Company had notes receivable (including notes
unrelated to Vacation Intervals) in the approximate principal amount of $318.9
million, was contingently liable with respect to approximately $2.2 million
principal amount of customer notes sold with recourse, and had an allowance for
uncollectible notes of approximately $32.3 million.
The Company recognizes interest income as earned. If interest payments on
customer notes become delinquent, the Company ceases recognition of the interest
income until collection is deemed probable. When inventory is returned to the
Company, any unpaid note receivable balances are charged against the allowance
for uncollectible notes net of the amount at which the Vacation Interval is
being restored to inventory.
The Company intends to borrow additional funds under its existing revolving
credit facilities to finance its operations. Under its existing revolving credit
facilities, the Company may borrow up to $310.0 million collateralized by
customer promissory notes and mortgages. At December 31, 1999, the Company had
borrowings under such revolving credit facilities in the approximate principal
amount of $178.3 million. These facilities permit borrowings up to 85% of the
principal amount of performing notes, and payments from Silverleaf Owners on
such notes are credited directly to the lender and applied against the Company's
loan balance. At December 31, 1999, the Company had a portfolio of approximately
51,886 Vacation Interval customer promissory notes in the approximate principal
amount of $317.5 million, of which approximately $41.7 million in principal
amount was 61 days or more past due and therefore ineligible as collateral.
At December 31, 1999, the Company's portfolio of customer notes receivable
had an average yield of 13.7%. At such date, the Company's borrowings, which
bear interest at variable rates, had a weighted average cost of 9.2%. The
Company has historically derived net interest income from its financing
activities because the interest rates it charges its customers who finance the
purchase of their Vacation Intervals exceed the interest rates the Company pays
to its lenders. Because the Company's existing indebtedness currently bears
interest at variable rates and the Company's customer notes receivable bear
interest at fixed rates, increases in interest rates would erode the spread in
interest rates that the Company has historically experienced and could cause the
interest expense on the Company's borrowings to exceed its interest income on
its portfolio of customer loans. The Company has not engaged in interest rate
hedging transactions. Therefore, any increase in interest rates, particularly if
sustained, could have a material adverse effect on the Company's results of
operations, liquidity, and financial position.
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Limitations on availability of financing would inhibit sales of Vacation
Intervals due to (i) the lack of funds to finance the initial negative cash flow
that results from sales that are financed by the Company, and (ii) reduced
demand if the Company is unable to provide financing to purchasers of Vacation
Intervals. The Company ordinarily receives only 10% of the purchase price on the
sale of a Vacation Interval but must pay in full the costs of development,
marketing, and sale of the Vacation Interval. Maximum borrowings available under
the Company's current credit agreements may not be sufficient to cover these
costs, thereby straining capital resources, liquidity, and capacity to grow. In
addition, to the extent interest rates decrease generally on loans available to
the Company's customers, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
The Company typically provides financing to customers over a seven-year to
ten-year period, and customer notes had an average maturity of 5.7 years at
December 31, 1999. The Company's revolving credit facilities mature between
December 2000 and October 2005. Accordingly, there could be a mismatch between
the Company's cash receipts and the Company's cash disbursements obligations in
December 2000 and subsequent periods. Although the Company has historically been
able to secure financing sufficient to fund its operations, it does not
presently have agreements with its lenders to extend the term of its existing
funding commitments or to replace such commitments upon their expiration.
Failure to obtain such refinancing facilities could require the Company to sell
its portfolio of customer notes receivable, probably at a substantial discount,
or to seek other alternatives to enable it to continue in business. While the
Company has been successful in obtaining financing to date, there is no
assurance it will be able to do so in the future.
DEVELOPMENT AND ACQUISITION PROCESS
The Company believes there is substantial opportunity to develop and acquire
resorts. As part of its current growth strategy, the Company intends to develop
and selectively acquire new resorts with characteristics similar to the Existing
Resorts and New Resorts. In evaluating a potential site for a Drive-to Resort,
the Company generally seeks locations within 100 miles of large metropolitan
areas that have favorable demographic characteristics. For Drive-to Resorts, the
Company generally seeks wooded rustic settings with amenities such as golf
courses or water frontage. For Destination Resorts, the Company seeks popular
destination resort areas that are easily accessible to Silverleaf Owners. The
Las Vegas, Nevada, site, for example, was acquired in response to a survey in
which Silverleaf Owners expressed a strong interest in a Destination Resort in
Las Vegas. The Company also seeks locations offering an absence of competing
properties near the target location, ease of development with respect to zoning
and land-use issues, and ease of compliance with governmental regulations
concerning timeshare sales and operations.
Before committing capital to a site, the Company tests the market using
certain marketing techniques developed by the Company. The Company also explores
the zoning and land-use laws applicable to the potential site and the regulatory
issues pertaining to licenses and permits for timeshare sales and operations.
The Company will also contact various governmental entities and review
applications for necessary governmental permits and approvals. If the Company is
satisfied with its market and regulatory review, it will prepare a conceptual
layout of the resort, including building site plans and resort amenities. After
the Company applies its standard lodging unit design and amenity package, the
Company prepares a budget which estimates the cost of developing the resort,
including costs of lodging facilities, infrastructure, and amenities, as well as
projected sales, marketing, and general and administrative costs. Purchase
contracts typically provide for additional due diligence by the Company,
including obtaining an environmental report by an environmental consulting firm,
a survey of the property, and a title commitment. The Company employs legal
counsel to review such documents and to also review pertinent legal issues. If
the Company continues to be satisfied with the site after the environmental and
legal review, the Company will complete the purchase of the property.
All construction activities are managed internally by the Company. The
Company typically completes the development of a new resort's basic
infrastructure and models within one year, with additional units to be added
within 180 days based on demand, weather permitting. A normal part of the
development process is the establishment of a functional sales office at the new
resort.
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CLUBS / MANAGEMENT CLUBS
Upon purchasing a Vacation Interval at a resort, the purchaser automatically
becomes a member of a homeowner's association ("Club") for that particular
resort. At the resorts owned by the Company, the Company has the right to
appoint the directors of the Clubs (collectively, the "Silverleaf Club").
However, the Company does not have this right related to the Clubs of the
exclusively managed resorts (collectively, the "Crown Club"). The Silverleaf
Owners are obligated to pay monthly dues to their respective Clubs, which
obligation is secured by a lien on their Vacation Interval in favor of the Club.
If a Silverleaf Owner fails to pay his monthly dues, the Club may foreclose on
the delinquent Silverleaf Owner's Vacation Interval. During 1999 and 1998,
approximately 268 and 201 foreclosures, respectively, resulted from Silverleaf
Owners' failure to pay monthly dues.
Each Existing Resort has a Club which has entered into a Management Club
Agreement with the Management Clubs. The Management Club Agreements authorize
the Management Clubs to manage the Existing Resorts on a centralized and
collective basis. The consolidation of resort operations through the Management
Clubs permits: (i) a centralized reservation system for all resorts; (ii)
substantial cost savings by purchasing goods and services for all resorts on a
group basis, which generally results in a lower cost of goods and services than
if such goods and services were purchased by each resort on an individual basis;
(iii) centralized management for the entire resort system; (iv) centralized
legal, accounting, and administrative services for the entire resort system; and
(v) uniform implementation of various rules and regulations governing all
resorts. All furniture, furnishings, recreational equipment, and other personal
property used in connection with the operation of the Existing Resorts are owned
by the Management Clubs, rather than the Company.
At December 31, 1999, the Management Clubs had 568 full-time employees and
is solely responsible for their salaries. The Management Clubs are also
responsible for the direct expenses of operating the Existing Resorts, while the
Company is responsible for the direct expenses of new development and all
marketing and sales activities. To the extent the Management Clubs provide
payroll, administrative, and other services that directly benefit the Company,
the Company reimburses the Management Clubs for such services.
The Management Clubs collect dues from Silverleaf Owners, plus certain other
amounts assessed against the Silverleaf Owners from time to time, together with
all income generated by the operation of certain amenities at the Existing
Resorts. Silverleaf Club dues are currently $49.98 per month ($24.99 for
biennial owners), except for certain members of Oak N' Spruce Resort which
prepay dues at an annual rate of approximately $350. Crown Club dues range from
$275 to $355 annually. Such amounts are used by the Management Clubs to pay the
costs of operating the Existing Resorts and the management fees due to the
Company pursuant to Management Agreements between the Company and the Management
Clubs. These Management Agreements authorize the Company to manage and operate
the resorts and provide for a maximum management fee equal to 15% of gross
revenues for Silverleaf Club or 10% to 15% of dues collected for Clubs within
Crown Club, but the Company's right to receive such fee on an annual basis is
limited to the amount of each Management Club's net income. However, if the
Company does not receive the maximum fee, such deficiency is deferred for
payment to succeeding year(s), subject again to the net income limitation. Due
to anticipated refurbishment of units at the Existing Resorts, together with the
operational and maintenance expenses associated with the Company's current
expansion and development plans, the Company believes its 2000 management fee
will be subject to the net income limitation. For financial reporting purposes,
management fees from the Management Clubs are recognized based on the lower of
(i) the aforementioned maximum fees or (ii) each Management Club's net income.
The Silverleaf Club Management Agreement is effective through March 2010, and
will continue year-to-year thereafter unless cancelled by either party. Crown
Club consists of several individual Club agreements which have terms of two to
five years with a minimum of two renewal options remaining. At December 31,
1999, there were approximately 77,000 and 24,000 Silverleaf Owners who pay dues
to Silverleaf Club and Crown Club, respectively.
As the Company develops new resorts, their respective Clubs are expected to
be added to the Silverleaf Club Management Agreement. However, the timeshare
laws of some states, including Nevada, prohibit the collective dues/expense
arrangement used by Silverleaf Club. Accordingly, the Club for the New Resort in
Las Vegas will not be managed by Silverleaf Club but will be managed directly by
Silverleaf.
OTHER OPERATIONS
OPERATION OF AMENITIES. The Company owns, operates, and receives the
revenues from the marina at The Villages, the golf course and pro shop at
Holiday Hills, and the golf course and pro shop at Apple Mountain. Although the
Company owns the golf course at Holly Lake, a homeowners association in the
development operates the golf course. In general, the Management Clubs receive
revenues from the various amenities which require a usage fee, such as
watercraft rentals, horseback rides, and restaurants.
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UNIT LEASING. The Company also recognizes revenues from sales of Samplers
which allow prospective Vacation Interval purchasers to sample a resort for a
specified number of nights. A five night Sampler package currently sells for
$595. For the years ended December 31, 1999 and 1998, the Company recognized
$4.3 million and $2.8 million, respectively, in revenues from Sampler sales.
UTILITY SERVICES. The Company owns its own water supply facilities at Piney
Shores, The Villages, Hill Country, Holly Lake, Ozark Mountain, Holiday Hills,
Timber Creek, and Fox River resorts. The Company also currently owns its own
waste-water treatment facilities at The Villages, Piney Shores, Ozark Mountain,
Holly Lake, Timber Creek, and Fox River resorts. The Company is in the process
of applying for permits to build expanded water supply and waste-water
facilities at the Timber Creek and Fox River resorts. The Company has permits to
supply and charge third parties for the water supply facilities at The Villages,
Holly Lake, Holiday Hills, Ozark Mountain, Hill Country, Piney Shores, and
Timber Creek resorts, and the waste-water facilities at the Ozark Mountain,
Holly Lake, Piney Shores, Hill Country, and The Villages resorts.
OTHER PROPERTY. The Company owns an undeveloped five-acre tract of land in
Pass Christian, Mississippi, which has been listed with a broker for sale. The
Company had planned to develop this property as a Destination Resort. However,
in a survey, Silverleaf Owners expressed a strong interest in a Texas resort on
the Gulf of Mexico. In response, the Company acquired land in Galveston, Texas,
which is currently being developed as the Company's Seaside Resort. This resort
was developed in lieu of the Pass Christian property. Additionally, the Company
owns approximately 44 acres in Mississippi, and the Company is entitled to 85%
of any profits from this land. An affiliate of a director of the Company owns a
10% net profits interest in this land.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
INTERNAL EXCHANGES. As a convenience to Silverleaf Owners, each purchaser of
a Vacation Interval from the Company has certain exchange privileges which may
be used to: (i) exchange an interval for a different interval (week) at the same
resort so long as the different interval is of an equal or lower rating; and
(ii) exchange an interval for the same interval of equal or lower rating at any
other Existing Resort. These intra-company exchange rights are conditioned upon
availability of the desired interval or resort. Owners of Vacation Intervals at
the Drive-to Resorts generally do not have exchange rights to Destination
Resorts.
RCI EXCHANGES. The Company believes that its Vacation Intervals are made
more attractive by the Company's participation in Vacation Interval exchange
networks operated by RCI. The Existing Resorts, except Oak N' Spruce Resort, are
registered with RCI, and approximately one-third of Silverleaf Owners
participate in RCI's exchange network. Oak N' Spruce Resort is currently under
contract with a different network exchange company, Interval International.
Membership in RCI allows participating Silverleaf Owners to exchange their
occupancy right in a unit in a particular year for an occupancy right at the
same time or a different time of the same or lower color rating in another
participating resort, based upon availability and the payment of a variable
exchange fee. A member may exchange a Vacation Interval for an occupancy right
in another participating resort by listing the Vacation Interval as available
with the exchange organization and by requesting occupancy at another
participating resort, indicating the particular resort or geographic area to
which the member desires to travel, the size of the unit desired, and the period
during which occupancy is desired.
RCI assigns a rating of "red", "white", or "blue" to each Vacation Interval
for participating resorts based upon a number of factors, including the location
and size of the unit, the quality of the resort, and the period during which the
Vacation Interval is available, and attempts to satisfy exchange requests by
providing an occupancy right in another Vacation Interval with a similar rating.
For example, an owner of a red Vacation Interval may exchange his interval for a
red, white, or blue interval. An owner of a white Vacation Interval may exchange
only for a white or blue interval, and an owner of a blue interval may exchange
only for a blue interval. If RCI is unable to meet the member's initial request,
it suggests alternative resorts based on availability.
RCI has more than 3,300 participating resort facilities and over 2.4 million
members worldwide as of December 31, 1999. During 1999, RCI processed over 1.8
million Vacation Interval exchanges. The cost of the annual membership fee in
RCI, which is at the option and expense of the owner of the Vacation Interval,
is currently $86 per year. Exchange rights require an additional fee of
approximately $118 for domestic exchanges and $155 for foreign exchanges.
COMPETITION
The timeshare industry is highly fragmented and includes a large number of
local and regional resort developers and operators. However, some of the world's
most recognized lodging, hospitality, and entertainment companies, such as
Marriott Ownership Resorts ("Marriott"), The Walt Disney Company ("Disney"),
Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), and Four
Seasons Resorts ("Four Seasons") have entered the industry. Other companies in
the timeshare industry, including Sunterra
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Corporation ("Sunterra"), Fairfield Communities, Inc. ("Fairfield"), Starwood
Hotels & Resorts Worldwide Inc. ("Starwood"), Ramada Vacation Suites ("Ramada"),
TrendWest Resorts, Inc. ("TrendWest"), and Bluegreen Corporation ("Bluegreen")
are, or are subsidiaries of, public companies, with the enhanced access to
capital and other resources that public ownership implies.
Fairfield, Sunterra, and Bluegreen own timeshare resorts in or near Branson,
Missouri, which compete with the Company's Holiday Hills and Ozark Mountain
resorts, and to a lesser extent with the Company's newly-acquired Timber Creek
Resort. Sunterra also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Additionally, the Company believes there are a
number of public or privately-owned and operated timeshare resorts in most
states in which the Company owns resorts which will compete with the Company's
Existing Resorts and New Resorts.
The Company believes Marriott, Disney, Hilton, Hyatt, and Four Seasons
generally target consumers with higher annual incomes than the Company's target
market. The Company believes the other competitors named above target consumers
with similar, but slightly higher, income levels than the Company's target
market. The Company's competitors may possess significantly greater financial,
marketing, personnel, and other resources than the Company, and there can be no
assurance that such competitors will not significantly reduce the price of their
Vacation Intervals or offer greater convenience, services, or amenities than the
Company.
While the Company's principal competitors are developers of timeshare
resorts, the Company is also subject to competition from other entities engaged
in the commercial lodging business, including condominiums, hotels, and motels;
others engaged in the leisure business; and, to a lesser extent, from
campgrounds, recreational vehicles, tour packages, and second home sales. A
reduction in the product costs associated with any of these competitors, or an
increase in the Company's costs relative to such competitors' costs, could have
a material adverse effect on the Company's results of operations, liquidity, and
financial position.
Numerous businesses, individuals, and other entities compete with the
Company in seeking properties for acquisition and development of new resorts.
Some of these competitors are larger and have greater financial and other
resources than the Company. Such competition may result in a higher cost for
properties the Company wishes to acquire or may cause the Company to be unable
to acquire suitable properties for the development of new resorts.
GOVERNMENTAL REGULATION
GENERAL. The Company's marketing and sales of Vacation Intervals and other
operations are subject to extensive regulation by the federal government and the
states and jurisdictions in which the Existing Resorts and New Resorts are
located and in which Vacation Intervals are marketed and sold. On a federal
level, the Federal Trade Commission has taken the most active regulatory role
through the Federal Trade Commission Act, which prohibits unfair or deceptive
acts or competition in interstate commerce. Other federal legislation to which
the Company is or may be subject includes the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the Interstate
Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act, the
Consumer Credit Protection Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act,
and the Civil Rights Acts of 1964 and 1968.
In response to certain fraudulent marketing practices in the timeshare
industry in the 1980's, various states enacted legislation aimed at curbing such
abuses. Certain states in which the Company operates have adopted specific laws
and regulations regarding the marketing and sale of Vacation Intervals. The laws
of most states require the Company to file a detailed offering statement and
supporting documents with a designated state authority, which describe the
Company, the project, and the promotion and sale of Vacation Intervals. The
offering statement must be approved by the appropriate state agency before the
Company may solicit residents of such state. The laws of certain states require
the Company to deliver an offering statement (or disclosure statement), together
with certain additional information concerning the terms of the purchase, to
prospective purchasers of Vacation Intervals who are residents of such state,
even if the resort is not located in such state. The laws of Missouri generally
only require certain disclosures in sales documents for prospective purchasers.
There are also laws in each state where the Company currently sells Vacation
Intervals which grant the purchaser of a Vacation Interval the right to cancel a
contract of purchase at any time within three to fifteen calendar days following
the date the contract was signed by the purchaser.
The Company markets and sells its Vacation Intervals to residents of certain
states adjacent or proximate to the states where the Company's resorts are
located. Many of these neighboring states also regulate the marketing and sale
of Vacation Intervals to their residents. Most states have additional laws which
regulate the Company's activities and protect purchasers, such as real estate
licensure laws; travel sales licensure laws; anti-fraud laws; consumer
protection laws; telemarketing laws; prize, gift, and sweepstakes laws; and
other related laws. The Company does not register all of its resorts in each of
the states where it registers certain resorts.
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The Company believes it is in material compliance with applicable federal
and state laws and regulations relating to the sales and marketing of
Vacation Intervals. However, the Company is normally and currently the subject
of a number of consumer complaints generally relating to marketing or sales
practices filed with relevant authorities, and there can be no assurance that
all of these complaints can be resolved without adverse regulatory actions or
other consequences. The Company expects some level of consumer complaints in the
ordinary course of its business as the Company aggressively markets and sells
Vacation Intervals to households which may include individuals who may not be
financially sophisticated. There can be no assurance that the costs of resolving
consumer complaints or of qualifying under Vacation Interval ownership
regulations in all jurisdictions in which the Company desires to conduct sales
will not be significant, that the Company is in material compliance with
applicable federal and state laws and regulations, or that violations of law
will not have adverse implications for the Company, including negative public
relations, potential litigation, and regulatory sanctions. The expense, negative
publicity, and potential sanctions associated with the failure to comply with
applicable laws or regulations could have a material adverse effect on the
Company's results of operations, liquidity, or financial position. Further,
there can be no assurance that either the federal government or states having
jurisdiction over the Company's business will not adopt additional regulations
or take other actions which would adversely affect the Company's results of
operations, liquidity, and financial position.
During the 1980's and continuing through the present, the timeshare industry
has been and continues to be afflicted with negative publicity and prosecutorial
attention due to, among other things, marketing practices which were widely
viewed as deceptive or fraudulent. Among the many timeshare companies which have
been the subject of federal, state, and local enforcement actions and
investigations in the past were certain of the partnerships and corporations
that were merged into the Company prior to 1996 (the "Merged Companies", or
individually "Merged Company"). Some of the settlements, injunctions, and
decrees resulting from litigation and enforcement actions (the "Orders") to
which certain of the Merged Companies consented purport to bind all successors
and assigns, and accordingly binds the Company. In addition, at that time the
Company was directly a party to one such Order issued in Missouri. No past or
present officers, directors, or employees of the Company or any Merged Company
were named as subjects or respondents in any of these Orders; however, each
Order purports to bind generically unnamed "officers, directors, and employees"
of certain Merged Companies. Therefore, certain of these Orders may be
interpreted to be enforceable against the present officers, directors, and
employees of the Company even though they were not individually named as
subjects of the enforcement actions which resulted in these Orders. These Orders
require, among other things, that all parties bound by the Orders, including the
Company, refrain from engaging in deceptive sales practices in connection with
the offer and sale of Vacation Intervals. In one particular case in 1988, a
Merged Company pled guilty to deceptive uses of the mails in connection with
promotional sales literature mailed to prospective timeshare purchasers and
agreed to pay a judicially imposed fine of $1.5 million and restitution of
$100,000. The requirements of the Orders are substantially what applicable state
and federal laws and regulations mandate, but the consequence of violating the
Orders may be that sanctions (including possible financial penalties and
suspension or loss of licensure) may be imposed more summarily and may be
harsher than would be the case if the Orders did not bind the Company. In
addition, the existence of the Orders may be viewed negatively by prospective
regulators in jurisdictions where the Company does not now do business, with
attendant risks of increased costs and reduced opportunities.
In early 1997, the Company was the subject of some consumer complaints which
triggered governmental investigations into the Company's affairs. In March 1997,
the Company entered into an Assurance of Voluntary Compliance with the Texas
Attorney General, in which the Company agreed to make additional disclosure to
purchasers of Vacation Intervals regarding the limited availability of its
Endless Escape program during certain periods. The Company paid $15,200 for
investigatory costs and attorneys' fees of the Attorney General in connection
with this matter. Also, in March 1997, the Company entered into an agreed order
(the "Agreed Order") with the Texas Real Estate Commission requiring the Company
to comply with certain aspects of the Texas Timeshare Act, Texas Real Estate
License Act, and Rules of the Texas Real Estate Commission, with which it had
allegedly been in non-compliance until mid-1995. The allegations included (i)
the Company's admitted failure to register the Missouri Destination Resorts in
Texas (due to its misunderstanding of the reach of the Texas Timeshare Act);
(ii) payment of referral fees for Vacation Interval sales, the receipt of which
was improper on the part of the recipients; and (iii) miscellaneous other
actions alleged to violate the Texas Timeshare Act, which the Company denied.
While the Agreed Order acknowledged that Silverleaf independently resolved ten
consumer complaints referenced in the Agreed Order, discontinued the practices
complained of, and registered the Destination Resorts during 1995 and 1996, the
Texas Real Estate Commission ordered Silverleaf to cease its discontinued
practices and enhance its disclosure to purchasers of Vacation Intervals. In the
Agreed Order, Silverleaf agreed to make a voluntary donation of $30,000 to the
State of Texas. The Agreed Order also directed Silverleaf to revise its training
manual for timeshare salespersons and verification officers. While the Agreed
Order resolved all of the alleged violations contained in complaints received by
the Texas Real Estate Commission through December 31, 1996, the Company has
encountered and expects to encounter some level of additional consumer
complaints in the ordinary course of its business.
The Company employs the following methods in training sales and marketing
personnel as to legal requirements. With regard to
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direct mailings, a designated compliance employee of the Company reviews all
mailings to determine if they comply with applicable state legal requirements.
With regard to telemarketing, the Company's Vice President -- Marketing prepares
a script for telemarketers based upon applicable state legal requirements. All
telemarketers receive training which includes, among other things, directions to
adhere strictly to the Company approved script. Telemarketers are also monitored
by their supervisors to ensure that they do not deviate from the Company
approved script. With regard to sales functions, the Company distributes sales
manuals which summarize applicable state legal requirements. Additionally, such
sales personnel receive training as to such applicable legal requirements. The
Company has a salaried employee at each sales office who reviews the sales
documents prior to closing a sale to review compliance with legal requirements.
Additionally, a member of the corporate office staff calls each purchaser within
48 hours after the sale to verify information. Periodically, the Company is
notified by regulatory agencies to revise its disclosures to consumers and to
remedy other alleged inadequacies regarding the sales and marketing process. In
such cases, the Company revises its direct mailings, telemarketing scripts, or
sales disclosure documents, as appropriate, to comply with such requests.
ENVIRONMENTAL MATTERS. Under various federal, state, and local environmental
laws, ordinances, and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and tort
liability and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation, or removal of such substances may be substantial,
and the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner or operator of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site or from environmental
regulatory violations. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such claims.
Certain federal, state, and local laws, regulations, and ordinances govern
the removal, encapsulation, or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation, or demolition of a building. Such laws may
impose liability for release of ACMs and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs. In 1994, the
Company conducted a limited asbestos survey at each of the Existing Resorts,
which surveys did not reveal material potential losses associated with ACMs at
certain of the Existing Resorts.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the presence of radon in indoor air, and the EPA further
recommends that concentrations of radon in indoor air be limited to less than 4
picocuries per liter of air (Pci/L) (the "Recommended Action Level"). The
presence of radon in concentrations equal to or greater than the Recommended
Action Level in one or more of the Company's properties may adversely affect the
Company's ability to sell Vacation Intervals at such properties and the market
value of such property. The Company has not tested its properties for radon.
Recently-enacted federal legislation will eventually require the Company to
disclose to potential purchasers of Vacation Intervals at the Company's resorts
that were constructed prior to 1978 any known lead-paint hazards and will impose
treble damages for failure to so notify.
Electric transmission lines are located in the vicinity of some of the
Company's properties. Electric transmission lines are one of many sources of
electromagnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic fields
emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the Company
understands that lawsuits have, on occasion, been filed (primarily against
electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
value in obtaining financing and in condemnation and eminent domain proceedings
brought by power companies seeking to construct transmission lines. Therefore,
there is a potential for the value of a property to be adversely affected as a
result of its proximity to a transmission line and for the Company to be exposed
to damage claims by persons exposed to EMFs.
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In 1994, the Company conducted Phase I environmental assessments at several
of its Existing Resorts in order to identify potential environmental concerns.
Also, the Company has obtained more recent Phase I environmental assessments for
each of the remaining Existing Resorts and New Resorts. These Phase I
assessments were carried out in accordance with accepted industry practices and
consisted of non-invasive investigations of environmental conditions at the
properties, including a preliminary investigation of the sites and
identification of publicly known conditions concerning properties in the
vicinity of the sites, physical site inspections, review of aerial photographs
and relevant governmental records where readily available, interviews with
knowledgeable parties, investigation for the presence of above ground and
underground storage tanks presently or formerly at the sites, and the
preparation and issuance of written reports. The Company's Phase I assessments
of the properties have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets,
or results of operations taken as a whole; nor is the Company aware of any such
material environmental liability. Nevertheless, it is possible that the
Company's Phase I assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances,
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the properties will not be affected by the
condition of land or operations in the vicinity of the properties (such as the
presence of underground storage tanks) or by third parties unrelated to the
Company. The Company does not believe that compliance with applicable
environmental laws or regulations will have a material adverse effect on the
Company's results of operations, liquidity, or financial position.
The Company believes that its properties are in compliance in all material
respects with all federal, state, and local laws, ordinances, and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability, or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties.
UTILITY REGULATION. The Company owns its own water supply and waste-water
treatment facilities at several of the Existing Resorts, which are regulated by
various governmental agencies. The Texas Natural Resource Conservation
Commission is the primary state umbrella agency regulating utilities at the
resorts in Texas; and the Missouri Department of Natural Resources and Public
Service Commission of Missouri are the primary state umbrella agencies
regulating utilities at the resorts in Missouri. The Environmental Protection
Agency, division of Water Pollution Control, and the Illinois Commerce
Commission are the primary state agencies regulating water utilities in
Illinois. These agencies regulate the rates and charges for the services
(allowing a reasonable rate of return in relation to invested capital and other
factors), the size and quality of the plants, the quality of water supplied, the
efficacy of waste-water treatment, and many other aspects of the utilities'
operations. The agencies have approval rights regarding the entity owning the
utilities (including its financial strength) and the right to approve a transfer
of the applicable permits upon any change in control of the entity holding the
permits. Other federal, state, regional, and local environmental, health, and
other agencies also regulate various aspects of the provision of water and
waste-water treatment services.
OTHER REGULATION. Under various state and federal laws governing housing and
places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, the Company will incur
additional costs of compliance. Additional legislation may impose further
burdens or restrictions on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's growth strategy in certain instances or reduce profit margins on
the Company's operations.
EMPLOYEES
At December 31, 1999, the Company employed 3,561 persons. The Company
believes employee relations are good. None of the employees are represented by a
labor union.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, and storm
insurance with respect to the Company's resorts, with policy specifications,
insured limits, and deductibles customarily carried for similar properties which
the Company believes are adequate. There are, however, certain types of losses
(such as losses arising from floods and acts of war) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a resort, as well as the anticipated
future revenues from such resort, and would continue
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to be obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company's
results of operation, liquidity, or financial position. The Company self-insures
for employee medical and dental claims reduced by certain stop-loss provisions.
The Company also self-insures for property damage to certain vehicles and heavy
equipment.
DESCRIPTION OF CERTAIN INDEBTEDNESS
EXISTING INDEBTEDNESS. The Company has revolving credit agreements with four
lenders providing for loans up to an aggregate of $310.0 million, which the
Company uses to finance the sale of Vacation Intervals, to finance construction,
and for working capital needs. In addition, the Company has a $75.0 million
senior subordinated note due 2008, with interest payable semi-annually on April
1 and October 1, guaranteed by all of the Company's present and future domestic
restricted subsidiaries. The other foregoing loans mature between December 2000
and September 2006, and are collateralized (or cross-collateralized) by customer
notes receivable, construction in process, land, improvements, and related
equipment of certain of the Existing Resorts and New Resorts. These credit
facilities bear interest at variable rates tied to the prime rate, LIBOR, or the
corporate rate charged by certain banks. The credit facilities secured by
customer notes receivable limit advances to 85% of the unpaid balance of certain
eligible customer notes receivable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere herein.
Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain covenants including requirements that the Company
(i) preserve and maintain the collateral securing the loans; (ii) pay all taxes
and other obligations relating to the collateral; and (iii) refrain from selling
or transferring the collateral or permitting any encumbrances on the collateral.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
the assets of the Company, a merger, consolidation, or reorganization of the
Company, or other changes of control of the ownership of the Company, would
constitute an event of default and permit the lenders to accelerate the maturity
thereof.
Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (ii) maintain its legal
existence and be in good standing in any jurisdiction where it conducts
business; (iii) remain in the active management of the Resorts; and (iv) refrain
from modifying or terminating certain timeshare documents. The credit facilities
also include customary events of default, including, without limitation (i)
failure to pay principal, interest, or fees when due, (ii) untruth of any
representation of warranty, (iii) failure to perform or timely observe
covenants, (iv) defaults under other indebtedness, and (v) bankruptcy.
The following table summarizes the Company's loans, other notes payable,
capital lease obligations, and senior subordinated notes at December 31, 1999:
AMOUNT
--------------
(IN THOUSANDS)
$60 million revolving loan agreement, which contains certain financial
covenants, due December 2000, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for
the note, at an interest rate of LIBOR plus 2.55%.............................. $ 39,623
$70 million revolving loan agreement, capacity reduced by amounts outstanding
under the $10 million inventory loan agreement, which contains certain
financial covenants, due August 2004, principal and interest payable from
the proceeds obtained on customer notes receivable pledged as collateral
for the note, at an interest rate of LIBOR plus 2.65%.......................... 45,680
$75 million revolving loan agreement, which contains certain financial
covenants, due April 2005, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note,
at an interest rate of LIBOR plus 3.00%........................................ 62,215
$75 million revolving loan agreement, which contains certain financial
covenants, due November 2005, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for
the note, at an interest rate of LIBOR plus
2.67%.......................................................................... 14,150
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$30 million revolving loan agreement, which contains certain financial
covenants, due September 2006, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for
the note, at an interest rate of Prime......................................... 6,678
$10 million inventory loan agreement, which contains certain financial
covenants, due August 2002, interest payable monthly at an interest rate of
LIBOR plus 3.50%............................................................... 9,937
Various notes, due from April 2000 through November 2009, collateralized by
various assets with interest rates ranging from 4.2% to 14.0%.................. 4,088
---------
Total notes payable...................................................... 182,371
Capital lease obligations........................................................... 11,800
---------
Total notes payable and capital lease obligations........................ 194,171
10 1/2% senior subordinated notes, due 2008, interest payable semi-annually
on April 1 and October 1, guaranteed by all of the Company's present and
future domestic restricted subsidiaries........................................ 75,000
---------
Total.................................................................... $ 269,171
=========
At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the Prime
rate was 8.50%.
The Company's future lending and development activities will likely be
financed with indebtedness under the existing revolving credit facilities or
under credit facilities to be obtained by the Company in the future. Such new
credit facilities would likely be collateralized by the Company's assets and
contain restrictive covenants. The Company does not presently have any
commitments from third-parties to extend the terms of its existing financing
arrangements or for any replacement financing arrangements upon the expiration
of such funding commitments, and there can be no assurance that alternative or
additional arrangements can be made on terms that are satisfactory to the
Company. Accordingly, future sales of Vacation Intervals may be limited by both
the availability of funds to finance customer purchases of Vacation Intervals
and by reduced demand which may result if the Company is unable to provide
financing to purchasers of Vacation Intervals. In addition, if the Company were
to incur additional indebtedness, this could increase its vulnerability to
adverse general economic and timeshare industry conditions and to increased
competitive pressures.
The foregoing summary of certain provisions of the credit facilities is
subject to and qualified in its entirety by reference to the terms of the credit
facilities, copies of which are filed as exhibits (or incorporated by reference)
to this report on Form 10-K.
THE TIMESHARE INDUSTRY
The Market. The resort component of the leisure industry is serviced
primarily by two alternatives for overnight accommodations: commercial lodging
establishments and timeshare resorts. Commercial lodging consists of (i) hotels
and motels in which a room is rented on a nightly, weekly, or monthly basis for
the duration of the visit, and (ii) rentals of privately-owned condominium units
or homes. For many vacationers, particularly those with families, a lengthy stay
at a quality commercial lodging establishment is not economical. In addition,
room rates and availability at such establishments are subject to change
periodically. Timeshare ownership presents an economical alternative to
commercial lodging for vacationers.
Worldwide Market. First introduced in Europe in the mid-1960s, ownership of
Vacation Intervals has been one of the fastest growing segments of the
hospitality industry over the past two decades. As shown below, the worldwide
timeshare industry has expanded significantly since 1980, both in Vacation
Interval sales volume (in millions) and in number of Vacation Interval owners
(in thousands).
DOLLAR VOLUME NUMBER OF
OF VACATION VACATION
YEAR INTERVAL SALES INTERVAL OWNERS
---- -------------- ---------------
1980 490 155
1981 965 220
1982 1,165 335
1983 1,340 470
1984 1,735 620
1985 1,580 805
1986 1,610 970
1987 1,940 1,125
1988 2,390 1,310
1989 2,970 1,530
1990 3,240 1,800
1991 3,740 2,070
1992 4,250 2,363
1993 4,505 2,760
1994 5,115 3,186
1995 5,123 3,744
1996 5,253 4,099
1997 5,710 4,532
1998 6,125 4,998
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United States Market. In 1998, approximately 270,000 intervals in U.S.
properties were sold at a weighted average price of $10,537 per interval,
resulting in total sales volume of $3.06 billion. By comparison, total sales
volume in 1992 was $1.3 billion. Between 1985 and 1998, the number of resorts
grew by 187%, the number of weekly intervals owned grew by more than 550%, and
the number of owners grew by just over 500%. Approximately two million
households owned intervals in U.S. timeshare properties at January 1, 1998.
Reasons for Growth. The following factors have contributed to increased
acceptance of the timeshare concept among the general public and the substantial
growth of the timeshare industry over the past 15 years:
o higher quality accommodations and services;
o involvement of well-recognized hotel companies in the industry;
o improved availability of financing for purchasers of Vacation Intervals;
o increased flexibility of timeshare use;
o increased regulation of the timeshare industry; and
o improved overall image of the timeshare industry.
Despite the growth in the timeshare industry, Vacation Interval ownership
had achieved only an approximate 1.95% market penetration of all U.S. households
at July 1, 1998.
The timeshare industry is highly fragmented, engaged in by a large number of
local and regional resort developers and operators. However, there is a trend
towards consolidation of timeshare properties among fewer owners. The Company
believes that one of the most significant factors contributing to the current
awareness of the timeshare industry is the entry into the market of some of the
world's major lodging, hospitality, and entertainment companies, including
Marriott, Disney, Hilton, Hyatt, and Ramada.
The Consumer. The median age of a Vacation Interval owner in 1999 in the
United States was 49 years. The following table shows the estimated household
incomes of Vacation Interval owners in the United States:
HOUSEHOLD INCOME BEFORE TAXES
Under $50,000............................. 21.8%
$50,000 to $74,999........................ 32.0%
$75,000 to $99,999........................ 22.7%
$100,000 or more.......................... 23.5%
The U.S. Census Bureau has estimated that 29.5% of all U.S. households in
1997 had a household income between $25,000 and $50,000, which represents
approximately 45% of the Company's customer base. Based upon a sampling of
approximately 5% of the Company's customers who purchased a Vacation Interval in
1999, approximately 11% of such customers had an annual income less than
$25,000, approximately 45% of such customers had an income of $25,000 to
$50,000, and approximately 44% of such customers had an annual income greater
than $50,000.
CAUTIONARY STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Certain statements in this
report on Form 10-K that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Discussions containing such forward-looking statements may be found
throughout this report on Form 10-K. In addition, when used in this report on
Form 10-K the words "believes", "anticipates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to a number of risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and the matters set forth in this report on
Form 10-K generally. The forward-looking statements are made
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as of the date of this report on Form 10-K and the Company assumes no obligation
to update the forward-looking statements or to update the reasons why actual
results could differ from the projections in the forward-looking statements.
SENSITIVITY OF CUSTOMERS TO GENERAL ECONOMIC CONDITIONS. The Company targets
value-conscious customers who are generally more vulnerable to deteriorating
economic conditions than consumers in the luxury or upscale markets. Any
economic downturn could depress spending for Vacation Intervals, limit the
availability, or increase the cost of financing for the Company and its
customers, and adversely affect the collectibility of the Company's loans to
Vacation Interval buyers. During past economic slowdowns and recessions,
affiliated companies experienced increased delinquencies in the payment of
Vacation Interval promissory notes and monthly Club dues and consequently
increased foreclosures and loan losses. During any future economic slowdown or
recession, the Company projects that increased delinquencies, foreclosures, and
loan losses are likely to occur. Similar adverse consequences could result from
significant increases in transportation costs. Any or all of the foregoing could
have a material adverse effect on the Company's results of operations,
liquidity, and financial position.
BORROWER DEFAULTS. The Company offers financing to the buyers of Vacation
Intervals at the Company's resorts. These buyers make a down payment of at least
10% of the purchase price and deliver a promissory note to the Company for the
balance. The promissory notes generally bear interest at a fixed rate, are
payable over a seven-year to ten-year period, and are secured by a first
mortgage on the Vacation Interval. The Company bears the risk of defaults on
these promissory notes, and this risk is heightened as the Company generally
does not verify the credit history of its customers.
The Company's credit experience is such that in 1999 it allocated 10.0% of
the purchase price of Vacation Intervals to its provision for uncollectible
notes. In addition, in 1999 the Company decreased sales by $3.7 million for
customer returns and increased operating, general and administrative expenses by
$1.2 million for customer releases. If a buyer of a Vacation Interval defaults,
the Company generally must foreclose on the Vacation Interval and attempt to
resell it; the associated marketing, selling, and administrative costs from the
original sale are not recovered; and such costs must be incurred again to resell
the Vacation Interval. Although the Company, in many cases, may have recourse
against a Vacation Interval buyer for the unpaid price, certain states have laws
which limit or hinder the Company's ability to recover personal judgments
against customers who have defaulted on their loans. For example, under Texas
law, if the Company were to pursue a post-foreclosure deficiency claim against a
customer, the customer may file a court proceeding to determine the fair market
value of the property foreclosed upon. In such event, the Company may not
recover a personal judgment against the customer for the full amount of the
deficiency, but may recover only to the extent that the indebtedness owed to the
Company exceeds the fair market value of the property. Accordingly, the Company
has generally not pursued this remedy. In 1998, the Company implemented a
program through which delinquent loans are assumed by existing owners with a
solid credit record.
Prior to 1996, the Company sold customer promissory notes and mortgages to
third parties, generally with recourse, as a means of financing its operations.
As a result, the Company may be required to repurchase customer promissory notes
previously sold which become delinquent. The Company takes these contingent
obligations into account in establishing its allowance for uncollectible notes.
At December 31, 1999, the Company had Vacation Interval customer notes
receivable in the approximate principal amount of $317.5 million, was
contingently liable with respect to approximately $2.2 million principal amount
of customer notes sold with recourse, and had an allowance for uncollectible
notes of approximately $32.3 million. There can be no assurance that such
allowances are adequate.
FINANCING CUSTOMER BORROWINGS. To finance its operations, the Company
borrows funds under existing or future credit arrangements and is dependent on
its ability to finance customer notes receivable through third party lenders to
conduct its business.
BORROWING BASE. To finance Vacation Interval customer notes receivable,
the Company has entered into agreements with lenders to borrow up to
approximately $310.0 million collateralized by customer promissory notes and
mortgages. At December 31, 1999, the Company had such borrowings from
lenders in the approximate principal amount of $178.3 million. The Company's
lenders typically lend the Company up to 85% of the principal amount of
performing notes, and payments from Silverleaf Owners on such notes are
credited directly to the lender and applied against the Company's loan
balance. At December 31, 1999, the Company had a portfolio of approximately
51,886 Vacation Interval customer notes receivable in the approximate
principal amount of $317.5 million, of which approximately $41.7 million in
principal amount were 61 days or more past due and therefore ineligible as
collateral.
NEGATIVE CASH FLOW. The Company ordinarily receives only 10% of the
purchase price on the sale of a Vacation Interval but must pay in full the
costs of development, marketing, and sale of the interval. Maximum
borrowings available under the Company's credit facilities may not be
sufficient to cover these costs, thereby straining the Company's capital
resources, liquidity, and capacity to grow.
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INTEREST RATE MISMATCH. At December 31, 1999, the Company's portfolio of
customer loans had a weighted average fixed interest rate of 13.7%. At such
date, the Company's borrowings (which bear interest at variable rates)
against the portfolio had a weighted average cost of funds of 9.2%. The
Company has historically derived net interest income from its financing
activities because the interest rates it charges its customers who finance
the purchase of their Vacation Intervals exceed the interest rates the
Company pays to its lenders. Because the Company's existing indebtedness
currently bears interest at variable rates and the Company's customer notes
receivable bear interest at fixed rates, increases in interest rates would
erode the spread in interest rates that the Company has historically enjoyed
and could cause the interest expense on the Company's borrowings to exceed
its interest income on its portfolio of customer notes receivable. The
Company has not engaged in interest rate hedging transactions. Therefore,
any increase in interest rates, particularly if sustained, could have a
material adverse effect on the Company's results of operations, liquidity,
and financial position. To the extent interest rates decrease generally on
loans available to the Company's customers, the Company faces an increased
risk that customers will pre-pay their loans and reduce the Company's income
from financing activities.
MATURITY MISMATCH. The Company typically provides financing to customers
over a seven-year to ten-year period, and customer notes had an average
maturity of 5.7 years at December 31, 1999. The Company's related revolving
credit facilities mature between December 2000 and September 2006, with
$60.0 million of these credit facilities maturing in December 2000.
Accordingly, there could be a mismatch between the Company's anticipated
cash receipts and cash disbursements in December 2000 and subsequent
periods. Although the Company has historically been able to secure financing
sufficient to fund its operations, it does not presently have agreements
with its lenders to extend the term of its existing funding commitments or
to replace such commitments upon their expiration. Failure to obtain such
refinancing facilities could require the Company to sell its portfolio of
customer notes receivable, probably at a substantial discount, or to seek
other alternatives to enable it to continue in business. While the Company
has been successful in obtaining financing to date, there is no assurance it
will be able to do so in the future.
IMPACT ON SALES. Limitations on the availability of financing would
inhibit sales of Vacation Intervals due to (i) the lack of funds to finance
the initial negative cash flow that results from sales that are financed by
the Company and (ii) reduced demand if the Company is unable to provide
financing to purchasers of Vacation Intervals.
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS AND RELATED LAWS.
The Company's marketing and sales of Vacation Intervals and other operations are
subject to extensive regulation by the federal government and the states and
jurisdictions in which the Existing Resorts and New Resorts are located and in
which Vacation Intervals are marketed and sold. On a federal level, the Federal
Trade Commission has taken the most active regulatory role through the Federal
Trade Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may be
subject includes the Truth-in-Lending Act and Regulation Z, the Equal
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, the Real Estate Settlement Procedures Act, the Consumer Credit
Protection Act, the Telephone Consumer Protection Act, the Telemarketing and
Consumer Fraud and Abuse Prevention Act, the Fair Housing Act, and the Civil
Rights Acts of 1964 and 1968.
In response to certain fraudulent marketing practices in the timeshare
industry in the 1980's, various states enacted legislation aimed at curbing such
abuses. Several states in which the Company currently owns Existing Resorts or
New Resorts, as well as other states in which the Company markets its Vacation
Intervals, have adopted specific laws and regulations regarding the marketing
and sale of Vacation Intervals. The laws of several states require the Company
to file a detailed offering statement and supporting documents with a designated
state authority, which describe the Company, the project, and the promotion and
sale of Vacation Intervals. The offering statement must be approved by the
appropriate state agency before the Company may solicit residents of such state.
The laws of certain states require the Company to deliver an offering statement
(or disclosure statement), together with certain additional information
concerning the terms of the purchase, to prospective purchasers of Vacation
Intervals who are residents of such state, even if the resort is not located in
such state. There are also laws in each state where the Company currently sells
Vacation Intervals which grant the purchaser of a Vacation Interval the right to
cancel a contract of purchase at any time within three to fifteen calendar days
following the date the contract was signed by the purchaser.
The Company also markets and sells its Vacation Intervals to residents of
certain states which are near the states where the Company's resorts are
located. Many of these neighboring states also regulate the marketing and sale
of Vacation Intervals to their residents. Most states have additional laws which
regulate the Company's activities and protect purchasers, such as real estate
licensure laws; travel sales licensure laws; anti-fraud laws; consumer
protection laws; telemarketing laws; prize, gift, and sweepstakes
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laws; and other related laws. The Company does not register all of its resorts
in each of the states where it registers certain resorts.
The Company believes it is in material compliance with federal and state
laws and regulations to which it is currently subject relating to the sale and
marketing of Vacation Intervals. However, the Company is normally and currently
the subject of a number of consumer complaints generally relating to marketing
or sales practices filed with relevant authorities, and there can be no
assurance that all of these complaints can be resolved without adverse
regulatory actions or other consequences. The Company expects some level of
consumer complaints in the ordinary course of its business as the Company
aggressively markets and sells Vacation Intervals in the value segment of the
timeshare industry, which may include individuals who are less financially
sophisticated than more affluent customers. There can be no assurance that the
costs of resolving consumer complaints or of qualifying under Vacation Interval
ownership regulations in all jurisdictions in which the Company desires to
conduct sales will not be significant, that the Company is in material
compliance with applicable federal, state, or other laws and regulations, or
that violations of law will not have adverse implications for the Company,
including negative public relations, potential litigation, and regulatory
sanctions. The expense, negative publicity, and potential sanctions associated
with the failure to comply with applicable laws or regulations could have a
material adverse effect on the Company's results of operations, liquidity, and
financial position. Further, there can be no assurance that either the federal
government or states having jurisdiction over the Company's business will not
adopt additional regulations or take other actions which would adversely affect
the Company's results of operations, liquidity, and financial position.
During the 1980's and continuing through the present, the timeshare industry
has been and continues to be afflicted with negative publicity and prosecutorial
attention due to, among other things, marketing practices which were widely
viewed as deceptive or fraudulent. Among the many timeshare companies which have
been the subject of federal, state, and local enforcement actions and
investigations in the past were certain of the Affiliated Companies and their
affiliates. Some of the settlements, injunctions, and decrees resulting from
litigation and enforcement actions (the "Orders") to which certain of the
Affiliated Companies consented purport to bind all successors and assigns, and
accordingly binds the Company. In addition, at that time the Company was
directly a party to one such Order issued in Missouri. No past or present
officers, directors, or employees of the Company or any Affiliated Company were
named as subjects or respondents in any of these Orders; however, each Order
purports to bind generically unnamed "officers, directors, and employees" of
certain Affiliated Companies. Therefore, certain of these Orders may be
interpreted to be enforceable against the present officers, directors, and
employees of the Company even though they were not individually named as
subjects of the enforcement actions which resulted in these Orders. These Orders
require, among other things, that all parties bound by the Orders, including the
Company, refrain from engaging in deceptive sales practices in connection with
the offer and sale of Vacation Intervals. In one particular case in 1988, an
Affiliated Company pled guilty to deceptive uses of the mails in connection with
promotional sales literature mailed to prospective timeshare purchasers and
agreed to pay a judicially imposed fine of $1.5 million and restitution of
$100,000. The requirements of the Orders are substantially what applicable state
and federal laws and regulations mandate, but the consequence of violating the
Order may be that sanctions (including possible financial penalties and
suspension or loss of licensure) may be imposed more summarily and may be
harsher than would be the case if the Orders did not bind the Company. In
addition, the existence of the Orders may be viewed negatively by prospective
regulators in jurisdictions where the Company does not now do business, with
attendant risks of increased costs and reduced opportunities.
In early 1997, the Company was the subject of some consumer complaints which
triggered governmental investigations into the Company's affairs. In March 1997,
the Company entered into an Assurance of Voluntary Compliance with the Texas
Attorney General, in which the Company agreed to make additional disclosure to
purchasers of Vacation Intervals regarding the limited availability of its
Endless Escape program during certain periods. The Company paid $15,200 for
investigatory costs and attorneys' fees of the Attorney General in connection
with this matter. Also, in March 1997, the Company entered into an agreed order
(the "Agreed Order") with the Texas Real Estate Commission requiring the Company
to comply with certain aspects of the Texas Timeshare Act, Texas Real Estate
License Act, and Rules of the Texas Real Estate Commission, with which it had
allegedly been in non-compliance until mid-1995. The allegations included (i)
the Company's admitted failure to register the Missouri Destination Resorts in
Texas (due to its misunderstanding of the reach of the Texas Timeshare Act);
(ii) payment of referral fees for Vacation Interval sales, the receipt of which
was improper on the part of the recipients; and (iii) miscellaneous other
actions alleged to violate the Texas Timeshare Act, which the Company denied.
While the Agreed Order acknowledged that Silverleaf independently resolved ten
consumer complaints referenced in the Agreed Order, discontinued the practices
complained of, and registered the Destination Resorts during 1995 and 1996, the
Texas Real Estate Commission ordered Silverleaf to cease its discontinued
practices and enhance its disclosure to purchasers of Vacation Intervals. In the
Agreed Order, Silverleaf agreed to make a voluntary donation of $30,000 to the
State of Texas. The Agreed Order also directed Silverleaf to revise its training
manual for timeshare salespersons and verification officers. While the Agreed
Order resolved all of the alleged violations contained in complaints received by
the Texas Real Estate Commission through December 31, 1996, the Company has
encountered and expects to encounter some level of additional consumer
complaints in the ordinary course of its business.
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EXPANSION INTO NEW GEOGRAPHIC AREAS. Prior to August 1997, all of the
Company's operating resorts and substantially all of its customers and borrowers
were located in Texas and Missouri. Since August 1997, the Company has expanded
into several other states. The recent expansion into new geographic areas poses
new risks because the Company does not possess the same level of familiarity
with and experience in these markets as it possesses with respect to its
historical markets in Missouri and Texas, which could adversely affect the
Company's ability to develop and operate timeshare resorts and sell Vacation
Intervals in these new markets. Such expansion also requires the Company to
comply with the laws and regulations of additional jurisdictions where the
Company currently markets or will market its Vacation Intervals. Additionally,
the Company is subject to and will become subject to zoning and land use laws of
additional municipalities. There is no assurance the Company can comply with all
of these requirements economically or otherwise. The New Resorts will also
require new architectural plans and construction techniques with which the
Company is less familiar. For example, Silverleaf will utilize five-story and
nine-story, high density buildings for the proposed resort in Las Vegas, Nevada,
whereas the Company has historically utilized low-rise, lower density building
structures. Expansion of the Company's sales and marketing activities is
expected to result in higher marketing expenses to gain entrance to these new
markets. Cultural differences between customers in these new markets and the
Company's historical markets may result in additional marketing costs or lower
sales. All of the above risks associated with the Company's entrance into the
new geographic areas could have a material adverse effect on the Company's
results of operations, liquidity, and financial position.
RAPID GROWTH. The Company has experienced rapid growth which could place a
strain on the Company's management, employees, and systems. Prior to August
1997, the Company owned and operated seven resorts. Since then, the Company has
acquired four resorts and sites for four additional resorts and has acquired
management rights with respect to seven timeshare resorts. As the Company's
business develops and expands, the Company will require additional management
and employees and will need to implement enhanced operational and financial
systems. There can be no assurance that the Company will successfully hire,
retain, integrate, and utilize management and employees and implement and
maintain such operational and financial systems. Failure to hire, retain, and
integrate management and employees or implement such systems successfully could
have a material adverse effect on the Company's results of operations,
liquidity, and financial position.
CONCENTRATION IN TIMESHARE INDUSTRY. Because the Company's operations are
conducted solely within the timeshare industry, any adverse changes affecting
the timeshare industry such as an oversupply of timeshare units, a reduction in
demand for timeshare units, changes in travel and vacation patterns, a decrease
in popularity of any of the Company's resorts with consumers, changes in
governmental regulations or taxation of the timeshare industry, as well as
negative publicity about the timeshare industry, could have a material adverse
effect on the Company's results of operations, liquidity, and financial
position.
COMPETITION. The timeshare industry is highly fragmented and includes a
large number of local and regional resort developers and operators. However,
some of the world's most recognized lodging, hospitality, and entertainment
companies, such as Marriott, Disney, Hilton, Hyatt, and Four Seasons, have
entered the industry. Other companies in the timeshare industry, including
Sunterra, Fairfield, Starwood, Ramada, TrendWest, and Bluegreen are, or are
subsidiaries of, public companies with enhanced access to capital and other
resources.
Fairfield, Sunterra, and Bluegreen own timeshare resorts in or near Branson,
Missouri, which compete with the Company's Holiday Hills and Ozark Mountain
resorts and to a lesser extent with the Company's newly-acquired Timber Creek
Resort. Sunterra also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Additionally, the Company believes there are a
number of public or privately-owned and operated timeshare resorts in most
states in which the Company owns resorts which will compete with the Company's
Existing Resorts and New Resorts.
The Company believes Marriott, Disney, Hilton, Hyatt, and Four Seasons
generally target consumers with higher annual incomes than the Company's target
market. The Company believes the other competitors named above target consumers
with similar, but slightly higher, income levels than the Company's target
market. The Company's competitors may possess significantly greater financial,
marketing, personnel, and other resources than the Company, and there can be no
assurance that such competitors will not significantly reduce the price of their
Vacation Intervals or offer greater convenience, services, or amenities than the
Company.
While the Company's principal competitors are developers of timeshare
resorts, the Company is also subject to competition from other entities engaged
in the commercial lodging business, including condominiums, hotels, and motels;
others engaged in the leisure business; and, to a lesser extent, from
campgrounds, recreational vehicles, tour packages, and second home sales. A
reduction in the product costs associated with any of these competitors, or an
increase in the Company's costs relative to such competitors' costs, could have
a material adverse effect on the Company's results of operations, liquidity, and
financial position.
Numerous businesses, individuals, and other entities compete with the
Company in seeking properties for acquisition and
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development of new resorts. Some of these competitors are larger and have
greater financial and other resources than the Company. Such competition may
result in a higher cost for properties the Company wishes to acquire or may
cause the Company to be unable to acquire suitable properties for the
development of new resorts.
DEVELOPMENT, CONSTRUCTION, AND PROPERTY ACQUISITION ACTIVITIES. The Company
intends to develop and continue the expansion of the Existing Resorts, to
develop the New Resorts, and to selectively acquire and develop other resorts.
Acquiring and developing resorts places substantial demands on the Company's
liquidity and capital resources, as well as on its personnel and administrative
capabilities. Risks associated with the Company's development and construction
activities include the following: construction costs or delays at a property may
exceed original estimates, possibly making the expansion or development
uneconomical or unprofitable; sales of Vacation Intervals at a newly completed
property may not be sufficient to make the property profitable; the Company has
expanded and will continue to expand into new geographic areas in which it has
no operating history and there is no assurance the Company will be successful in
such locations; and financing may be unavailable or may not be available on
favorable terms for development of or the continued sales of Vacation Intervals
at a property. There can be no assurance the Company will develop and expand the
Existing Resorts, develop the New Resorts, or acquire and develop other resorts.
In addition, the Company's development and construction activities, as well
as its ownership and management of real estate, are subject to comprehensive
federal, state, and local laws regulating such matters as environmental and
health concerns, protection of endangered species, water supplies, zoning, land
development, land use, building design and construction, marketing and sales,
and other matters. Such laws and difficulties in obtaining, or failing to
obtain, the requisite licenses, permits, allocations, authorizations, and other
entitlements pursuant to such laws could impact the development, completion, and
sale of the Company's projects. The enactment of "slow growth" or "no-growth"
initiatives or changes in labor or other laws in any area where the Company's
projects are located could also delay, affect the cost or feasibility of, or
preclude entirely the expansion planned at each of the Existing Resorts and New
Resorts or the development of other resorts.
Most of the Company's resorts are located in rustic areas, often requiring
the Company to provide public utility water and sanitation services in order to
proceed with development. Such activities are subject to permission and
regulation by governmental agencies, the denial or conditioning of which could
limit or preclude development. Operation of the utilities also subjects the
Company to risk of liability in connection with both the quality of fresh water
provided and the treatment and discharge of waste-water.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a large extent
upon the experience and abilities of Robert E. Mead, Sharon K. Brayfield, and
David T. O'Connor, the Company's Chief Executive Officer, President, and
Executive Vice President -- Sales, respectively. The loss of the services of any
one of these key individuals could have a material adverse effect on the
Company's results of operations, liquidity, or financial position. The Company's
success is also dependent upon its ability to attract and retain qualified
acquisition, development, marketing, management, administrative, and sales
personnel. The ability to attract such personnel will become particularly
important as the Company grows and develops additional resorts, and there can be
no assurance that the Company will be successful in attracting and/or retaining
such personnel.
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO
DISABLED PERSONS. A number of state and federal laws, including the Fair Housing
Act and the Americans with Disabilities Act (the "ADA"), impose requirements
related to access and use by disabled persons of a variety of public
accommodations and facilities. The ADA requirements did not become effective
until after January 1, 1991. Although the Company believes the Existing Resorts
are substantially in compliance with laws governing the accessibility of its
facilities to disabled persons, the Company will incur additional costs of
complying with such laws. Additional federal, state, and local legislation may
impose further burdens or restrictions on the Company, the Clubs, or the
Management Clubs at the Existing Resorts, the New Resorts, or other resorts,
with respect to access by disabled persons. The ultimate cost of compliance with
such legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company's results of operations,
liquidity, and financial position, such costs could be substantial.
VULNERABILITY TO REGIONAL CONDITIONS. Prior to August 1997, all of the
Company's operating resorts and substantially all of the Company's customers and
borrowers were located in Texas and Missouri. Since August 1997, the Company has
expanded into several other states. The Company's performance and the value of
its properties is affected by regional factors, including local economic
conditions (which may be adversely impacted by business layoffs or downsizing,
industry slowdowns, changing demographics, and other factors) and the local
regulatory climate. Even with the recent acquisitions, the Company's current
geographic concentration could make the Company more susceptible to adverse
events or conditions which affect these areas in particular.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state, and local
laws, ordinances, and regulations, as well as common
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law, the owner or operator of real property generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on, in,
or emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow money using such real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling, or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health, or safety requirements may result in the need to
cease or alter operations at a property. Further, the owner or operator of a
site may be subject to common law claims by third parties based on damages and
costs resulting from violations of environmental regulations or from
contamination associated with the site. Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
were prepared in 1994 by independent environmental consultants for several of
the Existing Resorts, and more recent Phase I environmental reports have been
obtained for each of the remaining resorts. The reports did not reveal, nor is
the Company aware of, any environmental liability that would have a material
adverse effect on the Company's results of operations, liquidity, or financial
position. No assurance, however, can be given that these reports reveal all
environmental liabilities or that no prior owner created any material
environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent hazardous or toxic substances were present during the prior
ownership period. A transfer of the property may not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by it or by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state, and local ordinances and regulations regarding hazardous or
toxic substances. The Company has not been notified by any governmental
authority or third party of any non-compliance, liability, or other claim in
connection with any of its present or former properties.
DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; POSSIBLE INABILITY TO
QUALIFY RESORTS. The attractiveness of Vacation Interval ownership is enhanced
by the availability of exchange networks that allow Silverleaf Owners to
exchange in a particular year the occupancy right in their Vacation Interval for
an occupancy right in another participating network resort. According to ARDA,
the ability to exchange Vacation Intervals was cited by many buyers as an
important reason for purchasing a Vacation Interval. Several companies,
including RCI, provide broad-based Vacation Interval exchange services, and the
Existing Resorts, except Oak N' Spruce Resort, are currently qualified for
participation in the RCI exchange network. Oak N' Spruce Resort is currently
under contract with another exchange network provider, Interval International.
However, no assurance can be given that the Company will continue to be able to
qualify such resorts or any other future resorts for participation in these
networks or any other exchange network. If such exchange networks cease to
function effectively, or if the Company's resorts are not accepted as exchanges
for other desirable resorts, the Company's sales of Vacation Intervals could be
materially adversely affected.
RESALE MARKET FOR VACATION INTERVALS. Based on its experience at the
Existing Resorts, the Company believes the market for resale of Vacation
Intervals by the owners of such intervals is very limited and that resale prices
are substantially below their original purchase price. This may make ownership
of Vacation Intervals less attractive to prospective buyers. Also, attempts by
buyers to resell their Vacation Intervals compete with sales of Vacation
Intervals by the Company. While Vacation Interval resale clearing houses or
brokers do not currently have a material impact, if the secondary market for
Vacation Intervals were to become more organized and liquid, the availability of
resale intervals at lower prices could materially adversely affect the prices
and number of sales of new Vacation Intervals by the Company.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS. Sales of Vacation
Intervals have generally been lower in the months of November and December. Cash
flow and earnings may be impacted by the timing of development, the completion
of future resorts, and the potential impact of weather or other conditions in
the regions where the Company operates. The above may cause significant
variations in quarterly operating results.
NATURAL DISASTERS; UNINSURED LOSS. There are certain types of losses (such
as losses arising from floods and acts of war) that are not generally insured
because they are either uninsurable or not economically insurable and for which
neither the Company, the Clubs, nor the Management Clubs has insurance coverage.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could be required to repair damage at its expense or lose its capital
invested in a resort, as well as the anticipated future revenues from such
resort. Moreover, the Company would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss could
have a material adverse effect on the Company's results of operations,
liquidity, and financial position.
ACCELERATION OF DEFERRED TAXES. While the Company reports sales of Vacation
Intervals as income currently for financial
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reporting purposes, for regular federal income tax purposes the Company reports
substantially all Vacation Interval sales on the installment method. Under the
installment method, the Company recognizes income for tax on the sale of
Vacation Intervals when cash is received in the form of a down payment and as
payments on customer loans are received. The Company's December 31, 1999
liability for deferred taxes (i.e., taxes owed to taxing authorities in the
future in consequence of income previously reported in the financial statements)
was $86.7 million, primarily attributable to this method of reporting Vacation
Interval sales, before utilization of any available deferred tax benefits (up to
$58.5 million at December 31, 1999), including net operating loss carryforwards.
This amount does not include accrued interest on such deferred taxes which also
will be payable when the taxes are due, the amount of which is not now
reasonably ascertainable. If the Company should sell the installment notes or be
required to factor them or if the notes were foreclosed on by a lender of the
Company or otherwise disposed of, the deferred gain would be reportable for tax
and the deferred taxes, including interest on the taxes for the period the taxes
were deferred, as computed under Section 453 of the Internal Revenue Code of
1986, as amended (the "Code"), would become due. There can be no assurance that
the Company would have sufficient cash resources to pay those taxes and
interest. Furthermore, if the Company's sales of Vacation Intervals should
decrease in the future, the Company's diminished operations may not generate
either sufficient tax losses to offset taxable income or funds to pay the
deferred tax liability from prior periods.
ALTERNATIVE MINIMUM TAXES. Prior to 1997, the Company used the installment
method for the calculation of adjusted current earnings for federal alternative
minimum tax purposes, although the accrual method is required under the Code.
During 1997, the Company submitted a request to the Internal Revenue Service for
permission to change to the accrual method for this computation. In 1998, the
Company received a ruling from the Internal Revenue Service granting the request
effective January 1, 1997. As a result, the Company's alternative minimum
taxable income for 1997 through 2000 was or will be increased each year by
approximately $9 million, which results in the Company paying substantial
additional federal and state taxes in those years. As a result of this change,
the Company paid $668,000 and $4.8 million of federal alternative minimum tax
for 1997 and 1998, respectively, and estimates total federal alternative minimum
tax of $5.1 million for 1999.
LIMITATIONS ON USE OF CARRYOVERS FROM OWNERSHIP CHANGE. The Company
estimates that it had net operating loss carryforwards of approximately $121.4
million at December 31, 1999, for regular federal income tax purposes related
primarily to the deferral of installment sale gains. In addition to the general
limitations on the carryback and carryforward of net operating losses under
Section 172 of the Code, Section 382 of the Code imposes additional limitations
on the utilization of a net operating loss by a corporation following various
types of ownership changes which result in more than a 50 percentage point
change in ownership of a corporation within a three year period. Mr. Mead owned
100% of the stock of the Company until December 29, 1995, at which time his
ownership decreased to approximately 99% and Ms. Brayfield acquired 1%. As a
result of the Company's initial public offering in June 1997, Mr. Mead's
ownership of the Company further decreased to approximately 67%. After the
closing of the secondary offering in April 1998 and taking into account shares
owned by his family and shares subsequently purchased in the open market by both
Silverleaf and Mr. Mead, Mr. Mead owned 56.3% of the outstanding shares of
Common Stock of the Company as of December 31, 1999. In the future, Mr. Mead,
his family, or Ms. Brayfield could transfer their shares and/or the Company
could issue additional shares, including shares which it is required to issue
under its 1997 Stock Option Plan, which could result in more than a 50
percentage point change in ownership of the Company. If such a change occurs
within a three year period, the limitations of Section 382 would apply. Although
the Company does not believe that those limitations would currently adversely
affect the Company, there can be no assurance that the limitations will not
limit or deny the future utilization of the net operating loss by the Company,
resulting in the Company paying substantial additional federal and state taxes
and interest for any periods following such change in ownership. When such a
change in ownership occurs, Section 383 of the Code also limits or denies the
future utilization of certain carryover excess credits, including any unused
minimum tax credit attributable to payment of alternative minimum taxes.
Although the Company does not believe that these additional limitations would
currently adversely affect the Company, there can be no assurance that these
additional limitations will not limit or deny the future utilization of any
excess tax credits of the Company, resulting in the Company paying substantial
additional federal and state taxes and interest for any periods following such
change in ownership.
TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX
LIABILITY. Although all on-site sales personnel are treated as employees of the
Company for payroll tax purposes, the Company does have independent contractor
agreements with certain sales and marketing persons or entities. The Company has
not treated these independent contractors as employees; accordingly, the Company
does not withhold payroll taxes from the amounts paid to such persons or
entities. In the event the Internal Revenue Service or any state or local taxing
authority were to successfully classify such persons or entities as employees of
the Company, rather than as independent contractors, and hold the Company liable
for back payroll taxes, such action may have a material adverse effect on the
Company's results of operations, liquidity, and financial position.
YEAR 2000 COMPLIANCE. In 1999, the Company completed its year 2000
compliance review of its information technology ("IT") systems and non-IT
systems and successfully implemented all related upgrades, replacements, or
modifications necessary. The
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Company experienced virtually no year 2000 business interruptions either
internally or related to its major vendors. The total cost of the year
2000-related enhancements was approximately $430,000, including an estimate of
internal payroll committed to year 2000-related projects.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to litigation arising in the normal course
of its business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters. Litigation has been initiated
from time to time by persons seeking individual recoveries for themselves, as
well as, in some instances, persons seeking recoveries on behalf of an alleged
class. In the judgement of the Company, none of these lawsuits or claims against
the Company, either individually or in the aggregate, is likely to have a
material adverse effect on the Company, its business, results of operations, or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the New York Stock Exchange ("NYSE")
under the symbol "SVR." The following table sets forth, for the periods
indicated, the high and low sale prices for the Common Stock, as quoted on the
NYSE:
HIGH LOW
-------- -------
Year Ended December 31, 1998:
First Quarter.............................. $ 29 1/8 $ 24 3/8
Second Quarter ............................ 25 5/8 15 7/8
Third Quarter.............................. 15 1/8 7 9/16
Fourth Quarter............................. 14 6 13/16
Year Ended December 31, 1999:
First Quarter.............................. $ 10 1/4 $ 6 3/8
Second Quarter ............................ 8 9/16 6 7/16
Third Quarter.............................. 8 7/8 6 1/16
Fourth Quarter............................. 7 1/2 5 11/16
Year Ended December 31, 2000:
First Quarter (through March 13, 2000)..... $ 7 3/16 $ 4 3/8
On March 13, 2000, there were approximately 53 holders of record of the
Company's Common Stock and the estimated number of beneficial stockholders was
2,325.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of its business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend upon,
among other things, the Company's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions in respect of the
payment of dividends, and other factors that the Company's Board of Directors
deems relevant.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The Selected Consolidated Historical Financial and Operating Information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this report on Form 10-K.
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues:
Vacation Interval sales .............. $ 34,091 $ 45,907 $ 68,682 $ 135,582 $ 191,207
Sampler sales ......................... 1,310 1,717 1,415 2,768 4,250
----------- ----------- ----------- ----------- -----------
Total sales ......................... 35,401 47,624 70,097 138,350 195,457
Interest income ...................... 3,968 6,297 9,149 16,823 28,412
Interest income from affiliates ...... 393 377 247 62 48
Management fee income ................ 2,478 2,187 2,331 2,540 2,811
Other income ......................... 1,832 1,440 3,234 2,980 4,030
----------- ----------- ----------- ----------- -----------
Total revenues ...................... 44,072 57,925 85,058 160,755 230,758
----------- ----------- ----------- ----------- -----------
Costs and Operating Expenses:
Cost of Vacation Interval sales ...... 3,280 2,805 6,600 19,877 30,207
Sales and marketing .................. 17,850 21,839 30,559 67,030 101,104
Provision for uncollectible notes .... 6,632 8,733 10,524 16,372 19,121
Operating, general and administrative 7,287 8,431 9,291 14,144 23,218
Other expense ........................ 1,493 1,685 2,939 3,040 3,416
Depreciation and amortization ........ 863 1,264 1,497 3,332 5,563
Interest expense ..................... 3,609 4,759 4,664 7,150 16,773
----------- ----------- ----------- ----------- -----------
Total costs and operating expenses .. 41,014 49,516 66,074 130,945 199,402
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes ........... 3,058 8,409 18,984 29,810 31,356
Provision for income taxes ............. 1,512 3,140 7,024 11,432 12,072
----------- ----------- ----------- ----------- -----------
Income from continuing operations ...... 1,546 5,269 11,960 18,378 19,284
Loss from discontinued operations ...... (1,484) (295) -- -- --
----------- ----------- ----------- ----------- -----------
Net income ............................. $ 62 $ 4,974 $ 11,960 $ 18,378 $ 19,284
=========== =========== =========== =========== ===========
Income per share from continuing
operations-- Basic and Diluted (a) ... $ 0.20 $ 0.68 $ 1.22 $ 1.45 $ 1.50
=========== =========== =========== =========== ===========
Net income per share-- Basic
and Diluted (a) ...................... $ 0.01 $ 0.64 $ 1.22 $ 1.45 $ 1.50
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding-- Basic .................. 7,590,295 7,711,517 9,767,407 12,633,751 12,889,417
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding-- Diluted ................ 7,590,295 7,711,517 9,816,819 12,682,982 12,890,044
=========== =========== =========== =========== ===========
DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(b) .................................... $ 7,530 $14,432 $25,145 $40,292 $53,692
OTHER OPERATING DATA:
Number of Existing Resorts at period end ..... 7 7 10 18 18
Number of Vacation Intervals sold (excluding
upgrades)(c) ............................... 4,464 5,634 6,592 12,934 15,829
Number of upgraded Vacation Intervals sold ... 1,921 1,914 3,908 6,817 11,400
Number of Vacation Intervals in inventory .... 6,580 6,746 10,931 14,453 17,073
Average price of Vacation Intervals sold
(excluding upgrades)(c)(d) ................. $ 5,965 $ 6,751 $ 7,854 $ 8,166 $ 8,896
Average price of upgraded Vacation Intervals
sold (net of exchanged interval)............ $ 3,885 $ 4,113 $ 4,326 $ 4,396 $ 4,420
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DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents ................. $ 3,712 $ 973 $ 4,970 $ 11,355 $ 4,814
Amounts due from affiliates ............... 4,342 6,237 1,389 4,115 6,596
Total assets .............................. 62,687 90,852 156,401 313,005 479,957
Amounts due to affiliates ................. 14,263 14,765 -- -- --
Notes payable and capital lease obligations 23,363 41,986 48,871 58,108 194,171
Senior subordinated notes ................. -- -- -- 75,000 75,000
Total liabilities ......................... 46,999 70,190 72,636 171,079 318,747
Shareholders' equity ...................... 15,688 20,662 83,765 141,926 161,210
- ----------
(a) Earnings per share amounts are based on the weighted average number of
shares outstanding.
(b) EBITDA represents income from continuing operations before depreciation
and amortization, interest expense, and provision for income taxes.
EBITDA is presented because it is a widely accepted indicator of a
company's financial performance. However, EBITDA should not be
construed as an alternative to net income as a measure of the Company's
operating results or to cash flows from operating activities
(determined in accordance with generally accepted accounting
principles) as a measure of liquidity. Since revenues from Vacation
Interval sales include promissory notes received by the Company, EBITDA
does not reflect cash flow available to the Company. Additionally, due
to varying methods of reporting EBITDA within the timeshare industry,
the computation of EBITDA for the Company may not be comparable to
other companies in the timeshare industry which compute EBITDA in a
different manner. The Company's management interprets trends in EBITDA
to be an indicator of the Company's financial performance, in addition
to net income and cash flows from operating activities (determined in
accordance with generally accepted accounting principles). The
following table reconciles EBITDA to net income from continuing
operations:
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Income from continuing operations ... $ 1,546 $ 5,269 $11,960 $18,378 $19,284
Depreciation and amortization ....... 863 1,264 1,497 3,332 5,563
Interest expense .................... 3,609 4,759 4,664 7,150 16,773
Provision for income taxes .......... 1,512 3,140 7,024 11,432 12,072
------- ------- ------- ------- -------
EBITDA from continuing operations ... $ 7,530 $14,432 $25,145 $40,292 $53,692
======= ======= ======= ======= =======
(c) Vacation Intervals sold during the years ended December 31, 1999, 1998,
and 1997, include 5,936 biennial intervals (counted as 2,968 annual
Vacation Intervals), 3,860 biennial intervals (counted as 1,930 annual
Vacation Intervals), and 1,517 biennial intervals (counted as 759
annual Vacation Intervals), respectively. The Company did not begin
selling biennial intervals until January 1997.
(d) Includes annual and biennial Vacation Interval sales for one-bedroom
and two-bedroom units.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Item 6 "Selected Financial Data" and the Company's Financial Statements and the
notes thereto and other financial data included elsewhere in this Form 10-K. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in Items 1 and 2 "Business and Properties"
included elsewhere herein.
OVERVIEW
The Company generates revenues primarily from the sale and financing of
Vacation Intervals, including upgraded intervals. Additional revenues are
generated from management fees from the Management Clubs, lease income from
Sampler sales, and utility operations. The Company recognizes a maximum
management fee of 15% of Silverleaf Club's gross revenues and 10% to 15% of
Crown Club's dues collected, subject to a limitation of each Club's net income.
However, if the Company does not receive the maximum management fees, such
deficiency is deferred for payment in succeeding years, subject again to the net
income limitation.
The Company recognizes Vacation Interval sales revenues on the accrual
basis. A sale is recognized after a binding sales contract has been executed,
the buyer has made a down payment of at least 10%, and the statutory rescission
period has expired. If all criteria are met except that construction is not
substantially complete, revenues are recognized on the percentage-of-completion
basis. Under this method, the portion of revenue applicable to costs incurred,
as compared to total estimated construction and direct selling costs, is
recognized in the period of sale. The remaining amount is deferred and
recognized as Vacation Interval sales in future periods as the remaining costs
are incurred. At December 31, 1999, approximately $360,000 of Vacation Interval
sales transactions were deferred as the minimum down payment had not been
received. The Company accounts for these transactions utilizing the deposit
method. Under this method, the sale is not recognized, a receivable is not
recorded, and inventory is not relieved. Any cash received is carried as a
liability until the sale can be recognized. When these types of sales are
cancelled without a refund, deposits forfeited are recognized as income. When
deposits are ultimately recognized as sales, the interest portion is recognized
as interest income.
The Company accounts for uncollectible notes by recording a provision to its
allowance for uncollectible notes at the time revenue is recognized. The Company
classifies the components of the provision for uncollectible notes into the
following three categories based on the nature of the item -- credit losses,
customer returns (customers that fail to make their first installment payment),
and customer releases (voluntary cancellations of properly recorded sales
transactions which in the opinion of management are consistent with the
maintenance of overall customer goodwill). The provision for uncollectible notes
pertaining to credit losses, customer returns, and customer releases is
classified in the Consolidated Statements of Income in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative expenses, respectively. The Company sets the provision for
uncollectible notes at an amount sufficient to maintain the allowance at a level
which management considers adequate to provide for anticipated losses from
customers' failure to fulfill their obligations under the notes. When inventory
is returned to the Company, any unpaid notes receivable balances are charged
against the previously established bad debt reserves net of the amount at which
the Vacation Interval is restored to inventory, which is the lower of the
historical cost basis or market value of the Vacation Interval.
Costs associated with the acquisition and development of resorts (including
land, construction costs, furniture, interest, and taxes) are capitalized and
included in inventory. Vacation Interval inventory is segregated into three
ratings based on customer demand, with greater costs apportioned to higher value
ratings. As Vacation Intervals are sold, these costs are deducted from inventory
on a specific identification basis.
Vacation Intervals may be reacquired as a result of (i) foreclosure (or deed
in lieu of foreclosure) and (ii) trade-in associated with the purchase of an
upgraded Vacation Interval. Vacation Intervals reacquired are recorded in
inventory at the lower of their original cost or market value. Vacation
Intervals which have been reacquired are relieved from inventory on a specific
identification basis when resold. Inventory acquired prior to 1996 through the
Company's program to reacquire Vacation Intervals owned but not actively used by
Silverleaf Owners has a significantly lower average cost basis than recently
constructed inventory, contributing significantly to historical operating
margins. New inventory added through the Company's construction and acquisition
programs has a higher average cost than the Company's pre-1996 inventory.
Accordingly, cost of sales has increased and will continue to increase as sales
of new inventory increases relative to overall sales.
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The Company recognizes interest income as earned. To the extent interest
payments become delinquent, the Company ceases recognition of the interest
income until collection is probable.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company.
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
As a percentage of total revenues:
Vacation Interval sales ................. 80.7% 84.3% 82.9%
Sampler sales ........................... 1.7 1.7 1.8
----- ----- -----
Total sales
82.4 86.0 84.7
Interest income ......................... 11.1 10.5 12.3
Management fee income ................... 2.7 1.6 1.2
Other income ............................ 3.8 1.9 1.8
----- ----- -----
Total revenues .................. 100.0% 100.0% 100.0%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales ......... 9.6% 14.7% 15.8%
Provision for uncollectible notes ....... 15.3 12.1 10.0
As a percentage of total sales:
Sales and marketing ..................... 43.6% 48.4% 51.7%
As a percentage of total revenues:
Operating, general and administrative ... 10.9% 8.8% 10.1%
Other expense ........................... 3.5 1.9 1.5
Depreciation and amortization ........... 1.8 2.1 2.4
Total costs and operating expenses ...... 77.7 81.5 86.4
As a percentage of interest income:
Interest expense ........................ 49.6% 42.3% 58.9%
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31,
1998
Revenues
Revenues in 1999 were $230.8 million, representing a $70.0 million, or
43.5%, increase over revenues of $160.8 million for the year ended December 31,
1998. The increase was primarily due to a $55.6 million increase in sales of
Vacation Intervals and an $11.6 million increase in interest income. The strong
increase in Vacation Interval revenues primarily resulted from increased sales
at core resorts and increased sales at new resorts, primarily relating to Oak N'
Spruce near Boston, Massachusetts, which opened a sales office in the second
quarter of 1998, Foxwood Hills in Westminster, South Carolina, which opened a
sales office in the third quarter of 1998, and Apple Mountain near Atlanta,
Georgia, which opened a sales office in the first quarter of 1999. In 1999 and
1998, sales were reduced by $3.7 million and $1.9 million, respectively, for
cancellations related to customer returns (i.e., customers that failed to make
their first installment payment).
In 1999, the number of Vacation Intervals sold, exclusive of upgraded
Vacation Intervals, increased 22.4% to 15,829 from 12,934 in 1998; the average
price per interval increased 8.9% to $8,896 from $8,166. Total interval sales
for 1999 included 5,936 biennial intervals (counted as 2,968 Vacation Intervals)
compared to 3,860 biennial intervals (counted as 1,930 Vacation Intervals) in
1998. The Company also experienced increased sales of upgraded intervals through
the continued implementation of marketing and sales programs focused on selling
upgraded intervals to the Company's existing Vacation Interval owners. In 1999,
the number of upgraded Vacation Intervals sold was 11,400 at an average price of
$4,420 compared to 6,817 upgraded Vacation Intervals sold in 1998 at an average
price of $4,396. In addition, Vacation Interval sales at existing resorts
increased as a result of enhanced telemarketing capacity, arising from
investments in computer and automated dialing technology.
Sampler sales increased to $4.3 million in 1999 compared to $2.8 million in
1998. Increased sales of overnight samplers were partially offset by an increase
in biennial interval sales, which are an alternative to the sampler program. The
increase also resulted from increased sales of the Company's Endless Escape
Program to owners of Vacation Intervals at seven resorts that have been managed
by the Company since May 1998.
Interest income increased 68.6% to $28.5 million for the year ended December
31, 1999 from $16.9 million for 1998. This increase primarily resulted from a
$112.6 million increase in notes receivable, net of allowance for uncollectible
notes, since December 31, 1998, due to increased sales. The increase in interest
income related to notes receivable was partially offset by interest income on
short-term investments, which decreased from $959,000 in 1998 to $234,000 in
1999 as proceeds from the debt and equity
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offerings completed in April 1998 were invested prior to their utilization.
Management fee income increased 10.7% to $2.8 million in 1999 from $2.5
million in 1998. The increase in management fee income was primarily the result
of greater net income from the Management Clubs due to higher dues income
resulting from an increased membership base, partially offset by an increase in
the Management Clubs' operating expenses.
Other income consists of water and utilities income, condominium rental
income, marina income, golf course and pro shop income, and other miscellaneous
items. Other income increased 35.2% to $4.0 million for the year ended December
31, 1999 from $3.0 million for the year ended December 31, 1998. The increase
primarily relates to the Apple Mountain golf course and pro shop, which opened
in the fourth quarter of 1998, and the Holiday Hills restaurant, which opened in
the second quarter of 1999.
Cost of Sales
Cost of sales as a percentage of gross Vacation Interval sales increased to
15.8% in 1999 from 14.7% in 1998. As the Company continues to deplete its
inventory of low-cost Vacation Intervals acquired primarily in 1995 and 1996,
the Company's sales mix has shifted to more recently constructed units, which
were built at a higher average cost per Vacation Interval. Hence, the cost of
sales as a percentage of Vacation Interval sales has increased compared to 1998.
This increase, however, was partially offset by increased sales prices during
1999.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 51.7%
for the year ended December 31, 1999 from 48.4% for 1998. This increase, in
part, was due to the implementation of new marketing programs, including a
vacation product whereby related revenues received are deferred until the guest
actually stays at the resort. Additionally, the Company is incurring substantial
marketing and start-up costs associated with two new sales offices and one
expanded sales office in recently opened markets where sales have not yet
reached mature levels. Implementation costs associated with new predictive
dialing equipment at the Company's call centers as well as the opening of a
fourth central marketing facility in September 1999 also contributed to the
increase.
Provision for Uncollectible Notes
Provision for uncollectible notes as a percentage of Vacation Interval sales
decreased to 10.0% in 1999 from 12.1% in 1998. This is the result of continued
improvements in the Company's collection efforts, including increased staffing,
improved collections software, the implementation of a program through which
delinquent loans are assumed by existing owners with a consistent payment
history, and an increase in receivables related to upgrade sales, which
typically represent better performing accounts, resulting in fewer
delinquencies.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total
revenues increased to 10.1% in 1999 from 8.8% in 1998. The increase is primarily
attributable to higher salaries, increased headcount, increased travel, legal,
and professional fees, primarily related to expansion into new markets, and an
increase in title and recording fees due to increased borrowings against pledged
notes receivable.
Other Expense
Other expense consists of water and utilities expenses, golf course and pro
shop expenses, marina expenses, and other miscellaneous expenses. Other expense
as a percentage of total revenues decreased to 1.5% in 1999 from 1.9% in 1998.
Overall, other expense increased $376,000 from 1998, primarily due to the Apple
Mountain golf course and pro shop, which opened in the fourth quarter of 1998,
and the Holiday Hills restaurant, which opened in the second quarter of 1999.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues
increased to 2.4% in 1999 from 2.1% in 1998. Overall, depreciation and
amortization expense increased $2.2 million from 1998, primarily due to
investments in new automated dialers, investments in telephone systems, and
investments in two central marketing facilities, which opened in September 1998
and September 1999, respectively.
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Interest Expense
Interest expense as a percentage of interest income increased to 58.9% for
the year ended December 31, 1999 from 42.3% in 1998. This increase is primarily
the result of interest expense related to increased borrowings against pledged
notes receivable.
Income Before Provision for Income Taxes
Income from continuing operations before provision for income taxes
increased 5.2% to $31.4 million for the year ended December 31, 1999, from $29.8
million for the year ended December 31, 1998, as a result of the above mentioned
operating results.
Provision for Income Taxes
Provision for income taxes as a percentage of income from continuing
operations before provision for income taxes remained relatively flat at 38.5%
in 1999 versus 38.4% in 1998.
Net Income
Net income increased $906,000, or 4.9%, to $19.3 million for the year ended
December 31, 1999, from $18.4 million for the year ended December 31, 1998, as a
result of the above mentioned operating results.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1997
Revenues
Revenues in 1998 were $160.8 million, representing a $75.7 million or 89.0%
increase over revenues of $85.1 million in 1997. The increase was primarily due
to a $66.9 million increase in sales of Vacation Intervals and a $7.5 million
increase in interest income. In 1998 and 1997, sales were reduced by $1.9
million and $2.8 million, respectively, for customer returns (i.e., customers
that failed to make their first installment payment).
In 1998, the number of Vacation Intervals sold, exclusive of sales of
upgraded Vacation Intervals, increased 96.2% to 12,934 from 6,592 in 1997; the
average price per unit increased 4.0% to $8,166 from $7,854. Total interval
sales for 1998 included 3,860 biennial intervals (counted as 1,930 Vacation
Intervals) compared to 1,517 biennial intervals (counted as 759 Vacation
Intervals) in 1997. The Company also experienced increased sales of upgraded
intervals at the Existing Resorts through the continued implementation of
marketing and sales programs focused on selling upgraded intervals to the
Company's existing Vacation Interval owners. In 1998, the number of upgraded
Vacation Intervals sold was 6,817 at an average price of $4,396 compared to
3,908 upgraded Vacation Intervals sold in 1997 at an average price of $4,326. In
addition, Vacation Interval sales at existing resorts increased as a result of
enhanced telemarketing capacity, arising from investments in computer and
automated dialing technology.
In 1998, sampler sales increased to $2.8 million compared to $1.4 million in
1997. The increase resulted from increased sales of overnight samplers offered
at new resorts, offset by an increase in biennial interval sales which are an
alternative to the sampler program.
Interest income increased 79.7% to $16.9 million in 1998 from $9.4 million
in 1997. This increase resulted from an $81.9 million increase in notes
receivable, net of allowance for uncollectible notes, due to increased sales, as
well as interest income generated from the proceeds of the debt and equity
offerings completed on April 3, 1998. Interest income from short-term
investments, primarily from the proceeds from public offerings prior to their
utilization, increased to $959,000 in 1998 compared to $354,000 in 1997.
Management fee income increased 9.0% to $2.5 million in 1998 from $2.3
million in 1997. This increase was primarily the result of greater Silverleaf
Club net income due to higher dues income resulting from an increased membership
base, partially offset by an increase in operating expenses.
Other income consists of water and utilities income, condominium rental
income, and miscellaneous items. Other income decreased 7.8% to $3.0 million for
the year ended December 31, 1998 from $3.2 million for the year ended December
31, 1997. This decrease was primarily the result of a $219,000 claims settlement
included in other income in 1997.
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Cost of Sales
Cost of sales as a percentage of gross Vacation Interval sales increased to
14.7% in 1998 from 9.6% in 1997. As the Company continued to deplete its
inventory of low-cost Vacation Intervals acquired primarily in 1995 and 1996,
the Company's sales mix shifted to more recently constructed units, which were
built at a higher average cost per Vacation Interval. Hence, the cost of sales
as a percentage of Vacation Interval sales increased compared to 1997.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 48.4%
for the year ended December 31, 1998 from 43.6% for 1997. This increase is
primarily due to the implementation of new marketing programs, start-up costs in
recently opened markets or markets yet to open where sales have not yet reached
mature levels to offset costs, and the deferred sales recognition associated
with sales at resorts under construction whereby only the direct sales
commissions costs related to such sales have been similarly deferred.
Provision for Uncollectible Notes
Provision for uncollectible notes as a percentage of Vacation Interval
sales decreased to 12.1% in 1998 from 15.3% in 1997. This is the result of
improvements in the Company's collection efforts, including increased staffing,
improved collections software, the implementation of a program through which
delinquent loans are assumed by existing owners with a consistent payment
history, and an increase in receivables relating to upgrade sales, which
typically represent better performing accounts, resulting in fewer
delinquencies.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total
revenues declined to 8.8% in 1998 from 10.9% in 1997. The decrease is the result
of the Company's ability to increase sales without proportionate increases in
overhead. Overall, operating, general and administrative expenses increased $4.9
million in 1998 as compared to the prior year, primarily due to an increase in
corporate salaries and additional costs resulting from growth and the Company's
publicly traded status effective June 1997.
Other Expense
Other expense consists of water and utilities expenses, marina expenses, and
other miscellaneous expenses. Other expense as a percentage of total revenues
decreased to 1.9% in 1998 from 3.5% in 1997. Overall, other expense increased
$101,000 for the year ended December 31, 1998 compared to the year ended
December 31, 1997.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues
increased to 2.1% in 1998 from 1.8% in 1997. Overall, depreciation and
amortization expense increased $1.8 million from 1997, primarily due to
investments in a new automated dialer, telephone system, and central marketing
facility.
Interest Expense
Interest expense as a percentage of interest income decreased to 42.3% in
1998 from 49.6% in 1997. While interest expense increased $2.5 million, or
53.3%, overall compared to 1997, this increase was not proportionate with the
increase in interest income previously discussed. This was due primarily to the
payment of indebtedness with proceeds from the Company's equity and debt
offerings in the second quarter of 1998, which resulted in lower effective
interest rates and lower average balances on outstanding notes payable and
capital lease obligations, offset by the interest expense generated by the 10.5%
senior subordinated notes.
Income Before Provision for Income Taxes
Income from continuing operations before provision for income taxes
increased 57.0% to $29.8 million for the year ended December 31, 1998, from
$19.0 million for the year ended December 31, 1997, as a result of the above
mentioned operating results.
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Provision for Income Taxes
Provision for income taxes as a percentage of income from continuing
operations before provision for income taxes increased to 38.4% in 1998 versus
37.0% in 1997. This increase resulted from an increase in state income taxes,
primarily due to additional operations commencing in Illinois, Missouri, and
Massachusetts.
Net Income
Net income increased $6.4 million, or 53.7%, to $18.4 million for the year
ended December 31, 1998, from $12.0 million for the year ended December 31,
1997, as a result of the above mentioned operating results.
RESULTS OF OPERATIONS - YEAR 2000 SALES AND MARKETING
Due to recent growth rates and implementation of new leads generation
programs, the Company is experiencing higher than anticipated marketing costs in
the first quarter of 2000. The Company has increased its headcount at the call
centers significantly since the fourth quarter of 1999, which created
inefficiencies due to lack of available training resources. In addition, the
Company has moved towards reliance on national retail chains for its leads
generation efforts, in addition to the traditional local programs. The
transition to national programs has been slower in generating leads than
originally planned. A major focus of Company management in 2000 is to improve
the efficiencies of the marketing process, which will bring sales and marketing
expenses more in line with expectations.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH. The Company generates cash primarily from the cash received
on the sale of Vacation Intervals, the financing of customer notes receivables
from Silverleaf Owners, management fees, sampler sales, and resort and utility
operations. During the years ended December 31, 1997, 1998, and 1999, the
Company's operating activities reflected a use of cash of $3.4 million, $17.6
million, and $7.7 million, respectively. The Company typically receives a 10%
down payment on sales of Vacation Intervals and finances the remainder by
receipt of a seven-year to ten-year customer promissory note. The Company
generates cash from the financing of customer notes receivable by (i) borrowing
at an advance rate of 70% to 85% of eligible customer notes receivable and (ii)
from the spread between interest received on customer notes receivable and
interest paid on related borrowings. Because the Company uses significant
amounts of cash in the development and marketing of Vacation Intervals, but
collects cash on customer notes receivable over a seven-year to ten-year period,
borrowing against receivables has historically been a necessary part of normal
operations.
Net cash provided by financing activities for the years ended December 31,
1997, 1998, and 1999 was $46.9 million, $118.5 million, and $124.3 million,
respectively. During 1999, the increase in cash provided by financing activities
to $124.3 million from $118.5 million in 1998 was primarily due to increased
borrowings against pledged notes receivable during the year ended December 31,
1999, compared to 1998. The Company's revolving credit facilities provide for
loans of up to $310.0 million. At December 31, 1999, approximately $178.3
million of principal and interest related to advances under the credit
facilities was outstanding. Of this amount, $39.6 million, $9.9 million, $45.7
million, $76.4 million, and $6.7 million matures in 2000, 2002, 2004, 2005, and
2006, respectively. For the year ended December 31, 1999, the weighted average
cost of funds for all borrowings, including the senior subordinated debt, was
9.2%. Customer defaults have a significant impact on cash available to the
Company from financing customer notes receivable in that notes more than 60 days
past due are not eligible as collateral. As a result, the Company must repay
borrowings against such delinquent notes.
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For regular federal income tax purposes, the Company reports substantially
all of the Vacation Interval sales it finances under the installment method.
Under this method, income on sales of Vacation Intervals is not recognized until
cash is received, either in the form of a down payment or as installment
payments on customer notes receivable. The deferral of income tax liability
conserves cash resources on a current basis. Interest is imposed, however, on
the amount of tax attributable to the installment payments for the period
beginning on the date of sale and ending on the date the related tax is paid. If
the Company is otherwise not subject to tax in a particular year, no interest is
imposed since the interest is based on the amount of tax paid in that year. The
Consolidated Financial Statements do not contain an accrual for any interest
expense which would be paid on the deferred taxes related to the installment
method as the interest expense is not estimable. In addition, the Company is
subject to current alternative minimum tax ("AMT") as a result of the deferred
income which results from the installment sales treatment. Payment of AMT
reduces the future regular tax liability attributable to Vacation Interval
sales, and creates a deferred tax asset. In 1998, the Internal Revenue Service
approved a change in the method of accounting for installment sales effective as
of January 1, 1997. As a result, the Company's alternative minimum taxable
income for 1997 through 2000 was or will be increased each year by approximately
$9.0 million for the pre-1997 adjustment, which results in the Company paying
substantial additional federal and state taxes in those years. The Company's net
operating loss carryforwards, which also may be used to offset installment sales
income, expire beginning in 2007 through 2019. Realization of the deferred tax
asset arising from net operating losses is dependent on generating sufficient
taxable income prior to the expiration of the loss carryforwards and other
factors.
USES OF CASH. Investing activities typically reflect a net use of cash
because of loans to customers in connection with the Company's Vacation Interval
sales, capital additions, and property acquisitions. Net cash used in investing
activities for the years ended December 31, 1997, 1998, and 1999 was $39.5
million, $94.5 million, and $123.1 million, respectively. Cash used in investing
activities increased significantly in each period primarily due to significant
increases in customer notes receivable. Operating and investing activities also
use cash because the Company requires funds to construct infrastructure,
amenities, and additional units at the Existing Resorts and New Resorts, to
acquire property for future resort development, and to support current
operations. In 1999, the increase in cash used in operating and investing
activities was also attributed to investments in a new central telemarketing
facility and related automated dialers and computer equipment, as well as
investments in undeveloped land, including $1.5 million of undeveloped land near
The Villages Resort in Tyler, Texas, $500,000 of undeveloped land near Holiday
Hills Resort in Branson, Missouri, and $805,000 of undeveloped land near Fox
River Resort in Sheridan, Illinois. The acquisition of the Fox River, Timber
Creek, and Oak N' Spruce resorts and the Las Vegas and Galveston sites in 1997,
and the acquisition of the Crown resorts, the Atlanta, Kansas City, and
Philadelphia sites, and a second parcel of land in Galveston in 1998, also
contributed to the increases in cash used in operating and investing activities
in those years. The Company acquired the Fox River and Timber Creek resorts in
August 1997 for $2.9 million, the site in Las Vegas, Nevada, in November 1997
for $2.7 million, one tract of the Galveston property in December 1997 for
$485,000, and the Oak N' Spruce Resort in Massachusetts in December 1997 for
$5.1 million. The Company acquired a second tract of the Galveston property in
February 1998 for $1.2 million, the Crown resorts in May 1998 for $4.8 million,
the Kansas City site in September 1998 for $1.5 million, the Philadelphia site
in December 1998 for $1.9 million, and various tracts of the Atlanta property
throughout the fourth quarter of 1998 for $4.2 million. Also, in the third and
fourth quarter of 1998, the Company reacquired 422,100 shares of its common
stock for approximately $5.0 million. The Company evaluates sites for additional
new resorts or acquisitions on an ongoing basis. As of December 31, 1999, the
Company had construction commitments of approximately $30.8 million. Certain
debt agreements include restrictions on the Company's ability to pay dividends
based on minimum levels of net income and cash flow.
The Company believes that with respect to its current operations and capital
commitments, its borrowing capacity under certain existing or renegotiated
third-party lending agreements, together with cash generated from operations and
future borrowings, will be sufficient to meet the Company's working capital and
capital expenditure needs for the year ended December 31, 2000. However,
depending upon conditions in capital and other financial markets, and other
factors including the Company's growth, development, and expansion plans, the
Company may from time to time consider the issuance of other debt, equity, or
collaterized mortgage-backed securities, the proceeds of which would be used to
finance future acquisitions, refinance debt, finance mortgage receivables, or
for other purposes. Any debt incurred or issued by the Company may be secured or
unsecured, have fixed or variable rate interest, and may be subject to such
terms as management deems prudent.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income, and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its customer notes
receivable.
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NEW ACCOUNTING STANDARD
SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000 and will
be adopted for the period beginning January 1, 2001. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The impact of SFAS No. 133 on the Company's results of operations,
financial position, or cash flows will be dependent on the level and types of
derivative instruments the Company will have entered into at the time the
standard is implemented.
YEAR 2000 COMPLIANCE
In 1999, the Company completed its year 2000 compliance review of its
information technology ("IT") systems and non-IT systems and successfully
implemented all related upgrades, replacements, or modifications necessary. The
Company experienced virtually no year 2000 business interruptions either
internally or related to its major vendors. The total cost of the year
2000-related enhancements was approximately $430,000, including an estimate of
internal payroll committed to year 2000-related projects.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of and for the year ended December 31, 1999, the Company had no
derivative financial instruments or foreign operations. Interest on the
Company's notes receivable and senior subordinated notes is fixed rate. See
notes 3, 4, 7, and 11 to the Company's consolidated financial statements
contained elsewhere herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information set forth on Index to Consolidated Financial Statements
appearing on page 54 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth under "Directors and
Executive Officers" and "Proxy Statement -- Compliance with Section 16(a) under
the Securities Exchange Act of 1934" in the Company's Definitive Proxy Statement
and reference is expressly made thereto for the specific information
incorporated herein by the aforesaid reference.
The following is a listing of the executive officers of the Company, none of
whom has a family relationship with directors or other executive officers:
ROBERT E. MEAD, age 53, founded the Company, has served as its Chairman of
the Board since its inception, and has served as its Chief Executive Officer
since May 1990. Mr. Mead began his career in hotel and motel management and also
operated his own construction company. Mr. Mead currently serves as a trustee
member of ARDA and has over 20 years of experience in the timeshare industry,
with special expertise in the areas of consumer finance, hospitality management,
and real estate development.
SHARON K. BRAYFIELD, age 39, has served as the President of the Company
since 1992 and manages all of the Company's day to day activities. Ms. Brayfield
began her career with an affiliated company in 1982 as the Public Relations
Director of Ozark Mountain Resort. In 1989, she was promoted to Executive Vice
President of Resort Operations for an affiliated company and in 1991 was named
Chief Operations Officer of the Company.
DAVID T. O'CONNOR, age 58, has over 22 years of experience in real estate
and timeshare sales and has worked periodically with
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Mr. Mead over the past 16 years. Mr. O'Connor has served as the Company's
Executive Vice President -- Sales for the past four years and as Vice President
- -- Sales since 1991. In such capacities he directed all field sales, including
the design and preparation of all training materials, incentive programs, and
follow-up sales procedures.
THOMAS C. FRANKS, age 46, joined the Company in August 1997 as President of
a newly-formed, wholly owned subsidiary of the Company, Silverleaf Resort
Acquisitions, Inc. In February 1998, Mr. Franks was named as Vice President--
Investor Relations and Governmental Affairs for the Company, and, in October
1998, Mr. Franks was named Executive Vice President-- Corporate Affairs. Mr.
Franks has more than 17 years of experience in the timeshare industry and is
responsible for acquisitions and industry and governmental relations. Mr. Franks
served as the President of ARDA from February 1991 through July 1997.
HARRY J. WHITE, JR., age 45, joined the Company in June 1998 as Chief
Financial Officer and has responsibility for all accounting, financial
reporting, and taxation issues. Prior to joining the Company, Mr. White was
Chief Financial Officer of Thousand Trails, Inc. from 1992 to 1998 and
previously was a senior manager with Deloitte & Touche LLP.
LARRY H. FRITZ, age 47, has been employed by the Company (or an affiliated
company) periodically over the past eleven years and has served in various
marketing management positions. Since 1991, Mr. Fritz has served as the
Company's chief marketing officer, with responsibility for daily marketing
operations, and currently serves as the Company's Vice President -- Marketing.
IOANNIS N. (JOHN) GIOLDASIS, age 49, has been with the Company since May
1993 and currently serves as Vice President -- Promotions. Mr. Gioldasis is
responsible for the design and implementation of marketing strategies and
promotional concepts for lead generation in Texas and other markets. Prior to
joining the Company, Mr. Gioldasis was a national field director for Resort
Property Consultants, Inc.
ALLEN L. HUDSON, age 53, joined the Company on June 1, 1998 as Vice
President -- Architecture and Engineering. Mr. Hudson was President and Chief
Operating Officer of an architectural firm which provided consultant design and
project management services to Silverleaf from 1995 until joining the Company.
MICHAEL L. JONES, age 33, was appointed Vice President -- Information
Services in May 1999. For more than five years prior to that time, Mr. Jones
served in various positions with the Company, including Network Manager, Payroll
Manager, and Director of Information Services.
EDWARD L. LAHART, age 35, has served as Vice President -- Corporate
Operations since June 1998. Prior to June 1998, Mr. Lahart served in various
capacities in the Company's Credit and Collections department.
ROBERT G. LEVY, age 51, was appointed Vice President -- Resort Operations in
March 1997 and administers the Company's Management Agreement with the
Silverleaf Club. Since 1990, Mr. Levy has held a variety of managerial positions
with the Silverleaf Club including Project Manager, General Manager, Texas
Regional Manager, and Director of Operations. Prior thereto, Mr. Levy spent 18
years in hotel, motel, and resort management, and was associated with the
Sheraton, Ramada Inn, and Holiday Inn hotel chains.
DAVID D. MCPHERSON, age 37, was appointed Vice President -- Finance in May
1999. Prior to that time, Mr. McPherson served as Director of Audit from July
1998 to May 1999 and as Director of Finance from May 1997 to July 1998. Before
joining the Company, Mr. McPherson served as Chief Financial Officer of Neutral
Posture Ergonomics, Inc. from May 1996 to April 1997 and as a Senior Auditor of
Deloitte & Touche, LLP from September 1992 until May 1996.
JAMES J. OESTREICH, age 59, joined the Company in February 1998 as Vice
President-- Marketing Development. From January 1991 to August 1995, Mr.
Oestreich served as Vice President of Sales and Marketing for Casablanca
Express, Inc. From August 1995 until joining the Company, Mr. Oestreich served
as President of Bull's Eye Marketing, Inc., a provider of marketing services to
the resort and direct sales industries.
SANDRA G. CEARLEY, age 38, has served as Secretary of the Company since its
inception. Ms. Cearley maintains corporate minute books, oversees regulatory
filings, and coordinates legal matters with the Company's attorneys.
COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and
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officers, and persons who own more than 10% of a registered class of the
Company's equity securities ("Insiders"), to file with the Commission initial
reports of ownership and reports of changes in ownership of common stock.
Insiders are required by the Commission's regulations to furnish to the Company
copies of all Section 16(a) reports filed by such persons.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under "Executive
Compensation" in the Company's Proxy Statement and reference is expressly made
thereto for the specific information incorporated herein by the aforesaid
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth under "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement and reference is expressly made thereto for the specific information
incorporated herein by the aforesaid reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth under "Certain
Relationships and Related Transactions" in the Company's Proxy Statement and
reference is expressly made thereto for the specific information incorporated
herein by the aforesaid reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by reference
to Exhibit 3.1 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by reference
to Exhibit 3.2 to Registrant's Form 10-K for year ended December
31, 1997).
4.1 -- Form of Stock Certificate of Registrant (incorporated by
reference to Exhibit 4.1 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
4.2 -- Indenture dated April 1, 1998, between the Company and Norwest
Bank Minnesota, National Association, as Trustee (incorporated by
reference to Exhibit 4.1 to Registrant's Form 10-Q for quarter
ended March 31, 1998).
4.3 -- Certificate No. 001 of 101/2% Senior Subordinated Notes due
2008 in the amount of $75,000,000 (incorporated by reference to
Exhibit 4.2 to Registrant's Form 10-Q for quarter ended March 31,
1998).
4.4 -- Subsidiary Guarantee dated April 8, 1998 by Silverleaf
Berkshires, Inc.; Bull's Eye Marketing, Inc.; Silverleaf Resort
Acquisitions, Inc.; Silverleaf Travel, Inc.; Database Research,
Inc.; and Villages Land, Inc. (incorporated by reference to
Exhibit 4.3 to Registrant's Form 10-Q for the quarter ended March
31, 1998).
*9.1 -- Voting Trust Agreement dated November 1, 1999 between Robert
E. Mead and Judith F. Mead.
10.1 -- Form of Registration Rights Agreement between Registrant and
Robert E. Mead (incorporated by reference to Exhibit 10.1 to
Amendment No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.2.1 -- Employment Agreement between Registrant and Thomas Franks
(incorporated by reference to Exhibit 10.6 to Registrant's Form
10-Q for quarter ended September 30, 1997).
10.2.2 -- Memorandum Agreement, dated August 21, 1997, between
Registrant and Thomas C. Franks (incorporated by reference to
Exhibit 10.7 to Registrant's Form 10-Q for quarter ended
September 30, 1997).
10.2.3 -- Employment Agreement, dated January 16, 1998, between
Registrant and Allen L. Hudson (incorporated by reference to
Exhibit 10.2.6 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1997).
10.2.4 -- Employment Agreement, dated January 20, 1998, between
Registrant And Jim Oestreich (incorporated by reference to
Exhibit 10.2.7 to
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Registrant's Annual Report on Form 10-K for year ended December
31, 1997).
10.2.5 -- Employment Agreement with Harry J. White, Jr. (incorporated by
Reference to Exhibit 10.1 to Registrant's Form 10-Q for quarter
ended June 30, 1998).
10.2.6 -- Amendment to Employment Agreement with Sharon K. Brayfield
(incorporated by reference to Exhibit 10.2 to Registrant's Form
10-Q For quarter ended June 30, 1998).
10.2.7 -- First Amendment dated June 12, 1998, to Employment Agreement
with Jim Oestreich (incorporated by reference to Exhibit 10.7 to
Registrant's Form 10-Q for quarter ended September 30, 1998).
10.2.8 -- Second Amendment dated September 29, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.8 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.9 -- First Amendment dated August 31, 1998, to Employment Agreement
with David T. O'Connor (incorporated by reference to Exhibit
10.10 to Registrant's Form 10-Q for quarter ended September 30,
1998).
10.3 -- 1997 Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 dated May 16, 1997
to Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.4 -- Silverleaf Club Agreement between the Silverleaf Club and the
resort clubs named therein (incorporated by reference to Exhibit
10.4 to Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.5 -- Management Agreement between Registrant and the Silverleaf
Club (incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.6 -- Revolving Loan and Security Agreement, dated October 1996, by
CS First Boston Mortgage Capital Corp. ("CSFBMCC") and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.7 -- Amendment No. 1 to Revolving Loan and Security Agreement,
dated November 8, 1996, between CSFBMCC and Silverleaf Vacation
Club, Inc. (incorporated by reference to Exhibit 10.7 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.8 -- Loan and Security Agreement among Textron Financial
Corporation ("Textron"), Ascension Resorts, Ltd. and Ascension
Capital Corporation, dated August 15, 1995 (incorporated by
reference to Exhibit 10.9 to Registrant's Registration Statement
on Form S-1, File No. 333-24273).
10.9 -- First Amendment to Loan and Security Agreement, dated December
28, 1995, between Textron and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.10 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.10 -- Second Amendment to Loan and Security Agreement, dated October
31, 1996, executed by Textron and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.11 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.11 -- Loan and Security Agreement, dated December 27, 1995, executed
by Ascension Resorts, Ltd. and Heller (incorporated by reference
to Exhibit 10.13 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.12 -- Amendment to Restated and Amended Loan and Security Agreement,
dated August 15, 1996, between Heller and Silverleaf Vacation
Club, Inc. (incorporated by reference to Exhibit 10.14 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.13 -- Form of Indemnification Agreement (between Registrant and all
officers, directors, and proposed directors) (incorporated by
reference to Exhibit 10.18 to Registrant's Registration Statement
on Form S-1, File No. 333-24273).
10.14 -- Resort Affiliation and Owners Association Agreement between
Resort Condominiums International, Inc., Ascension Resorts, Ltd.,
and Hill Country Resort Condoshare Club, dated July 29, 1995
(similar agreements for all other Existing Resorts) (incorporated
by reference to Exhibit 10.19 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.15 -- First Amendment to Silverleaf Club Agreement, dated March 28,
1990, among Silverleaf Club, Ozark Mountain Resort Club, Holiday
Hills Resort Club, the Holly Lake Club, The Villages Condoshare
Association, The Villages Club, Piney Shores Club, and Hill
Country Resort Condoshare Club (incorporated by reference to
Exhibit 10.22 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.16 -- First Amendment to Management Agreement, dated January 1,
1993, between Master Endless Escape Club and Ascension Resorts,
Ltd.
50
51
(incorporated by reference to Exhibit 10.23 to Amendment No. 1
dated May 16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.17 -- Contract of Sale, dated May 2, 1997, between Registrant and
third-party (incorporated by reference to Exhibit 10.24 to
Amendment No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.18 -- Amendment to Loan Documents, dated December 27, 1996, among
Silverleaf Vacation Club, Inc., Ascension Resorts, Ltd., and
Heller Financial, Inc. (incorporated by reference to Exhibit
10.25 to Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.19 -- Second Amendment to Restated and Amended Loan and Security
Agreement between Heller Financial, Inc. and Registrant ($40
million revolving credit facility) (incorporated by reference to
Exhibit 10.4 to Registrant's Form 10-Q for quarter ended
September 30, 1997).
10.20 -- Silverleaf Club Agreement dated September 25, 1997, between
Registrant and Timber Creek Resort Club (incorporated by
reference to Exhibit 10.13 to Registrant's Form 10-Q for quarter
ended September 30, 1997).
10.21 -- Second Amendment to Management Agreement, dated December 31,
1997, between Silverleaf Club and Registrant (incorporated by
reference to Exhibit 10.33 to Registrant's Annual Report on Form
10-K for year Ended December 31, 1997).
10.22 -- Silverleaf Club Agreement, dated January 5, 1998, between
Silverleaf Club And Oak N' Spruce Resort Club (incorporated by
reference to Exhibit 10.34 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.23 -- Master Club Agreement, dated November 13, 1997, between Master
Club and Fox River Resort Club (incorporated by reference to
Exhibit 10.43 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1997).
10.24 -- Letter Agreement dated March 16, 1998, between the Company and
Heller Financial, Inc. (incorporated by reference to Exhibit
10.44 to Amendment No. 1 to Form S-1, File No. 333-47427 filed
March 16, 1998).
10.25 -- Bill of Sale and Blanket Assignment dated May 28, 1998,
between the Company and Crown Resort Co., LLC (incorporated by
reference to Exhibit 10.6 to Registrant's Form 10-Q for quarter
ended June 30, 1998).
10.26 -- Contract of Sale by and between Terry Adair and George R.
Bedell, as Trustee, dated March 27, 1998 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for quarter
ended September 30, 1998).
10.27 -- Contract of Sale by and between Great Atlanta's Properties
Corp. and George R. Bedell, as Trustee, dated August 12, 1998
(incorporated by reference to Registrant's Form 10-Q for quarter
ended September 30, 1998).
10.28 -- Contract of Sale, dated February 25, 1998 (as amended in
October 1998), by and between the Company and J. Phillip Ballard,
Jr. and Eagle Greens Ltd., f/k/a Northeast Georgia Recreational
Development Co., Inc. (incorporated by reference to Exhibit 10.3
to Registrant's Form 10-Q for quarter ended September 30, 1998).
10.29 -- Amendment to Contract of Sale, dated October 14, 1998, by and
between the Company and J. Phillip Ballard, Jr. and Eagle Greens,
Ltd., f/k/a Northeast Georgia Recreational Development Co., Inc.
(incorporated by reference to Exhibit 10.4 to Registrant's Form
10-Q for quarter ended September 30, 1998).
10.30 -- Second Amendment to Contract of Sale, dated October 14, 1998,
by and between the Company and J. Phillip Ballard, Jr. and Eagle
Greens Ltd., f/k/a Northeast Georgia Recreational Development
Co., Inc. (incorporated by reference to Exhibit 10.5 to
Registrant's Form 10-Q for quarter ended September 30, 1998).
10.31 -- Management Agreement dated October 13, 1998, by and between
the Company and Eagle Greens, Ltd. (incorporated by reference to
Exhibit 10.6 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.32 -- One to Four Family Residential Contract (Resale) between the
Company and Thomas C. Franks, dated July 30, 1998 (incorporated
by reference to Exhibit 10.12 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.33 -- Contract of Sale dated April 28, 1998, by and between Beech
Mountain Lakes Corp. and the Company.
10.34 -- Amendment to Contract of Sale dated November 24, 1998, by and
between Beech Mountain Lakes Corp. and the Company.
10.35 -- Contract of Sale dated September 30, 1998, by and between
National American Corp. and the Company.
10.36 -- First Amendment to 1997 Stock Option Plan for Silverleaf
Resorts, Inc., effective as of
51
52
May 20, 1998 (incorporated by reference to Exhibit 4.1 to the
Company's Form 10-Q for the quarter ended June 30, 1998
10.37 -- Contract of Sale dated August 5, 1998, among David M. Fender
and Jane M. Fender ("Seller") and George R. Bedell ("Purchaser")
(incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarter ended March 31, 1999).
10.38 -- Third Amendment to Loan and Security Agreement dated as of
March 31, 1999, between the Company and Textron Financial
Corporation (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended March 31, 1999).
10.39 -- Amended and Restated Receivables Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
10.40 -- Amended and Restated Inventory Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
10.41 -- Loan and Security Agreement dated September 30, 1999, between
the Company and BankBoston, N.A., as Agent, and BankBoston, N.A.
and various financial institutions, as Lenders (incorporated by
reference to Exhibit 10.3 to Registrant's Form 10-Q for the
quarter ended September 30, 1999).
10.42 -- Purchase and Sale Agreement dated July 30, 1999, between the
Company and American National Bank and Trust Company of Chicago,
as Trustee (incorporated by reference to Exhibit 10.4 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
*10.43 -- Fourth Amendment to Loan and Security Agreement dated as of
December 16, 1999 between the Company and Textron Financial
Corporation.
*10.44 -- Loan and Security Agreement dated as of December 16, 1999
between the Company and Textron Financial Corporation.
*10.45 -- Loan, Security and Agency Agreement dated as of December 16,
1999 between the Company and Textron Financial Corporation.
*10.46 -- Second Amendment to 1997 Stock Option Plan, dated November 19,
1999.
*10.47 -- Eighth Amendment to Management Agreement, dated March 9, 1999,
between the Registrant and the Silverleaf Club.
*12.1 -- Statement concerning computation of ratios of earnings to
fixed charges
*21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
*27.1 -- Financial Data Schedule.
- ------------
* Filed herewith
(b) No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1999.
(c) The exhibits required by Item 601 of Regulation S-K have been listed above.
(d) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under which
they are required or because the information required by such omitted schedules
is set forth in the consolidated financial statements or the notes thereto.
52
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Dallas,
State of Texas, on March 15, 2000.
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
------------------
Name: Robert E. Mead
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ ROBERT E. MEAD Chairman of the Board and Chief March 15, 2000
- --------------------------- Executive Officer (Principal
Robert E. Mead Executive Officer)
/s/ SHARON K. BRAYFIELD Director and President March 15, 2000
- ---------------------------
Sharon K. Brayfield
/s/ HARRY J. WHITE, JR. Chief Financial Officer and March 15, 2000
- --------------------------- Treasurer (Principal Financial
Harry J. White, Jr. and Accounting Officer)
/s/ STUART MARSHALL BLOCH Director March 15, 2000
- ---------------------------
Stuart Marshall Bloch
/s/ JAMES B. FRANCIS, JR. Director March 15, 2000
- ---------------------------
James B. Francis, Jr.
/s/ MICHAEL A. JENKINS Director March 15, 2000
- ---------------------------
Michael A. Jenkins
53
54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report ..........................................................55
Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and 1999 ........................56
Consolidated Statements of Income for the years ended December 31, 1997,
1998, and 1999 ....................................................................57
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998, and 1999..................................................58
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998, and 1999...............................................................59
Notes to Consolidated Financial Statements ..........................................60
54
55
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Silverleaf Resorts, Inc.
We have audited the accompanying consolidated balance sheets of Silverleaf
Resorts, Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1999
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Silverleaf Resorts, Inc. and
subsidiaries as of December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 22, 2000
55
56
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
1998 1999
--------- ---------
ASSETS
Cash and cash equivalents ..................................... $ 11,355 $ 4,814
Restricted cash ............................................... 873 903
Notes receivable, net of allowance for uncollectible notes of
$23,947 and $32,326, respectively .......................... 173,959 286,581
Amounts due from affiliates ................................... 4,115 6,596
Inventories ................................................... 71,694 112,810
Land, equipment, buildings, and utilities, net ................ 34,025 51,050
Prepaid and other assets ...................................... 16,984 17,203
--------- ---------
TOTAL ASSETS ........................................ $ 313,005 $ 479,957
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses ....................... $ 8,144 $ 15,539
Unearned revenues ........................................... 4,167 5,601
Income taxes payable ........................................ 4,136 185
Deferred income taxes, net .................................. 21,524 28,251
Notes payable and capital lease obligations ................. 58,108 194,171
Senior subordinated notes ................................... 75,000 75,000
--------- ---------
Total Liabilities ................................... 171,079 318,747
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000 shares
authorized, 13,311,517 shares issued and 12,889,417 shares
outstanding at December 31, 1998 and 1999 ................ 133 133
Additional paid-in capital .................................. 109,339 109,339
Retained earnings ........................................... 37,453 56,737
Treasury stock, at cost (422,100 shares) .................... (4,999) (4,999)
--------- ----------
Total Shareholders' Equity .......................... 141,926 161,210
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 313,005 $ 479,957
========= =========
See notes to consolidated financial statements.
56
57
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
REVENUES:
Vacation Interval sales ........................ $ 68,682 $ 135,582 $ 191,207
Sampler sales .................................. 1,415 2,768 4,250
----------- ----------- -----------
Total sales .................................. 70,097 138,350 195,457
Interest income ................................ 9,149 16,823 28,412
Interest income from affiliates ................ 247 62 48
Management fee income .......................... 2,331 2,540 2,811
Other income ................................... 3,234 2,980 4,030
----------- ----------- -----------
Total revenues ......................... 85,058 160,755 230,758
----------- ----------- -----------
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales ................ 6,600 19,877 30,207
Sales and marketing ............................ 30,559 67,030 101,104
Provision for uncollectible notes .............. 10,524 16,372 19,121
Operating, general and administrative .......... 9,291 14,144 23,218
Other expense .................................. 2,939 3,040 3,416
Depreciation and amortization .................. 1,497 3,332 5,563
Interest expense ............................... 4,664 7,150 16,773
----------- ----------- -----------
Total costs and operating expenses ..... 66,074 130,945 199,402
----------- ----------- -----------
Income before provision for income taxes 18,984 29,810 31,356
Provision for income taxes ............. 7,024 11,432 12,072
----------- ----------- -----------
NET INCOME ....................................... $ 11,960 $ 18,378 $ 19,284
=========== =========== ===========
NET INCOME PER SHARE-- Basic and Diluted ......... $ 1.22 $ 1.45 $ 1.50
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-- Basic ............................ 9,767,407 12,633,751 12,889,417
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-- Diluted .......................... 9,816,819 12,682,982 12,890,044
=========== =========== ===========
See notes to consolidated financial statements.
57
58
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON STOCK
------------------------
NUMBER OF $0.01 ADDITIONAL TREASURY STOCK
SHARES PAR PAID-IN RETAINED -------------------------
ISSUED VALUE CAPITAL EARNINGS SHARES COST TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
JANUARY 1, 1997 ............... 7,711,517 $ 77 $ 13,470 $ 7,115 -- $ -- $ 20,662
Issuance of common stock..... 3,600,000 36 51,107 -- -- -- 51,143
Net income .................. -- -- -- 11,960 -- -- 11,960
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1997 ............. 11,311,517 113 64,577 19,075 -- -- 83,765
Issuance of common stock..... 2,000,000 20 44,762 -- -- -- 44,782
Treasury stock .............. -- -- -- -- (422,100) (4,999) (4,999)
Net income .................. -- -- -- 18,378 -- -- 18,378
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1998 ............. 13,311,517 133 109,339 37,453 (422,100) (4,999) 141,926
Net income .................. -- -- -- 19,284 -- -- 19,284
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1999 ............. 13,311,517 $ 133 $ 109,339 $ 56,737 (422,100) $ (4,999) $ 161,210
========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
58
59
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
1997 1998 1999
--------- --------- ---------
OPERATING ACTIVITIES:
Net income .......................................................... $ 11,960 $ 18,378 $ 19,284
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization .................................... 1,497 3,332 5,563
Discontinued operations .......................................... 1,589 -- --
Gain on disposal of land, equipment, buildings, and utilities..... (34) -- --
Deferred income taxes ............................................ 9,194 7,487 6,727
Increase (decrease) in cash from changes in assets
and liabilities:
Restricted cash ................................................ (200) (673) (30)
Amounts due from affiliates .................................... 551 (2,726) (2,481)
Inventories .................................................... (18,010) (44,262) (41,116)
Prepaid and other assets ....................................... (4,541) (5,803) (530)
Accounts payable and accrued expenses .......................... 1,950 3,038 7,395
Amounts due to affiliates ...................................... (286) -- --
Interest payable to affiliates ................................. (6,244) -- --
Unearned revenues .............................................. 1,332 960 1,434
Income taxes payable ........................................... (2,150) 2,636 (3,951)
--------- --------- ---------
Net cash used in operating activities ....................... (3,392) (17,633) (7,705)
--------- --------- ---------
INVESTING ACTIVITIES:
Collections of notes receivable from affiliates ..................... 4,297 -- --
Proceeds from sales of land, equipment, buildings, and utilities..... 1,176 -- 7,158
Purchases of land, equipment, buildings, and utilities .............. (8,692) (12,552) (17,629)
Notes receivable, net ............................................... (36,242) (81,923) (112,622)
--------- --------- ---------
Net cash used in investing activities ....................... (39,461) (94,475) (123,093)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities ................. 54,069 166,658 219,607
Payments on borrowings to unaffiliated entities ..................... (50,127) (84,436) (95,350)
Payments of debt issuance costs ..................................... -- (3,512) --
Proceeds from borrowings from affiliates ............................ 68 -- --
Payments on borrowings to affiliates ................................ (8,303) -- --
Net proceeds from initial public offering ........................... 51,143 -- --
Net proceeds from issuance of common stock .......................... -- 44,782 --
Purchase of treasury stock .......................................... -- (4,999) --
--------- --------- ---------
Net cash provided by financing activities ................... 46,850 118,493 124,257
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... 3,997 6,385 (6,541)
CASH AND EQUIVALENTS:
BEGINNING OF PERIOD ................................................ 973 4,970 11,355
--------- --------- ---------
END OF PERIOD ...................................................... $ 4,970 $ 11,355 $ 4,814
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid ....................................................... $ 10,007 $ 6,608 $ 18,086
Income taxes paid ................................................... -- 1,308 9,297
Land and equipment acquired under capital leases .................... 2,943 2,015 11,806
Costs incurred in connection with public offerings .................. 6,457 3,968 --
See notes to consolidated financial statements.
59
60
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1. NATURE OF BUSINESS
Silverleaf Resorts, Inc., a Texas Corporation (the "Company" or
"Silverleaf") is in the business of marketing and selling vacation intervals
("Vacation Intervals"). Silverleaf's principal activities, in this regard,
consist of (i) developing and acquiring timeshare resorts; (ii) marketing and
selling one-week annual and biennial Vacation Intervals to new prospective
owners; (iii) marketing and selling upgraded Vacation Intervals to existing
Silverleaf owners ("Silverleaf Owners"); (iv) providing financing for the
purchase of Vacation Intervals; and (v) operating timeshare resorts. The Company
has in-house sales, marketing, financing, and property management capabilities
and coordinates all aspects of expansion of the 18 existing owned or managed
resorts (the "Existing Resorts") and the development of any new timeshare
resort, including site selection, design, and construction. The Company operates
the Existing Resorts through two centralized organizations, Silverleaf Club and
Crown Club (collectively, the "Management Clubs"), which bear the costs of
operating, maintaining, and refurbishing the resorts from monthly dues paid by
the Vacation Interval owners. Crown Club consists of several individual Club
agreements which have terms of two to five years with a minimum of two renewal
options remaining. The Company receives a management fee from the Management
Clubs to compensate it for the services provided. In addition to Vacation
Interval sales revenues, interest income derived from its financing activities,
and the management fee received from the Management Clubs, the Company generates
additional revenue from leasing of unsold intervals (i.e., sampler sales),
utility operations related to the resorts, and other sources. All of the
operations are directly related to the resort real estate development industry.
Sales of Vacation Intervals are marketed to individuals primarily through direct
mail and telephone solicitation.
The consolidated financial statements of the Company as of and for the years
ended December 31, 1997, 1998, and 1999, reflect the operations of the Company
and its wholly owned subsidiaries, Condominium Builders, Inc. ("CBI"), Villages
Land, Inc., Silverleaf Travel, Inc., Database Research, Inc., Silverleaf Resort
Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf Berkshires, Inc., and
eStarCommunications, Inc. CBI was liquidated in 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
Revenue and Expense Recognition -- A substantial portion of Vacation
Interval sales are made in exchange for mortgage notes receivable, which are
secured by a deed of trust on the Vacation Interval sold. The Company recognizes
the sale of a Vacation Interval under the accrual method after a binding sales
contract has been executed, a 10% minimum down payment has been received, and
the statutory rescission period has expired. If all criteria are met except that
construction is not substantially complete, revenues are recognized on the
percentage-of-completion basis. Under this method, the portion of revenue
applicable to costs incurred, as compared to total estimated construction and
direct selling costs, is recognized in the period of sale. The remaining amount
is deferred and recognized as the remaining costs are incurred. At December 31,
1999, $360,000 of Vacation Interval sales transactions were deferred as the
minimum down payment had not been received. The Company accounts for these
transactions utilizing the deposit method. Under this method, the sale is not
recognized, a receivable is not recorded, and inventory is not relieved. Any
cash received is carried as a liability until the sale can be recognized. When
these types of sales are cancelled without a refund, deposits forfeited are
recognized as income. When deposits are ultimately recognized as sales, the
interest portion is recognized as interest income.
In addition to sales of Vacation Intervals to new prospective owners, the
Company sells upgraded Vacation Intervals to existing Silverleaf Owners.
Revenues are recognized on these upgrade Vacation Interval sales when the
criteria described above are satisfied. The revenue recognized is the net of the
incremental increase in the upgrade sales price and cost of sales is the
incremental increase in the cost of the Vacation Interval purchased. A provision
for estimated customer returns (customer returns represent cancellations of
sales transactions in which the customer fails to make the first installment
payment) is reported net against Vacation Interval sales.
The Company recognizes interest income as earned. To the extent interest
payments become delinquent the Company ceases recognition of the interest income
until collection is probable. When inventory is returned to the Company, any
unpaid note receivable balances, net of the lower of historical cost or market
value of the related Vacation Interval (which is the amount at which the
Vacation Interval is being restored to inventory), are charged against the
previously established allowance for uncollectible notes.
60
61
Revenues related to one-time sampler contracts, which entitles the
prospective owner to sample a resort for various periods, are recorded as
earned.
The Company receives fees for management services provided to the Management
Clubs. These revenues are recognized on an accrual basis in the period the
services are provided.
Utilities, services, and other income is recognized on an accrual basis in
the period service is provided.
Sales and marketing costs are charged to expense in the period incurred.
Cash and Cash Equivalents -- Cash and cash equivalents consist of all highly
liquid investments with an original maturity at the date of purchase of three
months or less. Cash and cash equivalents consist of cash, certificates of
deposit, and money market funds.
Restricted Cash -- Restricted cash consists of certificates of deposit which
serve as collateral for construction bonds.
Provision for Uncollectible Notes -- The Company records a provision for
uncollectible notes at the time revenue is recognized. Such provision is
recorded in an amount sufficient to maintain the allowance for uncollectible
notes at a level considered adequate to provide for anticipated losses resulting
from customers' failure to fulfill their obligations under the terms of their
notes. The allowance for uncollectible notes takes into consideration both notes
held by the Company and those sold with recourse. Such allowance for
uncollectible notes is adjusted based upon periodic analysis of the notes
receivable portfolio, historical credit loss experience, and current economic
factors. The allowance for uncollectible notes is reduced by actual
cancellations and losses experienced, including losses related to previously
sold notes receivable which became delinquent and were reacquired pursuant to
the recourse obligations discussed herein. Recourse to the Company on sales of
customer notes receivable is governed by the agreements between the purchasers
and the Company. The Company classifies the components of the provision for
uncollectible notes into the following three categories based on the nature of
the item: credit losses, customer returns (cancellations of sales whereby the
customer fails to make the first installment payment), and customer releases
(voluntary cancellations of properly recorded sales transactions which in the
opinion of management is consistent with the maintenance of overall customer
goodwill). The provision for uncollectible notes pertaining to credit losses,
customer returns, and customer releases are classified in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative expenses, respectively.
Inventories -- Inventories are stated at the lower of cost or market value.
Cost includes amounts for land, construction materials, direct labor and
overhead, taxes, and capitalized interest incurred in the construction or
through the acquisition of resort dwellings held for timeshare sale. These costs
are capitalized as inventory and are allocated to Vacation Intervals based upon
their relative sales values. Upon sale of a Vacation Interval, these costs are
charged to cost of sales on a specific identification basis. Vacation Intervals
reacquired are placed back into inventory at the lower of their original
historical cost basis or market value. Company management routinely reviews the
carrying value of its inventory on an individual project basis to determine that
the carrying value does not exceed market value.
Land, Equipment, Buildings, and Utilities -- Land, equipment (including
equipment under capital lease), buildings, and utilities are stated at cost,
which includes amounts for construction materials, direct labor and overhead,
and capitalized interest. When assets are disposed of, the cost and related
accumulated depreciation are removed, and any resulting gain or loss is
reflected in income for the period. Maintenance and repairs are charged to
expense as incurred; significant betterments and renewals, which extend the
useful life of a particular asset, are capitalized. Depreciation is calculated
for all fixed assets, other than land, using the straight-line method over the
estimated useful life of the assets, ranging from 3 to 20 years. Company
management routinely reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Prepaid and Other Assets -- Prepaid and other assets consists primarily of
prepaid booth rental, prepaid insurance, prepaid promotional items, prepaid
postage, intangibles, commitment fees, debt issuance costs, novelty inventories,
deposits, and miscellaneous receivables. Commitment fees and debt issuance costs
are amortized over the life of the related debt. Intangibles are amortized over
their useful lives, which do not exceed ten years.
Income Taxes -- Deferred income taxes are recorded for temporary differences
between the bases of assets and liabilities as recognized by tax laws and their
carrying value as reported in the consolidated financial statements. A provision
is made or benefit recognized for deferred income taxes relating to temporary
differences in the recognition of expense and income for financial reporting
purposes. To the extent a deferred tax asset does not meet the criteria of "more
likely than not" for realization, a valuation
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allowance is recorded.
Earnings Per Share -- Basic earnings per share is computed by dividing net
income by the weighted average shares outstanding. Earnings per share assuming
dilution is computed by dividing net income by the weighted average number of
shares and equivalent shares outstanding. The number of equivalent shares is
computed using the treasury stock method which assumes that the increase in the
number of shares resulting from the exercise of the stock options described in
Note 9 is reduced by the number of shares which could have been repurchased by
the Company with the proceeds from the exercise of the stock options.
The following table illustrates the reconciliation between basic and diluted
weighted average shares outstanding for the years ended December 31, 1997, 1998,
and 1999:
YEARS ENDED
DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
Weighted average shares outstanding - basic ........ 9,767,407 12,633,751 12,889,417
Issuance of shares from stock options exercised .... 321,949 791,392 33,514
Repurchase of shares from stock options proceeds ... (272,537) (742,161) (32,887)
---------- ----------- -----------
Weighted average shares outstanding - diluted ...... 9,816,819 12,682,982 12,890,044
========== =========== ===========
Use of Estimates -- The preparation of the consolidated financial
statements requires the use of management's estimates and assumptions in
determining the carrying values of certain assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts for certain revenues and expenses during the
reporting period. Actual results could differ from those estimated.
Environmental Remediation Costs -- The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipt is deemed probable. Company management is not aware of any
environmental remediation obligations which would materially affect the
operations, financial position, or cash flows of the Company.
Reclassifications -- Certain reclassifications have been made to the 1997
and 1998 consolidated financial statements to conform to the 1999 presentation.
These reclassifications had no effect on net income.
SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000 and will
be adopted for the period beginning January 1, 2001. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The impact of SFAS No. 133 on the Company's results of operations,
financial position, or cash flows will be dependent on the level and types of
derivative instruments the Company will have entered into at the time the
standard is implemented.
3. CONCENTRATIONS OF RISK
Credit Risk -- The Company is exposed to on-balance sheet credit risk
related to its notes receivable. The Company is exposed to off-balance sheet
credit risk related to notes sold under recourse provisions.
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers make a down payment of at least 10% of the
purchase price and deliver a promissory note to the Company for the balance. The
promissory notes generally bear interest at a fixed rate, are payable over a
seven-year to ten-year period, and are secured by a first mortgage on the
Vacation Interval. The Company bears the risk of defaults on these promissory
notes, and this risk is heightened inasmuch as the Company generally does not
verify the credit history of its customers and will provide financing if the
customer is presently employed and meets certain household income criteria.
If a buyer of a Vacation Interval defaults, the Company generally must
foreclose on the Vacation Interval and attempt to resell it; the associated
marketing, selling, and administrative costs from the original sale are not
recovered; and such costs must be incurred again to resell the Vacation
Interval. Although the Company in many cases may have recourse against a
Vacation Interval buyer for
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the unpaid price, certain states have laws which limit the Company's ability to
recover personal judgments against customers who have defaulted on their loans.
Accordingly, the Company has generally not pursued this remedy.
Interest Rate Risk -- The Company has historically derived net interest
income from its financing activities because the interest rates it charges its
customers who finance the purchase of their Vacation Intervals exceed the
interest rates the Company pays to its lenders. Because the Company's
indebtedness bears interest at variable rates and the Company's customer
receivables bear interest at fixed rates, increases in interest rates will erode
the spread in interest rates that the Company has historically obtained and
could cause the rate on the Company's borrowings to exceed the rate at which the
Company provides financing to its customers. The Company has not engaged in
interest rate hedging transactions. Therefore, any increase in interest rates,
particularly if sustained, could have a material adverse effect on the Company's
results of operations, cash flows, and financial position.
Availability of Funding Sources -- The Company funds substantially all of
the notes receivable, timeshare inventories, and land inventories which it
originates or purchases with borrowings through its financing facilities,
internally generated funds, and proceeds from public debt and equity offerings.
Borrowings are in turn repaid with the proceeds received by the Company from
repayments of such notes receivable. To the extent that the Company is not
successful in maintaining or replacing existing financings, it would have to
curtail its operations or sell assets, thereby having a material adverse effect
on the Company's results of operations, cash flows, and financial condition.
Geographic Concentration -- The Company's notes receivable are primarily
originated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk
inherent in such concentrations is dependent upon regional and general economic
stability which affects property values and the financial stability of the
borrowers. The Company's Vacation Interval inventories are concentrated in
Texas, Missouri, Illinois, Massachusetts, and Georgia, with pre-development in
Pennsylvania and Nevada. The risk inherent in such concentrations is in the
continued popularity of the resort destinations, which affects the marketability
of the Company's products and the collection of notes receivable.
4. NOTES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals
which are collateralized by their interest in such Vacation Intervals. The notes
receivable generally have initial terms of seven to ten years. The average yield
on outstanding notes receivable at December 31, 1999 was approximately 13.7%. In
connection with the sampler program, the Company routinely enters into notes
receivable with terms of 10 months. Notes receivable from sampler sales were
$2.4 million and $3.1 million at December 31, 1998 and 1999, respectively, and
are typically non-interest bearing.
In connection with promotional sales to certain customers, the Company
entered into $3.5 million and $3.8 million of non-interest bearing notes
receivable for the years ended December 31, 1998 and 1999, respectively. The
Company calculated a discount of $1.2 million and $1.2 million for these notes
receivable in aggregate as of December 31, 1998 and 1999, respectively,
utilizing a 10% discount rate, which represents the lowest rate offered its
existing customers. Additionally, in 1999, the Company also modified the
interest rate on $7.0 million of certain notes receivable downward to 7.5%,
which will be reinstated to the original interest rate after twelve months. The
company calculated a discount of $198,000 on these notes receivable as of
December 31, 1999.
Notes receivable are scheduled to mature as follows at December 31, 1999
(in thousands):
2000...................................... $ 39,224
2001...................................... 44,919
2002...................................... 51,441
2003...................................... 58,909
2004...................................... 67,463
Thereafter................................ 56,951
---------
318,907
Less allowance for uncollectible notes.... (32,326)
---------
Notes receivable, net........... $ 286,581
=========
There were no notes sold with recourse during the years ended December 31,
1997, 1998, and 1999. Outstanding principal maturities of notes receivable sold
with recourse as of December 31, 1998 and 1999 were $3.8 million and $2.2
million, respectively.
Management considers both pledged and sold-with-recourse notes receivable
in the Company's allowance for uncollectible notes. The activity in the
allowance for uncollectible notes is as follows for the years ended December 31,
1997, 1998, and 1999 (in thousands):
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DECEMBER 31,
---------------------------------
1997 1998 1999
---------- ---------- ----------
Balance, beginning of period................................... $ 9,698 $ 12,621 $ 23,947
Provision for credit losses.................................... 10,524 16,372 19,121
Provision for customer releases charged to operating, general,
and administrative expenses.................................. 1,215 831 1,178
Receivables charged off........................................ (8,816) (5,877) (11,920)
-------- --------- ---------
Balance, end of period......................................... $ 12,621 $ 23,947 $ 32,326
======== ========= =========
5. LAND, EQUIPMENT, BUILDINGS, AND UTILITIES
The Company's land, equipment, buildings, and utilities consist of the
following at December 31, 1998 and 1999 (in thousands):
DECEMBER 31,
-------------------
1998 1999
------- -------
Land................................................. $ 6,689 $ 9,540
Vehicles and equipment............................... 3,703 7,864
Utility plant, buildings, and facilities............. 4,497 8,067
Office equipment and furniture....................... 17,349 27,413
Improvements......................................... 9,827 11,186
------- -------
42,065 64,070
Less accumulated depreciation........................ (8,040) (13,020)
------- -------
Land, equipment, buildings, and utilities, net....... $34,025 $51,050
======= =======
Depreciation and amortization expense for the years ended December 31,
1997, 1998, and 1999 was $1.5 million, $3.3 million, and $5.6 million,
respectively, which included amortization expense related to intangible assets
included in prepaid and other assets of $0, $179,000, and $311,000 in 1997,
1998, and 1999, respectively.
6. INCOME TAXES
Income tax expense consists of the following components for the years ended
December 31, 1997, 1998, and 1999 (in thousands):
1997 1998 1999
------- ------- ------
Current income tax expense................ $ 1,500 $ 3,945 $ 5,345
Deferred income tax expense............... 5,524 7,487 6,727
------- ------- -------
Total income tax expense........ $ 7,024 $11,432 $12,072
======= ======= =======
A reconciliation of income tax expense on reported pretax income at
statutory rates to actual income tax expense for the years ended December 31,
1997, 1998, and 1999 is as follows (in thousands):
1997 1998 1999
------------------ ---------------- ---------------
DOLLARS RATE DOLLARS RATE DOLLARS RATE
------- ------ ------- ---- ------- ----
Income tax expense at statutory rates... $ 6,454 34.0% $10,434 35.0% $10,975 35.0%
State income taxes, net of Federal
income tax benefit.................... 570 3.0% 998 3.4% 1,097 3.5%
------- ------ ------- ---- ------- ----
Total income tax expense...... $ 7,024 37.0% $11,432 38.4% $12,072 38.5%
======= ====== ======= ==== ======= =====
Deferred income tax assets and liabilities as of December 31, 1998 and 1999
are as follows (in thousands):
1998 1999
-------- -------
Deferred tax liabilities:
Installment sales income................ $ 58,993 $86,718
Deferred tax assets:
Net operating loss carryforward......... 32,162 46,808
Alternative minimum tax credit.......... 5,417 10,710
Other................................... (110) 949
-------- -------
Total deferred tax assets....... 37,469 58,467
-------- -------
Net deferred tax liability...... $ 21,524 $28,251
======== =======
The Company reports substantially all Vacation Interval sales which it
finances on the installment method for federal income tax purposes. Under the
installment method, the Company does not recognize income on sales of Vacation
Intervals until the down payment or installment payment on customer receivables
are received by the Company. Interest is imposed, however, on the amount of tax
attributable to the installment payments for the period beginning on the date of
sale and ending on the date the related tax is paid. If the Company is otherwise
not subject to tax in a particular year, no interest is imposed since the
interest is based on the
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amount of tax paid in that year. The consolidated financial statements do not
contain an accrual for any interest expense which would be paid on the deferred
taxes related to the installment method. The amount of interest expense is not
estimable as of December 31, 1999.
The Company is subject to Alternative Minimum Tax ("AMT") as a result of
the deferred income which results from the installment sales treatment of
Vacation Interval sales for regular tax purposes. The current AMT payable
balance was adjusted in 1997 to reflect the change in method of accounting for
installment sales under AMT granted by the Internal Revenue Service, effective
as of January 1, 1997. As a result, the Company's alternative minimum taxable
income for 1997 through 2000 was or will be increased each year by approximately
$9 million, which results in the Company paying substantial additional federal
and state taxes in those years. The AMT liability creates a deferred tax asset
which can be used to offset any future tax liability from regular federal income
tax. This deferred tax asset has an unlimited carryover period.
The net operating losses ("NOL") expire between 2007 through 2019.
Realization of the deferred tax assets arising from net operating losses is
dependent on generating sufficient taxable income prior to the expiration of the
loss carryforwards. Management believes that it will be able to utilize its net
operating losses from normal operations. In the event an ownership change should
occur which could limit the utilization of the NOL, the Company could implement
a strategy to accelerate income recognition for federal income tax purposes to
utilize the existing NOL. The amount of the deferred tax asset considered
realizable could be decreased if estimates of future taxable income during the
carryforward period are reduced.
The following are the expiration dates and the approximate net operating
loss carryforwards at December 31, 1999 (in thousands):
EXPIRATION DATES
----------------
2007...................................... $ 315
2008...................................... --
2009...................................... 1,385
2010...................................... 5,353
2011...................................... 4,230
2012...................................... 19,351
2018...................................... 36,421
2019...................................... 54,352
--------
$121,407
========
7. DEBT
Loans, notes payable, capital lease obligations, and senior subordinated
notes as of December 31, 1998 and 1999 (in thousands):
1998 1999
-------- --------
$60 million revolving loan agreement, which contains certain financial covenants,
due December 2000, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
LIBOR plus 2.55% ....................................................................... $ 11,210 $ 39,623
$70 million revolving loan agreement, capacity reduced by amounts outstanding
under the $10 million inventory loan agreement, which contains certain financial
covenants, due August 2004, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note, at an
interest rate of LIBOR plus 2.65% ...................................................... 29,856 45,680
$75 million revolving loan agreement, which contains certain financial covenants,
due April 2005, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
LIBOR plus 3.00% ....................................................................... 13,638 62,215
$75 million revolving loan agreement, which contains certain financial covenants,
due November 2005, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
LIBOR plus 2.67% ....................................................................... -- 14,150
$30 million revolving loan agreement, which contains certain financial covenants,
due September 2006, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
Prime .................................................................................. -- 6,678
$10 million inventory loan agreement, which contains certain financial covenants,
due August 2002, interest payable monthly, at an interest rate of LIBOR plus
3.50% .................................................................................. -- 9,937
Various notes, due from April 2000 through November 2009, collateralized
by various assets with interest rates ranging from 4.2% to 14.0% ....................... 223 4,088
-------- --------
Total notes payable ................................................................. 54,927 182,371
Capital lease obligations .................................................................. 3,181 11,800
-------- --------
Total notes payable and capital lease obligations ................................... 58,108 194,171
10 1/2% senior subordinated notes, due 2008, interest payable semiannually on April
1 and October 1, guaranteed by all of the Company's present and future domestic
restricted subsidiaries ................................................................ 75,000 75,000
-------- --------
Total ............................................................................... $133,108 $269,171
======== ========
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At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the Prime
rate was 8.50%.
Effective March 31, 1999, the Company reached a definitive agreement with a
lender to increase its $15 million revolving loan agreement, expiring in
November 2002, to a $75 million two-year revolving loan agreement, due April
2005. The credit facility is based on an 85% advance rate against receivables
compared to the previous advance rate of 70%. Additionally, the interest rate on
the amended credit facility improved to LIBOR plus 3% from Prime plus 2%.
Effective September 1, 1999, the Company reached a definitive agreement
with a lender to increase its $40 million revolving loan agreement, due October
2005, to a $70 million five-year revolving loan agreement, due August 2004. The
credit facility is based on an 85% advance rate against receivables compared to
the previous advance rate of 70%. The interest rate on the amended credit
facility is LIBOR plus 2.65% compared to the previous interest rate of LIBOR
plus 2.5%.
Effective September 30, 1999, the Company entered into a $30 million
revolving loan agreement with a lender. The $30 million revolving loan agreement
is due September 30, 2006, and bears interest at Prime. The credit facility is
based on an 85% advance rate against receivables. Principal and interest are
paid from the proceeds obtained from customer notes receivable pledged as
collateral for the note.
Effective December 16, 1999, the Company entered into a $75 million
revolving loan agreement with a lender. The $75 million revolving loan agreement
is due November 30, 2005, and bears interest at LIBOR plus 2.67%. The credit
facility is based on an 85% advance rate against receivables. Principal and
interest are paid from the proceeds obtained from customer notes receivable
pledged as collateral for the note.
Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain covenants including requirements that the Company
(i) preserve and maintain the collateral securing the loans; (ii) pay all taxes
and other obligations relating to the collateral; and (iii) refrain from selling
or transferring the collateral or permitting any encumbrances on the collateral.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
the assets of the Company, a merger, consolidation, or reorganization of the
Company, or other changes of control of the ownership of the Company, would
constitute an event of default and permit the lenders to accelerate the maturity
thereof.
Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (ii) maintain its legal
existence and be in good standing in any jurisdiction where it conducts
business; (iii) remain in the active management of the Resorts; and (iv) refrain
from modifying or terminating certain timeshare documents. The credit facilities
also include customary events of default, including, without limitation (i)
failure to pay principal, interest, or fees when due, (ii) untruth of any
representation of warranty, (iii) failure to perform or timely observe
covenants, (iv) defaults under other indebtedness, and (v) bankruptcy.
Principal maturities of loans, notes payable, capital lease obligations,
and senior subordinated notes are as follows at December 31, 1999 (in
thousands):
2000............................ $ 68,441
2001............................ 30,928
2002............................ 29,729
2003............................ 27,855
2004............................ 25,713
Thereafter...................... 86,505
--------
Total................. $269,171
========
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Total interest expense for the years ended December 31, 1997, 1998, and
1999 was $4.7 million, $7.1 million, and $16.8 million, respectively. Interest
of $823,000, $2.7 million, and $2.7 million was capitalized during the years
ended 1997, 1998, and 1999, respectively.
As of December 31, 1999, approximately $234.2 million of assets of the
Company were pledged as collateral.
8. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to litigation arising in the normal course
of its business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters. Litigation has been initiated
from time to time by persons seeking individual recoveries for themselves, as
well as, in some instances, persons seeking recoveries on behalf of an alleged
class. In the judgment of the Company, none of these lawsuits or claims against
the Company, either individually or in the aggregate, is likely to have a
material adverse effect on the Company, its business, results of operations, or
financial condition.
Prior to 1996, the Company sold certain of its notes receivable with
recourse to third parties and affiliated parties. The Company has a contingent
liability for the notes receivable sold with recourse. The total amount of the
contingent liability was equal to the uncollected balance of the notes as of
December 31, 1999. The Company's management considers all notes receivable,
including those sold with recourse, in the Company's allowance for uncollectible
notes.
The Company has entered into noncancelable operating leases covering office
and storage facilities and equipment which will expire at various dates through
2004. The total rental expense incurred during the years ended December 31,
1997, 1998, and 1999 was $2.0 million, $4.8 million, and $8.0 million,
respectively. The Company has also acquired equipment by entering into capital
leases. The future minimum annual commitments for the noncancelable lease
agreements are as follows at December 31, 1999 (in thousands):
CAPITAL OPERATING
LEASES LEASES
------- ---------
2000............................................... $ 5,304 $ 2,638
2001............................................... 4,899 2,193
2002............................................... 2,293 1,729
2003............................................... 844 212
2004............................................... 270 23
------- --------
Total minimum future lease payments................ 13,610 $ 6,795
========
Less amounts representing interest................. (1,810)
-------
Present value of future minimum lease payments..... $11,800
=======
Equipment acquired under capital leases consists of the following at
December 31, 1998 and 1999 (in thousands):
1998 1999
------- -------
Amount of equipment under capital leases............... $ 3,627 $13,352
Less accumulated depreciation.......................... (862) (3,263)
------- -------
$ 2,765 $10,089
======= =======
Periodically, the Company enters into employment agreements with certain
executive officers which provide for minimum annual base salaries and other
fringe benefits as determined by the Board of Directors of the Company. Certain
of these agreements provide for bonuses based on the Company's operating
results. The agreements are for varying terms of up to three years and typically
can be terminated by either party upon 30 days notice.
Certain employment agreements provide that such person will not directly or
indirectly compete with the Company in any county in which it conducts its
business or markets its products for a period of two years following the
termination of the agreement. These agreements also provide that such persons
will not influence any employee or independent contractor to terminate its
relationship with the Company or disclose any confidential information of the
Company.
As of December 31, 1999, the Company had construction commitments of
approximately $30.8 million.
9. EQUITY
In June 1997, the Company completed its initial public offering of
3,600,000 shares of common stock at $16.00 per share (the
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"IPO"). Costs incurred in connection with the IPO were approximately $6.5
million. Net proceeds were used primarily for the repayment of amounts owed to
affiliates and notes payable to third parties.
Effective April 3, 1998, the Company completed the sale of 2,000,000 shares
of Company common stock at a price of $24.375 per share. On the same date, the
majority shareholder of the Company sold 875,000 additional shares of Company
common stock to the public.
Also effective April 3, 1998, the placement of $75 million aggregate
principal amount of 10 1/2% senior subordinated notes due 2008 ("Senior
Subordinated Notes") was completed by the Company. The Senior Subordinated Notes
are general unsecured obligations of the Company, ranking subordinate in right
of payment to all senior indebtedness of the Company, including indebtedness
under the Company's revolving credit facilities. The Company received proceeds
from these two offerings in an aggregate net amount of $118.9 million. Costs
incurred in connection with the offerings were approximately $4.4 million. The
Company has utilized the proceeds primarily for the repayment of notes payable
and capital lease obligations, and its construction and acquisition programs.
During 1997, the Company established a stock option plan (the "1997 Stock
Option Plan"). The 1997 Stock Option Plan provides for the award of nonqualified
stock options to directors, officers, and key employees, and the grant of
incentive stock options to salaried key employees. Nonqualified stock options
provide for the right to purchase common stock at a specified price which may be
less than or equal to fair market value on the date of grant (but not less than
par value). Nonqualified stock options may be granted for any term and upon such
conditions determined by the board of directors of the Company. The Company has
reserved 1,600,000 shares of common stock for issuance pursuant to the Company's
1997 Stock Option Plan.
Outstanding options have a graded vesting schedule, with equal installments
of shares vesting up through four years from the original grant date. These
options are exercisable at prices ranging from $7.31 to $25.50 per share and
expire 10 years from the date of grant.
Stock option transactions during 1997, 1998, and 1999 are summarized as
follows:
1997 1998 1999
-------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE PER SHARE OF SHARES PRICE PER SHARE OF SHARES PRICE PER SHARE
--------- --------------- ---------- --------------- ---------- ---------------
Options outstanding, beginning of year ... -- -- 863,000 $17.93 1,280,000 $17.63
Granted .................................. 877,000 $17.90 685,000 $19.19 295,500 $ 7.58
Exercised ................................ -- -- -- -- -- --
Forfeited ................................ (14,000) $16.00 (268,000) $22.58 (98,500) $17.65
-------- ------ ---------- ------ ---------- ------
Options outstanding, end of year ......... 863,000 $17.93 1,280,000 $17.63 1,477,000 $15.64
======== ====== ========== ====== ========== ======
Exercisable, end of year ................. -- -- 215,750 $17.93 471,125 $17.46
======== ====== ========== ====== ========== ======
For stock options outstanding at December 31, 1999:
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER FAIR VALUE EXERCISE REMAINING
RANGE OF EXERCISE PRICES OF SHARES PER OPTION PRICE PER SHARE LIFE IN YEARS
------------------------ --------- ---------- --------------- -------------
$7.31 - $25.50 ......... 1,477,000 $10.23 $15.64 8.7
The Company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS
No. 123"). The Company applies the accounting methods of Accounting Principles
Board Opinion No. 25 ("APB No. 25") and related Interpretations in accounting
for its stock options. Accordingly, no compensation costs have been recognized
for the stock options. Had compensation costs for the options been determined
based on the fair value at the grant date for the awards in 1997, 1998, and 1999
consistent with the provisions of SFAS No. 123, the Company's net income and net
income per share would approximate the pro forma amounts indicated below (in
thousands, except per share amounts):
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------- ------------- ------------
Net income-- as reported............................... $11,960 $18,378 $19,284
Net income-- pro forma................................. 11,404 16,374 17,448
Net income per share-- as reported:
Basic and diluted.................................... 1.22 1.45 1.50
Net income per share-- pro forma:
Basic................................................ 1.17 1.30 1.35
Diluted.............................................. 1.16 1.29 1.35
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The weighted average fair value per common stock option granted during
1997, 1998, and 1999 were $11.51, $12.06, and $10.23, respectively. The fair
value of the stock options granted are estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility ranging from 56.5% to 69.6% for all grants,
risk-free interest rates which vary for each grant and range from 5.5% to 6.5%,
expected life of 7 years for all grants, and no distribution yield for all
grants.
10. RELATED PARTY TRANSACTIONS
Each timeshare owners association has entered into a management agreement,
which authorizes the Management Clubs to manage the resorts on a centralized and
collective basis. The Management Clubs, in turn, have entered into management
agreements with the Company, whereby the Company manages the operations of the
resorts. Pursuant to the management agreements, the Company receives a
management fee equal to the lesser of 15% of gross revenues for Silverleaf Club
and 10% to 15% of dues collected for owners associations within Crown Club or
the net income of each Management Club; however, if the Company does not receive
the aforementioned maximum fee, such deficiency is deferred for payment in the
succeeding year(s), subject again to the net income limitation. The Silverleaf
Club Management Agreement is effective through March 2010, and will continue
year-to-year thereafter unless cancelled by either party. Crown Club consists of
several individual Club agreements which have terms of two to five years with a
minimum of two renewal options remaining. During the years ending December 31,
1997, 1998, and 1999, the Company recorded management fees of $2.3 million, $2.5
million, and $2.8 million, respectively, in management fee income.
The direct expenses of operating the resorts are paid by the Management
Clubs. To the extent the Management Clubs provide payroll, administrative, and
other services that directly benefit the Company, a separate allocation charge
is generated and paid by the Company to the Management Clubs. During the years
ended December 31, 1997, 1998, and 1999, the Company incurred $2.6 million, $5.8
million, and $10.3 million, respectively, of expenses under these agreements. At
December 31, 1998 and 1999, the net receivable from the Management Clubs totaled
$4.1 million and $6.6 million, respectively. The amounts are included in amounts
due from affiliates.
The following schedule represents amounts due from affiliates at December
31, 1998 and 1999 (in thousands):
DECEMBER 31,
------------------
1998 1999
------- --------
Timeshare owners associations and other, net.......... $ (33) $ 202
Amount due from Silverleaf Club....................... 3,784 5,896
Amount due from Crown Club............................ 364 498
------- -------
Total amounts due from affiliates........... $ 4,115 $ 6,596
======= =======
During 1997 and 1998, the Company incurred and made payments to
Recreational Consultants, Inc., an entity of which an officer of the Company is
the principal, of $302,000 and $736,000, respectively.
In September 1997, the Company sold to the principal shareholder the
Company's interest in a condominium and a residential dwelling for $508,000,
which exceeded the Company's carrying value of approximately $450,000.
In 1997, the Company entered into a ten-year lease agreement with the
principal shareholder for personal use of flood plain land adjacent to one of
the Company's resorts in exchange for an annual payment equal to the property
taxes attributable to the land.
In August 1997, subject to an employment agreement with an officer, the
Company purchased a house for $531,000 and leased the house, with an option to
purchase, to the officer for 13 months at a rental rate equal to the Company's
expense for interest, insurance, and taxes, which was approximately $3,000 per
month. In September 1998, the officer exercised his option to purchase the house
at the end of the lease for $531,000. The Company holds a second lien on the
house for $44,000, which is still owed to the Company by the officer at 8% per
annum.
In February 1998, the Company paid $250,000 for all of the outstanding
stock of a marketing company, the President and sole shareholder of which
simultaneously became an employee of the Company.
In June 1998, the Company entered an employment agreement, whereby the
Company paid $108,000 for an employee's
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condominium in Branson, Missouri, upon his relocation to Dallas, Texas, and will
pay $500,000 over a three-year period as compensation for and in consideration
of the exclusivity of his services. Prior to becoming an employee in June 1998,
the Company paid this employee's former architectural firm $401,000 and
$246,000, during 1997 and 1998, respectively, for architectural services
rendered to the Company.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, other receivables, amounts
due from or to affiliates, and accounts payable and accrued expenses
approximates fair value due to the relatively short-term nature of the financial
instruments. The carrying value of the notes receivable approximates fair value
because the weighted average interest rate on the portfolio of notes receivable
approximates current interest rates to be received on similar current notes
receivable. The carrying value of loans, notes payable, and capital lease
obligations approximates their fair value because the interest rates on these
instruments are adjustable or approximate current interest rates charged on
similar current borrowings. The estimated fair value of the Company's $75
million Senior Subordinated Notes is approximately $50 million. However, these
notes are not traded on a regular basis and are therefore subject to large
variances in offer prices. Accordingly, the estimated fair value may not be
indicative of the amount at which a transaction could be completed. In general,
the estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
12. ACQUISITIONS
In May 1998, the Company consummated an agreement with Crown Resort Co.,
LLC ("Crown") acquiring timeshare management rights and unsold Vacation
Intervals at seven resorts in Alabama, Mississippi, Pennsylvania, South
Carolina, Tennessee, and Texas for approximately $4.8 million. The acquisition
was accounted for under the purchase method of accounting.
In 1998, the Company acquired a golf course and undeveloped land near
Atlanta, Georgia, for approximately $4.2 million, undeveloped land near Kansas
City, Missouri, for approximately $1.5 million, and a tract of land in
Philadelphia, Pennsylvania, for approximately $1.9 million. The Company has
developed or intends to develop all three properties as Drive-to Resorts. These
acquisitions are accounted for under the purchase method of accounting.
In 1999, the Company acquired undeveloped land near The Villages Resort in
Tyler, Texas, for approximately $1.5 million, undeveloped land near Holiday
Hills Resort in Branson, Missouri, for approximately $500,000, and undeveloped
land near Fox River Resort in Sheridan, Illinois, for approximately $805,000.
13. SUBSIDIARY GUARANTEES
All subsidiaries of the Company have guaranteed the $75.0 million of Senior
Subordinated Notes (see Note 9). The separate financial statements and other
disclosures concerning each guaranteeing subsidiary (each, a "Guarantor
Subsidiary") are not presented herein because management had determined that
such information is not material to investors. The guarantee of each Guarantor
Subsidiary is full and unconditional and joint and several, and each Guarantor
Subsidiary is a wholly owned subsidiary of the Company, and together comprise
all direct and indirect subsidiaries of the Company. During the second quarter
of 1998, the Company liquidated several subsidiaries with nominal operations.
Combined summarized operating results of the Guarantor Subsidiaries for the
years ended December 31, 1997, 1998, and 1999 are as follows (in thousands):
1997 1998 1999
----- ----- ----
Revenues................................................. $ 407 $ 135 $ 56
Expenses................................................. (547) (488) (89)
----- ----- ----
Loss from continuing operations, before income taxes..... $(140) $(353) $(33)
Income taxes............................................. 52 136 13
----- ----- ----
Net loss................................................. $ (88) $(217) $(20)
===== ===== ====
Combined summarized balance sheet information of the Guarantor Subsidiaries
as of December 31, 1998 and 1999 is as follows (in thousands):
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1998 1999
---- ----
Land, equipment, inventories, and utilities, net ........... $ 8 $ --
Other assets ............................................... 34 10
---- ----
Total assets ..................................... $ 42 $ 10
==== ====
Investment by parent (includes equity and amounts due to
parent) .................................................. $ 40 $ 10
Other liabilities .......................................... 2 --
---- ----
Total liabilities and equity ..................... $ 42 $ 10
==== ====
14. 401(k) PLAN
Effective January 1, 1999, the Company established the Silverleaf Resorts,
Inc. 401(k) plan (the "Plan"), a qualified defined contribution retirement plan,
covering employees 21 years of age or older who have completed one year of
service. The Plan allows eligible employees to defer receipt of up to 15% of
their compensation and contribute such amounts to various investment funds. The
employee contributions vest immediately. The Company is not required by the Plan
to match employee contributions, however, may do so on a discretionary basis.
The Company incurred nominal administrative costs related to maintaining the
Plan during the year ended December 31, 1999.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results
of operations for 1999 and 1998 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
Total revenues
1999 ................................... $ 49,080 $ 56,374 $ 61,534 $63,770
======== ======== ======== =======
1998 ................................... $ 31,029 $ 43,161 $ 45,219 $41,346
======== ======== ======== =======
Total costs and operating expenses
1999 ................................... $ 41,195 $ 47,469 $ 52,710 $58,028
======== ======== ======== =======
1998 ................................... $ 25,257 $ 34,275 $ 36,364 $35,049
======== ======== ======== =======
Income before provision for income taxes
1999 ................................... $ 7,885 $ 8,905 $ 8,824 $ 5,742
======== ======== ======== =======
1998 ................................... $ 5,772 $ 8,887 $ 8,854 $ 6,297
======== ======== ======== =======
Net income
1999 ................................... $ 4,849 $ 5,477 $ 5,427 $ 3,531
======== ======== ======== =======
1998 ................................... $ 3,574 $ 5,500 $ 5,420 $ 3,884
======== ======== ======== =======
Earnings per common share (basic)
1999 ................................... $ 0.38 $ 0.42 $ 0.42 $ 0.27
======== ======== ======== =======
1998 ................................... $ 0.32 $ 0.42 $ 0.42 $ 0.30
======== ======== ======== =======
Earnings per common share (diluted)
1999 ................................... $ 0.38 $ 0.42 $ 0.42 $ 0.27
======== ======== ======== =======
1998 ................................... $ 0.31 $ 0.41 $ 0.42 $ 0.30
======== ======== ======== =======
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INDEX TO EXHIBITS
(a) The following documents are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.2 to Registrant's Form 10-K for
year ended December 31, 1997).
4.1 -- Form of Stock Certificate of Registrant (incorporated by
reference to Exhibit 4.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
4.2 -- Indenture dated April 1, 1998, between the Company and
Norwest Bank Minnesota, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to Registrant's
Form 10-Q for quarter ended March 31, 1998).
4.3 -- Certificate No. 001 of 101/2% Senior Subordinated Notes
due 2008 in the amount of $75,000,000 (incorporated by
reference to Exhibit 4.2 to Registrant's Form 10-Q for
quarter ended March 31, 1998).
4.4 -- Subsidiary Guarantee dated April 8, 1998 by Silverleaf
Berkshires, Inc.; Bull's Eye Marketing, Inc.; Silverleaf
Resort Acquisitions, Inc.; Silverleaf Travel, Inc.;
Database Research, Inc.; and Villages Land, Inc.
(incorporated by reference to Exhibit 4.3 to Registrant's
Form 10-Q for the quarter ended March 31, 1998).
*9.1 -- Voting Trust Agreement dated November 1, 1999 between
Robert E. Mead and Judith F. Mead.
10.1 -- Form of Registration Rights Agreement between Registrant
and Robert E. Mead (incorporated by reference to Exhibit
10.1 to Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.2.1 -- Employment Agreement between Registrant and Thomas Franks
(incorporated by reference to Exhibit 10.6 to Registrant's
Form 10-Q for quarter ended September 30, 1997).
10.2.2 -- Memorandum Agreement, dated August 21, 1997, between
Registrant and Thomas C. Franks (incorporated by reference
to Exhibit 10.7 to Registrant's Form 10-Q for quarter
ended September 30, 1997).
10.2.3 -- Employment Agreement, dated January 16, 1998, between
Registrant and Allen L. Hudson (incorporated by reference
to Exhibit 10.2.6 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.2.4 -- Employment Agreement, dated January 20, 1998, between
Registrant And Jim Oestreich (incorporated by reference to
Exhibit 10.2.7 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.2.5 -- Employment Agreement with Harry J. White, Jr.
(incorporated by Reference to Exhibit 10.1 to Registrant's
Form 10-Q for quarter ended June 30, 1998).
10.2.6 -- Amendment to Employment Agreement with Sharon K. Brayfield
(incorporated by reference to Exhibit 10.2 to Registrant's
Form 10-Q For quarter ended June 30, 1998).
10.2.7 -- First Amendment dated June 12, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.7 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.8 -- Second Amendment dated September 29, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.8 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.9 -- First Amendment dated August 31, 1998, to Employment
Agreement with David T. O'Connor (incorporated by
reference to Exhibit 10.10 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.3 -- 1997 Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.4 -- Silverleaf Club Agreement between the Silverleaf Club and
the resort clubs named therein (incorporated by reference
to Exhibit 10.4 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.5 -- Management Agreement between Registrant and the Silverleaf
Club (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.6 -- Revolving Loan and Security Agreement, dated October 1996,
by CS First Boston Mortgage Capital Corp. ("CSFBMCC") and
Silverleaf Vacation Club, Inc. (incorporated by reference
to Exhibit 10.6 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
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10.7 -- Amendment No. 1 to Revolving Loan and Security Agreement,
dated November 8, 1996, between CSFBMCC and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.8 -- Loan and Security Agreement among Textron Financial
Corporation ("Textron"), Ascension Resorts, Ltd. and
Ascension Capital Corporation, dated August 15, 1995
(incorporated by reference to Exhibit 10.9 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.9 -- First Amendment to Loan and Security Agreement, dated
December 28, 1995, between Textron and Silverleaf Vacation
Club, Inc. (incorporated by reference to Exhibit 10.10 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.10 -- Second Amendment to Loan and Security Agreement, dated
October 31, 1996, executed by Textron and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.11 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.11 -- Loan and Security Agreement, dated December 27, 1995,
executed by Ascension Resorts, Ltd. and Heller
(incorporated by reference to Exhibit 10.13 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.12 -- Amendment to Restated and Amended Loan and Security
Agreement, dated August 15, 1996, between Heller and
Silverleaf Vacation Club, Inc. (incorporated by reference
to Exhibit 10.14 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.13 -- Form of Indemnification Agreement (between Registrant and
all officers, directors, and proposed directors)
(incorporated by reference to Exhibit 10.18 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.14 -- Resort Affiliation and Owners Association Agreement
between Resort Condominiums International, Inc., Ascension
Resorts, Ltd., and Hill Country Resort Condoshare Club,
dated July 29, 1995 (similar agreements for all other
Existing Resorts) (incorporated by reference to Exhibit
10.19 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.15 -- First Amendment to Silverleaf Club Agreement, dated March
28, 1990, among Silverleaf Club, Ozark Mountain Resort
Club, Holiday Hills Resort Club, the Holly Lake Club, The
Villages Condoshare Association, The Villages Club, Piney
Shores Club, and Hill Country Resort Condoshare Club
(incorporated by reference to Exhibit 10.22 to Amendment
No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.16 -- First Amendment to Management Agreement, dated January 1,
1993, between Master Endless Escape Club and Ascension
Resorts, Ltd. (incorporated by reference to Exhibit 10.23
to Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.17 -- Contract of Sale, dated May 2, 1997, between Registrant
and third-party (incorporated by reference to Exhibit
10.24 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.18 -- Amendment to Loan Documents, dated December 27, 1996,
among Silverleaf Vacation Club, Inc., Ascension Resorts,
Ltd., and Heller Financial, Inc. (incorporated by
reference to Exhibit 10.25 to Amendment No. 1 dated May
16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.19 -- Second Amendment to Restated and Amended Loan and Security
Agreement between Heller Financial, Inc. and Registrant
($40 million revolving credit facility) (incorporated by
reference to Exhibit 10.4 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.20 -- Silverleaf Club Agreement dated September 25, 1997,
between Registrant and Timber Creek Resort Club
(incorporated by reference to Exhibit 10.13 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.21 -- Second Amendment to Management Agreement, dated December
31, 1997, between Silverleaf Club and Registrant
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year Ended
December 31, 1997).
10.22 -- Silverleaf Club Agreement, dated January 5, 1998, between
Silverleaf Club And Oak N' Spruce Resort Club
(incorporated by reference to Exhibit 10.34 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
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10.23 -- Master Club Agreement, dated November 13, 1997, between
Master Club and Fox River Resort Club (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997).
10.24 -- Letter Agreement dated March 16, 1998, between the Company
and Heller Financial, Inc. (incorporated by reference to
Exhibit 10.44 to Amendment No. 1 to Form S-1, File No.
333-47427 filed March 16, 1998).
10.25 -- Bill of Sale and Blanket Assignment dated May 28, 1998,
between the Company and Crown Resort Co., LLC
(incorporated by reference to Exhibit 10.6 to Registrant's
Form 10-Q for quarter ended June 30, 1998).
10.26 -- Contract of Sale by and between Terry Adair and George R.
Bedell, as Trustee, dated March 27, 1998 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.27 -- Contract of Sale by and between Great Atlanta's Properties
Corp. and George R. Bedell, as Trustee, dated August 12,
1998 (incorporated by reference to Registrant's Form 10-Q
for quarter ended September 30, 1998).
10.28 -- Contract of Sale, dated February 25, 1998 (as amended in
October 1998), by and between the Company and J. Phillip
Ballard, Jr. and Eagle Greens Ltd., f/k/a Northeast
Georgia Recreational Development Co., Inc. (incorporated
by reference to Exhibit 10.3 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.29 -- Amendment to Contract of Sale, dated October 14, 1998, by
and between the Company and J. Phillip Ballard, Jr. and
Eagle Greens, Ltd., f/k/a Northeast Georgia Recreational
Development Co., Inc. (incorporated by reference to
Exhibit 10.4 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.30 -- Second Amendment to Contract of Sale, dated October 14,
1998, by and between the Company and J. Phillip Ballard,
Jr. and Eagle Greens Ltd., f/k/a Northeast Georgia
Recreational Development Co., Inc. (incorporated by
reference to Exhibit 10.5 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.31 -- Management Agreement dated October 13, 1998, by and
between the Company and Eagle Greens, Ltd. (incorporated
by reference to Exhibit 10.6 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.32 -- One to Four Family Residential Contract (Resale) between
the Company and Thomas C. Franks, dated July 30, 1998
(incorporated by reference to Exhibit 10.12 to
Registrant's Form 10-Q for quarter ended September 30,
1998).
10.33 -- Contract of Sale dated April 28, 1998, by and between
Beech Mountain Lakes Corp. and the Company.
10.34 -- Amendment to Contract of Sale dated November 24, 1998, by
and between Beech Mountain Lakes Corp. and the Company.
10.35 -- Contract of Sale dated September 30, 1998, by and between
National American Corp. and the Company.
10.36 -- First Amendment to 1997 Stock Option Plan for Silverleaf
Resorts, Inc., effective as of May 20, 1998 (incorporated
by reference to Exhibit 4.1 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.37 -- Contract of Sale dated August 5, 1998, among David M.
Fender and Jane M. Fender ("Seller") and George R. Bedell
("Purchaser") (incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q for the quarter ended March 31,
1999).
10.38 -- Third Amendment to Loan and Security Agreement dated as of
March 31, 1999, between the Company and Textron Financial
Corporation (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended March 31,
1999).
10.39 -- Amended and Restated Receivables Loan and Security
Agreement dated September 1, 1999, between the Company and
Heller Financial, Inc. (incorporated by reference to
Exhibit 10.1 to Registrant's Form 10-Q for the quarter
ended September 30, 1999).
10.40 -- Amended and Restated Inventory Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.2
to Registrant's Form 10-Q for the quarter ended September
30, 1999).
10.41 -- Loan and Security Agreement dated September 30, 1999,
between the Company and BankBoston, N.A., as Agent, and
BankBoston, N.A. and various financial institutions, as
Lenders (incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for the quarter ended September 30,
1999).
10.42 -- Purchase and Sale Agreement dated July 30, 1999, between
the Company and American National Bank and Trust Company
of Chicago, as Trustee (incorporated by reference to
Exhibit 10.4 to Registrant's Form 10-Q for the quarter
ended September 30, 1999).
*10.43 -- Fourth Amendment to Loan and Security Agreement dated as
of December 16, 1999 between the Company and Textron
Financial Corporation.
*10.44 -- Loan and Security Agreement dated as of December 16, 1999
between the Company and Textron Financial Corporation.
*10.45 -- Loan, Security and Agency Agreement dated as of December
16, 1999 between the Company and Textron Financial
Corporation.
*10.46 -- Second Amendment to 1997 Stock Option Plan, dated November
19, 1999.
*10.47 -- Eighth Amendment to Management Agreement, dated March 9,
1999, between the Registrant and the Silverleaf Club.
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*12.1 -- Statement concerning computation of ratios of earnings to
fixed charges
*21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
*27.1 -- Financial Data Schedule.
- ------------
* Filed herewith
(b) No reports on Form 8-K were filed by the Company during the
three-month period ended December 31, 1999.
(c) The exhibits required by Item 601 of Regulation S-K have been listed
above.
(d) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the consolidated financial statements or the
notes thereto.
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